This document provides an overview of accounting concepts and principles. It defines accounting as the process of recording, classifying, and summarizing financial transactions and interpreting the results. It describes the evolution of accounting from ancient times to the development of the double-entry system. The key accounting concepts discussed include the accounting cycle, branches of accounting, users of accounting information, and accounting concepts and conventions such as the business entity, cost, and matching concepts. It also summarizes the classification of accounts, golden rules of double-entry accounting, and the objectives of accounting.

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Introduction of Accounting – An Overview
Dr.G.KARTHIKEYAN
Assistant Professor
PG & Research Department of Commerce
A.V.C.College (Autonomous)
Mannampandal – 609 305
Mayiladuthurai District.

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Introduction of Accounting – An Overview
 Evolution of Accounting
 Meaning of Accounting
 Objectives of Accounting
 Accounting Cycle
 Branches of Accounting
 Users of Accounting Information
 Accounting concepts and conventions
 Double entry system
 Classification of Accounts
 Golden rules of Double Entry System

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Evolution of Accounting
In India, 23 centuries ago, Chandragupta Maurya’s Minister Kautilya wrote a book named
‘Arthashastra’, wherein some references can be traced regarding the way of maintaining
accounting records.
In the earliest days of civilisation, accounting was done by stewards who managed the properties of
wealthy people. They rendered accounts periodically to the owners of property. The stewardship
accounting is said to be the root of accounting. Records of debit and credit were found in the 12th
century itself.
In 1494, Luca Pacioli an Italian developed double-entry book-keeping system. Due to the
industrial revolution in the 18th and 19th centuries, large scale operations were carried
on and joint stock companies emerged as an important form of organisation which
required separation of ownership from management. Hence, to safeguard the interest of
owners and investors, the business establishments required detailed information about
business which paved the way for development of comprehensive financial accounting
information system.

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According to the American Institute of Certified Public Accountants “Accounting is 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”.
Definition
Accounting is the systematic process of identifying, measuring, recording, classifying,
summarizing, interpreting and communicating financial information.
Accounting
Meaning

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Objectives of
Accounting
To maintain
accounting
records
To calculate the
result of
operations
To ascertain the
financial position
To communicate
the information
to users.

6. Accounting Cycle
Transactions
1
Journal
2
Ledger
3
Trial Balance
4
Trading
Account
5
Profit & Loss
A/c
6
Balance Sheet
7
An accounting cycle is a complete
sequence of accounting process,
that begins with the recording of
business transactions and ends
with the preparation of final
accounts
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7. Branches of
Accounting
Financial
Accounting
Cost
Accounting
Management
Accounting
7

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Users of Accounting Information
Internal
users
Owners
Management
Employees andTrade unions
External
users
Creditors, banks and other
lending Institutions
Present investors
Potential investors
Government andTax
authorities
Regulatory agencies
Researchers

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Accounting concepts and
conventions
Concepts
Business Entity Concept
Money MeasurementConcept
Going Concern Concept
Cost Concept
DualAspect Concept
Periodicity Concept
Matching Concept
Realization Concept
Objective Evidence Concept
AccrualConcept
Conventions
Convention of Consistency
Convention of Full Disclosure
Convention of Materiality
Convention of Conservatism

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Business Entity Concept Money Measurement Concept
 The proprietor of a business concern is always
considered to be separate and distinct from the
business which he controls.
 All the business transactions are recorded in the books
of accounts from the view point of the business.
 Even the proprietor is treated as a creditor to the extent
of his capital.
 Only those business transactions and events which are
of financial nature are recorded.
 Non monetary transactions are not recorded in
accounting.

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Going Concern Concept Cost Concept
 The business will exist for a long period and
transactions are recorded from this point of view.
 There is neither the intention nor the necessity to wind
up the business in the foreseeable future.
 An asset is recorded in the books on the basis of the
historical cost, that is, the acquisition cost.
 For example, if a piece of land is purchased for
Rs.5,00,000 and its market value is Rs.8,00,000 at
the time of preparing final accounts the land value is
recorded only for Rs.5,00,000.

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Dual Aspect Concept Periodicity Concept
 All business transactions recorded in accounts have
two aspects - receiving benefit and giving benefit.
 For example, when a business acquires an asset
(receiving of benefit) it must pay cash (giving of
benefit).
 For example, when Arun starts a business with cash `
Rs.5,00,000, on the one hand, the business gets cash of
Rs. 5,00,000 and on the other hand, a liability arises,
that is, the business has to pay Arun a sum of
Rs. 5,00,000.
 The users of financial statements need periodical
reports to know the operational result and the
financial position of the business concern.
 Hence it becomes necessary to close the accounts at
regular intervals. Usually a period of 1 year is
considered as the accounting period.
 Financial statements are prepared after every
accounting period and not at the end of its life.
 Helps the business in distribution of income to the
owners and comparing and evaluating performance
of different periods.

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Matching Concept Revenue Realization Concept
 Matching the revenues earned during an accounting
period with the cost (expenses) associated with the
period to ascertain the result of the business.
 It is the basis for finding accurate profit for a period
which can be safely distributed to the owners.
 All expenses paid during the period are not considered,
but only the expenses related to the accounting period
are considered.
 Adjustments are made for outstanding and prepaid
expenses and accrued and unearned revenues.
 According to this concept, revenue is considered as the
income earned on the date when it is realized.
 Unearned or unrealized revenue should not be taken into
account.
 The realization concept is vital for determining income
pertaining to an accounting period.
 It avoids the possibility of inflating incomes and profits.

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Objective Evidence Concept Accrual Concept
 Each recorded business transactions in the books of
accounts should have an adequate evidence to support
it.
 For example, cash receipt for payments made.
 It ensures authenticity, accuracy and reliability of
transactions entered in the books of accounts.
 The documentary evidence of transactions should be
free from any bias.
 As accounting records are based on documentary
evidence which are capable of verification, it is
universally acceptable.
 Transaction is recorded when it is entered into
and not when settlement takes place. i.e., when
they occur and not when cash is paid or received.
 For example, i) Credit sale is recognized as sale
though the amount has not been received immediately.
ii) Rent for the month of March-2018 has not been
paid and if the accounting period is 1.4.2017 to
31.3.2018, it will still be recorded as an expense for
the accounting year 2017-2018 because it had become
due.

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Convention of Consistency Convention of Full Disclosure
 Accounting rules and practices should be
continuously observed.
 The accounting policies must be followed
consistently from one accounting period to another.
 The results of different years will be comparable
only when same accounting policies are followed
from year to year.
 For example, if a firm follows the straight line
method of charging depreciation since its purchase
or construction, the method should be followed
without any change.
 The accounts must be prepared honestly and all
material information should be disclosed in the
accounting statement.
 This is important because the management is
different from the owners in most of the
organisations.
 The disclosure should be full, fair and adequate so
that the users of the financial statements can make
correct assessment about the financial position and
performance of the business unit.

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Convention of Materiality Convention of Conservatism
 Takes into consideration all prospective losses but
leaves all prospective profits.
 “anticipate no profit and provide for all possible
losses”.
 For example Making Provision for Bad and
Doubtful Debts Showing Depreciation on Fixed
Assets
 It is a policy of playing safe.
 Relatively important and significant monetary items
are to be recorded and disclosed in the financial
statements
 The materiality principle requires all relatively
relevant information should be disclosed in the
financial statements.
 Unimportant and immaterial information are either left
out or merged with other items.

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Double entry system
According to this system, every transaction has a two fold effect.
That is, there are two aspects involved, namely, receiving aspect and giving aspect. It is
denoted by debit (Dr.) and credit (Cr.).
The basic principle of double entry system is that for every debit there must be an equivalent
and corresponding credit.
Classification of Accounts
Account
Personal
Natural
Artificial
Representative
Impersonal
Real
Tangible
Intangible
Nominal

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Accounting rules
Golden rules of
Double Entry
System
Personal
Account
Debit the
Receiver
Credit the Giver
Real Account
Debit what
comes in
Credit what
goes out
Nominal
Account
Debit all
expenses and
losses
Credit all
income and
gains

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Reference
1. M C Shukla, T S Grewal and S C Gupta, Advanced Accounts, 19th ed., 2017, S.Chand Publishing, New Delhi.
2. R L Gupta and V K Gupta, Financial Accounting, 11th ed., 2014, Sultan Chand and Sons, New Delhi.
3. S P Jain and K L Narang, Advanced Accountancy Vol – I, 2016, Kalyani Publishers, New Delhi.
4. Dalston L Cecil and Jenitra L Merwin, Financial Accounting, 3rd ed., 2017, Learntech Press, Trichy.
5. Fundamentals of Accounting, 2017, The Institute of Chartered Accountants of India, New Delhi.

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