JAI NARAIN VYAS

UNIVERSITY

 Name – Sanat Khandelwal

 Roll no. – 45
 University name – JAI NARAIN VYAS
UNIVERSITY
 Subject - fundamentals of accounting
 SUBJECT T EACHER - JYOTI MA’AM
 TOPIC - INTRODUCTION TO
ACCOUNTING
 AIMS AND OBJECTIVES
i) know the Meaning ,Definition and objective of Book
Keeping
ii) To study the objectives, functions, importance and
limitations of
Accounting.
iii) To understand the methods of Accounting, kinds of
Accounts and
Accounting rules.
iv) To study the difference between Book keeping and
Accounting
v) To study the various branches of Accounting

INTRODUCTION
In all activities (whether business activities or non
business activities) and in all organizations (whether
business organizations like a manufacturing entity or
trading entity or non-business organizations like
schools, colleges, hospitals, libraries, clubs, temples,
political parties) which require money and other
economic resources, accounting is required to account
for these resources. In other words, wherever money
is involved, accounting is required to account for it.
Accounting is often called the language of business. The
basic function of any language is to serve as a means of
communication. Accounting also serves this function.
 MEANING AND DEFINITION
OF BOOK- KEEPING
Meaning
Book-keeping includes recording of journal, posting in ledgers and
balancing of accounts. All the records before the preparation of trial
balance is the whole subject matter of book - keeping. Thus,
book keeping many be defined as the science and art of recording
transactions in money or money’s worth so accurately and
systematically, in a certain set of books, regularly that the true state of
businessman’s affairs can be correctly ascertained. Here it is important
to note that only those transactions related to business are recorded
which can be expressed in terms of money.

Definition
“Book- keeping is the art of recording business
transactions in a systematic
manner”. A.H. Rosenkamph.

“Book-keeping is the science and art of correctly

recording in books of account all those business
transactions that result in the transfer of money or money’s
worth”. R.N. Carter.
 Objectives of Book - keeping
i) Book- keeping provides a permanent record of each transactions.
ii) Soundness of a firm can be assessed from the records of assets
and abilities on a particular date.
iii) Entries related to incomes and expenditures of a concern
facilitate to know the profit and loss for a given period.
iv) It enables to prepare a list of customers and suppliers to
ascertain the amount to be received or paid.
v) It is a method gives opportunities to review the business policies
in the light of the past records.
vi) Amendment of business laws, provision of licenses, assessment
of taxes etc., are based on records.

ACCOUNTING
Meaning of Accounting
Accounting, as an information system is the process of
identifying, measuring and communicating the economic
information of an organization to its users who need the
information for decision making. It identifies transactions and
events of a specific
entity. A transaction is an exchange in which each
participant receives or sacrifices value (e.g. purchase of
raw material). An event (whether internal or external) is a
happening of consequence to an entity (e.g. use of raw material
for production). An
entity means an economic unit that performs economic activities.
 Definition of Accounting
American Institute of Certified Public Accountants (AICPA) which
defines accounting as “the art of recording, classifying and
summarizing in a significant
manner and in terms of money, transactions and events, which are, in
part at lea
st, of a
financial character and interpreting the results thereof”.

Objective of Accounting
Objective of accounting may differ from business to
business depending upon
their specific requirements. However, the following are the
general objectives of accounting.
i) To keeping systematic record:
It is very difficult to remember all the
business transactions that take place. Accounting serves this purpose
of record keeping by promptly recording all the business transactions in
the books of account.

ii) To ascertain the results of the operation:

Accounting helps in ascertaining result i.e., profit earned or loss
suffered in business during a particular period. For this purpose, a
business entity prepares either a Trading and Profit and
Loss account or an Income and Expenditure account which shows the
profit or loss of the business by matching the items of revenue and
expenditure of the some period.

iii) To ascertain the financial position of the business:

In addition to profit, a businessman must know his financial position
i.e., availability of cash, position of assets and liabilities etc. This
helps the businessman to know his financial strength. Financial
statements are barometers of health of a business entity.

iv) To portray the liquidity position:

Financial reporting should provide information about how an enterprise
obtains and spends cash, about its borrowing and repayment of
borrowing, about its capital transactions, cash dividends and other
distributions of resources by the enterprise to owners and about other
factors that may affect an enterprise’s liquidity and solvency.

v) To protect business properties:

Accounting provides upto date information about the various assets that
the firm possesses and the liabilities the firm owes, so that nobody
can claim a payment which is not due to him.

vi) To facilitate rational decision – making:

Accounting records and financial statements provide financial

information which help the business in making rational decisions about
the steps to be taken in respect of various aspects of business.

vii) To satisfy the requirements of law:

Entities such as companies, societies, public trusts are compulsorily
required to maintain accounts as per the law governing their operations
such as the Companies Act, Societies Act, and Public Trust Act etc.
Maintenance of accounts is also compulsory under the Sales Tax Act
and Income Tax Act.
 ACCOUNTING INFORMATION
It is defined as the information provided by an organization in its
financial statements for different internal and external users. An
organization prepares the accounting information with the help of the
Book-keeping process. The process helps the different users in
understanding the financial position and profitability of the
organization and make financial decisions accordingly.

 Reliability: It is the ability of a user to depend on the

information provided by an organization. Accounting
information can be stated as reliable if it is free from
errors any kind of personal bias. In other words, the
information provided by an organization must be
verifiable and based on proper facts.
 Relevance: It is the ability of information to meet the
users’ needs and help them make important decisions.
The information provided by the organization must be
available to the users on time and hence, help them in
forecasting.
 Understandability: It means presenting the accounting
information of an organization in a way that the users can
understand it in the same sense as the organization wants
to convey. With proper understandability only, an
organization can communicate effectively with the
different users of accounting information.
 Comparability: Relevance and Reliability of the
accounting information is not enough; it should also be
comparable. It means that the organization should use the
same measures of reporting and accounting principles, so
the users can effectively compare the current year’s
reports with the previous years’ .
Qualitative Characteristics of Accounting Information

Importance of Accounting
i) Owners:
The owners provide funds or capital for the organization. They
possess curiosity in knowing whether the business is being conducted
on sound lines or not and whether the capital is being employed
properly or not. Owners, being businessmen, always keep an eye on the
returns from the investment. Comparing the accounts of various years
helps in getting good pieces of information.

ii) Management:
The management of the business is greatly interested in knowing
the position of the firm. The accounts are the basis, the management can
study the merits and demerits of the business activity. Thus,
the manag e m e n t i s interested in financial accounting to find
whether the business carried on is profitable or not. The financial
accounting is the “eyes and ears of management and facilitates
in drawing future course of action, further expansion etc.”
iii) Creditors:
Creditors are the persons who supply goods on credit, or
bankers or lenders of money. It is usual that these groups are interested
to know the financial soundness before granting credit. The
progress and prosperity of the firm, t w o w h i c h
credits are extended, are largely watched by creditors from the point of
view of security and further credit. Profit and Loss Account and Balance
Sheet are nerve centres to know the soundness of the firm.

iv) Employees:
Payment of bonus depends upon the size of profit earned by
the firm. The more important point is that the workers expect regular
income for the bread. The demand for wage rise, bonus, better working
conditions etc. depend upon the profitability of the firm and in turn
depends upon financial position. For these reasons, this group is
interested in accounting.

v) Investors:

The prospective investors, who want to invest their money in a

firm, of course wish to see the progress and prosperity of the firm,
before investing their amount, by going through the financial
statements of the firm. This is to safeguard the investment. For this,
this group is eager to go through the accounting which enables them to
know the safety of investment.

vi) Government:
Government keeps a close watch on the firms which yield
good amount of profits. The state and central Governments are
interested in the financial statements to know the earnings for
the purpose of taxation. To compile national accounting is essential.
v i i ) C o n sumers:
These groups are interested in getting the goods at reduced
price. Therefore, they wish to know the establishment of a proper
accounting control.
BASIC ACCOUNTING
TERMSc Accounting Terms
These basic accounting terms are critical for any student who
wants to develop a deeper understanding of the subject and
pursue further studies in this stream. These terms and their
definitions are as follows:
 Business Transaction – A business transaction is a
financial event between two or more parties. It involves an
exchange of goods, services or money and gets recorded in
the books of accounts for the organisations involved.
 Capital – Capital is a critical component of any business to
run its daily operations and help its future growth. The
capital for a business comes either from its owners or from
outsiders (shares, debentures or bonds).
 Drawings – Drawings refer to the withdrawals made by the
owners of a business for personal use. It gets deducted from
the Owner’s Capital in the Liabilities side of a Balance
Sheet.
 Liabilities (Non-Current and Current) – Current
Liabilities are the amount due to the creditors of a business
that has to be paid back within twelve months. Non-Current
Liabilities are the long-term obligations of a company that
are not due for payment before a year.
 Assets (Non-Current and Current) – Current Assets are
the assets that a firm can liquidate within twelve months.
Non-Current Assets are the long-term investments of a
business that they cannot liquidate within a year.
 Fixed assets (Tangible and Intangible) – Tangible Fixed
Assets are the long-term investments of a business that have
a physical existence. Intangible Fixed Assets are the long-
 term investments made by a company that doesn’t have a
physical existence.
 Expenditure (Capital and Revenue) – A business incurs
Capital Expenditure to acquire assets for long-term income
generation. It also incurs Revenue Expenditure to run the
day-to-day operations of a business.
 Expense – Expenses in accounting refer to the cost incurred
or money the business owners spend to generate revenue. A
business must keep its expenses under control to generate
profits both in the short and long run.
 Income – Income is the revenue that a business earns from
the sale of its goods or services. It is essential for the
survival and growth of any enterprise, and the failure to
generate revenue can lead to a shutdown of the business.

 Profit – Profit is the positive difference between the income

generated from selling goods or services and the Expenses
incurred to perform that business activity. Profit is the
excess of revenues over the expenses.
 Gain – A Gain is an increase in the total value of an asset of
a business. It takes place when the current price of the asset
exceeds its original purchase price. It can occur at any time
during the useful life of an asset.
 Loss – Loss is the excess of the Expenses incurred from
selling goods or services over the income generated to
perform that business activity. Sustained losses over time
can lead to the shutdown of a business organisation.
 Purchase – Purchase is the activity of buying an item to
either use it in the production of goods and services or resell
it to another entity.
 Sales – Sales is an economic activity where a business
exchanges goods or services with another entity for money.
It is the primary source of revenue for any organisation.
 Goods – Goods are the items that a company manufactures
to sell to another entity in exchange for money. When an
organisation buys goods, it is known as purchases, and when
it sells goods, it is known as sales.
 Stock – A stock is a financial instrument that represents the
part ownership of a company. Organisations use this
instrument to raise capital for their business.
 Debtor – A debtor is an individual or entity that owes
money to a business. Companies treat it as an asset because
they will get money from them in the near or distant future.
 Creditor – A creditor is an individual or entity to whom a
business owes money. Companies treat it as a liability
because they will have to pay them in the near or distant
future.
 Voucher – A Voucher is an internal document that a
company uses as supporting evidence for accounting entries.
Businesses treat it as a redeemable transaction bond as it has
a monetary value and is helpful in specific cases.
 Discount (Trade Discount and Cash Discount) – A Trade
Discount is a discount that a seller can offer to the buyer by
reducing the price of an item. It helps to increase sales of a
product, and it doesn’t get recorded in the accounting books.
A Cash Discount is a discount that a seller can offer to the
buyer at the time of payment by reducing the invoice price
of an item. It helps to ensure timely payment for a product,
and it gets recorded in the accounting books.