BASIC FINANCIAL BASIC FINANCIAL ACCOUNTINGACCOUNTING

Prof.Vandana ZachariahProf.Vandana Zachariah

FEW BASIC TERMSFEW BASIC TERMSBusiness TransactionBusiness Transaction

DebtorsDebtors

CreditorsCreditors

CapitalCapital

GoodsGoods

AssetsAssets

-- Fixed AssetsFixed Assets

-- Current AssetsCurrent Assets

-- Fictitious AssetsFictitious Assets

- Tangible Assets/Intangible Assets- Tangible Assets/Intangible Assets

EquityEquity

-- Owners EquityOwners Equity

-- Creditors EquityCreditors Equity

FEW BASIC TERMS (contd.)FEW BASIC TERMS (contd.)IncomeIncome

-- Outstanding IncomeOutstanding Income

-- Income received in advanceIncome received in advance

ExpenseExpense

-- Outstanding ExpensesOutstanding Expenses

-- Pre-paid ExpensesPre-paid Expenses

ExpenditureExpenditure

DrawingsDrawings

LossLoss

VoucherVoucher

TurnoverTurnover

Liabilities : Long term, Short termLiabilities : Long term, Short term

OBJECTIVESOBJECTIVES

To be better able to communicate with other To be better able to communicate with other team members in the ‘language of business.’team members in the ‘language of business.’To understand the accounting principles upon To understand the accounting principles upon which the financial statements are based.which the financial statements are based.To recognise and understand the two main To recognise and understand the two main financial statementsfinancial statements-- Profit and Loss accountProfit and Loss account-- Balance SheetBalance SheetTo be able to interpret the financial statement To be able to interpret the financial statement and evaluate their results.and evaluate their results.

DEFINTION OF ACCOUNTINGDEFINTION OF ACCOUNTING

The ‘AICPA’ had defined accounting as The ‘AICPA’ had defined accounting as “the art of recording, classifying and “the art of recording, classifying and summarising in a significant manner and in summarising in a significant manner and in terms of money, transaction and events terms of money, transaction and events which are in part, at least, of financial which are in part, at least, of financial character and interpreting the results character and interpreting the results thereof”.thereof”.

DEFINTION OF ACCOUNTING DEFINTION OF ACCOUNTING (contd.)(contd.)

It is the art of recording and classifying business It is the art of recording and classifying business transactions and events.transactions and events.The transactions or events of business must be The transactions or events of business must be recorded in monetary terms.recorded in monetary terms.It is an art of making summaries, analysis, and It is an art of making summaries, analysis, and interpretation of these transactions.interpretation of these transactions.The results of such analysis must be The results of such analysis must be communicated to the persons who are to make communicated to the persons who are to make decisions or form judgement.decisions or form judgement.

THE ACCOUNTING THE ACCOUNTING INFORMATION SYSTEMINFORMATION SYSTEM

InputsInputs Processing Processing OutputsOutputs UsersUsers

BusinessBusiness Accounting Accounting FinancialFinancial Investors, Investors,

transactiontransaction principle and principle and statementsstatements lenders, lenders,

and eventsand events procedures procedures and reportsand reports managers managers etcetc

THE ACCOUNTING THE ACCOUNTING INFORMATION SYSTEMINFORMATION SYSTEM

(contd.)(contd.)

InvestorsInvestors

LendersLenders

Security Analysis Security Analysis and Advisersand Advisers

ManagementManagement

Employees and Employees and Trade UnionsTrade Unions

Suppliers and other Suppliers and other Trade CreditorsTrade Creditors

CustomersCustomers

Government and Government and Regulatory Regulatory AgenciesAgencies

The Public/MediaThe Public/Media

Users of the Accounting Information

ACCOUNTING INFORMATION ACCOUNTING INFORMATION AND ECONOMIC DECISIONSAND ECONOMIC DECISIONS

Decisions concerning when to buy, hold or sell an equity Decisions concerning when to buy, hold or sell an equity investmentinvestmentAssessment of the stewardship or accountability of Assessment of the stewardship or accountability of management.management.Assessment of the enterprise to pay and provide other Assessment of the enterprise to pay and provide other benefits to its employees.benefits to its employees.Assessment of the security for amounts lent to the Assessment of the security for amounts lent to the enterpriseenterpriseDetermination of taxation policiesDetermination of taxation policiesDetermination of distributable profits and dividendsDetermination of distributable profits and dividendsPreparation and use of national income statisticsPreparation and use of national income statisticsRegulation of activities of enterprises.Regulation of activities of enterprises.

ADVANTAGES OF ADVANTAGES OF ACCOUNTINGACCOUNTING

Replace memoryReplace memoryProvides control over assetsProvides control over assetsFacilitates the preparation of financial statementsFacilitates the preparation of financial statementsMeets the information requirementsMeets the information requirementsFacilitates a comparative studyFacilitates a comparative studyDifficult to conceal fraud or theftDifficult to conceal fraud or theftTax mattersTax mattersAssist the management in many waysAssist the management in many waysAscertaining value of businessAscertaining value of businessActs as reliable evidenceActs as reliable evidence

LIMITATIONS OF LIMITATIONS OF ACCOUNTINGACCOUNTING

Does not record non-financial transactions Does not record non-financial transactions and events.and events.Data recorded is historical in nature.Data recorded is historical in nature.Facts Recorded are greatly influenced by Facts Recorded are greatly influenced by accounting conventions and personal accounting conventions and personal judgements.judgements.Data provided is insufficient for proper Data provided is insufficient for proper analysis and decision making.analysis and decision making.

Role of AccountantRole of Accountant

AuditAudit

Internal AuditInternal Audit

Statutory AuditStatutory Audit

Management AccountancyManagement Accountancy

Financial AccountancyFinancial Accountancy

BUSINESS ETHICSBUSINESS ETHICS

What is Business Ethics?What is Business Ethics?

Sound Principles forming foundation for ethical Sound Principles forming foundation for ethical behaviourbehaviour

** Avoid small ethical lapsesAvoid small ethical lapses

** Focus on your long term repuationFocus on your long term repuation

** Expect to suffer adverse personal Expect to suffer adverse personal consequences for holding a ethical position.consequences for holding a ethical position.