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- SEM I FINANCIAL ACCOUNTING
Faculty: Subhash Dalvi
1.2. Financial Accounting 100 marks
COURSE CONTENTS 1. Introduction to Accounting : Concept and necessity of Accounting An Overview of Income Statement and Balance Sheet. 2. Introduction and Meaning of GAAP; Concepts of Accounting: Impact of Accounting Concepts on Income Statement and Balance Sheet. 3. Accounting Mechanics: Process leading to preparation of Trial Balance arid Financial Statements; Preparation of Financial Statements with Adjustment Entries 4. Revenue Recognition and Measurement: Capital and Revenue Items: Treatment of Income & Expenses. Preproduction Cost, Deferred Revenue Expenditure etc.
5. Fixed Assets and Depreciation Accounting. 6. Evaluation and Accounting or inventory 7. Preparation and Complete Understanding of Corporate Financial Statements : µT ¶Form and Vertical Form of Financial Statements 8. Important Accounting Standard 9. Corporate Financial Reporting ² Analysis of Interpretation thereof with reference Ratio Analysis. Fund Flow, Cash Flow. 10. Inflation Accounting 11. Ethic Issue in Accounting
R Narayanaswamy 5 Full Text of Indian Accounting standard ² Taxman Publication . Text & Case.Reference text: 1 Financial Accounting. Daardon & Bhattacharya 2 Financial Accounting (or Managers ² T P Ghosh 3 Financial Accounting ² Reporting & Analysis² 50cc & Diamond 4 Financial Accounting.
Book Keeping is the art of recording business dealings in a set of books ----.R N Carter .MEANING & DEFINITIONS of BOOK KEEPING Book Keeping means keeping a written record of business transactions in a set of books.J R Batliboi Book Keeping is the science and art of correctly recording in the books of accounts all those business transactions that result in the transfer of money or money¶s worth ----.
NEED OF BOOK KEEPING To have permanent record of all the business transactions To know names of customers & suppliers To know net profit & net loss. assets & liabilities of the business To have important information for legal & tax matters .
ACCOUNTING AICPA (American Association of Certified Public Accountants) AAA (American Association of Accounting) Accounting is the art of recording. classifying and summarising. financial transactions and events and interpreting the results thereof Accounting is the process of identifying. in terms of money. measuring and communicating economic information to permit informed judgements and decisions by users of the information .
OBJECTIVES OF BOOK KEEPING To have date-wise record To have account-wise record To calculate & know yearly profit or loss To know year-end financial position To analyse. interpret & communicate the accounting information .
PERSONS INTERESTED IN ACCOUNTING OWNER EMPLOYEES LENDERS CUSTOMERS SUPPLIERS GOVERNMENT SOCIETY SHAREHOLDERS .
It involves ³Give & Take´ CASH TRANSACTION ± Goods or services are exchanged for cash CREDIT TRANSACTION ± Goods or services are exchanged for cash receivable or payable at future .TERMINOLOGY TRANSACTION ± Exchange between two parties.
GOODS ± things. articles or commodities exchanged in a business transaction SERVICES ± Service means the work done for money. They do not involve any article or commodity PROFIT ± Excess of Income over expenditure LOSS ± Excess of Expenses over Income INCOME ± Amount earned by sale of goods & services .
relatives. but is shown by way of a note in the balance sheet . Motor Cars. It is not recorded in the books. Plant. Furniture & Fixtures etc. Machinery. LIABILITIES ± Loans borrowed from banks. friends etc. Computers. EXPENSES ± Amount paid for goods & services used in the business ASSETS ± Properties owned by the business like Building. It may or may not become an actual liability. which must be paid back in future are called liabilities CONTINGENT LIABILITY ± Future liability.
goods or assets from the business for his own use. Net Worth = Assets Liabilities . It also includes goods or assets brought in the business by the owner DRAWINGS ± If the owner withdraws any money. such withdrawals are called as drawings. CAPITAL ± Money put in the business by the owner. Such drawings reduce the amount of capital of the owner NET WORTH ± Difference between total assets and total outside liabilities.
Creditor is a person to whom we owe money. DEBTOR ± A debtor buys goods & services from us and promises to pay the price to us on an agreed date in future. EXPENDITURE ± Payment made by a business to obtain some benefit i. goods or services . Debtor is a person who owes money to business.e. assets. CREDITOR ± A creditor sells goods & services to us and agrees to receive the price in future.
CAPITAL EXPENDITURE ± Expenditure for obtaining an asset is known as capital expenditure. It is an expenditure for running the business. It is an expenditure with short term use (1 year or less than 1 year) . It is an expenditure with long term use (more than 1 year) REVENUE EXPENDITURE ± Expenditure on obtaining goods and services is known as revenue expenditure. It is an expenditure having future benefits.
DEFERRED REVENUE EXPENDITURE ± To defer means to postpone. The balance cost is carried forward and written off in next year. Normally profit is found out for an accounting year. . The proportionate cost related to current year is taken as expense. It is that expenditure which is carried forward as it will be of benefit over subsequent period e. heavy advertisement expenditure to launch a new product.g. ACCOUNTING YEAR ± Period of 12 months normally starting in April & ending in March of next year.
Interest Recd A/C. NOMINAL ACCOUNTS ± Accounts of all expenses & losses and Incomes & gains like Telephone charges a/c. Plant & Machinery A/c. Garware Institute A/c. Building A/C etc. Sachin Tendulkar A/c etc. Mumbai University A/c. Electricity charges a/c. Salary account etc. REAL ACCOUNTS ± Accounts of all properties & assets like CASH Account. .TYPES OF ACCOUNTS PERSONAL ACCOUNTS ± Accounts of all persons like Dena Bank a/c.
GOLDEN RULES PERSONAL ACCOUNT DEBIT .THE RECEIVER CREDIT ± THE GIVER REAL ACCOUNT DEBIT ± WHAT COMES IN CREDIT ± WHAT GOES OUT NOMINAL ACCOUNT DEBIT ± ALL EXPENSES & LOSSES CREDIT ± ALL INCOMES & GAINS .
DOUBLE ENTRY ACCOUNTING Recording of transactions & events follows a definite rule.) Every Debit has an equal & opposite Credit Every transaction should be recorded in such a way that it affects two sides ± DEBIT & CREDIT . Each transaction or event has two aspects DEBIT (Dr.) & CREDIT (Cr.
SELECTION OF TRANSACTION ± Select only those transactions which are .Which arise in the course of the business .Financial in nature and .ACCOUNTING CYCLE 1.
2. Whether the business has received any benefit such as goods. services or assets and in return . Whether any such benefit has gone out of business and in return any amount is received in cash or is receivable . ANALYSIS OF TRANSACTION ± Analyse the transaction to find out a. any amount is paid in cash or is payable b.
Personal A/c b. CLASSIFICATION OF ACCOUNTS ± Find out which items or persons are involved in the transaction and classify them in to 3 main types such as a. Nominal A/c .3. Real A/c c.
APPLYING RULES OF DEBIT OR CREDIT Depending upon the nature of a transaction a. DEBIT ± The A/c receiving the benefit or amount b. CREDIT ± The A/c giving the benefit or amount .4.
the amounts debited or credited are transferred (posted) to the debit and credit of the concerned accounts in a book called Ledger . Bank Book. 5. 6. Sales Register etc. in a daily book called Journal including subsidiary books like Cash Book. Purchase Register. RECORDING IN JOURNAL OR SUBSIDIARY BOOKS ± Transactions are recorded as and when they occur. POSTING AND TOTALLING OF LEDGER ACCOUNTS ± From the journal.
BALANCE SHEET ± The balances of assets. The difference between the income & expenses shows the profit or loss for the year 9. 7. liabilities and capital accounts at the end of the year are summarised in the Balance Sheet. TRIAL BALANCE ± At the end of the year trial balance is prepared which shows the closing balances of all accounts in the ledger 8. . PROFIT & LOSS A/C ± The balances of Income and Expenses accounts at the end of the year are summarised in the P/L A/c.
BRANCHES OF ACCOUNTING FINANCIAL ACCOUNTING COST ACCOUNTING MANAGEMENT/MANAGERIAL ACCOUNTING AUDITING TAXATION .
FINANCIAL ACCOUNTING Original Form of Accounting Confined to Preparation of Financial Statements Objective is to Calculate Profit / Loss made during the year & to exhibit Financial Position of the Business .
COST ACCOUNTING Function of cost accounting is to ascertain the cost of the product and to help the management in the control of cost Costing is a technique of ascertaining cost of a particular product or service .
MANAGEMENT ACCOUNTING It is an accounting for management Provides information to the management It is reproduction of financial accounts in such a way as will enable the management to take decisions & control various activities .
AUDITING Examination of books. vouchers and other records by a practicing Chartered Accountant appointed for the purpose Reporting to the members / management whether the B/S & P/L A/c as on particular date shows true & fair view of the state of affairs of the business . accounts.
TAXATION Computation of Taxable Income & Tax Payable thereon Reconciliation between accounting profit & taxable profit Statutory compliance .
Parrot & Ant Playing Match Entity Matching Money Measurement Prudence Cost Accrual Periodicity Going Concern . Goat. Cat. Monkey.ACCOUNTING CONCEPTS Elephant.
ACCOUNTING CONCEPTS EXPLAINED The Entity Concept ± A business is an artificial entity distinct & separate from its owner. For accounting purposes a business & its owner are two separate persons Money Measurement Concept ± For accounting purposes each transaction & event must be expressible in monetary terms. .
Assets such as Land. Buildings. The Cost Concept . and obligations such as Loans. Public Deposits etc. Plant & Machinery etc. should be recorded at historical cost (acquisition) The Going Concern Concept ± It is assumed that the business organization would continue its operations for a long time .
Calendar Year ± January to December Fiscal Year ± April to March As per Income Tax Act.e. Periodicity Concept ± The results of operations of entity are measured periodically i. in each accounting period. Accounting Period should always be starting from April March .
E. Rent paid for 15 months in advance on January 2009. In this case Rent for 3 months should be recognized in FY 08-09 & Rent for 12 months should be recognized in FY 09-10 .g. irrespective of whether the money is received or paid in connection thereof. Accrual Concept ± Incomes & Expenses should be recognized as and when they are earned and incurred.
Concept of Prudence ± It states that anticipate no profits but provide for all possible losses. Prudence is the inclusion of a degree of caution in the judgment of estimates. Expected losses should be accounted for but not anticipated gains .
the expenses incurred to generate revenue are to be matched against that revenue . Matching Concept ± Revenue earned in an accounting year is matched with all the expenses incurred during the same period to generate that revenue. Matching concept suggest that to find out the profitability.
ACCOUNTING SEQUENCE Preparation Of Financial Statements Trading A/C. Transaction / Event Preparation Of Vouchers Preparation Of Trial Balance Recording in Primary Books JOURNAL Postings in Secondary Books LEDGER . Profit & Loss A/C. Balance Sheet etc.
Receipt. Quotations etc. are prepared & the same are filed for future reference . physical vouchers based on certain documents like Bill.VOUCHER PREPARATION After the event is happened. Delivery Challan. Reports. Purchase Order.
Format of JOURNAL is as follows Sr. L/F Amt 1 1 12 14 500 Cr. Vr. Dr. Dr.No. Sam) Dr.RECORDING IN PRIMARY BOOK All the events are recorded in primary book called ³JOURNAL´ in a double entry system of book keeping. Date 24. Cr. / Cr.04. No. 1 500 .2009 Particulars Plant & Machinery A/C To Cash (Being Purchase of Machinery for cash from Mr. Amt.
09 Particulars To Cash JF Plant & Machinery Account Amount Date Particulars By Balance JF 500 30. Amount 500 500 DR.04.09 Particulars To Balance JF Cash Account Amount Date Particulars By P&M JF 500 24.09 500 CR. Amount 500 500 .04.04.04. Date 30.09 500 CR.SECONDARY BOOKS . Date 24.LEDGER DR.
500 500 Cr. Total 500 500 .03. Trial Balance as on 31.2009 Sr.TRIAL BALANCE It is a list of various accounts showing their balances (either DR. Bal. Name of the Account 1 Plant & Machinery 2 Cash Dr.No.Bal. or CR. Based on such TB financial statements are prepared.) as on particular date.
03. Particulars (Trad Exp) To Opening Stock To Purchases To Wages To Gross Profit c/d Amount xx xx xx xx xxx Particulars (Trad Income) By Sales By Closing Stock Cr.Trading Account TRADING A/C for the year ended 31. Amount xx xx xxx .2009 Dr.
Profit & Loss Account
PROFIT & LOSS A/C for the year ended 31.03.2009 Dr. Particulars (Expenses) To Salary To Printing & Station To Telephone To Advertisement To Electricity To Postage To Fax Exp To Net Profit c/d Amount xx xx xx xx xx xx xx xx xxx xxx Particulars (Incomes) By Gross Profit b/d By Commission Recd By Discount Recd By Interest Recd By Remuneration Recd By Profit on Sale of Asset Cr. Amount xx xx xx xx xx xx
Journal means a daily book Journal means a book to record daily transactions As soon as any financial transaction takes place, it is recorded in the Journal. Hence it is called the book of First, Original or Prime entry Journal entry is passed according to the rules of Debit & Credit.
All the pages/folios are bound together in a book called LEDGER . Each A/c is kept on a separate page or folio.LEDGER JOURNAL ± Date wise record LEDGER ± Account wise record Ledger A/c is a statement showing the summary of transactions and the final balance in respect of a person or an item.
A/c (Name of the Ledger A/c) PARTICULARS J/F AMT DATE PARTICULARS J/F CR.FORMAT OF LEDGER A/C DR. DATE «««««. A/c - xxx xxxx xxxx . AMT xx To ««... A/c - xxx xx By ««.
income and expenses at a glance It is a link between ledger and the final accounts . assets.TRIAL BALANCE TRIAL BALANCE is a statement containing the list of the balances of all Ledger Accounts on a particular day It is a concise summary of ledger balances It gives an idea of balances of various accounts of persons.
1 2 3 4 5 6 7 8 9 10 11 Debit Amt xx xx xx xx xx xx xx xx xx xx xx xxxx xxxx Credit Amt Particulars / Name of the Ledger A/c Purchases A/c Sales A/c Purchase Returns A/c Sales Returns A/c Cash A/c Bank A/c Capital A/c Salaries A/c Furniture A/c Sundry Debtors A/c Sundry Creditors A/c Total L/F . AS ON «««« Sr.No .FORMAT OF TRIAL BALANCE TRIAL BALANCE OF ««««.
STEPS IN EXTRACTING TRIAL BALANCE RECORDING .the transactions in Journal POSTING .the transactions in Ledger BALANCING .the Ledger Accounts TRIAL BALANCE ± writing the balances of the Ledger Accounts .
Drawings 2. Bills Payable 4. Sundry Creditors 3. Assets A/c 10. & Cr. Bank Overdraft 5. Income & Gains . Purchases 11. Sundry Debtors 3. Return Outwards 10. Bills Receivable 4. Expenses & Losses CR. Deposits Given 7. Loans Taken from 6. Loans Given 6. Return Inwards 12. Opening Stock 13. Bank 5. Cash A/c 9. Balances DR. BALANCES 1. Advances Taken from 8. Advances Given 8. Deposits Taken from 7. Sales 9. Capital A/c 2.Ledger Accounts Normally Having Dr. BALANCES 1.
INDIVIDUAL PROJECT/ASSIGNMENT TOPIC ACCOUNTING STANDARDS ISSUED TILL DATE . . Factors considered. subject etc. division. roll no. Objective. Benefits etc.Meaning. Total Marks 40 . Who sets.Explanation in full details for any 4 accounting standards Submission Date 16th October.List along with AS-No. Points Covered. 2010 Neatly typed /printed/handwritten & spiral bounded Specify the name. .
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