Introduction

Definition of Accounting
The art of recording, classifying and
summarising, 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

Features of Accounting
Recording
Classifying
Summarising
Analysis and Interpretation

Branches of Accounting
Financial Accounting
Cost Accounting
Management Accounting

ACCOUNTING PROCESS
1. RECORDING (JOURNAL)
2. CLASSIFYING (LEDGER)
3. TRIAL BALANCE (SUMMARISING)
4.

TRADING &PROFIT&LOSS
ACCOUNT & BALANCE
SHEET

IMPORTANT ACCOUNTING TERMS

Debtor
Creditors
Capital
Assets
Liabilities
Stock
Purchases
Sales
Outstanding Expenses
Accrued expenses
Prepaid Expenses
Prepaid Income

IMPORTANT ACCOUNTING
TERMS
Purchase return or return outwards
Sales return or return inwards
Drawings
Debt
Book debt
Solvent
Revenue or Income

IMPORTANT ACCOUNTING
TERMS
Expenses
Loss
Solvent
Insolvent
Debit
Credit
Books of Account

IMPORTANT ACCOUNTING
TERMS
Journal

Subsidiary books
Ledger
Voucher
Receipt
C/F
B/F

Definition of Accounting
Concepts

Accounting concepts are defined as the

assumptions upon which accounting is

based

Accounting Concepts
Money Measurement Concept:
Only monetary transactions which can be

expressed in terms of money are recorded.

Non monetary aspects will not be recorded
Diverse items like assets, liabilities, etc. can be
expressed in a common denominator of money
The major limitation is that since non monetary
transactions are not recorded, accounting
records do not give full picture

Accounting Concepts
Business Entity Concept:
The business is considered as a distinct

entity from the persons who own it.

The business affairs are kept separate from
the personal affairs
Financial position of the business is
ascertained properly

Accounting Concepts
Going Concern Concept:
The business is considered that it will

continue for a fairly long time

Distinction between capital and revenue
items can be made
Valuation of fixed assets are made
Outstanding expenses and income and
accrued expenses and income are considered

Accounting Concepts
Cost Concept:
An asset acquired by the business is

recorded in the books at cost and not at the

market price
The asset is recorded at the true value
which is paid and not some arbitrary value

Accounting Concepts
Dual Aspect Concept:
Every business transaction always results in

receiving some benefits of value and giving

of some other benefits of equal value
Transactions have two fold effect on both
the assets and liabilities

ACCOUNTING EQUATION
ASSETS=LIABILITIES +CAPITAL

Accounting Concepts
Accounting Period Concept:
For measuring the financial results of the

business, the working of the business is

split in to convenient periods of time known
as accounting periods
Accounting year

Accounting Concepts
Objective Evidence Concept:
Accounting entries should be evidenced and

supported by documents
Vouchers, invoices

Accounting Concepts
Matching Concept:
For measurement of profit or loss, revenues

and expenses are matched and compared

The net profit or loss is determined by
matching the expenses and losses with
revenues

Accounting Concepts
Revenue Recognition Concept:
Revenue is recognised as being earned on

the date on which it is realised, not when

the goods are manufactured, contract signed
or order received
The date is when the goods are transferred
to customers and he becomes liable to pay

Accounting Concepts
Accrual Concept:
Accrual concept recognises both revenue

and expenses
All transactions must be brought to record
whether they are settled or not

Accounting Conventions
Convention of Conservatism:
Caution, prudence and playing safe
Provide for all possible losses but anticipate

no profits

Accounting Conventions
Legal Aspect Convention:
Accounting records and books should

reflect the legal position of the business

Accounting Conventions
Convention of Materiality:
A detailed record is made only of those

business transactions which are material

and important
No detailed record are made of insignificant
transactions

Accounting Conventions
Convention of Consistency:
Accounting practices and methods should

remain consistent

Accounting Conventions
Convention of Full Disclosure:
All material facts must be disclosed in the

financial statements

CHARACTERISTICS OF
ACCOUTING INFORMATION
Understandability
Relevance
Consistency
Comparability
Reliability
Objectivity

TYPES OF ACCOUNTS
ACCOUNTS

PERSONAL
N a tu ra l
e g : ra m , s h y a m e tc

A rtific ia l
e g ;b a n k , c lu b e tc

IM P E R S O N A L
R e p re s e n a tiv e
e g :P re p a id re n t e tc

REAL

T a n g ib le s
e g : c a r, P la n t e tc

N O M IN A L

In ta n g i b le s
e g : p a te n t e tc

Personal Accounts
Accounts of natural or physical

persons(Ravis account, Akbars account)

Accounts of artificial or legal
persons(accounts of firms, companies, clubs,
associations, banks, schools, colleges)
Representative personal accounts(outstanding
expenses account, accrued expenses account,
prepaid account)

Rule for Personal Accounts

Debit the receiver

Credit the giver

Received from Ravi 2,000
Paid Ganesh 500

Real Accounts
Accounts of tangible assets
Accounts of Intangible assets

Rule for Real Accounts

Debit what comes in

Credit what goes out

Paid Mr. A 200
Sold Machinery to Raj for 5000

Nominal Accounts
Revenue accounts
Expenses account

Rule for Nominal Accounts

Debit all expenses and Losses

Credit all incomes and gains

Paid rent 500
Received commission 2000