ACCOUNTING

“Accounting is the art of recording,

classifying and summarizing in a
significant manner and in terms of money,
transactions and events, which are, in
part, at least, of financial character, and
interpreting the results thereof.”
-American Institute of Certified Public
Accountants
 FINANCIAL ACCOUNTING
Financial accounting is concerned with
providing of financial information relating to
the entity, to “Outsiders” or to those who are
not involved in the day to day management
of the enterprise. These outsiders include
 Shareholders
 Creditors
 Bankers
 Government
 Financial analyst
 Investors
 FINANCIAL ACCOUNTING
• The basic orientation of the theory &
practice of Financial Accounting is income
determination.
• The focus of financial accounting is the
three primary financial statements:
 the Balance sheet
 the income statement
 the statement of cash flows.
 Book-keeping Vs Accounting
• Objective
• Scope
• Functions
• Accounting Process
• Net Results Profit or loss
• Time
 Relevance of Accounting for
Business
• Accounting plays an important role by developing
the information for providing answers to many
questions faced by the users of accounting
information:
 How good or bad is the financial condition of the
Business?
 Has the Business activity resulted in a profit or loss?
 Which activities or products have been profitable?
 Whether to buy a component from the market or to
manufacture the same?
 Whether the cost of production is reasonable or
excessive?
 In the light of past performance of the business how
should it plan for future to ensure desired results?
 OBJECTIVES OF ACCOUNTING
• Maintenance of records of business
• Calculation of Profit or Loss
• Presentation of financial position of the
business
• To provide and make available the
necessary and financial information to
the users.
 Internal and External Users of
Accounting Information
• Owners
• Management
• Creditors
• Employees
• Government
• Consumers
• Researchers
 BASIC TERMS
• CAPITAL / OWNER’S EQUITY /NET
WORTH:
Capital = Total Assets- Total Liabilities
• ASSETS: The ICAI defines an asset as
“tangible objects or intangible rights
owned by an enterprise.”
• LIABILITIES: are debts, amounts owned
to creditors.
• Revenues: The amounts which are earned by
a business.
• Expenses: It is the amount that is spent in
order to produce and sell business products.
• Debtors: The persons who owe to an
enterprise an amount for receiving good or
services on credit.
• Creditors: The persons to whom the firm
owes for providing goods or services.
• Bills Receivable: The amount which is
receivable by the firm other than the debtors
of the business.
• Bills Payable: The amount which is payable
by the firm.
• Drawings: Goods or money taken away by
the Proprietor.
• GROSS PROFIT

• NET PROFIT

• COST OF GOODS SOLD :

Opening Stock
+ Purchases
-Closing Stock

• Discount