Concepts and Journal

Principles of accounting

 Accounting Principles
 Accounting principles may be defined as those rules of action or conduct which
are adopted by the accountants universally while recording accounting
transactions
 Accounting concepts
 The term concepts includes those basic assumptions or conditions on which the
science of accounting is based.
Separate Entity Concept

 Separate Entity Concept

According to the concept business is treated as a separate entity from its owners.
Going Concern Concept
 Going Concern Concept
According to this concept it is assumed that the business will continue to
operate for an indefinite time period, there is no intention to liquidate the
business in the foreseeable future
Money Measurement Concept

 Money Measurement Concept

According to this concept accounting records only those transactions(measurable and
monetary) or events, which can be measured in terms of money.
For example:
Labour strike
Retirement
are not the monetary events so we do not record them in our business as an activity.
Dual Aspect Concept

 Dual Aspect Concept

According to this concept “for every debit, there is an equivalent credit”.
For example purchase of a building for Rs. 50,000
 Two accounts are affected
Accounting period concept

 Accounting period concept

According to this concept, the life of the business is divided into a series of relatively
short accounting periods of equal lengths for studying the results shown by the
business.
Cost Concept

 Cost Concept
According to this concept “an asset is ordinarily entered in the accounting record at
the price paid to acquire it”
Matching Concept

 Matching Concept
The concept of offsetting expenses against revenue is called the matching concept.
Realisation concept

 Realisation concept
According to this concept, revenue should be recognized at the time when goods are
sold or services are rendered.
For example goods sold on 11july 2020
But amount has been received on 15th September 2020.
SECP

 Securities and Exchange Commission

 A governmental organization that has the legal power to establish accounting
principles and financial reporting requirements for publicity held companies
Entry

 Recording the transaction in the appropriate place of the concerned book of

account is called entry.
Single entry

 A system in which some times both aspects of a transaction are recorded,

sometimes one aspect only or sometimes no aspects of a transaction is recorded
are called single entry system
Example of single Entry
Double Entry

 The system under both the changes in a transaction are recorded. One change is
debited and the other change is credited with an equal amount.
Compound entry

 An entry in which more than one account is debited or more than one account is
credited.
Account

 Account is the individual record of an asset, liability, revenue, an expense or

capital.
Journal

 The book in which transactions are first of all recorded chronologically together
with the short description is called journal. It is also called book of original entry
or Primary Entry.
Journalizing

 Recording of a transaction in journal is known as journalizing.

Narration

 A Short explanation of each transaction which is written under each entry is called
Narration.
Ledger Folio/ Ledger Reference

 The page number of a ledger where the two concerned accounts have been posted
are mention in this column. This will help in locating the entry in the ledger
easily.
Methods of recording journal entries

 Traditional approach.
 Modern approach.
Traditional Approach

 3 rules decided for making journal entries

Real A/c rule
Nominal A/c rule
Personal A/c rule
Real A/c

 Real Account
Accounts which are related to property or things that are owned by business are
known as real accounts e.g. land , building , goods, office equipment.
Rule:
Debit ( What comes in )
Credit ( what goes out)
Nominal A/c

 Nominal A/c:
Account which are related with expenses, losses and gains known as nominal account
it also relates to services in business. E.g. salaries, commission, loss by theft.
Rule :
Debit all losses and expenses
Credit all gains and incomes
Personal A/c

 Accounts which are related with persons or institutions are called personal
accounts, e.g bank, Debtors account , creditors account
 Rule:
Debit the receiver
Credit the giver
Traditional approach

Question:
 Aug1 Bilal started business with Rs. 45,000.
 Aug 5 Cash deposited into Bank, Rs. 2,500.
 Aug 9 Purchased goods worth RS. 4,000.
 Sept 12 Purchase office equipment for cash Rs. 2,000
 Sept 16 Sold goods for cash Rs. 1,200.
 Sept 20 Sold goods to Asif worth Rs. 3,000.
 Oct 2 Bilal withdraw amount for personal use Rs. 1,500.
Traditional Approach

 Jan 3rd Purchased machine for business for Rs. 10,000

 Jan 8th Sold furniture for Rs. 5,000
 Jan 15th Salary paid to employee Rs. 2,000
 Jan 20th Fee amount received Rs. 4,000
 Feb 6th Cash received from Ali Rs. 3,500
 Feb 10th Goods sold to Bilal worth 5,500
Modern Approach

 Jan 12th Raheem started business with cash Rs. 50,000

 Jan 16th Purchased goods on cash for Rs. 7,000
 Jan 19th Sold goods for cash 5,000
 Jan 23rd Purchased goods on credit from Ali Rs. 4,500
 Jan 28th Sold goods to Asif on credit worth Rs. 2,000
 Feb 9th Paid wages Rs. 4,000
 Feb 12th Received commission Rs. 2,000
 Feb 16th Goods returned by Asif worth Rs. 1,500