BCA 2nd Semester ECO-02 ACCOUNTANCY-1 NOTES
                     BCA 
2nd SEMESTER
E.C.O.-02
ACCOUNTANCY-1 
NOTES
BY:- Bright Education Hub
BLOCK-I
ACCOUNTING 
FUNDAMENT
ALS
Unit-1. Basic Concepts of 
Accounting
Define Accounting:- 
 According to the American Accounting Association, 
“Accounting is the process of identify, measuring and 
communicating economic information to permit informed 
judgments and decision by users of the information.”
 According to G.A. Lee, “The Summarizing from time-to-
time of the information contained in the records, its 
presentation in a significant form to interested parties, 
and its interpretation as an aid to decision making by 
these parties.”
Objectives of Accounting:-
1) To Maintain Records of business by preparing financial 
statements, their analysis and interpretation.
2) To Ascertain Profit or Loss by preparing profit & loss 
account.
3) To Depict the Financial Position from the balance sheet of 
the firm.
4) To Portray the Liquidity Position with the help of 
Accounting Ratios.
5) Control over the Property and Assets of the Firm.
6) To File Tax Returns Both direct & indirect.
7) To make Financial Information available to various Groups 
and Users.
Parties Interested in Accounting
It helps them to:-
 To study the present position of business.
 To compare its present performance with that of its past 
year.
 To compare it performance with that of similar 
enterprise's.
 Owners & Shareholders
 Managers
 Lenders
 Creditors
 Prospective Investors
 Tax Authorities
 Employees
 Owners & Shareholders:- They are interested in 
knowing the amount of profit earned by business and also 
in to the financial position.
 Managers:- It helps them to plan, control and 
evaluate all business activity. They also need such 
information for making various.
 Lenders:- When business requires more funds, they 
are usually provided by banks and other lander of money.
 Creditors:- Who supply good & services an credit are 
creditors, Like Lenders, they to wants to know about the 
credit worthness of the enterprises. This helps them to 
determined the limits up to which credit can be granted.
 Prospective Investors:- A person who wants to 
become a partner in a farm or person who want to 
become a shareholder of a company, would like to know 
safe and rewarding the proposed now investment would 
be.
 Tax authorities:- Tax authorities of the government 
(govt.) are interested in the financial state so as to 
assess the tax liabilities of the enterprises.
 Employees:- These are interested in known to the 
state of affairs of the organisation in which they are 
working, so to know how to safe there interests in the 
organisation. 
Accounting VS. Accountancy
Body of knowledge (consisting of principles, postulates, 
assumptions, conventions, concepts and rules) governing 
the science of recording classifying and analysing financial 
transactions is accounting, whereas the practice of the art 
and science of accounting is termed as accountancy. To 
meet the ever increasing demands made on accounting by 
different interested parties (such as owners, management, 
creditors, taxation authorities etc.)
Branches of Accounting
In order to meet the ever increasing demands made on 
accounting by different interested parties various branches 
of accounting have come into existence.
Branches of Accounting
Fiinanciiall  
Accounttiing
Costt  
Accounttiing
Manageme
ntt  
Accounttiing
Branches of Accounting
In order to meet the ever increasing demands made on 
accounting by different interested parties the various 
branches of accounting have come into existence.
1.Financial Accounting 
The purpose of this Branch of accounting is to keep 
records of all financial transaction so that. 
 Profit earned or loss increased by the business 
during an accounting period can be worked 
out.
 The financial position of the business as at end 
of the accounting period can be ascertained.
 The financial information required by the 
management and other interested parties can 
be provide.
 It is mainly confirmed  to the preparation of 
financial statement and their communication 
to the interested parties.
2.Cost Accounting
 Purpose of this accounting is to analysis the 
expenditure.
 Ascertain the cost of various product 
manufactured by the firm and fix the price.
 It also helps in controlling the cost and providing 
necessary costing information to management for 
decision making.
3. Management Accounting
 Purpose of this management accounting is to 
assist the management in taking rational policy 
decision, and to evaluate the impact of its 
decisions and actions. EX:- Pricing decision, 
make or buy decision. Capital expenditure 
decisions etc.
 It may help them in cash decisions and also in 
planning & controlling business operations.
 The necessary accounting information about 
funds, costs, profits etc.
Advantages Of Accounting
1..  
Repllaccess  
10..  Accttss  ass  memorry 2..  Prroviidess  
rrelliiablle  cconttrroll  
eviidencce overr  assssettss
9..  3..Facciilliittattess  
Assccerrttaiinii tthe  
ng  vallue  r
f prepar
rattiion  
of  ofs f 
 fifinancciiall  
busiinessss ssttattementt
8..  Tax  
matttterrss 4..  Meettss  tthe  
iinfforrmattiion  
Requiirrementt
7..  Diiffifficculltt  
ss
tto  cconcceall  
ffrraud  orr  
tthefftt 6..  Assssettss  5.
.  Facciilliittattess  
tthe  a  
manageme ccomparrattiive  
ntt  iin  many  ssttudy
ottherr  wayss
1.Replaces Memory :-
All the financial events are recorded in the books, 
there is no need to rely on memory. The books of 
account will serve as historical record. Any 
information required at any time can be easily had 
from these records.
2. Provides Control over Assets :-
Accounting provides information regarding cash in 
hand, cash at bank, the stock of goods, the amounts 
receivable from various parties and the amounts 
invested in various other assets. Information about 
such matters help the owners and the management 
to make use of the assets in the best possible way.
3. Facilitates the Preparation of 
financial statements :-
With the help of information contained in the 
accounting records the Profit & Loss account and the 
Balance Sheet can be easily prepared. These financial 
statements enable the businessman to know the Profit 
& Loss & Financial position of business.
4.Meets the Information 
Requirements:-
Various interested parties such as owners, lenders, 
creditors, etc. Get the necessary information at 
frequent intervals which help them in their decision 
making.
5. Facilitates a Comparative 
Requirements/Study:-
It helps them to compare the present performance 
of the enterprise. This enables the management to 
draw useful conclusions about the business and 
make efforts to improve the performance.
6. Assets the Management in many 
other way:-
The accounting information provided to the 
management helps them in taking rational decisions 
and in planning and controlling all business 
activities.
7. Difficult to Conceal Fraud or 
Theft:-
It is difficult to conceal fraud, theft etc., because of the 
periodic balancing of books of account. In big 
organisations the Book-Keeping work is divided among 
many persons which minimises the chance for 
committing fraud.
8. Tax Matters:-The Government levies/takes 
various taxes Such as:-customer duty, excise duty, 
sales tax, and income tax. Accounting records will help 
in the settlement of all tax matters with the tax 
authorities.
9. Ascertaining value of 
Business :- In the event of sale of a business 
firm, the accounting records will help in ascertaining 
the correct value of business.
10. Acts, as Reliable Evidence:- 
Systematic records of business transactions is 
generally treated by courts as good evidence in 
case of disputes.
Business Concept
SSeeppaarraattee  LLeeggaall  
EEnnttiittyy
Moonneeyy  Gooiinngg  Coonncceerrnn  
Meeaassuurreemeenntt  Coonncceepptt
Coonncceepptt
Obbjjeeccttiivvee  EEvviiddeennccee  Duuaall  Assppeecctt  
Coonncceepptt Coonncceepptt
Coosstt  Coonncceepptt Hiissttoorriiccaall  
Reeccoorrdd  Coonncceepptt
Business Entity Concept
A unit of organised business activity. In that sense, a 
provision store, a cloth dealer, an industrial 
establishment, an electricity supply undertaking, a 
book, a school, a hospital, etc. Are all business entities.
Money Measurement Concept
Usually , business deals in a variety of items having 
different physical units such as Kilograms, Quintals, 
Tans, Meters, Liter, etc. We need a common unit of 
measurement.
Money does this function. It is adopted as the common 
measuring unit for the purpose of accounting. All 
recording, therefore, is done in terms of the standard 
currency of the country where business is setup.
Objective Evidence Concept
The term objectivity refers to being free from bias or 
free from subjectivity. Accounting measurements are 
to be unbiased and verifiable independently.
Historical Record Concept
According to the historical record concept, we record 
only those transactions which have actually taken 
place and not those which may take place. It is 
because accounting record presupposes. That the 
transactions are to be identified and objectively 
evidenced.
Cost Concept
Business activity, in essence, is an exchange of money. 
The price paid (or agreed to be paid in case of a credit 
transaction) at the time of purchase is called cost. 
According to the cost concept, all assets are recorded 
in books at their original purchase price. This cost also 
forms an appropriate basis for all subsequent 
accounting for the assts.
Dual Aspect Concept
This is a basic concept of accounting. According to this 
concept every business transaction has a two-fold 
effect. In commercial context it is a famous dictum that 
“Every receiver is also a giver and every giver is also a 
receiver”.
For Example:-
1. If you purchase a machine for Rs.8000, you receive 
machine on the one hand and give Rs.8000 on the 
other hand.
 This transaction has a two-fold i.e.,
(i) Increase in one assets &
(ii) decrease in another asset.
{In case of this example you find that the 
receiving aspect in machinery and the giving 
aspect is cash.}
Systems Of Book Keeping:-
Book Keeping as explained earlier is the art of 
recording business transactions in a systematic 
manner. There are two types of Book Keeping.
1. Double Entry System
2. Single Entry System
3. Double Entry System:-
The double entry system ensures that for every 
single debit entry, a corresponding credit entry must 
be recorded while every credit entry is completed by 
filing a similar debit entry, which means that each 
entry has an opposite entry.
This equality is called “Balance Sheet Equation” OR 
“Accounting Equation”. It is stated as under:
Liabilities (Equities) = Assets
OR
Capital + Outside Liabilities = Assets
 There are two types of Equities:-
 Owners Equity  {Capital}
 Outsider Equity {Liabilities}
Advantages of Double Entry System
1. It provides complete and reliable record of all 
business transactions because it records both the 
aspect.
2. It supplies full information about the incomes, 
expenses, assets and liabilities if the business. It 
helps to the management in taking appropriate 
decisions.
3. It gives the results of business activities either 
profit & Loss during the accounting period.
4. The financial result of business organisations, 
Profit & Loss, can be correctly ascertained.
5. The financial position of the business can also be 
ascertained at any point of time.
2. Single Entry System :-
The single entry system is a method of recording 
financial transactions where only one entry is marked 
for either a debit entry or credit entry for a specific 
operation.
For Example:-
If a customer pays cash to the enterprise, either cash 
account will be credited, or debtor account will be 
debited.
What is Account?
An Account is the summarised record of transaction 
applicable to person, property, liability, income or 
expenditure. A separate page is allotted for a 
particular account and only transactions affecting it 
are written in that page. The page is divided into 
two sides. The left hand side of an account is called 
debit side (Dr.) and the right hand side is called the 
credit side (Cr.)Transactions involving receipts and 
payments of cash affect the cash balance.
Dr. Cr.
Types of Accounts
Personall  
Accounts
Reall  Nomiinall  
Accounts Accounts
Personal Accounts
Accounts which shows transactions with persons are 
called “Personal Accounts”. A separate account is 
kept in the name of each person for recording the 
benefits received from, or given to, the person in the 
course of dealings with him. Examples are:- 
Krishna’s Account, Gopal’s Account, Loan from Ratan 
Lal’s Account etc.
Types of Personal’s 
Accounts
Natturall  Person’’s  
Personall  Accountts
Arttiifificiiall  Person’’s  Representtattiive  
Personall  Accountts Person’’s  Personall  
Accountts
I. Natural Person’s Personal Accounts:- The 
accounts recording transactions relating to 
individual human beings. Eg:- Krishna’s Account, 
Gopal’s Account.
II. Artificial Person’s Personal Accounts:- The 
accounts recording transactions relating to limited 
companies etc. Eg:- Delhi University College.
III.Representative Person’s Personal 
Accounts:- The accounts recording transactions 
relating to the expenses and incomes are 
classified as nominal accounts. Eg:- “Wages Out-
stading Account”, “Pre-Paid Insurance Accounts”.
Real Accounts
Accounts related to properties or assets are known as 
“Real Account”. Real Accounts are also called property 
accounts as they record the transactions of business 
related to properties, assets or possession Eg:- cash, 
goods, furniture, machinery, bank account etc.
Nominal Accounts
Accounts related to expenses, losses, incomes and gains 
are known as “Nominal Accounts”. These are accounts 
that record transactions relating to expenses, losses, 
incomes or gains of the business. A separate account is 
opened for each head of expense, such as :- Salary, 
Rent, Wages, Stationary, Interest, Discount etc. & also 
for incomes such as:- Commision, received, Divided 
received, Discount etc.