Financial Accounting

Book Keeping is an art of recording the financial transactions

in a simple manner.

Accounting is the art of recording , classifying and
summarizing in a significant manner and in terms of money ,
transactions and events which are , in part atleast , of financial
character and interpreting the results thereof.
THE ACCOUNTING PROCESS
Identifying of Transactions
Recording in Journals
Classifying : Posting in Ledgers
Summarizing : Preparing Final Accounts
Interpretation & Analysis
INPUTS
Business Transactions (e.g. purchases sales,
receipts and payments etc)
External events (e.g. fire, changes in tax
laws etc)
PROCESSING
Accounting Principles
Accounting Standards
Management Estimates
Laws and Regulations (e.g. Companies Act and
Income Tax Act)
Transaction Processing Conventions
Accounting Records
OUTPUT
Profit and Loss Account
Balance Sheet
Cash Flow Statement
Explanatory Notes
Management Commentary
Special Reports and Analysis
Tax Returns
Regulatory Filings


USERS
Shareholders
Managers
Suppliers
Creditors
Employees
Government
Regulators
Investors
Security Analysts
Rating Agencies
Academicians & Researchers
CLASSIFICATION OF ACCOUNTING
Accounting

Cost
Accounting


Management
Accounting


Financial
Accounting
Accounting Concepts
These are the assumptions which are fundamental to the
accounting practice and are based on logical considerations.
Separate Entity Concept
Money Measurement Concept
Accounting Period Concept
Going Concern Concept
Cost Concept
Conservatism or Prudence Concept
Materiality or Relevance Concept
Consistency Concept
Matching Concept
Accrual Basis of Accounting
Double Entry Concept
Timeliness Concept
Revenue Recognition






Accounting Equation

According to the Double Entry Concept there should
be a debit for every credit and a credit for every debit.
Claims = Economic Resource
Capital (+) Liabilities = Assets

[Capital+ Revenues-Expenses-Drawings-
Dividends] + Liabilities = Assets

Q1. Show the working of the double entry system in the form of accounting
equation.

1 Rakesh starts business with cash Rs 5 lac ; furniture Rs 50,000 ; loan from
friend Akash Rs 1,00,000 ; goods Rs 25,000 ; building Rs 5 lac
2 He purchases stock having value of Rs 50,000 at a trade discount of 10%
from Jamnalal , half the amount was paid is cash immediately.
3 He sold goods worth Rs 30,000 at Rs 45,000 to Jaichand on cash basis.
4 Cleared off the dues to Jamnalal .
5 Sold a part of the old furniture valuing Rs 10,000 at Rs 8,000.
6 Paid electricity bill of Rs 2,000
7 Paid staff salary Rs 7,000
8 Opened a current account at PNB and deposited Rs 2,50,000 in that
account.
9 Repays the loan taken from Akash through cheque.
10 Withdraws Rs 10,000 in cash and goods worth Rs 15,000 for personal use.
11 Took a loan of Rs 5 lac from SBI







Accounting Equation
Capital + Liabilities = Assets
Loan from + Jamnalal =
Akash
Building +Furniture + Goods + Cash
1 10,75,000 + 1,00,000 + 0 = 5,00,000 + 50,000 + 25,000 + 6,00,000
2 0 + 0 + 22,500 = 0 + 0 + 45,000+ (22,500)
10,75,000 + 1,00,000 + 22,500 = 5,00,000 + 50,000 + 70,000 + 5,77,500
3 15,000 + 0 + 0 = 0 + 0 + (30,000) + 45,000
10,90,000 + 1,00,000 + 22,500 = 5,00,000 + 50,000 + 40,000 + 6,22,500
4 0 + 0 + (22,500) = 0 + 0 + 0 + (22,500)
10,90,000 + 1,00,000 + 0 = 5,00,000 + 50,000 + 40,000 + 6,00,000
5 (2,000) + 0 + 0 = 0 +(10,000) + 0 + 8,000
10,88,000 + 1,00,000 + 0 = 5,00,000 + 40,000 + 40,000 + 6,08,000
6 (2,000) + 0 + 0 = 0 + 0 + 0 + (2,000)
10,86,000 + 1,00,000 + 0 = 5,00,000 + 40,000 + 40,000 + 6,06,000
7 (7,000) + 0 + 0 = 0 + 0 + 0 + (7,000)
10,79,000 + 1,00,000 + 0 = 5,00,000 + 40,000 + 40,000 + 5,99,000
Accounting Equation
Capital + Liabilities = Assets
Loan from +Jamnalal +Loan =
Akash SBI
Building +Furniture + Goods + Cash + PNB
10,79,000
+
1,00,000 + 0 + 0 = 5,00,000 + 40,000 + 40,000 + 5,99,000 + 0
8 0 + 0 + 0 + 0 = 0 + 0 + 0 + (2,50,000) + 2,50,000
10,79,000
+
1,00,000 + 0 + 0 = 5,00,000 + 40,000 + 40,000 +3,49,000+2,50,000
9 0 + (1,00,000) + 0 + 0 = 0 + 0 + 0 + 0 + (1,00,000)
10,79,000
+
0 + 0 + 0 = 5,00,000 + 40,000 +40,000 + 3,49,000+1,50,000
10 (25,000)+ 0 + 0 + 0 = 0 + 0 + ( 15,000) + (10,000)+ 0
10,54,000
+
0 + 0 + 0 = 5,00,000 + 40,000 + 25,000 +3,39,000 +1,50,000
11 0 + 0 + 0 + 5,00,000= 0 + 0 + 0 + 5,00,000 + 0
10,54,000
+
0 + 0 + 5,00,000= 5,00,000 + 40,000 +25,000 +8,39,000 +1,50,000


Thank You