01 - Smart Accountant Training for beginners- Day 1 - Breaking the Ice.pptx

understanding accounting terms in easy way

1. Welcome to Smart Accountant class 200 Hrs 60 Hrs 140 Hrs Basis of Accounting 3 Months, 200 Hours 60 Hours of Class 140 Hours of Practicals

2. While some might connect the idiom to the 18th century when special ice-breaking ships were built to help explore he polar regions, the first recorded use actually goes back to the 17th century (1678) when Samuel Butler used it in his poem Hudibras . "The Oratour - At last broke silence, and the Ice." Breaking the Ice Origination

3. Accrual accounting  is an  accounting method  where revenue or expenses are recorded when a transaction occurs rather than when payment is received or made. The   method  follows the matching principle, which says that revenues and expenses should be recognized in the same period. Accrual Basis of Accounting Definition

4. Cash Basis of Accounting Definition Cash basis  refers to accounting method  that recognizes revenues and expenses at the time  cash  is received or paid out. This contrasts accrual  accounting , which recognizes income at the time the revenue is earned and records expenses when liabilities are incurred regardless of when  cash  is received or paid.

5. Differences between Accrual Basis of Accounting and Cash Basis of Accounting Differences

6. Differences Basis Accrual Basis of Accounting Cash Basis of Accounting Nature of Transactions Both cash and credit transactions are recorded Cash transactions are recorded Prepaid/Outstanding Expenses Accrued Income/Income Received in Advance Prepaid and outstanding expenses are accounted in the Profit and Loss Account. Accrued income and income received in advance are also accounted and shown in the Balance Sheet. Prepaid and outstanding expenses are not adjusted. Similarily , accrued income and income received in advance are not adjusted. Profit or Loss Correct profit and loss is ascertained because it records both cash and credit transactions. Correct profit and loss is not ascertained because it records only cash transactions. Technical Knowledge The Accrual Basis of Accounting requires technical knowledge as many adjustments like prepaid, outstanding, capital and revenue are required to be made. It does not require much of technical knowledge as is required for Accrual Basis of Accounting.

7. Differences Basis Accrual Basis of Accounting Cash Basis of Accounting Legal Position Accrual Basis of Accounting is recognized by the Companies Act, 2013 Cash Basis of Accounting is not recognized by the Companies Act, 2013. Acceptability Accrual Basis of Accounting is more acceptable in business as it reveals correct income and expense besides assets and liabilities. Cash Basis of Accounting is not acceptable in business as it does not reveal the required information. Reliability Accrual Basis of Accounting is more reliable as it records both cash and credit transactions and thus, reveals correct profit or loss besides assets and liabilities. Cash Basis of Accounting is less reliable as it records only cash transactions and as a result does not reveal correct profit or loss and also assets and liabilities. Suitability Accrual Basis of Accounting is suitable for businesses as it requires information that is complex. It can be made available by Accrual Basis of Accounting. Cash Basis of Accounting is suitable for Not-for-Profit Organizations and Professionals such as chartered accountants, lawyers, etc. since they require comparatively less information.

8. Welcome to Smart Accountant class 200 Hrs 60 Hrs 140 Hrs Accounting Process 3 Months, 200 Hours 60 Hours of Class 140 Hours of Practicals

9. Accounting Process The  Accounting Process  is a series of activities that begins with a transaction and ends with the closing of the books. Because this  process  is repeated each reporting period, it is referred to as the  Accounting Cycle . Definition

10. Based on the attributes of accounting, the steps of accounting process are as follows: Steps Financial Transactions and Events Recording Journal Cash Book Purchases Book Sales Book Purchases Return Book Sales Return Book Bills Payable Book Bills Receivable Book Journal Proper Classifying (Posting into Ledgers) Communicating to users Analysis and Interpretation Summarising Trial Balance Trading and Profit and Loss Account (Statement of Profit and Loss) Balance Sheet

11. Welcome to Smart Accountant class 200 Hrs 60 Hrs 140 Hrs Accounting Standards 3 Months, 200 Hours 60 Hours of Class 140 Hours of Practicals

12. What is the main objective of setting accounting standards? Or What is meant by Accounting standards? Explain one objective of Accounting standards. Accounting Standards Question

13. Answer Accounting Standards are the guidelines for the preparation of uniform and consistent Financial Statements. This also includes disclosures required by the different users of accounting information The objective of setting Accounting Standards is to bring uniformity in accounting practices and to ensure transparency, consistency and comparability.

14. ‘Accounting Standards have been evolved to improve the reliability and credibility of Financial Statements. Accounting Standards provide the solution in case of conflicts among various groups.’ In the light of this statement, enumerate the objectives of Accounting Standards. Question

15. Answer The objectives of Accounting Standards are: Minimise the diverse accounting policies and practices with the aim to eliminate them to the extent possible. Promote better understanding of financial statements. Understand significant Accounting policies adopted and applied. Facilitating meaningful comparison of financial statements of two or more entities. Enhancing reliability of financial statements.

16. Welcome to Smart Accountant class 200 Hrs 60 Hrs 140 Hrs Basic Accounting Terms 3 Months, 200 Hours 60 Hours of Class 140 Hours of Practicals

17. What is meant by Cash Transaction? Cash transaction is a financial transaction or event that is settled immediately in cash. Basic Accounting Terms Answer Question Answer Question What is meant by Credit Transaction? Credit transaction is a financial transaction or event that is not settled immediately, i.e., is agreed to be settled later.

18. Briefly explain Expenditure. Expenditure is the amount spent or liability incurred for acquiring assets, goods or services. Answer Question Answer Question What are Assets? Asset is a property (land, machine, goods, premises etc.) or legal rights (patents, copyrights etc.) owned by an individual or business which can be measured in money terms.

19. What are Fixed Assets? Fixed Assets are the assets which are acquired not with a purpose to resell but with a purpose to increase the earning capacity of the business. Answer Question Answer Question What is meant by Tangible Assets? Tangible Assets are the assets which have physical existence, i.e., they can be seen and touched such as Land, Building, Plant and Machinery and Computers.

20. Briefly explain Intangible Assets. Intangible Assets are the assets which do not have a physical existence, i.e., they cannot be seen or touched such as Computer Software and Goodwill. Answer Question Answer Question Briefly explain the term ‘Goods’. Goods are the physical items of trade.

21. Define the term ‘Purchase’. The term Purchase is used for purchase of goods for resale or for producing the finished products which are also to be sold. The term ‘purchase’ includes both cash and credit purchases of goods. Goods purchased for cash are termed as Cash Purchases and goods purchased on credit are termed as Credit Purchases . Answer Question

22. Question Answer What are the main classes of Liabilities? Non-current Liabilities and Current Liabilities Question Answer Give any two examples of Current Assets. Stock-in-Trade (Inventories) and Cash in Hand

23. Question Answer Name three Current Liabilities. Creditors, Bills Payable and Outstanding Expenses. Question Answer Name two Long-term Liabilities. Long-tem Loans and Debentures.

24. Question Answer Explain Capital briefly. Capital is the amount invested by the proprietor or the partner in the business. Question Answer Who is a Debtor? Debtor is a person to who owes amount to the business on account of credit sales of goods and/or services in the normal course of business.

25. Question Answer Who is a Creditor? Creditor is the person to whom an amount is owed on account of credit purchases of goods and/or services in the normal course of business. Question Answer What is an Income? Income is profit earned during the accounting period, i.e., revenue minus expenses.

26. Question Answer What is meant by Revenue from Operations? Revenue from Operations means revenue earned by the enterprise from its Operating Activities such as Net Sales (Sales-Sales Return), services rendered, sale of scrap etc. Question Answer Define Voucher. Voucher is an evidence of a business transaction.

27. Question Answer Define Drawings with example. Drawings is the amount of money or value of goods which the proprietor or partner withdraws for personal use. For example, withdrawal of cash by the proprietor for personal use. Question Answer Define Merchandise. Merchandise means goods for resale.

28. Question Answer A firm earns a revenue of 21,000 and the expenses to earn this revenue are 15,000. Calculate its income. Income = Revenue - Expense = 21,000 - 15,000 = 6,000 Question Answer A firm has received a large order to supply goods. Will it be recorded in the books of account of the firm? Give reason. No, it will not be recorded in the books of account because it is not a transaction.

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