Management Department
Master of Business Introduction
Administration
to Accounting
MBA-1st Semester
and Its
Accounting for Fundamentals
Management and
Reporting
Ms. Seema Rani
Assistant Professor
Email:
seema.j3772@[Link]
Introduction to Accounting
Origin and Growth of accounting
• Accounting is a language that dates back thousands of years and
has been used in many parts of the world. The earliest evidence of
this language comes from Mesopotamian civilizations more than
7,000 years [Link] Mesopotamians kept the earliest records of
goods traded and received, and these activities are related to the
early record-keeping of the ancient Egyptians and Babylonians.
The Mesopotamians used primitive accounting methods, keeping
records that detailed transactions involving animals, livestock,
and crops.
• In India, philosopher and economist Chanakya wrote
“Arthashastra” during the Mauryan Empire around the second
century B.C. The book contained advice and details on how to
maintain record books for accounts.
Meaning and definition of Accounting
• Accounting can be defined as a process of reporting,
recording, interpreting and summarising economic data.
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.
• 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”.
Accounting as an Information system
or Users of Accounting Information
Accounting Principles
Accounting principles are guidelines companies must
follow when recording and reporting accounting
transactions. They bring uniformity to financial
statements, making it harder for firms to hide
information and inflate their numbers. These principles
also make it easier to understand a business’s health
and compare one or several companies' financials over
different periods.
• Accounting Concepts
• Accounting Conventions
Accounting Concepts
1. Business entity concept
2. Going concern concept
3. Money measurement concept
4. Accounting period concept
5. Accrual concept
6. Revenue realisation concept
7. Full disclosure concept
8. Dual aspect concept
9. Materiality concept
10. Historical cost concept
Accounting Conventions
• Convention of Conservatism
• Convention of Consistency
• Convention of Full disclosure
• Convention of Materiality
Generally Accepted Accounting
Principles (GAAP)
The generally accepted accounting principles
(GAAP) are a set of accounting rules, standards, and
procedures issued and frequently revised by the
Financial Accounting Standards Board (FASB) and
the Governmental Accounting Standards Board
(GASB). These principles ensure consistency,
accuracy, and transparency in financial reporting
across various industries in the United States. Public
companies must follow GAAP when preparing their
financial statements, which is also widely used in
governmental accounting.
GAAP-Continued
Why Is GAAP Important?
GAAP is crucial for maintaining trust in the financial
markets. Without GAAP, investors might be more
reluctant to trust the information presented to them by
public companies. Without that trust, fewer
transactions and higher transaction costs could result,
ultimately weakening the economy. GAAP also helps
investors analyze companies by making it easier to
perform "apples-to-apples" comparisons between one
company and another, allowing for more accurate and
consistent analysis.
International Financial Reporting
Standards
• The International Accounting Standards Board (IASB) develops,
publishes, and oversees the accounting principles enshrined in IFRS
practices. According to IASB data from March 2025, 147 global
jurisdictions mandate the use of the IFRS system for most or all
public financial disclosures that impact their financial markets.
• Because U.S. companies use GAAP rather than IFRS, complexities
and inconsistencies can occur in international business settings.
Publicly traded domestic U.S. companies must use GAAP, but U.S.
businesses with a significant international presence may also issue
financial statements prepared according to IFRS guidelines.
• Since 2002, the FASB and IASB have collaborated on strategies for
minimizing inconsistencies arising from competing accounting
systems. As of March 2025, the most recent impactful collaborative
development occurred in 2013, when the FASB joined a 12-member
advisory board working toward converging the GAAP and IFRS
systems.
Indian Accounting Standards
• Indian Accounting Standards (Ind AS) are IFRS-
converged standards issued by the Central Government
of India. They are developed under the supervision of
the Accounting Standards Board (ASB) of the Institute
of Chartered Accountants of India (ICAI) and in
consultation with the National Financial Reporting
Authority (NFRA). These standards are mandatory for
certain Indian companies, ensuring their financial
statements align with global practices. Established in
1977, the ASB oversees the formulation and
implementation of Ind AS, making them the primary
accounting standards adopted by companies in India.
Indian Accounting Standards
• 1 Ind AS 101 First-time Adoption of Indian Accounting Standards
• 2 Ind AS 102 Share-based Payment
• 3 Ind AS 103 Business Combinations
• 4 Ind AS 104 Insurance Contracts
• 5 Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations
• 6 Ind AS 106 Exploration for and Evaluation of Mineral Resources
• 7 Ind AS 107 Financial Instruments Disclosures
• 8 Ind AS 108 Operating Segments
• 9 Ind AS 109 Financial Instruments
• 10 Ind AS 110 Consolidated Financial Statements
• 11 Ind AS 111 Joint Arrangements
• 12 Ind AS 112 Disclosure of Interests in Other Entities
• 13 Ind AS 113 Fair Value Measurement
• 14 Ind AS 114 Regulatory Deferral Accounts
• 15 Ind AS 115 Revenue from Contracts with Customers
• 16 Ind AS 116 Leases
• 17 Ind AS 117 Insurance Contracts
Basis GAAP IFRS AS (India)
International
Generally Accepted
Full form Financial Reporting Accounting Standards
Accounting Principles
Standards
FASB (US), ICAI/MCA ICAI (India), notified
Issued by IASB (International)
(India) by MCA
Country-specific
Global (used in 140+
Scope (varies: US GAAP, India-specific
countries)
Indian GAAP, etc.)
Principle-based Mixed (rule-based
Rule-based (detailed
Approach (broad concepts, but aligned more
rules for transactions)
flexible application) with Indian needs)
IFRS does not allow
US GAAP requires Indian AS allows
LIFO, only
Example inventory valuation FIFO/Weighted
FIFO/Weighted
using LIFO Average (like IFRS)
Average
Still applicable to
Adoption Old Indian GAAP (AS) India has converged
smaller entities not
in India was based on GAAP with IFRS via Ind AS
under Ind AS
Accounting Equation
• As indicated earlier, every business transaction has two aspects. One aspect is
debited other aspect is credited. Both the aspects have to be appropriately
recorded in accounts. American Accountants have derived the rules of debit and
credit through a ‘novel’ medium, i.e., accounting equation. The equation is as
follows:
Assets = Equities
• Equities can be subdivided into equity of the owners which is known as capital
and equity of creditors who represent the debts of the business know as
liabilities. These equities may also be called internal equity and external equity.
Internal equity represents the owner’s equity in the assets and external represents
the outsider’s interest in the asset. Based on the bifurcation of equity, the
accounting equation can be restated as follows:
Assets = Liabilities + Capital
• The equation is fundamental in the sense that it gives a foundation to the double
entry book-keeping system. This equation holds good for all transaction and
events and at all periods of time since every transaction and events has two
aspects.
Three Golden Rule
Type of Account Golden Rule Example
Debit the Receiver, Credit Cash paid to Mr. A → Debit A,
Personal Account
the Giver Credit Cash
Debit what comes in, Furniture bought → Debit
Real Account
Credit what goes out Furniture, Credit Cash
Debit Expenses/Losses, Salary paid → Debit Salary,
Nominal Account
Credit Incomes/Gains Credit Cash
Rules regarding Journal Entries
• Double-Entry System:
• 2. Debit and Credit:
• 3. The Three Golden Rules:
• 4. Equality of Debits and Credits:
• 5. Journal Entry Structure:
• 6. Types of Journal Entries:
• Simple: Involves one debit and one credit.
• Compound: Involves multiple debits or credits.
• Adjusting: Used to update accounts at the end of an accounting period.
• Closing: Used to reset revenue and expense accounts at the end of an
accounting period.
• Reversing: Used to cancel out adjusting entries from the previous period.
• Transfer: Used to move funds between accounts.
• 7. Accuracy and Consistency:
Recording of Journal
Entries
Ledger Posting
Cash Book
A Cash Book is an Original Entry (or Prime Entry)
book in which all cash and bank transactions are
documented chronologically. When the business is
small, it is easy to record every transaction in a single
book called a 'Journal'. Journal is also known as the
book of original entry. But gradually when the
business expands, it becomes inconvenient to record
such a large number of transactions in a single book.
As a result, a separate book is required for recording
cash transactions. It is known as a 'Cash Journal' or a
'Cash Book'.
Types of Cash Book
A) Single Column B) Double Column C) Triple Column
• Single Column
The format of a Simple Cash Book is similar to an ledger
account, with one amount column on each side. The left-hand
side of the cash book is called Debit Side and it records cash
receipts and the right-hand side of the cash book is called
Credit side and it records cash payments.
Types of Cash Book
• Double Column
For a Double Column or Two Column Cash Book,
there are two columns to record amount on both
sides. One column is to record transactions related to
cash, and another column records transactions related
to banks. So, one is the cash column and the other is
the bank column. A two-column cash book is
prepared when both cash and bank transactions
happen in the business.
Types of Cash Book
• Triple Column
The triple-column cash book (also referred to as
the three-column cash book) is the most exhaustive
form of cash book, which has three money columns
on both receipt (Dr) and payment (Cr) sides to record
transactions involving cash, bank, and discounts.
Trial Balance
• Trial balance is a list of debit and credit balances of all
ledger accounts. It is prepared at the end of an
accounting period
• Prepared in a statement form which shows debit and
credit balances of ledger accounts, therefore it is also
called as a statement of balances
• “Trial balance is a statement, prepared with debit and
credit balances of ledger accounts to test the
arithmetical accuracy of the books” J R Batliboi
Objectives of trial balance
• Checking of arithmetical accuracy of the ledger
accounts
• Locating errors
• Facilitate preparation of final accounts
Advantages of trial balance
• It helps to ascertain arithmetical accuracy of the book-
keeping work done during the period
• It supplies in one place ready reference of all balances
in ledger accounts
• If any error is found out on preparation of a trial
balance, the same can be rectified before preparing
final accounts
• It is the basis on which final accounts are prepared
Format of trial balance
Trial balance of XYZ limited as on
Particulars/ L. F. Dr. Amount Cr. Amount
Name of the
Account
Total
Format of trial balance
Trial balance of XYZ limited as on
Particular L. F. Dr. Particula L. F. Cr.
s/Name Amount rs/Name Amount
of the of the
Account Account
Total Toal
Points to be noted
• Date at which trial balance is prepared should be noted at the top
• Name of Account column contains the list of all ledger accounts
• Ledger folio of the respective account is entered in the next column
• In the debit column, debit balance of the respective account is entered
• Credit balance of the respective account is written in the credit
column
• The last two columns are totalled at the end
• A debit balance is either an asset or loss or expense
• A credit balance is either a liability or income or gain
Limitations of trial balance
• Though a trial balance helps to ensure
arithmetical accuracy of books of accounts, it is
possible only when there is no compensating
error
• As all the errors made are not disclosed by the
trial balance, it would not be regarded as a
conclusive proof of correctness of the books of
accounts maintained
Prepare trial balance as on 31.12.2016 from the
following balances
Capital 340000 Purchases 94000
Creditors 13000 Sales Returns 3400
Unexpired Insurance 4000 Purchases Returns 2400
Salaries 38200 Carriage Inwards 1400
Bills receivable 5800 Loan excess paid to Bank 5000
Bank Balance (Cr.) 7000 Opening Stock 29900
Debtors 16000 Machinery 50000
Provision for Bad debts 144000 Wages 5000
Insurance 2200 Rent 1600
Land 250000 Bad Debts recovered 1700
Commission Received 800 Electricity Charges 2400
Closing Stock 32000
Capital 340000 Purchases 94000
Creditors 13000 Sales Returns 3400
Purchases Returns 2400 Salaries 38200
Bad debts recovered 1700 Carriage Inwards 1400
Loan excess paid to
Bank Balance (Cr.) 7000 bank 5000
Commission Received 800 Stock 29900
Provision for Bad Debts 144000 Machinery 50000
Total 508900 Wages 5000
Rent 1600
Bills receivable 5800
Electricity Charges 2400
Insurance 2200
Land 250000
Unexpired 4000
Insurance
Debtors 16000
Errors which are disclosed by trial
balance
• Partial omission of posting an amount in ledger
• Wrong totalling of subsidiary books
• Omission of balance of an account
• Errors in extraction of the trial balance
• Debit or credit entries are not entered at all
• Debit or credit entries are entered twice
Errors which are disclosed by trial
balance
• Debits are entered as credits by mistake and
vice-versa
• Errors in calculating the balance of an account
• Balance of an account entered wrongly in trial
balance
• Difference in amount between the entries
Errors which are not disclosed by
trial balance
• Errors of omission
• Compensating errors
• Errors of Principle
• Entering both aspects of transactions twice in the
books of account
• Errors in entering a transaction on the correct side
of a wrong account
• Entering wrong amount in the books of original
entry
References
• [Link]
g-standards-ind-as
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