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ACCOUNTING
Systematic process of measuring the
economic activity of a business
To provide useful information to those who
make economic decisions.
Accounting information is used in many
different situations.
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Importance of Accounting
Accounting
Accounting
is a
system that
Identifies
Identifies
Records
Records
Relevant
Relevant
Reliable
Reliable
Comparable
Comparable
information
that is
Communicates
Communicates
about
aboutan
an
organizations
organizations
business
businessactivities.
activities.
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Accounting Activities
Identifying
Business
Activities
Recording
Business
Activities
Communicating
Business
Activities
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Need of Accounting
Language of business
Examples:
Bankers use accounting information when
deciding whether or not to make a loan.
Stockbrokers and other financial advisers base
investment recommendations on accounting
information
Government regulators use accounting
information to determine if firms are complying
with various laws and regulations.
Development of Accounting
1494 and 1775- Age of stagnation
Accounting is a function of economic (and
social) development .There was practically no
economic development . Naturally , there was no
progress in accounting practices and ideas.
(1900-1950):
1-As for development of this period , stewardship
reporting did not remain all that significant
around 1950 . Cost accounting and
management accounting developed during this
period .
2- Tax accounting , advising and planning were
developed.
3- Auditing techniques , standerds and guidelines
were issued by the professional bodies.
(1950-present)
1- Accounting developed as a Full-fledged
information system.
2- Many new theoretical concepts were tested
and put to practice . A long descriptive
approach ,the normative approach to
development of an accounting theory was
also regarded as useful .
3- Various accounting standards boards and
committees were set up to issue statements
of concepts and standards in many countries.
TYPES OF ACCOUNTING
Financial Accounting
The functions of financial accounting are
concerned with that of bookkeeping, i.e.
maintenance of records of costs, debtors,
and creditors, etc.
As per the company law requirements, the
company has to maintain the accounts for
their adoption by the shareholders in the
Annual General Meeting.
Classification of Accounts
Asset: Items that a business or individual
owns or are owed.
Liability: A debt or obligation.
Revenue: Amounts earned by delivering
goods or services to customers.
Expenses: The daily costs incurred in running
a business.
Capital: The owner's or owners' rights to
assets of a business.
Transaction
Entity
Proprietor or Owner
Capital
The amount of money or moneys worth
invested or introduced by the proprietor
into his business at the time of the
commencement of the business is called
capital.
Or
Capital is total assets minus total liabilities.
Drawings
Drawing refer to cash, goods or any other
asset withdrawn by the proprietor from his
business for his personal, private or
domestic use or purpose.
Assets
Assets means resources, things or rights
of value owned by a business undertaking.
Assets are also defined as properties and
possessions owned by a business which
benefit future period or periods.
Assets
Assets include:
(a) Physical or real properties or things called
tangible assets like lands, buildings, Plant &
machinery, etc
(b) Rights in certain things or certain rights
having money value called intangible assets,
such as Goodwill, Patent rights, trade marks
and copyrights possessed by a business.
(c) Debts or amounts due to a business from
others, such as sundry debtors, bills
receivable, accrued incomes, etc.
Liabilities
Debtor
Debt
Creditor
A creditor is a person to whom the business
owes money.
A creditor constitutes a liability for the
business
A creditor may be
(a) a trade creditor,
(b) a loan creditor,
(c) a creditor for an asset purchased on
credit and
(d) an expense creditor
Expenses
Expenses are the costs incurred in
connection with the earnings of revenue.
E.g. Cost of goods sold or services
rendered, administration or office
expenses, selling and distribution
expenses, maintenance expenses,
financial expenses, etc
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