Meaning Of Accounting. Accounting as a source of information. Role of an accountant. Characteristics of an accounting information. Objectives of accounting Basic terms in accounting

1. FINANCIAL ACCOUNTING -I
INTRODUCTION TO
ACCOUNTING

2. What is accounting?
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Accounting is the process
of identifying, measuring, recording, communicating the required
information relating to the economic event of an organization to
the interested users of such information.

3. Accounting meaning in brief
In the above definition , there are some keyword we need to discuss.
They are as follows :
Economic event : economic event is nothing but happening of
consequences to a business organization i.e., outcome result or effect
of an organization by an event, which consist of business transactions
are measured in terms of money. For Ex : Purchase of machinery is a
business transaction and installing , keeping machinery ready for
manufacturing is an event.
Identification : It is determining what financial transaction to record
related to organization.

4. Measurement : It is quantification of business transaction is measured in terms of
money.
Record : After the process of identification and measurement economic events are
recorded in books of account in monetary terms and chronological order.
Communication : The recorded events are called as information is communicated
in a certain form to management and other internal & external users.
Organization : It is refers to a business enterprise whether for profit or non profit.
It can be company, firm, corporation, etc.,.
Interested users of information : Many users need financial information in order to
make decisions, they are internal user [ manager, vice president, officer, chief
executive ] & external user [ share holder, SEBI, creditor, tax auditor, customer,
labor union, trade association ]

5. ACCOUNTING AS A SOURCE OF
INFORMATION
•
Accounting is the process, it starts from identification and end with
the preparation of financial statements. In every step it generates and
disclose the information among different user groups to take
appropriate decisions. Therefore accounting is called as source of
information to the organisation.

6. Merits of accounting as a source of
information
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It helpful for making economic decisions.
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It is useful for predicting and evaluating the amount,timing &
uncertainty of potential cash-flows.
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It is helpful for judging management's ability to utilize resources
effectively in meeting goals.

7. ROLE OF AN ACCOUNTANT
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The role of an accountant in generating accounting information is to
observe, screen and recognize the transaction to measure , process
and report the information to management and users of the
organization for decision making.
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In order to bring discipline in the information, accountant mainly
divided accounting information into three kinds.
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They are : Financial , Cost and Management accounting.

8. •
Financial Accounting : Financial accounting helps to keep the
systematic record of financial transaction and present the financial
report to the organization.
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Cost Accounting : Cost accounting helps to analyze the expenditure
discover the cost of various products manufactured or services by the
firm and fixation of prices .
•
Management Accounting : Management accounting deals with the
provision of necessary accounting information to people within the
organization.

9. CHARACTERISTICS OF AN
ACCOUNTING INFORMATION
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The reliability of accounting information is determined by the
similarity between what the information conveys about the
transaction that have occurred, measured and displayed. It should be
free from errors, bias and faithfully represents what it is meant to
represent.
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Under stability means decision makers of the organization must
clarify accounting information in the same sense as it is prepared and
conveyed to them.
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Comparability is very important that financial reports are able to
compare various aspect of an entity over different time period and
with other entities. Therefore Accounting reports must belong to a
common period , use common unit of measurement and common

10. OBJECTIVES OF ACCOUNTING
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Maintenance of records of business transaction: Accounting is used
to maintain systematic records of business transactions such as
Purchase, Sale, Receipt, Payments, etc.
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Calculation of profit and loss: The owner of the business have the
idea about the net result of their business operation i.e., whether
business has earned profit or loss. Profit represents excess of income
over expenses and loss represents excess of expense over income.
•
Depiction or Representation of financial position: Accounting also
aims at ascertain the financial position of the business concern i.e.
Balance sheet position statement at the end of accounting period.
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Providing accounting information to its users: Accounting

11. Example for calculation of profit and loss

12. BASIC TERMS IN ACCOUNTING
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Entity : Business entity means specifically identifiable business
enterprises.
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Transaction : A event involving some value between two or more
entities
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Asset : Assets are economic resources of an enterprise that can be
usefully expressed in monetary terms.
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Liability : Liabilities are debts that an enterprise has to pay at some
time in the future.
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Capital : Amount invested by the owner in the firm is known as
capital.
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Sales : Sales are total income from goods or services.

13. ● Revenue : Revenues are the amount earned by business by selling goods or
services to the customer.
● Expenses : Cost incurred by the business in the process of earning revenue.
● Expenditure : Spending money for some benefit i.e,. service or property received.
● Profit : Excess of revenue over expense.
● Debtors : Debtors are persons/entities who owe to an enterprise an amount for
buying goods and services on credit.
● Creditors : Creditors are persons/entities who have to pay by an enterprise an
amount for providing enterprise goods/services on credit.

14. •
Loss : Excess of expense over revenue.
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Gain : Profit occurred are incidental to business.
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Discount : Discount is the deduction in the price of goods sold.
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Voucher : Documentary evidence in support of a transaction.
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Goods : It refers to the product in which business unit is dealing.
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Drawings : Withdrawal of money / goods by the owner from the
business for personal use.
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Purchases : Purchases are total amount of goods produced by a
business on credit / cash for use / sale.
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Stock : Stock is a measure of something on hand goods , spares or
other items in a business.
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