ASSIGNMENT

Unit I: Introduction of Accounting

1.Explain financial accounting, cost accounting and management accounting with

examples.

financial accounting

is a specialized branch of accounting that keeps track of a company's financial transactions.

It is concerned with recording and processing all business transactions and events in the
books of accounts. It includes profit earned and loss incurred and will provide the
information for accounting year.

cost accounting

It is concerned with the cost of each product produced by the firm. It basically involves
estimating the cost in advance and detailed analysis. It also help in cost controlling

management accounting

It is drawn from financial accounting and cost accounting. It helps managers to make a
decisions related to performance improvement, forecasting, budgeting, cost control and
acquisition, revenue generation etc

2. Explain cash basis and accrual basis of accounting along with advantages and
disadvantages.

Cash Basis Of Accounting Cash Basis of Accounting is a method in which income is recorded
when cash is received, and expenses are recorded when cash is paid out

Advantages: It is simple as adjustment entries are not required. This approach is more
objective as very few estimates and judgments are required. This basis of accounting is
suitable for those enterprises where most of the transactions are on a cash basis.

Disadvantages: It does not give a true and fair view of the profit or loss and the financial
position of an enterprise because it ignores outstanding and prepaid expenses

Accrual Basis of Accounting is based on 'accrual concept‘Revenue is recognized (recorded)

when earned Expenses are recognized when incurred. Under this system Income earned
and expenditure incurred is recognized irrespective of cash received or cash paid.

Advantages: It is more scientific compared to Cash Basis. This basis of accounting shows a
complete picture. This system discloses correct profit or loss for a particular period and also
exhibits true financial position of the business on a particular day. It reflects correct profit or
loss during the accounting period.

Disadvantages: This system is not as simple as Cash Basis of Accounting. The accounting
process under this basis is too elaborate. A quick appraisal of the profit/loss is not possible
because many adjustments are required to ascertain the true financial position of the
business.

3. Explain accounting concepts with its types in detail.

The term „concepts‟ includes those basic assumptions or conditions upon which the science
of accounting is based. The following are the important accounting concepts

Business Entity Concept: This concept assumes that, for accounting purposes, the business
enterprise and its owners are two separate independent entities. Thus, the business and
personal transactions of its owner are separate. For example, when the owner invests
money in the business, it is recorded as liability of the business to the owner. Similarly,
when the owner takes away from the business cash/goods for his/her personal use, it is not
treated as business expense

Money Measurement Concept: This concept assumes that all business transactions must be
in terms of money. In our country such transactions are in terms of rupees. Thus, as per the
money measurement concept, transactions which can be expressed in terms of money are
recorded in the books of accounts.

Going Concern Concept: This concept states that a business firm will continue to carry on its
activities for an indefinite period of time. This is an important assumption of accounting, as
it provides a basis for showing the value of assets in the balance sheet.

Cost Concept: Accounting cost concept states that all assets are recorded in the books of
accounts at their purchase price, which includes cost of acquisition, transportation and
installation and not at its market price. It means that fixed assets like building, plant and
machinery, furniture, etc are recorded in the books of accounts at a price paid for them. For
example, a machine was purchased by XYZ Limited for Rs.500000, for manufacturing shoes.
An amount of Rs.1,000 were spent on transporting the machine to the factory site. In
addition, Rs.2000 were spent on its installation. The total amount at which the machine will
be recorded in the books of accounts would be the sum of all these items i.e. Rs.503000.
This cost is also known as cost
Dual Aspect Concept: It provides the very basis of recording business transactions in the
books of accounts. This concept assumes that every transaction has a dual effect, i.e. it
affects two accounts in their respective opposite sides. Therefore, the transaction should be
recorded at two places. It means, both the aspects of the transaction must be recorded in
the books of accounts. For example, goods purchased for cash has two aspects which are (i)
Giving of cash (ii) Receiving of goods. These two aspects are to be recorded.
Accounting Concepts 23 GAAP Assets = Liabilities + Capital  Dual aspect concept

Matching Concept: The matching concept states that the revenue and the expenses
incurred to earn the revenues must belong to the same accounting period. So once the
revenue is realized, the next step is to allocate it to the relevant accounting period. The
matching concept implies that all revenues earned during an accounting year, whether
received/not received during that year and all cost incurred, whether paid/not paid during
the year should be taken into account while ascertaining profit or loss for that year

Accounting Period Concept: The life of an entity is divided into short economic time periods
on which reporting statements are fashioned. All the transactions are recorded in the books
of accounts on the assumption that profits on these transactions are to be ascertained for a
specified period. This is known as accounting period concept