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Basics of Accounting
The document discusses the fundamentals of accounting standards, including their importance, objectives, and the processes involved in their formulation. It highlights the roles of various stakeholders and the need for standardized policies to ensure comparability and reliability in financial reporting. Additionally, it details the composition and objectives of the Accounting Standards Board (ASB) in India, which is tasked with developing and reviewing accounting standards.
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Basics of Accounting
- 1. ACCOUNTING STANDARDSACCOUNTING STANDARDS SAIPRASADD. M.Com., M.Phil., NET.,(Ph.D.) Asst. Professor Dept. Commerce and Management MLA-Academy of Higher Learning
- 2. © The McGraw-HillCompanies, Inc., 2006cGraw-Hill/Irw2in Opportunities in AccountingOpportunities in Accounting FinancialFinancial •Preparation •Analysis •Auditing •Regulatory •Consulting •Planning •Criminal investigation •Preparation •Analysis •Auditing •Regulatory •Consulting •Planning •Criminal investigation ManagerialManagerial •General accounting •Cost accounting •Budgeting •Internal auditing •Consulting •Controller •Treasurer •Strategy •General accounting •Cost accounting •Budgeting •Internal auditing •Consulting •Controller •Treasurer •Strategy TaxationTaxation •Preparation •Planning •Regulatory •Investigations •Consulting •Enforcement •Legal services •Estate planning •Preparation •Planning •Regulatory •Investigations •Consulting •Enforcement •Legal services •Estate planning Accounting- related Accounting- related •Lenders •Consultants •Analysts •Traders •Directors •Underwriters •Planners •Appraisers •Lenders •Consultants •Analysts •Traders •Directors •Underwriters •Planners •Appraisers •Fraud investigators •Market researchers •Systems designers •Merger services •Business valuation •Human services •Litigation support •Entrepreneurs •Fraud investigators •Market researchers •Systems designers •Merger services •Business valuation •Human services •Litigation support •Entrepreneurs
- 3. © The McGraw-HillCompanies, Inc., 2006cGraw-Hill/Irw3in Accounting Jobs by AreaAccounting Jobs by Area Private accounting 60%Public accounting 25% Government, not-for-profit, & education 15%
- 4. BASICS OF ACCOUNTINGBASICSOF ACCOUNTING
- 5. BUSINESSBUSINESSBusiness includes commerce andindustry with profit motive under law Accounting iS A LANGUAGE of business . It communicates business operations to needy people. in form of financial statements
- 6. IdentifiesIdentifies RecordsRecords CommunicatesCommunicatesRelevantRelevant ReliableReliable ComparableComparable Importance of AccountingImportanceof Accounting AccountingAccounting is a system that information that is to help users make better decisions. to help users make better decisions.
- 8. Identifying Business Activities Recording Business Activities Communicating Business Activities AccountingActivitiesAccounting Activities
- 9. Users of AccountingInformationUsers of Accounting Information External Users •Lenders •Shareholders •Governments •Consumer Groups •External Auditors •Customers Internal Users •Managers •Officers •Internal Auditors •Sales Staff •Budget Officers •Controllers
- 10. Users of AccountingInformationUsers of Accounting Information External Users Financial accounting provides external users with financial statements. Internal Users Managerial accounting provides information needs for internal decision makers.
- 11. Users of AccountingInformation-ExternalUsers of Accounting Information-External Lenders: Whether the firm (borrower) can repay the money? Shareholders: whether to buy, hold, or sell stocks? Governments: whether the firm pay all due tax? Customers: whether the firm can exist to provide post-sale services? External Auditors: whether the financial statements are prepared according to GAAP? Etc.
- 12. Users of AccountingInformation-InternalUsers of Accounting Information-Internal Marketing managers: target customers, set price, monitor sales. Production managers: monitor cost and ensure quality. Purchasing managers: what, when and where to purchase materials. Human resource managers: employees’ performance and compensation.
- 13. CONCEPTUAL FRAMEWORK OFCONCEPTUALFRAMEWORK OF ACCOUNTINGACCOUNTING Generally accepted accounting principles set of standards and rules that are recognized as a general guide for financial reporting. Generally accepted means that these principles must have substantial authoritative support AND UNIVERSALY ACCEPTED.
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- 15. CLASSIFICATION OF GENERALLYCLASSIFICATIONOF GENERALLY ACCEPTED ACCOUNTING PRINCIPLESACCEPTED ACCOUNTING PRINCIPLES:: A) Accounting concepts B) accounting conventions
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- 17. QUALITATIVE CHARACTERISTICS OFQUALITATIVECHARACTERISTICS OF ACCOUNTING INFORMATIONACCOUNTING INFORMATION 1 Relevance 2 Reliability 3 Comparability 4 Consistency
- 20. I order toensure the transparency, consistency, comparability , and adequacy and reliability of financial reporting, it is essential to standardized accounting policies and principles. Accounting standards provide frame work and Standard accounting policies so that financial statements different enterprises become comparable
- 21. Accounting standardsAccounting standards Accordingto ICAI (Institute of Chartered Accountants of India), accounting standards “written documents, policies, procedures issued by expert accounting body or government or other regulatory body covering the aspects of recognition, measurement, treatment, presentation and disclosure of accounting transactions in the financial statement”.
- 22. OBJECTIVES OF ACCOUNTINGSTANDARDS:OBJECTIVES OF ACCOUNTING STANDARDS: Standardize the diverse accounting policies. To eliminate to the extent possible the non comparability of financial statements. It adds the reliability to the financial statements. It increases the arithmetic accuracy of financial statements. Accounting standards helps to understand accounting treatment in financial statement.
- 23. ADVANTAGES OF ACCOUNTINGSTANDARDS:ADVANTAGES OF ACCOUNTING STANDARDS: Accounting standards reduces or eliminates confusing variation in the accounting treatments used to prepare the financial statements. Accounting standards may call for disclosure beyond that required by law. It facilitates comparison of financial statements of different companies.
- 24. Accounting standards settingprocessAccounting standards setting process Accounting Standards Board shall determine the need and priority in regard to the selection thereof. Formation of study groups by ASB. ASB will also hold a dialogue with the representatives of the Government, Public Sector Undertakings and Industry for ascertaining their views. Based on the work of Study Groups and the dialogue with the organizations referred to above, an exposure draft of the proposed standards will be prepared.
- 25. The draft ofthe proposed standard will include the following basic points: Concepts and fundamental accounting principles relating to the standard. Definitions of the terms used in the standard. The manner in which the accounting principles have been applied. The presentation and disclosure requirements. Class of enterprises to which the standards will apply.
- 26. Date from whichthe standard will be effective. Finalization of proposed standards by ASB and submitted to the Council of the Institute. Modification or issue of accounting standards is the authority of the Council.
- 27. ACCOUNTING STANDARDS BOARD ACCOUNTING STANDARDS BOARD TheInstitute of Chartered Accountants of India (ICAI), recognizing the need to harmonize the diverse accounting policies and practices in use in India, constituted the Accounting Standards Board (ASB) on 21st April, 1977.
- 28. The composition ofthe ASBThe composition of the ASB Apart from the elected members of the Council of the ICAI nominated on the ASB, the following are represented on the ASB: Nominee of the Central Government representing the Department of Company Affairs on the Council of the ICAI. Nominee of the Central Government representing the Auditor General of India on the Council of the ICAI. Nominee of the Central Government representing the Central Board of Direct Taxes on the Council of the ICAI. Representative of the Institute of Cost and Works Accountants of India.
- 29. Representative ofthe I C S of India. Representatives of Industry Associations Representative of Reserve Bank of India. Representative of SEBI Representative of Controller General of Accounts. Representative of Central Board of Excise and Customs. Representatives of Academic Institutions (1 from Universities and 1 from I IM) Representative of Financial Institutions Eminent professionals co-opted by the ICAI. Representative(s) of any other body, as considered appropriate by the ICAI
- 30. The OBJECTIVES ofthe ASBThe OBJECTIVES of the ASB To suggest areas in which Accounting Standards need to be developed. To formulate Accounting Standards with a view to in evolving and establishing A S in India. Formulating the Accounting Standard and to adapt the same. To review, at regular intervals, the assisting the Council of the ICAI accounting Standards from the point of view of acceptance or changed conditions, and, if necessary, revise the same. To provide, from time to time, interpretations and guidance on A S To carry out such other functions relating to A S
- 31. ACCOUNTING STANDARD SETTING ACCOUNTING STANDARD SETTING Itis a process of selecting the appropriate accounting standard. Identification and assessment of theory Cost benefit analysis Choice between alternative method
- 32. DIFFICULTIES ACCOUNTING STANDARDSETTINGDIFFICULTIES ACCOUNTING STANDARD SETTING 1. Difficulties in definition. 2. Political bargaining in setting. 3. Conflict of accounting theory. 4. Pluralism. 5. Social, economic and legal difficulties.
Editor's Notes
- #7 Identifying business activities requires selecting transactions and events relevant to an organization. Ex. The sale of cosmetics, such as perfume, lipsticks.. by SaSa Recording business activities requires keeping a chronological log of transactions and events measured in dollars and classified and summarized in a useful format. Communicating business activities requires preparing accounting reports such as financial statements. It also requires analyzing and interpreting such reports. The difference between bookkeeping and accounting: bookkeeping is the recording of transactions and events. This is only one part of accounting. Accounting also identifies and communicates information on transactions and events.