Chapter 1, Introduction to Accounting



Hello Boys!!
Welcome to the New session, New class and a New Subject Accountancy..
Its a very easy, practical, scoring and an interesting subject, provided you work with it regularly.
Your initial time spent with it, will give you immense pleasure and satisfaction...again provided you work consistently.


Chapter 1 : Introduction to Accounting

Learning Outcomes:

All students' will be able to outline clearly: 
*Meaning of accounting
*Characteristics or Features or Attributes of 
 Accounting  
* Accounting Process  
* Objectives of Accounting
* Advantages of Accounting
* Limitations of Accounting 
* Users of Accounting Information 
* Qualitative Characteristics of Accounting Information 
*  Systems of Accounting 
* Role of Accounting in Business

Meaning of Accounting

The main objective of a business is to earn profits. So, it is very important for the business to determine the results of the business at an appropriate intervals. For this, it is necessary to record the business transactions and events in a systematic manner. Accounting is the practice of systematically recording, reporting, analysing the financial transactions conducted by a business.
Thus, it may be concluded that accounting is a process of identifying, measuring, recording, classifying, summarising, analysing, interpreting and communicating the financial business transactions in a useful manner.

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Characteristics or Features or Attributes of  Accounting 

1. Identifying of financial transactions and events:   Accounting records only those transactions and events which are of financial nature as they bring the change in the resources of a firm. For example, purchase of goods or assets.

2.  Measurement of transactions:   Accounting records the transactions only in terms of money. Any event which cannot be measured in terms of money, is not recorded in the accounting books. For example, events like receiving an order for sale of goods or appointment of an employee are not recorded in the books of accounts.

3. Recording:   Accounting involves recording the financial transactions in the books of accounts. It means entering a business transaction in the books of original entry. This  recording in the books, is done in a book called 'Journal'.

4. Classifying:   Accounting is an art of classifying transactions of the business. Classification is the process of grouping the transactions of one nature at one place in a separate account, known as 'Ledger'.

5. Summarising:   It involves presenting the classified data in a manner which is understandable and useful to the users of accounting statements. This process leads to the preparation of the following statements:
Trial balance 
Trading account and profit and loss Account and 
Balance Sheet

6.Analysing and interpreting:   In accounting, the results of the business are analysed and interpreted so that users of financial statements can make a meaningful and sound judgement about the profitability and financial position of a business. 

7. Communicating:   Accounting involves communicating the financial data to the interested parties through annual and periodic reports. The accounting information must be provided on time so that decisions are taken at the appropriate time.


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Based on the Features of Accounting, the Accounting Process is as follows:

Accounting Process

1. Identification of Financial Transactions and Events.
2.  Measurement of Transactions in the terms of money.
3.  Recording the financial transactions in journal.
4.  Classifying them through Ledger
5.  Summarising the transactions by preparing Trial balance, Trading account and Profit and Loss Account and Balance Sheet.
6. Analysing and Interpreting the financial data
7. Communicating the financial data to the interested parties.
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Objectives of Accounting

1. To maintain a systematic record of business transaction: to identify the financial transactions and events of the business and to record them in proper books of accounts in a systematic manner.

2. To ascertain Profit or Loss: to determine the financial performance i.e. profit earned or loss suffered by the business during a particular period.

3. To determine Financial Position: Financial position can be known from the Balance Sheet, which depicts the position of assets, liabilities and capital of the owners.

4. To provide information to various users:  Accounting is to communicate the accounting information to various interested parties like owners, investors, creditors,  employees, government authorities etc. Such information helps them in making sound decisions about the business entity.

5.  To assist the Management: Management requires accounting information for decision making and for exercising effective control.


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