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INTRODUCTION TO

FINANCIAL ACCOUNTING
PRESENTED BY
PROF. (C.A.) SWATI GODBOLE

BACKGROUND AND
MEANING

BUSINESS IS
ALL ABOUT

MONEY

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BRANCHES OF
ACCOUNTING
Process of
Communicating social
And environmental impacts
Of business actions

Accounting
For
management
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PROF. (C.A.) SWATI GODBOLE

Post mortem of
Business transactions

Cost estimation,
Cost control

FINANCIAL ACCOUNTING
BASIC PRINCIPLES

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PROF. (C.A.) SWATI GODBOLE

CONCEPTS
Means basic rules & regulations
Different concepts
BUSINESS AND OWNERS
Business entity
Going concern

Dual aspect
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ARE SEPARATE
BUSINESS = ARTIFICIAL
LEGAL ENTITY
BUSINESS HAS A LONG ,
INDEFINITE LIFE
EVERY THING OF BUSINESS HAS TWO
EQUAL SIDES / TWO EQUAL FOLD
IMPACT

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CONTD..
Standard Period of 12 Months at
Accounting period
The end of which evaluation will
Be done

Matching

Expenses are recognized in the same


accounting period when the related
revenue is recognized

Accounts only deal with items


to which a monetary value
can be attributed

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Money
measurement
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CONTD..
Cost

An asset is entered into the


accounting records at the price paid to acquire it.

The idea that income and expense items must


be included in financial statements
as they are earned or incurred.

Accrual

Revenue recognized only when it


realizable or earned or realized

Revenue recognition
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GODBOLE

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CONVENTIONS
Means basic assumptions

to inform both current and


potential investors of the
Disclosure accounting strategies and methods
used when developing periodic
corporate
Be consistent = no change in
method
Consistency Unless forced
Play Safe

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relating to the
importance/significance of an
Conservatism
amount, transaction, or discrepancy.
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Materiality
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The immediate recognition of


loss is supported by the
underlying principle of
Matching
Consistency
Judgment
Conservatism

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The determination of the


expenses for an accounting
period is based largely on the
application in which principle?
Cost
Consistency
Matching
Time period

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The Business entity concept

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Refers to the name of the


company required in the heading
of the financial statements
Refers to the owners of the
entity, who must account for their
interest in the entity their
personal holdings
Indicates that the accounting unit
on which the financial reports are
based is the business itself,
separate from its owners
Holds that the business is made
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up of
12 many separate components
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Assigning revenues to the


accounting period in which the
goods were delivered or the
services performed and
expenses to the accounting
period in which they were used
to produce revenues is known
as the

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Accounting period
Continuity assumption
Matching rule
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Revenue recognition

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ACCOUNT
Personal
Accounts of
Individuals
And Artificial
persons
E.g. Mr. A , B , C ,
ABC Ltd. Z Ltd.
etc.

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Impersonal

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Accounts of
Others i.e. those
who are not
individuals and
artificial persons.
Further classified
into two types.
Real and
Nominal

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REAL AND NOMINAL


Real
Accounts of things
that can be seen,
touched i.e. which
are real.
E.g. Cash ,
Furniture , Car ,
Mobile ,
Machinery etc.

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Nominal

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Accounts of things
that can only be
felt, imagined but
cannot be seen or
touched.
E.g. Wages ,
Salary ,
Electricity
charges ,
Telephone
Charges etc.
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Classify the following into


Personal, Real and Nominal.

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Stationery Account
Cash Account
Goodwill Account
Capital Account
Freight Account
Rent Account
Interest Account
Account of Govind, a customer
Bank Loan Account
Depreciation
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THREE GOLDEN RULES FOR


DEBIT AND CREDIT

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Example

Received cash Rs.500 from Mr. A


Mr. A a Personal account
A is the giver of the money
So As account will be credited.

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Contd.

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Contd. The same example


Cash is a real account
Cash is coming in the business
Cash will be debited applying the
rule.

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Contd.

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Example
Received cash from Mr. A as
Commission
Here commission is a nominal
account
In the given transaction
Commission is Income
Applying the rule commission
will be credited.
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Business transactions
In order to record the business
transactions we follow certain
steps

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Identify the nature of transaction


i.e. Cash or Credit
If Cash transaction then one
account getting affected is Cash
or Bank (Cheque)
Next question WHY?
If no answer to the previous
question
then next question
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WHOM?

Contd.
In case of Credit Transaction
One account getting affected is
Personal account
Next question WHY?
Example

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Example
Purchased Furniture from
Furniturewala and Sons
Rs.20000
Credit Transaction as no money
coming in or going out
So Furniturewala and Sons
Account getting affected
WHY = Purchase of Furniture
Second account getting affected
is Furniture
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Point out the accounts which


will be debited and credited for
each one of the following
transactions
Cash received from X
Cash paid to Y
Credit sale to Z.
Salary paid to clerk by means of
cheque.
Payment of cash to Landlord for
Rent.
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