Why should you do FOFA?

Concepts – Accounting, Process

and Financial Statements

1
 Fundamentals of
Finance and Accounts
• Come to class before 5 minutes (7.55am). I can not
allow students into the class after I have entered
into the class.
• Mark your attendance in biometric.
• For any queries, meet me in my office (Off-Campus
programmes and Industry Engagement) on any
working day after 5pm (with prior appointment through
message) and at 1.10pm on Saturday. If urgent call
me or message me at 9553381682. 2
Fundamental of Finance & Accounts – FOFA
Why should you do FOFA?
3 Trading
/Investment
2 Fund on own fund
Based & / On behalf
Fee Based of client
Investment Activities
Banking /
1 Other
Sector
Who wishes to
invest &
Where(Financial
System)

3
Fundamental of Finance & Accounts – FOFA
Why should you do FOFA?

2
Trading
/Investment
3
Fund on own fund
1 Based &
Fee Based
/ On behalf
Investment of client
Activities
Banking /
Other 5 Forex Market 4
Sector (Banks, Fis,
Money Market
Dealers,
(L & S Term)
Corporate)
and Capital
Where and in which Market
Instruments
instrument to invest ?
(Banks, FIs,
Regulatory framework, Dealers,
Risk profile & Expected Corporate)
Return of investors
4
Fundamental of Finance & Accounts – FOFA
Why should you do FOFA?
3 Trading
2 /Investment
Fund on own / On
1 Based & behalf of
client
Fee Based
Investment
Banking /
5 6
Other
Sector
Forex
Return 4
Market Money Market
depends
on (Long and
Short Term)
and Capital
Risk and return Market
of Investment in Instruments
Debt, Equity &
Forex
5
 Fundamental of Finance & Accounts – FOFA
Why should you do FOFA?

2 Trading
/Investment
3
Fund on own / On
1 Based & behalf of
Fee Based client
Investment
Banking /
Other 5 Forex
6 4
Sector Return
Market Money Market
depends
on (Long and
Risk and return of
Short Term)
Investment in Debt, Equity and Capital
& Forex Market
Monetary & Instruments
Market response & Securities and Credit Policy of
Macroeconomic Fundamental Central Bank
6
 Fundamental of Finance & Accounts – FOFA
Why should you do FOFA?
10
1. Organization, Sector and
Industry performance. 2 Trading
/Investment 3
2. Business characteristics
Fund on own / On
and Accounting standards
Based & behalf of

Need 1 Fee Based client

Financial Markets
Investm
Financial
ent 5 6
Information
Banking Forex
Return 4
9 Market
depends Money Market
(Long and
Market Efficiency, Organization’s on
performance and Financial Short Term)
reporting quality and Capital
7 Market
8 Monetary & Instruments
Market response & Securities fundamentals Credit Policy of
and Macroeconomic Fundamental Central Bank
7
 Fundamental of Finance & Accounts – FOFA
Why should you do FOFA?

Need to record and report, and distribute (Accounting, SAPM & BAV)

Investment in long- Cost & Investment in

term physical assets Benefits working capital /
(Capex) / long term short term
financial assets Risk & Return financial assets

Capital Market Money Market

(instruments, (instruments,
participants, participants,
regulators, regulators,
interest rate) interest rate)
Bank Loan Bank Loan

Financial Market/ Financial System (Finance)

Course Objectives – Accounting Component

To gain understanding and to provide working

knowledge of accounting concepts, detailed
procedures and documentation involved in
financial accounting system.

9
 Course Objectives

Learning Aims: to
 Understand the framework of accounting
systems and the Generally Accepted Accounting
Principles
 Prepare necessary financial statements related
to different business entities
 Construct financial statements for
understandability and relevance of stakeholders.
 Analyze & Interpret Financial position of an
organization.
10
From Business Strategy to Business Activities to
Business Analysis Using Financial Statements

Market
(industry /
sector)
Structure Intermediaries
Business
Activities using financial
Business Own statements for
Strategy Business Decisions
Accounting
System
Statement of income and
expenditure,
Statement of sources &
GAAP
Application of funds
Funds Flow Statement
11
Introduction
Business is an economic activity undertaken
with the motive of earning profits and to
maximize the wealth for the owners.

Business could be of different forms such as sole

proprietorship, partnership, body corporate etc.

12
Why do you need accounting?

Imagine world without accounting – Difficult

to know what is the status of an organization

To track efficient usage of resources

(a) What is the result of business operations? This will
be answered by finding out whether it has made profit
or loss.

(b) What is the position of the resources acquired and

used for business purpose? How are these resources
financed? Where the funds come from?
13
Conti..

The answers to these questions are to be found

continuously and the best way to find them is to record
all the business activities.

Recording of business activities has to be done in a

scientific manner so that they reveal correct outcome.

14
15
Accounting Definition

The field of accounting is generally sub-

divided into:
(a) Financial Accounting
(b) Cost Accounting and
(c) Management Accounting

16
Accounting Definition - Financial
Accounting

It is commonly termed as Accounting. The American

Institute of Certified Public Accountants defines
Accounting as “an art of recoding, 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
results thereof.”

17
Accounting Definition - Steps in
Financial Accounting

Identify & record the transactions of monetary in

nature:

The first step in the cycle of accounting is to identify

transactions that will find place in books of accounts.
Transactions having financial impact only are to be
recorded i.e. if a businessman negotiates with the
customer regarding supply of products, this will not be
recorded. Journal Entry

18
Accounting Definition - Financial
Accounting

Recording as per Golden Rules of Accounting: Ledge

Secondly, the recording of the business transactions is

done based on the Golden Rules of accounting (which
are explained later) in a systematic manner.

Transaction of similar nature are grouped together and

recorded accordingly. e.g. Sales Transactions, Purchase
Transactions, Cash Transactions etc. One has to interpret
the transaction and then apply the relevant Golden Rule
to make a correct entry thereof.
19
Accounting Definition - Financial
Accounting

Preparing Financial Statement:

Lastly, the accounting process provides the users with

statements which will describe what has happened to
the business. Remember the two basic questions we
talked about, one to know whether
(1) business has made profit or loss and
(2) the other to know the position of resources that are
used by the business.

20
Accounting Definition - Financial
Accounting

Financial Accounting is recording and

reporting transactions of monetary term
as per statutory requirement (GAAP)
Outcome of Financial Accounting:
1. Statement of Income and Expenditure,
2. Statement of Sources & Application of Fund
and
3. Funds Flow Statement

21
 Financial Statements
B/S:
P/L:Statement
StatementofofSources
Income&&Application
Gain and Expenses
of Fund. &
Shows
Losses.Financial
Shows Financial
Position Performance
on a particular
during
datea
since
period.
inception
Profit &
Loss (P/L) Balance Sheet
(B/S)

FF
Accounting Definition - Cost
Accounting

It is a branch of accounting dealing with the

Cost Accounting is frequently used to facilitate
(1)classification,
internal decision making and provides tools
(2)recording,
with which management can appraise
(3)allocation,and
performance
Internal andmaking
decision control
– costs Continue
Pricing, of doingor
(4)reporting of current and prospective costs
business.
discontinuation
and analyzingof product
their or service, make or
behaviors.
buy decision, how much to produce – BEP, Cost
control, etc.

23
Accounting Definition - Management
Accounting

Management Accounting is “the process of

1. identification,
2. measurement,
3. analysis,
4. interpretation and
5. communication of information used by
management to plan, evaluate and control
within an entity and to assure appropriate
use of and accountability for its resources.

24
Accounting Definition - Management
Accounting

Basically, Management Accounting aims to

facilitate management in

1. formulating strategies,
2. planning and constructing business activities,
making decisions,
3. optimizing resources, and
4. safeguarding assets of business.

25
Difference between Management
Accounting and Financial Accounting

26
 Accounting Cycle
0
7 1

6 2

5 3
4

27
OBJECTIVES OF ACCOUNTING

The main objective of Accounting is to

provide financial information to
stakeholders. This financial information is
normally given via financial statements,
which are prepared on the basis of
Generally Accepted Accounting Principles
(GAAP).

28
 OBJECTIVES OF ACCOUNTING

(a) To ascertain the amount of profit or loss made by the

business i.e. to compare the income earned versus the
expenses incurred and the net result thereof.
(b) To know the financial position of the business i.e. to
assess what the business owns and what it owes.
(c) To provide a record for compliance with statutes and
laws applicable.
(d) To enable the readers to assess progress made by the
business over a period of time.
(e) To disclose information needed by different
stakeholders.
29
 OBJECTIVES OF ACCOUNTING
Let us now see which are different stakeholders of the business
and what do they seek from the accounting information.

30
Users of Accounting Information

Accounting provides information both to internal

users and the external users.

The internal users are all the organizational

participants at all levels of management (i.e. top,
middle and lower).

Generally top level management requires information

for planning, middle level management which requires
information for controlling the operations.

31
Users of Accounting Information

For internal use, the information is usually provided

in the form of reports, for instance Cash Budget
Reports, Production Reports, Idle Time Reports,
Feedback Reports, whether to retain or replace an
equipment decision reports, project appraisal report,
and the like.

32
Users of Accounting Information

There are also the external users (e.g. Banks,

Creditors).

They do not have direct access to all the records of an

enterprise, they have to rely on financial statements
as the source of information.

External users are

basically, interested in the
solvency and profitability of an enterprise.

33
Accounting Information - relating to financial
transactions and events.

(a) Financial Position- Information about financial

position is primarily provided in a Balance Sheet and is
affected by different factors, like installed capacity vs.
capacity utilization, financial structure (how assets are
financed)

34
Types of Accounting Information - relating to
financial transactions and events.

(iii) Information about liquidity (ability to meet

liability) and solvency (availability of cash over the
longer term to meet financial commitments - level of
financial risk due to debt financing) is useful in
predicting the ability of the enterprise to meet its
financial commitments as they fall due.

35
Accounting Information – Relating to Financial
Performance

(b) Information about financial performance (operating

efficiency and its impact on profitability) is primarily
provided in a Statement of Profit and Loss which is also
known as Income Statement (Statement of Income &
Expenditure).

36
Types of Accounting Information - Cash Flows

Information about cash flows is provided in the

financial statements by means of a cash flow
statement to assess the ability of the
enterprise to generate cash and cash
equivalents and the needs of the enterprise to
utilize those cash and cash equivalent.

37
BASIC ACCOUNTING TERMS

(i) Goods/Services: These are tangible article

or commodity in which a business deals. These
articles or commodities are either bought and
sold or produced and sold.

At times, what may be classified as ‘goods’ to

one business firm may not be ‘goods’ to the
other firm.

38
BASIC ACCOUNTING TERMS

For a machine manufacturing company (HMT),

the machines are ‘goods’ as they are
frequently made and sold.

But for the buying firm, it is not ‘goods’ as the

intention is to use it as a long term resource
and not sell it. Services are intangible in
nature which are rendered with or without the
object of earning profits.

39
BASIC ACCOUNTING TERMS

(ii) Profit: The excess of Revenue Income over expense

is called profit. It could be calculated for each
transaction or for business as a whole.

(iii) Loss: The excess of expense over income is called

loss. It could be calculated for each transaction or for
business as a whole.

40
BASIC ACCOUNTING TERMS
(iv) Asset: Asset is a resource owned by the business
with the purpose of using it for generating future
profits. Assets can be Tangible and Intangible.

Tangible Fixed Assets are the Capital assets (Capital

Expenditure) which have some
(1) physical existence,
(2) generates revenue for long period and
(3) are of non-recurring in nature.

Example: Plant and Machinery, Furniture and Fittings, Land

and Buildings, Books, Computers, Vehicles, etc. - Writing off
of Tangible Fixed Asset is known as Depreciation
41
BASIC ACCOUNTING TERMS

Tangible Current Assets are the working assets

(cash or nearness to cash – short lived assets)
and helps fixed assets to generate revenue.

Example - cash, Accounts Receivable,

Inventories, Prepaid Expenses, Loans &
Advances

42
 BASIC ACCOUNTING TERMS

Intangible Assets: They cannot be seen or felt

although they help to generate revenue in future,
e.g. Goodwill, Patents, Trade-marks, Copyrights,
Brand Equity, Designs, Intellectual Property, etc.
Writing off of Intangible fixed asset is known as
Amortization

43
BASIC ACCOUNTING TERMS
(vi) Liability: It is an obligation of financial nature to
be settled at a future date. It represents amount of
money that the business owes to the other parties.

Liability: Long Term or non-current liabilities and Short

Term or Current
Long term Liabilities.
liability –
(1) Creditors Liability – Loan from FIs, Bonds /
Debentures and
(2) Owners Liability – Equity Share Capital provided by
equity
Current shareholders
Liability (created from business operations) –
Accounts Payable, Expense Outstanding,

44
BASIC ACCOUNTING TERMS
Gross Working Capital = Total Current Assets.

Net Working Capital =

Current Assets – Currents Liabilities excluding
bank borrowing.

45
BASIC ACCOUNTING TERMS

(ix) Contingent Liability : It represents a potential

obligation that could be created depending on the
outcome of an event. E.g. if supplier of the business
files a legal suit, it will not be treated as a liability
because no obligation is created immediately but
provision is created for contingent liability .

46
BASIC ACCOUNTING TERMS

(x) Capital : It is amount invested in the business by its

owners. It may be in the form of cash, goods, or any
other asset which the proprietor or partners of business
invest in the business activity.

47
BASIC ACCOUNTING TERMS

(xi) Drawings : It represents an amount of cash, goods

or any other assets which the owner withdraws from
business. Drawings will result in reduction in the
owners’ capital. The concept of drawing is not
applicable to the corporate bodies like limited
companies.

48
BASIC ACCOUNTING TERMS

(xii) Net worth : It represents excess of total assets

over total creditors liabilities of the business.
Assets = Creditors Liabilities + Net Worth ( Owners
equity + R&S which is the component of profit).

A profit making business will result in increase in the

owner’s equity whereas losses will reduce it.
Therefore, net worth is equity share capital plus
reserve & surpluses

49
BASIC ACCOUNTING TERMS

(xiii) Non-current Investments : Non-current

Investments are investments which are held beyond the
current period as to sale or disposal. e. g. Fixed Deposit
for 5 years.

(xiv) Current Investments : Current investments are

investments that are by their nature readily realizable
and are intended to be held for not more than one year
from the date on which such investment is made. e. g.
11 months Commercial Paper.

50
BASIC ACCOUNTING TERMS
These debtors may again be classified as under:
(i) Good debts : The debts which are sure to be realized
are called good debts.
(ii) Doubtful Debts : The debts which may or may not be
realized are called doubtful debts.
(iii) Bad debts : The debts which cannot be realized at
all are called bad debts.

52
BASIC ACCOUNTING TERMS
(xvi) Capital Expenditure (Fixed Tangible Assets) : This
represents expenditure incurred for the purpose of
acquiring a fixed asset.

Capital expenditure forms part of the Balance Sheet. Its

non-recurring in nature and generates revenue for long
term

53
BASIC ACCOUNTING TERMS
(xviii) Revenue expenditure (Expense) : This represents
expenditure incurred to earn revenue of the current
period.

The benefits of revenue expenses get exhausted in the

year of the incurrence. e.g. repairs, insurance, salary &
wages to employees, travel etc.

The revenue expenditure results in reduction in profit

or surplus. It forms part of the Income Statement. It’s a
recurring in nature

54
BASIC ACCOUNTING TERMS
(xix) Balance Sheet (Statement of sources & Application of
Funds) : It is the statement of financial position of the
business entity on a particular date since inception. It
includes all liabilities, capital and assets.
This statement exhibits the state of affairs of the
business as on a particular date since inception only.
It describes what the business owns and what the
business owes to outsiders (this denotes liabilities) and
to the owners (this denotes capital).
It is prepared after incorporating the resulting
profit/losses of Income Statement.

55
BASIC ACCOUNTING TERMS

(xx) Profit and Loss Account (Statement of Income &

Expenditures): This statement shows the revenue earned
by the business and the expenses incurred by the
business and shown financial performance during a
period.

This is prepared usually for a particular accounting

period, which could be a month, quarter, a half year or
a year.

The net result of the Profit and Loss Account will show
profit earned or loss suffered by the business entity.
56
BASIC ACCOUNTING TERMS

(xxi) Trade Discount : It is the discount usually allowed by the

wholesaler to the retailer computed on the list price or invoice
price. e.g. the list price of a TV set could be Rs. 15000. The
wholesaler may allow 20% discount thereof to the retailer. This
means the retailer will get it for Rs.12000 and is expected to sale
it to final customer at the list price.

Thus the trade discount enables the retailer to make profit by

selling at the list price. Trade discount is not recorded in the books
of accounts. The transactions are recorded at net values only. In
above example, the transaction will be recorded at Rs. 12000 only.

57
BASIC ACCOUNTING TERMS

(xxii) Cash Discount : This is allowed to encourage prompt payment

by the debtor. This has to be recorded in the books of accounts.
This is calculated after deducting the trade discount. e.g. if list
price is Rs.15000 on which a trade discount of 20% and cash
discount of 2% apply, then first trade discount of Rs.3000 (20% of
Rs.15000) will be deducted and the cash discount of 2% will be
calculated on Rs.12000 (Rs.15000 – Rs.3000). Hence the cash
discount will be Rs. 240/- (2% of Rs.12000) and net payment will be
Rs.11,760 (Rs.12,000 – Rs.240)

58
ACCOUNTING CONCEPTS AND CONVENTIONS

Accounting principles are

 basic guidelines that provide standards for scientific
accounting practices and procedures. guide as to how
the transactions are to be recorded and reported.
 assure uniformity and understandability.

Accounting concepts lay down the foundation

for accounting principles.

61
ACCOUNTING CONCEPTS AND CONVENTIONS

62
ACCOUNTING CONCEPTS AND CONVENTIONS:
A. BASIC ASSUMPTIONS

(a) Business Separate Legal Entity Concept

The entity concept requires that all
the transactions are to be viewed,
interpreted and recorded from
‘business entity’ point of view.

Rationale: personal revenue &

expenses should not included with
business
Example: Equity Share Capital (Owner contributing
capital to the organization), Owner withdrew cash,
63
ACCOUNTING CONCEPTS AND CONVENTIONS

(b) Going Concern Concept

The basic principles of this

concept is that business is
assumed to exist for an
indefinite period and is not
established with the objective
of closing it down.
Rationale behind this concept:
Making resources available

64
ACCOUNTING CONCEPTS AND CONVENTIONS

(c) Money Measurement Concept

A business transaction will always
be recoded if it can be expressed in
terms of money.

Rationale: The advantage of this

concept is that different types of
transactions could be recorded as
homogenous entries with money as
common denominator.

65
 ACCOUNTING CONCEPTS AND CONVENTIONS

(d) The Accounting Period Concept

The going-concern concept the business entity is assumed to have an
indefinite life. Now if we were to assess whether the business has made
profit or loss,
1) should we wait until this indefinite period is over?
2) Would it mean that we will not be able to assess the business
performance on an ongoing basis?
3) Does it deprive all stakeholders the right to the accounting
information?
4) Would it mean that the business will not pay income tax as no
income will be computed?
To circumvent this problem, the business entity is supposed to be paused
after a certain time interval. This time interval is called an accounting
period.

66
ACCOUNTING CONCEPTS AND CONVENTIONS

(e) The Accrual Concept:

Recognize revenue and expense irrespective of

actual cash received or payment made
respectively.

Example: Goods sold on credit, Expense

Outstanding

67
 ACCOUNTING CONCEPTS AND CONVENTIONS :
B. BASIC PRINCIPLES

(a) The Revenue Realisation Concept

It says amount should be recognized only to the
tune of which it is certainly realizable. Thus,
mere getting an order from the customer won’t
make it eligible to recognize as revenue. The
reasonable certainty of realizing the money will
come only when the goods ordered are actually
supplied to the customer and he is billed.

68
 ACCOUNTING CONCEPTS AND CONVENTIONS

(b) The Matching Concept

One cannot recognize only the revenue effect thereby
inflating the profit or only the expense effect which will
deflate the profit. Both the effects must be recognized
in the same accounting period. This is the principle of
matching concept.
To generalize, when a given event has two effects – one
on revenue and the other on expense, both must be
recognized in the same accounting period.

Example: Depreciation and Material Consumed

69
 ACCOUNTING CONCEPTS AND CONVENTIONS

(c) Disclosure Concept

Accounting data should properly be clarified,
summarized, aggregated and explained for the purpose of
presenting the financial statements which are useful for
the users of accounting information. Practically, this
principle emphasizes on the materiality, objectivity and
consistency of accounting data which should disclose the
true and fair view of the state of affairs of a firm.

Window Dressing

70
 ACCOUNTING CONCEPTS AND CONVENTIONS

(d) Dual Aspect Concept

When a business transaction happens, it will
involve use of one or the other resource of the
business to create or settle one or more
obligations.

Assets = Liabilities + Capital

71
ACCOUNTING CONCEPTS AND CONVENTIONS

(f) Historical Cost Concept

Business transactions are always recorded at the actual
cost at which they are actually undertaken i.e. at cost
price which includes invoice price, transportation and
installation cost.

Rationale: The basic advantage is that it avoids an

arbitrary value being attached to the transactions.
Creates standardization for comparison.

Example: CNC Machine Purchased, Land Purchased

73
 ACCOUNTING CONCEPTS AND CONVENTIONS

(b) The Concept of Consistency

The insistence of this
concept would result in
avoidance of window
dressing the results by
choosing the accounting
method by convenience
and thereby either
inflating or understating
net income.

Example: Methods of depreciation and

inventories valuation
74
 ACCOUNTING CONCEPTS AND CONVENTIONS

(c) The Conservatism Concept

The concept underlines the prudence of under-stating
than over-stating (providing provision for doubtful bad
debts, creating provision for contingent liability) the net
income of an entity for a period and the net assets as on
a particular date.

Rationale: This is because business is done in situations

of uncertainty. For years, this concept was meant to
“anticipate no profits but recognize all losses”.

75
TYPES OF ACCOUNTS

78
TYPES OF ACCOUNTS

(1) Personal Account : As the name suggests these are

accounts related to persons.
(a) These persons could be natural persons like
Suresh’s A/c, Anil’s A/c, Rani’s A/c etc.

(b) The persons could also be artificial persons

like companies, bodies corporate or association of
persons or partnerships etc. Accordingly, we could
have Videocon Industries A/c, Infosys Technologies
A/c, Charitable Trust A/c, Ali and Sons trading A/c,
ABC Bank A/c, etc.

79
TYPES OF ACCOUNTS

(1) Personal Account :

(c) There could be representative personal
accounts as well i.g. when salary is payable to
employees, we know how much is payable to
each of them, but collectively the account is
called as ‘Salary Payable A/c’.

Similar examples are accounts payable, rent

payable, Insurance prepaid, commission
pre-received etc.

80
TYPES OF ACCOUNTS
(2) Real Accounts : These are accounts related
to assets or properties or possessions.
Depending on their physical existence or
otherwise, they are further classified as
follows:-

(a) Tangible Real Account – Assets that have

physical existence and can be seen, and
touched. e.g. Machinery A/c, Cash A/c,
Vehicle A/c, and the like.
81
TYPES OF ACCOUNTS
(b) Intangible Real Account – These
represent possession of properties that
have no physical existence but can be
measured in terms of money and have
value attached to them. e.g. Goodwill A/c,
Trade mark A/c, Patents & Copy Rights A/c,
Intellectual Property Rights A/c and the
like.

82
TYPES OF ACCOUNTS

(3) Nominal Account :

These accounts are related to expenses or

losses and incomes or gains e.g. Salary and
Wages A/c, Rent of Rates A/c, Travelling
Expenses A/c, Loss by fire A/c, Commission
received A/c, Gain or Loss due to Forex
Rate, Gain or loss on sale of fixed assets,
etc.
83
THE ACCOUNITNG PROCESS
The rules of debit and credit in relation to these
accounts are stated as under:
(i) For Capital Account:
Debit means decrease (iv) For any Expense
Credit means increase Account:
Debit means increase
(ii) For any Liability Account: Credit means decrease
Debit means decrease
Credit means increase (v) For any Revenue
Account:
(iii) For any Asset Account: Debit means decrease
Debit means increase Credit means increase
Credit means decrease
84
ACCOUNITNG RULES

85
86
ACCOUNTING EQUATION

The whole Financial Accounting depends on

Accounting Equation which is also known as Balance
Sheet Equation. The basic Accounting Equation is:

Paid up
Capital +
Owner’s
Equity (Net
Worth)
87
Illustration.
Prepare an Accounting Equation from the following transactions
in the books of Mr. X for January, 2013 :
1 Invested Capital in the firm Rs.20,000
2 Purchased goods on credit from Das & Co. for Rs.2,000
4 Bought plant for cash Rs.8,000
8 Purchased goods for cash Rs.4,000
12 Sold goods for cash (cost Rs.4,000 + Profit Rs.2,000) Rs.
6,000.
18 Paid to Das & Co. in cash Rs.1,000
22 Received from B. Banerjee Rs.300 (being a debtor)
25 Paid salary Rs.6,000
30 Received interest Rs. 5,000
31 Paid wages Rs.3,000
88
89
Received from B. Banerjee Rs.300 (being a debtor)

90
91
Deferred Revenue Expenditures

Deferred revenue expenditures represent certain types

of assets whose usefulness does not expire in the year
of their occurrence but generally expires in the near
future.

These type of expenditures are carried forward and are

written off in future accounting periods.

Sometimes, we make some revenue expenditure but it

eventually becomes a capital asset.

92
Deferred Revenue Expenditures

If one undertake substantial repairs to the existing

building, the deterioration of the premises may be
avoided.

We may engage our own employees to do that work and

pay them at prevailing wage-rate, which is of a revenue
nature.

If this expenditure is treated as a revenue expenditure

and the current year’s-profit is charged with these
expenses, we are making the current year to absorb the
entire expenses, though the benefit of which
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Explain concepts, structure of financial
statement

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