1.Definition of accounting: “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”.
2.Book keeping: It is mainly concerned with recording of financial data relating to the business operations in a significant and orderly manner.
Branches of accounting:
- Financial accounting
- management accounting
- cost accounting
Branches of accounting:
Concepts of accounting:
- Separate entity concept
- Going concern concept
- Money measurement concept
- Cost concept
- Dual aspect concept
- Accounting period concept
- Periodic matching of costs and revenue concept
- Realization concept.
1.Business entity concepts :- According to this concept, the business is treated as a separate entity distinct from its owners and others.
2.Going concern concept :- According to this concept, it is assumed that a business has a reasonable expectation of continuing business at a profit for an indefinite period of time.
3.Money measurement concept :- This concept says that the accounting records only those transactions which can be expressed in terms of money only.
4.Cost concept :- According to this concept, an asset is recorded in the books at the price paid to acquire it and that this cost is the basis for all subsequent accounting for the asset.
5.Dual aspect concept :- In every transaction, there will be two aspects – the receiving aspect and the giving aspect; both are recorded by debiting one accounts and crediting another account. This is called double entry.
6.Accounting period concept :- It means the final accounts must be prepared on a periodic basis.
Normally accounting period adopted is one year, more than this period reduces the utility of accounting data.
7.Realization concept :- According to this concepts, revenue is considered as being earned on the data which it is realized, i.e., the date when the property in goods passes the buyer and he become legally liable to pay.
8.Materiality concepts :- It is a one of the accounting principle, as per only important information will be taken, and un important information will be ignored in the preparation of the financial statement.
9.Matching concepts :- The cost or expenses of a business of a particular period are compared with the revenue of the period in order to ascertain the net profit and loss.
10.Accrual concept :- The profit arises only when there is an increase in owners capital, which is a result of excess of revenue over expenses and loss.
Conventions of accounting:
- Conservatism
- Full disclosure
- Consistency
- Materiality.
Systems of Book Keeping:
- Single entry system
- Double entry system
Systems of accounting:
- Cash system accounting
- Mercantile system of accounting
Principles of accounting:
- Personal A/c: Debit the receiver
Credit the giver
- Real A/c: Debit what comes in
Credit what goes out
- Nominal A/c: Debit all expenses and loss
Credit all gains and incomes
journal Meanings
Meaning of journal: Journal is known as a day book, in this we record transactions and events in a chronological order.
Posting: It means transferring the debit and credit items from the journal to their respective accounts in the ledger.
Trail Balance: Trail balance is a statement containing the various ledger balances on a particular date.
Credit Note: The customer when returns the goods get credit for the value of the goods returned. A credit note is sent to him intimating that his a/c has been credited with the value of the goods returned.
Debit Note: When the goods are returned to the supplier, a debit note is sent to him indicating that his a/c has been debited with amount mentioned in the debit note.
Contra Entry: Which accounting entry is recorded on both the debit and credit side of the cash book is known as contra entry
Petty Cash Book: Petty cash book is maintained by business to record petty cash expenses of
the business, such as postage, cartage stationary ,etc.
Promissory Note: An instrument in writing containing an unconditional under taking signed by the maker ,to pay certain sum of money only to or to the order of a certain person or to the barer of the instrument .
Cheque: A bill of exchange drawn on a specified banker and payable on demand.
Stale Cheque: A stale cheque means not valid of cheque that means more then six months the cheque is not valid
Bank Reconciliation Statement: It is statement reconciling the balance as shown by the bank pass book and the balance as shown by the cash book . Obj: to know the difference and pass necessary correcting and adjusting entries in the books
Matching Concept: Matching means required proper matching of expanse with the revenue .
Capital Income: The term capital income means an income which does not grow out of or pertain to the running of the business proper.
Revenue Income: The income which arises out of and in the course of the regular business transactions of concerns.
Capital Expenditure: It means an expenditure which has been incurred for the purpose of obtaining a long term advantage for the business
Revenue Expenditure: It mans an expenditure that incurred in the course of regular business transactions of a concern.
Differed Revenue Expenditure: An expenditure which is incurred during an accounting period but is applicable further periods also. E.g. : Heavy advertisement.
Bad Debts: Bad debts the amount lost from debtors to whom the goods were sold on credit.
Depreciation: Depreciation denotes gradually and permanent decrease in the value of asset due to wear and tear, technology changes, laps of time and accident.
Fictitious Assets: These are assets not represented by tangible possession or property. Examples of preliminary expenses, discount on issue of shares, debit balance in the profit and loss account when shown on the assets side in the balance sheet.
Intangible Assets: An intangible asset means the assets which is not having the physical appearance. And its have the real value, it shown on the assets side of the balance sheet. Ex: Patents, copyrights, Trade marks, etc.
Accrued Income: Accrued income means income which has been earned by the business during the accounting year but which has not yet been due and therefore, has not been received.
Out Standing Income: Outstanding income means income which has become due during the accounting year but which has not so far been received by the firm.
Suspense Account: The suspense account is an account to which the difference in the trail balance has been put temporarily.
Depletion: It implies removal of an available but not replaceable source, such as extracting coal from a coal mine.
Amortization: The process of writing of intangible assets is term as amortization.
Dilapidation: The term dilapidations to damage done to a building or other property during tenancy.
Capital Employed: The term capital employed means sum of total long term funds employed in the business. i.e. (share capital + reserves & surplus + long term loans – (non business assets + fictitious assets)).
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