This document provides an overview of basic financial accounting terms and concepts. It defines key terms like assets, liabilities, equity, income, and expenses. It explains the objectives of accounting as allowing better communication in business and understanding financial statements. It also defines accounting, describes the accounting information system and how it processes transactions into financial reports for various users. Finally, it outlines some advantages and limitations of accounting information and the role of accountants.

1. BASIC FINANCIAL
ACCOUNTING
Prof.Vandana Zachariah

2. FEW BASIC TERMS
Business Transaction
Debtors
Creditors
Capital
Goods
Assets
- Fixed Assets
- Current Assets
- Fictitious Assets
- Tangible Assets/Intangible Assets
Equity
- Owners Equity
- Creditors Equity

3. FEW BASIC TERMS (contd.)
Income
- Outstanding Income
- Income received in advance
Expense
- Outstanding Expenses
- Pre-paid Expenses
Expenditure
Drawings
Loss
Voucher
Turnover
Liabilities : Long term, Short term

4. OBJECTIVES
To be better able to communicate with other
team members in the ‘language of business.’
To understand the accounting principles upon
which the financial statements are based.
To recognise and understand the two main
financial statements
- Profit and Loss account
- Balance Sheet
To be able to interpret the financial statement
and evaluate their results.

5. DEFINTION OF ACCOUNTING
The ‘AICPA’ had defined accounting as
“the art of recording, classifying and
summarising in a significant manner and
in terms of money, transaction and events
which are in part, at least, of financial
character and interpreting the results
thereof”.

6. DEFINTION OF ACCOUNTING
(contd.)
It is the art of recording and classifying business
transactions and events.
The transactions or events of business must be
recorded in monetary terms.
It is an art of making summaries, analysis, and
interpretation of these transactions.
The results of such analysis must be
communicated to the persons who are to make
decisions or form judgement.

7. THE ACCOUNTING
INFORMATION SYSTEM
Inputs Processing Outputs Users
Business Accounting Financial Investors,
transaction principle and statements lenders,
and events procedures and reports managers etc

8. THE ACCOUNTING
INFORMATION SYSTEM
(contd.)
Users of the Accounting Information
Investors Suppliers and other
Lenders Trade Creditors
Security Analysis Customers
and Advisers Government and
Management Regulatory
Agencies
Employees and
Trade Unions The Public/Media

9. ACCOUNTING INFORMATION
AND ECONOMIC DECISIONS
Decisions concerning when to buy, hold or sell an
equity investment
Assessment of the stewardship or accountability of
management.
Assessment of the enterprise to pay and provide
other benefits to its employees.
Assessment of the security for amounts lent to the
enterprise
Determination of taxation policies
Determination of distributable profits and dividends
Preparation and use of national income statistics
Regulation of activities of enterprises.

10. ADVANTAGES OF
ACCOUNTING
Replace memory
Provides control over assets
Facilitates the preparation of financial
statements
Meets the information requirements
Facilitates a comparative study
Difficult to conceal fraud or theft
Tax matters
Assist the management in many ways
Ascertaining value of business
Acts as reliable evidence

11. LIMITATIONS OF
ACCOUNTING
Does not record non-financial transactions
and events.
Data recorded is historical in nature.
Facts Recorded are greatly influenced by
accounting conventions and personal
judgements.
Data provided is insufficient for proper
analysis and decision making.

12. Role of Accountant
Audit
Internal Audit
Statutory Audit
Management Accountancy
Financial Accountancy

13. BUSINESS ETHICS
What is Business Ethics?
Sound Principles forming foundation for ethical
behaviour
* Avoid small ethical lapses
* Focus on your long term repuation
* Expect to suffer adverse personal
consequences for holding a ethical position.