INTRODUCTION

TO
ACCOUNTING
 Introduction
 Meaning & Definition

 Objectives of Accounting

 Functions of Accounting

 Users Of Accounting Information

 Limitations of Accounting

 Accounting Cycle

 Accounting Principles

 Accounting Concepts and Conventions

 Accounting Standards

 Objectives, Significance of Accounting Standards

 List of Indian Accounting Standards

 Introduction
3

 Accounting is on of the fastest growing professions and

ranks among the most popular fields of study in colleges,
universities and business schools. It offers interesting
challenging and rewarding careers.

 Business enterprises, government agencies, charities and

individuals need information to make sound decisions.
The accounting system provides relevant and reliable
financial information to interested parties.

 Accounting is often called the Language Of Business

 Procedure Aspects of Accounting
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Procedure Aspects
of Accounting

Generating Using the

Financial Financial
Information Information

Recording Classifying Summarizing Analyzing Interpreting Communicating

Trial Balance Proper

Decision Distribution
P & L Account Arrangement of
Journal Ledger Balance Sheet Items Making
of Financial
Cash Flow Statement (Accounting) Statements
 Meaning and Definition
5

 Meaning : Accounting is the process of recording financial

transactions pertaining to a business.

 Definition: According to American Institute of Certified

Public Accountants (AICPA),‘Accounting is the art of
recording, classifying and summarizing 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’.
 Objectives of Accounting
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 Systematic recording of transactions – Basic objective of accounting is to

systematically record the financial aspects of business transactions i.e. book-
keeping. These recorded transactions are later on classified and summarized
logically for the preparation of financial statements and for their analysis and
interpretation.

 Ascertainment of results of above recorded transactions – Accountant prepares

profit and loss account to know the results of business operations for a particular
period of time. If revenue exceed expenses then it is said that business is running
profitably but if expenses exceed revenue then it can be said that business is
running under loss. The profit and loss account helps the management and
different stakeholders in taking rational decisions. For example, if business is not
proved to be remunerative or profitable, the cause of such a state of a air can be
investigated by the management for taking remedial steps.
 Objectives of Accounting
7

 Ascertainment of the financial position of the business – Businessman is not only

interested in knowing the results of the business in terms of profits or loss for a
particular period but is also anxious to know that what he owes (liability) to the
outsiders and what he owns (assets) on a certain date. To know this, accountant
prepares a Financial position statement popularly known as Balance Sheet. The
balance sheet is a statement of assets and liabilities of the business at a particular point
of time and helps in ascertaining the Financial health of the business.
 Providing information to the users for rational decision-making – Accounting as a
‘language of business’ communicates the financial results of an enterprise to various
stakeholders by means of financial statements. Accounting aims to meet the
information needs of the decision-makers and helps them in rational decision-making.
 To know the solvency position – By preparing the balance sheet, management not
only reveals what is owned and owed by the enterprise, but also it gives the
information regarding concern’s ability to meet its liabilities in the short run (liquidity
position) and also in the long-run (solvency position) as and when they fall due.
 Functions of Accounting
8

 Measurement: Accounting measures past performance of the business entity and

depicts its current financial position
 Forecasting: Accounting helps in forecasting future performance and financial
position of the enterprise using past data and analysing trends.
 Decision-making: Accounting provides relevant information to the users of accounts to
aid rational decision-making.
 Comparison & Evaluation: Accounting assesses performance achieved in relation to
targets and discloses information regarding accounting policies and contingent
liabilities which play an important role in predicting, comparing and evaluating the
financial results.
 Control: Accounting also identifies weaknesses of the operational system and provides
feedbacks regarding effectiveness of measures adopted to check such weaknesses.
 Government Regulation and Taxation: Accounting provides necessary information to
the government to exercise control on the entity as well as in collection of tax
revenues.
 Need For Accounting
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 Creating Records
 Creating Evidence
 Decision Making
 Control
 Prevention of Frauds and Losses
 Determination of Tax Liability
 Legal Requirements
 Comparative Study of Business
 Sanctioning Of Loans
 Planning
10

Book Keeping

Accounting

Accountancy
 Book-Keeping
The Initial Step Of Accounting
11

 Book-keeping may be defined as the science and art of

identifying and recording accounting transactions
systematically in the proper books of accounts.

Process Of Book-Keeping.
1 . Identifying Accounting Transactions
Financial In Nature
Documentary Proof
2 . Initial Recording of Accounting Transactions
Purchase Book, Sales Book, Returns Inward Book,
Returns Outward Book, Bills Receivable Book, Bills
Payable Book, Cash Book & Journal Proper
 Book-Keeping
The Initial Step Of Accounting
12

Process Of Book-Keeping.
3 . Preparation Of Ledger Accounts
All Transaction relating to particular person, party or
item are put together at one place under one head.
4 . Balancing Ledger Accounts
It reveal the balances of expenses, revenue, Liability,
Capital & Assets.
5 . Preparation of Trial Balance.
Prepared to check Arithmetical accuracy.
It considers the Dual Aspect of Every Transaction
 Accounting
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 Accounting is an art of Identifying, Classifying, Recording,

Summarizing and Interpreting business transactions of
financial nature.

Summarizing and Interpreting Business

ACCOUNTING = Book-Keeping +
Transaction of Financial Nature
 Difference Between Book-Keeping and Accounting
14

Points Of
Difference Book-Keeping Accounting
Restricted to Journal, Subsidiary It is to Record, Analysis &
Objective
books & Ledger accounts only. Interpret the Business Transactions.

Scope Limited Scope Wider Scope

Level Of
Low Level Low, Medium & even Top Level
Work
Mutual
Depending on Accounting Depending on Book-Keeping
Dependence
Result Of The It does not show the Net Result It Shows the Net Result of
Business of Financial Position Financial Position
The Methods of Reporting &
Principles Of Accounting Concepts &
Interpretation in accounting may
Accounting Conventions are followed
vary from firm to firm.
 Accountancy
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 Accountancy is a wider discipline greater than Book-

Keeping and Accounting. It absorbs both Book-Keeping
and Accounting. It refers to both the conceptual
knowledge of the subject and its application part also. It
also tells us, why and how to summarize accounting
information and communicate it to concerned parties

Summarizing, Interpreting
BOOK-
ACCOUNTANCY = + ACCOUNTING + and Communicating
KEEPING
Accounting Information
 Book-Keeping, Accounting and Accountancy
16

Book- Identifying Accounting Transactions, Initial Records,

=
Keeping Preparation of Ledger Accounts and Trial Balance

Summarizing and Interpreting Business

ACCOUNTING = Book-Keeping +
Transaction of Financial Nature

Summarizing, Interpreting
BOOK-
ACCOUNTANCY = + ACCOUNTING + and Communicating
KEEPING
Accounting Information
 Users Of Accounting
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USERS EXAMPLES QUESTIONS/CONCERNS

 Retail Investors  Should I buy, hold or sell an enterprise’s
 Mutual Fund, shares?
Investors,
 Private Equity Funds  Will the investment yield good dividends
Security
 Hedge Funds, regularly?
Analysts, &
 Equity & Bond  Is an enterprise in which I have invested
Other
Analysts or thinking of investing performance well?
Information
 Credit Rating  All the shares a good medium to long
Specialists
Agencies term investment?
 Investment Banks
 Banks  Can my borrower pay the principal and
 Debenture Holders interest on time?
Lenders
 Leasing Companies  What should be the security and interest
rate for a loan?
 Users Of Accounting
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USERS EXAMPLES QUESTIONS/CONCERNS

 Chief Executive  How is my business performing relative to
Officer our competitors?
 Chief Finance Officer  Which Projects should I invest in?
Managers  Marketing Managers  Do the financial reports communicate my
 Production Managers firm’s true value?
 Profit Centre Heads  Will it be profitable for me to buy out my
business?
 Factory and Offices  How much increase in wages and bonuses
workers can my employer afford?
Employees  Trade Unions  Can my employer continue to be in
and Trade  Trade union business?
Unions federations  Can my employer honour its future
obligations for pension, health and other
post-retirement benefits?
 Users Of Accounting
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USERS EXAMPLES QUESTIONS/CONCERNS

 Suppliers of  Will my customer be a major sources of
Suppliers & Materials business?
Trade  Services and Utilities  Can my customer pay for its purchase on
Financers  Short-term Financers time?
 Can my borrower repay on time?
 Past, Present and  Is my supplier a reliable and competitive
Prospective source?
customers  Can I count on my supplier to provide
Customers spare parts for equipment?
 Does my supplier have the financial
resources to honour its warranty
obligations?
 Users Of Accounting
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USERS EXAMPLES QUESTIONS/CONCERNS

 Income Tax Officers  Is a business evading income tax, excise duty,
 Excise & Service Tax service tax, sales tax or other government
Officers levies?
 Commercial Tax  Should the government subsidize an industry,
Government
Officers increase taxes, or give it protection for
and
 Ministry of Finance dumping?
Regulatory
 Ministry of Corporate  Does a bank follow prudent financial norms?
Authorities
Affairs  Does a business make required disclosures of
 SEBI, RBI, SECCI its financial affairs?
 Is a business abusing its monopoly by
overcharging its customers?
 Local Community  Does a business exploit local suppliers or
 Political Parties labour?
 Public Affairs groups  Does a business earn profits by compromising
The Public  Consumer groups on product safety or damaging the
 Environmental environment?
Activists  Does a business make abnormal profits by
deterring competition in its industry?
 Limitations of Accounting
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 Limitations Of Accounting
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In accountancy, one cannot measure the value of non-monetary terms,

things, or events. In other words, if certain factors cannot be expressed in
terms of money then they cannot be included in accounting no matter how
important it is for the company. Some important but non-monetary qualities
01 Measurability are management, loyalty, reputation, hard work, employees' and customers'
satisfaction, the firm's ability to develop new products, cordial management-
labor relationship, etc. are not mentioned in the company's balance sheet or
income statement. Hence, accounting focuses on the quantities only not on
the qualities.
Financial statements are the presentation of the company's financial position
as of the date of preparation. The users of these statements are more
interested in getting information about the company's future performance in
the short and long run. However, it is not possible with accounting to make
any such estimates.
02 No Future Assessment As we know, how dynamic the business environment is. It can change very
quickly due to changes in demand for the product, technology, customers'
tastes and preferences, competitors' position, policies adopted by the firm,
market inflation or depression, etc. Auditors sometimes rectify the
limitations of accounting by disclosing the important events or changes that
occur after the balance sheet date.
 Limitations Of Accounting
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The value in accounting is often measured by using the historical data or

costs which ignores the current factors or market conditions such as inflation,
03 Historical Costs price changes, demand and supply effect, etc. Because of this the accounting
records and information get skew the relevance and reduce the originality
and reliability of the accounting data.
Accounting policies do not work on a global standard. For example, in
India, accounting standards are used, in USA GAAP and some international
standards named IFRS are used, and so in other countries. So if a company is
operating its business in more than one country then it can be confusing to
04 Accounting Policies apply a particular standard and even if the company does not choose a
single standard then the results can fluctuate.

This is because all accounting policies do not follow the same line of
thinking which may cause conflicts.
An accountant can't determine the exact amount of an asset. That's
sometimes estimation is required in accounting also. But the problem is that
Influenced by Personal these estimations are based on the personal judgment of the accountant and
05
Judgments also these are very subjective. In short, these estimates are a person's guess
for future events. Such estimates are made for the work related to the
provision of doubtful debt, methods of depreciation, etc.
 Limitations Of Accounting
24

There is no guarantee of the correctness of the financial statements even

06 Verifiability after having an audit of them. The auditor can only assure that the
statements are free from error as per his knowledge and skills.
Accounting is completed by human beings so there is always a possibility of
having errors in it. Sometimes, there is also a scope of manipulation of
07 Errors and Frauds accounts to hide fraud. Since fraud is a deliberate activity, it is very difficult
to spot it. It is one of the most dreaded limitations of the accounting system.
The practice of manipulating the accounts to disclose the company in a
more favorable position than the actual position by the means of its
Affected by Window financial statements is known as window dressing. For example, a company
08
Dressing may not record the purchases made at the end of the year or the closing
stock may be overvalued. Hence, the true position of the company can't be
concluded on the basis of such financial statements.
Another limitation is that the accounting statements provide incomplete
information regarding the profit and loss of a business because logically, the
09 Incomplete Information actual profit and loss of a business can only be calculated after the closed
down of it.
Some other drawbacks or limitations of accounting are as under:
 Installation cost is very high.
 Based on financial and cost records.
10 Others  Preference for intuitive decision making.
 So much complex and difficult to apply. Hence, can be done by experts only.
 Highly time and resources consuming process.
 Accounting Cycle
25

The accounting cycle is a

multistep process used by
businesses to create an accurate
record of their financial position,
as summarized on their financial
statements.

During the cycle’s various stages,

companies will record their
financial transactions in a
journal, transfer the details into
a general ledger, analyze the
entries and make sure the books
are balanced and error-free
before generating financial
statements and closing the books
for the period.
 Accounting Cycle Steps
26

1. Identification of business transactions

 The first step of the accounting cycle beings with the identification of financial
transaction that have occurred in the business. In this accounting cycle, the accountant
or the bookkeeper collects the data of all the transactions such as purchases, sales,
payments, receipts etc. and keeps the data ready to complete the next step of the
accounting cycle. Here, the accountant or bookkeeper analyze the nature of
transactions, accounts impacted etc.
2. Recording of transactions in the books of accounts
 The next step of the accounting cycle is the most crucial and important. In this
accounting cycle, the bookkeeper or accountant records the financial transaction in
the book of accounts. This step of the accounting cycle is also known as a journal
entry and the book in which it is recorded is a journal book.
 Here, all the transactions are recorded in chronological order along with the ledger
accounts involved, amounts in Dr/Cr and narration (a brief note on the transactions)
 Accounting Cycle Steps
27

3. Ledger posting
Ledger posting simply refers to posting the financial transactions recorded in journal
books to individual ledger statements. For example, in preparing a cash ledger account,
you must post all Debits (receipts) and Credit (payments) into a statement and the
difference between these two including the opening balance of cash will be the closing
balance.
This part of the accounting cycle includes posting all the Debit and Credit transactions

into a statement belonging to a ledger account as shown in the below image.

 Accounting Cycle Steps
28

4. Prepare un-adjusted trial balance

 In this step, you must list all ledger accounts with closing balance posted from
individual ledger accounts statement (discussed above). The format of the trial
balance consists of the Debit column and Credit column in which the closing balance
of each ledger accounts will be posted. After posting the closing balance of all the
ledger accounts, the debit balance should match with the credit balance.
This is the primary source for preparing the final accounts and all other financial
statements.
 Accounting Cycle Steps
29

5. Post the adjustment entries

 Here, adjustment entries such as accrued incomes, depreciation, etc. are posted
considering the unadjusted trial balance prepared earlier.

6. Prepare the adjusted trial balance

 Adjusted trial balance is a statement listing all the closing balance of the ledger
accounts after all the adjustment entries related to the accounting period is posted
into the books of accounts.
7. Prepare financial statements
 This is the most important step of the accounting cycle. Once you have followed all
the above steps of the accounting cycle, it’s time for you to start preparing financial
statements. Profit & Loss account and Balance sheet are the two key financial
statements.
 Profit and loss account: Profit and loss accounts is a financial statement prepared to
know the profitability of the business. This is also known as Income Statement.
Balance sheet: Balance sheet is one of the topmost financial statements prepared by
businesses. The financial details of the balance sheet help you and the external
stakeholders to evaluate the financial performance of the business on a given date.
 Accounting Cycle Steps
30

8. Closing the books of accounts

 Closing books of accounts refer to freezing books from recording the business
transaction. This is done after the closure of the accounting period and posting all the
adjustment entries. At this stage of the accounting cycle, all the financial statements
are prepared and new books for the subsequent financial year will be started.
 Concepts and Conventions of Accounting
31

 “Accounting Principles are those rules or procedure which

are adopted by the accountants in general while
recording the accounting transactions of a business”

 “Accounting Concepts includes those basic assumptions

and conditions on which the accounting is based”

 “Accounting Conventions are the customs or traditions

which are followed by the accountants as a guide in the
preparation of the financial statements of a business
concern”
 Concepts and Conventions of Accounting
32

SL.No Accounting Concepts Accounting Conventions

1. Money Measurement Concept Convention of Consistency
2. Business Entity Concept Convention of Disclosure
3. Going Concern Concept Convention of Conservatism
4. Cost Concept Convention of Materiality
5. Dual Aspect Concept
6. Realization Concept
7. Accounting Period Concept
8. Matching Concept
9. Accrual Concept
 Concepts and Conventions of Accounting
33

Frame Works of Accounting

Modifying
Assumptions Concepts
Principles

1. Accounting Entity 1. Dual Aspect 1. Cost Benefit

2. Money Measurement 2. Revenue Realization 2. Materiality
3. Accounting Period 3. Historical Cost 3. Consistency
4. Going Concern 4. Matching 4. Prudence
5. Full Disclosure
6. Verifiable and objective evidence
 Accounting Concepts
Money Measurement Concept
34

 This concept assumes that all business transactions must

be in terms of money, that is in the currency of a country.
In our country such transactions are in terms of rupees.
 Significance
🞑 This concept guides accountants what to record and what not
to record.
🞑 It helps in recording business transactions uniformly.

🞑 If all the business transactions are expressed in monetary terms,

it will be easy to understand the accounts prepared by the
business enterprise.
🞑 It facilitates comparison of business performance of two
different periods of the same firm or of the two different firms
for the same period.
 Accounting Concepts
Business Entity Concept
35

 This concept assumes that, for accounting purposes, the

business enterprise and its owners are two separate
independent entities. Thus, the business and personal
transactions of its owner are separate
 Significance
🞑 This concept helps in ascertaining the profit of the business as only
the business expenses and revenues are recorded and all the private
and personal expenses are ignored.
🞑 This concept restraints accountants from recording of owner’s
private/ personal transactions.
🞑 It also facilitates the recording and reporting of business transactions
from the business point of view
🞑 It is the very basis of accounting concepts, conventions and principles
 Accounting Concepts
Going Concern Concept
36

 This concept states that a business firm will continue to

carry on its activities for an indefinite period of time.
Simply stated, it means that every business entity has
continuity of life. Thus, it will not be dissolved in the
near future.
 Significance
🞑 This concept facilitates preparation of financial statements.
🞑 On the basis of this concept, depreciation is charged on the fixed
asset.
🞑 It is of great help to the investors, because, it assures them that
they will continue to get income on their investments.
🞑 In the absence of this concept, the cost of a fixed asset will be
treated as an expense in the year of its purchase.
🞑 A business is judged for its capacity to earn profits in future.
 Accounting Concepts
Cost Concept
37

 Cost concept states that all assets are recorded in the books of
accounts at their purchase price, which includes cost of
acquisition, transportation and installation and not at its
market price. It means that fixed assets like building, plant and
machinery, furniture, etc. are recorded in the books of
accounts at a price paid for them.
 Significance
🞑 This concept requires asset to be shown at the price it has been
acquired, which can be verified from the supporting documents.
🞑 It helps in calculating depreciation on fixed assets.
🞑 The effect of cost concept is that if the business entity does not
pay anything for an asset, this item will not be shown in the
books of accounts.
 Accounting Concepts
Dual Aspect Concept
38

 This concept assumes that every transaction has a dual

effect, i.e. it affects two accounts in their respective
opposite sides. Therefore, the transaction should be
recorded at two places. It means, both the aspects of the
transaction must be recorded in the books of accounts
 Significance
🞑 This concept helps accountant in detecting error.
🞑 It encourages the accountant to post each entry in opposite
sides of two affected accounts.
 Accounting Concepts
Realization Concept
39

 This concept states that revenue from any business

transaction should be included in the accounting records
only when it is realized. The term realization means
creation of legal right to receive money. Selling goods is
realization, receiving order is not.
 Significance
🞑 It helps in making the accounting information more
objective.
🞑 It provides that the transactions should be recorded only
when goods are delivered to the buyer.
 Accounting Concepts
Accounting Period Concept
40

 All the transactions are recorded in the books of accounts

on the assumption that profits on these transactions are
to be ascertained for a specified period.
 Significance
🞑 It helps in predicting the future prospects of the business.
🞑 It helps in calculating tax on business income calculated for
a particular time period.
🞑 It also helps banks, financial institutions, creditors, etc. to
assess and analyze the performance of business for a
particular period.
🞑 It also helps the business firms to distribute their income at
regular intervals as dividends.
 Accounting Concepts
Matching Concept
41

 The matching concept states that the revenue and the

expenses incurred to earn the revenues must belong to
the same accounting period. So once the revenue is
realized, the next step is to allocate it to the relevant
accounting period. This can be done with the help of
accrual concept.
 Significance
🞑 It guides how the expenses should be matched with revenue
for determining exact profit or loss for a particular period.
🞑 It is very helpful for the investors/shareholders to know the
exact amount of profit or loss of the business.
 Accounting Concepts
Accrual Concept
42

 The meaning of accrual is something that becomes due

especially an amount of money that is yet to be paid or
received at the end of the accounting period
 The accrual concept under accounting assumes that
revenue is realized at the time of sale of goods or services
irrespective of the fact when the cash is received
 Significance
🞑 It helps in knowing actual expenses and actual income
during a particular time period.
🞑 It helps in calculating the net profit of the business.
 Accounting Conventions
43

 Convention of Consistency:
🞑 The aim of consistency principle is to preserve the
comparability of financial statements. The rules, practices,
concepts and principles used in accounting should be
continuously observed and applied year after year.

 Convention of Disclosure :
🞑 According to this convention “ All the important information
should be fully disclosed in the financial statements of a
concern, since such statements are meant for the use of various
parties”
 Accounting Conventions
44

 Convention of Conservatism:
🞑 According to this convention “A safe policy is adopted in
preparing the financial statements of a concern. It means that
the anticipated profits are ignored where as the anticipated
losses are provided for while preparing the financial
statements.”

 Convention of Materiality :
🞑 According to this convention “ Only the significant
information which is material in nature, is disclosed in the
financial statements”.
 Accounting Standards
45

 Accounting Standards are written policy documents

issued by expert accounting body or by the government
or other regulatory body covering the aspects of
recognition, measurement, treatment, presentation, and
disclosure of accounting transactions in financial
statements.
 Objectives of Accounting Standards
46

 To provide a standard for the diverse accounting policies and

principles.
 To put an end to the non-comparability of financial statements.
 To increase the reliability of the financial statements.
 To provide standards which are transparent for users.
 To define the standards which are comparable over all periods
presented.
 To provide a suitable starting point for accounting.
 It contains high quality information to generate the financial reports.
This can be done at a cost that does not exceed the benefits.
 For the eradication the huge amount of variation in the treatment of
accounting standards.
 To facilitate ease of both inter-firm and intra-firm comparison.
 Significance of Accounting Standards
47

 Attains Uniformity in Accounting : Accounting Standards provides

rules for standard treatment and recording of transactions. They
even have a standard format for financial statements. These are steps
in achieving uniformity in accounting methods.

 Improves Reliability of Financial Statements: There are many

stakeholders of a company and they rely on the financial statements
for their information. Many of these stakeholders base their decisions
on the data provided by these financial statements. Then there are
also potential investors who make their investment decisions based
on such financial statements. So it is essential these statements
present a true and fair picture of the financial situation of the
company. The Accounting Standards (AS) ensure this. They make
sure the statements are reliable and trustworthy.
 Significance of Accounting Standards
48

 Prevents Frauds and Accounting Manipulations: Accounting

Standards (AS) lay down the accounting principles and
methodologies that all entities must follow. One outcome of this is
that the management of an entity cannot manipulate with financial
data. Following these standards is not optional, it is compulsory. So
these standards make it difficult for the management to misrepresent
any financial information. It even makes it harder for them to
commit any frauds.

 Assists Auditors : Now the accounting standards lay down all the
accounting policies, rules, regulations, etc in a written format. These
policies have to be followed. So if an auditor checks that the policies
have been correctly followed he can be assured that the financial
statements are true and fair.
 Significance of Accounting Standards
49

 Comparability : This is another major objective of accounting standards.

Since all entities of the country follow the same set of standards their
financial accounts become comparable to some extent. The users of the
financial statements can analyze and compare the financial performances of
various companies before taking any decisions. Also, two statements of the
same company from different years can be compared. This will show the
growth curve of the company to the users.

 Determining Managerial Accountability : The accounting standards help

measure the performance of the management of an entity. It can help
measure the management’s ability to increase profitability, maintain the
solvency of the firm, and other such important financial duties of the
management. Management also must wisely choose their accounting
policies. Constant changes in the accounting policies lead to confusion for
the user of these financial statements. Also, the principle of consistency and
comparability are lost.
 Indian Accounting Standards
50

 The Ministry of Corporate Affairs (MCA), in 2015, had notified the Companies (Indian Accounting
Standards (IND AS)) Rules 2015, which stipulated the adoption and applicability of IND AS in a
phased manner beginning from the Accounting period 2016-17.
 The MCA has since issued three Amendment Rules, one each in year 2016, 2017, and 2018 to
amend the 2015 rules. The IND AS are basically standards that have been harmonised with the
IFRS to make reporting by Indian companies more globally accessible.
 Since Indian companies have a far wider global reach now as compared to earlier, the need to
converge reporting standards with international standards was felt, which has led to the
introduction of IND AS.
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 Transactions:- Transactions are those activities of a business, which

involve transfer of money or goods or services between two persons
or two accounts.
 Cash Transaction:- is one where cash receipt or payment is involved
in the transaction
 Credit Transaction:- is one where cash is not involved immediately
but will be paid or received later.
 Proprietor:- A person who owns a business is called its proprietor.
He contributes capital to the business with the intention of earning
profit.
 Capital :- It is the amount invested by the proprietor/s in the
business. This amount is increased by the amount of profits earned
and the amount of additional capital introduced. It is decreased by
the amount of losses incurred and the amounts withdrawn.
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 Assets:- Assets are the properties of every description belonging to

the business. Cash in hand, plant and machinery, furniture and
fittings, bank balance, debtors, bills receivable, stock of goods,
investments, Goodwill are examples for assets.
 Tangible Assets:- These assets are those having physical existence. It
can be seen and touched. For example, plant & machinery, cash, etc.
 Intangible Assets:- Intangible assets are those assets having no
physical existence but their possession gives rise to some rights and
benefits to the owner. It cannot be seen and touched. Goodwill,
patents, trademarks are some of the examples.
 Liabilities:- Liabilities refer to the financial obligations of a business.
These denote the amounts which a business owes to others
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 Drawings:- It is the amount of cash or value of goods withdrawn

from the business by the proprietor for his personal use. It is
deducted from the capital.
 Debtors:- A person (individual or firm) who receives a benefit
without giving money or money’s worth immediately, but liable to
pay in future or in due course of time is a debtor. The debtors are
shown as an asset in the balance sheet.
 Creditors:- A person who gives a benefit without receiving money or
money’s worth immediately but to claim in future, is a creditor. The
creditors are shown as a liability in the balance sheet.
 Purchases:- Purchases refers to the amount of goods bought by a
business for resale or for use in the production. Goods purchased for
cash are called Cash Purchases. If it is purchased on credit, it is called
as Credit Purchases. Total purchases include both cash and credit
purchases.
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 Purchases Return or Returns Outward:- When goods are returned to

the suppliers due to defective quality or not as per the terms of
purchase, it is called as purchases return. To find net purchases,
purchases return is deducted from the total purchases.
 Sales:- Sales refers to the amount of goods sold that are already
bought or manufactured by the business. When goods are sold for
cash, they are Cash Sales but if goods are sold and payment is not
received at the time of sale, it is Credit Sales. Total sales includes
both cash and credit sales.
 Sales Return or Returns Inward:- When goods are returned from the
customers due to defective quality or not as per the terms of sale, it
is called sales return or returns inward. To find out net sales, sales
return is deducted from total sales.
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 Stock:- Stock includes goods unsold on a particular date. Stock may be

opening and closing stock. The term opening stock means goods unsold
in the beginning of the accounting period. Whereas the term closing
stock includes goods unsold at the end of the accounting period.
 Revenue:- Revenue means the amount receivable or realized from sale
of goods and earnings from interest, dividend, commission, etc.
 Expense:- It is the amount spent in order to produce and sell the goods
and services. For example, purchase of raw materials, payment of
salaries, etc.
 Income:- Income is the difference between revenue and expense.
 Voucher:- It is a written document in support of a transaction. It is a
proof that a particular transaction has taken place for the value stated in
the voucher. It may be in the form of cash receipt, invoice, cash memo,
bank pay-in-slip etc. Voucher is necessary to audit the accounts.
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 Invoice:- Invoice is a business document which is prepared when

one sell goods to another. The statement is prepared by the seller
of goods. It contains the information relating to name and
address of the seller and the buyer, the date of sale and the clear
description of goods with quantity and price.
 Receipt:- Receipt is an acknowledgement for cash received. It is
issued to the party paying cash. Receipts form the basis for entries
in cash book.
 Account:- Account is a summary of relevant business transactions
at one place relating to a person, asset, expense or revenue
named in the heading. An account is a brief history of financial
transactions of a particular person or item. An account has two
sides called debit side and credit side.
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