To recall the definition advocated by the American Institute of Certified Public Accountants, "Financial Accounting is the art of recording, classifying and summarising in a significant manner - and in terms of money transactions - and events which are in part at least of financial character - and interpreting the results thereof'. [In this, the long hyphens have been introduced only to highlight the aspects emphasised in this definition.] The earlier units have dealt with the aspects of recording and classifying. The summarising part will be addressed in this unit.
Objectives
After studying this unit, you should be able to
- appreciate the stages of summarising and reporting - through Trial Balance, Manufacturing Account, Trading Accounting, P & L A/C and Balance Sheet,
- recognise the distinctions between the above-mentioned accounting statements as well as their inter-relationships,
- distinguish between capital and revenue aspects of expenditures and incentives,
- be aware of the importance and implications of the Matching Principle, the role of closing stock and several other items of accounting,
- put in the constituent entries into P & L A/c and BS comprehensively and appropriately, and
- learn, inter alia, on how to arrive at divisible profits.
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