Page 14 - DCOM101_FINANCIAL_ACCOUNTING_I

Financial Accounting-I

Notes know how much net profit he has earned from the operating activities during a period.

For this purpose Profit & Loss Account is prepared keeping in mind all the operating and

non-operating incomes and losses of the business. In the debit (left hand side) side all the
expenses and losses are disclosed and in the credit side (right hand side) all the incomes

are disclosed. The excess of credit side over debit side is called net profit while the excess
of debit side over credit side shows net loss.
12. Goods: It is a general term used for the articles in which the business deals; that is, only

those articles which are bought for resale for profit are known as Goods.
13. Drawings: It is the amount of money or the value of goods which the proprietor takes for
his domestic or personal use. It is usually subtracted from capital.

1.8 Summary

z Accounting is the medium of recording the business activities and considered as a language
of business.
z Accounting is the art of recording, classifying and summarizing in a signifi cant manner
and in terms of money transactions and events which are, in part at least, of a fi nancial
character, and interpreting the results thereof.

z Identifi cation of financial transactions, recording, classifying them into different groups,

summarizing them into trial balance and preparation of financial statements and analyzing
and interpreting them, are included in the accounting process.
z Financial accounting, cost accounting, management accounting, responsibility accounting,

tax accounting, inflation accounting, etc. are the branches of accounting. Accounting is an
art as well as a science.
z Accounting is done for the following objective:

™ For maintaining the systematic records
™ For ascertaining the profit/loss of the business

™ To present the fi nancial position
™ To provide the fi nancial information

z Accounting plays an important role in the determination of profi t, financial position, tax
liability, valuation of goodwill and shares and comparative study.

1.9 Keywords

Accounting Conventions: Customs and traditions which guide the accountants to record the
fi nancial transactions.

Accounting Process: It includes the recording of financial transactions, ledger posting, preparation

of financial statements and analyzing and interpretation of them.
Cost Accounting: Accounting relating to the ascertainment of cost of the product.
Management Accounting: Presenting of accounting information in such a way as to assist the
management in taking the important decisions and making the policies.

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