Financial and Management Accounting Unit I of Introduction of Financial Accounting - Part A (Objectives, importance, Benefits)

1. 19MST15 – FINANCIAL AND
MANAGEMENT ACCOUNTING
M. NANDHAKUMAR
ASSISTANT PROFESSOR
ERODE SENGUNTHAR ENGINEERING COLLEGE (AUTONOMOUS)
PERUNDURAI, ERODE

2. MEANING OF ACCOUNTING
• Account is a summary of relevant business transactions at once
place relating to a person, asset, expense or revenue named in the
heading.
• Accounting system is a means of collecting, summarizing,
analyzing, and reporting in monetary terms the information of the
business.

3. DEFINITION OF ACCOUNTING
• According to American Institute of Certified Public Accountants
(AICPA), Accounting is the “The art of recording, classifying, and
summarizing in a significant manner and in terms of money, transactions and
events which are, in part, at least, of a financial character and interpreting the
results thereof”.
• According to the American Accounting Association (AAA), Accounting is
“The process of identifying, measuring and communicating economic
information to permit informed judgements and decisions by users of the
information.
• According to Smith, “Accounting is a means of measuring and reporting the
results of economic activities”.

4. PARTIES OR USERS INTERESTED IN ACCOUNTING /
ACCOUNTING INFORMATION
• Internal Parties/Users/Environment
 Owners/Proprietors
 Managers
 Employees
• External Parties/Users/Environment
 Creditors
 Prospective investors
 Govt.
 Customers
 Researchers
 Foreigners

5. ACCOUNTING CONCEPTS AND CONVENTIONS
 Accrual concept
 Matching concept
 Separate entity concept
 Dual aspect concept
 Going concern concept
 Money measurement concept
 Accounting period concept
 Cost concept
 Realization concept
 Objective evidence concept

6. ACCOUNTING CONVENTIONS
 Consistency
 Full disclosure
 Conservatism
 Materiality

7. TYPES/CLASSIFICATION OF ACCOUNTS
 Personal accounts
 Real accounts
 Nominal accounts

8. PERSONAL ACCOUNTS
• Its includes accounts of persons with whom the business deals.
 Natural Personal Account
• E.g Sanjay A/C, Kavin A/C etc..
 Artificial Personal Account
• Corporate Bodies or institutions – E.g Govt., Club, Limited Company and
Cooperative Society
 Representative Personal Account
• Which represent the certain persons or group of persons.
Golden rule: Debit the receiver
Credit the Giver

9. REAL ACCOUNTS
 Tangible Real Account
• It can be touch/felt/measured etc. – E.g Cash, Buildings, Furniture
 Intangible Real Account
• It can’t be touched – E.g Goodwill A/C
Golden rule: debit what comes in
credit what goes out

10. NOMINAL ACCOUNTS
• Books of accounts to simply explain the nature of the transactions. These
account are also known as Revenue and Expense Accounts. It include the
accounts of expenses, losses, income and gains.
• E.g Salary paid to employee, Rent paid, Purchase of Goods, Telephone
Charges Paid, Paid to Ramesh etc.,
• Interest received from banks, Interest Received, Received form Mohan
Machinery Sold etc.,
Golden rule: debit all expenses or losses
credit all income or gains

11. THANK YOU