Scribd
Upload
63 views17 pages

Introduction To Accounting

Uploaded by

jatinneysasingh
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
63 views17 pages

Introduction To Accounting

Uploaded by

jatinneysasingh
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
You are on page 1/ 17

Introduction to

Accounting
DEFINATION

"Accounting is the art of recording, classifying and


summarising 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.
Attributes

Identification of Financial Transactions and


Events
Accounting records only those transactions and events which
can be measured in terms of money. This involves identifying
transactions and events that are part of economic activity, for
example, purchase of raw material or sale of finished goods by a
firm
Attributes
Measuring the Identified Transactions
Financial transactions and events are measured in terms
of money. An event which cannot be measured in terms of
money is not recorded in the books of account. For
example, event like the calibre or quality of management
team or appointment of a manager are not recorded in the
books of account.
Recording
Accounting is an art of recording business transactions
in the books of account Recording is the process of
recording business transactions of financial character,
i.e transactions measured in money terms, in the book
of original entry, i.e., Journal.
Classifying
Classification is the process of grouping transactions
or entries of one nature at one place. The transactions
recorded in the 'Journal' or the subsidiary books are
classified or posted in the main book of accounts
known as the Ledger. This book has individual account
heads under which financial transactions related to that
account are posted (transferred) from Journal. For
example, in Rahul's Account in the Ledger, all business
transactions entered into with Rahul are posted. It
enables to ascertain amount due to Rahul or due from
Rahul
Summarizing
This involves presenting the classified data in a
manner which is understandable and useful for internal
as well as external users of financial statements. This
process leads to the preparation of Trial Balance
from which:
Trading and Profit and Loss Account or Statement of
Profit and Loss (in case of Companies), and
(ii) Balance Sheet are prepared. The above Statement
are collectively known as final accounts or financial
statements
Analysis and interpretation
Analysis and interpretation of the financial data are
carried out so that the users of financial data can make
a meaningful judgement of the profitability and financial
position of the business.
Communicating
Finally, accounting function involves communicating
the financial information, i.e.. financial statements, to its
users. The accounting information should be provided
in time to the users so that appropriate decisions may
be taken at the appropriate time.
ACCOUNTING PROCESS
Maintaining Accounting
The objective Records
of accounting
The objective of accounting is to record financial
transactions and events of the organisation in the books
of account in a systematic manner following the principles
of accountancy.
2. Determining Profit or Loss
Another objective of accounting is to determine whether
during the accounting period. the firm has earned profit or
has incurred loss. For this purpose, a statement called an
Income Statement or the Trading and Profit and Loss
Account is prepared. Revenues resulting from the
transactions of the period are transferred in the credit and
expenses are transferred in the debit. The difference
between the two sides is either profit or loss.
4. Facilitating Management
The management often requires financial information for
decision-making, effective control, budgeting and
forecasting. Accounting provides financial information to
assist the management in discharging this function.
5. Providing Accounting Information to Users
Yet another objective of accounting is to provide
accounting information to users, both internal and
external, who analyse them according to their
requirements.
6. Protecting Business Assets
Another objective of accounting is to have records of
assets owned by the business. Accounting maintains
record of assets owned by the business which enables
the management to exercise control and protect them..
ADVANTAGES OF ACCOUNTING
1. Financial Information about Business

2. Assistance to Management

3. Replaces Memory
5 . Facilitates Settlement of Tax Liabilities

6. Facilitates Loans

7. Evidence in Court
8. Facilitates Sale of Business

9. Assistance in the Event of Insolvency

10. Helpful in Partnership Accounts


LIMITATIONS OF ACCOUNTING
1. Accounting is not Fully Exact

2. Unrealistic Information
3. Accounting Ignores the Qualitative Elements

4. Accounting Ignores the Effect of Price Level Changes

5. Accounting May Lead to Window Dressing

You might also like