لخّصلي

1.OBJECTIVES

To Know the Solvency Position

Vakoub

Objectives of Accounting

Providing Information to the Users for Rational Decision-making

Systematic Recording of Transactions

Ascertainment of Results of above Transactions

Ascertain the Financial Position of Business Financial Accounting

Financial Accounting is based on the monetary transactions of the enterprise.The capital assets which have no physical existence and whose value is limited by the rights and anticipated benefits that possession confers upon the owner are known as intangible Assets, e.g. Goodwill, Patents, Trademarks, Copyrights, Brand Equity, Designs, Intellectual Property, etc.DEFINITION

Definition by the American Institute of Certified Public Accountants (Year 1961)

"Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are. are, in part at least, of a financial character, and interpreting the result thereof".s to confirm or witness (vouch) for some ach) for some

o A voucher is a document that shows goods have been bought or services have been rendered, authorizes

payment, and indicates the ledger account(s) in which these transactions have to be recorded,

Receipt Voucher

Payment Voucher

Types o of Vouchers

Non-Cash or Transfer Voucher

Supporting Voucher

(i) Receipt Voucher

A receipt voucher is used to record cash or bank receipt.Steps/Phases of Accounting Cycle

The steps or phases of the accounting cycle can be developed as under Yakou

Recording of Transaction

Financial Statement

By Dr Benziane

Journal

Ledger

Closing Entries

Trial Balancu

Adjustment Entries

Trial Balance

A. Recording of Transaction.The concept of Debit and Credit

In double-entry book-keeping, debits and credits (abbreviated Dr and Cr. respectively) are entries made in account ledgers to record changes in value due to business transactions.INTRODUCTION

Business is an economic activity undertaken with the motive of earning profits and maximising the wealth for the owners.The business activities require resources (which are limited & and have multiple uses) primarily in terms of material, labour, machinery, factories and other services.Its main focus is on recording and classifying monetary transactions in the books of accounts and preparation of financial statements at the end of every accounting period.THE CONCEPTS OF 'ACCOUNT', 'DEBIT' AND 'CREDIT

The concept of Account

o An account is defined as a summarized record of transactions related to a person or a thing eg. when the business deals with customers and suppliers.Debit is derived from the Latin word "debitum", which means 'what we will receive'. It is the destination, that enjoys the benefit. Credit is derived from the Latin word "credre" which means 'what we will have to pay'.This study material aims to give a platform to the students to understand basic principles and concepts, which can be applied to measure the performance of business accurately.Management Accounting

Management Accounting is primarily based on the data available from Financial Accounting

It provides the necessary information for the management to assist them in the process of planning controlling, performance evaluation and decision- making.Accounting Cycle

When the complete sequence of accounting procedures is done which happens frequently and is repeated in the same directions during an accounting period, the same is called an accounting cycle.All the adjustment entries are to be recorded properly and adjusted accordingly, before preparing financial statements.(c) It is due to be realised within 12 months after the Reporting Date, or

(d) It is Cash or Cash Equivalent unless it is restricted from being exchanged or used to settle a

Liability for at least 12 months after the Reporting Date.(a) Cash receipt voucher - it denotes receipt of cash

(b) Bank receipt voucher r-it indicates receipt of cheque or demand draft

(ii) Payment Voucher

A payment voucher is used to record a payment of cash or cheque.These accounts are related to expenses or losses and incomes or gains e g. Salary and Wages A/c.The source account for the transaction is credited (an entry is made on the right side of the account's ledger) and the destination account is debited (an entry is made on the left).i.c.

(a) Cash Payment voucher - it denotes payment of cash

(b) Bank Payment voucher - it indicates payment by cheque or demand draft.(iii) Non-Cash Or Transfer Voucher

These vouchers are used for non-cash transactions as documentary evidence.(iv) Supporting Vouchers

These vouchers are the documentary evidence of transactions that have happened.Types of Accounts

By Dr

Accounts

Personal

Natural

Artificial

Representive

Real

Nominal

Tangible

Integible (1) Personal Account.(b) The persons could also be artificial persons like companies, bodies corporate or associations of persons or partnerships etc.Depending on their physical existence or otherwise, they are further classified as follows:

(a) Tangible Real Account - Assets that have physical existence and can be seen, and touched.This team is often referred to as an organisation, which could be in different forms such partnership, body corporate etc.Recording of business activities has to be done scientifically so that they reveal the correct outcome.Reports should always be supported by relevant figures and it emphasizes on the objectivity of data.All journals are posted into the ledger chronologically and in a classified manner.Creditors are generally classified as Current Liabilities.rus s as sole proprietorship.(ii) Doubtful Debts.3.1.2.2.?

1. INTRODUCTION

Business is an economic activity undertaken with the motive of earning profits and maximising the wealth for the owners. Business cannot run in isolation. Largely, business activity is carried out by people coming together with Soub a purpose to serve a common cause. This team is often referred to as an organisation, which could be in different forms such partnership, body corporate etc. rus s as sole proprietorship.

The business activities require resources (which are limited & and have multiple uses) primarily in terms of material, labour, machinery, factories and other services. Business success depends on how efficiently and effectively these resources are managed. Therefore, there is a need to ensure that the businessman tracks the use of these resources. The resources are not free and thus one must be careful to keep an eye on the cost of acquiring them as well.

Recording of business activities has to be done scientifically so that they reveal the correct outcome. The science of bookkeeping and accounting provides an effective solution. It is a branch of social science. This study material aims to give a platform to the students to understand basic principles and concepts, which can be applied to measure the performance of business accurately.
DEFINITION

Definition by the American Institute of Certified Public Accountants (Year 1961)

"Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are. are, in part at least, of a financial character, and interpreting the result thereof".

3. OBJECTIVES

To Know the Solvency Position

Vakoub

Objectives of Accounting

Providing Information to the Users for Rational Decision-making

Systematic Recording of Transactions

Ascertainment of Results of above Transactions

Ascertain the Financial Position of Business
Financial Accounting

Financial Accounting is based on the monetary transactions of the enterprise.

Its main focus is on recording and classifying monetary transactions in the books of accounts and preparation of financial statements at the end of every accounting period.

Reports as per Financial Accounting are meant for the management as well as for shareholders and creditors of the concern.

Reports should always be supported by relevant figures and it emphasizes on the objectivity of data.

Reports are always subject to statutory audit. It ascertains, evaluates and exhibits the financial strength of the whole business.

Management Accounting (Decision Accounting)

Accounting to assist management in planning and decision making.

Management Accounting

Management Accounting is primarily based on the data available from Financial Accounting

It provides the necessary information for the management to assist them in the process of planning controlling, performance evaluation and decision- making.

Reports prepared in Management Accounting are meant for management and as per management requirements.

Reports may contain both subjective and objective figures.

Reports are not subject to statutory audit. It evaluates the sectional as well as the entire performance of the business
. Accounting Cycle

When the complete sequence of accounting procedures is done which happens frequently and is repeated in the same directions during an accounting period, the same is called an accounting cycle.

Steps/Phases of Accounting Cycle

The steps or phases of the accounting cycle can be developed as under Yakou

Recording of Transaction

Financial Statement

By Dr Benziane

Journal

Ledger

Closing Entries

Trial Balancu

Adjustment Entries

Trial Balance

A. Recording of Transaction. As soon as a transaction happens it is at first recorded in the subsidiary book.

B. Journal. The transactions are recorded in the Journal chronologically.

C. Ledger. All journals are posted into the ledger chronologically and in a classified manner.

D. Trial Balance. After taking all the ledger account closing balances, a Trial Balance is prepared at the end of the period for the preparations of financial statements.

F. Adjustment Entries. All the adjustment entries are to be recorded properly and adjusted accordingly, before preparing financial statements.

F. Adjusted Trial Balance. An adjusted trial balance may also be prepared.

G. Closing Entries. All the nominal accounts are to be closed by the Trading Account and Profit and Loss Account. transferring to

H. Financial Statements. Financial statements can now v be easily prepared which will exhibit the true financial position and operating results

2. BASIC ACCOUNTING TERMS

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2/4

Debtor. Debtors are those persons from whom a business has to recover moncy on account of goods sold or services rendered on credit. These debtors may again be classified as under

(i) Good debts. The debts which are sure to be realized are called good debts.

(ii) Doubtful Debts. The debts which may or may not be realized are called doubtful debts.

(iii) Bad debts. The debts which cannot be realized at all are called bad debts.

Creditor. A creditor is a person to whom the business owes money or money's worth. e.g. money payable to the supplier of goods or provider of service. Creditors are generally classified as Current Liabilities.

Capital. It is the amount invested in the business by its owners. It may be in the form of cash, goods, or any other asset which the proprietor or partners of the business invest in the business activity.

Profit. The excess of Revenue Income over expense is called profit. It could be calculated for each transaction or for business as a whole.

◆Loss. The excess of expense over income is called loss. It could be calculated for each transaction or for business as a whole.

Transaction. It means an event or a business activity which involves an exchange of money or money's worth between parties.

Asset. An asset is a resource owned by the business to use it for generaling future profits. Assets can be Tangible and Intangible. Tangible Assets are Capital assets which have some physical existence. c.g. Plant and Machinery. Furniture and Fittings, Land and Buildings, Books. Computers. Vehicles, etc. The capital assets which have no physical existence and whose value is limited by the rights and anticipated benefits that possession confers upon the owner are known as intangible Assets, e.g. Goodwill, Patents, Trademarks, Copyrights, Brand Equity, Designs, Intellectual Property, etc. Assets can also be classified into Current Assets and Non-Current Assets. Current Assets - An asset shall be classified as Current when it satisfies any of

the following. (a) It is expected to be realised in or is intended for sale or consumption in the

Company's normal

Operating Cycle.

(b) It is held primarily for the purpose of being traded.

(c) It is due to be realised within 12 months after the Reporting Date, or

(d) It is Cash or Cash Equivalent unless it is restricted from being exchanged or used to settle a

Liability for at least 12 months after the Reporting Date.

Non-Current Assets - All other Assets shall be classified as Non-Current Assets. e.g. Machinery held

for long term etc.

1. Vouchers

• It is a written instrument that serves fact such as a transaction. s to confirm or witness (vouch) for some ach) for some

• A voucher is a document that shows goods have been bought or services have been rendered, authorizes

payment, and indicates the ledger account(s) in which these transactions have to be recorded,

Receipt Voucher

Payment Voucher

Types o of Vouchers

Non-Cash or Transfer Voucher

Supporting Voucher

(i) Receipt Voucher

A receipt voucher is used to record cash or bank receipt. Receipt vouchers are of two types, i-e.

(a) Cash receipt voucher - it denotes receipt of cash

(b) Bank receipt voucher r-it indicates receipt of cheque or demand draft

(ii) Payment Voucher

A payment voucher is used to record a payment of cash or cheque. Payment vouchers are of two

types. i.c.

(a) Cash Payment voucher - it denotes payment of cash

(b) Bank Payment voucher - it indicates payment by cheque or demand draft.
(iii) Non-Cash Or Transfer Voucher

These vouchers are used for non-cash transactions as documentary evidence. e.g., Goods sent

on credit.

(iv) Supporting Vouchers

These vouchers are the documentary evidence of transactions that have happened.

2. THE CONCEPTS OF 'ACCOUNT', 'DEBIT' AND 'CREDIT

The concept of Account

• An account is defined as a summarized record of transactions related to a person or a thing eg. when the business deals with customers and suppliers. each of the customers and suppliers will be a separate account. Typically, an account is expressed as a statement in the form of English letter "T". It has two sides. The left-hand side is called as "Debit' side and the right-hand side is called as "Credit" side. Belakoub

Dr.

Debit side

Cash Account

Cr.

Credit side.

2. Types of Accounts

By Dr

Accounts

Personal

Natural

Artificial

Representive

Real

Nominal

Tangible

Integible
(1) Personal Account. As the name suggests these are accounts related to persons.

(a) These persons could be natural persons like Suresh's A/c. Anil's A/c. Rani's A/c etc.

(b) The persons could also be artificial persons like companies, bodies corporate or associations of persons or partnerships etc.

(c) There could be representative personal accounts as well.

(2) Real Accounts. These are accounts related to assets properties or possessions. Depending on their physical existence or otherwise, they are further classified as follows:

(a) Tangible Real Account - Assets that have physical existence and can be seen, and touched. e.g. Machinery A/c, Stock A/c, Cash A/c, Vehicle A/c, and the like.

(b) Intangible Real Account - These represent possession of properties that have no physical existence but can be measured in terms of money and have a value attached to them. eg. Goodwill A/c. Trade mark A/c. Patents & Copy Rights A/c. Intellectual Property Rights A/c and the like.

(3) Nominal Account. These accounts are related to expenses or losses and incomes or gains e g. Salary and Wages A/c. Rent of Rates A/c. Travelling Expenses A/c. Commission received A/c, Loss by fire A/c etc.

The concept of Debit and Credit

In double-entry book-keeping, debits and credits (abbreviated Dr and Cr. respectively) are entries made in account ledgers to record changes in value due to business transactions.

Debit is derived from the Latin word "debitum", which means 'what we will receive'. It is the destination, that enjoys the benefit.

Credit is derived from the Latin word "credre" which means 'what we will have to pay'. It is the source, who sacrifices for the benefit.

■ The source account for the transaction is credited (an entry is made on the right side of the account's ledger) and the destination account is debited (an entry is made on the left).