Let’s Review….

Fill in the blanks

• Profit means excess of ——— over —————
• Debtor is a person who ——— to others.
• The withdrawal of money by the owner of
business is called ————.
• Vehicles represent ———— expenditure while
repairs to vehicle would mean —————
expenditure.
• Expenditure is called ————— expenditure if
the benefits from it extend to more than one
year.
Write a one word for the following:
• Commodities in which a business deals.
• Excess of expenditure over income.
• Amount owed by business to others.
• A transaction without immediate cash
settlement.
• An exchange of money or money’s worth
between two parties.
 Answer (fill in the blanks)
1. Income , Expenditure
2. Owes (payable)
3. Drawing.
4. Capital , Revenue
5. Capital
 Answer (One word)
1. Goods.
2. Loss
3. Liability
4. Credit
5. Transaction.
 Concept and
Conventions of
Accounting
 Business Entity Concept
The business is treated as distinct (and separate) from
the individuals who own or manage it.
 Money Measurement Concept
• A business transaction will always be recoded
if it can be expressed in terms of money or
money’s worth.
 Going Concern Concept
• The basic rationale of this concept is that
business is assumed to exist for an indefinite
period and is not established with the
objective of closing it down.
 Historical Cost concept
• Business transactions are always recorded at
the actual cost at which they are actually
undertaken.

In year 2000: Rs.50 Today: Rs.100 Crores

Crores
 Accounting Period Concept
• Time interval between two accounting date.
This period is usually one year, normally starts
from 1st April to 31st March.
 Matching Concept
• event has two effects – one on revenue and
the other on expense, both must be
recognized in the same accounting period.
 Accrual Concept
• The accrual concept is based on recognition of
both cash and credit transactions.
 Realisation Concept
• It says amount should be recognized only to
the tune of which it is certainly realizable.
 Disclosure Convention
• It indicates do not hide any information,
disclose all the facts in financial reports,
 Conservatism Convention
• The prudence of under-stating than over-stating the net
income of an entity for a period
(a) Delay in recognizing income unless one is reasonably
sure
(b) Immediately recognize expenses when reasonably
sure
 Consistency Convention
• Once an organization decides to adopt a
particular method, the same should be
consistently applied year after year, unless
there is a valid reason for change in the
method.
 Materiality Convention
• While accounting for
various transactions,
only those which may
have material effect
on profitability of the
business should have
special consideration
for reporting.
 Journal
• It is a book of original records
• It is the book in which the transactions are recorded first of all
under double entry system.
• A book containing a chronological record of business
transaction.
• The entire transaction, both the debit and the credit, is
recorded in one place on one page.

Thursday, March 11, 2021 Preparatory Session 19

 Pro-forma of Journal
Date Particulars L.F. Debit Credit
amount amount

R FOLI O
. :- L EDG E
ote:- L.F
N

Thursday, March 11, 2021 Preparatory Session 20

 LEDGER
 The ledger is the book or file of account. It
consists of the debits and the credits of the
journal arranged compactly under the various
account headings.
 It is the function of the ledger to summarize the
effects of business transactions in terms of
individual accounts, so that a conclusion
concerning the status of each account may be
drawn periodically.

Thursday, March 11, 2021 Preparatory Session 21

 Performa of Ledger
Date Particular JF Amt Date Particular JF Amt

FO LIO
L
NA
J O UR
J. F.=
te: -
N o
Thursday, March 11, 2021 Preparatory Session 22
 Double Entry Accounting System
• In double entry book keeping system every transaction is
noted at twice i.e.
– at two different accounts
– at two different sides
– But with equal amount
So we can say that, “Every Debit There is Corresponding
Credit”.
• Every transaction has two effects just as there are two parties
to every transaction, for e.g. buyer and seller, receiver and
giver, debtor and creditor.
Thursday, March 11, 2021 Preparatory Session 23
 Implied Rules of Account

 Business and Businessman are separate from each

other, just like two friends are different from each
other.
 Hence, no businessman can write his/her own name
into business books of accounts.
 Both the rules are personal and nominal account are
not applicable in single transaction at a time.
Thursday, March 11, 2021 Preparatory Session 24
 Implied Rules of Account
• Personal account rules are applicable only when there is
obligations in the transaction for e.g., purchase or sale of
goods on credit.
• Rule of real account can be applicable in same transaction
simultaneously.
• Assets and expenses account always show the debit balance.
• Liabilities and incomes account always show the credit
balance.

Thursday, March 11, 2021 Preparatory Session 25

 In all we can say that

• Assets, Debtors and Expenses always show a

debit balance.
• Liability, creditors and incomes always show a
credit balance

Thursday, March 11, 2021 Preparatory Session 26

 Remember this all time..
• Personal Account may show debit or credit balance:-
Debit balance represents debtors.
Credit balance represents creditors.
• Real Account (Assets) always show debit balance.
• Nominal Account may show debit or credit balance:-
Debit balance represents Expenses.
Credit balance represents Income.

Thursday, March 11, 2021 Preparatory Session 27

 What is Debit Balance ?

When the total of debit side is more than credit side of

account, then that balance is called as Debit Balance.

 What is Credit Balance ?

When the total of Credit side is more than Debit side of

account, then that balance is called as Credit Balance.

Thursday, March 11, 2021 Preparatory Session 28