Meaning of Book Keeping
The owner of accountant can’t keep in memory all the financial transactions of the business for the whole year; therefore, every financial transaction should be recorded day by day in the books of account. The process of recording day to day financial transactions in the book of account systematically and scientifically is called the book-keeping. Moreover, it is the both art and science of recording transactions. It includes journalizing, posting to ledger and balancing it.
Objectives of Book Keeping:
1. To keep permanent record of all the financial transactions.
2. To provide basis for determining the profit or lass made by the firm during any particular period.
3. To help disclose the financial position of the business.
Meaning of Accounting:
Accounting is the process of recording, classifying and summarizing all the financial Transactions to ascertain the business operating and the financial position at the end of given period and interpreting and communicating to the users. It is both art and science. It is art because it requires certain practical works and skill. It is science because it is based on certain rules and regulations. It is wider term than Book-keeping.
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Basic of Accounting Concept
1. Business Entity Assumption
2. Money Measurement Assumption (Imp Explain)
3. Accounting Period Assumption
4. Cost Principle
5. Going Concern Assumption (Imp Explain)
6. Matching Principle
7. Revenue Realization Principle.
Q. Write brief about Geing Conccern Concept and Cost Concept?
Q. What is Money Measurement Concept?
Money measurement assumption states that only those transactions that can be expressed terms of money should be recorded in the books of account. Some important transactions or facts which cannot be expresses in terms of money should not be recorded in the books. The activities like efficiency and skill in works of manager, Honesty of labor etc are not recorded in the books of Account.
Objectives of Accounting
1. To keep systematic and scientific record of all the financial transaction as per uniform rules and regulations.
2. To find out the profit and loss made by the firm during certain period with the help of profit and loss account and trading a/c.
3. To ascertain the financial position of the business with the help of balance sheet.
Features of Accounting
1. Accounting is related only to financial transactions.
2. Accounting is the act of recording financial transactions.
3. It is the process of classifying and summarizing financial transactions.
Limitation of Accounting
1. There is no uniformity in the methods of valuing stock, Charging depreciation, maintaining provision.
2. It ignores the price level change.
Scope of Accounting
1. In trading concern: Accounting is essential to calculate true profit and loss and financial position of the business. Accounting information is useful to interested parties. So, accounting is very useful system to manage the trading concern.
2. In non-trading concern: The main objective of non-trading concern is to provide services to the society. Accounting helps to keep complete and accurate records of their expenditure and revenue as well as resources owned by them. So, accounting is also applicable to non-trading concern.
3. To Government: To control and manage government income and expenditure, it also needs proper accounting system. To record the government economic events and transactions. There is a separate accounting system.
Difference between Book-Keeping and Accounting
Book-keeping
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Accounting
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1. It is a part of accounting.
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1. It’s a wider team that book-keeping.
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2. It does not need highly qualified manpower.
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2. It needs highly qualified manpower.
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3. It is concerned with recording of financial transactions.
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3. It is not only concerned with recording but also concerned with classifying, summarizing, communicating of financial transactions.
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Meaning of Business Entity Concept
Under this concept, business is treated as a separated unit from its owner. Only the business transactions are recorded but the personal transactions are not recorded. However, the owner’s investment in the business and drawings are recorded in the books of business. If the personal the result of operation and financial position of the business will not be true.
Meaning of Going Concern Concept
Under this concept, It is assumed that a business will continue for a long time and flow of transactions to be continuous. It is assumed that the benefits from the certain expenditure will continue for a long time. In this concept, assets are classified into fixed and current assets and liabilities into short term and long term.
Meaning of Money Measurement Concept
Under this concept, only those transactions which can be expressed in monetary value such Rs, $, etc. are recorded but the transactions which cannot be expressed in monetary value are not recorded. Labuor efficiency, quarrel between managers and workers are not recorded because their monetary management are not possible.
Meaning of Cost Principles
Under this principle, Assets are recorded in the books of account at actual cost of purchasing rather that market value of assets. If machinery is purchased for Rs 11 lakhs then, the machinery is recorded as Rs 1 lakh only. If its market value to be Rs 2 lakh or Rs 50,000 the cost price of the assets is gradually reduced by a process called depreciation.
Meaning of Accounting Period concept
The owner of the business can’t unite the whole life of the business, determine profit and loss. Hence, under this concept, the whole life of this concept is divided in to suitable periodic intervals to find out the result and financial position of the business. This periodic interval is known as accounting period. Generally, one year period is considered suitable accounting period which beings from 1st Baishak and ends on 31st December or Chaitra last.
2. Double Entry System
2. Double Entry System
Meaning of Double-Entry system of Book-Keeping
Every transaction has two fold aspects. One is receiving aspects and another is giving aspects. Receiving aspects is debited and giving aspects is credited. Every debit has corresponding credit and every credit has corresponding aspect and vice-versa which is known as Double-entry system of Book-keeping. Is is modem and scientific method of recording transactions
Features of Double-Entry Book-Keeping system
1. It has two aspects which is debit and credit.
2. It has equal amount. One aspect of transaction is debited and another is credited with the same amount. All the total amount of debit is equal to the all the total amount of credit.
3. Classification of account; It classifies the account it the three accounts that is personal, real and nominal a/c
Objectives of Importance or Advantage of Double Entry Book Keeping System
1. To find out the true profit and loss made by a business firm during a certain period of time.
2. To show the true financial position of a business at the end of each year.
3. To rectify errors and minimize frauds.
3. Subsidiary Book
Meaning of Debit Note
It is a note send to a supplier informing him that his account has been debited to extend of goods returned to him. It is also send to a customer informing him that additional amount is recoverable from him or difference in price.
Meaning of Credit Note
It’s a note send to a customer informing him that his account has been credited to the extent of goods returned by him or send to a supplier informing him about the difference in price.
4. Cash and Banking Transactions
What is a Cheque?
Cheque is an important negotiable instrument which can be transferred by mere hand delivery. Cheque is used to make safe and convenient payment. It is less risky and the danger of loss is minimized.
Definition of a Cheque
Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument.
Different Kinds / Types of Cheques
Bearer Cheque
When the word “bearer” appearing on the face of the cheque are not cancelled, the cheque is called bearer cheque. The bearer cheque is payable to the person specified there in or to any other else who presents it to the blank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.
Order Cheque
When the word “bearer” appearing on the face of a cheque is cancalled and when in its place the word “or order” is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified there in as the payee, or to any one else to whom it is endorsed (transferred).
Crossed Cheque
Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like “& CO” or “Account Payee” or “Not Negotiable”. A Crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee’s account.
Qualities of a Good Cheque
1. The data should be written properly in the cheque and should be presented to the bank with in the valid period.
2. The account number, amount in words, amount in figures should be mentioned properly.
3. The account holder must sign on the cheque which should be completely similar to the specimen signature.
5. Trial Balance and Accounting System
Objectives of Trial Balance
1. To check the arithmetic accuracy: One important purpose of preparing trial balance is to provid check on arithmetical accuracy of financial transaction.
2. To help to locate accounting errors: Since the trial balance indicated it there is any error committed in the journal and ledger. It helps the accountant to locate the errors.
3. To provide the basis for preparing final account: Since the trial balance is a statement of debit and credit balances of ledger accounting, it provides the basis for preparing final accounts.
Meaning of Error of Omission
If a transaction is not recorded at all in the books of original entry (Journal). In both, debit and credit side, this will not affect the trial balance. Such type of error is known as error of omission. For e.g. If goods sold to Krishna worth Rs 150, is not recorded in the journal.
Meaning of Error of Commission
If the wrong amount is recorded in the journal, same amount affects the debit and credit side of trial balance. So, trial balance will be equal. For e.g. Goods sold to syham for Rs 550 is recorded in the journal entry by mistake as Rs 50.
Meaning of Error of Principles
Error committed due to lack of accounting rules and regulations by the record keeper are known as errors of principles. For e.g. Computer purchased for Rs 20,000 has been debited to purchase a/c.
Meaning of Compensating Errors
If the effect of one error is neutralized, by the effect of another effort then such error is called compensating errors. For e.g. While posting on the credit side of Krishna a/c Rs 500 is posted instead of Rs 50 is posted instead of Rs 500.
6. Capital and Revenue Concept
Meaning Of Reserve
A reserve is a part of profit saved aside to meet the future emergency and losses. The part of profit is retained on the business either for meeting its unexpected future liabilities and losses for strengthening financial position.
Meaning of Revenue Receipts
It is an amount which is received from the regular transactions of a business. It is the amount received from the sale of goods and services and it is the main source of income. It is shown under the credit side of the trading a/c and profit and loss a/c, For e.g. Amount received from the sales of goods and services, amount received by the way of discount, rent, commission etc.
Meaning of Capital Receipts
An amount received in the form of capital from the owners and as loan by outsiders is known as capital receipts. Besides any income received by selling shares and fixed asset and also fall under it. It is treated as liability and is shown on the liability side of balance sheet.
Difference between Revenue and Capital Receipts
Revenue receipts
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Capital receipts
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1. It is of regular nature.
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1. It is one irregular nature.
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2. It is shown on the credit side of trading account and profit and loss account.
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2. It is shown on the liabilities side of the liabilities side of the balance sheet.
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3. Amount received from the sales of goods and services or by the way of discount, interest, commissions are the example of revenue receipts.
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3. Amount received from owner as capital or in the form of loans are the examples of capital receipts.
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Meaning of Revenue Expenditure
Any expenditure incurred in connection with the operation of daily activities of the business is called Revenue expenditure. It is incurred for maintaining earning capacity and working efficiency of the fixed assets. It is shown on the debit side of trading account and profit & loss account. For e.g. salary paid to staffs, repairs of assets, rent paid to house owner.
Meaning of capital Expenditure
Any expenditure made in obtaining fixed assets is called expenditure, It increases the earning capacity of the business. It is shown on the assets said of the balance sheet. Expenses related to purchase of land, building, furniture, machinery, etc are the examples of capital expenditure.
Difference between Revenue and Capital Expenditure
Revenue Expenditure
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Capital Expenditure
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1. It is of regular nature.
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1. It is of irregular nature.
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2. It gives benefits not for more than a year.
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2. It gives benefits over a number of years.
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3. It is shown on the debit side of trading account and profit & loss account.
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3. It is shown on the asset side of the balance sheet.
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7. Depreciation
Formula
Assets = Capital + Liabilities
Cost of the Assets: Purchase price of cost + Carriage + Shipping Charge + Charge + Duty and Clearing Charge + Duty and c=Clearing Charge + all other Expenses related to purchase.
Formula of Calculating Depn is as follows
Annual Depreciation:
 or 
Annual Deprecation: (Original – Scrap Value) *
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8. Reserve and Provisions
Meaning of Capital Reserve
A reserve which is created out of capital profit is known as capital reserve. It is not created out of the profit earned in normal course of the business. Profits on sale of fixed assets, profit of sale on investment are the sources of capital profit.
Meaning of Revenue Reserve
A reserve which is created out of revenue profit is known as revenue reserve. Revenue profit is earned in the normal course of the business. It is created for strengthening the financial position of the business.
Meaning of Genera Reserve
A reserve which is created out of the profit not for a specific purpose is known as General reserve. It is used for general purpose as per the ordinary course of the business.
Different Between Provision and Reserves
Provision
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Reserve
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1. It is created to meat known liabilities.
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1. It is created to meet unknown liabilities of losses.
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2. It is charge against profit.
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2. It is an appropriation of Profit.
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3. It is created even there is loss in business.
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3. It is created, if there is profit in business.
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4. It cannot be created as Hidden Reserve.
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4. It can be created as hidden reserve.
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9. Government Accounting
Features of Government Accounting
1. Budget Heads: All the expenditures of government office are classified in to different budget heads and expenditures are made only in approved budget heads.
2. Banking transactions: All government transactions are expected to be performed through bank by maintaining a secret bank accounting except the pretty cash fund.
3. Auditing: The office and Auditor General performs the audit of books of accounting of the government of the government offices.
Objectives of Government Accounting
1. To record financial transactions of Revenue and expenditure relating to the government organizations.
2. To avoid the excess expenditure beyond the limit of budget approved by the government.
3. To make expenditures according to the rules and regulations of the government.
Features of New Accounting System
1. Double entry system: The new accounting system is based on double entry system under which one aspect is debited and another aspect is credited.
2. Classification of Office: The new accounting system classifies the government offices into central level and office and operating level office.
3. Use of forms: The new accounting system has prescribed 200 forms to be used by government offices.
Objectives of New Accounting System
It gives systematic records of government transactions which support to prepare different statements and reports.
The annual budget is prepared by the government every year for which new accounting system provides historical financial data and information.
It safeguards different government properties like furniture, machinery, land and building.
Difference between Government Accounting and Commercial Accounting
Government Accounting
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Commercial Accounting
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1. The accounting system maintained by the government offices is known as government accounting.
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1. The accounting system maintained by the business organizations established to earn profit is known as commercial accounting.
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2. It strictly follows the government budgeting system.
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2. It does not strictly follow the government budgeting system.
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3. Office of Audit General does the audit of book of accounting of government offices.
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3. A professional person like C.A. or Any other auditor does the auditing of goods of accounting of business organizations.
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10. Pretty Cash Book
Meaning of Petty Cash Fund
It is an amount which is maintained in government offices for making payments of small amounts. It is always equal to its original amount of previous period. It separates small payments from major payments.
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