INTRODUCTION TO ACCOUNTING
“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 there of. ”
Difference between Book keeping and Accountancy.
|Objective||Basic objective is to maintain 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 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. |
- Points to remember.
|1) Entity is economics unit that is accounted for separately. |
2) Events are happening of consequence to an entity.
3) 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.
4) 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.
5) Fixed Assets is a term used in accounting for assets and property which cannot easily be converted into cash.
6) Liabilities are the financial obligation of an enterprise other than owner’s fund.
7) 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.
8) Long-term liabilities are those liabilities which do not fall due for payment in a relatively short period.
9) Capital means that amount or asset which is invested in business by businessman or owner of business.
10) Drawings is any money taken out of the business for the owners own personal use.
11) Purchases are total amount of goods obtained by an enterprise for resale or for use in production of goods in the normal course of business.
12) Sales are total amount of goods which are sold and services are rendered.
13) Debtors are the person from whom the amount are due for goods sold or services rendered on credit basis.
14) Creditors are the person to whom the amount are due for goods purchased or services rendered on credit basis.