Introduction to Accounting by Asst Prof. Jonlen DeSa

INTRODUCTION TO ACCOUNTINGINTRODUCTION TO ACCOUNTING

ASST. PROF JONLEN DESA

ACCOUNTINGACCOUNTING

• Accounting is the language of business.

• It is through accounting that a company communicates to its stakeholders about the financial performance of the company.

• Accounting is the means through which all business information is communicated to the users of financial information.

• Accounting is the recording and classification of financial data.

DEFINITIONDEFINITION

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 thereof. ”

FEATURESFEATURES

• Accounting is an art

• It is the art of recording

• It is the art of classifying business transactions

• It is the art of summarizing

• It records transactions in terms of money

• It records transactions of financial character

SCOPE

OBJECTIVESOBJECTIVES

• To keep systematic record

• To ascertain the profitability of the business

• To ascertain the financial position of the business

• To communicate financial information to the public

• To facilitate rational decision making

STAKEHOLDERSSTAKEHOLDERS OFOF AA COMPANYCOMPANY

• Employees

• Shareholders

• Creditors

• Suppliers

• Customers

• Government

• Potential Investors

ACCOUNTING AS FINANCIAL INFORMATION SYSTEM

• Accounting is known as the language of business, through which a business firm communicates with others.

• Both internal and external parties are interested in the performance of the business, which is reflected through its financial statements.

• Information generated by accounting includes:

The amount of capital invested

The amount and types of earnings

The amount and types of expenses

The amount of profit or loss

The nature and value of assets of the company

The nature and amount of liabilities of the company

List of debtors and the amount due from them

INTERESTED PARTIESINTERESTED PARTIES

• Owners

• Management

• Creditors

• Potential Investors

• Employees

• Government

• Public

ACCOUNTING PRINCIPLES

• Principle is a fundamental truth implying uniformity of an acceptance everywhere.

• Accounting principles may be defined as rules of action and conduct that are adopted by accountants while recoding the accounting transactions.

• GAAP

Accounting principles are categorized into:

Accounting ConceptsAccounting Concepts (10)(10)

Accounting Conventions Accounting Conventions (4)(4)

Accounting Standards Accounting Standards (32)(32)

• Accounting conceptsAccounting concepts are necessary assumptions upon which accounting is based.

• Accounting conventions Accounting conventions are customs or traditions guiding the preparation of accounting statements.

• Accounting standards Accounting standards are the policy documents issued by the recognized expert accountancy body relating to various aspects of measurement, treatment and disclosure of accounting transactions and events.

ACCOUNTING CONCEPTSACCOUNTING CONCEPTS

• Entity Concept

• Dual Aspect Concept

• Going Concern Concept

• Money Measurement Concept

• Cost Concept

• Accounting Period Concept

• Accrual Concept

• Realization Concept

• Periodic Matching of Cost & Revenue Concept

• Verifiable Objective Evidence Concept

ACCOUNTING CONVENTIONSACCOUNTING CONVENTIONS

• Convention of Disclosure

• Convention of Materiality

• Convention of Consistency

• Convention of Conservatism

ACCOUNTING STANDARDSACCOUNTING STANDARDS

• AS 1: Disclosure of Accounting Policies

• AS 2: Valuation of Inventories

• AS 3: Cash Flow Statement

• AS 4: Contingencies and Events Occurring after the Balance Sheet Date

• AS 5: Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Policies

• AS 6: Depreciation Accounting

• AS 7: Construction Contract

• AS 8: Accounting for Research and Development (AS-8 is no longer in force since it was merged with AS-26)

ACCOUNTING STANDARDS

• AS 9: Revenue Recognition

• AS 10: Accounting for Fixed Assets

• AS 11: The Effects of Changes in Foreign Exchange Rates

• AS 12: Accounting for Government Grants

• AS 13: Accounting for Investments

• AS 14: Accounting for Amalgamations

• AS 15: Employee Benefits

• AS 16: Borrowing Costs

• AS 17: Segment Reporting

• AS 18: Related Party Disclosures

• AS 19: Leases

• AS 20: Earnings Per Share

• AS 21: Consolidated Financial Statements

• AS 22: Accounting for Taxes on Income.

• AS 23: Accounting for Investments in Associates in Consolidated Financial Statements

• AS 24: Discontinuing Operations

• AS 25: Interim Financial Reporting

• AS 26: Intangible Assets

• AS 27: Financial Reporting of Interests in Joint Ventures

• AS 28: Impairment of Assets

• AS 29: Provisions, Contingent Liabilities and Contingent Assets

• AS 30: Financial Instruments: Recognition and Measurement and Limited

• AS 31: Financial Instruments- Presentation

• AS 32: Financial Instruments- Disclosures

ACCOUNTING EQUATIONACCOUNTING EQUATION

• Assets represent the properties owned by the proprietor.

• Equities represent capital and liabilities of the business.

Assets =EquitiesAssets =Equities

Assets = Liabilities + Capital Assets = Liabilities + Capital