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Financial Accounting-I

Notes In the Angle of the Owner

The refrigerator drawn worth of ` 10,000 nothing but ` 10,000 worth of real capital of the fi rm was
taken for personal use as drawings reduced the total volume of the capital of the fi rm from ` 1
lakh to ` 90,000, which expected the firm to return the capital due amounted ` 90,000.

Owner and business organizations are two separate entities

Going Concern Concept

The concept deals with the quality of long lasting status of the business enterprise irrespective of
the owners’ status, whether he is alive or not. This concept is known as concept of long term assets.

The fixed assets are bought in the intention to earn profits during the season of the business. The
assets which are idle during the slack season of the business retained for future usage, in spite of

that those assets are frequently sold out by the firm immediately after the utility leads to mean

that those assets are not fixed assets but tradable assets. The fixed assets are retained by the fi rm
even after the usage is only due to the principle of long lastingness of the business enterprise.
If the business disposes the assets immediately after the current usage by not considering the

future utility of the assets in the firm which will not distinguish in between the long term assets
and short term assets known as tradable in categories.
Accounting concept for long lastingness of the business enterprise

Matching Concept

This concept only makes the entire accounting system as meaningful to determine the volume
of earnings or losses of the firm at every level of transaction; which is an outcome of matching in

between the revenues and expenses.

The worth of the transaction is identified through matching of revenues which are mainly

generated from the sales volume and the expenses of the firm at every level.
Example: The cost of goods sold and selling price of the pen of ABC Ltd. are ` 5 and

` 10 respectively. The firm produced 100 ball pens during the first shift and out of 100 pens
manufactured 20 pens are considered to be damage which cannot be supplied to the customers,
rejected by the quality circle department. There was an order from the firm XYZ Ltd. which

amounted to 80 pens to be supplied immediately.
The worth of the transaction of the firm at every level of the transaction is being studied only

through the matching of revenues with the expenses.

At first instance, the firm produced 100 pens which incurred the total cost of ` 500 required to

match with the expected revenues of ` 1,000; illustrated the level of profit how much would it
accrue if the entire level of production is sold out?
If the entire production capacity is sold out in the market the profit level would be ` 500. Out of

the 100 pens manufactured 20 were identified not ideal for supply as damages, the remaining 80
pens were supplied to the individual retailer. The retailer has been dispatched 80 pens amounted
` 400 which equated to ` 800 of the expected sales. At the moment of dispatching, the fi rm
expected to earn a profi t of ` 400 at the level of 80 pens supplied. After the dispatch, the retailer
found that 50 pens are in accordance with the order placement but the remaining are to the

tune of the retailers’ specifications. Finally, the retailer has agreed to make the payment of the
bill only in accordance with the order placed which amounted ` 500 out of the expenses of the
manufacturer ` 250.

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