INTRODUCTION TO

Dr. Seema
ACCOUNTING Pandit
 Basic concepts

Book
Accounting Accountancy
keeping

10/4/2021 Dr. Seema Pandit

 ACCOUNTING

 Is an art of Recording, Classifying and Summarizing 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

 Is the process of Identifying, Measuring and Communicating

economic information to permit informed judgments and

decisions by users of information

10/4/2021 Dr. Seema Pandit

 ACTIVITIES COVERED UNDER
ACCOUNTING

 Identifying

 measuring

 Recording

 Classifying

 Summarizing

 Analyzing

 Interpreting

 Communicating

10/4/2021 Dr. Seema Pandit

 BOOK KEEPING

 Is part of Accounting

 Concerned with record keeping or maintenance of books of

accounting which is often routine and clerical in nature

10/4/2021 Dr. Seema Pandit

 ACTIVITIES COVERED UNDER BOOK
KEEPING

 Identifying the transactions & events

 Measuring the identified transactions & events in a common

measuring unit

 Recording the identified and measured transactions and

events in proper books of accounts

 Classifying the recorded transactions and events in the ledger

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 ACCOUNTANCY

 Refers to systematic knowledge of accounting

 Explains “why to do” and “how to do” of various aspects of

accounting

 Tells us why and how to prepare the books of accounts and

how to summarize the accounting information and

communicate it to the interested parties

10/4/2021 Dr. Seema Pandit

 DI F F E RENC E BE T W EEN BOOK KE E P I N G & AC C OUNTI NG

Basis of Book Keeping Accounting

Difference

Scope Involves identifying, In addition to bookkeeping, it involves

measuring, recording and summarizing, analyzing, interpreting the
classifying the analyzed results and communicating the
transactions interpreted results to the interested
parties

Stage Primary stage Secondary stage

Basic Is to maintain systematic Is to ascertain financial performance and

Objective records of financial financial position and to communicate
10/4/2021 transactions the information to interested parties
Dr. Seema Pandit
 DI F F E RENC E BE T W EEN BOOK KE E P I N G & AC C OUNTI NG

Basis of Book Keeping Accounting

Difference

Who Performed by junior staff Performed by senior staff

performs

Knowledge Book keeper not required Accountant required to have higher level
level to have higher level of of knowledge than book keeper
knowledge

Basic Is to maintain systematic Is to ascertain financial performance and

Objective records of financial financial position and to communicate
transactions the information to interested parties
10/4/2021 Dr. Seema Pandit
 DI F F E RENC E BE T W EEN BOOK KE E P I N G & AC C OUNTI NG

Basis of Book Keeping Accounting

Difference

Analytical Book keeper may or may Accountant is required to possess

skill not possess analytical skill analytical skill

Nature of Job of book keeper is Job of accountant is analytical in nature

job often routine and clerical
in nature

10/4/2021 Dr. Seema Pandit

 DI F F E RENC E BE T W EEN BOOK KE E P I N G & AC C OUNTI NG

Basis of Book Keeping Accounting

Difference

Designing Does not cover designing Covers designing of accounting system

of of accounts system
accounting
system

Supervision Book keeper does not Accountant supervises & checks the
& Checking supervise and check the work of book keeper
work of an accountant

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 OBJECTIVES OF ACCOUNTING

To maintain Systematic Accounting

Records

To ascertain the Financial Performance

To ascertain the Financial Position

To communicate the information to the

users

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 ADVANTAGES OF ACCOUNTING

Facilitates to replace memory

Facilitates to comply with Legal

Requirements

Facilitates to ascertain the financial

performance

Facilitates to ascertain the financial

position

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 ADVANTAGES OF ACCOUNTING

Facilitates the users to take decisions

Facilitates comparative study

Assists the management

Facilitates control over Assets

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 ADVANTAGES OF ACCOUNTING

Facilitates the settlement of tax liability

Facilitates the ascertainment of value

of business

Facilitates raising of loans

Act as Legal Evidence

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 LIMITATIONS OF ACCOUNTING

Ignores the Qualitative Elements

Not free from Bias

Ignores Price level changes in case of

Financial statements prepared on
historical cost

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 LIMITATIONS OF ACCOUNTING

Estimated Position and not Real

Position

Danger of Window Dressing

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 T YPES OF ACCOUNTING INFORMATION

 Accounting Information relating to financial transactions and

events

1. Information about financial position is available from

Balance Sheet

2. Information about financial performance is available from

the Statement of Profit & Loss ( Income Statement)

3. Information about the cash flows is available from the Cash

flow Statement

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 CONTD…

 Accounting Information relating to the cost of product, operation

or function
 Accounting Information relating to planning and controlling the
activities of enterprise for Internal Reporting
1. Information relating to Finance Area
2. Information relating to Production Area
3. Information relating to Marketing Area
4. Information relating to Personnel Area
5. Information relating to Other Areas ( such as Research &
Development

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 CONTD..

 Accounting Information relating to Social Ef fects of business

decisions

 Accounting Information relating to Environment and Ecology

 Accounting Information relating to Human Resources

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 USERS OF ACCOUNTING INFORMATION

 Include present investors, management, employees, lenders,

suppliers and other trade creditors, customers, government
and their agencies and the public

 These users use accounting information in order to satisfy

some of their varied needs for information

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 USERS & NEED FOR INFORMATION

Users Need for Information

1 To determine whether their dues will be

Short term creditors ( e.g. suppliers of raw
paid when due and whether they should
materials/goods, suppliers of short-term
extend, maintain or restrict the flow of
loans
credit

2 To determine whether their principal

Long term creditors (e.g. suppliers of long amount and interest will be paid when due
term loans) and whether they should extend, maintain
or restrict the flow of credit to an enterprise

3 To judge prospects for their investment and

Present Investors to determine whether they should buy, hold
or sell the shares
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 USERS & NEED FOR INFORMATION

Users Need for Information

To judge prospectus of an enterprise and to

4 Potential Investors determine whether they should buy the
shares

To review firm’s Short term Solvency, Long

term Solvency, Activity ( Effective Utilisation
of its Resources, Profitability in relation to
5 Management
turnover, Profitability in relation to
Investments and to decide upon the course
of action to be taken in future

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 USERS & NEED FOR INFORMATION

Users Need for Information

Interested in information about stability and profitability of the

employees. They are also interested in information which
6 Employees enables them to assess the ability of the enterprise to pay
remuneration, retirement benefits and to provide promotion
opportunities

7 Tax Authorities Need information to assess the tax liabilities of an enterprise

Interested in information about the continuation of an

8 Customers enterprise, especially when they have established a long term
involvement with or are dependent on the enterprise

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 USERS & NEED FOR INFORMATION

Users Need for Information

Are interested in the allocation of resources and

therefore the activities of enterprise. Also require
9 Government & their Agencies information in order to regulate the activities of
enterprise, determine taxation policies and as the
basis the national income and similar statistics

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 USERS & NEED FOR INFORMATION

Users Need for Information

Enterprises affect the members of the public in variety

of ways. For e.g., enterprises may make a substantial
contribution to the local economy in many ways
including the number of people, they employ and their
10 Public
patronage of local suppliers. Financial statements may
assist the public by providing information about the
trends and recent developments in the prosperity of
the enterprise and the range of its activities

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 BRANCHES OF ACCOUNTING

 Financial Accounting

 Cost Accounting

 Management Accounting

 Social Responsibility Accounting

 Human Resource Accounting

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BASIS OF ACCOUNTING – ACCRUAL BASIS

1. Accrual Basis of Accounting : is a method of recording

transactions by which Revenue, Costs, Assets and liabilities
are recognised during the Accounting period in which they
accrue

2. This basis includes consideration relating to deferrals,

allocations , depreciation and amortization

3. Also known as Mercantile basis of Accounting

4. All companies are required to maintain the books of

accounts according to accrual basis of accounting

10/4/2021 Dr. Seema Pandit

 CASH BASIS

 It is the method of recording transactions by which Revenue,

costs, Assets and Liabilities are recognised during the
accounting period in which Actual Receipts and Actual
Payments take place

10/4/2021 Dr. Seema Pandit