Session-1

Introduction:

Most of the work is done through organizations

What are the resources?

Land, Labor, Capital and organization

Material, Man, Money, Machines, Methods
Labor, Material, Various services, building and equipment
The resources need to be financed or paid for
Accounting is a system that provides information

Need of Accounting:

1. Human memory has a limitation

2. It is an aid to the management
3. It is needed for legal reasons
4. It helps to ascertain the results of the operation and financial position
5. It helps to ascertaining the value of the business
6. It helps to make inter period and inter firm comparison

Classification of organizations
1. Profit
2. Non profit

Types of information
1. Non-Quantitative information
2. Quantitative information
 Non- Accounting information
 Accounting information
1. Operating information
2. Financial accounting information
3. Management Accounting
4. Tax Accounting

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American accounting association committee:

Accounting as the process of identifying, measuring and communicating economic

information to permit informed judgments and decisions by the user of information.

Financial Statements’ are prepared according to Indian Accounting Standards. Issued by

ICAI

The Institute of Chartered Accountants of India (ICAI) is the national

professional accounting body of India

This Framework sets out the concepts that underlie the preparation and presentation of
financial statements in accordance with the Indian Accounting Standards for external
users.

Users of financial statements

1. Investors,
2. Employees,
3. Lenders
4. Suppliers
5. Other trade creditors,
6. Customers

7. Governments and their agencies and the public.

DEFINITION:
Accounting is an art of recording, classifying, and summarizing in a significant manner,
and in terms of money and events which are, in part at least, of a financial character and
interpreting the results thereof. -American Institute of Certified Public Accountants
(AICPA)
Accounting is treated as the language of business.

ANALYSIS OF ACCOUNTING DEFINITION

1. Recording: It is essentially concerned with not only ensuring that all business
transactions of financial character are in fact recorded but also they are recorded in an
orderly manner.
Recording is done in the book called “Journal” – also called “Book of Prime entry”.

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2. Classification: It is concerned with the systematic analysis of the recorded data, with a
view to group transactions or entries of one nature at one place. The work of classification
is done in the book called “Ledger”.
3. Summarizing: This involves presenting the classified data in a manner which is
understandable and useful to the internal as well as external end-users of accounting
statements. This process leads to the preparation of the following statements:
Trial Balance
Statement of profit and loss account and
Balance sheet

4. Dealing with financial transactions: Accounting records only those transactions and
events in terms of money which are of a financial character. Transactions which are not of
a financial character though they are of significant impact on the functioning of business
are not recorded in the books of account.

E.g. dedicated and ethical values of employees of an organization.

5. Analyzing and Interpreting: The recorded financial data is analyzed and interpreted in a
manner that the end-users can make a meaningful judgment about the financial condition
and profitability of the business operations.

6. Communicating: The accounting information is communicated in a proper form and

manner to the proper person. This is done through preparation and distribution of
accounting reports, which includes statement of profit and loss account and Balance sheet

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 Session -2

Accounting statements and reports are used by various groups to know about the affairs of
the business.

It becomes imperative that the statements should be based on certain principles, concepts
and conventions which may be regarded as fundamentals of accounting.

These fundamentals become the common platform for understanding the accounting
statements and reports

It increases acceptability of statements, results in reliable and credible financial statements.

Uniform fundamentals are termed as “Generally accepted accounting principles”

Importance of GAAP:

GAAP are scientific principles established after a usage of long period of time. Thus
accounting becomes more logical and consistent

It brings uniformity in the accounting process, systems, procedures and practices

It increases the reliability and credibility of financial statements

Accounting principles:

Accounting principles may be defined as those rules of conduct or procedure which are
adopted by the accountants universally while recording the accounting transactions.

Accounting principles have been developed on the basis of reasoning and observations, but
as they are made by man, so they are not universally applicable as the principles of pure
sciences.

Accounting principles are not rigid

Accounting principles are developing and keep on changing according to the requirement
of the business

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Accounting principles can be classified into two categories
1. Accounting concepts
2. Accounting conventions