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Foundation Programin
Accounts and Finance
By
Rajesh Arora
B.Com.(Hons.); MBA(Finance); M.Com.; MFM;
M.Phil.(Mgmt.); Doctorate in Mgmt.;DIM; ADIM; DFM.
Member of AIMA and DMA
Life Member of Indian Society for Technical Education
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Accountancy:
It is a specialized body of knowledge
through which we learn to make and practiceAccounting.
Accounting:
It 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.( As per AICPA )
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Book keeping
Identifying the transactions
Measuring the identified transactions;
Recording the measured transaction;
Classifying the recorded transactions.
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Accounting process:
1 Finding out the financial transactions;
2 Recording of the financial transactions in the books of
prime entries which are extension of Journal book;
3 Classifying the financial transactions under their
respective accounts heads in separate set of accountsbook called Ledger;
4 Summarizing the financial transactions in form of trial
balance and financial statements;
5 Analysis and interpretation of the financial results and
health of the concern.
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1 Helps the management in planning and decision making
process;
2 Helps in determining the profitability of the concern;
3 Helps in understanding the financial health of the
concern;
4 Helps in maintaining the records of the concern under thechronological sequence;
5 Helps in conducting the comparative study of the
concern;
6 Recording undertaken acts as aid to memory;
7 Acts as a legal evidence;8 Helps in determining the value of the business;
9 Projected accounting statements helps in raising loans.
Merits of accounting:
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Limitations of Accounting:
1 Does not consider human beings as an asset of theconcern;
2 Does not take into consideration non monetary
transactions;
3 Possible to draw them wrongly;
4 Wrong interpretation possible;
5 Does not take into account cash basis of recording
transactions;
6 Does not indicate the future of the concern.
7 Ignores price level changes as it is based on historical
costs;
8 Not free from personal bias;
9 Shows estimated positions but not real positions.
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Types of Accounting:
1 FinancialAccounting;
2 CostAccounting;
3 ManagementAccounting;
4 InflationAccounting;5 Social responsibilityAccounting;
6 Human ResourceAccounting.
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Parties interested in Accounting
1 Owners;
2 Investors;
3 Employees;
4 Suppliers;
5 Customers;6 Lenders;
7 Tax authorities;
8 Competitors;9 Researchers;
10 Etc.
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Basic accounting terms:Business entity;
Events economic and non economics;
Transactions business and non business;
Assets currents assets;
fixed assets ( tangible and
intangible);
Liabilities current liabilities and long term
liabilities;
Discount cash discount and trade discount;
Capital;
Drawings;
Purchases cash and credit;
Sales cash and credit;
Incomes;
Revenues;Expenses;
Debtors;
Creditors;
Stock.
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Accounting information system:
INPUT PROCESS OUTPUT
Economics Recording; Communicating
Events classifying; information
In summarizing; toFinancial analyzing; users.
Terms. Interpreting.
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Characteristics of accounting information
Reliability;
Relevance;
Understandability;
Comparatively.
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Basis of accounting
- Accrual basis of accounting;
- Cash basis of accounting.
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GAAP (Generally accepted
accounting principles)
GAAP are those rules of actions or conduct
which are derived from experience and
practice.When they are proved useful, they become
accepted as principles of accounting.
PRINCIPLES are sustainable authoritative
support which become part ofGAAPs.
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Accounting principles
These are general decision rules which
govern development of accounting
techniques.
These are guide to actions.
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ACCOUNTING CONCEPTS
- Accounting entity concept / business entity concept;
- Going concern concept;
- Accounting period concept;
- Money measurement concept;
- Consistency concept;
- Accrual concept;
- Cost concept / historical cost concept;
- Revenue concept / revenue realization concept;
- Matching concept;
- Materiality concept;- Duality concept;
- Objectivity concept.
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ACCOUNTING CONVENTIONS
Prudence / Conservatism convention;
Full disclosure convention;
Timeliness;
Industry practice;
Substance over form.
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ACCOUNTING STANDARDS:
Standardized set ofrules and principles to
reduce variations in methods used to
prepare financial statements.
Standards conform to applicable laws,
Customs, usages and business
environment.
Standards place restrictions on behavior
of affected parties.
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DEVELOPMENT OF ACCOUNTING
STANDARDS:IASC (International Accounting Standards Committee) formed
in 1970s to develop IAS (International Accounting
Standards).
IASC comprises of75 countries professional accounting
bodies.
IASC has so established around 40 IASs.
In India ICAI (Institute of Chartered Accountants of India)
constituted ASB (Accounting Standard Board) on 21stApril
1977.
ASB considers IASs and Indias environment to formulate
standards.So farASB has made 29 accounting standards.
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ACCOUNTING EQUATION:
Equities = Assets
Internal equities + External equities
= Assets
Capital + Liabilities = Assets
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Thank
You