Unit 1: Introduction to accounting & accounting standards
Basic Accounting notes · PTU syllabus (BBA 102-18)
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Unit summary
Accounting is the language of business: it records, summarises and reports financial transactions so that owners, managers and others can make decisions. This unit covers the meaning, objectives and scope of accounting, book-keeping, basic terms, users and limitations of accounting information, accounting concepts and conventions, and Accounting Standards in India.
After this unit you can
- Define accounting and distinguish it from book-keeping
- Explain basic accounting terms and the users of accounting information
- Explain accounting concepts and conventions
- Describe Accounting Standards and Ind AS in India
PTU syllabus topics
- Meaning
- objectives and scope of financial accounting
- concept of book-keeping
- basic accounting terms
- users and limitations of accounting information
- accounting concepts and conventions
- Accounting Standards in India
Business entity
Business is separate from its owner
Going concern
Business will continue indefinitely
Money measurement
Only money transactions are recorded
Accrual
Record income and expenses when earned or incurred
Conservatism
Anticipate losses, not profits
Consistency
Same methods year after year
Topic 1
Meaning, objectives and scope
Accounting is the art of recording, classifying and summarising financial transactions in money terms and interpreting the results (AICPA definition). Book-keeping is the recording part only — the clerical first stage of accounting. Objectives: keep systematic records, find profit or loss, show financial position, help decisions, and meet legal requirements.
Topic 2
Basic accounting terms
| Term | Meaning |
|---|---|
| Capital | Money invested by the owner |
| Drawings | Money or goods taken by the owner for personal use |
| Assets | Resources owned (fixed: building; current: stock, debtors, cash) |
| Liabilities | Amounts owed to outsiders (creditors, loans) |
| Revenue / Income | Earnings from sales and services |
| Expenses | Costs incurred to earn revenue |
| Debtors / Creditors | Those who owe us / those we owe |
| Goods | Items bought for resale |
Topic 3
Users and limitations
Internal
Owners, managers, employees
Investors and lenders
Banks, shareholders
Government
Tax authorities
Others
Creditors, customers, researchers
Limitations: records only monetary transactions, based on historical cost (ignores inflation), affected by estimates and personal judgement, and cannot show qualitative factors like staff skill.
Topic 4
Accounting concepts and conventions
Examples
Business entity, money measurement, going concern, accounting period, cost, dual aspect, realisation, accrual, matching
Consistency, conservatism (prudence), materiality, full disclosure
- Dual aspect: every transaction has two effects — the basis of Assets = Liabilities + Capital.
- Going concern: the business will continue for the foreseeable future.
- Conservatism: anticipate no profit, but provide for all possible losses.
- Matching: expenses are matched with the revenue of the same period.
Topic 5
Accounting Standards in India
Accounting Standards are written policy documents issued by expert bodies to bring uniformity to accounting. In India, the ICAI (Institute of Chartered Accountants of India) through its Accounting Standards Board issued AS; companies above certain thresholds now follow Ind AS, converged with IFRS and notified by the Ministry of Corporate Affairs.
Exam tip
Benefits of standards: uniformity, comparability, reliability and reduced manipulation.
Key terms
- Accounting
- Recording, classifying, summarising and interpreting financial transactions
- Book-keeping
- The recording stage of accounting
- Dual aspect concept
- Every transaction affects two accounts
- Conservatism
- Provide for all losses, recognise no unrealised profits
- Ind AS
- Indian Accounting Standards converged with IFRS
Quick revision
- Accounting = record + classify + summarise + interpret.
- Book-keeping is only recording.
- Assets = Liabilities + Capital (dual aspect).
- Concepts are assumptions; conventions are practices.
- ICAI issues AS; Ind AS converge with IFRS.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Differentiate between book-keeping and accounting.
- Q2.Define assets and liabilities.
- Q3.State the going concern concept.
- Q4.What is the convention of conservatism?
- Q5.What are Accounting Standards?
Long-answer questions
- Q1.Explain the meaning, objectives and limitations of accounting.
- Q2.Explain the users of accounting information.
- Q3.Explain accounting concepts and conventions with examples.
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