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Lecture 02
This document discusses accounting concepts such as transactions, bookkeeping, and the differences between single-entry and double-entry accounting systems. It defines a transaction as a financial activity between two parties that involves an exchange of goods, services, or future payment. Bookkeeping is described as the systematic recording of financial transactions and is part of the accounting process. The objectives of bookkeeping are to provide financial data to management and maintain a permanent record of transactions. Double-entry accounting is said to provide a more complete and accurate reflection of a business's financial condition compared to single-entry accounting through features like a balanced trial balance.
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Lecture 02
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- 2. What is atransaction? 1. Transaction: • Financial activity or event • two parties • Exchange of some goods or services • For cash/ money or a promise of future payment
- 3. Features of transaction •Between two parties • Measurable in terms of money • Transfer of property or service • Affects the financial position of a business
- 4. What is BOOKKEEPING? 2. Book keeping: • Part of accounting • Systematic recording financial transactions OR • Art of recording business transactions in the books of accounts in systematic manner Presentation TitlePresentation Title
- 5. OBJECTIVES OF BOOK-KEEPING •Provides financial data to management • Provides a systematic record • Keeps permanent record • Provides details of each transaction • Reflects the financial performance of a business.
- 6. OBJECTIVES OF ACCOUNTING 1.Primary: • Maintenance of records • Profit or loss calculation • Financial position reflection • Provide information to its users
- 7. Cont… 2. Secondary: • Taxcalculation & payment • Provides evidence to prevent disputes • Extracts correct & valid information • Verification and counter check of cash • Helps in future planning
- 8. USERS OF ACCOUNTING INFORMATION InternalUsers External Users • Owners •Labor unions • Managers •Financial analysis • Employees •Stock Exchange •Supplier •Regulatory authorities •Customers •Financial press/media •Trade associations •Tax Authority •Creditor/ investors
- 9. BOOK KEEPING VS.ACCOUNTING BOOK KEEPING ACCOUNTING •Nature and scope of work Recording phase of an accounting system & basis of accounting Summarizing phase of an accounting system & basis of business decisions. •Skill Does not require any special skill or knowledge Requires special skill and knowledge and personal judgment •Financial Statement Not prepared from book keeping record. Prepared from accounting record. •Financial conditions Cannot give the complete and clear picture of the financial condition of business. Shows complete and clear picture of the financial condition of business. •Legality Cannot help in complying with legal can be complied with the help of
- 10. SINGLE ENTRY VS.DOUBLE ENTRY Presentation TitlePresentation Title SINGLE ENTRY DOUBLE ENTRY incomplete records (cash transactions only) complete records (cash & Credit transactions) statement of profit and loss in prepared to calculate profit trading and profit & loss is prepared in order to ascertained the profit & Loss of business. statement of affairs is maintained balance sheet is prepared. Two aspects of a transaction is not recorded two fold aspects of each and every transaction is recorded. adopted by small scale business. adopted by large scale business.
- 11. DISADVANTAGES of Singleentry book keeping • Frauds and mistakes are difficult to detect • Partial and incomplete records are maintained • Balance sheet is not possible to prepare • Nominal accounts & profit and loss account cannot be prepared. • Accurate trial balance cannot be drawn
- 12. ADVANTAGES OF DOUBLEENTRY SYSTEM • Balanced trial balance • Accurate net profit and loss • Accurate balance sheet • Less chances of fraud • Easy detection of errors, omissions & fraud • Helps in the valuations of business • Helps in managing & supervising business activities • Reflects true financial position of a business.
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