This document provides an introduction to the concepts of accounting. It defines accounting as a system that collects and processes financial information to allow informed decisions by users. It discusses the need for accounting to determine results of business transactions and the financial position. It outlines the key functions of accounting like identifying, recording, classifying, summarizing, analyzing, interpreting and communicating financial information. It also discusses the accounting cycle and different branches and users of accounting information. Finally, it provides definitions of some basic accounting terms.
Accounting records, classifies, and summarizes business transactions to provide financial information to both internal and external users. It aims to determine profits and financial position, facilitate management control, and assess tax liability. However, accounting has limitations as it uses monetary values and estimates, and may be manipulated. The main accounting systems are cash basis, accrual basis, and mixed basis. Stakeholders like shareholders, creditors, management, employees, and the government rely on accounting information for decision making.
The document discusses key accounting principles including the four main financial statements, the basic accounting equation, and different types of accounts. It also covers topics like accrual versus cash accounting, depreciation, financial analysis methods, and financial ratios used to evaluate business performance and health. The document is intended to provide an overview of basic accounting concepts.
The ledger is the principal book of accounting that contains accounts where transactions are recorded. It collects all accounts from the journal and special journals. The ledger is useful for ascertaining the net result of transactions in an account on a given date. It organizes accounts by debit and credit sides, records journal folio references, and amounts. Ledger accounts are classified into five categories: assets, liabilities, capital, revenues/gains, and expenses/losses. Temporary accounts are closed at period end by transferring them to trading and profit and loss, while permanent accounts appear on the balance sheet.
This document provides an overview of key concepts in accounting theory and principles, including:
1) It defines common accounting terms like assets, liabilities, capital, revenues, and expenses. It also distinguishes between current and non-current assets/liabilities.
2) It outlines important accounting principles like business entity, dual aspect, accounting period, going concern, cost, and matching.
3) It discusses the objectives of accounting, accounting records like vouchers, and concepts like materiality, full disclosure, consistency and objectivity in financial reporting.
Here are some basics of accounting like its definition, steps involved in it, book-keeping, objectives of accounting, functions and limitations of accounting for the beginners.
It is been tried to explain all these things in a quite easy manner.
Hope that it matches what you were looking for.
The document provides an overview of the accounting process. It defines accounting and discusses its key principles and concepts. It describes the different branches and types of accounting. It then explains the accounting process which involves identifying transactions, preparing documents, recording transactions in a journal, posting to ledgers, preparing trial balances and final accounts such as profit and loss statements and balance sheets. It also discusses the different books of accounts used such as journals, ledgers and trial balances. Finally, it covers accounting systems and basics such as debits and credits, types of accounts and how to prepare and balance accounts.
This document discusses subsidiary books, which are books of original entry where transactions are first recorded. It provides examples of common subsidiary books like purchase books, sales books, cash books, bills receivable books and bills payable books. It also discusses the advantages of using subsidiary books and their various formats.
The document discusses accounting concepts and the accounting cycle. It defines accounting as a tool for decision making. It distinguishes between financial and management accounting based on their users. It also describes the key components of the accounting cycle including journalizing transactions, the general journal, debit and credit rules, and how the double-entry system ensures equal debits and credits.
Accounting records, classifies, and summarizes business transactions to provide financial information to both internal and external users. It aims to determine profits and financial position, facilitate management control, and assess tax liability. However, accounting has limitations as it uses monetary values and estimates, and may be manipulated. The main accounting systems are cash basis, accrual basis, and mixed basis. Stakeholders like shareholders, creditors, management, employees, and the government rely on accounting information for decision making.
The document discusses key accounting principles including the four main financial statements, the basic accounting equation, and different types of accounts. It also covers topics like accrual versus cash accounting, depreciation, financial analysis methods, and financial ratios used to evaluate business performance and health. The document is intended to provide an overview of basic accounting concepts.
The ledger is the principal book of accounting that contains accounts where transactions are recorded. It collects all accounts from the journal and special journals. The ledger is useful for ascertaining the net result of transactions in an account on a given date. It organizes accounts by debit and credit sides, records journal folio references, and amounts. Ledger accounts are classified into five categories: assets, liabilities, capital, revenues/gains, and expenses/losses. Temporary accounts are closed at period end by transferring them to trading and profit and loss, while permanent accounts appear on the balance sheet.
This document provides an overview of key concepts in accounting theory and principles, including:
1) It defines common accounting terms like assets, liabilities, capital, revenues, and expenses. It also distinguishes between current and non-current assets/liabilities.
2) It outlines important accounting principles like business entity, dual aspect, accounting period, going concern, cost, and matching.
3) It discusses the objectives of accounting, accounting records like vouchers, and concepts like materiality, full disclosure, consistency and objectivity in financial reporting.
Here are some basics of accounting like its definition, steps involved in it, book-keeping, objectives of accounting, functions and limitations of accounting for the beginners.
It is been tried to explain all these things in a quite easy manner.
Hope that it matches what you were looking for.
The document provides an overview of the accounting process. It defines accounting and discusses its key principles and concepts. It describes the different branches and types of accounting. It then explains the accounting process which involves identifying transactions, preparing documents, recording transactions in a journal, posting to ledgers, preparing trial balances and final accounts such as profit and loss statements and balance sheets. It also discusses the different books of accounts used such as journals, ledgers and trial balances. Finally, it covers accounting systems and basics such as debits and credits, types of accounts and how to prepare and balance accounts.
This document discusses subsidiary books, which are books of original entry where transactions are first recorded. It provides examples of common subsidiary books like purchase books, sales books, cash books, bills receivable books and bills payable books. It also discusses the advantages of using subsidiary books and their various formats.
The document discusses accounting concepts and the accounting cycle. It defines accounting as a tool for decision making. It distinguishes between financial and management accounting based on their users. It also describes the key components of the accounting cycle including journalizing transactions, the general journal, debit and credit rules, and how the double-entry system ensures equal debits and credits.
The document provides an overview of the history and evolution of accounting practices. It discusses how accounting originated in ancient civilizations like Babylon in 2600 BC and evolved into the double-entry system in 15th century Italy. It then covers the introduction of modern accounting in India in 1850 and defines key accounting concepts like bookkeeping, accounting, financial accounting, and cost accounting. Finally, it outlines the major users and principles of accounting.
This document provides an overview of accounting basics and principles. It defines accounting as the process of identifying, recording, and communicating financial information. The objectives of accounting are to provide useful information to decision makers through relevance, reliability, and other qualitative characteristics. The document outlines key accounting principles like the business entity, accrual basis, and matching principles. It also describes the main financial statements - the balance sheet, income statement, statement of cash flows, and statement of owners' equity - and their purpose in communicating financial information to both internal and external users of accounting data.
Accounting involves recording, classifying, and summarizing financial transactions and events in a way that adheres to generally accepted accounting principles (GAAP). It is both an art and a science - it applies scientific principles and methods (the science) but also involves judgment and decision making (the art). Proper accounting provides useful financial information to both internal and external users of the financial statements and allows for informed decision making.
- Subsidiary books are sub-divisions of the journal where transactions of a similar nature are recorded instead of one journal. This includes books like purchases book, sales book, returns book, and cash book.
- Maintaining subsidiary books provides benefits like proper recording of transactions, convenient posting, division of work, and prevention of errors. The cash book specifically shows the cash and bank balances and helps in effective cash management.
- There are different types of cash books - single column for only cash, double column with cash and discount, and three column with cash, discount, and bank columns. Subsidiary books like purchases book and sales book also have specified formats for recording transactions.
Accounting is the process of identifying, measuring, recording, classifying, summarizing, analyzing, interpreting and communicating financial information about an entity. It involves recording economic events which affect the financial position and performance of a business. The key functions of accounting include identifying transactions, measuring transactions in monetary terms, recording transactions methodically in books of accounts, classifying transactions into appropriate accounts, summarizing transactions periodically into financial statements, analyzing trends and relationships, interpreting financial statements for decision making and communicating essential information to users.
This document provides an introduction to accounting. It defines accounting as recording, classifying, and summarizing financial transactions and events in terms of money. Accounting involves recording transactions, classifying data into appropriate categories, and summarizing data to be useful for internal and external users. It discusses the different types of accounting activities and various accounting terms such as assets, liabilities, revenues, expenses, and financial statements.
Business transactions involve the exchange of value, such as goods or services for money, between two or more entities. There are two main types of transactions: cash transactions involving an exchange of cash, and credit transactions where payment is promised at a future date. Capital refers to the value invested in a business by its owner, while drawings refer to amounts withdrawn by the owner. Assets are items owned by a business that have value, and liabilities are amounts owed to outside parties. Revenue is the income generated from sales or services, while expenses are costs incurred to generate that revenue.
This document defines key accounting terminology used in bookkeeping and financial reporting. It explains that bookkeeping is the systematic recording of financial transactions, and that the journal and ledger are used to record transactions with debits and credits. It also defines accounting concepts like assets, liabilities, revenues, and expenses. Finally, it outlines the cash, accrual, and mixed bases of accounting.
This document provides definitions and explanations of key concepts in bookkeeping and accounting. It defines bookkeeping as recording business transactions in an organized manner. The double-entry system is described as recording each transaction with two entries, one as a debit and one as a credit. Advantages of the double-entry system include ensuring accuracy, enabling calculation of profits, and preventing fraud. Disadvantages include the cost and complexity of maintaining multiple accounting records.
This document discusses key accounting concepts and principles, including:
- Business entity, which treats a business and its owners as separate entities
- Money measurement, which records all transactions in monetary terms
- Going concern, which assumes a business will continue operating indefinitely
It also outlines principles such as historical cost, conservatism, consistency, and disclosure, and how they guide financial reporting. Challenges in revenue and expense recognition are addressed, along with users of financial statements and limitations of conventional reports.
This document provides an introduction to accounting basics. It defines accounting as the language of business that delivers financial information to various users. Accounting involves recording and interpreting business transactions expressed in monetary terms. The main purposes of accounting are to provide information about a business entity's results of operations, financial position, cash flows, and other useful information to both internal and external users for decision making. The key elements in accounting are assets, liabilities, capital/equity, income, and expenses, which are related through the accounting equation. Financial statements including the income statement, balance sheet, statement of cash flows, and notes to financial statements present the financial information in an organized manner and are interrelated.
Both the chapters journal and ledger along with the accounting cycle is resent in the PPT with their formats. It makes the learning of the chapters easy for an accountancy student.
Accounting is the technique of recording, classifying, and summarizing financial transactions and interpreting the results. It involves recording business transactions in journals and ledgers, grouping like transactions, and preparing financial statements like the trial balance, income statement, and balance sheet. The double-entry system records both aspects of each transaction to ensure accuracy and allow calculation of profit and financial position. Financial accounting focuses on external reporting while cost and management accounting support internal decision making.
Book-keeping is the recording and organizing of financial transactions for a business. It involves recording income and expenses in journals and ledgers, then summarizing the transactions to determine profit or loss over a period of time. The goal is to maintain accurate records of all monetary inflows and outflows so that financial reports can be produced and the business owner knows the overall financial performance and health of the company.
This document defines key concepts related to ledgers. It begins with defining a ledger as a summary of all transactions relating to an account over a period of time, showing the net effect. It then provides a flow chart and discusses the utilities of ledgers, including providing quick information on accounts, controlling transactions, preparing trial balances and financial statements. The document also covers the format of ledger accounts, the distinction between journals and ledgers, and the procedures for posting transactions to ledgers, including opening entries, compound entries, and balancing accounts.
This document provides an overview of basic accounting principles for an 11th grade class. It defines accounting as recording, summarizing, reporting and analyzing financial transactions. Generally Accepted Accounting Principles (GAAP) establish uniform rules for recording transactions to bring consistency to financial statements. Key principles discussed include the business entity, money measurement, going concern, accounting period concepts as well as revenue recognition, matching, accrual, full disclosure, consistency and conservatism. The objectives are for students to understand and apply these principles when recording business transactions.
The document provides an overview of accounting, including its objectives and uses. It discusses that accounting involves recording, classifying, and summarizing financial transactions. It notes that accounting is required wherever money is involved to account for economic resources. The document also outlines the basic accounting equation of Assets = Liabilities + Owner's Equity and discusses key accounting concepts such as revenues, expenses, assets, liabilities, the double-entry system. It explains that accounting provides important financial information to various stakeholders like owners, management, creditors, investors, and governments.
Accounting provides quantitative financial information to stakeholders to help them make informed business decisions. It involves identifying, measuring, recording and communicating economic information. The key financial statements are the income statement, balance sheet, statement of changes in equity, and cash flow statement. These statements provide information on a company's profitability, financial position, cash flows and changes in equity. Accounting plays an important role as the language of business and a decision-making tool.
The document provides an overview of the history and evolution of accounting practices. It discusses how accounting originated in ancient civilizations like Babylon in 2600 BC and evolved into the double-entry system in 15th century Italy. It then covers the introduction of modern accounting in India in 1850 and defines key accounting concepts like bookkeeping, accounting, financial accounting, and cost accounting. Finally, it outlines the major users and principles of accounting.
This document provides an overview of accounting basics and principles. It defines accounting as the process of identifying, recording, and communicating financial information. The objectives of accounting are to provide useful information to decision makers through relevance, reliability, and other qualitative characteristics. The document outlines key accounting principles like the business entity, accrual basis, and matching principles. It also describes the main financial statements - the balance sheet, income statement, statement of cash flows, and statement of owners' equity - and their purpose in communicating financial information to both internal and external users of accounting data.
Accounting involves recording, classifying, and summarizing financial transactions and events in a way that adheres to generally accepted accounting principles (GAAP). It is both an art and a science - it applies scientific principles and methods (the science) but also involves judgment and decision making (the art). Proper accounting provides useful financial information to both internal and external users of the financial statements and allows for informed decision making.
- Subsidiary books are sub-divisions of the journal where transactions of a similar nature are recorded instead of one journal. This includes books like purchases book, sales book, returns book, and cash book.
- Maintaining subsidiary books provides benefits like proper recording of transactions, convenient posting, division of work, and prevention of errors. The cash book specifically shows the cash and bank balances and helps in effective cash management.
- There are different types of cash books - single column for only cash, double column with cash and discount, and three column with cash, discount, and bank columns. Subsidiary books like purchases book and sales book also have specified formats for recording transactions.
Accounting is the process of identifying, measuring, recording, classifying, summarizing, analyzing, interpreting and communicating financial information about an entity. It involves recording economic events which affect the financial position and performance of a business. The key functions of accounting include identifying transactions, measuring transactions in monetary terms, recording transactions methodically in books of accounts, classifying transactions into appropriate accounts, summarizing transactions periodically into financial statements, analyzing trends and relationships, interpreting financial statements for decision making and communicating essential information to users.
This document provides an introduction to accounting. It defines accounting as recording, classifying, and summarizing financial transactions and events in terms of money. Accounting involves recording transactions, classifying data into appropriate categories, and summarizing data to be useful for internal and external users. It discusses the different types of accounting activities and various accounting terms such as assets, liabilities, revenues, expenses, and financial statements.
Business transactions involve the exchange of value, such as goods or services for money, between two or more entities. There are two main types of transactions: cash transactions involving an exchange of cash, and credit transactions where payment is promised at a future date. Capital refers to the value invested in a business by its owner, while drawings refer to amounts withdrawn by the owner. Assets are items owned by a business that have value, and liabilities are amounts owed to outside parties. Revenue is the income generated from sales or services, while expenses are costs incurred to generate that revenue.
This document defines key accounting terminology used in bookkeeping and financial reporting. It explains that bookkeeping is the systematic recording of financial transactions, and that the journal and ledger are used to record transactions with debits and credits. It also defines accounting concepts like assets, liabilities, revenues, and expenses. Finally, it outlines the cash, accrual, and mixed bases of accounting.
This document provides definitions and explanations of key concepts in bookkeeping and accounting. It defines bookkeeping as recording business transactions in an organized manner. The double-entry system is described as recording each transaction with two entries, one as a debit and one as a credit. Advantages of the double-entry system include ensuring accuracy, enabling calculation of profits, and preventing fraud. Disadvantages include the cost and complexity of maintaining multiple accounting records.
This document discusses key accounting concepts and principles, including:
- Business entity, which treats a business and its owners as separate entities
- Money measurement, which records all transactions in monetary terms
- Going concern, which assumes a business will continue operating indefinitely
It also outlines principles such as historical cost, conservatism, consistency, and disclosure, and how they guide financial reporting. Challenges in revenue and expense recognition are addressed, along with users of financial statements and limitations of conventional reports.
This document provides an introduction to accounting basics. It defines accounting as the language of business that delivers financial information to various users. Accounting involves recording and interpreting business transactions expressed in monetary terms. The main purposes of accounting are to provide information about a business entity's results of operations, financial position, cash flows, and other useful information to both internal and external users for decision making. The key elements in accounting are assets, liabilities, capital/equity, income, and expenses, which are related through the accounting equation. Financial statements including the income statement, balance sheet, statement of cash flows, and notes to financial statements present the financial information in an organized manner and are interrelated.
Both the chapters journal and ledger along with the accounting cycle is resent in the PPT with their formats. It makes the learning of the chapters easy for an accountancy student.
Accounting is the technique of recording, classifying, and summarizing financial transactions and interpreting the results. It involves recording business transactions in journals and ledgers, grouping like transactions, and preparing financial statements like the trial balance, income statement, and balance sheet. The double-entry system records both aspects of each transaction to ensure accuracy and allow calculation of profit and financial position. Financial accounting focuses on external reporting while cost and management accounting support internal decision making.
Book-keeping is the recording and organizing of financial transactions for a business. It involves recording income and expenses in journals and ledgers, then summarizing the transactions to determine profit or loss over a period of time. The goal is to maintain accurate records of all monetary inflows and outflows so that financial reports can be produced and the business owner knows the overall financial performance and health of the company.
This document defines key concepts related to ledgers. It begins with defining a ledger as a summary of all transactions relating to an account over a period of time, showing the net effect. It then provides a flow chart and discusses the utilities of ledgers, including providing quick information on accounts, controlling transactions, preparing trial balances and financial statements. The document also covers the format of ledger accounts, the distinction between journals and ledgers, and the procedures for posting transactions to ledgers, including opening entries, compound entries, and balancing accounts.
This document provides an overview of basic accounting principles for an 11th grade class. It defines accounting as recording, summarizing, reporting and analyzing financial transactions. Generally Accepted Accounting Principles (GAAP) establish uniform rules for recording transactions to bring consistency to financial statements. Key principles discussed include the business entity, money measurement, going concern, accounting period concepts as well as revenue recognition, matching, accrual, full disclosure, consistency and conservatism. The objectives are for students to understand and apply these principles when recording business transactions.
The document provides an overview of accounting, including its objectives and uses. It discusses that accounting involves recording, classifying, and summarizing financial transactions. It notes that accounting is required wherever money is involved to account for economic resources. The document also outlines the basic accounting equation of Assets = Liabilities + Owner's Equity and discusses key accounting concepts such as revenues, expenses, assets, liabilities, the double-entry system. It explains that accounting provides important financial information to various stakeholders like owners, management, creditors, investors, and governments.
Accounting provides quantitative financial information to stakeholders to help them make informed business decisions. It involves identifying, measuring, recording and communicating economic information. The key financial statements are the income statement, balance sheet, statement of changes in equity, and cash flow statement. These statements provide information on a company's profitability, financial position, cash flows and changes in equity. Accounting plays an important role as the language of business and a decision-making tool.
1. Accounting involves systematically recording, analyzing, classifying, summarizing, and interpreting business transactions and financial information.
2. The main purposes of accounting are to plan finances, keep financial records, enable information sharing, and use data to make decisions.
3. Accounting provides both internal and external users with financial information to assess a business's performance and financial position.
Introduction to financial accounts (for beginners) Rachana Chawda
This document provides an introduction to financial accounts and accounting principles. It defines three types of accounts - personal accounts, real accounts, and nominal accounts - and explains the rules of debit and credit for each. It also demonstrates a basic journal entry to record the purchase of machinery for cash. Finally, it outlines the key steps in reconciling a cash book balance with a bank statement, including identifying reconciling items like outstanding checks and deposits.
Accounting involves identifying, measuring, and communicating the economic information of a business entity to its users. It records transactions and events to determine the entity's financial position. Accounting identifies assets, liabilities, and equity through a system of debits and credits according to the dual aspect concept. The accounting process provides information to owners, managers, creditors, government, and others for decision making.
This document provides an overview of accounting concepts and principles. It defines accounting as identifying, recording, classifying and summarizing financial transactions and interpreting the results. The key characteristics are that accounting is an art that involves recording transactions in money terms and interpreting results. The main objectives of accounting are to provide financial information to various stakeholders like owners, creditors, and tax authorities.
This document discusses accounting as the language of business and the role of accounting information in decision making. It covers the importance of reliable accounting systems that generate financial and managerial accounting information for both external and internal users. Accounting information supports decisions regarding performance evaluations, investments, taxes, resource allocation, and more. The integrity of reported accounting information relies on generally accepted accounting principles, oversight organizations, and the professional competence and ethics of accounting practitioners.
Accounting provides information to both internal and external decision makers. It links economic activities with the decisions that influence those activities. There are two main types of accounting - financial accounting which provides external reporting to investors and creditors, and managerial accounting which provides internal reporting to managers. Financial accounting aims to provide useful information about resources, claims on resources, and changes to help users make investment and credit decisions. Managerial accounting aims to provide timely, decision-oriented information to help managers evaluate performance and make future decisions to help the organization achieve its goals.
This document discusses different methods for accounting for branch operations in the books of the head office, including the debtor system, final account system, and stock and debtors system. The debtor system records branch transactions through a branch account in the head office books. The final account system determines branch profit/loss through a branch trading and profit/loss account. The stock and debtors system provides more detailed information on branch assets, liabilities, debtors, and inventory movements.
- Financial accounting refers to accounting for revenues, expenses, assets, and liabilities. It involves basic processes like recording, classifying, and summarizing transactions for external users like customers and investors.
- Cost accounting deals with recording, classifying, allocating, and reporting current and prospective costs. It focuses on costs for internal reporting, for example calculating production costs.
- Managerial accounting provides information to various management levels to enhance controls and allow managers to monitor performance for internal decision making.
Accounting provides information to both internal and external decision makers. It links economic activities with the decisions that influence those activities. There are two main types of accounting - financial accounting which provides external reports for investors and creditors, and managerial accounting which provides internal reports for managers. Financial accounting aims to provide useful information about resources, claims on resources, and cash flows for investment and credit decisions. Managerial accounting aims to provide timely information to support decision making, assess performance, and help the organization achieve its goals.
1. Vouching involves establishing the accuracy and authenticity of accounting entries by examining documentary evidence supporting transactions.
2. A voucher is documentary evidence of a transaction, such as a receipt, invoice, or agreement.
3. The auditor must carefully examine vouchers to ensure they are properly numbered, dated, approved, and relate to the business. Attention should be paid to amounts, accounts, and names.
This document discusses different types of business branches including home branches, foreign branches, and dependent vs independent branches. It provides details on home branches, which are those located in the same country as the head office, and can be dependent or independent. Dependent branches do not maintain full transaction records, while independent branches do. The document also covers important terms like inter-branch transactions, goods in transit, and cash in transit. Finally, it discusses three methods for keeping accounting records for dependent branches: the debtors system, final account system, and stock and debtors system.
To set up vouchers, you must define number series, assign general ledger and bank accounts, and specify source codes for different voucher types. This involves setting up number series, accounts, and source codes in various setup windows like Number Series, Company Information, Source Code Setup, and General Ledger Setup. You can then create vouchers like contra vouchers, cash payment vouchers, and cash receipt vouchers by filling details on journal lines and posting.
In this slide presentation you will be introduced to the methods of Cost Accounting and why business organizations should follow methods of cost accounting impeccably. In this it is important to establish budget and actual cost of operations, processes, departments or products and the analysis of variances, profitability or social use of funds. This Slideshare will offer insight to entrepreneurs.
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This document discusses accounting for merchandising companies. It describes the operating cycle of merchandising companies, which involves purchasing inventory, selling inventory on credit, and collecting accounts receivable. The document also discusses the income statement and accounting systems used by merchandising companies, including perpetual and periodic inventory systems. It provides examples of journal entries under each system.
This document discusses different types of accounting vouchers used to record business transactions. It explains that a transaction voucher contains one debit and one credit and is used for simple transactions. A compound voucher contains multiple debits or credits and is used for more complex transactions. It also describes debit vouchers, credit vouchers, and complex/journal vouchers which are used for transactions with multiple debits and credits. The vouchers contain details of the transaction such as date, accounts, amounts, and approvals. Vouchers must be properly prepared, approved, and preserved for audit purposes.
Project on trial balance, p & l account, balance sheet.rgarude
This document is an introduction to a student project on trial balance, profit and loss account, and balance sheet for an accounting class. It provides background on the course and assignments. It discusses the objectives of reconciling accounting theory with practice through this project. The document thanks the teacher and school for providing the opportunity and resources for the project. The overall goal is to create a helpful reference for commerce and accounting students.
This document provides an introduction to accounting concepts. It defines accounting as the process of identifying, measuring, recording, classifying, summarizing, analyzing and communicating financial information about an entity. The key objectives and functions of accounting are also outlined, including maintaining records, calculating profits/losses, and communicating financial information to both internal and external users of the data. The accounting cycle and basic accounting terms like assets, liabilities, capital, revenue and expenses are then explained. Finally, the document discusses the different branches of accounting such as financial, cost, and management accounting.
This document provides an overview of basic accounting concepts and terms:
1) Accounting is defined as the process of recording, reporting, and interpreting financial information pertaining to an organization. It involves recording transactions, classifying them, and summarizing results to provide financial information to various users.
2) Bookkeeping is the process of recording accounting data and is a key part of accounting. Accounting also involves interpreting and communicating summarized financial information.
3) Key accounting terms are defined, including transactions, assets, liabilities, capital, revenue, expenses, and the accounting equation. The accounting equation expresses that assets equal liabilities plus owner's equity.
This powerpoint presentation is created by Gyanbikash.com for the students of class nine to ten from their accounting NCTB textbook for multimedia class.
This document provides an introduction to accounting basics for beginners. It discusses the importance of understanding financial accounting for managers and defines key terms. The three main financial statements are identified as the balance sheet, income statement, and statement of cash flows. Important users of financial statements are shareholders, lenders, customers, suppliers, and regulators. Four key assumptions of financial accounting are also outlined: reporting entity, going concern, periodicity, and consistency.
Accounting Basics For Beginners ACCOUNTING BASICS FOR BEGINNERS Module 1 Nat...Katie Robinson
This document provides an introduction to accounting basics for beginners. It discusses the importance of understanding financial accounting for managers and defines key terms. The three main financial statements are identified as the balance sheet, income statement, and statement of cash flows. Important users of financial statements are listed as shareholders, lenders, customers, suppliers, and regulators. Four basic assumptions of financial accounting are described: reporting entity, going concern, periodicity, and consistency. Key terms such as assets, liabilities, revenues, expenses, capital expenditures and revenue expenditures are also defined.
The document provides an introduction to accounting concepts and principles. It discusses how accounting records and measures financial transactions and provides information to various stakeholders. It defines accounting and outlines its objectives and users. It also describes key accounting terms, concepts and conventions like double-entry system, accounting equation, debits and credits rules. Finally, it discusses various books of accounts like journal, ledger, trial balance and accounting cycle.
This document provides an introduction to basic accounting principles. It discusses how accounting involves systematically recording all business transactions and defines bookkeeping as the process of recording these transactions. Accounting is then defined as the analysis and interpretation of the bookkeeping records to prepare financial statements.
Several key accounting terms are defined, including assets, equity, capital, liability, revenue, and expenses. The accounting cycle is described as the process of initially recording transactions in a journal, transferring them to ledger accounts, preparing a trial balance, and ultimately final accounts and a balance sheet. Finally, the document discusses accounting assumptions like going concern and accrual basis, and different systems for recording transactions like single and double entry.
This document provides an overview of accounting concepts, principles, and processes. It defines accounting as recording financial transactions and defines key terms like assets, liabilities, equity, revenues and expenses. It describes the accounting equation, accounting standards and various books of accounts used like journal, ledger, trial balance. It also summarizes accounting concepts like business entity, money measurement, going concern, dual aspect and key accounting conventions like consistency, full disclosure and conservatism.
Introduction
Needs and Role of Accounting
System of Accounting
Branches of Accounting
Objectives of Accounting
Generally Accepted Accounting principles : (Accounting Concepts and Conventions)
Documents in Accounting
This document provides an overview of basic accounting techniques and bookkeeping. It discusses accounting concepts like transactions, accounts, capital, liabilities, and the accounting equation. It describes the two stages of accounting - accounting and bookkeeping. Under bookkeeping, it explains journals, ledgers, trial balances and how they are used to prepare final accounts like trading accounts, profit and loss accounts, and balance sheets. The document also discusses types of accounts, types of transactions, classification of various accounts and different users of accounting information.
This document provides an introduction to accounting. It defines accounting as "the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information". The accounting equation Asset = Liability + Capital is introduced. Basic accounting terms like assets, liabilities, capital, income, and expenses are defined. The types of assets and liabilities are described. Finally, the key steps in the accounting cycle are outlined as identifying transactions, journalizing, posting to ledgers, preparing a trial balance, and financial statements like the trading account, profit and loss account, and balance sheet.
This document provides an overview of accounting basics and terminology. It defines business transactions, books of accounts, bookkeeping, and accounting. It distinguishes between bookkeeping and accounting, noting that bookkeeping records transactions while accounting analyzes and interprets records. The accounting cycle and functions of accounting are described as identifying, recording, classifying, summarizing, analyzing, interpreting, and communicating transactions and financial information. Key accounting concepts like assets, liabilities, equity, revenue, expenses, and drawings are defined. Account types like personal, impersonal, real, and nominal accounts are also classified.
This document outlines the topics covered in a course on fundamentals of accounting. It includes 5 units that cover topics such as basic bookkeeping concepts, preparation of financial statements, depreciation methods, and accounting for non-trading concerns. Key areas covered are journal entries, ledger, trial balance, bank reconciliation, single and double entry bookkeeping systems, accounting standards and concepts in India. The goal is to introduce foundational accounting principles and skills.
This document provides an introduction to basic accounting principles. It defines key accounting terms like assets, equity, revenue, expenses, and drawings. It explains the accounting cycle which involves recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements like the income statement and balance sheet. It also outlines the different accounting methods and classifications of accounts. The goal is to introduce the reader to the fundamentals of accounting and bookkeeping.
This document provides an introduction to basic accounting principles. It defines key accounting terms like assets, equity, capital, liability, revenue, and expenses. It also explains the accounting cycle which involves recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements like the income statement and balance sheet. Additionally, it discusses the different accounting methods, classifications of accounts, rules of debit and credit, and how transactions are recorded in a journal. The overall purpose is to establish the foundational concepts and process of accounting.
This document provides an introduction to basic accounting principles. It defines key accounting terms like assets, equity, capital, liability, revenue, and expenses. It also explains the accounting cycle which involves recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements like the income statement and balance sheet. Additionally, it discusses the different accounting methods, classifications of accounts, rules of debit and credit, and how transactions are recorded in a journal. The overall purpose is to establish the foundational concepts and process of accounting.
Accounting is the process of recording and reporting financial transactions and events, while bookkeeping is the process of recording transactions in the accounting system. The key differences are that bookkeeping is the initial recording of data, while accounting includes additional steps of analyzing, summarizing, and communicating financial information. Accounting requires specialized skills to interpret results, whereas bookkeeping is more routine data entry that can be performed by less experienced staff. Some basic accounting terms include assets, liabilities, expenses, revenues, profits, losses, and capital, which are used to track the financial position and performance of a business.
Accounting involves recording, analyzing, and reporting financial transactions in a standardized way. It helps evaluate past performance, current financial position, and future prospects of a business. Accounting provides key information to various stakeholders like owners, investors, creditors, employees and the government. The accounting process involves recording financial transactions in journals, posting them to ledger accounts, preparing an end-of-period trial balance, and ultimately financial statements like the income statement and balance sheet.
Accounting has existed since 2600 BC in ancient Babylon, though double-entry accounting originated in 15th century Italy. It involves identifying, measuring, classifying, and communicating an organization's financial information to help decision-making. The key aspects of accounting are assets, liabilities, equity, revenue, and expenses. Financial statements like the income statement, balance sheet, and statement of cash flows are prepared using accounting information.
Here are the journal entries for the transactions:
April 1:
Machinery A/c Dr. 12,000
Building A/c Dr. 15,000
Capital A/c (Ashok) Cr. 27,000
April 3:
Bank A/c Dr. 5,000
Cash A/c Cr. 5,000
April 5:
Purchase A/c Dr. 5,000
Creditors (Vishal) A/c Cr. 5,000
April 7:
Debtors A/c Dr. 3,000
Sales A/c Cr. 3,000
Chap19 time series-analysis_and_forecastingVishal Kukreja
This chapter discusses time-series analysis and forecasting. It covers computing and interpreting index numbers, testing for randomness in time series data, and identifying trend, seasonality, cyclical, and irregular components. It also describes smoothing-based forecasting models like moving averages and exponential smoothing, as well as autoregressive and autoregressive integrated moving average (ARIMA) models. The chapter aims to help readers compute and interpret index numbers, test for randomness, and use various forecasting techniques.
This document discusses index numbers and how they are used to measure inflation or deflation. It provides the formula for a simple price index and examples of common indices including the Retail Price Index. Weighted aggregate indices weight items by importance and can use either base year quantities (Laspeyres index) or current year quantities (Paasche index). Deflating a time series allows adjustment for inflation by dividing current values by an index to express them in base year prices. Graphs and comparisons of indices are used to examine changes over time.
This document discusses time series analysis and forecasting methods. It covers descriptive analysis techniques like index numbers and exponential smoothing to characterize patterns in time series data. It also covers inferential/forecasting methods like exponential smoothing, Holt's method, and regression models to predict future values in a time series. The learning objectives are to analyze time series data generated over time, present descriptive characterization methods, and present forecasting methods. Key concepts discussed include index numbers, exponential smoothing, time series components, measuring forecast accuracy, and autocorrelation.
This document discusses index numbers and how they are used to measure inflation or deflation. It provides the formula for a simple price index and examples of common indices including the Retail Price Index. Weighted aggregate indices weight items by importance and can use either base year quantities (Laspeyres index) or current year quantities (Paasche index). Deflating a time series allows adjustment for inflation by dividing current values by an index to express them in base year prices. Graphs and comparisons of indices are used to analyze changes over time.
Chap19 time series-analysis_and_forecastingVishal Kukreja
Trend + Seasonality + Cyclical + Irregular
Multiplicative Model
X t = Trend × Seasonality × Cyclical × Irregular
This chapter discusses time-series analysis and forecasting methods. It covers computing and interpreting index numbers, testing for randomness, and identifying trend, seasonality, cyclical and irregular components in a time series. It also describes smoothing-based forecasting models like moving averages and exponential smoothing, as well as autoregressive and autoregressive integrated moving average models. The chapter aims to help readers analyze time-series data and develop forecasts.
This document discusses index numbers, which are statistical values that measure changes in variables like price or quantity over time. It covers simple index numbers calculated for a single item, composite index numbers for multiple items, and weighted index numbers that account for quantities. The most commonly used index in Australia is the Consumer Price Index (CPI), which measures price changes in a fixed basket of consumer goods and services to indicate inflation and cost of living changes. The document provides formulas and explanations for simple, composite, weighted (Laspeyres, Paasche), and Fisher's ideal indexes.
The document discusses the accounting cycle and provides examples of classifying accounts, journalizing transactions, preparing ledger accounts, and posting journal entries to the ledger. It begins by classifying various accounts as personal, real, or nominal. Examples are then provided of journalizing transactions and posting the journal entries to update the appropriate ledger accounts. The key steps in journalizing, preparing ledger accounts, and posting entries from the journal to the ledger are outlined. Compound or combined journal entries involving multiple debits and/or credits are also introduced.
This document provides an introduction to the concepts of accounting. It defines accounting as a system that collects and processes financial information to allow informed decisions by users. It discusses the need for accounting to determine results of business transactions and the financial position. It outlines the key functions of accounting like identifying, recording, classifying, summarizing, analyzing, interpreting and communicating financial information. It also discusses the accounting cycle and different branches and users of accounting information. Finally, it provides definitions of some basic accounting terms.
Capital income includes money used to initially set up a business, share capital for companies, and further investments or loans to the business by owners or third parties. Revenue income is money received from normal business activities like sales, rent, and commissions. Capital expenditure involves purchasing, altering, or improving fixed assets that will be used for over one year, as well as improvements to existing fixed assets and legal costs for property purchases. Revenue expenditure consists of running expenses not directly related to sales, such as rent, utility bills, and vehicle operating costs.
This document discusses capital and revenue expenditures. Capital expenditures are incurred to acquire or improve assets used in business operations. Examples include purchasing machinery. Revenue expenditures are incurred to maintain assets and operate the business, like repairs and salaries. Deferred revenue expenditures provide benefits over multiple years, like research costs. Expenses must be classified correctly for financial reporting purposes like adhering to the matching principle and providing a true and fair view of financial performance.
Revenue expenditure is spending on day-to-day operations rather than long-term assets, while capital expenditure increases the value of fixed assets. For example, buying a car is capital expenditure and costs like petrol and tax are revenue. Sometimes spending must be split between capital and revenue, like when Regents spent £100,000 on a new building and repairs, with £80,000 for the new building as capital and £20,000 on repairs as revenue. Also, when a capital item is sold, the money received is a capital receipt, unlike revenue receipts from regular sales or rent.
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Content acquisition strategies are also discussed, highlighting the dual approach of purchasing broadcasting rights for existing films and TV shows and investing in original content production. This section underscores the importance of a robust content library in attracting and retaining subscribers.The presentation addresses the challenges faced by OTT platforms, including the unpredictability of content acquisition and audience preferences. It emphasizes the difficulty of balancing content investment with returns in a competitive market, the high costs associated with marketing, and the need for continuous innovation and adaptation to stay relevant.
The impact of OTT platforms on the Bollywood film industry is significant. The competition for viewers has led to a decrease in cinema ticket sales, affecting the revenue of Bollywood films that traditionally rely on theatrical releases. Additionally, OTT platforms now pay less for film rights due to the uncertain success of films in cinemas.
Looking ahead, the future of OTT in India appears promising. The market is expected to grow by 20% annually, reaching a value of ₹1200 billion by the end of the decade. The increasing availability of affordable smartphones and internet access will drive this growth, making OTT platforms a primary source of entertainment for many viewers.
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Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
2. Need and Importance of Accounting
What has happened to his investment?
What is the result of the business transactions?
What are the earnings and expenses?
How much amount is receivable from customers to
whom
goods have been sold on credit?
3. Need and Importance of Accounting
How much amount is payable to suppliers on
account of credit purchases?
What are the nature and value of assets
possessed by the business concern?
What are the nature and value of liabilities of
the business concern?
4. Accounting
Accounting is considered as a system which
collects and processes financial information of a
business. These information are reported to the
users to enable them to make appropriate
decisions.
5. Accounting : Definition
American Accounting Association defines accounting as
“the process of identifying, measuring and communicating
economic information to permit informed judgments and
decision by users of the information”.
6. Objectives
The main objectives of accounting are:
i. to maintain accounting records.
ii. to calculate the result of operations.
iii. to ascertain the financial position.
iv. to communicate the information to users.
8. Accounting : Functions
In order to accomplish its main objective of communicating information to
the users, accounting embraces the following functions.
i. Identifying: Identifying the business transactions from the source
documents.
ii. Recording: The next function of accounting is to keep a systematic
record of all business transactions, which are identified in an orderly
manner, soon after their occurrence in the journal or subsidiary books.
iii. Classifying: This is concerned with the classification of the recorded
business transactions so as to group the transactions of similar type at
one place. i.e., in ledger accounts. In order to verify the arithmetical
accuracy of the accounts, trial balance is prepared.
iv. Summarising : The classified information available from the trial
balance are used to prepare profit and loss account and balance sheet in a
manner useful to the users of accounting information.
9. Accounting :Function
v. Analyzing: It establishes the relationship between the items of the profit
and loss account and the balance sheet. The purpose of analyzing is to
identify the financial strength and weakness of the business. It provides the
basis for interpretation.
vi. Interpreting: It is concerned with explaining the meaning and
significance of the relationship so established by the analysis. Interpretation
should be useful to the users, so as to enable them to take correct decisions.
vii. Communicating: The results obtained from the summarized, analysed
and interpreted information are communicated to the interested parties.
10. Meaning of Accounting Cycle
An accounting cycle is a complete sequence of
accounting process, that begins with the recording
of business transactions and ends with the
preparation of final accounts.
12. Accounting Cycle
When a businessman starts his business
activities, he records the day-to-day transactions in
the Journal.
From the journal the transactions move further
to the Ledger where accounts are written up.
Here, the combined effect of debit and
credit pertaining to each account is arrived at in the
form of balances.
13. Accounting Cycle
To prove the accuracy of the work done, these balances
are transferred to a statement called trial balance.
Preparation of trading and profit and loss account is the
next step.
The balancing of profit and loss account gives the net result of
the business transactions.
To know the financial position of the business concern
balance sheet is prepared at the end.
14. Accounting Cycle
These transactions which have completed the current
accounting year, once again come to the starting point – the
journal – and they move with new transactions of the next year.
Thus,
this cyclic movement of the transactions through the
books of accounts (accounting cycle) is a
continuous process.
15. Users of Accounting Information
The basic objective of accounting is to provide information which
is useful for persons and groups inside and outside the organization.
I. Internal users: Internal users are those individuals or groups who
are within the organization like:
owners,
management,
employees and
trade unions.
16. Users of Accounting Information
II. External users: External users are those individuals or groups who
are outside the organization like:
creditors,
investors,
banks and other lending institutions,
present and potential investors,
Government,
tax authorities,
regulatory agencies and
researchers.
20. Branches of Accounting
Increased scale of business operations has made the management
function more complex. This has given rise to specialized
branches in accounting.
The main branches of accounting are:
Financial Accounting
Cost Accounting
Management Accounting
21. Branches of Accounting
Financial Accounting :
It is concerned with recording of business transactions in the books of
accounts in such a way that operating result of a particular period and
financial position on a particular date can be known.
Cost Accounting:
It relates to collection, classification and ascertainment of the
cost of production or job undertaken by the firm.
Management Accounting:
It relates to the use of accounting data collected with the help
of financial accounting and cost accounting for the purpose of policy
formulation, planning, control and decision making by the management.
22. Basic Accounting Terms
Transactions
Transactions are those activities of a business, which involve transfer of money or
goods or services between two persons or two accounts.
For example, purchase of goods, sale of goods, borrowing from bank, lending of
money, salaries paid, rent paid, commission received and dividend received.
Transactions are of two types, namely,
cash and
credit transactions.
Cash Transaction is one where cash receipt or payment is involved in the
transaction.
For example, When Ram buys goods from Kanha paying the price of goods by cash
immediately, it is a cash transaction.
Credit Transaction is one where cash is not involved immediately but will be
paid or received later.
In the above example, if Ram, does not pay cash immediately but promises to pay
later, it is credit transaction.
23. Basic Accounting Terms
Proprietor
A person who owns a business is called its proprietor. He contributes
capital to the business with the intention of earning profit.
Capital
It is the amount invested by the proprietor/s in the business.
This amount is increased by the amount of profits earned and the amount
of additional capital introduced.
It is decreased by the amount of losses incurred and the amounts
withdrawn.
For example, if Mr.Anand starts business with Rs.5,00,000, his capital
would be Rs.5,00,000.
24. Basic Accounting Terms
Assets
Assets are the properties of every description belonging to the
business.
e.g. Cash in hand, plant and machinery, furniture and fittings, bank balance, debtors,
bills receivable, stock of goods, investments, Goodwill.
Assets can be classified into:
tangible
intangible.
Tangible Assets: These assets are those having physical
existence.
It can be seen and touched.
For example, plant & machinery, cash, etc.
Intangible Assets: Intangible assets are those assets having no
physical existence but their possession gives rise to some rights and
benefits to the owner.
It cannot be seen and touched.
e.g. Goodwill, patents, trademarks.
25. Basic Accounting Terms
Debtors
A person (individual or firm) who receives a benefit without giving money
or money‟s worth immediately, but liable to pay in future or in due course of
time is a debtor.
The debtors are shown as an asset in the balance sheet.
For example, Mr. Arun bought goods on credit from Mr.Babu for
Rs.10,000.
Mr. Arun is a debtor to Mr.Babu till he pays the value of the goods.
Creditors
A person who gives a benefit without receiving money or money‟s worth
immediately but to claim in future, is a creditor.
The creditors are shown as a liability in the balance sheet.
In the above example Mr.Babu is a creditor to Mr.Arun till he receive the
value of the goods.
26. Basic Accounting Terms
Liabilities
Liabilities refer to the financial obligations of a business.
These denote the amounts which a business owes to others,
e.g., loans from banks or other persons, creditors for goods
supplied, bills payable, outstanding expenses, bank overdraft etc.
Drawings
It is the amount of cash or value of goods withdrawn from the
business by the proprietor for his personal use.
It is deducted from the capital.
27. Basic Accounting Terms
Purchases
Purchases refers to the amount of goods bought by a business for
resale or for use in the production.
Goods purchased for cash are called cash purchases.
If it is purchased on credit, it is called as credit purchases.
Total purchases include both cash and credit purchases.
Purchases Return or Returns Outward
When goods are returned to the suppliers due to defective quality
or not as per the terms of purchase, it is called as purchases return.
To find net purchases, purchases return is deducted from the total
purchases.
28. Basic Accounting Terms
Sales
Sales refers to the amount of goods sold that are already bought
or manufactured by the business.
When goods are sold for cash, they are cash sales
But if goods are sold and payment is not received at the time of
sale, it is credit sales.
Total sales includes both cash and credit sales.
Sales Return or Returns Inward
When goods are returned from the customers due to defective
quality or not as per the terms of sale, it is called sales return or
returns inward.
To find out net sales, sales return is deducted from total sales.
29. Basic Accounting Terms
Stock
Stock includes goods unsold on a particular date.
Stock may be opening and closing stock.
The term opening stock means goods unsold in the beginning of the accounting period.
Whereas the term closing stock includes goods unsold at the end of the accounting
period.
For example, if 4,000 units purchased @ Rs. 20 per unit remain unsold, the closing
stock is Rs.80,000. This will be opening stock of the subsequent year.
Revenue
Revenue means the amount receivable or realized from sale of goods and earnings
from interest, dividend, commission, etc.
30. Basic Accounting Terms
Expense
It is the amount spent in order to produce and sell the goods and
services.
For example, purchase of raw materials, payment of salaries,
wages, etc.
Income
Income is the difference between revenue and expense.
31. Basic Accounting Terms
Voucher
It is a written document in support of a transaction.
It is a proof that a particular transaction has taken place for the value stated in the
voucher.
It may be in the form of cash receipt, invoice, cash memo, bank pay-in-slip etc.
Voucher is necessary to audit the accounts.
Invoice
Invoice is a business document which is prepared when one sell
goods to another.
The statement is prepared by the seller of goods.
It contains the information relating to name and address of the seller
and the buyer, the date of sale and the clear description of goods
with quantity and price.
32. Basic Accounting Terms
Receipt
Receipt is an acknowledgement for cash received.
It is issued to the party paying cash.
Receipts form the basis for entries in cash book.
Account
Account is a summary of relevant business transactions at one place
relating to a person, asset, expense or revenue named in the
heading.
An account is a brief history of financial transactions of a particular
person or item.
An account has two sides called debit side and credit side.
34. Basic Assumptions
Accounting Entity Assumption
According to this assumption, business is treated as a unit or entity apart
from its owners, creditors and others.
In other words, the proprietor of a business concern is always considered
to be separate and distinct from the business which he controls.
All the business transactions are recorded in the books of accounts from
the view point of the business.
Even the proprietor is treated as a creditor to the extent of his capital.
Money Measurement Assumption
In accounting, only those business transactions and events which are of
financial nature are recorded.
For example, when Sales Manager is not on good terms with Production
Manager, the business is bound to suffer. This fact will not be recorded,
because it cannot be measured in terms of money.
35. Basic Assumptions
Accounting Period Assumption
The users of financial statements need periodical reports to know the
operational result and the financial position of the business concern.
Hence it becomes necessary to close the accounts at regular intervals.
Usually a period of 365 days or 52 weeks or 1 year is considered as the
accounting period.
Going Concern Assumption
As per this assumption, the business will exist for a long period and
transactions are recorded from this point of view.
There is neither the intention nor the necessity to wind up the business in
the foreseeable future.
36. Basic Concepts of Accounting
These concepts guide how business transactions are
reported.
Dual Aspect Concept
Revenue Realization Concept
Historical Cost Concept
Matching Concept
Full Disclosure Concept
Verifiable and Objective Evidence Concept
37. Basic Concepts of Accounting
Dual Aspect Concept
Dual aspect principle is the basis for Double Entry System of book-keeping.
All business transactions recorded in accounts have two aspects –
receiving benefit and
giving benefit.
For example, when a business acquires an asset (receiving of benefit) it must
pay cash (giving of benefit).
Revenue Realization Concept
According to this concept, revenue is considered as the income earned on the
date when it is realized.
Unearned or unrealized revenue should not be taken into account.
The realization concept is vital for determining income pertaining to an
accounting period.
38. Basic Concepts of Accounting
Historical Cost Concept
Under this concept, assets are recorded at the price paid to acquire them and this
cost is the basis for all subsequent accounting for the asset.
For example, if a piece of land is purchased for Rs.5,00,000 and its market
value is Rs.8,00,000 at the time of preparing final accounts the land value is
recorded only for Rs.5,00,000.
Thus, the balance sheet does not indicate the price at which the asset could be
sold for.
Matching Concept
Matching the revenues earned during an accounting period with the cost
associated with the period to ascertain the result of the business concern is
called the matching concept.
It is the basis for finding accurate profit for a period which can be safely
distributed to the owners.
39. Basic Concepts of Accounting
Full Disclosure Concept
Accounting statements should disclose fully and completely all the significant
information.
Based on this, decisions can be taken by various interested parties.
It involves proper classification and explanations of accounting information
which are published in the financial statements.
Verifiable and Objective Evidence Concept
This principle requires that each recorded business transactions in the books of
accounts should have an adequate evidence to support it.
For example, cash receipt for payments made. The documentary evidence of
transactions should be free from any bias.
As accounting records are based on documentary evidence which are capable of
verification, it is universally acceptable.
40. Modifying Principles
To make the accounting information useful to various interested parties, the
basic assumptions and concepts discussed earlier have been modified. These
modifying principles are as under.
41. Cost Benefit Principle
This modifying principle states that the cost of applying a principle should not be more than
the benefit derived from it. If the cost is more than the benefit then that principle should be
modified.
Materiality Principle
The materiality principle requires all relatively relevant information should be disclosed in
the financial statements. Unimportant and immaterial information are either left out or
merged with other items.
Consistency Principle
The aim of consistency principle is to preserve the comparability of financial statements.
The rules, practices, concepts and principles used in accounting should be continuously
observed and applied year after year. Comparisons of financial results of the business
among different accounting period can be significant and meaningful only when consistent
practices were followed in ascertaining them. For example, depreciation of assets can be
provided under different methods, whichever method is followed, it should be followed
regularly.
42. Prudence (Conservatism) Principle
Prudence principle takes into consideration all prospective losses but leaves all
prospective profits. The essence of this principle is “anticipate no profit and
provide for all possible losses”.
For example, while valuing stock in trade, market price or cost price whichever
is less is considered.
44. Double Entry System of Book Keeping
There are numerous transactions in a business concern. Each transaction, when
closely analyzed, reveals two aspects.
One aspect will be “receiving aspect” or “incoming aspect” or expenses/loss
aspect”. This is termed as the “Debit aspect”.
The other aspect will be “giving aspect” or “outgoing aspect” or “income/gain
aspect”. This is termed as the “Credit aspect”.
These two aspects namely “Debit aspect” and “Credit aspect” form the basis of
Double Entry System.
The double entry system is so named since it records both the aspects of a
transaction.
In short, the basic principle of this system is, for every debit, there must be a
corresponding credit of equal amount and for every credit, there must be a
corresponding debit of equal amount.
45. Meaning of Debit and Credit
The term „debit‟ is supposed to have derived from „debit‟;
the term „credit‟ from „creditable‟.
For convenience „Dr‟ is used for debit and „Cr‟ is used for credit.
Recording of transactions require a thorough understanding of the rules of
debit and credit relating to accounts.
Both debit and credit may represent either increase or decrease, depending
upon the nature of account.
46. The object of book-keeping is to keep a complete record of all the transactions that
take place in the business. To achieve this object, business transactions have been
classified into three categories:
(i) Transactions relating to persons.
(ii) Transactions relating to properties and assets
(iii) Transactions relating to incomes and expenses.
47. Contd…
The accounts falling under the first heading are known as „PERSONAL
ACCOUNTS’.
The accounts falling under the second heading are known as „REAL
ACCOUNTS’.
The accounts falling under the third heading are called „NOMINAL
ACCOUNTS‟.
The accounts can also be classified as personal and impersonal.
49. Types of accounts
Personal Accounts:
Accounts recording transactions with a person or group of persons are
known as personal accounts.
These accounts are necessary, in particular, to record credit transactions.
Personal accounts are of the following types:
(a) Natural persons:
An account recording transactions with an
individual human being is termed as a natural persons‟
personal account.
e.g.., Kamal‟s account, Mala‟s account, Sharma‟s accounts.
Both males and females are included in it.
(b) Artificial persons :
Accounts which relate to a group of persons or firms or
institutions.
e.g., HMT Ltd., Indian Overseas Bank, Life Insurance
Corporation of India, etc.
50. c. Representative Persons:
Accounts which represent a particular person or
group of persons.
For example, outstanding salary account, prepaid insurance
account, etc.
51. II. Impersonal Accounts:
All those accounts which are not personal accounts. This
is further divided into two types viz.
Real and
Nominal accounts.
i. Real Accounts:
Accounts relating to properties and assets which are
owned by the business concern.
Real accounts include tangible and intangible accounts.
For example, Land, Building, Goodwill, Purchases, etc.
ii. Nominal Accounts:
These accounts do not have any existence, form or shape.
They relate to incomes and expenses and gains and losses of a business
concern.
For example, Salary Account, Dividend Account, etc.
52. Golden Rules of Accounting
All the business transactions are recorded on the basis of the
following rules.
53. Accounting Equation
The source document is the origin of a transaction and it
initiates the accounting process, whose starting point is the
accounting equation.
Accounting equation is based on dual aspect concept (Debit
and Credit).
It emphasizes on the fact that every transaction has a two sided
effect i.e., on the assets and claims on assets.
Always the total claims (those of outsiders and of the
proprietors) will be equal to the total assets of the business
concern.
The claims are also known as equities, are of two types:
i.) Owners equity (Capital);
ii.) Outsiders‟ equity (Liabilities).
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54. Assets = Equities
Assets = Capital + Liabilities (A = C+L)
Capital = Assets – Liabilities (C = A–L)
Liabilities = Assets – Capital (L = A–C)
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55. Effect of Transactions on Accounting Equation
Illustration 1
If the capital of a business is Rs.3,00,000 and other liabilities are Rs.2,00,000,
calculate the total assets of the business.
Assets = Capital + Liabilities
Capital + Liabilities = Assets
Rs. 3,00,000 + Rs.2,00,000 = Rs.5,00,000
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56. Effect of Transactions on Accounting Equation
Illustration 2
If the total assets of a business are Rs.3,60,000 and capital is Rs.2,00,000, calculate
liabilities.
Assets = Capital + Liabilities
Liabilities = Assets – Capital
Assets – Capital = Liabilities
Rs. 3,60,000 – Rs. 2,00,000 = Rs. 1,60,000
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57. Effect of Transactions on Accounting Equation
Illustration 3
If the total assets of a business are Rs.4,50,000 and outside liabilities are
Rs.2,50,000, calculate the capital.
Capital = Assets – Liabilities
Assets – Liabilities = Capital
Rs. 4,50,000 – Rs. 2,50,000 = Rs.2,00,000
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58. Accounting Equation & Balance Sheet
Transaction 1: Murugan started business with Rs.50,000 as capital.
Assets = Capital + Liabilities
Cash = Capital + Liabilities
Rs. 50,000 = Rs. 50,000 + 0
Transaction 2: Murugan purchased furniture for cash Rs.5,000.
Assets = Capital + Liabilities
Transaction 1
Transaction 2
Equation
Cash + Furniture = Capital + Liabilities
50,000 +
0
= 50,000 +
0
(–) 5,000 +
5,000
=
0 +
0
45,000 +
5,000
= 50,000 +
0
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59. Transaction 3: He purchased goods for cash Rs.30,000.
As a result, cash balance is reduced by the goods purchased, leaving the total
of the assets unchanged.
Assets = Capital +Liabilities
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60. Transaction 4: He purchased goods on credit for Rs.20,000.
The above transaction will increase the value of stock on the assets
side and will create a liability in the form of creditors.
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61. Transaction 5: Goods costing Rs.25,000 sold on credit for Rs.35,000.
The above transaction will give rise to a new asset in the form of
Debtors to the extent of Rs.35,000. But the stock of goods will be reduced by
Rs.25,000 i.e., the cost of goods sold. The net increase of Rs.10,000 is the amount of
revenue which will be added to the capital.
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62. Transaction 6: Rent paid Rs.3,000.
It reduces cash and the rent is an expense, it results in a loss which
decreases the capital.
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63. Balance Sheet of Mr. Murugan
as on . . . . . . . . . . . . . .
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64. Nature of Account
The accounting equation is a statement of equality between the debits
and the credits. The rules of debit and credit depend on the nature of an
account. For this purpose, all the accounts are classified into the following
five categories in the accounting equation approach:1. Assets Accounts
2. Capital Account
3. Liabilities Accounts
4. Revenues or Incomes Accounts
5. Expenses or Losses Accounts
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