The document provides an overview of basic accounting concepts. It defines accounting as the process of recording, analyzing, and interpreting financial transactions and activities of a business. Key concepts discussed include double-entry bookkeeping, assets, liabilities, equity, and the balance sheet equation that assets must equal liabilities plus equity. The document also outlines the procedural aspects of accounting such as generating financial information through recording, classifying, and summarizing transactions, as well as using financial information for analysis, interpretation, and communication to various users.

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Chapter 1: Basic Accounting
Businesses engage in activities that concentrate on financial
worth, such as money, spending, expenses and costs etc.
Accounting is the process of -
recording,
analyzing,
and interpreting the -
financial or economic activities of a business.
Financial activities in business are recorded as transactions:
Bookkeeping is the recording of all transactions for a business
in a specific format.
Double-Entry Book keeping
The principle that each transaction involves two changes is
known as double-entry bookkeeping: one increase results in
one decrease, two increases results in two decreases, and so
on.

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Chapter 1: Basic Accounting
Assets
Assets are things of value that a business or person owns.
Liabilities
Liabilities are debts or amounts of money that are owed to
others by an individual or a business.
Equity or Net Worth
An assets, after all liabilities are deducted, is known as
equity or net worth.

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Chapter 1: Basic Accounting
Accounting and Businesses
A businesses’ assets and liabilities are used to calculate the
net worth—the owner’s equity.
Owner’s Equity
Owner’s equity is the owner’s investment in the business or
the financial portion of the business that belongs to the
owners or shareholders.
Assets – Liabilities = Owner’s Equity
Balance Sheet Equations
The balance sheet equation can be expressed in two ways:
1.To determine owner’s equity:
Assets – Liabilities = Owner’s Equity
2. To determine total assets:
Assets = Liabilities + Owner’s Equity

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Chapter 1: Basic Accounting
►PROCEDURAL ASPECTS OF ACCOUNTING:-
On the basis of the above definitions, procedure of
accounting can be basically divided into two parts:
(i) Generating financial information
and
(ii) Using the financial information.

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Chapter 1: Basic Accounting
► 1 :- Generating Financial Information
 Recording –
 All business transactions of a financial character, as evidenced
by some documents such as sales bill, pass book, salary slip
etc. are recorded in the books of account.
 Recording is done in a book called “Journal.”
 Journal may further be divided into several subsidiary books
according to the nature and size of the business.

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Chapter 1: Basic Accounting
 Classifying –
 Classification is concerned with the systematic analysis of the recorded
data, with a view to group transactions or entries of one nature at one
place .
 Classification helps to put information in a compact and usable form.
 The book containing classified information is called “Ledger”.
 This book contains on different pages, individual account heads under
which, all financial transactions of similar nature are collected.
 For example, there may be separate account heads for Salaries, Rent,
Printing and Stationeries, Advertisement etc.

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Chapter 1: Basic Accounting
 Summarising –
 It is concerned with the preparation and presentation of the
classified data in a manner useful to the internal as well as the
external users of financial statements.
 This process leads to the preparation of the following
financial statements:
(a) Trial Balance
(b) Profit and Loss Account
(c) Balance Sheet
(d) Cash-flow Statement.

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Chapter 1: Basic Accounting
 Analysing :–
 The term ‘Analysis’ means methodical classification of the data
given in the financial statements.
 The figures given in the financial statements will not help anyone
unless they are in a simplified form.
 For ex:- all items relating to fixed assets are put at one place
while all items relating to current assets are put at another place.
 It is concerned with the establishment of relationship between the
items of the Profit and Loss Account and Balance Sheet
 i.e. it provides the basis for interpretation.

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Chapter 1: Accounting
 Interpreting : –
 This is the final function of accounting.
 It is concerned with explaining the meaning and significance of
the relationship as established by the analysis of accounting data.
 The recorded financial data is analysed and interpreted in a
manner that will enable the end-users to make a meaningful
judgement about the financial condition and profitability of the
business operations.
 The financial statement should explain not only what had
happened but also why it happened and what is likely to happen
under specified conditions

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Chapter 1: Accounting
Communicating :–
 It is concerned with the transmission of summarised, analysed
and interpreted information to the end-users to enable them to
make rational decisions.
This is done through preparation and distribution of accounting
reports, which include besides the :-
 profit and loss account
 and the balance sheet,
 additional information
in the form of:- accounting ratios, graphs, diagrams, fund flow
statements etc.

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Chapter 1: Accounting
► 2 :- Using the Financial Information
 There are certain users of accounts.
 Proprietor or owner of the business,
 Investors,
 Employees,
 Lenders,
 Suppliers,
 Customers,
 Government and
 Other agencies and the public at large.
 Information is useless and meaningless unless it is relevant
and material to a user’s decision.
 The information should also be free of any biases.

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Chapter 1: Basic Accounting
► OBJECTIVES OF ACCOUNTING
 Systematic recording of transactions
 Ascertainment of results of above recorded
transactions
 Ascertainment of the financial position of the
business
 Providing information to the users for rational
decision-making
 To know the solvency position

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Chapter 1: Basic Accounting
►FUNCTIONS OF ACCOUNTING:-
 Measurement:
Measures past performance of the business entity and depicts
its current financial position.
 Forecasting:
helps in forecasting future performance and financial position
 Decision-making:
relevant information to the users to rational decision-making
 Comparison & Evaluation:
play an important role in predicting, comparing and evaluating
the financial results.
 Control:
identifies weaknesses of the operational system
 Government Regulation and Taxation:

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Chapters To Be Part Of
Fundamental of Accounting
►Chapter 1 - Accounting : An Introduction
 Unit 1 : Meaning and Scope of Accounting
 Unit 2 : Accounting Concepts, Principles and Conventions
 Unit 3 : Accounting Standards – Concepts, Objectives, Benefit
 Unit 4 : Accounting Policies
 Unit 5 : Accounting as a Measurement Discipline - Valuation
Principles, Accounting Estimates

15. ►Chapter 2 - Accounting : An Introduction
 Unit 1 : Journal Entries
 Unit 2 : Ledgers
 Unit 3 : Trial Balance
 Unit 4 : Subsidiary Books
 Unit 5 : Cash Book
 Unit 6 : Capital and Revenue Expenditures and Receipts
 Unit 7 : Contingent Assets and Contingent Liabilities
 Unit 8 : Rectification of Errors
15

16. ►Chapter 3 -
Bank Reconciliation Statement
►Chapter 4 –
Inventories
►Chapter 5 –
Depreciation Accounting
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17. Chapter 6 - Preparation of Final
Accounts of Sole Proprietors
Unit 1 : Final Accounts of
Non- Manufacturing Entities
 Unit 2 : Final Accounts of
Manufacturing Entities
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18. ►Chapter 7 - Accounting for
Special Transactions
Unit 1 : Consignment
Unit 2 : Joint Ventures
Unit 3 : Bills of Exchange and Promissory
Notes
Unit 4 : Sale of Goods on Approval or Return
Basis 18

19. ►Chapter 8 - Partnership
Unit 1 : Introduction to Partnership Accounts
Unit 2 : Treatment of Goodwill in Partnership
Unit 3 : Admission of New Partner
Unit 4 : Retirement of a Partner
Unit 5 : Death of Partner 19

20. ►Chapter 9 - Company Accounts
Unit 1 : Introduction to Company Accounts
Unit 2 : Issue, Forfeiture and Reissue of
Shares
Unit 3 : Redemption of Preference Shares
Unit 4 : Issue of Debentures
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21. BOOK-KEEPING
►Book-keeping is an activity concerned with the recording of
financial data relating to business operation in a significant
and orderly manner.
 At CPT level, the major concern of the curriculum is with
book-keeping and preparation of financial statements.
 ‘Financial Statements’ means Profit and Loss Account and
Balance Sheet including Schedules and Notes Forming part
of Accounts.
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22. OBJECTIVES OF BOOK-KEEPING
1. Complete Recording of Transactions –
It is concerned with complete and permanent record of all
transactions in a systematic and logical manner to show
its financial effect on the business.
2. Ascertainment of Financial Effect on the
Business –
It is concerned with the combined effect of all the
transactions made during the accounting period
upon the financial position of the business as a
whole.
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23. SUB-FIELDS OF ACCOUNTING
► Financial Accounting –
 It covers the preparation and interpretation of financial
statements and communication to the users of accounts.
 It is historical in nature as it records transactions which
had already been occurred.
 It primarily helps in determination of the net result for
an accounting period and the financial position as on a
given date.
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24. ►(2) Management Accounting –
It is concerned with internal reporting to the managers of a
business unit.
To discharge the functions of planning, control and decision
making, the management needs variety of information.
The different ways of grouping information and preparing
reports as desired by managers for discharging their
functions is called Management Accounting.
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25. ►(3) Cost Accounting –
 the Institute of Cost and Management Accountants of
England defines cost accounting as:
“the process of accounting for cost which begins with
the recording of income and expenditure or the bases
on which they are calculated and ends with the
preparation of periodical statements and reports for
ascertaining and controlling costs.”
 Cost Accounting will be covered at Professional
Competence level and Final level
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26. ►(4) Social Responsibility Accounting –
 Social responsibility accounting is concerned with
accounting for social costs incurred by the enterprise and
social benefits created.
►(5) Human Resource Accounting –
 Human resource accounting is an attempt to identify,
quantify and report investments made in human resources
of an organisation.
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27. LIMITATIONS OF ACCOUNTING
 The factors which may be relevant in assessing the worth of the
enterprise don’t find place in the accounts as they cannot be measured
in terms of money.
 Balance Sheet shows the position of the business on the day of its
preparation and not on the future date also in long run and not for the
past date.
 Accounting ignores changes in some money factors like inflation etc.
 There are occasions when accounting principles conflict with each
other.
 There is no generally accepted formula for the valuation of human
resources in money terms. So it can not shown in the balance sheet.
 Different accounting policies for the treatment of same item adds to the
probability of manipulations. 27