Accounting Concepts

Saturday, April 14, 2012
Quran and Bible have references Roman and Persian empires also The first book on accounting was written by a Croatian merchant Benedetto Cotrugli however the book went unpublished However, Luca Pacioli (1445 - 1517), also known as Friar Luca dal Borgo, is credited for the "birth" of accounting.
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Do you remember what did you eat last week??
Do you know how much did you spend day before??

Definition of Accounting
Art of recording, classifying & summarising in a significant manner, transactions that are of financial nature and interpreting results thereof. It is the language of business
The definition conveys the following:

Accounting is an Art Recording, Classifying & Summarising
Only Financial Transactions

Interpretation of results
It helps keep systematic records
Facilitates Business Control

Tells you the Net Result of Business Guides in decision making Communicate to people
. .
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Various Users of Accounts and Accounting Reports

Owners & Shareholders Managers Prospective Investors
Creditors, Bankers & Institutions .

Governments
Employees Regulatory Authorities

Researchers Consumers
BRANCHES OF ACCOUNTING
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Accounting Principles
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They are the basic assumption on which the Financial Accounts of an organisation are prepared. They are the desired standards.
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These are the Traditions on which the field of Accountancy relies. These have been the base of preparation of Profit and Loss Accounts
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Accounting Equation
CAPITAL = ASSETS
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CAPITAL Is the Contribution of the proprietor on the business into the business to initiate the business. It is the beginning, the first step to start a business
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Is it just possible to do business with the limited potential of the capital of a single individual?? YES
NO
If yes, the business will always be stagnant and routine. There will be no chance of growth and development. Therefore NO!!
Then where will you bring the additional resources from???
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Additional Requirement of Capital Comes through External Sources of Funds termed as LIABILITIES
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Accounting Equation
Therefore the modified Accounting Equation will be as under: CAPITAL + LIABILITIES
= ASSETS
Systems of Accounting
CASH SYSTEM
(it does not satisfy the basic concepts of accounting like Revenue Recognition and Revenue Matching principle)
ACCRUAL SYSTEM
If this is Accounting, then what is Book Keeping.
RELAX !!!
Book Keeping is the process of recording of the financial data in a systematic manner. It is highly monotonous and basically a lower level job. Accounting, on the other hand is a much more versatile and a dynamic field. It actually starts where the process of Book Keeping ends.
There are two systems of Book Keeping:

Single Entry System Double Entry System
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Our Focus will be mainly on the Double Entry System. It is a highly scientific method and has several benefits like Complete record, systematic, Accurate, Facilitates Comparison, show proper results, prevents fraud at least locate it.
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The Double Entry System has some rules to be followed.
These are governed by the Accounting Principles, Conventions and Concepts. The terminology used to identify things and the transactions is called Account. There is a classification required to be made.
CLASSIFICATION
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REAL ACCOUNTS
This category relates to the Accounting of such things that we can actually see, touch, feel or such things that can only be felt by virtue of their legal implications and meanings. Ex.: Land, Building, Patents Goodwill
RULE
PERSONAL ACCOUNTS
These accounts shows the impact of the transaction on the various natural and artificial people in existence.
They may be natural like human beings or artificial like Companies, Firms, Societies. Governments, stc
Rule
NOMINAL ACCOUNTS
There are two ways to look at this account classification. Either we can say it is a residual head or we can identify it by its nature and that is
These transactions explain the movement of cash like Expenses, Incomes, etc
Rule
Debit what comes in Credit what goes out
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Debit comes from debere, which means "to owe". The Latin debitum means "debt". Credit comes from the Latin word credere, which means "to believe". It is more common to use the terms in the plural, Debits and Credits. Debit is abbreviated as Dr., while credit is abbreviated as Cr. "Debit" also refers to the left side of a general ledger account, while "Credit" refers to the right side.
Debit the receiver Credit the giver
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Debit all Expenses/Losses Credit all Incomes/Gains
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VARIOUS BOOKS UNDER BOOK KEEPING

Journal Ledger Subsidiary Books
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Subsidiary Books
Purchases Sales Purchases Return Book Sales Return Book Bills Receivable Book Bills Payable Book Cash Book General Journal
CONCEPT OF EXPENSE
Before we look at what is P/L and BS let us understand the concept of Expense. Expense is the cost of doing the business, thereby earning Profits
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EXPENSES
REVENUE
CAPITAL
Deferred Revenue

Accounting Concepts

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Saturday, April 14, 2012

Saturday, April 14, 2012

Saturday, April 14, 2012 3

Do you remember what did you eat last week??

Do you know how much did you spend day before??

The definition conveys the following:

Only Financial Transactions

It helps keep systematic records

Facilitates Business Control

Various Users of Accounts and Accounting Reports

Creditors, Bankers & Institutions .

Employees Regulatory Authorities

Saturday, April 14, 2012

Saturday, April 14, 2012

Saturday, April 14, 2012

Saturday, April 14, 2012

Saturday, April 14, 2012

Saturday, April 14, 2012

Saturday, April 14, 2012

Saturday, April 14, 2012

Then where will you bring the additional resources from???

Saturday, April 14, 2012

Saturday, April 14, 2012

If this is Accounting, then what is Book Keeping.

There are two systems of Book Keeping:

Saturday, April 14, 2012

Saturday, April 14, 2012

The Double Entry System has some rules to be followed.

Saturday, April 14, 2012

Debit what comes in Credit what goes out

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Debit the receiver Credit the giver

Saturday, April 14, 2012

Debit all Expenses/Losses Credit all Incomes/Gains

Saturday, April 14, 2012

Saturday, April 14, 2012

Saturday, April 14, 2012

VARIOUS BOOKS UNDER BOOK KEEPING

Saturday, April 14, 2012

Saturday, April 14, 2012

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