Implications on Accounting: An In-Depth

Analysis from the Perspective of

Organization

Course

Principal Of Accounting
Instructor

Instructor
MD HAZRAT ALI
Assistant Professor, Department of Fashion Design and Technology
(FDT)

Submited by

TASMIA YESMIN JOYA

Id: 22233401154
Batch : 33th
Introduction
Accounting is the systematic process of recording, classifying, and
summarizing financial transactions to provide stakeholders with useful
information for decision-making. In organizations, effective accounting
practices are vital for tracking performance, ensuring compliance, and
guiding strategic decisions. This assignment explores the implications of
accounting from an organizational perspective, focusing on recording,
classification, and summarization.

Accounting is crucial in the fashion design and merchandise industry. It

helps organizations track their financial performance, manage resources
efficiently, and comply with regulations. This assignment explores the
implications of accounting from an organizational perspective, focusing
on the processes of recording, classification, and summarization.
Understanding these concepts is vital for fashion professionals to make
informed business decisions..

Organizational Accounting
What is an Organization?

 Definition: An organization is any structured group, like a business

or nonprofit, with a specific purpose or goal. In accounting,
organizations are entities that perform financial transactions and
need accounting to manage their finances.
Definition and Importance

Organizational accounting is the process of collecting, analyzing, and

reporting financial information within an organization. It encompasses
various activities designed to ensure that financial data is accurately
recorded and reported. The importance of organizational accounting
cannot be overstated; it helps stakeholders understand the financial
health of the organization, informs management decisions, and ensures
compliance with laws and regulations.

Branches of Accounting
Accounting has several branches, each focusing on different aspects of
financial management and reporting. The main branches of accounting
include

o Financial Accounting: Focuses on preparing financial

statements for external users.
o Managerial Accounting: Provides information for internal
decision-making.
o Cost Accounting: Analyzes production costs to help with
budgeting and cost control.
o Auditing: Involves examining financial statements for
accuracy and compliance.
o Tax Accounting: Deals with tax returns and tax planning.
Types of Accounts in Accounting
Primary Types:

1. Assets:
o Definition: Resources that a business owns and expects to
use in the future to generate revenue.
o Examples: Cash, inventory, equipment, buildings, and
accounts receivable.
2. Liabilities:
o Definition: Obligations or debts that a business owes to
others.
o Examples: Loans, accounts payable, wages payable, and
accrued expenses.
3. Equity:
o Definition: The owner’s claim on the assets of the business
after all liabilities are paid off. Also called "owner’s equity"
or "shareholders’ equity."
o Examples: Capital, retained earnings, and common stock (for
corporations).
4. Revenue:
o Definition: Income generated from the normal operations of
a business, like sales of goods or services.
o Examples: Sales revenue, service revenue, and interest
income.
5. Expenses:
o Definition: Costs incurred by the business to earn revenue,
including operational and administrative expenses.
o Examples: Rent, salaries, utilities, and office supplies.

Examples of Accounts by Type:

 Asset: Cash, as it represents money the business owns.

  Liability: Accounts Payable, which is an obligation to pay suppliers
or creditors.
 Revenue: Sales Revenue, representing income from selling goods
or services.

The Accounting Cycle

The Accounting Cycle is a step-by-step process followed by companies
to identify, analyze, and record financial transactions throughout a
specific accounting period. This cycle ensures that financial statements
are accurate and complete. Here’s an overview of each step:

1. Identifying Transactions: Recognize and gather data for every

transaction that affects the business financially.
2. Recording Transactions in the Journal : Each transaction is
recorded chronologically in a journal, also known as the book of
original entry, using the double-entry system.
3. Posting to the Ledger : Transfer journal entries to the ledger,
which categorizes and organizes transactions by account.
4. Preparing an Unadjusted Trial Balance: Summarize all
accounts to check that debits equal credits and to verify initial
accuracy.
5. Making Adjusting Entries : Adjust entries for accruals,
deferrals, and other necessary updates to reflect accurate financial
information.
6. Preparing an Adjusted Trial Balance: Confirm again that debits
equal credits after adjustments, ensuring the books are balanced.
7. Preparing Financial Statements : Compile financial statements,
including the income statement, balance sheet, and cash flow
statement.
8. Closing the Books : Close temporary accounts like revenue and
expense accounts by transferring their balances to retained
earnings, which resets them for the next period.
9. Preparing a Post-Closing Trial Balance : Confirm the balance
in permanent accounts to ensure everything is set correctly for the
next accounting period.
10. Reversing Entries are optional journal entries made at the
beginning of an accounting period. They’re used to simplify the
recording of transactions in the new period by reversing certain
adjusting entries made at the end of the previous period
Exploring the Accounting Cycle

Recording Transactions in Journals

What is a Journal?: A journal is the first place where financial
transactions are recorded. It maintains entries in chronological order.

Rules for Journal Entries:

o Debit and Credit Rules:

 Assets: Increase with debits, decrease with credits.
 Liabilities and Equity: Increase with credits, decrease
with debits.

Journal Entry Example Table

Let’s say a company made the following transactions:

1. Transaction 1: On January 2, bought office supplies for $500 in

cash.
2. Transaction 2: On January 5, provided services worth $1,200 on
account (credit sale).
3. Transaction 3: On January 10, paid rent of $700 in cash.
Here’s how these transactions would look in a journal:

Date Account Title & Description Debit Credit

Jan 2, 2024 Office Supplies (Purchased office supplies) $500
Cash $500
(Purchased office supplies with cash)
------------ ---------------------------------------- -------- --------
Accounts Receivable (Service revenue on
Jan 5, 2024 $1,200
credit)
Service Revenue $1,200
(Provided services on account)
------------ ---------------------------------------- -------- --------
Jan 10,
Rent Expense (Paid office rent) $700
2024
Cash $700
(Paid rent in cash)

Explanation:

 Debits and credits are recorded for each transaction to keep the
accounting equation in balance.
 Descriptions provide a brief note about each transaction to clarify
its purpose.
Classifying Transactions
What is a Ledger?

 A ledger is a book or digital record where transactions are

categorized by accounts. After entries are recorded in the journal,
they’re posted to the ledger to summarize each account’s activity.
 The ledger provides a detailed history of all the transactions for
each account, like cash, accounts payable, or sales revenue. This
helps in tracking the balance of each account at any given time.

Rules of Ledger Posting

 Here are the basic rules for posting transactions from the journal
to the ledger:
o Separate Accounts: Each account (e.g., Cash, Sales,
Expenses) has its own ledger.
o Debit and Credit Balances:
 For asset accounts: Debits increase, credits decrease.
 For liability and equity accounts: Credits increase,
debits decrease.
 For revenue accounts: Credits increase revenue, debits
decrease it.
 For expense accounts: Debits increase expenses,
credits decrease them.
o Cross-Referencing: Each ledger entry should reference the
original journal entry for easy tracking.
o Balancing Accounts: Regularly calculate the balance of each
ledger account to know the final position (e.g., total cash
available).
Example of a Ledger Entry

Let’s look at a sample Cash Ledger:

Cash Ledger Example

Date Description Debit Credit Balance

Jan 1 Initial Investment 2000 2000

Jan 5 Received from Sales 500 2500

Jan 10 Paid Office Rent 300 2200

Jan 15 Office Supplies Purchase 200 2000

In this example:

 Debits increase the Cash account when cash is received.

 Credits decrease the Cash account when cash is spent.

The balance shows the current amount of cash after each transaction.

Summarizing

1. What is a Trial Balance, Profit and Loss Account, Balance Sheet, and
Financial Statements?

 Trial Balance:
o A trial balance is a list of all ledger accounts with their debit
and credit balances at a specific date. It helps verify if total
 debits equal total credits, ensuring that transactions are
recorded accurately.
o Purpose: To check the mathematical accuracy of the ledger
and prepare for financial statements.
 Profit and Loss Account (Income Statement):
o This account, also called an Income Statement, shows the
company’s income, expenses, and profits or losses over a
period (usually a month, quarter, or year).
o Purpose: To calculate the net profit or loss by deducting
total expenses from total revenue.
 Balance Sheet:
o The balance sheet provides a snapshot of a company’s
financial position at a specific point in time. It lists assets,
liabilities, and equity.
o Formula: Assets = Liabilities + Equity.
o Purpose: To show what the business owns (assets), owes
(liabilities), and the owner’s equity.
 Financial Statements:
o Financial statements include the Profit and Loss Account,
Balance Sheet, and Cash Flow Statement. They provide an
overview of a business’s financial health and are used by
stakeholders to make decisions.
o Purpose: To present a company’s performance and financial
position comprehensively.

2. Rules for Each Statement

 Trial Balance: Total debits must equal total credits to ensure

accuracy.
 Profit and Loss Account:
o Revenues are recorded as credits.
o Expenses are recorded as debits.
 Balance Sheet:
 o Assets (debit balance accounts) should equal the sum of
liabilities and equity (credit balance accounts).
 Financial Statements: Each statement must be prepared in
accordance with accounting standards (such as GAAP or IFRS) to
ensure consistency and comparability.

Examples of Each
 Example of a Trial Balance:

Account Debit Credit

Cash 2000

Accounts Receivable 500

Accounts Payable 1000

Sales Revenue 3000

Rent Expense 1000

Totals 3500 3500

 Example of Profit and Loss Account:

Description Amount

Sales Revenue 3000

 Description Amount

Cost of Goods Sold 1000

Gross Profit 2000

Operating Expenses 800

Net Profit 1200

 Example of Balance Sheet:

Assets Amount Liabilities and Equity Amount

Cash 2000 Accounts Payable 1000

Inventory 500 Equity 1500

Total Assets 2500 Total Liabilities & Equity 2500

 Example of Financial Statements:

o Include the trial balance, Profit and Loss Account, and
Balance Sheet, prepared as above, to present the business’s
complete financial picture.
Conclusion

In conclusion, accounting provides a structured way to track and report

financial transactions. Each step, from recording in the journal to
creating a trial balance and preparing financial statements, ensures that
businesses have accurate and useful data for decision-making. With
financial statements, stakeholders can understand the business’s
financial health, making accounting essential for transparency,
compliance, and strategic planning