FINANCIAL ACCOUNTING

Base for your MBA

MEANING OF ACCOUNTING
Accounting is an art of correctly recording the dayto-day business transactions. It is a science of keeping the business records in a regular and most systematic manner so as to know the business results and position of business with minimum trouble. Therefore, it is said to be a statistical procedure for the collection, classification and summarization of financial information. Thus, accounting is an art of recording, classifying and summarizing financial transactions in a systematic manner and communicating the result to the interested parties.

ACCOUNTING
Accounting is defined as an art of

recording, classifying and summarizing

in a significant manner in terms of

money,

transactions

and

events

of

financial character and interpreting the

results there of. American Institute of

Certified Public Accountanta-1941.

FEATURES OF ACCOUNTING
Recording transactions in terms of money. Accounting is an art of Recording. Classifying business transactions.(cash account) Summarizing transactions. Historical in nature.

BRANCHES OF ACCOUNTING
Financial Accounting Cost Accounting Management Accounting

1.

2.
3.

Objective for Accounting

O To know the Profit or loss from

operation O To determine the financial position of the firm O To maintain records in systematic manner. O To provide information for decision making

Transactions
Materials are purchased on account. An employee is hired.

Event

Dividends are paid to Shareholders.

Criterion

Is the financial position (assets, liabilities, or Shareholders equity) of the company changed?

Record/ Dont Record

Types of Accounts

Personal Account
All human beings, sole trading, partnership firm,company, club, association, hospital, University, institution, Government etc..

Real Account
Cash, Stock, Land & Building, Furniture & Fittings, Vehicles, Plant & machinery,

Nominal Account
Rent, wages, salaries, discount , commission paid, depreciation, fees, transportatio n, Power, water, electricity, etc..

Golden Rules of accounts

Personal Account
Real Account Nominal Account

Debit the receiver Credit The giver

Debit what comes in Credit what goes out

Debit all expenses & losses Credit all income & gains

The Basic Accounting Equation

Assets

Liabilitie s

Capital

Simple problem on Accounting Equation

Mr. A Commences business on April 2010
1. He invested `150000 as his capital
Assets
Cash `150000 = Liabilities +

Capital

`150000

2. Deposited into the bank ` 75000

Assets
Cash 150000- 75000 = 75000 Bank +75000

= Liabilities +

Capital

150000

(As Capital )

3. A machinery was purchased for ` 50000

Assets
= Liabilities + Capital
Cash 75000-50000=25000 (Machinery Purchase) Bank 75000 Machinery 50000 =

`150000 (As Capital )

3. Furniture purchased by Cheque ` 20000

Assets
Cash 25000 Bank 75000-20000=55000 Machinery 50000 Furniture 20000

= Liabilities +

Capital

`150000 (As Capital )

4. Purchased Goods worth ` 35000 on credit

Assets
Cash Bank Machinery Furniture Stock 25000 55000 50000 20000 35000

= Liabilities

Capital

35000(Creditors)

150000 (As Capital )