Accounts (1)
Content
Accounting Material For MNC Interview
ACCOUNTING CONCEPTS
Accounting concepts means “Assumptions based on which accounting is done”.
i.
Business Entity Concept:
According to the business entity concept business is treated as separate entity
from the owners.
Ex. a) Interest on capital b) Interest on drawings
Dr
P&L
Cr
To Interest on Cap. By Interest on drawings
B/S
Capital
xxx
(+) Int. on Cap
xxx
(-)Int. on Drawings xxx
Entries:
Interest on capital a/c Dr
To capital a/c
(Being interest on capital paid)
Capital a/c
Dr
To Interest on Drawings a/c
(Being Interest on drawings being received)
Note: If the business entity concept is absent “Both the transactions are mingled, we
don’t know the actual net profit.
ii. Money Measurement Concept:
According to the Money Measurement concept “All the business transactions
should be recorded in the books of accounts at Monitory Terms (cash forms)
only.
If the money measurement concept is absence it is highly impossible to
preparing the financial statements.
iii. Cost Concept: According to the “All the business transactions should be
recorded in books of accounts at actual cost it should be involved only.”
Market value should not be considered.
Ex. Purchase of land 7,00,000. (Market value 14,00,000)
If the cost concept is absent “It indicates fake profit of the business.
iv. Going Concern Concept: According to the going concern concept business is
assumed to run for a longer period. Going concern concept will be effected on
the balance sheet of the assets side.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 2
Accounting Material For MNC Interview
If the going concern concept is absent the business will not run for a longer
period.
v. Dual Aspect Concept: According to this concept every business transaction
shall have two aspects i.e. Receiving aspect, Giving aspect.
Both are called as Debit and credit. Dual aspect concept is disclosed on the
Journals entries, trial balance, Income statement & Balance sheet.
The whole accounting is depending on this concept.
If the dual aspect concept is absent there is no accounting at all.
vi. Accounting Period concept (or) Periodicity concept: According to this
concept all business transactions should be recorded in the books of accounts
under the period of 12 months. These 12 months are called as financial year.
In India the financial year is 1st April to 31st March. Where as in US they should
be follow the calendar year.
If the accounting period concept is absent it is highly impossible to prepare
financial statements.
vii. Historical Concept: According to this concept all business transactions should
be recorded in the books of accounts at day wise, month wise, year wise. Future
transactions should not be recorded.
If the historical concept is absence the organization has to problem each and
every business transactions.
viii. Accrual Concept: According to Accrual concept all the business transactions it
should be recorded in the books of accounts, even though not settled in cash.
Ex. Outstanding expenses / Accrual expenses / Payables.
Outstanding incomes / Accrual incomes / Receivables.
If the accrual concept is absent we can’t find the actual company financial
position.
Accrual concept will be shown on the current liabilities and current assets of the
balance sheet.
ix. Matching Concept: According to this concept all Revenues should be equals
to the expenses.
Revenue is generated for sale of the goods and services.
i.e. Revenue - Expenses = Income / Profit.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 3
Accounting Material For MNC Interview
If the matching concept is absent we cannot find out the revenue of the
organization and as well as expenses of the organization.
Matching concept it should be disclosed on the Income statement.
ACCOUNTING CONVENTIONS
Accounting conventions means “Any rule, policy, methods, traditions &
conditions follow by the organization.
i. Convention of Consistency
ii. Convention of Disclosure
iii. Convention of Materiality
iv. Convention of Conservation
i.
Convention of Consistency: According to this convention “Any rule or
methods followed in preparation of financial accounts should be consistently.”
Ex. 20% of profit reserved for future every year.
It should be done every year consistently.
ii. Convention of Disclosure: According to this convention all financial
information it should be disclosed in financial statements.
Ex. Preparation of Trading and Profit & Loss a/c and Balance sheet.
iii. Convention of Materiality: According to convention of materiality all the
material information it should be disclosed in financial statements.
Information which is not materialized it should be left out.
Ex. Opening stock, Purchases, Sales, Closing stock.
iv. Convention of Conservation: This convention implies playing safe. Under
this convention all expected losses and expenses taken for profit calculation. But
incomes and gains are not considered.
According to this convention future transaction it should be recorded in the
books of accounts.
Note: Accounting concepts and conventions are called as Accounting Principles.
ACCOUTING TRANSACTIONS
i.
Cash
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 4
Accounting Material For MNC Interview
ii. Credit
iii. Non - Cash
i. Cash Transactions: The transaction which is involved the cash is called as cash
transactions.
Ex. Goods purchased for cash.
ii. Credit transactions: If the payment is postponed for future date is called as
credit transactions.
Ex. Goods purchased from Mr. X.
iii. Non cash transactions: The transaction which doesn’t involved cash that is
called as non cash transaction.
Ex. Depreciation, Discount allowed, Bad debts, stock destroyed in fire accident.
ACCOUNTING EQUATIONS
Assets
Liabilities
Capital
Balance Sheet
Capital xxx
Assets xxx
Liabilities xxx
.
= Capital + Liabilities
= Assets
- Capital
= Assets
- Liabilities
Capital = Net worth = Owners equity.
GOLDEN RULES OF ACCOUNTING
Debit and Credit of Personal and Impersonal accounts are called as golden rule
of accounting.
i. Personal a/c
ii. Real a/c
iii. Nominal a/c
i. Personal a/c: The account which is starts with names is called as Personal a/c.
Ex.: X a/c, Y a/c, Sundry creditor a/c, Debtors a/c, Capital a/c, Drawings a/c, Prepaid
expenses / incomes a/c, outstanding expenses / incomes a/c, etc..
Rule: Debit the Receiver, Credit the Giver.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 5
Accounting Material For MNC Interview
ii. Real a/c: The account which is explained about purchases and sales of the
business is called as Real a/c.
Ex.: Purchases a/c, Sales a/c, cash a/c, assets a/c.
Rule: Debit what comes in, Credit what goes out.
iii. Nominal a/c: An account which is helpful us to prepare the income statement,
that is called as nominal account.
Ex.: Wages, salaries, sales tax, audit fee, commission, interest, discount, bad debts
recovery, income on drawings, income on sale of fixed asset etc..
Rule: Debit all Expenses & Losses, Credit all Incomes & Gains.
Expenses: Expenses are that by which we will get some benefit within the year are
called as expenses.
Expenses which should be involved cash is mandatory.
Losses: Uncertainly happened are called as losses. We can’t get any benefit from
losses.
Ex.: Bad debts, Depreciation, Discount allowed, etc..
Incomes: With efforts the organization will get incomes.
Ex.: Sales, sale of scrap, interest received, commission received, bad debts recovery,
etc..
Gains: Without effort the organization will get easily.
Ex.: Interest on investments, dividend received, interest on drawings, income on
sale of fixed assets.
SIGNIFICANCE OF ACCOUNTING
Debit: Debit is a negative indicator. This shows all expenses, losses & assets.
Credit: Credit is a positive indicator. This shows all incomes, gains & liabilities.
Note:
If the debit values are increasing we have to shown in the same nature. (Debit side
only)
If the debit values are decreasing we have to shown in the opposite nature. (Credit
side only)
If the credit values are increasing we have to shown in the same nature. (Credit side
only)
If the credit values are decreasing we have to show in the opposite nature. (Debit
side only)
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 6
Accounting Material For MNC Interview
D/b Revenue and Income
Revenue is generated from goods and services
Income = Revenue - Expenses
D/b Profit and Income
Profit
:
Should be raised from the trading business it should be consist of
buying and selling is mandatory.
Income
:
Raised from giving services.
Ex: hospitals, schools.
D/b Expenses & Expenditure
Expenses: Expenses are that by which we get benefit within the
organization.
Expenditure: Expenditure that which we get benefit more than one year.
Ex: If you go on auto is the expenses (its benefit is short term)
If you buy an auto is the expenditure (its benefit is long term)
ACCOUNTING CYCLE / ACCOUNTING PROCESS
Journal: Journal is the primary book of to record day to day business transactions.
Journal is the first step of the accounting process.
Ledger: Ledger is nothing but set of accounts. Ledger is the second step of
accounting process. Ledger is the final book.
Trial balance: Trial balance is the extract of the ledger balances. The main objective
of the trial balance is to check the arithmetical accuracy of accounts. The total debit
balances, should be equal to the total credit balances. If the trial balance is not equal,
we have to verify all the general entries as well as all ledger balances. Trial balance is
a statement, it is not an account. On the trial balance of debit side we have to show
all expenses, losses & assets, on the credit side we have to show all incomes, gains &
liabilities. Trial balance is prepared for checking purpose only, it is a rough book. Trial
balance is the third step of the accounting process. The trial balance should be equal
because all the business transactions should be equal to the capital amount.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 7
Accounting Material For MNC Interview
Trading account:
The main objective of trading a/c is to know the gross profit or gross loss of the
organization for a particular period. Trading a/c is one of the financial statement. On
the trading account debit side we have to show all direct expenses (factory
expenses). On the credit side we have to shown all direct incomes (factory incomes).
Trading a/c and Profit and loss a/c are called as income statements.
Direct Expenses: The expenses which are incurred for factory expenses are called
direct expenses. Ex.: Wages, fuel, carriage inward, octrai, etc..
Direct Incomes: The incomes which are earned from factory is called direct
incomes.
Ex.: Sale of scrap.
Profit & Loss a/c:
The main objective of p&l a/c to know the net profit / net loss of the organization of a
particular period. P&l a/c is one of the financial statement. On the p&l a/c debit side
we have to show all indirect expenses, on the credit side we have to shown indirect
incomes.
P&l a/c is prepared with the help of the nominal a/c. On the p&l a/c debit side we
should be treated as revenue expenditure, on the credit side we should be treated as
revenue receipts.
Indirect Expenses: The expenses which are incurred for the selling of goods.
Ex.: Salary, audit fee, rent, etc..
Indirect Incomes: The incomes which are raised from sale of finished goods.
Ex.: Discount received, commission received, etc..
BALANCE SHEET
The main objective of balance sheet is to know the financial position of the business
on a particular date. Balance sheet is the one of the financial statement.
Balance sheet which starts with liabilities and assets. It is prepared with the help of
the personal & real accounts. Balance sheet is a statement, not an account. The
balance sheet should be equal, if the company has to be efficiently utilization of
liabilities. The balance sheet is not equal because company is to be misusing of the
funds.
Balance sheet should be consisting of two types.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 8
Accounting Material For MNC Interview
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 9
ACCOUNTING CONCEPTS
Accounting concepts means “Assumptions based on which accounting is done”.
i.
Business Entity Concept:
According to the business entity concept business is treated as separate entity
from the owners.
Ex. a) Interest on capital b) Interest on drawings
Dr
P&L
Cr
To Interest on Cap. By Interest on drawings
B/S
Capital
xxx
(+) Int. on Cap
xxx
(-)Int. on Drawings xxx
Entries:
Interest on capital a/c Dr
To capital a/c
(Being interest on capital paid)
Capital a/c
Dr
To Interest on Drawings a/c
(Being Interest on drawings being received)
Note: If the business entity concept is absent “Both the transactions are mingled, we
don’t know the actual net profit.
ii. Money Measurement Concept:
According to the Money Measurement concept “All the business transactions
should be recorded in the books of accounts at Monitory Terms (cash forms)
only.
If the money measurement concept is absence it is highly impossible to
preparing the financial statements.
iii. Cost Concept: According to the “All the business transactions should be
recorded in books of accounts at actual cost it should be involved only.”
Market value should not be considered.
Ex. Purchase of land 7,00,000. (Market value 14,00,000)
If the cost concept is absent “It indicates fake profit of the business.
iv. Going Concern Concept: According to the going concern concept business is
assumed to run for a longer period. Going concern concept will be effected on
the balance sheet of the assets side.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 2
Accounting Material For MNC Interview
If the going concern concept is absent the business will not run for a longer
period.
v. Dual Aspect Concept: According to this concept every business transaction
shall have two aspects i.e. Receiving aspect, Giving aspect.
Both are called as Debit and credit. Dual aspect concept is disclosed on the
Journals entries, trial balance, Income statement & Balance sheet.
The whole accounting is depending on this concept.
If the dual aspect concept is absent there is no accounting at all.
vi. Accounting Period concept (or) Periodicity concept: According to this
concept all business transactions should be recorded in the books of accounts
under the period of 12 months. These 12 months are called as financial year.
In India the financial year is 1st April to 31st March. Where as in US they should
be follow the calendar year.
If the accounting period concept is absent it is highly impossible to prepare
financial statements.
vii. Historical Concept: According to this concept all business transactions should
be recorded in the books of accounts at day wise, month wise, year wise. Future
transactions should not be recorded.
If the historical concept is absence the organization has to problem each and
every business transactions.
viii. Accrual Concept: According to Accrual concept all the business transactions it
should be recorded in the books of accounts, even though not settled in cash.
Ex. Outstanding expenses / Accrual expenses / Payables.
Outstanding incomes / Accrual incomes / Receivables.
If the accrual concept is absent we can’t find the actual company financial
position.
Accrual concept will be shown on the current liabilities and current assets of the
balance sheet.
ix. Matching Concept: According to this concept all Revenues should be equals
to the expenses.
Revenue is generated for sale of the goods and services.
i.e. Revenue - Expenses = Income / Profit.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 3
Accounting Material For MNC Interview
If the matching concept is absent we cannot find out the revenue of the
organization and as well as expenses of the organization.
Matching concept it should be disclosed on the Income statement.
ACCOUNTING CONVENTIONS
Accounting conventions means “Any rule, policy, methods, traditions &
conditions follow by the organization.
i. Convention of Consistency
ii. Convention of Disclosure
iii. Convention of Materiality
iv. Convention of Conservation
i.
Convention of Consistency: According to this convention “Any rule or
methods followed in preparation of financial accounts should be consistently.”
Ex. 20% of profit reserved for future every year.
It should be done every year consistently.
ii. Convention of Disclosure: According to this convention all financial
information it should be disclosed in financial statements.
Ex. Preparation of Trading and Profit & Loss a/c and Balance sheet.
iii. Convention of Materiality: According to convention of materiality all the
material information it should be disclosed in financial statements.
Information which is not materialized it should be left out.
Ex. Opening stock, Purchases, Sales, Closing stock.
iv. Convention of Conservation: This convention implies playing safe. Under
this convention all expected losses and expenses taken for profit calculation. But
incomes and gains are not considered.
According to this convention future transaction it should be recorded in the
books of accounts.
Note: Accounting concepts and conventions are called as Accounting Principles.
ACCOUTING TRANSACTIONS
i.
Cash
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 4
Accounting Material For MNC Interview
ii. Credit
iii. Non - Cash
i. Cash Transactions: The transaction which is involved the cash is called as cash
transactions.
Ex. Goods purchased for cash.
ii. Credit transactions: If the payment is postponed for future date is called as
credit transactions.
Ex. Goods purchased from Mr. X.
iii. Non cash transactions: The transaction which doesn’t involved cash that is
called as non cash transaction.
Ex. Depreciation, Discount allowed, Bad debts, stock destroyed in fire accident.
ACCOUNTING EQUATIONS
Assets
Liabilities
Capital
Balance Sheet
Capital xxx
Assets xxx
Liabilities xxx
.
= Capital + Liabilities
= Assets
- Capital
= Assets
- Liabilities
Capital = Net worth = Owners equity.
GOLDEN RULES OF ACCOUNTING
Debit and Credit of Personal and Impersonal accounts are called as golden rule
of accounting.
i. Personal a/c
ii. Real a/c
iii. Nominal a/c
i. Personal a/c: The account which is starts with names is called as Personal a/c.
Ex.: X a/c, Y a/c, Sundry creditor a/c, Debtors a/c, Capital a/c, Drawings a/c, Prepaid
expenses / incomes a/c, outstanding expenses / incomes a/c, etc..
Rule: Debit the Receiver, Credit the Giver.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 5
Accounting Material For MNC Interview
ii. Real a/c: The account which is explained about purchases and sales of the
business is called as Real a/c.
Ex.: Purchases a/c, Sales a/c, cash a/c, assets a/c.
Rule: Debit what comes in, Credit what goes out.
iii. Nominal a/c: An account which is helpful us to prepare the income statement,
that is called as nominal account.
Ex.: Wages, salaries, sales tax, audit fee, commission, interest, discount, bad debts
recovery, income on drawings, income on sale of fixed asset etc..
Rule: Debit all Expenses & Losses, Credit all Incomes & Gains.
Expenses: Expenses are that by which we will get some benefit within the year are
called as expenses.
Expenses which should be involved cash is mandatory.
Losses: Uncertainly happened are called as losses. We can’t get any benefit from
losses.
Ex.: Bad debts, Depreciation, Discount allowed, etc..
Incomes: With efforts the organization will get incomes.
Ex.: Sales, sale of scrap, interest received, commission received, bad debts recovery,
etc..
Gains: Without effort the organization will get easily.
Ex.: Interest on investments, dividend received, interest on drawings, income on
sale of fixed assets.
SIGNIFICANCE OF ACCOUNTING
Debit: Debit is a negative indicator. This shows all expenses, losses & assets.
Credit: Credit is a positive indicator. This shows all incomes, gains & liabilities.
Note:
If the debit values are increasing we have to shown in the same nature. (Debit side
only)
If the debit values are decreasing we have to shown in the opposite nature. (Credit
side only)
If the credit values are increasing we have to shown in the same nature. (Credit side
only)
If the credit values are decreasing we have to show in the opposite nature. (Debit
side only)
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 6
Accounting Material For MNC Interview
D/b Revenue and Income
Revenue is generated from goods and services
Income = Revenue - Expenses
D/b Profit and Income
Profit
:
Should be raised from the trading business it should be consist of
buying and selling is mandatory.
Income
:
Raised from giving services.
Ex: hospitals, schools.
D/b Expenses & Expenditure
Expenses: Expenses are that by which we get benefit within the
organization.
Expenditure: Expenditure that which we get benefit more than one year.
Ex: If you go on auto is the expenses (its benefit is short term)
If you buy an auto is the expenditure (its benefit is long term)
ACCOUNTING CYCLE / ACCOUNTING PROCESS
Journal: Journal is the primary book of to record day to day business transactions.
Journal is the first step of the accounting process.
Ledger: Ledger is nothing but set of accounts. Ledger is the second step of
accounting process. Ledger is the final book.
Trial balance: Trial balance is the extract of the ledger balances. The main objective
of the trial balance is to check the arithmetical accuracy of accounts. The total debit
balances, should be equal to the total credit balances. If the trial balance is not equal,
we have to verify all the general entries as well as all ledger balances. Trial balance is
a statement, it is not an account. On the trial balance of debit side we have to show
all expenses, losses & assets, on the credit side we have to show all incomes, gains &
liabilities. Trial balance is prepared for checking purpose only, it is a rough book. Trial
balance is the third step of the accounting process. The trial balance should be equal
because all the business transactions should be equal to the capital amount.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 7
Accounting Material For MNC Interview
Trading account:
The main objective of trading a/c is to know the gross profit or gross loss of the
organization for a particular period. Trading a/c is one of the financial statement. On
the trading account debit side we have to show all direct expenses (factory
expenses). On the credit side we have to shown all direct incomes (factory incomes).
Trading a/c and Profit and loss a/c are called as income statements.
Direct Expenses: The expenses which are incurred for factory expenses are called
direct expenses. Ex.: Wages, fuel, carriage inward, octrai, etc..
Direct Incomes: The incomes which are earned from factory is called direct
incomes.
Ex.: Sale of scrap.
Profit & Loss a/c:
The main objective of p&l a/c to know the net profit / net loss of the organization of a
particular period. P&l a/c is one of the financial statement. On the p&l a/c debit side
we have to show all indirect expenses, on the credit side we have to shown indirect
incomes.
P&l a/c is prepared with the help of the nominal a/c. On the p&l a/c debit side we
should be treated as revenue expenditure, on the credit side we should be treated as
revenue receipts.
Indirect Expenses: The expenses which are incurred for the selling of goods.
Ex.: Salary, audit fee, rent, etc..
Indirect Incomes: The incomes which are raised from sale of finished goods.
Ex.: Discount received, commission received, etc..
BALANCE SHEET
The main objective of balance sheet is to know the financial position of the business
on a particular date. Balance sheet is the one of the financial statement.
Balance sheet which starts with liabilities and assets. It is prepared with the help of
the personal & real accounts. Balance sheet is a statement, not an account. The
balance sheet should be equal, if the company has to be efficiently utilization of
liabilities. The balance sheet is not equal because company is to be misusing of the
funds.
Balance sheet should be consisting of two types.
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 8
Accounting Material For MNC Interview
Vijay Kumar Varigala
M.B.A.
mobile: 9701150115 e-mail: [email protected]
Page: 9
