Notesale: Turn your study into money

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Basic Accounting
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Financial information is
very important in decision making in a business
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Further, the business activities also impact
various other parties
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Owners, debt holders, investors,
customers, employees and the government are usually considered as key interested
parties among other parties
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Accordingly, providing information is the main objective
of accounting
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- To know whether the business has earned an adequate profit
- To know whether the financial position of the business is sound
- To fulfill legal requirements (presentation of financial reports is a mandatory
requirement by law for some organisations)
- To minimize disadvantages arising through ommission and commission of
transactions, and to organize financial activities
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These reports are generally termed as Financial Statements
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For example, when a business purchases goods on cash basis, cash
and goods are exchanged between the business and the supplier
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In a business, there can be various types of transactions
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Examples :- Sales of goods for Rs 100 000 Monthly salary payment of Rs 50 000
Obtain a bank loan amounting to Rs 300 000 Payment of Rs 5 000 for electricity
In addition, to the exchange of resources mentioned above, some events that had
occurred in businesses are also considered in accounting
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10 000 A trade receivable that becomes a
bad debt - Rs
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Most of the transactions that occur in a business are associated with purchases and
sales of goods and providing services
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If the value of the transaction is settled at the point of the
transaction, it will be considered as a transaction on cash basis
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Assets

- Equity
- Liabilities
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Income and Expenses
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Examples :- Purchase of a machine by a business Purchase of a motor vehicle by a
business
In order to recognize an asset in accounting reports, its cost/value should be able to
be measured reliably
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Examples :- If a machine that had been purchased by a business is used to
manufacture and sale goods, the cash that flows to the business in future from that
machine
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If any item does not generate future economic benefits, that item cannot be
considered as an asset

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