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Accounting

The language of Business.

Non Profit Organization


It has Surplus funds / Deficit Funds

Business
Any activity which is under taken to earned Profit / Income.

Business Purpose
To achieve solvency.

Liquidity
The ability to pay short term Debts / Liabilities / (Obligation), when they come due.

Solvency
To have this ability (liquidity) all the time. 2/10, n/30

A/c Payable (Debt) /( Trade Creditors in British)


The amount which we have to pay to our supplier

A/c Receivable/ (Trade Debtors in British)


The amount which we have to receive form our customer

Operating Cycle.
Cash Merchandise Inventory (Stock) Credit Sales A/c Rec cash

It is also called cash conversion cycle.

Inventory
The things /goods in which we deal. The things/goods which we purchase for reselling purpose. 1

Types of Business
1. 2. 3. Service Trading (Buying & selling) / Merchandising Manufacturing Concern

Definition of Accounting According to American Association of Accounting)


Accounting is an art of Identifying, Recording, classifying, measuring, summarizing & Interpreting of Business Transaction.

Characteristics of Business Transaction.


1. 2. 3. Monetary value Identified. Occurrence of the events. Exchangeable values/ Barter

Generally Accepted Accounting Principle.


1st Principle. Monetory Measurement Concept
Monetary value should be recorded in the book of Accounts.

2nd Principle. Business Entity Principle.


Owner & its business are two different /separate entities. Owner 1. 2. 3. Sole Proprietorship Partnership Corporation (Joint Stock Company in British)

3rd Principle Dual Aspect principle


Each & every transaction has two effects / Aspects 1. Debit 2. Credit Debit DR (Debit side to recording) Debtor Deberre Credit CR (Credit side of recording) Creditor Credierre

Luca Pikoli is an Italian Mathematician.

Accounting Cycle Steps Repetition

Analysis of Economic Events.


1. 2. Analysis of Business Transaction Recording of Business Transaction

Accounting Equation
Assets = Liabilities + Owners Equity /Capital / Stock Holders Equity Balance Sheet / Financial Portion Company Ordinance 1984 should follow all the Organization.

Assets (Economic Resources)


Have a historical cost Due to past transaction Owned by an Enterprise Provide future Economic Benefit

Asset Convert into Expense

Definition of Asset
Anything through which we can run /Operate our business.

4th Principle Historical Cost


Assets should be recorded in the books of account at their acquiring value / Buying Value

5th Principle

Objectivity Principle

Facts & Figure

Types of Assets
1. 2. Current Assets Fixed / Non Current Assets.

1.

Current Assets

Asset which will be converted into cash within 1 year, or operating cycle whichever is longer OR Assets which will be consumed with 1 year, or operating cycle whichever is longer. Supplies / Stationery Prepaid / Pre Payments Merchandise Inventory

Sale

Cash

2.
1. 2.

Fixed / Non Current Assets


Long Life Assets Intended not for reselling purpose, only using purpose.

Principle # 6 Materiality Concept


Value of assets is material & if it is immaterial then it will not affect /influence in the Business Economic Decision

Liabilities + Owners Equity (Debts) If Mature

Sources of Finance / Capital Providers It does not Mature Residual Claim Internal Claim on Business

External Claim on Business

Principle # 7 Going Concern Assumption


Business has no definite life. Business is unforeseen. Elements of Accounting A L C E R

Revenue
Revenue is the source of income Selling price of goods & services

Expenses
Cost incurred to generate the revenue.