Let’s start with the basic definition of accounting and commerce. What is accounting? Accounting basically is an art of recording, classifying and summarising all transactions in terms of money and in a systematic manner. Now the definition of commerce. Commerce includes all those human activities which human beings undertake. These human activities can be divided into two types- economic and non-economic activities. Economic activities can be further classified into three activities i.e. business, profession and employment. In these economic activities, business activity is further divided into two types-industry and commerce. Industries are divided into two types i.e. primary and secondary industries and commerce is divided into two types- trade and aids to trade. Now, from here where trading starts, accounts come into view. That’s why they are interlinked.
In order to understand accounting one must know its basis and basis of accounting starts with book-keeping. Bookkeeping refers to that book in which all financial transactions are recorded. According to J.R.Batliboi “Bookkeeping is an art of recording business dealings in a set of books. “ The basic objective of accounting is to maintain accounting records, determine profit and loss and its financial position.
There are some accounting principles or concepts that all commerce students should know. Well, accounting principles are nothing but the assumptions on which transactions are recorded and financial statements are prepared. They are as follows:
- Going concern concept
- Accounting entity concept
- Money measurement concept
- Periodicity concept
- Realisation concept
- Matching concept
- Historical cost concept
- Accrual concept
- Dual aspect concept
- Materiality concept
Of all these going concern, accrual concept and consistency concept are the most important and are applied in most of the fundamental concepts.
There are some basic terms in accounting which we all should know. They are:
- Transaction: Transaction means any persons or parties dealings in terms of money and recorded in books of accounts.
- Debtors: Debtors are the persons who owe money to the parties on account of credit sales of goods.
- Creditors: Creditors are the persons to whom the enterprise owes the amount.
- Assets: Assets can be defined as all those things to which money value can be attached. E.g. land, machinery, building etc. Assets can be of six types i.e. fixed assets, tangible assets, intangible assets, current assets, liquid assets, and fictious assets.
- Liabilities: Liabilities means the amount which the enterprise owes either to the outsiders or the proprietors.
CAPITAL=ASSETS – LIABILITIES
There are three golden rules which all should know. They are:
- Debit the receiver, credit the giver
- Debit what comes in, credit what goes out
- Debit all expenses and losses, credit all income and gains
A normal trader follows a double-entry bookkeeping in which the transactions are recorded twice i.e. once it is debited and then it's credited. In this. A journal is maintained by a trader which is mostly in chronological order. In this journal, five columns are made i.e. date, particulars, ledger folio, and debit and credit amount.
After making the journal a ledger account is maintained. Ledger account is made from journals and it shows current balance of all accounts. Trail balance and final accounts are mostly prepared from ledger accounts.
There are other types of subsidiary books which are used for recording transactions. One such book is cash book. Cash books record cash transactions only. They record receipts and payments in cash. Cash book is of two types’ i.e. single column and double column cash book.
After preparing ledger accounts, journal, the trial balance is prepared. The trial balance is mainly a list of all ledger accounts and cash book. It is prepared to check the arithmetical accuracy of the accounts.
Partnerships accounts are also prepared by the partnership firms. A partnership is a voluntary association of two or more persons who agree to carry on their business jointly and share its profit and losses. They also need a partnership deed