• business records. • • There are five types of accounts: Asset, • Liability, Equity, Revenue and Expense. Accounting
• Accounting is a systematic process of
identifying recording measuring classify verifying some rising interpreter and communicating financial information. It reveals profit or loss for a given period and the value and the nature of a firm’s assets and liabilities and owners’ equity. Accounting
• In other words, accounting is a practice and
body of knowledge concerned primarily with • Method for recording transactions, • Keeping a financial record, • Performing internal audit • Reporting and analyzing financial information to the management and • Advising on taxation matters. Definitions of accounting • According to Bierman and Drebin:” Accounting may be defined as identifying, measuring, recording and communicating of financial information.” Features • It is the art of recording business transactions. • • It is the art of classifying business • transactions. • • The transactions or events of a business must • be recorded in monetary terms. • • It is the art of summarizing financial • transactions. • • The results should be communicated to users. Users of Financial Statements • Users of Financial Statements • 1. • Investors • – Need information about the profitability, dividend yield • and price earnings ratio in order to assess the quality • and the price of shares of a company • •2. Lenders • – Need information about the profitability and solvency of • the business in order to determine the risk and interest • rate of loans • 3 • Management • – Need information for planning, policy making and • evaluation • 4. • Suppliers and trade creditors • – Need information about the liquidity of business in order • to access the ability to repay the amounts owed to them • 5. Government • – Need information about various businesses for statistics • and formulation of economic plan • 6. • Customers • – Interested in long-tem stability of the business and • continuance of the supply of particular products • 7. • Employees • – Interested in the stability of the business to provide • employment, fringe benefits and promotion opportunities • 8. • Public • – Need information about the trends and recent • development Limitations of conventional financial statements • 1. • Companies may use different methods of valuation, cost calculation and recognizing profit • 2 • The balance sheet does not reflect • the true worth of the company • 3.• Financial statements can only show partial information about the financial position of an enterprise, instead of the whole picture • 4.Records only monetary transactions. • 5. Effect of price level changes not considered. • 6. Historical in nature. • 7. Personal bias of Accountant affects the accounting statements. Advantages • 1 Evidence in court. • 2 Settlement of taxation liability. • 3 Comparative study. 4 Sale of business. • 5 Assistance to various parties. Branches • 1 Financial Accounting (Record keeping) • •2. Cost Accounting (Price fixation & Operating efficiency) • 3• Management Accounting (Analysis for • decision making) Book- Keeping • Book Keeping is the art of recording business • transactions in a systematic manner. Types of Transactions • 1. Cash Transactions • 2. Credit transaction • 3. Barter transaction Financial Statements • 1.Trial balance • 2..Manufacturing Accounts • 3. trading Accounts • 4. profit and loss accounts • 5.. Balance sheet ACCOUNTING EQUation
• Assets = Owner’s Equity +Outside Liabilities
Financial Statements • 1.Trial balance • 2..Manufacturing Accounts • 3. trading Accounts • 4. profit and loss accounts • 5.. Balance sheet Double-entry accounting system • In the double-entry accounting system, • every transaction is recorded by equal • amounts of debits and credits. Classiffication of Accounts • 1. Personal • 2. Real • 3. Nominal Personal • 1.Natural personal account • • Accounts of physical and naturally born person • 2. Artificial personal account • • A person created by law • •3. Representative personal account • • They represent certain person behind them • Persons with whom a business is carried • out Real • 1.Accounts of Tangible assets • • Physical evidence • •2. Accounts of Intangible assets • • Do of have physical existence Nominal • Account of incomes and losses and expenses • and gains • RULES OF DOUBLE ENTRY SYSTEM Real A/c • Debit what comes in • • Credit what goes out Personal a/c • Debit the Receiver • • Credit the Giver Nominal A/c • Debit all expenses and losses • • Credit all income and gains Nominal A/c • Debit all expenses and • losses • • Credit all income and • gains Accounting as an art and science • Accounting can be considered an art because it requires creative judgment and skills. ... Accounting can also be considered a science because it is a body of knowledge, but since the rules and principles are constantly changing and improving, it is not considered an exact science. IMPORTANCE OF ACCOUNTING • 1 ANALYSIS PURPOSE/ DECISION MAKING • All our business and economically informed decision making are based on sound analysis of financial statement which is a product of accounting information system. 2.RECORD KEEPING • Data are gathered from their various sources, collated, organized, analysed, interpreted and communicated to the end users for an informed economic decision making that will in the long run yield positive fruit. 3.GETTING OF FUND AND LOANS • Accounting as a communication tool obviously have generally accepted formats which financial institutions and banks use as a basis for measuring the risk of a business. 4. Importance for society 5. Importance for company Relation between accountancy,bookkeeping,accounting Scope of accounting