FINANCIAL ACCOUNTING & COST ACCOUNTING VOLUME -I

NEED FOR ACCOUNTING 1. Maintain accounting records2. Calculate the results of operation3. Ascertain the financial position4. Communicate the information to the usersProcess of Accounting1. Recording: - Business transactions of the financial characters are recorded in a book called Journal.2. Classifying: - The book containing classified information is called Ledged. This book contains diff pages E.g. Purchase, sales, rent etc.3. Summarizing: - concerned with the preparation and presentation of classified data through the financial statement 1. Trail balance 2. Trading, Profit and Loss A/c 3.Balance sheet.4. Analyzing: - concerned with the establishment of relationship between the items of the profit and loss account and the balance sheet.5. Interpreting:- concerned with the explaining the meaning and significance of the relationship so established by the analysis.6. Communicating:- transmission of summarized analyzed and interpreted information to the users to enable them to make sound decision.Book KeepingBook keeping is the art of recording classifying and summarizing business transaction in money or money worth. Forms of book keeping are 1. Double entry system 2. Single entry system

AccountingThe process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of accounts.

BASIS OF DOUBLE ENTRY SYSTEMEach transaction in the results of two parties coming together 1. This cannot be seller without a buyer2. Borrower without a lenderFounder of the Double entry is Italian Merchant named LUCO PACIOLI wrote the first book named DE COMPUTIS ET OF SCRIPTURIS in the year 1494.Forms of Book keeping:-1. Double Entry system: - its a record two fold aspects of every business transaction.2. Single Entry system: - in this method the principles of double entry system have not been observed in all cases. It is an incomplete form of double entry system. Under single entry only personal accounts of debtors, creditors and cash book are maintained.DIFFERENCES BETWEEN DOUBLE ENTRY AND SINGLE ENTRY SYSTEM

Double Entry SystemSingle Entry System

It is only the scientific system of keeping books of accountsIt is not a system at all. It is incomplete and unscientific

Maintains complete record of both personal and impersonal accountsOnly personal and cash accounts are maintained

Trail balance can be prepared to test the arithmetical accuracy of the book if accountsA trail balance cannot be prepared since debits and credits do not agree

Profit and loss account and balance sheet can be easily preparedWith the incomplete record cannot be easily prepared

Comparison with previous year is possibleVery difficult

Taxation authorities accept it for assessment purposeDo not accept

ADVANTAGES OF DOUBLE ENTRY SYSTEMa. It keeps complete record of both personal and impersonal accountsb. It helps us to check arithmetic accuracy of the books by preparing trial balancec. Help to find out the profit earned or loss incurred during a given period by preparing profit and loss accountd. Can find out financial position of the business by preparing balance sheet.e. Any financial information can be had anytime.f. Comparison of expenditure, income, sales, purchase etc can be made for previous year and current yearg. It is easy for taxation authorities to make correct assessment.LIMITATIONS OF DOUBLE ENTRY SYSTEMa. If the transaction is completely omitted to be recorded or with wrong amounts or with wrong accounts it may remain undiscovered.b. Requires the maintenance number of books of accounts and number of people to look at them the system is too expensive sophisticated.c. Financial accounts consider only chose assets which can be expressed monetary terms. Human Resources, the very important assets of a business are not shown in the balance sheet,CLASSIFICATION OF ACCOUNTS a. Deals with personsb. Possesses Assetsc. Pay expensesIn order to keep a complete record of all business transaction a business keepsa. Account in the name of persons known as Personal Accountb. Account in the name of Asset known as Real Accountc. Accounts under the head of expense and income known as nominal account.Personal Accounts following forms:-1. Natural persons name of a individual2. Artificial persons- Account of firms, Limited Company3. Representative personal Account- Account representing outstanding expenses, prepaid expenses, accrued income etc ACCOUNTING RULES

PERSONAL ACCOUNTDEBIT THE RECEIVER

CREDIT THE GIVER

REAL ACCOUNTDEBIT WHAT COMES IN

CREDIT WHAT GOES OUT

NOMINAL ACCOUNTDEBIT ALL EXPENSES AND LOSS

CREDIT ALL INCOME AND GAINS

UNIT 2JOURNALSThe process of accounting is recording the business transactions in the books of accounts is called Journals. This book is also called Original Entry, Also known as primary book.When more than two accounts are involved in a transaction and the transaction is recorded by means of a single journal entry instead of passing several journal entry such entry is known as Compound Journal Entry.

UNIT 3LEDGERS

After recording the transaction in the journal, recorded entries are classified and grouped into by preparation of accounts and the book which contains all set of account (viz. personal, real and nominal accounts) is known as Ledger.Popular method is to have three ledgers namely.1. General ledger-containing all accounts expect those of sundry debtors and Sundry creditors2. Debtors Ledger-containing personal accounts of sundry debtors 3. Creditors Ledger-containing personal accounts of sundry creditors

Balance of accountThe technique of finding the net balance of an account after considering the totals of both debits and credits appearing in the accounts known as Balancing. It can be at the end of the month or year or any particular day.1. If credit side is bigger than debit side than it is credit balance2. If debit side is bigger than credit side than it is debit balanceThe difference is entered in the lighter side of the account on the last day of the month.1. The credit balance is written on the debit side as By balance C/d (carried down)2. The debit balance is written on credit side as By Balance C/d 3. The Credit balance is written on the Credit side on the first day of next month as (To Balance B/d)4. The Debit balance id written on the debit side on the first day of the month as (To Balance B/d)