 1) Double Entry BookKeeping System

 Double entry accounting is a system of recording business transactions

where each transaction affects at least two accounts and requires an
equal debit and credit. This system was created in the 13th century as a
way to double check the accuracy of recorded numbers.
 Modern Accounting System is based on double entry system which is
based on the fundamental accounting equation.

Assets=Liabilities + Equity

 The double-entry accounting ensures that the accounting equation

remains in balance, Debits must be equal Credits.
 Every business transaction has two aspects and affects at least two
accounts. Every transaction must contain at least one account to be
debited and at least one account credited thus posted in at least two
different ledger accounts. For every financial transaction recorded in the
accounts of a business, there is a debit entry and a credit entry.

 2) Users of Accounting
Accounting users classified into external users and internal users

External Users Internal Users

 Accounting supplies managers and  Typically called financial

owners with significant financial
data that is useful for decision
making. This type of accounting in
generally referred to as
managerial accounting
 Lenders, investors, Governments,
Consumer group, External
Auditors, Customers
 Financial accounting provides
external users with financial
statements (Shareholders, lenders,
accounting, the record of a
business’ financial history for use
by external entities is used for
many purposes.
 Managers, Officer's, Sales staff,
Owners, Internal auditors,
Employees.
 Managerial accounting provides
information needs for internal
decision making (Officer's,
Mangers, etc.)
 etc.).
 Assessing how management has
discharged its responsibility for
protecting and managing the
company’s resources
 Shaping decisions about when to
borrow or invest company
resources
 Shaping decisions about expansion
or downsizing.
 Stockholders have the right to
know how a company is managing
its investments
 Federal and State Governments
require tax returns and other
documents often prepared by
accountants
 Banks or lending institutions may
use accounting information to
guide decisions such as whether to
lend or how much to lend a
business.

 3) Accounting concept/ Accounting Conventions

Accounting concept

The term concept is used to denote accounting postulates, i.e., basic

assumptions or conditions upon which the accounting structure is based. The
following are the common accounting concepts adopted by many business
concerns.

i) Business Entity Concept:

A business and its owners should be treated separately as far their financial
transactions concern implies that the business unit is separate and distinct
from the persons who provide the required capital to it. This concept can be
expressed through an accounting equation Assets = Liabilities + Capital.

ii) Money Measurement Concept:

According to this concept, only those events and transactions are recorded in
accounts which can be expressed in terms of money.

iii) Going Concern Concept:

In accounting, a business is expected to continue for a long time and carry out
its commitments and functioning and liquidate its assets at “fire sale ”prices.
iv) Dual Aspect Concept:
According To this basic concept of accounting every transaction has twofold
aspects i.e., 1. Giving certain benefits and 2. Receiving certain benefits. The
basic principle of double entry system is that every debit has a corresponding
and equal amount of credit.

v) Periodicity Concept:
Under this concept, the life of the business segmented into different periods
and accordingly the result of each period is ascertained. Each segmented
period is called "accounting period".

vi) Historical Cost Concept:

According to this concept, the transactions are recorded in the books of
accounts with the respective amounts involved. For example, if an asset
purchases, it is entered in the accounting record at the price paid to acquire
the same and that cost is considered to be the base for all future accounting.

vii) Matching Concept:

The principle dictates that for every entry of revenue recorded in a given
accounting period, an equal expenses entry has to be recorded for correctly
calculating profit or loss in given period .

viii) Realization Concept:

This concept assumes or recognizes revenue, when a sale is made. Sale is
considered to be complete when the ownership and property are transferred
from the seller to the buyer and the consideration is paid in full.

ix) Accrual Concept:

According to this concept the revenue is recognized on its realization and not
on its actual receipt. Similarly the costs are recognized when they are incurred
and not when payment is made.

Accounting Conventions:
  Accounting conventions are common practices, which are followed in
recording and presenting accounting information of a business. They are
followed like customs in a society.
 The following conventions are to be followed to have a dear and
meaningful information and data in accounting:

Consistency:
The convention of consistency implies that the same accounting procedures
should be used for similar items over periods.

Full Disclosure:
According to this principle, all accounting statements should be honestly
prepared and all information of material interest to proprietors, creditors,
investors should be discussed in the accounting statements.

Conservatism or Prudence:
This convention follows the policy of caution or playing safe. It takes into
account "all possible losses but not the possible profits or gains"

Materiality:
Materiality deals with the relative importance of accounting information. In
order to make financial statements more meaningful and to economize costs,
accountants should incorporate in the financial statements only that
information which is material and useful to users. They should ignore
insignificant details.

 4) Advantages &Limitations of Accounting

Advantages of Accounting
1. Complete record of all business Transactions.

2. Information about Profit/Loss and Financial positions.

3. Information for important economic decisions.

4. Comparative study.

5. Helps to judge managements abilities.

6. Provides factual and interpretive information.

7. Helps in legal compliance.

Limitations of Accounting
1. It gives historical facts not current worth.

2. It reports monetary and financial information not the non monetary and
qualitative information.

3. It depends upon personal judgment and conventions.

4. The accounting principles are not fixed and therefore accept different
alternatives. So they are not comparable.

5. Its cost based and changes in prices are not accepted. It does not reflect true
money value.

6. It does not show the effect of inflation.

7. The increase in value of assets is not considered unless realized.