Introduction to Accounting

1. Meaning: ‘’Accounting is the art of recording ,classifying and summarising in a significant manner and in terms of money ;transactions and events which are ,in part at least ,of a financial character ,and interpreting the results thereof.   {American institute of certified public Accountants}

2. Attributes/ Features /characteristics of Accounting

• Identification of Financial Transations and Events
• Measuring the Identified Transactions
• Recording
• Classifying-----Ledger
• Summarising
• Analysis and interpretation 
• Communicating

3. Accounting Process

• Financial Transactions
• Recording
• Classifying
• Summarising
• Analysis and Interpreting

4. Objective of Accounting

• Record of Financial Transactions and Events
• Determine Profit or Loss
• Determine Financial position
• Assisting the Management
• Communicating Accounting Information to Users
• Protecting Business Assets

5. Functions of Accounting

•  Maintaining Systematic Accounting Records
• Preparation of financial Statements
• Meeting legal Requirements
• Communicating the financial Data
• Assistance to Management.  

6. Advantages of Accounting.   

• Financial Information about Business
• Assistance to Management
• Replaces Memory
• Facilitates Comparative Study
• Facilitates Settlement of Tax liabilities
• Facilitates Loans 
• Evidence in Court
• Facilitates sale of Business
• Helps in Decision Making

7. Limitations of Accounting

• Accounting is not Fully exact
• Accounting does not indicate the Realisable value
• Accounting ignores the Qualitative Elements
• Accounting Ignores the affect of Price level changes
• Accounting may lead to window Dressings

8. Types of Accounting Information

• Information relating to Profit or surplus
• Information Relating to Financial Position
• Information about cash Flow

9. Users of Accounting Information

• Internal User                   

 Example: Owners,Management, Employees and workers.

• External User 

Example: Banks and Financial institutions
Investors and potential Investors
Creditors, Government and its authorities
Researchers, Consumers and Public.

10. Qualitative Characteristics of Accounting Information
(i) Reliability
(ii) Relevance   
(iii) Understandability
(iv) Comparability

11. Systems Of Accounting
(i) Double Entry system
(ii)  Single Entry System

12. Book Keeping : Book Keeping is a Part of Accounting being a Process of Recording of Financial transactions and events in the books of Accounts:  Thus Book Keeping involves:

• Identifying Financial Transactions and events
• Measuring them in terms of money
• Recording the Identified Financial Transactions and Events in the Books of accounts and
• Classifying recorded transations and events i.e.,Posting them into Ledger Accounts.

13. Differnce Between Book Keeping and Accounting
Basis
Book Keeping
Accounting

• Stage

It is Primary Stage.{basis of accounting}
It is the secondary stage.{where book keeping ends}

• Nature of job

This job is routine in Nature
This job is Analytical and Dynamic in Nature.

• Performance

Junior staff performs this function
Senior staff performs this function

• Skills

Doesn’t Require Special Skills.
Requires Special skills and ability.