1) Tips for Effective Revision Using the Video Resources

2) READ INSTRUCTIONS CAREFULLY

2) AFTER THAT FIRST WATCH QUICK REVISION LECTURES & THEN SOLVE RTP'S, MTP'S & PAST EXAM PAPERS AS PER DAY WISE TIME TABLE GIVEN BELOW.

3) MAKE PROPER NOTES & PREFERABLY WATCH LECTURES EARLY MORNING.

4) DAYWISE LECTURES TIME TABLE WITH NO OF LECTURES TO BE WATCHED & TIMING IS MENTIONED BELOW. TIME IS MENTIONED AFTER LECTURE NUMBER.  

READ, LEARN & WRITE THEORY QUESTIONS TO SCORE FULL MARKS

 UNIT 1 ACCOUNTING POLICIES

MEANING
Accounting policies refer to specific accounting principles and methods of applying these principles adopted by the enterprise in the preparation and presentation of financial statements. There cannot be a single list of accounting policies which are applicable to all the enterprises in all circumstances. The management of each enterprise has to select appropriate policy depending on the nature and circumstances of a business.

The areas in which different accounting policies are frequently encountered are:
 Valuation of inventories
 Treatment of goodwill
 Valuation of investments
 Valuation of fixed assets, etc.

Note: The above mentioned list is just illustrative and not exhaustive. The method which is actually followed in preparation of financial statement is disclosed as accounting policies. They are to be treated as separate from each other.

CONSIDERATIONS IN THE SELECTION OF ACCOUNTING POLICIES
The primary consideration in selecting accounting policy is to prepare and present financial statement a way that it gives a true and fair view of an enterprise. The main considerations in selecting accounting policies are:
 Prudence: Many transactions in business take place under some uncertainty. These uncertainties should be recognised by following the prudence principle. Prudence means conservatism, which states, provide for all expected losses but never for anticipated profits. As per this assets and income should not be overstated and liabilities and expenses should not be understated. All the uncertainties and their nature should be disclosed so that it helps in proper decision making.
 Substance over form: According to this concept, only the economic substance of transactions and events must be recorded in the financial statements rather than just their legal form in order to present a true and fair view of the affairs of the entity. Substance over form is critical for reliable financial reporting. It is particularly relevant in case of revenue recognition, sale and purchase agreements, etc.
Example: If the enterprise purchases a land for business purpose and makes the payment on 25th March but the registration of the same takes place on 10ih April, in such case the purchase of land should be recorded even though the ownership on papers is with the original owner of the land as on year ended 31st March.
 Materiality: Financial statements should disclose all the material items, which influence the decision of the users of the financial statements.

CHANGE IN ACCOUNTING POLICY
Change in the accounting policy should be made under the following conditions:
 If it is required by the statute
 If required for compliance with an Accounting Standard
 If the change would result in a more appropriate presentation of financial statements
Example: If depreciation method is changed from straight line method to written down value method, then it amounts to a change in accounting policy.

SUMMARY
 Accounting policies refer to specific accounting principles adopted by the enterprise in the preparation and presentation of financial statements

 Selection and application of accounting policies are based on three characteristics: prudence, substance over form & materiality

 A change in the accounting policy can happen If:
- Required by statute
- Required for compliance with Accounting Standards
- Change results in a more appropriate presentation of financial statement

LECTURE LINK

https://youtu.be/hlK6-Fb7_eM?si=I3vdBQYmymEo3GXx
 

 UNIT 2 CONTINGENT ASSETS & LIABILITIES

CONTINGENCY
Contingency is a situation, the ultimate outcome of which, gain or loss, will be known or determined only on happening or non-happening of one or more uncertain future events.

CONTINGENT ASSET
Possibility of economic benefit that could arise from past events, which is not within the control of the enterprise, is known as contingent asset. The actual benefit arising will be confirmed only on the happening or non-happening of some uncertain future event/events.
 Disclosure: Contingent assets should not be disclosed in the financial statements but may be disclosed in the report of the Board of Directors. Contingent assets are not recognized in financial statements because this may result in the recognition of income that may never be realized and may not comply with law of conservatism.

Example: Expected gain from a legal proceeding.

Note: Contingent assets usually arise from unplanned or rather unexpected event/events that give rise to the possibility of an inflow of economic benefits to an enterprise. If the realization of an income is certain, then it is not a contingent asset and the same shall be recognized in the financial statements.

CONTINGENT LIABILITY
Possibility of obligation arising from past events, which is not within the control of the enterprise, is known as contingent liabilities. The actual obligation arising/which might arise will be confirmed only on the happening or non-happening of some future uncertain event/events.
 Disclosure: As required by AS-29, a contingent liability should be disclosed in foot note of financial statement, unless the possibility of an outflow of resources is remote.

Example: An outstanding law suit.

Note:
• Possible obligation is always a contingent liability, whereas present obligation becomes a contingent liability if the recognition criteria of a provision are not satisfied
• Contingent liability is a possible obligation which arises from past events
• Contingent liability has no impact on profits for that period

DISTINCTION BETWEEN LIABILITY AND CONTINGENT LIABILITY

1) Definition

A liability is a present obligation which arises from past events.

A contingent liability is a future obligation which may arise from past events.
2) Measurement

A liability can be measured with sufficient reliability

A contingent liability cannot be measured with sufficient reliability

3) Part of Balance Sheet

A liability is disclosed on the Liability side of the Balance Sheet and hence, it is a part of the Balance Sheet

A contingent liability is not a part of the Balance Sheet. It is disclosed by way of a foot note in the Balance Sheet

DISTINCTION BETWEEN CONTINGENT LIABILITY AND PROVISIONS

1) Definition

A contingent liability is not a liability as it is not apparent that an outflow of resources embodying economic benefit will be required to settle the obligation

A provision is a liability which can be measured with some estimation. It is a reliable estimate of a probable outflow of resources to
settle a present obligation.

2) Recognition

A contingent liability has no recognition in the books of accounts

A provision is recognised in books of accounts

3) Disclosure

A contingent liability is disclosed as required by AS-29

For provision, the following are disclosed:
 Opening and closing balance
 Additions during the year
 Amount used during the year
 The unused amount is reversed during the year.

SUMMARY
 Contingency is a situation, the ultimate outcome of which is, either gain or loss, will be known or determined only on happening or non-happening of one or more uncertain future events.
 Contingent assets is a possible economic benefit which may arise from past events
 Contingent liability is a possible obligation which arises from past events. Contingent liability has no impact on profits for the period
 Contingent asset and Contingent liabilities should be disclosed as a foot note in the financial statement.
 Provision is a present liability of a certain/uncertain amount.

LECTURE LINK 

LECTURE 1: https://youtu.be/Tn3iX3miPTU?si=TOsu9E66izJc_Erh

LECTURE 2: https://youtu.be/B6QOEYcGqE4?si=EdQvs_xqfSDIyuRb

 UNIT 3 ACCOUNTING AS A MEASUREMENT, DISCIPLINE, VALUATION PRINCPLE, ACCOUNTING ESTIMATES.

MEASUREMENT
Measurement is vital aspect of accounting. Primarily transactions and events are measured in terms of money. According to Prof. R.J. Chambers 'To measure is to "assign numbers to objects and events according to rules specifying the property to be measured, the scale to be used and the dimension of the unit'.
On analyzing this definition, we can understand any measurement discipline deals with three basic elements of measurement
 Identification of an object and the event to be measured
 Selection of standard or scale to be measured
 Evaluation of dimension of measurement standard or scale

ELEMENTS OF MEASUREMENT PRINCIPLE
 Identification of objects and events to be measured: As the basic objective of accounting is to systematically record the financial aspects of business transactions, classify, summarise and communicate the information to the various users. Every enterprise will need to measure its performance.
There is no uniform set of events or transactions that are required for decision making but, to take the decision about the unseen future the decision makers need suitable information. The objects or events to be measured include measurement of information which may be past, present or future.

For example, for giving loan to a business one needs information regarding the repaying ability, past track record of repayment, future projections etc.

Note: It may be noted that the future transacts or events are only predicted but no, measured. Past and present transactions or events can be measured with some degree of accuracy
 Selection of standard or scale to be used: Money is the scale of measuring business performance, 

For example: when a business sells 10 mobiles it does not record sale of 10 mobiles but it records sale of 10 mobile at Rs. 10,000/- each, i.e. sale of mobile worth Rs 1,00,000/-. It takes the shape of the currency ruling in a country. Also, there is no constant exchange relationship among the currencies. Like the scale of measurement in India is Rupee, in U.K. is Pound-sterling, in US its dollars, etc.

Note: Money as a unit of measurement lacks universal applicability, moreover the rate of exchange fluctuates between two currencies from time to time, and money as measurement scale also becomes unpredictable.

 Evaluation of dimension of measurement standard or scale: Business performance is measured in terms of money earned. An ideal measurement scale should be stable over time. Money is not stable in the dimension for comparison over time as the same amount of money may not be able to buy the same quantities of identical goods at different periods. Thus, the information of one year measured in terms of money may not be comparable with that of another year.

ACCOUNTING AS A MEASUREMENT DISCIPLINE
 Accounting information measures performance of a business entity by way of profit or loss and shows its financial position. Thus, measurement is an important part of accounting discipline Accounting is not an exact measurement discipline because accounting measures information mostly in terms of money which is not a stable scale, does not have universal applicability, is not stable in dimension for comparison over time.
As measurement is an important part of accounting discipline, a set of theorems which govern the measurement system such as going concern, consistency and accrual concept should be care-fully understood.

VALUATION PRINCIPLE
Value relates to the benefits to be derived from objects, abilities or ideas. There are 4 generally accepted measurement based on valuation principle.
 Historical cost
 Current cost
 Realisable value
 Present value

Historical Cost
 All fixed assets are recorded at the actual purchase price or acquisition price by following the principle of historical cost.
Example: Manoharlal purchased a machinery by paying Rs. 8,00,000 when the actual price of the machinery is Rs. 10,00,000, Here, the historical cost is only Rs. 8,00,000 which is the price paid for acquiring the machine.

 Liabilities arc recorded at an amount payable of proceeds received in exchange of the obligation.
Example: When Mr. Manoharlal a businessman, takes Rs. 1,00,000 loan from a bank @ 12% interest p.a., it is to be recorded at the amount of proceeds received in exchange for the obligation being repayment of loan and payment of interest at an agreed rate. Proceeds received are Rs. 1,00,000 - it is historical cost of the transactions.

Current Cost
 Assets are carried out at the amount of cash or cash equivalent that would have to be paid if the similar asset was acquired currently.
Example: Raj purchased a machine at Rs. 8,00,000 on 01-01-2009. The similar machine if purchased now i.e. 2014, would costs Rs. 15,00,000. So as per current cost basis, the machine's value is Rs. 15,00,000.

 Liabilities are carried out at the undiscounted amount of cash or cash equivalent that would be required to settle the obligation currently

Realisable Value
 Realisable value is the amount of cash or cash equivalent that could currently be obtained by selling the asset in an orderly disposal
Example: Rachna purchased a machine at Rs. 8.00.000 on 01-01-2009. If she sells the machine, now in 2014 she will be getting Rs. 2,00,000. So the machine has to be recorded at Rs. 2,00,000 being the realisable value.

 Liabilities are carried at settlement values, i.e. the undiscounted amount of cash or cash equivalent to be paid

Present Value
 Present value is the present discounted value of the future net cash inflows that the asset is expected to generate in the normal course of business

 Liabilities are carried at the present discounted value of future net cash outflows expected to settle the liabilities in the normal course of business. 

Example: Shahid purchased a machine on 01-04-2002, and it is supposed to generate cash at Rs. 50,000 p.a. for the next 10 years at the rate of 10% p.a. The present value of future cash flows will be calculated as follows:

For soln refer class text book pg no.122.

Illustration 1
A Ltd. purchased a machine for Rs. 50,000 on 01-04-2010
i. A similar machine could be purchased for Rs. 60,000.
ii. The Same machine could be disposed off for Rs. 40 000.
iii. The present discounted value of the future net cash inflows that the machinery was expected to generate in the normal course of business is calculated at Rs. 75,000.

It signifies the following
i. Historical cost is Rs. 50,000
ii. Current cost is Rs. 60,000
iii. Realizable value is Rs. 40,000
iv. Present value is Rs. 75,000

MEASUREMENT AND VALUATION
Value relates to the benefits to be derived from objects, abilities or ideas. In economics, the value of an object, ability or idea is the utility of an economic resource to the person contemplating or enjoying its use. Economists use ordinal scale to indicate the level of satisfaction. In accounting, the value of an object, ability or idea is always measured in terms of money. Accountants use only cardinal scales.
Example: The statement 'the value of one pizza is Rs. 100 'follows cardinal approach while the statement' I give first preference to pizzas and second to burgers 'follows an ordinal approach.

ACCOUNTING ESTIMATES
Valuation principles help is evaluation of those transactions or events which has occurred. Items, which have not occurred, cannot be measured using valuation principles. However, it is necessary to record them too. Like for provision for doubtful debts on debtors. Accounting estimates are usually made in respect of doubtful debts, inventory obsolescence, residual value etc. If changes occur in the circumstances on which the estimates were based, accounting estimate may require revision. A change in accounting estimates means the differences arising between certain parameters estimated earlier & re-estimated during the current period, or actual results achieved during current period .

Example: On 30th September 2013 the provision for doubtful debts was Rs. 10,000, by the end of the current year i.e., 31st March 2012, a debt of Rs. 5 000 which was considered as doubtful was realised and hence there was a revision in the provision for doubtful debts. On 31-03-2014, the provision for doubtful debts was Rs. 5,000.

SUMMARY
 Though unstable, money is the scale of measurement in accounting
 The elements of measurement are: identification of events, selection of a scale and evaluation of dimension of scale
 Four valuation principles are
 Historical cost
 Current cost
 Realisable value
 Present value
 Accounting estimates are made for doubtful debts, inventory obsolescence, residual value, etc.

 UNIT 4 ACCOUNTING  STANDARDS

MEANING AND DEFINITION OF ACCOUNTING STANDARDS
Accounting Standards are written policy documents issued by an expert accounting body or by the government or any other regulatory body. It covers the aspects of recognition, treatment, measurement presentation and disclosure of accounting transactions and events in the financial statements.

Kohler defines accounting Standards as 'a code of conduct imposed on accountants by custom, law or professional body'

NEED AND DEVELOPMENT OF ACCOUNTING STANDARDS
Accounting is the language of a business which communicates the financial performance of the business to various users. It has to exhibit a true and fair view. If the financial accounting process is not properly regulated, then the financial statements may be misleading and may provide distorted picture of the business. There were different accounting concepts, conventions, customs, rules and practices prevailing in different nations, leading to misunderstanding, uncertainty and resulting in scandals and confusions.

In order to ensure a true and fair view, transparency, consistency, comparability and reliability of financial reports, a standardised set of rules and accounting principles were required. The International Accounting Standards Committee (IASC) came into existence on 29th June 1973 with 16 accounting bodies from 9 different nations to develop Accounting Standards.

OBJECTIVES OF ACCOUNTING STANDARDS
The Accounting Standards serve the following Objectives:
 To provide a standard- set of accounting policies, valuation norms and disclosure requirements, on basis of which financial statements should be prepared
 To make financial statements more meaningful and comparable
 To harmonise the diverse accounting policies and practices in order to ensure standardisation in the preparation of financial statement
 To enable the comparability of financial statements and thereby improve reliability and usefulness of the financial statements.

ADVANTAGES OF ACCOUNTING STANDARDS
 By adoption the Accounting Standards confusing variations in the accounting treatment used to prepare financial statements is reduced
 Accounting Standards describe the accounting principles, the valuation techniques and the method of applying accounting principle so as to ensure true and fair view
 Where important information is not statutorily required, Accounting Standards calls for its disclosure.
 Accounting Standards facilitate comparison of financial statements of companies in the same industry situated in different parts of the world
 Accounting Standards helps in resolving conflict of financial interest among various groups
 Accounting Standards helps the auditors in case of preparation of financial statement and any deviation can be disclosed in the reports so that the user is aware of such deviation.

LIMITATIONS OF ACCOUNTING STANDARDS
 Alternative solutions to certain accounting policies may each have arguments attached to them. So, the choice between different alternative accounting treatments becomes difficult
 Generally there is rigidity in applying the Accounting Standards
 The standards are required to be framed within the ambit of prevailing statutes. Accounting Standards cannot override the statute

OVERVIEW OF ACCOUNTING STANDARDS IN INDIA
In India, the Institute of Chartered Accountants of India (ICAI), being a premier accounting body in the country took upon itself, the leadership role by constituting the Accounting Standard Board (ASB) on 21st April, 1977. The main function of ASB is to formulate Accounting Standards so that such standards may be established in India by the council of the ICAI.
The council of the Institute of Chartered Accountants of India has, so far, issued thirty two Accounting Standards. However, AS 8 on "Accounting for Research and Development' has been withdrawn consequent to the issuance of AS 26 on 'Intangible Assets.' Thus effectively, there are 31 Accounting Standards at present. The 'Accounting Standards' issued by the Accounting Standard Board establish standards which have to be complied by the business entities so that the financial statements are prepared in accordance with "Generally Accepted Accounting Principles".

A list of Accounting Standards is given as follows:

AS 1 Disclosure of Accounting Policies
AS 2 (Revised) Valuation of Inventories
AS 3 (Revised) Cash Flow Statements
AS 4 (Revised) Contingencies and Events Occurring after the Balance Sheet Date
AS 5 (Revised) Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies
AS 7 (Revised) Accounting for Construction Contracts
AS 8 (withdrawn pursuant to AS 26
becoming mandatory) Accounting for Research and Development
AS 9 Revenue Recognition
AS 10 Property, Plant & Equipment
AS 11 (Revised) The Effects of Changes in Foreign Exchange Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS14 Accounting for Amalgamations
AS 15 (Revised) Employee Benefits
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 18 Related Party Disclosures
AS 19 Leases
AS 20 Earnings Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting for Taxes on Income
AS 23 Accounting for Inv in Associates in Consolidated Financial Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent Liabilities and Contingent Assets

SUMMARY
  Accounting Standards are written policy documents
  IASC was established in 1973, to provide a set of universally adopted accounting rules In India. ICAI works as counterpart of IASC
  The main objective of accounting standards is to ensure standardisation.
  Accounting Standards Board (ASB) had formulated 32 Accounting Standards. At present, there are effectively 29 Accounting Standards because AS30,31&32 has been withdrawn by ICAI due to non recognition of MCA.

 UNIT 5 ACCOUNTING CONCEPTS & CONVENTIONS

INTRODUCTION
Business uses accounting as its language and provides information about its financial performance to various internal and external users for decision making. In order to make accounting information meaningful, it is important that such information's are reliable as well as comparable. As accounting statements disclose the profitability and solvency of the business to various users it is important that such financial Statements should be prepared on B uniform basis according to some standard language and set of rules. These rules are usually called as 'Generally accepted accounting principles (GAAP)'.

ACCOUNTING PRINCIPLES
The standards which are laid down in order to follow uniformity are termed as accounting principles. The term 'Principle' is defined by American Institute of Certified Public Accountants (AICPA) as "A general law or rule adopted or professed as a guide to action, a settled ground or basis of conduct or practice".

CHARACTERISTICS OF ACCOUNTING PRINCIPLES
 Accounting principles are uniform set of rules or guidelines developed to ensure uniformity and easy understanding of the accounting information
 Accounting principles are man-made and are derived from past experience, usage or customs, statements by individuals and professional bodies and regulations by government agencies
 Accounting Principles are not static and are bound to change with the pass of time due to change in business practices, government policies etc.

Note: Accounting principles must satisfy the following conditions.
• They should be based on real assumptions
• They must be simple, understandable and explanatory
• They must be followed consistently

CLASSIFICATION OF ACCOUNTING PRINCIPLES
These principles can be classified into two categories:
 Accounting Concepts
 Accounting Conventions

ACCOUNTING CONCEPTS
Accounting concepts define the assumptions on the basis of which the financial statements of a business entity are prepared.
The following are the important Accounting concepts:

1) Separate entity concept: 

According to this concept, a business is treated as a separate entity and is distinct from its owners). 

In other words, the owner of the business is always considered as distinct and separate from the business he owns. While recording tansaction a distinction has to be made between persona transactor and business transactions and transaction have to be recorded from business point of view and never from the view point of owners. 

The concept of separate entity is applicable to all forms of business organizations.

Example: When a proprietor introduces capital in his own business, the capital is considered as liability from business point of view. Similarly, when he withdraws any money for personal use it is treated as reduction in liability of business.

Note: In case of a proprietary concern, though the sole proprietor is not considered separate from his own entity in the eyes of law, for the purpose of accounting, they are to be treated as separate from each other.

2) Money Measurement Concept:
According to this concept, only those transactions which are capable of being expressed in terms of money are included in the accounting records. In other words, the information which cannot be expressed in terms of money is not included in the books of accounts though they may be very useful to the business. 

For example, non monetary events like appointment of an employee, retirement of an accountant etc., are also material events but since it cannot be expressed in terms of money, they cannot be recorded. To make accounting records relevant, simple and understandable for the users, the different transactions expressed in different units are brought to a common unit of measurement i.e., money.

Note: Separate entity and money measurement concepts are considered as basic concepts.

3) Going Concern Concept:
It is also known as assumption of continuity. It is assumed that the enterprise has neither the intention nor the necessity to wind up the business in the foreseeable future. The financial statements are normally prepared on the assumption that an enterprise will continue to operate for a longer period in future. The valuation of assets of a business entity is dependent on this assumption and are recorded at their cost price and the market price or the realizable value of asset is not at all considered as the asset is meant for continuous use in business and not for selling them at profit. Without this concept, the classification of current and fixed assets and short and long term liabilities cannot be made and such classification would be difficult to justify.

4) Periodicity Concept
According to going concern concept, the business is intended to continue indefinitely for a long period, the true results of business operations can be ascertained only when the business is wound up. But the ascertainment of profit or loss and financial position of the business on liquidation will not be helpful to various users of accounting information in knowing the periodical progress or performance of the business. Hence, the economic life of an enterprise is artificially split into periodical intervals which are termed as accounting periods.
At the end of each accounting period, financial statements are prepared to show the performance and the position of the business. Usually, an accounting period will be of 12 months, of either calendar year ending 31st December every year or financial year ending 31st March every year. However, it may also be 3 months, 6 months or 9 months. This is also know as periodicity assumption or time period assumption.
This assumption helps in
 Comparing the financial statements of different periods
 Uniform and consistent accounting treatment for ascertaining the profit and net assets of the business.
 Matching periodic revenues with expenses for getting the correct results of the business operations.

5) Cost Concept
According to this concept, the asset acquired by a business concern in recorded in the books of accounts at cost or purchase price. The cost price includes cost of acquisition, transportation, installation and any other cost incurred in making the asset ready for use. The cost concept is historical in nature as it is something, which has been paid on the date of acquisition and does not change year after year. However, the cost concept does not mean that the assets will always be shown at cost, but cost is systematically reduced from year to year by charging depreciation on account of its wear and tear or passage of time.
Note: An important limitation of historical cost basis is that it does not show the true worth of the business and may lead to hidden profit.

6) Realization Concept (Revenue Recognition Concept)
Generally, revenue is earned from the sale of goods or by proving the services to the customer. According to this concept, revenue is recognized only when a sale is made Sale is considered to be complete only when the property of the goods passes to the buyer and he becomes legally liable to pay for the same. 

This concept does not relate with the receipt of cash, so when the order is received from the customer it does not mean that revenue is realized or earned even if the advance payment is received from the customer.
Example: If the firm gets an order for goods on 1st March supplies on 10th March and receives the payment on 10th April, the revenue is deemed to have been earned on 10th March, as the ownership of the goods was transferred on that day.

Note: Revenue in case of incomes such as rent, interest, commission, etc., is recognized on a time basis. For Example, rent for the month of March 2014, even if received in April 2014 will be treated as revenue for the financial year March 2104.

Exception to the Rule of Revenue Recognition Concept
 In case of sale on instant basis, the amount collected in installment is treated as realized
 In case of long term construction projects, the proportionate part of revenue which is equal to part of contract completed by end of the year is recognised and realized.

7) Dual aspect concept: 

This is the basic concept of accounting according to which every business transaction has a dual effect. As the name implies, the entry made for each transaction is composed of two parts - one for the debit and the other for the credit. Every debit has an equal amount of credit. So the total of all debits must be equal to the total of all credits. 

This gives the basic accounting equation:
Assets = Liabilities + Capital 

Capital = Assets - Liabilities

So, we can compute that'
 increase in an asset is accompanied by decrease in another asset or increase in liability
 decrease in an asset is accompanied by increase in another asset or decrease in liability
 increase in liability is accompanied by decrease in another liability or increase in asset
 decrease in liability is accompanied by increase in another liability or decrease in asset

Example: Mr. Vincent sold goods for cash Rs. 2,000. The two aspects will be, receipt of cash of Rs. 2,000 and decreasing of goods Rs. 2,000.

8) Accrual concept: 

According to accrual concept, all revenues and costs are recognized as they are earned or incurred and not as money is received or paid. Revenue is the gross inflow of cash, receivables and other considerations arising in course of ordinary activities of the enterprise. Expenses are a cost relating to the operations of an accounting period or to the revenue earned during the period, or the benefits of which do not extend beyond that period. As per this concept, any expenses incurred but not paid in the particular period or income earned but received in the particular period should be recorded as expenses and income for that period only. Also any income received but not earned in the current period i.e. payment towards product or services to be rendered in next accounting period or expenses paid in advance for product or services to be received in next accounting period should not be included in the current period.

9) Matching concept: 

The term 'matching' means appropriate association of related revenues and expenses. In determining the net profit from business, amount of profit earned or the loss incurred during a particular period involves deduction of related expenses from the revenue earned during that period. The matching concept emphasizes exactly on this aspect. It states that expenses incurred in an accounting period should be matched with revenues during that period.
This concept is fundamentally based on the accrual concept since it disregards the timing and amount of actual cash flow and concentrates on the occurrence of revenues and expenses. The matching concept, thus, implies that all revenues earned during an accounting year, whether received during that year, or not and all costs incurred, whether paid during the year, or not should be taken into account while ascertaining profit or loss for that year.

Note: Accrual, matching and periodicity concepts work together for income measurement and recognition of assets and liabilities.

ACCOUNTING CONVENTIONS
Accounting conventions emerge out of accounting practice adopted by various entities over a period of time. These conventions are derived by usage and practice and do not have universal application.

The following are the important accounting conventions:
1) Convention of conservatism: 

The convention of conservatism means that the convention of caution, or the policy of playing safe. The principle of "provide for all expected losses but never for anticipated profits" applies here. This is also known as prudence principle i.e., judgment about the possible future losses which are to be guarded. This principle requires that in the situation of uncertainly and doubt, the business transactions should be recorded in such a manner that the profits m assets are not overstated and the losses and liabilities are not understated.

The following are a few examples:
 Closing stock is valued at cost price or Net realisable value, whichever is lower
 Provision for doubtful debt is created in anticipation of bad debts
 Joint life insurance policy is shown only at surrender value as against the amount paid
 Provision for pending law suit against the firm, which may either be decided in its favour.

Note: Principle of Conservatism should be used very cautiously as it may disclose the lower profits in comparison to the actual profits. Balance sheet will disclose understatement assets and overstatement of liabilities in comparison to actual values.

2) Convention of consistency: 

According to this principle, the accounting policies adopted by the enterprise should be followed consistently from one period to another. For example, if the firm uses straight line method for calculating depreciation in year 1 it should go on charging depreciation with the same method every year. A change in an accounting policy should only be made in certain exceptional circumstances and the same has to be disclosed in the notes.
The policy of consistency will facilitate the comparison of financial statements or the trading results of the business with those of previous years which will help a lot in making business decisions.

3) Convention of materiality: 

According to the convention of materiality, all relevant items, the knowledge of which might influence the decision of the users of the financial statements, should be disclosed in the financial statement. The materiality principle requires that the items or events having an insignificant economic effect or not being relevant to the users need not be disclosed.
According to American Accounting Association (AAA) "An item should be regarded as material if there is reason to believe that knowledge of it would influence decision of informed investor". What constitutes materiality will vary from situation, to situation; it is a matter of judgment. For instance, the cost of a small tool may be material for a small repair work shop but the same figure may be immaterial for big manufacturing industries. Thus, the accountant should judge the importance of each transaction to determine its materiality.

4) Convention of full disclosure: 

According to this principle, the financial statements should disclose all reliable and relevant information which are necessary for the users. The disclosure should be full and adequate so that the users of the financial statements can make correct assessment about the financial performance and position of the enterprise.

Note : Various items of facts which do not find place in accounting statements are shown in balance sheet by way of Footnote and it includes a note for contingent liability, change in method of valuation of closing stock, change in method of depreciation etc.

Note: 

• Convention of materiality is exception to principle of full disclosure, As per materiality only relevant items which influences users decisions has to be disclosed, whereas principle of full disclosure requires disclosure all disclose of all information

• Convention of conservatism is exception of convention of consistency For example, as per principle of conservatism; stock should be valued at cost or market price whichever is lower. This principle may lead to change in accounting policy year by year.

• Going concern, Consistency and Accrual concepts are the fundamental concepts and these are followed in the preparation of financial statements. If any of these assumptions are not followed, then this fact should be specifically disclosed.

FINANCIAL STATEMENTS
Financial statements are structured representations of the financial position and the performance of an enterprise. To have a record of all business transactions and to determine profit and loss and financial Potion (asset and liability on a particular day) of an enterprise, entities prepare financial statements viz., Profit and Loss account, Balance Sheet, Cash Flow Statement etc.

Qualitative Characteristics of Financial Statements:

 Understandability: 

An essential quality of the information provided in the financial statement is that it must be understandable by the users. For this purpose, users are assumed to have a reasonable knowledge of business and economic activities
 Reliability: 

The information is said to be reliable when it is free from material error. Reliability of the financial information depends on faithful representation, substance over form, neutrality, prudence, completeness etc.
 Relevance: 

Information is said to be relevant when it influences the economic decisions of the users by helping them to evaluate the performance of the business
 Comparability: 

Users must be able to compare the financial statements of an enterprise through different time period in order to identify the trends in the financial position, performance, cash flow, etc.
 Materiality: 

The information is material if its misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and nature of the firm.
 Full, fair and adequate disclosure: 

The financial statements must disclose all the reliable and relevant information about the business enterprise to the management and also to the external users enabling them to take reasonable and rational decisions
 Prudence: 

Prudence means conservatorium, which states, provide for all expected losses but never for anticipated profits. All the uncertainties and their nature should be disclosed so that it helps in proper decision making.
 Completeness: 

To be reliable, the information in the financial statements must be complete within the bounds of materiality and cost. An omission can cause the information to be false or misleading

SUMMARY
Financial statements are prepared within the framework of accounting principles, concepts and conventions.

Separate entity concept and Money measurement concept are the basic concepts 

on which the other procedural concepts hinge

Accrual, Matching and Periodicity concepts work together for income measurement and recognition of assets and liabilities

Going concern, Consistency and Accrual concepts are the fundamental concepts, and these are followed in the preparation of financial statements. If any of these assumptions are not followed, then this fact should be specifically disclosed.

To have a record of all business transactions and to determine financial position of an enterprise, entities prepare financial statements viz., Profit and loss account, Balance Sheet, Cash Flow Statement, etc.

Relevance and Reliability are most important qualitative characteristics of financial statements.

LECTURE LINK: 

https://youtu.be/dtiXiblG2O0?si=XeBUGYOkKHfdefn2

WHEN TO DO RTP'S

2) WATCH THESE VIDEOS ON DAILY BASIS IN MORNING AS PER TIME TABLE GIVEN BELOW. 

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