BASIC ACCOUNTING FOR ALL INCLUDING MANAGERS. ACCOUNTING, DOUBLE ENTRY SYSTEM, JOURNEL (defination,advantages/limitations, how to make,) TRAIL BALANCE(defination,limitations/advantages, steps}

1. ACCOUNTING
SUBMITTED TO: SUBMITTED BY:
DR. SUNIL VERMA NITISH KUMAR

2.  The process or work of keeping financial accounts.
 It is a systematic process of identifying, recording, measuring,
classifying, verifying, summarizing, interpreting and communicating
financial information.
 It reveals profit or loss for a given period, and the value and nature of a
firm's assets, liabilities and owners' equity.
INTRODUCTION TO ACCOUNTING

3. Accounting Transactions
and
accounting
 A transaction is an agreement between a buyer and a seller to exchange goods and
services.
 In accounting, the events that affect the finance of a business must be recorded on the
books, and an accounting transaction will be recorded differently if the company
uses accrual accounting rather than cash accounting. Accrual accounting
records transactions when revenues or expenses are realized or incurred, while cash
accounting records transactions when the business actually spends or receives money.

4. 1) The first book on double entry system was written by an Italian
mathematician Fra Luca Pacioli and his close friend Leonardo da Vinci. The
book was entitled as “Summa de arithmetica, geometria, proportioni et
proportionalita” and was first published in Venice in 1494.
2) Based on the fact that each business transaction essentially brings two
financial changes in business. These changes are recorded as debits or credits
in two or more different accounts using certain rules known as “rules of debit
and credit “
3) The double entry system of accounting can be broadly divided into the
following three stages:
 Original records (journal or subdivision of journal)
 Classification (ledger accounts)
 Summary final (accounts).
Double Entry System

5. Journal - The Book of Original Entry
 The word journal has been derived from the French word "Jour" Jour
means day. So, journal means daily.
 A journal is a record of financial transactions in order by date.
 It is a physical record or digital document kept as a book, spreadsheet or
within accounting software.
 Recording a transaction in a journal is called journal entry or journalizing.

6. Advantages
 Journal provides records of all business transactions in one place on the time
and date basis.
 All transactions are recorded on the basis of receipts or bill, so we can check
authenticity of each journal entries with their bills.
 In journal, every transaction is recorded after deep analysis of two accounts on
the basis of double entry system, so there is minimum chance of mistake in
journal.
 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.

7. Limitations of Journal
 Bulky and voluminous
 Information in scattered form
 Time consuming
FORMAT OF JOURNAL

8. Usually there are five columns in the journal
1. DATE(the date of transaction)
2. PARTICULARS(the accounts which are to be debited and credited)
3. Ledger Folio (L.F.)(page number of ledger)
4. Amount (Debit)
5. Amount (Credit)
Example:
Mr. Anil sell goods for cash Rs. 5,000. In this transaction, two accounts are involved viz. Cash Account
and Sales Account. After proper analysis of rules of debit and credit, it can be established that Cash
Account is to be debited and Sales Account is to be credited.
The entry in the journal will be shown as under:

9. Ledger
 The book in which accounts are maintained is called ledger.
 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.
 Ledger is known as the destination of entries in journal.
Transaction
↓
Journal
↓
Ledger

10. Characteristics of Ledger Account
 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.

11. Standard Form of Ledger Account
 In standard form of ledger account, the page of the ledger is divided into two equal halves.
The left hand side is known as the debit side and the right hand side as the credit side. As it
takes the shape of capital letter “T”, it is also known as “T” account.

12. Method of posting
1. Trace the ledger account in which the entries are to be posted.
2. If an account is debited in the general journal, it will be posted on the debit side in the ledger
account and if it is credited in the general journal, it will be posted on the credit side.
3. In PARTICULAR column, the title (name) of the account included in other part of the journal entry
is written. For example, if we are posting an account included in the debit part of the journal entry,
the account or accounts in the credit part will be written in PARTICULAR column.
4. The amount of the entry is written in the amount column of the ledger account.

13. Balancing the ledger account
Balancing means finding out the debit or credit balance of a ledger
account. This process may be divided into the following steps;
1. Total the debit and credit sides of the account.
2. Find out the difference between the two totals found in step one.
3. Put the difference on the lighter side. The difference so placed is the balance of the account. If
the debit side of account is heavier than its credit side, the account is said to have a debit
balance. In case the credit side of the account is heavier than its debit side, the account is said
to have a credit balance. If the total of two sides of account is equal, the balance will be zero.

14. Example
Record the following transactions in general journal and post them into
ledger accounts.
Jan. 01: Mr. A started business with cash $45,000.
Jan. 04: Purchased merchandise for cash $4,500.
Jan. 10: Sold merchandise to Mr. John $1,450.
Jan. 31: Cash received from Mr. John $1,400 and allowed him a discount of
$50.

17. TRIAL BALANCE
 Trial Balance is a list of closing balances of ledger accounts on a
certain date and is the first step towards the preparation of
financial statements.
 It is usually prepared at the end of an accounting period to
assist in the drafting of financial statements.
 Trial balance ensures that for every debit entry recorded, a
corresponding credit entry has been recorded in the books in
accordance with the double entry concept of accounting.
 Trial balance ensures that the account balances are accurately
extracted from accounting ledgers.
 Trail balance assists in the identification and rectification of
errors.

18. How to prepare a Trial Balance
 All Ledger Accounts are closed at the end of an accounting period.
 Ledger balances are posted into the trial balance.
 Trial Balance is cast and errors are identified.
 Suspense account is created to agree the trial balance totals temporarily until corrections are
accounted for.
 Errors identified earlier are rectified by posting corrective entries.
 Any adjustments required at the period end not previously accounted for are incorporated
into the trial balance.

19. Closing Ledger Accounts
Ledger accounts are closed at the end of each accounting period by calculating the totals of debit and
credit sides of a ledger. The difference between the sum of debits and credits is known as the closing
balance. This is the amount which is posted in the trial balance.
• Add the totals of both sides of a ledger
• The higher of the totals among the debit side and credit side must be inserted at the end
of BOTHsides.Closing balance is the balancing figure on the side with the lower balance.
• In case of ledger accounts of assets, liabilities and equity, 'balance c/d' is written next to the closing
balance whereas in case of income and expenses ledger accounts, 'Income Statement' is written next
to the closing balance.
• The closing balances of all ledger accounts are posted into the trial balance.

20. Example
Following is an example of what a simple Trial
Balance looks like:
ABC LTD
Trial Balance as at 31 December 2011
Account Title
Debit Credit
$ $
Share Capital 15,000
Furniture & Fixture 5,000
Building 10,000
Creditor 5,000
Debtors 3,000
Cash 2,000
Sales 10,000
Cost of sales 8,000
General and Administration Expense 2,000
Total 30,000 30,000
The sum of all debit and credit balances are shown at the bottom of their respective
columns

21. LIMITATIONS
 Trial Balance only confirms that the total of all debit balances match the total of all credit balances.
 Trial balance totals may agree in spite of errors.
 a trial balance gives no proof that certain transactions have not been recorded at all.