Introduction to Basic Accounting. The PPT would help in understanding the accounting process in a very easier way

1. INTRODUCTION TO BASIC ACCOUNTING
BY
SANKAR THAPPA

2. ACCOUNTANCY
IDENTIFYING THE BUSINESS TRANSACTIONS
RECORDING THE BUSINESS TRANSACTIONS
SUMMARISING THE BUSINESS TRANSACTIONS
INTERPRETING THE BUSINESS TRANSACTIONS

3. OBJECTIVES OF ACCOUNTING
Maintaining proper records of business
Calculation of profit or loss.
Providing effective control over the business
Making information available to various groups

4. TERMINOLOGY OF
ACCOUNTANCY

5. ASSETS
• The valuable things owned by the business are
known as assets. These are the properties
owned by the business. Assets are the
economic resources of an enterprise which
can be expressed in monetary value.

6. FIXED ASSETS
• Fixed assets are acquired for long term use in
the business. They are not meant for sale.
These assets increase the profit earning
capacity of the business. Expenditure on these
assets is not regular in nature. Ex. Land &
building, Plant & Machinery, Vehicles,
furniture etc.

7. CIRCULATING/CURRENT ASSETS
• Current assets change their values constantly.
For example cash in hand changes so many
times during the day. There is always regular
transaction regarding floating assets.

8. FICTITIOUS ASSETS
• Fictitious assets are those assets, which do not
have physical form. They don’t have any real
value. These assets are the revenue
expenditure of capital nature, which are also
termed as deferred revenue
• Expenditure.

9. TANGIBLE ASSETS
• Tangible assets are available in physical form,
which can be seen, touched. These assets are
purchased and sold in open market

10. INTANGIBLE ASSETS
• These are the assets which are not normally
purchased and sold in the open market such
as goodwill and patents . It does not mean
that these assets are never purchased and
sold. They may be purchased and sold in
special circumstances

11. Liability or Equity
• Liabilities are the obligations or debts payable by the
enterprise in future in the form of money or goods or
services. It is the owner and creditor’s claim against
the assets of the business. Creditors may classify as
creditors for goods and creditors for expenses. The
business should have sufficient current assets to
meet its current liabilities and reasonable amount of
fixed assets to meet its fixed liability

12. Fixed or long term liabilities
• The liabilities, which are to be paid after a
long period of time exceeding one accounting
year, are called long term liabilities

13. Current liabilities
• The liabilities which are payable within a year
are termed as current liabilities

14. Contingent liability
• These are not the real liabilities. Future events
can only decide whether it is really a liability
or not. Due their uncertainty these liabilities
are termed as contingent (doubtful) liabilities.

15. Capital
• The amount what is invested to start a
business, to run or operate and expand the
business is called capital. Capital can be
classified as fixed capital and working capital

16. Fixed capital
• The amount invested in acquiring fixed assets
is called fixed capital. The money is blocked in
fixed Assets and not available to meet the
current liabilities

17. Working capital
• The part of capital available with the firm for
day-to-day working of the business is known
as working capital.

18. PURCHASES
• Purchases include only the purchases of those
goods, which are for the purpose of selling
again. It does not include the purchase of
assets.

19. Returns outwards
• It is that part of purchase of goods, which is
returned to the seller. This return may be due
to unnecessary, excessive, and defective
supply of goods.

20. Sales
• Sales includes the sale of goods only in which
the business organization deals in. The sale of
old fixed assets will not be included in the
sale.

21. Return inward
• It is that part of sales of goods which is
actually returned to the organization by
purchasers.

22. Stock
• The goods available with the business for sale on a
particular date is termed as stock. In accounting we
use the term stock widely as opening and closing
stock. In case of business which is being carried on
for the last so many years, the value of goods on the
opening day of the accounting year is known as
opening stock. In the same way the value of goods
on the closing day of the accounting year is known as
Closing stock.

23. Revenue
• Revenue in accounting means the amount
realized or receivable from the sale of goods.
Amount received from sale of assets or
borrowing loan is not revenue. Revenue
should not be confused with income. Revenue
is concerned with receipts or receivables in
day-to-day working of the business. Income is
calculated by deducting expense from
revenue.

24. Expense
• Generating revenue is the foremost objective of
every business. The firm has to use certain goods
and services to produce articles, sold by it. Payment
for these goods and services is called ‘expense’. Cost
of raw material for the manufacture of goods or the
cost of goods purchased for sale, expenses incurred
in manufacturing goods, such as wages, carriage,
freight and amount spent for selling and distributing
goods such as salaries, rent, advertising and
insurance etc. Are known as ‘expense’ in accounting
terminology.

25. Debtors
• The term ‘debtors’ represents the persons or
parties who have purchased goods on credit
from the business and have not paid for the
goods sold to them. They still owe to the
business

26. Creditors
• In addition to cash purchases the firm has to
make credit purchases also. The sellers of
goods on credit to the firm are known as its
creditors for goods. Creditors are the liability
of the business. They will continue to remain
the creditors of the firm so far the full
payment is not made to them. Creditors may
also be known as creditor for loan, creditors
for expenses.

27. Proprietors
• An individual or group of persons who
undertake the risk of the business are known
as ‘proprietor’. They invest their funds into
the business as capital

28. Drawings
• Amount or goods withdrawn by the proprietor
for his private or personal use is termed as
drawing .

29. Vouchers
• Accounting transactions must be supported by
documents. These documentary proofs in
support of the transactions are termed as
vouchers

30. Depreciation
• Depreciation is the loss in the value and utility
of assets due to constant use and expiry of
times.

31. Bad debts
• The amount what is not recoverable from the
debtors is considered as bad debt

32. ACCOUNTING CONCEPTS (GAAP
• Business Entity Concept
• Money Measurement Concept
• Going Concern Concept
• Cost concept

33. • Dual Aspect Concept
• Accounting period Concept
• Revenue recognition Concept
• Matching revenue
• Objective Evidence Concept

34. ACCOUNTING CONVENTIONS
• Consistency concept
• Full disclosures
• Materiality Concept
• Conservatism concept

35. CLASSIFICATION OF ACCOUNTS
• PERSONAL ACCOUNTS-those relating to
persons
• REAL ACCOUNTS-those relating to
property(assets) and
• NOMINAL ACCOUNTS-those relating to
incomes and expenses

36. RULES OF DEBIT AND CREDITS
• PERSONAL ACCOUNT:
• DEBIT - THE RECEIVER
• CREDIT - THE GIVER

38. REAL ACCOUNT :
DEBIT- WHAT COMES IN
CREDIT- WHAT GOES OUT

39. NOMINAL ACCOUNT
DEBIT- ALL EXPENSES OR LOSSES
CREDIT- ALL INCOMES OR GAIN

40. JOURNAL
• The word ‘journal’ has been derived from the
French word ‘JOUR’ meaning daily records.
Journal is a daily record of business
transactions. It is also called a ‘Daily Book’ and
is used for recording all day-to-day
transactions in the order in which they occur

41. FORMAT OF JOURNAL
DATE PARTICULAR LF AMOUNT AMOUNT
DEBIT CREDIT

42. LEDGER
• ledger is a book where all accounts relating to
different items are maintained and into which
all journal entries must be posted

43. FORMAT OF LEDGER
DATE PARTICULAR JF AMOUNT DATE PARTICULAR JF AMOUN
T

44. TRIAL BALANCE
• TRIAL BALANCE IS A STATEMENT PREPARED
WITH THE DEBIT AND CREDIT TOTALS OR
BALANCES OF LEDGER ACCOUNTS TO TEST
THE ARITHMATICAL ACCURACY OF THE
BOOKS.’

45. FORMAT OF TRIAL BALANCE
PARTICULAR DEBIT CREDIT
AMOUNT AMOUNT

46. FINACIAL STATEMENTS
• TRADING ACCOUNT
• PROFIT & LOSS ACCOUNT
• BALANCE SHEET