Aspects Reserves Surplus

Definition Funds set aside for specific purposes or
contingencies, often earmarked for a particular
use.
Purpose Reserved for specific uses such as future
expansions, legal obligations, or unforeseen
expenses.
Allocation Typically, allocated by management or the
board for specific purposes or contingencies.
Source Can be created from profits or other sources
like selling assets, or through appropriations.
Example General reserve, capital reserve, contingency
reserve.
Availability Usually not readily distributable as dividends
and may have legal or regulatory restrictions.
Remaining profits after distributing dividends
and meeting expenses.
Represents the cumulative profits generated by
the company over time.
Automatically generated from the excess of
revenues over expenses.
Generated from the profitable operations of
the company.
Retained earnings, accumulated profits.
Can be used for dividends, share buybacks,
reinvestment, subject to shareholder approval
or tax considerations.

Amortization and depreciation are both accounting methods used to allocate the cost of assets over their useful lives.
Amortisation is levied on Intangible assets like patents and trademarks, copyrights, franchise agreements, etc.
Depreciation is levied on physical assets like plants, machinery, land, buildings, furniture Depreciation uses the
straight-line method or the accelerated depreciation method to determine its values. Amortization only uses the
straight-line method.

Accounting can be defined as a process of identification, recording, classifying, interpreting and summarising
economic data and Communicating the financial data or reports to the users.

To maintain a systematic record of business transactions

To ascertain profit and loss

To determine the financial position

To provide information to various users

To assist the management

What are the Different Branches of Accounting?

The following are the main branches of accounting:

(a) Financial accounting:

Financial Accounting is that branch of accounting which involves identifying, measuring, recording, classifying,
summarising the business transactions, i.e. it involves the steps from Identifying, Recording of transactions to
Summarisation, and communicating the financial data.

(b) Cost accounting:

Cost Accounting is that branch of accounting which is concerned with the process of ascertaining and controlling the
cost of products or services.
(c) Management accounting

Management accounting refers to that branch of accounting which is concerned with presenting the accounting
information in such a way that helps the management in planning and controlling the operations of a business and in
decision making.

Book Keeping Accounting

Bookkeeping involves identifying, measuring, In addition to bookkeeping, Accounting also

recording & classifying financial transactions in includes summarizing, interpreting and
the ledger accounts. communicating the financial data to the users
of financial statements.

The main aim is to maintain systematic records The main aim is to ascertain the profitability
of financial transactions. and financial position of the business.

Double-entry system

 The double entry system is based on the Dual Aspect Principle.

 Every transaction has two aspects, ‘a Debit’ and ‘a credit’ of an equal amount.
 This system of accounting recognises and records both aspects of the transaction.
Single entry system

 Under this system, both aspects are not recorded for all the transactions.
 Either only one aspect is recorded or both the aspects are not recorded for all the transactions.

Business Entity Concept – The business entity concept is one of the accounting concepts that states that the
business and the owner are two separate entities and therefore, should be considered separate from each other.

Money Measurement Concept – The concept of money measurement is associated with such transactions of a
business, which can be recorded in terms of money in the books of accounts.

Going Concern Concept – Going concern concept is one of the accounting principles that states that a business
entity will continue running its operations in the foreseeable future and will not be liquidated or forced to
discontinue operations for any reason.

Cost Concept – The cost concept requires that all the assets must be recorded in the books of accounts at the price
at which they were bought, which involves the cost incurred for transportation, installation, and acquisition.

Matching Concept – The matching concept states that expenses that are incurred in an accounting period should be
matching with the revenue earned during that period.
Full Disclosure Concept – Full disclosure principle refers to the concept that suggests that a business should report
all the necessary information in their financial statements so that the users who are able to read the financial
information are in a better position to make important decisions regarding the company.

Consistency Concept – The consistency principle states that businesses should maintain the same accounting
methods or principles throughout the accounting periods so that users of the financial statements or information are
able to make meaningful conclusions from the data.
Cash Basis of Accounting – The cash basis of accounting is referred to as that method of accounting where the
accounting system recognises revenues and expenses only when there is inflow and outflow of cash.In other words,
the cash basis of accounting recognises the expenses incurred and revenues earned immediately when money
changes hands between two parties involved in the transaction. In the cash basis of the accounting system, there is
no consideration for income that is obtained from the credit accounts.

Accrual Basis of Accounting – The accrual basis is based on the concept that transactions are recorded as and
when they occur. In other words, businesses that follow the accrual basis of accounting need to record revenues and
expenses when a transaction occurs regardless of when payment for the same is received or made.