0% found this document useful (0 votes)
19 views28 pages

BASIC ACCOUNTING SOFTWARE (TUSHAR TIWARI)

The document provides an overview of basic accounting software, detailing the accounting process which includes recording, analyzing, summarizing, and reporting financial transactions. It outlines the golden rules of accounting, the importance of final accounts such as profit and loss accounts and balance sheets, and the components of cash flow statements. Additionally, it discusses inventory types and valuation methods, emphasizing the significance of accurate financial reporting for business decision-making.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
19 views28 pages

BASIC ACCOUNTING SOFTWARE (TUSHAR TIWARI)

The document provides an overview of basic accounting software, detailing the accounting process which includes recording, analyzing, summarizing, and reporting financial transactions. It outlines the golden rules of accounting, the importance of final accounts such as profit and loss accounts and balance sheets, and the components of cash flow statements. Additionally, it discusses inventory types and valuation methods, emphasizing the significance of accurate financial reporting for business decision-making.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 28

PRACTICAL FILE

BASIC ACCOUNTING SOFTWARE


Accounting is the process of recording financial transactions pertaining to a business.
The accounting process includes summarizing, analyzing, and reporting these
transactions to oversight agencies, regulators, and tax collection entities.

Accounting is the process of recording, analyzing, summarizing, and reporting a


business's financial transactions:
• Recording: Recording the money a business makes and spends
• Analyzing: Analyzing the transactions
• Summarizing: Summarizing the transactions
• Reporting: Reporting the transactions to regulators, tax collection entities, and
oversight agencies
Accounting is important for decision-making, cost planning, and measuring economic
performance. The information produced by accounting is used by business leaders to:

• Evaluate staffing and payroll


• Assess inventory levels
• Investigate new business opportunities
• Maximize profitability
• Manage cash flow
• Analyze the financial health of the business
Accounting also helps to detect and prevent fraud, errors, mismanagement, and
wastage of finance.

GOLDEN RULES OF ACCOUNTING

The three golden rules of accounting are:


• Debit the receiver, credit the giver
• Debit what comes in, credit what goes out
• Debit all expenses and losses, credit all income and gains:
These rules are the foundation of double-entry accounting and help to ensure that
financial records are accurate and transparent. They also help to maintain uniformity in
accounting, which is important because economic entities are compared to understand
their financial status.

Here are some more details about the golden rules of accounting:
• Debits and credits
A debit is an entry made on the left side of an account, while a credit is an entry made
on the right side.
• Real, personal, and nominal accounts
The golden rules apply to different types of accounts, including real, personal, and
nominal accounts. For example, a bank account is a real account, while an interest
account is a nominal account.
MUKESH & COMPANY
PURCHASE ACCOUNT
Q-1.1 –CAPITAL INTRODUCED
Q.NO-1.2 OPEN BANK ACCOUNT
Q.1.3 PURCHASE ON CREDIT
Q.1.3 PURCHASE ON CASH
Q.NO-1.4 SALARY PAID
Q.NO-1.5 DRAWING ACCOUNT
Q.NO-1.6 SOLD GOODS ON CASH
Q.NO-1.7 INTEREST RECEIVED
Q.NO-1.8 ISSUE CH. IN FAVOUR OF MR.X
FINAL ACCOUNT’S

Final accounts, also known as year-end or statutory accounts, are financial


statements that a business prepares at the end of its accounting year:
• Balance sheet
Shows the company's financial position, including the value of its assets, liabilities, and
equity
• Profit and loss account
Shows the company's revenues, expenses, and profit or loss for the accounting year
• Trading account
Shows the results of buying and selling goods, including the difference between selling
and cost price
Final accounts provide a clear picture of a company's financial position, which
is useful for management, investors, owners, shareholders, and other users of
the information.
PROFIT & LOSS ACCOUNT’S
A profit and loss account shows a company’s revenue and expenses over a particular
period of time, typically either one month or consolidated months over a year. These
figures show whether your business has made a profit or a loss over that time period.

Profit and loss accounts show your total income and expenses, and also shows whether
your business has earned more income than it has spent on its running costs. If that is
the case, then your business has made a profit.

The profit and loss account represents the profitability of a business. It cannot, for
example, show you if you are running out of cash as you build stock. For this sort of
insight, you’ll need a balance sheet.

The profit and loss account is also known as a P&L report, an income statement, a
statement of operation, a statement of financial results, or an income and expense
statement.

What does a profit and loss account include?

A profit and loss account will include your credits (which includes turnover and other
income) and deduct your debits (which includes allowances, cost of sales and
overheads). These are used to find your bottom line figure – either your net profit or your
net loss.

What is a profit and loss account used for?

The profits shown in your profit and loss account are used to calculate both income
tax and corporation tax. Failure to file either of these correctly can result in you paying
added interest and penalties, so it’s important to get this report right.

The P&L account takes revenues into account for a specific period. It also records any
expenses or costs incurred by these revenues, such as depreciation and taxes.

This can be used show investors and other interested parties whether or not the
company made money during the period being reported.
MUKESH & COMPANY PROFIT & LOSS ACCOUNT
BALANCE SHEET
A balance sheet depicts many accounts, categorized under assets and liabilities. Like
any other financial statement, a balance sheet will have minor variations in structure
depending on the organization. Following is a sample balance sheet, which shows all the
basic accounts classified under assets and liabilities so that both sides of the sheet are
equal.

A balance sheet consists of two main headings: assets and liabilities. Let us
take a detailed look at these components.

Assets
An asset is something that the company owns and that is beneficial for the
growth of the business. Assets can be classified based on convertibility,
physical existence, and usage.

a. Convertibility: This describes whether the asset can be easily converted


to cash.
Based on convertibility, assets are further classified into current assets and
fixed assets.
1. Current assets: Assets which can be easily converted into cash or cash equivalents within a
duration of one year. Examples include short-term deposits, marketable securities, and stock.
2. Fixed assets: Assets which cannot be easily or readily converted to cash. For example,
buildings, machinery, equipment, or trademarks.
b. Physical existence: Assets can be of two types, tangible and intangible.
1. Tangible assets: Assets which you can see and feel, like office supplies, machinery,
equipment, and buildings.
2. Intangible assets: Assets which do not have physical existence, like patents, brands, and
copyrights.
c. Usage: Assets can be classified as operating and non-operating assets.
1. Operating assets: Assets which are necessary to conduct business operations. For example,
buildings, machinery, and equipment.
2. Non-operating assets: Short-term investments or marketable securities that are not necessary
for daily operations.

Liabilities
Liabilities are what the company owes to other parties. This includes debts
and other financial obligations that arise as an outcome of business
transactions. Companies settle their liabilities by paying them back in cash or
providing an equivalent service to the other party. Liabilities are listed on the
right side of the balance sheet.

Depending on context, liabilities can be classified as current and non-


current.

1. Current liabilities: These include debts or obligations that have to be


fulfilled within a year. Current liabilities are also called short-term assets, and
they include accounts payable, interest payable, and short-term loans.
2. Non-current liabilities: These are debts or obligations for which the
due date is more than a year. Non-current liabilities, also called long-term
liabilities, include bonds payable, long-term notes payable, and deferred tax
liabilities.

Owner’s Equity/ Earnings


Owner’s equity is equal to total assets minus total liabilities. In other words, it
is the amount that can be handed over to shareholders after the debts have
been paid and the assets have been liquidated. Equity is one of the most
common ways to represent the net value of the company. Part of
shareholder’s equity is retained earnings, which is a fixed percentage of the
shareholder’s equity that has to be paid as dividends.

The equity value can be positive or negative. If the shareholder’s equity is


positive, then the company has enough assets to pay off its liabilities. If it is
negative, then liabilities exceed assets.
General sequence of accounts in a balance sheet
According to Generally Accepted Accounting Principles (GAAP), current
assets must be listed separately from liabilities. Likewise, current liabilities
must be represented separately from long-term liabilities. Current asset
accounts include cash, accounts receivable, inventory, and prepaid
expenses, while long-term asset accounts include long-term investments,
fixed assets, and intangible assets.

Under your current liability accounts, you can have long-term debt, interest
payable, salaries, and customer payments, while long-term liabilities include
long-term debts, pension fund liability, and bonds payable.

Asset accounts will be noted in descending order of maturity, while liabilities


will be arranged in ascending order. Under shareholder’s equity, accounts are
arranged in decreasing order of priority.

Balance sheet formula & equation


The balance sheet equation follows the accounting equation, where assets
are on one side, liabilities and shareholder’s equity are on the other side, and
both sides balance out.

Assets = Liabilities + Shareholder’s Equity


According to the equation, a company pays for what it owns (assets) by
borrowing money as a service (liabilities) or taking from the shareholders or
investors (equity).
MUKESH & COMPANY BALANCE SHEET
CASH FLOW STATEMENT

A cash flow statement may go by a few different names — CSF, statement of


cash flow, SCF, or consolidated statement of cash flows — but each name
represents the same thing: a financial statement where a company’s operating,
investing, and financing activities are reported in terms of incoming and outgoing
money.

Cash moves into and out of a business for various reasons, sometimes unrelated
to the direct sale of products, goods, or services. The cash on these financial
statements includes current assets, like money in checking and savings
accounts, and cash equivalents, like short-term investments.

Cash flow statements explain how the company manages this cash. For
example, a CSF can show if a company is taking on excess financing to fund
operations but isn’t generating enough cash to support those debts.

Cash Flow Statement Components


A statement of cash flows displays incoming and outgoing money from three
types of activities: operating, investing, and financing.

Operating Activities

Cash flows from operating activities include money spent or generated by selling
products, goods, or services. Line items in this section may include:

• Depreciation and amortization: how much an asset loses value over the
course of its lifetime
• Changes in working capital: transactions that affect current assets or
liabilities
• Accounts receivable: money owed to the company by clients and
customers
• Accounts payable: money the company owes to clients and customers
• Inventory: sellable products or goods
Investing Activities

Investing activities include changes to long-term assets, such as real estate, and
changes in capital expenditures (CapEx). Line items for this section include:

• PP&E purchases: plant, property, and equipment (PP&E) purchases, such


as warehouse space, office equipment, or production plants
• Proceeds from PP&E sales: money generated from selling PP&E
• Purchase of marketable securities: buying stocks or bonds
• Proceeds from sale of marketable securities: money generated from
selling stocks or bonds
• Business acquisition proceeds: money made or spent as part of
acquiring another business or part of the company being acquired
Financing Activities

Cash flows from financing activities involve any money spent or generated from
issuing debt, paying dividends to shareholders, and repaying long-term loans.
Line items in the financing activities section include:

• Dividend payments: Revenue or earnings redistributed to shareholders as


cash or stock reinvestments
• Repurchase of common stock: Buying back previously issued public
shares
• Proceeds from issuing debt: Money made by selling debt to investors
• Repayments of long-term debt: Money spent to repay loans
MUKESH & COMPANY CASH FLOW STATEMENT
INVENTORY
The term inventory refers to the raw materials used in production as well as the goods
produced that are available for sale. A company's inventory represents one of the most
important assets it has because the turnover of inventory represents one of the primary
sources of revenue generation and subsequent earnings for the company's
shareholders. There are three types of inventory, including raw materials, work-
inprogress, and finished goods. It is categorized as a current asset on a company's
balance sheet.

Under U.S. GAAP (Generally Accepted Accounting Policies), inventory can be valued in
three ways. These methods are the:

• First-in, first-out (FIFO) method, which says that the COGS is based on the cost
of the earliest purchased materials. The carrying cost of the remaining inventory,
on the other hand, is based on the cost of the latest purchased materials
• Last-in, first-out (LIFO) method. This method states that the COGS is valued
using the cost of the latest purchased materials, while the value of the remaining
inventory is based on the earliest purchased materials.
• Weighted average method, which requires valuing both inventory and the COGS
based on the average cost of all materials bought during the period.
Types of Inventory
Remember that inventory is generally categorized as raw materials, work-in-progress,
and finished goods. The IRS also classifies merchandise and supplies as additional
categories of inventory.1

Raw materials are unprocessed materials used to produce a good. Examples of raw
materials include:

• Aluminum and steel for the manufacture of cars


• Flour for bakeries that produce bread
• Crude oil held by refineries

Work-in-progress inventory is the partially finished goods waiting for completion and
resale. WIP inventory is also known as inventory on the production floor. A
halfassembled airliner or a partially completed yacht is considered to be a work-in-
process inventory.

Finished goods are products that go through the production process, and are completed
and ready for sale. Retailers typically refer to this inventory as merchandise. Common
examples of merchandise include electronics, clothes, and cars held by retailers.

MUKESH & COMPANY (STOCK SUMMARY)

MUKESH & COMPANY (PENCIL)


MUKESH & COMPANY (REGISTER)
CREATE ABC COMPANY

DELETE ABC COMPANY

You might also like