CPT Section A Chapter 1 Unit 1 CA.S.S.Prathap

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2 CPT Section A Chapter 1 Unit 1 CA.S.S.Prathap

3 What is a River? River is a flow of water. What is Accounts? At one level, it can be said as tracking the flow of money through a business.

4 It starts with what is called a Transaction. Transaction is an exchange. Example : You go to a shop and buy a pen. The money is exchanged for a pen. Example : You go to a doctor.the money is exchanged for service.

5 Based on the above understanding can you make some rules for a transaction? 1. Transaction must have two sides. This is called Dual Aspect. That s why we called accounts as double entry book-keeping.it was invented by Lucio Paciolio.

6 2. Second rule for a transaction is, it has to be in terms of money. This is the famous Money measurement concept. The flip side is if any transaction cannot be measured in terms of money, it cannot be recorded in the books of accounts.

A Transaction is one-off. Example : Rent paid for the month, Purchase of goods. An event is a result of number of transactions and it has to appear in Balance Sheet.

7 A Transaction is one-off. Example : Rent paid for the month, Purchase of goods. An event is a result of number of transactions and it has to appear in Balance Sheet. Example : Profit for the year Closing stock It is the result of number of purchases and sales. Entire Balance Sheet : It is as a final result of the entire year s operation.

8 Transactions are recorded in journal. Journal is a book of original entry. It is known as secondary book. It consist of five columns.

9 From Journal, the transactions are posted in the Ledger. All entries in journal are posted in Ledger. Ledger is known as principal book. It consist of 8 columns.

10 From Ledger, the balances are extracted to Trial Balance. Trial balance is a statement. It shows arithmetic accuracy.

11 1 - Real A/c 2 - Nominal A/c 3 - Personal A/c 4 - Representative Personal A/c

12 Real A/c Nominal A/c Personal A/c Land Salary Capital Building Wages Drawings Plant and Sales Bank Machinery Discount Debtors Cash Creditors

13 Real A/c Debit what comes in Credit what goes out Nominal A/c Debit all expenses and losses Credit all incomes and gains Personal A/c Debit the receiver Credit the giver

14 The fourth type of account is Representative personal A/c. All unpaid expenses / prepaid expenses It will appear in the liabilities side of the Balance Sheet. Example : outstanding salary, prepaid rent.

15 From Trial balance Nominal A/c are closed and transferred to Trading and Profit & Loss A/c. Real and Personal A/c are not closed and not balanced and entered in the Balance Sheet. The preparation of Trading, P& L and Balance Sheet is called Final A/c Final A/c is the last step for the accounting process.

16 In Big companies Final A/c are published as Annual Reports (Financial Statements) The total set consist of Trading, Profit & Loss, Balance Sheet, Cash flow & Notes to accounts.

17 Transaction Final Accounts Journal Balance Sheet Trading A/c P&L A/c Trial Balance Ledger

18 Accounting,Chapter1 - Unit 1 CA.S.S.Prathap

19 DEFINITION Accounting is the art of Recording, Classifying and Summarising in a significant manner in terms of money, Transaction and Event which are in part at least of a financial character and interpreting the results thereof. Committee of Terminology of AICPA

20 PROCEDURAL ASPECTS OF ACCOUNTING Procedure of Accounting Generating financial information Using the financial information Recording Classifying Summarizing Analyse Interpret Communicate

21 OBJECTIVES OF ACCOUNTING Systematic record of transactions. (i.e.,) Book-keeping Ascertainment of results (i.e.,) Trading, Profit & Loss A/c Ascertainment of financial position (i.e.,) Balance Sheet Providing information to users. (i.e.,) Financial Reports To know the solvency position. (i.e.,) Liquidity

22 FUNCTIONS OF ACCOUNTING Measurement Forecasting Decision making Comparison & Evaluation Control Government Regulation Taxation

23 SUB-FIELDS OF ACCOUNTING Financial Accounting Management Accounting Cost Accounting Social Responsibility Accounting Human Resource Accounting

24 USERS OF ACCOUNTING INFORMATION Investors Employees Lenders Suppliers Customers Government Public

25 FUNDAMENTAL ACCOUNTING EQUATION Capital =Asset -Liabilities Asset =Capital + Liability Liability=Asset -Capital FAE is seen in Balance Sheet Balance Sheet follows Dual aspect concept

26 RELATIONSHIP OF ACCOUNTING & BOOK-KEEPING Accountancy Accounting Book keeping Book keeping must end before Accounting starts.

28 Management Accounting Cost Accounting Financial Accounting All of the Above Answer : D

29 Decision Makings Measurement Forecasting Ledger Posting Answer: D

30 Assets expressed in monetary terms. Liabilities expressed in monetary terms. Only assets expressed in non monetary terms. Assets and liabilities expressed in non-monetary terms Answer: D

31 Dual aspect Business Entity Going Concern All of the above Answer: A

32 Committee on Principles Accounting Standards Board Committee on Concepts Committee on Terminology Answer: D

33 An event A transaction Both event as well as transaction Neither event nor transaction Answer: A

34 Balance Sheet Trading, Profit and Loss A/c Cash Flow Statement All of these Answer: D

35 Lucio Paciolio 1494 Adam smith Kohler Karl Marx Answer: A

36 A transaction An event None of these Both transaction as well as an event Answer: D

37 Management Accounting Cost accounting Financial accounting Inflation accounting Answer: D

38 Shareholders Government Vendors All the above Answer: D

39 Total Sales Total Profit & Loss Capital Cost of production Answer: D

40 Event Transaction Both None Answer: B

41 Assets - Liabilities = Capital Capital - Liabilities = Assets Assets + Capital = Liabilities None of the above Answer: A

42 Real account Nominal Account Personal account Representative Personal Account Answer: D

43 In this module, we learnt Accounting cycle Types of Accounts Golden Rules AICPA definition

44 Procedural aspects of Accounting Objectives of Accounting Functions of Accounting Sub-fields of Accounting Users of Accounting

45 Fundamental Accounting Equation Relationship between Book-keeping and Accounting. Accounts must always follow FACTS.

Fundamentals of Accounting Resources

Fundamentals of Accounting Resources Contents Figure 1 - The Profit and Loss statement example... 2 Figure 2 - Balance sheet example... 3 Figure 3 - Example of a Balance Sheet... 4 Figure 4 - Example of a Profit & Loss Sheet... 5 Figure 5-10