Bank Reconciliation

Accounting software, Small business accounting software

Bank reconciliation is a process of comparing company’s own financial record with bank record to maintain the accurate figure.

Bank reconciliation is very necessary as it helps to avoid any overdraft payments, duplicate charges etc. Double entry bookkeeping is one way to perform reconciliation. Bank reconciliation needs to be prepared for every month. Bank reconciliation is a way of finding errors in bank account and company’s ledger account.

Endowment Fund

Endowment fund is always held by a non-profit organization as invested capital in this fund need to use for only non-profit works. In endowment fund the principal amount must be retained and earnings from this fund only can use for operational works.

This fund integrated with non-profit organizations like collage, universities, NGO, hospitals, church etc.

Liquidity Ratio

Liquidity ratio measures the ability of a company to pay its current and long term liabilities. It’s the easiest way to know how much fund a company can raise and how much asset can convert into cash?

Liquidity ratio can be categorized into various types such as: Acid ratio, Cash ratio & current ration. 

Acid Ratio:  Acid ratio also called as quick ratio. Acid ration defines the ability of a company to meet its current and short term obligations with the use of its most liquid assets.

Calculation method:   Cash & cash equivalents + Accounts receivable + Short term investments / Current liabilities

Accounting Period

 

 

It’s the period for which financial statements prepared of an entity. One accounting period consists of 12 months. This time period can be from January to December (calendar year) or April to March (Fiscal Year).

Accounting period varies according to type of business. For example, if a business set forth on February 12 then its first accounting period would be from February 12 to February 28/ 29.

Again, if a business shut down on March 25 then its final accounting period would be from March 1 to March 25.  Accounting period pertain to only income and cash flow statements as balance sheet prepared on a specific date.

 

 

Dividends

Dividend is the share of profits of a company / entity with shareholders. After paying to its creditors company can share some or whole profit with its shareholders. Company can also skip paying dividends if it needs funds for reinvestment or any other business work.  Company also can decide the date and rate for dividend pay. Normally, dividend paid quarterly and monthly.

 

Decentralization

Decentralization refers to the delegation of the decision making and other powers of higher authority to the lower units or sub units.

Decentralization allows higher authority to invest their time in other areas for expand and growth of the business.

Sometimes this became sub-units took decision which is better for them not for the business.

Accumulated Depreciation

It’s the total cost of depreciation of an asset in a regular period of time till it exists. It shows the decreasing value of an asset over the period of time. Accumulated depreciation reflects in the balance sheet under accumulated account and this amount never ends at the end of a financial year, it carry forward to the next year.

Calculation: 

We can calculate the depreciation amount in three different ways mentioned below:

Continue reading “Accumulated Depreciation”

Annuity

Annuity:  

Annuity is an amount of fund invested by an individual or a financial institution in order to receive equal amount of money at equal time intervals. It can be defined as a fixed income source for an individual.

It’s an opportunity for an individual to raise a huge amount by investing less. Continue reading “Annuity”

What is Capital?

Capital is the total financial asset of a business. It includes cash-in-hand, cash-at-bank, building, furniture, machinery, land etc. Capital is categorized into two different types i.e. working capital, fixed capital.

Working Capital: Those assets or capital used or available for day-to-day operations are called as working capital.

To calculate working capital: working capital = current assets – current liabilities

Fixed Capital: Capital or assets like furniture, machinery is termed as fixed capital. Fixed capital is the biggest advantage for a business as these can be used in bad times to pay debts.

What is a journal?

Journal:

In Journal all first transactions are recorded with specific date then these entries categorized into different accounts like sales, purchase etc. in a book called Ledger. In manual accounting all these entries need to be done manually but in accounting software respective ledger automatically created at the same time when we enter data in Journal.

Journal is of two types: single entry and double entry. In double entry each entry needs followed up with two accounts. This is another and detail form of journal entry.

Here is the Journal entry format:

Example:

 

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What’s accounting? Accounting terminologies

Accounting is the backbone of every business. Its very necessary for start-ups’ to have a clear and detail knowledge on all accounting terms to manage business finances easily also to have a better talk with investors. In this series we have compiled a list of basic accounting terms and its details to provide our users a better and in-depth knowledge on accounting.

Get all the posts in accounting terminologies series here

Accounting: Accounting is a way of keeping record of all financial transactions followed by summarization and analysis in the form of a book. Accounting also called as book keeping. It shows the financial health of a business which in turn will help the business owner to take better decisions for growth of the business.

Accounting provides detail information on available stock, budget, cash flow status, profit & loss status etc.

Recently companies are using cloud accounting softwares for easy and error free accounting. Also this is the best way to save time and money on accounting.

Accounting cycle:

Accounting Example:

 

This is just an example how entry items in a account using an online accounting software.