Accounting Knowledge

The person who invests money, Goods or any other Assets in the business, gives time, assumes risk and is entitled wholly to the profit or loss of the business is called owner or proprietor.   Capital or owner's equity The amount of cash, Goods r any other assets which is invested by the owner is called Capital or Owner’s equity. For example Mr.Z the owner invested cash Rs.100000, Goods Rs.80000 and building Rs.50000 in the business . So capital will be Rs.230000.   Drawings                                 The cash or goods taken away by the owner from the business for his personal use are called his drawings. For example capital invested by Mr.Z is Rs.230000 and he withdraws Rs.30000 from business for personal use then Rs.30000 will be treated as drawings.     Debtors or Accounts Receivables Debtors are the persons or customers to whom goods have been sold on credit basis and from whom the business is to receive the money in the near future. For example Business

S.No Financial accounting Cost and Management accounting 1 It is primarily for external purpose It is primarily for internal purpose 2 It provides information about the financial performance and financial position of the business It provides information of ascertainment of cost to control cost and for decision making about the cost. 3 It classified records, presents and interprets transaction in terms of money It classifies, records, presents and interprets in a significant manner the material, labour and overheads cost 4 It shows the profit or loss of the organization It provides the details of cost and profit of each product, process etc 5 Financial statements are prepared for a definite period, usually a year Its reports and statements are prepared as and when required.

1. Financial accounting:               Financial accounting is mainly confined to the preparation of financial statements for the use of outsiders like creditors, Banks and financial institution etc. the chief purpose of financial accounting is to calculate profit or loss and show financial position of the business. 2. Cost accounting: Cost accounting is part of accounting which is concerned with the accumulation and assignment of cost to units of production and departments. It ascertains the cost of unit produced and sold. The process of cost accounting is based on the data provided by financial accounting. 3. Management accounting: Management accounting is that part of accounting which is concern mainly with internal reporting to the managers of a business unit. It relates to planning, control and decision-making which is useful to the management in the discharges of its functions. Management accounting is “forward-looking” and generally includes cost accounting and budge

1.       Maintenance of records of business transaction firs record, then pay, records in useful for decision making etc. 2.       Calculation of profit and loss. 3.       Depiction of financial position 4.       Provide information to the users

Function of Accounting: 1.       Maintain the record: maintaining proper record of all the business transaction. 2.       Protection of business properties 3.       Legal requirements 4.       Communication of results Q: what are the characteristics of modern accounting? 1.       Accounting involves recording of financial activities which accompany the complexity and uncertainty of business. 2.       Accounting systems are prepared on cash basis or accrual basis of accounting 3.       Accounting is historical in nature. Q: State the advantages and limitation of accounting? Advantages of Accounting:                     1.       It provides information useful for making economic decisions. 2.       It provides information useful to investors and creditors for predicting, comparing and evaluating 3.       It provides information useful in judging the management’s ability to utilize enterprise resources effectively. 4.       It provides factual and interpretat

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