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Present By,
Mr. V. GURUMOORTHIAssistant Professor
Department of Commerce.
1
PRINCIPLES OF ACCOUNTANCY / BUSINESS ACCOUNTING
Contents….1. History of Accounting2. Book keeping3. Accounting Meaning4. Steps of Accounting5. Types of Accounting6. Golden Rules7. Accounting Cycle8. Accounting concepts & Conventions9. Journal10. Ledger11. Trial Balance12. Final Accounts2
History:It has evidence in 4-th Century in
Artha Sasthiram Wrote by Gowdilya.
After 14-th Century, Established certain procedures in Accounting system by Italian Merchant Luco Pacioli.
He Introduced Double Entry System at 1494.
He is a Father of Accounts.3
BOOK KEEPING
It is concerned with the
Recording of Business
Transaction in a systematic
manner.
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ACCOUNTING
Meaning:Accounting, the term refers “art of recording, classifying and
summarizing and interpretation of the business
transaction in a significant manner and in terms of money”.
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TYPES OF ACCOUTS
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Real A/c
Nominal A/c
PERSONAL IMPERSONAL
Natural personArtificial personRepresentative person
Tangible AssetsIntangible Assets
ExpensesIncomes
I. Personal Accounts:Accounts of persons with whom with business has
dealings are known as personal accounts.
A) Natural Persons: Owner, Debtors(Customer), Creditors(Suppliers).
B) Artificial Persons: Bank, Institution, Company, Government.
C) Representative Persons: Out Standing(O/s), Prepaid Expenses.
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II. IMPERSONAL ACCOUNTSOther than the personal accounts known as
Impersonal Accounts.
Real Accounts: All assets of the company.Tangible Assets: It can be see, touch, feel. Such as, Land,
Building, Cash, Bank balance.. ect., Intangible Assets: It can’t see, touch, feel. Such as, Copy
Right, pattern rights, Good will, Trade mark.
Nominal Accounts: All Expenses and Incomes. Such as, Salary paid, Rent paid, Interest received.
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GOLDEN RULESACCOUNTS DEBIT
ASPECTSCREDIT
ASPECTS
Personal Account
Receiver Giver
Real Account
What comes in
what goes out
Nominal Account
Expenses/Losses
Incomes/Gains
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OBJECTIVES OF ACCOUNTING
To maintain accounting records.To Ascertain true profit or loss.To Find out correct financial positions.To provide information to Users.
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ADVANTAGE OF ACCOUNTING
Maintaining Systematic recordsPreparation of financial statementsAssessment of progressAid to decision makingFull fill Statutory requirementsInformation to interested groupsEvidence in courtsTaxation ProblemsMerger of firms.
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Accounting Concepts and Conventions
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ACCOUNTING CONCEPT
The term ‘concept’ is used to connote accounting postulate, that is necessary assumptions and conditions upon which accounting is based.
These are the theories on how and why certain categories of transactions should be treated in a particular manner.
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Such as,1. The entity Concept2. The money measurement concept3. Going concern concept4. Dual aspect concept5. Accounting period concept6. Realization concept7. Cost concept8. Matching concept9. The accounting Equation Concept10. Objective evidence concept
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• The business and its owner(s) are two separate entities
1. BUSINESS ENTITY CONCEPT
Capital (Liability)Capital (Liability)
Drawings (Asset)Drawings (Asset)
The Books Of Accounts are prepared from the point of view of the business…… Hence,
It is assumed that the entity is a going concern, i.e., it will continue to operate for an indefinitely long period in future and transactions are recorded from this point of view.
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2. GOING CONCERN CONCEPT
In accounting, a record is made only of those transactions or events which can be measured and expressed in terms of money.
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3. MONEY MEASUREMENT CONCEPT
Non monetary transactions are not recorded in accounting.
For measuring the financial resultsmeasuring the financial results of a business periodically, the working life of an undertaking is split into convenient short periods called accounting period.
4. ACCOUNTING PERIOD CONCEPT
An asset acquired by a concern is recorded in the books of accounts at historical cost historical cost (i.e., at the price actually paid for acquiring the asset). The market price of the market price of the asset is ignored.asset is ignored.
5. COST CONCEPT
Historical Cost Of
Market Value Of
For Every Debit, there is
a CreditEvery transaction Every transaction should have a should have a two- two- sided effectsided effect to the to the extent of same extent of same amount..amount..
6. DUAL-ASPECT CONCEPT
For Example:Cash Sales Rs. 10,000
Profit is earned when goods or services are provided/ transferred to customers. The revenue should be recognized only when it is legally due and realizable.
7. REALISATION CONCEPT
The matching principle ensures that revenues and all their associated expenses are recorded in the same accounting period. Hence, the Outstanding and prepaid expenses and incomes have to be properly adjusted.
8. MATCHING CONCEPT
9. ACCOUNTING EQUATION CONCEPT
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10. OBJECTIVE EVIDENCE CONCEPT
All accounting entries must be based on objective evidence. It
refers, verifiability, reliability and absence of bias.
Accounting Convention
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ACCOUNTING CONVENTIONS
Accounting Conventions are the common practices which are universally followed in recording and presenting accounting information of business. It helps in comparing accounting data of different business or of same units for different periods.
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Such as,
Convention of MaterialityConvention of Full DisclosureConvention of ConservatismConvention of Consistency
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Only those transactions, important facts and items are shown which are useful and material for the business. The firm need not record immaterial and insignificant items.
1. MATERIALITY
Financial Statements and their notes should present all information that is relevant and material to the user’s understanding of the statements.
2. FULL DISCLOSURE
Accountant should always be on side
of safety. FOR uncertainty
3. CONSERVATISM
For Example
• Making Provision for Bad Making Provision for Bad and Doubtful Debtsand Doubtful Debts• Showing Depreciation on Showing Depreciation on Fixed Assets, but not Fixed Assets, but not appreciation… appreciation…
The accounting practices and methods should remain consistent from one accounting period to another.
Whatever accounting practice is followed by the business enterprise, should be followed on a consistent basis from year to year.
4. CONSISTENT
For For ExamplExampl
ee
JOURNAL
Journal is the books of accounts, where all day-to-day business activities are recorded in chronological order i.e. date – wise.
Hence it is called as Day Book, Primary Book.43
JOURNAL FORMAT
DATE PARTICULARS LF DEBIT Rs [Dr]
CREDIT Rs [Cr]
YearMonthDate
Name of account to be debited. To, Name of account to be credited.[Narration]
*****
*****
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LEDGER
Ledger the term refers, Posting the journal entry in separate books.
It has ‘T’ FormatLeft hand side Dr &
Right hand side Cr.45
LEDGER FORMAT
Dr Name of Account CrDt. PARTICULAR Rs Rs. Dt. PARTICULAR Rs. Rs.
To, Name of credit A/c
**** **** By, Name of debit A/c
**** ****
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TRIAL BALANCE
A listing of all accounts with balances at the end of the accounting period after all transactions have journalized and posted.
Purpose…….1. to determine that debits = credits,2. to identify accounts to be adjusted.
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TRIAL BALANCE FORMAT
SL NO
PARTICULARS LF DEBIT BALANCE
RS
CREDIT BALANCE
RS
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JOURNAL, LEDGER, & TRIAL BALANCE1. Transactions are analyzed
and recorded in journal.
2. Transactions are posted from journal to ledger.
3. Trial balance is prepared.
Trial Balance
Documents Journal
Journal Ledger
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FINAL ACCOUNTS
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TRADING ACCOUNT
It is prepared for a specific period to know the trading results of the business.
It is mainly prepared to ascertain the gross profit or gross loss….
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Dr Trading Account for the year ended …………. Cr
Particular Amount Amount Particulars Amount Amount
To Opening Stock xxx By Cash Sales xxx
To Cash Purchase xxxLess: Sales Return xxx
Less: Purchase Return xxx By Net Sales xxxx
To Net Purchase xxxx By Closing Stock xxx 1
Direct Expenses
To Wages xxx
To Carriage Inward xxx
To Factory Lighting xxx
To Fuel, Coal, Oil xxx
To Duty on Import of Material xxx
To Octroi duty xxx
To Gross Profit * C/d xxx By Gross Loss * C/d xxx
xxxx xxxx52
PROFIT AND LOSS A/C
It is an account into which all gains and losses are collected in order to ascertain the excess of gains over the losses or vice versa.
It prepared in order to calculate the net profit or net loss of the business.
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Dr Profit and Loss Account for the year ended …………. Cr
Particulars Amount Amount Particulars Amount Amount
To Gross Loss* B/d xxx By Gross Profit* B/d xxx
Office & Administrative Expenses:
To Salaries xxx By Rent Received (Tenants) xxx
Add: Outstanding Expenses xxx 2 xxxx
To Rent & Rates and Taxes xxx
Less: Pre Paid Expenses xxx 3 xxxx
To Office Lighting xxx
To Printing & Stationery xxx
To Insurance Premium xxx
To Postage & Telegram xxx
To Telephone Charges xxx
To Audit Fees xxx
To General Expenses xxx
To Legal Charges xxx
To Miscellaneous Expenses Paid xxx54
Dr Profit and Loss Account for the year ended …………. Cr
Particulars Amount Amount Particulars Amount Amount
Selling & Distribution Expenses:
To Salaries to Sales Staff xxx
To Commission Charges(paid) xxx By Commission Received xxx
To Advertising Charges xxx
To Carriage Outward xxx
To Packing Expenses xxx
To Bad Debts old xxx
Add: Further Bad Debts xxx 4
Add: New Provision For Bad & Doubtful
debts % Value (Debtor x %)xxx 5
xxxx
Less: Old Provision for bad debts xxx xxxx
To Provision For Discount on Debtors xxx 6 By Provision For Discount on Creditors xxx 7
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Dr Profit and Loss Account for the year ended …………. Cr
Particulars Amount Amount Particulars Amount Amount
Financial Expenses:
To Interest on Capital xxx 8 By Interest on Drawings xxx 9
To Interest on loans xxx By Interest on Investment xxx
To Trade Discount Allowed xxx By Trade Discount Received xxx
To Cash Discount Allowed xxx By Cash Discount Received xxx
By Interest on Debenture xxx
Maintenance Expenses:
To Depreciation on Fixed Assets xxx10
To Repair & Maintenance xxx
Extraordinary Expenses:
To Loss by Fire(Not covered Insurance) xxx
To Loss on of assets xxx By Profit on of assets xxx
To Net Profit* C/d xxx By Net Loss* C/d xxx
xxxx xxxx56
BALANCE SHEETIt is prepared with a view to measure the
correct financial position of a business enterprise on a certain fixed date.
It is a statement containing all the unclosed balances of “REAL” & “PERSONAL” accounts.
Capital + Liabilities = Assetsor
Asset- Liabilities = Capital57
BALANCE SHEET AS ON…...
Liabilities AmountAmoun
tAssets Amount Amount
Fixed Liabilities: Fixed Assets:
Capital xxx Plant & Machinery xxx
Add: Interest on Capital xxx Less: Depreciation % xxx
Add: Net Profit xxx Land & Building xxx
xxx Furniture & Fixtures xxx
Less: Drawings xxx Motor Car xxx
Interest On Drawings xxx 9
Net Loss xxx xxx xxxx
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BALANCE SHEET AS ON…...
Liabilities Amount Amount Assets Amount Amount
Current Liabilities: Current Assets :
Bank Over draft Liquid Assets:
Bills Payable Cash in Hand xxx
Provision for taxation Cash at Bank xxx
Outstanding Expenses xxx 2
Pre received incomes
Short-term advantages & Loans
Income tax payable
Trade Creditors xxx
Less: Provision for Discount on Creditors (Creditors x % Value) xxx 7
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BALANCE SHEET AS ON…...
Liabilities Amount Amount Assets Amount Amount
Floating Assets
Inventories (Stock) xxx 1
Investment (Short-term)
Bills Receivable
Pre paid expenses xxx 3
Outstanding Incomes
Trade Debtors xxx
Less: Further / New Bad Debts xxx 4
New Provision for Bad & Doubtful debts xxx 5
Provision For Discount on Debtors xxx 6 xxxx xxxx60
BALANCE SHEET AS ON…...
Liabilities Amount Amount Assets Amount Amount
Long Term Liabilities: Intangible Assets:
Loan From Bank xxx Good Will xxx
Debentures xxx Patents xxx
Dividend payable xxx Copy Right xxx
Fictitious Assets:
Miscellaneous Expenses xxx
xxxx xxxx
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