Accounting Period
The users of financial statements required periodical reports to ascertain the operational and the financial position of the business concern.Thus, it is essential to close the accounts at regular intervals, viz, 365 days or 52 weeks or 1 year is considered as the accounting period .
Accounting Entity
According to this assumption, a business is considered as a unit or entity apart from its owners creditors and others.
For example, in case of a Sole Proprietor concern, the proprietor is treated to be separate and distinct from the business, which he controls.
The proprietor is treated as creditor to the extent of his capita and all the business transactions are recorded in the books of accounts from the business stand point.
Money Measurement
In accounting, only business transactions and events of financial nature are recorded.Only trans- actions that can be expressed terms of money are recorded.1.1.4 Double Entry System of Book Keeping
As per Double Entry System of book-keeping, all the business transactions recorded in accounts have two aspects Debit aspect (receiving) and Credit aspect (giving).For example, when a business acquires an asset (receiving) and pays cash (giving) for it.This accounting technique records each transaction as debt and credit, where every debit has a corresponding credit and vice versa
Features of Double Entry System of Book Keeping
The Double entry system of book keeping comprises of the following features:
- Every business transaction affects two accounts
- Each transaction has two aspects, i.e, debit and credit a
- Maintains a complete record of all business transactions
- Helps to check the accuracy of the accounting transactions, by preparation of rial balance
- Helps ascertaining profit earned or loss occured during a period, by preparation of Profit Loss Account
- Helps ascertaining financial position of the concern at the end of each period, by preparation of Balance Sheet
- Helps timely decision making based on sufficient information
- Minimises the possibilities of fraud due to its systematic and scientific recording of business transactions
The following chart the way in which accounting transactions are recorded in the double entry system and financial statements are prepared.
1.1.5 Mode of Accounting
Accounting process begins with identifying and recording the transactions in the books c accounts ie, the first step in the Accounting Process is recording of transactions in the books c accounts.Accounting identifies only those transactions and events which involves money and sorted based on various source documents.
The following are the most common source documents.
- Cash Memo
- Invoice or Bill
- Vouchers
- Receipt
- Debit Note
- Credit Note
Voucher
A voucher is a document in support of a business transaction, containing the details of such transaction.
Receipt
When a trader receives cash from a customer against goods sold by him, issues a receipt containing the name of such customer, details of amount received with date
Invoice or Bill
When a trader sells goods to a buyer, he prepares a sales invoice containing the details of name and address of buyer name of goods, amount and terms of paymente and so on Similarly, when the trader purchases goods on credit receives a invoice/bill from the supplier of such goods
Journals and Ledgers
A journal is a recorc in which all business transactions are entered in a chronological order. A record of a single business transaction is called a journal entry. Every journal entry is supported by a voucher, evidencing the related transaction.
Account
An account is a statement of transactions affecting any particular asset, liability, xpense or income
Ledger
A Ledger is book which contans teredccounts whether persainal, real or nominal which ara in journal or subsidiary books.
Chart of Accounts
A chart of accounts is a list of all accounts used by an organisation. The chart of accounts. also displays the categorisation and grouping of its accounts
Posting
Posting is the process of transferring the entries recorded in the journal or subsidiary books to the respective accounts opened in the ledger ie., grouping of all the transactions relating to a par ticular account to a sngle place.
Accounting Period
Generally, the financial statements are generated for a regular period such as a quarter or a year for timely and accurate ascertainment of operating and financial position of the organisation.
Trial Balance
Trial balance is a statement which shows debit balances and credit balances of all L accounts. As per the rules of double entry system, every detit should have a edger corresponding
