JAIIB / Diploma in Banking

1
JAIIB / Diploma in Banking FinanceACCOUNTING
AND FINANCE FOR BANKERS.

• Book Keeping - MODULE B
• CA R. C. JOSHI B.Com(Hons.),LL.B,CAIIB,FCA

2
DEFINITION AND SCOPE ACCOUNTING STANDARDS.

• ACCOUNTING IS LANGUAGE OF BUSINESS.
• COMMUNICATE THE RESULT OF BUSINESS OPERATIONS AND
  ITS OTHER ASPECTS.
• ACCOUNTING IS AN 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.

3
DIFFERENCE BETWEEN ACCOUNTANY AND BOOKKEEPING.

• BOOK KEEKPING IS MERELY RECORDING THE BUSINESS
  TRANSACTIONS IN BOOKS AND LEDGERS .
• ACCOUNTANCY IS WIDER CONCEPT COMPILATION OF
  ACCOUNTS IN SUCH A WAY THAT ONE IS IN A POSITION
  TO UNDERSTAND STATE OF AFFAIRS OF BUSINESS.
• USERS OF FINANCIAL STATEMENTS ARE INCOME TAX
  DEPT., S.T DEPARMENT SHAREHOLDERS,
  INVESTORS,BANKS AND FIS AND SO ON APART
  FROMMANAGEMENT OF ENTITY FOR MAKING POLICY
  DECISIONS.
• IT IS IN THE INTEREST OF ALL THAT FINANCIAL
  STATEMENTS REFLECT TRUE AND FAIR VIEW OF STATE OF
  AFFIAIRS OF A BUSINESS ENTITY.

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ACCOUNTANCY

• ACCOUNTANCY INVOLVES
• SYSTAMATIC(including regulatory compliance)
  CLASSIFICATION OF BUSINESS TRANSACTIONS IN TERMS
  OF MONEY AND FINANCIAL CHARACTER.
• SUMMARIZING TRIAL BALANACE AND B/S
• INTERPRETING THE FINANCIAL TRANSACTIONS.

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PURPOSE OF ACCOUNTANCY

• TO KEEP A SYSTAMATIC RECORD
• TO ASCERTAIN THE RESULTS OF OPERATIONS
• TO ASCERTAIN FINANCIAL POSITION OF BUSINESS.
• TO FACILITATE RATIONAL DECISION MAKING
• TO RAISE FINANCE.
• TO SATISFY REQUIREMENT OF LAW AND USEFUL IN MANY
  RESPECTS.

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CONCEPTS OF ACCOUNTANCY.

• COST CONCEPT BUSINESS TRANSACTIONS ARE RECORDED
  IN BOOKS AT COST PRICE.
• FIXED ASSETS ARE KEPT AT COST OF PURCHASE AND NOT
  AT THEIR MARKET PRICE.
• EVERY TRANSACTION IS RECORDED WITH PRESENT VALUE
  AND NOT ANY FUTURE VALUE.
• UNREALIZED GAINS ARE IGNORED.
• COST OF AN ASSET THAT HAS LONG BUT LIMITED LIFE
  IS SYSTAMATICALLY REDUCED BY A PROCESS CALLED
  DEPRECIATION. BUT SUCH DEPRECIATION HAS NO
  RELATION TO MARKET VALUE OF ASSET.

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MONEY MEASUREMENT CONCEPT

• MONEY MEASUREMENT CONCEPT EVERY TRANSACTION IS
  MEASURED IN TERMS OF MONEY. VIZ
  PRODUCTION/SALES/WAGES ETC ALL CONVERTED TO
  MONEY.
• INFLATION OR DEFLALTION NOT INCLUDED IN VALUE OF
  ANY ASSET.

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BUSINESS ENTITY CONCEPT

• THIS CONCEPT SEPARATES THE ENTITY OF PROPRIETOR
  FROM THE BUSINESS TRANSACTION.
• CAPITAL CONTRIBUTED BY THE OWNER IS LIABILITY FOR
  BUSINESS BECAUSE BUSINESS IS DIFFERENT FROM
  OWNER.
• ANY MONEY WITHDRAWN BY PROP. IS DRAWINGS.
• PROFIT IS LIABILITY AND LOSS IS AN ASSET.
• ALL ENTRIES ARE KEPT DISTINCT FROM THE POINT OF
  VIEW OF BUSINESS AND NOT FROM OWNER.
• AN ENTERPRISE IS ECONOMIC UNIT SEPARATE FROM
  OWNER.

9
REALISATION CONCEPT.

• THIS CONCEPT TELLS US WHEN REVENUE IS TREATED AS
  REALISED OR EARNED. IT IS TREATED AS REALIZED
  ON THE DATE WHEN PROPERTY IN GOODS PASSES TO
  BUYER AND HE BECOMES LEGALLY LIABLE TO PAY.
• NO FUTURE INCOME IS CONSIDERED.
• GOODS SOLD ON APPROVAL WILL BE INCLUDED IN SALES
  BUT ON COST ONLY.

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GOING CONCERN CONCEPT

• BUSINESS IS A GOING CONCERN AND TRANSACTIONS ARE
  RECORDED ACCORDINGLY.
• IF AN EXPENSE IS INCURRED AND UTILITY IS
  CONSUMED DURING THE YEAR, THEN IT IS TREATED AS
  AN EXPENSE OTHERWISE IT IS RECORDED AS AN ASSET.
• RESERVES AND PROVISIONS ARE CREATED FOR ANY
  FUTURE LIABILITY.
• DEFERRED REVENUE EXPENDITURE IS WRITTEN OFF OVER
  A NUMBER OF YEARS.
• WHY LOSS IS SHOWN UNDER ASSETS SIDE ?

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DUAL ASPECT CONCEPT

• EVERY TRANSACTION HAS DOUBLE EFFECT.
• ACCOUNTING EQUATION ASSETS CAP LIABILITY.

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ACCOUNTING PERIOD CONCEPT.

• BUSINESS WILL RUN THROUGH LONG PERIOD. HENCE
  ACCOUNTS OF EACH PERIOD IS RECORDED.
• RESULTS OF OPERATIONS CAN BE KNOWN PRECISELY
  ONLY AFTER BUSINESS CEASES TO OPERATE AND ENTIRE
  ASSETS ARE SOLD AND ENTIRE LIABILITIES PAID.
• BUT ONE IS INTERESTED IN KNOWING PERIODICALY
  OPERATING RESULTS OF BUSINESS SAY YEARLY OR HALF
  YEARLY OR QUARTERLY.
• HENCE ALL THE EXPENSES OR INCOME DURING THIS
  ACCOUNTING PERIOD HAS TO BE TAKEN INTO
  CONSIDERATION IRRESPECTIVE OF WHETHER THEY ARE
  REALISED IN CASH OR PAID IN CASH.

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ACCOUNTING FOR FULL DISCLOSURE

• DISCLOSURE OF MATERIAL FACTS.( MATERIAL AND
  IMMATERIAL FACT IS A MATTER OF JUDGEMENT)
• CONTINGENT LIABILITY
• MARKET VALUE OF INVESEMENTS.
• CHANGE IN METHOD OF DEPRECIATION/VALUATION OF
  GOODS ETC.

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CONVENTION OR PRINCIPLES OF CONSERVATISM

• ALL POSSIBLE LOSSES TO BE TAKEN INTO
  CONSIDERATION AND ANTICIPATED PROFITS TO BE
  IGNORED.
• CREATION OF PROVISION FOR DOUBTFUL DEBTS.
• VALUE OF STOCK
• CONVENTION OF CONSISTENCY METHOD OF
  DEPRECIATION.

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DOUBLE ENTRY SYSTEM

• SCIENTIFIC SYSTEM
• EVERY TRANSACTION HAS TWO ASPECTS.
• CRUX OF ACCOUNTANCY IS TO FIND OUT WHICH TWO
  ACCOUNTS ARE EFFECTED AND WHICH IS TO BE DEBITED
  AND WHICH IS TO BE CREDITED.

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JOURNAL

• JOURNAL RECORDS EACH AND EVERY RECORD BY WAY OF
  JOURNAL ENTRY.
• BUT TO FIND OUT A TRANSACTION EFFECTING A PERSON,
  EXPENSES ACCOUNT OR ASSET ONE HAS TO TURNOVER
  ALL PAGES OF JOURNAL.
• HENCE TRANSACTIONS ARE POSTED FROM JOURNAL TO
  PARTICULAR PAGES OF LEDGER.
• HENCE JOURNAL CONTAINA COLUMN L.F

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JOURNAL FORMAT
DATE PARTICULARS L.F DEBIT RS. CREDIT RS.

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CASH BOOK

• CASH BOOK KEEPS RECORDS OF ALL CASH TRANSACTIONS
  I.E CASH RECEIPTS AND CASH PAYMENTS. ALL RECEIPTS
  ARE RECORDED ON RIGHT SIDE AND ALL PAYMENTS ON
  LEFT SIDE.
• CASH BOOK IS BOOK OF ORIGINAL ENTRY.

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CASH BOOK FORMAT
DR. CR
DATE PARTICULARS VR. NO L.F CASH Rs. BANK Rs. DISCOUNT DATE PARTICULARS VR.NO. LF CASH Rs. BANK Rs. DISCOUNT

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RECORD KEEPING BASIS

• RECORDING JOURNALISING AS AND WHEN TRANSACTION
  TAKES PLACE. JOURNAL IS BOOK OF ORIGINAL OR
  FIRST ENTRY.
• CLASSIFYING ALL ENTRIES IN JOURNAL OR SUBSIDIARY
  BOOKS ARE POSTED TO LEDGER ACCOUNT(POSTING) TO
  FIND OUT AT A GLANCE THE TOTAL EFFECT OF ALL
  SUCH TRANSACTIONS. LEDGER IS BOOK OF SECONDARY
  ENTRY.
• SUMMASRISING LAST STAGE IS TO PREPARE THE TRIAL
  BALANCE AND FINAL ACCOUNTS WITH A VIEW TO
  ASCERTAIN THE PROFIT OR LOSS DURING PARTICULAR
  PERIOD.
• IT IS CUSTOMARY TO USE TO AND BY WHILE POSTING
  LEDGER.
• BALANCING AN ACCOUNT MEANS EQUALIZING TWO SIDES.
• IF DEBIT SIDE OF ACCOUNT EXCEED CREDIT SIDE,
  DIFFERENCE IS PUT ON CREDIT SIDE AND IT IS SAID
  TO HAVE DEBIT BALANCE AND VICE VERSA..

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LEDGER
DR CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT RS.

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Questions.

• CREDIT BALANCE IN CAPITAL ACCOUNT IS LIABILITY OR
  AN ASSET
• A. LIBILITY
• B. A REVENUE
• C. AN EXPENSE
• D. NONE OF THESE.

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QUESTION

• AMOUNT BROUGHT IN BY PROPRIETOR IN BUSINESS
  SHOULD BE CREDITED TO
• A.DRAWINGS ACCOUNT
• B.CAPITAL ACCOUNT OF PROPRIETOR.
• C.ASSET ACCOUNT
• D. NONE OF THE ABOVE
• ANS B

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QUESTIONS

• WAGES PAID TO RAJU TO BE DEIBED TO
• A. RAJU
• B WAGES
• C. CASH
• D. BANK
• ANS B

25
QUESTIONS.

• Q. CREDIT SALES MADE TO ROHIT TO BE DEIBTED TO
• A. SALES
• B. PURCHASE
• C. CASH
• D. ROHIT ANS D

26
QUESTIONS

• FURNITURE PURCHASED BY ISSUING CHEQUE
• WHAT ENTRIES TO BE PASSED
• A. DEBIT FURNITURE AND CREDIT BANK ACCOUNT.
• B.DEBIT BANK ACCOUNT AND CREDIT FURNITURE.
• C.DEBIT FURNITURE AND CREDIT CASH.
• D.DEBIT BANK AND CREDIT FURNITURE SHOP ACCOUNT
  AnsA

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QUESTIONS

• ENTRY FOR RETURN OF GOODS, IN RESPECT OF SALES
  EFFECTED ON CREDIT, SHOULD BE CREDITED TO
• A. SALES RETURN
• B PURCHASE RETURN
• C.CUSTOMER ACCOUNT
• D. GOODS ACCOUNT
• AnsC

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MATCH FOLLOWING
A B
A RAMESH 1 REAL
B DENA BANK 2 PERSONAL
C RENT 3 NOMINAL
D COMPUTER 4 REAL
E LAND 5 NOMINAL
F DISCOUNT 6 PERSONAL
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QUESTION

• WHAT IS JOURNAL ENTRY
• A. ORIGINAL ENTRY
• B. DOUBLE ENTRY
• C DUPLICATE ENTRY
• NONE
• Ans A

30
QUESTION

• TRANSACTION IN BANK COLUMN ON CREDIT SIDE OF
  THREE COLUMNAR CASH BOOK INDICATE
• A. AMOUNT PAID FROM THE BANK A/C.
• B.AMOUNT DEPOSITED IN BANK
• C.BOTH A AND B
• D. NONE
• Ans A

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QUESTION

• PASS JOURNAL ENTRY
• RENT PAID FOR OFFICE PREMISES RS.30000 OUT OF
  WHICH PART AMOUNT OF RS.10000 PAID BY CHEQUE AND
  REST BY CASH.
• Ans By RENT A/c. Dr. Rs.30,000
  To Cash Cr. Rs.20,000
  To Bank Cr.
  Rs.10,000

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QUESTION

• PASS JOURNAL ENTRY
• PURCHASED 100 SHARES OF CENTRAL BANK OF INDIA
  FOR RS.100 PER SHARE.AnsBy Investment A/c. Dr.
  Rs.10,000 To Bank Cr.
  Rs.10000

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QUESTIONS

• PASS JOURNAL ENTRIES
• SOLD GOODS TO TENDULKAR RS.15000
• A) When Sold on Cash.
• B) When Sold on Credit.
• A) By Cash A/c Dr. Rs.15000 To Sales
  A/c. Cr. Rs.15000 B) By Tendulkar
  A/c.Dr. Rs.15000 To Sales A/c. Cr.
  Rs.15000

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QUESTIONS

• PASS JOURNAL ENTRY
• DRAVID SOLD GOODS FOR RS.12000 TO us.
• A) On Cash Purchase
• B) On Credit Purchase A) By Purchase A/c Dr.
  Rs.12000 To Cash A/c Cr.
  Rs.12000B) By Purchase A/c. Dr.
  Rs.12000 To Dravid A/c. Cr.
  Rs.12000

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QUESTIONS

• PASS JOURNAL ENTRY
• RECEIVED DUES( Which was sold on Credit at
  Rs.15000) AMOUNT FROM TENDULAKAR AND ALLOWED HIM
  DISCOUNT OF 10
• Ans By Bank A/c. Dr. Rs.13,500 By
  Discount A/c Dr. Rs. 1500 To
  Tendulkar Rs. 15000

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QUESTIONS

• PASS JOURNAL ENTRY
• PAID SALARY AND RENT RS.1200 AND 1500
  RESPECTIVELY.Ans
• By Salary A/c. Dr. 1200
• By RENT A/c. Dr. 1500
• To Cash A/c. Cr. Rs.2700
  

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QUESTIONS

• PASS JOURNAL ENTRY
• KIRAN BECAME INSOLVENT. HE HAD TO PAY 10000 TO
  US. BUT WE RECEIVED ONLY 25 PAISE A RUPEE.
• By Cash A/c Dr. Rs.2500
• By Bad Debts Rs.7500 To Kiran A/c.
  Cr. Rs.10000

38
QUESTION

• PASS JOURNAL ENTRY
• PAID MONTHLY CAR INSTALMENT OF PROPRIETORS
  PERSONAL CAR RS.12000By Drawings A/c. Dr.
  Rs.12000 To Bank A/c Cr.
  Rs.12000

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QUESTION

• PASS JOURNAL ENTRY
• BOUGHT FURNITURE FROM GODREJ AND PAID BY CHEQUE
  RS.50000
• By Furniture A/c. Dr. Rs. 50000 To Bank
  Cr. Rs.50000

40
QUESTION

• PASS JOURNAL ENTRY
• DEPOSITED CASH IN BANK RS.1000
• BY Bank A/c. Dr Rs.1000 To Cash A/c.
  Cr. Rs. 1000

41
QUESTION

• JOURNALIZE FOLLOWING
• COMMENCED BUSINESS WITH Rs.15000 OF
  WHICH RS.5000 WAS BORROWED FROM HIS WIFE AT 12
  INTEREST P.A.
• By Cash Rs. 15000 To Capital
  A/c. Cr. Rs.10000 To Loan A/c Cr.
  Rs. 5000

42
QUESTIONS

• PASS JOURNAL ENTRY
• PURCHASED GENERATOR FROM RAMA CO. RS.50000 on
  credit.
• BY Generator A/c. Dr. Rs. 50000
• (furniture)
• To Rama Co. Cr.
  Rs.50000

43
QUESTIONS

• PASS JOURNAL ENTRY
• PAID CARRIAGE AND CARTERAGE of Rs.1,000 ON GOODS
  SOLD TO NAYAN ON HIS BEHALF. By Nayan A/c. Dr.
  Rs. 1000
• To Bank Cr. Rs.1000

44
QUESTION

• PASS JOURNAL ENTRY
• A.BOUGHT GOODS FROM SATISH AT ONE MONTHS CREDIT
  RS.6000
• B. OUT OF WHICH HALF WAS INVOICED TO MR. RAM AT
  30 ABOVE COST ON CREDIT.A. Purchase A/c. Dr.
  Rs.6000 To Satish A/c. Cr.
  Rs.6000B. Mr. RAM A/c. Dr. 3900 To
  Sales A/c. Cr. Rs.3900

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Adjusting and closing entries.

• While preparing trading and profit and loss
  account all expenses and income for the full
  period are to be taken into consideration. If
  expenses have been incurred but not paid during
  that period ,liabilities for unpaid amount
  should be created before the accounts can be said
  to show the actual profit and loss. All expenses
  and income should properly be adjusted through
  accounting entries.

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Adjusting and closing entries.

• Trial balance is prepared from the books of
  accounts of organiztion. Final accounts are the
  final process of accounting. Once the trial
  balance is prepared the books are half way
  closed.
• Now all adjusting entries passed at the time of
  preparing the final accounts have dual effect
  i.e both debit and credit.
• Hence all adjusting entries passed after Trial
  balance drawn will have two effects.

47
Adjusting and closing entries.

• One in either trading and profit and loss
  account and other in Balance sheet or one in
  trading account and other in Profit and loss
  account.

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Adjusting and closing entries.

• Some examples
• Closing stock adjustment
• Will be shown in asset side of balance sheet and
  will be shown in credit side of trading account.
• Goods lost by fire
• Will be shown in credit side of trading account.
• Will be shown on debit side of profit and loss
  account.

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Adjusting and closing entries.

• Outstanding expenses
• Will be shown in debit side of profit and loss
  account.
• Will be shown in liabilities side of balance
  sheet.
• Prepaid expenses
• Prepaid expenses shown in Asset side ( Dr Pre
  paid expenses) and Credit PL Expenditure as they
  do not pertain to current year.

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Adjusting and closing entries.

• Depreciation It is fall in value of asset due to
  use or passage of time.
• Depreciation Dr.
• To asset account.

51
ACCOUNTING STANDARDS.

• INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
  RECOGNISING THE NEED TO HARMONISE THE DIVERSE
  ACCOUNTING POLICIES AND PRACTICES CONSTITUTED AN
  ACCOUNTING STANDARDS BOARD IN THE YEAR 1977.
• ASB FORMULATE ACCOUNTING STANDARDS SO THAT
  COUNCIL OF ICAI MAY MANDATE SUCH STANDARDS.

52
ACCOUNTING STANDARDS

• IT MAY BE NOTED THAT THE ACCOUNTING STANDARDS
  MENS THE ACCOUNTING STANDARDS AS PROMULGATED BY
  THE ACCOUNTING (ACCOUNTING STANDRADS) RULES
  ,2006.
• SO IT A PART OF COMPANY LAW NOW.

53
ACCOUNTING STANDRADS

• WHERE PL AND B/S OF THE CO. DO NOT COMLY WITH
  ACCOUNTING STANDRDS SUCH COS. SHOULD DISCLOSE
• THE DEVIATION FROM THE ACCOUNTING STANDARDS
• THE REASON FOR SUCH DEVIATION AND
• FINANCIAL EFFECT IF ANY DUE TO SUCH DEVIATION.

54
OBJECTIVES QUESTIONS ON ACCOUNTING STANDARDS

• Q. MANDATORY ACCOUNTING STANDARD IF NOT FOLLOWED
  REQUIRES AUDITORS WHO ARE MEMBERS OF ICAI TO
• A. QUALIFY THEIR AUDIT REPORTS.
• B. INFORM TO MANAGEMENT OF COMPANY
• C. INFORM TO ICAI
• D. NEED NOT REPORT ANYTHING.
• Ans A

55
QUESTIONS

• SEBI AND COMPANYS ACT REQUIRE AUDITORS TO
  QUALIFY AUDIT REPORTS THAT
• A. THAT DO NOT CONFORM TO MANDATORY ACCOUNTING
  STANDARDS.
• B. CONFORM TO MANDATORY ACCOUNTING STANDARDS.
• C. DO NOT CONFORM TO ACCOUNTING STANDARDS.
• D . NO RESPOSIBILITY ON AUDITORS.
• Ans A

56
QUESTIONS.

• Q WHICH SECTION OF COMPANIES ACT CAST
  RESPONSIBILITY ON BOARD OF DIRECTORS TO COMPLY
  WITH MANDATORY ACCOUNTING STANDARDS
• A. SECTION 217(2AA)
• B. SECTION 215
• C. SECTION 125
• D. SECTION 44.
• Ans 217(2AA)

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DAY BOOK AND GLB POSTING IN A BANK..

• IN THE CONTEXT OF ACCOUNTING IN BANKS DAY BOOK
  OR CASH BOOK (BOTH ARE USED IN SAME CONTEXT
  SOME BANKS CALL IT CASH BOOK SOME BANKS CALL IT
  DAY BOOK) HAS SUMMARY OF TOTAL TRANSACTIONS IN
  RESPECT OF EACH ACCOUNTING HEAD OF BALANCESHEET
  AND PROFIT AND LOSS ACCOUNT.
• THE AMOUNT OF EACH OF TRANSACTIONS DONE IN
  BRANCH OF BANK IN THE DAY ARE

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DAY BOOK AND GLB POSTING IN A BANK..

• SUMMARIZED AND RECORDED HERE. FOR INSTANCE ALL
  THE TRANSACTIONS IN SAVINGS ACCOUNTS OR ALL
  TRANSACTIONS IN CURRENT DEPOSITS ACCOUNTS ARE
  RECORDED IN SUMMARIZED FORM WITH REGARD TO BOTH
  DEBIT AND CREDIT SIDE. WHICH ARE BROUGHT FROM
  SUPPLEMENTARY BOOKS WHICH ARE AGAIN SUB SUMMARY
  OF TRANSACTIONS IN AN ACCOUNT SAY SAVINGS OR CD.

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DAY BOOK AND GLB POSTING IN A BANK..

• FROM DAY BOOK THE FINAL DEBITS AND CREDITS ARE
  POSTED IN THE RESPECTVE LEDGERS WHICH IS KNOWN
  AS GENERAL LEDGER. GENERAL LEDGER IS NOTHING BUT
  BOOK CONTAINING INDIVIDUAL LEDGERS FOR EACH
  INDIVIDUAL TYPE OF ASSET OR LIABILITIES. FOR
  INSTANCE ENTIRE CURRERNT DEPOSIT TRANSACTIONS ARE
  POSTED IN CURRENT ACCOUNTING HEAD IN GENERAL
  LEDGER. SIMILARLY FOR SAVINGS ACCOUNT OR
  FURTNIUTE ACCOUNT OR STATIONERY ACCOUNT AND SO ON.

60
DAY BOOK AND GLB POSTING IN A BANK..

• THE GENERAL LEDGER BALANCE IS VIRTUALLY TRIAL
  BALANCE OF THE BANK ON A PARTICULAR DAY. IT
  REFLECT THE BALANCES OF ALL ACCOUNTS . WHILE
  PREPARING BALANCESHEET AND PROFIT AND LOSS
  ACCOUNT OF BRANCH OF BANK THE GLB BALANCES ARE
  TAKEN.
• BALANCE SHEET OF ALL BRANCHES TOGETHER WHEN
  CONSOLIDATED BECOMES THE BALANCE SHEET OF BANK.

61
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

• The common set of accounting principles,
  standards and procedures that companies use to
  compile their financial statements. GAAP are a
  combination of authoritative standards (set by
  policy boards) and simply the commonly accepted
  ways of recording and reporting accounting
  information.  

62
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

• GAAP are imposed on companies so that investors
  have a maximum level of consistency in the
  financial statements they use when analyzing
  companies for investment purposes. GAAP cover
  such things as revenue recognition, balance sheet
  item classification. Companies are expected to
  follow GAAP rules when reporting their financial
  data via financial statements.

63
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

• That said, keep in mind that GAAP is only a set
  of standards. What is important that its
  underlying objectives are followed in true
  perspective.

64
ACCOUNTING STANDARDS

• AS -1
• ALL SIGNIFICANT POLICIES ADOPTED IN PREPARATION
  OF FINANCIAL STATEMENTS SHOULD BE DISCLOSED.
• ANY CHANGE IN ACCOUNTING POLICIES WHICH HAS
  MATERIAL EFFECT IN CURRENT PERIOD OR IN LATER
  PERIOD SHOULD BE DISCLOSED.

65
AS 2

• DEALS WITH DETERMINATION OF VALUE AT WHICH
  INVENTORIES ARE CARRIED/VALUED
• INVENTORIES TO BE VALUED AT LOWER OF COST OR NET
  REALISABLE VALUE.
• AVERAGE COST OR FIFO METHODS ARE PERMITTED IN
  CASE WHERE GOODS ARE INTERCHANGEABLE.

66
AS-3

• PREPARATION OF CASH FLOW STATEMENT AND ITS
  PRESENTATION ALONGWITH FINANCIAL STATEMENTS
• CASH FLOW TO BE CLASSIFIED BY OPERATING/INVESTING/
  FINANCING ACTIVITIES.

67
AS 4

• TREATMENT OF CONTINGENCIES AND EVENTS IN
  FINANCIAL STATEMENTS.
• EG. CASES IN HIGH COURT OR PENALTY PROCEEDINGS
  UNDER LAW.
• CONTINGENCIES MUST BE PROVIDED IF LOSSES CAN BE
  ESTIMATED.
• EVENTS AFTER BALANCE SHEET DATE AND BEFORE
  APPROVAL OF BOARD OF DIRECTORS SHOULD BE
  APPROPRIATELY ADJUSTED IN VALUE OF ASSETS AND
  LIABILITIES.
• IF INSUFFECIENT EVIDENCE, DISCLOSURE TO BE MADE
• CONTINGENT GAINS ARE NOT RECOGNIZED.

68
AS-5

• DEALS WITH TREATEMENT OF PRIOR PERIOD AND
  EXTRAORDINARY EVENTS.
• DEBITS OR CREDITS WHICH ARISE IN CURRENT YEAR OR
  AS A RESULT OF OMMISSION/MISTAKES IN PRIOR YEAR.
• ALSO EXTRAORDINARY ITEMS LIKE WRITING OFF
  INVENTORIES.
• DISPOSAL OF FIXED ASSETS.

69
AS -6

• DEPRECIATION IS A MEASURE OF WEARING OUT ASSETS.
• DEPRECIATION METHOD SHOULD CAREFULLY BE SELECTED
  AND CONSISTENCY APPLIED FOR YEAR TO YEAR.
• TREATMENT FOR REVALUATION OF ASSETS
• DEPRECIATION METHOD TO BE DISCLOSED.

70
AS-7

• ACCOUNTING OF CONSTRUCTION CONTRACTS .CONTRACT
  FOR CONSTRUCTION EXCEED ONE YEAR OR SO.
• ACCOUNTING ISSUES OF REVENUE, TREATMENT OF
  ADVANCE RECEIVED, WORK IN PROGRESS, IN FINANCIAL
  STATEMENTS.
• TYPES OF CONTRACTS FIXED PRICE CONTRACT
  ESCALATION COST OR COST PLUS A FIXED FEE.
• AMOUNT AND METHOD USED TO DETERMINE REVENUE
  RECOGNIZED.

71
AS-8

• STAND DELETED FROM 1.4.03 RD EXPENSES ARE NOW
  COVERED IN AS-10

72
AS-9

• BASIS FOR RECOGNITION OF REVENUE I.E INCOME AND
  TIME WHEN INCOME IS SAID TO HAVE ARISEN
• WHEN REVENUE RECOGNITION POSTPONED , DISCLOSURE
  OF CIRCUMASTANCES TO BE MADE.

73
AS-10

• ACOUNTING OF FIXED ASSETS AND DISCLOSURE THERE
  OF.
• COMPONENTS OF COST.
• PURCHASE PRICE IMPORT DUTYTAXESDIRECT COST
  TO BRING ASSET TO ITS WORKING CONDITION-TRADE
  DISCOUNTS.
• FINANCING COST TO THE EXTENT SUCH COST RELATE TO
  PERIOD AFTER SUCH ASSETS ARE READY TO USE-NOT TO
  BE CAPITALIZED.
• TEST RUN EXPENSES CAPITALIZED.

74
AS-11

• TRANSLATION OF ACOUNTING TRANSACTION IN FOREIGN
  CURRENCIES IN REPORTING CURRENCY.
• FINANCIAL STATEMENT OF FOREIGN OPERATIONS
• FORWARD EXCHANGE CONTRACTS.
• EXCHANGE DIFFERENCE INCLUDED I.E PROFIT OR LOSS
  TO BE DISCLOSED.

75
AS-12

• GOVERNMENT GRANTS RECEIVED BY AN ENTITY.
• SUBSIDIES/CASH INCENTIVE/DUTY DRAWBACK
• DOES NOT INCLUDE ANY TAX EXEMPTION OR TAX HOLIDAY.

76
AS-13

• ACCOUNTING FOR INVESEMENTS MADE BY AN ENTITY.
• CURRENT AND LONG TERM.

77
AS-14

• AMALGAMATION OF TREATMENT OF RESULTANT GOODWILL
  OR RESERVES
• TAKE OVER OF EXISTING BUSINESS AND FORMATION OF
  NEW BUSINESS.

78
AS-15

• ACCOUNTING OF RETIREMENT BENEFIT TO EMPLOYEES IN
  FINANCIAL STATEMENTS
• PF/PENSION/GRATUIITY LEAVE ENCASHMENT POST
  RETIREMENT WELFARE SCHEME
• METHOD BY WHICH RETIREMENT BENEFITS VALUED.

79
AS-16

• CAPITALIZATION OF BORROWING COST ATTTRIBUTABLE TO
  ACQUISITION/CONSTRUCTION OR PRODUCTION WHERE
  QUALIFYING ASSET TAKES SUBSTANTIAL PERIOD TO GET
  IT READY FOR INTENDED USE OR SALE.

80
AS-17

• SEGMENT REPORTING
• REPORTING OF INFORMATION ABOUT DIFFERENT TYPES
  OF PRODUCT AND SERVICES OF AN ENTERPRISE AND
  ITS OPERATIONS IN DIFFERENT GEOGRAPHICAL AREAS.
• FOR ASSESSING RISK AND RETURN OF DIVERSIFIED OR
  MULTILOCATIONAL ENTERPRISE.

81
AS-18

• REPORTING OF RELATED PARTY RELATIONSHIP AND
  TRANSACTIONS BETWEEN A REPORTING ENTERPRISE AND
  RELATED PARTY.
• NAME OF RELATED PARTY AND RELATIONSHIP WHERE
  CONTROL EXIST TO BE DISCLOSED.

82
AS-19

• LEASE A LEASE AN AGREEMENT WHEREBY THE LESSOR
  CONVEYS TO THE LESEE IN RETURN FOR A PAYMENT OR
  SERIES OF PAYMENTS THE RIGHT TO USE AN ASSET FOR
  A AGREED PERIOD.
• ACCOUNTING POLICIES FOR LESSOR AND LESSEE AND
  DISCLOSURE IN RELATION TO FINANCIAL LEASE AND
  OPERATING LEASE.

83
AS-20

• PRINCIPLES DETERMINATION OF EARNING PER SHARE
• COMPARISON BETWEEN ENTERPRISES.
• NET PROFI(LOSS)/ WEIGHTED AVERAGE NUMBER OF
  SHARES.

84
AS 21

• CONSOLIDATED FINANCIAL STATEMENT OF PARENT AND
  SUBSIDARIES.

85
AS-22

• METHOD OF DETERMINATION OF AMOUNT OF EXPENSES OR
  SAVING RELATING TO TAXES ON INCOME IN RESPECT OF
  AN ACCOUNTING PERIOD.
• DEFERRED TAX ASSETS AND LIABILITIES SHOULD BE
  DISTINGUISHED FROM CURRENT TAX ASSETS AND
  LIABILITIES

86
AS-23

• ACCOUNTING FOR INVESTMENT IN ASSOCIATES.

87
AS-24

• DISCONTINUATION OF OPERATION OF PARTICULAR
  SEGMENT.
• DISCLOSURE OF PRE TAX PROFIT OR LOSS FROM
  ACTIVITIES ATTRIBUTABLE TO DISCONTINUING
  OPERATIONS.

88
AS-25

• INTERIM REPORTING WHICH IS NOT FOR COMPLETE
  REPORTING PERIOD.
• CONDENSED B/S
• CONDENSED PL
• CONDENSED CASH FLOW STATEMENT
• EXPLANATORY NOTES.

89
AS-26

• OTHER THAN INTANGIBLE ASSETS COVERED IN AS-22(
  DEFERRED TAX ASSETS)
• RELATE TO START UP COST ( EG ADVT ETC)
• RD
• PATENTS AND COPY RIGHT
• GOODWILL
• DISCLOSURE USEFUL LIFE OR AMORATIZATION RATE
• AMORATIZATION METHOD.

90
AS-27

• TWO OR MORE PARTIES UNDER TAKE ECONOMIC ACTIVITY
  WITH JOINT CONTROL
• ACCOUNTING FOR JOINT VENTURE IN A CONSOLIDATED
  FINANCIAL STATEMENT.
• DISCLOSURE ANY CONTINGENT LIABILITY INCURRED BY
  VENTURER AND ITS SHARE.
• ANY CAPITAL COMMITMENT AND ITS SHARE.

91
AS-28

• EQUITY OR DEBT LISTED
• TURNOVER EXCEED RS.50 CRORES
• PRINCIPLE OF THIS A.S IS TO ENSURE CARRYING
  COST OF ASSET IS NOT MORE THAN RECOVERABLE
  VALUE OF ASSET.
• NOT APPLIED TO INVENTORIES AS 2
• CONSTRUCTION CONTRACT AS 7
• FINANCIAL ASSETS AS 13 DEF TAX AS 22

92
AS-29

• AS-29 DEALS
• ACCOUNTING FOR PROVISIONS,CONTINGENT LIABILITIES
  AND CONTINGENT ASSETS WITH EXECEPTIONS AS TO
  EXECUTORY CONTRACTS,THOSE ARISING IN INSURANCE
  FROM CONTRACT WITH POLICY HOLDERS AND THOSE
  COVERED UNDER ANOTHER ACCOUNTING STANDARD.

93

• THANK YOU.