PPT for BBA > Accounting Chapter 1

1. Learning Objective
➢ Need of Account
➢Definition
➢Characteristics
➢Objective
➢Nature & scope.
➢D/F B/W Book keeping, Accounting and Accountancy
➢Types
➢Source of information
➢Users in Accounting
➢Parties interested in accounting
➢Advantage
➢Limitations
➢Qualitative Characteristics of Accounting information
➢Role of accounting

2. At the end of the year , all the business man wants to know how
much they have gained and lost during this year ; how much
they have invested in the business at the end of the year ; how
much they have to pay and to whom they own it
In order to atttain such information , it is essential to keep a
complete and systematic record of each and every business
transaction entered into during the year .

3. “ Accounting is an ART of recording , classification And summarising in
A significant manner and in terms of money , transaction and events
which are , a part at least , of financial character , and interpreting the
result there of “
--American institution of certified accountants

4. There r 4 characteristics of accounting
1. ART as well AS Science -
ARTS - it is an art of recording , classifying And
Summarising business transcations with a view to ascertain the net profit and
financial positon of the business enterprise
Science - bcz it is based on some priciples &
accounting standard
2. Recording of financial transaction only –
only those transaction are recorded
which are of a financial character.

5. 3. Recording in terms of money --
each transaction is recorded in
the book in terms money only .
4. Function of Accounting -- Identifying , Recording , summarising ,
interpretation of results , communicatons
Identifying – identify all the transaction of financial charater in terms of
money
Recornding – in it we record the all trsansaction in terms of money in a book
called “journal” And “Subsidary books” which have different records of
different transaction of a big company .
Classifying --- the process of grouping the transaction of one nature at one
place in a separate account .the book where various accounts are opend called
“ledger”
Summarising --- art of presenting of the classified data in a manner which is
understandable
Interpretation of the result --- presented in such manner that the third parties
like bank employees and other companies get proper information .
Comunication ----Accounting Fuctions also included the communication of
financial data the user who analyse them as per their individual requirement

6. 1. To keep a systematic record of business transaction ----
the main
objective of the business is to keep complete record of the
transaction according to Specified rules
2. To Calculate Profit and Loss ---
the 2nd main objectives of the
accounting to maintain the profit & loss account of business
transaction during a particular period of time
3. To Know the exact reasons leading to net profit or net loss --- /.
4. To Ascertain the financial position of the business----
to know the financial position of the firm by making a
balance sheet and by calculating the market value of
the asset and the capital that the firm have In their
bank account etc.

7. 5. To know the progress of the business from year to year.---/.
6. To prevent the error and the frauds ----/.
7. To provide the information to the third parties--. Another
main objective of the business is to communicate the accounting
information to various interested parties like owner , employees

8. •Economic events --- records only economic events . An economic event in
a transaction which can be measured in terms of money
•Identification
•Measurement – It Means quantification of business transaction into
financial terms by using monetary units.
•Recording
•Classification
•Summarising
•Communication
•Interpretation of result

9. BOOK-KEEPING ACCOUNTING
 Defination
 Primary stage
 To maintain systematic
records
 Routine
 Junior staff
 Limited level of
knowledge
 No analytical skill
required
 Defination
 Secondary stage
 To ascertain the net
results
 Analytical
 Senior staff
 High level of
knowledge
 Analytical skill required

10. ACCOUNTING ACCOUNTANCY
 Recording , classifying ,
summerising
 Narrow in scope
 Depends on book keeping
 Function is to ascertain the net
result and the financial position
of the business and to
communicate them to intrested
parties
 Certain rule or principle
observed while Recording ,
classifying , summerising
 Wider in scope
 Depends on both Book Keeping and
accounting
 Decision making process on the
basis of information provided by
book keeping and accounting

11. 1. Financial accounting – this branch of accounting provides information
required by the management and various other interesed parties
2. Cost accounting – main purpose of costing accounting is to ascertain the
total cost and per unit cost of goods produced and services rendered by a
business .it also estimates the cost in advance and helps the management in
exercising strict control over cost
3. Management accounting – the main purpose is to ascertain the account
information in such a way as to assist the management in plannung and
controlling the operating of a business
4. Tax accounting – the branch of accounting which is used for tax purpose is
called tax accounting . Income tax & sale tax are compared on the basis of
this accounting
5. Social responsibility– the society provides the infrastructure and the
facilities without which business can not operate at all
. Hence business also has a responsibility to the society

12. Accounting as an information system is a process of identification ,
measuring ,recording , classifying , summarinsing and
communication the information about business to intrested users of
such information .

13. 1. Internal User --
They are those are directly involve in the manage &
operating the business enterpries such as Director partner and the officers
It includes the unpublished and internal data of the firm which is related to the
production , cost of product , speed of incresing in cost of the production , profibility
on each product , reasons of increase or decrease in sales , estimate of future profit on
sales ,
Internal users have direct access to these confidencial (unpublished) reports which
contain valuable information not available to external users .
2. External users -
Individuals or organisations who have present or future
interest in the business enterprise but are not the part of the management are
called External users
Like – Owner, ivesters , employees , lenders, government.
They have no access to the internal information

14. 1. Owner – who wants to know the profits and the financial condition of the
firm.
2. Investors – Accounting provides them the information . On the basis of this
information they decide whether to become a partner in a firm or whether to
buy , sell or hold the shares of the company.
3. Crediters – the are those who provide supply goods or service or credits .
Before granting the credit, creditors want to be satisfied about the credit
worthness of the business
4. Lender-- banks and other firms provide loans to the business , but before
providing a loan the check the paying capacity of the firm and then judge .
And accounting provide all the information to them.
5. Employee – they must have a right to know the profit or losses of the firm
6. Govt. --- to find the errors and fruds in income tax, sale tax , etc. Govt. wants
the accounting detail of the firm in a fair and good manner
7. Public --- public might be intrestied in the trends of employeement
opportunities provided by the firm or business

15. 1. Helpful in management of business :-
▪ (a) Helpful in planning – the sale are increasing & decreasing and also
the speed of production .all information provided by accounting , which
helps the management to in estimate the future profit and expences.
▪ (b) Helpful in decision Making– At time management has to take many
decision and accounting help them a lot.
▪ (c) Helpful in Controlling – it helps in controlling the deparments , that
non of the department is spending in vain or wasting or over spending the
money
2. Provides complete and systematic Records – In a Big firm or
company , it is not easy or possible to remember . Accounting help the
management to get the information about every transaction and making a
clear or true picture of the business
3. Information regarding profit & loss – Accounting reports the
net results of the business activites of an accounting period . It helps to get
the full information about the profit or loss of the business in a period of
time

16. 4. Information regarding the financial position :- Accounting reports
the financial position of business by preparing the balance sheet at the end of
each accounting period
5. Comparative study :- by keeping a systematic record accounting helps
the owner to compare one year’s cost to the other year’s cost . Which helps In
making decision
6. Tax liability :- properly maintained records will be great help when the
firm is assessted to income tax & sale tax
7. Evidence in legale matter :- properly maintained documents , supported by
authenticated documents are accepted by the court as evidence
8. Help in raising loan :- acccounting information is of great help while
raising loans from bank & other fianacial insititute
9 . Helps in founding error & frauds :- /.

17. 1. Influenced by personal Judgements :- Accounting is as yet an exact
science & accountant has to exercise his personal judgement I respect of various
items .
2. Based on Accounting Concepts and conversations :- Accounts are
prepare on the basis of a number concept and conventions . Hence , the
profitability and the financial position disclosed by it may not be realstic.
3. Incomplete information:- Accounting statements provides only the
incomplete information because the actual profit or loss of the business can be
know when the business is closed down.
4. Based on historical cost :- accounts are prepared on the basis of
historical cost and as such the figure given in financial statement do not show the
effect of changes in price level . The assets remain undervalued in many cases
particularly land and building . That was why it is not helpful in estimating the
true financial picture of the business
5. Unsuitable For Forecasting :- it is record of past years , continous
changes takes place in the demand of the product , policies adopted by the firm
,etc.

19. Reliability :--of accounting information is one of its most important qualitative
characteristic. To ensure the reliability in the accounting information, the
information should be credible. It should be verifiable by independent and neutral
parties, from various source documents and vouchers such as invoices, memos,
contracts and all supporting documents on the basis of which it has been generated
2. Relevance:- Information which can influence the decisions of the users is said
to be relevant. The accounting information should contain only that information
which is relevant for the intended users. It should not be crowded with unnecessary
and irrelevant data. It must facilitate the users in decision making process. Different
users have different needs
3 .Comparability:- Comparability of accounting information is also a very
important characteristic because without it, deviations cannot be ascertained and
without knowing the deviations, corrective measure cannot be taken. Accounting
information can be useful only when the data of one period can be compared with
that of another period of the same enterprise (i.e.; intra firm comparison) or when
data of two similar businesses can be compared for the same period (i.e.; inter-firm
comparison).

20. 4. Understandability:-
It has already been said that accounting is the language of business
because it communicates each and every thing about the business
activities, viz. profitability, solvency and its future prospects. Language is
a means for communicating with each other. To make any language more
effective and powerful, so that it can be recognized by all users, it should
be interpreted by the persons in the same sense that it means to convey.

21. 1. Role of a language :-
it is viewed as a language of business it prepares
reports and statement which communicate information regarding the
business
2. Role of historical Records :-
it is viewed as chronological record of all
financial transaction in the book of accounts according to specified rules
3. Role of determination of net profit :- to detemine the true
profit & loss of the business
4. Role of information system :- it provides the information which is
required by the other parties for decision making
5. Role of service provider :- it provides quantitative finanacial
information which is helpful to the users in different way