Accounting is the system of recording financial
transactions with both numbers and text in the form of
financial statements. It provides an essential tool for
billing customers, keeping track of assets and
liabilities (debts), determining profitability, and
tracking the flow of cash.
The system is largely self-regulated and designed for
the users of financial information, who are referred to
as stakeholders: business owners, lenders, employees,
managers, customers, and others. Stakeholders utilize
financial statements to help make business, lending,
and investment decisions.
• Accounting is a business language which
make (something) clear the various kinds of
transactions during the given period of time.
• Accounting is broadly classified into three
different functions viz.
• Classifying and
Methods of Accounting
• Single Entry: It is incomplete system of recording
business transactions. The business organization
maintains only cash book and personal accounts of
debtors and creditors. So the complete recording of
transactions cannot be made and trail balance cannot be
• Double Entry: It this system every business
transaction is having a twofold effect of benefits giving
and benefit receiving aspects. The recording is made on
the basis of both these aspects. Double Entry is an
accounting system that records the effects of
transactions and other events in at least two accounts
with equal debits and credits.
Classification & Types of Accounts
• I. Personal Accounts
• Natural Personal Accounts: Natural Persons are human beings.
Ex. Debtors, Creditors, Capital A/c , Drawings A/c, etc.
• Artificial Personal Accounts: Artificial persons are not human
beings but can act and work like humans and have separate identity
in the eyes of law like Partnership firms, insurance companies, co-
operative societies, companies, municipal corporations, hospitals,
banks, government bodies, etc.
Ex: Bank of Baroda, Oriental Insurance Co.,
• Representative Personal Accounts: These accounts represent the
accounts of natural or artificial persons. When the expenses
become outstanding or pre-paid and incomes become accrued or
unearned, they fall under this category.
Ex: Outstanding Salary A/c, Pre-paid Rent A/c, Accrued
Interest A/c, Unearned Brokerage A/c, etc.
II. Impersonal Accounts
• Real Accounts: These are the accounts of all the assets
and liabilities of the organization. We do not close these accounts
at the end of the accounting year and appear in the Balance Sheet.
Thus, we carry forward the balances of these accounts to the next
1. Tangible Real Account: It consists of assets, properties or
possessions that can be touched, seen and measured. For example,
Plant A/c, Furniture and Fixtures A/c, Cash A/c, etc.
2. Intangible Real Account: It consists of assets or possessions that
cannot be touched, seen and measured but possess a monetary
value and thus can be purchased and sold also. For example,
Goodwill, Patents, Copyrights, etc.
• Nominal Accounts: Nominal Accounts are the accounts relating to
the expenses, losses, incomes, and gains. Ex: Wages A/c, Salary
A/c, Interest received, purchase A/c, Sales A/c etc.
• A journal entry is the first step in the accounting cycle.
It is book of prime entry or original entry in which all
the business transactions are recorded the first in the
sequence in which the transactions had actually
• A journal details all financial transactions of a business
and makes a note of the accounts that are affected.
Since most businesses use a double-entry accounting
system, every financial transaction impact at least two
accounts, while one account is debited, another account
is credited. This means that a journal entry has equal
debit and credit amounts
• A ledger is a book containing accounts in
which the classified and summarized
information from the journals is posted as
debits and credits. It is also called the second
book of entry.
• A trial balance is a bookkeeping worksheet in
which the balance of all ledgers are compiled
into debit and credit account column totals that
are equal. A company prepares a trial balance
periodically, usually at the end of every
Trial Balance of Orange Limited as on 31st December 2020
S.No Particulars Amount (Rs.)
1 Bank Account 1,000
2 Cash Account 10,000
3 Apple Ltd 50,000
4 Milton Ltd 35,000
5 Purchase A/c 50,000
6 Sales A/c 35,000
7 Rent A/c 12,000
8 Interest received 3,000
Total 98,000 98,000
• Financial statements are the end results of the
completed accounting record. They include the
balance sheet, income statement, statement of
shareholders’ equity, statement of cash flows,
and notes to the financial statements. The
information provides predictive value,
feedback, and timely data to stakeholders.
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