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MBA Sem. 1 Intro To Accounting-2

The document discusses the meaning and advantages of accounting. It covers topics like branches of accounting, basis of accounting, accounting concepts, and differences between financial and management accounting.

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prashantmis452
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18 views

MBA Sem. 1 Intro To Accounting-2

The document discusses the meaning and advantages of accounting. It covers topics like branches of accounting, basis of accounting, accounting concepts, and differences between financial and management accounting.

Uploaded by

prashantmis452
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CHAPTER -1

INTRODUCTION TO
ACCOUNTING
MEANING
It is a systematic process of identifying, recording,
measuring, classifying, verifying, summarizing,
interpreting and communicating financial
information.
It reveals profit or loss for a given period, and the
value and nature of a firm's assets, liabilities
and owners' equity.
Advantages of Accounting:

• Accounting helps to maintain the business


records in a systematic manner.
• It helps in the preparation of financial
statements.
• Accounting information is also used to compare
the result of current year with the previous
year to analyze the changes.
• It helps the managers in the decision making
process.
• It provides information to other interested
parties such as shareholders, creditors,
investors, customers, government,
employees, regulatory bodies etc.
• It helps in taxation matter
• Accounting information can be produced as
evidence in the legal matter.
• It helps in valuation of business.
Limitations of Accounting

• The items expressed in monetary terms are


recorded in the accountings where as the items
which are nonmonetary nature not recorded.
• Sometimes accounting data are recorded on the
basis of estimates and which could be inaccurate.
• Fixed assets are recorded as the original cost.
• Value of money does not remain stable so
accounting value does not show true financial
results.
• Accounting can be manipulated and biased.
USERS OF ACCOUNTING INFORMATION

1. INTERNAL USERS
 MANAGEMENT
 SHAREHOLDERS
 EMPLOYEES
EXTERNAL USERS
 SUPPLIERS AND CREDITORS
BANKS AND FINANCIAL INSTITUTIONS
CUSTOMERS
GOVERNMENT AND REGULATORY AGENCIES
SECURITY ANALYSTS AND ADVISORS
PUBLIC
Branches of Accounting
1. Financial Accounting
2. Cost Accounting
3. Management Accounting
4. Tax Accounting
5. Social Responsibility Accounting
6. Environmental Accounting
7. Inflation Accounting
Characteristics of Accounting Information

• Understandability
• Relevance (Materiality)
• Reliability
• Neutrality
• Prudence
• Completeness
• Timeliness
• Verifiability
Financial Accounting Management Accounting
Financial Accounting is an The accounting system which
accounting system that provides relevant information to
focuses on the preparation of the managers to make policies,
financial statement of an plans and strategies for running
organization to provide the the business effectively is known as
financial information to the Management Accounting.
interested parties.

It is compulsory to be It is not compulsory


prepared.
Monetary information only. Monetary and non-monetary
information both.

It is governed by government, No such regulations exists.


accounting and other
statutory regulations.
Financial Accounting Management Accounting
To assist the management in
To provide financial information to planning and decision making
outsiders. process by providing detailed
information on various matters.
Specified format No specified format

Financial Statements are prepared at The reports are prepared as per the
the end of the accounting period need and requirements of the
which is usually one year. organization.

Users are both Internal and external Users are Only internal
parties management.

Required to be published and Neither published nor audited by


audited by statutory auditors statutory auditors.

It is based on futuristic data , so


It is based on historical data. forecasts and budgets are possible.
Cash basis Accounting
Under the cash basis of accounting...
• Revenues are reported on the income statement in the
period in which the cash is received from customers.
• Expenses are reported on the income statement when
the cash is paid out.
• The cash method is mostly used by small businesses and
for personal finances. The cash method accounts
for revenue only when the money is received and for
expenses only when the money is paid out.
Accrual Basis Accounting
• The accrual method accounts for revenue
when it is earned and expenses goods and
services when they are incurred.
• The revenue is recorded even if cash has not
been received or if expenses have been
incurred but no cash has been paid. Accrual
accounting is the most common method used
by businesses.
• The accrual basis of accounting provides a
better picture of a company's profits during
an accounting period.
• The reason is that the income statement
prepared under the accrual basis will report all
of the revenues actually earned during the
period and all of the expenses incurred in
order to earn the revenues.
Accounting Concept
1. Entity concept:- consider the business as a
separate entity.-can get real picture of the
business.
2. Dual aspect concept:- whenever there is a
single transaction, it has to be recorded in
two or more accounts to balance equation.
3. Going concern concept:- according to this concept a
business will have an indefinite life unless it is likely to
be sold or liquidated in the near future.-Due to this
concept working life of an asset is taken into
consideration for the purpose of writing off
depreciation.
4. Accounting period concept:- calendar year and
accounting year, vikram samvat year(2075), established
by Indian emperor Vikramaditya. Hijri year-taqwīm-e
hejri (1439), Islami taqwīm; the emigration of the
Islamic prophet Muhammad from Mecca to Medina,
known as the Hijra, occurred.
5. Money measurement concept:- all transaction should be
measure in monetary terms only.- building worth of
1,00,000
6. Cost concept:- all transaction are recorded at their
monetary cost of acquisition. E.g. a land purchase
at 5,00,000 in the year 2001. it will continue with
same price even though current value is 15,00,000.
7. Revenue Realisation concept:- when actual sales
and purchase is done it will be considered. E.g. get
order to produce 100 shirts in the month of
January. But supply made in March, so entry will be
in the month of March not in the month of January.
8. Matching concept:- this concept hold that
expenses are recognized in the same period
as associated revenue. E.g. paid 1000 Rs.
advanced to get stationary will be noted only
when stationary will received. It means, exps
and income should be matched.
9. Verifiable objective evidence concept:-
Voucher, cash memo etc,..
10. Accrual concept:- no any provision. If there is
any loss or exps is there, then only entry will
be there.

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