• Students cannot get 100% effective learning from my presentation only.

Combination of both
my teaching techniques and my presentation gives 100% effective learning.
• Moreover, as per my instructions, Students will write formulas, make summary of each topics
etc. so only those students will get 100% benefits of this presentation who is attending my
class.
• Coloring Effect gives tremendous output in remembering and revising the concept.
• Same way on the other hands, Random coloring destroys reading ability. So that I have not
put random & haphazard coloring in the material just for the sake of it.
• All the colors have been carefully put at relevant portions to highlight the importance of
words and enhance readability and comprehension. I have throughout this book followed a
logical coloring pattern.
• Moreover, I have maintain Logical fonts and formatting throughout this presentation to
increase your reading capacity

© CA Samarth Raychura. All Rights Reserved.

TO ALL OF YOU
1. Build a Strong Accounting Concepts in You

2. Maximum Marks in this Subject

3. I want that One Day you will finalize Accounts

of Listed Company or Multinational Company
 Book-
Transactions Accounting
Keeping

Source Documents Classifying and

Recoding of Financial
1. Expense Voucher Summarizing in a
data relating to
2. Sales Invoices significant manner to
Business Operations
3. Purchase Invoice interpret the Results
4. Payment Voucher
5. Etc.
• Book-keeping is an activity concerned with the recording of financial
data relating to business operations in a significant and orderly
manner. It covers procedural aspects of accounting work and
embraces record keeping function.
• Obviously, book-keeping procedures are governed by the end product,
the financial statements.
• The term ‘financial statements’ means Profit and Loss Account and
Balance Sheet including Schedules and Notes forming part of
Accounts. As discussed earlier, Profit and Loss Account gives result
of economic activities for a period and Balance Sheet states the
financial position at the end of the period.
• Maintenance of books of accounts and the preparation of financial
statements of a company are guided by the Companies Act, banks and
insurance companies by special Acts governing these institutions and
so on. However, for sole-proprietorship and partnership business,
there is no specific legislation regarding maintenance of books of
accounts and preparation of financial statements.
 • It is concerned with complete and
1. Complete Recording permanent record of all transactions
of Transactions in a systematic and logical manner to
show its financial effect on the
business.

• It is concerned with the combined

2. Ascertainment of effect of all the transactions made
Financial Effect on the during the accounting period upon the
Business financial position of the business as a
whole.
 • Accounting is the the process of recording, classifying,
summarising, analysing and interpreting the financial
transactions and communicating the results thereof to the
persons interested in such information.

Interpretation of above Definition;

• Recording – Book-Keeping
• Classifying – Income, Expense, Assets, Liability, Capital A/c
• Summarizing – P&L and Balance Sheet
• Analyzing and interpreting - Ratio Analysis like Current Ratio
• Communicating the results – Annual Report
• Persons interested in such information – Users of FS
1. 2. 3.
Ascertainment Ascertainment
Systematic of results of of the
recording of above financial
transactions recorded position of the
transactions business

4. Providing
5.
information to
To know the
the users for
solvency
rational
position
decision-
making
• Some people make mistake that book-keeping and accounting
to be synonymous terms, but in fact they are different from
each other.
• Accounting is a broad subject. It calls for a greater
understanding of records obtained from book-keeping and an
ability to analyze and interpret the information provided by
book-keeping records.
• Book-keeping is the recording phase while accounting is
concerned with the summarizing phase of an accounting
system.
• Book-keeping provides necessary data for accounting and
accounting starts where book-keeping ends.
Sr. No. Book-keeping
1 It is a process concerned with
recording of transactions.
2 It constitutes as a base for
accounting.
3 Financial statements do not form
part of this process.
4 Managerial decisions cannot be
taken with the help of these
records.
5 There is no sub-field of book-
keeping.
6 Financial position of the business
cannot be ascertained through
book-keeping records.
Accounting
It is a process concerned with
summarizing of the recorded
transactions.
It is considered as a language of the
business.
Financial statements are prepared in
this process on the basis of book-
keeping records.
Management takes decisions on the
basis of these records.
It has several sub-fields like financial
accounting, Cost accounting etc.
Financial position of the business is
ascertained on the basis of the
accounting reports.
• The knowledge of how to make accounting is called
accountancy.
• Accountancy tells how to maintain various books of accounts.
• How to prepare them and how to communicate accounting
information to the parties interested in them.
Relationship

Book-
Keeping
Accounting
Accountancy
There are three fundamental accounting assumptions :

1. Consistency
2. Accrual
3. Going Concern

If nothing has been written about the fundamental accounting

assumption in the financial statements then it is assumed that
they have already been followed in their preparation of financial
statements. However, if any of the above mentioned fundamental
accounting assumption is not followed then this fact should be
specifically disclosed.
In order to achieve comparability of the financial statements of an enterprise
over a time, the accounting policies are followed consistently from one period
to another; a change in an accounting policy is made only in certain
exceptional circumstances.

The concept of consistency is applied particularly when alternative methods of

accounting are equally acceptable. For example a company may adopt any of
several methods of depreciation such as written-down-value method, straight-
line method, etc. Likewise there are many methods for valuation of
inventories. But following the principle of consistency it is advisable that the
company should follow consistently over years the same method of
depreciation or the same method of valuation of Inventories which is chosen.
However in some cases though there is no inconsistency, they may seem to be
inconsistent apparently. In case of valuation of Inventories if the company
applies the principle ‘at cost or market price whichever is lower’ and if this
principle accordingly results in the valuation of Inventories in one year at cost
price and the market price in the other year, there is no inconsistency here. It
is only an application of the principle.
Under accrual concept, the effect of transactions and other events are
recognized on mercantile basis i.e., when they occur (and not as cash or a cash
equivalent is received or paid) and they are recorded in the accounting records
and reported in the financial statements of the periods to which they relate.
Financial statements prepared on the accrual basis inform users not only of
past events involving the payment and receipt of cash but also of obligations
to pay cash in the future and of resources that represent cash to be received in
the future.

• Revenue may not be realized in cash. Cash may be received simultaneously

or
(i) before revenue is created
(ii) after revenue is created
• Expenses may not be paid in cash. Cash may be paid simultaneously or
(i) before expense is made
(ii) after expense is made
• The financial statements are normally prepared on the assumption that an
enterprise is a going concern and will continue in operation for the
foreseeable future (at Least for next 12 Months).
• Hence, it is assumed that the enterprise has neither the intention nor the
need to liquidate or curtail materially the scale of its operations; if such an
intention or need exists, the financial statements may have to be prepared
on a different basis and, if so, the basis used is disclosed.
• The concept indicates that assets are kept for generating benefit in future,
not for immediate sale; current change in the asset value is not realizable
and so it should not be counted.
 If Followed If Not Followed

Not Required to Required to Disclose

Disclose in Financial in Financial
Statement Statement
Measurement: Accounting measures past performance of the
business entity and depicts its current financial position.
Forecasting: Accounting helps in forecasting future performance and
financial position of the enterprise using past data.
Decision-making: Accounting provides relevant information to the
users of accounts to aid rational decision-making.
Comparison & Evaluation: Accounting assesses performance
achieved in relation to targets and discloses information regarding
accounting policies and contingent liabilities which play an important
role in predicting, comparing and evaluating the financial results.
Control: Accounting also identifies weaknesses of the operational
system and provides feedbacks regarding electiveness of measures
adopted to check such weaknesses.
Government Regulation and Taxation: Accounting provides
necessary information to the government to exercise control on the
entity as well as in collection of tax revenues.
“Accounting principles are a body of doctrines commonly associated with the
theory and procedures of accounting serving as an explanation of current
practices and as a guide for selection of conventions or procedures where
alternatives exist.”

Accounting principles must satisfy the following conditions:

• They should be based on real assumptions;

• They must be simple, understandable and explanatory;
• They must be followed consistently;
• They should be able to reflect future predictions;
• They should be informational for the users.
1.Relevance
2.Reliability
3.Comparability
4.Understandability
5.Timeliness
6.Cost-benefit
7.Verifiability
8.Neutrality
9.Completeness
1.
Cash Basis of Accounting

2.
Accrual Basis of Accounting
1.
Single Entry System

• The single entry system is not a really a system because in some cases
record may be one – sided; and in some other cases no record is
maintained at all.
• It is more appropriate to call it an incomplete system of recording
transactions.
• Double effect of every transaction is ignored and only the accounts
relating to suppliers and customers an cash account are found.
• Thus, the system is incomplete, inaccurate and unscientific system of
recording business transactions.
 2.
Double Entry System
• The modern system of accounting is based on what is known as double
entry principle.
• It refers to that system of book keeping where each transaction is recorded
in both of its aspects. viz. (i). receiving of the benefit of the transaction and
(ii). Giving away of the benefit of the transaction.
• For a complete record of transactions, it should be presented in both the
accounts.
• Business transactions affect two aspects of the accounts in the opposite
direction. If are account receives a benefit there must be another account
to give the benefit.
• It is like the two sides of a coin. Thus, every transaction involves two
accounts, one which gives the benefit of the transactions and another
which receives the same.
1. Financial Accounting
2. Management Accounting
3. Cost Accounting
4. Social Responsibility Accounting
5. Human Resource Accounting
Questions?

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