Accounting Lecture - 02

Basics of Accounts

By – CA Nitin Goel
Recap
1 Introduction to course

&
Basics
Topics
1 Accounts
Basics
of
Accounting
Mushtaq
 Classifying

Recording Pen
Notebook
Rs. 20
Rs. 25

Date Particulars Amount Patties Rs. 5 Summarising

02-01-23 Pen Rs. 20 Cold Drink Rs. 10
05-01-23 Patties Rs. 5
Pizza Rs. 90 Stationery Rs. 45
08-01-23 Notebook Rs. 25
10-01-23 Petrol Rs. 100 Ice cream Rs. 40
15-01-23 Gift Rs. 72 Food & Drink Rs. 145
16-01-23 Petrol Rs. 50 Petrol Rs. 100 Petrol/Fuel
19-01-23 T-Shirt Rs. 200 Rs. 250
Petrol Rs. 50
20-01-23 Business Studies Book Rs. 136
22-01-23 Outlook Magazine Rs. 30 Petrol Rs. 100 Books & Magazines Rs. 166
24-01-23 Cold Drink Rs. 10
25-01-23 Pizza Rs. 90 Business Studies Rs. 136 Dress Materials Rs. 200
25-01-23 Bike repair Rs. 75 Outlook Magazine Rs. 30
27-01-23 Hair cut Rs. 40 Miscellaneous Rs. 187
28-01-23 Ice cream & Popcorn Rs. 40
30-01-23 Petrol Rs. 100 T-Shirt Rs. 200 Total Rs. 993
TOTAL 993
Gift Rs. 72
Hair cut Rs. 40
Bike Repair Rs. 75
 Summarising Analysing Interpreting Communicating
I need to
reduce
Stationery Rs. 45 4.5% your

Wastage pocket
money
Food & Drink Rs. 145 14.6%
of Money
Petrol/Fuel Rs. 250 25.1% 40%
17.7%
20.1%
18.8%

100
What we have seen in the previous slides is nothing but
Process of Accounting, which involves -

Recording
Classifying

Summarizing
Analyzing & Interpreting and

Communicating
Definition of Accounting
▪ Accounting may be defined as the process of
recording, classifying, summarizing,
analysing and interpreting the financial
transactions and communicating the results
thereof to the persons interested in such
information.
 ORIGIN OF ACCOUNTING

The Italian mathematician Sir Luca D. Pacioli,
recognized as The Father of accounting and
bookkeeping was the first person to publish a work
on double-entry bookkeeping in the year 1494
named “ Book keeping & Accountancy”
In his book he had introduce the word “Debere” &
“Credere” now used as “debit” or “credit”
In India Chanakya wrote a manuscript similar
to a financial management book, during the
period of the Mauryan Empire. His book
"Arthashasthra" contains few detailed aspects
of maintaining books of accounts for a
Sovereign State.
 ACCOUNTING PROCESS

Prepare trial
Post to Ledger balance
Accounts

TRANSACTION

Preparation of
financial statement
Pass Journal Entry
Identify the
Accounts involved

Analysis of
Apply the golden financial statement
Identify the Nature rule of Accounting
of account
 BUSINESS TRANSACTIONS

Transaction is anything which is:

-
Relating to business

G
Expressed in terms of money -

& Effect the financial position of business.

-

For e.g. Purchase of machinery for business

 4 Pillars of Accounts

Assets Liability Income Expense

 Accounting
Accounting Regulatory Body
Users of Accounting Information
(Stakeholders)
Accounting Process
Framework
OWNERS/SHAREHOLDERS/
Information
Production of Accounting

Recording Guidelines for Accounting practices and reporting PARTNERS

GAAP, IFRS, ACCOUNTING STANDARS

Classifying MANAGEMENT

Internal
Users
Summarising
Accounting EMPLOYEES/WORKERS/
TRADE UNIONS
Provide Information
Analysing & for decision making
Interpreting
CUSTOMERS

Communicating Elements SUPPLIERS

Assets Liabilities Capital Revenue Expenses BANK

External
Users
SERVICE PROVIDERS
Balance Sheet Profit/Loss A/c

Financial Position Financial Performance STOCK MARKET

Mu
 -

Asset
□ Resource owned/controlled by a business
- -
-

□ Provide future economic benefits.

-
 CURRENT NON CURMENT
- -

Cash-in-Hand
-
Land &
Buildings
-

Cash-at-Bank
-
Plant &
Machinery
-

⑭ term -

Current Types of Assets

Investments Generally owned by
-

Business Entities Furnitures

Debtors ⑮stors -

Trade
Receivables
-

Motor Vehicle
-

Stock/ ClongTerm)
Non-current
Inventory
-

Investments
-

-
 Liabilities
Means
SOMETHING YOU OWE
-

Obligation to pay another party

-
-

-
 Business Liabilities

Towards Towards

S
2
E
Owner Third Party
Internal Liabilities External Liabilities
-
Capital > I Year

~ +
within
Non-Current Current
Profit -
Fund Liabilities year Liabilities
-
-

Owner's > -

Long term loans Short Term Loans

-
Owner’s Equity -

Institutional Loans
-
-

Bank Overdraft
Net Worth Debentures
- Accounts Creditors
-

Public Deposits
-
Payable Bills Payable
Expense outstanding
-
 Revenue
Sale of
-
Sales
Goods and

Revenue
-

Revenue
Services
-
-

The inflow of assets

arising from the
operating activities of an Interest earned
enterprise.
-

Dividend earned
- Other
-
200
10000
Pay
Discount received
- Income
[
Saving 800 Commission earned
Payment
Cost of operations that a company incurs to
generate revenue
Guidelines for good/right practices in life
Principles of life
Right Directions during bad times
 GAAP -
&

GAAP

Generally Accepted Accounting Principles

Features

1 2 3 4 5 6

Sri Guru Granth Accounting Rule

6
- Commonly followed Defines the Mandatory for Brings uniformity
Sahib Ji Book
-

and accepted set of parameters and every business in accounting

- -

of Accounting
-

rules, procedure and constraints with in practices

- - -

guidelines which accounting

- - -

operates
T -

-
 1.Separate Business/Accounting Entity
--

Accountant Assume

 Business entity has its own identity

different from Owner.
- -

Owner Business Entity

-

 Business as an entity is different from all other

entities.
-

 Only Business transactions are recorded and

personal transactions of owner(s) are ignored
6
-

A fictional entity created on paper  Accurate Recording and depiction of true financial
-

Artificial Person performance & Position

 2. Going Concern
-

1. The business enterprise has indefinite life

-
-

2. The business will continue to operate in foreseeable future

-

3. The businessmen has no intention to terminate its business

-

in near future
-
-

-
 3. Accounting Period
-

2020 2021 2022 2023…24…25…….

…………………………
Accounting Year1 Year 2 Year 3 Year 4…5..6…
12 Months

1. The economic life of a business can be divided into artificial time

periods — generally a month, a quarter, or a year.

G
2. Accounting records are made and kept on yearly basis.
-

3. Financial position and Performance are measured and reported at the

end of every year.
- -
 4. Monetary Unit
-

1. Money is the unit of measuring the value of business

transactions.
-

2. Financial Position and Performance are measured and

reported in -monetary terms.

3. Events/activities not measurable in monetary terms

are excluded from accounting
5. Duality Principle -Double Entry Book-keeping System

Every business transaction hasO

two effects. There are two aspects of
every transaction.
-

Both Aspects of business transaction are recorded in books of

accounts.
Capital
+
Liabilities
= Asset
GOLDEN RULES OF ACCOUNTING

- -

- -
GOLDEN RULES OF ACCOUNTING
 Store
-banpake >
-
Departed
&
↓
G
Forest
↓ ⑮us of Al
50000
-

Stor =

-
>

Kite (Equity)
: Owner's find
Owner :

~
-

Busines
-

Separate
Entity
 5 Eleme its
-

I
Assets

Liability
Capital

Enlsend

In cone
 ↑

# eartmental stor
Champakle
-

↓
year
Accounting Going concern

- ↳ 10 2an

-
y
Yw/ Y 2 Yr3 Yo7

D & R & >

-D
31/3
14

ingit was - Trading

and POLAl (for theyear)
Balance sheet
.
-
Financial Assets libilities
position
:
,
Traditional
Approach Nature
of Account

Personal -Trapersand
Accounts
Accounts

ech Nomisal

Assets other than

Expenses
&
Natural
Artificia Representative covered in Persona All Incomes

↓
↓ ↓s
↓
Firm
company
Capital,
Building Machinery
,
,
Ram ,
Shyam , ,
,
Os Expenses ,
Cash
,
Furnitur
Gort
Mohan Sohe , Cooperative
Prepaid Expense
,
,
society
-
X
Y
,
Accured Interest
 Rent
paid in Cash

Expense
Rest Red All
: Nomind All Cash :

I und
Entry
Rest All Dr

-
- G
To Cash All X .
Modern
Approach
Bal Increas Decreas
Nature
- Y - -

CV
Expense Debit DV .
Assets
⑪)
.

CU Dr -

credit .

2)
Liability Capital
ecome
,
,

Class Clas Run

Register
:

2
Registers :

& Hw Practic Run

Register
:
 Books
of Departmental Store (Owner Name :
Champak (al)

1) Business started with 5 00

,
000
,
(In Bank)
Bank All Du Savan Personal Ala Asset Inc .

S S

Persond All In 2
To All Sogane Capital
.

Capital

2) Loan taken Bank 400000

from amounting / S

I
Barh Als gr 400000 Persona Asset Inc
All
- .

Persona All Lieb - Inc .

To Bank Loan All 400000

S S
 Purchase 200 00
3)
of Machinery of by chegue .
,
=>

I
2000 Red All
Machiney Alc-gr Asset : Inc .

2000 Persona All Asset Del

To Bank Al

4) Purchase
of furniture
-
I
70000 on credit
- ( FromMulesh)

I
Real Alc Asset Fro
Furniture All-Du 700

PersondA/s
Liability
Enc
700
.

To Mukesh All

5) Withdrawal 250000
from Bark
of
cash .

-
-

I
Cash 250000 Red All Asset Inc
Al-Dr .

To Barh All
250000 Personal Asset Des .
Summary

Introduction & Basics

Homework

what is don in class

Revise