AARoundup_05.30.07_Acctng

8/8/2019 AARoundup_05.30.07_Acctng

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BY

Mr. M. VijayaRagunathan


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y Meaning

y Definition

y Concepts

y Conventionsy Functions

y Limitations

y

Kindsy Golden Rules


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y Meaning- : Language of business to communicatingeach other.

y Definition- : As per AICPA Art of recording ,Classifying and Summarizing in a significant mannerand in terms of money, transactions and events whichare, in part at least, of a financial character and

interpreting the results thereof.


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1. Business Entity Concept:

Business is always separated from the owners. There isno 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 recordedin the accounting books, other transaction will be ignoredfrom the accounting books.


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4. Dual Aspect Concept:

For every debit there must be a corresponding creditor Total Assets = Total Liabilities.

5. Accounting period Concept:

The whole accounting years divided into varioussegments 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.


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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.


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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 periodof time.


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3. Conventions of Conservatism:

Its all about adopting policy Playing Safe. Loss can betaken into consideration. Profit will be ignored.

4. Conventions of Materiality:

Only the material based will be taking place in theaccounting books whereas others will be ignored.


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1. Keeping Systematic records

2. Protecting Business Property

3. Communicating Results to the interesting people

4

. Meeting Legal Requirements


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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


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1. Financial accounting : concerned only with the financialstate of affairs and financial results of operation.

2. Management accounting: To provide necessaryinformation about funds, costs, profit etc. As it enables themanagement to discharge its functions properly.

3. Cost Accounting: It was developed to overcome thelimitations of financial accounting. The main purpose ofcost accounting is to analyze the expenditure involved.


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1.PERSONAL ACCOUNT

Natural (Human beings)

Artificial (Banks, Company and Firms)Debit the Receiver

Credit the Giver


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2. REAL ACCOUNT( Assets)

Debit what comes in

Credit what goes out

ASSETS: Anything which will enable the firm to getcash or benefit in a future.

I)T

angible:T

hose which can be

seen, feel andtouched that is, which have physical Existence.


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1. Current Assets : Those assets which can be converted intocash within short period of Time or normal business cycleor within one year.

2. Fixed Assets :Those assets which are purchased for thepurpose of operating the business but not for resale.


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y 1.Current assets ( Examples) 2. Fixed assets ( Examples)

y

y a) Cash in hand a) Land

y b)Cash at bank b) Buildingy c)Closing stock c) Plant and

d)Machinery

y e)Bills Receivable d) Motor car

y f)Short-term Investment e) Premises etcy g)Prepaid Expenses

y e)Sundry Debtors etc


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II) Intangible :Those which cant be seen, andtouched that is but feel it, which Does not havephysical existence.

y a) Goodwill

y b) Patents rights

y c) Copy rights


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y 3.NOMINAL ACCOUNT:

Debit all Expenses and Losses

Credit all Incomes and Gains


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y A)Expense : Income:

y a) Salaries Paid a) Rent received

y b) Rent Paid b) Commission received

y c) Commission c) Interest received etc.,y d) Interest Paid

y e) Advertisement

y f) Fright charges etc.,


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Date Particulars L/F

Debit(Dr)

(Rs)

Credit(Cr)

(Rs)

Jan 1 Cash A/c.DrTo Capital A/c

(Being Capital introduced)

10,00010,000

Journal : A transaction first entered into books ofaccounts chronological order called journal entry

Proforma of Journal


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Ledger: A transaction second time entered into books of

accounts called ledger

Date

Particulars

J/

F

Amt Amt Date Particulars

J/

F

Amt

Amt

Jan31

To Bal c/d 10,000

10,000

Jan 1

Feb 1

By Cash

By Bal b/d

10,000

10,000

10,000

Proforma Of LedgerCapital A/c


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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, meantfor resale will take place on the sales book


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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 tocompany, if they are defective.


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5.Cash book : Transaction connected with cash likebuying and selling it can be classified into following

methods:

Simple cash book

Double column cash book

Triple column cash book

Petty cash book


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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.


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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, calledjournal proper. Like opening entries, closing entries

and adjusting entries


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Double EntrySystem


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1. Financial Accounting- R.L. Gupta

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


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y An error is a mistake and rectification means correcting themistakes that have occurred.

Types of Errors

1. Error of Principle

2. Error of Omission

3. Error of Commission

4. Error of Compensation


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1. Error of principle

When some fundamental principle of accountancy isviolated while recording the transaction.

ExampleCapital expenditure treated as revenue expenses

2. Error of omission

A transaction completely omitted in the books of accounts.


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3. Error of commission

These are the errors which caused due to wrongposting, 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 compensatingerrors.


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y Meaning:

A statement reconciling as at a particular date the balance ofcash at bank as shown in an enterprise own records andthat indicated on the bank statement. In principle the twobalances should be equal and opposite but difference mayarise for number of reasons.


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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 inthe 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.


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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.


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y 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.

y In the absence of Bank Reconciliation statement, the

customer cannot be sure of the correctness of the bankbalance depicted by the cash book.


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y Cash book shows debit balances = favourable balance

y Cash book shows credit balances = unfavourable

balance/overdraft

y Pass book shows credit balances = favourable balance

y Pass book shows debit balances = unfavourable

balance/overdraft


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1. Capital

Expenditure and

RevenueExpenditure

2. Capital Receipts and Revenue Receipts


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1. FinancialAccounting-Arulanandham andRaman

2. FinancialAccounting- S.C. Shukla


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y 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.

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

activities after adjusting Office , administrative, selling and distribution

expenses

y Balance Sheet: To know the financial position of the company like assets and

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


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Particulars Amount Amount Particulars Amount Amount

To Opening stockTo Purchase lesspurchase return

To Production wagesTo ManufacturingexpensesTo Factory relatedexpensesTo Gross Profit c/d

By Sales less salesreturnBy Closing stock

Total Total


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Particulars Amt Amt Particulars Amt Amt

Gross loss b/dSalaryRentCommissionOffice expensesLighting chargeDiscount allowedAdvertisementWarehouse chargesTravelling expensesCarriage outwardsInterest on capital

DepreciationNet Profit

Total

Gross Profit b/dInterest receivedCommissionreceivedDiscount received

Total


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Liabilities Amt Amt Assets Amt Amt

Current LiabilitySundry CreditorsBills PayableBank Overdraft

Outstanding Expenses

Long term LiabilitiesShare capital Reservesand SurplusDebentures

Long term loans

Current assetsCash in handCash at bankClosing stock

Bills ReceivableShort-term InvestmentSundry Debtors

Fixed AssetsPlant and machinery

Land and BuildingFurnitureVehiclesGoodwillCopyrights

Total Total


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1. Uses of Final Accounts


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1. FinancialAccounting- Jain and Narang

2. FinancialAccounting-Arulanandham andRaman


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y Meaning:

Fall in the value and utility of assets due to their constant

use and expiry of time is termed as depreciation


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y Due to the constant use due to the wear and tear arise infixed assets resulting in their values.

y Value of assets decreases with the passage of time

y Due to new invention and techniques.

y

By permanent fall in market price.

y Due to accident or depletion.


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1. Fixed Installment/ Straight LineMethodUnder this method, amount of depreciation remainsequal from year to year.

2. Diminishing BalanceMethodThe amount of depreciation charged year after yearalso goes on declining.

3. AnnuityMethod

It is assumed that the amount spend in the purchaseof assets is an investment which should interest.


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4. Depreciation Fund Method

This method not only takes depreciation into account butalso makes provision for the replacement of asset when itbecomes useless.

5. RevaluationMethod

Compare the value of assets at the end of the year with thevalue in the beginning of the year.

6. Depletion Method

Depletion means exhausting of natural resources,


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1

.A

dvantages

and Limitations

ofDepreciation


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1. FinancialAccounting- R.L. Gupta



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Meaning

Consignment is an arrangement under which the

manufacturer or wholesaler sends his goods at his own riskto 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.


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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 fixedpercentage of total sales as per terms laid by the con


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3. Recurring Expenses

These expenses are incurred after the goods have beenreceived at consignees go down.

Consignor Consignee

Bank chargesExpenses on Damaged goods

Godown rentInsuranceBrokerageAdvertising

Salary to salesmanExpenses on goods returnExpenses on goods damagedCommission on goodsdamagedEstablishment expenses


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4. NonRecurring Expenses

Expenses are incurred for bringing the goods from theplace of the consignor to the place of the consignee.

Hence all the expenses incurred till the goods reachthe godown of the consignee are non recurringexpenses.


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Consignor Consignee

PackagingTransport or carriageForwardingDock dues

Landing chargesFreightInsurance

Unloading chargesRailway duesDock duesImport or customs Duty

OctroilCarriage to godown/shop


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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 temporarypartnership basis until its completion.


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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 co-

ventures.

5. As soon as the completion of the task agreement of the

venture comes to an end.


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1. Current Analysis of JointVenture Firmsin India


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1. FinancialAccounting- R.S.N. Pillai andBhagawathi


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AARoundup_05.30.07_Acctng