Learning objectives:<br />To understand the Accounting mechanism<br />To understand the Double Entry system<br />To understand the meaning of account and classification of accounts<br />Conceptual frame work of Financial Accounting<br />To know how to prepare the Final Accounts.<br />
Double Entry System <br />It recognizes that every transaction has a twofold effect.<br />The method of writing every transaction in to two accounts, of these two accounts, one A/c is given ‘Debit’ while other one is given ‘Credit’ with an equal amount so that the Accounting Equation is always in balance.<br />On any date<br />Total Debits = Total Credits<br />
The Recording Process<br />The sequence of steps in recording transactions:<br />Transactions<br />Documentation<br />Journal<br />Financial<br />Statements<br />Trial<br />Balance<br />Ledger<br />
LEDGER<br />It is set of all accounts.<br />It contains a classified summery of all transactions recorded in journal.<br />
ACCOUNT - MEANING<br />An individual record of increases and decreases in an item that is likely to be of interest or importance.<br />It is “T” shaped<br />Debit is left side of “T” account<br /> Credit is right side of “T” account<br />
Conceptual frame work of Financial Accounting<br />
TRIAL BALANCE<br />A statement of Debit and Credit totals or balances extracted from the various accounts in the Ledger.<br />Objectives:<br /><ul><li>To facilitate the preparation of Final Accounts.
To check the arithmetical accuracy of the books.</li></li></ul><li>CAPITAL AND REVENUE ITEMS<br />Capital Expenditure:<br />The benefit of which is not fully derived in one year but spread over several periods.<br />Eg: Acquisition of assets, additions to fixed assets<br />Revenue Expenditure:<br />The benefit of which is derived in the year in which the expenditure was incurred.<br />Eg: Raw material, Rent, wages and salaries.<br />
FINAL ACCOUNTS<br />Include preparation of:<br />Trading and Profit and Loss A/c<br />To know the operating performance of the business i.e.profitability.<br />Balance Sheet<br />To know the financial position of the firm on a particular date.<br />
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