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General Accounting Notes

General Accounting Notes

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Published by Sharif Shabbir

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Published by: Sharif Shabbir on Sep 17, 2010
Copyright:Attribution Non-commercial


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It is the art of recording classifying, and summarizing the businesstransactions in the books of accounts, as per prescribed rules, which have financialimpact and finally, final accounts, are prepared to calculate profit/loss and to showthe financial position of the business at the end of year and results of the businessare interpreted to the management for decision making.
Explanation of definition:
This is the basic function of accounting. Recording means to put thetransactions in writing in the books of accounts which have financial impact.Recording is done in the book. “Journal”, Journal is the first book of accountingand this book is further sub-divided into various subsidiary books such as cash journal, purchases journal, sales journal etc. transactions will be recorded in detailin the journal, i.e, date, amount, DR and CR etc.
Classification is the process of grouping of transaction or entries of onenature at one place. The work of classification is the done in the book termed as“Ledger”. Account wise record is maintained in ledger. Ledger is prepared from journal. OR it can be prepared directly from available data/information. It is alsocalled “T Accounts”
Summarizing involves the preparation of TRIAL BALANCE and TRIALBALANCE is prepared from ledger by taking out debit and credit balance of different accounts appearing in the Ledger.
It includes TRADING & PROFIT AND LOSS ACCOUNT andBALANCE SHEET. Final accounts are prepared from Trial balance. Trading &
 profit & loss A/C shows profit or loss of the business at the end of year andBALANCE SHEET shows financial position of the business at the end of year.
Financial impact:
Accounting records only those transactions and events which have financialimpact. Transactions which are not of financial character are not recorded in the books of accounts.
This is final function of accounting. Accounting not only creates datathrough recording, classifying and summarizing of events but also the recordedfinancial data is interpreted to the management for decision making.
Prescribed rules:
Rules and regulation or by laws of accounting or procedures of accountingnormally called “SSAPs” (STATEMENTS OF STANDARD ACCOUNTINGPRACTICES.) May be called as ACCOUNTING STANDARDS.
Any activity carried out for earning of profits is called business but itmust be law full.
Business Transaction.
Dealing of the business with other parties for sale or  purchase or goods, payment of wages, rent and rendering of services etc.
Buying of goods & services for the business. It has two types.I.Cash purchaseGoods sold & cash is paid on the spot/occasionII.Credit purchaseGoods sold but cash will be received after fewdays etc. (Debtors)
Return inwards / Sales return.
If goods bought are returned back due to anyreason, it is called return outwards or purchase return.
Selling of goods & services by the business. It has also two types.I.Cash sale.Goods sold & cash received on the spot.
II.Credit sale.Goods purchased but payment will be made after fewdays/month. (Creditors)
Return inwards /Sales return.
If goods sold are returned back to us due to anyreasons, it is called return inwards or sale return.
Resources of the business with the help of which business in carried out.Examples are cash, machinery, furniture, office equipment, vehicle,lands/building, debtors, stock etc.
Assets has two types:
Fixed assets: Those assets which have a long life and are purchased for the purpose to use them in business. Examples are machinery, furniture,office equipment, vehicle, lands/ building etc.II.Those assets which are purchased for the purpose of sale to earn profit.OR those assets in which frequent changes occurred due to businesstransaction. Examples are cash, debtors, stock etc.
Obligations of the business.Examples are creditors, bankovedraft, loan, accrued salary etc liability has two types:I.Current liability:those liabilities which are payable within a year.Examples are creditors, bankoverdraft, accrued salary etc.II.Long term liability:those liabilities which are payable after a year.Examples are loan, debentures etc.
Investments by the owner in the business. Examples are cashfurniture, computer, machinery etc.
Earning of the business.Examples are sale income, commissionreceived, discount received.
Spending of the business.Examples are salary, wages, rent, utility bills, office expenses. Advertisement, fuel, repair etc.
If the owner of the business draws something from the business for his personal use it is called drawing. Examples are:
Cash withdrawn

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