DEFINATION OF ACCOUNTING

1. BANDNA SHARMA

2. What is Accounting
 Accounting is used to give the information of money which
comes in business and go out from business
 OR
 Accounting is a process of recording, classifying and
summarizing financial transactions in a significant manner
and interpreting results.
 An account may be related to things which can be tangible
as well as intangible. For example – land, building,
furniture, etc..
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3.  An account is expressed in a statementform. It has two sides.
 The left-handsideof an account is called a Debit side whereasright-
hand side is called as Credit side.
 Thedebit is denotedas ‘Dr’ and credit is denotedas ‘Cr’.
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4. Types of account
Classification of Accounts in Accounting
1. Personal Account
2. Real Account
TangibleReal Account
IntangibleReal Account
3. Nominal Account
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5. Personal Account
1.Theseaccounts types are relatedto persons. Thesepersons may be real
entitylike Raj’saccount, Rajesh’saccount, Suresh’saccount, etc.
2. Thesepersonscan also be artificial personslike partnershipfirms,
companies, bodies corporate, an association of persons, etc.
For example – Rajesh and Suresh trading Co., Charitabletrusts, XYZ
Bank Ltd, C company Ltd, etc.
3. Therecan be personal representativeaccounts as well.
For example – In thecase of Salary, when it is payable toemployees, it is
known how much amount is payable toeach of theemployee. But
collectivelyit is called as ‘Salarypayable A/c’.
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6. Rule for this Account
For Example – Goodssold to Suresh. In this transaction,Suresh is a
personal account as being a natural person. His account will be debited
in theentryas thereceiver.
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Debit the receiver.
Credit the Giver.

7. Real account
Theseaccount types are relatedto assetsor properties. Theyare further
classifiedas Tangiblereal account and Intangiblereal accounts.
 Tangible Real Accounts
 Theseinclude assetsthat have a physical existenceand can be touched.
Forexample – Building A/c, cash A/c, stationeryA/c, inventoryA/c,
etc.
 Intangible Real Accounts
 Theseassetsdo not have any physical existenceand cannot be touched.
However, thesecan be measured in termsof moneyand have value. For
Example – Goodwill, Patent,Copyright, Trademark, etc.
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8. Real Account Rules
For Example – Furniturepurchased byan entityin cash. Debit furniture
A/c and credit cash A/c.
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Debit whatcomes into the business.
Creditwhatgoes out of business.

9. Nominal Account
 Theseaccounts types are relatedto income orgainsand expensesor
losses. Forexample: – RentA/c, commission received A/c, salary A/c,
wages A/c, etc.
 Rules:
 For Example – Salary paid to employeesof theentity. Salary A/c will
be debitedwhen theexpensesare incurred. Whereas, when an entity
receives any interest, discount, etctheseare creditedwheneverthese
are received by theentity.
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all the expenses and losses of the business.
Credit the incomes and gains of business.

10. Advantages of accounting
 Maintenanceof business records: It records all the financial
transactiontotherespectiveyear systematicallyin thebooksof
accounts.
 Preparationof financial statements: Financialstatementslike
Trading and profitand loss account, Balance Sheetcan be prepared
easilyif thereis a properrecording of transactions.
 Comparisonof results: It facilitatesthecomparison of thefinancial
resultsof oneyear with anotheryeareasily. Also, the managementcan
analyzethe systematicrecording of all the financial transactions
according to the policies of theentity.
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11.  Decision making: Decision making becomes easier for
management if there is a proper recording of financial
transactions. Accounting information enables management to
plan its future activities, make budgets and coordination of
various activities in various departments.
 Evidence in legal matter: The proper and systematic records of
the financial transactions act as evidence in further use.
 Helps in taxation matters: Various tax authorities like
income tax, indirect taxes depends on the accounts maintained
by the management for settlement of taxation matters
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12.  Valuationof business: For propervaluationof an entity’sbusiness
accounting informationcan be utilized. Thus, it helpsin measuring the
valueof theentityby using theaccounting informationin thecase of
saleof theentity.
 Replacementof memory: Properrecording of accounting
transactionsreplaces the need to remember transactions.
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