Financial Accounting
BBA 1st Sem & BCA 2nd Sem
Chapter .-1 Introduction of accounting Difference between Book – keeping & Accounting -Book-keeping Vs. Accounting
Book – Keeping
Accounting
It is the summarizing phase
of an accounting system
It is the recording phase of an accounting system
It is a primary
accounting
stage
and
basis
for
It is a Secondary Stage
which begins where the Book keeping process
ends. It is considered as language of the business.
It is routine in nature and does not require any
special skill or knowledge
It is analytical in nature and required special skill or knowledge
It is done
by junior staff called
bookkeepers
It is done by senior
staff called accountants
It does not give
the complete picture of the financial conditions of the
business unit
It gives the complete picture of the financial conditions of the business unit.
Managerial decisions cannot be taken
with these records
Management takes
decision on the basis of these
records
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Book – Keeping |
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|
It is the summarizing phase
of an accounting system |
|||||
|
It is the recording phase of an accounting system |
|
|||||
|
It is a primary
accounting |
stage |
and |
basis |
for |
|
It is a Secondary Stage
which begins where the Book keeping process
ends. It is considered as language of the business. |
|
It is routine in nature and does not require any
special skill or knowledge |
It is analytical in nature and required special skill or knowledge |
|||||
|
It is done
by junior staff called
bookkeepers |
It is done by senior
staff called accountants |
|||||
|
It does not give
the complete picture of the financial conditions of the
business unit |
It gives the complete picture of the financial conditions of the business unit. |
|||||
|
Managerial decisions cannot be taken
with these records |
Management takes decision on the basis of these records |
|||||
Process of Account : -
1. Identifying: The first step in accounting is to determine what to record, i.e., to identify the financial events which are to be recorded in the books of accounts. It involves observing all business activities and selecting those events or transactions which can be considered as financial transactions.
2.Recording: A transaction will be recorded in the books of accounts only it is considered as an economic event and can be measured in terms of money. Once the economic events are identified and measured in economic terms they will be recorded in the books of accounts in monetary terms and in chronological order.
3.Classifying: Once the financial transactions are recorded in journal or subsidiary books, all the financial transactions are classified by grouping the transactions of one nature at one place in a separate room.
4. Summarising: It is concerned with presentation of data and it begins with balance of ledger accounts and the preparation of trial balance with the help of such balances.
5.Communication: The main purpose of accounting is to communicate the financial information the users who analyse them as per their individual requirements. Providing financial information to its users is a regular process
Relationship between book-keeping and accounting
Sub fields /Branches of Accounting
1) Financial Accounting: It is that sub field /Branch of accounting which is concerned with recording of business transactions of financial nature in a systematic manner, to ascertain the profit or loss of the accounting period and to present the financial position of the Business.
2) Cost Accounting: It is that Sub field /Branch of accounting which is concerned with ascertainment of total cost and per unit cost of goods or services produced/ provided by a business firm.
3) Management Accounting: it is concerned with internal reporting to the managers of business unit. It is that subfield/Branch of accounting which is concerned with presenting the accounting information in such a manner that help the management in planning and controlling the operations of a business and in better decision making.
4) Social responsibility accounting: Social responsibility accounting is concerned with accounting for social costs incurred by the enterprise and social benefits created.
5) Human Resource Accounting (HRA) : Human resource accounting is an attempt to identify, quantify and report investments made in human resources of an organization. Objectives of Accounting
1) Systematic Recording of Transactions: To keep systematic and complete records of financial transactions in the books of according to specified principles and rules to avoid the possibility of omission and fraud.
2) Ascertainment of Results: 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) Ascertainment of financial position: 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) Communicating Information to various users: 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) Preventing frauds: To prevent frauds by maintaining regular and systematic accounting records. Function of Accounting
1-Helpful in Management 2-Helpful in planning 3-Helpful in decision Making 4-Helpful in Controlling 5-Provides Complete and systematic record 6-Information regarding profit and Loss 7-Information regarding financial position 8-Helpful in Comparative study 9-Helpful in assessment of tax liability 10-Evidence in legal matters 11.Helpful in rising loan 12.Helpful in detection of Errors and Fraud Advantages of Accounting
1) Provides useful information: It provides information which is useful to management for making economic decisions.2) Helpful in comparison: It helps owners to compare one year’s results with those of other years to locate the factors which lead to changes. 3) Information about financial position: It provides information about the financial position of the business by means of balance sheet which shows assets on one side and Capital & Liabilities on the other side. 4) Accepted as evidence in court: It helps in keeping systematic and complete records of business transactions in the books of accounts according to specified principles and rules, which is accepted by the Courts as evidence. 5) Helpful in Determination of Tax liability: It helps a firm in the assessment of its correct tax Liabilities such as income tax, sales tax, VAT, excise duty etc. Limitations of Accounting
1) Based on historical cost: It is historical in nature; it does not reflect the current worth of a business. Moreover, the figures given in financial statements ignore the effects of changes in price level.
2) Records monetary items only: It contains only those information’s which can be expressed in terms of money. It ignores qualitative elements such as efficiency of management, quality of staff, customer’s satisfactions etc.
3) Window dressing is possible: It may be affected by window dressing i.e. manipulation in accounts to present a more favorable position of a business firm than its actual position.
4) Affected by personal bias and judgment: It is not free from personal bias and personal judgment of the people dealing with it. For example, different people have different opinions regarding life of asset for calculating depreciation, provision for doubtful debts etc.
5) Not present real financial position: It is based on various concepts and conventions which may hamper the disclosure of realistic financial position of a business firm. For example, assets in balance sheet are shown at their cost and not at their market value which could be realized on their sale.
Important Facts1. Economical Transactions Refers to that transaction which are made for the purpose of Business and such transaction must be in financial nature 2. Purchase Book:- credit purchased of goods are recorded in the purchase book not cash purchase 3. Sales Book :- the goods which are sold on credit that will be recorded in sales book 4. Cash Book:-all the types of transactions which are made for cash ,That will be recorded in cash book 5. Bookkeeping is Pre Activities of Accounting 6. Accounting is the post Activity of book keeping 7. Accounting starts from where book keeping ends
End this Chapter-1
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Sub fields /Branches of Accounting
1) Financial Accounting: It is that sub field /Branch of accounting which is concerned with recording of business transactions of financial nature in a systematic manner, to ascertain the profit or loss of the accounting period and to present the financial position of the Business.
2) Cost Accounting: It is that Sub field /Branch of accounting which is concerned with ascertainment of total cost and per unit cost of goods or services produced/ provided by a business firm.
3) Management Accounting: it is concerned with internal reporting to the managers of business unit. It is that subfield/Branch of accounting which is concerned with presenting the accounting information in such a manner that help the management in planning and controlling the operations of a business and in better decision making.
4) Social responsibility accounting: Social responsibility accounting is concerned with accounting for social costs incurred by the enterprise and social benefits created.
5) Human Resource Accounting (HRA) : Human resource accounting is an attempt to identify, quantify and report investments made in human resources of an organization.
Objectives of Accounting
1) Systematic Recording of Transactions: To keep systematic and complete records of financial transactions in the books of according to specified principles and rules to avoid the possibility of omission and fraud.
2) Ascertainment of Results: 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) Ascertainment of financial position: 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) Communicating Information to various users: 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) Preventing frauds: To prevent frauds by maintaining regular and systematic accounting records.
Function of Accounting
1-Helpful in Management
2-Helpful in planning
3-Helpful in decision Making
4-Helpful in Controlling
5-Provides Complete and systematic record
6-Information regarding profit and Loss
7-Information regarding financial position
8-Helpful in Comparative study
9-Helpful in assessment of tax liability
10-Evidence in legal matters
11.Helpful in rising loan
12.Helpful in detection of Errors and Fraud
Advantages of Accounting
1) Provides useful information: It provides information which is useful to management for making
economic decisions.
2) Helpful in comparison: It helps owners to compare one year’s results with those of other years to
locate the factors which lead to changes.
3) Information about financial position: It provides information about the financial position of the
business by means of balance sheet which shows assets on one side and Capital & Liabilities on the other side.
4) Accepted as evidence in court: It helps in keeping systematic and complete records of business transactions in the books of accounts according to specified principles and rules, which is accepted by the Courts as evidence.
5) Helpful in Determination of Tax liability: It helps a firm in the assessment of its correct tax
Liabilities such as income tax, sales tax, VAT, excise duty etc.
Limitations of Accounting
1) Based on historical cost: It is historical in nature; it does not reflect the current worth of a business.
Moreover, the figures given in financial statements ignore the effects of changes in price level.
2) Records monetary items only: It contains only those information’s which can be expressed in
terms of money. It ignores qualitative elements such as efficiency of management, quality of staff, customer’s satisfactions etc.
3) Window dressing is possible: It may be affected by window dressing i.e. manipulation in accounts to present a more favorable position of a business firm than its actual position.
4) Affected by personal bias and judgment: It is not free from personal bias and personal judgment of the people dealing with it. For example, different people have different opinions regarding life of asset for calculating depreciation, provision for doubtful debts etc.
5) Not present real financial position: It is based on various concepts and conventions which may hamper the disclosure of realistic financial position of a business firm. For example, assets in balance sheet are shown at their cost and not at their market value which could be realized on their sale.
Important Facts
1. Economical Transactions Refers to that transaction which are made for the purpose of Business and such transaction must be in financial nature
2. Purchase Book:- credit purchased of goods are recorded in the purchase book not cash purchase
3. Sales Book :- the goods which are sold on credit that will be recorded in sales book
4. Cash Book:-all the types of transactions which are made for cash ,That will be recorded in cash book
5. Bookkeeping is Pre Activities of Accounting
6. Accounting is the post Activity of book keeping
7. Accounting starts from where book keeping ends
End this Chapter-1
Thank you So much 😇👆