topic 1 intro to fin acc
TRANSCRIPT
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Introduction to Financial Accounting
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It is concerned with
Collection
Recording
Classification
Presentation of financial data
To serve the purpose of the management and the
outside agencies who are interested in your
organization
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The art of recording, classifying and summarizing in a
significant manner and in a terms of money,
transactions and events which are in part at least of a
financial character and interpreting the results thereof.
Accounting is the process of identifying, measuring and
communicating economic information to permit
informed judgments and decisions by users ofinformation
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To keep systematic records
To Protect business properties
To ascertain the operational profit or loss
To ascertain financial position of business
To facilitate rational decision making
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Recording
Classification
Summarizing
Interpretation
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Accountant in Public Practice
Accountant in Employment
Maintenance of Books of Accounts
Auditing of Accounts
Taxation
Financial services
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ACCOUNTING CYCLE is the sequence of steps in preparing the financialstatements for a given period.
It refers to the fact that because financial reports are given each period (usually ayear) there are a set of steps (cycle) taken each period that result in the reports andpreparation for the next period or cycle.
Putting transactions into the general journal.
Posting entries to the general ledger.
Preparing an unadjusted trial balance.
Adjusting entries appropriately.
Preparing an adjusted trial balance.
Organizing the accounts into the financial statements.
Closing the books.
Preparing a post-closing trial balance to check the accounts.
Also known as bookkeeping cycle.
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Proprietor
Managers
Creditors
Prospective Investors
Government
Employees
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Business is considered to be separate from the itsowner
This concept helps in keeping business affairs strictly
free from the private affairs of the owner
This concept is applicable for every kind of businessincluding sole proprietor concern
Eg: when proprietor invests Rs.50,000/- into business,
its considered as Liability in the books of that
organization
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Under this concept, it is assumed that the business will
continue for a long period of time
There is neither the intension nor the necessity to
liquidate the particular business venture in the
foreseeable future
It should be noted that this concept does not imply
permanent continuance of the enterprise
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Accounting records only monetary transactions
Events or transactions without monetary value do not
have place in the books of accounts
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Under this concept, an asset is entered in the
accounting records at the price paid to acquire it
This cost is a basis for all subsequent accounting for the
assets
This concept brings objectivity in preparing and
preparation of financial statement
In the absence of this concept, records would have
depended on the subjective views of a person
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Every business transaction has two and equal effects
Debit should match with credit
Debit = Credit
Liabilities = Assets
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Under this concept, the life of business is divided into
no of segments for studying the results shown by the
business after each segment
This segment is known as accounting period
At the accounting period income and expenditure
statement and balance sheet is prepared
Generally accounting period is of one year
Eg: 01/01/2010-31/03/2011
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Some cost turn into sunk costs, idle costs and of like
nature
In other words, the expenses incurred do not generate
any part of the revenue
Such costs should be identified and write off
This will give a true and fair profits/losses
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Revenue is recognised when a sale is made
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Anticipate no profits, but provide for all possible losses
This convention follows the policy of Playing Safe
Eg: Closing stock is valued at cost or market price
whichever is less
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Accounting reports should disclose fully and fairly
information
Financial statement should be prepared with honesty
and sufficiently disclose information which is in the
interest of proprietors and present and potential
creditors and investors
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Accountant should attach important information andignore insignificant details
Materiality is subjective concept
Accountant should give information to his believewhich may influence the decision of the investors