Basic Concept of Accounting

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In this article we will go through some basics Accounting Concepts. These Concept will be used in every steps of the accounting.

Accounting: It is an art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are of financial character and interpreting the results thereof.

Business transaction: Lets Understand Business transaction in this way “The movement of money and money’s worth from one person to another”. Or exchange of values between two different parties is also known as “Business Transaction”.

Purchase: It means goods purchased by a businessman from suppliers.

Sales: It means goods sold by a businessman to his customers.

Purchase Return or Rejection in or Outward Invoice:  It Means return of the full or a part of goods purchased by the businessman to his suppliers due to any specific reason.

Sales Return or Rejection out or Inward Invoice: It means the return of the full or part of the goods sold by the customer to the businessman.

Assets: Assets are the real things and properties possessed by a businessman not for resale but for the use in the business.

Liabilities: Liabilities are the amounts payable by a business concern to outsiders are called liabilities.

Capital: It is the amount invested for starting a new business by a person.

Debtors: It’s nothing but a person who owes amounts to the businessman.

Creditor: Creditor is the person to whom amounts are owed by the businessman.

Debit: The receiving aspect of a transaction is called debit or Dr.

Credit: The one and only giving aspect of a transaction is called credit or Cr.

Drawings: It is the amount withdrawn by the businessman from his business for his personal, private and domestic purposes. Drawings can be in the form of cash, goods and assets of the business.

Receipts: It is an important document issued by the receiver of cash/goods to the giver of cash acknowledging the cash/goods received voucher.

Account: It’s a summarized record of all the transactions relating to every person, every thing or property and every type of service.

Ledger: It is known as the book of final entry where all accounts are there.

Journal entries: A daily record of transaction.

Trial Balance: It is a statement of all the ledger account balances prepared at the end of a particular period to verify the accuracy of the entries made in books of accounts.

Profit: Excess of credit over debit side.

Profit and loss account: It is prepared to calculate the actual profit or loss of the business.

Balance Sheet: To ascertain the current financial position of the business. It is a statement of assets and liabilities.

Types of accounts –

  • Personal account:  These are the accounts of persons, firms, concerns and institutions which the businessmen deal.

          Principles:  Debit the receiver | Credit the giver

  • Real Account: Real accounts are the accounts of things, materials, assets & properties. They have physical existence which can be seen & touch.

          Ex. Cash, Sale, Purchase, Furniture, Investment etc.

          Principles: Debit what comes in | Credit what goes out

  • Nominal account: It is the account of services received (expenses and Losses) and services given (income and gain)

          Ex. Salary, Rent, Wages, Stationery etc.

          Principles: Debit all expenses/losses | Credit all income/ gains

So, these were some basic accounting details, as your base is ready lets go and learn and practice some gateways of tally which will be used while functioning in Tally.

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