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I TERM

Financial Accounting

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ACCOUNTING AN INTRODUCTION

Accounting is an art of recording,classifying and summarizing in asignificant manner and in terms ofmoney, transactions and events whichare, in part, at least, of a financialcharacter and interpreting the resultsthere of.

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F eatures of accounting

Identifying

Recording

ClassifyingSummarizing

Interpreting

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Groups interested in accounting information

Owners

Security Analysts

LendersCreditors

Employees

GovernmentCustomers

Competitors

Research Groups

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Accounting branches

Financial accounting

Cost accountingManagement accounting

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Financial accounting -objective

To know the profit or loss and

the financial position of anorganisation.

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Cost accounting - objective

To ascertain the cost

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A ccounting concepts - assumptions

y Entity concepty Dual aspect concepty Going concern concepty Accounting period concepty Objectivity concepty Money measurement concepty Cost concept

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Concepts - contd

y Matching concepty Revenue recognition concepty Accrual concept

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Accounting conventions - practices

Convention of materiality

Convention of consistencyConvention of conservatismConvention of disclosure

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Three types of business entities

Sole Proprietorship Partnership Company

Examples Iyengar Bakery S S Billimoria

& Co.

InfosysTechnologies

Limited

No. of Shareholders One Person

Minimum: 2 Minimum: 7

Maximum: 20 Maximum: NoLimit

Management Control Proprietor Partners

Board of Directors

Liability Unlimited Joint & Several Limited Legal

Registration No Provision Voluntary Compulsory

Flexibility MaximumDepends on

PartnersComparatively

Less

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Acc ounting equation

A ssets = Liabilities + Owner s equityA ssets = Liabilities + Capital Drawings

Assets = Liabilities + Capital Drawings +Profit

A ssets = Liabilities + Capital Drawings +

Inc ome - ExpensesA ssets = Liabilities + Capital Drawings +

Inc ome Expenses - Dividends

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Format of an Account

Cash a/c

Debit side Credit side

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Accounts - types

Real accounts

Personal accounts

Nominal accounts

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Rules of accounts - Real

Dr what comes inCr what goes out

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Rules of accounts - Personal

Dr the receiverCr the giver

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Rules of accounts - Nominal

Dr all expenses and lossesCr all incomes and gains

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Alternatively

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Credit for increases

(+)

Credit for

increases(+)

Credit for

decreases(-)

Debit for

increases(+)

Debit for

decreases(-)

Debit for decreases

(-)

ASSETSAsset Accounts

LIABILITIESLiability Accounts

Owners Equity AccountsOWNERS EQUITY

Balance Sheet Accounts

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