Assignment 1

ASSIGNMENT
Unit I: Introduction of Accounting
1.Explain financial accounting, cost accounting and management accounting with

examples.
Answer – The following are financial, cost and management accounting with examples are as follows :
Financial accounting
is a specialized branch of accounting that keeps track of a company's financial transactions.It is
concerned with recording and processing all business transactions and events in the books of
accounts. It includes profit earned and loss incurred and will provide the information for accounting
year.
For example Financial accounting Is a specialized branch of accounting that keeps track of a
company's Financial transactions.It is concerned with recording and processing all business
transactions and events in the books of accounts. It includes profit earned and loss incurred and will
provide the information for accounting year.
Cost Accounting:
It is concerned with the cost of each product produced by the firm. It Basically involve estimating the
cost in advance and detailed analysis. It Also help in cost controlling.
For example : Cost accounting also helps in making revenue decisions such as those related to pricing,
product-
Mix, profit-volume decisions, expansion of business, replacement decisions, etc.
Managerial Accounting:
It is drawn from financial accounting and cost accounting. It helps Managers to make a decisions
related to performance improvement, Forecasting, budgeting, cost control and acquisition, revenue
generation etc.
For example:
The reports generated by a management accountant can be of Any duration– short or long,
depending on purpose. Further, the reports can be prepared for the Organisation as a whole as well
as its segments.
Explain cash basis and accrual basis of accounting along with advantages and
disadvantages.
Answer – following are the basics of accounting along with advantages and disadvantages:
Cash Basis
Cash Basis Of Accounting Cash Basis of Accounting is a method in which
income is recorded when cash is received, and expenses are recorded when cash is paid out.
Advantages: It is simple as adjustment entries are not required. This approach is more objective as
very few estimates and judgments are required. This basis of accounting is suitable for those
enterprises where most of the transactions are on a cash basis.
Disadvantages: It does not give a true and fair view of the profit or loss and
the financial position of an enterprise because it ignores outstanding and prepaid expenses.
Accrual basis
Accrual Basis of Accounting is based on 'accrual concept‘ Revenue is recognized (recorded) when
earned Expenses are recognized when incurred. Under this system Income earned and expenditure
incurred is recognized irrespective of cash received or cash paid.
Advantages: It is more scientific compared to Cash Basis. This basis of accounting shows a complete
picture .This system discloses correct profit or loss for a particular period and also exhibits true
financial position of the business on a particular day. It reflects correct profit or loss during the
accounting period.
Disadvantages: This system is not as simple as Cash Basis of Accounting.

The accounting process under this basis is too elaborate. A quick appraisal of
the profit/loss is not possible because many adjustments are required to ascertain the true financial
position of the business.
3. Explain accounting concepts with its types in detail.
Answer -Accounting Concepts: The term „concepts‟ includes those basic assumptions
or conditions upon which the science of accounting is based. The following are the important
accounting concepts:
1.Business Entity Concept:

This concept assumes that, for accounting purposes, the business enterprise and its owners are two
separate independent entities. Thus, the business and personal transactions of its owner are
separate. For example, when the owner invests money in the business, it is recorded as
liability of the business to the owner. Similarly, when the owner takes away from the business
cash/goods for his/her personal use, it is not treated as business expense.
2 Money Measurement Concept:

This concept assumes that all business transactions must be in terms of money. In our country such
transactions are in terms of rupees. Thus, as per
the money measurement concept, transactions which can be expressed in terms of money are
recorded in the books of accounts.
3.Going Concern Concept:

This concept states that a business firm will continue to carry on its activities for an indefinite period
of time. This is an important assumption of accounting, as it provides a basis for showing the value of
assets in the balance sheet.
4.Cost Concept:
Accounting cost concept states that all assets are recorded in the books of accounts at their purchase
price, which includes cost of acquisition, transportation and installation and not at its market price. It
means that fixed assets like building, plant and machinery, furniture, etc are recorded in the books of
accounts at a price paid for them.
5.Dual Aspect Concept:

It provides the very basis of recording business transactions in the books of accounts. This concept
assumes that every transaction has a dual effect, i.e. it affects two accounts in their respective
opposite sides. Therefore, the transaction should be recorded at two places. It means, both the
aspects of the transaction must be recorded in the books of accounts. For example, goods purchased
for cash has two aspects which are (i) Giving of cash (ii) Receiving of goods. These two aspects are to
be recorded. Accounting Concepts
Assets = Liabilities + Capital = Dual aspect concept.
6.Matching Concept:
The matching concept states that the revenue and the expenses incurred to earn the revenues must
belong to the same accounting period. So once the revenue is realized, the next step is to allocate it
to the relevant accounting period. The matching concept implies that all revenues earned during an
accounting year, whether received/not received during that year and all cost incurred, whether
paid/not paid during the year should be taken into account while ascertaining profit or loss for that
year.
7.Accounting Period Concept:

The life of an entity is divided into short economic time periods on which reporting statements are
fashioned. All the transactions are recorded in the books of accounts on the assumption that profits
on these transactions are to be ascertained for a specified period. This is known as accounting period
concept.

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ASSIGNMENT

Unit I: Introduction of Accounting

1.Explain financial accounting, cost accounting and management accounting with

Disadvantages: This system is not as simple as Cash Basis of Accounting.

3. Explain accounting concepts with its types in detail.

1.Business Entity Concept:

2 Money Measurement Concept:

3.Going Concern Concept:

5.Dual Aspect Concept:

7.Accounting Period Concept:

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