Introduction To Accounting
Introduction To Accounting
ACCOUNTING
By Manpreet Sarna
MEANING
BOOK-KEEPING ACCOUNTING ACCOUNTANCY
Book- keeping is an art of It is a systematic process It refers to systematic
recording business of measuring, recording, knowledge of accounting.
dealings in a set of books. classifying, summarizing, It explains how to deal
interpreting and with various aspects of
communicating financial accounting.
information to the users.
DEFINITION
According to American Institute of Certified Public Accountants,
“Accounting is the art of recording, classifying and summarising in
a significant manner and in terms of money, transactions and events
which are, in part at least, of a financial character, and interpreting
the results thereof.”
Objectives of Accounting
1. To keep systematic and complete record of financial transactions in the books of
accounts according to specified principles and rules to avoid the possibility of
omission and fraud.
2. To ascertain the profit earned or loss incurred during a particular accounting
period which further help in knowing the financial performance of a business.
3. To ascertain the financial position of the business by the means of financial
statement i.e. balance sheet which shows assets on one side and Capital & Liabilities
on the other side.
4. To provide useful accounting information to users like owners, investors, creditors,
banks, employees and government authorities etc who analyze them as per their
requirements.
5. To provide financial information to the management which help in decision
making, budgeting and forecasting.
6. To prevent frauds by maintaining regular and systematic accounting records.
ACCOUNTING PROCESS
Recording
Communicating to users
1. Reliability: Means the information must be based on facts and be verified through source
documents by anyone. It must be free from bias and errors.
2. Relevance: To be relevant, information must be available in time and must influence the
decisions of users by helping them to form prediction about the outcomes.
3. Understandability: The information should be presented in such a manner that users can
understand it well.
4. Comparability: The information should be disclosed in such a manner that it can be
compared with previous year’s figures of business itself and other firm’s data.
Users of Accounting Information
1. Investors and
To know about Safety, growth of their investments and future of the business.
potential investors
2. Creditors Assessing the financial capability, ability of the business to pay its debts.
5. Government To compile national income and other information. Helps to take policy decisions.
6. Others Customers, Researchers etc., may seek different in- formation for different reasons.
DOUBLE ENTRY SYSTEM
It is a system of accounting in which both debit and credit aspects of accounting are recorded.
Example: At the time of cash purchases goods are received and in return cash is paid.
Advantages:
1. Scientific system
2. Complete record of transactions
3. Check on accuracy of accounts
4. Determining Profit & Loss