Amity Business school

Introduction to
Accounting
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Contents of the Lecture

• What is Accounting?
• Functions of Accounting
• Branches of Accounting
• Accounting Cycle
• Users of Accounting Information
• Objectives of Accounting
• Advantages of Accounting
• Limitations of Accounting
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What is Accounting ?
• Accounting may be defined as the process of
recording, classifying, summarizing and
interpreting the financial transactions and
communicating the results thereof to the persons
interested in such information.
• Accounting as an information system is the
process of identifying, measuring and
communicating the economic information of an
organization to its users who need the
information.
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Functions of Accounting
• Identifying
• Measuring
• Recording
• Classifying
• Summarising
• Analyzing
• Interpretation
• Communication
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ACCOUNTANCY, ACCOUNTING AND BOOK-

KEEPING

ACCOUNTANCY: systematic knowledge of

accounting. It explains ‘why to do’ and ‘how to
do’ of various aspects of accounting.
ACCOUNTING: actual process of preparing and
presenting the accounts. It is the art of putting
the academic knowledge of accountancy into
practice.
BOOK-KEEPING: recording of daily business
transactions in a systematic manner.
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BRANCHES OF ACCOUNTING

• Financial Accounting
• Cost Accounting
• Management Accounting
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ACCOUNTING CYCLE
Sequential steps involved in an Accounting Cycle:
• Journalizing
• Posting
• Balancing
• Trial Balance
• Income Statement
• Position Statement
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USERS OF ACCOUNTING INFORMATION

• Short-term Creditors
• Long-term Creditors
• Present Investors
• Potential Investors
• Management
• Employees
• Tax Authorities
• Customers
• Government and their agencies
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OBJECTIVES OF ACCOUNTING

• To maintain records of business.

• To calculate the results of operations.
• To ascertain the financial position.
• To communicate the information to the
users.
• To file tax return
• To portray the liquidity position
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ADVANTAGES OF ACCOUNTING

1. Facilitates to replace memory

2. Facilitates to comply with legal
requirements
3. Facilitates to ascertain net result of
operations
4. Facilitates to ascertain financial position
5. Facilitates the users to take decisions
6. Facilitates a comparative study
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Advantages contd……
7. Assists the management
8. Facilitates control over assets
9. Facilitates the settlement of tax liability
10.Facilitates the ascertainment of value of
business
11.Facilitates raising loans
12.Acts as legal evidence
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LIMITATIONS OF ACCOUNTING

1. Ignores the qualitative elements

2. Not free from bias
3. Estimated position and not real position
4. Ignores the price-level changes
5. Danger of window dressing