PROGRESS OF LIFE INSURANCE IN PAKISTAN
Pakistan is a developing country. The progress of insurance is at a very slow speed due to (1) illiteracy of the people (2) extreme poverty (3) lack of insurance mindedness (4) frequent political disturbance (5) slow economic development (6) lack of trained insurance personnel and above all the higher rate of interest
offered by saving schemes:
1 State Life Insurance Corporation. State Life Insurance Corporationwas established on November 1. 1972 to manage the life insurance business rPakistan. The life insurance business was nationalized on March '" The
paid up capital of the Corporation was raised to Rs 30 million in 1974.
Saturday, October 31, 2009
Life Insurance
Life Insurance is different from fire, marine and other kinds of insurances In all other forms of insurances except life, the insurance company undertakes to indemnify the loss caused by hazards mentioned in the policy to the policyholder The risks involved in fire, marine and accident insurance policies are uncertain The house may or may not catch fire.
So if the insured suffers no loss from fire etc. during the period of insurance policy, no payment will be made to the insured In case of life insurance, the contingency insured against is death Death is universal and certain. The uncertainty is about the place and time of occurrence. Life Insurance is primarily designed to cover the death and offers financial protection to the dependants in case of the death of the insured.
The insurer or assured takes out a policy for a specified number of years. If he survives to the end of the period, he receives the amount paid as premium along with any bonus his policy has earned. In case he dies within the period insured, full amount of the policy will be paid to the nominee of the deceased (insured)
Definition of life insurance
Life insurance is defined as a contract whereby the insurer in consideration of a premium paid in lump sum or in periodic instalments undertakes to pay a specified sum either on the death of the insured or on the expiry of specified number of years in the policy."
So if the insured suffers no loss from fire etc. during the period of insurance policy, no payment will be made to the insured In case of life insurance, the contingency insured against is death Death is universal and certain. The uncertainty is about the place and time of occurrence. Life Insurance is primarily designed to cover the death and offers financial protection to the dependants in case of the death of the insured.
The insurer or assured takes out a policy for a specified number of years. If he survives to the end of the period, he receives the amount paid as premium along with any bonus his policy has earned. In case he dies within the period insured, full amount of the policy will be paid to the nominee of the deceased (insured)
Definition of life insurance
Life insurance is defined as a contract whereby the insurer in consideration of a premium paid in lump sum or in periodic instalments undertakes to pay a specified sum either on the death of the insured or on the expiry of specified number of years in the policy."
Thursday, October 29, 2009
Accounts
that Accounting starts where Book-Keeping ends. The function of Book-Keeping ends with the recording 4 transactions in the books of account. But the function of Accounting is to classify the recorded transaction summarise them, interpret them and collect and communicate necessary information to the management afl other interested persons. Management performs its function on the basis of this information, e.g. lay» down rules and regulations, taking so many vital decisions etc. Thus we may say that the function of Bool Keeping is primarily of clerical nature, while that of Accounting is concerned with organisational ad administrative matters (it is more important and responsible.
Apparently, the functions of Book-Keeping seem to be less important than Accounting, bi. : necessity can hardly be denied. Just an article cannot be produced without raw material, similvf accounting function cannot be done without obtaining necessary data from Book Keeping. Again, if i: any defect in raw material the article produced out of it will also be defective. Similarly, if there be m error or mistake in Book-Keeping, the accounting job will also be wrong and create anomalous situauoa Thus we can conclude that 'Book-Keepers perform the routine, repetitive tasks of collecting and proi financial information. Accountants are responsible for designing the systems within which Book-Keepol work; supervising the day-to-day work of book-keepers; recording unusual and complex trama, preparing, analysing and interpreting accounting reports; auditing the records; and performing a'van other complex accounting activities.
ACCOUNTING VERSUS ACCOUNTANCY
The two words "Accounting" and "Accountancy" are often used to mean the same thing. But it 1 not correct. Accountancy is the main subject(Accounting is one of its branches. The word "Accountan. far extensive; i.e. the scope of accountancy is far wide and extensive compared to Accounting. It covers m entire body of theory and practice, e.g. Book-keeping, Accounting, costing, auditing, Taxation etc.
BRANCHES OF ACCOUNTING
In order to meet the ever increasing demands made on accounting by different interested paroJ (such as owners, management, creditors, taxation authorities etc.) the various branches of accounting km come into existence:
1. FINANCIAL ACCOUNTING:
The main purpose of financial accounting is to ascertain the true result (profit or loss) o: :~t business operations during a particular period of time and to state the financial position of the business orJ particular point of time. Financial accounting produces general purpose reports for use by the great vanJ of people who are interested in the organisation but who are not actively engaged in its day-tcnM operation.
2. COST ACCOUNTING:
The main object of cost accounting is to determine the cost of goods manufactured or prod i the business. It also helps the management of the business in controlling the costs by indicating avoidM losses and wastes.
3. MANAGERIAL ACCOUNTING:
The object of this accounting is to communicate the relevant information periodically management of the business to enable it to take suitable decisions,
It should be remembered that in this book, we are concerned only with financial account** Financial accounting is the oldest and the other branches have developed from it. The objects of fmancfl iccounting can only be achieved by recording business transactions in a systematic manner according tol set of principles.
Apparently, the functions of Book-Keeping seem to be less important than Accounting, bi. : necessity can hardly be denied. Just an article cannot be produced without raw material, similvf accounting function cannot be done without obtaining necessary data from Book Keeping. Again, if i: any defect in raw material the article produced out of it will also be defective. Similarly, if there be m error or mistake in Book-Keeping, the accounting job will also be wrong and create anomalous situauoa Thus we can conclude that 'Book-Keepers perform the routine, repetitive tasks of collecting and proi financial information. Accountants are responsible for designing the systems within which Book-Keepol work; supervising the day-to-day work of book-keepers; recording unusual and complex trama, preparing, analysing and interpreting accounting reports; auditing the records; and performing a'van other complex accounting activities.
ACCOUNTING VERSUS ACCOUNTANCY
The two words "Accounting" and "Accountancy" are often used to mean the same thing. But it 1 not correct. Accountancy is the main subject(Accounting is one of its branches. The word "Accountan. far extensive; i.e. the scope of accountancy is far wide and extensive compared to Accounting. It covers m entire body of theory and practice, e.g. Book-keeping, Accounting, costing, auditing, Taxation etc.
BRANCHES OF ACCOUNTING
In order to meet the ever increasing demands made on accounting by different interested paroJ (such as owners, management, creditors, taxation authorities etc.) the various branches of accounting km come into existence:
1. FINANCIAL ACCOUNTING:
The main purpose of financial accounting is to ascertain the true result (profit or loss) o: :~t business operations during a particular period of time and to state the financial position of the business orJ particular point of time. Financial accounting produces general purpose reports for use by the great vanJ of people who are interested in the organisation but who are not actively engaged in its day-tcnM operation.
2. COST ACCOUNTING:
The main object of cost accounting is to determine the cost of goods manufactured or prod i the business. It also helps the management of the business in controlling the costs by indicating avoidM losses and wastes.
3. MANAGERIAL ACCOUNTING:
The object of this accounting is to communicate the relevant information periodically management of the business to enable it to take suitable decisions,
It should be remembered that in this book, we are concerned only with financial account** Financial accounting is the oldest and the other branches have developed from it. The objects of fmancfl iccounting can only be achieved by recording business transactions in a systematic manner according tol set of principles.
Wednesday, October 28, 2009
Accounting Details
ACCOUNTING
It is all the more necessary for an organisation or a concern to keep proper accounts. At the end of the year the true result of the economic activities of a concern must be made available otherwise it will nod be possible to run the concern. In case of a business concern the profit or loss at the end of a year must be ascertained, because, the amount of profit must be adequate in relation to that of investment made in the business. If it is not so or if there is a loss, it is an indication of some defects existing somewhere in the management of the business. All such defects need to be detected and analysed and appropriate measured taken for their, rectification. But it is only possible, if proper books of accounts are maintained in the business concern. So, the importance of book-keeping to a business is the same as that of fresh air to • man to exist. Without book-keeping records a business would meet death, though not instantly, but in < short time.
Moreover, if proper books of accounts are not kept in a business, the amount of profit cannot be ascertained and it will not be possible to distribute the profit among the owners of the business. The income tax dues to the Government cannot also be paid. In the absence of books of accounts misuse or defalcatio* of money will remain undetected. The owner and other parties interested will not be able to have any information about the condition of the business. For the same reason in the case of non-trading concern* like, schools, clubs, colleges, universities, hospitals etc. the need for accounting is universally recognised.
Thus we see that the necessity of keeping accounts is not only confined to business concerns but tj is also useful for all classes and grades of people and organisations.
ACCOUNTING: A BUSINESS LANGUAGE
Accounting is a language, a system that communicates information. It is often referred to as thej language of the business, although it is just as important in the operation of government agencies, clubsj colleges and other kinds of organisations.
You probably have some idea already of what the term accounting means. It is frequently used u every day conversation to mean "answering for responsibility," Managers of business concerns an answerable to owners, creditors, labour unions and Government agencies etc. Managers of governmeM units are answerable to chief executives, boards, taxpayers and others. In fact, accounting was developed b] people, who were seeking better ways to gather and report useful information about organisations.
Some type of orderly system is needed to account for an organisation of any size and complexitjJ An accounting system is used to collect, process and report needed data about a business, government uniu or other type of association. Information1 is usually collected, processed and reported in financial temj which simply means that 'money' is the basis of measurement.
Many authors have defined the term "Accounting" in different ways. There is difference of opimo^ among the authors as to its precise definition as the term 'accounting is so broad that it is difficult to gi\e precise definition. However, several possible definitions are given below:
"The act of collecting, processing, reporting, analyzing, interpreting and projecting financuinformation".
he system of providing quantified information about an organisation to people who need siinformation."
The process of identifying, measuring, and communicating economic information to perrinformed judgments and decisions by users of the information."
Of all the definitions available the most accepted is the one given by the American Institute Certified Public Accountants Committee on Terminology According to it.
"Accounting is the art of recording, classifying and summarising in a significant manner and it terms of money, transactions and events, which are, in part at least, of a financial character, and interpret the result thereof. An analysis of the definition will enable us to have a thorough idea of the functions accounting. The salient features of the definition are Read more....
It is all the more necessary for an organisation or a concern to keep proper accounts. At the end of the year the true result of the economic activities of a concern must be made available otherwise it will nod be possible to run the concern. In case of a business concern the profit or loss at the end of a year must be ascertained, because, the amount of profit must be adequate in relation to that of investment made in the business. If it is not so or if there is a loss, it is an indication of some defects existing somewhere in the management of the business. All such defects need to be detected and analysed and appropriate measured taken for their, rectification. But it is only possible, if proper books of accounts are maintained in the business concern. So, the importance of book-keeping to a business is the same as that of fresh air to • man to exist. Without book-keeping records a business would meet death, though not instantly, but in < short time.
Moreover, if proper books of accounts are not kept in a business, the amount of profit cannot be ascertained and it will not be possible to distribute the profit among the owners of the business. The income tax dues to the Government cannot also be paid. In the absence of books of accounts misuse or defalcatio* of money will remain undetected. The owner and other parties interested will not be able to have any information about the condition of the business. For the same reason in the case of non-trading concern* like, schools, clubs, colleges, universities, hospitals etc. the need for accounting is universally recognised.
Thus we see that the necessity of keeping accounts is not only confined to business concerns but tj is also useful for all classes and grades of people and organisations.
ACCOUNTING: A BUSINESS LANGUAGE
Accounting is a language, a system that communicates information. It is often referred to as thej language of the business, although it is just as important in the operation of government agencies, clubsj colleges and other kinds of organisations.
You probably have some idea already of what the term accounting means. It is frequently used u every day conversation to mean "answering for responsibility," Managers of business concerns an answerable to owners, creditors, labour unions and Government agencies etc. Managers of governmeM units are answerable to chief executives, boards, taxpayers and others. In fact, accounting was developed b] people, who were seeking better ways to gather and report useful information about organisations.
Some type of orderly system is needed to account for an organisation of any size and complexitjJ An accounting system is used to collect, process and report needed data about a business, government uniu or other type of association. Information1 is usually collected, processed and reported in financial temj which simply means that 'money' is the basis of measurement.
Many authors have defined the term "Accounting" in different ways. There is difference of opimo^ among the authors as to its precise definition as the term 'accounting is so broad that it is difficult to gi\e precise definition. However, several possible definitions are given below:
"The act of collecting, processing, reporting, analyzing, interpreting and projecting financuinformation".
he system of providing quantified information about an organisation to people who need siinformation."
The process of identifying, measuring, and communicating economic information to perrinformed judgments and decisions by users of the information."
Of all the definitions available the most accepted is the one given by the American Institute Certified Public Accountants Committee on Terminology According to it.
"Accounting is the art of recording, classifying and summarising in a significant manner and it terms of money, transactions and events, which are, in part at least, of a financial character, and interpret the result thereof. An analysis of the definition will enable us to have a thorough idea of the functions accounting. The salient features of the definition are Read more....
Tuesday, October 27, 2009
DEPRECIATION AND PROVISION & RESERVE
Various Definitions ot Depreciation Causes of Depreciation Need for Provision of Depreciation Depreciation Vs. Fluctuation Characteristics of Depreciation Methods of Charging Depreciation Distinction between Fixed Instalment Mtibd and Reducing Instalment Method . Methods of Depreciation Accounting Distinction between Depreciation A/C and Depreciation Reserve A/C Distinction between General Reserve o. Distinction between Reserve ami Prmi* Distinction between Reserve.
Accounting Conventions
Accounting Conventions:
The term 'conventions' includes those customs or traditions which guide the accountant while ommunicating the accounting information. The following are the important accounting conventions:
(i) Convention of conservatism (ii) Convention of full disclosure
(Hi) Convention of consistency (iv) Convention of materiality.
ACCOUNTING CONCEPTS
Separate Entity Concept:
Accounts are kept for entities, as distinguished from the persons who are associated with these ties. In recording events in accounting, the important question is: "How do these events affect the iy?" How they affect the persons who own, operate, or otherwise are associated with the entity is relevant. For example, when a person invests Rs. 200,000 into business it will be deemed that the owner has given that money to the business which will be shown as a 'liability' in the books of the business. In ok the owner withdraws Rs, 30,000 from the business, it will change the position and the net amount :jtyable by the business to the owner will be shown only as Rs. 170,000.
The concept of separate entity is applicable to all forms of business organizations. For example, in of a sole proprietorship or partnership business, though the, sole proprietor or partners are not as separate entities in the eyes of law, but for accounting purposes they will be considered as •qptrate entities.
Going Concern Concept:
According to this concept it is assumed that an entity is a going concern — that it will continue to aerate for an indefinite time period there is no intention to liquidate the particular business venture in the fcreseeable future. On account of this concept, the accountant while valuing the asset does not take into jcxHint the sale value of assets. Moreover, he charges depreciation on fixed assets on the basis of their
life rather than on their market values.
For example, suppose that a company has just purchased a three-year insurance policy for ^.-15000. If we assume that the business will continue in operation for three years or more. We will outsider the Rs.45000 cost of insurance as an asset which provides services to the business over a three-jar period. On the other hand, if we assume that the business is likely to terminate in the near future, the •surance poricy should be reported at its cancellation value i.e. the amount refundable upon cancellation.
Moreover, the concept applies to the business as a whole. When an enterprise liquidates a branch segment of its operations, the ability of the enterprise to continue as a going-concern is not impaired jaBnnally. The' enterprise wilVnot be considered as a going-concern when it has gone into liquidation.
Money Measurement Concept:
In financial accounting, a record is made only of those information that can be expressed in »:neiary terms. In other words, no accounting is possible for an event or transaction which is not j Measurable in terms of money, e.g. passing an examination, delivering lecture in a meeting, winning a prize sl These are events no doubt, but since these are not measurable in terms of money, there is no question of accounting.
Measurement of business events in money helps in understanding the state of affairs of business in ;h better way. For example. If a business owns, 1 500 kg of stock, one car, 1 500 square feet of building etc. these amounts cannot be added to produce a meaningful total of what the business owns. :ver, if a these items are expressed in monetary terms such as stock Rs.24000, car Rs. 300,000 and ig Rs. 500,000, all such items can be added in better way and precise estimate about the assets of ss will be available.
The term 'conventions' includes those customs or traditions which guide the accountant while ommunicating the accounting information. The following are the important accounting conventions:
(i) Convention of conservatism (ii) Convention of full disclosure
(Hi) Convention of consistency (iv) Convention of materiality.
ACCOUNTING CONCEPTS
Separate Entity Concept:
Accounts are kept for entities, as distinguished from the persons who are associated with these ties. In recording events in accounting, the important question is: "How do these events affect the iy?" How they affect the persons who own, operate, or otherwise are associated with the entity is relevant. For example, when a person invests Rs. 200,000 into business it will be deemed that the owner has given that money to the business which will be shown as a 'liability' in the books of the business. In ok the owner withdraws Rs, 30,000 from the business, it will change the position and the net amount :jtyable by the business to the owner will be shown only as Rs. 170,000.
The concept of separate entity is applicable to all forms of business organizations. For example, in of a sole proprietorship or partnership business, though the, sole proprietor or partners are not as separate entities in the eyes of law, but for accounting purposes they will be considered as •qptrate entities.
Going Concern Concept:
According to this concept it is assumed that an entity is a going concern — that it will continue to aerate for an indefinite time period there is no intention to liquidate the particular business venture in the fcreseeable future. On account of this concept, the accountant while valuing the asset does not take into jcxHint the sale value of assets. Moreover, he charges depreciation on fixed assets on the basis of their
life rather than on their market values.
For example, suppose that a company has just purchased a three-year insurance policy for ^.-15000. If we assume that the business will continue in operation for three years or more. We will outsider the Rs.45000 cost of insurance as an asset which provides services to the business over a three-jar period. On the other hand, if we assume that the business is likely to terminate in the near future, the •surance poricy should be reported at its cancellation value i.e. the amount refundable upon cancellation.
Moreover, the concept applies to the business as a whole. When an enterprise liquidates a branch segment of its operations, the ability of the enterprise to continue as a going-concern is not impaired jaBnnally. The' enterprise wilVnot be considered as a going-concern when it has gone into liquidation.
Money Measurement Concept:
In financial accounting, a record is made only of those information that can be expressed in »:neiary terms. In other words, no accounting is possible for an event or transaction which is not j Measurable in terms of money, e.g. passing an examination, delivering lecture in a meeting, winning a prize sl These are events no doubt, but since these are not measurable in terms of money, there is no question of accounting.
Measurement of business events in money helps in understanding the state of affairs of business in ;h better way. For example. If a business owns, 1 500 kg of stock, one car, 1 500 square feet of building etc. these amounts cannot be added to produce a meaningful total of what the business owns. :ver, if a these items are expressed in monetary terms such as stock Rs.24000, car Rs. 300,000 and ig Rs. 500,000, all such items can be added in better way and precise estimate about the assets of ss will be available.
Problem with Solution and accounting concepts
For example, we sold goods to a customer for Rs. 1000 and he paid cash to us Rs. 1000 revenue will be equal to inflow of cash Rs. 1000. But if the customer has paid only Rs. 500 a remaining amounts he agreed to pay at some future date, again in that case the revenue will be eqi Rs. 1000 (inflow of cash Rs. 500 + Rs. 500 receivable).
TYPES OF REVENUE:
1. Sales: The_total price of goods sold
2. Interest earned
3. Fees earned
4. Rent earned
5. Commission earned
22. EXPENSES:
Expenses are the costs of the goods and services used up in the process of obtaining revenue.
Or Expenses are the cost of producing revenue in a particular accounting period.
Or
An expense is a sacrifice, or cost incurred to generate revenue.
For example, salaries for employees, telephone charges, rent of the building, insurance transportation etc. AH these costs are necessary to attract and serve the customers and thereby to ob^ revenue. Expenses are sometimes also referred to as the "cost of doing business" or "expired costs".
23. NET INCOME OR NET PROFIT:
Net income or net profit is simply the amount by which the "revenue" for a particular period time exceed the "expenses" incurred to generate them.
Net income or net profit = Revenue- Expenses:
ACCOUNTING PRINCIPLES
It has already been stated in this chapter that Accounting is the language of business threw which economic information is communicated to all the parties concerned. In order to make this langu easily understandable all over the world, it is necessary to frame or make certain uniform standards wri are acceptable universally. These standards are termed as "Accounting Principles".
Accounting principles may be defined as those rules of action or conduct which are adopted by accounts universally while recording accounting transactions. They are a body of doctrines commc associated with the theory and procedures of accounting. They are serving as an explanation of cun practices and as a guide for selection of conventions or procedures where alterhatives exist. Tl principles can be classified into two groups. .
(i) Accounting concepts (ii) Accounting conventions.
Accounting Concepts:
Going concern concept Cost concept
Accounting period concept Realisation concept.
The term 'concepts' includes those basic assumptions or conditions on which the scienc accounting is based. The following are the important accounting concepts:
(i) Separate Entity Concept (ii)
(iii) Money measurement concept (iv)
(v) Dual Aspect concept (vi)
(vii> Matching concept
TYPES OF REVENUE:
1. Sales: The_total price of goods sold
2. Interest earned
3. Fees earned
4. Rent earned
5. Commission earned
22. EXPENSES:
Expenses are the costs of the goods and services used up in the process of obtaining revenue.
Or Expenses are the cost of producing revenue in a particular accounting period.
Or
An expense is a sacrifice, or cost incurred to generate revenue.
For example, salaries for employees, telephone charges, rent of the building, insurance transportation etc. AH these costs are necessary to attract and serve the customers and thereby to ob^ revenue. Expenses are sometimes also referred to as the "cost of doing business" or "expired costs".
23. NET INCOME OR NET PROFIT:
Net income or net profit is simply the amount by which the "revenue" for a particular period time exceed the "expenses" incurred to generate them.
Net income or net profit = Revenue- Expenses:
ACCOUNTING PRINCIPLES
It has already been stated in this chapter that Accounting is the language of business threw which economic information is communicated to all the parties concerned. In order to make this langu easily understandable all over the world, it is necessary to frame or make certain uniform standards wri are acceptable universally. These standards are termed as "Accounting Principles".
Accounting principles may be defined as those rules of action or conduct which are adopted by accounts universally while recording accounting transactions. They are a body of doctrines commc associated with the theory and procedures of accounting. They are serving as an explanation of cun practices and as a guide for selection of conventions or procedures where alterhatives exist. Tl principles can be classified into two groups. .
(i) Accounting concepts (ii) Accounting conventions.
Accounting Concepts:
Going concern concept Cost concept
Accounting period concept Realisation concept.
The term 'concepts' includes those basic assumptions or conditions on which the scienc accounting is based. The following are the important accounting concepts:
(i) Separate Entity Concept (ii)
(iii) Money measurement concept (iv)
(v) Dual Aspect concept (vi)
(vii> Matching concept
Accounts Details 2010
DEBTORS OR ACCOUNTS RECEIVABLE:
When goods are sold to the customers on credit basis (credit sales are made to customers), debtors come into existence. Debtors are the persons or customers to whom goods have been sold on credit basis and from whom the business is to receive money in near future. The accounts of such customers are known as "Accounts Receivable". For example, we sold goods to A for Rs. 3000, to B for Rs. 2000 and to C for Rs. 4000 on credit basis. The amount receivable from them (A, B and C) is known as "Debts" and the three customers, A, B and C are our debtors or accounts receivable.
15. CREDITORS OR ACCOUNTS PAYABLE:
When goods are purchased from the suppliers (sellers) on credit basis, creditors come into existence. Creditors are the persons or suppliers from whom goods have been purchased on credit basis and to whom me money is to be paid in near future. The accounts of such persons (suppliers) are known as accounts payable". Accounts payable means, the amount which a business expects to pay to its suppliers for goods purchased or services received from them on credit basis.
The person or business who will receive the money - Creditor. The person or business who will pay the money -- Debtor.
16. CASH DISCOUNT:
It is a deduction or allowance given by a creditor to a debtor if the amount due is paid by the debtor before the due date, or it is a reduction in price (usually 2% or less) offered by manufacturers or wholesalers (creditors) to encourage customers (debtors) to pay their debts within a specified discounted period. For example, X sold goods to Y (a customer) for Rs. 1000 on credit basis. It means, X is creditor and Y is debtor. X offers an allowance of 2% to Y, if he will pay his debts within 15 days. It means, if Y pays his debts within 15 days, then he will pay only Rs. 980 (1000 - 20) to X. Such a discount is known as "Cash Discount".
17. CAPITAL OR OWNER'S EQUITY:
To understand, this term, recall that business is an entity (organisation) separate from its owner or owners. Equities mean tne sources eft \un6s provibeu to start or to operate a "business entity ~S; . question is: who provides funds to a business unit. Mainly there are two sources of funds:
(a) Funds supplied by the owner/owners.
(b) Funds supplied by the external parties like bank etc.
So, the amount of cash or goods invested (supplied) by the owner/owners in a unit is known as "capital" or owner's equity.
Or
Capital is the money or moneys worth borrowed by a business unit from its owver afl
owners.
Or
It is the claim or right of the owner/owners against the assets (properties etc. business) of the business.
Or It is the source of funds provided by the owner/owners of the business.
Or It is a part of the total equity which is supplied by the owner/owners.
When goods are sold to the customers on credit basis (credit sales are made to customers), debtors come into existence. Debtors are the persons or customers to whom goods have been sold on credit basis and from whom the business is to receive money in near future. The accounts of such customers are known as "Accounts Receivable". For example, we sold goods to A for Rs. 3000, to B for Rs. 2000 and to C for Rs. 4000 on credit basis. The amount receivable from them (A, B and C) is known as "Debts" and the three customers, A, B and C are our debtors or accounts receivable.
15. CREDITORS OR ACCOUNTS PAYABLE:
When goods are purchased from the suppliers (sellers) on credit basis, creditors come into existence. Creditors are the persons or suppliers from whom goods have been purchased on credit basis and to whom me money is to be paid in near future. The accounts of such persons (suppliers) are known as accounts payable". Accounts payable means, the amount which a business expects to pay to its suppliers for goods purchased or services received from them on credit basis.
The person or business who will receive the money - Creditor. The person or business who will pay the money -- Debtor.
16. CASH DISCOUNT:
It is a deduction or allowance given by a creditor to a debtor if the amount due is paid by the debtor before the due date, or it is a reduction in price (usually 2% or less) offered by manufacturers or wholesalers (creditors) to encourage customers (debtors) to pay their debts within a specified discounted period. For example, X sold goods to Y (a customer) for Rs. 1000 on credit basis. It means, X is creditor and Y is debtor. X offers an allowance of 2% to Y, if he will pay his debts within 15 days. It means, if Y pays his debts within 15 days, then he will pay only Rs. 980 (1000 - 20) to X. Such a discount is known as "Cash Discount".
17. CAPITAL OR OWNER'S EQUITY:
To understand, this term, recall that business is an entity (organisation) separate from its owner or owners. Equities mean tne sources eft \un6s provibeu to start or to operate a "business entity ~S; . question is: who provides funds to a business unit. Mainly there are two sources of funds:
(a) Funds supplied by the owner/owners.
(b) Funds supplied by the external parties like bank etc.
So, the amount of cash or goods invested (supplied) by the owner/owners in a unit is known as "capital" or owner's equity.
Or
Capital is the money or moneys worth borrowed by a business unit from its owver afl
owners.
Or
It is the claim or right of the owner/owners against the assets (properties etc. business) of the business.
Or It is the source of funds provided by the owner/owners of the business.
Or It is a part of the total equity which is supplied by the owner/owners.
Problem with Solution
For example, Mr. X started a business with Rs. 100000. Out of Rs. 100000, Rs. 70000 have been provided by the owner, X and Rs. 30,000 have been borrowed from a bank. Now, the equity (total funds) of the business is Rs. 100000 but owner's equity (capital) of the business is Rs, 70,000.
18. ASSETS:
Assets are the economic resources (having certain value) owned by a business on a particular date and which are expected to benefit the future operation of the business.
Or
Assets are the properties and possessions of a business both tangible (have physical existence) and intangible (have no physical existence).
Or
Assets are the things having certain value possessed by a business and receivable by a business on i particular date. For example, cash, furniture, building, land, machinery, stock of goods. Debtors or Accounts receivable, Bank balance, Goodwill etc.
19. LIABILITIES:
Liabilities are the debts or obligations of a business.
Or
The outsider's (creditors etc.) claims against the assets of the business are known as "Liabilities". There are two main parties who have claims, against the assets of a business; (a) Owner's claim; (b) Outsiders' claims. The owner's claim against the assets of a business is known as owner's equity and outsider's claims against the assets of the business are known as "liabilities."
Or
Liabilities mean the total amount which a business is legally bound to pay to the outsiders, e.g. ^editors, Bills payable, Accounts payable, Bank loan etc.
20. ACCOUNTING PERIOD:
It is a span of time for which a business generally prepares its financial statements (the statement prepared to know the profit or loss of a business and to Icnow its financial position). Mostly the financial reports are prepared for one year but they may also be prepared for one month or for one quarter.
21. REVENUE:
All business organisations are engaged in providing goods or services to their customers. The «nount which a business charges its customers for these goods or services, measures the revenue of the business.
• Or
It is the price of goods sold or services provided by a business to its customers.
Or
Revenue is the inflow of assets (cash or debtors) in return for services performed or goods delivered (sold) during an accounting period.
Chit is inflow of cash and debtors (receivable) in exchange for goods sold or services rendered during • accounting period.
18. ASSETS:
Assets are the economic resources (having certain value) owned by a business on a particular date and which are expected to benefit the future operation of the business.
Or
Assets are the properties and possessions of a business both tangible (have physical existence) and intangible (have no physical existence).
Or
Assets are the things having certain value possessed by a business and receivable by a business on i particular date. For example, cash, furniture, building, land, machinery, stock of goods. Debtors or Accounts receivable, Bank balance, Goodwill etc.
19. LIABILITIES:
Liabilities are the debts or obligations of a business.
Or
The outsider's (creditors etc.) claims against the assets of the business are known as "Liabilities". There are two main parties who have claims, against the assets of a business; (a) Owner's claim; (b) Outsiders' claims. The owner's claim against the assets of a business is known as owner's equity and outsider's claims against the assets of the business are known as "liabilities."
Or
Liabilities mean the total amount which a business is legally bound to pay to the outsiders, e.g. ^editors, Bills payable, Accounts payable, Bank loan etc.
20. ACCOUNTING PERIOD:
It is a span of time for which a business generally prepares its financial statements (the statement prepared to know the profit or loss of a business and to Icnow its financial position). Mostly the financial reports are prepared for one year but they may also be prepared for one month or for one quarter.
21. REVENUE:
All business organisations are engaged in providing goods or services to their customers. The «nount which a business charges its customers for these goods or services, measures the revenue of the business.
• Or
It is the price of goods sold or services provided by a business to its customers.
Or
Revenue is the inflow of assets (cash or debtors) in return for services performed or goods delivered (sold) during an accounting period.
Chit is inflow of cash and debtors (receivable) in exchange for goods sold or services rendered during • accounting period.
Definations 2010
Purchase Return
is known as "Purchases returns" or "Returns lo suppliers". For example, we purchased 100 radio sets (goods) from Lahore Electronics for Rs. 15000. On receiving the delivery of goods, it is found that 10 radio sets are of inferior quality. The return of these 10 radio sets to the seller (Lahore Electronics) will be a case of purchases returns.
7. PURCHASES DISCOUNT AND SALES DISCOUNT:
The Concession given by the supplier to the buyer on purchases of goods is known as "Purchases discount" to the buyer and "Sales discount" to the seller (supplier).
8. ALLOWANCES:
Sometimes, the customers (buyers) find that goods purchased have minor defects. In that case, the seller may agree to reduce the price of damaged or defective goods to induce the buyer to keep the goods. Such reduction in price is known as "Purchases allowance" to the buyer and "Sales allowance" to the seller.
9. SALES:
We know that goods are purchased for selling purposes. When these goods are sold to customers at a specific price, it is said that sales have been made. For example, we purchased goods worth Rs. 5000 (our purchases). Suppose, these goods have been sold at a price of Rs. 6000 — in accounting language it will be said that sales have been made at Rs. 6000. So goods sold are called "Sales".
10. CASH SALES:
If goods are sold to customers at a specific price and price of the goods is received from them at the time of sale of goods, such sales are known as "Cash sales". For example, we sold goods to a customer, Mr. A for Rs. 2000 on 10th January, 2005 and received the cash from him on the same date, it will be a case of cash sales.
11.
CREDIT SALES:
If goods are sold to a customer and he does not pay the price of goods at the same time but agrees to make payment on some future date, the sales are called "credit sales" or "Sales on account," For example, we sold goods to Mr. X for Rs. 3000 on 15th January, 2005 and he agreed to make payment on 31st January, 2005, it will be a case of credit sales or sales on account.
12. SALES RETURNS OR RETURNS INWARDS:
If a customer to whom goods have been sold finds that the goods are defective, unsatisfactory, below standard or not according to specification, he may return these goods to the seller. To the seller, such return of goods is known as "Sales returns" or "Returns Inwards" or "Returns from customers.
13. TRADE DISCOUNT:At the time of selling goods, the manufacturer or wholesaler allows retailers such a discount (concession). It is allowed at a certain percentage of the listed or catalogue price. For example, the list price of the goods is Rs. 30000, and the wholesaler allows a trade discount of 10% on the listed price to the retailer. It means the net price of the goods is 27000 (30000-3000). The trade discount enables the retailer to sell goods at the listed price; and the customer can be sure about the fair price of the goods. It may be noted that both the buyer and seller will record Rs. 27000 (not Rs. 30,000) in their books of account. In other words trade discount is not recorded in books of account. Thus, discount allowed by manufacturer or wholesaler at the time of selling goods to retailer as a deduction from the listed price or catalogue price, is called Trade Discount
is known as "Purchases returns" or "Returns lo suppliers". For example, we purchased 100 radio sets (goods) from Lahore Electronics for Rs. 15000. On receiving the delivery of goods, it is found that 10 radio sets are of inferior quality. The return of these 10 radio sets to the seller (Lahore Electronics) will be a case of purchases returns.
7. PURCHASES DISCOUNT AND SALES DISCOUNT:
The Concession given by the supplier to the buyer on purchases of goods is known as "Purchases discount" to the buyer and "Sales discount" to the seller (supplier).
8. ALLOWANCES:
Sometimes, the customers (buyers) find that goods purchased have minor defects. In that case, the seller may agree to reduce the price of damaged or defective goods to induce the buyer to keep the goods. Such reduction in price is known as "Purchases allowance" to the buyer and "Sales allowance" to the seller.
9. SALES:
We know that goods are purchased for selling purposes. When these goods are sold to customers at a specific price, it is said that sales have been made. For example, we purchased goods worth Rs. 5000 (our purchases). Suppose, these goods have been sold at a price of Rs. 6000 — in accounting language it will be said that sales have been made at Rs. 6000. So goods sold are called "Sales".
10. CASH SALES:
If goods are sold to customers at a specific price and price of the goods is received from them at the time of sale of goods, such sales are known as "Cash sales". For example, we sold goods to a customer, Mr. A for Rs. 2000 on 10th January, 2005 and received the cash from him on the same date, it will be a case of cash sales.
11.
CREDIT SALES:
If goods are sold to a customer and he does not pay the price of goods at the same time but agrees to make payment on some future date, the sales are called "credit sales" or "Sales on account," For example, we sold goods to Mr. X for Rs. 3000 on 15th January, 2005 and he agreed to make payment on 31st January, 2005, it will be a case of credit sales or sales on account.
12. SALES RETURNS OR RETURNS INWARDS:
If a customer to whom goods have been sold finds that the goods are defective, unsatisfactory, below standard or not according to specification, he may return these goods to the seller. To the seller, such return of goods is known as "Sales returns" or "Returns Inwards" or "Returns from customers.
13. TRADE DISCOUNT:At the time of selling goods, the manufacturer or wholesaler allows retailers such a discount (concession). It is allowed at a certain percentage of the listed or catalogue price. For example, the list price of the goods is Rs. 30000, and the wholesaler allows a trade discount of 10% on the listed price to the retailer. It means the net price of the goods is 27000 (30000-3000). The trade discount enables the retailer to sell goods at the listed price; and the customer can be sure about the fair price of the goods. It may be noted that both the buyer and seller will record Rs. 27000 (not Rs. 30,000) in their books of account. In other words trade discount is not recorded in books of account. Thus, discount allowed by manufacturer or wholesaler at the time of selling goods to retailer as a deduction from the listed price or catalogue price, is called Trade Discount
IMPORTANCE OF ACCOUNTING 2009
IMPORTANCE OF ACCOUNTING:
We live in a world where people need things from the day they are born to the day that they die.
imk of these 'needs' are physical needs, a need for goods of various sorts, food, clothing, shelter, and so Some of them are emotional 'wants', a need for education, entertainment, or recreation. In satisfying needs businessmen perform useful services to their fellow humans. In return they expect to earn noble reward for their efforts in the form of profits.
Cutyour coat according to your cloth".-- so goes the saying. Even a king becomes a pauper, if"
h feb to exercise economy in his expenditures. In other words, every individual will have to plan his according to his income. Obviously the question arises -- why is this planning necessary? The
of such planning arises as our wants or desires or needs for goods and services are unlimited, while cans, i.e. the income with which to buy such goods and services are limited. Where, however, goods services are available free of cost, i.e. gifts of nature, such as ajr, water (not in cities) etc., there is no of economy. But the necessity of economy is undeniable, where goods or services are not available fat of cost and their supply is limited. A proper and fair planning of expenditures helps us to ensure proper use of our income. Of course, s rue that the quantity of goods or money cannot be increased by making a proper planning. But crainh we can ensure most economic use of goods or money at our disposal.
Most of us do maintain some kind of a written record of our income and expenditure. The idea tetrad maintaining such record is to know the correct position regarding income and expenditure. The need r keeping a record of income and expenditure in a clear and systematic manner has given rise to the - jcct of 'book-keeping1. Some individuals do not recognise the necessity of keeping accounts of their day-to-day •peaditures, since they spend their own income and are not required to account for it to anybody else. But not an idea is wrong. A family, however, small it may be, must exercise proper control over its ipcnditures so as to ensure future security. A family has two-fold responsibilities - one is that of ensuring id welfare of the family and the other is the social responsibility. Needless to say, money is the most sentiat pre-request for ensuring peace and happiness of a family, which each and every member desires.The quantum of money must be adequate in relation to the needs. But mere adequacy of money will not do; cae has to take care of its proper utilization. For this it would be necessary to exercise economy and certain proper books of account. On the other hand each and every family must save a portion of its income for future contingencies. It is possible to increase the amount of saving through proper management nid effective control of the family expenses. Through such saving the family helps materialising theeconomic planning of the country.its totally
We live in a world where people need things from the day they are born to the day that they die.
imk of these 'needs' are physical needs, a need for goods of various sorts, food, clothing, shelter, and so Some of them are emotional 'wants', a need for education, entertainment, or recreation. In satisfying needs businessmen perform useful services to their fellow humans. In return they expect to earn noble reward for their efforts in the form of profits.
Cutyour coat according to your cloth".-- so goes the saying. Even a king becomes a pauper, if"
h feb to exercise economy in his expenditures. In other words, every individual will have to plan his according to his income. Obviously the question arises -- why is this planning necessary? The
of such planning arises as our wants or desires or needs for goods and services are unlimited, while cans, i.e. the income with which to buy such goods and services are limited. Where, however, goods services are available free of cost, i.e. gifts of nature, such as ajr, water (not in cities) etc., there is no of economy. But the necessity of economy is undeniable, where goods or services are not available fat of cost and their supply is limited. A proper and fair planning of expenditures helps us to ensure proper use of our income. Of course, s rue that the quantity of goods or money cannot be increased by making a proper planning. But crainh we can ensure most economic use of goods or money at our disposal.
Most of us do maintain some kind of a written record of our income and expenditure. The idea tetrad maintaining such record is to know the correct position regarding income and expenditure. The need r keeping a record of income and expenditure in a clear and systematic manner has given rise to the - jcct of 'book-keeping1. Some individuals do not recognise the necessity of keeping accounts of their day-to-day •peaditures, since they spend their own income and are not required to account for it to anybody else. But not an idea is wrong. A family, however, small it may be, must exercise proper control over its ipcnditures so as to ensure future security. A family has two-fold responsibilities - one is that of ensuring id welfare of the family and the other is the social responsibility. Needless to say, money is the most sentiat pre-request for ensuring peace and happiness of a family, which each and every member desires.The quantum of money must be adequate in relation to the needs. But mere adequacy of money will not do; cae has to take care of its proper utilization. For this it would be necessary to exercise economy and certain proper books of account. On the other hand each and every family must save a portion of its income for future contingencies. It is possible to increase the amount of saving through proper management nid effective control of the family expenses. Through such saving the family helps materialising theeconomic planning of the country.its totally
Monday, October 26, 2009
Accounting Definations
Partnership:
In a partnership, ownership is divided between two or more persons who agree to share t? property and skills to start and operate a business. Like the single proprietorship, a partnership busines simple to organise.
(c) Joint Stock Company:
A joint stock company is formed under the Companies Ordinance, 1984 and has the legal righ: act as a person. It may be owned by many people. A company has its own name, in which it can bu>. and sell property; make contracts; borrow money; and take court action. The persons who have m investment in the company are known as shareholders.
2. GOODS OR MERCHANDISE
In accounting the word "Goods" has a special meaning. It refers to something which has bi purchased by a trader for resale purposes or anything which has been manufactured for selling purpo* For example, if a trader purchases furniture for use in the business, it will not be regarded as "goods", bu it is purchased for resale, it will be regarded as "goods". The same article may be "goods" for one trader may not be so to another trader. For example, furniture is not "goods" for a book seller; but it will regarded as "goods" to a furniture -dealer.
Thus, cloth will be "goods" to a cloth dealer
Watches will be "goods" to a Watch dealer
Books will be "goods" to a Book - Seller
Stationery will be "goods" to a Stationery dealer. But watches, books or stationery will not be considered as "goods" to a cloth dealer.
3. PURCHASES:
In accounting language the word "Purchases" has a special meaning. When saleable gt ioil-bought in a business, it is said that "purchases" have been made. For example, to a cloth dealer, when cloth is purchased, it will not be necessary to mention that cloth has been purchased ( simply it will be s that purchases have been made. On the other hand, if stationery is purchased, then it will be essential mention that stationery has been purchased.
4. CASH PURCHASES:
If goods are purchased from a supplier and payment is made to him at the same time, purchases are known as "Cash Purchases". For example, Mr. X purchased goods from a seller, Mr. Y. Rs. 5000 on 1st January, 2005, and payment is made to the seller (Mr. Y) at the same date (1.1.2005), it i be a case of cash purchases.
5. CREDIT PURCHASES OR "PURCHASES ON ACCOUNT:
When goods are purchased from a seller and payment is not made to him at the same time, rat the payment is arranged to be made at some future date, such purchases are known as "credit purchases' "Purchases on account". For example, Mr. A purchased goods from Mr. B for Rs. 5000 on 1st Jam 2005 and Mr. A agreed to make the payment of goods on 15th January, 2005 (payment has not been on i.1.2005), it will be a case of credit purchases. On 15th January Mr. A will pay Rs. 5000 to Mr. B.
6. PURCHASES RETURNS OR RETURNS OUTWARDS:
Goods once purchased may subsequently be sent back to the seller for certain reasons, i.e. gc are defective, not according to specification, damaged or below standard. Such return of goods to the set
In a partnership, ownership is divided between two or more persons who agree to share t? property and skills to start and operate a business. Like the single proprietorship, a partnership busines simple to organise.
(c) Joint Stock Company:
A joint stock company is formed under the Companies Ordinance, 1984 and has the legal righ: act as a person. It may be owned by many people. A company has its own name, in which it can bu>. and sell property; make contracts; borrow money; and take court action. The persons who have m investment in the company are known as shareholders.
2. GOODS OR MERCHANDISE
In accounting the word "Goods" has a special meaning. It refers to something which has bi purchased by a trader for resale purposes or anything which has been manufactured for selling purpo* For example, if a trader purchases furniture for use in the business, it will not be regarded as "goods", bu it is purchased for resale, it will be regarded as "goods". The same article may be "goods" for one trader may not be so to another trader. For example, furniture is not "goods" for a book seller; but it will regarded as "goods" to a furniture -dealer.
Thus, cloth will be "goods" to a cloth dealer
Watches will be "goods" to a Watch dealer
Books will be "goods" to a Book - Seller
Stationery will be "goods" to a Stationery dealer. But watches, books or stationery will not be considered as "goods" to a cloth dealer.
3. PURCHASES:
In accounting language the word "Purchases" has a special meaning. When saleable gt ioil-bought in a business, it is said that "purchases" have been made. For example, to a cloth dealer, when cloth is purchased, it will not be necessary to mention that cloth has been purchased ( simply it will be s that purchases have been made. On the other hand, if stationery is purchased, then it will be essential mention that stationery has been purchased.
4. CASH PURCHASES:
If goods are purchased from a supplier and payment is made to him at the same time, purchases are known as "Cash Purchases". For example, Mr. X purchased goods from a seller, Mr. Y. Rs. 5000 on 1st January, 2005, and payment is made to the seller (Mr. Y) at the same date (1.1.2005), it i be a case of cash purchases.
5. CREDIT PURCHASES OR "PURCHASES ON ACCOUNT:
When goods are purchased from a seller and payment is not made to him at the same time, rat the payment is arranged to be made at some future date, such purchases are known as "credit purchases' "Purchases on account". For example, Mr. A purchased goods from Mr. B for Rs. 5000 on 1st Jam 2005 and Mr. A agreed to make the payment of goods on 15th January, 2005 (payment has not been on i.1.2005), it will be a case of credit purchases. On 15th January Mr. A will pay Rs. 5000 to Mr. B.
6. PURCHASES RETURNS OR RETURNS OUTWARDS:
Goods once purchased may subsequently be sent back to the seller for certain reasons, i.e. gc are defective, not according to specification, damaged or below standard. Such return of goods to the set
OBJECTS & CONCEPT DETAILS
OBJECTS OF ACCOUNTING
Financial information is necessary in order to run a business in an efficient manner. Reliable information will be available only through keeping proper books of accounts.
Proper accounting is essential, if money is to be borrowed for the purpose of business. The lender will only agree to lend money when he is satisfied as to the solvency of the borrower. Information ivailable from books of accounts is the means of measuring such solvency.
Cash in hand can be verified and any defalcation can be detected, if proper books of accounts are maintained.
Payment of sales tax and income tax is only possible if books of accounts are maintained.
In case of any dispute, books of accounts can be produced in the court of law as a documentary evidence.
Government fixes up fair prices, formulates industrial policy, prepares economic plans, decides import-export quotas and does many other functions on the basis of accounting information available from books of accounts.
IMPORTANT ACCOUNTING TERMS AND CONCEPTS
BUSINESS ENTITY:
Profit making organisations are known as businesses. There are three main types of businesses;• . _• L-ervkvs (such as dr\ cleaners. Motor works.ru'p.s. Beauty :-;i!ons, airlines etc.); those selling
poo such as food sellers, automobile dealers etc.); those manufacturing goods (such as automobile ••ribcxurers, fans industries, sugar mills etc.).
business entity is an economic unit which enters into business transactions that must be
wearaec summarised and reported, The entity (organisation) is regarded as separate from its owner or
-j entity owns its own properly and has its own debts. The purpose of accounting is to provide
•etu ^formation about an organisation (an entity) to people who need such information but not about the
•cko&l affairs of the owner or owners. So it should be remembered that accounting is done for business
«ncs (what is happening in the business organisation) and it is not concerned with the personal or
imc miners of the owner. For example, the owner purchases furniture for business use(this is a business
tf tad it should be recorded in books of accounts. But if he purchases furniture for his domestic use, it
•nil xi r< considered as a business activity and will not be recorded in books of accounts. In the same
•« owner may have a personal bank account, a car, a house, and other property, but since these things
t part of the business, they are not included in the record of the business unit. So, each organisation
• ch accounting is done is an independent entity, separate from its owners, managers, customers,
•BriKrs. 2nd all other persons and entities with which it deals.
FORMS OF BUSINESS ORGANISATION
There are three main forms of business organisation;
Stogie or sole proprietorship:
The simplest form of business organisation "to organise and operate" is a single or sole IMneunhip. This is the most common form of ownership and is found in business such as small retail •m». *er.-.ce stations etc. The owner is the only one in control and makes all management decisions.
Financial information is necessary in order to run a business in an efficient manner. Reliable information will be available only through keeping proper books of accounts.
Proper accounting is essential, if money is to be borrowed for the purpose of business. The lender will only agree to lend money when he is satisfied as to the solvency of the borrower. Information ivailable from books of accounts is the means of measuring such solvency.
Cash in hand can be verified and any defalcation can be detected, if proper books of accounts are maintained.
Payment of sales tax and income tax is only possible if books of accounts are maintained.
In case of any dispute, books of accounts can be produced in the court of law as a documentary evidence.
Government fixes up fair prices, formulates industrial policy, prepares economic plans, decides import-export quotas and does many other functions on the basis of accounting information available from books of accounts.
IMPORTANT ACCOUNTING TERMS AND CONCEPTS
BUSINESS ENTITY:
Profit making organisations are known as businesses. There are three main types of businesses;• . _• L-ervkvs (such as dr\ cleaners. Motor works.ru'p.s. Beauty :-;i!ons, airlines etc.); those selling
poo such as food sellers, automobile dealers etc.); those manufacturing goods (such as automobile ••ribcxurers, fans industries, sugar mills etc.).
business entity is an economic unit which enters into business transactions that must be
wearaec summarised and reported, The entity (organisation) is regarded as separate from its owner or
-j entity owns its own properly and has its own debts. The purpose of accounting is to provide
•etu ^formation about an organisation (an entity) to people who need such information but not about the
•cko&l affairs of the owner or owners. So it should be remembered that accounting is done for business
«ncs (what is happening in the business organisation) and it is not concerned with the personal or
imc miners of the owner. For example, the owner purchases furniture for business use(this is a business
tf tad it should be recorded in books of accounts. But if he purchases furniture for his domestic use, it
•nil xi r< considered as a business activity and will not be recorded in books of accounts. In the same
•« owner may have a personal bank account, a car, a house, and other property, but since these things
t part of the business, they are not included in the record of the business unit. So, each organisation
• ch accounting is done is an independent entity, separate from its owners, managers, customers,
•BriKrs. 2nd all other persons and entities with which it deals.
FORMS OF BUSINESS ORGANISATION
There are three main forms of business organisation;
Stogie or sole proprietorship:
The simplest form of business organisation "to organise and operate" is a single or sole IMneunhip. This is the most common form of ownership and is found in business such as small retail •m». *er.-.ce stations etc. The owner is the only one in control and makes all management decisions.
CONNECTED WITH A MONETARY EVENT OR TRANSACTION
CONNECTED WITH A MONETARY EVENT OR TRANSACTION:
Accounting must be in relation to a monetary event or transaction and the event or transaction must
be measurable in terms of money. In other words, no accounting is possible for an event or transaction
,h is not measurable in terms of money, e.g. passing an examination, delivering lecture in a meeting,
ning a game etc. These are events no doubt, but since these are not measurable in terms of money, there
^b fto question of their accounting.
TRANSACTIONS ARE PROCESSED IN THREE DIFFERENT STAGES: Recording:
In the first stage the transactions are recorded chronologically in the books of accounts. Classifying:
In the second stage the transactions of the same or sfmilar nature are classified and recorded I «parately.
Summarising:
'
In the third stage all the necessary date and information are summarised on the basis of classified .•ccrd of transactions and communicated to management and other interested persons.
Interpretation:
In order to assertion the true position of a concern all the accounting data and information relating c • are analysed and interpreted.
All the above functions are performed on the basis of certain well-defined and well-coordinated -wes and principles. An accountant must be familiar with all these rules and principles. In accounting we udy all these rules and principles.
I fc»k-Keeping:
Book-keeping is the art of recording monetary transactions in the books of account in a proper TMT.Ter. The books of accounts are recorded in such a way as will enable us to ascertain the complete and I awnrate result in the least possible time with minimum labour and cost.
Many authors have defined the terms 'Book-keeping' in different ways;
1. "Book-keeping means the recording of transactions, the record making phase ofAccounting (it is only a small part of the field of Accounting and probably, the simplestpart." - Meigs, Johnson and Meigs.
2. "Book-keeping is the recording branch of Accounting." -- Encyclopaedia Britannica.
3. "Book-keeping is the art of recording in books of accounts the monetary aspect ofcommercial or financial transactions." Northcot,
BOOK-KEEPING VERSUS ACCOUNTING
A great deal of efforts goes into gathering and processing information about a concern before the
end up in an accounting report. Much of the work required is clerical in nature and can be performed
rffice workers, machine and computers. The functions of Book-Keeping is to properly record the
iMDL-.il transactions in the books of account. But the function of Accounting is more extensive it has other functions to do except recording transactions, e.g. classification, summarisation and
UBBHOfttation'pof transactions. Thus we see that Book-Keeping is confined to recording aspect of Accounting
a a small and the simplest pan of Accounting. Both represent two different phases of the main subject
•ftcsxntancy". Book-Keeping is the first stage, while Accounting is the final stage, that is why, it is said
Accounting must be in relation to a monetary event or transaction and the event or transaction must
be measurable in terms of money. In other words, no accounting is possible for an event or transaction
,h is not measurable in terms of money, e.g. passing an examination, delivering lecture in a meeting,
ning a game etc. These are events no doubt, but since these are not measurable in terms of money, there
^b fto question of their accounting.
TRANSACTIONS ARE PROCESSED IN THREE DIFFERENT STAGES: Recording:
In the first stage the transactions are recorded chronologically in the books of accounts. Classifying:
In the second stage the transactions of the same or sfmilar nature are classified and recorded I «parately.
Summarising:
'
In the third stage all the necessary date and information are summarised on the basis of classified .•ccrd of transactions and communicated to management and other interested persons.
Interpretation:
In order to assertion the true position of a concern all the accounting data and information relating c • are analysed and interpreted.
All the above functions are performed on the basis of certain well-defined and well-coordinated -wes and principles. An accountant must be familiar with all these rules and principles. In accounting we udy all these rules and principles.
I fc»k-Keeping:
Book-keeping is the art of recording monetary transactions in the books of account in a proper TMT.Ter. The books of accounts are recorded in such a way as will enable us to ascertain the complete and I awnrate result in the least possible time with minimum labour and cost.
Many authors have defined the terms 'Book-keeping' in different ways;
1. "Book-keeping means the recording of transactions, the record making phase ofAccounting (it is only a small part of the field of Accounting and probably, the simplestpart." - Meigs, Johnson and Meigs.
2. "Book-keeping is the recording branch of Accounting." -- Encyclopaedia Britannica.
3. "Book-keeping is the art of recording in books of accounts the monetary aspect ofcommercial or financial transactions." Northcot,
BOOK-KEEPING VERSUS ACCOUNTING
A great deal of efforts goes into gathering and processing information about a concern before the
end up in an accounting report. Much of the work required is clerical in nature and can be performed
rffice workers, machine and computers. The functions of Book-Keeping is to properly record the
iMDL-.il transactions in the books of account. But the function of Accounting is more extensive it has other functions to do except recording transactions, e.g. classification, summarisation and
UBBHOfttation'pof transactions. Thus we see that Book-Keeping is confined to recording aspect of Accounting
a a small and the simplest pan of Accounting. Both represent two different phases of the main subject
•ftcsxntancy". Book-Keeping is the first stage, while Accounting is the final stage, that is why, it is said
Patnership A/c elements
PARTNERSHIP ACCOUNTS!
Essentials of Partnership
Rules Applicable in the Absence of an Agreement
Final Accounts of Partnership<• Distribution of Profits
Fixed and Fluctuating Capitals
Admission of a new Partner
Goodwill and its Treatment in Books of Account
Method of Valuation of Goodwill
Revaluation of Assets and Liabilities
Calculation of new Profit Sharing Ratio
Readjustment of Partners Capitals
Retirement of a Partner
Accounting Problems on Retirement
Change in Profit Sharing ratio on Retirement
Distinction between Gaining and Sacrificing ratio
Death of a Partner
Calculation of Deceased's Share of Profit
Joint Life Policy and its Accounting Treatment
Distinction between Dissolution of Partnership & Dissolutionof Firm
Modes of Dissolution of a Firm
Settlement of Accounts on Dissolution
Preparation of Realisation Account
Dissolution of Firm when all the Partners are Solvent
Dissolution of Firm when one Partner is Insolvent
Dissolution of Firm when all the Partners are Insolvent•> Gradual Realisation of Assets and iecemeal Distribution
Essentials of Partnership
Rules Applicable in the Absence of an Agreement
Final Accounts of Partnership<• Distribution of Profits
Fixed and Fluctuating Capitals
Admission of a new Partner
Goodwill and its Treatment in Books of Account
Method of Valuation of Goodwill
Revaluation of Assets and Liabilities
Calculation of new Profit Sharing Ratio
Readjustment of Partners Capitals
Retirement of a Partner
Accounting Problems on Retirement
Change in Profit Sharing ratio on Retirement
Distinction between Gaining and Sacrificing ratio
Death of a Partner
Calculation of Deceased's Share of Profit
Joint Life Policy and its Accounting Treatment
Distinction between Dissolution of Partnership & Dissolutionof Firm
Modes of Dissolution of a Firm
Settlement of Accounts on Dissolution
Preparation of Realisation Account
Dissolution of Firm when all the Partners are Solvent
Dissolution of Firm when one Partner is Insolvent
Dissolution of Firm when all the Partners are Insolvent•> Gradual Realisation of Assets and iecemeal Distribution
Accounting elements Page 2
Renewal of a BUI
Difference between Dishonour and Renewal of a Bill
Insolvency of one Party
Retiring a Bill under Rebate
Accommodation Bills
Effect of Insolvency
Bills Receivable and Bills Payable Books
Promissory Note
SPECIAL JOURNALS 1
Subdivision of Journal
How the Transactions are Entered in Special Journals and Posted to the Ledger?
Documents for Sales and Purchases-The Invoice
Purchases Journal
Distinction between Purchases Journal and Purchases Account•fr Sales Journal (Book)
Purchases Returns or Returns Outward Journal
Rules for Posting the Purchases Returns Journal
Sales Returns Journal (Book)
CASH BOOK AND BANK
RECONCILIATION STATEMENT
Cash Book
Definition
Is Cash Book a Journal or a Ledger?
Distinction Between a Cash Book and a Cash Account•fr Types of Cash Book,
Opening an Account with a Bank, Accounting Treatment of Cheques
Dishonour of Cheques
Classification of Cash Book
Bank Reconciliation Statement
Distinction between Cash Book and Pass Book
What is Meant by 'Reconciliation'?
Difference between Dishonour and Renewal of a Bill
Insolvency of one Party
Retiring a Bill under Rebate
Accommodation Bills
Effect of Insolvency
Bills Receivable and Bills Payable Books
Promissory Note
SPECIAL JOURNALS 1
Subdivision of Journal
How the Transactions are Entered in Special Journals and Posted to the Ledger?
Documents for Sales and Purchases-The Invoice
Purchases Journal
Distinction between Purchases Journal and Purchases Account•fr Sales Journal (Book)
Purchases Returns or Returns Outward Journal
Rules for Posting the Purchases Returns Journal
Sales Returns Journal (Book)
CASH BOOK AND BANK
RECONCILIATION STATEMENT
Cash Book
Definition
Is Cash Book a Journal or a Ledger?
Distinction Between a Cash Book and a Cash Account•fr Types of Cash Book,
Opening an Account with a Bank, Accounting Treatment of Cheques
Dishonour of Cheques
Classification of Cash Book
Bank Reconciliation Statement
Distinction between Cash Book and Pass Book
What is Meant by 'Reconciliation'?
Accounting elements
Need and Importance of Accounting
Accounting: A Business Language
Book-Keeping
Book-Keeping Versus Accounting .
Accounting Versus Accountancy
Branches of Accounting
Objects of Accounting
Important Accounting Terms and Concepts
TRANSACTIONS AND ACCOUNTING EQUATION
What is an Event
Features
Classification
Rules for Deciding whether a Transaction is Cash or Credit
The Accounting Equation
Kffect of Business Transactions Upon the Accounting Equation
Setting up a Brand New Business
ANALYSIS OF BUSINESS
TRANSACTIONS AND DOUBLE ENTRY SYSTEM
A nalysis of Transactions
Double Entry System
Advantages of Double Entry System
Single Entry System
Distinction between Double Entry System and Single Entry System
What is an Account?
Classification of Accounts
Rules for Debiting and Crediting
Explanation of Rules
Accounting: A Business Language
Book-Keeping
Book-Keeping Versus Accounting .
Accounting Versus Accountancy
Branches of Accounting
Objects of Accounting
Important Accounting Terms and Concepts
TRANSACTIONS AND ACCOUNTING EQUATION
What is an Event
Features
Classification
Rules for Deciding whether a Transaction is Cash or Credit
The Accounting Equation
Kffect of Business Transactions Upon the Accounting Equation
Setting up a Brand New Business
ANALYSIS OF BUSINESS
TRANSACTIONS AND DOUBLE ENTRY SYSTEM
A nalysis of Transactions
Double Entry System
Advantages of Double Entry System
Single Entry System
Distinction between Double Entry System and Single Entry System
What is an Account?
Classification of Accounts
Rules for Debiting and Crediting
Explanation of Rules
Saturday, October 24, 2009
Structured settlements 2009
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