Accounting is the process of recording, classifying, and summarizing financial transactions to interpret results, involving various branches such as financial, cost, and management accounting. It serves multiple objectives, including maintaining records, determining profit or loss, and aiding decision-making, while also facing limitations such as estimates and qualitative aspects being ignored. Accounting information is crucial for various internal and external users, ensuring reliability, relevance, and comparability.

1. Introduction to accounting
Accounting is the art of recording,
classifying, summarising in a
significant manner and in terms
of money, transactions and events
which are in part atleast, of
financial character and
interpreting the results thereof.

2. Process of accounting
• 1. Identification of financial transaction
• 2.Recording – Journal, subsidiary books(Cash ,
sales, purchases, SR, Pur Ret, B/R, B/P , journal
proper)
• 3. Classifying – ledger
• 4. Summarising- Trial balance, Trading and
profit & loss a/c, Balance sheet
• 5. Analysis and interpretation
• 6. Communication

3. Branches of accounting
• Financial accounting – Deals with recording,
classifying, summarising, and preparation of
financial statements
• Cost accounting – concerned with
ascertainment of cost, cost reduction and cost
controlling
• Management accounting- Mainly for
management and helps for decision making

4. Book-keeping, accounting and
accountancy
• Book-keeping- routine work ,involves
identification, recording and classifying
accounting - wider than book-keeping and
continues till end
• Accountancy – knowledge of accounting

5. Objectives of accounting
• To Maintain records- because all transactions
can’t be remembered
• To determine profit or loss (TRADING AND P &
LOSS A/C)
• To determine financial POSITION (BALANCE
SHEET)
• To facilitate management to take decisions
• To provide accounting information to users
• To protect business assets – by keeping
records

6. Advantages of accounting
• 1. Provides Financial information related to
profit/loss/ financial position of business etc
• Helps to determine profit or loss
• Helps management and other parties to take
decisions
• Helps to protect business assets – by keeping
records
• Facilitates to make comparative study
• Helps to settle tax liabilities
• Facilitates to take loans
• Evidence in court
• Facilitates sale of business

7. Limitations of accounting
• ACCOUNTING IS NOT FULLY EXACT BECAUSE SOMETIMES
ESTIMATES ARE MADE FOR ASCERTIANING PROFIT EG –
PROVISIONS, NET REALISABLE VALUE OF CLOSING STOCK
• IGNORES THE QUALITATIVE ASPECTS EG SKILLS, EFFICIENCY ETC
• IT DOESN’T TELL WHAT ASSETS WILL REALISE IF SOLD
• IT IGNORES THE EFFECT OF PRICE LEVEL CHANGES
• 2018-19 10,000 * 10 = 1,00,000
• 2019-20 9500 * 12 = 1,14,000
• IT MAY LEAD TO WINDOW DRESSING – TO SHOW BETTER
PICTURE OF BUSINESS THAN IT ACTUALLY HAS
DIFFERENT ACCOUNTING PRACTICES AND
METHODS- MAKE COMPARISON DIFFICULT

8. Accounting information
• Accounting information is the end product of
accounting PROCESS
• Includes:
• Information related to profit or loss
• Information related to Financial POSITION
• Information related to cash flow statement

9. SLM I 5 LAC 50000 450000 (10 % SLM –
ORIGINAL COST)
II 450000 50000 400000
III 40000 50000 350000
• Wdv 5 (10 % ON REMAINING VALUE)
• I 500000 50000 45000
• II 450000 45000 405000
• III405000 40500 364500

10. Qualitative characteristics of
accounting information
• Reliability – i.e. Verifiable (SUPPORTED BY
VOUCHER/SUPPORTING DOCUMENT))and free
from bias and error – verifiability, neutrality,
faithfulness
• Relevance i.e it meets the needs of users (HELPS TO
TAKE DECISIONS)
Accounting information – timeliness, prediction,
feedback
• Understandability: PROPER SEQUENCE,PROPER
DETAILS/NOTES TO ACCOUNTS YET CONCISE
• Comparability – inter firm and intra firm
comparison possible

11. Users OF ACCOUNTING INFORMATION
• INTERNAL USERS
• 1. OWNERS – PROFIT/LOSS, SAFETY OF
CAPITAL
• 2MANAGEMENT- TO PLAN , CONTOL AND TAKE
DECISIONS SUCH AS DETERMINE SELLING
PRICE, COST CONTROL AND REDUCTION,
INVESTMENT IN NEW PROJECTS
• EMPLOYEES AND WORKERS- TO DEMAND
BONUS WHICH IS NORMALLY LINKED WITH
PROFIT, JOB SECURITY, TO SEE WHETHER EPF
DEPOSITED

12. EXTERNAL USERS
• Shareholders/ investors/owners - profitability, safety, growth
• Potential investors – comparisons to decide whether to invest
• Suppliers / creditors to see short term solvency, whether to
sell on credit or extend credit period
• Bankers – credit rating , TO SEE SAFETY AND RECOVERY OF
LOANS AND INTEREST, TO TAKE DECISIONS WHETHER TO
GRANT LOANS
• Tax authorities – for tax purposes
• Researchers – for research work
• Customers – TO SEE THEY ARE NOT OVERCHARGED(COST
CONTROL, COST REDUCTION), TO SEE THAT THEY WILL GET
REGULAR SUPPLY
• Public – environment , employment generation, social
responsibilities

13. SYSTEMS OF ACCOUNTING
• DOUBLE ENTRY SYSTEM- UNDER WHICH BOTH
ASPECTS OF TRANSACTIONS ARE RECORDED,
• IT IS COMPLETE, SCIENTIFIC, VERIFIABLE
SYSTEM AND IS FOLLOWED BY ALL REGISTERED
FIRMS. RECOGNISED BY LAW
• SINGLE ENTRY SYSTEM- UNDER THIS EITHER
ONE/ TWO/ ZERO ASPECT OF A TRNSACTION
ARE RECORDED
• IT IS INCOMPLETE, UNSCIENTIFIC AND IS
FOLLOWED BY VERY SMALL FIRMS.