“Accounting is the art of recording, classifying and summarizing in a significant manner and in term of money, transactions, and events which are, in part at least of financial character, and interpreting the results thereof. ”
The Accounting cycle is defined as the sum of all process of recording and processing of the accounting events and activities of a company. Accounting Cycle begins when t the transaction happens and ends when the same got entered into the financial statements.
Difference between Bookkeeping and Accountancy
|Objective-Basic maintains systematic records.||Basic objective is to ascertain net profit and financial position.|
|Stage||This is a primary stage.||This is a secondary stage.|
|Nature of Job||Routine in nature.||Analytical in nature.|
|Who Performs||Done by junior staff.||Done by senior staff.|
Users of Accounting Information
|Investors||1) Past, present and future returns.
2) Safety of Investments.
|Lenders||1) Amount owing to them will be paid on time.
2) Lending should be extending or not.
|Creditors||1) Duration of the credit period.
2) Firm ability to repay the amount on time for goods purchased.
|Customers||1) Continuance of the business.
2) New products.
|Employee||1) Stability and growth.
2) Retirement benefits.
|Government||1) Determination of tax.
2) Economic activities of a company.
|Management||1) Short and Long term solvency.
Ponts to remember
- An entity is an economic unit that is accounted for separately.
- Events are happening of consequence to an entity.
- Assets are anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset.
- Current Asset is an asset on the balance sheet which can either be converted to cash or used to pay current liabilities within 12 months.
- Fixed Assets is a term used in accounting for assets and property which cannot easily be converted into cash.
- Liabilities are the financial obligation of an enterprise other than owner’s fund.
- Current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm.
- Long-term liabilities are those liabilities which do not fall due for payment in a relatively short period.
- Capital means that amount or asset which is invested in business by businessman or owner of business.
- Drawings are any money taken out of the business for the owner’s own personal use.
- Purchases are the total amount of goods obtained by an enterprise for resale or for use in the production of goods in the normal course of business.
- Sales are the total amount of goods which are sold and services are rendered.
- Debtors are the person from whom the amount are due for goods sold or services rendered on credit basis.
- Creditors are the person to whom the amount are due for goods purchased or services rendered on credit basis.