In accounting, there are four basic conventions in use: conservatism, consistency, complete disclosure, and materiality.
To grasp this concept, you must first comprehend the three critical financial statements for a business: the profit and loss statement, the balance sheet, and the statement of cash flows.
A cash book is a distinct ledger that records monetary transactions, whereas a cash account is a general ledger account. A cash book acts as both a journal and a ledger, whereas a cash account is organised similarly to a ledger.
Transactions are recorded in the double-entry system as debits and credits. Because a debit in one account cancels out a credit in another, all debits must equal all credits.
When a debit and credit influence the same parent account, resulting in a net zero effect on the account, a contra entry is entered. These are transactions between cash and bank accounts that are documented.
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