Accounts

1.7 DISTINCTION BETWEEN BOOK-KEEPING AND ACCOUNTING Some people mistake book-keeping and accounting to be synonymous terms, but in fact they are different from each other. Accounting is a broad subject. It calls for a greater understanding of records obtained from book-keeping  and an ability to analyse and interpret the information provided by book-keeping records. Book-keeping is the  recording phase while accounting is concerned with the summarising phase of an accounting system. Book-keeping provides necessary data for accounting and accounting starts where book-keeping ends. Relationship of Accounting and Book-keeping can be depicted in the following chart as 1.8 SUB-FIELDS OF ACCOUNTING The various sub-fields of accounting are: (i) Financial Accounting – It covers the preparation and interpretation of financial statements and communication to the users of accounts. It is historical in nature as it records transactions which had already been occurred. The final ...

 1.6 BOOK-KEEPING Book-keeping is an activity concerned with the recording of financial data relating to business operations in a significant and orderly manner. It covers procedural aspects of accounting work and embraces record keeping function. Obviously, book-keeping procedures are governed by the end product, the financial statements. The term ‘financial statements’ means Profit and Loss Account, Balance Sheet and cash flow statements including Schedules and Notes forming part of Accounts. Book-keeping also requires suitable classification of transactions and events. This is also determined with reference to the requirement of financial statements. A book-keeper may be responsible for keeping all the records of a business or only of a minor segment, such as position of the customers’ accounts in a departmental store. Accounting is based on a careful and efficient book-keeping system. The essential idea behind maintaining book-keeping records is to show correct position regardi...

1.4 OBJECTIVES OF ACCOUNTING The objectives of accounting can be given as follows: 1. Systematic recording of transactions –   Basic objective of accounting is to systematically record the financial aspects of business transactions i.e. book-keeping. These recorded transactions are later on classified and summarized logically for the preparation of financial statements and for their analysis and interpretation. 2. Ascertainment of results of above recorded transactions –   Accountant prepares profit and loss account to know the results of business operations for a particular period of time. If revenue exceed expenses then it is said that business is running profitably but if expenses exceed revenue then it can be said that business is running under loss. The profit and loss account helps the management and different stakeholders in taking rational decisions. For example, if business is not proved to be remunerative or profitable, the cause of such a state of affair can be inve...

1.3 EVOLUTION OF ACCOUNTING AS A SOCIAL SCIENCE In its oldest form, accounting aided the stewards to discharge their stewardship function. The wealthy men employed stewards to manage their property; the stewards in turn rendered an account periodically of their stewardship. This ‘Stewardship Accounting’ was the root of financial accounting system. The presently followed system of double-entry book-keeping has been developed only in the 15th Century. However, historians found records of debit and credit dating back to the 12th Century. Although double-entry system was followed, ‘stewardship accounting’ served the purpose of businessmen and wealthy persons at that time. In most of the countries, stewardship accounting was prevalent till the emergence of large-scale enterprises in the form of public limited companies.  In the second phase, the idea of financial accounting emerged with the concept of joint stock company and divorce of ownership from the management. To safeguard the int...

1.2.1 Procedural aspects of Accounting On the basis of the above definitions, procedure of accounting can be basically divided into two parts: (i) Generating financial information and (ii) Using the financial information. Generating Financial Information 1. Recording – This is the basic function of accounting. All business transactions of a financial character, as evidenced by some documents such as sales bill, pass book, salary slip etc. are recorded in the books of account. Recording is done in a book called “Journal.” This book may further be divided into several subsidiary books according to the nature and size of the business. Students will learn how to prepare journal and various subsidiary books in chapter 2. 2. Classifying – Classification is concerned with the systematic analysis of the recorded data, with a view to group transactions or entries of one nature at one place so as to put information in compact and usable form. The book containing classified informat...

MEANING OF ACCOUNTING :-  The Committee on Terminology set up by the American Institute of Certified Public Accountants formulated the following definition of accounting in 1961: “Accounting is the art of recording, classifying, and summarising in a significant manner and in terms of money,transactions and events which are, in part at least, of a financial character, and interpreting the result thereof.”As per this definition, accounting is simply an art of record keeping. The process of accounting starts by firstidentifying the events and transactions which are of financial character and then be recorded in the books of account. This recording is done in Journal or subsidiary books, also known as primary books. Every good record keeping system includes suitable classification of transactions and events as well as their summarisation for ready reference. After the transactions and events are recorded, they are transferred to secondary books i.e. Ledger. In ledger, transactions and ...

1.1 INTRODUCTION Every individual performs some kind of economic activity. A salaried person gets salary and spends to buyprovisions and clothing, for children’s education, construction of house, etc. A sports club formed by a group ofindividuals, a business run by an individual or a group of individuals, a local authority like Calcutta MunicipalCorporation, Delhi Development Authority, Governments, either Central or State, all are carrying some kind ofeconomic activities. Not necessarily all the economic activities are run for any individual benefit; such economicactivities may create social benefit i.e. benefit for the public, at large. Anyway such economic activities areperformed through ‘transactions and events’. Transaction is used to mean ‘a business, performance of an act,an agreement’ while event is used to mean ‘a happening, as a consequence of transaction(s), a result.’An individual invests` 2,00,000 for running a stationery business. On 1st January, he purchases goods for` 1...