Financial Accounting

Posts

DEBIT and CREDIT PROCEDURES/ How to record debits and credits for different accounts

DEBIT and CREDIT PROCEDURE Since debit is the money going out of the account . Debit increases the left side of the above equation i.e. debit increases the assets, expenses, and dividends . Therefore increase in these accounts results in outflow of money thus an debit account. Credit is the money flowing into the account. Credit increases the right side of the above equation i.e. credit increases liability, common stock, and revenue . Therefore increase in liability, common stock, and revenue results in inflow of money and thus represents the credit account. Double entr y system of Accounting Each transaction affects the basic accounting equation. Each transaction has effects on two or more accounts keeping the basic accounting equation balanced. In other words debits must be equal to credits. The equality of credit and debit provides a basis for double entry system for recording transactions. Double entry system records the dual (two sided) effect of transaction either

WHAT IS AN ACCOUNT? What is DEBIT and CREDIT ?

What is an account? An account is an individual accounting record which records increase or decrease in specific asset, liability, or stockholder’s equity. For example: Cash, Equipment, Accounts Receivable, Accounts Payable, etc. form an account. (Note: specific account name is capitalised) An account in its simplest form consists of three parts: (1) Title (2) Left side or Debit (3) Right side or credit. Since it resembles letter T therefore it is called T-account. Debit and Credit Debit represent the left side of the account and credit represent the right side of the account. Debit is abbreviated as Dr. and credit is abbreviated as Cr. Debits and credits does not mean increase or decrease as it is commonly thought. Debit are transfer of value to the account. Credit are transfer of value from the account. Therefore Debit increases assets, expenses, and dividends. Credit increases revenues, liabilities, and common stock. As we know, the basic accounting equation :

BASIC ACCOUNTING EQUATION/ ASSETS, LIABILITY, STOCKHOLDER'S EQUITY and its Components

Basic Accounting Equation Two basic elements of a business is what it owns and what it owes. Assets Assets are resources a business owns. The business uses assets to carry out production activities. Asset possess the capacity to provide future benefits or services. In a business these future services or benefits eventually results in future inflows. Liabilities These are claims against assets i.e. existing debt and obligations. All businesses usually borrow money and purchase merchandise on credit. Every economic activities performed result in payables of various sorts: Account payable: purchase of goods on credit from suppliers. Note payable: it includes money borrowed from the banks. Salaries and wages payable to employees sales and real estate taxes payable to the local government. All these people are creditors to whom business owes money. Creditor’s claims are paid before ownership claims. Stockholder’s equity The ownership claim on a corporation’s total asse

GAAP and IASB/ TYPES OF BUSINESS

Generally Accepted Accounting Principle (GAAP) Common set of standards that are generally accepted and universally practised . These set of standards indicate how to report economic events. Primary accounting standards setting bodies in US is Financial Accounting Standard Board (FASB) and is called U.S. GAAP and are used by companies in U.S. International Accounting standard Board (IASB) sets Standards which are called International Financial reporting Standards (IFRS) . These sets are usually followed by the international countries than U.S. As markets are becoming more global we need a system which allows easy comparison among the companies. So as to increase comparability the two standard setting bodies have made efforts to reduce the difference between U.S. GAAP and IFRS. Measurement Principles Generally Accepted Accounting Principles (GAAP) uses two measurement principles. Selection of which principle to follow depends on the relevance and faithful representation which

Users of Accounting Information/ Internal/ External

Accounting involves the process of identifying, recording and communicating the economic events to the interested users. Now, who are these interested users of accounting? Users of Accounting Information are divided into two groups: Internal and External. Internal Users of Accounting Internal users of accounting information are the owners, managers who plan, organise and run the business.Following are the types of internal users: Owners Owners need to asses the overall performance of their business and to do so, financial statements are used. Owners use information from financial statements to estimate the profitability, losses and the risk factor of the overall business. Managers Managers use the accounting information for the purpose of planning, monitoring and decision making in business. Manager through accounting information, decides how much finance is to be used in the production process and allocates the finance among various resources. Manager uses the data for the budgeting

Here's Why You Need to know Accounting

It's not only accountants who need accounting.Now you must be wondering"If I am not going to be an accountant, why do I need to know accounting..." But it seems like you don't really have to be an accountant to know about accounting.Accounting possesses far more benefits than being a professional one. Now to begin with, business. Business as we are aware that it's a numbers game. Now' if you are planning to be an entrepreneur or start a business, you not only have to know the numbers, but also be able to comprehend and communicate it. Accounting and financial statements are the means of communicating these numbers. If you don't know how to read a financial statement you can't really know your business. Also, your employees being able to read financial statement might be beneficial to your company as they understand how their actions have the financial impact on the business. Good financial information does not only helps in making effective business de