Accountancy- Basics

Prof. Saptarshi Mukherjee

Introduction to Accounting
The American Accounting Association defines
accounting as follows:
"The process of identifying, measuring and
communicating economic information to permit
informed judgments and decisions by users of the
information.

Definition of Accountancy
The process of recording,
classifying, summarizing and
Interpretation of financial data
and operations in terms of time
and money.

Basic Accounting concepts

The Accounting
Entity
1.

or

Business Entity

2. Accounting Period
3. Monetary Concept
4. The Going Concern

The Accounting Entity

Or Business Entity
concept

The business exists as a unit by itself.

It is separated from its owner.
Only transactions and events related
to the business are recorded in the
business books.

Accounting Period

The life of a business is divided into

many equal and fixed periods of
time. Eg one year

Monetary Concept

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Monetary Concept
-To be measured by Money.
Interpretation possible when measured in monetary terms.

Going Concern

Imagine you just set up a new company.

Do you think you want to sell off your
business next year?

Assumption: The business entity will

continue to operate and it will not close
down.

All assets owned by the business are

assumed to be used into the
unknown future.

Historical Cost

Market Cost changes all the time!

Therefore
All transactions/assets of a
business entity are recorded at the
original cost price which is also
known as Historical Cost.

Doctrines
1.
2.
3.
4.

Doctrine of Materiality
Doctrine of Conservatism
Doctrine of Full Disclosure
Doctrine of Consistency

Need of Accountancy
Accountingprovidesinformation on
the
(1)resourcesavailableto a firm,
(2) themeansemployedto
financethose resources, and
(3) theresultsachieved through their
use.

Branches of Accounting

Financial Accounting
Management Accounting
Cost Accounting
Tax Accounting

Financial Accounting

Financial Accounting
Financial accounting
Primarily prepared for users external to the
company.
Revenues, assets, etc.

Financial accounting is the field of accountancy

concerned with the preparation of financial
statements for decision makers.

Management Accounting

Management Accounting
What is management Accounting?
Management Accounting is
The process of identification,
measurement, accumulation,
analysis, preparation, interpretation
& communication of information
used by management to plan,
evaluate & control within an entity &
to assure use of & accountability for
its resources.

Management Accounting
Core Purpose:
The object of this accounting is to
communicate the relevant
information periodically to the
management of the business to
enable it to take suitable
decisions.

Focus of Management
Accounting

Thus main focus of managerial accounting

is to help the managers for making better
decisions.

Contrast of
Financial & Management Accounting

Managerial Accounting
Benefits:

Determining performance
Dropping or managing costs
Examining the prices for products and
services
Choosing to approve, change or suspend
a plan or action

Cost Accounting

Cost Accounting.
Introduction:

Cost accounting deals with the

recording, classification, allocation,
and reporting of current and
prospective costs.

Cost Accounting
Purpose:

The main object of cost accounting is to

determine the cost of goods manufactured or
produced by the business.

It helps the management of the business in

controlling the costs by indicating avoidable
losses and wastage

Cost Accounting Benefits

Analyze costs relevant to your

business and business model

Powerful allocation schemes

matching your business
model

Plan and calculate future cost

based on budgets and
forecasts

Tax accounting

Tax accounting
Tax accounting is the branch
of accounting relating to the
preparation and filing of tax
forms with the government
agencies.

Part II
Financial Accounting Recording
of Transactions

Real Account

Personal Account

Nominal Account

Source
Documents

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(originals)
Books of Prime Entry
(Journal Entries)

Ledgers
Trial Balance
Adjustments
Reports