General Accounting

Definition

Accounting is the system of recording, verifying, and reporting of the value of assets, liabilities, income, and expenses in the books of account to which debit and credit entries are chronologically posted to record changes in value.

The two major financial statements are the Balance sheet and the Income Statement.

Balance Sheet

Balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year.

Relation between assets, liabilities, and owners equity,

Assets = liabilities + owner’s equity.

Income Statement

Income statement - profit and loss statement (P&L).

Income Statement is an Understanding of how Revenue is transformed into net income.

Income = revenue – expenses.

Designing Chart of Accounts

Balance Sheet Accounts

i. Assets
ii. Liabilities
iii. Owner’s Equity

Income Statement Accounts

i. Revenues
ii. Expenses

Important Objectives of accounting

The following are the main objectives of accounting:

To maintain accounting records

To calculate results of operations

To ascertain the financial position

To communicate te information to users

Branches of accounting

Financial Accounting:

Financial accounting is concerned with recording and summarising financial transaction and preparing financial statements relating to business in accordance with the generally accepted accounting principles.

Cost Accounting:

Cost accouting is concerned with the determination of cost of goods and services manufactured or offered by the business.

Management Accounting:

Management accounting relates to the use of finacial and cost data for the purpose of evaluating the performance of the business.

Categories of Accounts

Assets accounts

Capital accounts

Liabilities accounts

Revenues and Income accounts

Expenses and Loosses accounts

Journalysing

The process of analsing the business transaction under the heads of debit and credit and recording them in the journal is called journalysing,and the record of transaction is called journal Entry.

Advantages and Limitation of Journal

Main advantages of journal are:

It reduces the possibilities of errors.

It provides explanation of the transaction.

It provides a chronological record of all transactions.

Limitation of Journal:

It will be too long if all transaction are recorded here.

It is difficult to ascertain the balance of each account.