Financial accounting

1. Why Financial Accounting
• What is Business ?
• What's Objective of business ?
• Recording of business Transactions for
earning profits and to maximize the wealth
for the owners and satisfied stake holder.
• Best utilization of natural recourses.
• Better financial picture.
• Uniform in recording of transaction.

2. Fundamentals of Financial Accounting
• . Accounting Process
• (a) Theoretical Framework ( meaning, scope and usefulness of
Accounting; Generally Accepted
• Accounting Principles, Concepts and Conventions)
• (b) Capital and Revenue transactions- capital and revenue
expenditures, capital and revenue receipts
• (c) Measurement, Valuation and Accounting estimates
• (d) Double entry system, Books of prime entry, Subsidiary Books
• (e) Recording of Cash and Bank transactions
• (f) Preparation of Ledger Accounts
• (g) Preparation of Trial Balance- interpretation and usefulness
• (h) Rectification of Errors
• (i) Opening entries, Transfer entries, Adjustment entries, Closing
entries

3. Definition of Accounting
• Definition by the American Institute of Certified Public
Accountants (Year 1961):
• “Accounting is the art of recording, classifying and
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 result thereof”.
• Definition by the American Accounting Association (Year
1966):
• “The process of identifying, measuring and communicating
economic information to permit informed judgments and
decisions by the users of accounting”.

4. Procedural Aspects of Accounting
(i) Generating financial information and
(ii) Using the financial information.

5. • 1. Recording – This is the basic function of accounting. All business
transactions of a financial character, as evidenced by some documents such
as sales bill, pass book, salary slip etc. are recorded in the books of
account.
• 2. Classifying – Classification is concerned with the systematic analysis of
the recorded data, with a view to group transactions or entries of one
nature at one place so as to put information in compact and usable form.
The book containing classified information is called “Ledger”.
• Summarising – It is concerned with the preparation and presentation of
the classified data in a manner useful to the internal as well as the
external users of financial statements.
• This process leads to the preparation of the following financial statements:
• (a) Trial Balance (b) Profit and Loss Account (c) Balance Sheet (d) Cash-
flow Statement.
• 4. Analysing – The term ‘Analysis’ means methodical classification of the
data given in the financial statements.
• 5. Interpreting – This is the final function of accounting. It is concerned
with explaining the meaning and significance of the relationship as
established by the analysis of accounting data.
• 6. Communicating – It is concerned with the transmission of summarised,
analysed and interpreted information to the end-users to enable them to
make rational decisions.

6. Qualitative Characteristics of
Accounting Information

7. Objectives of accounting

8. Objectives of Accounting
• (i) Providing Information to the Users for Rational Decision-making
• The primary objective of accounting is to provide useful information for decision-
making to stakeholders such as owners, management, creditors, investors, etc.
• (ii) Systematic Recording of Transactions
• keep a systematic record of all financial transactions of a business enterprise which
is ensured by bookkeeping.
• (iii) Ascertainment of Results of above Transactions
• ‘Profit/loss’ is a core accounting measurement. It is measured by preparing profit and
loss account for a particular period.
• (iv) Ascertain the Financial Position of Business
• Financial position is identified by preparing a statement of ownership i.e., Assets and
Owings i.e., liabilities of the business as on a certain date. This statement is popularly
known as balance sheet. Various other accounting
• (v) To Know the Solvency Position
• Balance sheet and profit and loss account prepared as above give useful information
to stockholders regarding concerns potential to meet its obligations in the short run
as well as in the long run.

9. Function of Accounting
• The main functions of accounting are as follows:
• (a) Measurement: Accounting measures past
performance of the business entity and depicts
its-current financial position.
• (b) Forecasting: Accounting helps in forecasting
future performance and financial position of
the-enterprise using past data.
• (c) Decision-making: Accounting provides
relevant information to the users of accounts
to aid rational decision-making.

10. Function of Accounting
• (d) Comparison & Evaluation: Accounting assesses
performance achieved in relation to targets
• and discloses information regarding accounting policies and
contingent liabilities which play an important role in
predicting, comparing and evaluating the financial results.
• (e) Control: Accounting also identifies weaknesses of the
operational system and provides feedbacks
• regarding effectiveness of measures adopted to check such
weaknesses.
• (f) Government Regulation and Taxation: Accounting
provides necessary information to the government to
exercise control on die entity as well as in collection of tax
revenues.

11. Accounting – Classification

12. Difference between Management Accounting
and Financial Accounting