1. FUNDAMENTALS OF ACCOUNTING Dr. Rana Singh www. ranasingh
FUNDAMENTALS OF ACCOUNTING Dr. Rana Singh

2. TOPICS COVERED What is Business? Forms of Business
Parties Interested in Business
Defining Accounting
Objectives of Accounting
Functions of Accounting
Branches of Accounting
Accounting Concepts & Conventions

3. CONTENTS…
Process of Accounting
Financial Statements
Important Terminology
Usefulness of Accounting for Managers
Recent Trends in Accounting

4. BUSINESS
Business is a form of activity involving production and purchase of goods with the object of selling a profit.
Producing and selling at profit is essential to constitute a business.
The term business also includes the performance of services for others on payments.

5. FORMS OF BUSINESS Sole Proprietor Partnership Company or Corporation
Every business whether small or large
has the basic objective to see whether
the money invested is efficiently utilized
or not.

6. PARTIES INTERESTED IN BUSINESS
Owner or Shareholder
Managers
Creditors
Banks, Financial Institutions
Prospective Investors
Government
Employees
Society
Researchers
All these parties are interested in the Financial
position of the organisation in order to take
decisions.

7. ACCOUNTING Accounting is a language of business.
The basic objective of language is to communicate the results of business operations to various parties
Business must know:-
What is owns?
What he owes?
Whether it has earned a profit or loss on account of running a business?
What is financial position i.e. will it be able to meet all his commitments in the near future ?
Accounting provides the answer of all these questions

8. DEFINING ACCOUNTING “Accounting is a process of recording, classifying
and summarizing in a significant and in terms of
money, transactions and events which are, in part,
at least of financial character and interpreting
results thereof ” AICPA (1941)
Accounting may be defined as the process of
recording, classifying, summarizing, analyzing and interpreting the financial transactions and communicating the results thereof to the parties interested in such information.

9. OBJECTIVES OF ACCOUNTING
To maintain the records of business transaction
Calculation of Profit or Loss
Depiction of financial position
To make information available to various groups and users.
To facilitate rational decision making.

10. FUNCTIONS OF ACCOUNTING
Recording
Only transactions that have financial character are recorded.
Recording is done in the book “JOURNAL”
Classifying
Grouping of transactions of similar nature at one place i.e “LEDGER”

11. FUNCTIONS OF ACCOUNTING
Summarizing
It involves presenting the classified data in a manner which is understandable and useful to the internal as well as external users of accounting statements.
Trial Balance
Income Statement
Balance Sheet
Deals with financial transactions
Only financial transactions are recorded in the books of accounts.
Analysis and Interpretation
It helps the management to judge the performance of the business operations and for preparing future plans.

12. Communicating Results
Accounting information so analyzed and interpreted has to be communicated in a proper form and manner to the proper person. This is done through distribution of accounting reports
Making Information more Reliable
This is done by use of internationally accepted accounting standards

13. BRANCHES OF ACCOUNTING
Financial Accounting
Cost Accounting
Management Accounting

14. FINANCIAL ACCOUNTING
The accounting system concerned only with the state of affairs and financial results of operations is called Financial Accounting.
It Includes ascertainment of profit earned or loss incurred and position of business at the end of accounting period and providing financial information required by the management and other parties interested.
The basic objective of accounting is to present TRUE & FAIR view of the affairs of the company.

15. COST ACCOUNTING
The basic limitation of financial accounting is that it fails to provides the information relating to the cost of individual products.
Cost Accounting deals with this problem
The main purpose of cost accounting has been to analyze the expenditure involved so as to calculate the cost of various products manufactured and fix their price.
It also helps in cost control.

16. MANAGEMENT ACCOUNTING
The branch of accounting which provides necessary information to management for decision making is called management accounting.
The Input for management accounting is from financial accounting and cost accounting.

17. ACCOUNTING PRINCIPLES
Accounting is termed as language of business. As in case of language there are set of rules which are adopted for communication same is the case with accounting also.
Are those rules of action or conduct which are adopted by accountant universally while recording accounting transactions.
These principles are of two types:
Accounting Concepts
Accounting Conventions

18. ACCOUNTING CONCEPTS
Concepts includes those basic assumptions or conditions upon which the science of accounting is based.
Separate Entity Concept
Going Concern Concept
Money Measurement Concept
Cost Concept
Dual Aspect Concept
Accounting Period Concept
Matching Concept (Periodic matching of Cost and Revenue)
Realization Concept

19. CONVENTIONS
Are those customs or traditions which guide the accountant while preparing the accounting statements.
Convention of Conservatism
Convention of Full Disclosure
Convention of Consistency
Convention of Materiality

20. ACCOUNTING PROCESS Financial Transactions Recording:- Journal
Classifying: Ledger
Summarizing and
Analysis and Interpretation

21. FINANCIAL STATEMENTS
Financial Statements are the end product of financial accounting
Financial Statements includes:-
Profit and Loss Account (Income Statement)
Balance Sheet

22. PROFIT & LOSS ACCOUNT
It is also know as Income Statement, Statement of earnings, Statement of operations
Profit and loss account is a flow statement that portrays the operations over/during a particular time period.
It reports the profit or loss earned by a business unit out of its activities during a particular period.
It is generally prepared after the end of financial year i.e. Accounting year

23. BALANCE SHEET
“A Statement which sets out the assets and liabilities of a firm or an institution as at a certain date.”
It is statement which reports the property values owned by the enterprise and the claims of the creditors and owner against these properties.
It is prepared with a view to measure the True financial position of a business concern at a particular point of time.

24. IMPORTANT TERMS Assets
It denotes the economic resources (property) of a business and includes all current and fixed assets
Fixed Assets are those that are acquired for continued use and not meant for resale. They may be tangible like land, buildings, plant and machinery, furniture etc. or Intangible like patents, goodwill etc.
Current Assets are those assets which are kept temporarily for resale or for converting into cash. Stock, Cash in Hand, Debtors etc.

25. Liabilities
It denotes all claims against the assets of the business and include those of the outsider or those of the owner of the business.
Liabilities may include the followings:-
Owner's Fund
Long term Liabilities or Fixed liabilities
Current Liabilities

26. Debtors Creditors Capital Revenue
Are the persons or parties who are liable to pay to the business on account of credit sales.
Creditors
Are the persons or parties to whom business is liable to pay on account of credit purchases.
Capital
Total interest of the owner or owners in the business is called. It is sometime called as owner’s fund
Revenue
The income that accrues to the firm by the sale of goods/services/assets or by supply of the firm’s resources to others.

27. Expense Purchase Sale Stock
It is the amount spent in order to produce and sell the goods and services which produce the revenue. Payment of wages, rent, salaries etc.
Purchase
The term purchase is used only for the purchase of goods. Goods are those which are purchased for resale or for the production of finished goods which are also meant for sale.
Sale
The term sale is used for the sale of goods only. It includes both credit as well as cash sale.
Stock
- Goods lying unsold on a particular date.

28. USEFULNESS OF ACCOUNTING FOR MANGERS
Planning
Performance Evaluation (Controlling)
Decision Making
Communication

29. RECENT TRENDS IN ACCOUNTING
Human Resource Accounting
Inflation Accounting
Social Accounting
Kaizen Costing
ABC Costing
Target Costing

30. THANK YOU