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The document provides an overview of financial accounting concepts, including trade, business, capital, assets, liabilities, and various accounting principles. It outlines the roles of accounting in recording transactions, decision-making, and legal compliance, along with its advantages and disadvantages. Additionally, it discusses the importance of accounting for different stakeholders and introduces various branches and concepts within the field.

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Soumya Das
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15 views22 pages

1.unit 1

The document provides an overview of financial accounting concepts, including trade, business, capital, assets, liabilities, and various accounting principles. It outlines the roles of accounting in recording transactions, decision-making, and legal compliance, along with its advantages and disadvantages. Additionally, it discusses the importance of accounting for different stakeholders and introduces various branches and concepts within the field.

Uploaded by

Soumya Das
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Financial

accounting

Presents By: Prof.Dipali


jadav
PARUL
 Trade
Purchase and sale of goods and services in order to earn profit is called
trade.
 Business
Any legal action that is done in order to earn income or profit is called
business. It includes the production of goods and services, purchase
and sale of goods and services, banking, insurance, education
transportation, and any other trading activity etc.
 Capital= Assets – Liability
 Capital
The amount of cash, goods or assets which is initially invested by
proprietor while commencing business is called capital. It is invested to
earn profits. In other words, the excess of assets over liability is capital.
 Proprietor
The person who invests capital in the business and entitled to have all
profits and losses of the business is called proprietor or owner of the
business.
 Assets
All the resources of business having economic value are called assets. These resources help the
business to earn a profit and have future value. These are important for running a business and
are in the possession of businessman. These are of two types: –
a. Fixed assets
 The assets which are used by business for a long time are called fixed assets or non-current
assets. These are continued to be used by the business for a period of more than one year. For
example:- land ,building ,plant, machinery ,furniture ,vehicle etc.
b. Current assets
 The assets which are used up in one year or easily get converted into cash in one year are
called current assets. For example:- raw material, finished goods, debtors, cash balance and
bank balance etc.
 Liabilities
The amount which business owes to others is called its liabilities. There is a certain amount
which business is under obligation to pay. There are two types of liabilities: –
a. Long-term liabilities
 Those liabilities which are usually payable after a period of 1 year. Long-term loans from
Financial Institutions, debentures issued by companies etc.
b. Short-term liabilities
 These are those which are payable within one year. For example creditors, bank overdrafts
 Drawings
 The amount of cash or goods which is withdrawn by proprietor from
business for its private uses is called drawings. It reduces the capital
of the business.
 Goods
 The things which are bought and sold by business are called goods.
Goods maybe raw material work in progress of finished goods. In
accounting, when goods are purchased it is written as purchases.
When goods are sold it is written as sales. It is written as a stock if
remain unsold at the end of the year.
 Purchases
 Goods bought for resale are called purchases. It’s an exchange of
money for a particular good or services. Ex: purchase is to buy food at
the grocery store.
 Sales
 When purchase goods are sold in order to earn a profit are called
sales. When goods are sold for cash it is called cash sales and goods
sold on credit are called credit sales.
 Turnover
 The total amount of cash and credit sales during a particular
period is called turnover.
 Stock
 These are those goods which are left unsold in the business at
the end of the year. The goods unsold at the end of the
accounting year are called closing stock. The same stock is called
opening stock at the beginning of a new accounting year.
 Cost
 Total of direct or indirect expenses which are incurred for the
production of goods and services is called cost.
 Revenue
 Expenses
 Income
 Loss
 Gain
 Discount
a. Trade discount
b. Cash discount
 Commission
In a business activity, a remuneration is paid to the
agent for his services, is called commission.
 Debtor
 Creditor
 Receivables
 Payables
 Purchase return
 Sales return
 Vouchers
 Insolvent
A person is said to be insolvent when
he or she is incapable to meet all his
or her liabilities. Such a person has
more liability than assets.
 Bad debts
The amount which could not be
recovered from debtors due to his
insolvency or disability to pay is called
bad debts.
Book-keeping:

 Book keeping means recording of financial data relating to a


business in a systematic and orderly manner.

Ex: On 1st jan 2015, you have purchased 10 nokia mobiles @


Rs1000 from Samir and again on
5th jan 2015, 20 nokia mobiles @ Rs1200 from him.
On 10th jan 2015, you have sold all the mobiles @ Rs1500 to
raju.
What is Accounting?

 Account means registry of transaction.


 Account record of money received and money paid out.
 Accounting is the language of bussiness.
 Accounting is a means through which information about a
bussiness entity is communicated.
Example:

a) Purchased 5,shirts @200


b) Sold all the shirts @250
c) Paid commission to salesman rs50
Now you want to understand the net effect of the transactions,
what you have to do “accounting”
Sales ( 250 x 5) 1250
Less: Purchases( 200 x 5)1000
250
Less: Commission 50
Profit 200
So, we can conclude that you have earned a profit of rs200.
OBJECTIVE OF
ACCOUNTING
 To provide a record of all business transaction in a
systematic manner.
 To find out the result of all such transaction.
 To ascertain the amount due to or from others.
 To prevent theft, fraud and errors.
 To find out the financial position of a business on a
particular day.
 To have valuable information for legal & taxation
purpose.
 To provide reports to owner and mgt to help them in
making decisions for the business.
Advantages of Accounting

 Maintenance of business records


 Preparation of financial statements
 Comparison of results
 Decision making
 Evidence in legal matters
 Provides information to related parties
 Helps in taxation matters
 Valuation of business
 Replacement of memory
Disadvantages of Accounting

 Expresses Accounting information in


terms of money
 Accounting information is based on
estimates
 Accounting information may be biased
 Recording of Fixed assets at the
original cost
 Money as a measurement unit
changes in value
Importance of
Accounting
•Financial Tracking
•Decision Making
•Legal Compliance
•Budgeting
•Investor Confidence
•Performance Evaluation
•Operational Efficiency
Scope of Accounting

1.Recording Transactions
2.Classifying Data
3.Summarizing Information
4.Analyzing Results
5.Interpreting Financial Data
6.Reporting to Stakeholders
7.Auditing and Compliance
8.Taxation
9.Budgeting and Forecasting
10.Cost Control
USERS OF ACCOUNTING INFORMATION & THEIR NEEDS

 Proprietor
 Manager
 Creditors
 Employees
 Prospective investor
 Government
Branches(subfields) of accounting

 Financial Accounting
 Cost Accounting
 Management Accounting
 Social Accounting
 Human Resource Accounting
ROLES OF COMPUTER IN ACCOUNTING

1. Speed
2. Reliability
3. Accuracy
4. Large memory
5. Communication
6. Cost – effective
7. Recovering capacity
8. Auto reports
Accounting concepts:

These fundamental principles guide how


financial transactions are recorded and reported
in accounting.

 Separate Entity
 Going concern
 Cost concept
 Dual Aspect
 Money measurement
 Accounting year
 Accrual
 Matching
Convention

These are common practices or


guidelines to ensure consistency and
fairness in financial reporting.

 Full disclosure
 Conservatism
 Consistency
 Materiality
Generally accepted
accounting principles(GAAP)
1. Regularity.
2. Consistency.
3. Sincerity.
4. Permanence.(stability)
5. Non compensation
6. Prudence.
7. Continuity.
8. Periodicity.
9. Materiality.
10. Good Faith.
Thank you for your
attention

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