7380747 basics of accounting level ii

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Basic Accounting Level II

BySivakumar Ganesan B. Sc, ACA, ICWA, PMP, PDIM

Global Technology Services LLc, UAEEmail:[email protected]



22

AgendaAgenda

What is AccountingWhat is AccountingMode of Learning AccountingMode of Learning Accounting

Accounting and Finance - DifferenceAccounting and Finance - Difference

Accounting Concepts / ConventionsAccounting Concepts / Conventions Accounting EventsAccounting Events

Rules of AccountingRules of Accounting

Preparation of Financial StatementsPreparation of Financial Statements

A Simple Case StudyA Simple Case Study



33

Accounting is defined as the art of Recording,Classifying and Summarizing transactions inmonetary terms (in Money terms) for the

preparation of Financial Statements

JOURNAL

PAYMENT

VisionEnterprises

Financial Statement

at December 31, 1997

AssetsCashAccount ReceivableLand

Total Assets

LiabilityAccount Payable

NotesPayable

Total Liability

Stockholder’s EquityContributed CapitalRetained Earnings

Total Stockholder’sEquity

$4,456$5,714$ 981

---------

$11,151======

$3,830$ 416

---------$4,246======$2,365$ 367

---------$2,732======

VisionEnterprises

Financial Statement


AssetsCash

Account ReceivableLand

Total Assets


NotesPayable

Total Liability



$4,456

$5,714$ 981---------$11,151======

$3,830$ 416---------$4,246======$2,365$ 367---------$2,732======

VisionEnterprises

Financial Statement


AssetsCashAccount ReceivableLand

Total Assets


NotesPayable

Total Liability



$4,456$5,714$ 981

---------$11,151======

$3,830$ 416

---------$4,246======$2,365$ 367

---------$2,732======

What is Accounting



44

What is AccountingWhat is Accounting Accounting is the art of recording, classifying and SummarizingAccounting is the art of recording, classifying and Summarizing

financial transactions in the Preparation of Financial Statementsfinancial transactions in the Preparation of Financial Statements

Recording refers to creating Journal entry for every financialRecording refers to creating Journal entry for every financialtransaction with Debit and Credit amounts.transaction with Debit and Credit amounts. Classifying refers to Classifying each of the Debit / CreditClassifying refers to Classifying each of the Debit / Credit

Transaction to Capital or Revenue and Asset, Liability, Revenue or Transaction to Capital or Revenue and Asset, Liability, Revenue or ExpenseExpense

Summarizing refers to Grouping the Transactions of Asset,Summarizing refers to Grouping the Transactions of Asset,

Liability, Revenue and Expenses and preparing the FinancialLiability, Revenue and Expenses and preparing the FinancialStatements (Trading, Profit and Loss Account and Balance Sheet)Statements (Trading, Profit and Loss Account and Balance Sheet) In case of In case of

• Trading, Manufacturing and Customer Service orientedTrading, Manufacturing and Customer Service orientedOrganization, the sum of all income and expenses is referred toOrganization, the sum of all income and expenses is referred toas Profit and Loss accountas Profit and Loss account

• Social Service oriented Organization like Schools, Hospitals andSocial Service oriented Organization like Schools, Hospitals andGovernment Organizations, Banks it is referred to as IncomeGovernment Organizations, Banks it is referred to as Incomeand Expenditure account .and Expenditure account .

Note:-Note:- Trial Balance is not a Financial Statement. It is only a summaryTrial Balance is not a Financial Statement. It is only a summaryof all Debit and Credit Transactions.of all Debit and Credit Transactions.



55

Mode of Learning AccountingMode of Learning Accounting

Change your mindset that accounting meansChange your mindset that accounting means

only Debit and Creditonly Debit and Credit Do not blindly learn Accounting Rules andDo not blindly learn Accounting Rules and

apply the rules of Debit and Creditapply the rules of Debit and Credit The Best way to Learn Accounting isThe Best way to Learn Accounting is

Learn the Accounting ConceptsLearn the Accounting Concepts Understand the Accounting ConventionsUnderstand the Accounting Conventions Classify the Accounting EventClassify the Accounting Event Apply the Accounting RulesApply the Accounting Rules

Record, Classify and Summarize the JournalRecord, Classify and Summarize the Journal• You are Confused. Am I right? You are Confused. Am I right? Do not become panic and move forward, you will understandDo not become panic and move forward, you will understand



66

Mode of Learning AccountingMode of Learning Accounting

Lea rn Accou nti ng Con cept s

(T en Fu ndamen ta l Accou nti ng Con cept s)

Un de rs tand Ac cou nti ng Con ven ti ons(T hree ma jor conve ntion s)

Cla ssif y th e Acc ountin g Ev en ts

(Ca pi ta l, Rev en ue, Def err ed Rev en ue Expe ndi tu re)

Apply the Acc ount in g Ru les(Per sonal, Re al and Nom in al Rule s)

Rec ord the Tra nsacti on as a Jou rn al(E nteri ng the Debi t and Credi t Side of Tra nsaction )

Classify the Transaction(A sset , Lia bil it y, Re ve nue or Ex pen se)

Summarize the Transaction(P repa re Tri al Bala nce, Tra din g, P&L and Ba lance Sheet )



77

Finance and Accounting - DifferenceFinance and Accounting - Difference

Ratio Analysis

Project Appraisal

Compliance with StatutoryMatters like companies Act,

Income Tax Act, Sales Tax Act

Etc.,

Cash Flow / Fund Flow

HistoricalCost of Capital

Preparation of FinancialStatements (Trading, Profit and

loss Account and Balance

Sheet)

Futuristic

Recording , Classifying and

Summarizing Transactions

Financing Decisions

Expressed in Monetary TermsLeads to Investment Decisions

Recording of an Accounting

Event

Procurement and Utilization of

Funds

AccountsFinance



88

Accounting Concepts/ConventionsAccounting Concepts/Conventions

(US GAAP/UK GAAP/IFRS/SOX)(US GAAP/UK GAAP/IFRS/SOX)

The Concepts and conventions of accounting areThe Concepts and conventions of accounting aredeveloped by IASC (International Accounting Standardsdeveloped by IASC (International Accounting StandardsCommittee) which is in-charge of releasing InternationalCommittee) which is in-charge of releasing InternationalAccounting Standards (IAS)Accounting Standards (IAS)

The IASC Decides the preferred Accounting practicesThe IASC Decides the preferred Accounting practicesworldwide and encourages the worldwide acceptanceworldwide and encourages the worldwide acceptance

There are 41 International Accounting StandardsThere are 41 International Accounting Standards

Now IFRS (International Financial Reporting Standards)Now IFRS (International Financial Reporting Standards)and SOX (Sarbanes Oxley) Act gain more importanceand SOX (Sarbanes Oxley) Act gain more importancewhich came up from US GAAP and UK GAAPwhich came up from US GAAP and UK GAAP



1010

Accounting Concepts / PrinciplesAccounting Concepts / Principles

Business Entity ConceptBusiness Entity Concept

Money Measurement ConceptMoney Measurement Concept Dual Aspect ConceptDual Aspect Concept Cost ConceptCost Concept Accounting PeriodAccounting Period ConservatismConservatism Realization ConceptRealization Concept Matching ConceptMatching Concept Materiality ConceptMateriality Concept ObjectivityObjectivity



1111

Accounting Conventions / PracticesAccounting Conventions / Practices

Going ConcernGoing Concern

ConsistencyConsistency AccrualAccrual



1212

Accounting ConceptsAccounting Concepts Business Entity ConceptBusiness Entity Concept

Accounts can be kept only for Entities, which are different from theAccounts can be kept only for Entities, which are different from the

persons who are associated with these entitiespersons who are associated with these entities

Ex. Sole Proprietary, Partnership firm, CompanyEx. Sole Proprietary, Partnership firm, Company

This is one of the most Important and fundamental accountingThis is one of the most Important and fundamental accountingprinciple with which Double entry system of accounting has evolved.principle with which Double entry system of accounting has evolved.

Accounts need to be maintained separate from the Owners andAccounts need to be maintained separate from the Owners andproviders of capital. If you understand the simple logic, then you knowproviders of capital. If you understand the simple logic, then you know30% of Accounting. Just Recall Fundamentals of Accounting from30% of Accounting. Just Recall Fundamentals of Accounting fromOracle Perspective Level I Example of Siva, Oracle and Bank.Oracle Perspective Level I Example of Siva, Oracle and Bank.

See Next Slide for More Examples. If you cannot understand thisSee Next Slide for More Examples. If you cannot understand thisConcept Please Do not Proceed Further and try to understand byConcept Please Do not Proceed Further and try to understand byreading again Level I and Level II Materialreading again Level I and Level II Material



1313

Types of EntitiesTypes of Entities

A Hindu Undivided Family Jointly holding the

Investment and Properties for the benefit of Family members.

Any other Legal Entity (HUF)

President of India, Governor of StateBody of Individuals (one Man Corp)

ICAI, ICWAI, ICSI, Rotary ClubAssociation of Persons

Sembur Co-op SocietySociety

Hutchinson Private TrustTrust

Cadbury India Ltd (A Public Company in which

shares are not traded but shares are held by more

than 50 persons)

Closely Held Company

Hindustan Unilever Ltd (A Public Company in

which Shares are traded in Stock Exchange)

Public Company

Oracle India Pvt Ltd (A Private Company in which

shares are not traded in Stock Exchange and

members cannot exceed 50)

Private Company

Ganesan BrosPartnership Firm

Siva & CoSole Proprietary

ExampleType of Organization



1414

Accounting ConceptsAccounting Concepts Business Entity ConceptBusiness Entity Concept

Ex 1:Ex 1: You are running your own Textile Showroom as a Dealer in Cloth as a Sole You are running your own Textile Showroom as a Dealer in Cloth as a Sole

Proprietor/Individual Owner of the Business. The entire capital amount for theProprietor/Individual Owner of the Business. The entire capital amount for theBusiness is provided by you. In this case also for the purpose of accounting youBusiness is provided by you. In this case also for the purpose of accounting youneed to maintain Two set of books.need to maintain Two set of books.

• One set of books for the purpose of Textile Business in which, BusinessOne set of books for the purpose of Textile Business in which, Businessowes you equivalent to the Capital Provided (Capital + Profit earned) or owes you equivalent to the Capital Provided (Capital + Profit earned) or (Capital – Losses)(Capital – Losses)

• In your own Books the amount of Capital invested will be shown as anIn your own Books the amount of Capital invested will be shown as an

Investment in Business as an Asset. This need not be maintained as a NormalInvestment in Business as an Asset. This need not be maintained as a NormalSet of Books but required to know the Cash Inflow and Cash Outflow fromSet of Books but required to know the Cash Inflow and Cash Outflow fromIncome Tax Perspective.Income Tax Perspective.

Ex 2:Ex 2: You are working for Oracle Corporation and Oracle has a Bank Account with You are working for Oracle Corporation and Oracle has a Bank Account withBank of America and You have Bank Account with Citi Bank and the salary at endBank of America and You have Bank Account with Citi Bank and the salary at endof every month is transferred from Bank of America to Citi Bank. How manyof every month is transferred from Bank of America to Citi Bank. How manyaccounting Entities involved in this case?accounting Entities involved in this case?

• If your answer is 4, then you are right (You, Oracle Corp, Bank of America, CitiIf your answer is 4, then you are right (You, Oracle Corp, Bank of America, CitiBank)Bank)

Ex 3:Ex 3: You run your own Business in Software Consulting and your Friend has You run your own Business in Software Consulting and your Friend hasagreed to provide a Loan of 50000 USD which he goes and deposit directly intoagreed to provide a Loan of 50000 USD which he goes and deposit directly intoyour Bank account - How many accounting Entities involved in this case?your Bank account - How many accounting Entities involved in this case?

• If you say 3, You are right, it is only Three. (You, Your Friend and Bank)If you say 3, You are right, it is only Three. (You, Your Friend and Bank)



1515

Accounting ConceptsAccounting Concepts Money Measurement ConceptMoney Measurement Concept

Record should be made only of that information which can beRecord should be made only of that information which can beexpressed in Monetary Terms (i.e.) Currency value (USD,GBP,INR)expressed in Monetary Terms (i.e.) Currency value (USD,GBP,INR)

Ex 1.Ex 1. Sole Proprietor had 40 Tables & Chairs. This cannot beSole Proprietor had 40 Tables & Chairs. This cannot be

recorded unless a Value of Furniture is known in monetaryrecorded unless a Value of Furniture is known in monetary valuevalue

Ex 2.Ex 2. Very Famous Indian Example – Rama Killed Ravana.Very Famous Indian Example – Rama Killed Ravana. CanCan

this be Accounted? – NOthis be Accounted? – NO

Ex 3Ex 3. My wife Loves me so much – Can this be accounted?. My wife Loves me so much – Can this be accounted?

– – A Big NO (Hahhah). This is Flaw in Financial Accounting as itA Big NO (Hahhah). This is Flaw in Financial Accounting as itdoes not understand the human valuesdoes not understand the human values

Ex 4Ex 4. My Father in Law gave his Personal Property to start. My Father in Law gave his Personal Property to start mymy

Business. Can this be Accounted – Yes (If the Value of theBusiness. Can this be Accounted – Yes (If the Value of the

Property is provided)Property is provided)



1616

Accounting ConceptsAccounting ConceptsMoney Measurement ConceptMoney Measurement Concept

A Normal Doubt comes to your mind in the first and fourthA Normal Doubt comes to your mind in the first and fourth

example in previous slide how to get the value. We should not beexample in previous slide how to get the value. We should not betaking the Purchase value, but we should take the Market value ontaking the Purchase value, but we should take the Market value onthe date of transferring the assets to Business. This is anthe date of transferring the assets to Business. This is anexception to cost concept only in case of transfer to another exception to cost concept only in case of transfer to another businessbusiness

Ex 5: Siva started his software consulting Business with his ownEx 5: Siva started his software consulting Business with his ownProperty (Cost Price 1 Million USD and Market Value 1.5 MillionProperty (Cost Price 1 Million USD and Market Value 1.5 MillionUSD) and Furniture's Cost price 50000 worth Market Value 30000USD) and Furniture's Cost price 50000 worth Market Value 30000USDUSD

- In this case, You can record Siva Capital (1530000) and Building- In this case, You can record Siva Capital (1530000) and Building1500000 and Furniture 30000 as Assets1500000 and Furniture 30000 as Assets

Total 1530000Total 1530000

Building 1500000

Furniture 30000

Siva Capital 1530000

AssetsLiabilities



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AccountingAccounting ConceptsConcepts Dual Aspect ConceptDual Aspect Concept

The Value of the Assets owned by the concern is equal to the claims onThe Value of the Assets owned by the concern is equal to the claims onthe Assetsthe Assets

ASSETS = LIABILITIES + OWNER’S EQUITYASSETS = LIABILITIES + OWNER’S EQUITY

OWNER’S EQUITY = ASSETS – LIABILITIESOWNER’S EQUITY = ASSETS – LIABILITIES

LIABILITIES = ASSETS – OWNER’S EQUITYLIABILITIES = ASSETS – OWNER’S EQUITY

Ex: If Owners Equity is 600000 and Liabilities are 400000, then TotalEx: If Owners Equity is 600000 and Liabilities are 400000, then TotalAsset = 1000000Asset = 1000000

Assets - LiabilitiesOwner’s Equity

Assets – Owner’s EquityLiabilities

Owner’s Equity + LiabilitiesAsset



1818

Accounting ConceptsAccounting Concepts Cost ConceptCost Concept

Assets are always shown at their Cost and not atAssets are always shown at their Cost and not attheir current Market Valuetheir current Market Value

Ex 1.Ex 1. A Land Purchased for Rs.5 Lacs will beA Land Purchased for Rs.5 Lacs will berecorded only at Rs.5 Lacs even though Market valuerecorded only at Rs.5 Lacs even though Market valuemay be lower say Rs.4 Lacs or Higher Rs.6 Lacs thanmay be lower say Rs.4 Lacs or Higher Rs.6 Lacs than

the Cost Pricethe Cost Price

Ex 2.Ex 2. You are acquiring a Business for a Million You are acquiring a Business for a MillionUSD and its value as per Books is 0.8 Million, thenUSD and its value as per Books is 0.8 Million, thenthe difference of 0.2 Million is termed as Goodwillthe difference of 0.2 Million is termed as Goodwill

and you should records the assets and liabilities atand you should records the assets and liabilities atthe price you have paid for the Business (i.e.) 1the price you have paid for the Business (i.e.) 1MillionMillion



1919

Accounting ConceptsAccounting Concepts

Accounting PeriodAccounting Period

Accounting measures activity for a specified interval of time, usuallyAccounting measures activity for a specified interval of time, usuallya year a year

(e.g) Calendar Year (Jan’07-Dec’07)(e.g) Calendar Year (Jan’07-Dec’07)

Fiscal Year (Apr’07-Mar’08)Fiscal Year (Apr’07-Mar’08)

Choosing the Accounting period is the entities choice, but there areChoosing the Accounting period is the entities choice, but there are

legal rules like Companies Act and Income Tax Act which prescribeslegal rules like Companies Act and Income Tax Act which prescribesthe period in which the entity has to report to them.the period in which the entity has to report to them.

Remember still Entities can have different accounting period for their Remember still Entities can have different accounting period for their own Internal Management Reportingown Internal Management Reporting

A Company in India can have for Company Law Purpose (Jan-Dec)A Company in India can have for Company Law Purpose (Jan-Dec) Year and Income Tax Purpose (Apr-Mar) Year and for own internal Year and Income Tax Purpose (Apr-Mar) Year and for own internalReporting (Jul-Jun) Year Reporting (Jul-Jun) Year

Note:Note: The Entities cannot change their accounting period withoutThe Entities cannot change their accounting period without

getting proper approval only in case of Companies Act and notgetting proper approval only in case of Companies Act and notpossible with Income Tax Authorities.possible with Income Tax Authorities.



2020

Accounting ConceptsAccounting Concepts ConservatismConservatism

Anticipate no Profits but provide for all possible losses.Anticipate no Profits but provide for all possible losses.

Accountants are by nature Conservative and also to protect the interest of theAccountants are by nature Conservative and also to protect the interest of theShareholders and Creditors it is required to provide for all losses.Shareholders and Creditors it is required to provide for all losses.

Ex 1Ex 1. A pharmaceutical Company going to Loose the case filed for Patent. A pharmaceutical Company going to Loose the case filed for Patent

Right filed for a medicineRight filed for a medicineEx 2Ex 2.Company is likely to Win a Major Legal Dispute or a Sales Contract..Company is likely to Win a Major Legal Dispute or a Sales Contract.

Note:Note: This rule should not be misinterpreted to provide anticipated reductionThis rule should not be misinterpreted to provide anticipated reductionin market price of a Product and Providing Lossesin market price of a Product and Providing Losses

Ex 3Ex 3: You are a Government Company and there is a possibility that: You are a Government Company and there is a possibility thatGovernment will withdraw the subsidy for Fertilizers in the forthcomingGovernment will withdraw the subsidy for Fertilizers in the forthcoming

budget, You cannot provide loss of subsidy as a loss now itself.budget, You cannot provide loss of subsidy as a loss now itself.Ex 4Ex 4: The Government is likely to increase the Price of petrol which is one of : The Government is likely to increase the Price of petrol which is one of the essential input for your business, then you cannot provide for losses.the essential input for your business, then you cannot provide for losses.

Ex 5:Ex 5:There is a Fire in your in your Factory and Goods were lost and theThere is a Fire in your in your Factory and Goods were lost and theGoods are insured, then the claim you submitted can be booked to theGoods are insured, then the claim you submitted can be booked to thesatisfaction of Insurance Company and Auditors.satisfaction of Insurance Company and Auditors.



2121

Accounting ConceptsAccounting ConceptsRealization ConceptRealization Concept

The Sales is considered to have taken place only when either the cashThe Sales is considered to have taken place only when either the cash

is received or some third party becomes legally liable to pay theis received or some third party becomes legally liable to pay the

amount. Revenues are recognized when they are earned or realized.amount. Revenues are recognized when they are earned or realized.

Realization is assumed to occur when the seller receives cash or aRealization is assumed to occur when the seller receives cash or a

claim to cash (receivable) in exchange for goods or servicesclaim to cash (receivable) in exchange for goods or services

Ex 1Ex 1: A Sales invoice for Rs.1 Million: A Sales invoice for Rs.1 Million

Credit Note for Rs.15000 receivedCredit Note for Rs.15000 received

Ex 2Ex 2: For instance, if a company is awarded a contract to build an: For instance, if a company is awarded a contract to build an

office building the revenue from that project would not be recorded inoffice building the revenue from that project would not be recorded in

one lump sum but rather it would be divided over time according to theone lump sum but rather it would be divided over time according to the

work that is actually being done.work that is actually being done.



2222

Accounting ConceptsAccounting ConceptsMatching ConceptMatching Concept

When an Event affects both the revenues and expenses, the effect onWhen an Event affects both the revenues and expenses, the effect oneach should be recognized in the same accounting periodeach should be recognized in the same accounting period

Ex 1:Ex 1: Generally Employees Salaries are paid for the previous month atGenerally Employees Salaries are paid for the previous month atthe beginning of the next month. But they have rendered their the beginning of the next month. But they have rendered their

services to produce goods and sold and Sales revenue is recognizedservices to produce goods and sold and Sales revenue is recognizedin previous month. So to match the cost with the revenue earned, wein previous month. So to match the cost with the revenue earned, weneed to make provision for Salaries in previous month itself. (i.e.)need to make provision for Salaries in previous month itself. (i.e.)March Salary paid in April, but a Salary Payable provision will beMarch Salary paid in April, but a Salary Payable provision will bemade in March itself made in March itself

EX 2:EX 2: Insurance Premium paid for Jan- Dec whereas your accountingInsurance Premium paid for Jan- Dec whereas your accountingperiod closes on March. In this case only three months premium needperiod closes on March. In this case only three months premium needto be treated as Expense and balance 9 months treated as advanceto be treated as Expense and balance 9 months treated as advancepremium paid as an assetpremium paid as an asset



2323

Accounting ConceptsAccounting ConceptsMateriality conceptMateriality concept

Insignificant events would not be recorded, if theInsignificant events would not be recorded, if the

benefit of recording them does not signify thebenefit of recording them does not signify the

costcost

Ex:Ex: A calculator worth Rs.500 not recorded assetA calculator worth Rs.500 not recorded assetrather than charged off as an Expense evenrather than charged off as an Expense even

thoughthough the benefit is enduring in nature.the benefit is enduring in nature.

This concept need to read in conjunction withThis concept need to read in conjunction with

accounting events which signifies the transactionaccounting events which signifies the transaction

into Capital, Revenue and deferred revenueinto Capital, Revenue and deferred revenue

expenditure.expenditure.



2424

Accounting ConceptsAccounting Concepts Objectivity ConceptObjectivity Concept

An Evidence of the happening of the Transaction should supportAn Evidence of the happening of the Transaction should supportevery Transaction in the form of paper. External Evidence isevery Transaction in the form of paper. External Evidence isconsidered to be more authenticated proof than Internal Evidence.considered to be more authenticated proof than Internal Evidence.This rule is more important from Audit perspective as AuditorsThis rule is more important from Audit perspective as Auditorsalways consider and bound to get more external evidences thanalways consider and bound to get more external evidences than

internal Evidences.internal Evidences.

Ex 1Ex 1: Third Party Evidence (Credit Note from Supplier): Third Party Evidence (Credit Note from Supplier)

Ex 2Ex 2: Auditors Collect Statements from Customer and Suppliers for : Auditors Collect Statements from Customer and Suppliers for the amount showing as Outstanding from Customers and amountsthe amount showing as Outstanding from Customers and amounts

Payable to Suppliers.Payable to Suppliers.

Ex 3Ex 3: The Sales Invoices alone is not considered as an objective: The Sales Invoices alone is not considered as an objectiveevidence unless it is not supported by Delivery challan andevidence unless it is not supported by Delivery challan andacknowledgement of Goods Received by Customer.acknowledgement of Goods Received by Customer.



2525

Accounting ConventionsAccounting Conventions

Going ConcernGoing Concern

Accounting Records , Events and Transactions on theAccounting Records , Events and Transactions on the

assumption that the entity will continue to operate for anassumption that the entity will continue to operate for an

indefinitely Long period of timeindefinitely Long period of time

Ex.Ex. An Entity will not be started with an intention to closeAn Entity will not be started with an intention to close

within the specified time period. Business is always notwithin the specified time period. Business is always not

started with an intention to close and it is expected tostarted with an intention to close and it is expected to

continue forever.continue forever.



2626

Accounting ConventionsAccounting Conventions

ConsistencyConsistency

The Accounting Policies and methods followed by theThe Accounting Policies and methods followed by the

company should be the same every year company should be the same every year

Ex 1Ex 1. Period should not be changed frequently from Jan-. Period should not be changed frequently from Jan-

Dec to Apr-Mar Dec to Apr-Mar Ex 2Ex 2. Inventory Valuation change from FIFO to LIFO or . Inventory Valuation change from FIFO to LIFO or Weighted Average not permitted frequentlyWeighted Average not permitted frequently

Ex 3Ex 3. Changing Depreciation Policy from Straight Line to. Changing Depreciation Policy from Straight Line toReducing Balance Method frequentlyReducing Balance Method frequently

Note:Note: If any Company decides to change the policy, thenIf any Company decides to change the policy, thenthat Company has to report on the effect of Profit/Lossthat Company has to report on the effect of Profit/Lossdue to the change for past 5 Years.due to the change for past 5 Years.

CA ti C ti



2727

Accounting ConventionsAccounting ConventionsAccrualAccrual

In General it is assumed that Accounts are alwaysIn General it is assumed that Accounts are alwaysprepared based on Accrual basis. However there areprepared based on Accrual basis. However there are

entities which follow Cash Basis of Accounting Alsoentities which follow Cash Basis of Accounting Also

Ex:Ex: Salary Payable to employees (March salary paid inSalary Payable to employees (March salary paid in

April), Interest Receivable on InvestmentsApril), Interest Receivable on Investments (NSC(NSCinterest), Dividend Receivable on shares, Tax Payable tointerest), Dividend Receivable on shares, Tax Payable to

Government (March sales Tax and Annual Income Tax)Government (March sales Tax and Annual Income Tax)

The Company Law / Income Tax Act Prescribes allThe Company Law / Income Tax Act Prescribes allCompanies to follow Accrual Basis of Accounting exceptCompanies to follow Accrual Basis of Accounting except

for Professional Firms and Government Organizationsfor Professional Firms and Government Organizations

which are allowed to follow Cash Basis of Accounting.which are allowed to follow Cash Basis of Accounting.



2828

Classification of Accounting EventClassification of Accounting Event Capital Item:Capital Item: Any expenditure that creates an asset, for Any expenditure that creates an asset, for

exampleexample::

Purchase of plant or machineryPurchase of plant or machinery

Improvements to assets that increase their Improvements to assets that increase their

usefulness or extend their effective useful life of theusefulness or extend their effective useful life of the

assetasset

Expenditure incurred in transporting an asset to itsExpenditure incurred in transporting an asset to its

site and preparing it for use.site and preparing it for use.



2929

Classification of Accounting EventClassification of Accounting Event

Revenue ItemRevenue Item: An Income or Expenditure and the: An Income or Expenditure and the

benefit of which will be exhausted within a year (i.e.) Thebenefit of which will be exhausted within a year (i.e.) TheCalendar Year or the Financial Year whichever is set upCalendar Year or the Financial Year whichever is set up

for the Set of Booksfor the Set of Books

Ex:Ex: Salary and wages, Printing and Stationery, SalesSalary and wages, Printing and Stationery, Sales

Revenue, Interest Income, Salary Payable, BonusRevenue, Interest Income, Salary Payable, Bonus

Payable, Tax Payable etc.,Payable, Tax Payable etc.,

In Simple terms this is an event which generatesIn Simple terms this is an event which generates

revenue and the related cost to earn the revenue arerevenue and the related cost to earn the revenue are

accounted as expense.accounted as expense.

Cl ifi ti f A ti E t



3030

Classification of Accounting EventClassification of Accounting Event

Deferred Revenue ExpenditureDeferred Revenue Expenditure: It is neither a Capital: It is neither a Capital

nor Revenue and the benefit of which will be realized fonor Revenue and the benefit of which will be realized for more than a year (Exceeding beyond the Calendar yeamore than a year (Exceeding beyond the Calendar year

for the set of books) and does not result in creation ofor the set of books) and does not result in creation of

an asset.an asset.

Ex 1Ex 1: Advertisement Expenditure the benefit of which: Advertisement Expenditure the benefit of whichis likely to be obtained over a period more than oneis likely to be obtained over a period more than one

year (E.g.) PepsiCo Pays USD 2 Million to Sachinyear (E.g.) PepsiCo Pays USD 2 Million to Sachin

Tendulkar for an Advertisement Contract for twoTendulkar for an Advertisement Contract for two

Years and benefit of which is expected to be for fou Years and benefit of which is expected to be for four

yearsyears Ex 2Ex 2: Royalty paid to the author of the book for five: Royalty paid to the author of the book for five

yearsyears

R l f A tiR l f A ti



3131

Rules of AccountingRules of Accounting

Accounts

Personal Impersonal

Real Nominal

Debit the Receiver

Credit the Giver

Debit what comes in

Credit what goes out

Debit Expenses and Losses

Credit Revenue and Income

Ex: Sole Prop, Company

Ex: Cash, Bank, Building,Inv Ex: Sales, Power, Rent



3232

Application of Accounting RuleApplication of Accounting Rule Check whether is there a Money Transaction Involved?Check whether is there a Money Transaction Involved?

Is that transaction affects your set of books?Is that transaction affects your set of books? Check whether does the transaction falls under which accountingCheck whether does the transaction falls under which accounting

period.period.

Does the transaction involve a personal account (i.e.) Siva as aDoes the transaction involve a personal account (i.e.) Siva as a

Person or a Company or any other entity as mentioned inPerson or a Company or any other entity as mentioned in

Business entity conceptBusiness entity concept

Is that person is receiver or giver in the transaction andIs that person is receiver or giver in the transaction and

accordingly debit or credit the person account.accordingly debit or credit the person account.

Does the transaction involves any Cash inflow or Cash outflow?Does the transaction involves any Cash inflow or Cash outflow?

(i.e.) Cash or Bank involved(i.e.) Cash or Bank involved

If there is no cash involvement then the choices are as followsIf there is no cash involvement then the choices are as follows Both can be real ( Debit and credit both real accounts)Both can be real ( Debit and credit both real accounts)

One real and one nominal (Either Debit/Credit for Real or Credit/ DebitOne real and one nominal (Either Debit/Credit for Real or Credit/ Debit

for Nominal accounts)for Nominal accounts)



3333

Accounting Rule of ThumbAccounting Rule of Thumb

CreditDebitLosses

Credit

Debit

Credit

Credit

Debit

Increase

DebitProfit

CreditExpense

DebitRevenue

DebitLiability

CreditAsset

DecreaseNature of Transaction

Combination of R lesCombination of Rules



3434

Combination of RulesCombination of Rules

Dr Personal A/c

Cr Real A/cEx:Drawings or Advance to Employee,

Payment to Supplier

Dr Real A/c

Cr Personal A/cEx:Capital invested, Payment Received

from Customer

Dr Real A/c

Cr Nominal A/cEx: Interest Recd by Cash, Cash Sales

Dr Nominal A/c

Cr Real A/cEx: Rent Paid by Cash

Dr Personal A/cCr Nominal A/cEx: Interest Accrued on Investment,

Dividend accrued on Investment

Dr Nominal A/cCr Personal A/cEx: Hire Purchase Charges accrued, Interest

Payable, Salary Payable

Dr Real A/c

Cr Real A/c

Ex:Purchase of Inventory by Cash

Dr Real A/c

Cr Real A/cEx: Cash withdrawal or Deposit

C bi i f A i R lC bi ti f A ti R l



3535

Combination of Accounting RulesCombination of Accounting Rules

X Nominal

Real

XPersonal

NominalRealPersonalCombination

Debit

Credit

C bi ti f A ti R lC bi ti f A ti R l



3636

Combination of Accounting RulesCombination of Accounting Rules BothBoth Debit and CreditDebit and Credit cannot be Personal Accountscannot be Personal Accounts

EX 1: Siva paid Cash to Ajay. The Entry Cannot beEX 1: Siva paid Cash to Ajay. The Entry Cannot be

• Ajay A/c Dr Ajay A/c Dr • Siva A/c Cr Siva A/c Cr

The Correct entries are as follows. In Ajay set of BooksThe Correct entries are as follows. In Ajay set of Books

1000Siva A/c Cr

1000Cash A/c Dr

1000Cash A/c Cr

1000Ajay A/c Dr

In Siv a set of Books

Simi larly B oth Debi t and Cre dit ca nnot be N om in al Accoun ts

Note: Rememb er th is i mp ortan t as pec t and th erefo re Youwill not comm it any mist ak e in D ebit and C redi t



3737

Recording of Accounting TransactionsRecording of Accounting Transactions Recording of an Accounting event is known as JournalRecording of an Accounting event is known as Journal

entryentry Recording is made in Primary and Secondary Books inRecording is made in Primary and Secondary Books in

Manual Accounting systemManual Accounting system Primary BooksPrimary Books

General Ledger General Ledger

Cash BookCash BookSecondary BooksSecondary Books Purchase Register Purchase Register Sales Register Sales Register

Fixed Assets Register Fixed Assets Register Returns (Purchase return/Sales Return)Returns (Purchase return/Sales Return) Journal Register Journal Register

In Oracle ERP System GL is called Main Ledger and theIn Oracle ERP System GL is called Main Ledger and theTransactions emanating from Modules are referred to asTransactions emanating from Modules are referred to asSub Ledger Sub Ledger



3838

Recording of Accounting TransactionsRecording of Accounting Transactions First the transactions are entered as JournalFirst the transactions are entered as Journal Then Second step is they are posted to individual account as ‘T’Then Second step is they are posted to individual account as ‘T’

Accounts – In Oracle or any other ERP system this happensAccounts – In Oracle or any other ERP system this happensimmediately when a transaction is createdimmediately when a transaction is created

Prior to ERP system except for Non cash charges, Journals arePrior to ERP system except for Non cash charges, Journals aredirectly posted in Primary and secondary ledger with supportingdirectly posted in Primary and secondary ledger with supportingDocument reference Number (like Invoice Number), date, amount andDocument reference Number (like Invoice Number), date, amount anda cross reference ledger folio number (Page Number) of respectivea cross reference ledger folio number (Page Number) of respective

Debit and Credit Entries in Ledger.Debit and Credit Entries in Ledger. Journals are entered only for year end Provision Entries.Journals are entered only for year end Provision Entries. Then the balance from each T account is taken and which becomes aThen the balance from each T account is taken and which becomes a

Trial Balance with Sum of Debits and Sum of Credit which should beTrial Balance with Sum of Debits and Sum of Credit which should beequal.equal.

Trial Balance forms the basis for preparation of Financial StatementsTrial Balance forms the basis for preparation of Financial Statementsand in ERP systems including Oracle Applications Debit is shown asand in ERP systems including Oracle Applications Debit is shown asPositive and Credit is shown as NegativePositive and Credit is shown as Negative

In ERP systems the chance of Trial Balance not matching or notIn ERP systems the chance of Trial Balance not matching or nottallying issue is very minimal. In case of manual Accounting this willtallying issue is very minimal. In case of manual Accounting this willhappen most of the time and unless it is corrected and balanced, thehappen most of the time and unless it is corrected and balanced, the

accountant should not proceed to prepare Financial Statementsaccountant should not proceed to prepare Financial Statements



4040

A Simple Case StudyA Simple Case Study

Accounting Concepts

C St dC St d



4141

Case StudyCase Study Siva started Business in dealer in Computer Spare parts andSiva started Business in dealer in Computer Spare parts and

Computer Stationery on 01-APR-2007 and following events occurredComputer Stationery on 01-APR-2007 and following events occurredin the month of April.in the month of April.

Siva invested USD 50000 Cash and USD 50000 worth of furnitureSiva invested USD 50000 Cash and USD 50000 worth of furniture Siva purchased USD 75000 worth of goods on creditSiva purchased USD 75000 worth of goods on credit Siva friend Ajay promised him to give a loan of USD 25000Siva friend Ajay promised him to give a loan of USD 25000 Siva sold USD 50000 worth of good for USD 100000Siva sold USD 50000 worth of good for USD 100000 Siva paid rent USD 2000 for two monthsSiva paid rent USD 2000 for two months

Siva paid Salary to Staff USD 5000Siva paid Salary to Staff USD 5000 Siva incurred USD 5000 on interior decoration which will last for twoSiva incurred USD 5000 on interior decoration which will last for two

years.years. Siva sold USD 10000 worth of goods on credit for USD 18000Siva sold USD 10000 worth of goods on credit for USD 18000 Siva has a Bank account with Citi Bank which credited USD 5000Siva has a Bank account with Citi Bank which credited USD 5000

wrongly of John accountwrongly of John account Purchased Vehicle for USD 25000 paid through BankPurchased Vehicle for USD 25000 paid through Bank Cash Deposited by Siva into Bank 50000 USDCash Deposited by Siva into Bank 50000 USD



4242

ARE YOU READY FOR THEARE YOU READY FOR THE

GAMEGAMEAccounting is very simpleAccounting is very simple

Acco nting TerminologiesAccounting Terminologies



4343

Accounting TerminologiesAccounting Terminologies Before creating Accounting Transactions let us recall and learn fewBefore creating Accounting Transactions let us recall and learn few

accounting terminologiesaccounting terminologies

ASSETS:ASSETS: Any property or Investment which can be convertible into cashAny property or Investment which can be convertible into cash LIABILITIES:LIABILITIES: Amount Payable to providers of goods and ServicesAmount Payable to providers of goods and Services(Creditors) and Providers of Capital (Owners)(Creditors) and Providers of Capital (Owners)

REVENUE:REVENUE: Amount earned out of the Sale Proceeds and the amountAmount earned out of the Sale Proceeds and the amountearned on Investmentsearned on Investments

EXPENSES:EXPENSES: Amount incurred or expended to earn the revenueAmount incurred or expended to earn the revenue PROFIT:PROFIT: TOTAL REVENUE – TOTAL EXPENSESTOTAL REVENUE – TOTAL EXPENSES LOSS:LOSS: If the Total Expenses is more than Total Revenue it is termed asIf the Total Expenses is more than Total Revenue it is termed as

LossLoss FIXED ASSETS:FIXED ASSETS: Amount Invested in Long Term Assets which is notAmount Invested in Long Term Assets which is not

intended to be sold within a Year (Ex. Machinery, Land)intended to be sold within a Year (Ex. Machinery, Land) CURRENT ASSETS:CURRENT ASSETS: Amount invested in Short Term Assets which isAmount invested in Short Term Assets which is

intended and rotated to earn Revenue (Ex. Inventory)intended and rotated to earn Revenue (Ex. Inventory)

NOTE:NOTE: The Fixed Asset and Current asset vary from Person to PersonThe Fixed Asset and Current asset vary from Person to Person Ex:Ex: For a Dealer in Refrigerator it is a Current asset which becomes FixedFor a Dealer in Refrigerator it is a Current asset which becomes Fixed

Asset for you when you buy.Asset for you when you buy. CREDITORS:CREDITORS: Person who provide Money or Goods on Credit to thePerson who provide Money or Goods on Credit to the

Business (Supplier)Business (Supplier) DEBTORS:DEBTORS: Goods or Money Provided / sold on Credit by the BusinessGoods or Money Provided / sold on Credit by the Business

(Customers)(Customers)

Accounting TerminologiesAccounting Terminologies



4444

Accounting TerminologiesAccounting Terminologies You should also understand the same accounting You should also understand the same accounting

terminology is referred or used by different people interminology is referred or used by different people indifferent contextdifferent context Receivables also known as Trade Debtors, Debtors, AccountReceivables also known as Trade Debtors, Debtors, Account

Receivables, Sundry Debtors, Trade Receivables, AmountReceivables, Sundry Debtors, Trade Receivables, AmountReceivablesReceivables

Liability is also known as Trade Creditors, Account Payable,Liability is also known as Trade Creditors, Account Payable,

Sundry Creditors, Amount Payable, Trade Liabilities, CreditorsSundry Creditors, Amount Payable, Trade Liabilities, Creditors Cost of Goods Sold: It varies with Company to Company the wayCost of Goods Sold: It varies with Company to Company the way

they do set up and use it. The Cost of Goods Sold comprise of they do set up and use it. The Cost of Goods Sold comprise of Material Cost, Resource Cost (Labor and Machinery) andMaterial Cost, Resource Cost (Labor and Machinery) andOverheads. There are few companies which will have only MaterialOverheads. There are few companies which will have only MaterialCost and will not add up Resource Cost and Overheads. YouCost and will not add up Resource Cost and Overheads. YouShould talk to client and understand their requirementShould talk to client and understand their requirement

• Let’s See Each of this in a Formula ModelLet’s See Each of this in a Formula Model

Accounting Calculation and FormulaAccounting Calculation and Formula



4545

Accounting Calculation and FormulaAccounting Calculation and Formula

Payables (or) CreditorsReconciliation

Opening Payables 200

(+) Add Credit Purchases 2000

(+) Debit Memo 150

(+) Positive Adjustments 75

(-) Less Cash Paid 1500

(-) Less Credit Memo (Purc. Return) 125

(-) Negative Adjustments 50

Closing Payables 750

Receivables (or) DebtorsReconciliation

Opening Receivables 100

(+) Add Credit Sales 2500

(+) Debit Memo 150

(+) Positive Adjustments 75

(-) Less Cash Received 2000

(-) Less Credit Memo (Sales Return) 125

(-) Negative Adjustments 50

Closing Receivables 650

Accounting Calculations and FormulaAccounting Calculations and Formula



4646


Finished Goods (FG)Reconciliation

Opening stock of FG 200

(+) Add Production 2000

(+) Sales Return 100

(-) Less Sales 1500

Closing FG Inventory 800

Purchased InventoryReconciliation

Opening Purchased Inventory 100

(+) Add Purchases 2500

(-) Less Issued to Production 2000

(-) Less Purchase Return 125

Closing Purchased Inventory 475




4747


Bank Balance Reconciliation

Opening Balance of Bank 200

(+) Add Bank Receipts 2000

(Cash Deposits, Cheque Received

From Debtors, Interest Credited)

(-) Less Payments from Bank 1500

(Paid to Creditors by Cheque,

Expenses paid by cheque, CashWith drawl from bank)

Closing Bank Balance 700

Cash Reconciliation

Opening Cash Balance 100

(+) Add Cash Receipts 2500

(Cash Sales, Cash Recd from

Receivables, Cash with drawl from

Bank)

(-) Less Cash Payments 2000

(Cash Purchases, Expenses paid

By Cash, Cash Deposited into Bank)

Closing Cash Balance 600

Accounting Entries for the Case StudyAccounting Entries for the Case Study



4848


75000

75000Real

Personal

Inventory A/c Dr

(Real Tangible Asset)

To Creditors A/c

(Person be an Individual or

Company gives the goods

on Credit)

2

100000

50000

50000

Real

Real

Personal

(Also using the Business Entity

Concept Siva being owner is

also treated as a Creditor for

the purpose of Business. If the

Business is wind up Business

has to pay back Siva)

Cash A/c Dr

Furniture A/c Dr

(Cash and Furniture Real

Tangible Asset. Hence

apply the Real Rule – Debit

What comes in)

To Siva Capital A/c

(Siva is a Person running

the business as a

Proprietor in this case.

Hence apply the Rule for

Personal – Credit the giver)

1

Cr (in

USD)

Dr (in

USD)

Nature of AccountDescriptionSl

No




4949


100000

50000

100000

50000

Real A/c

Nominal A/c

Nominal A/c

Real A/c

Two Entries involved (One

for sale of goods and one

for reduction in inventory)

Cash / Bank A/c Dr

(Real – Debit what comes

in)

To Revenue (Sales) A/c

(Nominal Rule - Credit all

Income and Revenue)

Cost of Goods Sold A/c Dr

(Nominal – Debit Expenses)

To Inventory A/c

(Reduction in Inventory)

4

No Entry

(Money Measurement Concept

– No Monetary transaction

involved )

No Entry

(Mere Promise to give does

not tantamount to Monetary

Transaction)

3

Cr (in

USD)

Dr (in

USD)


No




5050


5000

5000Nominal A/c

Real A/c

Salary A/c Dr

(Nominal – Debit Expense)

To Cash A/c

(Real – Credit what goes

out)

6

2000

1000

1000

Nominal A/c

Personal A/c

Real

Rent A/c Dr

(Debit Expense – Nominal)

Rent Advance A/c Dr

(This is like Cash Advanced

to Landlord. Hence it

should be treated as

Personal -

Debit the Receiver)

To Cash A/c


out)

5

Cr (in

USD)

Dr (in

USD)


No




5151


18000

10000

18000

10000

Real

Nominal

Nominal

Real

Receivables A/c Dr

To Revenue A/c

Cost of Goods Sold A/c Dr

To Inventory A/c

8

5000

2500

2500

Nominal

Real

Real

Advertisement Exp A/c Dr

Advt Exp Adv A/c Dr

(This is like a Deferred

Revenue Expense needs to

be charged in two years.

50% need to be Current

Year Expense and Balance

50% is carried Forward andtreated as Expense in next

Year)

To Cash A/c


out)

7

Cr (in

USD)

Dr (in

USD)


No




5252


50000

50000Real

Real

Bank A/c Dr (Real asset- Debit what

comes in

To Cash A/c

(Real Asset – Credit what

goes out)

11

25000

25000Real

Real

Vehicles A/c Dr

(Real Tangible Asset

Debit what comes in)

To Bank A/c

(Real asset – Credit what

goes out)

10

No EntryNo Entry

(This is a Mistake done by

Bank. Bank has to make

correction and in Siva’s

Book there is no

accounting entry required)

9

Cr (in

USD)

Dr (in

USD)


No

T AccountsT Accounts



5353


Total 100000Total 100000

By Cash 50000

By Furniture 50000

To Bal 100000

Cr USDDr USD


By Bal 50000To Siva Cap 50000

Cr USDDr USD

Siva Capital Account Furniture Account


By Rent 1000

By Rent Adv 1000

By Salary 5000

By Advt Adv 2500

By Advt exp 2500

By Bank 50000

By Balance 88000

To Siva Cap 50000

To Sales 100000

Cr USDDr USD


By COGS 50000

By COGS 10000

By Bal 15000

To Creditors 75000

Cr USDDr USD

Cash Account Inventory Account



5555



By Bal 2500To Cash 2500

Cr USDDr USD


By Bal 18000To sales 18000

Cr USDDr USD

Advt Exp Advance Account Receivables Account


By Bal 60000To Inventory 50000

To Inventory 10000

Cr USDDr USD


By Bal 25000To Bank 25000Cr USDDr USD

Cost of Goods Sold Account Vehicle Account

Bank Account


By Vehicle 25000

By Bal 25000

To Cash 50000

Cr USDDr USD

Trial BalanceTrial Balance



5656

Trial BalanceTrial Balance


Siva Capital (L) 100000

Sales / Revenue (R) 118000

Creditors (L) 75000

Furniture (A) 50000

Cash (A) 88000

Bank (A) 25000

COGS (E) 60000Salary (E) 5000

Rent (E) 1000

Rent Advance (A) 1000

Advertisement Exp (E) 2500

Advt Exp Advance (A) 2500

Inventory (A) 15000

Vehicle (A) 25000

Receivable (A) 18000

Credit USDDebit USD

Trial B alance for th e Month of APR IL 2007A – Asset , L – Lia bil it y, R – Re ve nue, E - Expe nse

Profit and Loss Account For APR 2007Profit and Loss Account For APR 2007



5757

Profit and Loss Account For APR 2007Profit and Loss Account For APR 2007


Sales / Revenue (R) 118000COGS (E) 60000Salary (E) 5000

Rent (E) 1000

Advertisement Exp (E) 2500

To Profit 49500

Revenue USDExpenses USD

Balance Sheet as on 30-APR-2007Balance Sheet as on 30-APR-2007



5858

Balance Sheet as on 30-APR-2007Balance Sheet as on 30-APR-2007


Furniture 50000Vehicle 25000

Cash 88000

Bank 25000

Receivables 18000

Inventory 15000

Rent Advance 1000

Advt Exp Advance 2500

Siva Capital 100000Add Profit 49500

Siva Capital 149500

Creditors 75000

Assets USDLiabilities USD

Important Points to RememberImportant Points to Remember



5959

Important Points to Remember Important Points to Remember Accounting can be learnt only by Practice and not by readingAccounting can be learnt only by Practice and not by reading

Try to learn by creating Journal entries with ExamplesTry to learn by creating Journal entries with Examples

Cash Balance can never have negative balance at any point of timeCash Balance can never have negative balance at any point of time Land will never Depreciate and it will have only AppreciationLand will never Depreciate and it will have only Appreciation

Bank can have negative balance if you have Overdraft facilityBank can have negative balance if you have Overdraft facility

The Bank which maintains your account will have exactly oppositeThe Bank which maintains your account will have exactly opposite

entries of what is shown in your Bank Accountentries of what is shown in your Bank Account

In the above, Example the bank account in your Books and in BankIn the above, Example the bank account in your Books and in Bank

Books will be as followsBooks will be as follows


By Vehicle 25000

By Balance 25000

To Cash 50000

Cr USDDr USD


By Cash 50000To Vehicle 25000

To Balance 25000

Cr USDDr USD

Siva BooksBa nk Ac cou nt

Ba nk BooksSiva Accou nt

Case St d for PracticeCase Study for Practice



6060

Case Study for PracticeCase Study for Practice Take your own Personal Account and try to create the followingTake your own Personal Account and try to create the following On First of July 2007 You had a Cash balance of USD2500 which isOn First of July 2007 You had a Cash balance of USD2500 which is

your Capitalyour Capital On 3On 3rdrd July You have received Salary of USD 12000July You have received Salary of USD 12000 On 5On 5thth Paid Rent of USD 1200 by chequePaid Rent of USD 1200 by cheque On 7On 7thth You purchased provision for house for 800 USD You purchased provision for house for 800 USD On 10On 10thth You spent for outing through your credit card USD 500 You spent for outing through your credit card USD 500

On 15On 15thth

You withdraw Cash USD 8000 You withdraw Cash USD 8000 On 20On 20thth You Invested in Fixed Deposit USD 5000 @5% Interest Per You Invested in Fixed Deposit USD 5000 @5% Interest Per annumannum

On 22On 22ndnd you have given a Loan of USD 2000 to friend Jamesyou have given a Loan of USD 2000 to friend James On 25On 25thth You spent for Car Repairs 500 USD You spent for Car Repairs 500 USD On 28On 28thth Your wife gave USD 200 to your Neighbor from her pocket Your wife gave USD 200 to your Neighbor from her pocket

On 30On 30thth You Deposited Cash 1000 USD to your Bank Account You Deposited Cash 1000 USD to your Bank Account

How to Approach to LearnHow to Approach to Learn



6161

How to Approach to LearnHow to Approach to Learn I tried my best to teach Accounting in simple way. ThisI tried my best to teach Accounting in simple way. This

is only a beginning. You have to Practice a Lot to learnis only a beginning. You have to Practice a Lot to learn

The simple way to Learn Accounting is as followsThe simple way to Learn Accounting is as follows Do not go for advanced level books without understanding theDo not go for advanced level books without understanding the

basicsbasics Start with (+1) Accounting book in case of people in India andStart with (+1) Accounting book in case of people in India and

Pre-University book in case of other Countries. Practice thePre-University book in case of other Countries. Practice theexamples given in that book and exercisesexamples given in that book and exercises

This is more than sufficient for any non accounting candidate toThis is more than sufficient for any non accounting candidate towork on Oracle Applicationswork on Oracle Applications

Never try to memorize the concepts and rulesNever try to memorize the concepts and rules Try to understand and apply the concepts and RulesTry to understand and apply the concepts and Rules There are areas like Depreciation, Provision and AmortizationThere are areas like Depreciation, Provision and Amortization

etc might not have been covered in this presentation. I do notetc might not have been covered in this presentation. I do notwant you to go to advanced level without understanding thewant you to go to advanced level without understanding thebasics. If you understand the Concepts and Rules then You canbasics. If you understand the Concepts and Rules then You canhandle all of themhandle all of them

Read and Practice Level I and II at least Three timesRead and Practice Level I and II at least Three times



6262

""There is a difference between an objective andThere is a difference between an objective and

actions. Unless you understand your objective,actions. Unless you understand your objective,

you will be wasting your time in actions. Know your you will be wasting your time in actions. Know your objective first " - Swami Vivekanandaobjective first " - Swami Vivekananda

7380747 basics of accounting level ii

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