BY

Mr. M. VijayaRagunathan
Meaning
Definition
Concepts
Conventions
Functions
Limitations
Kinds
Golden Rules
Meaning- : Language of business to communicating
each other.

Definition- : As per AICPA” Art of recording ,

Classifying and Summarizing in a significant manner
and in terms of money, transactions and events which
are, in part at least, of a financial character and
interpreting the results thereof. 
1. Business Entity Concept:
Business is always separated from the owners. There
is no connection between owner and business

2. Going Concern Concept:

Business will run for indefinite period or long period.

3. Money measurement Concept:

Only the monetary based transaction will be recorded
in the accounting books, other transaction will be
ignored from the accounting books.
4. Dual Aspect Concept:
For every debit there must be a corresponding credit
or Total Assets = Total Liabilities.

5. Accounting period Concept:

The whole accounting years divided into various
segments according to the period or time(12months).

6. Cost Concept:
Cost price is only recorded in the accounting books,
market price will be ignored from the accounting books.
7. Matching Concept:
At the end of the period total expenses matched with
total revenue to find the profit or loss.

8. Material Concept:
Only the material based will be taking place in the
accounting books whereas others will be ignored.
1.Conventions of Disclosure:
Material based information (Profit and Loss A/c,
Balance Sheet) disclosed to owners, investors and
government bodies.

2. Conventions of Consistency:
Accounting principles and practices should not be
changed year to year. It may continue for long period
of time.
3. Conventions of Conservatism:
Its all about adopting policy “Playing Safe”. Loss can be
taken into consideration. Profit will be ignored.

4. Conventions of Materiality:
Only the material based will be taking place in the
accounting books whereas others will be ignored.
1. Keeping Systematic records

2. Protecting Business Property

3. Communicating Results to the interesting people

4. Meeting Legal Requirements

 
1. Only financial based information can be recorded

2. Cost concept (people looking balance sheet of

company least manner)

3. Confliction between Concepts

4. Personal Judgment of Accountant

1. Financial accounting : concerned only with the financial
state of affairs and financial results of operation.

2. Management accounting: To provide necessary

information about funds, costs, profit etc. As it enables the
management to discharge its functions properly.

3. Cost Accounting: It was developed to overcome the

limitations of financial accounting. The main purpose of
cost accounting is to analyze the expenditure involved.
 
1.PERSONAL ACCOUNT
Natural (Human beings)
Artificial (Banks, Company and Firms)
“Debit the Receiver
Credit the Giver”
2. REAL ACCOUNT( Assets)
“Debit what comes in
Credit what goes out”

ASSETS: Anything which will enable the firm to get

cash or benefit in a future.

I) Tangible : Those which can be seen, feel and

touched that is, which have physical Existence.
1. Current Assets : Those assets which can be converted into
cash within short period of Time or normal business cycle
or within one year.

2. Fixed Assets :Those assets which are purchased for the

purpose of operating the business but not for resale.
 1.Current assets ( Examples) 2. Fixed assets ( Examples)
 
 a) Cash in hand a) Land
 b)Cash at bank b) Building
 c)Closing stock c) Plant and
d)Machinery
 e)Bills Receivable d) Motor car
 f)Short-term Investment e) Premises etc
 g)Prepaid Expenses
 e)Sundry Debtors etc
II) Intangible : Those which cant be seen, and
touched that is but feel it, which Does not have
physical existence.

a) Goodwill
 b) Patents rights
 c) Copy rights
3.NOMINAL ACCOUNT:

“Debit all Expenses and Losses

Credit all Incomes and Gains”
A)Expense : Income:
a) Salaries Paid a) Rent received
b) Rent Paid b) Commission received
c) Commission c) Interest received
etc.,
d) Interest Paid
e) Advertisement
f) Fright charges etc.,
Journal : A transaction first entered into books of
accounts chronological order called journal
entry

Proforma of Journal
Date Particulars L/ Debit Credit
F (Dr) (Cr)
(Rs) (Rs)
Jan 1 Cash A/c……………………….Dr 10,000
To Capital A/c 10,000
(Being Capital introduced)
 Ledger: A transaction second time entered into books of
accounts called ledger
Proforma Of Ledger
Capital A/c

Dat Particular J Amt Amt Date Particular J Am Amt

e s / s / t
F F
Jan To Bal c/d 10,000 Jan 1 By Cash 10,000
31
10,000 10,000

Feb 1 By Bal b/d 10,000

Subsidiary books

All sub divided books called subsidiary books.

 

1. Purchase book: Only the credit purchase of goods,

meant for resale will take place on the purchase book
 

2. Sales book : Only the credit sales of goods, meant

for resale will take place on the sales book
 
 
 
3.Purchase return book (Return outwards book):
Goods, which are purchased on credit , may be
returned to the supplier.
 
4.Sales Return book ( Return inwards book):
Goods , which are sold for credit may be returned
to company, if they are defective.
5.Cash book : Transaction connected with cash like
buying and selling it can be classified into following
methods:

Simple cash book

Double column cash book

Triple column cash book

Petty cash book

 
6.Bills receivable book: Goods are sold for credit to
customers with an agreement written by company and
counter signed by customer called bills receivable book.
 
7.Bills Payable book: Goods are purchased for credit from
Suppliers with an agreement written by suppliers and
counter signed by company called bills payable book.
 
8. Journal Proper: There are certain transaction which
cannot be entered in through any subsidiary books and
such transaction entered in the form of journal, called
journal proper. Like opening entries, closing entries
and adjusting entries
Double Entry System
1. Financial Accounting- R.L. Gupta
2. Financial Accounting- R.S.N. Pillai and Bhagawathi
 An error is a mistake and rectification means correcting the
mistakes that have occurred.

Types of Errors

1. Error of Principle

2. Error of Omission

3. Error of Commission

4. Error of Compensation
1. Error of principle
When some fundamental principle of accountancy is
violated while recording the transaction.
Example
Capital expenditure treated as revenue expenses
 
2. Error of omission
A transaction completely omitted in the books of
accounts.
3. Error of commission
These are the errors which caused due to wrong
posting, wrong totaling, wrong casting of the
subsidiary books, wrong balancing.
 
4. Error of compensation
If the effect of one error is neutralized by the effect of
some other error, such errors are called compensating
errors.
 
 Meaning:

A statement reconciling as at a particular date the balance of

cash at bank as shown in an enterprise own records and
that indicated on the bank statement. In principle the two
balances should be equal and opposite but difference may
arise for number of reasons.
1. Cheques issued but not presented for payment.
2. Cheques paid into bank but not credited by the bank.
3. Amount directly deposited into bank but not entered in
the cash book.
4. Bank charges debited in the pass book but not entered in
the cash book.
5. Dividend, interest collected by the bank but not entered
in the cash book.
6. Bankers allow interest on bank but not entered in the cash
book.

7. Dishonor of cheques not entered in the cash book.

8. Credit if any in the passbook.

9. Debit if any in the passbook.

10. Subscription, premium, etc., paid by the banker under

standing orders.
  The importance of this statement lies in the fact that it

ensures that the bank balance shown by the cash book is

reconciled with that of the bank pass book.

 In the absence of Bank Reconciliation statement, the

customer cannot be sure of the correctness of the bank

balance depicted by the cash book.
 Cash book shows debit balances = favourable balance

 Cash book shows credit balances = unfavourable

balance/overdraft

 Pass book shows credit balances = favourable balance

 Pass book shows debit balances = unfavourable

balance/overdraft
1. Capital Expenditure and Revenue
Expenditure
2. Capital Receipts and Revenue Receipts
1. Financial Accounting- Arulanandham and
Raman
2. Financial Accounting- S.C. Shukla
 Trading Account: Trading account is prepared mainly to know the

profitability of goods bought or manufactured sold by the businessmen.

Difference between the selling price and cost price of the goods is that gross
results.

 Profit and Loss account: To know the net profit or net loss of the business

activities after adjusting Office , administrative, selling and distribution

expenses

 Balance Sheet: To know the financial position of the company like assets and

liabilities of the business. It contains two sides Assets and Liabilities

Particulars Amount Amount Particulars Amount Amount

To Opening stock By Sales less sales

To Purchase less return
purchase return By Closing stock
To Production wages
To Manufacturing
expenses
To Factory related
expenses
To Gross Profit c/d

Total Total
Particulars Amt Amt Particulars Amt Amt
Gross loss b/d Gross Profit b/d
Salary Interest received
Rent Commission
Commission received
Office expenses Discount received
Lighting charge
Discount allowed
Advertisement
Warehouse
charges
Travelling
expenses
Carriage outwards
Interest on capital
Depreciation
Net Profit
Total

Total
Liabilities Amt Amt Assets Amt Amt
Current Liability Current assets
Sundry Creditors
Bills Payable Cash in hand
Bank Overdraft Cash at bank
Outstanding Expenses
Closing stock
Long term Liabilities
Share capital Reserves Bills Receivable
and Surplus
Debentures Short-term Investment
Long term loans
Sundry Debtors

Fixed Assets
Plant and machinery
Land and Building
Furniture
Vehicles
1. Uses of Final Accounts
1. Financial Accounting- Jain and Narang
2. Financial Accounting- Arulanandham and
Raman
Meaning:

Fall in the value and utility of assets due to their constant

use and expiry of time is termed as depreciation
 Due to the constant use due to the wear and tear arise in
fixed assets resulting in their values.

 Value of assets decreases with the passage of time

 Due to new invention and techniques.

 By permanent fall in market price.

 Due to accident or depletion.

1. Fixed Installment/ Straight Line Method
Under this method, amount of depreciation remains
equal from year to year.
 
2. Diminishing Balance Method
The amount of depreciation charged year after year
also goes on declining.
 
3. Annuity Method
It is assumed that the amount spend in the purchase
of assets is an investment which should interest. 
4. Depreciation Fund Method
This method not only takes depreciation into account but
also makes provision for the replacement of asset when it
becomes useless.
 
5. Revaluation Method
Compare the value of assets at the end of the year with the
value in the beginning of the year.
 
6. Depletion Method
Depletion means exhausting of natural resources,
1. Advantages
and Limitations of
Depreciation
1. Financial Accounting- R.L. Gupta
2. Financial Accounting- S.C. Shukla
Meaning

Consignment is an arrangement under which the

manufacturer or wholesaler sends his goods at his own risk
to his agent in a different place for the purpose of sales on
commission basis. The person who sends the goods is
known as consignor. The ownership of the goods remains
with the consignor. The person to whom the goods are
sends for sales is known as the consignee or the agent.
1. Proforma Invoice
When the consignor sends the goods to the
consignee, he forwards a statement showing the
particulars of the goods such as quality, quantity,
price etc
 
2. Commission
Consignor pays commission to consignee for selling
his goods. Commission is generally calculated at fixed
percentage of total sales as per terms laid by the con
3. Recurring Expenses
These expenses are incurred after the goods have
been received at consignee’s go down.

Consignor Consignee
Bank charges Godown rent
Expenses on Damaged goods Insurance
Brokerage
Advertising
Salary to salesman
Expenses on goods return
Expenses on goods damaged
Commission on goods
damaged
Establishment expenses
4. Non Recurring Expenses
Expenses are incurred for bringing the goods from the
place of the consignor to the place of the consignee.
Hence all the expenses incurred till the goods reach
the godown of the consignee are non recurring
expenses.
Consignor Consignee
Packaging Unloading charges
Transport or carriage Railway dues
Forwarding Dock dues
Dock dues Import or customs Duty
Landing charges Octroil
Freight Carriage to godown/shop
Insurance
Meaning:
Joint venture is a business venture where two or more person
agrees to undertake jointly a particular venture. Joint venture is
a particular partnership. It is defined as “the kind of business
proposition where two or more persons jointly venture to
complete a specific business undertaking on agreed conditions
to share the profit or loss arising there from, on a temporary
partnership basis until its completion.”
1. Joint venture has no firm name.
2. It is an agreement between two or more persons to share
profit and losses on agreed proportion.
3. The agreement is valid only for a specific venture alone.
4. The members of the venture are known as the co-
ventures.
5. As soon as the completion of the task agreement of the
venture comes to an end.
1. Current Analysis of Joint Venture Firms
in India
1. Financial Accounting- R.S.N. Pillai and
Bhagawathi
2. Financial Accounting- S.C. Shukla