ACCOUNTING AND FINANCIAL MANAGEMENT

Table of Contents

What is accounting

Accounting

A business man carries out much transaction his day-to-day activities. He may make a number of sales can purchases of a number of item during the year all these transaction are needed to the recorded down lest the business man may forget when a specific item was bought or sold, he my give out goods in credit to his customer and he may not remember all of them. Thus he most put down the transaction in a recorded form. That is why keeping of account in a business is important.

It depends on who you are asking. For the accountant, it is one area of business activity that they use to derive an income. A more professional way of putting that could be that accounting is an occupation that is engaged in the service of providing reliable and relevant financial information that can be used by others to make informed decisions.

 

Definition of Accounting

“Nearly every business man enterprises has Accounting system, it is a means of collection summarizing analyzing and reporting in monetary term and of information’s a back business”.

 

BRANCHES OF ACCOUNTING

  1. Financial Accounting:- The accounting system that is concerned only with the financial state of affairs is called financial accounting in including ascertainment of profit earned or loss incurred and position of the business at the and of accounting period, it also provides financial information required by the management and other parties interested in them.
  2. Cost Accounting:- Accounting the field of accounting that measure classifies. And record cast it is a systematic procedure for determining the unit cash of output produced or services rendered. The primary function of cast accounting is ascertainment cash of a product and helping the management in the control of cast. Cost accounting is that branch of accounting which deals with the classification, recording allocation, summarization and reporting of current cash.
  3. Management Accounting:- management accounting is the term used to describe the accounting method system and techniques which coupled with special knowledge and ability assist management in its task of maximizing profile or minimizing losses. 

 

DOUBLE ENTRY SYSTEM

The rule of double entry system is that the total amount debited to one or more account must equal the amount credited to different account. Because debits equals, credits, double entry accounting prevents some common books keeping errors in double entry accounting every transaction in business affects at least to accounting since there is at least on debit and one credit for each transaction, entries that are not made to a balance sheets account are made to an income or expense account income and expanding accounting affect the net profit of the business which affects owners equity the balance sheets. Union the double entry system, both the aspects of all the transaction are recorded and those complete and reliable records of all the transaction are provided based on which the management gets a position to take proper decisions. A trial balance Drawn to check accurate of the books of account. Particular accounting period, which the balance sheet presents the true financial position of the business on a particular date.

 

Single – Entry

Double – Entry

Definition

Single-entry system of bookkeeping requires inputting the entry only once in either the credit column or the debit column.

Double-entry system requires putting one entry twice, once in the credit column and once in the debit column of another account.

Duality

Is not based on the concept of duality.

Is based on the concept of duality.

Profit Or Loss

Cannot help in making the company’s profit or loss statement.

Can help in making the company’s profit or loss statement.

Suitability

Small businesses where transactions are small and simple.

Big businesses and corporations that deal with complex transactions and huge inventories.

Trial Balance

Cannot prepare trial balance

Can prepare trial balance

Financial Position

Cannot ascertain the true financial position of the business.

Can ascertain financial position of the business.

Advantages

Simple, less-expensive, easier to manage, provides general view of earnings and expenditure.

Complete data is available, provides an arithmetic check on bookkeeping, helps track debits and credits, can help ascertain the financial position of the business, makes it easier to produce year-end accounts.

Disadvantages

Incomplete data are not able to provide a check against clerical error, does not record all transactions, and does not provide a detailed record of assets, theft and loss cannot be detected.

Expensive, harder to understand, requires hiring external staff and time-consuming.

 

Financial Statements

Records that outline the financial activities of a business, an individual or any other entity. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers. Financial statements for businesses usually include: income statements, balance sheet, statements of retained earnings and cash flows, as well as other possible statements.

Some common financial statement:-

  1. Trading account
  2. Profit & Loss a/c
  3. Balance Sheet
  4. Cash flow Statement.


Trading & Profit & Loss a/c

The profit and loss statement or income statement can be likened to a movie of a company’s financial health. It shows how the company is doing over a period of time. The profit and loss statement shows revenues taken in, the expenses, and what income is left over. Basically, this statement shows the profitability of a business. It answers the question,” is the business making money through its operation?” the profit and loss statement equation is: revenues – expenses = income. The key  figures here are the “ net profit /loss before taxes “ figures along the bottom .positive figures means the company can be profitable through it’s operation. 

 

Balance sheet

The balance sheet can be likened to a snapshot of a company’s financial health at one particular point in time. The company’s assets (such as  cash , equipment and buildings ) are  shown on the left  side of the page , and the  liabilities (such as loans  and  notes ) and net worth are shown on the right side of the  page. The assets are what a company owns. The liabilities are what a company owes. The net worth is the difference between the assets and liabilities, or the amount that is left after all the bill is paid. 

The “balance sheet equation “is: assets –liabilities = net worth. The key number on this statement is the “net worth.” if is positive, it means the company could liquidate all of its assets and pay all of its liabilities. If the new worth is a negative number, the company could not pay its bills if liquidated, and it may mean it is in poor financial health.

 

Cash flow Statement

The cash flow statement shows cash taken into and paid out of the business or how cash is flowing through the business. it is an excellent planning tool to help management  see where it may need to access a line of credit  to pay the bills while waiting for cash to come into the business . This statement reflects when cash is received, when it is paid out, and what is lift afterward to carry over to the next moth. The key number on this statement is the ending cash balance. 

If it is negative, the company will need to access some cash to pay bills during that particular month. You generally want to see a trend of those figures growing or at least maintaining throughout the year.

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