FINANCIAL

ACCOUNTING
JESIN MARY JOHN
REG NO.:URK20CM3010
 REGULATORY FRAME WORK

A regulatory framework exists to ensure that the accounting standards are prepared to meet the
needs of users.
A regulatory framework for the preparation of financial statements is necessary for a number of
reasons:
 To ensure that the needs of the users of financial statements are met with at least a basic
minimum of information.
 To ensure that all the information provided in the relevant economic arena is both
comparable and consistent. Given the growth in multinational companies and global
investment this arena is an increasing international one.
 To increase users' confidence in the financial reporting process.
 To regulate the behavior of companies and directors towards their investors.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

IFRS stands for International Financial Reporting Standards. It is a set of common rules set by
the International Accounting Standards Board (IASB). These rules are set so that financial
statements can be consistent, transparent, and comparable around the world. The goal of IFRS is
to provide a global agenda for how public companies prepare and disclose their financial
statements. They provide general guidance for the preparation of financial statements, instead of
setting rules for industry-specific reporting.

A COMPARISON OF INDIAN AS, US GAAP AND IFRS

IFRS IAS US GAAP

The goal of IFRS is to provide
a global agenda for how public
companies prepare and
disclose their financial
statements. They provide
general guidance for the
preparation of financial
statements, instead of setting
rules for industry-specific
reporting.
The primary objective of
Indian Accounting Standards is
to harmonize different
accounting policies, which are
used in the preparation of
financial reports. This will ease
comparison with respect to
inter-firm and intra-firm
reporting.
The goal of GAAP is to
improve the clarity,
consistency, and
comparability of the
communication of financial
information.
 IMPORTANCE OF FINANCIAL STATEMENTS
Importance to Management
The management team needs up to date, accurate and systematic financial information for the
purposes. Financial statements help the management to understand the position of a business.
Importance to the Shareholders
These statements enable the shareholders to know about the efficiency and effectiveness of the
management and also the earning capacity and financial strength of the company.
Importance to Creditors
It is through the financial statements they come to know about the liquidity, profitability and
long-term solvency position of a company. This would help them to decide about their future
course of action.
Importance to Labor
Workers get their bonus depending upon the profit earned by the business.
Importance to the Public
Various groups of society, though directly not connected with business, are interested in
knowing the position, progress and prospects of a business enterprise.
Importance to National Economy
These statements provide information to the general public by which they can examine and
assess the real worth of the company and avoid being cheated.

USERS OF FINANCIAL STATEMENTS

INTERNAL USERS

Managers are the primary users of financial statements as they need the information to do their jobs.
They must make decisions such as whether to add debt or how to maintain cash flow, and making these
calls requires detailed knowledge about company finances.

Employees, such as accountants or the finance department, are users of financial statements because it
is part of their job. If other employees have access to the information, it can help them judge whether
the firm is in good shape.

Owners can use the statements to evaluate whether their investment is safe and whether the company
is providing an acceptable return on their money.
 EXTERNAL USERS

Outside investors:Like venture capitalists and stockholders will want to review your statements
before they write you a check.

Lenders: Loans are given after the bank examines your financial data

Creditors: Suppliers may review your financial health before deciding to extend credit.

Unions: If your cash flow and income are steady, the union may decide you can offer a more generous
employment package.

Regulators: a publicly traded corporation, will have to send the Securities and Exchange Commission
copies of your statements.

THOSE CHARGED WITH GOVERNANCE

The persons with responsibility for overseeing the strategic direction of the entity and obligations
related to the accountability of the business organization.
They are entrusted with the supervision, control and direction of an entity. Those charged with
governance ordinarily are accountable for ensuring that the entity achieves its objectives,
financial reporting, and reporting to interested parties.
They have the following two responsibilities:-
a) Accountability of the entity
b) Strategic direction of the entity
Examples of these persons are: Various committees of Board of directors such as audit
committee, shareholders committee etc.
Those charged with governance also take steps to prevent and detect fraud, which may include:
 Creating a culture of honesty and ethical behavior
 Developing an appropriate control environment
 Hiring, training and promoting employees
 Requiring periodic confirmation by employees of their responsibilities and taking
appropriate action in response to actual, suspected or alleged fraud.
 QUALITATIVE CHARACTERSTICS OF FINANCIAL INFORMATION

Understandability:
The information must be understandable to users. This means that information must be clearly
presented, with extra information provided in the supporting footnotes for clarification.
Relevance:
The information must be applicable to the needs of the users, which is the case when the
information influences their economic decisions. This can involve reporting particularly
appropriate information, or information whose omission or misstatement could influence the
economic decisions of users.
Reliability:
The information must be free of physical error and bias, and not misleading. It should faithfully
represent transactions and other events, reflect the fundamental substance of events, and
carefully represent estimates and uncertainties through proper disclosure.
Comparability:
The information must be comparable to the financial information presented for other accounting
periods, so that users can identify trends in the performance and financial position of the
reporting business.

ACCOUNTING CONVENTIONS

Conventions are like customs that help the accountant to communicate clear accounting picture.
In other words, accounting conventions are guidelines for the accountant that helps him or her to
prepare accounting statements. Accounting conventions were established with a motive to bring
uniformity in the books of accounts at the time of preparing them

ACCOUNTING POLICIES

Accounting policies are definite principles and procedures that are applied by a company's
management team that are used to prepare its financial statements. These include accounting
methods, measurement systems, and procedures for presenting disclosures

GOING CONCERN
It is the assumption that It refers to the uniformity that is to
the company will
continue to exist far into financial statements of a company
future.
For example a business
man would provide for
the upcoming future
losses and only take into
account the future gains
when they are realized
ACCOUNTING CONCEPTS
Accounting concept refers to the basic assumptions and rules and principles which work as the
2UUJ2J
basis of recording of business transactions and preparing accounts.
NO. CONCEPTS
1 Entity concept
2 Money measurement
concept
3 Periodicity concept
4 Accrual concept
5 Matching concept
6 Going concern concept
7 Cost concept
8 Realization concept
9 Dual aspect concept
10 Conservatism
11 Materiality
ACCOUNTING ASSUMPTIONS
CONSISTENCY ACCRUAL
Under this assumption, accounting
be followed while preparing the transactions are recorded in the
books of accounts as and when they
For example there are two occur or when they are realized.
methods of depreciation straight
In other words all prepaid or
line and written down method. If
advances are to be subtracted and
the accountant uses one method
outstanding amounts are to be added
this year and the other the next
year, the uniformity of the
accounts are not maintained
MEANING
Transactions associated with a business must be recorded separately
from those of its owners.
A business should only record a transaction if it can be expressed in the
terms of money.
An organization can report its financial reports in fixed periods of time
which can be on a monthly , quarterly or annually
Recording of accounting transactions as and when they are realized
It is an accounting practice where firms recognize revenues and their
related expenses in the same accounting period
The company assumes that they will continue to exist provided they
are financially stable
States that all items bought into the business must be recorded in the
cost that it was brought in.
This concept states that revenue can only be realized after it has been
earned.
Every transaction recorded has a dual effect where by one account has
to be debited and the other credited
A business should provide for the future expenses and losses and only
recognize revenues and assets as and when they are received
Any transaction that can be expressed in monetary terms and has a
significant impact on the companies accounts must be recorded
ACCOUNTING STANDARDS
Accounting standards are policies or authoritative standards that specify how transactions and
other events are to be recognized, measured, presented and disclosed in financial statements.

BENEFITS LIMITATIONS

It helps in comparing Difficulties in making choices

financial statements between different treatments

reduces the chances of Scope of the standards

manipulation and fraud are restricted

creates uniformity

DOUBLE ENTRY BOOK KEEPING

What is a double entry?
Double entry is a fundamental concept that states that
every transaction has an equal and opposite effect in at ASSETS = LIABILITIES + CAPITAL
least two accounts provided they satisfy the accounting
equation
For example: goods purchased for Rs 20,000 from Ruby and co.
The entry will be In the example shown it’s seen that two accounts
Purchases account Dr. 20,000 (purchases and Ruby and co.) are involved and
satisfies the accounting equation
To Ruby and co. 20,000

 RULES FOR DEBIT AND CREDIT

INCREASE DECREASE
ASSETS  DEBIT  CREDIT
LIABILITIES  CREDIT  DEBIT
OWNERS CAPITAL  CREDIT  DEBIT
EXPENSES  DEBIT  CREDIT
REVENUE  CREDIT  DEBIT
INCOME  CREDIT  DEBIT
  GOLDEN RULES OF ACCOUNTING

TYPE OF ACCOUNT DEBIT CREDIT

PERSONAL ACCOUNT RECIEVER GIVER
REAL ACCOUNT WHAT COMES IN WHAT GOES OUT
NOMINAL ACCOUNT EXPENSES /LOSSES INCOMES /GAINS

JOURNAL
Journal is the book that all transactions are first recorded. It is also known as a subsidiary
book. It is the book of original entry where transactions are entered daily in a chronological
manner. The main objective of a journal is to make a permanent and systematic record of all
financial transactions. The format for journal is given below .

DATE PARTICULARS L.F DEBIT CREDIT

Time of Names of the accounts involved to be debited Amount to

transaction (both debit and credit) where be credited
the account to be debited will
be written first with ‘Dr.’
written at the end and the next
line will be the account to be Number of the page in the ledger on which
credited that starts with ‘To’ the account is written

This will be followed by the

narration which is the summary
of the transaction

For example: Cash sales of Rs 50,000

2020 Cash account Dr 50,000

Jan 6 To Sales account 50,000
(Being cash sales of Rs 50,000)

Gives detailed information about the business transaction on time basis

MERITS it is the basis on which a ledger is made

the narration below the entry helps the business know why the transaction was made
 Journal records all transactions its becomes bulky and voluminous and hard to handle

DEMERITS It is difficult to locate a particluar transaction in the journal

S
posting transactions from journal to ledger is time consuming

LEDGER

Ledger is book that contains all accounts ranging from personal, real and nominal accounts. All
the entries from the journal are grouped and posted under separate account heads in which
balance of each account is determined. The format for ledger is given below.

Dr. (NAME OF THE ACCOUNT) Cr.

DATE PARTICULARS J.F AMOUNT DATE PARTICULARS J.F AMOUNT

The total
The accounts starts with whichever is The accounts starts with ‘By’ and
‘To’ and the name of the the bigger will the name of the account that is
account that is credited written here. debited

Time of transaction The number of the page in the The value of each transaction is passed here
journal that the entry refers to

How should you post a ledger?

1. Post the entries in the
This can be explained with an example respective accounts
Furniture worth Rs 70,000 brought for cash on 5th June 2. Balance the accounts and
Cash in hand as on April 1st 2019 is 5000 write the totals
The books close on March 31 3. Transfer the balances if
Journal entry: there any
Furniture account Dr. 70,000
To cash account 70,000:
Dr CASH ACCOUNT Cr
DATE PARTICULARS J. AMOUNT DATE PARTICULARS J. AMOUNT
F F
1/4/19 To balance b/d 5000
31/3/20 To balance c/d 65,000 5/6/20 By furniture a/c 70,000
70,000 70,000

Cr
 Dr FURNITURE ACCOUNT
DATE PARTICULARS J.F AMOUNT DATE PARTICULARS J.F AMOUNT
5/6/20 To cash a/c 70,000 31/3/20 By balance c/d 70,000
70,000 70,000

TRIAL BALANCE
Trial balance is the statement that shows the debit and credit balances of those accounts in the
ledger. Trial balance is created due to 3 objectives
 Helps establish arithmetical  Helps prepare financial  Summarizes the ledger
accuracy statements

Trial balance as on ……………

S.NO LEDGER ACCOUNTS DR. BALANCE CR.BALANCE
All the ledger accounts under the Debit Credit
ledger balance/total balance/total

transactions that are not If a posting was done in the wrong the wrong amount written
entered in the journal account but in the right amount in both the accounts

An entry that was never ERRORS THAT CAN

Double posting of entry by
posted in the ledger HAPPEN IN A TRIAL
mistake
altogether BALANCE

METHODS IN PREPARATION OF TRIAL BALANCE

1. Total Method: under this method every ledger account is totaled and the total amount of
both debit and credit sides are transferred to the respective columns
SNO LEDGER ACCOUNTS DEBIT CREDIT

total total
2. Balance method: under this method every ledger account is balanced and those balances
are taken
SNO LEDGER ACCOUNTS DEBIT CREDIT
 total total
3. Total and balance method: this method involves both carrying forward the balances of
each ledger account and the totals of the ledger accounts
SNO LEDGER DEBIT CREDIT DEBIT CREDIT
ACCOUNTS

total total total total

 RULES OF TRIAL BALANCE

ASSETS These balances should be placed

EXPENSES in the debit column of the trial
LOSSES balance
DRAWINGS
CASH
BANK

LIABILITIES These balances should be placed

INCOMES in the credit column of the trial
PROFITS balance
CAPITAL

 ADJUST TRIAL BALANCE (THROUGH SUSPENSE ACCOUNT)

A suspense account is created when the trial balance does not agree with the balances.
The trial balance is then tallied by entering the difference between the debit and credit
sides.
If the trial balance credit side is bigger than the debit, the difference is recorded in the
suspense account as a debit and if the trial balance debit side is bigger than the credit, the
difference is recorded in the suspense account as a credit.

DONE BY JESIN MARY JOHN

REG NO.: URK20CM3010
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