Accounting For Managers (For VTU)

701 Pages·2011·7.303 MB·English

by  V. Rajasekaran

Accounting
for
mAnAgers
V. Rajasekaran
Educationist
FM.indd 1 7/15/2011 1:45:31 PM
Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd
Licensees of Pearson Education in South Asia
No part of this eBook may be used or reproduced in any manner whatsoever without the publisher’s prior written
consent.
This eBook may or may not include all assets that were part of the print version. The publisher reserves the right to
remove any material present in this eBook at any time.
ISBN 9788131765012
eISBN 9788131776131
Head Office: A-8(A), Sector 62, Knowledge Boulevard, 7th Floor, NOIDA 201 309, India
Registered Office: 11 Local Shopping Centre, Panchsheel Park, New Delhi 110 017, India
FM.indd 2 7/15/2011 1:45:31 PM
Brief contents
Preface xviii
1 Accounting as an Information System 1
2 Nature of Financial Accounting Principles 14
3 Accounting Standards 28
4a Accounting Process – Journal 46
4b Accounting Process – Ledger 92
4c Accounting Process – Subsidiary Books 110
4d Accounting Process – From Journal to Trial Balance 158
5 Accounting Process – From Trial Balance to Final Accounts
and Final Accounts of Non-corporate Business Entities 193
6 The Nature of Depreciation 279
7 Inventory – Valuation 335
8 Dissolution of Partnership 373
9 Financial Statement Analysis 473
10 Accounting Ratios 509
11 Cash Flow Statement 579
Model Question Papers 639
FM.indd 3 7/15/2011 1:45:31 PM
This page is intentionally left blank.
FM.indd 4 7/15/2011 1:45:31 PM
contents
Preface xviii
1 Accounting as an Information System 1
Introduction 1
Objective 1: Meaning and Definition ofAccounting 1
Objective 2: Characteristic Features of Accounting 2
Objective 3: Concept of Accounting as Information System 2
Objective 4: Characteristic Features of an Accounting System 3
Objective 5: Users of Financial Accounting Information 3
5.1 Investors 3
5.2 Suppliers and Creditors 4
5.3 Lenders 4
5.4 Employees 4
5.5 Customers 4
5.6 Government and Regulatory Services 4
5.7 Security Analysts and Advisors 5
5.8 Public 5
5.9 Management 5
Objective 6: Branches of Accounting 5
6.1 Financial Accounting 5
6.2 Cost Accounting 5
6.3 Management Accounting 6
6.4 Tax Accounting 6
6.5 Social Responsibility Accounting 6
6.6 Other Branches of Accounting 6
Objective 7: D istinction Between Financial Accounting and Management Accounting 6
Objective 8: Objectives of Financial Accounting 7
Objective 9: General Purpose Statement 7
Objective 10: Q ualitative Characteristics of Accounting Information or Financial Statements 8
10.1 Understandability 8
10.2 Relevance 8
10.3 Reliability 8
10.4 Comparability 9
Objective 11: Functions of Accounting 9
Objective 12: Advantages of Accounting 10
Objective 13: Limitations of Accounting 10
Objective 14: Bases of Accounting 11
Objective 15: D istinction Between Accrual Basis of Accounting and Cash Basis of Accounting 11
Summary 12
Key Terms 12
Reference 13
FM.indd 5 7/15/2011 1:45:31 PM
vi contents
Short Answer-type Questions 13
Essay-type Questions 13
2 Nature of Financial Accounting Principles 14
Objective 1: Need and Meaning of Accounting Principles 14
Objective 2: M eaning and Characteristic Features of Generally Accepted Accounting Principles
(GAAP) 14
2.1 Meaning of GAAP 14
2.2 Salient Features of GAAP 15
Objective 3: Basic Accounting Concepts 15
3.1 Entity Concept 16
3.2 Money Measurement Concept 17
3.3 Going Concern Concept 17
3.4 Periodicity Concept (Accounting Period Concept) 18
3.5 Cost Concepts 19
3.6 Realisation Concept 19
3.7 The Accrual Concept 20
3.8 Matching Concepts 20
Objective 4: Basic Accounting Conventions 21
4.1 Convention of Conservatism (Prudence) 22
4.2 Convention of Consistency 23
4.3 Convention of Materiality 24
4.4 Convention of Disclosure 24
Summary 26
Key Terms 26
Reference 26
Short Answer-type Questions 26
Essay-type Questions 27
3 Accounting Standards 28
Introduction 28
Objective 1: Meaning and Definition ofAccounting Standards 29
1.1 Objectives of Accounting Standards 29
1.2 Development of Accounting Standards 29
Objective 2: Constitution of Accounting Standard Board in India 29
2.1 Formation of the Accounting Standards Board 30
2.2 Objectives and Functions 30
Objective 3: Scope of Accounting Standards in India 31
Objective 4: Procedure of Issuing Accounting Standards 31
Objective 5: Applicability of Accounting Standards 32
5.1 Level-I Enterprise 32
5.2 Level-II Enterprise 32
5.3 Level-III Enterprise 32
Objective 6: S tatus of the Accounting Standards Issued by the Institute of Chartered Accountants of
India 33
Objective 7: Compliance with Accounting Standards 35
Objective 8: Implementation of Accounting Standards 35
Objective 9: Salient Features of “General Purpose Financial Statements” 36
Objective 10: Benefits ofAccounting Standards 36
Objective 11: AS-1 – Disclosure of Accounting Policies 37
FM.indd 6 7/15/2011 1:45:31 PM
contents vii
11.1 Disclosure of Significan Accounting Policies 37
11.2 Disclosure of Fundamental Accounting Assumptions 38
11.3 Selection of Accounting Policies 39
11.4 Disclosure of Changes in Accounting Policies 39
Objective 12: Case Study 39
12.1 Convention 39
12.2 Basis of Accounting 39
12.3 Depreciation 40
12.4 Inventories 40
12.5 Revaluation of Assets 40
12.6 Investments 40
12.7 Sale 40
12.8 Turnover 40
12.9 Investment Income 40
12.10 Retirement Benefit 40
12.11 Provision for Income Tax 40
12.12 Lease Rentals 40
12.13 Research and Development 41
12.14 Foreign Currency Transaction 41
12.15 Claims 41
12.16 Financial and Management Information System 41
Objective 13: Accounting Standard-2 (AS–2) Revised and Valuation of Inventories 41
13.1 Valuation of Inventories 41
Objective 14: Accounting Standard-3 (AS–3) and Cash Flow Statements 42
Objective 15: AS–4: Contingencies and Events Occurring after Balance Sheet Date 43
Objective 16: AS–5: Net Profit or Loss for the Period, Prior Period Items and Changes inAccounting
Policies 44
Summary 44
Key Terms 45
Reference 45
Short Answer-type Questions 45
Essay-type Questions 45
4a Accounting Process – Journal 46
Objective 1: Concept of Accounting Process and Stages 46
Objective 2: Recording of Business Transactions and its Classificatio 47
2.1 Meaning of Business Transaction 47
2.2 Classificatio of Business Transactions 47
2.3 Another Way of Classificatio of Business Transactions 47
Objective 3: Meaning of Account and its Classificatio 48
3.1 Meaning of Account 48
3.2 Classificatio of Accounts 48
Objective 4: Classification ofAccounts 48
4.1 Personal Accounts 48
4.2 Impersonal Accounts 49
4.3 Nominal Accounts Treated as Personal Accounts 49
Objective 5: Meaning of Double Entry and Double Entry System 50
5.1 Meaning of Double Entry 50
Objective 6: Methods of Recording Business Transactions 51
6.1 Traditional Approach 51
6.2 Accounting Equation Approach 51
FM.indd 7 7/15/2011 1:45:31 PM
viii contents
Objective 7: Traditional Approach for Recording Business Transactions and Debit–Credit Rules for
Three Types of Accounts 51
Objective 8: Meaning and Format of Journal 52
8.1 Meaning of Journal 52
8.2 Format of Journal 52
Objective 9: Meaning of Journalising 53
9.1 Meaning 53
9.2 Process in Journalising 53
Objective 10: Analysis of Business Transactions 53
Objective 11: Recording the Results of Analysis 53
Objective 12: Types of Entries 65
12.1 Simple Entry 65
12.2 Compound Entry 65
12.3 Opening Entry 66
Objective 13: Source Documents – Formats, Uses and Methods of Recording 66
13.1 Cash Memo 67
13.2 Invoice 67
13.3 Receipt 69
13.4 Debit Note 69
13.5 Credit Note 70
13.6 Voucher 71
13.7 Pay-in-slip 71
13.8 Cheque 71
Objective 14: Recording of Trade Discount and Cash Discount 72
Objective 15: Accounting Equation Approach – Meaning and Classification ofAccounts 82
15.1 Meaning of Accounting Equation 82
15.2 Classification of Accounts 82
Objective 16: R ules of Debit and Credit as per Accounting Equation Approach 82
16.1 Accounting Equation Reaming and Features 84
Objective 17: Analysis of Business Transactions Applying Accounting Equation Technique 84
Summary 88
Key Terms 89
Short Answer-type Questions 90
Essay-type Questions 90
Exercises 90
4b Accounting Process – Ledger 92
Objective 1: Meaning of “Ledger” 92
Objective 2: Standard Form of Ledger and its Contents 92
2.1 Explanation of Ledger Account Format 93
Objective 3: Meaning of Posting 93
Objective 4: Procedure of Posting 93
Objective 5: Distinction Between Journal and Ledger 95
Objective 6: Posting of an Opening Entry 98
Objective 7: Balancing an Account and Procedure for Balancing 101
7.1 Balancing of Different Accounts 102
7.2 Procedure for Balancing 102
Summary 106
Short Answer-type Questions 107
Essay-type Questions 107
Exercises 107
FM.indd 8 7/15/2011 1:45:31 PM
contents ix
4c Accounting Process – Subsidiary Books 110
Objective 1: Meaning of Subsidiary Books 111
Objective 2: Kinds and Purposes of Subsidiary Books 111
Objective 3: Advantages of Subsidiary Books (or) Special Journals 111
Objective 4: Difference Between Subsidiary Books and Ledger 112
Objective 5: Meaning and Type of Cash Book 112
5.1 Meaning 112
5.2 Types of Cash Book 113
Objective 6: Meaning, Format and Recording of Transactions in Single Column Cash Book 113
6.1 Meaning 113
6.2 Format of Single Column Cash Book 113
6.3 Balancing of Cash Book 114
Objective 7: Meaning and Format of Double Column Cash Book (Cash Book with Discount and Cash
Column) 115
Objective 8: Method of Entering Bank Transactions in Two Columns (Bank and Discount
Column) 118
Objective 9: Meaning of Triple Column Cash Book with Discount, Cash and Bank Columns and
Procedure of Recording Business Transactions in Triple Column Cash Books 120
Objective 10: Meaning, Salient Features and Advantages of Petty Cash Book 125
10.1 Meaning 125
10.2 Advantages 125
10.3 Salient Features 125
Objective 11: Format and Method of Recording Transactions in the Analytical Form of Petty Cash
Book 126
11.1 Format of Analytical Petty Cash Book of… 126
11.2 Explanations of Column and Procedure for Recording 126
11.3 Balancing Procedure 126
11.4 Passing of Journal Entries 129
11.5 Posting to Ledger 129
Objective 12: P urchases Book – Meaning and Format and Methods of Preparing Purchase Book and
Ledger Accounts 131
12.1 Meaning of Purchase Book 131
12.2 Format 131
Objective 13: Meaning, Format and Features of Sales Book 134
13.1 Format of Sales Book 134
13.2 Explanation and Procedure for Recording Transaction 134
Objective 14: Meaning and Features of Purchases Returns Book 138
14.1 Explanation and Procedure for Recording Purchases Returns Transactions 138
14.2 What is an ‘Allowance’? 139
Objective 15: Meaning and Features of Purchases Returns Book 140
15.1 Format 141
Objective 16: M eaning of Bills of Exchange Specimen and Meaning of Some Important Terms 142
16.1 Bills of Exchange 142
16.2 Specimen or Format of Bill of Exchange 142
16.3 Meaning of Important Terms 142
Objective 17: Procedure of Recording Transactions in B/R and B/P Books 143
17.1 Bills Receivable and Bills Payable Books 143
17.2 Bills Receivable Book 144
17.3 Bills Payable Book 144
17.4 Posting of Bills Receivable and Bills Payable Books 144
FM.indd 9 7/15/2011 1:45:31 PM