Accounting Basics (Satyanath Mohapatra)

USERS OF
BRANCHES OF ACCOUNTING
OBJECTIVES ACCOUNTING
ACCOUNTING CYCLE
INFORMATIONS
Prof. Satyanath Mohapatra

Accounting has been widely and rightly termed as “the Language of
Business”. The language is the means of communication.
Accounting is the identifying ,
recording of financial transactions
pertaining to a business, and it
also refers to the process of
summarizing, analyzing and
reporting these transactions to
various uders of accounting
informations
Accounting covers the following activities-:
1- Identifying the transactions and events
2- Measuring the identified transactions and events
3- Recoding the transactions
4- Classifying the recorded transactions
5- Summarizing the classified transactions
6- Analyzing
7- Interpreting the significance and Communicating.
Objectives of Financial Accounting
Systematic recording of transactions: basic objective of accounting is to

systematically record the financial aspects of business transactions (i.e.
book-keeping). These recorded transactions are later on classified and
summarized logically for the preparation of financial statements and for
their analysis and interpretation.
Ascertainment of result of above recorded transactions: accountant

prepares profit and loss account to know the result of business operations
for a particular period of time. If expenses exceed revenue then it is said
that the business is running under loss. The profit and loss account helps
the management and different stakeholders in taking rational decisions. For
example, if business is not proved to be remunerative or profitable, the
cause of such a state of affairs can be investigated by the management for
taking remedial steps.
Ascertainment of the financial position of business: businessman is not only
interested in knowing the result of the business in terms of profits or loss for a
particular period but is also anxious to know that what he owes (liability) to the
outsiders and what he owns (assets) on a certain date. To know this, accountant
prepares a financial position statement of assets and liabilities of the business at a
particular point of time and helps in ascertaining the financial health of the
business.
Providing information to the users for rational decision-making: accounting as a

‘language of business’ communicates the financial result of an enterprise to various
stakeholders by means of financial statements. Accounting aims to meet the
financial information needs of the decision-makers and helps them in rational
decision-making.
To know the solvency position: by preparing the balance sheet, management not
only reveals what is owned and owed by the enterprise, but also it gives the
information regarding concern’s ability to meet its liabilities in the short run
(liquidity position) and also in the long-run (solvency position) as and when they fall
due.
Branches of Accounting
Auditing
Financial Accounting
Financial accounting involves recording and
classifying business transactions, and
preparing and presenting financial statements
to be used by internal and external users.
In the preparation of financial statements,

strict compliance with generally accepted
accounting principles or GAAP is observed.
Financial accounting is primarily concerned in
processing historical data.
Managerial Accounting
Managerial or management accounting
focuses on providing information for use by
internal users, the management. This branch
deals with the needs of the management
rather than strict compliance with generally
accepted accounting principles.
Managerial accounting involves financial

analysis, budgeting and forecasting, cost
analysis, evaluation of business decisions,
and similar areas.
Cost Accounting
Sometimes considered as a subset of management
accounting, cost accounting refers to the recording,
presentation, and analysis of manufacturing costs.
Cost accounting is very useful in manufacturing
businesses since they have the most complicated
costing process.
Cost accountants also analyze actual and standard

costs to help managers determine future courses
of action regarding the company's operations.
Tax Accounting
Tax accounting helps clients follow rules set
by tax authorities. It includes tax planning
and preparation of tax returns. It also
involves determination of income tax and
other taxes, tax advisory services such as
ways to minimize taxes legally, evaluation
of the consequences of tax decisions, and
other tax-related matters.
Auditing
External auditing refers to the examination of financial
statements by an independent party with the purpose of
expressing an opinion as to fairness of presentation and
compliance with GAAP. Internal auditing focuses on
evaluating the adequacy of a company's internal control
structure by testing segregation of duties, policies and
procedures, degrees of authorization, and other controls
implemented by management.
Forensic Accounting
Forensic accounting involves court and litigation cases,
fraud investigation, claims and dispute resolution, and
other areas that involve legal matters. This is one of the
popular trends in accounting today.
The Accounting Cycle.
1- The Events that involves the transfer of value between two
entities are called a transaction.
2- Preparing the receipt or payment vouchers.
3- The first entry made to the primary books regarding the

transaction. Generally known as the journal entry.
4- Re-recording of the transaction takes place to visualize it in

a clear and systematic manner. It helps to classify the
transactions as per nature. Generally known as the ledger
entry.
5- Trial balance statements prepared to test the accuracy of

the ledger balance.
6- The Financial statements like balance sheet, Profit/loss

account statements prepared to present and forecast the
financial positions.
Users of Accounting Information
External users of accounting information
Investors
Creditors
Customers
Suppliers
Employees
Government organizations
Internal users of accounting information

Management
Managers of operations
The American institute of certified and public
accountants committee on terminology
defined accounting as:
“Accounting is the art of recording, classifying
and summarizing, 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 results there of
”. Of all definitions available, this is the most
acceptable one because it encompasses all the
functions which the modern accounting
system performs.
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USERS OF

Prof. Satyanath Mohapatra

Systematic recording of transactions: basic objective of accounting is to

Ascertainment of result of above recorded transactions: accountant

Providing information to the users for rational decision-making: accounting as a

In the preparation of financial statements,

Managerial accounting involves financial

Cost accountants also analyze actual and standard

2- Preparing the receipt or payment vouchers.

3- The first entry made to the primary books regarding the

4- Re-recording of the transaction takes place to visualize it in

5- Trial balance statements prepared to test the accuracy of

6- The Financial statements like balance sheet, Profit/loss

Internal users of accounting information

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