Mechanics of Accounting: Double entry system of accounting, journalizing of transactions;preparation of final accounts, Trading Account, Manufacturing Accounts, Profit & Loss Account,Profit & Loss Appropriation account and Balance Sheet, Policies related with depreciation, inventory and intangible assets like copyright, trademark, patents and goodwill.
The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company's Cash account will increase and its liability account Loans Payable will increase. If a company pays $200 for an advertisement, its Cash account will decrease and its account Advertising Expense will increase.
Double entry also allows for the accounting equation (assets = liabilities + owner's equity) to always be in balance. In our example involving Advertising Expense, the accounting equation remained in balance because expenses cause owner's equity to decrease. In that example, the asset Cash decreased and the owner's capital account within owner's equity also decreased. A third aspect of double entry is that the amounts entered into the general ledger accounts as debits must be equal to the amounts entered as credits.
The account which is prepared to determine the gross profit or gross loss of a business concern is called trading account.
It should be noted that the result of the business determined through trading account is not true result. The true result is the net profit or the net loss which is determined through profit and loss account. The trading accounting has the following features:
The American Accounting Association defines accounting as “the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information”. This definition highlights the following aspects :
(a) Identifying the Business Transactions. Identification of transactions are useful for proper recording of them in books of accounting without missing any of the transactions.
(b) Measurement of Business Performance. Measurement or evaluation of business performance is necessary to know the progress of business.
(c) Communication of Information. Communication of information relates to reporting the results of business to all those interested in the business. This enables them to judge the efficiency of the business and to take suitable decisions to improve the business.
The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company's Cash account will increase and its liability account Loans Payable will increase.
Journalizing is the process of recording a business transaction in the accounting records. This activity only applies to the double-entry bookkeeping system. The steps involved in journalizing are as follows: Examine each business transaction to determine the nature of the transaction.
Image result for preparation of final accountswww.youtube.com Trading Account is the first stage in the process of preparing final accounts. Trading account shows the gross profit or gross loss during an accounting year. Its main components are sales, services rendered in the credit side of such sales or services rendered in the debit side.
Trading Account is the first stage in the process of preparing final accounts. Trading account shows the gross profit or gross loss during an accounting year. Its main components are sales, services rendered in the credit side of such sales or services rendered in the debit side.
From this, the chapter looks at the construction of manufacturing, trading and profit and loss accounts and the drawing up of a balance sheet. Ratio analysis is a particularly powerful technique aimed at helping marketers to compare sets of figures over time and between companies.
The account through which annual net profit or loss of a business is ascertained, is called profit and loss account. Gross profit or loss of a business is ascertained through trading account and net profit is determined by deducting all indirect expenses (business operating expenses) from the gross profit through profit and loss account. Thus profit and loss account starts with the result provided by trading account. The particulars required for the preparation of profit and loss account are available from the trial balance. Only indirect expenses and indirect revenues are considered in it. This account starts from the result of trading account (gross profit or gross loss). Gross profit is shown on the credit side of the profit and loss account and gross loss is shown on the debit side of this account. All indirect expenses are transferred on the debit side of this account and all indirect revenues on credit side. If the total of the credit side exceeds the debit side, the result is "net profit" and if the total of the debit side exceeds the total of the credit side, the result is net loss. As the net profit or net loss of a certain accounting period is determined through profit and loss account, so its heading is:
The depreciation methods used, the total depreciation for the period for each class of assets, the gross amount of each class of depreciable assets and the related accumulated depreciation are disclosed in the financial statements alongwith the disclosure of other accounting policies.
A trademark, trade mark, or trade-mark is a recognizable sign, design, or expression which identifies products or services of a particular source from those of others, although trademarks used to identify services are usually called service marks.