Accounting

• Accounting


  The art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the result thereof
• Book-keeping


  The art of recording monetary transactions in the books of accounts in a proper manner
• Business


  Any legal activity which is done for the purpose of earning profit
• Accountancy


  The main subject, covering the entire body of theory and practice, e.g. Book-keeping, Accounting, Costing, Auditing, Taxation etc.
• Goods or Merchandises


  Something which has been purchased by a trader for resale purposes or anything which has been manufactured for selling purposes
• Purchases


  When saleable goods are bought in a business
• Cash Purchases


  Goods are purchased from a supplier and payment is made to him at the same time
• Credit Purchases


  Goods are purchased from a supplier and payment is not made to him at the same time, rather the payment is arranged to be made at some future date
• Sales


  When the purchased goods are sold to customers at a specific price
• Cash Sales


  Goods are sold to customers at a specific price and price of goods is received from them at the time of sale
• Credit Sales


  Goods are sold to a customer and he does not pay the price of goods at the same time but agrees to make payment on some future date
• Returns Outwards / Purchases Returns


  Goods once purchased are subsequently sent back to the seller for certain reasons, i.e., goods are defective, not according to specification, damaged or below standard
• Return Inwards / Sales Returns

  If a customer to whom goods have been sold finds that the goods are defective, unsatisfactory, below standard or not according to specification, he may return these goods to the seller
• Debtors/Accounts Receivable


  Persons or customers to whom goods have been sold on credit basis and from whom the business is to receive money in near future
• Creditors/Accounts Payable

  Persons or suppliers from whom goods have been purchased on credit basis and to whom the business is to pay money in near future
• Trade Discount

  Discount allowed by manufacturer or wholesaler at the time of selling goods to retailer as a deduction from the list price or catalogue price
• Cash Discount

  Deduction or allowance given by a creditor to a debtor if the amount is paid by the debtor before the due date
• Creditors/Accounts Payable


  Persons or suppliers from whom goods have been purchased on credit basis and to whom the business is to pay money in near future
• Trade Discount


  Discount allowed by manufacturer or wholesaler at the time of selling goods to retailer as a deduction from the list price or catalogue price
• Cash Discount


  Deduction or allowance given by a creditor to a debtor if the amount is paid by the debtor before the due date
• Allowances


  Reduction in price of damaged or defective goods to induce the buyer to keep the goods
• Going Concern Concept


  Assumes the business will continue to operate for an indefinite time period, there is no intention to liquidate the business in the foreseeable future
• Money Measurement Concept


  Accounting records only those transactions or events, which can be measured in terms of money
• Dual Aspect Concept


  For every debit, there is an equivalent credit
• Accounting Period Concept


  The life of the business is divided into a series of relatively short accounting periods of equal lengths for studying the results shown by the business
• Matching Concept


  The concept of offsetting expenses against revenue
• Realisation Concept


  Revenue should be recognized at the time when goods are sold or services are rendered
• Cost Concept


  An asset is ordinarily entered in the accounting record at the price paid to acquire it
• Accounting Conventions


  The term conventions includes those Customs or traditions which guide the accountant while communicating the accounting information
• Conservatism Convention


  Accountants follow the rule, anticipate no profit but provide for all possible losses, while recording business transactions
• Full Disclosure Convention


  Users of financial statements (proprietors, creditors and investors) are informed of any facts necessary for the proper interpretation of the statements
• Consistency Convention


  Once an entity has decided on one method, it should use the same method for all subsequent events of the same character unless it has a sound reason to change method
• Materiality Convention


  Allows the accountants to ignore other accounting principles with respect to items that are not material
• Cost Accounting


  • Determines the cost of goods manufactured or produced by the business
  • Helps the management of the business in controlling the costs by indicating avoidable losses and wastes
• Financial Accounting


  • Ascertains the true results (profit or loss) of the business operations during a particular period of time
  • States the financial position of the business on a particular point of time
• Managerial Accounting


  • Communicates the relevant information periodically to the management of the business to enable it to take suitable decisions