Intro

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Intro

  1. 1. 1 Introduction to Accounting
  2. 2. Contents of the Lecture <ul><li>What is Accounting? </li></ul><ul><li>Functions of Accounting </li></ul><ul><li>Branches of Accounting </li></ul><ul><li>Accounting Cycle </li></ul><ul><li>Users of Accounting Information </li></ul><ul><li>Objectives of Accounting </li></ul><ul><li>Advantages of Accounting </li></ul><ul><li>Limitations of Accounting </li></ul>
  3. 3. What is Accounting ? <ul><li>Accounting may be defined as the process of recording, classifying, summarizing and interpreting the financial transactions and communicating the results thereof to the persons interested in such information. </li></ul><ul><li>Accounting as an information system is the process of identifying, measuring and communicating the economic information of an organization to its users who need the information. </li></ul>
  4. 4. Functions of Accounting <ul><li>Identifying </li></ul><ul><li>Measuring </li></ul><ul><li>Recording </li></ul><ul><li>Classifying </li></ul><ul><li>Summarising </li></ul><ul><li>Analysing </li></ul><ul><li>Interpretation </li></ul><ul><li>Communication </li></ul>
  5. 5. ACCOUNTANCY, ACCOUNTING AND BOOK-KEEPING <ul><li>ACCOUNTANCY: systematic knowledge of accounting. It explains ‘why to do’ and ‘how to do’ of various aspects of accounting. </li></ul><ul><li>ACCOUNTING: actual process of preparing and presenting the accounts. It is the art of putting the academic knowledge of accountancy into practice. </li></ul><ul><li>BOOK-KEEPING: recording of daily business transactions in a systematic manner. </li></ul>
  6. 6. BRANCHES OF ACCOUNTING <ul><li>Financial Accounting </li></ul><ul><li>Cost Accounting </li></ul><ul><li>Management Accounting </li></ul>
  7. 7. ACCOUNTING CYCLE <ul><li>Sequential steps involved in an Accounting Cycle: </li></ul><ul><li>Journalising </li></ul><ul><li>Posting </li></ul><ul><li>Balancing </li></ul><ul><li>Trial Balance </li></ul><ul><li>Income Statement </li></ul><ul><li>Position Statement </li></ul>
  8. 8. USERS OF ACCOUNTING INFORMATION <ul><li>Short-term Creditors </li></ul><ul><li>Long-term Creditors </li></ul><ul><li>Present Investors </li></ul><ul><li>Potential Investors </li></ul><ul><li>Management </li></ul><ul><li>Employees </li></ul><ul><li>Tax Authorities </li></ul><ul><li>Customers </li></ul><ul><li>Government and their agencies </li></ul><ul><li>Public </li></ul>
  9. 9. OBJECTIVES OF ACCOUNTING <ul><li>To maintain records of business. </li></ul><ul><li>To calculate the results of operations. </li></ul><ul><li>To ascertain the financial position. </li></ul><ul><li>To communicate the information to the users. </li></ul><ul><li>To file tax return </li></ul><ul><li>To portray the liquidity position </li></ul>
  10. 10. ADVANTAGES OF ACCOUNTING <ul><li>Facilitates to replace memory </li></ul><ul><li>Facilitates to comply with legal requirements </li></ul><ul><li>Facilitates to ascertain net result of operations </li></ul><ul><li>Facilitates to ascertain financial position </li></ul><ul><li>Facilitates the users to take decisions </li></ul><ul><li>Facilitates a comparative study </li></ul>
  11. 11. Advantages contd…… <ul><li>Assists the management </li></ul><ul><li>Facilitates control over assets </li></ul><ul><li>Facilitates the settlement of tax liability </li></ul><ul><li>Facilitates the ascertainment of value of business </li></ul><ul><li>Facilitates raising loans </li></ul><ul><li>Acts as legal evidence </li></ul>
  12. 12. LIMITATIONS OF ACCOUNTING <ul><li>Ignores the qualitative elements </li></ul><ul><li>Not free from bias </li></ul><ul><li>Estimated position and not real position </li></ul><ul><li>Ignores the price-level changes </li></ul><ul><li>Danger of window dressing </li></ul>
  13. 13. End of Chapter 1

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