Company Accounts – CA Foundation Study Notes
Purpose of the notes – A quick, clear, and complete reference for understanding the fundamentals of company accounting, ready for revision before exams.
1. Simple Explanation
Company accounts are the financial records of a registered company (private, public, or LLP). They capture all the financial transactions that occur during a financial year and are presented in a set of financial statements – mainly the Profit & Loss Account, Balance Sheet, and Cash‑Flow Statement (when required).
The main objectives:
- Record every transaction accurately and systematically.
- Summarise the company’s financial performance and position.
- Comply with the Companies Act, 2013, and accounting standards (Indian GAAP / IFRS).
- Provide information to shareholders, creditors, regulators, and other stakeholders.
2. Key Points
| Topic | Key Notes |
|---|---|
| Types of Companies | • Private Limited – 2–200 members, shares not publicly traded. • Public Limited – Any number of members, shares can be publicly traded. • One‑Person Company (OPC) – Only one member. • Non‑Profit (NPO) / Charitable – Different statutory requisites. |
| Accounting Cycle | 1. Identification of transactions. 2. Recording in books of accounts (voucher, journal). 3. Posting to ledger accounts. 4. Trial Balance (verified by the balance of debits = credits). 5. Preparation of financial statements. 6. Audit (if applicable). |
| Books of Accounts | • Cash Book – Dual‑purpose for cash & bank. • Journal – Primary entry book (sales, purchase, cash, bank). • Ledger – Aggregated account postings. • Special Books – Sales book, Purchase book, etc. |
| Financial Statements | 1. Statement of Profit & Loss (P&L) – Income, expenses, net profit. 2. Statement of Financial Position (Balance Sheet) – Assets, Liabilities, Equity. 3. Statement of Changes in Equity – Capital, reserves, profits/losses. 4. Cash Flow Statement – Operating, investing, financing activities. |
| Chart of Accounts | • Asset accounts – Current & Non‑current. • Liability & Equity accounts – Current, long‑term, capital, reserves. • Revenue & Expense accounts – Operating & non‑operating. |
| Accounting for Shares & Capital | • Issued Share Capital – Par value & premium. • Share Premium Account – Surplus over par. • Retained Earnings – Accumulated undistributed profits. |
| Dividends | • Declared Dividend – Recognised as a liability. • Paid Dividend – Reduces cash & retained earnings. |
| Loans & Debts | • Borrowings – Separate accounts for each lender. • Interest – Accrued & paid separately. |
| Capital Reserves | • Securities Premium, Revaluation Reserve, Capital Redemption Reserve – Non‑distributable unless specified. |
| Consolidation | • Group Accounts – Parent + subsidiaries. • Elimination Entries – Inter‑company transactions. |
| Accounting Standards | • Indian GAAP (IASC) until 2022, IFRS for large companies. • Major standards: IAS 1 (Presentation), IAS 2 (Inventories), IAS 7 (Cash Flow), IAS 12 (Income Tax), IAS 16 (Property, Plant & Equipment). |
| Financial Year & Accounting Period | • Calendar year (01‑Jan to 31‑Dec) or fiscal year (01‑Apr to 31‑Mar). • Accounting Date – End of the period for which accounts are prepared. |
| Audit & Compliance | • Companies with turnover > ₹10 cr or net worth > ₹5 cr require audit. • Audit report filed with MCA. |
| Key Ratios | • Liquidity – Current ratio, Quick ratio. • Profitability – ROA, ROE, Net profit margin. • Leverage – Debt‑to‑Equity, Interest Coverage. |
3. Worked Example
Background – Tech Solutions Pvt. Ltd. (a private limited company) – Financial year 2024.
| Transaction | Date | Dr Account | Cr Account | Amount (₹) |
|---|---|---|---|---|
| 1. Capital invested by shareholders (₹10 cr) | 01‑Apr | Cash | Paid‑in Capital | 10,000,00,000 |
| 2. Purchase of machinery (₹2 cr) | 05‑Apr | Machinery | Bank | 2,000,00,000 |
| 3. Sale of services (₹1.5 cr) | 10‑Apr | Cash | Service Revenue | 1,500,00,000 |
| 4. Purchase of raw |