Accounting is the art of recording, classifying, summarizing, analyzing, interpreting and

communicating the financial information of an entity. Accounting is language of business.

Accounting and book keeping:-

Accounting includes book keeping. Difference between accounting and book keeping is as under:-

Basis Book-keeping Accounting

1 Meaning Book-keeping involves –

(a) Identifying, Measuring, Recording

and Classifying the transactions.

In addition to book-keeping,

Accounting involves-

(a) Summarizing, analyzing, Interpreting

& Communicating the information to

interested parties.

2 Basic

Objective

To maintain systematic records

of financial transactions.

To ascertain net results of operations

and financial position and to

communicate information to the

interested parties.

3 Who

performs

Book-keeping work is performed

by Junior Staff.

Accounting work is performed by Senior

Staff.

4 Financial

position

Financial position of the business

cannot be ascertained.

Financial position of the business

is ascertained based on the accounting

reports.

Transactions and events:-

In case of transaction at least two persons are involved. In addition to business enterprise, at least

some outsider involved, for example, sale and purchase of goods, payment of expenses, receipt of

income.

Events are internal happenings of the business, for example, depreciation, valuation of

closing stock.

Objectives of Financial Accounting are:-

Objectives of

accounting

Systematic record all

business

transactions.

Know the result

of business

operations.

Know the financial

position.

Provide

information to

Users for decision

making.

Functions of Accounting:

Subfields of accounting:-

Users of Accounting are:

Functions of

Accounting:

Measurement: Forecasting: Decision-

making:

Comparison &

Evaluation:

Control:

Government

Regulation:

Users of

financial

accounting

Internal users

Management

Employees

shareholders

External users

Investors

Suppliers

Goverment

Customers

Methods of Accounting:

There are two types of accounting system:

(i) Cash Method (ii) Accrual method or Mercantile System .

Basic equation of accounting:-

Meaning of Accounting concepts, Principles and conventions:-

Method of

accounting

Cash

Transactions are

recorded upon

actual receipt and

actual payment.

Mercantile

Transactions are