2. MEETA JUNEJA
MEANING OF ACCOUNTING
Accounting is a systematic process of
identifying, measuring , recording , classifying,
summarizing, interpreting and communicating
financial information to the users.
•It shows the profit earned or loss incurred
during the the accounting period , value and
nature of asset , liabilities and capital.
•Since accounting is a medium of
communication, it is called the LANGUAGE OF
BUSINESS.
3. MEETA JUNEJA
CHARACTERISTICS OF ACCOUNTING
1)IDENTIFICATION OF FINANCIAL TRANSACTIONS:
Accounting records only those transactions and
events which can be measured in terms of money .
This involves identifying transactions and events
which can be measured in terms of money.
2) MEASURING THE IDENTIFIED TRANSACTION:
Accounting measures the transaction and events in
terms of a common measurement unit .In other
words , financial transactions and events are
measured in terms of money .
4. MEETA JUNEJA
3) RECORDING :
Accounting is an art of recording business
transactions in the books of accounts .
Recording is a process of recording business
transactions of financial character in the books
of original entry i.e. JOURNAL.
4) CLASSIFYING :
Classification is the process of grouping
transactions or entries of one nature at one
place . The transaction recorded in the journal
5. MEETA JUNEJA
5) SUMMARISING :
This involves presenting the classified data in a manner
which is understandable and useful for internal as well
as external users of accounting statements . This
process leads to the preparations of following
statements:
i) TRIAL BALANCE
ii) TRADING AND PROFIT AND LOSS ACCOUNT
iii)BALANCE SHEET
6) ANALYSING AND INTERPRETATION :
Analysing and interpretation of financial data are
carried out so that the users of financial data can make
a meaningful judgement of the profitability and
6. MEETA JUNEJA
7) COMUNICATING :
•Finally, the accounting function
involves communicating the
financial data i.e. financial
statements to its users . The
accounting information must be
provided in time and presented to
users so that appropriate decisions
may be taken at the right time .
7. QUIZ
WHICH IS THE LAST STEP OF ACCOUNTING AS A PROCESS OF
INFORMATION ??
A) RECORDING THE TRANSACTIONS
B) PREPARATION OF FINANCIAL STATEMENTS
C)COMMUNICATION OF INFORATION
D) ANALYSIS AND INTERPRETATION OF INFORMATION
ANS.- (C)
WHICH OF THE FOLLOWING IS NOT THE CHARACTERISTIC OF
ACCOUNTING ??
A)RECORDING NON-MONETARY TRANSACTIONS
B)CLASSIFYING
C) ANALYSIS
D) SUMMARISING
ANS .- (A)
MEETA
JUNEJA
9. MEETA
JUNEJA
1)MAINTAINING ACCOUNTING RECORDING:
• The objective of accounting is to record financial
transactions and events of the organisation in the
books of accounts in a systematic manner .
2) DETERMINING PROFIT AND LOSS:
Another objective of accounting is to determine the
net result of transactions for a period . To determine
whether during the accounting period, the firm has
earned the PROFIT or incurred a LOSS . For this
purpose the statement called an INCOME
STATEMENT or the TRADING AND PROFIT AND LOSS
ACCOUNT is prepared .
10. MEETA
JUNEJA
3) DETRMINING FINANCIAL POSITION :
Another objective of accounting is to determine
the financial position . It is known from the
BALANCE SHEET. Financial position of the
business is as relevant for the users of the
financial statements as in the INCOME
STATEMENT i.e. PROFIT AND LOSS ACCOUNT .
4) FACILITATING MANAGEMENT :
The management often requires financial
information for decision making , effective
control , budgeting and forcasting . Accounting
provides financial information to assist the
11. MEETA
JUNEJA
5) PROVIDING ACCOUNTING INFORMATION TO
USERS:
Yet another objective of accounting is to
provide accounting information to users, both
internal as well as external who analyse them .
6) PROTECTING BUSINESS ASSETS :
Another objective of accounting is to have
records of assets owned by business .
Accounting maintains record of assets owned
by the business which enables the
management to protect them and exercise
13. MEETA JUNEJA
1)MAINTAINING SYSTEMATIC ACCOUNTING RECORDS:
The primary function of accounting is to maintain
systematic accounting records of financial
transactions and events . It means that the accounting
records should be maintained following the
accounting rules, principles and concepts .
2) PREPARATIONS OF FINANCIAL STATEMENTS :
Financial statements means final accounts prepared at
the end of the accounting period . It includes INCOME
STATEMENTS (PROFIT AND LOSS ACCOUNT ) and
POSITION STATEMENT (BALANCE SHEET). It is an
important function of accounting because it shows
the financial performance of business during the
14. MEETA
JUNEJA
3) MEETING LEGAL REQUIREMENTS:
Accounting records are accepted as evidence by the
court of law if they are maintained systematically
following the accounting rules , principles and
concepts .
FOR EG. INCOME TAX ACT , COMPANIES ACT , GST
ACT .
4) COMMUNICATING THE FINANCIAL INFORMATION :
Another function of accounting is to communicate the
financial information to users which may be internal
users or external users such as MANAGEMENT , BANKS
15. MEETA
JUNEJA
ADVANTAGES OF ACCOUNTING
1)FINANCIAL INFORMATION ABOUT BUSINESS :
Financial performance during the accounting
period i.e. profit earned and loss incurred and
also the financial position at the end of
accounting period is known through
accounting .
2) ASSISTANCE TO MANAGEMENT :
The management makes business plans , takes
decision and exercise control over the affairs
on the basis of accounting information .
16. MEETA
JUNEJA
3) REPLACES MEMORY :
A systematic and timely recording of
transactions obviates the necessity to
remember transactions. The accounting
record provides the necessary information
.
4) FACILITATES COMPARIVE STUDY :
A systematic record enables a business
man to compare one years result with
those of other years and locate significant
17. MEETA
JUNEJA
5) FACILITATES SETTLEMENT OF TAX
LIABILITIES :
A systematic accounting record immensely
helps in settlement of income tax and
Goods And Services Tax liabilities since it
is a good evidence of correctness of
transactions .
6)FACILITATES LOANS :
Loan is granted by the banks and financial
institutions on the basis of growth
potential which is supported by
18. MEETA
JUNEJA
7) FACILITATE SALE OF BUSINESS :
If someone desires to sell his
business , the accounts maintained
by him will enable the ascertainment
of the proper purchase price.
8) EVIDENCE IN COURTS :
Systematic record of transactions is
often accepted by the court as good
19. MEETA
JUNEJA
9) HELPFUL IN PARTNERSHIP ACCOUNTS :
At the time of admission or retirement or
death of a partner or in case of dissolution
of firm the accounting record is of vital
importance and use because it provides
the basis to reach a settlement .
10) HELPFUL IN DECISION MAKING :
Accounting helps in taking a large number
of decisions like the amount to be
withdrawn by proprietor , the price at
20. QUIZ
STATE TRUE OR FALSE ?
ACCOUNTING HEPLS US TO KNOW THE
FIANANCIAL POSITION OF BUSINESS .
ANS.- TRUE .
STATE ANY 4 ADVANTAGES OF ACCOUNTING ?
1)REPLACES MEMORY
2) FACILITATE LOANS
3) FINANCIAL PERFORMANCE IS KNOWN
4)HELPFUL IN DECISION MAKING
MEETA JUNEJA
22. MEETA
JUNEJA
1)ACCOUNTING IS NOT FULLY EXACT :
Accounting is not fully exact in spite of
the fact that most transactions are
recorded on the base of evidence , yet
some estimates are also made for
ascertaining profit and loss.
2) UNREALISTIC INFORMATION :
Accounting information may not be
realistic since accounting statements are
23. MEETA
JUNEJA
3) ACCOUNTING IGNORES THE QUALITATIVE
ELEMENTS :
Accounting is confined to monetary matters
only , therefore, qualitative elements like
quality and skills of management and staff are
ignored .
4) ACCOUNTING IGNORES THE EFFECT OF
PRICE LEVEL CHANGES:
Accounting statements are prepared at
historical cost . Money as a measurement of
unit changes frequently i.e. it does not remain
24. MEETA
JUNEJA
5) ACCOUNTING MAY LEAD TO WINDOW
DRESSING :
The term WINDOW DRESSING means
MANIPULATION OF ACCOUNTS in a way so as
to conceal vital facts and present the
FINANCIAL STATEMENTS to show a BETTER
position than it ACTUALLY is . In this situation
, income statements fails to provide a true and
fair view of the result of operations and
balance sheet fails to provide a true and fair
25. QUIZ
STATE TRUE AND FALSE .
1) ACCOUNTING MAY BE INFLUENCED BY PERSONAL JUDGEMENT
.
AMS .- TRUE
WHICH OF THE FOLLOWING IS A LIMITATION ON ACCOUNTING ?
A) ASSISTANCE TO MANAGEMENT
B) REPLACES MEMORY
C) UNREALISTIC INFORMATION
D) EVIDENCE IN COURT
ANS.- (C)
MEETA JUNEJ
30. MEETA
JUNEJA
•(a) Financial accounting:
•Financial Accounting is that branch
of accounting which involves
identifying, measuring, recording,
classifying, summarising the
business transactions i.e. it involves
the steps from Identifying,
Recording of transactions to
Summarisation, and communicating
the financial data.
31. MEETA
JUNEJA
•(b) Cost accounting:
•Cost Accounting is that
branch of accounting which is
concerned with the process of
ascertaining and controlling
the cost of products or
services.
32. MEETA JUNEJA
•c) Management accounting
•Management Accounting is that
branch of accounting which is
concerned with gathering and
processing information relating
to funds, cost, profit etc. to
simplify the decision-making
process of management.
33. QUIZ
COST OF GOODS MANUFACTURED IS DETERMINED BY :-
A)FINANCIAL ACCOUNTING
B)COST ACCOUNTING
C)MANAGEMENT ACCOUNTING
D)HUMAN RESOURCE ACCOUNTING
ANS.- (B)
WHICH ACCOUNTING IS CONCERNED WITH GATHERING
INFORMATION RELATED TO FUNDS ,COST, PROFIT ETC.
ANS.- MANAGEMENT ACCOUNTING
MEETA
JUNEJA
35. MEETA JUNEJA
•BOOK KEEPING
•Book Keeping is a part of Accounting and it
is the process of identifying, measuring,
recording and classifying the financial
transactions.
•ACCOUNTING
•Accounting is a wider concept and actually,
it begins where Book Keeping ends. It
includes summarizing, interpreting and
communicating the financial data to the
users of financial statements.
40. MEETA JUNEJ
•ACCOUNTING AND
ACCOUNTANCY
Accountancy is KNOWLEDGE where as
accounting is the ACTION OR PROCESS .
Accounting basis are carries out on the
basis of the rules and principles framed
by accountancy. Thus , it may be said that
ACCOUNTANCY IS KNOWLEDGE OF
41. MEETA
JUNEJA
ACCOUNTING INFORMATION
Accounting is a SERVICE activity . Its function is to
provide qualitative information, primarily financial in
nature , about economic entities that is intended to be
useful in making economic decisions .
42. QUIZ
BOOK KEEPING AND ACCOUNTING
A)MEANS SAME AND ARE USED INTERCHANGEABLY
B)DOES NOT MEAN SAME AND ARE NOT USE AS
INTERCHANGEABLY
C)MEANS BOTH (A) AND (B)
D)NONE OF THESE
ANS .-(B)
ACCOUNTING
A)INCLUDES BOOK KEEPING
B)DOES NOT INCLUDE BOOK KEEPING
C)MAY OR MAY NOT INCLUDE BOOK KEEPING
D)NONE OF THESE
ANS.- (A)
MEETA JUNEJ
44. MEETA JUNEJ
Reliability:
•Reliability implies that the
information must be free from
material error and personal bias.
Relevance:
Accounting information must be
relevant to the decision-making
requirements of the users.
45. MEETA JUNEJ
•Understandability:
• Information should be disclosed in
financial statements in such a manner
that these are easily understandable.
•Comparability:
•Both intra-firm and inter-firm
comparison must be possible over
different time periods.
46. QUIZ
STATE TRUE AND FALSE .
ACCOUNTING INFORMATION MUST BE RELIABLE.
ANS.- TRUE
QUALITATIVE CHARACTERISTICS OF ACCOUNTING INCLUDE
A)RELIABILITY AND RELEVANCE
B)COMPARABILITY AND UNDERSTANDABILITY
C)BOTH A) AND B)
D)NONE OF THESE
ANS.- (C)
WHICH OF THE FOLLOWING IS NOT A CHARACTERISTICS OF
ACCOUNTING INFORMATION
A) RELIABILITY B)UNDERSTANDABILITY
C) COMPARABILITY D) MATERIALITY
ANS.- (D)
MEETA
JUNEJA
48. MEETA
JUNEJA
•(A) Internal Users
•Owners: Owners contribute capital in the
business and thus they are exposed to
maximum risk. So, they are always interested
in the safety of their capital.
•Management: Accounting information is used
by management for taking various decisions.
•Employees: Employees are interested in the
financial statements to assess the ability of the
business to pay higher wages and bonus.
49. MEETA JUNEJ
•B) External Users
•Banks and financial institutions: Banks and
Financial Institutions provide loans to business.
So, they are interested in financial information
to ensure the safety and recovery of the loan.
•Investors: Investors are interested to know the
earning capacity of business and safety of the
investment.
•Creditors: Creditors provide the goods on
credit. So they need accounting information to
ascertain the financial soundness of the firm.
50. MEETA
JUNEJA
•Government: The government needs
accounting information to assess the tax
liability of the business entity.
•Researchers: Researchers use accounting
information in their research work.
•Consumers: They require accounting
information for establishing good
accounting control, which will reduce the
cost of production.
51. QUIZ
NAME ANY ONE EXTERNAL USERS OF
ACCOUNT9NG ??
ANS:-CREDITORS
NAME THE EXTERNAL USERS THAT ARE
DIRECTLY CONCERNED WITH ACCOUNTING
INFORMATION ??
1. CREDITORS
2. BANKS AND FINANCIAL INSTITUTIONS
3. GOVERNMENT AND ITS AUTHORITIES
MEETAJUNEJA
52. MEETA JUNEJA
•IS ACCOUNTING A ART OR SCIENCE
?
Accounting is both an art as well as
science.
ACCOUNTING IS AN
ART OF RECORDING,
CLASSIFYING AND
SUMMARISING THE
FINANCIAL
TRANSACTIONS.
IT HELPS US IN
KNOWING THE
PROFITABILITY OF
BUSINESS.
ANY ORGANISED
KNOWLEDGE BASED
ON CERTAIN
PRINCIPLES IS A
SCIENCE
.ACCOUNTING IS
ASLO A SCIENCE AS
IT IS AN ORGANISED
KNOWLEDGE BASED
ON CERTAIN
PRINCIPLES.
55. MEETA JUNEJA
•Double-entry system
•The double entry system is based on
the Dual Aspect Principle.
•Every transaction has two aspects, ‘a
Debit’ and ‘a credit’ of an equal
amount.
•This system of accounting recognises
and records both the aspects of the
56. MEETA JUNEJA
Advantages of the Double-entry System of
Accounting
•Scientific system
•As compared to the other systems, this
system of recording transactions is more
scientific and useful to achieve the objective
of accounting.
•A complete record of the transaction
•Since both the aspects of transactions are
considered there is a complete recording of
each and every transaction.
•Using these records we are able to compute
57. MEETA JUNEJA
•Checks arithmetical accuracy of accounts
•Under this system, by preparing a Trial Balance we
are able to check the arithmetical accuracy of the
records.
•Determination of profit/loss and depiction of
financial position
•Under this system by preparing ‘Profit & Loss A/c’
we get to know about the profit earned or loss
incurred; &
•By preparing the ‘Balance Sheet’ financial position
of the business can be ascertained the i.e. position
of assets and liabilities is depicted.
58. MEETA
JUNEJA
Helpful in decision making
•Administration and management are
able to take decisions on the basis of
factual information under the double-
entry system of accounting.
59. MEETA
JUNEJA
•Single entry system
•Under this system, both aspects
are not recorded for all the
transactions.
•Either only one aspect is
recorded or both the aspects are
not recorded for all the
transactions.
61. MEETA JUNEJ
BASIS
1)ASPECTS
OF
TRANSACTI
ONS
2)ACCOUN
TS
MAINTAINE
D
3)
FINANCIAL
POSITION
DOUBLE ENTRY SYSTEM
BOTH ASPECTS OF
TRANSACTIONS ARE
RECORDED.
UNDER THIS SYSTEM
PERSONAL, REAL AND
NOMINAL ACCOUNTS ARE
MAINTAINED .THUS IT IS A
COMPLETE AND SCIENTIFIC
SYSTEM OF ACCOUNTING .
UNDER THIS SYSTEM,
CORRECTING THE FINANCIAL
POSITION OF BUSINESS CAN
BE ASCERTAINED BY
SINGLE ENTRY SYSTEM
BOTH ASPECTS OF
TRANSACTIONS MAY NOT BE
RECORDED.
UNDER THIS SYSTEM ONLY
PERSONAL AND CASH BOOK
ARE MAINTAINED. HENCE IT
REMAINS AN INCOMPLETE
RECORD OF ACCOUNTS .
UNDER THIS SYSTEM, BALANCE
SHEET IS NOT PREPAERD .
ONLY STATEMENT OF AFFAIRS
IS PREPARED.
62. MEETA
JUNEJA
4)
USE
5)AUT
HENTI
CITY
THIS SYSTEM IS
USED BY ALMOST
ALL THE
BUSINESSES.
THIS SYSTEM IS
CONSIDERED
AUTHENTIC BY
THE COURT.
THIS SYSTEM IS
ONLY USED BY
SMALL
BUSINESSES
AND
INSTITUTIONS .
THE COURT
DOES NOT
CONSIDERED
THIS SYSTEM AS
