DEFINITION• Accounting is an art of recording,

classifying and summarizing in terms of money transactions and events of a financial character and interpreting the results thereof.

FUNCTIONS OF ACCOUNTING

• Recording• Classification• Summarizing• Deals with financial transactions• Interprets

Types Of Accounting Information

• Financial Accounting• Cost Accounting• Management Accounting• Tax Accounting

Financial AccountingFinancial AccountingFinancial AccountingFinancial AccountingFinancial Accounting refers to Financial Accounting refers to

information describing the financial information describing the financial resources, obligations and activities resources, obligations and activities

of an economic entity.of an economic entity.

Cost AccountingCost AccountingCost AccountingCost AccountingFunction of cost accounting is to Function of cost accounting is to

ascertain the cost of a product and to ascertain the cost of a product and to help the management in the control help the management in the control

of cost.of cost.

Management Management AccountingAccounting

Management Management AccountingAccounting

It is accounting for the management It is accounting for the management i.e, accounting which provides i.e, accounting which provides necessary information to the necessary information to the

management for discharging its management for discharging its functions. It is the reproduction of functions. It is the reproduction of

financial accounts in such a way as financial accounts in such a way as will enable the management to take will enable the management to take decisions and to control activities.decisions and to control activities.

Tax AccountingTax AccountingTax AccountingTax AccountingThe preparation of income tax returns The preparation of income tax returns

is a specialized field within is a specialized field within accounting. To a great extent, tax accounting. To a great extent, tax

returns are based on financial returns are based on financial accounting information. However the accounting information. However the

information often is adjusted or information often is adjusted or reorganized to confirm with income reorganized to confirm with income

tax reporting requirementstax reporting requirements..

CLASSIFICATION OF ACCOUNTS

• Assets• Liabilities• Owner’s equity• Revenues• Expenses

AssetsAssetsAssetsAssetsAssets means the resources of the Assets means the resources of the

business or the commodities business or the commodities possessed by the business. E.g: land, possessed by the business. E.g: land, building, cash, stock or inventory etc.building, cash, stock or inventory etc.

Liabilities Liabilities Liabilities Liabilities Liabilities mean the claims of the Liabilities mean the claims of the

suppliers of cash or commodities on suppliers of cash or commodities on credit up to his/her balance due on credit up to his/her balance due on

the date. E.g: suppliers of goods and the date. E.g: suppliers of goods and cash.cash.

Owner’s equityOwner’s equityOwner’s equityOwner’s equityIt means the claims of owner of the It means the claims of owner of the

business for his interest up to his/her business for his interest up to his/her investment after finalizing the investment after finalizing the

expenses and revenue up to the date. expenses and revenue up to the date. E.g: capital invested by the owner.E.g: capital invested by the owner.

Revenue Revenue Revenue Revenue Revenue means any type of income Revenue means any type of income directly or indirectly of the business. directly or indirectly of the business. E.g: interest received, sale of goods, E.g: interest received, sale of goods,

dividend received.dividend received.

Expenses Expenses Expenses Expenses Expenses means any type of Expenses means any type of

expenses directly or indirectly of the expenses directly or indirectly of the business. E.g: rent expense, salary business. E.g: rent expense, salary

expense etc.expense etc.

ACCONTING TERMINOLOGIES

• TRANSACTIONS• BUSINESS• PROPERIETOR• CAPITAL• DRAWINGS• PURCHASES• PURCHASES RETURNS• SALES• SALES RETURNS• TRADE DISCOUNT• CASH DISCOUNT• COMMISSION• EXPENDITURE• EXPANSE

ACCOUNTING TERMINOLOGIES

• ACCOUNT• DEBTOR (ACCOUNT RECEIVABLE)• CREDITOR (ACCOUNT PAYABLE)• ASSETS• LIABILITIES• VOUCHER• GOODS (MERCHANDISE)• STOCK (INVENTORY)• EQUITY

TransactionAny dealing between two persons or

things is a transaction. It may relate to purchase e.g sale of goods, receipt and payment of cash etc

• Cash transactions• Credit transactions

Business

It includes any activity undertaken for the purpose of earning profit e.g banking business, insurance business etc

ProprietorHe is the owner of the business.

He invests capital in it, gives his time & attention. He is entitled to receive the profit or bear loss arising.

CapitalThe amount with which the trader

starts his business or the amount which is actually invested in the business at any given time.

DrawingsThe cash or goods taken away by

the proprietors from the business for his personal use.

PurchasesGoods purchased are called

purchases. • Cash purchases• Credit purchases

Purchases ReturnsIf goods purchased are found

defective or unsatisfactory, they are returned to the persons from whome they were purchased or to suppliers.

SalesGoods sold are called sales.• Cash sales• Credit sales

Sales returnIf a person to whome goods have

been sold finds that they are defective or unsatisfactory & returns them are called sales return or returns inward.

Trade DiscountIt is rebate or allowance from the

scheduled price granted by the seller to the buyer.

Cash DiscountIt is the deduction or allowance

allowed by a creditor to a debtor.

CommissionIt is the form of remuneration for

the services rendered by one person to another.

ExpenditureAn expenditure takes place when

assets or services are acquired.

Expense

An expenditure whose benefit is finished or enjoyed immediately such as salaries, rent etc.

AccountA summarize record of

transactions relating to a person or thing is called an account.

DebtorA person who owes money to

another is a debtor.

CreditorA person who pays out something

or to whome money is owing is a creditor.

AssetsThese are the things of value

possessed by a trader such as building, land, machinery, furniyure etc

LiabilitiesThey are debts due by a business to

its proprietor & others.

VoucherAny written evidence in support of a

business transaction is called a voucher.

Goods (Merchandise)It includes all merchandise

commodities which are purchased by a business for selling.

Stock (Inventory)Goods or merchandise on hand,

that is goods remaining unsold is called stock, stack in trade or inventory.

EquityA claim can be enforced against

the assets of the film is called equity.

Recommended book • Accounting by MEIGSWILLIAMS

HAKA BETTNER