ACC 303 - Financial Accounting Analysis

UNIT 1: Introduction Accounting has rightly been termed as the language of the business. The basic function of a language is to serve as a means of communication. Accounting also serves this function. It communicates the results of business operations to various parties who have some stake in the business viz., the proprietor, creditors, investors, Government and other agencies. Though accounting is generally associated with business but it is not only business which makes use of accounting. Persons like housewives, Government and other individuals also make use of a accounting. For example, a housewife has to keep a record of the money received and spent by her during a particular period. She can record her receipts of money on one page of her "household diary" while payments for different items such as milk, food, clothing, house, education etc. on some other page or pages of her diary in a chronological order. Such a record will help her in knowing about: (i) The sources from which she received cash and the purposes for which it was utilized. (ii) Whether her receipts are more than her payments or vice-versa? (iii) The balance of cash in hand or deficit, if any at the end of a period.

ORIGIN ANDGROWTH OF ACCOUNTING Accounting is as old as money itself. However, the act of accounting was not as developed as it is today because in the early stages of civilization, the number of transactions to be recorded were so small that each businessman was able to record and check for himself all his transactions. Accounting was practiced in India twenty three centuries ago as is clear from the book named "Arthashastra" written by Kautilya, King Chandragupta's minister. This book not only relates to politics and economics, but also explain the art of proper keeping of accounts. However, the modern system of accounting based on the principles of double entry system owes it origin to Luco Pacioli who first published the principles of Double Entry System in 1494 at Venice in Italy. Thus, the art of accounting has been practiced for centuries but it is only in the late thirties that the study of the subject 'accounting' has been taken up seriously.

MEANING OF ACCOUNTING The main purpose of accounting is to ascertain profit or loss during a specified period, to show financial condition of the business on a particular date and to have control over the firm's property. Such accounting records are required to be maintained to measure the income of the business and communicate the information so that it may be used by managers, owners and other interested parties. Accounting is a discipline which records, classifies, summarizes and interprets financial information about the activities of a concern so that intelligent decisions can be made about the concern. The American Institute of Certified Public Accountants has defined the Financial Accounting as "the art of recording, classifying and summarizing in as significant manner and in terms of money