ACCOUNTANCY Made Easy
For Plus 1Class
Learning
RAM’s
Center
ACCOUNTANCY Made Easy
For Plus 1Class
Chapter 1-
Part I
RAM’s Learning
CHAPTER -1
INTRODUCTION TO ACCOUNTING
In Chapter One we mainly try to
• Learn meaning and need of accounting
• Understand accounting as a source of information
• Identify the internal and external users of
accounting information
• Explain the objectives of accounting
• Describe the role of accounting
INTORODUCTION to Business & Accounting
Different forms of Business and
relevance of Accounting
Common forms of business
1. Simple Selling
2. Shops & stalls
3. Trading firms
4. Manufacturing firms
5. Firms Providing Services
Simple Sales
INTORODUCTION to Business & Accounting
Different forms of Business and
relevance of Accounting
Common forms of business
1. Simple Selling
2. Shops & stalls
3. Trading firms
4. Manufacturing firms
5. Firms Providing Services
Shops & stalls
INTORODUCTION to Business & Accounting
Different forms of Business and
relevance of Accounting
Common forms of business
1. Simple Selling
2. Shops & stalls
3. Trading firms
4. Manufacturing firms
5. Firms Providing Services
Trading
INTORODUCTION to Business & Accounting
Different forms of Business and
relevance of Accounting
Common forms of business
1. Simple Selling
2. Shops & stalls
3. Trading firms
4. Manufacturing firms
5. Firms Providing Services
Manufacturing firms
INTORODUCTION to Business & Accounting
Different forms of Business and
relevance of Accounting
Common forms of business
1. Simple Selling
2. Shops & stalls
3. Trading firms
4. Manufacturing firms
5. Firms Providing Services
Firms Providing Services
• Calculation of Profit is the Basic need of any business firm
Profit = Selling price – Purchase price
or More generally
Profit = Sales - Cost
[Just think !: Certain organizations works with Non-Profit Moto. Still
Accounting is needed . Why ?]
• For simple selling , usually No form of any records .profit calculation is
mostly done mentally – No form of records
• For small firms like- shops , may have a small notes on
slips, diaries of notebook
• For Established Shops and trading firms, manufacturing firms & for
Service Providing firms – Needs Proper Record of Accounts
• Learn meaning and need of accounting
• Understand accounting as a source of information
• Identify the internal and external users of accounting
information
• Explain the objectives of accounting
• Describe the role of accounting
The American Institute of Certified Public Accountants (AICPA) had
defined accounting as the art of
recording,
classifying,
and summarising
in a significant manner and
in terms of money,
transactions and events which are, (in part at least), of
financial character,
and
interpreting the results thereof’.
This definition was made in 1941
With resulting in changing role of accounting, its scope, became broader. In 1966,
the American Accounting Association (AAA) defined accounting as
‘the process of
identifying,
measuring and
communicating economic information to permit informed judgments and
decisions by users of information’.
1. Meaning of Accounting : Accounting is a process of
identifying, }
measuring, } the business transactions
recording }
and
communicating thereof the required information to the interested users.
Thus the Process of Accounting
Starts with : Identifying Business Transactions
and
Ends with: Preparation of Financial Statements
2. Accounting as source of Information
Every step in accounting process,
identifying Business transactions
measuring Business transactions AND
Recording Business transactions generates
Information
Just Note , by now we have made clear
Learn meaning and need of accounting
Understand accounting as a source of
information
And Balance left is
• Identify the internal and external users
of accounting information
• Explain the objectives of accounting
• Describe the role of accounting
ACCOUNTANCY Made Easy
For Plus 1Class
Learning
RAM’s
Center
Users of Accounting
Internal Users (People Inside External users (People outside
organization) Organisation
Governmental Agencies
Directors like
Managers
Owners Tax Authorities
Employees
Share holders Statutory Auditors
Company Registrar etc
Qualitative characteristics of Accounting
( Note: Think about quality of this presentation which you are going through. A
document should have correctness, clarity, reliability, Relevance etc. Then only it will
be useful document)
1) Reliability :- Related to Accuracy, Error free & free from
Bias
2) Understandability :- What sender means is understood by receiver
3) Relevance :- Related to Timeliness, prediction & verification
4) Comparability :- Comparable in terms of Time , In terms of units
Just Note , by now we have made clear
Learn meaning and need of accounting
Understand accounting as a source of
information
Identify the internal and external users
of accounting information
And Balance left is
• Explain the objectives of accounting
• Describe the role of accounting
Objectives of accounting :
1. Maintain records of business
2. Calculate profit or loss
3. Depict the financial position
and
4. Make information available to various
groups and users.
Role of accounting : Accounting is not an end in
itself. It is a means to an end. It plays the role of a :
• Language of a business
• Historical record
• Current economic reality
• Information system to Users
• ( Note: Accounting system does not provide any
Qualitative information)
Just Note , by now we have made clear
Learn meaning and need of accounting
Understand accounting as a source of
information
Identify the internal and external users
of accounting information
Explain the objectives of accounting
Describe the role of accounting
1. Entity
• Entity means a reality that has a definite individual existence.
2. Transaction is An event involving some value between two or more
entities.
3. Assets are economic resources of an enterprise that can be usefully
expressed in monetary terms.
Assets are items of value used by the business in its operations
4. Liabilities are obligations that an enterprise has to pay at some
time in the future.
They represent creditors’ claims on the firm’s assets
5.CAPITAL
Amount invested by the owner in the firm is known as capital.
It may be brought in the form of cash or assets by the owner for the
business entity capital is an obligation and a claim on the assets of
business.
It is, therefore, shown as capital on the liabilities side of the balance
sheet.
6. Revenues
These are the amounts of the business earned by selling its products or providing
services to customers, called sales revenue.
Other items of revenue common to many businesses are:
commission,
.
interest, dividends,
royalities, rent received, etc.
Revenue is also called income.
7. Sales are total revenues from goods or services sold or provided to
customers. Sales may be cash sales or credit sales.
8. Expenses AND Expenditure
Expenses
Costs incurred by a business in the process of earning revenue are known
as expenses.
Generally, expenses are measured by the cost of assets consumed or
services used during an accounting period
Expenditure
Spending money or incurring a liability for some benefit, service or
property received is called expenditure. Purchase of goods, purchase of
machinery, purchase of furniture, etc. are examples of expenditure. If the
benefit of expenditure is exhausted within a year, it is treated as an
expense (also called revenue expenditure). On the other hand, ). On the
other hand, the benefit of an expenditure lasts for more than a year, it is
treated as an asset (also called capital expenditure) such as purchase of
machinery, furniture, etc.
9. Profit
The excess of revenues of a period over its related
expenses during an accounting year is profit.
Profit increases the investment of the owners.
10.Gain{A profit that arises from events or transactions
which are incidental} {to business such as sale of fixed
assets, winning a court case,} {appreciation in the
value of an asset is called gain }
BASIC TERMS IN ACCOUNTING
1. Entity
2. Transaction
3. Assets
4 .Liabilities
5. Capital
6. Sales
7. Revenues
8. Expenses
9. Expenditure
10. Profit
11. Gain
12. Loss
13. Discount
14. Voucher
15. Goods
16. Drawings
17. Purchases
18. Stock
19. Debtors
20. Creditors
11.Loss The excess of expenses of a period over its related
revenues its termed as loss.
It also refers to money or money’s worth lost (or cost incurred)
without receiving any benefit in return, e.g., cash or goods lost
by theft or a fire accident, etc.
It also includes loss on sale of fixed assets.
It decreases in owner’s equity.
12.Discount
Discount is the deduction in the price of the goods sold
Discount
Trade discount Cash Discount
offered at the
offered at the time of settlement
time of transaction
Cash Discount
Trade Discount
13.Vouchers
The documentary evidence in support of a transaction is known as voucher.
For example,
if we buy goods for cash, we get cash memo,
if we buy on credit, we get an invoice;
when we make a payment we get a receipt and so on.
14.GOODS and its various Forms
It refers to the products in which the business unit is dealing, i.e. in terms of
which it is buying and selling or producing and selling. The items that are
purchased for use in the business are not called goods
I. Purchase - Value of Goods purchased
II. Drawings - Value of Goods Taken for Personal use by owner
III. Stock - Value of Goods stored ready for Sales or Manufacturing
IV. Sales - Value of goods Sold
15.Debtors
Debtors are persons and/or other entities who owe to an enterprise an amount for buying
goods and services on credit.
The total amount standing against such persons and/or entities on the closing date, is
shown in the balance sheet as sundry debtors on the asset side.
16.Creditors
Creditors are persons and/or other entities who have to be paid by an enterprise an amount
for providing the enterprise goods and services on credit. The total amount standing to the
favour of such persons and/or entities on the closing date, is shown in the Balance Sheet as
sundry creditors on the liabilities side.
