Introduction to Accounting Basics | Explanation

Accounting Basics: Introduction

Accounting is the process of identifying, recording, classifying and reporting information on financial transactions in a systematic manner for the purpose of providing financial information for decision making. Basically, accounting is a finance support system that: 

  • Records transactions.
  • Classifieds transactions and events.
  • Expresses transactions in monetary terms.
  • Helps to monitor the financial performance and condition of the business.
  • Helps to evaluate the business.
  • Helps to establish controls for the business.

Introduction


1.1 Accounting Principles, Concepts and Conventions
1.2 Double Entry System of Book Keeping
1.3 Types of Accounts
1.4 Rules of Accounting
1.5 Mode of Accounting
1.6 Financial Statements


Business transaction:  

A business transaction is “The movement of money and money’s worth from one person to another. Or exchange of values between two parties is also known as Business Transaction.

Purchase:        


A purchase means goods purchased by a businessman from suppliers.

Sales:               


Sales is goods sold by a businessman to his customers.

Purchase Return or Rejection in or Outward Invoice:      


Purchase return means the return of the full or a part of goods purchased by the businessman to his suppliers.

Sales Return or Rejection out or Inward Invoice:    


Sales return means the return of the full or a part of the goods sold by the customer to the businessman.

Assets: Assets are the things and properties possessed by a businessman not for resale but for the use in the business.


Liabilities:   All the amounts payable by a business concern to outsiders are called liabilities.


Capital:           Capital is the amount invested for starting a business by a person.


Debtors:          Debtor is the person who owes amounts to the businessman.


Creditor:         Creditor is the person to whom amounts are owed by the businessman.


Debit:              The receiving aspect of a transaction is called debit or Dr.


Credit:             The giving aspect of a transaction is called credit or Cr.


Drawings:      Drawings are the amounts withdrawn (taken back) by the businessman from his business for his personal, private and domestic purpose. Drawings may be made in the form cash, goods and assets of the business.


Receipts:    It is a document issued by the receiver of cash to the giver of cash acknowledging the cash received voucher.


Account:      Account is a summarized record of all the transactions relating to every person, everything or property and every type of service.


Ledger:              The book of final entry where accounts lie.


Journal entries:   A daily record of transaction.


Trail Balance: It is a statement of all the ledger account balances prepared at the end of particular period to verify the accuracy of the entries made in books of accounts.


Profit: Excess of credit side over debit side.


Profit and loss account:   It is prepared to ascertain actual profit or loss of the business.


Balance Sheet:   To ascertain the financial position of the business. It is a statement of assets and liabilities.
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