Accountancy

Necessity of accounting principles Basic accounting concepts Basis of accounting

Nature of accounting standards Utility of accounting standards International Financial Reporting Standards (IFRS) Meaning and benefits of IFRS

Features of accounting principles:

(1) Accounting principles are manmade. (2) Accounting principles are flexible in nature (3) Accounting principles are generally accepted.

Basic accounting concepts

(1) Business entity concepts This concept assumes that business has a distinct and separate entity from its owners.

Nature of accounting standards: (1) Accounting standards are guidelines which provide the framework credible financial statement can be produced.

(2) According to change in business environment accounting standards are being changed or revised from time to time

Objectives of IASB: (1) To develop the single set of high quality global accounting standards so users of information can make good decisions and the information can be comparable globally.

(2) To promote the use of these high quality standards. (3) To fulfill the special needs of small and medium size entity by following above objectives.

(2) Financial statements prepared by using IFRS shall be better understood with financial statements prepared by the country specific accounting standards. So the investors can make better decision about their investments.

(3) Industry can raise or invest their funds by better understanding if financial statements are there with IFRS.

(2) It creates the confidence among the users of accounting information because they are reliable.

(3) It helps accountants to follow the uniform accounting practices and helps auditors in auditing.

(1) Personal Account: Debit the receiver and credit the giver. (2) Real Account: Debit what comes in and credit what goes out.

(3) Nominal Account: Debit all expenses and losses credit all incomes and gains.

(3) To bring uniformity in accounting practices and to ensure consistency and comparability is the main objective of accounting standards.

(4) Where the alternative accounting practice is available, an enterprise is free to adopt. So accounting standards are flexible.

(4) Accountants and auditors are in a position to render their services in countries adopting IFRS.

(5) By implementation of IFRS accountants and auditors can save the time and money. (6) Firm using IFRS can have better planning and execution. It will help the management to execute their plans globally.

(9) Full disclosure concept Apart from legal requirement good accounting practice require all material and significant information must be disclosed.

Financial statements are the basic means of communicating financial information to its users for taking useful financial decisions.

(10)Consistency concept This concept states that accounting practices followed by an enterprise should be uniform and consistent over a period of time.

For example if an enterprise has adopted straight line method of charging depreciation then it has to be followed year after year.

(6) Dual aspect concept This concept provides the very basis for recording the transaction in the books of accounts. It states that every transaction entered in the books has two aspects.

For example, Man as started business with cash Rs. 50,000. In this transaction asset (cash) increases and liability (capital of owner) also increases.

In other words, multi-valued attributes are the different characteristics of a same entity. Composite attributes are the combination or aggregate of related attributes. These attributes can be further divided into small portions to represent the independent meaning of some basic attributes.

For example, contact details which is generally divided into telephone numbers (with STD code), mobile number and e-mail Ids. Complex attributes are formed by grouping together the attributes of composite and multi-valued attributes.

(5) Cost concept According to this concept all assets are recorded in the books of accounts at the purchase price which includes the purchase price, cost of acquisition, transportation and installation.

For example, if an asset purchased for Rs. 1,00,000 and spent Rs. 10,000 on its installation.

Partial Participation- If in case, it is not required that every entity of an entity type must relate to another entity type, then the participation of the entity in the relationship type is partially constrained. Such an entity can exist even if a part of it is related to the relationship type.

For example, if every employee is not expected to prepare at least one of the vouchers, then the participation of employee in PREPARED_BY relationship is partial.

Basis of Accounting: (1) Cash basis Under this entries in the books of accounts are made when cash id received or paid and not when the receipt or payment becomes due.

For example, if salary Rs. 7,000 of January 2010 paid in February 2010 it would be recorded in the books of accounts only in February, 2010.

(13) Objectivity concept This concept states that accounting should be free from personal bias. This can be possible when every transaction is supported by verifiable documents.

For example, purchase of machinery for Rs. 30,000 should be supported by the voucher and should be recorded in the books of accounts. Similarly other supporting documents are cash memo, invoices, receipts provides the basis for accounting andauditing.

It is more appropriate basis for calculation of profits as expenses are matched against revenue earned in the relation thereto.

For example, raw materials consumed are matched against the cost of goods sold for the accounting period.

(7) Revenue recognition concept ( Realisation concept) According to this principle revenue is considered to have been realised when a transaction has been entered and obligation to receive the amount has been established. In other words when we receive right to receive revenue than it is called revenue is realised.

For example, sales made in March, 2010 and receives amount in April, 2010. Revenue of these sales should be recognised in February month, when the goods sold.

Disclosure of material information results in better understanding.

For example, the reasons for low turnover should be disclosed.

Note : There will be no effect in the books of Drawee either the bill is discounted from the bank or endorsed to a creditor or sent to the bank for collection. The drawee makes the payment in normal manner. It is only in the books of drawer where an additional entry is passed to record the effect of the above transaction.

GENERALLY STUDENTS COMMIT MISTAKES PLEASE AVOID IT:1. When calculating Date of Maturity the following points must be considered: 3. In case of "Bill at sight" or "Bill on demand" 3 days of grace are NOT allowed.

BOOK KEEPING:

-It involves journal, ledger, cash book and other subsidiary books, it cannot disclose the results of Business.

Meaning of Accounting:

-It is process of identifying, measuring, recording and communicating the financial information.

CHANGING ROLE OF ACCOUNTANCY

1. As a language to communicate information an enterprises. 2. To provide valuable information for judging management ability. 3. To provide quantitative information this is useful in economic decision. Process of accounting

5. Increase and decrease in assets. 6. Increase and decrease in liabilities 7. Increase and decrease in capital 8. Increase in liabilities and decrease in capital 9. Increase in capital and decrease in liabilities. l

Illustration : Show the effect of the following business transactions on assets, liabilities and capital through accounting equations:

(4) Accounting period concept Accounting period refers to span of time at the end of which financial statements are prepared to know the profits or loss and financial position of business.

Information is required to by different users at regular intervals for decision making. For example, bankers require information periodically because they want to ensure safety and returns of their investments.

RECTIFICATION OF ERROR Unit at a Glance: Introduction Error affecting or disclosed by trial balance Meaning of Accounting Errors not affecting by trail balance Clerical Errors Suspense account Numerical questions

Introduction Correcting the errors of accounting by passing journal entry is known as rectification of error. Error affecting or disclosed by trial balance 1. Errors of additions and subtractions :- wrong totaling and balancing of ledger, totaling of trial wrong totaling of trial balance.

6. The sales force composite forecasting method relies on salespersons' estimates of expected sales. T/F

It can be credit or cash, in which goods are delivered to customers.

(8) Matching concept The matching concept states that expense incurred in an accounting period should be matched with revenues during that period.

It follows from this that revenue and expenses incurred to earn these revenues must belong to the same accounting period.

11. Gain: -

It generates from incidental transaction such as sales of fixed asset, winning of court case.

Answer : An Entity Type means a common definition that is shared by a collection of entities in terms of their attributes is known as Entity Type. A separate name is given to each entity for their further identification.

The entity type is described in the database through its various attributes. The values of attributes of an entity belonging to particular entity type are known as Entity Instance.

Meaning of Voucher: Voucher is a source by which we record the transactions.

Meaning of Journal: Journal is a book of prime entry in which transactions are copied in order of date from a memorandum or waste book.

Answer : Attributes may be defined as characteristics that reflect the features of the entity. In case of a person these characteristics may be height, weight, name, date of birth, etc. and in case of accounts it may be code, type, name, etc. These attributes own a value which is stored in database as data.

Multi-valued attribute is an attribute that has multiple values. For example, flavour of ice-creams. It is a multi-valued attribute as the flavour of an ice-cream can be strawberry, vanilla, butter-scotch, etc.

FEATURES OF A PROMISSORY NOTE 1. There must be an unconditional promise to pay a certain sum of money on a certain date. 2. It must be signed by the maker. 3. The name of the payee must be mentioned on it. 4. It must be stamped according to its value.

PARTIES TO A PROMISSORY NOTE 1. The maker : The maker is the person who makes the promise to pay the amount on a certain date. Maker of a bill must sign the promissory note before giving it to the payee.

5. It helps in recovery of debt without sending reminders to the debtor. 6. It assures the seller about the timely recovery of debt. So a drawer and drawee can plan about its cash management.

PROMISSORY NOTE A Promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.

BRANCHES OF ACCOUNTING

1. Financial accounting (Book Keeping + preparation of financial statement). 2. Cost accounting (Determines the unit cost at different level of production).

Process of accountin

1. Identification of the economic events. 2. Classification of the business transaction (Assets, liability, expenses, income). 3. Measurement in terms (Monetary value transaction.),

(2) Modern or American Approach: This approach is based on the accounting equation or balance sheet. In this approach accounts are debited or credited according to the nature of an account. In a summarised way the five rules of modern approach is as follows:

1. Increase in asset will be debited and decrease will be credited. 2. Increase in the liabilities will be credited and decrease will be debited.

Users of financial statements:

1. Internal users:- (Owners, shareholders, investors, creditors, employees, customers, management.) 2 External users: - (Regulatory agencies, labor union, stock exchange. public and others)

ADVANTAGES OF BILL OF EXCHANGE 1. It helps in purchases and sales of goods on credit basis. 2. It is a legally valid document in the eyes of law. It assures a easier recovery to the drawer if drawee fails to make the payments.

3. A bill can be discounted from the bank before its date of maturity. By discounting with the bank, drawer can get the money before due date if required. 4. It can be easily transferred from one person to another by endorsement.

Classification of Transactions Following are the nine basic transactions: 1. Increase in assets with corresponding increase in capital. 2. Increase in assets with corresponding increase in liabilities.

3. Decrease in assets with corresponding decrease in capital. 4. Decrease in assets with corresponding decrease in liabilities.

2. Goods purchased on credit Rs. 7,000/- + 7,000 + 0= 7,000+ 0+ 0+ 0 New Equation 20,000+ 7,000+ 0= 7,000+ 0+ 0+ 20,000

3. Furniture Purchased (-) 3,000 0+ 3,000= 0+ 0+ 0+ 0 New Equation 17,000+ 7,000+ 3,000= 7,000+ 0+ 0+ 20,000

Illustration: Journalise the following transactions in the books of Ravi: 1. Bought goods from Sonam Rs. 20,000 less trade discount 20% plus VAT @ 10%. 2. Sold goods costing Rs. 6,000 to Ram for Rs. 8,000 plus VAT @ 10%

3. Sold the balance goods for Rs. 16,000 and charged VAT @ 10% to Mohan against payment by cheque which was banked on the same day. 4. Deposited the VAT into government account by cheque.

1. Errors of omission:- Transactions not recorded in books. For example:- goods return to supplier not recorded. 2.Errors of principle:-Disobey of accounting principles, (salary paid to manager) manager‟s accounts are debited.

3.Compensating errors: - Sales of goods to Rani for Rs.100 debited to Rain's account with Rs.10 and Rs.100 cash received for Ajay was credited to Ajay with Rs.10. 4. Incorrect account in the original book: - Insteadof B . Babu‟s accountN.babu‟s account affected by writer. 5. Posting to wrong account: - Instead of writing in purchases book , sales book are opened.

3 Bank A/c Dr. To Sales A/c To VAT Collected A/c (Goods sold to Mohan against cheque & charged VAT @10%) 17,600 16,000 1,600

4 VAT Collected A/c Dr. To VAT paid A/c (Adjustment of VAT paid with VAT collected) 1,600 1,600

2.Posting at the wrong side of an account :- Instead of debiting amounts by mistake are written in credit. 3. Entering incorrect amount:- Incorrect copying ,Transposing figure( Writing 56 in place of 65), sliding figure (8000 in place of 800), doubling the wrong figure and duplicate posting.

4. Errors of omission:- Not posted in subsidiary accounts, accounts are not opened in the ledger. 5. Wrong posting in the trial balance:- Instead of writing debit side accounts has posted in credit side. Errors not affecting by trail balance

This is done with the help of pre-designed Data Entry Form. This form is similar to the physical voucher form. 3. Data Storage- Data storage is created for storing the input of data. It involves structuring the database which is used for recording the accounting data. Following is the format of blank data record. Code - Name - Type

4. Manipulation of Data- This stage involves transformation of the stored data to generate final reports. 5. Output of Data- It means representing the accounting reports such as Journals, Ledger, Trial Balance, Financial Accounts, etc. as useful information.

(7) Noting Charges : 1. Noting charges are not an expense for the drawer. 2. It is always debited as „Noting chargers in the books of drawee. 3. Noting charges are recovered by drawer from drawee.

4. Noting charges are paid only when noting of the bill is necessary any at the time DISHONOUR of bill. Noting of the bill is NOT required when the bill is CANCELLED with the consent of both the parties, specially at the time of RENEWAL of Bill.

3. Management accounting (It blends financial and cost accounting to get maximum profit at maximum cost).

4. Tax accounting (Sales tax and income tax). Social responsibility (Focus on social benefits)

4. Paid to creditors (-) 2,000+ 0+ 0= (-) 2000+ 0+ 0+ 0 New Equation 15,000+ 7,000 3,000= 5,000+ 0+ 0+ 20,000

5. Amount withdrawn by proprietor - 4000+ 0+ 0= 0+ 0+ 0+ -4000 New Equation 11,000+ 7,000 3,000= 5,000+ 0+ 0+ 16,000

1. Commenced business with cash 20,000 2. Goods purchased on credit 7,000 3. Furniture purchased 3,000 4. paid to creditors 2,000

5. Amount withdrawn by the proprietor 4,000 6. Creditors accepted a bill for payment 1,500 7. interest on capital 1,000 8. Transfer from capital to loan 5,000 9. Allotted shares to creditors 1,000

Such 3 days are known as „Days of Grace‟. It is a custom to add the days of grace. 4. Date of Maturity : The date which comes after adding three days of grace to the due date of a bill is called „Date of maturity‟.

5. Bill at sight/Bill on Demand: When no time for payment is mentioned in the bill of exchange and the bill is payable whenever it is presented to the drawee for the payment, such bills are known as "Bill at sight" or "Bill on Demand". 3 days of grace are not allowed when bill is payable on demand.

3. Increase in the capital will be credited and decrease will be debited. 4. Increase in the revenue or income will be credited and decrease will be debited.

5. Increase in expenses and losses will be debited and decrease will be credited.

4. Recording of business transactions (As per accounting principal) 5. Summarizing the business transaction (Journal, ledger, trial balance and Balance sheet.)

6. Analysis and interpreting the business transactions. (Various reports, ratio etc.) 7. Communication (provide information to internal and external users.)

6. Bill after Date : Bill after date is the bill in which due date and date of maturity is ascertained from the date on which the bill is drawn. 3 days of grace are allowed for ascertaining the date of maturity in case of bill after date.

7. Discounting of Bill: When the bill is encashed from the bank before its due date, it is known as discounting of bill. Bank deducts its charges from the amount of bill and disburses the balance amount.

6. Creditors accepted a bill 0+ 0+ 0= -1500+ 1500+ 0+ 0 New Equation 11000+ 7000+ 3000= 3500+ 1500+ 0+ 16000

7. Interest on capital 0+ 0+ 0= 0+ 0+ 0+ -1000 New Equation 11000+ 7000+ 3000= 3500+ 1500+ 0+ 16000

ACCOUNTING FOR BILLS OF EXCHANGE - INTRODUCTION

A Bill of Exchange and Promissory Note both are legal Instruments which facilitate the credit sale of goods by assuring the seller that the amount will be recovered after a certain period. Both of these are legal instruments under the Negotiable Instruments Act, 1881.

State main categories of data models. Answer : The following are the various categories of data models. (i) Relational Data Model (ii) Hierarchical Data Model (iii) Network Data Model 1. Relational Data Model- This data model is based on the relationship of collected data values. In this data model, data is organised into rows and columns.

A row is regarded as a tuple, a column header is known as an attribute and the collective set of rows and columns, i.e. a table is called a relation. The table is known as a relation as it expresses the relationship between the rows and columns.

What do you understand by relationship type? How is it different from relationship instance and relationship set?

Answer : The relationship between various entities that belong to different entity types in a specific manner is known as a relationship type. A collection of various relationships that belongs to the same relationship type is called a relationship set.

Features of Depreciation : (1) It is decline in the book value of fixed assets. (2) It is a continuing process. (3) It includes loss of value due to efflux ion of time, usage or obsolescence. (4) It is an expired cost and must be deducted before calculating taxable profit.

Causes of Depreciation: (1) Wear and tear due to use or passage of time. (2) Obsolescence. (3) Expiration of legal rights. (4) Abnormal factors.

8. Endorsement of Bill : Endorsement of a bill means the Process of transferring the title of bill from the drawer or holder to their creditors. The person transferring the title is called " Endorser" and the person to whom the bill is transferred called „Endorsee‟. The endorsee can further endorse the bill in favor of his creditors. Endorsement is executed by putting the signature at the back of the bill. 9. Bill sent for

Collection : It is a process when the bill is sent to the bank with instructions to keep the bill till maturity and collect its amount from the acceptor on the date of maturity. 10. Dishonour of Bill: When the drawee (or acceptor) of the bill fails to make payment of the bill on the date of maturity, it is called 'Dishonour of Bill. 11.

SOURCE DOCUMENTS Meaning of Source documents: Business transactions are recorded in the books of accounts on the basis of some written evidence called source document.

Common Source documents are Cash Memo, Invoice or Bill, Receipts, Debit Note, Credit Note, Cheque, Pay in slip

2. Due Date : Due date is the date on which the payment of the bill is due. Due date is ascertained in the following manner : (i) In case of „Bill at sight‟ - Due date is the date on which a bill is presented for the payment. (ii) In case of „Bill after Date‟ - Due Date = Date of Drawing +

Term of Bill. (ii) In case of „ Bill after sight‟ - Due date = Date of Acceptance + Term of Bill. 3. Days of Grace : Drawee is allowed three extra days after the due date of bill for making payments.

3. PAYEE: Payee is the person who receives the payment from the drawee. Usually the drawer and the payee are the same person. In the following cases. drawer and payee are two different persons :

(i) When the bill is discounted by the drawer from his bank- payee is the bank. (ii) When the bill is endorsed by the drawer to his creditors: payee is the endorsee.

On the other hand, an Entity Set is defined as a collection of all entity instances of a particular entity type. A set of attributes that is used to describe an entity type is referred to as Schema.

The same set of attributes is shared by the set of entities belonging to a particular entity type. The entity set that consists of a collection of entities of a particular entity type is referred as extension of the entity type.

This concept states that all material and relevant fact and financial performance must be fully disclosed in financial statement of the business.

Company‟s act 1956 has provided a format for making profit and loss A/c and balance sheet, which needs to be compulsorily adhered to for preparation of financial statement.

Depreciation, Provisions and Reserves Introduction:

Every fixed asset loses its value due to use or other reasons. This decline in the value of asset is known as depreciation.

12. Loss: -

Excess of expenses over income is termed as loss.

10. Profit: -

Excess of revenues over expenses is called profit.

2. Transactions:

Exchange of goods and services for consideration.

BILL OF EXCHANGE "A Bill of Exchange is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument." Section 5 of the Negotiable Instrument Act, 1881.

FEATURES OF A BILL OF EXCHANGE ARE 1. A Bill of Exchange must be in writing. 2. It must contain an order (and not a request) to make payment. 3. The order of payment must be unconditional . 4. The amount of bill of exchange must be certain.

Need or Objectives of Depreciation : (1) To ascertain the true profit or loss. (2) For consideration of tax. (3) To ascertain the true and fair financial position. (4) Compliance with legal provisions.

Factors or Basis for providing Depreciation : (1) Cost of asset. (2) Estimated net residual value. (3) Depreciable cost. (4) Estimated useful life.

For example, a machine purchased for Rs. 2,00,000 and its estimated useful life say 10 years. The cost of machinery is spread on suitable basis over next 10 years for ascertaining the profit or loss for each year.

The total cost of the machine is not treated as an expense in the year of purchase itself.

Difference (A - B)- It contains all the tuples that are contained in the relation A but are not present in the relation B. Cartesian Product (A x B)- It contains the set of all concatenated tuples (x, y), where x is a tuple in the relation A andy is the a tuple in the relation B.

The tuples in the Cartesian product contains the product of each tuple of the relation A and each tuple of the relation B. (It must be noted that for performing Cartesian product it is not necessary that the two relations must be union compatible).

19 Debtors: -

There are persons who owe to an enterprise an amount for buying goods and services on credit.

Similarly management requires information at regular interval to assess the performance and funds requirement.

Therefore they are prepared at regular interval, normally a period of one year. This interval of time is called accounting period.

4. Liabilities:-

These are certain obligations or dues which firm has to pay.

20. Creditors: -

These are persons who have to be paid by an enterprise an amount for providing the enterprise goods and services on credit.

3.Assets:-

These are properties or economic resources of an enterprises which can be expressed in monetary terms it can be divided in two parts 1.Fixed assets( more than 1 year period) 2. Current assets(less than 1 year period)

This model provides the storage and retrieval functions and defines the data structure. The relational data model was first introduced by Ted Codd in 1970 in a classic paper Codd, 1970. Prior to this, there were other data models which were proposed in sixties such as, hierarchical data model and network data model.

These models are also known as legacy-models due to their large existing user-base. 2. Hierarchical Data Model- This data model mainly consists of records and parent-child relationships.

Answer : The weak entities refer to those entities which do not have their own key attributes or identities. The weak entities are identified on the basis of their relation with the specific entities from another entity type in combination with some of their attribute values.

These other entity types are regarded as identifying or owner entity type. The entity type, whose entities are in relationship with the weak entities are referred to as identifying or owner entity type.

System of Petty Cash Petty Cash Book may be maintained by ordinary system or by imprest system. Imprest System

Under this system an estimate is made of amount required for petty expenses for a certain period. Types of Petty Cash Book 1. Simple Petty Cash Book and 2. Petty Cash Book.

THEORY BASE OF ACCOUNTING

Unit at a glance: Introduction Meaning of accounting principles Features of accounting principles

(5) Accounting standards are amendatory in nature.

Utility of accounting standards: (1) They provide the norms on the basis of which financial statements should be prepared.

RULES OF DEBIT AND CREDIT (I) Traditional or English Approach: This approach is based on the main principle of double entry system i.e.

every debit has a credit and every credit has a debit. According to this system we should record both the aspects of a transaction whereas one aspect of a transaction will be debited and other aspect of a transaction will be credited.

(4) It ensures the uniformity in preparation and presentation of

financial statements by following the uniform practices.

GAAP

refers to the rules or guidelines adopted for recording and reporting of business transactions, in order to bring uniformity in the preparation and presentation of financial statements.

Solution Transactions Assets = Liabilities + Capital Cash + Stock+ Furniture = Creditors + B/P + Loan + Capital

1. Commenced business with cash Rs.20000 20000 + 0+ 0 = 0 + 0 + 0 + 20,000

BASIC ACCOUNTING TERMS

1. Entity:-

Obiectives of Accounting

1. Provides information in systematic way. 2. Enables to get profit or loss of business during certain profit. 3. Shows the actual position of the business.

It means existence of an individual which includes two things

1.Business entity 2. Non business entity.

Accommodation Bill : When bills of exchange or promissory note are not drawn to settle a trade between drawer and drawee but are written for the purpose of mutual help and to raise funds temporarily then it is known as Accommodation bill.

15. Insolvency of Acceptor : When the drawee (i.e., acceptor) of a bill is unable to meet his liabilities on due date, the drawee become insolvent. In such a case, entries for the dishonour of the bill are passed in the books of drawer/holder and drawee of the bill. Any proportionate amount received from the drawee is recorded in the books of the holder and the amount unrecoverable is debited to „Bad Debts A/c‟.

Solution: Date Particulars L.F. Amount (Dr.) Rs. Amount Cr. Rs. 1 Purchases A/c Dr. VAT Paid A/c Dr. To Sonam (Goods purchased from Sonam ) 16,000 1,600 17,600

2 Ram Dr. To Sales A/c To VAT Collected A/c (Goods sold & charged VAT @10%) 8,800 8,000 800

PARTIES TO A BILL OF EXCHANGE 1. DRAWER: Drawer is the person who makes or writes the bill of exchange. Drawer is a person who has granted credit to the person on whom the bill of exchange is drawn. The drawer is entitled to receive money from the drawee (acceptor).

2. DRAWEE: Drawee is the person on whom the bill of exchange is drawn for acceptance. Drawee is the person to whom credit has been granted by the drawer. The drawee is liable to pay money to the creditor/drawer.

In this system, data is gathered and stored for a particular operation. The following are the two important properties of a database. 1. Shared Property- The database is a combination of related data that can be accessed by the people who have authority to access it and to meet their different information needs.

2. Integrated Property- The database is arranged in such a manner so as to avoid and eliminate duplication of data. On one hand, database are used for storing accounting data, whereas, on the other hand, DBMS is that software which helps in creating, developing and maintaining the database.

The basic rationales behind normalising the database are: 1. to eliminate the data redundancy i.e. to avoid/eliminate the storage of the same data at more than one places.

2. to ensure data dependency i.e. to store the related data in the database. Database Normalisation is a very important process as it makes the database free from storage of irrelevant data and removes the duplicate data items from the database.

8. Transfer from capital to loan 0+ 0+ 0= 0+ 0+ 5000+ -5000 New Equation 11000+ 7000+ 3000= 3500+ 1500+ 5000+ 11000

9. Allotted shares to creditors 0+ 0+ 0= -1000+ 0+ 0+ 1000 New Equation 11000+ 7000+ 3000= 2500+ 1500+ 5000+ 12000

5. The date of payment should be certain. 6. It must be signed by the drawer of the bill. 7. It must be accepted by the drawee by signing on it. 8. The amount specified in the bill of exchange is payable either on demand or on the expiry of a fixed period.

9. The amount specified in the bill is payable either to a certain person or to his order or to the bearer of the bill. 10. It must be stamped as per legal requirements. 10. It must be stamped as per legal requirements.

Write any one advantage of accounting.

ANS: - Provide information in systematic order

1. Write any two users of financial statements.

ANS: 1.Public 2.Regulatory agencies

3. Write any one example of voucher.

ANS: cash memo

Methods of calculating Depreciation: (1) Straight line method (Fixed installment method): This method is based on the assumption of equal usage of time over asset‟s entire useful life.

According to this method a fixed and equal amount is charged as depreciation in every accounting period during the life time of an asset. Depreciation amount can be calculated by the following formula:

This can be described in other words, as the entities which are identified because of their relationship with their parent entity or dominant entity is referred to as weak entities or child entity type (or subordinate entity type), while the parent entity is referred to as identifying entity type.

Accordingly, the relationship through which the weak entity type relates to its owner entity is known as identifying relationship of weak entity.

RECORDING OF TRANSACTION

Accounting Equation : Total Assets = Total Liabilities Or Total Assets = Internal Liabilities + External Liabilities Or Total Assets = Capital + Liabilities

Introduction:

Accounting has greater discipline than book keeping. It includes conceptual knowledge of the subject and applications also.

Necessity of accounting principles:

Accounting information is meaningful and useful for users if the accounting records and financial statements are prepared following generally accepted accounting information in standard forms which are understood.

Meaning of Accounting Principles:

Accounting principles are the rules of action or conduct adopted by accountants universally while recording accounting transactions.

Economic Events:

All events which can be measured in monetary Terms are known as Economic events. (Salary paid to employees, Goods purchased from creditors, cash withdrew from bank)

What is meant by NULL value? What are the reasons that lead to their occurrence in database relations?

Answer : The absence of a data item which is represented by a special value is known as NULL value. The following are the reasons that lead to its occurrence in the database relations. (i) When a particular attribute does not apply to an entity (ii) When the existing value of an attribute is unknown (iii) When the value is unknown because it does not exist

16. Drawings: -

Amount of goods or cash which is withdrawn from business for personal use.

(2) Money measurement concept This concept states that transactions and events that can be expressed in money terms are recorded in the books of accounts. Non monetary transactions cannot be recorded in the books like appointment of manager, capabilities of humanresources etc.

Another aspect is the records of transactions are to be kept not in physical unit but in monetary unit. For example, an organisation has 2 buildings, 15 computers, 20 office tables are not recorded because they are physical unit and not in monetary unit.

4. Write any two examples of current assets.

Ans. 1.Stock 2.Debtor

What is a participation role? State the circumstances under which the use of role names becomes necessary in description of relationship types.

Answer : A particular role is played in the relationship by each entity that participates in a relationship type. The Participation role specifies the existence of an entity depending on being related to another entity via a relationship or not.

Limitation of this concept is the value of rupee does not remain same over a period of time.

As changes in the value of money is not reflected in books does not reflect fair view of business affairs.

Why are duplicate tuples not allowed in a relation? Answer : Tuple refers to a row in a table that represents a set or collection of related data values. It corresponds to the relationship which represents entity type as a set of tuples, where each tuple is an ordered list of values corresponding to attributes of relation.

As each tuple represents a distinct data record entity, so no two tuples in a relation (i.e. a table) can have the same combination of values for all their data items.

Meaning of IFRS: IFRS is a principle based accounting standards. IFRS are a single set of high quality accounting Standards developed by IASB, recommended to be used by the enterprises globally to produce financial statements.

Benefits of IFRS: (1) Global comparison of financial statements of any companies is possible

Difference between Bookkeeping and accountancy:

Book keeping does not show the net result and accountancy shows net result of the business.

In case, there exist two relationships between any two entities, then in order to map both the relationships, the primary key of the common entity is to be included twice.

But a relation cannot have the same name, hence, we need to use different role names as attributes as foreign keys to indicate the relations.

5 VAT Collected A/c Dr. To Bank A/c (Balance amount of VAT deposited in Govt.A/c 800 800

CASH BOOK Meaning: Cash book is a book in which all the transactions related to cash receipts and cash payments are recorded.

That is, accounting data pertains to the financial data recorded in the books of accounts. The procedure through which the accounting data is transformed for being presented as information in financial statements is known as data processing.

Data processing is a process of collecting, storing, summarising, analysing and interpreting the data and facts in such a manner so as to fetch reliable information for efficient and effective decision making.

Meaning of Depreciation:

Depreciation may be described as a permanent, continuing and gradual shrinkage in the book value of fixed assets.

This data model basically consists of records and sets. While, data is stored in records, which consists of a group of related data values, on the other hand, sets describes the relationship between two records types. In this data model, data is also represented by collection of records and the relationship among data is represented by sets. This model provides many-to-many relationships in data.

How are computers useful in processing the accounting data? Answer : Data processing is a process of collecting, storing, summarising, analysing and interpreting the data and facts so as to represent reliable information for efficient and effective decision making.

If we adopt written down value method from second year for charging depreciation than the financial information will not be comparable. Consistency eliminates the personal bias helps in achieving the results that are comparable.

However consistency does not prohibits the change accounting policies. Necessary changes can be adopted and should be disclosed.

2. The payee : The payee is the person who is entitled to get the payment from the maker of promissory note. Payee is the pesson who has granted the credit.

IMPORTANT TERMS 1. Term of Bill : The period intervening between the date on which a bill is drawn and the date on which it becomes due for payment is called „Term of Bill‟.

4. When the term of bill is mentioned in no of days, then Date of drawing the bill is not included. Date of payment is included in determining date of maturity . If date of maturity falls on a day which is public holiday, the maturity date of the bill shall be "PRCEDING DAY‟.

If maturity date is on an emergent holiday declared under the Negotiable Installment Act. 1881, the next working day immediately after the holi day will be considered as the date of maturity. When the period is stated in months the date of maturity shall be calculated in terms of calendar months ignoring the no. of days in a month.

While, a record is regarded as a collection of values that provides information regarding an entity or a relationship instance, on the other hand, a parent-child relationship explains the relationship between the parent record and children record type.

In this data model, the records are organised in a tree structure rather than as an arbitrary graph. The data is represented by a collection of records and relationship among data is represented by links. 3. Network Data Model- This type of data model is sometimes also known as DBTG model, as the original network model was presented in CODASYL Data Base Task Group's 1971, i.e. (DBTG).

18. Stock: -

It is a part of unsold goods. It can be divided into two categories. 1. 0pening stock 2. Closing stock.

5. Capital:

It is an essential investment for commencement of every business.

13. Discount:-

It is defined as concession or deduction in price of goods sold.

8. Expenses

It is known as cost of assets consumed or services which used.

14. Voucher:-

It is known as evidence in support of a transaction.

7. Revenues:-

It is the amount which is earned by selling of products.

Therefore business transactions are recorded in the books of accounts from the business point of view and not owners. For example, If owner bring Rs. 1,00,000 as capital in business.

It is treated as liability of business to owner. Similarly if owner withdrew Rs. 5,000 from business for personal use, it is treated as reduction of owner‟s capital and consequently reduction in liability of business towards owner.

(2) Accrual basis Under this however, revenues and costs are recognized in the period in which they occur rather when they are paid.

It means it record the effect of transaction is taken into book in the when they are earned rather than in the period in which cash is actually received or paid by the enterprise.

17. Purchases: -

It means of procurement of goods on credit or cash.

(11) Conservatism concept (Prudence concept) This concept takes into consideration all prospective losses but not the prospective profit.

It means profit should not be recorded until it realised but all losses, even those which have remote possibility are to be recorded in the books.

9. Expenditure:-

It means spending money for some benefit.

(3) Going concern concept This concept assumes that business shall continue to carry out its operations indefinitely for a long period of time and would not be liquidated in the foreseeable future.

It provides the very basis for showing the value of assets in the balance sheet. An asset may be defined as a bundle of services.

15. Goods: -

It refers all the tangible goods (Raw material, work in progress, finished goods.)

13. Renewal of a Bill: Sometimes, the drawee of a bill finds himself unable to meet the bill on due date. To avoid dishonouring of bill, he may request the holder of the bill to cancel the original bill and draw a new bill in place of old one.

It the holder agrees, the old bill is cancelled and a new bill with new terms is drawn on the drawee and also accepted by him. This process is called 'Renewal of a bill'. In this case,

Types of Cash book: 1. Single Column Cash Book 2. Double Column Cash Book 3. Petty Cash Book

Recording of Petty Cash Petty cash given to the Petty Cashier for small payments is recorded on the credit side of the Cash Book as „By Petty Cash Account‟ and is posted to the debit side of the Petty Cash Account in the Ledger.

Noting of Bill: To obtain the proof of dishonour of a bill, it is re-sent to the drawee through a legally authorized persons called Notary Public. Notary Public charges a small fee for Providing this service known as noting charges. Noting charges are paid to the Notary Public first by the holder of the bill but are ultimately recovered from the drawee, because he is the person responsible for the dishonour. 12.

Retirement of a Bill : When the drawee makes the payment of the bill before its due date it is called 'Retirement of a bill'. In such a case, holder of the bill usually allow a certain amount as Rebate to the drawee. Amount of rebate is calculated at a fixed percentage for the unexpired period only.

Answer : The union compatibility of relations implies that the participating relations must fulfil the following conditions. 1. 2. Same degree, i.e. The two relations must have the same number (set) of attributes.

Same domain of each corresponding pair of attributes of relation A and relation B, that is Dom(A) = Dom (B) That is, the domain (stands for data type) for the corresponding attributes must be identical.

For example, amount spent of repair of building Rs. 4,00,000 is material for enterprise having the sales turnover of Rs.1,50,000 but not material for enterprise having turnover of Rs. 25,00,000.

Similarly closure of one plant material but stock eraser and pencils are not shown at the asset side but treated as expenses of that period, whether consumed or not because the amount involved in it are low.

For example commission for the March, 2010 even if received in April 2010 will be taken into profit and loss A/c of March, 2010.

Similarly if rent for the April, 2010 is received in advance in March, 2010 it will be taken the profit and loss A/c of the financial year of March, 2011.

For example, salary for the month of March, 2010 paid in April, 2010 is recorded in the profit and loss A/c of financial year ending March, 2010 and not in the year when it realized.

Similarly we records cost of goods sold and not the goods purchased or produced. So the cost of unsold goods should be deducted from the cost of goods produced or purchased.

The result that is derived from the relationship type is known as instance and is shown in an entity set. The relationship prepared between the two entity types: Salary Slips and Employees, associates each salary slip with the employee who prepared it.

Similarly, another example of relationship type of STUDY_IN associates one student entity and one class entity. In this example, Student and Class are entities and the relationship between i.e. STUDY_IN is the relationship set.

CLERICAL ERRORS 1. Errors of omission: - Forget to write the transaction in books. Example: 1. Goods worth Rs.5,000 returned by a customer was not recorded in the books. 2. Goods worth Rs.3,000 sold to Anil was not recorded in the books.

Structuring Database for Accounting

Hence, we can say any two relations say, relation A and relation B are union compatible, iff (if and only if), both the relations have the same number of attributes and the domains of their corresponding attributes are the identical (column by column).

The following are the various operations for which union compatibility of relations is required. 1. 2. 3. 4. Union (A ∪ B)- It contains all tuples from each of the relations. Intersection (A ∩ B)- It contains all the tuples that are contained in both the relations A and B.

Noting of the bill is not required as cancellation of the bill is mutually agreed upon by both the parties of the bill. Normally, the drawer charge interest for the period of new bill.

The interest may be paid in cash or may be added in the amount of new bill. If any part payment is made at the time of renewal of a bill, interest is calculated only on the outstanding amount. 14.

Therefore asset will be recorded in the books of accounts at Rs. 1,10,000. This concept is historical in nature. For example, if machine purchased for Rs. 75,000, the purchase or acquisition price will remain same for all years to come, though its market value may change.

The main limitation of this concept is that it does not show the true value of asset and may lead to hidden profits.

The following are the various stages that are involved in transformation of data into information so as to present in the financial statements. 1. Collecting Data from the Source Documents- First of all, data is collected from the source documents such as payment slips, receipt slips, etc. for preparing vouchers.

The preparation of vouchers is the basis for recording the accounting data in a systematic and chronological (date-wise) manner. 2. Input Data- A suitable database is designed to enter the accounting data contained in the vouchers.

Data processing, in short, is a transformation of raw data into useful information. Computer system plays a very important role in processing the accounting data. Data processing requires a mechanism to store data content in a manner that allows easy and convenient retrieval of data as and when required.

This can be easily done with the help of computers by designing suitable database for accounting. Moreover, computers also help in eliminating the duplication of data. Unlike the manual accounting system, computers are not subject to tiredness, boredom or fatigue, therefore; the reliability of data processed by computers is very high.

For example, valuing closing stock at cost or market value whichever is lower, creating provision for doubtful debts etc.

This concept ensures that the financial statements provide the real picture of the enterprise.

(12) Materiality concept

This concept states that accounting should focus on material fact. Whether the item is material or not shall depend upon nature and amount involved in it.

This principle is also known as duality principle. This principle is commonly expressed in fundamental accounting equation given below. Assets = Liabilities + Capital

This equation states that assets of business are always equal to the claims of owners and outsiders.

For a unique identification of the weak entity that is related to the same owner entity, a set of attributes is used which is known as partial key. Sometimes, the partial key is also known as the discriminator.

This is because it is used to uniquely identify the weak entities that are related to the same parent entity. For example, if we assume that no two children of the same employee have the same first name, then the attribute Name of Children is the partial key that can be used to identify the children (weak entities) that are related to the same employee (owner entity).

The two types of such constraints are total or partial participation. Total Participation- If it is required that every entity of an entity type must relate to another entity type, then such an entity can exist only if it participates in that specific relationship.

This kind of participation is called total participation. This type of participation constraints is also known as existence dependency. For example, if it is required that every account must be related to at least one of the accounts type, then an account entity can only exist if it participates in CLASSIFY relationship instance.

International Financial Reporting Standards (IFRS):

To maintain uniformity and use of same or single accounting standards, International Financial Reporting Standards (IFRS) are developed by International Accounting Standards board (IASB).

Introduction:

To maintain uniformity in recording transactions and preparing financial statements, accountants should follow Generally Accepted Accounting Principles.

Besides reliability, computers can process data at comparatively higher speed and with great degree of precision and accuracy.

What do you understand by accounting data? Discuss the stages through which it is finally transformed for being presented as information in financial statements. Answer : Accounting data refers to the facts and financial data contained in journals, ledgers, financial statements and other books of accounts.

The accounting users can obtain these reports just by accessing the transformed data. This stage basically implies generation of final reports in a pre-designed format.

What do you understand by database? How does it differ from DBMS? Answer : Database is a collection of inter-related data, events and transactions. It is organised in a particular manner and provide access to the various users simultaneously.

In the following ER diagram, the relationship types are shown in a diamond-shaped box. The participating entities are shown in the rectangular boxes, which are connected to the diamond-shaped box through straight lines. Salary slips-paid by-emploees

What do you understand by multi-valued attribute? How is it different from complex and composite attribute? Illustrate by giving suitable example.

To show the grouping of components of composite attributes, the parenthesis ( ) are used and to show the grouping of components of complex attributes, the brackets { } are used.

What do you understand by the concept of weak entity used in data modelling? Explain the relevance of owner entity type, partial key and identifying relationship in the context of such modelling.

Moreover, if a new tuple is added in the relation, then it should not reflect the existing data-values, otherwise, it will violate the uniqueness constraint and the relation as a whole will not have a minimal super-key.

What do you understand by union compatibility of relations? For which operations such compatibility is required and why?

It is a system that provides easier access to data recorded in the database. It handles a huge amount of data and defines, organises and transforms the database for different functions as per the need. Hence, it can be said that DBMS facilitates access to the database.

What is meant by entity type? How it is different from entity set? Illustrate by giving suitable example from accounting reality.

In order to run these operations, it is important that the two relations must be union compatible. It is because of the fact that the relations without being union compatible that is not of same degree of attributes and having same domain, may lead to difficulty in performing such operations.

What is the need for database normalisation? Answer : Database Normalisation refers to the process of organising and maintaining the data into the database in an efficient manner.