Write down the need of accounting?

Recording of transactions: Accounting is needed to record all the transactions of the business and
maintain proper books to show assets, liabilities, capital and profit and loss. Up-to-date records help
businessmen to compare current financial information to past data.

profit and loss: Businesses are some to earn profits, and to know whether a business is earning
profits, one must prepare a profit and loss account, which ultimately will show the results of
transactions done

Tax Filing: One of the major reasons for accounting is the preparation of files of tax returns on income
tax, sales tax, wealth tax, exercise duty, tax on dividends, value-added tax, import and export duties,
and many more.

Knowing the financial position: A businessman should always be aware of his business's financial
position in the market. A statement called a balance sheet has all the information of the assets and
liabilities of the company and thus helps in knowing the business's financial position.

Necessary Information for financial Institution: When a business wants investment from financial
institutions, they have to show the necessary information like sales, profitability, and financial position,
which are there in accounts.

Payroll accounting: accounting helps maintain the records of all the employees through the payroll
accounting management system.

Healthy comparison with market competitions: Accounts have all data on sales, stocks, profits,
losses, and expenses. This data of own company and other competitions helps a businessman to
variances of the Business Activities and thus take effective control over the business.

Information to Investors and employees: A creation of an account is needed to ensure investors'

safety of their money and also ensure employees of the business growth, which ultimately will benefit
them in an increase of income.

Other objectives: Accounting information is also needed to fix the company's budget and to do an
analysis, cost control, and decision making by referring to accounts.

b] What is the financial accounting? What are the objectives of financial accounting?

Financial accounting is an act of recording, processing, and communicating financial data and
information to stakeholders, creditors and interested third parties. It is paramount that they are
accurate and well-maintained.

Listed below are some of the few objectives of financial accounting:

1. Compliance with statutory requirements

It ensures that the firm is working as per the tax rules and regulations of the Companies Act and
complying with the other statutory requirements of the country in which it undertakes business.

2. Record-keeping

Financial accounting helps the company to correctly identify and systematically record transactions.

3. Determine profitability

Financial accounting is used in accounting for a company’s revenues and expenses, thereby helping
determine profitability.

4. Making management decisions

Your financial position entices the interest of stakeholders, creditors, and other parties. The accounting
process enables firms and business owners to assess and evaluate financial stability and scope.

a] Explain objectives and scope of financial accounting.

scope of financial accounting.

Financial accounting is primarily concerned with the preparation of financial statements, which include
the balance sheet, income statement, and cash flow statement.

These statements provide information about the financial position, performance, and cash flows of a
business, and are used by investors, creditors, and other external stakeholders to make investment
and lending decisions.

2. Recording Transactions

Financial accounting involves the recording of financial transactions in a systematic and consistent
manner. This involves the use of various accounting tools and techniques, such as double-entry
accounting, journal entries, and ledger accounts.

The accuracy and completeness of these records are essential for the preparation of accurate financial
statements.

3. Accounting Standards

Financial accounting is governed by various accounting standards, such as GAAP and International
Financial Reporting Standards (IFRS).

These standards provide guidelines and principles for the preparation and presentation of financial
statements, ensuring consistency and comparability across different businesses and industries.

4. Auditing (Scope of Financial Accounting)

Auditing is an important aspect of financial accounting and involves the independent examination of
financial statements by a qualified auditor.

The objective of auditing is to provide assurance to stakeholders that the financial statements are free
from material misstatement and are prepared in accordance with the relevant accounting standards.

Objectives of Accounting:
 1. Recording business transactions systematically− It is necessary to maintain systematic records
of every business transaction, as it is beyond human capacities to remember such large number
of transactions. Skipping the record of any one of the transactions may lead to erroneous and
faulty results.

2. Determining profit earned or loss incurred− In order to determine the net result at the end of
an accounting period, we need to calculate profit or loss. For this purpose trading and profit and
loss account are prepared. It gives information regarding how much of goods have been
purchased and sold, expenses incurred and amount earned during a year.

3. Ascertaining financial position of the firm− Ascertaining profit earned or loss incurred
is not enough; proprietor also interested in knowing the financial position of his/her firm, i.e.
the value of the assets, amount of liabilities owed, net increase or decrease in his/her capital.
This purpose is served by preparing the balance sheet that facilitates in ascertaining the true
financial position of the business.

4. Assisting management− Systematic accounting helps the management in effective decision

making, efficient control on cash management policies, preparing budget and forecasting, etc.

5. Assessing the progress of the business− Accounting helps in assessing the progress of business
from year to year, as accounting facilitates the comparison both inter-firm as well as intra-firm.

6. Detecting and preventing frauds and errors− It is necessary to detect and prevent fraud and
errors, mismanagement and wastage of the finance. Systematic recording helps in the easy
detection and rectification of frauds, errors and inefficiencies, if any.

7. Communicating accounting information to various users− The important step in the accounting
process is to communicate financial and accounting information to various users including both
internal and external users like owners, management, government, labour, tax authorities, etc.
This assists the users to understand and interpret the accounting data in a meaningful and
appropriate manner without any ambiguity.

b] Explain meaning and use of book keeping.

Bookkeeping is a part of the accounting process that deals with recording of the transactions. It is the
systematic recording and classification of accounting transactions. Bookkeeping can be described as an
accounting function that is helpful in the accounting process.

Bookkeeping is associated with proper classification of all the financial transactions that take place in
the business. It ensures that the recorded transactions are correct and properly updated.

Bookkeeping is the source of information from which financial accounts are prepared. Accurate
bookkeeping is essential for the external users, which includes investors, government and other
financial institutions.

Bookkeeping provides these users with reliable information that influences decisions related to lending
and investment.
Use of booking

Following are some of the points about importance of bookkeeping:

1. Helps in budgeting: Bookkeeping makes it easier for the business organisation to plan a budget
accordingly.

2. It is easier to calculate tax.

3. Bookkeeping makes it easier for analysing the financial performance of the company.

4. Bookkeeping makes it easier to present the financial information to investors, which is helpful in
decision making related to investment.

Q 3 a] Explain in details types of accounting.

1. Financial Accounting

Under this branch of accounting, recording and clarifying the business transactions and preparing and
presenting the financial statements is done. Financial accounting works on the principles of GAAP and
focuses on the historical data and performance of the company.

For example, the reports and records can be analyzed by a financial accountant to check the previous
quarter's performance and make the required changes in the next quarter. This is helpful in analyzing
the balance sheet and preparing the P&L Account. This information is used by various interesting
parties such as management, stakeholders, creditors, etc. in regards to loans, investments, or
acquisitions.

2. Managerial Accounting

This accounting is used to supply the information to the internal structure of the company,
i.e., management. These accountants have the responsibility to monitor the use of money instead of
its amount. The rules of GAAP are not necessary to follow in managerial accounting and are a point of
focus in the needs of management. The CIMA has prepared a set of accounting principles which are
called Global Management Accounting Principles (GMAP).

3. Cost Accounting

Cost accounting is generally considered a subset of management accounting. Under this branch, the
point of focus is evaluating costs. For this purpose, cost accounting considers all the factors of
manufacturing so that the cost of a project or venture can be determined accurately. A cost accountant
prepares and presents reports by analyzing manufacturing costs. It helps the decision-makers in
getting effective information about how to reduce costs or when and where to spend more. It
supervises various projects to control waste and cost. The prime use of cost accounting is to analyze
actual costs over budget so that future monetary actions can be determined.

4. Auditing

Auditing can be done internally or externally by the company. This branch of accounting helps in
examining and monitoring an accurate report for the business, compliance with various tax regulations,
and financial integrity. There are generally two types of auditors that are hired by the company:
5. Tax Accounting

Under this branch of accounting, state and federal tax rules are included which is used during tax
planning or preparing the tax returns. Tax accounting focuses on the effects of tax policies on a
business and tries to minimize the taxes or the consequences of tax decisions through advisory
services. These accountants are responsible to calculate the income and other taxes that are
dependent on the business structure. As we know, taxes and income brackets are different for different
companies. Tax accounting had proper tax laws whether the company is a sole proprietorship,
corporation, or limited liability cooperation (LLC).

b] Write down the terms using in accounting?

Accounting Terms

Accounting Equation – The Accounting Equation is Assets = Liabilities + Equity. With accurate
financial records, the equation balances.

Accounting – Accounting keeps track of the financial records of a business. In addition to recording
financial transactions, it involves reporting, analyzing and summarizing information.

Accounts Payable – Accounts Payable are liabilities of a business and represent money owed to
others.

Accounts Receivable – Assets of a business and represent money owed to a business by others.

Accrual Accounting – Records financial transactions when they occur rather than when cash changes
hands. For example, when goods are received without payment, an Accounts Payable is recorded.

Accruals – Accruals acknowledge revenue when it is earned and expenses when they are incurred
even though a cash transaction may not be involved.

Amortization – Reduces debts through equal payments that include interest.

Asset – Items of value that are owned.

Audit Trail – Allow financial transactions to be traced to their source.

Auditors – Examine financial accounts and records to evaluate their accuracy and the financial
condition of the entity.

Balance Sheet – Provides a snapshot of a business’ assets, liabilities, and equity on a given date.

Bookkeeping – Recording of financial transactions in an accounting system.

Budgeting – Budgeting involves maintaining a financial plan to control cash flow.

Capital Stock – Total amount of common and preferred stock issued by a company.

Capital Surplus – The amount in excess of par value for shares of common stock.

Capitalized Expense – Accumulated expenses that are expensed over time.

Cash Flow – The difference in money flowing in and out. A negative flow indicates more money going
out than coming in. A positive flow shows more money coming in than going out.
Cash-Basis Accounting – Records when cash is received through revenues and disbursed for
expenses.

Chart of Accounts – An organization’s list of accounts used to record financial transactions.

Closing the Books/Year End Closing – Closing the Books occurs at the end of the annual period and
allows for a start with a clean book at the beginning of the next year.

Cost Accounting – Used internally to determine the cost of operations and to establish a budget to
increase profitability.

Credit – Entered in the right column of accounts. Liability, equity and revenue increase on the credit
side.

Debit – Entered in the left column of accounts. Assets and expenses increase on the debit side.

Departmental Accounting – Shows individual departments’ income, expenses and net profit.

Depreciation – The decrease in an asset’s value over time.

Dividends – Profits returned to the shareholders of a corporation.

Double-Entry Bookkeeping – Requires entries of debits and credits for each financial transaction.

Equity – Represents the value of company ownership.

Financial Accounting – The accounting branch that prepares financial reporting primarily for external
users.

Financial Statement – Financial Statements detail the financial activities of a business.

Fixed Asset – Used for a long period of time, e.g. – equipment or buildings.

General Ledger – Where debit and credit transactions are recorded.

Goodwill – Intangible asset a business enjoys like its reputation or brand popularity.

Income Statement – A Financial Statement documents the difference in revenue and expenses
resulting in income.

Inventory Valuation – A valuation method modified for use in real estate and business appraisals.

Inventory – Inventory consists of raw materials, work in progress, and finished goods.

Invoice – An Invoice shows the amount of money owed for goods or services received.

In The Black – Makes reference to a profit on the books; opposite of “in the red.” Black Friday sales
are known for the profit retailers are adding to their books.

In The Red – Makes reference to a loss on the books; opposite of “in the black.” In the days of
handwritten accounting, ledger entries written in black meant there was a profit, but those in red
meant there was a loss.

Job Costing – Job Costing tracks costs of a particular job against its revenues.

Journal – The first place financial transactions are entered. They are entered chronologically.

Liability – Liabilities are the obligations of an entity, usually financial in nature.

Liquid Asset – Consist of cash and other assets that can be easily converted to cash.

Loan – A monetary advance from a lender to a borrower.

Master Account – A Master Account has subsidiary accounts. Accounts Receivable could be a master
account for various individual receivable accounts.

a] Explain in details golden rules of accounting.

Golden rules of accounting

Real Account

 If the item that belongs to the real account is coming into the business, then while making the
accounting entries, it should be written on the Debit side.

 If the item of real account is going out of business, then while making the accounting entries, it
should be written on the Credit side.

The accounting rule of a real account goes like

“Debit what comes in,

credit what goes out”

 Personal accounts can be considered as a general ledger that relates to people, associations,
and companies.

 If the person/ group of persons/ legal body is receiving something from the business, then –
Debit the receiver

 If the person/ group of persons/ legal body is paying something to the business – Credit the
payer or giver

The accounting rule of the personal account goes like

“Debit the receiver,

Credit the giver”

Nominal Accounts represents all the transactions of business like Expenses, Loses, Income and gains
incurred while doing business. Some common e.g., are,

 Electricity Expenses,

 Telephone Expenses,

 Interest Received,

 Profit on the Sale of Machines, etc.

If it’s an expense or loss for the business – Debit

If it’s an income or gain for the business – credit

The accounting rule of the nominal account goes like

“Debit all expenses and losses,
credit all incomes and gains”