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  2. 2. Meaning of Accounting <ul><li>Accounting means Recounting-It involves recording, classifying and summarizing of the past events and transactions of financial nature . </li></ul><ul><li>As an information system is the process of identifying, measuring and communicating the economic information of an organization to take decision. </li></ul>
  3. 3. . As an Information INPUT Economic events in Financial Terms PROCESS Recording Classifying Summarizing Interpreting OUTPUT Information to Users
  4. 4. Steps involved in an Accounting cycle <ul><li>Journalizing </li></ul><ul><li>Posting </li></ul><ul><li>Balancing </li></ul><ul><li>Trial Balance </li></ul><ul><li>Income Statement </li></ul><ul><li>Position Statement </li></ul>
  5. 5. Meaning of Book keeping <ul><li>The practice or profession of recording the accounts and transactions of a business. </li></ul><ul><li>The systematic recording of a company's financial transactions. The two most common bookkeeping methods are single entry and double entry. </li></ul>
  6. 6. . <ul><li>Bookkeeping -The art of recording pecuniary or business transactions in a regular and systematic manner, so as to show their relation to each other, and the state of the business in which they occur; the art of keeping accounts. The books commonly used are a daybook, cashbook, journal, and ledger. </li></ul>
  7. 7. Book keeping and Accounting <ul><li>Bookkeeping is part of accounting. It is the recording of the day to day transactions of a business </li></ul><ul><li>Accounting builds on the bookkeeping information, interpreting it, compiling reports, year-end accounts, tax returns, budgeting and carrying out financial analysis and so on. </li></ul>
  8. 8. . <ul><li>Accounting is based on the concept of a financial transaction. </li></ul><ul><li>Here are a few examples of financial transactions: A check is written from a bank account. A deposit is made to a bank account. A purchase is made and cash is paid. A purchase is made on credit. A payment is made to an account payable or receivable </li></ul>
  9. 9. Book keeping and Accounting(f) <ul><li>Object is to prepare books of accounts, trial balance and final accounts </li></ul><ul><li>Limited scope </li></ul><ul><li>Done by lower level of management. </li></ul><ul><li>Does not show the financial position of the business </li></ul><ul><li>Record, classify, analyze and interpret it. </li></ul><ul><li>Wide scope covers book keeping plus analysis. </li></ul><ul><li>Lower level prepare it and top level interpret it. </li></ul><ul><li>Analyze the financial position of the business. </li></ul>
  10. 10. Use of Financial Statements <ul><li>The users of Accounting information and </li></ul><ul><li>their needs. </li></ul><ul><li>Eg. Management </li></ul><ul><li>General Public. </li></ul>Potential Investors Employee Groups Short and Long term Creditors Present Investors
  11. 11. Users <ul><li>Management group </li></ul><ul><li>Board of Directors </li></ul><ul><li>Partners --- accounting </li></ul><ul><li>Managers information-- </li></ul><ul><li>Officers </li></ul><ul><li>External users </li></ul><ul><li>Investors </li></ul><ul><li>Lenders </li></ul><ul><li>Suppliers </li></ul><ul><li>Public group </li></ul><ul><li>Govt. Agencies </li></ul><ul><li>Labor union </li></ul><ul><li>Employees </li></ul><ul><li>Customers </li></ul>
  12. 12. Classification of Accounting Accounting Financial Accounting Cost Accounting Management Accounting
  13. 13. Meaning of Cost Accounting <ul><li>The object of cost accounting is to find out the cost of goods produced or services rendered by a business. It also helps the business in controlling the costs by indicating avoidable losses and wastes </li></ul>
  14. 14. Meaning of Management Accounting <ul><li>The object of management accounting is to supply relevant information at appropriate time to the management to enable it to take decision and effect control . Managerial accounting is the branch of accounting designed to provide information to various management levels in the hospitality operation for the purpose of enhancing controls. </li></ul>
  15. 15. Meaning of Financial Accounting <ul><li>The objects of financial accounting as stated above can be achieved only by recording the financial transactions in a systematic manner according to a set of principles. The recorded information has to be classified, analyzed and presented in a manner in which business results and financial position can be ascertained. </li></ul>
  16. 16. Uses of Accounting <ul><li>Accounting plays important and useful role by developing the information for providing answers to many questions faced by the users of accounting information. </li></ul><ul><li>(1) How good or bad is the financial condition of the business? </li></ul><ul><li>(2) Has the business activity resulted in a profit or loss? </li></ul>
  17. 17. . <ul><li>3) How well the different departments of the business have performed in the past? </li></ul><ul><li>(4) Which activities or products have been profitable? </li></ul><ul><li>(5) Out of the existing products which should be discontinued and the production of which commodities should be increased. </li></ul><ul><li>(6) Whether to buy a component from the market or to manufacture the same? </li></ul>
  18. 18. . <ul><li>7) Whether the cost of production is reasonable or excessive? </li></ul><ul><li>(8) What has been the impact of existing policies on the profitability of the business? </li></ul><ul><li>(9) What are the likely results of new policy decisions on future earning capacity of the business? </li></ul><ul><li>(10) In the light of past performance of the business how it should plan for future to ensure desired results </li></ul>
  19. 19. Objectives of Accounting <ul><li>To maintain accounting records </li></ul><ul><li>To calculate results of operation </li></ul><ul><li>To ascertain the financial position </li></ul><ul><li>Communicate information to the users </li></ul><ul><li>Recording the monetary transactions </li></ul><ul><li>Ascertain earnings of the company </li></ul><ul><li>To identify the obligations and resources of the organization </li></ul><ul><li>Management for taking decisions </li></ul>
  20. 20. - <ul><li>Accounting provides key information used by executives in decision making and plays a vital societal role in resource allocation </li></ul><ul><li>The knowledge of Accounting is required for everyone in business, regardless of the position they hold, since they are accountable for their actions. </li></ul>
  21. 21. Areas where Accounting is required <ul><li>1 Decision Making 2 Financial Statement 3 Cash Flows 4 Earnings 5 Management Ability 6 Disclosure </li></ul>
  22. 22. . <ul><li>7 Statement of Financial Position 8 Uncompleted Transactions 9 Expected Information 10 Forecasts 11 Governmental 12 Social Concern </li></ul>
  23. 23. Comparison <ul><li>Financial accounting </li></ul><ul><li>For external purpose </li></ul><ul><li>Based on past transactions </li></ul><ul><li>Constrained by accounting standards </li></ul><ul><li>Comply with GAAP </li></ul><ul><li>Provide overall view of business </li></ul><ul><li>Cost & Management accounting </li></ul><ul><li>For internal purpose </li></ul><ul><li>Information for future decision </li></ul><ul><li>Free of constraints </li></ul><ul><li>Tailored to suit the needs of the users </li></ul><ul><li>Detailed analysis on all aspects </li></ul>
  24. 24. Financial Statements- result from the process of accounting are= P&L a/c, B/Sheet, Cash flow Statement. (f) <ul><li>Accounting data for carrying out detailed financial analysis. </li></ul><ul><li>Financial Analysis is to study the financial position of the company for- </li></ul><ul><li>Shareholders, Debenture holders, Financial institutions, Statutory Agencies, Others. </li></ul>
  25. 25. Meaning of GAAP <ul><li>The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. </li></ul><ul><li>  </li></ul>
  26. 26. . <ul><li>GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes </li></ul><ul><li>GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements. </li></ul>
  27. 27. . <ul><li>Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles . </li></ul><ul><li> There is plenty of room within GAAP for unscrupulous accountants to distort figures. So, even when a company uses GAAP, we need to scrutinize its financial statements. </li></ul>
  28. 28. Rules in GAAP <ul><li>Financial accounting information must be assembled and reported objectively. Third-parties who must rely on such information and have a right to be assured that the data are free from bias and inconsistency, whether deliberate or not. For this reason, financial accounting relies on certain standards or guides that are called &quot;General Accepted Accounting Principles. </li></ul><ul><li>. </li></ul>
  29. 29. . <ul><li>In any report of financial statements (audit, compilation, review, etc.), the preparer/auditor must indicate to the reader whether or not the information contained within the statements complies with GAAP </li></ul>
  30. 30. . <ul><li>Principle of regularity </li></ul><ul><li>Principle of sincerity </li></ul><ul><li>Principle of the permanence of methods </li></ul><ul><li>Principle of non-compensation </li></ul><ul><li>Principle of prudence </li></ul><ul><li>Principle of continuity </li></ul><ul><li>Principle of periodicity </li></ul><ul><li>Convention of relevance, objectivity and feasibility </li></ul>
  31. 31. J <ul><li>Principle of regularity : Regularity can be defined as conformity to enforced rules and laws. This principle is also known as the Principle of Consistency . </li></ul><ul><li>Principle of sincerity : According to this principle, the accounting unit should reflect in good faith the reality of the company's financial status. </li></ul><ul><li>Principle of the permanence of methods : This principle aims at allowing the coherence and comparison of the financial information published by the company. </li></ul><ul><li>Principle of non-compensation : One should show the full details of the financial information and not seek to compensate a debt with an asset, a revenue with an expense, etc. </li></ul><ul><li>Principle of prudence : This principle aims at showing the reality &quot;as is&quot; : one should not try to make things look prettier than they are. Typically, a revenue should be recorded only when it is certain and a provision should be entered for an expense which is probable . </li></ul><ul><li>Principle of continuity : When stating financial information, one should assume that the business will not be interrupted. This principle is mitigating the previous one about prudence: assets do not have to be accounted at their disposable value, but it is accepted that they are at their historical value (see depreciation ). </li></ul><ul><li>Principle of periodicity : Each accounting entry should be allocated to a given period, and split accordingly if it covers several periods. If a client pre-pays a subscription (or lease, etc.), the </li></ul>
  32. 32. Important Concepts of GAAP (f) <ul><li>Materiality Concept </li></ul><ul><li>Money Measurement Concept </li></ul><ul><li>Time period Concept </li></ul><ul><li>Cost Concept </li></ul><ul><li>Conservatism Concept </li></ul><ul><li>Consistency Concept </li></ul><ul><li>Business Entity and Going Concern Concept </li></ul><ul><li>Duality and Accounting Equivalence concept </li></ul><ul><li>Matching Concept </li></ul><ul><li>Realization Concept </li></ul>
  33. 33. Double Entry System of Financial Accounting <ul><li>It recognizes both cash and credit transactions. </li></ul><ul><li>Accounts are maintained on accrual basis. </li></ul><ul><li>Transactions are supposed to have dual aspect a debit and a credit. </li></ul><ul><li>All records should be maintained, audited, presented to shareholders. </li></ul>
  34. 34. Accounting Concept of Capital and Income <ul><li>Capital </li></ul><ul><li>It is the contribution made by the owner and regarded as a liability to business. </li></ul><ul><li>Income </li></ul><ul><li>It is arrived by matching the revenues with the expenses on accrual basis and cash basis </li></ul><ul><li>It includes allocation of past cash cost of permanent loss </li></ul>
  35. 35. Economist’s concept of capital and Income <ul><li>Assets which are used to produce goods and services for further production of assets. </li></ul><ul><li>The inventory of wealth at a point of time. </li></ul><ul><li>The relation between capital and income is that of tree and fruits </li></ul><ul><li>The benefit derived from wealth is our income </li></ul><ul><li>It is computed by deducting the capital at the end of the period and at the beginning </li></ul><ul><li>It is the increase in capital and deals with making of trial Balance, P&La/c and b/sheet . </li></ul>
  36. 36. Financial Reporting <ul><li>It is the summarized versions of the profit and loss a/c and b/sheet </li></ul><ul><li>The true meaning and information is diluted and lost </li></ul><ul><li>According to FASB the report should serve as a primary information for the average or non financial </li></ul>