NSMSH 5501A IntroductionToAccounting

nsmsh-ACC-11-01A
01 – Introduction to Accounting: Learning Objectives

After this Quick Review lecture/presentation/notes you will be able to
understand and remain strong with your mind-map of the following key points:
 Economic & Non-economic activities and its need for accounting;
Business entity and its relevance to accounting
 Examples of Business Transactions and Events
 Evolution of accounting
 Understand the meaning, objectives, significance and need of
accounting; Accounting Cycle and Functions of Accounting
 Accounting and Book-keeping
 Remaining topics of Chapter 01 will be dealt in next lecture.
Presented by Advocate NSM Shahul Hameed, Advisor, PCIS
Every individual or group of persons perform some kind of economic activity
Salaried People Employers Wage Laborers Contractors Farmers Traders Producers
Agents Bankers Money lenders Government Authorities Service Providers
Retired People Professionals Artists

Scientists Judiciary Administrators Other Consumers Institutions
Local Markets International Markets Tax Authorities Investors
Teachers Social Servants Homemakers Daydreamers
Business Entity & Its relevance to Accounting
must
Entity – நிறுவனம் – something existing or natural being

Business Entity – Ownership & Business Types
Business Transactions Vs. Events from Accounting point of view
Transaction Event
is used to mean – a business, is used to mean - a happening as
performance of an act, an a consequence of transaction(s),
agreement a result.
Cause (of financial inflow or outflow) Effect (of transactions/economic activity)
Transactions are recorded in the accounting Only those events are recorded which are
books as they arise. (as they are already financial in nature.
filtered out by testing on Money
Measurement concept)
Results in change in the financial May or may not result in change in

position of the company. financial position of the company.
Narrow scope. Wide scope
Identifica
tion of ec
events an onom
d transacti ic
measured on s
in money
terms
Procedure of
Accounting /
Accounting Cycle
Accounting Cycle Diagram
Prepare
Adjustment
Entries
Procedural aspects of Accounting
Procedure of Accounting can be basically divided into two parts:
1. Generating Financial information:
 Identification & Measuring
 Recording
 Classifying
 Summarising
 Analysing
 Interpreting
 Communicating
2. Using the Financial information:

Nsmsh lecture to Point Calimere International School, Vedaranyam
Procedural aspects of Accounting: Using the Financial Information
Accounting gives information on :
• the Resources available;
• how the available resources have been employed and
• the result achieved by their use.
Ascertained Information: Trading Result, Profit/Loss Result, Value and Nature of Assets &
Liabilities, and Capital.
• Besides the Owner or the management of the business enterprise, users of
accounting include the investors, employees, lenders, suppliers, customers,
government and other agencies and the public at large.
• Information provided to different users must be meaningful, unbiased, relevant and
material to the user’s decision-making. It must be reliable, comparable and in
accordance with established (or agreed) standards.
• Even the small details which can affect the internal working of the business are given
in the management report while financial statement presented to the external users
contains key information regarding assets, liabilities and capital and the results only.
Nsmsh lecture to Point Calimere International School, Vedaranyam
Distinction between Book-Keeping and Accounting
Book-Keeping Accounting
It is a process concerning with recording of It is a process concerning with summarizing
transactions. of the recorded transactions.
It constitutes as a base for accounting It is considered as the language of the
business.
Financial statements do not form part of this Financial statements are prepared in this
process. process on the basis of book-keeping records.
Financial position of the business cannot be Financial position of the business is
ascertained through book-keeping records. ascertained on the basis of the accounting reports.
Management decisions cannot be taken with Management takes decisions on the basis of
the help of these records. accounting records and financial statements.
There is no sub-field of book-keeping. It has several sub-fields like financial
accounting, managerial accounting etc.
The Objectives of Accounting
Presented by Advocate NSM Shahul Hameed, Advisor, PCIS
Limitations of Accounting
The result statements like Profit & Loss report generated by its process are subject to
various constraints within which the accounting works.
The assumptions and conventions, within which the accounting is based, become the
limitations of accounting.
The financial statements are not free from subjectivity factor as these are largely the
outcome of personal judgement of the accountant with regard to the adoption of the
accounting policies.
Certain instances of limitations to the reality:
• Book value vs. Market value of Assets
• Goodwill / Reputation value
• Changes in money factors are ignored
• There are occasions when accounting principles conflict with each other
• Value of Human resources are not shown on the Assets part.
How to overcome limitations of Accounting ?
Yes, we can agree that the language of accounting has certain
practical limitations and, therefore the financial statements should be
interpreted carefully keeping in mind all various factors influencing
the true picture.
The following are the keys to overcome the limitations
• Admit all those identified material facts (of weakness in your
system of accounting).
• Publish all the standards, principles, concepts, conventions,
assumptions and key measuring procedures etc.
• Establish sound internal control & Ensure reasonable assurance.
• Analyse & Interpret data with care
• Disclose any hidden things or relevant facts appropriately.

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nsmsh-ACC-11-01A

01 – Introduction to Accounting: Learning Objectives

Retired People Professionals Artists

Entity – நிறுவனம் – something existing or natural being

Results in change in the financial May or may not result in change in

2. Using the Financial information:

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