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Accounting Concepts

Accounting Concepts

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Published by Shabbir Dewaswala

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Published by: Shabbir Dewaswala on Sep 05, 2010
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 Accounting Basics
Important Disclaimer
Important Note
The text in this chapter is intended to clarify business-related concepts. It is not intended nor can it replace formal legal advice. Before taking any actions relating to your business, always consult your accountant or a business law/tax attorney.
The Need for Accounting
Every organization needs to maintain good records to track howmuch money they have, where it came from, and how they spend it.These records are maintained by using an accounting system.
 Accounting for Windows Accounting Basics
These records are essential because they can answer such importantquestions as:
Am I making or losing money from my business?
How much am I worth?
Should I put more money in my business or sell it and go intoanother business?
How much is owed to me, and how much do I owe?
How can I change the way I operate to make more profit?Even if you do not own or run a business, as an accountant you willbe asked to provide the valuable information needed to assistmanagement in the decision making process. In addition, theserecords are invaluable for filing your organization’s tax returns.The modern method of accounting is based on the system created byan Italian monk 
 Fra Luca Pacioli
. He developed this system over500 years ago. This great and scientific system was so well designedthat even modern accounting principles are based on it.In the past, many businesses maintained their records manually inbooks – hence the term “bookkeeping” came about. This method of keeping manual records was cumbersome, slow, and prone to humanerrors of translation.A faster, more organized, and easier method of maintaining books isusing Computerized Accounting Programs. With the decrease in theprice of computers and accounting programs, this method of keepingbooks has become very popular.
 Accounting and Business
Accounting is the system a company uses to measure its financialperformance by noting and classifying all the transactions like sales,purchases, assets, and liabilities in a manner that adheres to certainaccepted standard formats. It helps to evaluate a Company’s pastperformance, present condition, and future prospects.
 Accounting Basics Accounting for Windows
A more formal definition of accounting is
 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 a financial character and interpreting the results thereof 
What Accountants Do
We have said that accounting consists of these functions:
Reporting and evaluating the financial activities of a businessBefore any recording can take place, there must be something torecord. In accounting, the something consists of a transaction orevent that has affected the business. Evidence of the transaction iscalled a document.For example:
A sale is made, evidenced by a sales slip.
A purchase is made, as evidenced by a check and otherdocuments such as an invoice and a purchase order.
Wages are paid to employees with the checks and payroll recordsas support.
Accountants do not record a conversation or an idea. They mustfirst have a document.In almost any business, these documents are numerous and theirrecording requires some sort of logical system. Recording is firstcarried out in a book of original entry called the journal. A journal isa record, listing transactions in a chronological order.At this point, we have a record of a great volume of data. How canthis data best be used? Aside from writing down what has occurredfor later reference, what has been accomplished? The answer is, of course, that the accountant has only started on his task. This great
 Accounting for Windows Accounting Basics

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