This presentation is based on the subject Financial Accounting which helps the beginners to know the basic concept of accounting . This is according to the syllabus of Pt. Ravishankar University , Raipur and Durg University, Durg.

1. B.Com I
Ms. Reba Das

2. UNIT – 1

3. MEANING OF FINANCIAL
ACCOUNTING
• Financial accounting is a specialized
branch of accounting that keeps track of a
company's financial transactions. Using
standardized guidelines, the transactions
are recorded, summarized, and presented
in a financial report or financial statement
such as an income statement or a balance
sheet.

4. Objectives of Accounting
• (a) To ascertain the amount of profit or loss made by
the business i.e. to compare the income earned
versus the expenses incurred and the net result
thereof.
• (b) To know the financial position of the business i.e.
to assess what the business owns and what it owes.
• (c) To provide a record for compliance with statutes
and laws applicable.
• (d) To enable the readers to assess progress made by
the business over a period of time.
• (e) To disclose information needed by different
stakeholders.

5. Difference between Book-keeping and
Accountancy
Points of
difference
Book Keeping Accountancy
Meaning Book-keeping is considered as end. Accountancy is considered as
beginning.
Functions The primary stage of accounting
function is called Book-keeping.
The overall accounting functions are
guided by accountancy.
Depends Book-keeping can provide the base
of Accounting.
Accountancy depends on
Bookkeeping for its complete
functions.
Data The necessary data about financial
performances and financial
positions are taken from Book-
keeping.
Accountancy can take its decisions,
prepare reports and statements from
the data taken from Book-keeping.
Recording of
Transactions
Financial transactions are
recorded on the basis of accounting
principles, concepts and
conventions.
Accountancy does not take any
principles, concepts and conventions
from Book-keeping.

6. Branches of Accounting
Financial Accounting
Cost Accounting
Management Accounting
Auditing
Decision Accounting
Not-for-profit accounting
Tax accounting

7. Accounting Concepts
• Business Entity Concept: A business and its
owner should be treated separately as far as their
financial transactions are concerned.
• Going Concern Concept: In accounting, a
business is expected to continue for a fairly long
time and carry out its commitments and
obligations.
• Money Measurement Concept: Only business
transactions that can be expressed in terms of
money are recorded in accounting, though
records of other types of transactions may be
kept separately.

8. • Accounting Period Concept: Each business chooses a
specific time period to complete a cycle of the
accounting process—for example, monthly, quarterly,
or annually—as per a fiscal or a calendar year.
• Matching concept: This principle dictates that for
every entry of revenue recorded in a given accounting
period, an equal expense entry has to be recorded for
correctly calculating profit or loss in a given period.
• Dual Aspect Concept: For every credit, a
corresponding debit is made. The recording of a
transaction is complete only with this dual aspect.
• Realisation Concept: According to this concept, profit
is recognised only when it is earned. An advance or
fee paid is not considered a profit until the goods or
services have been delivered to the buyer.

9. ACCOUNTING STANDARD
• AS 1 Disclosure of Accounting Policies
• AS 2 Valuation of Inventories
• AS 3 Cash Flow Statements
• AS 4 Contingencies and Events Occurring after the Balance Sheet
Date
• AS 5 Net Profit or Loss for the period, Prior Period Items and
Changes in Accounting Policies
• AS 6 Depreciation Accounting
• AS 7 Construction Contracts
• AS 8 Accounting for Research and Development
• AS 9 Revenue Recognition
• AS 10 Accounting for Fixed Assets
• AS 11 The Effects of Changes in Foreign Exchange Rates
• AS 12 Accounting for Government Grants

10. •AS 13 Accounting for Investments
•AS 14 Accounting for Amalgamations
•AS 15 Employee Benefits
•AS 16 Borrowing Costs
•AS 17 Segment Reporting
•AS 18 Related Party Disclosures
•AS 19 Leases
•AS 20 Earnings Per Share
•AS 21 Consolidated Financial Statements
•AS 22 Accounting for Taxes on Income
•AS 23 Accounting for Investments in Associates in Consolidated
Financial Statements
•AS 24 Discontinuing Operations
•AS 25 Interim Financial Reporting
•AS 26 Intangible Assets
•AS 27 Financial Reporting of Interests in Joint Ventures
•AS 28 Impairment of Assets
•AS 29 Provisions Contingent Liabilities and Contingent Assets

11. ACCOUNTING CYCLE

12. Types of Account

13. Golden Rules of Accounting

14. RELATIONSHIP BETWEEN
JOURNAL & LEDGER
• Business transactions are recorded first
in Journal and other books of original
entry and then from these books they
are transferred to Ledger. Journal
records transactions in a chronological
order while the ledger records the
transactions in a classified form.
Journal, being the book of original
entry, is more reliable as compared to
ledger.

15. LEDGER
JOURNAL
Ex: Furniture purchased on Cash Rs. 1000

16. CAPITAL & REVENUE

17. Receipts and Payment account
• Non-profit organizations (also called
non-trading concerns) prepare a receipt
and payment account at the end of
year. With the help of this account and
some additional information, an income
and expenditure account is prepared to
disclose the true results of non-profit
organizations. Receipt and payment
account cannot disclose the true result
of non-trading concern.

19. Income and expenditure account
• The income and expenditure account is an
account prepared by non-trading concerns
to ascertain surplus or deficit of income
over expenditures for a particular period.
It is prepared as a part of final accounts of
non-trading concerns and is equivalent to
profit and loss account prepared by for-
profit business enterprises. The accrual
concept of accounting is strictly followed
while preparing income and expenditure
account of non-trading entities.

21. UNIT - 2

22. FINAL ACCOUNTS
• Final Account gives an idea about the
profitability and financial position of a
business to its management, owners,
and other interested parties. It is a
combination of the following–
• Trading Account
• Profit and loss account
• Balance Sheet

26. TRIAL BALANCE
• A trial balance is a list of all the general ledger
accounts (both revenue and capital) contained
in the ledger of a business. This list will contain
the name of each nominal ledger account and
the value of that nominal ledger balance. Each
nominal ledger account will hold either a debit
balance or a credit balance. The debit balance
values will be listed in the debit column of the
trial balance and the credit value balance will
be listed in the credit column.

27. FORMAT OF TRIAL BALANCE

28. Rectification of Errors
On the basis of rectification of errors,
we can classify the errors into the
following two broad categories:
• Errors not affecting the Trial Balance
• Errors affecting the Trial Balance

29. TYPES OF ERRORS

30. ERROR OF OMISSION
• If a transaction is omitted altogether from
the books of accounts, there would be
neither a debit nor a credit entry in the
ledger. Hence the trial balance will not be
affected.

31. Errors of commission
• If we debit or credit an account, other than
the correct account, but with the correct
amount, the total debits and credits in the
ledger will remain equal and hence the trial
balance will not disclose the error.
• For Ex: A credit sale of goods for Rs. 7,200 to Mr. David was erroneously
debited to Mr. John’s account.

32. Errors of principle
• An error of principle is caused by a lack of
knowledge of accounting principles. The
transaction are recorded not in accordance
with the GAAP.
• For ex: Some furniture was bought on credit for Rs. 2,500 to be used in
the office. It was debited to purchases account.

33. Compensating errors
• A group of two or more errors each of whom
individually affects the trial balance but
which collectively nullify each other’s impact
is called compensating errors.
• For Ex: Purchase and Sales Account are overstated by Rs. 600
Sales A/c Dr. 600
To Purchase A/c Cr. 600

35. UNIT - 3

36. Depreciation
Depreciation means gradual decrease in the value
of an asset due to normal wear and tear,
obsolescence etc. In short, depreciation means the
gradual diminution, loss or shrinkage in the utility
value of an asset due to wear and tear in use,
effluxion of time or introduction of technology in the
market. A certain percentage of total cost of fixed
assets which has expired and as such turned into
expense during the process of its use in a particular
accounting period.

37. Causes of Depreciation
• Wear and Tear of the Asset
• Physical Decay
• Accident
• Obsolescence
• Perishability of Inventory

38. Methods for Charging
Depreciation
• 1. Fixed Installment Method
• 2. Diminishing Balance Method
• 3. Annuity Method
• 4. Depreciation Fund Method
• 5. Insurance Policy Method
• 6. Revaluation Method
• 7. Depletion Method
• 8. Machine Hour Rate Method

39. Fixed Installment Method
• Example
Consider a piece of equipment that costs Rs. 25,000 with an
estimated useful life of 8 years and a 0 salvage value. The
depreciation expense per year for this equipment would be as
follows:
Calculation: 25000/8=3125

40. Diminishing Balance Method
Example
Consider a piece of property, plant, and equipment that costs
Rs.250,00 with an estimated useful life of 8 years and a Rs.
2,500 salvage value. Depreciation @25% p.a. To calculate the
double declining balance depreciation, set up a schedule:

41. Machine Hour Rate Method
Example
Consider a machine that costs Rs. 25,000 with an estimated
total unit production of 100 unit. During the first quarter of
activity, the machine produced 4 units.
Calculation: 25000 / 100 = 250 p.u. depre is charged

42. Accounts prepared under Depreciation
• Assets Account
• Depreciation Account
• Provision for depreciation Account
• Assets Disposal Account

43. UNIT – 4

44. Special Area Accounting
• Branch Account
• Hire Purchase System
• Installment Purchase System

45. Branch Account
A business is split into many parts for the
purpose to capture the market at different
places or to have better management. If
the different parts, usually, selling the
same products or rendering the same
services, are located at different places in
the same town or in different towns, they
are know as branches and from where
the branches are controlled is known as
Head office.

47. Types of Branches

48. Accounts to be prepared under
Branch Accounting
In the Book of Head Office
• Branch Account
• Branch Debtor Account
• Profit and Loss Account
In the Book of Branch Office
• Trading Account
• Profit and Loss Account
• Balance Sheet

49. Hire-Purchase System
• Hire purchase system refers to the
system wherein, the seller of goods
delivers the goods to the buyer without
transferring the ownership of goods.
The payment for the goods will be
made by the buyer in instalments. If the
buyer pays all the instalments, the
ownership of the goods will be
transferred, on payment of the last
instalment.

50. CONTENTS OF HIRE PURCHASE
AGREEMENT
• The date of commencement of the
agreement
• The hire purchase price of the goods
• The cash price of the goods.
• Number of instalments by which hire
purchase price is to be paid.

51. Accounts prepared under Hire-Purchase

52. MEANING OF INSTALMENT
PURCHASE SYSTEM
• Instalment payment system (also called
the deferred instalments) is a system
where the buyer is given the ownership
as well as the possession of the goods
at the time of signing the contract. The
buyer has the facility to pay the price in
instalments.

53. UNIT - 5

54. Meaning of Partnership
• Section 4 of the Indian Partnership Act,
1932, defines partnership as follows:
• " Partnership is the relation between
persons who have agreed to share the
profits of a business carried on by all or
any of them acting for all."

55. Characteristics of Partnership
• Two or more persons.
• Agreement
• Profit Motive
• Sharing of Profits
• Relationship of Principal and Agent
• Business carried on by all or any of
them acting for all

56. PARTNERSHIP DEED
• Partnership deed is a document in
writing containing different terms of
partnership as agreed by the partners
between themselves in regard to
conduction of business and its affairs
and their mutual rights and obligations.

57. Content of Partnership deed
• The name of the firm
• Nature and place of business
• Name and details of all partners
• Date of commencement of business
• Duration of the firm’s existence
• Capital contributed by each partner
• Profit/loss sharing ratio
• Interest on capital payable to partners
• The extent of borrowings each partner can draw
• Salary payable to partners, if any
• The procedure of admission or retirement of a partner
• The method used for calculating goodwill
• Preparation of accounts of the firm
• Mode of settlement of dues with a deceased partner’s
executors
• The procedure followed in case disputes arise between
partners

58. Absence of a Partnership Deed
• The partners will share profits and
losses equally.
• Partners will not get a salary.
• Interest on capital will not be payable.
• Drawings will not be chargeable with
interest.
• Partners will get 6% p.a. interest on
loans to the firm if they mutually agree.

59. General Terms
• Goodwill : It is an invisible fixed asset.
Goodwill is created through a process which
carries a certain value but it can not be seen
or touched. Capacity to earn additional profit
as a result of this is termed as goodwill.
• Drawing : When a partner draws something
from firm is called drawing.
• Capital : Amount contributed by the
partners towards the business of a firm is
called capital.

60. Methods of Maintaining
Capital Account of Partners
Methods of Maintaining Capital Account of Partners
Fixed Capital Method
Capital Accounts
Current Accounts
Fluctuating Capital Method

61. In case of Fixed Capital Method

62. In case of Fluctuating Capital Method

63. Stages in Partnership
• Admission of a Partner
• Retirement of a Partner
• Death of a Partner
• Dissolution of a Partnership Firm

64. Admission of a Partner
• On the admission of a new partner, the
following adjustments become necessary:
• (i) Adjustment in profit sharing ratio;
• (ii) Adjustment of Goodwill;
• (iii) Adjustment for revaluation of assets
and reassessment of liabilities;
• (iv) Distribution of accumulated profits and
reserves; and
• (v) Adjustment of partners’ capitals.

65. Sacrificing Ratio
• At the time of admission of a partner,
existing partners have to surrender some
of their share in favour of the new
partner. The ratio in which they agree to
sacrifice their share of profits in favour of
incoming partner is called sacrificing ratio.
•
• Sacrificing Ratio = Old Ratio – New Ratio
• New Profit Sharing Ratio = Old Ratio – Sacrificing Ratio

66. Revaluation Account

67. Retirement or Death of a Partner
• A partner, who goes out of a firm, is
called retiring partner or outgoing
partner.
• A partner retires either :
• (i) with the consent of all partners, or
• (ii) as per terms of the agreement; or
• (iii) at his or her own will.

68. Amount payable to retiring partner
(To be credited to his capital account)
• Credit balance of his capital account.
• Credit balance of his current account(if any).
• His share of goodwill.
• His share of accumulated profits (reserves).
• His share in the gain of revaluation of assets &
liabilities.
• His share of profits up to the date of retirement.
• Interest on his capital, if involved, up to the date of
retirement.
• Salary & commission, if any, due to him up to the
date of retirement.

69. Amount deduction from the above
(To be debited to his capital account)
• Debit balance of his current account(if any).
• His share of goodwill to be written off; if
necessary.
• His share of accumulated losses.
• His share of loss on revaluation of assets and
liabilities.
• His share of loss up to the date of retirement.
• His drawings up to the date of retirement.
• Interest on drawings, if involved, up to the date
of retirement.

70. • When a partner retires, the following
adjustments must be made:
• 1. Adjustment of accumulated reserves
and undistributed profit and losses.
• 2. Revaluation of assets and liabilities.
• 3. Adjustment for goodwill of the firm.
• 4. Calculation of new profit and loss
sharing ratio.
• 5. Calculation of the amount due to
retiring partner and the mode of
payment.

71. Calculation of New & Gaining Ratio
• New Profit Sharing Ratio: Ratio of
remaining partner is known as New profit
sharing ratio, in which they share the
future profits.
• New Share of Partner = Old Share + Acquired Share
• Gaining Ratio: The ratio in which the
continuing partners have acquired the
share from the retiring partner is called
the gaining ratio.
• Gaining Ratio = New Share – Old Share

72. Treatment of Goodwill
• The retiring or deceased partner is entitled to
his share of goodwill at the time of retirement
because the goodwill has been earned by the
firm with the efforts of all the existing partners.
• There are four steps in treatment of goodwill :
• Step-1: Calculation of goodwill of the entire firm as
per partners agreement including retiring partner.
• Step-2: Ascertainment of retiring partner’s share of
goodwill.
• Step-3: Calculation of gaining ratio.
• Step-4: Accounting treatment.

73. Revaluation of Assets & Liabilities
• The term revaluation simply means “to determine
the value of assets and liabilities again”.
• In the preparation of revaluation account there are
only two possibilities. It will be either profit or loss.
• Profit indicates excess of credit side over the debit
side. It will be shown at debit side of revaluation
account.
• Loss indicates excess of debit side over the credit
side. It will be shown at credit side of revaluation
account.

74. Treatment of Accumulated profit
• Accounts representing accumulate/undivided
profits should be transferred to all partner’s
capital account including the retiring partner
in the old profit sharing ratio.
• Accumulated/Undivided profits (also known
as retained earning) consist of Profit & Loss
account balance, General Reserve,
Contingency Reserve etc. They are shown at
the liabilities side of the Balance Sheet.

75. Amount payable to Retiring Partner
• The procedure of determining the amount payable to
retiring partner is to prepare his capital account on
the date of retirement. The retiring partner is entitled
to get his share out of the following items.
• Share of Goodwill.
• Share of Accumulated Profit.
• Share of Profit on Revaluation.
• Interest on Capital.
• Share of Profit from the Closing of the Last Final
Account to the Date of Retirement.

76. Adjustment of Capital Account
• At the time of retirement of a partner, continuing
partners may agree to fix their capital at a certain
amount to make it in their profit sharing ratio. If such
an agreement takes place then there will be an
accounting impact which is as follows:
• Step-1: The specified capital amount is distributed
among continuing partners in their new profit sharing
ratio.
• Step-2: The closing balance of the capital should be
restricted to the amount determined in step 1.
• Step-3: Any surplus over the adjusted capital is either
returned to the partner in case or transferred to
his/her current account.

77. Dissolution of Partnership Firm
• Dissolution of partnership means
discontinuance of relationship between
partners.
Condition of Dissolution of Partnership firm
Dissolution without
the interference of the
court
Dissolution by the order
of court Conditions of
dissolution of firm

79. Dissolution by the order of court Conditions
of dissolution of firm
• Insanity/Unsound mind
• Permanent Incapacity
• Misconduct
• Persistent Breach of the Agreement
• Transfer of Interest
• Continuous/Perpetual losses
• Just and equitable grounds

81. Journal Entries at the time of Dissolution
• i) For transfer of asset
Realisation Account Dr.
To Asset Account
• ii) For Transfer of liabilities
Liability Account Dr.
To Realisation Account
• iii) For transfer of accumulated profits
General Reserve; P&L etc. Dr.
To Realisation Account

82. iv) For assets realized
Cash/Bank account Dr
To Realisation Account
v) For Liabilities paid off
Realisation Account Dr.
To Cash Account
vi) For asset taken over by a partner
Partner’s Capital Account Dr.
To Realisation Account
vii) For Liability taken up by the partner
Realisation Account Dr.
To Partner’s Capital Account

83. viii) For unrecorded asset taken over by a partner
Partner’s Capital Account Dr.
To Realisation Account
ix) Unrecorded Liability settled by the firm
Realisation Account Dr.
To Cash account
x) Realisation expense
Realisation Account Dr.
To Cash
xi) Asset taken over by creditors
Creditors A/c Dr
To Assets A/C

84. Accounts to be prepared at the
time of Dissolution

87. THANK YOU