SCOPE AND

IMPORTANCEOF

ACCOUNTING

Scope of accounting

• Installation of accounting system.

• Accounting of business transaction.

• Preparation of annual accounts.

Importance of accounting

• Keep systematic records

• Protects business properties

• Ascertain operational profit or loss

• Ascertain financial position of business.

• Facilitates rational decision making.

ACCOUNTINGEQUATION

AND DOUBLE ENTRYBOOK KEEPING

SYSTEM

Accounting equation

• The basic accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner's equity of a business. It is the foundation for the double-entry bookkeeping system.

• For each transaction, the total debits equal the total credits. It can be expressed as

Double-entry bookkeeping system

• set of rules for recording financial information in a financial accounting system

• The name derives from the fact that financial information used to be recorded using pen and ink in paper books – hence "bookkeeping“

• each transaction was entered twice (hence "double-entry"), with one side of the transaction being called a debit and the other a credit.

• This is also accomplished using the accounting equation: Equity = Assets − Liabilities.

• The accounting equation serves as an error detection tool

• It follows that the sum of debits and the sum of the credits must be equal in value.