Accounting Knowledge

1. At first we will see, which accounts are affected by the transaction. For example “Purchased furniture for cash Rs. 50000. Two accounts are involved.  Furniture A/c  Cash A/c 2. Then we will see to which head these accounts belong. From the above example, both accounts are from the head “Assets”. 3. Then we will see, they have increased or decreased. From the above example: Furniture A/c has increased and cash A/c has decreased, that shows: One asset is increasing and the other is decreasing. 4. Then by applying rules of Debit and Credit, we will enter the transaction. Furniture A/c is increasing. When Asset increases it is debited (Dr.). As furniture is an asset so it will be debited. Cash A/c is decreasing. When asset decrease they are credited (Cr.) 1. Furniture A/c Cash A/c 2. Asset Asset 3. Increase Decrease 4. Debit Credit So entry will passed as Furniture A/c 50000 To Cash A/c 50000

Following are the head of accounts according to American approach: 1. Assets 2. Liabilities 3. Capital or owner’s equity 4. Revenues 5. Expenses 1. Assets Assets are of two types.  Fixed assets  Current assets Fixed assets: Such assets which give benefit to the business for more than one year and these are bought not for sale are called fixed assets. Examples:  Land  Building  Plant and machinery Plant is combination of different machines.  Furniture and fixture Furniture can be moved but fixture can not be moved.  Motor vehicle  Office equipment  Horses and carts.  Tools  Computer Current assets Such assets: • That are in the form of cash • That will give cash, converted into cash with in one year: and • That will be consumed within one year, are called current assets Examples  Cash in hand  Cash at bank  Debtor / Accounts receivable  Bills receivable  Stationery  Prepaid expenses  Incomes receivable

As Muslim we have proof of Accounting from the Holy Quran. In The Quran Allah Said that  write and record debt and Business Transaction and also nominate persons as evidence of that Translations for future security.  Aian 282 and 283 of second Surah of Quran Al-Baqarah In Modern Accounting we apply this rules of Quran. Every Transaction we record along with documentary evidence. 2 nd caliph Umer bin Al-Kattab rules 13-23 hidri (634-644 A.D). The introduction and organization of Zakat in 624 A.D encouraged accounting for the purpose of Zakat calculation and payments. The Father of Accounting Luca Pacioli (1445-1520) Tuscany Italy Pacioli in 1494, for the first time described the system of double entry Book-Keeping. He also described the system of Debit and Credit. The word Debit is derived from Latin word Debere which means to owe. In  Modern Accounting  abbreviation Dr is used for Debit. on the other side word Credit is also derived from Latin word Credere which me

S.No Book-keeping Accounting 1 It is the recording phase of an accounting system It is the summarizing phase of an accounting system 2 It s the basis of accounting It s the basis for business language 3 Persons responsible for bookkeeping are called book-keeper Persons responsible for accounting are called accountants 4 It does not require any special skill or knowledge It requires special skill and knowledge 5 Personal judgments of the bookkeeper is not required Personal judgments of the accountant is essential 6 Financial statements are not prepared from bookkeeping records Financial statements are prepared from accounting records. 7 It does not give the complete picture of the financial condition of the business unit It gives the complete e

Book-keeping system: Book keeping is the art of recording monetary transactions in the books of account in a proper manner. It primarily focuses on the recording aspect of the transactions. 1.       Single entry system : A system in which we do not record both aspects of the transactions i.e. debit and credit. It is normally used by the small businesses who keep the incomplete record of the transactions. Feature of single entry system: 1.       Oldest system of recording. 2.       Simple and easy. 3.       No professional Knowledge is required. 4.       No definite methods or principles. 5.       Suitable for small business. 6.       No complete record of all transaction 7.       Not acceptable by the audit and tax authorities. 8.       Income or loss is calculated by increase or decrease in assets and liabilities over a period. 2.       Double entry system : It is a system of accounting in which both debit and credit aspects of the transactions are

Transaction: Any dealing that causes increase or decrease in the business is called transaction. It may be related to purchase and sale of goods, receipt and payment of cash and rendering of services by one party to another. If the value of transaction is met in cash immediately, it is called cash transaction . If the value of transaction is not met in cash immediately, it is called credit transaction

Accounting is an art of recording, classifying and summarizing in terms of m oney transactions and events of financial characteristics and interpreting the results thereof. Accounting is also called the language of business .