What is Accounting and Types of Accounting and Accounting Systems

on
What is accounting?
            It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a firm's assets, liabilities and owners' equity.
Main types of Accounting
·         Financial
·         Management
·         Governmental
·         Tax
·         Forensic
·         Project
·         Social
Accounting systems
There are two systems are using in the word
  1. British Accounting system
  2. American Accounting system


A.   British Accounting system
In British accounting system, there are mostly three types of accounts are using, which are following;
i.                    Nominal Account:  A nominal account is an account that is used during an accounting period to summarize the cash coming into the company and being paid out of the company for that time period. Nominal accounts are reported on the income statement, which is the financial statement that tells how much money a company made or lost in a given time period. In a nutshell, nominal accounts are any revenue and expense accounts that a company has. Examples of nominal account is; Utility Expenses, Supplies Expenses, Interest Expenses, service revenue, Wages Expenses etc.
ii.                  Real Account:    A real account is an account that will always be a part of a company's books once opened. It's there from the very first business day to the very last business day. Most of the real accounts show up on a company's balance sheet. The balance sheet is the financial statement that lists all the accounts that a company has and their balances. For example; Cash, N/P, A/R, Owner’s Equity etc.
iii.                Personal Account:    The accounts relating to individuals, firms, associations or companies are known as personal account.

B.     American Accounting System
In American Accounting System, there are mostly five accounts are using, which are following;

  1. Assets: tangible and intangible items that the company owns that have value (e.g. cash, computer systems, patents)
  2. Liabilities: money that the company owes to others (e.g. mortgages, vehicle loans)
  3. Equity: that portion of the total assets that the owners or stockholders of the company fully own; have paid for outright
  4. Revenue or Income: money the company earns from its sales of products or services, and interest and dividends earned from marketable securities
  5. Expenses: money the company spends to produce the goods or services that it sells (e.g. office supplies, utilities, advertising)

Comments

Post a Comment