Basic Concept Of Accounting

What Is Accounting ? Fundamental

Definition of Accounting

Accounting is a systematic recording day to day business transaction is called as accounting.

Accounting is the process of identifying, recording, classifying and reporting information on financial transactions in a systematic manner for the purpose of providing financial information for decision making.

Types of Accounts

There are basically three types of Accounts maintained for transactions

  • Personal Account
  • Real Account
  • Nominal Account

Personal Account: Any individual person or any firms or any company or a bank is considered in a Personal account.

For example:-

  • Rajesh Singh 
  • Muna Enterprise 
  • Wipro Pvt Ltd 
  • PNB Bank 
  • Capital etc.

Real Account: Account of any physical things. The cash account or goods account are examples of Real account.

For example:-

  • Cash 
  • Land 
  • Building 
  • Furniture
  • Computer etc.

Nominal Account: Account of any invisible things that means that things are in terms of cash are examples of Nominal account.

For example:- 

  • Discount 
  • Commission 
  • Salary 
  • wages 
  • Freight etc.

Rules of Accounting

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Basic concept of accounting

Accounting : It is an art of recording, classifying and summarizing in significant manner and in terms of money, transactions and events which are of financial character and interpreting the results thereof.

Business Transaction : A business transaction is “The movement of money and money’s worth form one person to another”. Or exchange of values between two parties is also known as “Business Transaction”.

Purchase : A purchase means goods purchased by a businessman from suppliers.

Sales : Sales is goods sold by a businessman to his customers.

Purchase Return or Rejection in or Outward Invoice : Purchase return means the return of the full or a part of goods purchased by the businessman to his suppliers.

Sales Return or Rejection out or Inward Invoice : Sales return means the return of the full or a part of the goods sold by the customer to the businessman.

Assets : Assets are the things and properties possessed by a businessman not for resale but for the use in the business.

Liabilities : All the amounts payable by a business concern to outsiders are called liabilities.

Capital : Capital is the amount invested for starting a business by a person.

Debtors : Debtor is the person who owes amounts to the businessman.

Creditor : Creditor is the person to whom amounts are owed by the businessman.

Debit : The receiving aspect of a transaction is called debit or Dr.

Credit : The giving aspect of a transaction is called credit or Cr.

Drawings : Drawings are the amounts withdrawn (taken back) by the businessman from his business for his personal, private and domestic purpose. Drawings may be made in the form cash, goods and assets of the business.

Receipts : It is a document issued by the receiver of cash to the giver of cash acknowledging the cash received voucher.

Account : Account is a summarized record of all the transactions relating to every person, every thing or property and every type of service.

Ledger : The book of final entry where accounts lie.

Journal entries : A daily record of transaction.

Trail Balance : It is a statement of all the ledger account balances prepared at the end of particular period to verify the accuracy of the entries made in books of accounts.

Profit : Excess of credit side over debit side.

Profit and loss account : It is prepared to ascertain actual profit or loss of the business.

Balance Sheet : To ascertain the financial position of the business. It is a statement of assets and liabilities.

What Is Transaction?

Transaction is a between two person or more person exchange goods or money is transaction

There are two types of transaction
  •      Cash transaction
  •      Credit transaction

What Cash Transaction?

Cash transaction is a exchange for goods and service can be paid cash is called as cash transaction.

What is credit transaction?

Credit transaction is a exchange for goods and services cannot be paid cash is called as credit transaction

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