FINANCIAL• Financial means related to finance.• Financial comes from the word ‘ finance’.• Finance means money or money worth.• Money is a medium of exchange of goods and services.• Barter system was replaced by money.• Money worth means a thing which can be converted into money.• Business finance: The money put into business.
Mr. A has sold his house forRs.5 Millions …………Is it abusiness transaction or not ?
Mr. A has sold his house forRs.5 Millions which wasbought against Rs.4Millions….. Is it a businesstransaction or not ?
Mr. A purchases housesand sells … is it abusiness?
BUSINESS: A CONTINUOUS VENTURE TO EARN PROFIT.
BUSINESSKinds of Business : 1-Manufacturing business. 2-Trading business. 3- Service related business.
Manufacturing business: Goods are made or manufactured in an industry and sold.Trading business: Goods are not manufactured by the seller. He gets goods from the manufacturer in bulk and sells.Service business: In such business, services are sold instead of goods: Insurance, banking; telephone, consultancy service, repair service, etc…..
BUSINESS AND NON-BUSINESS DEALINGSBusiness Dealings:• It involves reciprocity of monetary interests or other benefits.• Money or money worth comes or goes.Non-business dealings:• Reciprocity of monetary interests is not involved in it.
Business or non-business dealings Mr. A has purchased a car from ABC car dealer. Mr. B has gifted a car to his nephew. Mr. A is a lawyer and obtained fees from B in a case. Mr. A gave Rs 1000/- to a bagger.
Risk• Risk is the effect of uncertainty.• Business always involves a risk.• Businessman earns profit through risk management.• More risk more profit or loss.• Loss can be avoided or minimized through risk management.
RISK MANAGEMENT :i. Identification, assessment, and prioritization of risks;ii. Then by coordinated and economical application of resources to minimize the risks;iii. And to maximize the profit.• Risk Management is not possible without Accounting.
BUSINESS TRANSACTIONS.• Business transaction is a business event.• Business event is an event involving monetary implication.• Any thing purchased or sold for business is a business event.• Any expense incurred for business is a business event.• Any investment made in business is a business event.• Any loan obtained is a business event, etc…..
DEFINITION OF ACCOUNTING• ACCOUNTING IS AN ART OF SYSTEMATIC: i- Recording; ii-Classifying; iii- Summarizing and iv- Analyzing and Reporting of business transactions.
On 01-01-10 ,I sold goods of Rs.3000/-on credit to A and on same day I purchased material from B for Rs 2,000/- On 02-03-10 I sold goods for Rs.1500/- on cash……………………IS IT RECORDING OR SYSTEMATIC RECORDING ?
ACCOUNTING EDUCATION• Accounting education means learning the art of systematic recording of the business transactions.• This art is a product of the businessmen wisdom developed all over the world after a long period of time.• With the introduction of electronic aids, the field of Accounting (systematic recording) has further developed but this art in substance has not changed yet.
RECORDING• Every thing happening in the business is to be in written form( be made a part of record).• Recording is required due to the problem of memory capacity of human being.Examples• Sales to be recorded.• Purchases to be recorded.• Employees salaries to be recorded.
CLASSIFYING• Recorded information needs to be classified.• For recording, classes of income and expenses to be made.• Classes of income may be : sales; dividend; interests on deposits etc..• Classes of expenses: wages; purchases; utility expenses; marketing expense etc….
SUMMARIZING• After making classification it is required to sum up the income and expenses.• All sales to be summed up .• All purchases to be summed up.• All utility expenses to be summed up.• Then to work out profit or loss for a given period of time.• Preparation of the financial statements come under the summarizing.
ANALYZING• On the basis of accounting information, progress of the various departments of business is analyzed.
REPORTING• Accountants are to present all desired accounting statements to the directors/ owners of the business.• Reporting is required to review things and to take future business decisions.
KINDS OF ACCOUNTING• Financial Accounting.• Cost Accounting.• Management Accounting.
FINANCIAL ACCOUNTING• Recording of business transaction in a day book called .. Journal entries.• Transferring these entries in to accounts…… ledger accounts.• Preparation of Trial Balance.• Preparation of Trading Account and Profit and Loss Account.• Preparation of Balance Sheet.• Preparation of mandatory financial statements under taxation laws.
COST ACCOUNTING.• Unit cost of the goods manufactured is calculated.• On unit cost basis sale price is fixed.
MANAGEMENT ACCOUNTING• Use of accounting information for business decision making.• Analyzing accounting information for internal control and future planning.
BOOK-KEEPING AND ACCOUNTING• “Book-keeping” and “Accounting’ are often used synonymously.• Book-keeping is related to recording business transactions in different books.• 1st stage is Book-keeping and the next is Accounting.• Book-keeping is a clerical activity.• Accounting functions are related to preparation of Financial Statements and their analysis/ communication too.
WHY ACCOUNTING?i. It provides useful information to the owner for making economic decisions.ii. Financial statements reflect principal information about the business economic health/ activities which are requiring to the lending agencies and investors.iii. Preparation of accounting statements is required under certain laws.
HAVE A CIVIL SERVANT ANY ROLE INECONOMIC DECISION MAKING ANDMANAGEMENT?
ACCOUNTING AND PUBLIC SECTOR• Public sector means Government sector.• Govt.Departments can not function without money.• Money is needed to pay salaries; to pay utility bills; for office furniture; for stationeries, etc….• For each rupee, incharge of the office is accountable.• A successful officer needs to have a reasonable grip on financial matters.
ACCOUNTING AND PUBLIC SECTOR CORPORATIONS• Civil servants are to serve in various public sector corporations.• In public sector corporation, officer can not perform without having sound knowledge of accounting.
IMPORTANT ACCOUNTING TERMS• Capital.• Liabilities.• Assets.• Inventory.• Drawing.• Accounts receivable.• Accounts payable.• Current Assets.• Current Liabilities.• Good will.• Depreciation.
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