Financial Accounting

I TERM - MBA
 Accounting – an introduction
Accounting is an 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
there of.
 Features of accounting
Identifying
Recording
Classifying
Summarizing
Interpreting
Groups interested in accounting
information
Owners
Lenders
Creditors
Employees
Government
Customers
Accounting – branches

 Financial accounting
 Cost accounting
 Management accounting
Financial accounting -
objective

To know the profit or loss and

the financial position of an
organisation.
Cost accounting - objective

To ascertain the cost

Management accounting -
objective

To provide the management with

information taken from financial
and cost accounting, so as to
facilitate decision making.
 Accounting cycle
 Transactions
 Identification of accounts
 Preparation of journal
 Posting into ledger accounts
 Trial balance
 Trading a/c, P & L a/c and balance
sheet.
Accounting concepts - assumptions

 Entity concept
 Dual aspect concept
 Going concern concept
 Accounting period concept
 Objectivity concept
 Money measurement concept
 Cost concept
Concepts - contd

 Matching concept
 Revenue recognition concept
 Accrual concept
Accounting conventions - practices

 Convention of materiality
 Convention of consistency
 Convention of conservatism
 Convention of disclosure
 Accounting equation

Assets = Liabilities + capital

Accounts - types

Real accounts

Personal accounts

Nominal accounts
Rules of accounts - Real

Dr what comes in
Cr what goes out
Rules of accounts - Personal

Dr the receiver
Cr the giver
Rules of accounts - Nominal

Dr all expenses and losses

Cr all incomes and gains
 JOURNAL
Date Particulars LF Debit Credit
01-08-05 Cash a/c Dr 50,000
To Capital a/c 50,000
(Being capital
introduced into the
business
02-08-05 Purchases a/c Dr 10,000
To Cash a/c 10,000
( Being goods
purchased for cash
1. Commenced business with cash
Rs 50,000

Cash a/c Dr 50,000

To capital a/c 50,000

( Being business commenced with cash)

2. Purchased goods for cash Rs 5,000

Purchases a/c Dr 5,000

To cash a/c 5,000

( Being goods purchased for cash)

 3. Purchased goods worth Rs 2,000
from Mr A

Purchases a/c Dr 2,000

To Mr A’s a/c 2,000

( Being goods purchased from Mr A for

credit.)
4. Goods sold for cash Rs 9,000

Cash a/c Dr 9,000

To sales a/c 9,000

( Being goods sold for cash)

5. Goods worth Rs 6,000 sold to Mr B

Mr B’s a/c Dr 6,000

To sales a/c 6,000

( Being goods sold on credit to Mr B)

6. Goods purchased for cash earlier,
returned - Rs 2,000

Cash a/c Dr 2,000

To purchases returns a/c 2,000

( Being goods purchased earlier for

cash returned.)
 7. Goods purchased from Mr A earlier
returned – Rs 500

Mr A’s a/c Dr 500

To Purchases returns a/c 500

( Being goods purchased from Mr A on

credit earlier, returned back.)
8. Sales returns Rs 3,000

Sales returns a/c Dr 3,000

To Cash a/c 3,000

(Being goods sold earlier returned back

by customer.)
9. Goods sold to Mr B earlier returned
Rs 2,000

Sales returns a/c Dr 2,000

To Mr B’s a/c 2,000

( Being goods sold to Mr B earlier

returned back by him.)
10. Expenses paid ( Postage) Rs 500

Postage a/c Dr 500

To cash a/c 500

( Being postage expenses paid.)

11. Purchase of land – Rs 50,000

Land a/c Dr 50,000

To cash 50,000

( Being land purchased.)

12. Purchased machinery from Mr C for
Rs 25,000

Machinery a/c Dr 25,000

To Mr C’s a/c 25,000

( Being machinery purchased from Mr C

on credit.)
13. Received Rs 1,000 by way of rent

Cash a/c Dr 1,000

To rent received a/c 1,000

( Being rent received.)

14. Cash paid into bank Rs 5,000

Bank a/c Dr 5,000

To cash a/c 5,000

( Being cash paid into bank.)

15. Drawn from bank Rs 2,000

Cash a/c Dr 2,000

To bank a/c 2,000

( Being cash withdrawn from bank.)

 16(a). Mr B settled his account by paying
Rs 3,900

Cash a/c Dr 3,900

Discount allowed a/c Dr 100
To Mr B’s a/c 4,000

( Being cash received and discount

allowed to Mr B.)
16(b).Mr B could pay only Rs 3,900 as he
became insolvent

Cash a/c Dr 3,900

Bad debts a/c Dr 100
To Mr B’s a/c 4,000

( Being cash received from Mr B in part

and the balance considered as bad
debts.)
 17. Settled Mr A’s account by paying Rs
1,400

Mr A’s a/c Dr 1,500

To cash a/c 1,400
To discount received a/c 100

( Being Mr A’s a/c settled by receiving

discount)
18.Owner’s personal expenses paid
Rs 1,000

Drawings a/c Dr 1,000

To cash a/c 1,000

( Being owner’s personal expenses paid)

 19. Depreciation on machinery
Rs 2,500

Depreciation a/c Dr 2,500

To machinery a/c 2,500

( Being depreciation on machinery

charged.)
 20. Expenses related to assets ( land)
paid Rs 1,000

Land a/c Dr 1,000

To cash a/c 1,000

( Being expenses related to land paid.)