Introduction, Accounting as an Information System, Branches of Accounting, Meaning of Financial Accounting, Users of Accounting Information- GAAPS- Basic Concepts and Conventions- Accounting Standards issued by ICAI and IFRS issued by IASB- Manual Vs Computerized Accounting.

1. BASICS OF
ACCOUNTING
1st Unit of Financial Accounting

2. Contents
◦ Introduction
◦ Accounting as an information system.
◦ Branches of Accounting
◦ Meaning of Financial accounting
◦ Users of Accounting information system
◦ GAAPS- basic concepts and convention
◦ Manual vs computerized accounting

3. Introduction
The main objective of any business is to make profit by serving its
customers. But the reality was not end with the profit only it may
go for loss. There for a businessman should have proper document
for taking correct decision at correct time. So in this regard
information which are recording in the form of accounts plays a
vital role in taking correct decisions and carry a business in a
better way. As a commerce student or as a business man we should
aware of rule and regulations, concepts of accounts thoroughly to
safe guard our business. Hence in this chapter we will going to
discuss many things about accounting.

4. Accounting as a Information System
Accounting is an information system because it is a formal
process for collecting data, processing the data into information
and distributing that information to users. The purpose of an
accounting information system is to collect, store and process
financial and accounting data and produce information reports
that managers or other interested parties can use to make
business decisions.
Parts of an Accounting Information System.
1.Peopele
2. Data.
3. Software.
4. IT infrastructure.
5. Internal control or security.

5. Branches of Accounting
Accounting can be classified on the basis of its users as:
1. Financial accounting.
2. Cost accounting
3. Management accounting
Financial Accounting: this is the system deals with recording and analysis of
financial information of the organization.
Cost accounting: this system deals with classification ,recording ,allocation and
summarization of cost of products or operations.
Management accounting: this is a system of accounting which provides
information to the management in taking proper decisions or discharge in
managerial functions.

6. Meaning of Accounting or Financial accounting
According to American Institute of certified Public Accountants “
Accounting is the art of recording, classifying and summarizing in
a significant manner and in terms of money transaction and events
which are in part at least, of a financial character and interpreting
the results thereof”
The American Accounting Association defined Accounting as “the
process of identifying, measuring and communicating economic
information to permit informed judgement and decision by the
users of information.”

7. Users of Accounting information
In Accounting information system several parties are interested to know about
financial data they are mentioned below
UsersofAccounts
Owners
Management
Investors
Creditors
Government
Research
Economics

8. 1. owners: the owners of the business needs financial information to
know about how their capitals are invested in business and how
that capitals are helping generating profit to them.
2. Management: the financial information available in the books of
accounts is much helpful to the management to plan the future
activities of the business. It also helps the management to evaluate the
performance and to take corrective actions wherever necessary.
3. Investors: the prospective investors are in need of accounting
information to judge the profitability and solvency of the concerns in
which they are going to invest their savings.

9. 4. Creditors: creditors , Bankers etc. want to know the financial
positions of a concern before giving loans or credits.
5. Government: Government also interested in knowing the earning
capacity of the firm. They make use of the accounting information to
impose income tax , sales tax and excise duty, etc.,.
6. Researchers and economists: at present many researchers and
economists use accounting information's for research work and many
other studies.
along with above users many others also using accounting
information for their own use they are customers, Investing agencies,
general publics etc.,.

10. Limitations of accounting .
1. it only provides information regarding income and
expenditure, assets and liabilities of the organization
on a particular date.
2. It does not classify cost into direct and indirect, fixed
and variable, controllable, uncontrollable, normal and
abnormal cost etc.,.
3. It does not provides adequate information for fixing
the price of a product or service.
4. It does not provide proper system of controlling to
various elements of cost, that is material, labor and
expenses.
5. It does not provide detailed information for each
product , process, job or operations.

11. Manual vs Computerized accounting system
Manual Accounting Computerized Accounting
1 Manual Accounting system is a process of
identifying and recording ,transaction manually.
Computerized Accounting is a system of software
program that stored on a company computer ,network
server.
2 This system is slower that computerized
accounting
In this system software process data and creates reports
much faster than manual system.
3 Manual accounting system requires large
storage space to keep accounting records and
books
Computerized accounting system does not require large
storage space to keep accounting records.
4 The reporting is not flexible in manual
accounting system
The reporting is flexible in computerized accounting
system .it can be generated as and when required with
the financial year.
5 Many people involves in manual accounting
such information and reports are likely to be
distorted and unreliable and inaccurate.
The information and reports generated are accurate and
quite reliable for decision making.

12. List of Accounting Standards
Accounting Standard 1 : Disclosure of Accounting Policies
Accounting Standard 2 : Valuation of Inventories
Accounting Standard 3 : Cash Flow Statements
Accounting Standard 4 : Contingencies and Events Occurring after the Balance Sheet Date
Accounting Standard 5 : Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies
Accounting Standard 6 : Depreciation Accounting
Accounting Standard 7 : Construction Contracts
Accounting Standard 8 : (Deleted)
Accounting Standard 9 : Revenue Recognition
Accounting Standard 10 : Property, Plant and Equipment
Accounting Standard 11 : The effects of changes in Foreign Exchange Rates
Accounting Standard 12 : Accounting for Government Grants
Accounting Standard 13 : Accounting for Investments
Accounting Standard 14 : Accounting for Amalgamations
Accounting Standard 15 : Employee benefits
Accounting Standard 16 : Borrowing Costs

13. Accounting Standard 17 : Segment Reporting
Accounting Standard 18 : Related Party Disclosures
Accounting Standard 19 : Leases
Accounting Standard 20 : Earnings Per Share
Accounting Standard 21 : Consolidated Financial Statements
Accounting Standard 22 : Accounting for Taxes on Income
Accounting Standard 23 : Accounting for Investments in Associates in Consolidated Financial
Statements
Accounting Standard 24 : Discontinuing Operations
Accounting Standard 25 : Interim Financial Reporting
Accounting Standard 26 : Intangible Assets
Accounting Standard 27 : Financial Reporting of Interest in Joint Ventures
Accounting Standard 28 : Impairment of Assets
Accounting Standard 29 : Provisions Contingent Liabilities and Contingent Assets
Accounting Standard 30 : Financial Instruments : Recognition and Measurements*
Accounting Standard 31 : Financial Instruments : Presentation*
Accounting Standard 32 : Financial Instruments : Disclosures*
* AS-30, AS-31, AS-32 are not mandatory as these have not been notified under Companies Accounting
Standards Rules, 2006

14. Accounting Concepts
The term accounting concepts refers to assumption and conditions on which
accounting system is based and principles are formulated.
Business entity concept: A business and its owner should be treated separately as far as their
financial transactions are concerned.
Money measurement concept: Only business transactions that can be expressed in terms of
money are recorded in accounting, though records of other types of transactions may be kept
separately.
Dual aspect concept: For every credit, a corresponding debit is made. The recording of a
transaction is complete only with this dual aspect.
Going concern concept: In accounting, a business is expected to continue for a fairly long
time and carry out its commitments and obligations. This assumes that the business will not be
forced to stop functioning and liquidate its assets at “fire-sale” prices.

15. Cost concept: The fixed assets of a business are recorded on the basis of their original cost in the
first year of accounting. Subsequently, these assets are recorded minus depreciation. No rise or fall
in market price is taken into account. The concept applies only to fixed assets.
Accounting year concept: Each business chooses a specific time period to complete a cycle of
the accounting process—for example, monthly, quarterly, or annually—as per a fiscal or a calendar
year.
Matching concept: This principle dictates that for every entry of revenue recorded in a given
accounting period, an equal expense entry has to be recorded for correctly calculating profit or loss
in a given period.
Realization concept: According to this concept, profit is recognised only when it is earned. An
advance or fee paid is not considered a profit until the goods or services have been delivered to the
buyer.

16. Accounting Conventions
Accounting conventions refers to the customs and traditions followed by Accountants as
guidelines while preparing accounting statements.
There are four main conventions in practice in accounting: conservatism; consistency; full disclosure;
and materiality.
Conservatism is the convention by which, when two values of a transaction are available, the lower-
value transaction is recorded. By this convention, profit should never be overestimated, and there
should always be a provision for losses.
Consistency prescribes the use of the same accounting principles from one period of an accounting
cycle to the next, so that the same standards are applied to calculate profit and loss.
Materiality means that all material facts should be recorded in accounting. Accountants should
record important data and leave out insignificant information.
Full disclosure entails the revelation of all information, both favorable and detrimental to a business
enterprise, and which are of material value to creditors and debtors.

17. References:
1. Maheswari S.N., Financial Accounting.
2. Raman B.S., Financial Accounting.
3. Shukla & Grewal, Advanced Accounting.
4. Radha Swamy & R.L. Gupta, Advanced
Accounting.
5. Anil Kumar & Others, Financial
Accounting-1
6.principles and practice of Accounting –
Taxman’s publication.
7. principles and practice of Accounting-
Tulsian’s.