More Related Content Similar to ACCOUNTING RECORD KEEPING (6) ACCOUNTING RECORD KEEPING3. ACCOUNTING
PROCESS
• TRANSACTIONS ARE ANALYZED AND
INITIALLY RECORDED IN A JOURNAL
• THE JOURNAL IS A CHRONOLOGICAL
RECORD OF TRANSACTIONS
• ENTRIES IN THE JOURNAL ARE
PERIODICALLY TRANSFERRED TO THE
LEDGER
© 2023 Dr. Meera Sharma
4. ACCOUNTING
PROCESS
• THE LEDGER IS A COLLECTION OF
ACCOUNTS
• TRANSFERRING ENTRIES TO THE
LEDGER RESULTS IN ENTRIES BEING
GROUPED ACCOUNT WISE
• ACCOUNTS IN THE LEDGER ARE CALLED
T ACCOUNTS
© 2023 Dr. Meera Sharma
5. ACCOUNTING
PROCESS
• FOR EXAMPLE THE LEDGER CONTAINS A T
ACCOUNT FOR CASH
• ALL CASH TRANSACTIONS ARE PERIODICALLY
TRANSFERRED FROM THE JOURNAL TO THIS
ACCOUNT
• SIMILARLY THE LEDGER HAS T ACCOUNTS FOR
SALES, EXPENSES, INVESTMENTS ETC.
© 2023 Dr. Meera Sharma
6. ACCOUNTING
PROCESS
• ALL TRANSACTIONS ARE RECORDED IN
LINE WITH THE DOUBLE ENTRY BOOK
KEEPING SYSTEM
• THE DOUBLE ENTRY BOOK KEEPING
SYSTEM IS ATTRIBUTED TO LUCAS
PACIOLI
© 2023 Dr. Meera Sharma
7. ACCOUNTING
PROCESS
• THE LAST STEP BEFORE FINALIZING FINANCIAL
STATEMENTS IS TO PREPARE A TRIAL BALANCE
• THE TRIAL BALANCE IS A SUMMARY OF THE
FINAL BALANCES OF ALL THE T ACCOUNTS AT
THE END OF A PERIOD
• FOR EXAMPLE THE FINAL CASH ACCOUNT
BALANCE FROM THE T ACCOUNT FOR CASH
WILL BE TRANSFERRED TO THE TRIAL BALANCE
© 2023 Dr. Meera Sharma
8. ACCOUNTING
PROCESS
• THE FINAL TRIAL BALANCE IS USED TO
PREPARE THE FINANCIAL STATEMENTS,
I.E. THE BALANCE SHEET AND INCOME
STATEMENT AND THE CASH FLOW
STATEMENT
© 2023 Dr. Meera Sharma
9. DOUBLE ENTRY BOOK
KEEPING
EVERY TRANSACTION IS RECORDED WITH A
DEBIT AND A CREDIT
FOR EVERY TRANSACTION THE DEBIT
AMOUNT MUST EQUAL THE CREDIT AMOUNT
TO ENSURE THAT THE ACCOUNTING
EQUATION HOLDS
Assets = Liabilities + Owners’ Equity
© 2023 Dr. Meera Sharma
10. DOUBLE ENTRY BOOK
KEEPING
• DEBIT
– LEFT HAND SIDE OF AN ACCOUNT
– ABBREVIATED AS dr.
• CREDIT
– RIGHT HAND SIDE OF AN ACCOUNT
– ABBREVIATED AS cr.
© 2023 Dr. Meera Sharma
11. Assets
Debit Credit
+ -
= Liabilities
- +
Debit Credit
+ Owners’ Equity
Debit Credit
- +
DOUBLE ENTRY BOOK
KEEPING
INCREASES
IN ASSETS
ARE
RECORDED
AS DEBITS
INCREASES IN
LIABILITIES AND
OWNERS
EQUITY ARE
RECORDED AS
CREDITS
• DEBITS = CREDITS
DOUBLE ENTRY BOOK
KEEPING
© 2023 Dr. Meera Sharma
12. • REVENUES INCREASE OWNERS EQUITY
• EXPENSES DECREASE OWNERS EQUITY
EXPENSES
Dr. Cr.
REVENUES
Dr. Cr.
OWNERS’ EQUITY
Dr. Cr.
INCREASES
TO
REVENUES
ARE CREDITS
INCREASES TO
EXPENSES ARE
RECORDED AS
DEBITS
DOUBLE ENTRY BOOK
KEEPING
© 2023 Dr. Meera Sharma
13. EXAMPLE
• Example - Owner contributing Rs
5,000 cash for stock:
Dr. Cash 5,000
Cr. Paid-in-capital 5,000
• CASH IS AN ASSET AND PAID-IN-CAPITAL IS
OWNERS EQUITY
EXAMPLE
© 2023 Dr. Meera Sharma
15. ACCOUNTING
RECORDS
• EXAMPLE
– WRITE JOURNAL ENTRIES FOR THE FOLLOWING
TRANSACTIONS THAT OCCURRED AT ABC COMPANY
DURING MAY,
• THE COMPANY PREPAID Rs. 10,000 RENT FOR THE
PERIOD MAY 1 TO JUNE 31
EXAMPLE
© 2023 Dr. Meera Sharma
16. ACCOUNTING
RECORDS
• ANSWER
• THE COMPANY PREPAID Rs.10,000 RENT FOR THE
PERIOD MAY 1 TO JUNE 31
• Dr. Prepaid Rent 10000
Cr. Cash 10000
EXAMPLE
© 2023 Dr. Meera Sharma