ACCOUNTANCY

Transaction:
 2 parties: Orgn & Outside party
 2 Accounts: Debit & Credit
 2 types of benefits: Giving & Receiving
 2 types of transactions: Cash & Credit
 2 types of customers: Internal & External
 Goods & services
 Medium of exchange
 Date, month & year
 Quantity and price
 Amount in Rs.
 % of discounts: DA & DR
 Rates of interest

Accounting: As per AICPA “It is an art of recording, classifying and summarizing in a

significant manner and in terms of money and events which are in financial character and
interpreting the results thereof.

It includes two parts namely Book-Keeping and Accounting

What is book-keeping?
It is an art of recording correctly in the books of accounts all those business transactions in the
transfer of money or money’s worth.

What is accounting?

It starts where book-keeping ends. As a whole it is an art of identifying, classifying, recording,

summarizing and interpreting business transactions of financial nature.

Accounting terminology: These terms have specific meaning in accounting and used to express
financial nature of business.
1. Debit: Receiving benefit in the form of services, goods and acquiring assets from other
(think both firms’ perspective and person’s perspective)
2. Credit: Giving benefit in the form of services, goods and disposal of assets from other
(think both firms’ perspective and person’s perspective)
3. Accounting period: normally one year
4. Transaction: Exchanges of money or moneys worth (a) Cash transactions, (b) Credit
transactions
5. Assets: Which are having economic value and are useful in running the business. They
are classified as two types; tangible and intangible. Normally they are of two types; fixed
assets and current assets.
6. Fixed assets: Are those which are serving the organization for a quite long time and till
they got expired. Eg: Plant & Machinery, Land & Building, Furniture & equipments etc.
7. Current assets: Are those which are to be realized/consumed during business operations.
Eg: Cash & Bank, Stock, Bills Receivables, debtors etc.
8. Debtors: Who owes to the business
9. Creditors: To whom the business owes
10. Bills Receivables: Acceptances received
11. Bills Payable: Acceptances given to the suppliers
12. Capital: Claim against the assets of the organization. C=(A-L)
13. Liabilities: obligations to pay or owes to outsiders
14. Overdraft: Facility sanctioned by a banker
15. Accrued/outstanding expenses: yet to be paid.
16. Current liability: Which are payable in the near future
17. Sales: value of goods/services sold during the period
18. Sales return (Return inwards): Goods returned by customers
19. Net sales: Sales-sales returns
20. Purchases: value of goods/services purchased during the period
21. Purchase returns (Returns outward): Goods returned by firm to suppliers
22. Net Purchases: Purchases-purchase returns
23. Drawings: Value of goods/money for personal use
24. Revenue expenditure:
25. Capital expenditure:
26. Revenue receipts:
27. Capital receipts:
28. Journal:

Accounting Concepts
The body of knowledge of any subject depends on certain principle. Like wise the body
of knowledge of Accountancy has been constructed on certain assumptions, conventions
and postulates. All of them collectively known as GAAP (Generally Accepted
Accounting Principles). Several accounting bodies like FASB, AICPA, ICAI and 15
equivalents in other countries follow these principles.

1. Business entity concept: The affairs of owners do not mix-up with business. Treat
the owner as outside party when it comes transactions.
2. Going concern concept: Continued forever and it has perpetual life. Bcz of this the
CMP of assets are irrelevant.
3. Money measurement concept: Events which are in financial nature are being
measured in terms of money i.e INR
4. Cost concept: According to this concept, assets are recorded at the cost at which they
are acquired. But assets are shown in the Balance Sheet at the original cost less
depreciation for using the assets for the given period
5. Realization concept: Revenue is recognized when sale is made.*
6. Matching Concept: It says that the expenses of a given period must be related to
revenues of that particular period only. In other words the revenues and expenses of
that period are to be matched.
7. Dual Aspect Concept: For every debit there must be equal and corresponding credit
and vice versa. In other words, Acc to this concept, assets will be sum of capital and
liability. Eg: Starts business with a capital of Rs.100000 on Jan 1.
Then assets & equity position will be as follows.
Capital 100000 Cash 100000
100000 100000

On Jan 2 he opens a bank account with Rs.80000

Then assets & equity position will be as follows.

Capital 100000 Cash 20000

Bank 80000
100000 100000
8. Consistency Concept: It is relevant where there are alternative acceptable methods
of accounting. Eg Methods of depreciation, methods of valuation of stock in hand.
It is irrelevant when there are no alternative acceptable methods. This principle states
the firm should follow the same methods of depreciation, methods of valuation of
stock consistently over years.
But you can shift to an improved method and you can deviate from consistency when
it is necessary to comply accounting standard or new provisions of law Eg: IFRS
April 1st 2012.
 9. Full Disclosure: All transactions need to be disclosed in full. Disclosure of Financial
Statements.
10. Materiality: It is an exception to full disclosure. Acc to this concept, if accounting
detail is not important or material in nature it can be ignored or dropped.
Eg: stationery purchased during the year is recorded as expense of that year when
bought though it is not fully utilized.
But in the name of material you cant omit any information which impairs the decision
making of various users.
11. Conservation: Acc. To this concept you should not anticipate income and should
provide for all possible losses.
Eg: Closing stock valuation.
Don’t account for unrealized gains as there could be gap between cup & lip. This
is a measure to guard against all possible losses.

Problem: Journalize the following transactions;

2014
March 4 Ram started business with cash 400000
March 5 Deposited into bank 200000
March 6 Purchased furniture 25000
March 6 Purchased Machinery 40000
March 8 Loan given to Mahesh by cheque 50000
March 10 Goods purchased from Mohan 70000
March 11 Paid to Mohan in full settlement 69500
March 20 Sold goods to Vinod, trade discount 15% 30000
March 21 Purchased Computer from data Base 45000
March 31 Received from Vinod in full settlement 25000

Problem 1:
(a) Suppose X buys goods worth Rs.5000 from us.
(b) Suppose X sold goods worth Rs.10000 to Y.
Problem 2:
(a) Suppose XYZ firm buys plant worth Rs.1000000 for cash. Here what is coming
in & what is going out?
(b) You sell your refrigerator for Rs.10000. What do you debit & what do you
credit?

Problem 3:
(a) Suppose you have paid Rs.5000 towards salary for clerk. Find what type of accounts
involved and which one is debited & credited?
(b) Received Rs.20000 towards interest on FDs. Find what type of accounts involved
and which one is debited & credited?

Problem 4: Journalize the following transactions?

(a) On July 25th 2013, the firm bought Machinery worth Rs.400000 for cash.
(b) Furniture is purchased for Rs.10000/-
(c) Purchased goods for cash Rs.50000/-
(d) Purchased goods worth Rs.10000/- from Sunil.
(e) Sold goods to Suman Brothers for Rs.50000/-
(f) Sold goods worth Rs.10000/-

Problem 5:
(a) Paid salaries Rs.15000/- to the employees.
(b) Paid wages Rs.10000/- to the workers
(c) Paid rent to Landlord Rs.13000/-
(d) Rent due to Landlord Rs.12000/-

Problem 6: A customer Madhu is due to the company Rs.5000/- on 1.12013. But its due
date is on 1.4.2013. In the month of February Company received Rs.4750 from Madhu in
full settlement of his account. Write a journal entry in the journal.