Table of Contents

• Introduction
• Accounting And Accountancy
• Topics Covered In Accountancy Basics
• Essential Accounting Basics Topics
• Accounting Principles
• Financial Statements
• Accounting Standards
• Why Must CA Aspirants Know Accounting Basics?
• Conclusion

Introduction

Chartered Accountants are experts in taxation, auditing laws, finance valuation, accounting rules, accountancy laws and business finance. They provide guidance with accounting best practices and their application in different types and forms of businesses. Though the laws change – new rules are added, and old ones get amended, the basics of accountancy remain the same. As one prepares for their CA certification, they will deep dive into the intricate systems and practices. However, the basics of accountancy remain unchanged and form the foundation for the profession. This blog will delve into the importance of Accountancy basics for CA aspirants. 

Accounting And Accountancy

Accounting summarises, interprets and communicates financial data through financial statements. Accountancy encompasses a systematic knowledge of the principles and techniques applied in accounting. The fundamental aspects of accounting are – 

• Assets: these are all the resources that carry economic value for an individual, organisation, or nation with an expectation of deriving profit. 
• Liabilities: these are generally values such as money owed to others by the individual, company or nation, which are payable by way of its assets. 
• Equity: it refers to the share of the company held by the shareholder. 

Topics Covered In Accountancy Basics

A strong foundation is vital before you dive deep into complex accounting concepts. Familiarity with accounting principles, concepts and terms will build your confidence and understanding of advanced concepts. Topics such as double-entry bookkeeping, debit and credit rules, ledger and journal entries, trial balance and financial statements will be relevant in your career. The CA Foundation course Paper I issued by ICAI delves into the basics of accounting. 

The concepts of Accountancy Basics that one must know –

Essential Accounting Basics Topics

Accounting Principles

• Matching principle: where expenses are recognised in the same period as the revenues they help generate
• Materiality: it refers to the significance of an amount, transaction, or discrepancy in financial statements that determines how the omission or misstatement would influence the economic decisions of users relying on those statements.
• Going Concern: it is the assumption that the business will continue to operate in the foreseeable future. 
• Accrual Basis: these are transactions that are recorded as they are occurring and not after the transaction is concluded. 

Financial Statements

• Balance Sheet: it is a complete statement of the company’s assets, liabilities and equity for a specific period
• Cashflow Statement: it is a statement of the cash inflow and outflow.
• Income Statement: Summary of the company’s income, expense and net profit or loss in a given period.

Accounting Standards

• IFRS (International Financial Reporting Standards): A globally recognised set of accounting standards.
• Ind AS (Indian Accounting Standards): The Indian version of IFRS. 
• Generally Accepted Accounting Principles (GAAP): it is a set of standards issued by the Financial Accounting Standards Board (FASB) that oversee the accounting best practices and legalities of business and corporate accounting. 

Why Must CA Aspirants Know Accounting Basics?

• It forms the foundation for the entire CA Certification course.

The CA certification course offered by ICAI is a four-year programme, and the student will delve deeper into the rules and laws of Accountancy as they progress in the programme. However, the concepts and terms are derived from Accountancy basics. 

• It is globally practised.

Whether you pursue CA, CFA, or CPA, the rules of accountancy are universal, and you will return to the basic concepts. Hence, strengthening your understanding of these rules is crucial to your professional growth and success.

• When the problem gets complex, the fundamental concepts will unravel the problem.

No matter how complex a law may appear or how confusing an entry may seem, the fundamental rules will always hold and guide you to choose the right answer. 

• You will study the concepts in other degree programmes.

Whether you pursue a B. Com, BMS or MBA, you will study Bookkeeping and Accountancy and Finance Management. Both these subjects will have Accounting and Accountancy concepts and theories. 

Conclusion

Every successful Chartered Accountant, whether they have newly earned their certificate or have years of practice behind them, will attest to the value of mastering the basics of accountancy. As with any technical subject, it is of paramount importance to strengthen one’s fundamentals, and the rule holds for Accountancy. 

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