Scribd
Upload
4K views

Accounting Classification

This document provides an introduction to basic accounting concepts for an MBA program. It discusses key topics like the meaning and objectives of accounting, the different types of accounting (financial, cost, management), users of accounting information, basic accounting terminology, and accounting principles and conventions (GAAP). The goals of accounting and who utilizes accounting data are also outlined.

Uploaded by

sappuk
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
4K views

Accounting Classification

This document provides an introduction to basic accounting concepts for an MBA program. It discusses key topics like the meaning and objectives of accounting, the different types of accounting (financial, cost, management), users of accounting information, basic accounting terminology, and accounting principles and conventions (GAAP). The goals of accounting and who utilizes accounting data are also outlined.

Uploaded by

sappuk
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 17

Accounting and

Financial Analysis

MBA 1 SEMESTER
st

1
UNIT – 1&2

INTRODUCTION TO BASIC
CONCEPTS
OF ACCOUNTING

2
Topics of Discussion
 WE WILL STUDY THE FOLLOWING:

 Meaning of accounting
 Classification of accounting
 Objectives of accounting
 Users of accounting
 Terminology used in accounting
 Accounting principles (GAAP)

3
What is accounting

Accounting is the language of business through


which a business entity communicates its information
to the concerned persons.
Accounting is an art of recording,classifying and
summarising in a significant manner and in terms of
money, transaction and events which are, in part at
least of financial character and interpreting the
results thereof. (AICPA)
4
5
Financial accounting is that part of accounting which
deals with recording, classifying and summarising
business transactions which have already occurred. Its
aim is to provide information about income and
financial position on the basis of business transactions
which have taken place during a period of time.

Financial accounting is also known as historical


accounting because it is based on transactions which
have already taken place.
6
Cost accounting deals with detailed study of
cost with reference to cost ascertainment, cost
reduction and cost control. The emphasis is on
historical costs as well as future decision
making process.

Cost accounting derives information from financial


accounting.
7
Management Accounting is that part of
accounting which provides information to the
management not only about cost but also about
revenue, profit, financial position etc, to enable
managers to discharge their functions of managing
the business more effectively and efficiently.
Finally that becomes helpful in taking business
decisions.

Management accounting derives information from financial


as well as cost accounting. 8
Objects or Functions of Accounting

The following are the main functions of accounting:


 Keeping systematic records
 Protecting and controlling business properties
 Ascertaining profit / loss
 Ascertaining financial position of the business
 Facilitating rational decision making

9
Users of Accounting
Information
 The importance of accounting is to provide meaningful
information about a business enterprise to those persons who
are directly or indirectly interested in the performance and
financial position of a business enterprise. These include:
 Owners / shareholders
 Management
 Creditors / bank / lending institution
 Government
 Prospective investors
 Employees
 Regulatory agency / researchers
10
Accounting Terminology
 Assets : Assets are the valuable things used for carrying on
business . It may be tangible/ intangible or fixed /current
 Liabilities: Liabilities are the monetary obligations of a business.
It may be towards owners of the business or outside world.
 Capital: it is the worth (in cash or kind) invested by the owner of
business. It is also called internal liability, or liability towards
owner.
 Debtor: They are the person from whom business has to receive
payment either for cash or for advance or loan given. They are
the assets of business.
 Creditors:They are those persons to whom business has to make
payment either for goods/ assets purchased or loan taken.
 Goods: Goods are the things in which a business deals. In other
words any thing which is purchased for the purpose of resale is
called goods.
11
Income statement/ P&L A/c : Profit and loss account is the
statement which presents the revenue and expenses of an
enterprise for an accounting period and shows the excess of
revenue and expenses (or vice versa) that is , profit or loss.

Balance sheet: it is a statement which shows the financial


position of a business as on a particular day (generally at the
end of accounting period).

Financial position means how much assets and liabilities a


business organization has. It is to be noted that at any point
of time assets are always equal to liabilities
12
Generally Accepted Accounting
Principles
Accounting is often called the language of
business through which normally a business
house communicates with the outside world. In
order to make this language intelligible and
commonly understood by all, it is necessary that it
should be based on certain uniform and
scientifically laid down standards. These
standards are termed as accounting principles.
(GAAP)

13
Accounting principles
 
They are guidelines to establish standards
for sound accounting practices and
 
 

procedures in reporting the financial status


and periodic performance of a business.
 
These principles are the pillars of
accounting on which the entire structure of
 
accounting is based. These principles can
be classified in to two categories:

14
ACOUNTING
PRINCIPLES

ACCOUNTING ACCOUNTING
CONCEPT CONVENTION

15
Accounting concept
 A concept is a belief about the desirability of a method or procedure.
Accounting concepts are defined as basic assumptions on the basis of
which financial statements of a business entity are prepared.
Following are the accounting concepts:
 Business Entity Concept / Separate Entity concept
 Going concern concept
 Accounting period concept
 Money measurement concept
 Dual aspect concept
 Cost concept
 Matching concept or periodic matching of revenue and
cost concept
 Realisation concept
16
Accounting convention
 The term ‘convention’ denotes customs or traditions or
practice based on general agreement between
accounting bodies which guide the accountant while
preparing the financial statements. In fact financial
statements i.e. the profit and loss a/c and balance
sheet are prepared according to these accounting
conventions. These are as follows:

 Consistency
 Conservatism
 Materiality
 Disclosure
17

You might also like