CHAPTER - 1
INTRODUCTION TO ACCOUNTING
After studying this Chapter, you will be able to:
understand the Need, Meaning, Definition, Objectives
and Advantages of Book-Keeping.
know the Need, Definition, Objectives and Process of
distinguish between Book-Keeping and Accounting.
identify the Users of Accounting Information and their
know the Basic Accounting Terms.
“Accounting is as old as money itself”. Since in early ages
commercial activities were based on barter system, record keeping
was not a necessity. The Industrial Revolution of 19th century along
with rapid rise in population, paved way for the development of
commercial activities, mass production and credit terms. Thus
recording of business transaction has become an important feature. In
recent years with the change of technologies and marketing along
with stiff competition, accounting system has undergone remarkable
1.1 Need and Importance of Accounting
When a person starts a business, whether large or small, his
main aim is to earn profit. He receives money from certain sources
like sale of goods, interest on bank deposits etc. He has to spend
money on certain items like purchase of goods, salary, rent, etc.
These activities take place during the normal course of his business.
He would naturally be anxious at the year end, to know the progress
of his business. Business transactions are numerous, that it is not
possible to recall his memory as to how the money had been earned
and spent. At the same time, if he had noted down his incomes and
expenditures, he can readily get the required information. Hence, the
details of the business transactions have to be recorded in a clear and
systematic manner to get answers easily and accurately for the
following questions at any time he likes.
What has happened to his investment?
ii. What is the result of the business transactions?
iii. What are the earnings and expenses?
iv. How much amount is receivable from customers to whom
goods have been sold on