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Foundations of Accounting

Sumeet Gupta
Assistant Professor- Selection Grade
University of Petroleum & Energy Studies

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What is Accounting
 Accounting is the language of business
 Accounting provides information for making decisions
 Accounting is an information system
 Accounting is the process of identifying, measuring and
communicating economic information so that they can
make informed judgments and decisions
 Accounting is the art of recording, classifying and
summarizing in a significant manner and in terms of
money the transactions and events which are in part at
least of financial character and interpreting the results
there of

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The Accounting Information System

Inputs Processing Outputs Users

Business Accounting Financial Investors,


transactions principles statements lenders,
and events and procedures and reports managers

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Users of Accounting Information
 Investors
 Lenders
 Security analysts and advisers
 Managers
 Employees and trade unions
 Suppliers and other trade creditors
 Customers
 Government and regulatory agencies
 The public
 Others like academicians, researchers, analysts
etc. 4
Assumptions/Concepts Underlying
Accounting Measurement
 Business Entity Concept
 Going Concern Concept
 Cost Concept
 Money Measurement Concept
 Double Entry Concept
 Accounting Period Concept
 Matching Concept
 Conservatism Concept
 Consistency Concept
 Materiality Concept
 Realization Concept
 Verifiable Evidence Concept 5
Assets
 What a business “owns”
 Examples
 Cash
 Investments
 Buildings
 Plant and machinery
 Patents and copyrights

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Liabilities
 What a business “owes”
 Examples
 Loans payable
 Income tax payable
 Creditors
 Bills Payable
 Unpaid Wages

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Capital
• Amount invested by the proprietor in a
business enterprise
• Example:
• Cash
• Machinery
• Building etc.

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Revenue
• Income of a recurring nature
• Example:
• …..amount received from sale of goods
• …..Rent, commission, dividend, interest
etc.

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Expenses
• Cost incurred in producing and selling the
goods

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Purchases
• Purchases of the Goods in which business
deals

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Sales
• Sales of those goods which are purchased or
produced for sale purposes.

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Stock
• Value of those goods which are lying
unsold on a particular date
• Opening and Closing Stock
• Type:
• Raw Material
• Work in Progress
• Finished Goods
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Debtors
• Those persons to whom the goods have
been sold on credit and they have to owe
amount to the business

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Creditors
• Goods are purchased on credit by the firm
and the person to whom money is owing by
the firm is called a creditor.

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CLASSIFICATION OF ACCOUNTS
ACCORDING TO NATURE
• Personal account :- Accounts of persons or firms
with whom the firm enters into transactions. It
includes both natural persons’ accounts and
artificial persons’ accounts.

• Real account :- Accounts of properties under the


control of the firm.

• Nominal account :- Accounts of revenue , gains,


expenses and losses.

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PRINCIPLES OF DEBIT AND CREDIT
• Personal account:-Debit the receiver credit
the giver

• Real account:-Debit what comes in credit


what goes out

• Nominal account:-Debit all expenses and


losses credit all incomes and gains

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• AS 1 Disclosure of Accounting Policies
• AS 2 Valuation of Inventories
• AS 3 Cash Flow Statements
• AS 4 Contingencies and Events Occuring after the Balance Sheet Date
• AS 5 Net Profit or Loss for the period,Prior Period Items and Changes in
Accounting Policies
• AS 6 Depreciation Accounting
• AS 7 Construction Contracts (revised 2002)
• AS 8 Accounting for Research and Development
• AS 9 Revenue Recognition
• AS 10 Accounting for Fixed Assets
• AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003),
• AS 12 Accounting for Government Grants
• AS 13 Accounting for Investments
• AS 14 Accounting for Amalgamations
• AS 15 (revised 2005) Employee Benefits Limited
• AS 16 Borrowing Costs
• AS 17 Segment Reporting
• AS 18, Related Party Disclosures 18
• AS 19 Leases
• AS 20 Earnings Per Share
• AS 21 Consolidated Financial Statements
• AS 22 Accounting for Taxes on Income.
• AS 23 Accounting for Investments in Associates in Consolidated Financial
Statements
• AS 24 Discontinuing Operations
• AS 25 Interim Financial Reporting
• AS 26 Intangible Assets
• AS 27 Financial Reporting of Interests in Joint Ventures
• AS 28 Impairment of Assets
• AS 29 Provisions,Contingent` Liabilities and Contingent Assets
• AS 30 Financial Instruments: Recognition and Measurement
• AS 31, Financial Instruments: Presentation Accounting Standard
• (AS) 32, Financial Instruments: Disclosures, and limited revision to
Accounting Standard (AS) 19, Leases

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