Wednesday, April 28, 2010

Meaning and features of Double Entry Book Keeping System


Meaning of double entry book keeping system
Double entry book keeping system is a modern and scientific system of recording the financial transactions. It follows the principle that there are two aspects of each business transaction. Both of these aspects i.e., one debit and another credit must be recorded in this system of book keeping. The golden rule for it is that every debit must have a corresponding credit of same amount.In other words, there are two parties in every transaction, one is giver and another is receiver. Generally, the account of receiver is debited and the account of giver is credited.

Features of double entry book keeping system
1. Double Effect- In it, every transaction has two fold effects i.e., debit and credit.
The double aspects of a transaction are recorded in opposite side of two different
accounts.
2. Equal effect- The amount of debit and credit aspects must be equal in terms of
monetary value. The same amount of a transaction is shown in two books on opposite
sides.
3. Classification of accounts- Under it, accounts are classified into three
categories as personal account, real account and nominal account.
4. Checking of Mathematical Accuracy- Since the amount is recorded on the debit and
credit side of two separated books, the total amount is always equal to the
credit. It helps to find the arithmetical accuracy of accounting records by
preparing a trial balance.

Tuesday, April 27, 2010

Introduction and meaning of Book Keeping

Introduction and meaning of Book Keeping
Introduction of book keeping
Book keeping is that branch of knowledge, which tells us how to keep the record of financial transactions in a systematic manner. Each business deals a number of financial transactions daily, which can be expressed in monetary value. In order to find out the profit or loss of the business, it is essential to keep a complete and systematic record of these business transactions. The necessity of book keeping arose mainly due to the fact that memory of the human beings is limited. A person may fail to recall all the transactions, in the absence of written records, he had done. A person must maintain a note or diary in which details of the transactions have been recorded. The fundamental idea behind this record is to show a correct position relating to income and expenditures.

Meaning of book keeping
Book keeping refers to the recording of economic events. It usually involves only the recording of economic events (transactions) and so it is just one phase of the accounting process. It is a recording phase of accounting and involves journalizing,
posting into ledger accounts and balancing and closing of ledger accounts. It is only a part of accounting. It is the science and art of recording transactions in money's worth so accurately and systematically, in a certain set of books, that the true state of businessman's affairs can be correctly ascertained.

Monday, April 26, 2010

Accounting Equation

Accounting equation
The assets,liabilities and capital are the backbones of modern day accounting. The relationship that they share can be expressed using the basic accounting equation. It is the mathematical form of explaining double entry system of book keeping according to which, the total assets being always equal to the total equities consisting of the capital and liabilities. The organization is represented by assets, which are the things owned by it and available for use in carrying on work of that organization. Creditors' claims for having sold, provided or loaned assets or services by them to the organization with the payments by the organization to be made in the future are represented by the liabilities. The capital represents the organization's claim against the assets after the liabilities have been subtracted.
It is expressed as:
Assets = Liability + Capital
For example: When the resources are supplied by persons other than the owner, these persons are known as liabilities, then the equation will be:-
Resources in business = Resources supplied by the owner + Resources supplied by the outsiders.
Assets=Capital+Liabilities
The twos sides of the equation are always equal, because both sides deal with the same thing but form a different viewpoint.
Resources in business(what they are)= Resources in business(who supplied them)

Sunday, April 25, 2010

Government and Commercial Accounting

Government and Commercial Accounting
Government Accounting- Government accounting is the accounting used by government offices to keep the record of revenue and expenditures of government. It provides necessary information and data to the government for various activities and it helps to control over budget and fix the responsibility. It is maintained on cash basis. It provides information about the services rendered to the public by utilizing public funds and properties. In it, the financial operations are governed by legal provisions. The main purpose of it is to reflect the plans and policies of the government in financial terms.It is prepared for the consumption of government offices and general public.It is maintained on the basis of government budget.

Commercial Accounting- Commercial Accounting is the accounting used by business firm to calculate the amount of profit or loss made during a period. In it, outstanding expenses and accrued expenses are also considered. Government is not responsible in any financial activity and financial activities are not governed by the legal government. It is maintained for the consumption of owner of enterprises. The main purpose of it is to find the profit earned or loss suffered during a financial year

Saturday, April 24, 2010

Accounting Process

Accounting Process
Following processes are followed in the accounting :

1. Identification of financial transactions: In accounting, only those transactions which are of financial nature are recorded in the books of accounts. If a transaction do not have financial character then such transactions are not recorded.
2. Recording of financial transactions: In accounting, financial transactions are recorded in systematic way in a book called "journal." This book is further sub-divided into various subsidiary books such as Cash Book, Purchase Book, Sales Book, Purchase Return Book and Sales Return Book.
3. Classifying of financial transactions: There may be thousands of records and it may be troublesome to find out details about a particular transaction. So, for the easy location of the transaction, the transactions of same nature are grouped into one place by opening accounts in a book called "ledger."
4. Summarizing: The classified information may be large in number and the users of accounting information may not have time to go through all the records. So, for presenting the data in concise manner, summarizing is done. It includes preparation of trading account, profit and loss account and balance sheet.
5. Communicating: The processed information have to be communicated to those people who have to make the use of them like owners, managers, creditors,etc. Communicating is done through an annual report.

Thursday, April 22, 2010

Principles of Accounting

Principles of  Accounting
The following are the principles of accounting:

1. Principle of business entity- In accounting every business organization is treated as a separate body from its owner. Business are perceived treated as separate entities and the purpose of accounting is to record its transactions and report its financial position and profitability.Transactions of owners are not recorded in the business.
2. Principle of money measurement- The transactions are measured, recorded and reported
in terms of monetary value which is known as money management principle. Expression of all assets and liabilities in terms of money creates common measure that permits addition and subtraction of all forms of assets and liabilities and makes possible the
preparation of financial statements.
3. Principle of accounting period- The life of the business is perpetual but it has to report the results of the activities conducted in specific period. Generally, one year is taken as an accounting period.
4. Cost principle- Cost principle states that all the transactions should be recorded at their monetary cost of acquisition. Assets and liabilities are recorded in the books of accounts at the acquisition and are carried from year to year at acquisition cost,irrespective of any subsequent increase or decrease in their market value.
5. Realization principle- According to this principle, revenue is measured by amount charged for goods sold or services rendered to the customers. It states that revenue should be recognized in the period when sale is made and specifies that revenues should be measured as cash received and cash equivalent of other item received.
6. Objectivity principle- This principle states that accounting data should be verifiable. It means that accounts which are prepared should be capable of independent verification.
7. Matching concept- In it, all the expenses incurred in generating revenue should be identified or matched with the revenue generated, period by period. This concept attempts to charge to an accounting period only those expenses which are consumed during the period.

Wednesday, April 21, 2010

Importance of Accounting

Importance of Accounting
1.Importance to trading concern- Business is very competitive nowadays. Business cannot operate on sound basis for a long time until the financial records are kept and made available to its users. Accounting helps to determine profit or loss of the business. It also gives knowledge of debtors, creditors, other assets and liabilities.

2.Importance to non-trading concerns- Although the non- trading concerns are established with service motive, accounting is equally importance to them as they have to carry out their works within their funds and also their operations have to be answerable to the board of governors. They need to prepare balance sheet to know the financial position of their business.

3.Importance to the professionals and individuals- Professionals such as contractors, engineers, lawyers,etc. maintain accounting books to know their surplus or deficit of
incomes and expenditures of a particular period. Accounting also help farmers, workers and politicians to record their sources and uses of funds. It helps them to make expenditures within the limitation of budget.

4. Importance to the government- Accounting also helps to record the expenditures and revenues of the government. Every government should maintain a large number of accounting forms and books such as budget sheet, cash book, statement of expenditure,etc. With the help of accounting information the government plans for future budget. Accounting can be provided as documentary proof of the activities carried by a government, so it acts as a memory centre.

Tuesday, April 20, 2010

Characteristics of Accounting

Characteristics of Accounting
The following are the characteristics of accounting:

1. In accounting system, only those transactions which are related to money are recorded in the books of accounts. Non-monetary transactions like strikes are not recorded in the books of accounts.
2. Accounting is an art of recording business transactions in the books of accounts maintained as per specific rules and principles.
3. In accounting process, those transactions relating to particular nature are recorded in separate accounts, so it is a process of classifying business transactions.
4. Accounting is an art of summarizing all business transactions as it includes the act of balancing ledger accounts, preparing trial balance and finally final accounts.
5. Accounting includes analyzing and interpreting the financial data to compare such results with that of previous years.

EVOLUTION AND MEANING OF ACCOUNTING

EVOLUTION AND MEANING OF ACCOUNTING
There are many evidences of keeping records back in 3000 BC. But, systematic book keeping was only found sometimes in the 14th Century. The first record of a complete accounting was found in the records of Geneo, Italy. The first published work describing accounting was one of the five sections in Summa de Arithmetica, Geometria, Proportion et Proportionality (everything about Arithmetic, Geometry and Proportion) published by Luca Pacioli in1494 in Venice. This section of accounting was the world's only accounting textbook until the 16th century. Luca Pacioli is known as the "Father of Accounting". He introduced Double Entry System in 1494 in Italy.


Meaning
Accounting is the process of recording business transactions in systematic way in terms of money, reporting results of business activities and interpreting such results for the purpose of effective control of future activities. It includes identifying, recording, classifying, summarizing, analyzing and interpreting financial transactions.