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Bank Accounting Concepts

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Accounting
Accounting is a language of business which systematically records daily events, leading to presentation of complete financial picture. It is an art of recording, classifying and summarizing financial transactions & events.

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Classification of Accounts

Assets

Expenses

Liability

Capital

Income

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Assets
An asset is 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.

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Expenses
Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

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Liability
A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

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Capital
It is the Investment of the owners towards the business of the enterprises as well as all the retained earnings of the previous and corresponding year.

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Income
Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.

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Fundamental Accounting Assumptions


Accrual Basis Under this basis, the effects of transactions and other events are recognized when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Financial statements prepared on the accrual basis inform users not only of past transactions involving the payment and receipt of cash but also of obligations to pay cash in the future and of resources that represent cash to be received in the future. Hence, they provide the type of information about past transactions and other events that is most useful to users in making economic decisions.
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Fundamental Accounting Assumptions Going Concern:


The financial statements are normally prepared on the assumption that an enterprise is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its operations; if such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used is disclosed.
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Fundamental Accounting Assumptions

Consistency:
The presentation and classification of items in the financial statements should be retained from one period to the next period.

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Fundamental Accounting Assumptions

Materiality:
Each material item should be presented separately in the financial statements. Immaterial amounts should be aggregated with amounts of a similar nature or function and need not be presented separately.

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Accounting Equation
Assets + Expenses = Liabilities + Capital + Income

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Accounting Equation
Assets

Expenses

Liability

Capital

Income

Dr. Side

Cr. Side

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Debit & Credit Procedure


Each transaction must affect two or more accounts to keep the basic accounting equation in balance. In other words, for each transaction, debits must equal credits. The equality of debits and credits provides the basis for the double entry accounting system.

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Debits & Credits


The term debit and credit reflects left and right side of the equation respectively. They are commonly abbreviated as Dr. for debit and Cr. for credit. These terms do not mean increase or decrease. These terms are used repeatedly in the recording process to describe where entries are made in accounts.
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Dr./ Cr. Procedures for Assets & Liabilities


Increases and decreases in liabilities will have to be recorded opposite from increases and decreases in assets. Thus, increase in liabilities must be entered on the right or credit side, and decrease in liabilities must be entered on the left or debit side.
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Debits

Increase Assets
Decrease Liabilities
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Assets
Increase Debit Decrease Credit

Normal Balance

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Liabilities
Decrease Debit Increase Credit

Normal Balance

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Revenues & Expenses


Revenue accounts are increased by credits and decreased by debits Expenses are recorded by debits Debits Credits Decrease Increase Revenues Revenues Increase Decrease Expenses Expenses

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Expenses
Increase Debit Decrease Credit

NORMAL BALANCE

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Decrease Debit

Revenues

Increase Credit

NORMAL BALANCE

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Normal Balance
Assets Liabilities Capital Income Expenses = = = = = Debit Credit Credit Credit Debit

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Accounting Concepts
The accounting profession has worked in recent years to develop a conceptual framework for accounting. The purpose of the framework is to act as a foundation for specific principles and standards needed by the profession. An important part of the conceptual framework is a set of assumption we make in preparing financial statements

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Accounting concept
     

Business Entity Concept Money measurement concept Cost concept Duality concept Accounting period concept Matching concept

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Business entity concept


 

Business consists of person and resources. Person representing the business is separate and distinct from the business enterprises. Accounting system deals with the economic activities of the business not of owner. Preparation of B/S of the business does not consider the personal assets and liability of the owner of the business.

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Money measurement concept




Accounting data accumulated measured and communicated in terms of money. Money is medium of exchange and standard of economic value. The information which can not be expressed in monetary terms is not accumulated and reported in the financial statement. Only those events for which monetary value can be established are recorded in the accounting statement.
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Cost concept


An assets will be recorded at its cost-the price paid or to be paid to acquire it. Fair value of assets is not considered for the accounting purpose. Any subsequent change in the market value is not recorded in the accounts of the company. It fails to reflect the true worth of the assets.
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Duality concept
  

  

Entity creates value with the use of resources. Economic resources are called assets. Assets acquired from the fund provided by owners, and from outside parties. Assets = equities. Assets = owners equity + liabilities The duality concept states that each business transaction has two aspects affecting assets and equities.

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Accounting period concept


  

Financial statements are prepared to reflect the financial position and performance. Users need periodical reporting. For reporting the entire life of firm is divided into small periods called accounting period. P/L account prepared for accounting period and B/S at the closing date of the accounting period
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Matching concept
 

 

To determine the net result of the firm expense should be matched with revenue. Revenue-inflow of the assets or outflows of the liabilities. Expenses-outflow of the assets or inflow of liability to produce revenue. Cost may be expense or assets. Cost should be recognized as expenses in the period when the revenue is realized.
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Deposit & Withdrawal Accounting


Nrs Cash Deposit  Tellers Cash Nrs. Debit Client s Account FCY Cash Deposit  Tellers Cash FCY Debit Client s Account

Credit

Credit

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Deposit & Withdrawal Accounting


Cheque Encashment  Client s Account Debit Teller s Cash A/C Credit Sale of FCY  Teller s Cash FCY A/C Debit Teller s Cash Nrs. A/C Credit

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Deposit & Withdrawal Accounting


FCY Sale  Teller s Cash Nrs. A/C Debit Teller s Cash FCY A/C Credit

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Credit Accounting
Hire Purchase Loan  Hire Purchase Loan A/C Debit Party s Current A/C Credit Term Loan  Term Loan A/C Debit Party s Current A/C Credit

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Credit Accounting
Credit Against FDR  Demand Loan (Against FDR) Debit Party s Current Account Credit Credit Against Share  Demand Loan (Against Share) Debit Party s Current Account Credit

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Credit Accounting
Staff Loan  Staff Loan A/C Debit Staff Savings Account Credit

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Thank You
Have a Nice Day

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