1. Approaches to Book Keeping
1. Accounting Equation Approach
g q pp
• Transaction is recorded in such way that
equation is always maintained
2. Traditional / Conventional Approach
• Transaction is recorded in such way that
accounts are debited & credited with same
amount
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2. Formal process of Accounting
1. Identification of transactions
2. Preparation of vouchers
3.
3 Recording in Subsidiary books: Journalising
4. Posting to Ledger: Ledger posting
5. Preparing Trial Balance
6. Drawing GPFS
g
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3. Account?
Acco nt?
• An account is an aggregated description of
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all the transactions occurred in the
accounting period related to a person,
g p p
property, revenue or expense.
• Every account is a T-shaped and has two
T shaped
sides Debit and Credit.
• Accounts are of three types –
• Personal
• R l
Real
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• nominal
4. Check d t di
Ch k understanding
Identify Real, Nominal & Personal accounts
Capital introduced Drawings A/c
Cash received Interest paid
Discount received Bank A/c
Bank overdraft Bad debt written off
Outstanding salaries Prepaid rent
Purchases A/c Sales A/c
Carriage inward Bad debt recovered
Interest accrued A/c Goodwill
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Leasehold property
5. Golden rules of Accounting
• For personal accounts –
• Debit the Receiver & credit the Giver
• For real accounts –
• Debit what comes in & credit what goes out
• For nominal accounts –
• Debit all losses and expenses & credit all gains
and incomes
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6. Golden rules under the
Equation Approach
Asset
A t Liability
Li bilit
Increase (+) Debit Credit
Decrease (-) Credit Debit
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7. Check your understanding
Will you do debit or credit?
y
1. Increase in Revenue
2.
2 Decrease in expenses
3. Drawing
4. Further capital introduction
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8. A Special Account: Goods
• Too important to balance
p
• This real account is broken into –
• Sales Account – Nominal
• Purchase Account – Nominal
• Sales Return Account – Nominal
• Purchase Account – Nominal
• Closing Account – Real
Acco nt
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9. Trial Balance
• An off-ledger statement
• Lists all account balances
• A debit balance represents: Asset or Expense
• A credit balance represents: Liability or
co e
Income
• Nominal accounts are not balanced
• Rather transferred to P/L A/c via closing entries
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