It could be calculated for each transactionor for business as a whole. Asset: Asset is a resource owned by the business with the purpose of using it for generating futureprofits. Assets can be Tangible and Intangible. Tangible Assets are the Capital assets which havesome physical existence. The capital assets whichhave no physical existence and whose value is limited by the rights and anticipated benefits thatpossession confers upon the owner are known as intangible Assets. Liability: It is an obligation of financial nature to be settled at a future date.
It represents amountof money that the business owes to the other parties. It may be in the form of cash, goods,or any other asset which the proprietor or partners of business invest in the business activity. Frombusiness point of view, capital of owners is a liability which is to be settled only in the event of closureor transfer of the business. Hence, it is not classified as a normal liability. For corporate bodies, capitalis normally represented as share capital.
Debtor : The sum total or aggregate of the amounts which the customer owe to the business forpurchasing goods on credit or services rendered or in respect of other contractual obligations, isknown as Sundry Debtors or Trade Debtors, or Trade Payable, or Book-Debts or Debtors. In otherwords, Debtors are those persons from whom a business has to recover money on account of goodssold or service rendered on credit. Creditors are generally classified as Current Liabilities. Capital Expenditure : This represents expenditure incurred for the purpose of acquiring a fixed assetwhich is intended to be used over long term for earning profits there from.
At times expenditure may be incurred forenhancing the production capacity of the machine. This also will be a capital expenditure. Capitalexpenditure forms part of the Balance Sheet. Revenue expenditure : This represents expenditure incurred to earn revenue of the current period. The benefits of revenue expenses get exhausted in the year of the incurrence. The revenue expenditure results in reduction in profit orsurplus. It forms part of the Income statement.
Business usually prepares 3 reports. A statement of financial position referred to as balance sheet 2. Income statement 3. Statement of cash flows. In this module, we can just concentrate on the income statement and Balance sheet. Balance Sheet : It is the statement of financial position of the business entity on a particular date.
It lists all assets, liabilities and capital. It is important to note that this statement exhibits the state ofaffairs of the business as on a particular date only. It describes what the business owns and whatthe business owes to outsiders this denotes liabilities and to the owners this denotes capital.
Profit and Loss Account or Income Statement : This account shows the revenue earned by thebusiness and the expenses incurred by the business to earn that revenue. This is prepared usuallyfor a particular accounting period, which could be a month, quarter, a half year or a year. The netresult of the Profit and Loss Account will show profit earned or loss suffered by the business entity. A lot of events affect the business, like receiving cash from customers, making payment to suppliers, tax payments, buying and selling on credit etc.
Therefore, to have identical understanding of transactions, Accounting adopts the following four major measurement assumptions: a. Reporting Entity: The primary assumption here is that the Firm is different from its owners and other firms. It has an existence of its own. Owners might come and go. But the organisation exists.
Therefore, the financial statement of the firm shall show the financial position of the firm alone and does not include the financial transaction of any other individual or entity. Reporting entity is also defined by the purpose and the context of financial reporting. For e. A company might have different subsidiary or group companies; Some businesses might want to reports based on segment of business like based on type of products or Geographical segment etc.
This assumption is extremely important to understand, as the businesses go through difficult and successful periods of time. However, they will be able to meet their commitments to the stakeholders in spite of seemingly difficult position.
Usually cost commitments, the assets that the firm owns and the ability of the organisation to generate revenue in the foreseeable future will determine if it is a going concern or not. Periodicity: As we assume that the organisations continue to exist under the going concern assumption, the stake holders of the firm may want to find out the results of the operation every now and then. To satisfy this condition, firms have to report to its stake holders, on their financial performance and financial position based on an artificial time period.
This is usually a year. However, the current practices also make it mandatory to report once a quarter. Money measurement: Under this assumption, financial transactions are recorded and Financial statements are always expressed in terms of money for the ease of understanding. If a transaction or activity cannot be measured in terms of money, such things cannot find a place in the accounting records. However, the type of unit of money i. The important assumption here is that money is a stable measure in the same way as Kg is a stable measure for weight.
Employees are residual claimants of the profits of the business, i. Who among the following would be interested in a company's financial information for the sake of resource allocation, formulation of taxation policies and investigation of corporate crimes?
What does the accounting assumption 'reporting entity' mean? What does the accounting assumption 'historical cost' mean? The concept of double entry system b. The content of a Balance Sheet c.
The Accounting equation d. The effect of a transaction on the accounting equation Double Entry System: Double entry is a simple yet powerful concept each and every one of a company's transactions will result in an amount recorded into at least two of the accounts in the accounting system. Every transaction has two fold aspects, i. Then at the end of the year, try to track what the business has earned or what the business has lost to be given to its owner John or the investor.
The first transaction that John will record for his company is his personal investment of Rs. The two accounts involved are Cash and Vehicles or Delivery Equipment. On December 2 when John contacts an insurance agent regarding insurance coverage for the vehicle quick Parcel just purchased.
The agent informs him that Rs. John immediately writes a cheque for Rs. Prepaid Insurance an asset account reported on the balance sheet and Insurance Expense an expense account reported on the income statement.
On December 3,a customer gives Quick Parcel a cheque for Rs. On December 3 the company gets its second customer-a local company that needs to have 50 parcels delivered immediately. John's price of Rs. The only expense incurred by Direct Delivery so far was a fee to a temporary help agency for a person to help Joe deliver parcels on December 3.
The temp agency fee is Rs. In accounting jargon, you debit the asset account. To decrease an asset account balance you credit the account, that is, you enter the amount on the right side. Just as liabilities and stockholders' equity are on the right side or credit side of the accounting equation,to increase the balance in a liability or stockholders' equity account, you put more on the right side of the account.
In accounting jargon, you credit the liability or the equity account. To decrease a liability or equity, you debit the account, that is, you enter the amount on the left side of the account. Transaction No. Both of these accounts are balance sheet accounts. There are no revenues because no delivery fees were earned by the company, and there were no expenses.
On December 2 John contacts an insurance agent regarding insurance coverage for the vehicle Quick Parcel just purchased. On December 3, a customer gives Quick Parcel a cheque for Rs. The only expense incurred by Direct Delivery so far was a fee to a temporary help agency for a person to help John deliver parcels on December 3. Since the Rs. At the end of each month, when Rs. Below we present you more than 20 books on accounting in PDF format , which we are sure contain all the information you are interested in knowing about accounting processes.
Managerial Accounting author De-brouwer. Management Accounting: nature and scope author N. If you found this list useful, do not forget to share it on your social networks. Here we present our complete selection of Accounting books:. Skender Source: books. Accounting process and principles, financial, cost and management accounting author University of Mumbai Source: University of Mumbai 4.
Cost Accounting Books: 6. Financial and Management Accounting Books: Environmental Accounting Books: Here ends our selection of free Accounting books in PDF format.
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