Professional Documents
Culture Documents
Project
Masters of Business Administration (IB)
Accounting and Finance
Semester - I
Dr. N N Sen Gupta
Copyright Amity University
1
Accounting:
The American Institute of Certified Public
Accounts (AICPA) has defined accounting as
the art of recording, classifying and
summarizing in a scientific manner and in
terms of money; transactions and events which
are in part at least of a financial character and
interpreting the results thereof.
Introduction to financial
accounting
Accounting is a language of
business.
As fundamental
function of a language is to serve
as a means of communicating the
matters relating to business
operations.
Features of Accounting
Recording Journalizing
Classifying Ledger
Summarizing Trial Balance
Interpreting
Explaining the
significance
of
the
financial statement
Objectives of Accounting:
To make decisions
To make systematic record of the
resources and obligations
To ensure effective direction and
control
To ascertain financial positions of the
business
To provide useful information to
interested parties
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Branches of Accounting:
I
II
III
Financial accounting
Cost Accounting
Management Accounting
Limitations of Accounting:
Records only those transactions that
can be measured in money terms.
It records transactions at cost. The
effects of change in prices are not
shown
anywhere.
Every chance of manipulation of
accounting profits by the accountant.
It is only a post-mortem report.
Importance of Accounting:
- Owners of shareholders
- Management
- Employees
- Creditors
- Government
- Consumer
- General public
- Other parties
a. Tax authorities
b. Stock Exchanges
c. Political Parties
d. Trade Union
Recording
the
transactions and posting than into ledger
The Accountants - Prepare the financial
statement
Prepare report and interpret them
Basis of Accounting
-
Accounting Equations
Accounting equations means recording of
entries in a way that the assets equal
equities.
Assets = Equities
Equities = Owners Equity + Liabilities
Assets = Owners Equity + Liabilities
Nature of Accounting
Type of Accounts
Type of Accounts
Personal Accounts
Natural
Account
Artificial
Account
Impersonal Accounts
Representative
Real
Account
Tangible
Account
Intangible
Account
Expense
Account
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Account
Nominal
Account
Incomes
Account
Rules of Account:
Every business transaction has two aspects:
- Receiving Aspects is debited
Giving Aspects is credited
Rules of Account:
Personal Account:
Real Account:
Nominal Account:
Limitations of Financial
Statements:
Financial statements are prepared with the object of
presenting a periodical review or reports on the progress
by the management and deal with the
(i)
Status of the investments in the business and
(ii)
Results achieved during the period under review.
Users of Financial
Statements Users of Financial Statements
External users
-Creditors
-Government
-Consumers
-General
public
-Other
Parties
Sources of GAAP
The authentic and authoritative sources of GAAP are:
American Institute of Certified Public Accounts (AICPA)
Financial Accounting Standard Board (FASB)
Government Accounting Standard Board (GASB)
International Accounting Standard (IAS)
Pronouncements of Securities and Exchange Commission (PSEC)
Various Publications of Professional Organisations
Various books, articles and Committee reports on accounting that
contain expressions of GAAP which are authentic.
Accounting Conventions
Generally accepted accounting
practice
1. Business entity
2. Historical cost
3. The monetary unit
4. Going concern
5. Accounting period
Accounting Conventions
Accounting Doctrines
Recommended principles that Accountants
should follow1. Full disclosure
2. Consistency
3. Materiality
4. Conservatism
5. Objectivity
Accounting Doctrines
Who Needs
Accounting
INTERNAL
Managers, supervisors, directors
Type of Accounts
Type of Accounts
Personal Accounts
Natural Account
Artificial Account
Impersonal Account
Representative
Account
Real Account
Tangible Account
Intangible Account
Nominal Account
Expense Account
Incomes Account
Classification Of Accounts
1.
2.
3.
Personal Accounts
1. Debit is the receiver
2. Credit is the Giver
Real Accounts
1. Debit what comes in
2. Credit what goes out
Nominal Accounts
1. Debit- Expenses & Losses
2. Credit- Income & Profit
Final Account
Process Of Accounting
1. Journal
2. Ledger
3. Trial balance
4. Adjustments
5. Trading & P/L
6. Balance Sheet
Accounting Cycle
2.
Journalize
3. Post
1.Analyze
Transactions
4. Unadjusted
trial balance
8.Close
Start the
next cycle
5. Adjust
7. Prepare
finance
statements
6. Adjusted
trial balance
Numerical
Journalize the following transactions, post them in the
Ledger and balance the accounts on 31st January.
Ram started business with a capital of Rs. 10,000.
He purchased goods from Mohan on credit Rs. 2,000.
He paid cash to Mohan Rs. 1000.
He sold goods to Suresh Rs. 2000.
He received cash from Suresh Rs. 3000.
He further purchased goods from Mohan Rs. 2,000.
He paid cash to Mohan Rs. 1000.
He further sold goods to Suresh Rs. 2000.
He received cash from Suresh Rs. 1000.
Particulars
Cash Account
To Capital Account
(Being commencement of business)
L.F.
Dr.
Debit Amount
(Rs.)
Credit Amount
(Rs.)
10000
10000
Purchase Account
To Mohan
(Being purchase of goods on credit)
Dr.
Mohan
To Cash
(Being payment of cash to Mohan)
Dr.
Suresh
To sales
(Being goods sold to Suresh)
Dr.
Cash Account
To Mohan
(Being cash received from Suresh)
Dr.
2000
2000
1000
1000
2000
2000
Purchase Account
Dr.
To Mohan
(Being purchase of goods form Mohan)
3000
3000
2000
2000
Mohan
Dr.
To Cash Account
(Being payment of Cash to Mohan)
1000
Suresh
To Sales Account
(Being goods sold to Suresh)
Dr.
2000
Cash Account
To Suresh
(Being cash received from Suresh)
Dr.
Total
1000
2000
1000
1000
24000
24000
Ledger
Cash Account
Dr.
Date
Particulars
Cr.
Amount
(Rs.)
To capital A/C
10000
1000
To Suresh
3000
1000
To Suresh
1000
14000
Feb.1
To balance b/d
12000
Date
Jan.31
Particulars
Amount
(Rs.)
12000
CAPITAL ACCOUNT
Dr.
Date
Jan
31
Cr.
Particulars
To Balance c/d
Amount
(Rs.)
Date
10000
Particulars
By Cash A/c
10000
Amount
(Rs.)
10000
10000
Feb 1
By Balance b/d
10000
PURCHASE ACCOUNT
Dr.
Date
Cr.
Particulars
To Mohan
To Mohan
Amount
(Rs.)
Date
Particulars
Amount
(Rs.)
2000
Jan 31
By Balance c/d
4000
2000
4000
Feb 1
To Balance b/d
4000
MOHAN
Dr.
Cr.
Date
Particulars
Amount
(Rs.)
To Cash
Date
Particulars
Amount
(Rs.)
1000
By Purchases
2000
To Cash
1000
By Purchases
2000
To Balance c/d
2000
4000
4000
By Balance b/d
2000
SURESH
Dr.
Date
Cr.
Particulars
Amount
(Rs.)
To Sales
Date
Particulars
Amount
(Rs.)
2000
By Purchases
3000
To Sales
2000
By Purchases
1000
To Balance c/d
4000
4000
SURESH
Dr.
Cr.
Date
Particulars
Amount
(Rs.)
Jan
31
To Balance c/d
4000
Date
Particulars
Amount
(Rs.)
By Suresh
2000
By Suresh
2000
4000
4000
Feb. 1
By Balance b/d
4000
TRIAL BALANCE
as on 31st January
Particulars
Cash Account
Capital Account
Purchases Account
Mohan
Sales Account
Debit (Rs.)
Credit (Rs.)
12000
10000
4000
2000
4000
16000
16000
Thus, the two sides of the Trial Balance tally. It means
the books of accounts are arithmetically accurate.
Problem I
Journalize the following transactions and post them into the Ledger:
1999
Rs.
Jan 1
Surendra started business with cash
5000
Jan 2
Goods purchased from Prasad on credit
200
Jan 3
Goods sold to Prem
500
Jan 4
Goods purchased from Sohan for cash
400
Jan 5
Paid for wages
50
Jan 15 Goods purchased from Prem
100
Jan 17 Goods sold to Om
Jan 21 Goods purchase from Charanjit
Jan 23 Paid for interest
Jan 24 Goods purchased from Om
200
Jan 28 Cash received from Prem
Jan 31 Cash paid to Charanjit
Jan 31 Paid for Rent
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300
15
100
300
10
50
Problem 2
On 1st January, 1999 the following were the ledger balances of Rajan & Co. Cash in hand Rs.
900; Cash
at bank Rs. 21,000; Soni (Cr.) Rs. 3000; Zahir (Dr.) Rs.2,400; Stock Rs. 12,000; Parsad (Cr.)
Rs. 6,000;
Sharma (Dr.) Rs. 4,500; Lall (Cr.) Rs. 2,700; Ascertain capital.
Transactions during the month were:
1999
Rs.
Jan 2
Bought goods for Prasad
2700
Jan 3
Sold to Sharma
3000
Jan 5
Bought goods of Lall for cash, paid by cheque
3600
Jan 7
Took goods for personal use
200
Jan 13
Received from Zahir in full settlement
2350
Jan 17
Paid Soni in full settlement
2920
Jan 22
Paid cash for stationery
50
Jan 29
Jan 30
50
Dr. N. N. Sengupta
Copyright Amity University
1.
2.
3.
Interpreting
the
results:
This
involves
computation of various accounting ratios etc. to
know about the liquidity solvency and profitability
of business.
Journal
Journal is defined as a book containing a
chronological record of transactions
Particulars
L.F.
(1)
(2)
(3)
Debit
(Rs.)
(4)
Credit
(Rs.)
(5)
1.
2.
ii.
iii.
Position
Ledger isLedger
a book which
contains various
accounts.
Posting
Posting
The Posting may be done by the book-keeper
from the journal to the ledger by any of the
following methods:
i.
Posting
ii.
iii.
iii.
Cashbook
Cashbook is a special journal in which all
cash transactions are recorded directly.
Cashbook shows the cash receipts and
the cash payments. The Cashbook
resembles a ledger with the debit and
credit sides, and the balance represents
cash on hand at the end of the accounting
period.
Kinds of Cashbook
Simple Cashbook
Simple Cashbook
CashBook
Dr.
Particulars
Date
L.F.
Rs.
Date
Cr.
Particulars
L.F.
Rs.
Dr.
Date
Particulars
L.F.
Discount
Rs.
Cash
Rs.
Date
Cr.
Particulars
L.F.
Discount
Rs.
Cash Rs.
Dr.
Date
Receipts
Discount
allowed
Cash Bank
Cr.
Date
Receipts Discount
allowed
Cash
Bank
Contra Entries
Contra Entries
Dr.
Date
Cashbook
Particulars
L.F
Discount
Allowed
Cash
Bank
Date
Cr.
Particulars
L.F
Discount
Allowed
Cash
Bank
Petty Cashbook
Date
Particulars
Total
Amount
paid
Postage and
Telegrams
Printing and
Stationery
Carriage
Traveling
Expenses
Sundry
Expenses
Subsidiary Books
Subsidiary Books
Purchase Book
Purchase Returns Book
Sales Book
Sales Return Book
Bill Receivable Book
Bills Payable Book
Journal Proper
Purchase Book
Also known as the Purchases Journal, this book is used to
record credit purchases of goods only.
Purchase Book
Date
Particulars
(Name of Supplier, etc.)
L.F.
Amount
Rs.
Name of Supplier
L.F.
Amount
Rs.
Sales Book
Also known as the Sales Journal, this subsidiary book is used to
record the sale of goods on credit.
Sales Book
Date
Name of Customer
L.F.
Amount
Rs.
Name of Customer
L.F.
Amount
Rs.
Date
From Whom
Received
Acceptor
Date
of Bill
Term
Date of
Maturity
L.F.
Where
Payable
Amount
Rs.
How
Disposed
Trial Balance
Trial Balance
As on 31st January in(Rs.)
Particular
Debit
Credit
(1)
(2)
(3)
Trial Balance
1.
2.
3.
Summarized ledger
ii.
Particulars
L.F.
Dr. (Rs)
1. Capital Account
13,400
2. Sales Account
15,300
3. Shyams Account
1,500
4. Discount Account
300
5. Purchases Account17,000
6. Salaries Account
500
7. Drawings Account5,000
8. Rams Account
400
9. Cash in hand
900
10.
Bank Overdraft 4,100
11.Furniture A/c
8,000
33,20033,200
Cr. (Rs)
Closing Inventory
The value of closing inventory will be brought
into the books of accounts through the following
journal entry:
Closing Inventory A/C Dr.
To Trading A/c
While the closing inventory appears on the credit
side of the trading account to reduce the cost of
goods sold, it also appears as an asset in the
balance sheet.
Expense A/C
Dr.
To Outstanding Expense A/C
Prepaid Expense
Prepaid Expense
The journal entry to record any prepaid expense
is:
Prepaid Expenses A/C
Dr.
To Expenses A/C
Dr
Dr.
The accounts receivable of as on date is after accounting for the bad debts .
When bad debts occurred, the following entry would have been passed.
Particulars
Cr.
Rs.
Particulars
Rs.
Cr.
Particulars
Rs.
Particulars
Rs.
The balance sheet will again show the Accounts Receivable at their
realizable value.
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Cash A/c
Dr.
To Bad Debts Recovered A/c
Financial transaction
Barter
Settlement
Receipt/Payment
(a)
(b)
(c)
(d)
Cash transaction
Credit transaction
Barter
Internal Event
(a)
(b)
(c)
(d)
A creditor
A debtor
An investor
A lender
9.
A person to whom
money is owed by the
business (a)
(b)
(c)
(d)
A creditor
A debtor
A borrower
A customer
Thank You
Please forward your query
To: Nnsengupta@gmail.com
CC: manoj.amity@panafnet.com
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