11
Dr. S. K. SinghM. Com., Ph. D.
Recipient of Rashtriya
Gaurav Award,
Asian Admirable Achiever,
Included in Asia/Pacific Who’s Who
Dr. Sanjay Kumar SinghM. Com., Ph. D.
Deptt. of Commerce,
Ghatshila College,
A Constituent Unit of
Kolhan University, Ghatshila
Ghatshila,
Shailesh ChauhanB. Com. Hons. (With Distinction),
M. Com. (Topper)
Strictly according to the latest syllabus prescribed by
Central Board of Secondary Education (CBSE), Delhi
and
Bihar School Examination Board (Senior Secondary), Patna
and Navodaya, Kasturba, Kendriya Vidyalayas etc. following
CBSE curriculum based on NCERT guidelines
Thoroughly Revised Edition
ACCOUNTANCYACCOUNTANCYACCOUNTANCYACCOUNTANCY
Price : ` 465.00 Only
Authors & Publisher
Revised Edition : 2015-16
Book Code : 9715
ISBN : 978-93-81865-02-6
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ICAI
IICA
ICWAI
ISO
J.F.
L
L.F.
L.R.
N.L.
N.P.
N.P.R.
N.R.
O.D.
O.R.
O/S
P.A.T.
P.B.D.D.
P.B.I.T.
P.B.T.
P.L. or P/L
P.N.
P.P.
P.R.
Q.R.
RAM
RBI
R.D.D.
R/I
R.O.I.
R.O.C.E.
ROM
SEBI
S.L.M.
S.N./Sl.N.
S/R
SQL
T.B.
T.D.
T.D.S.
V. No.
W.D.V.
LIST OF ABBREVIATIONSAssets
Account
American Institute of
Certified Public Accounts
Accounting Standards
Accounting Standards Board
Brought down
Bills of Exchange
Brought Forward
Bills Payable
Bills Receivable
Brothers
Balance Sheet
Bank Reconciliation
Statement
Bill Value
Capital/Owner’s Capital
Contra Entry
Central Board of Direct
Taxes
Cash Discount
Carried down
Credit Note
Conference on Data System
Languages
Central Processing Unit
Current Ratio
Data Base
Data Base Management
Doubtful Debts
Demand Draft
Debt Equity Ratio
Debit Note
Data Definition Language
Dividend Per Share
Debtors Turnover Ratio
Equity
Earning Per Share
Financial Statements
Generally Accepted
Accounting Principles
Gross Profit
Gross Profit Ratio
International Accounting
Standards
International Accounting
Standards Committee
A
A/c
AICPA
AS
ASB
B/d
B/E
B/F
B/P
B/R
Bros.
B/S
B/R/S (B.R.S.)
B.V.
C
C
CBDT
C.D.
C/d
C/N
COSDASYL
CPU
C/R
D.B.
D.B.M.
D.D.
D.D.
D.E.R.
D/N
DDL
D.P.S.
D.T.R.
E
E.P.S.
F.S.
GAAP
G.P.
G.P.R.
IAS
IASC
Institute of Chartered
Accountants of India
Indian Institute of Chartered
Accountants
Institute of Cost & Works
Accountants of India
International Standard
Organisation
Journal Folio
Liabilities
Ledger Folio
Liquid Ratio
Net Loss
Net Profit
Net Profit Ratio
New Reserve
Overdraft
Old Reserve/Operating Ratio
Outstanding
Profit After Tax
Provision for Bad and
Doubtful Debts
Profit Before Interest and
Tax
Profit Before Tax
Profit Loss
Promissory Note
Prepaid
Purchase Returns
Quick Ratio
Random Access Memory
Reserve Bank of India
Reserve for Doubtful Debts
Returns Inward
Return on Investment
Return on Capital Employed
Read Only Memory
Securities Exchanges Board
of India
Straight Line Method
Serial Number
Sales Returns
Structured Querry Language
Trial Balance
Trade Discount
Tax Deduction at Source
Voucher Number
Written Down Value
1. 1—20
[1.1 Introduction, 1.2 Evolution and Development of Accounting, 1.3 Meaning and
Definitions of Accounting, 1.4 Accounting Cycle, 1.5 Features of Accounting,
1.6 Objectives of Accounting, 1.7 Book-keeping, 1.8 Nature of Accounting, 1.9 Is
Accounting a Science or an Art ?, 1.10 Functions of Accounting, 1.11 Types or Branches of
Accounting, 1.12 Advantages of Accounting, 1.13 Limitations of (Financial) Accounting,
1.14 Accounting : As a Source of an Information System, 1.15 Users of Accounting
Information and their Needs, 1.16 Qualitative Characteristics or Attributes of
Accounting Information, 1.17 Role of Accounting, 1.18 Role of an Accountant in Society,
1.17 Fast Revision Useful Questions]
2. 21—31
[(A) Basic Accounting Terms Prescribed in the Syllabus—2.1 Assets, 2.2 Liabilities,
2.3 Capital, 2.4 Expenses, 2.5 Income, 2.6 Expenditure, 2.7 Revenue, 2.8 Debtor,
2.9 Creditor, 2.10 Goods, 2.11 Cost, 2.12 Stock, 2.13 Purchases, 2.14 Sales, 2.15 Profit,
2.16 Loss, 2.17 Gain, 2.18 Voucher, 2.19 Discount, 2.20 Transaction, 2.21 Drawings,
(B) Other Important Accounting Terms— 2.22 Entity, 2.23 Equity, 2.24 Bad Debt,
2.25 Doubtful Debt, 2.26 Solvent, 2.27 Account, 2.28 Debit, 2.29 Credit, 2.30 Entry,
2.31 Books of Accounts 2.32 Receivables, 2.33 Payables, 2.34 Insolvent, 2.35 Net Worth
Useful Questions]
3. 33—46
[3.1 Theoretical Base of Accounting, 3.2 Meaning of Accounting Principles, 3.3 Generally
Accepted Accounting Principles (GAAP), 3.4 Nature of Accounting Principles, 3.5 Need
and Importance of Accounting Principles, 3.6 Essential Features of Accounting
Principles, 3.7 Accounting Concepts, 3.8 Fast Revision Useful Questions]
4. 47—58
[4.1 Meaning of Accounting Standard, 4.2 Objectives or Purposes of Accounting
Standards, 4.3 Need and Significance of Accounting Standards, 4.4 Nature of Accounting
Standards, 4.5 International Accounting Standards, 4.6 Accounting Standards in India,
4.7 Accounting Standards in India : At a Glance, 4.8 International Financial Reporting
Standards (IFRS), 4.9 Fast Revision Useful Questions]
5. 59—66
[5.1 Process of Accounting, 5.2 Bases of Accounting, 5.3 Distinction between Cash Basis
and Accrual Basis, 5.4 System of Accounting Mechanism, 5.5 Fast Revision Useful
Questions]
6. 67—78
[6.1 Source Documents of Accounting, 6.2 Vouchers, 6.3 Difference between Source
Documents and Vouchers, 6.4 Importance or Advantages of Source Documents of
Accounting, 6.5 Fast Revision Useful Questions Practical Questions]
7. 79—98
[7.1 Meaning of Accounting Equation, 7.2 Importance or Purposes of Accounting
Equation, 7.3 Classification of Accounts and Rules for Developing Accounting Equation.
Accounting—An Introduction
●
Basic Accounting Terms
●
Theory Base of Accounting : Accounting Principles
●
Accounting Standards and IFRS
●
Process and Bases of Accounting
●
Source Documents and Vouchers
● ●
Accounting Equation
ContentsContentsContentsContents
7.4 Effects of Financial Transactions on Accounting Equation, 7.5 Treatment of Revenue
Payments and Revenue Receipts, 7.6 Clarification of Accounting Equation with
Examples, 7.7 Profit and Loss Account Equation, 7.8 Fast Revision Useful Questions
Practical Questions]
8. 99—116
[8.1 Double Entry System, 8.2 Accounts, 8.3 Rules of Debit and Credit, 8.4 Fast Revision
Useful Questions Practical Questions]
9. 117—165
[9.1 Books of Original Entry—Journal, 9.2 Journalising, 9.3 Process or Steps involved in
Journalising, 9.4 Division of Goods Account, 9.5 Compound or Composite Entries,
9.6 Discount : Trade Discount and Cash Discount, 9.7 Difference between Trade Discount
and Cash Discount, 9.8 Entries of Some Special Transactions, 9.9 Sales Tax/VAT–Value
Added Tax, 9.10 Bad Debts, 9.11 Opening Journal Entry, 9.12 Journal Entries relating to
Banking Transactions, 9.13 Purchases by using Credit Card/Plastic Money, 9.14 Fast
Revision Useful Questions Practical Questions]
10. 167—197
[10.1 Meaning and Definition of Ledger, 10.2 Necessity and Utility of Ledger,
10.3 Distinction between Journal and Ledger, 10.4 Posting, 10.5 Balancing and Closing of
Accounts, 10.6 Balancing of Different Kinds of Accounts, 10.7 Fast Revision Useful
Questions Practical Questions]
11. 199—238
[11.1 Introduction, 11.2 Meaning of Sub-division of Journal, 11.3 Classification of Journal
or Subsidiary Books, 11.4 Advantages of Subsidiary Books / Special Purpose Books or
Sub-division of Journal, 11.5 Recording of Cash Transactions : Cash Book, 11.6 Fast
Revision Useful Questions Practical Questions]
12. 239—264
[12.1 Purchases Book or Purchases Journal, 12.2 Sales Book or Sales Journal,
12.3 Purchases Returns Book or Returns Outward Book, 12.4 Sales Returns Book or
Returns Inward Book, 12.5 Bills Receivable Book, 12.6 Bills Payable Book, 12.7 Journal
Proper or General Journal, 12.8 Fast Revision Useful Questions Practical Questions]
13. 265—296
[13.1 Meaning and Definition of Bank Reconciliation Statement, 13.2 Why is BRS
Prepared ? Or Need and Importance of Bank Reconciliation Statement, 13.3 Causes of
Difference in the Cash Book and Pass Book Balances, 13.4 Preparation of Bank
Reconciliation Statement, 13.5 Summary of the Rules, 13.6 Project—A Process,
13.7 Fast Revision Useful Questions Practical Questions]
14. 297—318
[14.1 Meaning and Definitions of Trial Balance, 14.2 Objectives of Preparing a Trial
Balance, 14.3 Preparation of Trial Balance, 14.4 Uses of the Trial Balance,
14.5 Limitations of Trial Balance, 14.6 Is a Trial Balance Conclusive Proof of the Accuracy
of Accounts ?, 14.7 Errors, 14.8 Steps to Locate Errors, 14.9 Fast Revision Useful
Questions Practical Questions]
15. 319—356
[15.1 Meaning of Rectification of Errors, 15.2 Classification of Rectification of Errors,
15.3 Suspense Account, 15.4 Effects of Errors on Final Accounts, 15.5 Effects of Rectifying
●
●
Double Entry System and Rules of Debit and Credit
● ●
Recording of Business Transactions : Books of Original Entry Journal
● ●
Ledger
●
●
Special Purpose (Subsidiary) Books (I) : Cash Book
● ●
Special Purpose (Subsidiary) Books (II)
● ●
Bank Reconciliation Statement
● ●
Trial Balance
●
●
Rectification of Errors
Chapter Page No.
(ii)
Chapter Page No.
Entries on Profit and Loss Account, 15.6 Fast Revision Useful Questions Practical
Questions]
16. 357—404
[16.1 Meaning and Definitions of Depreciation, 16.2 Depreciation and Other Related
Terms, 16.3 Features or Characteristics of Depreciation, 16.4 Objects of Providing
Depreciation Or Need for Charging Depreciation, 16.5 Causes of Depreciation,
16.6 Factors Determining/Affecting Depreciation, 16.7 Depreciation Accounting,
16.8 Rules for Calculating Depreciation, 16.9 Methods of Charging Depreciation,
16.10 Difference between Straight Line Method and Written Down Value Method,
16.11 Methods of Recording Depreciation, 16.12 Assets Disposal Account, 16.13 Assets
destroyed by Fire/Accident, 16.14 Accounting Standard–6 (AS-6) (Revised) : Depreciation
Accounting, 16.15 Fast Revision Useful Questions Practical Questions]
17. 405—416
[I. Provisions—17.1 Meaning of Provisions, 17.2 Features of Provisions, 17.3 Objectives or
Importance of Provisions, 17.4 Some Popular Provisions, II. Reserves—17.5 Meaning of
Reserve, 17.6 Features of Reserves, 17.7 Objectives or Importance of Reserves,
17.8 Distinction between Provisions and Reserves, 17.9 Types or Classification of
Reserves, 17.10 Open Reserve, 17.11 Secret Reserve, 17.12 Fast Revision Useful
Questions]
18. 417—466
[18.1 Meaning of Bills of Exchange, 18.2 Characteristics or Features of Bills of Exchange,
18.3 Parties to a Bill of Exchange, 18.4 Types of Bills of Exchange, 18.5 Difference
between Trade Bills and Accommodation Bills, 18.6 Promissory Note, 18.7 Distinction
between a Bill of Exchange and a Promissory Note, 18.8 Benefits or Advantages of a
Bill of Exchange, 18.9 Bills Receivable and Bills Payable, 18.10 Important Terms,
18.11 Accounting Treatment, 18.12 Fast Revision Useful Questions Practical
Questions]
19. 467—479
[19.1 Introduction, 19.2 Classification of Expenditure, 19.3 Revenue Loss, 19.4 Classifica-
tion of Receipts, 19.5 Fast Revision Useful Questions Practical Questions]
20. 481—532
[20.1 Meaning of Financial Statements, 20.2 Objectives of Financial Statements,
20.3 Users of Financial Statements, 20.4 Preparation of Financial Statements,
20.5 Difference between Trial Balance and Balance Sheet, 20.6 Difference between Profit
& Loss Account and Balance Sheet, 20.7 Manufacturing Account, 20.8 Fast Revision
Useful Questions Practical Questions]
21. 533—626
[21.1 Meaning of Adjustment, 21.2 Necessity and Objects of Adjusting Entries,
21.3 Important Adjustments/Types of Adjusting Entries, 21.4 Summary of Adjustments,
21.5 Fast Revision Useful Questions Practical Questions]
22. 627—677
[22.1 Meaning and Definitions of Incomplete Records System, 22.2 Uses or Reasons for
Maintaining Incomplete Records System, 22.3 Essentials or Main Features of Incomplete
Records System, 22.4 Types of Incomplete Records System, 22.5 Advantages of
Incomplete Records System, 22.6 Demerits and Limitations or Disadvantages of
Incomplete Records System, 22.7 Difference between Double Entry System and
● ●
Depreciation
● ●
Provisions and Reserves
●
Accounting for Bills of Exchange
● ●
Capital and Revenue Expenditures and Receipts
● ●
Financial Statements/Final Accounts (Without Adjustment)
● ●
Final Accounts (With Adjustment)
● ●
Accounts from Incomplete Records or Single Entry System
(iii)
Chapter Page No.
Incomplete Records System, 22.8 Difference between Balance Sheet and Statement of
Affairs, 22.9 Ascertainment of Profit or Loss under Incomplete Records System,
22.10 Fast Revision Useful Questions Practical Questions]
23. 679—749
[23.1 Meaning of Not-for-Profit Organisations, 23.2 Accounting Records of Not-for-Profit Organisations, 23.3 Receipts and Payments Account, 23.4 Income and Expenditure Account, 23.5 Fund Based Accounting and Non-fund-Based Accounting 23.6 Explanation and Treatment of Some Important Items, 23.7 Preparation of Balance Sheet,23.8 Incidental Trading Activities, 23.9 Fast Revision Useful Questions Practical Questions]
1. 1—14
[1.1 Introduction to Computer, 1.2 Meaning and Definitions of Computer, 1.3 Capabilities or Features or Characteristics of Computer, 1.4 Components of Computer System, 1.5 Elements of Computer System, 1.6 Classification or Types of Computer, 1.7 Accounting Information System (AIS), 1.8 Distinction between Human and Computer, 1.9 Limitations of Computer System, 1.10 Fast Revision Useful Questions]
2. 15—28
[2.1 Evolution of Computerised Accounting, 2.2 Concept of Computerised Accounting System, 2.3 Applications of a Computer in Accounting, 2.4 Types of Accounting Software, 2.5 Role of Computer in Accounting, 2.6 Features of Computerised Accounting System, 2.7 Different Components of Computerised Accounting System, 2.8 Automation of Accounting Process, 2.9 Designing of Accounting Reports, 2.10 Management Accounting System (MAS) and Accounting Information System (AIS), 2.11 Relationship between Accounting Information System, Manufacturing Information System and Human Resources Information System, 2.12 Relationship between Accounting Information System and (AIS) Marketing Information System, 2.13 Relationship between AIS and Manufacturing System, 2.14 Comparison between Manual and Computerised Accounting, 2.15 Types of Accounting Programmes, 2.16 Sourcing of Accounting Software, 2.17 Advantages and Disadvantages of Computerised Accounting, 2.18 Fast Revision Useful Questions]
3. 29—48
[3.1 Meaning of Database, 3.2 Basic Components of Database, 3.3 Processing of Data, 3.4 Database Management System (DBMS), 3.5 Entity Relationship (ER) Model, 3.6 Relational Data Model (RDM), 3.7 Structured Query Language (SQL), 3.8 Normalisation, 3.9 Designing and Creating Simple Tables, Forms, Queries and Reports in the Context of Accounting System, 3.10 Fast Revision Useful Questions
Practical Questions]
● 1—32
● 1—10
● ●
Accounting for Not-for-Profit-Organisations *
● ●
UNIT : Computer in Accounting
Introduction to Computer and Accounting Information System (AIS)
●
Applications of Computer in Accounting
●
Accounting and Database System
●
●
Project Work
Latest Model Paper
(iv)
*This Chapter is only for CBSE Students
After studying this chapter you will be able to explain :
1.1 Introduction
1.2 Evolution and Development of Accounting
1.3 Meaning and Definitions of Accounting
1.4 Accounting Cycle
1.5 Features of Accounting
1.6 Objectives of Accounting
1.7 Book-keeping
1.8 Nature of Accounting
1.9 Is Accounting a Science or an Art ?
1.10 Functions of Accounting
1.11 Types or Branches of Accounting
1.12 Advantages of Accounting
1.13 Limitations of (Financial) Accounting
1.14 Accounting : As a Source of an Information System
1.15 Users of Accounting Information and their Needs
1.16 Qualitative Characteristics (or Attributes) of Accounting
Information
1.17 Role of Accounting
1.18 Role of an Accountant in Society
1.19 Fast Revision
● Useful Questions
ACCOUNTING—AN INTRODUCTION
Learning Objectives
1
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ULIC
T
S
BPD
PB
AIO
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P
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CO
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1.1 Introduction
Accounting discipline is concerned with recording, classifying and analysing transactionsand events which are primarily of financial character. Its function is to providequantitative information about economic activities that is intended to be useful in makingdecisions.
Accounting is often called as the language to business. The basic function of anylanguage is to serve as a means of communication. Accounting also serves this function. Itcommunication the results of business operations to various parties who have some stakein the business, such as, proprietor, creditors, investors, financial institutions,Government and other agencies.
Though accounting is generally associated with business, non-trading organisationslike schools, colleges, hospitals, clubs, political parties, charitable trusts, Government,house wives and other individuals also make use of it. In other words, where money isinvolved, accounting is required to account for it. In fact, accounting can be thought of as adiscipline having universal applicability. However, its growth is closely associated withdevelopment of trade, industry and commerce.
1.2 Evolution and Development of Accounting
Accounting has evolved in a manner similar to law, medicine and most other fields of
human activity. It has evolved in response to the social and economic needs of the society.
In fact, Book-keeping and accounting did not emerge as chance phenomena, but as a
pragmatic response to a specific world need1.
Accounting is an ancient art. It is as old as money itself. But we are of the opinion that
some sort of Accounting must be prevalent during the Barter system, otherwise the
exchange of articles was not possible. In the exchange of articles, one can see the basic
feature of accounting—giving the benefit and receiving the benefit. Kautilya, famous
Arthshastra not only relates to politics and economics but also explains the art of account
keeping practices in India. It describes how accounting records have to be maintained. In
China and in Egypt accounting was used for maintaining revenue records of the
Government treasury. However, the modern system of accounting owes its origin to Lucas
Pacioli, an Italian mathematician. Pacioli is looked upon as the father of modern
accounting. A book Summade-Arithmetica Geometrica, Proportion at Proportionality
(Review of Arithmetic and Geometric Proportion) by an Italian Lucas Pacioli (1494) is
considered as the first authentic book on double entry book-keeping. In this book he used
the present day popular terms of accounting Debit (owed to) and Credit (owed by).1 He also
discussed in details of memorandum, Journal, ledger and specialised accounting
procedures. He also stated that “all entries have to be double entries, i.e., if you make one
creditor; you must make same debtor.” This book was translated into English by Hugh Old
Cassel in 1553. Then it spread throughout the world. Sieve King says that Book-keeping
developed as a direct response to the establishment of partnership on a large scale.
For centuries after the system of double entry book-keeping appeared, accounting
was practiced without uniform methodolgy or any form of theory. It was only during the
19th century that a distinct move from book-keeping to accounting developed. The move
was from simple recording and classifying of transactions towards accounting information.
Growth of business and complexities gave rise to the need of accounting system. Industrial
revolution of 18th century and globlised trade and commerce nececiated further
2 SBPD Publications Financial Accounting (XI)
1 Maurice Moonitz and A.c Littleton, Significant Accounting Essays, Prentice Hill, 1965, p. 12.
2 Debitur (latin word) – Debito — Debit (English term), Creder (latin word) – Credito – Credit (English term)Creder.
Accountancy Claas 11th
Publisher : Sbpd Publications ISBN : 9789381865026Author : Dr. S. K. Singh, Dr.Sanjay Kumar Singh &Shailesh Chauhan
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