CH- 1 INTRODUCTION TO ACCOUNTING.pdf

Class- XI Financial Accounting
Chapter- 1 Introduction To Accounting
Includes detailed explanation as well as mind maps for quick revision and a glance. #financialaccounting #class11 #ppt #class11chapter1 #accounts #commerce #class11accountschapter1 #quick revision #smritisharma #introductiontoaccounting #detailedexplanantion

1. INTRODUCTION TO ACCOUNTINGINTRODUCTION TO ACCOUNTING

2. 
“Accounting is the art of recordingrecording, classifyingclassifyingand
summarisingsummarisingin a significant manner and in terms of
MEANING OF ACCOUNTING
summarisingsummarisingin a significant manner and in terms of
money; transactions and events which are, of a financial
character and interpreting interpreting the results thereof”.

3. Accounting process

T
FINANCIAL
TRANSACTIONS
RECORDING
COMMUNICATION
TO
CLASSIFYING
SUMMARISING
ANALYSIS &
INTERPRETATION
TO
USERS

4. CHARACTERISTICS OF ACCOUNTING

IDENTIFICATION
O
FFINANCIAL TRANSACTIONS
Records only monetary transactions.
E.g. purchase of raw materials, sale of goods by a firm.
Events which cannot be measured in money terms are not
recoded in books of account.

RECORDING

RECORDING
Process of entering business transactions in Journal.
Also called as book of original entry.

CLASSIFYING
Process of grouping transactions of one nature at one place.
Transactions recorded in journal are posted to main book of
account called Ledger

5. ..
SUMMARISING
Presenting the classified data in an understandable manner
Preparing financial statements viz
.
(i) Trading & Profit & Loss A/c
(ii) Balance Sheet

ANALYSIS & INTERPRETATION
Analysing financial data so that users can make Analysing financial data so that users can make
judgement about profitability& financial position
of the business.

COMMUNICATING
Communicating financial information to its users.
To internal as well as external users.

6. OBJECTIVES
OF
MAINTAINING RECORDS
DETERMINE PROFIT
OR
LOSS
FACILITATE
MANAGEMENTOF
ACCOUNTING
MANAGEMENT
PROVIDE INFORMATION
TO
USERS
DETERMINE
FINANCIAL
POSITION

7. OBJECTIVES OF ACCOUNTING

MAINTAINING ACCOUNTING RECORDS
To record financial transactions & events in the books of
account in a systematic manner

DETERMINING PROFIT OR LOSS
To determine the Net results of transactions over a period To determine the Net results of transactions over a period
of time through Trading and Profit & Loss A/c
Also called as Income Statement

DETERMINING FINANCIAL POSITION
To determine financial position through Balance SheetBalance Sheet
Also called as Position statement

8. ..

FACILITATING MANAGEMENT
Provides financial information to management.
Assists management in decision making, effective
control & forecasting.

PROVIDING INFORMATION TO USERS
Provides Accounting information to usersProvides Accounting information to users
to analyse information as per their needs

9. USERS OF ACCOUNTING INFORMATION
EMPLOYEES
INTERNAL
USERS
EXTERNAL
USERS
GOVERNMENT
OWNERS
MANAGEMENT
RESEARCHERS
CREDITORS
INVESTORS
BANKS

10. INTERNAL USERS

OWNERS
Contribute capital in the business & bear the risk
Interested in knowing profit earned or loss incurred
by the business

MANAGEMENT
Needs information in Decision makingNeeds information in Decision making
such as fixing selling price, cost control, investment
into new projects

EMPLOYEES & WORKERS
Interested in financial statements
to ensure availability of salary and bonus

11. EXTERNAL USERS
BANKS
To ensure safety & recovery of the loan advanced by them to the
business

INVESTORS
To assess earning capacity of the enterprise and ensure safety
of their investment

GOVERNMENT
Tocollect information about earnings of the enterprise for Tocollect information about earnings of the enterprise for
collection of taxes
Further it enables Government to take policy decisions

CREDITORS
Those who supply goods or services on credit
Interested in assessing credit-worthiness of business

RESEARCHERS
To use Accounting information for their research work

12. “ACCOUNTING IS THE ART OF RECORDING, CLASSIFYING
BOOK KEEPING VS ACCOUNTING
“ACCOUNTING IS THE ART OF RECORDING, CLASSIFYING
AND SUMMARISING IN TERMS OF MONEY TRANSACTIONS
WHICH ARE OF FINANCIAL CHARACTER, AND
INTERPRETING THE RESULTS THEREOF”

13. BASIS BOOK KEEPING ACCOUNTING
1.Scope BOOKKeeping involves
(a) identifying the
transactions,
(b) measuring themin
money terms
(c) recording themin the
books of account and
(d) classifying them
Accounting in addition to
Bookkeepinginvolves
(a)summarizing the
classifiedTransactions,
(b)analysing &
interpreting the results
(c) communicating the
resultstothe interested
parties
2 Stage Book-keeping is Primary
stage.
Accounting is the
Secondary stage. It starts
where bookkeeping ends.
3. Basic
Objective
The basic objective of
book
keeping is to maintain
systematic records of
financial
transactions.
The basic objective of
accounting is to
ascertain net results of
operations and
financial position and to
communicate
information to the
interested parties.

14. D
BASIS BOOK KEEPING ACCOUNTING
4. WhoPerforms Book-keeping work is
performedby juniorstaff.
Accounting work is
performed by seniorstaff
6. AnalyticalSkills The book-keeper doesnot
needtopossess analytical
skill.
An accountant is required
to possessanalytical skill.
7. Nature ofJob The job of a book-keeper is
oftenroutine and clerical
The job of an accountant is
analyticalisnature.
 .
oftenroutine and clerical
in nature.
analyticalisnature.

16. TEST YOUR UNDERSTANDING

Information in financial reports is based on
________transactions

_____ & _______ are External users of accounting.

Which of the following is not an internal user of financial
statements?
(i)
Board of directors (iii) Managers
(i)
Board of directors (iii) Managers
(ii)
Employees (iv) Lenders

Which of the following is NOT a business transaction?
a. Bought furniture of Rs.10,000 for business
b. Paid for salaries of employees Rs.5,000
c. Paid sons fees from his personal bank account
Rs.20,000
d. Paid sons fees from the business Rs.2,000

17. TEST YOUR UNDERSTANDING

Which of the following will not be recorded in the books of
account ?
(i)
Sales of goods (iii) Payment of salary
(ii)
Quarrel b/w managers (iv) Purchase of goods

Which is the last step of accounting Process?

Transactions are posted into ________from journal book

Which of the following is not an internal user of financial
statements?
(i)
Board of directors (iii) Managers
(ii)
Employees (iv) Lenders

18. IGNORES PRESENT
VALUE
SHOWS
FICTITIOUS
ASSETS
NOT
IGNORES
QUALITATIVE
ELEMENTS
NOT
FULLY
EXACT
MAY LEAD
TO
WINDOW
DRESSING

19. LIMITATIONS OF ACCOUNTING

ACCOUNTING IS NOT FULLY EXACT

Although most transactions are recorded on the basis of evidence
yet some estimates are made for assessing profit or loss

E.g. estimating life of an asset, value of stock ,provisions for doubtful
debts etc
.

Different firms follow different methods so result will change with

Different firms follow different methods so result will change with
change in practice 
IGNORES QUALITATIVE INFORMATION

Records only financial transactions

Ignores Non-financial transactions

Qualitative elements like efficiency of management & competition
in the market affect performance of business , but are not recorded

20. ..
MAY LEAD TO WINDOW DRESSINGMAY LEAD TO WINDOW DRESSING

‘
Window dressing’ means manipulation of accounts
to conceal vital facts & present a better position.

Here Financial statements fail to provide True & fair view of
the financial position of the enterprise.

SHOWS FICTITIOUS ASSETSSHOWS FICTITIOUS ASSETS

SHOWS FICTITIOUS ASSETSSHOWS FICTITIOUS ASSETS

Certain assets don’t have value but are shown in Balance –
sheet

Such as preliminary expenses, discount on issue of shares

Showing these assets in books makes result doubtful

21. ..
IGNORES PRESENT VALUE OF BUSINESSIGNORES PRESENT VALUE OF BUSINESS

Accounting follows Going concern concept

i.e. business will continue for indefinite period

As such assets are not shown at market price rather at
purchase price which is Historical

22. QUALITATIVECHARACTERISTICS OF ACCOUNTING

RELIABILITY RELIABILITY

Means users must be able to depend on information

Information must be reliable

Verifiable, free from Bias & material error

RELEVANCERELEVANCE

To be relevant, information must be available in time

Must help in prediction and feedback, and

Must influence the decisions of users

Unnecessary & irrelevant information should not be given

23. ..
COMPARABILITYCOMPARABILITY

To be useful information must be comparable

To be comparable, accounting reports must
belong to a common period and

Use common unit of measurement

It should facilitate inter-firm& intra –firm comparisons

It should facilitate inter-firm& intra –firm comparisons

UNDERSTANDABILITYUNDERSTANDABILITY

Information should be presented in simple manner

Should be easily understood by different users

Relevant explanatory notes can be given to explain the
information given in financial statements

24. ADVANTAGESADVANTAGESOF ACCOUNTINGOF ACCOUNTING

EVIDENCE IN LEGAL MATTERS

PROVIDES COMPLETE & SYSTEMATIC RECORD

PROVIDES INFORMATION ABOUT PROFIT or LOSS

ENABLES COMPARATIVE STUDY

FACILITATES RAISING LOANS

FACILITATES RAISING LOANS

HELPFUL IN DECISION MAKING

FACILITATES SALE OF BUSINESS

25. THANK YOUTHANK YOU