Financial Accounting Concept Notes –
Credits: 1Fin App (Use the theory part for theory questions & concepts)
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,1FIN by IndigoLearn | CMA Inter | Paper 5 – Financial Accounting 1
,Table of Contents
Study Note – 1 | Fundamentals of Accounting...........................................................................3
1.1& 1.2 Basics and General Accepted Accounting Principles ........................................................ 3
1.3 Accounting Concepts and Conventions ............................................................................ 10
1.4 Capital and revenue expenditure and receipts ................................................................... 17
1.5 Accounting for Depreciation ........................................................................................ 19
1.6 Rectification of Errors................................................................................................ 44
Study Note 2 |Accounting for Special Transactions .................................................................. 54
2.1 Bills of Exchange ...................................................................................................... 54
2.2 Consignment Accounting ............................................................................................. 73
2.4 Insurance Claims For Loss Of Stock And Loss Of Profit .......................................................... 91
Study Note 3 | Preparation of Financial Statements of Profit Oriented Organizations ..................... 106
Study Note 4 | Preparation of Statements of Incomplete Records .............................................. 129
Study Note 6 | Partnership.............................................................................................. 147
6.1 Admission of Partner ................................................................................................ 171
6.2 Retirement of Partner .............................................................................................. 181
6.3 Death of a Partner ................................................................................................... 184
6.4 Dissolution of Firms.................................................................................................. 202
6.5 Insolvency of Partner ................................................................................................ 208
6.6 Amalgamation, Conversion and Sale .............................................................................. 223
Study Note 7 | Self-Balancing Ledger ................................................................................. 245
Study Note 9 | Hire Purchase and Installment System............................................................. 254
Study Notes 10 | Branch and Departmental Accounts ............................................................. 276
10.1 Branch Accounts .................................................................................................... 276
10.2 Departmental Accounts............................................................................................ 311
Study Note 12 | Accounting Standards ............................................................................... 324
12.1 AS-1 Disclosure of Accounting Policies ......................................................................... 324
12.2 AS – 2 Valuation of Inventories .................................................................................. 329
12.3 AS – 7 CONSTRUCTION CONTRACTS .............................................................................. 351
12.4 AS – 9 REVENUE RECOGNITION .................................................................................... 359
12.5 AS – 10 PROPERTY, PLANT AND EQUIPMENT .................................................................... 368
1FIN by IndigoLearn | CMA Inter | Paper 5 – Financial Accounting 2
, Study Note – 1 | Fundamentals of Accounting
1.1& 1.2 Basics and General Accepted Accounting Principles
Meaning of Accounting
American Institute of Certified Public Accountant defined Accounting as “Accounting is the art of
recording, classifying and summarizing in a significant manner and in term of Money, transactions and
events which are, in part at least, of a financial character and interpreting the results thereof.”
In simple terms Accounting can be stated as the process of recording and maintaining the Financial
Information.
Procedures of Accounting
Broadly the accounting procedures are divided into two categories:
1. Generating Financial Information
2. Using the Financial Information.
Procedure to Generate Financial Information comprises of the following 6 steps:
1. Recording:
This is the first step of accounting. All the transactions are recorded in the respective account
book which is called as a “Journal”.
For Eg: All the transactions done by the company during a particular month will be recorded in
the Journal on a daily basis.
2. Classifying:
Classifying involves systematically analyzing and segregating the transactions recorded in the
Journal.
This is done by transferring the journal entries in the Ledger which clubs all the similar
transactions to a particular account.
For Eg: All the journal entries related to sales will be recorded in the Sales Ledger.
3. Summarizing:
Under this step all the ledger balances are summarized and prepared in manner that is useful
to the users of the Financial Statements.
A company carries on hundreds and thousands of transactions in a financial year and the journal
and ledger balances for all the transactions can run into hundreds of pages which will be lot
time consuming and confusing for the users of the Financial Statements.
1FIN by IndigoLearn | CMA Inter | Paper 5 – Financial Accounting 3
Credits: 1Fin App (Use the theory part for theory questions & concepts)
SHARING IS THE BEST CARING
Share With Your CMA Friends About Us !
Your every share and support on US, Motivates us to Better and
Best… We spent hours of time to Make the Contents !
THANK YOU FOR ALL YOUR LOVE AND SUPPORT !
ᴊᴏɪɴ 🤝 BUDDINGCMA ꜰᴏʀ ᴜɴʟɪᴍɪᴛᴇᴅ ♾ ᴜᴘᴅᴀᴛᴇꜱ 📢 ɴᴏᴛᴇꜱ 📕 ᴀɴᴅ
ᴄᴍᴀ ᴄᴏɴᴛᴇɴᴛꜱ 🚀⚡️
Join US on Telegram:
Channel Name: Budding CMA https://telegram.me/buddingcma
Follow US on Instagram:
Account Name: BUDDING_CMA.POSITIVITY
https://www.instagram.com/budding_cma.positivity/
Visit OUR website: https://www.buddingcma.in
,1FIN by IndigoLearn | CMA Inter | Paper 5 – Financial Accounting 1
,Table of Contents
Study Note – 1 | Fundamentals of Accounting...........................................................................3
1.1& 1.2 Basics and General Accepted Accounting Principles ........................................................ 3
1.3 Accounting Concepts and Conventions ............................................................................ 10
1.4 Capital and revenue expenditure and receipts ................................................................... 17
1.5 Accounting for Depreciation ........................................................................................ 19
1.6 Rectification of Errors................................................................................................ 44
Study Note 2 |Accounting for Special Transactions .................................................................. 54
2.1 Bills of Exchange ...................................................................................................... 54
2.2 Consignment Accounting ............................................................................................. 73
2.4 Insurance Claims For Loss Of Stock And Loss Of Profit .......................................................... 91
Study Note 3 | Preparation of Financial Statements of Profit Oriented Organizations ..................... 106
Study Note 4 | Preparation of Statements of Incomplete Records .............................................. 129
Study Note 6 | Partnership.............................................................................................. 147
6.1 Admission of Partner ................................................................................................ 171
6.2 Retirement of Partner .............................................................................................. 181
6.3 Death of a Partner ................................................................................................... 184
6.4 Dissolution of Firms.................................................................................................. 202
6.5 Insolvency of Partner ................................................................................................ 208
6.6 Amalgamation, Conversion and Sale .............................................................................. 223
Study Note 7 | Self-Balancing Ledger ................................................................................. 245
Study Note 9 | Hire Purchase and Installment System............................................................. 254
Study Notes 10 | Branch and Departmental Accounts ............................................................. 276
10.1 Branch Accounts .................................................................................................... 276
10.2 Departmental Accounts............................................................................................ 311
Study Note 12 | Accounting Standards ............................................................................... 324
12.1 AS-1 Disclosure of Accounting Policies ......................................................................... 324
12.2 AS – 2 Valuation of Inventories .................................................................................. 329
12.3 AS – 7 CONSTRUCTION CONTRACTS .............................................................................. 351
12.4 AS – 9 REVENUE RECOGNITION .................................................................................... 359
12.5 AS – 10 PROPERTY, PLANT AND EQUIPMENT .................................................................... 368
1FIN by IndigoLearn | CMA Inter | Paper 5 – Financial Accounting 2
, Study Note – 1 | Fundamentals of Accounting
1.1& 1.2 Basics and General Accepted Accounting Principles
Meaning of Accounting
American Institute of Certified Public Accountant defined Accounting as “Accounting is the art of
recording, classifying and summarizing in a significant manner and in term of Money, transactions and
events which are, in part at least, of a financial character and interpreting the results thereof.”
In simple terms Accounting can be stated as the process of recording and maintaining the Financial
Information.
Procedures of Accounting
Broadly the accounting procedures are divided into two categories:
1. Generating Financial Information
2. Using the Financial Information.
Procedure to Generate Financial Information comprises of the following 6 steps:
1. Recording:
This is the first step of accounting. All the transactions are recorded in the respective account
book which is called as a “Journal”.
For Eg: All the transactions done by the company during a particular month will be recorded in
the Journal on a daily basis.
2. Classifying:
Classifying involves systematically analyzing and segregating the transactions recorded in the
Journal.
This is done by transferring the journal entries in the Ledger which clubs all the similar
transactions to a particular account.
For Eg: All the journal entries related to sales will be recorded in the Sales Ledger.
3. Summarizing:
Under this step all the ledger balances are summarized and prepared in manner that is useful
to the users of the Financial Statements.
A company carries on hundreds and thousands of transactions in a financial year and the journal
and ledger balances for all the transactions can run into hundreds of pages which will be lot
time consuming and confusing for the users of the Financial Statements.
1FIN by IndigoLearn | CMA Inter | Paper 5 – Financial Accounting 3
