Accounting Introduction
What is Accounting? Definition and Meaning of Accounting
Accounting is a process of identifying and measuring quantitative financial activities and communicates these financial reports to the decision-makers. Man is a social being. He cannot live in society. Because all individuals have got their limitations, they are to depend on society as a whole for their necessary goods and services. So, the exchange of...
Functions of Accounting
Functions of accounting are related to those statements which provide information of economic entity mainly measurable regarding money that will be used in deciding for the plan of action from various alternatives. Functions of Accounting are; control of financial policy, and formation of planning, preparation of the budget, cost control, evaluation of employees’ performance, Prevention...
13 Core Objectives of Accounting
Objectives of accounting in any business are; systematically record transactions, sort and analyzing them, prepare financial statements, assessing financial position, and aid in decision making with financial data and information about the business.
History and Evolution of Accounting
Modern accounting is traced to the work of an Italian monk, l.uca Pacioli, whose most famous hooks “The Summa de arithnictica, geometria, proportion! et proportionalita” publication in A.I). 1494 described the double-entry system, which continues to be the fundamental structure for contemporary accounting systems in all types of entities. When double-entry accounting is used, the...
Accounting Cycle – 10 Steps of Accounting Process Explained
Accounting cycle is a process of a complete sequence of accounting procedures in appropriate order during each accounting period. Accounting process is a combination of a series of activities that begin when a transaction takes place and ends with its inclusion in the financial statements at the end of the accounting period. The sequence of...
Users of Accounting Information [Internal & External Users]
Users of accounting information are internal and external. External users are creditors, investors, government, trading partners, regulatory agencies, international standardization agencies, journalists and internal users are owners, directors, managers, employees of the company.
6 Constraints of Accounting
6 constraints of accounting are; (1) cost-benefit, (2) materiality, (3) consistency, (4) conservatism, (5) timeliness, and (6) industry practice principle.
9 Practical Limitations of Accounting Principles
There are Limitations of accounting in practice and businesses must record, analyze and present accounting information in way to avoid them.
Difference between Bookkeeping and Accounting
The main difference between bookkeeping and accounting is; bookkeeping is the primary stage of the whole accounting process and accounting is the second or final stage of the whole accounting process. Many people possess erroneous concepts regarding Book-keeping and Accounting. They are neither synonymous nor two different subjects. Bookkeeping and Accounting play separate roles only...
How Accounting is Both an Art and Science
Accounting is art as well as science which systematical process that identifies, records, classifies and communicates the economic facts and figures of an organization. Accounting is both art and science, it follows the scientific path to find, present financial findings in a structured way, its art for giving creative judgment. At some point of learning...
Accounting’s Relation with Other Disciplines (Explained)
Accounting has a relationship with other disciplines management, economics, mathematics, computer science, statistics, law, political science, and engineering.
Importance of Accounting in Management Decision Making
To run a business you need data, records, reports, analysis, accurate information about assets, debts, liabilities, profits; and that is why Accounting is Importance for any business activities. The accounting information is very important for the management or the decision making the body of an organization. Management cannot decide without reasonable information for backing it up....
Why Accounting is called the Language of Business
Accounting is called the Language of Business because accounting presents and communicates various information in the form of statements and reports to the interested parties like owners, employees, management, investors, buyers, sellers and more.
Scope of Accounting in Business and Personal Life
The scope of Accounting is wide and extends in business, trade, government, financial institutions, individuals and families and every other arena
7 Best Accounting Career Paths
Accounting has come to occupy an ever more significant position in the functioning of modem industrial societies. Emerging from the management practices of the estate, the trader, and the embryonic corporation, it has developed into an influential component of modem organizational and social management. At a broader social level, Accounting has become no less influential...
4 Steps of Developing Accounting System for Businesses
There are 4 steps of developing accounting system for collecting and processes financial information of any business in an efficient way.
Accounting Basics
GAAP: Generally Accepted Accounting Principles and GAAP Accounting Rules, Principles, Assumptions
What is GAAP? GAAP are rules of action derived from experience and practice, proving useful and becoming Generally Accepted Accounting Principles. Generally Accepted Accounting Principles may be defined as those rules of action or conduct in accounting practice. When they prove useful, they become accepted principles of accounting. GAPP’s complete form is Generally Accepted Accounting...
5 Accounting Principles
5 accounting principles are; (1) revenue recognition principle, (2) historical cost principle, (3) matching principle, (4) full disclosure principle, and (5) objectivity principle.
4 Accounting Assumptions
4 accounting assumptions are; (1) business entity assumption, (2) money measurement assumption, (3) going concern assumption and (4) accounting period assumption.
Accounting Equation: How Transactions Affects Accounting Equation?
Accounting Equation indicates that for every debit there must be an equal credit. assets, liabilities and owners’ equity are the three components of it. Accounting equation suggests that for every debit there must be a credit. Accounting is a way of getting information about the transactions and events within the business in reports that are...
Financial Statements
Financial Statements: Definition, Component, Importance
Financial statements are integrated information of recorded events, accounting conventions and individual judgment capacity.
Financial Statements Footnotes: Definition, Meaning, Types, Examples
Footnotes to the financial statements refer to additional information provided in a company’s financial statements. Financial statements footnotes describe left out items of the balance sheet and income statement; which have a significant impact on the companies profitability and operations. Notes to financial statements are those footnote at the bottom of the financial statement. These...
Balance Sheet: Meaning, Formula, Format, Types
Balance sheet consists of assets, liabilities and owner’s equity for a accounting period. 2 types of balance sheet are (1) Unclassified, (2) Classified Balance Sheet.
Income Statements: Definition, Types, Examples
Income Statement shows net profit or net loss arising out of activities of a particular accounting period of any business organization. Income statements are 2 types, Single-step income statement and Multiple-step income statement for finding net profit or loss an accounting period.
Cash Flow Statement
Cash Flow Statement: Definition, Objectives, Fix Missing Figures in Cash Flow Statement
A cash flow statement means statements relating to information regarding the inflow and outflow of cash. Nowadays, in preparing financial statements, the cash flow statement is considered an important element. Generally, a cash flow statement is prepared for a particular period or a financial year. The primary objective of the cash flow statement is to...
Cash Control: Meaning, Importance, Steps of Cash Control
Cash Control is an important part of business as it is required for proper cash management, monitoring and recording of cash flow and analyzing cash balance.
Cash Book: Definition, Types, Example, Format
What is the Cash Book? Cash Book contains cash transactions passing into and out of business. 2 types of Cash Book are (1) general cash book and (2) petty cash book. The general cash book is subdivided into the single column, double column, and treble column cash book. The primary book where transactions regarding cash receipts...
Petty Cash Book: Types of Petty Cash Book in Accounting (Diagrams & Examples)
Small or large companies maintain 2 types of Petty Cash Book for all cash transactions of a business. Two types of Petty Cash Book maintained by small or large companies for easy, quick and accurate recording of all cash transactions. It depends on the nature, volume and necessity of transactions of a business organization. Cash transactions...
3 Types of Discount in Accounting
3 types of discount are trade discount, quantity discount, and cash discount that are used in business, trade, and sales of all kinds.
Inventory
Determine the Quantity of Inventory
Inventory determining and counting generally becomes more accurate if goods are neither sold nor received during the period of inventory counting. Inventory quantities can be determined following the under noted two steps; Taking a physical inventory of goods on hand, and Determining the ownership of goods.
Periodic Inventory System: Advantages and Disadvantages
Periodical Inventory System determines cost of goods sold by adding merchandise purchase cost, beginning stock cost and deducting end-stock cost.
Perpetual Inventory System: Example, Advantages and Disadvantages
Perpetual inventory system is named so because; from this system daily quantity of merchandise inventory can be known any time.
FIFO, LIFO, and Average Inventory System: Difference and Similarities
The cost of ending inventory and the cost of goods sold are determined using various methods of them, the commonly used methods are: First in first out (FIFO), Last in first out (LIFO), and Weighted average.
FIFO Method: First in First Out Inventory Accounting Method
Under the first-in-first-out method, the earliest costs (first costs) are assigned to the cost of goods sold, and the remaining costs (the more recent costs) are assigned to the ending inventory. The FIFO method assumes that the earliest goods purchased are sold first. But in practice, it is not followed strictly, i.e., the earliest goods...
LIFO Reserve
The LIFO reserve is the difference between the accounting cost of an inventory that is calculated using the FIFO method and one using the LIFO method. In the typical inflationary environment, the value of a FIFO inventory is higher than the value of a LIFO inventory, so the calculation of the LIFO reserve is: LIFO...
LIFO Method: Last in First Out Inventory Accounting Method
The last in, first out method (LIFO) is the reverse of the FIFO method. Under the LIFO method, the earliest costs are assigned to ending inventory, and the costs of the most recent purchases are assigned to the cost of goods sold. The LIFO method assumes that the latest goods purchased are to be sold...
LIFO Liquidation
LIFO liquidation means “liquidity” old inventory, which was bought at a price lesser than the current replacement price and valued using the LIFO inventory valuation method either by selling or consuming. When a company using the LIFO (Last In, First Out) method of inventory costing liquidates their older LIFO inventory. A LIFO liquidation will occur...
Weighted Average Method of Inventory Accounting Method
The weighted average method is suitably applicable to that firm, which deals with goods of equal importance. According to the weighted average method, each unit of inventory of a particular type is similar and can be sold for the same price. Units of equal economic importance are assigned equal costs. The weighted average method differing...
Merchandise Inventory: Definition, Formula, Examples, Journal Entry
Merchandise inventories are finished goods acquired for sale by retail or wholesale traders. Finished goods possessed for sale by manufactures are usually called finished goods inventory.
Mechanized Accounting System
Mechanized accounting system is bookkeeping system that is implemented without human intervention, a machine which is more powerful, capable and complex in comparison to bookkeeping machine is used for data processing in a computer.
Lower of Cost or Market Rule (LCM Definition, Examples, Formula)
We apply the conservatism principle and use Lower of Cost or Market Rule(LCM) to reduce inventory to a more realistic value and, at the same time, recognize the loss in value that has incurred. The basic assumption of the LCM method is that if the purchase price of an item falls, its selling price also falls or will fall. The LCM has long been accepted in accounting globally Under LCM, inventory items are written down to market value when the market value, is less than the cost of the items.
3 Types of Discount in Accounting
3 types of discount are trade discount, quantity discount, and cash discount that are used in business, trade, and sales of all kinds.
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