Wednesday, June 23, 2010

The Accounting Equation

The resources controlled by a business are referred to as its assets. For a new business, those assets originate from two possible sources:

* Investors who buy ownership in the business
* Creditors who extend loans to the business

Those who contribute assets to a business have legal claims on those assets. Since the total assets of the business are equal to the sum of the assets contributed by investors and the assets contributed by creditors, the following relationship holds and is referred to as the accounting equation :

Assets = Liabilities + Owners' Equity
Resources Claims on the Resources

Accounting equation is a statement of equality between the debit and credit showing that the assets of a business are always equal to the total of liability and capital.

Example :- (1)Started business with capital INR 1,50,000/-
Assets = capital/cash 1,50,000/- = capital 1,50,000/-
(2)Purchases goods on credit 50,000/-
(a)Assets = Liability + Capital
Cash 1,50,000/- + Stock 50,000/- = Capital 1,50,000/-
(b)Liability = Assets - Capital
Liability50,000 = (cash1,50,000+stock50,000)-Capital1,50,000
(c)Capital=Assets-Laibility
Capital1,50,000=(Cash1,50,000+Stock50,000)-Liability50,000
(d)Assets-Capital-Liability=0
(Cash1,50,000=Stock50,000)-Capital 1,50,000-Liability 50,000=0

3 Basic Rules in Accounting.

1.personal account
debit the receiver
credit the giver
2.nominal account
all expence and loses debit
all incomes and gains credit
3.real account
what comes in debit
what goes out credit

Tuesday, June 22, 2010

Blogger Buzz: Blogger integrates with Amazon Associates

Blogger Buzz: Blogger integrates with Amazon Associates

What is Accounting

Accounting is defined by the American Institute of Certified Public Accountants (AICPA) as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof."[4]

Accounting is thousands of years old; the earliest accounting records, which date back more than 7,000 years, were found in the Middle East. The people of that time relied on primitive accounting methods to record the growth of crops and herds. Accounting evolved, improving over the years and advancing as business advanced.[5]

Early accounts served mainly to assist the memory of the businessperson and the audience for the account was the proprietor or record keeper alone. Cruder forms of accounting were inadequate for the problems created by a business entity involving multiple investors, so double-entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures began to require more capital than a single individual was able to invest. The development of joint stock companies created wider audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts to provide the requisite information.[6] This development resulted in a split of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes, and subsequently also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors.[7]

Today, accounting is called "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people. Accounting that concentrates on reporting to people inside the business entity is called management accounting and is used to provide information to employees, managers, owner-managers and auditors. Management accounting is concerned primarily with providing a basis for making management or operating decisions. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders, creditors such as banks or vendors, financial analysts, economists, and government agencies. Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP

What is Accountancy

Accountancy is the art of communicating financial information about a business entity to users such as shareholders and managers.[1] The communication is generally in the financial´s form statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable.

Accountancy is a branch of mathematical science that is useful in discovering the causes of success and failure in business.The principles of accountancy are applied to business entities in three divisions of practical art, named accounting, bookkeeping, and auditing.