FINANCIAL ACCOUNTING

Decision Making Process

Defining the Problem

Organizing and Screening the Details

Revise if of Alternative Solutions
Necessary

Execution of the Optimal Plan

Continuous Evaluation
 Information

• Economy Information
• Industry Information
• Company Information
 Company Level Information

Statutory Disclosures;
Mandatory Disclosures;
Voluntary Disclosures.
Basics of Accountancy
 Business

All creative human activities relating to the

production and distribution of goods and
services for satisfying human wants are
known as business.
 Human Activities

Non Economic
Economic Activities
Activities
• An activity in which different persons exchange
something for value whether goods or services for
mutual gain or profit (Peterson and Plowman)
• An organized institution operating to provide goods
or services to the society under the incentives of
private gains (Wheeler)
• Whole complex field of commerce and industry, the
basic industries, process and manufacturing and the
network of ancillary services, distribution, banking,
insurance, transport and so on which serve and
interpenetrate the world of business as a whole (F. C.
Hooper)
 Essentials of Business
• Entrepreneur
• Economic activities
• Exchange of goods and services
• Profit motive
• Risk and uncertainty
• Continuity of transactions
• Creation of utility
• Organization
• Financing
• Consumer satisfaction
• Satisfying social needs
 Type of Organization

• Proprietorship

• Partnership

• Corporate Bodies
 Characteristics of
Business Organizations
 Body Corporate!!!!

• Incorporated Entity
• Separate Legal Entity
• Perpetual Succession
• Common Seal
• Limited Liability
• Transferability of Securities
• Divorce Between Ownership and Management
 Accountancy
Accountancy is the systematic process of
recording, classifying, summarizing and
interpreting the economic activity(ies) of
a business entity to provide useful
information to those who make
economic decisions.
 Accountancy

Book Keeping Accounting

 Accounting
Accounting is the systematic process of measuring
the economic activity of a business to provide useful
information to those who make economic decisions.
Users of Accounting Information

Stakeholders

External Internal
Investors
Creditors
Government
Consumers
Members of Non-Profit Organizations
Research Scholars
 Owners
 Management
Uses of Accounting Information
Accounting information is used in many different
situations.
• Bankers use accounting information when deciding
whether or not to make a loan.
• Stockbrokers and other financial advisers base
investment recommendations on accounting
information,
• Government/Regulators use accounting
information to determine if firms are complying
with various laws and regulations.
Types of Accounting
Features of Financial Accounting
• Systematic process of recording, classifying and
summarizing the historical business transactions,
• The transactions or events of a business must be
recorded in monetary terms,
• It generates useful financial information about
the business entity,
• It is a profession,
• It is an impure science,
• Auditing.
Basis of Accounting
 Basic Terms to Remember
• Business Entity • Cost of Goods Sold
• Capital • Gross/Net Profit
• Assets • Capital/Revenue Profit
• Liabilities • Provisions
• Equity • Reserves
• Business transactions • Free Reserves
• Debtors • Capital Reserve
• Creditors • Security Premium
• Goods • Managerial Remuneration
• Revenue • Marshalling of Assets
• Expenditure • Contingent Liabilities
• Expense • Shares
• Drawings • Debentures
 Accounting Principles
• Business Entity • Consistency
• Money Measurement • Full Disclosure
• Going Concern • Conservatism
• Cost
• Materiality
• Dual Aspect
• Accounting Period
• Matching
• Realization
• Objective Evidence
• Accrual
2010 Rs.
Jan. 1 Started business with cash 45000
Jan. 1 Paid into bank 25000
Jan. 2 Goods purchased for cash 15000
Jan. 3 Purchased furniture and payment made by cheque 5000
Jan. 5 Sold goods for cash 8500
Jan. 8 Sold goods to Arvind Walia 4000
Jan. 10 Goods purchased from Amrit Lal 7000
Jan. 12 Goods returned to Amrit Lal 1000
Jan. 15 Goods returned by Arvind Walia 200
Jan. 18 Cash received from Arvind Walia Rs. 3760 and discount allowed 40
to him
Jan. 21 Withdrew from bank for private use 1000
Jan. 21 Withdrew from bank for use in the business 5000
Jan. 25 Paid telephone rent for one year 400
Jan. 28 Cash paid to Amrit lal in full settlement of his account 5940
Jan. 31 Paid for:
Stationary 200
Rent 1000
Salaries to Staff 2500
 Board of Directors

Managing Director

Production Personnel Financial Marketing

Director Director Director Director

Treasurer Controller

Credit Planning
Auditing and Inventory
Management Management
Budgeting
Performance
Retirement Cost
Evaluation Accounting
Benefits Control
 Inter-Disciplinary Interface
• Marketing
• Production
• Personnel
• Accounting
• Top Management
• Treasury Operations
• Foreign Exchange
• Financial Structuring
• Maintaining Share Prices
• Ensuring Management Control