3. ACCOUNTING
Accounting is the language of business.
The affairs and the results of the
business are communicated to others
through accounting information, which
has to be systematically recorded and
presented.
4. Accounting cont….
Accounting can be defined as the process of
identifying, measuring, recording and
communicating the economic events of an
organization to the interested users of the
information.
5. Accounting VS Accountancy
Accounting focuses on recording, summarizing
,collecting and reporting.
while accountancy is far extensive it covered
the entire body of theory and practices
includes many other areas, such as
forecasting, auditing, bookkeeping, taxation,
and financial decision-making
6. Branch of Accounting
Accounting have come into existence of the
various branches.
1. Financial Accounting
2. Cost Accounting
3. Managerial Accounting
8. Business Entity
In simplest terms, a business entity
is an organization created by an
individual or individuals to conduct
business, engage in a trade or partake
in similar activities. There are various
types of businesses.
Selling Service
Selling Goods
Manufacturing Goods
9. Type of Business Organization
(Entity)
There are three main form of business
organization
Sole Proprietorship
Partnership
Joint Stock company
10. ASSETS
These are economic resources of an
enterprise that can be usefully expressed in
monetary terms. Assets are things of value
used by the business in its operations.
Fixed Assets
Current Assets
11. ASSETS continue…
Fixed Assets are assets held on a long-
term basis.
e.g. Land, Building, Machinery, Plant,
Furniture and Fixtures, etc.
12. ASSETS continue…
Current Assets are assets held on a
short-term basis.
e.g. Debtors, Bills receivable,
Stock(Inventory), Cash and Bank
balances, etc.
13. Goods or Merchandise
· All those thing in which the business deals
All goods are assets but all assets may be
goods
e.g. sale, Purchased, and stock
14. LIABILITIES
These are obligations or debts that the
enterprise must pay in money or services at
some time in the future.
• Long-term liabilities
• Short-term liabilities
15. LIABILITIES continue..
Long-term liabilities are those that are
usually payable after a period of one year.
e.g. A term loan from a financial institution,
16. LIABILITIES continue..
Short-term liabilities are obligations that
are payable within a period of one year.
e.g. Creditors, bills payable, overdraft from
a bank for a short period.
17. CAPITAL
Investment by the owner for use in the firm
is known as capital. Owner’s equity is the
ownership claim on total assets. It is equal
to total assets minus total liabilities.
18. REVENUES
These are the amounts the business earns
by selling its products or providing services
to customers. Other titles and sources of
revenue common to many businesses are:
sales, fees, commission, interest, dividends,
royalties, rent received, etc.
19. EXPENSES
These are costs incurred by a business in
the process of earning revenue. Generally,
expenses are measured by the cost of
assets consumed or services used during an
accounting period. The usual titles of
expenses are: depreciation, rent, wages,
salaries, interest, costs of heat, light and
water, telephone, etc.
20. PURCHASES
Purchases are total amount of goods
procured by a business on credit and for
cash, for use or sale. In a trading concern,
purchases are made of merchandise for
resale with or without processing.
In a manufacturing concern, raw materials
are purchased, processed further into
finished goods and then sold. Purchases
may be cash purchase or credit purchase.
21. SALES
Sales are total revenues from goods or
services sold or provided to customers.
Sales may be cash sales or credit sales.
22. STOCK
Stock (Inventory) is a measure of
something on hand – goods, spares and
other items – in a business.
It is called stock on hand.
23. STOCK: continue…
In a trading concern, the stock on hand is
the amount of goods which have not been
sold on the date on which the balance sheet
is prepared. This is also called closing
stock.
24. STOCK continue…
In a manufacturing concern, closing stock
comprises raw materials, semi-finished
goods and finished goods on hand on the
closing date.
Similarly, opening stock is the amount of
stock at the beginning of the accounting
year.
26. Keeping systematic records
The first function of accounting is to keep a
systematic record of financial transactions,
to post them to the ledger accounts and in
the end prepare final statements.
27. Protecting properties of the
business
The second important function is to protect
the property of the business. The system
accounting is designed in such a way that it
protects its assets from an unjustified use.
28. Meeting legal requirements
The third and the last function of accounting
is to meet the legal requirements under the
Companies Act, Income Tax Act, Sales Tax
Act and so on.
29. THE ACCOUNTING CYCLE
Recording transactions in subsidiary books.
Classifying data by posting from subsidiary
books to the accounts.
Closing the books and preparation of final
accounts.
30. Accounting Cycle
Analyze and
record the
transactions
Post the
transactions
and prepare
trial balance
Adjust the
accounts
and prepare
trial balance
Close the
accounts and
prepare trial
balance
Prepare the
financial
statements
31. CLASSIFICATION OF ACCOUNTS
Every business deal with other “Person”, possesses
“Assets”, pay “Expenses” and receive “Income”.
So from the above, we can see every business
has to keep
• An account for each person
• An account for each asset and
• An account for each expense or income.
32. CLASSIFICATION OF ACCOUNTS
• Accounts in the names of persons are known as
“Personal Accounts”
• Accounts in the names of assets are known as
“Real Accounts”
• Accounts in respect of expenses and incomes
are known as “Nominal Accounts”
34. What is personal and impersonal
account?
A personal account can be described as an
account that is used for the personal needs
of the maker of that account.
On the other hand, an impersonal account
can be described as an account which is not
personal and it can be used by other people
who are given access to it
35. PERSONAL ACCOUNTS
Accounts in the name of persons are known as
personal accounts.
Natural personal A/C ( Human being, Babu A/C, )
Artificial personal A/C ( in eyes of law Partnership
a/c)
Representative personal A/C ( Salaries of
employees a/c)
36. REAL ACCOUNTS
These are accounts of assets or properties. Assets
may be tangible or intangible. Real accounts are
impersonal which are tangible or intangible in
nature.
Eg:- Cash a/c, Building a/c, etc are Real
Accounts related to things which we can
feel, see and touch.
Goodwill a/c, Patent a/c, etc Real Accounts
which are of intangible in nature.
37. NOMINAL ACCOUNTS
These accounts are impersonal, but invisible and
intangible. Nominal accounts are related to those
things which we can feel, but can not see and
touch. All “expenses and losses” and all “incomes
and gains” fall in this category.
Eg:- Salaries A/C, Rent A/C, Wages A/C, Interest
Received A/C, Commission Received A/C,
Discount A/C, etc.
