Small Definition that will encompass the complete meaning as to what accounting specifically means to. Here is the one liner, I have prepared it for you guys.

Accounting is a business word that helps entrepreneurs to manage the record of their business transaction in an organized manner.

Accounting is not an end in itself but the process of identification (of transaction), measurement, recording (in books of account) & finally reporting it to the user of financial statements (stakeholders).

Accounting is the wider field today & is not just the book keeping in today’s dynamic world. Below are the fields:

Accounting & Bookkeeping:
Some of us think accounting & book keeping at par & try to use these words interchangeably, but my friends this is not the case .Here is the key difference among them.

Accounting is a broader concept that includes bookkeeping as a part of its process. Accounting starts where bookkeeping ends & it aims at presentation of business transaction in the standard manner following the accounting principles, concepts across the globe which makes the information useful for every user of financial statement.

Bookkeeping: Means keeping of books of accounts. Keeping does not mean keeping accounts book on shelves of your office (Jokes apart) but it simply tends to record transaction in the books of accounts. And my dears, there is not only one book that is prepared but there is a separate set of books prepared with different purpose to classify by nature of transactions. Person who do this job is Book-keeper.
Nomenclature of books of accounts:

1. Purchase book – Recording of credit purchases in the business.
2. Sales book – Recording of credit sales in the business.
3. Purchase Return book –Returns to Supplier/vendor out of credit purchases.
4. Sales Return book – Returns from Customers from credit sales.
5. Cash Book – For all cash transactions.
6. Bills Receivable book. –Credit sale through by way of issue of B/R.
7. Bills Payable book –Credit Purchase by way of B/P.
8. Journal – All other residual transactions that cannot be recorded in any of the above.

Branches of accounting:
• Financial accounting: Deals with preparation of financial statements (Balance sheet, P&L account & Cash flow statement) to show the overall picture of business results at the end of financial year to its stakeholders (investors, government authorities, employees, shareholders, other interested parties in the business).

• Management accounting: Deals with analysis of business data to achieve certain specific goal of organization like ,launching of new product , substitution of product, change of machinery , expansion of business etc.Bussiness data is extrapolated to see the effects of new idea conceived , on business overall profitability & goodwill.

• Tax accounting: Creative accounting to present the data for the purpose of tax payments & tax returns.

• Audit: Control check statutorily put in force for organization to protect its stakeholders from the illicit & window dressing statements that can influence their decision & manner they look up to business. Objective examination of financial statements to ensure that business statements present the true & fair view of it affairs to stakeholders.

Who do this for business? Any of the below either individually or in combination of either of them.
• Practitioners called accountants.
• Entrepreneurs themselves.
• Accounting Software.

How Financial accounting is recorded in books, is it by a letter, number or word? Below shows up:

Double entry system: Every transaction in the business effects 2 different accounts. One would be Debit & other would be credit.

History:
• First work in Italy (Luca Pacioli).
• First professional body – Institute of Chartered accountant in England & wales – 1980.

HEY GUYS: Beginner level of accounts learners may be scrounging for the list of basic words that they will come across in their learning curve .Here is the list of words I have mustered for you for the basic level.
This list is subject to updating & I am working on it to get you some more.
Go through it & share your feedback, was it useful ?

FINANCIAL BASIC ACCOUNTING TERMS:

1. Capital: Amount invested to start the business by proprietor.
2. Asset: Economic resources owned by entity that is likely to derive future benefits to business.
3. Liability: Obligation existing on balance sheet date that is like to generate outflow in future.
4. Expense: Cost (sacrifice) incurred that is done to earn the revenue for the business in current year.
5. Revenue/Sale : Gross inflow of cash /receivables from :
i. Sale of goods
ii. Rendering of services
6. Cash: Cash in hand, cash at bank & highly liquid assets that can be converted into cash immediately.
7. Stock: Stock in Hand, Stock in transit.
8. Operating Expense: Expenses /cost incurred in running the normal course of business operations. These are generally recurring in nature.
Ex: Salary, raw material purchased, wages, electricity, carriage etc.
9. Non-operating Expense: Expense related to business but not incurred in the normal course of business operation.
Ex; Bank charges, interest charges, cost of borrowing etc.
10. Debtors /Accounts Receivable: Amount due to the business from others. (Asset for business).
11. Creditors/Accounts Payable: Amount that outsiders owes to the business. (Liability for business).
12. Pre-liminary Expenses: Expenses incurred by the organization prior to its incorporation, these are capital expenses & are being amortized over certain period of time after its incorporation.
13. Capital Expenses: Long term nature expenses that will yield benefit to the business for long time (more than 1 year).Cost is charged to P&L account every month by way of depreciation every year.
14. Deferred Revenue Expenses : Expense of revenue nature ( relating to business normal course )but the benefit of it ,is spread over the number of year & is charged to P&L account matching the benefit derived from it in every year.

Note: How capital expenditure is different from deferred revenue expenditure:
Capital expenses increase the life of the asset or upgrades it due to which useful life of asset increases up. It is generally a onetime expense & is not of recurring business nature. While on other deferred revenue is just a recurring regular expenses which due to its enormous amount in figures is likely to generate the benefit for more than one year.

15. Accounting Equation :
Mathematical equation of balancing the balance sheet:
Liabilities + Capital = Asset
Note: Every transaction in business will always satisfy the above equation.
16. Balance Sheet: One of the financial statement that shows up the Assets, Liabilities & Capital.
17. P&L Account: Other financial statement that shows up the expenses & income.
18. Trial Balance: List of closing balances of all accounts, as first step towards the preparation of financial statement which should always have both side of balance (Debit & Credit) equal.
19. Accrual/concept of mercantile: Transaction is recorded in the books of accounts as & when they occur irrespective of cash involvement.
20. Due: When the transaction is actually due to be paid /received.
Note: Due & accrual of the transaction may not always be the same date.
Ex: Salary paid to the employees on 7th of every month. Now in this case accrual of salary is on daily basis but the due date of salary would be 7th of that month.
In accounting, salary would be recorded on 31st of every month & NOT on 7th.
21. Goodwill: Intangible asset, which represents the reputation/image of business.
22. Provision: Amount set aside out of the current or accumulated profits by the business to meet any known liability in future.
23. Reserve: Amount set aside out of profits to provide the cushion to business against any unknown losses or liability in future.
24. Depreciation: Amount charged to P&L account as a non-cash expense incurred due to normal wear & tear of asset put to use for the purpose of business operations.
25. Transaction: It means a performance of an act or agreement under a business.
Ex: Purchase of goods, sale, payment of salary etc.
26. Event: Consequences of transactions.
Ex: Closing stock, P&L earned out of business operations.
27. Bad Debts: Amount not expected to be recovered from the debtors (business sale).
28. Equity Shareholders : Shareholders that carry the following rights differentiated from preference shareholders
• Right to participate in the company profits left after payment to preference holders.
• Voting rights in shareholders meeting.
• Not entitled to fixed rate of dividend.
29. Holding Company: Company that hold more than 50% of equity shares in other company. Basically this company controls the working of subsidiary company.
30. Company: Company formed & registered under companies act 1956, 2013.

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Stay tuned for more accounting concepts tips and tricks,will be posting soon.