Accountancy

2. Accounting is the language of business. It
is the system of recording, summarizing,
and analyzing an economic entity's
financial transactions. Effectively
communicating this information is key to
the success of every business.

3. “In 1941, The American Institute of
Certified Public Accountants (AICPA)
had defined accounting as the art of
recording, classifying, and summarizing in
a significant manner and in terms of
money, transactions and events which are,
in part at least, of financial character, and
interpreting the results there.”

6. Business entity concept: A business and its owner
should be treated separately as far as their financial
transactions are concerned.
Money measurement concept: Only business transactions that
can be expressed in terms of money are recorded in
accounting, though records of other types of transactions may
be kept separately.
Dual aspect concept: For every credit, a corresponding debit is
made. The recording of a transaction is complete only with this
dual aspect.
Going concern concept: In accounting, a business is expected
to continue for a fairly long time and carry out its commitments
and obligations. This assumes that the business will not be
forced to stop functioning and liquidate its assets at “fire-sale”
prices.

7. Cost concept: The fixed assets of a business are recorded on the
basis of their original cost in the first year of accounting.
Subsequently, these assets are recorded minus depreciation. No
rise or fall in market price is taken into account. The concept
applies only to fixed assets.
Accounting year concept: Each business chooses a specific time
period to complete a cycle of the accounting process—for
example, monthly, quarterly, or annually—as per a fiscal or a
calendar year.
Matching concept: This principle dictates that for every entry of
revenue recorded in a given accounting period, an equal
expense entry has to be recorded for correctly calculating profit
or loss in a given period.
Realization concept: According to this concept, profit is
recognized only when it is earned. An advance or fee paid is not
considered a profit until the goods or services have been
delivered to the buyer.

8. There are four main conventions in practice in accounting:
conservatism; consistency; full disclosure; and materiality.
Conservatism is the convention by which, when two values of a
transaction are available, the lower-value transaction is recorded.
By this convention, profit should never be overestimated, and
there should always be a provision for losses.
Consistency prescribes the use of the same accounting principles
from one period of an accounting cycle to the next, so that the
same standards are applied to calculate profit and loss.
Materiality means that all material facts should be recorded in
accounting. Accountants should record important data and leave
out insignificant information.
Full disclosure entails the revelation of all information, both
favourable and detrimental to a business enterprise, and which are
of material value to creditors and debtors.

9. Mr. Sunrise started a business for buying and selling of stationery with Rs. 5,00,000
as an initial investment. Of which he paid Rs.1,00,000 for furniture, Rs. 2,00,000
for buying stationery items. He employed a sales person and clerk. At the end of the
month he paid Rs.5,000 as their salaries. Out of the stationery bought he sold some
stationery for Rs.1,50,000 for cash and some other stationery for Rs.1,00,000 on
credit basis to Mr.Ravi. Subsequently, he bought stationery items of Rs.1,50,000
from Mr. Peace. In the first week of next month there was a fire accident and he lost
Rs. 30,000 worth of stationery. A part of the machinery, which cost Rs. 40,000, was
sold for Rs. 45,000.
Answer the following :
1. What is the amount of capital with which Mr. Sunrise started business.
2. What are the fixed assets he bought?
3. What is the value of the goods purchased?
4. Who is the creditor and state the amount payable to him?
5. What are the expenses?
6. What is the gain he earned?
7. What is the loss he incurred?
8. Who is the debtor? What is the amount receivable from him?
9. What is the total amount of expenses and losses incurred?
10. Determine if the following are assets, liabilities, revenues, expenses or none of
the these: sales, debtors, creditors, salary to manager, discount to debtors,
drawings by the owner.

10. An Accounting Standard is a guideline that directs and
standardizes accounting practices. Accounting standards
provide a standardized framework to ensure that the
financial statements of businesses are meaningful and
standardized so that interpreting and understanding them
would be easy.
Accounting standards ensure that the financial
statements are prepared fairly and consistently
across the businesses. Without accounting
standards, users of financial statements would be
required to understand the accounting principles
of each company whose financial statements are
under study.

13. Double entry accounting, also called double entry
bookkeeping, is the accounting system that requires
every business transaction or event to be recorded in at
least two accounts. This is the same concept behind
the accounting equation. Every debit that is recorded
must be matched with a credit. In other words, debits
and credits must also be equal in every accounting
transaction and in their total.

15. The following is a sample of entering the above transactions
You purchased a computer on 1/4/2012 by issuing a cheque for
Rs.800
Effect of Double Entry System: Debit Computer Account and
Credit Bank Account
You purchased a TV on 10/4/2012 by paying cash of Rs.100
Effect of Double Entry System: Debit Computer Account and Credit Bank
Account
You sell a Refrigerator on 30/4/2012 and receive cash of Rs200
Effect of Double Entry System: Debit Cash Account and Credit
Refrigerator A/c