Class 11th Accountancy Part 1 Chapter 1 - Introduction To Accounting
Accounting is an artwork of recording, classifying, and summarizing the economic transactions in a green way and decoding the effects.
Functions of Accounting
- Identifying: Identifying the commercial enterprise transactions from numerous reasserts is step one of accounting.it entails looking at all commercial enterprise sports and figuring out the ones which might be taken into consideration as monetary transactions.
- Recording: Only one's transactions are recorded in books of debts which may be measured in phrases of cash. It entails recording them in a magazine and retaining a scientific report of all of them.
- Classifying: After recording the transactions they may be labeled. Classification refers back to the grouping of all of the transactions of equal nature at one location.
- Summarising: It is the system of setting the balances of all debts at one location i.e. Trial stability.
- Communicating: Accounting additionally consists of the communique of monetary records like monetary statements to the customers who examine them as according to character requirements.
Objectives of Accounting
To hold right facts of commercial enterprise transactions consistent with unique regulations which allows them to limit the danger of omission and fraud.
To confirm the internet income or loss suffered attributable to commercial enterprise transactions at some point of a specific length and to recognize the precise motives main to income or loss.
To confirm the monetary role of commercial enterprise by monetary assertion i.e, Balance sheet.
To confirm the development of the commercial enterprise from 12 months to 12 months and to hit upon mistakes and frauds.
To offer accounting statistics to numerous involved events like proprietors, lenders, banks, personnel, etc. who carry out an intensive evaluation according to the requirement of the stakeholders.
Advantages of Accounting
Accounting gives everlasting facts for all commercial enterprise transactions and gives dependable statistics to numerous events.
Accounting gives the Profit and lack of a commercial enterprise for a given length of time.
Accounting gives the ability of comparative take a look at of the numerous elements of commercial enterprise like income, buy,etc. with that of preceding years and allows businessmen to make selections.
Accounting bureaucracy a foundation withinside the system of overall performance assessment to enhance the overall performance of personnel, divisions,sports, etc.
Accounting facts act as accepted proof in prison matters.
Limitations of Accounting
One of the main boundaries of accounting is that it considers most effective economic transactions. Noneconomic elements like high-satisfactory, honesty, talents are not noted in accounting.
It considers most effective historic transactions and the figures given withinside the monetary assertion do now no longer remember charge degree modifications.
It is stimulated by means of non-public decisions and now no longer unfastened from non-public bias which influences its credibility.
It is laid low with window dressing this means that manipulation of debts in order that monetary statements describe a greater beneficial role than the real role.
Financial debts are improper for forecasting due to the fact they may be most effective facts of beyond activities.
Book-Keeping-Base of Accounting
Book retaining is an artwork of recording the transactions withinside the books of debts. Only the one's transactions that undergo an economic fee are recorded. It is step one of accounting. Its primary motive is to report retaining or renovation of books of debts, It have to now no longer be pressured with accounting. Differences among the 2 are as follows.
Subfields of Accounting
1. Financial Accounting: The primary motive of this department is to report the commercial enterprise transactions in a scientific way, to check income or loss and to provide the monetary role of the commercial enterprise with the assist of a stability sheet.
2. Cost Accounting: The primary motive of fee accounting is to check the entire fee and according to unit fee of products produced and offerings rendered by means of commercial enterprise.
3. Management Accounting: The primary motive of this department is to provide the accounting statistics in one of this manner as to help the control in making plans and controlling the operations of commercial enterprise.
4. Tax Accounting: This department is used for tax purposes. Income tax and gst are computed on the premise of this accounting.
Qualitative Characteristics of Accounting Information
Accounting statistics have to be organized and provided in one of these manners this is capable of depict a clean view of commercial enterprise.
1. Reliability: It means that statistics should be real and verifiable. And unfastened from mistakes.
2. Relevance: Accounting statistics should be applicable to the goals of enterprise. To be applicable, statistics should assist the customers of accounting statistics in making selections.
3. Understandability: Accounting statistics have to be provided in one of these way that they may be understood without difficulty by means of their customers along with investors, personnel, etc.
4. Comparability: It is a completely beneficial high-satisfactory of accounting statistics. Financial statements have to comprise preceding 12 months records in order that it could be in comparison with modern-day 12 months in order that modern-day overall performance be in comparison with beyond overall performance.
Accounting Terms
Business Transaction: A Business transaction is a financial hobby of a commercial enterprise that modifications its monetary role.
Account: It is a report of all commercial enterprise transactions referring to a specific man or woman or item. It is a T Shaped proforma.
Capital: It refers to the quantity invested by means of the proprietor in a commercial enterprise. The quantity invested may be withinside the shape of coins, items, etc.
Drawing: Any coins or items withdrawn by means of the proprietor for non-public use produced from commercial enterprise finances are called drawings.
Profit: It is the extra of overall sales over overall fee of a commercial enterprise.
Profit =Revenue-Expenses.
Loss: The extra of charges over associated sales is called loss. Loss= Expenses-Revenue.
Gain: It is an economic gain as a result of activities or transactions which might be incidental to commercial enterprise like income on sale of constant belongings.
Stock: It consists of items unsold on a specific date.
Purchases: It refers to the quantity of products sold by means of commercial enterprise for resale or use in manufacturing.it could be of coins or credit score.
Purchase go back: When bought items are lower back to suppliers, it's far known as buy go back.
Sales: It method switch of products or offerings for cash withinside the regular path of commercial enterprise.
Sales go back: When clients go back the products bought to them it's far called income returns.
Debtors: It refers to the ones men and women whose commercial enterprise has been bought items on credit score and fee has now no longer been obtained but.
Creditors: It refers to the ones men and women whose commercial enterprise buys items on credit score and fee has now no longer been completed but.
Voucher: A voucher is a written report that is created in aid of a specific transaction. It can be withinside the shape of a coins memo, bill or receipt. Voucher is a essential issue of auditing.
Income: It is the distinction between sales and fees.
Expense: It is the quantity used which will produce and promote items and offerings.
Discount: It is the rebate given by means of the vendor to the buyer. It is of two sorts: Cash Discount and Trade Discount.
Cash Discount: When cut price is authorized to clients for making activate fee.It is continually recorded in books of debts.
Trade Discount: This is a form of cut price allowed by means of the dealers to their clients at a set percent at the listing charge of products. and additionally it isn't always entered withinside the books of debts.
Bad Debts: It refers to the quantity that debtor has now no longer paid even after repeated reminders and has no goal of paying withinside the future.
Assets: Assets is nothing it is cash themselves and can be converted into cash.
Liabilities: Liabilities refers to the monetary responsibilities of a commercial enterprise.it denotes the quantity which a commercial enterprise owes to others.ex- Creditors,loan,etc.It is of two sorts;
Non-modern-day liabilities: It refers to the ones which fall due for fee in a highly longer length. For ex- long-time loans.
Current liabilities: It refers to the ones which are to be paid withinside the close to future. Ex-Creditors, Outstanding charges.
Expenditure: It entails spending coins or incurring a legal responsibility for the motive of obtaining belongings, items or offerings. It is of three sorts.
Revenue Expenditure: It refers to any expenditure, the whole gain of that is obtained at some point of one accounting length. ex-salaries, rent.
Capital Expenditure: It refers to expenditure, the gain of that is obtained at some point of a couple of 12 months. Ex- Machinery.
Deferred Revenue Expenditure: It refers to expenditure which might be sales in nature however gain of that is in all likelihood to be derived over no of years. Example-Advertisement.
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