Meaning and definition of Accounting, Book-Keeping, Accounting, Accountancy, difference between Accounting and Book-keeping, Systems of accounting, Characteristics of accounting, objectives of accounting, functions of accounting, process of accounting, types of accounts, golden rules of accounting. concepts and conventions of accounting.

1. Unit – 1
Introduction to
Accounting
Dr. Kasamsetty Sailatha
Associate Professor and Chairperson
Department of Management and Commerce
Amrita School of Arts and Sciences
Amrita Vishwa Vidyapeetham
Mysuru
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2. • Introduction to Accountings
• Introduction to Accounting and book-
keeping
• Accounting concepts
• Accounting conventions
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3. DEFINITION OF ACCOUNTING
"Accounting is the art of recording, classifying and
summarising 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."
-American Institute of Certified Public
Accountants
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4. DEFINITION OF ACCOUNTING
"Accounting is the science of recording and classifying
business transactions and events, primarily of a financial
character, and the art of making significant summaries,
analysis and interpretations of those transactions and
events and communicating the results to persons who
must make decisions or form judgment."
-Smith and Ashburne
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5. DEFINITION OF ACCOUNTING
"Accounting is the process of identifying,
measuring and communicating economic
information to permit informed judgments
and decisions by users of the information."
-American Accounting Association
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6. Meaning of Accounting
Thus, accounting is a process of
 collecting,
 recording,
 summarising and
 communicating financial information
to the users for decision-making.
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7. ATTRIBUTES (CHARACTERISTICS) OF ACCOUNTING
The definitions of accounting bring to light the
following attributes of Accounting:
1. Identification of Financial Transactions and
Events
2. Measuring the Identified Transactions
3. Recording
4. Classifying
5. Summarising
6. Analysis and Interpretation
7. Communicating
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8. Financial Transactions or
Events
RecordingJournal
1. Cash Book
2. Purchase Book
3. Sales Book
4. Purchases Return Book
5. Sales Return Book
6. Bills Payable Book
7. Bills Receivable Book
8. Journal Proper
Classifying (Posting into
Ledger)
Summarizing
Trial Balance
Trading and Profit and Loss Account
Balance Sheet.
Analysis and Interpretation
Communicating to the Users
ACCOUNTING PROCESS
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9. BOOK KEEPING, ACCOUNTING AND ACCOUNTANCY
Meaning of Book Keeping
Book Keeping is part of and it is
concerned with:
 Identifying financial transactions and
events,
 Measuring them in terms of money,
 Recording the financial transactions
and events so identified in the books of
accounts, and
 Classifying recorded transactions and
events, i.e., posting them into Ledger
accounts.
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10. Definitions of Book Keeping
"Book Keeping is an art of recording in the books of accounts the
monetary aspect of commercial and financial transactions."
• -Northcott
"Book Keeping is an art of recording business dealings in a set of
books."
• -J.R. Batliboi
• "Book Keeping is the science and art of recording correctly in
the books of accounts all those business transactions that result
in the transfer of money or money's worth."
• -R.N. Carter
• "Bool: Keeping is the art of recording business transactions in a
systematic manner."
• -A.N. Rosen Kampff
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11. • Accounting:
•Accounting is an art of
•recording,
•classifying and
•summarising the financial data and
interpreting the results thereof.
•Accounting is a wider concept than Book
Keeping.
•It starts where Book Keeping ends. In other
words, Book Keeping is a part of accounting.
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12. BOOK KEEPING, ACCOUNTING AND ACCOUNTANCY
DIFFERENCE BETWEEN BOOK KEEPING AND ACCOUNTING
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Basis Book Keeping Accounting
1. Scope Book Keeping is concerned with
identifying financial transactions;
measuring them in money terms;
recording them in the books of
accounts and classifying them.
Accounting is concerned with
summarising the recorded
transactions, interpreting them
and communicating the results.
2. Stage It is a primary stage. It is a secondary stage. It begins
where Book Keeping ends.
3. Objective The objective of Book Keeping is
to maintain systematic records of
financial transactions.
The objective of accounting is to
ascertain net results of operations
and financial position and to
communicate information to the
interested parties.

13. BOOK KEEPING, ACCOUNTING AND ACCOUNTANCY
DIFFERENCE BETWEEN BOOK KEEPING AND ACCOUNTING
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4. Nature of Job This job is routine in
nature.
This job is analytical and
dynamic in nature.
5. Performance Junior staff performs this
function.
Senior staff performs this
function.
6. Relation Book Keeping is the basis
for accounting.
Accounting begins where
Book Keeping ends.
7. Special Skills Book Keeping is
mechanical in nature and
thus, does not require
special skills.
Accounting requires special
skills and ability to analyse
and interpret.

14. •Accountancy
•Accountancy refers to a systematic
knowledge of accounting.
•It explains how to deal with various
aspects of accounting.
•It educates us why and how to maintain
the books of accounts and how to
summarise the accounting information
and communicate it to the users.
•In the words of Kohler, accountancy
refers to the entire body of the theory and
practice of accounting
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15. •Accounting and Accountancy
 Accountancy is an area of knowledge
whereas accounting is the action or process
used in this area.
 Accounting depends on the rules and
principles framed by the Accountancy but
Accountancy does not depend on
Accounting.
 It may be said that Accountancy is the whole
thing while Accounting is the application
part of accountancy.
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16. OBJECTIVES OF ACCOUNTING
The objectives or functions of accounting are:
 Maintaining Systematic Records of Financial
Transactions an Events
 Ascertaining Profit or Loss
 Ascertaining Financial Position
 Assisting the Management
 Communicating Accounting Information to Users
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17. FUNCTIONS OF ACCOUNTING
The functions of accounting are:
 Maintaining Systematic Records
 Communicating the Financial Results
 Meeting Legal Requirements
 Protecting Business Assets
 Assistance to Management
 Stewardship
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18. ADVANTAGES OF ACCOUNTING
Followings are the advantages of Accounting
 Financial Information about Business
 Assistance to Management
 Replaces Memory
 Facilitates Comparative Study
 Facilitates Settlement of Tax Liabilities
 Facilitates Loans
 Evidence in Court
 Facilitates Sale of Business
 Assistance in the Event of Insolvency
 Helpful in Partnership Accounts
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19. LIMITATIONS OF ACCOUNTING
Followings are the limitations of accounting
 Accounting is not Fully Exact
 Accounting does not Indicate the Realisable
Value
 Accounting Ignores the Qualitative Elements
 Accounting Ignores the Effect of Price Level
Changes
 Accounting may Lead to Window Dressing
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20. SYSTEMS OF ACCOUNTING
The systems of recording transactions
in the books of accounts are two
namely:
1. Double Entry System and
2. Single Entry System.
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21. Double Entry System
The Double Entry System of accounting was developed in the 15th Century in
Italy by Lucas Pacioli.
Under the system, every transaction has two aspects-Debit and Credit and at
the time of recording a transaction, it is recorded once on the debit side and
again on the credit side.
The Double Entry System has proved to be a scientific and complete system of
accounting followed by every enterprise and organisation.
For example, at the time of cash purchases, goods are acquired and in return
cash is paid.
In the transaction, above two aspects are involved, i.e., receiving goods and
paying cash
Under the Double Entry System, both these aspects are recorded.
One part, i.e., the receipt of goods is debited and the second part, i.e., payment
of cash is credited.
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22. Features of the Double Entry
System
 It maintains a complete record of each transaction.
 It recognises the two-fold aspect of every
transaction, viz., the aspect of receiving (value in)
and the aspect of giving (value out).
 In this system, one aspect is debited and other
aspect is credited following the rules of debit and
credit.
 Since, one aspect of a transaction is debited and the
other is credited, the total of all debits is always
equal to total of all credits. It helps in establishing
arithmetical accuracy by preparing the Trial Balance.
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23. Stages of Double Entry System
The following are the three different
stages of a complete system of a double
entry book keeping:
 Recording the transactions in the Journal.
 Classifying the transactions in the Journal by
posting them to the appropriate ledger
accounts and then preparing the Trial Balance.
 Closing the books and preparing the final
accounts.
All these stages shall be discussed one by
one in succeeding chapters.
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24. Advantages of the Double Entry System
The main advantages of Double Entry System are
 Scientific System
 Complete Record of Transactions
 A Check on the Accuracy of Accounts
 Ascertainment of Profit or Loss
 Knowledge of Financial Position
 Full Details for Purposes of Control
 Comparative Study is Possible
 Helps Management in Decision-Making
 No Scope of Fraud
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25. Single Entry System
Single Entry System of recording transactions in
the books of accounts, may be defined to be an
incomplete Double Entry System.
In this system, all transactions are not recorded
on the double entry basis.
As regards some transactions, both aspects of
the transactions are recorded, as regards others,
either one aspect is recorded or not recorded at
all.
Instead of maintaining all the accounts, only
Personal Accounts and Cash Book are
maintained under this system.
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26. Single Entry System
The accounts maintained under this
system are incomplete and unsystematic
and therefore, not reliable.
The Single Entry System is also known as
Accounts from Incomplete Records.
Since all transactions are not recorded
under double entry principle, it is not
possible to prepare a Trial Balance.
As a result, the Profit and Loss Account
and the Balance Sheet cannot be
prepared.
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27. Types of Accounts and Golden rules of
Accounting:
•Personal Account: Accounts of persons with who
the business has dealing are known as personal
Account.
• Natural person: Name of an Individual ex. Name of Customers,
supplier etc.
• Artificial person or legal bodies: name of any firm or company ex.
Bank co-operative society, educational institution firms’ name.
• Representative personal accounts: all accounts representing
outstanding to outstanding expenses and accrued or prepaid incomes
are personal accounts Ex. Out standing salaries, rent, wages or
prepaid expenses or accrued or prepaid incomes.
•Rule: Debit the Receiver and Credit the Giver
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28. • Real Account: Accounts in which the
business records the real things owned by it
i.e. assets are known as real accounts.
• Real accounts are two types:
• Tangible
• Intangible
• Rule: Debit what comes in and credit what goes out
• Nominal Accounts: It relates to the items
which exist in name only. Ex. Expenses,
incomes etc. Or in other words, accounts
which records expenses losses income and
gains of the business are known as nominal
accounts.
• Rule: Debit all expenses and losses and
credit all incomes and gains.
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29. Types of Accounts and its Classification
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Accounts
Personal
Proprietor Creditors Debtors
Impersonal
Real
Asset
Meant for
use
Goods
Meant for
resale
Nominal
Expenses
and losses
Incomes
and gains

30. Accounting Concepts and Conventions
•Need for Accounting Concepts and Conventions
•Development of Accounting concepts and
conventions
• Utility
• Objectivity
• Feasibility
•Classification of accounting concepts and
conventions
•Important terms in accounting
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31. Concepts of Accounting:
• The Generally Accepted Accounting Principles (GAAP) are all termed
concepts by some experts.
• Some others call all of them conventions.
• However an overwhelming majority of authors on accounting distinguish
between concepts and conventions.
• Concepts:
1. The entity concept
2. The money measurement concept
3. Going concern concept
4. Dual aspect concept
5. Accounting period concept
6. Cost concept
7. Revenue recognition concept or realization concept
8. Matching concept
9. Accrual concept
10. Objective evidence concept
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32. Conventions:
•Convention of full disclosure
•Convention of consistency
•Convention of materiality (relative
importance)
•Convention of conservatism (playing safe, is
the defensive accounting mechanism
against uncertainty)
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