Approaches to Book Keeping1. Accounting Equation Approach g q pp • Transaction is recorded in such way that equation is always maintained2. Traditional / Conventional Approach • Transaction is recorded in such way that accounts are debited & credited with same amount email@example.com
Formal process of Accounting1. Identification of transactions2. Preparation of vouchers3.3 Recording in Subsidiary books: Journalising4. Posting to Ledger: Ledger posting5. Preparing Trial Balance6. Drawing GPFS g firstname.lastname@example.org
Account? Acco nt?• An account is an aggregated description of gg g p all the transactions occurred in the accounting period related to a person, g p p property, revenue or expense.• Every account is a T-shaped and has two T shaped sides Debit and Credit.• Accounts are of three types – • Personal • R l Real email@example.com • nominal
Check d t diCh k understandingIdentify Real, Nominal & Personal accounts Capital introduced Drawings A/c Cash received Interest paid Discount received Bank A/c Bank overdraft Bad debt written off Outstanding salaries Prepaid rent Purchases A/c Sales A/c Carriage inward Bad debt recovered Interest accrued A/c Goodwill Plant & Machinery firstname.lastname@example.org Leasehold property
Golden rules of Accounting• For personal accounts – • Debit the Receiver & credit the Giver• For real accounts – • Debit what comes in & credit what goes out• For nominal accounts – • Debit all losses and expenses & credit all gains and incomes email@example.com
Golden rules under the Equation Approach Asset A t Liability Li bilitIncrease (+) Debit CreditDecrease (-) Credit Debit firstname.lastname@example.org
Check your understandingWill you do debit or credit? y1. Increase in Revenue2.2 Decrease in expenses3. Drawing4. Further capital introduction email@example.com
A Special Account: Goods• Too important to balance p• This real account is broken into – • Sales Account – Nominal • Purchase Account – Nominal • Sales Return Account – Nominal • Purchase Account – Nominal • Closing Account – Real Acco nt firstname.lastname@example.org
Trial Balance• An off-ledger statement• Lists all account balances• A debit balance represents: Asset or Expense• A credit balance represents: Liability or co e Income• Nominal accounts are not balanced • Rather transferred to P/L A/c via closing entries email@example.com
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