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Advice You - Classification of Accounts - Hints for Journalizing - Advantages of Journal
Personal Accounts
Accounts recording transactions relating to individuals or firms or company are known as personal accounts. Personal accounts may further be classified as :
(1) Natural person's personal accounts: The accounts recording transactions relating to individual human beings e.g., Anand's A/c, Remesh's A/c, Pankaj's A/c are classified as natural person's personal accounts.
(2) Artificial person's personal account: The accounts recording transactions relating to limited companies. bank, firm, institution, club. etc. e.g. Delhi Cloth Mill; Hans Raj College; Gymkhana Clu
Accounts recording transactions relating to individuals or firms or company are known as personal accounts. Personal accounts may further be classified as :
(1) Natural person's personal accounts: The accounts recording transactions relating to individual human beings e.g., Anand's A/c, Remesh's A/c, Pankaj's A/c are classified as natural person's personal accounts.
(2) Artificial person's personal account: The accounts recording transactions relating to limited companies. bank, firm, institution, club. etc. e.g. Delhi Cloth Mill; Hans Raj College; Gymkhana Clu
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
b are classified as artificial persons' personal accounts.
(3) Representative personal accounts: The accounts recording transactions relating to the expenses and incomes are classified as nominal accounts. But in certain cases due to the matching concept of accounting the amount, on a particular date, is payable to the individuals or recoverable from individuals.
Such amount (a) relates to the particular head of expenditure or income and (b) represents persons to whom itis payable or from whom it is recoverable. Such accounts are classified as representative personal accounts e.g. "Wages Outstand
(3) Representative personal accounts: The accounts recording transactions relating to the expenses and incomes are classified as nominal accounts. But in certain cases due to the matching concept of accounting the amount, on a particular date, is payable to the individuals or recoverable from individuals.
Such amount (a) relates to the particular head of expenditure or income and (b) represents persons to whom itis payable or from whom it is recoverable. Such accounts are classified as representative personal accounts e.g. "Wages Outstand
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
ing Account", Pre-paid Insurance Account. etc.
Real Accounts
The accounts recording transactions relating to tangible things (which can be touched, purchased and sold) such as goods, cash, building. machinery etc., are classified as tangible real accounts.
Whereas the accounts recording transactions relating to. intangible things (which do not have physical shape) such as goodwill, patents and copy rights. trade marks etc., are classified as intangible real accounts.
Nominal Accounts
The accounts recording transactions relating to the losses, gains. expenses a
Real Accounts
The accounts recording transactions relating to tangible things (which can be touched, purchased and sold) such as goods, cash, building. machinery etc., are classified as tangible real accounts.
Whereas the accounts recording transactions relating to. intangible things (which do not have physical shape) such as goodwill, patents and copy rights. trade marks etc., are classified as intangible real accounts.
Nominal Accounts
The accounts recording transactions relating to the losses, gains. expenses a
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
nd incomes e.g., Rent, salaries, wages, commission, interest, bad debts etc. are classified as nominal accounts. As already discussed, wherever a nominal account represents the amount payable to or receivable from certain persons it is known as representative personal account.
Rules of Debit and Credit (classification based)
1. Personal Accounts: Debit the receiver, Credit the giver (supplier)
2. Real Accounts: Debit what comes in, Credit what goes out
3. Nominal Accounts: Debit expenses and losses, Credit incomes and gains.,
Hints for Journalizing
The follow
Rules of Debit and Credit (classification based)
1. Personal Accounts: Debit the receiver, Credit the giver (supplier)
2. Real Accounts: Debit what comes in, Credit what goes out
3. Nominal Accounts: Debit expenses and losses, Credit incomes and gains.,
Hints for Journalizing
The follow
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
ng discussion will help in diagnosing the transaction with a view to find out which accounts are relevant for passing the journal entry.
1. Treatment of cash/credit transaction.
Read carefully the following transactions:
(i) Purchased goods for Rs. 1,200 cash. . (ii) Purchased goods for Rs. 1,200. (iii) Purchased goods for Rs. 1,200 from Arun. (iv) Purchased goods for Rs. 1,200 from Arun on cash.
Transaction (i) and (iv) are clear as it has been specifically stated that purchases have been made on cash. Thus the entry is :
Purchases account Dr. 1,200 To Cash account 1,200
Transac
1. Treatment of cash/credit transaction.
Read carefully the following transactions:
(i) Purchased goods for Rs. 1,200 cash. . (ii) Purchased goods for Rs. 1,200. (iii) Purchased goods for Rs. 1,200 from Arun. (iv) Purchased goods for Rs. 1,200 from Arun on cash.
Transaction (i) and (iv) are clear as it has been specifically stated that purchases have been made on cash. Thus the entry is :
Purchases account Dr. 1,200 To Cash account 1,200
Transac
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
tion (ii) and (iii) are not specific as to whether the purchases are for cash or on credit. However transaction (ii) does not mention any name of the supplier; therefore it implies that the purchases are for cash. Similarly transaction (iii) mentions the name of the supplier but is silent regarding cash-it implies that purchases are on credit: Thus the entry for transaction (iii) is
Purchases account Dr. 1,200 To Amex 1200.
2. Treatment of payment on personal/expenses account.
When payment is made to a person against amount due to him as per his ledger account-the personal account of
Purchases account Dr. 1,200 To Amex 1200.
2. Treatment of payment on personal/expenses account.
When payment is made to a person against amount due to him as per his ledger account-the personal account of
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
the creditor should be debited. However if the payment is being made to a person representing business expenditure then the particular expenditure (nominal) account should be debited.
3. Treatment of receipt on personal/ income account.
When amount is received from a person against amount recoverable from him as per ledger account-the personal account of the debtor should be credited. However if the amount received represents business income, then the particular income (nominal) account should be credited.
4. Treatment of trade discount.
In many cases the seller allows to the buyer deduction o
3. Treatment of receipt on personal/ income account.
When amount is received from a person against amount recoverable from him as per ledger account-the personal account of the debtor should be credited. However if the amount received represents business income, then the particular income (nominal) account should be credited.
4. Treatment of trade discount.
In many cases the seller allows to the buyer deduction o
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
f the list price. Such deduction is known as 'trade discount'. Trade discount as such is not recorded in the books. The transaction is recorded with only the net amount i.e. (list price -trade discount).
5. Treatment- of cash discount (full settlement).
In some cases creditor may allow some concession to his debtor to prompt him to make the payment within the period of credit allowed. Such concession is known as 'cash discount'. It is allowed by the person receiving the payment and represents, expenditure. It is availed by the person making the payment and represents income.
6. Treatment of Bad
5. Treatment- of cash discount (full settlement).
In some cases creditor may allow some concession to his debtor to prompt him to make the payment within the period of credit allowed. Such concession is known as 'cash discount'. It is allowed by the person receiving the payment and represents, expenditure. It is availed by the person making the payment and represents income.
6. Treatment of Bad
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
debts (debtor becoming insolvent).
An amount due from a debtor may become irrecoverable either partially or wholly. Reason may be that he has been declared insolvent or any other. Such irrecoverable amount represents loss to the business and is debited to Bad debts amount.
7. Treatment of Bad debts recovered
It is evident from the above entry that whenever irrecoverable amount is written off the personal account is credited. If after some time any paymentis received against a debt previously written of then it represents income and as such should be credited to an account styled as 'Bad debts
An amount due from a debtor may become irrecoverable either partially or wholly. Reason may be that he has been declared insolvent or any other. Such irrecoverable amount represents loss to the business and is debited to Bad debts amount.
7. Treatment of Bad debts recovered
It is evident from the above entry that whenever irrecoverable amount is written off the personal account is credited. If after some time any paymentis received against a debt previously written of then it represents income and as such should be credited to an account styled as 'Bad debts
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
recovered account'. Personal account must not be credited.
8. Treatment of personal expenses of the owner
It is quite common for the proprietor to withdraw cash or goods from the business for personal or domestic use. Sometimes premium on the life policy of the owner may also be paid by the business. Similarly income tax payable by the proprietor may be paid by business. All this represents owner's personal expenses and are debited to his personal account viz. Drawings account.
9. Treatment of payment/ receipt on behalf of customer or supplier.
In some cases business might pay expenses on behal
8. Treatment of personal expenses of the owner
It is quite common for the proprietor to withdraw cash or goods from the business for personal or domestic use. Sometimes premium on the life policy of the owner may also be paid by the business. Similarly income tax payable by the proprietor may be paid by business. All this represents owner's personal expenses and are debited to his personal account viz. Drawings account.
9. Treatment of payment/ receipt on behalf of customer or supplier.
In some cases business might pay expenses on behal
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
of its customers. Such payments do not constitute the expenditure of business. Hence it should be debited to the personal account of the concerned customer.
10. Treatment or exchange or new asset with old one.
Sometimes business may exchange its old asset with new one-only the difference in value is paid in cash. In such cases asset account needs debit only with the actual amount paid.
11. Treatment of goods given as charity/ advertisement.
Business might distribute goods as 'free samples' to advertise its products. In some cases it may also distribute goods as charity to boost its image. Both
10. Treatment or exchange or new asset with old one.
Sometimes business may exchange its old asset with new one-only the difference in value is paid in cash. In such cases asset account needs debit only with the actual amount paid.
11. Treatment of goods given as charity/ advertisement.
Business might distribute goods as 'free samples' to advertise its products. In some cases it may also distribute goods as charity to boost its image. Both
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
'advertisement' and 'charity' are expenses of the business, hence should be debited and purchases account should be credited.
12. Treatment of goods lost in accident/ fire.
In certain case a business might suffer loss of goods due to some accident or fire etc., destroyed or damaged goods might have been insured also. In such cases total value of goods lost or destroyed is credited to purchases account and the (i) insurance claim admitted is debited to Insurance Company (ii) balance is debited to loss by accident/ fire account.
13. Treatment of depreciation charged on fixed assets.
Fixed assets
12. Treatment of goods lost in accident/ fire.
In certain case a business might suffer loss of goods due to some accident or fire etc., destroyed or damaged goods might have been insured also. In such cases total value of goods lost or destroyed is credited to purchases account and the (i) insurance claim admitted is debited to Insurance Company (ii) balance is debited to loss by accident/ fire account.
13. Treatment of depreciation charged on fixed assets.
Fixed assets
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
are those properties/ possessions of the business which are used for carrying on of business viz. plant, machinery, building etc. Depreciation is the permanent decrease in the value of an asset due to wear and tear, passage of time and obsolescence. Depreciation is treated as a business expenditure. Depreciation account is debited and the respective asset account is credited.
14. Treatment of payment/ receipt of representative personal accounts.
At the close of the previous accounting year a business might have incurred expenditure which remained unpaid. It is known as 'Outstanding expenditure'.
14. Treatment of payment/ receipt of representative personal accounts.
At the close of the previous accounting year a business might have incurred expenditure which remained unpaid. It is known as 'Outstanding expenditure'.
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
It is a representative personal account. When actual payment is made in current accounting period the concerned account is debited and cash account is credited.
Advantages of Journal
(1) Transactions are recorded in the chronological order, thus reducing the chances of omitting any transaction.
(2) Transactions, invariably, are accompanied by narration. Thus, the entry is supplemented with basic information regarding the transactions.
(3) Debit and credit amounts are written side by side. It minimizes the chances of entering wrong amount.
Restricted use of Journal
Advantages of Journal
(1) Transactions are recorded in the chronological order, thus reducing the chances of omitting any transaction.
(2) Transactions, invariably, are accompanied by narration. Thus, the entry is supplemented with basic information regarding the transactions.
(3) Debit and credit amounts are written side by side. It minimizes the chances of entering wrong amount.
Restricted use of Journal
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
ong>
Originally the system of recording the financial transactions developed consisted of (1) writing each transaction, with narration, in the book of original entry, i.e.. Journal and then (2) posting therefrom to the respective accounts in the principal book, i.e., ledger. As the number of transactions' grew the system was modified and the transactions of similar nature say purchases, sales, cash etc. were recorded in sub-journal instead of journal for the following reasons:
(i) If too many transactions are recorded in journal it will be unwieldy.
(ii) In every business cash balance is r
Originally the system of recording the financial transactions developed consisted of (1) writing each transaction, with narration, in the book of original entry, i.e.. Journal and then (2) posting therefrom to the respective accounts in the principal book, i.e., ledger. As the number of transactions' grew the system was modified and the transactions of similar nature say purchases, sales, cash etc. were recorded in sub-journal instead of journal for the following reasons:
(i) If too many transactions are recorded in journal it will be unwieldy.
(ii) In every business cash balance is r
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
equired to be ascertained at frequent intervals, say, everyday: therefore it was found convenient to use a separate book for recording cash
transactions.
(iil) By recording transactions of similar nature. in one sub journal, say, purchases of goods in purchases journal saves time and efforts in recording and posting.
Because of the reasons listed above, nowadays, journal is used to record only such transactions which are infrequent. Now a days computerized accounting has made the entry of journal very easy and accurate.
Double Entry System
In the 15th century a Franciscan Mon
(iil) By recording transactions of similar nature. in one sub journal, say, purchases of goods in purchases journal saves time and efforts in recording and posting.
Because of the reasons listed above, nowadays, journal is used to record only such transactions which are infrequent. Now a days computerized accounting has made the entry of journal very easy and accurate.
Double Entry System
In the 15th century a Franciscan Mon
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
k, Lucas Pacioli, described a method of arranging accounts in such a way that the dual aspect (present in every account transaction) would be expressed by a debit amount and an equal and offsetting credit amount.
Double Entry system is the system under which each transaction is regarded to have two fold aspects and both the aspects are recorded to obtain complete record of dealings. Double Entry system of book keeping adheres to the rule. that for each transactions the debit amount (s) must equal the credit amount(s). That is why this system is called Double Entry.
Advantages of Double En
Double Entry system is the system under which each transaction is regarded to have two fold aspects and both the aspects are recorded to obtain complete record of dealings. Double Entry system of book keeping adheres to the rule. that for each transactions the debit amount (s) must equal the credit amount(s). That is why this system is called Double Entry.
Advantages of Double En
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
ry System
(i) It enables to keep a complete record of business transactions.
(ii) It provides a check on the arithmetical accuracy of books of accounts based on equality of debit and credit.
(iii) It gives the results of business activities either profit or loss during the accounting period.
(iv) It tells the financial position of the business at a point of time. Total resources of the business, claims of the outsiders, amount due by outsiders etc. are revealed by a statement known as Balance Sheet.
(v) It makes possible comparison of the current year with those of previous years help
(i) It enables to keep a complete record of business transactions.
(ii) It provides a check on the arithmetical accuracy of books of accounts based on equality of debit and credit.
(iii) It gives the results of business activities either profit or loss during the accounting period.
(iv) It tells the financial position of the business at a point of time. Total resources of the business, claims of the outsiders, amount due by outsiders etc. are revealed by a statement known as Balance Sheet.
(v) It makes possible comparison of the current year with those of previous years help
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
ing the owner to manage his business on better lines.
(vi) It reduces the chances of errors creeping in the accounting records because of its equality principle. .
(vii) It helps to ascertain the details regarding any account easily and accurately. Other systems of book-keeping. In addition to the double entry system, there is also single entry system.
The single-entry system is "a system of book-keeping in which as a rule only records of cash and of personal account are maintained; it is always incomplete double entry varying with circumstances. Such system may be economical but it is incomplet
(vi) It reduces the chances of errors creeping in the accounting records because of its equality principle. .
(vii) It helps to ascertain the details regarding any account easily and accurately. Other systems of book-keeping. In addition to the double entry system, there is also single entry system.
The single-entry system is "a system of book-keeping in which as a rule only records of cash and of personal account are maintained; it is always incomplete double entry varying with circumstances. Such system may be economical but it is incomplet
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
e, unscientific and full of defects.
Compound Journal Entries
If in a journal entry only one account is to be debited and only one account is to be credited then such an entry is 'Simple Journal Entry'. However, in some cases the entry may require more than one debit or credit or both. Such entries are known as compound entries. Compound entries should be created where
(i) Transaction occur on the same day
(ii) One aspect of these transactions is common; and
(iii) Accounts involved are more than two In fact compound entry is the combination of two or more simple journal ntries
Compound Journal Entries
If in a journal entry only one account is to be debited and only one account is to be credited then such an entry is 'Simple Journal Entry'. However, in some cases the entry may require more than one debit or credit or both. Such entries are known as compound entries. Compound entries should be created where
(i) Transaction occur on the same day
(ii) One aspect of these transactions is common; and
(iii) Accounts involved are more than two In fact compound entry is the combination of two or more simple journal ntries
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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