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ACC 151

Financial Accounting

TU BTTM · Semester 2 · Recent BTTM syllabus series

Requirement
required
Credits
3
Study Guide
9 units available

Chapter notes

Authoritative study guide across 9 syllabus units

Open a unit to read its study notes.

Unit 1: Introduction· 2 LHs· ~2 marks

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Pass path: Master definitions of Financial Accounting, Business Entity Concept, and Accrual Concept in Part 1. Top path: Diagram Accounting Cycle Workflow in Hospitality Operations, contrast Accrual Basis of Accounting vs Cash Basis of Accounting in Part 3, and solve the Typical TU Board Examination Problem: ladder in Part 4.

Part 1: Core Concepts (2 Marks)

  • ★ Financial Accounting: The systematic process of identifying, measuring, recording, classifying, summarizing, and communicating financial transactions in monetary terms to facilitate informed economic decision-making by stakeholders.
  • Business Entity Concept: The fundamental accounting assumption that the business enterprise is a distinct legal and economic entity, completely separate and independent from its owners/proprietors. (Hence owner capital is treated as a liability of the enterprise).
  • Accrual Concept: Revenue is recognized when earned (regardless of when cash is received), and expenses are recognized when incurred (regardless of when cash is paid), ensuring accurate matching of revenues and expenses for the period.
  • Convention of Conservatism (Prudence): The traditional rule of “anticipate no profits, but provide for all possible losses”, dictating that assets and income are not overstated while liabilities and expenses are fully provided for (e.g., valuing closing stock at cost or net realizable value, whichever is lower).

Part 2: Structural Frameworks (10 Marks)

The Accounting Cycle Workflow in Hospitality Operations

  1. 1. Identification of Transaction via Source Document (Bill/Invoice/Voucher)
  2. 2. Journalizing: Recording in Book of Original Entry (Double Entry)
  3. 3. Ledger Posting: Classifying transactions into T-Accounts
  4. 4. Trial Balance Preparation: Verifying arithmetical debit/credit accuracy
  5. 5. Period-End Adjustments: Accruals, prepaids, depreciation, bad debts
  6. 6. Adjusted Trial Balance & Closing Entries
  7. 7. Preparation of Financial Statements: Income Statement & Balance Sheet

Core Accounting Concepts vs. Conventions:

  1. Concepts (Fundamental Assumptions):
    • Going Concern: The business will operate indefinitely into the foreseeable future and has neither the intention nor the necessity to liquidate.
    • Money Measurement: Only transactions and economic events capable of being quantified in monetary currency (e.g., Nepalese Rupees) are recorded in accounting ledgers.
    • Matching Concept: Current-year expenses incurred to generate current-year revenue must be matched against that revenue in the same accounting period.
  2. Conventions (Established Customs / Traditions):
    • Consistency: Accounting methods (e.g., straight-line depreciation, FIFO inventory valuation) must be consistently applied from one fiscal period to the next to enable comparative analysis.
    • Materiality: Items with negligible financial impact (e.g., a Rs. 50 wastepaper basket) can be expensed immediately rather than capitalized and depreciated.

Part 3: Distinction Tables

Basis of Comparison Accrual Basis of Accounting Cash Basis of Accounting
Revenue Recognition Recognized when earned / services rendered (e.g., guest checks out) Recognized only when cash is physically received
Expense Recognition Recognized when incurred / benefits consumed (e.g., utility bills received) Recognized only when cash is physically disbursed
Matching Principle Perfectly matches revenues with expenses of the period Violates the matching principle; distorts true periodic profit
GAAP / NFRS Compliance Compulsory under GAAP, NFRS, and Companies Act 2063 Prohibited for commercial hotel enterprises; used by clubs

Part 4: Worked Problems & Exam Traps

★ Typical TU Board Examination Problem:

State the accounting concept or convention violated in each of the following scenarios:

  1. A hotel owner pays personal home electricity bills from the hotel corporate bank account and records it as general hotel utility expense.
  2. An Executive Housekeeper values closing inventory of guest soap bars at expected future retail sales price rather than purchase cost.
  3. A hotel switches from the Straight-Line depreciation method to the Written Down Value method every alternate fiscal year to artificially adjust net profit.

Model Solution:

  1. Scenario 1 Violates: The Business Entity Concept. Personal expenses of the owner must be debited to the owner’s Drawings Account, not mixed with corporate business operating expenditures.
  2. Scenario 2 Violates: The Historical Cost Concept and the Convention of Conservatism (Prudence). Inventories must be valued at the lower of historical acquisition cost or net realizable value; anticipating unrealized future retail profits is strictly prohibited.
  3. Scenario 3 Violates: The Convention of Consistency. Accounting policies must be maintained consistently across operating years to allow reliable, unbiased performance comparisons.

TU Exam Trap: Confusing Drawings with Business Expenses. When a hotel proprietor dines in the hotel restaurant or takes cash from the front desk safe for personal use, it is NEVER a business expense; it is a direct reduction of owner’s equity (Drawings)!

Students lose marks here because they a business expense.