DEFINITION AND SCOPE ACCOUNTING STANDARDS.

1
DEFINITION AND SCOPE ACCOUNTING STANDARDS.

• ACCOUNTING IS AN ART OF RECORDING CLASSIFYING
  AND SUMMARIZING TRANSACTIONS IN A SYSTEMATIC
  MANNER AND IN TERMS OF MONEY TRANSACTIONS AND
  EVENTS WHICH ARE IN PART AT LEAST OF FINANCIAL
  CHARACTER AND INTERPRETING THE RESULTS THEREOF.

2
Accounting

• ACCOUNTING SHOULD BE DONE IN SUCH A MANNER THAT
  THE READER (INVESTOR,CREDITOR, FINANCIER or BANK)
  IS ABLE TO UNDERSTAND FOR THE PURPOSES FOR WHICH
  ACCOUNTS ARE BEING READ INTERPRETED. i.e THE
  RESULTs OF BUSINESS OPERATIONS, FINANCIALS
  AND OTHER RELEVANT ASPECTS

3
DIFFERENCE BETWEEN ACCOUNTANY AND BOOKKEEPING.

• BOOK KEEKPING IS MERELY RECORDING THE BUSINESS
  TRANSACTIONS IN BOOKS AND LEDGERS .
• ACCOUNTANCY IS WIDER CONCEPT COMPILATION OF
  ACCOUNTS IN SUCH A WAY THAT ONE IS IN A POSITION
  TO UNDERSTAND STATE OF AFFAIRS OF BUSINESS.
• USERS OF FINANCIAL STATEMENTS ARE INCOME TAX
  DEPT., S.T DEPARMENT SHAREHOLDERS,
  INVESTORS,BANKS AND FIS AND SO ON APART
  FROMMANAGEMENT OF ENTITY FOR MAKING POLICY
  DECISIONS.
• IT IS IN THE INTEREST OF ALL THAT FINANCIAL
  STATEMENTS REFLECT TRUE AND FAIR VIEW OF STATE OF
  AFFIAIRS OF A BUSINESS ENTITY.

4
ACCOUNTANCY

• ACCOUNTANCY INVOLVES
• SYSTEAMATIC(including regulatory compliance)
  CLASSIFICATION OF BUSINESS TRANSACTIONS IN TERMS
  OF MONEY AND FINANCIAL CHARACTER.
• SUMMARIZING TRIAL BALANACE AND B/S
• INTERPRETING THE FINANCIAL TRANSACTIONS.

5
PURPOSE OF ACCOUNTANCY

• TO KEEP A SYSTEMATIC RECORD
• TO ASCERTAIN THE RESULTS OF OPERATIONS
• TO ASCERTAIN FINANCIAL POSITION OF BUSINESS.
• TO FACILITATE RATIONAL DECISION MAKING
• TO RAISE FINANCE.
• TO SATISFY REQUIREMENT OF LAW AND USEFUL IN MANY
  RESPECTS.

6
Concepts of Accountancy

• Concepts are basic rules associated with
  terminology in Accountancy. They are called
  Accounting concepts.
• 1. Business Entity Concept THIS CONCEPT
  SEPARATES THE ENTITY OF PROPRIETOR FROM THE
  BUSINESS TRANSACTION.
• CAPITAL CONTRIBUTED BY THE OWNER IS LIABILITY FOR
  BUSINESS BECAUSE BUSINESS IS DIFFERENT FROM
  OWNER.

7
Concepts of Accountancy Business Entity

• ANY MONEY WITHDRAWN BY PROP. IS DRAWINGS.
• PROFIT IS LIABILITY AND LOSS IS AN ASSET.
• ALL ENTRIES ARE KEPT DISTINCT FROM THE POINT OF
  VIEW OF BUSINESS AND NOT FROM OWNER.
• AN ENTERPRISE IS ECONOMIC UNIT SEPARATE FROM
  OWNER.

8
Money Measurement

• EVERY TRANSACTION IS MEASURED IN TERMS OF MONEY.
  VIZ PRODUCTION/ SALES/ WAGES ETC ALL CONVERTED
  TO MONEY.
• INFLATION OR DEFLALTION NOT INCLUDED IN VALUE OF
  ANY ASSET.
• Health of the owner or Director is not taken into
  accounts even though it may have significant
  impact.

9
COST CONCEPT

• COST CONCEPT BUSINESS TRANSACTIONS ARE RECORDED
  IN BOOKS AT COST PRICE.
• FIXED ASSETS ARE KEPT AT COST OF PURCHASE AND NOT
  AT THEIR MARKET PRICE.
• EVERY TRANSACTION IS RECORDED WITH PRESENT VALUE
  AND NOT ANY FUTURE VALUE.
• UNREALIZED GAINS ARE IGNORED.
• COST OF AN ASSET THAT HAS LONG BUT LIMITED LIFE
  IS SYSTAMATICALLY REDUCED BY A PROCESS CALLED
  DEPRECIATION. BUT SUCH DEPRECIATION HAS NO
  RELATION TO MARKET VALUE OF ASSET.

10
Historical Records concept.

• This concept accepts that transaction that have
  taken place are recorded.
• The business transaction are recorded as when
  they take place.
• Futuristic or transaction which are yet to take
  place are not considered. Future transaction can
  hardly be measured or identified.

11
REALISATION CONCEPT.

• THIS CONCEPT TELLS US WHEN REVENUE IS TREATED AS
  REALISED OR EARNED. IT IS TREATED AS REALIZED
  ON THE DATE WHEN PROPERTY IN GOODS PASSES TO
  BUYER AND HE BECOMES LEGALLY LIABLE TO PAY.
• NO FUTURE INCOME IS CONSIDERED.
• GOODS SOLD ON APPROVAL WILL BE INCLUDED IN SALES
  BUT ON COST ONLY.

12
GOING CONCERN CONCEPT

• BUSINESS IS A GOING CONCERN AND TRANSACTIONS ARE
  RECORDED ACCORDINGLY.
• IF AN EXPENSE IS INCURRED AND UTILITY IS
  CONSUMED DURING THE YEAR, THEN IT IS TREATED AS
  AN EXPENSE OTHERWISE IT IS RECORDED AS AN ASSET.
• RESERVES AND PROVISIONS ARE CREATED FOR ANY
  FUTURE LIABILITY.
• DEFERRED REVENUE EXPENDITURE IS WRITTEN OFF OVER
  A NUMBER OF YEARS.
• WHY LOSS IS SHOWN UNDER ASSETS SIDE ?

13
DUAL ASPECT CONCEPT

• EVERY TRANSACTION HAS DOUBLE EFFECT.
• ACCOUNTING EQUATION ASSETS CAP LIABILITY or
  Capital Assets- Liability.
• This has in turn the background the double entry
  system of accounting.

14
ACCOUNTING PERIOD CONCEPT.

• BUSINESS WILL RUN THROUGH LONG PERIOD. HENCE
  ACCOUNTS OF EACH PERIOD IS RECORDED.
• RESULTS OF OPERATIONS CAN BE KNOWN PRECISELY
  ONLY AFTER BUSINESS CEASES TO OPERATE AND ENTIRE
  ASSETS ARE SOLD AND ENTIRE LIABILITIES PAID.
• BUT ONE IS INTERESTED IN KNOWING PERIODICALY
  OPERATING RESULTS OF BUSINESS SAY YEARLY OR HALF
  YEARLY OR QUARTERLY.
• HENCE ALL THE EXPENSES OR INCOME DURING THIS
  ACCOUNTING PERIOD HAS TO BE TAKEN INTO
  CONSIDERATION IRRESPECTIVE OF WHETHER THEY ARE
  REALISED IN CASH OR PAID IN CASH.

15
ACCOUNTING FOR FULL DISCLOSURE

• DISCLOSURE OF MATERIAL FACTS.( MATERIAL AND
  IMMATERIAL FACT IS A MATTER OF JUDGEMENT)
• CONTINGENT LIABILITY
• MARKET VALUE OF INVESEMENTS.
• CHANGE IN METHOD OF DEPRECIATION/VALUATION OF
  GOODS ETC.

16
CONVENTION OR PRINCIPLES OF CONSERVATISM

• ALL POSSIBLE LOSSES TO BE TAKEN INTO
  CONSIDERATION AND ANTICIPATED PROFITS TO BE
  IGNORED.
• CREATION OF PROVISION FOR DOUBTFUL DEBTS.
• VALUE OF STOCK
• CONVENTION OF CONSISTENCY METHOD OF
  DEPRECIATION.

17
Accrual Cash Basis

• Before the right to receive arises.
• After the right to receive is created. -Revenue
  is recognized as it is earned.-Cots are matched
  against revenues. Any costs that are matched
  against are on the basis of relevant time period.
  Materiality It does not mean to ignore small
  items.

18
DOUBLE ENTRY SYSTEM

• SCIENTIFIC SYSTEM
• EVERY TRANSACTION HAS TWO ASPECTS.
• CRUX OF ACCOUNTANCY IS TO FIND OUT WHICH TWO
  ACCOUNTS ARE EFFECTED AND WHICH IS TO BE DEBITED
  AND WHICH IS TO BE CREDITED.

19
PERSONAL IMPERSONAL ACCOUNTS

• PERSONAL ACCOUNTS NATURAL/REPRESENTATIVE
  ARTIFICAL
• IMPERSONAL REAL ACCOUNTS
• TANGIBLE INTANGIBLE
• NOMINAL ACCOUNTS

20
Personal Account

• 1.Natural Person Proprietors A/c , suppliers
  a/c, Mohans A/c, Rajeshs A/c etc.
• 2. Artificial person A/c These include accounts
  of Limited Company, Firm , Club, Bank or
  Insurance Company.3. Representative personal
  account Salary outstanding A/c may pertain to a
  number of employees.

21
Impersonal Account

• Tangible Real Accounts These assets can be
  touched or felt physically. i.e Land building,
  furniture , Cash (But not the Bank Account).
• Intangible Real Accounts These assets can not
  be touched but however measurable in monetary
  terms . Goodwill, trademark, patent rights.

22
Nominal Accounts

• These are the items of expenses or income.
• The entries are generally associated with
  personal or real accounts.
• For e.g When Rent is paid Cash (real) goes out
  . When Debtor( Personal) pays Cash(real) for
  the amount of goods sold.

23
Match the following

• 1.Rent outstanding a. Natural Personal A/c
• 2. Bank of India b. Nominal A/c
• 3. Salaries c. Artificial
  personal A/c.
• 4. Salaries d. Representative Personal
  A/c. Outstanding A/c
• 5. Ram e. Representative Personal
  A/c.(In exam. Q may be limited to Personal,
  Real or Nominal categories)

24
Answers to Match the following

• 1.Rent outstanding d. Representative Personal
• 2. Bank of India c. Artificial Personal
  A/c.
• 3. Salaries b. Nominal A/c.
• 4. Salaries e. Artificial
  Personal A/c Outstanding A/c
• 5. Ram a. A/c Natural
  Personal A/c

25
MATCH FOLLOWING
A B
A RAMESH 1 REAL
B RENT 3 NOMINAL
C COMPUTER 4 REAL
D LAND 5 NOMINAL
E DISCOUNT 6 PERSONAL
26
Answers

• A RAMESH 1 PERSONAL
• B RENT 2 NOMINAL
• C COMPUTER 3. REAL
• D LAND 4 REAL
• E DISCOUNT 5. NOMINAL

27
Golden Rules

• 1.DEBIT (Dr.) the Receiver and
• CREDIT(Cr.) the Giver.
• 2. DEBIT (Dr.) the What come in and
• CREDIT(Cr.) What goes out.
• 3. DEBIT (Dr.) the Expenses Losses.
• CREDIT(Cr.) the Income Gains.

28
Examples

• You would observe while passing journal entries
  that that there will be combination of one or
  more component of golden rules that we have seen
  in previous slide. For eg. Ramesh gives
  Suresh Rs.5000 then Ramesh would pass entries as
  Suresh A/c Dr. Dr. Rs.5000 To
  Cash Cr. Rs.5000 (Being the
  amount paid to Suresh)
• Golden Rule Applied
• i.e. DEBIT (Dr.) the Receiver and
• CREDIT(Cr.) the Giver- What goes out.

29
Ram Pays Rent of Rs.2000

• Rent A/c Dr. Rs.2000 To Cash
  A/c. Rs.2000 (Being the amount of Rent paid
  for April,2010). Golden Rule applied
• Dr. the expenses and Credit what goes out.

30
Shyam would pass entries as

• Cash A/c. Dr. Rs.2000
  To Rent A/c. Cr. Rs.2000( Being the
  amount received by way of Rent )
• (DEBIT (Dr.) What comes in and
• CREDIT (Cr.) the Income

31
Shyam Receives commission

• For Commission Received by Shyam Cash
  A/ Dr. Rs.1000
• To Commission A/c
  Rs.1000(Being the amount of Commission
  Received) Dr. what comes in
• CREDIT(Cr.) the Income Gains.

32
JOURNAL

• JOURNAL RECORDS EACH AND EVERY RECORD BY WAY OF
  JOURNAL ENTRY.
• BUT TO FIND OUT A TRANSACTION EFFECTING A PERSON,
  EXPENSES ACCOUNT OR ASSET ONE HAS TO TURNOVER
  ALL PAGES OF JOURNAL.
• HENCE TRANSACTIONS ARE POSTED FROM JOURNAL TO
  PARTICULAR PAGES OF LEDGER.
• HENCE JOURNAL CONTAIN A COLUMN L.F

33
JOURNAL FORMAT
DATE PARTICULARS L.F DEBIT RS. CREDIT RS.

34
CASH BOOK

• CASH BOOK KEEPS RECORDS OF ALL CASH TRANSACTIONS
  I.E CASH RECEIPTS AND CASH PAYMENTS. ALL RECEIPTS
  ARE RECORDED ON RIGHT SIDE AND ALL PAYMENTS ON
  LEFT SIDE.
• CASH BOOK IS BOOK OF ORIGINAL ENTRY.

35
CASH BOOK FORMAT
DR. CR
DATE PARTICULARS VR. NO L.F CASH Rs. BANK Rs. DISCOUNT DATE PARTICULARS VR.NO. LF CASH Rs. BANK Rs. DISCOUNT

36
RECORD KEEPING BASIS

• RECORDING JOURNALISING AS AND WHEN TRANSACTION
  TAKES PLACE. JOURNAL IS BOOK OF ORIGINAL OR
  FIRST ENTRY.
• CLASSIFYING ALL ENTRIES IN JOURNAL OR SUBSIDIARY
  BOOKS ARE POSTED TO LEDGER ACCOUNT(POSTING) TO
  FIND OUT AT A GLANCE THE TOTAL EFFECT OF ALL
  SUCH TRANSACTIONS. LEDGER IS BOOK OF SECONDARY
  ENTRY.
• SUMMASRISING LAST STAGE IS TO PREPARE THE TRIAL
  BALANCE AND FINAL ACCOUNTS WITH A VIEW TO
  ASCERTAIN THE PROFIT OR LOSS DURING PARTICULAR
  PERIOD.
• IT IS CUSTOMARY TO USE TO AND BY WHILE POSTING
  LEDGER.
• BALANCING AN ACCOUNT MEANS EQUALIZING TWO SIDES.
• IF DEBIT SIDE OF ACCOUNT EXCEED CREDIT SIDE,
  DIFFERENCE IS PUT ON CREDIT SIDE AND IT IS SAID
  TO HAVE DEBIT BALANCE AND VICE VERSA..

37
LEDGER
DR CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT RS.

38
Questions.

• CREDIT BALANCE IN CAPITAL ACCOUNT IS LIABILITY OR
  AN ASSET FOR BUSINESS
• A. LIABILITY
• B. A REVENUE
• C. AN EXPENSE
• D. NONE OF THESE.

39
Answer

• Liability as Capital brought is a liability for
  the business which is independent of Owner.

40
QUESTION

• AMOUNT BROUGHT IN BY PROPRIETOR IN BUSINESS
  SHOULD BE CREDITED TO
• A.DRAWINGS ACCOUNT
• B.CAPITAL ACCOUNT OF PROPRIETOR.
• C.ASSET ACCOUNT
• D. NONE OF THE ABOVE

41
Answer

• B.CAPITAL ACCOUNT OF PROPRIETOR
• As we have seen earlier example
• Liability as Capital brought is a liability for
  the business which is independent of Owner

42
QUESTIONS

• WAGES PAID TO MUNNA TO BE DEIBED TO
• A. MUNNA
• B WAGES
• C. CASH
• D. BANK

43
Answer

• Answer B
• Amount being paid to Munna are Wages which are
  Debit the Expenses

44
QUESTIONS.

• Q. CREDIT SALES MADE TO ROHIT TO BE DEIBTED TO
• A. SALES
• B. PURCHASE
• C. CASH
• D. ROHIT

45
Answer

• D ROHIT As debit the receiver

46
QUESTIONS

• FURNITURE PURCHASED BY ISSUING CHEQUE
• WHAT ENTRIES TO BE PASSED
• A. DEBIT FURNITURE AND CREDIT BANK ACCOUNT.
• B.DEBIT BANK ACCOUNT AND CREDIT FURNITURE.
• C.DEBIT FURNITURE AND CREDIT CASH.
• D.DEBIT BANK AND CREDIT FURNITURE SHOP ACCOUNT

47
Answer

• AnsA
• Debit What Comes in Credit What goes out
• Furniture comes in Bank payment goes out.

48
QUESTIONS

• ENTRY FOR RETURN OF GOODS, IN RESPECT OF SALES
  EFFECTED ON CREDIT, SHOULD BE CREDITED TO
• A. SALES RETURN
• B PURCHASE RETURN
• C.CUSTOMER ACCOUNT
• D. GOODS ACCOUNT

49

• AnsC
• When Sales was effected the Customers Account
  was debited Sales Returns takes place
  Customers Account should be Credited thus which
  would reduce dues.

50
QUESTION

• WHAT IS JOURNAL ENTRY
• A. ORIGINAL ENTRY
• B. DOUBLE ENTRY
• C DUPLICATE ENTRY
• NONE

51
Answer
A. ORIGINAL ENTRY
52
QUESTION

• TRANSACTION IN BANK COLUMN ON CREDIT SIDE OF
  THREE COLUMNAR CASH BOOK INDICATE
• A. AMOUNT PAID FROM THE BANK A/C.
• B.AMOUNT DEPOSITED IN BANK
• C.BOTH A AND B
• D. NONE

53
Answer

• Ans A. The amount paid from Bank A/c.

54
QUESTION

• PASS JOURNAL ENTRY
• RENT PAID FOR OFFICE PREMISES RS.30000 OUT OF
  WHICH PART AMOUNT OF RS.10000 PAID BY CHEQUE AND
  REST BY CASH.

55
Answer

• By RENT A/c. Dr. Rs.30,000 To
  Cash Cr. Rs.20,000 To Bank
  Cr. Rs.10,000

56
Question

• PASS JOURNAL ENTRY
• PURCHASED 1000 SHARES OF CENTRAL BANK OF INDIA
  FOR RS.32 PER SHARE

57
Answer

• By Investment A/c. Dr. Rs.32,000 To
  Bank Cr. Rs.32000

58
QUESTIONS

• PASS JOURNAL ENTRIES
• SOLD GOODS TO SAMIR RS.15000
• A) When Sold on Cash.
• B) When Sold on Credit.

59
Answer

• A) Cash A/c. Dr. Rs.15000 To Sales Cr.
  Rs.15000 (Being the amount received
  on sale of goods) B) Samirs A/c. Dr.
  Rs.15000 To Sales Cr.
  Rs.15000 (Being the sales made to Samir on
  Credit)

60
QUESTIONS

• PASS JOURNAL ENTRY
• DRAVID SOLD GOODS FOR RS.12000 TO us.
• A) On Cash Purchase
• B) On Credit Purchase

61
Answer

• A) By Purchase A/c Dr. Rs.12000
  To Cash A/c Cr. Rs.12000
• B) By Purchase A/c. Dr. Rs.12000
  To Dravid A/c. Cr. 12000

62
QUESTIONS

• PASS JOURNAL ENTRY
• RECEIVED DUES from SAMIR ( towards the sales
  made to him on Credit terms at Rs.15000) AMOUNT
  FROM SAMIR) AND ALLOWED HIM DISCOUNT OF 10
• Ans By Bank A/c. Dr. Rs.13,500 By
  Discount A/c Dr. Rs. 1500 To
  Samir Rs. 15000

63
QUESTIONS

• PASS JOURNAL ENTRY PAID SALARY TO RAM AND Rent
  to RAHIM RS.1200 AND 1500 RESPECTIVELY.Ans
• By Salary A/c. Dr. 1200
• By RENT A/c. Dr. 1500
• To Cash A/c. Cr. Rs.2700
  

64
QUESTIONS

• PASS JOURNAL ENTRY In case of Insolvency of
  Debtor full amount is not received. For eg.
• KIRAN BECAME INSOLVENT. HE HAD TO PAY 10000 TO
  US. BUT WE RECEIVED ONLY 25 PAISE A RUPEE. So we
  have to write of Rs.7500as Bad Debts.
• By Cash A/c Dr. Rs.2500
• By Bad Debts Rs.7500 To Kiran A/c.
  Cr. Rs.10000

65
QUESTION

• PASS JOURNAL ENTRY
• PAID MONTHLY CAR INSTALMENT OF PROPRIETORS
  PERSONAL CAR RS.12000By Drawings A/c. Dr.
  Rs.12000 To Bank A/c Cr.
  Rs.12000

66
QUESTION

• PASS JOURNAL ENTRY
• BOUGHT FURNITURE FROM GODREJ AND PAID BY CHEQUE
  RS.50000
• By Furniture A/c. Dr. Rs. 50000 To Bank
  Cr. Rs.50000

67
QUESTION

• PASS JOURNAL ENTRY
• DEPOSITED CASH IN BANK RS.1000
• BY Bank A/c. Dr Rs.1000 To Cash A/c.
  Cr. Rs. 1000

68
QUESTION

• JOURNALIZE FOLLOWING
• COMMENCED BUSINESS WITH Rs.15000 OF
  WHICH RS.5000 WAS BORROWED FROM HIS WIFE AT 12
  INTEREST P.A.
• By Cash Rs. 15000 To Capital
  A/c. Cr. Rs.10000 To Loan A/c Cr.
  Rs. 5000

69
QUESTIONS

• PASS JOURNAL ENTRY
• PURCHASED GENERATOR FROM RAMA CO. RS.50000 on
  credit.
• BY Generator A/c. Dr. Rs. 50000
• (furniture)
• To Rama Co. Cr. Rs.50000

70
Expenses on behalf of ..

• In case of Joint Venture/Consignment transaction
  expenses are spent by agent or other party
  concerned.
• For eg. If X Co. spends travelling charges for Y
  Co, the X Co. would pass entry as
  Y Co. A/c Dr. To
  Cash (Being the amount of travelling charge
  spent for Y Co.,)

71
QUESTIONS

• PASS JOURNAL ENTRY
• PAID CARRIAGE AND CARTERAGE of Rs.1,000 ON GOODS
  SOLD TO NAYAN ON HIS BEHALF. By Nayan A/c. Dr.
  Rs. 1000
• To Bank Cr. Rs.1000

72
QUESTION

• PASS JOURNAL ENTRY
• A.BOUGHT GOODS FROM SATISH AT ONE MONTHS CREDIT
  RS.6000
• B. OUT OF WHICH HALF WAS INVOICED TO MR. RAM AT
  30 ABOVE COST ON CREDIT.

73
Answer

• A. Purchase A/c. Dr. Rs.6000 To
  Satishs A/c. Cr. Rs.6000 (Being the
  amount of good bought from Satish on CREDIT) B.
  Mr. RAM A/c. Dr. 3900 To Sales
  A/c. Cr. Rs.3900(Goods sold to Ram on
  Credit ) 1/2 is Rs.300030 above cost
  Rs.3900

74
Adjusting and closing entries.

• While preparing trading and profit and loss
  account all expenses and income for the full
  period are to be taken into consideration. If
  expenses have been incurred but not paid during
  that period, liabilities for unpaid amount
  should be created before the accounts can be said
  to show the actual profit and loss. All expenses
  and income should properly be adjusted through
  accounting entries.

75
Adjusting and closing entries.

• Trial balance is prepared from the books of
  accounts of organiztion. Final accounts are the
  final process of accounting. Once the trial
  balance is prepared the books are half way
  closed.
• Now all adjusting entries passed at the time of
  preparing the final accounts have dual effect
  i.e both debit and credit.
• Hence all adjusting entries passed after Trial
  balance drawn will have two effects.

76
Adjusting and closing entries.

• One in either trading and profit and loss
  account and other in Balance sheet or one in
  trading account and other in Profit and loss
  account.

77
Adjusting and closing entries.

• Some examples
• Closing stock adjustment
• Will be shown in asset side of balance sheet and
  will be shown in credit side of trading account.
• Goods lost by fire
• Will be shown in credit side of trading account.
• Will be shown on debit side of profit and loss
  account.

78
Adjusting and closing entries.

• Outstanding expenses
• Will be shown in debit side of profit and loss
  account.
• Will be shown in liabilities side of balance
  sheet.
• Prepaid expenses
• Prepaid expenses shown in Asset side ( Dr Pre
  paid expenses) and Credit PL Expenditure as they
  do not pertain to current year.

79
Adjusting and closing entries.

• Depreciation It is fall in value of asset due to
  use or passage of time.
• Depreciation A/c Dr.
• To Asset account A/c. cr.

80
DAY BOOK AND GLB POSTING IN A BANK.

• IN THE CONTEXT OF ACCOUNTING IN BANKS DAY BOOK
  OR CASH BOOK (BOTH ARE USED IN SAME CONTEXT
  SOME BANKS CALL IT CASH BOOK SOME BANKS CALL IT
  DAY BOOK) HAS SUMMARY OF TOTAL TRANSACTIONS IN
  RESPECT OF EACH ACCOUNTING HEAD OF BALANCESHEET
  AND PROFIT AND LOSS ACCOUNT.
• THE AMOUNT OF EACH OF TRANSACTIONS DONE IN
  BRANCH OF BANK IN THE DAY ARE

81
DAY BOOK AND GLB POSTING IN A BANK..

• SUMMARIZED AND RECORDED HERE. FOR INSTANCE ALL
  THE TRANSACTIONS IN SAVINGS ACCOUNTS OR ALL
  TRANSACTIONS IN CURRENT DEPOSITS ACCOUNTS ARE
  RECORDED IN SUMMARIZED FORM WITH REGARD TO BOTH
  DEBIT AND CREDIT SIDE. WHICH ARE BROUGHT FROM
  SUPPLEMENTARY BOOKS WHICH ARE AGAIN SUB SUMMARY
  OF TRANSACTIONS IN AN ACCOUNT SAY SAVINGS OR CD.

82
DAY BOOK AND GLB POSTING IN A BANK..

• FROM DAY BOOK THE FINAL DEBITS AND CREDITS ARE
  POSTED IN THE RESPECTVE LEDGERS WHICH IS KNOWN
  AS GENERAL LEDGER. GENERAL LEDGER IS NOTHING BUT
  BOOK CONTAINING INDIVIDUAL LEDGERS FOR EACH
  INDIVIDUAL TYPE OF ASSET OR LIABILITIES. FOR
  INSTANCE ENTIRE CURRERNT DEPOSIT TRANSACTIONS ARE
  POSTED IN CURRENT ACCOUNTING HEAD IN GENERAL
  LEDGER. SIMILARLY FOR SAVINGS ACCOUNT OR
  FURTNIUTE ACCOUNT OR STATIONERY ACCOUNT AND SO ON.

83
DAY BOOK AND GLB POSTING IN A BANK..

• THE GENERAL LEDGER BALANCE IS VIRTUALLY TRIAL
  BALANCE OF THE BANK ON A PARTICULAR DAY. IT
  REFLECT THE BALANCES OF ALL ACCOUNTS . WHILE
  PREPARING BALANCESHEET AND PROFIT AND LOSS
  ACCOUNT OF BRANCH OF BANK THE GLB BALANCES ARE
  TAKEN.
• BALANCE SHEET OF ALL BRANCHES TOGETHER WHEN
  CONSOLIDATED BECOMES THE BALANCE SHEET OF BANK.

84
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

• The common set of accounting principles,
  standards and procedures that companies use to
  compile their financial statements. GAAP are a
  combination of authoritative standards (set by
  policy boards) and simply the commonly accepted
  ways of recording and reporting accounting
  information.  

85
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

• GAAP are imposed on companies so that investors
  have a maximum level of consistency in the
  financial statements they use when analyzing
  companies for investment purposes. GAAP cover
  such things as revenue recognition, balance sheet
  item classification. Companies are expected to
  follow GAAP rules when reporting their financial
  data via financial statements.

86
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

• That said, keep in mind that GAAP is only a set
  of standards. What is important that its
  underlying objectives are followed in true
  perspective. Currently Financial Accounting
  Standards Board(FASB) sets the accounting
  principles for the profession.

87
US GAAP

• US SECURITIES EXCHANGE COMMISSION (SEC)
  REQUIRES THAT IT BE FOLLOWED IN
• IN FINANCIAL REPORTING BY THE PUBLIC TRADED
  COMPANIES. THIS WILL ENABLE THE POTENTIAL
  INVESTORS ,CREDITORS OTHER USERS IN MAKING A
  RATIONAL FINANCIAL DECISION.

88
TRANSFER PRICING

• Transfer pricing refers to the pricing of goods
  and services to services within a multi-
  divisional organisation , particularly with
  regard to cross-border transactions. MNC makes
  use of it. It measures the efficacy of a
  subsidiary/Division in terms of Profit Centre.
• TP is carried out to ensure share of tax to
  respective country apart from protecting against
  double taxation by use of Arms length price.

89
Arms Length Price Calculation

• Traditional Methods
• Comparable uncontrollable price.
• Cost Plus Method
• Resale Price Method.
• NON-TRADITIONAL METHODS.
• Profit spilt Method and
• Transactional Net Margin Method.

90
ACCOUNTING STANDARDS.

• INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
  RECOGNISING THE NEED TO HARMONISE THE DIVERSE
  ACCOUNTING POLICIES AND PRACTICES CONSTITUTED AN
  ACCOUNTING STANDARDS BOARD IN THE YEAR 1977.
• ASB FORMULATE ACCOUNTING STANDARDS SO THAT
  COUNCIL OF ICAI MAY MANDATE SUCH STANDARDS.

91
ACCOUNTING STANDARDS

• IT MAY BE NOTED THAT THE ACCOUNTING STANDARDS
  MENS THE ACCOUNTING STANDARDS AS PROMULGATED BY
  THE ACCOUNTING (ACCOUNTING STANDRADS) RULES
  ,2006.
• SO IT A PART OF COMPANY LAW NOW.

92
ACCOUNTING STANDRADS

• WHERE PL AND B/S OF THE CO. DO NOT COMLY WITH
  ACCOUNTING STANDRDS SUCH COS. SHOULD DISCLOSE
• THE DEVIATION FROM THE ACCOUNTING STANDARDS
• THE REASON FOR SUCH DEVIATION AND
• FINANCIAL EFFECT IF ANY DUE TO SUCH DEVIATION.

93
OBJECTIVES QUESTIONS ON ACCOUNTING STANDARDS

• Q. MANDATORY ACCOUNTING STANDARD IF NOT FOLLOWED
  REQUIRES AUDITORS WHO ARE MEMBERS OF ICAI TO
• A. QUALIFY THEIR AUDIT REPORTS.
• B. INFORM TO MANAGEMENT OF COMPANY
• C. INFORM TO ICAI
• D. NEED NOT REPORT ANYTHING.

94

• Ans A
• QUALIFY THEIR AUDIT REPORTS

95
QUESTIONS

• SEBI AND COMPANYS ACT REQUIRE AUDITORS TO
  QUALIFY AUDIT REPORTS THAT
• A. THAT DO NOT CONFORM TO MANDATORY ACCOUNTING
  STANDARDS.
• B. CONFORM TO MANDATORY ACCOUNTING STANDARDS.
• C. DO NOT CONFORM TO ACCOUNTING STANDARDS.
• D . NO RESPOSIBILITY ON AUDITORS.

96
Answer

• A. THAT DO NOT CONFORM TO MANDATORY ACCOUNTING
  STANDARDS

97
QUESTIONS.

• Q WHICH SECTION OF COMPANIES ACT CAST
  RESPONSIBILITY ON BOARD OF DIRECTORS TO COMPLY
  WITH MANDATORY ACCOUNTING STANDARDS
• A. SECTION 217(2AA)
• B. SECTION 215
• C. SECTION 125
• D. SECTION 44.

98
Answer

• Ans A
• 217(2AA)

99
ACCOUNTING STANDARDS(Disclosure of Accounting
Policies)

• AS -1
• ALL SIGNIFICANT POLICIES ADOPTED IN PREPARATION
  OF FINANCIAL STATEMENTS SHOULD BE DISCLOSED.
• ANY CHANGE IN ACCOUNTING POLICIES WHICH HAS
  MATERIAL EFFECT IN CURRENT PERIOD OR IN LATER
  PERIOD SHOULD BE DISCLOSED.

100
AS 2(Valuation of Inventories)

• DEALS WITH DETERMINATION OF VALUE AT WHICH
  INVENTORIES ARE CARRIED/VALUED
• INVENTORIES TO BE VALUED AT LOWER OF COST OR NET
  REALISABLE VALUE.
• AVERAGE COST OR FIFO METHODS ARE PERMITTED IN
  CASE WHERE GOODS ARE INTERCHANGEABLE.

101
AS-3(Cash Flows)

• PREPARATION OF CASH FLOW STATEMENT AND ITS
  PRESENTATION ALONGWITH FINANCIAL STATEMENTS
• CASH FLOW TO BE CLASSIFIED BY OPERATING/INVESTING/
  FINANCING ACTIVITIES.

102
AS 4

• TREATMENT OF CONTINGENCIES AND EVENTS IN
  FINANCIAL STATEMENTS.
• EG. CASES IN HIGH COURT OR PENALTY PROCEEDINGS
  UNDER LAW.
• CONTINGENCIES MUST BE PROVIDED IF LOSSES CAN BE
  ESTIMATED.
• EVENTS AFTER BALANCE SHEET DATE AND BEFORE
  APPROVAL OF BOARD OF DIRECTORS SHOULD BE
  APPROPRIATELY ADJUSTED IN VALUE OF ASSETS AND
  LIABILITIES.
• IF INSUFFECIENT EVIDENCE, DISCLOSURE TO BE MADE
• CONTINGENT GAINS ARE NOT RECOGNIZED.

103
AS-5

• DEALS WITH TREATEMENT OF PRIOR PERIOD AND
  EXTRAORDINARY EVENTS.
• DEBITS OR CREDITS WHICH ARISE IN CURRENT YEAR OR
  AS A RESULT OF OMMISSION/MISTAKES IN PRIOR YEAR.
• ALSO EXTRAORDINARY ITEMS LIKE WRITING OFF
  INVENTORIES.
• DISPOSAL OF FIXED ASSETS.

104
AS -6

• DEPRECIATION IS A MEASURE OF WEARING OUT ASSETS.
• DEPRECIATION METHOD SHOULD CAREFULLY BE SELECTED
  AND CONSISTENCY APPLIED FOR YEAR TO YEAR.
• TREATMENT FOR REVALUATION OF ASSETS
• DEPRECIATION METHOD TO BE DISCLOSED.

105
AS-7

• ACCOUNTING OF CONSTRUCTION CONTRACTS .CONTRACT
  FOR CONSTRUCTION EXCEED ONE YEAR OR SO.
• ACCOUNTING ISSUES OF REVENUE, TREATMENT OF
  ADVANCE RECEIVED, WORK IN PROGRESS, IN FINANCIAL
  STATEMENTS.
• TYPES OF CONTRACTS FIXED PRICE CONTRACT
  ESCALATION COST OR COST PLUS A FIXED FEE.
• AMOUNT AND METHOD USED TO DETERMINE REVENUE
  RECOGNIZED.

106
AS-8

• STAND DELETED FROM 1.4.03 RD EXPENSES ARE NOW
  COVERED IN AS-10

107
AS-9

• BASIS FOR RECOGNITION OF REVENUE I.E INCOME AND
  TIME WHEN INCOME IS SAID TO HAVE ARISEN
• WHEN REVENUE RECOGNITION POSTPONED , DISCLOSURE
  OF CIRCUMASTANCES TO BE MADE.

108
AS-10

• ACOUNTING OF FIXED ASSETS AND DISCLOSURE THERE
  OF.
• COMPONENTS OF COST.
• PURCHASE PRICE IMPORT DUTYTAXESDIRECT COST
  TO BRING ASSET TO ITS WORKING CONDITION-TRADE
  DISCOUNTS.
• FINANCING COST TO THE EXTENT SUCH COST RELATE TO
  PERIOD AFTER SUCH ASSETS ARE READY TO USE-NOT TO
  BE CAPITALIZED.
• TEST RUN EXPENSES CAPITALIZED.

109
AS-11

• TRANSLATION OF ACOUNTING TRANSACTION IN FOREIGN
  CURRENCIES IN REPORTING CURRENCY.
• FINANCIAL STATEMENT OF FOREIGN OPERATIONS
• FORWARD EXCHANGE CONTRACTS.
• EXCHANGE DIFFERENCE INCLUDED I.E PROFIT OR LOSS
  TO BE DISCLOSED.

110
Select the appropriate

• The type of Accounting transactions deal with in
  Accounting Standard -11 are
• 1. TRANSLATION OF ACOUNTING TRANSACTION IN
  FOREIGN CURRENCIES IN REPORTING CURRENCY2.
  Valuation of Inventories 3. Accounting for
  Fixed assets Disclosures 4. Preparation of
  Cash Flow

111
Answer

• TRANSLATION OF ACOUNTING TRANSACTION IN FOREIGN
  CURRENCIES IN REPORTING CURRENCY

112
AS-12

• GOVERNMENT GRANTS RECEIVED BY AN ENTITY.
• SUBSIDIES/CASH INCENTIVE/DUTY DRAWBACK
• DOES NOT INCLUDE ANY TAX EXEMPTION OR TAX HOLIDAY.

113
AS-13

• ACCOUNTING FOR INVESEMENTS MADE BY AN ENTITY.
• CURRENT AND LONG TERM.(This AS does not deal
  with Lease or MF)
• The AS states that amount of quoted unquoted
  investments should be stated.

114
AS-14

• AMALGAMATION OF TREATMENT OF RESULTANT GOODWILL
  OR RESERVES
• TAKE OVER OF EXISTING BUSINESS AND FORMATION OF
  NEW BUSINESS.

115
AS-15

• ACCOUNTING OF RETIREMENT BENEFIT TO EMPLOYEES IN
  FINANCIAL STATEMENTS
• PF/PENSION/GRATUIITY LEAVE ENCASHMENT POST
  RETIREMENT WELFARE SCHEME
• METHOD BY WHICH RETIREMENT BENEFITS VALUED.

116
AS-16

• CAPITALIZATION OF BORROWING COST ATTTRIBUTABLE TO
  ACQUISITION/CONSTRUCTION OR PRODUCTION WHERE
  QUALIFYING ASSET TAKES SUBSTANTIAL PERIOD TO GET
  IT READY FOR INTENDED USE OR SALE.

117
AS-17

• SEGMENT REPORTING
• REPORTING OF INFORMATION ABOUT DIFFERENT TYPES
  OF PRODUCT AND SERVICES OF AN ENTERPRISE AND
  ITS OPERATIONS IN DIFFERENT GEOGRAPHICAL AREAS.
• FOR ASSESSING RISK AND RETURN OF DIVERSIFIED OR
  MULTILOCATIONAL ENTERPRISE.

118
AS-18

• REPORTING OF RELATED PARTY RELATIONSHIP AND
  TRANSACTIONS BETWEEN A REPORTING ENTERPRISE AND
  RELATED PARTY.
• NAME OF RELATED PARTY AND RELATIONSHIP WHERE
  CONTROL EXIST TO BE DISCLOSED.

119
AS-19

• LEASE A LEASE AN AGREEMENT WHEREBY THE LESSOR
  CONVEYS TO THE LESEE IN RETURN FOR A PAYMENT OR
  SERIES OF PAYMENTS THE RIGHT TO USE AN ASSET FOR
  A AGREED PERIOD.
• ACCOUNTING POLICIES FOR LESSOR AND LESSEE AND
  DISCLOSURE IN RELATION TO FINANCIAL LEASE AND
  OPERATING LEASE.

120
AS-20

• PRINCIPLES DETERMINATION OF EARNING PER SHARE
• COMPARISON BETWEEN ENTERPRISES.
• NET PROFI(LOSS)/ WEIGHTED AVERAGE NUMBER OF
  SHARES.

121
AS 21

• CONSOLIDATED FINANCIAL STATEMENT OF PARENT AND
  SUBSIDARIES.
• A list of all subsidiaries including ownership
  voting rights.
• Relationship between the parent the subsidiary.
  

122
AS-22

• METHOD OF DETERMINATION OF AMOUNT OF EXPENSES OR
  SAVING RELATING TO TAXES ON INCOME IN RESPECT OF
  AN ACCOUNTING PERIOD.
• DEFERRED TAX ASSETS AND LIABILITIES SHOULD BE
  DISTINGUISHED FROM CURRENT TAX ASSETS AND
  LIABILITIES

123
AS-23

• ACCOUNTING FOR INVESTMENT IN ASSOCIATES in
  Consolidated Financial Statements).

124
AS-24(Discounting Operations)

• DISCONTINUATION OF OPERATION OF PARTICULAR
  SEGMENT.
• DISCLOSURE OF PRE TAX PROFIT OR LOSS FROM
  ACTIVITIES ATTRIBUTABLE TO DISCONTINUING
  OPERATIONS.

125
AS-25(Interim Financial Reporting)

• INTERIM REPORTING WHICH IS NOT FOR COMPLETE
  REPORTING PERIOD.
• CONDENSED B/S
• CONDENSED PL
• CONDENSED CASH FLOW STATEMENT
• EXPLANATORY NOTES.

126
AS-26 Intangible Assets

• OTHER THAN INTANGIBLE ASSETS COVERED IN AS-22(
  DEFERRED TAX ASSETS)
• RELATE TO START UP COST ( EG ADVT ETC)
• RD
• PATENTS AND COPY RIGHT
• GOODWILL
• DISCLOSURE USEFUL LIFE OR AMORATIZATION RATE
• AMORATIZATION METHOD.

127
AS-27 Financial Reporting in case of JVs.

• TWO OR MORE PARTIES UNDER TAKE ECONOMIC ACTIVITY
  WITH JOINT CONTROL
• ACCOUNTING FOR JOINT VENTURE IN A CONSOLIDATED
  FINANCIAL STATEMENT.
• DISCLOSURE ANY CONTINGENT LIABILITY INCURRED BY
  VENTURER AND ITS SHARE.
• ANY CAPITAL COMMITMENT AND ITS SHARE.

128
AS-28 Impairment of Assets

• EQUITY OR DEBT LISTED
• TURNOVER EXCEED RS.50 CRORES
• PRINCIPLE OF THIS A.S IS TO ENSURE CARRYING
  COST OF ASSET IS NOT MORE THAN RECOVERABLE
  VALUE OF ASSET.
• NOT APPLIED TO INVENTORIES AS 2
• CONSTRUCTION CONTRACT AS 7
• FINANCIAL ASSETS AS 13 DEF TAX AS 22

129
AS-29

• AS-29 DEALS WITH
• ACCOUNTING FOR PROVISIONS,CONTINGENT LIABILITIES
  AND CONTINGENT ASSETS WITH EXECEPTIONS AS TO
  EXECUTORY CONTRACTS,THOSE ARISING IN INSURANCE
  FROM CONTRACT WITH POLICY HOLDERS AND THOSE
  COVERED UNDER ANOTHER ACCOUNTING STANDARD.