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BBA/B.COM 2 All right are reserved with CU-IDOL Basic Accounting Course Code: BBA101/BCM101 Semester: First e-Lesson: 1 SLM Unit: 1 www.cuidol.in Unit-1(BBA101/BCM-101)

BASIC ACCOUNTING 33 OBJECTIVES INTRODUCTION To discuss accounting framework In this unit we are going to learn about the concept of Accounting. To get familiarized with the role of accounting in Under this you will be able to understand business.. the accounting types, branches. To be able to apply accounting principles, concepts and Students will be able to distinguish conventions to record business transactions culminating between accounting and book keeping into final accounts. www.cuidol.in Unit-1(BBA101/BCM-101) INSTITUTE OF DISTANACEll ArNigDhtOaNrLeINreEsLeErAvRedNIwNiGth CU-IDOL

TOPICS TO BE COVERED 4 INTRODUCTION MEANING OF BOOK-KEEPING AND ACCOUNTING DIFFERENCE BETWEEN BOOK-KEEPING AND ACCOUNTING BRANCHES OR TYPE OF ACCOUNTING,  DISADVANTAGES OF ACCOUNTING; USERS OF ACCOUNTING INFORMATION. www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

WHAT IS ACCOUNTING 5 JOURNAL Vision Enterprises PAYMENT Financial Statement at DecemVbiesrio3n1E, n1t9e9rp7rises Assets Financial Statement Cash ReceivaabtleDecemVbiesrio3n1E, n1t9e9rp7rises$$54,,745164 Account Financial Stateme$nt 981 Land Assets at December 31,-1--9--9-7--- $4,456 Cash Total AsseAtsccount Receivable $11,151 $5,714 ====== $ 981 Liability Land Assets --------- $4,456 Cash AccountTPoataylaAblseseAtsccount Receivable $3,830 $11,151 $5,714 Notes Payable Land $ 416 ====== $ 981 Liability --------- --------- Total LiabilAitcycountTPoataylaAblsesets $4,246 $3,830 $11,151 Notes Payable ====== $ 416 ====== Stockholder’s EquLityiability $2,365 --------- $ 367 $4,246 $3,830 ContribuTteodtalCLaiapbitailAiltcycount Payable --------- ====== $ 416 ToRtaeltaSintoecSdktohEcoakldrhneoirnl’dsgesNrE’osqtueEistqyPuiatyyable $2,732 $2,365 --------- ====== $ 367 $4,246 ContribuTteodtalCLaiapbitaililty Retained Earnings --------- ====== Total StocSktohcokldheorl’dserE’squEitqyuity $2,732 $2,365 ====== $ 367 Contributed Capital Retained Earnings --------- Total Stockholder’s Equity $2,732 ====== ? Accounting is defined as the art of Recording, Classifying and Summarizing transactions in monetary terms (in Money terms) for the preparation of Financial Statements www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

Accounting is an information system whose purpose is to identify , collect, measure and communicate 6 information about economic units to those with an interest in the units financial affairs. To permit judgment and decisions by users of the information. 1. Systematic record of business transactions. 2. Protecting the property of the business. 3. Communicating results to the interested parties. 4. Compliance with legal requirements. 5. Records only monetary transactions. 6. Effect of price level changes not considered. 7. Historical in nature. 8. Personal bias of Accountant affects the accounting statements. www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

7 Generally Accepted Accounting Principles In order to make the accounting work uniform and comparable, a set of Guidelines called as the “GAAP” have been developed by professional bodies. • ICWAI:- Institute of cost & work Accountants of India. • ICAI:- Institute of Charted Accountants of India. • AICPA:- American Institute of Certified Public Accountants. www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

MEANING OF BOOK- 8 KEEPING  Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation. There are several standard methods of bookkeeping, including the single-entry and double-entry bookkeeping systems. While these may be viewed as \"real\" bookkeeping, any process for recording financial transactions is a bookkeeping process.  Bookkeeping is the work of a bookkeeper (or book-keeper), who records the day-to-day financial transactions of a business. They usually write the daybooks (which contain records of sales, purchases, receipts, and payments), and document each financial transaction, whether cash or credit, into the correct daybook—that is, petty cash book, suppliers ledger, customer ledger, etc.—and the general ledger. Thereafter, an accountant can create financial reports from the information recorded by the bookkeeper. www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

MEANING OF BOOK- 9 KEEPING  Bookkeeping refers mainly to the record-keeping aspects of financial accounting, and involves preparing source documents for all transactions, operations, and other events of a business.  The bookkeeper brings the books to the trial balance stage: an accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper. www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

DIFFERENCE BETWEEN BOOK- 10 KEEPING & ACCOUNTING A major misconception regarding bookkeeping vs. accounting is that both are considered to be one profession. Though they seem to be very similar, there are some striking differences between the two. To resolve this confusion, we have listed down accounting vs bookkeeping differences here - Definition Bookkeeping is mainly related to identifying, measuring, and recording, financial transactions Accounting is the process of summarizing, interpreting, and communicating financial transactions which were classified in the ledger account www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

DIFFERENCE BETWEEN BOOK- 11 KEEPING & ACCOUNTING Decision Making Management can't take a decision based on the data provided by bookkeeping Depending on the data provided by the accountants, the management can take critical business decisions Objective The objective of bookkeeping is to keep the records of all financial transactions proper and systematic The objective of accounting is to gauge the financial situation and further communicate the information to the relevant authorities www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

12 Skills Required Bookkeeping doesn't require any special skill sets Accounting requires special skills due to its analytical and complex nature Analysis The process of bookkeeping does not require any analysis Accounting uses bookkeeping information to analyze and interpret the data and then compiles it into reports www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

13 Types Basically there are two types of bookkeeping - Single entry and double entry bookkeeping The accounting department does preparations of a company's budgets and plans loan proposals Bookkeepers and Accountants Bookkeepers are required to be accurate in their work and knowledgeable about financial topics. Bookkeepers work is usually overseen by an accountant Accountants with sufficient experience and education can obtain the title of Certified Public Accountant (CPA) www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

14 www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

ADVANTAGES OF ACCOUNTING 15  Maintenance of business records  Preparation of financial statements  Comparison of results  Decision making  Evidence in legal matters  Provides information to related parties  Helps in taxation matters  Valuation of business www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

 Maintenance of business records 16 It records all the financial transaction pertaining to the respective year systematically in the books of accounts. It is not possible for management to remember each and every transaction for a long time due to their size and complexities.  Preparation of financial statements Financial statements like Trading and profit and loss account, Balance Sheet can be prepared easily if there is a proper recording of transactions. Proper recording of all the financial transactions is very important for the preparation of financial statements of the entity.  Comparison of results It facilitates the comparison of the financial results of one year with another year easily. Also, the management can analyze the systematic recording of all the financial transactions according to the policies of the entity.  Decision making Decision making becomes easier for management if there is a proper recording of financial transactions. Accounting information enables management to plan its future activities, make budgets and coordination of various activities in various departments. www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

17  Evidence in legal matters The proper and systematic records of the financial transactions act as evidence in the court of law.  Provides information to related parties It makes the financial information of the organization available to stakeholders like owners, creditors, employees, customers, government etc. easily.  Helps in taxation matters Various tax authorities like income tax, indirect taxes depends on the accounts maintained by the management for settlement of taxation matters.  Valuation of business For proper valuation of an entity’s business accounting information can be utilized. Thus, it helps in measuring the value of the entity by using the accounting information in the case of sale of the entity. www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

DISADVANTAGES OF 18 ACCOUNTING  Expresses Accounting information in terms of money  Accounting information is based on estimates  Accounting information may be biased  Recording of Fixed assets at the original cost  Manipulation of Accounts  Money as a measurement unit changes in value www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

19 a) Expresses Accounting information in terms of money Non-financial transactions cannot be given effect to in books of accounts. Only transactions of financial nature are measurable by the accountant. In fact, financial transactions are expressed in terms of money. b) Accounting information is based on estimates There are some accounting data which are based on estimates. Thus, inaccuracy in estimates is possible. c) Accounting information may be biased Accountants personal influence affects the accounting information of the entity. Different methods of inventory valuation, depreciation methods, treatment of revenue and capital expenses etc can be adopted by the accountant for measurement of income of the entity. www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

20 d) Recording of Fixed assets at the original cost There can be a difference between the original cost and current replacement cost of a fixed asset due to efflux of time, change in technology etc. Thus, the balance sheet may not show the true financial status of an entity. e) Manipulation of Accounts The accountant or management can manipulate or misrepresent the profits of an entity. f) Money as a measurement unit changes in value Stability in the value of money is not possible. Accounting information will not show the true financial position if changes in the price level are not considered. www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

USERS OF ACCOUNTING 21 INFORMATION. Internal Users Accounting supplies managers and owners with significant financial data that is useful for decision making. This type of accounting in generally referred to as managerial accounting. Some of the ways internal users employ accounting information include the following: Assessing how management has discharged its responsibility for protecting and managing the company’s resources Shaping decisions about when to borrow or invest company resources Shaping decisions about expansion or downsizing www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

External Users 22 Typically called financial accounting, the record of a business’ financial history for use by external entities is used for many purposes. The external users of accounting information fall into six groups; each has different interests in the company and wants answers to unique questions. The groups and some of their possible questions are: Owners and prospective owners. Has the company earned satisfactory income on its total investment? Should an investment be made in this company? Should the present investment be increased, decreased, or retained at the same level? Can the company install costly pollution control equipment and still be profitable? Creditors and lenders. Should a loan be granted to the company? Will the company be able to pay its debts as they become due? Employees and their unions. Does the company have the ability to pay increased wages? Is the company financially able to provide long-term employment for its workforce? Customers. Does the company offer useful products at fair prices? Will the company survive long enough to honor its product warranties? Governmental units. Is the company, such as a local public utility, charging a fair rate for its services? General public. Is the company providing useful products and gainful employment for citizens without causing serious environmental problems? www.cuidol.in Unit-1(BBA101/BCM-101) All right are reserved with CU-IDOL

Multiple Choice Questions 1. The process of recording financial data upto trial balance is 23 a) Book keeping b) Classifying c) Summarising d) Analyzing 2. Accounting provides information on b) Company’s tax liability for a particular year a) Cost and income for managers d) All of the above c) Financial conditions of an institution 3. Accounting principles are generally based upon: a) Practicability b) Subjectivity c) Convenience in recording d) None of the above 4. Accounting principles are divided into two types. These are --- a) Accounting Concepts b) Accounting Conventions b) c) Accounting Standards d) Accounting Concepts &Accounting Conventions Answers: 1. a) 2.d) 3.a) 4.d) www.cuidol.in Unit-1(BBA101 BCM101) All right are reserved with CU-IDOL

Summary 24  Accounting is defined as the art of Recording, Classifying and Summarizing transactions in monetary terms (in Money terms) for the preparation of Financial Statements.  Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation.  Managerial accounting -Accounting supplies managers and owners with significant financial data that is useful for decision making. This type of accounting in generally referred to as managerial accounting.  Financial accounting, the record of a business’ financial history for use by external entities www.cuidol.in Unit-1(BBA101 BCM101) All right are reserved with CU-IDOL

Frequently Asked Questions 25 Q1.Define Accounting? Ans: Accounting is defined as the art of Recording, Classifying and Summarizing transactions in monetary terms (in Money terms) for the preparation of Financial Statements. Q2.Diffrenciate between booking keeping and accounting? Ans:-Bookkeeping is mainly related to identifying, measuring, and recording, financial transactions Accounting is the process of summarizing, interpreting, and communicating financial transactions which were classified in the ledger account. Q3.Explain the Users of Accounting Information?  Ans: Internal Users- Managerial accounting -Accounting supplies managers and owners with significant financial data that is useful for decision making. This type of accounting in generally referred to as managerial accounting. External Users Financial accounting, the record of a business’ financial history for use by external entities www.cuidol.in Unit-1(BBA101 BCM101) All right are reserved with CU-IDOL

REFERENCES 26 1. Gupta, R.L., Radhaswamy,M.(2012). Advanced Accountancy. New Delhi: Sultan Chand&Sons. 2. Maheswari S.N.,(2018). Introduction to Accounting.New Delhi: Vikas Publishing House. 3. Shukla, M.C.,Grewal, T.S.,Gupta S.C.(2007). Advanced Accounts.New Delhi:S.Chandand Company Ltd. www.cuidol.in Unit-1(BBA101 BCM101) All right are reserved with CU-IDOL

27 THANK YOU For queries Email: [email protected] www.cuidol.in Unit-1(BBA101 BCM101) All right are reserved with CU-IDOL