Topic 1 Intro to Fin Acc

7/30/2019 Topic 1 Intro to Fin Acc

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Introduction to Financial Accounting


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It is concerned with

Collection

Recording

Classification

Presentation of financial data

To serve the purpose of the management and the

outside agencies who are interested in your

organization


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The art of recording, classifying and summarizing in a

significant manner and in a terms of money,

transactions and events which are in part at least of a

financial character and interpreting the results thereof.

Accounting is the process of identifying, measuring and

communicating economic information to permit

informed judgments and decisions by users ofinformation


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To keep systematic records

To Protect business properties

To ascertain the operational profit or loss

To ascertain financial position of business

To facilitate rational decision making


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Recording

Classification

Summarizing

Interpretation


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Accountant in Public Practice

Accountant in Employment

Maintenance of Books of Accounts

Auditing of Accounts

Taxation

Financial services


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ACCOUNTING CYCLE is the sequence of steps in preparing the financialstatements for a given period.

It refers to the fact that because financial reports are given each period (usually ayear) there are a set of steps (cycle) taken each period that result in the reports andpreparation for the next period or cycle.

Putting transactions into the general journal.

Posting entries to the general ledger.

Preparing an unadjusted trial balance.

Adjusting entries appropriately.

Preparing an adjusted trial balance.

Organizing the accounts into the financial statements.

Closing the books.

Preparing a post-closing trial balance to check the accounts.

Also known as bookkeeping cycle.


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Proprietor

Managers

Creditors

Prospective Investors

Government

Employees


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Business is considered to be separate from the itsowner

This concept helps in keeping business affairs strictly

free from the private affairs of the owner

This concept is applicable for every kind of businessincluding sole proprietor concern

Eg: when proprietor invests Rs.50,000/- into business,

its considered as Liability in the books of that

organization


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Under this concept, it is assumed that the business will

continue for a long period of time

There is neither the intension nor the necessity to

liquidate the particular business venture in the

foreseeable future

It should be noted that this concept does not imply

permanent continuance of the enterprise


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Accounting records only monetary transactions

Events or transactions without monetary value do not

have place in the books of accounts


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Under this concept, an asset is entered in the

accounting records at the price paid to acquire it

This cost is a basis for all subsequent accounting for the

assets

This concept brings objectivity in preparing and

preparation of financial statement

In the absence of this concept, records would have

depended on the subjective views of a person


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Every business transaction has two and equal effects

Debit should match with credit

Debit = Credit

Liabilities = Assets


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Under this concept, the life of business is divided into

no of segments for studying the results shown by the

business after each segment

This segment is known as accounting period

At the accounting period income and expenditure

statement and balance sheet is prepared

Generally accounting period is of one year

Eg: 01/01/2010-31/03/2011


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Some cost turn into sunk costs, idle costs and of like

nature

In other words, the expenses incurred do not generate

any part of the revenue

Such costs should be identified and write off

This will give a true and fair profits/losses


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Revenue is recognised when a sale is made


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Anticipate no profits, but provide for all possible losses

This convention follows the policy of Playing Safe

Eg: Closing stock is valued at cost or market price

whichever is less


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Accounting reports should disclose fully and fairly

information

Financial statement should be prepared with honesty

and sufficiently disclose information which is in the

interest of proprietors and present and potential

creditors and investors


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Accountant should attach important information andignore insignificant details

Materiality is subjective concept

Accountant should give information to his believewhich may influence the decision of the investors

Topic 1 Intro to Fin Acc

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