Additional Material-Lecture 2 MGT-101 Financial Accounting.

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Additional Material-Lecture 2

Presentation transcript:

Additional Material-Lecture 2 MGT-101 Financial Accounting

What is a transaction? 1.Transaction: Financial activity or event two parties Exchange of some goods or services For cash/ money or a promise of future payment

Features of transaction Between two parties Measurable in terms of money Transfer of property or service Affects the financial position of a business

What is BOOK KEEPING? 2. Book keeping: Part of accounting Systematic recording financial transactions OR Art of recording business transactions in the books of accounts in systematic manner Presentation Title

OBJECTIVES OF BOOK-KEEPING Provides financial data to management Provides a systematic record Keeps permanent record Provides details of each transaction Reflects the financial performance of a business.

OBJECTIVES OF ACCOUNTING 1.Primary: Maintenance of records Profit or loss calculation Financial position reflection Provide information to its users

Cont… 2. Secondary: Tax calculation & payment Provides evidence to prevent disputes Extracts correct & valid information Verification and counter check of cash Helps in future planning

USERS OF ACCOUNTING INFORMATION Internal UsersExternal Users OwnersLabor unions ManagersFinancial analysis EmployeesStock Exchange Supplier Regulatory authorities Customers Financial press/media Trade associations Tax Authority Creditor/ investors

BOOK KEEPING VS. ACCOUNTING BOOK KEEPINGACCOUNTING Nature and scope of work Recording phase of an accounting system & basis of accounting Summarizing phase of an accounting system & basis of business decisions. Skill Does not require any special skill or knowledge Requires special skill and knowledge and personal judgment Financial Statement Not prepared from book keeping record.Prepared from accounting record. Financial conditions Cannot give the complete and clear picture of the financial condition of business. Shows complete and clear picture of the financial condition of business. Legality Cannot help in complying with legal formalities. can be complied with the help of accounting information Managerial decisions Does not help in managerial decisionsHelps in making managerial decisions.

SINGLE ENTRY VS. DOUBLE ENTRY Presentation Title SINGLE ENTRYDOUBLE ENTRY incomplete records (cash transactions only) complete records (cash & Credit transactions) statement of profit and loss in prepared to calculate profit trading and profit & loss is prepared in order to ascertained the profit & Loss of business. statement of affairs is maintainedbalance sheet is prepared. Two aspects of a transaction is not recorded two fold aspects of each and every transaction is recorded. adopted by small scale business.adopted by large scale business.

DISADVANTAGES of Single entry book keeping Frauds and mistakes are difficult to detect Partial and incomplete records are maintained Balance sheet is not possible to prepare Nominal accounts & profit and loss account cannot be prepared. Accurate trial balance cannot be drawn

ADVANTAGES OF DOUBLE ENTRY SYSTEM Balanced trial balance Accurate net profit and loss Accurate balance sheet Less chances of fraud Easy detection of errors, omissions & fraud Helps in the valuations of business Helps in managing & supervising business activities Reflects true financial position of a business.

Thank You… Presentation Title