FINANCIAL ACCOUNTING

NEED FOR ACCOUNTING
y WHAT BUSINESS OWNS y WHAT IT OWES y WHETHER EARNED PROFIT OR LOSS y FINANCIAL POSITION

DEFINITION & FUNCTIONS OF ACCOUNTING
y ART OF RECORDING, CLASSIFYING, SUMMARISING y FINANCIAL TRANSACTIONS y ANALYSING & INTERPRETING y COMMUNICATION y BOTH SCIENCE & ART

y END USERS

OWNER MANAGERS / EMPLOYEES CREDITORS INVESTOR CITIZEN

IMPORTANCE OF ACCOUNTING & ITS BRANCHES y FINANCIAL y MANAGEMENT y DIFFERENCE OBJECTIVE ANALYSIS DATA USED MONETARY MEASUREMENT REPORTING PERIODICITY PRECISION LEGAL COMPULSION .

y IMPORTANCE OF ACCOUNTING SYSTEMATIC RECORD PROTECTS ASSETS P&L FINANCIAL POSITION FACILITATES RATIONAL DECISION MAKING .

ACCOUNTING PRINCIPLES AND STANDARDS y ACCOUNTING PRINCIPLES ACCOUNTING CONCEPTS & ACCOUNTING CONVENTIONS .

ACCOUNTING CONCEPTS y SEPARATE ENTITY y GOING CONCERN y MONEY MEASUREMENT y COST y DUAL ASPECT y ACCOUNTING PERIOD y PERIODIC MATCHING OF COST & REVENUE y REALISATION .

ACCOUNTING CONVENTIONS y CONSERVATISM y FULL DISCLOSURE y CONSISTENCY-Necessary for comparison y MATERIALITY-unimportant details ignored .

ACCOUNTING STANDARDS y SCOPE CONFORMITY WITH LAW.CUSTOMS. USAGES & BUSINESS ENVIRONMENT IN INDIA VARIOUS DISCLOSUERS BY WAY OF NOTES APPLY ONLY TO ITEMS WHICH ARE MATERIAL .

COMPLIANCE OF ACCOUNTING STANDARD y MANDATORY y 32 STANDARDS .

SYSTEMS OF BOOK KEEPING y SINGLE ENTRY y DOUBLE ENTRY ACCOUNTING EQUATION ASSETS = EQUITIES .

SYSTEM OF ACCOUNTING y CASH SYSTEM y MERCANTILE SYSTEM .

JOURNALISING TRANSACTIONS y ACCOUNTING PROCESS / CYCLE RECORDING TRANSACTIONS CLASSIFYING SUMMARISING INTERPRETING RESULTS .

y JOURNAL BOOK CONTAINING CHRONOLOGICAL RECORD OF TRANSACTIONS UNDER DOUBLE ENTRY SYSTEM BOOK OF ORIGINAL RECORD PRECEDES LEDGEIL .

BUSINESS TRANSACTIONS A/Cs CLASSIFIED IN 3 CATEGORIES y RELATING TO PERSONS PERSONAL ACCOUNTS y RELATING TO PROPERTIES & ASSETS REAL ACCOUNTS y RELATING TO INCOME & EXPENSES NOMINAL ACCOUNTS .

ACCOUNTS ACCOUNTS PERSONAL REAL NOMINAL NATURAL ARTIFICIAL REPRESENTATIVE TANGIBLE INTANGIBLE EXPENSE INCO .

DEBIT THE RECEIVER CREDIT THE GIVER y REAL ACCOUNTS.RULES OF ACCOUNTING y PERSONAL ACCOUNTS. DEBIT WHAT COMES IN CREDIT WHAT GOES OUT y NOMINAL ACCOUNTS. DEBIT ALL EXPENSES & LOSSES CREDIT ALL GAINS & INCOMES .

COMPOUND JOURNAL ENTRY y ONE A/C DEBITED SEVERAL CREDITED y SEVERAL A/CS DEBITED ONE CREDITED y SEVERAL A/CS DRBITED SEVERAL A/CS CREDITED .

OPENING ENTRY y RUNNING BUSINESS y DEBIT ALL ASSETS CREDIT ALL LIABILITIES (Including Capital) .

LEDGER POSTING y CONTAIN VARIOUS ACCOUNTS y WHETHER REAL /NOMINAL OR PERSONAL y MAY BE DONE ANY TIME y BEFORE FINAL ACCOUNTS y ADVISABLE KEEP POSTING UPDATED ALWAYS y A/C DEBITED OR CREDITED IN JOURNAL SHOULD BE DEBITED / CREDITED IN LEDGER ALSO .

y BUT FOR REFRENCE OTHER A/C NAME SHOULD BE GIVEN y IF VARIOUS A/CS ON ONE SIDE THEN FOR REFRENCE ¶SUNDRY A/CS· SHOULD BE WRITTEN y USE OF ¶TO· & ¶BY· y BALANCING OF LEDGER ACCOUNTS .

TRIAL BALANCE y LEDGER BALANCES TAKEN TO TRIAL BALANCE y OBJECTIVES CHECKING ARITHMETICAL ACCURACY BASIS FOR FINANCIAL STATEMENTS SUMMARISED LEDGER y METHODS TO PREPARE TOTALS METHOD NOT POPULAR BALANCE METHOD .

G. SALARY FOR APRIL 13.TRIAL BALANCE y PREPARED NOT ONLY AT YEAR END BUT MONTHLY/ QUARTERLY/HALF YEARLY OR AS PER CONTROL REQUIREMENTS y INTERIM TB HELPS IN EXCERCISING CONTROL E.20 LACS BUT MAY 35 LACS .

TRIAL BALANCE y ERRORS AND THEIR RECTIFICATION y ERRORS APPARENT y ERRORS DIFFICULT TO KNOW FROM TRIAL BALANCE y ERRORS OF PRINCIPLE y ERRORS OF OMMISSIONS y ERRORS OF COMMISSION y COMPENSATORY ERRORS y ONE ACCOUNT EXCESS DEBITED AND OTHER SHORT DEBITED BY SIMILAR AMOUNT .

TRIAL BALANCE y RECTIFICATION OF ERRORS y BEFORE PREPARATION OF TRIAL BALANCE y AFTER PREPARING TB BUT BEFORE PREPARATION OF FINAL ACCOUNTS y AFTER THE FINAL ACCOUNTS-NEXT YEAR .

VOUCHER y FOR EACH TRANSACTION VOUCHER IS PREPARED y NO VOUCHER WITHOUT ENTRY & NO ENTRY WITHOUT VOUCHER y TYPES OF VOUCHERS JOURNAL CASH / BANK PAYMENT SALES PURCHASES .

BANK RECONCILIATION y ENTRIES NOT RECORDED IN BANK BOOKS BUT RECORDED IN THE BOOKS OF ORGANISATION IN BANK ACCOUNT y FOR SOME DIFFERENCES WHICH ARE ERRORS ² ENTRIES ARE PASSED IN BOOKS BUT SOME DIFFERENCES ARE DUE TO PROCEDURAL DELAYS IN BANK-NO ENTRIES ARE PASSED y THESE DIFFERENCES ARE LEFT FOR REFERENCE AND RECONCILIATION IN BRS .

BANK RECONCILIATION y PURPOSE TO ENSURE THAT NO BANK TRANSACTION IS LEFTTO BE RECORDED IN BOOKS y REASONS OF DIFFERENCES IN LEDGER BALANCE & PASS BOOK / STATEMENT BALANCE ASCERTAINED y ENTRIES NOT RECORDED IN A/CS TRACED .

BANK RECONCILIATION y REASONS: a ) CHEQUES ISSUED BUT NOT PRESENTED FOR PAYMENT b ) CHEQUES SENT FOR COLLECTION BUT NOT YET COLLECTED c ) BANK CHARGES d ) DIRECT COLLECTIONS e )DIRECT PAYMENTS-ECS OR OTHERWISE f )ERRORS-WRONG DEBIT/CREDIT g) FRAUD IN BANK ACCOUNT .

BANK RECONCILIATION y IMPORTANCE REDUCES CHANCES OF FRAUD MORAL CHECK ON STAFF .

TECHNIQUE OF PREPARING BANK RECONCILIATION STATEMENT y BOOK TAKEN AS BASE y OTHER BOOK y EFFECT OF CAUSE OF DIFFERENCE SHOULD BE STUDIED ON BALANCE SHOWN BY OTHER BOOK y IF CAUSE HAS RESULTED INCREASE IN BALANCE SHOWN BY OTHER BOOK ADD THE AMOUNT TO BASE BOOK BALANCE¶OR·VICEVERSA .

AMOUNT OF OD BE PUT IN MINUS COLUMN AND BE FAVOURABLE BALANCE PREPARED AS IF y RECONCILIATION .TECHNIQUE OF PREPARING BANK RECONCILIATION STATEMENT y INCASE BOOKS SHOW ADVERSE BALANCE (OVERDRAFT) .

FINAL ACCOUNTS y P&L y FINANCIAL POSITION y P&L MANUFACTURING ACCOUNT TRADING ACCOUNT PROFIT & LOSS ACCOUNT .

ADJUSTMENT IN PURCHASES y OWNER·S USE GOODS y GOODS FOR ADS y PURCHASE RETURN .

ADJUSTMENTS IN SALES y SALES RETURN y TRADE DISCOUNTS .

ELECTRICITY. CARTAGE y ROYALTY y GAS. CARRIAGE. WATER y PACKING PURCHASE SALES .P/L y WAGES PERTAINING TO OPERATIONS y SALARIES y CUSTOMS/ IMPORT DUTY y FREIGHT.

P/L y VALUATION OF CLOSING STOCK y COST OR MARKET PRICE WHICH EVER IS LESS .

CLOSING ENTRIES y G.P. TAKEN TO P/L ACCOUNT y TRANSFER ALL EXPENSES AND INCOME TO P/L ACCOUNT-OTHER THAN TRADING ACCOUNT AND MANUFACTURING ACCOUNT .

IMPORTANCE OF TRADING A/C y CONTROL OVER OPERATING EXPENSES y YEAR AFTER YEAR COMPARISON y COMPARISON OF STOCK FIGURES OF ONE PERIOD WITH ANOTHER TO AVOID UNNECESSARY LOCK UP OF FUNDS y ADDING NEW PRODUCTS-MARK UP EASILY ADDED OVER COST .

PROFIT & LOSS ACCOUNT y TAKES CARE OF OPERATING EXPENSES y OTHER SOURCES OF INCOME TAKEN HERE RENT INVESTMENT INCOME EXTRA ORDINARY INCOME .

PROFIT & LOSS ACCOUNT y SOME IMPORTANT ISSUES GROSS INCOME/ EXPENSES INCLUDING TDS ARE TAKEN .

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