1800-8899-551 / 91160 - 98980

Best Accounting service provider Company in Jaipur : Thelegalbank

Accounting is the systematic recordation of the financial transactions of a business. Such recordation can be split into three activities:

  • Setting up a system of record keeping

  • Tracking transactions within that system of record keeping

  • Aggregating the resulting information into a set of financial reports

Objectives of accounting:

  1. To maintain a full and systematic record of business transactions.

  2. To ascertain profit and loss of the business.

  3. To depict the financial position of the business.

  4. To provide accounting information to the interested parties.

Types of accounting:

  1. Financial accounting: 

This field is concerned with the aggregation of financial information into external reports. Financial accounting requires detailed knowledge of the accounting framework used by the reader of a company’ financial statement, such as generally accepted accounting principles or international financial reporting standards.

  1. Public accounting: 

This field investigates the financial statements and supporting accounting systems of client companies, to provide assurance that the financial statements assembled by clients fairly present their financial results and financial position.

  1. Government accounting:

This field uses a unique accounting framework to create and manage funds, from which cash is disbursed to pay for a number of expenditures related to the provision of services by a government entity.

  1. Forensic accounting: 

This field involves the reconstruction of financial information when a complete set of financial records is not available. This skill set can be used to reconstruct the records of a destroyed of business, to reconstruct fraudulent records, to convert cash basis accounting records to accrual basis, and so forth.

  1. Management accounting: 

This field is concerned with the process of accumulating accounting information for internal operational reporting. It includes such areas as cost accounting and target costing.

  1. Tax accounting: 

This field is concerned with the proper compliance with tax regulations, tax filings, and tax planning to reduce a company's tax burden in the future. There are multiple tax specialties, tracking toward the tax manager position.

  1. Internal auditing: This field is concerned with the examination of a company's systems and transactions to spot control weaknesses, fraud, waste, and mismanagement, and the reporting of these findings to management.

Accounting process:

  1. Collecting and analysing documents.

  2. Posting in journal.

  3. Posting in Ledger accounts.

  4. Preparation of Trial balances.

  5. Posting of Adjustment entries.

  6. Adjusted trial balance.

  7. Preparation of financial statements.

  8. Post-closing entries.

  9. Post-closing trial balance.

Advantages of Accounting

  • Maintenance of business records

  • Preparation of financial statements

  • Comparison of results

  • Decision making

  • Evidence in legal matters

  • Provides information to related parties

  • Helps in taxation matters

  • Valuation of business

  • Replacement of memory

Disadvantages of Accounting

  • Expresses Accounting information in terms of money

  • Accounting information is based on estimates

  • Accounting information may be biased

  • Recording of Fixed assets at the original cost

  • Manipulation of Accounts

  • Money as a measurement unit changes in value

Basic accounting principles:

The best-known of these principles are as follows:

  1. Accrual principle. This is the concept that accounting transactions should be recorded in the accounting periods when they actually occur, rather than in the periods when there are cash flows associated with them. This is the foundation of the accrual basis of accounting

  2. Conservatism principle. This is the concept that you should record expenses and liabilities as soon as possible, but to record revenues and assets only when you are sure that they will occur.

  3. Consistency principle. This is the concept that, once you adopt an accounting principle or method, you should continue to use it until a demonstrably better principle or method comes along.

  4. Cost principle. This is the concept that a business should only record its assets, liabilities, and equity investments at their original purchase costs.

  5. Separate Legal  entity principle. This is the concept that the transactions of a business should be kept separate from those of its owners and other businesses.

Full disclosure principle. This is the concept that you should include in or alongside the financial statements of a business all of the information that may impact a reader's understanding of those statements.

  1. Going concern principle. This is the concept that a business will remain in operation for the foreseeable future. This means that you would be justified in deferring the recognition of some expenses, such as depreciation, until later periods.

  2. Matching principle. This is the concept that, when you record revenue, you should record all related expenses at the same time. Thus, you charge inventory to the cost of goods sold at the same time that you record revenue from the sale of those inventory items.

Materiality principle. This is the concept that you should record a transaction in the accounting records if not doing so might have altered the decision-making process of someone reading the company's financial statements.

Monetary measurement principle. This is the concept that a business should only record transactions that can be stated in terms of a unit of currency.

  1. Reliability principle. This is the concept that only those transactions that can be proven should be recorded. For example, a supplier invoice is solid evidence that an expense has been recorded.

  2. Revenue recognition principle. This is the concept that you should only recognize revenue when the business has substantially completed the earnings process.

  3. Time period principle. This is the concept that a business should report the results of its operations over a standard period of time.

What is the abbreviation for the accounting terms debit and credit?

 Debit abbreviation is "dr" and credit abbreviation is "cr".

How many types of business transactions are there in accounting?

There are two types of transactions in accounting i.e. revenue and capital.

What is balance sheet?

It is a statement that states all the liabilities and assets of the company at a certain point.

Do you think there is any difference between inactive and dormant accounts?

Yes, both are different terms in accounting. Inactive accounts means that accounts have been closed and will not be used in future as well. While, dormant accounts are those that are not functional today but may be used in future.

How can you define departmental accounting?

It is a type of accounting in which a separate account is created for departments. It is managed separately as well as shown independently in the balance sheet.

Define fictitious assets?

These are the assets that cannot be shown or touched. Fictitious assets can only be felt such as goodwill, rights etc.

Do you possess any knowledge about accounting standards?

Yes, as per my knowledge there are a total 33 accounting standards published so far by ICAI. The purpose of these standards is to implement the same policies and practices in any country.

How can you explain the basic accounting equation?

We know that accounting is all about assets, liabilities and capital. Therefore, the accounting equation is:

Assets = Liabilities + Owners Equity.

Do you think Accounting Standards are mandatory and why?

Yes, I do believe that accounting standards play a very important role to prepare good quality and accurate financial reports. It ensures reliability and relevance in financial reports.