FINANCIAL ACCOUNTING

NEED FOR ACCOUNTING

y WHAT BUSINESS OWNS y WHAT IT OWES y WHETHER EARNED PROFIT OR LOSS y FINANCIAL POSITION

DEFINITION & FUNCTIONS OF ACCOUNTING

y ART OF RECORDING, CLASSIFYING, SUMMARISING y FINANCIAL TRANSACTIONS y ANALYSING & INTERPRETING y COMMUNICATION y BOTH SCIENCE & ART

y END USERS

OWNER MANAGERS / EMPLOYEES CREDITORS INVESTOR CITIZEN

IMPORTANCE OF ACCOUNTING & ITS BRANCHES

y FINANCIAL y MANAGEMENT y DIFFERENCE OBJECTIVE ANALYSIS DATA USED MONETARY MEASUREMENT REPORTING PERIODICITY PRECISION LEGAL COMPULSION

y IMPORTANCE OF ACCOUNTING

SYSTEMATIC RECORD PROTECTS ASSETS P&L FINANCIAL POSITION FACILITATES RATIONAL DECISION MAKING

ACCOUNTING PRINCIPLES AND STANDARDS

y ACCOUNTING PRINCIPLES

ACCOUNTING CONCEPTS & ACCOUNTING CONVENTIONS

ACCOUNTING CONCEPTS
y SEPARATE ENTITY y GOING CONCERN y MONEY MEASUREMENT y COST y DUAL ASPECT y ACCOUNTING PERIOD y PERIODIC MATCHING OF COST & REVENUE y REALISATION

ACCOUNTING CONVENTIONS
y CONSERVATISM y FULL DISCLOSURE y CONSISTENCY-Necessary for comparison y MATERIALITY-unimportant details ignored

ACCOUNTING STANDARDS
y SCOPE

CONFORMITY WITH LAW,CUSTOMS, USAGES & BUSINESS ENVIRONMENT IN INDIA VARIOUS DISCLOSUERS BY WAY OF NOTES APPLY ONLY TO ITEMS WHICH ARE MATERIAL

COMPLIANCE OF ACCOUNTING STANDARD

y MANDATORY y 32 STANDARDS

SYSTEMS OF BOOK KEEPING

y SINGLE ENTRY y DOUBLE ENTRY

ACCOUNTING EQUATION ASSETS = EQUITIES

SYSTEM OF ACCOUNTING
y CASH SYSTEM y MERCANTILE SYSTEM

JOURNALISING TRANSACTIONS
y ACCOUNTING PROCESS / CYCLE

RECORDING TRANSACTIONS CLASSIFYING SUMMARISING INTERPRETING RESULTS

y JOURNAL

BOOK CONTAINING CHRONOLOGICAL RECORD OF TRANSACTIONS UNDER DOUBLE ENTRY SYSTEM BOOK OF ORIGINAL RECORD PRECEDES LEDGEIL

BUSINESS TRANSACTIONS A/Cs CLASSIFIED IN 3 CATEGORIES

y RELATING TO PERSONS

PERSONAL ACCOUNTS
y RELATING TO PROPERTIES & ASSETS

REAL ACCOUNTS
y RELATING TO INCOME & EXPENSES

NOMINAL ACCOUNTS

ACCOUNTS
ACCOUNTS

PERSONAL

REAL

NOMINAL

NATURAL

ARTIFICIAL

REPRESENTATIVE

TANGIBLE

INTANGIBLE EXPENSE INCO

RULES OF ACCOUNTING
y PERSONAL ACCOUNTS. DEBIT THE RECEIVER CREDIT THE GIVER y REAL ACCOUNTS.

DEBIT WHAT COMES IN CREDIT WHAT GOES OUT

y NOMINAL ACCOUNTS.

DEBIT ALL EXPENSES & LOSSES CREDIT ALL GAINS & INCOMES

COMPOUND JOURNAL ENTRY

y ONE A/C DEBITED

SEVERAL CREDITED
y SEVERAL A/CS DEBITED

ONE CREDITED
y SEVERAL A/CS DRBITED

SEVERAL A/CS CREDITED

OPENING ENTRY
y RUNNING BUSINESS y DEBIT ALL ASSETS

CREDIT ALL LIABILITIES (Including Capital)

LEDGER POSTING
y CONTAIN VARIOUS ACCOUNTS y WHETHER REAL /NOMINAL OR PERSONAL y MAY BE DONE ANY TIME y BEFORE FINAL ACCOUNTS y ADVISABLE KEEP POSTING UPDATED ALWAYS y A/C DEBITED OR CREDITED IN JOURNAL SHOULD

BE DEBITED / CREDITED IN LEDGER ALSO

y BUT FOR REFRENCE OTHER A/C NAME SHOULD BE

GIVEN
y IF VARIOUS A/CS ON ONE SIDE THEN FOR REFRENCE

SUNDRY A/CS SHOULD BE WRITTEN

y USE OF TO & BY y BALANCING OF LEDGER ACCOUNTS

TRIAL BALANCE
y LEDGER BALANCES TAKEN TO TRIAL BALANCE y OBJECTIVES CHECKING ARITHMETICAL ACCURACY BASIS FOR FINANCIAL STATEMENTS SUMMARISED LEDGER y METHODS TO PREPARE TOTALS METHOD NOT POPULAR BALANCE METHOD

TRIAL BALANCE
y PREPARED NOT ONLY AT YEAR END BUT MONTHLY/

QUARTERLY/HALF YEARLY OR AS PER CONTROL REQUIREMENTS y INTERIM TB HELPS IN EXCERCISING CONTROL E.G. SALARY FOR APRIL 13.20 LACS BUT MAY 35 LACS

TRIAL BALANCE
y ERRORS AND THEIR RECTIFICATION
y ERRORS APPARENT y ERRORS DIFFICULT TO KNOW FROM TRIAL BALANCE y ERRORS OF PRINCIPLE y ERRORS OF OMMISSIONS y ERRORS OF COMMISSION y COMPENSATORY ERRORS y ONE ACCOUNT EXCESS DEBITED AND OTHER SHORT DEBITED BY SIMILAR AMOUNT

TRIAL BALANCE
y RECTIFICATION OF ERRORS
y BEFORE PREPARATION OF TRIAL BALANCE y AFTER PREPARING TB BUT BEFORE PREPARATION OF

FINAL ACCOUNTS y AFTER THE FINAL ACCOUNTS-NEXT YEAR

VOUCHER
y FOR EACH TRANSACTION VOUCHER IS PREPARED y NO VOUCHER WITHOUT ENTRY & NO ENTRY

WITHOUT VOUCHER y TYPES OF VOUCHERS

JOURNAL CASH / BANK PAYMENT SALES PURCHASES

BANK RECONCILIATION
y ENTRIES NOT RECORDED IN BANK BOOKS BUT

RECORDED IN THE BOOKS OF ORGANISATION IN BANK ACCOUNT y FOR SOME DIFFERENCES WHICH ARE ERRORS ENTRIES ARE PASSED IN BOOKS BUT SOME DIFFERENCES ARE DUE TO PROCEDURAL DELAYS IN BANK-NO ENTRIES ARE PASSED y THESE DIFFERENCES ARE LEFT FOR REFERENCE AND RECONCILIATION IN BRS

BANK RECONCILIATION
y PURPOSE TO ENSURE THAT NO BANK TRANSACTION

IS LEFTTO BE RECORDED IN BOOKS

y REASONS OF DIFFERENCES IN LEDGER BALANCE &

PASS BOOK / STATEMENT BALANCE ASCERTAINED

y ENTRIES NOT RECORDED IN A/CS TRACED

BANK RECONCILIATION
y REASONS: a ) CHEQUES ISSUED BUT NOT PRESENTED FOR

PAYMENT b ) CHEQUES SENT FOR COLLECTION BUT NOT YET COLLECTED c ) BANK CHARGES d ) DIRECT COLLECTIONS e )DIRECT PAYMENTS-ECS OR OTHERWISE f )ERRORS-WRONG DEBIT/CREDIT g) FRAUD IN BANK ACCOUNT

BANK RECONCILIATION
y IMPORTANCE

REDUCES CHANCES OF FRAUD

MORAL CHECK ON STAFF

TECHNIQUE OF PREPARING BANK RECONCILIATION STATEMENT

y BOOK TAKEN AS BASE y OTHER BOOK y EFFECT OF CAUSE OF DIFFERENCE SHOULD BE STUDIED

ON BALANCE SHOWN BY OTHER BOOK

y IF CAUSE HAS RESULTED INCREASE IN BALANCE SHOWN

BY OTHER BOOK ADD THE AMOUNT TO BASE BOOK BALANCEORVICEVERSA

TECHNIQUE OF PREPARING BANK RECONCILIATION STATEMENT

y INCASE

BOOKS SHOW ADVERSE BALANCE (OVERDRAFT) , AMOUNT OF OD BE PUT IN MINUS COLUMN AND BE FAVOURABLE BALANCE PREPARED AS IF

y RECONCILIATION

FINAL ACCOUNTS
y P&L y FINANCIAL POSITION y P&L

MANUFACTURING ACCOUNT TRADING ACCOUNT PROFIT & LOSS ACCOUNT

ADJUSTMENT IN PURCHASES
y OWNERS USE GOODS y GOODS FOR ADS y PURCHASE RETURN

ADJUSTMENTS IN SALES
y SALES RETURN y TRADE DISCOUNTS

P/L
y WAGES PERTAINING TO OPERATIONS y SALARIES y CUSTOMS/ IMPORT DUTY y FREIGHT, CARRIAGE, CARTAGE y ROYALTY y GAS, ELECTRICITY, WATER y PACKING

PURCHASE SALES

P/L
y VALUATION OF CLOSING STOCK
y COST OR MARKET PRICE WHICH EVER IS LESS

CLOSING ENTRIES
y G.P. TAKEN TO P/L ACCOUNT y TRANSFER ALL EXPENSES AND INCOME TO P/L

ACCOUNT-OTHER THAN TRADING ACCOUNT AND MANUFACTURING ACCOUNT

IMPORTANCE OF TRADING A/C

y CONTROL OVER OPERATING EXPENSES y YEAR AFTER YEAR COMPARISON y COMPARISON OF STOCK FIGURES OF ONE PERIOD

WITH ANOTHER TO AVOID UNNECESSARY LOCK UP OF FUNDS y ADDING NEW PRODUCTS-MARK UP EASILY ADDED OVER COST

PROFIT & LOSS ACCOUNT

y TAKES CARE OF OPERATING EXPENSES y OTHER SOURCES OF INCOME TAKEN HERE

RENT INVESTMENT INCOME EXTRA ORDINARY INCOME

PROFIT & LOSS ACCOUNT

y SOME IMPORTANT ISSUES

GROSS INCOME/ EXPENSES INCLUDING TDS ARE TAKEN