2. Business entity means a specific identifiable business
enterprise like Big bazaar, Super Bazaar, Grocer ’s
shop, Transport limited, etc.
For accounting, it is assumed that Business has a
separate identity and owner(s) have a separate identity.
Every transaction is analysed from the point of view of a
business enterprise and not that of the person(s) who
are associated with it.
A Corporate entity under company act 1956 and can do
business in its name.
A Business entity can be sued in court of law for
breach of contract.
2
3. It is an event which involves exchange of some
value between two or more entities.
It can be purchase of stationery, receipt of
money, payment to a supplier, incurring
expenses, etc.
It can be a cash transaction or a credit
transaction.
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4. TRANSACTION
A TRANSACTION MAY BE
DEFINED AS THE ACTIONS
AND REACTIONS HAVING
MONETARY IMPLICATIONS
A TRANSACTION INVOLVES
TRANSFER OF MONEY OR
MONEY’S WORTH (GOODS OR
SERVICES)
Item has
arrived in
the unit loc?
Can there be
entries with zero
value ? Do they
have to be entered?
5. Sundry Debtor is a person who bought goods or
received service from us (Customer)
Is an entity from whom amounts are due for goods
sold or services rendered or in respect of
contractual obligations.
Amount that has to be recd from other Person
It is also termed as Debtor, trade debtor and
accounts receivable.
Sy Dr is an Asset. e.g. Mess Bills , Car loan, House
loan for an indl.
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6. Sundry Creditor is a person from whom
we received the goods or services
refers to companies or individuals to which
money is owed by us (customer). Amount
has to be paid to someone
Creditors are persons who have to be paid
by an enterprise an amount for providing
goods and services on credit.
Reflected as liability. e.g. Mess Deposits,
Memento fund etc,.
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7. REVENUES ARE AMOUNTS THE BUSINESS
EARNS BY SELLING ITS PRODUCTS OR
PROVIDING SERVICES TO CUSTOMERS.
SALE OF GOODS & SERVICES.
INTEREST RECD, SALE PROCEEDS OF SCRAP
MTRL ETC,
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8. Costs incurred by a business in the process of
earning revenue are called Expenses.
Expenses are measured by the cost of assets
consumed or services used during the
accounting period.
The common items of Expenses are, Depre,
Rent, Wages, Salaries, Interest, Cost of
Heating, Light and water and Telephone,
charges etc.
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9. The difference between revenue and expense is
called income. For example, goods costing
Rs.25000 are sold for Rs.35000,
The cost of goods sold, i.e.Rs.25000 is expense
& the sale of goods, i.e. Rs.35000 is revenue
The difference. i.e. Rs.10000 is income.
We can state that
Income = Revenue - Expense.
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10. It is the amount invested in an enterprise by its
owners e.g. paid up share capital in a corporate
enterprise.
It also refers to the interest of owners in the assets
of an enterprise.
It is the claim against the assets of the business.
Any amount contributed by the owner towards the
business unit is a liability for the business enterprise.
This liability is also termed as capital which may be
brought in the form of cash or assets by the owner.
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11. Capital Expdr refers to the expdr incurred for
acquiring fixed assets or assets which increase the
earning capacity of the business.
The benefits of capital expdr to the firm extend
over a number of years.
Examples - expdr incurred for acquiring a fixed
asset such as building, plant and machinery & land
for future reqmt, etc.
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12. Revenue expdr, on the other hand, is an expdr
incurred in the course of normal business
transactions of a concern and its benefits are
availed of during the same accounting year.
Maint of Existing assets, created out of Capital
Expdr.
Salaries, carriage & tn charges , interest payment
etc. are examples of revenue expenditure.
All Funds & grants allotted to EME Bn
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13. Revenues earned by the Firm in normal course
of Business.
Eg, Sale of Goods & Services, Interest Payments
recd, Sy DRs, Account receivables, Dividends
recd, Bonus shares, IT refunds etc,.
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14. Revenues earned by the Firm Not in normal
course of Business.
Eg, Receipts on account of sale of Scrap, Sale of
old Plant & Machy, sale of Land bought for
Investment purpose and sale of dead Inv.
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15. Economic resources of a business that can be
expressed in monetary terms
These are properties of every discp belonging to
a firm e.g., Goods, Cash, furniture, and include all
sums of money owned by the account.
They raise the profit earning capacity
of the business enterprise.
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16. Those assets which are acquired for long term use
in the business.
Such assets raise the profit earning capacity of the
business enterprise.
Expdr on such assets is non-recurring and of
capital nature.
Expenses incurred on acquiring these assets are
added to the value of the assets. e.g, Plant &
Machy, Bldg, land etc,
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17. Current assets are those assets, which are held for
a short period, Generally for < 01 year time frame.
The balance of such items goes on fluctuating i.e. it
keeps on changing throughout the year.
e.g. FDs, CDs, Cash in Bank ,Bank deposits and
Govt securities etc,
Reqd for Smooth fn of a firm on daily basis.
Mgt of Cash flow.
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18. Tangible items are those which can be
touched and their physical presence can
be noted/ felt.
e.g., furniture, land , bldg , plant &
machinery etc.
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19. Intangible assets are those rights
which one possesses but cannot
be quantified in terms of money.
e.g. Patent rights, Copyrights,
trade marks, goodwill, Human
capital etc.
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20. ASSETS WHICH DECR WITH USAGE
RAW MTRL, INV, etc,.
26
21. OBLIGATIONS OR DEBTS THAT THE ENTERPRISE MUST
PAY IN MONEY OR SERVICES AT SOMETIME IN FUTURE.
A/C PAYABLE (SY CR).
LOANS/ DEBENTURES/BOUNDS/DEPOSITS.
ACCRUALS (SALARIES, WAGES, INTREST DUE BUT NOT
YET PAID).
TAXES.
DIVIDENDS NOT YET PAID.
RAISED CAPITAL.
RESERVES AND SURPLUS.
ADVANDCES PAID BY CUSTOMERS.
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22. BUSINESS ENTITY CONCEPT
MONEY MEASUREMENT CONCEPT
GOING BUSINESS CONCEPT
CONSERVATIVE PRINCIPLE
DUAL ASPECT PRINCIPLE
23. Dual aspect is the foundation or basic principle of
accounting.
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.
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24. For example, goods purchased for cash has two
aspects which are,
Payment of cash
Receiving of goods(Assets).
• These two aspects are to be recorded.
Thus, the duality concept is commonly expressed in
terms of fundamental acctg equation :-
Assets = Liabilities + Capital
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25. This equation expresses the equality of assets
on the one side and other side equity i.e., the
claims of outsider [liabilities] and owners or
proprietors fund on the other side.
In mathematical form,
Assets = Equity
Equity = Liabilities + Capital
As an asset is introduced in the business, a
corresponding liability also emerges.
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26. For example, pers X started business with cash
Rs.2,00,000 as Capital.
In this transaction, asset in the form of cash
is created for the business.
Hence, Cash (Asset) Capital (Equity)
Rs.2,00,000 = Rs.2,00,000
X purchased Machinery for Rs.40,000 and Furniture
for Rs.20,000.
Thus, the position of the assets and capital is as:
Cash + Machinery + Furniture = Capital
1,40,000 + 40,000 + 20,000 = 2,00,000 41
27. The above transaction shows that
Assets = Capital
Or
Capital = Assets
Increase or decrease in capital will result in the
corresponding increase or decrease in assets.
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28. The above accounting equation states that the
assets of a business are always equal to the
claims of owner/ owners and the outsiders.
This claim is also termed as capital or owners
equity and that of outsiders, as liabilities or
creditors’ equity.
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29. Is based on the duality principle and was devised
to account for all aspects of a transaction. Under
the system, aspects of transactions are classified
under two main types:
Debit and
Credit
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30. Debit is the portion of transaction that accounts for
the increase in assets and expenses, and the
decrease in liabilities, equity and income.
Credit is the portion of transaction that accounts
for the increase in income, liabilities and equity,
and the decrease in assets and expenses.
The classification of debit and credit effects is
structured in such a way that for each debit there is
a corresponding credit and vice versa. Hence, every
transaction will have 'dual' effects (i.e. debit effects
and credit effects).
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31. 1. Capital brought in by the owner of the Business,
The two aspects in this transaction are
Receipt of Cash
Increase in Capital (Owners Equity)
2. Purchase of machinery by cheque
The two aspects in the transaction are
Reduction in Bank Balance
Owning of Machinery
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32. 3. Goods sold for cash
The two aspects are
Receipt of cash
Delivery of goods to the customer
4. Rent paid in cash to the landlord
The two aspects are
Payment of cash
Rent (Expenses incurred).
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33. Bank Reconciliation Statement is a statement
prepared to reconcile the difference between the
balances as per the bank column of the cash book
and pass book on any given date.
Thus, it is prepared to reconcile the bank balances
shown by the cash book and by the bank
statement.
It helps in detecting, if there is any error in
recording the transactions and ascertaining the
correct bank balance on a particular date.
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34. 1. Cheques issued by the firm but not yet
presented for payment
2. Cheques deposited into bank but not yet
credited
3. Amount directly deposited in the bank account
4. Bank Charges
5. Interest and dividend received by the bank
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35. 6. Direct payments made by the bank on behalf of
the customers
7. Dishonour of Cheques.
8. Errors committed in recording transactions by
the firm
9. Errors committed in recording transactions by
the Bank
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36. Trial Balance may be defined as a statement which
contains balances of all ledger accounts on a
particular date.
Trial Balance consists of a debit column with all
debit balances of accounts and credit column with
all credit balances of accounts.
The totals of these columns if tally, it is presumed
that ledger has been maintained correctly.
However, Trial Balance proves only the arithmetical
accuracy of posting in the ledger.
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37. 1. To check arithmetical accuracy
2. First step to help in preparing Financial
Statements
3, Helps in locating errors
4. Helps in comparison
5. Helps in making adjustments
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