23-04-2012, 12:29 PM
ACCOUNTING
ACCOUNTING.doc (Size: 94 KB / Downloads: 31)
Defined as the art of recording, classifying and summarizing in an significant manner and in terms of money, transactions and events which are, in part at least ,of a financial character, and interpreting the results thereof ( Defined in 1961 by The committee on Terminology – American Institute of CPA)
The function of accounting is to provide quantitative information, primarily of financial nature, about economic entities that is needed to be useful in economic decision making ( Accounting Principles Board of American Institute of CPA)
The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of accounts ( American Accounting Association -1966)
Transaction – business, performance of an act
Event – happening as a consequence of a transaction, result
In accounting all transactions are measured in terms of money
Financial statement considers only assets and liabilities measured in monitory terms
PROCEDURE OF ACCOUNTING
A. Generating financial information
• Recording
- All business transactions of a financial nature are recorded in books of accounts called Journals based on documents such as purchase bills, sales bills etc
• Classifying
- Analysis of recorded data and grouping all transactions with similar nature.
- Books containing classified information is ledger
• Summarizing
- preparation and presentation of classified data in a manner useful for internal and external users of financial information
- this involves preparation of Trial balance, Profit & Loss a/c, Balance Sheet and cash flow statement
- P/L – operating results of a business for a particular period
- BS – financial position of the concern at a given point in time
- P/L is an account but BS is a statement