M.

Com (Pre)
Semester-2
Elective Paper: Basic Accounting
Q-1 Explain 3 Golden rules of accounting.
Ans-The three golden rules of accounting are fundamental principles that form the basis for recording
financial transactions in a systematic and standardized manner. These rules ensure consistency and
accuracy in accounting records. The three golden rules are:
1. The Personal Account Rule
This rule deals with personal accounts, which include accounts of individuals, firms, companies,
and other entities.
Debit the Receiver, Credit the Giver:** When a person or entity receives something, you debit the
receiver's account, and when they give something, you credit the giver's account.
For example, if you receive cash from a customer, you would debit the cash account (an asset
account) and credit the customer's account (a personal account).
2. The Real Account Rule:
This rule is applicable to real accounts, which include assets and liabilities.
‘Debit What Comes In, Credit What Goes Out:** When an asset increases, you debit the account,
and when it decreases, you credit the account. For liabilities, it's the opposite – you debit when they
decrease and credit when they increase.
- For example, if a company purchases equipment (an asset), you would debit the equipment
account and credit the cash or accounts payable account.
3.The Nominal Account Rule:
- This rule applies to nominal accounts, which are accounts related to revenues, expenses, gains, and
losses.
- ‘’Debit All Expenses and Losses, Credit All Incomes and Gains:** Debit the accounts when there
is an increase in expenses or losses, and credit them when there is an increase in incomes or gains.
For instance, if a business incurs an expense, such as rent, you would debit the rent expense
account and credit the cash or accounts payable account.
These golden rules help maintain the accounting equation, which states that Assets = Liabilities +
Equity. Every financial transaction affects this equation, and by applying the appropriate golden rule,
accountants ensure that the equation remains balanced. Understanding and correctly applying these
rules are essential for accurate financial reporting and analysis.
Q-2 Explain these terms in accounting.
1. Depreciation.
2. Revenue expense.
3. Assets.
4. Liabilities.
Ans, 1. Depreciation:

 Definition: Depreciation is the systematic allocation of the cost of a tangible asset over its
useful life. It represents the decrease in the value of an asset over time due to factors such as
wear and tear, obsolescence, or usage.
 Purpose: The purpose of depreciation is to match the cost of an asset with the revenue it
generates over its useful life, rather than allocating the entire cost in the period of purchase.
 Methods: Common methods of calculating depreciation include straight-line depreciation,
where the same amount is deducted each year, and declining balance depreciation, where a
constant percentage of the remaining value is deducted.
2. Revenue Expense:

 Definition: Revenue expenses, also known as operating expenses or simply expenses, are
costs incurred by a business in its day-to-day operations to generate revenue. These are
recurring and are typically deducted from the revenue to calculate the profit.
 Examples: Common revenue expenses include salaries, utilities, rent, insurance, and other
costs associated with running the business on a regular basis.
 Treatment: Revenue expenses are usually fully deducted in the period in which they are
incurred. They are different from capital expenses, which are costs associated with acquiring
or improving assets and are typically depreciated or amortized over time.
3. Assets:

 Definition: Assets are resources owned by a business that have economic value and are
expected to provide future benefits. They can be classified into two main categories: current
assets (expected to be converted to cash or used up within one year) and non-current assets
(long-term assets expected to provide benefits beyond one year).
 Examples: Common examples of assets include cash, accounts receivable, inventory,
buildings, machinery, and intellectual property.
 Purpose: Assets are crucial for the operation and growth of a business. They are recorded on
the balance sheet and contribute to the overall financial health and value of the company.
4. Liabilities:

 Definition: Liabilities are obligations or debts that a business owes to external parties. Like
assets, liabilities can be classified into current liabilities (obligations due within one year) and
non-current liabilities (obligations extending beyond one year).
 Examples: Examples of liabilities include accounts payable, loans, bonds, and accrued
expenses.
 Purpose: Liabilities represent claims against a company's assets. They reflect the sources of
financing for the company, and managing them is crucial for maintaining a healthy financial
position. Liabilities are also recorded on the balance sheet.
Understanding these terms is essential for anyone involved in financial management or accounting, as
they form the basis for accurate financial reporting and decision-making within a business.
Q-3 Write the difference between financial accounting and management accounting.
Ans, Certainly, here's a tabular representation of the differences between financial accounting
and management accounting:

Aspect Financial Accounting Management Accounting

 Objective and Provides information to external Provides information to internal
Purpose stakeholders for decision-making. management for planning and
decision-making.
Users of External stakeholders (investors, Internal stakeholders (managers,
Information creditors, regulators, etc.). decision-makers within the
organization).
Reporting Periodic (quarterly, annually) as As frequently as needed by
Frequency mandated by external reporting management for internal decision-
requirements. making.
Scope of Summarizes overall financial Can be detailed and tailored to
Information performance and position of the specific segments, products,
entire business. departments, or projects.
Regulatory Adheres to regulatory standards No strict regulatory standards;
Compliance (GAAP, IFRS) for external internal design based on
reporting. organizational needs.
Time Focus Historical data; focuses on past Future-oriented; emphasizes
financial results. forecasting, budgeting, and planning.

This table highlights the key distinctions between financial accounting and management
accounting across various aspects.