Study Material for
DDA AAO
Examination 2023
(Financial
Accounting)
We have taken all care while drafting these notes. If you find any error in these notes, please send us an email to
Cyber Crime and criminal offences such as downloading and sharing copyrighted material with others shall fall under Moral
Turpitude and may lead to debarring an eligible candidate. Avoid any illegal behaviour
,Accounting
Accounting is an art of recording, classifying, and summarizing the monetary transactions in an
efficient manner and interpreting the results.
Functions of Accounting
● Identifying: Identifying the business transactions from various sources is the first step of
accounting.it involves observing all business activities and identifying those which are considered
as financial transactions.
● Recording: Only those transactions are recorded in books of accounts which can be measured
in terms of money. It involves recording them in a journal and keeping a systematic record of all
of them.
● Classifying: After recording the transactions they are classified. Classification refers to the
grouping of all the transactions of same nature at one place.
● Summarising: It is the process of putting the balances of all accounts at one place i.e. Trial
balance.
● Communicating: Accounting also includes the communication of financial data like financial
statements to the users who analyse them as per individual requirements
Accounting Terms
1. Business Transaction: A Business transaction is an economic activity of business that changes
its financial position.
2. Account: It is a record of all business transactions relating to a particular person or item. It is
a T Shaped proforma.
3. Capital: It refers to the amount invested by the owner in a business. The amount invested could
be in the form of cash, goods, etc.
4. Drawing: Any cash or goods withdrawn by the owner for personal use made out of business
funds are known as drawings.
5. Profit: It is the excess of total revenue over total expense of a business. Profit =Revenue-
Expenses.
6. Loss: The excess of expenses over related revenue is known as loss. Loss= Expenses-Revenue.
7. Gain: It is a monetary benefit resulting from events or transactions which are incidental to
business like profit on sale of fixed assets.
8. Stock: It includes goods unsold on a particular date.
9. Purchases: It refers to the amount of goods bought by business for resale or use in production.it
can be of cash or credit.
10. Purchase return: When purchased goods are returned to suppliers, it is referred to as purchase
return.
11. Sales: It means transfer of goods or services for money in the normal course of business.
12. Sales return: When customers return the goods sold to them it is known as sales returns.
,13. Debtors: It refers to those persons whose business has been sold goods on credit and payment
has not been received yet.
14. Creditors: It refers to those persons whose business buys goods on credit and payment has
not been done yet.
15. Voucher: A voucher is a written document which is created in support of a particular
transaction. It may be in the form of a cash memo, invoice or receipt. Voucher is a necessary
component of auditing.
16. Income: It is the difference between revenue and expense.
17. Expense: It is the amount used in order to produce and sell goods and services.
18. Discount: It is the rebate given by the seller to the buyer. It is of 2 types: Cash Discount and
Trade Discount.
19. Cash Discount: When discount is allowed to customers for making prompt payment. It is
always recorded in books of accounts.
20. Trade Discount: This is a type of discount allowed by the sellers to their customers at a fixed
percentage on the list price of goods. and also, it is not entered in the books of accounts.
21. Bad Debts: It refers to the amount that debtor has not paid even after repeated reminders and
has no intention of paying in the future.
22. Expenditure: It involves spending cash or incurring a liability for the purpose of acquiring
assets, goods, or services. It is of 3 types.
Revenue Expenditure: It refers to any expenditure, the full benefit of which is received
during one accounting period. ex-salaries, rent.
Capital Expenditure: It refers to expenditure, the benefit of which is received during more
than one year. Ex- Machinery.
Deferred Revenue Expenditure: It refers to expenditure which are revenue in nature but
benefit of which is likely to be derived over no of years. Example Advertisement.
Accounting Principles Accounting statements disclose the profitability and solvency of business
to various parties. It is necessary to prepare such a statement in a standard language following a
standard set of rules and regulations. These rules are known as “Generally Accepted Accounting
Principles” or GAAP.
Features of Accounting Principles:
1. Accounting principles are man-made
2. Accounting principles are generally accepted
3. Accounting principles are flexible in nature.
Need of Accounting Principles - To make the accounting information meaningful to its external
and internal users, it is necessary that financial statements are prepared according to these
principles.
Types of Accounting Principles:
, 1. Going Concern Concept: As per this concept it is assumed that the business will continue to
exist for a long period in future and the transactions are recorded in the books of business on the
assumption that it is a continuing enterprise.
2. Consistency Concept: It states that accounting principles and method should remain consistent
from one year to another. It helps them to compare the profit and loss of different periods and
draw meaningful conclusions.
3. Accrual Concept: As per this concept revenue is recorded when sales are made and it is
immaterial whether cash received or not and same applies to expenses also. It provides more
appropriate information about business enterprise as compared to cash basis.
4. Business Entity Concept: As per this concept, business organisations are treated as separate
entities and owners and persons are separate entities.
5. Dual Aspect Concept: It is the basis for the double entry system of book keeping that means all
business transactions recorded in accounts have two aspects- debit and credit. The value of benefit
received is equal to benefit given.
6. Money Measurement Concept: As per the accounting conventions only those transactions are
recorded which can be expressed in monetary terms. Example- the event of machinery breakdown
is not recorded as it does not have a monetary value.
7. Cost Concept: As per this concept, an asset is ordinarily recorded at the price actually paid or
incurred to acquire it.
8. Accounting Period Concept: An accounting period is the interval of time , at the end of which
the financial statements are prepared to ascertain the financial performance of business. The
accounting period is normally considered to be a period of 12 months.
9. Matching Concept: Matching the revenues earned during an accounting period with the cost
associated with the period to ascertain the accurate result of business concern during that period
is called matching concept.
10.Revenue Recognition or Realization Concept: As per this concept, revenue should be accounted
for only when it is actually realised or it has become certain that the revenue will be realized.
11.Objectivity Concept: This principle of accounting specifies that the transactions should be
recorded in an objective manner and should be unbiased in nature.
Accounting Conventions
It may be defined as a custom or generally accepted practice which is adopted either by general
agreement or common consent among accountants.
1. Convention of Full Disclosure: Accounting statements should disclose fully and completely all
the significant information, based on which, decisions can be taken by various interested parties.
2. Convention of Materiality: It requires the disclosure of the significant information, exclusion of
which would influence the decisions. Unimportant information can be merged with other items.
3. Convention of Conservatism: The essence of this principle is ‘anticipate no profit and provide
for all possible losses’. This means that all prospective losses are taken into consideration.
DDA AAO
Examination 2023
(Financial
Accounting)
We have taken all care while drafting these notes. If you find any error in these notes, please send us an email to
Cyber Crime and criminal offences such as downloading and sharing copyrighted material with others shall fall under Moral
Turpitude and may lead to debarring an eligible candidate. Avoid any illegal behaviour
,Accounting
Accounting is an art of recording, classifying, and summarizing the monetary transactions in an
efficient manner and interpreting the results.
Functions of Accounting
● Identifying: Identifying the business transactions from various sources is the first step of
accounting.it involves observing all business activities and identifying those which are considered
as financial transactions.
● Recording: Only those transactions are recorded in books of accounts which can be measured
in terms of money. It involves recording them in a journal and keeping a systematic record of all
of them.
● Classifying: After recording the transactions they are classified. Classification refers to the
grouping of all the transactions of same nature at one place.
● Summarising: It is the process of putting the balances of all accounts at one place i.e. Trial
balance.
● Communicating: Accounting also includes the communication of financial data like financial
statements to the users who analyse them as per individual requirements
Accounting Terms
1. Business Transaction: A Business transaction is an economic activity of business that changes
its financial position.
2. Account: It is a record of all business transactions relating to a particular person or item. It is
a T Shaped proforma.
3. Capital: It refers to the amount invested by the owner in a business. The amount invested could
be in the form of cash, goods, etc.
4. Drawing: Any cash or goods withdrawn by the owner for personal use made out of business
funds are known as drawings.
5. Profit: It is the excess of total revenue over total expense of a business. Profit =Revenue-
Expenses.
6. Loss: The excess of expenses over related revenue is known as loss. Loss= Expenses-Revenue.
7. Gain: It is a monetary benefit resulting from events or transactions which are incidental to
business like profit on sale of fixed assets.
8. Stock: It includes goods unsold on a particular date.
9. Purchases: It refers to the amount of goods bought by business for resale or use in production.it
can be of cash or credit.
10. Purchase return: When purchased goods are returned to suppliers, it is referred to as purchase
return.
11. Sales: It means transfer of goods or services for money in the normal course of business.
12. Sales return: When customers return the goods sold to them it is known as sales returns.
,13. Debtors: It refers to those persons whose business has been sold goods on credit and payment
has not been received yet.
14. Creditors: It refers to those persons whose business buys goods on credit and payment has
not been done yet.
15. Voucher: A voucher is a written document which is created in support of a particular
transaction. It may be in the form of a cash memo, invoice or receipt. Voucher is a necessary
component of auditing.
16. Income: It is the difference between revenue and expense.
17. Expense: It is the amount used in order to produce and sell goods and services.
18. Discount: It is the rebate given by the seller to the buyer. It is of 2 types: Cash Discount and
Trade Discount.
19. Cash Discount: When discount is allowed to customers for making prompt payment. It is
always recorded in books of accounts.
20. Trade Discount: This is a type of discount allowed by the sellers to their customers at a fixed
percentage on the list price of goods. and also, it is not entered in the books of accounts.
21. Bad Debts: It refers to the amount that debtor has not paid even after repeated reminders and
has no intention of paying in the future.
22. Expenditure: It involves spending cash or incurring a liability for the purpose of acquiring
assets, goods, or services. It is of 3 types.
Revenue Expenditure: It refers to any expenditure, the full benefit of which is received
during one accounting period. ex-salaries, rent.
Capital Expenditure: It refers to expenditure, the benefit of which is received during more
than one year. Ex- Machinery.
Deferred Revenue Expenditure: It refers to expenditure which are revenue in nature but
benefit of which is likely to be derived over no of years. Example Advertisement.
Accounting Principles Accounting statements disclose the profitability and solvency of business
to various parties. It is necessary to prepare such a statement in a standard language following a
standard set of rules and regulations. These rules are known as “Generally Accepted Accounting
Principles” or GAAP.
Features of Accounting Principles:
1. Accounting principles are man-made
2. Accounting principles are generally accepted
3. Accounting principles are flexible in nature.
Need of Accounting Principles - To make the accounting information meaningful to its external
and internal users, it is necessary that financial statements are prepared according to these
principles.
Types of Accounting Principles:
, 1. Going Concern Concept: As per this concept it is assumed that the business will continue to
exist for a long period in future and the transactions are recorded in the books of business on the
assumption that it is a continuing enterprise.
2. Consistency Concept: It states that accounting principles and method should remain consistent
from one year to another. It helps them to compare the profit and loss of different periods and
draw meaningful conclusions.
3. Accrual Concept: As per this concept revenue is recorded when sales are made and it is
immaterial whether cash received or not and same applies to expenses also. It provides more
appropriate information about business enterprise as compared to cash basis.
4. Business Entity Concept: As per this concept, business organisations are treated as separate
entities and owners and persons are separate entities.
5. Dual Aspect Concept: It is the basis for the double entry system of book keeping that means all
business transactions recorded in accounts have two aspects- debit and credit. The value of benefit
received is equal to benefit given.
6. Money Measurement Concept: As per the accounting conventions only those transactions are
recorded which can be expressed in monetary terms. Example- the event of machinery breakdown
is not recorded as it does not have a monetary value.
7. Cost Concept: As per this concept, an asset is ordinarily recorded at the price actually paid or
incurred to acquire it.
8. Accounting Period Concept: An accounting period is the interval of time , at the end of which
the financial statements are prepared to ascertain the financial performance of business. The
accounting period is normally considered to be a period of 12 months.
9. Matching Concept: Matching the revenues earned during an accounting period with the cost
associated with the period to ascertain the accurate result of business concern during that period
is called matching concept.
10.Revenue Recognition or Realization Concept: As per this concept, revenue should be accounted
for only when it is actually realised or it has become certain that the revenue will be realized.
11.Objectivity Concept: This principle of accounting specifies that the transactions should be
recorded in an objective manner and should be unbiased in nature.
Accounting Conventions
It may be defined as a custom or generally accepted practice which is adopted either by general
agreement or common consent among accountants.
1. Convention of Full Disclosure: Accounting statements should disclose fully and completely all
the significant information, based on which, decisions can be taken by various interested parties.
2. Convention of Materiality: It requires the disclosure of the significant information, exclusion of
which would influence the decisions. Unimportant information can be merged with other items.
3. Convention of Conservatism: The essence of this principle is ‘anticipate no profit and provide
for all possible losses’. This means that all prospective losses are taken into consideration.
