Basic Accounting

   Basic Accounting

 1. Define Accounting?

  Answer: 

      Accounting is the process of systematically recording, measuring, and    communicating information about financial transactions.

 2. What are the purpose of accounting? 

 Purpose of Accounting

1.  Planning how you are going to use your money. 
2.  Recording accounting data.
3. Keeping specific records of information in specific manual. 
4.  Enabling circulating information. 
5. Use accounting data to make decision.

 3. Who are the Users of Accounting Information? 

 Users of Accounting Information
          Accounting information helps users to make better financial decisions . Users of financial   information may be both internal and external to the organization.

 Internal
       Internal users comprise various management and supervisory staff with the organization. EG:   EMPLOYEE AND MANAGEMENT.

 External 
     External users comprise investors (present and future),lenders, suppliers, government and public      at    large.

 4. Explain the Form of Business?

    Answer: 

•  Sole Proprietor/Sole Trader
•  Partnership
•  Companies
•  Co-operative 

• Sole Proprietor/Sole Trader:  A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of enterprise that is owned and run by one natural person and in which there is no legal distinction between the owner and the business entity. The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss, etc

• Partnership: A partnership is a formal arrangement in which two or more parties cooperate to manage and operate a business. Various partnership arrangements are possible: all partners might share liabilities and profits equally, or some partners may have limited liability. Not every partner is necessarily involved in the management and day-to-day operations of the venture, such as in the case of a "silent partner." In some jurisdictions, partnerships enjoy favorable tax treatment relative to corporations.
•  Companies: A company, abbreviated as co., is a legal entity made up of an association of people, be they natural, legal, or a mixture of both, for carrying on a commercial or industrial enterprise. Company members share a common purpose, and unite in order to focus their various talents and organize their collectively available skills or resources to achieve specific, declared goals. 
• Co-operative: A cooperative is "an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise". 

   6. Difference between Journal and Ledger? 

  Answer:
      The Difference between Journal and Ledger are given below:

  JOURNAL

     Definition
             Journal is a book of accounting where daily records of business transactions are first                     recorded in a chronological order i.e. in the order of dates.

  Purpose
    Bookkeeping

   Description
    Primary book of accounting or the book of original/first entry.

  Entries
    It is prepared out of transaction proofs such as vouchers, receipts, bills, etc.
  Balance
     A journal is not balanced.

  LEDGER:

  Definition
      A ledger is an accounting book in which all similar transactions related to a particular person or       thing are maintained in a summarized form.

  Purpose           
     Bookkeeping

 Description
    Principal book of accounting or the book of final entry.

 Entries
    It is prepared with the help of a journal itself, therefore, it is the immediate step after recording a            journal.
  Balance
    Except nominal accounts all ledger accounts are balanced to find the net result.

7. What is Accounting Equation? 

Answer: 
     It wouldn’t be wrong to say that this equation is the basis of all accounting. The Accounting   Equation is based on the dual aspect concept of accounting, which says that every transaction has   two aspects, debit and credit, and for every debit, there is equal and opposite credit. This equation is   also called the Balance Sheet Equation. It helps to prepare a balance sheet, which is the most vital   step of creating financial Statements. Assets = Capital + Liabilities 

 8. Explain the factor or component of accounting equation?

 Answer:
     The accounting equation, written as Assets = Liabilities + Owner’s Equity, shows the relationship     between the three major types of accounts found in the accounting world. When used correctly, it is      reliable tool in maintaining balance in company accounts. 

  Assets:
     In financial accounting, an asset is an economic resource. Anything tangible or intangible     that   can be owned or controlled to produce value and that is held by a company to produce positive   economic value is an asset. Simply stated, assets represent value of ownership that can be converted   into cash (although cash itself is also considered an asset).

  Liabilities:
     In financial accounting, a liability is defined as the future sacrifices of economic benefits that the     entity is obliged to make to other entities as a result of past transactions or other past events, the   settlement of which may result in the transfer or use of assets, provision of services or other yielding   of economic benefits in the future.

  Owner’s Equity : 
       Owner’s equity is one of the three main components of a sole Proprietorship’s balance sheet and    accounting equation. Owner’s equity represents the owner’s investment in the business minus the   owner’s draws or withdrawals from the business plus the net income (or minus the net loss) since   the  business began. Owner’s equity is viewed as a residual claim on the business assets because   liabilities have a higher claim. Owner’s equity can also be viewed (along with liabilities) as a source    of the business asset