MEANING AND SCOPE OF ACCOUNTING1. Understanding – Meaning and Significance2. Book-keeping and Distinction of accounting with book-keeping3. Evolutionary process of accounting as a social science4. Sub-fields of accounting5. Identification of user groups6. Functions or purposes of accounting data
MEANING AND SCOPE OF ACCOUNTING7. Relationship of accounting with Economics, Statistics, Mathematics, Law and Management.8. Limitations of accounting9. Appreciate – accounting profession - ‘Chartered Accountants’ role of rendering services to the society.
DEFINITIONS• The Committee on Terminology set up by the “American Institute of Certified Public Accountants” formulated the following definition of accounting in 1961: 1. “Accounting is the art of recording, classifying and summarising 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”.
DEFINITIONS 2. “The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of accounts”.• In 1970, the Accounting Principles Board (APB) of American Institute of Certified Public Accountants (AICPA) enumerated the functions of accounting as follows: 3. “The function of accounting is to provide quantitative information, primarily of financial nature, about economic entities, that is needed to be useful in making economic decisions”.
DEFINITIONS - SUMMARY• Thus, accounting may be defined as the process of recording, classifying, summarising, analysing and interpreting the financial transactions and communicating the results thereof to the persons interested in such information.
PROCEDURAL ASPECTS1. On the basis of the above definitions, procedures of accounting can be basically divided into two parts: – Generating financial information – Using the financial information Procedure of Accounting Generating Financial Using the Financial Information InformationRecording Classifying Summarising Analysing Interpreting Communicating
EVOLUTION OF ACCOUNTING AS A SOCIAL SCIENCE1. In its oldest form accounting aided to discharge their stewardship function. The wealthy men employed stewards to manage their property2. In the second phase, the idea of financial accounting emerged with the concept of joint stock company and divorce of ownership from the management3. Lastly, Social Responsibility Accounting is in the formative process, which aims at accounting for the social cost incurred by business as well as the social benefit, created by it.4. So, accounting is treated as a SOCIAL SCIENCE.
OBJECTIVES OF ACCOUNTING1. Systematic recording of transactions2. Ascertainment of results of above recorded transactions3. Ascertainment of the financial position of the business4. Providing information to the users of rational decision – making5. To know the Solvency position.
FUNCTIONS OF ACCOUNTING1. Measurement2. Forecasting3. Decision – making4. Comparison and Evaluation5. Control6. Government Regulation and Taxation.
BOOK - KEEPING• Book – keeping is an activity concerned with the recording of financial data relating to business operation in a significant manner.• OBJECTIVES OF BOOK – KEEPING: i. Complete Recording of Transactions ii. Ascertainment of Financial Effect on the Business.
DISTINCTION BETWEEN BOOK – KEEPING AND ACCOUNTINGBOOK – KEEPING ACCOUNTING1. It is a process concerned with 1. It is a process concerned with recording of transactions summarising of the recorded2. It constitutes as a base for transactions accounting 2. It is considered as a language3. Financial statements do not of the business form part of this process 3. Financial statements are4. Managerial decisions cannot prepared in this process on be taken with the help of the basis of book-keeping these records records5. There is no sub-field of book- 4. Management takes decisions keeping on the basis of these records6. Financial position of the 5. It has several sub – fields business cannot be 6. Financial position is ascertained through book- ascertained on the basis of keeping records. the accounting reports.
SUB-FIELDS OF ACCOUNTING1. Financial Accounting2. Management Accounting3. Cost Accounting4. Social Responsibility Accounting5. Human Resource Accounting
USERS OF ACCOUNTING INFORMATION1. Investors2. Employees3. Lenders4. Suppliers and Creditors5. Customers6. Government and their agencies7. Public8. Management as whole is also interested in the accounts for various managerial decisions
RELATIONSHIP OF ACCOUNTING WITH OTHER DISCIPLINES1. Accounting and Economics2. Accounting and Statistics3. Accounting and Mathematics4. Accounting and Law5. Accounting and Management
LIMITATIONS1. The factors which may be relevant in assessing the worth of the enterprise don’t find place in the accounts as they cannot be measured in terms of money.2. Balance sheet shows the position of the business on the day of its preparation and not on the future date.3. Accounting ignores changes in some money factors like inflation
LIMITATIONS4. Certain accounting estimates depend on the sheer personal judgment of the accountant.5. Financial Statements only consider those assets which can be expressed in monetary terms.6. Different accounting policies for the treatment of same item adds to the probability of manipulation.7. In nutshell, language of accounting has certain limitations and the financial statements should be interpreted carefully keeping in mind all various factors influencing the true picture.
AREAS OF SERVICE1. Maintenance of Books of Accounts2. Statutory Audit3. Internal Audit4. Taxation5. Management Accounting and Consultancy Services6. Financial advice7. Other Services – Secretarial work, Share Registration work, Company formation, Receiverships, Liquidations, Arbitrations, etc.
FUNDAMENTAL ACCOUNTING ASSUMPTIONS1. Going concern2. Consistency3. Accrual
QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS1. Understandability2. Relevance3. Reliability4. Comparability5. Materiality6. Faithful Representation7. Substance Over Form8. Neutrality9. Prudence10.Full, fair and adequate disclosure11.Completeness.
ACCOUNTING POLCIES1. Meaning of Accounting Polices.2. Familiarise with the situations under which selection from different accounting policies is required.3. Grasp the conditions where change in accounting policies is required.
MEANING1. Accounting policies refer to specific accounting principles and methods of applying these principles adopted by the enterprise in the preparation and presentation of financial statements.2. Frequently encountered Accounting policies: – Methods of depreciation, depletion and amortisation – Valuation of inventories – Treatment of goodwill – Valuation of inventories – Valuation of fixed assets.1. This is not exhaustive but is only illustrative.
SELECTION OF ACCOUNTING POLICES• Choice of Accounting Policy is an important policy decision which affects the performance measurement as well as financial position of the business entity. Selection of Accounting Policies Based on Prudence Substance over form Materiality
CHANGE IN ACCOUNTING POLICES1. It is required by some statute or for compliance with an Accounting Standard2. Change would result in more appropriate presentation of financial statement.
ACCOUNTING AS A MEASUREMENT DISCIPLINE-VALUATION PRINCIPLES, ACCOUNTING ESTIMATES1. Meaning of measurement and its basic elements2. Accounting is a measurement discipline if considered from the standpoint of the basic elements of measurement.3. Distinguish measurement with valuation
ACCOUNTING AS A MEASUREMENT DISCIPLINE-VALUATION PRINCIPLES, ACCOUNTING ESTIMATES4. Different measurement bases namely historical cost, realisable value and present valuation5. Measurement bases which can give objective valuation to transactons and events6. Traditional accounting system mostly uses historical cost as measurement base although in some cases other measurement bases are also used.
MEANING OF MEASUREMENT1. Measurement is vital aspect of accounting. Primarily transactions and events are measured in terms of money.2. The three elements of measurements are: – Identification of objects, and events to be measured; – Selection of standard or scale to be used; – Evaluation of dimension of measurement standard or scale.
VALUATION PRINCIPLES VALUATION PRINCIPLESHistorical Current Realisable Present cost cost value value
ACCOUNTING ESTIMATES• An estimate may require revision if changes occur regarding circumstances on which the estimate was based, or as a result of new information, more experience or subsequent developments.• Change in accounting estimate means difference arises between certain parameters estimated earlier and re-estimated during the current period or actual result achieved during the current period.