Program Semester Subject Code Book Id Subject Name

: MBA (Banking & Finance) :I : MBF104 : B1130 : Financial and Management Accounting

Unit number
Unit Title

:1
: Introduction to financial accounting

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Unit-1 Financial Accounting An introduction

Learning Objectives :
Define the meaning of book keeping, accounting and accountancy Describe the accounting process Explain the objectives of accounting

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Book-keeping - meaning

Book-keeping is defined as the science and art of recording business transactions in a systematic manner in a certain set of books known as books of accounts.

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Test your understanding

My business is small. I record all the events or transactions in my diary and find out the total expenses and total income on periodic intervals. Is it book keeping?

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Accounting

Accounting is the process of identifying the transactions and events, measuring the transactions and events in terms of money, recording them in a systematic manner in the books of accounts.

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Transactions & Events

Transaction is transfer of money or goods or services from one person or account to another person or account. Events happen as a result of internal policies or external needs. Events of non financial character cannot be recorded even though such events may have an impact on the operational results of the firm.

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Accounting Process

Accounting is the process of identifying the transactions and events, measuring the transactions and events in terms of money, recording

them in a systematic manner in the books of accounts, classifying or

grouping them and finally summarizing the transactions in a manner useful to the users of accounting information.

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Accounting Process

Accounting has a process. Fill in the 6th, 7th and 8th process

1. IDENTIFICATION

5. SUMMARISING ? 6. ANALYZING

2. MEASURING

3. RECORDING

? 7. INTERPRETING
?

4. CLASSIFYING

8. COMMUNICATING
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Out of the box thinking

Is the Accounting process logical?

Should we follow the traditional path?

What if the process is jumbled?

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Activity

Visit a local grocery or medical shop and find out how the accounting process takes place. Compare the process with a big firm?

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Objective of Accounting

Accounting helps in systematic recording of all business events or transactions. Accounting measures the financial position of the enterprise Accounting facilitates in reporting the results to both internal and external users. Accounting is required to fulfill the statutory requirements of various regulatory bodies. Accounting helps in internal control.

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Users of Accounting Information

Accounting reports are designed to meet the common information needs of most decision makers. These decisions include when to buy, hold or sell the enterprise shares. It assesses the ability of the enterprise to pay its employees, determine distributable profits and regulate the activities of the enterprise. Investors and lenders are the most obvious users of accounting information.

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Accounting information

Who are all the end users of financial statement?

SHAREHOLDERS CREDITORS REGULATORY GOVERNMENT OTHERS ??????

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Out of the box thinking

What is risk capital?

Who provides it?

Is risk capital essential for the firm?

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Something more you can learn:

How to determine whether an asset is a current asset or fixed asset? It is based on the purpose for which an asset is held in the hands of the user. Eg. For the property dealer, land is a current asset. For the furniture dealer furniture is a current asset.

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Something more you can learn:

Accounting Income: The net income for the accounting period is the excess of revenues recognized during the period over the expired cost. Accounting income is based on historical cost and not on current values. Income is an ex-post income. Ex-post income is the excess of the value of the capital for the current period over that of the base period with reference to future expected returns on the current period basis

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Something more you can learn:

Economic Income:
Income is ex-ante income. Ex-ante income is the excess of the value of capital for the current period over that of the base period with reference to the present value of the future expected return on base period basis

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