Sec ACh1U1 Accounting Introduction
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Transcript of Sec ACh1U1 Accounting Introduction
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CPT Section A Chapter 1Unit 1
CA.S.S.Prathap
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What is a River ?
River is a flow of water.
What is Accounts ?
At one level , it can be saidas tracking the flow ofmoneythrough a business.
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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.
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Based on the above
understanding can you makesome rules for a transaction ?
1. Transaction must have two sides . This iscalled Dual Aspect. Thats why we called
accounts as double entry book-keeping.It
was invented by Lucio Paciolio.
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2. Second rule for a transaction is , it has
to be in terms of money . This is thefamous 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.
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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.
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Transactions are recorded in journal.
Journal is a book of original entry.
It is known as secondary book.
It consist of five columns.
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From Ledger , the balances are extracted to
Trial Balance.
Trial balance is a statement.
It shows arithmetic accuracy.
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1 - Real A/c
2 - Nominal A/c
3 - Personal A/c
4 - Representative Personal A/c
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Real A c Nominal A c Personal A c
Land Salary Capital
Building Wages DrawingsPlant and Sales Bank
Machinery Discount Debtors
Cash Creditors
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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
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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.
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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.
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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.
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Transaction
Journal
Ledger
Trial
Balance
Trading
A/c
P&L A/cBalance
Sheet
Final
Accounts
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Accounting ,Chapter1 - Unit 1CA.S.S.Prathap
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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
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PROCEDURALASPECTSOFACCOUNTING
Procedure of Accounting
Generating financial Using the financial
information information
Recording Analyse
Classifying Interpret
Summarizing Communicate
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OBJECTIVESOFACCOUNTING
Systematic record of transactions.
(i.e.,) Book-keeping
Ascertainment of results
(i.e.,) Trading , Profit & Loss A/cAscertainment of financial position
(i.e.,) Balance Sheet
Providing information to users.
(i.e.,) Financial Reports
To know the solvency position.
(i.e.,) Liquidity
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Measurement
Forecasting
Decision making
Comparison & Evaluation
Control
Government Regulation
Taxation
FUNCTIONSOFACCOUNTING
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Investors
Employees
Lenders
Suppliers
Customers
Government
Public
USERSOFACCOUNTINGINFORMATION
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Capital =Asset -Liabilities
Asset =Capital + Liability
Liability=Asset -Capital
FAE is seen in Balance Sheet
Balance Sheet follows Dual aspect concept
FUNDAMENTALACCOUNTINGEQUATION
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Management Accounting
Cost Accounting
Financial Accounting
All of the Above
Answer : D
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Decision Makings
Measurement
Forecasting
Ledger Posting
Answer: D
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Dual aspect
Business Entity
Going Concern
All of the above
Answer: A
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An event
A transaction
Both event as well as transaction
Neither event nor transaction
Answer: A
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Balance Sheet
Trading , Profit and Loss A/c
Cash Flow Statement
All of these
Answer: D
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Lucio Paciolio 1494
Adam smith
Kohler
Karl Marx
Answer: A
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A transaction
An event
None of these
Both transaction as well as an event
Answer: D
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Management Accounting
Cost accounting
Financial accounting
Inflation accounting
Answer: D
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Shareholders
Government
Vendors
All the above
Answer: D
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Total Sales
Total Profit & Loss
Capital
Cost of production
Answer: D
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Event
Transaction
Both
None
Answer: B
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Assets - Liabilities = Capital
Capital - Liabilities = Assets
Assets + Capital = Liabilities
None of the above
Answer: A
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Real account
Nominal Account
Personal account
Representative Personal Account
Answer: D
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In this module , we learnt
Accounting cycle
Types of Accounts
Golden Rules
AICPA definition
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Procedural aspects of Accounting
Objectives of Accounting
Functions of Accounting
Sub-fields of Accounting
Users of Accounting
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Fundamental Accounting Equation
Relationship between Book-keeping
and Accounting.
Accounts must always follow FACTS.
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