1st Session Fundamentals of Accounting
1st Session Fundamentals of Accounting
NATURE,
MEANING OF ACCOUNTING
The work of book-keeping is mainly routine and The work of accountant requires higher
clerical in nature and is increasingly being done level of knowledge, conceptual understanding and
analytical skill.
by computers.
Book-keeping constitutes the base for accounting. Accounting starts where book keeping ends.
Book-keeping is done in accordance with basic The methods and procedures for accounting for
accounting concepts and conventions. analysis and interpretations for financial reports may
vary from firm to firm.
Financial statements do not form part of book- Financial statements are prepared in accounting
keeping. process from the book-keeping records.
Financial position of the business cannot be Financial position of the business is ascertained on the
ascertained through book-keeping records. basis of accounting reports.
DISTINCTION BETWEEN ACCOUNTING AND
ACCOUNTANCY
• Although in practice Accountancy and Accounting are used
interchangeably yet there is a thin line of demarcation between them.
• The word Accountancy is used for the profession of accountants -
who do the work of accounting and are knowledgeable persons.
• Accounting is concerned with recording all business transactions
systematically and then arranging in the form of various accounts
and financial statements. And it is a distinct discipline like economics,
physics, astronomy etc.
• The word accounting tries to explain the nature of the work of the
accountants (professionals) and the word Accountancy refers to the
profession these people adopt.
OBJECTIVES OF ACCOUNTING
• Maintaining Record: As we mentioned, accounting is the spoken language of
transactions. The human brain cannot store endless information. And so
accounting takes the charge of keeping the records of all the transactions made
within a firm.
• Profit and Loss : Business is directly proportional to profits. It is all about earning
profits. The accounting chart of profit and loss determines whether there is a profit
or loss made in the business. The income and expenditure decide profit and loss.
• Utility of Resources :Resources are a very crucial part of any organization and for
a firm to function smoothly, they play a significant role. The records hold the
responsibility to report to the firm about the different activities along with its timing.
Hence, it becomes easy for the management to take note of the details before
putting in the money.
OBJECTIVES OF ACCOUNTING
• Estimation of Financial Position: A business person is not only
interested in knowing the Profit and Losses of his business but he
also wants to know how much he owes to his creditors and how
much he has to pay to his debtors. For this purpose, he prepares
a statement in which all such details are recorded. This statement
is known as Balance sheet. With the help of Balance sheet
Financial position of the business can be Understood.
• Helps in Decision Making :With the help of all the records that
have been maintained by following Accounting Procedures,
Decisions can be made with all those information which eventually
helps in the smooth functioning of the organisation.
FUNCTIONS OF ACCOUNTING