Introduction to Financial Accounting

Welcome to the Class

• Introduction to Devika's Commerce and Management Academy
• Focus on the introduction of financial accounting

What is Financial Accounting?

• Definition (AICPA):
  "Accounting is an art of recording, classifying, summarizing in a significant manner in terms of money, transactions and events of financial character, and interpreting the results thereof."
• Importance:
  • Essential for understanding profits and losses.
  • Necessary for every business (small or large) to avoid insolvency.

Objectives of Financial Accounting

• 1. Maintain Records of Business:

  • Proper recording of all transactions (both small and large).
  • Use of journal entries, ledgers, trial balance, profit and loss account, and balance sheet.
  • Transactions must be backed by proper proof (e.g., receipts, invoices).

• 2. Calculation of Profit or Loss:

  • Essential for managers to understand organization performance.
  • Helps in forecasting and making future business decisions.

• 3. Depiction of Financial Position:

  • Balance sheet reveals the financial position of the organization.
  • Provides details on assets, liabilities, and overall financial health.

• 4. Information for Various Groups:

  • Financial information is crucial for:
    • Company owners and founders
    • Management (CEOs, directors)
    • Employees
    • Financial creditors and tax authorities.

Branches of Accounting

• 1. Financial Accounting:

  • Main focus on recording transactions and preparing necessary accounts.

• 2. Cost Accounting:

  • Related to manufacturing and determining cost per product.
  • Focus on cost control and techniques.

• 3. Management Accounting:

  • Provides information for decision-making to management.
  • Aims to minimize losses and maximize profits.

Accounting Cycle

• 1. Business Transactions:

  • Transactions must occur first (e.g., purchasing assets, selling).

• 2. Journal Entries:

  • First step is to record transactions as journal entries.

• 3. Ledgers:

  • Journal entries are transferred to ledgers (individual accounts).

• 4. Trial Balance:

  • Provides a summary of accounts to check for errors.

• 5. Final Accounts:

  • Includes:
    • Trading Account (gross profit or loss)
    • Profit and Loss Account (net profit or loss)
    • Balance Sheet (financial position).

Summary

• Covered definition of financial accounting, its objectives, branches, and the accounting cycle.
• Upcoming discussion on accounting concepts and conventions.