Class- XI Financial Accounting
Chapter- 1 Introduction To Accounting
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2. “Accounting is the art of recording
recording, classifying
classifying and
summarising
summarising in a significant manner and in terms of
MEANING OF ACCOUNTING
summarising
summarising in a significant manner and in terms of
money; transactions and events which are, of a financial
character and interpreting
interpreting the results thereof”.
4. CHARACTERISTICS OF ACCOUNTING
IDENTIFICATION OF FINANCIAL TRANSACTIONS
Records only monetary transactions.
E.g. purchase of raw materials, sale of goods by a firm.
Events which cannot be measured in money terms are not
recoded in books of account.
RECORDING
RECORDING
Process of entering business transactions in Journal.
Also called as book of original entry.
CLASSIFYING
Process of grouping transactions of one nature at one place.
Transactions recorded in journal are posted to main book of
account called Ledger
5. ..
SUMMARISING
Presenting the classified data in an understandable manner
Preparing financial statements viz.
(i) Trading & Profit & Loss A/c
(ii) Balance Sheet
ANALYSIS & INTERPRETATION
Analysing financial data so that users can make
Analysing financial data so that users can make
judgement about profitability & financial position
of the business.
COMMUNICATING
Communicating financial information to its users.
To internal as well as external users.
7. OBJECTIVES OF ACCOUNTING
MAINTAINING ACCOUNTING RECORDS
To record financial transactions & events in the books of
account in a systematic manner
DETERMINING PROFIT OR LOSS
To determine the Net results of transactions over a period
To determine the Net results of transactions over a period
of time through Trading and Profit & Loss A/c
Also called as Income Statement
DETERMINING FINANCIAL POSITION
To determine financial position through Balance Sheet
Balance Sheet
Also called as Position statement
8. ..
FACILITATING MANAGEMENT
Provides financial information to management.
Assists management in decision making, effective
control & forecasting.
PROVIDING INFORMATION TO USERS
Provides Accounting information to users
Provides Accounting information to users
to analyse information as per their needs
9. USERS OF ACCOUNTING INFORMATION
EMPLOYEES
INTERNAL
USERS
EXTERNAL
USERS
GOVERNMENT
OWNERS
MANAGEMENT
RESEARCHERS
CREDITORS
INVESTORS
BANKS
10. INTERNAL USERS
OWNERS
Contribute capital in the business & bear the risk
Interested in knowing profit earned or loss incurred
by the business
MANAGEMENT
Needs information in Decision making
Needs information in Decision making
such as fixing selling price, cost control, investment
into new projects
EMPLOYEES & WORKERS
Interested in financial statements
to ensure availability of salary and bonus
11. EXTERNAL USERS
BANKS
To ensure safety & recovery of the loan advanced by them to the
business
INVESTORS
To assess earning capacity of the enterprise and ensure safety
of their investment
GOVERNMENT
To collect information about earnings of the enterprise for
To collect information about earnings of the enterprise for
collection of taxes
Further it enables Government to take policy decisions
CREDITORS
Those who supply goods or services on credit
Interested in assessing credit- worthiness of business
RESEARCHERS
To use Accounting information for their research work
12. “ACCOUNTING IS THE ART OF RECORDING, CLASSIFYING
BOOK KEEPING VS ACCOUNTING
“ACCOUNTING IS THE ART OF RECORDING, CLASSIFYING
AND SUMMARISING IN TERMS OF MONEY TRANSACTIONS
WHICH ARE OF FINANCIAL CHARACTER, AND
INTERPRETING THE RESULTS THEREOF”
13. BASIS BOOK KEEPING ACCOUNTING
1.Scope BOOK Keeping involves
(a) identifying the
transactions,
(b) measuring them in
money terms
(c) recording them in the
books of account and
(d) classifying them
Accounting in addition to
Bookkeeping involves
(a)summarizing the
classified Transactions,
(b)analysing &
interpreting the results
(c) communicating the
results to the interested
parties
2 Stage Book-keeping is Primary
stage.
Accounting is the
Secondary stage. It starts
where bookkeeping ends.
3. Basic
Objective
The basic objective of
book
keeping is to maintain
systematic records of
financial
transactions.
The basic objective of
accounting is to
ascertain net results of
operations and
financial position and to
communicate
information to the
interested parties.
14. D
BASIS BOOK KEEPING ACCOUNTING
4. Who Performs Book-keeping work is
performed by junior staff.
Accounting work is
performed by senior staff
6. Analytical Skills The book-keeper does not
need to possess analytical
skill.
An accountant is required
to possess analytical skill.
7. Nature of Job The job of a book-keeper is
often routine and clerical
The job of an accountant is
analytical is nature.
.
often routine and clerical
in nature.
analytical is nature.
15.
16. TEST YOUR UNDERSTANDING
Information in financial reports is based on
________transactions
_____ & _______ are External users of accounting.
Which of the following is not an internal user of financial
statements?
(i) Board of directors (iii) Managers
(i) Board of directors (iii) Managers
(ii) Employees (iv) Lenders
Which of the following is NOT a business transaction?
a. Bought furniture of Rs.10,000 for business
b. Paid for salaries of employees Rs.5,000
c. Paid sons fees from his personal bank account
Rs.20,000
d. Paid sons fees from the business Rs.2,000
17. TEST YOUR UNDERSTANDING
Which of the following will not be recorded in the books of
account ?
(i) Sales of goods (iii) Payment of salary
(ii) Quarrel b/w managers (iv) Purchase of goods
Which is the last step of accounting Process?
Transactions are posted into ________from journal book
Which of the following is not an internal user of financial
statements?
(i) Board of directors (iii) Managers
(ii) Employees (iv) Lenders
19. LIMITATIONS OF ACCOUNTING
ACCOUNTING IS NOT FULLY EXACT
Although most transactions are recorded on the basis of evidence
yet some estimates are made for assessing profit or loss
E.g. estimating life of an asset, value of stock ,provisions for doubtful
debts etc.
Different firms follow different methods so result will change with
Different firms follow different methods so result will change with
change in practice
IGNORES QUALITATIVE INFORMATION
Records only financial transactions
Ignores Non-financial transactions
Qualitative elements like efficiency of management & competition
in the market affect performance of business , but are not recorded
20. ..
MAY LEAD TO WINDOW DRESSING
MAY LEAD TO WINDOW DRESSING
‘Window dressing’ means manipulation of accounts
to conceal vital facts & present a better position.
Here Financial statements fail to provide True & fair view of
the financial position of the enterprise.
SHOWS FICTITIOUS ASSETS
SHOWS FICTITIOUS ASSETS
SHOWS FICTITIOUS ASSETS
SHOWS FICTITIOUS ASSETS
Certain assets don’t have value but are shown in Balance –
sheet
Such as preliminary expenses, discount on issue of shares
Showing these assets in books makes result doubtful
21. ..
IGNORES PRESENT VALUE OF BUSINESS
IGNORES PRESENT VALUE OF BUSINESS
Accounting follows Going concern concept
i.e. business will continue for indefinite period
As such assets are not shown at market price rather at
purchase price which is Historical
22. QUALITATIVE CHARACTERISTICS OF ACCOUNTING
RELIABILITY
RELIABILITY
Means users must be able to depend on information
Information must be reliable
Verifiable, free from Bias & material error
RELEVANCE
RELEVANCE
To be relevant, information must be available in time
Must help in prediction and feedback, and
Must influence the decisions of users
Unnecessary & irrelevant information should not be given
23. ..
COMPARABILITY
COMPARABILITY
To be useful information must be comparable
To be comparable, accounting reports must
belong to a common period and
Use common unit of measurement
It should facilitate inter-firm & intra –firm comparisons
It should facilitate inter-firm & intra –firm comparisons
UNDERSTANDABILITY
UNDERSTANDABILITY
Information should be presented in simple manner
Should be easily understood by different users
Relevant explanatory notes can be given to explain the
information given in financial statements
24. ADVANTAGES
ADVANTAGES OF ACCOUNTING
OF ACCOUNTING
EVIDENCE IN LEGAL MATTERS
PROVIDES COMPLETE & SYSTEMATIC RECORD
PROVIDES INFORMATION ABOUT PROFIT or LOSS
ENABLES COMPARATIVE STUDY
FACILITATES RAISING LOANS
FACILITATES RAISING LOANS
HELPFUL IN DECISION MAKING
FACILITATES SALE OF BUSINESS