Accounting Notes
Who discovered the Double Entry System of Bookkeeping? — Lucas Pacioli
The normal period of Accounting: — 12 Months
Calendar Year: 1 Jan – 31 Dec
Financial Year: 1 April – 31 March
The book in which all the accounts are opened is known as: — Ledger
BRS is prepared by: — Customer
Which accuracy is checked by Trial Balance? — Arithmetic
The art of recording all business transactions in a systematic manner in a set of books is called: — Bookkeeping
Asset = Liabilities + Capital is based on which principle? — Double Entry Principle
The first book of Original Entry is: — Journal
Transactions related to customers are recorded by bank in: — Passbook
Errors are rectified in this book: — Journal Proper (Note: Image says "Trial Balance," but errors are typically rectified through Journal entries).
Which type of Asset is Goodwill? — Intangible
Trial Balance is a: — Statement
Depreciation is provided for: — On fixed and tangible assets
Excess of Credit Side in Profit and Loss account is known as:
Net Profit
Outstanding Expenses are related to:
Current Year
Depreciation related to which type of Assets?
Fixed Asset
Depreciation on Assets is what for business?
Expenses for business
Write one example of Current Liability?
Bank Overdraft
Indirect expenses are recorded in which account?
P&L Account
Un-accrued Income is shown in which side of Balance Sheet:
Liabilities Side
Provisions are written in which side of the P&L Account:
In Debit Side
Gradual decrease in the cost of the machine is known as?
Depreciation
Where interest on Capital is recorded?
In the Debit Side of P&L account
Which expenses are recorded in Trading account?
Direct expenses
Such expenses for which services have been received but amount is yet to be paid are called:
Outstanding Expenses
The Closing Stock at the end of the year become what in the next year?
Opening Stock
Discount allowed to increase sales and to attract the customer is known as:
Trade discount
When BRS is prepared?
When there is a difference in cash book and pass book balance.
Selling price of asset after its useful life is known as:
Residual / Scrap value
Amount received after deducting cost of goods sold from Total sales known as:
Gross profit
1. Limitations of Accounting Principles
Accounting principles (like GAAP) have some limitations:
-
Based on Historical Cost
Transactions are recorded at original cost, not current market value → may not reflect true financial position. -
Ignores Price Level Changes
Inflation or deflation is not considered, so data may become unrealistic over time. -
Personal Judgment Involved
Many principles (like depreciation methods) depend on accountant’s judgment → results may vary. -
Incomplete Information
Non-monetary factors (like employee skills, brand value) are not recorded. -
Possibility of Manipulation
Flexibility in principles allows manipulation of accounts (window dressing). -
Not Fully Accurate
Based on conventions and assumptions, not exact science.
2. What is Bank Overdraft?
Bank Overdraft is a facility provided by a bank that allows a customer to withdraw more money than available in their bank account.
👉 In simple words:
It is borrowing money from the bank through your account.
Example:
If your balance is ₹5,000 and you withdraw ₹8,000, then ₹3,000 is overdraft.
3. Any Three Objectives of Preparing Trial Balance
-
To Check Arithmetic Accuracy
Ensures that total debits = total credits in ledger accounts. -
To Detect Errors
Helps in finding mistakes like wrong postings or calculations. -
Basis for Final Accounts
Trial Balance is used to prepare Trading Account, Profit & Loss Account, and Balance Sheet.
4. Difference Between Book Keeping and Accounting
| Basis | Book Keeping | Accounting |
|---|---|---|
| Meaning | Recording of financial transactions | Classifying, summarizing & interpreting data |
| Objective | Maintain systematic records | Provide useful financial information |
| Scope | Limited | Wider |
| Stage | First stage | Second stage |
| Skill Level | Clerical work | Analytical & professional work |
| Output | Books of accounts | Financial statements |
1. Functions of Accounting
- Recording of financial transactions
- Classifying the transactions into different accounts
- Summarizing data in the form of final accounts
- Analyzing and interpreting financial information
- Communicating results to users
2. Difference between Book Keeping and Accounting
| Basis | Book Keeping | Accounting |
|---|---|---|
| Meaning | Recording of transactions | Summarizing & interpreting |
| Nature | Clerical work | Analytical work |
| Scope | Limited | Wide |
| Stage | First stage | Second stage |
| Objective | Maintain records | Provide information |
3. Limitations of Accounting
- Based on historical cost
- Ignores price level changes
- Personal judgment involved
- Ignores qualitative factors
- Chances of manipulation
- Not fully accurate
4. Qualitative Characteristics of Accounting
- Reliability – Information should be accurate and dependable
- Relevance – Useful for decision making
- Understandability – Easy to understand
- Comparability – Can compare with other periods
- Consistency – Same methods used every year
5. Users of Accounting
- Internal Users – Management, Employees
- External Users – Investors, Creditors, Government, Customers
6. Difference between Trade Discount and Cash Discount
| Basis | Trade Discount | Cash Discount |
|---|---|---|
| Meaning | Given on list price | Given on prompt payment |
| Time | At time of purchase | At time of payment |
| Recorded | Not recorded in books | Recorded in books |
| Purpose | Increase sales | Encourage early payment |
7. Difference between Debtors and Creditors
| Basis | Debtors | Creditors |
|---|---|---|
| Meaning | Persons who owe money to business | Persons to whom business owes money |
| Nature | Asset | Liability |
| Example | Credit customers | Credit suppliers |
8. What is Financial Statement?
Financial statements are formal records of financial activities of a business.
Examples: Trading Account, Profit & Loss Account, Balance Sheet
9. Ledger Folio Number
Ledger folio number is the page number of ledger where a particular account is recorded.
10. How many sides does an account have?
An account has two sides:
- Debit side (Dr.)
- Credit side (Cr.)
11. Gross Profit
Gross Profit = Sales – Cost of Goods Sold
12. Example of Tangible Assets
- Building
- Machinery
- Furniture
- Land
13. Formula of Cost of Goods Sold (COGS)
COGS = Opening Stock + Purchases + Direct Expenses – Closing Stock
14. In which book Credit Sales is recorded?
Credit sales are recorded in the Sales Book (also called Sales Journal).
15. Net Profit Formula (Line by Line Explanation)
Given:
Net Profit = Operating Profit + Non-Operating Income – Non-Operating Expenses
Line by line:
- Start with Operating Profit
- Add Non-Operating Income (like interest received, commission received)
- Subtract Non-Operating Expenses (like interest paid, loss on sale of assets)
- The result is Net Profit