Functions And Terms In Accounting

Following are the functions of accounting.

1. Recording (trans-recording)  
              This is the basic function of accounting. It is essentially concerned with not only ensuring that all business transactions of financial character are in fact recorded but also that they are recorded in an orderly manner. Recording is done in the book "Journal" which is also known as Journalising. Among which a single row of entry is referred as Journal Entry.

2. Classifying
               Classification is concerned with the systematic analysis of the recorded data, with a view to group transactions or entries of one nature at one place. The work of classification is done in the book termed as "Ledger". So an entry of journal to the leadger is termed as Posting.

3. Summarizing
                This involves presenting the classified data in a manner which is understandable and useful to the internal as well as external end-users of accounting statements. This process leads to the preparation of the following statements:
                a) An Income statement : Profit & loss account.
                b) A Position Statement  : Balance Sheet.

Here follows the relevant terms in accounting.

Capital : Its the investment made by the owners in the business.
eg : Started business with cash of $50000.

Drawings : Drawings in accounting are the assets withdrawn from the business by the owners. The assets can be in cash form or in any other form of asset withdrawn. This can be salaries for work done by the owner, or dividends if it is for a share of the profits.

Assets : Assets are referred as the cash/any valuables owned by the business. 
eg : Cash in hand, Cash at bank, Stock in trade, Sundry debtors, Furniture, Land, Buildings, Plants and machineries, Goodwill, Patent, etc.
          Debtors : Creditors
   a) Current Assets
eg : Cash in hand, Cash at bank, Stock in trade.
   b) Fixed Assets
eg : Furniture, Land, Buildings, etc.

Liabilities : Obligations/ debt of business.
eg : Bank loan, Bank overdraft, Sundry creditors, etc.

Revenue/ Income : Earnings of a business through sale of its products/ providing services to the customers.
eg : Sold goods to the customers(sale), Rent received, Commissions received, Discount received, Interest received, etc.

Expense :
eg : Purchased goods from wholesalers/ suppliers(purchases), Rent paid, Commissions paid, Discount paid, Interest paid, Salary paid, etc.

Purchases : It is the total amount of goods procured by the business for cash/on credit for the purpose of sale.

Sales (turnover) : Its the income from the sale of goods for cash/on credit.

Stock : Goods available with the business for the sale on a particular date(Inventory).
The value of goods remaining unsold at the end of an a/c period is termed as closing stock. The closing stock of a particular year becomes the opening stock for the next year.

Sundry Debtors (Asset) : Debtors are the persons who owe money to business(at the time of credit).

Sundry Creditors (Liability): Creditors are the persons to whom business owe money (at the time of purchase of goods on credit).


Journal Rule

Type of a/c         Debit              Credit      
Assets                   Increase        Decrease
Liabilities            Decrease       Increase
Capital                 Decrease       Increase
Revenues            Decrease       Increase
Expenses             Increase        Decrease


 Credit  ->  Decrease
 Debit   ->   Increase  
eg : Your a/c is debited with $700 means, a/c is decreased by $700.

  Examples For Journal Rules
1) Furniture a/c  -  Asset  -  Increase  -  Debt
     Cash a/c            -     "       -  Decrease -  Credit