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7/23/2019 Introduction to Accounting.ppt
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Introduction
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Definition of Accounting
The art of recording, classifying andsummarising, 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
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Features of Accounting
Recording
Classifying
ummarisingAnalysis and Interpretation
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!ranches of Accounting
Financial Accounting
Cost Accounting
"anagement Accounting
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I"'#RTA%T ACC#$%TI%& T(R"
Debtor
Creditors
Capital
Assets
Liabilities
Stock
Purchases
Sales
Outstanding Expenses Accrued expenses
Prepaid Expenses
Prepaid Income
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I"'#RTA%T ACC#$%TI%&
T(R"'urchase return or return outwardsales return or return inwards
DrawingsDe5t
!oo6 de5t
olvent
Revenue or Income
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T(R"(7penses-oss
olvent Insolvent
De5it
Credit!oo6s of Account
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I"'#RTA%T ACC#$%TI%&
T(R" ournalu5sidiary 5oo6s
-edger8oucher
Receipt
C9F!9F
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Definition of Accounting
ConceptsAccounting concepts are defined as theassumptions upon which accounting is
5ased
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Accounting Concepts
"oney "easurement Concept:
#nly monetary transactions which can 5e
e7pressed in terms of money are recorded*
%on monetary aspects will not 5e recorded
Diverse items li6e assets, lia5ilities, etc* can 5e
e7pressed in a common denominator of money
The ma;or limitation is that since non monetarytransactions are not recorded, accounting
records do not give full picture
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Accounting Concepts
!usiness (ntity Concept:
The 5usiness is considered as a distinct
entity from the persons who own it*
The 5usiness affairs are 6ept separate from
the personal affairs
Financial position of the 5usiness isascertained properly
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Accounting Concepts
&oing Concern Concept:
The 5usiness is considered that it will
continue for a fairly long time
Distinction 5etween capital and revenue
items can 5e made
8aluation of fi7ed assets are made#utstanding e7penses and income and
accrued e7penses and income are considered
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Accounting Concepts
Cost Concept:
An asset ac
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Accounting Concepts
Dual Aspect Concept:
(very 5usiness transaction always results in
receiving some 5enefits of value and giving
of some other 5enefits of e
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Accounting Concepts
Accounting 'eriod Concept:
For measuring the financial results of the
5usiness, the wor6ing of the 5usiness is
split in to convenient periods of time 6nown
as accounting periods
Accounting year
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Accounting Concepts
#5;ective (vidence Concept:
Accounting entries should 5e evidenced and
supported 5y documents
8ouchers, invoices
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Accounting Concepts
"atching Concept:
For measurement of profit or loss, revenues
and e7penses are matched and compared
The net profit or loss is determined 5y
matching the e7penses and losses with
revenues
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Accounting Concepts
Revenue Recognition Concept:
Revenue is recognised as 5eing 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 5ecomes lia5le to pay
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Accounting Concepts
Accrual Concept:
Accrual concept recognises 5oth revenue
and e7penses
All transactions must 5e 5rought to record
whether they are settled or not
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Accounting Conventions
Convention of Conservatism:
Caution, prudence and playing safe
'rovide for all possi5le losses 5ut anticipateno profits
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Accounting Conventions
-egal Aspect Convention:
Accounting records and 5oo6s should
reflect the legal position of the 5usiness
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Accounting Conventions
Convention of "ateriality:
A detailed record is made only of those
5usiness transactions which are material
and important
%o detailed record are made of insignificant
transactions
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Accounting Conventions
Convention of Consistency:
Accounting practices and methods should
remain consistent
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Accounting Conventions
Convention of Full Disclosure:
All material facts must 5e disclosed in the
financial statements
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CHARACERISICS O!
ACCO"I#$ I#!OR%AIO#
Understandability
Relevance
ConsistencyComparability
Reliability
Objectivity
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T0'( #F ACC#$%T
N a t u r a l
e g : r a m , s h y a m e t c
A r t i f i c i a l
e g ; b a n k , c l u b e t c
R e p r e s e n a t i v e
e g : P r e p a i d r e n t e t c
P E R S O N A
! a n g i b l e s
e g : c a r , P l a n t e t c
" n t a n g i b l e s
e g : p a t e n t e t c
R E A N O # " N A
" # P E R S O N A
A $ $ O % N ! S
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'ersonal Accounts
Accounts of natural or physical
persons+Ravi@s account, A65ar@s account.
Accounts of artificial or legal
persons+accountsof firms, companies, clu5s,
associations, 5an6s, schools, colleges.
Representative personal accounts+outstanding
e7penses account, accrued e7penses account,prepaid account.
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Rule for 'ersonal Accounts
De5it the receiver
Credit the giver
Received from Ravi /,'aid &anesh B
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Real Accounts
Accounts of tangi5le assets
Accounts of Intangi5le assets
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Rule for Real Accounts
De5it what comes in
Credit what goes out
'aid "r* A /old "achinery to Ra; for B
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%ominal Accounts
Revenue accounts
(7penses account
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Rule for %ominal Accounts
De5it all e7penses and -osses
Credit all incomes and gains
'aid rent BReceived commission /