INTRODUCTION TO

ACCOUNTING
 Bookeeping

Bookeeping is the process of

recording transactions
accurately and systematically
in accordance with certain
principles or rules
 Transaction
These refers to any financial event or
activity which affects an organization
cash transaction – a transaction which
involves immediate payment
credit transaction – refers to a
transaction for which payment is
postponed to a future date
 Book-Keeping and Accounting
Book-keeping is that part of accounting which is
concerned with the accurate recording of
transactions.
Accounting, however, involves more than
bookeeping function. It includes the use of the
information recorded by the bookeeping
operation to produce financial reports that
enable decisions to be made by the
management, owners and interested parties
 Purpose of Book-Keeping and
Accounting
• To communicate business information to
various parties (managers, investors,
owners, creditors, government, etc.)
 Basic Accounting Concept
1. Business Entity Concept

Each business is a separate entity from

its owner
2. Going Concern

The business entity will continue to

operate indefinitely
3. Historical Cost

All transactions of a business entity are

recorded at the original cost to the
enterprise
4. Objectivity

There must be always exist objective

verifiable evidence for reporting any
accounting information. The evidence that
a business transaction has taken place
and the details pertaining to that
transaction are contained in a source
document.
5. Consistency

In the preparation of financial reports, the

same accounting method should be
applied in each accounting period
6. Conservatism

Conservatism or Prudence is observed when

reporting all accounting information. Cautious
accounting practices are observed so that
assets are neither overrated nor liabilities
underrated. All losses, suffered or anticipated,
are recorded for while profits should be
understated rather than overstated.
7. Accounting Period

The life of a business entity is divided

into specified periods of time for the
purpose of preparing financial reports
8. Accrual Concept

Revenue is recognized when it is

earned and expenses when they are
incurred.
9. Matching Principle

Revenue earned during an accounting

period has to be matched with the
expenses associated with earning that
revenue
 Types of Business Units
• Sole Proprietorship – a one man business

• Partnership – a business formed by two people

but not having more than 20 partners.

• Corporation – an enterprise formed by two or

more persons with a maximum of 50 people for
a private limited company and no maximum limit
for a public limited company
 The Accounting Process
Step 1 – Document

Step 2 – Journal

Step 3 – Ledger

Step 4 – Trial balance

Step 5 – Adjustment

Step 6 – Closing Account and Stock Valuation

Step 7 – Financial Statement (Trading, Profit and Loss Accounts,

Balance Sheet)