The document provides an overview of basic accounting concepts, including: - Accounting is the process of recording, classifying, and summarizing financial transactions to prepare financial statements. - Key accounting concepts include business entity, money measurement, dual aspect, cost, accounting period, conservatism, realization, and matching. - Accounting conventions include going concern, consistency, and accrual. - The document also discusses classifying accounting events as capital, revenue, or deferred revenue expenditures.

1. Basic Accounting Level II By Sivakumar Ganesan B. Sc, ACA, ICWA, PMP, PDIM Global Technology Services LLc, UAE Email:sivakumar3009@gmail.com

3. Accounting is defined as the art of Recording, Classifying and Summarizing transactions in monetary terms (in Money terms) for the preparation of Financial Statements What is Accounting JOURNAL PAYMENT Vision Enterprises Financial Statement at December 31, 1997 Assets Cash Account Receivable Land Total Assets Liability Account Payable Notes Payable Total Liability Stockholder’s Equity Contributed Capital Retained Earnings Total Stockholder’s Equity $4,456 $5,714 $ 981 --------- $11,151 ====== $3,830 $ 416 --------- $4,246 ====== $2,365 $ 367 --------- $2,732 ====== Vision Enterprises Financial Statement at December 31, 1997 Assets Cash Account Receivable Land Total Assets Liability Account Payable Notes Payable Total Liability Stockholder’s Equity Contributed Capital Retained Earnings Total Stockholder’s Equity $4,456 $5,714 $ 981 --------- $11,151 ====== $3,830 $ 416 --------- $4,246 ====== $2,365 $ 367 --------- $2,732 ====== Vision Enterprises Financial Statement at December 31, 1997 Assets Cash Account Receivable Land Total Assets Liability Account Payable Notes Payable Total Liability Stockholder’s Equity Contributed Capital Retained Earnings Total Stockholder’s Equity $4,456 $5,714 $ 981 --------- $11,151 ====== $3,830 $ 416 --------- $4,246 ====== $2,365 $ 367 --------- $2,732 ====== ?

6. Mode of Learning Accounting Learn Accounting Concepts (Ten Fundamental Accounting Concepts) Understand Accounting Conventions (Three major conventions) Classify the Accounting Events (Capital, Revenue, Deferred Revenue Expenditure) Apply the Accounting Rules (Personal, Real and Nominal Rules) Record the Transaction as a Journal (Entering the Debit and Credit Side of Transaction) Classify the Transaction (Asset, Liability, Revenue or Expense) Summarize the Transaction (Prepare Trial Balance, Trading, P&L and Balance Sheet)

7. Finance and Accounting - Difference Ratio Analysis Project Appraisal Compliance with Statutory Matters like companies Act, Income Tax Act, Sales Tax Act Etc., Cash Flow / Fund Flow Historical Cost of Capital Preparation of Financial Statements (Trading, Profit and loss Account and Balance Sheet) Futuristic Recording , Classifying and Summarizing Transactions Financing Decisions Expressed in Monetary Terms Leads to Investment Decisions Recording of an Accounting Event Procurement and Utilization of Funds Accounts Finance

13. Types of Entities A Hindu Undivided Family Jointly holding the Investment and Properties for the benefit of Family members. Any other Legal Entity (HUF) President of India, Governor of State Body of Individuals (one Man Corp) ICAI, ICWAI, ICSI, Rotary Club Association of Persons Sembur Co-op Society Society Hutchinson Private Trust Trust Cadbury India Ltd (A Public Company in which shares are not traded but shares are held by more than 50 persons) Closely Held Company Hindustan Unilever Ltd (A Public Company in which Shares are traded in Stock Exchange) Public Company Oracle India Pvt Ltd (A Private Company in which shares are not traded in Stock Exchange and members cannot exceed 50) Private Company Ganesan Bros Partnership Firm Siva & Co Sole Proprietary Example Type of Organization

31. Rules of Accounting Accounts Personal Impersonal Real Nominal Debit the Receiver Credit the Giver Debit what comes in Credit what goes out Debit Expenses and Losses Credit Revenue and Income Ex : Sole Prop, Company Ex : Cash, Bank, Building,Inv Ex : Sales, Power, Rent

33. Accounting Rule of Thumb Credit Debit Losses Credit Debit Credit Credit Debit Increase Debit Profit Credit Expense Debit Revenue Debit Liability Credit Asset Decrease Nature of Transaction

34. Combination of Rules Dr Personal A/c Cr Real A/c Ex:Drawings or Advance to Employee, Payment to Supplier Dr Real A/c Cr Personal A/c Ex:Capital invested, Payment Received from Customer Dr Real A/c Cr Nominal A/c Ex: Interest Recd by Cash, Cash Sales Dr Nominal A/c Cr Real A/c Ex: Rent Paid by Cash Dr Personal A/c Cr Nominal A/c Ex: Interest Accrued on Investment, Dividend accrued on Investment Dr Nominal A/c Cr Personal A/c Ex: Hire Purchase Charges accrued, Interest Payable, Salary Payable Dr Real A/c Cr Real A/c Ex:Purchase of Inventory by Cash Dr Real A/c Cr Real A/c Ex: Cash withdrawal or Deposit

35. Combination of Accounting Rules Debit Credit X Nominal Real X Personal Nominal Real Personal Combination

40. A Simple Case Study Accounting Concepts

42. ARE YOU READY FOR THE GAME Accounting is very simple

45. Accounting Calculation and Formula Payables (or) Creditors Reconciliation Opening Payables 200 (+) Add Credit Purchases 2000 (+) Debit Memo 150 (+) Positive Adjustments 75 (-) Less Cash Paid 1500 (-) Less Credit Memo (Purc. Return) 125 (-) Negative Adjustments 50 Closing Payables 750 Receivables (or) Debtors Reconciliation Opening Receivables 100 (+) Add Credit Sales 2500 (+) Debit Memo 150 (+) Positive Adjustments 75 (-) Less Cash Received 2000 (-) Less Credit Memo (Sales Return) 125 (-) Negative Adjustments 50 Closing Receivables 650

46. Accounting Calculations and Formula Finished Goods (FG) Reconciliation Opening stock of FG 200 (+) Add Production 2000 (+) Sales Return 100 (-) Less Sales 1500 Closing FG Inventory 800 Purchased Inventory Reconciliation Opening Purchased Inventory 100 (+) Add Purchases 2500 (-) Less Issued to Production 2000 (-) Less Purchase Return 125 Closing Purchased Inventory 475

47. Accounting Calculations and Formula Bank Balance Reconciliation Opening Balance of Bank 200 (+) Add Bank Receipts 2000 (Cash Deposits, Cheque Received From Debtors, Interest Credited) (-) Less Payments from Bank 1500 (Paid to Creditors by Cheque, Expenses paid by cheque, Cash With drawl from bank) Closing Bank Balance 700 Cash Reconciliation Opening Cash Balance 100 (+) Add Cash Receipts 2500 (Cash Sales, Cash Recd from Receivables, Cash with drawl from Bank) (-) Less Cash Payments 2000 (Cash Purchases, Expenses paid By Cash, Cash Deposited into Bank) Closing Cash Balance 600

48. Accounting Entries for the Case Study 75000 75000 Real Personal Inventory A/c Dr (Real Tangible Asset) To Creditors A/c (Person be an Individual or Company gives the goods on Credit) 2 100000 50000 50000 Real Real Personal (Also using the Business Entity Concept Siva being owner is also treated as a Creditor for the purpose of Business. If the Business is wind up Business has to pay back Siva) Cash A/c Dr Furniture A/c Dr (Cash and Furniture Real Tangible Asset. Hence apply the Real Rule – Debit What comes in) To Siva Capital A/c (Siva is a Person running the business as a Proprietor in this case. Hence apply the Rule for Personal – Credit the giver) 1 Cr (in USD) Dr (in USD) Nature of Account Description Sl No

49. Accounting Entries for the Case Study 100000 50000 100000 50000 Real A/c Nominal A/c Nominal A/c Real A/c Two Entries involved (One for sale of goods and one for reduction in inventory) Cash / Bank A/c Dr (Real – Debit what comes in) To Revenue (Sales) A/c (Nominal Rule - Credit all Income and Revenue) Cost of Goods Sold A/c Dr (Nominal – Debit Expenses) To Inventory A/c (Reduction in Inventory) 4 No Entry (Money Measurement Concept – No Monetary transaction involved ) No Entry (Mere Promise to give does not tantamount to Monetary Transaction) 3 Cr (in USD) Dr (in USD) Nature of Account Description Sl No

50. Accounting Entries for the Case Study 5000 5000 Nominal A/c Real A/c Salary A/c Dr (Nominal – Debit Expense) To Cash A/c (Real – Credit what goes out) 6 2000 1000 1000 Nominal A/c Personal A/c Real Rent A/c Dr (Debit Expense – Nominal) Rent Advance A/c Dr (This is like Cash Advanced to Landlord. Hence it should be treated as Personal - Debit the Receiver) To Cash A/c (Real – Credit what goes out) 5 Cr (in USD) Dr (in USD) Nature of Account Description Sl No

51. Accounting Entries for the Case Study 18000 10000 18000 10000 Real Nominal Nominal Real Receivables A/c Dr To Revenue A/c Cost of Goods Sold A/c Dr To Inventory A/c 8 5000 2500 2500 Nominal Real Real Advertisement Exp A/c Dr Advt Exp Adv A/c Dr (This is like a Deferred Revenue Expense needs to be charged in two years. 50% need to be Current Year Expense and Balance 50% is carried Forward and treated as Expense in next Year) To Cash A/c (Real – Credit what goes out) 7 Cr (in USD) Dr (in USD) Nature of Account Description Sl No

52. Accounting Entries for the Case Study 50000 50000 Real Real Bank A/c Dr (Real asset- Debit what comes in To Cash A/c (Real Asset – Credit what goes out) 11 25000 25000 Real Real Vehicles A/c Dr (Real Tangible Asset Debit what comes in) To Bank A/c (Real asset – Credit what goes out) 10 No Entry No Entry (This is a Mistake done by Bank. Bank has to make correction and in Siva’s Book there is no accounting entry required) 9 Cr (in USD) Dr (in USD) Nature of Account Description Sl No

53. T Accounts Siva Capital Account Furniture Account Cash Account Inventory Account Total 100000 Total 100000 By Cash 50000 By Furniture 50000 To Bal 100000 Cr USD Dr USD Total 50000 Total 50000 By Bal 50000 To Siva Cap 50000 Cr USD Dr USD Total 150000 Total 150000 By Rent 1000 By Rent Adv 1000 By Salary 5000 By Advt Adv 2500 By Advt exp 2500 By Bank 50000 By Balance 88000 To Siva Cap 50000 To Sales 100000 Cr USD Dr USD Total 75000 Total 75000 By COGS 50000 By COGS 10000 By Bal 15000 To Creditors 75000 Cr USD Dr USD

54. T Accounts Creditors Account Rent Account Rent Advance Account Revenue / Sales Account Salary Account Advertisement Exp Account Total 75000 Total 75000 By Invent 75000 To Bal 75000 Cr USD Dr USD Total 1000 Total 1000 By Bal 1000 To Cash 1000 Cr USD Dr USD Total 1000 Total 1000 By Bal 1000 To Cash 1000 Cr USD Dr USD Total 118000 Total 118000 By Cash 100000 By Rece 18000 To Bal 118000 Cr USD Dr USD Total 5000 Total 5000 By Bal 5000 To Cash 5000 Cr USD Dr USD Total 2500 Total 2500 By Bal 2500 To Cash 2500 Cr USD Dr USD

55. T Accounts Advt Exp Advance Account Receivables Account Cost of Goods Sold Account Vehicle Account Bank Account Total 2500 Total 2500 By Bal 2500 To Cash 2500 Cr USD Dr USD Total 18000 Total 18000 By Bal 18000 To sales 18000 Cr USD Dr USD Total 60000 Total 60000 By Bal 60000 To Inventory 50000 To Inventory 10000 Cr USD Dr USD Total 25000 Total 25000 By Bal 25000 To Bank 25000 Cr USD Dr USD Total 50000 Total 50000 By Vehicle 25000 By Bal 25000 To Cash 50000 Cr USD Dr USD

56. Trial Balance Trial Balance for the Month of APRIL 2007 A – Asset, L – Liability, R – Revenue, E - Expense Total 293000 Total 293000 Siva Capital (L) 100000 Sales / Revenue (R) 118000 Creditors (L) 75000 Furniture (A) 50000 Cash (A) 88000 Bank (A) 25000 COGS (E) 60000 Salary (E) 5000 Rent (E) 1000 Rent Advance (A) 1000 Advertisement Exp (E) 2500 Advt Exp Advance (A) 2500 Inventory (A) 15000 Vehicle (A) 25000 Receivable (A) 18000 Credit USD Debit USD

57. Profit and Loss Account For APR 2007 Total 118000 Total 118000 Sales / Revenue (R) 118000 COGS (E) 60000 Salary (E) 5000 Rent (E) 1000 Advertisement Exp (E) 2500 To Profit 49500 Revenue USD Expenses USD

58. Balance Sheet as on 30-APR-2007 Total 224500 Total 224500 Furniture 50000 Vehicle 25000 Cash 88000 Bank 25000 Receivables 18000 Inventory 15000 Rent Advance 1000 Advt Exp Advance 2500 Siva Capital 100000 Add Profit 49500 Siva Capital 149500 Creditors 75000 Assets USD Liabilities USD

62. " There is a difference between an objective and actions. Unless you understand your objective, you will be wasting your time in actions. Know your objective first " - Swami Vivekananda