SSC
DEEPAK GUPTA
9213975057
Introduction to Accounting
 Accounting :-
Accounting is a process of recording financial transactions, summarizing them and
communicating the financial information to users,
Accounting is defined as “the art of recording, classifying and summarising in terms of
money, transactions and events of a financial character and interpreting the results there of”
According to (AICPA) “accounting is an art of recording ,classifying, and summarising in a
significant manner and in terms of money, transactions and events which are in part at least,
of a financial character and interpreting the result there of.

Attributes of Accounting / Characteristics
(a) Accounting is the art… Art is that part of knowledge which helps us in attaining our
aim. Accounting helps us in attaining our aim of ascertaining the financial result by
showing the best way of recording, classifying and summarising the business transactions.
(b) Recording means entering the financial transactions in the books of the enterprise.
Recording is done through a book called “Journal” which can be classified into various
subsidiary book depending on the nature of the transaction.
(c) Classification is the process of grouping of transactions or entries of one nature at one
place.This is done by opening accounts called “ledger”.
(d) Summarising is the art of making the activities understandable and useful to
management and other interested parties. This involves the preparation of (i) Trial
balance (ii) Trading and Profit and loss account (iii) balance sheet and (iv) Cash flow
statement.
(e) Transactions and events of financial character… Only those transactions and
events which are of financial character will be recorded in terms of money. For example,
good health of the general manager is of great use to the business but it has no financial
character, no economic value, no exchange value. And therefore this will not be considered
in accounting.
(f) Interpreting the results thereof… it is process of explaining the meaning and
significance of relationship as established by analysis of accounting data. By this, the
management can take proper judgment and use it further for decision making.

Objectives (functions) of accounting
1. To keep a systematic record :- the primary objectives of accounting is to maintain a
systematic record of business transactions.
SUCCESS STUDY CIRCLE (REGD.)
(A Gateway of sure success)
14A, 40 FEET ROAD, JAIN NAGAR, DELHI – 110081, PH.: 8800929191, 011-64506028
Page 1
SSC
DEEPAK GUPTA
9213975057
2. To calculate Profit or loss :- Another objective of accounting is to ascertain Profit or
loss earned by the business during the accounting year. For this purpose an income
statement or profit and loss account is prepared.
3. To show financial position :- It also shows the financial position of the firm. For this
purpose Balance Sheet is prepared at the end of accountings period which shows the
Assets and liabilities of the firm.
4. To communicate information :- Accounting communicate the various information and
facts about the firm to various interested groups i.e. owners, creditors etc.
Q
Accounting is a science as well as an art Explain.
Ans. Accounting is a science as well as an art. As a science, in accounting all the transactions
records and classify on the bases of accounting principles and rules which are adopted by
the accountants universally. As an art accounting enable us to achive desired results by
applying accounting principles systematically.
Advantages of accounting
1. Helps in ascertaining the profit or loss :- Accounting helps in ascertaining the net
profit or loss suffered by the business. It is done by preparing profit & loss Account.
2. Helps in ascertaining the financial position :- Every businessman desires to know
about his financial position. This is served by the Balance Sheet which depict the financial
position of the business.
3. Assist in managing the business :- Accounting helps the management taking decision to
run the business efficiently.
4. Helps in remembering :- Nobody, can remember all the transactions.
So , every transaction should be recorded in Black and White.
5. Comparative study :- Accounting helps in comparative study of the firm with other firms
or with the base years. It helps to the strong and week point of the business.
6. Good evidence in courts. Records of business transactions are treated as satisfactory
evidence in the court of law.
7. Provides information to interested groups. Various interested parties or groups like
owners, creditors, management, employees, government, consumers, creditors are
interested in accounting information related to various aspects, viz., sales, production,
profits, etc. Accounting provides suitable information to such interested parties.
8. Valuation of business. Accounting records kept in a proper way enable a business unit to
determine the purchase or sale price in a simple manner.
SUCCESS STUDY CIRCLE (REGD.)
(A Gateway of sure success)
14A, 40 FEET ROAD, JAIN NAGAR, DELHI – 110081, PH.: 8800929191, 011-64506028
Page 2
SSC

DEEPAK GUPTA
9213975057
limitations of accounting
1. Only monetary transactions :- Accounting records only those transactions which can be
measured in terms of money. Qualitative elements like quality of management is ignored.
2. Assets at cost (Historical Cost Basis):- Assets are recorded at their cost not at their
market price. Hence financial statement fail to show the real financial position of the
business.
3. Not fully exact :- Accounting information is some times based an estimates. Therefore it is
not fully exact.
4. Not free from bias(Personal Judgement):- Adoption of various Accounting policies are
depend on the Personal Judgement of the accountant.
5. Window dressing :- Sometimes the businessman manipulate the accounting according to
him for his personal benefits.

Process of Accounting.
(i)
Identifying Financial Transaction - The first step is to identify the transactions
to be recorded. Accounting records only those transactions which can be measured in
terms of money.
(ii)
Recording – Accounting consists of recording business transactions and events in a
systematic way in Journal etc.
(iii)
Classifying – Classifying means grouping the transactions of same nature at one
place. This is done by preparing appropriate accounts in Ledger. For example, all
transactions relating to cash would be recorded in the Cash Account.
(iv)
Summarising – Summarising involves the preparation of financial statements i.e.,
Profit and Loss Account and Balance Sheet. Summarising helps in conveying
economic information to various parties interested in them.
(v)
Interpreting – Finally, the accountants are required to interpret the contents of
financial statements to enable the users to make balanced decisions.
SUCCESS STUDY CIRCLE (REGD.)
(A Gateway of sure success)
14A, 40 FEET ROAD, JAIN NAGAR, DELHI – 110081, PH.: 8800929191, 011-64506028
Page 3
SSC

DEEPAK GUPTA
9213975057
Quantitative characteristics of accounting information.
1. Understandability – An accounting information should be readily understandable by
the different users. Accounting Information should be presented in simple terms and
form.
2. Relevance – An accounting information should be relevant for decision-making. To be
relevant, information must be made available in time and must helps in prediction and
feedback.
3. Reliability – An accounting information should be reliable in the sense that it should be
free from error and bias and should represent what it should represent. An accounting
information should be objective i.e., solidly supported by the facts.
4. Comparability – An accounting information will be useful and beneficial to the
different users only when it is comparable overtime and with other enterprise. For this,
there should be consistency i.e., use of common unit of measurement, common format of
reporting and common accounting policies.

Branches of Accounting
Accounting
Financial
Accounting
Cost Accounting
Management
Accounting
 Financial Accounting :- Financial Accounting is the accounting for revenues, expenses,
assets and liabilities of a firm. The main task of financial accounting is to prepare the
profit and loss account and Balance – sheet.
 Cost Accounting :- The main purpose of cost accounting is to ascertain the cost of
production, to enable the management fix the price of the product and to ensure cost
reduction.
 Management Accounting :- It relates to the use of financial and cost data for the purpose
of evaluating the performance of a business. It helps to assist the management in the
formation of the policy
SUCCESS STUDY CIRCLE (REGD.)
(A Gateway of sure success)
14A, 40 FEET ROAD, JAIN NAGAR, DELHI – 110081, PH.: 8800929191, 011-64506028
Page 4
SSC
DEEPAK GUPTA
9213975057
Difference between Booking keeping and accounting
Book Keeping
1. Scope :- Book – Keeping is concerned
with recording the transactions of
business and classifying them.
2. Stage :- It is a primary stage
3. Performance: - Junior Staff perform this
functions.
4. Decision making-Managerial decisions
cannot be taken with the help of these
records
5. Skill & knowledge :- It does not require
special skill and knowledge.
6. Objective :- The objective of book
keeping is to maintain systematic
records of business transactions

1. Accounting is concerned with
summarizing the recorded transactions
and interpreting them.
2. It is a secondary stage and begins after
book – keeping
3. Senior staff performs this functions.
4. Management takes decisions on the basis
of these records.
5. It require special skill and knowledge.
6. The objective of accounting is to ascertain net result of operations and
communicate them to interested groups.
Users of Accounting Information
Users of accounting information can be grouped as follows:
Owners - Owners are the persons who provide funds to the business and share
the
risks. Owners need accounting information to know the profitability and financial
soundness of the business to make proper decisions.
 Management - Management is answerable to the owners. The responsibility of the
management is to operate the business efficiently. Management needs accounting
information for decision – making.
 Employees – Employees need accounting information to claim increase in wages, bonus
and other benefits.
 Investors – Investors are the persons who want to invest their money in the business.
They need accounting information to know the safety of their investment and future
prospectus of the business.
 Creditors – Creditors are the persons who have advanced some money or goods to the
business. They need accounting information to know the capacity of the business to pay
their claims in time.
 Government – Government needs accounting information to collect the various taxes
like sales tax, income tax, excise duty etc.
SUCCESS STUDY CIRCLE (REGD.)
(A Gateway of sure success)
14A, 40 FEET ROAD, JAIN NAGAR, DELHI – 110081, PH.: 8800929191, 011-64506028
Page 5
SSC
DEEPAK GUPTA
9213975057
 Research scholars – Research scholars need accounting information to study the
financial operations of a particulars firm or company.
 Customers: Customers who have developed loyalties to a business are certainly
interested in the continuance of the business.
 Public: An enterprise affects the public at large in many ways. Public at large is
interested in knowing the future directions of enterprise and the only window to peep
inside the enterprise is their financial statements.

Double Entry System
Under this system,every transaction has two aspects-debit and creditand a time of recording
a transaction,it is recorded once on the debit side andagai on the credit side.
“The system which recognize and records both aspect of a transaction. The Double Entry
System has proved to be a scientific and complete system of accounting followed by every
enterprises.”
features of Double entry system
1. It maintain a complete record of each transactions.
2. It recognize two aspect of every transactions.
3. In this system one aspect is debited and other aspect is credited.
 Advantages (Merits)of Double Entry System:1. Complete record of transactions :- this system of accounting maintains a complete
record of all business transaction. Hence, it is a complete system.
2. As certainment of accurate profit or loss :- Because it is a complete system of
recording so it gives accurate result.
3. Ascertainment of financial position:- The financial position of the firm can be
ascertained at the and of each period, through preparation of the Balance – Sheet .
 Disadvantages (Demerits)of Double Entry System :1. This system is costly for such business man whose business is on a small scale.
2. Double Entry system is not a simple system. It requires special knowledge and skill to
prepare.
3. It is a complicated method.
SUCCESS STUDY CIRCLE (REGD.)
(A Gateway of sure success)
14A, 40 FEET ROAD, JAIN NAGAR, DELHI – 110081, PH.: 8800929191, 011-64506028
Page 6