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INTRODUCTION TO ACCOUNTING (Handout 1)

This document provides an introduction to accounting. It defines key terms like bookkeeping, accounting, and transactions. Bookkeeping is recording business transactions, while accounting uses bookkeeping records to prepare financial statements and analyze profit/loss and financial position. Accounting helps stakeholders monitor business performance and make decisions. It maintains complete records of transactions and provides information on assets, liabilities, equities and profit/loss. This allows managers to evaluate strengths/weaknesses and plan effectively, and helps owners, creditors and other stakeholders evaluate the business.

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Jarin Tasnim
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18 views2 pages

INTRODUCTION TO ACCOUNTING (Handout 1)

This document provides an introduction to accounting. It defines key terms like bookkeeping, accounting, and transactions. Bookkeeping is recording business transactions, while accounting uses bookkeeping records to prepare financial statements and analyze profit/loss and financial position. Accounting helps stakeholders monitor business performance and make decisions. It maintains complete records of transactions and provides information on assets, liabilities, equities and profit/loss. This allows managers to evaluate strengths/weaknesses and plan effectively, and helps owners, creditors and other stakeholders evaluate the business.

Uploaded by

Jarin Tasnim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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INTRODUCTION TO ACCOUNTING

1. What is Book keeping?


BOOK-KEEPING IS THE ART OF RECORDING BUSINESS TRANSACTIONS IN A SYSTEMATIC
MANNER.

2. What is meant by Accounting?


Accounting uses the detailed record of bookkeeping to prepare a financial statement in
order to identify profit and loss and the financial position of the business.

3. What is transaction?
Transaction refers to any event which is measurable in terms of money and which changes
the financial position of a business concern.
Examples: Bought goods for $500 on credit. Paid wages in cash $200.

OBJECTIVES OF ACCOUNTING
● To maintain a complete and proper record of all business transactions.
● To calculate the profit of the business and measure the performance of a business.
● To identify the financial position of a business.
● To provide the necessary information to the interested users for their decision-making.

DIFFERENCE BETWEEN BOOKKEEPING AND ACCOUNTING:


1. Bookkeeping is just the process of recording transactions in books of accounts. On the
other hand, accounting comprises the recording as well as the preparation of financial
statements and the analysis and interpretation of the financial statement.
2. Book-keeping is the first stage of maintenance of books of account, whereas accounting
is the second stage of maintenance of books of accounts.
3. Bookkeeping observes the principles of recording transactions laid down by accounting.
But accounting follows its own rules and principles.

THE PURPOSES OF MEASURING BUSINESS PROFIT & LOSS


Profit is the incentive for business; without profit, people might not be bothered to do
business. Profit is the reward for taking risks. Accurate and precise measurement of Profit
and loss of a business is an essential accounting activity because it helps many stakeholders
to make many important decisions.

It provides owners with a good idea of whether to keep running and expanding one particular
business or cease trading. Managers can take future decisions on the basis of the past
performance of the business. Suppliers and creditors can decide whether to strengthen their
relationship with a business or revise their decision. To sum up, the main purpose of measuring
the profit and loss of a business is to help all stakeholders to analyze the past performance of a
business and to provide them with guidance for future decision-making.
ROLE OF ACCOUNTING IN PROVIDING INFORMATION FOR MONITORING PROGRESS &
DECISION MAKING:
Accounting maintains complete and proper records of all the business transactions and
prepares financial statements to show the changes in assets, liabilities, and equities of a
business. It is a very important process in an organization. It shows the profit and loss of a
business.

Accounting plays an important role in decision-making and monitoring progress in an


organization. Accounting shows the progress of a business from year to year and provides the
financial result, and other valuable information to the various interested groups like the
management and staff of the firm, the owners, the creditors, the government, and the
consumers, etc. for this reason accounting is regarded as the language of business. It enables
the management to monitor the strengths and weaknesses of a business and minimize the
errors and fraudulent activities of a business.

As it helps the management keep proper control over the use of the business properties, it is
called the eyes and ears of the business. It also helps the management make a more effective
plan for future benefit and growth. On the other hand, accounting information satisfies some
legal requirements and helps other stakeholders to decide on their own interests like
investment decisions, loan & credit facilities, consumption of goods & services, taxation &
subsidies

Some of the important users of accounting information:


1. Owner: The owner wants to see both profitability and liquidity in order to assess the
business’s performance and progress.
2. Manager: The manager uses ratios to assess past performance, plan for the future and take
remedial action where necessary.
3. Bank manager: The bank manager needs to know whether the business has enough security
to cover the amount of the loan and whether it can be paid when due.
4. Creditors: The creditor needs accounting information to assess the liquidity position, to
determine the credit limit and length of the credit period.
5. Workers: they need to see their job security like whether the business is able to continue its
operation in the future and can pay regular wages.

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