Presentation on theme: "FUNDAMENTALS OF ACCOUNTING Dr. Rana Singh www. ranasingh"— Presentation transcript:
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 BusinessDefining AccountingObjectives of AccountingFunctions of AccountingBranches of AccountingAccounting Concepts & Conventions
3 CONTENTS…Process of AccountingFinancial StatementsImportant TerminologyUsefulness of Accounting for ManagersRecent Trends in Accounting
4 BUSINESSBusiness 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 largehas the basic objective to see whetherthe money invested is efficiently utilizedor not.
6 PARTIES INTERESTED IN BUSINESS Owner or ShareholderManagersCreditorsBanks, Financial InstitutionsProspective InvestorsGovernmentEmployeesSocietyResearchersAll these parties are interested in the Financialposition of the organisation in order to takedecisions.
7 ACCOUNTING Accounting is a language of business. The basic objective of language is to communicate the results of business operations to various partiesBusiness 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 ofmoney, transactions and events which are, in part,at least of financial character and interpretingresults thereof ” AICPA (1941)Accounting may be defined as the process ofrecording, 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 transactionCalculation of Profit or LossDepiction of financial positionTo make information available to various groups and users.To facilitate rational decision making.
10 FUNCTIONS OF ACCOUNTING RecordingOnly transactions that have financial character are recorded.Recording is done in the book “JOURNAL”ClassifyingGrouping of transactions of similar nature at one place i.e “LEDGER”
11 FUNCTIONS OF ACCOUNTING SummarizingIt 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 BalanceIncome StatementBalance SheetDeals with financial transactionsOnly financial transactions are recorded in the books of accounts.Analysis and InterpretationIt 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 reportsMaking Information more ReliableThis is done by use of internationally accepted accounting standards
13 BRANCHES OF ACCOUNTING Financial AccountingCost AccountingManagement Accounting
14 FINANCIAL ACCOUNTINGThe 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 ACCOUNTINGThe 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 problemThe 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 ConceptsAccounting Conventions
18 ACCOUNTING CONCEPTSConcepts includes those basic assumptions or conditions upon which the science of accounting is based.Separate Entity ConceptGoing Concern ConceptMoney Measurement ConceptCost ConceptDual Aspect ConceptAccounting Period ConceptMatching Concept (Periodic matching of Cost and Revenue)Realization Concept
19 CONVENTIONSAre those customs or traditions which guide the accountant while preparing the accounting statements.Convention of ConservatismConvention of Full DisclosureConvention of ConsistencyConvention of Materiality
20 ACCOUNTING PROCESS Financial Transactions Recording:- Journal Classifying: LedgerSummarizing andAnalysis and Interpretation
21 FINANCIAL STATEMENTSFinancial Statements are the end product of financial accountingFinancial Statements includes:-Profit and Loss Account (Income Statement)Balance Sheet
22 PROFIT & LOSS ACCOUNTIt is also know as Income Statement, Statement of earnings, Statement of operationsProfit 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 assetsFixed 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 LiabilitiesIt 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 FundLong term Liabilities or Fixed liabilitiesCurrent Liabilities
26 Debtors Creditors Capital Revenue Are the persons or parties who are liable to pay to the business on account of credit sales.CreditorsAre the persons or parties to whom business is liable to pay on account of credit purchases.CapitalTotal interest of the owner or owners in the business is called. It is sometime called as owner’s fundRevenueThe 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.PurchaseThe 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.SaleThe 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 PlanningPerformance Evaluation (Controlling)Decision MakingCommunication
29 RECENT TRENDS IN ACCOUNTING Human Resource AccountingInflation AccountingSocial AccountingKaizen CostingABC CostingTarget Costing