F.Y. B.Com Accountancy Study Notes

• Study notes for F.Y. B.Com Accountancy important questions.
• Focus is on key concepts and problem areas for exam preparation.

Accounting Basics

• Accounting is the process of recording, classifying, summarizing, analyzing, and interpreting financial transactions.
• It communicates financial information to users for decision-making.
• Key accounting concepts: Going Concern, Accrual, Matching, Consistency, and Business Entity.

Journal Entries

• Journal entries are the first step in the accounting cycle, recording transactions in a chronological order.
• Each entry includes a debit and a credit, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced.
• Common journal entries involve cash, accounts receivable, accounts payable, sales, purchases, and expenses.
• Compound journal entries involve multiple debits and/or credits.

Ledger Posting

• Ledger posting involves transferring journal entries to the appropriate ledger accounts.
• A ledger account summarizes all transactions affecting a particular asset, liability, equity, revenue, or expense.
• Maintaining accurate ledger balances is essential for preparing financial statements.

Trial Balance

• A trial balance is a list of all ledger account balances at a specific date.
• It verifies the equality of debits and credits, ensuring the accounting equation is in balance.
• A trial balance is used to prepare financial statements.
• Errors can still exist even if the trial balance agrees (errors of omission, commission, principle, compensating errors).

Depreciation

• Depreciation is the systematic allocation of the cost of a tangible asset over its useful life.
• Methods of depreciation: Straight-line, Written Down Value (WDV), and Units of Production.
• Straight-line depreciation: (Cost - Salvage Value) / Useful Life
• WDV depreciation: Applies a constant rate to the book value of the asset each year.
• Units of Production depreciation: Based on actual usage or output.

Final Accounts

• Final accounts include the Trading Account, Profit and Loss Account, and Balance Sheet.
• Trading Account: Calculates gross profit (Sales - Cost of Goods Sold).
• Profit and Loss Account: Calculates net profit (Gross Profit - Operating Expenses).
• Balance Sheet: Presents a company's assets, liabilities, and equity at a specific point in time.
• Assets are categorized as current or non-current.
• Liabilities are categorized as current or non-current.
• Equity represents the owners' stake in the company.

Bank Reconciliation Statement (BRS)

• BRS reconciles the differences between the bank balance as per the company's records and the bank statement.
• Common reasons for differences: Outstanding checks, deposits in transit, bank charges, errors.
• Preparing a BRS involves adjusting either the bank balance or the company's book balance to arrive at the corrected balance.

Inventory Valuation

• Inventory valuation methods: FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Weighted Average.
• FIFO: Assumes the first units purchased are the first units sold.
• LIFO: Assumes the last units purchased are the first units sold (not permitted under IFRS).
• Weighted Average: Calculates a weighted average cost based on the total cost of goods available for sale divided by the total number of units available for sale.

Capital and Revenue Expenditures

• Capital expenditures: Expenses that benefit future periods (e.g., purchasing a building).
• Revenue expenditures: Expenses that benefit the current period (e.g., rent).
• Capital expenditures are capitalized (recorded as assets), while revenue expenditures are expensed.
• Incorrectly classifying an expenditure can significantly impact financial statements.

Provisions and Reserves

• Provisions: Liabilities of uncertain timing or amount (e.g., provision for doubtful debts).
• Reserves: Appropriations of retained earnings for a specific purpose (e.g., general reserve).
• Provisions are created when there is a present obligation, a probable outflow of resources, and a reliable estimate of the amount.
• Reserves strengthen the company's financial position.

Partnership Accounts

• Partnership: An association of two or more persons to carry on a business and share profits or losses.
• Partnership Deed: Agreement that outlines the terms of the partnership (profit-sharing ratio, interest on capital, etc.).
• Profit and Loss Appropriation Account: Shows the distribution of profits among partners.
• Partner's Capital Accounts: Maintain a record of each partner's investment and share of profits.

Accounting Standards Important

• Knowledge of key accounting standards taught during the first year B.Com is important.
• Examples include standards relating to depreciation, inventory valuation, and provisions.
• Focus on the basic principles and practical application of these standards.