Financial Accounting

 1.   Concepts of accounting:

a.    separate entity concept     

b.    going concern concept              

c.    money measurement concept                                            

d.   cost concept

e.    dual aspect concept                                                              

f.     accounting period concept

g.    periodic matching of costs and revenue concept         

h.    realization concept.

2.   Conventions of accounting

a.    conservatism 

b.    full disclosure

c.    consistency

d.   D materiality.

3.   Principles of accounting

a.    a. personal a/c :   debit the receiver

                                                                                         i.    Credit the giver

b.    b. real a/c           : debit what comes in

                                                                                         i.    Credit what goes out

c.    c. nominal a/c    : debit all expenses and losses    

                                                                                         i.    credit all gains and incomes

 4. Credit note: the customer when returns the goods get credit for the value of the goods returned. A credit note is sent to him intimating that his a/c has been credited with the value of the goods returned.

 5 . Debit note: when the goods are returned to the supplier, a debit note is sent to him indicating that his a/c has been debited with the amount mentioned in the debit note.

6. Bank reconciliation statement:  it is a statement reconciling the balance as shown by the bank pass book and the balance as shown by the Cash Book.   Obj:  to know the difference & pass necessary correcting, adjusting entries in the books.

7.    Matching concept: matching means requires proper matching of expense with the revenue.

8.     Capital income: the term capital income means an income which does not grow out of or pertain to the running of the business proper.

9.    Revenue income: the income which arises out of and in the course of the regular business transactions of a concern.

10.  Capital expenditure: it means an expenditure which has been incurred for the purpose of obtaining a long term advantage for the business.

11.  Revenue expenditure: an expenditure that incurred in the course of regular business transactions of a concern.

12.  Differed revenue expenditure: an expenditure which is incurred during an accounting period but is applicable further periods also. Eg: heavy advertisement.

13.  Bad debts: bad debts denote the amount lost from debtors to whom the goods were sold on credit.

14.  Depreciation: depreciation denotes gradually and permanent decrease in the value of asset due to wear and tear, technology changes, laps of time and accident.

15.  Fictitious assets: These are assets not represented by tangible possession or property. Examples of preliminary expenses, discount on issue of shares, debit balance in the profit and loss account when shown on the assets side in the balance sheet.

16.  Intangible Assets : Intangible assets means the assets which is not having the physical appearance. And its have the real value, it shown on the assets side of the balance sheet.

17.  Accrued Income : Accrued income means  income which has been earned by the business during the accounting year but which has not yet been due and, therefore, has not been received.

18.  Outstanding Income : Outstanding Income means income which has become due during the accounting year but which has not so far been received by the firm.

19. . Depletion: it implies removal of an available but not replaceable source, Such as extracting coal from a coal mine.

20.  Amortization:  the process of writing of intangible assets is term as amortization.

21.  Capital employed: the term capital employed means sum of total long term funds employed in the business. i.e.

22. (share capital+ reserves & surplus +long term loans – (non business assets + fictitious assets)

23.  Equity shares: those shares which are not having pref. rights are called equity shares.

24. Pref.shares:  Those shares which are carrying the pref.rights is called pref. shares

                           Pref.rights in respect of fixed dividend.

                       Pref.right to repayment of capital in the even of company winding up.

25.  Leverage: It is a force applied at a particular point to get the desired   result.

26.  Operating leverage: the operating leverage takes place when a changes    in revenue greater changes in EBIT.

27.  Financial leverage : it is nothing but a process of using debt capital to           increase the rate of return on equity

28.  Combine leverage: it is used to measure of the total risk of the firm = operating risk + financial risk.

29.  BRS:  It is a statement reconciling the balance as shown by the bank pass book and balance shown by the cash book.

30.  Objective of BRS:  The objective of preparing such a statement is to know the causes of difference between the two balances and pass necessary correcting or  adjusting entries in the books of the firm.

31.  Responsibilities of accounting:  It is a system of control by delegating and locating the responsibilities for costs.

32. outstanding Income : Outstanding Income means income which has become due during the accounting year but which has not so far been received by the firm.

33. Outstanding Expenses : Outstanding Expenses refer to those expenses which have become due during the accounting period for which the Final Accounts have been prepared but have not yet been paid.

Methods of depreciation :

a.    1.Uniform charge methods :                

Fixed instalment method

                                         i.    .Depletion method

b.              Machine hour rate method.

          Declining charge methods :

c.    Diminishing balance method

                  .Sum of years digits method

d.   Double declining method

34. 3. Other methods :

a.    Group depreciation method

b.    Inventory system of depreciation

c.    Annuity method

d.   Depreciation fund method

e.    Insurance policy method.

35.  Accrued Income : Accrued Income means income which has been earned by the business during the accounting year but which has not yet become due  and, therefore, has not been received.