What is accounting

Financial Accounting is called the language of business. We know that the function of a language is to
facilitate communication among individual in a society. Accounting is the common language used to
communicate financial information. Many people preconceived that it only record keeping or book keeping
aspect of the discipline. But accounting is much border than this. Especially accounting is the process of
identifying, measuring and communicating economic information to various user. It is the principle means
of communicating financial information to owner, lender manager and other who have interest in an
enterprise. As an information system the accounting may be view as under:-

INPUTE PROCESSING OUTPUT USER

Business transaction Accounting principles Financial statement Investor,

and event and procedure and report Lender ,Manager,ba
nketc
Thus, accounting as system process the various business transaction and event to provide financial
information in the form of financial statement to various interested parties.
Form of business organization

There are different type of organization in a society. Some are organized to earn money and some are
organized for some other purpose. Generally business entity are organized to earn money and non- business
entities are organized to serve the society.
BUSINESS ENTITIES OR BUSINESS ORGANIZATION
Business entities are organized to earn profit. Legally a business may be organized in many way. The
common forms of organizing business are sole proprietorship, partnership and joint stock company
1. SOLE PROPRIETORSHIP
This is the form of business organization which is started by single owner by investing the capital by
himself. Mostly this type of the business is owned and operated by same person. All the profit of
the business is taken by himself and also bear the loss .his liability is unlimited.
2. PARTNERSHIP
Partnership is a business owned by two or more individual. This type of business is started by two
or more individual by making agreement which may be oral or written to achieve some goal. The
agreement include as how much each would contribute to the business and how they would divide
any profit.
3. CORPORATION
A corporation is a voluntary association of many person created by law having separate legal entity,
perpetual succession and common seal. A corporation is an entity organized under any law of
particular state .To start a corporation file article of association with the state, If the article of
association is approved by the state, a corporate charter is issued and the corporation can raise
money by issuing stock and bond. A share of stock is a certificate that act as evidence of ownership
in a corporation. A bond is a certificate issued to someone where it promise by company selling it to
repay a certain amount of money and periodic interest. It is similar to loan lend money to a
company for bond are issued.
USER OF ACCOUNTING INFORMATION
The user of accounting information can be divided into two group:-Internal user, primarily the management
of the company and involve in daily affair of business and all other user are External user

1. INTERNAL USER
Generally the manager of the organization are the internal user of financial information for their
own decision. The management needs information for planning and controlling operation ,making
special decision and for formulating major plan and policies.some of this information is available
from the accounting system. Management also need financial information to make financial
comparison of its performance with the competitor performance.
2. EXTERNAL USER
External user are those who are not directly involved in the operation of a business, need
information that differ from the needed by the internal users. Following are the important external
user of accounting information:

 STOCKHOLDER AND POTENTIAL STOCKHOLDER

Both existing and potential stockholder need financial information about the business. The
existing stockholder need financial information to take decision whether to continue to hold
the stock or to sell it. The potential investor need financial information about
organizationbecause itwill help in choosing among best alternative investment.

 BONDHOLDER ,BANKER AND OTHER CREDITOR

Before buying a bond in a company the person need to feel comfortable that the company
will be able to pay him the amount owned at maturity and the periodic interest payment.
Financial statement help him to decide whether to purchase bond. similarly before lending
money a bank need information which will help him to determine the company’s ability
repay the amount of loan and interest of loan . all this need of bondholder banker and other
creditor fulfill by financial statement.

 GOVERNMENT AGENCIES
Number of government agencies have information need specified by law. Like Internal
revenue service need financial information to collect tax on income both individual and
corporation .Another government agency called security exchange commission which has
power to set the rules under which the financial statement must be prepared be the
corporation, need financial statement to verify whether the corporation present the
financial information as prescribed manner.

 OTHER EXTERNAL USER

Many other individual and group need financial information for various purpose.A supplier
of raw material need financial information to know credit worthiness of a company before
selling it product on credit. The stockholder and financial analyst need financial report in
advising their client on investment decision.
NATURE OF BUSINESS ACTIVITY
A company engage in different type of activities. Generally these activities can be categorized into
three types and which are
1. Financing activities
2. Investing activities
3. Operating activities

1. Financing activities
As we know all business start with financing .It include both external financing and internal
financing or combination of both to meet their cash requirement. Internal financing
activities involve obtaining the resources from owner and providing them with a return on
their investment. External finance involve borrowing and repaying amount borrowed and
obtaining and paying other resources from creditor on long term basis. The corporation
manage external finance by selling stock and someone who buys stock in a companies is
called a stock holder. The stock holder provide permanent form of financing to the business.
External finance involve in selling bond who is called bond holder, obtaining loan from bank
and from other. There are not permanent form of financing. Financing activities also include
payment of dividend to stock holder buying buck of stock ,payment of borrowed amount
and interest.
2. Investing activities
There is natural process in a business from financing activities to investing activities. In other
word after generating the fund from the stockholder, bondholder, creditor, bank, etc.
money is available to make investment in various assets. In other word investingactivities
include buying of various assets to run the business like plant and machinery , land and
building, patent, goodwill and others assets. An assets represent the right to receive some
sort of benefit in the future. it is an valuable resources to the company that control it
3. Operating activities
Once fund are obtained from financing and investment are made in producting assets, a
business is ready to begin its operation. As we know every business is organized with some
purpose. The purpose of some business is to sell the product, some are to provide service
and some provide both product and service. There are some important operating activities
to generate revenue. Revenue is the inflow of assets resulting from sale of product and
service. However a business have to also incurred some expenses to generate revenue like
payment of salary and wages, payment to supplier for inventory, payment of tax to the
government, etc. the operating activities of a business called expenses are the outflow of
assets, resulting from the sale of goods and service.

FINANCIAL STATEMENT, TOOLS FOR COMMUNICATION

It is believe that financial statement is a important tool for communicating the information about an
enterprise. It provide information about an enterprise revenue, expenses, asset, liability and owner equity.
Generally a complete set of financial statement normally consist of a balance sheet, income statement,
statement of cash flow and statement of retained earning.
4. Income statement
 The income statement also called profit and loss a/c in a financial statement that
summarized the result of an enterprise Operation for a given period by disclosing the
revenue earned and the expenses incurred. Simply it provide information abouttotal
expenses and total revenue It is statement which report the result of operation of an
enterprise in the form of net income or net loss.
5. Balance sheet
A balance sheet also called statement of financial position in the financial statement that
summarized the asset, liabilities and owner equity of a company. It shows the resources of
an enterprises and claim on those resources by the owner and creditor of the company at
that time. Thus it is the statement of assets ,liability and owners equity.
6. The statement of cash flow
The statement of cash flow reflect an enterprise major sources of cash receipts and cash
payment. It report the cash effect during a period of not only enterprise operation but also
its investing and financial activities. It differ from the income statement in two important
aspect. First the income statement only the report operating activities during the period but
statement of cash flow report financing, investing as well as operating activities. Secondly
the income statement is prepared on accrual basis but the statement of cash flow are
prepared on the basis of cash basis.
7. Statement of retained earning
Retain earning represent the accumulated earning of a business. In other words it is
undistributed profit remain after afterdistribution of dividend . Dividend are distribution of
net profit or income of a business to its stock holder. A statement of retained earning
explain the change in retain earning during the period due to payment of dividend. It reflect
dividend and amount of dividend paid by the company.

THE ACCOUNTING PROFESSION

Accountants play different role in the society. The various role help us to understand the important of
accounting. It serve the society in many ways:-

1. Employment by private business

Many accountants work for business organisation. An accountant said to be in private accounting
when he employed by a business enterprise. A private accountant perform a number of important
function for the business enterprises. Like the chief financial officer, the controller, the treasurer
and the director of internal accounting.
The controller is the chief accounting officer for a company and responsible
for the over all operation of the accounting system. Accountant working for the controller records
the company activities and prepare periodic financial statement.
The treasurer of an organization is responsible for the safe guarding
as well as efficient care of the company liquid resources such as cash. Accountant working for the
treasure are also responsible preparing the tax return and planning transaction in such a way that
the company pays the least amount of tax.
Internal auditing is the department in a company responsible for
reviewing internal control ascertaining the extent of compliance with establish polices and the
extent to which company are safeguard and recommending improvement in operation.
2. Employment In public accounting
 Public accounting provide wide varieties of service. They provide professional service to public in
return of fee. The principal service provided by public accounting include auditing, tax service and
management consulting service.
a. Auditing service:-
It involve the examination of financial statement to provide assurance to stock holder, bond
holder, creditor and other that the financial statement are fairly presented. It is the opinion
given by the public account after examine the financial statement and other records of the
company as to whether the financial statement are fairly present and show true and fair
view of the enterprise.
b. Tax service:-
In addition to auditing service public accounting firm also provide a variety of tax service like
preparation of tax return and compliance with tax law, planning business activities in order
to minimize tax.
c. Management consulting service:-
By working closely with business in providing tax and auditing service a public accounting
firm become very familiar with various aspect of a company. It help public accounting to
provide expert service or advice like recruiting suitable person, reviewing costing system,
help with decision and installation of a new computer system, applying modern inventory
method to improve the efficiency of the company.
3. Employment by non-business entities
Non-business organization such as hospital, university and various branch of the government also
need accountant to perform various function as the accountant perform for business entities.
Although earning profit is not paramount to non-business entity but they need financial
information to operate efficiency. A government need details cost information in determining the
taxes to be improve on its area. A university need information about the cost of it operation to set
the annual tuition fee.
4. Accountant in education
Some accountant including your teacher, author of accounting education. As the demand for
accountant in business organization and public accounting has increase. So it has increase the need
for qualified professor to tech this discipline.in addition to their teaching duties many educator
actively involved in research work.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLE (GAAP)

Accounting information that Is communication to investor and creditor must be prepared in

accordance with standard that are understood by both the preparer and the user of that information. We call
these standard generally accepted accounting principle. In other word it is the set of convention, rules and
procedures which must be followed by the business enterprise in preparing financial statement. These
principle or rule provide the general framework for determining what information is included in financial
statement and how this information is to be presented.
Now a question is arise that who determine the rules to be followed in preparing an
income statement. The financial accounting standard board (FASB), The security and exchange
communication (SEC) and American institute of certified public accountants are the important organization
in term of standard setting in united states. The security and exchange commission has the ultimate authority
to determine the rules to be followed in preparing financial statement by the company whose security and
sold to the general public. The financial accounting standard board is a private sector organization.
American institute of certificate of public accountants is primary responsible for setting GAAP through its
accounting principle board prior to establishment of FASB. But after establishment of FASB it play only
advisory role in setting accounting standard.
There should be also international standard so that financial statement of different
country can be comparable and can be understand by different user through the world. The international
accounting standard committee is a organization who is responsible to develop world wide accounting
standard. The international accounting standard committee work for the improvement and harmonization of
financial reporting through the development and publication of international accounting standard.

Accounting principleor concept

Business entity concept: -

Entity means a things with distinct and independent existence. Business is also treated as separated
accounting entity. It means business is treated separated from its owner and as we know that the main
purpose of accounting to measure the efficiency of business in the form profit or loss. Its possible only when
the business is treated separate from its owner. Otherwise personal financial affair of the business and owner
would be mixed up and the true financial position and operating efficiency of the business can draw up. So
to find out true financial position of the business, it must be treated separated accounting entity and record
only those organization which affect the business.

Money measurement concept: -

According to this concept only monetary transaction should be recorded in the books of account.
Thosetransaction which can be express in term of money or measurable in term of money are called
monetary transaction .Those transaction which can be express in term of money cannot get places in the
financial statement.

Going concern concept

According to this concept, it assume that business is carried on or run for long period of time. It has
indefinite life period.it is none stop process. This concept explain that the business is establish to exist
forever. The treatment of purchased of goods is differentiate from the purchases of assets. Thus assets are
classified as long term and short term assets likewise liabilities are also classified as short term and long
term liabilities

Accounting period concept

In going concern concept it assume that business run is for indefinite period but it is not possible for
the owner to wait till the end of business to find out profit or loss. Therefore to find out the profit or loss ,
the whole life of business is divided in periodic interval or many small period. Each periodic interval is
called accounting period which is usually one year

Matching concept
According to this concept all the expenses of period should match with the revenue of that period to find out
actual profit or loss. In other word revenue earn in period must be match with expenses incurred in the same
period to determine true picture of the organization. Otherwise it not possible to find out actual operation
result of the business

Cost concept
According to cost concept all the assets of organization should be recorded in the books of account at
their cost price or cost of acquisition rather than current market price. For example , fixed assets are shown
on the balance sheet at the price paid to acquired them i ,e their historical cost less depreciation written off
to date

TRANSACTION AND EVENTS

There are numerous events which affect the business like sale, purchase of goods or assets, fire destroy the
warehouse etc. In other words event means a happiness of consequence to an entity.
 The event may be internal or external. Internal events involve interchange between the entity and its
environment like transfer of raw material from store to production, use of equipment etc.
Internal event occur within the entity. External event involve intersection between the entity and outside
parties like purchase of good from supplier, sale of goods to customer etc.
The term of transaction refer to any event external or external that is recognized in the set of financial
statement. An event to be recognized must be measurable. It means any event which can be measured in
term of money is called transaction. Thus transaction means an event which effect the financial statement of
an business entity and can be measure in term of money.

Journal entry
A journal is a chronological record of transaction entered into by a business. The journal is also called the
book of original entry or primary book because the transaction are first of all record in this book. The journal
provides in one place a complete record of all transaction including necessary explanation. Transaction are
first occurred in journal and then are posted to the ledger account. Posting is the process of transferring a
journal entry to the ledger a/c journalizing is the process recording entries in a journal.

Ledger
Ledger means a statement or sheet which is prepare to record all the transaction of same nature atone place.
It is the principle book of account where similar transaction relating to a particular person or things are
recorded. For example , transaction relating to cash are assemble under a ledger i ,e cash a/c. a separate
account are opened for particular transaction generally in separate page or sheet.

Trial balance
Under double entry system, for every debit there is corresponding credit .so the amount of debit and credit
must be equal. It means if individual debit is equal to individual credit then thetotal debit must be equal to
total credit a/c. The equality of debit and credit is verify by preparing a statement which is called trial
balance. Therefore a trial balance is a convenient device that prove the equality of debit and credit balance in
the account. Thus it prepare to check the arithmetical accuracy of books account .if the debit total of trial
balance is equal to total credit, it assume that there is no error in the books of account.

BASIS OF ACCOUNTING SYSTEM

There are usually two system of accounting which used by accountant – cash basis and accrual basis of
accounting .now a days another system called id system is used and which is the combination of cash basis
and accrual basis of accounting.. therefore in all there are three system of accounting and which are
1. Cash basis
2. Accrual basis
3. Hybrid basis

Cash basis of accounting

This is a system under which revenue is recorded in the book of accounts only when cash is received and
expenses is recorded only when cash is paid. Similarly assets and liability are recorded in the books of
accounts only when actual cash is received or actual payment are made in cash.

Accrual basis of accounting

Accrual basis of accounting is the method of recognizing and recording expenses, revenue, assets and
liabilities in the account in which they arise rather than when cash received or paid. in other word revenue
are recognized when it is earned and it treated earned when service is provided regardless of when cash is
received and expenses are recognized when it is incurred and it treated incurred when service or benefit is
received regardless when cash is paid.
Hybrid basis of accounting
This method is the combination of cash basis and accrual basis of recording and recognizing expenses,
revenue, assets and liabilities. Under this basis transaction are recorded neither totally cash nor totally
accrual basis of accounting.
Under this basis transaction relating to income are recorded on cash basis and expenses are recorded on
accrual basis of accounting.

Field of Accounting

Just as there are many users of accounting information, there are many field of accounting. The main field of
accounting are:-
- Book keeping
- Financial accounting
- Management accounting
- Cost accounting &
- Tax accounting

Book keeping:-
Book keeping is the process of recording of routine transaction & day to day record keeping. It is only a
small part of accounting & possibly simplest part of accounting.

Financial accounting:-
Financial accounting is that branch of accounting which is concern with preparation & communication
of financial information to various external users. The purpose of financial accounting is to provide
information to users & other external user about the financial position of an organization& how well the
organization is doing over the period through the major financial statement- balance sheet, income
statement & statement of cash flow.

Management accounting:-
Management accounting is that type of accounting which provide economic & financial information to
management & other internal users. It is a system of accounting which help the management in carrying
out its function more efficiently. The purpose of management accounting is supply details information to
meet the specific need of management.

Cost accounting:-
Cost accounting is the process of information of cost based on there common characteristic, assignment
of cost to appropriate cost object, allocation of cost to several period on the basis of expected benefit &
charging items of cost to the ultimate unit.
Accounting for cost in a vital management tool which provide details record of cost, associated with
product operation, process, job or function. It also classifies & interprets cost. It is mostly deal with the
utilization of cost, the planning of cost & its control.

Tax accounting:-
Tax planning is another field of accounting which is concern with tax compliance & tax planning. Tax
compliance means following the many complex tax rule & filling the tax return by calculating taxable
profit & tax deduction. Tax planning refer to the study of possible tax effect on various proposed
financial transaction with a view to minimize the effect of
tax& thus maximize the profit

Role of Source of document(MEANING):-

Accounting records are takes as truthful financial information because all accounting records are
based on fact & supported by documentary proof. The document which provide proof of happening of a
transaction or event, are known as source document. A cash memo, an invoice, a cash receipt, a bank
 pay-in ship, a bank cheque, a debit note, a credit note & a payment voucher are the example of source
document.

Role:-
1. Recording basis:- The source document are the basis for recording & accounting without which
recording is meaningless.
2. Evidence in the court of law:- The source document can be produce in the court of law as
documentary proof in case of any dispute involving the accounting entity.
3. Authenticate the amount paid or received:-The source document establishes the amount paid or
received.
4. Basis for taxation:-
5. Information about make ,quantity& value:-The source document provide the information about the
model, make ,quantity& value etc.
6. Basis for adjustment:-The source document like debit note & credit note are the basis for adjustment
in case of return & adjustment in price.
7. Details about cheque:- The source document like the bank statement. Provide information about the
cheque issued, received & balance in the bank.
8. Proof of payment or receipt:-The source document are the proof of payment made & amount
received.

Adjusting entries:-
Adjusting entries are journal entries prepared at the end of the accounting Period to
ensured that the revenue are recorded in the period in which they are earned & expenses are recognized in
the period in which they are incurred. As we know, in accrual basis of accounting, an expenses & revenue
should recognized in the period in which it is incurred or earned. These are recognized in the period in
which they are incurred or earned with help of adjusting entries

Deferral expenses:-
There are expenses for which cash has already been paid but expenses yet not recognized because service or
benefit is not receive . They are treated as assets till the benefit is derive. It is treated as expenses as soon as
benefit is derived. The expenses is recognized with help of adjusting entries.

Deferral revenue: -
it the revenue for which cash has already been received but revenue yet not recognized because service or
benefit is not provided.it is treated liability until service or benefit is provide. As soon as service is provide it
is treated as revenue and recognized with of adjusting entries

Accural expenses:-
Accrual expenses are the expenses which has incurred but not yet paid or benefit has been derived but have
not paid. At the end of particular period, we need to recognized such expenses for which cash was not paid
but benefit is derived with the help of adjusting entries.

Accrual revenue : -
Accrual revenue are the revenue which has earned but yet not recognized and cash is not received . It is the
revenue before cash received

Chart of account
Chart of a/c is a numeric listing of all the accounting entity, assets, liabilities, owner equity, revenue
& exp. It is use to code each transaction incurred into the accounting system &facilate the uniform reporting
process. The chart of account is something like the following:-
110 a/c rec.
120 stock in trade
130 stock of goods
140 supplies
150 cash
Subsidiary book
Journal is the book of prime entry. It mean all transaction at 1st recorded in the journal. However, in a big
business recording all transaction is one journal will not only the inconvenience but also cause delay in
getting required information. Therefore the journal is sub-divided. This sub-division is called subsidiary
book. The subsidiary book record large no. of recurring type of transaction which is similar nature. The
subsidiary book are special journal because they are prepare for specific purpose like cr. Purchase, cr. Sale,
purchase return, sales return, etc.

Nepal accounting standard:- Provision of company. act relating to accounting:-

In Nepal co. act 2063 sec 108 & 109 clearly mention the accounting provision of co. According to
this every co. should maintain it’s a/c in the nepali or the English under double entry system. The company
should maintain the book of account & prepare financial statement acc. to standard set by competent
boardi ,e NAS and company act. The book of a/c should not be kept other than register office. The cash
except approved by director should be deposited into bank. The transaction shall be done through the bank.
Every public co. should prepare & present annual financial statement & director report at least 30 days
before the AGH.

International financial reporting standard(IFRS):-

Globalization of financial market has increased focus on international standard in accounting & has
intensified effort toward a simple set of high quality, globally acceptable set of accounting standard.
Financial statement prepare in different countries according to their own set of rules which make difficult to
compare, analysis& interpret financial statement acrossnations. Thereforethere should be international
financial reporting standardso that the financial statement of different country could be compare. It is IASB
who set the international financial reporting standard. The principle objective of the international accounting
standard board (IASB )is to develop a single set of high quality, understandable, enforceable
&globallyaccepted IFRS.

Nepal accounting standard are the set of rule that must be followed by the company of Nepal while
preparing their financial statement& recording transaction. The accounting standard board is an independent
body to set Nepal accounting standard. The accounting standard board(ASB) is primarily responsibly for
setting accounting standard for business enterprise in line with the IFRS.
ASB has developed 26 NAS, of which 19 are maintain for financial year commencing from 2008. The ASB
was formed in march 2003 with an amendment to the institute of charter accountant of Nepal (ICAN) act
1997. The principal objective of NAS are…
i) to formulate accountingstandard
ii) full discretion in developing&pursuing the technical agenda for setting accounting standard
Nepal

Qualitative characteristic of accounting information:

Just as a product or service traded could be good or bad depending upon the quality of
processing raw data can be process into good information or substandard information. There
should be certain feature that the information possess to make the information as useful. We called
these feature as qualitative characteristic of accounting information. These feature are as follows
1. Understandability: we know that anything to be useful it must be understand. Similarly
accounting information will be useful when it is understand by the user of accounting
information. However understandability depend on the background of the user i.e. whether
they are college educated or done accounting course but accounting information cannot much
help to those who are unable to use it. Therefore the financial information must be reported in
such a manner so that it should be understand by all user whether they are professional or
non-professional
 2. Relevant: Understandability alone is not enough to make the information useful. To be useful,
the information should berelevant. Relevant is the capacity of information to make a difference
in decision .
3. Reliability: another characteristic for making the accounting information useful is the reliability
of the information given in the financial statement. The information will be reliable when the
information is supported by the various supportive document or evidence to find out there
correctness
4. Comparability and consistency: Comparability means making comparsion between or among
the company financial statement to take various decision. However it is not possible to make
comparison between or among the company using different accounting method like one
company may use straight line and other company may use accelerated depreciation method.
so to make comparisonpossible, there should be discloser of accounting policy used by different
company in foot note

Consistencyclosely related to the concept of comparability. Comparability means comparison

between two company where as consistency means with in single company from one
accounting period to another
As per this concept, it is desirable for a company to apply same accounting method from
one accounting to next accounting year to makecomparison. If there is no similarity in
accounting method , then it is very difficult to make a comparison. If there is change in
accounting method is necessary from one accounting period to another, then it should be
disclose in foot note
5. Materiality: The term materiality refer to the relative important of an item or an event. An item
is considered materiality when the knowledge of such item considerably influence decision of
user of accounting information.so while accounting the account, care shouldbe taken to
disclose all material information. For example, the omission of paisa in the financial statement
due to immaterial effect on the financial statement.
6. Conservatism: this is the policy of playing safe. This means, while recording transaction in the
books of account ll prospective loss must be taken in to account and all anticipated profit
should be ignored. The valuation of stock at the end of period at market price or cost price
whichever is less, provision for doubtful debts and depreciation are based on the principle of
conservatism

Annual report
Public company have an obligation to prepare and release an annual report for the benefit of shareholder &
public. The private also have an under company act to prepare and submit it to the office of registrar of
company.
Component of annual report
The annual report comprises the basic financial statement, the chairperson report, management responsibility
for financial reporting, management discussion and analysis, note to financial statement, summary report
and independent auditor report.
1. Financial report
This include income statement balance sheet, statement of cash flow and statement retain earning.
These are very important to communicate the operating result and financial position of the
business for the benefit of different group of user
2. Chairperson report
 It the address by the chairperson to the shareholder in general meeting. It comprises the summary
of financial result, the composition of board of director and discussion about external environment.
3. Management report
It the repot prepare by the management which state that the GAAP are properly followed while
preparing various financial statement and recording the transaction. This repot state the
commitment of management about the maintaining the strong internal control system, focusing
financial stewardship, exerting future oversight
4. Management discussion and report
This is the report of the management which provide the opportunity to discuss the financial
activity and provide vital explanation of certain item reported in a financial statement
5. Note to financial statement
Note are the footnote or comment which are generally appear at bottom of financial statement.
These are necessary to satisfy the need of full discloser of all the fact relevant to a company’s result
and financial position. a company policy for valuing the inventory , depreciation of assets are
important content of the footnote
6. Financial summary
Another regular feature of annual report is a summary of financial information, specially the
revenue, net income and total assets. This expiation with the help of colorful pie chart, bar diagram,
graphic curve etc.
7. Report of independent auditor
Before the annual report is submitted to concern government agency and circulate amongst
shareholder, a qualifier and independent auditor or chartered accountant are hired to audit the
books of account and financial statement. The auditor report is the medium through which an
auditor express his opinion on the books of account and financial statement after detail
examination of various statement and books of account. It is the report in which the auditor
express his opinion that the books of account and financial statement are prepared in accordance
to the GAAP and the financial statement represents what they meant to show. The auditor is not
essentially given a certificate of total accuracy but only providing his opinion about fairness and
reasonableness of financial statement

Accountings information system

The infrastructure that support the production and delivery of accounting product is the accounting
information system. The objective of accounting information system is to collect and store data
about a business that can be used to generate meaningful report for the decision maker so that it
can help them to plan, execute, control and evaluate organization’s activity
The use of computer system is excellent for the situation such as the accounting cycle where
data are voluminous and clerical mistake can be done. Computer application and accounting
software can be use to quick and accurate handle the volume of data in accounting cycle.
Computer are use to operate the accounting cycle. Accounting system record economic
event in form of accounting transaction, summaries those transaction and report them in some
useful way. Activities are organized in cycle of transaction while using computer in accounting the
cycle are:
1. Financial cycle system:- This system consist of those transaction that record acquisition of
capital from owner and creditor, use of those capital to acquired productive assets and
reporting owner and other as how it is use.
 2. The expenditure cycle:- this system consist of those transaction relating to acquire of material
and overhead. Requisition request for item, receiving the item and recording of obligation to
pay for such item and paying for them.
3. The revenue cycle system:- this cycle consist of those transaction incurred to generate revenue
from output of conversion process.
4. The conversion cycle:- this cycle consist of those transaction incurred when input are converted
into finished goods or service. The various raw material, labor and the overhead are consume in
the conversion process.

Role of computer in accounting

Computer is an electronic device of very high speed and accurate information processing and storage .
Computer play very important role in business in performing a number of routing and repetive accounting
job with great speed, accuracy and diligence in versatile and automatic manner. These days computer are
being widely use in recording in recoding business transaction. There are various accounting software
which are by accountant to perform many accounting job like recoding business transaction to prepare
financial statement and report. There at least 4 kind of computer software programmed which play
important role in accounting and which are
1. Accounting package: - accounting package are those software package which are use to
perform various accounting job like primary entry, ledger, account receivable , inventory
account payable and payroll. Commonly used package are tally, fact, TATA Ex-NGN, quick
book , business work etc.
2. Spreadsheet: - the use of computerize spread sheet has revolutionized accounting process.
Excel and LOTUS 1-2-3 are two common computerized spreadsheet greatly use in
accounting work. It has capacity of planning the layout, exerting level and formulas, entering
data and producing final layout.
3. Database management system.–
# Cash and cash equivalent
Cash consist of coin and currency, money order and cash on deposit in the form of chequing, saving
and money market amount. It's also including redeposited cheque from customer, cashier check and certified
check. Thus the amount of cash that which is readily available to paid debt.
Some short. term investment is so liquid that they are term cash equivalent. So cash
equivalent means short term highly liquid investment which can be convertible to cash. generally an
investment qualifies as a cash equivalent only when it has maturity of three months or less. Thus it includes
treasury bill issued by the federal government, certificated of deposit, commercial paper are the example of
cash equivalent.

# Cash Management:
Cash management is very important because it guard against theft and other causes. Its is also
necessary to insure that any point of time a corporation has neither too little nor too much cash on hand. The
company need to have enough money to pay timely to supplier employees, tax, bank and other. Too much
cash on hand is result of ideal cash which could be deposited in bank to earn interest. Hence the company
carefully moniker the amount of cash on hand at all time.
# Petty Cash:
One of the most important principle to control the cash is the all disbursement should be made by
cheque. Rut it is not always possible to follow this rule because there are many minor expenses like postage,
local travel, minor, repair etc. So many firms establish petty cash fund from where minor expenses are
made. To create such firm a cheque issue for lump sum amount such as Rs 100,200 and entrusted to petty
cash custodian. The petty cash custodian make all minor payment from this fund and obtained a receipt or
prepare a cash voucher explaining the nature of an amount of cash expenditure. At the end of the period a
cheque is written to . Bring the fund to its original amount.
Internal control system
An internal control is an internal control mechanism, policy or procedure that can counter system attack,
reduce risk, and resolve vulnerabilities. It is set of policy and procedure necessary to ensure the
safeguarding of an entity assets, the reliability of its accounting records and the accomplishment of
overall company objectives. Internal control consist of all the related method and measure adopted
within the organization to safeguard its assets and enhance the reliability of its accounting record,
increase the efficiency of operation and ensure compliance with law and regulation. Simply internal
control is a process for assuring achievement of organization‘s objective In operation effectiveness and
efficiency, reliable financial reporting and compliance with law, regulation and policy.
Speddy& Accurate, information processing
The basic advantage of computer systems over manual systems is that they
are faster manual accounting systems can be designed to be error free. This
usually involes among other things data being manually entered more than once
by more than one person so that clerks can be built into the system. Thus, it is
misleading to claim that a major, advantage of computerized accounting systems
over manual a/cing systems is that camputeisred a/cing systems is error free in
compared to manual recording system. Manual a/cing systems can br designed to
be error free, but this usually requires much exp. & time as well. of computer
applications for a/cing is that computerized a/cing automates the manual process.
For eg instead of an individual going through each journal entry to post to the
accounts the computer application does it automatically quickly & accurately. The
same is holds for preparing the trail balance, any work sheets the financial
statement & closing entries.