Accounting- it is a systematic process of identifying, recording ,measuring, classifying,verifying
summarizing, interpreting and communicating financial information. It revels profit or loss for a given
period, and the value and nature of firm’s asset liability and owner’s equity .
User of accounting information
Internal-management , managers of operation
External-investor, creditors, costumer ,supplier employees, government organization.
Advantages of Accounting:
Accounting helps to maintain the business records in a systematic manner.
It helps in the preparation of financial statements.
Accounting information is also used to compare the result of current year with the
previous year to analyze the changes.
It helps the managers in the decision making process.
It provides information to other interested parties such as shareholders, creditors,
investors, customers, government, employees, regulatory bodies etc.
It helps in taxation matter
Accounting information can be produced as evidence in the legal matter.
It helps in valuation of business.
Limitations of Accounting
The items expressed in monetary terms are recorded in the accountings where as the
items which are nonmonetary nature not recorded.
Sometimes accounting data are recorded on the basis of estimates and which could be
inaccurate.
Fixed assets are recorded as the original cost.
Value of money does not remain stable so accounting value does not show true financial
results.
Accounting can be manipulated and biased.
Concepts of accounting
Money measurement
The money measurement concept underlines the fact that in accounting and
economics generally, every recorded event or transaction is measured in terms of
money, i.e., the local currency monetary unit of measure.
Business entity concept
The business entity concept states that the transactions associated with a business must be
separately recorded from those of its owners or otherbusinesses.
Doing so requires the use of separate accounting records for the organization that completely
exclude the assets and liabilities of any other entity or the owner.
Going concern concept
The going concern concept is a fundamental principle of accounting. It assumes that during
and beyond the next fiscal period a company will complete its current plans, use its existing
assets and continue to meet its financial obligations.
Dual or equation concept
Dual aspect concept. The accounting equation is made visible in the balance sheet, where the
total amount of assets listed must equal the total of all liabilities and equity. ... The offset to the
entry increases the accounts payable liability in the balance sheet.
Nominal account- Nominal accounts in accounting are the temporary accounts, such as the income
statement accounts. In other words, nominal accounts are the accounts that
report revenues, expenses, gains, and losses.
Subsidiary Books are those books of original entry in which transactions of similar nature are
recorded at one place and in chronological order. In a big concern, recording of all transactions
in one Journal and posting them into various ledger accounts will be very difficult and involve a
lot of clerical work.
A revenue expenditure is an amount that is expensed immediately—thereby being matched
with revenues of the current accounting period. Routine repairs arerevenue
expenditures because they are charged directly to an account such as Repairs and
Maintenance Expense.
Capital expenditure is the amount of money spent by a business or organization on acquiring
or maintaining fixed assets, such as land, buildings, and equipment.
Asset In financial accounting, an asset is an economic resource. Anything tangible or intangible
that can be owned or controlled to produce value and that is held by a company to produce
positive economic value is an asset.
A liability is a company's financial debt or obligations that arise during the course of its
business operations. Liabilities are settled over time through the transfer of economic benefits
including money, goods or services.
Gross profit is the profit a company makes after deducting the costs associated with making
and selling its products, or the costs associated with providing its services. Gross profit will
appear on a company's income statement, and can be calculated with this formula: Gross
profit = Revenue - Cost of Goods Sold.
