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This chapter is the foundation for all the other succeeding chapters and any further courses in accounting. The chapter begins with an explanation of the nature of accounting by discussing several definitions of accounting. A brief history of accounting is also outlined. Later the chapter progresses with the introduction of different branches of accounting and the basic terms used in accounting.

Pages: 34

In this chapter, we will discuss the first step in the accounting process, i.e. the recording of the transactions. The transactions which have to be recorded in the accounting records should be first identified from the source documents. Source documents are pieces of evidence for business transactions. The chapter begins with the accounting equation, which is not part of the double-entry system of accounting. It is introduced to help the learner understand how every happening in the organisation satisfies the concept of duality. It shows how transactions happening in the business affect assets, liabilities and capital. It helps them to understand the preparation of the trial balance and balance sheet. Then the primary record of entry called the journal is explained. Problems concerning the accounting equation and the journal are also included in this chapter.

Pages: 36

After reading the second chapter you should understand that business transactions are first recorded in the journal and then they are posted in the ledger accounts. When the size of the business is small it may be able to record all its transactions in one book only, i.e., the journal. But this may not be possible in larger organisations. It will take a lot of time and energy to journalise every transaction. For easy recording of transactions, the journal is further sub-divided into books called special journals or sub-divisions of the journal. Most business transactions are repetitive in nature. So a common debit or credit is repeated in most of the transactions. Such transactions can be easily grouped together and recorded in special journals. For example, all cash transactions may be recorded in one book, all credit sales in another book, all credit purchases in yet another book and so on.

Pages: 39

This chapter gives an overview of the utility of ledgers. The process of posting is illustrated in this chapter. The learner will understand how the principle of double entry is applied when the journal entries are posted in the concerned accounts.

Pages: 15

Accounting transactions are analysed to assess the financial performance of the business for an accounting period. To arrive at correct profits or losses, it is essential to differentiate the transactions as capital or revenue. And it is important to be familiar with the concept of capital and revenue items to manage the business effectively and earn sustainable profits. This chapter gives an overview of the concept of capital and revenue to calculate the true profit or loss and arrive at the actual financial position of the company.

Pages: 31

This chapter deals with adjustments in the books of account while calculating the profits of the business and allocating the profits earned. The first section of the chapter discusses the concept and calculation of depreciation. The second section explains the provisions and reserves. We have already discussed the matching principle and the principle of conservatism or prudence. According to the matching principle, the revenue of a given period is matched against the expenses for the same period. This ensures ascertainment of the correct amount of profit or loss. The principle of conservatism (prudence) requires that instead of ignoring such items of costs, adequate provision must be made and charged against profits of the current period. Moreover, it insists that a part of profit may be retained in the business in the form of reserves to provide for growth, expansion or meeting certain specific needs of the business in future. This chapter deals with two distinct topics and hence is being presented in two different sections. The first section deals with depreciation and the second section deals with provisions and reserves.

Pages: 57

After the preparation of the trial balance the businessman or business woman would like to know the following two things in particular. The answers to these questions are found by preparing the financial statements. In this chapter, we learn to prepare the financial statements. Profits are found by adjusting the various items so that they conform with the accounting concepts and principles.

Pages: 33

After going through the previous chapters, you have an idea about how financial accounting is done and how it helps to report financial affairs to the internal and external users of financial information. In this chapter, we are going to discuss another branch of accounting, namely management accounting. When financial accounting is concerned with the preparation of financial statements and reporting that to stakeholders, management accounting is concerned with providing information to managers for use within the organisation to help in decision-making. The concept of management accounting, how it differs from financial accounting and the tools of management accounting are discussed in this chapter.

Pages: 41

Financial statement analysis involves various tools for the examination of the financial health of the business. Ratio analysis is an important tool that can define the relationship between the various items given in the financial statements. Ratio analysis helps the stakeholders of the business in understanding and compares the numbers presented in the income statement, balance sheet and cash flow statement, thereby concluding the performance of the company in a given period. This helps to develop strategies for the future.

Pages: 44

The preparation of the balance sheet and the income statement often do not throw light on the flow of funds in the business. By preparing a fund flow statement we can know the sources of funds and application of funds. The conversion of net profit/ loss into funds from/lost in operations helps the finance manager to understand more about the funds and take proper decisions. The internal users of accounting information rely much on the fund flow statement for their critical decisions related to funds. In this chapter, we shall learn about the concept of funds, its movement, the computation of funds from operation, the preparation of the schedule of changes in working capital and the preparation of the fund flow statement.

Pages: 21

We have learned how to prepare financial statements which depict the financial position, i.e., the balance sheet (showing the financial position of an enterprise on a particular date) and which shows the profitability, i.e., the profit and loss account (showing the result of the business enterprise over a particular period). There is another important financial statement known as the cash flow statement, which shows inflows and outflows of the cash and cash equivalents. This statement is usually prepared to know about the sources and uses of cash and cash equivalents of an enterprise over some time from various activities of an enterprise. A cash flow statement has immense practical utility to the users of financial information. Cash is dynamic and so the stakeholders are interested to know about the cash flows in the organisation. The business may be earning profits but if it does not have sufficient cash flow, the liquidity position may be affected, which, in turn, may affect the financial health of the business. This chapter discusses the different types of cash flows and the different methods to prepare the cash flow statement.

Pages: 24

The ability to understand the financial health of a company is one of the most vital skills needed for aspiring investors, entrepreneurs, and managers. Armed with this knowledge, investors can better identify promising opportunities while avoiding undue risk, and professionals of all levels can make more strategic business decisions. Reading financial statements is vital for any analysis to assess the financial structure. Financial statements offer a window into the health of a company, which can be difficult to gauge using other means. While accountants and finance specialists are trained to read and understand these documents, many business professionals are not. People from non-accounting backgrounds often find it difficult to understand accounting and finance terms. If you’re new to the world of financial statements, this guide can help you read and understand the information contained in them. Financial statements are usually used by investors who are interested in a “dig into the numbers” and assessing the fundamentals of a company. You can look at them as report cards that provide you with an insight into a company's health and performance. Many people get scared off by the prospect of reading financial statements, but it is just because of the fear of the unknown. Acquisition of new skills will seem to be difficult in the beginning. But as we get more familiarised with the concepts, we shall gain more confidence and can even become masters in accounting.

Pages: 36

We have learned that accounting is the art of recording, classifying and summarising financial transactions and events and interpreting the results thereof. It serves as an information system and provides information on the financial performance of a firm to its various stakeholders. They seek appropriate, useful and reliable information from accounting. For making the accounting information meaningful to its internal and external users, such information must be reliable as well as comparable. The comparability of information is required both to make inter-firm comparisons, i.e., to see how a firm has performed as compared to the other firms, as well as to make an inter-period comparison, i.e., how it has performed as compared to the previous year. This becomes possible only if the information provided by the financial statements is based on consistent accounting policies, principles and practices. To maintain uniformity and consistency in accounting records, certain rules or principles have been developed which are generally accepted by accountants worldwide. The Generally Accepted Accounting Principles have evolved over a long period based on past experiences, usages or customs, statements by individuals and professional bodies and regulations by government agencies and have general acceptability among most accounting professionals. These principles are subject to frequent changes as time and circumstances demand. In this chapter, you will learn about Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS) and Indian Accounting Standards (Ind-AS).

Pages: 11

Business goals are no longer restricted to profits alone. Business operations harm the environment in a big way and it is high time that we address this problem. Many companies as their policy have started to report what they do to protect the environment. The United Nations has issued sustainability development goals (SDGs) under seventeen categories. In line with that sustainability reporting is becoming more prevalent, driven by a growing recognition that sustainability-related issues can materially affect a company's performance. The stakeholders also demand increased levels of transparency and disclosure and therefore the companies should appropriately respond to issues of sustainable development. A sustainability report provides a representation of the sustainability performance of the reporting organisation, including both positive and negative contributions. Sustainability reporting is a tool to increase transparency and accountability in environmental, social and governance (ESG) matters. This chapter includes topics on sustainability reporting, measurement of sustainability, sustainability accounting and sustainability accounting practices.