FINANCIAL ACCOUNTINGFINANCIAL ACCOUNTING

DEFINITION OF ACCOUNTINGDEFINITION OF ACCOUNTING:: According According to AICPA”Accounting is an art of to AICPA”Accounting is an art of recorsding,classifying and summarizing in a recorsding,classifying and summarizing in a significant manner and in terms of money significant manner and in terms of money transactions and events which are, in part at transactions and events which are, in part at least, of financial character, and interpreting least, of financial character, and interpreting the results thereof.” the results thereof.”

MEANING OF ACCOUNTING:MEANING OF ACCOUNTING: It is the It is the analysis and interpretation of book keeping analysis and interpretation of book keeping records. It includes not only the maintenance records. It includes not only the maintenance of accounting records but also the preparation of accounting records but also the preparation of financial statements of a particular of financial statements of a particular organization. organization.

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DEFINITION OF BOOK KEEPING:DEFINITION OF BOOK KEEPING: According to According to RosenkampffRosenkampff A H “Book keeping is the art of A H “Book keeping is the art of recording business transactions in a systematic recording business transactions in a systematic manner”.manner”.

MEANING OF BOOK KEEPINGMEANING OF BOOK KEEPING:: Book keeping is Book keeping is that branch of knowledge which tells us how to that branch of knowledge which tells us how to keep a record of financial transaction. So book keep a record of financial transaction. So book keeping is the recording phase of accounting.keeping is the recording phase of accounting.

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ACCOUNTANCY:ACCOUNTANCY: It is the body of It is the body of knowledge of accounting process.knowledge of accounting process.

FUNCTIONS OF ACCOUNTING:FUNCTIONS OF ACCOUNTING:1-Recording1-Recording2-Classifying2-Classifying3-Summerising3-Summerising4-Deals with financial transaction4-Deals with financial transaction5-Analysis and interpretation5-Analysis and interpretation6-Communication6-Communication7-Protection of business properties7-Protection of business properties

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OBJECTIVES OF ACCOUNTINGOBJECTIVES OF ACCOUNTING::1-To keep systematic records1-To keep systematic records2-To determine the profit or loss2-To determine the profit or loss3-To determine the financial position of the 3-To determine the financial position of the businessbusiness4-To facilitate rational decision making4-To facilitate rational decision making5-To meet the business obligations.5-To meet the business obligations.

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• USES OR ADVANTAGES OF ACCOUNTING:USES OR ADVANTAGES OF ACCOUNTING:

• 1-It provides complete and scientific records1-It provides complete and scientific records• 2-It provides information regarding financial 2-It provides information regarding financial

performance and Financial position of the performance and Financial position of the businessbusiness

• 3-It enables comparison of cost, expenses, sales 3-It enables comparison of cost, expenses, sales and profit etcand profit etc

• 4- It helps to comply with legal formalities4- It helps to comply with legal formalities• 5-Evidence in legal matters5-Evidence in legal matters• 6-Valuation of business6-Valuation of business• 7-Helps in raising loans7-Helps in raising loans• 8-Useful for managerial decision making8-Useful for managerial decision making

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LIMITATIONS OF ACCOUNTING:LIMITATIONS OF ACCOUNTING:

1-It permits alternative treatment1-It permits alternative treatment2-It is influenced by personal judgment2-It is influenced by personal judgment3-It ignores important non monetary information3-It ignores important non monetary information4-It does not provide timely information4-It does not provide timely information5-It does provide detailed information5-It does provide detailed information6-It is historical in nature 6-It is historical in nature

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USERS OF ACCOUNTING INFORMATION

1-Owners

2-Management

3-Creditors

4-Employees

5-Government

6-Banks and Financial institution

7-Legal and Tax authorities

8-Consumers7

ACCOUNTING IS A LANGUAGE OF BUSINESS

ACCOUNTING PRINCIPLES:

The term principle refers to fundamental belief or general truth which once established does not change.

CLASSIFICATION OF ACCOUNTING PRINCIPLES:

1-Accounting concepts

2-Accounting conventions

ACCOUNTING CONCEPTS:Accounting concepts may be considered as basic assumptions or conditions upon which the science of accounting is based.

TYPES OF ACCOUNTING CONCEPTS:1-Business entity concept2-Money measurement concept3-Going concern concept4-Cost concept5-Dual aspect concept6-Accounting period aspect concept7-Matching concept8-Realisation concept9-Objective evidence concept10-Accrual concept

ACCOUNTING CONVENTIONS:The term convention refers to circumstances or traditions which guide the accountants while preparing the accounting statements.

TYPES OF ACCOUNTING CONVENTIONS:

1-Convention of consistency

2-Convention of full disclosure

3-Conservatism (or prudence) convention

4-Materiality convention