Introduction to financial accounting Development of accounting: Arthashastra has emphasized the need of a/c Modern system origin to Pacoli,Italian. After 18th century industrial revolution business transaction and competition has widened. Technology has impacted the maintenance of accounting format.
Introduction to accounting• Definition:The process of recording,classifying,summarising,analysing and interpreting the financial transactions and communicating the results thereof to the persons interested in such informations.• End users of accounting. Proprietors Managers Creditors Bankers Investors Govts and regulatory bodies
Introduction to accounting• Role of accountants: Accountants in public practice Accountants in employmentsAccountants in public practice:Offer services for financial audit,cost audit and other professional services for a sum of fees.Accountants in employmentsThey are employed in business and non-business activities.In business activities they provide information on tax returns,budgeting,operating and investment decisions and external financial reproting.
Introduction to accounting• Objectives of financial accounting: To keep systematic record To protect business properties To ascertain the operational profit or loss To ascertain the financial position of business To facilitate rational decision making• Generally accepted accounting principle(GAAP):
Introduction to accounting• Branches of accounting: Financial accounting Management accounting Differences between fin. a/c & mgmt a/c1. Fin a/c supply information to external whereas mgmt a/c to internals2. Fin a/c portrays the financial status of orgn. Whereas mgmt a/c provides information about performance of various divisions and depts.3. Fin a/c provides based on past data whereas mgmt a/c provides info. On present and future.4. Periodic reporting is much longer in fin a/c than mgmt a/c.5. Fin a/c has much more legal compulsion than mgmt a/c.
Introduction to accounting• Accounting conventions: Conservatism Consistency Materiality Full disclosure• System of BOOK keeping: Single entry System: it is system of recording transaction where only record of cash and personal accounts are maintained. This system are used by small business house who record some only needed information. Double entry System : Under this system of recording the dual aspect of accounting are maintained i.e. every transaction has debit and credit aspect.
Introduction to accounting• Benefits of double entry system are:1. Records both the aspects of transaction.2. Identification of account are easier3. It helps to check the arithmetical accuracy of acconuts4. It helps to provide clear financial position of business.