Competitive Exams Accountancy Basics

Basic terms in accounting

  • Financial Statements: Two basic financial statements are prepared by an enterprise one is profit and loss statement and other is balance sheet

  • Accounting Equation: Three components of a balance sheet can be stated in the form of following basic accounting equation Assets = liabilities + capital. This equation tells at the glance that the resources of this enterprise total and these assets are financed by two source also known as outsiders claims and owner equity.

  • Business Transactions: It can be a purchase of goods, collection of money, payment to creditors for goods and expenses. An event to be a transaction must possess the quality of economic substance, relate to business and affect the economic results

  • Assets: These are economic resources of an enterprise fixed assets are assets held on a long term basis, such as land, building, machinery and plant etc. Current assets are assets held on a short term basis such as debtors bills receivables, stock, cash and bank etc.

  • Liabilities: These are the obligations or debts that the enterprise must pay in money or services at sometime in the future. They represent creditors, claims against assets of the firms.

Relationship of accounting with other field

Accounting is very close relationship with maths, economics, statistics, business study and other area. Different formula used in financial, cost and management accounting can be satisfied on the basis of maths. In accounting, we records only economical transaction related to money or money's worth And our govt. Policies effects on our financial accounts. Suppose if central govt. Changes the rate of depreciation then our net profit and financial position will effect from this point. So we should necessary to understand the relationship of accounting with other field for better knowing accounting. Accounting, maths, economics and business study all makes good structure of a good economy. Because if one field is not fully developed, its side-effect surely will be on other fields. Suppose if an statistics have to collect previous year market sales data but accounting of market is very poor so he will have to collect wrong data and different economic decision will be wrong. We can understand all field just as different parts of body, if one part is weak other surely effected from it.