of A c c o U

Framework
Theoretical
sales tax and excise duty. Moreover such
impose income tax,
policies of our nation. information is muc
uch
in
order to
the
impo
government
frame the to
economic

9.to
ful General public: General public will get to know the contribution of business the society in
of t nlovment generation and contnbution to SOcially beneficial
the form
of p a y m e n t activities
40 Researchers: At present, research scholars also use the accounting information extensively
research work.
of their
purpose
forthé
pRANCHES OF ACCOUNTING

classified on the basis of its uses as:

Accounting can be
1. Financial accounting.

2. Cost accounting.
3. Management accounting.
1. Financial Accounting:
It is concerned with the preparation of
accounts. Such accounts
enable the management to prepare the tinanclal statements showing the profit or loss for a
particular period and the financial state of aftairs on a particular day. Financial Accounting
therefore provides information to the managers of the business, shareholders, suppliers.
cUstomers, employees, the Government and the public in general.
2. Cost Accounting: lt is concerned with classification, recording, allocation and
Summarisation of current and prospective costs. Cost Accounting enables the ascertainment of
the total cost of any particular unit of production or service, with a reasonable degree of
accuracy. It discloses what constitutes cost and thus helps in controlling or reducing the cost.
3. Management Accounting: It refers to the use of accounting data collected with the
help of cost and financial accounting for the purpose of planning, controlling, decision making
and the
formulating policies by management. Management Accounting presents the
management, accounting information in the form of processed data, with the help of which
to
proper decisions are taken.
ACCOUNTING CYCLE
The accounting cycle refers to the complete sequence of accounting procedure which 1s

requently repeated in the same direction during an accounting period. The sequence is:
(1) Recording of transactíons in the journal or subsidiary books.

(2) Posting them to various ledger accounts.

(3) Preparing the Trial Balance from the ledger accounts.
(4) Preparing Final Accounts.
accounting records
are maintained, the journal
year or a period for which the
One
Er etc. are prepared again. Thus, the cycle goes On.
ASIS OF ACcOUNTING the
transactions:

of accounting to record
the two basis
dre
1. Cash basis
2. Mercantile basis or Accrual basis.
 Countng

1. Cash Basis of Accounting:Cash basis of accounting is a method recording transactions

by which revenues, cost, assets and liabilities are reflected in the accounts for the periodin
which actual cash receipts and actual cash payments are made. Thus, accrued income i.e.,
incomes earned but not received or outstanding expenses i.e., expenses incurred but not yet
paid are completely ignored in the books of accounts.
method of recording
2. Mercantile Basis or Accrual Basis: Accrual basis of accounting is a
transactions by which revenue, cash, assets and liabilities are reflected in the accounts for the
or payment of cash. Under this
period in which they accrue irrespective of actual receipts accrued/unaccrued incomesin the
method, there may be prepaid/outstanding expenses and
books of accounts (in the final accounts).

Normally, business enterprises i.e., Trading and manufacturing running their business on
their or losses during the year on accrual basis. On
the other
profit motive, find out profits
professionals (Non-trading concerns) like Doctors, Lawyers, Chartered Accountants etc.,
hand, cash basis.
havemostly cash transactions and they find out profit and loss on
IMPORTANT TERMINOLOGIES USED IN ACCOUNTING
1. Transaction
In otner
transfer of money or money's worth from one person to another.
Iransaction means organizations financial position and / or its earnings. For
hat. as the