Accounting Basics In Simple Terms
Accounting is the system of recording, summarizing, reporting, and analysing financial transaction of an organisation. An organisation account is an official record which contains all the records of organisation. It provide all the details about every aspect of the business.
Accounting follow all the principle of bookkeeping, an accountant design a system that covered all the detail of a business. A good accountant creates a portfolio that gives a complete picture of a business. And this portfolio is useful for all future plans.
Accounting is all about recording, summarizing, reporting, and analysing all the transaction of an organisation. Recording transaction includes calculating revenue and entering purchase and expenditures. Calculating and summarizing transaction in a traditional accounting system is a tedious process but Microsoft office makes it easy for an accountant. And it is also helpful for analysing the results for future use.
Types of account
- Personal account
The elements or accounts which represent persons and organisations.
- Real account
The elements or accounts which represent assets.
- Nominal account
The elements or accounts which represent expenses, losses, income, gains.
basic rule of accounting
- Real account
- Debit what comes in
- Credit what goes out
- personal account
- Debit the benefit receiver
- Credit the benefit giver
- Nominal account
- Debit all expenses and losses
- Credit all income and gain
Accounting principles :
- Systematic recording
- Communicate financial status
- Assist decision making
- Ensure control of assets
- Plan future activities
- Comply with law
Element in accounting:
An element is a small part of a whole organisation.
Examples of accounting elements:
- The amount of capital invested in the business.
Capital is an element. We identified it as a capital account.
- The value of furniture with us in the business.
Furniture is an element. We identified it as a furniture account.
- The value of sales made by us.
Sales are an element. We identified it as a sales account.
- The amount of expenditure on account of salary
Salary is an element. We identified it as a salary account.
This list can be endless……..
Field of accounting:
- Financial accounting
- Management accounting
Financial accounting is the field of accounting concern with the preparation of financial statement for the decision makers. Such as stock holders, suppliers, banks, employees, government agencies, owner, and other stakeholder.
Management accounting is the provision of financial data and advice to a company for use in the organisation and development of its business.
Characteristics of management accounting:
- Advice manager about the financial implication of the project.
- Explain the financial consequences of business decision.
- Formulate business strategy.
- Monitor spending and financial control.
- Conduct internal business audits.
- Explain the impact of competitive landscape.
- Bring a high level of professionalism and integrity to business.
Auditing is the examination and systematic structural evaluation of a business organisation. Auditing is usually done by an objective, experienced individual who has nothing to lose or gain from the outcome of the audit. That individual called as auditor.