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DEFINITION AND SCOPE ACCOUNTING STANDARDS. ACCOUNTING IS AN ART OF RECORDING CLASSIFYING AND SUMMARIZING TRANSACTIONS IN A SYSTEMATIC MANNER AND IN TERMS.

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Presentation on theme: "DEFINITION AND SCOPE ACCOUNTING STANDARDS. ACCOUNTING IS AN ART OF RECORDING CLASSIFYING AND SUMMARIZING TRANSACTIONS IN A SYSTEMATIC MANNER AND IN TERMS."— Presentation transcript:

1 DEFINITION AND SCOPE ACCOUNTING STANDARDS. ACCOUNTING IS AN ART OF RECORDING CLASSIFYING AND SUMMARIZING TRANSACTIONS IN A SYSTEMATIC MANNER AND IN TERMS OF MONEY TRANSACTIONS AND EVENTS WHICH ARE IN PART AT LEAST OF FINANCIAL CHARACTER AND INTERPRETING THE RESULTS THEREOF.

2 Accounting ACCOUNTING SHOULD BE DONE IN SUCH A MANNER THAT THE READER (INVESTOR,CREDITOR, FINANCIER or BANK) IS ABLE TO UNDERSTAND FOR THE PURPOSES FOR WHICH ACCOUNTS ARE BEING READ & INTERPRETED. i.e THE RESULTs OF BUSINESS OPERATIONS, FINANCIALS & AND OTHER RELEVANT ASPECTS

3 DIFFERENCE BETWEEN ACCOUNTANY AND BOOKKEEPING. BOOK KEEKPING IS MERELY RECORDING THE BUSINESS TRANSACTIONS IN BOOKS AND LEDGERS. ACCOUNTANCY IS WIDER CONCEPT: COMPILATION OF ACCOUNTS IN SUCH A WAY THAT ONE IS IN A POSITION TO UNDERSTAND STATE OF AFFAIRS OF BUSINESS. USERS OF FINANCIAL STATEMENTS ARE INCOME TAX DEPT., S.T DEPARMENT SHAREHOLDERS, INVESTORS,BANKS AND FIS AND SO ON APART FROMMANAGEMENT OF ENTITY FOR MAKING POLICY DECISIONS. IT IS IN THE INTEREST OF ALL THAT FINANCIAL STATEMENTS REFLECT TRUE AND FAIR VIEW OF STATE OF AFFIAIRS OF A BUSINESS ENTITY.

4 ACCOUNTANCY ACCOUNTANCY INVOLVES: SYSTEAMATIC(including regulatory compliance) CLASSIFICATION OF BUSINESS TRANSACTIONS IN TERMS OF MONEY AND FINANCIAL CHARACTER. SUMMARIZING : TRIAL BALANACE AND B/S INTERPRETING THE FINANCIAL TRANSACTIONS.

5 PURPOSE OF ACCOUNTANCY TO KEEP A SYSTEMATIC RECORD TO ASCERTAIN THE RESULTS OF OPERATIONS TO ASCERTAIN FINANCIAL POSITION OF BUSINESS. TO FACILITATE RATIONAL DECISION MAKING TO RAISE FINANCE. TO SATISFY REQUIREMENT OF LAW AND USEFUL IN MANY RESPECTS.

6 Concepts of Accountancy Concepts are basic rules associated with terminology in Accountancy. They are called Accounting concepts. 1. Business Entity Concept : THIS CONCEPT SEPARATES THE ENTITY OF PROPRIETOR FROM THE BUSINESS TRANSACTION. CAPITAL CONTRIBUTED BY THE OWNER IS LIABILITY FOR BUSINESS BECAUSE BUSINESS IS DIFFERENT FROM OWNER.

7 Concepts of Accountancy : Business Entity…… ANY MONEY WITHDRAWN BY PROP. IS DRAWINGS. PROFIT IS LIABILITY AND LOSS IS AN ASSET. ALL ENTRIES ARE KEPT DISTINCT FROM THE POINT OF VIEW OF BUSINESS AND NOT FROM OWNER. AN ENTERPRISE IS ECONOMIC UNIT SEPARATE FROM OWNER.

8 Money Measurement EVERY TRANSACTION IS MEASURED IN TERMS OF MONEY. VIZ PRODUCTION/ SALES/ WAGES ETC ALL CONVERTED TO MONEY. INFLATION OR DEFLALTION NOT INCLUDED IN VALUE OF ANY ASSET. Health of the owner or Director is not taken into accounts even though it may have significant impact.

9 COST CONCEPT COST CONCEPT: BUSINESS TRANSACTIONS ARE RECORDED IN BOOKS AT COST PRICE. FIXED ASSETS ARE KEPT AT COST OF PURCHASE AND NOT AT THEIR MARKET PRICE. EVERY TRANSACTION IS RECORDED WITH PRESENT VALUE AND NOT ANY FUTURE VALUE. UNREALIZED GAINS ARE IGNORED. COST OF AN ASSET THAT HAS LONG BUT LIMITED LIFE IS SYSTAMATICALLY REDUCED BY A PROCESS CALLED DEPRECIATION. BUT SUCH DEPRECIATION HAS NO RELATION TO MARKET VALUE OF ASSET.

10 Historical Records concept. This concept accepts that transaction that have taken place are recorded. The business transaction are recorded as & when they take place. Futuristic or transaction which are yet to take place are not considered. Future transaction can hardly be measured or identified.

11 REALISATION CONCEPT. THIS CONCEPT TELLS US WHEN REVENUE IS TREATED AS REALISED OR EARNED. IT IS TREATED AS REALIZED ON THE DATE WHEN PROPERTY IN GOODS PASSES TO BUYER AND HE BECOMES LEGALLY LIABLE TO PAY. NO FUTURE INCOME IS CONSIDERED. GOODS SOLD ON APPROVAL WILL BE INCLUDED IN SALES BUT ON COST ONLY.

12 GOING CONCERN CONCEPT BUSINESS IS A GOING CONCERN AND TRANSACTIONS ARE RECORDED ACCORDINGLY. IF AN EXPENSE IS INCURRED AND UTILITY IS CONSUMED DURING THE YEAR, THEN IT IS TREATED AS AN EXPENSE OTHERWISE IT IS RECORDED AS AN ASSET. RESERVES AND PROVISIONS ARE CREATED FOR ANY FUTURE LIABILITY. DEFERRED REVENUE EXPENDITURE IS WRITTEN OFF OVER A NUMBER OF YEARS. WHY LOSS IS SHOWN UNDER ASSETS SIDE ?

13 DUAL ASPECT CONCEPT EVERY TRANSACTION HAS DOUBLE EFFECT. ACCOUNTING EQUATION: ASSETS= CAP+ LIABILITY or Capital =Assets- Liability. This has in turn the background the double – entry system of accounting.

14 ACCOUNTING PERIOD CONCEPT. BUSINESS WILL RUN THROUGH LONG PERIOD. HENCE ACCOUNTS OF EACH PERIOD IS RECORDED. RESULTS OF OPERATIONS CAN BE KNOWN PRECISELY ONLY AFTER BUSINESS CEASES TO OPERATE AND ENTIRE ASSETS ARE SOLD AND ENTIRE LIABILITIES PAID. BUT ONE IS INTERESTED IN KNOWING PERIODICALY OPERATING RESULTS OF BUSINESS SAY YEARLY OR HALF YEARLY OR QUARTERLY. HENCE ALL THE EXPENSES OR INCOME DURING THIS ACCOUNTING PERIOD HAS TO BE TAKEN INTO CONSIDERATION IRRESPECTIVE OF WHETHER THEY ARE REALISED IN CASH OR PAID IN CASH.

15 ACCOUNTING FOR FULL DISCLOSURE DISCLOSURE OF MATERIAL FACTS.( MATERIAL AND IMMATERIAL FACT IS A MATTER OF JUDGEMENT) CONTINGENT LIABILITY MARKET VALUE OF INVESEMENTS. CHANGE IN METHOD OF DEPRECIATION/VALUATION OF GOODS ETC.

16 CONVENTION OR PRINCIPLES OF CONSERVATISM ALL POSSIBLE LOSSES TO BE TAKEN INTO CONSIDERATION AND ANTICIPATED PROFITS TO BE IGNORED. CREATION OF PROVISION FOR DOUBTFUL DEBTS. VALUE OF STOCK CONVENTION OF CONSISTENCY: METHOD OF DEPRECIATION.

17 Accrual & Cash Basis Before the right to receive arises. After the right to receive is created. - Revenue is recognized as it is earned. -Cots are matched against revenues. Any costs that are matched against are on the basis of relevant time period. Materiality : It does not mean to ignore small items.

18 DOUBLE ENTRY SYSTEM SCIENTIFIC SYSTEM: EVERY TRANSACTION HAS TWO ASPECTS. CRUX OF ACCOUNTANCY IS TO FIND OUT WHICH TWO ACCOUNTS ARE EFFECTED AND WHICH IS TO BE DEBITED AND WHICH IS TO BE CREDITED.

19 PERSONAL & IMPERSONAL ACCOUNTS PERSONAL ACCOUNTS: NATURAL/REPRESENTATIVE & ARTIFICAL IMPERSONAL : REAL ACCOUNTS TANGIBLE & INTANGIBLE NOMINAL ACCOUNTS

20 Personal Account 1.Natural Person : Proprietor’s A/c, supplier’s a/c, Mohan’s A/c, Rajesh’s A/c etc. 2. Artificial person A/c : These include accounts of Limited Company, Firm, Club, Bank or Insurance Company. 3. Representative personal account: Salary outstanding A/c may pertain to a number of employees.

21 Impersonal Account : Tangible Real Accounts : These assets can be touched or felt physically. i.e Land building, furniture, Cash (But not the Bank Account). Intangible Real Accounts : These assets can not be touched but however measurable in monetary terms. Goodwill, trademark, patent rights.

22 Nominal Accounts These are the items of expenses or income. The entries are generally associated with personal or real accounts. For e.g : When Rent is paid Cash (real) goes out. When Debtor( Personal) pays Cash(real) for the amount of goods sold.

23 Match the following 1.Rent outstanding a. Natural Personal A/c 2. Bank of India b. Nominal A/c 3. Salaries c. Artificial personal A/c. 4. Salaries d. Representative Personal A/c. Outstanding A/c 5. Ram e. Representative Personal A/c. (In exam. Q may be limited to Personal, Real or Nominal categories)

24 Answers to Match the following 1.Rent outstanding d. Representative Personal 2. Bank of India c. Artificial Personal A/c. 3. Salaries b. Nominal A/c. 4. Salaries e. Artificial Personal A/c Outstanding A/c 5. Ram a. A/c Natural Personal A/c

25 MATCH FOLLOWING AB ARAMESH1REAL BRENT3NOMINAL CCOMPUTER4REAL DLAND5NOMINAL EDISCOUNT6PERSONAL

26 Answers ARAMESH 1PERSONAL B RENT 2NOMINAL CCOMPUTER 3. REAL DLAND 4REAL EDISCOUNT 5. NOMINAL

27 Golden Rules 1.DEBIT (Dr.) the Receiver and CREDIT(Cr.) the Giver. 2. DEBIT (Dr.) the What come in and CREDIT(Cr.) What goes out. 3. DEBIT (Dr.) the Expenses & Losses. CREDIT(Cr.) the Income & Gains.

28 Examples You would observe while passing journal entries that that there will be combination of one or more component of golden rules that we have seen in previous slide. For eg. Ramesh gives Suresh Rs.5000 then Ramesh would pass entries as : Suresh A/c Dr. Dr. Rs.5000 To Cash Cr. Rs.5000 (Being the amount paid to Suresh) Golden Rule Applied i.e. DEBIT (Dr.) the Receiver and CREDIT(Cr.) the Giver- What goes out.

29 Ram Pays Rent of Rs.2000 Rent A/c Dr. Rs.2000 To Cash A/c. Rs.2000 (Being the amount of Rent paid for April,2010). Golden Rule applied : Dr. the expenses and Credit what goes out.

30 Shyam would pass entries as Cash A/c. Dr. Rs.2000 To Rent A/c. Cr. Rs.2000 ( Being the amount received by way of Rent ) (DEBIT (Dr.) What comes in and CREDIT (Cr.) the Income

31 Shyam Receives commission For Commission Received by Shyam Cash A/ Dr. Rs.1000 To Commission A/c Rs.1000 (Being the amount of Commission Received) Dr. what comes in CREDIT(Cr.) the Income & Gains.

32 JOURNAL JOURNAL RECORDS EACH AND EVERY RECORD BY WAY OF JOURNAL ENTRY. BUT TO FIND OUT A TRANSACTION EFFECTING A PERSON, EXPENSES ACCOUNT OR ASSET ONE HAS TO TURNOVER ALL PAGES OF JOURNAL. HENCE TRANSACTIONS ARE POSTED FROM JOURNAL TO PARTICULAR PAGES OF LEDGER. HENCE JOURNAL CONTAIN A COLUMN L.F

33 JOURNAL FORMAT DATEPARTICULARSL.FDEBIT RS.CREDIT RS.

34 CASH BOOK CASH BOOK KEEPS RECORDS OF ALL CASH TRANSACTIONS I.E CASH RECEIPTS AND CASH PAYMENTS. ALL RECEIPTS ARE RECORDED ON RIGHT SIDE AND ALL PAYMENTS ON LEFT SIDE. CASH BOOK IS BOOK OF ORIGINAL ENTRY.

35 CASH BOOK FORMAT DR.CR DATEPARTI CULA RS VR. NO L.FCASH Rs. BANK Rs. DISCO UNT DATEPARTI CULA RS VR.NO. LFCASH Rs. BANK Rs. DISCO UNT

36 RECORD KEEPING BASIS RECORDING: JOURNALISING AS AND WHEN TRANSACTION TAKES PLACE. JOURNAL IS BOOK OF ORIGINAL OR FIRST ENTRY. CLASSIFYING: ALL ENTRIES IN JOURNAL OR SUBSIDIARY BOOKS ARE POSTED TO LEDGER ACCOUNT(POSTING) TO FIND OUT AT A GLANCE THE TOTAL EFFECT OF ALL SUCH TRANSACTIONS. LEDGER IS BOOK OF SECONDARY ENTRY. SUMMASRISING: LAST STAGE IS TO PREPARE THE TRIAL BALANCE AND FINAL ACCOUNTS WITH A VIEW TO ASCERTAIN THE PROFIT OR LOSS DURING PARTICULAR PERIOD. IT IS CUSTOMARY TO USE TO AND BY WHILE POSTING LEDGER. BALANCING AN ACCOUNT MEANS EQUALIZING TWO SIDES. IF DEBIT SIDE OF ACCOUNT EXCEED CREDIT SIDE, DIFFERENCE IS PUT ON CREDIT SIDE AND IT IS SAID TO HAVE DEBIT BALANCE AND VICE VERSA..

37 LEDGER DRCR DATEPARTICU LARS J.FAMOUN T(RS) DATEPARTICU LARS J.FAMOUN T RS.

38 Questions. CREDIT BALANCE IN CAPITAL ACCOUNT IS LIABILITY OR AN ASSET FOR BUSINESS: A. LIABILITY B. A REVENUE C. AN EXPENSE D. NONE OF THESE.

39 Answer Liability as Capital brought is a liability for the business which is independent of Owner.

40 QUESTION AMOUNT BROUGHT IN BY PROPRIETOR IN BUSINESS SHOULD BE CREDITED TO A.DRAWINGS ACCOUNT B.CAPITAL ACCOUNT OF PROPRIETOR. C.ASSET ACCOUNT D. NONE OF THE ABOVE

41 Answer B.CAPITAL ACCOUNT OF PROPRIETOR As we have seen earlier example : Liability as Capital brought is a liability for the business which is independent of Owner

42 QUESTIONS WAGES PAID TO MUNNA TO BE DEIBED TO A. MUNNA B WAGES C. CASH D. BANK

43 Answer Answer : B Amount being paid to Munna are Wages which are “ Debit the Expenses “

44 QUESTIONS. Q. CREDIT SALES MADE TO ROHIT TO BE DEIBTED TO A. SALES B. PURCHASE C. CASH D. ROHIT

45 Answer D: ROHIT : ‘As debit the receiver’

46 QUESTIONS FURNITURE PURCHASED BY ISSUING CHEQUE : WHAT ENTRIES TO BE PASSED A. DEBIT FURNITURE AND CREDIT BANK ACCOUNT. B.DEBIT BANK ACCOUNT AND CREDIT FURNITURE. C.DEBIT FURNITURE AND CREDIT CASH. D.DEBIT BANK AND CREDIT FURNITURE SHOP ACCOUNT

47 Answer Ans:A : Debit What Comes in Credit What goes out Furniture comes in Bank payment goes out.

48 QUESTIONS ENTRY FOR RETURN OF GOODS, IN RESPECT OF SALES EFFECTED ON CREDIT, SHOULD BE CREDITED TO : A. SALES RETURN B PURCHASE RETURN C.CUSTOMER ACCOUNT D. GOODS ACCOUNT

49 Ans:C When Sales was effected the Customer’s Account was debited & Sales Returns takes place Customer’s Account should be Credited thus which would reduce dues.

50 QUESTION WHAT IS JOURNAL ENTRY A. ORIGINAL ENTRY B. DOUBLE ENTRY C DUPLICATE ENTRY NONE

51 Answer A. ORIGINAL ENTRY

52 QUESTION TRANSACTION IN BANK COLUMN ON CREDIT SIDE OF THREE COLUMNAR CASH BOOK INDICATE A. AMOUNT PAID FROM THE BANK A/C. B.AMOUNT DEPOSITED IN BANK C.BOTH A AND B D. NONE

53 Answer Ans: A. The amount paid from Bank A/c.

54 QUESTION PASS JOURNAL ENTRY: RENT PAID FOR OFFICE PREMISES RS OUT OF WHICH PART AMOUNT OF RS PAID BY CHEQUE AND REST BY CASH.

55 Answer By RENT A/c. Dr. Rs.30,000 To Cash Cr. Rs.20,000 To Bank Cr. Rs.10,000

56 Question PASS JOURNAL ENTRY: PURCHASED 1000 SHARES OF CENTRAL BANK OF INDIA FOR RS.32 PER SHARE

57 Answer By Investment A/c. Dr. Rs.32,000 To Bank Cr. Rs.32000

58 QUESTIONS PASS JOURNAL ENTRIES: SOLD GOODS TO SAMIR RS A) When Sold on Cash. B) When Sold on Credit.

59 Answer A) Cash A/c. Dr. Rs To Sales Cr. Rs (Being the amount received on sale of goods) B) Samir’s A/c. Dr. Rs To Sales Cr. Rs (Being the sales made to Samir on Credit)

60 QUESTIONS PASS JOURNAL ENTRY: DRAVID SOLD GOODS FOR RS TO us.: A) On Cash Purchase B) On Credit Purchase

61 Answer A) By Purchase A/c Dr. Rs To Cash A/c Cr. Rs B) By Purchase A/c. Dr. Rs To Dravid A/c. Cr

62 QUESTIONS PASS JOURNAL ENTRY: RECEIVED DUES from SAMIR ( towards the sales made to him on Credit terms at Rs.15000) AMOUNT FROM SAMIR) AND ALLOWED HIM DISCOUNT OF 10% Ans: By Bank A/c. Dr. Rs.13,500 By Discount A/c Dr. Rs To Samir Rs

63 QUESTIONS PASS JOURNAL ENTRY: PAID SALARY TO RAM AND Rent to RAHIM RS.1200 AND 1500 RESPECTIVELY. Ans: By Salary A/c. Dr By RENT A/c. Dr To Cash A/c. Cr. Rs.2700

64 QUESTIONS PASS JOURNAL ENTRY: In case of Insolvency of Debtor full amount is not received. For eg. KIRAN BECAME INSOLVENT. HE HAD TO PAY TO US. BUT WE RECEIVED ONLY 25 PAISE A RUPEE. So we have to write of Rs.7500 as Bad Debts. By Cash A/c Dr. Rs.2500 By Bad Debts Rs.7500 To Kiran A/c. Cr. Rs.10000

65 QUESTION PASS JOURNAL ENTRY: PAID MONTHLY CAR INSTALMENT OF PROPRIETOR’S PERSONAL CAR RS By Drawings A/c. Dr. Rs To Bank A/c Cr. Rs.12000

66 QUESTION PASS JOURNAL ENTRY: BOUGHT FURNITURE FROM GODREJ AND PAID BY CHEQUE RS By Furniture A/c. Dr. Rs To Bank Cr. Rs.50000

67 QUESTION PASS JOURNAL ENTRY: DEPOSITED CASH IN BANK RS.1000 BY Bank A/c. Dr Rs.1000 To Cash A/c. Cr. Rs. 1000

68 QUESTION JOURNALIZE FOLLOWING: COMMENCED BUSINESS WITH Rs OF WHICH RS.5000 WAS BORROWED FROM HIS WIFE AT 12% INTEREST P.A. By Cash Rs To Capital A/c. Cr. Rs To Loan A/c Cr. Rs. 5000

69 QUESTIONS PASS JOURNAL ENTRY: PURCHASED GENERATOR FROM RAMA & CO. RS on credit. BY Generator A/c. Dr. Rs (furniture) To Rama & Co. Cr. Rs.50000

70 Expenses on behalf of ….. In case of Joint Venture/Consignment transaction expenses are spent by agent or other party concerned. For eg. If X& Co. spends travelling charges for Y & Co, the X & Co. would pass entry as: Y & Co. A/c Dr. To Cash (Being the amount of travelling charge spent for Y & Co.,)

71 QUESTIONS PASS JOURNAL ENTRY: PAID CARRIAGE AND CARTERAGE of Rs.1,000 ON GOODS SOLD TO NAYAN ON HIS BEHALF. By Nayan A/c. Dr. Rs To Bank Cr. Rs.1000

72 QUESTION PASS JOURNAL ENTRY: A.BOUGHT GOODS FROM SATISH AT ONE MONTHS CREDIT RS.6000 B. OUT OF WHICH HALF WAS INVOICED TO MR. RAM AT 30% ABOVE COST ON CREDIT.

73 Answer A. Purchase A/c. Dr. Rs.6000 To Satish’s A/c. Cr. Rs.6000 (Being the amount of good bought from Satish on CREDIT) B. Mr. RAM A/c. Dr To Sales A/c. Cr. Rs.3900 (Goods sold to Ram on Credit ) 1/2 is Rs % above cost = Rs.3900

74 Adjusting and closing entries. While preparing trading and profit and loss account all expenses and income for the full period are to be taken into consideration. If expenses have been incurred but not paid during that period, liabilities for unpaid amount should be created before the accounts can be said to show the actual profit and loss. All expenses and income should properly be adjusted through accounting entries.

75 Adjusting and closing entries. Trial balance is prepared from the books of accounts of organiztion. Final accounts are the final process of accounting. Once the trial balance is prepared the books are half way closed. Now all adjusting entries passed at the time of preparing the final accounts have dual effect i.e both debit and credit. Hence all adjusting entries passed after Trial balance drawn will have two effects.

76 Adjusting and closing entries. One in either trading and profit and loss account and other in Balance sheet or one in trading account and other in Profit and loss account.

77 Adjusting and closing entries. Some examples: Closing stock adjustment: Will be shown in asset side of balance sheet and will be shown in credit side of trading account. Goods lost by fire: Will be shown in credit side of trading account. Will be shown on debit side of profit and loss account.

78 Adjusting and closing entries. Outstanding expenses: Will be shown in debit side of profit and loss account. Will be shown in liabilities side of balance sheet. Prepaid expenses: Prepaid expenses shown in Asset side ( Dr Pre paid expenses) and Credit P&L Expenditure as they do not pertain to current year.

79 Adjusting and closing entries. Depreciation: It is fall in value of asset due to use or passage of time. Depreciation A/c Dr. To Asset account A/c. cr.

80 DAY BOOK AND GLB POSTING IN A BANK. IN THE CONTEXT OF ACCOUNTING IN BANKS DAY BOOK OR CASH BOOK (BOTH ARE USED IN SAME CONTEXT : SOME BANKS CALL IT CASH BOOK SOME BANKS CALL IT DAY BOOK) HAS SUMMARY OF TOTAL TRANSACTIONS IN RESPECT OF EACH ACCOUNTING HEAD OF BALANCESHEET AND PROFIT AND LOSS ACCOUNT. THE AMOUNT OF EACH OF TRANSACTIONS DONE IN BRANCH OF BANK IN THE DAY ARE

81 DAY BOOK AND GLB POSTING IN A BANK.. SUMMARIZED AND RECORDED HERE. FOR INSTANCE ALL THE TRANSACTIONS IN SAVINGS ACCOUNTS OR ALL TRANSACTIONS IN CURRENT DEPOSITS ACCOUNTS ARE RECORDED IN SUMMARIZED FORM WITH REGARD TO BOTH DEBIT AND CREDIT SIDE. WHICH ARE BROUGHT FROM SUPPLEMENTARY BOOKS WHICH ARE AGAIN SUB SUMMARY OF TRANSACTIONS IN AN ACCOUNT SAY SAVINGS OR CD.

82 DAY BOOK AND GLB POSTING IN A BANK.. FROM DAY BOOK THE FINAL DEBITS AND CREDITS ARE POSTED IN THE RESPECTVE LEDGERS WHICH IS KNOWN AS GENERAL LEDGER. GENERAL LEDGER IS NOTHING BUT BOOK CONTAINING INDIVIDUAL LEDGERS FOR EACH INDIVIDUAL TYPE OF ASSET OR LIABILITIES. FOR INSTANCE ENTIRE CURRERNT DEPOSIT TRANSACTIONS ARE POSTED IN CURRENT ACCOUNTING HEAD IN GENERAL LEDGER. SIMILARLY FOR SAVINGS ACCOUNT OR FURTNIUTE ACCOUNT OR STATIONERY ACCOUNT AND SO ON.

83 DAY BOOK AND GLB POSTING IN A BANK.. THE GENERAL LEDGER BALANCE IS VIRTUALLY TRIAL BALANCE OF THE BANK ON A PARTICULAR DAY. IT REFLECT THE BALANCES OF ALL ACCOUNTS. WHILE PREPARING BALANCESHEET AND PROFIT AND LOSS ACCOUNT OF BRANCH OF BANK THE GLB BALANCES ARE TAKEN. BALANCE SHEET OF ALL BRANCHES TOGETHER WHEN CONSOLIDATED BECOMES THE BALANCE SHEET OF BANK.

84 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.

85 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES GAAP are imposed on companies so that investors have a maximum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification. Companies are expected to follow GAAP rules when reporting their financial data via financial statements.

86 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES That said, keep in mind that GAAP is only a set of standards. What is important that its underlying objectives are followed in true perspective. Currently Financial Accounting Standards Board(FASB) sets the accounting principles for the profession.

87 US GAAP US SECURITIES & EXCHANGE COMMISSION (SEC) REQUIRES THAT IT BE FOLLOWED IN IN FINANCIAL REPORTING BY THE PUBLIC TRADED COMPANIES. THIS WILL ENABLE THE POTENTIAL INVESTORS,CREDITORS & OTHER USERS IN MAKING A RATIONAL FINANCIAL DECISION.

88 TRANSFER PRICING Transfer pricing refers to the pricing of goods and services to services within a multi- divisional organisation, particularly with regard to cross-border transactions. MNC makes use of it. It measures the efficacy of a subsidiary/Division in terms of Profit Centre. TP is carried out to ensure share of tax to respective country apart from protecting against double taxation by use of Arm’s length price.

89 Arm’s Length Price :Calculation Traditional Methods: Comparable uncontrollable price. Cost Plus Method Resale Price Method. NON-TRADITIONAL METHODS. Profit spilt Method and Transactional Net Margin Method.

90 ACCOUNTING STANDARDS. INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA RECOGNISING THE NEED TO HARMONISE THE DIVERSE ACCOUNTING POLICIES AND PRACTICES CONSTITUTED AN ACCOUNTING STANDARDS BOARD IN THE YEAR ASB FORMULATE ACCOUNTING STANDARDS SO THAT COUNCIL OF ICAI MAY MANDATE SUCH STANDARDS.

91 ACCOUNTING STANDARDS IT MAY BE NOTED THAT THE ACCOUNTING STANDARDS MENS THE ACCOUNTING STANDARDS AS PROMULGATED BY THE ACCOUNTING (ACCOUNTING STANDRADS) RULES,2006. SO IT A PART OF COMPANY LAW NOW.

92 ACCOUNTING STANDRADS WHERE P&L AND B/S OF THE CO. DO NOT COMLY WITH ACCOUNTING STANDRDS SUCH COS. SHOULD DISCLOSE: THE DEVIATION FROM THE ACCOUNTING STANDARDS: THE REASON FOR SUCH DEVIATION : AND FINANCIAL EFFECT IF ANY DUE TO SUCH DEVIATION.

93 OBJECTIVES QUESTIONS ON ACCOUNTING STANDARDS Q. MANDATORY ACCOUNTING STANDARD IF NOT FOLLOWED REQUIRES AUDITORS WHO ARE MEMBERS OF ICAI TO : A. QUALIFY THEIR AUDIT REPORTS. B. INFORM TO MANAGEMENT OF COMPANY C. INFORM TO ICAI D. NEED NOT REPORT ANYTHING.

94 Ans : A QUALIFY THEIR AUDIT REPORTS

95 QUESTIONS SEBI AND COMPANY’S ACT REQUIRE AUDITORS TO QUALIFY AUDIT REPORTS THAT A. THAT DO NOT CONFORM TO MANDATORY ACCOUNTING STANDARDS. B. CONFORM TO MANDATORY ACCOUNTING STANDARDS. C. DO NOT CONFORM TO ACCOUNTING STANDARDS. D. NO RESPOSIBILITY ON AUDITORS.

96 Answer A. THAT DO NOT CONFORM TO MANDATORY ACCOUNTING STANDARDS

97 QUESTIONS. Q WHICH SECTION OF COMPANIES ACT CAST RESPONSIBILITY ON BOARD OF DIRECTORS TO COMPLY WITH MANDATORY ACCOUNTING STANDARDS: A. SECTION 217(2AA) B. SECTION 215 C. SECTION 125 D. SECTION 44.

98 Answer Ans : A 217(2AA)

99 ACCOUNTING STANDARDS (Disclosure of Accounting Policies) AS -1 ALL SIGNIFICANT POLICIES ADOPTED IN PREPARATION OF FINANCIAL STATEMENTS SHOULD BE DISCLOSED. ANY CHANGE IN ACCOUNTING POLICIES WHICH HAS MATERIAL EFFECT IN CURRENT PERIOD OR IN LATER PERIOD SHOULD BE DISCLOSED.

100 AS 2(Valuation of Inventories) DEALS WITH DETERMINATION OF VALUE AT WHICH INVENTORIES ARE CARRIED/VALUED INVENTORIES TO BE VALUED AT LOWER OF COST OR NET REALISABLE VALUE. AVERAGE COST OR FIFO METHODS ARE PERMITTED IN CASE WHERE GOODS ARE INTERCHANGEABLE.

101 AS-3(Cash Flows) PREPARATION OF CASH FLOW STATEMENT AND ITS PRESENTATION ALONGWITH FINANCIAL STATEMENTS CASH FLOW TO BE CLASSIFIED BY OPERATING/INVESTING/FINANCING ACTIVITIES.

102 AS 4 TREATMENT OF CONTINGENCIES AND EVENTS IN FINANCIAL STATEMENTS. EG. CASES IN HIGH COURT OR PENALTY PROCEEDINGS UNDER LAW. CONTINGENCIES MUST BE PROVIDED IF LOSSES CAN BE ESTIMATED. EVENTS AFTER BALANCE SHEET DATE AND BEFORE APPROVAL OF BOARD OF DIRECTORS SHOULD BE APPROPRIATELY ADJUSTED IN VALUE OF ASSETS AND LIABILITIES. IF INSUFFECIENT EVIDENCE, DISCLOSURE TO BE MADE CONTINGENT GAINS ARE NOT RECOGNIZED.

103 AS-5 DEALS WITH TREATEMENT OF PRIOR PERIOD AND EXTRAORDINARY EVENTS. DEBITS OR CREDITS WHICH ARISE IN CURRENT YEAR OR AS A RESULT OF OMMISSION/MISTAKES IN PRIOR YEAR. ALSO EXTRAORDINARY ITEMS LIKE WRITING OFF INVENTORIES. DISPOSAL OF FIXED ASSETS.

104 AS -6 DEPRECIATION IS A MEASURE OF WEARING OUT ASSETS. DEPRECIATION METHOD SHOULD CAREFULLY BE SELECTED AND CONSISTENCY APPLIED FOR YEAR TO YEAR. TREATMENT FOR REVALUATION OF ASSETS DEPRECIATION METHOD TO BE DISCLOSED.

105 AS-7 ACCOUNTING OF CONSTRUCTION CONTRACTS.CONTRACT FOR CONSTRUCTION EXCEED ONE YEAR OR SO. ACCOUNTING ISSUES OF REVENUE, TREATMENT OF ADVANCE RECEIVED, WORK IN PROGRESS, IN FINANCIAL STATEMENTS. TYPES OF CONTRACTS: FIXED PRICE CONTRACT + ESCALATION COST OR COST PLUS A FIXED FEE. AMOUNT AND METHOD USED TO DETERMINE REVENUE RECOGNIZED.

106 AS-8 STAND DELETED FROM R&D EXPENSES ARE NOW COVERED IN AS-10

107 AS-9 BASIS FOR RECOGNITION OF REVENUE I.E INCOME AND TIME WHEN INCOME IS SAID TO HAVE ARISEN WHEN REVENUE RECOGNITION POSTPONED, DISCLOSURE OF CIRCUMASTANCES TO BE MADE.

108 AS-10 ACOUNTING OF FIXED ASSETS AND DISCLOSURE THERE OF. COMPONENTS OF COST. PURCHASE PRICE: + IMPORT DUTY+TAXES+DIRECT COST TO BRING ASSET TO ITS WORKING CONDITION- TRADE DISCOUNTS. FINANCING COST TO THE EXTENT SUCH COST RELATE TO PERIOD AFTER SUCH ASSETS ARE READY TO USE- NOT TO BE CAPITALIZED. TEST RUN EXPENSES CAPITALIZED.

109 AS-11 TRANSLATION OF ACOUNTING TRANSACTION IN FOREIGN CURRENCIES IN REPORTING CURRENCY. FINANCIAL STATEMENT OF FOREIGN OPERATIONS FORWARD EXCHANGE CONTRACTS. EXCHANGE DIFFERENCE INCLUDED I.E PROFIT OR LOSS TO BE DISCLOSED.

110 Select the appropriate The type of Accounting transactions deal with in Accounting Standard -11 are: 1. TRANSLATION OF ACOUNTING TRANSACTION IN FOREIGN CURRENCIES IN REPORTING CURRENCY 2. Valuation of Inventories 3. Accounting for Fixed assets & Disclosures 4. Preparation of Cash Flow

111 Answer TRANSLATION OF ACOUNTING TRANSACTION IN FOREIGN CURRENCIES IN REPORTING CURRENCY

112 AS-12 GOVERNMENT GRANTS RECEIVED BY AN ENTITY. SUBSIDIES/CASH INCENTIVE/DUTY DRAWBACK DOES NOT INCLUDE ANY TAX EXEMPTION OR TAX HOLIDAY.

113 AS-13 ACCOUNTING FOR INVESEMENTS MADE BY AN ENTITY. CURRENT AND LONG TERM. (This AS does not deal with Lease or MF) The AS states that amount of quoted & unquoted investments should be stated.

114 AS-14 AMALGAMATION OF TREATMENT OF RESULTANT GOODWILL OR RESERVES TAKE OVER OF EXISTING BUSINESS AND FORMATION OF NEW BUSINESS.

115 AS-15 ACCOUNTING OF RETIREMENT BENEFIT TO EMPLOYEES IN FINANCIAL STATEMENTS PF/PENSION/GRATUIITY LEAVE ENCASHMENT POST RETIREMENT WELFARE SCHEME METHOD BY WHICH RETIREMENT BENEFITS VALUED.

116 AS-16 CAPITALIZATION OF BORROWING COST ATTTRIBUTABLE TO ACQUISITION/CONSTRUCTION OR PRODUCTION WHERE QUALIFYING ASSET TAKES SUBSTANTIAL PERIOD TO GET IT READY FOR INTENDED USE OR SALE.

117 AS-17 SEGMENT REPORTING REPORTING OF INFORMATION ABOUT DIFFERENT TYPES OF PRODUCT AND SERVICES OF AN ENTERPRISE AND ITS OPERATIONS IN DIFFERENT GEOGRAPHICAL AREAS. FOR ASSESSING RISK AND RETURN OF DIVERSIFIED OR MULTILOCATIONAL ENTERPRISE.

118 AS-18 REPORTING OF RELATED PARTY RELATIONSHIP AND TRANSACTIONS BETWEEN A REPORTING ENTERPRISE AND RELATED PARTY. NAME OF RELATED PARTY AND RELATIONSHIP WHERE CONTROL EXIST TO BE DISCLOSED.

119 AS-19 LEASE: A LEASE AN AGREEMENT WHEREBY THE LESSOR CONVEYS TO THE LESEE IN RETURN FOR A PAYMENT OR SERIES OF PAYMENTS THE RIGHT TO USE AN ASSET FOR A AGREED PERIOD. ACCOUNTING POLICIES FOR LESSOR AND LESSEE AND DISCLOSURE IN RELATION TO FINANCIAL LEASE AND OPERATING LEASE.

120 AS-20 PRINCIPLES & DETERMINATION OF EARNING PER SHARE COMPARISON BETWEEN ENTERPRISES. NET PROFI(LOSS)/ WEIGHTED AVERAGE NUMBER OF SHARES.

121 AS 21 CONSOLIDATED FINANCIAL STATEMENT OF PARENT AND SUBSIDARIES. A list of all subsidiaries including ownership & voting rights. Relationship between the parent & the subsidiary.

122 AS-22 METHOD OF DETERMINATION OF AMOUNT OF EXPENSES OR SAVING RELATING TO TAXES ON INCOME IN RESPECT OF AN ACCOUNTING PERIOD. DEFERRED TAX ASSETS AND LIABILITIES SHOULD BE DISTINGUISHED FROM CURRENT TAX ASSETS AND LIABILITIES

123 AS-23: ACCOUNTING FOR INVESTMENT IN ASSOCIATES in Consolidated Financial Statements).

124 AS-24(Discounting Operations) DISCONTINUATION OF OPERATION OF PARTICULAR SEGMENT. DISCLOSURE OF PRE TAX PROFIT OR LOSS FROM ACTIVITIES ATTRIBUTABLE TO DISCONTINUING OPERATIONS.

125 AS-25(Interim Financial Reporting) INTERIM REPORTING WHICH IS NOT FOR COMPLETE REPORTING PERIOD. CONDENSED B/S CONDENSED P&L CONDENSED CASH FLOW STATEMENT EXPLANATORY NOTES.

126 AS-26: Intangible Assets OTHER THAN INTANGIBLE ASSETS COVERED IN AS- 22( DEFERRED TAX ASSETS) RELATE TO START UP COST ( EG ADVT ETC) R&D PATENTS AND COPY RIGHT GOODWILL DISCLOSURE: USEFUL LIFE OR AMORATIZATION RATE AMORATIZATION METHOD.

127 AS-27 : Financial Reporting in case of JVs. TWO OR MORE PARTIES UNDER TAKE ECONOMIC ACTIVITY WITH JOINT CONTROL ACCOUNTING FOR JOINT VENTURE IN A CONSOLIDATED FINANCIAL STATEMENT. DISCLOSURE: ANY CONTINGENT LIABILITY INCURRED BY VENTURER AND ITS SHARE. ANY CAPITAL COMMITMENT AND ITS SHARE.

128 AS-28: Impairment of Assets EQUITY OR DEBT LISTED TURNOVER EXCEED RS.50 CRORES PRINCIPLE OF THIS A.S IS TO ENSURE CARRYING COST OF ASSET IS NOT MORE THAN RECOVERABLE VALUE OF ASSET. NOT APPLIED TO INVENTORIES AS 2 CONSTRUCTION CONTRACT AS 7 FINANCIAL ASSETS AS 13 & DEF TAX AS 22

129 AS-29 AS-29 DEALS WITH ACCOUNTING FOR PROVISIONS,CONTINGENT LIABILITIES AND CONTINGENT ASSETS WITH EXECEPTIONS AS TO EXECUTORY CONTRACTS, THOSE ARISING IN INSURANCE FROM CONTRACT WITH POLICY HOLDERS AND THOSE COVERED UNDER ANOTHER ACCOUNTING STANDARD.


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