The document provides an overview of accounting concepts including: 1. The accounting cycle which involves recording transactions, posting entries to ledgers, preparing financial statements and closing the books at the end of an accounting period. 2. Types of accounts such as assets, liabilities, equity, income and expenses and the rules for debiting and crediting different accounts. 3. Key accounting books and records including journals to initially record transactions, ledgers to track account balances, and reports such as trial balances and financial statements. The document discusses the basic accounting equation and double-entry system where every transaction has equal debits and credits that balance. It also provides examples of journal entries.

1. ACCOUNTING
PROCESS
Dr. UNUS.A.H.
Mob: 7293008687

2. Recording Business
Transactions

3. The
Accounting
Cycle
First, however, let’s look at...

4. One day, you bought a new mobile phone Nokia
8310…
You also received an invoice from M1…

5. You decided to write down what you have
spent on a notebook so that you will not
forget…

6. To record every different expenses on your
notebook seem very messy to you, so you
decided to keep a notebook for hobbies,
books & stationery, food & transport etc…

7. Income Expense
Pocket money received 140
Hobbies 20
Food & Transport 70
Books & Stationery 10
Sports & Recreation 15
Handphone bill 20
Left* 5
140 140
You want to see if your records are correct at the end of
the month… Did you forget to record anything?…

8. At the end of the month, you added up all your
pocket money received and the total amount of
money spent. Did you overspent on your
hobbies? Do you have some money to save for
the month? How much money do you have left at
the end? Should you cut down on your expenses
next month? …

9. Source
Documents
(originals)
Books of Prime
Entry
(Journal Entries)
Ledgers
Trial Balance
Adjustments
Reports
Can you
link??

10. So….Accounting Cycle is..
a sequence of accounting
procedures which are repeated
continuously during each
accounting period.
Accounting period /fiscal period:
any span of time covering a
complete accounting cycle
E.g. a month ,a quarter or half a
year, a year
Fiscal year/accounting year:
twelve consecutive months

11. Analyze
source
document
s.
Journalize
transaction
s in the
general
journal.
Post entries
to the
accounts in
the general
ledger.
Prepare financial
statements.
Prepare a
trial
balance.
Steps in The Accounting
Cycle

12. The Accounting Period
One Year
Calendar year
Fiscal year
Less than One Year
Quarterly
Monthly

13. 13
SINGLE ENTRY ACCOUNTING
• use of your cheque book is single entry
accounting
• cheques issued are recorded as a reduction
in the bank account, but there is not a
separate record kept for each type of expense
paid
• for instance, if groceries were purchased,
there is no entry to show an increase to the
total cost of groceries purchased during the
year
• the cheque register is part of the accounting
system
• it is referred to as an account

14. 14
Single entry accounting
• Single entry accounting has been used
for proprietorships where the owner
prepares an income statement primarily
for tax purposes
• No balance sheet is prepared
• Revenues and expenses are recorded
from invoices
• there is no way to determine if all have
been recorded
• no attempt to record the changes in
the asset and liability account balances

15. Double-Entry Accounting
“ Double-entry accounting is based on a simple
concept: each party in a business transaction
will receive something and give something in
return. In bookkeeping terms, what is received
is a debit and what is given is a credit. The T
account is a representation of a scale or
balance.”
Fra Luca Pacioli
Developer of
Double-Entry
Accounting
(15th Century in
ITALY)
Summa de arithmetica,
geometrica & preportini
at preportionalita
Scale or Balance
Receive
DEBIT
Give
CREDIT
T account
Left Side
Receive
DEBIT
Right Side
Give
CREDIT

16. DOUBLE ENTRY SYSTEM
• SCIENTIFIC SYSTEM:
• EVERY TRANSACTION HAS TWO
ASPECTS.
• CRUX OF ACCOUNTANCY IS TO
FIND OUT WHICH TWO
ACCOUNTS ARE EFFECTED AND
WHICH IS TO BE DEBITED AND
WHICH IS TO BE CREDITED.

17. What do you mean by Accounts
Natural
Person
Intangible Assets
Tangible Assets
Artificial
Person
Representa
tive person
Real
Accounts
Nominal
Accounts
Personal Accounts Impersonal Accounts
Types of Accounts

18. TYPE OF
ACCOUNT
DESCRIPTION
Natural personal
accounts
All accounts which record transactions of NATURAL
HUMAN BEINGS.
Artificial (Legal)
Personal
accounts
All accounts which record the transactions with other
business entities having separate legal status for
accounting purposes, i.e. Ram Industries Ltd., Bank
A/c., etc.
Representative
personal
accounts
All accounts which indirectly represent the persons.
NOTE: all liabilities will fall under “personal
accounts
Name of the account Indirectly represent
Capital Owner
Outstanding /
prepaid expenses
Service provider.
Suppler (o/s rent
represent landlord)
Accrued /
unearned incomes
customers

19. REAL ACCOUNTS
These are accounts of assets or
properties. Assets may be tangible or
intangible. Real accounts are impersonal
which are tangible or intangible in
nature.
Eg:- Cash a/c, Building a/c, etc are Real
Accounts related to things which we
can feel, see and touch.
Goodwill a/c, Patent a/c, etc Real
Accounts which are of intangible in
nature.

20. NOMINAL ACCOUNTS
These accounts are impersonal, but
invisible and intangible. Nominal
accounts are related to those things
which we can feel, but can not see and
touch. All “expenses and losses” and all
“incomes and gains” fall in this category.
Eg:- Salaries A/C, Rent A/C, Wages A/C,
Interest Received A/C, Commission
Received A/C, Discount A/C,
Depreciation, etc.

21. DEBIT AND CREDIT
Each accounts have two sides – the
left side and the right side. In
accounting, the left side of an
account is called the “Debit Side”
and the right side of an account is
called the “Credit Side”. The entries
made on the left side of an account
is called a “Debit Entry” and the
entries made on the right side of an
account is called a “Credit Entry”.

22. Credit for
increases
(+)
Credit for
decreases
(-)
Debit for
increases
(+)
Debit for
decreases
(-)
Expense Accounts Revenue Accounts
Rules of Debit / Credit
Income Statement Accounts

23. Summary of possible
entries
Debit Credit
 Asset  Asset
 Liability  Liability
 Expense  Expense
 Revenue  Revenue

24. Asset A/C
Debit
(Increase)
Buying asset for cash or on credit
Lodging money to the bank
Selling goods on credit
Credit
(Decrease)
Selling asset for cash or on credit
Withdrawing money from bank
Debtors paying what they owe
Liability
A/C
Debit
(Decrease)
Paying off part or all what is
owed
Credit
(Increase)
Increasing the amount borrowed
Buying goods on credit

25. Steps for finding the debit and credit
aspects of a particular transaction
• Find out the two accounts involved in
the transaction.
• Check whether it belongs to Personal,
Real or Nominal account.
• Apply the debit and credit rules for
the two accounts.

26. NATURE OF
BALANCE
IF BALANCE
TO BE
INCREASED
IF BALANCE
TO BE
DECREASED
Debit Balance
Account
Further debit
that account
Credit that
account
Credit balance
account
Further credit
that account
Debit that
account
COMMON SENSE RULE/ GOLDEN RULE
NOTES:
1. Debit balance account – debit total in that account is
greater than credit total in that account
2. Credit balance account - credit total in that account is
greater than the debit total in that account

27. Journal
 According to Rolland“Journal is the book of
original records in which a businessman enters
all his daily transactions, it shows which
account is debited and which one is credited.”
 According to L.C.Copper “Journal is the book
of original record which is kept for the purpose
of sorting and classification of transactions, so
that the same may be conveniently recorded
later on in the ledger.”
 The process of recording the transaction in the
books of original records is called journalising.
It is a Financial Diary – transactions are
recorded date wise.

28. Journal
 PURPOSE: Based on dual aspect concept
every transaction has two equal aspects – debit
and credit. Hence, it is essential to identify the
accounts which are involved and to decide the
accounts to be debited/ credited.
JOURNAL ENTRY: Each recorded entry is
called journal entry
SOURCE FOR RECORDING: The sources
available for recording in the journal are
 Vouchers
 Documents
 invoices

29. Specimen/Proforma Of Journal

30. Explanation of the profoma:
 Journal contains 5 columns.
1. Date: In this column the date on
which transaction takes place is
entered.
2. Particulars: The transaction of the
business is recorded in the
particulars column based on the
rules of journalising.

31. a) The names of 2 accounts affected in
the transaction are written in two
lines.
b) In the 1st line, account which is to be
debited is written and the
abbreviation for debit “Dr.”is
suffixed.
c) In the second line, the recording starts
by leaving a little space from the
margin and than the account to be
credited is written and it begins with
the word “To”.
Points to be remembered for recording in the
particulars column: -

32. a) Below the credit account in the
next line a short description,
called as “narration” of the
transaction is written in the
brackets starting with either
“Being” or “For”.
b) In the end after the narration a
horizontal line in drawn in the
particulars to signify the end of
the transaction.

33. 3. Ledger Folio (L.F.): Folio means
page. Every transaction entered in
the journal is posting in the ledger.
So in this column the number of
page of the ledger, wherein the
transaction has been posted, is
entered.
4. Debit Amount: This column
carries the amount against the
account which has been debited.
5. Credit Amount: This column
carries the amount against the
account which has been credited.

34. Balancing of the Journal
The total of both the debit and
the credit side of each page is
calculated and carried forward
to the next page.
The balance at the end of the
page is indicated by “c/f”
which means “carried forward”
Or by “b/f” as “brought
forward”.
The balance in the beginning
of the next page is indicated
by “b/d” which means “bought
down”.

35. TYPE MEANING EXAMPLE
SIMPLE
JOURNAL
ENTRY
One debit and one
credit present for
equal amount
Capital
introduced in
cash
COMPOUND
JOURNAL
ENTRY
It is a journal entry
which contains one
debit and two or
more credits/ two or
more debits and one
credit/ two or more
debits and credits.
Capital
introduced in
cash, stock,
machinery, etc.

36. Recording Transactions
Initially, all transactions are recorded in
the General Journal.

37. Recording Transactions
 Each transaction always affects at
least two different accounts.
One account has a debit effect.
The second account has a
credit effect.
 This methodology was named “double
entry” accounting
Initially, all transactions are
recorded in the General Journal.

38. 4 Questions to ask
Thus with every transaction you come across
you
need to decide:
1. What are the two accounts involved?
2. Which type of account is each one?
3. Does the transaction cause an
increase or decrease in each account?
4. Therefore is it a Dr or Cr?

39. GENERAL JOURNAL Page 123
Date Description LF Debit Credit
Step 3: Record transactions in
a journal.
Steps in Journalizing
Step 1: Examine
source
documents.
Equipment
(3) 26,000
Liabilities Equity
Assets = +
Step 2: Analyze
transactions.

40. In every entry the sum
of the debits always
equal the sum of the
credits.

41. •Assume that Ramu’s Toy
Shop had ₹ 3,000 in sales.
•₹ 1,800 were cash sales and ₹
1,200 were on credit basis.
•A customer received a Rs,10
price reduction for defective
merchandise.
•How can these transactions
be explained?

42. Accounts Affected Category Rules
Cash Asset Dr. 1,800
Accounts Receivable Asset Dr. 1,200
Sales Revenue Cr. 3,000

43. Debits Credits
Date Cash Accts. Rec. Account Title
July 19 1,800 1,200 Sales Gross 3,000
Gross Sales

44. Sales returns and allowances =
Amount allowed for defective merchandise
Amount is debited in the journal entry.
Normal balance is a debit.

45. Accounts Affected Category Rules
Sales Returns and Contra- Dr. 10
Allowances revenue
Accounts Receivable Asset Cr. 10

46. What is a sales discount?
•It is a percent decrease in
the amount collected from
credit customer.
•This deduction is given as
an incentive to the
accounts receivable (credit)
customer to pay bills
early.

47. Debits Credits
Date Cash Disc. Accts. Rec. Account Title
July 19 39.20 .80 40.00
Raju
Cash Receipts
Cash Received Rs. 39.20
from Raju, and allowed a
discount of 0.80.

48. Journal Entries
Example 1
On January 1, 19X7, Reliance
Company borrows Rs,10,000
from the bank.
Prepare the appropriate general
journal entry for the above
transaction.

49. Journal Entries
Solution 1
•Two accounts are affected:
– Cash is increased by Rs,10,000.
– Bank Loan is increased by
Rs,10,000.

50. Journal Entries
Solution 1
• Two accounts are affected:
– Cash is increased by Rs,10,000.
– Bank Loan is increased by Rs,10,000.
GENERAL JOURNAL
Page: 1
Date Description LF Debit Credit

51. Journal Entries
Solution 1
• Two accounts are affected:
– Cash is increased by Rs,10,000.
– Notes Payable is increased by Rs,10,000.
GENERAL JOURNAL
Page: 1
Date Description LF Debit Credit
1-Jan Cash A/c Dr 100 10,000
To Bank Loan A/c 201 10,000
to record loan from bank

52. Journal Entries
Solution 1
• Two accounts are affected:
– Cash is increased by Rs,10,000.
– Notes Payable is increased by Rs,10,000.
GENERAL JOURNAL
Page: 1
Date Description LF Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank
Typically, accounts are
numbered. The account
numbers are used as references
for posting to the General
Ledger. More on account
numbers will come later.

53. Journal Entries
Example 2
On January 15, 19X7, Reliance
Company purchases a truck for
Rs,19,500 cash.
Prepare the appropriate journal entry
for the above transaction.

54. Journal Entries
Solution 2
• Two accounts are affected:
– Trucks is increased by Rs,19,500.
– Cash is decreased by Rs,19,500.

55. Journal Entries
Solution 2
• Two accounts are affected:
– Trucks is increased by Rs,19,500.
– Cash is decreased by Rs,19,500.
GENERAL JOURNAL
Page: 1
Date Description LF Debit Credit

56. Journal Entries
Solution 2
• Two accounts are affected:
– Trucks is increased by Rs,19,500.
– Cash is decreased by Rs,19,500.
GENERAL JOURNAL
Page: 1
Date Description LF Debit Credit
15-Jan Trucks A/c Dr 150 19,500
To Cash A/c 100 19,500
to record purchase of truck

57. Journal Entries
Example 3
On January 20, 19X7, Reliance Co.
pays the Rs,400 electric bill for
January.
Prepare the appropriate journal entry
for the above transaction.

58. Journal Entries
Solution 3
• Two accounts are affected:
– Electricity Expense is increased by Rs,400.
– Cash is decreased by Rs,400.

59. Journal Entries
Solution 3
• Two accounts are affected:
– Electricity Expense is increased by
Rs,400.
– Cash is decreased by Rs,400.
GENERAL JOURNAL
Page: 1
Date Description LF Debit Credit

60. Journal Entries
Solution 3
• Two accounts are affected:
– Electricity Expense is increased by
Rs,400.
– Cash is decreased by Rs,400.
GENERAL JOURNAL
Page: 1
Date Description LF Debit Credit
20-Jan Electricity Expense A/c Dr 511 400
To Cash A/c 100 400
to record payment of January
electric bill

61. LF
JOURNAL
Date Description Debit Credit
Page 1
1
2
3
4
Nov. 1
2013
Cash A/c…………………Dr 25 000 00
To Ambani’s Capital 25 000 00
Invested cash in NetSolutions.
(A) On November 1, Ambani deposits
Rs,25,000 in a bank account in the name
of NetSolutions as his capital.

62. 4
5
6
7
8
9
10
5 Land A/c…..Dr 20 000 00
To Cash A/c 20 000 00
Purchased land for building
site.
(B) On November 5,
NetSolutions bought land
for Rs,20,000, paying cash.

63. Withdrawals
by the
Owner

64. LF
JOURNAL
Date Description Debit Credi
t
Page 2
1
2
3
4
Nov. 30
2005
Ambani’s Drawings A/c……Dr 2 000 00
To Cash A/c 2 000 00
Ambani withdrew cash for
personal use.
(H) On November 30, Ambani withdrew
Rs,2,000 in cash from NetSolutions
for personal use.

65. MATCH FOLLOWING
A B
A RAMESH 1 REAL
B DENA BANK 2 PERSONAL
C RENT 3 NOMINAL
D COMPUTER 4 REAL
E LAND 5 NOMINAL
F DISCOUNT 6 PERSONAL

66. QUESTION
• WHAT IS JOURNAL ENTRY
• A. ORIGINAL ENTRY
• B. DOUBLE ENTRY
• C DUPLICATE ENTRY
• NONE

67. QUESTION
• PASS JOURNAL ENTRY:
• RENT PAID FOR OFFICE PREMISES
₹ 30000 OUT OF WHICH PART
AMOUNT OF ₹ 10000 PAID BY
CHEQUE AND REST BY CASH.
RENT A/c. Dr. ₹ 30,000
To Cash A/c ₹ 20,000
To Bank A/c ₹ 10,000

68. QUESTION
• PASS JOURNAL ENTRY:
• PURCHASED 100 SHARES OF
CENTRAL BANK OF INDIA FOR ₹
100 PER SHARE.
Investment A/c. Dr. ₹ 10,000
To Bank A/c ₹ 10000

69. QUESTIONS
• PASS JOURNAL ENTRIES:
• SOLD GOODS TO TENDULKAR ₹ 15000
A) When Sold on Cash.
B) When Sold on Credit.
A) Cash A/c Dr. ₹ 15000
To Sales A/c. ₹ 15000
B) Tendulkar A/c. Dr. ₹ 15000
To Sales A/c. ₹ 15000
If cheque received on cash sales, cash is debited
and when the cheque is depositing into bank
account, then the bank account is debited

70. QUESTIONS
• PASS JOURNAL ENTRY:
• DRAVID SOLD GOODS FOR ₹ 12000 TO
us.:
A) On Cash Purchase
B) On Credit Purchase
A) Purchase A/c Dr. ₹ 12000
To Cash A/c ₹ 12000
B) Purchase A/c. Dr. ₹ 12000
To Dravid A/c. ₹ 12000
If cheque paid on cash purchase, the bank account
is credited

71. QUESTIONS
• PASS JOURNAL ENTRY:
• RECEIVED DUES( Which was sold
on Credit at ₹ 15000) AMOUNT
FROM TENDULAKAR AND
ALLOWED HIM DISCOUNT OF 10%
Bank A/c. Dr. ₹ 13,500
Discount A/c Dr. ₹ 1500
To Tendulkar A/c ₹ 15,000

72. QUESTIONS
• PASS JOURNAL ENTRY:
• PAID SALARY AND RENT ₹ 1200
AND 1500 RESPECTIVELY.
Salary A/c. Dr. 1200
RENT A/c. Dr. 1500
To Cash A/c. ₹ 2700

73. QUESTIONS
• PASS JOURNAL ENTRY:
• KIRAN BECAME INSOLVENT. HE
HAD TO PAY 10000 TO US. BUT WE
RECEIVED ONLY 25 PAISE A
RUPEE.
Cash A/c Dr. ₹ 2,500
Bad Debts A/c Dr. ₹ 7,500
To Kiran A/c. ₹ 10,000

74. QUESTION
• PASS JOURNAL ENTRY:
• PAID MONTHLY CAR
INSTALMENT OF PROPRIETOR’S
PERSONAL CAR ₹ 12,000 from Bank
Drawings A/c. Dr. ₹ 12,000
To Bank A/c. ₹ 12,000

75. QUESTION
• PASS JOURNAL ENTRY:
• BOUGHT FURNITURE FROM
GODREJ AND PAID BY CHEQUE ₹
50,000
Furniture A/c. Dr. ₹ 50,000
To Bank A/c ₹ 50,000

76. QUESTIONS
• PASS JOURNAL ENTRY:
• PAID CARRIAGE AND
CARTERAGE of ₹ 1,000 ON GOODS
SOLD TO NAYAN ON HIS BEHALF.
Nayan A/c. Dr. ₹ 1000
To Bank ₹ 1000

77. QUESTION
• PASS JOURNAL ENTRY:
• DEPOSITED CASH IN BANK ₹ 1000
Bank A/c. Dr ₹ 1000
To Cash A/c. ₹ 1000

78. QUESTION
JOURNALIZE FOLLOWING:
COMMENCED BUSINESS WITH ₹
15000 OF WHICH ₹ 5000 WAS
BORROWED FROM HIS WIFE AT
12% INTEREST P.A.
Cash ₹ 15000
To Capital A/c. ₹ 10000
To Loan A/c ₹ 5000

79. QUESTIONS
• PASS JOURNAL ENTRY:
• PURCHASED GENERATOR FROM
RAMA & CO. ₹ 50000 on credit.
Generator A/c. Dr. ₹ 50000
(furniture)
To Rama & Co. ₹ 50000

80. QUESTION
• PASS JOURNAL ENTRY:
• A.BOUGHT GOODS FROM SATISH AT
ONE MONTHS CREDIT ₹ 6000
• B. OUT OF WHICH HALF WAS
INVOICED TO MR. RAM AT 30%
ABOVE COST ON CREDIT.
A. Purchase A/c. Dr. ₹ 6000
To Satish A/c. ₹ 6000
B. Mr. RAM A/c. Dr. 3900
To Sales A/c. ₹ 3900

81. Exercise
• Purchased a Building for ₹ 20,000/-.
• Paid Cash ₹ 1,000/- to Satheesh.
• Paid Salary ₹ 1000/-.
• Received Commission ₹ 250/-.
• Sold goods for Cash ₹ 3500/-.

82. Journalise the following transaction: -
1. 1st Jan: Commenced business with cash ₹ 1,00,000/-, stock ₹
5,000/- and furniture ₹ 13,000/-
2. 3rd Jan: Goods purchased from Hari ₹ 8,000/-
3. 5th Jan: Sold goods to Narendra ₹ 4,000/-
4. 6th Jan:Goods for ₹ 2,000/- bought from Hari was returned.
5. 7th Jan: Sold goods to Zain for cash ₹ 6,000/-
6. 9th Jan: Goods worth ₹ 1,000/- sold to Narendra were returned by
him.
7. 10th Jan: Paid salary to Ashok ₹ 1,500/-
8. 11th Jan: Rent paid in advance ₹ 500/-
9. 12th Jan: Paid to Hari ₹ 5950/- in full settlement of his account.
10. 13th Jan: Received cash from Narendra, after a discount of Rs100/-
, in full settlement of his account.
11. 14th Jan: Sunil, a debtor for ₹ 2,000/- was declared insolvent and
only 45paise in a rupee could be recovered from his private estate.
12. 15th Jan: Withdrew goods of ₹ 300/- and cash ₹ 500/- for private
use.

83. 13. 18th Jan: The salary for 3 months amounting to ₹ 1,200/- is due (
not yet paid)
14. 19th Jan: Sold to Mohit goods worth ₹ 5,000/- at 10% trade
discount, it was also decide to offer him a discount of 2% at
the time of payment. The payment was made on 25th Jan.
15. 20th Jan: Goods worth ₹ 300/- stolen by the employees, goods
worth ₹ 500 was given as charity and goods worth ₹ 400/-
distributed as free samples.
16. 21st Jan: Purchased Office equipments for ₹ 8,000/-, Land ₹
15,000/- and Machinery ₹ 20,000/-
17. 31st Jan: Depreciation on furniture @ 10%p.a.
18. Opened a current a/c with bank ₹ 2000
19. Received Interest in advance for three months ₹ 400
20. Paid in wages by cheques ₹ 500

85. TERM MEANING
Assets A resource controlled by the enterprise as a
result of past events and from which future
economic benefits are expected to flow to the
enterprise
Debtors Persons to whom credit sales of goods are
made. Money is receivable from them in future.
The group of debtors is called under a single
head as “sundry debtors
Prepaid
expenses
Money is paid in advance. But benefit for that
payment will be received in the future (within
next 12 months).
Accrued
incomes
Other called as outstanding incomes or
incomes earned but not yet received
Treated as income in the year in which they are
earned as per accrual concept. It is a current
asset

86. TERM MEANING
Good
will
Reputation earned by the business over a period
of time for its products, brand, name or quality. It
leads to increase in business volume as more no.
of customers buy the product for its good name
It is fixed asset, as it leads to long term benefits.
Equity Residual interest in the assets of the enterprise
after deducting its liabilities, otherwise called as
capital.
Dividend It is a share of income distributed by a limited
company to its share holders (owners). From the
angle of the share holder, it is an income. It is
calculated on face value or paid-up value of shares.
Equity
participa
nts
Proprietor in the case of sole proprietor ship or
partners in the case of partnership business, share
holders in the case of a company. (owners are
called as equity participants)

87. TERM MEANING
Cash
discount
Cash discount received: the difference between
amount payable to a creditor and amount actually
paid. The rem received does not mean that cash is
received from the creditor in the name of discount.
It just refers to the reduction in the amount payable
to the creditor.(it is reduction of expenses. So it is
an income)
Cash discount allowed: the difference between
amount receivable from a debtor and amount
actually received. The term allowed does not mean
that cash is paid to the creditor in the name of
discount. It just refers to the reduction in the
amount receivable from the debtor. (it is reduction
of income. So it is an expense and not a loss)
Note: cash discount is allowed / received for
receipt/payment of amount due before the due
date.

88. TERM MEANING
Discount It refers to a reduction in the price of the goods/
reduction in the amount due
Book value Value of a fixed asset as per accounts books
(Historical cost – Depreciation till date)
Full
settlement
It means that the creditor cannot receive any further
money from the debtor. The amount received till
now shall be the final amount. The amount not
received is treated as “Discount”.
Bad debts It represents the amount receivable from customers,
but could not be recovered due to the insolvency of
the customers. It is a LOSS for the business.
Discount Vs
Bad Debts
DISCOUNT ALLOWED: business itself asks the
buyer to pay the reduced amount. The debtor is
solvent
BAD DEBTS: the debtor is insolvent. So he cannot
pay the dues, even if the business asks him to pay.

89. TERM MEANING
Bad Debt
recovered
It refers to recovery of loss and is considered as
income in the year of recovery.
Depreciation Reduction in value of tangible fixed assets due to
use, wear & tear, technological improvement, etc. it
is an expense and not a loss as the reduction is due
to use of the fixed assets (hence, benefit derived).
Amortisation Changes in value of INTANGIBLE fixed assets.
(changes may be increase or decrease)
Appreciation Increase in market value of fixed assets w.r.t. book
value. NO JOURNAL ENTRY.
REASON: The increase represents notional profits
which is not realized. Hence, as per realisation
concept and conservation, unrealized profits are not
accounted.

90. CONDITIONS FOR ASSETS
STEPS CONDITION
1 A resource ( any PROPERTY from which benefit
can be derived)
2 CONTROLLED by the enterprise as a result of
past events
(NOTE: CONTROL – the enterprise has
complete right to decide how to use or to
dispose)
3 From which FUTURE ECONOMIC BENEFITS are
expected to flow to the enterprise. (arise within
or after the period)
NOTE: ALL THE 3 CONDITIONS must be satisfied to
qualify as an asset. When any of the conditions is not
satisfied, then the ITEM SALL BE TREATED AS

91. NOTES:
GOODWILL: is within the control of the
enterprises. If enterprise gives good quality
products, the good will increases. However,
if products are of poor quality, the goodwill
decreases. Hence, entity has control over
goodwill.
BUILDING RENT: if rent is paid for one
month, building can be occupied for one
month. After that, no future benefit can be
enjoyed from the building and building to be
returned. Hence, there is no future
economic benefit from building rent.

92. NOTES:
STAFF SALARY: is given for the services
already rendered by employees. Hence,
there is no future economic benefits.
ADVANCE RENT: assume that rent is paid
for 15 months. But as on date, the building
is occupied for only 12 months. In this case,
the 3 months rent is paid in advance. It is an
asset because, due to that advance, the
benefit can be derived from the building in
the future 3 months (future economic
benefits exists)

93. NOTES:
DEBTORS: credit sales were made to the
debtors Hence, the business has to receive
money from them. Money is an economic
benefit, which has to be received from the
debtors in future.
ACCRUED INCOMES/ OUTSTANDING
INCOMES: similar to Debtors Hence,
considered as Asset.
HENCE, ALL PREPAID EXPENSES AND
ACCRUED INCOMES ARE CONSIDERED AS
ASSETS.

94. ASSETS WHICH ARE
CONVERTIBLE INTO CASH
WITHIN A SINGLE OPERATING
CYCLE (ACCOUNTING PERIOD)

95. STEPS CRITERIA
1 Check if the asset is a cash or bank balance
2 If the asset is to be converted into cash/converted
into any other benefit in the near future
3 If the asset is to be consumed in the production of
goods/rendering of services
4 If the asset is expected to be used for longer time
period for production/ administration/ rendering
services/the benefits from the asset exist for a
several accounting periods
For current assets any of the first 3 criteria must be satisfied
For fixed assets 4th criteria must be satisfied. Other criteria
should not be satisfied

96. ASSETS WHICH ARE INTENDED
TO BE USED IN THE BUSINESS
FOR SEVERAL ACCOUNTING
PERIODS FOR USE IN
PRODUCTION/ ADMINISTRATION/
RENDERING SERVICES

97. SL.
NO
SITUATION NATURE OF ASSET
1 A motor car is bought with
an intention to use it in the
business for longer period of
time
Fixed asset
2 The motor car is bought with
an intention to sell within a
short span
CURRENT ASSET:
(otherwise called
Goods – Stock.)
3 A motor car is bought with
an intention to use it for
longer period but it is
actually sold in a single
accounting period
STILL A FIXED
ASSET as the
INTENTION at the
time of purchase
was to use it for
longer period.

99. They are not in the nature of assets, but
which are shown under assets side of the
balance sheet.
Fictitious refers to artificial/ not real
Examples: accumulated Losses,
Preliminary expenses, Discount on issue of
shares, etc.

100. End of Chapter