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Financial Accounting Expanded

The document provides an overview of Financial Accounting, detailing its purpose in recording and reporting business transactions through financial statements like Profit and Loss Account and Balance Sheet. It outlines key accounting concepts, principles, and standards, such as the Accrual Concept and Matching Principle, and explains the processes of ledger posting, trial balance preparation, and the significance of profit and loss accounts and balance sheets. Overall, it serves as a foundational guide for non-commerce students to understand essential financial accounting practices.

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SATHYABAMA MADHANKUMAR
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21 views3 pages

Financial Accounting Expanded

The document provides an overview of Financial Accounting, detailing its purpose in recording and reporting business transactions through financial statements like Profit and Loss Account and Balance Sheet. It outlines key accounting concepts, principles, and standards, such as the Accrual Concept and Matching Principle, and explains the processes of ledger posting, trial balance preparation, and the significance of profit and loss accounts and balance sheets. Overall, it serves as a foundational guide for non-commerce students to understand essential financial accounting practices.

Uploaded by

SATHYABAMA MADHANKUMAR
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Financial Accounting – Detailed

Overview for Non-Commerce Students


1. Introduction to Financial Accounting

Financial Accounting is the process of recording, summarizing, and reporting the business
transactions
that take place over a period of time. These transactions are summarized in financial statements
such as
the Profit and Loss Account, Balance Sheet, and Cash Flow Statement.
It helps stakeholders (owners, investors, managers) to understand the financial performance
and position
of a business.

2. Accounting Concepts, Principles & Standards

Accounting Concepts and Principles are basic assumptions and guidelines that are followed in
preparing
financial statements. Some major ones include:
- **Accrual Concept**: Revenues and expenses are recognized when they occur, not when cash
is received or paid.
- **Going Concern Concept**: The business is assumed to continue for the foreseeable future.
- **Consistency Principle**: The same accounting methods should be used every year.
- **Matching Principle**: Expenses should be matched with revenues in the same period.
- **Accounting Standards**: These are rules provided by professional bodies (like ICAI in India)
to standardize accounting practices.

3. Ledger Posting

Ledger is the principal book of accounts where transactions are classified and recorded in
separate accounts.
Example:
Transaction: Purchased furniture for ₹10,000 on credit from M/s WoodCraft.
Ledger entries:
- Furniture A/C Dr ₹10,000
To M/s WoodCraft A/C ₹10,000
Explanation: This records the asset purchased and the amount payable.

4. Trial Balance

Trial Balance is a statement prepared at the end of a period to check the arithmetical accuracy
of the ledger.
It contains the list of all debit and credit balances from the ledger.
Example:
| Account Name | Debit (₹) | Credit (₹) |
|--------------------|-----------|------------|
| Cash | 10,000 | |
| Capital | | 20,000 |
| Purchases | 8,000 | |
| Sales | | 5,000 |
| Furniture | 7,000 | |
| | 25,000 | 25,000 |
If both sides are equal, the books are assumed to be arithmetically correct.

5. Profit and Loss Account

This statement shows the revenues and expenses during a specific period. It helps in knowing
the profit or loss.
Example:
| Particulars | Amount (₹) |
|---------------------|------------|
| Sales Revenue | 50,000 |
| Less: Purchases | 20,000 |
| Less: Rent Expense | 5,000 |
| Net Profit | 25,000 |

6. Balance Sheet

Balance Sheet is a financial statement that shows the financial position of the company at a
specific date.
It has two parts: Assets and Liabilities.
Example:
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---------------------|------------|------------------|------------|
| Capital | 50,000 | Cash | 10,000 |
| Creditors | 5,000 | Inventory | 15,000 |
| | | Furniture | 30,000 |
| Total | 55,000 | Total | 55,000 |
It always balances: Assets = Liabilities + Capital.

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