01.1 Introduction For Accounting
01.1 Introduction For Accounting
01.1 Introduction For Accounting
NVQ-05 SEMESTER –I
UNIT 01.1
INTRODUCTION TO ACCOUNTING
SLTES
MBA,BBA,HNDA,PGDE,MAAT,CMA,NDTTE
HOD- Commerce Technical College Akkaraipattu
2 INTRODUCTION
❑ Accounting is a well established formal process which basically
analyzes both financial & non-financial information of the
particular entity/organization and present them in a formal
manner in order to take (economic) decision(s).
❑ Accounting is a structured system which entails series of
activities including identifying, measuring, recording,
summarizing & presenting (communicating) the various business
transactions/events.
❑ Accounting is a business language which essentially
communicates financial performance & position of an entity to
all stakeholders (existing and prospective).
Types of users
Internal External
Internal - Key management/owners
Inter Related
Inter-related - Financial Institutions (Banks)
- Key customers
- Key suppliers
- Employees (Unions)
Accountant
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Scope of the Financial accounting defines from the view point of the external
(third) party while management accounting analyzes information from the view point
of the entity’s key management
Management Accounting
Financial Accounting
Most financial reports are of a quantitative nature. There ports Much more detailed and can be
Level of detail represent the entity as a whole, consolidating income and expenses tailored to suit the needs of the
from different segments of the business. management. Both quantitative and
qualitative in nature.
Prepared to suit a variety of users including investors and Main users are the key management
Main users prospective investors, management, suppliers, consumers, of the entity. Hence it called as
employees, banks, taxation authorities and interested groups. management accounting.
LIMITATIONS OF ACCOUNTING INFORMATION
❑ Time lag
❑ Use of historical information
❑ Subjectivity of information
❑ CA Sri Lanka
Profession of accounting and some of its key attributes are evolving due to
following factors.
❑ Globalization
❑ Technological changes
❑ Demographic changes
❑ Social impact
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ENVIRONMENT OF ACCOUNTING
INTRODUCTION
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❑ The environment of accounting is the overall SCOPE within
which the entire accounting function/activities will be carried
out by an entity/organization.
❑ Recent episodes in corporate collapses and insider
trading/dealing re-iterate the importance of having well
established and strictly monitored environment to carry out
accounting function smoothly.
❑ Strictly monitored environment is essentially help to protect
interest of different stakeholders along with promoting more
investment avenues which in turn contributes economic growth
of the country.
❑ Government itself carries more responsibility to establish strong
accounting environment with the assistance of other regulatory
bodies such as CA Sri Lanka. This can be implemented by
introducing rules/regulations and other kinds of mechanisms
such as introduction of code of ethics.
KEY CATEGORIES
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❑ Assets – A resource control by the entity as a result of the past events &
from which future economics benefits are expected to flow to the entity.
E.g. PPE, Investments, Goodwill, Debtors, Inventory, Cash in hand & etc.
A present economic resource controlled by an entity as a result of past events. Economic resource is a
right that has the potential to produce economic benefits.
❑ Liabilities – A Present obligations of the entity arising from past events &
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits. E.g. Long term & short term Loan,
accrued expenses, provisions & etc.