INTRODUCTION AND

FUNDAMENTALS OF
ACCOUNTING

Objective

Meaning & Definition

Objectives of Accounting
Scope
Importance
Concepts
Conventions
Golden Rules
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Meaning and Definition

Meaning-

: Language of business to
communicating each other about the
business activities.
Definition- : As per AICPA Art of
recording, Classifying and Summarizing in
a significant manner and in terms of
money; transactions and events which
are, in part at least, of a financial character
and interpreting the results thereof.
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Objectives
Keep systematic records
Protect Business Properties (P & L

and B/S)
Ascertain Operational profit & loss
Ascertain financial Position of the
Business
Facilitate Rational Decision Making

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Scope
Dealing with Financial Transactions
Recording of information (Journal, Sub)
Classification of Data
Making summaries
Analysing (P & L , B/S)
Interpreting the Financial Information
Communicating the results
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Accounting Function
INPUT

PROCESS

OUT PUT

Economic
Events
measured
in Financial
Terms

Recording
Classifying
Summarizing
Analysing
Interpreting

Communicating
information to
users

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Importance
Business Forecasting
Correct Decision Making
Correct Taxation
Helpful in Solving Business Disputes
Replacing Memory
Assessing performance of the Business
Assessing the financial status of the

business
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ImportanceContd.
Documentary Evidence
Assisting in Realization of Debts
Preventing and Detecting Frauds
Helpful to Management

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Concepts of Accounting
1. Business Entity Concept:
Business is always separated from the owners.
2. Going Concern Concept:
Business will run for indefinite period.
3. Money measurement Concept:
Only the monetary based transaction will be
recorded in the accounting books.

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Contd..
4.Dual Aspect Concept:
For every debit there must be a corresponding
credit.
5.Accounting period Concept:
The whole accounting year is divided into various
segments according to the period or time
(12months).
6.Cost Concept:
Cost price is only recorded in the accounting
books (while valuing assets) .
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Contd..
7. Matching Concept:
At the end of the period total expenses matched
with total revenue to find the profit or loss.
8. Realization:
9. Accrual:
10. Verifiable Evidence: Bills, Vouchers etc.

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Conventions
1.Conventions of Disclosure:
Material based information (Profit and
Loss A/c, Balance Sheet) disclosed to
owners, investors and government bodies.
2.Conventions of Consistency:
Accounting principles and practices
should not be changed year to year.

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Contd
3.Conventions of Conservatism:
Its all about adopting policy of Playing
Safe.
4.Conventions of Materiality:
Only the material based will be taking
place in the accounting books whereas
others will be ignored.

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Users of Accounting Information

Communicates business information
Accounting

is the discipline that provides

information on which external and internal
users of the information may base
decisions that result in the allocation of
economic resources in society.
- Slavin and Reynolds

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External Users
Investors
Creditors
Members of Non-profit Organisation
Government
Consumers
Research Scholars

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Internal Users
Owners
Management Decision Making
Employees

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Accounting Cycle
1.
2.
3.
4.
5.
6.
7.
8.

Identification of transaction
Preparation of Business Documents
Recording of Transaction in Journal
Posting to Ledger
Preparation of Unadjusted Trial Balance
Passing of Adjusting Entries
Preparation of Adjusted Trial Balance
Preparation of Final Accounts

Profit & Loss Account and Balance Sheet

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Debit and Credit

Debit is a Latin word means Left hand side
Credit is also a Latin word means Right

hand side.
These two terms abbreviated as Dr. and
Cr.
In accounting Debit is Left hand side of a
T shaped account and Credit is right
hand side.
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GOLDEN RULES OF ACCOUNTING

1.PERSONAL ACCOUNT
Natural (Human beings)
Artificial (Banks, Company and Firms)
Representative (Out-standing, prepaid etc.)
Debit the Receiver
Credit the Giver
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Contd..
2. REAL ACCOUNT( Assets)
Debit what comes in
Credit what goes out
ASSETS: Anything which will enable the
firm to get cash or benefit in future.
I) Tangible : Those which can be seen, feel
and touched that is, which have physical
Existence.
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Contd
Current Assets : Those assets which can
be converted into cash within short period
of Time or normal business cycle or
within one year.
2. Fixed Assets :Those assets which are
purchased for the purpose of operating
the business but not for resale.
1.

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Contd
1.Current assets
a)Cash in hand
b)Cash at bank
c)Closing stock
d)Bills Receivable
e)Short-term
Investments
f)Prepaid Expenses
g)Sundry Debtors
etc

2. Fixed assets
a) Land
b) Building
c) Plant and Machinery
d) Motor car
e) Premises etc

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Contd
II) Intangible : Does not have physical
existence.
a) Goodwill
b) Patents rights
c) Copy rights

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Contd
3.NOMINAL ACCOUNT:
Debit all Expenses and Losses
Credit all Incomes and Gains

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Contd
A) Expense :
a) Salaries Paid
b) Rent Paid
c) Commission
d) Interest Paid
e) Advertisement
f) Fright charges etc.,

B) Income:
a)Rent received
b)Commission
received
c)Interest received
d)Sales etc.,

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The Accounting Equation

Assets
D
R

CR

Liabilities
DR

CR

Owners
Equity
DR

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CR

Debit-Credit Rules
Debit

Credit

Credit

Debit

Credit

Debit

Credit

Debit

Debit

Credit

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Summary
Accounting records, classifies and

summarizes books of accounts for further

use
Concepts and conventions of accounting
Users of Accounting Information
Golden rules of accounting
Types of accounts and there treatments
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