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Accounting-A summary

This topic will provide you the Basic meaning of accounting. The Definitions of Accounting, Transactions & Events has been discussed. The Accounting process/cycle has been explained elaborately. The accounting users, Characteristics of Accounting, its limitations & its sub fields have been discussed.

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Accounting-A summary

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  1. Fundamentals of Accounting by CA Ashish Gupta

  2. LUCA PACIOLI: Developer of Accounting (in 1494) Oldest Accounting : Stewardship Accounting Accounting ( A Layman Introduction) Noting Down the transactions of a business entity. Reasons: • To memorize the business • To keep an evidence

  3. Transactions: Anything in financial terms. (measurable in Money) • Accounting is done for a specific business entity. Definition Accounting is an art of Recording, Classifying & Summarizing the transactions & events of a business which are of financial character & interpretation of the results there of.

  4. Analysis of Definition • Accounting is an Art : • It needs special knowledge of Accounting concepts, rules • Recording is done in a special way by passing a journal entry • Accounting is a special language of business. Note: Accounting can also be regarded a Science & a Management

  5. Accounting- a Cycle/Process • Identifying the financial transaction • Measuring the money value of the transactions • Recording the transactions • Classification of the recorded transactions • Summarizing the entire period transactions. • Interpretation /Analyses of the results. • Communicating the results to the interested users of business/accounts.

  6. Identifying / Measuring: It includes maintaining the Vouchers (a Documentary evidence) by the business Vouchers A source document / evidence maintained by a firm immediately after a transaction is occurred. From the vouchers, a journal entry is passed. Cash memo, Invoice, Debit/Credit note : examples of vouchers

  7. Transactions/Events • Transactions : Any expense, income, purchases, sales in money terms ( Salaries paid, purchases/sales of goods) • Events : The outcome/resultor a consequence of a transaction(s) is called as an event. (Closing Stock, Gross or Net Profit or Loss)

  8. Transactions as well as an Event • When transactions also resent into an outcome. • Examples: a. Bad debts : - Transaction :An expense/loss for the firm, - Event : Results in reduction of debtors. b. Purchase of asset in credit : - Transaction : Purchases of asset, - Event : Results in creation of a Liability

  9. Recording • An initial record/ noting of the business transactions (by passing Journal Entries) • Done in a book called “Journal” ( A Primary book) • Recording the entries is known as “Journalizing”. • Entries are passed in a “Chronological Sequence”

  10. Classification For ascertaining the informations relating to a specific account, it is necessary to compile all the entries related to that account in a separate ledger Account. • It is done in a Principal book called “Ledger” . • Writing of Journalized transactions into Ledger is called as “Posting”

  11. Book Keeping • Recording & Classifying :Daily routine activities. • A clerical activity maintained by Junior staff. • The accounting starts when the book keeping ends.

  12. Summarizing • After the daily book keeping, it is summarized at the period end. Firstly all the expenses ,incomes, assets & liabilities are compiled in a List of all accounts called “Trial Balance” Maintained to verify the arithmetical accuracy of the transactions entered in book keeping.

  13. Financial Statements • Trial Balance is Further segregated in two parts: Trading, Profit & Loss Account Balance Sheet (Expenses, losses, Incomes & gains) (Assets & Liabilities) Income Statement (Net Profit/loss) Position Statement Provides Result Determines Financial Position

  14. Accounting cycle

  15. Interpretation • Analysis of the accounting results & position of the business. to the various business users. • Interpretation tools like Ratio Analysis, Cash Flow statements , Comparative & Common size Statements can be used.

  16. Communication • Accounting is a financial reporting to be done to both Internal & External users. • Communication of Accounting is done by • providing all the users an annual report. • By arranging a meeting for the members (like Annual General Meeting)

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