2. Definitions
1. Recording, classifying, summarising business
transactions and interpreting the results thereof.
3. 2. It is an information system whose purpose is to identify ,
collect, measure and communicate information about
economic units to those with an interest in the units
financial affairs. To permit judgment and decisions by
users of the information.
4. Functions of accounting
Systematic record of business transactions.
Protecting the property of the business.
Communicating results to the interested parties.
Compliance with legal requirements.
5. Advantages of accounting
Evidence in court.
Settlement of taxation liability.
Comparative study.
Sale of business.
Assistance to various parties.
6. Usefull accounting terminology
Capital:-
It means the amount (in terms of money or
assets having money value) which the proprietor has
invested in the firm or can claim from the firm.
For the firm Capital is a liability towards the
owner. It is so because the owner is treated to be
separate from the business.
7. Liabilities:-
If an amount is due to be paid to any other person
or institution other than the owner it is called as a liability.
Liabilities can be classified into following:
i) Long-term liabilities: These are those liabilities which are
payable after a long term, (generally more than one year).
Example; Long-term loans, debentures etc.
ii) Current liabilities: These are those liabilities which are
payable in near future ,(generally within one year).
Example; creditors, bank overdrafts, bills payable, shortterm
loans, etc.
8. Assets:-
Any physical thing or right owned that has a money
value is an asset. In other words, an asset is that
expenditure which results in acquiring of some property
or benefit of a lasting nature.
Assets can be classified as:
i) Fixed Assets: Fixed assets are those assets which are
purchased for the purpose of operating the business and
not for resale. E.g. land, building, machinery, furniture,
etc.
ii) Current Asset: Current assets are those assets of the
business which are kept for short term for converting into
cash. E.g. debtors, bills receivables, bank balance, etc.
9. Debtors:-
A person who owes money to the firm, generally on
account of credit sale of goods is called a debtor.
For e.g. When goods are sold to a person on credit
that person pays the price in future. He is called a debtor
because he owes the amount to the firm.
