Chapter - 1

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Prepared by:

Ajith Kanthi @ Ajith P P

SKMJ HSS Kalpetta
Wayanad, Kerala
Ph: 9446162771, 7907712665
ajithkanthi@gmail.com

For latest updates, visit: HssVoice Blog
www.hssplustwo.blogspot.com
 ACCOUNTING
Information system
Receives data input
Processing data
Gives output for decision making
Father of Accounting

Luca Pacioli
(Italian Mathematician)
1447 – 1517
 Accounting
Art of recording
Classifying
Summarizing
Analysing
Interpreting
Financial transactions and
Communicating the results to
Interested persons
Functions of Accounting

1.Recording – business transactions in journal

2.Classifying - with the help of accounts
3.Summarising – trial balance etc.
4.Deals only in financial transactions
5.Analyses and interprets data
6.Communicates – the information to the needy
Relevant
Relevant Aspects
Aspects of
of Accounting
Accounting
1. Economic Event

a. External Event b. Internal Event

Sale of goods Issue of raw materials from stores

to production department
Relevant
Relevant Aspects
Aspects of
of Accounting
Accounting

2. Identification, measurement, recording and communication

Identification of events Measurable

Recording Communication
Relevant
Relevant Aspects
Aspects of
of Accounting
Accounting

3. Organisation

An entity stands for performing business activities either for

profit or not for profit. It can be a sole proprietorship,
partnership, cooperative society, company etc.
Relevant
Relevant Aspects
Aspects of
of Accounting
Accounting

4. Interested users

Management

Internal Users
Chief Executive, Financial Officer, Vice President,
Business Unit Managers, Plant Managers, Store
Managers, Line Supervisors, etc.
 External Users
Shareholders, Creditors, Tax Authorities,
Regulatory Agencies, Trade Unions, Stock
Exchanges, Customers etc.

Investors Lenders Stock Exchange

Customers
 Branches of Accounting

Financial
Accounting

Cost
Accounting

Management
Accounting
Ajith Kanthi Wayanad
www.hssplustwo.blogspot.com
Qualitative characteristics of
accounting information

1. Reliability
Qualitative characteristics of
accounting information

2. Relevance
Qualitative characteristics of
accounting information

3. Understandability
Qualitative characteristics of
accounting information

4. Comparability
Objectives of Accounting

1. To maintain business records

Loss of
memory
Objectives of Accounting

2. Calculation profit or loss

Objectives of Accounting

3. To ascertain financial position

 Objectives of Accounting

4. Providing information to users

Ajith Kanthi Wayanad

www.hssplustwo.blogspot.com
 Basic Accounting Terms

1. Entity

Entity means a reality that has a definite individual existence

Business Entity means a business enterprise
Basic Accounting Terms

2. Transactions

Economic events in a business organization

Eg: Purchses, Sales, Salary etc.
 Basic Accounting Terms

3. Assets

Economic resources which can be expressed in monetary terms

Classification of Assets
Distinction between current and non-
current items:

● Current assets or liabilities are involved in

operating cycle.
● Current assets or liabilities are
realised/settled within 12 months.
● Current items are primarily for trading.
● Current items are cash or cash equivalent.
 Basic Accounting Terms

4. Liabilities

Short Term Liability Long Term Liability

The amount payable by the business in future

Classification of Liabilities
Basic Accounting Terms

5. Capital

Investment made by the owners

 Basic Accounting Terms

6. Sales

Total revenue earned by a business through

sale of goods or services to customers
It includes cash sales and credit sales
 Basic Accounting Terms

7. Revenue or income

The amount a business earns through the sales,

interest received, dividend received, rent received,
commission received, discount received etc.
Basic Accounting Terms

8. Expenses

Salary Stationery

The amount spent to earn revenue

Eg; Rent, Wages, Salaries etc.
 Basic Accounting Terms

9. Expenditure

Capital Expenditure Revenue Expenditure

Capital Expenditure
Benefit of expenditure lasts for more than one year
Revenue Expenditure
Benefit of expenditure exhausted within a year
 Basic Accounting Terms

10. Profit

The excess of revenue over expenses in an accounting

year which represents increase in capital
 Basic Accounting Terms

11. Gain

A profit that arises from events or transactions which are

incidental to business such as sale of fixed assets,
winning a court case, appreciation in the value of an
asset etc.
 Basic Accounting Terms

12. Loss

The excess of expenses over revenue in an accounting

year which represents reduction in capital
 Basic Accounting Terms

13. Discount

Trade Discount Cash Discount

Deduction in the price of the goods sold

 Basic Accounting Terms

14. Voucher

The documentary evidence in support of a transaction

Eg: Cash Memo, Invoice, Cash Receipt etc.
 Basic Accounting Terms

15. Goods

Commodities, products, articles or things in which a

trader deals
 Basic Accounting Terms

16. Drawings

The amount of cash or other assets withdrawn by the

owner for his personal use
 Basic Accounting Terms

17. Purchase

Expense incurred for procurement of goods in a

business
It includes both cash purchase and credit purchase
 Basic Accounting Terms

18. Stock / Inventory

Unsold goods / raw materials / semi finished goods at

the end of accounting year
Closing Stock & Opening Stock
 Basic Accounting Terms

19. Debtors / Accounts Receivable

Debtor

The person who owes money to the business

 Basic Accounting Terms

20. Creditors / Accounts Payable

Creditors

The person to whom the business owes money

Prepared by:

Ajith Kanthi @ Ajith P P

SKMJ HSS Kalpetta
Wayanad, Kerala
Ph: 9446162771, 7907712665
ajithkanthi@gmail.com

For latest updates, visit: HssVoice Blog
www.hssplustwo.blogspot.com