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Double entry system Meaning and definition of accounting Users of accounting Branches of accounting Management accounting Difference between management and financial accounting
Double entry system
Double entry system
It is a common system of book-keeping whereby the two aspects of every transaction i.e., It is based on the dual aspect concept . This method of writing every transaction in two different accounts on opposite sides for equal value is known as the double entry system of book keeping. This is the most accurate, complete and scientific system of accounting. 2
It discloses the operating results . It reduces the chances of committing fraud. It makes possible a meaningful comparison of operating and financial performance over a period of time and enable the businessman to evaluate the progress of his business. It also enables a business man to plan and control his operations. It provides complete information concerning the business . It provides a check on the arithmetical accuracy of books of accounts. 3 .Advantages of double entry system It keeps a complete record of business transactions.
4 . in part at least of a financial character and interpreting the result thereof.What is accounting The language of business. recording. classifying and summarizing in a significant manner and in terms of money transactions and events which are. A means to communicate financial information. A way to convey information about a business to users Accounting is the art of identifying.
and interpreting the results thereof “. in part at least. classifying and summarizing in a significant manner and in terms of money transactions and events. A business house must necessarily keep a systematic record of its day-to-day transactions to enable stakeholders to get a complete financial picture of the company and to take stock of its financial position on a periodic basis. which are.Definition The American Institute of Certified Public Accountants defines accounting as “the art of recording. Stakeholders include the 5 . of a financial character.
Losses.. Gains) 6 .Classification of accounts 1) Personal accounts ( Natural Person & Legal Person) 2) Impersonal accounts A) Real account (Business asset) B) Nominal account (Business exp.
Users of accounting Who uses accounting information? Owners Managers Investor Creditors Government (tax assessment) Regulators Customers 7 .
Classifying and summarizing. classifying and summarizing the business transaction. Accounting helps us in attaining our aim of ascertaining the financial results by showing the best way of recording. In terms of money.It provides information about all the transactions of financial in nature.Only those transaction are recorded which are in 8 Characteristics of financial accounting . Recording.Art is that part of knowledge which helps us in attaining our aim. recorded in journal. preparation of trial balance for checking the accuracy of accounts. classifying in forms of ledgers. Accounting is an art.
Objectives or functions of accounting Knowledge of sales and purchase Providing information of closing stock Knowledge of financial position Information related for working capital Knowledge of profit & loss of the business Provide information to various parties Provide Information about misappropriation & frauds Evidence in court. 9 .
Accounting Process Recording of transaction (Journal entry) Classification (Ledger Posting) Summarizing (Trial balance) Interpreting (Income &position statement) Analysis of transactions 10 .
Branches of Accounting Financial Accounting:. Cost accounting:.It is concerned with recording and processing the financial transactions which affect the financial position of the business. Management accounting It is concerned with the collecting systematically and regularly all such information as will help 12 management in discharging its functions of . It leads to the preparation of income statement & position statement of the business. classifying and appropriate allocation of expenditure for the determination of the cost of products or services and for the presentation of suitably arranged data for purposes of control and guidance of the management.is concerned with the recording.
These concepts are as follows Business Entity Concept Going Concern concept Dual Aspect Concept Cost concept Money measurement Concept Accounting period Concept Matching Concept 13 . which enable accountants to convey meaningful information to all stakeholders.Generally Accepted Accounting principles (GAAP) / Concepts and conventions of accounting The accounting practice is based on certain standard concepts.
the capital of the owner is always entered in liability side of balance sheet.Business entity concept Business is treated as a unit or entity apart from its owner. that is why. 14 . It is considered as the creditor of the business. The owner of an organization is always considered to be separate and distinct from the business which he controls.
It should continue to operate at its present scale in the foreseeable future.Cont…. Dual Aspect Concept Financial accounting has dual aspect of recording. Every debit has its corresponding credit & every credit has its corresponding debit. Going concern concept It is assumed that the business will exist for the foreseeable future and transactions are recorded from this point of view. The modern accounting system basically 15 .
Cont…. happening or transaction is recorded in terms of money. 16 . a fact or a happening which cannot be expressed in terms of money is not recorded in the accounting books. In other words. Money measurement concept The money concept underlines the fact that in accounting every worth recording event.
000. The land is recorded in the books of accounts at Rs. a piece of land may have been purchased at Rs.000.1. Thus.Cost concept The transactions are recorded at the amounts actually involved. For instance.50.50. an arbitrary valuation of the company’s assets is avoided by recording the value at the actual amount involved.00. Since this amount would have been mutually agreed upon by both the parties 17 .000 only. whereas the company considers it to be worth Rs.3.1.
Twelve. this time interval is called accounting period. Accounting period concept Accounts choose some shorter and convenient time for the measurement of income.month period is normally adopted for this purpose. Matching concept It is based on the determination of the profit & loss of a particular accounting period is the process of matching the revenue earned during the period and the 18 Cont… .
Cont…. The conventions followed to prepare accounting statements are the : Convention of Consistency (Consistency in rules and formats) 19 Convention of Full disclosure . Accounting conventions Conventions are the customs and traditions that act as a guide to the preparation of the financial statements. Following these conventions leads to clear and meaningful financial statements.
all concepts. The convention holds that in accounting processes. The 20 . To build business strategies the management of a company needs to arrive at important conclusions and take important decisions from the financial statements over a period of years.Convention of Consistency The convention of consistency aims at making the financial statements more comparable and useful. principles and measurement approaches should be applied in a similar or consistent way from one period to another period.
This convention specifies that there should be complete and understandable reporting in the financial statements of all significant information relating to the economic affairs of the entity.Convention of Full Disclosure The accounting convention of full disclosure implies that accounts should make a full disclosure of all monetary or financial information that can impact decision making of different parties. This accounting information is of interest to the management. current and potential investors and current and potential creditors of the business. All 21 information which is of material interest to .
These will be recorded in the books of account. the pens lying unsold at the end of the accounting period are material items for the business. On the other hand. insignificant transactions or .Convention of Materiality The convention of materiality proposes that while accounting for various transactions. the unused pens are not material items and will not be recorded in the books of account. for a business that manufactures cars. For example. only those transactions should be considered which have material impact on the profitability or the financial status of the organization. 22 Similarly. for a business that buys and sells stationery items.
Management accounting Management accounting includes the methods and concepts necessary for effective planning for choosing among and for control through the evaluation and interpretation of performance The objective of Management accounting is to Provide relevant data . analyze and interpretation facilitates overall control and provide qualitative decision making. 23 .
Difference between management & financial accounting Management Financial accounting accounting Subject Matter It’s concerned with It’s related with various departments organization as a whole Objectives It’s designed to provide It’s designed to provide information to internal information to external parties parties Nature 24 .
It makes use of the data descriptive.Type of data used It uses the statistical. for various users and taxation 25 . subjectivewhich is historical. and relates to the future quantitative. Monitory and objective Accuracy Approximations are Accurate figure are used considered Compulsion It is optional It is absolutely compulsory to prepare for various purposes like.
variances etc.Difference between cost and Management accounting Purpose Cost Management accounting accounting Objective Ascertaining the cost of Aims presentation of goods and services cost data and some other information for taking decision It uses the past data rather future It predicts future on past data for present happenings Time factor Information coverage It relates information It uses cost data as well relating to cost incurred as some other or budgeted . 26 . standard information also. Rules for preparation Based on ICWAI of reports Change according to requirements. costing.
such portion of customer accounts in department store. 27 BOOKKEEPING AND ACCOUNTING . Accountants often direct and review the work of bookkeeper. In event. BOOKKEEPING is the recording of business data in a prescribed manner. and the interpretation of the reports. ACCOUNTING is primarily concerned with the design of the system of records. A bookkeeper may be responsible for keeping all the records of a business or only a minor segment. Much of the work of the bookkeeper is critical in nature and increasingly being accomplished through the use of mechanical and electronic equipment. the preparation of reports based on the recorded data.
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