2. Learning objectives:
To understand the Accounting mechanism
To understand the Double Entry system
To understand the meaning of account and
classification of accounts
Conceptual frame work of Financial Accounting
To know how to prepare the Final Accounts.
3. Double Entry System
It recognizes that every transaction has a twofold
effect.
The method of writing every transaction in to two
accounts, of these two accounts, one A/c is given
„Debit‟ while other one is given „Credit‟ with an
equal amount so that the Accounting Equation is
always in balance.
On any date
Total Debits = Total Credits
4. The Recording Process
The sequence of steps in recording
transactions:
Transactions Documentation Journal
Financial
Statements
Trial
Balance
Ledger
5. ACCOUNTING MECHANISM
1. Recording
Journalizing
2. Classifying
Ledger preparation
3. Summarizing
Balancing the ledger
Preparation of Trial Balance
Preparation of Profit and Loss A/c
Preparation of Balance Sheet
4. Interpreting the results.
6. JOURNAL
The book of original entry.
Recording of entries in the journal is
known as Journalising.
Large Firms/Concerns maintain special
journals also known as Subsidiary Books.
7. SUBSIDIARY BOOKS
1. Cash Book:
Simple
Two column
Three column
2. Purchase Book
3. Purchase returns Book
4. Sales Book
5. Sales returns book
6. Bills Receivable book
7. Bills Payable Book
8. Journal Proper
8. LEDGER
It is set of all accounts.
It contains a classified summery of all
transactions recorded in journal.
9. ACCOUNT - MEANING
An individual record of increases and
decreases in an item that is likely to be of
interest or importance.
It is “T” shaped
Debit is left side of “T” account
Credit is right side of “T” account
10. Classification of Accounts
Classification of Accounts
Individuals
Physical
Firms,
Companies,
Banks
Artificical
O/s Exp
O/s salaries
Prepaid Exp
Representative
Personal A/cs
Assets like
Cash, land,
Building, Plant,
Patents, etc..
Real A/cs
Exps or Losses,
Or Incomes
or Profits
Nominal A/cs
Impersonal A/cs
Accounts
11. Rules of Double Entry System
Personal A/c Real A/c Nominal A/c
Debit: The Receiver What
comes in
All expenses
and Losses
Credit: The giver What
goes out
All incomes
and gains
12. Conceptual frame work of
Financial Accounting
Profit and Loss A/c Profit/loss transferred to
Balance Sheet
Balance Sheet
(Assets and Liabilities)
Output: Trial Balance
Ledger
Jounal
Principle: Double Entry System
Sub: Financial Accounting
13. TRIAL BALANCE
A statement of Debit and Credit totals or
balances extracted from the various
accounts in the Ledger.
Objectives:
To facilitate the preparation of Final Accounts.
To check the arithmetical accuracy of the
books.
14. CAPITAL AND REVENUE ITEMS
Capital Expenditure:
– The benefit of which is not fully derived in
one year but spread over several periods.
– Eg: Acquisition of assets, additions to fixed
assets
Revenue Expenditure:
– The benefit of which is derived in the year in
which the expenditure was incurred.
– Eg: Raw material, Rent, wages and salaries.
15. FINAL ACCOUNTS
Include preparation of:
Trading and Profit and Loss A/c
– To know the operating performance of the
business i.e.profitability.
Balance Sheet
– To know the financial position of the firm on a
particular date.
