Introduction to accountancy

By Mr. Dubal P.S.

M. Pharm
 Introduction of Accountancy

Define the terms-

1. Account

2. Accountancy/ Accounting

3. Transaction

4. Capital

5. Asset

6. Liability
Introduction of Accountancy

 7. Creditor
 8. Debtor
 9. Solvency
 10. Insolvency
 11. Drawing
 12. Expenses
Introduction of Accountancy

13. Revenue

14. Profit

15. Loss

 Accountancy
 Definition- It is art of recording, classify, summarizing the

business transactions which provides summarizing records &

finding out profit & losses.

 Accounting- Language of business
Introduction of Accountancy

 Objectives-

1. Provides knowledge of all financial transactions

2. provides balances of creditors, debtors & expense in different heads

3. Give information regarding total purchase, total sales & closing

stock

4. Provides information to prepare profit & loss account & balance

sheet
  Concept of accountancy
 Necessary assumptions or conditions on which accounting is based
1. Money measurement concept-
 All business transactions are required to be recorded in terms of
money.
 Transaction that are not capable of being recording in terms of
money are not recorded. E.g. Buildings, Land, machines,
Furniture.
 Monetary unit is simple, relevant and understandable.
Introduction of Accountancy

2. Cost concept
 According to this concept all transactions are recorded at
their monetary cost of acquisition.
3. Separate entity concept

Business and business man are two different entities.

Recording of only business transaction is done.

Introduction of Accountancy

5. Going concern concept-

 An business will have an indefinite life unless likely to be
sold
6. Accounting period concept
 Known as periodicity concept or Time period concept
 Economic life of an enterprise is divided into periods of 12
months.
Introduction of Accountancy

 Matching concept
 Expenses are recognized in same period as associate
revenues.
 Concept is very helpful in correct determination of profits
Introduction of Accountancy

Advantages-

1. Advantages for Trader

2. Advantages for Government

3. Advantages for Suppliers, Creditors & Shareholders

 Accounting conventions-

Definition-

The customs which must be followed in accountancy while

preparing the accounting statements are termed as accounting

conventions.
 Types of conventions-

1. Convention of full disclosure

2. Convention of consistency

3. Convention of conservation

4. Convention of materiality

5. Convention of objectivity
  Book keeping-

Bookkeeping is an art of recording business transitions in a

regular & systematic manner.

Objectives-

1. Primary objectives-

 Have systematic records

 To know profit & loss

 Know financial position of business

2. Secondary objectives

 To know capital invested

 To know creditor

 To know debtor

3. Other objectives

 Prevent mistake, frauds, errors

 Importance –

 Book keeping is an art of recording business transitions in a regular

& systematic manner

 Bookkeeping & accountancy is important aspect of modern business

for making policies & future plans

 Important role in preparation of balance sheet

 Understand progress of firm

 Know profit & losses of business

 Double entry bookkeeping-
It is based on typical principle in which every transaction has
two entries.

Debit (Dr) Credit (Cr)

Advantages-
- Most reliable method
 Universally accepted method
 Provides accuracy.
 Due to double entry, chances of frauds are minimum
 Helps in calculating profit & loss in any period.
 Disadvantages-

 Posting under wrong account head remain undetected.

 Omission of transaction from recording cannot be found.

 Account-
It is a systematically summarized record of all daily financial
transactions.
Types/ classification
1. Personal account
 Natural account
 Artificial account
 Representative account
2.Impersonal account

A. Real account

- Tangible account

- Intangible account

B. Nominal account
1. Personal account

 Deals with individual person, firm, company and institution.

 A. Natural acc.-Name of individual person

 B. Artificial acc.-Firms, association

 C. Representative acc.-Debtor, creditors A/C

2. Impersonal account

 Not related to particular person or names.

A. Real acc.-maintained to deal with transaction related to

building, cash, furniture, land, machinery.

a. Tangible account

 Related to assets or properties which can be seen or touched

 E.g. Land, building, cash

b. Intangible account

 Related to assets which can not be seen

 E.g. share, patent right, copyright

b. Nominal accounts

 Also called as fictitious accounts.

 Maintained to deal with rent, wages, salaries, cost of

stationary items, amt. spent on advertisements, profits or

income of business.
S.No. Name of account Debit Credit

1 Personal The receiver The giver

2 Real What comes in What goes out

3 Nominal All losses and All gains and

expenses income