Accounting for Managers 08MBA14


MODULE I Principle of Double entry and Book keeping 

Importance & Scope of Accounting Accounting Concepts Accounting Conventions GAAPS Accounting Standards Accounting Equations Users of accounting statements



³Accounting is the art of recording, classifying and summarising in a significant manner, and in terms of money transactions and events which are, in part at least of a financial character and interpreting the result thereof.´ -By AICPA- American Institute of Certified Public Accountants ³Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by user of information.´ -By AAA- American Accounting Association ³Accounting is the art of recording, classifying, summarising and presenting the financial aspect of business dealings and interpreting the results thereof.´

Basic Terms of Accounting 

Entity Business transactions 

Cash transactions Credit transactions Adjustment transactins 


Assets Liabilities Capital


Drawings Debtors Creditors Solvent Insolvent Net worth Purchases sales


Purchase return Sales return Stock Account Entry Folio Carried down Brought down


Carried forward Brought forward Incomes & gains Expenses and losses


Other Terms 

Expenditures Revenue Profit Journal Ledger Posting

«contd contd 

Debiting Crediting Casting Balance Debit balance Credit balance

«contd contd 

Equity Accounting year Trading account P&L account Balance Sheet Accounting cycle

Importance of Accounting 

To ascertain the profit / loss of the company. To present the true and fair view and financial position. To know the amount due to the creditors. To know the amount receivable from debtors. To compute TAX liability. To facilitate comparison. (Inter Firm / Period) To supply required financial information for decision making.

Accounting Concepts
³Includes those basic assumptions and conditions on which accounting is based´
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Business entity concept Going concern concept Money measurement concept Cost concept Dual- aspect concept Accounting Period concept Realisation concept Accrual concept Matching concept Objective evidence concept


1. Business Entity Concept
According to this concept ³ the business is treated as a separate and distinct entity from the owner who Invests money or any other assets in the business.´


2. Going concern concept
According to this concept ³ every business is carried on with a view to continue it for an indefinite period of time in future , and not to liquidate the affairs.´


3. Money measurement concept
According to this concept ³the accounting entries made in the books are only of those transactions which can be measured and recorded in terms of money.´


4. Cost concept
According to this concept ³all the fixed assets which are acquired by a concern are recorded in the books of accounts at cost price i.e. the price paid for acquisition of them.´


5. Dual- aspect concept Dual³Every business transaction has two-fold aspect i.e. receiving of benefit and giving of benefit or vice-versa, of the same value.´ It is also called as: ³Accounting equivalence concept´


6. Accounting Period concept
³The convenient period of time is chosen by the accountants by dividing the estimated period of life of the business for ascertaining the net profit earned by the business during a given period as well as the financial position of the business as on a particular date.´


7.Realisation Concept
³Revenue is said to be recognised or earned from sale of goods or from services only when revenue is actually received.´

8. Accrual Concept
³This concept considers the recognisation of both the revenues as well as expenses.´

9.Matching Concept 

According to this concept ³ the net trading profit of a business is calculated by matching the total amount of revenues earned during a given period with the total amount of expenses incurred in the same period.´


10. Objective Evidence Concept
³All the transactions of the business should be supported by proper documentary evidences such as bills, receipts, invoices etc« and no transaction should be recorded in the books without such documentary evidences.´


Accounting Conventions
These are the customs or traditions which are followed by the accountants as a guide in the preparation of the financial statements of a business concern. 1. Convention of Conservatism / Prudence 2. Convention of Consistency 3. Convention of Disclosure 4. Convention of Materiality

Convention of Conservatism/ Prudence


Convention of Consistency


Convention of Disclosure


Convention of Materiality


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