INTRODUCTION TO ACCOUNTING

ECONOMIC ACTIVITY: Important Segment of Social life

Accounting seeks to reflect the results of economic activity ; To facilitate analysis of data ; To aid decision-making

A long and chequered history

Accounting for the Roman legions Accounting records on cuneiform tablets in Sumeria and Babylon Accounting in ancient India

 Early emphasis on accounting for the clergy, for the nobility and the landed gentry The first known book on double entry bookkeeping which is the backbone of accounting appeared in Venice in 1494 A.D. It was the Summa de Arithmetica, Geometria, proportioni et Proportionalita by Frater Luca B.Pacioli, a Fransiscan priest and mathematician and a very close friend of Leonardo da Vinci

 The seventeenth century witnessed the advent of the Industrial Revolution in Britain. James Watt invented the Steam Engine, Harvey invented the Cotton-Spinning Jenny, Bessemer invented the Converter and so on. This led to the growth of cost and industrial accounting. This century also heralded the beginning of limited liability companies. As ownership was divorced from management, the need for independent auditors or public accountants was strongly felt and this paved the way for the emergence of auditing or public accounting as a profession.

As the major Information System in a Business Organization Accouunting serves:

Owners Lenders Managers Prospective Investors Prospective lenders Employees Government Agencies The Public, in general

Accounting is used for :

Controllership Stewardship Custodianship

Accounting can be used for :

Diagnosis of problems facing a business entity

And for administering the therapy

Financial accounting and Cost and Management Accounting

Financial Accounting is by nature: (a) aggregative (b) meant for external reporting (c) based on historical costs (d) conforming to legal requirements, especially, Companies Act,1956 and Income Tax Act, 1961

Cost & Management Accounting is by nature :

Detailed Meant largely for internal reporting Meant for aiding managerial decision-making through analysis, and projections of detailed cost data Applies inter-disciplinary approach( e.g., the use of Operations Research in Inventory analysis and Planning, use of Network theory in production planning,etc.)

Conventions and concepts in Financial Accounting

Entity Double entry Matching costs & revenues for the same period Conservatism and Prudence Consistency Realisation, etc.

Recording transactions n Financial Accounts

Personal Accounts : Dr. the Receiver Cr. the Giver

Impersonal Accounts Real Accounts Dr. What Comes In Cr. What Goes Out Nominal Accounts Dr. Expenses and Losses Cr. Income and Gains

 Expenses : Capital Revenue Income : Capital Revenue

 Dr, Balances are : Assets/Expenses/Losses Cr. Balances are : Liabilities/Income/Gains

Bookkeeping to the Trial Balance

Journal/Day Books and Journal Proper Ledger Accounts Trial Balance Final Accounts Revenue Statement : flows over time Balance Sheet: Stocks at a point in time