1. Basic Accounting
Dr Rakesh Kumar

2. Overview of Accounting
Accounting is concerned with the qualification and interpretation of past and prospective economic transactions. It helps in preparing the financial statements of a business, which are a fundamental source of financial information.
Accounting can rightly be termed as the language of the business since, through it, the results of business operations are communicated to various parties interested in the business viz, the proprietors, creditors, investors, governments, etc.
Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of the information.
Dr Rakesh Kumar

3. Primarily accounting is a basic of financial management decisions.
In other words accounting is a business language, it helps to write business transactions, from this reader can read business activities, and even reader can understand business performances.
Primarily accounting is a basic of financial management decisions.
In case of corporate accounting provides a managerial help to managers for making business decision regarding technical decision like working capital management, dividend distribution policy, transfers to reserves, payment of taxations, assets replacement, expenditure strategy etc.
Dr Rakesh Kumar

4. Definition
“Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transaction and event which are, in part at least, of a financial character, and interpreting the result thereon”
American Institute of Certified Public Accountants
Dr Rakesh Kumar

5. Interpretation of Definition
As per this definition accounting is simply an art of record keeping. The process of account start by first identifying the event and transaction which are of financial character and then be recorded in the books of account. This recording is done in journal or subsidiary books, which are also known as primary books.
After the recording the events and transactions in journal, they are transferred in the secondary book known as ledger book. In ledger the transaction and events are classified in terms of income, expenses, assets and liabilities.
And after it according to their characteristics they are summarized to profit and loss account and balance sheet. One thing which is very important to keep in knowledge that, all transaction should be measured in money, for recording in accounting. The transactions and events must have at least part of financial characteristics.
Dr Rakesh Kumar

6. Objectives of Accounting
Systematic recording of transactions –
Basic objective of accounting is to systematically record the financial aspects of business transactions. Those recorded transactions are later on classified and summarized logically for the preparations of financial statement and for their analysis and interpretation.
Ascertainment of result of above recorded transactions –
Accountant prepares profit and loss account to know the result of business operations for a particular period of time. If revenues exceed expenses then it is said that business in running profitably, but if expenses exceed revenue then it can be said that business is running under loss. The profit and loss account helps management to take some rational decision for the benefit of shareholders.
Dr Rakesh Kumar

7. Ascertainment of the financial positions of the business –
Businessman is not only interested in knowing the results of the business in terms of profit and loss for a particular period but is also anxious to know that what he owes(liabilities) to the outsiders and what he owns(assets) on a certain period. To know this, accountant prepares a financial positions statement popularly known as balance sheet.
This is a statement of assets and liabilities of business at a particular period of time, and it helps in ascertain the financial health of the business.
Providing information to users for rational decision-making-
Accounting as a language of business communicates the financial results of an enterprise to various stakeholders by means of financial statements. Accounting aims to meet the information needs of the decision – makers and helps them in rational decision making.
Dr Rakesh Kumar

8. To know the solvency position –
By preparing the balance sheet, management not only reveals what is owned and owed by the enterprise, but also it gives the information regarding concern’s ability to meet its liabilities in the short run (liquidity position) and also in the long run (solvency position) as and when they fall due.
Dr Rakesh Kumar

9. Functions of Accounting
Following points can be termed as functions of accounting: -
Recording –
This is the basic function of accounting. It ensures that all business truncations of a financial character are correctly recorded in a chronological order. The recording is done in the book popularly known as “Journal”
Classifying –
Classification involves systematic analysis of the recoded data with the objective of grouping transaction or entries of one nature at one place. This work is done in the book popularly known as “Ledger”
Summarizing –
This is concerned with presenting the classified data in a readily understandable manner to both internal as well as external users of accounting information.
It involves preparation of the following statements-
Trail Balance, Profit and loss account, Balance sheet.
Dr Rakesh Kumar

10. Dealing with financial transactions –
Accounting records only those business transactions which are of a financial character. Transactions which are not of a financial character are not recorded in the book of account.
Interpreting –
Accounting also interprets the recoded financial data in a manner that the end users can make a meaningful judgment about the financial positions and profitability of the business. It also provides data for information of future policies and plans.
Dr Rakesh Kumar

11. Types of Accounting
Accounting can broadly be classified into two categories – Financial accounting and Management accounting.
Financial accounting – it is mainly concerned with recoding, classifying, summarizing, the all financial transactions or event. In modern time financial accounting takes by everyone as an instrument to guide and control the operations of a business enterprise. it provide the information of profit and loss of a business and as well it also helps to get the information of financial position composition of asset and liabilities.
Management accounting – it is the accounting which refers to the management, i.e. accounting which provides the necessary information to the management for their functions like planning, organizing, controlling, directing etc.
According to CIMA – The application of professional knowledge and skill in the preparation of the accounting information in such a way as to assist the management in the formulation of policies and in the planning and control of the operations of the undertaking
Dr Rakesh Kumar

12. Users of Accounting
Now days there are long lists of accounting users. Earlier it was viewed that accounting is meant for the proprietor or owner of the business, but changing social relationship diluted the earlier thinking.
It is now believed that besides the owner or the management of the business enterprise, users of account include investors, employees, lenders, suppliers, customers, government and other agencies and the public at large. Accounting information users can be divided into two following given category
Dr Rakesh Kumar

13. Internal users: - A Board of Directors B Partners C Managers D Officers External users: - A Investors B Lenders C Suppliers D Government or Govt agencies E Employees F Customers
Dr Rakesh Kumar

14. Limitations of Accounting
A common man presumes that an income statement shows the correct income or loss of the business enterprise and that a balance sheet portrays a perfectly true and fair picture of financial standing of that enterprise. It must be recognized that accounting as a language has its own limitations. So some of following points can be taken as its limitations-
1. Different accounting policies for the treatment of same item add to the probability of manipulations, through various laws, different accounting standards.
2. A financial statement only considers those assets which can be expressed in only monetary terms. Human resources although the very important asset of the eEnterprise are not shown in the balance sheet. There is no generally accepted formula for the valuations of human resources in money terms.
Dr Rakesh Kumar

15. 3. Balance sheet shows the positions of the business on the day of its preparation and not on the future date while the users of the account are interested in knowing the position of the business in the near future and also in long run and not for the past date.
The time it takes for annual reports to reach the users, business dynamics change. To resolve this, auditors disclose the events occurring after the balance sheet date but before approval of financial statement in the financial reports.
4. The factors which may be relevant in assessing the worth of the enterprise don’t find place in the accounts as they cannot be measured in terms of money.
The balance sheet cannot reflect the value of certain factors like loyalty and skill of the personnel which may be most valuable asset of an enterprise these days.
Dr Rakesh Kumar

16. 5. Certain accounting estimates depends on the personal judgments of the accountant, e.g. provisions for doubtful debts, methods of depreciation adopted, recording certain expenditure as revenue or capital expenses, selections of methods of valuation of stock- in- hand, period of writing off intangible assets, and list is quite long.
Dr Rakesh Kumar

17. Sub Filed of Accounting
The various fields of accounting are –
Financial accounting
Management accounting
Cost accounting
Social responsibility accounting
Human resource accounting
Dr Rakesh Kumar

18. Accountancy – Accounting- Book Keeping
Book keeping is an activity concerned with the recording of financial data relating to business operations in a significant and orderly manner. It covers procedural aspects of accounting work and embraces record keeping function.
Objectives of book keeping –
Complete recording of transactions
Ascertainment of financial effect on the business
Dr Rakesh Kumar

19. Difference between Accounting and Book keeping
Book keeping is a process concerned with the recording of transactions only, but accounting is a process deals with summarizing of recorded transactions.
Book keeping is a base for accounting, but accounting deemed as a language of the business.
Book keeping has no sub-filed, but accounting has several sub- fields like financial accounting, management accounting etc.
Dr Rakesh Kumar

20. Financial position of the business cannot be ascertained through Book keeping records, but accounting is way from which financial position and financial results of a business can be ascertained.
5. From the record of book keeping, managerial decisions cannot be taken, but accounting provides all kind of information like profit or loss status and financial position composition of assets and liabilities, so through this lots of managerial decision can be taken.
Dr Rakesh Kumar

21. Accounting Principles
Accounting principles can be broadly divided into two following category –
Accounting concepts
Accounting conventions
Dr Rakesh Kumar

22. Accounting concept Entity concept –
Entity concepts states that business enterprise is a separate identity apart from its owner. Accountant should treat a business as distinct from its owner. Business transactions are recorded in the business books of accounts and owner’s transactions in his personal books of accounts.
This concept helps in keeping business affairs free from the influence of the personal affairs of the owner.
This concept basically applies one fundamental rule that the enterprise is liable to the owner for capital investment made be the owner, and for that capital owner can claim for share of profits.
Dr Rakesh Kumar

23. 2. Money measurement concept-
As per this concept, only those transaction, which can be measured in terms of money are recorded in accounting. Because money is the medium of exchange and the standard of economic value, this concept requires that those transaction alone that are capable of being measured in terms of money be only recorded in the books of accounting.
Transaction and event which cannot be expressed in terms of money are not recorded in the accounting either they have affected business substantially.
Dr Rakesh Kumar

24. 3. Periodicity concept
This is also called the concept of definite accounting period. As per this concept an indefinite like of the entity is assumed. According to this concept accounts should be prepared after every period and not at the end of the life of the entity.
Usually this period is one calendar year, in India we follow from 1st April of a year to 31st March of the immediately following year.
Dr Rakesh Kumar

25. 4. Going concern concept
The financial statements are normally prepared on the assumptions that an enterprise is a going concern and will continue in operation for the estimated future.
Hence, it is assumed that the enterprise has neither the intention nor the need to liquidate or restrict materially the scale of its operation.
Dr Rakesh Kumar

26. 5. Cost concept
By this concept, the value of an asset is to be determined on the basis of historical cost, in other words, acquisition cost.
For example – when a machine is acquired by paying Rs 5, 00,000, following cost concept the value of the machine is taken as Rs 5, 00,000 in the accounts.
Dr Rakesh Kumar

27. 6. Accounting period concept
According to this concept the life of the business is divided into appropriate accounting segments for studying the result shown by the business after each segment. This is because, though the life of the business is indefinite as provided by the going concern concept, the measurement of income and studying the financial position of the business after a very long period would not be helpful in taking proper corrective steps at the appropriate time. It is therefore, absolutely necessary that after each segments or time interval, the businessman must stop and look back to see how things are going. In accounting such a segments or time interval is called accounting period, which is usually of a year.
Dr Rakesh Kumar

28. 7. Accrual concept
This concept is closely linked with matching of cost and revenue concept. According to this concept, revenues and costs are recognized as they are earned or incurred (not as money is received or paid) and recorded in the financial statements of the periods to which they are related.
For example – if a businessman has invested of Rs 10,000 in government securities on which interest rate is 10% per annum is payable on 31st December each year, revenue of Rs 100 will be deemed to be earned by the business for the accounting year ending 31st December, though it might be received in following next year.
Dr Rakesh Kumar

29. Assets = Equities (Claim)
8. Dual aspect concept
This is the basic concept of accounting to this concept very business truncation has a dual affect. Such effect is either only, or assets and equalities only.
The term assets denote the resources owned by a business. The term equities i.e. claim of various parties against these assets.
Equities can be of two types –
(A) outsiders equities i.e. claim of creditors
(B) owners equities i.e. the claim of the proprietors or shareholders against eh business.
Therefore all assets of the business belong either to the owners or to the outsiders; the total of their claims cannot exceed the amount of assets of the business. The relationship can be expressed as follows-
Assets = Equities (Claim)
Dr Rakesh Kumar

30. Accounting Conventions
1. Consistency concept –
According to this convention, all accounting rules and practices should remain unchanged from one period to another.
For example, if depreciation is charged on fixed assets according to diminishing balance method, it should be done so year after year. This is necessary for purpose of comparison.
This concept serves to eliminate personal bias and to even out personal judgment.
Dr Rakesh Kumar

31. 2. Materiality concept
According to the convention, the accountant should attach importance details and ignores insignificant details. However, the term materiality is a subjective term.
The accountant should consider an item as material if there is reason to believe that its knowledge would influence the decision of the informed investor.
Dr Rakesh Kumar

32. 3. Conservatism concept
According to this convention, accountant follow the policy of playing safe while recording a business transaction.
On account of the principle, expected losses are taken into account but expected profits are not.
For example provision is made for bad and doubtful debts; stock is valued at cost or market price whichever less is.
Dr Rakesh Kumar

33. 4. Full disclosure
According to the convention, all accounting statements/ reports should be absolutely honest and should give a full and fair disclosure of all significant accounting information.
The convention has thus placed an obligation on the accountant to see that the books, records and accounting statements, prepared on behalf of others, are as reliable and informative as circumstance permit.
The company act 1956, not only requires the preparation of the income statement and the balance sheet of a company, but also a prescribed form in which the balance sheet has to be prepared.
Dr Rakesh Kumar

34. THANKS
DR. RAKESH KUMAR
ASST. PROF.BUSINESS ADMINISTRATION
PGGC-11 ,CHANDIGARH