Accounting concepts - What is account | Process of accounting | Types of accounting

Accounting concepts

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Let us give you some information related to the accounts today.

 On this page visit after you will learn these things-

•  What is an account?
•  What are the types of accounts in accounting?
•  What's the process of accounting?
•  What's the statement of accounts?
•  How to keep records of accounts?
•  What's the major factor of accounts?

 

What is an account?

Definitions of Account

An account is a statement of transactions that is used to sort and store transactions affecting any particular asset, liability, expenses or income. For example, companies or organizations will have a Cash account in which to record every transaction that affects the company's cash. Another account, Purchase, will collect all of the amounts from the purchase of merchandise. Thus the process of keeping accounts is called accounting. Most accounting systems require that every transaction will affect minimum two or more accounts. For example, a cash purchase will decrease the Cash account and will increase the purchase account.

 

Types of Accounts in Accounting

Here is three types of accounts for maintained all transactions:

• Personal Accounts
• Real Accounts
• Nominal Accounts

Personal Account

Personal accounts are account related to persons and these include:

• Suppliers
• Customers
• Lenders

These persons can also be artificial persons like firms, institutions, companies, bodies corporate, society an association of persons, etc.

Rule for this Account 

• Debit the receiver
• Credit the giver.

For Example – Goods purchase from Ramesh. In this transaction, Ramesh is a personal account. His account will be credited in the entry as the giver.

Real Accounts

Real accounts are account related to properties and assets. Who’s further distribute as Tangible account and

Intangible accounts.

Tangible Real Accounts

These assets that have a physical established and can be touched. For example – Building A/c, cash A/c, Machinery A/c, stationery A/c, etc.

Intangible Real Accounts

These assets do not have any physical established and cannot be touched. For Example  – Goodwill, Patent, Franchise, Copyright, Trademark, etc. 

Rule for this account

• Debit what comes in.
• Credit what goes out.

For Example – Machinery Sold to an entity in cash. Credit machinery A/c and debit cash A/c.

Nominal Account

Nominal accounts are account related to incomes and expenses and gains and losses. For example: – freight A/c, commission received A/c, Remuneration A/c, wages A/c, conveyance A/c, etc.

Rules for this account

• Debit all the expenses and losses.
• Credit the incomes and gains.

For Example – Salary paid to employees of the Company. Salary A/c will be debited in company accounts. When a company receives any commission, discount, etc. these are credited by the entity.

Accounting Process

 

The following steps followed in an accounting process

 1. Collecting Accounting Documents for pass journal entries.

It is an important step in which you analyze the source documents and collect all them. For example, bank, cash and purchase related documents.

2. Pass journal entries

After collect and analyze the above documents, you pass journal entries for those transaction you made using double entry system and its debit and credit balance remains equal.

 

3. Posting entries in Ledger Accounts

After you passed journal entries you need to them posting in ledger accounts. This is also a continuous process for the whole accounting period.

 

4. Preparation of Trial Balance

After you need to prepare a trial balance in end of the accounting period. Trial balance is a summary of all the balances of ledger accounts. Credit and debit balance of trial balance remains equal. Mostly, you need to prepare trial balance at the end of the Financial Year.

 

5. Posting of Adjustment Entries

After prepare trial balance you need to passed adjustment entries through the journal, and then you posting it's in ledger accounts and finally in the trial balance. This process is made at the end of each Financial Year.

 

6. Adjusted Trial Balance

After you passed above adjustment entries, you create adjusted trial balance and it's a statement to prepare the financial statements of an entity.

 

7. Preparation of Financial Statements

Financial statements are statements like Trading Account, Profit & Loss Account, Balance Sheet or Statement of Affairs Account with the help of trial balance, financial statements clearly show the financial health of a firm.

 

8. Post-Closing Entries

After you prepared Financial Statement. You need to transfer profit and losses who shown in financial statement in owner's equity or capital of the company.

 

9. Post-Closing Trial Balance

This Trial Balance shows the balances of Net Asset, Liabilities and Owner's Capital account. These balances are transferred to next financial year as an opening balance.