ASSIGNMENT

Subject - Financial Accounting

And Analysis

Submitted by : Anurag shukla

1)What do you mean by accounting? also discuss scope of accounting.
Accounting is that it is the process of recording, summarizing, analyzing, and reporting the
financial transactions related to a business. It explains how a business organization records,
organizes and reports these transactions to regulators and other parties. It helps to translate
the working of business intangible reports for the process of tracking assets, liabilities,
expenses, income, and equity. Basic knowledge of accounting is important to understand
the financial terms and to participate in the business world. Everyone uses accounting in
their own way like individuals may use accounting to maintain their personal budget,
reconcile their monthly credits, and balance their checkbooks for future consistency.
Whereas, a business entity may use accounting methodologies to analyze its income and
expense items and to determine its financial position and performance throughout the
period/s. Although the scope and methods of accounting may differ from entity to entity.

Scope of accounting
Accounting plays a key role in serving a systematic and up-to-date record of varied and
numerous business transactions. Its target is to analyse the financial transactions as they take
place, to record them in orderly fashion, to group and arrange the information in terms of
useful and understandable financial report (Balance Sheet, Income Statement) and to assist in
the process of interpretation.
Accounting is a service activity. Its function is to provide quantitative information, primarily
financial in nature, about economic entities that is useful in making economic decisions, in
making reasoned choices among alternative course of action.
To be more useful, accounting should provide various information in an integral information
system. The primary objective of accounting is to take decision on various matters based on
accounting data provided through different financial statements.
Accounting is thus not an end itself but a means to an end. It is mainly a service function. In
broad perspective an accounting system should concern itself with the following
information:
 Analysis of past financial data to find out the reasons for bad condition of the concern and
corrective measures for improvement of the business.
 Accounting is an art, on the other hand, it is the application of knowledge comprising of
some accepted theories, rules, concepts and conventions. It helps us to achieve our goals
and tells us the manner in which we may attain our objectives in the best possible way.
The more we practice an art the more expert we become in it.
 Accounting is a science because recording, classifying and summarising of business
transactions is done on the basis of certain principles of double entry system which are
universally applicable.
 Accounting seems to be very important in financial forecasting and financial forecasting
helps in estimating the profitable projects and out of these profitable projects accountant
chooses the one which is more profitable for the concern.
 For decision-making accounting is useful. Accounting helps the accountants to take
decision about capital structures, cost of capital, an ideal capital gearing ratio, capital
budgeting, working capital, cash, budget, cost control, inventory management etc.
  Accounting is a technique which compares the cost of various departments and thus find
out which department is efficient than the other.
 As is common with physicians, engineers, lawyers, and architects, accountants (including
CPAs) commonly are engaged in professional practice or are employed by business,
government entities, non-profit organisations and so on.
 Accounting can be classified into the following categories:
o Financial accounting
o Management accounting (including Cost accounting
o Auditing
o Others like Price level changes accounting, Social cost accounting, Social auditing,
Human resource accounting, Forensic accounting, Creative accounting, Value added
accounting etc.

2) explain basic terminolog of accounting in detail?

Account
This is the first term is the glossary of the accounting terminology.  An Account keeps the records
in a classified manner in the general ledger.
Account Balance
It is of two types: first a debit balance and second a credit balance. When the sum of debit entries
are more than the sum of credits than it is a debit balance and if the sum of debit entries is less
than the sum of credits than it is a credit balance.
Accounting
Accounting is everything about the process that helps to record, summarize, analyze, and report
data that concerns financial transactions. Besides that, it also takes care of the profits and
loss issues in business.
Accounts Payable
These are the liabilities in a business or an organization that shows the money owed to others. For
example, money spent on pending bills and taxes.
Accounts Receivable
This is an asset that represents the money owed by the other to the business and the organization.
For example, money the debtors owe the organization or credit sales made by the organization.
Accrual Basis
This is an accounting method that performs many functions like recognizing the revenue when
earned, rather than when collected, and expensed that incurred rather than when they are paid. In
other words, Accrual basis records all the financial transfers when they occur, i.e. in the period in
which they occur rather.
Asset
It is a very important term in accounting terminology. It is a cash convertible property that one
owns. For example, land, buildings, cash in bank accounts are all assets. There are broadly two
types of assets – current asset and fixed asset.
Audit
The audit is a formal examination and evaluation of an organization’s records to ensure quality
assurance, check internal control, elimination of fraud, and to check the effectiveness of the
policies.
Balance Sheet
It is the summary report on a specific date of the assets, liabilities and net assets of the business.
Budget
Budget is the total requirement of assets in the whole coming year.
Credit
It represents the reduction of an asset or in other words, the expenditure made or added to a
liability. Its entry is done on the right side of the balance sheet.
Debit
It represents the gain in the asset or the earnings made. The entry of debt is done on the left side
of a double entry accounting system.
Double-Entry Accounting
Double-entry accounting records financial transactions in which each transaction is entered in
two or more accounts. Furthermore, it involves two-way, self-balancing posting. Total debits
must equal total credits. Which means for every entry there is an equal and opposing effect.
Expense
An expense is funds paid by the organization or business. For example, paychecks to employees,
reimbursements to employees, payments to vendors for goods or services.
FASB
FASB stands for Financial accounting standards board. It is an independent, private,
nongovernmental authority that establishes the accounting principles in the United States.
Financial  Statements
Financial statements are a series of reports showing a summary view of the various financial
activities of the business at a specific point in time. Also, each statement tells a different story
about financial activity taking place in the organization. The three main aspects of financial
statements are Profit and Loss A/c, Balance sheet, and Cash flow Statement.
Fiscal Year
A fiscal year is a period of 12 consecutive months chosen by an organization as its accounting
period which may or may not be a calendar year. The general fiscal year used in India is 1st April
to 31st March.
Fixed Asset
A fixed asset is any real item with a useful life of more than one year and, i.e. it does not have
liquidity. For example, the building of a company and the equipment required.
Fund Balance (Net Assets)
Fund balance represents the net assets of the company. To arrive at this number take total assets
minus total liabilities.  Also, Any excess revenue over expenses or cumulative appreciation or
depreciation on investments will become a net asset at the end of the fiscal year.
GAAP
GAAP is an abbreviation for Generally accepted accounting principles which includes
conventions, rules. In addition, the procedures that are necessary to define accepted accounting
practice at a particular time. Besides that, The highest levels of such principles are set by FASB.
General Ledger
The general ledger is the collection of all assets, liability, fund balance (net assets), revenue and
expense accounts.
Income Statement
An Income statement is a summary report that shows revenues and expenses over a specific
period of time, such as a month, quarter or fiscal year.
Journal Entry
A journal entry is a group of debit and credit transactions that are included in the general ledger.
Consequently, All entries in the journal must result in zero so debits must be equal to credits.
Liability
Liability is what the business organization owes to others. For example-loans, taxes,  long-term
debt from a bond issue, funds held by the college for a third party such as a student group.
 Net Income (loss)
Net Income (loss) is the amount a department lost for a specific period of time. The arrival at this
number takes total revenues minus total expenses.
Restricted Fund
A restricted fund is a fund established to account for assets whose income must be used for
purposes
established by donors or grantors.

Revenue
Revenue is the funds collected by the business, it can also be called income. For example, tuition,
fees, etc.
Subsidiary Ledger
A subsidiary ledger is a group of accounts containing the detail of debit and credit entries. For
instance, detailed information contained in Accounts Payable.
Unrestricted Fund
An unrestricted fund is an accounting terminology term that is a fund having no restrictions as to
use or purpose.

3) explain accounting concepts and accounting conventions in brief?

Accounting conventions
The most commonly encountered convention is the "historical cost convention". This
requires transactions to be recorded at the price ruling at the time, and for assets to be
valued at their original cost.
Under the "historical cost convention", therefore, no account is taken of changing prices
in the economy.
The other conventions you will encounter in a set of accounts can be summarised as
follows:

Monetary measurement
Accountants do not account for items unless they can be quantified in monetary terms.
Items that are not accounted for (unless someone is prepared to pay something for
them) include things like workforce skill, morale, market leadership, brand recognition,
quality of management etc.

Separate Entity
This convention seeks to ensure that private transactions and matters relating to the
owners of a business are segregated from transactions that relate to the business.

Realisation
With this convention, accounts recognise transactions (and any profits arising from
them) at the point of sale or transfer of legal ownership - rather than just when cash
actually changes hands. For example, a company that makes a sale to a customer can
recognise that sale when the transaction is legal - at the point of contract. The actual
payment due from the customer may not arise until several weeks (or months) later - if
the customer has been granted some credit terms.
 Materiality
An important convention. As we can see from the application of accounting standards
and accounting policies, the preparation of accounts involves a high degree of
judgement. Where decisions are required about the appropriateness of a particular
accounting judgement, the "materiality" convention suggests that this should only be an
issue if the judgement is "significant" or "material" to a user of the accounts. The
concept of "materiality" is an important issue for auditors of financial accounts.

Accounting Concepts
Four important accounting concepts underpin the preparation of any set of accounts:

Going Concern
Accountants assume, unless there is evidence to the contrary, that a company is not
going broke. This has important implications for the valuation of assets and liabilities.

Consistency
Transactions and valuation methods are treated the same way from year to year, or
period to period. Users of accounts can, therefore, make more meaningful comparisons
of financial performance from year to year. Where accounting policies are changed,
companies are required to disclose this fact and explain the impact of any change.

Prudence
Profits are not recognised until a sale has been completed. In addition, a cautious view is
taken for future problems and costs of the business (the are "provided for" in the
accounts" as soon as their is a reasonable chance that such costs will be incurred in the
future.

Matching (or "Accruals")

Income should be properly "matched" with the expenses of a given accounting period.
Key Characteristics of Accounting Information
There is general agreement that, before it can be regarded as useful in satisfying the
needs of various user groups, accounting information should satisfy the following
criteria:

Understandability
This implies the expression, with clarity, of accounting information in such a way that it
will be understandable to users - who are generally assumed to have a reasonable
knowledge of business and economic activities

Relevance
This implies that, to be useful, accounting information must assist a user to form,
confirm or maybe revise a view - usually in the context of making a decision (e.g. should
I invest, should I lend money to this business? Should I work for this business?)
 Consistency
This implies consistent treatment of similar items and application of accounting policies

Comparability
This implies the ability for users to be able to compare similar companies in the same
industry group and to make comparisons of performance over time. Much of the work
that goes into setting accounting standards is based around the need for comparability.

Reliability
This implies that the accounting information that is presented is truthful, accurate,
complete (nothing significant missed out) and capable of being verified (e.g. by a
potential investor).

Objectivity
This implies that accounting information is prepared and reported in a "neutral" way. In
other words, it is not biased towards a particular user group or vested interest

4) what is the difference between bookkeeping and accounting?

BASIS BOOK-KEEPING ACCOUNTING

Objective The objective of book-keeping is The objective of accounting is to record,

to prepare original books of analyze and interpret the business
accounts. It is restricted to transactions.
journal, subsidiary books and
ledger accounts only

Scope It has limited scope and is It has wider scope as compared to book-
concerned with the recording of keeping.
business transactions

Level of It is restricted to low level of It is concerned with low level, medium

work work. Clerical work is involved level and even top level management.
in it. Low level clerks prepare the accounts,
medium level report it and top level
interpret it.

Mutual Book-keeping is only the art of Accounting is based upon bookkeeping

dependence recording transactions, so it has which is its initial and vital part. It
to depend upon accounting which depends upon bookkeeping.
makes it more meaningful and
purposeful

Results of It does not show the net result of Accounting shows the net result of the
business the financial position of business. business. It tells us about the profit earned
 BASIS BOOK-KEEPING ACCOUNTING

and also about the assets and liabilities of

the business.

Principles of In book-keeping, accounting The methods of reporting and

Accounting concepts and conventions are interpretation in accounting may vary
followed from firm to firm.

5) who are the users of accounting information?

The accounting process provides financial data for a broad range of individuals whose
objectives in studying the data vary widely. There are three primary users of accounting
information: internal users, external users, and the government (which is a specific form of
an external user). Each group uses accounting information differently and requires the
information to be presented differently.

Internal users

Internal users are owners and managers involved in the day-to-day operations of the
business and in long-term strategic planning. They are the ones who are making decisions
such as whether to lease or buy equipment or to keep the old equipment and simply keep
repairing it. They also decide what products or services to produce and how much of each
to supply. They decide on the price to charge to customers, and they want to know how
much it costs to make a product.

External users

The external users of accounting information fall into five groups; each has different
interests in the company and wants answers to unique questions. The groups and some of
their possible questions are:

Prospective and current board members or investors .  Has the company earned
satisfactory income on its total investment? Should an investment be made in this
company? Should the present investment be increased, decreased, or retained at the same
level? Can the company install costly pollution control equipment and still be profitable?

Creditors and lenders. Should a loan be granted to the company? Will the company be
able to pay its debts as they become due?
Employees and their unions. Does the company have the ability to pay increased
wages? Is the company financially able to provide long-term employment for its
workforce?

Customers. Does the company offer useful products at fair prices? Will the company
survive long enough to honor its product warranties?

General public. Is the company providing useful products and gainful employment for
citizens without causing serious environmental problems?

Government-The government is a separate type of external user that is also interested in

a company’s performance, mainly for purposes of collecting the proper amount of tax,
but also for other regulatory purposes. In fact, a single company may be reporting to
several state and local governments and even to foreign governments, depending on
where they are doing business.