This presentation provides basic introduction to subject of accounting

1. Accounting Theory &
Practices
Accounting Principles, System
Accounting Elements, Concepts
Accounting Doctrines & Basis
FRS – Key Users, Purposes

2. Accounting Theory & Practices
●Accounting principles, systems
● An ancient art, certainly as old as money
● Accounting is an art of recording, classifying
and summarizing in a significant manner and
in terms of money, transactions and events that
are, in part at least, of a financial character and
interpreting the results thereof
● Process of identifying, measuring and
communicating information to permit
judgment

3. Accounting Theory & Practices
●Accounting elements
● Assets – a resource – future benefits flow
● Liability – obligation arising from past events
● Fund – an accounting entity
● Income – increase in economic benefits during
the accounting year
● Expenditure – decreases of benefits

4. Accounting Theory & Practices
●Accounting concepts
● Separate entity concept – independent from owner
● Going concern concept – no intention or necessity to
sell business in foreseeable future
● Assets are not taken at forced sale value of assets
● Depreciation is charged on expected life basis
● charge the cost of fixed assets over their useful lives against
income
● repay over an appropriate period other costs which have been
deferred under the accrual or matching concept
● pay liabilities when they become due, and
● meet contractual commitments

5. Accounting Theory & Practices
● Money measurement concept
● Cost concept
● asset to be recorded at its purchase cost and to be reduced in
its value by charging depreciation.
● Dual aspect concept – accounting equation
● Accounting period concept
● business is considered indefinite but to be analysed in
appropriate time segment
● Periodic matching of costs and revenues
● Realization concept – revenue is recognised when sale
is made

6. Accounting Theory & Practices
●Doctrines :
● Consistency
● Vertical, horizontal, third dimensional
● Disclosure- all material facts
● Conservatism – understatement of income and
assets while overstatement of expenditure and
liability
● Materiality – significant matters to have
detailed accounting than insignificant matters

7. Accounting Theory & Practices
●Basis of accounting
● Cash – basis of accounting - flow of
current financial resources
● When cash is received or paid
● Modified accrual basis of accounting -
flow of total financial resources
● revenues are recorded in the period in which they
are measurable and available.

8. Accounting Theory & Practices
●Accrual basis of accounting - flow of
economic resources
● revenue is recognized as it is earned
● costs are matched either against revenues so
recognized or against the relevant time period to
determine periodic income
● costs that are not charged to income are carried
forward and are kept under continuous review, and
● any cost that appears to have lost its utility or power to
generate future revenue is written-off as a loss.

9. Accounting Theory & Practices
●Accounting systems
● Single entry accounting system-
● A system of bookkeeping which as a rule records
of cash and personal accounts are maintained
● Double entry accounting system-
● Based on a principle that each transaction has dual
aspects and both aspects should be recorded
● Self-balancing, systematic, transparent
● Overcomes shortcomings of single entry system

10. Accounting Theory & Practices
●Accounting equation approach
● At any point of time resource = claims
● Equities = Assets
● E (capital + liabilities) = A(cash+bank+assets)
● Assets = L + ( C + (R-E))
● Capital = assets – liabilities

11. Accounting Theory & Practices
●Basic Accounting Rules
● Debit the receiver and credit the giver
● Debit what comes in and credit what goes out
● Debit all expenses (losses) and credit all
incomes (gains)
● Assets – increase is debit, decrease is credit
● Liabilities–increase is credit, decrease is debit
● Expense – increase is debit, decrease is credit
● Income – increase is credit, decrease is debit

12. Accounting Theory & Practices
●A debit denotes in case of -
● A Person – has received benefits from firm
against which he has rendered service or will
have to render something in future
● The goods or properties – the stock or assets
and value of which has increased
● The other accounts – incurrence of expense or
loss of money by the firm.

13. Accounting Theory & Practices
●A credit denotes in case of –
● A person – has provided something to firms
and has become entitle for return benefit
● The goods and properties – the stock and value
of such goods and properties has diminished
● The other accounts – the firm has gained or
received income.

14. Accounting Theory & Practices
Owners / Municipal
Body’s Investment or
creation of assets
Current
period
revenue
Withdrawals by
Owners / Municipal
Body Sale of Assets
Current
period
expenses
Inflows Out-flows

15. Accounting Theory & Practices
●Primary accounting documents
● Receipts
● Payment vouchers
● Fund Transfer Vouchers
● Journal Vouchers
●Primary Books of Accounts
● Cash Book
● Bank Book
● Journal Book
●Ledgers
●Trial Balance
●Financial Statements

16. Accounting Cycle
Transaction
Journal Entry
General Ledger
Trial Balance
Financial
Statements

17. Accounting Cycle
Identify the
Transaction
Analyse the
Transaction
Post to Ledger
Prepare a Trial
Balance
Prepare adjusted
Entries
Journal Entry
Repeat Steps till accounting cycle
is completed
Prepare adjusted
Trial Balance
Prepare Financial
Statements
Prepare a Closing
Entries
Prepare after
closing Trial
Balance

18. Accounting Theory & Practices
●Branches of Accounting
● Financial Accounting – developed originally,
financial state of affairs, results of operations
● Cost Accounting – FA suffers from lack of
cost information for deci. making, estimating
costs in advance & detailed analysis
● Management Accounting – Newly developing,
developed to enable management for
forecasting, budgeting, cost control, revenue
decisions both strategic and routine.

19. Accounting Standards/ Authorities
● International
● International Accounts Standards (IAS)
● United States
● Financial Accounting Standards Board
(FASB)
● Governmental Accounting Standards Board
(GASB)
● Europe
● European Directive
● Support for Improvement in Governance and
Management Central and Eastern Europe
Countries (SIGMA)

20. Accounting Theory -
Introduction
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