SlideShare a Scribd company logo

Basics of financial accounting

This document provides an overview of basic financial accounting concepts. It defines key accounting terms like accounts, accounting, the accounting cycle and basis. It describes the different types of accounts, rules of double entry system and branches of accounting. It also explains the accounting process including journal, ledger, trial balance and errors. The accounting concepts, conventions and terminology are introduced along with the different books of accounts used.

1 of 44
Download to read offline
BASICS OF
FINANCIAL ACCOUNTING
Account
• It is a unit of information that represents
business records.
• There are five types of accounts: Asset,
Liability, Equity, Revenue and Expense.
Accounting
• It is concerned with the use of which the
records are put, their analysis and
interpretation.
• It is the process of recording business
activities that make changes to accounts.
• Sales of products, Revenue from services
earned, Buying products and/or services and
so on.
Attributes of Accounting
• It is the art of recording business transactions.
• It is the art of classifying business
transactions.
• The transactions or events of a business must
be recorded in monetary terms.
• It is the art of summarizing financial
transactions.
• The results should be communicated to users.
Functions
•
•
•
•

Systematic record of business transactions.
Protecting the property of business.
Communicating results to users.
Compliance with legal requirements.
Users of Accounting Information
•
•
•
•
•
•
•
•

Owners
Creditors (Suppliers)
Investors
Employees
Government
Public
Research Scholars / Agencies
Managers

More Related Content

What's hot (20)

Journal and Ledger
Journal and Ledger Journal and Ledger
Journal and Ledger
 
Principles of Accounting
Principles of AccountingPrinciples of Accounting
Principles of Accounting
 
Trading Profit And Loss Account
Trading Profit And Loss AccountTrading Profit And Loss Account
Trading Profit And Loss Account
 
Introduction to accounting
Introduction to accountingIntroduction to accounting
Introduction to accounting
 
Topic 5 ledger
Topic 5 ledgerTopic 5 ledger
Topic 5 ledger
 
Trial balance ppt
Trial balance pptTrial balance ppt
Trial balance ppt
 
Double entry systme
Double entry systmeDouble entry systme
Double entry systme
 
Users of accounting information
Users of accounting informationUsers of accounting information
Users of accounting information
 
Accounting process
Accounting processAccounting process
Accounting process
 
| Generally Accepted Accounting Principles | Principles of Accounting | Accou...
| Generally Accepted Accounting Principles | Principles of Accounting | Accou...| Generally Accepted Accounting Principles | Principles of Accounting | Accou...
| Generally Accepted Accounting Principles | Principles of Accounting | Accou...
 
Introduction to Accounting
Introduction to AccountingIntroduction to Accounting
Introduction to Accounting
 
Definition of Accounting
Definition of AccountingDefinition of Accounting
Definition of Accounting
 
Basics of accounting
Basics of accountingBasics of accounting
Basics of accounting
 
Cash Flow Statement
Cash Flow StatementCash Flow Statement
Cash Flow Statement
 
Basics of accounting
Basics of accountingBasics of accounting
Basics of accounting
 
Accounting principle
Accounting principleAccounting principle
Accounting principle
 
Introduction to Financial Accounting
Introduction to Financial AccountingIntroduction to Financial Accounting
Introduction to Financial Accounting
 
Accounting principles
Accounting principlesAccounting principles
Accounting principles
 
Basic accounting principles
Basic accounting principlesBasic accounting principles
Basic accounting principles
 
ACCOUNTING BASICS &PRINCIPLES
ACCOUNTING BASICS &PRINCIPLESACCOUNTING BASICS &PRINCIPLES
ACCOUNTING BASICS &PRINCIPLES
 

Viewers also liked

Financial Accounting
Financial AccountingFinancial Accounting
Financial Accountingashu1983
 
Solved Comprehensive Project Cbse Class 12 Accountancy Project
Solved Comprehensive Project Cbse Class 12 Accountancy ProjectSolved Comprehensive Project Cbse Class 12 Accountancy Project
Solved Comprehensive Project Cbse Class 12 Accountancy ProjectDan John
 
Accountancy Project Class 12th CBSE
Accountancy Project Class 12th CBSEAccountancy Project Class 12th CBSE
Accountancy Project Class 12th CBSEDheeraj Kumar
 
GST Power Point Presentation
GST Power Point PresentationGST Power Point Presentation
GST Power Point Presentationpraveendel
 

Viewers also liked (6)

Financial Accounting
Financial AccountingFinancial Accounting
Financial Accounting
 
Accountancy for Class XI
Accountancy for Class XIAccountancy for Class XI
Accountancy for Class XI
 
Solved Comprehensive Project Cbse Class 12 Accountancy Project
Solved Comprehensive Project Cbse Class 12 Accountancy ProjectSolved Comprehensive Project Cbse Class 12 Accountancy Project
Solved Comprehensive Project Cbse Class 12 Accountancy Project
 
Accountancy Project Class 12th CBSE
Accountancy Project Class 12th CBSEAccountancy Project Class 12th CBSE
Accountancy Project Class 12th CBSE
 
Gst (2017)
Gst (2017)Gst (2017)
Gst (2017)
 
GST Power Point Presentation
GST Power Point PresentationGST Power Point Presentation
GST Power Point Presentation
 

Similar to Basics of financial accounting

6 fixed assets, current assets, depreciation methods
6 fixed assets, current assets, depreciation methods6 fixed assets, current assets, depreciation methods
6 fixed assets, current assets, depreciation methodsDr.R. SELVAM
 
Basic accounting terminology
Basic accounting terminologyBasic accounting terminology
Basic accounting terminologyAnkit Sand
 
basicaccountingterminology.pdf
basicaccountingterminology.pdfbasicaccountingterminology.pdf
basicaccountingterminology.pdfManminderKaur16
 
Accounting Presentation
Accounting PresentationAccounting Presentation
Accounting PresentationMayank Shah
 
II_Chapter-Financial_Accounting.ppt
II_Chapter-Financial_Accounting.pptII_Chapter-Financial_Accounting.ppt
II_Chapter-Financial_Accounting.pptAerospaceInfo
 
Finance_for_Non_Finance 2011
Finance_for_Non_Finance 2011Finance_for_Non_Finance 2011
Finance_for_Non_Finance 2011Sunil Parkar
 
Accounting cycle
Accounting cycleAccounting cycle
Accounting cycleAyazSafar
 
Accounting cycle
Accounting cycleAccounting cycle
Accounting cycleAyazSafar
 
Accounting for Entrepreneurs
Accounting for EntrepreneursAccounting for Entrepreneurs
Accounting for EntrepreneursGOL_Academic
 
Financial accounting in Masters of Management Studies by Prof. Subhash Dalvi
Financial accounting in Masters of Management Studies by Prof. Subhash DalviFinancial accounting in Masters of Management Studies by Prof. Subhash Dalvi
Financial accounting in Masters of Management Studies by Prof. Subhash DalviKartik Mehta
 
accountings and financial anulysis.pptx
accountings and financial anulysis.pptxaccountings and financial anulysis.pptx
accountings and financial anulysis.pptxKrishan Saini
 
Introductory acctg review chap 1, 2
Introductory acctg   review chap 1, 2Introductory acctg   review chap 1, 2
Introductory acctg review chap 1, 2Sowie Althea
 
Basic of Accounts
Basic of AccountsBasic of Accounts
Basic of AccountsPorwalPriya
 

Similar to Basics of financial accounting (20)

Finacial accounting
Finacial accountingFinacial accounting
Finacial accounting
 
FA.pptx
FA.pptxFA.pptx
FA.pptx
 
6 fixed assets, current assets, depreciation methods
6 fixed assets, current assets, depreciation methods6 fixed assets, current assets, depreciation methods
6 fixed assets, current assets, depreciation methods
 
HSB_AFM_PPT-1.ppt
HSB_AFM_PPT-1.pptHSB_AFM_PPT-1.ppt
HSB_AFM_PPT-1.ppt
 
Basic accounting terminology
Basic accounting terminologyBasic accounting terminology
Basic accounting terminology
 
basicaccountingterminology.pdf
basicaccountingterminology.pdfbasicaccountingterminology.pdf
basicaccountingterminology.pdf
 
P acc bcs
P acc bcs P acc bcs
P acc bcs
 
Book keeping
Book keeping Book keeping
Book keeping
 
Accounting Presentation
Accounting PresentationAccounting Presentation
Accounting Presentation
 
II_Chapter-Financial_Accounting.ppt
II_Chapter-Financial_Accounting.pptII_Chapter-Financial_Accounting.ppt
II_Chapter-Financial_Accounting.ppt
 
Finance_for_Non_Finance 2011
Finance_for_Non_Finance 2011Finance_for_Non_Finance 2011
Finance_for_Non_Finance 2011
 
Accounting cycle
Accounting cycleAccounting cycle
Accounting cycle
 
Accounting cycle
Accounting cycleAccounting cycle
Accounting cycle
 
Accounting for Entrepreneurs
Accounting for EntrepreneursAccounting for Entrepreneurs
Accounting for Entrepreneurs
 
Basics of accounting
Basics of accountingBasics of accounting
Basics of accounting
 
Financial accounting in Masters of Management Studies by Prof. Subhash Dalvi
Financial accounting in Masters of Management Studies by Prof. Subhash DalviFinancial accounting in Masters of Management Studies by Prof. Subhash Dalvi
Financial accounting in Masters of Management Studies by Prof. Subhash Dalvi
 
accountings and financial anulysis.pptx
accountings and financial anulysis.pptxaccountings and financial anulysis.pptx
accountings and financial anulysis.pptx
 
Payroll accounting
Payroll accountingPayroll accounting
Payroll accounting
 
Introductory acctg review chap 1, 2
Introductory acctg   review chap 1, 2Introductory acctg   review chap 1, 2
Introductory acctg review chap 1, 2
 
Basic of Accounts
Basic of AccountsBasic of Accounts
Basic of Accounts
 

More from Visakhapatnam

More from Visakhapatnam (20)

Unit Costing.pptx
Unit Costing.pptxUnit Costing.pptx
Unit Costing.pptx
 
Capital structure
Capital structureCapital structure
Capital structure
 
Leverages
LeveragesLeverages
Leverages
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
Cost of capital
Cost of capitalCost of capital
Cost of capital
 
Introduction to financial management
Introduction to financial managementIntroduction to financial management
Introduction to financial management
 
Banking practics
Banking practicsBanking practics
Banking practics
 
Business ethics
Business ethicsBusiness ethics
Business ethics
 
Ethics & Social Responsibility
Ethics & Social ResponsibilityEthics & Social Responsibility
Ethics & Social Responsibility
 
Budgeting
BudgetingBudgeting
Budgeting
 
Standard costing
Standard costingStandard costing
Standard costing
 
Environmental costing
Environmental costingEnvironmental costing
Environmental costing
 
Group discussion
Group discussionGroup discussion
Group discussion
 
Budgeting
BudgetingBudgeting
Budgeting
 
Business with china
Business with chinaBusiness with china
Business with china
 
Case presentation
Case presentationCase presentation
Case presentation
 
Banker and Customer Relationship
Banker and Customer RelationshipBanker and Customer Relationship
Banker and Customer Relationship
 
Role of Commercial Banks in India
Role of Commercial Banks in IndiaRole of Commercial Banks in India
Role of Commercial Banks in India
 
Credit Creation
Credit CreationCredit Creation
Credit Creation
 
Banking Theory
Banking TheoryBanking Theory
Banking Theory
 

Recently uploaded

Kraft Heinz Presentation at the 2024 CAGNY.pdf
Kraft Heinz Presentation at the 2024 CAGNY.pdfKraft Heinz Presentation at the 2024 CAGNY.pdf
Kraft Heinz Presentation at the 2024 CAGNY.pdfNeil Kimberley
 
TriStar Gold Corporate Presentation February 2024
TriStar Gold Corporate Presentation February 2024TriStar Gold Corporate Presentation February 2024
TriStar Gold Corporate Presentation February 2024Adnet Communications
 
SD-WAN_MoD.pptx for SD WAN networks connectivity
SD-WAN_MoD.pptx for SD WAN networks connectivitySD-WAN_MoD.pptx for SD WAN networks connectivity
SD-WAN_MoD.pptx for SD WAN networks connectivitybayusch
 
Construction Documents Guide: Types and Significance in 2024
Construction Documents Guide: Types and Significance in 2024Construction Documents Guide: Types and Significance in 2024
Construction Documents Guide: Types and Significance in 2024caddrafting1
 
YENI MODEL 11 CI SINIF SINAQLARI - 10.pdf
YENI MODEL 11 CI SINIF SINAQLARI - 10.pdfYENI MODEL 11 CI SINIF SINAQLARI - 10.pdf
YENI MODEL 11 CI SINIF SINAQLARI - 10.pdfhlopchik1415
 
Danylo Fedirko: Leveraging AI in SEO and optimizing for SRE (ChatGPT and Bard...
Danylo Fedirko: Leveraging AI in SEO and optimizing for SRE (ChatGPT and Bard...Danylo Fedirko: Leveraging AI in SEO and optimizing for SRE (ChatGPT and Bard...
Danylo Fedirko: Leveraging AI in SEO and optimizing for SRE (ChatGPT and Bard...Lviv Startup Club
 
Master SlideDeck Research Showcase 2024.pdf
Master SlideDeck Research Showcase 2024.pdfMaster SlideDeck Research Showcase 2024.pdf
Master SlideDeck Research Showcase 2024.pdfenterpriseresearchcentre
 
Your Expert Guide to CX Orchestration & Enhancing Customer Journeys
Your Expert Guide to CX Orchestration & Enhancing Customer JourneysYour Expert Guide to CX Orchestration & Enhancing Customer Journeys
Your Expert Guide to CX Orchestration & Enhancing Customer JourneysAggregage
 
Clean/Renewable Energy Virtual Investor Conference
Clean/Renewable Energy Virtual Investor ConferenceClean/Renewable Energy Virtual Investor Conference
Clean/Renewable Energy Virtual Investor ConferenceMarketing847413
 
BeMetals Presentation_February_15_2024.pdf
BeMetals Presentation_February_15_2024.pdfBeMetals Presentation_February_15_2024.pdf
BeMetals Presentation_February_15_2024.pdfDerekIwanaka1
 
IT Nation Evolve event 2024 - Quarter 1 - Event
IT Nation Evolve event 2024 - Quarter 1 - EventIT Nation Evolve event 2024 - Quarter 1 - Event
IT Nation Evolve event 2024 - Quarter 1 - EventInbay UK
 
Session 1 Intro & InoVet it - JAX Bridges
Session 1 Intro & InoVet it - JAX BridgesSession 1 Intro & InoVet it - JAX Bridges
Session 1 Intro & InoVet it - JAX BridgesAnamaria Contreras
 
Let’s get moving! Setting some goals Optimizing your workflow
Let’s get moving! Setting some goals Optimizing your workflowLet’s get moving! Setting some goals Optimizing your workflow
Let’s get moving! Setting some goals Optimizing your workflowngothuyanct
 
Questions to Answer to Prepare for Zero Budget Marketing .docx
Questions to Answer to Prepare for Zero Budget Marketing .docxQuestions to Answer to Prepare for Zero Budget Marketing .docx
Questions to Answer to Prepare for Zero Budget Marketing .docxPrecious Mvulane CA (SA),RA
 
Serhii Herasymov: Boost sales through Accelerators (UA)
Serhii Herasymov: Boost sales through Accelerators (UA)Serhii Herasymov: Boost sales through Accelerators (UA)
Serhii Herasymov: Boost sales through Accelerators (UA)Lviv Startup Club
 
Actionable Fundraising Planning - Slide Presentation.pptx.pdf
Actionable Fundraising Planning - Slide Presentation.pptx.pdfActionable Fundraising Planning - Slide Presentation.pptx.pdf
Actionable Fundraising Planning - Slide Presentation.pptx.pdfBloomerang
 
Bloomerang - Get More Major Gifts From Donors Already Around You.pdf
Bloomerang - Get More Major Gifts From Donors Already Around You.pdfBloomerang - Get More Major Gifts From Donors Already Around You.pdf
Bloomerang - Get More Major Gifts From Donors Already Around You.pdfBloomerang
 
The value chain is a concept that describes the full range of activities and ...
The value chain is a concept that describes the full range of activities and ...The value chain is a concept that describes the full range of activities and ...
The value chain is a concept that describes the full range of activities and ...Hamed Mehrzadegan
 
Entrepreneurship Skills, Attitude & Behavior Development
Entrepreneurship Skills, Attitude & Behavior DevelopmentEntrepreneurship Skills, Attitude & Behavior Development
Entrepreneurship Skills, Attitude & Behavior DevelopmentVisionPublisher
 
IPR Collaborators for Change Report: Research on the Relationship Between Com...
IPR Collaborators for Change Report: Research on the Relationship Between Com...IPR Collaborators for Change Report: Research on the Relationship Between Com...
IPR Collaborators for Change Report: Research on the Relationship Between Com...Olivia Kresic
 

Recently uploaded (20)

Kraft Heinz Presentation at the 2024 CAGNY.pdf
Kraft Heinz Presentation at the 2024 CAGNY.pdfKraft Heinz Presentation at the 2024 CAGNY.pdf
Kraft Heinz Presentation at the 2024 CAGNY.pdf
 
TriStar Gold Corporate Presentation February 2024
TriStar Gold Corporate Presentation February 2024TriStar Gold Corporate Presentation February 2024
TriStar Gold Corporate Presentation February 2024
 
SD-WAN_MoD.pptx for SD WAN networks connectivity
SD-WAN_MoD.pptx for SD WAN networks connectivitySD-WAN_MoD.pptx for SD WAN networks connectivity
SD-WAN_MoD.pptx for SD WAN networks connectivity
 
Construction Documents Guide: Types and Significance in 2024
Construction Documents Guide: Types and Significance in 2024Construction Documents Guide: Types and Significance in 2024
Construction Documents Guide: Types and Significance in 2024
 
YENI MODEL 11 CI SINIF SINAQLARI - 10.pdf
YENI MODEL 11 CI SINIF SINAQLARI - 10.pdfYENI MODEL 11 CI SINIF SINAQLARI - 10.pdf
YENI MODEL 11 CI SINIF SINAQLARI - 10.pdf
 
Danylo Fedirko: Leveraging AI in SEO and optimizing for SRE (ChatGPT and Bard...
Danylo Fedirko: Leveraging AI in SEO and optimizing for SRE (ChatGPT and Bard...Danylo Fedirko: Leveraging AI in SEO and optimizing for SRE (ChatGPT and Bard...
Danylo Fedirko: Leveraging AI in SEO and optimizing for SRE (ChatGPT and Bard...
 
Master SlideDeck Research Showcase 2024.pdf
Master SlideDeck Research Showcase 2024.pdfMaster SlideDeck Research Showcase 2024.pdf
Master SlideDeck Research Showcase 2024.pdf
 
Your Expert Guide to CX Orchestration & Enhancing Customer Journeys
Your Expert Guide to CX Orchestration & Enhancing Customer JourneysYour Expert Guide to CX Orchestration & Enhancing Customer Journeys
Your Expert Guide to CX Orchestration & Enhancing Customer Journeys
 
Clean/Renewable Energy Virtual Investor Conference
Clean/Renewable Energy Virtual Investor ConferenceClean/Renewable Energy Virtual Investor Conference
Clean/Renewable Energy Virtual Investor Conference
 
BeMetals Presentation_February_15_2024.pdf
BeMetals Presentation_February_15_2024.pdfBeMetals Presentation_February_15_2024.pdf
BeMetals Presentation_February_15_2024.pdf
 
IT Nation Evolve event 2024 - Quarter 1 - Event
IT Nation Evolve event 2024 - Quarter 1 - EventIT Nation Evolve event 2024 - Quarter 1 - Event
IT Nation Evolve event 2024 - Quarter 1 - Event
 
Session 1 Intro & InoVet it - JAX Bridges
Session 1 Intro & InoVet it - JAX BridgesSession 1 Intro & InoVet it - JAX Bridges
Session 1 Intro & InoVet it - JAX Bridges
 
Let’s get moving! Setting some goals Optimizing your workflow
Let’s get moving! Setting some goals Optimizing your workflowLet’s get moving! Setting some goals Optimizing your workflow
Let’s get moving! Setting some goals Optimizing your workflow
 
Questions to Answer to Prepare for Zero Budget Marketing .docx
Questions to Answer to Prepare for Zero Budget Marketing .docxQuestions to Answer to Prepare for Zero Budget Marketing .docx
Questions to Answer to Prepare for Zero Budget Marketing .docx
 
Serhii Herasymov: Boost sales through Accelerators (UA)
Serhii Herasymov: Boost sales through Accelerators (UA)Serhii Herasymov: Boost sales through Accelerators (UA)
Serhii Herasymov: Boost sales through Accelerators (UA)
 
Actionable Fundraising Planning - Slide Presentation.pptx.pdf
Actionable Fundraising Planning - Slide Presentation.pptx.pdfActionable Fundraising Planning - Slide Presentation.pptx.pdf
Actionable Fundraising Planning - Slide Presentation.pptx.pdf
 
Bloomerang - Get More Major Gifts From Donors Already Around You.pdf
Bloomerang - Get More Major Gifts From Donors Already Around You.pdfBloomerang - Get More Major Gifts From Donors Already Around You.pdf
Bloomerang - Get More Major Gifts From Donors Already Around You.pdf
 
The value chain is a concept that describes the full range of activities and ...
The value chain is a concept that describes the full range of activities and ...The value chain is a concept that describes the full range of activities and ...
The value chain is a concept that describes the full range of activities and ...
 
Entrepreneurship Skills, Attitude & Behavior Development
Entrepreneurship Skills, Attitude & Behavior DevelopmentEntrepreneurship Skills, Attitude & Behavior Development
Entrepreneurship Skills, Attitude & Behavior Development
 
IPR Collaborators for Change Report: Research on the Relationship Between Com...
IPR Collaborators for Change Report: Research on the Relationship Between Com...IPR Collaborators for Change Report: Research on the Relationship Between Com...
IPR Collaborators for Change Report: Research on the Relationship Between Com...
 

Basics of financial accounting

  • 2. Account • It is a unit of information that represents business records. • There are five types of accounts: Asset, Liability, Equity, Revenue and Expense.
  • 3. Accounting • It is concerned with the use of which the records are put, their analysis and interpretation. • It is the process of recording business activities that make changes to accounts. • Sales of products, Revenue from services earned, Buying products and/or services and so on.
  • 4. Attributes of Accounting • It is the art of recording business transactions. • It is the art of classifying business transactions. • The transactions or events of a business must be recorded in monetary terms. • It is the art of summarizing financial transactions. • The results should be communicated to users.
  • 5. Functions • • • • Systematic record of business transactions. Protecting the property of business. Communicating results to users. Compliance with legal requirements.
  • 6. Users of Accounting Information • • • • • • • • Owners Creditors (Suppliers) Investors Employees Government Public Research Scholars / Agencies Managers
  • 7. Branches of Accounting • Financial Accounting (Record keeping) • Cost Accounting (Price fixation & Operating efficiency) • Management Accounting (Analysis for decision making)
  • 8. Advantages • • • • • • • Replacement of Memory Evidence in court Tax purpose Comparative study Sale of business Assistance to the insolvent For various parties
  • 9. Limitations • • • • Records only monetary transactions Effect of price level changes not considered No realistic information Personal bias of accountant affects the accounting statements • Permits alternative treatments (LIFO, FIFO) • No real test for managerial performance • Historical in nature
  • 10. Accounting Terminology • Business: An organization created with the objective of making a profit from the sale of goods or services. • Book keeping: The act of systematically recording the financial transactions affecting a business. • Book Value: The net amount (original value plus or minus any adjustments such as depreciation) showed in the accounts for an asset, liability, or owners' equity item. • Calendar Year: An entity's reporting year, covering 12 months. • Transactions: Exchange of goods or services between businesses or individuals. Can also be other events having an economic impact on a business.
  • 11. Accounting Terminology • Journal: A book or original entry in a double-entry bookkeeping system. The journal lists all transactions and indicates the accounts to which they are posted. • Journal Entry: A recording of a transaction where debits equal credits. • Ledger: A summary statement of all the transactions relating to a person, asset, expense or income which have taken place during a given period of time and show their net effect. • Trial Balance: A listing of all account balances that provides a test of whether total debits equals total credits. • Revenues: Increases in a company's resources from the sale of goods or services.
  • 12. Accounting Terminology • Balance sheet: A balance sheet is an itemized statement which lists the total assets and the total liabilities of a given business to show its net worth at a given moment in time (like a snapshot). • Capital: Property or money used and owned by a business and used to acquire future income or benefits. • Debtor: A debtor is a person who owes money. The amount due from his is called debt. • Creditor: A person to whom money is owing or payable is called a creditor. • Credit: An entry on the right side of a ledger account.
  • 13. Accounting Terminology • Goods: This includes all articles, commodities or merchandise in which the business deals. Thus, cloth would be goods for a dealer in cloth; furniture would be goods for a dealer in furniture and so on. • Assets: Economic resources owned or controlled by a person or company. • Net Assets: The difference between assets and liabilities. • Liquidity: The availability of cash or ability to obtain it quickly. Also used to determine debt repayment ability. • Goodwill: An intangible asset that exists when a business is valued at more than the fair market value of its net assets. • Interest: The cost of the use of money.
  • 14. Accounting Terminology • Current Assets: Current assets are those assets of a company that are expected to be converted to cash, sold, or consumed during the normal operating cycle of the business (usually one year). Examples are cash, accounts receivable, short-term investments, US government bonds, inventories, and prepaid expenses. • Current Liabilities: Liabilities to be paid within one year of the balance sheet date. • Drawings: Any amount or goods withdrawn by the owner of a business for personal use is called drawings. • Bad Debt: An uncollectible Account Receivable. • Loss: A loss is expenditure without any benefit to the concern. On the other hand, expense is incurred to result in some benefit. Thus, amount spent on lighting is an expense but loss due to fire is loss.
  • 15. Accounting Terminology • Income: It is an inflow of assets which results in an increase in the owner’s equity. • Expenditure: Expenditure takes place when an asset or service is acquired. Expenditure will include both payment of a sum immediately and a promise to pay it at a future date. • Expense: An expenditure whose benefit is finished or enjoyed immediately such as salaries, rent, etc. • Turnover: It means total trading income from cash sales and credit sales. • Net worth: It means assets minus outside liabilities. Profits of a business increase net worth whereas losses reduce the net worth of a business. • GAAP - Refer to Generally Accepted Accounting Principles.
  • 16. Basis of Accounting • Cash basis – Actual cash receipts and payments are recorded. – Credit transactions are not recorded.
  • 17. Basis of Accounting • Accrual basis – The income whether received or not but has been earned or accrued during the period forms part of the total income of the period. – The firm has taken benefit of a particular service, but has not paid within that period, the expenses will relates to the period in which the service has been utilized and not to the period in which payment for it is made.
  • 18. Basis of Accounting • Mixed basis – Combination of cash and accrual basis.
  • 19. System of Accounting • Single Entry System: This system has no complete record of business transactions done during a specified period. • Double Entry System: One account is given debit while the other account is given credit with an equal amount.
  • 21. Types of Accounts • Natural Person’s Personal Account: An account recording transactions with an individual human being is known as a natural person’s Personal Account. (eg. Krishna account) • Artificial Person’s Personal Account: An account recording financial transactions with an artificial person created by law or otherwise is called an artificial person’s personal account. (eg. VSL College) • Representative Person’s Personal Account: An account indirectly representing a person or persons is known as a representative account. (eg. Salaries account) • Tangible Real Account: An asset which can be touched, seen, and measured. (eg. Machinery Account) • Intangible Real Account: An asset which can’t be touched physically but can be measured in value. (eg. Goodwill)
  • 22. Rules of Double Entry System Accounts Personal Real Nominal • • • • • • Rules Debit the receiver Credit the giver Debit what comes in Credit what goes out Debit all expenses and losses Credit all incomes and gains
  • 23. Accounting cycle Recording monetary transactions in a systematic manner Journal entries Ledger Trial balance Trading and Profit & Loss Account Balance Sheet
  • 24. Accounting Concepts  Business entity concept: The Business is distinct from the persons who own it.  Going concern concept: It assumes that the business will continue for a long time.  Cost concept: All the transactions will be recorded at cost in the books. It means deducted depreciation from the assets yearly.  Dual aspect concept: Each transaction is twofold affect.  Money measurement concept: The transactions should be recorded in monetary aspect only. We should not record the transaction in kilograms, quintals, meters, liters, etc.
  • 25. Accounting Concepts  Accounting period concept: Measuring the profit, incomes or expenses of the period only are to be considered. Usually the period is one year (12 months).  Realization concept: If the revenue is recognized too early or too late, the company would not project the right financial position. It would look more profitable or less profitable than what it actually is.  Matching concept: Expenses incurred for a period are matched with the revenues for the same period to arrive as a reasonably correct measurement of the net income or the net loss. The difference between revenues and expenses is a measure of how effectively management has utilized the firm’s resources.  Objective evidence concept: All accounting transactions should be evidenced and supported by object documents.
  • 26. Accounting Conventions  Convention of disclosure: Accounts should be prepared in such a way that all material information is clearly disclosed to the users.  Convention of consistency: An accounting method or procedure once chosen should be followed consistently from year to year.  Convention of conservatism: Any business while recording the transactions should ‘anticipate no profits but provide for all possible losses’.  Convention of materiality: Only those events should be recorded which have a significant bearing and insignificant things should be ignored. There is no formula for identifying material and immaterial events. It depends on the accountant discretion.
  • 28. Source Documents • Cash Memo: When goods are sold or purchased for cash, the firm receives or gives cash memos which provide details regarding cash transactions. • Invoice or Bill: This document is prepared when goods are sold or purchased on credit. • Receipt: When a firm receives cash from customers it issues a receipt which is a proof for receiving cash. • Pay in Slip: This is a form available from a bank for depositing cash or cheque in a bank account. Contd…
  • 29. Source Documents • Cheque: It is a document in writing drawn upon a specified banker and payable on demand. • Debit Notes: For the party from whom the money is recoverable this document becomes debit note. • Credit Note: For the party who is to recover the amount the document becomes credit note. When goods returned from the customer, a proper credit note should be sent to him.
  • 30. Journal • The word journal is derived from the Latin word ‘Journ’ which means a day. • Journal means a day book where in day-to-day business transactions are recorded in a chronological order. • The process of recording a transaction in the journal is called Journalisation. • The entries made in the book are called journal entries.
  • 31. Proforma of Journal Date xx-xx-xxxx Particulars Name of the a/c Dr. To Name of the a/c (being -----______) L.F. Dr. () xxxx Cr. () xxxx
  • 32. Items in Journal • Date: The first column deals with the date of transaction. • Particulars: In the first line write about debit aspect and in the second line write about credit aspect. In the third line write regarding brief explanation of the entry (narration). • Ledger Folio (L.F.): It denotes page number on which its journal entry is found. • Debit: Fourth column deals with the amount to be debited. • Credit: Fifth column deals with the amount to be credited.
  • 33. Points to be noted before journalising • Compound journal entry • Cash or credit transaction • Cash discount • Trade discount • Purchase of shares: When shares or securities are purchased, the entry is made at market value and not at face value. Brokerage paid on the purchase of such investment is also added in the amount of investment. • Sale of shares: If shares or securities are sold, the entry should be passed at market value less brokerage, if any, paid on such shares.
  • 34. Points to be noted before journalising • Expenses incidental to the purchase of Fixed Assets • Insurance of Life Policy (Debited to Drawings a/c) • Goods given as charity • Goods distributed as free samples • Loss of stock by Fire • Interest due on Loans credited to loan account) (debited to interest account and
  • 35. Advantages of Journal • It provides a chronological (date wise) order of all transactions and hence provides permanent record. • It provides the information of debit and credit in an entry and an explanation to make it understandable properly. • It reduces the possibility of error as both aspects of a business transaction are written side by side.
  • 36. Ledger • It is a book which contains various accounts. It is in ‘T’ form. • It is a summary statement of all the transactions relating to a person, asset, expense or income which have taken place during a given period of time and shows their net effect. • It is designed to accommodate the various accounts maintained by a trader. • The process of transferring the entries from the journal into the ledger is called posting.
  • 37. Proforma of Ledger Dr. Date Particulars To Name of Credit a/c Cash a/c L.F. Amount () Date Left side Particulars By Name of Debit a/c Cr. L.F. Amount () Right side
  • 38. Posting of ledger • For each item a separate new account is to be opened. • For each account there must be a name. This should be written on the top of the account in the middle. • The debit side of the journal entry is posted to the debit side of the account by starting with To. • The credit side of the journal entry is posted on the credit side of the account by starting with By.
  • 39. Trial Balance • A list of balances of the ledger accounts at a point of time is called trail balance. • The balances of all the ledger accounts are extracted and are written up in a statement known as Trial Balance and finally totaled up to see if the total of debit balances is equal to the total of credit balances. • It is a list of ledger account titles and their respective balances. • As per double entry system, every debit equals to corresponding equal credit. To prove this, statements of debits and credits will be prepared by accountant. This statement is called trail balance.
  • 40. Proforma of Trial balance Sl.No. Name of the Account Debit () Credit ()
  • 41. Errors • Omission of any entry in a subsidiary book. • A wrong entry in a subsidiary book. • Posting an item to the correct side but in the wrong account. Purchase from X and credited to Y. • Compensating errors. • Errors of principles. These errors will not affect the agreement of the Trial Balance as they arise from the debiting or crediting of wrong heads of accounts.
  • 42. Disagreement of the Trial Balance • An item omitted to be posted from a subsidiary book into the ledger • Posting of wrong amount to a ledger account. • Posting an amount to the wrong side of the ledger account. • Wrong additions or balancing of ledger accounts. • Wrong totaling of subsidiary books. • An item in the subsidiary book posted twice to a ledger account. • Balance of some accounts written to the wrong side of the Trial Balance. • An error in totaling the trial balance.
  • 43. Subsidiary Books • Cash book to record cash receipts and payments. • Simple Cash Book: It makes a record of all the receipts and payments of cash. All cash received in the form of coin, notes, cheques, postal orders, bank drafts or treasury notes will be recorded on the debit side and payments on the credit side. • Cash Book with Discount Column • Cash Book with Discount and Bank Column (Three column cash book)
  • 44. Subsidiary Books • Purchases book is for recording all credit purchases of goods. • Sales book is for recording all goods sold on credit. • Purchases returns book (returns outwards book) for recording all purchases returned to creditors. • Sales returns book (returns inwards book) for recording all sales retuned by customers. • Bills Receivable Book to keep a record of bills received from customers. • Bills Payable Book to keep a record of bills payable to creditors. • Journal proper to keep a record of those transactions for which there is no separate book.