Basic Notes on Accounting

Accounting
 
 
Accounting or accountancy is the measurement, processing, and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494. Accounting, which has been called the “language of business”.
 
Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing, taxation and accounting information systems.

What is the meaning of accounting?

It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a firm’s assets, liabilities and owners’ equity.
 

What are the different types of accounting?

  • Financial accounting
  • Government accounting
  • Management accounting
  • Tax accounting / taxation
  • Internal auditing
 
What are the golden rules of accounting?
 
Personal A/c: debit the receiver credit the giver.
Real A/c: debit what comes in credit what goes out.
Nominal A/c: debit all expenses and losses credit all gains and incomes.

Debit and Credit Golden Rule:

Nature of accounts
(-)
Decreased
(+)
Increased
Liablities
Debit
Credit
Income
Debit
Credit
Assets
Credit
Debit
Expenes
Credit
Debit
 
Book keeping: It is an occupation of keeping records of the financial transactions of a business.
I.e. Bookkeeping is the recording, on a day-to-day basis, of the financial transactions and information pertaining to a business. It ensures that records of the individual financial transactions are correct, up-to-date and comprehensive.
 
Book keeping types: there are two common book keeping systems, used by the individual or any company/organisation.  
 
  1. Single Entry System
  2. Double Entry System
 
Single-entry bookkeeping System
 
Single entry accounting is a simple form of bookkeeping and accounting in which each financial transaction is a single entry in a journal or transaction record. As a result, the accounting system is called a single entry system.
Double-entry bookkeeping System
 
The double entry system of bookkeeping is based on the fact that every transaction has two parts, which therefore affects two ledger accounts. Every transaction involves a debit entry in one account and a credit entry in another account.
 
This helps to find the error-detection system: if, at any point, the sum of debits does not equal the corresponding sum of credits, then an error has occurred.