Accountancy: Shaheen Falcons Pu College
Accountancy: Shaheen Falcons Pu College
Accountancy: Shaheen Falcons Pu College
Accountancy
CA-Foundation
Arshiya Nousheen
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Chapter 1 – Basis of Accountancy
Accountancy is the art of recording, classifying and summarising in a significant manner and
in terms of money, transactions and events which are, in part at least, of financial character,
and interpreting the results thereof.
On the basis of above definition we can simply say that accounting is just means of record
keeping in a business enterprise.
Accounting Cycle
Identification of transaction
Posting to Ledger
1. Going concern.
2. Accrual.
3. Consistency.
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Users of Accounting Information
Internal Users External Users
-Board of Directors -Investors
-Partners -Lenders
-Officers -Suppliers
-Managers -Govt. agencies
-Customers
They include,
What is an Asset?
Eg: Mr.A rents a building to start a college. Where, the rental agreement is the past
event that can be used in future and in return the usage of building brings cash to
Mr.A
What is a liability?
Eg: Mr.A takes loan from bank. Where loan agreement is the past event and
repayment of loan installments in future results in cash outflow
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Difference between an asset and income
Mr.A opens bank account with deposit of Rs.1000.He receives interest of Rs.50
per quarter.
In the above situation the deposit of Rs.1000 is an asset (Apna money)and the
interest that is received extra is income for Mr.A.
Eg: Mr.A borrowed a sum of Rs.5000.He pays interest of Rs.20 per month
In this situation the borrowing amount is the liability of Mr.A (Paraya money) and
interest to be paid is his expense.
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Chapter 2 – Journal entries
The book in which transactions are first entered to show which account should be debited and
which is credited is called journal.
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Test your knowledge:
6
2 Bank overdraft
0
2 Bad Debts
1
2 Bills Receivable
2
2 Taxes payable
3
2 Outstanding expenses
4
2 Prepaid expenses
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Answer:
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1 Investments Debit Balance-Asset
3
1 Sundry Debtors Debit Balance-Asset
4
1 Salary Debit Balance-Expense
5
1 Sundry Creditors Credit Balance-Liability
6
1 Machinery Debit Balance-Asset
7
1 Goodwill Debit Balance-Asset
8
1 Telephone Debit Balance-Expenses
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2 Bank overdraft Credit Balance- Liability
0
2 Bad Debts Debit Balance- Expense\loss
1
2 Bills Receivable Debit Balance- Asset
2
2 Taxes payable Debit Balance-Liability
3
2 Outstanding expenses Credit Balance-Liability
4
2 Prepaid expenses Debit Balance-Asset
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Accounting standards are written policy documents issued by the expert accounting body or by
government covering aspects of recognition, measurement, presentation and disclosure of
accounting transactions and events in the financial statements.
They are the rules or guidelines constituted by ICAI (Institute of Chartered Accountancy of
India).It further constituted ASB (Accounting Standard Board) in 1977 that is responsible for
setting standards.
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Ratio is mathematical relationship between two interrelated variables. It is a process of
determining, interpreting and presenting numerical relationship of items and group of items
in the financial statements.
Objectives of Ratios
Types of Ratios
A. Liquidity Ratios
(a)Current Ratio
(b)Quick Ratio\Acid Test Ratio
(c)Cash Ratio/Absolute Liquidity Ratio
(d)Net Working Capital Ratio
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(c) Cash Ratio= Cash and Bank balances+ Marketing Securities/Current Investments
Current Liability
Where,
Or
*Total Assets does not include fictitious assets for example preliminary expenses, discount on
issue of shares.
Or
Or
Where, Shareholders’ Equity = Equity Share Capital + Preference Share Capital+ Surplus –
Losses.
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Or
(d) Capital Gearing Ratio = (Preference share capital + Debentures + Other Borrowed Funds)
Proprietary Fund includes Equity Share Capital + Preference Share Capital + Reserves &
Surplus.
1. Journal
2. Trading Account & Profit & Loss Account
3. Balance Sheet
IF YOU DON’T SACRIFICE FOR WHAT YOU WANT, WHAT YOU WANT BECOMES THE SACRIFICE
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