Asalam-o-Alaikum dear friends, Today I am going to post the first lecture of financial accounting on "Introduction of Financial Accouting". This subject is very useful for our daily life.
What is Accounting?
Accounting is system or art of recording, summarizing and classification of all financial transaction that can be utilized by the stake holders.
Basic Terms of Financial Accounting
Asset
An asset is a economic resource of the firm. for example: Building, Land, Vehicle, Cash, Machinery Etc.
Types of Asset
Tangible Asset:
Those assets which can be touched, and seen are called Tangible Asset.
Example: Book, Pen,Land, Building, Machinery, Cash etc..
Intangible Asset:
Those asset which can not be touched or seen are called Intangible Asset.
Example: Qualities, Patent, Good will.
Current Asset:
Those asset which are remain same for longer period of time.( which can not be converted into cash easily).
Example: Building, Heavy Machinery, Land etc..
Fixed Asset:
Those asset which can easily convert into cash.
Example: Cash, Bank Balance, Inventory.
Liability:
An liability is an economic obligation that must be paid. for example: Loan
Two types of Liability:
Internal Liability:(Inside the Business):
Capital itself is a liability toward the business.
Example: Owner one day get its investement back as him money before earn profit.
External Liability:
1) Non Current Liability:
It's the liability which entity expected to settle within months, or within a year.
2) Current Liability:
It's the liability which entity expected to settle after long period of 10 year, 12 year etc.
Owner's Equity:
It's the amount of money invested by owner of business to run the business.It;s also known as Capital.
--Capital Increase the profit.
--Capital Decrease the profit.
Drawing:
It is inverse of capital. The money withdrawn by owner out of the business for his/her personal use.
Expenditure:
The action of spending funds. OR. An amount of money spent.
3 Types of Expenditure:
Capital Expenditure:
Money spent by business or organization on acquiring or maintaining fixed asset. Eg: Land, Equipment, Building etc.
Deffered Expenditure:
It's a cost that has already been incurred but which has not yet been consumed. The cost is recorded as an asset until such time as underlying goods, or services are consumed.
Revenue Expenditure:
It's an amount that is expensed immeidiately there by being matched with revenue of the current accounting period.Debitors:
Those person, to whom sold goods on credit.Creditors:
Those person, from whom we purchased goods on credit.Goods:
Those asset which are purchased for reselling purpose.
Debit:
A debit is an acounting entry that either increases an asset account or expense account. OR Decreases a liability account or owner's equity account. It's positioned to the left side in the accounting entry of general journal.
Credit:
A credet is an accounting entry that either increases a liability or owner's equity. OR Decreases an asset or expense account. It's positioned at right side in the accounting entry of general journal.
Profit:
It's financial benefit, when amount of revenue gained exceeds the expenses.
Business:
An activity to earn profit. Business word come from word "busy"
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