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Principles To Accounting

Accounting is the process of identifying, measuring, and communicating economic information to aid decision-making. It has existed since at least 3,500 BC and was standardized by Father Luca Pacioli in the 15th century. The primary objectives of accounting include providing information on profitability, financial position, and facilitating informed decisions for both internal and external users.

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26 views20 pages

Principles To Accounting

Accounting is the process of identifying, measuring, and communicating economic information to aid decision-making. It has existed since at least 3,500 BC and was standardized by Father Luca Pacioli in the 15th century. The primary objectives of accounting include providing information on profitability, financial position, and facilitating informed decisions for both internal and external users.

Uploaded by

augustinemudare
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1

With G. Madyira
WHAT IS ACCOUNTING?

• Accounting can be defined as ‘the process of


identifying, measuring, and communicating economic
Information to permit informed judgements and
decisions by users of the information’.
• It is a means of collecting, summarising, analysing and
reporting in monetary terms information about the
business transactions.
THE HISTORY OF ACCOUNTING

Accounting began because people needed to:


• Record business transactions,
• Know if they were being financially successful,
and
• Know how much they owned and how much they
owed.
THE HISTORY OF ACCOUNTING

• It is known to have existed in one form or another since at least


3,500 BC (records exist which indicate its use at that time in
Mesopotamia). There is also considerable evidence of
accounting being practised in ancient times in Egypt, China,
Greece, and Rome.
• However, it was only when Father Luca Pacioli (1445–
1517)wrote about it in 1494 or, to be more precise, wrote about
a branch of accounting called, ‘bookkeeping’ that accounting
began to be standardised and recognised as a process or
procedure.
THE OBJECTIVES OF ACCOUNTING
• The primary objective of accounting is to provide information for decision making.
• It also lets people and organisations know:
 If they are making a profit or a loss;
What their business is worth;
What a transaction was worth to them;
How much cash they have;
How wealthy they are;
How much they are owed;
How much they owe to someone else;
Enough information so that they can keep a financial check on the things they do.
THE OBJECTIVES OF ACCOUNTING
• The primary objective of accounting is to provide information for decision making.
• It also lets people and organisations know:
 If they are making a profit or a loss;
What their business is worth;
What a transaction was worth to them;
How much cash they have;
How wealthy they are;
How much they are owed;
How much they owe to someone else;
Enough information so that they can keep a financial check on the things they do.
ADVANTAGES AND LIMITATIONS OF
ACCOUNTING INFORMATION
Advantages
1.It helps to maintain the business records in a systematic manner.
2.It helps in the preparation of financial statements
3.It helps to compare the result of current year with previous years to analyse the changes
4. It helps the managers in the decision making process for future course of action.
Disadvantages
1. Loss of data or service when business firm is reliant on accounting software, any loss of service due to
power failure also possible.
2. It contain only those information's which can be expressed in terms of money. It ignore qualitative
elements such as efficiency of management , quality of staff , customer satisfaction
3. System configuration may trouble in between while working on computer
4. It may be affected by window dressing manipulation and falsification of accounts are possible
BOOK KEEPING
Book keeping is a process of recording business
transitions in the books of accounts in a very systematic
manner

According to J.R. Batilobi :


“ Book – Keeping is an art of recording business dealings
in a set of books.”
According to Nocth Cott :
“ Book – Keeping is an art of recording in the books of
accounts the monetary aspects of commercial or
financial transactions.”
FEATURES OF BOOK KEEPING
1、It is the process of recording business transition

2、Monetary transactions are only recorded

3、Recording is made in given set of books of accounts

4、For specific period

5、Art of recording business transactions scientifically


Branches of Accounting
1. Financial Accounting: It records the transactions related to
financial nature in a systematic manner to ascertain profit (or
)loss of the accounting period
2. Cost Accounting : which is concerned with ascertainment of
total cost and per unit cost of goods or services produced or
provided by the business firm.
3. Management Accounting : which is presenting the accounting
information in such a manner that helps the management in
planning and controlling the operation of a business and in
better decision making.
ACCOUNTING INFORMATION AND USER
NEEDS
Users Classification Information the user want

Internal 1. Owner Return on investment, financial position


of their company

2. Management To evaluate the performance to take


various decisions.

3. Employees Profitability to claim higher wages and


bonus , and also to see whether the firm
able to
(PF, ESI ,etc ) deposit regularly.
EXTERNAL USERS
Users Classification Information the user want

External 1.Investors and To know about safety , growth of investments and


potential investors future benefits

2. Creditor Assessing the financial capability, ability of the


business to pay its debts.
3. Lenders Repaying capacity , credit worthiness.
4. Tax Authorities Assessment of due taxes, true and fair disclosure
of accounting information
5.Government To compile national income and other information .
It helps to take policy decision

6. Others Customers , researchers etc, may seek different


information and different reasons.
BUSINESS TRANSACTION
Any dealing of business that involves buying and selling
of goods and services in exchange of value be called as
business transaction.

 Cash Transaction
 Credit Transactions
ENTRY, NARRATION & GOODS
Entry : Recording of transaction in the proper form or method in the books
of accounts is called an entry. It is a first record of any business transaction
in the books of accounts
Narration : A brief explanation of the business transaction for which an
entry is passed is called as a narration. It starts with a word ‘Being’(….)

Goods: The commodities or articles in which the trader deals are called as
goods for that business
PROFIT & LOSS
Profit : Excess of income over the expenses during the
accounting year is called a profit
Ex:…..
Loss : Excess of expenses over the income is
called loss Ex:…..
ASSETS, LIABILITIES & NET WORTH
a) Fixed Liabilities : One of the major source of funds in the business is
fixed liabilities. It may be in the form of capital, secured loans, long term
loans from banks and from financial institutions etc.
b) Current Liabilities: Short term liabilities payable within a year are called
current liabilities. Current liabilities arise in the regular current operations of
the business. These liabilities are not normally secured. E.g. Creditors, Bills
Payable etc.
Net worth or Owners Equity or Capital:
The amount or funds provided by the proprietor in the business is called as
“Capital” as well as the excess of assets over liabilities of the business is also
known as “Capital” or “Net Worth”.
TYPES OF ASSETS
i) Assets : Any physical thing or right owned that has a monetary value is
called as an asset. The ownership of the Asset must be with business
unit. E.g Land, Goodwill, Patents, Computers etc.
ii) Types of Assets:
a) Fixed Assets/Non current Assets : The assets which give long term
benefit to the business are known as fixed assets e.g Land and Building,
Plant & Machinery, Goodwill etc. These assets may be tangible or
intangible.
b) Current Assets : Assets which are held in the business for the
operating year and can be converted into cash very easily are called as
current assets. e.g Debtors, Bills Receivable Cash in Hand, Cash at
Bank, Stock etc.
c) Fictitious Assets : These assets are not represented by tangible
possession or property. They are imaginary assets but do not have any
realisable value. e.g Deferred revenue expense like advertisement paid
for 4 years.

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