Accounting-A summary

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Fundamentals of Accounting by CA Ashish Gupta
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LUCA PACIOLI Developer of Accounting (in 1494)

• Oldest Accounting Stewardship Accounting
• Accounting ( A Layman
  Introduction)
• Noting Down the transactions of a business
  entity.
• Reasons
• To memorize the business
• To keep an evidence

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• Transactions Anything in financial terms.
  (measurable in Money)
• Accounting is done for a specific business
  entity.
• Definition
• Accounting is an art of Recording, Classifying
  Summarizing the transactions events of a
  business which are of financial character
  interpretation of the results there of.

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Analysis of Definition

• Accounting is an Art
• It needs special knowledge of Accounting
  concepts, rules
• Recording is done in a special way by passing a
  journal entry
• Accounting is a special language of business.
• Note Accounting can also be regarded a
  Science a Management

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Accounting- a Cycle/Process

• Identifying the financial transaction
• Measuring the money value of the transactions
• Recording the transactions
• Classification of the recorded transactions
• Summarizing the entire period transactions.
• Interpretation /Analyses of the results.
• Communicating the results to the interested users
  of business/accounts.

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Identifying / Measuring

• It includes maintaining the Vouchers
• (a Documentary evidence) by the business
• Vouchers
• A source document / evidence maintained by a firm
  immediately after a transaction is occurred.
• From the vouchers, a journal entry is passed.
• Cash memo, Invoice, Debit/Credit note examples
  of vouchers

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Transactions/Events

• Transactions Any expense, income, purchases,
  sales in money terms
• ( Salaries paid, purchases/sales of goods)
• Events The outcome/result or a consequence of a
  transaction(s) is called as an event.
• (Closing Stock, Gross or Net Profit or Loss)

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Transactions as well as an Event

• When transactions also resent into an outcome.
• Examples
• a. Bad debts
• - Transaction An expense/loss for the firm,
• - Event Results in reduction of debtors.
• b. Purchase of asset in credit
• - Transaction Purchases of asset,
• - Event Results in creation of a Liability

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Recording

• An initial record/ noting of the business
  transactions (by passing Journal Entries)
• Done in a book called Journal ( A Primary book)
• Recording the entries is known as Journalizing.
• Entries are passed in a Chronological Sequence

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Classification

• For ascertaining the informations relating to a
  specific account, it is necessary to compile all
  the entries related to that account in a separate
  ledger Account.
• It is done in a Principal book called Ledger .
• Writing of Journalized transactions into Ledger
  is called as Posting

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Book Keeping

• Recording Classifying Daily routine
  activities.
• A clerical activity maintained by Junior staff.
• The accounting starts when the book keeping ends.

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Summarizing

• After the daily book keeping, it is summarized at
  the period end.
• Firstly all the expenses ,incomes, assets
  liabilities are compiled in a
• List of all accounts called Trial Balance
• Maintained to verify the arithmetical accuracy of
  the transactions entered in book keeping.

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Financial Statements

• Trial Balance is Further segregated in two parts
• Trading, Profit Loss Account
  Balance Sheet
• (Expenses, losses, Incomes gains)
  (Assets Liabilities)
• Income Statement (Net Profit/loss)
  Position Statement
• Provides Result
  Determines
  Financial Position

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Accounting cycle
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Interpretation

• Analysis of the accounting results position of
  the business.
• to the various business users.
• Interpretation tools like Ratio Analysis, Cash
  Flow statements , Comparative Common size
  Statements can be used.

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Communication

• Accounting is a financial reporting to be done to
  both Internal External users.
• Communication of Accounting is done by
• providing all the users an annual report.
• By arranging a meeting for the members (like
  Annual General Meeting)