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Accounting is the art of recording transactions in the best manner possible, so as to enable the reader 

to arrive at judgments/come to conclusions, and in this regard it is utmost necessary that there are set

guidelines. These guidelines are generally called accounting policies. The intricacies of accounting

policies permitted Companies to alter their accounting principles for their benefit. This made it

impossible to make comparisons. In order to avoid the above and to have a harmonised accounting

principle, Standards needed to be set by recognised accounting bodies. This paved the way for 

Accounting Standards to come into existence.

Accounting Standards in India are issued By the Institute of Chartered Accountanst of India (ICAI). At

present there are 30 Accounting Standards issued by ICAI.

Objective of Accounting Standards

Objective of Accounting Standards is to standarize the diverse accounting policies and practices with a

view to eliminate to the extent possible the non-comparability of financial statements and the reliability to

the financial statements.

The institute of Chatered Accountants of India, recognizing the need to harmonize the diversre

accounting policies and practices, constituted at Accounting Standard Board (ASB) on 21st April, 1977.

Introduction

Financial statements are prepared to summarize the end-result of all the business

activities by an enterprise during an accounting period in monetary terms. These

business activities vary from one enterprise to other. To compare the financial

statements of various reporting enterprises poses some difficulties because of thedivergence in the methods and principles adopted by these enterprises in preparing

their financial statements. In order to make these methods and principles uniform and

comparable to the extent possible – standards are evolved.

What are Accounting Standards?

Accounting Standards are the statements of code of practice of the regulatory

accounting bodies that are to be observed in the preparation and presentation of 

financial statements. In layman terms, accounting standards are the written documents

issued by the expert institutes or other regulatory bodies covering various aspects of 

measurement, treatment, presentation and disclosure of accounting transactions.

What are the objectives of Accounting Standards?

The basic objective of Accounting Standards is to remove variations in the treatment

of several accounting aspects and to bring about standardization in presentation. They

intent to harmonize the diverse accounting policies followed in the preparation and

presentation of financial statements by different reporting enterprises so as to

facilitate intra-firm and inter-firm comparison.

Who issues Accounting Standards in India?

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viii) Holding and subsidiary enterprises of any one of the above at any time during the

accounting period.

Level II Company:

Enterprises, which are, not Level I enterprises but fall in any one or more of the

following categories are classified as Level II enterprises;

i) All commercial, industrial and business reporting enterprises, whose turnover for 

the immediately preceding accounting period on the basis of audited financial

statements exceeds Rs. 4 million, but does not exceed Rs. 500 million. Turnover does

not include ‘other income’.

ii) All commercial, industrial and business reporting enterprises having borrowing,

including public deposits, in excess of Rs. 10 million but not in excess of Rs. 100

million at any time during the accounting period.

iii) Holding and subsidiary enterprises of any one of the above at any time during the

accounting period.

Level III Company:

Enterprises, which are not covered under Level I and Level II are considered as Level

III enterprises.

Applicability

Level II and Level III enterprises are considered as SMEs

Level I enterprises are required to comply fully with all the accounting standards.

No relaxation is given to Level II and Level III enterprises in respect of recognition

and measurement principles. Relaxations are provided with regard to disclosure

requirements. Accordingly, Level II and Level III enterprises are fully exempted from

certain accounting standards, which mainly lay down disclosure requirements. In

respect of certain other accounting standards, which lay down recognition,

measurement and disclosure requirements, relaxations from certain disclosurerequirements are given.

Sr. No. Particulars Applicability

1 Disclosure of Accounting Policies I, II, III

2 Valuation of Inventories I, II, III

3 Cash Flow Statements I

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4Contingencies and Events Occurring After the

Balance Sheet DateI, II, III

5Net Profit or Loss for the period, Prior periodItems and Changes in Accounting Policies.

I, II, III

6 Depreciation Accounting I, II, III

7 Construction Contracts I, II, III

8

Accounting for Research and Development(This standard has been withdrawn w.e.f.

01.04.2004 for all levels of enterprises andAS 26 is applicable)

As withdrawn

9 Revenue recognition I, II, III

10 Accounting for Fixed Assets I, II, III

11The Effect of Changes in Foreign Exchange

RatesI, II, III

12 Accounting for Government Grants I, II, III

13 Accounting for Investments I, II, III

14 Accounting for Amalgamations I, II, III

15Accounting for Retirement Benefits in the

Financial Statements of EmployersI, II, III

16 Borrowing Costs I, II, III

17 Segment Reporting III-with modification

III- with modification

18 Related Party Disclosures I

II-with modificationIII- with modification

19 Leases III-with modification

III- with modification

20 Earning Per Share III-with modification

III- with modification

21 Consolidated Financial Statements I

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22 Accounting for Taxes on Income I,II,III

23Accounting for Investments in Associates in

Consolidated Financial StatementsI

24 Discontinuing Operations I

25 Interim Financial Reporting I

26 Intangible Assets I,II,III

27Financial Reporting of Interests in Joint

Ventures

I-with clarificationII-with clarification

III-with clarification

28 Impairment of Assets III-with modificationIII-with modification

29Provisions, Contingent Liabilities and

Contingent AssetI

AccountancyAccountancy is the process of communicating financial information about a business

entity to users such as shareholders and managers.[1] The communication is generally

in the form of financial statements that show in money terms the economic resources 

under the control of management; the art lies in selecting the information that is

relevant to the user and is reliable. [2] Accountancy is a branch of  mathematical science

that is useful in discovering the causes of success and failure in business. The

principles of accountancy are applied to business entities in three divisions of 

practical art, named accounting, bookkeeping, and auditing.[3]

Accountancy is defined by the Oxford English Dictionary (OED) as "the professionor duties of an accountant".

Accounting is defined by the American Institute of Certified Public Accountants

(AICPA) as "the art of recording, classifying, and summarizing in a significant

manner and in terms of money, transactions and events which are, in part at least, of 

financial character, and interpreting the results thereof."[4]

Accounting is thousands of years old; the earliest accounting records, which date back 

more than 7,000 years, were found in Mesopotamia (Assyrians). The people of that

time relied on primitive accounting methods to record the growth of crops and herds.

Accounting evolved, improving over the years and advancing as business advanced.[5]

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Early accounts served mainly to assist the memory of the businessperson and the

audience for the account was the proprietor or record keeper alone. Cruder forms of 

accounting were inadequate for the problems created by a business entity involving

multiple investors, so double-entry bookkeeping first emerged in northern Italy in the

14th century, where trading ventures began to require more capital than a single

individual was able to invest. The development of joint stock companies createdwider audiences for accounts, as investors without firsthand knowledge of their 

operations relied on accounts to provide the requisite information.[6] This development

resulted in a split of accounting systems for internal (i.e. management accounting) and

external (i.e. financial accounting) purposes, and subsequently also in accounting and

disclosure regulations and a growing need for independent attestation of external

accounts by auditors.[7]

Today, accounting is called "the language of business" because it is the vehicle for 

reporting financial information about a business entity to many different groups of 

people. Accounting that concentrates on reporting to people inside the business entity

is called management accounting and is used to provide information to employees,managers, owner-managers and auditors. Management accounting is concerned

primarily with providing a basis for making management or operating decisions.

Accounting that provides information to people outside the business entity is called

financial accounting and provides information to present and potential shareholders,

creditors such as banks or vendors, financial analysts, economists, and government

agencies. Because these users have different needs, the presentation of financial

accounts is very structured and subject to many more rules than management

accounting. The body of rules that governs financial accounting is called Generally

Accepted Accounting Principles, or GAAP.[8]

Contents

[hide]

• 1 Theory 

• 2 Etymology 

• 3 History 

o 3.1 Proof of Beginning of Accounting in 

Vedas

o 3.2 Token accounting in ancient 

Mesopotamia

o 3.3 Accounting in the Roman Empire 

o 3.4 Islamic accounting and algebra 

o 3.5 Luca Pacioli and double-entry 

bookkeeping

• 4 Accounting scandals 

• 5 Notes and references 

[edit] Theory

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The basic accounting equation is assets=liabilities+stockholders equity. This is the

balance sheet. The foundation for the balance sheet begins with the income statement,

which is revenues-expenses=net income or net loss. This is followed by the retained

earnings statement, which is beginning retained earnings+net income-

dividends=ending retained earnings or beginning retained earnings-net loss-

dividends=ending retained earnings.

[edit] Etymology

The word "Accountant" is derived from the French word Compter , which took its

origin from the Latin word Computare. The word was formerly written in English as

"Accomptant", but in process of time the word, which was always pronounced by

dropping the "p", became gradually changed both in pronunciation and in orthography 

to its present form.[9]

[edit] History

[edit] Proof of Beginning of Accounting in Vedas

Vedas are the oldest books of the world and after deep study of these sanskrit books,

you can find that accounting was started at India's vedic period. Vikraya is found in

the Atharvaveda and the Nirukta denoting ‘sale’. Sulka in the Rig veda clearly means

‘price’. In the Dharma Sutras it denotes a ‘tax’.[10]

[edit] Token accounting in ancient Mesopotamia

Map of the Middle East showing the Fertile Cresent circa. 3rd millennium BC

The earliest accounting records were found amongst the ruins of ancient Babylon, 

Assyria and Sumeria, which date back more than 7,000 years. The people of that time

relied on primitive accounting methods to record the growth of crops and herds.

Because there is a natural season to farming and herding, it is easy to count and

determine if a surplus had been gained after the crops had been harvested or the

young animals weaned.[5]

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Accounting tokens made of clay, from Susa, Uruk period, cira 3500 BCE. Department

of Oriental Antiquities, Louvre.

The invention of a form of bookkeeping using clay tokens represented a huge

cognitive leap for mankind.[11]

Globular token envelope with a cluster of accounting tokens. Clay, Susa, Uruk period 

(4000 to 3100 BCE). Department of Oriental Antiquities, Louvre.

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Economic tablet with numeric signs. Proto-Elamite script in clay, Susa, Uruk period 

(3200 BC to 2700 BCE). Department of Oriental Antiquities, Louvre.

[edit] Accounting in the Roman Empire

Part of the Res Gestae Divi Augusti from the Monumentum Ancyranum (Temple of 

Augustus and Rome) at Ancyra, built between 25 BCE - 20 BCE.

The Res Gestae Divi Augusti (Latin: "The Deeds of the Divine Augustus") is a

remarkable account to the Roman people of the Emperor  Augustus' stewardship. It

listed and quantified his public expenditure, which encompassed distributions to thepeople, grants of land or money to army veterans, subsidies to the aerarium(treasury), building of temples, religious offerings, and expenditures on theatrical

shows and gladiatorial games. It was not an account of state revenue and expenditure,

but was designed to demonstrate Augustus' munificence. The significance of the Res

Gestae Divi Augusti from an accounting perspective lies in the fact that it illustrates

that the executive authority had access to detailed financial information, covering a

period of some forty years, which was still retrievable after the event. The scope of 

the accounting information at the emperor's disposal suggests that its purpose

encompassed planning and decision-making.[12]

The Roman historians Suetonius and Cassius Dio record that in 23 BC, Augustus prepared a rationarium (account) which listed public revenues, the amounts of cash in

the aerarium (treasury), in the provincial fisci (tax officials), and in the hands of the

publicani (public contractors); and that it included the names of the freedmen and

slaves from whom a detailed account could be obtained. The closeness of this

information to the executive authority of the emperor is attested by Tacitus' statement

that it was written out by Augustus himself.[13]

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Roman writing tablet from the Vindolanda Roman fort of Hadrian's Wall, in

Northumberland (1st-2nd century AD) requesting money to buy 5,000 measures of 

cereal used for brewing beer. Department of Prehistory and Europe, British Museum.

Records of cash, commodities, and transactions were kept scrupulously by military

personnel of the Roman army. An account of small cash sums received over a few

days at the fort of Vindolanda circa 110 CE shows that the fort could compute

revenues in cash on a daily basis, perhaps from sales of surplus supplies or goods

manufactured in the camp, items dispensed to slaves such as cervesa (beer ) and clavicaligares (nails for boots), as well as commodities bought by individual soldiers. The

basic needs of the fort were met by a mixture of direct production, purchase and

requisition; in one letter, a request for money to buy 5,000 modii (measures) of braces(a cereal used in brewing) shows that the fort bought provisions for a considerable

number of people.[14]

The Heroninos Archive is name given to a huge collection of papyrus documents,

mostly letters, but also including a fair number of accounts, which comes from

Roman Egypt in 3rd century CE. The bulk of the documents relate to the running of a

large, private estate  [15]  is named after Heroninos because he was phrontistes (Koine

Greek : manager ) of the estate which had a complex and standarised system of accounting which was followed by all its local farm managers.[16] Each administrator 

on each sub-division of the estate drew up his own little accounts, for day to day

running of the estate, payment of the workforce, production of crops, the sale

produce, the use of animals, and general expetiditure on the staff. This information

was then summarized as pieces of papyrus scroll into one big yearly account for each

particular subdivision of the estate. Entries were arranged by sector, with cash

expenses and gains extrapolated from all the different sectors. Accounts of this kind

gave the owner the opportunity to take better  economic decisions because the

information was purposefully selected and arranged.[17]

Simple accounting is mentioned in the Christian Bible (New Testament) in the Book 

of Matthew, in the Parable of the Talents.[18]

[edit] Islamic accounting and algebra

In the Qur’an, the word "account" (Arabic: hesab) is used in its generic sense, relating

to one's obligation to account to God on all matters pertaining to human endeavour.

According to the Qur’an, followers are required to keep records of their indebtedness

(Sura 2, ayah 282), thus Islam thus provides general approval and guidelines for the

recording and reporting of transactions.[19]

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The Islamic law of inheritance (Sura 4, ayah 11) defines exactly how the estate is

calculated after death of an individual. The power of testamentary disposition is

basically limited to one-third of the net estate (i.e. the assets remaining after the

payment of funeral expenses and debts), providing for every member of the family by

allotting fixed shares not only to wives and children, but also to father and mothers.[20]

The complexity of this law served as an impetus behind the development of algebra (Arabic: al-jabr ) by the Persian mathematician Muhammad ibn Mūsā al-Khwārizmī  

and other medieval Islamic mathematicians. Khwārizmī's "The Compendious Book 

on Calculation by Completion and Balancing" (Arabic: Hisab al-jabr w’al-muqabala,

Baghdad, c. 825) devoted a chapter on the solution to the Islamic law of inheritance

using linear equations.[21] In the 12th century, Latin translations of al-Khwārizmī's

"Book of Addition and Subtraction According to the Hindu Calculation"

(Arabic:Kitāb al-Jam wa-l-tafrīq bi-ʿ ḥisāb al-Hind ) on the use of  Indian numerals, 

introduced the decimal positional number system to the Western world.[22] Zakah is

charged on earnings,agricultural produce, animals, mecahantile goods etc. Islam has

fixed Nisab (minimum amount) that is chargiable to Zakah, rates at that Zakah is to be

chaged as well as periodicity. It is remarkable that has fixed Nisab for different itemsin terms of their own quantity and not relied on their monetary worth. In case of 

animals Nisab is fixed in terms of their number. However in respect of merchandise it

has fixed Nisab in terms of their monetary value. Hifzur Rab has discussed its

implications and the guiding principles that emanate from it. According to him

'Command to measure correctly implies that any error in measurement/accounting

must be corrected accordingly we must correct all our accounts that use currency as

unit for the error resulting from manipulation of currency. The best approach to this

problem lies in applying the advancement in our knowledge derived from

observations with wisdom based on the sure knowledge derived from Quran-e-Hakim

and Sunnah Mubarakah. One of major guiding principles it provides is that value of 

anything is best measured in terms of a given quantity of itself. For example: gold in

terms of gold and rice in terms of rice. Thus growth in wheat production should be

measured in terms of quantity produced and not its value. Second guiding principle

based on these infallible sources of knowledge is to use the most reliable unit in cases

that require use of a common unit of value. A third guiding principle pertinent to our 

case is to let free open markets determine the prices.' Thus, where unit of account is

manipulated Islamic Accounting mandates that all data and accounting be corrected to

free it from the error resulting from the manipulation. [23] The development of 

mathematics and accounting was intertwined during the Renaissance. Mathematics

was in the midst of a period of significant development in the late 15th century.

Hindu-Arabic numerals and algebra were introduced to Europe from Arabmathematics at the end of the 10th century by the Benedictine monk  Gerbert of 

Aurillac, but it was only after Leonardo Pisano (also known as Fibonacci) put

commercial arithmetic, Hindu-Arabic numerals, and the rules of algebra together in

his Liber Abaci in 1202 that Hindu-Arabic numerals became widely used in Italy.[24]

[edit] Luca Pacioli and double-entry bookkeeping

Main articles: Luca Pacioli and Double-entry bookkeeping system

Bartering was the dominant practice for traveling merchants during the Middle Ages. 

When medieval Europe moved to a monetary economy in the 13th century, sedentarymerchants depended on bookkeeping to oversee multiple simultaneous transactions

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financed by bank loans. One important breakthrough took place around that time: the

introduction of double-entry bookkeeping,[25] which is defined as any bookkeeping

system in which there was a debit and credit entry for each transaction, or for which

the majority of transactions were intended to be of this form.[26] The historical origin

of the use of the words ‘debit’ and ‘credit’ in accounting goes back to the days of 

single-entry bookkeeping in which the chief objective was to keep track of amountsowed by customers (debtors) and amounts owed to creditors. ‘Debit,’ is Latin for ‘he

owes’ and ‘credit’ Latin for ‘he trusts’.[27]

The earliest extant evidence of full double-entry bookkeeping is the Farolfi ledger of 

1299-1300.[25] Giovanno Farolfi & Company were a firm of Florentine merchants

whose head office was in Nîmes who also acted as moneylenders to Archbishop of 

Arles, their most important customer.[28] The oldest discovered record of a complete

double-entry system is the Messari (Italian: Treasurer 's) accounts of the city of Genoa 

in 1340. The Messari accounts contain debits and credits journalised in a bilateral

form, and contains balances carried forward from the preceding year, and therefore

enjoy general recognition as a double-entry system.[29]

Pacioli's portrait, a painting by Jacopo de' Barbari, 1495, (Museo di

Capodimonte).The open book to which he is pointing may be his Summa de

Arithmetica, Geometria, Proportioni et Proportionalità.[30]

Luca Pacioli's "Summa de Arithmetica, Geometria, Proportioni et Proportionalità" (Italian: "Review of  Arithmetic, Geometry, Ratio and Proportion") was first printed

and published in Venice in 1494. It included a 27-page treatise on bookkeeping,

"Particularis de Computis et Scripturis" (Italian: "Details of Calculation andRecording"). It was written primarily for, and sold mainly to, merchants who used the

book as a reference text, as a source of pleasure from the mathematical puzzles it

contained, and to aid the education of their sons. It represents the first known printed

treatise on bookkeeping; and it is widely believed to be the forerunner of modern

bookkeeping practice. In Summa Arithmetica, Pacioli introduced symbols for  plus and

minus for the first time in a printed book, symbols that became standard notation in

Italian Renaissance mathematics. Summa Arithmetica was also the first known book 

printed in Italy to contain algebra.[31]

Although Luca Pacioli did not invent double-entry bookkeeping,[32] his 27-page

treatise on bookkeeping contained the first known published work on that topic, and issaid to have laid the foundation for double-entry bookkeeping as it is practiced today.

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[33] Even though Pacioli's treatise exhibits almost no originality, it is generally

considered as an important work, mainly because of its wide circulation, it was

written in vernacular  Italian language, and it was a printed book.[34]

According to Pacioli, accounting is an ad hoc ordering system devised by the

merchant. Its regular use provides the merchant with continued information about hisbusiness, and allows him to evaluate how things are going and to act accordingly.

Pacioli recommends the Venetian method of double-entry bookkeeping above all

others. Three major books of account are at the direct basis of this system: the

memoriale (Italian: memorandum), the giornale (journal), and the quaderno (ledger ).

The ledger is considered as the central one and is accompanied by an alphabetical

index.[35]

Pacioli's treatise gave instructions in how to record barter transactions and

transactions in a variety of currencies – both being far more commonplace than they

are today. It also enabled merchants to audit their own books and to ensure that the

entries in the accounting records made by their bookkeepers complied with themethod he described. Without such a system, all merchants who did not maintain their 

own records were at greater risk of theft by their employees and agents: it is not by

accident that the first and last items described in his treatise concern maintenance of 

an accurate inventory.[36]

The nature of double-entry can be grasped by recognizing that this system of 

bookkeeping did not simply record the things merchants traded so that they could

keep track of assets or calculate profits and losses; instead as a system of writing,

double-entry produced effects that exceeded transcription and calculation. One of its

social effects was to proclaim the honesty of  merchants as a group; one of its

epistemological effects was to make its formal precision based on a rule bound system 

of arithmetic seem to guarantee the accuracy of the details it recorded. Even though

the information recorded in the books of account was not necessarily accurate, the

combination of the double entry system's precision and the normalizing effect that

precision tended to create the impression that books of account were not only precise,

but accurate as well. Instead of gaining prestige from numbers, double entry

bookkeeping helped confer cultural authority on numbers.[37]

Double entry accounting means that money is never lost or gained. It is always

transferred from one place to another. This is done by recording transactions. Each

transaction requires the use of at least two accounts.

Book keeping 

is the recording of financial transactions. Transactions include sales, purchases,

income, and payments by an individual or organization. Bookkeeping is usually

performed by a bookkeeper. Bookkeeping should not be confused with accounting. 

The accounting process is usually performed by an accountant. The accountant creates

reports from the recorded financial transactions recorded by the bookkeeper and files

forms with government agencies. There are some common methods of bookkeeping

such as the Single-entry bookkeeping system and the Double-entry bookkeeping

system. But while these systems may be seen as "real" bookkeeping, any process thatinvolves the recording of financial transactions is a bookkeeping process.

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A bookkeeper (or book-keeper), also known as an accounting clerk or accounting

technician, is a person who records the day-to-day financial transactions of an

organization. A bookkeeper is usually responsible for writing the "daybooks." The

daybooks consist of purchases, sales, receipts, and payments. The bookkeeper is

responsible for ensuring all transactions are recorded in the correct day book,

suppliers ledger, customer ledger and general ledger. The bookkeeper brings thebooks to the trial balance stage. An accountant may prepare the income statement and

balance sheet using the trial balance and ledgers prepared by the bookkeeper 

Contents

[hide]

• 1 Bookkeeping systems 

o 1.1 Single-entry 

systemo 1.2 Double-entry 

system

• 2 Daybooks 

• 3 Petty cash book  

• 4 Journals 

• 5 Ledgers 

• 6 Chart of accounts 

• 7 Computerized 

bookkeeping

• 8 Online bookkeeping 

• 9 Notes and references 

[edit] Bookkeeping systems

Two common bookkeeping systems used by businesses and other organizations are

the single-entry bookkeeping system and the double-entry bookkeeping system.

Single-entry bookkeeping uses only income and expense accounts, recorded primarily

in a revenue and expense journal. Single-entry bookkeeping is adequate for many

small businesses. Double-entry bookkeeping requires posting (recording) each

transaction twice, using debits and credits.

[edit] Single-entry system

The primary bookkeeping record in single-entry bookkeeping is the cash book, which

is similar to a checking (cheque) account register but allocates the income and

expenses to various income and expense accounts. Separate account records are

maintained for petty cash, accounts payable and receivable, and other relevant

transactions such as inventory and travel expenses. These days, single entry

bookkeeping can be done with DIY bookkeeping software to speed up manual

calculations.

Sample revenue and expense journal for single-entry bookkeeping[1]

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No.Dat

e

Descript

ion

Reven

ue

Expen

seSales

Sales

Tax

Servic

es

Invento

ry

Adve

rt.

Freig

ht

Offic

e

Sup

pl

Misc

7/1

3

Balance

forward 

1,826.

00 835.00

1,218.

00

98.0

0 510.00 295.00

245.0

0

150.0

0

83.5

0 61.50

104

1

7/1

3

Printer-

Advert

flyers

450.00450.0

0

104

2

7/1

3

Wholesal

er -

inventory

380.00 380.00

104

3

7/1

6

office

supplies92.50

92.5

0

--7/1

7

bank 

deposit

1,232.

00- Taxable

sales400.00

32.0

0

- Out-of-

state

sales

165.00

- Resales 370.00

- Service

sales265.00

ban

k 

7/1

9

bank 

charge

23.40 23.40

104

4

7/1

9

petty

cash100.00

100.0

0

TOTALS3,058.

00

1,880.

90

2,153.

00

130.

00775.00 675.00

695.0

0

150.0

0

176.

00

184.9

0

[edit] Double-entry system

Main article: double-entry bookkeeping system

[edit] DaybooksA daybook is a descriptive and chronological (diary-like) record of day-to-day

financial transactions also called a book of original entry. The daybook's details must

be entered formally into journals to enable posting to ledgers. Daybooks include:

• Sales daybook, for recording all the sales invoices.

• Sales credits daybook, for recording all the sales credit notes.

• Purchases daybook, for recording all the purchase invoices.

• Purchases credits daybook, for recording all the purchase credit notes.

• Cash daybook, usually known as the cash book, for recording all

money received as well as money paid out. It may be split into two daybooks:

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receipts daybook for money received in, and payments daybook for money

paid out.

[edit] Petty cash book 

A petty cash book is a record of small value purchases usually controlled by imprest

system. Items such as coffee, tea, birthday cards for employees, a few dollars if you're

short on postage, are listed down in the petty cash book.

[edit] Journals

A journal is a formal and chronological record of financial transactions before their 

values are accounted for in the general ledger as debits and credits. A company can

maintain one journal for all transactions, or keep several journals based on similar 

activity (i.e. sales, cash receipts, revenue, etc.) making transactions easier to

summarize and reference later. For every debit journal entry recorded there must bean equivalent credit journal entry to maintain a balanced accounting equation [2].

[edit] Ledgers

A ledger is a record of accounts, these accounts are recorded separately showing their 

beginning/ending balance. Unlike the journal, which lists financial transactions in

chronological order without showing their balance but showing how much is going to

be charged in each account. The ledger takes each financial transactions from the

journal and records them into the right account for every transaction listed. The ledger 

also sums up the total of every account which is transferred into the balance sheet andincome statement. There are 3 different kinds of ledgers that deal with book-keeping.

Ledgers include:

• Sales ledger, which deals mostly with the Accounts Receivable

account. This ledger consists of the financial transactions made by customers

to the business.

• Purchase ledger is a ledger that goes hand and hand with the Accounts

Payable account. This is the purchasing transaction a company does.

• General ledger representing the original 5 main accounts: assets,

liabilities, equity, income, and expenses

[edit] Chart of accounts

A chart of accounts is a list of the accounts codes that can be identified with numeric,

alphabetical, or alphanumeric codes allowing the account to be located in the general

ledger.

[edit] Computerized bookkeeping

Computerized bookkeeping removes many of the paper "books" that are used torecord transactions and usually enforces double entry bookkeeping.

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[edit] Online bookkeeping

Online bookkeeping, or remote bookkeeping, allows source documents and data to

reside in web-based applications which allow remote access for bookkeepers and

accountants. All entries made into the online software are recorded and stored in a

remote location. The online software can be accessed from any location in the world

and permit the bookkeeper or data entry person to work from any location with a

suitable data communications link.

 يه

Differences b/w accounting and book keeping

ACCOUNTING:

Accounting is a four stage process of recording, classifying, summarizing and the

interpretation of the financial statements.

The four stage process are defined below:

Recording- transactions being recorded in the books of the business

Classifying- sorting and categorizing into meaningful and orderly types or manners

Summarizing- the accounting data are summarized

Interpreting- financial data are analyzed and used to assist decision making

BOOKKEEPING:

Bookkeeping is a part of Accounting. It is merely a mechanical aspect of recording,

classifying and summarizing transaction.

Therefore, keeping the books of accounts is always the theme in bookkeeping. The

finer aspect of interpreting all these data into information for management to act upon

is excluded.

Accounting has been defined as "the language of business" because it is the basic tool

for recording, reporting, and evaluating economic events and transactions that affect

business enterprises. Accounting processes document all aspects of a business's

financial performance, from payroll costs, capital expenditures, and other obligationsto sales revenue and owners' equity. An understanding of the financial data contained

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in accounting documents, then, is regarded as essential to reaching an accurate picture

of a business's true financial well being. Armed with such knowledge, businesses can

make appropriate financial and strategic decisions about their future; conversely,

incomplete or inaccurate accounting data can cripple a company, no matter its size or 

orientation. Accounting's importance as a barometer of business healthpast, present,

and futureand a tool of business navigation is reflected in the words of theAmerican Institute of Certified Public Accountants (AICPA), which defined

accounting as a "service activity." Accounting, said the AICPA, is intended "to

provide quantitative information, primarily financial in nature, about economic

activities that is intended to be useful in making economic decisionsmaking

reasoned choices among alternative courses of action."

A business's accounting system contains information potentially relevant to a wide

range of people. In addition to business owners, who rely on accounting data to gauge

their enterprise's financial progress, accounting data can communicate relevant

information to investors, creditors, managers, and others who interact with the

business in question. As a result, accounting is sometimes divided into two distinctsubsetsfinancial accounting and managerial accounting that reflect the different

information needs of these end users. Financial accounting is a branch of accounting

that provides people outside the businesssuch as investors or loan officerswith

qualitative information regarding an enterprise's economic resources, obligations,

financial performance, and cash flow. Managerial accounting, on the other hand,

refers to accounting data used by business owners, supervisors, and other employees

of a business to gauge their enterprises's health and operating trends.

GENERALLY ACCEPTED ACCOUNTING

PRINCIPLES (GAAP)

Generally accepted accounting principles (GAAP) are the guidelines, rules, and

procedures used in recording and reporting accounting information in audited

financial statements. Various organizations have influenced the development of 

modern-day accounting principles. Among these are the AICPA, the Financial

Accounting Standards Board (FASB), and the Securities and Exchange

Commission (SEC). The first two are private sector organizations; the SEC is a

federal government agency.

The AICPA played a major role in the development of accounting standards. In 1937the AICPA created the Committee on Accounting Procedures, which issued a series

of Accounting Research Bulletins (ARB) with the purpose of standardizing

accounting practices. This committee was replaced by the Accounting Principles

Board (APB) in 1959. The APB maintained the ARB series, but it also began to

publish a new set of pronouncements, referred to as Opinions of the Accounting

Principles Board. In mid-1973 an independent private board, the FASB, replaced the

APB and assumed responsibility for the issuance of financial accounting standards.

The FASB remains the primary determiner of financial accounting standards in the

United States. Comprised of seven members who serve full-time and receive

compensation for their service, the FASB identifies financial accounting issues,

conducts research related to these issues, and is charged with resolving the issues. A

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supermajority vote (i.e., at least five to two) is required before an addition or change

to the Statements of Financial Accounting Standards is issued.

The Financial Accounting Foundation is the parent organization to the FASB. The

foundation is governed by a 16-member Board of Trustees appointed from the

memberships of eight organizations: AICPA, Financial Executives Institute, Instituteof Management Accountants, Financial Analysts Federation, American Accounting

Association, Securities Industry Association, Government Finance Officers

Association, and National Association of State Auditors. A Financial Accounting

Standards Advisory Council (approximately 30 members) advises the FASB. In

addition, an Emerging Issues Task Force was established in 1984 to provide timely

guidance to the FASB on new accounting issues.

The SEC, an agency of the federal government, has the legal authority to prescribe

accounting principles and reporting practices for all companies issuing publicly traded

securities. The SEC has seldom used this authority, however, although it has

intervened or expressed its views on accounting issues from time to time. U.S. lawrequires that companies subject to the jurisdiction of the SEC make reports to the SEC

giving detailed information about their operations. The SEC has broad powers to

require public disclosure in a fair and accurate manner in financial statements and to

protect investors. The SEC establishes accounting principles with respect to the

information contained within reports it requires of registered companies. These

reports include: Form S-X, a registration statement; Form 10-K, an annual report;

Form 10-Q, a quarterly report of operations; Form S-K, a report used to describe'

significant events that may affect the company; and Proxy Statements, which are used

when management requests the right to vote through proxies for shareholders.

THE ACCOUNTING SYSTEM

An accounting system is a management information system that is responsible for 

the collection and processing of data useful to decision makers in planning and

controlling the activities of a business organization. The data processing cycle of an

accounting system encompasses the total structure of five activities associated with

tracking financial information: collection or recording of data; classification of data;

processing (including calculating and summarizing) of data; maintenance or storage

of results; and reporting of results. The primarybut not solemeans by which these

final results are disseminated to both internal (in-company) and external users such as

creditors and investors is the financial statement.

The elements of accounting are the building blocks from which financial statements

are constructed. According to the FASB, the primary financial elements that are

directly related to measuring performance and the financial position of a business

enterprise are as follows:

• Assets: probable future economic benefits obtained or controlled by a

particular entity as a result of past transactions or events.

• Comprehensive Income: the change in equity (net assets) of an entity

during a given period as a result of transactions and other events and

circumstances from nonowner sources. Comprehensive income includes all

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changes in equity during a period except those resulting from investments by

owners and distributions to owners.

• Distributions to Owners: decreases in equity (net assets) of a particular 

enterprise as a result of transferring assets, rendering services, or incurring

liabilities to owners.

• Equity: the residual interest in the assets of an entity that remain after deducting liabilities. In a business entity, equity is the ownership interest.

• Expenses: events that expend assets or incur liabilities during a period

from delivering or providing goods or services and carrying out other 

activities that constitute the entity's ongoing major or central operation.

• Gains: increases in equity (net assets) from peripheral or incidental

transactions. Gains also come from other transactions, events, and

circumstances affecting the entity during a period except those that result from

revenues or investments by owners. Investments by owners are increases in

net assets resulting from transfers of valuables from other entities to obtain or 

increase ownership interests (or equity) in it.

• Liabilities: probable future sacrifices of economic benefits arising frompresent obligations to transfer assets or provide services to other entities in the

future as a result of past transactions or events.

• Losses: decreases in equity (net assets) from peripheral or incidental

transactions of an entity and from all other transactions, events, and

circumstances affecting the entity during a period. Losses do not include

equity drops that result from expenses or distributions to owners.

• Revenues: inflows or other enhancements of assets, settlements of 

liabilities, or a combination of both during a period from delivering or 

producing goods, rendering services, or conducting other activities that

constitute the entity's ongoing major or central operations.

FINANCIAL STATEMENTS

Financial statements are the most comprehensive way of communicating financial

information about a business enterprise. A wide array of usersfrom investors and

creditors to budget directorsuse the data contained in financial statements to guide

their actions and business decisions. Financial statements generally consist of the

following:

• Balance sheet (or statement of financial position): summarizes the

financial position of an accounting entity at a particular time as represented byits economic resources (assets), economic obligations (liabilities), and equity.

• Income statement: summarizes the results of operations for a given

period.

• Cash flow statement: summarizes the impact of an enterprise's cash

flows on its operating, financing, and investing activities over a given period.

• Statement of retained earnings: shows the increases and decreases in

earnings retained by the company over a given period.

• Statement of changes in stockholders' equity: discloses the changes in

the separate stockholders' equity account of an entity, including investments

by distributions to owners during the period.

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Notes to financial statements are considered an integral part of a complete set of 

financial statements. Notes typically provide additional information at the end of the

statement and concern such matters as depreciation and inventory methods used in

the statements, details of long-term debt, pensions, leases, income taxes, contingent

liabilities, methods of consolidation, and other matters. Significant accounting

policies are usually disclosed as the initial note or as a summary preceding the notesto the financial statements.

ACCOUNTING PROFESSION

There are two primary kinds of accountants: private accountants, who are employed

by a business enterprise to perform accounting services exclusively for that business,

and public accountants, who function as independent experts and perform accounting

services for a wide variety of clients. Some public accountants operate their own

businesses, while others are employed by accounting firms to attend to the accounting

needs of the firms' clients. The largest U.S. accounting firms, commonly referred to asthe Big Five, are Arthur Andersen & Co., Deloitte and Touche, Ernst & Young,

KPMG Peat Marwick, and Price WaterhouseCoopers.

A certified public accountant (CPA) is an accountant who has (1) fulfilled certain

educational and experience requirements established by state law for the practice of 

public accounting and (2) garnered an acceptable score on a rigorous three-day

national examination. Such people become licensed to practice public accounting in a

particular state. These licensing requirements are widely credited with maintaining the

integrity of the accounting service industry, but in recent years this licensing process

has drawn criticism from legislators and others who favor deregulation of the

profession. Some segments of the business community have expressed concern thatthe quality of accounting would suffer if such changes were implemented, and

analysts indicate that small businesses without major in-house accounting

departments would be particularly impacted.

The accounting profession was changing in a variety of other ways by the late 1990s.

"The accounting profession is at a critical juncture in its development with many of its

longstanding traditions being challenged by an evolving workplace and workforce,"

according to Patricia M. Flynn, John D. Leeth, and Elliott S. Levy in an article for 

CPA Journal. "In recent years, the profession has experienced a changing work 

environment, characterized by an expanding scope of services, rising costs,

technological changes, organizational restructuring, and increased specialization."One of the most noticeable changes has been a major influx of women into the

traditionally male-dominated profession.

The AICPA is the national professional organization of CPAs, but numerous

organizations within the accounting profession exist to address the specific needs of 

various subgroups of accounting professionals. These groups range from the

American Accounting Association, an organization composed primarily of accounting

educators, to the American Women's Society of Certified Public Accountants.