accounting definition (1)

7/28/2019 Accounting Definition (1)

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Accounting definition:

Accounting is the art of summarization and classification of transaction.

Branches of Accounting:

There are three branches of accounting. Which are as follows:

1. Financial Accounting:

Financial accounting refers to information desccribing the financial resources,obligations

and activities of an economic entity(either an organization or an individual)

2. Managerial accounting:

It involves the development and interpretation of accounting information. Managers

make decision on the basis of cost.

If cost decreases,profit increases.

3. Cost accounting:

The accounting concepts and practices for measuring the cost of performing different

business activities and of manufacturing various products are called cost accounting.

ELEMENTS OF ACCOUNTING:

1. Assets:

Assets are economic resources which are owned by business and are expected to

benefit future operations.

2. Liabilities:

Liabilities are obligations and account payables.


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Liabilities generate when account payable increases.

3. Expenses:

Expenses are the cost of the goods and services used up in the process of earning

revenue.

4. Revenues:

Revenue is income generated by sales

Accounting Cycle:

The sequence of accounting procedure used to record, classify, and summarize

accounting information is often termed the accounting cycle.

Analyze transactions

Record data in journal

to ledger accounts

Prepare trial balance

Prepare financial statement

Income statement

Balance sheet

Cash flow

Journal:


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Journal is day by day record of business transactions. The information recorded about

each transactions includes the dates of transactions, the debit and credit changes in

specific ledger accounts and a brief explanation of transactions.

Ledger:

A ledger account is a device for recording the increases or decreases in one financial

statement item such as particular asset a type of liability owner's equity.

Trial balance:

A two column schedule listing the names in the debit or credit balances of all accounts

in the ledger.

Financial statements:

The principal means of reporting general-purpose financial information to person

outside a business organization is a set of accounting reports called financial statement.

Income statement:

An income statement indicating the profitability of the business over the proceeding

years. A statement of change in equity explaining certain changes in amount of the

owner equity (investment) in business.

Balance sheet:

A balance sheet showing at a specific date the financial position of the company by

indicating tge resources that it owns, the debts that it owes and the amount of the

owner's equity (investment) in the business.

Cash flow:

It finds net inflow and outflow of a company.

Main section of cash flow-investing, financing, operating.

Statement of changes in equity:


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Changes in company's capital.

Notes to the accounts:

Include further explanation of financial record of a company.

Accounting equation:

Assets=liabilities + capital

Compound entry:

When you have more than one debit or credit.

Debit amount must be equal to credit amount.

Dual aspect:

For every debit it must have credit or for every credit there must be debit.

Account:

Summarize record of transaction related to a single peraon or thing.

Double entry:

A system of recording every business transaction with equal amount of both debit and

credit entry. As a result of this system the accounting equation always remain in

balance; in addition the system makes possible the measurement of net income and

also the use error deducting devices such as trial balance.

>Debtor vs creditor

Debtor:

Account receivables.


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Basically those who owes money to others.

Creditors:

Account payables.

To whom money is own.

Dividends:

Distribution of profits among share holders.

Discount:

There are two types of discounts which are as follows;

Discount allowed:

The amount by which seller agrees to reduce his/her price to the customer.

Discount receive:

The amount by which purchaser receives a reduction in price from the seller.

Depreciation:

Systematic reduction in the value of fixed asset is called depreciation.

Subsidory and holding company:

First company-Holding company

Second company-Subsidory company

First company who takes more than 50% of share of another company is called holding

company. Company whos share are taken is called subsidory company.


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Holding company makes major decision and subsidory company makes minor decision.

Provision:

Uncertainity for a possible loss.

Basicaly relate to debtors

accounting definition (1)

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