Mangalvedhekar Institute of Management.

Batch BCA - II.

Notes on Book Keeping & Accountancy.

Rules of Accounts

# Type : Rule
Debit What Comes In…
1 Golden :
Credit What Goes Out…

Debit the Receiver...

2 Golden :
Credit the Giver...

Debit All Expenses and Losses...

3 Golden :
Credit all Incomes and Gains...

4 --- : Each Debit has corresponding & Equal Credit…

Definition of Accountancy

A process of reporting, recording, interpreting and summarizing financial data. The introduction of
accounting helps the decision-makers to make effective choices, by providing information on the
financial status of the business.

Objectives of Book-Keeping
1) Identifying financial transactions.
2) Recording Financial Transactions.
3) Maintaining the books of accounts.
4) Classifying and balancing Ledger Accounts.
5) Making accounts dependable, correct, and authentic.
6) Determining the impact of transactions on financial statements.
7) Providing financial information.
8) Detecting Errors and Frauds in the Workplace.
9) Ascertaining financial position.
10) Calculating tax liability.

Importance of Book-Keeping
1) Accurate Budgeting.
2) Calculating Tax Liability.
3) Maintaining Organized Records.
4) Enabling Proper Reporting.
5) Monitoring Business Goals.
6) Ensuring Government & other Compliances.
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Characteristics of Accounting.
1) Understandability.
2) Relevance.
3) Consistency.
4) Comparability.
5) Reliability.
6) Objectivity.

Basis of Accounting Terminologies.

The basis of accounting refers to the timing varieties when financial events get recorded. The
two main types of bases are cash basis and accrual basis accounting.
Cash basis records finances when money exchanges hands, while accrual basis when the
transaction occurs, whether or not any cash has been received or paid.

Accounting Concepts & Principals.

1) Business Entity Concept: A business and its owner should be treated separately as far as
their financial transactions are concerned.
2) Money Measurement Concept: Only business transactions that can be expressed in terms
of money are recorded in accounting, though records of other types of transactions may be
kept separately.
3) Dual Aspect Concept: For every credit, a corresponding debit is made. The recording of a
transaction is complete only with this dual aspect.
4) Going Concern Concept: In accounting, a business is expected to continue for a fairly long
time and carry out its commitments and obligations. This assumes that the business will not
be forced to stop functioning and liquidate its assets.
5) Cost Concept: The fixed assets of a business are recorded on the basis of their original cost
in the first year of accounting. Subsequently, these assets are recorded minus depreciation.
No rise or fall in market price is taken into account. The concept applies only to fixed assets.
6) Accounting Year Concept: Each business chooses a specific time period to complete a cycle
of the accounting process - for example, monthly, quarterly, or annually - as per a fiscal or a
calendar year.
7) Matching Concept: This principle dictates that for every entry of revenue recorded in a
given accounting period, an equal expense entry has to be recorded for correctly calculating
profit or loss in a given period.
8) Realization Concept: According to this concept, profit is recognized only when it is earned.
An advance or fee paid is not considered a profit until the goods or services have been
delivered to the buyer.

Accounting Conventions.
1) Conservatism is the convention by which, when two values of a transaction are available,
the lower-value transaction is recorded. By this convention, profit should never be
overestimated, and there should always be a provision for losses.
2) Consistency prescribes the use of the same accounting principles from one period of an
accounting cycle to the next, so that the same standards are applied to calculate profit and
loss.
3) Materiality means that all material facts should be recorded in accounting. Accountants
should record important data and leave out insignificant information.
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 4) Full Disclosure entails the revelation of all information, both favorable and detrimental to a
business enterprise, and which are of material value to creditors and debtors.

Accounting Standards.
1) Disclosure of Accounting Policies.
2) Valuation of Inventories.
3) Cash Flow Statements.
4) Contingencies and Event Occurring After the Balance Sheet Date.
5) Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.
6) Construction Contracts.
7) Revenue Recognition.
8) Property, Plant and Equipment.
9) The Effect of Changes in Foreign Exchange.
10) Accounting for Government Grants.
11) Accounting of Investments.
12) Accounting for Amalgamations.
13) Employee Benefits.
14) Borrowing Costs.
15) Segment Reporting.
16) Related Party Disclosures.
17) Leases.
18) Earnings per Share.
19) Consolidated Financial Statements.
20) Accounting for Taxes on Income.
21) Accounting for Investments in Associates in Consolidated Financial Statements.
22) Discontinuing Operations.
23) Interim Financial Reporting.
24) Intangible Assets.
25) Financial Reporting of Interests in Joint Ventures.
26) Impairment of Assets.
27) Provisions, Contingent Liabilities and Contingent Assets.

Difference between Book Keeping & Accountancy.

# Difference Book Keeping Accountancy

Deals with identifying and Refers to the process of summarizing,
1 Definition recording the financial interpreting and communicating the
transactions. financial data of an organization.
Decision Data is not sufficient for Important decisions are based on the data
2
Making decision making. obtained from accounting.
Preparation of
Not done in the case of Financial statements are a part of the
3 Financial
bookkeeping. accounting process.
Statement
No analysis is required in the Accounting analyses the data and creates
4 Analysis
bookkeeping. insights for the business.

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 The person concerned with
The person concerned with accounting is
5 Persons Involved bookkeeping is known as a
known as an Accountant.
bookkeeper.
Determining Does not show the financial Helps in showing a clear picture of the
6
Financial Position position of a business. financial position of a business.
High-level learning required for
No high-level learning
7 Level of Learning understanding and analyzing accounting
required.
concepts.

Introduction of Double Entry Book-keeping System.

It is an accounting system where every transaction is recorded in two accounts: a debit to one
account and a credit to another.

Methods of Recording Accounting Information.

There are two primary methods of accounting - Cash method and Accrual method. The
alternative bookkeeping method is a modified accrual method, which is a combination of the
two primary methods. Cash method-income is recorded when it is received, and expenses are
recorded when they are paid.

Advantages of Double Entry Book-keeping System.

1) It assures arithmetical accuracy of the books of accounts.
2) For every debit, there is a corresponding and equal credit.
3) This is arrived by preparing a trial balance periodically or at the end of the financial year.
4) Prevents and minimizes frauds.

Accounting Equations.
The accounting equation states that an entity's total assets are equal to the sum of its liabilities
and its shareholders' equity. This straightforward relationship between assets, liabilities, and
equity.

GST : Goods & Service Tax. (Indirect Tax).

The goods and services tax is a value added tax (VAT) charged on specified goods and services
sold in Bharat. The GST is paid by consumers (also known as an end user), but it is paid to the
Government by the businesses selling the goods and services.

The tax came into effect from 1 July 2017 which is celebrated as GST Day. The GST replaced
existing multiple indirect taxes levied by the Central and State Governments.

Types of GST.
There are Four GST types namely :-

1) Integrated Goods and Services Tax (IGST)

2) State Goods and Services Tax (SGST)
3) Central Goods and Services Tax (CGST)
4) Union Territory Goods and Services Tax (UTGST)
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Types of GST Rates.
1) 0% (nil-rated)
2) 5%
3) 12%
4) 18%
5) 28%

Types of GST Registration.

1) Normal Taxpayer.
2) Casual Taxable Individual.
3) Composition Taxpayer.
4) Non-Resident Taxable Individual.

GST Returns.
GST return is a document that will contain all the details of your sales, purchases, tax collected
on sales (output tax), and tax paid on purchases (input tax). Once you file GST returns, you will
need to pay the resulting tax liability (money that you owe the Government).

HSN / SAC Code.

HSN code stands for “Harmonized System of Nomenclature”. This system has been introduced
for the systematic classification of goods all over the world. HSN code is a 8-digit uniform code
that classifies 5000+ products and is accepted worldwide.
The SAC code means Services Accounting Code. It applies to all the services rendered within
Bharat. Thus, the SAC code system is used for identifying, classifying, measuring, and
determining the applicability of GST on services. The Harmonized System Nomenclature (HSN)
code is applicable to Indian goods only.

ITC in GST.
'Input Tax Credit' or 'ITC' means the Goods and Services Tax (GST) paid by a taxable person on
any purchase of goods and/or services that are used or will be used for business. ITC value can
be reduced from the GST payable on the sales by the taxable person only after fulfilling the
conditions.

Major GST Returns & Due Dates.

# GST Return : Details Due Date

Monthly
1 GSTR-1 : Sales Details
11th of next month
Monthly / Quarterly
2 GSTR-3B : Summary of ITC & Payable
20th of next month
Annually
3 GSTR-9 : Annual Return
31st Dec of next FY
Annually
4 GSTR-9C : Self-Certified Reconciliation
31st Dec of next FY

*Quarter-1 = Apr to June, Quarter-2 = July to Sep, Quarter-3= Oct to Dec and Quarter-4 = Jan to March.

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Income Tax. (Direct Tax).
An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or
profits earned by them (commonly called taxable income). Income tax generally is computed as
the product of a tax rate times the taxable income. Taxation rates may vary by type or
characteristics of the taxpayer and the type of income.

Types of Income.
1) Income from Salary.
2) Income from House Property.
3) Profits & Gains from Business & Professions.
4) Income from Capital Investments.
5) Income from Other Sources.

Types of Direct Taxes.

1) Income Tax.
2) Profession Tax.
3) Corporation Tax.
4) Property Tax.

Advance Tax.
Advance tax is the amount of income tax that should be paid much in advance instead of lump-
sum payment at the year-end in instalments as per the due dates.

The following are the due dates of the Advance Tax.

Advance Tax IF the Total

# Due Date
Payment % Tax is RS 100
1 15th June 15% RS 15
2 15th September 45% RS 30
3 15th December 75% RS 30
4 31st March 100% RS 25

TDS / TCS.
TDS is a direct taxation mechanism which was introduced to collect taxes from the source of
income itself or at the time of income payout. TDS full form is Tax Deducted at Source. Under
this mechanism, if a person (deductor) is liable to make payment to any other person (deductee)
will deduct tax at source and transfer the balance to the deductee. The TDS amount deducted
will be remitted to the Central Government. Deductee can check the Tax Deducted at Source
(TDS) amount in the Form 26AS or TDS Certificate (form16) issued by the deductor.

Tax collection at source (TCS) is an additional amount collected as tax by a seller of specified
goods from the buyer at the time of sale over and above the sale amount and is remitted to the
government account.

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The Specimen of the Journal Entry.

Debit Credit
# Date Particulars LF
(RS) (RS)
1 02-04-2023 BoI A/c. No. 070510110004229 Dr 10,000.00
To Cash / Bank A/c. 10,000.00
(Being cash deposited into Bank)

2 15-04-2023 Purchase A/c. Dr 15,000.00

Input CGST @9% A/c. Dr 1,350.00
Input SGST @9% A/c. Dr 1,350.00
To Sundry Creditor A/c. 17,700.00
(Being purchase booked ag. Inv. No. XXX)

3 25-04-2023 Party A/c. Dr 2,000.00

To Sales A/c. 1,695.00
Output CGST @9% A/c. 152.50.00
Output SGST @9% A/c. 152.20.00
(Being Sales booked ag. Inv. No. XXXX)

4 27-04-2023 Sundry Creditor A/c. Dr 7,500.00

To BoI A/c. No. 070510110004229 7,500.00
(Being payment ag. UTR XXXXX booked)

5 30-04-2023 Salary Expenses A/c. Dr 5,000.00

Sundry Expenses A/c. Dr 750.00
To Cash in Hands A/c. 5,750.00
(Being expenses booked for the month)

6 15-06-2023 Advance Tax Dr 5,000.00

To BoI A/c. No. 070510110004229 5,000.00
(Being Advance Tax for AY 2024-25 paid)

7 20-06-2023 BoI A/c. No. 070510110004229 Dr 1,500.00

To Party A/c. 1,500.00
(Being payment received from customer)

8 30-06-2023 Output CGST @9% A/c. Dr 152.50.00

Output SGST @9% A/c. Dr 152.20.00
Input CGST @9% A/c. Dr 1,350.00
Input SGST @9% A/c. Dr 1,350.00
GST Payable / Carried Over 2,395.00
(Being GST Set-off booked for the Q-1)

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 The Specimen of the Balance Sheet.

Liabilities RS RS Assets RS RS

Capital Account 314,500.00 Fixed Assets 290,000.00

Land & Buildings 115,000.00

Loans (Liability) 45,000.00 Machineries 75,000.00

Secured Loan 25,000.00 Furniture 45,000.00

Unsecured Loan 15,000.00 Vehicles 55,000.00

Bank OD 5,000.00

Investments 40,000.00

Current Liabilities 27,000.00 FD-BoI-4229 15,000.00

Duties & Taxes 7,500.00 Shares in TCS 25,000.00

Sundry Creditors 15,000.00

Provisions 4,500.00 Current Assets 56,500.00

0.00 Deposits 7,500.00

Profit & Loss A/c. 71,500.00 Loans (Assets) 10,500.00

(Less) Transferred (71,500.00) Closing Stock 24,000.00

Sundry Debtor 5,000.00

Cash & Bank 9,500.00

Total 386,500.00 Total 386,500.00

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 The specimen of the Profit & Loss Account.

Particulars RS Particulars RS

Opening Stock 47,000.00 Sales 525,000.00

Purchases 285,000.00 Direct Incomes 0.00

Direct Expenses Closing Stock 24,000.00

Labour 12,500.00
Overheads 15,700.00
Freight (Inward) 2,850.00

Gross Profit 185,950.00

Subtotal 549,000.00 Subtotal 549,000.00

Indirect Expenses Gross Profit C/o 185,950.00

Bad Debts 20,200.00
Bank Commission 1,554.00 Indirect Income
Bank Interest 19,000.00 Interest Received 7,950.00
Commission Expenses 8,786.00 Installation Charges 18,900.00
Depreciation Expenses 21,000.00
Electricity Expenses 16,780.00
Insurance Expenses 5,750.00
Legal / Professional Expenses 8,000.00
Printing & Stationary Expenses 3,790.00
Salary / Bonus Expenses 24,000.00
Sundry Expenses 1,250.00
Telephone Expenses 2,400.00
Travelling Expenses 8,790.00

Net Profit 71,500.00

Total 212,800.00 Total 212,800.00

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