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  2. 2. Meaning of an ACCOUNT An Account is a summary of the relevant transactions at one place relating to a particular head.
  3. 3. Traditional Classification of Accounts <ul><li>Personal Accounts : relate to natural persons, artificial persons and representative persons </li></ul><ul><li>Real Accounts: relate to the tangible or intangible real assets </li></ul><ul><li>Nominal Accounts : relate to expenses, losses, profits & gains. </li></ul>
  4. 4. Accounting Equation Based Classification of Accounts <ul><li>Assets Accounts : tangible or intangible real assets </li></ul><ul><li>Liabilities Accounts : relate to financial obligations of an enterprise towards outsiders </li></ul><ul><li>Capital Accounts : relate to owners of an enterprise </li></ul><ul><li>Revenue Accounts : relate to the amount charged for goods sold or services rendered or permitting others to use enterprise resources yielding interest, royalty and dividend. </li></ul><ul><li>Expenses Accounts : relate to the amount incurred or lost in the process of earning revenue </li></ul>
  5. 5. Illustration 1: Classify the following Accounts <ul><li>Capital Brought in </li></ul><ul><li>Building Purchased </li></ul><ul><li>Purchases A/c </li></ul><ul><li>Sales A/c </li></ul><ul><li>Carriage Inwards paid </li></ul><ul><li>Carriage Outwards paid </li></ul><ul><li>Cash Received </li></ul><ul><li>Cash Paid </li></ul><ul><li>Interest Paid </li></ul><ul><li>Interest Received </li></ul>
  6. 6. Contd……… <ul><li>Bank A/c </li></ul><ul><li>Sales Promotion Expenses </li></ul><ul><li>Furniture Purchased </li></ul><ul><li>Sales Return </li></ul><ul><li>Bank Overdraft </li></ul><ul><li>Purchase Return </li></ul><ul><li>Bad Debts written off </li></ul><ul><li>Subscription received </li></ul><ul><li>Outstanding Salary A/c </li></ul><ul><li>Bank Loan </li></ul>
  7. 7. Meaning of Debit and Credit <ul><li>Debit (Dr.) means to enter an amount on the left side of an account </li></ul><ul><li>Credit (Cr.) means to enter an amount on the right side of an account </li></ul>
  8. 8. Rules of Debit and Credit (based on traditional classification) <ul><li>For Personal Accounts </li></ul><ul><li>Debit the receiver </li></ul><ul><li>Credit the giver </li></ul><ul><li>For Real Accounts </li></ul><ul><li>Debit what comes in </li></ul><ul><li>Credit what goes out </li></ul><ul><li>For Nominal Accounts </li></ul><ul><li>Debit all expenses and losses </li></ul><ul><li>Credit all gains and profits </li></ul>
  9. 9. Rules of Debit and Credit (based on accounting equation) <ul><li>For Assets Accounts </li></ul><ul><li> Debit the increase; Credit the decrease </li></ul><ul><li>For Liabilities Accounts </li></ul><ul><li> Debit the decrease; Credit the increase </li></ul><ul><li>For Capital Accounts </li></ul><ul><li> Debit the decrease; Credit the increase </li></ul><ul><li>For Revenue Accounts </li></ul><ul><li> Debit the decrease; Credit the increase </li></ul><ul><li>For Expenses Accounts </li></ul><ul><li> Debit the increase; Credit the decrease </li></ul>
  10. 10. JOURNAL <ul><li>A Journal is a book in which transaction are recorded in the order in which they occur i.e. in chronological order. </li></ul><ul><li>A Journal is also called book of prime entry because all transactions are entered first in this book </li></ul><ul><li>The process of recording a transaction in Journal is called a Journalizing </li></ul><ul><li>An entry made in Journal is called Journal Entry </li></ul>
  11. 11. FORMAT OF A JOURNAL Journal Credit (Rs.) Debit (Rs.) L.F. Particulars Date
  12. 12. Illustration 2:Journalize the following transactions: <ul><li>Ganesh started his business with cash Rs.1,00,00/- </li></ul><ul><li>Borrowed from Mahesh Rs.50,000/- </li></ul><ul><li>Purchased Furniture for Rs.10,000/- </li></ul><ul><li>Purchased goods for cash Rs.40,000/- </li></ul><ul><li>Purchased goods on credit from Ram Rs.25,000/- </li></ul><ul><li>Paid cash to Ram Rs.10,000/- </li></ul><ul><li>Sold goods for cash Rs.30,000 </li></ul><ul><li>Sold Goods on credit to Shyam Rs.25,000. </li></ul><ul><li>Received cash from Shyam Rs.15,000/- </li></ul><ul><li>Withdrew cash for personal use Rs.1,000/- </li></ul><ul><li>Salaries Paid Rs.6,000/- </li></ul>
  13. 13. Journal Entry <ul><li>Compound Journal Entry : When two or more accounts are involved in a transaction and the transaction is recorded by means of a single journal entry instead of passing several journal entries, such single journal entry s termed as ‘ Compound Journal Entry’ </li></ul><ul><li>Opening Entry : A journal entry by means of which the balances of various assets, liabilities and capital appearing in the balance sheet of the previous accounting period are brought forward in the books of current accounting period, is known as ‘ Opening Entry’ </li></ul>
  14. 14. Illustration 3: Enter the following transactions in a Journal, post them to ledger and prepare a Trial Balance 4,000 3,800 Brought goods from Ram & Sons Paid Marathi & Co., by cheque in full settlement Jan.5 1,440 35 3,120 Sold goods to Jai Chand & Sons Carriage paid Sold goods to Gainda & Co., for cash Jan.4 1,400 Sold goods to Dass & Co. Jan.3 6,650 Received a cheque from Mohanaratta & Co. in full settlement Jan.2 Assets in Hand: Cash Rs.630, Cash at Bank Rs.23,100; Stock of goods Rs.26,400; Mohanratta & Co. Rs.6,750 Liabilities: Marathi & Co. Rs.3,880; Ram Sons Rs.3,000 2006 Jan.1
  15. 15. 700 Paid for furniture by cheque Jan.15 300 100 Returned goods to Chatterjee & Mukherjee (not being upto standards) Chatterjee & Mukherjee (also admit claim for breakage of goods) Jan.13 66 15 Paid for stationery Postage Stamps Jan.10 100 147 800 Dass & Co. return goods, not being up to standard Travelling Expenses paid to salesman Goods sold to cash to Vijay Jan.7 6,300 Bought goods from Chatterjee & Mukherjee Jan.6 1,440 Cheque received from Jai Chand & Sons Jan.20 1,300 Dass & Co. pay by cheque Jan.19 5,000 Sold goods to Mohanratta & co. Jan.17 50 Goods used personally by proprietor Jan.16
  16. 16. 600 300 10 500 150 Paid Salaries Paid Rent Bank Charges Drew for personal use out of bank Received claim from Mohanratta & Co., for defect on goods supplied to them, claim admitted Jan.31 23 Paid telephone charges Jan.29 5,850 Cheque sent to Chaterjee & Mukherjee (Discount allowed Rs.50/-) Jan.27 2,000 Cash deposited with bank Jan.24 800 Sold goods to Ajay for cash Jan.23 Bank advises Jai Chand & sons, cheque returned unpaid Jan.22
  17. 17. LEDGER <ul><li>Ledger is the principle book which contains all accounts to which transactions recorded in the book of original entry are transferred </li></ul><ul><li>The ledger is also called ‘Book of Final Entry’ as it is the ultimate destination of all transactions. </li></ul>
  18. 18. UTILITY OF LEDGER <ul><li>It provides complete information of all accounts in one book </li></ul><ul><li>It enables to ascertain what are the main items of revenue </li></ul><ul><li>It enables to ascertain what are the main items of expenses </li></ul><ul><li>It enables to ascertain which are the assets and of what values </li></ul><ul><li>It enables to ascertain which are the liabilities and of what amounts </li></ul><ul><li>It facilitates the preparation of final accounts. </li></ul>
  19. 19. FORMAT OF A LEDGER A/C <ul><li>(Name of the Account)…… Ledger Folio No……….. </li></ul><ul><li>Dr. Cr. </li></ul>Amount (Rs.) Folio Particulars Date Amount (Rs.) Folio Particulars Date
  20. 20. POSTING <ul><li>Posting is the process of transferring the transactions recorded in the books of original entry in the concerned accounts opened in Ledger. </li></ul><ul><li>It may be done daily, weekly, fortnightly or monthly according to the convenience and requirements of the business. </li></ul><ul><li>Posting helps us to know the net effect of various transactions during a given period on a particular account </li></ul>
  21. 21. BALANCING <ul><li>Balance of an account is the difference between the total of debit and total of credit appearing in an account. </li></ul><ul><li>Balance signifies the net effect of all transactions posted to that account during a given period. </li></ul><ul><li>Normally, Personal and Real accounts are balanced; Nominal Accounts are closed by transferring to Trading & Profit & Loss A/c </li></ul>