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Title: FUNDAMENTAL OF ACCOUNTING
Description: Fundamental of Accounting pattern is very intersting.
Description: Fundamental of Accounting pattern is very intersting.
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CH AP TER -I
FU ND AM EN TA LS OF AC CO UN TIN G
Acco untin g is refer red to u a langu age of businesa
...
The
AJnerican Institute ofCert ified Publ ic Accountantl defines acco untin g u
die '"ar1 ofreco rding , class ifyin g and summ arisi ng in a signi fican t man ner
and in tenn s of mon ey, trans actio ns and events whic h are of financial
chaflCter and inter preti ng the resul ts there of'
...
Thus, Accountan
in the
is more com preh ensiv e than acco untin g by inclu ding the later
former
...
Rec ordi q : The basic function ofaccounting is recording the moeetary
aspects of all the trans actio ns of the busin ess
...
Clas sifyi ng : The transactions recor ded in the 'Jour nal' are class ified
and post ed to the main book 'Led ger'
...
Sam mar isinc : The trans actio ns reco rded in the 'Led ger' are
summarised and a bala o~ in each acco unts is ascertained
...
l
4
...
I) To repo rt the result of the busin ess
2)
To ensu re the best utilis ation of available resources
...
To have an effective cootrol over the relOW'CCS
To facilitate social functioos and control
...
NG
1) Mone tary 1&w only
Accou nting record s those tranSSCtions which can be measu red in
monetary terms only
...
g
...
,
'
j
1) Cost Prb Oll/y
It record s all the transactions in the books at cost only
...
There fore, it Q
is very diffic ult to comp are the performance at'var ious years
...
~ecau se accou ting
inform ation are record ed by follow ing certain basic conce pts and
conve ntions
...
financial statem~nts may not reflec t the
financiaJ positi on of the business
...
,
E
...
A
1
PERS ONS INTERESTED IN ACCO01'1NG
One of the objec tives ofacoo,uting is to communicate the results
of the business
...
The follow ing
group s (persons) are interested of accouting inform ation
...
· They may be ·intere sted to know the financ ial position and
profitability ofth~ concern
...
\
1) Ma11:age1M11t
Accouting informat~on are needed to evaluate the performance
of workers and employees
...
J)
Investors
Investors are interested to know the financial soundness of the
business
...
Financial
s13tements can be prepared with the help"of accouting information
...
Creditors want to know the financial position of the concern
...
They depend only on proper
accounts
...
6) Consumers
Consumers are able to know the cost of production and the profit
percentage earned by the trader
...
ACCOUNTING PRINCIPLES :
Accounting principles refer to the conduct or p~edure adopted while
recording the accounting transactions
...
nY, clarity
and understanding
...
...
j
...
,
Accounting concepts refer to the basic assumptions upon which
the science of ~unting is based
...
(i) Business ellt/Jy ct111cqt :
tin acco~ting, business is treated as an entity different from the
proprietor
...
...
1
(il)DUIII aspect COllcqt:
...
aspects:
(iii) Goil,g COIICOW COlfcql:
...
usmess
•
This
w•·u continue for a long
time to come and it is not likely to be liquidated in the near futures
...
ccolllllb,g period COIIClpl :
...
(v) 11re cost co,u:qt:
...
e
...
(vi) Mo,,q lllteaSllfflMlft co,u:ept:
According to this concept the accounting records should reflect
only items which can be measured in terms of money
...
(2) ACCOUNTING CONVENTIONS:
Accounting conventions are customs or traditions followed while
preparing the accoW}ting statements
...
(i) ColWOIJion ofco,uavado11 : -• ,·
'
I
...
They are expected not to take
'anticipated profits' but provide for all 'possible losses'
...
,
'1): r,
...
allcy:
...
_
1
'~,
'l-- :
,, , '
I
According to this convention, accounting practices should
0
remam
...
•
(iii) Collvallio11 offull dl
...
Giving foot notes~ references and parentheses in the statement is in
...
•, t
...
~aterial
...
The advantages (object) of book keeping are :
(i)
Permanent record
(ii)
Helps calculation of profit / loss
(iii)
Knowing the financial position as on a date
(iv)
Calculation of borrowings and dues are possible
(v)
Ascertainment of growth of business
...
There are two different types ofbook-keeping namely, single entry
system of book-keeping and double entry system of book-keeping
...
This system is incomplete, inaccurate and unscientific
...
This is the most scientific, complete and accurate system of accounting
...
This system gives full accounting information about the business
transaction
...
The accuracy of accounting records can be verified by preparing the
trial balance
...
Helps preparation offinal accounts
...
The value of assets and liabilities can be known through the balance
sheet
...
Helps detection and prevention of errors
...
Correct ta
...
s
...
Sia11e·Entry
Doable Entry
of
l
...
of a transaction ate recorded
2
...
There me personal accounts and
cash accounts only
real accounts and nominal
accounts
3
...
Trial balance cannot be
prepared
...
Trwliog ale, profit & loss ale and 4
...
·preparec1
s
...
Errors can be located
Errors cannot be located
6
...
It is an imperfect system of
keeping
book•keepingl
BOOKS OF ACCOUNTS :
Business concerns which follow the,d~uble entry system of book~
keeping maiotJUD two account books, ~ely journal and ledger
...
The
tnmsactions are entered in the order in which they occur
...
Form or Journal :
Date
Particalani
L
...
Below each journal entry a brief explanation of the transaction is
given within brackets
...
( cLASSIFICATIONS OF ACCOUNTS:
To enable journalising the transactions are grouped under three
accounts
...
t
...
(e
...
,
1
...
...
g) Cash ale, Building ale, Furniture ale, Book ale ·etc
...
Noauinal Accouna :
These accounts refer to accounts of fictitious things
...
We can not see, but only feel it
...
We should identify
these two accounts and write the journal entiy following the fundamental
rules
...
No
...
aspects
1
...
Real ale
Debit, what comes in
Credit, what goes out
3
...
ttadoa: t
Joumalile die iot(owiog tJ'mlSSC(ions in the books of Glory
...
9000
" 2 Purcbesed goods for cash Rs
...
700
" 4 Deposited into Canara Bank Rs
...
4QO
,
...
1000
" 7 Paid salary Rs
...
400
...
, 9 Received commission Rs
...
1200
Solution:
Journals in the books of Glory
Date
2005
Jan l
LF
...
mg cash paid into bank)
Cuba/e
To~a/c
...
Credit
3,000
3,000
Dr
Ill Rajan)
I
400
...
shale
Dr
1,000
1,000
(Being cash paid
Traders
...
to Ananda
...
ToCasba/c
(Being salary paid)
Dr
Renta/c
To
...
" 10 Cash al
...
Otoani
...
· Journalise the following transactions :
2005
Janll
" 12
" 13
" 14
" I5
" 16
" 17
" 18
" 19
" 20
Purchased goods for Rs
...
900
Sold goods for Rs
...
Sold goods to Raju Rs
...
2000
Bougbr:-fumiture from JFA Furniture Mart Rs
...
200
R a j ~ goods worth Rs
...
- privlte t1SC Rs
...
l~0
~
9
18300
Solution
Joaraals
Date
2005
Janl l
L
...
De
...
Particalan
...
, 12
Purchases ale
...
900
Dr
· To Jeyam Stores ~c
...
To Sales a/c
(Being sales made)
" 14
Raju ale
To Sales a/c
...
900
...
Dr
250
1100
'·
2S0
...
" 15
" 16
" 17
Furniture ale
Dr
...
purch~)
Furniture ale
Dr
To JFA-Fumiture Mart-ale
2000
800
· Dr
Returns inwards a/c
200
" 19
200
Dr
To Raju ale
100
...
(Being ~es return from Raju)
Drawings ale
Dr
soo
To Cash ale
(Being am withdrawn for pei~ use)
"20
Electric charges ale
ToCaaJia/c
(Being electric charges pai~)
Dr
Total
...
7470
7470
I
10
:
800
To Returns outward,t ale
' (Being purohases ~ to Jeyam g;
...
2000
'
ii
Dr
"24 Baskara/c
I
1000
To Sales ale
(Being credit sales made)
1oo0
,
Dr
,, 25 ' Jeya Stores ale
To Cash ale
To Discount ale
(Being Jeya Stores ale settled)
2000
Dr
Dr
950
50
...
lOOe
Dr
"27 Advertisement ale
To Cash ale
(Being advertisement charges paid)
600
"28 Cash ale
Dr
ToAbi ale
(Being cheque received from Abi)
1,400
" 29 Cash ale
7,000
Dr
Dr
Dr
Furniture ale
Stock a/
...
(Being various assets brought in
to the business)
"30 Cash ale
Dr
To Murali's Loan a/c
(Being loan got from Murali)
,, 3 I Cash ale
Dr
To Banka/c
(Being withdrawal frotn bank)
Total ·
· 12
60l
:
l,40~
3,000
5,000
25,000
40,000
S,000
5,000
2,700
2,700
...
)oumali,e the following tra
nsactions
1996
April
...
...
...
5,000 ✓
3 Purchased goods from Mr
...
1,500 V
5 Sold goods to Mr
...
soo,
...
1,300 V
...
1,000 \/ V
...
SO
11 W it h ~ cash from bank f
o r ~ ~ Rs
...
2, 0~ v '
...
S
...
Journalise the following tra
nsactions :
Rs
...
for cash
1,500
v) Cash received from Raj
18,000
vi) Paid cash to Shyain
6,ooo v
vii) Cash received from 'S '
Rs
...
s
...
From the information below jo
urnalise it :
i) Salary paid Rs
...
ii) Rent paid to house owner
Rs
...
A
...
2000
' iv) Discount received Rs
...
10,000
...
Journalise the following trans
actions in the
l
...
97
4
...
97
boob otMa&UD
Bought a cycle for effice use fo
r Rs
...
Deva -2 00 0
20
Title: FUNDAMENTAL OF ACCOUNTING
Description: Fundamental of Accounting pattern is very intersting.
Description: Fundamental of Accounting pattern is very intersting.