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Process of Accountancy

  Some procedures are followed in accountancy to prepare the accounts and record the transactions and events in order to find the results of business and financial positions. They are followed below.
     Identifying
         The transactions are identified into two accounts (aspects).One is debit account (aspect) and another one is credit account(aspect).  Generally transactions are identified from it source documents (invoice, receipt, memo, bills, etc).
     Illustration:
          The sale of Rs.100000/- to Ram by Salim &co.,
          Ram is receiving goods and salim &co., is loosing goods in this transaction. Ram is receiving   
          Aspect, debit aspect and Sales(terminology of goods sold) is the giving aspects, credit aspect of this
          transaction.
    Recording
          When transactions are identified into two accounts, they are recorded in the books of accounts in significant manner by following the golden rules, double entry system. The receiving aspect in a transaction is debited as an account and the giving aspect in the transaction is credited as an account. In double entry system, accounts are the base to keep records. The two aspects of a transaction or event is identified as two accounts of such transaction or event in double entry system. In journal and subsidiary books, all the business transaction and events are recorded in significant manner.
     Illustration:
          Ram & Co., pays Electricity bill (receipt) for Rs.2000/-.
          Ram & Co. gives cash and meets the expenses. Cash is the giving aspect and the expenses met is
          receiving aspect as nominal aspect(only existed in its name). Further the giving aspect is recorded
          as cash A/c and the receiving aspect is recorded as Electricity expenses A/c in Journal.


             Journal Entry
                Electricity Expenses A/c   Dr.  2000
                       To Cash A/c                                       2000
     Classifying
          After once transactions are recorded in the books of account in significant manner, the transactions which are in same nature are classified and grouped under one base (accounts). In ledger, all recorded transactions are posted to concern account from journal and subsidiary books. Such activity is called as classifying. Ledger is generally drawn on T accounts format having two sides in which left side is for debit and the right side is for credit.
      Illustration:
           Electricity bills are paid for 6 times in a year amounting to Rs.2000/- on each payment of every 2
           months in a year.
           All the six payments of electricity bills are grouped under the single account Electricity Expenses.
      Summerising
          All classified transactions are summerised under an account or a statement to reveal the final result of whole transactions and events of a business. At end of every accounting year, final account as profit and loss account, Balance sheet are prepared to know the profit of a business or financial position of a business.
     Analyzing
          Analyzing is the methodical classification of summerised financial trasactions. In analysing, relationships are made among summerisied transactions. Relationships are made among the items of profit and loss account and Balance Sheet. Anlysation is made on such related and methodically classified information. Ration Analysis is the major tool to do analysation of summerised financial transaction by making relationship among them.
     Interpreting
          Analysed transactions are interpreted by explaining the meaning and significant of analysed financial transactions. Interpreted transactions are helpful to the end user to take rational decision making on financial status and results, activities of business. It explains not only what happened and also why happned and what will happen in suitable circumstances.
     Communication

          Analysed and interpreted data (transactions) are communicated to end user by issuing report including profit and loss a/c, balance sheet, etc. Business firm prepare more reports and statements to communicate the date to the end users to take rational decisions.

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