Intro of accounting

8/14/2019 Intro of accounting

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1Introduction toAccounting


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Contents of the Lecture

What is Accounting? Functions of Accounting

Branches of Accounting Accounting Cycle Users of Accounting Information Objectives of Accounting Advantages of Accounting Limitations of Accounting


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What is Accounting ?

Accounting may be defined as the process ofrecording, classifying, summarizing and interpretingthe financial transactions and communicating theresults thereof to the persons interested in such

information. Accounting as an information system is the process

of identifying, measuring and communicating theeconomic information of an organization to its users

who need the information.


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Functions of Accounting

Identifying Measuring Recording Classifying Summarising Analysing

Interpretation Communication


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ACCOUNTANCY, ACCOUNTING ANDBOOK-KEEPING

ACCOUNTANCY: systematic knowledge ofaccounting. It explains why to do and howto do of various aspects of accounting.

ACCOUNTING: actual process of preparing andpresenting the accounts. It is the art ofputting the academic knowledge ofaccountancy into practice.

BOOK-KEEPING: recording of daily businesstransactions in a systematic manner.


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BRANCHES OF ACCOUNTING

Financial Accounting

Cost Accounting

Management Accounting


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ACCOUNTING CYCLE

Sequential steps involved in anAccounting Cycle:

Journalising Posting Balancing Trial Balance Income Statement Position Statement


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USERS OF ACCOUNTINGINFORMATION

Short-term Creditors Long-term Creditors Present Investors

Potential Investors Management Employees Tax Authorities

Customers Government and their agencies Public


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OBJECTIVES OF ACCOUNTING

To maintain records of business.

To calculate the results of operations.

To ascertain the financial position.

To communicate the information to theusers.

To file tax return

To portray the liquidity position


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ADVANTAGES OF ACCOUNTING

1. Facilitates to replace memory

2. Facilitates to comply with legalrequirements

3. Facilitates to ascertain net result ofoperations

4. Facilitates to ascertain financial

position5. Facilitates the users to take decisions

6. Facilitates a comparative study


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Advantages contd

7. Assists the management

8. Facilitates control over assets

9. Facilitates the settlement of tax liability

10. Facilitates the ascertainment of value ofbusiness

11. Facilitates raising loans

12. Acts as legal evidence


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LIMITATIONS OF ACCOUNTING

1. Ignores the qualitative elements

2. Not free from bias

3. Estimated position and not realposition

4. Ignores the price-level changes

5. Danger of window dressing


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End of Chapter 1

Intro of accounting

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