INTRODUCTION TO

ACCOUNTING

By: Dr. Bhavik R. Shah

[M.Com ; M.Ed ; M.Phil ; Ph.D]
(M) 98 98 46 21
48
(E-Mail)
[email protected]
Introduction:
 Innumerable transactions take place in the
business everyday.
 All these transactions can not be remembered.
 Hence, it is necessary to record them.
 For this purpose, proper accounts are required to
be maintain.
 Keeping proper accounts help the owner of the
business
 To know the profit or loss of the business and
 Its financial position at the end of the year.
 For determining income tax payable by the owner
of the business.
History Of Accounting:
 Accounts are written since ancient times.
 Many evidences are available that accounts
were maintained in
 Ancient China
 Missar
 Greek and Italian Culture.
 Many references are found in
 The Vedic literature of the fact that accounts
were properly written in ancient india.
 In the Valmiki Ramayan.
 When Bharat met Ram in the forest , Ram
asked Bharat about the incomes and expenses
of the State and whether the income is more
than the expenses or the expenses are more
then the income.
 In the Mahabharat, King Yudhishthir had asked
his brother Nakul to Supervise the accounts of
his army.
 During the age of the Maurya Samrajya,
Kautilya, the Prime Minister of Chandragupt
Maurya , in his book ‘Arthashastra’ , has given
various details instructions about maintaining
the accounts.
 The Italian Monk Luca Pacioli for the first time
in 1494 AD.
• In his book on Mathematics,

Made presentation of the currently in use

double entry accounting system.
 Thereafter, the accounting has become an
integral part of each facet of life.
 The accounts of household expenses are also
maintained in many houses.
Meaning of Accounting:
 “Accounting is The process of
 Identifying

 Measuring in terms of ‘Money’

 Recording

 Classifying

 Summarizing

 Analyzing and interpreting

The Business Transactions-

AND
 Communicating

 The Accounting Information (Reports)

 To the users for making correct decisions.

 From the above definition,
It can be said that:
1. The business transactions, which can be measured in terms
of money, are recorded in accounting.
2. After recording the transactions, they are classified:
3. * At the end of accounting period (normally at the end of
the year)
* Conclusions (profit & loss account and balance sheet)
are drawn.
* So that, the profit or loss of the business is ascertained
And
* The financial position of the business can be known.
4. In accounting , the result of business are
* Analyzed and
* Interpreted.
* Thereafter, this information is sent to the user
(Specially, members of limited companies and other
institutions) in the form of report.
 Objective Of Accounting
 Main Objectives of Accounting can be described as under:
1. The aim of Accounting is (Maintenance Of Records)
• To keep permanent record of all transactions of the business.

• To show the financial effects of these business transaction

on the business.
2. The aim of Accounting is (Financial Position = Balance Sheet)
• To recorded all transactions during the accounting period.

• To know the true financial position of the business after

determining the effect of all the transactions.

3. (Calculations of Profit or Loss)
To evaluate the profitability (earning capacity) of the
business and to provide accounting information during the
accounting period.
4. To provide the useful information to know the efficiency of
the managers.
5. To provide necessary information for preparing budget.
Control can be exercised over various activities of the
business through budget.
6. To provide useful information to the government for taking
proper decisions about taxes.
From the above objectives it can be said that;
 Accounting is the language of business.

Thus accounts provide useful information

 To the owner and

 The managers of business and

 Outside parties.

They can take proper decisions on the basis of this

information.
Users Of Accounting:
 Accounts provide useful information.
 To the managers of the business for taking
business decisions.
 To the financial institutions taking the decision for
granting a loan to the business unit, and to what
extent on the basis of the accounting information.
 To creditors of the business , to decide whether to
sell the goods to the firm on credit.
 To trade unions.
 To customer protection associations.
 To government etc.
Types or Form of Accounting Information
 Accounting starts with identification of financial
transaction.
 The transactions which are non-financial are not
included in the accounting information.
 There are TWO types of financial transactions:
• Financial transactions which can be measured in
terms of money
• Financial transactions which can not be
measured in terms of money.
 Only those transactions, which can be measured
in terms of money, are recorded in the accounts.
 Advantages Of Accounting:
The following are the advantages of Accounting.
 The owner of the business can get accounting
information, whenever required, by maintaining
accounts.
 Profit or loss of the business can be known at the
end of accounting period.
 Financial position of the business can be known at
the end of the accounting period.
 Accounting helps the owner and manager of the
business to exercise control based on the
information of the assets and liabilities of the
business.
 Accounting provides necessary information for
decision making.
6. Accounting information is necessary to determine
the taxes payable to the government. Accounting is
also useful in planning about the taxes, e.g. income
tax, sales tax etc.
7. It helps in exercising moral control over the
employees. Moreover thefts, frauds and
manipulations can be found out and controlled.
8. It is useful for determining the price of the
business while selling the business.
9. Books af accounts can be produced and accepted as
evidence.
10. Current year’s information can be compared with
the information of the previous year and with that
of other firms.