Book-ke Book-keeping and Accounting : An Introduction (Including Accounting Standards and Principles) ‘Accounting has been termed as the language of finance. The basic function of a language fs Wt serve as 2 means of communication. Accounting also serves this function, It communicates the results of business operations to various parties who have some stake in the business viz, the proprictors, creditors, investors, government and other agencies. Though accounting is generally associated with business, but + it is:not only business which makes use of accounting. Persons like professionals, government, non- profit institutions and other individuals also make use of accounting. ‘Home management also requires accounting of income and expenditure, ¢.g., salary received and its expenditure on payment of food stuffs, clothing, house rent, school fees, goverment UN etc. Government also keeps account of revenue (income) and expenditure (payments). So also a businessman has to keep an account of assets and liabilities and income and expenditure of the business. That is why there is a saying “First record and then pay. If errors, look what books say". “accounting is as old as the culture and business. In olden times the king's treasurers and Zamindar's (landlord) munims (clerks) used to keep record of their income and expenditure and manage their properties. Levying of taxes by the State is age old. It required proper ‘accounting. It can well be presumed that proper accounting system did exist under Babilonean, Greek, Roman, Aryan and Indus-valley civilizations. Meaning and Definition of Book-keeping Book-keeping means keeping of books of accounts. Accounts are maintained in books of accounts as pet Fules set for the purpose. Some of the important definitions of book-keeping are given as follows : “According to R.N. Carter : “Book-Keeping is the science and art of correctly recording in books of accounts, all those business transactions thatestit in the transfer of money oF money's worth.” ‘According to J.R. Batliboi {“Book-keeping may be defined as the science as well as the art of recording business transactions _undéf appropriate accounts "> Toyah cae TT ——nocording to L.C. Cropper : “Book-keeping is the art of recording business transactions with the view of having a permanent record of them and showing their effect on wealth.” ‘Thus, book-keeping is the art and science of recording business transactions according (0 set principles. ts object is to determine profits or loss of a business after a certain period and {o present its state of affairs. 7. sew crema Scanned with CamScannerL 12 Hook-keeping and Accounting : An Intro) Features of Book-keeping Book: keeping hae the following important fesures { A “rranenctions : Business transactions measurable in terme ; cannot be recorded in nooks of accounts het ec eal 2. Regular and Proper Recordin; ies in books of accounts are made every pinolty aos wor rules. rs first made in Fournal and exer subsidiary books: Then oes ee reeted in Tedger Alt these books ate maintained in set proforma, Entries and postings are done properly fon the basis of set principles. sence 2 Accounting fs Permanent : Memory has a limit, every event or transaction cannot be remembered for ever. Besides, government rules, taxation, receipts and discharge of taxes etc. requires that books be maintained not casually, but on permanent basis. 4. Determination of Profit or Loss and Presentation of Statement of Affairs : Trial balance and ‘ounts can only be prepared on the basis of properly maintained accounts. Position of assets and liabilities can be known only when a balance sheet is prepared and it is also based on proper maintenance of accounts. _S-Book-Keeping is hath Science and Art : Science has set rules. It is the systematic study. Since accounts are maintained on set principles itis science. Art is the best method of doing a thing. so also ‘Accounting lays down the process by which the performance of a business is best presented. Origin and Development of Book-keeping and Accounting in India ‘Accounting is as old as money itself. Chanakya in his Arthashastra has emphasized the existence and need of proper accounting. The Mahajani Bahi-Khata system has been prevalent in India since a number of thousand years. This system is based on double entry system and is complete in itself. The account books under this system are kept in an Indian language e.g. Hindi, Gurmukhi, Marathi, Gujarati etc. Origin of English System of Accounting : English system of book-keeping on double entry system is said to be originated in Italy when Lucas Pacioli of this country wrote a book entitled ‘De Compaset Scripturis' in 1494. Lucas Pacioli is known as father of modern accounting. Mr. Pacioli explained the double entry system in his book. Mr. Huge Old Castle published English version of this book in 1543. Mr. Edward Jones wrote a book entitled "English System of book-keeping” in 1795. This English system of book-keeping was started in India with the advent of English sovereignty in this country. Development of Accounting with Corporate Sector : In early days the business organizations and transactions were not so complex due to their being small and easily manageable by the proprietor himself. But things have changed fastly during the 20th Century. The advent of industries and corporate sector has resulted in large scale production, cut-throat competition and widening of the market. This has reduced the effectiveness of personal supervision resulting in the decentralization of authority and responsibility. ‘The first Company legislation in India contained regulations for the annual audit of company accounts, but adoption of these regulations was entirely optional. As such, there was ao legal obligation 6n the part of a company to have the audit of their annual accounts. It was the Companies Act of 1913 which made it compulsory for every company incorporated under it to have the accounts audited by the professional auditors, On account of this compulsion, the companies started keeping their accounts in complete form on double entry system. The need of accountants and professional auditors was felt in India to a great extent. Origin of Institute of Chartered Accountants of India ; In 1949, Chartered Accountants Act was Passed, according to which the Institute of Chartered Accountants was established in India under complete Autonomy to evolve professional and qualified accountants in India. Scanned with CamScannerpook-keeping 4nd Accounting © An Tnirsewetion (_ Qloantiia-an Befinition of Aecousting counting jaateorrenatleaty deol /Rocoumling is a proferto . e a Se 1. Wis a means of communtentian OF Me Sting an Ee to the users wf auieh (aforermatlon, ? fe s and AshbuirmedAccounti wl fun a commis atte) meg Accounting isd means at measuring ao a nae and Slavin, “Accounting fe the prscess Uf recorling | erm and decreases in py the anatyats ame fel Sf financial transactions.” Property of in the right ty property and the analy Acconing © the American Institute of Certiied Public Arcauntants (ALCEA} ti thal Account Eee Bulletin No. 1, “Accounting is the Att of recenting. classifying and enommmaelstig Het significant manner and in terms of money, transactions and evente whieh are, In part at least, of financial character and interpreting the results thereof” Casnalyene these definitions we find that accounting process nvelyes es econ fing of business transactions WW HOOKS “ol original ently. - «_2-CTassification : Posting in ledger and balancing of accounts Smmarising : Preparation of Profit and Loss Account and Balance Sheet ua ‘Analysis and Interpretation : Proprietors, Banks, Government, Investors and oth have interest in such accounts, interpret the accounts, to know whether their expectations have been fulfilled. aut rogeortiny te result ie changer Ht jerqirotations er persons, whe Scope of Accounting |A business enterprise engages itself in a number of activites with a view (9 make profit and keep ivas a going concern for an indefinite period of time, Tt was possitte to operate a stall fusiness in the past by only remembering the simple and limited business Transactions, There was virtually no need 19 Dosintsin proper records of business transactions(A quick observation of some of the aspects such as investment in capital, purchases and sales of goods Tor cash oF ont ‘credit and the position of creditors and Jebtors was posible to disclose without much difficulty te the proprietors, In such smait business, the expectations of a businessman from accounting were very Timited, He was using the accounting aspect aly = (a) to record the business transactions. (b) to classify the accounts. (6) to prepare the accounts in the form of balance shest ‘and profit and loss accounts «After industrial revolution, modern business has frown in size and complerity, A business enterprise of even medium size deals with many customers, many employees and many suppliers and therefore indulges in thousands of business transactions, It is impossible to operate even a small or medion seed business just by remembering the business transactions: The situation is alarming in large size waite, diversified products and thousands of employces. systematic and upto dato rocont of varied and Somerous business transactions, is therefore quite essential (0 obtain the required information in respect Uf profit and loss, assets and liabilities, and capital of business and also to exercise contrat over various items of expedditure for maximum profits, It may be noted that systematic recording of teansactions is equally important to non-profit making emtties such as colleges, hospitals, cultural clubs ete ‘Accounting plays a key-role in serving this purpose, Its target js to analyse the Finaneial transactions as they take place, to record them in orderly fashion, to group ind arrange the information in terns OF fl ent caer report (balance sheet, income statemont) and to assist (nthe process ‘on, Accounting is a service activity, Its function is to provide qnantitative: information, Scanned with CamScannerra Book-keeping and Accounting : An introduction primarily financial jn nature, about economic entities that is useful in making economic decisions, in making reasoned choices among altervative course of action To be more usefud accounting should provide various information in an integral information system, The primary objective of Accounting is (o take decision on various matters based on accountig data provided through different Financ! I statements. Accounting is thus not an end in itself but a means to an end, It {8 mainly a service function. In broad perspective an Accounting system should concern itself with the following information ; “4. Analysis of Past Financial Data : Past happenings are known with factual data. Hence accounting should identify the past financial records and should try to find out the reasons for bad condition of the concern. Jt should find out the corrective measures for improvement of the business. 2. Financial Data for Future Plans : Accounting aspect of any business scems to be very important in financial forecasting. Financial forecasting helps in estimating the profitable projects and out of these profitable projects accountant choose the one which is more profitable for the concern. 3. In taking Decisions : One of the more important (ask of modern accounting is to take decisions : required from time to time in any business, In order to serve this task identifying, measuring and communicating are the important factors. An accountant has to take decision about capital structure, cost of capital, an ideal capital gearing ratio, capital budgeting, working capital, cash budget and inventory management. He is also concemed with cost control. Some of the important decisions are given below : @ Capital Structure : Capital structure affects the business. Cost of capital of various sources of funds ie, debentures, equity and preference shares is different in a business. Hence a proper source of finance should be taken into consideration. (ii) Working Capital : Various Accounting techniques help in determination of an ideal working capital level of a concern. Proper Accounting policy helps in adequate level of working capital. (ii) Cash Budget : Proper Accounting process helps in preparation of weekly or monthly cash budget and it helps in estimating the amount of cash required at any period of time. 4, Inventory Control : Its main function is to control inventory level in any business. It determines minimum and maximum level of inventory, reorder level, and Economic order quantity of a business at any particular time. It also gives importance to ABC analysis in the business. 5. Cost Control : Cost can be controlled by accounting techniques by using Budgets, standard costing technique etc. 6. Information about Inflation ; Inflation plays an important role in taking profit decision. Historical decision c*_~ harmful to a business because they do not consider inflation in their calculation. Accounting is a technique which considers inflation in its calculation and decides how much of profit is due to inflation and how much profit has been created through business activities. 7, Social Cost Accounting + Another aspect which is engaging accountants and governments attention is social cost accounting. It determines the amount which is allocated for social welfare, Industrial ‘wastes ejected into atmosphere not only pollute but also poison the environment. Noise and light pollution is also becoming a serious health hazard, Increasing attention is therefore given to the internalization of social costs of production which is based on the principle that polluter should bear the costs of preventing the current disruption of the environment. There is also « growing feeling to introduce a qualitative dimensions in the concept of profitability to measure the contribution which each enterprise makes towords the socio-economic objectives like reduction in poverty and unemployment and balanced regional development. 8 Human Resource Accounting : Today industry spends rather invests huge amount on management education which greatly enhances employees value. This should be capitalized as “investment in human resources” and duly amortized over future periods, L Scanned with CamScannerBook-keepiniy and Accounting — An Introduction 9, Measurement of HiMiclency There ste various departments and sub-depariments in an industey A firm produces a variety of products Asconming 16 a technique which eompates the cet of various departments nnd thus find Gut which deparntuent is efficient then the other Qasiare of Accounting (Kevounting, being «-sanaade system, has evolved over a period of time to prawidé financial inloriaffon of a business emlerprise 10 overs of accounting infortation. A targe sumber of groups with varied interests in affnire OF business enterprise have emerged aver a period Of tine, cépecially afer emergence ct corparste form of organssation involving separation of ownership and management, The uter groups inclode those who. <_-Pttinape The ctivities of the enterprise (management) ‘often sccompanied by a corresponding liability or appropriation of surplus. 4M, Specific Reserve : The reserve which is created for a particular purpose and which is a ‘against revenve is called Specific Reserve) This reserves created irrespective of profit or loss, Ge. iis a must It is created in order to : (i) met{ a known loss, e.g. depreciation, (ii) meet an expected contingency, ¢g. Doubtful Debts on Sundry Debtors, and (iii) meet an outstanding liability for expenses, ef, Salary and Wages, etc. BS-SeFet Reserve + Secret Reserve is a reserve which does not appear on the face of the Relance Shect/and which represents the surplus of assets over liabilities and capital. It is sometimes called "Hiddéa Reserve’ or ‘Internal Reserve’. It is actually not disclosed in the Balance Sheet and not 0 easy to ascertain although it exists in the Balance Sheet. A Secret Reserve may be created by G) Writing down the asset much below their cost, (il) providing more reserve than necessary for bad und doubtful debts, (iif) providing excessive expenditure on fixed assets, (iv) writing down the goadwill t0 2 ominal value, (¥) overvaluing the liabilities, (vi) showing contingent liability as real liability, (vii) soctusion of fictitious liability, (vili) charging capital expenditure to revenue, (ix) omuting some of the assets from the Balance Sheet etc. S. Depreciation : Depreciation means gradual decrease in the yalug of an asset by ity us permanent and continuing decrease in the value of asset and which arises due to normal wear ani tear, obsolescence ete In short, depreciation means the gradual diminution, loss or shrinkage in the utility value of an asset due 10 wear and teas in use, efflusion of time or obsolescence. © © Ze Toint Venture It is a temporary partnership between wo or more Persons and it continues Ul particular venture or enterprise conte) Joint Venture ends on completion of the speciGie job or period for which it is created. Joint Venture partners, also koown as Co-adventure, contribute their capital and share the profit or Joss arising from the venture. Joint Venture tay be created for building contracts, underwriting of Company's shares and debentures tor consignment purposes, 38Consigament + Consignment means despatch of goods by a businessman to his agent for fi selling on commission basis on his behalf ynd rin) Scanned with CamScannerBook-keeping and Accounting : An Introductiaft ) Cred on: hese transactions cash is postponed for a certain period it Transactions : In thes actions cash is postpones i t it han etc. ; x" purchase of goods on credit from Mel i ascii ) other than for prompt edit to Rai, ‘ . it ices, etc.; on business considerations (such as quantity bought, trade practices, invoice price in consideration of ara ak. Cash Disgewnt 1 A reduction granted by a supplier from the invoice price in ct . Cas : ent wit lated period. re payment or payment within a stipul - 47, Distinction between Trade Discount and Cash Discount : mt Stasis of ‘Trade Discount Cash Discow _N6.| Distinction KE reduction granted by & supplier ~ [1 | Meanin 1t is 2 seduction granted by a supplier tion grant supplier * TH fom the list prige-af goods or services | from the invoice price-in consideratio on busines considerations (such as | of immediate payment or payment quantity bought, trade practices etc.) | with a stipulated period. other than for prompt payment, 2. | Purpose It is allowed to promote the sales or | Itis allowed to encourage the prompt as a trade practice, payment. 3. | Time when. | Itis allowed on purchase of goods. It is allowed on immediate payment allowed ‘or payment within a specified period. 4 | Variation It may vary with the quantity purchased. | It may vary with the period within which the payment is made. 5. | Ledger Trade discount account is not opened | Cash discount account is opened in account in the ledger. the ledger. & | Disclosure in | It is shown by way of deduction in the | It is not shown in the invoice. L__| the invoice. | invoice itself, | Objectives of Accounting Every businessman wishes to know the profit or loss of his business after a certain period and also the state of affairs to judge whether his business is financially sound or weak. The books of original entry, Ledger or Trial balance do not disclose this information. It is provided by two statements : : : 1. Income Statement : It discloses profit or loss derived during a certain period, 2. Position Statement : It presents the financial Position of the business on a certain date. Both these Statements are prepared at the end of every accounting period. These statements are known as Final Accounts Of Accounting. It is the last step of accounting process, - Scanned with CamScannerea EEA importance of Accounting 1 Accounting is needed to take decision on various matters based on accounting data provided through different financial statements. It is mainly a service function. It is needed for decision-making. ‘Main points regarding this aspect may be as follows : Cis needed for giving information regarding financial activities to the users of accounts. Tt provides data for forecasting. __3+ It provides information to departmental managers for internal reporting and making overall _-policies, _7 4 Mescans the efficiency of Management as regards optimum utilisation of scarce. resources. ~ 3° Thelps to take corrective measures for deviation between actual and planned: performance, L- 6, ACis needed to take decision regarding diversification expansion of the firm and.replacement ~~ of fixed assets. ey Tt highlights the loss causing departments to the company and suggests the appropriate product LY _Atix, c /8. TLevaluates the earning capacity of the firm. <_/ 9-Tris needed to provide essential information to the government for taking decision regarding rc duties, taxes & price control etc. Need of Accounting in any business can be betterly understood by the following points : @ To maintain systematic recording of transactions : This is the basic purpose of Accounting. Business transactions are properly recorded, classified under appropriate accounts and sumiarised into financial statements : income statement and the balance sheet. Transactions properly recorded in the books of accounts provides necessary information in time and free from bias. (ii) To know economic condition of the business : Businessman wants to know his financial position from time to time. He wants to know his business interest on a particular date. He wants to know nature of his investment, assets and liabilities over business. He can better know these aspects by preparing. a statement or balance sheet with the help of accounting. To know the results of economic activities : Business activities are performed for profit. Businessman wants to know the results of his activities during a certain period. For this purpose he prepares income statement on the basis of transactions recorded in the accounts books. If for the concerned period income is more than expenditure then it will be profitable to the business and vice-versa. (iv) To prepare tax information : A business has to bear so many taxes imposed by the government such as income tax, wealth tax and sales tax. Income tax and sales tax authorities are concerned about the taxable income or actual sales with the help of written records. (v) To prepare the information for financial institutions : To arrange finance from various financial institutions, accounting provides some important information to them so that easy finance made available to the business. Generally, such information comprises of sales of last years, stock position and profitability of the business. (vi) To give information to the parties interested in business : Accounting information are useful to many persons, both within and outside a business enterprise. Managers, creditors, society, employees and investors are the users of accounting information. Accounting provides relevant information to these users, so as to take the necessary decisions well in time. Users of Accounting Information generated by accounting process is of interest to various parties directly or indirectly associated with the enterprise. Accounting information are generally used, by : (a) internal persons Scanned with CamScannerooK-Keeping and Accounting : An Introduction a wy ®Nernal (outsider) persons. The persons using accounting’ information are shown in the art : Users of Accoui External or Outside Users 1. Creditors 2. Money Lenders 3. Tax Authority 4. Consumers 5. Labour Union 6. 7 8. Prospective Investors Financial Analyst Researchers 9. Government 10. Public 11. Sociologists and Economists Internal Users 1. Owners : Owners although initiate in contributing fund to the business yet they are the last to receive (specially in case of a company), as their claim is restricted to residual equity, viz, the assets left after discharging outsiders. This is true not only in repaying but also in rewarding their capital. After meeting all the charges including employees’ salaries and lenders” interest, profit, if any, can be distributed as a reward.on capital. Naturally, the owners are interested in the safety of their capital as also for a Keasonsble return thereon, which rest on the concern's stability and prosperity. Annual accounting reports or produce a product), (b) controlling acquisition and maintenance o: ceipts and payments of cash, purchases and sales, ec.,(c) planning or budgeting forthe future, (d) appraising the performance, and (c) devising remedial measures for the deviations of the actual results fram the budgeted target, 3. Employees : Steady employment and stability of business go side by side. Again, quantum of employees! profit-sharing depends upon the concern’s earnings. So also, the avenues of higher promotions greatly rest upon the progress and expansion of the firm. Annual reports highlight these baste date and hence are of great significance to the employees as well, External or Outside Users 1. Creditors : There are short-term (e.g., suppliers of goods, lenders of temporary advances) and long-term (such as mortgages, debenture-holders) creditors. Although both are interested in the stability and earnings of the debtor-firm, yet the former specially looks to its shorten solvency (also called liquidity) viz, the position of ourrent assets (realizable into cash in a shore period) wren ation te ateet liabilities (payable shortly, i-e., within one year), Scanned with CamScannerBook-keeping and Accounting : An Introduction ey 2. Money Lenders : ‘They want to know whether their principal amount together with interest will be paid when due. 3. Tax Authority : The come and profits earned by an industry provides revenue to the government and tax to tax authorities, Because of this reason government and tax authorities remain very much interested in information relating to the business. 4. Consumers : Price-incrense is disfavoured in almost all the quarters. Accordingly, a producer endeavours to reduce his product-cost as also its sale price to push his sales and thereby maximise his profits. In this endeavour, he is assisted by various accounting controls applied on inventories, cash, purchases and sales etc. These minimise fraud and wastage. Further, business is now increasingly becoming conscious of ‘social responsibility’ viz., economic use of the resources at one’s disposal for the common as also the private good. §. Labour Union : Labour unions generally remains in direct conflict with the management for their benefits. Labour union can fulfil their demands when profits of the business increases rapidly. Hence, labour unions are very much interested in business information, better financial position results in better facilities for their labour and themselves. 6. Prospective Investors ; They actually supply the risk capital of the business. They want to knew whether to buy, hold, or sell their investments. They also want to know whether the business will survive, prosper and pay good dividend. In non-corporate sector, the owner requires accounting information as regards performance of the business and its financial position to decide whether to run the business, or, close it. 7, Financial Analyst : Financial analysts are generally interested in accounting information of any business because they are engaged in research work. Financial analyst are also engaged in stock exchange market transactions and other areas. Thus financial position of a concern is of much importance and financial analysts remains interested in information relating to finance. 8. Researchers : Research scholars use accounting information in their research work. Thus, financial accounting provides useful information to various user groups for decision- making. It also supplies general financial statements for all. Profit and Loss Account shows the profit earned, or, loss sustained during an accounting period and Balance Sheet shows the financial position of a business at the end of the accounting period. 9. Government : Many products are now subject to excise duty and sales-tax. Usually, the former is imposed by the Central Government on the product's cost which is obtained by relevant cost data (called cost accounting or ‘costing’). The latter is generally enforced by state Governments on sales which appear in the income statement, This statement is also somewhat relevant for income-tax, etc, For effective price regulations, costing is indispensable. 10. Public : They want to see the business in a running condition since it makes substantial contribution to the local economy in many ways, e.g. employment of people, patronage to local suppliers, etc. 11. Sociologists and Economists : Sociologists remains interested in accounting information of a business because they want to know that (i) How much amount is invested for protection. from pollution, (ii) How much amount is allocated to social welfare. In the same way economist wants to know employment position of the workers and profit position of the concern, whether optimum or not. gee Leeatogery oh Aecounting Information People are sometiiés tempted to place more faith in accounting than expected. It is essential, therefore, that the limitations of accounting information are clearly understood : 1, nomic activities included ; Accounting information is financial in nature, that is, only those events find expression in it if they are expressed in terms of money. Non-monetary events or transactions, however important they may be completely ignored. Scanned with CamScannerRook-keeping and Accounting : An Introduction . ; sat 1 : Fixed assets are recorded in the accounting recor Fi Fl rges. In this way the ent on them plas of course all lnctdanial ch Bes. Sia the cost, that is, the actual amount sr ken into consideration. ‘The direct result of DT ier impact of price areas ee aie pot helpful in evaluating the true financie halance sheet figures of the assets ear h expressed in business ting information, thoug! ition : Accoun i oF i urate financial posi ' i . For example, it is not howihle to predict with any deree of accuracy the actual useful life of a Possible 40 predict with any d Lae \_-2 Price level changes not considere: calculating the depreciation charge. 4. Possibilities of manipulations + en sualfe en profitor! iconis mnalagties performance. For example, the focus of the financial information pr i iod of one year can which is only one small aspect of the annual story of business. a th soclcainent Vapeasitl readily be manipulated by supressing such costs as advertisement, research a Accounting information cannot be used as the only test of m Setorance of social cost : Accounting information is not neutral or ieee meaire income as conventionally defined : revenues less expenses. But they consi af mnly selened revenues and expenses. They do not, for example, include cost of such items as sate es i Po een, employee injuries etc, Similarly “they fail to give recognition to the benefits received by ei tee to clean up the environment, improve community welfare and introduce safety measures for the worl er 6 Niolation of rule of consistency : Accounting like any other discipline has to follow certain Principles which in eertsin cases are contradictory. For example, current assets (e.g., stocks of goods) are walued on the basis of cost or market price whichever is less following the principle of conservatism. Accordingly the current assets may be valued on cost basis in some year and at market price in another yeat, In this manner, the rule of consistency is openly violated. Cash and Accrual Basis of Accounting Economists and general public use the term ‘Profit’ in different sense, Accountants say that Profit isthe increase in assets, or owner's equity or capital or, decrease in liability. Net Profit, or Net Income is measured by matching expenses against revenue. The two methods used by Accountants to ‘measure “Income” are : (1) Cash basis; and, (2) Accrual or Mercantile basis. 1. Cash basis of accounting : Here, revenue is recognized only on teceipt of cash. Likewise, eanenses are incurred only when they are actually paid. The difference between the total incomes and {otal expenses represent Profit or Loss of a concern for a particular Accounting period. Outstanding and Prepaid expenses and Income received in advance or Accrued incomes are not considered in this type of accounting. Doctors, Lawyers, Engineers, Auditors, Brokers, Solicitors, Small Traders etc., use this method. , fact whether they have been actually paid total expenses incurred shows the Profits, Here, outstanding and prepaid expenses Profit accurately. The accrual, or, i this method is that the income is measured accuratel: Loss Account and Balance Sheet y show the tue and ee i justments. Thus, Profit and Scanned with CamScanner