1 Need to know for Accounting ( Introduction for Accounting )

Introduction for Accounting

A person running a business needs to know -

1.     What he owns (assets)?

2.     What he owes (liabilities)?

3.     What is the financial status of the business?

4.     Whether the business enjoys profit / suffers from loss?

Need for Accounting:-


     1.     Every business needs to focus on expenses and have a strong control over it to reduce costs.

     2.     Liabilities have to be paid on time.

               -     All these reasons bring the need for Accounting.




Definition for ‘Accounting’


“Accounting is the art of

·         recording,

·        classifying and

·        summarizing

in a significant manner and in terms of money transactions and events that are, in part at least, of a financial character and interpreting the results there of”



Recording Transactions:-

Transactions affecting Cash:-

•          Receipt or Payment by Cash – Entry in Cash Book

•          Receipt or Payment by Bank – Entry in Bank Book


Transactions not affecting Cash:-

•          Sales on credit – Entry in Sales Register

•          Purchases on credit- Purchases Register

•          Transfer Entries- Entry in Journal Register



Classifying:-

• This is the process of grouping the transactions under a unique head known as ‘Ledger Postings’.

For example all the transactions relating to Cash will be classified in Cash Account and transactions concerned with Mr. Z will be classified under Mr. Z's Account



Summarizing:-

• In the summarizing stage, the closing balances ( either debit or credit ) of all ledger accounts will be presented in the Statement called ‘Trial Balance’.

• With this we can check the arithmetic accuracy of accounts.

Monetary Transactions:-

• Financial character = Monetary terms

• should alone be recorded in books of accounts.

• Examples for monetary transactions :

• Cash purchase

• Credit purchases

• Cash Sales

Examples for Non Monetary Transactions:-

• If the employees in a concern are not having a cordial relationship, the business is bound to suffer loss. But this loss cannot be expressed in terms of money.

• Similarly, loyalty, sincerity, skills etc of employees are a value addition to the concern. But these cannot be valued and expressed in terms of money.

Interpreting the Reports:-

Interpreting REPORT the financial position from preparation final statement, using a tools like

• Ratio analysis
• Comparative financial statement analysis
• etc.

The financial data that is recorded has to be analyzed and interpreted in such a way that it enables

Internal – who are all within the org.

External – who are all outsiders of the org.

users to make meaningful judgments and rational decisions about the financial condition and profitability of the business operations.



Conclusion:-

• Therefore these are the points said above which definitely more than basics, its an introduction for basic accounting itself and also to be called as one person who is an accountant or running a business should definitely have to undergo these above said points for a successful business.