ACCOUNTING & FINANCE

MODULE : B
CA R. C. JOSHI
B.Com(Hons.),LL.B,CAIIB,FCA
DEFINITION AND SCOPE ACCOUNTING
STANDARDS.
ACCOUNTING IS AN ART OF RECORDING
CLASSIFYING AND SUMMARIZING
TRANSACTIONS IN A SYSTEMATIC MANNER
AND IN TERMS OF MONEY TRANSACTIONS
AND EVENTS WHICH ARE IN PART AT LEAST
OF FINANCIAL CHARACTER AND
INTERPRETING THE RESULTS THEREOF.
 Accounting
• ACCOUNTING SHOULD BE DONE IN SUCH A
MANNER THAT THE READER
(INVESTOR,CREDITOR, FINANCIER or BANK) IS
ABLE TO UNDERSTAND FOR THE PURPOSES FOR
WHICH ACCOUNTS ARE BEING READ &
INTERPRETED. i.e THE RESULTs OF BUSINESS
OPERATIONS, FINANCIALS & AND OTHER
RELEVANT ASPECTS
DIFFERENCE BETWEEN ACCOUNTANY
AND BOOKKEEPING.
• BOOK KEEKPING IS MERELY RECORDING THE BUSINESS
TRANSACTIONS IN BOOKS AND LEDGERS .
• ACCOUNTANCY IS WIDER CONCEPT: COMPILATION OF
ACCOUNTS IN SUCH A WAY THAT ONE IS IN A POSITION TO
UNDERSTAND STATE OF AFFAIRS OF BUSINESS.
• USERS OF FINANCIAL STATEMENTS ARE INCOME TAX
DEPT., S.T DEPARMENT SHAREHOLDERS, INVESTORS,BANKS
AND FIS AND SO ON APART FROMMANAGEMENT OF
ENTITY FOR MAKING POLICY DECISIONS.
• IT IS IN THE INTEREST OF ALL THAT FINANCIAL
STATEMENTS REFLECT TRUE AND FAIR VIEW OF STATE OF
AFFIAIRS OF A BUSINESS ENTITY.
 ACCOUNTANCY
• ACCOUNTANCY INVOLVES:
• SYSTEAMATIC(including regulatory
compliance) CLASSIFICATION OF BUSINESS
TRANSACTIONS IN TERMS OF MONEY AND
FINANCIAL CHARACTER.
• SUMMARIZING : TRIAL BALANACE AND B/S
• INTERPRETING THE FINANCIAL
TRANSACTIONS.
 PURPOSE OF ACCOUNTANCY
• TO KEEP A SYSTEMATIC RECORD
• TO ASCERTAIN THE RESULTS OF OPERATIONS
• TO ASCERTAIN FINANCIAL POSITION OF
BUSINESS.
• TO FACILITATE RATIONAL DECISION MAKING
• TO RAISE FINANCE.
• TO SATISFY REQUIREMENT OF LAW AND
USEFUL IN MANY RESPECTS.
 Concepts of Accountancy
• Concepts are basic rules associated with
terminology in Accountancy. They are called
Accounting concepts.
• 1. Business Entity Concept :
THIS CONCEPT SEPARATES THE ENTITY OF
PROPRIETOR FROM THE BUSINESS TRANSACTION.
• CAPITAL CONTRIBUTED BY THE OWNER IS
LIABILITY FOR BUSINESS BECAUSE BUSINESS IS
DIFFERENT FROM OWNER.
 Concepts of Accountancy :
Business Entity……
• ANY MONEY WITHDRAWN BY PROP. IS
DRAWINGS.
• PROFIT IS LIABILITY AND LOSS IS AN ASSET.
• ALL ENTRIES ARE KEPT DISTINCT FROM THE
POINT OF VIEW OF BUSINESS AND NOT FROM
OWNER.
• AN ENTERPRISE IS ECONOMIC UNIT SEPARATE
FROM OWNER.
 Money Measurement
• EVERY TRANSACTION IS MEASURED IN TERMS
OF MONEY. VIZ PRODUCTION/ SALES/ WAGES
ETC ALL CONVERTED TO MONEY.
• INFLATION OR DEFLALTION NOT INCLUDED IN
VALUE OF ANY ASSET.
• Health of the owner or Director is not taken
into accounts even though it may have
significant impact.
 COST CONCEPT
• COST CONCEPT: BUSINESS TRANSACTIONS ARE
RECORDED IN BOOKS AT COST PRICE.
• FIXED ASSETS ARE KEPT AT COST OF PURCHASE
AND NOT AT THEIR MARKET PRICE.
• EVERY TRANSACTION IS RECORDED WITH
PRESENT VALUE AND NOT ANY FUTURE VALUE.
• UNREALIZED GAINS ARE IGNORED.
• COST OF AN ASSET THAT HAS LONG BUT LIMITED
LIFE IS SYSTAMATICALLY REDUCED BY A PROCESS
CALLED DEPRECIATION. BUT SUCH DEPRECIATION
HAS NO RELATION TO MARKET VALUE OF ASSET.
 Historical Records concept.
• This concept accepts that transaction that
have taken place are recorded.
• The business transaction are recorded as &
when they take place.

Futuristic or transaction which are yet to take

place are not considered. Future transaction
can hardly be measured or identified.
 REALISATION CONCEPT.
• THIS CONCEPT TELLS US WHEN REVENUE IS
TREATED AS REALISED OR EARNED. IT IS
TREATED AS REALIZED ON THE DATE WHEN
PROPERTY IN GOODS PASSES TO BUYER AND
HE BECOMES LEGALLY LIABLE TO PAY.
• NO FUTURE INCOME IS CONSIDERED.
• GOODS SOLD ON APPROVAL WILL BE
INCLUDED IN SALES BUT ON COST ONLY.
 GOING CONCERN CONCEPT
• BUSINESS IS A GOING CONCERN AND
TRANSACTIONS ARE RECORDED ACCORDINGLY.
• IF AN EXPENSE IS INCURRED AND UTILITY IS
CONSUMED DURING THE YEAR, THEN IT IS
TREATED AS AN EXPENSE OTHERWISE IT IS
RECORDED AS AN ASSET.
• RESERVES AND PROVISIONS ARE CREATED FOR
ANY FUTURE LIABILITY.
• DEFERRED REVENUE EXPENDITURE IS WRITTEN
OFF OVER A NUMBER OF YEARS.
• WHY LOSS IS SHOWN UNDER ASSETS SIDE ?
 DUAL ASPECT CONCEPT
• EVERY TRANSACTION HAS DOUBLE EFFECT.
• ACCOUNTING EQUATION: ASSETS= CAP+
LIABILITY or Capital =Assets- Liability.

• This has in turn the background the double –

entry system of accounting.
 ACCOUNTING PERIOD CONCEPT.
• BUSINESS WILL RUN THROUGH LONG PERIOD. HENCE
ACCOUNTS OF EACH PERIOD IS RECORDED.
• RESULTS OF OPERATIONS CAN BE KNOWN PRECISELY
ONLY AFTER BUSINESS CEASES TO OPERATE AND
ENTIRE ASSETS ARE SOLD AND ENTIRE LIABILITIES PAID.
• BUT ONE IS INTERESTED IN KNOWING PERIODICALY
OPERATING RESULTS OF BUSINESS SAY YEARLY OR HALF
YEARLY OR QUARTERLY.
• HENCE ALL THE EXPENSES OR INCOME DURING THIS
ACCOUNTING PERIOD HAS TO BE TAKEN INTO
CONSIDERATION IRRESPECTIVE OF WHETHER THEY ARE
REALISED IN CASH OR PAID IN CASH.
 ACCOUNTING FOR FULL DISCLOSURE
• DISCLOSURE OF MATERIAL FACTS.( MATERIAL
AND IMMATERIAL FACT IS A MATTER OF
JUDGEMENT)
• CONTINGENT LIABILITY
• MARKET VALUE OF INVESEMENTS.
• CHANGE IN METHOD OF
DEPRECIATION/VALUATION OF GOODS ETC.
 CONVENTION OR PRINCIPLES OF
CONSERVATISM
• ALL POSSIBLE LOSSES TO BE TAKEN INTO
CONSIDERATION AND ANTICIPATED PROFITS
TO BE IGNORED.
• CREATION OF PROVISION FOR DOUBTFUL
DEBTS.
• VALUE OF STOCK
• CONVENTION OF CONSISTENCY: METHOD OF
DEPRECIATION.
 Accrual & Cash Basis
• Before the right to receive arises.
• After the right to receive is created.
-Revenue is recognized as it is earned.
-Cots are matched against revenues.
Any costs that are matched against are on the basis of
relevant time period.
Materiality : It does not mean to ignore small
items.
 DOUBLE ENTRY SYSTEM
• SCIENTIFIC SYSTEM:
• EVERY TRANSACTION HAS TWO ASPECTS.
• CRUX OF ACCOUNTANCY IS TO FIND OUT
WHICH TWO ACCOUNTS ARE EFFECTED AND
WHICH IS TO BE DEBITED AND WHICH IS TO
BE CREDITED.
 PERSONAL & IMPERSONAL
ACCOUNTS
• PERSONAL ACCOUNTS:
NATURAL/REPRESENTATIVE & ARTIFICAL
• IMPERSONAL : REAL ACCOUNTS
TANGIBLE & INTANGIBLE
NOMINAL ACCOUNTS
 Personal Account
• 1.Natural Person : Proprietor’s A/c , supplier’s
a/c, Mohan’s A/c, Rajesh’s A/c etc.
• 2. Artificial person A/c : These include
accounts of Limited Company, Firm , Club,
Bank or Insurance Company.
3. Representative personal account: Salary
outstanding A/c may pertain to a number of
employees.
 Impersonal Account :
• Tangible Real Accounts : These assets can be
touched or felt physically. i.e Land building,
furniture , Cash (But not the Bank Account).

• Intangible Real Accounts : These assets can

not be touched but however measurable in
monetary terms . Goodwill, trademark, patent
rights.
 Nominal Accounts
• These are the items of expenses or income.
• The entries are generally associated with
personal or real accounts.
• For e.g : When Rent is paid Cash (real) goes
out . When Debtor( Personal) pays Cash(real)
for the amount of goods sold.
 Match the following
• 1.Rent outstanding a. Natural Personal A/c
• 2. Bank of India b. Nominal A/c
• 3. Salaries c. Artificial personal A/c.
• 4. Salaries d. Representative Personal A/c.
Outstanding A/c
• 5. Ram e. Representative Personal A/c.
(In exam. Q may be limited to Personal, Real
or Nominal categories)
 Answers to Match the following
1.Rent outstanding d. Representative Personal
2. Bank of India c. Artificial Personal A/c.
3. Salaries b. Nominal A/c.
4. Salaries e. Artificial Personal A/c
Outstanding A/c
5. Ram a. A/c Natural Personal A/c
 MATCH FOLLOWING
A B

A RAMESH 1 REAL

B RENT 3 NOMINAL

C COMPUTER 4 REAL
D LAND 5 NOMINAL

E DISCOUNT 6 PERSONAL
 Answers
A RAMESH 1 PERSONAL
B RENT 2 NOMINAL
C COMPUTER 3. REAL
D LAND 4 REAL
E DISCOUNT 5. NOMINAL
 Golden Rules
1.DEBIT (Dr.) the Receiver and
CREDIT(Cr.) the Giver.

2. DEBIT (Dr.) the What come in and

CREDIT(Cr.) What goes out.

3. DEBIT (Dr.) the Expenses & Losses.

CREDIT(Cr.) the Income & Gains.
 Examples
• You would observe while passing journal entries that that
there will be combination of one or more component of
golden rules that we have seen in previous slide.
For eg. Ramesh gives Suresh Rs.5000 then Ramesh would
pass entries as :
Suresh A/c Dr. Dr. Rs.5000
To Cash Cr. Rs.5000
(Being the amount paid to Suresh)

Golden Rule Applied

• i.e. DEBIT (Dr.) the Receiver and
CREDIT(Cr.) the Giver- What goes out.
 Ram Pays Rent of Rs.2000
• Rent A/c Dr. Rs.2000
To Cash A/c. Rs.2000
(Being the amount of Rent paid for
April,2010).
Golden Rule applied :
• Dr. the expenses and Credit what goes out.
 Shyam would pass entries as

Cash A/c. Dr. Rs.2000

To Rent A/c. Cr. Rs.2000

( Being the amount received by way of Rent )

(DEBIT (Dr.) What comes in and
CREDIT (Cr.) the Income
 Shyam Receives commission
For Commission Received
by Shyam
Cash A/ Dr. Rs.1000
To Commission A/c Rs.1000

(Being the amount of Commission Received)

Dr. what comes in

CREDIT(Cr.) the Income & Gains.
 JOURNAL
• JOURNAL RECORDS EACH AND EVERY RECORD
BY WAY OF JOURNAL ENTRY.
• BUT TO FIND OUT A TRANSACTION EFFECTING A
PERSON, EXPENSES ACCOUNT OR ASSET ONE
HAS TO TURNOVER ALL PAGES OF JOURNAL.
• HENCE TRANSACTIONS ARE POSTED FROM
JOURNAL TO PARTICULAR PAGES OF LEDGER.
• HENCE JOURNAL CONTAIN A COLUMN L.F
 JOURNAL FORMAT
DATE PARTICULARS L.F DEBIT RS. CREDIT RS.
 CASH BOOK
• CASH BOOK KEEPS RECORDS OF ALL CASH
TRANSACTIONS I.E CASH RECEIPTS AND CASH
PAYMENTS. ALL RECEIPTS ARE RECORDED ON
RIGHT SIDE AND ALL PAYMENTS ON LEFT SIDE.
• CASH BOOK IS BOOK OF ORIGINAL ENTRY.
 CASH BOOK FORMAT
DR. CR
DATE PARTI VR. L.F CASH BANK DISCO DATE PARTI VR.NO LF CASH BANK DISCO
CULA NO Rs. Rs. UNT CULA . Rs. Rs. UNT
RS RS
 RECORD KEEPING BASIS
• RECORDING: JOURNALISING AS AND WHEN TRANSACTION TAKES PLACE.
JOURNAL IS BOOK OF ORIGINAL OR FIRST ENTRY.
• CLASSIFYING: ALL ENTRIES IN JOURNAL OR SUBSIDIARY BOOKS ARE
POSTED TO LEDGER ACCOUNT(POSTING) TO FIND OUT AT A GLANCE THE
TOTAL EFFECT OF ALL SUCH TRANSACTIONS. LEDGER IS BOOK OF
SECONDARY ENTRY.
• SUMMASRISING: LAST STAGE IS TO PREPARE THE TRIAL BALANCE AND
FINAL ACCOUNTS WITH A VIEW TO ASCERTAIN THE PROFIT OR LOSS
DURING PARTICULAR PERIOD.
• IT IS CUSTOMARY TO USE TO AND BY WHILE POSTING LEDGER.
• BALANCING AN ACCOUNT MEANS EQUALIZING TWO SIDES.
• IF DEBIT SIDE OF ACCOUNT EXCEED CREDIT SIDE, DIFFERENCE IS PUT ON
CREDIT SIDE AND IT IS SAID TO HAVE DEBIT BALANCE AND VICE VERSA..
 LEDGER

DR CR

DATE PARTICU J.F AMOUN DATE PARTICU J.F AMOUN

LARS T(RS) LARS T RS.
 Questions.
• CREDIT BALANCE IN CAPITAL ACCOUNT IS
LIABILITY OR AN ASSET FOR BUSINESS:
• A. LIABILITY
• B. A REVENUE
• C. AN EXPENSE
• D. NONE OF THESE.
 Answer
• Liability as Capital brought is a liability for the
business which is independent of Owner.
 QUESTION
• AMOUNT BROUGHT IN BY PROPRIETOR IN
BUSINESS SHOULD BE CREDITED TO
• A.DRAWINGS ACCOUNT
• B.CAPITAL ACCOUNT OF PROPRIETOR.
• C.ASSET ACCOUNT
• D. NONE OF THE ABOVE
 Answer
• B.CAPITAL ACCOUNT OF PROPRIETOR
• As we have seen earlier example :
Liability as Capital brought is a liability for the
business which is independent of Owner
 QUESTIONS
• WAGES PAID TO MUNNA TO BE DEIBED TO
• A. MUNNA
• B WAGES
• C. CASH
• D. BANK
 Answer
• Answer : B
• Amount being paid to Munna are Wages
which are “ Debit the Expenses “
 QUESTIONS.
• Q. CREDIT SALES MADE TO ROHIT TO BE
DEIBTED TO
• A. SALES
• B. PURCHASE
• C. CASH
• D. ROHIT
 Answer

• D: ROHIT : ‘As debit the receiver’

 QUESTIONS
• FURNITURE PURCHASED BY ISSUING CHEQUE :
• WHAT ENTRIES TO BE PASSED
• A. DEBIT FURNITURE AND CREDIT BANK ACCOUNT.
• B.DEBIT BANK ACCOUNT AND CREDIT FURNITURE.
• C.DEBIT FURNITURE AND CREDIT CASH.
• D.DEBIT BANK AND CREDIT FURNITURE SHOP
ACCOUNT
 Answer
• Ans:A :
• Debit What Comes in Credit What goes out
• Furniture comes in Bank payment goes out.
 QUESTIONS
• ENTRY FOR RETURN OF GOODS, IN RESPECT
OF SALES EFFECTED ON CREDIT, SHOULD BE
CREDITED TO :
• A. SALES RETURN
• B PURCHASE RETURN
• C.CUSTOMER ACCOUNT
• D. GOODS ACCOUNT
Ans:C

When Sales was effected the Customer’s

Account was debited & Sales Returns takes
place Customer’s Account should be Credited
thus which would reduce dues.
 QUESTION
• WHAT IS JOURNAL ENTRY
• A. ORIGINAL ENTRY
• B. DOUBLE ENTRY
• C DUPLICATE ENTRY
• NONE
A. ORIGINAL ENTRY
 QUESTION
• TRANSACTION IN BANK COLUMN ON CREDIT
SIDE OF THREE COLUMNAR CASH BOOK
INDICATE
• A. AMOUNT PAID FROM THE BANK A/C.
• B.AMOUNT DEPOSITED IN BANK
• C.BOTH A AND B
• D. NONE
 Answer
• Ans: A. The amount paid from Bank A/c.
 QUESTION
• PASS JOURNAL ENTRY:
• RENT PAID FOR OFFICE PREMISES RS.30000
OUT OF WHICH PART AMOUNT OF RS.10000
PAID BY CHEQUE AND REST BY CASH.
 Answer
• By RENT A/c. Dr. Rs.30,000
To Cash Cr. Rs.20,000
To Bank Cr. Rs.10,000
 Question
• PASS JOURNAL ENTRY:
• PURCHASED 1000 SHARES OF CENTRAL BANK
OF INDIA FOR RS.32 PER SHARE
 Answer
By Investment A/c. Dr. Rs.32,000
To Bank Cr. Rs.32000
 QUESTIONS
• PASS JOURNAL ENTRIES:
• SOLD GOODS TO SAMIR RS.15000
A) When Sold on Cash.
B) When Sold on Credit.
 Answer
A) Cash A/c. Dr. Rs.15000
To Sales Cr. Rs.15000
(Being the amount received on sale of goods)

B) Samir’s A/c. Dr. Rs.15000

To Sales Cr. Rs.15000
(Being the sales made to Samir on Credit)
 QUESTIONS
• PASS JOURNAL ENTRY:
• DRAVID SOLD GOODS FOR RS.12000 TO us.:
A) On Cash Purchase
B) On Credit Purchase
 Answer
• A) By Purchase A/c Dr. Rs.12000
To Cash A/c Cr. Rs.12000

• B) By Purchase A/c. Dr. Rs.12000

To Dravid A/c. Cr. 12000
 QUESTIONS
• PASS JOURNAL ENTRY:
• RECEIVED DUES from SAMIR ( towards the sales
made to him on Credit terms at Rs.15000)
AMOUNT FROM SAMIR) AND ALLOWED HIM
DISCOUNT OF 10%
Ans: By Bank A/c. Dr. Rs.13,500
By Discount A/c Dr. Rs. 1500
To Samir Rs. 15000
 QUESTIONS
• PASS JOURNAL ENTRY: PAID SALARY TO RAM
AND Rent to RAHIM RS.1200 AND 1500
RESPECTIVELY.
Ans:
• By Salary A/c. Dr. 1200
• By RENT A/c. Dr. 1500
To Cash A/c. Cr. Rs.2700
 QUESTIONS
• PASS JOURNAL ENTRY: In case of Insolvency of
Debtor full amount is not received. For eg.
• KIRAN BECAME INSOLVENT. HE HAD TO PAY 10000 TO
US. BUT WE RECEIVED ONLY 25 PAISE A RUPEE. So we
have to write of Rs.7500
as Bad Debts.
• By Cash A/c Dr. Rs.2500
• By Bad Debts Rs.7500
To Kiran A/c. Cr. Rs.10000
 QUESTION
• PASS JOURNAL ENTRY:
• PAID MONTHLY CAR INSTALMENT OF
PROPRIETOR’S PERSONAL CAR RS.12000

By Drawings A/c. Dr. Rs.12000

To Bank A/c Cr. Rs.12000
 QUESTION
• PASS JOURNAL ENTRY:
• BOUGHT FURNITURE FROM GODREJ AND
PAID BY CHEQUE RS.50000
• By Furniture A/c. Dr. Rs. 50000
To Bank Cr. Rs.50000
 QUESTION
• PASS JOURNAL ENTRY:
• DEPOSITED CASH IN BANK RS.1000

• BY Bank A/c. Dr Rs.1000

To Cash A/c. Cr. Rs. 1000
 QUESTION
JOURNALIZE FOLLOWING:
COMMENCED BUSINESS WITH Rs.15000 OF
WHICH RS.5000 WAS BORROWED FROM HIS
WIFE AT 12% INTEREST P.A.
By Cash Rs. 15000
To Capital A/c. Cr. Rs.10000
To Loan A/c Cr. Rs. 5000
 QUESTIONS
• PASS JOURNAL ENTRY:
• PURCHASED GENERATOR FROM RAMA & CO.
RS.50000 on credit.
• BY Generator A/c. Dr. Rs. 50000
(furniture)
• To Rama & Co. Cr. Rs.50000
 Expenses on behalf of …..
• In case of Joint Venture/Consignment
transaction expenses are spent by agent
or other party concerned.
• For eg. If X& Co. spends travelling charges for Y
& Co, the X & Co. would pass entry as:
Y & Co. A/c Dr.
To Cash
(Being the amount of travelling charge spent
for Y & Co.,)
 QUESTIONS
• PASS JOURNAL ENTRY:
• PAID CARRIAGE AND CARTERAGE of Rs.1,000
ON GOODS SOLD TO NAYAN ON HIS BEHALF.
By Nayan A/c. Dr. Rs. 1000
• To Bank Cr. Rs.1000
 QUESTION
• PASS JOURNAL ENTRY:
• A.BOUGHT GOODS FROM SATISH AT ONE
MONTHS CREDIT RS.6000
• B. OUT OF WHICH HALF WAS INVOICED TO
MR. RAM AT 30% ABOVE COST ON CREDIT.
 Answer
• A. Purchase A/c. Dr. Rs.6000
To Satish’s A/c. Cr. Rs.6000
(Being the amount of good bought from
Satish on CREDIT)
B. Mr. RAM A/c. Dr. 3900
To Sales A/c. Cr. Rs.3900
(Goods sold to Ram on Credit )
1/2 is Rs.3000+30% above cost = Rs.3900
 Adjusting and closing entries.
• While preparing trading and profit and loss
account all expenses and income for the full
period are to be taken into consideration. If
expenses have been incurred but not paid
during that period, liabilities for unpaid
amount should be created before the accounts
can be said to show the actual profit and loss.
All expenses and income should properly be
adjusted through accounting entries.
 Adjusting and closing entries.
• Trial balance is prepared from the books of
accounts of organiztion. Final accounts are the
final process of accounting. Once the trial balance
is prepared the books are half way closed.
• Now all adjusting entries passed at the time of
preparing the final accounts have dual effect i.e
both debit and credit.
• Hence all adjusting entries passed after Trial
balance drawn will have two effects.
 Adjusting and closing entries.
• One in either trading and profit and loss
account and other in Balance sheet or one in
trading account and other in Profit and loss
account.
 Adjusting and closing entries.
• Some examples:
• Closing stock adjustment:
• Will be shown in asset side of balance sheet and
will be shown in credit side of trading account.
• Goods lost by fire:
• Will be shown in credit side of trading account.
• Will be shown on debit side of profit and loss
account.
 Adjusting and closing entries.
• Outstanding expenses:
• Will be shown in debit side of profit and loss
account.
• Will be shown in liabilities side of balance sheet.
• Prepaid expenses:
• Prepaid expenses shown in Asset side ( Dr Pre
paid expenses) and Credit P&L Expenditure as
they do not pertain to current year.
 Adjusting and closing entries.
• Depreciation: It is fall in value of asset due to
use or passage of time.
• Depreciation A/c Dr.
• To Asset account A/c. cr.
DAY BOOK AND GLB POSTING IN A
BANK.
• IN THE CONTEXT OF ACCOUNTING IN BANKS
DAY BOOK OR CASH BOOK (BOTH ARE USED IN
SAME CONTEXT : SOME BANKS CALL IT CASH
BOOK SOME BANKS CALL IT DAY BOOK) HAS
SUMMARY OF TOTAL TRANSACTIONS IN
RESPECT OF EACH ACCOUNTING HEAD OF
BALANCESHEET AND PROFIT AND LOSS
ACCOUNT.
• THE AMOUNT OF EACH OF TRANSACTIONS
DONE IN BRANCH OF BANK IN THE DAY ARE
DAY BOOK AND GLB POSTING IN A
BANK..
• SUMMARIZED AND RECORDED HERE. FOR
INSTANCE ALL THE TRANSACTIONS IN SAVINGS
ACCOUNTS OR ALL TRANSACTIONS IN CURRENT
DEPOSITS ACCOUNTS ARE RECORDED IN
SUMMARIZED FORM WITH REGARD TO BOTH
DEBIT AND CREDIT SIDE. WHICH ARE BROUGHT
FROM SUPPLEMENTARY BOOKS WHICH ARE
AGAIN SUB SUMMARY OF TRANSACTIONS IN AN
ACCOUNT SAY SAVINGS OR CD.
DAY BOOK AND GLB POSTING IN A
BANK..
• FROM DAY BOOK THE FINAL DEBITS AND CREDITS
ARE POSTED IN THE RESPECTVE LEDGERS WHICH IS
KNOWN AS GENERAL LEDGER. GENERAL LEDGER IS
NOTHING BUT BOOK CONTAINING INDIVIDUAL
LEDGERS FOR EACH INDIVIDUAL TYPE OF ASSET OR
LIABILITIES. FOR INSTANCE ENTIRE CURRERNT
DEPOSIT TRANSACTIONS ARE POSTED IN CURRENT
ACCOUNTING HEAD IN GENERAL LEDGER. SIMILARLY
FOR SAVINGS ACCOUNT OR FURTNIUTE ACCOUNT
OR STATIONERY ACCOUNT AND SO ON.
DAY BOOK AND GLB POSTING IN A
BANK..
• THE GENERAL LEDGER BALANCE IS VIRTUALLY
TRIAL BALANCE OF THE BANK ON A PARTICULAR
DAY. IT REFLECT THE BALANCES OF ALL
ACCOUNTS . WHILE PREPARING BALANCESHEET
AND PROFIT AND LOSS ACCOUNT OF BRANCH OF
BANK THE GLB BALANCES ARE TAKEN.
• BALANCE SHEET OF ALL BRANCHES TOGETHER
WHEN CONSOLIDATED BECOMES THE BALANCE
SHEET OF BANK.
 GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
• The common set of accounting principles,
standards and procedures that companies use
to compile their financial statements. GAAP
are a combination of authoritative standards
(set by policy boards) and simply the
commonly accepted ways of recording and
reporting accounting information.  
 GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
• GAAP are imposed on companies so that
investors have a maximum level of
consistency in the financial statements they
use when analyzing companies for investment
purposes. GAAP cover such things as revenue
recognition, balance sheet item classification.
Companies are expected to follow GAAP rules
when reporting their financial data via
financial statements.
 GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

That said, keep in mind that GAAP is only a set

of standards. What is important that its
underlying objectives are followed in true
perspective. Currently Financial Accounting
Standards Board(FASB) sets the accounting
principles for the profession.
 US GAAP
• US SECURITIES & EXCHANGE COMMISSION
(SEC) REQUIRES THAT IT BE FOLLOWED IN
IN FINANCIAL REPORTING BY THE PUBLIC
TRADED COMPANIES. THIS WILL ENABLE THE
POTENTIAL INVESTORS ,CREDITORS & OTHER
USERS IN MAKING A RATIONAL FINANCIAL
DECISION.
 TRANSFER PRICING
• Transfer pricing refers to the pricing of goods
and services to services within a multi- divisional
organisation , particularly with regard to cross-
border transactions. MNC makes use of it. It
measures the efficacy of a subsidiary/Division in
terms of Profit Centre.
• TP is carried out to ensure share of tax to
respective country apart from protecting against
double taxation by use of Arm’s length price.
 Arm’s Length Price :Calculation
• Traditional Methods:
• Comparable uncontrollable price.
• Cost Plus Method
• Resale Price Method.
NON-TRADITIONAL METHODS.
Profit spilt Method and
Transactional Net Margin Method.
 ACCOUNTING STANDARDS.
• INSTITUTE OF CHARTERED ACCOUNTANTS OF
INDIA RECOGNISING THE NEED TO
HARMONISE THE DIVERSE ACCOUNTING
POLICIES AND PRACTICES CONSTITUTED AN
ACCOUNTING STANDARDS BOARD IN THE
YEAR 1977.
• ASB FORMULATE ACCOUNTING STANDARDS
SO THAT COUNCIL OF ICAI MAY MANDATE
SUCH STANDARDS.
 ACCOUNTING STANDARDS
• IT MAY BE NOTED THAT THE ACCOUNTING
STANDARDS MENS THE ACCOUNTING
STANDARDS AS PROMULGATED BY THE
ACCOUNTING (ACCOUNTING STANDRADS)
RULES ,2006.
• SO IT A PART OF COMPANY LAW NOW.
 ACCOUNTING STANDRADS
• WHERE P&L AND B/S OF THE CO. DO NOT
COMLY WITH ACCOUNTING STANDRDS SUCH
COS. SHOULD DISCLOSE:
• THE DEVIATION FROM THE ACCOUNTING
STANDARDS:
• THE REASON FOR SUCH DEVIATION : AND
• FINANCIAL EFFECT IF ANY DUE TO SUCH
DEVIATION.
 OBJECTIVES QUESTIONS ON
ACCOUNTING STANDARDS
• Q. MANDATORY ACCOUNTING STANDARD IF
NOT FOLLOWED REQUIRES AUDITORS WHO
ARE MEMBERS OF ICAI TO :
• A. QUALIFY THEIR AUDIT REPORTS.
• B. INFORM TO MANAGEMENT OF COMPANY
• C. INFORM TO ICAI
• D. NEED NOT REPORT ANYTHING.
• Ans : A
• QUALIFY THEIR AUDIT REPORTS
 QUESTIONS
• SEBI AND COMPANY’S ACT REQUIRE AUDITORS
TO QUALIFY AUDIT REPORTS THAT
• A. THAT DO NOT CONFORM TO MANDATORY
ACCOUNTING STANDARDS.
• B. CONFORM TO MANDATORY ACCOUNTING
STANDARDS.
• C. DO NOT CONFORM TO ACCOUNTING
STANDARDS.
• D . NO RESPOSIBILITY ON AUDITORS.
 Answer
• A. THAT DO NOT CONFORM TO MANDATORY
ACCOUNTING STANDARDS
 QUESTIONS.
• Q WHICH SECTION OF COMPANIES ACT CAST
RESPONSIBILITY ON BOARD OF DIRECTORS TO
COMPLY WITH MANDATORY ACCOUNTING
STANDARDS:
• A. SECTION 217(2AA)
• B. SECTION 215
• C. SECTION 125
• D. SECTION 44.
 Answer
• Ans : A
• 217(2AA)
 ACCOUNTING STANDARDS
(Disclosure of Accounting Policies)
• AS -1
• ALL SIGNIFICANT POLICIES ADOPTED IN
PREPARATION OF FINANCIAL STATEMENTS
SHOULD BE DISCLOSED.
• ANY CHANGE IN ACCOUNTING POLICIES
WHICH HAS MATERIAL EFFECT IN CURRENT
PERIOD OR IN LATER PERIOD SHOULD BE
DISCLOSED.
 AS 2(Valuation of Inventories)
• DEALS WITH DETERMINATION OF VALUE AT
WHICH INVENTORIES ARE CARRIED/VALUED
• INVENTORIES TO BE VALUED AT LOWER OF
COST OR NET REALISABLE VALUE.
• AVERAGE COST OR FIFO METHODS ARE
PERMITTED IN CASE WHERE GOODS ARE
INTERCHANGEABLE.
 AS-3(Cash Flows)
• PREPARATION OF CASH FLOW STATEMENT
AND ITS PRESENTATION ALONGWITH
FINANCIAL STATEMENTS
• CASH FLOW TO BE CLASSIFIED BY
OPERATING/INVESTING/FINANCING
ACTIVITIES.
 AS 4
• TREATMENT OF CONTINGENCIES AND EVENTS IN FINANCIAL
STATEMENTS.
• EG. CASES IN HIGH COURT OR PENALTY PROCEEDINGS UNDER
LAW.
• CONTINGENCIES MUST BE PROVIDED IF LOSSES CAN BE
ESTIMATED.
• EVENTS AFTER BALANCE SHEET DATE AND BEFORE
APPROVAL OF BOARD OF DIRECTORS SHOULD BE
APPROPRIATELY ADJUSTED IN VALUE OF ASSETS AND
LIABILITIES.
• IF INSUFFECIENT EVIDENCE, DISCLOSURE TO BE MADE
• CONTINGENT GAINS ARE NOT RECOGNIZED.
 AS-5
• DEALS WITH TREATEMENT OF PRIOR PERIOD
AND EXTRAORDINARY EVENTS.
• DEBITS OR CREDITS WHICH ARISE IN
CURRENT YEAR OR AS A RESULT OF
OMMISSION/MISTAKES IN PRIOR YEAR.
• ALSO EXTRAORDINARY ITEMS LIKE WRITING
OFF INVENTORIES.
• DISPOSAL OF FIXED ASSETS.
 AS -6
• DEPRECIATION IS A MEASURE OF WEARING
OUT ASSETS.
• DEPRECIATION METHOD SHOULD CAREFULLY
BE SELECTED AND CONSISTENCY APPLIED FOR
YEAR TO YEAR.
• TREATMENT FOR REVALUATION OF ASSETS
• DEPRECIATION METHOD TO BE DISCLOSED.
 AS-7
• ACCOUNTING OF CONSTRUCTION CONTRACTS
.CONTRACT FOR CONSTRUCTION EXCEED ONE YEAR
OR SO.
• ACCOUNTING ISSUES OF REVENUE, TREATMENT OF
ADVANCE RECEIVED, WORK IN PROGRESS, IN
FINANCIAL STATEMENTS.
• TYPES OF CONTRACTS: FIXED PRICE CONTRACT +
ESCALATION COST OR COST PLUS A FIXED FEE.
• AMOUNT AND METHOD USED TO DETERMINE
REVENUE RECOGNIZED.
 AS-8
• STAND DELETED FROM 1.4.03 R&D EXPENSES
ARE NOW COVERED IN AS-10
 AS-9
• BASIS FOR RECOGNITION OF REVENUE I.E
INCOME AND TIME WHEN INCOME IS SAID
TO HAVE ARISEN
• WHEN REVENUE RECOGNITION POSTPONED ,
DISCLOSURE OF CIRCUMASTANCES TO BE
MADE.
 AS-10
• ACOUNTING OF FIXED ASSETS AND DISCLOSURE THERE
OF.
• COMPONENTS OF COST.
• PURCHASE PRICE: + IMPORT DUTY+TAXES+DIRECT
COST TO BRING ASSET TO ITS WORKING CONDITION-
TRADE DISCOUNTS.
• FINANCING COST TO THE EXTENT SUCH COST RELATE
TO PERIOD AFTER SUCH ASSETS ARE READY TO USE-
NOT TO BE CAPITALIZED.
• TEST RUN EXPENSES CAPITALIZED.
 AS-11
• TRANSLATION OF ACOUNTING TRANSACTION IN
FOREIGN CURRENCIES IN REPORTING CURRENCY.
• FINANCIAL STATEMENT OF FOREIGN OPERATIONS
• FORWARD EXCHANGE CONTRACTS.
• EXCHANGE DIFFERENCE INCLUDED I.E PROFIT OR
LOSS TO BE DISCLOSED.
 Select the appropriate
• The type of Accounting transactions deal with
in Accounting Standard -11 are:
• 1. TRANSLATION OF ACOUNTING TRANSACTION IN FOREIGN
CURRENCIES IN REPORTING CURRENCY
2. Valuation of Inventories
3. Accounting for Fixed assets & Disclosures
4. Preparation of Cash Flow
 Answer
• TRANSLATION OF ACOUNTING TRANSACTION
IN FOREIGN CURRENCIES IN REPORTING
CURRENCY
 AS-12
• GOVERNMENT GRANTS RECEIVED BY AN
ENTITY.
• SUBSIDIES/CASH INCENTIVE/DUTY
DRAWBACK
• DOES NOT INCLUDE ANY TAX EXEMPTION OR
TAX HOLIDAY.
 AS-13
• ACCOUNTING FOR INVESEMENTS MADE BY
AN ENTITY.
• CURRENT AND LONG TERM.
(This AS does not deal with Lease or MF)
• The AS states that amount of quoted &
unquoted investments should be stated.
 AS-14
• AMALGAMATION OF TREATMENT OF
RESULTANT GOODWILL OR RESERVES
• TAKE OVER OF EXISTING BUSINESS AND
FORMATION OF NEW BUSINESS.
 AS-15
• ACCOUNTING OF RETIREMENT BENEFIT TO
EMPLOYEES IN FINANCIAL STATEMENTS
• PF/PENSION/GRATUIITY LEAVE ENCASHMENT
POST RETIREMENT WELFARE SCHEME
• METHOD BY WHICH RETIREMENT BENEFITS
VALUED.
 AS-16
• CAPITALIZATION OF BORROWING COST
ATTTRIBUTABLE TO
ACQUISITION/CONSTRUCTION OR
PRODUCTION WHERE QUALIFYING ASSET
TAKES SUBSTANTIAL PERIOD TO GET IT READY
FOR INTENDED USE OR SALE.
 AS-17
• SEGMENT REPORTING
• REPORTING OF INFORMATION ABOUT
DIFFERENT TYPES OF PRODUCT AND SERVICES
OF AN ENTERPRISE AND ITS OPERATIONS IN
DIFFERENT GEOGRAPHICAL AREAS.
• FOR ASSESSING RISK AND RETURN OF
DIVERSIFIED OR MULTILOCATIONAL
ENTERPRISE.
 AS-18
• REPORTING OF RELATED PARTY RELATIONSHIP
AND TRANSACTIONS BETWEEN A REPORTING
ENTERPRISE AND RELATED PARTY.
• NAME OF RELATED PARTY AND RELATIONSHIP
WHERE CONTROL EXIST TO BE DISCLOSED.
 AS-19
• LEASE: A LEASE AN AGREEMENT WHEREBY
THE LESSOR CONVEYS TO THE LESEE IN
RETURN FOR A PAYMENT OR SERIES OF
PAYMENTS THE RIGHT TO USE AN ASSET FOR
A AGREED PERIOD.
• ACCOUNTING POLICIES FOR LESSOR AND
LESSEE AND DISCLOSURE IN RELATION TO
FINANCIAL LEASE AND OPERATING LEASE.
 AS-20
• PRINCIPLES & DETERMINATION OF EARNING
PER SHARE
• COMPARISON BETWEEN ENTERPRISES.
• NET PROFI(LOSS)/ WEIGHTED AVERAGE
NUMBER OF SHARES.
 AS 21
• CONSOLIDATED FINANCIAL STATEMENT OF
PARENT AND SUBSIDARIES.
• A list of all subsidiaries including ownership &
voting rights.
• Relationship between the parent & the
subsidiary.
 AS-22
• METHOD OF DETERMINATION OF AMOUNT
OF EXPENSES OR SAVING RELATING TO TAXES
ON INCOME IN RESPECT OF AN ACCOUNTING
PERIOD.
• DEFERRED TAX ASSETS AND LIABILITIES
SHOULD BE DISTINGUISHED FROM CURRENT
TAX ASSETS AND LIABILITIES
 AS-23:
• ACCOUNTING FOR INVESTMENT IN
ASSOCIATES in Consolidated Financial
Statements).
 AS-24(Discounting Operations)
• DISCONTINUATION OF OPERATION OF
PARTICULAR SEGMENT.
• DISCLOSURE OF PRE TAX PROFIT OR LOSS
FROM ACTIVITIES ATTRIBUTABLE TO
DISCONTINUING OPERATIONS.
AS-25(Interim Financial Reporting)
• INTERIM REPORTING WHICH IS NOT FOR
COMPLETE REPORTING PERIOD.
• CONDENSED B/S
• CONDENSED P&L
• CONDENSED CASH FLOW STATEMENT
• EXPLANATORY NOTES.
 AS-26: Intangible Assets
• OTHER THAN INTANGIBLE ASSETS COVERED IN AS-
22( DEFERRED TAX ASSETS)
• RELATE TO START UP COST ( EG ADVT ETC)
• R&D
• PATENTS AND COPY RIGHT
• GOODWILL
• DISCLOSURE: USEFUL LIFE OR AMORATIZATION RATE
• AMORATIZATION METHOD.
AS-27 : Financial Reporting in case
of JVs.
• TWO OR MORE PARTIES UNDER TAKE
ECONOMIC ACTIVITY WITH JOINT CONTROL
• ACCOUNTING FOR JOINT VENTURE IN A
CONSOLIDATED FINANCIAL STATEMENT.
• DISCLOSURE: ANY CONTINGENT LIABILITY
INCURRED BY VENTURER AND ITS SHARE.
• ANY CAPITAL COMMITMENT AND ITS SHARE.
 AS-28: Impairment of Assets
• EQUITY OR DEBT LISTED
• TURNOVER EXCEED RS.50 CRORES
• PRINCIPLE OF THIS A.S IS TO ENSURE
CARRYING COST OF ASSET IS NOT MORE THAN
RECOVERABLE VALUE OF ASSET.
• NOT APPLIED TO INVENTORIES AS 2
• CONSTRUCTION CONTRACT AS 7
• FINANCIAL ASSETS AS 13 & DEF TAX AS 22
 AS-29
• AS-29 DEALS WITH
• ACCOUNTING FOR PROVISIONS,CONTINGENT
LIABILITIES AND CONTINGENT ASSETS WITH
EXECEPTIONS AS TO EXECUTORY CONTRACTS,
THOSE ARISING IN INSURANCE FROM
CONTRACT WITH POLICY HOLDERS AND THOSE
COVERED UNDER ANOTHER ACCOUNTING
STANDARD.
• THANK YOU.