COMMERCE LITERACY

What is accounting?           Accounting is the language through which we can understand a business. According to American Institute of Certified Public Accountants --   “ Accounting is an 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 .” Recording: initial transactions recorded in the books of prime entry . Classifying: transactions in the books of prime entry are classified in similar groups called ledger accounts. Summarizing: summarizing the ledger accounts into trial balance and then to final accounts. Why do we need accounting?           At the end of a financial   year, businessmen and a companies stakeholders will want to know about the business. So for the purpose of understanding it, we need to accou...

Who are stakeholders?           They are various groups of people who need information about the activities of a business. They also effect or get affected by the organisations actions. According to the International Accounting Standard, IAS 1 Presentation of Financial Statements states:           “ The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions ” The wide ranges of users mentioned in IAS 1 are these stakeholders. Different types of stakeholders There are mainly three types of stakeholders: 1.     Internal stakeholders : - they are groups or individuals from inside the organisation. For example, directors, managers, employees. ·        Managers are appointed by the organisa...

What is Accountancy?           It is a body of knowledge prescribing certain rules or principles to be observed while recording, classifying and summarising transactions. According to Kohler—           “ Accountancy refers to the entire body of theory and practice of accounting ” It tells us everything from recording our first transactions to preparing the books of accounts and summarising it. It also tells us how to communicate it to the interested parties (stakeholders). What is accounting?         It is the process of creating the final accounts of an organisation to ascertain the net result and communicate it to the interested parties. Analysing and interpreting the result from the final accounts is a part of accounting. Different types of accounting         These days an organisation requires various kind...

What is Double entry system?           This is a system through which transactions in a business involving money and money’s worth are recorded in the nominal ledger from the books of prime entry.           According to this system each business transactions will have two sides which will be equal and opposite of each other;  Debit side and a credit side . Every debit must be balanced to its credit. Rules of double entry system There are generally two sets of rules. You can follow the ones which you understand and find easy to remember the most. 1.      In this rule you need to keep in mind what a debit and a credit entry will do. A debit entry will :- n   Increase an asset n   Increase an expense n   Decrease a liability A credit entry will :- n   Decrease an asset n   Increase a liability n   Increase an income ...