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Basics of Accounting (1).pptx

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Basics of Accounting (1).pptx

  1. 1. Basics of Accounting
  2. 2. Introduction 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.
  3. 3. Functions • 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. • Recording • Classifying and • Summarizing
  4. 4. 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 prepared. • 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.
  5. 5. 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.
  6. 6. 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 accounting year. 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.
  7. 7. Journal • 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 occurred. • 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
  8. 8. Ledger • 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.
  9. 9. Format
  10. 10. Trial Balance • 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 reporting period
  11. 11. Trial Balance of Orange Limited as on 31st December 2020 S.No Particulars Amount (Rs.) Debit Credit 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
  12. 12. Financial Statements • 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.
  13. 13. Thank You

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