When we start a business or plan our life financially then we must think about earning or income or flow of money. We can earn money from the different source like the sale of product or services, interest from the bank, salary (if serviceman) etc. But if we have no idea about accounts then we cannot convert that income into profit. That is why every person should know what accountancy is? And how can it maintain properly?
What is the accounting?
Accounting is an art of recording, classifying and analysing the financial events in term of money or equivalent transaction and generate the different type of financial reporting.
The five parts of the accounts are
- Analysing the financial events. i.e. transactions
- Generate decision-making reports.
Why accounts need
If we maintain the accounts properly then it calculates the following reports
- How many assets we have?
- How much Liabilities we have to others?
- How much profit or loss we made?
- What is the actual financial position of the business, that is leading us to take the correct decision in future.
Accounting life cycle
Every account follows a lifecycle for a particular financial year after then it will continue in the subsequent year.
Types of accounts
Accounts are divided into several types and subtypes
- Personal A/c: This types of accounts dealing with an individual or account of any corporate body or an institute which represents a person in business dealings. Eg. Customers, Creditors, Debtors, Owner, Bank, Firm etc.
- Impersonal A/c
- Real A/c:
- Tangible A/c: This types of accounts deal the things which can touch, count, felt etc. it may be fixed or current in nature. Eg. Cash, Land Building, Furniture, Stock, Bank A/c.
- Intangible A/c: This types of accounts deal the things which cannot be touched but it can be measured in term of money. Eg. Goodwill A/c etc.
- Nominal A/c: This types of accounts deal with expenses and losses, income and gains. Eg salary, rent etc.
- Real A/c: