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NEED FOR INFORMATION
INFORMATION
QUANTITATIVEINFORMATION
MANAGEMENTACCOUNTING
NON QUANTITATIVEINFORMATION
ACCOUNTINGINFORMATION
NON ACCOUNTINGINFORMATION
FINANCIALACCOUNTING
OPERATINGINFORMATION
DEFINITION OF ACCOUNTING
THE process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.
-American Accounting Association Committee
ACCOUNTING – HISTORICAL ANTECEDENTS
When humans began keeping accounting records in their head ?Symbols recording transactions3200BC – Sumerian civilisation in Mesopotamia kept records in clay tablets.1400BC – In Greece slaves used as scribes and auditors, it was assumed that statements from slaves who could be tortured would be more reliable that those from freemen990BC – Scribes in Babylonia and Egypt received formal accounting training in school.521-486BC – Persia under Darius had government scribes who performed surprise audits of accounts of the province4AD – In Byzantine empire, Constantine founded a public administration school in which accounting was taught.642-814AD - Roman empire under Charlemagne continued examples of government accountants and auditors.In the 15th century, branches of the Medici Bank were required to submit annual balance sheets to the main office in Florence.
ACCOUNTING – A LANGUAGE
ACCOUNTING – LANGUAGE OF BUSINESS.
COMPLICATION SIMILAR TO TASK OF LEARNING NEW LANGUAGE.
WORDS USED IN A DIFFERENT SENSE IN ACCOUNTING THAN IN THEIR COLLOQUIAL MEANING (EG: NET WORTH).
SOME ACCOUTING RULES ARE DEFINITE OTHERS ARE NOT.
ACCOUNTING NOT STATIC – RULES SUBJECT TO CHANGE
BASIC CONCEPTS
1. Money measurement.Record is made only of information that can be expressed in monetary terms.
2. Entity.Accounts kept for entities, as distinguished from the persons who are associated with these entities.
3. Going concern.Entity will continue to operate for an indefinitely long period in the future.
4. Cost concept.The economic resources of an entity is ordinarily entered in the accounting records at the price paid to acquire it.
5. Dual aspect.Since all of the assets of a business are claimed by someone and since the total of these claims cannot exceed the amount of assets to be claimed it follows that ASSETS = LIABILITIES & EQUITIES
BASIC CONCEPTS6. Accounting period.Accounting measures activities for a specified interval of time called accounting period. (Pacioli, first author of an accounting text, wrote in 1494: “ Books should be closed each year, especially in a partnership, because frequent accounting makes for long partnership.”)
7. Conservatism.Recognition of revenues requires better evidence than does recognition ofexpenses.
8. Consistency.All the policies adopted for preparing financial statements should be consistently Followed by the entity.
10. Materiality.Insignificant events may be disregarded, but there must be full disclosure of all important information.
ACCOUNTING PROCESS
ACCOUNTING PROCESS
IDENTIFICATION OF THE ECONOMIC EVENTS
CLASSIFYING THE BUSINESS TRANSACTIONS
MEASUREMENT IN RUPEES
RECORDING THE BUSINESS TRANSACTIONS
ANALYSING AND INTERPRETING THE BUSINESS TRANSACTIONS
ACCOUNTING CYCLE
TRANSACTIONS
PREPARATION OF JOURNAL AND SUBSIDIARY BOOKS
LEDGER POSTINGS
EXTRACTING TRIAL BALANCE
PREPARING FINANCIAL STATEMENTS, TRADING AND PROFIT AND LOSS ACCOUNTS AND BALANCE SHEET
FORMAL ACCOUNTING - DOUBLE ENTRY SYSTEM OF BOOK KEEPING
METHOD OF RECORDING TWO-FOLD EFFECTS OF EVERY
TRANSACTION.
BOTH DEBIT AND CREDIT ASPECT OF A TRANSACTION IS
RECORDED.
FORMAL ACCOUNTING USES A SET OF BOOKS AND
LEDGERS TO RECORD TRANSACTIONS.
LEDGER ( T-ACCOUNTS) ARE PREPARED FROM WHICH
TRIAL BALANCES AND FINANCIAL STATEMENTS ARE
DRAWN.
RULES OF DEBIT AND CREDIT
T - ACCOUNT
DEBIT SIDE CREDIT SIDE
ASSET
INCREASE OR ADDITIONS ON THE DEBIT SIDE
" + " ON LEFT HAND SIDE
DECREASE OR DEDUCTION ON THE CREDIT SIDE
“ - " ON RIGHT HAND SIDE
RULES OF DEBIT AND CREDIT
T - ACCOUNT
DEBIT SIDE CREDIT SIDE
LIABILITY (EXTERNAL) & CAPITAL(INTERNAL)
DECREASE OR DEDUCTION ON THE DEBIT SIDE
“ - " ON LEFT HAND SIDE
INCREASE OR ADDITIONS ON THE CREDIT SIDE
" + " ON RIGHT HAND SIDE
RULES OF DEBIT AND CREDIT
T - ACCOUNT
DEBIT SIDE CREDIT SIDE
EXPENSES / LOSSES
INCREASE OR ADDITIONS ON THE DEBIT SIDE
" + " ON LEFT HAND SIDE
DECREASE OR DEDUCTION ON THE CREDIT SIDE
“ - " ON RIGHT HAND SIDE
RULES OF DEBIT AND CREDIT
T - ACCOUNT
DEBIT SIDE CREDIT SIDE
REVENUES / GAINS
DECREASE OR DEDUCTION ON THE DEBIT SIDE
“ - " ON LEFT HAND SIDE
INCREASE OR ADDITIONS ON THE CREDIT SIDE
" + " ON RIGHT HAND SIDE
GREEN COMPANY – Transaction 1
RAMASWAMY STARTED BUSINESS WITH CASH RS 1,00,000
Dr CASH (ASSET) Cr
Capital Rs 1,00,000
Dr RAMASWAMY CAPITAL (EQUITY AND LIABILITY) Cr
Cash Rs 1,00,000
GREEN COMPANY – Transaction 2
GREEN COMPANY RAISED BANK LOAN OF RS 50,000
Dr CASH (ASSET) Cr
Capital 1,00,000Bank loan 50,000
Dr BANK LOAN (EQUITY AND LIABILITY) Cr
Cash 50,000
GREEN COMPANY – Transaction 3
GREEN COMPANY BOUGHT A BUILDING FOR RS 25,000 AND PAID IN CASH.
Dr CASH (ASSET) Cr
Capital 1,00,000Bank loan 50,000
Building 25,000
Dr BUILDING (ASSET) Cr
Cash 25,000
GREEN COMPANY – Transaction 4
GREEN COMPANY BOUGHT STOCK OF SUGAR FOR RS 10,000
Dr CASH (ASSET) Cr
Capital 1,00,000Bank loan 50,000
Building 25,000Stock 10,000Dr STOCK (ASSET)
Cr
Cash 10,000
GREEN COMPANY – Transaction 5
GREEN COMPANY SOLD THE ENTIRE STOCK OF SUGAR FOR RS 12,000
Dr CASH (ASSET) Cr
Capital 1,00,000Bank loan 50,000Sales 12,000
Building 25,000Stock 10,000Dr STOCK (ASSET)
Cr
Cash 10,000
Cost of goods sold 10,000
Dr COST OF GOODS SOLD (EXPENSE) Cr
Stock 10,000
Dr SALES (INCOME) Cr
Cash 12,000
GREEN COMPANY
RECOLLECT HOW MANY T – ACCOUNTS HAVE WE PREPARED
1. CASH ACCOUNT (Asset)
2. RAMASWAMY CAPITAL ACCOUNT (Liability)
3. BANK LOAN ACCOUNT (Liability)
4. BUILDING ACCOUNT (Asset)
5. STOCK ACCOUNT (Asset)
6. COST OF GOODS SOLD ACCOUNT (Expense)
7. SALES ACCOUNT (Income)
YELLOW COMPANY – Transaction 1RAMASWAMY STARTED BUSINESS WITH CASH RS 50,000 AND AVAILED
LOAN OF RS 75,000
Dr CASH (ASSET) Cr
Capital Rs 50,000Loan Rs 75,000
Dr RAMASWAMY CAPITAL (EQUITY AND LIABILITY) Cr
Cash Rs 50,000
Dr MRS RAMASWAMY LOAN(EQUITY AND LIABILITY) Cr
Cash Rs 75,000
YELLOW COMPANY – Transaction 2
YELLOW COMPANY BOUGHT A BUILDING FOR RS 10,000 AND PAID IN CASH.
Dr CASH (ASSET) Cr
Capital 50,000Loan 75,000
Furniture 10,000
Dr FURNITURE(ASSET) Cr
Cash 10,000
YELLOW COMPANY – Transaction 3
YELLOW COMPANY BOUGHT RS 50,000 WORTH OF CEMENT ON CREDIT.
Dr STOCK(ASSET) Cr
Creditors 50,000
Dr CREDITORS (LIABILITY) Cr
Stock 50,000
YELLOW COMPANY – Transaction 4
YELLOW COMPANY SOLD ENTIRE STOCK OF CEMENT FOR RS 60,000 ON CREDIT.
Dr STOCK(ASSET) Cr
Creditors 50,000 Cost of goods sold 50,000
Dr DEBTORS (ASSET) Cr
Sales 60,000Dr COST OF GOODS SOLD (EXPENSE) Cr
Stock 50,000
Dr SALES (INCOME) Cr
Debtors 60,000
YELLOW COMPANY – Transaction 5
YELLOW COMPANY RECEIVED FROM CEMENT PURCHASER RS 60,000
Dr CASH (ASSET) Cr
Capital 50,000Loan 75,000Debtor 60,000
Furniture 10,000
Dr DEBTORS (ASSET) Cr
Sales 60,000
Cash 60,000
YELLOW COMPANY – Transaction 6
YELLOW COMPANY PAID RS 50,000 TO SUPPLIER
Dr CASH (ASSET) Cr
Capital 50,000Loan 75,000Debtor 60,000
Furniture 10,000Creditor 50,000
Dr CREDITORS (LIABILITY) Cr
Cash 50,000
Stock 50,000
YELLOW COMPANY – Transaction 7YELLOW COMPANY REPAID LOAN RS 25,000
Dr MRS RAMASWAMY LOAN(EQUITY AND LIABILITY) Cr
Cash 25,000
Cash Rs 75,000
Dr CASH (ASSET) Cr
Capital 50,000Loan 75,000Debtor 60,000
Furniture 10,000Creditor 50,000Loan 25,000
GREEN COMPANY
RECOLLECT HOW MANY T – ACCOUNTS HAVE WE PREPARED
1. CASH ACCOUNT (Asset)
2. RAMASWAMY CAPITAL ACCOUNT (Liability)
3. MRS RAMASWAMY LOAN ACCOUNT (Liability)
4. FURNITURE ACCOUNT(Asset)
5. STOCK ACCOUNT (Asset)
6. CREDITOR ACCOUNT (Liability)
7. DEBTOR ACCOUNT (Asset)
8. COST OF GOODS SOLD ACCOUNT (Expense)
9. SALES ACCOUNT (Income)
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000
DR 2. CAPITAL A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX By Cash 10,000
1. Sept 1, Began business by investing cash Rs 10,000 in company’s share capital.
IN THE BOOKS OF WOODCRAFT COMPANY
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
DR 3. RENT IN ADVANCE A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
4.9.XX To Cash 2,000
2. Sept 4, Paid two months rent in advance for a shop Rs 2,000.
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) opened earlier continues.
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
5.9.XX By Equipment 1,200
DR 4. EQUIPMENT A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
5.9.XX To Cash 1,200
3. Sept 5, Bought equipment for cash Rs 1,200.
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2), Rent in advance account (3) opened earlier continues.
DR 5. SUPPLIES A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
7.9.XX To Creditors 700
DR 6. CREDITORS A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
7.9.XX By Supplies 700
4. Sept 7, Bought supplies on credit, Rs 700
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) , Rent in advance account (3), Cash account (1), Equipment account (4)
opened earlier continues.
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
10.9.XX To Revenue 8,600 5.9.XX By Equipment 1,200
DR 7. REVENUE FROM SERVICE A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
10.9.XX By Cash 8,600
5. Sept 10, Received payment for remodeling a kitchen Rs 8,600
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) , Rent in advance account (3), Equipment account (4), Supplies account
(5), Creditors account (6) opened earlier continues.
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
10.9.XX To Revenue 8,600 5.9.XX By Equipment 1,200
14.9.XX By Advertisement 1,400
DR 8. ADVERTISEMENT A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
14.9.XX To Cash 1,400
6. Sept 14, Paid for advertisement that appeared in local newspaper Rs 1,400.
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) , Rent in advance account (3), Equipment account (4), Supplies account
(5), Creditors account (6), Revenue account (7) opened earlier continues.
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
10.9.XX To Revenue 8,600 5.9.XX By Equipment 1,200
17.9.XX To Revenue 11,200 14.9.XX By Advertisement 1,400
7. Sept 17, Received payment for furnishing office room Rs 11,200
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) , Rent in advance account (3), Equipment account (4), Supplies account
(5), Creditors account (6), Advertisement account (8) opened earlier continues.
DR 7. REVENUE FROM SERVICE A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
10.9.XX By Cash 8,600
17.9.XX By Cash 11,200
8. Sept 23, Billed customers for work done other than on cash terms Rs 13,100
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) , Rent in advance account (3), Equipment account (4), Supplies account
(5), Creditors account (6), Advertisement account (8) , Cash account (1) opened earlier
continues.
DR 7. REVENUE FROM SERVICE A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
10.9.XX By Cash 8,600
17.9.XX By Cash 11,200
23.9.XX By Debtors 13,100
DR 9. DEBTORS A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
23.9.XX To Revenue 13,100
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
10.9.XX To Revenue 8,600 5.9.XX By Equipment 1,200
17.9.XX To Revenue 11,200 14.9.XX By Advertisement 1,400
25.9.XX By Wages 1,500
9. Sept 25, Paid wages to assistant Rs 1,500
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) , Rent in advance account (3), Equipment account (4), Supplies account
(5), Creditors account (6), Revenue account (7), Advertisement account (8) , Debtors account
(9) opened earlier continues.
DR 10. WAGES A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
25.9.XX To Cash 1,500
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
10.9.XX To Revenue 8,600 5.9.XX By Equipment 1,200
17.9.XX To Revenue 11,200 14.9.XX By Advertisement 1,400
25.9.XX By Wages 1,500
28.9.XX By Electricity 240
10. Sept 28, Paid electricity charges Rs 240
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) , Rent in advance account (3), Equipment account (4), Supplies account
(5), Creditors account (6), Revenue account (7), Advertisement account (8) , Debtors account
(9), Wages account (10) opened earlier continues.
DR 11. ELECTRICITY CHARGES A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
28.9.XX To Cash 240
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
10.9.XX To Revenue 8,600 5.9.XX By Equipment 1,200
17.9.XX To Revenue 11,200 14.9.XX By Advertisement 1,400
29.9.XX To Debtors 4,800 25.9.XX By Wages 1,500
28.9.XX By Electricity 240
11. Sept 29, Received from customers billed amount of Rs 4,800
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) , Rent in advance account (3), Equipment account (4), Supplies account
(5), Creditors account (6), Revenue account (7), Advertisement account (8) , Wages account
(10), Electricity account (11) opened earlier continues.
DR 9. DEBTORS A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
23.9.XX To Revenue 13,100 29.9.XX By Cash 4,800
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
10.9.XX To Revenue 8,600 5.9.XX By Equipment 1,200
17.9.XX To Revenue 11,200 14.9.XX By Advertisement 1,400
29.9.XX To Debtors 4,800 25.9.XX By Wages 1,500
28.9.XX By Electricity 240
30.9.XX By Dividend 2,500
12. Sept 30, Paid a dividend Rs 2,500
IN THE BOOKS OF WOODCRAFT COMPANY
Capital account (2) , Rent in advance account (3), Equipment account (4), Supplies account
(5), Creditors account (6), Revenue account (7), Advertisement account (8) , Wages account
(10), Electricity account (11), Debtors account (9) opened earlier continues.
DR 12. DIVIDEND A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
30.9.XX To Cash 2,500
DR 1. CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
1.9.XX To Capital 10,000 4.9.XX By Rent advance 2,000
10.9.XX To Revenue 8,600 5.9.XX By Equipment 1,200
17.9.XX To Revenue 11,200 14.9.XX By Advertisement 1,400
29.9.XX To Debtors 4,800 25.9.XX By Wages 1,500
28.9.XX By Electricity 240
30.9.XX By Dividend 2,500
30.9.XX By Balance 25,760
34,600 34,600
Ascertaining the closing balance
IN THE BOOKS OF WOODCRAFT COMPANY
DR 2. CAPITAL A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
30.9.XX To balance 10,000 1.9.XX By Cash 10,000
10,000 10,000
Ascertaining the closing balance
IN THE BOOKS OF WOODCRAFT COMPANY
DR 3. RENT IN ADVANCE A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
4.9.XX To Cash 2,000 30.9.XX By Balance 2,000
2,000 2,000
DR 4. EQUIPMENT A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
5.9.XX To Cash 1,200 30.9.XX By Balance 1,200
1,200 1,200
DR 5. SUPPLIES A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
7.9.XX To Creditors 700 30.9.XX By Balance 700
700 700
DR 6. CREDITORS A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
30.9.XX To balance 700 7.9.XX By Supplies 700
700 700
Ascertaining the closing balance
IN THE BOOKS OF WOODCRAFT COMPANY
DR 7. REVENUE FROM SERVICE A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
30.9.XX To balance 32,900 10.9.XX By Cash 8,600
17.9.XX By Cash 11,200
23.9.XX By Debtors 13,100
32,900 32,900
DR 8. ADVERTISEMENT A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
14.9.XX To Cash 1,400 30.9.XX By Balance 1,400
1,400 1,400
DR 9. DEBTORS A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
23.9.XX To Revenue 13,100 29.9.XX By Cash 4,800
30.9.XX By Balance 8,300
13,100 13,100
Ascertaining the closing balance
IN THE BOOKS OF WOODCRAFT COMPANY
DR 10. WAGES A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
25.9.XX To Cash 1,500 30.9.XX By Balance 1,500
1,500 1,500
DR 11. ELECTRICITY CHARGES A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
28.9.XX To Cash 240 30.9.XX By Balance 240
240 240
DR 12. DIVIDEND A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
30.9.XX To Cash 2,500 30.9.XX By Balance 2,500
2,500 2,500
TRIAL BALANCE – WOODCRAFT COMPANY
PARTICULARS DEBIT (RS.) CREDIT (RS.)
CASH 25,760
CAPITAL 10,000
PREPAID RENT 2,000
EQUIPMENT 1,200
SUPPLIES 700
CREDITORS 700
REVENUE 32,900
ADVERTISEMENT 1,400
DEBTORS 8,300
WAGES 1,500
ELECTRICITY 240
DIVIDEND 2,500
43,600 43,600
VENU’S MUSIC CORNER - PROFIT AND LOSS ACCOUNT
PARTICULARS RS RS
Revenues from services 12,660
Expenses
Salaries 5,600
Electricity 410
Advertisement 130
Rent 300 6,440
Profit for the year 6,220
VENU’S MUSIC CORNER – BALANCE SHEET
PARTICULARS
ASSETS
CASH 570
DEBTORS 1,210
SUPPLIES 2,190
EQUIPMENT 25,500 29,470
LIABILITIES
CREDITORS 2,510
UNEARNED INCOME 600
EQUITY
VENUGOPAL CAPITAL
Opening balance 21,140
Add: Additions during the year 3,000
Add: Profit 6,220
30,360
Less: Drawings 4,000 26,360 29,470
DR CASH A/C CR
DATE PARTICULARS J.F AMOUNT(RS) DATE PARTICULARS J.F AMOUNT (RS)
01.03.12 Balance 5,000 02.03.12 Salary 2,500
01.03.12 Revenue 3,600 03.03.12 Bank loan repaid 2,000
12.03.12 Unearned revenue 1,400 06.03.12 Supplies 700
26.03.12 Receivable 7,850 08.03.12 Maintenance 900
09.03.12 Advertisement 300
14.03.12 Electricity 650
28.03.12 Creditors 440
29.03.12 Prepaid Insurance 830
30.03.12 Dividend 1,100
31.03.12 Balance c/d 8,430
17,850 17,850
01.04.12 Balance b/d 8,430
Ascertaining the closing balance
IN THE BOOKS OF RELIANCE TENNIS LIMITED
RELIANCE TENNIS LIMITED – TRIAL BALANCE
PARTICULARS DEBIT (RS.) CREDIT (RS.)
Tennis court 20,000
Accounts receivable 1,180
Cash 8,430
Supplies 4,100
Unearned revenue 4,200
Bank loan payable 4,000
Share capital 23,000
Dividends 3,200
Revenue from services 19,740
Electricity expenses 1,480
Insurance expenses 2,720
Prepaid insurance 830
Repairs & maintenance 2,100
Salaries 6,600
Advertisement 300
50,940 50,940
ANUPAMA SECURITIES LTD
Revenue
Broking commission earned (24,630 + 910) 25,540
Expenses
Salaries expenses (6,400+340) 6,740
Electricity expenses 720
Telephone expenses 910
Rent expenses (4,400+400) 4,800
Interest on loan (20,000 @ 15% for 4 months) 1,000
Supplies (1,430- 680) 750
Depreciation on computer 3,600 18,520
PBT 7,020
Less: Tax @ 50% 3,510
PAT 3,510
VASAN VIDEO LTD
Capital 20,000
Revenue 22,590
Supplies 1,540
Debtor 970
Insurance 1,200
Creditor 6,450
Expenses 2,210
Rent 3,000
Advance rent 500
Salary 9,620
Unearned revenue 1,300
Camera 30,000
Salary payable 380
Electricity 1,005
Telephone 450
Prepaid insurance 1,200
Electricity charges payable 95
Bank charges 880
51,695 51,695
JOURNAL
WORD JOURNAL HAS BEEN DERIVED FROM THE FRENCH WORD
‘JOUR’ WHICH MEANS A DAY. THEREFORE JOURNAL MEANS DAILY
RECORD.
JOURNAL IS A BOOK IN WHICH DAY TO DAY TRANSACTIONS ARE
RECORDED.
IN JOURNAL EACH TRANSACTION IS CLASSIFIED INTO DEBIT AND
CREDIT ASPECT AND BOTH THE ASPECT ARE RECORDED
TOGETHER WITH EXPLANATION FOR EACH ENTRY.
THE PROCESS OR ACT OF RECORDING A TRANSACTION IN THE
JOURNAL IS CALLED JOURNALISING. THE RECORD OF A
TRANSACTION IN THE JOURNAL IS CALLED JOURNAL ENTRY.
FINANCIAL STATEMENTS
STAGES IN ACCOUNTING
1)Journal2)Ledger3)Trial Balance to verify the accuracy of ledger account balance4)Preparation of financial statements
TYPES OF BUSINESS ESTABLISHMENTS
TYPES1)TRADING CONCERNS2)MANUFACTURING CONCERNS
Trading concerns purchase finished goods from market and sell it at a profit. Such firm prepare 1)Trading account2)Profit and loss account3)Balance sheet
Manufacturing concerns are those which purchase raw material and effect certain productive activities on it and convert the same into marketable goods and then sell it. Such concern while preparing final accounts prepare1)Manufacturing account2)Trading account3)Profit and loss account4)Balance sheet
TRADING & MANUFACTURING ACCOUNT
Particulars Amount Particulars Amount
To Opening stock By Sales Less Returns
To Purchases Less Returns By Closing stock
To Direct expenses By Gross Loss c/d to profit and loss account
To Gross profit c/d to profit and loss account
TOTAL XXX TOTAL XXX
PROFIT AND LOSS ACCOUNT FORMAT
Particulars Amount Particulars Amount
To Gross loss c/d from Trading account
By Gross profit c/d from trading account
To Indirect expenses By Interest income
To Interest expenses By Miscellaneous income
To Depreciation By Net loss transferred to capital account
To Net profit transferred to capital account
TOTAL XXX TOTAL XXX
BALANCE SHEET
LIABILITIES Amount ASSET Amount
CAPITAL FIXED ASSETS
LIABILITIES CURRENT ASSETS
TOTAL XXX TOTAL XXX
DIFFERNCE – TRADING AND P&L ACCOUNT
TRADING ACCOUNT PROFIT AND LOSS ACCOUNT
FIRST STAGE OF FINAL ACCOUNT SECOND STAGE OF FINAL ACCOUNT
IT RECORDS SALES AND DIRECT COSTS
THIS ACCOUNT RECORDS GROSS PROFIT, INCOMES, INDIRECT COSTS AND LOSSES
IT DISCLOSES GROSS PROFIT OR GROSS LOSS
IT DISCLOSES NET PROFIT OR NET LOSS
DIFFERNCE BETWEEN GP AND NP
GROSS PROFIT NET PROFIT
It is the difference between sales and direct costs
It is the difference between gross profit and indirect expenses
Gross profit is transferred to profit and loss account
Net profit is transferred to capital account
Drawing of a owner does not depend on the gross profit
Drawings of the owner depends on the net profit
ENGLISH SYSTEM OF ACCOUNTINGCLASSIFICATION OF ACCOUNTS
1) PERSONAL ACCOUNTS
2) REAL ACCOUNTS
3) NOMINAL ACCOUNTS
PERSONAL ACCOUNTS
ACCOUNTS OF PHYSICAL PERSONS
EG., NAVEEN’S ACCOUNT
ACCOUNTS OF LEGAL PERSONS
EG., CANARA BANK’S ACCOUNT
REPRESENTATIVE PERSONAL ACCOUNTS
EG., OUTSTANDING EXPENSES
REAL & NOMINAL ACCOUNTS
REAL ACCOUNTS REPRESENT THE PROPERTY OF THE
BUSINESS.
NOMINAL ACCOUNTS REPRESENT LOSSES OR EXPENSES
OR INCOMES OR GAINS OF A BUSINESS.
MATCH THE FOLLOWING
A B
A RAMESH 1 REAL
B DENA BANK 2 PERSONAL
C RENT 3 NOMINAL
D COMPUTER 4 REAL
E LAND 5 NOMINAL
F DISCOUNT 6 PERSONAL