UNIT - VII

INTRODUCTION TO FINANCIAL ACCOUNTING

Introduction to Final Final Accounts

Finance means Cash, Money, Price, Value and Cost Its relating to Monetary benefit

Basically 3 Concepts

Introduction to Final Final Accounts

Account – It’s a summarized statement of Debit and Credit Accounting – it’s a process of all types of accounts such as PA, RA & NA Accountancy – its law of accounts.

Introduction to Accounting

Accounting is a old concept. It was introduced by Edward Jones in 1795 in the books of “Modern Accounting System”.

Accounting is “Method of Identifying, Classifying, Summarizing in a significant manner in terms of Money”.

Principles of Accounting

Recording Identifying Classifying Summarizing Balancing

Eg. 1. Mr. Ramu Purchased a book of Rs. 150/- from kiran at Koti.

2. Mrs. Aishwarya Sold a Machinery of Rs. 10000/- to Bharati by cash.

Types of Financial Accounting

Personal Accounts Real Accounts Nominal Accounts

Types of Accounting

Financial Accounting Management Accounting Cost Accounting

Concepts of Accounting

Money Measurement concept Business Entity concept Going concern concept Cost concept Dual aspect concept Accounting period concept Matching concept Reliasation concept Objective concept Other concepts

Conventions of Accounting

Convention of Disclose Convention of Consistency Convention of Conservatism Convention of Materiality

Principles of Double Entry system

Principles

Personal Accounts Real Accounts Nominal Accounts

Debit Credit Debit Credit Debit Credit

Receiver Giver What comes in

What goes out

Exp and Loss

Income & Gain

Journal

When the size of the business firm is big. All the business transections are first recorded in a Rough Book, before entering them in “JOURNAL”.

After words these transactions are recorded in a chronological order.

After analyzing, classifying these benefits according to the principles of debit & Credit is called “Journal”.

Advantages of Accounting

Replacing money Assisting the performance of the business Assessing the financial status of the business Documentary evidence Assisting in realisation of debts. Facilitating & detecting frauds Preventing & detecting frauds Help full to Management

Classification of Ledger

Debtors ledger Creditors ledger General ledger Self ledger

Types of Subsidiary books

Purchase book Sales book Purchase returns book Sales returns book Cash book Bill receivable book Bills payable book Journal proper

Characteristics of Cash book

It can also be treated as a subsidiary book Like ledger, there are the debit and credit columns in cash book Only cash transactions are recorded It always shows debit balance but it never shows the credit balance The balance of cas can be known at any point of time

Types of cash transactions

Cash ReceiptsCash Payments

Types of Cash books

Simple cash book Double column cash book Triple column cash book Petty cash book

Trial Balance

M.S gosav defined the Trail Balance as “The Trail balance is a statement containing the balances of all ledger accounts., as at any given date, arranged in the form of debit and credit columns placed side by side and prepared with the object of checking the arithmetical accuracy of the ledger postings”.

Characteristics of Trial Balance

Basically Trial Balance is a statement or list It contains all the Debit and Credit balances It total debit balances must be equal in aggregate to the total of the credit

balances when accounts are balanced at any given time. Trial Balance is the only base for the preparation of final accounts

Advantages of Trial balance

Preparation of final accounts will become easy with the preparation of Trail balance

When the total balance of debit is equal to the total balance of credit in a trial balance one can confidently rely on the results derived out of such trail balance.

Final Accounts

Relating to Trading Concern Trading Account Profit & Loss Account Balance sheet

Relating to Manufacturing Firm Manufacturing Account Trading Account Profit & Loss Account Balance Sheet

Importance of Trading Account

We can ascertain Gross Profit / Gross Loss We can observe the changes in direct expenses. We can calculate the cost of production We can establish the relation b/w the costs and revenues We can analyze the trend in sales We can decide the earning capacity of the firm

Importance of Profit & Loss Account

The main purpose of preparing the Profit & Loss account is to ascertain Net profit / Net Loss of the firm

It is also useful to establish a relationship b/w the sales and the total indirect expenses through percentages.

Its relating to the expenses and Incomes of the firm

Balance Sheet

“Balance Sheet is a statement prepared on a particular date of reflect the financial position of the firm with all assets and liabilities of the firm”.

Types of Balance Sheet

Rigidity preference order Liquidity preference order