Page 62 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes Preparation: After preparing, the summary of various unadjusted A/c are required to
adjust to the tune of adjustment entries which were not taken into consideration at the
time of preparing the trial balance. Immediately after the incorporation of adjustments,
the final statement is readily available for interpretations.

The following figure explains the key steps of accounting cycle:

Figure 4.1: Steps of Accounting Cycle

4.2.1 Account

An account is a statement in which the date wise details regarding the business transactions as
persons, companies, representatives, assets, liabilities, income and expenditures and profit &
loss are given.

Kinds of Accounts

For the purpose of ruling of debit and credit, under double entry system the accounts are
classified on the basis of two approaches. These are:
1. American Approach
2. English Approach
1. American Approach: As per this approach the accounts relating to financial transactions
are classified as follows:
(a) Assets Accounts: Under this heading those transactions are kept which are relating to
the business assets as plant, machinery, land, building, etc.
(b) Liabilities Account: Under this heading those accounts are kept which are relating to
the credit purchases and outstanding expenses, loans, capital, etc.

(c) Capital Account: Capital account is an account stating the amount of fund and assets
invested by the owner's in the business.

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