Overview of Accounting Process

ACCOUNTING: IT IS TERMED AS THE LANGUAGE OF THE

BUSINESS

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 Transactions

Events or movements that involve money or money

related activities from one person to another person.

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 Accounts

A summarised statement of anything having two

sides: the debit and the credit.
Left hand side is known as the debit side(Dr.)
The Right hand side is known as the credit side(Cr.)

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 Definition of Accounting

‘Accounting is an art of recording , classifying 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.’
 American Institute of Certified Public Accountants (AICPA)

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 Definition 2

“Accounting is the process of identifying, measuring

and communicating economic information to permit
informed judgments and decisions by users of the
information.”
 American Accounting Association(AAA)

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 Branches of Accounting

Financial Accounting
Cost Accounting
Management Accounting

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 Financial Accounting

To determine the income and financial position

statement of an enterprise.
It is for the use of outsiders like shareholders,
debenture holders, creditors, banks and financial
institutions etc.

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 Cost Accounting

Determination of the cost of products (goods &

services), operation, functions and fixing the price of
the products.

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 Management Accounting

Management accounting is the presentation of

accounting information in such a way as to assist
management in the creation of policy and in the
day-to-day operations of an undertaking.
It includes financial accounting, cost accounting, &
budgeting, budgetary control, etc.
It is mostly for internal management.

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 Accounting Principles

Accounting Concepts.
Accounting Conventions.

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 Accounting concepts

Separate entity concept

Going concern concept
Money measurement concept
Cost concept
Dual Aspect Concept
Accounting period concept
The Matching concept
Realisation concept

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 Accounting conventions

Convention of Disclosure
Convention of Materiality
Convention of Consistency
Convention of Conservatism

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 System of Accounting

Cash System of Accounting

Accrual or Mercantile system of accounting.

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 Types of Accounts

Personal Accounts
Real Accounts
Nominal Accounts

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 Golden Rules of Accountancy

Debit Credit
Personal A/c Debit, the receiver Credit, the giver
Real A/c What comes in What goes out
Nominal A/c All losses & expenses All incomes & gains

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 Accounting Cycle

TRANSACTIONS JOURNAL LEDGER TRIAL BALANCE

FINAL ACCOUNTS

TRADING & PROFIT & LOSS A/c BALANCE SHEET

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 Types of Journal

Journal Proper
Purchase Journal
Sales Journal
Purchase return Journal
Sales return Journal
Cash Journal or Cash Book

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 Cash Book

Simple column Cash Book

Cash book with Discount column
Cash book with Bank column
Cash book with Bank & Discount column
Multi columnar Cash Book
Subsidiary Cash book

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 Subsidiary cash book

Petty cash book

Cash book for recording collections from debtors
Cash book for recording payments to creditors
Cash book for recording remittances from the
branches

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 Ledger & Ledger Posting

Ledger: A set of Accounts

Posting: the process of entering in the ledger the
information given in the journals.
Separate accounts should be opened in the ledger for
posting transactions relating to different accounts
recorded in the journal.

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 Trial Balance

When all the balances of all the accounts in the

ledger are put in a list , debit balance on one side
and the credit balance on the other side, the list so
prepared is called a Trial Balance.
The total of the debit side balances should always
equal to that of its credit side balances.

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 FINAL ACCOUNTS

Income Statement(Trading & Profit & Loss Account)

Position Statement(Balance Sheet)

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 Trading Account

 To find the Gross Profit or Gross Loss

 Gross Profit= Sales – Cost of goods sold
 Cost of goods sold =Opening Stock + Purchases + Direct
Expenses + Closing Stock

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 Profit & Loss Account

Gross Profit or Gross Loss so calculated from the

Trading Account is taken to the Profit & Loss
Account
All the remaining expenses and losses are shown in
the debit side.
All the remaining gains are shown in the credit side.
The difference of the two sides is either Net Profit or
Net Loss.
Net Profit is added to Capital whereas Net Profit is
deducted from Capital
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 Trading & Profit & Loss Account

Particulars Amount Particulars Amount

To Opening Stock …….. By Sales ….

To Purchases …… Less ….. …….
Less Return …… …….. By Closing Stock …….
To Direct Expenses …….. By Gross Loss* …….
To Gross Profit* ……. -------
------- By Gross Profit* ……..
To Gross Loss ……. By Indirect Incomes ……..
To Indirect Expenses ……. By Net Loss** ……...
To Net Profit** ……. -------
-------

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 Balance sheet

A statement of Assets & Liabilities.

Liabilities are written on the left hand side.
Assets are written on the right hand side.
The total amount of Liabilities should be equal to the
total amount of the Assets.

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 Assets

Resources acquired by the business from the funds

made available either by the owners of the business
or others.
Assets are arranged either
 Liquidity order
 Permanency order.

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 Classification of Assets

Current Assets
Liquid Assets
Fixed Assets
Intangible Assets
Fictitious assets

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 Liabilities

It denotes the claims against the assets of a firm

whether those of the owners of the business or of the
creditors.
They can be arranged either
 In the order of urgency of payment
 In the order of descending urgency.

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 Types of Liablities

Current Liabilities
Long-term Liabilities
Contingent Liabilities

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 Balance Sheet

Liabilities Amount Assets Amount

Share Capitals ……. Fixed Assets ……..

Add Net Proit* ……. Current Assets ………
Less Net Loss * …… ……… (Cash)
Long Term Liabilities ……..
Short Term Liablities ……..

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