BASIC ACCOUNTING

Lt. T.H. Jahfarali

Assistant Professor
PG Department of Commerce
Govt. College Malappuram
jahfaralith@gmail.com
 ACCOUNTING
• Language of business as it communicates results
of business operations to various interested
parties.
• Old as money itself.
• In India, there is adequate evidence of systematic
accounting methods used in ancient period.
• Kautilya’s ‘Arthashasthra’ not only refers to
politics & economics but also explains art of
account keeping.
• Luca Pacioli, an Italian developed modern
accounting in 1494 in his book “Double Entry
System of Accounting”
14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 2
 Book Keeping
• Recording of business transactions in a
systematic manner.
• Science & art of correctly recording in books
of accounts all those transactions that results
in transfer of money or money’s worth.

14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 3

 Accounting
• Art of recording, classifying, summarising,
analysing & interpreting the financial transactions
& communicating the results thereof to the
persons interested in such information.
• Accountancy
– Science of accounting.
– Academic discipline like physics, economics, statistics
etc.
– Tells us why & how to maintain books of account &
how to summarise & communicate accounting
information.
– Accounting is actual process of doing accountancy.
14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 4
 Accounting – Attributes
• Art of recording business transactions (in book -
Journal)
• Art of classifying business transactions (in book –
Ledger)
• Deals with financial transactions (in terms of
money)
• Art of summarising financial transactions (Trial
balance, P&L A/c & Balance Sheet)
• Art of analysis & interpretation of transactions
(by ratios, percentages etc.)
• Communicates accounting information to
interested parties.
14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 5
 Interested Users of Accounting
Information
• Owners
• Management
• Potential Investors
• Creditors & Bankers
• Employees
• Government
• Security Analysts & Advisors
• Researchers
• Customers

14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 6

 Accounting – Objectives
• To maintain records of business.
• To calculate profit or loss.
• To depict financial position.
• To make information available to various
users.

14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 7

 Accounting - Functions
• Systematic recording of business transactions.
• Protecting the property of business.
• Communicating results to interested parties.
• Comply with legal requirements.

14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 8

 Book Keeping VS Accounting
Basis Book Keeping Accounting

1. Object To prepare original books of To record, classify, summarise,

account, trial balance & final analyse & interpret business
accounts. transactions.

2. Scope Limited scope. Wider scope.

3. Nature of Clerical & repetitive nature & Complex nature & require special
Work no need for any special knowledge & skill.
knowledge & skill.

4.Responsible Accounts clerk. Qualified accountant.

person

14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 9

 Accounting - Limitations
• Recording only monetary transactions.
• Historical in nature.
• Effect of price level changes not considered.
• Provides information about the concern as a
whole.
• Personal bias of accountant affects accounting
statements.

14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 10

 Accounting - Branches
• Financial Accounting
– Original form.
– Recording business transactions in books of
accounts for a particular period.
• Management Accounting
– Concerned with accounting information that is
useful to management for planning & decision
making.
• Cost Accounting
– A mechanism for by which cost of goods &
services are ascertained & controlled.
14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 11
 FINANCIAL ACCOUNTING VS
MANAGEMENT ACCOUNTING
Sl. No FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING
1 Recording business transactions Providing required information to
management for efficient discharge
of functions.
2 External accounting (Info to external Internal accounting (Info to
parties management)
3 Concerned with historical records Concerned with future plans &
policies
4 Compulsory Optional
5 Relates to business as a whole Deals with reports about a particular
department or division of an
enterprise
6 Prepared according to GAAP According to internal requirements
of management
7 Lesser Scope Wider Scope (Includes financial
accounting, statistics, cost
14-07-2020 accounting etc.)
Lt.T.H.Jahfarali, Govt. College Malappuram 12
 FINANCIAL ACCOUNTING VS
COST ACCOUNTING
Basis FINANCIAL ACCOUNTING COST ACCOUNTING
1. Purpose Provides info about business in a Provides info to management for
general way planning & decision making
2. Form of Accounts are kept to meet Voluntarily to meet requirements
accounts requirements of Cos Act & Income of management
Tax Act
3. Periodicity Reports operating results & Reports to management as &
of reporting financial position at the end of when desired
the year
4. Reporting Costs are reported in aggregate Costs are broken down on unit
of costs basis
5. Only monetary transactions are Deals with monetary as well as
Information recorded non-monetary information
6. Stock At cost price or market price At cost price
valuation which ever is less
14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 13
 Accounting - Systems
• Single Entry System.
– Only personal accounts & cash book.
– No complete records.
– Simple, less costly, unsystematic & unreliable.
• Double Entry System.
– Every business transactions have two aspects
(debit & credit).
– Complete, accurate, reliable & systematic.

14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 14

 Accounting – Bases, Approaches or
Methods
• Cash Basis Accounting
– Only cash receipts & payments are recorded
– Profit or loss = Cash Receipts – Cash Payments
• Accrual or Merchandile Basis Accounting
– Incomes (accrued & unearned) & expenses
(outstanding & prepaid) are also recorded.
– Profit/ Loss = Accrued Income – Accrued Expenses
• Hybrid or Mixed Basis accounting
– Income are recorded on cash basis while expenses are
taken on accrual basis.
– Profit or Loss = Cash Receipts – Accrued Expenses

14-07-2020 Lt.T.H.Jahfarali, Govt. College Malappuram 15