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Accountaa PDF
Accountaa PDF
ACCOUNTING CONCEPTS
Accounting concepts means Assumptions based on which accounting is done.
i.
B/S
Capital
xxx
(+) Int. on Cap
xxx
(-)Int. on Drawings xxx
Entries:
Interest on capital a/c Dr
To capital a/c
(Being interest on capital paid)
Capital a/c
Dr
To Interest on Drawings a/c
(Being Interest on drawings being received)
Note: If the business entity concept is absent Both the transactions are mingled, we
dont know the actual net profit.
M.B.A.
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M.B.A.
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ACCOUNTING CONVENTIONS
Accounting conventions means Any rule, policy, methods, traditions &
conditions follow by the organization.
i. Convention of Consistency
ii. Convention of Disclosure
iii. Convention of Materiality
iv. Convention of Conservation
i.
ACCOUTING TRANSACTIONS
i.
Cash
M.B.A.
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ACCOUNTING EQUATIONS
Assets
Liabilities
Capital
Balance Sheet
Capital xxx
Assets xxx
Liabilities xxx
.
= Capital + Liabilities
= Assets
- Capital
= Assets
- Liabilities
M.B.A.
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Expenses: Expenses are that by which we will get some benefit within the year are
called as expenses.
Expenses which should be involved cash is mandatory.
Losses: Uncertainly happened are called as losses. We cant get any benefit from
losses.
Ex.: Bad debts, Depreciation, Discount allowed, etc..
SIGNIFICANCE OF ACCOUNTING
Debit: Debit is a negative indicator. This shows all expenses, losses & assets.
Credit: Credit is a positive indicator. This shows all incomes, gains & liabilities.
Note:
If the debit values are increasing we have to shown in the same nature. (Debit side
only)
If the debit values are decreasing we have to shown in the opposite nature. (Credit
side only)
If the credit values are increasing we have to shown in the same nature. (Credit side
only)
If the credit values are decreasing we have to show in the opposite nature. (Debit
side only)
Vijay Kumar Varigala
M.B.A.
Page: 6
Journal: Journal is the primary book of to record day to day business transactions.
Journal is the first step of the accounting process.
Ledger: Ledger is nothing but set of accounts. Ledger is the second step of
accounting process. Ledger is the final book.
Trial balance: Trial balance is the extract of the ledger balances. The main objective
of the trial balance is to check the arithmetical accuracy of accounts. The total debit
balances, should be equal to the total credit balances. If the trial balance is not equal,
we have to verify all the general entries as well as all ledger balances. Trial balance is
a statement, it is not an account. On the trial balance of debit side we have to show
all expenses, losses & assets, on the credit side we have to show all incomes, gains &
liabilities. Trial balance is prepared for checking purpose only, it is a rough book. Trial
balance is the third step of the accounting process. The trial balance should be equal
because all the business transactions should be equal to the capital amount.
Vijay Kumar Varigala
M.B.A.
Page: 7
Trading account:
The main objective of trading a/c is to know the gross profit or gross loss of the
organization for a particular period. Trading a/c is one of the financial statement. On
the trading account debit side we have to show all direct expenses (factory
expenses). On the credit side we have to shown all direct incomes (factory incomes).
Trading a/c and Profit and loss a/c are called as income statements.
Direct Expenses: The expenses which are incurred for factory expenses are called
direct expenses. Ex.: Wages, fuel, carriage inward, octrai, etc..
Direct Incomes: The incomes which are earned from factory is called direct
incomes.
Ex.: Sale of scrap.
Indirect Expenses: The expenses which are incurred for the selling of goods.
Ex.: Salary, audit fee, rent, etc..
Indirect Incomes: The incomes which are raised from sale of finished goods.
Ex.: Discount received, commission received, etc..
BALANCE SHEET
The main objective of balance sheet is to know the financial position of the business
on a particular date. Balance sheet is the one of the financial statement.
Balance sheet which starts with liabilities and assets. It is prepared with the help of
the personal & real accounts. Balance sheet is a statement, not an account. The
balance sheet should be equal, if the company has to be efficiently utilization of
liabilities. The balance sheet is not equal because company is to be misusing of the
funds.
Balance sheet should be consisting of two types.
Vijay Kumar Varigala
M.B.A.
Page: 8
M.B.A.
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