| Assets | | | | making decision about the amount of capital to be |
| An asset may be defined as anything of use to | | | | invested, selecting suitable site, acquiring |
| future operations of the enterprise and belonging | | | | equipment, supplies etc., selecting staff, getting |
| to the enterprise. For example, building, land, | | | | customers and selling the goods etc., business |
| machinery, cash, debtors (amount due from | | | | man finally resorts to record keeping. |
| customers) goodwill etc. | | | | For all types of business organizations, |
| Equity | | | | transactions such as purchases, sales, |
| In broad sense the term equity refers to total | | | | manufacturing and selling expenses, collections |
| claims against the enterprise. It is further divided | | | | from customers and payments to suppliers do |
| into two categories: | | | | take place. These business transactions are |
| (1) Owners claim-capital and (2) Outsiders' | | | | recorded in a set of ruled books, such as journal, |
| claim-liability (3) Liability: Amounts owed by the | | | | ledger, cash book etc; In modern times all the |
| enterprise to the outsiders i.e. to all others except | | | | records are maintained on a computer using |
| the owner. For example, trade creditors, bank | | | | computer software; unless these transactions are |
| overdraft etc. (4) Capital: The excess of assets | | | | recorded properly, he will not be in a position to |
| over liabilities of the enterprise. It is the difference | | | | know where exactly he stands. Therefore, for |
| between the total assets and the total liabilities of | | | | any business record keeping is of foremost |
| the enterprise. For example, if on a particular date | | | | importance. |
| the assets of the business amount to $ 1,00,000 | | | | Following is the complete cycle of accounting :- |
| and liabilities to $ 30,000 then the capital on the | | | | (1) The balances of accounting; from opening |
| date would be $ 70,000. It is also known as net | | | | balance sheet and day-to-day business |
| worth. | | | | transactions of the accounting year are first |
| Revenue | | | | recorded in a book known as Journal. (2) |
| It is the monetary value of the products or | | | | Periodically these transactions are transferred to |
| services sold to the customers during the period. | | | | concerned accounts, known as ledger accounts. |
| It results from sales, services and sources like | | | | (3) At the end of every accounting year these |
| interest, dividend and commission, etc. | | | | accounts are balanced and a trial balance is |
| Expenses/ Costs | | | | prepared. (4) Then the final accounts such as |
| Expenditure incurred by the enterprise to earn | | | | Trading and profit & loss accounts are |
| revenue is termed as expenses or costs. | | | | prepared. (5) Finally a Balance Sheet is made |
| Distinction between expense and asset is that the | | | | which gives the financial position of the business |
| benefit of the former is consumed by the | | | | at the end of the period. |
| business in present whereas in latter case benefit | | | | Responsibilities of an accountant |
| will be available for future activities of the | | | | In modem times traditionally, the accountant was |
| business. Examples of expenses are raw materials | | | | expected to compile and present the financial |
| consumed, salaries etc. . | | | | information to the owners of the entity at the |
| Loss | | | | end of the accounting period. But with the advent |
| The term is used to convey, at least, two | | | | of cost accounting, management accounting and |
| different meanings. First it refers to the result of | | | | financial management the responsibility and field of |
| the business for a period when expense exceed | | | | accountant's functions have grown enormously. |
| the revenue. For example, if sales are $ 10,000 | | | | The function of accounting beyond the traditionally |
| and expenses are $ 11,000 the loss will be $ | | | | accepted double entry routines can be grouped |
| 1,000. Second- It describes those efforts which | | | | under: |
| fail to earn revenue. For example-un saleable | | | | (1) Finance function (2) Control function (3) |
| stock, loss due to fire, theft, accident etc. | | | | Planning function |
| Proprietor/ Owner | | | | Finance function |
| The person who invests his money or money's | | | | Every business faces the problem of raising and |
| worth and bears the risk of the business. | | | | using the funds. |
| Drawings | | | | The responsibility of accountant under finance |
| Money or value of goods belonging to business | | | | function is to ensure that- |
| used by the proprietor for his personal use. Goods | | | | (1) funds are obtained at the lowest cost and |
| Includes all merchandise commodities which are | | | | (2) funds are optimally used i.e. highest return is |
| purchased by the business for selling. | | | | obtained. |
| Trade Debtor | | | | The following types of problems are faced by the |
| Person who owes money to the business. It | | | | accountant while discharging finance function |
| happens when goods are sold on credit. | | | | What type of expenditure firms should commit? |
| Trade Creditor | | | | Amount of funds committed by the firm on |
| Person to whom the business owe money. It | | | | various projects ? What sources should be used |
| happens when goods or materials are purchased | | | | to raise the funds for a particular project? Ways |
| by the business on credit. | | | | and means of getting maximum benefit out of |
| Transaction | | | | the use of funds? Method and time of repayment |
| Any exchange (dealing) of goods or services, for | | | | of funds borrowed? Of course, the decision on |
| cash or on credit by the business with any other | | | | the above-mentioned problems is taken in the light |
| business. | | | | of management policy and objectives of the |
| Events | | | | enterprise. |
| There are the occasions which cause changes in | | | | Control function |
| the value due to time element. Outsiders are not | | | | Accountant has to do the following to discharge |
| directly concerned. For example, interest accrued, | | | | his responsibility of being the controller To |
| depreciation in the value of assets etc. | | | | communicate the goals as approved by the |
| Entry | | | | management to individuals in their respective |
| The record of a transaction or event in the books | | | | fields. To make all the managers and various |
| of accounts is known as entry. | | | | other persons leading their units, aware of their |
| Entity | | | | responsibility and assist them in achieving their |
| All elements of financial statements are in relation | | | | goals as efficiently as possible. Look after the |
| to a particular entity which may be business | | | | coordination of various activities of all the |
| enterprise, an educational or charitable | | | | organizational units so as too optimize results. |
| organization, a government unit, a natural person | | | | Evaluate the performance and the degree of |
| or the like. An entity may comprise two or more | | | | achievement of various responsibility centers as |
| affiliated entities and may not necessarily | | | | compared to the goals set for them and assets |
| correspond, with 'legal entity'. Thus, the accounting | | | | their efficiency. Identify areas of unsatisfactory |
| information is recorded, compiled and presented | | | | performance and assist in the formulation of |
| with reference to identifiable entity. The term | | | | corrective measures at both ends. |
| 'other entity' refers to a subsidiary company that | | | | Planning function |
| is a part of the same entity as its parent | | | | The process of planning involves long term |
| company in consolidated financial statements but | | | | decision as well as short term actions. In the |
| is an 'other entity' in the separate financial | | | | short- term decision has to be taken regarding: |
| statements of its parent. | | | | Selection of one alternative out of many e.g.. |
| Net worth | | | | bicycle manufacturer should decide whether to |
| Is also known as "ownership equity" or | | | | manufacture all the parts of the bicycle himself or |
| "stockholders', equity" or "capital". It is the | | | | purchase the parts and only to assemble. Profit |
| difference between total assets minus outside | | | | maximization or loss minimization. |
| liabilities. Alternatively net worth is the sum of | | | | For problems involved in planning function |
| capital plus retained earnings. | | | | accountant has to depend not only on accounting |
| The Accounting Cycle | | | | information but also on outside information. As |
| After taking decisions such as selecting a business, | | | | regards long term planning, the task is to plan for |
| selecting the form of organization of business, | | | | continuity and development of the firm. |