Chapter # 01 ACCOUNTING: Accounting is process of analyzing, recording, classification, summarizing and prepared report of business.

USERS OF ACCOUNTING: Owners, Creditors, Manager, Employees, Government, Public

BOOK-KEEPING:The process of recording business transactions in books of accounting are called Book Keeping. Book-Keeping is an art of recording in books of accounts, transactions in money or moneys terms. The systematic recording of financial transaction of an enterprise is known as Book-Keeping. Book-Keeping may be defined as an art of recording business transactions in terms of money under appropriate heads.

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TYPES OF BOOK-KEEPING SYSTEM: There are two systems of book keeping (1) Single Entry System (2) Double Entry system

Explanation: (1) Single Entry System: Under this system we records only one aspect (side) of transaction and ignore the other aspects (sides). It is incomplete system Double Entry system: Under this system we record all aspects (sides) of transaction. It is complete system. Difference between Accounting and Book-keeping Book-keeping Scope of book keeping is limitted Book keeper is low knowledge and skill We cant take any decision from the work of book keeper Accounting Its scope is wider from book keeping Accountant have more knowledge & skill We can take decision from the work of accountant

(2)

Scope Knowledge & skill

Decisions

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ACCOUNT:It is a device which contains an increase or decrease in an item for a particular period. TYPES OF ACCOUNT:There are two approaches in accounting. 1. American approach. 2. British Approach Under American there are five types of account. Asset, Capital, liability, revenue, expenses Under British there are three types of account. Real, Personal, Nominal. Accounting Cycle: Step by step process of Accounting is called accounting cycle.

A CCOU N TIN G C YCLE

TR AN S ACTION

F IN AN CIAL S TATE ME N TS

J OU R N AL

ACCOU N TI N G CYCLE
AD J U S TE D TR AIL B ALAN CE

LE D GE R

TR IAL B ALAN CE

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Accounting Basic Terminologies

Business: It includes all those legal activities for the purpose of earning profit. Proprietor: A person who invests money or things in business is called owner or proprietor. Voucher: Any written evidence in support of a transaction is called voucher e.g. invoice, bill and cash memo etc. Cash memo: Any written proof for the goods purchased on cash. Invoice: Bill prepared by a seller of goods or services and submitted to the buyer. The invoice describes such items as date, customer, vendor, quantities, prices, freight, and credit terms of a transaction. Account: It is a device which contains an increase or decrease in an item for a particular period. Merchandise: The things purchased by a business organization for the purpose of reselling them in the same condition are called merchandise or goods. Purchases: The cost of merchandise is called purchases. It may be cash or credit. Sales: The amount earned from sale of goods is called sales. It may be cash sales or credit sales Revenues: All types of income received or accrued as Revenue. Expenses: For the achievement of business objective, certain payments are made. These are called expenses. Profit: The amount earned by a business organization after deducting the cost of the product from the revenues.
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 Loss: If the expenses or the cost of the product is higher than the revenue. It is called as loss. Trade Discount: When concession or allowance or rebate is given by seller to buyer on listed or scheduled price of goods at the time of sale is called trade discount. Cash Discount: a discount, which is allowed or received at the time of cash payment on credit sale or purchase, is called cash discount. e.g. 2% 10 Net 30: This means that discount of 2% will be allowed or received if payment/receipt is made within 10 days, otherwise the total amount is payable within 30 days. Cash discount has two types Discount Received Discount Allowed Commission: Remuneration for services performed by one person to another, normally on the percentage basis is called commission. Stock(Inventory): Goods or merchandise on hand, that is goods remaining unsold, is called stock (inventory) or stock in trade. Turnover: It means the total amount of sales during a particular period. It is called as inventory turnover or stock turnover. Balance: Balance means the difference. In accounting, it means the difference between the debit and credit sides of an account. Account Receivable/Debtor: A person to whom goods are sold on credit is called account receivable or debtor. Account Payable/Creditor: A person from whom goods are purchased on credit is called creditor, or Account Payable. Note Payable: A written document on which certain amount is to be paid on specific date is called Note or Bill Payable.

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 Notes Receivable: A written document on which certain amount is receivable on specific date is called as note/bill receivable. Cash Book: A book of original entry in which all cash receipts and payments are recorded as is called cash book. Bad Debts/Uncollectable: The amount which cannot be recovered from debtors and as such finally treated as loss is called bad debts or uncollectable. Assets: Resources that are owned by a business and are expected to benefit future operations, anything valuable possessed by a firm. E.g. cash, building, land, Account Receivable and furniture etc. Equity: The rights possessed by owners or outsiders against the assets of firm are called as equities. Internal Equity/owner fund Liabilities Drawings/Withdrawals: The cash or commodities withdrawn by the owner for his personal uses from business are known as drawings. Financial Statements: It means the statements prepared to show the financial positions of a business organization after a year are called financial statements. Income Statement: A statement which is prepared for the objective that how much profit is earned or how much loss is suffered by the organization for a specific period. Balance sheet: Balance sheet represents the financial position of a firm on a certain fixed date. Usually at the close of financial period. It has two sides, on one side the whole assets are written and on the other side Liabilities and owner equity is written

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