ACCOUNTS

 Accounting as a science: Systematic & organized body

of knowledge, Based on certain principles
 Accounting as an art: Art is the technique which helps

us in achieving our desired, art is the application of

knowledge.
Scope of Accounting:
 Data collection

 Data recording

 Data Evaluation & Data Reporting

Branches of accounting:
 Financial accounting

 Management accounting
Contd….
 Cost accounting
 Tax accounting
 Human resource accounting
 Social responsibility accounting
Users of accounting information
Internal users:
 Owners

 Employees

External users:
 Investors

 Government

 Creditors

 Consumer
Book Keeping:

Systematic maintenance of books of accounts
Accounting
 Book-keeping plus accounting plus communication

accounting information to the users

Accounting principles, concepts and convention-
 Conservatism: Provide for future losses but not

anticipated Profit
 Disclosure: Disclose all material Information

 Consistency: Continuance of accounting practices

regularly
 Materiality: All material facts recorded

 Periodicity: Final accounts prepared every year

 Dual Entry: Both aspect of transaction to be recorded

 Contd….
 Money Measurement Concepts: Transaction
expressed in monetary terms
 Realization concept: Realization of sale proceed,
 Separate entity Concept: Distinction between,
owner & Business entity
 Cost Concepts: Consideration of Historical cost
 Going concern: Indefinite life period of business
 Matching concept: Match revenues with Expenses
 Accrual: Recording transaction on accrual
 Double Entry System: Every business transaction
has two fold aspects are recorded as per prescribed
rules
Type of accounts:
 Personal Accounts

 Real Accounts
 Nominal Account

Capital Expenditure: for acquiring fixed assets

Revenue expenditure: Incurred in the operation of a
business Expenses in connection with sales, distribute
and administration.
Deferred Revenue Expenditure: an expenditure
which is of revenue nature but its benefit will be
derived for a long period
Accounting Standards: Written policy document which
are issued by expert accounting body or government
covering the aspects recognition, measurement,
accounting treatment, presentation of disclosure of
accounting transaction in financial statement.
 Ledger:
 Transactions are first recorded in Primary Books and
then posted to another book called Ledger.
Primary Books:
 Journal: Entries for purchase of assets, adjustment
and closing entries
 Purchase Book: Entries of credit purchases of goods
 Sale Book: Entries of credit sales of goods
 Purchase Return Book: Return of goods purchased
 Sale return book: Return of goods sold
 Bills Receivable Book: Bills drawn on parties and
accepted by them
 Bills Payable Book: Bills accepted by person himself
 Contra Entry: Where transaction is related to cash
and bank
Contd….
 Cash Book: Records all cash receipts and cash
payment
 Simple Cash Book: One amount column each side
of book
 Two Column Cash Book: One column for cash &
other for discount on Debit side and similar two
columns are on Credit side
 Three Column Cash Book: Column for discount,
Cash & Bank in the Debit side and similar columns on
Credit side
 Petty Cash Book: recording petty expenses like
postage, stationery, refreshment etc.
MEANING OF TRIAL BALANCE
“Summary of all ledger balance, total of debit and credit
tallies, if not then there are possible errors that need
to be rectified”
Characteristics of Trial Balance:
 Two columns of amount

 Debit & Credit

 Closing balances of ledgers is shown, only a
statement
 Consolidated from all ledger balances, reconfirmation

of arithmetical accuracy
Method of preparation of trial balance
 Total method: Debit total and credit total of each
account of ledger are recorded
 Balance method: Only balance of each account
debit or credit of ledger is recorded
 Total and balance method: Debit and credit total
of each account and also balance of each account are
recorded
 Errors not disclosed by trial balance: Error of
principal: Wrong accounts are debited or credited in
primary books
 Error of Complete Omission: Entry omitted to be
recorded in primary books
 Compensatory errors: Errors automatically
equalized or nullified the effect by each other
Contd….
 Error of duplication: Twice in journal, posting is also
twice
 Errors disclosed by trial balance: Error of
commission: Wrongly recorded or posted,
 Location and correction of errors for tallying the
trial balance: Recheck totals of Debit and credit
balances, recheck postings to ledgers, check balance
and total of subsidiary books, examining writing of
digits, Check bought forward and carry forward of
balances
 Suspense Account: Difference in total of debit and
credit column of trial balance which even after making
efforts, could not tally, is transferred temporarily to
an account known as suspense account.
Stages of Rectification:
 First stage: Rectification entries are made before
preparation of trial balance at this time of rectification,
Suspense Account will not be made use of
 Second stage: Rectification entries are made after
preparation of trial balance when difference has been
transferred to Suspense Account
 Rectification of Error: Errors after detection are
rectified by either passing entries or balances are
corrected
FINAL ACCOUNTS
 Manufacturing Account
 Trading Account

 Profit & Loss account

 Balance Sheet

Process:
 Entry in Primary Books

 Posting in Ledger

 Summary in Trial balance

 Final Accounts from Trial Balance

Manufacturing Account: All production expenses on

debit side and total transferred All expenses connected
with the production of goods one recorded in the debit
side of manufacturing account and transfer balance of
manufacturing account to trading account.
Trading Account: Balance transferred from
Manufacturing Account, Direct Expenses, Direct
Income, Balance is Gross Profit or Gross Loss
Profit and Loss Account: Balance of Trading Account,
Indirect Income, Indirect Expenses and balance is Net
Profit or Net Loss.
Balance Sheet: Capital Account, Liabilities, Fixed Assets
& Current Assets
Manager’s Commission: If, before charging such
commission on net profit then: Net Profit x % of
commission / 100, if after charging such commission
then: Net Profit x % of commission / (100 + % of
commission)
Adjustment: Deprecation: If appearing as adjustment
then debit side of P&L A/c and deduct from assets and
if appears in trial balance then only on debit side of
trial balance
Bad & Doubtful Debts: If appears as adjustment then
on debit side of P&L A/c and deduct from Sundry
Debtors in Balance Sheet and if, appears in trial
balance then only on debit side of trial balance
Outstanding expenses: If appears in adjustment then
add to concerned expense in P&L A/c and on liability
side in Balance Sheet and if appears in trial balance
then only on liability side in Balance Sheet
Accrued Income: If appears in adjustment then add to
concerned income in P&L A/c and on assets side in
Balance Sheet and if appears in trial balance then only
on liability side in Balance Sheet.
MEANING OF DEPRECIATION
“Depreciation is permanent and continuous decrease in
the book value of fixed asset due to use, efflux of time
or obsolescence”
Causes of Depreciation:
 Constant use of asset

 Expiration of legal rights

 Obsolescence

 Depletion

 Laps of time

 Natural Causes

Objects, need and importance: To Show Assets at

correct value in Balance Sheet and consider
depreciation for calculation of correct profit
Methods of Depreciation:
 Straight Line Method

 Diminishing Balance Method

 Annuity Method

 Depreciation Fund Method

 Insurance Policy Method

 Kilometer Method

 Machine hour Method

 Labor Hour Rate Method

 Production Unit Method

 Replacement cost Method

Calculation of Depreciation when change in
method of depreciation:
 Calculate depreciation by current method of

depreciation for the preceding year

 Calculate depreciation by new method up to the

preceding year from the year the asset was first put to
use, Difference between step i and step ii, Adjust
surplus or deficiency of step iii in P&L Account.
APT Contact
 Landline No. 4082444 / 2445 /
2453
 Mobile No. 9755557307
 Website :
www.aptinfoservices.com
 E-mail :
info@aptinfoservices.com