“IN THIS “AGE OF ACCOUNTS” SOME LITERACY IN ACCOUNTING HAS BECOME A PRIME NECESSITY ”.

PAUL A SAMUELSON

DEFINITIONS
• ACCOUNTING IS THE ART OF RECORDING, CLASSIFING AND SUMMARISING IN A SIGNIFICANT MANNER AND IN TERMS OF MONEY, TRANSACTIONS AND EVENTS WHICH ARE, IN PART AT LEAST, OF FINANCIAL CHARACTER AND INTERPRETING THE RESULTS THEREOF.
• THE PROCESSOF IDENTIFING, MEASURING AND COMMUNICATING ECONOMIC INFORMATION TO PERMIT INFORMED JUDGEMENTS AND DECISIONS BY THE USERS OF INFORMATION

TYPES OF ACCOUNTING
 FINANCIAL ACCOUNTING. DATES BACK TO THE ADVENT OF JOINT STOCK COMPANIES. IT INVOLVES RECORDING OF TRANSACTIONS AFTER THEY HAVE OCCURRED/ACCRUED.  COST ACCOUNTING. DEVELOPED AS A GUIDE TO INDUSTRIAL MANAGEMENT ACTIONS. IT AIMS TO ASCERTAIN COSTS WITH AVIEW TO CONTROLLING IT (COST).  MANAGEMENT ACCOUNTING. THIS SYS AIMS AT USING ACCOUNTING INFO AS A DIRECT AID TO MANAGEMENT FOR DECISION MAKING.

. ONLY THOSE FACTS WHICH CAN BE EXPRESSED IN TERMS OF MONEY ARE RECORDED. IT ASSUMES THAT CONTINUITY OF BUSINESS ACTIVITY IS THE REASONABLE EXPECTATION FOR THE BUSINESS UNIT FOR WHICH THE ACCOUNTING FUNCTION IS BEING PERFORMED.ACCOUNTING CONCEPTS  BUSINESS ENTITY CONCEPT.  CONTINUITY CONCEPT. THIS CONCEPT OF ACCOUNTING CONSIDERS AN ENTERPRISE/ BUSINESS AS AN ECONOMIC UNIT SEPARATE AND APART FROM ITS OWNER(S)  MONEY MEASUREMENT CONCEPT.

A SYS OF ACCOUNTING ONCE ADOPTED THE SAME SHOULD CONTINUE TO BE FOLLOWED. HERE TO DRAW A LINE BETWEEN MATERIAL AND IMMETERIAL EVENTS IS A MATTER OF JUDGEMENT. ITEMS OF SMALL SIGNIFICANCE NEED NOT BE GIVEN STRICT THEORETICALLY TREATMENT.ACCOUNTING CONCEPTS(CONT‟D)  MATERIALITY CONCEPT.  COST CONCEPT. . THIS CONEPT STIPULATES THAT AN ASSET IS WORTH THE PRICE PAID OR COST INCURRED TO ACQUIRE IT SUBJECT TO SYSTEMATICALLY BEING REDUCED BY A PROCESS OF DEPRECIATION.  CONSISTENCY CONCEPT.

• PERIODICITY CONCEPT.ACCOUNTING CONCEPTS(CONT‟D) • ACCRUAL CONCEPT. EXTERNAL REPORTING TO THE GOVT/TAX AUTHORITIES/SHAREHOLDERS/CREDITORS IS ALSO NECESSARY. THIS CONCEPT MAKES A DISTINCTION BETWEEN THE ACTUAL RECEIPT/PAYMENT AND THE RIGHT/LEGAL OBLIGATION TO RECEIVE/PAY THAT AMOUNT. . THERE IS A NEED TO KNOW THE STATE OF THE BUSINESS AT REGULAR INTERVALS.

OBJECTS OF BOOK KEEPING AND ACCOUNTING 1. . TO RECORD EACH BUSINESS TRANSACTION AND ANALYSE ITS FINANCIAL EFFECT. 2. TO RECORD THE COMBINED EFFECT OF ALL SUCH TRANSACTIONS OF A GIVEN PERIOD SO THAT THE NET RESULT OF THE TRADING AS WELL AS THE ACCURATE FINANCIAL POSITION OF THE TRADER MAY BE PROMPTLY ASCERTAINED.

EVERY FINANCIAL TRANSACTION INVOLVES A TRANSFER OF MONEY OR ITS EQUIVALENT FROM ONE PERSON TO ANOTHER. THEREFORE IT IS NECESSARY TO DIVIDE EACH ACCOUNT IN TWO SECTIONS . IT MUST NECESSARYLY. 4.DOUBLE ENTRY SYSTEM 1. TO DENOTE WHETHER ANY PARTICULAR TRANSACTION HAS RESULTED IN THE RECEIPT OF A BENEFIT OR THE GIVING OF A BENEFIT. REQUIRE TWO PARTIES. THEREFORE 3. 2.

DOUBLE ENTRY SYSTEM (CONT‟D) ONE SECTION (THE LEFT HAND SIDE) OF EACH ACCOUNT IS THUS UTILISED FOR RECORDING THE TRANSACTIONS IN RESPECT OF WHICH BENEFIT HAS BEEN RECEIVED BY THAT ACCOUNT. AND THE OTHER SECTION (THE RIGHT HAND SIDE) FOR RECORDING TRANSACTIONS IN RESPECT OF WHICH BENEFITS HAVE BEEN IMPARTED BY THAT ACCOUNT - 5. THE ULTIMATE POSITION OF THAT ACCOUNT COULD BE PERCEIVED . THIS WAY.

THE BOOKS SHOULD BE SO ARRANGED THAT THE TOTAL RESULT OF ALL THE TRANSACTIONS OR A SERIES OF TRANSACTIONS WITHIN A GIVEN PERIOD.PRINCIPLES & PRACTICE OF ACCOUNTING   THE RECORD MUST BE OF FACTS ONLY AND ACCURATE IN EVERY DETAIL. THE SYSTEM OF ACCOUNTING MUST BE SUCH THAT THE AMOUNT OF LABOUR INVOLVED MAY NOT BE OUT OF PROPORTION TO THE RESULTS OBTAINED.   . MAY EASILY BE DETERMINED. THE ENTRIES MUST BE SO CLEAR THAT THE EXACT NATURE OF EACH TRANSACTION MAY BE READILY PERCEIVED AT ANY FUTURE DATE.

IT IS THIS RECORDING OF THE TWO FOLD EFFECT OF EVERY TRANSACTION IN TWO ACCOUNTS IS KNOWN AS “DOUBLE ENTRY SYSTEM”.PRINCIPLES & PRACTICE OF ACCOUNTING (CONT‟D)  EVERY BUSINESS TRANSACTION HAS A TWO FOLD EFFECT AND THUS IT AFFECTS TWO ACCOUNTS IN OPPOSITE DIRECTION. IF ONE ACCOUNT RECEIVED A BENEFIT THERE SHOULD BE ANOTHER ACCOUNT TO IMPART THE BENEFIT. THE PRINCIPLE OF DOUBLE ENTRTY IS BASED ON THE FACT THAT THERE CAN BE NO GIVING WITHOUT RECEIVING NOR CAN THERE RECEIVING WITHOUT SOME ONE GIVING.    .

MARKED „Cr‟. THE GIVING ASPECT IS KNOWN AS „CREDIT‟ AND IS ENTERED ON THE RIGHT HAND SIDE OF THE ACCOUNT OR WHAT IS CALLED THE „CREDIT SIDE‟.  .PRINCIPLES & PRACTICE OF ACCOUNTING (CONT‟D)  THE RECEIVING ASPECT IS KNOWN AS „DEBIT‟ AND IS ENTERED ON THE LEFT HAND SIDE OF THE ACCOUNT. OR WHAT IS CALLED THE „DEBIT SIDE‟. MARKED „Dr‟.

SUBSIDIARY BOOKS • BOOKS LIKE THE PURCHASE BOOK/SALES BOOK/ JOURNAL MERELY FACILITATE THE PREPARATION OF THE ACCOUNTS OR THE LEDGER AND HENCE ARE KNOWN AS SUBSIDIARY BOOKS OR BOOKS OF ORIGINAL ENTRY .

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JOURNAL THE JOURNAL IS USED AS THE BOOK OF FIRST ENTRY FOR ALL TRANSACTIONS WHICH CANNOT BE RECORDED IN THE CASH BOOK. THE FOLLOWING SUBSIDIARY BOOKS MAY CONSTITUTE THE JOURNAL FOR AN ENTERPRISE (a) (b) (c) (d) (e) (f) (g) PURCHASE BOOK PURCHASE RETURNS BOOK SALES BOOKS SALES RETURNS BOOK BILLS RECEIVABLE BOOK BIILS PAYABLE BOOK JOURNAL PROPER . ALL NON-CASH TRANSACTIONS SCHOULD BE RECORDED IN THE JOURNAL. FOR EXAMPLE. FOR PRACTICAL CONVENIENCE THE JOURNAL IS MAINTAINED BY USING A NUMBER OF BOOKS CALLED THE SUBSIDIARY BOOKS.

SALES RETURNS BOOKS THIS BOOK IS USED TO RECORD THE TRANSACTIONS RELATING TO GOODS SOLD ON CREDIT AND RECEIVED FROM THE CUSTOMERS AS NOT CONFIRMING TO THE SPECIFICATIONS OR FOR ANY OTHER REASON . THIS BOOKS IS USED TO RECORD CREDIT PURCHASES OF GOODS ONLY.PURCHASE BOOK ALSO KNOWN AS THE PURCHASE JOURNAL. PURCHASE RETURNS BOOKS THIS SUBSIDIARY BOOKS IS USED TO RECORD THE GOODS PURCHASED ON CREDIT AND SENT BACK TO SUPPLIERS AS NOT CONFIRMING TO SPECIFICATIONS OR FOR ANY OTHER REASON. SALES BOOK ALSO KNOWN AS THE SALES JOURNAL. THE TERM „GOODS‟ COVERS ONLY THOSE ITEMS PROCURED BY THE BUSINESS FOR RESALE. THIS SUBSIDIARY BOOK IS USED TO RECORD ALL SALE OF GOODS ON CREDIT.

THE BILLS PAYABLE BOOK IS USED TO RECORD ALL SUCH PROMISSORY NOTES GIVEN OR BILLS OF EXCHANGE ACCEPTED BY THE BUSINESS.BILLS RECEIVABLE BOOK THE BILLS RECEIVABL OF AN ENTERPRISE CONSIST OF ALL PROMISSSORY NOTES GIVEN OR BILLS OF EXCHANGE ACCEPTED BY CUSTOMERS IN RESPECT OF AMOUNTS DUE FROM THEM. THE BILLS RECEIVABLE BOOK IS USED TO RECORD ALL PROMISORY NOTES GIVEN OR BILLS OF EXCHANGE ACCEPTED BY CUSTOMERS. THE TRANSACTIONS THAT WILL BE RECORDED IN JOURNAL PROPER ARE. PURCHASE OR SALES OF FIXED ASSETS AND INVESTMENTS ON CREDIT. RECTIFICATION ENTRIES ETC. BILLS PAVABLE BOOK THE BILLS PAYABLE CONSIST OF ALL PROMISSORY NOTES GIVEN OR BILLS OF EXCHANGE ACCEPTED BY THE BUSINESS IN RESPECT OF AMOUNTS OWING TO ITS SUPPLIERS. ADJUSTING ENTRIES. . JOURNAL PROPER THIS BOOK IS USED TO RECORD ALL TRANSACTIONS WHICH CANNOT BE INCLUDED IN THE CASH BOOK OR ANY OF THE OTHER SIX SUBSIDIARY BOOKS DISCUSSED SO FAR.

IN A BUSINESS IT IS IMPOSSIBLE TO RECORD EVERY TRANSACTION AS A JOURNAL ENTRY. HENCE. ONLY CERTAIN SEPCIAL TRANSACTIONS ARE RECORDED IN THE JOURNAL BOOK. FOR A CLEAR UNDERSTANDING THE JOURNAL ENTRIES FOR VARIOUS TRANSACTION ARE EXPLAINED.JOURNALISING THE TRANSACTIONS RECORDING THE DUAL ASPECTS OF A TRANSACTION IS KNOWN AS JOURNALISING. NORMALLY. . HOWEVER. SPECIAL JOURNALS SUCH AS PURCHAE BOOK. SALES BOOK ETC ARE USED.

5.000 FROM GUPTA ACCOUNT DEBITED REASON ACCOUNT REASON FOR DEBIT CREDITED FOR CREDIT CASH A/C IS A REAL A/C THE RULE OF DEBIT WHAT COMES IN APPLIES GUPTA & CO GUPTA & CO A/C IS A PERSONAL A/C THE RULE OF CREDIT THE GIVER’ APPLIES ASPECT 1 CASH A/C CASH OF RS 5.TRANSACT ASPECTS ION ABC LTD RECEIVED RS.000 IS RECEIVED. ASPECT 2 THE AMOUNT IS GIVEN BY GUPTA & CO .

The rule of „Debit what comes‟ in applies‟. Aspect 2 the goods are supplied by X CO Account Reason for the Debited Debit Inventor y A/C (or purchase s A/C) Account Credited Reasonf for the Credit X CO A/C is a personal A/C. The rule of credit the credit the giver‟ Applies. Inventory A/C or X Co A/C purchases A/C is a real A/C. .Transaction Aspects PQR Ltd Purchased Rs 6000 Worth of goods from X CO Aspect 1 Goods worth Rs 6000 is received.

The rule of „Credit what goes out‟ applies Aspect 1. The rule of „Debit all expenses‟ applies‟ . Bank balance is reduce by RS 15500 Salaries A/C is a Bank A/C Nominal A/C. paid the salaries of Rs 15500 to its staff for the Month through bank transfer Account Reason for the Debited Debit Account Credited Reasonf for the Credit Bank A/C is a Real A/C.Transaction Aspects XYZ Ltd. Salaries Payment of A/C an expense of Rs 15500 Aspect 2.

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.CASH BOOK THE BOOK MEANT FOR RECORDING ALL CASH TRANSACTIONS IRRESPECTIVE OF ITS NATURE IS KNOWN AS CASH BOOK. THE LEFT HAND SIDE IS KNOWN AS THE DEBIT SIDE. THE RIGHT HAND SIDE IS KNOWN AS THE CREDIT SIDE. THE CASH BOOK ALSO RECORDS BANK TRANSACTIONS.

CASH BANK ACCOUNT NO NO NO (RS) (RS) INITIAL ..CASH BOOK FOR THE MONTH OF …………. DR RECEIPTS DATE FROM ON WHAT RV WHOM ACCOUNT NO LEDGER CASH BANK INITIAL FOLIO NO (RS) (RS) CR PAYMENTS DATE TO WHOM ON WHAT CHEQUE PV L.F.

4. 2. AUTHENTICATION. RECORD OF CHECKS. & PAGENUMBERING. 6. TRANSCRIPTION CERTIFICATE. BROUGHT FORWARD CASH AND BANK BALANCES /TOTALS. BOOK SL. 3. RECORD TRANSACTIONS CHRONOLOGICALY BANK BALANCE CERTIFICATE AND BRS. 7.No.PREPARATION OF CASH BOOK 1. . 5.

CONTRA ENTRIES WHEN CASH/CHEQUE IS DEPOSITED INTO BANK OR CASH IS WITHDRAWN FROM THE BANK. SUCH TRANSACTIONS ARE CALLED AS “CONTRA ENTRIES” . BOTH ENTRIES WILL APPEAR IN CASH BOOK IN THE DEBIT AS WELL AS THE CREDIT SIDE.

CHANGE OF OFFICER INCHARGE SURPRISE CHECK OF CASH CHANGE OF COMMAND STAFF / INSPECTION VISIT .BALANCING OF CASH BOOK • CASH BOOK IS TO BE RULED OFF AND BALANCED ON THE FOLLOWING OCCASIONS :– – – – – LAST DAY OF EVERY MONTH.

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BANK RECONCILIATION STATEMENT . BALANCE SHOWN IN THE BANK BALANCE CERTIFICATE MAY NOT AGREE WITH THE BANK BALANCE AS PER CASH BOOK TO CHECK CORRECTNESS A BANK RECONCILIATION STATEMENT HAS TO BE PREPARED.BANK BALANCE CERTIFICATE IS TO BE OBTAINED AND THE CLOSE OF TRANSACTIONS OF THE DAY PRIOR TO THAT ON WHICH CASH CHECK IS CARRIED OUT.

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.LEDGER ACCOUNTS  MARSHALLING OF ENTRIES RELATING TO A PERSON.  AN ACCOUNT HAS TWO SIDES/COLUMNS --.THE DEBIT SIDE/COLUMN AND THE CREDIT SIDE/COLUMN  THE BOOK WHICH CONTAINS ACCOUNTS IS KNOWN AS THE LEDGER WHICH IS ALSO KNOWN AS THE PRINCIPAL BOOK. OR ASSET OR ITEMS OF EXPENSE OR INCOME FOR A PARTICULAR PERIOD IS KNOWN AS AN ACCOUNT.

2. IT CONSISTS OF DIFFERENT TYPES OF EXPENSES OR INCOMES OR LOSS OR PROFIT. BANK ETC. THESE ACCOUNT SHOW THE AMOUNT OF INCOME EARNED OR EXPENSES INCURRED FOR A PARTICUALR PERIOD SAY A MONTH. PERSONAL ACCOUNT. 3. THIS ACCOUNT SHOWS THE WORTH OF THE ASSET. IT SHOWS THE BALANCE DUE TO THESE INDIVIDUALS OR DUE FROM THEM ON A PARTICULARF DATE. AS ON A PARTICULAR DATE. DEBTORS. A YEAR ETC. .TYPES OF LEDGER ACCOUNTS 1. LAND AND BUILDINGS. IT REPRESENTS ASSETS LIKE PLANT AND MACHINERY. IT DEALS WITH ACCOUNTS OF INDIVIDUALS LIKE CREDITORS. GOODWILL ETC. NOMINAL ACCOUNT. REAL ACCOUNT.

.LEDGER POSTINGS WITH THE EXCEPTION OF CONTRA ENTRIES ALL RECEIPTS AND PAYMENTS ARE TO BE POSTED TO THE LEDGER ACCOUNTS.

• REAL ACCOUNTS :–DEBIT WHAT COMES IN. –CREDIT ALL INCOMES AND GAINS. • NOMINAL ACCOUNTS :–DEBIT ALL EXPENSES AND LOSSES. –CREDIT WHAT GOES OUT.SIX BASIC RULES OF DEBIT AND CREDIT • PERSONAL ACCOUNTS :- –DEBIT THE RECEIVER. . –CREDIT THE GIVER.

 THE ACCOUNT WHICH HAS A GREATER DEBIT TOTAL IS SAID TO HAVE A ‘DEBIT BALANCE’ AND THAT WITH A GREATER CREDIT TOTAL A ‘CREDIT BALANCE’ . THIS IS DONE BY FINDING OUT THE DIFFERENCE BETWEEN THE TOTAL OF THE DEBIT ENTRIES AND CREDIT ENTRIES IN A PARTICULAR ACCOUNT.BALANCING THE ACCOUNTS  THIS REFERS TO THE PROCESS OF ESTABLISHING THE NET VALUE OF A PARTICULAR ACCOUNT.

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