ACCOUNTING FOR BUSINESS DECISIONS Prepared by, Prof. Vaishali Nikam

Point covered introduction of accounting basic concept Definition of important terms in book-keeping Types of account, golden rule of account account cycle, journal ledger final account with adjustment format of trial balance, trading account, profit & loss, balance sheet. Example of final account

Introduction to accountinG   Definition “The Process of recording, classifying and summarising, analysing and interpreting the financial transaction and communicating the results there of the person interested in such information.   End user of Accounting Proprietors Managers Creditors Bankers Investors Government and regulatory Bodies

Book Keeping   Basic Concept Record is made only of Information that can be expressed in monetary terms.   Entity Account kept for entities, as distinguished from the person who are associated with these things.   Going Concern Entity will continue to operate for an indefinitely long period in the future.   Cost concept The economic resource of an entity is ordinarily entered in the accounting records at the price paid to acquire it.

Definition of important terms in book-keeping Debtors “ A person who owes us something is known as debtors.” e.g. if we have to receive money from Mr. Kulkarni then he is our debtors. Creditor “ It is a person to whom we owe something,” eg if we have to pay money to mr. joshi then joshi is our creditor.” Assets A traders total possessions, such as building, goods, cash machinery etc in its name and having monetary value in the market. Liabilities Amount payable by a trader such as creditors loan etc. liability means dues payable to the outsiders. Drawing Money or money’s worth withdrawn from business by the proprietor for his private use.

Capital Whatever money or money’s worth proprietor brings into his business from his private estates and properties. Goods The term goods is used for the articles in which a trader makes a business e.g. furniture, is a goods for a trader who trades in furniture, cloths is goods for cloth merchant DEPARICIATION It menace loss or reduction in the value of assets due to lapse of time, wear and tear. Discount Concession given by the wholesaler to retailer to customer.

Trade discount It is an allowance from the catalogue price of the goods this discount is given by r=the wholesaler to retailer. as the discount is allowed at the time of purchase or sale. the value of good purchase or sold is recorded in the books after deducting the amount of trade discount. therefore trade discount is not required to be recorded separately. CASH DISCOUNT In many business purchase and sales of goods are required to be made on credit terms. Therefore, to recover the amount from debtors in time cash discount is given.

Personal Account- Personal account are the account of persons, firms, companies, institution etc, eg Ramesh Account, Bank of India Account. Real Account- Account in respect of Properties, assets or possessions of businessman are called Real Account Eg Cash, Bank Balance, plnt and Machinery, Land & Building, Furniture, Tangible, Intangible Asset. Nominal Account – All expenses and losses and income and gains comes under nominal accounts. All account except personal and real account comes in nominal accounts. For eg. Rent Paid, Salary, Interest received etc.

All the accounting heads used in an organisational accounting system are divided into three kinds/types. Every account head should be capable of being classified under one of the three kinds/types.

Some Examples

FINAL ACCOUNTS With Adjustment

Introduction Final accounts are prepared to achieve the objectives of accountancy.A businessman is interested to know the final result of the business- whether he has earned profit or suffered loss in that particular amounting period. the businessman prepares certain financial statements at the end of accounting period. In order to know profit or loss an eared by a firm income statement or trading and profit and loss account is prepared, balance sheet or position statement will portray the financial condition of the firm o particular date. These two statement i.e Trading and profit and loss Account and balance sheet are prepared to give final results of the business, that is why both these are collectively called Final Accounts.

Thus, Final accounts include the preparation of: (i) Trading and Profit and Loss :and (ii) Balance Sheet POINT TO REMEMBER The basis of preparation of Final Accounts is the Trail Balance containing Debit and Credit Balances. Learning Objective The primary learning objective of preparing final accounts are,. (i) To find out the Profit and loss (Financial Performance) of a business during one accounting (ii) To Know the financial position (Health) of a business i.e., the position of assets, liabilities and capital at the end of the accounting period

Composition of final accounts Manufacturing Accounts Trading Accounts Profit and Loss Accounts Balance Sheet

Meaning of Adjustment Those transaction which related to the accounting period for which financial statements are being prepared but are not included in the trial balance because these transaction have not yet been recorded in the books of accounts are called “ ADJUSTMENT” In addition to it, those transaction which have been recorded in the books of accounts but they do not relate to the accounting period for which accounts are being prepared are also called “ ADJUSTMENTS”

List of Important adjustments 1. Outstanding expenses – Effect – 1 List of Important adjustments 1. Outstanding expenses – Effect – 1. Profit and loss debit side - ADD 2. Balance Sheet Liability side - Less

2. Prepaid expenses Effect -1. Profit & Loss respective head – Less 2 2. Prepaid expenses Effect -1. Profit & Loss respective head – Less 2. Balance sheet Asset Side

3. Closing Stock effect- 1. trading account credit side 2 3. Closing Stock effect- 1. trading account credit side 2. balance sheet asset side Closing stock is valued at cost or market price whichever is least.

Depreciation Effect -1. Balance sheet asset side in respective head – less 2. Profit and loss account RDD On Debtors Effect 1. Balance sheet assets side Debtor –Less 2. Profit and Loss debit side

Trial Balance A trial balance is a list of all the general ledger accounts (both revenue and capital) contained in the ledger of a business. This list will contain the name of each nominal ledger account and the value of that nominal ledger balance. each nominal ledger account will hold either a debit balance or a credit balance. the debit balance values will be listed in the debit column of the trial balance and the credit value balance will be listed in the credit column. the trading profit and loss statement and balance sheet and other financial reports can then be produced using the ledger accounts listed on the same balance.

Trading Account An income statement prepared with cost of raw material , purchase and direct expenses with a view to ascertain gross profit or loss is known as trading Account.

Balance sheet Statement prepared to ascertain the status of Assets and liabilities of the business enterprise on particular date is termed as position statement or balances sheet. According to accounting equation Assets = Liabilities + Capital

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