PROJECT ACCOUNTING BASIC

Accounting Basics -Meaning

In economics, a good is a material that satisfies human wants and provides utility, for example, to a consumer making a purchase. A common distinction is made between 'goods' that are tangible property(also called goods) and services, which are non-physical. Commodities may be used as a synonym for economic goods but often refer to marketable raw materials and primary products

Although in economic theory all goods are considered tangible, in reality certain classes of goods, such as information, only take intangible forms. For example, among other goods an apple is a tangible object, while news belongs to an intangible class of goods and can be perceived only by means of an instrument such as print, broadcast or computer.

Introduction

Accounting is a glorious but misunderstood field. The popular view is that it's mostly mind-numbing number-crunching; it certainly has some of that, but it's also a rich intellectual pursuit with an abundance of compelling and controversial issues. Accountants are often stereotyped as soulless drones laboring listlessly in the bowels of corporate bureaucracies. But many accountants will tell you that it's people skills, not technical knowledge, that are crucial to their success. And although it's often thought of as a discipline of pinpoint exactitude with rigid rules, in practice accountants rely heavily on best estimates and educated guesses that require careful judgment and strong imagination.

Actually, stereotyping accounting and accountants, either positively or negatively, is useless because accounting involves so many different activities. The short-but-sweet description of accounting is "the language of business." A more formal definition is offered by The American Accounting Association: "The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information."
Definitions.

1.Commerce: An inherently useful and relatively scarce tangible item (article, commodity, material, merchandise, supply, wares) produced from agricultural, construction, manufacturing, or mining activities. According to the UN Convention On Contract For The International Sale Of Goods, the term 'good' does not include (1) items bought for personal use, (2) items bought at an auction orforeclosure sale, (3) aircraft or oceangoing vessels.

2.Economics: A commodity, or a physical, tangible item that satisfies some human want or need, or something that people find useful or desirable and make an effort to acquire it. Goods that are scarce (are in limited supply in relation to demand) are called economic goods, whereas those whose supply is unlimited and that require neither payment nor effort to acquire, (such as air) are called free goods.'

Advantages

Computerized accounting systems offer several advantages for small businesses. Systems for small and medium sized businesses can be purchased off the shelf at low cost. These programs allow managers to see the company's financial position in "real-time" and make adjustments to the business strategy as needed. Computerized systems can also provide instant reports on stock evaluation, profit and loss, customer accounts and payroll and sales analysis, again, allowing faster adjustments in your business strategy. In addition, transactions need to be input only once, and, with some training, anyone in the company can handle the inputting.

Disadvantages

Using a computerized accounting system comes with its own set of problems, such as the need to protect against data loss through power failure or viruses, and the danger of hackers stealing data. Computer fraud is also a concern, and you need to instigate a system of controls for who has access to the information, particularly customer information. If there is a security breach and data is stolen, management can be held personally liable for the loss of data. You also need to make sure that the data has been correctly entered into the system, as a mistake in data entry can throw off a whole set of data.

The Nature of Accounts: Definitions

An 'account' is a specific location for recording transactions of a like kind. For example, in the gas-for-cash transaction above, two accounts are used, a "Cash" account and a "Gas" account. Unused by that example, but described is an account for "Equipment" which would include the portable gas can and the lawn mower.

The basic types of accounts are:

'Assets:' items of value that the company owns or has right to. Examples include: cash, real estate, equipment, money or services that others owe you, and even intangible items such as patents and copyrights.

'Liabilities:' obligations that are owed to other parties. Examples include: wages payable, taxes due, and borrowed money (also called debt).

'Equity:' the ownership value of a company. Examples include: common stock and retained earnings (we'll describe retained earnings below in "Financial Statements")

'Revenues:' the mechanisms where income enters the company (note that revenue and income are not the same thing--they are used here to describe each other in basic terms only).

Conclusion

This framework lays out the model for the design and analysis of culture statistics as they relate to the creative chain for culture goods and services. It provides the foundation for developing a coherent set of culture data that recognize the measurement of financial and economic flows associated with the supply and demand for culture goods and services, as well as the social impact of culture. In time, the framework will support the development of indicators and the identification of important data gaps.

This conceptual framework has been designed along with a companion document, entitled Classification Guide for the Canadian Framework for Culture Statistics 2011. The guide is intended to provide data users with a tool to map existing standard classification systems according to the definitions and domains outlined in this framework. The Canadian Framework for Culture Statistics (CFCS) provides the conceptual foundation for measurement, while the guide provides the tool to identify the relevant classification codes that will support data collection and analysis.

 

Characteristic Features:

(i) Departmental stores are large-scale retail establishments.

(ii) They have a number of departments organized under one roof.

(iii) Each department specializes in a particular kind of trade.

(iv) Their basic principle is that it is easier to sell more goods to the same customers by providing a large variety of goods than to sell the same kind of goods to many customers. Hence, they provide a large variety of merchandise from a pin to an aeroplane, and act as universal suppliers.

(v) Their aim is to provide quality goods and services to the customers. Restaurants, telephone facilities, recreational facilities, reading rooms etc. are also provided by them.

'Expenses:' the costs of doing business. Examples include: salary expense, rent, utilities expense, and interest on borrowed money.

'Income:' in U.S. business and financial accounting, the term 'income' is also synonymous with revenue; however, many people use it as shorthand for net income, which is the amount of money that a company earns after covering all of its costs.

Assets

An asset gives the value of things owned by the business. People or businesses that owe you money are your assets. Examples of assets are:

• Petty cash
• Checking account balance
• Property owned by business
• Furniture and fittings
• Customers
• etc.

 Liabilities

A liability is the opposite of an asset. It is people or businesses to whom your business owes money. Examples of liabilities are:

• Credit card accounts
• Loan accounts
• Suppliers
• etc.

 Income

Sales Income  (Total Income)

This is the total income for all sales of goods or services provided after taxes have been deducted. The bookkeeper might decide to keep different accounts for different types of sales – e.g. “Car Sales”, “Caravan Sales”.

Non-Operating Income 

This section is for income that is not directly related to the day-to-day operation of the business. Suppose the business invests surplus funds or rents out surplus office space. The income from this type of venture would be classified as “Non-operating Income”.

 Expenses

Expenses are those monies that you pay or bills that you receive for goods or services received – again, after tax has been deducted.

The Chart of Accounts

This is the complete list of accounts being used by the business. Some bookkeepers decide to create their own accounts and the chart of accounts would only show the actual accounts that are used in the business. The bookkeeper might decide to use the default chart of accounts provided by the software package Express Accounts. Whatever the choice, it is important that the bookkeeper feel free to add new accounts to match the requirements of the business. Some notes in this regard are:

§     Every account should be associated with an account number. This is usually a 4 digit number that indicates the type of account and the position of the account in final reports. Some systems allow an account to be specified by number rather than name.

§     Some accounts are important but are not directly used by the bookkeeper. If the bookkeeper uses the invoicing system in Express Accounts, then new customers are added to the list of customers in the invoicing system. These customers do not individually appear in the reports for the business – the data instead is summarized under an account called “Accounts receivable”.  In a similar way, purchases on account are not listed individually but are collected together under “Accounts Payable”.

Based on periodicity of flow

The classification of accounts into real, personal and nominal is based on their nature i.e. physical asset, liability, juristic entity or financial transaction.

The further classification of accounts is based on the periodicity of their inflows or outflows in the context of the fiscal year.

Income is immediate inflow during the fiscal year.

Expense is the immediate outflow during the fiscal year.

An asset is a long-term inflow with implications extending beyond the financial period and by the traditional view could represent unclaimed income. Alternatively, an asset could be valued at the present value of its future inflows.

Liability is long term outflow with implications extending beyond the financial period and by the traditional view could represent unamortised expense. Alternatively, a liability could be valued at the present value of future outflows.

What are the Rules of Accounting?

Accounting is the mechanism used to record activities and transactions that occur within a business.. In its simplest terms, Accounting is the "language of business." However, in order to have an understandable record, a standard set of rules for accounting within the U.S. has been established. These rules are called the Generally Accepted Accounting Principles(GAAP), and all U.S. businesses are expected to follow them.

The first general rule of accounting is that every transaction is recorded. It has been said that businesses that do not record transactions, or incorrectly record transactions, are committing fraud, although this is not necessarily the case. Fraud is part of a much broader area called material misstatement which also can include error. An error is not necessarily fraud under the law. While there are exceptions to this rule, the guidance for applying those exceptions is specifically defined by GAAP, and is applicable to all businesses.

Overview of the accounting cycle

When a transaction occurs, a document is produced. Most of the time, these documents are external to the business, however, they can also be internal documents, such as inter-office sales. These documents are referred to as a source document. Some examples of source documents are:

·         The receipt you get when you purchase something at the store.

·         Interest you earned on your savings account which is documented in your monthly bank statement.

·         The monthly electric utility bill that comes in the mail.

These source documents are then recorded in a Journal. This is also known as a book of first entry. The journal records both sides of the transaction recorded by the source document. These write-ups are known as Journal entries.