Scribd
Upload
38 views12 pages

Introduction To Accounting

This document provides an introduction to accounting. It defines key terms like book-keeping, accounting, and accountancy. Accounting is described as the process of recording, classifying, summarizing, analyzing, and communicating financial information. The objectives and advantages of accounting are outlined, including keeping systematic records, ascertaining profits/losses, and providing useful information to stakeholders. The document also discusses the accounting process, branches of accounting, and users of accounting information.

Uploaded by

JACK FF
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
38 views12 pages

Introduction To Accounting

This document provides an introduction to accounting. It defines key terms like book-keeping, accounting, and accountancy. Accounting is described as the process of recording, classifying, summarizing, analyzing, and communicating financial information. The objectives and advantages of accounting are outlined, including keeping systematic records, ascertaining profits/losses, and providing useful information to stakeholders. The document also discusses the accounting process, branches of accounting, and users of accounting information.

Uploaded by

JACK FF
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 12

INTRODUCTION TO

ACCOUNTING
By Manpreet Sarna
MEANING
BOOK-KEEPING ACCOUNTING ACCOUNTANCY
Book- keeping is an art of It is a systematic process It refers to systematic
recording business of measuring, recording, knowledge of accounting.
dealings in a set of books. classifying, summarizing, It explains how to deal
interpreting and with various aspects of
communicating financial accounting.
information to the users.
DEFINITION
According to American Institute of Certified Public Accountants,
“Accounting is the art of recording, classifying and summarising in
a significant manner and in terms of money, transactions and events
which are, in part at least, of a financial character, and interpreting
the results thereof.”
Objectives of Accounting
1. To keep systematic and complete record of financial transactions in the books of
accounts according to specified principles and rules to avoid the possibility of
omission and fraud.
2. To ascertain the profit earned or loss incurred during a particular accounting
period which further help in knowing the financial performance of a business.
3. To ascertain the financial position of the business by the means of financial
statement i.e. balance sheet which shows assets on one side and Capital & Liabilities
on the other side.
4. To provide useful accounting information to users like owners, investors, creditors,
banks, employees and government authorities etc who analyze them as per their
requirements.
5. To provide financial information to the management which help in decision
making, budgeting and forecasting.
6. To prevent frauds by maintaining regular and systematic accounting records.
ACCOUNTING PROCESS

Financial transactions and


Events

Recording
Communicating to users

Analysis & Interpretation Summarising Classifying


Advantages of Accounting
1. It provides information which is useful to management for making economic decisions.
2. It help owners to compare one year’s results with those of other years to locate the factors
which leads to changes.
3. It provide information about the financial position of the business by means of balance sheet
which shows assets on one side and Capital & Liabilities on the other side.
4. It help in keeping systematic and complete record of business transactions in the books of
accounts according to specified principles and rules, which is accepted by the Courts as evidence.
5. It help a firm in the assessment of its correct tax Liabilities such as income tax, sales tax, VAT,
excise duty etc.
6. Properly maintained accounts help a business entity in determining its proper purchase price.
BRANCHES OF ACCOUNTING

1. Financial Accounting 2. Cost Accounting 3. Management Accounting


It is that branch of accounting It is that Subfield/Branch of It is that subfield/Branch of
which is concerned with accounting which is concerned accounting which is concerned
recording of business with ascertainment of total cost with presenting the accounting
transactions of financial nature and per unit cost of goods or information in such a manner
in a systematic manner to services produced/ provided by that help the management in
ascertain the profit or loss of a business firm. planning and controlling the
the accounting period and to operations of a business and in
present the financial position. better decision making.
DIFFERENCE BETWEEN BOOK-KEEPING & ACCOUNTING

BASIS BOOK-KEEPING ACCOUNTING

1. Scope It is concerned with identifying, It is concerned with summarizing,


measuring, recording & classifying. interpreting and communicating the
results.

2. Stage Primary. It is the basis of accounting. Secondary. It begins where book-keeping


ends.
3. Objective Maintain systematic records. Ascertain net results and financial
position.
4. Nature of job Routine Analytical & Dynamic

5. Performance Junior Staff Senior Staff

6. Special Skills Not required as it is Special skills are required to


mechanical in nature analyse and interpret.
LIMITATIONS OF ACCOUNTING
1. It is historical in nature; it does not reflect the current worth of a business.
Moreover, the figures given in financial statements ignore the effects of changes in price
level.
2. It contain only those informations  which can be expressed in terms of money. It ignore
qualitative elements such as efficiency of management, quality of staff, customers satisfactions
etc.
3. It may be affected by window dressing i.e. manipulation in accounts to present a more
favorable position of a business firm than its actual position.
4. It is not free from personal bias and personal judgment of the people dealing with it. For
example different people have different opinions regarding life of asset for calculating
depreciation, provision for doubtful debts etc.
5. It is based on various concepts and conventions which may hamper the disclosure of
realistic financial position of a business firm. For example assets in balance sheet are shown at
their cost and not at their market value which could be realised on their sale.
QUALITATIVE CHARACTERISTICS OF
ACCOUNTING INFORMATION

1. Reliability: Means the information must be based on facts and be verified through source
documents by anyone. It must be free from bias and errors.
2. Relevance: To be relevant, information must be available in time and must influence the
decisions of users by helping them to form prediction about the outcomes.
3. Understandability: The information should be presented in such a manner that users can
understand it well.
4. Comparability: The information should be disclosed in such a manner that it can be
compared with previous year’s figures of business itself and other firm’s data.
Users of Accounting Information

Users Classification Information the user want

1. Owner Return on their investment, financial health of their company/business.

Internal To evaluate the performance to take various decisions.


2. Management Profitability to claim higher wages and bonus, whether their dues
3. Employees
(PF, ESI, etc.) deposited regularly.

1. Investors and
To know about Safety, growth of their investments and future of the business.
potential investors

2. Creditors Assessing the financial capability, ability of the business to pay its debts.

3. Lenders Repaying capacity, credit worthiness.


External
4. Tax Authorities Assessment of due taxes, true and fair disclosure of accounting information,

5. Government To compile national income and other information. Helps to take policy decisions.

6. Others Customers, Researchers etc., may seek different in- formation for different reasons.
DOUBLE ENTRY SYSTEM
It is a system of accounting in which both debit and credit aspects of accounting are recorded.
Example: At the time of cash purchases goods are received and in return cash is paid.
Advantages:
1. Scientific system
2. Complete record of transactions
3. Check on accuracy of accounts
4. Determining Profit & Loss

You might also like