Financial Accounting

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What is
Accounting
Accounting is the process of
Recording, Classifying, Summarizing the transactions of
financial nature(economic information) and Interpreting the
Results to the interested parties.
OR
In simple words we can say
Accounting is the Language of Business.
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Components of
Accounting
Classifying
Recording

Summarizing

Interpreting

Components of
Accounting
Recording

Recording means keeping written records of

financial events (to write it in the books of
accounts). Recording is done the book called
journal.
Classifying

Is the process of grouping of transactions or

entries of one nature at one place. The work of
classification is done in the book called Ledger.
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Components of
Accounting
Summarizing

Involves presenting the classified data in a

manner which is understandable and useful
to management and other interested parties.
Interpreting

Interpreting of the summarized data in the

form of reports to the interested parties.
The end user can make a meaningful
judgment about the business using the
information in reports (recorded information).
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The Purpose of
Accounting

The basic purpose of Accounting is to provide

decision-makers with information useful in
making economic decisions. (e.g: whether to
proceed with the current business or quit and
switch to other one, loss and profitability of a
business)
These decisions concern the allocation and
use of scarce economic resources, such as
money, land, and labor.
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Types of
Accounting

Tax
Accounting

Management
Accounting
Financial
Accounting

Types of
Accounting

Financial Accounting
It is the original form of Accounting. It is
mainly confined to the preparation of
financial statements for the use of
outsiders like creditors, banks and
financial institutions etc.

Types of
Accounting

Management Accounting
Management accounting is the use of
accounting information by the management for
the purpose of decision making.
A company's managers and employees
constantly need such information in order to
run and control daily business operations.
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Types of
Accounting

Tax Accounting

(It is accounting for

tax purposes)

It is not just the preparation of an income tax

return ,but it is tax planning.
Tax planning means anticipating the tax effects of
business transactions and structuring these
transactions in a manner that will minimize the
income tax burden.

OR
Tax accounting is the arrangement of business
transaction in such a way that should minimize the
tax Burdon of business

Internal Vs. External

Users
Users of Accounting

Internal
Users
Managers
Directors
Internal Auditors
Budget Officers
Employees

External
Users
Lenders
Shareholders
Governments
External Auditors

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