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Accounting
Accounting
Basic Accounting Process Consignment Accounting Bank Reconciliation Statement Partnership Accounts Final Accounts
Meaning = A small part of the total whole Synonyms constituent, part, building block, component, ingredient, factor, aspect
An Element in accounting
An element for the purpose of accounting is that aspect relating to which we wish to find/know information. Each element in accounting is identified as an account or an accounting head. Process Costing Standard Costing (Variance Analysis) Funds Flow Cash Flow
elements
We wish to know
The amount of capital invested in the business. Capital is an element. We identify it as Capital a/c. Permutations Combinations Probability Theory of Expectation (Random Variable)
The value of Furniture with us in the business. Furniture is an element. We identify it as Furniture a/c.
The amount of expenditure on account of salaries. Salaries is an element. We identify it as Salaries a/c.
The amount due to us from Mrs. Vimla. Mrs. Vimla is an element. We identify it as Mrs. Vimla's a/c.
The amount we owe the wholesaler Mr. Rathod. Mr. Rathod is an element. We identify it as Mr. Rathod's a/c.
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The amount available in the bank. Bank is an element. We identify it as Bank a/c.
The value of sales made by us. Sales is an element. We identify it as Sales a/c.
Types/Kinds of Accounts
All the accounting heads used in an organisational accounting system are divided into three kinds/types.
Personal Accounts
The elements or accounts which represent persons and organisations.
Real Accounts
The elements or accounts which represent assets In the initial stages of learning accounting, we can assume real accounts to be those related to tangible aspects.
Tangible/Touchable
Capable of being perceived by the senses or the mind; especially capable of being handled or touched or felt. There are assets which are intangible like the organisations Goodwill. [At this stage of the learning process, please ignore the presence of such assets.]
Nominal Accounts
The elements or accounts which represent expenses, losses, incomes, gains.
and Real accounts Real accounts as, the accounts other than Personal and Nominal accounts Personal accounts as, the accounts other than Real and Nominal accounts
Notice that the assets side is made up of Real a/c's and the Liabilities side is made up of Personal a/c's.
Capital a/c represents the owner of the business and therefore is a Personal account. All other liabilities imply the amounts we owe to others (persons or organisations) and thus are personal accounts.
elements as Salaries a/c, Rent a/c, Telephone Charges a/c, Miscellaneous Expenses a/c. All these together would form the total expenditure of the organisation. We interpret the number of elements used for the purpose of accounting as "the number of elements into which an organisation is divided for the purpose of accounting". This is dependent on the amount of information that an organisation needs. Greater the information needed, greater the number of accounting heads i.e. the number of elements into which the organisation is divided.
The more the information we need, The more the accounting heads we have to maintain. (Or) The more the information we need, The more the number of elements into which we need to divide the organisational accounting.
Liabilities a/c
All liabilities shall be considered under a single head Liabilities a/c (which includes capital).
Expenses/Losses a/c
All the expenses/losses whatever they may be are considered under a single head Expenses/Losses a/c.
Incomes/Gains a/c
All the incomes/gains whatever they may be are considered under a single head Incomes/Gains a/c.
Elements effected by a
Illustration :
Considering the same example (as in the previous page) of business transactions relating to the business of Mr. Oberoi .
Since Furniture is being bought by paying cash, the value of Furniture increases by Rs. 25,000 and the cash available with the business would reduce by Rs. 25,000. Furniture a/c Cash a/c Tangible aspect/Asset Tangible aspect/Asset Real a/c Real a/c
4. Bought Goods for cash Rs. 25,000 from M/s Roxy Brothers.
Since goods are bought by paying cash, the value of Goods increases by Rs. 25,000 and the cash available with the business would reduce by Rs. 25,000. Goods/Stock a/c Cash a/c Tangible aspect/Asset Tangible aspect/Asset Real a/c Real a/c
5. Bought Goods from Mr. Shyam Rao on credit for Rs. 10,000.
Since goods are bought on credit, the value of Goods increases by Rs. 10,000. The liabilities of the business would increase by Rs. 10,000. This liability is identified by the name of the vendor who gave the goods on credit i.e. Mr. Shyam Rao. Goods/Stock a/c Mr. Shyam Rao a/c Tangible aspect/Asset Person Real a/c Personal a/c
The buyer's name may also be considered if the organisation intends to have an accounting record of who bought what and how much, in which case the sale is recorded as a credit sale and the due cleared immediately.
7. Sold Goods on credit to M/s Bharat & Co., for Rs. 10,000.
Since goods are sold on credit, the value of Goods decreases by 10,000. A new asset in the form of a debtor (those who owe us) is created. The new asset is identified by the name of the organisation which purchased the goods on credit i.e. M/s Bharat & Co. Goods/Stock a/c M/s Bharat & Co. a/c Tangible aspect/Asset Organisation Real a/c Personal a/c
5,000.
Since cash is paid to Mr. Shyam Rao, the available cash reduces by Rs. 5,000 and the liability in the name of Mr. Shyam Rao (the amount due to him) also reduces by Rs. 5,000. Cash a/c Mr. Shyam Rao a/c Tangible aspect/Asset Person Real a/c Personal a/c
10. Received cash from M/s Bharat & Co., on account, Rs. 8,000.
Since cash is received from M/s Bharat & Co., the available cash increases by Rs. 8,000 and the asset in the name of M/s. Bharat & Co (the amount receivable from them) also reduces by Rs. 8,000. Cash a/c M/s Bharat & Co. a/c Tangible aspect/Asset Organisation Real a/c Personal a/c
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