Lesson Objectives
On completion of this lesson, you will be able to understand
Accounting is a process of identifying, recording, summarising and reporting economic information
to decision makers in the form of financial statements. Financial statements will be useful to
the following parties:
There are basically three types of Accounts maintained for transactions :
On completion of this lesson, you will be able to understand
Real Accounts are Accounts relating to properties and assets, which are owned by the business concern. Real accounts include tangible and intangible accounts. For example,
Personal Accounts are Accounts which relate to persons. Personal Accounts include the following.
Nominal Accounts are Accounts which relate to incomes and expenses and gains and losses of a business concern. For example,
Sheet, Profit & Loss A/c and other MIS reports. The Assets and liabilities are taken to Balance
sheet and the Income and Expenses accounts are posted to Profit and Loss Account.
Golden Rules of Accounting
Accounting Principles, Concepts and Conventions
The Accounting Principles, concepts and conventions form the basis for how business transactions
are recorded. A number of principles, concepts and conventions are developed to ensure
that accounting information is presented accurately and consistently. Some of these concepts are
briefly described in the following sections.
Revenue Realisation
According to Revenue Realisation concept, revenue is considered as the income earned on the
date, when it is realised. As per this concept, unearned or unrealised revenue is not taken into
account. This concept is vital for determining income pertaining to an accounting period. It
reduces the possibilities of inflating incomes and profits.
Matching Concept
As per this concept, Matching of the revenues earned during an accounting period with the cost
associated with the respective period to ascertain the result of the business concern is carried out.
This concept serves as the basis for finding accurate profit for a period which can be distributed to
the owners.
Accrual
Under Accrual method of accounting, the transactions are recorded when earned or incurred
rather when collected or paid i.e., transactions are recorded on the basis of income earned or
expense incurred irrespective of actual receipt or payment. For example, a seller bills the buyer at
the time of sale and treats the bill amount as revenue, even though the payment may be received
later.
Going Concern
As per this assumption, the business will exist for a long period and transactions are recorded
from this point of view.
Accounting Period
The users of financial statements required periodical reports to ascertain the operational and the
financial position of the business concern. Thus, it is essential to close the accounts at regular
intervals. viz., 365 days or 52 weeks or 1 year is considered as the accounting period.
Accounting Entity
According to this assumption, a business is considered as a unit or entity apart from its owners,
creditors and others. For example, in case of a Sole Proprietor concern, the proprietor is treated
to be separate and distinct from the business, which he controls. The proprietor is treated as a
creditor to the extent of his capital and all the business transactions are recorded in the books of
accounts from the business stand point.
Money Measurement
In accounting, only business transactions and events of financial nature are recorded. Only transactions that can be expressed in terms of money are recorded.
On completion of this lesson, you will be able to understand
- Principles and concepts of Accounting
- Double Entry System of Accounting
- Financial Statements
Accounting is a process of identifying, recording, summarising and reporting economic information
to decision makers in the form of financial statements. Financial statements will be useful to
the following parties:
- Suppliers
- Customers
- Employees
- Banks
- Suppliers of equipments, buildings and other assets
- Lenders
- Owners
There are basically three types of Accounts maintained for transactions :
- Real Accounts
- Personal Accounts
- Nominal Accounts
On completion of this lesson, you will be able to understand
- Principles and concepts of Accounting
- Double Entry System of Accounting
- Financial Statements
Real Accounts are Accounts relating to properties and assets, which are owned by the business concern. Real accounts include tangible and intangible accounts. For example,
- Land
- Building
- Goodwill
- Purchases
- Cash
Personal Accounts are Accounts which relate to persons. Personal Accounts include the following.
- Suppliers
- Customers
- Lenders
Nominal Accounts are Accounts which relate to incomes and expenses and gains and losses of a business concern. For example,
- Salary Account
- Dividend Account
- Sales
- Assets
- Liabilities
- Income
- Expenses
Sheet, Profit & Loss A/c and other MIS reports. The Assets and liabilities are taken to Balance
sheet and the Income and Expenses accounts are posted to Profit and Loss Account.
Golden Rules of Accounting
Accounting Principles, Concepts and Conventions
The Accounting Principles, concepts and conventions form the basis for how business transactions
are recorded. A number of principles, concepts and conventions are developed to ensure
that accounting information is presented accurately and consistently. Some of these concepts are
briefly described in the following sections.
Revenue Realisation
According to Revenue Realisation concept, revenue is considered as the income earned on the
date, when it is realised. As per this concept, unearned or unrealised revenue is not taken into
account. This concept is vital for determining income pertaining to an accounting period. It
reduces the possibilities of inflating incomes and profits.
Matching Concept
As per this concept, Matching of the revenues earned during an accounting period with the cost
associated with the respective period to ascertain the result of the business concern is carried out.
This concept serves as the basis for finding accurate profit for a period which can be distributed to
the owners.
Accrual
Under Accrual method of accounting, the transactions are recorded when earned or incurred
rather when collected or paid i.e., transactions are recorded on the basis of income earned or
expense incurred irrespective of actual receipt or payment. For example, a seller bills the buyer at
the time of sale and treats the bill amount as revenue, even though the payment may be received
later.
Going Concern
As per this assumption, the business will exist for a long period and transactions are recorded
from this point of view.
Accounting Period
The users of financial statements required periodical reports to ascertain the operational and the
financial position of the business concern. Thus, it is essential to close the accounts at regular
intervals. viz., 365 days or 52 weeks or 1 year is considered as the accounting period.
Accounting Entity
According to this assumption, a business is considered as a unit or entity apart from its owners,
creditors and others. For example, in case of a Sole Proprietor concern, the proprietor is treated
to be separate and distinct from the business, which he controls. The proprietor is treated as a
creditor to the extent of his capital and all the business transactions are recorded in the books of
accounts from the business stand point.
Money Measurement
In accounting, only business transactions and events of financial nature are recorded. Only transactions that can be expressed in terms of money are recorded.
No comments:
Post a Comment