Accounting can be defined as a system of -
Recording, Collecting, Summarizing, Analysing, Presenting
The account information findings are usually presented in the following terms-
Balance sheet
Profit and loss account
A statement of changes in financial position
3. INTRODUCTION
Accounting can be defined as a system of -
• Recording, Collecting, Summarizing,
Analysing, Presenting
• The account information findings are usually
presented in the following terms-
1. Balance sheet
2. Profit and loss account
3. A statement of changes in financial
position
Prof. Ashish Makwana 3
4. PRINCIPLES OF ACCOUNTING
The nature of accounting can be stated as under-
• It is man made
• It has evolved over a period of time.
• It is a systematic exercise.
• It is practiced in a social system.
• It is judgement at times.
• It is the languages of business.
• It follows flexible, not a rigid approach.
• It communicates financial information for
decision making.
Prof. Ashish Makwana 4
5. ACCOUNTING PROCESS
1. Initiation of transaction.
2. Keeping records of transactions in a
chorological manner.
3. Making adjustment entries.
4. Recording transactions in T-account.
5. Preparing initial trial balance.
6. Preparing profit and loss account and
closing T-accounts.
7. Preparing the balance sheet.Prof. Ashish Makwana 5
7. Sr.
No.
Description
Amount
Rs. Lakh
1 Contract value 400
2
Original estimated cost of the
contractor
360
3 Billed (invoice) to date 250
4 Payment received to date 210
5 Costs incurred to complete 235
6 Estimated costs to complete 80
7 Costs paid to date 200
Data regarding construction company
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8. 1. Cash method
Revenue =
Payment received to date – costs paid to date
= 210 – 200
= 10 lakh
2. Straight accrual method
Revenue =
Billed (invoice) to date– costs incurred to
date
= 250 – 235
= 15 lakh Prof. Ashish Makwana 8
9. 3. Completed contract method
• In this method, revenue is recognized only
when the project has been completed.
• In case of present example, the project has
not been completed. Hence, the revenue
would be zero.
4. Percentage of completion method
Percentage completion =
[Cost incurred to date / (Cost incurred to date
+ estimated cost to complete)] * 100
Prof. Ashish Makwana 9
10. Revenue completion = [235 / (235 + 80)] * 100
= 74.60%
So, Revenue = 0.7460 * 400
= 298.40 lakh
Therefore, gross profit to date
= revenue recognized – cost incurred to date
= 298.40 – 235
= 63.40 lakh
Prof. Ashish Makwana 10
