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Meaning of Accounting
Recording
Classifying
Summarizing
Analyzing
Interpreting
Communicating
Revenue Recognition
Depreciation is charged to allocate cost of the asset over its useful life
Matching Principle
Revenues and Costs pertain to the same period are only matched to
reveal the performance.
Full Disclosure
Objectivity Principle
MODIFYING PRINCIPLES:
To make the information useful, the basic assumptions and principles have
to be modified. These modifying Principles are
o Cost-benefit principle
o Materiality principle (as Opposed to full disclosure?)
o Prudence principle
o Timeliness principle
o Industry Practice
Performance
Position
ACCOUNTING STANDARDS:
• AS 2 Valuation of Inventories
• AS 5 Net Profit or Loss for the period, Prior Period Items and Changes in
Accounting Policies
• AS 6 Depreciation Accounting
• AS 9 Revenue Recognition
• AS 16 Borrowing Costs
• AS 17 Segment Reporting
• AS 26 Intangible Assets
• AS 28 Impairment of Assets
• IAS 2- Inventories
• IAS 41 - Agriculture
ACCOUNTING MECHANICS
ACCOUNT:
• An account is a ‘T’ shaped statement used to record
financial transactions of a business.
• It is Divided into Two Parts
• Left Hand side is called Debit
• Right hand side is Credit
Debit Credit
Double Entry System of Accounting
Developed by Venetian Merchants
It is a system of Recording financial Transaction
Each Transaction is entered Twice
One Debit
And
One Credit
(Not in the same Account with rare exception)
Accounting Equation
Forms the basis for double entry system of Book Keeping
Assets = Liabilities + Equity
How Does it Work?
Cash Capital
30000 50,000
Goods
20000 Capital
Cash 50,000
42,000 +
Goods 2,000
Y Rs
10,000 20,000 Capital
Cash 52000
Y Rs
42,000 20,000 Capital
Goods 52000
30,000 -
Cash 2000
Mr X Brought Rs
2,000
50,000 Cash into his new business.
Purchased goods worth Rs
20, 000 for Cash
sold goods worth Rs 10,000 for Rs 12,000 on Cash
Purchased goods worth
Rs 20,000 on Credit From Mr. Y
Paid salary to his employee
Rs 2,000
TYPES of ACCOUNTS:
• Liability Accounts: Accounts of Individuals and
Institutions, a business owes
• Capital Account: Owner’s Equity or claims
• Assets: Any Tangible and Intangible Properties
• Expenses : Incurred by the Business
Revenues : Earned by the Business
Rules of Debit and Credit
1. Capital Account:
DEBIT:Decrease (-)
CREDIT: Increase (+)
2. Liability Account:
DEBIT:Decrease
CREDIT: Increase
3. Asset Account:
DEBIT: Increase
CREDIT: Decrease
4. Revenue Account:
DEBIT: Decrease
CREDIT: Increase
5. Expense Account:
DEBIT: Increase
CREDIT: Decrease
Double Entry System of Accounting
Developed by Venetian Merchants
It is a system of Recording financial Transactions
Each Transaction is entered Twice
One Debit
And
One Credit
(Not in the same Account with, rare exception)
Accounting Equation
Forms the basis for double entry system of Book Keeping
Assets = Liabilities + Equity
Types of Accounts
• Real Account
• Includes all Assets
• Personal Account
• Includes All Individuals and Businesses Accounts
• Nominal Account
• Includes all Revenues and Expenses
Journalize the following transactions, post them in ledger and prepare a trial
balance.
January 1 2009: Ram commenced his business with a capital of Rs 1,00,00 for
which he brought cash Rs 50,000 and furniture worth Rs
50,000. Of Rs 50,000 Cash, he deposited Rs 10,000 in bank.
11 He sold goods for cash Rs 8,000 and received a cheque for the
same.