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CH- 1 INTRODUCTION TO ACCOUNTING.pdf

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Class- XI Financial Accounting
Chapter- 1 Introduction To Accounting
Includes detailed explanation as well as mind maps for quick revision and a glance. #financialaccounting #class11 #ppt #class11chapter1 #accounts #commerce #class11accountschapter1 #quick revision #smritisharma #introductiontoaccounting #detailedexplanantion

Class- XI Financial Accounting
Chapter- 1 Introduction To Accounting
Includes detailed explanation as well as mind maps for quick revision and a glance. #financialaccounting #class11 #ppt #class11chapter1 #accounts #commerce #class11accountschapter1 #quick revision #smritisharma #introductiontoaccounting #detailedexplanantion

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CH- 1 INTRODUCTION TO ACCOUNTING.pdf

  1. 1. INTRODUCTION TO ACCOUNTING INTRODUCTION TO ACCOUNTING
  2. 2.  “Accounting is the art of recording recording, classifying classifying and summarising summarising in a significant manner and in terms of MEANING OF ACCOUNTING summarising summarising in a significant manner and in terms of money; transactions and events which are, of a financial character and interpreting interpreting the results thereof”.
  3. 3. Accounting process  T FINANCIAL TRANSACTIONS RECORDING COMMUNICATION TO CLASSIFYING SUMMARISING ANALYSIS & INTERPRETATION TO USERS
  4. 4. CHARACTERISTICS OF ACCOUNTING  IDENTIFICATION OF FINANCIAL TRANSACTIONS Records only monetary transactions. E.g. purchase of raw materials, sale of goods by a firm. Events which cannot be measured in money terms are not recoded in books of account.  RECORDING  RECORDING Process of entering business transactions in Journal. Also called as book of original entry.  CLASSIFYING Process of grouping transactions of one nature at one place. Transactions recorded in journal are posted to main book of account called Ledger
  5. 5. ..  SUMMARISING Presenting the classified data in an understandable manner Preparing financial statements viz. (i) Trading & Profit & Loss A/c (ii) Balance Sheet  ANALYSIS & INTERPRETATION Analysing financial data so that users can make Analysing financial data so that users can make judgement about profitability & financial position of the business.  COMMUNICATING Communicating financial information to its users. To internal as well as external users.
  6. 6. OBJECTIVES OF MAINTAINING RECORDS DETERMINE PROFIT OR LOSS FACILITATE MANAGEMENT OF ACCOUNTING MANAGEMENT PROVIDE INFORMATION TO USERS DETERMINE FINANCIAL POSITION
  7. 7. OBJECTIVES OF ACCOUNTING  MAINTAINING ACCOUNTING RECORDS To record financial transactions & events in the books of account in a systematic manner  DETERMINING PROFIT OR LOSS To determine the Net results of transactions over a period To determine the Net results of transactions over a period of time through Trading and Profit & Loss A/c Also called as Income Statement  DETERMINING FINANCIAL POSITION To determine financial position through Balance Sheet Balance Sheet Also called as Position statement
  8. 8. ..  FACILITATING MANAGEMENT Provides financial information to management. Assists management in decision making, effective control & forecasting.  PROVIDING INFORMATION TO USERS Provides Accounting information to users Provides Accounting information to users to analyse information as per their needs
  9. 9. USERS OF ACCOUNTING INFORMATION EMPLOYEES INTERNAL USERS EXTERNAL USERS GOVERNMENT OWNERS MANAGEMENT RESEARCHERS CREDITORS INVESTORS BANKS
  10. 10. INTERNAL USERS  OWNERS Contribute capital in the business & bear the risk Interested in knowing profit earned or loss incurred by the business  MANAGEMENT Needs information in Decision making Needs information in Decision making such as fixing selling price, cost control, investment into new projects  EMPLOYEES & WORKERS Interested in financial statements to ensure availability of salary and bonus
  11. 11. EXTERNAL USERS  BANKS To ensure safety & recovery of the loan advanced by them to the business  INVESTORS To assess earning capacity of the enterprise and ensure safety of their investment  GOVERNMENT To collect information about earnings of the enterprise for To collect information about earnings of the enterprise for collection of taxes Further it enables Government to take policy decisions  CREDITORS Those who supply goods or services on credit Interested in assessing credit- worthiness of business  RESEARCHERS To use Accounting information for their research work
  12. 12. “ACCOUNTING IS THE ART OF RECORDING, CLASSIFYING BOOK KEEPING VS ACCOUNTING “ACCOUNTING IS THE ART OF RECORDING, CLASSIFYING AND SUMMARISING IN TERMS OF MONEY TRANSACTIONS WHICH ARE OF FINANCIAL CHARACTER, AND INTERPRETING THE RESULTS THEREOF”
  13. 13. BASIS BOOK KEEPING ACCOUNTING 1.Scope BOOK Keeping involves (a) identifying the transactions, (b) measuring them in money terms (c) recording them in the books of account and (d) classifying them Accounting in addition to Bookkeeping involves (a)summarizing the classified Transactions, (b)analysing & interpreting the results (c) communicating the results to the interested parties 2 Stage Book-keeping is Primary stage. Accounting is the Secondary stage. It starts where bookkeeping ends. 3. Basic Objective The basic objective of book keeping is to maintain systematic records of financial transactions. The basic objective of accounting is to ascertain net results of operations and financial position and to communicate information to the interested parties.
  14. 14. D BASIS BOOK KEEPING ACCOUNTING 4. Who Performs Book-keeping work is performed by junior staff. Accounting work is performed by senior staff 6. Analytical Skills The book-keeper does not need to possess analytical skill. An accountant is required to possess analytical skill. 7. Nature of Job The job of a book-keeper is often routine and clerical The job of an accountant is analytical is nature.  . often routine and clerical in nature. analytical is nature.
  15. 15. TEST YOUR UNDERSTANDING  Information in financial reports is based on ________transactions  _____ & _______ are External users of accounting.  Which of the following is not an internal user of financial statements? (i) Board of directors (iii) Managers (i) Board of directors (iii) Managers (ii) Employees (iv) Lenders  Which of the following is NOT a business transaction? a. Bought furniture of Rs.10,000 for business b. Paid for salaries of employees Rs.5,000 c. Paid sons fees from his personal bank account Rs.20,000 d. Paid sons fees from the business Rs.2,000
  16. 16. TEST YOUR UNDERSTANDING  Which of the following will not be recorded in the books of account ? (i) Sales of goods (iii) Payment of salary (ii) Quarrel b/w managers (iv) Purchase of goods  Which is the last step of accounting Process?  Transactions are posted into ________from journal book  Which of the following is not an internal user of financial statements? (i) Board of directors (iii) Managers (ii) Employees (iv) Lenders
  17. 17. IGNORES PRESENT VALUE SHOWS FICTITIOUS ASSETS NOT IGNORES QUALITATIVE ELEMENTS NOT FULLY EXACT MAY LEAD TO WINDOW DRESSING
  18. 18. LIMITATIONS OF ACCOUNTING  ACCOUNTING IS NOT FULLY EXACT  Although most transactions are recorded on the basis of evidence yet some estimates are made for assessing profit or loss  E.g. estimating life of an asset, value of stock ,provisions for doubtful debts etc.  Different firms follow different methods so result will change with  Different firms follow different methods so result will change with change in practice  IGNORES QUALITATIVE INFORMATION  Records only financial transactions  Ignores Non-financial transactions  Qualitative elements like efficiency of management & competition in the market affect performance of business , but are not recorded
  19. 19. ..   MAY LEAD TO WINDOW DRESSING MAY LEAD TO WINDOW DRESSING  ‘Window dressing’ means manipulation of accounts to conceal vital facts & present a better position.  Here Financial statements fail to provide True & fair view of the financial position of the enterprise.   SHOWS FICTITIOUS ASSETS SHOWS FICTITIOUS ASSETS   SHOWS FICTITIOUS ASSETS SHOWS FICTITIOUS ASSETS  Certain assets don’t have value but are shown in Balance – sheet  Such as preliminary expenses, discount on issue of shares  Showing these assets in books makes result doubtful
  20. 20. .. IGNORES PRESENT VALUE OF BUSINESS IGNORES PRESENT VALUE OF BUSINESS  Accounting follows Going concern concept  i.e. business will continue for indefinite period  As such assets are not shown at market price rather at purchase price which is Historical
  21. 21. QUALITATIVE CHARACTERISTICS OF ACCOUNTING   RELIABILITY RELIABILITY Means users must be able to depend on information Information must be reliable Verifiable, free from Bias & material error   RELEVANCE RELEVANCE To be relevant, information must be available in time Must help in prediction and feedback, and Must influence the decisions of users Unnecessary & irrelevant information should not be given
  22. 22. ..   COMPARABILITY COMPARABILITY To be useful information must be comparable To be comparable, accounting reports must belong to a common period and Use common unit of measurement It should facilitate inter-firm & intra –firm comparisons It should facilitate inter-firm & intra –firm comparisons   UNDERSTANDABILITY UNDERSTANDABILITY Information should be presented in simple manner Should be easily understood by different users Relevant explanatory notes can be given to explain the information given in financial statements
  23. 23. ADVANTAGES ADVANTAGES OF ACCOUNTING OF ACCOUNTING  EVIDENCE IN LEGAL MATTERS  PROVIDES COMPLETE & SYSTEMATIC RECORD  PROVIDES INFORMATION ABOUT PROFIT or LOSS  ENABLES COMPARATIVE STUDY  FACILITATES RAISING LOANS  FACILITATES RAISING LOANS  HELPFUL IN DECISION MAKING  FACILITATES SALE OF BUSINESS
  24. 24. THANK YOU THANK YOU

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