INTRODUCTION

TO
ACCOUNTING

By: Prof. Bhavik R.

Shah
[M.Com ; M.Ed]

Introduction:

Innumerable transactions take place in the

business everyday.
All these transactions can not be
remembered.
Hence, it is necessary to record them.
For this purpose, proper accounts are
required to be maintain.
Keeping proper accounts help the owner of
the business
To know the profit or loss of the business and
Its financial position at the end of the year.
For determining income tax payable by the
owner of the business.

Users Of Accounting:

Accounts provide useful information.

To the managers of the business for taking
business decisions.
To the financial institutions taking the
decision for granting a loan to the business
unit, and to what extent on the basis of the
accounting information.
To creditors of the business , to decide
whether to sell the goods to the firm on
credit.
To trade unions.
To customer protection associations.
To government etc.

History Of Accounting:

Accounts are written since ancient times.

Many evidences are available that
accounts were maintained in
Ancient China
Missar
Greek and Italian Culture.
Many references are found in
The Vedic literature of the fact that
accounts were properly written in
ancient india.
In the Valmiki Ramayan.

When Bharat met Ram in the forest ,

Ram asked Bharat about the incomes and
expenses of the State and whether the
income is more than the expenses or the
expenses are more then the income.
In the Mahabharat, King Yudhishthir had
asked his brother Nakul to Supervise the
accounts of his army.
During the age of the Maurya Samrajya,
Kautilya, the Prime Minister of
Chandragupt Maurya , in his book
Arthashastra , has given various details
instructions about maintaining the
accounts.

The Italian Monk Luca Pacioli for the

first time in 1494 AD.
In his book on Mathematics,
Made presentation of the currently
in use
double entry accounting system.
Thereafter, the accounting has
become an integral part of each facet
of life.
The accounts of household expenses
are also maintained in many houses.

Meaning of Accounting:
Accounting is The process of
Identifying
Measuring in terms of Money
Recording
Classifying
Summarizing
Analyzing and interpreting
The Business TransactionsAND
Communicating
The Accounting Information (Reports)
To the users for making correct
decisions.

1.
2.
3.

4.

From the above definition,

It can be said that:
The business transactions, which can be measured in
terms of money, are recorded in accounting.
After recording the transactions, they are classified:
* At the end of accounting period (normally at the end
of
the year)
* Conclusions (profit & loss account and balance sheet)
are drawn.
* So that, the profit or loss of the business is
ascertained
And
* The financial position of the business can be known.
In accounting , the result of business are
* Analyzed and
* Interpreted.
* Thereafter, this information is sent to the user
(Specially, members of limited companies and other
institutions) in the form of report.

Objective Of Accounting
Main Objectives of Accounting can be described as
under:
1.
The aim of Accounting is (Maintenance Of Records)
To keep permanent record of all transactions of the
business.
To show the financial effects of these business
transaction
on the business.
2. The aim of Accounting is (Financial Position = Balance
Sheet)
To recorded all transactions during the accounting
period.
To know the true financial position of the business
after determining the effect of all the transactions.
3. (Calculations of Profit or Loss)
To evaluate the profitability (earning capacity) of the
business and to provide accounting information
during the accounting period.

4. To provide the useful information to know the

efficiency of the managers.
5. To provide necessary information for preparing
budget. Control can be exercised over various
activities of the business through budget.
6. To provide useful information to the government
for taking proper decisions about taxes.
From the above objectives it can be said that;
Accounting is the language of business.
Thus accounts provide useful information
To the owner and
The managers of business and
Outside parties.
They can take proper decisions on the basis of
this information.

Types or Form of Accounting

Information
Accounting starts with identification of

Accounting starts with identification of

financial transaction.
The transactions which are non-financial are
not included in the accounting information.
There are TWO types of financial
transactions:
Financial transactions which can be
measured in terms of money
Financial transactions which can not be
measured in terms of money.
Only those transactions, which can be
measured in terms of money, are recorded in
the accounts.

Advantages Of
The
following are the advantages of
Accounting:
Accounting.

The owner of the business can get

accounting information, whenever
required, by maintaining accounts.
Profit or loss of the business can be known
at the end of accounting period.
Financial position of the business can be
known at the end of the accounting period.
Accounting helps the owner and manager
of the business to exercise control based
on the information of the assets and
liabilities of the business.
Accounting provides necessary information
for decision making.

6.

7.

8.

9.

10.

Accounting information is necessary to

determine the taxes payable to the
government. Accounting is also useful in
planning about the taxes, e.g. income tax,
sales tax etc.
It helps in exercising moral control over the
employees. Moreover thefts, frauds and
manipulations can be found out and
controlled.
It is useful for determining the price of the
business while selling the business.
Books af accounts can be produced and
accepted as evidence.
Current years information can be
compared with the information of the
previous year and with that of other firms.

Limitations Of
Accounting:

This part will discuss later on