Basic Accounting Terms : Here you easily understand Basic Accounting terms – Accounting cycle – Objective of Accounting and Function of Accounting
What Is Accounting / Basic Accounting Terms
Accounting speaks about the company if you read financial statement it will tell you like how they generate income, incurred expenses, assets liabilities etc..
Definition Of What is Accounting ?
“Accounting is the art of recording or summarize in correct manner in terms of money, and transaction, events, of a financial character, and interpreting the correct result.”
Accounting Cycle :
lets understand of cycle of accounting
Step 1 : Analysis of Business Transactions
Step 2 : Make Journal Entries
Step 3 : Post to ledger Accounts
Step 4 : Prepare Trail balance
Step 5 : Make Adjusting Entries
Step 6 : Adjusted Trial Balance
Step 7 : Prepare Financial Statement
Step 8 : Close Accounts
Step 9 : Post-Closing Trail Balance
Function Of Accounting / Basic Accounting Terms
1. Measurement :
Accounting measures past performance of the business entity and depicts it current financial position.
2. Forecasting :
Accounting assist in forecasting further performance and accounting position of the enterprise using previous data.
3. Decision making :
Accounting shows relevant information to the users of accounts to decision making.
4. Comparison and Evaluation :
Accounting assesses performance achieved in relation to targets and discloses information regarding accounting policies and contingent liabilities which play an important role in prediction. Comparing and evaluation the financial results.
5. Control :
Accounting also identifies error of the operational system and if something gets error easily identifies error and maintain accuracy.
6. Government Regulation and taxation :
Accounting provides necessary information to the government to exercise of control on the entity as well as in collection of tax revenue.
What is Accounting – The various fields of the basic accounting terms
1. Financial Accounting :
Financial accounting with reporting to external users, usually through a set of financial statement produced in accordance with GAAP, IFRS, IAS and Local Laws. Financial accounting thus has historical focus.
2. Management Accounting :
Management Accounting principally with reporting to internal users. The management accountant’s goal is to produce reports that improve organization decision making. Management accounting is thus future-oriented.
3. Cost Accounting :
Supports both financial and management accounting. Information about the cost of resources acquired and consumed by an organization underline effective reporting for both internal and external users.
Objectives Of Accounting / Basic Accounting Terms
1 : Providing information to the users of Rational Decision-making. As you know main objective accounting is provide very useful information for decision making of stakeholders as owners, investors.
Various outcomes of business activities such as cost, price , sales volume, value under ownership, return of investment, etc. are measured in the accounting process. All these accounting measurement are used by stakeholders (owners, investors, creditors/bankers, etc.) in course of business operation. Hence, accounting is identified as “language of business”.
2 : Systematic Recording Of Transaction to ensure reliability and precision for the accounting measurements, it is necessary to keep a systematic record of all financial transaction of a business enterprise which is ensured by book-keeping. financial records summarized and reported in the form of accounting way to the users of accounts information i.e, stakeholder.
3 : Ascertainment of results of above transaction “Profit/loss” is a core accounting measurement. The measured to prepare profit and loss account for period of time, basic accounting terms ,Various other accounting measurements such as different types of revenue expenses and revenue incomes are considered for preparing this profit and loss account. Difference between these revenue income and revenue expenses is known as result of business decision making.
For Example, Income Tax Act needs every business should have an accounting systematic way that easily measure taxable income of business and explain the accounts and source of every item reported in income Tax Return.
4: The Financial Position of Business ‘Financial Position’ is core accounting measurement. Financial position is identified by preparing a statement of ownership i.e, Assets and Owing i.e., liabilities of the business as on certain date. Various other accounting measurements such as different types of assets and different types of liabilities as existed at a particular date are considered of preparing the balance sheet. This statement may be used by various stakeholders for financial and investment decision.
5: To know the Solvency Position Balance sheet and profit and loss account prepared as above five useful information to stockholders regarding concerns potential to meet its obligation in the short run and long run.
Please go through of Golden Rules of Accounting .
Difference between cash discount and trade discount ?
Cash discount is an payment made by retailers to the customers. On the other give, trade discount is an payment made by the trader dealer to retailers off the catalog or invoice price. The allowance is made between purchasers and sellers engaged in the same class of trade. Cash discount is always permitted or usual when payment is made. Trade discount enables the retailers to sell the product to customers at catalog or price list issued by the wholesaler. Cash discount is an payment in totaling to the trade discount made by the seller to the buyer.
Cash discount is recorded in accounts books while trade discount is not shown separately.
The major reason of allow trade discount is to enable the retailers to wholesale the goods at list price while the purpose of given that cash discount is prompt payment by debtor to the creditor.