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Comprehensive Guide to Accounting Fundamentals

This guide covers the basics of accounting, including the accounting process, users of financial statements, GAAP principles, accounting standards, mechanics, types of accounts, rules of debit and credit, books of accounts, and bank reconciliation statements.

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Comprehensive Guide to Accounting Fundamentals

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  1. Accounting For Managers Prepared by Dhanya.K.A

  2. INTRODUCTION TO ACCOUNTING

  3. Accounting • Meaning • Definition AICPA- “the art of recording ,classifying and summarizing in a significant manner and in terms of money transactions or events which are ,in part at least, of a financial character, and interpreting the results thereof”

  4. Accounting process Transaction Business documents Journal Ledger P&L account Trial Balance (unadjusted & adjusted Balance Sheet

  5. USERS • Shareholders, security analyst, investors • Lenders • Suppliers/Creditors • Customers • Employees • Government and regulatory agencies • Research

  6. Generally accepted accounting principles • Meaning of GAAP • Conventions and concepts Materiality concept Money measurement cost concept Time period concept Conservatism concept

  7. Consistency concept • Business equity concept • Going concern concept • Duality concept • Accounting period concept • Realization concept • Matching concept

  8. Double entry system • Concept of capital and income • True and fair view of accounts

  9. ACCOUNTING STANDARDS

  10. IASC in 1973 Objective- Formulating ,publishing & promoting the use of accounting stds Harmonization of procedures No of accounting std issued ASB in 1977 Objective- Frame accounting stds No of accounting std issued Procedure International Vs Indian Accounting standards

  11. Importance • Ideal practice of accounting • Uniformity in presentation • Comparability of accounts • Clear position of state of affairs • Auditors duties • Accounting standards issued • US GAAP

  12. ACCOUNTING MECHANICS

  13. Basic Accounting Mechanics • Double entry system • Duality concept • Accounting equation owner’s equity+ outside liability= Assets ( Sources of funds = Uses of funds) • Symbols for sources and uses

  14. Nature of Debit and Credit DEBIT CREDIT Outflow Debtors Inflow of Resources Creditors income liabilities Expenses Assets

  15. Types of Accounts • Personal accounts - natural person - Representative • Real accounts - Tangible - Intangible • Nominal accounts - expenses/income - losses/ gains

  16. Rules of debit and credit Personal Accounts Real Accounts Nominal Accounts Debit Credit Debit Credit Debit Credit All Expenses & Losses All Incomes & Gains The receiver The giver What Comes in What Goes out

  17. Books of accounts • Cash book • Journal • Ledger • A conceptual framework of accounting

  18. Subsidiary books • Purchases book - Credit purchase of goods only

  19. Purchases Returns Book

  20. Sales Book - sale of goods on credit

  21. Sales Returns Book

  22. Bills receivable book - Date - From whom received - Acceptor - Date of bill - Term - Date of maturity - Where payable - Amount - How disposed

  23. Bills payable Book - Date - Name of Drawer - Payee - Date of bill - Term - Date of maturity - Where payable - Amount

  24. Journal proper • Entries which cannot be included in any other subsidiary books Eg: Sale or purchase of fixed assets adjustment entries rectification entries

  25. Bank reconciliation statement • Ensure the accuracy of transactions appearing in the bank columns of cash book • Cash book and pass book • Bank statement

  26. Reasons for difference between bank balance as per cash book and pass book • Cheques issued but not presented • Cheques received but not collected • Deposits directly made by customers • Collection charges, service charges and interest on OD charged by bank • Interest credited or any other amount collected directly by bank • Dishonor of cheques, wrong entries or omissions of entries

  27. Advantages of BRS • Error detection • Delay in collection revealed • Completion of cash book • Chances of embezzlements are reduced

  28. Steps in preparation of BRS • Take the cash book or passbook balance as starting point i. Dr.balance as per cash book - favorable balance ii.Cr.balance as per cash book –Overdraft/ Unfavorable balance iii. Dr. balance as per pass book- Overdraft/ Unfavorable balance iv.Cr.balance as per pass book– favorable balance

  29. Continue… • If starting point denotes a favorable balance take it as a positive figure • If starting point denotes unfavorable balance take it as a negative figure • Add or deduct the discrepancies from starting point as per information • After adjusting all errors the balance as per other book is obtained

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