UNIT I: Meaning of Accounting (PDF)

**UNIT I** **[Meaning of Accounting ]** "**Accounting is the Art of recording, classifying , and summarising in a significant manner and in terms of money , transaction and events which are , in part at least of financial character , and interpreting the result thereof."** Accounting = Business l...

**UNIT I** **[Meaning of Accounting ]** "**Accounting is the Art of recording, classifying , and summarising in a significant manner and in terms of money , transaction and events which are , in part at least of financial character , and interpreting the result thereof."** Accounting = Business language = information about financial status = starts from recording of transaction and = end reporting statement at the end of financial year. **Book-Keeping** **The process of complete and systematic record keeping of the monetary transaction of an organisation by the bookkeeper is known as Book-keeping. It is the activity of keeping full documentation of every single financial transaction of the entity to form the base for the accounting process. The purpose of Bookkeeping is to disclose the correct picture of Income and Expenditure at the end of the accounting period.** **[BRANCHES OF ACCOUNTING]** - - - - - **Difference between Bookkeeping and Accounting** **Bookkeeping** **Accounting** --------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- **Keeping proper records of financial transaction of entity** **Accounting is recording , measuring , grouping, summarizing, evaluating and reporting of transaction.** **Performed by Bookkeeper** **Performed by Accountant** **Financial statement does not form part of Bookkeeping** **Financial statements form part of Accounting.** **Does not help in Managerial decision** **Helps in Managerial decision making** **Does not disclose true and fair view** **Disclose true and fair view** **Procedure of Accounting** --------------- -------------------------------------- ----------------------------- ------------------------------------- ------------------ ------------------- **Generating financial Information** **Using the financial Information** **Recording** **Classifying** **Summarising** **Analysing** **Interpreting** **Communicating** +-----------+-----------+-----------+-----------+-----------+-----------+ | | | **PROCESS | | | | | | | OF | | | | | | | ACCOUNTIN | | | | | | | G** | | | | +===========+===========+===========+===========+===========+===========+ | **INPUT** | | | | | | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | | | +-----------+-----------+-----------+-----------+-----------+-----------+ | **Economi | | **Account | | | **OUTPUT* | | c | | ing | | | * | | events | | Cycle** | | | | | measured | | | | | | | in | | | | | | | financial | | | | | | | terms** | | | | | | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | | | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | | | +-----------+-----------+-----------+-----------+-----------+-----------+ | **Recordi | **Posting | **Prepara | **Prepara | | **Communi | | ng | to | tion | tion | | cating | | of | Ledger** | of Trial | of Final | | Informati | | Transacti | | Balance** | Accounts* | | on | | on | | | * | | to | | in the | | | | | Users** | | books of | | | | | | | Original | | | | | | | entry** | | | | | | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | | | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | **Interna | **Externa | | | | | | l | l | | | | | | Users** | Users** | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | | | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | - | - | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | - | - | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | - | - | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | - | - | +-----------+-----------+-----------+-----------+-----------+-----------+ | | | | | | - | +-----------+-----------+-----------+-----------+-----------+-----------+ **[OBJECTIVES OF ACCOUNTING ]** - - - - - [Golden Rules : ] - - - **Determine which type of Accounts it is** **Mr. Ram** **Salary and Wages** **Printing & Stationery** **Plant and Machinery** **Interest** **Purchases** **Cash** **Bank of Baroda** **Furniture** **Building** **M/s Vikas & Company (Sole proprietor)** **M/s Reliance Ltd.** **Sales** **Commission** **Debtors** **Creditors** **Dividend** **Motor Vehicle** **Bills Receivable** **Bills Payable** **Carriage Inward** **Carriage outward** **Goodwill** **Outstanding Expenses** **Prepaid Income** **Advance** **Repair** **Investment** **M/s RRR & Co. Partnership firm** [Assignment ] **I) Pass the necessary Journal Entry in the books of Mr. Ram and Prepare the Trial Balance** - - - - - - **II) Pass the necessary Journal Entry in the books of M/s Vijay & Co. from the following data** 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. **[FUNCTION OF ACCOUNTING ]** - - - - - - **[Accounting Principles :]** **Introduction to Concepts and Conventions.** **Financial statements are Prepared by the Accountant === Used by various Stakeholders for decision making Purpose === Therefore it is important that financial statement prepared by different organisation should be prepared on UNIFORM BASIS , also there should be consistency over a period in the preparation of this financial statement. Every accountant can\'t use his own norms and notions for accounting of different items then there will be utter confusion.** **To avoid confusion and to achieve uniformity , the accounting process is applied within the conceptual framework of " GENERALLY ACCEPTED ACCOUNTING PRINCIPLES " ( GAAPs ).** **GAAPs are the backbone of the accounting information system.** **It defines parameters and constraints within which accounting reports are generated.** 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. - **GOING CONCERN CONSISTENCY ACCURAL** **[Accounting in Computerised Environment ]** - - **Features of Accounting Software** - - - - - - - - - - - **Advantages of Computerized Accounting** **Disadvantages of Computerized Accounting** ------------------------------------------- -------------------------------------------------------------- **BETTER QUALITY WORK** **REDUCTION OF MANPOWER** **LOWER OPERATING COST** **HIGH COST** **IMPROVED EFFICIENCY** **REQUIRE SPECIAL SKILL** **FACILITATES BETTER CONTROL** **OTHER PROBLEM ( REPAIR POWER FAILURE VIRUS HACKING ETC )** **GREATER ACCURACY** **RELIEVE MONOTONY** **FACILITATES STANDARDIZATION** **MINIMIZING MATHEMATICAL ERRORS** **[SOURCES OF FINANCE ]** - - - **[CONSIDERATION WHILE SELECTING THE SOURCES OF FINANCE]** 1. 2. 3. 4. 5. 6. 7. 8. 9. **Equity Share Capital** **Preference Share Capital** **Borrowed Fund** ----------------------------- -------------------------------- -------------------------------- **Permanent Source** **Not Permanent** **Not Permanent** **Long Term** **Long Term** **Long Term** **No Fixed rate if Return** **Fixed rate of Return** **Fixed rate of Return** **Owners** **Not a Owner** **Not a Owner** **Voting Rights** **No Voting Rights** **No Voting Rights** **Participation in Profit** **No Participation in Profit** **No Participation in Profit** **Dividend** **Fixed rate of Dividend** **Fixed rate of Interest** **Lease Financing** **Term Loan** **Trade Credit** **Factoring** **Public Deposit** **Commercial Bank** **Public Financial Institution** **International Source of finance**