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Accounting is the art of recording, classifying , summarizing in the significant manner and in terms of money, transactions and events , which are, in part at least, of financial character, and interpreting the result thereof. ---- American Institute of Certified Public Accountants.
Characteristics of Accounting 1. Recording of Financial Transactions only:2. Recording

3. Classifying 4. Summarizing 5. Recording in terms of Money

6. Interpretation of the result

Transacti ons

Trading, P&L, Balance Sheet.


Trial Balance



To keep the systematic record of the transactions.

To calculate profit and loss. To know the exact reason leading to net profit or net loss.

To ascertain the financial position of the business.

To ascertain the progress of the business from year to year. to provide the information to the various parties.



Booking Keeping:- It is mainly concerned with

recording keeping or maintenance of book of accounts . (Recording and Classifying them in to Ledger).

2. Accounting :- It start where book keeping end. It

includes: Summarizing the Classified transaction in the form of P&L A/C, and Balance Sheet. Analyzing and interpreting the summarized result. Communicated the information to the interested parties.


It refers to a systematic knowledge of accounting concerned with the Principles and techniques which are applied in accounting. It tell us how to prepare the books of accounts, how to summaries the accounting information and how to prepare the books of accounts, how to summarize the accounting information and how to communicate it to the interested parties.


Anything which is in possession or is the property of a business enterprise including amount due to it from others.
Current Asset An asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business normal operating cycle. Ex:- Stock, Debtors, Cash in hand and at Bank, etc. Fixed Assets:- It refers to those assets which are held for continued use in the business for the purpose of producing goods and services and are not meant for resale. Ex:- Land and Building, Plant and Machinery, Furniture etc.

Tangible and Intangible Assets:- TA are those assets which can be seen and touched. Or which have physical existence such as Land and Building, Plant and Machinery, Furniture, Stock, Debtors, Bill Receivable. IA are those assets which can not be seen and touched. Or which do not have physical existence such as Goodwill, Copyright, etc . Liability:- It refers to the amount which firm owes to outsiders . Assets - Capital = Liabilities Fixed Liability;- It refers to those liability which fall due for payment in a relatively long period. Ex:- Long term loan, Debenture etc.

Current Liabilities It refers to those liabilities which are to be paid in near future or within one year. Ex:- Accounts Payable, Creditors , Outstanding expenses etc.

Capital:- It refers to the amount invested in the business enterprise. It is the amount with the help of which goods and assets are purchased in the business. Capital = Assets Liabilities
Expenses :- It is the cost incurred in producing and selling the goods and services.

Income:- Income is different from revenue. Amount received from sales of good is called Revenue and cost of good sold is called Expenses. Surplus of revenue over expenses is called Income.
Capital Expenditure :- Any expenditure which is incurred in acquiring or increasing the value of a fixed assets is called as Capital Expenditure. Revenue Expenditure:- Any expenditure, the full benefit of which is received during one accounting period is termed as revenue expenditure . Bad debt :- It is the amount owing from a debtors which is not expected to be received.

Debtors:- It represent those person and firm to whom goods and services are sold on credit and payment has not been received from them. They still owe some amount to the business. Creditors:- It represent those person and firm from whom goods and services have been purchased and payment has not been made to them.

Rules for Journal entries:Personal Accounts:- these accounts show the

transaction with the customers, suppliers, money lenders, banks and the owner.

Rules for these accounts:Debit the receiver and Credit the giver.

Real Accounts:- These a/c s

are a/c s of Assets and Properties such as land, Building Plant, machinery, Cash, stock, etc.

Rules for these a/c s

Debit what comes in and Credit what goes out

Nominal accounts:- These are the a/c s of

income and expenses , gain and losses Like wages paid, discount allowed, or received, purchase, sales.

Rules for these a/c s

Debit all the expenses ,loss and Credit all the incomes, gains.