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8/12/2019 accountingformanagement-121128023420-phpapp02

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Module I

Introduction to Accounting: Need and Types ofAccounting, Users of Accounting, concepts andconventions of Accounting, Accounting Equations.


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INTRODUCTION In all activities (whether business activities or non-

business activities) and in all organizations (whetherbusiness organizations like a manufacturing entity ortrading entity or non-business organizations likeschools, colleges, hospitals, libraries, clubs, temples,

political parties) which require money and othereconomic resources, accounting is required to accountfor these resources.


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MEANING AND DEFINITION OF BOOKKEEPING

Meaning

Book- keeping includes recording of journal, posting inledgers and balancing of accounts. All the records beforethe preparation of trail balance is the whole subjectmatter of bookkeeping.

Definition

Book- keeping is the science and art of correctlyrecording in books of account all those business

transactions that result in the transfer of money ormoneysworth. R.N.Carter


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Objectives of Book- keeping i) Book- keeping provides a permanent record of

each transactions.

ii) Soundness of a firm can be assessed from therecords of assets and abilities on a particular date.

iii) Entries related to incomes and expenditures of aconcern facilitate to know the profit and loss for a

given period. iv) It enables to prepare a list of customers and

suppliers to ascertain the amount to be received orpaid.


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Count.,v) It is a method gives opportunities to review the

business policies in the light of the past records.

vi) Amendment of business laws, provision oflicenses, assessment of taxes etc., are based on records.


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ACCOUNTING Meaning of Accounting

Accounting, is an information system is the process of

identifying, measuring and communicating theeconomic information of an organization to its userswho need the information for decision making.


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Definition of Accounting

American Institute of Certified Public Accountants

(AICPA) which defines accounting as the art ofrecording, classifying and summarizing in asignificant manner and in terms of money,transactions and events, which are, in part at least, of a

financial character and interpreting the resultsthereof.


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Objective of Accounting To keeping systematic record

To ascertainthe resultsof the operation To ascertainthe financial positionof the business

To portray (show / describe) the liquidity position

To protect business properties To facilitate rational decision making

To satisfy the requirements of law


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Importance of AccountingOwners Management

Creditors Employees

Investors Government

Consumers Research Scholars


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Functions of Accounting Record Keeping Function (primary)

Managerial Function (decision making)

Legal Requirement function (auditing) Language of Business (There are many parties-owners,

creditors, government, employees etc., who areinterested in knowing the results of the)


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Methods of Accounting Business transactions are recorded in two different

ways.

1 Single Entry

2 Double Entry

1 Single Entry: It is incomplete system of recording

business transactions. The business organizationmaintains only cash book and personal accountsof debtors and creditors. So the complete recordingof transactions cannot be made and trail balance

cannot be prepared.


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Count.,

2. Double Entry: It this system every businesstransaction is having a two fold effect of benefitsgiving and benefit receiving aspects. The recording ismade on the basis of both these aspects. Double Entry

is an accounting system that records the effects oftransactions and other events in at least two accountswith equal debits and credits.


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Steps involved in Double entry system

(a) Preparation of Journal: Journal iscalled the book of original entry. It records

the effect of all transactions for the firsttime. Here the job of recording takes place.

(b) Preparation of Ledger: Ledger is the

collection of all accounts used by abusiness. Here the grouping of accounts isperformed. Journal is posted to ledger.


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Count.,

c) Trial Balance preparation: Summarizing. It is asummary of ledge balances prepared in the form ofa list.

(d) Preparation of Final Account:At the end of the

accounting period to know the achievements of theorganization and its financial state of affairs, thefinal accounts are prepared.


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Types of Accounting To achieve this object, business transactions have been

classified into three categories:

(i) Transactions relating to persons. (PersonalAccounts)

(ii) Transactions relating to properties and assets(Real Accounts )

(iii) Transactions relating to incomes andexpenses.(Nominal Accounts)


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Accounts

Personal accounts

NominalaccountReal account

Impersonal accounts


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PersonalAccounts

(a)Naturalpersons

(b)Artificial

or legalpersons

(c) Groups

OrRepresentativ

e personalAccounts


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Personal A/c

Personal Accounts: Accounts recording transactions with a

person or group of persons are known as personal accounts.

(a) Natural persons:An account recording transactions withan individual human being is termed as a natural persons

personal account. eg., Kamals account, Malas account,Sharmasaccounts. Both males and females are included in it.

(b) Artificial or legal persons: An account recordingfinancial transactions with an artificial person created by

law or otherwise is termed as an artificial person, personalaccount, e.g. Firms accounts, limited companies accounts,educational institutions accounts, Co-operative societyaccount.


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Count., (c) Groups/Representative personal Accounts: An

account indirectly representing a person or personsis known as representative personal account. Whenaccounts are of a similar nature and their number islarge, it is better to group them under one head andopen a representative personal account. e.g., prepaidinsurance, outstanding salaries, rent, wages etc.

RULE

Debit the receiverand Credit thegiver.


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Real

Accounts

(a) TangibleReal

Accounts

b) Intangible

RealAccounts


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Real AccountsAccounts relating to properties or assets are known as

RealAccounts,A separate account is maintained for eachasset e.g., Cash Machinery, Building, etc., Real accountscan be further classified into tangible and intangible.

(a) Tangible Real Accounts: These accounts represent

assets and properties which can be seen, touched, felt,measured, purchased and sold. e.g. Machinery accountCash account, Furniture account, stock account etc.


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Count, (b) Intangible Real Accounts: These accounts

represent assets and properties which cannot be seen,touched or felt but they can be measured in terms of

money. e.g., Goodwill accounts, patents account,Trademarks account, Copyrights account, etc.

The rule for Real accounts is: Debit what comes inand Credit what goes out.


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Nominal AccountsAccounts relating to income, revenue, gain

expenses and lossesare termed as nominal accounts.These accounts are also known as fictitious accounts as

they do not represent any tangible asset. A separateaccount is maintained for each head or expense or lossand gain or income. Wages account, Rent accountCommission account, Interest received account are

some examples of nominal account

The rule for Nominal accounts is: Debit all expensesand losses and Credit all incomes and gains


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BRANCHES OF ACCOUNTINGManagementaccounting

Financialaccounting

Costaccounting


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Users of accounting information Management or manager

People with direct financial interest Existing investors

Potential investors

Creditors

Financial institutions

People with indirect financial interest Customers

Taxation authorities

Government regulatory body etc


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Accounting

Principles

AccountingConcepts

AccountingConventions


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Accounting concepts The term concept is used to denote accounting

postulates, i.e., basic assumptions or conditionsupon the edifice (structure) of which the accounting

super-structure is based.

Accounting concepts1. Money measurement concept 2. Business entity concept

3. Going concern concept 4. Cost concept (FA)

5. Dual aspect concept 6. Realization concept

7. Accounting period concept 8. Matching concept

9. Accrual concept 10. Objective Evidence Concept


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Accounting ConventionAccounting Convention refers to the customs and

traditions followed by the accountants as guidelineswhile preparing accounting statements. The important

Accounting Conventions are as follows;


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Any Questions?


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