1 Introduction to

Accounting
Contents of the Lecture
 What is Accounting?
 Functions of Accounting
 Branches of Accounting
 Accounting Cycle
 Users of Accounting Information
 Objectives of Accounting
 Advantages of Accounting
 Limitations of Accounting
What is Accounting ?
 Accounting may be defined as the process of
recording, classifying, summarizing and interpreting
the financial transactions and communicating the
results thereof to the persons interested in such
information.
 Accounting as an information system is the process
of identifying, measuring and communicating the
economic information of an organization to its users
who need the information.
Functions of Accounting
 Identifying
 Measuring
 Recording
 Classifying
 Summarising
 Analysing
 Interpretation
 Communication
ACCOUNTANCY, ACCOUNTING AND
BOOK-KEEPING
ACCOUNTANCY: systematic knowledge of
accounting. It explains ‘why to do’ and ‘how
to do’ of various aspects of accounting.
ACCOUNTING: actual process of preparing and
presenting the accounts. It is the art of
putting the academic knowledge of
accountancy into practice.
BOOK-KEEPING: recording of daily business
transactions in a systematic manner.
BRANCHES OF ACCOUNTING
 Financial Accounting
 Cost Accounting
 Management Accounting
ACCOUNTING CYCLE
Sequential steps involved in an
Accounting Cycle:
 Journalising

 Posting

 Balancing

 Trial Balance

 Income Statement

 Position Statement
USERS OF ACCOUNTING
INFORMATION
 Short-term Creditors
 Long-term Creditors
 Present Investors
 Potential Investors
 Management
 Employees
 Tax Authorities
 Customers
 Government and their agencies
 Public
OBJECTIVES OF ACCOUNTING
 To maintain records of business.
 To calculate the results of operations.
 To ascertain the financial position.
 To communicate the information to the
users.
 To file tax return
 To portray the liquidity position
ADVANTAGES OF ACCOUNTING
1. Facilitates to replace memory
2. Facilitates to comply with legal
requirements
3. Facilitates to ascertain net result of
operations
4. Facilitates to ascertain financial
position
5. Facilitates the users to take decisions
6. Facilitates a comparative study
Advantages contd……
7. Assists the management
8. Facilitates control over assets
9. Facilitates the settlement of tax liability
10. Facilitates the ascertainment of value of
business
11. Facilitates raising loans
12. Acts as legal evidence
LIMITATIONS OF ACCOUNTING
1. Ignores the qualitative elements
2. Not free from bias
3. Estimated position and not real
position
4. Ignores the price-level changes
5. Danger of window dressing
End of Chapter 1