Accounting involves identifying, measuring, recording, classifying, summarizing, analyzing, interpreting, and communicating financial transactions according to generally accepted accounting principles (GAAP) and concepts. The key functions of accounting are to record, classify, summarize, interpret, and communicate financial information to help evaluate performance, make decisions, direct activities, and identify errors and fraud. Accounting provides information on profits, losses, assets and liabilities through real, personal and nominal accounts according to basic rules.

1. DEFINITION
 The process of identifying, measuring, recording,
classifying, summarizing, analyzing, interpreting,
and communicating the financial transaction.

2. FEATURE OF ACCOUNTING
 It is the art of recording, classifying, summarizing
business transaction.
 Helpful in taking managerial decision.
 Provide information about profit and loss.
 Helpful in directing of error and fraud.
 The result of these transaction must be
communicate to the concerned persons.

3. Accounting Principles
 If financial accounting is going to be useful, a company's
reports need to be credible, easy to understand, and
comparable to those of other companies. To this end,
financial accounting follows a set of common rules known
as accounting standards or generally accepted
accounting principles (GAAP, pronounced "gap").
 GAAP is based on some basic underlying principles and
concepts such as the cost principle, matching principle, full
disclosure, going concern, economic entity, conservatism,
relevance, and reliability. (You can learn more about the
basic principles in Explanation of Accounting Principles.)

4. FUNCTION OF ACCOUNTING
 Recording,
 Classifying,
 Summarizing,
 Interpreting,
 Communicating,
 Deal with financial transaction.

5. TYPES OF ACCOUNTS
1. Real Accounts – All asset of a firm, which are
tangible or intangible, fall under the category of
real accounts like building, machinery, stock,
goodwill, etc.
2. Personal Accounts – these accounts are related to
individual, firms, companies, etc. like debtor,
creditor, bank, capital, supplier, customer, etc.
3. Nominal Account – Account which are related to
income, expense, losses, gain are called nominal
account.

6. RULES OF ACCOUNTS
1. Real Accounts –
Debit what comes in,
Credit what goes out
2. Personal Accounts ––
Debit are receiver,
Credit are giver
3. Nominal Accounts -–
Debit all expenses and loss,
Credit all income and gain

7. CONCEPTS OF ACCOUNTING
 Accrual concepts – Account can be done on an
accrual or cash basis. In which transaction is recorded
when transaction occur and revenue is recognized.
 Business entity concept: A business and its owner
should be treated separately as far as their financial
transactions are concerned.
 Money measurement concept: Only business
transactions that can be expressed in terms of money
are recorded in accounting, though records of other
types of transactions may be kept separately.

8. CONCEPTS OF ACCOUNTING
 Dual aspect concept: For every credit, a
corresponding debit is made. The recording of a
transaction is complete only with this dual aspect.
 Going concern concept: In accounting, a business is
expected to continue for a fairly long time and carry out
its commitments and obligations. This assumes that the
business will not be forced to stop functioning and
liquidate its assets at “fire-sale” prices.
 Cost concept: The fixed assets of a business are
recorded on the basis of their original cost in the first
year of accounting. Subsequently, these assets are
recorded minus depreciation. No rise or fall in market
price is taken into account. The concept applies only to
fixed assets.

9. CONCEPTS OF ACCOUNTING
 Accounting year concept: Each business chooses a
specific time period to complete a cycle of the accounting
process—for example, monthly, quarterly, or annually—
as per a fiscal or a calendar year.
 Matching concept: This principle dictates that for
every entry of revenue recorded in a given accounting
period, an equal expense entry has to be recorded for
correctly calculating profit or loss in a given period.
 Realization concept: According to this concept, profit
is recognized only when it is earned. An advance or fee
paid is not considered a profit until the goods or services
have been delivered to the buyer.

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