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A Brief Presentation on
Accounting
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Accounting
Accounting is the art of collecting, arranging,
summarising facts & figures in terms of money,transaction and events which are in part of a
financial character.
In other words we can say it as keeping trackof records & figures related to financial
statements.
Accounting plays a vital role in our life for e.g
depositing money in bank is related to financialmatter that gets added up in the savings
passbook & the final statement of transaction
is prepared, the whole process can be termed
here as Accounting.
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Why do we need accounting?Studying accounting helps to serve for various
purpose:- It helps to keep systematic record of business
transaction is considered to be the main
objective of accounting. As we encounter that
bank transaction are recorded & updated ondaily basis.
To calculate net profit earned or loss suffered on
account of business transaction of a particularperiod. For e.g profit & loss occurred in a
business firm or in an MNC.
To prevent and detect errors and frauds so that
any anonymous person cant misinterpret with
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Book-keeping
With the word Accounting there arises various
synonymous(similar words) & Book-keepingis considered as one of such words.
Book-keeping is mainly concerned with
maintaining systematic record of financialtransaction.
It is considered as the primary stage of
accounting.
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Accounting Principles
It is defined as set of principles,assumptions & concepts that are laid
down to evaluate accounting in a
particular manner.
Accounting principles can be subdivided
into two categories: -
1.Accounting Concepts
2. Accounting Convention
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Accounting ConceptsAny of the general assumptions on which
accounts are prepared based onaccounting concept.
They are of various types:-
1. Basic Entity Concept2. Dual Aspect Concept
3. Money Measurement Concept
4. Cost Concept5. Going Concern Concept
6. Realization Concept
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us ness n yAssumptionAs per this assumption the owner of a
business is always considered distinct
separate from the business he owns.
Dual Aspect Concept
Each transaction has two aspects, that is,the receiving benefit by one party and thegiving benefit by the other which isconsidered to be one of the core principle
of accountancy. Thus, the dual aspect can be expressed as
underCapital + Liabilities = Assets
or=
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Money Measurement Concept
In this concept we record only those
transaction which are expressed inmonetary terms.
Cost Concept
Transactions are entered in the books ofaccounts at the amount actually involved.Suppose a commodity is purchased at Rs
8,000/- the real value of which is Rs10,000/-, the purchase will be recordedas Rs 10,000/- and not any more, it helpsus to prevents arbitrary values being put
on transactions entry.
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Going Concern Concept
According to this concept, it is assumedthat the business will exist for a long time
and transactions are recorded on this
basis. This concept forms the basis for the
distinction between expenditure that will
yield benefit over a long period of timeand short period of time.
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Realization Concept
It is considered as one of the basic
concepts of accounting.
Realization means that the money has
exchanged hands, or been realized.
For e.g if a person things of purchasinga car then there is no realization but
when he exchange money with
whomever he/she has purchased the carthen realization takes place.
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Accounting Convention
It refers to signify customs and traditions
as a guide to the presentation of
accounting statements.
There are three kinds of convention in
accounting:-
1. Convention of Consistency
2. Convention of Disclosure
3. Convention of Conservation
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Convention of Consistency
It is essential that accounting practices
and methods remain unchanged from one
accounting period to another.
The comparison of one accounting period
with that of another is possible only when
the convention of consistency is followed.
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Convention of Disclosure
This convention implies that accountsmust be honestly prepared and all
material information must be disclosed
therein.
Convention of Conservation
Financial statements are always drawn up
on rather a conservative basis.
In other words, secret reserves are not
permitted.
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Limitations of accounting
Based on Accounting concepts &convention:- Accounts are prepared on
the basis of a number of accounting
concepts & convention. So there lies
some difference for e.g fixed assets are
shown in their cost and not at their
market value.
Unsuitable for forecasting:- Financialaccounts are only a record of past
events. As such, the financial analysis
based on past events may not be of
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