Accounting & Finance

Accounting & Finance

Financial Accounting

Accounting has been hailed by many as the “language of business”. There are many quotations like “A pen is mightier than the sword but no match for the accountant” by Jonathan Glancey which tell us about the power and importance of accounting. The text book definition of accounting states that it includes recording, summarizing, reporting and analyzing financial data. Let us try and understand the components of accounting to understand what it really means: Recording ...
Read More
One can never really understand a subject, unless they know where it came from. Therefore, a short history of the subject of accounting may be of interest to students of accounting. Here is a very brief history of how accounting evolved:
  • Single Entry Accounting System Accounting is as old as financial transactions themselves. As soon as credit was invented, humans began to use accounting to simplify their lives. As expected, the oldest system ...
    Read More
Every activity that a business firm does must be done for a reason and accounting is no exception. Accounting helps the company achieve a myriad of objectives. Here is the list of objectives that accounting helps the company to obtain.
  • Permanent Record Any business firm needs a permanent record of the transactions that it indulges in. These records could be required for internal purpose, for taxation purpose or for any other purpose. Accounting serves ...
    Read More
Although accounting may be heralded as being the language of the business, it is definitely not error free. This has been highlighted by the fact that accounting scams have occurred one after the other for many years. In fact, even after stricter regulation and tightening of accounting rules, accounting scams just don’t cease to stop. As a student and practitioner of accounting, it is therefore imperative to know the limitations of accounting. Knowledge of limitations ...
Read More
Financial reporting is used by a wide variety of users for a wide variety of purposes. For this reason it has been difficult to set a common framework of accounting. The many stakeholders often have contrasting needs from accounting information. Let’s look at the stakeholders and their need for accounting data:
  • Capital Markets: Accounting information is widely used in the capital markets. The stock price moves up and down in relation to financial data. This ...
    Read More
The entity concept is one of the central tenets of accounting. An understanding of the same is therefore of paramount importance to students. However, the entity concept came as a solution to a problem faced by earlier accountants. To understand the benefits of the solution provided, we must look at the problem first. Confusion in Measurement In reality a business is just another aspect of a person’s life. When many people get together and start ...
Read More
Businesses may all look the same when you look at the building in which they operate, the employees they hire and the product they sell. However, they can be very different when it comes to their legal structure. The legal structure determines the type of entity they are which in turn determines the rules that will be applied to them. Here is a list of the types of entities and their relevance to accounting. Sole ...
Read More
The entity concept separates the concerns of the owners from the business. An extension of the same concept is the concept of accounts which splits up the business’s affairs further. The account concept becomes clearer once the double entry system of accounting is explained. That is done at a later stage in the tutorial. Transactions within the Firm The firm conducts transactions with outside parties and the accounting system is capable of keeping a track ...
Read More
Debits and credits are the building blocks of the double entry accounting system. Many accounting students find the usage of these words confusing. Many try to understand them by trying to draw an analogy with something they already know like plus and minus. However, debits and credits are distinctly different from plus and minus. Sometimes a debit entry may make an account balance go up whereas other times it will make an account balance go ...
Read More
The Problem with Debit Credit Rules The system of debit and credit is right at the foundation of double entry system of book keeping. It is very useful, however at the same time it is very difficult to use in reality. Understanding the system of debits and credits may require a sophisticated employee. However, no company can afford such ruinous waste of cash for record keeping. It is generally done by clerical staff and people ...
Read More
Following are the basic fundamental principles of Accounting:
  1. Monetary Unit Accounting needs all values to be recorded in terms of a single monetary unit. It cannot account for goods like the barter system. Assigning values to goods and items therefore becomes a problem since it is subjective. However, accounting has prescribed rules to deal with the same.
  2. Going Concern A company is said to have an eternal existence. Once it is formed, ...
    Read More
Cash Basis of Accounting Cash Basis of Accounting uses receipts and payments of cash to record incomes and expenses. Therefore, under the cash basis of accounting, if a corporation makes salary payments of January, 3 months later in April, it will be considered as expenses in the month of April, since that is when the cash was paid. Also, if the same company pays advance salary for the month of May in April, then it ...
Read More
What is Single Entry System? Single entry accounting systems record only one side of every transaction. This happens because they use one entry to record every transaction. Therefore single entry system does not use nominal and real accounts. The emphasis is on cash and accounts receivable. Single entry accounting system can be described as a system that businesses use to get by rather than something that companies may find desirable. Small Firms Single entry system ...
Read More
The double entry system of bookkeeping is said to have revolutionized growth in modern business. It is only because businesses are able to keep track of their growing scale of transactions efficiently that they grow further. This has been facilitated by a well designed, error preventing accounting system called the double entry system. Here are more details about this system: What Is Double Entry System ? In a double entry bookkeeping system there are two ...
Read More

Have any Question or Comment?

Leave a Reply

Your email address will not be published. Required fields are marked *

20 − 16 =