CPT.A.1.1 = unit 1 = Meaning

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caclass.hpage.com Presents CPT Accounts Chapter -1 (Unit -1) “ Meaning & Scope of Accounting ” 1 caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com]

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Introduction Almost All individuals perform = ECONOMIC ACTIVITY These EA are Performed through = TRANSACTION & EVENTS Transaction = Performance of an Act or Agreement Event = A happening / A Consequence of Transaction / A Result Lets Take one Example Purchases 8,000 Sales 10,000 Rent paid 1,000 Stock in hand 2,000 Surplus (Profit) 3,000 Identify the ‘Transactions’ & ‘Events’ in above example caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 2

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Need for maintaining the Records of T & E Every Economic Activity Require = Decision Making An Effective Decision Making Require = Information Accounting = Measures & Records Economic Activities = & Generates “Information” that is useful for “Decision Making” Accounting = Universal Application Aim of Accounting = To meet needs of “Rational & Sound Decision Maker” [Hence it is also called = Language of Business ” caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 3

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Meaning of Accounting Accounting Is the Art Of Recording, Classifying & Summarizing In a Significant Manner In Terms of Money T & E which are of Financial Character & Interpreting the Result thereof However the above definition wasn’t complete (Why?..) Word: “Communication” = absent Hence American Accounting Association in 1966 redefined Accounting as follows The Process of Identifying, Measuring & Communicating = The Economic Information To Permit Informed Judgment & Decision by the Users of Accounts caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 4

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Procedure in Accounting Generating = Financial Information Using = Financial Information Generating => Recording / Classifying / Summarising / Analysing / Interpreting / Communicating In Short Generating = R CS A IC [Random Code = CS AIR C] Recording = Meaning recoding the Transaction in = Journal Classifying = Grouping or placing of transactions of similar nature at one Place = Ledger Summarising = Preparation & Presentation of R&C Data in manner useful to Users ( Like = Trial Balance, Profit & Loss account , Balance Sheet & CFS ) Analysing = Methodical Classification of data of FS = (Like all FA at one place) Interpreting = Explaining the ‘Meaning & Significance’ of Relationship of data (Explains not only what had happened but why so happened) Communicating = Transmitting the information to Users of Account (through Accounting Reports) First Two Process & up to Trial Balance = also called “ Book Keeping ” [Rest = Accounting] caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 5

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Users of Financial Information Earlier = It was meant for just Proprietor or Owner Now = It’s Investors/ Suppliers/Lenders/Customers/Government/Employees etc Two Types of Users = Internal & External Internal = BOD / Partners / Managers / Officers Gets Management Report (Smallest detail covered) External = Investors / Lenders / Suppliers / Govt. Agencies / Employees / Customers Gets Financial Statement (Key information about A L & C caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 6

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Evolution of Accounting = Social Science Earlier = Wealthy Men employed stewards to manage their Property Stewardship Accounting = Root of Financial Accounting System Double Entry = developed in 15 th Century (Historian found Dr & Cr dating 12 th Century ) In India = Stewardship Accounting was prevalent till emergence of Public Limited Companies In 2 nd Phase = Financial Accounting Emerged (Due to Concept of Joint Stock Companies) Divorce = Ownership & Management Disclosure of FS (P&L & BS) = Made Mandatory by Law In 3 rd Phase = Management Accounting [developed as an aid to Decision Making (20 th Century) MA = Pervasive enough to Cover all spheres of Management caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 7

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Evolution of Accounting = Social Science Social Responsibility Accounting = Accounting for Social Cost & Social Benefits Social Science = usefulness of Accounting to Society allows it to be treated as social science caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 8

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Objectives of Accounting Systematic Recording of Transactions Ascertainment of = Results Ascertainment of = Financial Position Providing = Information to users of accounting To know about = solvency Position Functions of Accounting Measurement of = Past with Current Performance Forecasting of = Future Performance & Financial Position Decision Making = Provide Relevant Information Comparison & Evaluation = Assess Performance Achieved & Disclosure of AP & CL Control = Identifies the Weakness of Financial System Government Regulation & Taxation = Provides information to Government caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 9

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Book-Keeping Means = Recording of Financial Data (in = Significant & Orderly Manner) Covers = Procedural Aspects Governed by = End Product (i.e. FS) Requires = Suitable Classification of Transactions & Events (as per Requirements of FS) To Show = Correct Position of Each head of Income & Expenditure Its Guided by Law in some cases (Like Companies Act, Coop Societies Act, ….) Sole Proprietary & Partnership = No Specific Act to maintain A/c (except IT Act in some cases) Objective Of Book Keeping Complete Recording of Transactions Ascertainment of Financial Effects caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 10

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Distinction Between Book-Keeping & Accounting BK & A =/= Synonymous A = Broad Term & Include BK Book-Keeping Accounting Process of Recording = T Summarizing = Recorded T Constitute Base of Accounting Language of Business Financial Statement Not Part of BK Prepared on = Basis of BK Management Decision =/= be taken Can be taken on basis of BK Subfields NO Yes Financial Position be ascertained NO Yes caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 11

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Subfields of Accounting Financial Accounting Management accounting Cost Accounting Social Responsibility Accounting Human Resource Accounting In Simple Term = FM CS H caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 12

CPT Account (Chapter-1, Unit-1): 

CPT Account (Chapter-1, Unit-1) Relation of Accounting with Other Fields Economic in Decision Making = Both are Imp (still A provides major data base) A adopted idea of = Value, Income & Capital Maintenance from E Non Overlapping Areas = R C S = T & E & Communicating Statistics A = very Precise (E = not, works on averages) A = All values are Imp (E = Behaviors of Values i.e. Trends) Mathematics Law Management caclass.hpage.com [Helpline = 9423523932], [SkypeID:cacscwa.coach][EmailID:cacscwa.coach@gmail.com] 13