Introduction To Accounting

INTRODUCTION TO ACCOUNTING
Accounting not only records financial transactions and conveys the

financial position of a business enterprise; it also analyses and reports the
information in documents called “financial statements.”
Recording every financial transaction is important to a business
organisation and its creditors and investors. Accounting uses a formalised
and regulated system that follows standardised principles and
procedures.
The job of accounting is done by professionals who have educational
degrees acquired after years of study. While a small business may have an
accountant or a bookkeeper to record money transactions, a large
corporation has an accounts department, which supplies information to:
 Managers who guide the company.
 Investors who want to know how the business is doing.
 Analysts and brokerage firms dealing with the company’s stock.
 The government, which decides how much tax should be collected from
the company.
Big companies have thousands of stakeholders who have invested millions,

and they need a uniform, standardised system of accounting by which
companies can be compared on the basis of their performance and value.
Therefore, accounting principles based on certain concepts, convention,
and tradition have been evolved by accounting authorities and regulators
and are followed internationally.
These principles, which serve as the rules for accounting for financial
transactions and preparing financial statements, are known as the
“Generally Accepted Accounting Principles,” or GAAP.
ACCOUNTING PRINCIPLES
CONCEPTS CONVENTIONS
The term concept includes those Conventions used to signify the

basic assumptions, conditions and customs or traditions as a guide to
ideas upon which the science of the preparation of accounting
accounting is based. statements.
Accounting Concepts
 Entity Concept: According to this concept business is treated as a
separate unit.
 Dual Aspect Concept: According to this concept every transaction

has two sides at least. If one account is debited, any other account
must be credited. Every business transaction involves duality of
effects.
 Going Concern Concept: This concept assumes that the business

will continue to exist for a long period in the. There is neither the
necessity nor the intention to liquidate it.
 Accounting Period Concept: According to this concept the entire

life of the concern is divided in time intervals for the measurement of
profit at frequent.
 Money Measurement Concept: Also known as

Measurability Concept, means that only transactions and events that
are capable of being measured in monetary terms are recognized in
the financial statements.
 Cost Concept: According to this concept:

 An asset is ordinarily entered in the accounting records at the
price paid to acquire
 This cost is the basis for all the subsequent accounting
 Realization Concept: According to this concept, revenue is

recognized when sale is made and sale is considered to be made
when a goods passes to the buyer and he becomes legally liable to
pay for.
ACCOUNTING CONVENTIONS
 Convention of Disclosure: According to this convention accounting

reports should disclose fully and fairly the information they purport to
represent. The information which are of material interest to.
 Convention of Materiality: The accountant should attach importance to
material details and ignore insignificant.
 Convention of Consistency: This convention describes that
accounting principles and methods should remain consistent in order to
enable the management to compare the results of the two These
principles should not be changed year after year.
 Convention of Conservatism: According to this convention, in the
books of accounts all anticipated losses should be recorded and all
anticipated gains should be.
FUNCTIONS OF ACCOUNTING
HISTORICAL FUNCTIONS:
The historical functioning of accounting involves keeping accurate

records of all the past transactions made in the business.
1. Recording the financial transactions and maintain a journal to keep

them all.
2. It is important to classify and separate the records and the ledger.
3. Preparation of brief summary takes place for quick reviews.
4. This type of accounting gives the net result other than just keeping
the records.
5. The preparation of the balance sheet takes place to determine the
financial position of the business.
MANAGERIAL FUNCTIONS
In an organization, the management committee looks for all kinds of
decision making. To ensure that the decisions are smooth and
beneficial for everyone, they do an evaluation of the past records
provided by accounting.
1. Formation of plans in addition to controlling the financial policies.
2. Besides that, a budget is prepared to estimate the total expenditure

for future activities.
3. Also, cost control is made possible by comparing the cost with the
efficiency of the work.
4. The accounting also provides the necessary information during

the evaluation of employee’s performance.
5. To check for fraud and errors is what the workability of the whole
procedure depends on.

Introduction To Accounting

Uploaded by

Copyright:

Available Formats

Introduction To Accounting

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Introduction To Accounting

Uploaded by

Copyright:

Available Formats

INTRODUCTION TO ACCOUNTING

Accounting not only records financial transactions and conveys the

Big companies have thousands of stakeholders who have invested millions,

The term concept includes those Conventions used to signify the

 Dual Aspect Concept: According to this concept every transaction

 Going Concern Concept: This concept assumes that the business

 Accounting Period Concept: According to this concept the entire

 Money Measurement Concept: Also known as

 Cost Concept: According to this concept:

 Realization Concept: According to this concept, revenue is

 Convention of Disclosure: According to this convention accounting

The historical functioning of accounting involves keeping accurate

1. Recording the financial transactions and maintain a journal to keep

1. Formation of plans in addition to controlling the financial policies.

2. Besides that, a budget is prepared to estimate the total expenditure

4. The accounting also provides the necessary information during

You might also like