Accounting is an Art of Analyzing, Recording,

Classifying, summarizing, and reporting the

economic events of business.
Transactions
Accounting Financial Statements
Transaction is an economic event that causes immediate
change in financial position in the business and can be
measured in terms of money.
Assets
Assets are the financial Resources owned or
controlled by entity and are expected to benefit
future operations.

To treat an item as assets, accountants have to
check

It is an resource
Business should have ownership or control over it
It can be measure in terms of money

Liabilities
Claims of outsiders over the assets of business
are liabilities.

Generally speaking these are the providers of
the assets of the business. In foreseeable
future business has to give back their assets
or pay back in cash or any other assets for
their claim.
Capital / Owners Equity
Claims of insiders over the assets of the business is called capital

Generally speaking these are also providers of the assets of the
business. Unlike liabilities, capital has below mentioned distinct
features
Their contribution (assets provided by them ) are not paid back
rather they receive any profit earned by the business.
Their claim is residual. It means that in case of winding up of
business, first liabilities will be paid, and any left over assets , that
may be more then or less then their contribution, will be given to
them.
Any Profit earned by the company goes to equity holders
Any loss suffered by the business, decreases the claim of equity
holders



Financial Statements
Basic responsibility of accountant is the
preparation of Financial statement. Financial
Statements are the key source to provide
information about the business. Financial
statements include
Balance Sheet
Income Statement
Statement of changes in Equity
Cash flow Statement

Balance Sheet states the financial position of
business at any given date. Positions is stated
into three main categories, Assets , Liabilities
and Capital
Income statement states the financial
performance of the business for any given
period. Performance is stated in terms of
revenue earned by the company and expenses
incurred to earn that revenue. Net result is
stated as profit of the business for the period.
Cash Flow statement states the cash
generated and utilized by the business during
the given period.

Statement of Changes in Equity states the
changes took place in capital. Reason of
changes are additional investment, withdraw
of investment, profit or loss of the business.
In Accrual Basis of accounting, transactions
are recorded when exchange of goods or
services takes places compared to cash basis
where transactions are only recorded on
exchange of cash.