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    Basic Accounting Notes-3

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    Ember Vance
    The document provides an overview of basic accounting concepts such as accounting terms like assets, liabilities, equity, revenue, and expenses. It also discusses the objectives, advantages, limitations and process of accounting, as well as the differences between bookkeeping and accounting. The document is intended as notes for a first semester accounting course and identifies various internal and external users of accounting information.

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    Basic Accounting Notes-3

    Uploaded by

    Ember Vance
    52 views6 pages
    The document provides an overview of basic accounting concepts such as accounting terms like assets, liabilities, equity, revenue, and expenses. It also discusses the objectives, advantages, limitations and process of accounting, as well as the differences between bookkeeping and accounting. The document is intended as notes for a first semester accounting course and identifies various internal and external users of accounting information.

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    The document provides an overview of basic accounting concepts such as accounting terms like assets, liabilities, equity, revenue, and expenses. It also discusses the objectives, advantages, limitations and process of accounting, as well as the differences between bookkeeping and accounting. The document is intended as notes for a first semester accounting course and identifies various internal and external users of accounting information.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    52 views6 pages

    Basic Accounting Notes-3

    Uploaded by

    Ember Vance
    The document provides an overview of basic accounting concepts such as accounting terms like assets, liabilities, equity, revenue, and expenses. It also discusses the objectives, advantages, limitations and process of accounting, as well as the differences between bookkeeping and accounting. The document is intended as notes for a first semester accounting course and identifies various internal and external users of accounting information.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    Utkarsh Jaiswal Presents

    Smart Notes
    for

    Basic Accounting

    First Semester | Unit -1

    Connect with us

    @jaiswal_utkarsh99 / Utkarsh Jaiswal

    @jaiswaldesign99 / Utkarsh Jaiswal

    Jaiswal Design 99
    Basic Accounting
    Unit-1 BBA First Semester

    Accounting
    Accounting can be defined as a process of reporting, recording, interpreting
    financial transactions/activities.
    The introduction of accounting helps the decision-makers of a company to
    make effective choices, by providing information on the financial status of the
    business.
    Accountancy act as a language of finance/business.

    Basic Terms in Accounting

    Terms Meaning Example


    A company purchases
    Economic The events that consist of transactions
    furniture from a company
    Events etc. can be meaured in monetary terms.
    in 20000 INR
    Any Economic unit like a corporation,
    Entity business enterprise, etc. is called BlinkIt is an Entity
    entity.
    A company purchases
    Monetary activity between two or more
    Transaction furniture from a company
    entity or individuals.
    in 20000 INR
    Economic resources owned by A Company has 12
    Assets
    business entities. Machines
    Obligations/debts that an enterprise A Company took loan of
    Liabilities
    has to pay at some time in future. 12 Lakhs from ABC Bank
    Founder invest 2 Lacs in
    Amount invested by owner/investor in
    Capital a company, so 2 Lacs is
    the firm
    capital
    Ola Generated 350
    Total amount generated from goods or
    Sales Crores INR from its
    services sold
    electric scooter sale
    Revenue Commission, interest,
    Amount of Profit Earned
    (Income) royalties, rent etc.
    Expenses Rent, wages, salary, bills etc.
    Discount Deduction in price of goods sold 30% discount on shoes
    Withdrawal of money by owner from
    Drawings
    the business for personal use

    @jaiswal_utkarsh99 Utkarsh Jaiswal Utkarsh Jaiswal


    Stock Amazon has 300 iPhones
    In-hand Goods
    (Inventory) in its stock

    Amazon has 30 iPhones


    Amount of goods left unsold at the end
    Closing Stock left in its stock in 31st
    of accounting period
    march 2022

    Objectives of Accounting
    It is the means by which necessary financial information about the business is
    communicated.
    Accounting provides useful Information for business-related decision-making.
    Accounting is used to maintain a systematic record of all the financial
    transactions in a book of accounts.
    Maintains calculation of all the Profit & Loss of an entity.
    Helps in the prediction of a financial position of a company in terms of assets &
    liabilities.
    By analysing financial data and providing interpretations in the form of reports,
    accounting assists management in handling business operations effectively.

    Process of Accounting
    1. Identification : Determining & analyzing which transactions are financial and to
    be recorded.
    2. Recording : Once, the economic events are identified & measured, these are
    recorded in books of account (Journal or Subsidiary Books) in monetary terms.
    3. Classifying the transactions : Transactions recorded in the books of original
    entry – Journal or Subsidiary books are classified and grouped according to
    nature and posted in separate accounts known as ‘Ledger Accounts’.
    4. Analysis & Interpretation: It includes an assessment of the financial reports
    and making some meaningful conclusions.
    5. Communicating information to the users: It includes sharing the financial
    reports and interprets results to the users of financial statements.

    Book Keeping

    Book Keeping is a part of Accounting and it is the process of identifying,


    measuring, recording and classifying the financial transactions.

    Accounting

    Accounting is a wider concept and actually, it begins where Book Keeping ends.
    It includes summarizing, interpreting and communicating the financial data to
    the users of financial statements.

    @jaiswal_utkarsh99 Utkarsh Jaiswal Utkarsh Jaiswal


    Difference Between Book-keeping & Accounting

    Parameters Book-keeping Accounting


    In addition to bookkeeping,
    Bookkeeping involves identifying,
    Accounting also includes
    measuring, recording &
    Scope summarizing, interpreting and
    classifying financial transactions
    communicating the financial data to
    in the ledger accounts.
    the users of financial statements.
    The main aim is to maintain The main aim is to ascertain the
    Objective systematic records of financial profitability and financial position of
    transactions. the business.

    It is a primary stage of It is a second stage and begins


    Stage
    accounting where bookkeeping ends.

    Bookkeeping does not require It requires specialized skill to


    Level of
    special skills. It is performed by analyze, so it is performed by senior
    skills
    Junior Staff. staff.

    Advantages of Accounting

    Accounting provides factual information about financial performance during a


    given period of time. Like, profit earned or loss incurred over a period and
    financial position at a particular point of time.
    Accounting helps management in business planning, decision making and in
    exercising control.
    By keeping systematic records and preparation of reports at regular intervals,
    accounting helps in making a comparison between two or more entities.
    Systematic accounting records help in settlement of various tax liabilities such
    as – Income Tax, GST, etc.
    Accounting provides useful information to the management for taking decisions.

    Limitations of Accounting

    Accounting is not precise: Accounting is not completely free from personal


    bias or judgment.
    Accounting is done on historic values of assets: Accounting records assets at
    their historical cost less depreciation. It does not reflect their current market
    value.
    Ignore the effect of price level changes: Accounting statements are prepared
    at historical cost. So changes in the value of money are ignored.
    Ignore the qualitative information: Accounting records only monetary
    transactions. It ignores the qualitative aspects.
    Affected by window dressing: Window dressing means manipulation in
    accounting to present a more favorable position of the business than the actual
    position.

    @jaiswal_utkarsh99 Utkarsh Jaiswal Utkarsh Jaiswal


    Users of Accounting Information

    Users may be categorised into internal users and external users.

    Internal Users -
    Owners: Owners contribute capital in the business and thus they are exposed
    to maximum risk. So, they are always interested in the safety of their capital.
    Management: Accounting information is used by management for taking
    various decisions.
    Employees: Employees are interested in the financial statements to assess the
    ability of the business to pay higher wages and bonuses.

    External Users -
    Banks and financial institutions: Banks and Financial Institutions provide loans
    to businesses. So, they are interested in financial information to ensure the
    safety and recovery of the loan.
    Investors: Investors are interested to know the earning capacity of business
    and the safety of the investment.
    Creditors: Creditors provide the goods on credit. So they need accounting
    information to ascertain the financial soundness of the firm.
    Government: The government needs accounting information to assess the tax
    liability of the business entity.
    Researchers: Researchers use accounting information in their research work.
    Consumers: They require accounting information for establishing good
    accounting control, which will reduce the cost of production.

    Accounting Equation -

    Assets = Liabilities + Capital

    Dual Aspect of Accounting -

    It states that "Each transaction made by a business impacts the business in two
    different aspects which are equal and opposite in nature."
    Dual Aspect of Accounting forms the basis of Double-entry accounting method.

    Types of Accounts

    Personal Account Impersonal Account

    Natural Personal Account Real Account


    Artificial Personal Account Nominal Account
    Representative Personal Account

    @jaiswal_utkarsh99 Utkarsh Jaiswal Utkarsh Jaiswal


    Rules of Debit & Credit

    Account Type Debit Credit


    Personal Account Debit the reciever Credit the giver
    Real Account Debit what comes in Credit what goes out
    Nominal Account Debit all expenses & Losses Credit all Income & Gains

    Rules of Accounting Equation

    Debit if increase in assets, credit if decrease in assets.


    Credit if increase in capital, debit if decrease in capital.
    Credit if increase in liabilities, debit if decrease in liabilities.
    Credit if increase in Income, debit if decrease in Income.

    Journal
    Journal is the book for recording transactions in chronological order.
    Journal is also called the book of original or prime entries.
    The accounting cycle starts with the recording of transactions in a book called
    Journal.
    Then these entries are finally posted into ledger.

    Basic Format of a Journal

    Date Particulars L.F Dr. Cr.

    Created & Designed by

    Utkarsh Jaiswal

    @jaiswal_utkarsh99 Utkarsh Jaiswal Utkarsh Jaiswal

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