FINANCIAL ACCOUNTING AND CONCEPT

Actually Financial Accounting is a skills and concepts .It provides the message that is needed for sound economic decision making. The main objectives of financial accounting is to prepare the financial reports that provides messages about a organisations performance to external audience such as investors, creditors, and tax authorities,shareholders. On the other hand, it is also performed according to Generally Accepted Accounting Principles or GAAP method.

Actually businesses have two primary objectives:
   1. Earn from profit
    2.Remain to solvent

The four financial statements are :

    1.Balance Sheet
    2.Income Statement
     3.Statement of financial position
     4.Statement of Cash Flows

Double Entry Accounting

Financial accounting is based on Double Entry book keeping system.which each transaction has two effects.One is debt and another  is credit.
 Assets  =  Liabilities  +  Equity

To record transactions, one must be:
1.    Identify an event that has affected the entity financially.
 2.   Measurement the event in the monetary terms.
 3.   Determine which accounts the transaction will be affected.
4. Determine whether the transaction will be increased or decreased the balances in those accounts     5.Record the transaction in the ledger books.
All larger business   follows  the double entry book keeping system. Under the double entry system, instead of recording a transaction in only a single entity account, the transaction is recorded in two accounts of ledger.




This is the financial accounting.Actually it provides internal and external information of organisation.It is helpfull for all financial stakeholder.

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PAYABLE ACCOUNT

When a organisation purchases goods or services in advance of paying for them, we will say that the company is purchasing the goods or service   on credit term. The supplier (seller) of the goods on credit is also recognised to as a creditor. If the buyyer receiving the goods does not sign a promissory note, the supplier's bill or invoice will be recorded by the organisation in its liability account Accounts Payable or Trade Payables.

An accounting entry that is  represented an entity's obligation to pay off a short-term debt entry to its creditors. The accounts payable entry is found on a statement of financial position under the heading current liabilities.

Accounts payable is the certain amount of an entity's short-term obligations to pay seller for products and services which the entity purchased on credit from seller. If accounts payable are not paid within the payment date  to with the seller, the payables account are considered to be in default, which may be triggerd a penalty or interest payment method, or the revocation or curtailment of additional credit term from the seller.

It is a liability account, Accounts Payable will normally have a credit balance. Hence, when a buyyer invoice is recorded, Accounts Payable will be creditedentry and another account must be debited entry . When an account payable(buyyer) is paid, Accounts Payable will be debited entry and Cash will be credited entry. Therefore, the credit balance in  Payable account should be equal to the amount of buyyer invoices that have been recorded but have not yet been paid.

Under the accrual concept of accounting method, the organisation receiving goods or services on credit term must be reported the liability account no later than the date they were received. The same date is used to record the debit  to an expense account or asset account as appropriate. Hence, accountants say that under the accrual concept of accounting expenses are reported when they are incurred.

The  account term payable can be also refered to the person or staff that processes seller invoices and pays the organisation's bills. That's why a seller who hasn't received payment from a buyyer will phone and ask to speak with "accounts payable."

The  payable accounts process involves are reviewing an enormous amount of detail to ensure that the legitimate and accurate amounts are entered in the accounting system. Much of the information that is needed to be reviewed will be found in the following information:

    purchase orders issued
    receiving reports
    invoices from the organisation's
    contracts and other aggriment

The accuracy and completeness of a company's  statements of financial position are dependent on the  payable account . A well-run accounts payable account  will include:

    the timely processing of accurate and legitimate seller invoices,
    accurate adjustment in the appropriate general ledger , and
    the accrual of obligations and expenses account that have not yet been completely processed.
When personal accounts payable are recorded in jeneral ledger, this may be called in a payables ledger, thereby keeping a large number of personal transactions from cluttering up the general books. Alternatively, if there are few payables, they may be recorded directly in the general books. Accounts payable ledger appears within the current liability section of an entity's financial statement

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RECEIVABLE AND BAD DEBTS

An entity which may not be able to recover its outstanding balance in respect of certain receivables. In accountancy  term we can refer to such receivables as Irrecoverable Debts or Bad Debts. irrecoverable debts could be arise for a number of reasons or matter such as when customer going to bankrupt or trade dispute or fraud.


If we think buying something  goods, it's easy to picture ourselves to standing at the checkout, writing out a personal check, and taking possession of the goods. It's a simple  way of transaction—we exchange our money for the store's business.

Every time an entity realizes that it unlikely to recover its debt from a receivable, it must be 'write off' the bad debt or irrecoverable debts from its receivable books. This ensures that the entity's assets  are not stated above the amount it is reasonably expect to recover which is in line with the  prudence concept.

Accounting entry required to write off a bad debt or irrecoverable debts is as follows:

Debit    Bad Debt Expense
Credit    Receivable

The credit entry reduces the receivable balance that were recognized to balance sheet. The debit entry has the effect of cancelling the impact on profit of the sales that were previously recognized in the income statement.


In the world of business today, however,most of the company  wants to sell their goods  on credit. This would be equivalent to the grocer of transferring their ownership of the business to you, issuing a sales invoice, and allowing you to pay for the business at a later date.

Example

Rahim LTD sells goods to Karim LTD for $800 on credit. Rahim LTD subsequently finds out that Karim LTD is being liquidated and therefore the prospects of recovering its dues are very low.

Rahim LTD should write off the receivable from Karim LTD in view of the circumstances. The double entry will be recorded as follows:

   
Debit    Bad Debt Expense    800   
Credit    Receivable        800



Whenever a retailer decides to offer its goods or services on credit, two things happen on that time: (1) the retailer boosts its potential to increase revenues since many customers appreciate the convenience and efficiency of making purchases on credit term, and (2) the retailer opens itself up to potential losses if its customers do not pay the sales invoice amount when it becomes due.

Under the accrual basis of accounting a sale on credit will:

    Increase sales or  revenues, which are reported on the income statement, and
    Increase the amount due from customers, which is reported as accounts receivable.

If a customer does not pay the amount it owes, the seller will report:

    A credit loss or bad debts or irrecoverable debts expense on its income statement.

With respect to  statements of financial position, the seller should be report its estimated credit losses as soon as possible using the receivable allowance method. For income tax purposes, however, losses shoud be reported at a later date through the use of the direct write-off method.
Recording Services Provided on Credit

Assume that on may 8, hunny Design Co. provides $5,000 of graphic design service to one of its customer with credit terms of net 30 days time.

Under the accrual basis of accounting concept, revenues and sales are considered earned at the time when the services are provided. This means that on may 8 hunny will record the revenues it earned, even though hunny will not receive the $5,000 until may. Below are the accounts affected on mat 8, the day the service transaction was completed:




In this transaction, the debit to Accounts Receivable increases hunny's current assets, total assets, working capital, and stockholders'  equity—all of which are reported on its financial statement. The credit to Service Revenues will be increased Malloy's revenues and net income—both of which are reported on its income statement.

Accounts receivable are not always be collected in full due to many reasons. Sometimes buyer simply evade payment and the cost of pursuing them is more than the recoverable amount and sometimes they become go to bankrupt, sometimes the debt becomes time-barred etc. A debt which is determined to be uncollectible i.e. there is no chance that the debt would be collected, is called a bad debt or irrecoverable debts. Bad debts or irrecoverable debts were written off from accounts as soon as they are determined. This is because a organisation does not expect future economic benefits from a bad debt and it no longer remains an asset

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PARTNERSHIP BUSINESS

Partnership is one kind of business where two or more than people operate this business.It is owned jointly number of people.The may be partner, client,friend,family or relative.The partners are jointly and severally liable for any losses that the business could make.It is a traditional business.

There are two or more people are associated.Like a sole trader the partnership is not legally distinguished from its member.Professional assets of the partners can be used.

The more advantage of trading as a partnership is:

• There are more money.
• More resources are available. 

• Partner can substitute for each other.

Disadvantage of partnership is:

• There are unlimited liability.
• Management system is week.

Also partners can introduce or money at any time when the like.

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