Other
Introduction To Accounting
- Course
- Institution
This PDF Contains The Introduction To Accounting.
[Show more]
Seller
Follow
hamzasuleman
Content preview
This watermark does not appear in the registered version - http://www.clicktoconvert.comLESSON 1 INTRODUCTION TO ACCOUNTING
Contents
1.0 Aims and Objectives
1.1 Introduction
1.2 Book- Keeping
1.2.1 Meaning
1.2.2 Definition
1.2.3 Objectives
1.3 Accounting
1.3.1 Meaning
1.3.2 Definition
1.3.3 Objectives
1.3.4 Importance
1.3.5 Functions
1.3.6 Advantages
1.3.7 Limitations
1.4 Methods of Accounting
1.4.1 Single Entry
1.4.2 Double Entry
1.4.3 Steps involved in double entry system
1.4.4 Advantages of double entry system
1.5 Meaning of Debit and Credit
1.6 Types of Accounts and its rules
1.6.1 Personal Accounts
1.6.2 Real Accounts
1.6.3 Nominal Accounts
1.7 Distinction between Book Keeping and Accounting
1.8 Branches of Accounting
1.8.1 Financial Accounting
1.8.2 Cost Accounting
1.8.3 Management Accounting
1.9 Let us Sum Up
1.10 Lesson-End Activities
1.11 Check your Progress
1.12 Points for Discussion
1.13 References
1.0 AIMS AND OBJECTIVES
i) To know the Meaning ,Definition and objective of Book- Keeping
ii) To study the objectives, functions, importance and limitations of
Accounting
iii) To understand the methods of Accounting, kinds of Accounts and
Accounting rules.
,This watermark does not appear in the registered version - http://www.clicktoconvert.com
1
iv) To study the difference between Book- keeping and Accounting
v) To study the various branches of Accounting
1.1 INTRODUCTION
In all activities (whether business activities or non-business activities) and in
all organizations (whether business organizations like a manufacturing entity or
trading entity or non-business organizations like schools, colleges, hospitals, libraries,
clubs, temples, political parties) which require money and other economic resources,
accounting is required to account for these resources. In other words, wherever money
is involved, accounting is required to account for it. Accounting is often called the
language of business. The basic function of any language is to serve as a means of
communication. Accounting also serves this function.
1.2. MEANING AND DEFINITION OF BOOK- KEEPING
1.2.1 Meaning
Book- keeping includes recording of journal, posting in ledgers and balancing
of accounts. All the records before the preparation of trail balance is the whole subject
matter of book- keeping. Thus, book- keeping many be defined as the science and art
of recording transactions in money or money’s worth so accurately and systematically,
in a certain set of books, regularly that the true state of businessman’s affairs can be
correctly ascertained. Here it is important to note that only those transactions related
to business are recorded which can be expressed in terms of money.
1.2.2 Definition
“Book- keeping is the art of recording business transactions in a systematic
manner”. A.H.Rosenkamph.
“Book- keeping is the science and art of correctly recording in books of
account all those business transactions that result in the transfer of money or money’s
worth”. R.N.Carter
1.2.3 Objectives of Book- keeping
i) Book- keeping provides a permanent record of each transactions.
ii) Soundness of a firm can be assessed from the records of assets and abilities
on a particular date.
iii) Entries related to incomes and expenditures of a concern facilitate to know
the profit and loss for a given period.
iv) It enables to prepare a list of customers and suppliers to ascertain the amount
to be received or paid.
v) It is a method gives opportunities to review the business policies in the light
of the past records.
vi) Amendment of business laws, provision of licenses, assessment of taxes etc.,
are based on records.
,This watermark does not appear in the registered version - http://www.clicktoconvert.com
2
1.3 ACCOUNTING
1.3.1 Meaning of Accounting
Accounting, as an information system is the process of identifying, measuring
and communicating the economic information of an organization to its users who need
the information for decision making. It identifies transactions and events of a specific
entity. A transaction is an exchange in which each participant receives or sacrifices
value (e.g. purchase of raw material). An event (whether internal or external) is a
happening of consequence to an entity (e.g. use of raw material for production). An
entity means an economic unit that performs economic activities.
1.3.2 Definition of Accounting
American Institute of Certified Public Accountants (AICPA) which defines
accounting as “the art of recording, classifying and summarizing 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”.
1.3.3 Objective of Accounting
Objective of accounting may differ from business to business depending upon
their specific requirements. However, the following are the general objectives of
accounting.
i) To keeping systematic record: It is very difficult to remember all the
business transactions that take place. Accounting serves this purpose of record
keeping by promptly recording all the business transactions in the books of account.
ii) To ascertain the results of the operation: Accounting helps in
ascertaining result i.e., profit earned or loss suffered in business during a particular
period. For this purpose, a business entity prepares either a Trading and Profit and
Loss account or an Income and Expenditure account which shows the profit or loss of
the business by matching the items of revenue and expenditure of the some period.
iii) To ascertain the financial position of the business: In addition to profit,
a businessman must know his financial position i.e., availability of cash, position of
assets and liabilities etc. This helps the businessman to know his financial strength.
Financial statements are barometers of health of a business entity.
iv) To portray the liquidity position: Financial reporting should provide
information about how an enterprise obtains and spends cash, about its borrowing and
repayment of borrowing, about its capital transactions, cash dividends and other
distributions of resources by the enterprise to owners and about other factors that may
affect an enterprise’s liquidity and solvency.
v) To protect business properties: Accounting provides upto date
information about the various assets that the firm possesses and the liabilities the firm
owes, so that nobody can claim a payment which is not due to him.
, This watermark does not appear in the registered version - http://www.clicktoconvert.com
3
vi) To facilitate rational decision – making: Accounting records and
financial statements provide financial information which help the business in making
rational decisions about the steps to be taken in respect of various aspects of business.
vii) To satisfy the requirements of law: Entities such as companies, societies,
public trusts are compulsorily required to maintain accounts as per the law governing
their operations such as the Companies Act, Societies Act, and Public Trust Act etc.
Maintenance of accounts is also compulsory under the Sales Tax Act and Income Tax
Act.
1.3.4 Importance of Accounting
i) Owners: The owners provide funds or capital for the organization. They
possess curiosity in knowing whether the business is being conducted on sound lines
or not and whether the capital is being employed properly or not. Owners, being
businessmen, always keep an eye on the returns from the investment. Comparing the
accounts of various years helps in getting good pieces of information.
ii) Management: The management of the business is greatly interested in
knowing the position of the firm. The accounts are the basis, the management can
study the merits and demerits of the business activity. Thus, the management is
interested in financial accounting to find whether the business carried on is profitable
or not. The financial accounting is the “eyes and ears of management and facilitates
in drawing future course of action, further expansion etc.”
iii) Creditors: Creditors are the persons who supply goods on credit, or
bankers or lenders of money. It is usual that these groups are interested to know the
financial soundness before granting credit. The progress and prosperity of the firm,
two which credits are extended, are largely watched by creditors from the point of
view of security and further credit. Profit and Loss Account and Balance Sheet are
nerve centres to know the soundness of the firm.
iv) Employees: Payment of bonus depends upon the size of profit earned by
the firm. The more important point is that the workers expect regular income for the
bread. The demand for wage rise, bonus, better working conditions etc. depend upon
the profitability of the firm and in turn depends upon financial position. For these
reasons, this group is interested in accounting.
v) Investors: The prospective investors, who want to invest their money in a
firm, of course wish to see the progress and prosperity of the firm, before investing
their amount, by going through the financial statements of the firm. This is to
safeguard the investment. For this, this group is eager to go through the accounting
which enables them to know the safety of investment.
vi) Government: Government keeps a close watch on the firms which yield
good amount of profits. The state and central Governments are interested in the
financial statements to know the earnings for the purpose of taxation. To compile
national accounting is essential.
vii) Consumers: These groups are interested in getting the goods at reduced
price. Therefore, they wish to know the establishment of a proper accounting control,
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller hamzasuleman. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $5.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
56326 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now