Accounting Secrets

8/2/2019 Accounting Secrets

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The Committee on Terminology set up by the American Institute of

Certified Public Accountants formulated the following definition of

accounting in 1961:

Accounting is the art of recording, classifying, and summarizing in asignificant manner and in terms of money, transactions and events which

are, in part at least, of a financial character, and interpreting the result

thereof.

As per this definition, accounting is simply an art of record keeping.


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1. ACCOUNTING CONCEPTS

Accounting concepts define the assumptions on the basis of which

financial statements of a business entity are prepared. Certain concepts

are perceived, assumed and accepted in accounting to provide a unifyingstructure and internal logic to accounting process. The word concept

means idea or notion, which has universal application. Financial

transactions are interpreted in the light of the concepts, which govern

accounting methods. Concepts are those basic assumptions and

conditions, which form the basis upon which the accountancy has been

laid. Unlike physical science, accounting concepts are only result of

broad consensus. These accounting concepts lay the foundation on the

basis of which the accounting principles are formulated.

2. ACCOUNTING PRINCIPLES

Accounting principles are a body of doctrines commonly associated

with the theory and procedures of accounting serving as an explanation

of current practices and as a guide for selection of conventions or

procedures where an alternative exits.

Accounting principles must satisfy the following conditions:

1. They should be based on real assumptions;

2. They must be simple, understandable and explanatory;

3. They must be followed consistently;

4. They should be able to reflect future predictions;

5. They should be informational for the users.


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3. ACCOUNTING CONVENTIONS

Accounting conventions emerge out of accounting practices, commonly

known as accounting principles, adopted by various organizations over a

period of time. These conventions are derived by usage and practice.The accountancy bodies of the world may change any of the convention

to improve the quality of accounting information. Accounting

conventions need not have universal application.

In the study material, the terms accounting concepts, accounting

principles and accounting conventions have been used

interchangeably to mean those basic points of agreement on which

financial accounting theory and practice are founded.

(a) Entity concept: Entity concept states that business enterprise is a

separate identity apart from its owner. Accountants should treat a

business as distinct from its owner. Business transactions are recorded in

the business books of accounts and owners transactions in his personal

books of accounts. The practice of distinguishing the affairs of the

business from the personal affairs of the owners originated only in the

early days of the double-entry bookkeeping. This concept helps in

keeping business affairs free from the influence of the personal affairs of

the owner. This basic concept is applied to all the organizations whether

sole proprietorship or partnership or corporate entities.

Entity concept means that the enterprise is liable to the owner for capital

investment made by the owner. Since the owner invested capital, which

is also called risk capital he has claim on the profit of the enterprise. A

portion of profit which is apportioned to the owner and is immediately

payable becomes current liability in the case of corporate entities.


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(b) Money measurement concept: As per this concept, only those

transactions, which can be measured in terms of money are recorded.

Since money is the medium of exchange and the standard of economic

value, this concept requires that those transactions alone that are capable

of being measured in terms of money be only to be recorded in thebooks of accounts. Transactions, even if, they affect the results of the

business materially, are not recorded if they are not convertible in

monetary terms. Transactions and events that cannot be expressed in

terms of money are not recorded in the business books. For example;

employees of the organization are, no doubt, the assets of the

organizations but their measurement in monetary terms is not possible

therefore, not included in the books of account of the organization.

Measuring unit for money is taken as the currency of the ruling countryi.e., the ruling currency of a country provides a common denomination

for the value of material objects. The monetary unit though an inelastic

yardstick, remains indispensable tool of accounting.


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(c) Periodicity concept: This is also called the concept of definite

accounting period. As per going concern concept an indefinite life of

the entity is assumed. For a business entity it causes inconvenience to

measure performance achieved by the entity in the ordinary course of

business.

If a textile mill lasts for 100 years, it is not desirable to measure its

performance as well as financial position only at the end of its life.

So a small but workable fraction of time is chosen out of infinite life

cycle of the business entity for measuring performance and looking at

the financial position. Generally one year period is taken up for

performance measurement and appraisal of financial position. However,it may also be 6 months or 9 months or 15 months.

According to this concept accounts should be prepared after every

period & not at the end of the life of the entity. Usually this period is one

calendar year. In India we follow from 1st April of a year to 31st March

of the immediately following year.

Thus, for performance appraisal it is not necessary to look into the

revenue and expenses of an unduly long time-frame. This concept makes

the accounting system workable and the term accrual meaningful. If

one thinks of indefinite time-frame, nothing will accrue. There cannot be

unpaid expenses and non-receipt of revenue. Accrued expenses or

accrued revenue is only with reference to a finite time-frame which is

called accounting period.

Thus, the periodicity concept facilitates in:

1. Comparing of financial statements of different periods2. Uniform and consistent accounting treatment for ascertaining the profit and

assets of the business

3. Matching periodic revenues with expenses for getting correct results of the

business operations


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(f) Going Concern concept: The financial statements are normally

prepared on the assumption that an enterprise is a going concern and will

continue in operation for the foreseeable future.

Hence, it is assumed that the enterprise has neither the intention nor theneed to liquidate or curtail materially the scale of its operations; if such

an intention or need exists, the financial statements may have to be

prepared on a different basis and, if so, the basis used is disclosed.

The valuation of assets of a business entity is dependent on this

assumption. Traditionally, accountants follow historical cost in majority

of the cases.

(g) Cost concept: By this concept, the value of an asset is to be

determined on the basis of historical cost, in other words, acquisition

cost. Although there are various measurement bases, accountants

traditionally prefer this concept in the interests of objectivity. When a

machine is acquired by paying Rs. 5,00,000, following cost concept the

value of the machine is taken as Rs. 5,00,000. It is highly objective and

free from all bias. Other measurement bases are not so objective. Current

cost of an asset is not easily determinable. If the asset is purchased on

1.1.82 and such model is not available in the market, it becomes difficult

to determine which model is the appropriate equivalent to the existing

one. Similarly, unless the machine is actually sold, realizable value will

give only a hypothetical figure. Lastly, present value base is highly

subjective because to know the value of the asset one has to chase the

uncertain future.


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(h)Realization concept:It closely follows the cost concept. Any change

in value of an asset is to be recorded only when the business realizes it.

When an asset is recorded at its historical cost of Rs. 5,00,000 and even

if its current cost is Rs. 15,00,000 such change is not counted unless

there is certainty that such change will materialize.

However, accountants follow a more conservative path. They try to

cover all probable losses but do not count any probable gain. That is to

say, if accountants anticipate decrease in value they count it, but if there

is increase in value they ignore it until it is realized. Economists are

highly critical about the realization concept. According to them, this

concept creates value distortion and makes accounting meaningless.

(i)Dual aspect concept:This concept is the core of double entry book-

keeping. Every transaction or event has two aspects:

(1) It increases one Asset and decreases other Asset;

(2) It increases an Asset and simultaneously increases Liability;

(3) It decreases one Asset, increases another Asset;

(4) It decreases one Asset, decreases a Liability.

Alternatively:

(5) It increases one Liability, decreases other Liability;

(6) It increases a Liability, increases an Asset;

(7) It decreases Liability, increases other Liability;

(8) It decreases Liability, decreases an Asset.


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LEDGER

After recording the transactions in the journal, recorded entries are

classified and grouped into by preparation of accounts and the book,

which contains all set of accounts (viz. personal, real and nominalaccounts), is known as Ledger. It is known as principal books of account

in which account-wise balance of each account is determined.

JOURNAL

Transactions are first entered in this book to show which accountsshould be debited and which credited. Journal is also called subsidiary

book. Recording of transactions in journal is termed as journalizing the

entries.


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TRIAL BALANCE

Preparation of trial balance is the third phase in the accounting process.

After posting the accounts in the ledger, a statement is prepared to show

separately the debit and credit balances.

Such a statement is known as the trial balance. It may also be prepared

by listing each and every account and entering in separate columns the

totals of the debit and credit sides.

Whichever way it is prepared, the totals of the two columns should

agree. An agreement indicates reasonable accuracy of the accounting

work; if the two sides do not agree, then there is simply an arithmeticerror(s).

This follows from the fact that under the Double Entry System, the

amount written on the debit sides of various accounts is always equal to

the amounts entered on the credit sides of other accounts and vice versa.

Hence the totals of the debit sides must be equal to the totals of the

credit sides. Also total of the debit balances will be equal to the total of

the credit balances. Once this agreement is established, there is

reasonable confidence that the accounting work is free from clerical

errors, though is not proof of cent per cent accuracy, because some

errors of principle and compensating errors may still remain. Generally,

to check the arithmetic accuracy of accounts, trial balance is prepared at

monthly intervals. But because double entry system is followed, one can

prepare a trial balance any time. Though a trial balance can be prepared

any time but it is preferable to prepare it at the end of the accounting

year to ensure the arithmetic accuracy of all the accounts before the

preparation of the financial statements. It may be noted that trial balanceis a statement and not an account.


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GOLDEN RULES OF ACCOUNTING

All the above classified accounts have two rules each, one related to

Debit and one related to Credit for recording the transactions which are

termed as golden rules of accounting, as transactions are recorded on thebasis of double entry system.

1. Personal account is governed by the following two rules:

Debitthe receiver

Creditthe giver

2. Real account is governed by the following two rules:

Debitwhat comes inCreditwhat goes out

3. Nominal account is governed by the following two rules:

Debitall expenses and losses

Creditall incomes and gains.


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CLASSIFICATION OF ACCOUNTS

(i) Personal Accounts: Personal accounts relate to persons, debtors or

creditors. Example would be; the account of Ram & Co., a credit

customer or the account of Jhaveri & Co., a supplier of goods. Thecapital account is the account of the proprietor and, therefore, it is also

personal but adjustment on account of profits and losses are made in it.

This account is further classified into three categories:

(a) Natural personal accounts: It relates to transactions of humanbeings like Ram, Rita, etc.

(b) Artificial (legal) personal account: For business purpose, business

entities are treated to have separate entity. They are recognized as

persons in the eye of law for dealing with other persons. For example:

Government, Companies (private or limited), Clubs, Co-operative

societies etc.

(c) Representative personal accounts: These are not in the name of

any person or organization but are represented as personal accounts. For

example: outstanding liability account or prepaid account, capital

account, drawings account.


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(ii) Impersonal Accounts: Accounts which are not personal such as

machinery account, cash account, rent account etc. These can be further

sub-divided as follows:

(a) Real Accounts: Accounts which relate to assets of the firm but notdebt. For example, accounts regarding land, building, investment, fixed

deposits etc., are real accounts.

Cash in hand and Cash at the bank accounts are also real.

(b) Nominal Accounts: Accounts which relate to expenses, losses,

gains, revenue, etc. like salary account, interest paid account, and

commission received account. The net result of all the nominal accounts

is reflected as profit or loss which is transferred to the capital account.Nominal accounts are, therefore, temporary.

ACCOUNTING INFORMATION SYSTEM (AIS)

Accounting is the service function that seeks to provide the users with

quantitative information. On the other hand, AIS is an information

system that is designed to make the accomplishment of accounting

function possible. AIS processes data and transactions to provide users

with the information they need to plan, control, and operate their

businesses (Romney et al., 1997:2).

An accounting information system can be a manual system, or a

computerized system using computers. Regardless of the type, AIS is

designed to collect, enter, process, store, and report data and

information. The following paragraphs explain AIS in detail.


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Computerized Accounting Information Systems

Along with the improvements in the technology, information systems

have been computerized. Improvements in this technology have replaced

manual bookkeeping systems with computerized ones. The revolution inthe information systems, which started in the early 1950s when the first

business computers became available, is still in progress (Nash, 1989:

5).

Large mainframe computers have been replaced by small and fast

personal computers at lower costs. As a result, accounting information

systems that were previously performed manually are now performed by

computers in most companies.

Companies can now capture, process, store, and transmit data with the

help of computers. Whereas data collections and processing were

performed manually in historical systems, on-line collection and

processing of data are performed by computerized systems (Grabski and

Marsh, 1994: 63).

In manual accounting information systems, processing of data is slow

and subject to error. Fortunately, improvements in the technology have

enabled companies to collect, process, and retrieve data quickly. In

addition, there is less likelihood for error when data are processed with

computers. In this case, functions of manual AIS that were explained in

the preceding section can be explained for computerized AIS as follows:


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Data input function: In manual AIS, the data are captured with the

source documents and directly processed in journals and transferred to

ledger accounts. On the other hand, in computerized AIS, after data are

captured, they should be converted into machine-readable form. In most

computerized AIS, source data automation devices that capture data atthe time and place of their origins are used. For example, bar code

scanners used in retail stores can record the sale transaction just as

scanning devices read the codes located on the products.

In addition to the data scanned into the computer, there are existing data

bases that contain stored data for future processing. A database includes

information about entities. An entity is something about which

information is stored. For example, information about existingcustomers is stored in databases. In this case, customers represent

entities.

Information about customers such as account number, credit limit, and

current balance of the customer can be stored in the database.

Master files are used to store data about entities in databases in an

computerized AIS. Master files have replaced the subsidiary ledgers that

are used in manual systems. For example, records in accounts receivable

master file include customer name, customer account number, address,

and balance due. Master files are frequently updated as transactions are

taking place. For example, as sales are made or receivables are collected,

accounts receivable master files are changed.

In addition to the accounts receivable master file, master files are kept

for all other balance sheet and income statement items such as accounts

payable, fixed assets and expenses. In computerized AIS, relationaltables can be used to establish master files (Murthy and Wiggins,

1993:98).


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Another concept in accounting is relational tables which are the tables

that include detailed information for every entity.

Data processing: After the data are collected and entered into

computers, they are processed. The most common data processingactivity is data maintenance. Data maintenance is the processing of

transactions to update stored data. For example, when sales transaction

takes place, data are entered into the computer. In turn, computer

immediately updates sales and accounts receivable files.

In computerized systems, records are updated by using primary keys that

uniquely identifies each record. For example, when a sales transaction

takes place, related customer file should be updated. In order to findrelated customer master file, customer account number can be used as

the primary key because every customer has unique customer account

number. In other words, it is not possible that two or more customers

have common customer account number.

Information output: After the data are entered into the computer and

processed, information output is produced to meet the needs of the users.

Information is presented in three forms: a document, a report, or a

response to a query. Documents are records of transactions or company

data such as invoices. These documents can be printed out using

printers.

In addition, they can be stored as electronic images in the computer

databases. Reports are prepared for internal and external users. For

example, to meet the needs of external users such as creditors, financial

statements should be prepared. In addition, computers can be

programmed to display financial information automatically in a requiredform such as spreadsheets. Today, electronic communication systems

enable companies to transmit financial reports to the users electronically.

This, of course, eliminates paper work and reduces costs. In addition to

the reports produced for the needs of external users, reports can also be

produced to meet the needs of the internal users such as managers.


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Sometimes, documents and periodic reports may not be enough to meet

the needs of the users. If unexpected problems arise, managers can enter

the system and query the information they need. A user enters a request

into the computer to get the information, and the computer performs

necessary tasks to solicit the required information. Once found, theinformation is retrieved and analyzed by the user.

In manual AIS, transactions are first recorded in journals and then they

are posted to ledger accounts. At the end of each accounting period,

financial statements are prepared by using the ending balances of ledger

accounts. On the other hand in computerized AIS, all the information is

gathered in relational tables. In this case, financial statements can be

prepared at any time by entering necessary commands into the computer.

Software Tools in the Accounting Process

This section includes the most-frequently used software tools and their

most appropriate use. Accountants must be familiar with the software

tools because they help the users perform the accounting functions more

effectively and efficiently.

Accounting software. This software contains the basic accounting

functions such as input, processing and output. There are two

classifications of accounting software as low-end and high-end. Low-

end is all-in-one software, which means all of the functions of

accounting system are performed within one software. Therefore, low-

end software is used for small companies. On the other hand, in high-

end software, each accounting function comes in a separate module.

Each module checks data for correctness, processes it, and updates all

relevant accounts, and finally, produces outputs such as documents and

reports.


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Personal computer (PC)-based accounting software allows companies to

computerize their manual systems and to provide better and timely

information. In addition, PCs have been connected to another PCs via

networks. This allows companies to process indefinite number of

transactions occurring at different locations simultaneously withinseveral minutes.

Income tax. Because tax laws are frequently changing, it is becoming

exceedingly difficult to deal with them. Therefore, manual tax

preparation is becoming more and more difficult and time consuming.

Fortunately, tax preparation software is currently available for

companies. Therefore, instead of processing tax manually, companiescan use computer software to perform the same functions. As a result,

even complex calculations can be performed via computers in a short

period of time.

Audit. Information technology has also computerized the auditing

profession. If auditors perform auditing functions manually, it takes

time.

However, audit software packages are currently available for auditors.

For example, trial balance software enables auditors to input the working

trial balance, handle all types of adjusting entries, and automatically

compute the adjusted trial balance. In addition, software package can

access customers files, select a statistical sample of the accounts, and

print a working paper sheet. Auditors have used personal computers to

reduce their costs significantly.

Word processing. Word processing is computer-assisted creation,editing, correcting, manipulation, storage, and printing of textual data

(Romney et al., 1997: 246). Accountants use word processing software

to prepare reports, billings, memos, and financial statements.


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Graphics software. Graphics can be prepared using graphics software.

Graphics can be printed on paper or displayed on slides, transparencies,

and photos. Many auditors and managerial accountants use the graphics

software to graph the data in financial statements and reports.

Image processing. Creating, storing, and updating paper forms of

documents take time. In addition, it is very costly to process and store

documents. Fortunately, these costs can be eliminated with the help of

document imaging systems. Image processing captures electronic image

of data so that it can be stored and shared. With the help of document

imaging, accountants can scan paper documents into the computer and

process all of the files electronically. Companies that use document

imaging are moving toward paperless offices.

Electronic data interchange (EDI). Electronic data interchange enables

companies to communicate with each other electronically. Therefore,

EDI enables companies to exchange documents electronically with each

other. For example, computerized network enables purchaser and the

supplier to exchange purchase orders and invoices electronically in the

form of images.

Electronic funds transfer (EFT). Companies can now connect to banks

through EFT. This system enables companies to make payment and

collection electronically. In this case, when company wants to pay for

accounts payable to a supplier, it can do it via EFT. Furthermore,

whenever company makes sales, transactions are immediately charged to

consumers bank account and simultaneously credited to companys

account. In addition, all relevant accounts such as accounts receivable

and cash are updated immediately by the computerized system.

The use of the computerized systems mentioned above has led to the

automation of accounting information system. Accounting information

systems equipped with these kinds of technologically advanced tools can

now perform accounting functions more effectively and reduce costs.


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ONLINE TRANSACTION PROCESSING

Online transaction processing, or OLTP, refers to a class of systems

that facilitate and manage transaction-oriented applications, typically for

data entry and retrieval transaction processing. The term is somewhatambiguous; some understand a "transaction" in the context of computer

or database transactions, while others (such as the Transaction

Processing Performance Council) define it in terms of business or

commercial transactions. OLTP has also been used to refer to processing

in which the system responds immediately to user requests. An

automatic teller machine (ATM) for a bank is an example of a

commercial transaction processing application.

Online Transaction Processing (OLTP) applications are client/server

applications that give online users direct access to information. The

OLTP applications process units of work, called transactions. A single

transaction might request a bank balance; another might update that

balance to reflect a deposit.
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Benefits

Online Transaction Processing has two key benefits: simplicity and

efficiency. Reduced paper trails and the faster, more accurate forecasts

for revenues and expenses are both examples of how OLTP makesthings simpler for businesses.

Disadvantages

As with any information processing system, security and reliability are

important considerations. When organizations choose to rely on OLTP,

operations can be severely impacted if the transaction system or

database is unavailable due to data corruption, systems failure, or

network availability issues. Additionally, like many modern onlineinformation technology solutions, some systems require offline

maintenance which further affects the cost-benefit analysis.


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Transaction Processing Applications. Transaction processing covers most

sectors of the economy.

Application Example of Transaction

Banking Withdraw money from an accountSecurities trading Purchase 100 shares of stock

Insurance Pay an insurance premium

Inventory control Record the fulfillment of an order

Manufacturing Log a step of an assembly process

Retail point-of-sale Record a sale

Government Register an automobile

Online shopping Place an order using an on-line catalog

Transportation Track a shipment

Telecommunications Connect a telephone call

Military Command and Control Fire a missile

Media Grant permission to download a video


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Transaction processing that occurs interactively with the end user is referred to as online transactionprocessing or OLTP.

One of the main characteristics of a transaction system is that the interactions between the user and thesystem are very short. The user will perform a complete business transaction through short interactions,with immediate response time required for each interaction. These systems are currently supportingmission-critical applications; therefore, continuous availability, high performance, and data protection and

integrity are required.

Online transactions are familiar to most people. Examples include:

ATM machine transactions such as deposits, withdrawals, inquiries, and transfers Supermarket payments with debit or credit cards Purchase of merchandise over the Internet

For example, inside a bank branch office or on the Internet, customers are using online services whenchecking an account balance or directing fund balances.

In fact, an online system performs many of the same functions as an operating system:

Managing and dispatching tasks Controlling user access authority to system resources Managing the use of memory Managing and controlling simultaneous access to data files Providing device independence

Some industry uses of mainframe-based online systems include:

Banks ATMs, teller systems for customer service Insurance Agent systems for policy management and claims processing Travel and transport Airline reservation systems Manufacturing Inventory control, production scheduling Government Tax processing, license issuance and management

How might the end users in these industries interact with their mainframe systems? Multiple factors caninfluence the design of a company's transaction processing system, including:

Number of users interacting with the system at any one time. Number oftransactions per second(TPS). Availability requirements of the application. For example, must the application be available 24 hours

a day, seven days a week, or can it be brought down briefly one night each week?

Before personal computers and intelligent workstations became popular, the most common way tocommunicate with online mainframe applications was with 3270 terminals. These devices were sometimesknown as "dumb" terminals, but they had enough intelligence to collect and display a full screen of data

rather than interacting with the computer for each keystroke, saving processor cycles. The characters weregreen on a black screen, so the mainframe applications were nicknamed "green screen" applications.

Based on these factors, user interactions vary from installation to installation. With applications now beingdesigned, many installations are reworking their existing mainframe applications to include Web browser-based interfaces for users. This work sometimes requires new application development, but can often bedone with vendor software purchased to "re-face" the application. Here, the end user often does not realizethat there is a mainframe behind the scenes.


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ACCOUNTING SOFTWARES

Accounting software isapplication softwarethat records and processes

accounting transactions within functional modules such as accounts

payable, accounts receivable, payroll, and trial balance. It functions asanaccounting information system. It may be developed in-house by the

company or organization using it, may be purchased from a third party,

or may be a combination of a third-party application software package

withlocal modifications. It varies greatly in its complexity and cost.

The market has been undergoing considerable consolidation since the

mid 1990s, with many suppliers ceasing to trade or being bought by

larger groups.

Modules

Accounting software is typically composed of various modules, different

sections dealing with particular areas of accounting. Among the most

common are:

Core Modules

Accounts receivablewhere the company enters money received Accounts payablewhere the company enters its bills and pays

money it owes

General ledgerthe company's "books" Billingwhere the company produces invoices to

clients/customers

Stock/Inventorywhere the company keeps control of itsinventory

Purchase Orderwhere the company orders inventory Sales Orderwhere the company records customer orders for the

supply of inventory

Cash Bookwhere the company records collection and payment
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Non Core Modules

Debt Collectionwhere the company tracks attempts to collectoverdue bills (sometimes part of accounts receivable)

Electronic paymentprocessing Expensewhere employee business-related expenses are entered Inquirieswhere the company looks up information on screen

without any edits or additions

Payrollwhere the company tracks salary, wages, and relatedtaxes

Reportswhere the company prints out data Timesheetwhere professionals (such as attorneys and

consultants) record time worked so that it can be billed to clients Purchase Requisitionwhere requests for purchase orders are

made, approved and tracked

(Different vendors will use different names for these modules)
http://en.wikipedia.org/wiki/Electronic_paymenthttp://en.wikipedia.org/wiki/Electronic_paymenthttp://en.wikipedia.org/wiki/Expensehttp://en.wikipedia.org/wiki/Payrollhttp://en.wikipedia.org/wiki/Timesheethttp://en.wikipedia.org/wiki/Lawyerhttp://en.wikipedia.org/wiki/Lawyerhttp://en.wikipedia.org/wiki/Consultanthttp://en.wikipedia.org/wiki/Consultanthttp://en.wikipedia.org/wiki/Purchase_Requisitionhttp://en.wikipedia.org/wiki/Purchase_Requisitionhttp://en.wikipedia.org/wiki/Consultanthttp://en.wikipedia.org/wiki/Lawyerhttp://en.wikipedia.org/wiki/Timesheethttp://en.wikipedia.org/wiki/Payrollhttp://en.wikipedia.org/wiki/Expensehttp://en.wikipedia.org/wiki/Electronic_payment


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BALANCE SHEET

Trading A/c and Profit & Loss A/c reveals G.P. or G.L and N.P or N.L

respectively,

Besides the Proprietor wants

i. To know the total Assets invested in business

ii. To know the Position of owners equity

iii. To know the liabilities of business.

DEFINITION

The Word Balance Sheet is defined as a Statement which sets out theAssets and Liabilities of a business firm and which serves to ascertain

the financial position of the same on any particular date.

On the left hand side of this statement, the liabilities and capital are

shown. On the right hand side, all the assets are shown. Therefore the

two sides of the Balance sheet must always be equal. Capital arrives

Assets exceeds the liabilities.


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OBJECTIVES OF BALANCE SHEET:

1. It shows accurate financial position of a firm.

2. It is a gist of various transactions at a given period.

3. It clearly indicates, whether the firm has sufficient assents to repay itsliabilities.

4. The accuracy of final accounts is verified by this statement

5. It shows the profit or Loss arrived through Profit & Loss A/c.

The Balance sheet contains two parts i.e.

1. Left hand side i.e. the Liabilities

2. Right hand side i.e. the Assets


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ACCOUNTING SOFTWARE PACKAGES

E.X.

EXNGN was developed by Tata Consultancy Services, the softwaretechnology leader in south-east Asia. TCS was the pioneer in India in the

field of accounting software with EX 1.0. Since then, EX has gone through

three versions, and has a fan following of over 60,000 users in India alone!

This is more than the users of all other accounting software put together!There is even a LAN version, again the pioneer in its class!

Now, EX comes in a new flavor! EXNGN is the first native Windows 95/NT

version! For the first time, technology meets usability in EXNGN. EX-NGN

also comes in a multi-user version. Backed by proven technology fromMicrosoft, this version runs on the award winning Microsoft SQL server.

E.X. Next Generation is the world's friendliest business accountingsoftware.

Mainly mouse driven. Rare use of the keyboard. Efficient and friendlyinterface.

The only accounting software worldwide using advanced OLE andODBC concepts.

EXNGN is the only software that is REALLY open and customizable. Unique features such as Analysis categories, Smart Finder, and Folders. EXNGN contains over 70 reports designed by Chartered Accountants. EXNGN contains built in Inventory, Balance Sheet, Bank

Reconciliation and many other features.

YEAR 2000 COMPLIANT. THE FIRST. THE BEST. Versatile document designer, so you can decide how your invoices, etc

look.

Multi Company, multi user, multi currency. And now, with networkfeatures!

Developed in association with software giant, Microsoft. Comprehensive online help and long lasting detailed manual. Multi focal support.
http://www.fortunecity.com/banners/interstitial.html?http://www.tcs.co.in/http://www.fortunecity.com/banners/interstitial.html?http://www.tcs.co.in/http://www.fortunecity.com/banners/interstitial.html?http://www.tcs.co.in/


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Tally

Tally's software is mainly used for vouchers, financial statements, and

taxation in many industries, and has specialized packages for retailbusinesses. More advanced capabilities are found in itsERPpackage.

Tally Software is developed with a core proprietary engine with a SDK

Wrapper. Most of Tally's Interaction Forms and Reports are developed

using Tally Definition Language TDL. Customization of Tally

Application can be done using this TDL SDK.

Tally.ERP 9 has advanced integration capabilities in the form of

Application programming interfaces to make the software extensible.Tally can interact with Software applicationusing XML,ODBC,DLL

technologies.

WinCA

Designed by Softek of Delhi. Has a Windows version. No sub-ledgers.

Good on-screen reports. Repeat vouchers possible. Average help system.

WinCA Super is Softek's latest offering in the Business Accounting

Software segment. WinCA Super is a truly Windows accounting

software, with the power of Windows harnessed for your accounting

needs. It supports a revolutionary interface with extensive mouse

support meaningless data entry and retrieval time. It supports the entire

gamut of Business Accounting consisting of Financial Accounting,

Inventory control, Sales and Purchase with a wide array of reports.
http://en.wikipedia.org/wiki/Enterprise_resource_planninghttp://en.wikipedia.org/wiki/Enterprise_resource_planninghttp://en.wikipedia.org/wiki/Enterprise_resource_planninghttp://en.wikipedia.org/wiki/SDKhttp://en.wikipedia.org/wiki/SDKhttp://en.wikipedia.org/wiki/TDLhttp://en.wikipedia.org/wiki/TDLhttp://en.wikipedia.org/wiki/Application_programming_interfacehttp://en.wikipedia.org/wiki/Application_programming_interfacehttp://en.wikipedia.org/wiki/Application_softwarehttp://en.wikipedia.org/wiki/Application_softwarehttp://en.wikipedia.org/wiki/XMLhttp://en.wikipedia.org/wiki/XMLhttp://en.wikipedia.org/wiki/Open_Database_Connectivityhttp://en.wikipedia.org/wiki/Open_Database_Connectivityhttp://en.wikipedia.org/wiki/Dynamic-link_libraryhttp://en.wikipedia.org/wiki/Dynamic-link_libraryhttp://en.wikipedia.org/wiki/Dynamic-link_libraryhttp://en.wikipedia.org/wiki/Open_Database_Connectivityhttp://en.wikipedia.org/wiki/XMLhttp://en.wikipedia.org/wiki/Application_softwarehttp://en.wikipedia.org/wiki/Application_programming_interfacehttp://en.wikipedia.org/wiki/TDLhttp://en.wikipedia.org/wiki/SDKhttp://en.wikipedia.org/wiki/Enterprise_resource_planning


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DacEasy

DacEasy is a popular accounting software package used by Hong Kong

SMEs. DacEasy comprises four basic sections: Accounts Receivable,

Accounts Payable, Inventory, and Payroll.

DacEasy possesses several Accounts Payable tools under the Vendor

section. Sub-categories include Vendors, Purchasing, Forms, Banking,

and Periodic. Users can process basic purchase orders and quotes, print

cheques, and manage vendors. Customization of purchase orders, quotes

and vendor cheques is not available.

On the whole, DacEasy is capable accounting software package. Theformer software can meet the accounting needs of a small business. The

latter is user-friendly as it facilitates the production of a wide variety of

financial reports.

Hardware Requirement for Tally.ERP 9To install Tally.ERP 9, the user needs to have administrator rights (Create, Write,

Update, Modify and Delete permissions). Multilingual users must ensure that the

operating system supports multiple languages. The Hardware requirements andOperating system required for a Client-Server and a standalone computer are as

described below:

Particulars Recommended Configuration

Processor Intel Pentium IV or above and Equivalent

RAM 512 MB or more*

Hard Disk space 60 MB Minimum (Excluding Data)

MonitorResolutions

1024 x 768 or Higher*

Operating

System

Microsoft Windows

7/Vista/XP/2003/2000/NT/ME/98

* Tally.ERP 9 will work on lower configurations too; however we do not

recommend the same.


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Financial Management

The key considerations for picking the right financial solution are about

both with the software and the provider. At Enabling we supply

Financial Management Information Systems (FMIS) from leadingvendors, which can be easily mapped to your business processes and

manage end-to-end financial business processes. For this industry, we

have provided our customers with built-in executive dashboards, robust

reporting & analytics, plus the ability to integrate with other internal &

external business systems.

Financial Management Information Systems are the lifeblood of any

mid-market business that needs to record and processes financial

information and turn it into relevant and accurate information to support

better business decisions. Any Financial Management Information

System implemented by Enabling includes a full range of management

reports so a business can be driven successfully and cost-effectively. At

Enabling, we understand - if it's measured, it can be managed.

Benefits of Financial Management Information Systems (FMIS) include:

Integrated financial information

Flexibility of reporting and additional control over expenditure Less administration required within the business Tighter views of budgets versus actuals

What are core and non-core FMIS systems?

Core systems

General ledger, accounts payable and receivable. May include

financial reporting fund management and cost management.

Non-core systems

HR/payroll, budget formulation, revenue (tax & customs),

procurement, inventory, property management, performance,

management information.


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Information Technology

Information Technology (IT) is concerned with technology to treat

information. The acquisition, processing, storage and dissemination of

vocal, pictorial, textual and numerical information by amicroelectronics-based combination of computing and

telecommunicationsare its main fields.[1]

The term in its modern sense

first appeared in a 1958 article published in the Harvard Business

Review, in which authors Leavitt and Whisler commented that "the new

technology does not yet have a single established name. We shall call it

information technology (IT)." Some of the modern and emerging fields

of Information technology are next generation web technologies,bioinformatics,cloud computing, global information systems, large scale

knowledge bases, etc. Advancements are mainly driven in the field of

computer science.

Client/Server Model

The client/server model is a computing model that acts as distributedapplicationwhich partitions tasks or workloads between the providers of

a resource or service, called servers, and service requesters, called

clients. Often clients and servers communicate over a computer network

on separate hardware, but both client and server may reside in the same

system. A server machine is a host that is running one or more server

programs which share their resources with clients. A client does not

share any of its resources, but requests a server's content or servicefunction. Clients therefore initiate communication sessions with servers

which await incoming requests.
http://en.wikipedia.org/wiki/Technologyhttp://en.wikipedia.org/wiki/Technologyhttp://en.wikipedia.org/wiki/Informationhttp://en.wikipedia.org/wiki/Informationhttp://en.wikipedia.org/wiki/Microelectronicshttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Information_technology#cite_note-0http://en.wikipedia.org/wiki/Information_technology#cite_note-0http://en.wikipedia.org/wiki/Information_technology#cite_note-0http://en.wikipedia.org/wiki/Harvard_Business_Reviewhttp://en.wikipedia.org/wiki/Harvard_Business_Reviewhttp://en.wikipedia.org/wiki/Harvard_Business_Reviewhttp://en.wikipedia.org/wiki/Web_standardshttp://en.wikipedia.org/wiki/Web_standardshttp://en.wikipedia.org/wiki/Bioinformaticshttp://en.wikipedia.org/wiki/Bioinformaticshttp://en.wikipedia.org/wiki/Cloud_computinghttp://en.wikipedia.org/wiki/Cloud_computinghttp://en.wikipedia.org/wiki/Cloud_computinghttp://en.wikipedia.org/wiki/Knowledgebasehttp://en.wikipedia.org/wiki/Knowledgebasehttp://en.wikipedia.org/wiki/Computer_sciencehttp://en.wikipedia.org/wiki/Computer_sciencehttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Distributed_applicationhttp://en.wikipedia.org/wiki/Distributed_applicationhttp://en.wikipedia.org/wiki/Distributed_applicationhttp://en.wikipedia.org/wiki/Server_(computing)http://en.wikipedia.org/wiki/Server_(computing)http://en.wikipedia.org/wiki/Client_(computing)http://en.wikipedia.org/wiki/Client_(computing)http://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Client_(computing)http://en.wikipedia.org/wiki/Server_(computing)http://en.wikipedia.org/wiki/Distributed_applicationhttp://en.wikipedia.org/wiki/Distributed_applicationhttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Computer_sciencehttp://en.wikipedia.org/wiki/Knowledgebasehttp://en.wikipedia.org/wiki/Cloud_computinghttp://en.wikipedia.org/wiki/Bioinformaticshttp://en.wikipedia.org/wiki/Web_standardshttp://en.wikipedia.org/wiki/Harvard_Business_Reviewhttp://en.wikipedia.org/wiki/Harvard_Business_Reviewhttp://en.wikipedia.org/wiki/Information_technology#cite_note-0http://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Microelectronicshttp://en.wikipedia.org/wiki/Informationhttp://en.wikipedia.org/wiki/Technology


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Schematic clients-server interaction.

The client/server characteristic describes the relationship of cooperating

programs in an application. The server component provides a function orservice to one or many clients, which initiate requests for such services.

Functions such as email exchange, web access and database access are built

on the client/server model. Users accessing banking services from their

computer use a web browser client to send a request to a web server at a

bank. That program may in turn forward the request to its own database client

program, which sends a request to a database server at another bank computer

to retrieve the account information. The balance is returned to the bank

database client, which in turn serves it back to the web browser client,displaying the results to the user. The clientserver model has become one of

the central ideas of network computing. Many business applications being

written today use the clientserver model, as do the Internet's mainapplication protocols, such asHTTP,SMTP,Telnet, andDNS.

The interaction between client and server is often described using sequencediagrams. The Unified Modeling Language has support for sequence

diagrams.

Specific types of clients include web browsers,email clients, andonline chatclients.

Specific types of servers includeweb servers,ftp servers,application servers,database servers, name servers, mail servers, file servers, print servers, and

terminal servers. Mostweb servicesare also types of servers.
http://en.wikipedia.org/wiki/Network_computinghttp://en.wikipedia.org/wiki/Network_computinghttp://en.wikipedia.org/wiki/HTTPhttp://en.wikipedia.org/wiki/HTTPhttp://en.wikipedia.org/wiki/HTTPhttp://en.wikipedia.org/wiki/SMTPhttp://en.wikipedia.org/wiki/SMTPhttp://en.wikipedia.org/wiki/SMTPhttp://en.wikipedia.org/wiki/Telnethttp://en.wikipedia.org/wiki/Telnethttp://en.wikipedia.org/wiki/Telnethttp://en.wikipedia.org/wiki/Domain_Name_Systemhttp://en.wikipedia.org/wiki/Domain_Name_Systemhttp://en.wikipedia.org/wiki/Domain_Name_Systemhttp://en.wikipedia.org/wiki/Sequence_diagramhttp://en.wikipedia.org/wiki/Sequence_diagramhttp://en.wikipedia.org/wiki/Sequence_diagramhttp://en.wikipedia.org/wiki/Unified_Modeling_Languagehttp://en.wikipedia.org/wiki/Unified_Modeling_Languagehttp://en.wikipedia.org/wiki/Web_browserhttp://en.wikipedia.org/wiki/Web_browserhttp://en.wikipedia.org/wiki/Email_clienthttp://en.wikipedia.org/wiki/Email_clienthttp://en.wikipedia.org/wiki/Email_clienthttp://en.wikipedia.org/wiki/Online_chathttp://en.wikipedia.org/wiki/Online_chathttp://en.wikipedia.org/wiki/Online_chathttp://en.wikipedia.org/wiki/Web_serverhttp://en.wikipedia.org/wiki/Web_serverhttp://en.wikipedia.org/wiki/Web_serverhttp://en.wikipedia.org/wiki/Ftp_serverhttp://en.wikipedia.org/wiki/Ftp_serverhttp://en.wikipedia.org/wiki/Ftp_serverhttp://en.wikipedia.org/wiki/Application_serverhttp://en.wikipedia.org/wiki/Application_serverhttp://en.wikipedia.org/wiki/Application_serverhttp://en.wikipedia.org/wiki/Database_serverhttp://en.wikipedia.org/wiki/Database_serverhttp://en.wikipedia.org/wiki/Name_serverhttp://en.wikipedia.org/wiki/Name_serverhttp://en.wikipedia.org/wiki/Mail_serverhttp://en.wikipedia.org/wiki/Mail_serverhttp://en.wikipedia.org/wiki/File_serverhttp://en.wikipedia.org/wiki/File_serverhttp://en.wikipedia.org/wiki/Print_serverhttp://en.wikipedia.org/wiki/Print_serverhttp://en.wikipedia.org/wiki/Terminal_serverhttp://en.wikipedia.org/wiki/Terminal_serverhttp://en.wikipedia.org/wiki/Web_servicehttp://en.wikipedia.org/wiki/Web_servicehttp://en.wikipedia.org/wiki/Web_servicehttp://en.wikipedia.org/wiki/File:Client-server-model.svghttp://en.wikipedia.org/wiki/Web_servicehttp://en.wikipedia.org/wiki/Terminal_serverhttp://en.wikipedia.org/wiki/Print_serverhttp://en.wikipedia.org/wiki/File_serverhttp://en.wikipedia.org/wiki/Mail_serverhttp://en.wikipedia.org/wiki/Name_serverhttp://en.wikipedia.org/wiki/Database_serverhttp://en.wikipedia.org/wiki/Application_serverhttp://en.wikipedia.org/wiki/Ftp_serverhttp://en.wikipedia.org/wiki/Web_serverhttp://en.wikipedia.org/wiki/Online_chathttp://en.wikipedia.org/wiki/Email_clienthttp://en.wikipedia.org/wiki/Web_browserhttp://en.wikipedia.org/wiki/Unified_Modeling_Languagehttp://en.wikipedia.org/wiki/Sequence_diagramhttp://en.wikipedia.org/wiki/Sequence_diagramhttp://en.wikipedia.org/wiki/Domain_Name_Systemhttp://en.wikipedia.org/wiki/Telnethttp://en.wikipedia.org/wiki/SMTPhttp://en.wikipedia.org/wiki/HTTPhttp://en.wikipedia.org/wiki/Network_computing


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Client / Server Applications

For contrast it is worth mentioning client/server applications as a form of

remote computing, although strictly speaking they are not "remote guis"

as I have defined them here.

A client/server application is a piece of software that runs on a client

computer and makes requests to a remote server. Many such applications

are written in high-level visual programming languages where UI,

forms, and most business logic reside in the client application. Often

such applications are database applications that make database queries to

a remote central database server (this can, however, get much more

complicated than that and involve other communication methods)

In a database application, data related number crunching can occur on

the remote database server where the processing is close to physical

data. An example of a database query might be to return the sum of a

field named "dollar amount" where the field name year is "2001". There

may be hundreds of thousands of records but the client computer does

not have to worry about fetching or sorting through all of them itself.

The database server will sort through that and just return one small

record with the result to the client.

A client / server application can be cross platform if it is written in a

cross platform language, or it can be platform specific. In the case of a

cross platform language there is an advantage that the application can

potentially provide a user interface that is native in appearance to the OS

or platform environment it is running under.

An issue of client/server is that the application must be installed on each

users computer. Depending on the complexity of the program, theenvironment it is written in, and the care the developer took to package

the program, this can be as easy as creating a shortcut to an executable

on a shared network drive or it can be as hard as spending hours

installing and configuring runtime software and components on each

client computer.


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Client / server applications, either run locally on a client computer or

through something like Terminal Server, Citrix, or VNC, can work

closely with the underlying OS to provide a rich, powerful, robust, easy

to use interface.

By running locally on a client computer applications can also work with

other local hardware such as scanners, bar code readers, modems,

removable media, accelerated video for multimedia, or 3d video

acceleration.

Depending on the programming environment in use, applications can be

very easy to develop and maintain, often through a visual interface

where commonly needed functionality is provided through built in

objects or properties.

Accounting Secrets

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