1.

​ UNIT-1: INTRODUCTION AND CONCEPT

2.​ Introduction to Financial Accounting:
2.1.​ Defines financial accounting as information describing financial resources,
obligations, and activities of an economic entity.
2.2.​ Covers the art of recording, classifying, summarizing, analyzing, interpreting, and
communicating financial transactions and events.
2.3.​ Details the evolution of accounting from "Stewardship Accounting" to an information
system for informed judgments and decisions, and the emergence of Management
Accounting and Social Responsibility Accounting.
2.4.​ Explains accounting as a social science.
3.​ Objectives of Accounting:
3.1.​ Systematic recording of transactions (book-keeping).
3.2.​ Ascertainment of business results (profit or loss).
3.3.​ Ascertainment of the financial position (assets, liabilities, capital).
3.4.​ Providing information to users for rational decision-making.
3.5.​ Knowing the solvency position.
4.​ Functions of Accounting:
4.1.​ Measurement of past performance and current financial position.
4.2.​ Forecasting future performance.
4.3.​ Aiding decision-making.
4.4.​ Comparison and evaluation of performance.
4.5.​ Control by identifying weaknesses.
4.6.​ Providing information for government regulation and taxation.
5.​ Book-keeping:
5.1.​ Defined as the activity concerned with recording financial data systematically.
5.2.​ Covers procedural aspects of accounting work and record-keeping.
5.3.​ Objectives include complete recording of transactions and ascertainment of
financial effect.
5.4.​ Distinction from accounting: Book-keeping is the recording phase, while accounting
is the summarizing, analyzing, interpreting, and communicating phase.
6.​ Sub-fields of Accounting:
6.1.​ Financial Accounting
6.2.​ Management Accounting
6.3.​ Cost Accounting
6.4.​ Social Responsibility Accounting
6.5.​ Human Resource Accounting
7.​ Users of Accounting Information:
7.1.​ Internal Users: Management (Board of Directors, Partners, Managers, Officers).
7.2.​ External Users: Investors, Employees, Lenders, Suppliers and Creditors,
Customers, Government and their agencies, Public.
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8.​ Relationship of Accounting with Other Disciplines:
8.1.​ Economics (rational decision-making, value, income, capital).
8.2.​ Statistics (approximations, trends, ratios).
8.3.​ Mathematics (algebraic form, computations, interest, annuity, matrix form).
8.4.​ Law (legal environment, Contract Act, Companies Act, banking/insurance
legislation).
8.5.​ Management (key role in management team, data requirements).
9.​ Limitations of Accounting:
9.1.​ Misconceptions regarding financial statements (not perfectly true and fair).
9.2.​ Exclusion of non-monetary factors (e.g., loyalty, skill of personnel).
9.3.​ Balance Sheet shows position on a past date, not future.
9.4.​ Ignores changes in money factors (e.g., inflation).
9.5.​ Conflicting accounting principles.
9.6.​ Reliance on personal judgments (e.g., doubtful debts, depreciation method).
9.7.​ Exclusion of human resources from the balance sheet.
9.8.​ Potential for manipulation due to different accounting policies.
10.​ Accounting Concepts:
10.1.​ Business Entity Concept: Business and owner are separate entities.
10.2.​ Accrual Concept: Revenue recognized when earned, expenses when incurred,
regardless of cash flow.
10.3.​ Accounting Cost Concept (Historical Cost): Assets recorded at purchase price
(including acquisition and installation costs), not market price.
10.4.​ Dual Aspect Concept: Every transaction affects at least two accounts (Assets =
Liabilities + Capital).
10.5.​ Going Concern Concept: Business has indefinite life, not expected to be
dissolved shortly.
10.6.​ Money Measurement Concept: Only transactions expressible in monetary terms
are recorded.
10.7.​ Accounting Period Concept: Business life divided into specific periods (e.g., a
year) for financial reporting.
10.8.​ Realization Concept: Revenue recognized only when legally entitled to receive
money (e.g., sale, not order).
10.9.​ Matching Concept: Expenses incurred to earn revenue must belong to the same
accounting period as the revenue.
11.​ Accounting Conventions:
11.1.​ Conservatism (Prudence): Err on the side of caution; lower value for
assets/higher for liabilities.
11.2.​ Consistency: Apply similar accounting principles across periods for comparability.
11.3.​ Full Disclosure: All significant and relevant information should be disclosed.
11.4.​ Materiality: Disclose all material facts that could influence a user's decision.
12.​ Indian Accounting Standard (Ind AS) 1: Prescribes basis for general-purpose financial
statements to ensure comparability, setting overall requirements for presentation,
structure, and content.
13.​ Concept of Capital and Revenue:
13.1.​ Capital Transactions/Expenditures: Long-term effect, incurred on
purchase/alteration/improvement of fixed assets (e.g., cost of delivery, installation,
 legal costs for property).
13.2.​ Revenue Transactions/Expenditures: Short-term effect, incurred in
running/management of business (e.g., maintenance of fixed assets, administration,
selling expenses).
13.3.​ Considerations for distinction: Nature of business, recurring nature, purpose, effect
on revenue-generating capacity, materiality of amount.
13.4.​
13.5.​
13.6.​ UNIT-2: DOUBLE ENTRY SYSTEM AND BOOKS OF ORIGINAL ENTRIES,
TRIAL BALANCE
14.​ About the Double-Entry System:
14.1.​ Foundation of accounting, ensuring the accounting equation (Assets = Liabilities +
Equity) remains balanced.
14.2.​ Every business transaction affects at least two accounts.
14.3.​ Standardizes account keeping and tallying.
15.​ Rules of Double Entry System (Traditional and Modern Approaches):
15.1.​ Traditional:
15.1.1.​ Personal Account: Debit the receiver, Credit the giver.
15.1.2.​ Real Account: Debit what comes in, Credit what goes out.
15.1.3.​ Nominal Account: Debit all expenses and losses, Credit all incomes and
gains.
15.2.​ Modern (Categories of Accounts):
15.2.1.​ Assets/Expenses (Losses): Increase is debited, decrease is credited.
15.2.2.​ Liabilities/Capital/Revenues (Gains): Increase is credited, decrease is
debited.
16.​ Books of Original Entry (Journal):
16.1.​ The first book where transactions are recorded chronologically (journalizing).
16.2.​ Provides a complete record of each transaction, linking debits and credits.
16.3.​ Subdivided into: Journal Proper, Cashbook, and Other Day Books (Purchases,
Sales, Purchase Returns, Sales Returns, Bills Receivable, Bills Payable).
17.​ Ledger and Posting:
17.1.​ The principal book where transactions are classified into individual accounts.
17.2.​ Ledger Posting: Transferring entries from the journal to respective ledger accounts
(debit side for debits, credit side for credits).
17.3.​ Importance of Ledger: Provides summary of transactions, checks mathematical
accuracy, helps find balances due, aids in preparing trial balance and final
accounts, helps prevent frauds.
17.4.​ Distinction between Journal and Ledger:
17.4.1.​ Journal: Subsidiary, chronological recording, explanation written, beginning
stage, no total results, no trial balance, journalizing, no balancing.
17.4.2.​ Ledger: Final book, classified recording, no explanation, later stage, total
results available, trial balance possible, posting, balancing possible.
18.​ Balancing of Ledger:
18.1.​ At the end of a period, accounts are balanced to find debit or credit balances.
18.2.​ Balances are carried forward to the next period. Nominal accounts balances are
transferred to the Profit & Loss Account.
19.​ Forms of Ledger:
19.1.​ Sales or Debtors' Ledger
 19.2.​ Purchase or Creditors' Ledger
19.3.​ General Ledger (Nominal Ledger and Private Ledger).
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20.​ Trial Balance:
20.1.​ A statement showing separately the debit and credit balances of all ledger accounts
on a particular date.
20.2.​ Objectives: Establish arithmetical accuracy, forms the basis for financial
statements, serves as a summary of the ledger.
20.3.​ Limitations: Agreement does not guarantee 100% accuracy (e.g., errors of
omission, compensating errors).
20.4.​ Methods of Preparation: Total Method, Balance Method (commonly used), Total
and Balance Method.
21.​ GST Intra-state and Inter-state Transactions: Examples of journal entries incorporating
CGST, SGST, and IGST for purchases and sales, and for expenses/assets.
22.​ Subsidiary Books and Types of Transactions:
22.1.​ Purchase Book: Credit purchases of goods.
22.2.​ Sales Book: Credit sales of goods.
22.3.​ Purchase Return Book: Purchase returns.
22.4.​ Sales Return Book: Sales returns.
22.5.​ Cash Books: All cash transactions.
22.6.​ Journal Proper: Transactions not recorded in other subsidiary books.
22.7.​ Need for Subsidiary Books: To manage large volumes of transactions, reduce
errors, and ease tracing of specific transactions.
23.​ Trade Discount vs. Cash Discount:
23.1.​ Trade Discount: Allowed at purchase/sale, not recorded in books, to increase
sales, deducted from list price.
23.2.​ Cash Discount: Allowed at payment, recorded
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23.5.​ Sources:
24.​ FA .pdf