What is Bookkeeping & Bookkeeping & Accounting Accounting ?

Bookkeepingrecording the transaction of an

organization

Accountinganalysis of the performance of an

organization

What is BookkeepingBookkeeping ?

• You have Rs10.• Your mother/father/aunt gives you Rs100

because today is your birthday.• You go with your friends to celebrate your

birthday.• You have Rs15 left after the celebration.• How much money did you spend?• In businesses, all of this would be recorded !

What is BookkeepingBookkeeping

• the keeping of Accounts• the keeping of accounting records• Accounting records are kept in ‘Books’ or

‘Ledgers’• In businesses all transactions are recorded • Book-keeping is simply keeping the records

of business transactions

What is BookkeepingBookkeeping

• record important, useful information.• the information must be recorded accurately• it is routine• It is recording • It is ‘accounting for’ business transactions• Examples of transactions:• sale/purchase of goods/services• every sale, etc., is shown in money

What is AccountingAccounting

Accounting is the of recording classing , summarizing in a significant manner and in terms of money and in terms of money ,transaction & events which are in part at least of financial character & interpreting the results there of

What is BookkeepingBookkeeping and and AccountingAccounting• Accounting is

– very business-like

– very professional

• You must do/be the same

• Keeping accounts: – keeps checks on customers and suppliers

– leads to preparation of overall, summary statements

• These Financial Statements are information to the business.

What is BookkeepingBookkeeping and and AccountingAccounting• We cannot keep Accounting records

– without documents (proof of transactions)– sales, purchases, banking (payment and receipts)

documents• these are source documents• this documentary evidence:

– tells/shows us the actual transaction– shows what has happened

• Accounting records: – show the impact of these transactions on a business– show what these transactions mean to a business

Types of accounting1. Financial accounting: documentation of facts, daily

transactions for communicating it to external users

2. Cost accounting : going in deepest detail of expenditure

for a particular service with a view to minimize costs &

reduce Wastages.

3. Management accounting : Analysis and interpretation

of financial information for management purpose

What is financial accounting ?

financial Accounting may be defined as the science and art of Recording and Classifying Business Transactions,

and preparing Summaries of the same for determining year end Profit or Loss and the Financial Position of the concern.

What is the Object of Financial Accounting ?

The main object of Financial Accounting

is to find out the Profitability and to

provide information about the Financial

Position of the concern

Who are the users

Owners/shareholdersManagementCreditorsCustomersBank & Financial InstitutionsEmployeesInvestors

USERS

ResearchersTax authoritiesOther Government DepartmentGeneral public

Functions of Financial Accounting

Recording of Information Classification of Data Making Summaries Dealing with Financial Transactions Interpreting Financial Information Communicating results Making information more reliable

Accounting Objectives

• To keep Systematic Records• To Protect Business Properties • To Ascertain the operational Profit or loss • To Ascertain the Financial Position of Business.• To Facilitate Rational Decision Making.• To prevent frauds & errors• To know what business owe to others & what

others owe to business.

Accounting Objectives

• To know sources of revenue & items of expenditure.

• To satisfy legal formalities.

• Making financial information available to other groups

Importance

• Provides complete and scientific record• Information regarding performance and position• Enable comparison• Helps in complying legal formalities• Evidence in legal matter• Evaluation of business• Help in raising loans• Useful for Owners\ Management

Advantages of Accounting• Recording • Helpful in Tax Assessment• Prevent Fraud • Business Valuation• Helps in Debt Collection• Helps in Planning• Funds Raising Becomes Easy• Evidence in the Court • Comparison• Ascertainment of profit/Loss • Ascertainment of Financial Position

Accounting principles

To convey the Language of Business, certain principles are required to be followed for maintaining Business transactions .

Accounting Principles are, the Rules of Action or the Methods and Procedures of Accounting commonly adopted while recording Business transactions.

Accounting Principles are Classified into two categories

Accounting Concepts

Accounting Conventions

Accounting Concepts(Underlying Assumptions)

• Business entity concept

• Going concern concept

• The cost concept

• Dual aspect concept

• Money measurement concept

• Accounting period concept

Accounting Concepts

• Accrual concept

• Revenue Recognition concept

• Matching concept

• Objective Evidence concept

Accounting Conventions

Accounting conventions are

the traditions, usage and

customs which are in used

since long.

The most important conventions are;

• Convention of Disclosure

• Conventions of Consistency

• Convention of Conservatism

• Conventions of Materiality