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%ransaction:
transaction mean act of perfomance, an exchange a transfer etc. however,
for the purpose of accounting. only those transaction are taken into
consideration, which are of fanncial nature,
-(hich alters the +nancialposition o) a concern! and
-(hich can 'e "easured in the ter"s o) "oney.
Event:
The consequence of a transaction is known as events. The distinction
between transactions and events can be properly understood with the help of
the following example.
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E1a"ple:
suppose Mr. X started business with the cash of s. !,"",""". during the
whole years, he makes purpose and sale of goods and thus earns the net
proft of s. !",""". #t the end of year, he has the cash balance of s.
!$,""", stock of goods of s. $",""" and sundry debtors of s. %$,""".
&n this solution, starting of business, purchasing of goods and selling of goods
and selling of goods are fnancial transaction and earning the proft of s.
!",""", having the cash balance of s. !$,""" having the stock of s. $","""
and having the sundry debtors of s. %$,""" are the events of a particular
frm or company.
Accordin$ to a"erican institute o) certi+ed pu'lic accountants
#ccording is the art of recording, classifying and summari'ing in a signifcant
manner and in term of money. transactions and events which are, in part at
least, of a fnancial character, and interpreting the result thereof.(
Accordin$ to a"erican accountin$ association
(#ccounting is the process of identifng, measuring and communicating
economic imformation to permit informed )udgement and decisions by the
users of the information. according to this defnition, (#ccounting is a
processing system, whose input is fnancial transaction and output is fnancial
statements communicating various information to various interested group(.
Accountin$ is di2erent )ro" 'ook-keepin$
book*keeping is merely recording of the transactions and maintaining the
records whereas #ccounting means to analyse these results. #ccounting
begins where book*keeeping ends.
Accountancy
The knowledge of how to make accounting is called accountancy.
#ccountancy tell us how to maintain various books of account, how to
prepare them and how to communicate accounting information to the parties
intersted n them. thus #ccounting is a systematic knowledge like other
academic sub)ects such as +conomics, physics, chemistry, etc., and puts such
knowledge into practice.
The procedure of accounting includes generating fnancial information and
their use. accordingly the following steps are taken in accounting,
3i4 #ecordin$- This is the basic function of accounting. #ccounting consist of
recording business transactions and events in a systematic way in )ournal etc.
3ii4 5lassi)yin$- classifying means grouping the transactions of same nature
at one place. this done by prepareing appopriate accounts in ledger. -or
example, all transactions relating tocash would be recorded in the cash
account.
3iii4 Su""arisin$- .ummarising involves the preparation of fnancial
statement i.e. trial balance/ proft and loss account/ balance sheet and cash
0ow statement. summarising helps coveying economic imformation to
various parties intersted in them.
3iv4 Analysin$- The tern analysis means methodical classifcation of the data
given in the fnancial statement.
3v4 Interpretin$- &t is concerned with explaining the meaning and
signifcance of the relationship as established by the analysis of accounting
data.
3vi4 co""unicatin$- &t is concerned with the transmission of summarised,
analyised and interpreted information to the end users to enable them to
make balanced decisions. This is done through accounting report.
6ollo(in$ are the o'7ectives o) transactions:
384 Syste"atic recordin$ o) tranactions:- #ccounting keep a systematic
record of fnancial transactions. there is a limit to human memory and
therefore, a systematic record of all transactions is essential for every
business. these recorded trasactions are later on classifed and summari'ed
logically for the preparation of fnancial statements and for their analysis and
interperations.
394 Ascertain"ent o) operational pro+t or loss - #ccounting helps in
ascertaining the net proft earned or loss su1ered by the business. &t is done
by prepairing proft and loss account.
3:4 Ascertain"ent o) the +nancial position o) the 'usiness - +very
businessman desires to know about his fnancial position i.e. where he stands
, what he owns and what he owes. this is served by the balance sheet.
balance sheet is a statement of assets and libilities of the business on a
particular date.
3;4 co""unication o) result - #nother function of accounting is to
communicate the results of intersted groups vi'., investors, employees,
creditors etc.
3<4 %o )acilittate rational decision- "akin$- #ccounting facilitates
rational decision* making by providing relevant date.
3=4 %o "eet le$al re>uire"ents- The next function of accounting is to
devise such a system as will meet the legal requirements.
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