CONTENTS – Financial Accounting

CONTENTS

Preface

1. INTRODUCTION TO ACCOUNTING

Introduction

Meaning of Accounting

Accountancy, Accounting and Book-keeping

Relationship Between Accountancy, Accounting and Book-keeping

Distinction Between Book-keeping and Accounting

Meaning of an Accounting Cycle

Users of Accounting Information and Their Needs

Primary Objectives of Accounting

Types of Accounting Information

Advantages of Accounting

Limitations of Accounting

Qualitative Characteristics of Financial Statements

Branches of Accounting

Basic Accounting Terminology

Double Entry System of Book-keeping

Relationship of Accounting with Other Discipline

Role of an Accountant in the Society

Accrual Basis of Accounting and Cash Basis of Accounting

Distinction Between Accrual Basis of Accounting and Cash Basis of Accounting

Concept of Income

Accounting Concept of Income

How to Compute Accounting Income

Economic Concept of Income

How to Compute Economic income

Theoretical Questions

2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Meaning of ‘Generally Accepted Accounting Principles’ (GAAP)

Basic Assumptions of Accounting

Basic Principles of Accounting

Modifying Principles of Accounting

Theoretical Questions

3. ACCOUNTING STANDARDS

Introduction

Meaning of Accounting Standards

Objective of Accounting Standards

Significance of Accounting Standards

Advantages of Setting Accounting Standards

Arguments Against Setting Accounting Standards

Development of Accounting Standards

Accounting Standards Board of India

Theoretical Questions

4. ACCOUNTING POLICIES

Meaning of Accounting Policies

Examples of Accounting Policies

Considerations in the Selection of Accounting Policies

Disclosure of Accounting Policies

Change in Accounting Policy

Theoretical Questions

5. ACCOUNTING EQUATION

Meaning of Accounting Equation

Procedure for Developing an Accounting Equation

Theoretical Questions

Practical Questions

6. JOURNALIZING, POSTING AND BALANCING

Meaning of an Account

Traditional Classification of Accounts

Accounting Equation Based Classification of Accounts

Comparison of Traditional Classification and Accounting Equation Based Classification of Accounts

Meaning and Rules of Debit and Credit

Meaning and Format of Journal

Meaning of Journalizing

Distinction Between Journal and Ledger

Invoice

Trade Discount

Cash Discount

Distinction Between Trade Discount and Cash Discount

Ledger

Compound Entry

Meaning, Recording and Posting of Opening Entry

Balancing

Comprehensive Problems

Theoretical Questions

Practical Questions

7. SUBSIDIARY BOOKS I-CASH BOOK

Need for Sub-division of the Journal

Meaning of Special Journals (or Subsidiary Books)

Advantages of Special Journals (or Subsidiary Books)

Distinction Between Books of Original Entry and Ledger

Meaning and Types of Cash Books’

Single Column Cash Book

Trade Discount

Cash Discount

Distinction Between Trade Discount and Cash Discount

Distinction Between Commission and Discount

Cash Book with Discount Column

Three Column Cash Book

Petty Cash Book

Theoretical Questions

Practical Questions

8. SUBSIDIARY BOOKS II-OTHER BOOKS

Purchases Book

Sales Book

Purchases Returns Book

Sales Returns Book

Journal Proper

Theoretical Questions

Practical Questions

9. FINANCIAL STATEMENTS

Meaning of Financial Statements

Usefulness of Financial Statements

Elements of Financial Statements

Recognition of Assets, Liabilities, Income and Expenses

Measurement of the Elements of Financial Statements

Trading Account

Manufacturing Account

Distinction Between Manufacturing Account and Trading Account

Profit and Loss Account

Balance Sheet [or Position Statement]

Distinction Between Tangible Assets and Intangible Assets

Distinction Between Fixed Assets and Current Assets

Grouping and Marshalling of Assets and Liabilities

Distinction Between Trading and Profit and Loss Account and Balance Sheet

Distinction Between a Trial Balance and a Balance Sheet

Methods of Presenting the Final Accounts

Treatment of Some Items which may be Direct Items/indirect Items/Incomes/Expenses

Classification of Capital and Revenue

Rationale of Making Adjustments at the Time of Preparing the Final Accounts

Distinction Between Outstanding Expense and Prepaid Expense

Distinction Between Deferred Revenue Expenses and Prepaid Expenses

Distinction Between Accrued Income and Unaccrued Income

Treatment of Items of Adjustment Appearing Outside the Trial Balance

Treatment of Items of Adjustments Appearing in the Trial Balance

Solved Problems

Solved Problems (Advanced)

Professional Examination Problems

Theoretical Questions

Practical Questions

10. FINANCIAL STATEMENTS OF NOT -FOR-PROFIT ORGANISATIONS

Meaning of Not-for-Profit Organisations

Distinction Between a Profit Seeking Organisation and a Not-for-Profit Organisation

Fund Based Accounting

Accounting for Not-for-Profit Organisations

Receipts and Payments Account

Income and Expenditure Account

Meaning and Accounting Treatment of some Peculiar Items

Distinction Between Receipts and Payments Account and Income and Expenditure Account

Distinction Between Income and Expenditure Account and Profit and Loss Account

Preparation of an Income and Expenditure Account from a Receipts and Payments Account

Preparation of a Receipts and Payments Account from an Income and Expenditure Account

Preparation of Balance Sheet of a Not-for-Profit Organisation

Accounts of a Professional Firm

Solved Problems

Solved Problems (Advanced)

B.Com. Examination Problems

Professional Examination Problems

Theoretical Questions

11. DEPRECIATION, PROVISIONS AND RESERVES

Meaning of Depreciation

Meaning of Depreciation Accounting

Causes of Depreciation

Need for Charging Depreciation

Factors Affecting the Amount of Depreciation

Depreciation on Additions to Fixed Assets

Methods of Recording Depreciation

Recording of Depreciation by Charging to Asset Account Method

Methods of Allocating Depreciation

‘Straight Line Method’ of Depreciation (SLM)

‘Written Down Value Method’ of Depreciation (WDV)

Distinction Between Straight Line Method and Written Down Value Method

Recording of Depreciation by Creating Provision for Depreciation Account

Change in the Method of Depreciation

Sinking Fund Method or Depreciation Fund Method

Meaning and Objectives of Provision

Meaning, Objectives and Types of Reserves

Distinction Between Revenue Reserve and Capital Reserve

Distinction Between ‘Provision’ and ‘Reserve’

Specific Requirements of AS-6 Issued by ICAI

Solved Problems

B.Com. Examination Problems

Professional Examination Problems

Theoretical Questions

Practical Questions

12. VALUATION OF INVENTORY

Meaning of Inventories

Meaning of Cost for Inventory Valuation

Exclusions from the Cost of Inventories

Inventory Systems

Distinction Between Periodic Inventory System and Perpetual Inventory System

Methods of Valuation of Inventories

Requirements of Accounting Standard 2 as to Method

First in First Out (FIFO) Method

Last in First Out (LIFO) Method

Distinction Between FIFO and LIFO Method of Valuation of Inventory

Weighted Average Price Method

Adjusted Selling Price [or Retail Inventory Method]

Base Stock Method

Specific Identification Method

Standard Cost Method

Valuation of Inventory as on Balance Sheet Date

Stock as per Books and Stock as per Physical Verification

Lower of Cost or Net Realisable Value Rule

Methods of Comparison of Cost or Net Realisable Value

Disclosure Requirements

Specific Requirements of AS-2 Issued by ICAI

Solved Problems

B.Com. Examination Problems

Professional Examination Problems

Theoretical Questions

Practical Questions

13. ACCOUNTING FOR PARTNERSHIP-DISSOLUTION OF A FIRM

Dissolution of Partnership vs Dissolution of a Firm

Distinction Between Dissolution of Partnership and Dissolution of Firm

Settlement of Accounts [Section 48]

Treatment of Firm’s Debts and Private Debts [Section 49]

Distinction Between Firm’s Debts and Private Debts

Realisation Account

Accounting Entries

Treatment of Goodwill

Preparation of Balance Sheet as on Date of Dissolution

Preparation of Balance Sheet as on the Date of Dissolution of Firm

Calculation of Remuneration Payable to Incharge of Realisation

Taking Over the Business of a Dissolved Firm by Some of its Partners to Continue the Same Business

Return of Premium (Goodwill) in Case of Dissolution of Firm Before the Expiry of a Fixed Term [Section 51]

Professional Examination Problems

Theoretical Questions

Practical Questions

14. PARTNERSHIP-INSOLVENCY, PIECEMEAL DISTRIBUTION, SALE OF A FIRM AND AMALGAMATION OF FIRMS

Introduction

Decision in Garner vs Murray

Applicability of the Decision in Garner vs Murray in India

Insolvency of a Firm

Piecemeal Distribution

Basis of Distribution of Cash Among Partners Towards their Capitals

Maximum Loss Method

Proportionate Capital Method

Sale of a Firm to a Company

Amalgamation of Firms

B.Com. Examination Problems

Professional Examination Problems

Theoretical Questions

Practical Questions

15. ACCOUNTS FROM INCOMPLETE RECORDS [OR SINGLE ENTRY SYSTEM]

Meaning of Incomplete Records

Reasons of Incomplete Records

Limitations of Incomplete Records

Distinction Between Double Entry System and Incomplete Records (Popularly known as Single Entry System]

Preparation of Accounts from Incomplete Records

Statement of Affairs Method

Distinction Between Statement of Affairs and Balance Sheet

Final Accounts Method

Hints for Tracing Missing Information

Solved Problems

B.Com. Examination Problems

Theoretical Questions

Practical Questions

16. ACCOUNTING FOR HIRE PURCHASE

Meaning of Hire Purchase Agreement

Contents of Hire Purchase Agreement

Meaning of Instalment Purchase Agreement

Distinction Between Hire Purchase Agreement and Instalment Purchase Agreement

Calculation of Interest When Both the Cash Price and the Rate of Interest are Given

Calculation of Interest When Cash Price is Given but Rate of Interest is Not Given

Calculation of Interest When Both the Cash Price and the Rate of Interest are Not Given

Calculation of Cash Price

Calculation of Cash Price in Case of Equal Annual Instalments with the Help of Annuity Formula

Accounting for Hire Purchase Transactions

Full Cash Price Method

Journal Entries Under Full Cash Price Method

Disclosure in Balance Sheet Under Full Cash Price Method

Actual Cash Price Paid Method

Journal Entries Under Actual Cash Price Paid Method

Disclosure in Balance Sheet Under Actual Cash Price Paid Method

Default and Repossession

Complete Repossession

Partial Repossession

Accounting for Goods of Small Sales Values

Methods of Ascertaining Profit

Debtors Method

Stock and Debtors Method

Accounting for Instalment Purchase

Journal Entries Under Interest Suspense Method

Disclosure in Balance Sheet Under Interest Suspense Method

Accounting for Guaranteed Service

B.Com. Examination Problems

Professional Examination Problems

Theoretical Questions

Practical Exercises

17. ACCOUNTING FOR BRANCHES

Meaning of a Branch

Classification of Branches

Accounting for Dependent Branches

Debtors Method

Accounting Treatment of Goods Returned and Cash Remitted by Branch Customers Directly to Head Office

Accounting Treatment of Goods Sent to Another Branch and Goods Received from Another Branch

Accounting Treatment of Normal Loss, Abnormal Loss, Insurance Claim and Agreed Allowance/Trade Discount

Accounting Treatment of Branch Manager’s Commission

When Goods are Sent to Branch at Cost plus Profit

Stock and Debtors Method

Final Accounts Method

Whole Sale Branch Method

Accounting for Independent Branches

Incorporation of Branch Results in the Books of Head Office

B.Com. Examination Problems

Theoretical Questions

Practical Questions

18. USE OF COMPUTERS IN ACCOUNTING

Meaning of a Computer

Capabilities of a Computer

Role of Computers in Accounting

Computer Terms

Components of a Computer

Memory of a Computer

Secondary Storage Devices

Hardware and Software

Theoretical Questions

APPENDICES

Appendlx-I

True or False Questions

Appendix-II

Important Distinctions

Appendix-III

Important Short Notes

Appendlx-IV

Important Theoretical Question Bank

Appendlx-V

Recognition of Revenue and Expenses