2. Introduction to financial accounting
Development of accounting:
Arthashastra has emphasized the need of a/c
Modern system origin to Pacoli,Italian.
After 18th century industrial revolution business transaction
and competition has widened.
Technology has impacted the maintenance of accounting
format.
3. Introduction to accounting
• Definition:The process of
recording,classifying,summarising,analysing and interpreting
the financial transactions and communicating the results
thereof to the persons interested in such informations.
• End users of accounting.
Proprietors
Managers
Creditors
Bankers
Investors
Govts and regulatory bodies
4. Introduction to accounting
• Role of accountants:
Accountants in public practice
Accountants in employments
Accountants in public practice:
Offer services for financial audit,cost audit and other
professional services for a sum of fees.
Accountants in employments
They are employed in business and non-business activities.
In business activities they provide information on tax
returns,budgeting,operating and investment decisions and
external financial reproting.
5. Introduction to accounting
• Objectives of financial accounting:
To keep systematic record
To protect business properties
To ascertain the operational profit or loss
To ascertain the financial position of business
To facilitate rational decision making
• Generally accepted accounting principle(GAAP):
6. Introduction to accounting
• Branches of accounting:
Financial accounting
Management accounting
Differences between fin. a/c & mgmt a/c
1. Fin a/c supply information to external whereas mgmt a/c to
internals
2. Fin a/c portrays the financial status of orgn. Whereas mgmt a/c
provides information about performance of various divisions and
depts.
3. Fin a/c provides based on past data whereas mgmt a/c provides
info. On present and future.
4. Periodic reporting is much longer in fin a/c than mgmt a/c.
5. Fin a/c has much more legal compulsion than mgmt a/c.
7. Introduction to accounting
• Accounting concepts: basic conditions>
Separate entity
Going concern
Money measurement
Cost
Dual aspect
Accounitng period
Matching
realisation
8. Introduction to accounting
• Accounting conventions:
Conservatism
Consistency
Materiality
Full disclosure
• System of BOOK keeping:
Single entry System: it is system of recording transaction where only
record of cash and personal accounts are maintained.
This system are used by small business house who record some only
needed information.
Double entry System : Under this system of recording the dual aspect of
accounting are maintained i.e. every transaction has debit and credit
aspect.
9. Introduction to accounting
• Benefits of double entry system are:
1. Records both the aspects of transaction.
2. Identification of account are easier
3. It helps to check the arithmetical accuracy of acconuts
4. It helps to provide clear financial position of business.
