Describe the systems of accounts & financial statement

System of accounts:

The best way to describe the system of accounts is to understand what it does and what purpose it serves. Accounting is an art of:

1. RECORDING the economic transactions
2. CLASSIFYING the transactions in a significant manner
3. SUMMARIZING them in financial statements
4. INTERPRETING the results

Reference: What is Accounting? Definition and Meaning – AccountingVerse. (n.d.). Retrieved December 15, 2017, from http://www.accountingverse.com/accounting-basics/what-is-accounting.html

A system of accounts follows the above referred process flow in order to provide useful economic and financial information to the users of financial statements.

Description of financial statements:

In sub task A.C.1.1 familiarizes us with the financial statements. We will now describe briefly below each of those five elements:

1. Profit and loss account:

Profit and loss account or income statement, as the name signifies, is a statement that shows us results of operations of any business organization. In simplistic terms a profit and loss account shows how much profit or loss a business has made over a period of time. Main elements in a typical income statement include:

1. Sales revenue: Money earned by for example selling ice cream
2. Cost of sales: Money spent on making ice cream that was sold
3. Gross profit: Difference between sales and cost of sales
4. Operating expenses: Spending on common organizational overheads
5. Net profit: Net income after deducting all expenses from the operating profit.
6. Balance sheet: