Accounting is defined as the comprehensive and systematic recording of the financial transactions that pertains to any business (Deegan 2013). This also refers to the procedure of analyzing, summarizing and reporting the business transactions in order to oversight the tax collection entities and agencies. It has also been found that the accounting is termed as the language of business, thus, it is an important factor to gain knowledge regarding the business accounting.
There are several terms and terminologies that are considered as the most important term for knowing the basics of the business accounting. Therefore, an accounting glossary or a list of terminologies has been provided below from which I have learned various accounting concepts along with necessary equations and formulae.
Sales and purchases transactions – In case of sales transactions, it has been found that both the buying and selling entities have the economic events that should be recognized in the accounting information system (Kaplan and Atkinson 2015).
The financial accounting course often confuses me regarding the particular accounts that are to be used by the buyer and seller. However, this problem-based learning activity helps me to learn the process by which I have to record the business-to-business purchase/ sales transactions. This might involve the credit terminologies from both the perspectives. The sales and purchases transactions implement the gross method for recording the purchases and sales for a scenario of perpetual inventory (Horngren et al. 2013).
The concept of sales and purchase transactions will help me to analyze and compute the impact of credit terms on purchase and sales transactions. This will also help me to record the transactions that are related to the credit purchases by using the methodology of gross purchase for a perpetual inventory system. I have learned that record transactions are related to the credit sales transactions by using the gross sales process, whereas, the record transactions are related to merchandise returns from the perspective of buyers and sellers. In addition to this, it will help me to record journal entries; interpret credit terminologies that are related to business-to-business purchases/ sales on account. Moreover, the concept of sales and purchases transactions will help me to understand the components of sales/ purchase return transactions and sales/ purchases on account (Drury 2013). Therefore, it can be said that this unit will help me in future in understanding the sales and purchases transactions. Moreover, it will also help me to participate in the quiz competition as it will clear my basics.
Perpetual and Periodic Inventory system – The perpetual inventory system is the process of accounting for inventory, which records the purchase or sale of inventory immediately by using the computerized point-of-sale systems and ventures the software of asset management (Deegan 2012). It has been found that perpetual inventory system provides a detailed view regarding any changes in the inventory with an immediate reporting of the amount of inventory in stock. This also imitates the level of goods on hand.
On the other hand, Periodic Inventory system is defined as the process of inventory valuation for the purposes of financial reporting, where a physical count of inventory is performed at particular interval of time (Weil, Schipper and Francis 2013). The periodic inventory system keeps a track of the inventory at the starting of the period; the sales and the purchases made at similar period of time and are also recorded under the asset of the balance sheet.
Therefore, it can be said that a detailed study on both the terminologies Perpetual and Periodic Inventory systems have helped to understand the basic difference between the two systems. It has also helped me to understand the situation when one should implement and use Perpetual and Periodic Inventory systems. In addition to this, I have also learned about the advantages and disadvantages of both the systems and thus this study has cleared my basic concepts regarding the business accounting. Moreover, this particular concept helps me to self-evaluate and thus it will help me to take participation in the quiz competition and even in self-assessment examination. Additionally, the learning in the earlier topic like inventory has helped me to learn these inventory systems. Therefore, it can be said that this learning will help me in the future to gain more knowledge regarding the basic terminologies of business accounting.
Inventory costing methods – The inventory cost is defined as the cost of holding goods in the stock. As a percentage of inventory value, the capital, depreciation, warehousing, taxation, insurance, shrinkage costs and obsolescence are also included (Smith 2014). It has been found that small enterprises generally use four types of inventory costing methods in order to account for the COGS (cost of goods sold). Moreover, each of the different types of inventory costing methods is best suited to various situations and various financial goals. Therefore, the business owners should understand the various kinds of inventory costing methods and its advantages and disadvantages in order to implement the best one for the accurate accounting system. These methods are – First in First out (FIFO), Last in First out (LIFO), Average Cost Method and Specific Identification Method (Brown 2014).
Therefore, it can be said that this particular learning regarding the types of inventory costing methods will help me in self-evaluation, will enrich my knowledge regarding the basics of business accounting and thus I can take part in any competition or examination like self-assessment test, quiz, inter-college competition and many more. Thus, it can also be said that this basic concepts and knowledge will help me in future to understand the other concepts based on this particular theory.
Inventory valuation – The inventory valuation is defined as the cost that is related to the inventory of an entity at the end of a particular period (Hall 2012). This is considered as one of the important factor for calculating COGS and can be used as collateral for loans. This is expressed as the current asset on the balance sheet of the entity. Generally, the inventory valuation is prepared on the basis of the costs that are incurred by an entity in order to obtain the inventory and also to convert it into such a situation that will make it ready for selling. The costs that are included within the inventory valuation are – direct labor, freight, direct materials, handling, production overhead and import duties (Hribar, Kravet and Wilson 2014).
This theory also enriches my knowledge regarding the basics of the business accounting. The vast knowledge in the particular field will help me to earn more knowledge based on the basic concepts and theories. It can also be said that strong knowledge of basics will help me to gather more knowledge in this field and this will help me in future to become an expert in the specific field of business accounting. A clear and strong basic knowledge will help me to take part in quiz competition, corporate quiz competition and inter-college competition. These participations will also enhance my knowledge as the basic knowledge will help me to gather more upgraded knowledge in the same field.
Internal control – It is defined as a method that is put in place by an organization in order to make sure about the integrity of the accounting and financial information, to meet profitability targets, transmit management policies and to meet operational targets throughout the firm (Ahmed and Duellman 2013). It has been found that the internal controls work best when these are implemented within the multiple divisions and deal with the interactions in between the different departments of a business. Moreover, it has been noted that no two systems regarding internal controls are identical to each other. However, several core philosophies about the accounting practices and financial integrity have become standard management practices.
Therefore, it can be said that the knowledge regarding the internal controls will help me to implement this in various departments of an organization. All these will widen the scope of learning as these are the terminologies that are considered as the basics. Thus, for enhancing and enriching more knowledge regarding the basic concepts and theories of the business accounting, the particular theory will help me to understand the detailed theory (Weygandt, Kimmel and Kieso 2015). This will also help me to take part in various competitions and examinations.
Therefore, it can be concluded that the business accounting is an important subject for any individual who wants to become an expert in the field of accounting or in any business. The accounting is considered as the basic of any business. Therefore, every entrepreneur should learn the basic concepts and theories of accounting, especially the business accounting. I have made a list or glossary of various terms and terminologies related to business accounting. This has provided me with various knowledge regarding the basic theories and concepts of business accounting. Self-evaluation will help me to understand my negativities and this will encourage me to learn those topics in which I do not have a clear idea. Thus, this glossary will help me in my future to learn more about the concepts and terminologies of business accounting.
Ahmed, A.S. and Duellman, S., 2013. Managerial overconfidence and accounting conservatism. Journal of Accounting Research, 51(1), pp.1-30.
Brown, R., 2014. A history of accounting and accountants. Routledge.
Deegan, C., 2012. Australian financial accounting. McGraw-Hill Education Australia.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Drury, C.M., 2013. Management and cost accounting. Springer.
Hall, J.A., 2012. Accounting information systems. Cengage Learning.
Horngren, C.T., Sundem, G.L., Schatzberg, J.O. and Burgstahler, D., 2013.Introduction to management accounting. Pearson Higher Ed.
Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality. Review of Accounting Studies, 19(1), pp.506-538.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Smith, M., 2014. Research methods in accounting. Sage.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting. John Wiley & Sons.
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