E-ACCOUNTING COURSE

BASIC KNOWLEDGE OF ACCOUNTING

CHAPTER 1

The prime motive for doing a business id to earn profit. To know the profit earned or loss incurred in a particular period, it is necessary to record the financial transactions for the same period. Financial accounting is an effective tool to record, classify, and summarize financial transactions.

DEFINITION OF ACCOUNTING

Accounting may be defined as:

“The art of recording, classifying, summarizing, analysing and interpreting the business transactions systematically and communicating business results to the interested users”

On analysing the above definition the following characteristics of accounting emerges:

Ø  Business transactions are described in monetary terms,

Ø  Accounting is the art of recording and classifying different business transaction.

Ø  In accounting process the business transaction are summarized so as to arrive at a meaningful interpretation.

Ø  In accounting business results are communicated to the interested user.

OBJECTIVES FINANCIAL ACCOUNTING

Ø  Finding out various balance. Systematic recording of business transaction in accounting provides vital information about various balance like cash balance, bank balance etc.

Ø  Knowledge of business transaction. Systematic maintenance of book provides the detail of every transaction.

Ø  Net profit or loss. Balance sheet is prepared to depict financial position of business at a particular date. Financial position means what the business owns and what owes to others.

Ø  Information to all users. After analysis and interpretation, business results are communicated to the users of financial information.

Ø  Fulfilling legal obligations. Vital accounting information helps in fulfilling legal obligations in time e.g. sales tax, income tax etc.

FUNCTIONS OF FINANCIAL ACCOUNTING

Ø  Recording business transactions. The first function of accounting is to keep record of all transaction.

Ø  Calculation of business income and ascertaining financial position. In financial accounting, profit and loss account is prepare for the calculation of business income and balance sheet is prepared for ascertaining financial position of business.

Ø  Communication of financial of business. The third function of accounting is to communicate the information of business income and financial position to interested parties like proprietors, investors, creditors, employees etc.

TRANSACTION

Transaction is an economic activity performed for and during smooth running of business.

FEATURES OF BUSINESS TRANSACTIONS

Ø  Business transaction are business activities.

Ø  Business transaction are monetary in nature.

Ø  In business transaction, goods or services are exchanges for money.

Ø  All business transaction of financial nature are in the book of accounts.

DISTINGUISH BETWEEN BOOK-KEEPING AND ACCOUNTING.

Basics of distinction	Book-keeping	Accounting
Objective	The objective of book-keeping is to maintain records of business transaction.	Accounting aims at maintaining business records, calculate of business income, depiction of financial position of business and communication of business results.
function	The function of book-keeping is to record business transaction as and when they take place.	The function of accounting is the recording, classifying, summarizing interpreting business transaction and communicating the result.
Scope	It has a limited scpe.it is a part of accounting.	Its scope is wider. Beside book-keeping, it includes classification, summarization, interpretation and communication.
Level of knowledge	It does not require special knowledge. Only elementary knowledge of accounting is sufficient.	In accounting advance and conceptual understanding is required.
basic	For recording business transactions, vouchers and other supporting documents are prepared.	Accounting work is carried on form records which are available from book-keeping.

BRANCHES OF ACCOUNTING

Accounting has three main forms of branches, viz, financial accounting, cost accounting and management accounting. These forms of accounting has been developed to serve different objectives.

Ø  Financial accounting. If is an important branch of accounting. It helps in recording, classifying and summarizing business transactions. Financial statement are prepared under financial accounting. These statement are profit and loss account and balance sheet. Profit and loss account shows the net profit and net loss and balance sheet shows the financial position of business. With the help of these statements, business result are communicated periodically to the interested parties or users.

Ø  Management accounting. It is that branch of accounting that seeks to furnish accounting information to managers, so that they can take appropriate decision for better management of business.

Ø  Cost accounting. This branch of accounting is concerned with ascertaining of costs of various products or services produced by the firm. Cost accounting helps in control of cost incurred and also determining the selling price of products or services. Cost data provided by cost accounting also helps and guides management in making business decision.

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