BBA VISION

First Year: Acc. 251001: Principles of Accounting (in English)

(SYLLABUS PROVIDED BY DU)

CHAPTER-1. Accounting - The Language of Business: Definition and Scope of Accounting, Its role and Functions,
History of Accounting, Purpose and Nature of Accounting Information; Users of Accounting Information;
Branches of Accounting- Nature of Business and Accounting.

IMPORTANT QUESTIONS: [DU QUESTION BANK]

1. What is accounting? Why accounting is called the language of business? [DU Acc. 2019, NU- Acc ’16, 18]

Answer to the question no. 01

Accounting: According to Weygandt, Kieso, and Kimmel; “Accounting is an information system that identifies
records and communicates the economic events of an organization to interested users”.
Accounting is an information system that identifies, records and communicates the economic events of an
organization to interested users.

Accounting as a language of business: Accounting is said to be the language of business because all the
transactions and relationship of the business are expressed through accounting. Accounting is medium of
communicating the affairs of the business entity to the stake holder in the business. Many famous writers of
Accounting of the world have regarded accounting as the language of business. Just like a universal language,
business accounting helps people understand what is going on inside the business. This can help both business
owners and financial advisors make productive decisions in business.

Man expresses his feelings through language in written and verbal form, similarly, information of business
organization is presented through accounting systems. In language, words are made to explain feelings using
words on after another. Similarly, in accounting, financial transactions are recorded in the books of accounts and
there from preparing financial statements various financial information and communicated to concerned persons.

Accounting furnished all information about past events, current activities and future possibilities of a business
recording and analyzing past and present financial events. Accounting presents and communicates various
information in the form of statements and reports to interested parties like owners, employees, management,
investors, buyers, sellers etc. From these accounts, statements and reports, parties concerned can evaluate their
success-failure, financial solvency/insolvency etc. So, Accounting functions like a language so that the financial
statements can be easily understood by the users of the accounting statements. And for that reason accounting is
called the language of business.

2. Who are the users of accounting information? [DU Affi. Acc ’17, 19; NU BBA - Hon’s 18]
Answer to the question no. 02

Accounting is the language of business. It brings life to the otherwise lifeless business activities. It acts as a
bridge between users of the information and the day to day transactions that occur inside a business. Users of accounting
information may be inside or outside a business.
 There are primarily two types of users of accounting information;

• Internal users (primary users) – If a user of the information is part of the business itself then he/she is
considered as one of the internal or primary users of accounting information. Internal users are those who plan,
organize, and run the business and therefore are officersand other decision makers.

For example: management, owners, employees, etc. The branch of accounting which deals with internal users is
called management accounting.

• External users (secondary users) – If a user of the information is an external party and is not related to the
business then he/she is considered as one of the external or secondary users of accounting information.
For example: potential investors, lenders, vendors, customers, legal and tax authorities, etc.

Following are the primary or internal users of accounting information:

1. Management – Organization’s internal management includes all junior and senior business managers.
2. Owners/Partners – Owners are the legal stakeholders of the business and the ultimate signing authority.
3. Employees – Full-time & part-time workers. They are essentially on the company’s payroll.

Following are the secondary users of accounting information:

1. Investors – They may be current investors, minority stakeholder, potential future investors, etc.
2. Lenders – Banks and Non-banking financial companies which provide loans in the form of cash or credit are
termed as lenders.
3. Regulatory and Tax Authorities – Regulatory bodies such as the stock exchange & authorities include the govt.
along with various statutory and tax departments.
4. Customers – Are buyers of goods or services and may exist at any stage of a business cycle. They may be
producers, manufacturers, retailers, etc.
5. Suppliers – Are the sellers of goods and services.
6. Public – The general public is also among users of accounting information. They are keen to know the financial
health of a business to get a fair idea of the firm’s niche market, business environment, and economic atmosphere
of the country.

3. What is Accounting Information System? Explain. [NU-13]

Answer to the question no. 03

Accounting Information System (AIS): An accounting as an information system is a system of collecting, storing and
processing financial and accounting data that are used by decision makers.
A collection of multiple pieces of equipment involved in the dissemination of information is called an information system
(IS). Hardware, software, computer networks, information, information system users, and the system’s housing are all part
of an information system (IS).
Accounting is a tool to communicate financial and other information to individuals, organizations, governments etc. about
various aspects of business and non-business entities. Accounting Information Systems connects
Information Technology with GAAP (Generally Accepted Accounting Principles).
For example, when a firm approach for a loan from a bank, it will have to submit details of its business activities in terms
of operating profit or loss and the financial position.
Similarly, the stakeholders must have financial information of business in order to evaluate the performance of the
management. Many laws require the reporting of the financial information to various government departments such as the
income-tax department, sales tax department, company law board, etc.

4. Define Accounting and explain its scope. [DU BBA (Hon's)-2017 (Acc.), 2018 (FB), 2019 (Acc. & Mkt.), 2020 (FB
& Mkt.)]

Answer to the question no. 04

The scope of accounting includes all financial transactions and activities of a company. It includes recording,
classifying, and summarizing financial information to provide accurate and timely reports.

Accounting tracks the performance of a business and helps make crucial decisions about its future. It can measure
profitability, liquidity, and solvency. Financial statements prepared by accountants can also assess the
creditworthiness of a company.

Accounting has got a very wide scope area of application. Its use is not confined to the business world alone, but
spread over in all the spare of the society and in all professions. Now-a-days, in any social institution for professional
activity, weather that is profit earning or not, financial transactions must take place. So there arises the need for
recording and summarizing these transactions when they occur and the necessity of finding out the net result of the
sum after the expiry of a certain fixed period. Besides, there is also the need for information and communication of
that information to the appropriate persons. Only accounting can help to overcome these problems.

According to AICPA, "Accounting is the art of recording, classifying and summarising in significant manner and in
teams of transactions and events which are, in part atleast of a financial character and interpreting the result there of."

Scope of Accounting:

1) Accounting is concerned with financial transaction and events which bring out a change in wealth position of
business firm. Such transactions have to be identified first, as and when they occur.

2) These transactions are measured in terms of money, if not done already. But if an event cannot be expressed in
monetary terms, it will not come under the scope of accounting.

3) The transactions which are identified and to be recorded in a book measured are called Journal or one of its
subdivisions.

4) The recorded transactions are to be classified and grouped based on the nature and types for accounts. The work of
classification is done in a separate book called ledger.

5) The recording and classification of many transaction will result in a mass of financial data. Therefore it is necessary
to summarize such data periodically at least once a year,, in a significant and meaningful form. The summarization is
done in the foam of profit and loss Account and Balance Sheet.

6) The Summary results will have to be analyzed, interpreted and communicated to interested parties. Accounting in
formation is generally communicated in the form of "reports". Big organizations generally present printed report
called "Published Accounts".
 The scope of Accounting is wide and extends in business, trade, government, financial institutions, individuals and
families and every other arena. The accounting principle is used in every step. Many think the accounting scope is
only limited to financial transactions of a business concern but in fact, it is not true.

5. Why is it called information system of accounting? Discuss the objectives of accounting. [NU BBA Hon’s;15,17]

Answer to the question no. 05

Accounting is called information system because it helps to identify, record and communicates the economic events
of an organization to interested users.

The objectives of accounting: Objectives in accounting in any business are; Systematically record transactions, sort
and analyzing them to prepare financial statements, assessing the financial position and aid in decision making with
financial data and information about the business.

The main objective of accounting is to ascertain the results of the financial transactions of a business concern. We can
identify many objects that accounting serves.

1) Identification and recording of transaction: The prime object of accounting is to identify the financial
transactions and to record these systematically in the books of accounts. As a result, the true nature of each and every
transaction is known without much exercise of memory. The transactions are primarily recorded in general and in a
special journal and later on payment various accounts are kept in the ledger.

2) Ascertainment of result: Every business concern is interested to know its operating result at the end of a particular
period. The amount of profit or loss for a particular period of business concern can be ascertained by preparing an
income statement with the help of ledger account balances of revenue nature.

3) Ascertainment of financial affairs: Ascertainment of debt-liabilities, property and assets i.e. total financial affairs
of an organization at a particular date is another important objective of accounting. Finance affairs of concern at a
particular date can be ascertained by preparing a balance sheet.
4) Keeping accounts of cash: Cash book is a prominent book of the books of account. It accumulates receipt and
cash payment which help to know daily cash receipts, payments, cash in hand and cash at the Bank. also reduce fraud,
forgery, misappropriation of money by keeping cash book scientifically and accurately.

5) Control over Assets and Liabilities: A business man can take the right steps for controlling the quantity of assets
decrease and liability increase by the proper keeping of accounts of debts-liabilities, property and assets.

6) To provide information’s to various parties: Another main objective of accounting is to communicate the
accounting information to various interested parties like owners, investors, creditors, banks, employees and
government authorities etc. The information helps them in taking sound and judicious decisions about the business
entity.

7) To know the solvency position: The balance sheet not only depicts the reveals that what is owed or owned by the
enterprise but also gives information regarding the concern’s ability to meet its liabilities in the short run known as
solvency position.

6. Definition of Generally Accepted Accounting Principles (GAAP). [DU BBA (Hon’s) – 2018 (Mgt. & FB), 2020
(Mgt. & Mkt.)]

Answer to the question no. 06

 Generally accepted accounting principles mean some basic or auto complete truth which are generally acceptable
to all and proved as true in all sectors. In keeping books of accounting, the principles of accounting are generally
principles or GAAP. GAAP means some basic concepts and its application as to accounting.
According to American Institute of Certified Public Accountants (AICPA), “Principles” means – “A general law
or rule adopted or professed as a guide to action, a settled ground or basic of conduct or practice.”
Finally, it can be said that the rules or concepts in case of accounting which are accepted to all parties are called
generally accepted accounting principles. But in broader sense, principle means custom, method, idea, auto
complete, injunction etc.

7. Discuss the characteristics of GAAP.

Answer to the question no. 07

Generally accepted accounting principles have many characteristics. Some of them are discussed below:
1. In case of accounting, GAAP is acceptable to all and proved as true.
2. GAAP refers to accounting custom, method, idea and auto complete canon etc.
3. GAAP consists of personal habit of accountants, state laws and court verdict.
4. Every accountant needs to prepare financial statements maintaining these principles.
5. By following these principles prepared financial statements become accurate.

8. Difference between bookkeeping and accounting.

Answer to the question no. 08

The terms bookkeeping and accounting are almost used interchangeably. However, these concepts are different. While
bookkeeping is all about recording of financial transactions, accounting deals with the interpretation, analysis,
classification, reporting and summarization of the financial data of a business.
Let us look at the most important points of difference between bookkeeping and accounting in the following table:
9. What is Accounting Information System? Difference between public accounting and private accounting.

Answer to the question no. 09

Accounting Information System: An accounting as an information system is a system of collecting, storing and
processing financial and accounting data that are used by decision makers. An accounting information system aka AIS
refers to the tool businesses use to keep track of their finances, transactions, reports, and other accounting data. It
enables the decision-makers to understand the overall health of a company and act accordingly.

Differences between public and private accounting are given below:

No. Public Accounting Private Accounting

1. Public accounting is a type of accounting where Private accounting, on the other hand, is the type of
an accountant works as an independent third accounting where an accountant is employed by a company
party with variety of clients companies to the to act as an internal manager and prepare and analyze its
financial statements that a company is required to financial statement.
disclose to the public.
2. It allows job advancement opportunities to come It has a lack of variety in job opportunities.
sooner.
 3. Public accountants work for their own business Private accountants work for a single company.
or work for public accounting firms.
4. The public accountants feel more pressured and In here, private accountants have steady, flexible work
have a lot of deadlines. environment.
5. It gives greater variety of exposure in working In private accounting it gives very fewer opportunities to the
with different clients and industries. accountants to specialize.
6. It has more working hours. It has less working hour which is not stressful.

10. Discuss the role of accounting in creating values and accountability. [NU - BBA (Hon’s) Acc. ’18]

Answer to the question no. 10

Accounting creates values by maintaining transparency of accounts. Since man lives in the society, he has got a social life.
For leading a social life he has to perform financial and material transactions daily.
For carrying out these transactions successfully the existence of a sound environment is necessary.
In the process of keeping accounts of these transactions, certain rules and regulations and provisions of the law are to be
followed. These are followed mainly to ensure law and order for the well-being of the people.
To establish financial and social discipline practice of values is essential.
The role of accounting in creating values is stated below;
• Religious bindings: Keeping accounts of financial transactions and a proper use of God- gifted wealth are the
religious bindings of a man. Accounting inspires a man to carry out such duties presenting clear methods and
techniques of maintaining accounts.
• Character: Through the process of recording transactions in the books of accounts and ascertaining profit
accounting makes a man cautious about accounting. At the same time, it helps him acquiring valuable
characteristics — punctuality, dutifulness, sincerity, and conservatism.
• Economy and saving tendency: Economy and saving tendency bring financial solvency among people. Profit
means the excess of revenues over expenditures. Saving is made out of earned profit for future. Accounting
practice creates accounts consciousness among people which help them develop the habit of savings and
economy.
• Self-confidence and self-reliance: Self-confidence and self-reliance are the two great qualities of a man. They
play a positive role in achieving his ultimate success. The practice of accounting methods and techniques creates
accounts of consciousness among people. Accounts consciousness helps people to be self-confident and self-
reliant. Knowledge regarding profit- loss, income-expenditure, and budget helps an unemployed man to take up
self-employment project and thereby improve the socio-economic condition of a country.
• Carefulness in paying loan: Loan default, i.e., failure of repayment after taking a loan is a social crime.
Accounting helps study debt repayment capability of the borrower by providing necessary data and information.
A borrower can foresee the probability of his becoming defaulter which indirectly plays role in creating values.
• Discouraging black marketing: Buying and selling of goods through black market is a punishable crime. It
destroys the values of people. Keeping accounts of these types of transactions contradicts the main principle of
accounting. This has an indirect influence on the creation of values.
• Discouraging fraud and forgery: Through accounting, corrupt people are identified easily. So, people concerned
become aware of funds misappropriations, irregularity, misuse and expenditure beyond budget which indirectly
helps to create values.
 • Discouraging hoarding: Making excess profit through creating an artificial crisis of goods is another severe
social crime. This is one of the manifestations of decaying values. The principles of accounting do not recognize
earning this sort of profits at all. Any person or organization engaged in this type of activities is proved guilty on
the basis of recorded documentary evidence and statements of accounts.
So, the person or organization concerned refrains from doing these activities which is mentionable as indirect influences
of accounting.
Being accountable to others for one’s actions is called accountability. Man is used to leading a social life. People living
in society are accountable directly or indirectly to some other person/persons or organizations. Man becomes autocratic in
the absence of accountability. There is a better system of accountability for financial activities if accounting principles are
followed. From proper keeping of accounts of financial transactions arid with the help of these accounts preparing
financial statements, operating results and financial petition of a concern are ascertained.
In preparing accounts and financial statements, accounting concepts and principles are to be followed in the accurate,
proper, reliable and honest way. Accountability has been created in the field of accounting through the long practice and
following of these processes.
Some aspects of creating a process of accountability in accounting are stated below;
Accountability for expenditure:
In accounting budget process prior allocation of the amount of expenditure for each head is fixed up. The actual
expenditure cannot exceed the budgetary amount. For excess expenditure persons concerned are accountable to the proper
authority.
For example, fuel expenditure $30,000 per annum was allocated for the car of the manager. But actual fuel expenditure
was $40,000. The manager is liable for the excess expenditure of $10,000.
In this situation, legal action can be taken against the manager. Punitive measure or legal action to any extent depends on
the managers’ clarification about the matter. This is one of the best examples of accountability.
Accountability for success and failure of activities:
Every work is evaluated through accounting principles. The success and failure of work of an individual are determined
through this evaluation. Here the question of accountability arises. For example, David is a sales manager of an
organization.
The organization sustained a loss for the sale of goods as the manager was engaged in his personal work. He is
accountable to the authority for this loss.
The extent of punitive and legal actions depends on how he does clarify the matter. This is one of the best examples of
accountability.
In the light of above discussion, it may conclude — Accounting plays a vital role in establishing a civil society by
creating human values and accountability among the persons engaged in each activity of personal, social and
national life.
11. Discuss the characteristics of Accounting. [NU. BBA Hon’s- Acc 2019]

Answer to the question no. 11

Accounting is an information system that identifies, records and communicates the economic events of an
organization to interested users. In essence, the goal of an accounting system is to record financial data and terms into
useful financial information.

There is a general agreement that, before it can be regarded as a useful satisfying the needs of various users groups,
accounting information should satisfy the following criteria:
Understandability: This implies the expression with clarity of accounting information in such a way that will be
understandable to users - who are generally assumed to have a reasonable knowledge of business and economic
activities.

Relevance: The 'standards' must cater to the carefulness of the accounting statements. In short, the statements must be
meaningful to the users of the same.

Consistency: This implies the ability for users to be able to compare similar items and application of accounting
policies.

Reliability: This implies that the accounting information that is presented is truthful, accurate, complete and capable
of being verified (by the potential investors).

Objectivity: The 'standard' should have objectivity i.e., they must be supported and supplemented by basic facts or
data and not by the whims of individuals who prepared the statements.

Principles: Accounting principles are Essential rules and concepts that govern the field of accounting process should
record, analyze, verify and report the financial position of the business. Accounting Principles are the foundation of
accounting according to GAAP.

Those principles of accounting are:

1) Revenue Recognition principle,

2) Historic cost principle,
3) Matching principle,
4) Full disclosure principle,
5) Objectivity principle.

THANK YOU. GOOD LUCK!

Prepared by-
Tanvir Ahmed
Jareen Binte Asad
Instructor, BBA VISION