FAM Chapter 1 ppt

8/7/2019 FAM Chapter 1 ppt

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Learning Objectives

Meaning of accounting

Evolution of accounting

Difference between accounting & book-keeping

Accounting as an information system Identifying the different users of accounting

information

Process of Accounting

Limitations of financial accounting

Elaboration of the three principal financialstatements


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Evolution of Accounting

Originated in the fourteenth century by aFranciscan Luca Pacioli.

Accounting earlier used in trade and

commerce faced its first challenge in the eraof industrial revolution.

Accounting easily adapted andaccommodated the demands of modern

manufacturing industry.

The adaptability and versatility of theaccounting methodology has been itsinherent strength.


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Difference Between

Accounting & Book-Keeping

Book-keeping is a small part of accounting process

Book-keeping is onlyconcerned with recording

transactions and keeping records

Accounting aims at designing an informationsystem

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Accounting as an information

System

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Accounting

Recording ofData

Processing ofData

Communicationof Data

InformationNeeds

InformationDecision

Makers


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Users of Accounting

Information

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Management

UsersWith

IndirectFinancialInterest

Users WithDirect

FinancialInterest


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Users of Accounting

Information (Elaborated)

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Management

Directors, Managers, Officers, Dept. Heads,

To Assess Profitability, Liquidity & Solvency, Controlling Function

Users WithDirect Fin.Interest

Shareholders, Creditors, Employees, Suppliers

For Investment & Credit Decisions, Pay-Off and Supply ContinuityDecisions

Users WithIndirect Fin.

Interest

Customers, Taxation Authorities, Financial Analysts, Brokers,Underwriters, Labour Unions, General Public, Press, NGOs

Assessing Taxes, Protecting Investors & Public, Measuring Socialand Environmental Responsibility, Negotiating Labor Agreements


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Process of Accounting

Interpreting

Evaluating

Reporting & Securing(P/L Account,

Balance Sheet,

Cash Flow Statement)

Processing & Classifying (Ledger)

Recording/Book-Keeping (Journalizing)


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Limitations of Financial

Accounting

Financial accounting does not provide detailed cost information

Financial accounting does not set up a proper system of

controlling materials and supplies

Recording & accounting for wages & labour is not carried out for

different jobs, processes, products & departments

In financial accounting it is difficult to analyze costs according to

controllability

Financial accounting does not possess an adequate system of

standards to evaluate the performance ofdepartments & theiremployees

Financial accounting contains historical cost whereas for bettermanagement current cost accounting is also needed

Financial accounting does not provide information to analyze the

losses due to various vital factors like idle plant capacity

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The Three Principal Financial

Statements

The EndProducts Of Finl. Accounting

Profit & Loss Account

Balance Sheet

Cash Flow Statement

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Profit & Loss Account

Also known as Income Statement

P/Lpresents results ofoperationsof a business

enterprise over a period of time

It presents the sources and amounts of revenues

earned & streams & amounts ofdifferent

expenses

If the revenues are more and expenses are less

there is a net income or net profit If the revenues are less and the expenses are

more the enterprise has incurred net loss

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Balance Sheet

Also known as Statement of Financial Position

It shows the financial position of a business

enterprise on a certain date

B/S indicates the investing & financing activities

of a business enterprise at a point of time &

shows a firms assets, liabilities andshareholders equity usually at the last day of

the year

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Cash Flow Statement

It summarizes the flow of cash inflows and

outflows of the firm over a period of time

It focuses on the items which bring about

change in the cash balance of a business

enterprise between two balance sheet dates

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Documents

FAM Chapter 1 ppt