CPT Section A Chapter 1

Unit 1
CA.S.S.Prathap

What is a River ?

River is a flow of water.


What is Accounts ?

At one level , it can be said
as tracking the flow of
money through a business.

It starts with what is called a
Transaction . Transaction is
an exchange.
Example : You go to a shop
and buy a pen . The money
is exchanged for a pen.
Example : You go to a doctor .The
money is exchanged for service.
Based on the above
understanding can you make
some rules for a transaction ?
1. Transaction must have two sides . This is
called Dual Aspect. Thats why we called
accounts as double entry book-keeping.It
was invented by Lucio Paciolio.
2. Second rule for a transaction is , it has
to be in terms of money . This is the
famous Money measurement concept.
The flip side is if any transaction cannot be
measured in terms of money , it cannot be
recorded in the books of accounts.
A Transaction is one-off. Example : Rent paid for the month ,
Purchase of goods.
An event is a result of number of transactions and it has to
appear in Balance Sheet .
Example : Profit for the year
Closing stock It is the result of number of purchases and sales.
Entire Balance Sheet : It is as a final result of the entire years
operation.
Transactions are recorded in journal.
Journal is a book of original entry.
It is known as secondary book.
It consist of five columns.
From Journal , the transactions are posted in the Ledger.
All entries in journal are posted in Ledger.
Ledger is known as principal book.
It consist of 8 columns.
From Ledger , the balances are extracted to
Trial Balance.
Trial balance is a statement.
It shows arithmetic accuracy.
1 - Real A/c
2 - Nominal A/c
3 - Personal A/c
4 - Representative Personal A/c
Real A/c Nominal A/c Personal A/c

Land Salary Capital
Building Wages Drawings
Plant and Sales Bank
Machinery Discount Debtors
Cash Creditors
Real A/c
Debit what comes in
Credit what goes out

Nominal A/c
Debit all expenses and losses
Credit all incomes and gains

Personal A/c
Debit the receiver
Credit the giver
The fourth type of account is Representative personal A/c .
All unpaid expenses / prepaid expenses
It will appear in the liabilities side of the Balance Sheet.
Example : outstanding salary , prepaid rent.
From Trial balance Nominal A/c are closed and transferred to
Trading and Profit & Loss A/c.
Real and Personal A/c are not closed and not balanced
and entered in the Balance Sheet.
The preparation of Trading , P& L and Balance Sheet is
called Final A/c
Final A/c is the last step for the accounting process.
In Big companies Final A/c are published
as Annual Reports (Financial Statements)
The total set consist of Trading , Profit &
Loss , Balance Sheet , Cash flow & Notes
to accounts.
Transaction
Journal
Ledger
Trial
Balance
Trading
A/c
P&L A/c
Balance
Sheet
Final
Accounts
Accounting ,Chapter1 - Unit 1
CA.S.S.Prathap
DEFINITION

Accounting is the art of
Recording , Classifying and Summarising
in a significant manner in terms of money
, Transaction and Event which are in part
at least of a financial character and
interpreting the results thereof.

Committee of Terminology of AICPA
PROCEDURAL ASPECTS OF ACCOUNTING
Procedure of Accounting

Generating financial Using the financial
information information

Recording Analyse
Classifying Interpret
Summarizing Communicate
OBJECTIVES OF ACCOUNTING
Systematic record of transactions.
(i.e.,) Book-keeping
Ascertainment of results
(i.e.,) Trading , Profit & Loss A/c
Ascertainment of financial position
(i.e.,) Balance Sheet
Providing information to users.
(i.e.,) Financial Reports
To know the solvency position.
(i.e.,) Liquidity
Measurement
Forecasting
Decision making
Comparison & Evaluation
Control
Government Regulation
Taxation
FUNCTIONS OF ACCOUNTING
Financial Accounting
Management Accounting
Cost Accounting
Social Responsibility Accounting
Human Resource Accounting
SUB-FIELDS OF ACCOUNTING
Investors
Employees
Lenders
Suppliers
Customers
Government
Public
USERS OF ACCOUNTING INFORMATION
Capital =Asset -Liabilities
Asset =Capital + Liability
Liability=Asset -Capital
FAE is seen in Balance Sheet
Balance Sheet follows Dual aspect concept
FUNDAMENTAL ACCOUNTING EQUATION
RELATIONSHIP OF ACCOUNTING & BOOK-KEEPING
Book keeping
Accounting
Accountancy
Book keeping must end before Accounting starts.
Management Accounting
Cost Accounting
Financial Accounting
All of the Above
Answer : D
Decision Makings
Measurement
Forecasting
Ledger Posting
Answer: D
Assets expressed in monetary terms.
Liabilities expressed in monetary terms.
Only assets expressed in non monetary terms.
Assets and liabilities expressed in non-monetary
terms
Answer: D
Dual aspect
Business Entity
Going Concern

All of the above

Answer: A
Committee on Principles
Accounting Standards Board
Committee on Concepts
Committee on Terminology
Answer: D
An event
A transaction
Both event as well as transaction
Neither event nor transaction
Answer: A
Balance Sheet
Trading , Profit and Loss A/c
Cash Flow Statement
All of these
Answer: D
Lucio Paciolio 1494
Adam smith
Kohler
Karl Marx
Answer: A
A transaction
An event
None of these
Both transaction as well as an event
Answer: D
Management Accounting
Cost accounting
Financial accounting
Inflation accounting
Answer: D
Shareholders
Government
Vendors
All the above
Answer: D
Total Sales
Total Profit & Loss
Capital
Cost of production
Answer: D
Event
Transaction
Both
None
Answer: B
Assets - Liabilities = Capital
Capital - Liabilities = Assets
Assets + Capital = Liabilities
None of the above
Answer: A
Real account
Nominal Account
Personal account
Representative Personal Account
Answer: D
In this module , we learnt

Accounting cycle

Types of Accounts

Golden Rules

AICPA definition



Procedural aspects of Accounting

Objectives of Accounting

Functions of Accounting

Sub-fields of Accounting

Users of Accounting

Fundamental Accounting Equation

Relationship between Book-keeping
and Accounting.


Accounts must always follow FACTS.