Académique Documents
Professionnel Documents
Culture Documents
Introduction to accounting
Introduction
to
Accounting
Meaning and definition of Accounting Importance of accounting Uses and users of accounting information The scope of and inter-relationship between Financial, cost & management accounting
Accounting...
is the language of business. Communicates the results of operation and financial position of a business to various stakeholders
Accounting
A process of identifying, recording, summarizing, and reporting economic information to decision makers in the form of financial statements.
Definitions of Accounting
Accounting is an 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 a financial character and interpreting the results thereof.
- American Institute of Certified Public
Accountants(AICPA)
FEATURES OF ACCOUNTING
1.It is the art of recording business transactions. 2.It is the art of classifying business transactions. 3.The transactions and events must be recorded in monetary transactions and events. 4.It is the art of summarizing financial transactions. 5.It is the art of analysis and interpretation of these transactions. 6.The results of these transactions must be communicated to the concerned persons.
Functions of Accounting
Recording Classifying Summarising Deal with financial transactions Interpretation Communicating
Objects Of Accounting
1. To maintain records of the business 2. To ascertain profit or loss of the business . 3. To ascertain the financial position of the concern
-Nature and value of assets -Nature and extent of liabilities
4. To make information available to various groups and users at a particular time to facilitate rational decision-making.
IMPORTANCE OF ACCOUNTING:
Accounting Management Users with indirect financial interest
IMPORTANCE OF ACCOUNTING:
Accounting is important to the following parties
1.
Management or managers
Directors, officers of the company, managers, dept. heads and supervisors Decisions: Assessing profitability Financial performance in terms of plans & goals, Making plans and policies
IMPORTANCE OF ACCOUNTING:
2. Users with indirect financial interest
Customers, taxation authorities, financial analysts and advisors, brokers, labour unions, consumer group general public, press etc.) Decisions: Assessing tax, Protecting investors and public interest, Advising on investment decisions, Setting economic policies, Measuring social and environmental protection programmed, Negotiation of labour agreements.
IMPORTANCE OF ACCOUNTING:
3. Users with direct financial interest
Financial Accounting
EXTERNAL USERS
Financial Accounting
EXTERNAL USERS
Financial Accounting
INTERNAL USERS
Uses Of Accounting
Ascertaining the operation profit or loss Ascertaining the financial position of the business Keeping systematic records Protecting and controlling business properties Facilitating rational decision-making
Uses Of Accounting
Compliance with the legal requirements Making information available to various groups and users at a particular time. Evidence in court in case of dispute Substitute of memory Settlement of taxation liability Comparative study Sale of business The amount ,size and causes of increase or decrease of capital .
LIMITATIONS OF ACCOUNTING
1. Records only monetary transactions 2. Effects of price level accounting is not considered 3. No realistic information due to concepts and convention followed 4. Personal bias of accountant affects according statements 5. Permits alternative treatment
LIMITATIONS OF ACCOUNTING
6. No real test of managerial performance as it can be manipulated.
7. Historical in nature
8. Not helpful in price fixation 9. Cost control not possible 10. Lack of principles uniformity in accounting
Business Transactions
Any exchange of money or moneys worth as goods and services between two parties is called a business transaction
It is an event which can be expressed in terms of money
Assets
It is any physical thing or right owned which has money valu These are resources owned by the business which are expected to give benefits in the future. Assets may be fixed assets or current assets Assets include:
land building equipment goodwill
Liability
These are amounts owed by the enterprise to the outsiders i.e. to all others except the owner
These are claims of outsiders on assets of the firm.
Revenues
They are amounts received or to be received from customers for:
sales of products or
Expenses
An expense is the amount incurred in the process of earning revenue. They are amounts that have been paid or will be paid later for costs that have been incurred to earn revenue. Include:
salaries and wages Utilities payments supplies used advertising
Income
It is excess of revenue over expense
It is the favourable change in owners equity which results from operations i.e. it is an inflow of assets or decrease in liabilities resulting in increase in capital.
Inventory(stock)
- goods held by a firm for resale to customers Account payable (Trade creditors) - a liability that results from the purchase of goods or services on account
Branches of Accounting
Financial accounting Cost accounting
Management accounting
Financial Accounting
It measures and records business transactions in order to prepare financial statements It provides financial statements based on generally accepted accounting principles. Its focus is on reporting to external parties.
2. Classification of data .
3. Making summaries
6. Communicating results
7. Making information more reliable .
Cost Accounting
It is the process of accounting for costs It provides information for both management accounting and financial accounting. It measures and reports financial and nonfinancial data.
Management Accounting
It measures and reports financial and non-financial information that helps managers make decisions to fulfill the goals of an organization.
Nature
Financial Accounting Record transactions ,determine financial position & profit/ loss. Concerned with historical data.
Management Accounting Ascertainment, To assist the allocation, accumulation management in and accounting for cost decision-making & policy formulation.
Concerned with both past and present recorded(historical in nature). Deals with projection of data for the future (futuristic in nature)
Cost Accounting
Basis of Accounting
Cash basis
Accrual basis
Actual cash receipts and actual cash payments are recorded Revenue reported when cash is received