B.Com.

Revised Syllabus 2023

SEMESTER I
Course Title- Basic Accounting
Nature of Course: Multidisciplinary
Course Code: UG BCOM-MD-T-1B
Credit: 3 Full Marks: 45 (35+10)

COURSE OBJECTIVE:
The objective is to enable non-commerce students to give exposure to accounting knowledge
and to develop skill to maintain Accounts.

COURSE CONTENT:
1. Introduction to Accounting
 Accounting: Meaning, Importance and Objectives of Accounting, Concepts and
Convention of Accounting.
 Accounting Information: Meaning, Users, Sources of accounting information.
 Some Basic Terms- Transaction, Account, Asset, Liability, Capital, Expenditure,
Income, Profit, Loss, Revenue, Capital, Debit, Credit, Accounting Year, Financial Year,
 Accounting equations- Simple Problems on Accounting Equation.

2. Recording of Transactions
 Features of recordable transactions and events,
 Recording of Transactions;
 Types of Accounts- Personal account, Real Account and Nominal Accounting;
 Golden Rules of Accounting- Rule for Debit and Credit;
 Double Entry System, Journalizing transactions (Simple Problems on Journal Entries of
Sole Proprietorship Concern).

3. Preparation of Subsidiary Books

 Sales Book- Sales Returns Book- Purchase Book- Purchase Returns book- Cash Book-
Petty Cash Book- Journal Proper. (Simple problems).

4. Preparation of Final Accounts

 Preparation of Ledger Accounts and Trial Balance.
 Preparation of Trading Account, Profit & Loss Account, and Balance Sheet (Simple
Problems).

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Contents
TWO DEFINITIONs........................................................................................................................................................................................... 2
ACCOUNTING IS THE LANGUAGE OF BUSINESS ................................................................................................................................... 2

Classification of Accounting ........................................................................................................................................................................ 3

ACCOUTNING AND FINANCIAL INFORMATION .................................................................................................................................... 4

Annual Report of Hindustan Unilever Ltd [Extract] .............................................................................................................................. 6

ACCOUNTING INFORMATION ...................................................................................................................................................................... 8

OBJECTIVE OF ACCOUNTING AND THE ACCOUNTING PROCESS .................................................................................................. 10

EVOLUTION OF ACCOUNTING ..................................................................................................................................................................... 11

How Double Entry Accounting Started? .................................................................................................................................................. 11

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) ............................................................................................................... 12

GAAP DIAGRAM ................................................................................................................................................................................................. 13

CONCEPTS AND CONVENTION .................................................................................................................................................................... 13

DEFINITION OF SOME BASIC TERMS ..................................................................................................................................................... 15

TWO DEFINITIONs
1. “Accounting is the language of business and …. Getting comfortable in a
foreign language takes a little experience, a little study, early on but it pays
off big later on.” –Warren Buffet
[Source: https://www.cnbc.com/2014/07/31/warren-buffett-surprises-teen-cancer-patient-on-cnbc.html]

2. Accounting is the process of identifying, measuring, and communicating

financial information about an entity to permit informed judgments and
decisions by users of the information.

ACCOUNTING IS THE LANGUAGE OF BUSINESS

1. “The process of identifying, measuring and communicating economic
information to permit informed judgments and decisions by the users of
accounting”.
2. “Accounting is the art/process of identifying, recording, classifying and
summarizing in a significant manner and in terms of money, transactions
and events which are, in part at least, of a financial character, and
interpreting the result thereof”.
3. The Accounting Principles Board (APB) of AICPA in 1970, emphasized that
the function of accounting is to provide quantitative information, primarily

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 financial in nature, about economic entities, that is intended to be useful
in making economic decisions.
Classification of Accounting

ACCOUNTING

FINANCIAL COST MANAGEMET

ACCOUNTING ACCOUNTING ACCOUNTING

The above categorisation is on the basis of the presentation, legal requirements

and the financial information each of them generate.
Financial accounting is concerned with the provision of accounting information to
external users.
It may be noted that the management accounting is concerned with the provision
of accounting information to people within the organization (internal users) to
help them make better decisions and improve the efficiency and effectiveness
of existing operations,
Thus, management accounting is often related to internal while financial
accounting is related to external reporting.
The scope of cost accounting is narrow, - process of cost accumulation for
fixation of sale price and valuation of inventory which are the most important
aspects of management decision making.

And

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 ACCOUNTANCY

ACCOUNTING

BOOK KEEPING

a. Bookkeeping –
i. Recording [Systematically]
ii. Crude form
iii. Financial statements are not part of it
iv. Managerial Decisions cannot be taken based on this
b. Accounting –
i. Summarizing of recorded transaction
ii. Language of business
iii. Financial statements are prepared on the basis of bookkeeping records
iv. Decision Making is based on reports prepared.
v. Three fields – Financial, Cost and Management accounting.
c. Accountancy – the academic discipline of accounting.

ACCOUTNING AND FINANCIAL INFORMATION

“Financial information” is disseminated by an organisation for the “Users”
of those financial information.

Users of accounting information and their information Needs.

1. Investors: They provide risk capital to the business.
2. Employees: Growth of the employees is related to the growth of the organisation
3. Lenders: They are interested to know whether their loan-principal and interest
will be paid when due.
4. Suppliers and Creditors: They are also interested to know the ability of the
enterprise to pay their dues.

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 5. Customers: Customers are also concerned with the stability and profitability of
the enterprise.
6. Government and their agencies: public good and taxes
7. Public: Successful business makes substantial contribution to the local economy in
8. Management: Management as whole is also interested in the accounts for various
managerial decisions.

Dissemination of accounting information – Two Extreme Examples

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Annual Report of Hindustan Unilever Ltd [Extract]

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ACCOUNTING INFORMATION
Meaning of Accounting Information:
Accounting information is a system of recording, summarizing, and
communicating financial transactions and events of an entity. It provides a
structured and standardized way to capture, analyze, and report financial data,
aiding in decision-making, financial management, and accountability.

Users of Accounting Information:

1. Management:
 Utilizes accounting information for internal decision-making, strategic
planning, and performance evaluation.
 Helps in assessing financial health, setting budgets, and formulating
business strategies.
2. Investors and Shareholders:
 Use financial statements to assess the profitability, financial stability, and
growth potential of a company before making investment decisions.
3. Creditors:
 Rely on accounting information to evaluate a company's creditworthiness
and financial health when deciding to extend credit or lend money.

4. Employees:
 Seek information on a company's financial health and stability, especially
related to job security, compensation, and benefits.
5. Government and Regulatory Authorities:
 Require accounting information for taxation purposes, ensuring compliance
with financial regulations, and assessing the economic health of the nation.
6. Customers:
 May be interested in a company's financial stability and profitability, as it
can impact the long-term viability of products or services they rely on.
7. Suppliers:
 Assess the financial health of customers to determine the risk of non-
payment and establish credit terms.

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Sources of Accounting Information:
1. Financial Statements:
 Primary sources include the income statement, balance sheet, and cash flow
statement, providing a comprehensive overview of a company's financial
performance.
 The financial statements are
o Balance Sheet (or Statement of Financial Position): Presents the
company's assets, liabilities, and equity as of a specific date,
providing a snapshot of its financial position.
o Profit and Loss Account (or Income Statement): Summarizes the
company's revenues, costs, and expenses over a specific period,
resulting in the net profit or loss.
o Cash Flow Statement: Highlights the sources and uses of cash over a
specified period, categorizing cash flows into operating, investing,
and financing activities.
o Statement of Changes in Equity: Details changes in equity during a
specific period, showing the effects of transactions like share
issuances, dividends, and other adjustments.
o Notes to the accounts: explanation to the above statements.
2. Ledgers and Journals:
 Transaction records organized in ledgers and journals provide a detailed
account of financial activities, facilitating the preparation of financial
statements.
3. Bank Statements:
 Bank records help reconcile cash transactions, verify balances, and ensure
accuracy in financial reporting.
4. Invoices and Receipts:
 Original documents supporting transactions, such as sales invoices and
receipts, serve as evidence and support entries in the accounting system.
5. Contracts and Agreements:
 Documents outlining contractual agreements, including terms of payment,
are important for recording and reporting financial transactions
accurately.
6. Internal Reports:
 Management reports, budgets, and variance analyses provide insights into
the internal financial performance and aid in decision-making.

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7. Tax Records:
 Documentation related to taxes, including tax returns and supporting
documents, is crucial for compliance and reporting to tax authorities.

ACCOUNTING IS THE LANGUAGE OF BUISNESS

ORGANIZATION/PROPRIETORSHIP [based on ownership]

ORGANISATION

profit seeking non profit seeking

organisation organisation

Joint Stock
Sole Company
Limited
Propietorshi
Partnership Liability
p Public
Partnership
Limited
Compnay

Private Limited
Company [Small
Company]
One Person
Company

OBJECTIVE OF ACCOUNTING AND THE ACCOUNTING PROCESS

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EVOLUTION OF ACCOUNTING
The early development of accounting system is traceable to the most ancient
cities, in Mesopotamia, a home of number between 450 and 500 BC. (Keistar,
1965): Greece and Rome were cities where coinage was invented in about 630
BC (Chatfield, 1977) and China is where accounting systems were concerned
with the recoding of merchants, temples, and estates (FU 1971).
[https://arxiv.org/ftp/arxiv/papers/1411/1411.4633.pdf]

1775 -1850 1. Small Business Units

2. Emphasis on Proprietary ‘Interest’ or Net Worth or Wealth
3. More emphasis on the Capital (Asset – Liabilities)
1850 -1900 1. Growth of Corporations and Large-Scale Business
2. Emphasis on ‘Income Statements’
3. Separate Entity Postulate
4. Going Concern and Periodicity
1900 -1950 1. Stewardship Accounting
2. Cost and Management Accounting
3. Emphasis on rational Decision Making
1950 -2000 1. Development as a Science
2. Accounting Standard Setting Board
3. Need for harmonization
Post 2000 1. Accounting as a Profession [accelerates].
2. More technology driven
3. Harmonization [globalization of accounting thought]
4. Increasing role of regulations to curb unethical practices

How Double Entry Accounting Started?

Double entry accounting was introduced by Italian mathematician and Franciscan friar Luca
Pacioli in 1494. In his seminal work "Summa de Arithmetica, Geometria, Proportioni et
Proportionalita," Pacioli outlined the principles of double entry accounting. This revolutionary
system recorded each financial transaction with corresponding debits and credits, ensuring
a balanced ledger. Pacioli's method provided a clear and systematic way to track assets,
liabilities, and equity, laying the foundation for modern accounting practices. The adoption of
double entry accounting marked a pivotal moment in the history of finance, enhancing
accuracy and transparency in economic transactions.

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GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
GAAP compliance is built on 10 principles or rules that eliminate misleading accounting and
financial reporting practices. These rules create consistent accounting and reporting
standards, which provide prospective and existing investors with reliable methods of
evaluating an organization's financial standing. Without these rules, accountants could use
misleading methods to paint a deceptive picture of a company or organization's financial
standing.
U.S. law requires businesses that release financial statements to the public and companies
that are publicly traded on stock exchanges and indices to follow GAAP guidelines, which
incorporate 10 key concepts:
1. Principle of regularity: GAAP-compliant accountants strictly adhere to established
rules and regulations.
2. Principle of consistency: Consistent standards are applied throughout the financial
reporting process.
3. Principle of sincerity: GAAP-compliant accountants are committed to accuracy and
impartiality.
4. Principle of permanence of methods: Consistent procedures are used in the
preparation of all financial reports.
5. Principle of non-compensation: All aspects of an organization's performance, whether
positive or negative, are fully reported with no prospect of debt compensation.
6. Principle of prudence: Speculation does not influence the reporting of financial data.
7. Principle of continuity: Asset valuations assume the organization's operations will
continue.
8. Principle of periodicity: Reporting of revenues is divided by standard accounting time
periods, such as fiscal quarters or fiscal years.
9. Principle of materiality: Financial reports fully disclose the organization's monetary
situation.
10. Principle of utmost good faith: All involved parties are assumed to be acting honestly.

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GAAP DIAGRAM

CONCEPTS AND CONVENTION

Concepts of Accounting:
1. Entity Concept:
a. Recognizes the business as a separate legal and financial entity
distinct from its owners or other entities.
b. Ensures the financial affairs of the business are kept separate from
personal finances.
2. Going Concern Concept:
a. Assumes that the business will continue to operate indefinitely.
b. Allows for the preparation of financial statements under the
assumption that the company will remain in operation for the
foreseeable future.
3. Money Measurement Concept:
a. States that only transactions that can be expressed in monetary terms
are recorded in accounting.
b. Non-monetary aspects like employee satisfaction or customer loyalty
are not considered.
4. Cost Concept:
a. Assets are recorded at their historical cost, representing the amount
paid to acquire them.
b. Allows for consistency and objectivity in financial reporting.

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5. Dual Aspect Concept (Double Entry):
a. Every transaction has two aspects – a debit and a credit – ensuring
that the accounting equation (Assets = Liabilities + Equity) remains
balanced.
b. Reflects the dual impact of transactions on the financial position of a
business.

Conventions of Accounting:
1. Conservatism Convention:
a. Encourages accountants to adopt a cautious approach when valuing assets
and recognizing profits.
b. Emphasizes the importance of recognizing potential losses early but
delaying the recognition of potential gains.
2. Consistency Convention:
a. Promotes uniformity in the application of accounting principles and
methods over different periods.
b. Allows for meaningful comparisons of financial information across
different accounting periods.
3. Materiality Convention:
a. Suggests that only significant or material items should be recorded in
financial statements.
b. Allows for practicality and avoids cluttering financial statements with
immaterial details.
4. Full Disclosure Convention:
a. Requires a company to disclose all relevant information that might
influence the decisions of financial statement users.
b. Ensures transparency and helps stakeholders make informed decisions.
5. Objectivity Convention:
a. Calls for financial information to be free from bias and personal
opinions.
b. Encourages the use of verifiable and reliable data, enhancing the
credibility of financial statements.

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 DEFINITION OF SOME BASIC TERMS
1. Transaction: A business activity or event that involves the exchange of
value, leading to a change in the financial position of an entity.
2. Account: A record or statement summarizing the financial transactions
related to a specific element (e.g., asset, liability, revenue) within an
organization.
3. Asset: Something of value owned by a business, such as cash, inventory, or
property, that provides future economic benefits.
4. Liability: A financial obligation or debt owed by a business to external
parties, representing claims on its assets.
5. Capital: The owner's equity or net assets in a business, representing the
residual interest after deducting liabilities from assets.
6. Expenditure: The amount spent by a business for acquiring assets, services,
or reducing liabilities, typically incurred to generate revenue.
7. Income: Money earned by a business through its primary operations,
including sales of goods or services.
8. Profit: The positive financial result of subtracting total expenses from total
revenue, indicating the surplus generated by a business.
9. Loss: The negative financial result occurring when total expenses exceed
total revenue, representing a deficit in business operations.
10. Revenue: The total income generated by a business from its primary
activities, such as sales of goods or services, before deducting expenses.
11. Debit: An entry made on the left side of an account, representing an
increase in assets, expenses, or losses, and a decrease in liabilities, income,
or gains.
12. Credit: An entry made on the right side of an account, representing an
increase in liabilities, income, or gains, and a decrease in assets, expenses, or
losses.
13. Accounting Year: A specific period, usually 12 months, used by a business
for financial reporting and accounting purposes, not necessarily aligned with
the calendar year.
14. Financial Year: The 12-month period adopted by a company for financial
reporting, typically aligning with the calendar year but can differ based on
organizational preferences or legal requirements.

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