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O definaiions.docx
,eanlng of AccounLlng
O Accouniing las iiglily ieimed as ile language of ile business .Tle
basic funciion of a language is io seive as a means of communicaiion
.Accouniing also seives ilis funciion .Ii communicaies ile iesulis of
business opeiaiions io vaiious paiiies wlo lave some siale in business
viz., ile piopiieioi ,ciediiois ,invesiois ,goveinmeni and oilei
agencies. Accouniing as an infoimaiion sysiem is ile piocess of
ideniifying ,measuiing and communicaiing ile economic infoimaiion
of an oiganizaiion io iis useis wlo wani infoimaiion io male decisions.
Ii ideniifies iiansaciions and evenis of a specific eniiiy .ii measuies
iiansaciions and evenis in ieims of common measuiemeni unii i.e. ile
cuiiency of a couniiy. Ii involves colleciion, iecoiding, classificaiion
and pieseniaiion of financial daia foi ile benefii of managemeni and
ouiside agencies sucl as slaieloldeis, ciediiois, banleis and
O Accovding to Amcvican Institutc oI CcvtiIicd Pub!ic
Accountants (AICPA)
Accouniing is an aii of iecoiding, classifying, and
summaiizing in a significani mannei ile money
iiansaciions and evenis wlicl aie in paii ai leasi of a
financial claiaciei and inieipieiing ile iesulis ileieof".
O Accovding to Amcvican Accountant Associations
" Accouniing is ile piocess of ideniifying, measuiing and
communicaiing economic infoimaiion io peimii infoimed
judgmeni and decisions by useis of ile infoimaiion".
ccd Iov accounting is gvcatcv Iov a pcvson to know
Whether the receipts are more than the payments
Balance of cash in hand
Evidence in court in case of dispute
Settlement of taxation liability
Sale of business
The amount ,size and causes of increase or decrease
of capital .
The amount of loss ,if any .
The amount of Assistance to the various parties
Nature and value of assets.
Nature and value of liabilities.
AccounLlng as an lnformaLlon
O InIovmation nccds oI managcmcnt : managemeni needs
infoimaiion foi planning, oiganizing 8 coniiolling ile
aciiviiies of business. Tle supply of infoimaiion ai
appiopiiaie iime lelp managemeni in aclieving ile business
O InIovmation nccds oI shavcho!dcvs & Invcstovs : vaiious
laws lave been passed undei wlicl financial siaiemenis
slould be piepaied in sucl a way ilai iequiied infoimaiion is
supplied io ile slaieloldeis 8 ciediiois
O InIovmation nccds oI cmp!oyccs: accouniing infoimaiion
is iequiied foi deciding woileis slaie in piofiis, seiiing
wages dispuies, eic.
O InIovmation nccds oI cvcditovs : Ciediiois aie mainly
inieiesied in ciediiwoiiliness of ile business. Tley
need infoimaiion aboui liquidiiy posiiion of ile
company. So iley will siudy infoimaiion conceining
solvency, liquidiiy, 8 piofiiabiliiy of ile business.
O InIovmation ccds oI Govcvnmcnt : Govi. needs
infoimaiion aboui sales, piofiis, liquidiiy, dividend
policy eic.Tle infoimaiion lelps ile govi. in deciding
ile social 8 economic policies.
AccounLlng as an lnformaLlon
Accounting Dccision -
activitics &
oI data
Pvoccssing oI
(pvcpavation and
stovagc oI data
(as Iinancia!
Statcmcnts & othcv
Statcmcnts &
ecLlves of AccounLlng
i. To mainiain iecoids of ile business
:. To lnow piofii oi loss of ile business .
. To asceiiain ile financial posiiion of ile concein:
Naiuie and value of asseis
Naiuie and exieni of liabiliiies
Wleilei ile enieipiise is solveni oi noi
Wleilei ile business concein is ovei iiading
To male infoimaiion available io vaiious gioups and useis
ai a paiiiculai iime .
O Mainienance of business iecoids .
O Piepaiaiion of financial siaiemenis .
O Planning and coniiol opeiaiions .
O Decision maling.
O Valuaiion of business.
O Evidence in couii
O Seiilemeni of iaxaiion liabiliiy
O Compaiaiive siudy of business
O Assisiance io ile vaiious paiiies
ulsadvanLages of AccounLlng
O Recoids only moneiaiy iiansaciions
O Effecis of piice level accouniing is noi consideied
O Peisonal bias of accouniani affecis accoiding
O No ieal iesi of manageiial peifoimance
O Hisioiical in accouniing
O Noi lelpful in piice fixaiion
lmporLance of AccounLlng
O Accouniing is useful io ile following paiiies
i. Managemeni oi manageis
:. Useis wiil diieci financial inieiesi
. Useis wiil indiieci financial inieiesi
(diieciois, officeis of
ile company,
manageis, depi. leads
and supeivisois)
Assessing piofiiabiliiy,
financial peifoimance
in ieims of plans 8
goals, mailing plans
and policies
Uscvs with indivcct Iinancia!
intcvcst: (cusiomeis, iaxaiion
auiloiiiies, financial analysis
and advisois, bioleis, laboi
unions, consumei gioup geneial
public, piess eic.)
Assessing iax, pioieciing
invesiois and public inieiesi
advising on invesimeni
decisions, seiiing economic
policies, measuiing social and
enviionmenial pioieciion
piogiammed, negoiiaiion laboi
Uscvs with divcct
Iinancia! intcvcst:
(Pieseni and
ciediiois, employees,
Slaie invesimeni
decision, ciedii
decisions, assessing
company siaius and
piospecis, appioving
supply decisions
ook keeplng AccounLancy
O Book Kccping: Ii is an aii of leeping oi mainiaining
iecoids in a piesciibed mannei. Ii is a paii of
O Accounting : Ii is conceined wiil measuiemeni,
analysis, inieipieiaiion and use of infoimaiion.
O DiIIcvcncc: Objecis, scope, muiual dependence,
iesulis of ile business.
ole of AccounLanL
i. Mainienance of bools of accounis .
:. Audiiing of accounis .
. Taxaiion .
. Financial seivices .
ranches of AccounLlng
i. Financial accouniing
:. Cosi accouniing
. Managemeni accouniing
lnanclal AccounLlng
O Financial accouniing iecoids ,classifies business
iiansaciions and piepaies summaiies of ile same io
deieimine piofii and loss and ile financial posiiion of
ile concein .Ii is ilai biancl of accouniing wlicl
communicaie ile financial infoimaiion of a business
unii .
uncLlons of lnanclal AccounLlng
i. Recoiding of infoimaiion
:. Classificaiion of daia
. Maling summaiies
. Dealing wiil financial iiansaciions .
. Inieipieiing financial infoimaiion .
. Communicaiing iesulis
. Maling infoimaiion moie ieliable .
lmlLaLlons of lnanclal AccounLlng
O Hisioiical naiuie
O Piovide s infoimaiion aboui concein as a wlole
O Noi lelpful in piice fixaiion
O Cosi coniiol noi possible
O Only aciual cosis iecoided
O Quaniiiaiive infoimaiion
O Clances of manipulaiion
O Noi lelpful in ialing siiaiegic decisions
CosL AccounLlng
O Cosi Accouniing is ile classifying , iecoiding 8
appiopiiaie allocaiion of expendiiuie foi ile
deieiminaiion of ile cosis of pioducis oi seivices. Ii
includes ile asceiiainmeni of ile cosi of eveiy oidei,
job, coniiaci, piocess, seivice oi unii
uncLlons of CosL AccounLlng
O Analysis and asceiiainmeni of cosis.
O Pieseniaiion of cosis foi cosi ieduciion 8 cosi coniiol
O Planning 8 decision maling
O Piepaiaiion of budgeis and implemeniaiion of
budgeiaiy coniiol .
O Asceiiaining piofiiabiliiy of eacl pioduci .
O Pioviding useful daia io ile managemeni foi ialing
decisions .
lmporLance AdvanLages
i.Cosi Accouniing as an aid io managemeni:
a) Piovides ieliable cosi daia in iegaid io maieiial, laboi,
oveilead and oilei expenses
b) Helps in piice fixaiion
c) Piovides infoimaiion on wlicl esiimaies 8 iendeis aie base
d) Helps in deieimining piofiiable 8 non-piofiiable aciiviiies.
e) Helps managemeni in peiiods of iiade depiession 8
compeiiiion by deieimining aciual cosi of pioduci.
f) Piovides cosi daia foi compaiison in diffeieni peiiod
g) Useful iool foi manageiial coniiol 8 lelps in cosi ieduciion 8
cosi coniiol.
:. Helpful io employees - iniioduciion of inceniive wage sysiem 8
bonus plans.
. Advaniages io govi. 8 socieiy
lmlLaLlons of CosL AccounLlng
O Ii is noi independeni sysiem of accounis
O Tleie is scope of subjeciiviiy on iiems lile
depieciaiion, valuaiion of closing siocl eic.
O Ii does noi iale inio consideiaiion all iiems of
expenses and incomes e.g. iiems puiely financial
naiuie sucl as inieiesi, discouni and loss of slaies
and debeniuies eic.
,anagemenL AccounLlng
O Managemeni accouniing is ilai sysiem of accouniing
wlicl lelps managemeni in caiiying oui iis funciions
moie efficienily .Ii is ilai field of accouniing wlicl
deals wiil pioviding infoimaiion foi ile puipose of
planning ,decision-maling ,peifoimance evaluaiion
,coniiol managemeni of cosis and deieiminaiion foi
financial puipose .
O Accoiding io G Rosc "Managemeni accouniing is
conceined wiil accouniing infoimaiion wlicl is useful
io managemeni ."
CharacLerlsLlcs of ,anagemenL
O Pioviding accouniing infoimaiion
O Cause 8 effeci ielaiionslip
O Use of Special Teclniques 8 concepis
O Aclieving of objeciive
O Taling impoiiani decisions
O No fixed noims followed
O Supplies infoimaiion 8 noi decision
O Conceined wiil foiecasiing
Scope of ,anagemenL AccounLlng
O Financial Accouniing
O Inieipieiaiion of daia
O Cosi Accouniing
O Coniiol pioceduies 8 meilods
O Financial Managemeni
O Inieinal audii
O Budgeiing 8 foiecasiing
O Tax accouniing
O Invenioiy Coniiol
O Office seivices
O Repoiiing io managemeni
uncLlons of ,anagemenL
O Planning and foiecasiing
O Modificaiion of daia
O Financial Analysis 8 inieipieiaiion
O Faciliiies manageiial coniiol
O Communicaiion
O Use of qualiiaiive infoimaiion
O Cooidinaiing
O Helpful in ialing siiaiegic decisions
O Supplying infoimaiion io vaiious levels of
Financial Accouniing
Cosi Accouniing
Oilei Souices
Is ile piocess
Daia ideniificaiion
Piepaiaiion and Analysis
Communicaiion of infoimaiion io
managemeni 8 oileis
Planning 8 decision-maling
lmlLaLlons of ,anagemenL
O Based on accouniing infoimaiion
O Iniuiiive Decisions
O Noi an alieinaiive io Adminisiiaiion
O Top leavy siiuciuie
O Evoluiionaiy siage
O Peisonal bias
O Psyclological iesisiance
ulsLlncLlon eLween ,anagemenL
lnanclal AccounLlng
Financia! Accounting
i. Objeci To assisi ile managemeni
in decision-maling 8
policy foimulaiion.
To record various business
transactions & know
:.Usefullness Useful io managemeni in
foimulaiing plans 8
Useful io Slaieloldeis,
ciediiois, managemeni,
employees banleis eic.
. Naiuie
Deals with projection oI data
Ior the Iuture
Conceined wiil lisioiical
. Audiiing
Tlese cannoi be audiied
Accounis aie audiied.
Undei Co-law, audiiing of
accounis in compulsoiy
5. Compulsion It is not compulsory. It is
service function.
It is compulsory.
. Piecision
o emphasis is given to actual
Only actual Iigures are
recorded & there is no concern
Ior approximate Iigures.
. Repoiiing
Reports are meant only Ior
internal use only. BeneIicial to
diIIerent levels oI
Reports are prepared to Iind
out proIitability Iinancial
position oI the concern.
Reports are useIul Ior insiders
& outsiders.
Uses both monetary and non-
monetary inIormation.
Momentary transactions are
recorded. Qualitative things are
not recorded.
. Peiiod
It supplies inIormation Irom
time to time during whole year.
Prepared Ior a particular
io. Publicaiion
These are not published. Financial accounts are
published Ior the beneIit oI the
ulsLlncLlon eLween CosL
,anagemenL AccounLlng
Cost Accounting anagcmcnt
i. Objeci
To record the cost oI producing a
product or providing a service.
To provide inIormation to the
management Ior policy
Iormulation & planning.
:. Scope
Deals preliminary with cost
Scope is very wide.
UseIul Ior both past and present
Concerned with the projection oI
Iigures in the Iuture.
.Daia used
Only quantitative aspect is
Uses both quantitative and
qualitative concepts.
. Piinciples Followed
Certain principles & procedures
are Iollowed Ior recording costs
oI diIIerent products.
o speciIic rules and procedures
are Iollowed.
ulsLlncLlon eLween lnanclal
CosL AccounLlng
Financia! Accounting Cost Accounting
!urpose Provides inIormation about
the proIit & loss & Iinancial
position oI the concern.
Provides inIormation to the
management Ior proper planning
operation, control & decision
2 orms of Account Accounts are prepared to meet
the requirements oI Loss Act
and Income Tax Act.
These are generally kept
Voluntarily to meet the
requirements oI the
3 #ecording It classiIies, records & analysis
the transactions in a subjective
manner i.e. according to the
nature oI expense.
It records expenditure in an
objective manner according to
the purposes Ior which the costs
are incurred.
4 Control It lays emphasis on the
recording aspect without
attaching any importance to
It provides detail system oI
control Ior materials, labour &
overheads costs.
5 !eriodicity of reporting Reports operating results at the
end oI years.
Gives inIormation oI costs to
management as & when desired.
Information Only monetary information is
Non-monetary information like
units is also used.
7. ixation of S.!. ot maintained with the object oI
Iixing selling price.
Provides suIIicient data Ior price
8 igures Deals mainly with actual Iacts &
Deals partly with Iacts & Iigures
& partly with estimates.
9 Stock valuation Stocks are valued at cost or market
price which is lower.
Stocks are valued at cost.
AccounLlng rlnclples
Tle woid piinciple is used io mean a geneial law oi
iule adopied oi piefeiied as a guide io aciion, a seiiled
giound oi basis of conduci oi piaciice."
"Accouniing piinciples aie ile iules of aciion oi ile
meilods and pioceduies of accouniing commonly
adopied wlile iecoiding business iiansaciions."
O Accouniing piinciples aie classified inio iwo paiis.
(a) Accouniing concepis.
(b) Accouniing conveniions.
AccounLlng ConcepLs
Tle ieim concepi is used io connoie basic accouniing
posiulaies i.e. necessaiy assumpiions 8 condiiions upon wlicl
accouniing is based.
# Busincss Entity Conccpt : in accouniing, business is iieaied
as a sepaiaie eniiiy fiom iis owneis so disiinciion is made
beiween business iiansaciions 8 peisonal iiansaciions.
i Going Conccvn Conccpt : ii is piesumed ilai ile concein
will coniinue io exisi indefiniiely oi long peiiod of iime. Tle
pieseni iesouices of ile concein aie uiilized io aiiain ile
long ieim objeciives of ile business.
. oncy mcasuvcmcnt Conccpt : Only ile moneiaiy based
iiansaciion will be iecoided in ile accouniing bools, oilei
iiansaciion will be ignoied fiom ile accouniing bools. Money
acis as a medium foi immediaie exclange of goods and seivices
Dua! Aspcct Conccpt : Ii is based on ile piinciple
ilai foi eveiy debii iiansaciion , ileie is a
coiiesponding ciedii iiansaciion. Eveiy iiansaciion is
iecoided iwice because if one is geiiing ilen ile oilei
is giving. So iwo eniiies aie made
Accounting pcviod Conccpt: Ii is ile peiiod foi
wlicl we will piepaie oui accounis io deieimine
Cost Conccpt: Cosi piice is only iecoided in ile
accouniing bools, mailei piice will be ignoied fiom
ile accouniing bools.
atching Conccpt: Ai ile end of ile peiiod ioial
expenses maicled wiil ioial ievenue io find ile
piofii oi loss.
Rca!ization Conccpt : Accoiding io ilis concepi
sales oi piofii on sales will be consideied io be iealized
wlen eiilei money(casl) is iealized oi legal
obligaiion is cieaied , i.e. owneislip oi ile iiile io ile
good is iiansfeiied
atching oI Cost & Rcvcnuc Conccpt : All expenses
aie maicled wiil all ile incomes. Because no income
can aiise wiiloui laving incuiied an expense. Income
is ile ouicome of expense.
AccounLlng ConvenLlons
Accouniing conveniions aie iiadiiions usage and cusioms
wlicl aie in use since long
# Convcntions oI Disc!osuvc: Maieiial based infoimaiion
(Piofii and Loss A]c, Balance Sleei) disclosed io owneis,
invesiois and goveinmeni bodies. Tlis infoimaiion slould
noi only include figuies given in ile final accounis bui also
infoimaiion wlicl occuis afiei ile piepaiaiion of balance
sleei bui befoie pieseniaiion of financial siaiemenis
i Convcntions oI Consistcncy: Accouniing piinciples and
piaciices slould noi be clanged yeai io yeai. Ii may
coniinue foi long peiiod of iime. Tleie slould be
unifoimiiy in accouniing depaiimenis. Sysiem once siaiied
slould noi be clanged iandomly, bui slould be followed
coniinuously .
# Convcntions oI Conscvvatism : Iis all aboui adopiing
policy "Playing Safe". If ileie is a possibiliiy of loss, ii slould
be ialen inio accouni ai ile eailiesi. A piospeci of piofii
slould be ignoied up io ile iime ii does noi maieiialize.
Tle piinciple of ' aniicipaie no piofii 8 piovide foi all
possible losses' is followed
Convcntions oI atcvia!ity Only ilose iiems slould be
iecoided wlicl aie maieiial (significani) foi ile fiim.
Accoiding io ii immaieiial iiem slould noi be iecoided. An
iiem can be maieiial foi one business and can be immaieiial
foi ile oilei. E.g. a single pencil is puiclased. Cosi of ilai
pencil is immaieiial. Tlai can be ignoied. Now if lundieds
of pencils aie puiclased, ilen cosi is now maieiial and will
be iecoided.