Accounting

Introduction

Human beings are social beings.

We live in a society

Society exists due to mutual give and take.

This give and take i.e. exchange is termed as “transaction”

Accounting has been widely and rightly termed as “the language of the business”

Language is the means of the communication.

Book Keeping

Science and art of recording the transactions in money or money’s worth so accurately and systematically that the true state of businessman’s affairs can be correctly ascertained.

Characteristics Of Book Keeping

Fundamental activity for recording business transactions.

Every transaction is properly analyzed before recording.

Transactions recorded relates to transfer of money or money’s worth.

Systematic method of recording. Science as well as an art. Provides enough information about the position

of various accounts.

Book Keeping ProcessIdentification of transaction

Posting in the ledger

Ledger account balancing

Preparation of trial balance

Necessity Of Book Keeping

–Limitation of human memory–Owners and managers are different

persons–Determination of amounts recoverable

and payable by the business–Need for financial information– Information needs of various users

Accounting starts where book keeping ends

Accounting is defined as “the art of recording, classifying and summarizing in terms of money

transactions and events of financial character and interpreting the results

thereof.”

Process Of Accounting

Accounting Cycle

JournalLedger

Trial Balance

Trading A/c

Profit & Loss A/c

Balance Sheet

Analysis of Data

Interpretation of data

Communication to the

users

Users of accountingINTERNAL USERS EXTERNAL USERS

Management Potential investors

Workers Present investors

Creditors

Customers and general publicTax authorities

Objectives Of Accounting

Maintenance of records of business transactions

Calculation of profit and loss

Depiction of financial position

Providing financial information to the users

Advantages of accounting

Provides complete & scientific recordsInformation

regarding performance and

positionEnables comparison

Evidence in legal matters

Complying with legal formalities

Valuation of business

Limitations of accounting

Permits alternative treatments

Influenced by personal

judgments

Ignores non monetary

information

Does not provide detailed analysis

Does not disclose the present value

of the business

Account

Personal a/c

Natural

personal

account

Artificial

personal

account

Representativ

e person

al accou

nt

Impersonal a/c

Real a/c

Tangibl

e real a/c

Intangib

le real a/c

Nominal a/c

Expenses or

loss a/c

Profit or gain a/c

Accounting terminology Proprietor/Owner Capital Drawings Business transactions Debtor Creditor Receivables /payables Goods Purchases/sales Assets Liabilities Profit / Loss