Accounting equation, accounting mechanics, subsidiary book, purchase book, sales book, bills receivable book, bill payable book, GAAP, Characteristics of Accounting Principles {Concepts and conventions} Accounting Standards Accounting Equation Subsidiary Books Advantages (Reasons)/ Disadvantages for maintaining subsidiary book Types of Subsidiary books

1. Accounting Equation and
Accounting Mechanics

2.  GAAP
 Characteristics of Accounting Principles {Concepts and
conventions}
 Accounting Standards
 Accounting Equation
 Subsidiary Books
 Advantages (Reasons)/ Disadvantages for maintaining
subsidiary book
 Types of Subsidiary books
Topics Covered

3.  The accounting information has to be reliable and comparable – for
inter firm comparisons and inter period comparison
 Institute of Chartered Accounts of India (ICAI) has laid down certain
principles for standardization
 Generally Accepted Accounting Principles (GAAP) refers to the rules
or guidelines adopted for recording and reporting of business
transactions, in order to bring uniformity in the preparation and
the presentation of financial statements.
 These are concepts and conventions - concept refers to the
necessary assumptions and ideas which are fundamental to
accounting practice, and the term convention connotes customs or
traditions as a guide to the preparation of accounting statements.
*concepts and conventions have been discussed in previous slides
Generally Accepted Accounting
Principles (GAAP)

4.  Accounting standards are written policy documents
covering the aspects of recognition, measurement,
treatment, presentation and disclosure of accounting
transactions in financial statements.
 issued by ICAI
Accounting Standards

5.  to bring uniformity in different accounting policies in
order to eliminate non comparability of financial
statements for enhancing reliability of financial
statements.
 accounting standard provides a set of standard
accounting policies, valuation norms and disclosure
requirements.
 comparability of financial statements, both intra and
inter enterprises
Accounting Standards - Objective/
Need

6.  Accounting standard helps in eliminating variations in
accounting treatment to prepare financial
statements.
 Accounting standard may call for disclosures of
certain information which may not be required by
law, but such information might be useful for general
public, investors and creditors.
 Accounting standard facilitate comparability between
financial statements of inter and intra companies.
Accounting Standards - Benefits

7.  Accounting standard makes choice between different
alternate accounting treatments difficult to apply.
 It is rigidly followed and fails to extend flexibility in
applying accounting standards.
 Accounting standard cannot override the statue. The
standards are required to be farmed within the ambit
of prevailing status
Accounting Standards - Limitations

8.  assets of a business are always equal to the total of its
liabilities and capital
ASSETS = LIABILITY + CAPITAL/ EQUITY
Accounting Equation/ Balance Sheet
Equation

9. TheAccounting Equation could also apply to a
personal situation. Suppose you buy a carfor
$5,000, borrow $4,000 from the bank, and pay the
rest yourself. Here’s the result:
Assets = Liabilities + Equity
Accounting Equation
$5,000
9
= $4,000 + $1,000

10. ASSETSare the
RESOURCESOWNEDBYABUSINESS.
Here are some types of assets that might
be owned by a businesscompany:
Land
Equipment
Buildings
Cash
Vehicles
Store
Supplies
Notes
Receivable
Accounts
Receivable
ASSETS
1
0

11. LIABILITIESare the
11
CREDITOR’SCLAIMSONASSETS.
• Creditors are the people or companies to whom a business
owes something (likemoney).
• Here are some types of liabilities that a company might owe:
Taxes
Payable
Wages
Payable
Notes
Payable
Accounts
Payable
LIABILITIES

12. EQUITY is the OWNER’S CLAIM ON ASSETS
In a business EQUITY is composed of four
parts that either increase or decrease equity:
CAPITAL:
What the
ownerputs
into the
business
−
WITHDRAWALS:
What theowner
takesout of the
business
+
REVENUES:
What the
company
receives for
sales
−
EXPENSES:
What the
company
paysto
operatethe
business.
INCREASE
12
DECREASE INCREASE DECREASE
EQUITY

13. Subsidiary books are the book of original
entry and it is also called primary records
because the first entry of transaction is made
in subsidiary books.
On the basis of subsidiary books postings
are made into concerned account
afterwards.
Introduction to Subsidiary books

14. • posting of each entry becomes easy.
• as one type of transaction are recorded in
one books so it becomes convenient to
locate any desired transaction.
• important descriptions about the transaction
is also made in the related books so a lot of
information related to the transaction is
easily accessible.
Advantages

15. • they may be expensive in case of a small
business as in a small business it is best to
keep journal.
• it requires some basic knowledge of
accountancy as if any of the entries are
recorded incorrect then it will be a problem
or they need to be rectified.
Disadvantages

16. • Purchase book
• Sales book
• Cash book
• Purchase return book
• Sales return book
• Bills received book
• Bills payable book
Types of Subsidiary Books

17.  This book is used for recording goods purchased
on credit.
 also known as invoice book, bought book or purchased
journal.
 It is not necessary to record the transaction in the journal
book where they are entered in the purchases book.
Purchase Book
Date Particular
Invoic
e No.
L.F Amount

18.  Sales book is used for recording goods sold on credit.
 The record in sales book is made from the outward
invoice book which contain the exact copy of each
invoice sent out to the customers.
Sales Book
Date Particular Outward
Invoice no.
L.F Amount

19. • The book used for recording goods return for the seller is
called "Purchase Return Book”.
• Also known as return outwards Book
• While retuning goods buyer prepares debit note.
Purchase Return Book
Date Particulars L.F Debit
Notes
Amount

20.  It is a book used for recording goods
returned by the buyer.
 Also known as returns inward book
 While keeping records in sales return books sellers
prepares a credit note.
Sales Return Book
Date Particular L.F. Credit
Note
Amount

21.  To record cash transaction, separate book is kept
which is called Cashbook.
 The function of cashbook is to keep records of all
cash transactions.
 Cashbook takes the place of cash account that is it
is not necessary to open separate cash account in
the ledger after keeping record in the cashbook.
Cash Book

22.  Simple cash book.
 Double column cash book.
 Petty Cash book
Types of Cash Book

23.  prepared like cash account in ledger.
 All the cash received are entered in amount column on
debit side and all cash paid appear on credit side in
amount column.
 Cash book is closed and balanced at the end of the
month.
Simple Cash Book
Date Particular L.F. Amount Date Particular L.F Amount

24.  A cashbook with discount column is called double column
cashbook.
 Two accounts, cash and discount are combined in this
book. Discount allowed to the customers represent loss.
Double Column Cash Book
Date Particular L.F Discount Amount Date Particular L.F Discount Amount

25.  A cash book with cash and bank column is double
column cashbook.
 In business firm most of the payment are received
and paid by cheque. Transactions are preformed
through bank.
Double Column Cash Book
Date Receipts L.F Cash Bank Date Receipts L.F Cash Bank

26.  Used to record small amount of expenses.
 Like stationary, cleaning charges and postage.
Petty Cash Book
Date Particulars Amount Date Particulars Amount

27.  bills receivable book is used to record the bills
received from debtors. When a bill is received, details
of it are recorded in the bills receivable book.
 In the ledger the account of the person from whom
each bill is received is credited with the amount of
that bill and the periodical total of the book is posted
to the debit of bills receivable account.
Bill Receivable Book
Date
From whom
received
Term Due date L.F. Amount

28.  Bills payable book is used to record bill accepted by us. When
a bill drawn by our creditor is accepted particulars of the same
are recorded in this book.
 In the ledger, the account of each person whose bill has been
accepted is debited with the amount of the bill. The monthly
total of the bills accepted is credited to the bills payable
account ledger.
Bills Payable Book
Date
To whom
given Term Due date L.F. Amount