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Introduction To Accounting 27th May

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11 views

Introduction To Accounting 27th May

Uploaded by

Shafna Shamnas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Introduction to Accounting

Non – Current Assets


The resources with an expected life of more than one year is termed as a non –
current assets.
Non – current assets are of two types:
1) Tangible assets
2) Intangible assets

What are tangible assets??


Assets having physical existence which can be seen and touched are known as
tangible assets.
What are intangible assets??
Intangible assets are those does not have a physical existence.

LIABILITY
A liability is something a person or company owes, usually a sum of money.
Liabilities are settled over time through the transfer of economic benefits
including money, goods, or services.

Liabilities divided into: 1. non-current liabilities, and


2. Current liabilities.

What are Non – current liabilities??

Liabilities which are expected to be paid in 12 months or more.

Examples:
• Long term loans
• Bond payable
• Long term lease
• Deferred tax liability
What are Current liabilities??

Liabilities which are due within 12 months, with cash.

Examples:
• Account payable
• Short term debt
• Interest
• Accrued expense
• Bank overdraft
• Income tax payable

CAPITAL

What do you mean by a Capital??

Capital is the amount invested by the owner in the business, either in the form
of cash or asset.

Note: Capital is an obligation for the business, hence this will be treated as a
liability.

For example: Faheem invested Rs. 1,00,000 in a chocolate company. Here, Rs.
1,00,000 is termed as a Capital.

DRAWINGS

What are Drawings??

Drawings are the amount or goods withdrawn from the business by its owner
for his personal use.

For example:
1) Akhil withdrawn Rs. 20,000 from business to pay his sons school fees.

Personal use
WHAT ARE THE OBJECTIVES OF ACCOUNTING?
I. Maintenance of records of business transactions: Accounting is used for
maintaining complete and accurate records of all business transactions. This help for
verifiability and act as evidence.

II. Calculation of profit or loss: Recording all the transactions in a proper book of
accounts helps to determine the net result (i.e., whether business earned profit or
incurred loss) by preparing trading and profit/loss account at the year end.

III. Depiction of Financial position: The business can know its financial position (i.e.,
value of assets, amount of liabilities owned, net increase/ decrease in capital) by
preparing a Balance sheet at the end of the year.

IV. Providing accounting information to its users: Accounting information’s are


communicated in the form of reports, statements, etc to its users. There are two types
of users;

a. Internal Users:
• Owners: They are required to know the profit earned and loss incurred
by the business to ensure the safety of capital.

• Management: All levels of management (lower, middle, higher) need


timely information on cost of sales, profitability for planning,
controlling and decision making.

• Employees & workers: Need to know their wages, insurance etc are
deposited with respective authorities.

b. External Users:
• Investors & potential investors: Need information on risk and return
on investment.

• Lenders & Financial institution: Need information on credit


worthiness of the company and its ability to repay loan and its interest.

• Suppliers & creditors: Need information on whether they repay


amount due and the continued existence of the business
• Customers: Need the information on continued existence of the
business to ensure the availability of continued supply of the products,
parts and after sale services.

• Government & tax authorities: Need information on allocation of


resources and compliance to regulations.

ADVANTAGES OF ACCOUNTING
1) Replacing memory: Since Accounting records all the transaction in writing it is not
necessary for the businessman to memorize transactions taking place every day.

2) Assessing the performance of the business: Recording all the transactions in a


proper book of accounts helps to determine the net result (i.e., whether business
earned profit or incurred loss) by preparing trading and profit/loss account at the
year end.

3) Assessing the financial position of the business: Accounting helps to know the
financial position (i.e., value of assets, amount of liabilities owned, net increase/
decrease in capital) of the business through Balance sheet.

4) Documentary evidence: Accounting records can use as evidence in court of law to


support the claim of the business.

5) Preventing and detection of fraud: The proper accounting system and effective
arrangement of internal check prevents leakage of goods and cash. If any fraud
committed, accounting helps to detect these and fixes the responsibility.

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