1)Definition of accounting

Accounting is an art of Recording, Classifying & Summarizing in a

significant manner and
In terms of money, transactions & events, which are in part at least,
of a financial character and interpreting the results thereof.
2) Major branches of Accounting?
 Financial accounting :- Financial accounting is the process of
preparing financial statements that companies’ use to show
their financial performance and position to people outside the
company, Including investors, creditors, suppliers, and
customers.( trading account ,profit and loss account , balance
sheet, income statement are preparing in financial account)

 Cost accounting :- Cost Accounting is a business practice in

which we record, examine, summarize, and study the
company’s cost spent on any process, service, product or
anything else in the organization. This helps the organization in
cost controlling and making strategic planning and decision on
improving cost efficiency.

 Management accounting :- According to ICWAI “Management

Accounting is a system of collection and presentation of
relevant economic/ financial information relating to an
enterprise for: Planning ,Controlling And decision making”
 FINANCIAL ACCOUNTING COST ACCOUNTING MANAGEMENT
ACCOUNTING

Computing and Assisting

Preparing Profit &
analysing cost for management for
Loss account and
control and planning, Decision
Balance Sheet
maximum efficiency making & Control

3) GAAP Principles & Conventions?

principles
They are assumptions or principles which need to be followed while
preparing financial accounts
1. Accounting Entity
2. Money measurement
3. Going concer
4. Cost Principle
5. Dual aspect
6. Accounting period
7. Matching Principle
conventions
They are customs or traditions as a guide which emerged out of
accounting practice over a period of time
1. Consistency
2. Conservation
3. Materiality
4. Full Disclosure
Accounting Entity: Business and Business man are two separate
persons. Based on this Capital infused by Owner is treated as a loan
given to business. Like wise accounts are separately prepared for the
company by business owners
Money measurement: Accounting records transactions which can be
measured in terms of money only. Events which cannot be measured
in terms of money are avoided
Going concern: It is assumed that business will continue to operate
for an indefinite long period of time. When a business continues the
operations, it will be able to meet its obligations with resources.
Based on this principle, value of fixed assets are recorded in its cost
less depreciation
Dual aspect: The foundation of accounting is this principle. The
double entry system originates from here. All transactions have two
fold effect. Based on this, total assets should be equal to total claims
of business. (Assets = Liabilities + Capital). E.g. If machine (asset) is
purchased, cash (another asset) decrease.
Accounting period: Indefinitely long life of a business is divided into
small periods to ascertain profit or loss. Generally 1 year (1.1 – 31.12
or 1.4 – 31.04) It is also required for tax calculation purpose.
Full Disclosure: Financial statements should disclose all relevant and
material information about the financial activities confirming to
GAAP principles. Information should be full, fair and adequate. It
should be true. Based on this in 1965, model balance sheet was
introduced.
4) what is fixed asset?
Assets which are acquired for relatively longer period for carrying on
the business are called fixed asset Eg land ,building ,machinery etc..
5)Types of fixed asset
Tangible Assets: Tangible asset is an asset that has a physical
existence. Tangible assets examples are land, buildings and
machinery.
Intangible Assets: An intangible asset is an asset which doesn’t
possess a physical existence. Brand recognition, intellectual property,
goodwill and such as copyrights, trademarks, and patents are all
examples of intangible assets.
6) what is current asset?
Assets which are held for a short period are called current asset. Eg;
cash ,inventories, raw-material, bills receivable etc..
7) what is drawings?
It is a amount of cash or other assets withdrawn by the owner for his
personal purpose.
8) Accounting equation?
asset =liability + capital
9) Golden rule of accounting?
 Debit what comes in, Credit what goes out.
 Debit the receiver, Credit the giver.
 Debit all expenses Credit all income .
10) what is journal ?
A journal is a day book kept in the business wherein the complete
history of transactions of accounting nature including debit and
credit aspect is shown chronologically.

11) what is ledger?

A ledger is a collection or set of accounts.
12)what is cash book?
Cash book is used to record all transactions relating to cash receipts
and cash payments.
13) what is trail balance?
The trial balance is a worksheet used in bookkeeping. In this, the
balance of every ledger is combined into credit and debit account
column totals that are always equal.
14)what is income statement?
Income statement is prepared to ascertain the profit /loss of a
business during a period of time
15) what is trading account?
Trading accounting is prepared to ascertain the trading(buying and
selling) result of business.
16) profit and loss account?
The profit and loss (P&L) is an financial statement that gives a
summary of the revenues, costs, and expenses incurred by a business
during a specific period, usually a fiscal quarter or year.
17) what is balance sheet?
A balance sheet is a statement of assets and liabilities of the
business.
18)what is depreciation?
Depreciation is defined as the reduction of the recorded cost of a
fixed asset in a systematic manner until the value of the asset
becomes zero or negligible.
19) prepaid expense?
Those expenses which have been paid in advance ,whose benefits
will be available in future that is called prepaid expenses.
20) outstanding expense?
Expenses which have been incurred during the year and whose
benefits has been derived during the year, but the payment has not
yet been made, are called outstanding expense.
21) income earned but not received/Accrued income?
An income which has been earned but not received during the
accounting year that is called accrued income.
22) income received in advance?
Income received but not earned during the year that is income
received in advance .
23) Bad debt?
Any irrecoverable portion is termed as bad debts.
24) what is the difference b/w cash flow and fund flow?
The cash flow will record a company's inflow and outflow of actual
cash (cash and cash equivalents).
The fund flow records the movement of cash in and out of the
company
25) Types of ratios?

Liquidity Ratios Solvency/ Turnover Ratio Profitability Ratio

Current Ratio Leverage Ratio Stock Turnover ratio Gross profit Ratio
Quick Ratio Debt Equity Ratio Debtors Turnover Ratio Net profit Ratio
Proprietary Ratio Fixed assets Turnover Operating Ratio
Interest Coverage Ratio Ratio Operating Profit Ratio
Capital Gearing Ratio Capital Turnover Ratio
 Current ratio=current asset /current liability
 Quick ratio=quick asset/quick liability

 Debt equity ratio=total debtors/shareholders funds

 Proprietary Ratio = Shareholders’ Fund / Total Assets
 Interest Coverage Ratio = EBIT/ Fixed interest charges
 Capital Gearing Ratio = Fixed Income Securities/ Equity
Shareholders’ fund

 Inventory Turnover Ratio = CGS/ Average Stock

 Debtors’ Turnover Ratio = Credit Sales/ Average Debtors
 Fixed Asset Turnover Ratio = Net Sales/ Fixed Assets
 Capital Turnover Ratio = Net Sales/ Total Capital Employed

 Gross profit ratio= gross profit/net sales*100

 Net profit ration=net profit/net salea*100
 Operating profit ratio=operating profit/net sales*100
 Operating ratio=cost of goods sold+ operating expenses/net
sales

 Contribution = Sales – Variable Cost

 Contribution = Fixed Cost + Profit
 Contribution = Fixed Cost – Loss
 Sales – Variable Cost = Fixed Cost + Profit
S–V=F+P
 Profit = Sales – Variable Cost – Fixed Cost
 Profit = Contribution – Fixed Cost
 Fixed Cost = Contribution – Profit
 Variable Cost = Sales – Fixed Cost – Profit
 Budget: Budgetary
Budgeting:
Control:
A detailed plan
It is a system of
relating to a future Detailed planning
controlling costs
period expressed in for the allocation of
through preparing
monetary & funds for a business
budgets
quantified term

26) Types of budget?

It remains fixed/ unchanged irrespective of level of activity

If actual output differs from the budget, variance will arise.
Fixed budgets are prepared, when output and sales can be estimated with
Fixed some accuracy
Budgets:

Designed to change in relation to the level of activity

Budget will be prepared for different level of activity (70%, 90% etc.)
Flexible Flexible budgets are prepared on assumption of changing business condition
budget

Raw materials + Direct labour +

Direct expenses PRIME COST

Add: Factory Overheads WORKS COST

Add: Selling & Distribution
overheads TOTAL COST

27) What Is an Accounting Standard?

An accounting standard is a common set of principles, standards, and
procedures that define the basis of financial accounting policies and
practices.
28) what is accounting standards 3?
Accounting Standard 3 deals with cash flow statement. This
accounting standard accounts for information about changes in cash
and cash equivalents of an entity during a particular period.