essay's

Topics: Generally Accepted Accounting Principles, Financial ratios, Balance sheet Pages: 17 (3594 words) Published: February 8, 2014
FINANCIAL ACCOUNTING AND ANALYSIS

Accounting :
“The art of recording, classification, summarizing, analyzing, and interpretation of business transactions” Objectives:
To know the profit or loss
To know the financial position

Limitations:
Record only monitory transactions
Record only historical information
No real information
Accounting terms:
Business transaction: Any exchange of money or money worth as goods &services between two parties is called a business transaction. Capital: This is an amount introduced by owner or partner, share holder in the business or company. Expends: An expenditure whose benefit is enjoy immediately, such as salary, rent etc. Loss: Expenditure without any benefits

Drawings: Amount or goods with draw by the owner of a business for personal use. Income: Any amount realized by the sale of goods or assets or services. Profit: The excess of income over expenditure.

Debtor: The debtor is a person who owes money to the business. Creditor: The person who lend to the business .
Assets: Any physical thing or right owned that has money value is a asset. Net worth: Assets - outside liability or capital + retained earnings of a business. Accounting concept
1. Business entity concept
2. Money measurement concept
3. Going concern concept
4. Dual concept
5. Cost concept
6. Accounting period concept
7. Real concept
8. Materiality concept

Business entity concept: Business unit is separate from the person whose supplied capital t o each properties. Money measurement concept: Records only monetary transactions. Going concern concept: Business has a reasonable expectation of continuing business at profit for indefinite period of time. Dual concept :Receiving and giving aspects

Cost concept: This concept doesn’t means the assets will always be shown at cost but it means the past become bases for all future accounting for the past. Accounting concept: Life of business can be divided into two accounting periods i.e (jan-dec), (apr-mar). Real concept: Revenue is considered as being earned on the date which it is realized. Materiality concept: Important information will be taken and unimportant information will be ignored in the preparation of financial statements

Book keeping: records only financial data
Accounting systems:
1. Double entry
2. Single entry

Single entry:
System whereby each transaction is entered in one account only (either credit or debit). Double entry system:
It record two aspects of every transaction that is receiving aspect and giving aspect .The receiving aspect is called debit aspect and giving aspect is called credit aspect .it can be classified in to three types 1. Personal accounting

2. Real accounting
3. Nominal accounting
Personal accounting: An account relates to a person or a firm Real accounting: An account relates to a properties or assets. Nominal accounting: An account relates to expenditure or income.

Rules of double entry system:
Personal accounting

Debit (receiver) Credit(Given) Real accounting
Debit (comes in) Credit (goes out)
Nominal accounting

Debit (expends & loss) Credit (income & gains)

Accounting cycle:

Journal:
It means a daily record of business transactions it is a book of original entry because transaction is first returned in the journal. Ledger:
Ledger is a book which contain various accounts
It...
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