Basic Accounting - Day 1

Foundation Course
Basic Accounting
PGDM / PGDM-IB / PGDM-RM
Batch 2024-26
Dr. Deepika Saxena, Professor, JIMS Rohini

Email: deepika.saxena@jimsindia.org
Outline
Day Content
I Need and Relevance of Accounting, Functions /
Process, Objectives, Branches of accounting,
Users of accounting information
II Basic Terminology, Accounting Equation
(overview)
III Types of Accounts, Rules of Debit & Credit,
Identification of types of accounts through
practice
IV Journalizing the transactions
V Ledger preparation
VI Trial Balance preparation
Need for Accounting:
• In any modern economy, it is necessary to keep record of

production, sales, profits, etc., any business activity, be it
related to production or trade or service, involves some
expenditure and returns.
• It is therefore, necessary to have proper records of such
transactions.
• The record keeping activity of a business is a called book-
keeping and the result of such transaction is found out by
• Accounting is termed as
THE LANGUAGE OF BUSINESS
It communicates the result of business

operations to various parties who have
stake in business, viz, the proprietor,
creditors, investors, government etc.
Definition
(contd.)
• By American Accounting Association
(AAA):
“The process of identifying , measuring
and communicating information to
permit judgment and decisions by the
users of the information”.
Definition (contd.)
By Institute of Chartered Accountants of
India (ICAI)
“Process of recording, classifying, summarizing,
analyzing and interpreting the financial
transactions and communicating the results
thereof to the persons interested in such
information”.
Process of Accounting:
1. Identifying Financial Transactions
2. Recording
3. Classifying
4. Summarizing
5. Analyzing and Interpreting
6. Communicating
1. Identifying Financial
Transactions
• Accounting records only those
transactions which can be expressed
in terms of money.
• If a transactions has no financial
character then it will not be measured
in terms of money and will not be
recorded.
Transaction:
A financial happening that affects the
finance of the business.
1. Cash Transaction: When cash is paid
immediately on entering into transaction.
2. Credit Transaction: When one promises to
pay the price later.
2. Recording:
• Accounting is considered as an art of

recording business transactions in a
systematic way.
• Recording is done in the book called
‘JOURNAL’.
3.
Classifying:
• It is systematic analysis of the recorded
data
• It is the process of grouping of transactions
or entries of one nature at one place.
• This is done by opening accounts in a book
called ‘LEDGER’.
4.
Summarizing:
• Summarizing is the art of presenting the
classified data (Ledger) in a manner which is
understandable and useful to management and
other interested parties.
• This involves preparation of final accounts which
includes Trading and Profit & Loss Account
(Income Statement), and Balance Sheet.
5. Analyzing and
Interpreting:
The recorded financial data is analyzed and

interpreted in a manner that the end-users
can make a meaningful judgment about the
financial condition and the profitability of
the business operations.
6. Communicating:
• After analyzing and interpreting, the accounting
information has to be communicated in a proper
form.
• This is done through preparation and
distribution of accounting reports which includes
besides the usual income statement and the
balance sheet, additional information in the form
of accounting ratios, graphs, diagrams, cash flow
statements etc.
BOOK-KEEPING
• Book-keeping is the record-making phase of
accounting.
• The term ‘Accounting’ and ‘Bookkeeping’ are
often used synonymously.
• Book-keeping is the mainly concerned with
recording of financial data relating to the business
operations in a significant and orderly manner.
Users of Accounting
Information
• Owner(s)
• Management
• Investors
• Creditors and Financial Institutions
• Employees and Trade unions
• Government
• Researchers
• Public
Objectives of Accounting:
1. To maintain the records of the business.
2. To ascertain the operational profit or loss.
3. To depict the Financial Position of the business.
4. To make the information available to various
groups and users.
5. To facilitate rational decision making.
Branches of Accounting:
1.Financial Accounting
2.Management Accounting
3.Cost Accounting
1. Financial Accounting:
• It is the original form of accounting.
• It is mainly confined to the preparation of
financial statements for the use of stakeholders.
• The financial statements i.e. the profit and loss
A/c, and Balance Sheet, show them the manner in
which operations of the business have been
conducted during a specified period.
2. Management Accounting:
• It is the accounting for management, i.e. accounting
which provides necessary information to the management
for discharging its functions.
• According to the Chartered Institute of Management
Accountants, London,
“Management accounting is the application of
professional information in such a way so as to assist the
management in the formation of policies and in the
planning and control of the operations of the
undertaking.”
3. Cost Accounting:
• The main purpose is to analyze the expenditure involved
so as to ascertain the cost of various products
manufactured and fix their prices.
• Helps in exercising control over the cost being incurred.
• Involves in estimating cost in advance and detailed
analysis.
• Cost Accounting enables a company to ascertain the
costs by applying the costing principles, techniques and
methods, and analyzing the deviations from budgeted or
standard costs.
Thank You

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Basic Accounting - Day 1

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Foundation Course

Dr. Deepika Saxena, Professor, JIMS Rohini

• In any modern economy, it is necessary to keep record of

It communicates the result of business

• Accounting is considered as an art of

The recorded financial data is analyzed and

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