The Meaning and Objectives of Accounting (Introduction to Accounting)
What is the Meaning of Accounting?
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Accounting: It is called the language of business
- It tells how much the business has earned and how much money is owed or receivable
- Business and owner are separate entities
- It is considered an artificial person not a natural person
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Definition of Accounting: CSAR (Collecting, Summarizing, Analyzing, Reporting) in monetary terms about the business
Various Characteristics of Accounting
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Accounting is both an Art and a Science
- Art: Recording, classifying, and summarizing business transactions
- Science: Following basic rules and procedures
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Recording of Financial Transactions Only
- Only transactions of a financial nature are recorded
- Transactions influenced by Chintu and his wife's fight are not recorded
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Recording in Terms of Money
- All transactions are recorded only in terms of money
Process of Accounting
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Recording
- Making a journal, basic recording
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Classifying
- Making a ledger, grouping similar nature items together
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Summarizing
- Making a trial balance, balancing the ledger
- Finding the final balance (Example: 1 lakh incoming, 40000 outgoing, 60000 balance)
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Reporting
- Presenting the results (Profit/Loss account and balance sheet)
Interpretation of Results
- Interpretation of Account Results
- Whether the business is making a profit or a loss
- Users - Internal (Owner) and External
Clearing Confusion
- Ledger, Trial Balance, Profit, and Loss Account are key terms of accounting that will be detailed in the chapter
- It is important to read and understand all the steps and terms explained during the lecture
- These topics will be explained in more detail in the next session
First, understand these terms, make notes, and mark them in your book.