Dr.

Teena Shivnani
Transactions
There are two type of transactions:-
1. Financial Transaction
2. Non Financial Transaction
Financial Transaction are those transaction which can measure in
term of money and have two sided effect.
E.g. sales, purchase etc.
Non financial transaction are those transactions which can/ cannot
measure in the term of money and have only one sided effect.
E.g. donation, charity etc.
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Accounting
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Small Concept
Large Concept
Accounting
According to small concept accounting is:-
In the period when ownership and management were
one , the sole objective of accounting was to certain
profit or loss and financial position of the firm.

According to large concept accounting is :-
accounting became an important tool in helping
decision making.
In other words, accounting means an information
system that provides the accounting information to
users therefore to arrive at the correct decision.
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Definition:-
Accounting is the art of recording , classifying and
summarizing 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 therefore.
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Accounting Process / Functions
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Financial
Transactions
Recording
(Journals)
Classification
(Ledger)
Summarizing
Final A/C
Analysis and
Interpretation
Features of Accounting
It records transactions of financial character:-
the transaction which can measure in term of money.
It is an art:-
It is a part of knowledge which enable us to achieve our
objective of ascertaining the financial results by recording,
classifying the business information.
It is recording system:-
After summarized data , this recording is carried out in the
book called Journal.
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Cont
It is an art of classifying business information:-
Classifying is the process of grouping of transaction or
entries of one nature at one place. This book called Ledger.
It is the art of summarizing the business data:-
Summarizing is the art of presenting the classified data
(ledger) in a manner. this involves preparation of final
accounts.


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Accounting & Accountancy
Accounting:-
It begins where book keeping ends. it is concern with activity
like summarizing of transaction, interpreting and
communicating the results.

Accountancy:-
The knowledge of how to maintain accounts is called
accountancy. It tell us how to maintain various books of
accounts, how to prepare them and how to communicated
accounting information to the parties.
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Users of Accounts
The Investor Group
Groups includes owner of shares in companies
The Lender Group
Groups includes providers of secured & unsecured,
long & short term loans.
The employees Group
Groups includes employees of the organization.
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Cont..
The Business Contact Group
Groups includes customers & suppliers of the
organization.
The Government
Groups includes taxation authorities & other Govt.
agencies & departments.
The Public
Groups includes society (taxpayer, consumers & other
community)
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Branches of Accounting
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Branches
Financial
Accounting
Cost
Accounting
Management
Accounting
Financial Accounting
It is the original form of accounting. It means accounting of
financial transactions.
Financial accounting is concerned with recording the
transactions of financial character, summarizing and
interpreting them.
It ascertains profit earned or loss suffered during the period
and show the financial position of a firm.

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Functions of Financial accounting
1. Recording
2. Classifying
3. Summarizing
4. Interpreting
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Cost Accounting
It means accounting of cost transactions.
It ascertains the cost of products manufactured or services
rented and help the management in decision making.
In cost accounting our aim is to determine the selling price of the
product.
(e.g. Price fixing)
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Management Accounting
It is most recently developed branch of accounting.
It is concerned with generating accounting information relating to
funds, cost, profit etc. as will enable the management in decision
making.
The term management accounting refers to accounting for
management.
The functions of management are planning, controlling and
comparing .

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Functions of MA
1. Provides data:- MA serves as a vital source of data
for management planning. The accounts and
documents are a repository of a vast quantity of
data about the past progress of the enterprise
which are a must for making forecast for the
future.

2. Classify Data :- the accounting data required for
managerial decisions is properly complied and
classified. MA help accountant to classify data as
per nature wise, product wise, supply wise.

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Cont..
3. Analysis and interprets Data:- the accounting data
is analyzed meaningfully for effective planning and
decision making. For this purpose data is presented
in a comparative form. E.g. ratio.

4. Uses qualitative information also :- MA does not
restrict itself to financial data for helping the
management in decision making but also uses such
information which may not be capable of being
measured in monetary terms. Such information may
be collected from special surveys, statistical records
etc.
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Cont...
5. Serves as means of communicating :-
It helps to communicating the management plans
upward, downward and outward through the
organization.

At later stage it keeps all parties informed about the
plan that have been agreed upon and their roles in
these plans.



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Basic Accounting Terms

Capital:- it means the amount which the owner has
invested in the firm or can claim from the firm.



Proprietor:- the person who makes the investment
and bears all the risks connected with the business
is called proprietor.

Drawings:- it is the amount of money or the value of
goods which the proprietor takes for his domestic or
personal use.








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Capital = Assets - Liabilities
Cont..
Liabilities:- It means the amount which the firm owes to
outsiders, that is excepting the proprietors invested amount.




Liabilities are two types:-
1. Long term Liability:- which are payable after a long time or
more than one year. (e.g. debentures, shares etc.)

2. Current Liability:- which are payable in near future (within
one year). (e.g. Bank O/D ,B/P , Creditors)




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Liabilities= Assets - Capital
Cont.
Assets:- assets are things of value owned. anything
which will enable the firm to get cash or a benefit in
future, is an assets.

Assets are two types:-
Fixed assets:- which are purchased for the purpose
of operating the business and not for resale.
(e.g. land, build., furniture etc.)

Current assets:- those assets of the business which
are kept for short term for converting into cash.
(e.g. debtors, B/R, bank balance)


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Cont.
Debtors:- a person who owes money to the firm
generally on account of credit sales called a debtors.

Creditors:- a person to whom the firm owes money
called creditors. (when the goods are purchased on
credit)

Receivables:- the term receivables is used for the
amount that is receivable by the firm, other then
amount due from the debtors.

Payables:- This term is used for the amount payable
by the firm , other than the amt. due to creditors.





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Cont.

Stock:- this term includes goods lying unsold on a
particular date.

The stock is valued on the basis of cost or market price
whichever is less principal.

It may be opening and closing stock.
Opening stock:- goods lying unsold in the beginning of
the accounting period.
Closing stock:- goods lying unsold at the end of the
accounting period.

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Cont.
Revenue:- the amt. which as a result of operations is
added to the capital. Revenue are receipts from sale
of goods, rent, income etc.
Expenses:- the amt. spent in order to produce and
sell the goods and services which produce the
revenue.
Profit :- it is the profit earned during a period of time.
In other words, the difference between revenue and
expenses is called profit.


Losses:- loss really means something against which
the firm receives no benefit.


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Profit = Revenue - Expenses
Cont..
Cost of goods sold:- cost of goods sold is the direct costs
of the goods or services sold.

Gain:- it is a term used to describe profit of an irregular
nature.

Gross profit:- it is the difference between sales revenue
and services rendered over its direct cost.

Net profit:- it is profit made after allowing for all
expenses. In case, expenses are more than the revenue,
it is net loss.
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Cont..
Purchase:- the term purchase is used only for the
purchase of goods. Goods are those things which are
finished products, which also are meant to be sold.

Sales:- this term is used for the sale of goods only.
when goods are sold for cash, they are cash sales, but if
goods are sold and payment is not received at the time
of sale , it is referred to as credit sales.



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Objectives of Accounting
1. To keep systematic records:- Accounting is done to keep a
systematic record of financial transaction . In the absence
of accounting there would have been terrific burden on
human memory which is most cases would have been
impossible to bear.

2. To protect business properties:- accounting provides
protection to business properties from unjustified and
unwarranted use. E.g. how much the business has to pay to
others or recovers from others, how much business has in
the form of FA , cash , stock etc.

3. To ascertain the operational profit or loss:- Accounting helps
in ascertaining the net profit earned or loss suffered on
account of carrying the business.
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Cont.
4. To ascertain the financial position of business:- the profit
and loss a/c gives the amount of profit & loss made by the
business during a particular period. However it is not
enough. The business man must know about the financial
position i.e. where he stand , what he owes and what he
owns?

5. To facilitate rational decision making:-Accounting these
days has taken upon itself the task of collection, analysis
and reporting of information at the required points of time
to the required levels of authority in order to facilitate
rational decision making.
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Account
An account is a summarized record of relevant
transaction at one place relating to a particular
head. It records not only the amount of transaction
but also their effect and direction.

Classification of Accounts

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Traditional Approach
Modern Approach
Traditional Approach
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Accounts
Personal Impersonal
Nominal a/c
(Revenue or Expenses)
Real a/c
Personal Account:- Account which relate to persons with
whom the business deals.

Natural personal a/c :- means person who are creation of god.
(e.g. mohan , ram , seeta etc.)
Artificial personal a/c:- these include a/c of corporate bodies
or institutions or firms.(eg. Insurance co., government a/c,
society a/c)

Impersonal Accounts:- a/c which are not personal such as
machinery a/c, cash a/c, rent a/c.

Nominal Account:- account which relate to expenses, losses,
gains, revenue etc. the net result of all the nominal a/c is
profit or loss which is transferred to the capital account.
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Cont.
Real Account:- Account which relate to tangible or
intangible assets of the firm.

Tangible assets:- Tangible a/c are those which
relate to such things which can be touched ,felt,
measure , etc. eg. land, building, plant,
investment.
Intangible assets:- these a/c represent such things
which cannot be touched of course they can be
measure in term of money. goodwill , patent,
trademark.

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Modern Approach
According to modern approach a/c are classified
into five categories:-
1. Assets a/c
2. Liability a/c
3. Capital a/c
4. Revenue a/c
5. Expenses a/c
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E.g.
1. Capital A/c
2. Drawings
3. Salary
4. Wages
5. Commission received
6. Rent Paid
7. Furniture
8. Building
9. Goodwill
10. Cash
11. Sales tax
12. Harish Chandra & Co.
13. Govt. of India a/c
14. Mohan a/c
15. Center for ESBM a/c
16. Carriage Inward
17. Stock
18. Debtors
19. Loans
20. Creditors

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Accounting Equation
Accounting equation is based on dual aspect
concept. In the dual aspect, we discussed that
every business transaction has a two-sided effect.
Always the total claims will equal the total assets
of the firm.
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Assets = Equities ( Total Claims)
Assets = liabilities + Capital
Liabilities = assets - capital
Capital = assets - liabilities
Accounting Equation
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Assets Capital + Liabilities


Cash
Bank
Bills Receivable
Debtors
Stock
Furniture
Machinery
Building



Capital
+
Liabilities
Creditors
Bills Payable
Outstanding Exp.
Bank O/D
Loans


Double Entry system
Every transaction has two aspects and according to
this system , both the aspect are recorded.
The system which recognizes and record both the
aspect of transaction is called double entry system.

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Meaning of Voucher
It is a document providing evidence of some business
transaction. Whenever a transaction takes place an
evidence to that effect is also established. Such
evidence are source documents:-
cash memo, Bill , pay-in-slip , cheque etc.
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Principles of Accounting
Accounting principles may be defined as those
rules of action adopted by the accountant
universally while recording accounting
transaction.
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Principles
Concepts Conventions
Concepts
The term concept includes those basic
assumptions or conditions upon which the science
of accounting is based.

1. Going concern concept:- Accounting to this concept it is
assumed that the business will continue for a fairly long time
to come.

2. Money measurement concept:- accounting records only
monetary transactions. Transaction which cannot measure
in money do not find place in the books of accounts.

3. Cost Concept:-In this concept all the monetary transaction
which is related to cost is entered. We have to pay some
money to get anything for business.
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Cont..
4. Dual aspect concept:- this is the basic concept of
accounting. According to this concept every
business transaction has a dual effect. (E.g. debit &
credit)

5. Accounting period concept:- according to this
concept the life of business is divided into
appropriate segments for studying the result
shown by the business after each segment. In
accounting such a segment or time interval is
called accounting period. It is usually of a one
year.
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Cont..
6. Separate entity concept:- in accounting, business
is considered to be separate entity from the
proprietor. It means owner and business both are
separate. E.g. capital invested by owner is recorded
in the books of a/c.

7. Realisation concept:- according to this concept
revenue is recognized when a sale is made. Sale is
considered to be made at the point when the
property in goods passes to the buyer and he
became legally liable to pay.
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CONVENTIONS
Accounting convention means the guidelines or
behavior that is followed for preparing financial
statements.
The types of accounting conventions:-
1. Convention of full disclosure
2. Convention of consistency
3. Convention of conservatism
4. Convention of materiality
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Convention of full Disclosure
This convention holds that there should be complete
and understandable reporting on the financial
statement of all significant information relating to the
economic affairs of the entity.

Whether information should be disclosed or not
always depends on the nature, importance of the
information.
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Convention of Consistency
According to this convention, accounting practices
ones selected and adopted, should be applied
consistently year after year.
This concept helps in better understanding of
accounting information and makes it comparable with
that of previous year.
This concept is particularly important when
alternative accounting practices are equal acceptable.
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Convention of Materiality
This convention refer to the relative importance of an
item or an event.

It thus, means that it is a matter of exercising
judgment to decide which item is material and which
is not.

Only those items should be disclosed that have
significant effect or are relevant to the user.
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Convention of Conservatism
As per this convention, the accountant follows the
policy of playing safe. On account of this convention,
the inventory is valued at cost price & market price
which ever is less.
Similarly a provision is made for possible bad and
doubtful debts out of current year profit.
It encourage the accountant to create secret reserves.
In this convention accountant follow the rule
anticipate no profit but provide for all possible
losses.
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A/C standard
In order to bring uniformity in technology, approach &
presentation of accounting results, the Institute of
Chartered Accountants of India established on 22nd
April 1977 an Accounting Standards Board (ASB).
The main function of the ASB is to formulate
accounting standards. Total 32 standards we have in
India.
While formulating the accounting standards the ASB
will give due consideration to the international
accounting standards.
It will also take into consideration the applicable laws,
customs, usages and business environment prevailing
in India.
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A/C Standards
AS Number Name
A S 1 Disclosure of Accounting policies
A S 2 Valuation of Inventories
A S 3 Cash Flow statement
A S 4 Contingencies
A S 5 Changes in Accounting Policies
A S 6 Depreciation
A S 7 Construction ( Contract)
A S 8 A/c for Research & Development
A S 9 Revenues
A S 10 A/c for Fixed Assets
A S 13 A/c for Investment
A S 14 A/c for Amalgamation
A S 15 A/c for Retirement
A S 19 Leases
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A/C Standards
AS Number Name
A S 20 Consolidated Financial Statement
A S 21 Earning per Share
A S 22 A/c for taxes on Income
A S 25 Interim Financial Reporting
A S 26 Intangible Assets
A S 28 Impairment of Assets
A S 29 Provisions, Contingent Assets & Liabilities
AS 30

Financial Instruments- Measurement and
Recognition
AS 31 Financial Instruments- Presentation
AS 32 Financial Instruments- Disclosures
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International A/c Standards (IAS)
Guidelines and rules set by the International
Accounting Standard Board (IASB) that companies
and organizations can follow when compiling financial
reports.
The International Financial Reporting Standards
(IFRS) were previously called the International
Accounting Standards (IAS)
Organizations in the United States are required to use
the Generally Accepted Accounting Principles
(GAAP).
We have total 41 IAS.
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List of all IAS
IAS 1- Presentation of Financial Statements
IAS 2- Inventories
IAS 3- Consolidated Financial Statements
IAS 4 - Depreciation Accounting
IAS 5 - Information to Be Disclosed in Financial
Statements
IAS 6- Accounting Responses to Changing Prices
Superseded by IAS 15
IAS 7 - Statement of Cash Flow
IAS 8 - Accounting Policies, Changes in Accounting
Estimates and Errors
IAS 9 - Accounting for Research and Development
Activities
IAS 10- Events After the Reporting Period


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Cont..
IAS 11 - Construction Contracts
IAS 12- Income Taxes
IAS 13- Presentation of Current Assets and Current
Liabilities Superseded by IAS 1.
IAS 14- Segment Reporting
IAS 15- Information Reflecting the Effects of Changing
Prices Withdrawn December 2003
IAS 16- Property, Plant and Equipment
IAS 17- Leases
IAS 18- Revenue
IAS 19- Employee Benefits
IAS 20- Accounting for Government Grants and Disclosure
of Government Assistance
IAS 21 - The Effects of Changes in Foreign Exchange Rates

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Cont..
IAS 22- Business Combinations Superseded by IFRS 3 effective
31 March 2004.
IAS 23- Borrowing Costs
IAS 24- Related Party Disclosures
IAS 25- Accounting for Investments Superseded by IAS 39 and
IAS 40 effective 2001.
IAS 26- Accounting and Reporting by Retirement Benefit Plans
IAS 27- Consolidated and Separate Financial Statements
IAS 28- Investments in Associates
IAS 29- Financial Reporting in Hyperinflationary Economies
IAS 30- Disclosures in the Financial Statements of Banks and
Similar Financial Institutions Superseded by IFRS 7 effective
2007.


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Cont..
IAS 31- Interests In Joint Ventures
IAS 32- Financial Instruments: Presentation Disclosure
provisions superseded by IFRS 7 effective 2007.
IAS 33- Earnings Per Share
IAS 34- Interim Financial Reporting
IAS 35- Discontinuing Operations Superseded by IFRS 5
effective 2005.
IAS 36- Impairment of Assets
IAS 37- Provisions, Contingent Liabilities and Contingent Assets
IAS 38 - Intangible Assets
IAS 39 - Financial Instruments: Recognition and Measurement
IAS 40- Investment Property
IAS 41 - Agriculture

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Thanking You
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