1.

BOOK-KEEPING
 Book-keeping is mainly concerned with recording of financial data relating to the business
operations in a significant and orderly manner. It is concerned with the permanent record of all
transactions in a systematic manner to show its financial effect on the business.

2. ACCOUNTING
 Accounting is used by business entities for keeping records of their monetary or financial
transactions. A Businessman who has invested money in his business would like to know
whether his business is making a Profit or incurring a loss, the position of his assets and liabilities
and whether his capital in the business has Increased or decreased during a particular period.

3. STAGES IN ACCOUNTING
 The transactions of a business that have, at least in part, a financial character are identified and
Recorded.
 The recording is done in a manner which identifies the different classes and types of
transactions.
 The resulting records are summarized in such a way that the owners or other interested parties
in the business can see the overall effects of all the transaction. The financial statements are
used by management to make business decisions.

4. ANY 2 FUNCTIONS OF ACCOUNTING

 Keeping Systematic Records: Accounting is done to keep a systematic record of financial
transactions.
 Ascertaining the Financial Position of the Business: Balance sheet is prepared to ascertain
the financial position of the firm at the end of a particular period. It shows the values of the
assets and the liabilities of the business entity

5. ANY 2 USERS OF ACCOUNTING INFORMATION

 Creditors: Creditors are the persons who supply goods on credit, or bankers or lenders of
money. It is usual that these groups are interested to know the financial soundness before
granting credit.
 Employees: Employees are interested in the financial position of the concern particularly when
payment of bonus depends upon the size of the profits earned.

6. WHY RESEARCH SCHOLARS REQUIRE ACCOUNTING INFORMATION?

 Accounting information, being a mirror of the financial performance of a business organization is
of immense value to the research scholar who wants to make a study into the financial
operations of a particular firm. Hence accounting information is of great importance to research
scholars.

7. WHY GOVERNMENT REQUIRES ACCOUNTING INFORMATION OF A BUSINESS ENTITY?

 Government keeps a close watch on the firms which yield good amount of profits.
 The State and Central Governments are interested in the financial statements to know the
earnings for the purpose of taxation.
 Hence the government requires accounting information of a business entity.

8. WHY INVESTORS REQUIRE ACCOUNTING INFORMATION?

 The prospective investors, who want to invest their money in a firm, of course wish to see the
progress and prosperity of the firm, before investing their amount, by going through the
financial statements of the firm.
 Hence the investors require accounting information of a business entity.

9. WHY CREDITORS REQUIRE ACCOUNTING INFORMATION OF A BUSINESS ENTITY?

 Creditors are the persons who supply goods on credit, or bankers or lenders of money. It is usual
that these groups are interested to know the financial soundness before granting credit.
 Hence the creditors require accounting information of a business entity.

10. FINANCIAL ACCOUNTING

 It is concerned with record-keeping directed towards the preparation of trial balance, profit and
loss account and balance sheet.

11. COST ACCOUNTING

 Cost accounting is the process of accounting for costs. It is a systematic procedure for
determining the unit cost of output produced or services rendered.
 The main functions of cost accounting are to ascertain the cost of a product and to help the
management in the control of cost.

12. MANAGEMENT ACCOUNTING

 Management accounting is primarily concerned with the supply of information which is useful to
the management in decision-making, increasing efficiency of business and maximizing profit.

13. ACCOUNTING POLICIES

 Accounting principles have been defined as “the body of doctrines commonly associated with
the theory and procedure of accounting, serving as an explanation of current practices and as a
guide for the selection of conventions or procedures where alternatives exist”.

14. ACCOUNTING CONCEPTS

 Accounting concepts are defined as basic assumptions on the basis of which financial
statements of a Business entity are prepared. They are used as a foundation for formulating
various methods and procedures for recording and presenting the business transactions.
 Business Entity Concept
 Cost Concept
 Money Measurement Concept
 Going Concern Concept
 Dual Aspect Concept
 Realisation Concept
 Accrual Concept
 Revenue Match Concept

15. BUSINESS ENTITY CONCEPT

 Business is treated as an entity separate from its Owners. It is treated to have a distinct
accounting entity which controls the resources of the concern and is accountable thereof.
 All transactions of the business are recorded in the books of the business from the point of view
of the business. Hence, in accounting for every type of business organization, be it sole
tradership or partnership or joint stock Company, business is treated as a separate accounting
entity.

16. COST CONCEPT

 The various assets acquired by a concern or firm should be recorded on the basis of the actual
amounts involved or spent. This amount or cost will be the basis for all Subsequent accounting
for the assets.
 The cost concept does not mean that the assets will always be shown at cost. The fixed asset will
be recorded at cost at the time of its purchase but it may systematically be reduced in its value
by charging depreciation.

17. MONEY MEASUREMENT CONCEPT

 Money measurement concept holds that accounting is a measurement and communication
process of the activities of the firm that are measurable in monetary terms. Thus, only such
transactions and events which can be interpreted in terms of money are recorded.
 Events which cannot be expressed in money terms do not find place in the books of account
though they may be very important for the business.

18. GOING CONCERN CONCEPT

 Business transactions are recorded on the assumption that the business will continue for a long-
time. There is neither the intention nor the necessity to liquidate the particular business venture
in the foreseeable future.
 Therefore, it would be able to meet its contractual obligations and use its resources according to
the plans and pre-determined goals. It is on this concept that a clear distinction is made
between assets and expenses.

19. DUAL ASPECT CONCEPT

 This concept is based on double entry book-keeping which means that accounting system is set
up in such a way that a record is made of the two aspects of each transaction that affects the
records. The recognition of the two aspects to every transaction is known as dual aspect
concept.
One entry consists of debit to one or more accounts and another entry consists of credit to
some other one or more accounts. However, the total amount debited is always equal to
the total amount credited.
Assets = Liabilities + Capital
 20. REALISATION CONCEPT
 According to this concept revenue is recognised only when a sale is made. Unless money has
been realised i.e., cash has been received or a legal obligation to pay has been assumed by the
customer, no sale can be said to have taken place and no profit can be said to have arisen
 It prevents business firms from inflating their profits by recording incomes that are likely to
accrue i.e. expected incomes or gains are not recorded.

21. ACCRUAL CONCEPT

 Every transaction and event affects, one or more or all the three aspects viz., assets, Liabilities
and capital. Normally all transactions are settled in cash but even if cash settlement has not
taken Place, it is proper to record the transaction or the event concerned into the books.
 On the basis of this concept, adjustment entries relating to outstanding and prepaid expenses
and income received in advance etc. are made. They have their impact on the profit and loss
account and the balance sheet.

22. REVENUE MATCH CONCEPT

 According to this concept, adjustments should be made for all outstanding expenses, accrued
incomes, unexpired expenses and unearned incomes etc. while preparing the final accounts at
the end of the accounting period.
 The term ‘matching’ means appropriate association of related revenues and expenses. It is
necessary that expenses of the period should be matched with the revenues of that period.
 This concept is related to the accounting period concept.

23. ACCOUNTING CONVENTIONS

 Accounting conventions are a guide to the selection or application of a procedure.
 Consistency
 Disclosure
 Conservatism
 Materiality

24. CONSISTENCY CONVENTION

 The consistency convention implies that the accounting practices should remain the same from
one year to another.
 The results of different years will be comparable only when accounting rules are continuously
adhered to from year to year.
 For example, if depreciation is charged on fixed assets according to diminishing balance method,
it should be done year after year.

25. DISCLOSURE CONVENTION

 Apart from statutory requirements good accounting practice also demands all significant
information should be fully and fairly disclosed in the financial statements.
 All information which is of material interest to proprietors, creditors and investors should be
disclosed in accounting statements
26. CONSERVATISM CONVENTION
 There are two principles which stem directly from conservatism:

(a) The accountant should not anticipate income and should provide for all possible losses, and

(b) Faced with the choice between two methods of valuing an asset the accountant should
choose a method which leads to the lesser value.

27. MATERIALITY CONVENTION

 According to the convention of materiality, accountants should report only what is material
and ignore insignificant details while preparing the final accounts.
 The decision whether the transaction is material or not should be made by the accountant
on the basis of professional experience and judgment.

28. SINGLE ENTRY SYSTEM

 It is incomplete system of recording business transactions. The business organization
maintains only cash book and personal accounts of debtors and creditors. So the complete
recording of transactions cannot be made and trial balance cannot be prepared.

29. DOUBLE ENTRY SYSTEM

 It this system every business transaction is having a two fold effect of benefits giving and
benefit receiving aspects. The recording is made on the basis of both these aspects. Double
Entry is an accounting system that records the effects of transactions and other events in
atleast two accounts with equal debits and credits.

30. STEPS IN DOUBLE ENTRY SYSTEM

 Preparation of Journal: Journal is called the book of original entry. It records the effect of all
transactions for the first time. Here the job of recording takes place.
 Preparation of Ledger: Ledger is the collection of all accounts used by a business. Here the
grouping of accounts is performed. Journal is posted to ledger

 Trial Balance preparation: Summarizing. It is a summary of ledger balances prepared in the

form of a list.

 Preparation of Final Account: At the end of the accounting period to know the achievements
of the organization and its financial state of affairs, the final accounts are prepared.

31. ANY 2 ADVANTAGES OR MERITS OF DOUBLE ENTRY SYSTEM

 Knowledge of the financial position of the business: The financial position of the firm can be
ascertained at the end of each period, through the preparation of balance sheet.
 Ascertainment of profit or loss: The profit earned or loss suffered during a period can be
ascertained together with details by the preparation of Profit and Loss Account.
 LEDGER ACCOUNTS (CONCEPTS CARRYING 2 MARKS EACH)
LEDGER ACCOUNT – it is a summarised record of all transactions relating to a particular person/
property/ particular item of expense or income. It has 2 sides namely,debit and credit. It can be
classified as personal, real or nominal account.

1. PERSONAL ACCOUNT – it records a trader’s dealings with any other person. The other person
may be a customer, a supplier, a borrower, a lender, a banker or the owner himself. From the
Personal account, we find out whether any amount is payable to them or is receivable from
them. Examples: capital account, Drawings account, bank account, loan account.

2. IMPERSONAL ACCOUNT – they are accounts other than personal accounts. They may relate to
property/assets or incomes or expenditures. They can further classified into real account and
nominal account.

3. REAL ACCOUNT – it deals with property or assets of the usiness. These assets can be long term
or short term (current) assets. They can also be tangible or intangible. Examples: machinery,
goodwill, patents, stock, buliding.

4. NOMINAL ACCOUNT – They relate to expenses, losses, incomes and gains (profits). they are
sources of revenue or expenses but nothing concrete or real remains. for example, one can see
property purchased for cash but not the salary or rent paid in cash. it is not seen or felt like real
property.