Financial accounting bcom online

1. Bangalore University
B.com online
Financial Accounting

2. B.com online (SEMESTER SCHEME) 2024 –2025
Sem: 1St Sem B.com
Subject: Financial Accounting
MODUL-1 CONCEPTUAL FRAME WORK OF FINANCIAL
ACCOUNTING-CLASS-2
Dr. Gurumurthy K H
Associate Prof. in Commerce &
In-charge Principal, GFGC Kudur,
Magadi,(Tq) Ramanagar (dt)
561101
2

3. Module 1. CONCEPTUAL FRAME WORK OF FINANCIALACCOUNTING
1. Accounting Cycle/process/ Steps
2. Examples—Realization vs Accrual concept
3. Accounting Equation – explain with illustration
4. Financial Statement-Income statement and Balance Sheet-
Assignment and Quiz questions
3

4. Accounting cycle/process
4
Identifying
Transactions
Journal
entry
Post to
Ledger
preparing
Trail balance
Adjusting
entries
Adjust
Journal
entries
preparing
Financial
statement
Closing
Accounts
books

5. Accrual Concept vs Realization concepts
5
Realization concepts Accrual concepts
the realization concept focuses on when payment is
received for delivery of goods and services
examples
A Jeweler merchant received an order to supply gold
ornaments worth Rs.1000000 and received entire amount
(Rs 1000000) . A supplied ornaments worth Rs.700000 up
to 31st March 2024 and rest of the ornaments were
supplied in the month of May 2024. the accounts closed
as follows
a) Financial year - FY (1st April-31st March)
b) Calendar year CY (1st jan-31st Dec)
Ans
a) The revenue for the Financial year 2024 for A is
Rs.700000. Mere getting an order is not considered as
revenue until the goods have been delivered.
b) The revenue for the calendar year 2024 for A is
Rs.1000000 he delivered entire ordered goods during
the calendar year
while the accrual concept
focuses on when revenue
and expenses are incurred
Example
a) Received Rs 600000
for delivered goods
worth Rs 1000000 for
the year
b) Actual expenses
incurred Rs 1200000
but paid Rs 1000000
for the year
Ans
a) Revenue =total sales
of the year Rs
1000000 (600000+
400000 O/S )
b) Rs 1200000 Exp.
(1000000+ 200000 o/s)

6. Accounting equations
When double entry system used by the concern simply says that equal debit
and equal credit. Debit and Credit should be equal for every event that
impacts accounts.
Debit=Credit
1. Accounting equation- defined as a relationship between assets, liabilities
and owner’s equity in the business.
2. Accounting Equations Rules
ASSEST=LIABILITIES+ OWNER EQUITIES (A=L+E)
Owner equities=capital+ earnings)
These are the three elements in the Balance Sheet. Accountant ensure that both
sides of the equation are always equal
3. Types of accounting equations
a. Asset = Liability + Capital
b. Liabilities= Assets – Capital
c. Owners’ Equity (Capital) = Assets – Liabilities
6

7. Example
• Jan 1 Invested Capital Rs 200000
• Jan 2 Purchased goods on credit from KK Co. for Rs 20000
• Jan 4 Bought plant and machinery for Rs 80000 for cash
• Jan 8 Purchased goods for Rs 4,000 on cash basis
• Jan 12 Sold goods for RS 60000 on cash (stock 40000+ profit
20000)
• Jan 18 Paid to KK Co. cash Rs 10000
• Jan 22 Received Rs 3000 from Mr. Y (being a debtor)
• Jan 25 Paid salary of Rs 60000
• Jan 30 Received interest of Rs 5,000
The effect of above transactions on Assets, liabilities and owner’s
equity considering the accounting equation
7

8. Date Transaction Journal entries Assets = Liability + Owners equity
(capital + Earnings
Jan
1st
Invested Capital
200000
Bank a/c Dr.
To Capital Cr
200000 - 200000
Jan
2nd
Purchased goods
on credit from KK
Co Rs 20000
Purchase a/c Dr
To KK Co. Cr.
(purchase=stock
KK=creditor)
20000 20000 -
As on Jan 2nd the assets = liabilities +capital 220000= 20000 + 200000
Jan
4th
Bought P &M Rs
80000 for cash
P & M a/c Dr.
To Bank Cr.
+ 80000
- 80000
- -
As on Jan 4th the revised equation 220000= 20000 + 200000
Jan
8th
Purchased goods Rs
4,000 on cash
Purchase Dr.
To cash Cr.
+ 4000
- 4000
- -
As on Jan 8th the revised equation 220000= 20000 + 200000
Jan
12th
Sold goods for cash
60000 (40000 stock
+20000 profit)
Bank a/c Dr.
To Sales Cr
(sales=stock)
+60000
-40000
+ 20000
-
+ 20000
As on Jan 12th the revised equation 240000 20000 + 220000
8

9. Date Transaction Journal entries Assets = Liability + Owners equity
(capital + Earnings)
Jan
18th
Paid to KK Co. cash
Rs 10000
KK a/c Dr.
To Bank Cr
-10000 -10000 -
As on Jan 18nd the Revised equation 230000= 10000 + 220000
Jan
22nd
Received Rs 3000
from Y (being debtor
Bank a/c Dr.
To Y Cr.
+ 3000
- 3000
- -
As on Jan 22nd the revised equation 230000= 10000 + 220000
Jan
25th
Paid wages & salary
of Rs 60000
Salary Dr.
To Bank Cr.
- 60000 - - 60000
As on Jan 25th the revised equation 170000= 10000 + 160000
Jan
30th
Received interest of
Rs 5,000
Bank a/c Dr.
To Interest Cr
+5000 - +5000
As on Jan 30th the revised equation 175000= 10000 + 165000
9