Accounting Fundamentals

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This ppt contains all the basics of accounting for a beginner . Good Luck and Happy accounting !!

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Accounting Basics ,Objectives, Functions , Need and Users of Accounting : 

Prof. Chandan Kumar Tripathy 1 Accounting Basics ,Objectives, Functions , Need and Users of Accounting

Accounting : 

Prof. Chandan Kumar Tripathy 2 Accounting Definition : Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof. Objectives of accounting 1. Income determination for rational decision making 2. Financial Reporting by maintaining systematic records of financial transactions 3. Protection of business assets from unjustified and unwarranted use

The Need for Accounting : 

Prof. Chandan Kumar Tripathy 3 The Need for Accounting Managers, investors, and other external groups want the answers to two important questions: How well did the organization perform? Where does the organization stand?

Users of Financial Statements : 

Prof. Chandan Kumar Tripathy 4 Users of Financial Statements Investors Need information about the profitability, dividend yield and price earnings ratio in order to assess the quality and the price of shares of a company Lenders Need information about the profitability and solvency of the business in order to determine the risk and interest rate of loans Management Need information for planning, policy making and evaluation Suppliers and trade creditors Need information about the liquidity of business in order to access the ability to repay the amounts owed to them

Functions of Accounting : 

Prof. Chandan Kumar Tripathy 5 Functions of Accounting Ascertaining the income of the business and it’s financial position as on a date by preparation of the final accounts (Profit and loss account and the balance sheet ) Helping the stakeholders in decision making by providing the relevant information of the business income and financial position Meeting legal/statutory requirements – Accounting provides the required information for statutory purposes , tax returns , auditing and for evidence purposes in court of law.

Users of Accounting : 

Prof. Chandan Kumar Tripathy 6 Users of Accounting Stakeholder Group Interested in SHAREHOLDERS,SUPPLIERS Profitability and share CUSTOMERS   performance CUSTOMERS the ability of the firm to carry on providing a service or producing a product GOVERNMENT VAT and other tax liabilities of the firm STAFF & TRADE UNION the potential for salary and bonus payments CUSTOMERS & SHAREHOLDERS the ethical or environmental aspects of activities of the firm STAFF,SHAREHOLDERS,CUSTOMERS whether the firm is has a long- term future

Accounting Equation : 

Prof. Chandan Kumar Tripathy 7 Accounting Equation From the large multi-national corporation down to the street corner grocery store, every business transaction will have an effect on a firm’s financial position. The financial position is measured by the following items: Assets (resources = what it owns) Liabilities (obligations = what it owes to others) Owner’s Equity (the difference between resources and obligations) Assets = Liabilities + Owner’s Equity

Transaction : 

Prof. Chandan Kumar Tripathy 8 Transaction A transaction is an economic activity that affects the financial position of an organisation. They may be quantitative or qualitative. For example : Quantitative transaction – Purchase or Sale of goods where as Qualitative transaction ( Event ) – Depreciation of assets .

Slide 9: 

Prof. Chandan Kumar Tripathy 9 Assets are a company’s resources—things the company owns. Examples of assets include cash, accounts receivable, inventory, prepaid insurance, investments, land, buildings, equipment, and goodwill. From the accounting equation, we see that the amount of assets must equal the combined amount of liabilities plus owner’s (or stockholders’) equity. Liabilities are a company’s obligations—amounts the company owes. Examples of liabilities include notes or loans payable, accounts payable, salaries and wages payable, interest payable, and income taxes payable (if the company is a regular corporation). Liabilities can be viewed in two ways: (1) as claims by creditors against the company’s assets, and (2) a source—along with owner or stockholder equity—of the company’s assets. Owner’s equity or stockholders’ equity is the amount left over after liabilities are deducted from assets:

Slide 10: 

Prof. Chandan Kumar Tripathy 10 Thank You

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