CASH FLOW,

2 Accounting Concepts.
Accruals Concept
Revenue is recognized when earned, and expenses are recognized when assets are consumed. This
concept means that a business may recognize revenue, profits and losses in amounts that vary from
what would be recognized based on the cash received from customers or when cash is paid to suppliers
and employees. Auditors will only certify the financial statements of a business that have been prepared
under the accruals concept.

Conservatism Concept
Revenue is only recognized when there is a reasonable certainty that it will be realized, whereas
expenses are recognized sooner, when there is a reasonable possibility that they will be incurred. This
concept tends to result in more conservative financial statements.

Consistency Concept
Once a business chooses to use a specific accounting method, it should continue using it on a go-forward
basis. By doing so, financial statements prepared in multiple periods can be reliably compared.

Economic Entity Concept

The transactions of a business are to be kept separate from those of its owners. By doing so, there is no
intermingling of personal and business transactions in a company's financial statements.

Going Concern Concept

Financial statements are prepared on the assumption that the business will remain in operation in
future periods. Under this assumption, revenue and expense recognition may be deferred to a future
period, when the company is still operating. Otherwise, all expense recognition in particular would be
accelerated into the current period.

Matching Concept
The expenses related to revenue should be recognized in the same period in which the revenue was
recognized. By doing this, there is no deferral of expense recognition into later reporting periods, so that
someone viewing a company's financial statements can be assured that all aspects of a transaction have
been recorded at the same time.

Materiality Concept
Transactions should be recorded when not doing so might alter the decisions made by a reader of a
company's financial statements. This tends to result in relatively small-size transactions being recorded,
so that the financial statements comprehensively represent the financial results, financial position, and
cash flows of a business.
3. IAS
Understanding International Accounting Standards (IAS)
International Accounting Standards (IAS) were the first international accounting standards that were
issued by the International Accounting Standards Committee (IASC), formed in 1973. The goal then, as it
remains today, was to make it easier to compare businesses around the world, increase transparency
and trust in financial reporting, and foster global trade and investment.6
Globally comparable accounting standards promote transparency, accountability, and efficiency in
financial markets around the world. This enables investors and other market participants to make
informed economic decisions about investment opportunities and risks and improves capital allocation.
Universal standards also significantly reduce reporting and regulatory costs, especially for companies
with international operations and subsidiaries in multiple countries.
Moving Toward New Global Accounting Standards
There has been significant progress towards developing a single set of high-quality global accounting
standards since the IASC was replaced by the IASB. IFRS have been adopted by the European Union,
leaving the United States, Japan (where voluntary adoption is allowed), and China (which says it is
working towards IFRS) as the only major capital markets without an IFRS mandate.234
As of 2022, 144 jurisdictions required the use of IFRS for all or most publicly listed companies, and a
further 12 jurisdictions permit its use.7

Globally comparable accounting standards promote transparency, accountability, and efficiency in

financial markets around the world.
The United States is exploring adopting international accounting standards. Since 2002, America's
accounting-standards body, the Financial Accounting Standards Board (FASB) and the IASB have
collaborated on a project to improve and converge the U.S. generally accepted accounting principles
(GAAP) and IFRS.5 However, while the FASB and IASB have issued norms together, the convergence
process is taking much longer than was expected—in part because of the complexity of implementing
the Dodd-Frank Wall Street Reform and Consumer Protection Act.8
The Securities and Exchange Commission (SEC), which regulates U.S. securities markets, has long
supported high-quality global accounting standards in principle and continues to do so. In the meantime,
because U.S. investors and companies routinely invest trillions of dollars abroad, fully understanding the
similarities and differences between U.S. GAAP and IFRS is crucial. One conceptual difference: IFRS is
thought to be a more principles-based accounting system, while GAAP is more rules-based.
FAA Descriptive Questions:- 1pm Slot
1. Explain ratios below and the method of calculation:-

a. Inventory Turnover Ratio

inventory turnover ratio = Cost of goods sold * 2 / (Beginning inventory + Final inventory)
The inventory turnover ratio is the number of times a company has sold and replenished its
inventory over a specific amount of time. The formula can also be used to calculate the
number of days it will take to sell the inventory on hand.

b. Number of days inventory

Days in inventory is the average time a company keeps its inventory before it is sold. To
calculate days in inventory, divide the cost of average inventory by the cost of goods sold, and
multiply that by the period length, which is usually 365 days.

c. Debtors turnover ratio

Accounts Receivables Turnover ratio is also known as debtors turnover ratio. This indicates the
number of times average debtors have been converted into cash during a year. This is
also referred to as the efficiency ratio that measures the company's ability to collect revenue
Debtors Turnover Ratio = Net Credit Sales/Average Account Receivable

d. Average collection period

Average collection period is calculated by dividing a company's average accounts
receivable balance by its net credit sales for a specific period, then multiplying the
quotient by 365 days
2. Explain the below adjustments. Also explain their accounting treatment while preparing the financial
statement at the end of the period.

a. Prepaid expenses
Prepaid expenses are amounts paid in advance by a business in exchange for goods or
services to be delivered in the future. They usually relate to the purchase of something that
provides value to the business over the course of multiple accounting periods.

b. Outstanding expenses
Outstanding expenses are those expenses that are related to the same accounting period
in which accounts are being made but are not yet paid.
Journal Entry: Example 1: Salaries due to employees ₹11,000

3. Classify list of accounts in assets, liability, revenue, expense and capital:-

a. Building
b. Bank Loan
c. Purchases
d. Cash and Cash Equivalents
e. Trade Payables
f. XYZ Company (Customer)
g. ABC Company (Supplier)
h. Depreciation
i. Salaries
j. Stationary
k. Commission Income

4. Explain Journal and Ledger with appropriate formats

1. Subsidiary books and it's 7 books in detail
Cash
Sale
Sale Return
Purchase
Purchase Return
Bills Payable
Bills Receivable
2. Explain journal and ledger and the difference column used in both
The main differences between Journal and Ledger are as given below:

Sr Heading Journal Ledger

Ledger is a principal book of
Journal is a subsidiary book of account that classifies
Definition
account that records transactions. transactions recorded in a
1 journal.
The ledger classifies the
The journal transactions get
transactions from the journal
Order recorded in chronological order on
under the respective accounts
the day of their occurrence.
2 to which they are related.
The ledger accounts do not
Each journal entry has a detailed
Explanation have a detailed narration of
narration of the transaction.
3 each transaction.
The Ledger accounts help
The journal does not reveal the reveal the result of
Result
total results of a transaction. transactions for a particular
4 account.
Trial The journal cannot help prepare The ledger helps to prepare
5 Balance the Trial Balance directly. the Trial Balance.
The balances from different
The journal does not have a direct
ledger accounts help to
Financial role in the preparation of financial
prepare financial statements
Statements statements like Profit and Loss
like Profit and Loss Account
Account or Balance Sheet.
6 or Balance Sheet.
A journal does not have an
Some ledger accounts have
opening balance, and it is only
Opening an opening balance, which is
concerned with the current
Balance the closing balance from the
transactions that occur on a day-
previous year.
7 to-day basis.

3. Give the overview of constitution of accounting standards board of India (hint u can use of any 10
names of the board members)

4 what is MD&A explain significance source as financial statement analysis

Today's Descriptive Long Questions FA🚨

1. Accounting statements

2. Accounting concepts
3. IFRS

4. Steps in accounting cycle

5. What is convergence of Country standard with global F standard
6. Various activities of cash flow and explain those
7. various columns in Journal and Ledger and explain those
8. Meaning and purpose of post closing trial balance,closing entries and adjusted trail balance
9. Meaning, features, types and elements of balance sheet
10. Brief introduction of long term liabilities, current liabilities, current assets, owner’s equity and non-
current assets.
13. What are the 2 types of users of accounting information and describe the type of financial
information used by them