This document provides an overview of accounting. It discusses the evolution of accounting in India dating back to 23 centuries ago. It defines accounting as the process of identifying, measuring, and communicating economic information. The objectives of accounting are to keep systematic financial records, ascertain profit/loss and financial position, and provide information to stakeholders. Accounting serves important functions like measurement, forecasting, comparison, and decision making. It is important for enterprises as it provides systematic records, financial statements, aids decision making, and satisfies legal requirements. The document outlines the accounting cycle and various branches, bases, users, and the role of accountants.
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Financial Accounting chapter 1
1. ACCOUNTING
by
PG & Research Department of Commerce
Mannar Thirumalai Naicker College(Autonomous)
Pasumalai, Madurai- 625 004.
2. Contents
1.1 Introduction to Accounting
1.2 Evolution of Accounting
1.3 Meaning and Definition of Accounting
1.4 Accounting cycle
1.5 Objectives of Accounting
1.6 Functions of Accounting
1.7 Importance of Accounting
1.8 Basic Accounting terminologies
1.9 Branches of Accounting
1.10 Bases of Accounting
1.11 Users of Accounting information
1.12 Role of an accountant
3. Learning Objectives
To enable the students to
ο Understand the meaning and functions of accounting
ο Analyse the importance of accounting
ο Understand the basic accounting terminologies
ο Analyse the role of an accountant
5. 1.2 Evolution of Accounting
In India, 23 centuries ago, Chandragupta Mauryaβs Minister Kautilya wrote a
book named βArthashastraβ, wherein some references can be traced regarding the
way of maintaining accounting records.
6. 1.3 Meaning and Definition of Accounting
According to the American Institute of Certified Public Accountants
βAccounting 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 results thereof β.
7. American Accounting Association has defined accounting as βthe
process of identifying, measuring, and communicating economic information to
permit informed judgements and decisions by users of the informationβ.
9. 1.5 Objectives of Accounting
Following are the objectives of accounting:
i) To keep a systematic record of financial transactions and events
ii) To ascertain the profit or loss of the business enterprise
iii) To ascertain the financial position or status of the enterprise
iv) To provide information to various stakeholders for their requirements
v) To protect the properties of an enterprise and
vi) To ascertain the solvency and liquidity position of an enterprise
10. 1.6 Functions of Accounting
The main functions of accounting are as follows:
(i) Measurement
(ii) Forecasting
(iii) Comparison
(iv) Decision making
(v) Control
(vi) Assistance to government
11. 1.7 Importance of Accounting
Accounting is a basic necessity for all enterprises. Importance of accounting is
enumerated as below:
(I) Systematic records
(II) Preparation of financial statements
(iii) Assessment of progress
(iv) Aid to decision making
(v) Stratifies legal requirement
(vi) Information to interested groups
(vii) Legal evidence
(viii) Computation of tax
(ix) Settlement during merger
13. 1.9 Branches of Accounting
The various branches of accounting are:
(i) Financial Accounting
(ii) Cost Accounting
(iii) Management Accounting
(iv) Social Responsibility Accounting
(v) Human Resources Accounting
14. 1.10. Bases of Accounting
There are three bases of accounting in common usage, namely
(i). Cash basis
(ii). Accrual or mercantile basis
(iii). Mixed or hybrid basis.
15. 1.11 Users of Accounting information
There are several persons who need the accounting information for various
purposes. They can be classified into two:
A) Internal users and
B) External users
16.
17. External
Users
(i) Creditors and financial
institutions
(vii) General
public
(vi) Researchers
(v) Government
(iv) Tax authorities
and other regulatory
bodies
(iii) Customers
(ii) Investors
18. 1.12 Role of an Accountant
(i) Record keeper
(ii) Provider of information to the management
(iii) Protector of business assets
(iv) Financial advisor
(v) Tax manager
(vi) Public relation officer