0Finance
Study of accounts, investments or treasury management. More over finance comes as synonym to Accounts or accounts related field but Finance in itself is a universal terminology that comprises of Accounts as one part of it.
Financial
Being financial simply implies with the usage of transactions in finance manner. “Budgeting”, “Mortgage” process or “Taxation” is a suitable and vital example of financial activities.
We can elaborate it in this way the activity that can be measured in money form and can be directly relates to finance is known as Financial.
Accounts
Account could be more specifically termed as description/report of an event that is monetary or financial in nature as well as calculating in measuring terms.
Accounting
Procedure of maintaining accounts in a pre-defined set manner is all about accounting.
Accounting is a pre-defined format that is set to be use for classification of financial transactions “recording”, “categorization”, “explication” of the classified format and then interpretation for the concern stakeholders, here the word stakeholder has been formulated for employees, investors, creditors/suppliers, debtors, society and government.
Definition according to American Institute of Certified Public Accountants
“Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof.”
| CLASSIFICATION | Measuring of transactions that are financial in nature |
| RECORDING | JOURNALIZING |
| CATAGORIZATION | LEDGERING |
| SUMMATION | TALLY(matching of balances on Debit and Credit sides)/TRIAL BALANCE |
| EXPLICATION | INCOME STATEMENT* AND POSITION STATEMENT* |
Income Statement- Trading, Profit/Loss for Financial Year…..
Position Statement- Balance Sheet for Financial Year ended…..
DEBIT and CREDIT
Debit
Debit could be used in addition/subtraction of a financial event as of its affects depending on default nature of event. Debit can be shown as Dr. in financial entries. Debit is opposite of Credit. Debit means addition at the time of enhancement of Assets or Expenses as and when they occur. Debit appears on Left Pane/Column at the time of Journalization and Ledgering.
Credit
Credit is also used for addition/subtraction of a financial event as of its affect on default nature of financial event. Credit is just opposite of Debit. Credit is abbreviated as Cr. It appears on Right Pane/Column of journalization and Ledgering of financial transactions as they appear.
NOTE:- but as we summarize all the accounting activity in one form that is Trial Balance and Position Statement, the sides changes inversely.
| Cr. |
| Dr. |
| PARTICULARS |
JOURNALIZATION
Date
Dr. LEDGER Cr.
Date PARTICULARS Amt. Date PARTICULARS Amt.
CATEGORIZATION OF ACCOUNTS
Personal Accounts
As the name suggests the accounts relates to personal identity that relates to human beings. Here personal word has been used to human beings and human beings are natural in nature. In personal accounts we also collect separate entity term because an entity in itself to relates as a person but the artificial one according to accounting rules of separate entity existence.
Real Accounts
These accounts deal with the material assets of a business concern. Assets that are tangible or intangible in form are associated with Real accounts.
Tangible Assets: those things that can be touched or feel practically are tangible things and illustration of such assets could be Plant and Machinery, Furniture, Inventory, Cash that is available in hand.
Intangible Assets: those things that not have physical appearance but apparently are present known as intangible things. We can classify intangible assets as Goodwill, Patent and Trademarks, Copyrights
Nominal Accounts
Associates with the financial transactions of business by recording them in a particular category.
All losses and expenses with all incomes and gains have to be categorized in Nominal Accounts. Interest received/paid, rent paid/received, life insurance paid, salary paid, etc.
RULES OF DEBIT and CREDIT
Rules can be categorized according to accounts classification
Personal Accounts- for personal accounts Debit and Credit rule apply as follows:
Debit the Receiver
Credit the Giver
*Here receiver is the one who is receiving something in cash form or in form of sales
Giver provides the goods for sales or pays in cash so he should be credited.
Real Accounts- real accounts imply the rule of Debit and Credit as follows:
Debit What Comes In
Credit What Goes Out
*When we receive the goods or purchase fixed assets or might receive an amount in cash/bank form we are going to Debit the account
In case of purchasing whether it is in the form of purchasing of goods, fixed assets if we are purchasing it on cash basis than cash will be reduced in such a situation resulting in Credit of cash amount or the Bank account as the case may be.
Nominal Accounts- This category of accounts classified the rules of Debit and Credit in particular format:
Debit All Expenses and Losses
Credit All Incomes and Gains
*the expenses are debited and incomes are credited
EQUATION
Assets = Capital + Liabilities
Assets- assets are properties of business concern, they can classified into basically two categories namely, Current Assets and Fixed Assets.
Capital- Capital is the cash/Bank amount that has to be introduced by the owner of firm or business for the incorporation of business.
Liabilities- liability are the dues and outstanding payments that has to be made in timely manner or in an agreeable matter of time. It consists of short-term loans, creditors, long-term borrowings. Liabilities can also be categorized in same manner as assets parts, current liabilities and long-term liabilities.
GOODS ACCOUNTS
Goods account in accounting simply implies to those accounting events which directly affects the quantum of goods.
PURCHASE A\C-“Debit” in nature
SALES A\C- “Credit” in Nature
PURCHASE RETURN A\C- “Credit” in Nature
SALES RETURN A\C- “Debit” in Nature
Purchase return and sales return are made when goods either have to be returned to creditor or have to be received back from debtor side on account of any damage or any other agreeable condition.
