ACCOUNTIN G

Dr.R.Rajesh
Dr.R.Rajesh

Accounting
Luca Pacioli's "Summa de Arithmetica, Geometria, Proportioni et Proportionalit" (Latin: "Review of Arithmetic, Geometry, Ratio and Proportion") was first printed and published in Venice in 1494.

It included a 27-page treatise on bookkeeping, "Particularis de Computis et Scripturis" (Latin: "Details of Calculation and Recording").
It was written primarily for, and sold mainly to, merchants who used the book as a reference text, as a source of pleasure from the mathematical puzzles it contained, and to aid the education of their sons. It represents the first known printed treatise on bookkeeping; and it is widely believed to be the forerunner of modern bookkeeping practice. In Summa Arithmetica, Pacioli introduced symbols for plus and minus for the first time in a printed book, symbols that became standard notation in Italian Renaissance mathematics. Summa Arithmetica was also the first known book printed in Italy to contain algebra.

Dr.R.Rajesh

Accounting

Although Luca Pacioli did not invent double-entry bookkeeping, his 27-page treatise on bookkeeping contained the first known published work on that topic, and is said to have laid the foundation for double-entry bookkeeping as it is practiced today. Even though Pacioli's treatise exhibits almost no originality, it is generally considered as an important work, mainly because of its wide circulation, it was written in the vernacular Italian language, and it was a printed book.

Dr.R.Rajesh

Accounting

Even in our country, Chanakya has clearly indicated the need of Accounting and Auditing in his book Arthashastra. The Indian system of accounting is as scientific and systematic as the one developed in the West. We do not lag behind the West in the origin and development of accounting.

Dr.R.Rajesh

BOOK-KEEPING AND ACCOUNTANCY

Are Book-keeping and Accountancy synonymous?

Dr.R.Rajesh

BOOK-KEEPING AND ACCOUNTANCY

Are Book-keeping and Accountancy synonymous? Both the terms are different from each other. However, there is no universally accepted line of demarcation or division between the two.

Dr.R.Rajesh

BOOK-KEEPING AND ACCOUNTANCY

Book-keeping is the art of recording business transactions in a set of books of accounts.

Transaction means any dealing, expressed in terms of money. The books in which the transactions are recorded are called Books of Accounts.
Dr.R.Rajesh

BOOK-KEEPING AND ACCOUNTANCY

Book-keeping is concerned with preparation of vouchers, recording transactions in a journal and posting in the ledger. Bookkeeper arrives at the final balances of different accounts, after totaling the accounts. The job of a book-keeper is to the extent of preparing trial balance, duly tallied. Book-keeping is mainly of clerical nature.

Anyone who has basic knowledge of the principles of bookkeeping can maintain the books of accounts. On the other hand, accountancy requires deep knowledge of the principles and their application. Though, book-keeping and accountancy are different in several aspect, they are supplementary to each other.

Book-keeping and accounting are not synonymous (interchangeable) terms.

Dr.R.Rajesh

BOOK-KEEPING AND ACCOUNTANCY

The job of an accountant commences where the work of a bookkeeper ends. Accountant guides a book-keeper and reviews the job, done by him. Normally, a book-keeper works under the supervision of an accountant. The functions of an Accountant can be summarised as under: Examination of entries made in the books of accounts Verification of trial balance Rectification of errors, if any, in accounts Recording the adjustments Preparation of trading account Preparation of profit and loss account Preparation of balance sheet Analysis of results and Deriving conclusions and communication of the results.

An accountant is required to have much higher skill and knowledge, compared to a Book-keeper. The larger the firm, higher is the responsibility of an accountant.

Dr.R.Rajesh

OBJECTIVES OF BOOK KEEPING

The objectives of book keeping can be summarised under the following headings: (A) Main Objectives : The main objectives of book keeping are as follows: To know the result of the business over a period of time. This may be profit or loss. To know the financial position of business at a point of time. This can be known by presenting all assets and liabilities in the form of a statement known as a Balance Sheet. To maintain all records for a given period to serve as permanent reference in future. To know the amount which a business owes to others for having bought goods on credit basis. To know the amount due to business by others on account of goods sold on credit basis. To meet provisions of various laws as in the case of Joint Stock Comapnies which have to prepare accounts according to the Provisions of Companies Act 1956.

Dr.R.Rajesh

OBJECTIVES OF BOOK KEEPING

(B) Other Objectives : These include : o To improve the business on the basis of past performance. o To know the composition of capital in terms of size, the causes for change in capital structure and whether maximum use of the same is made. o To exercise control over expenses thereby to increase profitability of the business. o To know the position of cash so that in case of need further amount can be arranged. o To meet the requirements of tax and legal authorities.

Dr.R.Rajesh

ADVANTAGES OF BOOK KEEPING

(A) To the Management of a Business

(B) To the Investors (C) To the Employees (D) To the Government (E) To the Consumers (F) To the Prospective Investors (G) To the Creditors and Suppliers

Dr.R.Rajesh

Accounting
Accounting is the language of business. The main purpose of language is communication of ideas. Similar is the purpose and role of accounts for a business is. A businessman has to keep a systematic record of the financial activities of his firm so that he can know the financial position. What it owns are assets and what it owes are the liabilities. It is necessary for every businessman to know where he stands in many respects: What he owns? What he owes? Whether he has earned profit or suffered loss over a period? What is his financial position? Is he better off or moving towards bankruptcy? Only accounts give answers to these questions.

Dr.R.Rajesh

Meaning, Scope and Definition of Accounting

Meaning and Scope of Accounting Accounting is the language of business. The main objective of Accounting is to safeguard the interests of the business, its proprietors and others connected with the business transactions. This is done by providing suitable information to the owners, creditors, shareholders, Government, financial institutions and other related agencies. Definition of Accounting The American Accounting Association defines accounting as the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by the users of the information." According to AICPA (American Institute of Certified Public Accountants) it is defined as "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 result thereof."

Dr.R.Rajesh

Accounting
Steps of Accounting

The following are the important steps to be adopted in the accounting process:
(1) Recording (2) Classifying (3) Summarising (4) Interpreting

Dr.R.Rajesh

Components of Accounting

(A) Recording (B) Classifying (C) Summarising (D) Deals with Financial Transactions (E) Analysis and Interprets (F) Communicates

Dr.R.Rajesh

ACCOUNTING SCIENCE OR ART

Accounting is a science as well as an art.

Dr.R.Rajesh

Accounting Principles

Accounting principles are the rules based on assumptions, customs, usages and traditions for recording transactions. Accounting principles may be defined as those rules of action or conduct, which are adopted by the accountants, universally, while recording the transactions.

Dr.R.Rajesh

Characteristics of Accounting Principles

Accounting principles are accepted if they possess the following characteristics. The general acceptance of the accounting principles or practices depends upon how well they meet the following criteria: 1. Objectivity 2. Application 3. Reliability 4. Feasibility 5. Understandability

Dr.R.Rajesh

Accounting Principles

Accounting principles are divided into two categories: Accounting Concepts Accounting Conventions

Dr.R.Rajesh

Accounting Concepts

1. Business Entity Concept 2. Money Measurement Concept 3. Going Concern Concept 4. Dual Aspect Concept or Equation Concept 5. Historical Record Concept or Realisation Concept 6. Cost Concept 7. Accounting Period Concept 8. Matching Concept

Dr.R.Rajesh

Accounting Conventions

1. 2. 3. 4.

Convention of Consistency Convention of Disclosure Convention of Conservatism Convention of Materiality

Dr.R.Rajesh

USERS OF ACCOUNTING

(A) Creditors (B) Shareholders (C) Government (D) Investors (E) Lenders (F) Management The financial data serves the interests of different persons concerned in different manner, as their objectives are different.

Dr.R.Rajesh

SCOPE/BRANCHES OF ACCOUNTING

(i) Financial Accounting (ii) Cost Accounting (iii) Management Accounting

Dr.R.Rajesh

OBJECTIVES/ADVANTAGES OF ACCOUNTING

1. To keep systematic records 2. To ascertain the results of operations, that is, profit or loss 3. To ascertain the financial position of the business 4. To provide control and protect business assets 5. To provide information to the tax authorities 6. To facilitate rational decision-making

Dr.R.Rajesh

LIMITATIONS OF ACCOUNTING

(i) Profit shown in Financial Accounting is not fully exact (ii) Financial Accounting does not indicate what the business will realise (iii) Financial Accounting does not tell the whole story (iv) Accounting statements may be drawn up differently (v) All assets are not shown in financial statements (vi) Manipulation (vii) Impact of Inflation

Dr.R.Rajesh

SYSTEMS OF ACCOUNTING

(A) Single Entry System (B) Double Entry System

Dr.R.Rajesh

DOUBLE ENTRY SYSTEM OF ACCOUNTING

Accounting Equation
Accounting equation may be defined as an accounting formula expressing equivalence of the two expressions of assets and liabilities. Expressed in the form of an equation
Resources (Assets) = Sources of Finance (Capital + Liabilities)

Dr.R.Rajesh

Accounting

We can say Assets = Equity (Total claims) Assets = Owners claim + Outsiders claim Assets = Capital + Liabilities or Capital = Assets Liabilities or Liabilities = Assets Capital.

Dr.R.Rajesh

Classification & Rules of Accounts

Dr.R.Rajesh

Classification & Rules of Accounts

(A) Personal Accounts They are the accounts of persons with whom the business deals. They can be divided into three categories.
The rule is:
DEBIT THE RECEIVER CREDIT THE GIVER

(i) Natural Personal Accounts: They are persons who are created by God. For example, Sureshs account, Rameshs Account and Ramus Account etc. (ii) Artificial Personal Accounts: These are artificial persons i.e. any limited company, bank, insurance company, partnership firm, government body, co-operative society or a club. (iii) Representative Personal Accounts: These accounts represent a certain person or group of persons. For example, if rent is due to the landlord, the amount is credited to an outstanding rent account, not to the landlord account. Similarly, if salary is due (amount not paid) to the employees and, in the meanwhile, books of accounts are closed, the amount due would be credited to outstanding salaries account. Only one account is opened for all the employees, outstanding salaries account. If individual employees accounts are to be opened, there would be many, resulting in unnecessary workload, as the purpose of the account is temporary to show a liability till the amount is paid. It is immaterial to whom the amount is payable as the nature of the account shows the total amount due to the employees for services rendered. The amount represents salary payable. All such accounts are termed as Representative Personal Accounts

Dr.R.Rajesh

Classification & Rules of Accounts

(B) Real Accounts The Rule is:
DEBIT WHAT COMES IN CREDIT WHAT GOES OUT

Real accounts relate to the business property and such things, which can be touched. Real accounts are further divided into two categories: (i) Tangible Real Accounts: Examples of such accounts are cash account, furniture account, building, stock account etc. It is important to note that bank account is a personal account, not real account. Many think cash and bank represent property and purpose of holding is same so they think bank account is also a real account. Balance lying in Bank of India is to be distinguished from the balance in Andhra Bank. Bank balance is related to the institution where it is kept. Cash is real account, while a bank account is a personal account. (ii) Intangible Real Accounts: These accounts represent such things, which cannot be touched, though they can be measured in terms of money. Examples are Goodwill, Patents and Trademarks etc. (iii) Fictitious Assets: Fictitious assets are expenditure on some activity, considered as capital expenditure as the benefits of the expenditure lasts over a long period. Total amount is not charged to profit and loss account, in one year, as the benefit is expected to spread over a period. The expenditure is debited to profit and loss account, in installments, over a period during which the benefit is expected to last. Till the expenditure is written off, the amount appears on the assets side of the balance sheet. Example: Share issue expenses, Discount on issue of shares, Preliminary expenses, under writing commission etc. Fictitious assets are not assets like machinery, building, computer etc. Goodwill, patents cannot be called as fictitious assets as these are Intangible assets.

Dr.R.Rajesh

Classification & Rules of Accounts

(C) Nominal Accounts Nominal accounts include all expenses, losses, incomes and gains. Examples of such accounts are rent, rates, lighting, insurance, salaries and dividends etc. The rule is
DEBIT ALL EXPENSES AND LOSSES CREDIT ALL GAINS AND INCOMES

Note: When prefix or suffix is added to a nominal account, it becomes personal account. The following explains how a nominal account becomes a personal account.
1. Interest account (expense) Outstanding interest account, pre-paid interest account 2. Rent account Outstanding rent account, rent pre-paid account

3. Salary account
4. Interest account (income) 5. Insurance account

Outstanding salaries account, pre-paid salaries account

Accrued income A/c, interest received in advance account Outstanding insurance account, pre-paid insurance account

Dr.R.Rajesh

ACCOUNTING CYCLE

Dr.R.Rajesh