02 - Smart Accountant elementary Training - Day 1 - Session 1.pptx

basic accounting terms

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

2. Registered Office M-51, Ramakrishna Vihar , IP Extn . Patparganj , New Delhi – 110092 Registered Corporate Office Office No. 404, 410 & 411 Devika Tower, Chander Nagar, Ghaziabad – 201011 Contact 0120-4113633 9560054515 7840054515 www.virtualgroup.in 3 Months, 200 Hours 60 Hours of Class 140 Hours of Practicals

3. Entity Money-Measurement Going Concern Cost Dual Aspect Time Period Conservatism Fundamental concepts Realization Matching Consistency Materiality Prudence Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

4. Key Accounting Concepts Entity Concept Business enterprise has separate identity than its owners. Business is distinct from owners. Business transactions are recorded in business books of accounts and owner’s transactions in his personal books of accounts. The examples of entity includes Proprietorship firm, Partnership firm , Limited Liability Partnership, Trusts, Clubs, Societies, Private Limited & Public Limited Companies . Fundamental Concept 1 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12

5. Key Accounting Concepts Entity Concept Enterprise is liable to the owner for the money contributed / given to the enterprise for doing business. Since owner invested capital in the enterprise and takes risk he has claim on profits of the enterprise also. Obligation of enterprise towards owner is shown as below in the Balance Sheet . Fundamental Concept 1 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Balance Sheet - Proprietorship Liabilities Assets Capital (-) Drawings (+) Profits (-) Loss Balance Sheet - Company Equities & Liabilities Shareholder’s Funds (a) Share Capital (+) Reserves & Surplus

6. Key Accounting Concepts Money Measurement Concept Only those transactions that can be measured in terms of money are recorded in books of accounts . Measuring unit for money is taken as the currency of the country of operations. It is based on implicit assumption that hat the value of money is stable and does not change and hence no adjustment is required. Many material events and transactions are not recorded in the books of accounts just because it cannot be measured in monetary terms. Fundamental Concept 2 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12

7. Key Accounting Concepts Going Concern Concept Accounting assumes that an entity will continue to operate indefinitely which implies that financial statements do not represent a company’s worth if its assets were to be liquidated, but rather that the assets will be used in future operations. It is believed that enterprise has neither the intention nor the need to close down the business or liquidate the business.   This concept also allows businesses to spread (amortize) the cost of an asset over its expected useful life. Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2

8. Key Accounting Concepts Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2

9. Key Accounting Concepts Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2

10. Key Accounting Concepts Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2

11. Key Accounting Concepts Fundamental Concept 4 Fundamental Concept 3 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Cost The value of the non current asset is to be determined on the basis of original cost incurred by the company to purchase and bring the asset in the working condition for its intended use. This cost is known as ‘ Historic Cost’. Non current assets are booked at historical cost when acquired and gradually in a systematic manner part of the cost is reduced due to amortization . Reduced portion of cost is generally known as depreciation .

12. Key Accounting Concepts Fundamental Concept 4 Fundamental Concept 3 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Cost Concept - Example XYZ Pvt. Ltd. wish to purchase Truck   Purchase price of the Truck is Rs. 20,00,000/- Transportation charges for the Truck are Rs. 50,000/- Accessories and Body built worth Rs. 1,50.000/- is required to put the Truck to use Truck is put to Commercial usage on 1 st April 2018 Useful life of the Truck is assumed as 16 Years What is the value at which and on which date Truck will be capitalized. How much depreciation will be charged on Truck every year

13. Key Accounting Concepts Fundamental Concept 5 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Every transaction affects at least two items of accounting records known as dual impact of transaction. Accounts are prepared on double entry system . This concept is the basis of the fundamental accounting equation: Assets = Liabilities + Equity Assets are what the company owns. Liabilities are what the company owes to creditors against those assets Equity is the difference between the two and represents what the company owes to its investors / owners.

14. Key Accounting Concepts Fundamental Concept 5 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 All accounting transactions must keep this equation balanced so when there is an increase on one side there must be an equal increase on the other side or an equal decrease on the same side . The objectivity concept states that accounting will be recorded on the basis of objective evidence (invoices, receipts, bank statement, etc …). This means that accounting records will initiate from a source document and that the information recorded is based on fact and not personal opinion

15. Key Accounting Concepts Fundamental Concept 6 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Time Period This concept defines a specific interval of time for which an entity’s reports are prepared. This can be a fiscal year (1 st April – 31 st Mar), natural year (1 st Jan – 31 st Dec), or any other meaningful period such as a quarter or a month.

16. Key Accounting Concepts Fundamental Concept 7 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 8 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Conservatism Concept This requires understating rather than overstating revenue (income) and expense amounts that have a degree of uncertainty. The rule is to recognize revenue when it is reasonably certain and recognize expenses as soon as they are reasonably possible. The reasons for accounting in this manner are so that financial statements do not overstate the company’s financial position

17. Key Accounting Concepts Fundamental Concept 8 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Realization Concept Revenues are recognized when they are earned or realized. Realization is assumed to occur when the seller receives cash or a claim to cash (receivable) in exchange for goods or services. This concept is related to conservatism in that revenue (income) is only recorded when it actually occurs and not at the point in time when a contract is awarded.

18. Key Accounting Concepts Fundamental Concept 8 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 1 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Realization Concept - Example I f a company is awarded a contract to build an office building the revenue from that project would not be recorded at the time of award of contract nor in one lump sum amount but rather it would be divided over time according to the work that is actually being done . This is also called percentage completion method under Contract accounting

19. Key Accounting Concepts Fundamental Concept 9 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 1 Fundamental Concept 8 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Matching Concept To avoid overstatement of income in any one period, the matching principle requires that revenues and related expenses be recorded in the same accounting period. If you bill Rs. 20,000/- of services in a month, in order to accurately represent the income for the month you must report the expenses you incurred while generating that income in the same month .

20. Key Accounting Concepts Fundamental Concept 9 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 1 Fundamental Concept 8 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Matching Concept - Example I f a company is awarded a contract to build an office building the revenue from that project would not be recorded in one lump sum but rather it would be divided over time according to the work that is actually being done. Cost incurred in such cases determines the Revenue to be recognised

21. Key Accounting Concepts Fundamental Concept 10 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 1 Fundamental Concept 8 Fundamental Concept 9 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 2 Consistency Concept Once an entity decides on one method of reporting (i.e. method of accounting for inventory) it must use that same method for all subsequent events.  This ensures that differences in financial position between reporting periods are a result of changed in the operations and not to changes in the way items are accounted for.

22. Key Accounting Concepts Fundamental Concept 11 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 1 Fundamental Concept 8 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 12 Fundamental Concept 2 Materiality Concept Accounting practice only records events that are significant enough to justify the usefulness of the information. Technically, each time a sheet of paper is used, the asset “Office supplies” is decreased by an infinitesimal amount but that transaction is not worth accounting for.

23. Key Accounting Concepts Fundamental Concept 12 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 1 Fundamental Concept 8 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 2 Prudence Concept Revenues and profits are not anticipated . Only realized profits with reasonable certainty are recognized in the profit and loss account, however , provision is made for all known expenses and losses whether the amount is known for certain or just an estimation This treatment minimizes the reported profits and the valuation of assets

24. Key Accounting Concepts Fundamental Concept 12 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 1 Fundamental Concept 8 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 2 Prudence Concept - Example Stock valuation sticks to rule of the lower of cost and net realizable value The provision for doubtful debts should be made Fixed assets must be depreciated over their useful economic lives

25. Questions on fundamental aspects The capital contributed by the owner is accounted for as a liability? Entity Assumption Dual Aspect Time Period Matching Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

26. Questions on fundamental aspects The capital contributed by the owner is accounted for as a liability? Entity Assumption Dual Aspect Time Period Matching Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

27. Questions on fundamental aspects Cost of research & development is written off unless its recovery is reasonably certain? Dual Aspect Realization Consistency Prudence Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

28. Questions on fundamental aspects Cost of research & development is written off unless its recovery is reasonably certain? Dual Aspect Realization Consistency Prudence Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

29. Fundamental QUESTIONS Workmen ‘s compensation which may beco m e payable in the event of cessation of business ,is ignored when preparing annual accounts? Entity Going concern Cost Dual aspect Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

30. Fundamental QUESTIONS Workmen ‘s compensation which may beco m e payable in the event of cessation of business ,is ignored when preparing annual accounts? Entity Going concern Cost Dual aspect Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

31. Fundamental QUESTIONS Q3 Workmen ‘s compensation which may beco m e payable in the event of cessation of business ,is ignored when preparing annual accounts? A Entity B Going concern C Cost D Dual aspect Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

32. Fundamental QUESTIONS Q4 Financial statements are prepared at annual ,although a portion of goods purchased remains unsold? A Time interval B Conservatism C Going concern D Cost Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

33. Fundamental QUESTIONS Q4 Financial statements are prepared at annual ,although a portion of goods purchased remains unsold? A Time interval B Conservatism C Going concern D Cost Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

34. Q5 Items produced are reported at cost until the point a buyer is found and the price agree A Materiality B Matching C Realization D Money measurement Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

35. Q5 Items produced are reported at cost until the point a buyer is found and the price agree A Materiality B Matching C Realization D Money measurement Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

36. Q6 Showing purchased office equipment's in financial statements is the application of which accounting concept? A Historical cost convention B Materiality C Prudence D Matching concept Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

37. Q6 Showing purchased office equipment's in financial statements is the application of which accounting concept? A Historical cost convention B Materiality C Prudence D Matching concept Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

38. Q7 Unless substantial amounts are involved , the cost of computer software is written off in the period incurred ,even if its benefit may accrues to the next A Dual aspect B M ateriality C Time period D Matching Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

39. Q7 Unless substantial amounts are involved , the cost of computer software is written off in the period incurred ,even if its benefit may accrues to the next A Dual aspect B Materiality C Time period D Matching Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

40. Q8 Using ‘’lower of cost and net realizable value(market value)’’for the purpose of inventory valuation is the implementation of which of the following concepts? A The going concern concept B The concept separate entity C The prudence concept D Matching concept Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

41. Q8 Using ‘’lower of cost and net realizable value(market value)’’for the purpose of inventory valuation is the implementation of which of the following concepts? A The going concern concept B The concept separate entity C The prudence concept D Matching concept Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

42. Q9 When an owner withdraw goods, it is debited to his drawing account because of - (a) Continuity concept (b) Conservatism (c) Entity concept (d) None of the above Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

43. Q9 When an owner withdraw goods, it is debited to his drawing account because of - (a) Continuity concept (b) Conservatism (c) Entity concept (d) None of the above Fundamental QUESTIONS Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

44. Fundamental QUESTIONS Q10 Work in Progress is valued on the basis of cost incurred because of principle of – (a) Conservatism (b) Realization (c) Going Concern (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

45. Fundamental QUESTIONS Q10 Work in Progress is valued on the basis of cost incurred because of principle of – (a) Conservatism (b) Realization (c) Going Concern (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

46. Fundamental QUESTIONS Q11 Why are the total of two sides of the balance sheet equal ? (a) Cost Concept (b) Dual aspect concept (c) Entity concept (d) All of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

47. Fundamental QUESTIONS Q11 Why are the total of two sides of the balance sheet equal ? (a) Cost Concept (b) Dual aspect concept (c) Entity concept (d) All of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

48. Fundamental QUESTIONS Q12 Pre-received income is deducted from income in the current year’s P&L account, the underlying assumption being- (a) Matching cost against revenue (b) Conservatism (c) Realization (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

49. Fundamental QUESTIONS Q12 Pre-received income is deducted from income in the current year’s P&L account, the underlying assumption being- (a) Matching cost against revenue (b) Conservatism (c) Realization (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

50. Fundamental QUESTIONS ( b) Consistency (c) Objectivity (d) None of the above Q13 In business, purchase should not be recorded without its voucher because it is violated of the principle of – (a) Cost Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

51. Fundamental QUESTIONS Q13 In business purchase should not be recorded without its voucher because it is violated of the principle of – (a) Cost (b) Consistency (c) Objectivity (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

52. Fundamental QUESTIONS Q14 Bank credits income of doubtful interest to Interest Suspense Account because of – Concept of Conservatism Objectivity Consistency None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

53. Fundamental QUESTIONS Q14 Bank credits income of doubtful interest to Interest Suspense Account because of – Concept of Conservatism Objectivity Consistency None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

54. Fundamental QUESTIONS Q15 The revenue from gold is recorded in the books, as soon as its production is complete, because of principle of – (a) Conservatism (b) Realization (c) Objectivity (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

55. Fundamental QUESTIONS Q15 The revenue from gold is recorded in the books, as soon as its production is complete, because of principle of – (a) Conservatism ( b ) Realization (c) Objectivity (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

56. Fundamental QUESTIONS Q16 The concept of ________ suggests that provision for loss against claim accepted must be made is:- (a) Realization (b) Periodicity (c) Conservatism (d) All of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

57. Fundamental QUESTIONS Q16 The concept of ________ suggests that provision for loss against claim accepted must be made is:- (a) Realization (b) Periodicity (c) Conservatism (d) All of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

58. Fundamental QUESTIONS Q17 Change in the value of Fixed Assets are not recorded in accounts because of principle of – (a) Conservatism (b) Objectivity (c) Going Concern (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

59. Fundamental QUESTIONS Q17 Change in the value of Fixed Assets are not recorded in accounts because of principle of – (a) Conservatism (b) Objectivity (c) Going Concern (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

60. Fundamental QUESTIONS Q18 Entries are made in Accounts on the basis of supporting vouchers- (a) Realization Concept (b) Objectivity (c) Conservatism (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

61. Fundamental QUESTIONS Q18 Entries are made in Accounts on the basis of supporting vouchers- (a) Realization Concept (b) Objectivity (c) Conservatism (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

62. Fundamental QUESTIONS Q19 Commission on sale is debited to Profit and Loss account in the year in which sale is effected because of – (a) Concept of conservatism (b) Matching cost with revenue (c) Realization concept (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

63. Fundamental QUESTIONS Q19 Commission on sale is debited to Profit and Loss account in the year in which sale is effected because of – (a) Concept of conservatism (b) Matching cost with revenue (c) Realization concept (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

64. Fundamental QUESTIONS Q20 In the trading account, sales is written on credit side and on the opposite side purchases and purchase expenses are shown. What is the principle involved- (a) Concept of conservatism (b) Matching cost with revenue (c) Realization concept (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

65. Fundamental QUESTIONS Q20 In the trading account, sales is written on credit side and on the opposite side purchases and purchase expenses are shown. What is the principle involved- (a) Concept of conservatism (b) Matching cost with revenue (c) Realization concept (d) None of the above Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

66. Fundamental QUESTIONS Example:21 Suppose you brought Rs 1 lakhs into the business. If you just enter one lakh Rs on debit side of the cash book, at the end of the year ; Rs one lakh will be more on asset side in the balance sheet. So you have to pass this entry: Cash debit Rs 1,00,000 Capital a/c credit 1,00,000 After passing this entry asset side of balance sheet will be equal to liability side. In other words what ever assets are there in the business belong to the owner and other creditors. Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

67. Fundamental QUESTIONS Example:22 You have purchased Rs 1 lakh worth of machinery. You have also incurred Rs 20,000 towards material labour and other day to day expenses. Your sales are Rs 30,000. Now you calculate the profit at the end of the year as shown below: Total expenses (including machinery)= Rs 1,20,000 Total sales =30,000 Hence loss= 90,000 Is it correct? No! your business is not going to end after the first year. It is going to be continued in future. And your machinery is going to be used through out its life. So you should consider machinery expenses relevant to the current year only . Which is called depreciation. So you will pass the below entry Depreciation a/c debit 5000(say) Machinery a/c credit 5000 Now your profit position will be as follows: Total expenses(including depreciation)= 25000 total sales = 30000 profit=5000 Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1

68. Thank You Fundamental Concept 3 Fundamental Concept 4 Fundamental Concept 5 Fundamental Concept 6 Fundamental Concept 7 Fundamental Concept 8 Fundamental Concept 2 Fundamental Concept 9 Fundamental Concept 10 Fundamental Concept 11 Fundamental Concept 12 Fundamental Concept 1