Know About Accounting Fundamentals And Financial Fundamentals

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ACCOUNTING AND FINANCIAL FUNDAMENTALS

Q.1, 2) WHAT IS DEBIT AND CREDIT EXPLAIN WITH EXAMPLE?
ANS:  In accounting double entry was developed LUCAPACIOLI of Italy .Every    accounting transaction has two aspects both of which are recorded.
Every transaction has two sides
                                        1) DEBIT
                                        2) CREDIT
   DEBIT:  It is one of the aspect in a transaction, which arises in the following 
                Situations.

• Receipt of cash: cash must be debited.
• Expenses must be debited.
• Increase in assets: assets must be debited.

CREDIT: It is another part of the transaction, which arises in the following
               Situations.

• Payment of cash: cash must be credited
• Incomes must be credited
• Increases in liability: liability has to be credited.

EXAMPLE:
             1) CASH PAID TO Mr. X
                        Mr.X  a/c…………DR    xxxxx      …………
                                TO cash a/c          ……..        xxxxxx
               [Here cash account is credited for payment]
          2) ASSEST PURCHASED FOR  5000000
                       ASSEST a/c…………..DR    5000000     ……………
                                 TO cash a/c             …………….   5000000
                [Here assets a/c is debited for increasing it is value]

Q.3] WHAT IS VOUCHER? DEFINE its TYPES AND RELAVENCE, USAGE IN ACCOUNTING ENTRIES?
ANS: Voucher is a supporting document, it means it is evident for the transaction recorded in the books.
In general there is several types of vouchers like

• Sales vouchers
• Purchase vouchers
• Cash payments
• Cash receipts
• Adjustment voucher

TYPE OF VOUCHER	RELAVENCE	USAGE
SALES VOUCHER	It is primary evidence for recording amount of sales in books.	1. It is used for crosschecking the amount in voucher with books. 2. It is used for determining whether that voucher relates to same accounting year or not.
PURCHASE VOUHER	It is primary evidence for recording amount of purchases in books.	1. It is used for crosschecking the amount in voucher with books. 2. It is used for determining whether that voucher relates to same accounting year or not.
CASH RECIEPTS&PAYMENTS	It is evident for recording cash payments and receipts in cash book.	These vouchers place a vital role for auditing cash book balance correctness.
ADJUSTMENT VOUCHERS	These are used for adjusting the wrong  transactions	1. These are used for adjusting wrong issues between departments, wrong amount of vouchers are adjusted.

Q.4) NAME FEW FUNDAMENTAL ACCOUNTING RULES, IF POSSIBLE WITH EXAMPLES?
ANS: The traditional accounts are classified as follows, the golden rules applicable to these traditional accounts are FUNDAMENTAL ACCOUNTING RULES.
                                  
PERSONAL a/c: Personal a/c shows the balances due to or due from persons or organisation.
GOLDRN RULE OR FUNDAMENTAL RULE:

• DEBIT THE RECIEVER.
• CREDIT THE GIVER.

            Eg. 1) Cash received from Mr.X: here giver is Mr.X so X a/c must be credited.
                  2) Cash paid to Mr.X: here cash receiver is Mr.X so X a/c must be debited.

• REAL a/c: The real a/c shows the balances of the items in balance sheet like fixed assets, capital, and .etc.

GOLDRN RULE OR FUNDAMENTAL RULE:

• DEBIT WHAT COMES IN.
• CREDIT WHAT GO OUT.

          Eg: Purchase of fixed asset for cash: here fixed asset a/c has to be debited and cash must be credited.
                        Fixed asset a/c dr
                                    TO cash a/c

• NOMINAL a/c:  These accounts provide relevant information for preparing financial statements. The validity of these accounts confined to one accounting period only.

GOLDRN RULE OR FUNDAMENTAL RULE:

• DEBIT EXPENSES and LOSSES.
• CREDIT INCOMES and GAINS.
• : Payment of salaries is an expense: so salaries must be debited.

       Receipt of rent income: here rent must be credited.

• VALUATION a/c: These are some special type of a/c’s like Prov. for depreciation, prov. for debtors..etc.

GOLDRN RULE OR FUNDAMENTAL RULES:

• If fixed assets are shown at cost in the balance sheet, then the Prov. for depreciation must be shown in liability side.

Q5. DEFINE DEBTOR AND CREDITOR, ILLUSTRATE THEM WITH ANY        BALANCESHEET?

1. :

1. DEBTOR: It is the current asset, it means a person or firm or organization from whom the person or firm or organization will get some money or its worth.
2. CREDITOR: It is the current liability, it means a person or firm or organization to whom the person or firm or organization owes money or its worth.
3.  

                        THE BALANCE SHEET OF XYZ.CO AS ON 31.3.2011

LIABILITIES	AMOUNT	ASSETS	AMOUNT
Share capital Reserves surplus Secured loans Current liabilities     I)CREDITORS     ii)others		FIXED ASSETS CURRENT ASSETS      i)DEBTORS      ii)others	?

• In the given illustration the amount of 1000000 represents debtors, it means the XYZ.CO will get that debtor amount from debtors.
• In the given illustration the amount of 500000 represents creditors, it means the XYZ.CO will have to pay that creditor amount to creditors.

NOTE: CREDITORS AND DEBTORS ARE PERSONAL ACCOUNTS.
Q.6).WHAT ARE FINANCIAL STATEMENTS, EXPLAIN THEM WITH ALL POSSIBLE ACCOUNTING&FINANCIAL KNOWLEDGE?
ANS:  FINANCIAL STATEMENTS

• BALANCE SHEET: It is a statement shows the position in the form of assets liabilities of the organization at a given date.
• PROFIT &LOSS a/c: It is a ledger account which shows the net profit or loss of the organization for a given period.
• CASH FLOW&FUND FLOW STATEMENTS:

    i) Cash flow statement shows the cash inflow and outflow during the period.
   ii) Fund flow statement shows the sources from which funds have been raised, and application of those funds.

• OTHER NOTES&SCHEDULES:  These are some notes and schedules which give supporting for other financial statements.

Q.7 .WHY JOURNAL VOUCHER IS IMPORTANT? DESCRIBE THE ADVANTAGES AND DISADVANTAGES?
ANS:     

• The first and most important aspect of a business organization is recording of transactions.
• The journal voucher is the primary document evidence for the recording of an entry for a transaction.
• Each and every transaction must be supported by a voucher.

ADVANTAGES OF JOURANAL VOUCHER	DISADVANTAGES OF JOURANAL VOUCHER
It is an integral part of audit trail. It enforce a transaction in the books. It is used as an evidence for an entry in the books. It gives brief description of transaction.	The collusion of financial information is starts from misinterpretation of financial data in journal voucher. The easy way for fraud is generation of fake journal vouchers. The accuracy, fairness of journal voucher may not be quantified in some cases.

Q.8 .WHY ACCOUNTING IS VERY IMPORTANT?
ANS: The business organization involve in huge number of transactions in the regular course of business.
The each and every transaction must be recorded, classified, summarized, and analyzed. The whole work is technically termed as accounting.
So for running business efficiently, effectively in a timely manner the accounting is compulsory.
The accounting is the heart of the organization.

• The accounting objective is maintaining the proper records of the business.
• Accounting is used to know the financial position of an organization.
• It is used to know the profit or loss of the organization.
• Accounting is used for providing financial information to various users.

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