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FINANCIAL

ACCOUNTING

Prof. Mahendra Patel

ACCOUNTING - AN
INTRODUCTION
Whenever your mother asks you to go to the
nearby grocery store to buy stuff . you need not
pay for these items immediately.
When you buy these items, the store owner
immediately make note on your fathers name
He records the value of items purchased.
At the end of the month, your father pays to him.
Similarly every business keeps the record of the
business transactions.
Recording of transactions by a businessman in
proper books and in a systematic manner is
known as accounting.

BOOK KEEPING AND


ACCOUNTING
Recording
of
business
transactions
in
a
systematic manner in the books of account is
called book-keeping.
The art of keeping a permanent record of
business transactions is book keeping.
In 1941, the American Institute of Certifi ed
Public Accountants (AICPA) defi ned as The art
of recording, classifying, summarizing, analyzing
and interpreting the business transactions
systematically and communicating business
results to interested users is accounting
Prof. Mahendra Patel

WHAT IS MEANT BY ACCOUNTING?


Accounting is broadly classifi ed into three
diff erent functions viz
1. Recording
2. Classifying and
Financial Transactions
3. Summarizing
Is accounting an equivalent function to book
keeping ?
No, accounting is broader in scope than the
book keeping., the earlier cannot be equated to
the later. Accounting is a combination of
various functions viz
Prof. Mahendra Patel

WHAT IS MEANT BY ACCOUNTING?

Accounting
Recording of Transactions
Classification
Summarization
Interpretation
Communicating
Prof. Mahendra Patel

SEARCH FOR
Small Lesson
Evolution of Accounting

Prof. Mahendra Patel

DIFFERENCE BETWEEN BOOK


KEEPING AND ACCOUNTING
1.Nature : Book keeping recording and classifying
transaction,
and
Accounting
concerned
with
summarizing, interpreting and communicating the
results.
2.Objective: Book keeping maintain systematic records
and Accounting aims at ascertaining business income
and fi nancial position
3.Function:
Book keeping scope
Accounting scope is quite wide.

is

limited.

and

4.Basis: In Book keeping supporting documents needed


and accounting Book-keeping works as the basis for
accounting information.
5.Level of Knowledge: For accounting, advanced and
indepth knowledge and understanding is required.
Prof. Mahendra Patel

6.Relation Book-keeping is the fi rst step to accounting.

BRANCHES OF ACCOUNTING
Financial Accounting
Cost Accounting
Branches
of
Accountin
g

Management Accounting
Human Resource Accounting
Tax Accounting
Social Accounting
National Resource Accounting

Prof. Mahendra Patel

OBJECTIVES OF FINANCIAL
ACCOUNTING
The main objectives of financial accounting
are as under :
1.Finding out various balances
2.Providing knowledge of transactions
3.Ascertaining net profit or loss
4.Depicting financial position
5.Information to all interested users
6.Fulfilling legal obligations
Prof. Mahendra Patel

FUNCTIONS OF ACCOUNTING
Functions of accounting
1.Maintaining systematic records
2.Communicating the financial results
3.Meeting Legal Requirements
4.Fixing responsibility
5.Decision making

Prof. Mahendra Patel

LIMITATIONS OF ACCOUNTING
Limitations of Accounting
1.Accounting information is expressed in terms of
Money
2.Fixed assets are recorded in the accounting
records at the original cost
3.Accounting information is sometimes based on
estimates
4.Accounting information cannot be used as the only
test of managerial performance on the basis of
mere profits
5.Accounting information is not neutral or unbiased
Prof. Mahendra Patel

TRANSACTION
Transactions
1. Cash Transaction
2. Credit Transaction

Prof. Mahendra Patel

ACCOUNTING TERMS
1.
2.
3.
4.
5.
6.
7.
8.
9.

Business entity
Transaction
Purchases
Sundry creditors
Sales
Sundry debtors
Revenue (Sales)
Expenses
Income
Prof. Mahendra Patel

ACCOUNTING TERMS
10. Gain
11.Loss
12.Profit
13.Expenditure
14.Drawings
15.Capital
16.Assets
17.Non-current assets
18.Liability
Prof. Mahendra Patel

USER OF ACCOUNTING
(PA RT IE S I N T E RE ST ED I N AC C O U N T IN G
IN F OR MATI O N )
I. Internal users: Internal users are those individuals or
groups who are within the organisation like owners,
management, employees and trade unions.
II. External users: External users are those individuals or
groups who are outside the organisation like creditors,
investors, banks and other lending institutions, present and
potential investors, Government, tax authorities, regulatory
agencies and researchers The following are the various
parties interested in the financial statements:
1.
2.
3.
4.
5.

Ow ners/Shareholders
Management (Managers)
Prospective Investors
Lenders
Customers

Prof. Mahendra Patel

6.
7.
8.
9.
10.

Creditors (Suppliers)
Government
Employees
Researchers
Citizen

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