The document provides an overview of accounting concepts and conventions, bookkeeping and accounting systems, journal entries and ledger accounts. It defines bookkeeping as the systematic recording of transactions and accounting as the summarizing and communicating of financial information. The key concepts covered include the double-entry system, debit and credit rules, classification of accounts, and accounting principles such as cost, revenue recognition and matching.
The document provides an overview of accounting concepts and principles for an MBA course. It defines bookkeeping and accounting, explains the double-entry system of bookkeeping, and covers key accounting concepts like the accounting equation, revenue and expense recognition, and accounting conventions like materiality and consistency. It also provides examples of journal entries and how to record transactions in ledger accounts.
This document discusses key accounting concepts and conventions. It defines 8 accounting concepts: business entity, money measurement, accounting period, accounting cost, going concern, dual aspect, realization, and matching. It also discusses 4 accounting conventions: consistency, materiality, conservatism, and full disclosure. The concepts and conventions establish standard principles and practices for preparing accurate financial statements and reports.
1. The accounting process involves recording business transactions in journals and ledgers, preparing a trial balance to check for errors, and using the trial balance to create final accounts including a trading account, profit and loss account, and balance sheet.
2. Generally Accepted Accounting Principles (GAAP) provide uniform rules and guidelines for recording and reporting business transactions to standardize financial statement preparation and presentation.
3. Key accounting concepts include the business entity, money measurement, going concern, accounting period, cost, dual aspect, revenue recognition, matching, full disclosure, consistency, conservatism, materiality, and objectivity concepts.
Introduction to Accounting by Dr. Suresh VaddeSuresh Vadde
This document provides an introduction to accounting concepts. It defines accounting and discusses its importance for controlling financial performance and position. The key users of accounting information are identified as internal stakeholders like management and external stakeholders like investors. Financial accounting provides external reporting through financial statements, while managerial accounting provides internal reporting to support decision making. Accounting concepts like business entity, money measurement, accruals and conventions like consistency are also outlined. International standards like IAS and IFRS aim to harmonize accounting practices globally.
Introduction to Accounting by Dr. Suresh VaddeSuresh Vadde
This document provides an introduction to accounting concepts. It defines accounting as the process of identifying, measuring, and communicating financial information. It discusses the importance of accounting in providing reliable information to both internal and external users. Key accounting concepts covered include the accounting equation, revenue/expense recognition principles, and the going concern assumption. Financial accounting and management accounting are also introduced.
Accounting concepts and principles provide a framework for financial reporting and ensure users are not misled. Some key concepts are:
- Going concern assumes the business will continue operating indefinitely.
- Entity treats the business and its owners separately.
- Duality means every transaction has two aspects recorded.
- Realization recognizes revenue when goods/services are delivered.
- Matching recognizes revenue and expenses in the periods to which they relate.
Accounting involves identifying, measuring, recording, classifying, and communicating the financial transactions and events of a business or organization. It provides essential financial information to evaluate an entity's activities. The key aspects of accounting include recording business transactions and activities, processing and storing financial data, and communicating information through financial reports. The accounting process involves setting up record keeping systems to track assets, liabilities, equity, revenues, and expenses according to accounting principles like the accounting equation.
This document provides an introduction to basic accounting principles. It defines key accounting terms like assets, equity, revenue, expenses, and drawings. It explains the accounting cycle which involves recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements like the income statement and balance sheet. It also outlines the different accounting methods and classifications of accounts. The goal is to introduce the reader to the fundamentals of accounting and bookkeeping.
The document provides an overview of accounting concepts and principles for an MBA course. It defines bookkeeping and accounting, explains the double-entry system of bookkeeping, and covers key accounting concepts like the accounting equation, revenue and expense recognition, and accounting conventions like materiality and consistency. It also provides examples of journal entries and how to record transactions in ledger accounts.
This document discusses key accounting concepts and conventions. It defines 8 accounting concepts: business entity, money measurement, accounting period, accounting cost, going concern, dual aspect, realization, and matching. It also discusses 4 accounting conventions: consistency, materiality, conservatism, and full disclosure. The concepts and conventions establish standard principles and practices for preparing accurate financial statements and reports.
1. The accounting process involves recording business transactions in journals and ledgers, preparing a trial balance to check for errors, and using the trial balance to create final accounts including a trading account, profit and loss account, and balance sheet.
2. Generally Accepted Accounting Principles (GAAP) provide uniform rules and guidelines for recording and reporting business transactions to standardize financial statement preparation and presentation.
3. Key accounting concepts include the business entity, money measurement, going concern, accounting period, cost, dual aspect, revenue recognition, matching, full disclosure, consistency, conservatism, materiality, and objectivity concepts.
Introduction to Accounting by Dr. Suresh VaddeSuresh Vadde
This document provides an introduction to accounting concepts. It defines accounting and discusses its importance for controlling financial performance and position. The key users of accounting information are identified as internal stakeholders like management and external stakeholders like investors. Financial accounting provides external reporting through financial statements, while managerial accounting provides internal reporting to support decision making. Accounting concepts like business entity, money measurement, accruals and conventions like consistency are also outlined. International standards like IAS and IFRS aim to harmonize accounting practices globally.
Introduction to Accounting by Dr. Suresh VaddeSuresh Vadde
This document provides an introduction to accounting concepts. It defines accounting as the process of identifying, measuring, and communicating financial information. It discusses the importance of accounting in providing reliable information to both internal and external users. Key accounting concepts covered include the accounting equation, revenue/expense recognition principles, and the going concern assumption. Financial accounting and management accounting are also introduced.
Accounting concepts and principles provide a framework for financial reporting and ensure users are not misled. Some key concepts are:
- Going concern assumes the business will continue operating indefinitely.
- Entity treats the business and its owners separately.
- Duality means every transaction has two aspects recorded.
- Realization recognizes revenue when goods/services are delivered.
- Matching recognizes revenue and expenses in the periods to which they relate.
Accounting involves identifying, measuring, recording, classifying, and communicating the financial transactions and events of a business or organization. It provides essential financial information to evaluate an entity's activities. The key aspects of accounting include recording business transactions and activities, processing and storing financial data, and communicating information through financial reports. The accounting process involves setting up record keeping systems to track assets, liabilities, equity, revenues, and expenses according to accounting principles like the accounting equation.
This document provides an introduction to basic accounting principles. It defines key accounting terms like assets, equity, revenue, expenses, and drawings. It explains the accounting cycle which involves recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements like the income statement and balance sheet. It also outlines the different accounting methods and classifications of accounts. The goal is to introduce the reader to the fundamentals of accounting and bookkeeping.
This document provides an introduction to basic accounting principles. It defines key accounting terms like assets, equity, capital, liability, revenue, and expenses. It also explains the accounting cycle which involves recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements like the income statement and balance sheet. Additionally, it discusses the different accounting methods, classifications of accounts, rules of debit and credit, and how transactions are recorded in a journal. The overall purpose is to establish the foundational concepts and process of accounting.
This document provides an introduction to basic accounting principles. It defines key accounting terms like assets, equity, capital, liability, revenue, and expenses. It also explains the accounting cycle which involves recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements like the income statement and balance sheet. Additionally, it discusses the different accounting methods, classifications of accounts, rules of debit and credit, and how transactions are recorded in a journal. The overall purpose is to establish the foundational concepts and process of accounting.
Accounting involves recording business transactions and providing financial information to both internal and external parties. It follows generally accepted accounting principles (GAAP) and involves an accounting cycle of recording, classifying, summarizing, and reporting transactions. The accounting process results in financial statements such as the balance sheet, income statement, statement of cash flows, and statement of retained earnings that are used by managers, investors, creditors, and other stakeholders to understand the company's financial position and performance.
Accounting principles , conventions and conceptsSanjeet Yadav
This document discusses accounting principles, conventions, and concepts. It defines generally accepted accounting principles (GAAP) as rules, guidelines, and principles derived from experience and practice that become accepted. The major accounting conventions discussed are conservatism, disclosure, and consistency. Finally, the document outlines 12 key accounting concepts including the period concept, dual aspect concept, money measurement concept, and accrual concept.
This document provides an introduction to basic accounting principles. It discusses how accounting involves systematically recording all business transactions and defines bookkeeping as the process of recording these transactions. Accounting is then defined as the analysis and interpretation of the bookkeeping records to prepare financial statements.
Several key accounting terms are defined, including assets, equity, capital, liability, revenue, and expenses. The accounting cycle is described as the process of initially recording transactions in a journal, transferring them to ledger accounts, preparing a trial balance, and ultimately final accounts and a balance sheet. Finally, the document discusses accounting assumptions like going concern and accrual basis, and different systems for recording transactions like single and double entry.
This document provides an overview of financial systems and accounting concepts. It discusses the key branches of accounting including financial accounting and cost accounting. The main topics covered include accounting concepts like the business entity concept, money measurement concept, and accrual concept. It also outlines conventions regarding financial statements such as consistency, disclosure, and conservation. The overall purpose is to understand the financial systems, statements, and accounting standards used in business.
The document discusses GAAP (Generally Accepted Accounting Principles). [1] GAAP are the common set of accounting standards, procedures and rules that govern financial accounting practices. [2] They provide guidelines for proper revenue recognition, balance sheet classifications, and share measurements to provide a fair representation of a company's financial status. [3] GAAP principles are divided into accounting concepts like the money measurement concept and dual aspect concept, and accounting conventions like full disclosure and materiality.
This document provides an overview and agenda for a refresher course on simple bookkeeping that will take place from September 18-20, 2019 at the Hotel Ariana in Bauang, La Union. The course will cover topics like the definition of accounting and bookkeeping, their importance, basic accounting concepts and principles, the accounting equation, double-entry bookkeeping system, accounting cycle, chart of accounts, books of accounts, and basic financial statements. It will also include workshops and presentations on accounting and bookkeeping definitions, principles, and processes.
Accounting is the language of business. It records business transactions taking place during the accounting period. Accounting communicates the result of the business transactions in the form of final accounts
meaning of accounting
meaning of book-keeping
difference between accounting and book-keeping
meaning of double entry system of book-keeping
accounting equation
accounting principles, concepts and conventions
parties interested in accounting information
accounting cycle
classification/types of accounts
golden rules of accounting
Introduction to Accounting
Theory base of Accounting
Recording of Transactions – I
Recording of Transactions – II
Bank Reconciliation Statement
Trial Balance and Rectification of errors
Depreciation, Provisions and Reserves
Bill of Exchange
Financial Statements -I
Financial Statements -II
Accounts from Incomplete Records
Application of Computers in Accounting
Computerised Accounting System
The document defines accounting as recording, classifying, and summarizing financial transactions and events in terms of money. It outlines key accounting concepts like the separate entity, going concern, cost, and accrual concepts. It also discusses accounting principles, conventions, systems, terms, depreciation methods, and types of business entities like partnerships and joint ventures.
Accounting serves as a language of business by communicating results of business operations to stakeholders like owners, creditors, investors, and the government. It records, classifies, and summarizes financial transactions and events in a meaningful manner using money values. Accounting provides quantitative financial information to allow informed decisions by users. It is defined as an information system that measures and reports on the resources controlled by a business and the financing of its operations.
Accounting involves identifying, measuring, and communicating financial information about an organization. It aims to provide useful data to both internal and external users to help them make informed decisions. The accounting cycle involves recording transactions, preparing trial balances, making adjustments, and generating financial statements. Generally accepted accounting principles (GAAP) and concepts like the business entity, money measurement, and matching principles provide guidelines for accountants.
A V CONSULTANTS Top Tax Consulting and best Financial Services in HyderabadAVCONSULTANTAS
This document discusses accounting and bookkeeping. It defines accounting as recording, classifying, and summarizing financial transactions and events, while bookkeeping is the systematic recording of these in chronological order. The key principles of accounting like the accounting equation, debit/credit rules, and accounting cycle are explained. Financial statements are prepared at the end of the accounting cycle using books of accounts like cash receipts and payments journals. The four basic financial statements are also listed.
A V CONSULTANTS Top Tax Consulting and Financial Services in HyderabadAVCONSULTANTAS
This document discusses accounting and bookkeeping. It defines accounting as recording, classifying, and summarizing financial transactions and events, while bookkeeping is the systematic recording of these in chronological order. The key principles of accounting like the accounting equation, debit/credit rules, and accounting cycle are explained. Financial statements are prepared at the end of the accounting cycle and include the statement of financial condition, statement of operations, statement of changes in equity, and statement of cash flows. Basic books of accounts and concepts are also outlined.
A V CONSULTANTS Top Tax Consulting and Financial Services in HyderabadAVCONSULTANTAS
This document discusses accounting and bookkeeping. It defines accounting as recording, classifying, and summarizing financial transactions and events, while bookkeeping is the systematic recording of these in chronological order. The key principles of accounting like the accounting equation, debit/credit rules, and accounting cycle are explained. Financial statements are prepared at the end of the accounting cycle using books of accounts like cash receipts and payments journals. The four basic financial statements are also listed.
A V CONSULTANTS Top Tax Consulting and Financial Services in HyderabadAjayVhavle1
This document discusses accounting and bookkeeping. It defines accounting as recording, classifying, and summarizing financial transactions and events, while bookkeeping is the systematic recording of these transactions and events chronologically. The document outlines the importance of accounting and bookkeeping, the users of financial statements, basic concepts like the accounting equation and debit/credit rules, the accounting cycle, books of accounts, and basic financial statements. It provides details on each of these topics.
A V CONSULTANTS Top Tax Consulting and Financial Services in HyderabadAVCONSULTANTAS
The document discusses accounting and bookkeeping concepts. It defines accounting as recording, classifying, and summarizing financial transactions and events, while bookkeeping is the systematic recording of such transactions and events chronologically. Basic accounting principles like the business entity, going concern, and matching concepts are explained. The accounting equation, rules of debit and credit, and double-entry bookkeeping system are introduced. The accounting cycle and preparation of basic financial statements are outlined.
A V CONSULTANTS Top Tax Consulting and Financial Services in HyderabadAjayVhavle1
This document discusses accounting and bookkeeping. It defines accounting as recording, classifying, and summarizing financial transactions and events, while bookkeeping is the systematic recording of these in chronological order. The key principles of accounting like the accounting equation, debit/credit rules, and accounting cycle are explained. Financial statements are prepared at the end of the accounting cycle using books of accounts like cash receipts and payments journals. The four basic financial statements are also listed.
Walmart Business+ and Spark Good for Nonprofits.pdfTechSoup
"Learn about all the ways Walmart supports nonprofit organizations.
You will hear from Liz Willett, the Head of Nonprofits, and hear about what Walmart is doing to help nonprofits, including Walmart Business and Spark Good. Walmart Business+ is a new offer for nonprofits that offers discounts and also streamlines nonprofits order and expense tracking, saving time and money.
The webinar may also give some examples on how nonprofits can best leverage Walmart Business+.
The event will cover the following::
Walmart Business + (https://business.walmart.com/plus) is a new shopping experience for nonprofits, schools, and local business customers that connects an exclusive online shopping experience to stores. Benefits include free delivery and shipping, a 'Spend Analytics” feature, special discounts, deals and tax-exempt shopping.
Special TechSoup offer for a free 180 days membership, and up to $150 in discounts on eligible orders.
Spark Good (walmart.com/sparkgood) is a charitable platform that enables nonprofits to receive donations directly from customers and associates.
Answers about how you can do more with Walmart!"
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This document provides an introduction to basic accounting principles. It defines key accounting terms like assets, equity, capital, liability, revenue, and expenses. It also explains the accounting cycle which involves recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements like the income statement and balance sheet. Additionally, it discusses the different accounting methods, classifications of accounts, rules of debit and credit, and how transactions are recorded in a journal. The overall purpose is to establish the foundational concepts and process of accounting.
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This document provides an overview and agenda for a refresher course on simple bookkeeping that will take place from September 18-20, 2019 at the Hotel Ariana in Bauang, La Union. The course will cover topics like the definition of accounting and bookkeeping, their importance, basic accounting concepts and principles, the accounting equation, double-entry bookkeeping system, accounting cycle, chart of accounts, books of accounts, and basic financial statements. It will also include workshops and presentations on accounting and bookkeeping definitions, principles, and processes.
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meaning of accounting
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accounting principles, concepts and conventions
parties interested in accounting information
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Bank Reconciliation Statement
Trial Balance and Rectification of errors
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9
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2. Bookkeeping and Accounting
Bookkeeping is the systematic recording and is the part of
accounting that records transactions and business events in
the form of journal entries in the accounting system.
Accounting is the art of recording, classifying and summarizing
in a significant manner and in terms of money, the
transactions and events which are, in part at least of a financial
character and interpreting the results thereof.”
Bookkeeping and accounting are often heard being used
interchangeably, however, accounting is the overall practice of
managing finances of a business or individual, while
bookkeeping refers more specifically to the tasks and practices
involved in recording the financial activities.
3. Bookkeeping System
There are two types of book keeping i.e. Single entry and Double entry system of bookkeeping.
Single Entry system of Bookkeeping
Underthissystembothdebitandcreditaspectsoftransactionarenotrecorded.
OnlyPersonalaccounts&cashbookareopened.
Underthissystembalancesheetisnotprepared.
Itisimpropersystemofbookkeeping.
DoubleEntrysystemofBookkeeping
The double entry system of bookkeeping is based on the fact that every transaction has two
aspects,whichthereforeaffectstwo ledgeraccounts.Everytransactioninvolvesadebit*entry in
one account and a credit** entry in another account. Each and Every debit aspect has its equal
and corresponding credit aspect and vise versa.
Based onprincipleofduelaspectofeachtransaction.
Forcorrectpresentationbothofthemshouldberecorded.
Requiresmaintenanceofrecordsofassets, liabilities,revenuesandexpenditure.
Impactofeach transactioncan beseen ormeasured.
Totalassetsareequaltototalequities.
Accountants often use T-accounts to visualize the debit and credit effects on the
accounts'balances.
*Todebitanaccountmeanstoenteranamountontheleftsideoftheaccount.
**Tocreditanaccountmeanstoenteranamountontherightsideofanaccount.
4. DebittheReceiver
Credit the Giver
ClassificationofAccounts
ConceptofDebit& Credit(GoldenRules)
PERSONALACCOUNT IMPERSONALACCOUNT
REALACCOUNT NOMINALACCOUNT
Personal Account: Personal accounts are accounts relating to persons or organisations with
whomthe business has transactions.
E.gCustomer,Supplier,Moneylendersetc.
• RealAccounts:Realaccountsrefertoaccountsinwhichpropertyandpossessionarerecorded.
E.gLand,Building,Plant&Machinery,VehicleCash,Bank etc.
NominalAccounts:Nominalaccountsarerevenue,expenses,gains,andlosses.
E.g.Wages,Salary,Discountetc.
Debitwhatcomesin
Creditwhatgoesout
DebitallExpensesandLosses
CreditallIncomesandGains
6. AccountingConcepts
1.BusinessEntity:Thebusinessanditsowner(s)aretwoseparate
existence entity. Any private and personal incomes and
expenses of the owner(s) should not be treated as the incomes
and expenses ofthe business. EconomicEntity-company keeps
its activity separate from its owners and other businesses.
- Example: Insurance premiums for the owner’s house should
be excluded from the expense of the business.
2.Money Measurement:All transactions of the business are
recorded in terms of money and it provides a common unit of
measurement.
- Example: Market conditions, technological changes and the
efficiency of management would not be disclosed in the
accounts.
3.Going Concern Concept: The business will continue in
operational existence for the foreseeable future. Financial
statements should be prepared on a going concern basis unless
management either intends to liquidate the enterprise or to
cease trading, or has no realistic alternative but to do so.
• Example: Possible losses form the closure ofbusiness will
not be anticipated in the accounts.
7. AccountingConcepts
4. Cost Concept: Assets should be shown on the Balance sheet at the cost of
purchase instead of current value.
- Example: The cost of fixed assets is recorded at the date of acquisition
cost. The acquisition cost includes all expenditure made to prepare the
asset for its intended use. It included the invoice price of the assets, freight
charges, insurance or installation costs.
5. Objectivity: The accounting information should be free from bias and
capableof independent verification. The information should bebasedupon
verifiable evidence such as invoices or contracts.
- Example: The recognition of revenue should be based on verifiable
evidence such as the delivery of goods or the issue of invoices.
6. Accruals/Matching: Revenues are recognized when they are earned, but
not when cash is received. Expenses are recognized as they are incurred,
but not when cash is paid. The net income for the period is determined by
subtracting expenses incurred from revenues earned. Matching - efforts
(expenses) should be matched with accomplishment (revenues) whenever
it is reasonable and practicable to do so.
- Example: Expenses incurred but not yet paid in current period should be
treated as accrual/accrued expenses under current liabilities.
8. AccountingConcepts
7. The Realization concept: This concept holds to the view that profit can
only be taken into account when realization has occurred. Generally, sales
revenue arising from the sale of goods is recognized when the goods are
deliveredtothecustomers.RevenueRecognition-generallyoccurs
(1)whenrealizedorrealizableand(2)whenearned.
- Example:Profit is earned when goods or services are provided to
customers.Thusitisincorrecttorecordprofitwhenorderisreceived,or when
the customer pays for the goods.
8. Periodicity:Thelifeofanentityisdivided intoshorteconomictimeperiods on
which reporting statements are fashioned. Periodicity - company can divide
its economic activities into time periods.
- Example: Based on this assumption assets are classified into current and
fixed Assets. Current assets have benefits within twelve months period and
fixed assets have benefits beyond 12 months.
9. DualAspect:Transactionhastwofoldeffect:Debit&Credit.Eachand
everydebitaspect hasequalandcorrespondingcreditaspectandvise
versa. Accounting Equation: Assets = Capital + Liability
9. AccountingConventions
I. Materiality: Financial statement should separately disclose
significant items for they would influence decisions of users.
Accounting does not serve a useful purpose if the effort of
recording a transaction in a certain way is not worthwhile. In
other words do not waste your time in the elaborate
recording of trivial items.
e.g.AstockofstationeryworthRs.10shouldbetreatedasan
expense when it wasbought.
II. Accounting for Conservatism: The accountant should always
be on the side of safety. The prudence concept means that
normally he will take the figure which will understate rather
than overstate the profit. Provision is made for all known
liabilities. Conservatism means anticipate the expected
future losses
e.g.Provisionfordoubtfuldebtsshouldbedeductedfrom
debtors in balance sheet.
10. AccountingConventions
III. Consistency: When a firm has once fixed a method for the
accounting treatment of an item, it will enter all similar
itemsthatfollowinexactlythesameway.Frequentchanges in
the accounting methods would lead to misleading profits
calculated from the accounting records.
e.g. Depreciation method of certain fixed assets once
adopted should be used in the following years.
IV. Disclosure: The financial statements of a firm must include
all information necessary for the formation of valid
decisions by the users. Any information that might be
relevant to an investor or creditor should be disclosed,
eitherinthebodyofthefinancialstatementsorinthenotes
attached thereto.
e.g. Method of Issue of stock (FIFO/LIFO/Weighted average),
MethodofDepreciation(SLM/WDV)MethodofValuationof
Goodwill etc..
11. JOURNAL
Journal is a primary set of books in which daily business
transactions are to be recorded.
According to Cropper “A journal is a book employ to classify or
sortouttransactionsinaformconvenientfortheir subsequent
entry in the ledger”.
NECESSITYOFJOURNAL
Convenientrecordingoftransaction
Maintainingandpreservingtheidentityoftransaction
Ascertainingthetruenatureoftransaction
Maintainingpermanentrecordofinformation
FUNCTIONSOFJOURNAL
• Toanalyzeeachtransactionintodebitandcreditsoasto
enabletheirpostingintheledger
• Toarrangetransaction,chronologicali.einorderofdate.
12. JOURNAL
ADVANTAGESOFJOURNAL
• Showallnecessaryinformationrelatingtoatransaction
• Providetheexplanationofthetransaction
• Datewiserecordofallthetransactioncanbeobtained
• Helpinlocatingandpreventingtheerrors
LIMITATIONSOFJOURNAL
• Recordingallthetransactioninajournalrequires:
1) writingdownnameofaccountinvolved
2) individualpostingofeachaccountdebitedandcredited
• Doesnotprovideinformationonpromptbasis
• Doesnotfacilitatetheinternalchecksystemsincethejournal can
be handled only by one person
• Journalbecomebulkyand voluminous
13. Journal Problems
Problem1:
• OnApril01,2016Mr.AneesstartedbusinesswithRs.
100,000 and other transactions for the month are:
• April02.PurchaseFurnitureforCashRs.7,000.
• April08.PurchaseGoodsforCashRs.2,000andforCredit Rs.
1,000 from Khalid Retail Store.
• April14.SoldGoodstoKhanBrothersRs.12,000andCash
Sales Rs. 5,000.
• April18.OwnerwithdrewofworthRs.2,000forpersonal use.
• April22.PaidKhalidRetailStoreRs.500.
• April26.ReceivedRs.10,000fromKhanBrothers.
• April30.PaidSalariesExpenseRs.2,000
15. Journalproblem2
Preparegeneraljournalentriesforthefollowingtransactionsofa business
called Pose for Pics in 2016:
• Aug.1:HashimKhan,theowner,investedRs.57,500cashandRs.
32,500ofphotographyequipmentinthebusiness.
• Aug04:PaidRs.3,000cashforaninsurancepolicycoveringthenext 24
months.
• Aug07:ServicesareperformedandclientsarebilledforRs.10,000.
• Aug13:PurchasedofficesuppliesforRs.1,400.CashpaidRs.400 and
remaining outstanding.
• Aug20:ReceivedRs.2,000cashinphotographyfeesearned
previously.
• Aug24:TheclientimmediatelypaysRs.15,000forservicestobe
performed at a later date.
• Aug 29: The business acquires photography equipment. The
purchasepriceisRs.100,000,paysRs.25,000cashandsignsanote for
the balance.
16.
17. JournalProblem3
Problem3:
• OnMarch2017,FarhanRahim,startswholesaling
business. Following transactions as follows:
• 1.HestartedbusinesswithcapitalofRs.15,000andLand
worth Rs. 10,000.
• 8.BoughtgoodsfromBilalandFriendsRs.1,000andby cash
from XYZ Co. Rs 2,000.
• 13.SoldgoodstoRehman&sonsRs.1,500andsaleby cash
Rs. 5,000.
• 17.GaveawaycharityofcashRs.50andmerchandising
worth Rs. 30.
• 21.PaidBilalandFriendscashRs.975;discountreceived Rs.
25.
• 28.ReceivedcashfromRehman&SonsRs.1,450;allowed him
discount of Rs. 50.
18.
19. LedgerAccounts
General ledger accounts are used to post the economic activities. Posting is the name
of transferring accounts from the book of prime entry to related ledger accounts.
When all the transactions for a given period have been Journalized, the next step is
to classify them according to the account affected.
Ledger is a Book of Account that keeps separate record for each account. Ledger is
the book of secondary entry.An account in its simplest form is a T-shape. Itshould
be noted that journal contains a chronological record while Ledger contains a
classified record of all economic activities.
20. GeneralLedgerPostingandBalancingProcess
TheprocessofpostingandbalancinginvolvesthefollowingSteps:
• Thedebitpartofjournalentryisrecordedonthedebitsideoftherelevant account
by credit account name (Source).
• ThecreditpartofJournalEntryisrecordedonthecreditsideoftherelevant
accountbydebitaccountname(Source).
• Inthereferencecolumnofthegeneraljournalthecodeorpagenumberof ledger
account are noted.
• Inthereferencecolumnoftheledgeraccountthepagenumberofthejournal is
noted.
• Findthetotal ofdebitsideandfindthetotalofcreditside.Putbiggervalue both
sides in Total.
• Calculatethedifferencebetweenthetwosides.ThisistheBalance(The balancing
figure between the two sides).
• Writethebalanceonthesmallersidewithkeywords“Balancec/d”.However, the
balance will be known by the larger side i.e. if the debit side is greater than
the credit side, the balance will be known as debit balance and vice versa.
• Bring down the debit balance on the debit side writing the words in
Descriptioncolumn“Balanceb/d”.Similarly,bringdownthecreditbalanceon the
credit side be writing the words in the Description column “Balance b/d”.
28. FinalAccounts
Popularly, the Trading and Profit & Loss Account and the Balance Sheet are together
called the final accounts. The trading and profit & loss account is prepared to show
thefinancialresultsofabusiness,maybeintheformofprofitorlossduring an accounting
period or year. Balance sheet is prepared to show the financial position or
conditions of business in terms of position of assets and liabilities of a business as
on a particular date.
TradingAccount
Trading means buying and selling. The trading account shows the result of buying
andsellingofgoods.Endresultoftradingaccountisgrossprofitorgross loss.Following are
format for Trading Account.
ProfitandLossAccount
After calculating the gross profit or gross loss the next step is to prepare the profit
and loss account. To earn net profit a traderhas to incur many expenses apartfrom
those spent for purchases and manufacturing of goods. If such expenses are less
than gross profit, the result will be net profit. When total of all these expenses are
more than gross profit the result will be net loss.
BalanceSheet
Balance sheet is prepared by taking up all personal accounts and real accounts
(assets and properties) together with the net result obtained from profit and loss
account. On the left hand side of the statement, the liabilities and capital are
shown. On the right hand side, all the assets are shown. Balance sheet is not an
account but it is a statement prepared from the ledger balances. Balance sheet is
defined as ‘a statement which sets out the assets and liabilities of a business firm
and which serves to ascertain the financial position of the same on any particular
date’.
32. MEANINGANDNEEDOFADJUSTMENTENTRIES
Transactions omitted relate to the current year must be entered in books. If a
transaction entered is not related to the current year, fully or partly, that
portion of income or expense must be excluded. This process is made
through adjustment entries in the books of accounts. If we ignore to make
the necessary adjustments, the trading, profit & loss accounts do not show
the true profit or loss and in consequence balance sheet fails to depict true
financialposition of the business. Thissituation defeats the very purpose of
final accounts. Hence, adjustment entries play an important role in
presenting correct picture of accounts.
AccountingTreatment:
Trading and Profit and Loss and Balance sheet, together, are called as final
accounts. Item appearing in the trial balance appears only once in final
accounts, either on the debit or credit. Any adjustment entry requires two
postings,debit andcredit forthe same amount. Important point is students
should do the posting (debit and credit) in the concerned accounts,
simultaneously.
33. (ii)ClosingstockwillbeshownonthecreditsideoftheTradingAccount
Accountingtreatmentforadjustmententries-1
1. Closing Stock: Every concern prepares a list of unsold goods at the end of the period and
puts value against it. It is to be remembered that stock is valued at cost or market price,
whichever is less.
Note:ClosingStockappearsbelowtheTrialBalanceasanadjustmententry
For example, if the value of stock at the end of the period is Rs. 30,000 and is shown below the
trial balance, then the following adjusting entry will be passed:
ClosingStockA/c…Dr.30,000
To Trading Account 30,000
The two-fold effect of this entry will be:
(i) Stock will have a debit balance. Being a real account, it will be shown on the assets side of the
Balance Sheet.
TradingAccountfortheyearending…..
Particulars Amount Particulars Amount
ByClosingStock 30,000
BalanceSheetason…….
Liabilities Amount Assets Amount
ClosingStock 30,000
34. Accountingtreatmentforadjustmententries-2
2. Outstanding Expenses There are certain expenses, which have been incurred but
not paid. These expenses are called outstanding expenses.
For example, salary to the clerk Rs. 10,000 is due for the month of December. Books
are closed at the end of December. In order to bring this transaction into
accounts, the following adjustment entry will be passed:
SalaryAccount…..Dr.Rs.10,000
ToOutstandingSalaryA/c.Rs.10,000
Thetwofoldeffectofthisentrywillbe:
(i) Outstanding salary will be added to salary, if any, on the debit side of Profit &
Loss Account.
(ii) (ii) Outstanding Salary Account, being personal and having credit balance, will be
shown on the liabilities side of the Balance Sheet.
ProfitandLossAccountfortheyear ending…..
Particulars Amount Particulars Amount
ToSalaryAccount 10,000
BalanceSheetason…….
Liabilities Amount Assets Amount
36. Accountingtreatmentforadjustmententries-3
3. Prepaid or Unexpired Expenses: Those expenses which have been paid, in full, but their
utility or benefit has not expired during the accounting period are called prepaid or
unexpired expenses.
For example, annual premium Rs. 12,000 is paid on 1st July, where accounting year closes
on 31st December. Rs. 6000willbeinsurance paidin advance. Tobring this into account,
the following adjusting entry will be passed:
PrepaidInsurancePremiumAccount…..Dr.Rs.6,000
ToInsurancePremium Rs.6,000
Thedoubleeffectofthisadjustingentrywillbe:
(i) Prepaid insurance will be deducted from the insurance premium on the debit side of
the Profit & Loss Account.
(ii) (ii) Prepaid insurance, being personal account and having debit balance, will be shown
on the assets side of the Balance Sheet.
ProfitandLossAccountfortheyear ending…..
Particulars Amount Particulars Amount
ToInsurancePremium 12,000
Less:PrepaidInsurance 6,000 6,000
BalanceSheetason…….
Liabilities Amount Assets Amount
38. Accountingtreatmentforadjustmententries-4
4. AccruedIncome: Incomeearnedbutnotreceivedduringtheaccountingperiodiscalled accrued
Income.
Example: the interest on investments shown in the trial balance is Rs. 19,500. The adjustment
may run like this. Interest @10% is due on investments of Rs. 10,000 for 6 months, though
accrued,hasnotbeen yet beenreceived.Thisinterest Rs. 500 willbeaccrued income.Inorder to
bring this into account, the following adjusting entry will be passed:
AccruedInterestonInvestmentsAccount…..Dr.Rs. 500
To Interest on Investment Account Rs.500
The two fold effect of this entry will be:
(i) Interest on Investment account (accrued interest) will be added to the interest account on
the credit side of the profit & loss account.
(ii) (ii)Accrued interest, beingpersonal account andhaving debitbalance, willbe shownonthe
debitsideoftheBalanceSheet.
ProfitandLossAccountfortheyear ending…..
Particulars Amount Particulars Amount
ByInterest 19,500
Add:InterestAccrued 500 20,000
BalanceSheetason…….
Liabilities Amount Assets Amount
AccruedInterestonInvestments 500
39. Accountingtreatmentforadjustmententries-5
5. UnearnedIncomeorIncomeReceivedinAdvance:
Sometimes, the amount received in respect of an incomeduring the yearpertains, partially, to
the next year. Suppose a landlord collects rent for one quarter, in advance, and closes his
account on 30th June each year. Suppose, a tenant has occupied a house on 1st June and pays
Rs. 1,800 as rent for 3 months. The landlord must not treat the whole of the rent received as
incomeforthecurrentyear.Twomonths’rentpertainstothenextyearandshouldbecredited to the
Profit and Loss Account of next year. This will ensure that the income for the current year is
not overstated. The required entry is:
RentAccount….Dr.Rs.1,200
ToRentReceivedinAdvanceAccountRs.1,200
Thedoubleeffectofthisadjustingentrywillbe:
(i) Rent Received in advance account will be deducted from the Rent received account on
thecredit side of the Profit & Loss Account.
(ii) (ii)RentReceivedinadvanceaccountisaliabilityandhavingcreditbalance,willbeshown
ontheLiabilitiessideoftheBalanceSheet.
ProfitandLossAccountfortheyear ending…..
Particulars Amount Particulars Amount
ByRentAccount 1,800
Add:RentReceivedinadvance 1,200 600
BalanceSheetason…….
Liabilities Amount Assets Amount
40. Accountingtreatmentforadjustmententries-6
6. Depreciation: The value of fixed assets goes on reducing year by year because of
wear, tear and efflux of time. This fall in the value should be treated as a loss or
expense, to be considered before profit or loss is ascertained. The value to be
shown in the Balance Sheet must also be reduced.
Depreciation is usually computed on the basis of the life of the assets. Suppose, a
machine costs Rs. 1,00,000 and has a life of 5 years. Then, each year 1/5th of the
cost, i.e., Rs. 20,000 should be treated as an expense; only the remaining amount is
to be shown in the balance sheet. The entry is:
DepreciationAccount…Dr.20,000
ToMachineryAccount20,000
Depreciation is debited to the Profit & Loss Account. In the final accounts, the itemwill
figure as shown below:
ProfitandLossAccountfortheyearending…..
Particulars Amount Particulars Amount
ToDepreciationAccount 20,000
BalanceSheetason…….
Liabilities Amount Assets Amount
MachineryAccount 1,00,000
Less:Depreciation 20,000 80,000
41. Accountingtreatmentforadjustmententries-7
7. Interest on Capital: The proprietor may wish to ascertain his profit, after
considering the interest for the amount invested in the firm.
Suppose, the capital is Rs. 2,00,000 and the rate of interest is 5%. Then, the interest
will be Rs. 10,000. It will be treated like other expenses and debited to the Profit
and Loss Account; the amount will also be credited to the Capital Account.
Theentry is:
InterestonCapitalAccount…Dr.10,000
ToCapitalAccount 10,000
Inthefinalstatementsofaccount,theitemwillappearasshownbelow:
ProfitandLossAccountfortheyear ending…..
Particulars Amount Particulars Amount
ToInterestonCapitalAccount 10,000
BalanceSheetason…….
Liabilities Amount Assets Amount
Capital 2,00,000
ADD:Interestoncapital 10,000 2,10,000
42. Accountingtreatmentforadjustmententries-8
8. Interest on Drawings:The proprietor may also realize that when he draws money for private
use, the firm loses interest as funds for business are reduced. Therefore, the proprietor’s
capital may be debited with the interest on the money drawn by him. Interest will depend on
the amount and the date of withdrawal concerned.
In absence of information about the date of drawings, it should be assumed that the drawings
were made, evenly, throughout the year; therefore, interest should be charged for six months
on the full amount. Suppose, capital is Rs. 2,00,000 and the total drawings are Rs. 10,000. The
rateofinterestis6%onthedrawings.So,interest@6%forsixmonthson drawings Rs.10,000 will be
Rs. 300.
Theentrytobepassedis:
InterestonDrawings...Dr.Rs.300
ToProfit&LossAccountRs.300
ProfitandLossAccountfortheyear ending…..
Particulars Amount Particulars Amount
ByInterestondrawings 300
BalanceSheetason…….
Liabilities Amount Assets Amount
Capital 2,00,000
Less:Drawings 10,000
Less:Intereston Drawings 300 1,89,700
43. Accountingtreatmentforadjustmententries-9
9. Intereston Loan: Interest mustbe paid on loans,whetherthere is profitorloss. Itis
calculated by reference to the rate of interest agreed to be paid by the firm.
Suppose a loan of Rs. 20,000 is taken on 1st May 2008 at 18%, if the accounts are
closedon31stDecember, the interestfortheyearwill beRs.2,400i.e.,Rs.20,000× 18/
100 × 8/ 12.
Theamountoftheinterest,ifnotpaid,theentryis:
InterestonLoanAccount….Dr. Rs.2,400
ToOutstandingInterestAccount Rs.2,400
Theitemwill figureasfollowsin thefinal accounts:
ProfitandLossAccountfortheyear ending…..
Particulars Amount Particulars Amount
ToInterestonloan 2,400
BalanceSheetason…….
Liabilities Amount Assets Amount
LoanAccount 20,000
OutstandingInterestonloan 2,400
44. Accountingtreatmentforadjustmententries-10
10. BadDebts:AnunrecovereddebtiscalledasBadDebtanditoccur,whenthere are credit
sales. The following journal entry should, therefore, be passed in the event of a
debt becoming bad.
BadDebtsA/c Dr.
ToDebtor’sPersonalA/c
e.g. Kalyan & Co. has been running its cloth business. At the end of Dec. 2008, the
firm’s books of accounts show the debtors atRs. 4,00,000. Out of those debtors, Rs.
20,000 have been recognized as bad debts.
Note: Bad debts, appearing in Trial Balance, have already seen provided for. Now, the
adjustment relates to additional bad debts for the amount appearing in sundry
debtors.
ProfitandLossAccountfortheyearending…..
Particulars Amount Particulars Amount
ToBadDebtsA/c 20,000
BalanceSheetason…….
Liabilities Amount Assets Amount
Debtors 4,00,000
Less:Baddebts 20,000 3,80,000
45. Accountingtreatmentforadjustmententries-11
11. Provision for Bad and Doubtful Debts:Prudent accounting principle is to
make provision for expected losses. All credit sales would not be realized in
the year in which the sales are made. A firm, therefore, makes provision at
the end of the accounting year, for likely bad debts, which may happen
during the course of the next year.
Thefollowingjournalentryispassedforcreatingaprovisionforbaddebts.
Profit&LossA/c Dr.
ToProvisionforBadandDoubtfulDebts
The provision for bad and doubtful debts is charged to the Profit & Loss
Account and is deducted from debtors in the Balance Sheet.
CalculationofProvisionforBadandDoubtfulDebts:
Normally,problemstatesthe%ofProvisionforBadandDoubtfulDebts.On which
amount of debtors, this % of Provision for Bad and Doubtful Debts is to be
calculated?
• ProvisionforBadandDoubtfulDebtsistobecalculatedonthatamountof
debtors,afterdeductingbaddebtswrittenoffgivenintheadjustments.
49. Prob.2From the following particularstaken out from the books ofAbdul Hanan & Co.You are
requiredtoprepareTradingandProfit&LossAccountandBalanceSheetasatDecember 31st,2019
Adjustments:
(a) ClosingstockRs,35,000.
(b) Provisionfordoubtfuldebtsat5%ofsundrydebtors.
(c) Depreciationfurnitureandmachineryby10%.
(d) Commission ofRs.3,600hasbeenearnedbutnotreceivedtilltheclosingofaccounts.
50.
51.
52. Prob: 3From the following trial balance of Faris Ali Qureshi & Bros. and additional
information, prepare Trading and Profit & Loss account and Balance sheet for the year
ended June 30th
, 2019.
AdditionalInformation
1.Depreciationfurnitureby10%bywrittendownmethod (WDM).
2.Aprovisionfordoubtfuldebtsistobecreatedtotheextentof5%onsundrydebtors.
3.SalariesforthemonthofJune,2019amountingtoRs.3,000wereunpaidwhichmustbeprovidedfor.However, salaries
included Rs. 2,000 paid in advance. Office expenses outstanding Rs. 8,000.
4.InsuranceamountingtoRs.2,000isprepaid.
5.StockuseforprivatepurposeRs.6,000andclosingstockRs.60,000.
55. Problems 4:The following are the balances taken from the books of Muhammad ZainAmmar Safdar & Co. on
May31st,2020.YouarerequiredtoprepareTradingandProfitandProfitandLossAccount/IncomeStatementfor the year
ended May 31st, 2020 and Balance Sheet as on that date.
Adjustments:
1.Depreciationfurnitureandmachineryat10%p.a.
2.InsuranceispaidinadvancetotheextentofRs. 200.
3.Reservefordiscountisnolongerrequiredandistobewrittenback.
4.ClosingstockisvaluedatRs.100,000.
5.Interestonbankloanis outstanding.
56.
57.
58. CapitalAndRevenueExpenditureandReceipts
The aim of accounting is to ascertain the financial performance of a firm. To do so the transactions
have to be identified as capital or revenue in nature. This will determine whether they are placed
in the Profit and Loss Account or the Balance Sheet. Determining capital or revenue nature is
undoubtedly very important in the field of accounting.
CapitalNatureandRevenueNature
Thecapitalnatureand therevenue naturedifferfrom eachotheronthebasisof thetimefor which
thepurchaseswillbeused.
CapitalNature
• Capital expenditures include large purchases of fixed assets that can be used for a longer
duration. In other words,the acquisition of fixed assets for certainly longer durations represents
the capital nature of expenditure. For example, the expenditures that are made for buying
manufacturing equipment and as a result, the equipment can be used for longer durations.
• Also, the company providing the equipment cannot deduct the full cost and the cost is required
to be updated according to the year-by-year devaluation of the product. These are basically non-
recurring in nature.
Capitalexpendituresareclassifiedintothreemainsections:
• Expendituresmadetoreducethecosts
• Expendituresmadetoincreasetherevenue
• Expenditurewhichisexplainableonthenon-economicgrounds,thatis,theexpensesmade without any
relation to the money related profits.
SomeexamplesofCapitalExpendituresare
• Theexpendituresrelatedtosocialactivities.
• Theexpensesmadeforbuyingmachinery.
• Theinvestmentsmadefordoingresearchworkandinnovations.
59. RevenueNature
In contrast to capital nature, short-term expenses represent the revenue nature. Unlike capital
nature, this one is related to the expenditures that are made for specific operating periods.
Furthermore, such expenses neither generate assets nor the liabilities. For example, the
expenditures made to facilitate the current operation that is, repair costs and maintenance
expenses.
RevenuenatureExpenditureisoftwotypes
• Expenditure for generating revenue: This type of expenditure is for the ongoing operational
processes. Likewise, the operating expenses meet the running business or factory cost
requirements. In the same year in which the expenses are occurring,in the revenue expenses,
the tax liabilities also lowers.
• Expenditure for maintaining the revenue-producing assets:The expenses for the generic and
ordinary repairing and preservation costs are revenue expenditure. The expectations are to
keep the asset in the working condition without any involvement in increasing the life and
workability of the asset.
ExamplesoftheRevenueExpenditureare
• Payingrentforhouses,shops,etc.
• Salariesforthevariousjobs.
• Advertisingcosts
• Legalexpenses
• Insurancecostssuchas,vehicleinsurance,lifeinsuranceetc.
• Waterandelectricitybillpayments.
• Unlikecapitalnatureexpenses,revenuenatureexpendituresarerecurringinnature.
60. DeterminingCapitalNatureandRevenueNature
There are certain basic considerations when we are determining
the nature of a financial transaction, i.e. capital nature or
revenue nature. Some such considerations are as follows.
• NatureofBusiness
The capital or revenue nature is dependent on the type of
business a person does. It is different for different types of
business. For instance, a business that provides car insurance
to people comes under the revenue nature but the
manufacturer buying the machinery for his factory is capital
expenditure.
• RecurringNatureofExpenditure
Revenuenatureexpendituresarerecurringinnatureand
capitalnatureexpendituresarenon-recurringinnature.
• PurposeofExpenditure
The manufacturing process is an illustration of capital nature
while renovation and repairing processes are expenses of
revenue nature.
61. CapitalReceiptandRevenueReceipt
Capital receipt and revenue receipt, both are the very important components of accounting. It is
important to correctly differentiate between the two. Classification of these transactions
reflects in the final statements of the company.
CapitalReceipt
• These have a nature of non-recurrence, besides that, they are situated in the balance sheet in
the liabilities portion of them. The capital receipt is always in the interchange for the income.
The capital receipt is a kind of cash-flow in the business that does not occur over and over
again and this eventually, leads to the creation of liabilities in the future and also, the
decrement of assets takes place in the future.
• All of the capital receipts are free from taxation unless there is a provision to tax it. Various
typesof Giftsandloansarethetypesof thecapitalreceiptsthatdonotattracttaxandaretax- free. So,
in addition to non-recurring, Capital receipts are those non-routine receipts which either
becomes a load and responsibility or cause a vivid depletion in the assets of the government
or any organization and business.
Thefollowingsourcesarethegeneratorsofthecapitalreceipt:
• Additionalcapitalandmentionedassetsintroducedbytheownerorthepossessor
• Debenturesandtheotherissuesofdebtinstruments
• Loansborrowed fromabankorfromafinancialinstitution.
• VariousinsuranceClaims.
• IssueofShares
• So, basically, capital receipts are those that are the derivation of the not so normal operations
ofabusiness.Besidesthat,theeffectofcapitalreceiptisdepictedinthebalancesheet.
Thesereceiptsare notatallapartof normaloperationsofgovernmentbusiness.For example, a sale
of fixed assets, etc.
62. RevenueReceipt
These receipts are a major source of income for any kind of a business
andwithoutit,abusinesscan’tsurviveforlong.Thisisaresultofthe
normalandcore business activities.Beinga normalbusiness resultis
the reason for its recurring nature. However, there is a little
shortcoming associated with it. The benefits of revenue receipts are
enjoyableonlyfor thecurrent accountingyear andnotpossiblyafter
that.
The income received from the daily and periodic activities of business
includes all the operations that indulge cash into the business like:
• Thesaleofanykindofaninventory
• Incomefromservicesrendered
• DifferenttypesofdiscountReceivedfromthesuppliers
• Saleofscrap
• Interestreceived.
• Rentreceived
• To sum itall, Revenuereceipts arerecurring receipts and their effect
is shown on the income statement. For a successful business, both
receipts playaprominent roleasthey both compliments eachother.