JAIIB / Diploma in Banking & Finance ACCOUNTING AND FINANCE FOR BANKERS.

1. JAIIB / Diploma in Banking & FinanceACCOUNTING AND FINANCE FOR BANKERS. Book Keeping - MODULE – B CA R. C. JOSHI B.Com(Hons.),LL.B,CAIIB,FCA

2. DEFINITION AND SCOPE ACCOUNTING STANDARDS. • ACCOUNTING IS LANGUAGE OF BUSINESS. • COMMUNICATE THE RESULT OF BUSINESS OPERATIONS AND ITS OTHER ASPECTS. • ACCOUNTING IS AN ART OF RECORDING CLASSIFYING AND SUMMARIZING IN A SIGNIFICANT MANNER AND IN TERMS OF MONEY TRANSACTIONS AND EVENTS WHICH ARE IN PART AT LEAST OF FINANCIAL CHARACTER AND INTERPRETING THE RESULTS THEREOF.

3. DIFFERENCE BETWEEN ACCOUNTANY AND BOOKKEEPING. • BOOK KEEKPING IS MERELY RECORDING THE BUSINESS TRANSACTIONS IN BOOKS AND LEDGERS . • ACCOUNTANCY IS WIDER CONCEPT: COMPILATION OF ACCOUNTS IN SUCH A WAY THAT ONE IS IN A POSITION TO UNDERSTAND STATE OF AFFAIRS OF BUSINESS. • USERS OF FINANCIAL STATEMENTS ARE INCOME TAX DEPT., S.T DEPARMENT SHAREHOLDERS, INVESTORS,BANKS AND FIS AND SO ON APART FROMMANAGEMENT OF ENTITY FOR MAKING POLICY DECISIONS. • IT IS IN THE INTEREST OF ALL THAT FINANCIAL STATEMENTS REFLECT TRUE AND FAIR VIEW OF STATE OF AFFIAIRS OF A BUSINESS ENTITY.

4. ACCOUNTANCY • ACCOUNTANCY INVOLVES: • SYSTAMATIC(including regulatory compliance) CLASSIFICATION OF BUSINESS TRANSACTIONS IN TERMS OF MONEY AND FINANCIAL CHARACTER. • SUMMARIZING : TRIAL BALANACE AND B/S • INTERPRETING THE FINANCIAL TRANSACTIONS.

5. PURPOSE OF ACCOUNTANCY • TO KEEP A SYSTAMATIC RECORD • TO ASCERTAIN THE RESULTS OF OPERATIONS • TO ASCERTAIN FINANCIAL POSITION OF BUSINESS. • TO FACILITATE RATIONAL DECISION MAKING • TO RAISE FINANCE. • TO SATISFY REQUIREMENT OF LAW AND USEFUL IN MANY RESPECTS.

6. CONCEPTS OF ACCOUNTANCY. • COST CONCEPT: BUSINESS TRANSACTIONS ARE RECORDED IN BOOKS AT COST PRICE. • FIXED ASSETS ARE KEPT AT COST OF PURCHASE AND NOT AT THEIR MARKET PRICE. • EVERY TRANSACTION IS RECORDED WITH PRESENT VALUE AND NOT ANY FUTURE VALUE. • UNREALIZED GAINS ARE IGNORED. • COST OF AN ASSET THAT HAS LONG BUT LIMITED LIFE IS SYSTAMATICALLY REDUCED BY A PROCESS CALLED DEPRECIATION. BUT SUCH DEPRECIATION HAS NO RELATION TO MARKET VALUE OF ASSET.

7. MONEY MEASUREMENT CONCEPT • MONEY MEASUREMENT CONCEPT: EVERY TRANSACTION IS MEASURED IN TERMS OF MONEY. VIZ PRODUCTION/SALES/WAGES ETC ALL CONVERTED TO MONEY. • INFLATION OR DEFLALTION NOT INCLUDED IN VALUE OF ANY ASSET.

8. BUSINESS ENTITY CONCEPT • THIS CONCEPT SEPARATES THE ENTITY OF PROPRIETOR FROM THE BUSINESS TRANSACTION. • CAPITAL CONTRIBUTED BY THE OWNER IS LIABILITY FOR BUSINESS BECAUSE BUSINESS IS DIFFERENT FROM OWNER. • ANY MONEY WITHDRAWN BY PROP. IS DRAWINGS. • PROFIT IS LIABILITY AND LOSS IS AN ASSET. • ALL ENTRIES ARE KEPT DISTINCT FROM THE POINT OF VIEW OF BUSINESS AND NOT FROM OWNER. • AN ENTERPRISE IS ECONOMIC UNIT SEPARATE FROM OWNER.

9. REALISATION CONCEPT. • THIS CONCEPT TELLS US WHEN REVENUE IS TREATED AS REALISED OR EARNED. IT IS TREATED AS REALIZED ON THE DATE WHEN PROPERTY IN GOODS PASSES TO BUYER AND HE BECOMES LEGALLY LIABLE TO PAY. • NO FUTURE INCOME IS CONSIDERED. • GOODS SOLD ON APPROVAL WILL BE INCLUDED IN SALES BUT ON COST ONLY.

10. GOING CONCERN CONCEPT • BUSINESS IS A GOING CONCERN AND TRANSACTIONS ARE RECORDED ACCORDINGLY. • IF AN EXPENSE IS INCURRED AND UTILITY IS CONSUMED DURING THE YEAR, THEN IT IS TREATED AS AN EXPENSE OTHERWISE IT IS RECORDED AS AN ASSET. • RESERVES AND PROVISIONS ARE CREATED FOR ANY FUTURE LIABILITY. • DEFERRED REVENUE EXPENDITURE IS WRITTEN OFF OVER A NUMBER OF YEARS. • WHY LOSS IS SHOWN UNDER ASSETS SIDE ?

11. DUAL ASPECT CONCEPT • EVERY TRANSACTION HAS DOUBLE EFFECT. • ACCOUNTING EQUATION: ASSETS= CAP+ LIABILITY.

12. ACCOUNTING PERIOD CONCEPT. • BUSINESS WILL RUN THROUGH LONG PERIOD. HENCE ACCOUNTS OF EACH PERIOD IS RECORDED. • RESULTS OF OPERATIONS CAN BE KNOWN PRECISELY ONLY AFTER BUSINESS CEASES TO OPERATE AND ENTIRE ASSETS ARE SOLD AND ENTIRE LIABILITIES PAID. • BUT ONE IS INTERESTED IN KNOWING PERIODICALY OPERATING RESULTS OF BUSINESS SAY YEARLY OR HALF YEARLY OR QUARTERLY. • HENCE ALL THE EXPENSES OR INCOME DURING THIS ACCOUNTING PERIOD HAS TO BE TAKEN INTO CONSIDERATION IRRESPECTIVE OF WHETHER THEY ARE REALISED IN CASH OR PAID IN CASH.

13. ACCOUNTING FOR FULL DISCLOSURE • DISCLOSURE OF MATERIAL FACTS.( MATERIAL AND IMMATERIAL FACT IS A MATTER OF JUDGEMENT) • CONTINGENT LIABILITY • MARKET VALUE OF INVESEMENTS. • CHANGE IN METHOD OF DEPRECIATION/VALUATION OF GOODS ETC.

14. CONVENTION OR PRINCIPLES OF CONSERVATISM • ALL POSSIBLE LOSSES TO BE TAKEN INTO CONSIDERATION AND ANTICIPATED PROFITS TO BE IGNORED. • CREATION OF PROVISION FOR DOUBTFUL DEBTS. • VALUE OF STOCK • CONVENTION OF CONSISTENCY: METHOD OF DEPRECIATION.

15. DOUBLE ENTRY SYSTEM • SCIENTIFIC SYSTEM: • EVERY TRANSACTION HAS TWO ASPECTS. • CRUX OF ACCOUNTANCY IS TO FIND OUT WHICH TWO ACCOUNTS ARE EFFECTED AND WHICH IS TO BE DEBITED AND WHICH IS TO BE CREDITED.

16. JOURNAL • JOURNAL RECORDS EACH AND EVERY RECORD BY WAY OF JOURNAL ENTRY. • BUT TO FIND OUT A TRANSACTION EFFECTING A PERSON, EXPENSES ACCOUNT OR ASSET ONE HAS TO TURNOVER ALL PAGES OF JOURNAL. • HENCE TRANSACTIONS ARE POSTED FROM JOURNAL TO PARTICULAR PAGES OF LEDGER. • HENCE JOURNAL CONTAINA COLUMN L.F

17. JOURNAL FORMAT

18. CASH BOOK • CASH BOOK KEEPS RECORDS OF ALL CASH TRANSACTIONS I.E CASH RECEIPTS AND CASH PAYMENTS. ALL RECEIPTS ARE RECORDED ON RIGHT SIDE AND ALL PAYMENTS ON LEFT SIDE. • CASH BOOK IS BOOK OF ORIGINAL ENTRY.

19. CASH BOOK FORMAT

20. RECORD KEEPING BASIS • RECORDING: JOURNALISING AS AND WHEN TRANSACTION TAKES PLACE. JOURNAL IS BOOK OF ORIGINAL OR FIRST ENTRY. • CLASSIFYING: ALL ENTRIES IN JOURNAL OR SUBSIDIARY BOOKS ARE POSTED TO LEDGER ACCOUNT(POSTING) TO FIND OUT AT A GLANCE THE TOTAL EFFECT OF ALL SUCH TRANSACTIONS. LEDGER IS BOOK OF SECONDARY ENTRY. • SUMMASRISING: LAST STAGE IS TO PREPARE THE TRIAL BALANCE AND FINAL ACCOUNTS WITH A VIEW TO ASCERTAIN THE PROFIT OR LOSS DURING PARTICULAR PERIOD. • IT IS CUSTOMARY TO USE TO AND BY WHILE POSTING LEDGER. • BALANCING AN ACCOUNT MEANS EQUALIZING TWO SIDES. • IF DEBIT SIDE OF ACCOUNT EXCEED CREDIT SIDE, DIFFERENCE IS PUT ON CREDIT SIDE AND IT IS SAID TO HAVE DEBIT BALANCE AND VICE VERSA..

21. LEDGER

22. Questions. • CREDIT BALANCE IN CAPITAL ACCOUNT IS LIABILITY OR AN ASSET: • A. LIBILITY • B. A REVENUE • C. AN EXPENSE • D. NONE OF THESE.

23. QUESTION • AMOUNT BROUGHT IN BY PROPRIETOR IN BUSINESS SHOULD BE CREDITED TO • A.DRAWINGS ACCOUNT • B.CAPITAL ACCOUNT OF PROPRIETOR. • C.ASSET ACCOUNT • D. NONE OF THE ABOVE ANS: B

24. QUESTIONS • WAGES PAID TO RAJU TO BE DEIBED TO • A. RAJU • B WAGES • C. CASH • D. BANK ANS: B

25. QUESTIONS. • Q. CREDIT SALES MADE TO ROHIT TO BE DEIBTED TO • A. SALES • B. PURCHASE • C. CASH • D. ROHIT ANS: D

26. QUESTIONS • FURNITURE PURCHASED BY ISSUING CHEQUE • WHAT ENTRIES TO BE PASSED • A. DEBIT FURNITURE AND CREDIT BANK ACCOUNT. • B.DEBIT BANK ACCOUNT AND CREDIT FURNITURE. • C.DEBIT FURNITURE AND CREDIT CASH. • D.DEBIT BANK AND CREDIT FURNITURE SHOP ACCOUNT Ans:A

27. QUESTIONS • ENTRY FOR RETURN OF GOODS, IN RESPECT OF SALES EFFECTED ON CREDIT, SHOULD BE CREDITED TO : • A. SALES RETURN • B PURCHASE RETURN • C.CUSTOMER ACCOUNT • D. GOODS ACCOUNT Ans:C

28. MATCH FOLLOWING

29. QUESTION • WHAT IS JOURNAL ENTRY • A. ORIGINAL ENTRY • B. DOUBLE ENTRY • C DUPLICATE ENTRY • NONE Ans: A

30. QUESTION • TRANSACTION IN BANK COLUMN ON CREDIT SIDE OF THREE COLUMNAR CASH BOOK INDICATE • A. AMOUNT PAID FROM THE BANK A/C. • B.AMOUNT DEPOSITED IN BANK • C.BOTH A AND B • D. NONE Ans: A

31. QUESTION • PASS JOURNAL ENTRY: • RENT PAID FOR OFFICE PREMISES RS.30000 OUT OF WHICH PART AMOUNT OF RS.10000 PAID BY CHEQUE AND REST BY CASH. Ans: By RENT A/c. Dr. Rs.30,000 To Cash Cr. Rs.20,000 To Bank Cr. Rs.10,000

32. QUESTION • PASS JOURNAL ENTRY: • PURCHASED 100 SHARES OF CENTRAL BANK OF INDIA FOR RS.100 PER SHARE.Ans:By Investment A/c. Dr. Rs.10,000 To Bank Cr. Rs.10000

33. QUESTIONS • PASS JOURNAL ENTRIES: • SOLD GOODS TO TENDULKAR RS.15000 A) When Sold on Cash. B) When Sold on Credit. A) By Cash A/c Dr. Rs.15000 To Sales A/c. Cr. Rs.15000 B) By Tendulkar A/c.Dr. Rs.15000 To Sales A/c. Cr. Rs.15000

34. QUESTIONS • PASS JOURNAL ENTRY: • DRAVID SOLD GOODS FOR RS.12000 TO us.: A) On Cash Purchase B) On Credit Purchase A) By Purchase A/c Dr. Rs.12000 To Cash A/c Cr. Rs.12000B) By Purchase A/c. Dr. Rs.12000 To Dravid A/c. Cr. Rs.12000

35. QUESTIONS • PASS JOURNAL ENTRY: • RECEIVED DUES( Which was sold on Credit at Rs.15000) AMOUNT FROM TENDULAKAR AND ALLOWED HIM DISCOUNT OF 10% Ans: By Bank A/c. Dr. Rs.13,500 By Discount A/c Dr. Rs. 1500 To Tendulkar Rs. 15000

36. QUESTIONS • PASS JOURNAL ENTRY: • PAID SALARY AND RENT RS.1200 AND 1500 RESPECTIVELY.Ans: • By Salary A/c. Dr. 1200 • By RENT A/c. Dr. 1500 To Cash A/c. Cr. Rs.2700

37. QUESTIONS • PASS JOURNAL ENTRY: • KIRAN BECAME INSOLVENT. HE HAD TO PAY 10000 TO US. BUT WE RECEIVED ONLY 25 PAISE A RUPEE. • By Cash A/c Dr. Rs.2500 • By Bad Debts Rs.7500 To Kiran A/c. Cr. Rs.10000

38. QUESTION • PASS JOURNAL ENTRY: • PAID MONTHLY CAR INSTALMENT OF PROPRIETOR’S PERSONAL CAR RS.12000By Drawings A/c. Dr. Rs.12000 To Bank A/c Cr. Rs.12000

39. QUESTION • PASS JOURNAL ENTRY: • BOUGHT FURNITURE FROM GODREJ AND PAID BY CHEQUE RS.50000 • By Furniture A/c. Dr. Rs. 50000 To Bank Cr. Rs.50000

40. QUESTION • PASS JOURNAL ENTRY: • DEPOSITED CASH IN BANK RS.1000 • BY Bank A/c. Dr Rs.1000 To Cash A/c. Cr. Rs. 1000

41. QUESTION JOURNALIZE FOLLOWING: COMMENCED BUSINESS WITH Rs.15000 OF WHICH RS.5000 WAS BORROWED FROM HIS WIFE AT 12% INTEREST P.A. By Cash Rs. 15000 To Capital A/c. Cr. Rs.10000 To Loan A/c Cr. Rs. 5000

42. QUESTIONS • PASS JOURNAL ENTRY: • PURCHASED GENERATOR FROM RAMA & CO. RS.50000 on credit. • BY Generator A/c. Dr. Rs. 50000 (furniture) • To Rama & Co. Cr. Rs.50000

43. QUESTIONS • PASS JOURNAL ENTRY: • PAID CARRIAGE AND CARTERAGE of Rs.1,000 ON GOODS SOLD TO NAYAN ON HIS BEHALF. By Nayan A/c. Dr. Rs. 1000 • To Bank Cr. Rs.1000

44. QUESTION • PASS JOURNAL ENTRY: • A.BOUGHT GOODS FROM SATISH AT ONE MONTHS CREDIT RS.6000 • B. OUT OF WHICH HALF WAS INVOICED TO MR. RAM AT 30% ABOVE COST ON CREDIT.A. Purchase A/c. Dr. Rs.6000 To Satish A/c. Cr. Rs.6000B. Mr. RAM A/c. Dr. 3900 To Sales A/c. Cr. Rs.3900

45. Adjusting and closing entries. • While preparing trading and profit and loss account all expenses and income for the full period are to be taken into consideration. If expenses have been incurred but not paid during that period ,liabilities for unpaid amount should be created before the accounts can be said to show the actual profit and loss. All expenses and income should properly be adjusted through accounting entries.

46. Adjusting and closing entries. • Trial balance is prepared from the books of accounts of organiztion. Final accounts are the final process of accounting. Once the trial balance is prepared the books are half way closed. • Now all adjusting entries passed at the time of preparing the final accounts have dual effect i.e both debit and credit. • Hence all adjusting entries passed after Trial balance drawn will have two effects.

47. Adjusting and closing entries. • One in either trading and profit and loss account and other in Balance sheet or one in trading account and other in Profit and loss account.

48. Adjusting and closing entries. • Some examples: • Closing stock adjustment: • Will be shown in asset side of balance sheet and will be shown in credit side of trading account. • Goods lost by fire: • Will be shown in credit side of trading account. • Will be shown on debit side of profit and loss account.

49. Adjusting and closing entries. • Outstanding expenses: • Will be shown in debit side of profit and loss account. • Will be shown in liabilities side of balance sheet. • Prepaid expenses: • Prepaid expenses shown in Asset side ( Dr Pre paid expenses) and Credit P&L Expenditure as they do not pertain to current year.

50. Adjusting and closing entries. • Depreciation: It is fall in value of asset due to use or passage of time. • Depreciation Dr. • To asset account.