Basic Accounts

1. Present By,
Mr. V. GURUMOORTHI
Assistant Professor
Department of Commerce.
1
PRINCIPLES OF ACCOUNTANCY /
BUSINESS ACCOUNTING

2. Contents….
1. History of Accounting
2. Book keeping
3. Accounting Meaning
4. Steps of Accounting
5. Types of Accounting
6. Golden Rules
7. Accounting Cycle
8. Accounting concepts & Conventions
9. Journal
10. Ledger
11. Trial Balance
12. Final Accounts2

3. History:
It has evidence in 4-th Century in
Artha Sasthiram Wrote by
Gowdilya.
After 14-th Century, Established
certain procedures in Accounting
system by Italian Merchant Luco
Pacioli.
He Introduced Double Entry
System at 1494.3

4. BOOK KEEPING
It is concerned with the Recording
of Business Transaction in a
systematic manner.
4

5. 5
ACCOUNTING

6. Meaning:
Accounting, the term refers “art of recording, classifying
and summarizing and interpretation of the business
transaction in a significant manner and in terms of
money”.
6

7. 7

8. 8

9. TYPES OF ACCOUTS
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Real A/c
Nominal
A/c
PERSONAL IMPERSONAL
Natural
person
Artificial person
Representative
person
Tangible
Assets
Intangible
Assets
Expenses
Incomes

10. I. Personal Accounts:
Accounts of persons with whom with business has dealings are
known as personal accounts.
A) Natural Persons: Owner, Debtors(Customer),
Creditors(Suppliers).
B) Artificial Persons: Bank, Institution, Company, Government.
C) Representative Persons: Out Standing(O/s), Prepaid
Expenses.
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11. II. IMPERSONAL ACCOUNTS
Other than the personal accounts known as Impersonal
Accounts.
Real Accounts: All assets of the company.
Tangible Assets: It can be see, touch, feel. Such as, Land, Building, Cash, Bank
balance.. ect.,
Intangible Assets: It can’t see, touch, feel. Such as, Copy Right, pattern rights,
Good will, Trade mark.
Nominal Accounts: All Expenses and Incomes. Such as, Salary
paid, Rent paid, Interest received.
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12. GOLDEN RULES
ACCOUNTS DEBIT
ASPECTS
CREDIT
ASPECTS
Personal
Account
Receiver Giver
Real
Account
What
comes in
what
goes out
Nominal
Account
Expenses/
Losses
Incomes/
Gains
12

13. OBJECTIVES OF ACCOUNTING
To maintain accounting records.
To Ascertain true profit or loss.
To Find out correct financial positions.
To provide information to Users.
13

14. ADVANTAGE OF ACCOUNTING
Maintaining Systematic records
Preparation of financial statements
Assessment of progress
Aid to decision making
Full fill Statutory requirements
Information to interested groups
Evidence in courts
Taxation Problems
Merger of firms.
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15. Accounting Concepts and
Conventions
15

16. ACCOUNTING CONCEPT
The term ‘concept’ is used to connote accounting postulate,
that is necessary assumptions and conditions upon which
accounting is based.
These are the theories on how and why certain categories of
transactions should be treated in a particular manner.
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17. Such as,
1. The entity Concept
2. The money measurement concept
3. Going concern concept
4. Dual aspect concept
5. Accounting period concept
6. Realization concept
7. Cost concept
8. Matching concept
9. The accounting Equation Concept
10. Objective evidence concept
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18. • The business and its owner(s) are two separate entities
1. BUSINESS ENTITY CONCEPT

19. Capital (Liability)Capital (Liability)
Drawings (Asset)Drawings (Asset)
The Books Of Accounts are prepared from the
point of view of the business…… Hence,

20. It is assumed that the entity is a going concern,
i.e., it will continue to operate for an indefinitely
long period in future and transactions are
recorded from this point of view.
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2. GOING CONCERN CONCEPT

21. In accounting, a record is made only of those
transactions or events which can be measured
and expressed in terms of money.
21
3. MONEY MEASUREMENT CONCEPT

22. Non monetary transactions are not recorded in
accounting.
Non monetary transactions are not recorded in
accounting.

23. For measuring the financial resultsmeasuring the financial results of a
business periodically, the working life of an
undertaking is split into convenient short
periods called accounting period.
4. ACCOUNTING PERIOD CONCEPT

25. An asset acquired by a concern is recorded in
the books of accounts at historical costhistorical cost (i.e., at
the price actually paid for acquiring the asset).
The market price of the asset is ignored.market price of the asset is ignored.
5. COST CONCEPT

26. Historical Cost
Of
Market Value
Of

27. For Every Debit, there is a
Credit
Every transaction should have aEvery transaction should have a two-two-
sided effectsided effect to the extent of sameto the extent of same
amount..amount..
6. DUAL-ASPECT CONCEPT

28. For Example:
Cash Sales Rs. 10,000

29. Profit is earned when goods or services
are provided/ transferred to
customers. The revenue should be
recognized only when it is legally due
and realizable.
7. REALISATION CONCEPT

30. The matching principle ensures
that revenues and all their
associated expenses are recorded
in the
same accounting period.
Hence, the Outstanding and
prepaid expenses and incomes
have to be properly adjusted.
The matching principle ensures
that revenues and all their
associated expenses are recorded
in the
same accounting period.
Hence, the Outstanding and
prepaid expenses and incomes
have to be properly adjusted.
8. MATCHING CONCEPT

31. 9. ACCOUNTING EQUATION CONCEPT

32. 32
10. OBJECTIVE EVIDENCE CONCEPT
All accounting entries must be based on objective
evidence. It refers, verifiability, reliability and
absence of bias.
All accounting entries must be based on objective
evidence. It refers, verifiability, reliability and
absence of bias.

33. Accounting
Conventions

34. ACCOUNTING CONVENTIONS
Accounting Conventions are the common practices which are
universally followed in recording and presenting accounting
information of business. It helps in comparing accounting data
of different business or of same units for different periods.
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35. Such as,
Convention of Materiality
Convention of Full Disclosure
Convention of Conservatism
Convention of Consistency
35

36. Only those transactions, important
facts and items are shown which are
useful and material for the business.
The firm need not record immaterial
and insignificant items.
1. MATERIALITY

37. Financial Statements and their notes
should present all information that
is relevant and material to the
user’s understanding of the
statements.
2. FULL DISCLOSURE

39. Accountant should always be on
side of safety. FOR uncertainty
3. CONSERVATISM

40. ForExample
• Making Provision for Bad and Doubtful DebtsMaking Provision for Bad and Doubtful Debts
• Showing Depreciation on Fixed Assets, but notShowing Depreciation on Fixed Assets, but not
appreciation…appreciation…

41. The accounting practices and methods should remain
consistent from one accounting period to another.
Whatever accounting practice is followed by the
business enterprise, should be followed on a consistent
basis from year to year.
4. CONSISTENT

42. ForFor
ExampleExample
ForFor
ExampleExample

43. JOURNAL
Journal is the books of
accounts, where all day-to-day
business activities are recorded
in chronological order i.e. date
– wise.
Hence it is called as Day
Book, Primary Book.
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44. JOURNAL FORMAT
DATE PARTICULARS LF DEBIT Rs
[Dr]
CREDIT Rs
[Cr]
Year
Month
Date
Name of account to be
debited.
To, Name of account to
be credited.
[Narration]
*****
*****
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45. LEDGER
Ledger the term refers,
Posting the journal
entry in separate books.
It has ‘T’ Format
Left hand side Dr &
Right hand side Cr.
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46. LEDGER FORMAT
Dr Name of Account Cr
Dt. PARTICULAR Rs Rs. Dt. PARTICULAR Rs. Rs.
To, Name of credit
A/c
**** **** By, Name of debit
A/c
**** ****
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47. TRIAL BALANCE
A listing of all accounts with balances at the end of the
accounting period after all transactions have journalized
and posted.
Purpose…….
1. to determine that debits = credits,
2. to identify accounts to be adjusted.
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48. TRIAL BALANCE FORMAT
SL
NO
PARTICULARS LF DEBIT BALANCE
RS
CREDIT
BALANCE
RS
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49. JOURNAL, LEDGER, & TRIAL
BALANCE
1. Transactions are analyzed
and recorded in journal.
2. Transactions are posted from
journal to ledger.
3. Trial balance is prepared.
Trial Balance
Documents Journal
Journal Ledger
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50. FINAL ACCOUNTS
50

51. TRADING ACCOUNT
It is prepared for a specific period to know the trading
results of the business.
It is mainly prepared to ascertain the gross profit or
gross loss….
51

52. Dr Trading Account for the year ended …………. Cr
Particular Amount Amount Particulars Amount Amount
To Opening Stock xxx By Cash Sales xxx
To Cash Purchase xxx
Less: Sales Return xxx
Less: Purchase Return xxx By Net Sales xxxx
To Net Purchase xxxx By Closing Stock xxx 1
Direct Expenses
To Wages xxx
To Carriage Inward xxx
To Factory Lighting xxx
To Fuel, Coal, Oil xxx
To Duty on Import of Material xxx
To Octroi duty xxx
To Gross Profit * C/d xxx By Gross Loss * C/d xxx
xxxx xxxx
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53. PROFIT AND LOSS A/C
It is an account into which all gains and losses are
collected in order to ascertain the excess of gains
over the losses or vice versa.
It prepared in order to calculate the net profit or
net loss of the business.
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54. Dr Profit and Loss Account for the year ended …………. Cr
Particulars Amount Amount Particulars Amount Amount
To Gross Loss* B/d xxx By Gross Profit* B/d xxx
Office & Administrative Expenses:
To Salaries xxx By Rent Received (Tenants) xxx
Add: Outstanding Expenses xxx 2 xxxx
To Rent & Rates and Taxes xxx
Less: Pre Paid Expenses xxx 3 xxxx
To Office Lighting xxx
To Printing & Stationery xxx
To Insurance Premium xxx
To Postage & Telegram xxx
To Telephone Charges xxx
To Audit Fees xxx
To General Expenses xxx
To Legal Charges xxx
To Miscellaneous Expenses Paid xxx54

55. Dr Profit and Loss Account for the year ended …………. Cr
Particulars Amount Amount Particulars Amount Amount
Selling & Distribution Expenses:
To Salaries to Sales Staff xxx
To Commission Charges(paid) xxx By Commission Received xxx
To Advertising Charges xxx
To Carriage Outward xxx
To Packing Expenses xxx
To Bad Debts old xxx
Add: Further Bad Debts xxx 4
Add: New Provision For Bad & Doubtful
debts % Value (Debtor x %)
xxx 5
xxxx
Less: Old Provision for bad debts xxx xxxx
To Provision For Discount on Debtors xxx 6 By Provision For Discount on Creditors xxx 7
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56. Dr Profit and Loss Account for the year ended …………. Cr
Particulars Amount Amount Particulars Amount Amount
Financial Expenses:
To Interest on Capital xxx 8 By Interest on Drawings xxx 9
To Interest on loans xxx By Interest on Investment xxx
To Trade Discount Allowed xxx By Trade Discount Received xxx
To Cash Discount Allowed xxx By Cash Discount Received xxx
By Interest on Debenture xxx
Maintenance Expenses:
To Depreciation on Fixed Assets xxx10
To Repair & Maintenance xxx
Extraordinary Expenses:
To Loss by Fire(Not covered Insurance) xxx
To Loss on of assets xxx By Profit on of assets xxx
To Net Profit* C/d xxx By Net Loss* C/d xxx
xxxx xxxx
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57. BALANCE SHEET
It is prepared with a view to measure the correct
financial position of a business enterprise on a certain
fixed date.
It is a statement containing all the unclosed balances
of “REAL” & “PERSONAL” accounts.
Capital + Liabilities = Assets
or
Asset- Liabilities = Capital
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58. BALANCE SHEET AS ON…...
Liabilities Amount
Amoun
t
Assets Amount Amount
Fixed Liabilities: Fixed Assets:
Capital xxx Plant & Machinery xxx
Add: Interest on Capital xxx Less: Depreciation % xxx
Add: Net Profit xxx Land & Building xxx
xxx Furniture & Fixtures xxx
Less: Drawings xxx Motor Car xxx
Interest On Drawings xxx 9
Net Loss xxx xxx xxxx
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59. BALANCE SHEET AS ON…...
Liabilities Amount Amount Assets Amount Amount
Current Liabilities: Current Assets :
Bank Over draft Liquid Assets:
Bills Payable Cash in Hand xxx
Provision for taxation Cash at Bank xxx
Outstanding Expenses xxx 2
Pre received incomes
Short-term advantages & Loans
Income tax payable
Trade Creditors xxx
Less: Provision for Discount on
Creditors (Creditors x % Value)
xxx 7
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60. BALANCE SHEET AS ON…...
Liabilities Amount Amount Assets Amount Amount
Floating Assets
Inventories (Stock) xxx 1
Investment (Short-term)
Bills Receivable
Pre paid expenses xxx 3
Outstanding Incomes
Trade Debtors xxx
Less: Further / New Bad
Debts
xxx 4
New Provision for
Bad & Doubtful debts
xxx 5
Provision For
Discount on Debtors
xxx 6 xxxx xxxx
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61. BALANCE SHEET AS ON…...
Liabilities Amount Amount Assets Amount Amount
Long Term Liabilities: Intangible Assets:
Loan From Bank xxx Good Will xxx
Debentures xxx Patents xxx
Dividend payable xxx Copy Right xxx
Fictitious Assets:
Miscellaneous Expenses xxx
xxxx xxxx
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