INTRODUCTION TO ACCOUNTING

Accounting is the language of business. It is the system of

recording, summarizing, and analyzing an economic entity's financial
transactions. Effectively communicating this information is key to the
success of every business.
Those who rely on financial information include internal users,
such as a company's managers and employees, and external users, such
as banks, investors, governmental agencies, financial analysts, and labor
unions.

Accounting is a process of identifying and measuring

quantitative financial activities and communicates these financial reports to
the decision-makers.

DEFINITION OF ACCOUNTING
“ According to AICPA( American institute of certified
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 result thereof.”
OBJECTIVES OF ACCOUNTING
The main objectives of accounting are:
1. To maintain a systematic record of business transactions
• Accounting is used to maintain a systematic record of all the
financial transactions in a book of accounts.

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 • For this, all the transactions are recorded in chronological
order in Journal and then posted to principle book i.e. Ledger.
2. To ascertain profit and loss
• Every businessman is keen to know the net results of business
operations periodically.
• To check whether the business has earned profits or incurred

losses, we prepare a “Profit & Loss Account”.

3. To determine the financial position
• Another important objective is to determine the financial
position of the business to check the value of assets and
liabilities.
• For this purpose, we prepare a “Balance Sheet”.

4. To provide information to various users

• Providing information to the various interested parties or
stakeholders is one of the most important objectives of
accounting.
• It helps them in making good financial decisions.

5. To assist the management

• By analysing financial data and providing interpretations in the
form of reports, accounting assists management in handling
business operations effectively.

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 CHARECTERESTICS OF ACCOUNTING
The following attributes or characteristics can be drawn from
the definition of Accounting:
(1) Identifying financial transactions and events
• Accounting records only those transactions and events which
are of financial nature.
• So, first of all, such transactions and events are identified.

(2) Measuring the transactions

• Accounting measures the transactions and events in terms of
money which are considered as a common unit.
(3) Recording of transactions
• Accounting involves recording the financial transactions
inappropriate book of accounts such as Journal or Subsidiary
Books.
(4) Classifying the transactions
• Transactions recorded in the books of original entry – Journal
or Subsidiary books are classified and grouped according to
nature and posted in separate accounts known as ‘Ledger
Accounts’.
(5) Summarising the transactions
• It involves presenting the classified data in a manner and in the
form of statements, which are understandable by the users.
• It includes Trial balance, Trading Account, Profit and Loss

Account and Balance Sheet.

(6) Analyzing and interpreting financial data
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 • Results of the business are analyzed and interpreted so that
users of financial statements can make a meaningful and
sound judgment.
(7) Communicating the financial data or reports to the users
• Communicating the financial data to the users on time is the
final step of Accounting so that they can make appropriate
decisions.
BRANCHES OF ACCOUNTIG
(a) Financial accounting:
Financial Accounting is that branch of accounting which involves
identifying, measuring, recording, classifying, summarizing the
business transactions, i.e. it involves the steps from Identifying,
Recording of transactions to Summarization, and communicating
the financial data.
(b) Cost accounting:
Cost Accounting is that branch of accounting which is concerned
with the process of ascertaining and controlling the cost of products
or services.
(c) Management accounting
Management accounting refers to that branch of accounting which
is concerned with presenting the accounting information in such a
way that helps the management in planning and controlling the
operations of a business and in decision making.
ADVANTAGES OF ACCOUNTING
The following are the main advantages of accounting:
1. Provide information about financial performance
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 • Accounting provides factual information about financial
performance during a given period of time
• Like, profit earned or loss incurred over a period and financial

position at a particular point of time.

2. Provide assistance to management
• Accounting helps management in business planning, decision
making and in exercising control.
• For this, it provides financial information in the form of reports.

3. Facilitates comparative study

• By keeping systematic records and preparation of reports at
regular intervals, accounting helps in making a comparison.
4. Helps in settlement of tax liability
• Systematic accounting records help in settlement of various
tax liabilities. Such as – Income Tax, GST, etc.
5. Helpful in raising loan
• Banks and Financial Institutions grant a loan to the firm on the
basis of appraisal of the financial statement of the firm.
6. Helpful in decision making
• Accounting provides useful information to the management for
taking decisions.

LIMITATION OF ACCOUNTING
Following are the limitations of accounting:

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 • Accounting is not precise: Accounting is not completely free
from personal bias or judgment.
• Accounting is done on historic values of
assets: Accounting records assets at their historical cost less
depreciation. It does not reflect their current market value.
• Ignore the effect of price level changes: Accounting
statements are prepared at historical cost. So changes in the
value of money are ignored.
• Ignore the qualitative information: Accounting records only
monetary transactions. It ignores the qualitative aspects.
• Affected by window dressing: Window dressing means
manipulation in accounting to present a more favourable
position of the business than the actual position.

GAAP

Generally accepted accounting principles (GAAP) refer to a common set

of accounting rules, standards, and procedures issued by the Financial
Accounting Standards Board (FASB).
Generally Accepted Accounting Principles (GAAP or US GAAP) are a collection of
commonly-followed accounting rules and standards for financial reporting

CONCEPTS AND CONVENTIONS IN ACCOUNTING

These are the basic ideas or assumptions under the theory base of accounting
that provide certain working rules for the accounting activities of an organization.
There are 13 important basic accounting concepts that are to be followed by
companies to prepare true and fair financial statements.

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Business Entity Concept
The business entity concept states that the business enterprise is separate from its
owner. In simple terms, for accounting purposes, the business and its owners are
treated separately.
Money Measurement Concept
The money measurement concept says that a business should record only those
transactions which can be expressed in monetary terms. It means that transactions
like purchase and sale of goods, rent payment, expenses payment, earning of
revenue, etc., will be recorded in the books of accounts of the firm. However,
transactions or happenings, like the research department’s creativity, machinery
breakdown, etc., will not be recorded in the books of accounts of the firm.
Going Concern Concept
The going concern concept assumes that an organization would continue its
business operations indefinitely. It means that it is assumed that the business will run
for a long period of time, and will not liquidate in the foreseeable future. It is because
the going concern concept provides the firm with the basis to show its assets’ value in
the balance sheet.
Accounting Period Concept
The accounting period concept defines the time span at the end of which an
organization has to prepare its financial statements to determine whether they have
earned profits or incurred losses during a specified time span.

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Cost Concept
The cost concept of accounting states that an organization should record all of
its assets at their purchase price in the books of accounts. This amount also includes
any transportation cost, acquisition cost, installation cost, and any other cost spent by
the firm for making the asset ready to use.

Dual Aspect or Duality Concept

The dual aspect or duality concept is the foundation of any business. The
concept describes the basis of recording business transactions in the books of
accounts. According to the concept, every transaction of the business has a two-fold
effect.

Revenue Recognition Concept

The revenue recognition concept, also known as the realisation concept, as the
name suggests, defines that an organization should record its revenue from business
only when it is realised, not when the firm has received the cash.
Matching Concept
The matching concept states that an organization should recognize its expenses
in the same financial year if the expense is related to the revenue of that year. In
simple words, if a firm is earning revenue in an accounting period, even though it
incurs the expenses related to that revenue in the next accounting year, the expense
will be realized in the same accounting year when the revenue has been realized by
the firm.
Full Disclosure Concept
As the name suggests, the full disclosure concept states that an organization
should disclose all the facts regarding its financial performance. It is because the
information mentioned in the financial statements is used by different internal and
external users, like investors, banks, creditors, management, employees, financial
institutions, etc., for making financial decisions.
Consistency Concept
The consistency concept states that there should be consistency or uniformity in
the accounting practices and policies followed by an organization. It is because the
accounting information provided by an organization through its financial statements
would be beneficial only when it allows its users in making a comparison between the
statements of different years or with statements of other firms.

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Conservatism Concept
The conservatism or prudence concept believes in playing safely, while recording the
transactions in the book of accounts. According to this concept, an organization should
adopt a conscious approach and should not record its profits until they are realised.
Materiality Concept
The materiality concept suggests that an organization should focus on material facts
only. In simple words, an organization should not waste its time on immaterial facts
that do not help in determining its income for the period. In order to differentiate a fact
as material or immaterial, one should consider its nature and the amount involved.
Objectivity Concept
The objectivity concept of accounting states that an organization should record
transactions in an objective manner. It means that the recording should be free from
any kind of biasness by accountants and other people.

ACCOUNTING STANDARDS
Accounting standards are authoritative standards for financial
reporting and are the primary source of generally accepted accounting
principles (GAAP). Accounting standards specify how transactions and
other events are to be recognized, measured, presented and disclosed in
financial statements.

Objectives of accounting standards

• To create a single recognized framework of the accounting system.

• To make international companies understand Indian accounting
practices.
• To ensure transparency in the financial statements of companies.
• To expand the scope of doing business globally

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ACCOUNTING STANDARDS BOARD

The Accounting Standards are issued under the authority of the Council
of the ICAI. The ASB has also been entrusted with the responsibility of
propagating the Accounting Standards and of persuading the concerned
parties to adopt them in the preparation and presentation of financial
statements.

Objectives of the Accounting Standards Board

(i) To conceive of and suggest areas in which Accounting Standards need to be

developed.

(ii) To formulate Accounting Standards with a view to assisting the Council of the ICAI
in evolving and establishing Accounting Standards in India.

(iii) To examine how far the relevant International Accounting Standard/International

Financial Reporting Standard (see paragraph 3 below) can be adapted while
formulating the Accounting Standard and to adapt the same.

(iv) To review, at regular intervals, the Accounting Standards from the point of view of
acceptance or changed conditions, and, if necessary, revise the same.

(v) To provide, from time to time, interpretations and guidance on Accounting

Standards.

(vi) To carry out such other functions relating to Accounting Standards.

Accounting standards issued by ICAI

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• (AS) 1 - Disclosure of Accounting Policies
• (AS) 2 - Valuation of Inventories
• (AS) 3 Cash Flow Statements
• (AS) 4-Contingencies and Event Occurring After the Balance Sheet Date
• (AS) 5-Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies
(AS) 7-Construction Contracts
• (AS) 9 - Revenue Recognition
• (AS) 10 -Property, Plant and Equipment
• (AS) 11 -The Effect of Changes in Foreign Exchange
• (AS) 12 -Accounting for Government Grants
• (AS) 13 -Accounting of Investments
• (AS) 14 -Accounting for Amalgamations
• (AS) 15 -Employee Benefits
• (AS) 16 -Borrowing Costs
• (AS) 17 -Segment Reporting
• (AS) 18 -Related Party Disclosures
• (AS) 19 -Leases
• (AS) 20 -Earnings Per Share
• (AS) 21 -Consolidated Financial Statements
• (AS) 22- Accounting for Taxes on Income
• (AS) 23 -Accounting for Investments in Associates in Consolidated Financial Statements
• (AS) 24 -Discontinuing Operations
• (AS) 25 -Interim Financial Reporting
• (AS) 26 -Intangible Assets
• (AS) 27 -Financial Reporting of Interests in Joint Ventures
• (AS) 28 -Impairment of Assets
(AS) 29 -Provisions, Contingent Liabilities and Contingent Assets

IFRS
Classification asset and liabilities
Asset
Asset is any resource that a business owns or controls. It's anything
that could be sold for money.
It is anything (tangible or intangible) that can be used to produce
positive economic value.

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IMPORTANT QUESTIONS – MODULE 1

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 (2 mark questions)
1. Define accounting? ( 2020, 2021, 2022)
2. State the objectives of accounting?( 2020,2021,2022)
3. What are the limitations of accounting? (2020)
4. What is dual aspect concept? (2020
5. What is revenue realization concept? (2021,2022)
6. What is accrual concept? (2022)
7. What is revenue receipt? (2021)
8. Give two examples of capital expenditure? (2021,2022)
9. What do you mean by deferred revenue expenditure? (2020,
2022).
10. Who are the external users of accounting information(2022).
10. What are current liabilities? (2020)
11. What are long term liabilities? (2021, 2022)
12. What do you mean by sundry creditors? (2020)
13. What is book keeping?(2020)
14. What do you mean by sundry debtors? (2021)

(5 marks)
1. Explain :
A) Business entity concept.
B) Going concern concept.
C) Account period concept.
D) Revenue realizations concept.(2020)

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2. What is the money measurement concept? Which one factor
can make it difficult to compare the monetary values of one
year with the monetary value of another year? (2021,2022)
3. Discuss the concept based on the premise do not anticipate
profits but provide for all losses.(2022)

(10 marks)
1. Explain important concepts and conventions in
accounting.(2020,2021,
2. What do you mean by accounting standards? State the
advantages and limitation of accounting standards. Also
explain the functions of accounting standard board of
India.(2021)
3. Define accounting. State its functions and limitation, how it
different from book keeping.(2022)

Module 2
2 marks
1. Write journal entry for withdrawal of goods from business for
personal use.
2. What is trade discount.(2022)
3. What is balancing of account?(2022)
4. What is compound journal entry?(2021)
5 marks

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 1. Discuss the importance and limitation of balance
sheet?(2020,2021)
2. Explain the difference between profit and loss account and
balance sheet?(2020,2021,2022)
3. Distinguish between profit and loss account and balance
sheet.(2021)
4. Journalize the following transactions(2020,2021,2022)
5. From the following account balance prepare a trial balance as
on-----------------------(2020,2021,2022)
6. Find purchase from the following?(2020,2021,2022)
7. Ascertain the amount of net profit from the following
figures?(2020,2021,2022)

10 marks

1. Below given is the trial balance of x ltd prepare final

account.(2020,2021,2022) 2 qoestions

Module 3 and 4

5 marks
1. What is the difference between departmental accounting
and branch accounting?(2022)

10 marks
2. What is the difference between departmental accounting
and branch accounting?(2020)

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 Module 5

2 marks
1. What is double occupancy rate in hotels?(2020,2021,2022)
2. What is honorarium?(2020,2021)
3. What do you mean by room occupancy rate?(2020,2021,2022)
4. State the minor sources of revenue in hotels.(2020,2021,2022)
5. Problem double occupancy rate(2020,2021,2022)
5 marks
1. Problem hotel rent (2020, 2021, and 2022)

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