Accounting Concepts

Accounting Concepts
Types of companies in India
• 3 types of companies in India
• Public Company : 7 or more people (unlimited)

[Sec 2(71) Companies Act 2013]
• Private Company : 2 or more (Max 200)
• Sole Proprietorship : 1 person company
The main objective of maintaining the books of accounts:
• to find out the net profit or loss made by a business at the end of the
period and
• to ascertain the financial position of the business as on a particular
date
Income statement,
and
Balance Sheet.
Structure of a corporation………
The main objective of maintaining the books of accounts:
• to find out the net profit or loss made by a business at the end of the
period and
• to ascertain the financial position of the business as on a particular
date
Income statement,
and
Balance Sheet.
Accounting Concepts
Business Entity Concept
Going Concern Concept
Cost Concept
Money Measurement Concept
Accounting Period Concept
Matching Concept
Conservatism Concept
Materiality Concept
Realization Concept
Duality or Accounting Equivalence Concept
THE ACCOUNTING EQUATION?
• It measures the resources of a business (what the business owns or
has control of) and the claims to those resources (what the business
owes to creditors and to the owners).
• The accounting equation is made up of three parts—

• Assets,
• Liabilities, and
• Equity.
• Assets
• Economic resources of an entity are called assets. Economic resources
that are expected to benefit the business in the future.
Assets are something of value that the business owns or has control of.
• E.g., Cash, Merchandise Inventory, Furniture, Land etc.
• Acquired through Past Transaction or Event;

• Control by a Particular Enterprise;
• Will provide Economic Benefits in future.
Liabilities and Equity
• Claims to those assets come from two sources: liabilities and equity.
• Liabilities
• Liabilities are debts that are owed to creditors. Liabilities are something the
business owes and represent the creditors’ claims on the business’s assets.
• Examples: Accounts Payable, Notes Payable, and Salaries Payable
• Equity
• The owners of a corporation are referred to as stockholders (also called
shareholders). The owners’ claims to the assets of the business are called
equity (also called stockholders’ equity).
• Equity represents the amount of assets that are left over after the company
has paid its liabilities. (net worth).
THE ACCOUNTING EQUATION
Assets = Liabilities + Equity
Equity = Contributed capital + Retained earnings
(common stock)
(+Revenues – Expenses – Dividend)
Expanded Accounting Equation……
Transactions
• A transaction is any event that affects the financial position of the

business and can be measured with faithful representation.
• Transactions affect what the company has (assets), owes (liabilities),
and/or its equity (net worth).
• Assets = Liabilities + Equity

HOW DO YOU ANALYZE A TRANSACTION?
• Mr. X starts a business with Rs. 50,000.
• Business now has an Asset (in form of Cash) of Rs 50,000.
• Mr. X has a claim against this asset of Rs. 50,000. (as a owner)
Assets (cash) Rs. 50,000 = Equities (owner’s) Rs. 50,000

Mr. X contributes Rs. 30,000 cash to E-Learning, an online teaching comp, in exchange for Share
The business purchases land for office in cash Rs. 20,000.
The business buys office supplies on credit Rs.500
The business earns service revenue of Rs. 5500 by providing e-teaching services for clients
The business performs a service for which receives the clients’ promise to pay Rs.3,000 within one month.
The business paid Rs. 2,000 for office rent and Rs.1,200 for employee salary
The business pays Rs.300 for office supplies purched on credit

Assets = Liability + Equity
Cash Capital
30000 30000
Land Cash Capital
30000 30000
20000 - 20000
off. Supply Land Cash Capital
30000 30000
20000 - 20000
20000 10000 30000
500 500
off. Supply Land Cash Capital
30000 30000
20000 - 20000
20000 10000 30000
500 500
5500 5500
A/c Receivable off. Supply Land Cash Capital
30000 30000
20000 - 20000
20000 10000 30000
500 500
5500 5500

30000 30000
20000 - 20000
20000 10000 30000
500 500
5500 5500
3000 3000

30000 30000
20000 - 20000
20000 10000 30000
500 500
5500 5500
3000 3000
-3200 -2000
-1000

30000 30000
20000 - 20000
20000 10000 30000
500 500
5500 5500
3000 3000
-3200 -2000
-1000
-300 -300

30000 30000
20000 - 20000
500 500
5500 5500
3000 3000
-3200 -2000
-1000
-300 -300
A/c Receivable off. Supply Land
Cash Capital
30000 30000
20000 - 20000
20000 10000 30000
500 500
3000 3000
-3200 -2000
-1200
- 300 -300
3000 500 20000 6500 200 29800
Impact of Transaction:
• 1. Mr. X contributes Rs. 50,000 cash to start a Merchandise trading
business for Shares.
• 2. The business purchases land for office in cash Rs. 30,000.
• 3. The business buys Merchandise supplies on credit Rs.7000
• 4. The business earns revenue of Rs. 9000 by selling on cash.
• 5. The business sold Merchandise on credit for Rs. 7000.
• 6. The business spend Rs. 3,000 for office rent and Rs.1000 for
employee salary
• 7. The business pays Rs.6000 for purchased on credit
• 8. The business receives Rs. 5,000 from a client (item 5)
• 9. The business distributes a Rs. 5,000 cash dividend to Mr. X.

Accounting Concepts

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Accounting Concepts

Types of companies in India

• 3 types of companies in India

• Public Company : 7 or more people (unlimited)

• The accounting equation is made up of three parts—

• Acquired through Past Transaction or Event;

Equity = Contributed capital + Retained earnings

• A transaction is any event that affects the financial position of the

• Assets = Liabilities + Equity

• Business now has an Asset (in form of Cash) of Rs 50,000.

Assets (cash) Rs. 50,000 = Equities (owner’s) Rs. 50,000

The business purchases land for office in cash Rs. 20,000.

The business buys office supplies on credit Rs.500

The business pays Rs.300 for office supplies purched on credit

A/c Receivable off. Supply Land Cash Capital

A/c Receivable off. Supply Land Cash Capital

A/c Receivable off. Supply Land Cash Capital

A/c Receivable off. Supply Land Cash Capital

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