BCOC-131: Financial Accounting – Notes (Answer-Writing Friendly Format)

BCOC-131: Financial Accounting – Full Detailed Notes (Answer-Writing Friendly Format)

🔵 BLOCK 1: Basics of Accounting

Unit 1: Introduction to Accounting

Q: Define Accounting. Explain its objectives, functions, and types.

Definition:
Accounting is the process of identifying, recording, classifying, summarising, and interpreting financial transactions to provide useful information for decision-making.

Objectives of Accounting:

Record keeping – Maintain systematic records of transactions.
Determination of Profit or Loss – Through Trading and Profit & Loss Account.
Assessing Financial Position – Through Balance Sheet.
Assisting Management – In planning and control.
Providing information to users – Investors, creditors, government, etc.

Functions of Accounting:

Measurement of financial results.
Communicating information to stakeholders.
Providing legal evidence.
Assisting in taxation matters.

Types of Accounting:

Financial Accounting – Recording and reporting business transactions.
Cost Accounting – Determining cost of production.
Management Accounting – For internal decision-making.

Users of Accounting Information:

Internal: Owners, Managers
External: Creditors, Investors, Government

Unit 2: Accounting Process and Rules

Q: Explain the accounting process and golden rules of accounting.

Accounting Process:

Identifying financial transactions.
Recording in the journal.
Classifying in ledger accounts.
Summarizing into trial balance and final accounts.
Interpreting the results.

Golden Rules of Accounting:

Type of Account	Debit (Dr.)	Credit (Cr.)
Personal	The receiver	The giver
Real	What comes in	What goes out
Nominal	All expenses and losses	All incomes and gains

Unit 3: Journal and Ledger

Q: Define Journal and Ledger. Explain the process of posting from journal to ledger.

Journal is the book of original entry where transactions are recorded chronologically.
Ledger is the book of secondary entry which contains classified records of transactions.

Journal Format:

Ledger Format:

Posting: Transferring debit/credit from journal to appropriate ledger accounts.

Unit 4: Accounting Standards

Q: What are accounting standards? Explain their significance and give examples.

Accounting standards are written policy documents issued by ICAI in India that ensure transparency and uniformity in financial statements.

Importance:

Comparability
Consistency
Reliability
Legal compliance

Examples of Indian AS:

AS-1: Disclosure of Accounting Policies
AS-2: Valuation of Inventories
AS-10: Fixed Assets

🔵 BLOCK 2: Final Accounts

Unit 5: Trial Balance

Q: What is a trial balance? What are its objectives and limitations?

A Trial Balance is a statement showing debit and credit balances of ledger accounts to verify arithmetic accuracy.

Objectives:

To check correctness of ledger postings.
Basis for preparing final accounts.

Limitations:

It does not detect errors of omission, principle, and compensating errors.

Unit 6: Final Accounts of Sole Proprietor

Q: Explain the structure and purpose of Final Accounts of a sole trader.

Structure:

Trading A/c – Calculates Gross Profit = Sales – COGS
Profit & Loss A/c – Calculates Net Profit = Gross Profit – Operating Expenses
Balance Sheet – Shows financial position = Assets = Liabilities + Capital

Unit 7: Adjustments in Final Accounts

Q: What are adjustments? Explain the treatment of common adjustments.

Common Adjustments:

Outstanding Expenses – Add to expenses & show as liability.
Prepaid Expenses – Deduct from expenses & show as asset.
Accrued Income – Add to income & show as asset.
Depreciation – Charge to P&L & deduct from asset.
Bad Debts – Charge to P&L & deduct from debtors.

🔵 BLOCK 3: Depreciation and Provisions

Unit 8: Depreciation Accounting

Q: Define depreciation. Explain its causes and methods.

Depreciation is a systematic reduction in the value of fixed assets due to usage or time.

Causes:

Wear & tear
Obsolescence
Time
Depletion

Methods:

Straight Line Method
Formula: (Cost – Scrap Value)/Life
Diminishing Balance Method
Depreciation = Book Value × Rate%

Unit 9: Provisions and Reserves

Q: Differentiate between provision and reserve.

Basis	Provision	Reserve
Purpose	For known liability	For strengthening financials
Timing	Made before profit	Made after profit
Compulsory	Yes (e.g., bad debts)	No

Examples:

Provision for doubtful debts
General Reserve

🔵 BLOCK 4: Special Accounts

Unit 10: Bank Reconciliation Statement (BRS)

Q: What is BRS? Why is it prepared?

BRS is a statement that reconciles the difference between bank balance in cash book and passbook.

Causes:

Cheque issued but not presented
Cheque deposited but not cleared
Bank charges, interest, dishonour of cheque

Unit 11: Bills of Exchange

Q: Explain the features and parties of a bill of exchange.

Parties:

Drawer – Creator
Drawee – Accepts the bill
Payee – Receiver of amount

Features:

Written instrument
Unconditional order
Definite amount and date

Unit 12: Consignment

Q: What is consignment? Differentiate it from sale.

Consignment is the act of sending goods by the consignor to consignee for sale on behalf of consignor.

Basis	Consignment	Sale
Ownership	Retained by consignor	Transfers to buyer
Risk	On consignor	On buyer

Unit 13: Joint Venture

Q: What is joint venture? How is it different from partnership?

Joint Venture is a temporary business agreement between two or more parties for a specific project.

Methods:

Separate set of books
Memorandum joint venture a/c

🔵 BLOCK 5: Partnership Accounts

Unit 14: Fundamentals of Partnership

Q: What are the key features of partnership and contents of a deed?

Features:

Agreement between two or more persons
Profit sharing
Mutual agency
Unlimited liability

Partnership Deed Includes:

Capital
Profit sharing ratio
Interest on capital/drawings
Salary to partners

Unit 15: Admission of a Partner

Q: Explain the accounting treatment on admission of a new partner.

Adjustments:

New Profit-Sharing Ratio
Goodwill – Premium brought in or adjusted
Revaluation of Assets and Liabilities
Adjustment of Capitals

Unit 16: Retirement and Death of a Partner

Q: Explain the steps involved in retirement/death of a partner.

Calculate new ratio
Adjust goodwill and revaluation
Settle retiring/deceased partner’s capital
Transfer of profit till date of death

Unit 17: Dissolution of Partnership Firm

Q: What are the steps and accounts prepared at the time of dissolution?

Steps:

Realisation A/c – For closing assets/liabilities
Partners’ Capital A/c
Cash/Bank A/c

Order of payment:

Outside liabilities
Partners’ loans
Partners’ capital

Personal Finance

Enotes