B.COM.

(HONOURS)
SEMESTER-I
Course Code: UG BCOM-H-CC-T-01
Course Title: FINANCIAL ACCOUNTING - 1
Core Course; Credit-6; Full Marks-75
Course Objective:
The objective of this paper is to provide conceptual knowledge of the financial accounting
and to help students to acquire skills for recording various kinds of business transactions.

Unit 1: Introduction to Accounting

1. Meaning and objectives of Financial Accounting, Meaning of different types of accounting.
2. Users of accounting information and their information needs.
3. Accounting Concepts and Conventions: Entity, Money Measurement, Cost, Realisation,
Periodicity, Going Concern, Accrual, Consistency, Conservatism, Materiality, Matching and
Full Disclosures.
4. Meaning of Accounting Theory, Relation of Accounting Theory with Practice, Generally
Accepted Accounting Principles (GAAP).
5. Accounting Standards: Concept, Need, Google Classroom Code: akmzzwu
Benefits and Limitations of Accounting
Standards, Types (Accounting Standards & Indian Accounting Standards) and names of
Accounting Standards in India, Provision relating to mandatory application of Accounting
Standards under Companies Act, 2013.
6. Basic concept of IFRS.

Contents
Introduction ..................................................................................................................................................................................................... 1
Classification ................................................................................................................................................................................................... 2
Transaction ....................................................................................................................................................................................................... 3
Organization/Proprietorship [based on ownership]............................................................................................................... 4
Accounting is the Language of Business ...................................................................................................................................... 4
Financial information ................................................................................................................................................................................. 5
Annual Report of Hindustan Unilever Ltd [Extract] ........................................................................................................... 6
Objective of Accounting ......................................................................................................................................................................... 8
The Accounting Process........................................................................................................................................................................... 8

Introduction
1. “Accounting is the language of business and ….. Getting comfortable in a foreign
language takes a little experience, a little study, early on but it pays off big later on.”
–Warren Buffet
[Source: https://www.cnbc.com/2014/07/31/warren-buffett-surprises-teen-cancer-
patient-on-cnbc.html]

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 2. Accounting is the process of identifying, measuring, and communicating financial
information about an entity to permit informed judgments and decisions by users of
the information.
[American Accounting Association]

3. In 1970, the Accounting Principles Board of AICPA also emphasized that the function
of accounting is to provide quantitative information, primarily financial in nature,
about economic entities, that is intended to be useful in making economic decisions.
The field of accounting is generally sub-divided into:
(a) Book-keeping
(b) Financial Accounting
(c) Cost Accounting and
(d) Management Accounting

Classification

And

ACCOUNTANCY

ACCOUNTING

BOOK KEEPING

a. Bookkeeping –
i. Recording [Systematically]
ii. Financial statements are not part of it
iii. Managerial Decisions cannot be taken based on this
iv. Crude form

b. Accounting –
i. Summarizing of recorded transaction
ii. Language of business

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 iii. Financial statements are prepared on the basis of bookkeeping records
iv. Decision Making is based on reports prepared.
v. Three fields – Financial, Cost and Management accounting.
c. Accountancy – the academic discipline of Accounting

Transaction
 Transaction is exchange of values carried out between two or more entities.
 Accounting deals with recording and compiling the financial transactions in a
significant manner and interpreting the results.
 In an accounting sense, an event can be understood as the outcome of a business
activity, that can affect the account balances of the company if it is financial in
nature.

BASIS FOR
TRANSACTION EVENT
COMPARISON

What is it? Cause Effect

Accounting record Transactions are recorded as Only those events are recorded
they arise. which are financial in nature.

Change in financial Results in change in the financial May or may not result in change
state position of the company. in financial position of the
company.

⇒ All transactions are events, but all events are not transactions because to become a
transaction, an event must be of financial nature.

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 Organization/Proprietorship [based on ownership]

ORGANISATION

profit seeking non profit seeking

organisation organisation

Joint Stock
Company
Sole Limited
Propietorship Partnership Liability
Partnership
Public Limited
Compnay

Private Limited
Company [Small
Company]
One Person
Company

Accounting is the Language of Business

1. “The process of identifying, measuring and communicating economic information to
permit informed judgments and decisions by the users of accounting”.
2. “Accounting is the art of recording, classifying and summarizing 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 result thereof”.
3. Accounting is the process of identifying, measuring and communicating financial
information about an entity to permit informed judgments and decisions by users of
the information.

What Financial Information

1. How is financial information identified?
2. How is financial information measured?
3. How is financial information communicated?
4. What is an entity?
5. Who are the users of financial information about an entity?
6. What types of judgments and decisions do these users make?

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Financial information

Let us understand “financial information” disseminated by a Company for the

“Users” of financial information

Users of accounting information and their information Needs.

1. Investors: They provide risk capital to the business.
2. Employees: Growth of the employees is related to the growth of the organisation
3. Lenders: They are interested to know whether their loan-principal and interest
will be paid when due.
4. Suppliers and Creditors: They are also interested to know the ability of the
enterprise to pay their dues.
5. Customers: Customers are also concerned with the stability and profitability of
the enterprise.
6. Government and their agencies: public good and taxes
7. Public: Successful business makes substantial contribution to the local economy in
8. Management: Management as whole is also interested in the accounts for various
managerial decisions.

Hindustan Unilever Ltd

Hindustan Unilever (HUL) is India's largest fast-moving consumer goods (FMCG)
company, with leadership in Home & Personal Care Products and Foods & Beverages. In
1931, Unilever set up its first Indian subsidiary, Hindustan Vanaspati Manufacturing
Company, followed by Lever Brothers India Limited (1933) and United Traders Limited
(1935). These three companies merged to form HUL in November 1956

Some Known Products

Lux, Lifebuoy, Surf Excel, Rin, Wheel, Glow & Lovely, Pond's, Vaseline, Lakmé, Dove,
Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality
Wall's and Pureit.

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Annual Report of Hindustan Unilever Ltd [Extract]

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Objective of Accounting

The Accounting Process

THE
ACCOUNTING
PROCESS

ACCOUNTING
ECONOMIC 'LINKS' DECISION
MAKERS WITH COMMUNICATIN
ACTIVITIES
ECONOMIC G INFORMATION
ACTIVITIES AND
THE RESULT -
DECSION

DECSION MAKERS
(INTERNAL AND EXTERNAL
USERS]

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EVOLUTION OF ACCOUNTING
The early development of accounting system is traceable to the most ancient
cities, in Mesopotamia, a home of number between 450 and 500 BC. (Keistar,
1965): Greece and Rome were cities where coinage was invented in about 630
BC (Chatfield, 1977) and China is where accounting systems were concerned
with the recoding of merchants, temples, and estates (FU 1971).
[https://arxiv.org/ftp/arxiv/papers/1411/1411.4633.pdf]

GROWTH OF ACCCOUNTING KNOWLEDGE

1775 -1850 1. Small Business Units
2. Emphasis on Proprietary ‘Interest’ or Net Worth or
Wealth
3. More emphasis on the Capital (Asset –Liabilities)
1850 -1900 1. Growth of Corporations and Large Scale Business
2. Emphasis on ‘Income Statements’
3. Separate Entity Postulate
4. Going Concern and Periodicity
1900 -1950 1. Stewardship Accounting
2. Cost and Management Accounting
3. Emphasis on rational Decision Making
1950 - 1. Development as a Science
2000 2. Accounting Standard Setting Board
3. Need for harmonization
Post 2000 1. Accounting as a Profession [accelerates].
2. More technology driven
3. Harmonization [globalization of accounting thought]
4. Increasing role of regulations to curb unethical practices

GAAP
Generally Accepted Accounting Principles (GAAP) refers to a widely accepted
set of rules, standards, conventions, and procedures for reporting financial
info. In USA this set of rules has been established by the Financial Accounting
Standards Board (FASB). GAAP is an amalgamation of authoritative standards
and the usually accepted methods of recording and reporting info on accounting.

As explained by Investopedia, GAAP are enforced on the companies so as to

provide the investors with least possible level of reliability in the financial
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statements used while analyzing companies for investment purposes. The things
covered by GAAP include revenue recognition, measuring outstanding share, and
classification of items on balance sheet.

Beyond the 10 principles, GAAP compliance is built on three rules that eliminate
misleading accounting and financial reporting practices. These rules create
consistent accounting and reporting standards, which provide prospective and
existing investors with reliable methods of evaluating an organization's
financial standing. Without these rules, accountants could use misleading
methods to paint a deceptive picture of a company or organization's financial
standing.
U.S. law requires businesses that release financial statements to the public and
companies that are publicly traded on stock exchanges and indices to follow
GAAP guidelines, which incorporate 10 key concepts:

1. Principle of regularity: GAAP-compliant accountants strictly adhere to

established rules and regulations.
2. Principle of consistency: Consistent standards are applied throughout the
financial reporting process.
3. Principle of sincerity: GAAP-compliant accountants are committed to
accuracy and impartiality.
4. Principle of permanence of methods: Consistent procedures are used in
the preparation of all financial reports.
5. Principle of non-compensation: All aspects of an organization's
performance, whether positive or negative, are fully reported with no
prospect of debt compensation.
6. Principle of prudence: Speculation does not influence the reporting of
financial data.
7. Principle of continuity: Asset valuations assume the organization's
operations will continue.
8. Principle of periodicity: Reporting of revenues is divided by standard
accounting time periods, such as fiscal quarters or fiscal years.
9. Principle of materiality: Financial reports fully disclose the organization's
monetary situation.
10. Principle of utmost good faith: All involved parties are assumed to
be acting honestly.

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 GAAP compliance makes the financial reporting process transparent and
standardizes assumptions, terminology, definitions, and methods. External
parties can easily compare financial statements issued by GAAP-compliant
entities and safely assume consistency, which allows for quick and accurate
cross-company comparisons.

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