Fundamentals of Accounts and Finance Part I – Basics of
Accounting
Instructor
Prof. (Dr.) Paresh Shah
FCMA., Ph.D., [Link]., D.D.M., [Link]. Psy.
Alumnus of Indian Institute of Management,
Ahmedabad, (India); Institute of Cost
Accountants of India; University of London, UK;
University of Illinois, US; Darden School of
Business, University of Virginia, US; IESE
Business School, University of Navarra, Spain;
University of New South Wales, Sydney,
Australia; and Alison Education, US.
Cell no. 9824358505
Book Keeping, Accounting, and Accountancy
Accountancy
Accounting
Book-
keeping
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Accountancy
• Acts as a language of finance
• Economic events
• Monetary transactions
• Provides feedback to management
• Financial results
• Status
• recordation
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Introduction to Accounting
Business Earnings of
Activities Profits
Business
Maximise the
cannot run in
wealth
isolatiion
People
coming
together for
common
purpose
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Rules of Business: Accounting -
Language of Business
Resources –
Management Principles of Principles of Statutory
Limited and
of Resources Trade Social Values Framework
Multiple Use
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Accounting?
Art of Significant Terms of Transactions Financial
Classifying Summarising
Recording manner money and events character
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Objectives of Accounting
Information to decision maker for Decision-making : To Various Users
Systematic recording of Transactions : Book-keeping: Journal, Ledger and Trial Balance
Ascertainment of Results : Manufacturing, Trading and Profit and Loss Account
Ascertainment of Financial Position : Balance Sheet
Know the Solvency Position : Cash Flow Statement
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Functions of Accounting
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Accounting
• Process concerned with summarizing
• Language of business
• Financial statements prepared in this process
• Supporting for managerial decisions
• Have several sub-fields
• Financial position is ascertained
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Book-keeping
Recording of financial data
Manner
Business
Operations : Base End Product
Significantly and
for accounting Orderly Financial
Statements : Do not
form part of this
process
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Financial statements
Income statements
Manufacturing account
Trading Account
Profit and Loss Account
Balance Sheet
Cash Flow Statements
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Objectives of Book-keeping
• Complete recording of Transactions
• Ascertainment of Financial Effect on firm
• Process with recording of financial transactions
• Base for accounting
• No sub-field of book-keeping
• Financial statements do not form part of book-keeping
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Sub-fields of Accounting
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Basis of Accounting
Accounting
Accrual Hybrid
Cash Basis
Basis Basis
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Cash Basis of Accounting
• All incomes considered as earned – when actually received in cash
• All expenses considered as incurred – when actually paid in cash
• Profit = Cash income greater than Cash expenses
• Loss = Cash income lesser than Cash expenses
• Practical applications – by individuals like Doctors, Lawyers,
Auditors, Professional people, and some small traders
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Accrual or Mercantile Basis of
Accounting
• All incomes considered as earned – when actually earned
irrespective whether received in cash or not
• All expenses considered as incurred – when actually occurred
irrespective whether paid in cash or not
• Profit = Total Income earned greater than Total Expenses occurred
• Loss = Total Income earned lesser than Total Expenses occurred
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Accrual or Mercantile Basis of
Accounting
• Practical applications – Followed everywhere – Generally accepted
accounting convention in business accounting
• Represent True and Fair View of the State of Affairs.
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Hybrid or Mixed Basis of Accounting
• Revenue accounted for on Cash Basis
• Expenses accounted for on Accrual Basis
• Not widely used
• Failed to measure accurate income
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