Date post: | 21-Jul-2016 |
Category: |
Documents |
Upload: | gopal-krishnan |
View: | 30 times |
Download: | 0 times |
NEED AND IMPORTANCE
What has happened to the investment? What is the result of the business transactions? What are the earnings and expenses? How much amount is receivable /Payable from/
to customers From/To whom goods have been Purchased/ sold on
credit? What are the nature and value of assets & Liabilities
possessed by the business concern?
BOOK-KEEPING “ Is the science and art of correctly recording in the books of
account all those business transactions that result in the transfer of money or money’s worth”.
The branch of knowledge which tells us how to keep a record of business transactions.
Advantages: Permanent, Reliable & Arithmetical accuracy Net Results & Ascertainment of Financial Position & Progress Calculation of Dues, Taxation and Mgt. Decision making Control over Assets and borrowings Fixing the selling price & Legality issues Identifying Do’s and Don’ts
4
ACCOUNTING
American Accounting Association defines accounting as “the process of identifying, measuring and communicating economic information to permit informed judgements and decision by users of the information”
The systematic and comprehensive recording of financial transactions pertaining to a business.
The process of summarizing, analyzing and reporting these transactions.
OBJECTIVES
The main objectives of accounting are:1. To maintain accounting records2. To calculate the result of operations3. To ascertain the financial position4. To communicate the information to users
Business transacti
ons (monetary value)
IdentifyingRecordingClassifying
SummarizingAnalyzing
InterpretingCommunicating
Process
Information to Users
OutputInput
PROCESS OF ACCOUNTING
8
USERS ACCOUNTING INFORMATION
Owners & Management Employees & Trade Unions Creditors, Banks & Lending Institutions Potential Investors & Present Investors Government & Tax Authorities Regulatory Agencies & Researchers
9
BRANCHES OF ACCOUNTING Financial accounting
Recording business transactions in the books of accounts to found the operating result(FP) for a particular period
Cost accounting Collection, classification and ascertainment of the cost of
production or job undertaken by the firm Management accounting
For the purpose of policy formulation, planning, control and decision making by the management
BASIC ACCOUNTING TERMS1. Cash transaction
Cash receipt or payment2. Credit transaction Where cash is not involved immediately but will be paid or
received later3. Proprietor
A person who owns a business4. Capital
Amount invested by the proprietor in the business5. Assets
Properties belongings to the business
CONT…6. Liabilities
Financial obligations of a business. The amounts which a business owes to others.
7. Drawings The amount of cash or value of goods
withdrawn from the business by the proprietor for his personal use
CONT…8. DebtorsA person who receives a benefit without
giving money , but liable to pay in future or in due course of time is debtor
9. creditorsA person who gives a benefit without
receiving money , but to claim in future is a creditor
CONT…10. Purchases The amount of goods bought by a
business for resale or for use in the production.
11. Purchases return or returns outward When goods are returned to the
suppliers due to defective quality or not as per the terms of purchase
12.SALES The amount of goods sold that are
already bought or manufactured by the company.
CASH SALES Sold for Cash
CREDIT SALE Sold but payment are not received at that
time TOTAL SALES
= Cash Sales + Credit Sales
15. REVENUE Amount receivables or realized from sale of
goods Earnings from Interest, Commission,
Dividend etc. 16.EXPENSES
Amount spent in order to produce and sell the goods and services
17. INCOME Difference between Revenue and
Expenses = Revenue – Expenses.
21
ACCOUNTING EQUATION Fundamental Accounting Equation:Assets = Liabilities + Owners’ Equity
This equation is always in balance
In order for this equation to remain in balance, double-entry bookkeeping is employed. That is, the recording of every transaction or event must
have at least two parts Either an equal impact (increase or decrease) to both sides of the
equation or equal and opposite impact to one side. The recording of every transaction must keep this equation
in balance