Accounting Concepts.ppt -2

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public 1

Symbiosis Institute of Telecom Management

ACCOUNTING

CONCEPTS - II

A.V.Chirputkar, Faculty - Finance, SITM.

M.Com. F.C.A. C.I.S.A. (USA)


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Accounting Elements

Assets Balance Sheet

Liabilities Balance Sheet

Equity Balance Sheet

( The Balance Sheet gives you a financial position)

Income Profit & Loss Account

Expenses Profit & Loss Account

( The profit & loss account gives you profit / loss)


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Accounting Equation

We follow double entry system of Accounting developed in 15thcentury in Italy by Luca Pascioli

The basic accounting equation is;

Equity + Liabilities = Assets The entire accounting is based on three fundamental rules of debit

and credit. Every transaction has two aspects which can berecorded with the help of these rules.

Three types of Accounts Personal, Real, Nominal


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Four Phases in Accounting Process

Journalising of transactions & events;

Ledger posting & balancing;

Preparation of Trial balance; Preparation of Final Accounts.


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Systems of Book Keeping

Single Entry System : It is an incomplete double entrysystem. All the records are not kept, only essentialtransactions related to cash and personal are recorded.

Double entry System: It is a system in which two foldaspects of transactions are recorded. ( Dual aspectconcept). It recognises that every transaction has twofold effects.


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Systems of Accounting

Cash System of Accounting: It is a system ofaccounting in which accounting entries are made whencash is received or paid.

Accrual / Mercantile System of Accounting: It is asystem in which accounting entries are made on thebasis of amount becomes due for receipt or payment.


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Ideal System

Double Entry System of Book keeping;

Accrual System of Accounting.

Recognition of system of book keeping and accountingunder different laws like Companies Act, Income TaxAct and various laws as such.



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Distinction Between Capital and Revenue

Why distinction is necessary?

Meaning of Capital and Revenue;

Matching Concept Effect on Revenue and financial position



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Distinction Between Capital & Revenue Income

Capital Income / Capital Gains;

Revenue Income;

Other Income; Income of exceptional and non-recurring nature.

Effect of above on financial statements of company.



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Distinction Between Capital & RevenueExpenditure

Capital Expenditure;

Capital WIP;

Revenue Expenditure;

Deferred Revenue Expenditure;

a) Prepaid Expenses

b) Amounts representing losses i.e. fictitious assests

c) Preliminary Expenses



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Classification of Receipts

Capital Receipts: Sale of fixed assets, capital raisingactivity etc.

Revenue Receipt: Receipts other than capital receipts.

The distinction is based on nature of industry ratherthan nature of assets.



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Q & A


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Thanks

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Accounting Concepts.ppt -2