[Link].

Revised Syllabus 2023

SEMESTER I
Course Title- Basic Accounting
Nature of Course: Multidisciplinary
Course Code: UG BCOM-MD-T-1B
Credit: 3 Full Marks: 45 (35+10)

Unit 2
 Features of recordable transactions and events,
 Recording of Transactions.
 Types of Accounts- Personal account, Real Account and Nominal Accounting;
 Golden Rules of Accounting- Rule for Debit and Credit; Double Entry System,
 Accounting equations- Simple Problems on Accounting Equation (From unit one)
 Journalizing transactions (Simple Problems on Journal Entries of Sole Proprietorship Concern).

Contents
The features of recordable transactions and events. .............................................................................................................................................................. 1

Account .............................................................................................................................................................................................................................................. 2

Analysis of Transaction .................................................................................................................................................................................................................. 5

The Accounting Cycle ...................................................................................................................................................................................................................... 5

Understanding of the Accounting System ................................................................................................................................................................................. 6

Double Entry System of Book – Keeping ..................................................................................................................................................................................... 7

Accounting Equation ........................................................................................................................................................................................................................ 9

The Framework [Issued By ICAI in July 2000] ..................................................................................................................................................................... 13

Some aspects of the FRAMEWORK .......................................................................................................................................................................................... 15


NOT REQUIRED (NOT IN SYLLABUS)
Users of Financial Statements ................................................................................................................................................................................... 15

 Fundamental Accounting Assumptions ...................................................................................................................................................................... 15

 Qualitative Characteristics of Financial Statements ............................................................................................................................................ 15

 Elements of Financial Statements ............................................................................................................................................................................. 15

The Elements of Financial Statements ..................................................................................................................................................................................... 16

The Accounting Cycle .................................................................................................................................................................................................................... 19

The features of recordable transactions and events.

By adhering to the following features, businesses can maintain accurate and reliable financial
records that support effective decision-making, financial analysis, and regulatory compliance.

1. Financial Impact: Recordable transactions have a financial impact on the business. They
involve the exchange of goods, services, or financial resources that result in changes to
the company's assets, liabilities, equity, income, or expenses.
2. Objectivity: Recordable transactions are objective and verifiable. They are based on
actual, observable events that can be supported by source documents such as invoices,
receipts, contracts, and other relevant records.

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3. Reliability: Transactions and events recorded in the accounting system must be reliable.
The information should be accurate, free from bias, and faithfully represent the
economic substance of the underlying activities.
4. Recognition Principle: Recordable transactions adhere to the recognition principle, which
states that transactions should be recorded in the accounting records when they occur,
not necessarily when the cash is exchanged. This principle ensures that financial
statements reflect the economic reality of the business.
5. Consistency: Consistency is a key feature of recordable transactions. Accounting
principles and methods should be applied consistently over time to facilitate comparability
and ensure that financial statements are reliable and meaningful.
6. Materiality: Recordable transactions focus on materiality, emphasizing the importance of
capturing significant transactions that have a material impact on the financial statements.
Immaterial transactions may be aggregated or omitted.
7. Documentation: Proper documentation is essential for recordable transactions. Source
documents provide evidence of the transaction, supporting the entries made in the
accounting records. This documentation serves as a basis for audit trails and verification.
8. Timeliness: Recording transactions in a timely manner is crucial. This ensures that
financial statements are up-to-date and can be used for decision-making. Delayed
recording may lead to inaccuracies and a lack of real-time financial information.
9. Relevance: Recordable transactions should be relevant to the financial reporting needs of
the business. Only transactions that have a meaningful impact on the financial position,
performance, and cash flows of the entity should be recorded.
10. Systematic Recording: Transactions are systematically recorded following a standardized
accounting process. This involves identifying the accounts affected, determining the
nature of the accounts (assets, liabilities, equity, etc.), and applying appropriate
accounting principles.

Account
Definition: An account is a record in an accounting system that tracks the
financial activities of a specific asset, liability, equity, revenue, or expense.
These records increase and decrease as the business events occur throughout
the accounting period. Each individual account is stored in the general ledger
and used to prepare the financial statements at the end of an accounting
period.
An account in accounting is a standardized and designated record or category that systematically
captures and summarizes financial transactions related to a specific economic entity, such as an
asset, liability, equity, revenue, or expense.
Each account has a distinct name and a corresponding ledger, enabling the systematic tracking and
organization of financial information for the purpose of accurate and comprehensive financial
reporting.

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Types of Accounts: An account may be related to a person or a thing – tangible
or intangible.

[While doing business transactions, one may come across numerous accounts
that are affected. How does one decide about accounting treatment for each
of them? If common rules are tto
o be applied to similar type of accounts, there
must be a way to classify the account based on their common characteristics].
Representative Personal Accounts are accounts which represent a certain
person or group of people. Accounts relating to outstanding and prepaid items
are called representative personal accounts
accounts.. For example, prepaid insurance,
outstanding rent outstanding wages/salaries etc. Outstanding salaries are one
such account.

An Artificial person is an entity that is recognized by the law as a Legal

Person i.e. an entity holding legal rights and duties distinct from the individuals
whom comprise it. For example: A registered company is a person in the sense
that it can sue or be sued, as well hold property etc. in it's own
wn name

The Owner is classified as Capital or Drawings (in case of Sole Proprietorship

and Partnership). In Case of Company the Owner is the Shareholder (Equity or
Preference)

Personal Account arises out of Credit Transaction which is either for

1. Goods which are bought to be sold or
2. Assets which are to be used in the business for productive purpose
Analysis of Transaction
There are two approaches for deciding when to write on the debit side of an
account and when to write on the credit side of an account:
1. American Approach/ Modern Approach [accounting equation]
2. British Approach/ Traditional Approach/Double Entry System

Analysis of
f Transaction [Traditional Method // Accounting Equation] By Double
Entry System.
1. Journal // Ledger// Trial Balance
2. Books of
f Prime Entry// Subsidiary Books And Cash Book (journalized
ledger)

The Accounting Cycle

Understanding of the Accounting System
Double Entry System of Book – Keeping
1. Double entry owes to the work of an Italian Monk, and a Franciscan friar,
in1494, to Luca Pacioli. Pacioli's first printed work or treatise was on
algebra, titled: "Summa
Summa de Arithmatica, Geometrica, Proportioni et
proportionalita”.
2. All transactions are recorded in accounts have two aspects - Debit aspect
(receiving) and Credit aspect
spect (giving). This accounting technique records
each transaction as debit and credit
credit, where every debit has a
corresponding credit and vice versa.
3. Features of double entry book – keeping
a. Every business transaction affects two accounts
b. Each transaction has two aspects, i.e., debit and credit
c. Maintains a complete record of all business transactions
d. Helps to check the accuracy of the accounting transactions
transactions, by
preparation of trial balance
e. Helps ascertaining profit earned or loss occurred during a period,
by preparation of Profit & Loss Account
f. Helps ascertaining financial position of the concern at the end of
each period, by preparation of Balance Sheet.

Thus, the accounting Cycle comprise of

1) Identifying the financial transaction
transact
2) Recording of Financial Transactions
3) Classifying Financial Transactions
4) Summarizing Financial Transactions
 5) Communicating the Results of Business

Identifying the transaction and Recording the transaction 

HOW DO WE RECORD
FINANCIAL TRANSACTIONS

MODERN:
TRADITIONAL:
ACCOUNTING
GOLDEN RULE
EQUATION
ALL EXPENSES AND LOSSES - DEBIT

ALL INCOME AND GAINS– CREDIT

Profit and Loss Account

EXPENSES AND LOSSES INCOME AND GAINS

=Services and benefits received = Services and Benefits rendered

PROFIT = EXCESS OF INCOME AND GAINS OVER EXPENSES AND

LOSSES

Accounting Equation
Sources of Finance = ASSET
Assets =
Assets Liabilities + Capital
Assets =
Assets Liabilities + Owner's equity
Assets +
Assets Expenses = Liabilities + Revenue + Owner's equity
Assets =
Assets Liabilities + (Revenue – Expenses) + Owner's equity
Assets =
Assets Liabilities + Owner's equity + Owner's equity (income)
Assets =
Assets Liabilities + Owner's equity
Please fill up the quiz (10 marks)

[Link]

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The Framework [Issued By ICAI in July 2000]
Some aspects of the FRAMEWORK
 Users of Financial Statements

 Fundamental Accounting Assumptions

 Qualitative Characteristics of Financial Statements

 Elements of Financial Statements

The Elements of Financial Statements
The elements directly related to the measurement of financial position in the
balance sheet are assets, liabilities and equity. The elements directly related
to the measurement of performance in the statement of profitand loss are
income and expenses
 Para 47
Financial Position
a) An asset is a resource controlled by the enterprise as a result of past
events from which future economic benefits are expected to flow to the
enterprise.
b) A liability is a present obligation of the enterprise arising from past
events, the settlement of which is expected to result in an outflow from
the enterprise of resources embodying economic benefits.
c) Equity is the residual interest in the assets of the enterprise after
deducting all its liabilities
 Para 49
 The definitions of an asset and a liability identify their essential features
but do not attempt to specify the criteria that need to be met before
they arerecognized in the balance sheet. Thus, the definitions embrace
items thatare not recognized as assets or liabilities in the balance sheet
because theydo not satisfy the criteria for recognitiondiscussed in
paragraphs 81 to 97.
 Para 50
 In assessing whether an item meets the definition of an asset, liability or
equity, consideration needs to be given to its underlying substance and
economic reality and not merely its legal form. [Substance over Form]
 Para 51

Performance
 The elements directly related to the measurement of profit are income
and expenses.
 The recognition and measurementof income and expenses, and hence
profit, depends in part on the concepts of capital and capital
maintenanceused by the enterprise in preparing its financial statements.
 Para 68
a) Income is increase in economic benefits during the accounting period in
the form of inflows or enhancements of assets or decreases of liabilities
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 that result in increases in equity, other than those relating to
contributions from equity participants.
b) Expenses are decreases in economic benefits during the accounting period
in the form of outflows or depletions of assets or incurrences of
liabilities that result in decreases in equity, other than those relating to
distributions to equity participants.
 Para 69

Recognition is the process of incorporating in the balance sheet or statement

of profit and loss an item that meets the definition of an element and satisfies
the criteria for recognition set out in paragraph 82 ----- Para 81

Para 82
An item that meets the definition of an element should be recognized if:
1. it is probable that any future economic benefit associated with the
item will flow to or from the enterprise; and
2. the item has a cost or value that can be measured with reliability.

Para 84
The concept of probabilityis used in the recognition criteria to refer tothe
degree of uncertainty that the future economic benefits associated withthe
item will flow to or from the enterprise. The concept is in keeping withthe
uncertainty that characterizes the environment in which an enterpriseoperates.

Para 85
The second criterion for the recognitionof an item is that it possessesa cost
or value that can be measured with reliability as discussed in paragraphs 31 to
38 of this Framework.

Para 98
Measurement is the process of determining the monetary amounts atwhich the
elements of financial statements are to be recognised and carriedin the balance
sheet and statement of profit and loss. This involves theselection of the
particular basis of measurement.
Para 68
Profit is frequently used as a measure of performance or as the basis

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for other measures, such as return on investment or earnings per share. The
elements directly related to the measurement of profit are income and
expenses. The recognition and measurement of income and expenses, and
hence profit, depends in part on the concepts of capital and capital
maintenanceused by the enterprise in preparing its financial statements. These
concepts are discussed in paragraphs 101 to 109.

Para 80
The revaluation or restatement of assets and liabilities gives rise to
increases or decreases in equity. While these increases or decreases meet
the definition of income and expenses, they are not included in the statement
of profit and loss under certain concepts of capital maintenance. Instead,
these items are included in equity as capital maintenance adjustments or
revaluation reserves. These concepts of capital maintenance are discussed in
paragraphs 101 to 109 of this Framework.

Para 104
The concept of capital maintenance is concerned with how anenterprise defines
the capital that it seeks to maintain. It provides the linkage between the
concepts of capital and the concepts of profit because it provides the point
of reference by which profit is measured; it is a prerequisite for distinguishing
between an enterprise's return on capital and its return of capital; only inflows
of assets in excess of amounts needed to maintain capital can be regarded as
profit and therefore as a return on capital. Hence, profit is the residual
amount that remains after expenses (including capital maintenance
adjustments, where appropriate) have been deducted from income. If
expenses exceed income, the residual amount is a net loss

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The Accounting Cycle

01/01/2021

Paid Salary to Maya (housemaid) Rs.

1500 for services received in
December 2020

Step 1: Identify Transactions

 Services received during December 2020 (valued at Rs 1500) – Debit

 Cash paid on 01/01/2021 – Rs 1500 – Credit

Why?

As per Golden Rule (Credit

Credit what goes out [Cash], Debit Expenses
(services and benefits received)

As per accounting equation (Asset = Liabilities + Equity)

Step 2: Record Transactions in a Journal

Step 3: Posting (Preparation of Ledger Accounts)

Step 4: Unadjusted Trial Balance

Step 5: Worksheet (finding out discrepancies)

What happens if addition to this if it is observed that Maya has taken a

prepaid salary on 21st December 2020 Rs 1500 for the next year

Step 6: Adjusting Journal Entries

OR
Step 7: Adjusted Trial Balance

Step 8: Closing the Books

Step 9:: Preparation of Financial Statements