SimonMash.com | Kerala Plus One & Plus Two Study Notes, Question Papers, Answer Keys, Resources

CHAPTER 9: FINANCIAL STATEMENTS – II – MICRO NOTES NEED FOR ADJUSTMENTS Reason: Accrual basis of accounting – revenue recorded when earned, expenses when incurred, regardless of cash flow. Adjustments ensure true profit/loss and correct financial position. Two-fold effect: Each adjustment affects both the Income Statement (P&L A/c) and the Balance Sheet. CLOSING STOCK Meaning: Unsold goods at year-end. Given as adjustment outside Trial Balance. Entry: Closing Stock A/c Dr.; To Trading A/c. Treatment: Credited to Trading A/c; shown as Current Asset in Balance Sheet. OUTSTANDING EXPENSES Meaning: Expenses incurred but not yet paid. Entry: Concerned Expense A/c Dr.; To Outstanding Expense A/c. Treatment: Added to expense in P&L A/c (debit side); shown as Current Liability in Balance Sheet. PREPAID EXPENSES Meaning: Expenses paid in advance, benefit in next period. Entry: Prepaid Expense A/c Dr.; To Concerned Expense A/c. Treatment: Deducted from expense ...

CHAPTER 8: FINANCIAL STATEMENTS – I – MICRO NOTES STAKEHOLDERS & THEIR INFORMATION REQUIREMENTS Internal: Owners (profit, ROI), Managers (planning, control), Employees (bonus, job security). External: Investors (buy/sell shares), Creditors/Banks (creditworthiness), Government (tax, compliance), Customers (supply continuity), Researchers (analysis). DISTINCTION: CAPITAL vs REVENUE Capital Expenditure: To acquire fixed assets/improve earning capacity; benefit >1 year; non-recurring; shown in Balance Sheet (Asset). Examples: Purchase machinery, installation, legal fees for property. Revenue Expenditure: To maintain earning capacity/daily ops; benefit within 1 year; recurring; transferred to Trading/P&L. Examples: Wages, rent, repairs, salaries. Capital Receipts: Create liability or reduce asset; non-recurring; not credited to P&L. Examples: Capital introduced, loan, sale of fixed asset. Revenue Receipts: From regular ops; recurring; credited to P&L. Examp...

DEPRECIATION – MEANING & DEFINITION Definition (AS-6): Measure of wearing out, consumption or loss of value of a depreciable asset arising from use, effluxion of time or obsolescence. A non-cash expense. Applicable to: Fixed Assets (tangible). Related Terms: Depletion (natural resources – mines), Amortisation (intangible assets – patents, copyrights). Exam Q (1 mark – 2021 March): Depreciation is charged on? (b) Fixed Assets. CAUSES OF DEPRECIATION Wear & tear (use), Expiration of legal rights (patents), Obsolescence (technological change), Abnormal factors (accidents, fire). NEED / OBJECTIVES OF PROVIDING DEPRECIATION Matching costs & revenue (true profit), True & fair financial position (asset not overvalued), Tax deduction (IT Act), Retain funds for replacement, Legal compliance (Companies Act). FACTORS AFFECTING DEPRECIATION Cost of Asset: Purchase price + all expenses to bring to working condition (freight, installation). Estimated Net Residual Valu...

CHAPTER 6: TRIAL BALANCE AND RECTIFICATION OF ERRORS – MICRO NOTES TRIAL BALANCE – MEANING & OBJECTIVES Definition: Statement listing all ledger accounts with their debit/credit balances to verify arithmetical accuracy of posting. Not part of final accounts, but a verification tool. Objectives: Check arithmetical accuracy, help locate errors, aid preparation of financial statements (Trading, P&L, Balance Sheet). Note: Tallied Trial Balance does NOT guarantee no errors (errors of principle, omission, compensating may exist). Exam Q (1 mark – 2021 Imp): Not an objective of Trial Balance? (b) To know the financial position of the business. METHODS OF PREPARING TRIAL BALANCE 1. Total Method: Totals of debit & credit sides of each account are taken. Rarely used. 2. Balance Method (Most common): Balances of each account placed in appropriate column. Assets, expenses, receivables = Debit balances; Liabilities, capital, revenues = Credit balances. 3. Totals-cum-Bala...

MEANING & NEED FOR BRS Definition: Statement prepared by customer to explain reasons for difference between Cash Book (bank column) balance and Pass Book (Bank Statement) balance on a given date. Need/Objectives: Identify causes of difference, know correct bank balance, detect errors/frauds, prevent unnecessary overdraft, verify bank's records. CAUSES OF DIFFERENCE A. Timing Differences: Cheques issued but not presented (CB lower). Cheques deposited but not credited (CB higher). Interest/dividend collected by bank (PB higher). Bank charges/interest on overdraft (PB lower). Direct deposit by customer (PB higher). Direct payment by bank (insurance, etc.) (PB lower). Dishonour of cheque/bill (PB lower). B. Errors: In cash book (wrong totalling, omission, double entry) or passbook (rare). PREPARATION RULES When Starting from Cash Book (Favourable) Add (+) Deduct (–) Cheques issued not presented, Interest credited, Direct deposit, Dividend collected Cheques depo...

SPECIAL PURPOSE BOOKS (SUBSIDIARY BOOKS) Meaning: Journals divided for specific transaction types when volume is large. List: Cash Book, Purchases Book, Purchases Return Book, Sales Book, Sales Return Book, Bills Receivable Book, Bills Payable Book, Journal Proper. Advantages: Division of labour, specialisation, quick information, easy error detection, time-saving (posting from totals). CASH BOOK Single Column: Records only cash transactions. Always shows debit balance (cash in hand). Double Column (Bank): Records cash & bank. Two columns each side. Contra Entry (C) affects both cash & bank (cash deposited/withdrawn). Petty Cash Book (Imprest System): Fixed imprest amount given; reimbursed exact spent at period end. Records small payments (postage, stationery). Dishonour of Cheque: Reverse entry – Dr. Customer A/c, Cr. Bank. PURCHASES BOOK & PURCHASES RETURN BOOK Purchases Book: Records credit purchases of goods (for resale). Source: Invoice. Net amount a...

SOURCE DOCUMENTS & ACCOUNTING VOUCHERS Source Documents: Written evidence of a transaction (Cash Memo, Invoice, Cheque, Pay-in-slip). No entry without source document. Accounting Vouchers: Format showing which account to debit/credit. Types: Cash (receipt/payment), Non-Cash/Transfer (credit), Debit (expense), Credit (income), Transaction (one debit one credit), Complex/Journal (multiple debits/credits). ACCOUNTING EQUATION Formula: Assets = Liabilities + Capital. Also: Assets – Liabilities = Capital; Assets – Capital = Liabilities. Always remains balanced. Example: Started business with ₹5,00,000 cash → Assets (Cash) ₹5,00,000 = Liabilities 0 + Capital ₹5,00,000. RULES OF DEBIT & CREDIT (MODERN APPROACH) Account Type Debit Credit Assets Increase (+) Decrease (–) Liabilities Decrease (–) Increase (+) Capital Decrease (–) Increase (+) Expenses/Losses Increase (+) Decrease (–) Revenues/Gains Decrease (–) Increase (+) JOURNAL – BOOK OF ORIGINAL ENTRY Format: ...

CHAPTER 2: THEORY BASE OF ACCOUNTING – MICRO NOTES GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES) Meaning: Common set of accounting rules, standards & procedures for uniform financial statements (grammar of accounting). Necessity: Ensures uniformity, comparability, reliability. Investors & banks can trust & compare statements. BASIC ACCOUNTING CONCEPTS (13) 1. Business Entity Concept: Business & owner are separate. Owner's investment = Capital (liability). Drawings reduce capital. 2. Money Measurement Concept: Only transactions measurable in money are recorded (sale of goods – yes; talented CEO – no). 3. Going Concern Concept: Business will continue indefinitely. Assets depreciated over life, not expensed fully in purchase year. 4. Accounting Period Concept: Life divided into artificial periods (usually 1 year) to know periodic profit/loss. 5. Cost Concept (Historical Cost): Assets recorded at purchase price, not market value. Land bought for ₹10L ...

CHAPTER 1: INTRODUCTION TO ACCOUNTING – MICRO NOTES MEANING & DEFINITION Accounting: Financial diary for businesses – records money activities, tracks profit/loss, aids decisions. AICPA (1941): Art of recording, classifying & summarising financial transactions & interpreting results. AAA (1966): Process of identifying, measuring & communicating economic information for informed decisions. History: Luca Pacioli (1494, Venice) wrote first book on double entry – used Debit (debito) & Credit (credito). ACCOUNTING AS INFORMATION SYSTEM (8 STEPS) Identification → Measurement → Recording → Classification → Summarising → Analysis → Interpretation → Communication Correct Sequence (Exam Q): Identifying, Recording, Classifying, Summarising. OBJECTIVES OF ACCOUNTING Record keeping (systematic), Profit/Loss calculation, Financial position (Balance Sheet), Information for users, Legal compliance (tax), Management help (decisions). USERS OF ACCOUNTING INFORMATION ...