Principles of Accounting for IT Professionals

Principles of Accounting
BCA – 3rd Semester

Unit-1
Syllabus
• Meaning and nature of accounting

• Scope of financial accounting
• Interrelationship of Accounting with other disciplines
• Branches of Accounting
• Accounting concepts and convention accounting standards in
India.
Question?
Why Accounting for IT Professions?

Possible Answers
• IT projects are required to be completed within fixed times,

hence, accounting helps to plan, monitor and track these
timeliness
• Each team member is required to execute the assigned task in a
fixed timelines and accounting helps them to keep track
• Each team member has cost component attached to it and hence
accounting helps them to keep check on the cost
• Accounting helps the IT project manager to plan for allocation of
resources if needed i.e. increase the resources or decreases the
resources of an IT project
Possible Answers
• IT projects have shorter timelines and unless and until if each

aspect of an IT project must be accounted , other wise the project
will never be finished on time.
• IT Project is executed under severe timelines, many interfaces,
complex business processes and changing user requirements,
accounting helps the IT professionals to keep track of the various
components of IT project and ensure that the project is delivered
on time.
Question?
What is accounting?
Accounting is
• A process which involves the recording of financial transactions

along with storing, sorting, retrieving, summarizing, and
presenting the results in the form of various reports.
• On the other hand accounting is the language of finance and thus
it is used to convey the financial position of the various
components of the IT firms such as the IT project execution,
resource management, outsourcing details of an IT project.
• It helps to translate the workings of a firm into tangible reports
that can be compared. So it is essential that we know the meaning
of accounting.
Meaning and nature of accounting
According to the American Institute of Certified Public Accountants

accounting is defined as "the art of recording, classifying and
summarising in as significant manner and in terms of money
transactions and events which in part, at least of a financial
character, and interpreting the results thereof".
However, American Accounting Association defines accounting as

"the process of identifying, measuring, and communicating
economic information to permit informed judgements and decisions
by users of the information”
From the definition given in the previous slide the following attributes of
accounting emerge :
• Recording : It is concerned with the recording of financial transactions in
an orderly manner, soon after their occurrence In the proper books of
accounts.
• Classifying : It is concerned with the systematic analysis of the recorded
data so as to accumulate the transactions of similar type at one place.
• Summarising : It is concerned with the preparation and presentation of
the classified data in a manner useful to the users. This function involves
the preparation of financial statements such as Income Statement,
Balance Sheet, Statement of Changes in Financial Position etc.
• Interpreting : The results obtained should be interpretable for taking
other financial deisions
From the definition given in the previous slide the following attributes of
accounting emerge :
• Recording : It is concerned with the recording of financial transactions in
an orderly manner, soon after their occurrence In the proper books of
accounts.
• Classifying : It is concerned with the systematic analysis of the recorded
data so as to accumulate the transactions of similar type at one place.
• Summarising : It is concerned with the preparation and presentation of
the classified data in a manner useful to the users. This function involves
the preparation of financial statements such as Income Statement,
Balance Sheet, Statement of Changes in Financial Position etc.
• Interpreting : The results obtained should be interpretable for taking
other financial decisions
Nature of accounting
The following is the nature of accounting as proposed by various authors
from time to time
• Accounting as a service activity: Accounting as a service activity
comprises of several functions to provide quantitative information which
is of financial in nature, information about various economic entities that
which is intended to be useful in making economic decisions and in
making reasoned choices among the alternative courses of action. All
this means that accounting collects financial information for various
users for taking decisions. Accounting in itself cannot create wealth
though, if it produces information which is useful to others, it may assist
in wealth creation and maintenance.
• Accounting as a profession : Accounting is very much a profession. A
profession is a career that involve the acquiring of a specialised formal
education before rendering any service. Accounting is a systematized
body of knowledge developed with the development of trade and
business over the past century. The accounting education is imparted to
the examinees by national and international recognised the bodies like
The Institute of Chartered Accountants of India (ICAI), New Delhi in
India and American Institute of Certified Public Accountants (AICPA) in
USA
• Accounting as a social force: In the early days, accounting was used to
serve the interest of the owners. With the changing business
environment, the discipline of accounting has undergone a sea change
and includes aspects such as protecting the interests of other people who
are directly or indirectly linked with the operation of modern business.
The society is composed of people such as customer, shareholders,
creditors and investors. In other words, safeguarding the interest of the
public with the help of proper, adequate and reliable accounting
information.
• Accounting as a language: Accounting is referred to as the "language of
business". It is a means of reporting and communicating information
about a business. It has common features in terms of rules, symbols;
standards etc. These are based on fundamental rules of accounting
developed by various bodies. The expression, exhibition and
presentation of accounting data such as a numerals and words and debits
and credit are accepted as symbols which are unique to the discipline of
accounting
• Accounting as science or art: Accounting is both a science and a art. It
comprise of a systematised body of knowledge by establishing a
relationship of cause and effect. It is also based on some fundamental
principles such as double entry system, which explains that every
transaction has two fold aspect i.e. debit and credit.
As an accounting requires the usage and application of knowledge and

experience to do a work efficiently by making the best use of available
resources. Accounting also requires knowledge, interest and experience
to maintain the books of accounts in a systematic manner.
Scope of financial accounting

• The scope of financial accounting is depicted in the following figure
Scope of accounting
• From the figure it is seen that the scope of accounting comprises of
• Preparation and collection of financial data which can be historical or
predictive
• Processing of the data by means of applying accounting theory and
accounting methods and principles
• Evaluation of the data so produced
• Reporting the results to the concerned executive management
Interrelationship of Accounting with other disciplines

As the application and scope of financial accounting is vast, financial
accounting has interrelationship with several other disciplines.
The following points list the interrelationship with other disciplines
Accounting and Management

• Accounting and Management are very closely related. As the
management depends entirely on accounting for information in financial
affairs to make decisions, they need various types of financial
information to manage the business. For example they need financial
information pertaining to the purchase of software / hardware
Accounting and Economics

Accounting and Economics are very closely related. As economics is a
science related to human activities which has the objective to fulfil demand
with limited wealth, hence Economists analyse how people earn, spend and
how purchasers and sellers behave under different circumstances etc.as
Economics is concerned with the behaviour of buyers and sellers as a
whole, it provides all the required financial information to individual buyers
and sellers for taking an economic decision.
Accounting and Mathematics

Accounting and Mathematics are closely related. As accounting is the
language of business and it requires an extensive usage of Mathematics at
different stages of the accounting process. Fro example, in the preparation
of trail balance accounting uses mathematics to determine the debit and
credit balances by using addition and subtraction. Further, as accounting
expresses all its transactions and events in the form of numbers,
mathematics invariably comes into the picture at all stages of
accounting such as in the preparation of journal, ledger, trial balance, and
financial statements mathematical principles are applied.
Accounting and Computer Science
Accounting and Computer science are closely related. As the word

Computer is derived from the word compute which means calculation and
hence it is closely linked with accounting. With the advancement in
computer technology, the manual process of accounting has been gradually
replaced by the computer software. These software are responsible for the
large amount of data recording, processing and carrying out multifarious
activities of the accounting system. Hence computer science and accounting
is invariably interrelated
Accounting and statistics
Accounting and statistics are closely related. This is due to the fact that the
main function of statistics is to collect classify, analyse the quantitative data
of various events and to present them to the individuals or organizations
concerned. This is also the main function of accounting process. Hence,
while the accounting professional supplies the data the statistician is able to
process the data and come out with graphs, projections and other techniques
for assisting the management in taking decisions.
Accounting and Law

Accounting and Law are closely related. The prevailing laws of a land
control trade and commerce mostly, So, Accounting and Law are closely
related. The accountant and accounts officer must have a clear knowledge
of partnership law, company law, tax law, industrial law, cooperative law,
and other relevant laws. Because accounts of an organization are kept
following accepted principles and in accordance with relevant laws. For
example, accounts of every company are kept properly and accurately in the
light of company law. In partnership business accounts are maintained in the
light of the partnership act or agreement as the case may be. Keeping
accounts, auditing of accounts of a company are mandatory as per the
specific provision of the companies act. Similarly, accounts of other
organizations are to be kept in accordance with the provisions of the
relevant law. In this context, lawyers are to know the provision of laws
relating to methods of accounting, direction and controlling.
Accounting and Political Science
Accounting and Political Science are closely related. The main object of
Political Science is to ensure law and order for establishing rule of law in
the society. Political science gives directives in achieving welfare for the
people of the society as a whole. For this reason issues like national income
and expenditure; national development expenditure and probable income
from national prospects etc. arise from political science. Keeping proper
accounts of this national income, expenditure and providing information in
this regard are the tasks of Accounting. Besides maintaining accounts and
auditing of accounts of government tax administration, expenditure of
various projects, income tax, etc. are performed by accounting. Therefore
there exists a close relationship between Accounting and Political Science.
Branches of Accounting
With the passage of time and the complexities of the business world,
different branches of accounting came into existence. The following slides
discuss the various branches of accounting.
Financial Accounting
Financial Accounting is based on a systematic method of recording

transactions of any business according to the accounting principles. It is the
original form of the accounting process. The main purpose of financial
accounting is to calculate the profit or loss of a business during a period and
to provide an accurate picture of the financial position of the business as on
a particular date. The Trial Balances, Profit & Loss Accounts and Balance
Sheets of a company are based on an application of financial accounting.
These are used by creditors, banks and financial institutions to assess the
financial status of the company. Further, taxation authorities are able to
calculate the tax based on these records only.
Cost Accounting
Cost accounting deals with evaluating the cost of a product or service

offered. It calculates the cost by considering all factors that contribute to the
production of the output, both manufacturing and administrative factors.
The objective of cost accounting is to help the management in fixing the
prices and controlling the cost of production. It also pin points any
wastages, leakages and defects during manufacturing and marketing
processes.
Management Accounting
This branch of accounting provides information to management for better

administration of the business. It helps in making important decisions and
controlling of various activities of the business. The management is able to
take decisions efficiently with the help of various Management Information
Systems such as Budgets, Projected Cash Flow and Fund Flow
Statements, Variance Analysis reports, Cost-Volume-Profit Analysis reports,
Break-Even-Point calculation, etc. Management accounting and financial
accounting are different. Management accounting serves the needs of the
management in decision makings regarding minimization of the cost factor
and enhancing of profit making. Financial accounting serves the needs of
shareholders, creditors and financial institutions for ascertaining the
financial position of the company. Management accounting records are kept
secret for the use of management only. They are not made public.
Auditing
Auditing is a branch of accounting where an external certified public

accountant known as Auditor inspects and certifies the accounts of a
business for their accuracy and consistency. Sometimes internal auditing is
also practiced where an employee of the same company audits the accounts
on the regular basis and aids the management in keeping accurate records
for audit purpose.
Tax Accounting
Tax Accounting deals with taxation matters. Its functions include

preparation and filing of various tax returns and dealing with their legal
implications. Tax accountants aid in minimizing tax payments and also help
financial accountants in preparing financials for tax reporting to various
authorities. Tax accounting involves consultancy regarding the effect of
taxes on different aspects of business, minimizing tax through legal ways
and also verifying consequences of tax payable on business.
Fund Accounting
It deals with keeping records for funds of non-profit business entities.
Separate fund accounts are maintained for separate works like welfare
schemes of different nature to ensure proper utilization of funds.
Government Accounting
It is done for Central Government (National Government) and State
Government budget allocations and utilization. Keeping records ensures
proper and efficient utilization of the various budget allocations and safety
of public funds.
Forensic Accounting
Forensic Accounting also known as legal accounting enables calculating
damages or settling disputes in legal matters. Investigations are done and
calculations are carried out to evaluate the damages accurately.
Fiduciary Accounting
It is the accounting and evaluation of a third party’s business and property
maintained under the guardianship of another person.
Accounting concepts and convention
Fundamental accounting concepts are broad general assumptions which

underline the periodic financial statements of business enterprises. The
reason why some of the these terms should be called concepts is that they
are basic assumptions and have a direct bearing on the quality of financial
accounting information. The term ‘convention’ is used to signify customs or
tradition as a guide to the preparation of accounting statements. The
following are the important accounting concepts and conventions:
The following are the accounting concepts and conventions
Accounting Concepts Accounting Conventions

Separate Business Entity Convention of Materiality Concept
Money Measurement Concept Convention of Conservatism
Dual Aspect Concept Convention of consistency
Going Concern Concept
Accounting Period Concept
Cost Concept
The Matching Concept
Accrual Concept
Realisation Concept
Accounting Concepts
Separate business entity concept:
In accounting there is a distinction between business and the owner. All the
books of accounts records day to day financial transactions from the view
point of the business rather than from that of the owner. The proprietor is
considered as a creditor to the extent of the capital brought in business by
him. For instance, when a person invests Rs. 10 lakh into a business, it will
be treated that the business has borrowed that much money from the owner
and it will be shown as a ‘liability’ in the books of accounts of business.
Similarly, if the owner of a shop were to take cash from the cash box for
meeting certain personal expenditure, the accounts would show that cash
had been reduced even though it does not make any difference to the owner
himself. Thus, in recording a transaction the important question is how does
it affects the business ?
Accounting Concepts
Money Measurement Concept:
In accounting, only those business transactions are recorded which can be
expressed in terms of money. In other words, a fact or transaction or
happening which cannot be expressed in terms of money is not recorded in
the accounting books. As money is accepted not only as a medium of
exchange but also as a store of value, it has a very important advantage since
a number of assets and equities, which are otherwise different, can be
measured and expressed in terms of a common denominator
Accounting Concepts
Dual Aspect Concept:
Financial accounting records all the transactions and events involving
financial element. Each of such transactions requires two aspects to be
recorded. The recognition of these two aspects of every transaction is known
as a dual aspect analysis. According to this concept every business
transactions has dual effect. For example, if a firm sells goods of Rs. 10,000
this transaction involves two aspects. One aspect is the delivery of goods
and the other aspect is immediate receipt of cash (in the case of cash sales).
In fact, the term ‘double entry’ book keeping has come into vogue because
for every transaction two entries are made. According to this system the total
amount debited always equals the total amount credited. It follows from
‘dual aspect concept’ that at any point in time owners’ equity and liabilities
for any accounting entity will be equal to assets owned by that entity.
Accounting Concepts
Going Concern Concept:
Accounting assumes that the business entity will continue to operate for a
long time in the future unless there is good evidence to the contrary. The
enterprise is viewed as a going concern, that is, as continuing in operations,
at least in the foreseeable future. In other words, there is neither the
intention nor the necessity to liquidate the particular business venture in the
predictable future. Because of this assumption, the accountant while valuing
the assets do not take into account forced sale value of them. Infact, the
assumption that the business is not expected to be liquidated in the
foreseeable future establishes the basis for many of the valuations and
allocations in accounting. For example, the accountant charges depreciation
of fixed assets values. It is this assumption which underlies the decision of
investors to commit capital to enterprise
Accounting Concepts
Accounting Period Concept:
This concept requires that the life of the business should be divided into
appropriate segments for studying the financial results after each segment.
Although the results of operations of a specific enterprise can be known
precisely only after the business has ceased to operate, its assets have been
sold off and liabilities paid off, the knowledge of the results periodically is
also necessary. The requirements of these parties force the businessman ‘to
stop’ and ‘see back’ how things are going on A year is the most common
interval on account of prevailing practice, tradition and government
requirements. Some firms adopt financial year of the government, some
other calendar year. Although a twelve month period is adopted for external
reporting, a shorter span of interval, say one month or three month is applied
for internal reporting purposes.
Accounting Concepts
Cost Concept:
The term ‘assets’ denotes the resources land building, machinery etc. owned
by a business. The money values that are assigned to assets are derived from
the cost concept. According to this concept an asset is ordinarily entered on
the accounting records at the price paid to acquire it. For example, if a
business buys a plant for Rs. 5 lakh the asset would be recorded in the books
at Rs. 5 lakh, even if its market value at that time happens to be Rs. 6 lakh.
Thus, assets are recorded at their original purchase price and this cost is the
basis for all subsequent accounting for the business. The term ‘book value’
is used for amount shown in the accounting records. The cost concept does
not mean that all assets remain on the accounting records at their original
cost for all times to come. The asset may systematically be reduced in its
value by charging ‘depreciation’.
Accounting Concepts
The Matching Concept:
This concept is based on the accounting period concept. In reality we match
revenues and expenses during the accounting periods. Matching is the entire
process of periodic earnings measurement, often described as a process of matching
expenses with revenues. In other words, income made by the enterprise during a
period can be measured only when the revenue earned during a period is compared
with the expenditure incurred for earning that revenue. Broadly speaking revenue is
the total amount realised from the sale of goods or provision of services together
with earnings from interest, dividend, and other items of income. Expenses are cost
incurred in connection with the earnings of revenues. Costs incurred do not become
expenses until the goods or services in question are exchanged. Only costs that
have expired during an accounting period are considered as expenses. For example,
if a commission is paid in January, 2002, for services enjoyed in November, 2001,
that commission should be taken as the cost for services rendered in November
2001.
Accounting Concepts
Accrual Concept:
It is generally accepted in accounting that the basis of reporting income is
accrual. Accrual concept makes a distinction between the receipt of cash and
the right to receive it, and the payment of cash and the legal obligation to
pay it. This concept provides a guideline to the accountant as to how he
should treat the cash receipts and the right related thereto. Accrual principle
tries to evaluate every transaction in terms of its impact on the owner’s
equity. The essence of the accrual concept is that net income arises from
events that change the owner’s equity in a specified period and that these are
not necessarily the same as change in the cash position of the business. Thus
it helps in proper measurement of income.
Accounting Concepts
Realisation Concept:
Realisation is technically understood as the process of converting non-cash
resources and rights into money. As accounting principle, it is used to
identify precisely the amount of revenue to be recognised and the amount of
expense to be matched to such revenue for the purpose of income
measurement. According to realisation concept revenue is recognised when
sale is made. Sale is considered to be made at the point when the property in
goods passes to the buyer and he becomes legally liable to pay. This implies
that revenue is generally realised when goods are delivered or services are
rendered. The rationale is that delivery validates a claim against the
customer.
Accounting Conventions
Convention of Materiality:
Materiality concept states that items of small significance need not be given
strict theoretically correct treatment. In fact, there are many events in
business which are insignificant in nature. The cost of recording and
showing in financial statement such events may not be well justified by the
utility derived from that information. For example, an ordinary calculator
costing Rs. 100 may last for ten years. However, the effort involved in
allocating its cost over the ten year period is not worth the benefit that can
be derived from this operation. The cost incurred on calculator may be
treated as the expense of the period in which it is purchased. Similarly, when
a statement of outstanding debtors is prepared for sending to top
management, figures may be rounded to the nearest ten or hundred.
Convention of Conservatism:
This concept requires that the accountants must follow the policy of
‘’playing safe” while recording business transactions and events. Hence, the
accountant follow the rule anticipate no profit but provide for all possible
losses, while recording the business events. This rule means that an
accountant should record lowest possible value for assets and revenues, and
the highest possible value for liabilities and expenses. According to this
concept, revenues or gains should be recognised only when they are realised
in the form of cash or assets (i.e. debts) the ultimate cash realisation of
which can be assessed with reasonable certainty. Further, provision must be
made for all known liabilities, expenses and losses, Probable losses
regarding all contingencies should also be provided for.
Convention of Consistency:
The convention of consistency requires that once a firm decided on certain
accounting policies and methods and has used these for some time, it should
continue to follow the same methods or procedures for all subsequent
similar events and transactions unless it has a sound reason to do otherwise.
In other worlds, accounting practices should remain unchanged from one
period to another. For example, if depreciation is charged on fixed assets
according to straight line method, this method should be followed year after
year. Analogously, if stock is valued at ‘cost or market price whichever is
less’, this principle should be applied in each subsequent year
The Accounting Equation


The accounting equation which is the foundation of the double-entry system
of accounting. It is an important skill which demonstrates the ability to
manipulate simple equations and thus it form the base for other financial
documents or statements.
In simple terms, accounting equation is a mathematical expression that
shows the relationship between numbers through the use of the equal sign.
For example a simple equation might be 3 + 2 = 5. hence an equation when
dealing in monetary terms may be expressed as Rs. 5,000 – Rs.2,000 =
Rs.3,000 to express mathematically the accounting fact that sales of Rs.
5,000 minus costs of Rs. 2,000 equals a profit of Rs. 3,000.

The accounting equation states that Assets (A) = Capital (C) + Liabilities
(L).
Such an equation, which can also be abbreviated as A = C + L, can be stated
in financial terms for a particular business at a particular time:
The accounting equation can be expressed in the different forms below,

which are all correct for the example of a business with assets of
Rs.100,000:
• A=C+L or Rs.100,000 = Rs.80,000 + Rs.20,000 (accounting equation)
• C+L=A or Rs.80,000 + Rs.20,000 = Rs.100,000
• C=A-L or Rs.80,000 = Rs.100,000 - Rs.20,000
• L=A-C or Rs.20,000 = Rs.100,000 - Rs.80,000
• A–L=C or Rs.100,000 - Rs.20,000 = Rs.80,000
• A–C=L or Rs.100,000 - Rs.80,000 = Rs.20,000

The financial position of a business is expressed in the statement of financial
position, which is more commonly called the balance sheet. The financial
position of a business is represented by:
• assets (what the business owns)
• liabilities (what the business owes)
• owner’s capital (the monetary value of the owner’s investment
in the business).

The accounting equation should be kept in balance at all times i.e. the assets
on the left side of the equal sign should always be the same as the sum of the
capital and liabilities on the right-hand side.
Some Examples of accounting Equation

The Accounting Equation Illustrative Examples
Ex. 1 (a) Ramesh started software development business with Rs. 40000/- in
cash
Solution.
The accounting equation is A=L+C.
In this case from business perspective
Cash is a an asset while the business owe the money to Ramesh. Remember,
in accounting business is separate from owner (Ramesh) and thus, business
has to return money which is Rs. 40,000 to Ramesh
Hence the accounting equation is
Asset(Cash) = Liability + Capital (as business has to return money to

Ramesh)
40,000 = 0 40,000
Illustrative Example 1. contd…
(a)Ramesh started software development business with Rs. 40000/- in cash

(b)Ramesh opened a bank account with a deposit of Rs. 10,000/-
In this case
(a) Asset (Cash) = Liability + Capital
40,000 = 0 40,000
(b) Cash + Bank = Liability + Capital
-10000 + 10000 = Liability + Capital
New equation
Asset
Cash + Bank = Liability + Capital
30000 + 10000 = 0 + 40000
Illustrative Example 1. contd…
(a)Ramesh started software development business with Rs. 40000/- in cash

(b)Ramesh opened a bank account with a deposit of Rs. 10,000/-
(c)Bought goods from M/S Abc company for Rs. 11,000/-
In this case
Asset Liability Capital
Cash + Bank + stocks = creditors
+11000 = 11000
The new equation
Asset Liability Capital
Cash bank stock = creditors
30000 10000 11000 = 11000 40000

Illustrative examples of various types of transactions and their treatment

in Accounting Equation
a. Started business with Rs. 1,00,000 (this has been discussed in the class
in the previous slide. Anyway again here asset(cash) and Capital cash
are the variables which are affected while there is no liability)
b. Borrowed Rs. 10,000 from sun (again this has been discussed in the
previous slide). Anyway, the variables affected are asset (cash) and
liability
c. Purchased furniture for Rs. 10,000/. In this case the variables affected
are asset (furniture) which is increased while there is decrease in asset
cash
d. Purchased goods for cash 20,000. In this case the variable affected are
asset(cash) which is decreased while there is an increase of asset(goods)

in Accounting Equation contd…
e. Purchased goods from moon on credit for Rs. 30,000. this has been
discussed in the previous slide. Anyway here the variables affected are
assets (goods) which are increased while there is also an increase in
liability
f. Sold goods costing Rs. 10000 for cash Rs. 12,000. Here in this case the
variable affected are asset and capital. In this case there has been a
decrease in one asset(goods) while there has been increase in another
asset(cash) and also there in an increase in capital
g. Sold goods costing Rs. 20000 to star on credit for Rs. 25000. Here the
variable affected asset and capital. There is an increase in one
asset(cash) while there has been decrease in another asset(goods) and
also there is an increase in capital

in Accounting Equation contd…
h. Returned goods costing Rs. 5000 to supplier of goods. Here the variables
affected are assets and liabilities. There has been a decrease in
assets(goods) and decrease in liabilities(as the liability to pay is also
decreased)
i. Received cash from a customer Rs. 20000. here the variables affected
are assets. One asset(goods) is decreased while another is increased
j. Paid cash to a supplier of goods Rs. 15000. Here the variables affected
are asset and liability. There is a decrease in asset(cash) and also there is
a decrease in liability
k. Paid salary Rs. 10000. Here the variables affected are asset and capital.
There is a decrease in asset(cash) and also there is a decrease in capital
Illustrative examples of various types of transactions and their treatment in
Accounting Equation contd..
l. Withdrew cash Rs. 2000 for personal use. Here the variables affected are
asset and capital. There is decrease in asset (cash) and also there is
decrease in capital
m. Withdrew goods costing Rs. 3000 for personal use. Here the variables
affected are asset and capital. There is a decrease in asset(good) and also
there is a decrease in capital
n. Furniture costing Rs. 10000 in valued Rs. 9000. Here the variable affected
are asset and capital. There is a decrease in asset (furniture) and also there
is a decrease in capital
o. Rent due but not paid Rs. 2000. Here the variables affected are liabilities
and capital. There is an increase n liability and decrease in capital
p. Repaid loan of Rs. 10000 along with interest Rs. 100. Here the variables
affected are asset, liabilities and capital. There is a decrease in asset(Cash),
decrease in liability(10000) and also there is a decrease in capital (100)
Solved Exercises
Ex-1
a. Started business with cash Rs. 45000

b. Opened a Bank Account with a deposit Rs. 4500
c. Bought goods from M/s .Sun and Co. Rs. 11200
Solved Exercises
Ex-2
a. Gopinath Started business with Rs. 25000
b. Purchase goods from Shyam Rs. 10000
c. Sold goods to Sohan costing Rs. 1800 for Rs. 1500
d. Gopinath Withdrew from business for personal use Rs. 5000
Solved Exercises
Ex-3
b. Paid salaries Rs. 2000
c. Wages outstanding Rs. 200
d. Interest due but not paid Rs. 100
e. Rent paid in Advance Rs. 150
Solved Exercises
Ex-4
a. Harish Started business with cash Rs. 18000
b. Purchased goods for cash Rs.5000 and on credit for Rs. 2000
c. Sold goods for cash Rs. 4000 costing Rs. 2400
d. Rend paid Rs. 1000 and rent outstanding Rs. 200
Solved Exercises
Ex-5
a. Started business with cash Rs. 1,00,000
b. Sold goods worth Rs. 10000 for cash Rs.12000
c. Purchased furniture on credit for Rs. 30,000
Solved Exercises
Ex-6
b. Purchased furniture for Rs. 2000
c. Paid rent of Rs. 200
d. Purchased goods on credit for Rs. 3000
e. Sold goods (cost Price Rs. 2000 and the
f. Sold goods (cost Price Rs. 2000) for Rs.5000 on cash
Solved Exercises
Ex-7
b. Purchased goods for cash Rs.20000 and on credit Rs. 30000
c. Sold goods for cash costing Rs. 10000 and on credit costing Rs. 15000 both a at a
profit of 20%
Solved Exercises
Ex-8
a. Commenced business with cash ₹ 50,000, cheque ₹ 1,00,000, goods ₹ 30,000 and
furniture ₹ 20,000
b. Car, personal asset of the proprietor, was sold for ₹ 1,00,000 against cheque which he
deposited in his Savings Account.
c. An amount of ₹ 50,000 was transferred from his Savings Account to the firm's Bank
Account.
d. A new car was purchased for ₹ 6,00,000 for office use. It was paid by taking loan from
Bank of ₹ 5,00,000 and balance by issue of cheque from firm's Bank Account
e. Sold goods to Ajay on credit costing ₹ 4,000 for ₹ 5,000.
f. Sold goods for cash costing ₹ 12,000 for ₹ 16,000
g. Purchased good for cash ₹ 40,000
h. Purchased goods on credit for ₹ 20,000.
i. Paid rent ₹ 3,000 including ₹ 2,000 in advance .
j. Paid salaries ₹ 2,000.
k. Sold goods costing ₹ 8,000 for ₹ 10,000.
l. Salaries outstanding ₹ 1,000.
m. Charge depreciation on furniture ₹500.
Solved Exercises
Solved Exercises
Solved Exercises
Solved Exercises
Class Exercise No. 1

Show the accounting equation on the basis of the following transactions
a. Shri Ram commenced business with Rs. 50000
b. Paid rent in advance Rs. 2000
c. Purchased a typewriter for Rs. 7000
d. Bought furniture from M/s. Mohan Furniture on credit for Rs. 3000
e. Purchased goods from Sohan for cash Rs. 35000
f. Sold goods to Shyam for cash Rs. 3500
g. Bought goods from Ramesh for Rs. 30000
h. Sold goods to Shyam costing Rs. 30000 for Rs. 50000
i. Purchased household goods for Rs. 15000 giving Rs. 5000 in cash and
the balance through a loan
j. Goods destroyed by fire (cost Rs. 500, Sale price Rs. 600)
k. Paid half the amount owed to Mohan furniture
l. Paid cash Rs. 500 for loan and Rs. 300 for interest

Prove accounting equation is satisfied in all the following transactions
a. Commenced business with cash Rs. 36000
b. Paid rent in advance Rs. 300
c. Purchased goods for cash Rs. 18000 and credit Rs. 12000
d. Sold goods for cash Rs. 18000 costing Rs. 12000
e. Paid salary Rs. 300 and salary outstanding Rs. 60
f. Bought motorcycle for personal use Rs. 3000

Show the accounting equation on the basis of the following transactions
m. Withdrew goods for personal use (cost Rs. 500, Sale price Rs. 600)
n. Received Rs. 49500 from Shyam in full settlement
o. Paid Rs. 29700 to Ramesh in full settlement
p. Paid salary Rs. 500 and salary outstanding Rs. 100
q. Charged depreciation of Rs. 300 on furniture and Rs. 100 on typewriter

Principles of Accounting for IT Professionals

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Principles of Accounting for IT Professionals

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Principles of Accounting

BCA – 3rd Semester

• Meaning and nature of accounting

Why Accounting for IT Professions?

• IT projects are required to be completed within fixed times,

• IT projects have shorter timelines and unless and until if each

• A process which involves the recording of financial transactions

Meaning and nature of accounting

According to the American Institute of Certified Public Accountants

However, American Accounting Association defines accounting as

As an accounting requires the usage and application of knowledge and

Scope of financial accounting

Interrelationship of Accounting with other disciplines

Accounting and Management

Accounting and Economics

Accounting and Mathematics

Accounting and Computer Science

Accounting and Computer science are closely related. As the word

Accounting and statistics

Accounting and Law

Accounting and Political Science

Financial Accounting is based on a systematic method of recording

Cost accounting deals with evaluating the cost of a product or service

This branch of accounting provides information to management for better

Auditing is a branch of accounting where an external certified public

Tax Accounting deals with taxation matters. Its functions include

Accounting concepts and convention

Fundamental accounting concepts are broad general assumptions which

The following are the accounting concepts and conventions

Accounting Concepts Accounting Conventions

The Accounting Equation

The Accounting Equation

The Accounting Equation

The accounting equation can be expressed in the different forms below,

The Accounting Equation

The Accounting Equation

Some Examples of accounting Equation

The Accounting Equation Illustrative Examples

Asset(Cash) = Liability + Capital (as business has to return money to

Illustrative Example 1. contd…

(a)Ramesh started software development business with Rs. 40000/- in cash

Illustrative Example 1. contd…

(a)Ramesh started software development business with Rs. 40000/- in cash

30000 10000 11000 = 11000 40000

Illustrative examples of various types of transactions and their treatment

Illustrative examples of various types of transactions and their treatment

Illustrative examples of various types of transactions and their treatment

a. Started business with cash Rs. 45000

Class Exercise No. 1

Class Exercise No. 2

Class Exercise No. 3

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