How a Cram Up Works in Bankruptcy?
In most bankruptcy cases, senior classes of creditors have more power as compared to junior classes of creditors. This means that the re-organization plans are generally meant to satisfy the needs of senior classes of creditors. However, there are some cases in which companies give importance to the needs of junior stakeholders as well. There […]
Venture Debt in Startup Funding
Whenever the subject of startup funding is mentioned, the audience automatically assumes that equity investments are being discussed. This is because it is the big equity deals that are mentioned in the newspapers which catch the attention of the world. However, equity funding is not the only way in which startup founders can raise capital. […]
How Credit Enhancement Works?
Credit enhancement refers to the artificial restructuring of credit products which results in the improvement of its credit rating. In simple words, if a bond being issued by an entity has credit rating BB+, it can use credit enhancement techniques to increase its credit rating to AA+ or so. There are obvious benefits of using […]
A Primer on Private Placements
When we think about investment banks, as well as the activities that they undertake, we tend to think about initial public offerings, debt syndication, and other such activities that are very visible to the public eye. However, the reality is that a lot of investments that are routed via investment banks are actually private placements. […]
Poseidon Bubble in the Australian Stock Market
Nickel Shortage During the 1970’s, nickel was in extremely short supply in the world. This is because Canada was the largest supplier of nickel and there were certain supply issues with the Canadian nickel. On the other hand, the demand for nickel was booming given the Vietnam War which was underway. Therefore, as a result […]
The double entry system of bookkeeping is said to have revolutionized growth in modern business. It is only because businesses are able to keep track of their growing scale of transactions efficiently that they grow further. This has been facilitated by a well designed, error preventing accounting system called the double entry system. Here are more details about this system:
In a double entry bookkeeping system there are two sides to every transaction. The sides are equal in magnitude i.e. the debits must always equal the credits.
When a firm grows beyond a certain size it has to use double entry system of accounting. This is both because it is mandated by law as well as because it is the most efficient system.
Double entry accounting system keeps a record of all major accounting transactions. These could be transactions outside the firm with third parties. Or they could be intra firm transactions where raw material has now been converted to Work In Progress (WIP). By making sure every record about credit as well as intra firm transactions is being accounted for, double entry system provides the most accurate record.
As the scale of a business grows, it becomes more prone to clerical errors. A clerk accounting for a large number of transactions all day is bound to make some mistakes. However, the double entry system does not allow these mistakes to have a cascading effect. This is because the system is constantly checking whether total debits equal total credits. When they are not, accountants know they are dealing with an error. They can then find out the error, correct it and then move forward. This saves a lot of time and builds incredible accuracy in the system.
However the double entry accounting system is not 100% error proof. There is a possibility that an entry may have been completely omitted or that there may have been compensating errors done while passing the entry.
Just like reconciliation, when a business grows, more and more responsibilities need to be entrusted to workers. Many times this leads to frauds by the workers as they embezzle cash and make use of resources for personal benefits. However, the double entry accounting system, when used correctly prevents such situations from arising. The system has strong inbuilt controls to avoid misuse of any resources.
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An Overview of Contracts and Why They are Important to Business and Society
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