Process of Accounting

Process of Accounting

Input

Process

Output

Input – Identifying Economic events which measures in Financial Terms.

Process – Recording - Classifying - Summarizing - Analyzing - Interpreting

According to American Institute of Certified Public Accountants (AICPA), accounting is “the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part, at least, of a financial character and interpreting the results there of”

Internal Users

External Users

USERS of Accounting

Owners/Proprietors Managers Employees

Internal Users

Creditors Prospective Investors Government Customers Researchers Foreigners Entrepreneurs Tax Authorities Trade Associates Stock Exchanges Media Political Parties & Others

External Users

Cash Transaction Credit Transaction External Transaction Internal Transaction

Classifiction Of Business Transaction

A transaction which involves immediate cash/cheque receipt or payment is called cash transaction.

For e.g. goods sold to X for cash Rs.5000

Credit TransactionAn external transaction not involving immediate

cash receipt or payment is called credit transaction.

E.g. Purchase of goods on credit from Y

Cash Transaction

A transaction which involves the business entity and a second party is called an external transaction.

E.g. goods purchased on credit

Internal TransactionA transaction which doesn’t involve a second party

is called internal transaction.E.g. depreciation charged on machinery

External Transaction