Introduction to accounting Test - 2

Income is the profit earned during an accounting period. The difference between revenue and expense is termed as income. Income = Revenue - Expense

 = Rs. 14,500- Rs. 8,500

 = Rs. 6,000

A debtor is a person who receives a benefit without paying money immediately but liable to pay in future within a particular period of time. 

The expenditure incurred at the time of acquiring any assets or improving the quality of any existing assets which will help in increasing the earning capacity of the business is called capital expenditure. For example, purchase of machinery to produce goods or purchase of computers to improve the existing business.

Government authorities use accounting information to compile national accounts and other information to take policy decisions. They levy varied taxes and also assess correct tax dues after an analysis of the financial statements.

The objective of accounting is to maintain systematic records of all financial transaction in the books of account. Hence, it records transactions which are of financial nature.

The accounting process starts with identification of the business transaction and then recording, summarising, analysing and communicating the information to the users.

Employees, owners and management are internal users of accounting as they take part in business operation such as planning, controlling and decision making.  Investors are external users who do not have direct control over the business affairs.

Financial accounting keeps a systematic record of financial transactions which represents the operating result of the organisation. It determines the profit earned or loss incurred during an accounting period and the financial position of the enterprise on the date, the accounting period ends.

Accounting is an art as well as science because accounting is an artas it records, classifies and summarises the financial transactions which helps in understanding the profitability and financial status of the business. Accounting is also a science as it is structured based on knowledge on certain basic principles.

Reliability is one of the characteristics of accounting and communicating the financial results, meeting legal requirements and maintaining systematic records are functions of accounting.