Accounting Concepts

Biz-Vita Program, Thinking Hats

We will learn about
 Accounting Concepts
 Why maintain books
 Single Entry / Double Entry Accounting
 Accounting - British Method
 Samples
 Outputs - Journal, Books of Accounts
 Assets and Liabilities, Balance Sheet

Biz-Vita Program, Thinking Hats

 Why to maintain books of accounts
 Are we gaining or losing – how much ?
 Book keeping or accounting, to keep track of financial
transactions to know
◦ how well the business is doing, what it owns and what it owes
 In addition
◦ Which division is giving how much money ?
◦ Who has to give - how much ?
◦ To whom we are paying - how much ?
◦ How was it last year ?

Biz-Vita Program, Thinking Hats

Slide 3
 Common terminologies
 TRANSACTION
◦ Any business activity expressed in terms of money
◦ What a business receives and what it pays
 DEBTOR
◦ A person who owes something, Borrower in a Bank
 CREDITOR
◦ A person to whom something is owed, Depositor in a Bank
 ACCOUNT
◦ A list of transactions falling under the same description
◦ Each account has a history of changes
 DEBIT and CREDIT
◦ In book-keeping, receiver of a benefit is debited and giver credited
◦ To debit an account means to enter a transaction on debit side and to
credit, transaction entered on the credit side of that account
Biz-Vita Program, Thinking Hats
Slide 4
 Double entry accounting

 Double-entry accounting is based on a simple concept: each party in a

business transaction will receive something and give something in return

 In bookkeeping terms, what is received is a debit and what is given is a

credit

◦ Luca Pacioli, Developer of

Double entry Accounting
(1445 – 1514 or 1517)
Italian mathematician

Biz-Vita Program, Thinking Hats

Slide 5
 Double entry accounting
 This system is called double-entry because each transaction is
recorded in at least two accounts
◦ Each transaction results in at least one account being debited and
at least one account being credited, with the total debits of the
transaction equal to the total credits
 The T Account is a representation of a scale or balance

T account

Left Side Right Side

Receive Pay
DEBIT CREDIT
Receive Pay
DEBIT CREDIT
Biz-Vita Program, Thinking Hats
Slide 6
 Recording transactions

 Cash and credit transactions

◦ Is exchange of consideration immediate?
◦ Will one party settle its part later?

 Analyze the transaction

◦ What the business receives and what it pays in return
◦ What it receives / receivable – to debit side
◦ What it pays / payable – to credit side

 Two fold effect for each transaction

Biz-Vita Program, Thinking Hats

Slide 7
 Recording transactions – British Method
 We classify the accounts into three types
◦ Real Account – Something which is realizable (Cash, Furniture,
other Fixed Assets) – All real accounts will be only Asset account
◦ Personal Account – Accounts which are related to Customers and
changes their positions with the Bank
◦ Nominal Account – Income and Expenses Account
The Rules to be followed
 Real Account

◦ Debit What Comes In Credit What Goes Out

 Personal Account

◦ Debit the Receiver Credit the Giver

 Nominal Accounts

◦ Debit all Expenses Credit all Incomes

Biz-Vita Program, Thinking Hats

Slide 8
 The two fold effect
 Analyze the two fold effect of following transaction and write
down the accounting entries you will pass:

1. Bank buys furniture for USD 50,000

Dr Furniture account US $ 50,000
Cr Cash account US $ 50,000

What the Bank receives What the Bank pays in return

Furniture worth US $ 50,000 Cash US $ 50,000

Real A/C - Debit what comes in Real A/C – Credit what goes out

Biz-Vita Program, Thinking Hats

Slide 9
 Some more examples…
Bank accepts FD for USD 5,000 from David Smith
Dr Cash account US $ 5,000
Cr Fixed Deposit account US $ 5,000

What the Bank receives What the Bank pays in return

Cash US $ 5000 Payable in future after a set period, He is a
Creditor to the bank
Real A/c – Debit what comes Personal A/c – Credit the Giver
in

Biz-Vita Program, Thinking Hats

Slide 10
 Examples continued…
Bank gives USD 15,000 as loan to David Green. It credits the proceeds to
his current account
Dr Loan account US $ 15,000
Cr Current account of David Green US $ 15,000

What the Bank receives What the Bank pays in return

Nothing immediately. But David Green
has an obligation to pay on the due
date. He is a debtor to Bank. Bank has
executed loan contract documents
with David Green
Personal A/c – Debit the Receiver
Bank pays US $ 15,000 to the
current account of David Green
Personal A/c – Credit the Giver
(here for the time being David
has received the loan and given
it to bank to credit it to his
Current Account

Biz-Vita Program, Thinking Hats

Slide 11
 Summary of transactions …

Biz-Vita Program, Thinking Hats

Slide 12
 Presented as Journal ..

Biz-Vita Program, Thinking Hats

Slide 13
 then to Books of Accounts…..

Furniture Cash Fixed Loan Current Interest

Deposit Account Account

Opening Bal -100,000 -100,000 +55,000 -50,000 +100,000 NIL

April 1, 2008 -50,000 +50,000 +5,000

-5,000
April 2, 2008 - 7,700 -15,000 +15,000 +700
+ 7,000

April 3, 2008

Closing Bal -150,000 -62,700 +55,000 -58,000 +115,000 +700

Biz-Vita Program, Thinking Hats

Slide 14
 Some more terms..
 ASSETS

◦ Properties of a business
 LIABILITIES

◦ Amounts due by a business to various persons 

 CAPITAL or OWNER’S EQUITY

◦ Amount due to Owners. Excess of assets over

liabilities
◦ Shown as a liability because a business is treated as
separate from its owners

Biz-Vita Program, Thinking Hats

Slide 15
 Accounting equation

 What does a Bank own?

 What does a Bank owe?
DEBIT CREDIT
Increases Assets Increases Liabilities
=
Liabilities
Assets

Loans Deposits
Investments Borrowings
Cash
Property
Owner’s Equity

Biz-Vita Program, Thinking Hats

Slide 16
 Computerized accounting cycle
1. Operations are recorded

2. Accounting entries are

produced

Savings Loan Income

Account
3. Account balances updated 89876 Interest
12345
Current
Deposit Expense
Account
95837 Salary
21768
4. Reports are produced
Income Balance
statement sheet
Biz-Vita Program, Thinking Hats
Slide 17
Assessment and Evaluation
Prepare a quiz or challenge to assess how
much information participants learned.
Survey participants to see if they found
the training beneficial.

Biz-Vita Program, Thinking Hats