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Account

• • It is a unit of information that represents


• business records.
• • There are five types of accounts: Asset,
• Liability, Equity, Revenue and Expense.
Accounting

• Accounting is a systematic process of


identifying recording measuring classify
verifying some rising interpreter and
communicating financial information. It
reveals profit or loss for a given period and the
value and the nature of a firm’s assets and
liabilities and owners’ equity.
Accounting

• In other words, accounting is a practice and


body of knowledge concerned primarily with
• Method for recording transactions,
• Keeping a financial record,
• Performing internal audit
• Reporting and analyzing financial information
to the management and
• Advising on taxation matters.
Definitions of accounting
• According to Bierman and Drebin:” Accounting
may be defined as identifying, measuring,
recording and communicating of financial
information.”
Features
• It is the art of recording business transactions.
• • It is the art of classifying business
• transactions.
• • The transactions or events of a business must
• be recorded in monetary terms.
• • It is the art of summarizing financial
• transactions.
• • The results should be communicated to users.
Users of Financial Statements
• Users of Financial Statements
• 1. • Investors
• – Need information about the profitability, dividend yield
• and price earnings ratio in order to assess the quality
• and the price of shares of a company
• •2. Lenders
• – Need information about the profitability and solvency of
• the business in order to determine the risk and interest
• rate of loans
• 3 • Management
• – Need information for planning, policy making and
• evaluation
• 4. • Suppliers and trade creditors
• – Need information about the liquidity of business in order
• to access the ability to repay the amounts owed to them
• 5. Government
• – Need information about various businesses for statistics
• and formulation of economic plan
• 6. • Customers
• – Interested in long-tem stability of the business and
• continuance of the supply of particular products
• 7. • Employees
• – Interested in the stability of the business to provide
• employment, fringe benefits and promotion opportunities
• 8. • Public
• – Need information about the trends and recent
• development
Limitations of conventional
financial statements
• 1. • Companies may use different methods of
valuation, cost calculation and recognizing
profit
• 2 • The balance sheet does not reflect
• the true worth of the company
• 3.• Financial statements can only show partial
information about the financial position of an
enterprise, instead of the whole picture
• 4.Records only monetary transactions.
• 5. Effect of price level changes not
considered.
• 6. Historical in nature.
• 7. Personal bias of Accountant affects the
accounting statements.
Advantages
• 1 Evidence in court.
• 2 Settlement of taxation liability.
• 3 Comparative study.
4 Sale of business.
• 5 Assistance to various parties.
Branches
• 1 Financial Accounting (Record keeping)
• •2. Cost Accounting (Price fixation &
Operating efficiency)
• 3• Management Accounting (Analysis for
• decision making)
Book- Keeping
• Book Keeping is the art of recording business
• transactions in a systematic manner.
Types of Transactions
• 1. Cash Transactions
• 2. Credit transaction
• 3. Barter transaction
Financial Statements
• 1.Trial balance
• 2..Manufacturing Accounts
• 3. trading Accounts
• 4. profit and loss accounts
• 5.. Balance sheet
ACCOUNTING EQUation

• Assets = Owner’s Equity +Outside Liabilities


Financial Statements
• 1.Trial balance
• 2..Manufacturing Accounts
• 3. trading Accounts
• 4. profit and loss accounts
• 5.. Balance sheet
Double-entry accounting system
• In the double-entry accounting system,
• every transaction is recorded by equal
• amounts of debits and credits.
Classiffication of Accounts
• 1. Personal
• 2. Real
• 3. Nominal
Personal
• 1.Natural personal account
• • Accounts of physical and naturally born
person
• 2. Artificial personal account
• • A person created by law
• •3. Representative personal account
• • They represent certain person behind them
• Persons with whom a business is carried
• out
Real
• 1.Accounts of Tangible assets
• • Physical evidence
• •2. Accounts of Intangible assets
• • Do of have physical existence
Nominal
• Account of incomes and losses and expenses
• and gains
• RULES OF DOUBLE ENTRY SYSTEM
Real A/c
• Debit what comes in
• • Credit what goes out
Personal a/c
• Debit the Receiver
• • Credit the Giver
Nominal A/c
• Debit all expenses and losses
• • Credit all income and gains
Nominal A/c
• Debit all expenses and
• losses
• • Credit all income and
• gains
Accounting as an art and science
• Accounting can be considered an art because
it requires creative judgment and skills.
... Accounting can also be considered
a science because it is a body of knowledge,
but since the rules and principles are
constantly changing and improving, it is not
considered an exact science.
IMPORTANCE OF ACCOUNTING
• 1 ANALYSIS PURPOSE/ DECISION MAKING
• All our business and economically informed
decision making are based on sound analysis
of financial statement which is a product
of accounting information system.
2.RECORD KEEPING
• Data are gathered from their various sources,
collated, organized, analysed, interpreted and
communicated to the end users for an
informed economic decision making that will
in the long run yield positive fruit.
3.GETTING OF FUND AND LOANS
• Accounting as a communication tool obviously
have generally accepted formats which
financial institutions and banks use as a basis
for measuring the risk of a business.
4. Importance for society
5. Importance for company
Relation between
accountancy,bookkeeping,accounting
Scope of accounting