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1&2 Lecture Fundamentals of Accounting

The document provides an overview of the fundamentals of accounting. It discusses topics like the definition of accounting, the branches of accounting including financial, managerial, cost, auditing, tax, and forensic accounting. It also explains the differences and relationships between bookkeeping and accounting, and the objectives of accounting.

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zukhrufeman64
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26 views5 pages

1&2 Lecture Fundamentals of Accounting

The document provides an overview of the fundamentals of accounting. It discusses topics like the definition of accounting, the branches of accounting including financial, managerial, cost, auditing, tax, and forensic accounting. It also explains the differences and relationships between bookkeeping and accounting, and the objectives of accounting.

Uploaded by

zukhrufeman64
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Fundamentals of Accounting

Course Code: MGT-205


Credit Hours: 3
Prerequisite: ---

Course Outline:
Introduction to Accounting, Need and importance of accounting, Accounting: a business
language,
Book-keeping, Book-keeping vs. accounting, Branches of accounting, Object of
accounting,
Important accounting terms and concepts, Transaction and accounting equation, What
is event?,
Features, Classification, Rules for cash and credit transactions, Analysis of transaction,
Completing the Accounting Cycle, Final accounts: The completion of accounting cycle,
Accounting for Merchandising Operations, WorkSheet, Inventories and Cost of Sales,
Cash and
Internal Controls, Accounting for Receivables, Plant Assets, Natural Resources and
Intangibles,
Liabilities for organization, Statement of Cash Flows.
Lecture#1

1) Introduction to Accounting
Accounting is the process of recording financial transactions pertaining/related to a
business.
The accounting process includes recording, classifying, summarizing and reporting
these transactions to oversight agencies, regulators, and tax collection entities.
OR
Accounting is an information and measurement system that identifies, records, and
communicates relevant, reliable, and comparable information about an organization’s
business activities.
OR
Accounting is the recording of financial transactions along with storing, sorting,
retrieving, summarizing, and presenting the results in various reports and analyses.

2) Branches of Accounting
● Financial Accounting
Financial accounting refers to the processes used to generate interim and annual
financial statements. The results of all financial transactions that occur during an
accounting period are summarized into the balance sheet, income statement, and cash
flow statement.

● Managerial Accounting
Managerial accounting uses much of the same data as financial accounting, but it
organizes and utilizes information in different ways. Namely, in managerial accounting,
an accountant generates monthly or quarterly reports that a business's management
team can use to make decisions about how the business operates.

● Cost Accounting
Just as managerial accounting helps businesses make decisions about management,
cost accounting helps businesses make decisions about costing. Essentially, cost
accounting considers all of the costs related to producing a product.

● Auditing
There are two types of auditing: external and internal auditing. In external auditing, an
independent third party reviews a company’s financial statements to make sure they are
presented correctly and comply with GAAP.
● Tax Accounting
Tax accounting involves planning for tax time and the preparation of tax returns. Tax
accounting also helps businesses figure out their income tax and other taxes and how
to legally reduce their amount of tax owing. Tax accounting also analyzes tax-related
business decisions and any other issues related to taxes.

● Forensic Accounting
This specialized accounting service is trending in accounting and is becoming
increasingly popular. Forensic accounting focuses on legal affairs such as inquiry into
fraud, legal cases and dispute and claims resolution.

3) Why Is Accounting Important?


Accounting plays a vital role in running a business because it helps you track income
and expenditures, and provide investors, management, and government with
quantitative financial information which can be used in making business decisions.

1: It Helps in Evaluating the Performance of Business


2: It Helps to Create Budget and Future Projections
3: It Helps in Filing Financial Statements
4: It Ensures Statutory Compliance/ Meets legal requirements

4) Bookkeeping
Bookkeeping involves the recording, on a regular basis, of a company’s financial
transactions. With proper bookkeeping, companies are able to track all information on
its books to make key operating, investing, and financing decisions.
OR
Bookkeeping is the recording of financial transactions, and is part of the process of
accounting in business and other organizations. It involves preparing source documents
for all transactions, operations, and other events of a business. Transactions include
purchases, sales, receipts and payments by an individual person or an
organization/corporation.
5) Bookkeeping vs Accounting

Bookkeeping Accounting

Definition Bookkeeping is mainly related to Accounting is the process


identifying, measuring, and recording, of summarizing,
financial transactions interpreting, and
communicating financial
transactions which were
classified in the ledger
account

Decision Management can't take a decision based Depending on the data


Making on the data provided by bookkeeping provided by the
accountants, the
management can take
critical business decisions

Objective The objective of bookkeeping is to keep The objective of


the records of all financial transactions accounting is to gauge the
proper and systematic financial situation and
further communicate the
information to the relevant
authorities

Preparation Financial statements are not prepared as Financial statements are


of Financial a part of this process prepared during the
Statements accounting process

Analysis The process of bookkeeping does not Accounting uses


require any analysis bookkeeping information to
analyze and interpret the
data and then compiles it
into reports
6) Objective of Accounting
● To keep Systematic Records
The main objective of accounting is to keep a systematic record of financial transactions
which helps the users to understand the day to day transactions in a systematic manner
so as to gain knowledge about overall business.
● Ascertain Profit
Another objective of accounting is that it helps in ascertaining the net profit earned or
loss suffered on account of carrying the business which is done by keeping a proper
record of all books of accounts with respect to revenues and expenses of a particular
period.
● Ascertain the Financial Position
The accounting also helps the businessman to know about his financial position. This
objective is served by the Balance Sheet or Position Statement. The Balance Sheet is a
statement of assets and liabilities of the business on a particular date. It serves as a tool
for ascertaining the financial health of the business.
● Facilitate Decision Making
Accounting also helps in the collection, analysis, and reporting of information at the
required points of time to the required levels of authority in order to facilitate rational
decision-making.

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