Financial & Cost Accounting Volume-1

FINANCIAL ACCOUNTING & COST ACCOUNTING VOLUME -I NEED FOR ACCOUNTING 1. 2. 3. 4.

Mainta Maintain in accoun accountin ting g recor records ds Calculat Calculate e the the resul results ts of of operati operation on Ascert Ascertain ain the the nancia nanciall positio position n Communica Communicate te the informat information ion to to the users users

Process of Accounting ! Recor" Rec or"ing ing## - Business transactions of the nancial characters are  $ourn%!! recorded recorded in a book called $ourn% '! C%ssi C% ssif( f(ing ing## - The book containing classied information is called Le"ge"! This book contains di pages !.g. "urchase# "urchase# sales# rent etc. etc. )! Su**% Su **%ri+ ri+ing ing## $ concerned %ith the preparation and presentation of classied data through the nancial statement 1. Trail Trail balance 2.  Trading#  Trading# "rot "rot and &oss A'c 3.Balance sheet. ,! An%(+ An% (+ing ing## $ concerned %ith the establishment of relationship bet%een the items of the prot and loss account and the balance sheet. ! Inter In ter.re .retin ting# g# $ concerned %ith the e(plaining the meaning and signicance of the relationship so established b) the anal)sis. a nal)sis. /! Co**u Co* *unic nic%ti %ting# ng# $ transmission of summari*ed anal)*ed and interpreted interpreted information to the users to enable them to make sound decision. 0oo1 2ee.ing Book keeping is the art of recording recording classif)ing and summari*ing business transaction in mone) or mone) %orth. +orms of book keeping are 1. ,ouble ,ouble entr) entr) s)stem s)stem 2. -ingle -ingle entr) entr) s)stem s)stem Accounting  The process of identif)ing# identif)ing# measuring and communicating communicating economic information to permit informed informed udgments and decisions b) the users of accounts. 0ASIS OF DOU0LE ENTR3 S3STEM !ach transaction in the results of t%o parties coming together 1. This cannot cannot be be seller seller %ithou %ithoutt a bu)er bu)er 2. Borro Borro%er %er %ith %ithout out a lende lenderr

FINANCIAL ACCOUNTING & COST ACCOUNTING VOLUME -I Foun"er of t4e Dou5e entr( is It%i%n Merc4%nt n%*e" LUCO PACIOLI 6rote t4e 7rst 5oo1 n%*e" DE COMPUTIS ET OF SCRIPTURIS in t4e (e%r ,8,!

For*s of 0oo1 1ee.ing#1. Dou5e Entr( s(ste*/ $ it0s a record t%o fold aspects of eer) business transaction. 2. Singe Entr( s(ste*/ $ in this method the principles of double entr) s)stem hae not been obsered in all cases. t is an incomplete form of  double entr) s)stem. nder single entr) onl) personal accounts of debtors# creditors and cash book are maintained.

DIFFERENCES 0ET9EEN DOU0LE ENTR3 AND SINGLE ENTR3 S3STEM Dou5e Entr( S(ste*

Singe Entr( S(ste*

t is onl) the scientic s)stem of keeping books of accounts

t is not a s)stem at all. t is incomplete and unscientic

Maintains complete record of both personal and impersonal accounts

nl) personal and cash accounts are maintained

 Trail balance can be prepared to test the arithmetical accurac) of the book if accounts

A trail balance cannot be prepared since debits and credits do not agree

"rot and loss account and balance sheet can be easil) prepared

5ith the incomplete record cannot be easil) prepared

Comparison %ith preious )ear is possible

6er) di7cult

 Ta(ation authorities accept it for assessment purpose

,o not accept

ADVANTAGES OF DOU0LE ENTR3 S3STEM a. t keeps complete record of both personal and impersonal accounts b. t helps us to check arithmetic accurac) of the books b) preparing trial balance c. 8elp to nd out the prot earned or loss incurred during a gien period b) preparing prot and loss account

FINANCIAL ACCOUNTING & COST ACCOUNTING VOLUME -I d. Can nd out nancial position of the business b) preparing balance sheet. e. An) nancial information can be had an)time. f. Comparison of e(penditure# income# sales# purchase etc can be made for preious )ear and current )ear g. t is eas) for ta(ation authorities to make correct assessment.

LIMITATIONS OF DOU0LE ENTR3 S3STEM a. f the transaction is completel) omitted to be recorded or %ith %rong amounts or %ith %rong accounts it ma) remain undiscoered. b. 9e:uires the maintenance number of books of accounts and number of  people to look at them the s)stem is too e(pensie sophisticated. c. +inancial accounts consider onl) chose assets %hich can be e(pressed monetar) terms. 8uman 9esources# the er) important assets of a business are not sho%n in the balance sheet#

CLASSIFICATION OF ACCOUNTS %! ,eals %ith persons 5! "ossesses Assets c! "a) e(penses n order to keep a complete record of all business transaction a business keeps a. Account in the name of persons kno%n as "ersonal Account b. Account in the name of Asset kno%n as 9eal Account c. Accounts under the head of e(pense and income kno%n as nominal account. "ersonal Accounts follo%ing forms/$ 1. ;atural persons To 0%%nce 0B"? ,! T4e De5it 5%%nce i" 6ritten on t4e "e5it si"e on t4e 7rst "%( of t4e *ont4 %s >To 0%%nce 0B"?