Introduction to Accounting

BY Benet Thabaneng

DEFINITIONAccounting is defined as the art & science of Recording,

Classifying,

Interpreting and,

Summarizing financial character and position

InputBusiness transaction (monetary value)

ProcessidentifyingRecordingSummarisingAnalysingInterpretingcommunicating

OutputInformation to users

Accounting roles

Language of Business Decision making tool Create accountability and control As an Information system

Accounting Equation

Assets = Liabilities + Owners Equity

Users of financial information

Internal Users › Managers who plan, organise and run

the business› e.g. production supervisors, marketing

managers, and directors› Owners of the business

Users cont.

External Users › Resource providers

e.g. investors, employees, creditors› Recipients of goods and services

e.g. customers, beneficiaries › Reviewers

e.g. regulatory agencies, media, governments, trade unions, special interest groups

Accounting conversions

conversion

Conservatism

Full disclosure consistency materiality

Basic assumptionsAccounting Entity Assumption

According to this assumption, business is treated as a unit or entity apart from its owners, creditors and others.

All the business transactions are recorded in the books of accounts from the view point of the business.

Even the proprietor is treated as a creditor to the extent of his capital.

Money Measurement AssumptionIn accounting, only those business transactions and events which are of financial nature are recorded.

For example, when Sales Manager is not on good terms with Production Manager, the business is bound to suffer. This fact will not be recorded, because it cannot be measured in terms of money.

Assumptions cont.

Accounting Period Assumption

The users of financial statements need periodical reports to know the operational result and the financial position of the business concern. Hence it becomes necessary to close the accounts at regular intervals.

Usually a period of 365 days or 52 weeks or 1 year is considered as the accounting period.

Going Concern Assumption

As per this assumption, the business will exist for a long period and transactions are recorded from this point of view.

There is neither the intention nor the necessity to wind up the business in the foreseeable future.

Accounting Cycle:

transaction

journal

ledger Trial balance

Trading account

Profit & loss

account

Branches of accountingFinancial Accounting : It is concerned with recording of business transactions in the

books of accounts in such a way that operating result of a particular period and financial position on a particular date can be known.

Cost Accounting: It relates to collection, classification and ascertainment of the

cost of production or job undertaken by the firm.

Management Accounting: It relates to the use of accounting data collected with the help

of financial accounting and cost accounting for the purpose of policy formulation, planning, control and decision making by the management

credits

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