PRINCIPLES OF ACCOUNTANCY

Introduction
 Accounting  Accounting

is the language of business. information has to be suitably classified, summarized and

recorded,

presented.

Business Entity Concept Going Concern Concept Money Measurement Concept Accounting Period Concept .Accounting Concepts Accounting adopts the following concepts in recording of accounts.

Important Terms Capital –  It means the amount which the proprietor has invested in the firm  In a running business the excess of the assets over the liabilities is known as capital  It is a liability to its proprietor .

Assets –  It  It is what the business owns is amount spent in acquiring of some property or benefit of a lasting nature or something that can be converted into cash  Assets can be classified as Fixed assets and Current assets Liabilities –  Denotes any amount which a business concern has to pay legally .

Expenses –  It means amount spent on any item by the trader to acquire benefit out of it. The expense is classifies into.spent on the maintenance of the earning capacity .  Capital expenditure.spent to increase the earning capacity of business or acquisition of assets  Revenue expenditure.

 A person can be a individual or firm .Goods –  The things which a trader sells are called goods Drawings –  It refers to withdrawal of money (cash) or moneys worth (goods) by the proprietor of the business for his personal use. but liable to pay in future course or in the in due course of time. Debtor –  A person who receives a benefit without giving money or moneys worth immediately.

It involves two activities between two businessmen  .Creditor –  A person who gives a benefit without receiving money or moneys worth immediately but to claim in the future is a creditor. Transaction –   It denotes the business transactions A business transaction is the occurrence of an event or of a condition that must be recorded.

Account –  It is a clear and concise record of the transaction relating to a person of a firm or a property or a liability or an enterprise or an income or expense Narration –  It is a written under each journal entry for a precise explanation of the transaction. .

LIABILITIES . 1. 2. ASSETS = LIABILITIES + CAPITAL CAPITAL = ASSETS . 3. Some other asset has been given up There has been a profit.Dual Aspect Concept Each transaction has two aspects. leading to an increase in the amount that the business owes to the proprietor The proprietor has contributed money for the acquisition of the asset Any time. Debit aspect & Credit aspect If a business has acquired an asset it must have resulted in one of the following.

its elementary stages as Book-Keeping SINGLE ENTRY SYSTEM OF BOOK KEEPING DOUBLE ENTRY SYSTEM OF BOOK KEEPING . 2.  In 1.Book Keeping A systematic record of daily activities of a business is to present a complete financial picture is known as accounting.

Types of Accounts Personal Account Real or Asset Account Nominal Account Related to expenses and • Individual account • Company account • Capital account • Withdrawal a/c • Bank account • Cash account • Purchase a/c • Furniture a/c • Land account • Sales account losses & income and gains • Rent account • Commission a/c • Salary account • Insurance premium account .

Golden Rules Debit Personal a/c Real a/c The receiver What comes in Credit The giver What goes out Nominal a/c All expenses and loses All incomes and gains .

Rule for Personal Account If.2000 to the business  Then it is said that Mahendra has some honor or reputation in the eyes of business.means ‘believe’ Then Debit – Debere. Credit – Credere (latin).  His account will therefore will be credited.means ‘to owe’ . Mahendra gives Rs.

.Rule for Real Account  If the storekeeper of the business received goods or furniture.  Thus the account representing the thing is debited.  Storekeeper is acting on behalf of the business and does not owe any amount to business.

.  Then as per the second rule the cashier is not the giver of cash and instead of his account. cash account will be credited.Rule of expenses  Supposing cashier pays cash for rent.

........LIABILITIES..............Increase Decrease.........REVENUE..NATURE OF A/Cs.DEBIT..............Increase Increase......... a debit and a credit..CREDIT Increase..EXPENSES....... This allows the accounts to be balanced to check for entry or transaction recording errors....Increase Decrease.....ASSETS....EQUITY... .Decrease Two entries are made in each balanced transaction....Decrease Decrease.....

000 50.000 7000 Apr28 Apr30 Paid salaries Paid rent 5000 4000 .000 30. Generalize the following transaction and post them to various ledger a/c and prepare trial balance.50.00.000 1.000 29.(for 2002) Apr1 Apr2 Apr5 Apr8 Apr10 Apr15 Apr18 Commenced business with cash Purchased m/c from X Purchased furniture from Y Cash paid to Y Cash paid to X Cash Sales Sold goods to S 2.000 30.

000 1.00.50.000 Date Apr 1 May 1 Particulars By Cash a/c By balance b/d L Amount F 2.00.000 2.Solution :LEDGER A/C CAPITAL A/C Date Particulars L Amount F 2.50.000 Apr 30 By balance c/d .000 Date Particulars L Amount F 1.000 Apr 30 To balance c/d MACHINE A/C Date Apr 2 May 1 Particulars To X’s A/C To balance c/d L Amount F 1.50.00.

000 Apr 30 To balance c/d 1.000 30.000 May 1 By balance b/d 1000 .FURNITURE A/C Date Apr 5 May 1 Particulars To Y’s A/C To balance b/d Particulars To cash A/C L Amount F 30.000 Apr 30 By balance c/d Y’s A/C Date Apr 8 L Amount F 29.000 Date Apr 5 Particulars By furniture a/c L Amount F 30.000 Date Particulars L Amount F 30.

20.000 1.000 Apr 15 By cash a/c Apr 30 To balance c/d 57.000 Apr 18 By S’s a/c May 1 By balance b/d .20.000 SALES A/C Date Particulars L Amount F 50.000 Apr 2 By machine a/c 1.000 7000 57.000 May 1 By balance b/d L Amount F Date Particulars 1.50.X’s A/C Date Particulars L Amount F Date Particulars L Amount F Apr 10 To cash A/C Apr 30 To balance c/d 30.

000 Date Particulars L Amount F 7.000 Apr 18 To Sales a/c May 1 To balance b/d Apr 30 By balance c/d SALARY A/C Date Particulars L Amount F 5000 Date Particulars L Amount F 5.S’s A/C Date Particulars L Amount F 7000 7.000 Apr 30 By balance c/d .000 Apr 28 To Cash a/c May 1 To balance b/d 5.

000 1.000 Apr 30 To Cash a/c May 1 To balance b/d Particulars Apr 30 By balance c/d CASH A/C Date Apr 1 L Amount F 2.000 2.000 Date Particulars L Amount F 4.RENT A/C Date Particulars L Amount F 4000 4.000 68000 1.000 5.000 50.000 4.50.000 Date Apr 8 Apr 10 Apr 28 Apr 30 Particulars By Y a/c By X a/c By salary a/c By Rent a/c L Amount F 29.82.00.82.000 To Capital a/c Apr 15 To Sales a/c May 1 To balance b/d Apr 30 By balance c/d .000 30.

50.000 ------1000 5 6 7 8 9 10 X’s a/c Sales a/c S’s a/c Salary a/c Rent a/c Cash a/c ----7000 5000 4000 182000 3.000 30.TRIAL BALANCE Sl. Particulars 1 2 3 4 Capital a/c Machine a/c Furniture a/c Y’s a/c Debit balance ---1.000 1.20.000 --Credit balance 2.00.No.78000 .78.000 57000 3.

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