Tuesday, 28 June 2011

accounting glossaory

Greetings to fellow blog readers......

Meaning of Accounting: According to American Accounting Association Accounting is “the process of identifying, measuring and communicating information to permit judgment and decisions by the users of accounts”.
Users of Accounts: Generally 2 types. 1. Internal management.
2. External users or Outsiders- Investors, Employees, Lenders, Customers,
Government and other agencies, Public. 
Sub-fields of Accounting:
ü  Book-keeping: It covers procedural aspects of accounting work and embraces record keeping function.
ü  Financial accounting: It covers the preparation and interpretation of financial statements.
ü  Management accounting: It covers the generation of accounting information for management decisions.
ü  Social responsibility accounting: It covers the accounting of social costs incurred by the enterprise.
Fundamental Accounting equation:
                                                Assets = Capital+ Liabilities.
                                           Capital = Assets - Liabilities.
Accounting elements: The elements directly related to the measurement of financial position i.e., for the preparation of balance sheet are Assets, Liabilities and Equity. The elements directly related to the measurements of performance in the profit & loss account are income and expenses.
Four phases of accounting process:
ü    Journalisation of transactions
ü    Ledger positioning and balancing
ü    Preparation of trail balance
ü    Preparation of final accounts.

Book keeping: It is an activity, related to the recording of financial data, relating to business operations in an orderly manner. The main purpose of accounting for business is to as certain profit or loss for the accounting period.
Accounting: It is an activity of analasis and interpretation of the book-keeping records.
Journal: Recording each transaction of the business. 
Ledger: It is a book where similar transactions relating to a person or thing are recorded.
      Types: Debtors ledger
                  Creditor’s ledger
                  General ledger
Concepts: Concepts are necessary assumptions and conditions upon which accounting is based.
ü    Business entity concept: In accounting, business is treated as separate entity from its owners.While recording the transactions in books, it should be noted that business and owners are separate entities.In the transactions of business, personal transactions of the owners should not be mixed.
       For example: - Insurance premium of the owner etc...
ü    Going concern concept: Accounts are recorded and assumed that the business will continue for a long time. It is useful for assessment of goodwill.
ü    Consistency concept: It means that same accounting policies are followed from one period to another.
ü    Accrual concept: It means that financial statements are prepared on merchantile system only.

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