Account ppt

1. Accounting
• Accounting is the process of
recording financial transactions
pertaining to a business.
• The accounting process includes
summarizing, analyzing, and
reporting these transactions to
oversight agencies, regulators, and
tax collection entities.
• The financial statements used in
accounting are a concise summary
of financial transactions over an
accounting period, summarizing a
company's operations, financial
position, and cash flows.

2. OBJECTIVES
To keep a systematic record of all business
transactions
Accounting is used to maintain a systematic
record of all the financial transactions in the
books of accounts of an entity and that is one of
the main accounting objectives. For this
purpose, all transactions have recorded the
books of accounts in chronological order in
Journal and then posted to different ledger
accounts.
To ascertain profit and loss & ascertainment
of results
Every business starts with the motive to earn
profits. We can say that profits are the
backbone of any business. Also, the users of
financial statements are very keen to know the
net results of business operations periodically.
To check whether the business is earning
profits or making losses, we prepare a
statement or account called “Profit & Loss
Account or Statement of Profits & Losses”.

3. To determine the financial position of an entity
By accounting for each and every asset owned by
an entity and liabilities incurred by the entity, we
can get to know the exact financial position of our
business at a particular date. In this regard, we
prepare a “Balance Sheet” to check the value of
assets and liabilities.
To provide information to various users of
Financial Statement
Users of financial statements play a major role in
the company. The financial statements of an entity
can affect the decision-making process of the user
of the financial statement. They also participate in
future business growth. Providing information to
the various interested parties or stakeholders is
one of the most important objectives of
accounting, it helps them in making good financial
decisions.
To assist the management
By analyzing the financial data of an entity and
providing interpretations in the form of reports,
accounting can also assist management in
handling the daily business operations in an
effective manner.

4. Qualitative chracterstics of
accounting information
Reliability: The first qualitative characteristic
of accounting information is reliability.
Reliability means the users must be able to
depend on the information. It is believed that
reliable information should be free from
error and bias and faithfully represents what
it is meant to represent.
Relevance: The second qualitative
characteristic of accounting information is
relevance. It is believed that a relevant
information must be available in time, must
help in prediction and feedback and must
influence the decisions of users in a positive
manner.

5. Understandability: Understandability is the third
most important qualitative characteristic of
accounting information. Understandability
means decision-makers must interpret
accounting information in the same sense as it is
prepared and conveyed to them. The qualities
that distinguish between good and bad
communication in a message are fundamental to
the understandability of the message. A message
is said to be effectively communicated when it is
interpreted by the receiver of the message in the
same sense in which the sender has sent.
Comparability: The last qualitative characteristic
of accounting information is comparability. It is
believed that it is not sufficient that the financial
information is relevant and reliable at a
particular time, in a particular circumstance or
for a particular reporting entity. But it is equally
important that the users of the general purpose
financial reports are able to compare various
aspects of an entity over different time periods
and with other entities.

6. Accounting Principals
The Financial Accounting Standards Board (FASB)
issues a standardized set of accounting principles in
the U.S. referred to as generally accepted accounting
principles (GAAP).
1. Seperate Entity : This concept says business is
separate and businessman is separate. Further,
the separate entity concept states that we should
always separately record the transactions of a
business and its owners.
2. Money Measurement: This concept says only
events/transactions which are measurable in terms
of money are to be recorded in the account books.
The monetary unit principle states that business
transactions should only be recorded if they can be
expressed in terms of a currency. In other words,
anything that is non-quantifiable should not be
recorded a business’ financial accounts.

7. 3. Periodicity : Financial i.e. from 1st April to 31st
March is normally termed as Accounting Period
for the business organizations. Accounting period
is not just to know the result (Profit/Loss) for
period but it is also to conclude and not further
recording should be possible for that accounting
period.
4. Accrual Concept: According to this concept
Items and Events are recoded when they are
earned/expended and not received/paid. Because
of this concept Outstanding/ Prepaid items arise
in the financial statement. The general concept of
accrual accounting is that economic events are
recognized by matching revenues to expenses (the
matching principle) at the time when the
transaction occurs rather than when payment is
made or received.

8. Matching Concept : According to this concept
Expenses are to be matched with the revenue
to which they pertains. The matching
principle requires that revenues and any
related expenses be recognized together in the
same reporting period. Thus, if there is a
cause-and-effect relationship between
revenue and certain expenses, then record
them at the same time.
Going Concern : According to this concept in
accounting an enterprise is considered as
Going Concern and it is presumed that it will
continue it’s operations for the forcible future.
Further, It is also presumed that there is no
Intention/Need contrary to this concept
exists. Example : Because of this concept an
asset is depreciated during the life time of
asset and not business.

9. Cost Concept : Assets are to be recorded at their
Historical Cost value and not on market
value/opportunity costs/realizable vale . The
cost principle is an accounting principle that
records assets at their respective cash amounts
at the time the asset was purchased or acquired.
The amount of the asset that is recorded may
not be increased for improvements in market
value or inflation, nor can it be updated to
reflect any depreciation.
8. Dual Aspect Concept : The dual aspect
concept states that every business transaction
requires recordation in two different accounts.
This concept is the basis of double entry
accounting, which is required by all accounting
frameworks in order to produce reliable
financial statements. As the business is a
separate entity each and every transaction of the
business has two aspects. In simple words, the
dual aspect concept brings into notice how
every single transaction ends up affecting two
accounts

10. Conventions
Accounting bodies change them as per need of
their country considering the required quality of
Financial Information.
1. Conservatism: In accounting, the convention of
conservatism, also known as the doctrine of
prudence, is a policy of anticipating possible
future losses but not future gains. This policy
tends to understate rather than overstate net
assets and net income, and therefore lead
companies to “play safe”.
Example : Provision for Bad Debts, Discount on
Debtors, Valuation of Inventories at lower of Cost
or Market Price which ever is Lower

11. Full Disclosure :
This convention says that all relevant and
Realistic Information must be disclosed.
Disclosure should be in such a way that
information is easily accessible to the
Financial Statement user. Normally needed
Information is provided as Schedules,
Annexures and Notes to the Financial
Statements. Underlying concept of disclosure
is that Information must be disclosed at One
place and in no case it should be scattered.
Information is provided for the decision
making of the Financial Statement users.

12. Consistency: This convention is linked with the
comparability of the Financial Statements.
Accounting Principles are followed Year to Year and
uniformly in one Industries to make Financial
Statements comparable. Deviation from consistency
is permissible if it is required by Law or any
Accounting Standard or it may give better
presentation to the Financial Statements.
Materiality : Materiality is an accounting principle
which states that all items that are reasonably likely
to impact investors’ decision-making must be
recorded or reported in detail in a business’s
financial statements using GAAP standards.
Materiality is a concept that defines why and how
certain issues are important for a company or a
business sector. A material issue can have a major
impact on the financial, economic, reputational, and
legal aspects of a company, as well as on the system
of internal and external stakeholders of that
company.