Financial accounting is the process of Accounting all incomes, expenses, assets & liabilities in monetary terms, thus enabling preparation of principal financial statements. This first lesson as a part of Financial Accounting is brought to you by Welingkar’s Distance Learning Division.
For more such innovative content on management studies, join WeSchool PGDM-DLP Program: http://bit.ly/SlideshareFaccounting
Join us on Facebook: http://www.facebook.com/welearnindia
Follow us on Twitter: https://twitter.com/WeLearnIndia
Read our latest blog at: http://welearnindia.wordpress.com
Subscribe to our Slideshare Channel: http://www.slideshare.net/welingkarDLP
BAG TECHNIQUE Bag technique-a tool making use of public health bag through wh...
Introduction to Financial Accounting
1. Welingkar’s Distance Learning Division
Financial Accounting
CHAPTER-1. Introduction to Financial
Accounting
We Learn – A Continuous Learning Forum
2. Financial Accounting Introduction to Financial Accounting Chapter 01
Importance
Accounting all incomes, expenses, assets & liabilities in
monetary terms
is the sole determinant of all economic activities
of all businesses, industry, trade ,commerce
as well as software giants, media
and even NGOs like CRY or Lijjat Papad.
3. Financial Accounting Introduction to Financial Accounting Chapter 01
Importance
Accounting helps recording all financial transactions thus
enabling preparation of these principal financial
statements:
- Trial Balance
- Profit & Loss Account
- Balance Sheet
- Cash Flow Statement
4. Financial Accounting Introduction to Financial Accounting Chapter 01
Importance
Several segments of the Society called
Stakeholders need to use Financial
Statements.
Shareholders Investment Advisors
Creditors Investment Analysts
Suppliers, Vendors Workers, Employees
Local, State, Central Researchers
Governments Students of Finance
5. Financial Accounting Introduction to Financial Accounting Chapter 01
Limitations
£ Reflects and records only monetary values of all
transactions and hence quantitative measurements;
hence qualitative aspects are ignored.
£ On account of inflation value of rupee fluctuates and
decreases; but no adjustments made in the accounts.
6. Financial Accounting Introduction to Financial Accounting Chapter 01
Scope
A financial accounting system provides
summarized and categorized information
about the company’s performance and state of affairs
mainly for external decision makers.
7. Financial Accounting Introduction to Financial Accounting Chapter 01
Scope
A financial accounting system provides summarized and
categorized information about the company’s performance
and state of affairs mainly for external decision
makers, allowing them to answer questions:
$ Is the company earning satisfactory
income?
$ How does the company compare in size
and profitability with competitors?
$ Will the company be able to pay its
debts when they become due?
8. Financial Accounting Introduction to Financial Accounting Chapter 01
GAAP
Financial accounting is governed
by rules or guidelines
collectively called
Generally Accepted Accounting Principles
(GAAP).
9. Financial Accounting Introduction to Financial Accounting Chapter 01
GAAP
Financial accounting is governed by rules or
guidelines collectively called Generally
Accepted Accounting Principles (GAAP).
- many of these are mandatory by law of the country.
10. Financial Accounting Introduction to Financial Accounting Chapter 01
GAAP
Financial accounting is governed by rules or
guidelines collectively called Generally
Accepted Accounting Principles (GAAP).
- many of these are mandatory by law of the country.
- those that are not mandatory, have considerable
persuasive force.
11. Financial Accounting Introduction to Financial Accounting Chapter 01
GAAP
Financial accounting is governed by rules or
guidelines collectively called Generally
Accepted Accounting Principles (GAAP).
- many of these are mandatory by law of the country.
- those that are not mandatory, have considerable
persuasive force.
- primary agency responsible for GAAP in India, is the
Standards Board of the Institute of Chartered
Accountants of India.
12. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept
“ An accounting entity
is a separate
and distinct unit,
standing apart from its
owners & shareholders”.
13. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept
“ An accounting entity is a separate and distinct unit, standing
apart from its owners & shareholders”.
Hence :
$ Share Capital and reserves of the company ( really
belonging to owners) are shown under liabilities.
14. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept
“ An accounting entity is a separate and distinct unit, standing
apart from its owners & shareholders”.
Hence :
$ Share Capital and reserves of the company ( really
belonging to owners) are shown under liabilities.
$ Losses are shown under assets ( because they represent
what owners owe the business).
15. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept
Є Reliability Principle
“ accounting records and statements must be based on the
most objective data available”
- hence importance of bills, invoices,
vouchers during audit.
16. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept
Є Reliability Principle
Є Historical Cost Concept
“ acquired assets, inventories and services are recorded at
their actual costs.”
- Hence current market value not considered.
17. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept
Є Reliability Principle
Є Historical Cost Concept
Є Going Concern Concept
“assumes that the accounting entity will continue in the
foreseeable future”
- hence fixed assets held by the business are always shown at
actual cost less accumulated depreciation.
18. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept Є Reliability Principle
Є Historical Cost Concept Є Going Concern Concept
Є Stable Monetary Unit Concept
“ business transactions are recorded in terms of single
currency (rupees in India) , and no adjustment is made for
inflation”
19. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept Є Reliability Principle
Є Historical Cost Concept Є Going Concern Concept
Є Stable Monetary Unit Concept
Є Full Disclosure Principle
“ all circumstances and events that are
likely to make a difference to users of
the financial statements must be disclosed”.
20. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept Є Reliability Principle
Є Historical Cost Concept Є Going Concern Concept
Є Stable Monetary Unit Concept Є Full Disclosure Principle
Є Materiality
“ The constraint of determining whether an item is large
enough to likely influence a decision”.
21. Financial Accounting Introduction to Financial Accounting Chapter 01
Concepts
Є Entity Concept Є Reliability Principle
Є Historical Cost Concept Є Going Concern Concept
Є Stable Monetary Unit Concept Є Full Disclosure Principle
Є Materiality
Є Conservatism
“ The constraint of determining whether an item is large
enough to likely influence a decision”.
“ In addition to these principles, the Institute of Chartered
Accountants of India has issued 28 accounting standards
for compliance with varying degrees of legal compulsion”
22. Financial Accounting Introduction to Financial Accounting Chapter 01
“ The importance of accounting is
that it is the universal language of
business, and a basic understanding
of it is necessary for almost any
job in the business world!”