2. 2
Sometimes people use the same to term to
define an accountant and a bookkeeper. They
both take part in the accounting process but don’t
have the same responsibilities and roles.
•What differs between a bookkeeper and an
accountant ?
Book keeper:-
Identify, classify and summarize the financial events
Accountant :-
Communicate important financial information with will
permit to improve performance and make good decisions
5. Accounting Concepts
♦ The term ‘concept’ is used to connote
accounting postulates, that is necessary
assumptions and conditions upon which
accounting is based.
♦ These are the theories on how and why
certain categories of transactions should be
treated in a particular manner.
5
8. The Personal Transactions of
the Owner are not recorded.
For Example:
A Car purchased by the owner for personal
use is not Recorded in the Books Of Account
Of the Business.
9. Going Concern Concept:
It is assumed that the entity is a
going concern, i.e.,it will
continue to operate for an
indefinitely long period in future
and transactions are recorded
from this point of view.
10. Money Measurement Concept:
In accounting, a record is made only of those
transactions or events which can be measured
and expressed in terms of money.
Non monetary transactions are not recorded in
accounting.
Money Measurement Concept:
In accounting, a record is made only of those
transactions or events which can be measured
and expressed in terms of money.
Non monetary transactions are not recorded in
accounting.
11. Accounting Period Concept:
For measuring the financial results of a
business periodically, the working life of an
undertaking is split into convenient short
periods called accounting period.
11
12. Historical Cost Of
Market Value Of
Cost Concept:
An asset acquired by a concern is recorded in the
books of accounts at historical cost (i.e., at the price
actually paid for acquiring the asset). The market
price of the asset is ignored.
RS: 25000
RS: 25000
RS: 25000
RS: 20000
13. Dual - Aspect Concept:
♦ For Every Debit, there is a Credit
♦ Every transaction should have a two-Every transaction should have a two-
sided effect to the extent of same amountsided effect to the extent of same amount
13
14. This Concept has resulted in
THE ACCOUNTING EQUATIONTHE ACCOUNTING EQUATION
Assets = Liabilities + Owners Equity
15. Profit is earned when
goods or services are
provided /transferred to
customers. Thus it is
incorrect to record profit
when order is received,
or when the customer
pays for the goods.
Realisation Concept:
16. Matching Concept:
The matching principle ensures thatThe matching principle ensures that
revenues and all their associated expenses arerevenues and all their associated expenses are
recorded in therecorded in the same accounting periodsame accounting period..
The matching principle is the basis on whichThe matching principle is the basis on which
thethe accrual accounting method of book-of book-
keeping is built.keeping is built.
For Example:-For Example:-
Salary paid in 2012-13 relating to 2011-12Salary paid in 2012-13 relating to 2011-12
Such salary is treated as Expenditure for 2011-12 underSuch salary is treated as Expenditure for 2011-12 under
Outstanding Salaries Account, not for the year 2012-13Outstanding Salaries Account, not for the year 2012-13
Matching Concept:
The matching principle ensures thatThe matching principle ensures that
revenues and all their associated expenses arerevenues and all their associated expenses are
recorded in therecorded in the same accounting periodsame accounting period..
The matching principle is the basis on whichThe matching principle is the basis on which
thethe accrual accounting method of book-of book-
keeping is built.keeping is built.
For Example:-For Example:-
Salary paid in 2012-13 relating to 2011-12Salary paid in 2012-13 relating to 2011-12
Such salary is treated as Expenditure for 2011-12 underSuch salary is treated as Expenditure for 2011-12 under
Outstanding Salaries Account, not for the year 2012-13Outstanding Salaries Account, not for the year 2012-13
17. Accounting Conventions are the common
practices which are universally followed
in recording and presenting accounting
information of business.
It helps in comparing accounting data of
different business or of same units for
different periods.
Accounting Conventions:
18. Only those
transactions, important
facts and items are
shown which are useful
and material for the
business. The firm
need not record
immaterial and
insignificant items.
Materiality
19. Financial Statements
and their notes should
present all
information that is
relevant and
material to the user’s
understanding of the
statements.
Full Disclosure
20. Accountant should always be on side of
safety.
Conservatism:
For Example -For Example -
• Making Provision for BadMaking Provision for Bad
and Doubtful Debtsand Doubtful Debts
21. Consistency:-
The accounting practices and methods
should remain consistent from one
accounting period to another.
Whatever accounting practice is followed by
the business enterprise, should be followed
on a consistent basis from year to year.
26. BALANCE SHEET
♦ BS is a ‘position’ statement.
♦ BS describes
– the financial position of assets & liabilities
– of the firm
– as on a particular date
26
27. DEFINITION: BS
♦Balance Sheet is defined as
–a statement of the financial
position
–of an enterprise
–as at a given date, which exhibits
–assets, liabilities, capital, etc.
27
28. HORIZONTAL FORM OF BS
28
LIABILITIES
Amount
(£)
ASSETS
Amount
(£)
Capital XX
Fixed Assets-Land,
Bldg,
XX
Loan taken XX Current Assets
Current Liabilities •Cash / Bank B/s XX
•Outstanding Expenses XX
•Accounts Receivable
(Debtors)
XX
•Bank Overdraft XX •Bills Receivable) XX
•Accounts Payable
(Creditors)
XX •Inventories (Stock) XX
XYZ XYZ
29. VERTICAL FORM OF BS
29
SOURCES OF FUNDS Amount (£) py Amount (£) cy
Share Capital AA XX
Reserves & Surplus AA
Secured Loans AA XX
Unsecured Loans AA XX
ABC XYZ
APPLICATION OF FUNDS Amount (£) py Amount (£) cy
Fixed Assets Gross Block
- Depreciation
AA XX
Investment AA XX
Current Assets – Current Liabilities AA XX
Loans & Advances AA XX
Miscellaneous Expenditure AA XX
ABC XYZ
30. A = OE + OL
30
Assets are properties or economic
resources owned by a business. They are
expected to provide future benefits to the
business.
Assets are properties or economic
resources owned by a business. They are
expected to provide future benefits to the
business.
Liabilities are
obligations of the
business. They
are claims
against the
assets of the
business.
Liabilities are
obligations of the
business. They
are claims
against the
assets of the
business.
Equity is the
owner’s claim on
the assets of the
business. It is the
residual interest in
the assets after
deducting
liabilities.
Equity is the
owner’s claim on
the assets of the
business. It is the
residual interest in
the assets after
deducting
liabilities.
31. A = OE + OL
31
LIABILITIES
Amount
ASSETS
Amount
Capital XX Fixed Assets-Land, Bldg, XX
Loan taken XX Current Assets
Current Liabilities Cash / Bank B/s XX
Outstanding Expenses XX
Accounts Receivable
(Debtors)
XX
Bank Overdraft XX Bills Receivable) XX
Accounts Payable (Creditors) XX Inventories (Stock) XX
XYZ XYZ
32. A = OE + OL
32
SOURCES OF FUNDS
Amount
py
Amount
cy
Share Capital AA XX
Reserves & Surplus AA
Secured Loans XX
Unsecured Loans XX
XX
APPLICATION OF FUNDS
Amount
(£) py
Amount
(£) cy
Fixed Assets Gross Block
- Depreciation
Investment
Current Assets – Current Liabilities
Loans & Advances
Miscellaneous Expenditure
33. PROOF: A = OE + OL
33
The accounts involved are:
(1) Cash (asset)
(2) Owner’s Equity (equity)
Owners of Scox Company contributed
£20,000 cash to start the business.
41. Transaction Analysis
41
The balances so far appear below. Note that the
Balance Sheet Equation is still in balance.
Now let’s look at transactions
involving revenues and expenses.
50. Balance Sheet
50
The balance sheet
reflects Scox’s
financial position at
March 31 2001
The balance sheet
reflects Scox’s
financial position at
March 31 2001
51. DOUBLE ENTRY SYSTEM
51
AA = OE + OL= OE + OL
In the double-entry accounting system,
every transaction is recorded by equal
amounts of debits and credits.
In the double-entry accounting system,
every transaction is recorded by equal
amounts of debits and credits.
DebitDebit == CreditCredit
52. ACCOUNTANT’S LIFE
52
AA = OEOE + OL
ASSETSASSETS
Debit
for
Increase
Credit
for
Decrease
EQUITIESEQUITIES
Debit
for
Decrease
Credit
for
Increase
LIABILITIESLIABILITIES
Debit
for
Decrease
Credit
for
Increase
Debit Credit
ASSETS
+ -
LIABILITIES
- +
Debit Credit
EQUITIES
- +
Debit Credit
53. ACCOUNTING CYCLE
1. Business Transaction
2. Transaction is recorded in document
(Voucher / Receipt)
3. Analyze the transaction – location ?
4. Journal Entry
5. Ledger Accounts (or ‘T’ account)
6. Trial Balance
7. Balance Sheet, P&L A/c, Cash Flow
Statement 53
55. ACCOUNTANT’S ROUTINE
55
Post to the
ledger
Source
documents
Journal EntryPrepare a trial
balance
Balance Sheet
P & L A/c
Cash Flow
Transaction Analyze
56. TRANSACTION-1
56
Chirag started business with cash £
30,000.
The accounts involved are:The accounts involved are:
(1) Cash ((1) Cash (assetasset))
(2) Owner’s Equity ((2) Owner’s Equity (equityequity))
57. 57
TRANSACTION-1
Chirag started business with cash £
30,000.
The accounts involved are:The accounts involved are:
(1) Cash ((1) Cash (assetasset))
(2) Owner’s Equity ((2) Owner’s Equity (equityequity))
Debit Credit
EQUITIES
- +
Debit Credit
ASSETS
+ -
