282472068-Accounting-for-Managers.pdf

Section c 1 what is accounting what are its

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Section C 1. What is accounting? What are its objectives and limitations? Accounting is a practice of recording, classifying, summarizing, analyzing and interpreting the financial transactions and communicating the results thereof to the persons interested in such information
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OBJECTIVES OF ACCOUNTING To maintain cash account through cash book. To record day to day non-cash transaction. To maintain various ledger accounts to find out the exact amount of income and expenses of gain and losses or receivable and payable. To furnish information regarding purchase, sales, both cash and credit. LIMITATIONS OF ACCOUNTING Accountant may select any method of depreciation, valuation of stock amortization or fixed assets. Therefore, accounting statements are influenced by personal judgment of the accountant. Accounting records only record transactions which can be measured in monetary terms. Accounting statements are prepared by following basic concepts and conversions therefore the accounting information may not be realistic. Accounting transactions are recorded at costs in the books. 2. Distinguish between Book-keeping and Accounting. Accounting is the art of classifying, recording and summarizing in a significant manner and in accordance with the theory of accounts and in terms of money, the elements in transaction and events which are at least partly of a financial nature. While book-keeping is the process of recording in chronological order the daily transactions of business entity. 3. Explain briefly the meaning of 'financial transactions'. Is an act of depositing money into a bank account or borrowing money from lender. These are events that involve money or payment. 4. Distinguish between fixed assets and floating assets. Tangible long-lived asset. Usually having a life of more than one year. Includes items such as land, building, plant, machinery, motor vehicles, furniture and fixtures. These are fixed assets Floating assets 5. Write notes on creditors for goods. Creditors are sellers of goods; creditors are also lenders of money. In a creditors ledger there should not be a debit at any point, 6. What do you mean by material facts in accounting?
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7. Explain the term 'Dual Aspects' briefly. dual aspect every transaction has two transactions. If there is any debit there must be credit entry. 8. Differentiate between gross income and net income. Gross income include all the income the business earns during the year while net income include only the profit the business earns after subtracting business expenses and other allowable deductions from gross income. 9. What is the meaning of double entry accounting? Double entry means that every business transactions will involve two accounts or more, 10. What do you understand by Money Measurement Concept? It means only transactions and events that are capable of being measured in monetary terms are recognized in the financial statement, 11. Explain the convention of consistency.
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