Accountancy

definition of accounting according to AICPA

According to the American Institute of certified public accounting, accounting is an art of recording, classifying, and summarising in a significant manner and in terms of money, transactions and events that are, in part at least, of a financial character and interpreting the results thereof.

definition of accounting according to AAA.

The American Accounting Association defines accounting as the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.

Meaning of bookkeeping

Bookkeeping is a proper and systemic keeping of books of accounts. According to North Cott, bookkeeping is the art of recording in the books of accounts the monetary aspects of commercial or financial transactions

Accounting as a source of information

Accounting has three branches, which are financial accounting, cost accounting and management accounting

Objectives of accounting

1. maintaining of proper record of business

2. calculating profit or loss

3. providing effective control over the business

4. making information available to various groups

beneficiaries of accounting

1. customers

2. shareholders / owners

3. debt security holders

4. banks and other financial institituions

5. creditors

6. future investors

7. staff

8. government

9. stock exchanges

10. R and D organisations

Define Entity

Entity means a reality that has a definite individual existence. Business entity means, a specifically identifiable business enterprise.
eg. ITC ltd, D Mart, Canara Bank

Define transactions

An event involving some values between two or more entities. The economic event that relates to a business entity is called a business transaction.

types of transactions

1. cash transactions

2. credit transactions

Define Capital

Amount invested by the owner in the firm is known as capital. It may be brought in the form of cash or assets by the owner for the business entity capital is an obligation and a claim on the assets of business. It is therefore shown on the liability side of the balance sheet

Define Drawings

The amount withdrawn by the proprietor for private or personal use

define assets

The valuable things owned by a business are assets. It is the economic resources owned by the enterprise which can be expressed in monetary terms. Assets are items of value used by the business in its operations.

Classification of assets

1. fixed assets

2. floating assets

3. tangible assets

4. intangible assets

define fixed assets

These assets are acquired for the long term use of the business. these are not meant for sale

define floating assets

These assets are known as fluctuating or current assets. these assets values keep changing constantly during the business operation.

define tangible assets

assets that have physical existence that can be seen or touched

define intangible assets

these assets dont have a physical existence and cannot be touched

define liabilities

liabilities are the obligations or debts payable by the enterprise in the future in the form of money or goods

Classifications of liabilities

1. fixed liabilites

2. current liabilities

define fixed liabilities

these liabilities are paid after a long time

define current liabilities

liabilities payable within a year are termed as current liabilites. the values of these liabilities keeps changing.

Define Debtors

Individuals or other entities who owe to an enterprise. It represents the the persons or parties who have purchased on credit from us and have not paid for the goods sold to them.

Define creditors

creditors are persons and or are other entities who have to be paid by an enterprise an amount for providing the enterprise goods and serviceson credit.

define goods

articles purchased for sale at profit or processing by the business or for use in the manufacture of certain other goods as raw materials are known as goods

define purchases

purchases are total amount of goods procured by a business on credit and on cash, for use or sale

define sales

sales are total revenues from goods or services sold or provided to customers. sales maybe cash sales or credit sales

purchase return or return outwards

it is that part of purchases of goods, which is returned to the seller

sales return or return outwards

it is that part of sales of goods which are returned to businesses by purchasers

stock

the goods available with the business for sale on a particular date is termed as stock

income or profit

excess of revenue over expenses during an accounting year is termed as profit

gain

a profit that arises from events or transactions which are incidental to business such as sale of fixed assets winning a court case, appreciation in the value of an asset

expense

expenses are cost endured by the business in the process of earning revenues

expenditure

spending money or incurring a liability for some liability for some benefit, service or property recieved is called expenditure.
if the benefit of the expenditure is exhausted within a year, it is treated as an expense
if the benefit of an expenditure lasts for more than a year, it is treated as an asset.

define discount

discount is the reduction in the price of the goods sold.
trade discount - it is allowed by the seller to the buyer at an agreed percentage of price list at the time of selling goods. ( offered by manufacturer to wholesaler or wholesaler to retailer )

cash discount

this discount is given at the time of payment on the amount payable . cash recieved from a debtor or cash paid to a creditor

voucher

the documentary evidence in support of a transaction is known as vouchers.
for eg:
1. if we buy goods for cash, we get cash memo
2. if we buy goods on credit, we get an invoice
3. when we make a pyament we get a reciept

Losses

the excess of expenses of a period over its relative revenues, its termed as loss. it decreases owner’s equity, it also refers to money or money’s worth lost without recieving any benefit in return