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What is Business?
 Business??
•Manufacturing
•Buying
•Selling
MONEY
•Supplying goods
or services
Investment of Money and Earning Reasonable Returns
 Sole
Proprietorship

Forms of Non Profit

Partnership Business Organization

Company
COMPANY

A company is a legal entity formed by

a group of individuals to engage in
and operate a business—commercial
or industrial—enterprise.
Where you fit in company???
 Terms
• Book Keeping
• Accounting
• Accountancy
 Book keeping
• Book keeping is the recording of financial
transactions, and is part of the process of
accounting in business and other
organizations. It involves preparing source
documents for all transactions, operations,
and other events of a business
What is accounting
• Accounting is the process of identifying,
measuring and communicating economic
information, to permit informed judgments and
decisions by a user of the information
• Accounting, which has been called the
"language of business
• Practitioners of accounting are known
as accountants.
• The terms "accounting" and "financial
reporting" are often used as synonyms.
Interested Stakeholders
• Informational requirement of a number of stakeholders in the business
– Internal Stakeholder
• Owners/Share holders
• Management
• Employees
– External Stakeholders
• Investors
• Banks/Lenders / Credit Rating Agencies
• Suppliers/Creditors
• Government/ Tax department / Regulators
• NGOs/ Industry associations
• Researchers
• Accounting is the tool for providing financial information to various
stakeholders
 Types of accounting
• Financial Accounting
• Management Accounting
• Cost Accounting
 Financial Accounting vs. Management
Accounting
• Financial • Management Accounting
– Internal Users
Accounting – To help in decision making/
– External Users and Internal users internal controls
– To communicate results/ – Flexible formats
financial health – Flexible rules
– Standard Formats – Product-wise/ Region Wise
– Accounting Rules – rigid – Forward Looking
– Aggregated Information – More Frequent
– Historical – More use of approximation
– Less frequent
– More precise
 5 Heads
1. Capital
2. Liabilities
3. Assets
4. Revenue
5. Expenses
 Capital
-Money invested in Business to earn Money
Owner’s Contribution in Business
Sole Prop.-- Capital
Partnership-- Partner’s Capital
Company-- Equity Share
Preference Share
Share- Smallest Part of Capital
 Liabilities
• Money or Money Worth to be paid by Business
• Liabilities are any debts your company has, whether it’s bank loans, mortgages, unpaid bills,
IOUs, or any other sum of money that you owe someone else.

• Example: Accounts payable, i.e. payments you owe your suppliers

• Principal and interest on a bank loan that is due within the next year
• Salaries and wages payable in the next year
• Notes payable that are due within one year
• Income taxes payable
• Mortgages payable
• Payroll taxes
• Bonds, debentures and long-term loans

• Current Liabilities- With in a year

• Long Term Liabilities- More than 12 months
• Contingent Liabilities
 Assets
• Assets are anything valuable that your company owns, whether it’s equipment, land,
buildings, or intellectual property.
• "How much do I have?"
• If it has value, and you own it, it’s an asset.
• Example
• Accounts receivable: any payments that your clients and customers owe you.
• Cash: the money you have in your business bank account.
• Inventory: any goods you have in stock that you intend to sell.
• Property and equipment: any buildings or tools that you need to operate your
business.
Types:
• Current assets: cash and anything that can be converted into cash within a year (like
inventory, for example).
• Fixed assets: Things like land, trademarks, and the value of your “brand.”
 Revenue
• Revenue is the value of all sales of goods and
services recognized by a company in a period.
• Revenue (also referred to as Sales or Income)
forms the beginning of a company’s income
statement and is often considered the “Top
Line” of a business.
• Expenses are deducted from a company’s
revenue to arrive at its Profit or Net Income.
 Expenses
• An expense in accounting is the money spent,
or costs incurred, by a business in their effort to
generate revenues.
• Essentially, accounts expenses represent the
cost of doing business; they are the sum of all
the activities that hopefully generate a profit.
Example: Office Stationery, Rent, Depreciation on
assets, Power, Water Supply, Wages, Salary
Financial Terms
1. Financial Year
2. Purchase
3. Sales
4. Debtors
5. Creditors
6. Bills Receivable
7. Bills Payable
8. Drawings
 Accounting Cycle
• Journal- Double entry book keeping system
• Ledger
• Trial Balance
• Profit & Loss Account
• Balance Sheet
 Double entry System
• Double-entry bookkeeping or double-entry
accounting means that every transaction will
involve at least two accounts.
 Debits and Credits
The words debit and credit have been
associated with double-entry bookkeeping

debit: an entry on the left side of an

account

credit: an entry on the right side of an

account
Debit and Credit rule in double-entry
bookkeeping:
• For each and every transaction, the total
amount entered on the left side of an account
(or accounts) must be equal to the total
amount entered on the right side of another
account (or accounts).
• For each and every transaction, the total of
the debit amounts must be equal to the total
of the credit amounts.
• Debits must equal credits.
 Rules
• Asset & Expenses
–Debit the Increase
–q1 the Decrease

• Capital, Revenue, Liabilities

–Credit the Increase
–Debit the Decrease
• Ganesh Started Business with cash of Rs 50
Lacs
Accounts Nature of Effect Dr/Cr
Account Increase/Decre
Involved ase

Cash Assets Increase Dr

A/c
Capital Capital Increase Cr

A/c