Amity School of Business

FINANCIAL ACCOUNTING

Module I

Introduction to Accounting

Introduction to Accounting• Meaning

• Nature

• Functions

• Branches

• Accounting Equation

• Accounting Concepts

• GAAP

• Difference between GAAP & US GAAP

What is Accounting?

Accounting is defined as:

The art of recording, classifying & summarizing 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.

• Accounting is often called the “language of business”– People who perform accounting procedures speak the

language of debits and credits.

• The process of accounting provides useful information that describe specific things about a company’s financial position.

Three Activities

What is Accounting?What is Accounting?

The accounting process includes the bookkeeping function.

DIFFERENCE BETWEEN ACCOUNTANY AND

BOOKKEEPING.

• Book keeping is merely recording the business transactions in books and ledgers. It is part of Accounting. It is often routine and clerical in nature

• Accounting is a wider concept: Compilation of accounts in such a way that one is in a position to understand state of affairs of business

• ACCOUNTING BEGINS WHERE BOOK-KEEPING ENDS

Accounting and Book-Keeping

Financial Accounting

• Financial accounting - focuses on the specific needs of decision makers external to the organization, such as stockholders, suppliers, banks, and government agencies

Users of Financial Information

InvestorsCommunity

Board of DirectorsManagement

EmployeesSuppliers

Creditors

Customers

Government

Internal UsersExternal Users

BRANCHES OF ACCOUNTING

• Financial Accounting

• Management Accounting

• Cost Accounting

• Social responsibility Accounting

• Human Resource Accounting

BRANCHES OF ACCOUNTING• Financial Accounting: It includes Book keeping and the

preparation of Financial Statements.

• Management Accounting: It is a system to assemble and furnish the useful material and summarized accounting information to the management.

• Cost Accounting: It deals with the cost of production and its various constituents.

• Social responsibility Accounting: It is the study of social effects in addition with the economic effects.

• Human Resource Accounting: is the process of identifying and measuring data about human resource and communicating this information to interested parties.

Objectives of Accounting• To maintain systematic records• To ascertain the operational profit or loss• To ascertain financial position• To satisfy requirements of law, Govt.& other

interested parties• To facilitate rational & futuristic decision making• To Provide remedial measures devices for the

deviations of the actual from the budgeted performance

Functions Of Accounting• Performance measurement

• Forecasting

• Government Regulation and Taxation

• Evaluation and Control

• Decision Making

• Fixing Responsibility

Significance of Accounting

IdentifiesIdentifies

RecordsRecords

CommunicatesCommunicatesRelevantRelevant

ReliableReliable

ComparableComparable

AccountingAccounting is a

system that

information

that is

to help users make better decisions.

to help users make better decisions.

LIMITATIONS OF ACCOUNTING

• Danger of window dressing

• Ignorance about the present value of business

• Influenced by personal judgments

• Ignores important non-monetary information

• Does not provide timely information