Accounting Basic

The main Branches of Accounting are:

1)Financial Accounting:

   It is concerned with recording of business transactions in the books of accounts in such a way

   that  operating result of a particular period and financial position on a particular date can be known.

2)Cost Accounting:

   It relates to collection, classification and ascertainment of the cost of production or job undertaken 

   by the   firm.

3)Management Accounting:

   It relates to the use of accounting data collected with the help of financial accounting and cost                     accounting   for the purpose of policy formulation, planning, control and decision making by the management.

Accounting Basic Terms:

 

Proprietor: A person who owns a business is called its proprietor. He contributes capital to the business with the intention of earning profit.

Capital:It is the amount invested by the proprietor/s in the business. This amount is increased by the amount of profits earned and the amount of additional capital introduced. It is decreased by the amount of
losses incurred and the amounts withdrawn.

Assets:Assets are the properties of every description belonging to the business. Cash in hand, plant and machinery, furniture and fittings,bank balance, debtors, bills receivable, stock of goods, investments,Goodwill are examples for assets.

 Assets can be classified into tangible and intangible.

 
Tangible Assets: These assets are those having physical existence. It can be seen and touched.

Intangible Assets: Intangible assets are those assets having no physical existence but their possession gives rise to some rights and benefits to the owner. It cannot be seen and touched. 

Liabilities:Liabilities refer to the financial obligations of a business. These denote the amounts which a business owes to others, e.g., loans from banks or other persons, creditors for goods supplied, bills payable,
outstanding expenses, bank overdraft etc.

Drawings:It is the amount of cash or value of goods withdrawn from the business by the proprietor for his personal use. It is deducted from the capital.

Debtors: A person (individual or firm) who receives a benefit without giving money or money’s worth immediately, but liable to pay in future or in due course of time is a debtor. The debtors are shown
as an asset in the balance sheet.

Creditors:A person who gives a benefit without receiving money or money’s worth immediately but to claim in future, is a creditor. The creditors are shown as a liability in the balance sheet. 

Purchases: Purchases refers to the amount of goods bought by a business for resale or for use in the production. Goods purchased for cash are called cash purchases. If it is purchased on credit, it is called as
credit purchases. Total purchases include both cash and credit purchases.

Purchases Return or Returns Outward:When goods are returned to the suppliers due to defective quality
or not as per the terms of purchase, it is called as purchases return. To find net purchases, purchases return is deducted from the total purchases.

Sales:Sales refers to the amount of goods sold that are already bought or manufactured by the business. When goods are sold for cash, they are cash sales but if goods are sold and payment is not received at
the time of sale, it is credit sales. Total sales includes both cash and credit sales.

Sales Return or Returns Inward:When goods are returned from the customers due to defective
quality or not as per the terms of sale, it is called sales return o returns inward. To find out net sales, sales return is deducted from total sales.

Stock:Stock includes goods unsold on a particular date. Stock may be opening and closing stock. The term opening stock means goods unsold in the beginning of the accounting period. Whereas the term closing stock includes goods unsold at the end of the accounting perid. 

Revenue:Revenue means the amount receivable or realised from sale of goods and earnings from interest, dividend, commission, etc.

Expense:It is the amount spent in order to produce and sell the goods and services. For example, purchase of raw materials, payment of salaries, wages, etc.

Income:Income is the difference between revenue and expense.

Voucher:It is a written document in support of a transaction. It is a proof that a particular transaction has taken place for the value stated in the voucher. It may be in the form of cash receipt, invoice, cash memo,
bank pay-in-slip etc. Voucher is necessary to audit the accounts.

Invoice:Invoice is a business document which is prepared when one sell goods to another. The statement is prepared by the seller of goods. It contains the information relating to name and address of the seller
and the buyer, the date of sale and the clear description of good with quantity and price.

Receipt:Receipt is an acknowledgement for cash received. It is issued to the party paying cash. Receipts form the basis for entries in cash book.

Account:Account is a summary of relevant business transactions at one place relating to a person, asset, expense or revenue named in the heading. An account is a brief history of financial transactions of a particular person or item. An account has two sides called debit side and credit side.