User:Pradeep Buddhika Wasala

Accounting Accounting concerned with, •	Recording of data •	Classifying and summarizing data •	Communicating what has been learned from the data

Accounting — often called the language of business — is the process of recording, classifying, reporting and analyzing financial data. Though the accounting requirements of every business vary, all organizations need to keep records of their transactions.

The possible users of accounting information:

1.	Owner/s of the business They want to see •	Whether or not the business is profitable •	What the financial resources of the business are 2.	A prospective buyer •	When selling the org. buyer/s will interested 3.	The bank •	When owner borrowing money 4.	Tax inspectors (for tax purposes) 5.	Prospective investors 6.	Others (Students, researchers.)

Accounting Equation:

Accountants record every financial transaction in a way that keeps the following equation balanced:

Assets = Liabilities + Owner's Equity (Capital)

•	If resources supplied by the owner, Resources in the business = Resources supplied by the owner Assets	=	Capital

•	If resources by owner and others, Assets	=	Capital + Liabilities

Assets: Land & Buildings, Machinery, Motor vehicles, Stocks of goods, debtors, Bank and Cash balances etc. Capital: The amount of resources supplied by the owner is called capital. Liabilities: Loans, Money owing for goods supplied to the firm and for expenses, Bank overdrafts etc. The Accounting Cycle Accounting is based on the periodic reporting of financial data. The basic accounting cycle includes: •	Recording business transactions. Businesses keep a daily record of transactions in journals. •	Posting debits and credits to a general ledger. A general ledger is a summary of all business journals. An up-to-date general ledger shows current information about accounts payable, accounts receivable, owners' equity and other accounts. •	Making adjustments to the general ledger. General-ledger adjustments let businesses account for items that don't get recorded in daily journals, such as bad debts, and accrued interest or taxes. By adjusting entries, businesses can match revenues with expenses within each accounting period. •	Closing the books. After all revenues and expenses are accounted for, any net profit gets posted in the owners' equity account. Revenue and expense accounts are always brought to a zero balance before a new accounting cycle begins. •	Preparing financial statements. At the end of a period, businesses prepare financial reports — income statements, statements of capital, balance sheets, cash-flow statements and other reports — that summarize all of the financial activity for that period.

The main books of Prime Entry 	Cash Book: Receipts and payments of cash are recorded. i.e. It includes cash and bank transactions. 	Sales Journal: All sales on credit are recorded 	Purchases Journal: Al credit purchases of items used directly in trading are included 	General Journal: Use for several purposes including the correction of book-keeping errors 	Returns Inwards Journal: Record return inwards 	Return Outwards Journal: Records return outwards

Cash Book The cash book consists of the cash account and the bank account. In the cash book, cash column is put next to the bank column in both debit and credit sides. All transactions on cash are recorded in the cash column. The bank column contains details of the payments made by cheques and of the money received and paid into the bank account. The bank will maintain an account in its own books and send copy called ‘bank statement’ to the organization/account holder. Once received, organization will check the bank statement against the bank column in its own cash book to ensure that there are no errors.

Petty Cash Book It is obvious that in any organization many small cash payments have to be made. They are recorded in a separate book called ‘Petty Cash Book.’ Why a Petty Cash Book? 	Petty cash can be handed over to a junior staff and cashier would be relieved from routine work. 	Reduce unnecessary entries in the ledger. i.e. daily basis simple payments can be added monthly and enter the total figure instead posting one by one to the ledger.

The Imprest System is used in handling petty cash. Under this system, the Cashier gives the petty cash cashier enough cash to make payments for the following period. At the end of the period, the cashier finds out the amounts spent by the petty cashier, and gives him/her an amount equal to that spent. Trial Balance The trial balance is not part of the double entry book-keeping system. It is a summary of all the balances in the ledger accounts at the end of the financial period. Although it provides a useful check, it does not necessarily mean that the accounts are accurate. Errors are likely due to a number of reasons. 	The wrong accounts could have been debited or credited 	Entries could have been missed from the books 	Two or more entries may cancel each other out 	Mistakes in addition may occur Once the accuracy of the accounting data has been confirmed in the trial balance, a Trading, Profit and Loss Account and balance Sheet can be prepared.

Final Accounts At the end of each financial period, any business needs to know the final result of the total functions done. For that final accounts are prepared from the accounting records. Profit and Loss Account shows the profit for the period concerned. Balance Sheet shows the financial position of the business at a particular date.