Prof Seema Chakrabarti Preparing books of Accounts…

Prof Seema ChakrabartiProf Seema Chakrabarti

Preparing books of Preparing books of Accounts…..Accounts…..

AccountAccount

An account is a book-keeping device to record increases and decreases in each specific

asset or liability item.

It has two sides divided by a vertical line from the centre, giving it the appearance of alphabet

‘T’ and is, therefore, referred to as ‘T’-account.

Format 2: Ledger Book

Format 1: Journal Book

Account BooksAccount Books

Journal book is a chronological record of transactions and is known as the book of original or first entry.

Ledger book provides details (by listing increases as well as decreases) of each account.

Date Particulars L.F. Dr. Amount Cr. Amount

Posting is the process of transferring entry from journal to ledger.

Date

Particulars

J.

F.

Dr. Amount

Date

Particulars

J.F.

Cr. Amount

Debit and CreditDebit and Credit

Conventionally, the left side of an account is known as the debit (abbreviated Dr.) side and the right side as the

credit (abbreviated Cr.) side. The account balance is always of the higher side.

It is reasonably safe to assume that debtors have debit balance. Debtors are assets. Therefore, all assets have debit balances.

Liabilities are opposite of assets and, therefore, have credit balances.

Profits and revenue/income items are liabilities (as payable to the owners), hence, have credit balances.

Conversely, expenses and loss items have debit balances.

The Accounting Cycle The Accounting Cycle Consists of Seven Consists of Seven Sequential Stages Sequential Stages

1. Transaction analysis

2. Recording transactions in journal books

3. Posting them in ledger books

4. Preparation of trial balance

5. Recording adjustment entries in journal book

6. Closing entries in respect of nominal accounts

7. Preparation of financial statements, namely, Profit and loss account, Profit and loss appropriation account and Balance sheet.

Accounting CycleAccounting CycleAccounting cycle refers to the procedural aspects of

accounting records.

(6) Closing entries

(7) Preparation of Final

Statements

(1) Transaction Analysis

(3) Posting in ledger

(4) Preparation of

Trial Balance

(5) Adjustment Entries

(2)Recording in Journal

Transaction Analysis…….Transaction Analysis…….

It refers to:It refers to:

Segregating Monetary transaction from non Segregating Monetary transaction from non monetary transactionmonetary transaction

Identifying the two accounts involved in the Identifying the two accounts involved in the transaction.transaction.

Classifying the accounts into respective Classifying the accounts into respective categoriescategories

Types of Accounts

Personal (Permanent

Account)

Real (Permanent

Account)

Nominal (Temporary

Account)

Natural Person

Artificial Person

Representa-tive

Person

Tangible Intangible

Recording of Journal Recording of Journal Entries…….Entries…….

Journal – A book of Prime EntryJournal – A book of Prime Entry Since an accounting transaction relating to Since an accounting transaction relating to

business is entered in the accounting records (in business is entered in the accounting records (in accounting terms) for the first time in a journal, it accounting terms) for the first time in a journal, it is also called a Book of Prime Entry. is also called a Book of Prime Entry.

Types of Accounts

Personal (Permanent

Account)

Real (Permanent

Account)

Nominal (Temporary

Account)

Natural Person

Artificial Person

Representa-tive

Person

Tangible Intangible

Rules for Debit and Rules for Debit and CreditCredit

Nominal AccountDebit all expenses and losses and Credit all

revenues, incomes and gains.

Personal AccountDebit the receiver and Credit the giver.

Real AccountDebit what comes in and credit what goes out.

And now…..And now…..

And now…..And now…..

IT’S TIME FOR ASSIGNMENT !!!