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INSTITUTION

Segment 3
Accounting Process

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Income Statement
Accounting
Process

Cash flow
statement

Balance sheet

Accounting

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INSTITUTION

Accounting is defined as the The art of

recording, classifying and summarizing in
terms of money transactions and events of
a financial character and interpreting the
results thereof.

Accounting

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Recording:
Recording various financial transactions in a
systematic manner
Classifying:
The process of grouping of transactions or
entries of one nature at one place. Ex
purchase a/c, sales a/c, cash a/c, building
a/c etc.
Summarizing:
Presenting the activities of business in an
understandable manner through profit & loss
a/c and balance sheet.

Recording of Transactions

Single Entry
System
Single Entry System
1
2
3
4
5
6
7
8
9
10

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INSTITUTION

Double Entry
System
Double Entry System
1
2
3
4
5
6
7
8
9
10

Debit

Credit

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Double entry book keeping

Book keeping:
It is the art of keeping or maintaining
accounts in the prescribed manner. Ex
journal, ledger, profit/loss account & balance
sheet
Double entry book keeping
Every financial transaction is registered with
two fold i.e. debit and credit
Every transaction has two aspects
An aspect of giving
An aspect of receiving
One who receives is a debtor and one who gives
is a creditor

A MANIPAL GROUP
INSTITUTION

Classification of Business Transactions

Three types of business transaction
Transactions relating to persons or individuals
Transactions relating to property, assets or possessions
Transactions relating to incomes and expenses

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Classification of accounts
INSTITUTION

Personal
accounts

Nominal
accounts

Real
accounts

Impersonal accounts
Individual
transactions

Property
transaction

Income
expenses

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INSTITUTION

Personal account

Natural
Persons

Artificial
Persons

Impersonal account

Representative
Persons

Real

Furniture
Plant
Machinery
cash

Nominal

rent
salary
interest

A MANIPAL GROUP
INSTITUTION

Illustration 1
From the following transactions find out the nature of account
S.no Transactions
Accounts involved
Nature of Accounts
1

Rend paid

Salaries paid

Interest recieved

Furniture purchased

Machinery sold

Paid to Suresh

Received from Mohan

A MANIPAL GROUP
INSTITUTION

Illustration 1
From the following transactions find out the nature of account
S.no Transactions
Accounts involved Nature of Accounts
1Rend paid
Rent a/c
Cash a/c
2Salaries paid
Salary a/c
Cash a/c
3Interest recieved
Interest a/c
Cash a/c
4Furniture purchased Furniture a/c
Cash a/c
5Machinery sold
Machine a/c
Cash a/c
6Paid to Suresh
Suresh a/c
Cash a/c
Received from
7 Mohan
Mohan a/c
Cash a/c

A MANIPAL GROUP
INSTITUTION

Illustration 1
From the following transactions find out the nature of account
S.no Transactions
Accounts involved
Nature of Accounts
1Rend paid
Rent a/c
Nominal a/c
Cash a/c
Real a/c
2Salaries paid
Salary a/c
Nominal a/c
Cash a/c
Real a/c
3Interest recieved
Interest a/c
Nominal a/c
Cash a/c
Real a/c
4Furniture purchased
Furniture a/c
Real a/c
Cash a/c
Real a/c
5Machinery sold
Machine a/c
Real a/c
Cash a/c
Real a/c
6Paid to Suresh
Suresh a/c
Personal a/c
Cash a/c
Real a/c
7Received from Mohan Mohan a/c
Personal a/c
Cash a/c
Real a/c

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Golden Rules of Accounts

Personal account
Debit the receiver and credit the giver

Real account
Debit what comes in and credit what goes out

Nominal account
Debit all losses and expenses
Credit all gains and income

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Journal
Ledger

Trial Balance
Financial
Reports

Journal

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A journal is a book of original entry wherein transactions

are recorded chronogically, showing date for each,
amount and accounts to be debited and credited and
explanation.

JOURNAL FORMAT

Date

Particulars

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INSTITUTION

L.F

Debit

Credit

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INSTITUTION

Journalise the following transactions

Dec 1 2014, Manohar started business with Cash Rs 40,000

Dec 3, paid into the bank Rs 2000
Dec 5, purchased goods for cash Rs 15,000
Dec 8, Sold goods for cash Rs 6,000
Dec 10, purchased furniture for cash Rs 5,000
Dec 12, sold goods to Arvind for credit Rs 4,000
Dec 15, paid telephone charges Rs 1,000

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Dec 1 2014, Manohar started business with Cash Rs 40,000

Capital a/c

Personal a/c
Personal account
Debit the Receiver and Credit the
giver
Capital a/c to be Credited

Cash a/c

Real a/c
Real a/c
Debit what comes in and Credit what
goes out
Cash a/c to be debited

Journal

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INSTITUTION

Dec 1 2014, Manohar started business with Cash Rs 40,000

Capital a/c: Credit
Cash a/c : Debit
Date
Dec 1 2014

Particulars
Cash a/c

L.F
Dr

To Capital a/c

Debit

Credit

40,000
40,000

A MANIPAL GROUP
INSTITUTION

Dec 3, paid into the bank Rs 2000

Bank a/c

Personal a/c
Personal account
Debit the Receiver and Credit the
giver
Bank a/c to be Debited

Cash a/c

Real a/c
Real a/c
Debit what comes in and Credit what
goes out
Cash a/c to be Credited

Journal

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INSTITUTION

Dec 3, paid into the bank Rs 2000

Bank a/c : Debit
Cash a/c Credit
Date
Dec 3

Particulars
Bank a/c
To Cash a/c

L.F
Dr

Debit

Credit

2,000
2,000

A MANIPAL GROUP
INSTITUTION

Dec 5, purchased goods for cash Rs 15,000

Purchase a/c

Real a/c
Real a/c
Debit what comes in and Credit what
goes out
Purchase a/c to be Debited

Cash a/c

Real a/c
Real a/c
Debit what comes in and Credit what
goes out
Cash a/c to be Credited

Journal

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INSTITUTION

Dec 5, purchased goods for cash Rs 15,000

Purchase a/c: Debit
Cash a/c: Credit
Date
Dec 5

Particulars
Purchase a/c
To Cash a/c

L.F
Dr

Debit

Credit

15,000
15,000

A MANIPAL GROUP
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Dec 8, Sold goods for cash Rs 6,000

Sales a/c

Real a/c
Real a/c
Debit what comes in and Credit what
goes out
Sales a/c to be Credite

Cash a/c

Real a/c
Real a/c
Debit what comes in and Credit what
goes out
Cash a/c to be Debited

Journal

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Dec 8, Sold goods for cash Rs 6,000

Sales a/c: Credit
Cash a/c: Debit
Date
Dec 5

Particulars
Cash a/c
To Sales a/c

L.F
Dr

Debit

Credit

6,000
6,000

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Ledger

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Ledger
The second step in the accounting process is to transfer the
entries recorded in the general journal into the relevant
accounts in the general ledger.
This procedure is called posting.

Ledger

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Ledger is a book in which various accounts like sales, purchases, plant

and machinery, rent etc are opened. Its source of information are the
books of original entry called journals.

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Format of Ledger
Date - This column contains the date of each transaction.
Reference - An appropriate reference number is entered
into this column. This number may refer to the relevant
page number or transaction number in the general
journal. It may also be used to enter the number of the
invoice, receipt or any other supporting document.
Description - A description of the underlying transaction
is provided in this column.
Amount - This column contains the amount for the entry.

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A MANIPAL GROUP
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Trial Balance

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Trial Balance
The trial balance is a record of all the accounts and their net balances
at the end of a reporting period.
A trial balance can be illustrated as follows:

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Preparing the trial balance