Tuesday, October 25, 2016

Difference in opening balance “It simply means user entered the balance of opening balance sheet incorrectly” it may be an error of Omission (Eg forgot enter Bank balance) or Error of principle ( Eg Entering Debit balance as credit) Why Difference In opening Balance 1) In accounting there is concept called as Equity concept (ASSET=LIABILITY) , The name "balance sheet" is based on the fact that assets will equal liabilities and equity every time. 2) Difference in opening balance occurs when you enter opening balance of ledger without a proper balance sheet . 3) Other Chances during the operation of software are; Most of the time we adjust (increase or decrease) stock quantities or stock rates according to our convenience. This change will get affected in stock qty and values, but accounts value is still unchanged. If the user is very peculiar about the accounting part, he has to journalize the stock differences as an indirect income or indirect expense. 4) Most of the time customer won’t bother about the necessity of entering customer values from a balanced balance sheet. They will enter customer balances and stock balances to start the company billing. Such a practice should be avoided, if you are peculiar about the accounting 5) Change in stock valuation method after entering Stock ( Prate Valuation of stock /Cost Cate Valuation after year ending may impact the balance of the values ) Assumptions in inventory Biz regarding stock a) In our software, Difference in ledger opening balance should be equal to stock opening Balance b) We assume Stock taking is done after making trail balance, hence closing stock is taken at profit and loss account and balance sheet to provide the dual effect (double entry principle) Explaining the Equity concept From the large, multi-national corporation down to the corner beauty salon, every business transaction will have an effect on a company's financial position. The financial position of a company is measured by the following items: 1. Assets (what it owns) 2. Liabilities (what it owes to others) The accounting equation (or basic accounting equation) offers us a simple way to understand how these three amounts relate to each other. The accounting equation for a sole proprietorship is: Assets are a company's resources—things the company owns. Examples of assets include cash, accounts receivable, inventory, prepaid insurance, investments, land, buildings, equipment, and goodwill. From the accounting equation, we see that the amount of assets must equal the combined amount of liabilities plus owner's (or stockholders') equity. Liabilities are a company's obligations—amounts the company owes. Examples of liabilities include notes or loans payable, accounts payable, salaries and wages payable, interest payable, and income taxes payable (if the company is a regular corporation). Status of Balance sheet, when a company starts Business Case 1( Invested rs 100,000 in business as Cash) Liability Amount Asset Amount Capital 100000 Cash 100000 Total 100000 Total 100000 Status of Balance sheet; when a company after making transactions Case 2( Spend rs 25000 for Goods, 25000 for furniture ) Liability Amount Asset Amount Capital 100000 Cash 50000 Furniture 25000 Stock 25000 Total 100000 Total 100000 Case 3(given 10000 to AKG ENTERPRISES as advance for purchase, Got 20000 from Cheriyan Philip for as Sales Advance) Liability Amount Asset Amount Capital 100000 Cash 40000 AKG ENterprises 10000 Furniture 25000 Stock 25000 Cheriyan Philip 20000 Total 110000 Total 110000 This is the real Principle of Equity concept. But when we enter in software, we don’t care about the journal entry or double entry concept. Users simply enter the opening balances values of ledger and stock. How user enter values in Software (practical side) There may be a balance sheet at the end of year (31-march 2015) and they may be using manual billing or another billing software. Important aspects for most users will enter balances of Customers, Suppliers ,Item stock, Bank and Cash. Suppose they started using InventoryBiz Software on 1 September 2015 , typically they tend these values only Particular Debit Credit AKG enter prises 10000 Cheriyan Philip 20000 Stock 25000 Cash 20000 Bank 20000 Total 85000 10000 Difference in opening Balance 75000 This is the common and simple Example of Difference in opening Balance. (Error of omission)