MGT101 Midterm Short Notes

MGT101 Financial Accounting Short Notes From Lecture No.01 to

Lecture No.22 for Preparation of Midterm Exam · Lesson-1 · BASIC CONCEPTS OF ACCOUNTING · Accounting:-

Accounting is the art of recording, summarizing, reporting, and analyzing financial transactions. OR Accounting is the art of recording, classifying, summarizing,in significant manner and in terms of money, Transaction and events which are in part of at least and Interpreting the results there of.

Transactions:-

In accounting or business terms, any dealing between two persons involving money or a valuable thing is called transaction. Barter Transaction:- Every transaction where goods are exchanged for goods is called a “Barter Transaction”.

Types of Business Organizations:-

1. Sole Proprietorship

According to D.W.T. Stafford, “It is the simplest form of business organization, which is owned and controlled by one man”

• Easy Formation • Unlimited Liability • Ownership • Profit • Management • Easy Dissolution

2. Partnership

According to Partnership Act, 1932, “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”

• Legal Entity • Profit and Loss Distribution • Unlimited Liability • Transfer of Rights • Management • Number of Partners

3. Joint Stock Company

According to S. E. Thomas, “A company is an incorporated association of persons formed usually for the pursuit of some commercial purposes” • Creation of Law • Separate Legal Entity • Limited Liability • Transferability of shares • Number of Members • Common Seal

Lesson-2 · RECORD KEEPING AND SOME BASIC CONCEPTS · Types of Business Entities:- · Commercial Organizations (Profit Oriented)

 Sole proprietor

Non-Commercial Organizations (Non-Profit Oriented)

NGO‟s (Non-government Organizations) Trusts Societies

Goodwill:-

This is simply the value attached to the good reputation earned through good and clean conduct of business over a number of years. This good reputation also has a value and becomes part of investment in business

Budget:-

Budget Is a plan of income, expenses & other financial operation for a future period.

Lesson-4 · SINGLE AND DOUBLE ENTRY RECORD KEEPING · Single Entry Book Keeping/cash accounting:-

In Single Entry Book Keeping Only one aspect of the transaction is recorded.

Double Entry Book Keeping/commercial accounting:-

In Double Entry Book Keeping every transaction has two aspects i.e. receiving a benefit and giving a benefit.

Debit:-

It signifies the receiving of benefit. In simple words it is the left hand side.

Credit:-

It signifies the providing of a benefit. In simple words it is the right hand side.

Dual Aspect of Transactions:-

For every debit there is an equal credit. This is also called the dual aspect of the transaction.

Lesson-5

Account:-

Record that summarizes movement in an individual item is called an Account.

Classification of Accounts:-

The accounts are classified into following heads: Assets

Income Expenses (further divided into capital and revenue expenses)

Assets:-

Assets are the properties and possessions of the business to pay in future. Can be amount payable for material purchased, expenses etc.

Properties and possessions can be of two types: Tangible Assets that have physical existence (are further divided into Fixed Assets and Current Assets)(Furniture, vehicle etc). Intangible Assets that have no physical existence (copyright, Good will etc).

Liabilities are the debts and obligations of the business. Liability is the obligation of the business to provide a benefit or asset on a future date.

Asset vs liability:-

Asset is a right to receive and liability is an obligation to pay, therefore, these are opposite to each other.

Income & Expenses:-

Income/revenue is the value of goods and services that a business charges from its customers.

Expenses are the costs incurred to earn the revenue.

Accounting Equation:- · Assets = Liabilities + Owner’s equity · Capital Expenditure:-

It is the expenditure to create an asset that helps in generating future income and its life is more than 12 month. For example machinery purchases, furniture purchases etc.

Revenue Expenditure:-

It is the day to day expenses whose benefit is drawn immediately. For example, salary of the employee, rent of the building, etc.