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INTRODUCTION TO BASICS OF
ACCOUNTING
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WHAT IS ACCOUNTING
IT IS THE PROCESS OF IDENTIFYING,
MEASURING AND COMMUNICATING
INFORMATION TO PERMIT JUDGEMENT AND
DECISION BY USERS
DEFINITION:AIPCA
IT IS THE ART OF RECORDING,CLASSIFYINGAND SUMMARISING IN A
SIGNIFICANT MANNER
AND IN TERMS OF MONEY, TRANSACTIONS AND
EVENTS, WHICH ARE, IN PART AT LEAST, OF A
FINANCIAL CHARACTER AND INTERPRETING THERESULTS THEREOF.
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STEPS IN FINANCIAL INFORMATION
Creation of financial information involves three
steps:1. Recording:
Journal: The systematic record of transactions
in chronological order is made in a book calledJournal.
Questions to be addressed:
What to record?When to record?
How to record ?
What value to record?
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2. Classifying:
After recording monetary transactions in the
Journal book, next step is to classify the recorded
information
into related groups to put information in compact and usable
form.
The book containing classified information is called LEDGER.
3.Summarizing:After balancing of the ledger book, account
balances are listed. Statement giving the names of these
accounts and their balances is called TRAIL BALANCE.
On the basis of trail balance, summaries are prepared to
give useful information about the financial results during a
time
period and the financial position at a point of time.
Reporting of summaries of the business transactions is
done in the form of financial statements which are known as
FINAL ACCOUNTS.
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CLASSIFICATION OF ACCOUNTS
IT IS OF THREE TYPES:
PERSONAL ACCOUNTS
NATURALPERSON
ARTIFICIALPERSON
GROUPS
RULE : DEBIT = THE RECEIVER
CREDIT = THE GIVER
REAL ACCOUNTS
RULE : DEBIT = WHAT COMES IN?CREDIT = WHAT GOES OUT?
NOMINAL ACCOUNTS
RULE : DEBIT = ALL EXPENSES AND LOSSES
CREDIT = ALL INCOMES AND GAINS
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JOURNALISE THE FOLLOWING TRANSACTIONS
* Mr. X brought Capital into business of following:
Cash = 10,00,000
Machinery = 50,00,000Land = 25,00,000
* Purchased goods : 150000
* Purchased goods from Mr.Y : 1,00,000
* Purchased goods from Mr.Z for cash : 5,00,000
* Purchased goods for cash : 50,000* Sold goods : 2,00,000
* Sold goods to Mr. A : 1,50,000
* Sold goods to Mr.B for cash : 6,00,000
* Sold goods for cash : 1,00,000
* Purchase returns to Y : 5,000
* Sales returns from A : 10,000
* Cash deposited into bank : 10,00,000
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Cash paid to Y : 1,00,000
Andhra bank cheque issued to Y : 50,000
Cash received from A : 50,000 Andhra Bank cheque received from A
: 1,00,000
Salaries paid : 50,000
Depreciation on Machinery : 10,000
Rent received : 25,000 Insurance paid by cheque : 3,000
Printing and stationary paid by cheque : 10,000
Furniture purchased : 10,000
Almarah purchased for office use by cheque :5,000
