Introduction to Accounting

Over the centuries, accounting has remained confined to the

financial record-keeping functions of the accountant. But, today’s
rapidly changing business environment has forced the accountants
to reassess their roles and functions both within the organization
and the society. The role of an accountant has now shifted from
that of a mere recorder of transactions to that of the member
providing relevant information to the decision-making team.

Broadly speaking, accounting today is much more than just book-

keeping and the preparation of financial reports. Accountants are
now capable of working in exciting new growth areas such as:
forensic accounting (solving crimes such as computer hacking and
the theft of large amounts of money on the internet); e-commerce
(designing web-based payment system); financial planning,
environmental accounting, etc. This realization came due to the
fact that accounting is capable of providing the kind of
information that managers and other interested persons need in
order to make better decisions. This aspect of accounting
gradually assumed so much importance that it has now been raised
to the level of an information system. As an information system, it
collects data and communicates economic information about the
organization to a wide variety of users whose decisions and actions
are related to its performance.
 Father of Accounting
Luca Pacioli is regarded as the Father of Accounting. He published
the first book on double-entry accounting in 1494.

What is Accounting?

Accounting is defined as the systematic process of identifying,

recording, classifying, summarizing, interpreting and
communicating information about financial transactions to the
users of the accounting information such as the owners,
government, investors, creditors etc.

It provides the following information:

1. Resources available in the firm.

2. The means employed to finance those resources
3. Results achieved by using those resources.

Main objectives of Accounting

1. To keep a systematic record of all the financial transactions.

2. To determine the profit and loss of a business as reflected in
a P&L account.
 3. Making information available to users of the information
(employees, shareholders, stakeholders).
4. To determine the financial position of business by preparing
balance sheet.

Users of Accounting Information

Internal Users: They include the Company management, employees

and owners.

External Users: They include the Government, investors,

creditors, customers.

Qualitative characteristics of Accounting

Information

1. Reliability: A piece of information becomes reliable when

users are able to rely on that information.
2. Relevance: Information that is appropriate should be made
easy to access and timely available. It avoids any irrelevant
information. The relevant information will help in proper
planning and decision making.
3. Understandability: Information presented to users of the
information must be created in such a way that information is
meaningful and appropriate without any difficulty in
understanding.
 4. Comparability: Accounting information should be comparable
with firms’ performance of previous years and as well as with
competitors. It helps in determining the steps that need to
be taken to ensure growth of business.

3 Golden Rules of Accounting

1. Debit the Receiver, Credit the Giver.

2. Debit what comes in, credit what goes out.
3. Debit all expenses and losses, credit all income and gain.

Basic Accounting Concepts

The basic accounting concepts are referred to as the

fundamental ideas or basic assumptions underlying the theory
and practice of financial accounting and are broad working
rules for all accounting activities and developed by the
accounting profession.

Business Entity Concept:

The concept of business entity assumes that business has a

distinct and separate entity from its owners. It means that
for the purposes of accounting, the business and its owners
are to be treated as two separate entities. Keeping this in
view, when a person brings in some money as capital into his
business, in accounting records, it is treated as liability of the
business to the owner. Here, one separate entity (owner) is
assumed to be giving money to another distinct entity
(business unit). Similarly, when the owner withdraws any
money from the business for his personal expenses (drawings),
it is treated as reduction of the owner’s capital and
consequently a reduction in the liabilities of the business.

The accounting records are made in the book of accounts

from the point of view of the business unit and not that of
the owner. The personal assets and liabilities of the owner
are, therefore, not considered while recording and reporting
the assets and liabilities of the business. Similarly, personal
transactions of the owner are not recorded in the books of
the business, unless it involves inflow or outflow of business
funds.

Going Concern Concept:

The concept of going concern assumes that a business firm

would continue to carry out its operations indefinitely, i.e. for
a fairly long period of time and would not be liquidated in the
foreseeable future. This is an important assumption of
accounting as it provides the very basis for showing the value
of assets in the balance sheet. An asset may be defined as a
bundle of services. When we purchase an asset, for example, a
personal computer, for a sum of 50,000, what we are buying
really is the services of the computer that we shall be getting
over its estimated life span, say 5 years. It will not be fair to
charge the whole amount of ` 50,000, from the revenue of
the year in which the asset is purchased. Instead, that part
of the asset which has been consumed or used during a period
should be charged from the revenue of that period.

The assumption regarding continuity of business allows us to

charge from the revenues of a period only that part of the
asset which has been consumed or used to earn that revenue
in that period and carry forward the remaining amount to the
next years, over the estimated life of the asset. Thus, we may
charge ` 10,000 every year for 5 years from the profit and
loss account. In case the continuity assumption is not there,
the whole cost (` 50,000 in the present example) will need to
be charged from the revenue of the year in which the asset
was purchased.

Dual Aspect Concept:

Dual aspect is the foundation or basic principle of accounting.
It provides the very basis for recording business transactions
into the book of accounts. This concept states that every
transaction has a dual or two-fold effect and should
therefore be recorded at two places. In other words, at least
two accounts will be involved in recording a transaction. The
duality principle is commonly expressed in terms of
fundamental Accounting Equation, which is as follows:

Assets = Liabilities + Capital

In other words, the equation states that the assets of a

business are always equal to the claims of owners and the
outsiders. The claims also called equity of owners is termed as
Capital (owners’ equity) and that of outsiders, as Liabilities
(creditor’s equity). The two-fold effect of each transaction
affects in such a manner that the equality of both sides of
equation is maintained. The two-fold effect in respect of all
transactions must be duly recorded in the book of accounts of
the business. In fact, this concept forms the core of Double
Entry System of accounting.
 Scope of study

HISTORY
Adidas is a German multinational corporation, founded
and headquartered in Herzogenaurach, Germany, that
designs and manufactures shoes, clothing and
accessories. It is the largest sportswear manufacturer
in Europe, and the second largest in the world, after
Nike.It is the holding company for the Adidas Group,
which consists of the Reebok sportswear company,
8.33% of the German football club Bayern München,
and Runtastic, an Austrian fitness technology company.
Adidas' revenue for 2018 was listed at €21.915 billion.
The company was started by Adolf Dassler in his
mother's house; he was joined by his elder brother
Rudolf in 1924 under the name Gebrüder Dassler
Schuhfabrik ("Dassler Brothers Shoe Factory").
Dassler assisted in the development of spiked running
shoes (spikes) for multiple athletic events. To enhance
the quality of spiked athletic footwear, he transitioned
from a previous model of heavy metal spikes to utilising
canvas and rubber. Dassler persuaded U.S. sprinter
Jesse Owens to use his handmade spikes at the 1936
Summer Olympics. In 1949, following a breakdown in
the relationship between the brothers, Adolf created
Adidas, and Rudolf established Puma, which became
Adidas' business rival.
The tapie affair
A fter a period of trouble following the death of Adolf
Dassler's son Horst Dassler in 1987, the company was
bought in 1989 by French industrialist Bernard Tapie,
for ₣1.6 billion (now €243.9 million), which Tapie
borrowed.[24] Tapie was at the time a famous specialist
of rescuing bankrupt companies, an expertise on which
he built his fortune.
Tapie decided to move production offshore to Asia. He
also hired Madonna for promotion.[25][citation needed] He sent,
from Christchurch, New Zealand, a shoe sales
representative to Germany and met Adolf Dassler's
descendants (Amelia Randall Dassler and Bella Beck
Dassler) and was sent back with a few items to
promote the company there.
In 1992, unable to pay the loan interest, Tapie
mandated the Crédit Lyonnais bank to sell Adidas,[26]
and the bank subsequently converted the outstanding
debt owed into equity of the enterprise, which was
unusual as per the prevalent French banking practice.
The state-owned bank had tried to get Tapie out of
dire financial straits as a personal favour to Tapie, it is
reported, because Tapie was Minister of Urban Affairs
(ministre de la Ville) in the French government at the
time.
They also purposely bankrupted Tapie's company that
owned Adidas, because only the company had the right
to sue them.