Financial Accounting - Unit 1 (BBA Semester 1)
Meaning of Accounting
Accounting is the art of recording, classifying, and summarising — in a significant manner and in
terms of money — transactions and events which are of a financial character, and interpreting the
results thereof. It is both a science and an art as it involves systematic methods and interpretation.
Scope / Purpose of Accounting
1. To maintain systematic records of business transactions. 2. To ascertain profit or loss. 3. To
determine financial position (assets, liabilities, capital). 4. To assist decision-making. 5. To control
operations and safeguard assets.
Importance / Advantages of Accounting
- Provides reliable financial information. - Helps in managerial planning and control. - Enables
performance evaluation. - Ensures accountability and transparency. - Aids in legal and tax
compliance.
Limitations of Accounting
- Considers only monetary transactions. - Based on historical cost. - Involves estimation and
subjectivity. - May omit qualitative factors like morale or reputation. - Dependent on accuracy of
recorded data.
Relationship of Accounting with Other Areas
- Finance: Provides data for investment and funding decisions. - Economics: Reflects results of
economic decisions. - Statistics/Maths: Used for data analysis. - Law: Transactions must comply
with legal standards.
Branches of Accounting
1. Financial Accounting – External reporting of business results. 2. Cost Accounting – Cost
determination and control. 3. Management Accounting – Internal information for decision-making. 4.
Tax and Social Responsibility Accounting – Specialized areas.
Accounting Concepts and Conventions
Concepts: Entity, Going Concern, Money Measurement, Cost, Dual Aspect, Accrual, Consistency,
Materiality, Conservatism. Conventions: Full Disclosure, Conservatism, Consistency.
Accounting Equation
Assets = Liabilities + Owner’s Equity Shows the dual aspect of every transaction and reflects how
resources are financed by owners and outsiders.
Financial vs Cost vs Management Accounting
Financial: Historical, external use, mandatory. Cost: Internal, focuses on cost control and product
costing. Management: Forward-looking, internal, decision-oriented.
Meaning of Accounting
Accounting is the art of recording, classifying, and summarising — in a significant manner and in
terms of money — transactions and events which are of a financial character, and interpreting the
results thereof. It is both a science and an art as it involves systematic methods and interpretation.
Scope / Purpose of Accounting
1. To maintain systematic records of business transactions. 2. To ascertain profit or loss. 3. To
determine financial position (assets, liabilities, capital). 4. To assist decision-making. 5. To control
operations and safeguard assets.
Importance / Advantages of Accounting
- Provides reliable financial information. - Helps in managerial planning and control. - Enables
performance evaluation. - Ensures accountability and transparency. - Aids in legal and tax
compliance.
Limitations of Accounting
- Considers only monetary transactions. - Based on historical cost. - Involves estimation and
subjectivity. - May omit qualitative factors like morale or reputation. - Dependent on accuracy of
recorded data.
Relationship of Accounting with Other Areas
- Finance: Provides data for investment and funding decisions. - Economics: Reflects results of
economic decisions. - Statistics/Maths: Used for data analysis. - Law: Transactions must comply
with legal standards.
Branches of Accounting
1. Financial Accounting – External reporting of business results. 2. Cost Accounting – Cost
determination and control. 3. Management Accounting – Internal information for decision-making. 4.
Tax and Social Responsibility Accounting – Specialized areas.
Accounting Concepts and Conventions
Concepts: Entity, Going Concern, Money Measurement, Cost, Dual Aspect, Accrual, Consistency,
Materiality, Conservatism. Conventions: Full Disclosure, Conservatism, Consistency.
Accounting Equation
Assets = Liabilities + Owner’s Equity Shows the dual aspect of every transaction and reflects how
resources are financed by owners and outsiders.
Financial vs Cost vs Management Accounting
Financial: Historical, external use, mandatory. Cost: Internal, focuses on cost control and product
costing. Management: Forward-looking, internal, decision-oriented.
