Key Notes: Introduction to Accounting | Accountancy Class 11 - Commerce PDF Download

Definition of Accounting:

Accounting is the art of recording, classifying, and summarizing financial transactions and events in terms of money and interpreting the results thereof.

Objectives of Accounting:

• Record financial transactions systematically to prevent omissions and fraud.
• Determine profit or loss to assess the financial performance.
• Present the financial position through the balance sheet.
• Provide useful information to various users for decision-making.
• Assist management in decision-making, budgeting, and forecasting.
• Prevent fraud by maintaining accurate records.

Advantages of Accounting:

• Provides information for decision-making.
• Facilitates year-to-year comparison.
• Presents the financial position.
• Serves as legal evidence.
• Helps in tax assessment.
• Aids in determining the purchase price.

Limitations of Accounting:

• Historical nature and does not account for changes in price levels.
• Focuses on monetary elements, neglects qualitative factors.
• Susceptible to manipulation (window dressing).
• Subject to personal bias and judgment.
• Relies on accounting concepts and conventions.
• Assets recorded at cost, not market value.

Bookkeeping vs. Accounting:

• Bookkeeping is the recording phase, while accounting is the summarizing phase of an accounting system.

Types of Accounting Information:

• Information related to profit or loss (Income Statement).
• Information related to financial position (Balance Sheet).
• Schedules and notes providing details of items in financial statements.

Subfields/Branches of Accounting:

• Financial Accounting: Records financial transactions and presents financial statements.
• Cost Accounting: Calculates total and per-unit cost of goods or services.
• Management Accounting: Aids in planning, controlling, and decision-making.

Interested Users/Parties of Accounting Information and Their Needs:

• Internal users (Owners, Management, Employees) need information for performance evaluation, profitability assessment, and decision-making.
• External users (Investors, Creditors, Lenders, Tax Authorities, Government, Others) need information for investment safety, creditworthiness assessment, tax assessment, and policy decisions.

Qualitative Characteristics of Accounting Information:

• Reliability: Information must be based on facts, verified, and free from bias and errors.
• Relevance: Information should influence decisions and be available in time.
• Understandability: Information should be presented in an understandable manner.
• Comparability: Information should allow comparison with previous periods and other firms' data.

Basic Accounting Terms:

Business Transaction, Account, Capital, Drawings, Assets (Current and Non-Current), Liabilities (Current and Non-Current), Receipts (Revenue and Capital), Expenses (Revenue, Capital, Deferred Revenue), Profit, Gain, Loss, Goods, Purchases, Purchase Return, Sales, Sales Return, Debtors, Creditors, Bill Receivable, Bill Payable, Discount (Trade and Cash), Income, Stock, Cost, Voucher.