af session 1
TRANSCRIPT
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 1/139
Copyright © Amity University1
PAN African eNetwork
Project
Masters of Business Administration (IB)
Accounting and Finance
Semester - I
Dr. N N Sen Gupta
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 2/139
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 3/139
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 4/139
Copyright © Amity University
Meaning and definitions
Book Keeping:
Book Keeping is an activity primarily relatedwith recording of financial transactions of a
business concern in a set of books in a
scientific manner.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 5/139
Copyright © Amity University
Meaning and definitions
Accounting:
The American Institute of Certified Public
Accounts (AICPA) has defined accounting as
the ―art of recording, classifying and
summarizing in a scientific manner and in
terms of money; transactions and events which
are in part at least of a financial character andinterpreting the results thereof‖.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 6/139
Copyright © Amity University
Features of Accounting
- Recording – Journalizing
- Classifying – Ledger
- Summarizing – Trial Balance
- Interpreting – Explaining the
significance of the
financial statement
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 7/139Copyright © Amity University
Need for Accounting
- Profit- Future Planning
- Limited Memory
- To know the business positions
- To keep others informed
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 8/139Copyright © Amity University
Objectives of Accounting:
- To make decisions
- To make systematic record of the
resources and obligations
- To ensure effective direction and
control
- To ascertain financial positions of the
business
- To provide useful information to
interested parties
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 9/139Copyright © Amity University
Branches of Accounting: I Financial accounting
II Cost Accounting
III Management Accounting
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 10/139Copyright © Amity University
Limitations of Accounting: - Records only those transactions that
can be measured in money terms.
- It records transactions at cost. The
effects of change in prices are not
shown anywhere.
- Every chance of manipulation of
accounting profits by the accountant.
- It is only a post-mortem report.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 11/139Copyright © Amity University
Importance of Accounting:Uses of parties interested in accounting information
Internal users or parties External users or parties
- Owners of shareholders - Creditors
- Management - Government
- Employees - Consumer
- General public- Other parties
a. Tax authorities
b. Stock Exchanges
c. Political Parties
d. Trade Union
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 12/139Copyright © Amity University
The profession of Accounting –
Accounting team can be classified in two groups- Bookkeepers – Recording the
transactions and posting than into ledger
- The Accountants - Prepare the financial
statement
- Prepare report and interpret them
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 13/139Copyright © Amity University
Basis of Accounting
- The Institute of Chartered Accountants of India (ICAI),
together with the Institute of Cost and works Accountants of
India (ICWAI) has issued guidelines on the basis of which the
professional accountants prepare financial statements of
business houses in conformity with the accounting standardsissued by the Institute and other professional bodies.
Basis of Accounting:
- Cash basis
- Accrual basis
- Mixed basis
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 14/139Copyright © Amity University
Accounting Equations
Accounting equations means recording of
entries in a way that the assets equal
equities.
Assets = Equities
Equities = Owner’s Equity + Liabilities
Assets = Owner’s Equity + Liabilities
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 15/139Copyright © Amity University
System of Book Keeping:
•Single Entry System
•Double Entry System
– Purely based on accounting principles
– Every debit there is corresponding credit. – Double entry system does not mean the two entries
a transaction should be made in two different
accounts on the same side; but in two different
accounts on opposite sides for an equal amount.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 16/139Copyright © Amity University
Stages of Double Entry
SystemThere are three stages which are as under
• All the in transactions should be recorded in either in
journal or in subsidiary.
• All the entries in the journal or subsidiary booksshould be posted to the concerned ledger accounts.
• The preparation of profit and loss accounts is to
ascertain the trading result and the balance sheet to
know the financial position of the business.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 17/139Copyright © Amity University
Nature of Accounting
• Certain things are common in business
• Business enters into contract with other persons a
firms whose transactions are recorded in personal
account.• Every business owns or posses certain properties.
These assets are recorded in real account.
• Every business earns income and incurs expenses
such transaction in recorded in nominal account.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 18/139Copyright © Amity University
Type of Accounts
Type of Accounts
Personal Accounts Impersonal Accounts
Natural Artificial Representative Real Nominal Account Account Account Account Account
Tangible Intangible
Account Account
Expense Incomes
Account Account
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 19/139Copyright © Amity University
Rules of Account:very business transaction has two aspects
- Receiving Aspects – is debited
- Giving Aspects – is credited
Rules of Account
Personal Account - Debit the receiver
- Credit the giver
Real Account - Debit what comes in
- Credit what goes outNominal Account - Debit all expenses and losses
- Credit all incomes and gains
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 20/139Copyright © Amity University
Concept underlying the
Financial Statement
A financial statement is an organized collection of
data according to logical and consistent accountingprocedures. Its purpose is to convey an
understanding of some financial aspects of a
business firms.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 21/139Copyright © Amity University
The financial statements generally refer these basic
statements:
(i) The Income Statement (Profit and Loss Account)
(ii) The Balance Sheet (Financial Position of a
Business as a specified moment of time)
(iii) A statement of retained earnings (Profit and Loss
Appropriation Account)
(iv) A statement of changes in financial positions
a. Change in the firm’s working capital (fund
flow statement)b. Change in the firm’s cash positions (cash
flow statement)
c. Change in the firms total position
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 22/139Copyright © Amity University
Financial statement is affected
by:(i) Recorded fact
(ii) Accounting Conventions(iii) Personal Judgement
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 23/139Copyright © Amity University
Limitations of Financial
Statements:Financial statements are prepared with the object of
presenting a periodical review or reports on the progress
by the management and deal with the(i) Status of the investments in the business and
(ii) Results achieved during the period under review.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 24/139Copyright © Amity University
These are the Limitations:
Profit shown is the profit and loss account and financial
position as depicted in balance sheet is not exact.
Financial statements are prepared on the basis of certain
accounting concepts and conventions (going concern,conservation)
Many items are left & personal judgement of the
accountant (i.e. method of depreciation, mode of
amortization of fixed assets, treatment of different revenueexpenditure)
Disclose only monetary facts.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 25/139Copyright © Amity University
Users of Financial
Statements Users of Financial Statements
Internal users or parties External users
or parties
-Owners/Shareholders -Creditors
-Managements -Government
-Employee -Consumers
-Generalpublic
-Other
Parties
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 26/139
Copyright © Amity University
Generally Accepted Accounting
Principles (GAAP):
The origin GAAP is 1920’s where the speculative activities
excesses in the stock market. The reasons for the crash of
economies were the absence of uniform and stringent
financial reporting requirements. Taking the serious view of
this, the American Institute of Accountants which renamed
AICPA, created a Committee in 1930s to cooperate with the
New York Stock Exchange with the aim of establishingstandards to be followed for all accounting practices and
procedures.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 27/139
Copyright © Amity University
Generally Accepted Accounting
Principles (GAAP):
Generally Accepted Accounting Principle (GAAP) are
concerned with the measurement of economic activityrecording, disclosing, preparation and presentation of
information in form of financial statements. They
encompass the conventions; rules and procedures
necessary to define accepted accounting principles at aparticular time. They also includes the broad guidelines
of general application but also detailed practices and
procedures.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 28/139
Copyright © Amity University
Sources of GAAP
The authentic and authoritative sources of GAAP are:
- American Institute of Certified Public Accounts (AICPA)
- Financial Accounting Standard Board (FASB)
- Government Accounting Standard Board (GASB)- International Accounting Standard (IAS)
- Pronouncements of Securities and Exchange Commission (PSEC)
- Various Publications of Professional Organisations
- Various books, articles and Committee reports on accounting that
contain expressions of GAAP which are authentic.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 29/139
Accounting Conventions
Generally accepted accounting
practice
1. Business entity
2. Historical cost
3. The monetary unit4. Going concern
5. Accounting period
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 30/139
Accounting Conventions
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 31/139
Accounting Doctrines
Recommended p r inc ip les that Accountants
should fo l low-
1. Full disclosure2. Consistency
3. Materiality
4. Conservatism5. Objectivity
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 32/139
Accounting Doctrines
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 33/139
Who Needs
AccountingINTERNAL
– Managers, supervisors, directors
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 34/139
Who Needs Accounting
EXTERNAL
– Investors, creditors, lenders, Customers
– Statutory authorities eg: tax office, payroll tax, ABS
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 35/139
Type of Accounts
Type of Accounts
Personal Accounts Impersonal Account
Natural AccountRepresentative
AccountArtificial Account Real Account Nominal Account
Tangible Account Intangible Account Expense Account Incomes Account
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 36/139
Copyright © Amity University
Classification Of Accounts
1. Personal Accounts
1. Debit is the receiver
2. Credit is the Giver2. Real Accounts
1. Debit what comes in
2. Credit what goes out
3. Nominal Accounts1. Debit- Expenses & Losses
2. Credit- Income & Profit
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 37/139
Copyright © Amity University
Final Account
Process Of Accounting
1. Journal
2. Ledger
3. Trial balance4. Adjustments
5. Trading & P/L
6. Balance Sheet
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 38/139
Copyright © Amity University
Accounting Cycle
1.Analyze
Transactions
2.
Journalize3. Post
4. Unadjustedtrial balance
5. Adjust
6. Adjusted
trial balance
7. Prepare
finance
statements
8.Close Start the
next cycle
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 39/139
Copyright © Amity University
Numerical
• Journalize the following transactions, post them in theLedger and balance the accounts on 31st January.
• Ram started business with a capital of Rs. 10,000.
• He purchased goods from Mohan on credit Rs. 2,000.
• He paid cash to Mohan Rs. 1000.• He sold goods to Suresh Rs. 2000.
• He received cash from Suresh Rs. 3000.
• He further purchased goods from Mohan Rs. 2,000.
• He paid cash to Mohan Rs. 1000.
• He further sold goods to Suresh Rs. 2000.• He received cash from Suresh Rs. 1000.
Particulars L F Debit Amount Credit Amount
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 40/139
Particulars L.F. Debit Amount
(Rs.)
Credit Amount
(Rs.)
Cash Account Dr.
To Capital Account
(Being commencement of business)
10000
10000
Purchase Account Dr.
To Mohan
(Being purchase of goods on credit)
2000
2000
Mohan Dr.
To Cash
(Being payment of cash to Mohan)
1000
1000
Suresh Dr.
To sales
(Being goods sold to Suresh)
2000
2000
Cash Account Dr.To Mohan
(Being cash received from Suresh)
30003000
Purchase Account Dr.
To Mohan
(Being purchase of goods form Mohan)
2000
2000
h
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 41/139
Mohan Dr.
To Cash Account
(Being payment of Cash to Mohan)
1000
1000
Suresh Dr.
To Sales Account(Being goods sold to Suresh)
2000
2000
Cash Account Dr.
To Suresh
(Being cash received from Suresh)
1000
1000
Total 24000 24000
L d
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 42/139
Copyright © Amity University
Ledger
Cash Account
Dr.
Cr.Date Particulars Amount
(Rs.)
Date Particulars Amount
(Rs.)
To capital A/C 10000 1000
To Suresh 3000 1000
To Suresh 1000 Jan.31 12000
14000
Feb.1 To balance b/d 12000
CAPITAL ACCOUNT
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 43/139
CAPITAL ACCOUNT
Dr. Cr.
Date Particulars Amount
(Rs.)
Date Particulars Amount
(Rs.)
Jan
31
To Balance c/d 10000 By Cash A/c 10000
10000 10000
Feb 1 By Balance b/d 10000
PURCHASE ACCOUNT
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 44/139
PURCHASE ACCOUNT
Dr. Cr.
Date Particulars Amount
(Rs.)
Date Particulars Amount
(Rs.)
To Mohan 2000 Jan 31 By Balance c/d 4000
To Mohan 2000
4000
Feb 1 To Balance b/d 4000
MOHAN
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 45/139
Dr.
Cr.
Date Particulars Amount
(Rs.)
Date Particulars Amount
(Rs.)
To Cash 1000 By Purchases 2000
To Cash 1000 By Purchases 2000
To Balance c/d 2000
4000 4000
By Balance b/d 2000
SURESH
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 46/139
Dr. Cr.
Date Particulars Amount
(Rs.)
Date Particulars Amount
(Rs.)
To Sales 2000 By Purchases 3000
To Sales 2000 By Purchases 1000
To Balance c/d 4000 4000
SURESH
D C
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 47/139
Dr. Cr.
Date Particulars Amount
(Rs.)
Date Particulars Amount
(Rs.)
Jan
31
To Balance c/d 4000 By Suresh 2000
By Suresh 2000
4000 4000
Feb. 1 By Balance b/d 4000
TRIAL BALANCE
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 48/139
TRIAL BALANCE
as on 31st January
Particulars Debit (Rs.) Credit (Rs.)
Cash Account 12000
Capital Account 10000
Purchases Account 4000
Mohan 2000
Sales Account 4000
16000 16000
Thus, the two sides of the Trial Balance tally. It means
the books of accounts are arithmetically accurate.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 49/139
Copyright © Amity University
Problem I
Journalize the following transactions and post them into the Ledger:
1999
Rs.
Jan 1 Surendra started business with cash5000
Jan 2 Goods purchased from Prasad on credit200
Jan 3 Goods sold to Prem500
Jan 4 Goods purchased from Sohan for cash
400Jan 5 Paid for wages 50
Jan 15 Goods purchased from Prem100
Jan 17 Goods sold to Om 50
Jan 21 Goods purchase from Charanjit 300Jan 23 Paid for interest 15
Jan 24 Goods purchased from Om200
Jan 28 Cash received from Prem 100
Jan 31 Cash paid to Charanjit 300
Jan 31 Paid for Rent 10
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 50/139
Copyright © Amity University
Problem 2
On 1st January, 1999 the following were the ledger balances of Rajan & Co. Cash in hand Rs.900; Cash
at bank Rs. 21,000; Soni (Cr.) Rs. 3000; Zahir (Dr.) Rs.2,400; Stock Rs. 12,000; Parsad (Cr.)Rs. 6,000;
Sharma (Dr.) Rs. 4,500; Lall (Cr.) Rs. 2,700; Ascertain capital.Transactions during the month were:
1999Rs.
Jan 2 Bought goods for Prasad2700
Jan 3 Sold to Sharma 3000
Jan 5 Bought goods of Lall for cash, paid by cheque 3600
Jan 7 Took goods for personal use 200Jan 13 Received from Zahir in full settlement
2350
Jan 17 Paid Soni in full settlement 2920
Jan 22 Paid cash for stationery 50
Jan 29 Paid to Prasad by cheque2650
Discount allowed by him 50
Jan 30 Provided interest on capital 100
Rent due to landlord 200
Journalize the above transactions and post to the ledger and prepare a Trial Balance.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 51/139
Copyright © Amity University
Preparation of Financial Statement
Dr. N. N. Sengupta
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 52/139
Copyright © Amity University
Accounting cycle involved the following stages
1. Recording of Transactions: This is done in the book
termed as ‘Journal’.
2. Classifying the Transactions: This is done in the booktermed as ‘Ledger’.
3. Summarizing the Transactions: This includes
preparation of trial balance profit and loss accountand balance sheet of the business.
A ti l i l d th f ll i
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 53/139
Copyright © Amity University
Accounting cycle involved the following
stages:
Interpreting the results: This involves
computation of various accounting ratios etc. toknow about the liquidity solvency and profitability
of business.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 54/139
Copyright © Amity University
Journal- Journal is defined as a book containing a
chronological record of transactions
- It is the book in which the transactions are recorded
first of all under the double entry system.
- This is a book of original record.
- The recording of transactions in journal is termed as
‘Journalizing’
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 55/139
Copyright © Amity University
Date Particulars L.F. Debit
(Rs.)
Credit
(Rs.)
(1) (2) (3) (4) (5)
The Proforma of Journal
Th P f f J l
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 56/139
Copyright © Amity University
The Proforma of Journal
1. Date: The Date on which transaction was
entered is recorded here.
2. Particulars: The two aspects of transaction
are recorded in this column i.e. the
details regarding accounts which have to
be debited and credited.
The Proforma of Journal
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 57/139
Copyright © Amity University
The Proforma of Journal
• 3. L.F.: It means ledger folio. Thetransactions entered in the journal are later
on posted to the ledger.
• 4. Debit: In this column, the amount to bedebited is entered.
• 5. Credit: In this column, the amount to becredited is shown.
C d J l E t
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 58/139
Copyright © Amity University
Compound Journal Entry
Sometimes there are a number of transactionson the same date relating to one particular
account or of one particular nature. Such
transactions may be recorded by means of
single journal entry instead of passing several journal entries.
It may be recorded in any of the following
three ways:
Compound Journal Entry
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 59/139
Copyright © Amity University
Compound Journal Entry
I A particular account may be debited while
several other accounts may be credited.
ii. One particular accounting may be credited
while several other accounting may bedebited.
iii. Several accounts may be debited and severalthere accounts may be credit.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 60/139
Copyright © Amity University
Ledger Position - Ledger is a book which contains various
accounts.
- It may be also called ledger is a set of
account.
L d b k t i f th
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 61/139
Copyright © Amity University
Ledger may be kept in any of the
following two forms
i. Bound Ledger
ii. Loose leaf ledger
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 62/139
Copyright © Amity University
Posting The term ‘Posting’ means transforming the
debit and credit items from the journal to
their respective accounts in the ledger.
Posting may be done at any time. However,
it should be completed before the financial
statements are prepared.
Posting
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 63/139
Copyright © Amity University
Posting
The Posting may be done by the book-keeper
from the journal to the ledger by any of thefollowing methods:
i. He may take a particular side first. Forexample, he may take the debits first and
make the complete postings of all debits from
the Journal to the Ledger.
Posting
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 64/139
Copyright © Amity University
Posting
ii. He may take a particular account and post alldebits and credits relating to that account appearing
on one particular page of the Journal. He may then
take some other accounts and follow the same
procedure.
iii. He may complete postings of each journal entrybefore proceeding to the next journal entry.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 65/139
Copyright © Amity University
Relationship between Journal and Ledger
Both Journal and Ledger are the mostimportant books used under Double Entry
System of Book-keeping.
Journal is the book of first or original entry,
while the ledger is the book of second entry.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 66/139
Copyright © Amity University
Relationship between Journal and Ledger
Journal Records Transactions is a
chronological order, while the ledger
records transactions is a analytical order.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 67/139
Copyright © Amity University
Relationship between Journal and Ledger
Journal is more reliable as compared to theledger since it is the book in which the entry
is passed first of all.
The processing of recording transactions is
termed is ‗journalizing‘ while the process of
recording transactions is the ledger is calledas ‗posting‘.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 68/139
Copyright © Amity University
Rules Regarding Posting
The following rules should be observed while
posting transactions in the ledger from theJournal:
i. Separate accounts should be opened in the
ledger for posting transactions related todifferent accounts recorded in the
Journal.
Rules Regarding Posting
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 69/139
Copyright © Amity University
Rules Regarding Posting
ii. The concerned account which has been
debited in the Journal should also be debited
in the ledger. However, a reference should
be made of the other accounts which hasbeen credited in the Journal.
Rules Regarding Posting
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 70/139
Copyright © Amity University
Rules Regarding Posting
iii. The concerned account, which has
been credited in the Journal should also becredited in the Ledger, but reference should
be given of the account, which has been
debited in the Journal
Use of the words “To” and “By”
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 71/139
Copyright © Amity University
Use of the words To and By
It is customary to use words ‘to’ and ‘by’while making posting in the ledger.
The word ‘to’ is used with the accountswhich appear on the debit side of a Ledger
Account.
Similarly, the word ‘by’ is use with the
accounts which appear on the credit side
of the ledger account.
Cashbook
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 72/139
Copyright © Amity University
Cashbook is a special journal in which all
cash transactions are recorded directly.Cashbook shows the cash receipts and
the cash payments. The Cashbook
resembles a ledger with the debit andcredit sides, and the balance represents
cash on hand at the end of the accounting
period.
Kinds of Cashbook
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 73/139
Copyright © Amity University
• Simple Cashbook/Single Column Cashbook
• Double Column Cashbook
• Three Column Cashbook
Simple Cashbook
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 74/139
Copyright © Amity University
In Simple Cashbook all the cash transactions
are recorded in chronological order. All cash
receipts are entered on the debit side and cash
payments on the credit side of the Cashbook.The difference between the two sides is the cash
in hand.
Simple Cashbook
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 75/139
Copyright © Amity University
Simple Cashbook
Dr. CashBook Cr.
Date
Particulars L.F. Rs. Date Particulars L.F. Rs.
Double Column Cashbook
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 76/139
Copyright © Amity University
Double Column Cashbook
This Cashbook is an extension of simple
Cashbook. An additional column is maintained
to record discount involved in the settlement ofdebtors and creditors in the double column
Cashbook.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 77/139
Double Column Cashbook
Dr. Cashbook Cr.
Date Particulars L.F. Discount
Rs.
Cash
Rs.
Date Particulars L.F. Discount
Rs.
Cash Rs.
Three Column Cashbook
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 78/139
Copyright © Amity University
Three Column Cashbook
The Three Column Cashbook is accounts for
cash and bank with additional information about
discount allowed and discount received.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 79/139
Three Column Cashbook
Dr. Cashbook Cr.
Date Receipts Discount
allowed
Cash Bank Date Receipts Discount
allowed
Cash Bank
Contra Entries
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 80/139
Copyright © Amity University
Contra Entries
If a transaction affects both cash account andbank account in the opposite sides, the entry forrecording the transaction is called a contra entry.
Entries which are made on both sides of theCashbook are called contra entries. No ledgerposting is required, because both aspects of thetransaction are recorded in the Cashbook itself.
This fact I indicated in the Cashbook by writing‗C‘ in L.H. column.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 81/139
Contra Entries
Dr. Cashbook Cr.
Date Particulars L.F Discount
Allowed
Cash Bank Date Particulars L.F Discount
Allowed
Cash Bank
Petty Cashbook
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 82/139
Copyright © Amity University
Petty Cashbook
The Petty Cashbook would contain a number of
analytical columns for grouping the various
expenses under a few classifications whichwould facilitate subsequent posting into the
General Ledger.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 83/139
Analytical Petty Cashbook
Amount
Received
Date Particulars Total
Amount
paid
Postage and
Telegrams
Printing and
Stationery
Carriage Traveling
Expenses
Sundry
Expenses
Subsidiary Books
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 84/139
Copyright © Amity University
Subsidiary Books
All non-cash transactions should be recorded in
the journal. The journal is inadequate as the
single book of the original entry when thetransactions are voluminous in number. The
journal is divided into divisions and they are
commonly termed as subsidiary books. Some of
the subsidiary books are:
Subsidiary Books
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 85/139
Copyright © Amity University
Subsidiary Books
• Purchase Book
• Purchase Returns Book
• Sales Book
• Sales Return Book• Bill Receivable Book
• Bills Payable Book
• Journal Proper
Purchase Book
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 86/139
Copyright © Amity University
Purchase Book
Also known as the Purchases Journal, this book is used to
record credit purchases of goods only.
Purchase Book
DateParticulars
(Name of Supplier, etc.)L.F. Inward Invoice No. Amount
Rs.
Purchases Returns Book
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 87/139
Copyright © Amity University
Purchases Returns Book
This subsidiary book is used to record the goods purchased on creditand sent back to suppliers as not conforming to specifications or for
any other reason.
Purchases Returns Book
Date Name of Supplier L.F. Debit Note No. Amount
Rs.
Sales Book
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 88/139
Copyright © Amity University
Also known as the Sales Journal, this subsidiary book is used to
record the sale of goods on credit.
Sales Book
Date Name of Customer L.F. Outward Invoice No. AmountRs.
Sales Returns Book
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 89/139
Copyright © Amity University
This book is used to record the transactions relating to goods sold on
credit and received back from the customers as not conforming to
the specifications or for any other reason.
Sales Returns Book
Date Name of Customer L.F. Credit Note No. Amount
Rs.
Bills Receivable Book
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 90/139
Copyright © Amity University
The Bills Receivable of an enterprise consists of all Promissory Notesgiven or Bills or Exchange accepted by customers in respect of
amounts due from them.
Bills Receivable Book
S.No. Date From Whom
Received
Acceptor Date
of Bill
Term Date of
Maturity
L.F. Where
Payable
Amount
Rs.
How
Disposed
Trial Balance
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 91/139
Copyright © Amity University
Trial Balance
Trial Balance is a statement containing the various
ledger balances on a particular date.
Proforma of Trial Balance
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 92/139
Trial Balance
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 93/139
Copyright © Amity University
1. Under this head we take the ledger accountin which the balance is brought down either
on debit or credit side.
2. it is the amount in debit side of particularledger account.
3. It is the amount is credit side of a particularledger account.
Objective of Preparing a Trial
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 94/139
Copyright © Amity University
Balance:
- Checking of the arithmetical accuracy ofthe accounting entries.
- Basis for financial statements
- Summarized ledger
Methods of Preparing Trial Balance:
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 95/139
Copyright © Amity University
p g
i. Total Method: In case of this method the totals of
debit and credit of the accounts are shown in theTrial Balance.
ii. Balance Method: In case of this method, thebalance of the ledger accounts are shown in therespective debit and credit column of the trialbalance.
The total of the balance of the debit column mustbe equal to the total balance of credit column.
Trial Balance and Adjustments
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 96/139
Copyright © Amity University
j
Before an accountant can proceed to prepare
the financial statements from the trial balance,
he has to process some additional information,
which he either already knows or receives fromsome other divisions or departments. The
following are a few examples showing where
adjustment entries would be required:
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 97/139
Copyright © Amity University
Particulars L.F. Dr. (Rs) Cr. (Rs) 1. Capital Account — 13,400
2. Sales Account — 15,300
3. Shyam‘s Account 1,500 —
4. Discount Account 300 —
5. Purchases Account17,000 —
6. Salaries Account 500 — 7. Drawings Account5,000 —
8. Ram‘s Account — 400
9. Cash in hand 900 —
10. Bank Overdraft — 4,100
11. Furniture A/c 8,000 —
33,20033,200
Closing Inventory
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 98/139
Copyright © Amity University
The value of closing inventory will be brought
into the books of accounts through the following
journal entry:
Closing Inventory A/C Dr.
To Trading A/cWhile the closing inventory appears on the credit
side of the trading account to reduce the cost of
goods sold, it also appears as an asset in the
balance sheet.
Outstanding or Accrued Expense
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 99/139
Copyright © Amity University
The nominal accounts record the actual expense
paid during the accounting period. However,
prior to the preparation of the financial
statements, it must be ensured that all expenseswhich have fallen due to be paid but which have
not been paid during the accounting period are
also brought into the books to help in the proper
matching of revenues and expenses.
Outstanding or Accrued Expense
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 100/139
Copyright © Amity University
g p
The adjusting journal entry to record any
outstanding or accrued expense is
Expense A/C Dr.
To Outstanding Expense A/C
Outstanding or Accrued Expense
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 101/139
Copyright © Amity University
g p
While the amount of expense taken from the trial
balance will be increased by the amountoutstanding and shown in the trading and profitand loss account, the actual outstanding will beshown as a liability in the balance sheet.
In the subsequent accounting period, theoutstanding expense liability will be transferred tothe expense or nominal account and will be set-off
by the entry of actual payment when it is made.
Prepaid Expense
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 102/139
Copyright © Amity University
p p
Certain expenses paid may relate to more than one
accounting period. In such cases, it is necessary to
identify that portion of the expenditure for which thebenefit is yet to be received by the concern and
treat that part of the expenditure as prepaid.
Prepaid Expense
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 103/139
Copyright © Amity University
The journal entry to record any prepaid expenseis:
Prepaid Expenses A/C Dr.
To Expenses A/C
In the subsequent accounting period, the
balance in the prepaid expense account will be
transferred back to the expense account.
Outstanding or Accrued Income
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 104/139
Copyright © Amity University
An income appearing in the ledger account may not
represent the income that must have been received
during the year. If a portion of an income has notyet been received or is outstanding as at the end of
the accounting period then the outstanding amount
must be brought into books.
Outstanding or Accrued Income
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 105/139
Copyright © Amity University
To record any outstanding income in the books
of accounts, the journal entry is:
Outstanding Income A/C DrTo Income A/C
Outstanding or Accrued Income
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 106/139
Copyright © Amity University
While the interest received will be increased toshown in the profit and loss account, theoutstanding interest account will be listed as anasset in the balance sheet.
In the subsequent accounting period, theamount in the Outstanding Interest A/C will betransferred to Interest Received A/C and theactual receipt of the interest will offset the formertransfer entry.
Income Received in Advance
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 107/139
Copyright © Amity University
While preparing the financial statements,
adjustments may be necessary in respect of anyincomes received in advance.
The entry to adjust for the income received inadvance will be.
Subscriptions A/C Dr.
To Subscriptions received in Advance A/C
Income Received in Advance
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 108/139
Copyright © Amity University
With the posting of the above journal entry, thesubscriptions account will be shown n the profit
and loss account and in the balance sheet, the
subscriptions received I advance will be listed as
a liability.
Provisions for Bad Debts
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 109/139
Copyright © Amity University
The sales revenue recorded in the books ofaccounts of an organization represents theamount realized/to be realized from the sale of
goods. When goods are sold on credit it maysometimes happen that even though customersbought them with every intention of paying forthem, (owing to certain subsequent change in
circumstances.) they may not be able to fulfilltheir obligations.
Provisions for Bad Debts
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 110/139
Copyright © Amity University
The journal entry to record the above loss would
be:
Bad Debts A/C Dr.To X A/C
Provisions for Bad Debts
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 111/139
Copyright © Amity University
Please not that the sales account remains
unchanged. However, in the income statement,
while sales revenue will appear at the full figure,the bad debts will appear as a loss and thus the
reduction in the amount realized will be account
for. The Accounts Receivable account will also
appear in the balance sheet at the realizablevalue.
Provision for Bad and Doubtful Debts
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 112/139
Copyright © Amity University
When bad debts are expected to occur in thefuture: (a) the exact amount of loss may not be
known and (b) a particular debtor‘s account
cannot be identified to write-off the expected
loss or even if the debtor‘s account can be
identified, a reduction in claim can be given
effect to only when it becomes one hundred
percent certain.
Provision for Bad and Doubtful Debts
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 113/139
Copyright © Amity University
For creating the provision for bad and doubtfuldebts, the journal entry is:
Profit and Loss A/C Dr
To Provision for Bad Debts A/C
Estimating Bad and Doubtful Debts
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 114/139
Copyright © Amity University
Any one of the following methods may be used toestimate the amount of possible bad debts.
Bad debts may be estimated as a percentage of totalsales during the year. This method can be used only
when there are no cash sales or such sales arenegligible.
Bad debts may be estimated as a percentage of creditsales.
Estimate bad debts as a percentage of receivablesoutstanding at the end of the accounting period.
Estimating Bad and Doubtful Debts
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 115/139
Copyright © Amity University
The percentage used will be based on the
Judgement of the management and the pastexperience with regard to bad debts.
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 116/139
Treatment of Bad Debts when a Provision
for Bad Debts E ists
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 117/139
Copyright © Amity University
for Bad Debts Exists
• Since a provision for bad debts to the extentalready exists, the actual bad debts will be
transferred at the end of the year to this
provision account and not to the profit and loss
account. The entry for the transfer will be,
Provision for Bad Debts A/c
To Bad Debts A/c
Treatment of Bad Debts when a Provision
for Bad Debts Exists
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 118/139
Copyright © Amity University
for Bad Debts Exists
At this point the provision account will appear asunder:
Provision for Bad Debts AccountDr. Cr.
Particulars Rs. Particulars Rs.
Treatment of Bad Debts when a Provision
for Bad Debts Exists
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 119/139
Copyright © Amity University
for Bad Debts Exists
Since the provision has been utilized to the
extent . The remaining setting off any bad debts
in the forthcoming year. However, PQR Ltd.,
wishes to maintain the provision at % on
debtors. So, the balance required in the
provision account as on date is % of total debtor
Treatment of Bad Debts when a Provision
for Bad Debts Exists
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 120/139
Copyright © Amity University
for Bad Debts Exists
To bring up the provision to the required balancea further appropriation to be made from the
profit and loss account.
Entry will be:
Profit and Loss A/c Dr.
To Provision for Bad Debts A/c
Treatment of Bad Debts when a Provision
for Bad Debts Exists
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 121/139
Copyright © Amity University
for Bad Debts Exists
The provision account, after posting this entry, will appear asfollows:
Provision for Bad Debts Account
Dr. Cr.
Particulars Rs. Particulars Rs.
The balance sheet will again show the Accounts Receivable at their
realizable value.
Recovery of Bad Debts Written off
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 122/139
Copyright © Amity University
Sometimes, an amount written off as bad debts
may be subsequently recovered. Any suchrecovery must be treated as a windfall and
transferred to the Profit and Loss Account as a
gain:
Recovery of Bad Debts Written off
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 123/139
Copyright © Amity University
The journal entries will be,
At the time of receipt of the amount
Cash A/c Dr.
To Bad Debts Recovered A/c
At the end of this financial year,Bad Debts Recovered A/c Dr.
To Profit and Loss A/c
Provision for Discounts on Accounts
R i bl
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 124/139
Copyright © Amity University
Receivable
The organization which allow the facility of
making payments before the due date and
enable their debtors to avail of cash discount,
must take into account the possible amount of
discounts that may be allowed on closing
debtors in the forthcoming year. This is
necessary to show the closing debtors at theirrealizable value.
Reserve for Discounts on Accounts Payable
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 125/139
Copyright © Amity University
Organizations may like to show the sundrycreditors in the balance sheet at the net payable
value by estimating in advance the amount of
cash discounts that may be received at the time
of settlement of amounts due. This is usuallydone by creating a reserve for discounts on
creditors and then transferring the discounts
received to such reserves. Since, income in
respect of discounts receivable is recognized in
advance,
Reserve for Discounts on Accounts Payable
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 126/139
Copyright © Amity University
The journal for creation of the reserve will be:Reserve for Discount on
Accounts Payable A/c Dr
To Profit and Loss A/c
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 127/139
Copyright © Amity University
Meaning and Scopeof Accounting
1. Accounting covers only thefollowing activities:
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 128/139
Copyright © Amity University
following activities:
(a) Recording and classifying
(b) Recording, Classifying,
Summarising and analysing(c) Summarising, Analysing and
Interpreting
(d) Identifying, Measuring andCommunication
2. An economic event that
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 129/139
Copyright © Amity University
involves transfer of
money or money’ worth is-
(a) Financial transaction
(b) Barter
(c) Settlement(d) Receipt/Payment
3. Sale of goods to Ram forCash Rs 1 000 is a –
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 130/139
Copyright © Amity University
Cash Rs.1,000 is a
(a) Cash transaction
(b) Credit transaction
(c) Barter
(d) Internal Event
4. Current Assets are thoseassets-
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 131/139
Copyright © Amity University
assets
(a) Which can be converted into cashwith 12 months.
(b) Which can be converted into cashwithin a period normally notexceeding 12 months
(c) Which can be converted into cashwithin an operating cycle which normallydoes not exceed 12 months
(d) Which are held for their conversion into
cash within an operating cycle whichnormally does not exceed 12 months
5. Fixed Assets are those
t
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 132/139
Copyright © Amity University
assets-
(a) Which can not be converted intocash
with 12 months.
(b) Which can be converted into cashafter
12 months.
(c) Which can be converted into cash
afterthe expiry of operating cycle.
(d) Which are not held for their conversioninto
cash within an operating cycle which
6. Capital is the -
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 133/139
Copyright © Amity University
(a) Excess of external liabilities over theassets.
(b) Excess of assets over the external
liabilities
(c) Excess of external liabilities over theassets.
(d) Excess of assets of over the internalliabilities
7. Drawing represent -
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 134/139
Copyright © Amity University
(a) Cash withdrawn for officeuse
(b) Cash withdrawn forpersonal use
(c) Goods withdrawn for
personal use(d) (b) & (c)
8. A person who owesmone to the firm is
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 135/139
Copyright © Amity University
money to the firm is -
(a) A creditor
(b) A debtor(c) An investor
(d) A lender
9. A person to whommoney is owed by the
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 136/139
Copyright © Amity University
money is owed by the
business -
(a) A creditor
(b) A debtor(c) A borrower
(d) A customer
10. Income is reflected in
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 137/139
Copyright © Amity University
the form of -(a) Inflow of assets incurrence of
liabilities
(b) Outflow of assets or decrease
in liabilities(c) Inflow of assets or decrease
in liabilities
(d) Outflow of assets orincurrence of liabilities
11. Expenses are reflected
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 138/139
Copyright © Amity University
pin the form of -
(a) Inflow of assets or incurrence ofliabilities
(b) Outflow of assets or decrease inliabilities
(c) Inflow of assets or decrease inliabilities
(d) Outflow of assets or incurrenceof liabilities
8/10/2019 Af Session 1
http://slidepdf.com/reader/full/af-session-1 139/139
Thank You
Please forward your query