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Defintion: 

"Accounting is the process of collecting, recording, summarising and comunicating financial information." 

Attributes of Accounting:

1. Accounting is an art as well as a Science: 

2. Accounting Records only those events and transactions which are of financial character: 

3. Accounting records transactions by expressing them in term of money:

4. Functions of accounting: 

5. Service activity: 

Accounting Process: 

Accounting process are as follows:

(i)    Financial Transactions or Events,

(ii)   Recording,

(iii)  Classifying,

(iv)  Summarising

(v)   Analysis

(vi)  Interpretaion

(vii) Reporting or Communicating 

Branches of Accounting : 

(i)   Financial Accounting : Financial Accounting is concerned with recording financial transactions, summarising and interpreting them and communicating the results to users. 

• It is concerned with recording of business transaction Periodic preparation of balance sheet profit & loss A/C .
• Financial accounting is useful to determine correct profit or lose made during the year and financial position at the end of the year.

(ii)  Cost Accounting: The limitation of financial accounting in respect of information relating to the cost of products or services led to the development of a specialised branch, i.e Cost Accounting. 

• . It helps to determine cost of product and cost control.

(iii)  Management Accounting: Management Accounting is the most recently developed branch of accounting. It is concerned with generating accounting information relating to funds, costs profits, etc. as it enables the management in decision making. 

• It helps the management in decision making, future planning, increasing efficiency and maximizing profit.
• It is highly developed branch of accounting.

Book Keeping: Book keeping is a branch of knowledge that educates us as to how financial records are to be maintained. Book keeping is a part of accounting and is concerned with the recording of financial data in the book of accounts. 

"Book keeping is an art of recording bussiness dealing in a set of books."                 --- J. R. Batliboi

"Book keeping is an art of recording bussiness transactions in a systemic manner."      --A. N. Rosen Kampff

Book keeping is a part of accounting.

 

Book Keeping:

A knowledge that educates us to maintain the financial records. 

• It is the part of accounting. 
• Recording of financial data in the books of accounts. 
• Identifying financial transactions and events.
• Measuring them in terms of money. 
• Classifying recorded transactions and events, i.e posting them into ledger accounts. 

Accountancy: 

Accountancy is a systematic knowledge of accounting. It explain how to deal with Various aspects of accounting. 

It educate us 

(i) How to maintain the books of accounts

(ii) How to summarise the accounting information.

(iii) How to comunicate it to the users: 

Objectives of accounting:

1.  Record of financial transactions and events: 

2. Determine profit or loss.

3. Determine financial position

4. Assisting the management

5. Communicating accounting information to users

6. Protecting Bussiness assets: 

Users of Accounting Information:

(1) Internal or Primary Users: of accounting information:

(i) Management: For analyzing the organization's performance and position and taking appropriate measures to improve the company results.

(ii) Employees: for assessing company's profitability and its consequence on their future remuneration and job security.

(iii) Owners: for analyzing the viability and profitability of their investment and determining any future course of action.

(2) External users (Secondary Users) of accounting information:

(i) Creditors: for determining the credit worthiness of the organization. 

(ii) Tax Authourities: for determining the credibility of the tax returns filed on behalf of the company.

(iii) Investors: for analyzing the feasibility of investing in the company. Investors want to make sure they can earn a reasonable return on their investment before they commit any financial resources to the company.

(iv) Customers: for knowing the financial position of its suppliers which is necessary for them to maintain a stable source of supply in the long term.

(v) Regulatory Authorities: for ensuring that the company's disclosure of accounting information is in accordance with the rules and regulations set in order to protect the interests of the stakeholders who rely on such information in forming their decisions.

 

 

Functions of Accounting: 

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(i) maintaining systematic records :- Accounting records the financial transaction in the Systematic manner.

(ii) Communication the financial result :- Accounting is used to communicate financial information like net profit.

(iii) Meeting legal needs :- Accounting helps for meeting legal needs for various legal purposes like annual accounts, income tax return, sales tax return

(iv) protecting business assets :-  Accounting maintains proper rewards various assets and helps to management to protects business assets by providing relevant information.

(v) Accounting assists the management in decision making :- Accounting assists the management in decision making planning, controlling and coordination of business Activities.

(vi) Ascertaining the business profit and losses :- Accounting helps in determining the coredt net profit and loss of enterprises.

(vii) Ascertaining the financial position :- Accounting helps in determining the financial position of an enterprises with helps of balance sheets.

Summary : 

(i) It helps to maintain systematic accounting records of financial transactions and events. 

(ii) It helps for preparation of financial statements at the end of financial year included profit and loss and balance sheet. 

(iii) Meeting legal requirements : it is also helpful to fulfil the legal requirements and it is also accepted as evidence by the court of law if they are maintained systemically following the accounting principles and concepts. 

(iv) Communicating the financial data

(v) Assisting the management

Objectives of accounting :

(i) Maintaining accounting records :- The first objectives of accounting is to maintain systematic record of transaction.

(ii) Determining profited loss :- The second main objectives of accounting is to determine correct net profit & by preparing profit& loss A/C.

(iii) Determining financial position :- Accounting helps to determine financial position of business by preparing balance sheet.

(iv) providing Accounting information to the user :- Accounting helps to communicate the financial information like net profit, assets, liabilities to interested parties.

(v) Assisting the management :- Accounting Assist the management in decision making by providing relevant information.

Advantage of accounting :

(i) provides financial information about the business to interested porties, likes, net profit, assets and liabilities.

(ii) Helps in comparison of financial results :-

-  Comparison of its own results of different results

-  Comparison of financial of financial results with other firms.

(iii) Helps in decision making by providing relevant information.

(iv) Accounting information can be used as an evidence in legal & taxation matter

(v) Providing information to interest parties and user.

(vi) Accounting record business records in systematic manner.

(vii) Accounting helps in preparation of financial statement like PG2 A/C  balance sheet.

Disadvantages (limitations) of accounting :-

(i) Accounting records only those transaction which can be measures in the terms of money. It ignore non monetary transaction.

(ii) Accounting information is sometimes based on estimates which may be unrealistic.

(iii) Window dressing may lead to faulty results. Window dressing means. manipulation of accounts and show easy picture of the financial statements.

(iv) Accounting ignores the effect of price level changes. transaction records on historical cost. Ex- fixed assets recorded at historical cost.

(v) Accounting information can be manipulated and thus cannot be considered as the true test of performance.

(vi) Accounting information may be biased. accounting information is not without personal influences or bias of accountant.

Characteristics of accounting :

(i) Accounting records transactions and events which are of financial nature .

(ii) accounting is an act.

(iii) it involves following activities, recording, classifying and summarizing.

(iv) Accounting helps in determining the financial position of an enterprise with of balance sheet.

(v) Accounting helps in determining profit and losses of an enterprises.

(vi) It records transaction in the term of money. 

1. Information rellating to profit:

2. Information Relating to financial position.

3. Cash flow statement

Ussers of Accounting information

(1)  Internal Users

a.  Owners 

b.   Management

(2)  External Users

a.   Banks and financial Institutes

b.   Investors and potencial Investors

c.  Creditors

d.  Governments and its authority

e.  Emplyees and Workers

f.  Researchers

g.  Society

 

 

1. Information rellating to profit:

2. Information Relating to financial position.

3. Cash flow statement

Ussers of Accounting information

(1)  Internal Users

a.  Owners 

b.   Management

(2)  External Users

a.   Banks and financial Institutes

b.   Investors and potencial Investors

c.  Creditors

d.  Governments and its authority

e.  Emplyees and Workers

f.  Researchers

g.  Society

 

 

Basic Terms in Accounting

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(1) Entity: Entity means a reality that has a definite individual existence.

Business entity: It means a specifically identifiable business enterprise like Super Bazaar, Hira Jewellers, ITC Limited, etc. An accounting system is always devised for a specific business entity (also called accounting entity).

(2) Transaction: A event involving some value between two or more entities or parties. The financial transaction is made or recorded in the books of accounts in the term of money. It can be a purchase of goods, receipt of money, payment to a creditor, incurring expenses, etc. It can be a cash transaction or a credit transaction.

(3) Capital : Amount invested by the owner and partner in the firm is known as capital. Which may be in the form of money or assets having monetary value. 

(4) Account: Account is summarised record of financial expenditures and receipts or transactions relating to a particular period or purpose at one place. 

(5) Drawings: The money which is withdrawn by owner for personal uses is known as drawings.

(6) Assets : Assets are valuable or economic resources of an enterprise that can be usefully expresses in monetary terms. Assets are items of value used by the business in its operations. Examples: land, building, machinery, stock, bill recievable, furniture, goods etc. 

Assets can be classified into three parts:

(i) Non-current Assets : Non current Assets are those assets which are made by a bussiness firm for a long-term of view. 

(ii) Current Assets 

(iii) Fictitious Assets

(7) Banking: Continuing financial relationship between a customer and a bank in the term of money or a special kind of asset within a framework of established rules and procedures by making deposits and debts. 

(8) Commerce: It is a accounting term which is used for going contractual relationship between a buyer and a seller whereby payment is made for goods received within a time period.