Accounting for Managers

08MBA14

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 MODULE I
Principle of Double entry and
Book keeping

 Importance & Scope of Accounting

 Accounting Concepts
 Accounting Conventions
 GAAPS
 Accounting Standards
 Accounting Equations
 Users of accounting statements 2
 Accounting
 “Accounting is the art of recording, classifying and summarising in a
significant manner, and in terms of money transactions and events
which are, in part at least of a financial character and interpreting the
result thereof.”
-By AICPA- American Institute of Certified Public Accountants

 “Accounting is the process of identifying, measuring and

communicating economic information to permit informed judgments
and decisions by user of information.”
-By AAA- American Accounting Association

 “Accounting is the art of recording, classifying, summarising and

presenting the financial aspect of business dealings and interpreting
the results thereof.”
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Basic Terms of Accounting
 Entity
 Business transactions
 Cash transactions
 Credit transactions
 Adjustment transactins
 Assets
 Liabilities
 Capital
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…contd
 Drawings
 Debtors
 Creditors
 Solvent
 Insolvent
 Net worth
 Purchases
 sales 5
…contd
 Purchase return
 Sales return
 Stock
 Account
 Entry
 Folio
 Carried down
 Brought down 6
…contd

 Carried forward
 Brought forward
 Incomes & gains
 Expenses and losses

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Other Terms

 Expenditures
 Revenue
 Profit
 Journal
 Ledger
 Posting
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…contd

 Debiting
 Crediting
 Casting
 Balance
 Debit balance
 Credit balance
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…contd

 Equity
 Accounting year
 Trading account
 P&L account
 Balance Sheet
 Accounting cycle
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Importance of Accounting
 To ascertain the profit / loss of the company.

 To present the true and fair view and financial position.

 To know the amount due to the creditors.

 To know the amount receivable from debtors.

 To compute TAX liability.

 To facilitate comparison. (Inter Firm / Period)

 To supply required financial information for decision making.

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 Accounting Concepts
“Includes those basic assumptions and conditions on
which accounting is based”
1. Business entity concept
2. Going concern concept

3. Money measurement concept

4. Cost concept

5. Dual- aspect concept

6. Accounting Period concept

7. Realisation concept

8. Accrual concept

9. Matching concept

10. Objective evidence concept

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1. Business Entity Concept

According to this concept “ the business is

treated as a separate and distinct entity from
the owner who Invests money or any other
assets in the business.”

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2. Going concern concept

According to this concept “ every business is

carried on with a view to continue it for an
indefinite period of time in future , and not to
liquidate the affairs.”

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3. Money measurement concept

According to this concept “the accounting

entries made in the books are only of those
transactions which can be measured and
recorded in terms of money.”

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4. Cost concept

According to this concept “all the fixed assets

which are acquired by a concern are
recorded in the books of accounts at cost
price i.e. the price paid for acquisition of
them.”

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5. Dual- aspect concept
“Every business transaction has two-fold
aspect i.e. receiving of benefit and giving of
benefit or vice-versa, of the same value.”

It is also called as:

“Accounting equivalence concept”

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6. Accounting Period concept
“The convenient period of time is chosen by
the accountants by dividing the estimated
period of life of the business for ascertaining
the net profit earned by the business during a
given period as well as the financial position
of the business as on a particular date.”

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7.Realisation Concept
“Revenue is said to be recognised or earned
from sale of goods or from services only
when revenue is actually received.”

8. Accrual Concept
“This concept considers the recognisation of
both the revenues as well as expenses.”

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9.Matching Concept
 According to this concept “ the net trading
profit of a business is calculated by matching
the total amount of revenues earned during a
given period with the total amount of
expenses incurred in the same period.”

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10. Objective Evidence Concept
“All the transactions of the business should
be supported by proper documentary
evidences such as bills, receipts, invoices
etc… and no transaction should be recorded
in the books without such documentary
evidences.”

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Accounting Conventions
These are the customs or traditions which are
followed by the accountants as a guide in the
preparation of the financial statements of a
business concern.
1. Convention of Conservatism / Prudence

2. Convention of Consistency

3. Convention of Disclosure

4. Convention of Materiality

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Convention of Conservatism/
Prudence

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Convention of Consistency

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Convention of Disclosure

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Convention of Materiality

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