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Rules of Accounting

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T here are two types and sub-types of Accounting Rules and it is listed as under - 1. Personal 2. Impersonal - a) Real b) Nominal  Rules are as follows - Personal - Debit the Receiver, Credit the Giver (Sole Prop., Co.) Real - Debit what comes in, Credit what goes out (Cash, Bank) Nominal - Debit Expenses and Losses, Credit Revenue and Income (Sales) Application of Accounting Rule Accounting Rule of Thumb Combination of Rules One simple example is given below - Both Debit and Credit cannot be Personal Accounts. Another example - Similarly, both Debit and Credit cannot be Nominal Accounts. Accounting Transactions can be recorded and the recording of an accounting event is known as Journal Entry . It is made in Primary and Secondary Books in Manual Accounting System. Primary Books - General Ledger and Cash Book Secondary Books - Registers of Purchase, Sales, Fixed Asset, Returns..etc. In Oracle ERP System, General Ledger is called Main Ledger, and the transactions emanating from modul
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Accounting Conventions and Classification of Accounting Event

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A s we have learned about Accounting Concept in our previous blog, we will now learn about Accounting Conventions, and not only that we will be also learning about the Classification of Accounting events. So, there are 3 types of Accounting Conventions and they are as under - Going Concern Accounting Records, Events, and Transactions on the assumption that the entity will continue to operate for an indefinitely long period of time. Consistency The Accounting policies and methods followed by the company should be the same every year. Following are the examples - Accrual In general, it is assumed that the accounts are always prepared based on the accrual basis. However, there are entities that follow the Cash Basis of Accounting also. The Company Law or Income Tax Act prescribes all companies to follow the Accrual Basis of Accounting except for professional firms and Government organizations which are allowed to follow the Cash Basis of Accounting. Now, let us talk about the Classificati
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Concepts of Accounting with Types of Entities

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W e have already mentioned Accounting Concepts or Principles in our previous blog. Let us explain them in detail one by one. Business Entity Concept Accounts can only be kept only for entities, which are different from the persons who are associated with these entities. For example - Partnership Firm and Company. This is one of the most important and fundamental accounting principles with which the Double Entry System of Accounting has evolved. Accounts need to be maintained separately from the owners and providers of capital. If you understand the simple logic, then you know 30% of accounting. Money Measurement Concept The record should be made only of that information which can be expressed in monetary terms i.e. Currency Value (USD, INR, GBP...etc). A normal doubt which comes to our mind in the first and fourth example from the above image that how to get the value. We should not be taking the Purchase Value, but we should take the Market Value on the date of transferring the Asset
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Accounting Concepts and Conventions

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N ow, this is a blog that includes a bit of Accounting. Let us start with Accounting Concepts and Conventions. The concepts of accounting are developed by the International Accounting Standards Committee (IASC) which is in charge of releasing International Accounting Standards (IAS). The IASC decides the preferred accounting practices worldwide acceptance. There are overall 41 IAS. Now, International Financial Reporting Standards (IFRS) and Sarbanes Oxley (SOX) Act gain more importance which came up from US GAAP and UK GAAP. Before comparing Accounting Concepts and Conventions, let us know the comparison between Finance and Accounts as many people think Finance and Accounts are one and the same but it is not true and so below are the differences - Let us now move ahead with the comparison between Accounting Concepts and Conventions. Accounting Concepts - The Accounting Concepts or Principles evolved out of practice and procedures followed by different countries and later on establishe
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Mode of Learning Accounting

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T here are basically three different modes to learn Accounting and they are as follows: 1. Change your mindset that accounting means only Credit and Debit. 2. Do not blindly learn Accounting Rules and apply those rules of  Debit & Credit. 3. The best way to learn Accounting is -  Learn the Accounting Concepts Understand the Accounting Conventions Classify the Accounting Events Apply the Accounting Rules and  Record, Classify and Summarize the Journal Accounting Structure These are the main Accounting Strategies or Structure that is often used in Companies and other places.
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What is Accounting?

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A ccounting is defined as the art of recording, classifying, and summarizing transactions in monetary terms i.e. money terms for the preparation of the Financial Statements. Let us know the meaning of Recording, Classifying, and Summarizing from the above meaning of Accounting. Recording - Recording refers to creating a Journal entry for every financial transaction with Debit or Credit amounts. Classifying - Classifying refers to classifying each of the Debit or Credit transactions to Capital or Revenue or Asset, Liability, Revenue or Expense. Summarizing - Summarizing refers to grouping the transactions of Asset, Liability or Revenue and Expenses and preparing the Financial Statements like Trading, Profit & Loss and Balance Sheet. In the case of trading, manufacturing, and customer service-oriented organization, the sum of all income and expenses is referred to as the Profit and Loss account. A social service-oriented organization like Schools, Hospitals, and Government organizati
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