BUSINESS ACTIVITIES

SELL/ BUY PRODUCT/SERVICE KEEPING TRACK

 IF YOU SELL ANYTHING...
• MOBILE
• SOFTWARE
• Goods and Services
• LAND
• OR ANYTHING...
 Accounting For ME???
• SALES • ACCOUNTING...IS MOST
• PRODUCT IMP.
DEVELOPMENT
• TECHNOLOGY
• PEOPLE
WHAT ACCOUNTING DOES?
Unders
tanding
busines
s better
Avoid any Improve
fraud decision

Keep track of Reduce

money dependen
cy
Can business people and managers
really ignore accounting?
 ABOUT THIS COURSE..
• Teach you how to speak language of
accounting.
• Help you understand how accounting is done
in a business
• Complement your talent with the knowledge
of accounting.
 ACCOUNTING CONCEPTS
• WHAT IS ACCOUNTING??
 ACCOUNTING IS..
• Keeping a track record of all the monetary
transactions
• To know various things like..
• Profit/ loss incurred.
• Expenses paid
• Amount of sales/ purchase done
• Money introduced, spent, left...
 SALES
INCOME

PURCHASE

FINANCIAL STATEMENTS
 MORE PRECISELY..
• Accounting is beyond recording.

• It involves recording, classifying,

summarizing, analysis and interpretation of
financial transactions in significant manner
and communicating the same to the users.
• Recording- keeping track of all financial
transactions...
WHERE?
IN JOURNAL
IT IS A BOOK OF ACCOUNT WHERE
TRANSACTIONS ARE RECORDED FOR FIRST
TIME.
• CLASSIFYING- Finding out the total affect of all
transactions in particular account.
• Eg: All sales done during one month are
classified under one head ‘SALE’.
WHERE???
IN LEDGER- A book in which all the accounts are
classified.
Prepared after journal.
• Summarising- ascertaining the summary of all
accounts i.e knowing balance.
• Eg: Balance of sales for the month.
• EG: knowing profit/loss

WHERE??
• IN TRIAL BALANCE- records balances of all
accounts.
• IN FINAL ACOUNTS- PROFIT & LOSS
BALANCE SHEET.
• FINANCIAL TRANSACTION: ALL TRANSACTION
WHICH INVOLVE MONEY. (only they are
recorded)

• SYSTAMATIC MANNER: In the manner

prescribed by laws.
• ANALYSIS AND INTERPRETATION : Finding
relationships between various accounts
evaluating past performance and making
sound decisions.

WHERE?
In the managers mind!!!!
• COMMUNICATING TO USERS- All such
information should be provided to the users of
accounting so that they can make a better
decision.

WHO ARE THE USERS?

 MORE PRECISELY..
• Accounting is beyond recording.

• It involves recording, classifying,

summarizing, analysis and interpretation of
financial transactions in significant manner
and communicating the same to the users.
 THUS..
• Accounting is system that: IDENTIFY

RECORDS

COMMUNICATE
Books prepared in Accounting
 Users of accounting information
• Users are the persons who are directly or
indirectly interested in financial performance
of a business enterprise.

• They can be internal or external.

Users of accounting information
 Purpose of accounting
• To prepare financial statements and
communicate to users.

To find • Profit & loss

income • Shows profitability
position

To find • Financial soundness.

financial • Amount own >
amount owe.
position
 Accounting information
• Accounting provides meaningful information
about a business enterprise to the persons
• who are directly and indirectly interested in
• the performance and financial position of
business.

Financial Statements
Users which are
communicated
 Financial statements
• Statement that shows the income position
and financial position of a business.

Tells about profit

and loss incurred

Tells about what a firm

owes and owns.
 Identify who is this??
• I have lend my money and want my money
with interest from company.
• I am analyzing the organization's performance
and position and taking appropriate measures
to improve the company results.
• I want to see how my salary will increase with
company performance.
 Identify who is this??
• I want to make sure that the company can
earn a reasonable return on their investment
before I commit any financial resources to the
company.
• I want to see the financial statements, to see
whether the company has done the
accounting as per the laws.
• I want to tax this company.
 Advantages of accounting
• Replacement of human memory
• Evidence in court
• Settlement of tax liability: a business has to pay
various taxes, which it can assess through
accounting.
• Comparative study: Business can compare with
its competitors and its previous years.
• Helpful to various users
• Helpful to insolvent persons.
 Limitations of accounting
• Records only monetary transactions
• No consideration to price level changes
• No realistic information: asset in books may
not be realisable.
• Personal bias
• Different methods give different results
• Profit is not the real tester of business.
 Evaluation
• What is accounting?
• What is the accounting process?
• What is accounting information?
• Who are the users of accounting information?
• What is the purpose of accounting?
• What are the advantages and disadvantages
of accounting?
 BASIC TERMS IN ACCOUNTING
• ASSET: Any item of economic value owned by an
individual or corporation, especially that which
could be converted to cash.

• Examples: Cash, securities, accounts receivable

(debtors), inventory, office equipment, real
estate, a car, and other property
 Expenses
• Expense is a kind of expenditure whose
benefit is enjoyed or finished immediately.
• Short term expense.
• Money spent or cost incurred in
an organization's efforts to generate revenue.
Types of Asset

Current asset

Fixed asset

Deffered asset
 Types of asset
• From an accounting perspective, assets are
divided into the following categories:
• Current assets: Held for short time (cash and
other liquid items like securities, bank balance)
• fixed asset: Held for long period of time. long-
term assets (real estate, plant, equipment),
• Prepaid and deferred assets)
(expenditures for future costs such
as insurance, rent, interest), and
• Intangible
assets (trademarks, patents, copyrights, goodwill
.
 Debtor

A SOLD GOODS TO B ON CREDIT

Mr.A
Mr.B
 CREDITOR
• A PURCHASED GOODS FROM B ON CREDIT

Mr.A
Mr.B
 DEBTOR & CREDITOR
• A PERSON WHO OWES MONEY (AMOUNT
RECIEVABLES)

• A PERSON TO WHOM MONEY IS OWED

(AMOUNT PAYABLE).
 CAPITAL
• THE OWNER’S FINANCIAL HOLDING IN
BUSINESS.

OWNER’S
•CASH
FUND •ASSET

BORROWED •CASH
FUNDS
•ASSET
 EQUITY
• CLAIM AGAINST ASSET.

• EQUITY OF OWNER----------CAPITAL
• EQUITY OF CREDITOR-------LIABILITY.
 INCOME & EXPENDITURE
• INCOME-----POSITIVE CHANGE IN OWNER’S
EQUITY
( EARNINGS) . INFLOW OF MONEY.

EXPENDITURE-----TAKES PLACE WHEN SOME ASSET

IS ACQUIRED.
EXPENSES-----BENEFIT IS ENJOYED IMMEDIATELY.
OUTFLOW OF MONEY.
 LIABILITY
• AMOUNT WHICH IS OWED BY BUSINESS.
• WHAT A BUSINESS HAS TO PAY.
• TYPES
SHORT TERM
LIABILITY

LONG TERM
LIABILITY
 OTHER TERMS..
• DRAWINGS
• DEPRECIATION
• TURNOVER
• LOSS
• PROFIT
• GAIN