INTRODUCTION TO FINANCIAL

ACCOUNTING

INC
GUNTUR
PUTTU GURU PRASAD
SESSION NO 1

 The meaning of accounting

 The accounting process
 The users of the financial statements
The meaning of accounting

 The American institute of certified public

accountants defined ‘accounting as the art of
recording , classifying and summarizing in
significant manner and in terms of money
transaction and event s which are in part at
least , of a financial character and
interpreting and results there of
Creation of financial information

 Recording,
 Classifying
 summarizing
Lingua franca

 Accounting is best know as the language of

business and communicate the results of the
business.
 The Accounting standards forming the
theoretical base of accountancy and
 The Double entry Bookkeeping for recording
the transactions provided for practical base
of the system
Financial statements

 Profitand loss account

 Balance sheet
 Cash flow statement
 Notes to accounts
 Incidental statements
 Explanatory material
 Auditors report
 Contents of Balance sheet
LIABILITIES ASSETS
Share capital Fixed assets
Reserves and surplus investments
Secured loans Current assets
Unsecured loans loans
Current liabilities advances
provisions Miscellaneous expenditure and

Out standing expenses losses

Accounts payable Pre paid expenses
Content of Profit and loss a/c
EXPENSES (Dr) INCOMES (Cr)
Administration Gross profit
expenses
Marketing expenses Income from sale of
asset
depreciation Rent
interest Interest
Bad debts commission
Net profit
 Identification of transaction
Passing of adjusting entries

Preparation of business documents Preparation of adjusted

Trial balance

Recording of transaction in journal

Profit
&
Loss
Posting to ledger account

Balance sheet
Preparation of un adjusted trial
balance
Double entry system
 Now the accounts are invariably maintained
in the double entry system which recognizes
both cash and credit transactions. Accounts
are maintained on accrual basis under this
system. A cost incurred is duly accounted for
irrespective of whether it is paid or not during
that period. In addition all transaction are
supposed to have dual aspect- a debit
aspect and a credit aspect
Common tools used for analysis

 Ratioanalysis
 Funds flow statement
 Cash flow statement
 Comparative statements
 Common size statements
 Segmental analysis
The users of financial statements
 Management
 Share holders, security analysts and investors
 Lenders
 Suppliers/creditors
 Customers
 Employees
 Government and regulating agencies
 Research and academia