Introduction

----------------Suchandra Bose
What is Finance?
• Finance is a term broadly describing the study and system of money,
investments, and other financial instruments.
• Finance can be divided broadly into three distinct categories: public
finance, corporate finance, and personal finance.
• More recent subcategories of finance include social finance and behavioral
finance.
• The history of finance and financial activities dates back to the dawn of
civilization
• While it has roots in scientific fields, such as statistics, economics, and
mathematics, finance also includes non-scientific elements that liken it to
an art.
What is Accounting?
• Accounting is the process of keeping track of all financial transactions
within a business, such as any money coming in and money going out.
It’s not only important for businesses in terms of record keeping and
general business management, but also for legal reasons and tax
purposes. Though many businesses leave their accounting to the pros,
it’s wise to understand the basics of accounting if you’re running a
business. To help, we’ll detail everything you need to know about the
basics of accounting.
• Accounting is the process of recording, classifying and summarizing
financial transactions. It provides a clear picture of the financial
health of your organization and its performance, which can serve as a
catalyst for resource management and strategic growth.
Difference between Book Keeping and
Accounting
What is Financial Accounting?
• Financial accounting is the framework that dictates the rules,
processes, and standards for financial recordkeeping.
• Nonprofits, corporations, and small businesses use financial
accountants to prepare their books and records and generate their
financial reports.
• Financial reporting occurs through the use of financial statements,
such as the balance sheet, income statement, statement of cash
flow, and statement of changes in shareholder equity.
• Financial accounting differs from managerial accounting, as financial
reporting is for reporting to external parties, while managerial
accounting is for internal strategic planning.
• Financial accounting may be performed under the accrual method
(recording expenses for items that have not yet been paid) or the
cash method (only cash transactions are recorded).
Accounting Equation
• The accounting equation is considered to be the foundation of the
double-entry accounting system.
• The accounting equation shows on a company's balance that a company's
total assets are equal to the sum of the company's liabilities and
shareholders' equity.
• Assets represent the valuable resources controlled by the company. The
liabilities represent their obligations.
• Both liabilities and shareholders' equity represent how the assets of a
company are financed.
• Financing through debt shows as a liability, while financing through issuing
equity shares appears in shareholders' equity.
Accounting Equation
Introducing Accounting Principles
• Accounting principles are the rules and guidelines that companies and
other bodies must follow when reporting financial data. These rules
make it easier to examine financial data by standardizing the terms
and methods that accountants must use.
• The International Financial Reporting Standards (IFRS) is the most
widely used set of accounting principles, with adoption in 167
jurisdictions. The United States uses a separate set of accounting
principles, known as generally accepted accounting principles (GAAP).
Accounting Standards
• An accounting standard is a set of practices and policies used to
systematize bookkeeping and other accounting functions across firms
and over time.
• Accounting standards apply to the full breadth of an entity’s financial
picture, including assets, liabilities, revenue, expenses, and
shareholders' equity.
• Banks, investors, and regulatory agencies count on accounting
standards to ensure information about a given entity is relevant and
accurate.
Objectives of Accounting Standards
• The main aim is to improve the reliability of financial statements. Now
because the financial statements have to be made following the
standards the users can rely on them. They know that not conforming
to these standards can have serious consequences for the companies.
• Then there is comparability. Following these standards will allow for
inter-firm and intra-firm comparisons. This allows us to check the
progress of the firm and its position in the market.
Objectives of Accounting Standards
• It also looks to provide one set of accounting policies that include the
necessary disclosure requirements and the valuation methods of various
financial transactions.
Benefits of Accounting Standards
• Attains Uniformity in Accounting
• Improves Reliability of Financial Statements
• Prevents Frauds and Accounting Manipulations
• Assists Auditors
• Determining Managerial Accountability
GAAP (Generally Accepted Accounting
Principles)
• Generally accepted accounting principles (GAAP) are uniform
accounting principles for private companies and nonprofits in the U.S.
These principles are largely set by the Financial Accounting Standards
Board (FASB), an independent nonprofit organization whose members
are chosen by the Financial Accounting Foundation.
• A similar organization, the Governmental Accounting Standards Board
(GASB), is responsible for setting the GAAP standards for local and
state governments. And a third body, the Federal Accounting
Standards Advisory Board (FASAB), publishes the accounting
principles for federal agencies.
International Financial Reporting Standards
(IFRS)
• The International Accounting Standards Board (IASB) issues
International Financial Reporting Standards (IFRS). These standards
are used in more than 120 countries, including those in the European
Union (EU).
• The Securities and Exchange Commission (SEC), the U.S. government
agency responsible for protecting investors and maintaining order in
the securities markets, has expressed interest in transitioning to IFRS.
However, because of the differences between the two standards, the
U.S. is unlikely to switch in the foreseeable future.
Who sets accounting principles and
standards?
• Various bodies are responsible for setting accounting standards. In
the United States, generally accepted accounting principles (GAAP)
are regulated by the Financial Accounting Standards Board (FASB). In
Europe and elsewhere, International Financial Reporting Standards
(IFRS) are established by the International Accounting Standards
Board (IASB).
Difference between IFRS and GAAP
What is a Transaction?
• According to the transaction definition, a transaction is defined as the
exchange of products and services or the transfer of money, or the
commitment to exchange goods and services in the future.
Difference between an Event and Transaction
• Transactions are usually related to the exchange of goods, services, or
money between parties. Events can be any significant occurrence that
takes place within the company or its environment.
Credit and Cash Transaction
• Method
• Timing
Class Exercise
• Discuss the scope of GAAP and IFRS.
• Present few differences between Book Keeping and Accounting.
• Differ between cash based accounting and accrual accounting.
• Differ between cash and credit transaction.