Financial Accounting -1
Part A: Financial Accounting – I
Unit 1: Theoretical Framework
Introduction to Accounting
- Accounting: objectives, advantages and limitations, types of accounting information; users of accounting information and their needs.
- Basic accounting terms: business transaction, account, capital, drawings, liability (Non – current and current); asset (Non – current; tangible and intangible assets and current assets), receipts (capital and revenue), expenditure (capital, revenue and deferred), expense, income, profits, gains and losses, purchases, purchases returns, sales, sales returns, stock, trade receivables (debtors and bills receivable), trade payables (creditors and bills payable), goods, cost, vouchers, discount – trade and cash.
Theory Base of Accounting
- Fundamental accounting assumptions: going concern, consistency and accrual.
- Accounting principles: accounting entity, money measurement, accounting period, full disclosure, materiality, prudence, cost concept, matching concept and dual aspect.
- Accounting Standards and IFRS (International Financial Reporting Standards): concept and objectives
- Double entry system of accounting.
- Bases of accounting – cash basis and accrual basis.
Unit 2: Accounting Process
Recording of Transactions
- Accounting equation: analysis of transactions using accounting equation.
- Rules of debit and credit: for assets, liabilities, capital, revenue and expenses
- Origin of transactions- source documents (invoice, cash memo, pay in slip, cheque), preparation of vouchers – cash (debit and credit) and non cash (transfer).
- Books of original entry: format and recording – Journal.
- Cash Book: Simple Cash Book, Cash Book with Discount Column and Cash Book with Bank and Discount Columns, Petty Cash Book.
- Other books: purchases book, sales book, purchases returns book, sales returns book and journal proper.
Preparation of Bank Reconciliation Statement, Ledger and Trial Balance.
- Bank reconciliation statement- calculating bank balance at accounting date: need and preparation. Corrected cash book balance.
- Ledger – format, posting from journal, cash book and other special purpose books, balancing of accounts.
- Trial balance: objectives and preparation
(Scope: Trial Balance with balance method only)
Depreciation, Provisions and Reserves
- Depreciation: concept need and factors affecting depreciation; methods of computation of depreciation: straight line method, written down value method (excluding change in method)
- Accounting treatment of depreciation: by charging to asset account, by creating provision for depreciation/ accumulated depreciation account, treatment of disposal of asset.
- Provisions and reserves: concept, objectives and difference between provisions and reserves; types of reserves- revenue reserve, capital reserve, general reserve and specific reserves.
Accounting for Bills of Exchange
- Bills of exchange and promissory note: definition, features, parties, specimen and distinction.
- Important terms : term of bill, due date, days of grace, date of maturity, discounting of bill, endorsement of bill, bill sent for collection, dishonour of bill, noting of bill, retirement and renewal of a bill.
- Accounting treatment of bill transactions.
Rectification of Errors
- Errors: types-errors of omission, commission, principles, and compensating; their effect on Trial Balance.
- Detection and rectification of errors; preparation of suspense account.
Accounting : Accounting as 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 (AICPA)