MEANING DEF TRADING A/C P&L ACCOUNT BALANCE SHEET

1. Prof. S.N.Gaikwad
Vice Chairman
Prof.S.R. Tajane
Faculty Member

3. • Accounting information is useful to anyone who
makes decisions that have economic results.
• Managers want to know if a new product will be
profitable.
• Owners want to know which employees are productive.
• Investors want to know if a company is a good
investment.
• Creditors want to know if they should extend credit,
how much to extend, and for how long.
• Government regulators want to know if financial
statements conform to requirements.

4. Financial and Management Accounting
• The major distinction between financial
and management accounting is the
users of the information.
– Financial accounting serves external users.
– Management accounting serves internal users,
such as top executives, management and
administrators within
organizations.

5. • Fundamental relationships in the
decision- making process:
Event
Accountant’s
analysis &
recording
Financial
Statements
Users

6. Operating Activities
Investing Activities
Financing Activities

7. Sectionsof the balancesheet:
•
•
• Assets- resources of the firm that are expected to
increase or causefuture cashflows (everything thefirm
owns)
Liabilities - obligations of the firm to outsiders or claims
against its assetsby outsiders (debts of thefirm)
Owners’Equity - the residual interest in, or remaining
claims against, the firm’s assetsafter deducting
liabilities (rights of theowners)

8. Thebalance sheet equation:
Assets=Liabilities +Owners’ Equity
or
Owners’ Equity =Assets- Liabilities

9. • Thebalance sheet is affected by
every transaction that an entity
encounters.
• Eachtransaction hascounterbalancing entries
that keep total assetsequal to total liabilities
and owners’ equity, i.e., the balance sheet
equation must always be balanced.

11. Types of Accounts
Personal
Accounts
Impersonal Accounts
Real Accounts Nominal
Accounts

12. • PersonalAccount (Related to personor
Individual)
– Natural Persons’Account
– Artificial Persons’Account
– Representative PersonalAccount
• RealAccount (Related to Property,Possession
or Liability)
– Tangible RealAccount
– Intangible RealAccount

13. • NominalAccount
– Income
– Gain
– Loss
– Expenses

14. • Credit Transaction in a business are carried out with
a living person, an institution or an artificial person.
As a result of such transaction debtor – creditor
(receiver or giver) relationshiparises.
– For e.g.(1) Urmila’s Accounts, (2) Rameshbhai’s Accounts,
(3) Dena Bank’s Accounts (4)L.I.C.’s Accounts (5) Gujarat
Electricity Board’s Accounts (6) Kadi Nagarpalika’s
Accounts.

15. • The product traded in a business is known as
goods. Separate accounts are maintained for
incoming (Purchase) and outgoing (Sales) of
goods.

16. 1) Goods A/c: Transaction related to the
exchange of goods. Fore.g.
(a) Purchase A/c, (b) Sales A/c, (c) Purchase
Returns A/c (d) Sales Returns A/c (e) Stolen
Goods A/c (f) Goods withdrawn for personal
use A/c (g) Goods destroyed by fire A/c (h)
Goods given as free samples A/c (i) Goods
given ascharity A/c, etc.

17. 2) Assets Account: An item or a right owned by
the business and having financial value is
known as an asset. Such assets are useful for
the proper running of thebusiness.

18. (a) Fixed or long term Assets like land & building,
machinery, furniture, vehicles, goodwill, patents,
copyright, etc
(b) Investments such as shares & debentures of
Reliance Ind, Kisan Vikas Patra, Post office Savings,
etc.
(c) Current Assets A/c like Cash A/c, Stock A/c,
DebtorsA/c, etc.

19. Certain expenses have to be incurred for
carrying on the business. There are various
incomes also in the business. Such income
& expenses a/c are known as Nominal
Accounts

20. Accounts of expenseinclude:
Wages A/c, Cartage A/c, Postage & Telegram A/c,
Salary A/c, Depreciation A/c, Electricity A/c, Discount
allowed A/c, Bank Charges A/c, Advertisements
ExpenseA/c, etc.
Accounts of Incomeinclude:
Interest received A/c, Discount received A/c,
Dividend received A/c, Rent received A/c,
Commission received A/c, Brokerage received A/c,
etc.

21. Examples
•
•
•
•
•
•
•
•
•
•
Vishal’sA/c
Rent PaidA/c
Rent receivedA/c
Interest ReceivedA/c
BuildingAccountA/c
MachineryA/c
PurchaseA/c (goodsA/c)
DiscountAllowedA/c
SalesA/c
Discount ReceivedA/c

22. Examples
•
•
•
•
•
•
•
•
•
•
•
Cartage Paid
HarishA/c
NareshA/c
FurnitureA/c
CashA/c
BankA/c
BankOverdraft
Commission received
Commission Paid
Bills Payable
Bills Receivable

23. Rules of Debit Credit
Nominal Accounts
Real Accounts
Personal Accounts
(1)Debit expenses &
losses
(2)Credit incomes &
gains
(1)Debit what comes
in
(2)Credit what goes
out
(1)Debit the receiver
(2)Credit the giver

24. Debit Credit
• PersonalAccount TheReceiver TheGiver
• RealAccount What Comesin What goesout
• NominalAccount All lossesand
exp.
All gainsand
Income

25. Type of
Accounts
When to Debit When to Credit
Personal
Account
If the person receives
something from the
business, his account in
the books of the
business is to be Debited
If the person give
something to the business,
his account in the books of
the business is to be
credited.
Real Account
Account of goods or
assets coming into the
business is to be debited
Accounts of goods or asset
going out of the business
is to be Credited
Nominal
Account
Account of expense or
loss to be debited
Accounts of income or gain
to be Credited

26. • Businessesenter into thousandsof
transactions daily.
– Accountants must carefully keep track ofand
record these transactions in asystematic
manner.
• Accountants useadouble-entry accounting
system, in which at least two accounts are
always affected by eachtransaction.

27. • Eachtransaction must still be analyzed to
determine which accounts are involved,
whether the accounts increase ordecrease,
and how much the balance willchange.
• Thebalance sheet equation can be used for
this analysis, but with somany
transactions, this is not realistic.
– In practice, accountants useledgers.

29. • Chronological record of thetransactions
• Consists of at least one debitand one credit

30. • Identify eachaccount affected and itstype
• Determine whether each account is increased
or decreased. Usethe rules of debit and credit
• Record transaction in journal, including a brief
explanation
– Debit side of entry is enteredfirst
– Total debits should always equal total credits

31. General Journal
J
J
ou
ourn
rn
al
al
Page1
Debit
45,000
Description L.F
.
Date
Jul1
Credit
Cash
Vishal’s Capital
Investment from owner
45,000
Accounts Affected
Amount of
debits and
credits
Explanation
of
transaction
Transaction
Date

32. General Journal
Style conventions that must befollowed:
•
•
Yearis entered at the top ofeach page
The month is only entered for the first entry on a
page unless the month changes in the middle of the
page.Themonth may be abbreviated
Enter numerical date for each transaction, even if
there are many entries on samedate
•

33. General Journal
• Debits areAL
WA
YSentered first in an entry.
Use the EXACT account title and do not
abbreviate
• Credits are INDENTEDand listed second
• Donot usecurrencysigns
• SKIPALINEbetween eachentry
• Never split an entry between twopages

34. Example
Mr. Vishal brought cashRs.25000 in the
business

35. Example
Analysis of June1transaction:
• Cashis increasing
• Cashis real account
• RealAccount : Debit what comesin
GENERALJOURNAL
DESCRIPTION
DATE L.F
. DEBIT CREDIT
Jun 1 Cash 25,000

36. Example
Analysis of June1transaction:
• Mr. Vishal, is the giver ofcapital
• Mr. Vishal is ahumanbeing
• PersonalA/c: Credit thegiver
GENERALJOURNAL
DESCRIPTION
DA
TE
Jun 1 Cash
L.F
. DEBIT
25,000
CREDIT
Mr. Vishal’s Capital
Owner invested in business
25,000

37. Example
• Purchased Medical supplies from Torrent
PharmaRs.10000

38. Example
Analysis of June2transaction:
• Medical Suppliesis coming into business
• Medical Supplies is current asset
• RealAccount : Debit what comesin
GENERALJOURNAL
DESCRIPTION
DATE L.F
. DEBIT CREDIT
Jun 2 Medical Supplies 10,000

39. Example
Analysis of June2transaction:
•
•
•
Torrent Pharma is supplier of goods
Torrent Pharma is an artificial person
PersonalAccount: credit the giver
GENERALJOURNAL
DATE DESCRIPTION L.F. DEBIT CREDIT
Jun 2 Medical Supplies
Torrent Pharma
10,000
10,000
Purchased medical supplies

40. Example
• Rent Paidin CashRs.4000

41. Example
Analysisof June2transaction:
• Rent is an Expense
• Rent is apart of NominalAccount
• Debit the expense
GENERALJOURNAL
DA
TE DESCRIPTION
Jun 2 Rent Expense
L.F
. DEBIT CREDIT
4,000

42. Example
Analysisof June2transaction:
• Cashis going out of thebusiness
• Cashis apart of real account
• Credit what goesout
GENERALJOURNAL
DATE DESCRIPTION L.F. DEBIT CREDIT
Jun 2 Rent Expense
Cash
4,000
4,000
Rent paid in cash

43. Example
• Service Rendered to Rameshof Rs.12000

44. Example
Analysis of June3 transaction:
• Rameshis receiving the services, Rameshis a
human being
• Personal Account
• Debit the receiver
GENERALJOURNAL
DA
TE DESCRIPTION
Jun 3 Ramesh
L.F
. DEBIT
12,000
CREDIT

45. Example
Analysis of June3transaction:
•
•
•
Service Revenueis coming in the business
Service Revenueis part of nominalaccount
Credit income & gains
GENERALJOURNAL
DESCRIPTION
DA
TE
Jun 3 Ramesh
Service Revenue
Performed services
L.F
. DEBIT
12,000
CREDIT
12,000

47. Prof. Satish R. Tajane
(M.Com, GDC&A,CMA-Inter,Ph.D. Appear)
GST & Income Tax
Consultant