INTRODUCTION TO ACCOUNTING

Need For Accounting

A house wife has to keep a record of money received and spent by her during a particular period She can record of the money on one page of her household diary", while payments for different items such as milk, food clothing, house, education etc.

 Language of Business-it communicates the result of business operations to various parties who have some stake in the business i.e. proprietor ,creditors, investors etc. The need for accounting is all the more greater for a person who is running a business What he owns? What he owes? Whether he has earned a profit or suffered a loss on account of running a business? What is his financial position ?

Development of Accounting
Accounting is as old as money itself . In India chanakya in his Arthashastra has emphasised the existence and need of proper accounting and auditing. The father of the Morden system of accounting is Pacioli. In 1494, the first book on double-entry accounting was published. The author was an Italian friar, Luca Pacioli.

Definition of Accounting
The systematic recording , reporting, and analysis of financial transactions of a business . The American Accounting Association define accounting as follows: "the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information!.

 According to the American Institute of Certified Public Accountants (AICPA). Accounting is an art of recording, classifying and summarizing in 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.

Functions
Recording Classifying Summarizing Dealing with Financial Transaction Analysing and Interpreting Communicating

Book-keeping and Accounting

Bookkeeping is the recording, on a day-today basis of the financial transactions and information pertaining to a business. It is concerned with ensuring that records of those individual financial transactions are accurate, up-to-date and comprehensive. Accuracy is therefore vital to the process. Bookkeeping provides the information from which accounts are prepared but is a distinct process, preliminary to accounting.

POINTS OF DIFFERENCE 1. Area of work

BOOK_KEEPING

ACCOUNTING

Accounting in addition to recording of business transactions, also includes other matter such as making adjustments, preparation of income statement, balance sheet and interpreting results thereof. 2. Knowledge and skill No professional knowledge and Professional knowledge and skill is skill is required for a bookkeeper. prerequisite for an accountant. 3. Scope Bookkeeping is an initial stage of The scope of accounting is wider. accounting therefore, the scope of bookkeeping is limited. It provides the primary information about the business.

Bookkeeping involves the recording of business transactions in a prescribed manner

4. Nature of job

Much of the work of a bookkeeper is clerical in nature and the job is is mainly preliminary.

5. Information

It provides the primary information to the business.

The work of accountant is technical in nature. Modern accounting serves as eyes and ears to the management. It has become the foundation on which the whole structure of commerce rests and without which no business can be run at all. It provides information about the final results of the business

6. Financial decisions

Financial statements are not prepared from bookkeeping records.

Financial statements are prepared from accounting records.

7. Business conditions

It does not give the complete It gives the complete picture picture of the financial of financial condition of the condition of the business business unit. unit. It does not provide any information for taking managerial decisions It provides information for taking managerial decisions.

8. Managerial decisions

9. Branches

It has no branches

It has several branches, e.g., financial accounting, managerial accounting, cost accounting etc.

Accounting SCIENCE or An ART

Accounting is the science of recording and presenting the financial data of an economic entity by observing, detecting, investigating, and identifying the economic events via established collecting, testing, analyzing and presenting methods. Accounting; like science follows a systematic and organized path to understand the economic status of the entity. The term Art means diverse range of human activities and study of these activities but most often misused or misunderstood to refer to painting, film, photography, sculpture, and other visual media. Art is using the skills or techniques of any field. We can say that art is the study of implementation of techniques and methods. Accounting is an art because it presents the financial findings by following and implementing a universally accepted method (GAAP).

 Accounting is an art or science differ from accountant to accountant. Processes and methods used in accounting can be underlined as scientific, and the decisions and estimation making can be classified as an art. The rules and principles is the science part of the accounting and choosing the way to use them is considered as the art.

End Users of Accounting Information

Proprietors Managers Creditors Prospective Investors Government Employees Citizen

Accounting and other Disciplines

Accounting and Economics Accounting and Statistics Accounting and mathematics Accounting and Law

Role of Accountants
Maintenance of books of Accounts Auditing of Accounts Taxation Financial Services

Branches of Accounting
Accounting

Financial

Management

Accounting

Accounting

 Financial accounting is used to present the financial health of an organization to its external stakeholders. Board of directors, stockholders, financial institutions and other investors are the audience for financial accounting reports. Financial accounting presents a specific period of time in the past and enables the audience to see how the company has performed. Financial accounting reports must be filed on an annual basis, and for publically traded companies, the annual report must be made part of the public record. Management or managerial accounting is used by managers to make decisions concerning the day-to-day operations of a business. It is based not on past performance, but on current and future trends, which does not allow for exact numbers.

Differences
Management accounting is presented internally, whereas financial accounting is meant for external stakeholders. financial management is of great importance to current and potential investors, management accounting is necessary for managers to make current and future financial decisions. Financial accounting is precise and must adhere to Generally Accepted Accounting Principles (GAAP), but management accounting is often more of a guess or estimate, since most managers do not have time for exact numbers when a decision needs to be made.

Importance of Accounting
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

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