CHARACTERISTICS OF ACCOUNTING PRINCIPLES

(1) OBJECTIVITY:-A principle is objective to the extent that the accounting information is not influenced by the personal bias of those who furnish the information.
(2) RELEVANCE:-A principle is relevant to the extent that it results in information that is useful to those who want to know something about certain business.
(3) FEASIBILITY:-A principle is feasible to the extent that it can be applied without undue complexity or cost
(4) APPLICABILITY:-A principle is regarded as goods,if its application is possible.If a principle is theoretically sound, but its application is difficult, then the principle has no value.
(5) SIMPLICITY:-If a principle is simple,it should command popularity.Hence the principle should have simplicity

ACCOUNTING PRINCIPLES

Accounting is a language of business to be communicated to all users irrespective of their status or nationality.
         A principle is a statement which reflects the fundamental truth about some phenomena.It tells what results are expected when the principle is applied.In other words, the term "principle" means rule of action or conduct.It is defined as a guidance to actions, a settled ground or basis of conduct or practice .Hence  accounting principles serves as a explanation of current practices and as a guide for the selections of conventions or procedures where alternative exists

ACCOUNTING EQUATION

An accounting equation is a statement showing the equality between debits and credits or assets and liabilities including capital. so,
assets=equities
The resources or properties owned by a business are assets.But equity represents the total claims against assets of the business.Equities relates to creditors equity and owners equity.Creditors equity or liability is the debts of the business to outsiders .But owners equity or capital is the owner's claim against business.
HENCE,
ASSETS=LIABILITIES + CAPITAL(ie:-A=L+C)
THE ABOVE EQUATION CAN BE ALSO BE EXPRESSED AS GIVEN BELOW.

ASSETS - LIABILITIES=CAPITAL
ASSETS - CAPITAL =LIABILITIES
ASSETS - CAPITAL - LIABILITIES=ZERO

EXPENDITURE

Expenditure is the amount of resources consumed.It is classified into capital expenditure and revenue expenditure.
CAPITAL EXPENDITURE:-
Expenditure incurred for deriving long-term benefits for the business is capital expenditure.Expenditure incurred for purchase of  fixed assets such as plant&machinery,goodwill,patent etc. and expenditure incurred for raising long-term capital are examples of capital expenditure.
REVENUE EXPENDITURE:-
Expenditure incurred merely to maintain the business and to keep the assets in good working condition is termed as revenue expenditure.Payment of salaries and wages,rent,telephone charges ,depreciation etc are examples of such expenditure

REVENUES&EXPENSES

Revenues
Incomes derived by the business from its normal activities(or activities incidental to to the main activities) are called revenues.Sales proceeds fees, commission,royalty,rent,interest and dividend are some examples of revenues.
Expenses
Amounts spent for services obtained or cost of resources consumed to earn profit are known as expenses.Salaries,rent,printing and stationary , wages and depreciation are some examples of expenses

ASSETS

Assets are things of value at the command of business.They fetch cash or other benefits in future.Land and building,plant&machinery, furniture&fixtures,stock,cash in hand and cash at bank are some of the examples of assets.Assets can be classified into (a) current assets,(b) fixed assets.
(a)CURRENT ASSETS:-Assets which are held for a short period are known as current assets or floating assets.Such assets acquired with the intention of converting them into cash or consuming them during the operating cycle of business.Cash in hand and at bank,debtors,bills receivable,and stock are some of the examples of current assets.
(b)FIXED ASSETS:-Assets which are acquired for a relatively longer period are known as fixed assets.Land&building and plant and machinery are some examples of  fixed assets.Fixed assets are brought into the following categories.
    (1)TANGIBLE ASSETS
                   Assets having definite shape and material existence are known as tangible assets.Land&building,furniture and fixtures,plant&machinery are some examples.
    (2)INTANGIBLE ASSETS
                  Assets having no shape and physical existence are known as intangible assets.Goodwill,copyright and patent are examples.
    (3)WASTING ASSETS
                 Assets which get exhausted to the extent of extraction are called wasting assets.Natural resources like mines,quarries and oil fields are examples.
    (4)FICTITIOUS ASSETS
                Assets which have no real value but are shown in the books of accounts only are called fictitious assets.Preliminary expenses,discount on issue of shares and debentures and under writing commission are some examples of fictitious assets.

LIABILITIES

Liabilities denote the amounts which a firm owes to others in future.They are the proprietors or creditors claim against the assets of the firm.Liabilities can be categorized into (a) short-term liabilities,(b) long-term liabilities.
(a)SHORT-TERM LIABILITIES
     Liabilities which become due or payable within a year are known as current liabilities or short-term liabilities.Creditors of goods,bills payable and outstanding expenses are some of the examples of current liabilities.They are usually paid out of current assets.
(b)LONG-TERM LIABILITIES
    Liabilities which are payable after period of one year are known as fixed or long-term liabilities.
debentures and mortgage loans are some of the examples of long-term liabilities.

capital&drwings

CAPITAL
           Capital is the investment made by owners in the business.It is the difference between total assets and liabilities and is also known as owners equity net worth.
DRAWINGS
It is the amount of cash or other assets withdrawn by the owner for personal use.

BUSINESS TRANSACTIONS

It refers to any business dealing or event which has a value measurable in terms of money.In other words, a business transaction involves transfer of money or money's worth between business and others.A transaction may be cash,credit, or barter.A transaction which involves immediate payment or receipt of cash is called cash transaction.On the other hand, if payment or receipt of money of a transaction is postponed, it is known as credit transaction.But in the case of barter, goods or service is exchanged for another goods or service.

TYPES OF ACCOUNTING

(1) FINANCIAL ACCOUNTING
                        Financial accounting is the original form of accounting.Its' object is to ascertain the result of the operation and to provide information about the financial position of the business.However the financial accounting information relates only to the past and is expressed in monetary terms.Hence financial accounting is a sub-system of accounting information system.
(2) MANAGEMENT ACCOUNTING
                        Management accounting is concerned with the activity of providing financial and non financial; information to the management .However it draws all financial information from financial accounting.
(3) COST ACCOUNTING
                       Cost accounting is the process of accounting for costs.It has linkages with other accounting sub-systems to get the essential information about elements of cost.Further,cost accounting generates information about the changes in the cost that take place during the period under review.

LIMITATIONS OF ACCOUNTING

(1) It takes into account only the transactions of monetary nature.It implies that the qualitative aspects (such as managerial skills,service of experts etc.) of a transaction are not considered.
(2) It is a post-mortem survey(ie:- historical in nature). It implies that accounting considers only whay has happened in the past.But the information relating to the past,present and future are required for the purpose of decision making.
(3) It does not provide information relating to a particular product or activity.In other words , it provides only the information about the concern as a whole.
(4) It does not consider the effect of price level changes.This is because the transactions are recorded at cost price and not at market price.

ADVANTAGES OF ACCOUNTING.

(1) It helps to find out the financial position of the business by preparing financial statement.
(2) It helps in systematic recording of business transaction which can be used for future reference.
(3) It supplies necessary information to all those who are interested in business(ie:-owners,investors,creditors,employees etc.)
(4) It helps the management in making pertinent decision with the help of financial statement
(5) It is used for comparative study of the business performance with other firms and over different periods of time.
(6) It is used as evidence in case of dispute

OBJECTIVES OF ACCOUNTING

The basis purpose of accounting is to give information for making business discussion.The following are primary objectives of accounting.
(1) MAINTAINING BUSINESS RECORDS.
The unique object of accounting is to identify business transaction and specify them into appropriate books of accounts.Such records help in taking business decisions and tracing errors.If any in operations.
(2) ASCERTAINING PROFIT AND LOSS.
Every business man is eager to know the amount of profit or loss sustained in his business.Such information is available from the statement called "the profit and loss account".
(3) ASCERTAINING FINANCIAL POSITION
Financial position relates to the financial strength of a concern in terms of assets and liabilities against such assets.Such information is obtained from the statement called the balance sheet.
(4) PROVIDING INFORMATION TO VARIOUS USERS
Accounting provides useful information to the interested parties like owners,investors,editors,bankers,government employees and so on.

ACCONTING AN INTRODUCTION

ACCOUNTING
The AMERICAN institute of Certified Public Accountants(AICPA) defines accounting as"the art of recording,classifying and summarizing in a significant manner and in terms of money, transactions and events which are of a financial character and interpreting the result thereof."
FEATURES OF ACCOUNTING
1) RECORDING
Te process of recording transactions is the primary step of accounting. it start with identification of transactions amenable to measurement in terms of money.thereafter these transactions should be measured and expressed in terms of money. Finally such items are recorded in a book called "journal"
2) CLASSIFICATION
Usually transactions are recorded in the journal in chronological order. Thereafter, they are classified on the basis of similarity in their nature.It takes place in the book called "ledger". In ledger all transactions of similar nature are put together in one page known as "account".
3)SUMMARISATION
Summarisation is the presentation of the classified data in an understandable way to the internal and external users.It involves the preparation of the overall results of operation and financial position of the business.
4)ANALYSIS AND INTERPRETATION
Analysis is the process of identifying and establishing meaningful relationship among figures in the final account.But interpretation is the process of drawing conclusion on the basis of analysis.Hence the analysis and interpretation of data facilitate the end users to make a meaningful judgement about the financial position of the business.
4)COMMUNICATION
After completing the process of analysis and interpretation, the accounting information should be communicated in a proper form to the proper person. This is in addition to the communication of the usual profit and loss account and balance sheet.