Accounting information system- objectives, limitations, basic accounting equation Double entry system- processes, advantage, disadvantages Journal- definition, characteristics, advantages, narration,format, illustrations ledger- definition, characheristics, advantages, illustrations trial balance- definition, format, purpose, advantages, illustrations

1. Recording Accounting
Transactions
SUBMITTED TO:
DR. SUNIL PRESENTED BY:
HEMLATA
FACULTY OF COMMERCE & MANAGEMENT, SGT UNIVERSITY
GURGAON…MBA 1ST SEM

2. Accounting
Information System
 Subsystem of Management Information System
 Collects and process the data into information
 Distributes that information to users.
 Creates needed information to users.

3. Objectives of AIS
To provide reliable accounting information to users.
To protect the enterprise from the possible risk of misuse of accounting
data.
Supportine to daily activities.
To support management decision making.
To support the stepwardship functions of management.

4. Limitation Of AIS
Accounting is only one source of information and primarily provides
information based on financial terms.
Inability to reflect the true value of strategic management.
Historical perspective of financial accounting.

5. Basic accounting equation
Accounting data is represented by the following relationship among the
assets, liabilities and equity:
Assets = Liabilities + Equity.
Equation must be in balance after every recorded transactions in the system.

6. Double Entry System
Locus Pacioli, Italian wrote first book on double entry system in 1494.
Accounting information is based on the double entry system.
An account is an arrangement of transactions affecting a given asset, liability
or other element.
Under this system, the two-sided effect of a transaction is recorded in the
appropriate accounts.
The recording is done by means of a “debit-credit” convention (set of rules)
applying to all accounts.

7. Successive Processes of the Double Entry
System
journal
Ledger
Trial balance
Final accounts

8. Advantages of Double Entry System
Both the aspects of each and every transactions are recorded.
For each debit there must be a corresponding credit of an equal amount.
In it profit and loss account can be easily prepared.
Balance sheet can be prepared by taking together all the accounts relating to
assets and liabilities.
Necessary details about a transaction can be obtained quickly and easily.

9. Disadvantages
System is complex, there is greater possibility of commiting errors and
mistakes.
Requires expert knowledge.
Involves time, labour and money.

10. Journal
The Book Of Original Entry

11. Definition
• Derived from French word “jour” means day. So, Journal means Daily.
• Detailed account that records all the financial transactions of a business on
daily basis.
• It is a physical record or digital document kept as a book, spredsheet or
within accounting software.

12. Characteristics
• First successful step of double entry system.
• Transaction is recorded on the same day it takes place. So it is also called day
book.
• transactions are recorded chronologically.
• Narration is written below each entry.
• Amount is written in last two columns- debit and credit.

13. Advantages
• Records of all transactions in one place on the time and date basis.
• Minimum chances to avoid any particular transaction.
• It is the basis of posting in ledger accounts.
• Any mistake in ledger can be easily detected.
• It shows complete story of a transaction in one entry.

14. Narration
• Short explanation of each transaction.
• Written under each entry
• Subject matter of transaction can be ascertained through it.
• A jounal entry is incomplete without narration.

15. Format of Journal
Date Particulars L.F Amount Amount
Account to be debited………DR
Account to be credited
XXX
XXX

16. Illustrations
• Illustration 1 : The Moon Service Inc. engaged in the following transactions
during the month of November 2015:
• Nov. 01: Issued 20,000 shares of common stock at $20 per share
• Nov. 03: Paid office rent for the moth of November $500.
• Nov. 06: Purchased office supplies $250.
• Nov. 12: Purchased business car for $25,000. Paid $10,000 cash and issued a
note for the balance.

17. • Nov. 21: Billed clients $24,000 on account.
• Nov. 25: Declared dividends $3,000. The amount of dividends will be
distributed in December.
• Nov. 28: Paid utility bills for the month of November $180.
• Nov. 29: Received $24,000 cash from clients billed on November 21.
• Nov. 30: Paid salary for the month of November $7,500

18. date particulars L.F amount amount
2015
Nov 1 Cash
Capital stock
(Issued 20,000
shares of common
stock at $20 per
share)
4,00,000
4,00,00
Nov 3 Office rent expense
Cash
(Paid office rent for
the month of
November)
500
500
Nov 6 Office supplies
Cash
(Purchased office
supplies for cash)
250
250

19. Nov 12 Office equipment
Accounts payable
(purchased office
equipment)
4,500
4,500
Nov 16 Vehicle
cash
notes payable
(purchased company
vehicle, paid $10,000
cash and issued a
$15000 note
payable)
25,000
10,000
15,000
Nov 21 Accounts receivable
Service Revenue
(billed clients on
account)
24,000
24,000

20. Nov 25 Dividends
Dividends
Payable
(Dividends
declared to be
distributed in
December)
3,000
3,000
Nov 28 Utilities expense
Cash
(November utilities
paid in cash)
180
180
Nov 29 Cash
Accounts
receivable
(Collected cash from
clients billed on nov
21)
20,000
20,000

21. Nov 30 Salaries expense
Cash
(Paid salary
expense for nov)
7,500
7,500

22. Illustration 2: Journalise the the following transactions
• Mr. John Invested 200000 as capital
• Purchased land for 105000
• Purchased Goods from S.K creation on credit 200000
• Stationery purchased for 1000
• Goods sold to Indian cotton for Credit 45000
• Rent paid to building owner 1500
• Cash withdrawn for personal use 5000
• Tea expenses incurred for staff 100

23. • Computer purchased from computer solutions 30000
• Paid commission 500

24. Date Particulars Debit Credit
Cash
to Capital
(being capital brought by
MR john)
2,00,000
2,00,000
Land
Cash
(Being land purchased)
1,05,000
1,05,000
Purchase
S.K creation
(being credit purchase
from S.K creation)
2,00,000
2,00,000
Stationery
Cash
(stationery purchased for
cash)
1000
1000

25. Indian cotton
Sales
(Credit sales to indian
cotton)
45000
45,000
Rent
Cash
(being rent paid)
1500
1500
Capital Drawings
Cash
(being cash withdrawn
for personel use)
5000
5000
Staff Welfare
Cash
(being tea expense
incurred for staff)
100
100

26. Computer
Computer solutions
(being computer
purchased from
computer solutions)
30,000
30,000
Commission
Cash
(being commission paid)
500
500

27. Ledger

28. Definition
• Collection of entire group of similar accounts in double entry book keeping.
• Also called book of final entry.
• It records classified and summarized financial information from journals.
• It consists of interlinked digital files.
• Follows same accounting principles as the manual system.

29. Characteristics
• It is used to classify information.
• It contains all accounts.
• It provides summary of closing balance.
• It facilitates speedy tracking of mistakes.
• It facilitates payment & collection.

30. Advantages
• It is the store house of all information which subsequently used for
preparing final accounts and financial statements.
• It is the destination of all entries made in journal.
• It is the stepping stone for preparing trial balance.
• When each account is periodically balanced it reflects the net position of that
account.

31. Illustrations
• Illustration 1: The Moon Service Inc. engaged in the following transactions
during the month of November 2015:
• Nov. 01: Issued 20,000 shares of common stock at $20 per share
• Nov. 03: Paid office rent for the moth of November $500.
• Nov. 06: Purchased office supplies $250.
• Nov. 12: Purchased business car for $25,000. Paid $10,000 cash and issued a
note for the balance.

32. • Nov. 21: Billed clients $24,000 on account.
• Nov. 25: Declared dividends $3,000. The amount of dividends will be distributed in
December.
• Nov. 28: Paid utility bills for the month of November $180.
• Nov. 29: Received $24,000 cash from clients billed on November 21.
• Nov. 30: Paid salary for the month of November $7,500

33. Solution: Cash account
Date particulars Amt(DR) Date Particulars Amount(CR)
Nov 1 Capital stock 4,00,000 Nov 3 Office rent
expense
500
Nov 29 Accounts
receivable
20,000 Nov 6 Office supplies 250
Nov 16 vehicle 10,000
Nov 28 Utilities
expense
180
Nov 30 Salaries
expense
7,500
Balance c/d 4,01,570
Total 4,20,000 Total 4,20,000

34. Capital stock account
date Particulars Amount(Dr.) Date Particulars amount(Cr.)
Balance c/d 4,00,000 Nov 1 Cash 4,00,000
total 4,00,000 Total 4,00,000

35. Office rent expenses account
date Particulars Amount(Dr.) date particulars Amount(Cr.)
Nov 3 Cash 500 Balance c/d 500
total 500 total 500

36. Office Supplies account
Date Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Nov 6 Cash 250 Balance c/d 250
total 250 total 250

37. Office Equipment account
Date Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Nov 12 Accounts payable 4500 Balance c/d 4500
total 4500 total 4500

38. Accounts Payable account
Date Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Balance c/d 4500 Nov 12 Office equipment 4500
total 4500 total 4500

39. Vehicle accountDate Particulars Amount (Dr.) Date Particulars Amount(Cr.)
Nov 16 Cash 10,000 Balance c/d 25,000
Nov 16 Notes Payable 15,000
total 25,000 total 25,000

40. Notes payable accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Balance c/d 15,000 Nov 16 vehicle 15,000
total 15,000 total 15,000

41. Accounts Receivable accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Nov 21 Service revenue 24,000 Nov 29 Cash 20,000
Balance c/d 4000
tota;l 24,000 total 24,000

42. Service Revenue accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Balance c/d 24,000 Nov 21 Accounts
receivable
24,000
total 24,000 total 24,000

43. Dividends accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Nov 25 Dividends
payable
3,000 Balance c/d 3,000
total 3,000 Total 3,000

44. Dividends Payable accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Balance c/d 3,000 Nov 25 dividends 3,000
total 3,000 total 3,000

45. Utilities Expenses accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Nov 28 Cash 180 Balance c/d 180
total 180 total 180

46. Salaries Expenses accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Nov 30 cash 7,500 Balance c/d 7,500
total 7,500 total 7,500

47. Illustration 2: : Journalise the the following transactions
• Mr. John Invested 200000 as capital
• Purchased land for 105000
• Purchased Goods from S.K creation on credit 200000
• Stationery purchased for 1000
• Goods sold to Indian cotton for Credit 45000
• Rent paid to building owner 1500
• Cash withdrawn for personal use 5000
• Tea expenses incurred for staff 100

48. • Computer purchased from computer solutions 30000
• Paid commission 500

49. Cash accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
capital 2,00,000 Land 1,05,000
Stationery 1,000
Rent 1500
Capital drawings 5,000
Staff welfare 100
Commission 500
Balance c/d 86,900
total 2,00,000 total 2,00,00

50. Capital accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Balance c/d 2,00,000 Cash 2,00,000
total 2,00,000 total 2,00,000

51. Land accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Cash 1,05,000 Balance c/d 1,05,000
total 1,05,000 total 1,05,000

52. Purchase accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
S.K creation 2,00,000 Balance c/d 2,00,000
total 2,00,000 total 2,00,000

53. S.K Creation accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Balance c/d 2,00,000 Purchase 2,00,000
total 2,00,000 total 2,00,000

54. Stationery accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Cash 1,000 Balance c/d 1,000
total 1,000 total 1,000

55. Indian Cotton accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Sales 45,000 Balance c/d 45,000
total 45,000 total 45,000

56. Sales accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Balance c/d 45,000 Indian cotton 45,000
total 45,000 total 45,000

57. Rent accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Cash 1,500 Balance c/d 1,500
total 1,500 total 1,500

58. Capital Drawings accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Cash 5,000 Balance c/d 5,000
total 5,000 total 5,000

59. Staff Welfare accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Cash 100 Balance c/d 100
total 100 total 100

60. Computer accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Computer
solutions
30,000 Balance c/d 30,000
Total 30,000 total 30,000

61. Computer Solutions accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
Balance c/d 30,000 Computer 30,000
total 30,000 total 30,000

62. Commission accountDate Particulars Amount(Dr.) Date Particulars Amount(Cr.)
cash 500 Balance c/d 500
Total 500 total 500

63. Trial balance

64. Definition
• Statement showing the summary of balances of all the accounts in ledger.
• Important statement in the accounting process.
• Shows final position of all accounts.
• Helps in preparing final statements.
• Prepared at the end of the year.

65. Format of trial balanceAccount title L.F Debit Amount Rs. Credit Amount Rs.
Total

66. Purpose of trial balance
• To check the equality of debits and credits - an arithmetical or mathematical
test of accuracy.
• To provide information for use in preparing final accounts.

67. Advantages of trial balance
1. It presents to the businessman a consolidated list of all ledger balances.
2. 2. It is the shortest method of verifying the arithmetical accuracy of entries
made in the ledger.
3. 3. If the total of debit side/column is equal to the total of credit
side/column, the trial balance is said to agree. Otherwise, it is implied that
some errors have been committed in the preparation of accounts.
4. 4. It helps in the preparation of the final accounts i.e., Trading a/c. Profit
and loss a/c and Balance Sheet.

68. Illustrations
• Illustration 1:: The Moon Service Inc. engaged in the following transactions
during the month of November 2015:
• Nov. 01: Issued 20,000 shares of common stock at $20 per share
• Nov. 03: Paid office rent for the moth of November $500.
• Nov. 06: Purchased office supplies $250.
• Nov. 12: Purchased business car for $25,000. Paid $10,000 cash and issued a
note for the balance.

69. • Nov. 21: Billed clients $24,000 on account.
• Nov. 25: Declared dividends $3,000. The amount of dividends will be distributed in
December.
• Nov. 28: Paid utility bills for the month of November $180.
• Nov. 29: Received $24,000 cash from clients billed on November 21.
• Nov. 30: Paid salary for the month of November $7,500

70. S.No. Account Name Dr. Cr.
1. Cash 4,20,000 18,430
2. Capital stock - 4,00,000
3. Office rent expenses 500 -
4. Office supplies 250 -
5. Office Equipment 4500 -
6. Accounts Payable - 4,500
7. Vehicle 25,000 -
8. Notes Payable - 15,000
9. Accounts Receivable 24,000 20,000
10. Service Revenue - 24,000
11. Dividends 3,000 -
12. Dividends payable - 3,000
13. Utilities Expenses 180 -
14. Salaries Expenses 7,500 -
Total 4,84,930 4,84,930

71. Illustration 2: Journalise the the following transactions
• Mr. John Invested 200000 as capital
• Purchased land for 105000
• Purchased Goods from S.K creation on credit 200000
• Stationery purchased for 1000
• Goods sold to Indian cotton for Credit 45000
• Rent paid to building owner 1500
• Cash withdrawn for personal use 5000
• Tea expenses incurred for staff 100

72. • Computer purchased from computer solutions 30000
• Paid commission 500

73. S.No. Accounts Name Dr. Cr.
1. Cash 2,00,000 1,13,100
2. Capital - 2,06,000
3. Land 1,05,000 -
4. Purchase 2,00,000 -
5. S.K Creation - 2,00,000
6. Stationery 1000 -
7. Indian Cotton 45,000 -
8. Sales - 45,000
9. Rent 1500 -
10. Capital Drawings 5000 -
11. Staff Welfare 100 -
12. Computer 30,000 -
13. Computer Solutions - 30,000
14. Commission 500 -
Total 5,88,100 5,88,100