Unit: 1
Financial Accounting
The process of recording, compiling, and reporting the numerous transactions occurring
from corporate operations throughout time is known as financial accounting. It is a
particular branch of accounting. The preparation of financial statements, such as the
balance sheet, income statement, and cash flow statement, which document the
operating performance of the company over a given period, summarizes these
transactions. The first video of this course is all about a briefing on the course title itself.
The video focuses on the objectives of financial accounting, and its limitations as well as
describes slightly about bookkeeping and accounting along with cash basis and accrual
1.1 Meaning, Objectives, and Limitations
⋆ Meaning
Financial accounting is the branch of accounting that keeps the record of all the
monetary transactions. The process of recording, summarizing, and reporting the
business conclusion resulting from business operations over some time is called
financial accounting. Its main purpose is to provide enough operation for the
stakeholders to know the value of the company themselves.
⋆ Objectives
The following are the main objectives of Financial Accounting:
● Calculation of business profit and loss.
● Systematic recording of transactions.
● Ascertainment of the financial position of the business.
● Providing information to the users for rational decision-making.
● Valuation of assets, liabilities, and taxable amount of a company.
● Future forecasting and planning.
⋆ Limitations
Some limitations or disadvantages of financial accounting are as follows:
, ● It records and measures quantitative, not qualitative information about any
business or company.
● It emphasizes only historical data and information.
● It neglects the price level change of goods and services.
● It does not provide the cost of manufacturing the product.
1.2 Bookkeeping and Accounting
Bookkeeping is an act of recording financial transactions systematically and
scientifically. It keeps a record of the business in chronological order. Generally, there
are two types of bookkeeping: Single- Entry Bookkeeping systems and Double- Entry
Book Keeping systems.
On the other hand, accounting is a continuous process, which includes a series of
identifying, recording, classifying, summarizing, analyzing and interpreting, and
communicating financial transactions of the business.
Bookkeeping is a subset of accounting that is concerned with the recording of
transactions that are frequently routine and clerical, whereas accounting also performs
other functions, such as measurement and communication, in addition to recording. An
accountant must have a much higher level of knowledge, conceptual understanding,
and analytical skill than a bookkeeper.
An accountant creates the accounting system, supervises and audits the bookkeeper's
work, prepares reports based on the recorded data, and interprets the reports. He is
now expected to participate in matters of economic resource management, control, and
planning.
1.3 Cash Basis and Accrual Basis
⋆ Cash Basis
Under the basis of accounting for a business, the organization recognizes revenue
when cash is received and similarly the expenses when the cash is paid. This is the
simplest approach to recording financial transactions and is very popular among smaller
businesses. The cash basis of accounting has not been recognized by GAAP (
Generally Accepted Accounting Principles). In cash basis accounting there are
receivables and payables.
⋆ Accrual Basis
, Under this basis of accounting, the business organization recognizes revenue when
earned and expenses when expenditures are consumed. This approach is wider and
more rational for the global market of the 21st century which requires a greater
knowledge of accounting. On an accrual basis, there are receivables and payables.
Unit: 2
Conceptual Framework of Accounting
2.1 Conceptual Framework of Accounting
Conceptual Framework of accounting is all about basic accounting concepts and
principles.The theory known as the accounting conceptual framework explains the
fundamental assumptions that underlie financial statements and financial reporting in
general.Creating a conceptual framework is important because it provides a framework
for establishing accounting standards, a foundation for resolving accounting disputes,
and fundamental ideas that do not need to be repeated in accounting standards.
The following are the concepts/principles:
1) Business Entity Concept
In accounting, we distinguish between the business and the owner. All books of
accounts record day-to-day financial transactions from the perspective of the business
rather than the owner. The proprietor is considered a creditor up to the amount of capital
he brought into the business. For example, if a person invests Rs. 10 lakh in a business,
the business will be treated as having borrowed that amount of money from the owner,
and it will be recorded as a 'liability' in the business's books of accounts.
2) Money measurement concept
Accounting records only business transactions that can be expressed in monetary
terms. In other words, a fact, transaction, or occurrence that cannot be expressed in
monetary terms is not recorded in the accounting books. Money has a significant
Financial Accounting
The process of recording, compiling, and reporting the numerous transactions occurring
from corporate operations throughout time is known as financial accounting. It is a
particular branch of accounting. The preparation of financial statements, such as the
balance sheet, income statement, and cash flow statement, which document the
operating performance of the company over a given period, summarizes these
transactions. The first video of this course is all about a briefing on the course title itself.
The video focuses on the objectives of financial accounting, and its limitations as well as
describes slightly about bookkeeping and accounting along with cash basis and accrual
1.1 Meaning, Objectives, and Limitations
⋆ Meaning
Financial accounting is the branch of accounting that keeps the record of all the
monetary transactions. The process of recording, summarizing, and reporting the
business conclusion resulting from business operations over some time is called
financial accounting. Its main purpose is to provide enough operation for the
stakeholders to know the value of the company themselves.
⋆ Objectives
The following are the main objectives of Financial Accounting:
● Calculation of business profit and loss.
● Systematic recording of transactions.
● Ascertainment of the financial position of the business.
● Providing information to the users for rational decision-making.
● Valuation of assets, liabilities, and taxable amount of a company.
● Future forecasting and planning.
⋆ Limitations
Some limitations or disadvantages of financial accounting are as follows:
, ● It records and measures quantitative, not qualitative information about any
business or company.
● It emphasizes only historical data and information.
● It neglects the price level change of goods and services.
● It does not provide the cost of manufacturing the product.
1.2 Bookkeeping and Accounting
Bookkeeping is an act of recording financial transactions systematically and
scientifically. It keeps a record of the business in chronological order. Generally, there
are two types of bookkeeping: Single- Entry Bookkeeping systems and Double- Entry
Book Keeping systems.
On the other hand, accounting is a continuous process, which includes a series of
identifying, recording, classifying, summarizing, analyzing and interpreting, and
communicating financial transactions of the business.
Bookkeeping is a subset of accounting that is concerned with the recording of
transactions that are frequently routine and clerical, whereas accounting also performs
other functions, such as measurement and communication, in addition to recording. An
accountant must have a much higher level of knowledge, conceptual understanding,
and analytical skill than a bookkeeper.
An accountant creates the accounting system, supervises and audits the bookkeeper's
work, prepares reports based on the recorded data, and interprets the reports. He is
now expected to participate in matters of economic resource management, control, and
planning.
1.3 Cash Basis and Accrual Basis
⋆ Cash Basis
Under the basis of accounting for a business, the organization recognizes revenue
when cash is received and similarly the expenses when the cash is paid. This is the
simplest approach to recording financial transactions and is very popular among smaller
businesses. The cash basis of accounting has not been recognized by GAAP (
Generally Accepted Accounting Principles). In cash basis accounting there are
receivables and payables.
⋆ Accrual Basis
, Under this basis of accounting, the business organization recognizes revenue when
earned and expenses when expenditures are consumed. This approach is wider and
more rational for the global market of the 21st century which requires a greater
knowledge of accounting. On an accrual basis, there are receivables and payables.
Unit: 2
Conceptual Framework of Accounting
2.1 Conceptual Framework of Accounting
Conceptual Framework of accounting is all about basic accounting concepts and
principles.The theory known as the accounting conceptual framework explains the
fundamental assumptions that underlie financial statements and financial reporting in
general.Creating a conceptual framework is important because it provides a framework
for establishing accounting standards, a foundation for resolving accounting disputes,
and fundamental ideas that do not need to be repeated in accounting standards.
The following are the concepts/principles:
1) Business Entity Concept
In accounting, we distinguish between the business and the owner. All books of
accounts record day-to-day financial transactions from the perspective of the business
rather than the owner. The proprietor is considered a creditor up to the amount of capital
he brought into the business. For example, if a person invests Rs. 10 lakh in a business,
the business will be treated as having borrowed that amount of money from the owner,
and it will be recorded as a 'liability' in the business's books of accounts.
2) Money measurement concept
Accounting records only business transactions that can be expressed in monetary
terms. In other words, a fact, transaction, or occurrence that cannot be expressed in
monetary terms is not recorded in the accounting books. Money has a significant
