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Unit 1 Revised

This document provides an overview of the accounting concepts lecture for the subject Accounting & Financial Management. It discusses [1] the basic accounting concepts like the accounting equation, double entry accounting, and the accrual concept; [2] the accounting process including transactions, vouchers, books of accounts, and financial statements; and [3] the objectives of financial statements to provide useful information to decision makers.

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ashish544170
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44 views

Unit 1 Revised

This document provides an overview of the accounting concepts lecture for the subject Accounting & Financial Management. It discusses [1] the basic accounting concepts like the accounting equation, double entry accounting, and the accrual concept; [2] the accounting process including transactions, vouchers, books of accounts, and financial statements; and [3] the objectives of financial statements to provide useful information to decision makers.

Uploaded by

ashish544170
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPS, PDF, TXT or read online on Scribd
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Course : BCA

Semester : III
Subject Code : BC 0044
Subject Name : Accounting & Financial Mgt

Unit number :1
Unit Title : Financial Accounting – An
Introduction
Session Number: 1 and 2
Lecture Title : Basic Accounting Concepts

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Structure

• Introduction
• Basic Accounting Concept
• Double Entry Accounting
• The Accounting Trial
• Financial Statements and their Nature
• The Accounting Equation

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Introduction

• Is accounting a necessary ?
• Yes it is necessary for business
activities.
• It is equally important for all types of
non-business economic activities.
• What is Accounting system?

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• The accounting system is a major
quantitative information system in every
organization.
• What are the main advantages of
Accounting system?
• Internal routine reporting for cost
planning and cost control of operations.

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• Internal routine reporting to managers
on the profitability of products, brand
categories, customers etc.
• Internal non-routine reporting to
managers for strategic and tactical
decisions
• External reporting through financial
statements to investors, government
and other interested parties.

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• What do you mean by a concept?
• It is a reasonable assumption
• E.g. A business unit is set up to exist for
a long time.
• What is a convention?
• It is a time tested principle.
• Depreciation

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• Why do we need principles?
• To lay down rules for action.
• Concepts, principles and policies of
accounting aim at bringing uniformity
and universal acceptability of
accounting methodology.

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Basic Accounting Concepts

• What is meant by the Entity Concept ?


• The Entity Concept declares that
business is separate and ownership is
separate from accounting point of view.
• Business properties & liabilities should
not be mixed with personal properties &
liabilities.

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• What is meant by Money Measurement
Concept ?
• One of the Accounting concepts is that
money is the common denominator in
which assets, liabilities, incomes,
expenses are expressed.
• This concept facilitates fair and uniform
understanding of the business by the
stake holders.

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• What is meant by Cost Concept ?
• Assets such as land, building, plant and
machinery and obligations such as
loans, public deposits should be
recorded at historical cost.

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• What is meant by the Going Concern
Concept?
• Do you start any business to exist only
for a day or two?
• The fundamental assumption of this
concept is the business lasts long so
that customers gain confidence &
creditors trust the businessman

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• What is meant by the Periodicity
Concept?
• Note the difference in the following
statements:
– Profit of the business is Rs.50 Lakhs
– Profit of the business for the year 2005
is Rs.50 Lakhs
• The second statement makes more sense
because the profit is for one year

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• What is meant by the Accrual Concept?
• Income earned not yet received and
similarly expenses incurred not yet paid
during the accounting period should be
considered to calculate profit or loss for
the said period as per accrual concept
of accounting

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• What is meant by the Matching
Concept?
• Revenue earned in an accounting year
is offset (matched) with the expenses
incurred during the same period to
generate that revenue.
• It is a measure of overall profitability

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• What do you mean by concept of prudence ?
• It says ‘ anticipate no profits but provide for
all possible losses’
• What do you mean by the term Realization
concept ?
• It tells that to recognize revenue it has to be
realized.
• There should be no uncertainty in realizing
the revenue

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Double Entry Accounting

Accounting according to AICPA is:


“the 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”

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The Accounting Trial

The Process involved are:


1. Transaction/Event
2. Preparation of Vouchers
3. Recording in the Primary Books
4. Posting in the Secondary Books
5. Preparation of Trial Balance
6. Preparation and Presentation of
Financial Statements

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• What is an event?
• Financial Accounting Standard
Board(FASB) of U.S.A defines an
event as ‘ a happening of
consequence to an entity’.
• An event may be an internal
happening or an external incident.

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• The objective of financial statements:
IASC defines as ‘ to provide information
about the financial position,
performance and changes in financial
position of an enterprise that is useful to
a wide range of users in making
economic decisions ‘

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Recognition Criteria

• An asset is recognized in a financial


statement if it satisfies the following two
conditions. What are those conditions?
 The asset has a cost or value that can
be reliably measured; and
 It is expected that future economic
benefits will flow to the enterprise out of
the use of that asset.

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• A liability is recognized if the following
conditions are satisfied. Name them.
 It is expected that an outflow of
resources embodying economic
benefits will result from the settlement of
a present obligation
 The amount of settlement can be
reliably measured.

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The Accounting Equation

• Asset (A) = Liabilities (L) + Equity(E)


• The increase in owner’s equity can
normally occur in the following situations:
 There has been a fresh injection of funds
by the owners
 There has arisen a surplus (excess of
income over expenses)
 A = L + Eo +(Y-X)

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