2. ACCOUNTING
Accounting is a process of identifying, measuring
and communicating the economic information so
that they can make informed judgments and
decisions.
Accounting as a function is related to all other
functions of any organization.
Accounting provides useful information to insiders
and outsiders so that they can take decissions.
3. USES OF FINANCIAL REPORTS
A) External users:
(1) Investors
(2) Creditors
(3) Government
(4) Consumers
(5) Research scholars
B) Internal users
(1) Owners
(2) Management
(3) Employees
4. LIMITATIONS OF ACCOUNTING
Records only monetary transaction
Lack of realistic information
Personal biasness of the accountant
Historical in nature
5. ACCOUNTING CONCEPTS
Business Entity concept: The owner and the entity
both are different.
Money Measurement concept: All transactions and
events are measured in terms of monetary units.
Those events can not be measured in terms of
money can not be taken into consideration in the
books of accounts.
Going Concern concept: The enterprise is normally
viewed as a going concern, that is as continuing for
the foreseeable future.
6. ACCOUNTING CONCEPTS
Accrual Concept: Revenues and costs are accrued,
that is recognized as they are earned or incurred
and recorded in the financial statements.
Cost Concept : The assets are recorded in the
books at the price paid to acquire it and this cost is
the basis for the future course of action.
Dual Aspect Concept : Every financial transaction
involves two fold aspect, yielding of a benefit and
the giving something for the benefit.
7. ACCOUNTING CONVENTIONS
Convention of Consistency: Accounting rules,
practices should be continuously observed and
applied. This should not change from one year to
another.
Convention of Full Disclosure: All accounting
statements should be honestly prepared and to that
end full disclosure of all significant information
should be made.
Convention of Conservatism: A policy of caution or
playing safe. It safeguards from all possible losses.
Convention of Materiality: Statements should
disclose those items which is having a relevant
material.
8. BALANCE SHEET
1) Ram want to purchase a car costing Rs. 5,00,000.
To purchase the car he has to borrow and one
bank has agreed to finance the car. The bank
agrees if Ram will invest Rs.1,00,000 as margin
money.
Ram has following items owned and owed:-
Ram has a savings deposit of Rs.50,000.
He has term deposit of Rs. 1,50,000.
His other personal possessions are Rs.50,000.
He has taken a loan from his friend Rs.50,000.
What is the change in the net worth of Ram
before and after purchase of the car.