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FINANCIAL ACCOUNTING

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Financial Accounting is the art of recording, classifying and summarizing in a significant manner in terms of money, transactions and events which are, ... – PowerPoint PPT presentation

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Title: FINANCIAL ACCOUNTING


1
FINANCIAL ACCOUNTING
MEANING OF FINANCIAL ACCOUNTING Financial
Accounting is the art of recording, classifying
and summarizing in a significant manner in terms
of money, transactions and events which are, in
part at least of a financial character and
interpreting the results thereof. The American
Accounting Association (AAA) defines accounting
as The process of identifying, measuring and
communicating economic information to permit
informed judgements and decisions by users of the
information.Thus the process of recording,
classifying, summarizing, analyzing and
interpreting the financial transactions and
communicating the results thereof to the persons
interested in such information.

2
SCOPE
  • To maintain systematic record
  • To ascertain the financial position of business
  • To ascertain the operational profit or loss
  • To facilitate rational decision making
  • Knowledge of debtors and creditors
  • Knowledge of purchase and sales
  • Basis of income tax and sales tax
  • Information regarding performance and position
  • Comparison
  • Proof in the court
  • Helpful in raising loans
  • Helpful in insolvency
  • Assistance to various parties
  • Errors and frauds
  • Thus financial Accounting has a wider scope than
    book keeping in the sense that along with
    recording , classifying and summarizing business
    transactions it also covers analysis and
    interpretation of those records.

3
IMPORTANCE
  • Importance
  • Financial Accounting is important to various
    users of the accounts. These could be the owners,
    management, creditors, investors, employees,
    bankers, government and the shareholders.
  • Broadly we can divide them into
  • Internal users
  • External users
  • .

Users
External
internal
Owners Management Employees
Creditors Investors Government Customers Researche
rs Foreigners Others
4
ACCOUNTING PRINCIPLES
  • Accounting principles

Accounting concepts
Accounting conventions
Consistency Materiality Conservatism Full
disclosure
  • Business Entity concept
  • Going concern concept
  • Accounting period concept
  • Money measurement concept
  • Dual aspect concept
  • Cost concept
  • Matching concept
  • Realization concept
  • Accrual concept

5
GAAP
  • Accounting standards issued by the accounting
    bodies and the rules pronounced by the other
    legal and governmental authorities for the
    maintenance of the books of accounts are jointly
    called Generally Accepted Accounting Principles
    or GAAP. Every country would have its own GAAP.
    However because of globalization there is an
    increasing pressure on Indian companies to slowly
    conform to international GAAP.
  • Indian GAAP comprises a set of pronouncements
    issued by various regulatory bodies, but it is
    predominantly controlled by the ICAI. Besides
    Accounting Standards, ICAI issues guidance notes
    on areas not specifically covered by Accounting
    Standards.
  • The International Accounting standard Committee
    (IASC) has so far issued 31 Accounting standards.
    These have to be kept in mind while formulating
    accounting policies of the companies.

6
Case Study
  • Rajan is the accountant of a small company making
    two or three different types of household tools.
    He systematically and accurately collects and
    records all transactions of the company and
    prepares statements, so that the management knows
    the annual profit and financial position.
  • What more can a good accountant do? ponders
    Rajan. From your understanding of the scope of
    accounting, advise him in what other ways he
    might be of service to the management.
  • Finanancial statements enable the reporting of
    financial position to the owners of the business.
    Besides those who lend money to the business need
    to be kept informed about the current financial
    performance and the financial condition of the
    entity.
  • Case 2
  • Zozo Chemicals have their financial accounting in
    place and have implemented good accounting
    softwares which keeps them updated with the
    financial changes. However the managers are
    worndering if if is so important to implement all
    of these? How will this affect their function as
    a manager
  • As managers, one needs to perform various roles
    such as planning controlling directing,
    evaluating and taking corrective actions.
    Business managers need to decide continuously
    what to do, how to doit, and whether the actual
    results tally the original plans and targets.
    Accounting provides timely and useful information
    to do these activities and take the correct
    decision in the light of these statements.
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