Brain Dead Simple! explanation of basic accounting concepts for business and personal bookkeeping.Full description
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Guide on Lease Accounting in SAP
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Accounting Introduction Notes Career Collegiate Definition of Accounting: Accounting may be defined as the science as well as the art of recording financial transactions under appropriate accounts. The American Institute of Certified Public Accounts has define Accounting as “the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which in part, at least of a financial character and interpreting the results thereof !rom the above definition, we attribute the following Accounting emerge" #. It is an art of of recording recording financial financial transaction transactions. s. $. It is an art art of ma%ing ma%ing summaries summaries and and analyses analyses the financial financial transactions. &. It is an art of interpreti interpreting ng the results results of the financial financial transac transactions tions and communicating the results to the persons who are interested in it. Systems of Accounting There are basically two systems of accounting" (i) Cash Sy System of of Accounting: It is a system in which accounting entries are made only when cash is received or paid. 'o entry is made when a payment or receipt is merely due. Certain professional people and small business houses record their income on cash basis, but while recording e(penses they ta%e into account the outstanding e(penses also. In such a case, the financial statement prepared by them for determination of their income is termed as “)eceipts and *(penditure *(pen diture Account (ii (ii) Accr Accrua uall Sys Syste tem m of of Acc Accou oun ntin ting: It is a system in which accounting entries are made on the basis of amounts having become due for payment or receipt. This system recognizes the fact that if a transaction or an event has occurred+ its conseuences cannot be avoided and therefore should be brought into record in order to present a meaningful picture of profit earned or loss suffered during a period and also of the financial position of the firm concerned at the end of a period. Difference between cash and accrual system: The difference will be clear with the help of the following e(ample" A firm closes its boo%s on -ecember st each year. A sum of )s.,/// has become due for payment on account of rent for the year $///. The amount has, however been paid in 0anuary $//#. In this case, if the firm is following cash system of accounting, no entry will be made for the rent having become due in the boo%s of accounts of the firm in $///. The entry will be made only in 0anuary $//# when the rent is actually paid. 1owever, if the firm is following accrual system of accounting, two entries will be made" i. 2n -ecember st $///, rent account will be debited while the rent payable account will be credited by the amount of outstanding rent. ii. ii. In 0anu 0anuary ary $//# $//# rent rent payab payable le acco account unt will will be debit debited ed whil while e the the cash cash account will be credited with the amount of the rent actually paid. The 3Accrual system4 is considered to be better since it ta%es account the effects of all transactions already entered into. This system is followed by most of the industrial and commercial firms.
Career Collegiate 23G G Market Block 6 PECHS Ph 434!6
Accounting Introduction Notes Career Collegiate Fields of Accounting : Any business needs computation of profit and loss. The process of computing business computing business profit and loss is %nown as Accounting. *very business and every group of businesses have their own field of accounting. The following are three main fields of Accounting" I. !inancial Accounting. II. Cost Accounting. III. 5anagerial Accounting. I) Financial Accounting : All receipts and payments are recorded in a chronological order based on happening of transactions. At the end of a certain period total e(penses and loses are deducted from total revenue6 income which results in net gain or loss of the period all other field are also base the same. II) Cost Accounting/ Manufacturing : It is also %nown as manufacturing accounting. In the business of manufacturing or producing the product the profit is fully dependent upon the cost of product. As cost of product in minimum, the profit ratio will be greater. III) Managerial Accounting : The financial accounting data is set in order of the management reuirement in several dimensions or alternates, which is needed for decision7ma%ing and future planning. ature of Accounts and its meaning : 8e can say that by nature there are only five accounts in the world and thousands of accounts must be related to any one of the following nature" #. Assets $. 9iabilities &. Proprietorship :. )evenue . *(penses. !" Assets mean the resources of the business or the commodities possessed by the business. #" $iabilities mean the claims of the suppliers of cash or commodities or the obligation of the business to pay at a certain period. %" &ro'rietorshi' means the claims of the owner of the business for his interest up to his investment after finalizing the e(penses and revenue up to the date. " e*enue means any type of income directly or indirectly of the business. +" ,-'ense means any type of e(pense directly or indirectly of the business. ules for Debit and Credit : Debit ature of Accounts Credit Increase Assets -ecrease -ecrease 9iabilities Increase -ecrease Proprietorship Increase -ecrease )evenue6 Income Increase Increase *(penses -ecrease
Career Collegiate 23G G Market Block 6 PECHS Ph 434!6