INTRODUCTION OF ACCOUNTING

Operating Information

This is the information that is needed on a day-to-day basis in order for the organization to conduct its business. Employees need to get paid, sales need to be tracked, the amounts owed to other organizations or individuals need to be tracked, the amount of money the organization has needs to be monitored, the amounts that customers owe the organization need to be checked, any inventory needs to be accounted for: the list goes on and on. Operating information is what constitutes the greatest amount of accounting information and it provides the basis for the other two types of accounting information.

Financial Accounting Information

This is the information that is used by managers, shareholders, banks, creditors, the government, the public, etc to make decisions involving the organization and its operations. Shareholders want information about what their investment is worth and whether they should buy or sell shares, bankers and other creditors want to know whether the organization has an ability to pay back money lent, managers want to know how the company is doing compared to other companies. This type of information would be very difficult to extract if every company used a different system for recording their financial position. Financial accounting information is subject to a set of ground rules that dictate how the information is reported and this ensures uniformity.
Managerial Accounting Information

In order for the managers of a company to make the best decisions for a company they need to have specific information prepared. They use this information for three main management functions: planning, implementation and control. Financial information is used to set budgets, analyze different options on a cost basis, modify plans as the need arises, and control and monitor the work that is being done. As you can see, accounting is a multifaceted system involving different people with different needs and after analyzing the various uses and applications of accounting information the American Accounting Association has come up with this definition: the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information. In order to facilitate the informed use of this financial information, accounting has come to be based on specified rules or conventions called principles. These principles provide general laws or rules that are used to guide accounting activity and are called Generally Accepted Accounting Principles, or GAAP for short. These principles are established by the Financial Accounting Standards Board (FASB) which is a nongovernmental agency funded by the accounting profession and contributions from business organizations. While there is no legal obligation for companies to adhere to GAAP, there are strong practical reasons to do so. From auditing to reporting earning to the US Securities Exchange Commission to applying for

a loan, there are very compelling reasons for organizations to conform to the generally accepted standard.

What is accounting?
Accounting is the art of recording, summarizing, reporting, and analyzing financial transactions. An accounting system can be a simple, utilitarian check register, or, as with Microsoft Office Accounting, it can be a complete record of all the activities of a business, providing details of every aspect of the business, allowing the analysis of business trends, and providing insight into future prospects. Bookkeeping is the practice of recording transactions. Bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, and they may or may not see the overall picture. Accountants use the work done by bookkeepers to produce and analyze financial reports. Although accounting follows the same principles and rules as bookkeeping, an accountant can design a system that will capture all of the details necessary to satisfy the needs of the business managerial, financial reporting, projection, analysis, and tax reporting. A good accountant will create a system of financial reporting that gives a complete picture of a business. By using Office Accounting, you can work with your accountant to set up your accounting system to meet the needs of your business. You can then enter transactions and generate reports all the bookkeeping tasks and some accounting tasks, such as generating reports, that you might previously have relegated to your accountant.

Recording, summarizing, reporting, and analyzing

Recording transactions includes documenting revenues (by invoices or sales receipts), and entering purchases (in the account payable account) and expenditures (in the check register). Using Office Accounting, the small business owner can move beyond daily recording to higher level accounting tasks, such as recording sales orders, tracking prospective customers, and projecting sales opportunities and cash flow. Calculating and summarizing transactions in a traditional accounting system is a tedious process. Microsoft Office Accounting frees you from these repetitive tasks by calculating and summarizing hundreds or thousands of individual transactions and generating reports to satisfy managerial, governmental, investing, or banking needs. Based on a generally accepted standard, these reports are powerful tools to help the business owner, accountant, banker, or investor analyze the results of their operations.

Double-entry accounting
Since the fifteenth century, when Luca Pacioli first wrote about the practice, the term "accounting" has referred to double-entry accounting. Double-entry accounting uses a system of accounts to categorize transactions. Each transaction that is entered consists of one or more debits and credits, and the total debits must equal the total credits. For example, if you purchase a car with a down payment of $1,000 and a loan from your bank for another $14,000, the entries to record this transaction would be the following: A debit of $15,000 to your fixed asset account named, for example, "Vehicles."

A credit of $1,000 to your bank account for the down payment. A credit to an Auto Loans account for $14,000.

The entries balance because the $15,000 debit is equal to the sum of the two credits.

It's all in how you look at it

If you're not a bookkeeper or an accountant, the whole system of debiting certain accounts and crediting others can seem reversed. This is because banking transactions have traditionally been described from the bank's perspective. A credit from the bank will increase your checking account balance on the bank's books. Bank accounts are assets on your books, so you will record a debit (see the following table) to your checking account while the bank records a credit to its liability account.

Account Type Asset Liability

Normal Balance Debit Credit

Debit Debits increase asset balances Debits decrease liability balances Debits decrease equity balances Debits decrease income balances Debits increase expense balances

Credit Credits decrease asset balances Credits increase liability balances

Equity Income

Credit Credit

Credits increase equity balances Credits increase income balances

Expense

Debit

Credits decrease expense balances

Types and Purposes of Accounting

1) Basic Accounting: Bookkeeping
The basis of all accounting is the books of account maintained by the enterprise. These books of account record monetary quantities associated with the financial transactions of the enterprise. In modern accounting these quantities are simultaneously recorded as debit and credit entries. For each transaction a debit entry is kept and an equal credit entry is kept so that total debits always equals total credits. This double entry system of keeping the books has been of enduring usefulness. This system is vital to the day-to-day operations of any sizeable enterprise. In general the books of account record real cash flows into or from the enterprise or into or from various defined

sub-enterprises. Some difficulties naturally arise when entries other than real cash flows are booked. Retrospective cash flows are real, exact, and incontrovertible. Their magnitude is accurate to the penny and not subject to interpretation. In addition, their timing is real, exact, and incontrovertible. Magnitude and timing are a matter of record. The essential purpose of bookkeeping is to record real cash flows.

2) Tactical Management Accounting

Management has the responsibility for the overall operations of the enterprise and must have the appropriate information needed to make daily decisions and take action. A primary basis for these decisions is information obtained from the books of account. Quantitative and qualitative information may be also be obtained from the various sales, administrative, or production systems. This information may be direct data, but more often is processed information, such as, summaries, differences, or ratios. This management information is often in the form of defined periodic computer reports that are used for the monitoring and control of daily operations. They are useful in identifying existing short-term problems and variances. This tactical type of information is not aimed at measuring or creating future value, but more in the direction of maintaining existing value. The essential purpose of tactical management accounting is to monitor actual versus expected performance.

3) Strategic Management Accounting

Management may request special reports or studies for the purpose of identifying and evaluating non-routine long-term risks or opportunities. Since these risks or opportunities are generally part of a changing or different future, the usual retrospective reports of traditional accounting are inadequate. Planning may make use of traditional accounting information and structures, but a prospective approach is required to plan effectively.

The essential purpose of strategic management accounting is to evaluate alternative futures.

4) Financial Accounting
In contrast to bookkeeping and management accounting, which are used for internal purposes, financial accounting is primarily used to convey information to interested parties outside of the enterprise. These parties include the shareholders, creditors, customers, and suppliers. Each of these parties has its own special interests and special information needs. There is, however, a great commonality of interest. Like management, these parties are interested in the survival of the enterprise and in the efficient and effective deployment and use of its resources. The shareholders are the primary focus of financial accounting and financial reports. In contrast to bookkeeping and management accounting, which are primarily defined by the end-users, financial accounting has been defined by the accounting profession. Principles of accounting are spelled out by the Financial Accounting Standards Board (FASB). These principles are adhered to very closely by the accounting profession and by those who depend on the opinions expressed by accounting professionals. This includes almost all publicly traded companies in the United States. These accounting principles are labeled Generally Accepted Accounting Principles (GAAP) and they are generally accepted and understood by the accounting profession. They are less accepted and less understood by end-users. The essential purpose of financial accounting should be to provide shareholders with meaningful and useful information.

5) Responsibility Accounting
Just as the overall authority and responsibility for a company rests with its chief executive, each manager within the company should have authority and responsibility for his or her division or department. It is important to have accounting systems that support and measure the activities of that manager. This is done by defining the unit (department, division, etc.) to be

a profit center, often in the same manner that the entire enterprise is a profit center. In this way the accounting for the whole is the sum of the accounting for the parts, but, more importantly, local actions are aligned with global (shareholder) interests. Hence, responsibility accounting is usually no more effective than more general accounting. Each manager must be authorized and empowered to make decisions and effect change, otherwise they are not managers. The goal of each manager must be to make the best decisions. To do this the manager must have appropriate information and measures. Each manager must also be accountable to the company and this requires measures of the managers activities and results. Responsibility accounting may be used as a basis for incentives. These may be rewards or punishments to those who are empowered to make decisions and effect change. Incentives, to be most effective, should be clearly linked and immediately responsive to decisions and actions. This requires a measurement system based on decisions and their future results. The measurement system must isolate the present cause and future effect. This can not be accomplished with a retrospective accounting system. The essential purpose of responsibility accounting is to provide local goals and measures consistent with the companys global goals and measures.

6) Tax Accounting
Tax accounting is often based on financial accounting, but there may be substantial differences. The regulatory purpose of taxation is to provide a desired level of tax revenue. Tax accounting has borne the brunt of the changing tax needs in the sense that accounting principles, rules, and methodology, as opposed to tax rates, are often changed to generate the desired tax revenues. It would be far easier to change tax rates than to complicate accounting to redefine taxable income. The companys goal is to minimize taxes and maximize after tax revenues within the constraints of tax accounting. Tax accounting is the set of "rules of combat" in the neverending battle over taxes. The essential purpose of tax accounting is not accounting, but revenue.

7) Regulatory Accounting
Various regulators prescribe accounting different from GAAP financial accounting. These regulators may be state insurance regulators, through the National Association of Insurance Commissioners (NAIC), who require the preparation and filing of quarterly and detailed annual statements for insurance companies. They may be utility, bank, pension or securities regulators. This list is long. The SEC has filing requirements, similar to GAAP, for all publicly traded corporations. In general, regulation of any type is accompanied by special accounting and reporting requirements. The essential purpose of regulatory accounting varies, but there is a great commonality of interests in the long-term survival of the company and in its effective and efficient operation.

8) Merger and Acquisition Accounting

Generally this type of appraisal or value accounting is done only when a company is to be acquired. This is very unfortunate since this type of accounting is the most meaningful, current, and accurate. It is most meaningful because it is customized for the situation and is designed to provide the most relevant information. It is most current since it uses current information and is not locked into old or artificial assumptions. It is most accurate because very detailed models are constructed to project actual cash flows. Often substantial resources (money, time, and personnel) are expended to obtain a complete picture of the companys value, either as a separate entity or as a merged operation. One important characteristic of M&A valuations is that they attempt to capture all future values. Such valuations also use a realistic cost of capital to discount those future values. A similar, but cruder type of valuation is employed by stock analysts to establish a price or value of a companys shares.

The essential purpose of M&A accounting is to measure potential value added.

9) Value-Added Accounting
There are several types of value-added accounting. They all share a common purpose, i.e., they attempt to measure the shareholder value added to the company. They do this by subtracting the cost of capital, in some way, from net cash flows. This approach essentially treats the expense of borrowing capital, whether equity or debt, like any other expense. The shareholder net profit or value added is what remains. One form of value-added management accounting is the EVATM approach, as popularized by G. Bennett Stewart, III, of Stern Stewart & Company. In this form, value added is defined as adjusted traditional retrospective earnings less the total cost of capital. The adjustments to earnings include adding to net operating profits any: preferred dividend, minority interest provision, debt interest expense after taxes and any increase in equity equivalents. This last item is somewhat troublesome since equity equivalents are designed to " gross up the standard accounting book value into something I call economic book value". If a true economic book value is produced then the true economic value added follows easily. The total cost of capital is based on a weighted-average of debt and equity rates applied to the total capital. The cost of debt is generally well defined, but the cost of equity is more difficult. It is based on a risk free rate plus four main risk components (with 18 sub-components); operating risk, strategic risk, asset management risk, and size and diversity risk. The weighted-average cost of capital is then applied to the total capital. Again the debt portion of capital is well defined, but the equity portion is not and must be obtained as a complex and questionable adjustment to the traditional book value. There are substantial benefits to the EVATM approach, but they are only available with very careful development, as might be expected. EVATM is not specifically designed as a financial reporting system. It is not easier than the AFTF approach. There are other approaches to value added and I mention them in passing. They are the free cash flow model, the dividends model, the abnormal earnings model, and the adjusted present value model. All these models, the

EVATM model, and the AFTF model are generally equivalent, under certain conditions. See Appendix 8 for a comparison of EVATM and AFTF.

What is Bookkeeping?
Bookkeeping (also book-keeping or book keeping) is the recording of all financial transactions undertaken by an individual or organization. The organization may be a business, a charitable organization or even a local sports club. Bookkeeping is "keeping records of what is bought, sold, owed, and owned; what money comes in, what goes out, and what is left." [1] A financial transaction is any event that involves money. Individual and family bookkeeping involves keeping track of income and expenses in a cash account record, checking account register, or savings account passbook. Individuals who borrow or lend money also track how much they owe to others or are owed from others. Bookkeeping may be performed using paper and a pen or pencil. With increasing complexity in tax regulations and to minimize calculation errors, many organizations use accounting software to assist in bookkeeping. Two common bookkeeping methods used by businesses and other organizations are the single-entry bookkeeping system and the double-entry bookkeeping system. Single-entry bookkeeping uses only income and expense accounts, recorded primarily in a "Revenue and Expense Journal". Single-entry bookkeeping is adequate for many small businesses. Doubleentry bookkeeping requires posting (recording) each transaction twice, using debits and credits.[2] A bookkeeper (or book-keeper), sometimes called an accounting clerk in the United States, is a person who records the day-to-day financial transactions of an organization.[3] A bookkeeper is usually responsible for writing up the "daybooks". The daybooks consist of purchase, sales, receipts and payments. The bookkeeper is responsible for ensuring that all transactions are recorded in the correct daybook, suppliers ledger, customer ledger and general ledger. The bookkeeper brings the books to the trial

balance stage. An accountant may prepare the profit and loss statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.

TYPES OF BOOK-KEEPING
1) Single account bookkeeping Simple bookkeeping for individuals and families involves recording income, expenses and current balance in a cash record book or a checking account register. 2) Single-entry bookkeeping The primary bookkeeping record in single-entry bookkeeping is the Revenue and Expense Journal, which is similar to a checking account register but allocates the income and expenses to various income and expense accounts. Separate account records are maintained for petty cash, accounts payable and receivable, and other relevant transactions such as inventory and travel expenses. 3) Double-entry bookkeeping 4) Computerised bookkeeping Computerised bookkeeping removes many of the "books" that are used to record transactions and enforces double entry bookkeeping. Computer software increases the speed at which bookkeeping can be performed.
Online bookkeeping

Online bookkeeping allows source documents and data to reside in webbased applications which allow remote access for bookkeepers and accountants. Typically, a company scans its business documents and uploads them to a secure location or into an online bookkeeping application on a

regular basis. This allows the bookkeeper to work remotely with these documents to update the books. Users of this technology include

mobile employees scanning and sending in their receipts and bills while on the road to get reimbursed more quickly.

organizations with multiple offices centralizing their accounting department and having the documents sent to this location online.

Examples of online bookkeeping software include SQL Ledger and QuickBooks.

Computerized accounting
Keeping accurate accounting records is a vital part of managing an organisation. Apart from helping to keep it afloat financially and legally, it is also a requirement of funding bodies. Smaller groups can usually manage with simple book-keeping procedures but bigger groups juggling with larger sums of money and more complex financial transactions may find their workload eased by using a computerised accounting system. The good news is that there are easy to use and reasonably priced computerised accounting packages on the market that are either aimed at, or can be adapted to, voluntary sector organisations.

Should we computerise? There are many reasons why it makes some sense for both small and large voluntary organisations to computerise their accounting systems, the main ones being: HM Revenue & Customs1 can receive computerised tax and PAYE submissions; the Charity Commission is offering awards for annual accounts submitted online; and the range of software options available to suit most needs and prices, with typical packages at around 200. However, in spite of these compelling reasons, making the change over might not suit everybody. You will need to look carefully at your organization and see if the benefits outweigh the cost, time and training required to put the system into place. For example, if you only have one full-time employee you may have trouble finding the time to set up the system and transfer the information over.

The pros( Advantages)

A computerized accounting system has many benefits, including: improved reporting to funders many projects have more than one funding source, each with specific and different requirements; assisting with compliance with charity regulations e.g. SORP; minimalising mathematical errors with

computers doing the maths, errors are virtually eliminated (unless the data is keyed in improperly in the first instance); better record keeping whilst human error can still corrupt your data e.g. entering figures in wrong fields, a good package will reduce this possibility and ensure that there is a reference for all transactions e.g. for every cheque or receipt entered/created. However, this does not eliminate all manual work. Vouchers, invoices, receipts etc. will still need to be filed in a logical order, and details of what was entered onto the system should also be recorded on paper. This will help when you need to track errors, in the annual audit and if disaster strikes and you have to re-enter all transactions; saving time with fewer errors and the software automatically generating reports, time will be saved in the long run; saving money even though there will be the immediate cost of the software, you are potentially saving the costs of unnecessary audits as well as saving money through time saved.

The cons(Disadvantages)
need not every organisation needs a computerised accounting system. For example, a small organisation that only receives 200 a month and has never had any difficulty with the way things are done, may not feel the need to computerise. In such situations the change over may not be worth it; money whilst the software isnt expensive for

the benefits, some organisations just simply do not have the extra money. Aside from the initial purchase there will also be regular software updates and training to pay for. (Updates will vary in cost from package to package); time changing over to a computerised system, ensuring it is implemented properly and training will all require a time commitment.

Considering your needs Voluntary organisations need different computerised accounting and finance packages from commercial organisations because reporting and analysis methods for both are different. For instance, voluntary organisations often need to report financial information to various stakeholder groups in different formats. Also, the financial statements for voluntary organisations should disclose the various sources of incoming resources and how these funds have been used in accordance with charity accounting methods (i.e. SORP). The computer accounting system you choose will have to take these factors into account. Additionally, you may want to consider the following when looking at your needs: the ability to generate sales /raise invoices; the need to calculate/include VAT in your accounting; cost (how much can your organisation realistically afford on software, updates and support?); the ability to process payroll (note: if considering

payroll options, you may want to consider electronic submission of PAYE to HMRC); stock control.

Defining your expectations

It is essential that you talk to the staff who will be using the software. Its important that their needs, along with the organisations, are met. They will also, likely, have the best idea of the organisations needs from a financial and accounting standpoint. Ask them specifically what features they feel are most important, e.g.what problems are they currently encountering? Do they hope to solve these through computerisation? what will be the systems primary use?

Choosing an accounting package

In order to help you deal with issues such as these when choosing a package weve put together some tips to keep in mind.Weve also listed some of the most popular options currently available to the voluntary sector.

Tips
Do your research before buying. Check the software websites and with the distributor before buying to make sure that you have the package you want and need. (see Considering your needs) Look at each package and ascertain exactly how its features will help resolve your organisations specific issues, e.g. what flexibility is there in

report formats, and/or what facilities are there to produce reports to charity requirements? Ask other organisations about packages they use and what they do and dont like about the system. It is wiser to choose a package that is widely used, as it far more likely to have frequent updates available for the package, more technical support and more people familiar with it if and when you need advice. You will also want to check what kind of technical support is offered with the package, as this will always be needed at some stage. Some packages offer one year of support included in the price of the package, while others offer none. Packages usually have to be upgraded on an annual basis to reflect changes in tax, charity legislation etc. Check whether or not this is the case with the package in question and how much an upgrade will cost. Sometimes these changes make beneficial improvements, but at other times they just raise the price with nothing really added. Try to find out what the upgrades on the packages you are considering give you. Make a shortlist of which packages best meet your organisations requirements. List the pros and cons of the short listed packages. This is a good way to find out which package is right for you. Dont be cheap. Dont choose a package just because its the cheapest, or its the one another organisation recommended. Whilst these are both very good points youll need to make your choice based on what the accounting software specifically offers your organisation and

your needs. Try it out! Some packages offer trials, limitedperiod or limited-function uses. Its worth finding out whether or not the package you are considering can be tried and tested a good way to making sure before buying. See it in action. Many software companies have demonstration days where you can see a package in action, ask questions, find out features and speak to a representative for free. But, be aware that in the end they are trying to sell you the package there and then do not feel pressured and go to as many demonstrations as you like.

Types of accounting software packages

The following list features software packages that are deemed to be the most popular in the voluntary sector, though there are many more on the market. QuickBooks This will meet simple book-keeping needs and is suitable for users who are responsible for accounting but are not trained accountants. Payroll support can be added and it is possible to categorise costs and income in two ways (i.e. customer job, and class) which could be adapted quite easily for SORP requirements. VAT rates can also be customised cost: around 200. A customised edition for UK non-profit-making organisations is available with QB2005 (QuickBooks 2005 version) which has advanced budgeting, membership and donation tracking, and fund accounting features cost

around 450. Sage Sage Instant is a beginner accounting system, designed for users with limited accounting and IT experience. Features include double entry book-keeping, invoicing, a link to your accountant and graphs to help you analyse your accounts However, being a basic package there is no nonprofit version available (see Sage Line 50). Packages start from 110. Sage Line 50 used to be called Sage Sterling, is the original Sage product, and is an all-purpose, small business accounting solution. It comes in many varieties Book-keeper, Accountant, Accountant Plus and Financial Controller. It allows the creation of a chart of accounts and there is a reasonable report writer. However, the package offers very little scope for modification or tailoring. It has been popular with voluntary organisations because it offers specific charity templates. However, these frequently need to be augmented with pre or post analysis of the financial information, either manually or in a spreadsheet. Sage provides an external link to its data so that it can be accessed from a compatible spreadsheet or database. Packages start around 500. Access Accounts Horizons this is aimed at medium sized organisations with up to 10 users being able to use it at one time.Though not directly designed for voluntary organisations a charity accounts production solution has been produced, ensuring charity SORP compliance, with full funds analysis and extensive annual report info. Packages start around 1,500.

 Cashcall originally developed for churches and used primarily by smaller organisations, the system handles fund accounting (i.e. accounting for different streams of funding), budgeting, and analysis but not VAT. The double entry bookkeeping convention is visible and doesnt require prior knowledge. 99 including 12 months technical support. All the above are capable of dual currency (euro and sterling) functions. Packages for Macs there are not as many accounting packages available for Macs, and none that have templates or editions for the voluntary sector. MYOB www.myob.co.uk/products/ has a variety of accounting software from low level accounting basics to higher end. My Business (Mac version).

Acknowledgement
We would like to thanks Principal Sir A.K Lakdawala & Kamala Maam who has given us an opportunity to prepare this project. Also we would like to thanks to Nasreen miss & other teachers who given us a valuable guidelines & constantly evaluating our project time to time. Also we would like to thanks to our friends, family & lastly a lot of thanks to God who help us for preparing this project, without which this project cannot be possible.

Group members
1) 2) 3) 4) 5) Nikhil shetty (group leader) Naushil Maknojia Nidal farooqui Darshnil patel Shoaib khan roll no- 54 roll no- 46 roll no- 42 roll no- 51 roll no- 43

INDEX

Sr No. 1 2 3 4 5 6

INDEX Introduction of accounting Meaning of accounting Types &Purposes of accounting Meaning of Book-keeping Types of Book-keeping Computerized Accounting

PAGE NO.
1-3 3-5 5-11 11-12 12-13 13-21

BIBLIOGRAPHY
BOOKS
1)

A Text Book of Book-keeping &Accountancy by L.N Chopde.

WEBSITES
1) 2)

http://www.google.com http://www.en.wikipedia.in

CONCLUSION LASTLY, WE conclude that in past decades people or businessmen write accounts in the books. It is the hand-written accounts. But due to advanced technology people or businessmen maintain accounts in the computer with the help of special software. Now a day, all businessmen maintain the records of their financial transaction (accounts) in the computers with the help of specially designed software like Tally etc.