(2) Book Keeping & Accountancy

1 Book Keeping - It is an art of keeping or maintaining accounts in a regular and systemic manner
it is science of recording business transactions systemetically
It is the process in which various business transactions are analysed, classified, summarized,
and systemetically recorded in a separate set of books

Objectives of Book Keeping -

Maintain permanent records of business transactions for various purposes
To ascertain profit earned or loss sustained in the business
To know financial position of business, invested capital, Assets & Liabilities
Know debtors & creditors amount
Know taxes & Tax Planning
Detect & Prevent errors and fraud xommitted by others in the business
Provide valuable business information to various groups of users
To take important decisions on important business matter
To know business progress & to measure business efficiency

Double Entry Book Keeping -

Entry accounts has two sides
One account is the receiver of the benefit
Other account is the giver of the benefit
Benefit received = benefit given

Advantages of Double Entry Book Keeping -

It insures an arithmetical accuracy of accounts
System helpful to detect, prevent and reduce the frauds
Mistake can be detected & rectified
Exact amount of creditors & debtors are wel known
Suitable for all business organisations
Helpful to prepare balance & final accounts

Golden Rules of Double Entry System

1 Debit what comes in Credit what goes out

2 Debit the receiver Credit the giver
3 Debit all expences or losses Credit all income & gains
2 Books of Prime Entry & Subsidiary Books -

Journal - it is a book of original entry or prime entry, day to day transactions with narration
Date, Particulars, ledger folio, Debit Amount, Credit Amount, Narration, Distinguish entry
End of each page - Credit & Debit amount - equal. Journal is Main Account Book
Narration always starts with the word Being

Cash Book - Book of original Entry, All cash transactions are recorded in cash book
Bank Book - Bank account entry book , Chequeis received & given
Ledger - individual records of persons, properties, expences, incomes, gains & losses
For every person whom business dealing , a separate account is prepared in ledger
Account name, Transaction date, Amount, debit & credit
Balancing of ledger Account -

Subsidiary Books -
Purchase Books - Credit purchasers of goods on basis of inward innvoice
Sales Books - Credit sales of goods on basis of outward invoice
Purchase Return Book - Record of return goods which has purchased
Sales Return Books - Record of return goods which are sold
Cash Book, Petty Cash Book
Bills Receivable Book
Bills Payble Books
Journal Proper

Debit Note - It is send to the supplier when the goods purchased from him are returned
Credit Note - It is send to the Customer when he returns goods purchased from us

3 Trading Account - It is a part of final accounts, which is prepared on the basis of direct expenses
and direct incomes of business to ascertain gross result of the business done in accounting year

Profit & Loss Account - it is a part of final accounts, which is prepared on the basis of indirect
expences & indirect incomes of the business to ascertain net result of the business in the
accounting year

Indirect expences - Office expences, Selling expences, Distribution expences

Indirect incomes - discount received, Commission earned, interest received, rent received

4 Balance Sheet - It shows financial position of all assets & liabilities of the business on particular
 date. Left Side - Liabilities, Right Side - Assets
Liabilities - sundry creditors, bank overdraft, bills payble, outstanding expences, Loan
Assets - Fixed, Tangible, intangible, current or circulating assets and ficticious Assets

Adjustments - Additional business information provided after completion of trial balance for
preperation of final accounts are known as adjustments

Balance Sheet
Own Funds - Owner's fund, Capital, Reserves & Surplus, Accumulated losses, Loan Funds
Total Funds available
Long term or trade investments
Working Capital

5 Cost - It represents a sacrify of values, a foregoing or a release of something of value

Fixed Expences - The cost which remains constant irrespective of output upto capacity limit
It is called as period cost as it is connected to period.
It depends on passage of time.
Large in value, Irreversible, influence variable & working capital, Indirect cost,
lesser degree of controllability, Higher Break even point if fixed cost is larger

Varaible Expences - This cost varies according to the output. Directly proportional to output
It is called as Product Cost.

Elements of Cost - Material, Labour & expences

Direct Cost - Material cost, Components purchased for production process, Material Transferred,
Primary packing material, wrappings, cardboard boxes - Preservaion or protection of product
Direct lebour or Direct Wages
Direct expences or chargeble Expences - hire charges, design cost, consultants fees
Indirect Cost - Indirect Material - Lubricants, cotton waste, Grease, Stationay etc, small tools for
general use, thread, nails, Indirect labour, Indirect expences

Break Even Point ( BEP ) -

the point of no profit and loss.
BEP is the volume of output or sales at which total cost is exactly equal to the revenue
stemic manner
direct expenses

s on particular
al Transferred,
 2 - BOOK KEEOING AND ACCOUNTANCY

1 Book Keeping Recording of financial transactions - purchase, sale, receipts, payments

2 Double entry bookkeeping 2 equal & opposide sides - Debit & Credit, erroe detection tool
3 Books Transactions are first recorded - sales, purchase,returns, cash, bill
4 Journal Proper - entries adjustment, opening, closing, transfer, sale purchase on credit, interest on capital
5 Trading Account Gross profit/loss during an accounting year - sales(credit), payments(debt)
6 Profit & Loss Account Calculate net profit/loss of a business during given accounting period- gains/losses
7 Balance Sheet Left-Debit, Right-Credit
8 Current Assets Cash, other assets converted into cash within normal course
9 Cash Money available, Cash reserved for retirement fund excluded from current asset
10 Marketable Securities temporary, made from excess fund, invested to earn return
11 Accounts Receivable Amounts owned to you with evedence
12 Inventories Goods avilable for sale, materials used to create your product
13 Prepaid expences Payments & expences made for services thar will received in the near future
14 Investments Cash, funds, securities - hold for designated period
15 Plant Assets land, building, machinary, equipments
16 Intangible Assets Patents, goodwill, Trademark - no physical substance
17 Other Assets Advance made to company officers, life insurance value of officer, misc fund
18 Current Liabilities paid in next years, income tax, wages & salary, utility bills, payroll taxes
19 Long Term Liabilities Debts due more than 1 year, Notes bonds mortgages
20 Deferred Revenues Advance collection received - pending delivery of products/services
21 Owner's Equity Amount invested directly, earning converted into paid capital (Asset minus Laibility)
22 Cost Asset to purchaser must pay now or later in order to obtain it
23 Going concern Enterprise - business going on no intention of liquidity
24 Consistancy Accounting policies from one period to another
25 Accrual Revenues - earned, Cost - incurred
26 Prudence Uncertainty attached to future events, not anticipated but recognised - Provision made
27 Substance over form Accounting treatment & presentation in financial statements
28 Materiality Financial statement - disclose all material items - influence decisions of user
29 Disclosure All significant policies, Fundamental accounting assumptions
30 Cost Monetary value - spent in order to produce something - cash given up for an asset
31 Cost Elements Material, Labour, Expences Direst & Indirect
32 Fixed Cost Fixed in total irrespective of number of outputs produced - Time related - cosnt for period
33 Variable Cost vary with number of output produces
34 Semi Variable Cost Characterestics of both fixed cost & variable cost
35 Break - Even Analysis Evaluate business performance in terms of cost
36 Break - Even Point = Fixed Cost / (Unit selling price minus variable cost )
37 Unit Contribution Margin = Sales Price minus Variable Costs
38 Cost calculation To determine selling price
39 Budgeting & setting Targets Realistic, achievable targets for itself
40 Motivational Tool Impact extra sales would have an profitability
41 Margin of Safety Sales likely to be declined period/recession - new pricing, future increase
42 Cost control & Monitoring Affect profitablity directly
 2 - BOOK KEEOING AND ACCOUNTANCY

1 GNP = GDP - NR - NP
2 In double entry system, accounts are primarily classified in to Personal & Impersonal Account
3 Discount received is recorded on which side of a cash book Payments
4 not part of Profit and Loss Statement? Cash deposited in the Bank
5 Proposed dividend is shown in the Balance Sheet Provision
6 Difference between variable cost per unit and selling price Contribution
7 The expenses are always Always debited to personal Account
8 The Prepaid expenses are Assets
9 The current Assets mainly comprise of Stocks & Receivable
10 Balance sheet has historical data as on a particular date 1
11 Depreciation is applied to only Gross block and Not current assets
12 Fixed Assets are financed by Profit, Capital & Term Loan
13 Finished goods ,raw material and Stock in process Stocks & Inventory
14 Current liabiily comprise of Creditors & Other Paybles
15 Intangible assets includes Loss & Goodwill
16 Sales return Goods returned & debtor reduced amount
17 Purchase return Defective Goods returned & creditor reduced amount
18 Debtors means receivable from the customer Goods sold to customer on Credit Basis
19 Trial Balance On date debit & Credit balance
20 Debentures are borrowing raised from Financial Institution and Banks Long term, specific interest rate, secured by charge
21 Debt Instrument Term loan , cash credit, debentures, public deposits
22 debt instrument investment in equity is risky but gives better returns