-: ACCOUNTANCY :-

ACCOUNTING: Accounting is an art of recording, classifying and summarizing, in a significant manner and in term of money; transaction and events, which are, in part at least, of financial character and interpreting the result thereof.
As per this definition, accounting is simply an art of record keeping. Every record keeping system includes suitable transaction and events as well as there summarizing for ready reference. Essentially the transactions and events are to be measured in term of money. The transactions and events must have at least in part financial characterizes.

1. If increase one asset and decrease other asset.
2. If increase an asset and simultaneously increase liability.
3. Decrease asset, decrease liability.
4. If increase in one liability, decreases in other liability.

When transaction & events are analyzed in two ways, at every point of time the fundamental accounting equation should be satisfied so that an order can be maintained.
Double entry book – keeping is based on this basic principle.

DEBIT & CREDIT:

1. Increase in asset debit, decrease in asset credit.
2. Increase in asset debit, Increase in liability credit.
3. Decrease in asset credit, increase in asset in debit.
4. Increase in liability credit, decrease in liability debit.

Four conditions stated for fundamental accounting equation are analyzed above from the point of view of debit and credit. It appears that in every set there will be two aspects of which one is debit and other is credit.
JOURNAL ENTRIES:

Cash Account Dr. 50,000
To Capital Account 50,000
This is an example of increase in asset and increase in liability.

Cash Account Dr. 50,000
To Loan Account 50,000
This is also an example of increase in asset and increase in liability.

Loan Account Dr. 10,000
To Cash Account 10,000
This is an example of decrease of asset and decrease of liability.
Machine Account Dr. -----------
To Cash Account -----------
This is an example of increase of asset debit and decrease of asset credit.
Loan Account Dr. ---------
To P. Loan Account ---------
This is an example of decrease of liability debit and increase in liability credit.

THUS DEBIT – CREDIT RULES STAND AS FOLLOWS: -

Increase in asset debit, Decrease in asset credit.
Increase in liability credit, Decrease in liability debit.
Increase in Capital credit, Decrease in Capital debit.
Income Credit, Expense Debit.
DEFINITION OF ACCOUNTING ELEMENTS: -

The elements directly related to the measurement of financial position i.e. for the preparation of Balance sheet, are asset, liability and equity. The elements directly related to the measurement of performance in the Profit and Loss Account are income and expenses: -

ASSETS: -
An asset is a resource controlled by the enterprise as a result of past events and form which future economic benefits are expected to flow to the enterprises.

LIABILITY: -
A liability is a present obligation of the factors arising from post events the settlement of which is expected to result in an out flow from the enterprise of resource embodying economic benefits.

EQUITY: -
Equity is the residual interest in the assets of the enterprise after deducting its Liabilities.

INCOME: -
Income is increase in economic benefit during the accounting period in the form of in – flow of assets or decrease of liabilities that result in increase in equity, other than those relating to contribution from equity participants.

EXPENSES: -
Expenses are decrease in benefits during the accounting period in the form of out – flow or depletion of assets or incurrence of liabilities that result in decrease in equity other than those relating to distributions to equity participants.

EQUITY PARICIPANTS: -
The term equity participants means shareholders in case of company, preparation in case of sole proprietorship or partners in case sole proprietorship business.

SUMMARY: -
In this unit we have discussed that accounting is no longer an art of recording, classifying and summarizing, in a significant manner and in term of money, transaction and events which are, in part at least, of financial character and interpreting, the result thereof. Instead accounting discipline has been evolved as a process of identifying, measuring and communicating economic information to permit informed judgment and decisions by the users of accounts. Users of accounts are not simply owners or partners or investors of business enterprises. Board user group include employees, lenders, suppliers and other creditors, customers, Government and other agencies and public at large accounting data are generally used for measurement, forecasting, decision making, evaluation, control, stewardship and government regulations and taxation.
Equity + Liabilities = Assets gives the basic accounting equation on which the double entry accounting is built up. The canvas of the accounting profession is, however, much broader than the discipline of accounting.

Chartered Accountants function in the areas of accounting, auditing, taxation, company law, financial of management and investment analysis.


Chapter – 1, unit – 2
The four phases of accounting process are jnormalisation of transaction and events, ledger posting and balancing, preparation of trial balance and preparation of final accounts. In this unit we shall discuss there important phases, namely journalisation, ledger posting and balancing and preparation of trial balance.

2.1, FOUR PHASES OF ACCOUNTING PROCESS: -

1. Journalisation of transaction and events.
2. Ledger posting and balancing.
3. Preparation of trial balance.
4. Preparation of final account.

JOURNAL: - The transactions and events are analyzed into debit and credit and entered primarily in JOURNAL. Journal is also called subsidiary book.

LEDGER: - On the basis of entries made in the journal, accounts are prepared in the LEDGER. The ledger is also called principal book because finally only ledger accounts balance are considered for the purpose of accounting analysis.

TRIAL BALANCE: - After posting the account in the ledger, a statement is prepared to check it the sum of debit balance is equal to the sum of credit balance at a particular point of time. In fact balances are trialed in the statement to asset whether the fundamental accounting equation is satisfied or not. This statement is called TRIAL BALACE.
FINAL ACCOUNTS: - In the last phases of the accounting cycle, Profit & Loss account is prepared for an accounting period. The accounting period is generally of twelve months, however in special circumstances it may be more or less than twelve months. Also a balance sheet is prepared as at the end of the accounting period. Profit & Loss account is prepared to find out the profit made or less sustained in a particular accounting period through transactions and events, Balance sheet is prepared to explain the financial position of the reporting entity at the end of the accounting period. Profit and Loss account & Balance sheet are called FINAL ACCOUNT.