Accounting: Generally Accepted Accounting Principles (GAAP)

Accounting
The systematic recording, reporting, and analysis of financial
transactions of a business. The person in charge of accounting is
known as an accountant, and this individual is
typically required to follow a set of rules and regulations, such as
the Generally Accepted Accounting Principles (GAAP). Accounting
allows a company to analyze the financial performance of the
business, and look at statistics such as net profit.
Rajinder kaur, Dept. of Management

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Accounting defined
The American Accounting Association

define accounting as follows:
The process of identifying measuring,
and communicating economic
information to permit informed
judgments and decisions by users of
the information.

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Accounting Systems
Objectives of an accounting system:
To process the information efficiently-at low cost
To obtain reports quickly
To ensure a high degree of accuracy
To minimize the possibility of the theft and fraud

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Branches of Accounting
Financial accounting- information gathered is
intended both for internal (e.g. managers) and
external (e.g. banks and other creditors,
government agencies, investment advisers, etc.)
parties. Information recording is subject to
certain ground rules internationally known as
Generally Accepted Accounting Principles
(GAAP).
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Management Accounting
Management accounting- information gathered is primarily for the
use of internal management. Such information is used for
management planning and control.
Management accounting or managerial accounting is concerned with

the provisions and use of accounting information to managers within
organizations, to provide them with the basis to make informed
business decisions that will allow them to be better equipped in their
management and control functions

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Cost Accounting
Cost Accounting -- a branch of accounting dealing with the

classification, recording, allocation, summarization and
reporting of current and prospective costs and analyzing
their behaviors. Cost accounting is frequently used to
facilitate internal decision making and provides tools with
which management can appraise performance and control
costs of doing business

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The need of information
Information
Nonquantitative information Quantitative information
Accounting Non-accounting
information information
Operating Financial Management

information Accounting Accounting

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 Operating Information
Constitutes the largest quantity of accounting
information; it provides the basic data for both
managerial and financial accounting.
 Financial Information
Information intended for managers and by
external parties, including shareholders, banks
and other creditors, government agencies,
investment advisers and the general public.

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 Managerial Information
Used internally for planning, implementation
and control. This accounting information is
prepared to aid mangers
THREE MANAGEMENT FUNCTION

1. Planning
2. Implementation
3. Control

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Users of Information
 Owners
 Management
 Creditors
 Government
 Prospective owners and prospective
creditors
 Employees
 Public

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BASIC ACCOUNTING CONCEPTS
 Money Measurement- An accounting record is made only
of information that can be expressed in monetary terms
 The Entity Concept- The owners of the business are
considered separate and distinct from the business itself.
Hence, accounts are kept for the entity as distinguished
from the persons associated with the entity
 The Going-Concern Concepts- unless there is good
evidence to the contrary, it is assumed that the business will
operate indefinitely
 The Cost Concept- The economic resources of an entity are
called assets. An asset is ordinarily entered in the
accounting records at the price paid to acquire it- that is, at
its cost
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 The Dual-Aspect Concept- Assets= Liabilities+ Owner’s
Equity
 Accounting Period- Accounting measures activities for a
special time interval, usually one accounting year
 Conservatism- revenues are recognized only when they are
reasonably certain, whereas Expenses are recognized as
soon as they are reasonably possible
 Realization- Revenues are usually recognized in the period
in which goods were delivered to customers or in which
services were rendered. The amount recognized is the
amount that customers are certain to pay

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 Matching- when a given event affects both revenues and
expenses, the effect on each should be recognized in the
same accounting period.
 Consistency- Once an entity has decided on a certain
accounting method, it should use the same method in all
subsequent events of the same character unless it has
sound reasons to change methods.
 Materiality- insignificant events may be disregarded, but
there must be full disclosure of all important information.

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Mnemonic Dictionary

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'I was worried about taking the test, but it was a piece of cake. I got 100%.'
'Rap music is not my cup of tea; I prefer rock.'

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Accounting: Generally Accepted Accounting Principles (GAAP)

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Accounting

The systematic recording, reporting, and analysis of financial

transactions of a business. The person in charge of accounting is

known as an accountant, and this individual is

typically required to follow a set of rules and regulations, such as

the Generally Accepted Accounting Principles (GAAP). Accounting

allows a company to analyze the financial performance of the

business, and look at statistics such as net profit.

Rajinder kaur, Dept. of Management

The American Accounting Association

Rajinder kaur, Dept. of Management

Objectives of an accounting system:

To process the information efficiently-at low cost

To obtain reports quickly

To ensure a high degree of accuracy

To minimize the possibility of the theft and fraud

Rajinder kaur, Dept. of Management

Management accounting or managerial accounting is concerned with

Rajinder kaur, Dept. of Management

Cost Accounting -- a branch of accounting dealing with the

Rajinder kaur, Dept. of Management

Nonquantitative information Quantitative information

Operating Financial Management

Rajinder kaur, Dept. of Management

Rajinder kaur, Dept. of Management

THREE MANAGEMENT FUNCTION

Rajinder kaur, Dept. of Management

Rajinder kaur, Dept. of Management

Rajinder kaur, Dept. of Management

Rajinder kaur, Dept. of Management

Rajinder kaur, Dept. of Management

'Rap music is not my cup of tea; I prefer rock.'

Rajinder kaur, Dept. of Management

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