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Definition:- Accounting is an art of recording, classifying, summarizing and interpreting the business transaction in a chronological order.

Note: - chronological means presented or arranged in the order in which events occur or occurred. RECORDING:Book keeping Books of Accounts Journal Journalizing means the process towards Journal is called Journalizing.

Classifying:Total purchases, Total sales, total expenses, total incomes etc. Ledgers Account. Ledger Account is also called T Account because it has the shape like T. Ledger Account Left side Debit Dr Right side Credit Cr

Dr and Cr are derived from Latin words Debitier and Creditier

Summarizing:Profit & loss Incomes xxx Expenses xxx P&L xxxx Final Account Accounting year

Interpreting:Chronological order.

Business:- Business is a legal activity which is carried for the purpose of profit.
Note: - legal activity is limited to the country boundaries. E. g. Business of wine is prohibited in Pakistan but not in England.

Transaction:- It is the exchange, giving and receiving & selling and buying of goods and services in the terms of money.
Transactions are divided into two parts. Cash Transaction Credit Transaction Cash Transaction: - In this the transaction is existed in the terms of cash. Credit Transaction: - In this the transaction is not existed in the terms of cash.

I A S:- International Accounting Standers.


Note: - If there is a no profit and no loss in the business so, it is said to be Break Event Point.

Prepared by: Muhammad Ahmed Butt

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1.

:- These are the amounts (assets or cash) contributed by the proprietor in the business to start it.
a) Owner Equity

(self contribution)

b) Debt Equity
2.

:- These are the amounts or goods drawn by the proprietor from the business for his personal usage. :- Goods purchased for sale are known as purchases.
a) Cash Purchases b) Credit Purchases

3.

4.

:- Goods sold to customers are known as sales. a) Cash Sales b) Credit Sales

5.

:a) Purchases returns/ Return outwards/ Return to supplier/ Return to creditor b) Sales return/ Return inwards/ Return from debtor/ Return from customer

6.

:- The person from whom the business has to receive cash or Goods. Debtors are Creditors when business is selling on credit. :- Written agreement, interest is involved. :- The person to whom the business has to pay the cash or Goods. Creditors are Debtors when goods are purchased on credit. :- Written agreement, interest is involved. :- Economic resources of the business OR Valuable things of the business
a) Current Assets or Floating Assets or Short term Assets:- The assets which are

7. 8.

9. 10.

converted easily in cash at reasonable price OR The assets which are purchased for resale. E.g. Cash in hand, Cash at bank, Debtors/ Account receivable, Notes receivable/ Bill receivable, Stock/ Inventory, prepaid expenses etc.
Prepared by: Muhammad Ahmed Butt

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b) Fixed Assets or Long term Assets:- The assets which are purchased in the

business for usage and not for sale or used for long period are known as Fixed assets or Long term assets. This is further divided into two types i.e. Tangible Assets and Intangible Assets.
i.

Tangible Assets:- The assets which are visible in the business OR The assets which are having physical existence in the business are called tangible assets. E.g. Land & Building, Furniture & Fixture, Free hold premises, Vehicles, Machinery, Equipments etc. Intangible Assets:- The assets which are not visible in the business OR The assets which are not having physical existence in the business are called Intangible assets. E.g. Good will, Patents rights, Copy rights, Trademark etc.

ii.

11.

:- The payable amount are known as liabilities.


a) Current liabilities or Short term liabilities:- These are the liabilities which are

payable in one Accounting period i.e. Creditors, Notes bill payable, Bank overdraft, Short terms loans, and Out standing expense etc.
b) Fixed liabilities or long term liabilities:- These are the liabilities which are

payable in more than are accounting periods i.e. Mortgage, Debentures, plant and Machinery, Buildings etc.
12.

:-

Assets Liabilities + Capital (Owner Equity)

13.

:a) Personal Accounts:- These are the account which deal with individuals person

or group or person and would be treated with person or group of person Angle. Receiver Giver Dr Cr

b) Real or Property Account:- These are accounts which deal with goods or

merchandise or property and would be treated with business Angle. Incoming Out going Dr Cr
Prepared by: Muhammad Ahmed Butt

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c) Nominal or Proprietor Account:- These are the accounts which deal with

expenses and incomes or losses and gains (Profit). Expenses & Losses Income & Gains Dr Cr

Prepared by: Muhammad Ahmed Butt

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