Finance Basics

• Introduction to Accounting
• Need for Accounting
• Meaning of Accounting
• Attributes of Accounting
• Branches of Accounting
• Users of Accounting Information
• Accounting Cycle
• Accounting Equation
• Introduction and Meaning
• Effects of Business Transactions on Accounting Equation
• Purchase of an asset of credit
• Rules of Accounting Equation
 Finance Basics

• Double Entry System

• Types of Accounting
• Rules of the Double Entry System (Debit and Credit)
• Advantage of Double Entry System
• Journal
• Meaning of Journal
• Objectives of Journal
• Rules of Journalizing
• Miscellaneous Journal Entries
 Finance Basics

• Ledger
• Trial Balance
• Cash Book
 Finance Basics

• Ledger
• Meaning of Ledger
• Ledger is the principal book of accounts. It
contains all the accounts of a business whether
real, personal or nominal. It is also called the
book of final entry.
• A ledger may be defined as a summary statement
of all transactions relating to a person, asset,
expense or income which have taken place
during a given period of time and shows their net
effect.
 Finance Basics

• Ledger
• Ledger posting
The following example will make the process of
posting clear:
JOURNAL

Date Particulars Debit Credit

L.F. (SAR) (SAR)
2010 Ramy’s a/c Dr. 2000
April 1 To Sales a/c 2000
(Being goods sold on credit)
 Finance Basics

• Ledger
• Ledger posting
Ledger (Ramy’s Account)
Date Particulars Amount Date Particulars Amount

2010 To Sales a/c 2000

April 1

Ledger (Sales Account)

Date Particulars Amount Date Particulars Amount

2010 By Ramy’s a/c 2000

April 1
 Finance Basics

• Ledger
• Ledger posting (More example)
Ledger (Cash Account)
Date Particulars Amount Date Particulars Amount
Jan 1 To Capital a/c 10,000 Jan 3 By Furniture a/c 900
Jan 5 To Sales a/c 1,700 Jan 4 By Purchase a/c 4,000
Jan 16 To Sales a/c 650 Jan 7 By tele rent a/c 400
To Badr & Co.
Jan 25 2,850 Jan 26 By bank a/c 2,500
Jan 31 By Salaries a/c 600
Jan 31 By Balance a/c 6,800
15,200 15,200

Feb 1 To Balance b/d 6,800

 Finance Basics

• Ledger
• Ledger posting (More example)
Ledger (Sales Account)
Date Particulars Amount Date Particulars Amount
Jan 31 To Balance c/d 5,250 Jan 1 By Badr & Co. 2,900
Jan 5 By Cash a/c 1,700
Jan 16 By Cash a/c 650

5,250 5,250

Feb 1 By Balance b/d 5,250

 Finance Basics

• Ledger
• Difference between Journal and Ledger
Journal Ledger
1. Nature It is the book of first It is the book of secondary
entry entry.
2. Record This is the book of The ledger is an analytical
chronological record record
3. Datewise Entries are mad Postings are made
datewise accountwise
4. Permanency This is only the This is a permanent
original record and record of various accounts
not a permanent
record
 Finance Basics

• Ledger
• Difference between Journal and Ledger
Journal Ledger
5. Processing The process of The process is knows as
journal entries is posting
known as journalizing
6. Narration The narration is given The narration is not given.
after every entry.
7. Folio Folio of journal is Ledger folio is written
written
8. Basis in final Final accounts cannot Ledger is the basis of
accounts be prepared directly preparing the final
from journal accounts
9. Balancing Journal is not Every account is balanced
balanced
 Finance Basics

• Ledger
• Advantages of Ledger
• This is an important book of a business. It records the
summary of all the transactions effected in a specific period.
The following are the advantages of ledger:
1. Knowledge of assets: Leger records each and every
asset separately; hence, it can readily give the
knowledge of present value of asset.
2. Knowledge of purchases and sales: It can give a clear
picture of purchases and sales.
3. Knowledge of profit and loss: Ledgers are the basis of
profit and loss account. No business result can be
known unless we prepare the profit and loss account.
 Finance Basics

• Ledger
• Advantages of Ledger
4. Arithmetical accuracy: Ledgers are helpful for preparing
the trial balance. If in a trial balance both debit and
credit sides are equal, then it is evident that the ledger
balances are correctly carried forward. Thus, it is a
check of arithmetical accuracy.
5. Knowledge of income and expenditure: In ledger, a
separate account of income and expenditure is kept
which can tell us how much is spent on each item.
6. Helpful in preparing balance sheet: Various ledger
balances are carried to the trial balance, which is the
basis of the balance sheet.
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
1. Ledger is a set of:
a) balances
b) accounts
c) rules
d) None of these
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
1. Ledger is a set of:
a) balances
b) accounts
c) rules
d) None of these
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
2. Assets always have …….. balances:
a) debit
b) credit
c) Both debit and credit
d) None of these
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
2. Assets always have …….. balances:
a) debit
b) credit
c) Both debit and credit
d) None of these
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
3. If the total of debit side of an account is higher than
total of credit side, it is called balance:
a) debit
b) Credit
c) debit or credit
d) None of these
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
3. If the total of debit side of an account is higher than
total of credit side, it is called balance:
a) debit
b) Credit
c) debit or credit
d) None of these
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
4. ……………. Is the principal book of accounts.
a) Ledger
b) Journal
c) Trial balance
d) None of these
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
4. ……………. Is the principal book of accounts.
a) Ledger
b) Journal
c) Trial balance
d) None of these
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
5. The process of transferring entries from journal to
ledger is called………...
a) balancing
b) posting
c) recording
d) None of these
 Finance Basics

• Ledger
• Questions
• Choose the correct answer
5. The process of transferring entries from journal to
ledger is called………...
a) balancing
b) posting
c) recording
d) None of these