ACCOUNTING,TYPES OF ACCOUNTS

 The American Accounting Association defines accounting as "the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by the users of the information."

According to AICPA (American Institute of Certified Public Accountants) it is defined as "the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least of a financial character and interpreting the result thereof."

Steps of Accounting

The following are the important steps to be adopted in the accounting process:

(1) Recording: Recording all the transactions in subsidiary books for purpose of future record or reference. It is referred to as "Journal."

(2) Classifying: All recorded transactions in subsidiary books are classified and posted to the main book of accounts. It is known as "Ledger."

(3) Summarizing: All recorded transactions in main books will be summarized for the preparation of Trail Balance, Profit and Loss Account and Balance Sheet.

(4) Interpreting: Interpreting refers to the explanation of the meaning and significance of the result of financial accounts and balance sheet so that parties concerned with business can determine the future earnings, ability to pay interest, liquidity and profitability of a sound

Types of Accounts

Real Account

Personal Account

Nominal Account000

GOLDEN RULES OF ACCOUNTS 

Personal A/C

• Debit the receiver

• Credit the giver

Real A/C

• Debit what comes in

• Credit what goes out

Nominal A/C

• Debit all expenses & losses

• Credit all incomes & gains

WHAT IS DEBIT & CREDIT?

DEBIT & CREDIT, are key parts of any accounting entry. These are the fundamental "effect" of each financial transaction. For maintaining correct accounting records,

FIVE ACCOUNTING ELEMENTS

INCOME/REVENUE

This shows the income received by co. by way of sale, interest, etc

EQUITY SHARE Capital refers to the paid up capital of the company along with equity shares.

EXPENSES

Expense includes all expenditure items incurred such as rent, cartage, electricity, postage, travel, stationery, bank charges, etc

ASSETS 

Assets are normally debits. They are co.'s movable & immovable property & goods like cash & bank balance, goodwill, furniture, etc

LIABILITIES

Liabilities are credits. They indicate the amount payable by co. to creditors such as bills payable, loans, OD, etc.

 READ ALSO :- ACCOUNTING STANDARDS

Three Types of Accounts in Accounting:

Personal Accounts

These are the accounts which relate to persons, such as Customers Account, Suppliers Account etc. Personal accounts include both live personal accounts (Human beings) and artificial persons (Bank, Company etc)

Real Accounts

These can be tangible (i.e. can be touched and seen) or intangible (i.e. cannot be touched and seen). As a result they are further divided into:

Tangible Real Accounts. These accounts relate to things that can be touched, felt, measured etc. such as Cash Account.

Intangible Real Accounts. These accounts relate to things that cannot be touched but can be measured in terms of money, such as a Patents Account

Nominal Accounts :  It is related with the losses and expenses, gains and incomes. For example: Salary, wages, rent etc.

READ ALSO :- ACCOUNTING PRINCIPLE