A best theory of accounting

1. ANTIM PRAHAR
The Most Important Questions
By
Dr. Anand Vyas

2. 1 Depreciation Numerical /theory
The term depreciation refers to an accounting method used to allocate
the cost of a tangible or physical asset over its useful life. Depreciation
represents how much of an asset's value has been used. It allows
companies to earn revenue from the assets they own by paying for
them over a certain period of time.

3. • Straight Line Method (SLM)
• Amount of Depreciation = (Cost of Asset – Net Residual Value) /
Useful Life
• The rate of Depreciation = (Annual Depreciation x 100) / Cost of Asset
• Diminishing Balance Method

4. 2020-21

6. 2 Trading P&L and Balance Sheet

10. 3 Ratio Analysis Theory and Numerical

17. 4 Difference between Cash flow and Fund flow
Cash Flow statement shows the changes in the cash position (Inflows
and outflows) of a firm. It is an analytical reconciliation statement
which explains the reasons for the differences between the opening
and closing cash balances over a period. On the other hand, Fund Flow
statement is a statement that shows the ups and downs of the financial
position or the changes in working capital of the entity between the
two financial years.

19. 5 Comparative Balance Sheet

21. 6 Trail Balance Theory
• A trial balance is a bookkeeping worksheet in which the balances of all
ledgers are compiled into debit and credit account column totals that are
equal. A company prepares a trial balance periodically, usually at the end
of every reporting period. The general purpose of producing a trial balance
is to ensure the entries in a company’s bookkeeping system are
mathematically correct.
• Preparing a trial balance for a company serves to detect any mathematical
errors that have occurred in the double-entry accounting system. If the
total debits equal the total credits, the trial balance is considered to be
balanced, and there should be no mathematical errors in the ledgers.
However, this does not mean there are no errors in a company’s
accounting system. For example, transactions classified improperly or
those simply missing from the system could still be material accounting
errors that would not be detected by the trial balance procedure.

23. 7 Journalizing of Transactions (Journal
Entry)
• Journalisation
• Journalizing is the process of recording a business transaction in the accounting records. This
activity only applies to the double-entry bookkeeping system. The steps involved in journalizing
are as follows:
• Examine each business transaction to determine the nature of the transaction. For example, the
receipt of a supplier invoice means that an obligation has been incurred. Or, throwing out
obsolete inventory means that the inventory asset will be reduced.
• Determine which accounts will be affected. This calls for the identification of the general ledger
accounts that will be altered as a result of the transaction. For example, recording a supplier
invoice could mean that the office supplies expense account will be increased, as well as the
offsetting accounts payable
• Prepare a journal entry. This involves not just entering the transaction in the accounting system,
but also documenting it sufficiently so that someone reviewing the entry later will understand
why it was created. Ideally, the entry should note the impacted accounts, the debits and credits
entered, a journal entry number, and a narrative comment.

24. 8 Cash Flow Statement Theory / Numerical
• The Statement of Cash Flows (also referred to as the cash flow statement) is one of the three key
financial statements that reports the cash generated and spent during a specific period of time
(i.e., a month, quarter, or year). The statement of cash flows acts as a bridge between the income
statement and balance sheet by showing how money moved in and out of the business.
• Three Sections of the Statement of Cash Flows:
• Operating Activities: The principal revenue-generating activities of an organization and other
activities that are not investing or financing; any cash flows from current assets and current
liabilities
• Investing Activities: Any cash flows from the acquisition and disposal of long-term assets and
other investments not included in cash equivalents
• Financing Activities: Any cash flows that result in changes in the size and composition of the
contributed equity capital or borrowings of the entity (i.e., bonds, stock, dividends)

26. 9 Accounting Standards and IFRS
• Accounting Standards are written policy documents issued by
expert accounting body or by the government or other regulatory
body .
• An accounting standard is a set of practices and policies used to
systematize bookkeeping and other accounting functions across
firms and over time. Accounting standards apply to the full breadth
of an entity's financial picture, including assets, liabilities, revenue,
expenses, and shareholders' equity.
•

28. IFRS: International Accounting Standards;
• International Financial Reporting Standards (IFRS) are a set of
accounting rules for the financial statements of public companies that
are intended to make them consistent, transparent, and easily
comparable around the world. IFRS currently has complete profiles
for 166 jurisdictions.

29. IFRS: International Accounting Principles
•IFRS requires that financial statements be prepared using four basic
principles: clarity, relevance, reliability, and comparability.

30. 10 the significance of Human Resource Accounting in a
modern business world. major elements of HRA
• Flamhoitz defines HRA as ‘accounting for people as an organizational
resource. It involves measuring the costs incurred by organizations to
recruit, select, hire, train, and develop human assets. It also involves
measuring the economic value of people to the organization’.
• According to Stephen Knauf, ‘ HRA is the measurement and
quantification of human organizational inputs such as recruiting,
training, experience and commitment’.

31. Human Resource Accounting

32. Objectives of Human Resource Accounting
(HRA)
• Providing cost value information about acquiring, developing, allocating
and maintaining human resources.
• Enabling management to monitor the use of human resources.
• Finding depreciation or appreciation among human resources.
• Assisting in developing effective management practices.
• Increasing managerial awareness of the value of human resources.
• For better human resource planning.
• For better decisions about people, based on improved information system.
• Assisting in effective utilization of manpower.