Amity University

Amity Business School, Noida

AFM
Class Work

Class 1&2
First two class (induction, orientation,
etiquettes, and presentation guidelines)
Excel, Prowess, Evaluation, Nameplates

Class 3
Inputs…………..Process………Outputs

Raw Transaction

Identification

Measurement of transaction (Money)

Record them in chronological order
(journal………process is called as
journalising) (what to record, when, how,
value at which)

Classify the related transaction

(Ledger…process is called as posting)

Summarize ……..(balance sheet and P&L

account)

Interpret……..Ratio analysis

Communicate………different stakeholders
(employee, shareholder, management,
banker, supplier, customer, govt, researcher)

Last three steps are accounting

Others are bookkeeping

Attributes of accounting
Reliability
Relevance
Understandability
Comparability

Truth and Fairness

Class 4 &5
Concepts and conventions

1. Business entity concept/separate

entity concept ( firm is a separate entity)
2. Going concern ( No intension to shut
down)
3. Accounting period concept (one
year)
4. Revenue recognition
concept( Settlement date and transaction
date, realize on the day of legal transfer)
5. Matching concept ( same units for
revenue and cost)
 6. Verifiable objective concept (supporting
documents, cash memo, sales bill,
invoices)
7. Consistency concept ( use same
method consistently if change then
disclose the effect of change)
8. Conservatism concept (anticipate all
loss but no forecasting for profit)
9. Materiality concept (relatively material

facts) . (depends on turnover)

10. Money measurement concept…..money

is the single denominator

11. Convention of full
disclosure……..disclose all economical
information
12. Cost concept (book value rather than
market value or realized value)
13. Dual aspect concept (every
transaction has min two aspects Dr and
cr. Sum of debits = sum of credits

Division of accounts:
Personal (person or group of persons)and
impersonal

Personal = Natural (living being) + Artificial

(legal entity, firm, club, society) +
Representative (prefix or suffix with
nominal account e.g outstanding salary)

Representative a/c = prefix or suffix +

nominal a/c

Impersonal account = real or nominal

Real = tangible (plant, machine, cash, land)

+ intangible assets (goodwill, trademark,
patents)

Nominal a/c …….expense, income, loss,

gain

Branches of accounting
Financial accounting (summarizing,
interpreting and communicating the outputs
to various stakeholders

Management accounting (enable

management for better decision making
process)

Cost accounting (cost for unit level, process

level, price determination)
Class 6 &7

Simple Journal
Entries Follow
Accounting Prayer (mandatory before
attendance)
Personal a/c …Debit the receiver and credit
the giver
Real a/c …….Debit what comes in and credit
what goes out

Nominal a/c ………Debit all expenses and

loss and credit all incomes and gains
Format of journal

Date…….Particulars……Dr (Rs) …..Cr(Rs)

……….Dr
To ………..
(Being…………….)

Ramesh started business with cash

Cash a/c Dr
To Capital a/c

Paid into bank

Bank a/c Dr
To Cash a/c
Sold goods to Mohan
Mohan a/c Dr
To Sales a/c

Goods returned by Mohan

Sales Return a/c Dr
To Mohan a/c

Goods purchased from Shyam

Purchase a/c Dr
To Shyam a/c

Goods returned to Shyam

Shyam a/c Dr
To purchase return a/c

Purchased goods for cash

Purchase a/c Dr
To Cash a/c

Paid interest on loan

Interest on loan a/c Dr

 To Cash a/c
Paid salary to Ram
Salary a/c Dr
To Cash a/c
Drew cash from bank for office
Cash a/c Dr
To Bank a/c

Purchased building and issued cheque

Building a/c Dr
To Bank a/c

Purchased Machine form Ram on credit

Machine a/c Dr
To Ram a/c
Rent due to landlord Rs 500

Rent a/c Dr
To outstanding rent a/c
 Compound
Entries Follow
1.A debt of Rs 5000 due from Satish has been
discharged by receipt of only Rs 4850 cash
and Rs 150 allowed as discount
Cash a/c 4850 Dr
Discount allowed a/c 150 Dr

To Satish a/c 5000

2. Salaries of Rs 5000 and trade expense of
Rs 3000 are payable for the year ended 31st
March 2010.
Salary a/c 5000 Dr
Trade Expense a/c 3000 Dr
To Expense payable a/c 8000
3.Paid to Mohan Rs 9500 in full settlement of
his account of Rs 10000
Mohan 10000 Dr
To Cash a/c 9500
To Discount Received a/c 500
4.Purchased goods of Rs 20000 out of which
goods of Rs 12000 was on credit from Shyam
Lal
Purchase a/c 20000 Dr
To cash a/c 8000
To Shyam a/c 12000
5.Bad Debts: if the amount is partially or fully
not realized---------
Cash or Bank a/c Dr (recovered)
Bad Debts a/c (not recovered)
To Debtor’s personal a/c (total debt)
Ram is declared is insolvent. Received from
official receiver a first anf final settlement of
Rs 600 on a debt of Rs 1000.
Cash a/c 600 Dr
Bad debts a/c 400 Dr
To Ram 1000
6.Bad debts recovered: Earlier written off but
now pays some amount
Cash or Bank a/c Dr
To Bad Debts Recovered a/c
7.Cash Withdrawn for personal use
Drawings a/c Dr
To Cash/Bank a/c

8. Goods taken for personal use

Drawings a/c Dr
To Purchase a/c
(considered as decrease in purchase a/c not
the sales a/c since no profit realized in this)

9. Goods given as charity

Charity a/c Dr
To Purchase a/c

10. Distribution of goods as free samples

Advertisement a/c Dr
To Purchase a/c

11.Loss by theft or fire

Loss by theft or fire a/c Dr
 To Purchase a/c

When goods are insured

Insurance co. Dr
To Loss by theft and fire a/c

Insurance company accepted partial claim

Cash/Bank a/c (claim accepted)
Profit and loss a/c (not accepted )
To Insurance Co. (Total claim)

Or
Cash/Bank a/c (claim accepted)
Profit and loss a/c (not accepted )
To Loss by theft and fire a/c (Total
claims)

12.Sundry or miscellaneous expenses: petty

expenses such as refreshment, postage,
conveyance incurred in a business
Sundry Expense a/c Dr
To cash a/c
13. Outstanding expenses:
Wages for the year is Rs 6000 out of which
500 is not paid in the current year but paid in
next year.

Wages a/c 500 Dr

To Outstanding Wages a/c 500 (giver)

14. Prepaid expenses are paid in advance

benefit of which may expire in the next
accounting year.

Prepaid expense a/c 300 Dr

To Insurance Premium a/c 300
15.Depreciation: decrease of value of asset
every year
Depreciation a/c Dr
To Asset a/c

16. Interest on capital: Interest allowed on the

capital is an expense
Interest on capital a/c Dr
To Capital a/c
17.Interest on drawings: It is an income
Drawings a/c Dr
To Interest on drawings a/c

18.Income tax paid

Income tax a/c
To Cash or bank a/c

19.Purchase and sale of asset

On purchase of asset for cash

Asset a/c Dr
To cash/bank a/c
On purchase of asset on credit

Asset a/c Dr
To Supplier’s a/c

On sale of asset for cash

Cash/ Bank a/c Dr
To Asset a/c

On sale of asset on credit

Purchaser’s a/c Dr
To asset a/c

20. Trade Discount: given when the goods are

sold to the purchaser for resale to the ultimate
customer or when the goods are purchased in
large quantity. Discount is deducted from sale
value and net sale value is recorded in the
books of accounts.
Cash discount is an allowance or deduction
allowed when amount is received promptly or
before its due date. It is usually as % of
amount received. If both are given then first
trade discount then cash discount is allowed.

Purchased goods from Sanjiv worth Rs 40000

at terms 10% trade discount and 5% cash
discount. Paid amount at the time of purchase
itself.

Invoice price of goods……….40000

Less trade discount…………..4000
……36000
Less cash discount at 5% ……1800
Amount paid………… 34200

Purchase a/c 36000 Dr

To Cash a/c 34200
To discount received a/c 1800
Purchased goods from Sanjiv worth Rs 40000
at terms 10% trade discount and 5% cash
discount. Paid amount at the time of purchase
itself. Half of the amount was paid at the time
of purchase.

Purchase a/c 36000 Dr

To Sanjiv 18000
To Cash a/c 17100
To discount received a/c 900
21. Banking Transaction

Cash deposited for opening an account

Bank a/c Dr
To Cash a/c

Cash withdrawn

Cash A/c Dr
To bank a/c

Cash withdrawn for personal use

Drawings a/c Dr
To Bank /Cash a/c

Payment by a cheque to a creditor (Rakesh)

Rakesh a/c Dr
To bank a/c

Payment by a draft to a creditor (Vikas)

Vikas a/c Dr
Bank Charges a/c Dr
To Bank a/c

Cheque or draft received from a debtor and

deposited into bank the same day

Bank a/c Dr
To Debtor a/c

Cheque or draft deposited into the bank

Bank a/c Dr
To Cash a/c

Deposited cheque dishonored

Ankur a/c Dr
Bank a/c
Advantages of a journal:
1. Reduces the possibility of error
because of both side entries
2. Provide an explanation for the
transaction
3. Provides an chronological record of
all transactions
Opening journal entry
Cash in hand ………….20000
Sundry debtors…………60000
Stock of goods………….40000
Plant…………………….50000
Land and building………100000
Sundry creditors ……… 100000

Cash a/c Dr 20000

Sundry debtors a/c Dr 60000
Stock a/c Dr 40000
Plant a/c Dr 50000
Land and building a/c Dr….100000
To Sundry creditor a/c 100000
 To capital a/c 170000

Ledger:

Debit > credit=======Debit balance……

To balance b/d

Credit> debit ======credit balance…….By

balance b/d

No balancing for nominal accounts

…..Directly posted into P & L a/c

Balancing only for personal and real

accounts

Interpret the ledger in terms of debit and

credit

Steps to prepare ledger

• Prepare journal
• Identify the type of accounts possible
• Prepare ledger for all the accounts
 • In each journal find whether the account
is debited or credited. If debited mention
on debit side with reference account.
Same for credit entry.
• Then balance both sides either by To
balance c/d or By Balance c/d
• Then reverse the side by for To balance
b/d or By balance b/d
• Interpret

Format for the ledger is as follows

Date Partic J. R Dat Particula J. R

ulars F s e rs F s
April 1 To By

April To By bal
30 bal c/d
c/d
May1 To By Bal
Bal b/d
b/d
Trial Balance

Then post all the debit and credit balance in

the trial balance to show separately.
1. It will check arithmetic accuracy
2. Whether both the aspects are
recorded or not
3. Whether both debit and credit entries
are posted in the ledger or not

Format for Trial Balance

SN Name LF Dr(Total Cr
of or (Total
account balance) or
balance)

Cash Book

Large number of transaction---so separate

book for each class of transaction like cash,
purchase, sales etc.
These books are special journal or
subsidiary books or sub divisions of journal.

(1) Cash Book …..Record receipts and

payments of cash.
(2) Purchase Book……credit purchases
(3) Sales Book ……..credit sales
(4) Purchase return book
(5) Sales return book
(6) Journal proper…..transactions which
can not be recorded anywhere

Cash Book: Book of prime entry in which

cash and bank transactions of a business are
recorded in a chronological order.
• Cash receipts on debit side
• Cash payments on credit side
• Then cash balance is calculated

Cash book……4 types

(1) Single column cash book……record
cash transaction
 (2) Two column cash book……..record
cash and bank transaction
(3) Three column cash book……record
cash , bank and discount related
transaction
(4) Petty cash book…..record petty
expenses

Cash book is subsidiary book and principal

book as well.

Format for a Single Column Cash Book

Dr. Cr.
Dat Particular V.N L R Dat Particular V L R
e s o F s e s N F s
Receipts Payments
side side

Particulars: name of the account under

which cash has been received or payments
have been made. In existing business, cash
book starts with the opening balance of cash
written on the receipts side as “To Balance
b/d” . A new business will have no opening
balance.

Ultimately balance the both sides like any

other account. Receipts are always greater
than payments. Difference is written on
credit side as “By Balance c/d”.

Cash book always show a debit balance.

Bank Reconciliation Statement

….prepared on a particular date to reconcile

the bank balance in the cash book with the
balance as per the Bank Pass Book or Bank
statement by showing reasons for
differences between the two.
Amount deposited into bank is recorded in
the bank column of a two column cash book
on debit side and the withdrawals on credit
side. Information given to customer in the
form of pass book (PB).

Dr of CB = Cr of PB
Cr of CB = Dr of PB
These balances must match; if they differ
then we are supposed to find the reason of
difference. A statement showing the reasons
and causes of differences is prepared. This is
called as BRS.

Important due to following reasons:

• Brings out any error in CB and PB
• Any undue delay in clearance is
highlighted by the reconciliation
• Avoid embezzlements
• Check the accuracy of entries in the CB
and keep track of tracks.
• Reflects actual bank balance
Reason of difference between CB and PB
1. Difference due to timing….time
gap between recording the
transaction in the books of accounts
and being recorded by the bank.
2. Transaction recorded by bank……
interest charge, bank charge etc.
3. Errors by bankers or account
holders, wrong entries.

Difference due to timing:

• Cheque issued but not yet
presented for payment
• Cheque paid into the bank but not
yet cleared
Transactions recorded by bank:
• Interest credited by bank but not
recorded in the cash book.
• Bank charges and interest charged
by bank but not entered in the
book
• Interest and dividends collected by
the bank
 • Direct payments by the bank
• Direct payments into the bank by
a customer
• Dishonour of a bill discounted
with the bank
• Bills collected by the bank on
behalf of the customer
•

Method of Preparing BRS

1. find entries in PB but not in
CB
2. find entries in CB but not in
the PB

Start CB
• either debit or favorable
balance of CB. Items of
difference which have led
to the decreased CB
balance are added to the
cash book balance. If led
 to increased CB then
subtract from the CB
balance.
• or credit or unfavorable or
overdraft balance of CB.

Debit balance or favorable in CB =

Amount is lying deposited in the bank

Credit balance in CB = overdraft =

excessive withdrawal of that account

Cr balance in PB =favorable in PB=

Amount is lying deposited in the bank

Dr Balance in PB = unfavorable in PB
=overdraft
Problem: The Bank column of a cash book
showed a debit balance of Rs 49000 on 30th
june, 2010. Entries in the cash book and the
Pass Book were compared and the following
differences were noticed:
• Cheques of Shyam Rs 9000 and of

Mohan Rs 15000 were deposited but

were not collected upto 30th June, 2010.
• Ramesh, a debtor, deposited a cheque of
Rs 8000 directly into the bank.
• Bank allowed an interest of Rs 500
• Cheque for Rs 10000 issued to Radhey
Shyam was not presented for payment
• Bank debited the account by Rs 6000 ,

being insurance premium

• Bank debited the account by Rs 100,
being bank charges
You are required to prepare a BRS as on 30th
June, 2010.

Particulars Amount(Rs Amount(Rs)

)
Balance as per 49000
the cash book
(Dr)
+cheque directly 8000
deposited by
Ramesh
+Interest allowed 500
by the bank
+cheque issued 10000 18500
but not presented
for payment
67500
-cheques
deposited but not
cleared
- 9000
Shyam
- 15000 24000
Mohan
Insurance 6000
premium paid by
the bank
Bank charges 100 30100
debited
Balance as per 37400
the Pass Book

Case 1. Where favorable balance as per the

cash book is given.

Added to Cash Book Balance:

• Cheques issued but not presented for
payment
• Cheque deposited by a creditor directly
into the bank
• Interest allowed by the bank
• Dividend collected
 • Bills of exchange realized or cash
directly deposited into the bank but not
recorded in the cash book
• Wrong credit granted by the bank
• Cheques deposited but not recorded

Deducted from the Cash Book Balance:

• Cheque deposited but not collected by
the bank
• Cheque or bill of exchange dishonoured
• Bank Charge charged
• Interest charged
• Direct payment by the bank as per
standing order, e.g. life insurance
premium paid
• Wrong debit by the bank
• Cheques recorded but not deposited

Depreciation Accounting
Def: Fall in the value of an asset because
of usage or efflux of time or due to
obsolescence or accident.

Reduction in the value of a fixed asset.

Characteristics:
• Reduction in the book value of fixed
asset
• Reduces the book value of an asset but
not its market value
• This is permanent, gradual and
continuing
• This term is used for tangible fixed
assets

Related concepts

• Depletion……quarries and
mines(Reduces the availability of
resources)
 • Obsolescence……..decrease in
usefulness on account of the asset
becoming out of date, old fashioned
• Amortization……….writing off the
value of intangible assets

Why Depreciation:

• To ascertain the correct profit or loss

• To show a true and fair view of the
financial position
• To show the asset at its proper value
• To retain, out of profits, funds for
replacement
• Compliance of legal provisions (Income

Tax)

Factors or Basis of Providing Depreciation:

• Original cost of the asset= purchase

price+ freight+ installation cost
 • The estimated residual or scrap value at
the end of its life is the estimated sale
value of the asset at the end of its
economic life to the firm.
Amount to be written off= Cost of Asset –
Residual or scrap value

• Estimated effective or commercial life

or the legal life whichever is shorter

Methods of Depreciation;

(1) Fixed % on original cost or fixed

installments or straight line method

Amount of depreciation is uniform from

year to year.

Amount of depreciation = (cost- estimated

scrap value)/No. of years of expected life
Every year P&L account is debited by the
same amount of depreciation, so there is the
same effect on the P&L account every year.

Rate of depreciation= Annual

depreciation/cost of the asset

(2) Written down method or diminishing

balance method

Depreciation Rate = 1- (Scrap value/ Cost of

asset)^(1/n)

Where n is expected life of asset.

Amount of depreciation keeps on changing
every year and calculated on the diminished
value of the asset.

Three problems done in the class.

Adjustments in the Final Accounts

Adjustments Dr Cr
Closing stock BS TA/c
Outstanding P&L A/c (add BS (shown as
expenses with liability
concerned
a/c)
Prepaid or (1) BS
unexpired (2) Deduct
expenses from
(benefit will concern
be available ed
in the next expense
accounting in the
period) P&L a/c
Accrued or BS Add with
outstanding concerned a/c
income in the P& L
(income a/c
earned in the
current
accounting
period but not
received )
Income (1) BS
received in (2) Deduct
advance or from
unearned concern
income ed
income
in the
P&La/c
Depreciation (1) P&L a/c
(2) Deduct
from
concern
ed asset
in BS
Bad Debts (1) P&La/c
(2) Deduct
from
sundry
debtors
in BS
Provision for (1) deduct
doubtful from
debts (made sundry
on the good debtors
debts i.e (2) add in
sundry the bad
debtors less debts
bad debts a/c in
P&La/c
Provision for (1) add
discount on with
debtors (made bad
on good debts debts in
only i.e good P&La/c
debts = (2) Deduct
sundry from
debtors- bad sundry
debts- debtors
provision for in BS
bad debts)
Manager’s P&L a/c BS
commission
If manager is Commission= net profit
allowed before charging such
commission commission * (% of
on the net commission)/100
profit before
charging such
commission
If manager is Commission= net profit
allowed before charging such
commission commission * (% of
on the net commission)/(100 + % of
profit after commission)
charging such
commission
Interest on P&L a/c Add to the
capital capital a/c in
BS
Interest on (1) P&La/c
drwings (2) Deduct
from
capital
in the
BS
Interest on P&La/c BS(add with
loan capital)
Abnormal or (1)P &La/c (1) total loss
accidental will have in TA
losses unaccepted
claim or net
loss
(2) claim
accepted in
BS
Goods sent
on approval
basis
Goods in
transit
Goods
distributed as
free samples
Goods drawn
by owner

Under progress
Provision and reserves
Depreciation accounting
P&L account and Balance sheet ,
adjustments
FSA
CFS
FFS

Cost accounting

Special issues in accounting