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CPT Section A Chapter 1Unit 1

CA.S.S.Prathap

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What is a River ?

River is a flow of water.

What is Accounts ?

At one level , it can be saidas tracking the flow ofmoneythrough a business.

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It starts with what is called a

Transaction . Transaction is

an exchange.Example : You go to a shop

and buy a pen . The money

is exchanged for a pen.

Example : You go to a doctor .The

money is exchanged for service.

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Based on the above

understanding can you makesome rules for a transaction ?

1. Transaction must have two sides . This iscalled Dual Aspect. Thats why we called

accounts as double entry book-keeping.It

was invented by Lucio Paciolio.

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2. Second rule for a transaction is , it has

to be in terms of money . This is thefamous Money measurement concept.

The flip side is if any transaction cannot be

measured in terms of money , it cannot be

recorded in the books of accounts.

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A Transaction is one-off. Example : Rent paid for the month ,

Purchase of goods.

An event is a result of number of transactions and it has to

appear in Balance Sheet .

Example : Profit for the year

Closing stock It is the result of number of purchases and sales.

Entire Balance Sheet : It is as a final result of the entire years

operation.

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Transactions are recorded in journal.

Journal is a book of original entry.

It is known as secondary book.

It consist of five columns.

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From Ledger , the balances are extracted to

Trial Balance.

Trial balance is a statement.

It shows arithmetic accuracy.

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1 - Real A/c

2 - Nominal A/c

3 - Personal A/c

4 - Representative Personal A/c

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Real A c Nominal A c Personal A c

Land Salary Capital

Building Wages DrawingsPlant and Sales Bank

Machinery Discount Debtors

Cash Creditors

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Real A c

Debit what comes in

Credit what goes out

Nominal A c

Debit all expenses and losses

Credit all incomes and gains

Personal A c

Debit the receiver

Credit the giver

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The fourth type of account is Representative personal A/c .

All unpaid expenses / prepaid expenses

It will appear in the liabilities side of the Balance Sheet.

Example : outstanding salary , prepaid rent.

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From Trial balance Nominal A/c are closed and transferred to

Trading and Profit & Loss A/c.

Real and Personal A/c are not closed and not balanced

and entered in the Balance Sheet.

The preparation of Trading , P& L and Balance Sheet is

called Final A/c

Final A/c is the last step for the accounting process.

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In Big companies Final A/c are published

as Annual Reports (Financial Statements)

The total set consist of Trading , Profit &Loss , Balance Sheet , Cash flow & Notes

to accounts.

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Transaction

Journal

Ledger

Trial

Balance

Trading

A/c

P&L A/cBalance

Sheet

Final

Accounts

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Accounting ,Chapter1 - Unit 1CA.S.S.Prathap

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DEFINITION

Accounting is the art of

Recording , Classifying and Summarising

in a significant manner in terms of money, Transaction and Event which are in part

at least of a financial character and

interpreting the results thereof.

Committee of Terminology of AICPA

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PROCEDURALASPECTSOFACCOUNTING

Procedure of Accounting

Generating financial Using the financial

information information

Recording Analyse

Classifying Interpret

Summarizing Communicate

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OBJECTIVESOFACCOUNTING

Systematic record of transactions.

(i.e.,) Book-keeping

Ascertainment of results

(i.e.,) Trading , Profit & Loss A/cAscertainment of financial position

(i.e.,) Balance Sheet

Providing information to users.

(i.e.,) Financial Reports

To know the solvency position.

(i.e.,) Liquidity

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Measurement

Forecasting

Decision making

Comparison & Evaluation

Control

Government Regulation

Taxation

FUNCTIONSOFACCOUNTING

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Investors

Employees

Lenders

Suppliers

Customers

Government

Public

USERSOFACCOUNTINGINFORMATION

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Capital =Asset -Liabilities

Asset =Capital + Liability

Liability=Asset -Capital

FAE is seen in Balance Sheet

Balance Sheet follows Dual aspect concept

FUNDAMENTALACCOUNTINGEQUATION

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Management Accounting

Cost Accounting

Financial Accounting

All of the Above

Answer : D

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Decision Makings

Measurement

Forecasting

Ledger Posting

Answer: D

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Dual aspect

Business Entity

Going Concern

All of the above

Answer: A

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An event

A transaction

Both event as well as transaction

Neither event nor transaction

Answer: A

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Balance Sheet

Trading , Profit and Loss A/c

Cash Flow Statement

All of these

Answer: D

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Lucio Paciolio 1494

Adam smith

Kohler

Karl Marx

Answer: A

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A transaction

An event

None of these

Both transaction as well as an event

Answer: D

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Management Accounting

Cost accounting

Financial accounting

Inflation accounting

Answer: D

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Shareholders

Government

Vendors

All the above

Answer: D

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Total Sales

Total Profit & Loss

Capital

Cost of production

Answer: D

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Event

Transaction

Both

None

Answer: B

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Assets - Liabilities = Capital

Capital - Liabilities = Assets

Assets + Capital = Liabilities

None of the above

Answer: A

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Real account

Nominal Account

Personal account

Representative Personal Account

Answer: D

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In this module , we learnt

Accounting cycle

Types of Accounts

Golden Rules

AICPA definition

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Procedural aspects of Accounting

Objectives of Accounting

Functions of Accounting

Sub-fields of Accounting

Users of Accounting

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Fundamental Accounting Equation

Relationship between Book-keeping

and Accounting.

Accounts must always follow FACTS.

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