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BY

Mr. M.
VijayaRagunathan

Meaning
Definition
Concepts
Conventions
Functions
Limitations
Kinds
Golden Rules

Meaning- : Language of business to

communicating each other.


Definition- : As per AICPA Art of recording ,

Classifying and Summarizing in a significant


manner and in terms of money, transactions
and events which are, in part at least, of a
financial character and interpreting the results
thereof.

1.

Business Entity Concept:


Business is always separated from the owners.
There is no connection between owner and business

2.

Going Concern Concept:


Business will run for indefinite period or long period.

3. Money measurement Concept:


Only the monetary based transaction will be
recorded in the accounting books, other transaction
will be ignored from the accounting books.

4. Dual Aspect Concept:


For every debit there must be a corresponding credit
or Total Assets = Total Liabilities.
5. Accounting period Concept:
The whole accounting years divided into various
segments according to the period or time(12months).
6. Cost Concept:
Cost price is only recorded in the accounting books,
market price will be ignored from the accounting
books.

7. Matching Concept:
At the end of the period total expenses
matched with total revenue to find the profit or
loss.
8. Material Concept:
Only the material based will be taking place
in the accounting books whereas others will be
ignored.

1.Conventions of Disclosure:
Material based information (Profit and Loss
A/c, Balance Sheet) disclosed to owners,
investors and government bodies.
2. Conventions of Consistency:
Accounting principles and practices should
not be changed year to year. It may continue
for long period of time.

3. Conventions of Conservatism:
Its all about adopting policy Playing Safe. Loss
can be taken into consideration. Profit will be
ignored.

4. Conventions of Materiality:

Only the material based will be taking place in


the accounting books whereas others will be
ignored.

1. Keeping Systematic records


2. Protecting Business Property
3. Communicating Results to the interesting
people
4. Meeting Legal Requirements

1. Only financial based information can be


recorded
2. Cost concept (people looking balance sheet
of company least manner)
3. Confliction between Concepts
4. Personal Judgment of Accountant

1. Financial accounting : concerned only with the


financial state of affairs and financial results of
operation.
2. Management accounting: To provide necessary
information about funds, costs, profit etc. As it enables
the management to discharge its functions properly.
3. Cost Accounting: It was developed to overcome the
limitations of financial accounting. The main purpose
of cost accounting is to analyze the expenditure
involved.


1.PERSONAL ACCOUNT
Natural (Human beings)
Artificial (Banks, Company and Firms)
Debit the Receiver
Credit the Giver

2. REAL ACCOUNT( Assets)


Debit what comes in
Credit what goes out
ASSETS: Anything which will enable the
firm to get cash or benefit in a future.
I) Tangible : Those which can be seen, feel
and touched that is, which have physical
Existence.

1. Current Assets : Those assets which can be


converted into cash within short period of Time or
normal business cycle or within one year.
2. Fixed Assets :Those assets which are purchased
for the purpose of operating the business but not
for resale.

1.Current assets ( Examples)

( Examples)

a) Cash in hand
b)Cash at bank
c)Closing stock
d)Machinery
e)Bills Receivable
f)Short-term Investment
g)Prepaid Expenses
e)Sundry Debtors etc

2. Fixed assets

a) Land
b) Building
c) Plant and
d) Motor car
e) Premises etc

II) Intangible : Those which cant be seen,


and touched that is but feel it, which
Does not have physical existence.
a) Goodwill
b) Patents rights
c) Copy rights

3.NOMINAL ACCOUNT:

Debit all Expenses and Losses


Credit all Incomes and Gains

A)Expense :
a) Salaries Paid
b) Rent Paid

received
c) Commission
received etc.,
d) Interest Paid
e) Advertisement
f) Fright charges etc.,

Income:
a) Rent received
b) Commission
c) Interest

Journal : A transaction first entered into books


of
accounts chronological order called
journal entry

Proforma ofL/Journal
Debit

Dat
e

Particulars

Jan
1

Cash A/c.Dr
To Capital A/c
(Being Capital introduced)

(Dr)
(Rs)

Credit
(Cr)
(Rs)

10,000
10,000

Ledger: A transaction second time entered into


books of
accounts called ledger
Proforma Of Ledger
Capital A/c
Dat Particul
e
ars
Jan
31

To Bal c/d

J Am Amt
/ t
F

Dat
e

10,00 Jan
0
1

Particula J A
Amt
rs
/ mt
F
By Cash

10,00
0

10,00
0
10,00
0

By Bal b/d
Feb

Subsidiary books
All sub divided books called subsidiary books.

1. Purchase book: Only the credit purchase


of goods, meant for resale will take place on
the purchase book

2. Sales book : Only the credit sales of


goods, meant for resale will take place on the
sales book

3.Purchase return book (Return outwards


book): Goods, which are purchased on
credit , may be returned to the supplier.

4.Sales Return book ( Return inwards book):


Goods , which are sold for credit may be
returned to company, if they are defective.

5.Cash book : Transaction connected with cash


like buying and selling it can be classified into
following methods:
Simple cash book
Double column cash book
Triple column cash book
Petty cash book

6.Bills receivable book: Goods are sold for credit to


customers with an agreement written by company and
counter signed by customer called bills receivable book.
7.Bills Payable book: Goods are purchased for credit

from Suppliers with an agreement written by suppliers


and counter signed by company called bills payable book.

8. Journal Proper: There are certain transaction which


cannot be entered in through any subsidiary books and
such transaction entered in the form of journal, called
journal proper. Like opening entries, closing entries
and adjusting entries

Double Entry System

1. Financial Accounting- R.L. Gupta


2. Financial Accounting- R.S.N. Pillai and

Bhagawathi

An error is a mistake and rectification means correcting

the mistakes that have occurred.

Types of Errors
1. Error of Principle
2. Error of Omission
3. Error of Commission
4. Error of Compensation

1. Error of principle
When some fundamental principle of accountancy
is violated while recording the transaction.
Example
Capital expenditure treated as revenue expenses

2. Error of omission
A transaction completely omitted in the books of
accounts.

3. Error of commission
These are the errors which caused due to
wrong posting, wrong totaling, wrong casting
of the subsidiary books, wrong balancing.

4. Error of compensation
If the effect of one error is neutralized by the
effect of some other error, such errors are
called compensating errors.

Meaning:

A statement reconciling as at a particular date the


balance of cash at bank as shown in an enterprise
own records and that indicated on the bank
statement. In principle the two balances should be
equal and opposite but difference may arise for
number of reasons.

1. Cheques issued but not presented for payment.


2. Cheques paid into bank but not credited by the
bank.
3. Amount directly deposited into bank but not
entered in the cash book.
4. Bank charges debited in the pass book but not
entered in the cash book.
5. Dividend, interest collected by the bank but not
entered in the cash book.

6. Bankers allow interest on bank but not entered in


the cash book.
7. Dishonor of cheques not entered in the cash
book.
8. Credit if any in the passbook.
9. Debit if any in the passbook.
10. Subscription, premium, etc., paid by the banker
under standing orders.

The importance of this statement lies in the fact

that it ensures that the bank balance shown by


the cash book is reconciled with that of the bank
pass book.

In the absence of Bank Reconciliation statement,

the customer cannot be sure of the correctness of


the bank balance depicted by the cash book.

Cash book shows debit balances = favourable balance

Cash book shows credit balances = unfavourable

balance/overdraft
Pass book shows credit balances = favourable balance

Pass book shows debit balances = unfavourable

balance/overdraft

1. Capital Expenditure and Revenue

Expenditure
2. Capital Receipts and Revenue
Receipts

1. Financial Accounting- Arulanandham

and
Raman
2. Financial Accounting- S.C. Shukla

Trading Account: Trading account is prepared mainly to know the

profitability of goods bought or manufactured sold by the


businessmen. Difference between the selling price and cost price of
the goods is that gross results.

Profit and Loss account: To know the net profit or net loss of the

business activities after adjusting Office , administrative, selling


and distribution expenses

Balance Sheet: To know the financial position of the company like

assets and liabilities of the business. It contains two sides Assets


and Liabilities

Particulars

Amoun Amoun Particulars


t
t

To Opening stock
To Purchase less
purchase return
To Production
wages
To Manufacturing
expenses
To Factory related
expenses
To Gross Profit c/d

By Sales less
sales return
By Closing stock

Total

Total

Amount Amoun
t

Particulars
Gross loss b/d
Salary
Rent
Commission
Office expenses
Lighting charge
Discount
allowed
Advertisement
Warehouse
charges
Travelling
expenses
Carriage
outwards
Interest on
capital
Depreciation
Net Profit

Amt

Amt

Particulars
Gross Profit b/d
Interest
received
Commission
received
Discount
received

Total

Amt

Amt

Liabilities
Current Liability
Sundry Creditors
Bills Payable
Bank Overdraft
Outstanding
Expenses
Long term Liabilities
Share capital
Reserves and
Surplus
Debentures
Long term loans

Amt Amt

Assets

Amt

Current assets
Cash in hand
Cash at bank
Closing stock
Bills
Receivable
Short-term
Investment
Sundry Debtors
Fixed Assets
Plant and machinery
Land and Building

Amt

1. Uses of Final Accounts

1. Financial Accounting- Jain and

Narang
2. Financial Accounting- Arulanandham
and Raman

Meaning:

Fall in the value and utility of assets due to their


constant use and expiry of time is termed as
depreciation

Due to the constant use due to the wear and tear

arise in fixed assets resulting in their values.


Value of assets decreases with the passage of time
Due to new invention and techniques.
By permanent fall in market price.
Due to accident or depletion.

1. Fixed Installment/ Straight Line Method


Under this method, amount of depreciation
remains equal from year to year.

2. Diminishing Balance Method


The amount of depreciation charged year
after year also goes on declining.

3. Annuity Method
It is assumed that the amount spend in the
purchase of assets is an investment which
should interest.

4. Depreciation Fund Method


This method not only takes depreciation into
account but also makes provision for the
replacement of asset when it becomes useless.

5. Revaluation Method
Compare the value of assets at the end of the
year with the value in the beginning of the year.

6. Depletion Method
Depletion means exhausting of natural resources,

1.

Advantages and Limitations of


Depreciation

1. Financial Accounting- R.L. Gupta


2. Financial Accounting- S.C. Shukla

Meaning
Consignment is an arrangement under which the
manufacturer or wholesaler sends his goods at his
own risk to his agent in a different place for the
purpose of sales on commission basis. The person
who sends the goods is known as consignor. The
ownership of the goods remains with the consignor.
The person to whom the goods are sends for sales is
known as the consignee or the agent.

1. Proforma Invoice
When the consignor sends the goods to the
consignee, he forwards a statement showing
the particulars of the goods such as quality,
quantity, price etc

2. Commission
Consignor pays commission to consignee for
selling his goods. Commission is generally
calculated at fixed percentage of total sales as
per terms laid by the con

3. Recurring Expenses
These expenses are incurred after the goods
have been received at consignees go down.
Consignor

Consignee

Bank charges
Expenses on Damaged
goods

Godown rent
Insurance
Brokerage
Advertising
Salary to salesman
Expenses on goods
return
Expenses on goods
damaged
Commission on goods
damaged
Establishment expenses

4. Non Recurring Expenses


Expenses are incurred for bringing the goods
from the place of the consignor to the place of
the consignee. Hence all the expenses
incurred till the goods reach the godown of
the consignee are non recurring expenses.

Consignor

Consignee

Packaging
Transport or carriage
Forwarding
Dock dues
Landing charges
Freight
Insurance

Unloading charges
Railway dues
Dock dues
Import or customs Duty
Octroil
Carriage to godown/shop

Meaning:
Joint venture is a business venture where two or more
person agrees to undertake jointly a particular venture.
Joint venture is a particular partnership. It is defined as
the kind of business proposition where two or more
persons jointly venture to complete a specific business
undertaking on agreed conditions to share the profit or
loss arising there from, on a temporary partnership
basis until its completion.

1.

Joint venture has no firm name.

2.

It is an agreement between two or more persons to


share profit and losses on agreed proportion.

3.

The agreement is valid only for a specific venture


alone.

4.

The members of the venture are known as the coventures.

5.

As soon as the completion of the task agreement


of the venture comes to an end.

1. Current Analysis of Joint


Venture Firms in India

1. Financial Accounting- R.S.N. Pillai

and Bhagawathi
2. Financial Accounting- S.C. Shukla