Description
Bholu, a vegetable vendor starts his business on 1st January, 2009 with Rs.10,000. He decided that he would transact only in cash. His modus operandi was to hire a cycle-trolley on a daily basis, purchase fresh vegetables and fruits and sell them door-to-door.
Financial Accounting
Evaluation Criteria
? Semester End Examination – 60 Marks
? Attendance/Participation – 10 Marks
? Class Test – 10 Marks
? Assignment and Presentations – 20 Marks
Framework of Financial
Statements
The Story of a Vegetable Vendor
Bholu, a vegetable vendor starts his business on 1
st
January, 2009 with Rs.10,000. He decided that he
would transact only in cash. His modus operandi was
to hire a cycle-trolley on a daily basis, purchase fresh
vegetables and fruits and sell them door-to-door.
Though he did not receive any formal education or a
fancy degree like an MBA, he could manage to study
only up to ninth standard. Nevertheless, through
observation and experience he would plan his
purchases in such a way that at the end of each day, he
was able to sell all that he purchased during the day.
Bholu with his cycle trolley
On the very first day he wants to prepare a
document to see how much he has invested in
the business.
BALANCE SHEET
It is important to understand here that the business of
Bholu is different from Bholu, an individual. He is
represented by Equity in the business (his interest in
terms of money).
Points to remember:
?
It also means that the business owes Rs.10,000 to
Bholu.
?
The B/S also shows that the business owns cash of
Rs.10,000.
Had this distinction between Bholu and his business
not been there, we would not be able to draw the
Balance Sheet.
SEPARATE LEGAL ENTITY
A month passes by. Bholu follows the same
pattern everyday. He purchases fresh
vegetable everyday and sells them through
the day. On 31
st
January, 2009, he desires to
know how he has performed during the
month. According to his record, he has a cash
balance of Rs.15,000 .
Bholu started wondering how was that possible
because he had neither introduced fresh cash
into the business nor he had withdrawn any
money.
It is easy to find out how this extra cash of
Rs.5,000 came in the business.
It was the result of the profitable operations of
the business which generated a surplus of
Rs.5,000 during the month of January.
The best part, since Bholu was dealing in
cash the entire money was his own. This
profit is retained in the business.
The B/S shows the status as at a particular date
but fails to provide the details of how the
profit was earned.
PROFIT AND LOSS ACCOUNT
The preparation of a P/L Account requires
information on various transactions entered
by Bholu during the month. When Bholu was
a child his father would give him some
pocket money and always asked him to
record how he spent the money. This habit
came handy. He made a note of all the daily
purchases and sales and other expenses in his
diary.
Extract from
Bholu’s Diary
Summary Information Amount
Purchases during the month 60,000
Sales during the month 66,000
Rent of the cycle-trolley 1,000
Bholu goes Hi-Tech
Bholu is very happy after the successful
operation of his business for the first month.
He now wants to expand the operations.
In order to do so, he purchased a second-hand
air-conditioned van from Vanco, a dealer in
automobiles. This will help him in two ways
–
?
To augment the sale of vegetables, and
?
To obviate the difficulties in selling all the
vegetables on the day of purchase
The AC Van would cost him Rs.1,00,000, which
was a costly affair for a small bhajiwala like
him. But he managed to get a loan on 28
th
February, 2009 from Apna Bank at an interest
rate of 10%. The van would last him for 5
years.
And finally, he could get the new AC van on
31
st
March, 2009. Until that Bholu continued
his old style of selling vegetables and could
earn a profit of Rs.10,000.
Bholu goes Hi-Tech – 1
st
April, 2009
With the air-conditioned van, Bholu was not
compelled to sell all his vegetables and fruits
on the day of purchase. He was now able to
preserve those vegetables for a longer time.
He had some bright ideas to run his business and
he thought of capturing the up-market
households as his customers. He employed
two helpers who would pack the vegetables
in bags of different sizes for easy handling by
customers.
Bholu now became very famous in the upper-
middle and elite households. He would get
huge orders of his high quality products.
An year passes in this manner and Bholu is doing his
business successfully.
As on 31
st
March, 2010, he wants to close his books and
prepare the financial statements.
Exercise
LIST DOWN ALL THE POSSIBLE DETAILS YOU
CAN THINK FROM THE EVENTS THAT HAVE
OCCURRED SINCE 31ST MARCH, 2010 THAT
WILL HELP IN PREPARATION OF FINANCIAL
STATEMENTS
CHECKLIST
? Sales
? Purchases
? Salaries
? Depreciation of Van
? Maintenance Expenses of the van
? Interest on Loan
? Closing Stock of vegetables
With such details every year the accounts can
be prepared for the entire life of the
organisation.
Particulars Amount
(Rs.)
Sales 10,00,000
Purchases 7,00,000
Salaries 48,000
Depreciation of Van 20,000
Maintenance Expenses of the van 50,000
Interest on Loan 10,000
Repayment of loan 50,000
Cash Balance 1,17,000
Closing Stock of vegetables is Rs.18,000
GOING CONCERN
MONEY MEASUREMENT
PERIODICITY
MATERIALITY
CONSISTENCY
ACCRUAL
CONSERVATIVE
REALIZATION
Regulatory Bodies
? Ministry of Corporate Affairs
? ICAI
? SEBI
? CBDT
? RBI
? International Accounting Standards Board
Accounting Standards
Accounting Equation
Economic Resources = Claims
OR
Assets = Owner’s Capital + Liabilities
doc_865571401.ppt
Bholu, a vegetable vendor starts his business on 1st January, 2009 with Rs.10,000. He decided that he would transact only in cash. His modus operandi was to hire a cycle-trolley on a daily basis, purchase fresh vegetables and fruits and sell them door-to-door.
Financial Accounting
Evaluation Criteria
? Semester End Examination – 60 Marks
? Attendance/Participation – 10 Marks
? Class Test – 10 Marks
? Assignment and Presentations – 20 Marks
Framework of Financial
Statements
The Story of a Vegetable Vendor
Bholu, a vegetable vendor starts his business on 1
st
January, 2009 with Rs.10,000. He decided that he
would transact only in cash. His modus operandi was
to hire a cycle-trolley on a daily basis, purchase fresh
vegetables and fruits and sell them door-to-door.
Though he did not receive any formal education or a
fancy degree like an MBA, he could manage to study
only up to ninth standard. Nevertheless, through
observation and experience he would plan his
purchases in such a way that at the end of each day, he
was able to sell all that he purchased during the day.
Bholu with his cycle trolley
On the very first day he wants to prepare a
document to see how much he has invested in
the business.
BALANCE SHEET
It is important to understand here that the business of
Bholu is different from Bholu, an individual. He is
represented by Equity in the business (his interest in
terms of money).
Points to remember:
?
It also means that the business owes Rs.10,000 to
Bholu.
?
The B/S also shows that the business owns cash of
Rs.10,000.
Had this distinction between Bholu and his business
not been there, we would not be able to draw the
Balance Sheet.
SEPARATE LEGAL ENTITY
A month passes by. Bholu follows the same
pattern everyday. He purchases fresh
vegetable everyday and sells them through
the day. On 31
st
January, 2009, he desires to
know how he has performed during the
month. According to his record, he has a cash
balance of Rs.15,000 .
Bholu started wondering how was that possible
because he had neither introduced fresh cash
into the business nor he had withdrawn any
money.
It is easy to find out how this extra cash of
Rs.5,000 came in the business.
It was the result of the profitable operations of
the business which generated a surplus of
Rs.5,000 during the month of January.
The best part, since Bholu was dealing in
cash the entire money was his own. This
profit is retained in the business.
The B/S shows the status as at a particular date
but fails to provide the details of how the
profit was earned.
PROFIT AND LOSS ACCOUNT
The preparation of a P/L Account requires
information on various transactions entered
by Bholu during the month. When Bholu was
a child his father would give him some
pocket money and always asked him to
record how he spent the money. This habit
came handy. He made a note of all the daily
purchases and sales and other expenses in his
diary.
Extract from
Bholu’s Diary
Summary Information Amount
Purchases during the month 60,000
Sales during the month 66,000
Rent of the cycle-trolley 1,000
Bholu goes Hi-Tech
Bholu is very happy after the successful
operation of his business for the first month.
He now wants to expand the operations.
In order to do so, he purchased a second-hand
air-conditioned van from Vanco, a dealer in
automobiles. This will help him in two ways
–
?
To augment the sale of vegetables, and
?
To obviate the difficulties in selling all the
vegetables on the day of purchase
The AC Van would cost him Rs.1,00,000, which
was a costly affair for a small bhajiwala like
him. But he managed to get a loan on 28
th
February, 2009 from Apna Bank at an interest
rate of 10%. The van would last him for 5
years.
And finally, he could get the new AC van on
31
st
March, 2009. Until that Bholu continued
his old style of selling vegetables and could
earn a profit of Rs.10,000.
Bholu goes Hi-Tech – 1
st
April, 2009
With the air-conditioned van, Bholu was not
compelled to sell all his vegetables and fruits
on the day of purchase. He was now able to
preserve those vegetables for a longer time.
He had some bright ideas to run his business and
he thought of capturing the up-market
households as his customers. He employed
two helpers who would pack the vegetables
in bags of different sizes for easy handling by
customers.
Bholu now became very famous in the upper-
middle and elite households. He would get
huge orders of his high quality products.
An year passes in this manner and Bholu is doing his
business successfully.
As on 31
st
March, 2010, he wants to close his books and
prepare the financial statements.
Exercise
LIST DOWN ALL THE POSSIBLE DETAILS YOU
CAN THINK FROM THE EVENTS THAT HAVE
OCCURRED SINCE 31ST MARCH, 2010 THAT
WILL HELP IN PREPARATION OF FINANCIAL
STATEMENTS
CHECKLIST
? Sales
? Purchases
? Salaries
? Depreciation of Van
? Maintenance Expenses of the van
? Interest on Loan
? Closing Stock of vegetables
With such details every year the accounts can
be prepared for the entire life of the
organisation.
Particulars Amount
(Rs.)
Sales 10,00,000
Purchases 7,00,000
Salaries 48,000
Depreciation of Van 20,000
Maintenance Expenses of the van 50,000
Interest on Loan 10,000
Repayment of loan 50,000
Cash Balance 1,17,000
Closing Stock of vegetables is Rs.18,000
GOING CONCERN
MONEY MEASUREMENT
PERIODICITY
MATERIALITY
CONSISTENCY
ACCRUAL
CONSERVATIVE
REALIZATION
Regulatory Bodies
? Ministry of Corporate Affairs
? ICAI
? SEBI
? CBDT
? RBI
? International Accounting Standards Board
Accounting Standards
Accounting Equation
Economic Resources = Claims
OR
Assets = Owner’s Capital + Liabilities
doc_865571401.ppt