Introduction to Accountancy

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INTRODUCTION

MBA - SEMESTER I

Basic Accounting


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FINANCIALACCOUNTANCY

Accountancy (profession) or accounting

(methodology) is the measurement, statement, or

provision of assurance about financial information

primarily used by managers, investors, tax authorities

and other decision makers to make resource allocation

decisions within companies, organizations, and public

agencies.


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ORIGIN AND GROWTH OF ACCOUNTANCY

Accounting is as old as money itself and has evolved

out the experience of humans.

It has developed to meet emerging needs and

requirements of modern society. Double entry system was developed by Franciscan

monk Lucas Pacioli.

Modern accounting is the result of successive

innovations and its adaptations and modificationsto the changing business environment.


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NEED FORACCOUNTANCY

Function of Accountancy is to provide

quantitative information primarilyfinancial in nature, about economic

entities, that is intended to be useful

in making economic decisions, and inmaking reasoned choices among

alternative courses of action.


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DEFINITION OFACCOUNTING

According to the AmericanInstitute of Certified Public

Accountants -

the art of recording, classifyingand summarizing in a significantmanner and in terms of money,

transactions and events which are,in part at least, of a financialcharacter, and interpreting theresults thereof.


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ATTRIBUTES OF ACCOUNTING

Recording starts with JOURNAL that provides

complete record of all business transactions

Classifying systematic analysis of business transactions

of similar nature to one place LEDGER

Summarizing presenting in a form that can be helpfulfor the stakeholders TRIAL BALANCE and FINAL

ACCOUNTS

Financial Transactions only monetary transactions

recorded

Analysis and Interpretation calculation of ratios and

percentages and other techniques useful for planning

Communication results communicated to various

parties. Ratios, graphs, diagrams, fund flow statements

as required


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OBJECTIVES OF ACCOUNTING

To maintain systematic records

To ascertain in financial position of business

To ascertain the operational profit or loss

To facilitate rational decision-making

Knowledge of debtors and creditors

Knowledge of purchase and sale

Knowledge of cash and bank balance

Knowledge of closing stock

Basis of income tax and sales tax


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ADVANTAGES OF ACCOUNTING

Increase memory power

Information regarding performance and position

Comparison

Helpful in tax assessment Proof in the court

Business valuation

Helpful in raising funds

Helpful in insolvencyAssistance to various parties

Errors and frauds

Helpful in admission and retirement of partner


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LIMITATIONS OF ACCOUNTING

Non-recording of non-financial transactions

Estimates are not accurate

Price-level changes are ignored

Conflicting principles

Does not highlight the departmental efficiency or

inefficiency

Figures and not self-explaining

No suggestive approach but a past record only

Subjective approach


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Financial accounting is a processes by which monetary

transactions of a business entity are recorded, classified,

summarized, interpreted, and communicated.

Management accounting information is used within an

organization and is usually confidential and accessible

only to a small group, mostly decision-makers.

Cost Accounting is related to the identification costs

incurred at the production facilities.

Tax Accounting is the accounting needed to comply with

jurisdictional tax regulations.


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Financial accounting serves following purposes:

Producing general purpose financial statements.

Provision of information used by management of a

business entity for decision making, planning and

performance evaluation.

For meeting regulatory requirements


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Accounting concepts

Entity concept: Business is a different entity and is

distinct from its owner(s).

Dual aspect concept: Every transaction affects at least

two books of accounts.

Going concern concept: The business is expected to

run and survive for a long period of time.

Accounting period concept: Results of operations of

an entity are measured periodically (accounting period).


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ACCOUNTING CONCEPTS

Accrual Concept: Incomes and expenses should be

recognized as and when they are earned and incurred,

irrespective of whether the money is received or paid in

connection thereof.

Money measurement concept: Each transaction and

event must be expressed in monetary terms.

Historical Cost concept: All Assets and Liabilities should

be recorded at historical cost.

Realization concept*: Revenue is recorded only on

realization.


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FEATURES OFACCOUNTANCY

Understandability

Relevance

Reliability

Comparability


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ACCOUNTING CONVENTIONS

Convention of disclosure

Convention of materiality

Convention of consistency

Convention of conservatism


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SEQUENCE OFACCOUNTING

Journals

Ledgers

Trial Balance

Financial

Statements


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FINANCIAL STATEMENTS-

CONSTITUENTS

Manufacturing Account

Trading Account

Profit and Loss Account

Profit and Loss Appropriation Account

Comprehensive Profit and Loss Account

Balance Sheet


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DOUBLE ENTRYACCOUNTING

The aspects of each transaction are

termed as Debit and Credit

Every debit has an equal and opposite

credit

Each transaction should be recorded in

such a way that it affects two sides debit

and credit equally

So, identify the debit and credit elements

for each transaction


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JOURNALGround Rules of Journalization

Increase in assets and decrease in liabilities = Debit

Decrease in assets and increase in liabilities = Credit

Expenses and losses = Debit

Income and gains = Credit


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GOLDEN RULES OFACCOUNTANCY

Debit Credit

PersonalAccount

The Receiver The Giver

Real

AccountWhat Comes In What Goes Out

Nominal

AccountAll Expenses,

Losses

All Gains,

Incomes


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PERSONAL ACCOUNT REAL

ACCOUNT

NOMINAL ACCOUNT

Bank Deposit

Rent Outstanding

Debtors

Sales Tax Payable

Capital

Drawings

Land &Building,

Plant &

Machinery,

Furniture,

Purchases

Cash

Sales

Rent paid

Discount allowed

Bad Debts


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PERSONAL ACCOUNT REAL ACCOUNT NOMINAL

ACCOUNT

DrawingsInterest receivable

Rent received in advance

Prepaid SalaryProvision for bad &

doubtful debts

Personal Income Tax

Provision for discount on

creditors

CashClosing Stock,

Investments

Provision for

Depreciation

Stock Reserve

Bad Debts

Bad debts

recovered

Depreciation


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FORMAT OF JOURNALIZATION

Journal entries in the books of ..

Dt Particulars Vouch

No.

Ledger

Folio

Dr.

Amt

Cr.

AmtRs Rs


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LEDGER

This the second book of entry.

Journals are posted into different Ledger

Accounts by the process of classification.

Ledgers are summarized at frequent intervals to

know the balances.

Ledgers differ from company to company as per

the requirements.


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FORMAT OF ALEDGERACCOUNT

Dr. Cr.

Date Particulars JF Amount Date Particulars JF Amount

To By


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TRIAL BALANCE

The balances of various ledgers are forwarded to

the trail balance.

The proof of the correctness of the accounts

prepared is that the debit side and credit side of

the trial balance should be same.


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FORMAT OF TRIAL BALANCE

Trial Balance of XYZ Co. as on 31st March, 20XX

Particulars Amount Particulars Amount

To Assets

To Expenses

By Liabilities

By Income(s)


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FINANCIAL STATEMENTS

Financial Statements refer to Income Statement,

Balance Sheet, and Cash Flow Statement*.

They are generally prepared at the end of the

year as per the format given by the competent

authority.

These Financial Statements are certified by

Charted Accountants and are made public.


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INCOME STATEMENT

Income Statement shows the operating and non-

operating incomes and expenses incurred by the

organization during a year.

If the income side is more than the expenses side, the

firm will get profits. If the expenses side is more than

the income side then the firm will end up in losses.

Income statement shows even Depreciation charged

on assets, Interest Paid on Loans, Dividends paid to

shareholders.


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BALANCE SHEET

It is a statement prepared as on the last day of the

accounting period.

It shows the balances of Assets and Liabilities of the

company.

The total of both sides should match.

Assets include Current Assets, Fixed Assets, Intangible

Assets , and Fictitious Assets.

Liabilities include Long-Term Liabilities, and Current

Liabilities.


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FORMAT OF BALANCE SHEET

Balance sheet of XYZ & Co. as on 31st March, 20XX.

Liabilities Amount Assets Amount

Long Term Liabilities

Current Liabilities

X X X

X X X

XXXX

Current Assets

Fixed Assets

Intangible Assets

Fictitious Assets

X X X

X X X

X X X

X X X

XXXX


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THANKYOU

Introduction to Accountancy

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