Accounting PDF

ACCOUNTING Branches of Accounting Financial Cost Management Accounting is a process of identifying, measuring Accounting Accounting Accoun...

ACCOUNTING Branches of Accounting Financial Cost Management Accounting is a process of identifying, measuring Accounting Accounting Accounting recording, classifying, summarising, analysing It deals with It deals with It deals with interpreting and communicating the financial maintenance accounting accounting business transactions in a useful manner. of books of which is which is accounts to concerned concerned Characteristics or Features or Attributes of determine with with decision- Accounting profitability controlling the making and financial cost of process of  Identification of Financial : It involves the position of the products management. identification of those transactions, which are business. manufactured of a financial nature and relate to the or services organisation. rendered.  Measurement of Transactions : Only those business transactions and events, which can BOOK-KEEPING, ACCOUNTING AND be quantified or measured in monetary terms, ACCOUNTANCY are considered.  Recording : Recording is the process of There is a fundamental difference between the entering business transactions of financial three terms. character in the books of original entry. Once the economic events are identified and 1. Book-keeping measured in financial terms, these are Book-keeping is the process of recording the recorded in books of accounts in monetary financial transactions and events of a business. terms and in a chronological order. It is a part of accounting and involves.  Classifying : It can be defined as the process of Identification of Financial Transactions and grouping transactions or entries of one nature Events. at one place. Measurement of Transactions in terms of  Summarising : It involves presenting the money, classified data in a manner which is Recording the financial transactions in understandable and useful to various users of Journal or Subsidiary Books, accounting statements. Classifying them through Ledger.  Analysing and Interpreting : Analysing and 2. Accounting interpreting the financial data helps users to Accounting is a broad term and in addition to make a meaningful judgment of the Book-keeping, it also includes summarising, profitability and financial position of the interpreting and communicating the financial business. It also helps in planning for the data to the interested parties. future in a better manner. 3. Accountancy  Communicating : It involves communicating Accountancy refers to systematic knowledge the financial statements to the various users of the principles and the techniques, which are i.e., management and other internal and applied in accounting. It has a wider approach external users. than accounting.  Uses of Accounting recording, classifying, summarising, analysing, interpreting and communicating the financial  Financial  Stakeholder information of the business. Reporting  Internal Following points highlighted the role of  Decision-making Control accounting in business:  Planning and  Auditing Maintenance of Systematic Records Budgeting  Legal  Assistance to Management  Tax Compliance Compliance  Facilities Comparative Study  Monitoring  Performance  Evidence in Court Performance Evaluation  Others  Resource  Historical Allocation Record Types of Accounting Information keeping Income Statement Cash Flow Objectives of Accounting Statement of Financial Statement Position  To maintain  To determine systematic record Financial USERS OF ACCOUNTING INFORMATION of Position The users may be categorised into Internal Users Business  To provide and External Users. Transactions information to  To ascertain various users Internal Users of Accounting Information Profit or Loss  To assist the 1. Owners: They need the accounting Management information to know the profitability and Advantages of Accounting financial soundness of the business.  Provides  Helpful in 2. Management: Management needs information Raising Loans accounting information to take various about Financial  Evidence in decisions. Performance Court 3. Employees: They use the information to  Provides  Help in assess the ability of the business to pay assistance to Decision higher wage. Management. Making External Users of Accounting Information  Facilitates Comparative 1. Banks and Financial Institutions: They Study need it to ensure safety and recovery of the bank advanced and regularity of the Limitations of Accounting interest amount.  Accounting does  Ignore the 2. Investors and Potential Investors: They not indicate the Qualitative are interested in knowing the earning Realisable Value information capacity of the business and safety of the  Ignores Effect of  Affected by investment. Price Level Window 3. Creditors: They need accounting Changes Dressing information to ascertain financial ROLE OF ACCOUNTING IN BUSINESS soundness and creditworthiness of the firm. Accounting is a process of identifying, measuring,  4. Public: Public is interested in the transactions at one place under a particular head accounting information to know the CAPITAL contribution of business towards the welfare of the society. Capital is the amount invested by the owner in the business QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION DRAWINGS  Reliability: Accounting intimation must be free Drawings refer to the withdrawal of money and/or from material error and personal biasness and goods by the owner from the personal use verifiable LIABILITIES  Relevance: Unnecessary and relevant Liabilities are obligations or debts that an intimation should not be included in financial enterprise has to pay at some time in the future. statements. Liability can be further classified as:  Understandability: Information should be (a) Non-Current Liability presented in such a manner that users can (b) Current Liability easily understand it.  Comparability: Users should be able to make ASSETS intra-firm and inter-firm companion. Assets are economic resources of an enterprise, SYSTEMS OF ACCOUNTING which can be expressed in terms of money. Assets can be further classified as: There are main two systems of recording  Current Assets: Current Assets are those transactions in the book of accounts assets which are held for short term period  Double Entry System refers to a system of with the purpose of converting them into accounting which recognises and records both cash within one year. aspects of a transaction.  Non-Current Assets: Non-Current Assets  Single Entry System is a system in which either are those assets which are held for long both aspects of transaction are recorded or term period in the business and are not only one aspect is recorded or not recorded at meant for resale all. INCOME BUSINESS TRANSACTION Income is the surplus of revenue over expenses Business Transaction is an economic activity of the i.e., it is the profit earned during a period. business, which changes its financial position. Characteristics of a Business Transaction: PROFIT It brings about a change in the financial position Profit is the excess of total revenues over total of the firm. expenses of a business enterprise for an It involves exchange of goods or services for accounting period. Profit is normally categorized money consideration. as Gross Profit and Net Profit. A transaction has two aspects a Debit and a Credit of equal amount. FIXED ASSETS A transaction may be a cash transaction or a Fixed Assets are those Non-Current Assets which credit transaction. are held for use in the business and are not meant ACCOUNT for resale. Fixed assets are further classified as: (a) Tangible Assets Account is a summarised record of related (b) Intangible Assets  (c) Fictitious Assets REVENUE RECEIPTS Revenue is total amount received or receivable from the sale of goods or services. Receipts refer to the amounts received or receivable by the business organisation from EXPENSE selling assets, goods or services. Receipts are of Expense is the cost incurred by a business in the two kinds namely: process of earning revenue. (a) Revenue Receipts (b) Capital Receipts GOODS EXPENDITURE Goods refers to the products in which the business unit is dealing, i.e., goods mean all the items which Expenditure refers to the amount spent or are purchased and sold in the ordinary course of liability incurred for acquiring assets, goods or business. services. Expenditure can be further classified as: STOCK OR INVENTORY (a) Capital Expenditure Stock or inventory refers to the goods held by a (b) Revenue Expenditure business for sale in the ordinary course of business (c) Deferred Revenue Expenditure or for consumption in the production of goods or services for sale. Stock may be opening stock and closing stock.