Module I Introduction to Accounting
Introduction to Accounting • Meaning • Nature • Functions • Branches • Accounting Equation • Accounting Concepts • GAAP • Difference between GAAP & US GAAP
What is Accounting? Accounting is defined as: The art of recording, classifying & 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. Accounting is often called the “language of business” People who perform accounting procedures speak the language of debits and credits. The process of accounting provides useful information that describe specific things about a company’s financial position.
What is Accounting? Three Activities The accounting process includes the bookkeeping function.
Accounting and Book-Keeping • Book keeping is merely recording the business transactions in books and ledgers. It is part of Accounting. It is often routine and clerical in nature • Accounting is a wider concept: Compilation of accounts in such a way that one is in a position to understand state of affairs of business • ACCOUNTING BEGINS WHERE BOOK-KEEPING ENDS
Financial Accounting • Financial accounting - focuses on the specific needs of decision makers external to the organization, such as stockholders, suppliers, banks, and government agencies
Users of Financial Information External Users Internal Users Investors Government Community Board of Directors Management Employees Suppliers Customers Creditors
BRANCHES OF ACCOUNTING • Financial Accounting • Management Accounting • Cost Accounting • Social responsibility Accounting • Human Resource Accounting
BRANCHES OF ACCOUNTING • Financial Accounting: It includes Book keeping and the preparation of Financial Statements. • Management Accounting: It is a system to assemble and furnish the useful material and summarized accounting information to the management. • Cost Accounting: It deals with the cost of production and its various constituents. • Social responsibility Accounting: It is the study of social effects in addition with the economic effects. • Human Resource Accounting: is the process of identifying and measuring data about human resource and communicating this information to interested parties.
Objectives of Accounting • To maintain systematic records • To ascertain the operational profit or loss • To ascertain financial position • To satisfy requirements of law, Govt.& other interested parties • To facilitate rational & futuristic decision making • To Provide remedial measures devices for the deviations of the actual from the budgeted performance
Functions Of Accounting • Performance measurement • Forecasting • Government Regulation and Taxation • Evaluation and Control • Decision Making • Fixing Responsibility
is a system that information that is Significance of Accounting Accounting Identifies Records Relevant Communicates Reliable to help users make better decisions. Comparable
LIMITATIONS OF ACCOUNTING • Danger of window dressing • Ignorance about the present value of business • Influenced by personal judgments • Ignores important non-monetary information • Does not provide timely information