CHAPTER -1 INTRODUCTION TO ACCOUNTING

ACCOUNTING :Accounting is the process of I. collecting, II. recording,(i.e.JOURNAL ENTRY) it is further divided into subsidiary books

cash journal purchase journal sales book othersor cash book or purchase book purchase return book, (for recording (for recording (for recording sales return book, cash transaction) credit purchase of credit sales) bills payable book, goods.) bills receivable book, journal properIII. classifying,(POSTING into LEDGERS of the transaction recorded in JOURNAL or SUBSIDIARY BOOKS i.e. step II.)IV. summarising,(i.e. preparing trail balance, trading and profit & loss account, balance sheet. These are collectively known as final accounts or financial statement) and V. communicating financial information TO USERS.

ACCOUNTANCY :Accountancy is a systematic knowledge of accounting. i.e. it educates how to maintain the books of accounts.

INCOME STATEMENT:Income statement refers to TRADING and PROFIT & LOSS ACCOUNT.(STATEMENT OF PROFIT & LOSS , in case of COMPANIES).It shows the profit earned orloss incurredby the enterprise DURING the ACCOUNTING YEAR. (eg. 01/04/2015 to 31/03/2016)FORMAT OF TRADING AND PROFIT & LOSS ACCOUNT:TRADING ACCOUNTPARTICULARSAMOUNTPARTICULARSAMOUNT

TO OPENING STOCK

TO PURCHASE

TO GROSS PROFIT(BAL.FIG) {c/d} XXXX

XXXX

XXXXBY SALES

BY CLOSING STOCKBY GROSS LOSS(BAL.FIG){c/d} XXXX

XXXX XXXX

PROFIT & LOSS ACCOUNTPARTICULARSAMOUNTPARTICULARSAMOUNT

TO GROSS LOSS (b/d)

TO SALARYTO DEPRECIATIONTO STAFF WELFARE EXPENSESTO ELECTRICIRTY BILL

TO NET PROFIT(BAL.FIG) XXXX

XXXX XXXX XXXX XXXX

XXXXBY GROSS PROFIT(b/d)

BY DIVIDEND

BY NET LOSS(BAL.FIG) XXXX

XXXX

XXXX

POSITION STATEMENT :Position statement refers to BALANCE SHEET which shows the financial position of the enterprise ON A PARTICULAR DATE. (eg. 31st march 2016) BALNCE SHEET AS AT 31st March 2016LIABLITIESAMOUNTASSETSAMOUNT

OPENING CAPITALADD: PROFIT DURING THE YEARLESS: DRAWINGSCLOSING CAPITAL

LOAN

CREDITORSPROVISION FOR TAXES XXXX XXXX XXXX XXXX XXXX

XXXX XXXXFIXED ASSETS Building Plant & machinery Motor carFurniture

CURRENT ASSETSClosing StockDebtorsCash balanceBank balance XXXX XXXX XXXX XXXX

XXXX XXXX XXXX XXXX

BRANCH OF ACCOUNTING:Three types of branch of accountingFinancial accountingCost accountingManagement accounting

Discussed aboveIt ascertains the cost of products manufactured or services rendered and helps the management in decision- making(say price fixation) and exercising controls.It is most recently developed branch of accounting. Simply say, it is useful for single user group i.e. the management.

Difference b/w Book keeping and accounting : These two terms are often considered as same. But it is not so. These terms are distinct from each other. AccountingAccounting is wider concept than book keeping. Accounting includes Book Keeping.

Book-Keeping Book Keeping is a part of accounting.

BOOK KEEPING ACCOUNTING

BASISBOOK KEEPINGACCOUNTING

StagePrimary stageSecondary stage

ObjectiveTo maintain systematic records of financial transactions.To ascertain net results of operations and financial position and to communicate to the interested parties.

Nature of jobRoutine in natureAnalytical and dynamic in nature.

PerformanceJunior staff performs this function.Senior staff performs this function.

Special skillsNot requiredRequired.

Scope

(recall definition of accounting)(Simply say, it is definition of accounting)Book keeping is concerned with identifying financial transactions, Measuring them in money, Recording ( journal entry or subsidiary books)them in books of accountsAnd Classifying them.(posting into ledgers),Accounting is concerned with Summarising the recorded transactions,(i.e. preparing trial balance, trading and P&L account, balance sheet) Interpreting them and communicating the results.