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Accounting Principles Lecture-3

The document discusses several key accounting principles: 1) Deferred revenue expenditure is an expense that provides benefits over multiple periods but is charged in full in the current period, with the unrecognized portion shown as an asset on the balance sheet. 2) Preliminary expenses incurred before business operations begin are written off as losses each year. 3) Purchases and sales accounts track the costs of goods bought for resale and revenue from goods sold, including both cash and credit transactions. 4) Inventory/stock represents goods held for resale or production, with opening and closing balances tracked.

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shivani chhipa
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87 views

Accounting Principles Lecture-3

The document discusses several key accounting principles: 1) Deferred revenue expenditure is an expense that provides benefits over multiple periods but is charged in full in the current period, with the unrecognized portion shown as an asset on the balance sheet. 2) Preliminary expenses incurred before business operations begin are written off as losses each year. 3) Purchases and sales accounts track the costs of goods bought for resale and revenue from goods sold, including both cash and credit transactions. 4) Inventory/stock represents goods held for resale or production, with opening and closing balances tracked.

Uploaded by

shivani chhipa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Accounting Principles

Accounting Principles Lecture- 3

Deferred Revenue Expenditure-

 It is an expenditure which is revenue in nature and incurred during an accounting period, but its benefits are
to be derived in multiple future accounting periods.
 These expenses are unusually large in amount and, essentially, the benefits are not consumed within the
same accounting period.
 Part of the amount which is charged to profit and loss account in the current accounting period is reduced
from total expenditure and rest is shown in the balance sheet as an asset (fictitious asset, i.e. it is not really
an asset).

Preliminary Expenses

 The expenses incurred when a company is formed and before the start of any business operations are
termed as preliminary expenses, they are a good example of fictitious assets which are written off every year
from the profits earned by the business.

 Some examples of such expenses incurred before business incorporation are; Legal cost, Professional fees,
Stamp duty, Printing fees, etc.

Purchases

The term purchases are used for an account to record purchase of goods or raw materials for resale or for
producing products which are also to be sold. The term purchases include both cash and credit purchase of
goods. Goods purchase for cash or termed as cash purchases and goods purchased on credit are termed as credit
purchases

Sales

The term sales is associated with or used for sale of goods. These goods may be purchased for resale or
manufactured by the enterprise. The term sales include both cash and credit sales. When goods are sold for cash
they are termed as cash sales and when sold on credit there termed as credit sales.

Stock/Inventory

Stock is a tangible asset held by an enterprise for the purpose of sale in the ordinary course of business or for the
purpose of using it in the production of goods meant for sale. Stock maybe opening stock and closing stock. Opening
stock is the stock in hand in the beginning of accounting year. In other words, it is a stock in hand at the end of the
previous accounting year. Closing stock is the stock in hand at the end of current accounting.

Discount

What is the reduction in the price of goods or from the amount to be paid to a customer by the enterprise. Discount
allowed maybe trade discount or cash discount.

Trade discount is the reduction in prices by the seller to the purchaser of goods when they buy goods of certain
quantity or value. Sales are recorded at net value that is sales minus trade discount. Similarly, purchases are
recorded by the purchaser at net value that is purchases minus discount.

Cash Discount- It is the discount allowed for timely payment of due amount. It is an expense for the party allowing
the discount and income for the party receiving cash discount. It is recorded in the books of account of both the
parties

Bad Debts
Accounting Principles

It is the amount owed to business that is return of because it has become irrecoverable. It is a loss for the business
and the debited to profit and loss account.

Cost of Goods Sold

It is direct cost attributable to the production of goods sold and/or services rendered.

Accounting Procedures- Rules of Debit or Credit

Account is a record of transactions under a particular head. It records not only the amount of transactions but also
their effect and direction.

Debit refers to the right side of the account and credit refers to the left side of the account. Both debit and credit
may represent either increase or decrease depending upon the nature of an account. The rules depend upon nature
of account.

Rules of Dr. and Cr.

 Double entry system of accounting


 One aspect is debit i.e. receiving or incoming aspect
 Other aspect is credit i.e. giving or outgoing aspect

Classifications of accounts-

1) Traditional Approach
2) Modern Approach
Accounting Principles

Representative Personal Accounts are accounts which represent a certain person or group
of people. Accounts relating to outstanding and prepaid items are called representative personal accounts. For
example, prepaid insurance, outstanding rent, outstanding wages/salaries etc. Outstanding salaries is one
such account.

Rule- Debit the receiver and Credit the giver

Impersonal Accounts
Accounting Principles

Rule- Debit what comes in and credit what goes out

If a prefix or suffix (outstanding, prepaid or accrued) is added to a nominal account, it becomes a personal
account.
Accounting Principles

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