Scribd
Upload
5 views2 pages

Understanding Accounting Basics and Types

Accounting is the systematic recording, classification, summarization, and interpretation of business transactions, focusing on assets, liabilities, and expenses. Assets are categorized into fixed and current assets, while liabilities are divided into short-term and long-term obligations. Financial accounting provides essential information through financial statements, including the balance sheet, income statement, and cash flow statement.

Uploaded by

Gaming star
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as TXT, PDF, TXT or read online on Scribd
5 views2 pages

Understanding Accounting Basics and Types

Accounting is the systematic recording, classification, summarization, and interpretation of business transactions, focusing on assets, liabilities, and expenses. Assets are categorized into fixed and current assets, while liabilities are divided into short-term and long-term obligations. Financial accounting provides essential information through financial statements, including the balance sheet, income statement, and cash flow statement.

Uploaded by

Gaming star
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as TXT, PDF, TXT or read online on Scribd

Accounting:

Also known as language of business where both aspects of transaction are recorded.
In accounting, transactions are recorded, classified, summarized and interpreted in
a systematic manner.

Head of acccounting (accounting works on):


Land, buildings, machinery (which all are assets)

Assets are everything a business owns or controls that has future economic value.
🟢 In other words:
Assets are resources the business uses to operate, earn income, or grow.
They are expected to bring benefit in the future.

Assets are of two types:


1. Fixed assets: All those assets that are requeired to run the bussiness and which
are not for resale purpose (mechinary, could be other too).
2. Current assets: Those assets that are easily converted into cash like cash, gold
etc.

Liabilities are what the business owes to others — in other words, its debts or
obligations.
🔴 These are claims against the business’s assets by outsiders (not the owner).

Short-Term Liability (Current Liability):


These are debts or obligations that the business must pay within one year (or one
business cycle, whichever is longer).

📘 Examples:
Accounts Payable (creditors)
Wages payable
Short-term loans (due within 12 months)
Taxes payable
Rent payable
Utility bills due

Long-Term Liability (Non-Current Liability):


These are debts or obligations that are due after one year.

📘 Examples:
Bank loans repayable after 1 year
Bonds issued by the company
Lease obligations (long-term)
Long-term mortgages

Expenses are costs incurred by the business to run its operations (like rent,
salaries, electricity, etc.).

Revenue = cost + expense + profit

Three types of industries:


1. Services industries: Provides services only
2. Manufacturing industries: Engaged in mannufacturing as well as in selling of
goods.
3. Merchandising industries: Buys finished goods and resells them to customers (no
manufacturing).

Types of Accounting:
1. Financial Accounting: It provides accounting information for the reporting
parties outside theorganization through financial statement.
Financial statement: Financial statements are prepaired by every organization at
the end of an accounting periond.
There are three types of financial statements:
a) Balance sheet: shows the financial position of a business at a particuler date.
b) Income statement: It shows the profit or loss of a company over the preceeding
year.
c) Cash flow statement: It just shows the cash inflow and cash outfow statement.

You might also like