Professional Documents
Culture Documents
MFC
Financial Accounting
Semester - I
Dr. Anubha Srivastava
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1
Meaning of Accounting
Accounting is a practice of recording, classifying, summarizing,
analyzing and interpreting the financial transactions and
communicating the results thereof to the persons interested in such
information.
1. Recording the business transactions of financial character in the
books. (preparation of first book called journal'
2. Classifying the recorded data of similar nature in one place
(preparation of second book called 'Ledger')
Summarizing the classified data to know the result of business operation
and its financial position (preparation of Trial balance, Income statement
and Balance sheet)
4. Analysis and interprets the summarized data in such a way to get a
meaningful judgment about the operational result an financial position of
the business
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Various parties
Investors
Employees
Customer
Lenders /Financial institutions
Government
Suppliers
Competitors
Management
owners
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Accounting conventions
Accounting concepts
Monetary measurement-Accountants do not account for items
unless they can be quantified in monetary terms. Items that
are not accounted for (unless someone is prepared to pay
something for them) include things like workforce skill,
morale, market leadership, brand recognition, quality of
management etc.
Separate Entity-This convention seeks to ensure that private
transactions and matters relating to the owners of a business
are segregated from transactions that relate to the business.
Realization- With this convention, accounts recognize
transactions (and any profits arising from them) at the point
of sale or transfer of legal ownership - rather than just when
cash actually changes hands. For example, a company that
makes a sale to a customer can recognise that sale when the
transaction is legal - at the point of contract. The actual
payment due from the customer may not arise until several
weeks (or months) later - if the customer has been granted
some credit terms.
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IGAAP
The corporate accounting and financial statements are prepared
on the basis of GAAP , while there is no specific definition of
what is GAAP ,the accounts and statement are said to have
been drawn and presented on this basis when they comply with
the
Conceptual framework of financial statements
Accounting concept and principals
Requirements of companies act
AS formulated by ICAI
Directives of regulatory bodies like SEBI IRDA RBI etc.
Requirement of income tax act.
Conceptual framework
Defining accounting , rules of accounting, book
keeping , double entry system , type of primary
books, nature of accounting
AS formulated by ICAI
AS are the rules prescribed to be followed in order to
bring uniformity in the financial statements.
AS 1:
Disclosure of accounting policies:
AS 2:
Valuations of Inventories:
AS 3:
Cash Flow Statements
AS 4:
Contingencies and events occurring after the
Balance Sheet Date
AS 5:
Net Profit or loss for the period, Prior period
items and Changes in accounting Policies.
AS 6:
Depreciation accounting.
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AS 7: Construction Contracts.
AS 8: Accounting for Research and
Development
AS 9: Revenue Recognition.
AS 10: Accounting For Fixed Assets.
AS 11: The Effect of Changes In Foreign
Exchange Rates.
AS 12: Accounting For Government Grants.
AS 13: Accounting for Investments.
AS 14: Accounting For Amalgamation.
AS 15: Employee Benefits.
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IFRS
List of IFRS statements
IFRS 1: First time Adoption of International Financial Reporting
Standards
IFRS 2: Share-based Payment
IFRS 3 :Business Combinations
IFRS 4 :Insurance Contracts
IFRS 5 :Non-current Assets Held for Sale and Discontinued
Operations
IFRS 6 :Exploration for and Evaluation of Mineral Resources
IFRS 7 :Financial Instruments: Disclosures
IFRS 8: Operating Segments
IFRS 9:Financial Instruments
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Accounting
cycle
Accounting equation
Assets (what it owns)
Liabilities (what it owes to others)
Owners Equity (the difference between assets and liabilities)
Asset = capital + liability
Or
Asset = liability
Or
Asset outside liability=Owners capital
Or
Asset outside liability = Owners capital owners drawing + net profit or loss
Or
Asset outside liability =owners capital owners drawing + income /expenses
Real Account: All Asset Accounts .It Includes both Tangible assets like
Cash, car, Furniture and Intangible assets Like Goodwill, Patents.
The Accounting rule for Real Account is
Debit What Comes In and Credit What Goes Out
Journal entries
Journals are the first book where transactions are recorded on
daily basis .After identifying an events or a transactions whether
they fall in real , nominal or personal category of accounting ,
we record the transaction in the journal.
Format of journal entry
Date
Particulars
LF No. Amt. (Dr.) Amt. (Cr.)
Cash a/c
Dr.
To, Xs capital a/c
Problem
Bharat Gupta promotes Bharat Traders , his
proprietary firm , to start the business of trading
in product x on 1st April 2008. He hires an office
at A-12 Agrawal complex , Vikas Marg Delhi
@2500 per month . The following are the detail
of the transactions entered in to the firm during
the month of April . Pass necessary entries
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April 1
1, 50,000
1
Paid cheque toward down payment for scooter , balance loan
against the security of scooter payable in 12 monthly EMIs starting from May
1st with interest @ 12 % p/.a
1
1
1
2
2
5
8
10
12
7500
8500
11,500
45000
12500
2200
75750
16
Sold 25 units of x to RIL & co. on
credit of one week 31875
19
Sold 5 units of x for cash
6425
23
Received cheque from RIL &co.
31875
27
issued cheque to ABC& co. 75750
28
Purchased 30 units of x from
ABC & co. of 15 days credit
30450
28
sold 20 units of x to RIL & co.
on credit of on week
25600
30
salary paid
3500
30
issued cheque to Bharat Gupta
for his personal use
4000
30
cash paid for telephone charges
650
30
cash paid towards petrol
consumed
by the scooter 550
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Journal entries
Date
Particulars
April
1
Cash A/c
Dr.
To Bharat Guptas capital a/c
(Received cash from Bharat Gupta )
April
1
Dr.
LF
No.
001
002
Amt (dr.)
002
003
1, 35,000
Amt( Cr.)
1,50,000
1,50,000
1,35,000
Dr.
004 2,500
003
2,500
31,500
005
006
006 7,500
003
31500
Ramjet Automobiles
April 1
To SBI current A/c
Dr.
Dr.
Dr.
Dr,
009 45000
003
007 8500
001
7500
8500
45000
April
8
Dr,
April
10
Dr,
April
12
April
16
April
19
April
23
Purchases Ac/
To ABC & Co. A/c
Dr.
Dr.
Cash a/c
To sales A/c
Dr.
Dr.
003
010
12500
011
003
2200
009
012
75750
013
010
31875
001
010
6425
003
013
31875
12500
2200
75750
31875
6425
31875
Dr.
Dr.
Dr.
Dr.
April
30
Bharat Guptas Drawings a/c
To SBI Current a/c
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Dr.
012
003
75750
009
012
30450
013
010
25600
014
001
3500
015
003
4000
75750
30450
25600
3500
4000
April 30
April 30
Dr.
Dr,
016 650
00
650
017 550
001
550
Ledger
The process is known as posting the accounts
from journal to ledger. It consist of 8 columns
namely date, particulars ,J.F. No. , Amount Dr,
then again date , particulars , J.F.No. amount
Cr.
Format of ledger
Dr.
Cr.
Amount
(Cr)
Dr.
Date Particulars
April To Bharat
1
Guptas
capital
April To Sales
13
current a/c
By furniture
1
2 By salaries
30 Telephone
By vehicle
30
expenses
30
156425
May
1st
To balance
b/d
Cr.
8225
bal c/d
001
002
004
004
005
Amount
(Cr)
135000
8500
3500
650
550
8225
156425
Dr.
Date Particulars
To cash
To Sales
To RIL and
co.
J.
F.
By Office rent
By Ramjeet
auto mobile
By office
equipment
By Purchases
By
Advertising
By ABC and
co.
By Bharat
Guptas
drawings
bal c/d
179375
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Cr.
J.
F.
Amount
(Cr)
2500
7500
11500
45000
2200
75750
4000
30925
179375
Dr.
Dat
e
2500
2500
Cr.
By
Balance
c/d
2500
2500
Subsidiary books
Subsidiary books are those books of original entries
where all transactions of similar nature are recorded .In a
big organization recording all transactions in the journal
on daily basis will be difficult, therefore it is avoided by
subdividing the journal into various subsidiary books .
Following are different subsidiary books
Trial balance
It is made at the end of the period . It is three
column statement
L.F.
Total
Amounts
(Dr.)
Amounts
(Cr.)
Rectification of errors
The accuracy of the trial balance determines the
accuracy of final accounts .but sometimes there
is possibility of committing error. Accounting
errors are the errors committed by persons
responsible for recording and maintaining
accounts of a business firm in the course of
accounting process.
CLASSIFICATION OF ACCOUNTING
ERRORS
Various accounting errors can be classified as
follows :
(a) Errors of omission
(b) Errors of commission
(c) Errors of principle
(d) Compensating errors
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Errors of commission
When the transaction has been recorded but an error is
committed in the process of recording, it is called an error of
commission. Error of commission can be of the following types:
(i) Errors committed while recording a transaction in the Special
Purpose books. It may be :
Recording in the wrong book for example purchase of goods
from Rakesh on credit is recorded in the Sales Book and not in
the Purchases Book.
Recording in the book correctly but wrong amount is written.
For example, goods sold to Shalini of Rs.4200 was recorded in
the Sales Book as Rs.2400
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Error of Principle
Items of income and expenditure are divided into capital
and revenue categories. This is the basic principle of
accounting that the capital income and capital expenditure
should be recorded as capital item and revenue income
and revenue expenditure should be recorded as revenue
item. For example, Rs. 5000 spent on the repairs of
building is debited to Building A/c while it should have
been debited to Repair to Building A/c. It is a case of error
of principle because expenditure on repairs of building is a
revenue expenditure, while it has been debited to Building
A/c taking it as an item of capital expenditure.
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Error of compensation
As the name indicates , compensating errors
are those which compensates each other e.g. a
sale of rs. 500 to ram is debited by rs. 50 while
sale of rs 50 is debited by rs. 500 .
Suspense account
The accountant should take corrective steps to
locate the differences in the total of trial balance
,if he is not in the position to locate the
difference then in such case a suspense
account is opened .
Objectives of Reconciliation
2. Unpresented cheques
They are cheques issued by the firm that have not
yet been presented to its bank for payment.
Explanations:
A credit entry in the cash book decreases the cash
book balance .If there is no corresponding debit entry
in the pass book balance. This will make the pass
book balance more than the cash book balance.
Hence the amount credited in the cash book should be
added to the Cash.B.B.
A credit entry in the pass book increases the pass if
there is no corresponding debit entry. Hence the
amount credit in the pass book should be added to
equalize the balance.
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Explanations:
A debit entry in the cash book increases the cash book
balance. If there is no corresponding credit entry.
Hence the amount debited in the pass book should be
subtracted from the cash book balance .
A debit entry in the pass book decreases the pass
book balance. If there is no corresponding credit entry
in the pass book. Hence, the amount debited in the
pass book should be subtracted from the ash book
balance.
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Continued..
3. Write in the credit column:
Problem -BRS
On 31st Aug Mr. Rams cash book balance shows bank
balance Rs.1490 where as bank passbook shows Rs.
1255, on scrutiny he finds the following
He had deposited a cheque of Rs. 850 but not had yet
been cleared
He had issued a cheque for Rs. 640 but
presented on15th in bank
Rs. 25 was credited by bank on account of interest .
Bank had charged Rs. 50 for providing fund transfer
facility
Prepare BRS
Manufacturing Account
Direct materials
Direct labour
Direct expenses
Factory overhead expenses
Work in progress
Manufacturing cost (COSG)
Amount
(Dr.)
---------------------------------------
Particulars
By closing stock
Raw material
WIP
By COGS to be
transferred to P/L a/c
(Balancing figure)
Amount
(Cr.)
-------------------
Format of
Trading account for the year ended 31st Dec 2009
Particulars
To opening stock
Finished goods
To purchases xxxxx
Less Returns xxxx
To Direct Expenses
To Gross profit
transferred to P/L
account ( Balancing
figure )
Total
Amount
(Dr.)
Xxxxxx
Xxxxxx
Xxxxxx
Xxxxxx
xxxxxx
Particulars
Amount
( Cr.)
By sales
xxxxx
Less sales return xxxx Xxxxxxx
By closing stock
xxxxxxx
By Goss loss
Amount
(Dr.)
Total
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Particulars
By Gross profit (transferred from
trading account )
By Dividend recd.
BY Interest recd.
By Discount recd.
By Commission earned
By Net loss
Amount
( Cr.)
EXERCISE
1. The following figures relating to the year 2008
have been taken from the books of Chibwe
Jackson, a manufacturer of mealie meal.
Stocks at 1/01/08
Raw materials
285 000
Work-in-progress
243 100
Purchases of R Materials
467 000
EXERCISE
Carriage on Raw Materials
6 400
Direct factory wages
396 000
Factory power, light & heating
163 000
Depreciation of plant & machine 38 000
Warehouse charges & expenses 45 000
Royalties
150 000
General Factory expenses
38 000
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EXERCISE
Stocks at 31/12/08
Raw Materials
268 000
Work-in-progress
274 000
REQUIRED
Prepare the manufacturing account as at
31/12/08
Assignments on BRS
Prepare BRS Item 1.The bank statement for August 2009 shows an ending
balance of 3,490.
Item 2.On August 31 the bank statement shows charges of
35 for the service charge for maintaining the checking
account.
Item 3.On August 28 the bank statement shows a return item
of 100 plus a related bank fee of 10. The return item is a
customer's check that was returned because of insufficient
funds. The check was also marked "do not redeposit.
Item 4.The bank statement shows a charge of 80 for check
printing on August 20.
Item 5.The bank statement shows that 8 was added to the
checking account on August 31 for interest earned by the
company during the month of August.
BRS
Thank You
Please forward your query
To:asrivastava5@amity.edu.
CC:
manoj.amity@panafnet.com
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