The following are the generally accepted Accounting Assumptions.1) Concepts at the recording stage. These are concepts to be observed at the recording stage of transaction i8n books of account. They are discussed in brief below.a) Business Entity Concept.Accounting treat business as different from the person who owns it. Without such a distinction the affairs of the business would be mixed up with private affairs of the owners and the true picture of the financial position of the business and it’s profit will not be available.b) Dual Aspect Concept.Each transaction in accounts has two aspects which are expressed as Debits and Credits and are recorded in the books of the account accordingly. This principle is the Core of Double Entry System of Book Keeping and if it is observed strictly, the system of recording transactions in books of account is called Double Entry System of Book Keepingc) money measurement Concept.Accounting records only those transactions which can be recorded in monetary terms.d) Cost concept.As per this concept transactions are recorded at the amount involved while assets are always recorded at cost. For eg one book of Rs50/ is bought for Rs100/ by mistake then also the entry in the books of the books of account is to be made at the cost price ie Rs100/e) Objective evidence concept.According to this concept all transactions recorded in the books of accounts should be evidenced and supported by objective documentary evidence.f) Historic record concept.Transactions are recorded in the books of account as and when they take place. Ie in chronological manner date wise.2) Concept at reporting stageThese are concepts to be observed at the reporting stage ie the time of preparation of final accounts from the transactions recorded in the books of account. They area) Matching cost against Revenue concept.Accounting records at the same time and at the same period not only the income but all the expenses incurred to earn the income. Thus it matches the income with the cost incurred to earn it before showing any profit or loss of that activity.b) Accrual concept.Accounting is normally done on accrual basis. Ie income and expenses are recorded as and when they become due and not as and when they are actually paid and received. However this concept is not followed by Banks to day. Bans recognize interest income on loans only when cash is received from the borrower.c) Going concern concept.Accounting presumes that the business will exist for a long time and it’s owners are not desirous of closing it.d) Accounting period concept.When accounts are prepared generally for a period of 12 months in India, this period is normally 1st April to 31st March of the next colander year. This concept is important as it provides a cut off for measurement of profits in the otherwise continues business process.3) Accounting conventions.This is an accepted accounting principle. The following are the Accounting conventions.a) Consistency,Accounting systems should be consistent Let us say a company is adopting straight line method of depreciation then it should follow the same method consistently all the years.b) Disclosure.Significant accounting systems should be disclosed while preparing accounts.c) Conservatism.All future losses should be accounted in the year itself. But all the expected income are not accounted for till realization.d) MaterialityA good accounting practice should disclose all the material events, policies etc used in the preparation of financial statement.Common Accounting system for Primary Agricultural Credit Society (PACS)PACS is a business entity undertaking credit and non credit business.Non Credit business of PACS are divided into five broad groups depending up on the nature of activities and materials the PACS deal in. These groups are for trading ini) Agricultural inputs.ii) PDS commoditiesiii) Non PDS consumer itemsiv) Food grains and other commodities under procurement schemesv) Socially relevant schemes like Mid Day Meal Scheme.Double entry system.Every business transactions involves transfer of money from one account to another and thus the transfer necessarily involves two accounts in opposite directions. The Double entry systems of Book Keeping records both aspects of every transaction and therefore follows the rule that every debit must have a corresponding credit and vice versa. This rule helps to check the arithmetical accuracy of records by preparing the Trial Balance statement. Accounts maintained under the single entry system record only one aspect of the transaction and the record is therefore incomplete.Certain rules must be observed in recording transactions under double entry system. The two elements of every transaction must be grouped under three types of accounts and each type of account has it’s ru8le for recording the debit and credit aspect of the transaction.The two principal type of accounts are one personal accounts and other Impersonal accounts. Personal accounts are subdivided into a) Real or asset accounts and b) nominal accounts. Personal account contains record of transaction with a person that could be an individual group or society banks etc. Real accounts are accounts of properties or assets and contain a record of purchases and sales of the properties or assets like land building goods cash etc. Nominal accounts are accounts of expenditure and income and record gains and losses. The accounting rules to be followed for the three types of accounts are.
Type of Accounts Rules of entry. Debit Credit. Personal Receiver Giver Real What comes in What goes out Nominal Expenses and losses Incomes and gains.The following are the most important aspects in any double entry accounting system,· Trial Balance,· Trading Account and Profit and Loss Account,· General Ledger· Capital,· Assets,· Liabilities,· Creditors,· Debtors,· Sales,· Purchases,· Drawings,· Purchase· Returns,· Sales Returns,· Stock, Income,· Expenses etc.,· Various Assumptions viz Accounting Entry, Money Measurement, Accounting period, Going concern.· Basic concepts like Double Entry, Revenue Realization concept, Historical cost concept, Period matching concept, Full disclosure concept, Evidence concept etc.,· Modifying principles like Cost benefit, consistency, materiality, etc.,· Double entry concept like Debit Aspect, Credit Aspect· Golden rules of Accountancy viz
Type of Accounts Rules of entry. Debit Credit. Personal Receiver Giver Real What comes in What goes out Nominal Expenses and losses Incomes and gains.Some questions with answers on AccountancyWrite down Journal entries.1) Mr Rama gives a cheque to LIC for Rs 1000/- in his SB account. The cheque is presented by LIC who are also having a current account with your branch.DEBIT- SB Account of Rama-------Rs1000CREDIT- Current account of LIC—Rs10002) Mr.Naren deposits Rs 2000 in his RD accountDebit --------- cash a/c Rs2000Credit ----------RD a/c Rs20003) M/s Varma &co remit cash Rs 10000 into their current a/c.Debit------------------cash a/c Rs10000Credit----------------- Current a/c of Varma & co Rs100004) John gives a cheque for Rs 500 in his SB account and wants cashDebit-----SB a/c of John Rs 500Credit-----cash a/c Rs5001) VOC College maintain SB a/c. issues a cheque for RsTwo Lakhs with instructions to credit SB accounts of ten Lecturers a/c with Rs20000 each.Here we have to debit VOC College a/c with Rs 2 Lakhs and credit the SB a/c of 10 Lecturers with Rs20000/ each. In this one transaction gives rise to 11 changes.1) A company may give instruction to debit their current a/c and credit salary for 1000 employees. Here one debit may give rise to 1000 credits under Double Entry.2) Mr .Navin remits Rs 1025 for buying a Demand Draft payable at Chennaii.Debit Cash Rs1025/Credit NBO Rs1000/Credit Commission (Exchange) on DDS issued Rs 25/3) The Bank want to buy a Tube light for your branch at a cost of Rs 150/Debit- Charges – Expenditure A/c-Rs150/Credit cash a/c Rs 150/(The bills from the shop should be attached to the Debit voucher. Later on all entries may undergo Inspection or Audit. This is Evidence).In all the above one transaction have given rise to many changes in different accounts also.The following learning points may be discussed during Group presentation on the case study.Case study on preparation of a Balance sheet.From the following particulars extracted from the books of accounts of M/s XYZ PAC at the close of the year ended 31.3.2010 prepare a Balance Sheet as on that date in order of liquidity.
Particulars Amount in Rs Savings Deposit 50000 Business Premises 25000 Furniture and Fixtures 8000 Sundry Debtors 1200 Sundry Creditors 1500 Current Deposit 15800 Bills purchased 9700 Investments 10,000 Cash on Hand 250 Balance with SBI 1500 Term Deposit 11050 Cash Credit 6000 Term Loan 16700
Solution of Balance sheet case studyBalance Sheet of XYZ PAC as on 31.3.2010.
Liability Amount in Rs Asset Amount in Rs Savings Bank account 50000 Cash in Hand 250 Balance with SBI 1,500 Current Deposit Account. 15800 Investment 10,000 Term Deposit 11050 Loans and advances 16,700 Sundry Creditors 1500 Cash Credit 6,000 Bills purchased 9,700 Sundry Debtors 1,200 Business premises 25,000 Furniture and Fixtures 8,000 Total 78350 Total 78350Questions with Answers for few questions.1) Dual aspect concept means recording of ------------ effect5 of a transaction (Ans Double)2) In Business transactions are --------- is the common unit of measurement (Ans Money)3) Single entry system of recording transactions in Books is not a scientific one. True or false (Ans True. )4) Account in the name of Shri Mukesh is ----- Account (Ans Personal)5) Motor car account is --------- (Ans Real )6) debit what comes in is the rule for real accounts as per Golden Rule of AccountancyTrue or false ( Ans True)7) In respect of personal; accounts the rule is debit the receiver and credit the giver. True or false (ans True)8) In Double entry accounting system all transactions are recorded in cash book. True or false(Ans True) .9) Bank account is a personal account True or false (Ans True)10) Journal is Book of original entry. True or false (Ans True)11) Accounting refers to the art of recording the business transactions in an analytical form. True or false Ans True12) Accountancy and book keeping are the same True or false Ans False.13) In -------- method of accounting profit represents excess of receipts over expenditure. Ans Cash
Questions Answers. Book keeping means System of maintaining book of accounts. Accounting Includes Book keeping balancing of books /accounts , preparation of final accounts and drawing conclusion. Cost accounting Process of accounting for cost Management Accounting Concerned with supply of useful information to the Management to enable to take useful decision. Business entity Business is treated as a separate entity from the owners/ proprietor. Money measurement All business transactions are measured in terms of money. Objective evidence Bills , Cash memo Cheque book , vouchers etc are objective evidence for recording an entry. Dual aspect Each transactions have two effect. Going concern Business entity has indefinite life of existence. Journal Book of original entry. Journalising The process of recording transactions in a journal. Capital account is ---- Account Personal Account Amount invested in business by it’s owner is known as Capital. A book which contains all accounts Ledger A process of transferring transactions from Journal into ledger account Posting A statement as on a particular date showing all the ledger balances. Trial Balance1) Ledger is the ----- book of accounts. Ans Principal2) Every entry must be posted into ------ Ans ledger3) The difference between the two sides ofn account is called --- Ans Balance4) A person who owes some thing is called ----- Ans Debtor.5) A person to whom some thing is owed is called --- Ans Creditor.6) The left hand side of the account is called ---- Ans Debit side7) The right hand side of the account is called ---- Ans credit side8) A debit in the nominal account denotes --- Ans Expenses.9) Balancing of all the accounts must be done at end of ---- Ans Same day.10) Total of debit side is greater than credit side.This means Ans Debit balanceQuestion on Trial Balance.On 31st march , the total bebit and Credit sides of various ledger accounts and receipts and payment sides of Cash and Bank column of cash book of Shri Baghavan Das were as under
Total of Debit side. Name of the account. Total of Credit side. 10,000 Bhagavan Das Capital 1,35,000 25,000 Drawings 15000 Stock on 31.3 1996 1,90,000 Purchases 4,000 Nil Purchase returns 18,000 6,000 Sales 2,45,000 13,000 Sales returns -- 12,000 Expenses nil 3,05,000 Customers 2,50,000 2,00,000 Suppliers 2,35,000 1,00,000 Car - 2,81,000 Central Bank 2,75,000 43,000 Cash 38,000You are asked to prepare a Trial Balance of Shri Baghavan Das as on that date.Solution. Gross Trial Balance as on 31.3.1996
Name of the account LF Debit Credit. Bhagavan Das Capital 10,000 1,35,000 Drawings 25,000 -- Stock on 31.3 1996 15000 -- Purchases 1,90,000 4,000 Purchase returns --- 18,000 Sales 6,000 2,45,000 Sales returns 13,000 -- Expenses 12,000 --- Customers 3,05,000 2,50,000 Suppliers 2,00,000 2,35,000 Car 1,00,000 - Central Bank 2,81,000 2,75,000 Cash 43,000 38,000 Total 12,00,000 12,00,000Entry level and Exit level Test.1) Dual aspect concept means recording of ------------ effect5 of a transaction2) In Business transactions are --------- is the common unit of measurement3) Single entry system of recording transactions in Books is not a scientific one. True or false4) Account in the name of Shri Mukesh is ----- Account5) Motor car account is ---------6) debit what comes in is the rule for real accounts as per Golden Rule of AccountancyTrue or false7) In respect of personal; accounts the rule is debit the receiver and credit the giver. True or false8) In Double entry accounting system all transactions are recorded in cash book. True or false .9) Bank account is a personal account True or false10) Journal is Book of original entry. True or falseAnswers to the Entry level Test questions.14) Dual aspect concept means recording of ------------ effect5 of a transaction (Ans Double)15) In Business transactions are --------- is the common unit of measurement (Ans Money)16) Single entry system of recording transactions in Books is not a scientific one. True or false (Ans True. )17) Account in the name of Shri Mukesh is ----- Account (Ans Personal)18) Motor car account is --------- (Ans Real )19) debit what comes in is the rule for real accounts as per Golden Rule of AccountancyTrue or false ( Ans True)20) In respect of personal; accounts the rule is debit the receiver and credit the giver. True or false (ans True)21) In Double entry accounting system all transactions are recorded in cash book. True or false(Ans True) .22) Bank account is a personal account True or false (Ans True)23) Journal is Book of original entry. True or false (Ans True)