SESSI

ON I
Accounting Primer June-July, 2012
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Business organizations provide products and services, They convert inputs into
outputs by applying processes.


Merchandising or Trading organizations
Pantaloon, wal-mart, Amazon.com etc.


Manufacturing organizations
Amul, SONI, etc.

Services organizations
Work done by one person that benefits another. The recipient of a service can
experience its personally but cannot transfer it to another person.


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Forms of business organizations:

From commercial and legal angles, business may be organized in many
ways. The common forms of organizing business are:

Sole Proprietorship
Unlimited liability
No specific law to regulate the business

Partnership
Minimum two, maximum 20 persons trading together
Unlimited liability
Indian partnership act
Architects, lawyers , accountants etc.

Limited company
Legal entity: under the law it has most of the rights like human beings
Limited companies can be either public or private
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Private Company:

Minimum paid up capital of one lakh or such higher paid-up capital as may be
prescribed.

Restricts the right to transfer its shares

Limits the number of its members to fifty (50)

Prohibits any invitation to the public to subscribe for any shares in, or
debentures of the company.

Public company:

Is not a private company

Has a minimum paid-up capital of five lakh rupees or such higher paid-up
capital, as may be prescribed.

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Government Company:
Any company in which not less than fifty-one percent of the paid-up share
capital is held by the central government, or by any state government or
governments, or partly by the central government and partly by one or more
state governments


Foreign Company:
Is incorporated outside India
Has established a place of business with in India


Companies with license under section 25
Where it is proved to the satisfaction of the central government that an
association
Is about to be formed as a limited company for promoting commerce, art,
science, religion, charity or any other useful object .



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Companies
under Section
25
US companies
in India
Government
companies
Limited Liability Partnership (LLP)
Partner formed and registered under the limited liability partnership act,
2008.
Only individuals can be partners in a partnership, but an LLP can have
individuals or corporate bodies as partners.



In Class Activity:

List out companies under various categories mentioned above
Accounting Primer June-July, 2012
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Annual
Report
MNCs in
India
Regulators
FIRST LLP
LLP
FAQ
Comparison between
LLP, Partnership and
Company.
What is Accounting:

Book-keeping:
Recording of transactions in a systematic manner.


Accounting:

Accounting often called the language of business

The main purpose of accounting is to ascertain profit or loss during a
specified period, to show financial position of the business on a
particular date and to have control over the firms property.



the art of recording, classifying and summarizing in a significant
manner in terms of money transactions and events which in part, at
least of a financial character and interpreting the results thereof.
American Institute of Certified Public Accountants

Accounting Primer June-July, 2012
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Accounting Information and Economic Decisions:

The accounting system process business transactions to provide information to
various interested parties.

there are external and internal users of the information thus produced

Accounting information is useful in making number of decisions that affect the
income or wealth of individuals and organization.


Decisions that are based on accounting information

Decide when to buy, hold or sell an equity investment
Assess the stewardship or accountability of management
Assess the ability of the enterprise to pay and provide other benefits to its
employees
Determine tax policies
Determine distributable profits and dividends
Regulate the activities of enterprises

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The Accounting Information System
INPUTS
Business transactions
External events(change
in tax laws etc.)
PROCESSING
Accounting principles
Accounting standards
Management estimates
Laws and regulations
Companies act and
income tax act
Accounting records
OUTPUTS
Profit and loss account
Balance sheet
Cash flow statement
Explanatory notes
Management
commentary
Tax returns
Regulatory filings
USERS
Shareholders
Security analysts
Banks ,Rating
agencies
Managers, Employees
Suppliers, Customers
Government,
Regulators
Media
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Users of Accounting Information
Investors
Enables the investors to identify promising investment opportunities
Financial reports
Lenders
Banks
Debenture holders
Credit evaluation benchmarks

Security Analysts, Rating Agencies and other Information Specialists
Equity Analysts
Bond Analysts
Stock brokers
Credit rating agencies
Managers
Planning and controlling operations
Monitor the key financial indicators

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Customers
Suppliers for their future purchases and after sale support


Government and Regulatory Authorities
SEBI
IRDA
TRAI
RBI

The Public
Financial statements assist the public by providing information about the trends
and recent developments in the prosperity of the enterprise and the range of its
activities
Political parties
Public affair groups
Consumer groups
Newspapers
Television channels
Environment protection groups
Anti-business activities etc.

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Basis of Accounting:

Cash Basis
Accrual Basis

Cash Basis

Actual cash receipts and Actual cash payments are recorded

Credit transactions are not recorded at all until the cash is actually received
or paid
The receipts and payments account prepared in case of non-trading
concerns such as a charitable institution, a club, a school, a college etc.

Professional men like a lawyer, a doctor, a chartered accountant etc. can be
cited as the best example of cash system


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Accrual Basis:

On the accrual basis of accounting, the income whether received or not but
has been earned or accrued during the period forms part of the total income
of that period.

Similarly

If the firm has taken benefit of a particular service, but has not paid within
that period, the expense will relate to the period in which the service has
been utilized and not to the period in which payment for it is made.

Thus net income for a period is the result of matching of revenue realized in
the period and costs expired during the period.

This basis of accounting gives complete picture of the financial transactions
of the business and makes a record of all transactions relating to a period.

All the companies require to maintain their accounts on accrual basis of
accounting.


Accounting Primer June-July, 2012
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Business transaction

Debtor

Creditor
Capital

Goods Assets
liabilities Equity

Income

Expenditure

Drawings Loss

Profit

Turnover Capital expenditure

Revenue expenditure

Deferred revenue
expenditure

Bad debts
Inventory Reserve Provision
Basic Terminology
SO MANY TERMS REFER MATERIAL
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