Accounts
Accounting is the science of efficiently documenting, categorising, and summarising monetary transactions and evaluating the findings efficiently.
Identifying: The initial stage in accounting is to identify company transactions from multiple sources. It entails keeping track of all company activities and determining the deemed financial transactions.
Recording: Only monetary transactions are documented in ledgers. It entails maintaining a precise record of them and recording them in a diary.
Classifying: The transactions are categorised after being recorded. The term “classification” refers to all similar transactions in one location.
Summarising: Trial balance is the process of bringing all account balances together in one place.
Communicating: Accounting also entails communicating financial data such as financial statements to users, such as financial statements, who analyse them according to their needs.
• Maintain accurate records of company transactions by established procedures to reduce the risk of omission and fraud.
• Determine the net profit or loss resulting from the company’s transactions during a specific period and the causes for profit or loss.
• Accounting information, such as a balance sheet, is used to assess a company’s financial condition.
• Determine business progress from year to year and detect errors and frauds.
• Provide accounting information to various interested parties, including owners, creditors, banks, and workers, who conduct in-depth analyses based on the stakeholders’ needs.
• Accounting keeps track of all corporate transactions and gives accurate data to stakeholders.
• Accounting shows a company’s profit and loss over a specific period.
• Accounting allows for a comparison of many aspects of a firm, such as profit, sales, and purchases, with past years and assists in making decisions.
• Accounting is used to evaluate and enhance the performance of personnel, divisions, activities, and other entities.
• Accounting records are accepted as evidence in court proceedings.
• Accounting primarily considers monetary transactions, ignoring non-monetary factors such as quality, honesty, and abilities.
• It solely evaluates previous transactions, and financial statements do not account for changes in price levels.
• Personal judgments impact it, introducing personal prejudice and lowering its trustworthiness.
• It is influenced by window dressing, manipulating financial statements to appear more favourable.
• Financial statements are records of past occurrences and are not suited for predicting.
• The art of documenting transactions in books of accounts is known as bookkeeping. Only transactions with a monetary value are kept track of. It is the initial stage in the accounting process, with its primary aim being to preserve records or maintain books of accounts.
Accounting for Money: Systematic record of business activities, determining profit or loss, and portraying the financial state using a balance sheet.
Accounting for Costs: Determines the total and per-unit costs of goods and services produced by a company.
Accounting for Management: Provides data to aid management in planning and directing operations.
Accounting for Taxes: Used for tax purposes, such as calculating income tax and GST.
Reliability: Data must be accurate, observable, and free of mistakes.
Relevance: Data must assist consumers in making decisions and align with business objectives.
Understandability: Data should be presented in a way that is easy for users to comprehend.
Comparability: Financial statements should include previous year data to compare performance.
Transaction in Business: An economic activity causing a change in a company’s financial position.
Account: A list of all commercial transactions involving a person or entity.
Capital: The amount of money or goods the owner invests in the business.
Drawing: Cash or items taken for personal use from business finances.
Profit: Difference between total revenue and expenses (Revenue-Expenses = Profit).
Loss: Excess of expenses over revenue (Expenses-Revenue = Loss).
Gain: Monetary advantage from events, such as profit on the sale of fixed assets.
Stock: Items unsold on a specific day.
Purchases: Commodities bought by a company for resale or manufacturing.
Returns on Purchases: When purchased products are returned to suppliers.
Sales: Exchange of products or services for money in the usual course of business.
Return of Sales: When buyers return purchased items.
Debtors: Those sold products on credit but have yet to pay.
Creditors: Those who supplied goods on credit and have yet to be paid.
Voucher: Written record of a transaction, such as a memo or invoice.
Income: The distinction between revenue and expenditure.
Expense: Money spent on goods or services.
Discount: Rebate offered by the vendor. Includes cash and trade discounts.
Bad Debts: Amounts a debtor has not paid and is unlikely to pay in the future.
• Assets are resources with economic value that a firm, individual, or corporation owns or controls with the expectation of getting future benefits.
Non-Current Liabilities: Bills with a long-term due date, such as long-term loans.
Current Liabilities: Bills due soon, such as outstanding costs or creditors.
Revenue Expenditure: Benefits realized within a single accounting period.
Capital Investment: Benefits gained over time.
Deferred Revenue Expenditure: Revenue-generating expenditures benefiting multiple years, such as advertising.
Lecture 1: One shot
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