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  1. 1. Sushil Mundada
  2. 2. •DEBIT: Account has received a benefit•CREDIT: Account has parted with the benefit•DEBTOR: Person from whom we have to recover money•CREDITOR: Person to whom we have to pay money•CAPITAL: Amount excess of assets over liabilities•ASSET: Anything convertible to cash or equivalent•LIABILITIES: Debts for which trader is responsible forpayment•INVOICE: Business document sent by seller of goods topurchaser of goods
  3. 3. •Assets-Fixed : Land, Building, Office equipment, etc-Current : Cash in Hand, Cash at Bank, Debtors, etc•Liabilities-Fixed : Loans, Debentures, Capital, etc-Current : Creditors, Bills payable, etc
  4. 4. •Method assumes that every transaction has two-fold effectand in each transaction there are two parties or accounts•One account receives benefit and other account givesbenefit•Account receiving the benefit is debited and other accountparting with benefit is credited•Double entry book keeping system is defined as system ofrecording two fold effect of each and every transaction inproper set of books
  5. 5. CLASSIFICATION OF ACCOUNTSPersonal A/c Impersonal A/cReal A/c Nominal A/c•Personal A/c are those of individuals, firm or companye.g. Capital A/c, Drawings A/c, Bajaj Co. A/c, etc•Real A/c record transactions relating to property and materialthingse.g. Cash A/c, Goods A/c, Furniture A/c, etc•Nominal A/c record transactions relating to expenses, losses,income and gainse.g. Rent A/c, Salary A/c, Commission A/c,Interest A/c, etc
  6. 6. 1)Personal A/c : Debit the receiver,Credit the giver2)Real A/c : Debit what comes in,Credit what goes out3)Nominal A/c : Debit the expenses and losses,Credit the income and gainse.g. 1) Paid to Rohit for salary Rs.10002) Withdraw from bank for personal use Rs.2000No. A/c Affected Type DB/CR Reason1 Salary Nominal DB Salary is expenseCash Real CR Cash going out2 Drawings Personal DB Received benefitCash Real CR Cash going out
  7. 7. - Maintains original and detailed record of transactions- Original record which provides base for subsequent accountingworkJOURNAL ENTRYTransaction- Sold goods for cash Rs.1000Date Particulars L.F Debit Credit1 Cash A/c. --------Dr.To Goods A/c(Being Cash sales)Rs. 1000Rs. 1000
  8. 8. - Principle book of account in which all transactions are finallyposted from journal in summarised and classified manner- Can prepare financial statements like profit & loss A/c,Balance-sheet, etc with help of ledger- Posting is act of transferring entries from journal to ledger- Processing of finding out difference between total of debit sideand credit side of an account
  9. 9. • General Ledger: Maintains all impersonal i.e. real andnominal accounts• Sales Ledger: Maintains accounts of debitors to whom goodsare sold on credit basis• Purchase Ledger: Maintains accounts of creditors from whomgoods are purchased on credit basis• Private Ledger: Maintains personal account i.e. Capital A/c,Drawings A/c, P & L A/c, Balance-sheet, etc
  10. 10. - Essential for preparing P & L A/c and Balance-sheet1)Personal A/c: Closed by carrying over balance to the next periodShow balance of debtors and creditors2)Real A/c: Closed by carrying over balance to the next periodShow balance of asset and property3)Nominal A/c: Closed by transferring difference to P & L A/c
  11. 11. Date Particulars Debit(Rs.) Credit(Rs.)3/1 Cash A/c -------------------------Dr. 7500To Capital A/c 75003/8 Bike parts A/c ----------------------Dr. 2500To Accounts payable 25003/15 Expenses A/c -----------------------Dr. 1000To Cash 10003/17 Cash A/c ---------------------------Dr. 400Accounts Receivable A/c -----------Dr. 700To Revenue 11003/18 Expenses A/c -------------------------Dr. 275To Bike parts 2753/25 Cash A/c -------------------------Dr. 425To Accounts receivable 4253/28 Accounts payable A/c --------------Dr. 500To Cash 500Example Journal
  12. 12. LEDGER ACCOUNTDr. Cr.Date Particulars Rs. Date Particulars Rs.Mar Mar1 To Capital A/c 7500 15 By Expenses A/c 100017 To Revenue A/c 400 28 By Accounts25 To Accounts payable A/c 500receivable A/c 425 31 By Balance c/d 68258325 8325Cash Account
  13. 13. •The total of the accounts on the debit and credit side is referred to as the trialbalance.•If the debits do not equal the credits, then an error has occurred somewhere inthe process•If the trial balance is not in balance, then an error has been made somewhere inthe accounting process.•Common errors that would result in an unbalanced trial balance•Summation error for the debits and credits of the trial balance•Error transferring the ledger account balances to the trial balancecolumns•Error in the calculation of a ledger account balance•Error in posting a journal entry to the ledger•Error in the journal entry
  14. 14. Account Title Debits CreditsCash 6825Accounts Receivable 275Bike Parts 2225Accounts Payable 2000Capital 7500Revenue 1100Expenses 127510600 10600
  15. 15. •Cash Book: Records all cash transactions i.e. cash receipts andcash payments•Pass Book (Bank’s Ledger): Account maintained by bank foreach customer in which deposits and withdrawalsare recorded•Bank Reconciliation Statement:Prepared to reconcile difference between Cash Book Balanceand Pass Book Balance on particular date
  16. 16. •Trading A/c: -Gives gross profit or loss earned by business-Gross profit or loss is transferred to P & L A/c•Profit & Loss A/c:- Gives net profit or loss earned by businessat end of year- Shows all indirect expenses and incomes- The period a Profit and LossStatement covers is called the accountingperiod.If Credit side > Debit side => ProfitIf Debit side > Credit side => LossTrading Profit & Loss Balance-sheet
  17. 17. •Balance Sheet: Shows financial position of business i.e.position of assets, liabilities and capital onparticular dayLeft side shows liabilities and capitalRight side shows assetsAfter net profit (or loss) is added to (or subtracted form)capital account, total of both sides of Balance-sheet should besame i.e.Assets = Capital + Liabilities
  18. 18. Dr. Cr.Particulars Rs. Particulars Rs.To Salaries 3900 By Gross Profit transferred from Trading A/c 17000To Advertising 500 By Discount received 400To Travelling expenses 1100 By Interest received 500To Printing & Stationary 400 By Rent received 1000To Office Expenses 200To Discount Allowed 300To Net Profit transferred toCapital A/c 1250018900 18900
  19. 19. as on 31-3-93Liabilities Rs. Assets Rs.Current Liabilities Current AssetsOutstanding Expenses Cash in HandIncome received in advance Cash at BankCreditors Outstanding IncomeBills payable Closing StockBank Overdraft DebtorsBills ReceivableLong Term Liabilities InvestmentsLoansCapital Fixed AssetsAdd: Interest on capital FurnitureAdd: Net profit Plant & MachineryLess: Drawings Land & propertyLess: Interest on drawings Goodwill