Unit 1
Theoretical Framework and Accounting Process
6 topics · 1 h 46 min to read · 15% of the marks DU has asked
1.1Accounting as an Information System and Its Users
5 min read
Accounting collects the money facts of a business, processes them, and reports them to the people who need them. Each group of users reads the reports for a different reason.
1.1.1Accounting as an information system
1.1.2Users of accounting information and their needs
1.2Artificial Intelligence and Data Analytics in Accounting
4 min read
Software now does much of the routine recording and checking, and data analytics finds patterns in large volumes of accounting data. The accountant's work moves from entering data towards judgement, review and advice.
1.2.1What the terms mean
1.2.2Uses in accounting, benefits and limits
1.3Conceptual Framework Items
42 min read
This topic covers the ideas that decide what goes into the accounts and how: the qualities good accounting information must have, the scope and branches of accounting, cash and accrual bases, capital and revenue items, and the rules of AS 1, AS 4, AS 5, AS 10 (fair value) and AS 29 on events after the year end, unusual and prior period items, estimates, policies, provisions and contingencies.
1.3.1Qualitative characteristics of accounting information
1.3.2Functions, advantages and limitations of accounting
1.3.3Branches of accounting
1.3.4Basis of accounting: cash and accrual
1.3.5Capital and revenue expenditure and receipts
1.3.6Events occurring after the balance sheet date (AS 4)
1.3.7Net profit, extraordinary, exceptional and prior period items (AS 5)
1.3.8Changes in accounting estimates (AS 5)
1.3.9Accounting policies (AS 1 and AS 5)
1.3.10Fair value
1.3.11Provisions, contingent liabilities and contingent assets (AS 29)
1.4Accounting Concepts & Principles
18 min read
Accounts are useful only if everyone prepares them on the same basic rules. These rules are the generally accepted accounting principles: concepts (the basic assumptions) and conventions (the customs of applying them), with three fundamental assumptions written into AS 1.
1.4.1Accounting principles and GAAP
1.4.2Business entity, money measurement, going concern and accounting period
1.4.3Cost, dual aspect, realisation, accrual and matching
1.4.4Conventions: consistency, conservatism, full disclosure and materiality
1.4.5Fundamental accounting assumptions under AS 1
1.4.6Spotting the principle in a statement
1.5Accounting Standards / IFRS
12 min read
Accounting standards are written rules that turn GAAP into uniform treatments, so that statements can be relied on and compared. India has two sets, AS and the IFRS-converged Ind AS; IFRS are the global standards of the IASB.
1.5.1Accounting standards: meaning, need and benefits
1.5.2How standards are formulated in India
1.5.3Ind AS: IFRS-converged standards; convergence and adoption
1.5.4Which entities apply AS and which apply Ind AS
1.5.5IFRS: meaning, need and scope
1.6The Accounting Process, from Transaction to Trial Balance, with GST
24 min read
Every transaction passes through the same chain: a source document, an entry in a book of original entry, posting to the ledger, and a trial balance; adjusting and closing entries then lead to the final accounts. GST adds input and output tax accounts and a fixed order for setting one against the other.
1.6.1The accounting cycle
1.6.2Double entry, classes of accounts and the rules of debit and credit
1.6.3The journal and subsidiary books
1.6.4The ledger: posting and balancing
1.6.5Trial balance and suspense account
1.6.6Adjustment, transfer and closing entries; GAAP in recording
1.6.7GST in the accounts
Unit 2
Business Income, Accounting for Property, Plant and Equipment, and Valuation of Inventory
5 topics · 1 h 54 min to read · 23% of the marks DU has asked
2.1Business Income
14 min read
Business income is the profit of a period: the revenue earned in it less the costs used up to earn it. Measuring it needs three ideas: cut the life of the business into periods, assume the business will go on, and match each period's expenses with that period's revenue.
2.1.1Revenue and business income
2.1.2Measuring business income: period, continuity and matching
2.1.3Objectives of measuring business income
2.1.4How depreciation and inventory choices change measured income
2.2Revenue Recognition
19 min read
AS 9 decides when revenue from selling goods, rendering services and letting others use the firm's resources enters the Statement of Profit and Loss. The answer turns on when the work is done (performance) and whether the money can reasonably be expected.
2.2.1Revenue under AS 9: meaning and scope
2.2.2Sale of goods: when performance is achieved
2.2.3Rendering of services
2.2.4Interest, royalties and dividends
2.2.5Effect of uncertainties
2.2.6Special cases: a decision table
2.2.7Disclosure
2.3Depreciation & PPE
34 min read
AS 10 (revised 2016) says which long-lived tangible assets are property, plant and equipment, what goes into their cost, and how that cost is spread over the years that use it (depreciation). It also covers disposals, a change of method or estimate (always prospective), revaluation and impairment.
2.3.1Property, plant and equipment: meaning, scope and recognition
2.3.2Cost of an item at recognition
2.3.3Depreciation: meaning, causes and the amount to spread
2.3.4Methods of depreciation
2.3.5The asset account, disposals and losses
2.3.6Change in method, useful life or residual value
2.3.7Cost model and revaluation model
2.3.8Impairment of assets in brief
2.3.9Disclosure
2.4Intangible Assets
19 min read
AS 26 covers assets without physical form, such as patents, copyrights, software and licences. It says when they can be shown as assets (never internally generated goodwill or brands, and never research), at what cost, and how their cost is written off over a life presumed not to exceed ten years.
2.4.1Intangible asset: meaning and scope
2.4.2Recognition and initial measurement
2.4.3Internally generated intangibles: research and development
2.4.4Amortisation
2.4.5Later spending, impairment, retirement and disclosure
2.5Inventory Valuation
28 min read
AS 2 values stock at the lower of cost and net realisable value. Cost covers purchase, conversion and the costs of getting the goods where they are; it is assigned by specific identification, first in, first out (FIFO) or weighted average. The formula chosen changes the cost of goods sold, and so the profit of the year.
2.5.1Inventories: meaning, scope and why valuation matters
2.5.2Measurement: lower of cost and net realisable value
2.5.3Cost of inventories
2.5.4Cost formulas: which one to use
2.5.5Periodic and perpetual inventory systems
2.5.6Working FIFO
2.5.7Working weighted average: periodic and moving
2.5.8Impact of FIFO, LIFO and weighted average on business income
2.5.9Disclosure
Unit 3
Financial Statements of Sole Proprietorship and Not-for-Profit Organisations
2 topics · 1 h 11 min to read · 24% of the marks DU has asked
3.1Sole Proprietorship Final Accounts
42 min read
A sole trader's final accounts turn the year's trial balance into three answers: the gross profit (Trading Account), the net profit (Profit and Loss Account), and what the business owns and owes on the last day (Balance Sheet). Most marks lie in the adjustments. Each adjustment changes two places, and GST balances are set off and shown tax by tax.
3.1.1Final accounts: what they are and the order of work
3.1.2Manufacturing Account
3.1.3Trading Account and Profit and Loss Account
3.1.4Balance Sheet: grouping and marshalling
3.1.5Adjustments, I: stock, outstanding and prepaid items, accruals, depreciation, interest on capital and drawings
3.1.6Adjustments, II: bad debts, provision for doubtful debts, provision for discount
3.1.7Adjustments, III: goods on approval, free samples, drawings in goods, loss by fire, manager's commission
3.1.8GST in final accounts
3.1.9A complete worked example
3.2Not-for-Profit Organisations
29 min read
A club, school or charity keeps accounts to show whether its yearly income covers its yearly spending, not to earn a profit. From the cash summary (Receipts and Payments Account) you build the Income and Expenditure Account on the accrual basis and a Balance Sheet with a capital fund. The marks lie in sorting capital from revenue items and in four workings: subscriptions, consumption, special funds and trading activities.
3.2.1Not-for-profit organisations and the statements they prepare
3.2.2Receipts and Payments Account versus Income and Expenditure Account
3.2.3Capital and revenue items peculiar to NPOs
3.2.4Subscriptions
3.2.5Consumption of stores, sports materials and stationery
3.2.6Special funds: prize, sports, tournament, building and endowment funds
3.2.7Trading activities: bar, restaurant and canteen
3.2.8Preparing the Income and Expenditure Account and Balance Sheet from a Receipts and Payments Account
Unit 4
Accounting for Inland Branches, Departments and Leases
3 topics · 1 h 23 min to read · 37% of the marks DU has asked
4.1Branch Accounting
31 min read
A head office keeps the books of its dependent branches and needs each branch's profit. It uses either the Debtors System (one Branch Account per branch) or the Stock and Debtors System (a set of accounts that also controls stock). When goods go to the branch above cost, the extra (the loading) is taken out so that only real profit is shown.
4.1.1Branches, dependent branches and the two systems
4.1.2Goods sent at cost or at invoice price: loading
4.1.3The Debtors System: the Branch Account
4.1.4Finding missing figures: memorandum accounts
4.1.5The Stock and Debtors System
4.1.6Losses of stock: normal, abnormal, shortage and surplus
4.1.7Special items: transfers, goods in transit, allowances and the manager's commission
4.2Departmental Accounting
18 min read
A business with several departments under one roof finds each department's gross and net profit in one columnar Trading and Profit and Loss Account. Direct items go to their own department, common expenses are shared on a fair basis, and profit on goods passed between departments stays out of the result until those goods are sold outside.
4.2.1Departmental accounts: meaning, objectives and methods
4.2.2Departmental accounting and branch accounting compared
4.2.3The columnar Departmental Trading and Profit and Loss Account
4.2.4Sharing common expenses
4.2.5Goods passed between departments
4.2.6A common gross profit rate
4.2.7From a trial balance to departmental accounts and the Balance Sheet
4.3Leases
33 min read
A lease allows one party to use another's asset for a period in return for rent. Under AS 19 everything turns on one question: does the lease pass substantially all the risks and rewards of owning the asset to the user? If it does (a finance lease), the user shows the asset and a loan, and the owner shows a receivable; if not (an operating lease), the rent is simply an expense and an income.
4.3.1Lease: meaning, AS 19's scope and the key terms
4.3.2Finance lease or operating lease: the AS 19 tests
4.3.3Kinds of finance lease and sale and leaseback
4.3.4Finance lease in the lessee's books
4.3.5Finance lease in the lessor's books: gross investment, net investment and unearned finance income
4.3.6Operating lease in both books
4.3.7AS 19 and Ind AS 116
Unit 5
Computerised Accounting Systems
1 topic · 42 min to read
5.1Computerised Accounting Systems
42 min read
Accounting software keeps the same double-entry books, but you enter each transaction once, as a voucher, and the software posts it and prepares the cash book, ledgers, trial balance and final accounts by itself. The work runs in a fixed order: create the company, set its features, create groups and ledgers, create stock items, enter vouchers, read the reports, and keep a backup.