Financial Accounting (Mgt-101)
The objective of this lecture is to introduce the subject "Financial Accounting" to the students and
give them an idea as to how did accounting develop.
What is Financial Accounting?
It is the maintenance of daily record of ALL financial transactions in such manner that it would help
in the preparation of suitable information regarding the financial affairs of a business or an
Why is Financial Accounting Needed?
The need for recording financial transactions arises because the individual or business wants to
know the performance and to assist the person in making decisions related to the business.
What Are Transactions?
In accounting or business terms, any dealing between two persons involving money or a valuable
thing is called transaction.
Human beings are social animals and are bound to adopt a community living style. Living in a
community, essentially means that people interact with other people and are dependant on each
other to fulfil their needs.
Every person cannot fulfil all his needs like food, clothing, housing etc. on his own. He, therefore,
depends on other people to provide him with some of his needs, in return to him providing others
with some of theirs.
This means that to get something on has to give something in return. Every instance where one
`gives something' to `get something' is called a transaction.
How Did it Develop?
Nearly all developments happen because of human being's need for the same. Accountancy is no
· Times when goods were bartered or exchanged. When the concept of money was introduced, it
became a little more difficult.
o Example of the Shepherd.
o Budgeting the old custom of keeping separate "Potlees" by the elders for household and
other expenses. Today's Business budgeting is on the same lines.
What is a Budget?
Budget is a plan of income, expenses & other financial operation for a future period.
Concept of Costing.
A person making or producing any thing must not only know how much it costs to make but also to
help in determining the selling price.
It is necessary that the person not only knows the cost of what is being produced but also the cost
of each component which has gone into production
The control of the costs being incurred is also necessary otherwise the same can exceed the
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