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CENTER FOR DISTANCE AND ONLINE EDUCATION

ASSIGNMENT-JANUARY 2024
SUB. NAME: -FUNDAMENTALS OF ACCOUNTING B.COM –
101: Online Mode
Q-1 What are the basic fundamentals of accounting?
The basic fundamentals of accounting serve as the foundation for understanding and practicing
accounting principles and techniques. These fundamentals provide a framework for recording,
summarizing, and reporting financial transactions. Here are the key principles:
1. Entity Concept: This principle states that a business entity should be considered separate
from its owners or other entities. Business transactions should be recorded from the perspective of
the business itself, distinct from its owners' personal finances.
2. Money Measurement Concept: According to this principle, only transactions that can be
expressed in monetary terms should be recorded in the accounting system. Non-monetary
transactions or events, no matter how significant, are typically not recorded.
3. Going Concern Concept: This principle assumes that a business will continue to operate
indefinitely unless there is evidence to the contrary. As a result, financial statements are prepared
under the assumption that the business will continue its operations for the foreseeable future.
4. Cost Concept: The cost principle states that assets should be recorded in the accounting
records at their original cost to the business. This principle provides a reliable and objective basis
for valuing assets and ensures consistency in financial reporting.
5. Dual Aspect Concept (or Double-Entry Accounting): According to this principle, every
business transaction has two aspects: a debit and a credit. Debits and credits must always balance,
ensuring that the accounting equation (Assets = Liabilities + Equity) remains in equilibrium.
6. Conservatism Principle: The conservatism principle advises accountants to err on the side
of caution when making estimates or recording transactions. It suggests that potential losses should
be recognized immediately, while potential gains should only be recognized when realized.
7. Consistency Principle: This principle states that accounting methods and practices should
be applied consistently from one accounting period to another. Consistency ensures comparability
of financial information over time, allowing users to make meaningful analyses and decisions.
8. Materiality Principle: The materiality principle suggests that financial information should
only be disclosed if its omission or misstatement could influence the decisions of users.
Accountants should focus on reporting information that is relevant and material to users' decision-
making processes.
9. Matching Principle: According to this principle, expenses should be recognized in the
same period as the revenues they help generate. This ensures that financial statements accurately
reflect the results of operations for a given accounting period.
10. Realization (or Revenue Recognition) Principle: Revenue should be recognized when it
is earned and realizable, regardless of when cash is received. This principle ensures that revenue
is recorded in the period in which it is earned, reflecting the true economic value created by the
business.
Q-2 What is the importance of fundamental accounting?
The importance of fundamental accounting lies in its role as the backbone of financial reporting,
decision-making, and accountability within businesses and organizations. Here are several key
reasons why fundamental accounting is important:
1. Financial Reporting: Fundamental accounting principles provide the framework for
accurately recording, summarizing, and presenting financial information. This information is
essential for stakeholders such as investors, creditors, regulators, and management to assess the
financial health and performance of the organization.
2. Decision Making: Sound financial decisions rely on reliable and relevant information
provided by fundamental accounting practices. Managers use financial reports to evaluate
performance, allocate resources, set goals, and make strategic decisions that impact the
organization's future.
3. Investor Confidence: Investors and shareholders rely on financial statements prepared
using fundamental accounting principles to assess the company's profitability, solvency, and
overall financial stability. Transparent and accurate financial reporting enhances investor
confidence and fosters trust in the organization.
4. Compliance and Regulation: Fundamental accounting principles serve as the basis for
compliance with regulatory requirements and accounting standards, such as Generally Accepted
Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Adhering
to these standards ensures consistency, comparability, and transparency in financial reporting
across industries and jurisdictions.
5. Risk Management: Effective risk management relies on accurate financial information
provided by fundamental accounting practices. By identifying financial risks, such as liquidity
issues, excessive debt levels, or operational inefficiencies, organizations can implement strategies
to mitigate risks and safeguard their financial health.
6. Resource Allocation: Fundamental accounting helps organizations allocate resources
efficiently by providing insights into the costs, revenues, and profitability of various business
activities. This information enables management to prioritize investments, optimize operations,
and enhance overall performance.
7. Evaluation of Performance: Fundamental accounting facilitates the evaluation of the
organization's financial performance over time. By comparing financial statements across different
periods, stakeholders can assess trends, identify areas of improvement, and measure progress
towards achieving strategic objectives.
8. Transparency and Accountability: Transparent financial reporting, guided by
fundamental accounting principles, promotes accountability and integrity within organizations. It
enables stakeholders to hold management accountable for their stewardship of company resources
and ensures ethical business practices.
9. Credibility and Trust: Reliable financial information generated through fundamental
accounting practices enhances the credibility and trustworthiness of the organization in the eyes
of stakeholders. It fosters positive relationships with investors, creditors, customers, suppliers, and
employees, which are essential for long-term success and sustainability.

Q-3 Is accounting easier than finance?


Whether accounting is easier than finance depends on various factors, including an individual's
skills, interests, and career goals. Both accounting and finance are essential fields within the
broader realm of business and finance, but they involve different skill sets, responsibilities, and
career paths. Here's a comparison:
Accounting:
1. Focus: Accounting primarily focuses on recording, summarizing, analyzing, and reporting
financial transactions. It involves detailed record-keeping, adherence to accounting standards
(such as GAAP or IFRS), and preparing financial statements like balance sheets, income
statements, and cash flow statements.
2. Skills Required: Accounting requires attention to detail, analytical skills, mathematical
proficiency, and a solid understanding of accounting principles and standards. Accountants must
also possess good communication skills to explain financial information to stakeholders.
3. Career Paths: Common career paths in accounting include public accounting (audit, tax,
advisory), corporate accounting, management accounting, government accounting, and forensic
accounting. Certified Public Accountant (CPA) and Chartered Accountant (CA) are common
professional designations in the field.
Finance:
1. Focus: Finance encompasses a broader range of activities related to managing money,
investments, and financial resources. It involves financial analysis, risk management, investment
decision-making, capital budgeting, and strategic financial planning.
2. Skills Required: Finance professionals need strong analytical skills, critical thinking
abilities, quantitative skills, and a solid understanding of financial markets, instruments, and
economic principles. They also require effective communication and interpersonal skills to interact
with clients, investors, and other stakeholders.
3. Career Paths: Career paths in finance include investment banking, corporate finance,
financial analysis, portfolio management, risk management, financial planning, and investment
management. Professional designations such as Chartered Financial Analyst (CFA) and Certified
Financial Planner (CFP) are common in the field.
Comparison:
• Complexity: Some may find finance more challenging due to its broader scope and
complexity, including financial markets, investment analysis, and risk management. However,
others may find accounting more complex due to its detailed rules, regulations, and standards.
• Subjective Preference: Whether one finds accounting easier than finance often depends
on individual preferences, strengths, and interests. Some individuals may prefer the structured
nature of accounting, while others may be drawn to the analytical and strategic aspects of finance.
• Overlap: There is overlap between accounting and finance, and professionals in both fields
often collaborate closely on financial matters. Understanding accounting principles is essential for
finance professionals to interpret financial statements and make informed decisions.
Q-4 How do you get a CPA?
Becoming a Certified Public Accountant (CPA) involves meeting specific educational
requirements, gaining professional experience, and passing the CPA Exam. Here's an overview of
the typical steps to become a CPA in the United States:
1. Education Requirements:
o Obtain a bachelor's degree or higher from an accredited college or university. The
degree should include coursework in accounting and business administration, covering topics such
as financial accounting, managerial accounting, taxation, auditing, and business law.
o Some states require a specific number of credit hours in accounting and business
courses to be eligible for CPA licensure. Check the requirements of the state board of accountancy
where you intend to become licensed.
2. CPA Exam Eligibility:
o Check the eligibility requirements of the state board of accountancy where you plan
to become licensed. Requirements may vary by state but typically include completing a certain
number of college credit hours, including specific accounting courses.
o Ensure that you meet the educational requirements and any additional prerequisites
set by the state board before applying to take the CPA Exam.
3. Pass the CPA Exam:
o The CPA Exam is a rigorous four-part examination administered by the American
Institute of Certified Public Accountants (AICPA). The four sections of the CPA Exam are
Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial
Accounting and Reporting (FAR), and Regulation (REG).
o Prepare for each section of the CPA Exam by studying relevant materials, attending
review courses, and practicing with sample questions and exams.
o Schedule and take each section of the CPA Exam at an authorized testing center.
You can take the sections in any order and at your own pace, but you must pass all four sections
within a certain timeframe (typically 18 months to two years).
4. Work Experience:
o Gain professional work experience in accounting under the supervision of a
licensed CPA. The amount of required experience varies by state but typically ranges from one to
two years.
o Gain experience in areas such as auditing, taxation, financial reporting, or other
accounting specialties, depending on your career goals and interests.
5. Ethics Exam:
o Some states require candidates to pass an ethics examination or course as part of
the CPA licensure process. The exam or course typically covers professional ethics,
responsibilities, and standards of conduct for CPAs.
6. Apply for Licensure:
o Once you have met all the educational, exam, and experience requirements, apply
for CPA licensure through the state board of accountancy where you plan to practice. Submit the
required application forms, documentation, and fees.
o The state board will review your application and verify that you have met all the
requirements for licensure. Once approved, you will receive your CPA license, allowing you to
practice as a Certified Public Accountant in that state.
Q-5 What are the golden rules of accounting?
The golden rules of accounting are basic principles that guide the recording of financial
transactions and help maintain the accuracy and integrity of accounting records. These rules are
essential for ensuring consistency, reliability, and transparency in financial reporting. There are
three golden rules of accounting, often referred to as the "three types of accounts":
1. Debit the Receiver, Credit the Giver (Personal Accounts):
o This rule applies to transactions involving personal accounts, such as individuals,
businesses, or entities with whom the organization has financial relationships.
o When receiving something, the recipient's account is debited, indicating an increase
in assets or a decrease in liabilities or equity.
o When giving something, the giver's account is credited, indicating a decrease in
assets or an increase in liabilities or equity.
2. Debit What Comes In, Credit What Goes Out (Real Accounts):
o This rule applies to transactions involving real accounts, which represent tangible
assets, properties, or resources owned by the organization.
o When an asset increases (e.g., cash, inventory, equipment), it is debited to reflect
the inflow or acquisition of the asset.
o When an asset decreases (e.g., cash payments, sales), it is credited to reflect the
outflow or disposal of the asset.
3. Debit All Expenses and Losses, Credit All Incomes and Gains (Nominal Accounts):
o This rule applies to transactions involving nominal accounts, which represent
revenues, expenses, gains, and losses.
o Expenses and losses are debited because they represent decreases in equity or
increases in liabilities, reflecting the cost of doing business.
o Incomes and gains are credited because they represent increases in equity or
decreases in liabilities, reflecting revenue earned or assets gained.
Q-6 Discuss the role and activities of an accountant?
The role of an accountant is multifaceted, involving various activities related to financial
management, reporting, analysis, and decision-making within organizations. Accountants play a
critical role in ensuring the accuracy, integrity, and compliance of financial information while
providing valuable insights to support strategic planning and business operations. Here are some
key roles and activities of an accountant:
1. Financial Reporting:
o Preparation of financial statements, including balance sheets, income statements,
cash flow statements, and statements of changes in equity, in accordance with accounting standards
(e.g., GAAP or IFRS).
o Ensuring the accuracy and completeness of financial records by recording and
summarizing transactions, reconciling accounts, and verifying the integrity of financial data.
2. Budgeting and Forecasting:
o Collaborating with management to develop budgets, forecasts, and financial plans
based on historical data, market trends, and organizational goals.
o Monitoring actual financial performance against budgeted targets, analyzing
variances, and providing recommendations to improve financial outcomes.
3. Financial Analysis:
o Conducting financial analysis to assess the financial health and performance of the
organization, including profitability analysis, liquidity analysis, solvency analysis, and trend
analysis.
o Interpreting financial data, identifying key performance indicators (KPIs), and
communicating findings to management to support decision-making and strategic planning.
4. Internal Controls and Compliance:
o Establishing and monitoring internal controls to safeguard assets, prevent fraud,
and ensure compliance with regulatory requirements, industry standards, and organizational
policies.
o Conducting internal audits, risk assessments, and compliance reviews to identify
weaknesses, mitigate risks, and enhance operational efficiency and effectiveness.
5. Tax Planning and Compliance:
o Advising on tax planning strategies to minimize tax liabilities, optimize tax
benefits, and ensure compliance with tax laws and regulations.
o Preparing and filing tax returns, including income tax returns, sales tax returns,
payroll tax returns, and other regulatory filings on behalf of the organization.
6. Management Advisory Services:
o Providing financial analysis, insights, and recommendations to management on
strategic initiatives, investment decisions, cost reduction strategies, and business expansion
opportunities.
o Assisting with mergers and acquisitions, financial due diligence, capital budgeting,
pricing decisions, and risk management strategies to support organizational growth and
sustainability.
7. Technology and Systems Integration:
o Utilizing accounting software, enterprise resource planning (ERP) systems, and
other financial management tools to streamline processes, automate routine tasks, and enhance
data accuracy and efficiency.
o Staying updated on emerging technologies and best practices in accounting and
finance to leverage innovative solutions for improved financial management and reporting.
Q-7 Why accounting practices should be standardised? Explain
Accounting practices should be standardized to promote consistency, comparability, transparency,
and reliability in financial reporting across organizations, industries, and jurisdictions.
Standardization ensures that financial information is prepared, presented, and disclosed in a
uniform manner, facilitating meaningful analysis, decision-making, and communication among
stakeholders. Here are several reasons why accounting practices should be standardized:
1. Consistency: Standardized accounting practices ensure consistency in the application of
accounting principles, methods, and procedures. This consistency enables users of financial
information to understand and interpret financial statements accurately, regardless of the
organization or industry.
2. Comparability: Standardization allows for the meaningful comparison of financial
performance and position between different entities, periods, or industries. Comparable financial
information helps investors, creditors, regulators, and other stakeholders assess the relative
strengths, weaknesses, and trends across organizations and make informed decisions.
3. Transparency: Standardized accounting practices enhance transparency by promoting full
disclosure of relevant financial information in financial statements. Transparency builds trust and
confidence among stakeholders, as it enables them to assess the financial health, risks, and
prospects of organizations with greater clarity and accuracy.
4. Reliability: Standardization increases the reliability and credibility of financial
information by establishing clear guidelines, rules, and principles for recording, summarizing, and
reporting transactions. Reliable financial reporting reduces the risk of errors, manipulation, and
fraud, enhancing the integrity of financial statements.
5. Regulatory Compliance: Standardized accounting practices ensure compliance with
regulatory requirements, accounting standards, and legal frameworks governing financial
reporting. Adherence to established standards helps organizations meet their legal obligations,
avoid penalties, and maintain public trust and confidence.
6. Globalization: In an increasingly globalized business environment, standardized
accounting practices facilitate international trade, investment, and financial transactions by
providing a common language for financial reporting. Harmonized accounting standards, such as
International Financial Reporting Standards (IFRS), promote consistency and comparability of
financial information across borders.
7. Efficiency and Cost Savings: Standardization streamlines accounting processes, reduces
complexity, and enhances efficiency in financial reporting and auditing. By adopting standardized
practices, organizations can minimize the time, effort, and resources required to prepare, review,
and analyze financial information.
8. Investor Confidence: Standardized accounting practices contribute to investor confidence
and market stability by ensuring the reliability and integrity of financial reporting. Investors rely
on standardized financial information to make investment decisions, allocate capital, and assess
the risks and returns associated with investing in specific companies or markets.
Q-8 Define single entry system. Distinguish it from double entry system.
When a business sells a good using single-entry accounting, the expenses for the good are recorded
when the business purchases the good and the revenue is recorded when the business sells the
good.
Here, let's imagine running a bagel shop. If our bagel shop uses single-entry accounting, we record
the expense of buying flour and salt separately from recording the revenue of a sold bagel. While
this is a feasible option for a small business, one thing to keep in mind is that single-entry
accounting can be error-prone. There are no credit and debit totals to match, so single-entry doesn’t
allow for double-checking the accuracy of the bookkeeping. For example, if the bagel shop forgets
to record a sale or an expense, their balances won’t match.
Alternatively, if a business is using double-entry accounting, when the business purchases goods
they record an increase in inventory along with a decrease in assets at the same time and within
the same transaction.
Here, imagine our bagel shop buys salt and flour in cash. We record the purchase of flour and salt
along with a decrease in cash assets. When we sell a bagel, we record a decrease in bagel inventory
and an increase in cash assets (the revenue from the sold bagel).
Single-entry accounting is only practical for smaller businesses with low transaction volumes, as
it fails to take concepts like inventory into account. A business also can not use single-entry
accounting to create certain necessary financial documents, like balance sheets.
Q-9 What do you mean by subsidiary books?
Subsidiary Books are the books that record the transactions which are similar in nature in an
orderly manner. They are also known as special journals or Daybooks. In big business institutions,
it is not easy to record all the transactions in one journal and post them into various accounts.

Q-10 What are the various kinds of errors? Which of these affect the agreement of trial balance?
Types of Errors not disclosed by a Trial Balance:
1. Errors of Omission: Errors of Omission occur when a transaction is fully skipped. This means
that the transaction has not been recorded either in the Journal or in Subsidiary Books. Under such
a situation, the agreement of trial balance remains unaffected, as the transaction has neither been
entered in the debit side nor the credit side of any account.

Example: Goods worth ₹8,000 sold to Mohan has not been recorded at all. This will not affect the
agreement of the trial balance, as neither it has been recorded on the debit side of Mohan’s account
nor on the credit side of the sales account.

2. Errors of Commission: Errors of Commission occur when a wrong amount has been recorded
either in the Journal or in Subsidiary Books. The trial balance, despite such errors, still continues
to tally because the same wrong amount has been recorded on both sides of the accounts.
Example: A cash purchase of ₹250 has been recorded in the Journal as ₹520. When this transaction
is posted in the ledger account, the amount of ₹ 520 is entered as purchase being debited with ₹520
and cash being credited with ₹520. No error can be detected by the trial balance.

3. Errors of Principle: Errors of Principle occur when Accounting Principles are not applied or are
violated while recording a transaction. These errors are of two types:

When capital expenditure is treated as revenue expenditure.


Example: Furniture worth ₹ 50,000 purchased is wrongly debited to the purchase account, instead
of the Furniture account. Despite such Errors of Principle, the trial balance shows an agreement.

When a revenue expenditure is treated as capital expenditure.


Example: Amount of ₹2,000 spent on repair of old machinery being debited to machinery account,
instead of repair account.

4. Compensating Errors: When the wrong amount posted in one account is compensated by the
wrong posting of the same amount in another account is called Compensating Errors.

Example: Ram’s account is debited by ₹400, instead of ₹500 and Sham’s account is credited by
₹600, instead of ₹700. The trial balance doesn’t show any disagreement due to the shortage of
₹100 being recorded on both sides of the account.

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