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PRESENTATION 1: INTRODUCTION TO ACCOUNTING
What is Accounting?
Accounting is the system that businesses use to record, organize, and explain their money
activities. Think of it as the "language of business" — like how we use words to communicate,
businesses use accounting to tell their financial story to owners, investors, and banks.
The 7 Steps Accounting Follows:
1. Identifying — Finding all financial transactions that matter to the business
2. Recording — Writing them down in a organized way
3. Measuring — Converting everything into money values so we can compare
4. Classifying — Sorting transactions into groups (money owned, money owed, income, costs)
5. Summarizing — Creating reports that show the summary of all activities
6. Analyzing — Looking at the data to understand trends and performance
7. Interpreting — Explaining what the numbers mean for business decisions
Three Important Terms:
Accountancy = The science/knowledge behind accounting rules and methods
Accounting = The actual work of preparing financial reports
Book-keeping = Doing the daily work of writing down transactions (like sales, purchases)
Four Main Goals of Accounting:
1. Keep a systematic record of all transactions
2. Find out if the business made profit or loss
3. Show the financial health of the business (Balance Sheet)
4. Give reliable information to owners, managers, investors, and government
Five Branches of Accounting:
1. Financial Accounting — Prepares reports for people outside the business (shareholders,
banks, creditors). Shows profit and financial position.
2. Management Accounting — Helps managers inside the company make better decisions
through analysis and planning.
3. Cost Accounting — Finds out the cost of making products/services and helps control
wastage.
4. Tax Accounting — Calculates and files taxes like Income Tax and GST.
5. Human Resource Accounting (HRA) — Measures the value of employees and shows it in
accounts.
Three Main Limitations of Accounting:
1. Based on Old Costs — If you buy a building for ₹50 lakh in 2015, it still shows as ₹50 lakh
even if it's worth ₹1 crore now.
2. Ignores Quality Factors — Accounting only records money. It doesn't show employee skills,
customer happiness, or brand reputation.
3. Ignores Price Changes — During inflation or deflation, profits may appear higher or lower
than they really are.
Accounting Standards (Rules to Follow):
GAAP — Rules used mainly in USA
IFRS — International rules used worldwide
Ind AS — Indian Accounting Standards (big Indian companies must use this)
ACCOUNTING CONCEPTS & CONVENTIONS
Concepts are the basic ideas, and Conventions are the widely accepted practices that ensure
consistency.
8 Important Accounting Concepts:
1. Separate Entity — The business is treated separately from the owner, even in sole
proprietorship.
2. Going Concern — We assume the business will continue for a long time (not close down
soon).
3. Money Measurement — Only transactions that can be measured in money are recorded. (A
loyal employee cannot be shown in accounts even though valuable.)
4. Historical Cost — Assets are recorded at their purchase price, not current market value.
5. Dual Aspect — Every transaction has two sides:
Debit (receiving side)
Credit (giving side)
Basic formula: Assets = Liabilities + Capital
6. Matching — Match expenses with income of the same period to find true profit/loss.
7. Accrual — Record income when earned and expenses when incurred, even if cash hasn't
changed hands yet.
8. Realization (Revenue Recognition) — Record sales revenue when it's earned, not when
cash is received.
4 Important Accounting Conventions:
1. Conservatism (Prudence) — "Don't count profit unless you're sure, but record losses as
soon as expected."
Example: You earned ₹500 but one customer might not pay ₹50 → Show profit as ₹450
only
2. Full Disclosure — Tell the complete and honest truth in financial reports. Companies must
follow this by law.
3. Consistency — Use the same methods every year (if you depreciate assets one way,
continue the same way always).
4. Materiality — Only record items that matter and affect decisions. Small items can be
recorded together.
A ₹50 pen can be shown as "office expense" (not important individually)
A ₹5 lakh machine must be shown separately (important item)
PRESENTATION 2: USERS & TERMINOLOGY IN ACCOUNTING
Who Uses Accounting Information?
People can be Internal (inside the company) or External (outside the company).
External Users (Outside the Business):
1. Creditors/Lenders — Want to know if business can repay loans on time and check financial
stability
2. Investors/Shareholders — Want to know how profitable their investment is and decide
whether to buy/hold/sell shares
3. Government & Tax Authorities — Need to calculate taxes, ensure legal compliance, and
make policies
4. Customers — Need to know if business can continue supplying products/services in the
future
5. Suppliers — Need to check if business can pay regularly before giving credit
Internal Users (Inside the Business):
1. Owners/Management — Need to know profit and financial position; plan budgets; make
expansion decisions
2. Employees — Need to know if company is stable and secure; check chances for promotion
or salary increase
3. Internal Auditors — Check if records are accurate, controls are strong, and policies are
followed
ACCOUNTING TERMINOLOGY (Important Words Explained):
Term Meaning
Business
Any financial activity involving exchange of money (like buying, selling, paying)
Transaction
Account A record of all transactions for a person, asset, liability, or expense
Assets Things of value owned by business (cash, furniture, building)
Liabilities Money the business owes to others (loans, bills to pay)
Capital Money/goods owner invests into the business
Drawings Money/goods owner takes out from business
Debtor Person/firm who owes money to the business
Creditor Person/firm to whom business owes money
Goods Items bought or sold for resale
Purchases Goods bought by business for resale
Sales Goods sold by business
Revenue Total income from business
Expenses Costs to earn revenue
Profit When revenue > expenses
Loss When expenses > revenue
Voucher Document proving a transaction
Journal First book where transactions are recorded
Ledger Book containing all accounts organized from journal
Trial Balance A list showing all accounts with debit/credit balances
Statement showing what business owns (assets), owes (liabilities), and owner's
Balance Sheet
investment (capital)
Cash Flow Money coming in and going out of business
Term Meaning
Depreciation Reduction in asset value due to wear and tear
Provision Money set aside for expected future losses
Accrual Recording expenses/income when incurred, not when cash changes
Payable Amount legally owed to others
Receivable Amount to be received from customers
Trade Creditors Sellers from whom goods bought on credit
Trade Debtors Buyers to whom goods sold on credit
Turnover Total value of sales in a period
Prepaid Expense Expense paid in advance
Outstanding
Expense due but not yet paid
Expense
Accrued Income Income earned but not yet received
Deferred Revenue Money received in advance for future delivery
Capital Expenditure Money spent on buying fixed assets (building, machine)
Revenue
Regular day-to-day operating costs
Expenditure
Contingent Liability Possible future payment depending on uncertain event
Summary
These presentations cover the complete foundation of accounting:
How accounting works (the 7-step process)
Its branches and objectives
Concepts and conventions that guide it
Who uses accounting information and why
Common accounting terms everyone should know
This knowledge forms the basis for understanding financial statements, profit/loss calculations,
and business decision-making!
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