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ACCOUNTING CONCEPTS
Cisco Public
INTRODUCTION
Accounting is; An Information System :Accounting System should generate information to meet the requirements of users i.e. Internal management & Outsiders. Language of business Useful to personal and business life
Social Science
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Definition
Definition by American Institute of CPA: Accounting is an art of recording, classifying & summarizing in a significant manner & in terms of money, transactions & events which are , in part at least, of a financial character & interpreting the results thereof. Definition by American Accounting Association: the process of identifying, measuring & communicating information to permit judgment & decisions by the users of accounts.
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Functions of Accounting
Recording Classifying
Summarising
Deals with financial transactions Analysis & Interpretation
Communication
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Government
Public at large
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Objectives of Accounting
To keep systematic records To protect business properties To ascertain operational profit / loss To ascertain financial position To facilitate in decision making others
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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(Book keeping is different from Accounting, Accounting relates to other subjects like economics, law, statistics etc.)
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Accounting Elements
Assets Balance Sheet Liabilities Balance Sheet Equity Balance Sheet ( The Balance Sheet gives you a financial position) Income Profit & Loss Account
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Accounting Procedure
We follow double entry system of Accounting developed in 15th century in Italy by Luca Pascioli The basic accounting equation is;
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Accounting Basics
Money has two aspects receipt and payment i.e. inflows (credit) and outflows (debit). The Receipt indicates Income and Liabilities and outflow indicates Expenses and Assets. Income and Expenses are called as nominal accounts. Income an inflow so credit, liabilities an inflow hence a credit and other persons who give credit like supplier;
For inflow credit rule applies - Credit all income and gains, credit the giver and credit what goes out.
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
21-Oct-12
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Accounting Basics
For an outflow, debit rule applies. Debit all expenses and losses, debit what comes in after you spent on asset and debit the receiver.
Rule for Nominal Account Debit all expenses and losses and credit all incomes and gains.
Rule for Real Account Debit what comes in and credit what goes out.
Rule for personal Account Debit the receiver and credit the giver.
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
21-Oct-12
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Accounting Structure
Structure:
Business Entity
Financial Objectives
Profit Maximisation
Wealth Maximisation
Financial Statements
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
21-Oct-12
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Accounting Structure
Structure
Types of Accounts
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
21-Oct-12
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Accounting Structure
Structure
Types of Accounts
Real Accounts Personal Accounts
Balance Sheet
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
21-Oct-12
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Accounting Principles
Meaning & Importance of Accounting Principles GAAP Generally Accepted Accounting Principles
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Accounting Concepts
The term concept includes those basic assumptions or conditions upon which the science of accounting is based.
The term conventions include those customs or traditions which guide accountant while preparing the accounting statements.
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
21-Oct-12
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Accounting Concepts
Separate Entity Concept Going Concern Concept Money Measurement Concept Cost Concept Dual Aspect Concept Accounting Period Concept
Matching concept
Realisation concept
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Accounting Conventions
Convention of Conservatism Full Disclosure
Consistency
Materiality (Reliability and Objectivity)
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Consistency
Accrual Separate disclosure is required if fundamental accounting assumptions are not followed.
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Accounting Policies
It includes basic principles, conventions, rules in preparing financial statements. The management should select a policy which suits an organisation. The following factors should be considered while selecting an appropriate accounting policy and preparing a financial statement; Prudence, Substance over form and Materiality.
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Balance Sheet
Cashflow Statement
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
21-Oct-12
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
21-Oct-12
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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2006 Cisco Systems, Inc. All rights reserved. Cisco Public
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Developments
Role of Computerisation; Changes in Legal provisions;
Introduction of IFRS
Introduction of XBRL Globalisation & Liberlisation
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