Accounting Fundamentals

1 Introduction to Accounting
2 Theory base of Accounting
3 Recording of Transactions – I
4 Recording of Transactions – II
5 Bank Reconciliation Statement
6 Trial Balance and Rectification of errors
7 Depreciation, Provisions and Reserves

8 Bill of Exchange
9 Financial Statements -I
10 Financial Statements -II
11 Accounts from Incomplete Records
12 Application of Computers in Accounting
13 Computerised Accounting System

Introduction to Accounting
Chapter- 1

Accounting is the process of recording
financial transactions pertaining to a business.
Accounting

Definition of Accounting
American Institute of Certified Public Accountants
AICPA - (1941)
“Accounting is 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 result
thereof.”.

Qualitative Characteristics of
Accounting Information

An accounting information should be objective
and reliable. To be reliable, it should be free from
errors and bias.
Reliability

Relevance
An accounting information should be relevant
for decision making. To be relevant, information
must be made available in time.

Understandability
An accounting information should be readily
understandable by its users. It should be presented
in simple terms and form.

Comparability
An accounting information will be useful and
beneficial to the different users only when it is
comparable over time and with other enterprises.

Reliability
Relevance
Understandability
Comparability

INTERNAL USERS
Chief Executive Officer
Financial Officer
Vice President
Business Unit Managers
Plant Managers
Store Managers
Line Supervisors etc
INTERESTED USERS OF
ACCOUNTING INFORMATION
EXTERNAL USERS
Shareholders
Creditors
Banks and Lenders
Tax Authorities
SEBI
Labour Unions
Trade Associations
Customers etc

Objectives of Accounting
To Maintain various records of Business Transactions
To ascertain the profit or loss of the business
To depict the financial Position of the business
To provide Accounting Information to its Users

Assets
An asset is any resource owned or controlled by
a business or an economic entity
Assets may be classified as
Non-Current Assets Current Assets

Fixed Assets
Fixed assets are part of Non-Current assets
held on a long-term basis.
Land
Buildings
Machinery
Plant
Furniture and fixtures
Goodwill
It include tangible and intangible assets

Current Assets
Assets held on a short-term basis.
Cash in hand
Cash at bank
Sundry debtors
Stock in trade
Bills receivables

Liabilities
Liabilities are obligations or debts that an
enterprise has to pay at some time in the future.
Liabilities include :
Non-Current Liabilities and
Current Liabilities

Capital
by the owner in the firm is
Amount invested
known as capital.

Revenues
The amounts earned by the business by selling
its products or providing services to customers
are called sales revenue.
Other items of revenue include commission,
interest, dividends, royalities, rent etc received
Revenue is also called income.

Expenses
Costs incurred by a business in the process of
earning revenue are known as expenses.
Eg: Rent, wages, salaries, interest etc.

Expenditure
Spending money or incurring liability for some
benefits, service, or property received is called
expenditure.
It is of two types
Revenue expenditure and Capital expenditure.

Revenue
Expenditure
If the benefit of
expenditure is
exhausted within a
year, it is treated
as an expense.
Salary paid
Wages paid etc.
Capital
Expenditure
If the benefit of
an expenditure
lasts for more
than a year, it is
treated as an asset.
Purchase of Machinery
Furniture etc.

Withdrawal of money or goods by the owner
from the business for personal use is known as
drawings.
Drawings

Stock is a measure of something on
hand – goods, spares, and other items in
a business.
Stock

They are persons or other entities who
owe to an enterprise an amount for
buying goods and services on credit.
Debtors

They are persons or other entities who
have to be paid by an enterprise an
amount for providing the enterprise
goods and services on credit.
Creditors

Chapter-2
Theory Base of Accounting

(Generally Accepted Accounting principles)
In order to maintain uniformity and consistency in
accounting records, certain rules
have been developed which
or principles
are generally
accepted by the accounting profession.
GAAP

These are the fundamental ideas or basic
assumptions underlying the theory and practice of
financial accounting and are broad working rules
for all accounting activities and developed by the
accounting professions.
Basic Accounting Concepts

This concept assumes that a business, has a
distinct and separate entity from its owners.
Thus, for the purpose of accounting, a business
and its owners are to be treated as two separate
entities.
Business Entity Concept
Owner is treated as a creditor to the business
Owner is treated as a creditor to the business

This concept states that only those
Money Measurement Concept
Qualities of a manager cannot be recorded in
books of accounts
transactions and happenings in an organization,
which can be expressed in terms of money are
to be recorded in the books of accounts
Qualities of a manager cannot be recorded in
books of accounts

Going Concern Concept
Depreciation is charged on fixed assets every
year till the end of its life
This concept assumes that a business firm
would continue to carry out its operations
indefinitely and would not be liquidated in the
near future.
Depreciation is charged on fixed assets every
year till the end of its life

The accounting period refers to the span of
time at the end of which the financial statements
of an enterprise are prepared.
Accounting Period Concept
Financial statements are prepared at the
Financial statements are prepared at the
end of every year.
end of every year.

The cost concept requires that all assets are
recorded in the book of accounts at their purchase
price, which includes cost of acquisition,
transportation, installation and making the asset ready
touse.
Cost Concept

This concept states that every transaction
has a dual or two-fold effect on various
accounts and should therefore be recorded in
two places.
It is based on the accounting equation:
Assets = Liabilities + Capital
Dual Aspect Concept

The concept of matching emphasizes that
expenses incurred in an accounting period
should be matched with revenues during that
period.
Matching Concept
Profit = Revenue – Expenses
Profit = Revenue – Expenses

It requires that the revenue for a business
the accounting
transaction should be included in
records only when it is realised.
Revenue Recognition Concept

This
transactions
concept requires that business
should
manner that profits are not overstated.
be recorded in such a
All
anticipated losses should be accounted for but
all unrealized gains should be ignored.
Conservatism Concept

Accounting standards are written policy documents
covering the aspects of recognition, measurement,
treatment, presentation and disclosure of accounting
transactions in financial statements.
Accounting Standards

Goods and Services Tax
(GST)
GST is a destination based tax on consumption of goods
and services. It is proposed to be levied at al stages of
manufactureforvalueadditionandburdenoftaxistobeborneby
thefinalconsumer.
ThecomponentsofGSTare:
CGST
,SGSTandIGST

Chapter -3
Recording of Transactions-I

It is a statement which shows the
equality of debit and credit.
Accounting equation
Assets = Capital + Liabilities

Accounts
3. Incomes and
Gains
1. Assets
5. Capital
2. Liabilities
4. Expenses and
Losses

Rules of debit and credit
Account group Debit Credit
Assets
Expenses
Liabilities
Incomes
Capital

2022
April 1 Purchased Furniture ₹ 30,000

Purchased Furniture ₹ 30,000
Accounts involved Account group
Furniture
Cash
Asset
Asset
Debit / Credit
Debit
Credit

Journal
The book in which the transaction is
recorded for the first time is called a
journal or book of original entry.

The process of recording transactions
in the journal is called journalising.
Journalising

Date Particulars L/F Amount
(Dr.)
Amount
(Cr.)
Format of Journal

Date Particulars L/F Amount
(Dr.)
Amount
(Cr.)
2022
Apr-1
Furniture A/c Dr.
To Cash A/c
(Purchased furniture
for Cash)
30,000
30,000
Journal

A ledger is the collection of all the accounts
debited or credited, in the journal proper
and various special journals.
Ledger

The process of transferring journal entry
to individual accounts is called posting.
Posting

Date Particulars J/F Amount Date Particulars J/F Amount
Dr.
Cr.
Format of Ledger

Dr.
Cr.
2022
Apr-1 Cash 30000
Furniture Account

Dr.
Cr.
2022
Apr-1 Furniture 30000
CASH ACCOUNT

Distinction between Journal and Ledger
JOURNAL LEDGER
The Journal is the book
of original entry
The ledger is the book of
secondary entry

JOURNAL LEDGER
The Journal is the book of
the first entry
secondary entry
It is the book for
chronological records
It is the book for
analytical records

JOURNAL LEDGER
the first entry
secondary entry
It is the book for
It is the book for analytical
records
It is prepared on the basis
of source documents
It is prepared on the
basis of the journal

JOURNAL LEDGER
the first entry
secondary entry
It is the book for
It is the book for analytical
records
It is prepared on the basis of
source documents
It is prepared on the basis
of the journal
Process of recording in
the journal is called
Journalising
The process of recording
in the ledger is known as
posting

Chapter-4
Recording of Transaction- II

SPECIAL JOURNALS
Special journal is a journal that is used
to record similar types of transactions.
Special journals are also called day
books or subsidiary books.

❒ Cash Book
❒ Purchases Book
❒ Purchases Returns (Returns Outwards) Book
❒ Sales Book
❒ Sales Returns (Returns Inwards) Book
❒ Journal Proper
SPECIAL JOURNALS

Cash Book
Cash book is a book in which all
transactions relating to cash receipts and
cash payments are recorded.

Single Column Cash Book
The single column cash book records all cash
transactions of the business in a chronological order,
i.e., it is a complete record of cash receipts and cash
payments. It contains one amount column on each
(debit and credit) side.

Date Receipts J/F Amount Date Payments J/F Amount
Dr. Cr.
Format of Single Column Cash book

Double Column Cash Book
Cash book with two amount columns on
each side is called a double column Cash
Book.

Double Column Cash Book
It records the receipt and payment of
both cash and bank. Amount columns
are for cash and bank.

Date Receipts LF Cash Bank Date Payments JF Cash Bank
Dr. Cr.
Format of Double Column Cash book

When a transaction is recorded on both the
sides of cash book , such entry is called “Contra
Entry”.
Contra entry
Contra entry

Examples :
Cash is deposited in the bank
Cash is withdrawn from the bank
Contra entry
Contra entry

2022 Transactions Amount
Mar. 01 Cash balance 35,000
Mar. 01 Bank balance 10,000
Mar. 04 Purchased goods by cheque 4,000
Mar. 30 Paid salary 3,000
Record the following transactions in the double
column cash book of M/s Balaji Traders for the
month of March 2022.

Dr. Cr.
Cash book
Balaji Traders

Dr. Cr.
Cash book
Balaji Traders
2022
Mar.1 Balance b/d 35,000 10,000

Dr. Cr.
Cash book
Balaji Traders
2022
Mar.1 Balance b/d 35,000 10,000
2022
Mar.4 Purchases 4,000

Dr. Cr.
Cash book
Balaji Traders
2022
Mar.1 Balance b/d 35,000 10,000
2022
Mar.4 Purchases 4,000
30 Salary 3,000

Petty Cash Book
Petty Cash Book
The cash book prepared and maintained by
the petty cashier to record small payments is
known as petty cash book.

Imprest System
Imprest System
Under this system a fixed sum of money is advanced to
the petty cashier at the begining of a certain period. This
amount is called as imprest amount. The petty cashier
makes all small payments out of this amount and gets
reimbursement of the amount spent from the main
cashier.

Amount
Received
Date Particulars Vr.
No.
Amount
Paid
Analysis of Payments
Ex l Ex II Misc. Rem.
Format of Petty Cash Book

Purchases (Journal) Book
Purchase book is a special journal for recording
credit purchases of goods.
Purchase book does not record purchases of
assets.

Purchases (Journal) Book
Format
Date Invoice
No
Name of supplier L/F Amount

Purchases Return (Journal) Book
This book records purchases return of goods.

Purchases Return (Journal) Book
Format
Date Debit
Note No.
Name of supplier L/F Amount
ADebitnoteisadocumentevidencingadebittoberaisedagainsta
partyforreasonsotherthansaleoncredit.

Sales (Journal) Book
All credit sales of merchandise are recorded in
the sales journal.

Sales (Journal) Book
Format
Date Invoice
No.
Name of Customer L/F Amount

Sales Return (Journal) Book
This journal is used to record return of goods by
customers to them on credit.

Sales Return (Journal) Book
Format
Date Credit
Note No.
Name of Customer L/F Amount
ACreditnoteisprepared,whenapartyistobegivenacreditfor
reasonsotherthancreditpurchase.

A book maintainedto record transactions, which do not find
placeinanyspecialjournalsisknownasJournalProperorJournal
Residual.
Transactions to be recorded in journal proper:
OpeningEntry
AdjustmentEntries
Rectification entries:
Transferentries etc.
Journal Proper

Chapter – 5
Bank Reconciliation Statement

BANK RECONCILIATION STATEMENT
The statement which reconciles the bank balance
as per cash book with the balance as per the pass
book by showing a l the causes of di ference is
known as “BANK RECONCILIA
TION ST
A
TEMENT”

Causes of differences between the cash
book and the bank passbook balances

The differences between the cash book and the bank
passbook is caused by:
• timing differences on recording of the transactions.
• errors made by the business or by the bank.

(a) Cheques issued by the firm but not yet
presented for payment
timing differences on recording of the transactions:

(a) Cheques issued but not yet presented for payment
(b) Cheques paid into the bank but not yet
collected

(b) Cheques paid into the bank but not yet collected
(c) Direct debits made by the bank on behalf of
the customer

(b) Cheques paid into the bank but not yet collected
(c) Direct debits made by bank on behalf of the customer
(d) Amounts directly deposited in bank account

(b) Cheques paid into bank but not yet collected
(c) Direct debits made by the bank on behalf of customer
(e) Interest and dividends collected by the bank

(f) Direct payments made by the bank on
behalf of the customers

(f) Direct payment made by bank on behalf of customers
(g) Cheques deposited / bills
discounted dishonoured

(f) Direct payment made by bank on behalf of customers
(g) Cheques deposited / bills discounted dishonoured

(a) Errors committed in recording
transaction by the firm
errors made by the business or by the bank.

(a) Errors committed in recording
transaction by the firm
(b) Errors committed in recording
transactions by the bank
errors made by the business or by the bank.

For preparing bank reconciliation statement we need :
(a) Details of bank column of the Cash Book
(b) Details of Bank Pass Book as on a particular day
If the two balances differ,
(a) the entries in both the books are compared
(b) items of differences are ascertained
(c) the causes of diffences are shown in BRS

Chapter-6
Trial Balance and Rectification of Errors

A trial balance is a statement showing the
balances, or total of debits and credits, of
all the accounts in the ledger with a view to
verify the arithmetical accuracy of posting
into the ledger accounts.
Trial Balance

Objectives of Preparing the Trial Balance
➔ Toascertainthearithmeticalaccuracyofthe ledgeraccounts.
➔ T
ohelpinlocatingerrors.
➔ Tohelpinthepreparationofthefinancialstatements.

Preparation of Trial Balance
(i) T
otalsMethod
(ii)BalancesMethod
(iii) T
otals-cum-balancesMethod

Account title Amount
Bank 45,000
Sundry debtors 25,000
Sundry creditors 15,000
Purchases 60,000
sales 70,000
Capital 45,000
Prepare Trial Balance from the following
ledger balances:

Trial Balance
Account title L/F Debit Balance Credit Balance
Bank 45,000
Sundry debtors 25,000
Sundry creditors 15,000
Purchases 60,000
Sales 70,000
Capital 45,000
1,30,000 1,30,000

Accounting Errors
A tallied trial balance only proves to a certain extent, that the
posting to the ledger is arithmetically correct. But there can be
errors, which affect the equality of debits and credits, and there
can be errors, which do not affect the equality of debits and
credits.

Accounting Errors
ClassificationofErrors
●
●
●
●
ErrorsofCommission
ErrorsofOmission
ErrorsofPrinciple
CompensatingErrors

Errors ofCommission
These are the errors committed due to wrong recording of
a transaction, wrong totalling, wrong posting, wrong
balancingetc.

Errors of Omission
Theerrorsofomissionmaybecommittedatthetimeofrecording
thetransactioninthebooksoforiginalentryorwhilepostingtothe
ledger.

Errors of Principle
These Errors arise when the transactions are not
recorded according to the fundamental principles of
accounting.

Compensating Errors
When two or more errors are committed in such a
way that the net effect of these errors on the debits
andcreditsofaccountsisnil.

Chapter- 7
Depreciation, Provisions and Reserves

Depreciation may be described as a permanent,
continuing, and gradual shrinkage in the book
value of fixed assets. It is based on the cost of
assets consumed in a business and not on its
market value.
Meaning of Depreciation

Causes of Depreciation
Wear and tear due to use or passage of time.
Expiration of legal rights.
Obsolescence due to technological changes etc.
Abnormal factors such as accidents due to fire,
earthquake, etc.

Need for Depreciation
➢MatchingofCostsand
Revenue
➢ConsiderationofT
ax
➢TrueandFairFinancialPosition
➢CompliancewithLaw

Factors affecting the Amount of Depreciation
Cost of Assets.
Estimated Net Residual Value.
Depreciable Cost.
Estimated Useful Life.

Depreciation =
Cost – Scrap
Life

Methods of Calculating Depreciation Amount
Straight Line Method
Written Down Value Method

Straight Line Method
Under this method a fixed and equal
amount is charged on depreciation in every
accounting period during the lifetime of an
asset.

Written Down Value Method
Under this method, depreciation is charged
on the book value of the asset. The amount
of depreciation reduces year after year.

Provisions
Aprovision is a charge against profit for a known currentliability the
amount of which is uncertain. The creation of provision is on the
basisoftheprincipleofPrudenceorConservatism.
Examples:
Provisionfordepreciation
Provisionforbadanddoubtfuldebts
Provisionfortaxation

Reserves
Its a part of the profit set aside and retained in the
businesstoprovideforcertain futureneeds.
Examples:
Generalreserve
Workmencompensationfund
Investmentfluctuationfund
Capitalreserve

Differences between Provision and Reserve
Basisof
difference
Nature
Provision Reserve
Charge against the profit Appropriation of profit
Purpose created for a known liability
made for strengthening the
financialpositionof thebusiness.
E fect on taxable
profits
reduces taxable profits. no e fect on taxable profit.
Presentations in
Balance sheet
shown as a deduction from the
concerned item on the assets side
or on the liabilities side along with
current liabilities
shown on the liabilities
side.

XI ACCOUNTANCY
CHAPTER - 8
Bill of Exchange

Definition : Bills of Exchange
According to the Negotiable Instruments
Act 1881, a bill of exchange is defined as
“an instrument in writing containing an
unconditional order, signed by the maker,
directing a certain person to pay a certain
sum of money only to, or to the order of a
certain person or to the bearer of the
instrument.”

Parties in a Bills of Exchange
1. Drawer:
The maker of the bill of exchange.
2. Drawee:
The person upon whom the bill of
exchange is drawn.
3. Payee:
The person to whom the payment is to
be made.

Bill of Exchange Vs. Promissory Note
Bill of Exchange Promissory Note
1. It is drawn by the creditor. 1. It is drawn by the debtor.
2. It contains an order to
make payment.
2. It contains a promise to
make payment.
3. There can be three parties,
drawer, drawee and payee.
3. There are only two parties,
promisor and Promisee.

Maturity of Bills
Term of Bill (Tenor of Bill) :It is the time period between the
date on which a bill is drawn and the date on which it is payable.
Due Date: It is the date on which the payment of the bill is due.
Days of Grace: These are the three extra days added to the period
of bill to calculate the date of maturity.

Accounting Treatment of Bills
Bill can be Retained till the date of Maturity
Bill can be discounted with the bank
Bill can be Endorsed in favour of a Creditor
Bill can be sent to Bank for Collection

Journal Entries of bill Transactions
In the Books of Drawer :
For bills received after acceptance:
Dr.
Bills Receivable a/c
To Drawee’s a/c
For bills met on maturity:
Cash/Bank a/c Dr.
To Bills Receivable a/c

Journal Entries of bill Transactions
In the Books of Drawee :
For bills returned after acceptance:
Drawer’s a/c Dr.
To Bills Payable a/c
For bills met on maturity:
Dr.
Bills Payable a/c
To Cash/ Bank a/c

Journal Entry : Discounting of Bills
For bills discounted with bank:
Dr.
Dr.
Bank a/c
Discount a/c

Journal Entry : Endorsement of Bills
For bills endorsed to Creditor:
Dr.
Endorsee’ s a/c

Dishonour of Bills
When payment is not made by the acceptor of the
bill on its due date, it is known as Dishonour of Bill.
On dishonour of a bill, when this fact is brought to
the notice of a Notary Public, it is termed as ‘Noting
of a bill’.
Noting Charges is the fee paid to the Notary Public
for noting of dishonour of a bill.

XI ACCOUNTANCY
CHAPTER - 9
FINANCIAL STATEMENTS - I

Distinction between Capital and Revenue
Capital Expenditure Revenue Expenditure
1. Increases earning capacity
of business.
1. Incurred to maintain the
earning capacity.
2. Incurred to acquire fixed
assets .
2. Incurred on day-to-day
conduct of business.
3. Non- recurring in nature. 3. Generally recurring in nature.
4. Benefits more than one
accounting year.
4. Normally benefits one
accounting year.
5. Recorded in balance sheet. 5. Recorded in Profit & Loss a/c

Accounting statements prepared at
the end of an accounting period.
They are also called Final Accounts .
Trading Account
Profit and Loss Account
Balance Sheet

TRADING ACCOUNT
Trading Account is prepared to ascertain the
trading results of a business.
Trading result may be either Gross Profit or
Gross Loss.
The Gross Profit / Gross Loss is transferred to
the Profit and Loss Account.

TRADING ACCOUNT for the year ended..................
Expenses Revenues
Rs. Rs.
Opening stock
Purchases xxx
Less: Returns xx Closing stock
Sales xxx
Less: Returns xx
xxx
xxx
xxx
xxx
xxx
Wages
Carriage Inwards
(Direct Expenses)
Gross Profit c/d Gross Loss c/d (if any) xxx
xxx
xxx
xxx
xxx

Cost Of Goods Sold
Cost of goods sold (COGS)
refers to the direct costs of
producing the goods sold
by a company.
Cost of goods sold is also referred to as "cost of sales."

Profit and Loss Account
It shows the financial performance in the form of profit
earned or loss sustained by the business.
It is prepared in continuation to the Trading Account.
It gives the end result as Net Profit or Net Loss
It is also called Income Statement.

Profit and Loss Account for the year ended..................
Expenses Revenues
Rs. Rs.
xxx
xxx
to Capital a/c
Net Loss (if any) xxx
xxx
xxx
xxx
xxx
xxx
Gross Profit b/d
Interest received
Commission received
Discount Received
(Other Incomes &Gains)
Gross Loss, if any
Salary
Rent
Carriage Outwards
Discount allowed
(Other Indirect Expenses
and Losses)
Net Profit , transferred
xxx
xxx
xxx
xxx
xxx

Balance Sheet
The Balance Sheet is a statement prepared for
showing the financial position of the business.
It is a summary of assets and liabilities of the
business at a given date.
It is also called Position Statement.

Marshalling of Assets and Liabilities
Arrangement of assets and liabilities
in a particular order is known as
Marshalling.
Assets and liabilities are arranged
either in the order of liquidity or
permanence.

Liquidity Order
ASSETS :-
Cash in Hand
Cash at Bank
Bills Receivable
Sundry Debtors
Stock of Goods
Investments
Motor Vehicles
Furniture
Machinery
Land and Buildings
Patents
Goodwill.
LIABILITIES :-
Bank Overdraft
Bills Payable
Sundry Creditors
Outstanding Expenses
Short-term Loans
Long-term Loans
Capital.

XI Accountancy
Chapter : 10
FINANCIAL STATEMENTS - II

Accounting Adjustments
1. Closing Stock
The adjustment entry to record closing stock is :
Closing stock A/c Dr.
To Trading A/c
It is credited to the Trading Account.
It is shown as a current asset on the
asset side of the Balance Sheet.

2. Outstanding Expenses
The adjustment entry is :
Concerned expense A/c Dr.
To Outstanding expense A/c
It is added with concerned expense on the
debit side of Trading, Profit and Loss a/c.
It is shown as a current liability on the
liability side of the Balance Sheet.

3. Prepaid Expenses
Prepaid expense A/c Dr.
To Concerned expense A/c
It is deducted from the concerned expense on
the debit side of Trading, Profit and Loss a/c.
It is shown as an asset on the asset side of
the Balance Sheet.

4. Accrued Income
Accrued income A/c Dr.
To Concerned income A/c
It is added to concerned income on the credit
side of the Profit and Loss a/c.
It is shown as an asset on the asset side of
the Balance Sheet.

5. Unearned Income
Concerned Income a/c Dr.
To Unearned Income A/c
It is deducted from concerned income on the
credit side of the Profit and Loss a/c.
It is shown as a liability on the liability side of
the Balance Sheet.

6. DEPRECIATION
Depreciation A/c Dr.
To Concerned asset A/c
Being an expense it is debited in the Profit
and Loss a/c.
It is deducted from concerned asset on the
asset side of the Balance Sheet.

7. BADDEBTS
Baddebts a/c Dr.
To Debtors a/c
It is debited in the Profit and Loss a/c.
It is deducted from Debtors on the asset side
of the Balance Sheet.

8. Provision for Doubtful Debts
Profit and Loss Account Dr.
To Provision for Doubtful Debts a/c
The new provision is deducted from Debtors
on the asset side of the Balance Sheet.

9. Provision for Discount on Debtors
This provision is created to meet the loss from
allowing cash discount to debtors for the
coming year.
Its accounting treatment is similar to that of the
provision for doubtful debts.

10. Interest on Capital
Interest on capital a/c Dr.
To Capital a/c
It is added with amount of Capital on the
liability side of Balance Sheet.

11. Manager’s Commission
Manager’s Commission a/c Dr.
To O/S Commission a/c
It is shown as a liability in the Balance Sheet.

Chapter 1
Accounts from Incomplete Records

Incomplete Records - Meaning
When accounting records are not
strictly maintained according to double
entry system, these records are called
incomplete accounting records.

Here some transactions are recorded
fully, some transactions are partially
recorded and some transactions are
not recorded at all.

It is an incomplete and unscientific way
of book keeping. It was called single
entry system of book keeping

1. It is an unscientific and unsystematic way of recording transactions.
2. Generally only cash and personal accounts are maintained fully
3.No uniformity in recording the transactions among different
organisations.
4. The profit or loss calculated from these records cannot be relied upon.
5. It may be maintained by small sized sole traders and partnership firms.
Incomplete Records - Features

1. Statement of Affairs / Net Worth Method
2. Conversion Method
Ascertainment of Profit or Loss

1. Calculate Opening capital
2. Ascertain the amount of Drawings
3. Ascertain the Additional capital introduced
4. Calculate Closing capital
Statement of Affairs Method

For this purpose Statement of Affairs is prepared both
at the beginning and end of the accounting year.
A statement of affairs is a statement showing the
balances of assets and liabilities on a particular date
Calculation of
Opening and Closing Capital

Statement of Profit/Loss
A statement prepared to ascertain the amount of profit
or loss made during the year.

Statement of Profit or Loss - Format
Particulars Amount
Capital at the end
Add Drawings
Less Additional Capital
Less Opening capital
Profit/Loss during the year
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx

Statement of Profit or Loss -
Preparation
Calculate profit or loss from the following information.
Capital as on 1st
January 2021
Capital as on 31st
December 2021
Withdrawals during the year 2021
Additional capital introduced during 2021
Rs.1,20,000
Rs.2,00,000
Rs.30,000
Rs.50,000

Statement of Profit or Loss - Format
Particulars Amount
Capital at the end 200000
Add Drawings 30000
230000
Less Additional Capital 50000
180000
Less Opening capital 120000
Profit/Loss during the year 60000

Conversion Method –
Ascertainment of credit Purchases
Credit purchases can
Total Creditors Account.
be ascertained by preparing

Total Creditors Account
Total Creditors Account
Date Particulars JF Amount Date Particulars JF Amount
Cash xxxx Balance b/d xxxx
Bank
Bills payable
Purchase Returns
Discount received
xxxx
xxxx
xxxx
xxxx
B/P
(dishonoured)
Purchases
( balancing figure )
xxxx
xxxx
Balance c/d xxxx
xxxx xxxx
Dr Cr

Conversion Method –
Ascertainment of credit Sales
Credit sales can be ascertained by preparing Total Debtors
Account.

Total Debtors Account
Total Debtors Account
Date Particulars JF Amount Date Particulars JF Amount
Balance b/d
B/R
(dishonoured)
xxxx
xxxx
Cash
Sales Returns
Bad debts
xxxx
xxxx
xxxx
Sales
( balancing figure )
xxxx Discount allowed
B/R received
Balance c/d
xxxx
xxxx
xxxx
xxxx xxxx
Dr Cr

Chapter - 12
Applications of Computers in
Accounting

Elements of a Computer System
1. Hardware – Physical components of a computer
2. Software -Set of programs that governs the operations
3. People – Persons interacting with the computer
4. Procedure – Series of operations to achieve result
5. Data – Raw facts and figures
6. Connectivity – Connecting with other devices

Capabilities of a Computer System
1. Speed
2. Accuracy
3. Diligence
4. Versatility
5. Storage

Limitations of a Computer System
1. Lack of common sense
2. No IQ
3. Lack of decision making skills
4. No feeling

Components of a Computer
System
1. Input Unit
2. Central Processing Unit
3. Output Unit

Input Unit
Devices used for entering data in to the
computer system.
Eg: Key board, Mouse, Disc, Light pen,
Scanner etc.

Central Processing Unit - CPU
CPU receives and processes data. It has 3 sections.
1. Memory unit
2. Arithmetic logic unit
3. Control unit

Output unit
It provides results to the user.
Eg: Monitor (VDU), Printer, Speaker

Features of Computerised
Accounting system
1. Online input and storage of accounting data.
2. Purchase and sales invoices can be printed.
3.Grouping of accounts and
possible.
4. Instant reports can be generated.
codification is

Chapter 13
Computerised Accounting System

Computerised Accounting System
Computerized accounting system is based on
the concept of database.
A database is an organized collection of data
stored and accessed electronically.

Basic requirements of a Database
1. Front – end interface
2. Back – end interface
3. Data processing
4. Reporting system

Comparison – Manual and Computerised accounting
Basis Manual Accounting Computerised Accounting
Identification of
transaction
Based on accounting
principles
Based on accounting
principles
Recording of
transactions
Books of original entry Database
Classification By posting in to ledger
accounts
Automatic posting
Summarising By balancing all the ledger
accounts
Automatic balancing
Financial
statements
Preparation of trial
balance is necessary
Trial balance is not
necessary

Advantages of Computerised
Accounting
1. Speed – Faster processing of data
2. Accuracy – Possibility of error is less
3. Reliability – Information is more reliable
4.Up–to-date information – Automatic updation
of accounting records

Advantages of Computerised
Accounting
5. Automated document production
6. Legibility – The data displayed is legible.
7.Efficiency – Ensure better use of resources
and time.
8. Quality reports – Ensure error free reports

Limitations of Computerised
Accounting
1. Cost of training
2. Staff opposition
3. Disruption
4. System failure
5. Unexpected errors

Accounting packages
1. Ready to use
More suitable to small scale business where the
number of transactions are very low

Accounting packages
2. Customised
It may be altered to
requirements of the user.
meet the special

Accounting packages
3. Tailored
Applicable to
multi users
locations
large scale organisations with
and geographically scattered

Accounting Fundamentals

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