Accountancy.

6. Assets = Liabilities + Owner's Equity: The

fundamental accounting equation that shows the
relationship between assets, liabilities, and
owner's equity.
Definition: 7. Owner's equity reflects the owner's stake or
ownership interest in the business entity.
Accountancy is a systematic process of –

1. recording,
2. summarizing
3. analysing, and interpreting financial transactions
of a business.
It involves maintaining accurate financial records,
preparing financial statements, and providing vital
financial information for decision-making.
Objectives of Accountancy:
1. Recording Financial Transactions.
2. Assessing Profitability and Financial Performance of
the entity.
3. Determining the Financial Position through Balance
Sheet Analysis.

4. Business Decision-Making through Financial

Different terms
Information
1. BOOKKEEPING - Identifying, Measuring,
5. Meeting Legal Requirements through Accurate
Recording, and Classifying Financial
Financial Reporting
Transactions.
2. ACCOUNTING – accounting is a wider concept, 6. Effective Communication of Financial Information to
it begins where the bookkeeping ends. Stakeholders
Includes Summarizing, Interpreting, and
7. Establishing Internal Controls and Accounting
Communicating Financial Data.
Principles to Prevent Fraud and Errors
3. ACCOUNTANCY – accountancy refers to
systematic knowledge of the principles and Different branches of accounting.
the technique which are applied in accounting
1. Financial Accounting
Fundamentals: 2. Cost Accounting
3. Management Accounting
1. Assets: Economic value possessed by the
enterprise, which provides future economical Users of accounting information and their
benefits to the entity.
i. CURRENT ASSETS needs.
ii. NON-CURRENT ASSETS 1. INTERNAL
A. TANGIBLE ASSETS - OWNER - Return on their investment,
B. INTANGIBLE ASSETS
financial health of their business.
2. Liabilities: Economic obligations or debts payable
- MANAGEMENT – evaluate the performance,
by the enterprise to other establishments or
for business decision making.
individuals arising from previous transactions.
- EMPLOYEES – profitability to claim higher
I. CURRENT LIABLITIES
wages or bonus
II. NON- CURRENT LIBIALITIES
2. EXTRENAL
3. Owner's Equity/ Capital: Represents the owner's
- INVESTORS/ POTENTIAL INVESTORS
investment in the business minus withdrawals,
- CREDITORS
along with net income since the business started.
- LENDERS
It is a vital component of the accounting equation.
- TAX AUTHORITIES
4. Drawing - The money or goods or both withdrawn
- GOVERNMENTS
by owner from business for personal use, is known
as drawings. Advantages of Accountancy:
5. EXPENSES - Spending money or incurring a liability
for acquiring assets, goods or services is called 1. Helps in Facilitating Budgeting, Financial Goal
expenditure. Setting, and Business Planning.
2. Evaluating Financial Performance for Improvement
and Profitability of business entity
3. Decision-Making about future plans and policies for
the business.
4. Effective Communication of Financial Information
through Properly Prepared Financial Statements to the
stakeholders, investors, creditors etc.
5. Accountancy helps us understand our financial
position by looking at our assets, debts, and
ownership, giving us a clear picture of where we
stand.
6. Preventing Mistakes and Fraud.
Double entry system –
1. Dual Aspect Principle: states that every
transaction has two aspects - a debit and a
credit of equal amount. This means that for
every debit recorded, there must be a
corresponding credit.
2. Equal Debits and Credits: each transaction is
recorded by debiting one account and
crediting another account. ensuring that the
accounting equation remains in balance.
3. This system of accounting recognises and
records both aspects of the transaction.

7. Evaluating Performance helps us evaluate the Single entry system –

different aspects of our business,
9. Accountancy helps us understand the costs,
revenues, and profitability of our business, so we can
allocate our resources and maximize our efficiency.
1. Under this system, both aspects are not
recorded for all the transactions.
2. Either only one aspect is recorded or both the
aspects are not recorded for all the
transactions.

Disadvantages of Accountancy: Advantage of Double entry system

1. Accounting is not precise: Accounting is not 1. Accuracy in Recording

completely free from personal bias or judgment. 2. Complete Financial Picture
3. Easy Error Detection
2. Accounting is done on historic values of assets:  4. Financial Analysis
records assets at their historical cost less 5. Decision Making
depreciation. It does not reflect their current 6. Audit Trail
market value. 7. Compliance with Accounting Standards
3. Ignore the qualitative information: 
4. Complexity
5. Time-consuming Bookkeeping
6. Limited Focus
7. Mathematical Skills Required 1. SCOPE - Identifying, Measuring, Recording,
8. Lack of Creativity and Classifying Transactions in Ledger
9. Stress of Accuracy Accounts.
10. Lack of Real-world Application 2. OBJECTIVES - The main aim is to maintain
systematic records of financial transactions.
Qualitative characteristics of accounting 3. STAGE – primary stage of accounting
information 4. It is routine in nature and does not require any
special skill or knowledge.
1. Reliability
2. Relevance
3. Understandability
4. Comparability.

System of accounting
1. Double entry system
2. Single entry system