NameAbhishek
Singh
Roll no -04
Class –Xi F
Summited To
Mr. Labh
Singh
Accounting
 What Is Accounting?
 Accounting is the process of recording
financial transactions pertaining to a
business. The accounting process includes
summarizing, analyzing and reporting these
transactions to oversight agencies,
regulators and tax collection entities. The
financial statements used in accounting are
a concise summary of financial transactions
over an accounting period, summarizing a
company's operations, financial position
and cash flows.
Objectives of Accounting:
 The following are the main objectives
of accounting
:
 1. To maintain full and systematic records of
business transactions:
 Accounting is the language of business transactions.
Given the limitations of human memory, the main
objective of accounting is to maintain ‘a full and
systematic record of all business transactions.
 2. To ascertain profit or loss of the business:
 Business is run to earn profits. Whether the business
earned profit or incurred loss is ascertained by
accounting by preparing Profit & Loss Account or
Income Statement. A comparison of income and
expenditure gives either profit or loss.
 3. To depict financial position of the business:
 A businessman is also interested in ascertaining
his financial position at the end of a given
period. For this purpose, a position statement
called Balance Sheet is prepared in which
assets and liabilities are shown.
 Just as a doctor will feel the pulse of his
patient and know whether he is enjoying good
health or not, in the same way by looking at the
Balance Sheet one will know the financial
health of an enterprise. If the assets exceed
liabilities, it is financially healthy, i.e.,
solvent. In the other case, it would be insolvent,
i.e., financially weak.
 4. To provide accounting information to the
interested parties:
 Apart from owner of the business enterprise,
there are various parties who are interested
in accounting information. These are bankers,
creditors, tax authorities, prospective
investors, researchers, etc. Hence, one of the
objectives of accounting is to make the
accounting information available to these
interested parties to enable them to take
sound and realistic decisions. The accounting
information is made available to them in the
form of annual report.
What are the Functions
of Accounting?
Functions of accounting
 All companies use accounting to report,
track, execute and predict financial
transactions. The main functions of
accounting are to store and analyze
financial information and oversee
monetary transactions. Accounting is used
to prepare financial statements for a
company's employees, leaders, and
investors. Accounting also functions to
ensure payment of funds into and out of a
company.
 Accounting creates a fiscal history for any
company. It is used to track expenditures from
business operations as well as a company's profits.
It can also be utilized to predict financial success
and the future needs of a company to create
budgets and take advantage of new growth
opportunities. Accountants use this information to
prepare financial statements used by business
professionals and government officials.
 The functions of announting in a business include the
following:
 Business Costs and Revenue
 An important function of accounting is to track
business spending in relation to income. Just like
managing your personal finances, accountants
record expenses and payments to keep an accurate
and up to date record of the company's funds.
 Accounts Receivable
 Proper accounting ensures the company receives
any payment they are due. An accountant tracks
the profits of a business to ensure that revenue is
continually flowing into their bank account.
 Accounts Payable
 Accounts payable functions to pay the company's
bills. They ensure the business pays for any money
they owe and check that it is a legitimate charge.
They also help set the due dates for payments so a
company can best manage their own funds based on
when money is coming in.
 Payroll
 Accountants deduct employee wages from company
funds for paychecks. They are also in charge of
managing employee benefits if they are paid out of
an employee's income. Accounting may help decide
how employees are compensated for their work
based on how wages effect the company's profits.
 Financial Reporting
 Accountants use digital systems to store and
calculate data. If a company is publicly owned,
they must also prepare both quarterly and
yearly reports for shareholders detailing the
assets, profits and losses of the business.
Privately owned companies also utilize fiscal
reports like these to understand the financial
resources of their firm.
 Financial Analysis
 Companies use accounting to perform regular
analysis of how well the business is performing.
Either an outside consultant or internal personnel
will look at the business as a whole to determine
what functions can be made more efficient based on
financial outcomes. They may suggest changes to
employee departments or streamlined costs for
production to reduce waste.
 Taxes and Compliance
 A business must comply with government laws
and standards from the Internal Revenue
Service and the Securities and Exchange
Commission, among other regulations. States
also enforce monetary guidelines for
businesses. Accounting is responsible for
reporting the financial workings of the
company and making sure they conform to all
local and national laws and guidelines.
 Budgeting
 Accounting is in charge of setting a company's
budget. They use financial data from the past
as well as projections for future income to
compose annual budgets. Accountants also
prepare budgets for individual departments
and special projects within the company
Limitations of Accounting
 There are some misconceptions about
accounting. Like the fact that a Profit &
Loss Statement shows the true profit or loss
earned in a year, or that a balance sheet
perfectly depicts the financial position of
a firm.
 Whereas the truth is that accounting is not a
perfect science or art or language yet. It has
been evolving for so many years and continues
to evolve. The limitations of accounting must
be studied to understand it better.
 Measurability
 One of the biggest limitations of accounting is
that it cannot measure things/events that do
not have a monetary value. If a certain
factor, no matter how important, cannot be
expressed in money it finds no place in
accounting. Some very important qualities like
management, loyalty, reputation, etc find no
place on the balance sheet or the income
statement.
 No Future Assesment
 The financial statements show the financial
position of the firm on the date of preparation.
The users of the statement are more
interested in the future of the company in the
short term and long term. However, accounting
does not make any such estimates.
 And due to the dynamic nature of the business
environment, a lot can change between such dates.
Auditors sometimes do disclose the important
events occurring after the balance sheet date to
rectify these limitations of accounting.
Historical Costs
 Accounting often uses historical costs to measure
the values. This fails to take into consideration
factors such as inflation, price changes, etc. This
skews the relevance of such accounting records
and information. This is one of the major limitations
of accounting.
 Accounting Policies
 There is no global standard in accounting policies.
In India, we follow the Accounting Standards.
Americans follow the GAAP and then there are the
international standards, namely the IFRS. And if a
global company operates in more than one country,
there may be confusion.
 Not all accounting policies follow the same
line of thinking, and conflicts may arise due to
this. It has long been said that the whole
world must agree on uniform accounting
policies but this has not happened yet.
 Estimates
 Sometimes in accounting estimation may be
required as it is not possible to establish
exact amounts. But these estimates will
depend on the personal judgment of
the accountant. And estimates are
extremely subjective in nature. They are
basically a person’s guess of future events. in
accounting, there are many cases where such
estimates need to be made like provision of
doubtful debt, methods of depreciation, etc.
 Verifiability
 An audit of the financial statements does not
guarantee the correctness of such
statements. The auditor can only assure that
the statements are free from error to the
best of his judgment.
 Errors and Frauds
 Accounting is done by humans, so there will
always be the scope of human errors. There is
also the fear of possible manipulation of
accounts to cover up a fraud. Since fraud is
deliberate, it is that much harder to spot. This
is one of the most dreaded limitations of
accounting.
BASIC ACCOUNTING TERMS
 Understanding Basic Accounting Terms
 Business Transaction, Account, Capital,
Drawings, Liabilities and Assets
 Business Transaction:
 Transaction: It is an event which
involves transfer of money, goods and
services and can be classified into cash
or credit transactions. Cash
transaction is the one where cash
receipt or payment is involved and a
credit transaction is one where cash is
not involved immediately but will be
paid or received later.
Types of
Transactions
Based on
Relationshi
p with
Accounting
Unit
Internal
Transactions
External
Transactions
Based on
Mode of
Settlement
Cash
Transactions
Credit
Transactions
 Business Transaction: It is a financial
transaction or an economic event expressed in
terms of money which brings in a change in the
financial position of an enterprise. It involves
transfer and exchange of goods or services
such as purchase/sale of goods and services,
wages paid to workers, rent paid, dividend
received, lending and borrowing money.
 Characteristics: Following are the
characteristics of a Business Transaction:
 i. money or money’s worth: it is basically
concerned with money or money’s worth
received from of sale of goods or provision of
services.
 ii. Exchange of goods or services: It arises out
of exchange of goods or services.
 iii. Change in financial position: It affects the
financial statements of an enterprise and
therefore, is responsible for change in its
financial position.
 iv. Accounting equation: It affects the
accounting equation of any business firm.
 v. Dual Aspects: Every business transaction
has 2 sides, one is receiving side and the other
is giving side and therefore, it is said to have a
dual aspect for every transaction.
 vi. Equality of Balance Sheet: Since, every
transaction has dual aspect affecting the
two sides namely, Receiving and Giving
simultaneously, it helps in maintaining the
equality of Balance Sheet
Accounting Principles
 What are Accounting Principles?
Accounting principles are the rules
and guidelines that companies must
follow when reporting financial
data. The Financial Accounting
Standards Board (FASB) issues a
standardized set of accounting
principles in the U.S. referred to
as generally accepted accounting
principles (GAAP).
 Accrual principle
 Conservatism principle
 Consistency principle
 Cost principle
 Economic entity principle
 Full disclosure principle
 Going concern principle
 Matching principle
 Materiality principle
 Monetary unit principle
 Reliability principle
 Revenue recognition principle
 Time period principle
Accounting Concepts and
Conventions
 Accounting Conventions
 The most commonly encountered convention is the
"historical cost convention". This requires transactions
to be recorded at the price ruling at the time, and for
assets to be valued at their original cost.
 Under the "historical cost convention", therefore, no
account is taken of changing prices in the economy.
 The other conventions you will encounter in a set of
accounts can be summarised as follows:
 Monetary measurement
 Accountants do not account for items unless they can be
quantified in monetary terms. Items that are not
accounted for (unless someone is prepared to pay
something for them) include things like workforce skill,
morale, market leadership, brand recognition, quality
of management etc.
 Separate Entity
 This convention seeks to ensure that private transactions
and matters relating to the owners of a business are
segregated from transactions that relate to the business.
 Realisation
 With this convention, accounts recognise transactions (and
any profits arising from them) at the point of sale or
transfer of legal ownership - rather than just when cash
actually changes hands. For example, a company that
makes a sale to a customer can recognise that sale when
the transaction is legal - at the point of contract. The
actual payment due from the customer may not arise until
several weeks (or months) later - if the customer has been
granted some credit terms.
 Materiality
 An important convention. As we can see from the
application of accounting standards and accounting
policies, the preparation of accounts involves a high
degree of judgement. Where decisions are required about
the appropriateness of a particular accounting
judgement, the "materiality" convention suggests that this
should only be an issue if the judgement is "significant" or
"material" to a user of the accounts. The concept of
"materiality" is an important issue for auditors of
financial accounts.
 Accounting Concepts
 Four important accounting concepts underpin the
preparation of any set of accounts:
 Going Concern
 Accountants assume, unless there is evidence to the
contrary, that a company is not going broke. This has
important implications for the valuation of assets and
liabilities.
 Consistency
 Transactions and valuation methods are treated the
same way from year to year, or period to period. Users
of accounts can, therefore, make more meaningful
comparisons of financial performance from year to
year. Where accounting policies are changed, companies
are required to disclose this fact and explain the
impact of any change.
 Prudence
 Profits are not recognised until a sale has been
completed. In addition, a cautious view is taken for
future problems and costs of the business (the are
"provided for" in the accounts" as soon as their is a
reasonable chance that such costs will be incurred in
the future.
GST
 GST is known as the Goods and Services
Tax. It is an indirect tax which has
replaced many indirect taxes in India
such as the excise duty, VAT, services
tax, etc. ... Under the GST regime, the
tax is levied at every point of sale. In
the case of intra-state sales,
Central GST and State GST are
charged.
Question 1:Pass entries in the books of Mukerjee & Sons. assuming
all transactions have taken place within the state of Uttar
Pradesh. Assume CGST @9% and SGST @ 9%.
2018
March 1 Purchased goods for ₹ 5,00,000 from Mehta Bros.
March Sold goods for ₹ 8,00,000 to Munjal & Co.
10
March Paid for advertisement ₹ 40,000 by cheque.
15
March
Purchased furniture for office use ₹ 50,000 and payment made
18
by cheque.
March
Paid for printing and stationery ₹ 8,000.
25
March Payment made of balance amount of GST.
31
Journal
Date
2018
Mar 04
Particulars
L.F.
Debit
Amount
(₹)
Purchases
A/c
Dr.
5,00,000
Input
CGST A/c
Dr.
45,000
Input SGST
A/c
Dr.
45,000
To Mehta
Bros. A/c
(Purchase
d from
Mehta
Bros.)
Credit
Amount
(₹)
5,90,000
Mar 10
Munjal & Co. A/c
Dr.
9,44,000
To Sales A/c
8,00,000
To Output CGST
A/c
72,000
To Output SGST
A/c
72,000
(Sold goods to
Munjal & Co.)
Mar 15
Advertisement
A/c
Input CGST A/c
Dr.
40,000
Dr.
3,600
Input SGST A/c
Dr.
3,600
To Bank A/c
(Paid for
advertisement)
47,200
Mar 18
Furniture
A/c
Dr.
50,000
Input
CGST A/c
Dr.
4,500
Input SGST
A/c
Dr.
4,500
To Bank
A/c
(Purchase
d office
furniture)
59,000
Mar 25
Printing &
Stationery
A/c
Dr.
8,000
Input
CGST A/c
Dr.
720
Input SGST
A/c
Dr.
720
To Cash
A/c
(Paid for
printing
and
stationery)
9,440
Mar 31
Output
CGST A/c
Dr.
53,820
Output
SGST A/c
Dr.
53,820
To Input
CGST A/c
53,820
To Input
SGST A/c
53,820
(Input tax
credit
availed)
Mar 31
Output
CGST A/c
Dr.
18,180
Output
SGST A./c
Dr.
18,180
To Bank
A/c
36,360
(Balance
tax paid to
governme
nt)
17,93,640
17,93,640
Thanks For
watching
Summited By
Abhishek Singh
Roll no -4
Class XI -f