LEARN ACCOUNTING

every business man likes to know that what he earned during a specific period,what he will do he will identify his revenues and deduct all the expenses which he beared during the period.when he subtract all the expenses from his revenues the remaining will be its income.is this simple step called accounting?

actually its not true before moving forward we have to establish a clear vision that what is accounting?

what is accounting?

accounting can be defined as a systematic arrangement of business data to evaluate the financial postion of a particular business during a particular period.

the accounting information is not only valuable for the proprietor it is also highly valuable for the stakeholder of the company, like creditors, contractors, employees, banks, financial institutions etc.

the accounting involves following steps:

• recording transaction
• posting to the ledgers
• balancing the ledges
• making trial balance
• making adjustment entries
• profit & loss account/income statement
• balance sheet
• fund flow statements
• cash flow statements

the final out put of accounting data are :

1. income statement/profit & loss Account
2. Balance sheet
3. Cash flow statement

INCOME STATEMENT/PROFIT & LOSS ACCOUNT

all revenues are identified that a firm has generated during specific period. and then all expenses are deducted the outcome is called gross profit if we display this expression in an equation we can write as follows:

GROSS PROFIT = REVENUES-EXPENSES

LETS HAVE AN EXAMPLE TO CLARIFY THIS

ABC CORPORATION GENERATED $20000 AS REVENUES DURING THE MONTH OF MAY,2010 AND THE EXPENSES WERE $15600. WHAT WAS THEIR GROSS PROFIT/GROSS INCOME DURING THE MONTH OF MAY:

REVENUES $20000

LESS: EXPENSES $15600

GROSS PROFIT $4400

WHEN YOU DEDUCT INTEREST AND TAXES FROM GROSS PROFIT U GET THE NET INCOME

SO WE CAN EXPRESS AS FOLLOWS

NET PROFIT = GROSS PROFIT- (INTEREST CHARGES+TAX PAYABLE)

NOW IN ABOVE EXAMPLE IF THE INTERST CHARGES WERE $2000 AND TAX PAYBLE WAS $800 THE NET PROFIT WILL BE AS FOLLOWS:

GROSS PROFIT $4400

LESS: INTEREST CHARGES $(2000)

LESS: TAX PAYABE $ (800)

NET INCOME $ 1600

BALANCE SHEET

Its a statement which shows that what are the assets of the firm and what are the liabilities of the firm and what was the capital to start or run the business

so mathematicaly we can say that

Balance sheet= assets=laibilities+capital
balance sheet has two main sides assets and liabilities+owners equity(capital)

means

Assets=liabilities+capital

CASH FLOW STATEMENT

Its a statement which shows that what firm has in cash after a specific period. or where , when , why & how the cash of the company utilised or generated. after reading the following illustration the concept of Cash Flow Statement will clearer:

suppose the ABC company has generated $20000 revenues in the month of may and 70% revenues were on credit and 30% are cash sales. if we connect it with the previous examples where we calculated $1600 Net profit for the Month of May, 2010.

but the ground reality is this that the company has receivable from the customers $14000 , so the accounting information can be misleading some times, the good analyst try to off cover these kind of limitations of any firm. in this illustration the firm may require to borrow or invest the funds for the continuity of the business.

this was simply an introduction for the students who are not familiar with the world of accounting. just to conceptulize the functioning of Accounting. we hope that after reading this our new students are in much better position to understand that what is accounting.

now its time to enter in the field of Accounting, lets get in.