Accounting, Lectures

1. Financial Accounting
1
Lecture – 01
Learning Objective
• The objective of this lecture is to introduce the subject
Financial Accounting to the students and give them an
idea as to how did accounting develop.

2. Financial Accounting
2
Lecture – 01
What is Financial Accounting?
• It is the maintenance of daily record of ALL financial
transactions in such manner that it would help in the
preparation of suitable information regarding the
financial affairs of a business or an individual.
Why is Financial Accounting Needed?
• The need for recording the financial transactions arises
because the individual or business wishes to know what
is the performance and to assist the person in making
decisions related to the business.

3. Financial Accounting
3
Lecture – 01
What Are Transactions?
• In accounting or business terms any dealing between two
persons involving money or a valuable thing is called
transaction.
• Human beings are social animals and are bound to adopt a
community living style. Living in a community essentially
means that people interact with other people and are
dependant on each other to fulfil their needs.
• Every person cannot fulfil all his needs like food, clothing,
housing etc. on his own. He therefore, depends on other
people to provide him with some of his needs in return to
him providing others with some of theirs.
• This means that to get something on has to give something
in return. Every instance where one ‘gives something’ to ‘get
something’ is called a transaction.

4. Financial Accounting
4
Lecture – 01
How Did It Develop?
• Nearly all developments happen because of human being’s
need for the same. Accountancy is no different.
• Times when goods were bartered or exchanged. When the
concept of money was introduced it became a little more
difficult.
 Example of the Shepherd.
 Budgeting – the old custom of keeping separate “Potlees”
by the elders for household and other expenses. Today’s
Business budgeting is on the same lines.

5. Financial Accounting
5
Lecture – 01
Concept Of Costing.
• A person making or producing any thing must not only know
how much it costs to make but also to help in determining
the selling price.
• It is necessary that the person not only know the cost of what
is being produced but what the cost of each component
which has gone into production is.
• The control of the costs being incurred is also necessary
otherwise the same can exceed the estimates.
• All this is only possible if the costs and data relating to
production is properly recorded and analysed. An exercise
that the Accountant only can carry out.

6. Financial Accounting
6
Lecture – 01
Impact of IT On Accounting.
• A The old “Munshi,” who kept record of the financial
dealings was the original accountant. But he is now of no use
as the need for analysis of information recorded and
forecasting based there on is a capability the“Munshi” lacks.
• In fact,there is no need for any expert in writing of books. IT
has taken over. But some one has to tell the Software
developer how books are written.
• The need for an Accountant who is well versed in the art of
writing up books still remains. The role has changed. IT
software can now produce the reports and analysis but the
expert to interpret all of this remains.
• The need for the professional to describe this has not been
overtaken by IT.

7. Financial Accounting
7
Lecture – 01
Barter Trading and Barter Transactions.
• Trading one commodity or service for another commodity or
service is called ‘Barter Trading’.
• Every transaction where goods are exchanged for good is
called a ‘Barter Transaction’.
• The Since every person cannot produce every thing that he
needs. Therefore, he needs to give / sell what he produces to
get / buy what he wants.
• In early days when ‘money’ was not invented people used to
exchange goods for goods.
• This kind of trade, where goods are exchanged for goods, is
called barter trade. In fact in barter trade value of one
commodity is quoted in terms of other commodity, for
example the price of 10 kg of wheat may be 2 meters of
cloth or 5 litres of milk.

8. Financial Accounting
8
Lecture – 01
Barter Trading and Barter Transactions.
• Although there is no involvement of money but still every
commodity has a value, which means that, you have to give
a specific quantity of one commodity to buy a specific
quantity of another commodity

9. Financial Accounting
9
Lecture – 01
Money Measurement Concept.
• With the passage of time the trading volumes and types of
commodities available in the market increased and it became
increasingly difficult to exchange commodity with
commodity.
• That is where the concept of cash / money came in and
people started valuing all goods / services in terms of a
common commodity called money. Now the price of 10 kg
wheat would be Rupees 60 and not 2 meters of cloth.
• Similarly the price of 2 meters of cloth and 5 litres of milk
would also be Rupees 60.
• In accounting every transaction that is worth recording is
recorded in terms of money.
• In other words any event or item that cannot be translated in
terms of money is not recorded in books.

10. Financial Accounting
10
Lecture – 01
Cash And Credit Transactions.
• Translating every transaction in terms of money does not
always mean that the money changes hands the same time at
which the transaction takes place. It may be paid before or
after the goods are exchanged.
• When the money value of an item being purchased is paid at
the same time the item is exchanged the transaction is said to
be a cash transaction.
• On the other hand if the payment is delayed to a future date
the transaction is termed as a credit transaction.

11. Financial Accounting
11
Lecture – 01
Different Types of Business Organizations
• Sole Proprietorship
A business owned and run by a single person.
• Partnership
A business owned and run by more than one persons.
• Limited Company
A large organization with separate legal status.