Introduction to Accounting

amount standing to the favour of such persons and/or entities on the closing date, is shown in the Balance Sheet as sundry creditors on the liabilities side. Test Your Understanding - V Mr. Sunrise started a business for buying and selling of stationery with Rs. , , as an initial investment.

Of which he paid Rs. , , for furniture, Rs. , , for buying stationery items. He employed a sales person and clerk.

At the end of the month he paid Rs. , as their salaries. Out of the stationery bought he sold some stationery for Rs. , , for cash and some other stationery for Rs.

, , on credit basis to Mr.Ravi. Subsequently, he bought stationery items of Rs. , , from Mr. Peace.

In the first week of next month there was a fire accident and he lost Rs. , worth of stationery. A part of the machinery, which cost Rs. , , was sold for Rs.

, . From the above, answer the following : . What is the amount of capital with which Mr. Sunrise started business.

What are the fixed assets he bought? . What is the value of the goods purchased? .

Who is the creditor and state the amount payable to him? . What are the expenses? .

What is the gain he earned? . What is the loss he incurred? .

Who is the debtor? What is the amount receivable from him? . What is the total amount of expenses and losses incurred?

. Determine if the following are assets, liabilities, revenues, expenses or none of the these: sales, debtors, creditors, salary to manager, discount to debtors, drawings by the owner. Summary with Reference to Learning Objectives . Meaning of Accounting : Accounting is a process of identifying, measuring, recording the business transactions and communicating thereof the required information to the interested users.

Accounting as a source of information : Accounting as a source of information system is the process of identifying, measuring, recording and communicating the economic events of an organisation to interested users of the information. . Users of accounting information : Accounting plays a significant role in society by providing information to management at all levels and to those having a direct financial interest in the enterprise, such as present and potential investors and creditors. Accounting information is also important to those having indirect financial interest, such as regulatory agencies, tax authorities, customers, labour unions, trade associations, stock exchanges and others.

. Qualitative characteristics of Accounting : To make accounting information decision useful, it should possess the following qualitative characteristics. Reliability Understandability Relevance Comparability . Objective of accounting : The primary objectives of accounting are to : maintain records of business; calculate profit or loss; depict the financial position; and make information available to various groups and users.

. Role of accounting : Accounting is not an end in itself. It is a means to an end. It plays the role of a : Language of a business Historical record Current economic reality Information system Service to users Questions for Practice Short Answers .

Define accounting. State what is end product of financial accounting. . Enumerate main objectives of accounting.

. Who are the users of accounting information. . State the nature of accounting information required by long-term lenders.

. Who are the external users of information? . Enumerate information needs of management.

. Give any three examples of revenues. . Distinguish between debtors and creditors; profit and gain .

‘Accounting information should be comparable’. Do you agree with this statement. Give two reasons. .

If the accounting information is not clearly presented, which of the qualitative characteristic of the accounting information is violated? . “The role of accounting has changed over the period of time”- Do you agree? Explain.

. Giving examples, explain each of the following accounting terms : Fixed assets Revenue Expenses Short-term liability Capital . Define revenues and expenses? .

What is the primiary reason for the business students and others to familiarise themselves with the accounting discipline? Long Answers . What is accounting? Define its objectives.

Explain the factors which necessitated systematic accounting. . Describe the informational needs of external users. .

What do you mean by an asset and what are different types of assets? . Explain the meaning of gain and profit. Distinguish between these two terms.

. Explain the qualitative characteristics of accounting information. . Describe the role of accounting in the modern world.

Checklist to Test Your Understanding Test Your Understanding – I (a) Economic (b) Management/Employees (c) Creditor (d) Time-gap (e) External (f) Free from bias (g) Identifying the transactions and communicating information (h) Monetary (i) Chronological Test Your Understanding - II . Reliability, i.e. Verifiability, Faithfulness, Nutrality Relevance, i.e. Timeliness .

Understandability and Comparibility Test Your Understanding - III (a) Government and other regulators (b) Management (c) Social responsibility groups (d) Lenders (e) Suppliers and Creditors (f) Customers Test Your Understanding - IV . (c) . (a) . (c) .

(a) . (a) Test Your Understanding - V . Rs. , , Rs.

, . Assets : debtors; Liabilities : creditors; drawings; Revenues : sales expenses, discount, salary. Hints to ‘Let’s Do It’ Accountants today can work in exciting new growth areas such as forensic accounting, budget accounting, cost accounting, environmental accounting, e-commerce and the various agencies within the public sector.The advent of information technology have resulted in the development of necessary skills for today’s accountant include the ability to: Develop competence in systems analysis and computer technology; Develop facilitation skills, such as persuasion and communication skills; Acquire a broad business knowledge in strategy, operations, human resources, marketing, finance and economics; Develop analytical skills; Develop a willingness to embrace change and assume risk; Complete an internship in business and/or public accounting; Develop proficiency in accounting and tax issues.