1. BASIC ACCOUNTING
PROCEDURES-JOURNAL ENTRIES
• Meaning and significance of Double Entry
Systems.
• Term – ‘Accounts’ and classification of
accounts into personal, real and nominal.
• Utility of classification and sub-classification.
• Determination of debits and credits from
transactions and events.
• Recording of transaction in the JOURNAL.
2. DOUBLE ENTRY SYSTEM
• Double entry system of book-keeping has
emerged in the process of evolution of
various accounting techniques.
• It is the only scientific system of accounting.
• Every transaction has two fold effects:
– Debit
– Credit.
• Both the aspects are to be recorded in the
books of accounts.
3. ADVANTAGES OF DOUBLE ENTRY
SYSTEM
• Accuracy could be established through Trial
Balance.
• Profit earned or loss suffered could
ascertained together with details.
• Financial position of the concern could be
ascertained at the end of each period by
preparation of Balance Sheet.
• Results could be compared between two
periods and reason for the change may be
ascertained.
• Affords significant information for the
purposes of control.
4. ACCOUNT
• The two columns which we referred are put in the form
of an account, called the ‘T’ form.
• Illustration: CASH
Increase Rs. Decrease Rs.
Opening 10,000 1,000
balance
2,500 300
2,000 200
50 500
1,350
400 TOTAL 2,000
New or 14,300
closing balance
16,300 16,300
5. ACCOUNT
• Increase in asset - Debit
• Increase in liability - Credit
• Decrease in asset - Credit
• Decrease in liability - Debit
• Increase in capital - Credit
• Decrease in capital - Debit
• Increase in expense - Debit
• Decrease in expense - Credit
• Increase in income - Credit
• Decrease in income - Debit
6. ILLUSTRATION
2006 Rs.
April
1. R. started business 10,000
2. He purchased furniture 2,000
3. Paid salary to his clerk 100
4. Paid rent 50
5. Received interest 20
8. ACCOUNTING EQUATION
APPROACH
• Often Owner’s claim or fund in the business is
called equity.
• Owner’s claim implies capital invested plus any
profit earned minus any loss sustained.
EQUITY + LIABILITIES = ASSETS
OR
EQUITY+LONG-TERM LIABILITIES=FIXED ASSETS+CURRENT
ASSETS-CURRENT LIABILITIES
9. CLASSIFICATION OF ACCOUNTS
ACCOUNTS
Personal Accounts Impersonal Accounts
Real Nominal
Natural Artificial Representative
(legal)
10. GOLDEN RULES OF ACCOUNTING
• Personal Account
– Debit the receiver
– Credit the giver
• Real Account
– Debit what comes in
– Credit what goes out
• Nominal Account
– Debit all expenses and losses
– Credit all incomes and gains
11. JOURNALISING PROCESS
• All transactions are first entered in the journal
as and when they occur; the record is
Chronological.
JOURNAL
1 2 3 4 5
DATE PARTICULARS L.F. DEBIT CREDIT
AMOUNT AMOUNT
Rs. Rs.
12. ADVANTAGES OF JOURNAL
• Chronological order:
Complete information on time basis
• Narration:
Precise explanation of transaction
• Posting:
Journal forms the basis for posting the
entries in the ledger
13. LEDGERS
• Concept of Ledgers
• Ledger posting and balancing of accounts
• Opening accounts each year taking closing
balances of the previous year
• Use of ‘balance c/d’ and ‘balance b/d’.
14. SPECIMEN OF LEDGER
ACCOUNTS
• Each ledger account has two sides
1. Debit (left part of the account)
2. Credit (right part of the account)
• Each of the debit and credit has four
columns:
1. Date
2. Particulars
3. Journal folio i.e. page from where the
entries are taken for posting
4. Amount
16. POSTING - RULES
• Open separate account
• Use of ‘To’ and ‘By’
• Respective reference.
17. BALANCING AN ACCOUNT
• It is necessary to ascertain the balance in an
account on a regular basis. It is not difficult.
• Ascertainment procedures:
– Total the sides
– Ascertain the difference
– The difference is the balance
• If credit side is bigger, then it is credit
balance. Write on the debit side as, ‘To
Balance c/d’.
• If debit side is bigger, then it is credit
balance.
• The totals are written on the two sides
opposite one another.
18. TRIAL BALANCE
• Meaning and purpose
• Technique of taking balances from ledger
accounts to prepare trial balance.
19. OBJECTIVES
• Establish arithmetical accuracy of the
books.
• Financial statements are prepared on the basis
of agreed trial balance.
• Trial balance serves as a summary of what is
contained in the ledger.
20. POINTS TO BE NOTED
• Prepared on a particular date
• Name of the account in second column
• Fourth column-debit balance
• Next column – credit balance
• Two column are totaled at the end
• First and third-no explanation
21. LIMITATIONS
• Transactions has not been entered at all in
the journal
• A wrong amount has been written in both
columns of the journal
• A wrong account has been mentioned in the
journal
• An entry has not at all been posted in the
ledger
• Entry is posted twice in the ledger.
22. METHODS OF PREPARATION-1
TOTAL METHOD
• Every ledger account is totaled and that total
amount is transferred to trial balance.
• Trial balance can be prepared as soon as
ledger account is totaled.
• Time taken to balance the ledger accounts is
saved.
• This is not commonly used as it cannot help
in the preparation of financial statements.
23. METHODS OF PREPARATION-2
BALANCE METHOD
• Every ledger account is balanced
• Balances are carried forward to the trial
balance
• Commonly used and helps in preparation of
financial statements
• Financial statements are prepared on the
basis of the ledger accounts.
24. METHODS OF PREPARATION-3
ADJUSTED TRIAL BALANCE METHOD
• If the trial balance do not agree after
transferring the ledger accounts including cash
and bank balance and also errors are not
located timely, then the trial balance is tallied
by transferring the difference of debit and
credit side to an account known as suspense
account. This is a temporary account opened
to proceed further and to prepare the financial
statements timely.
25. RULES OF PREPAING THE TRIAL
BALANCE
• The balances of all
a. Asset accounts
b. Expenses accounts
c. Losses
d. Drawings
e. Cash and bank balances in the debit side
of the trial balance.
26. RULES OF PREPAING THE TRIAL
BALANCE
• The balances of all
a. Liabilities accounts
b. Income accounts
c. Profits
d. Capital are placed in the credit column of
the trial balance.
27. SUBSIDIARY BOOKS
• Techniques of recording transactions in
Purchase book, Sales book; Returns Inward
Book, Returns Outwards Book; Bills Receivable
and Bills Payable book.
• Posting of subsidiary to ledger books
• Journalisation for many other transactions and
events
• Difference between Subsidiary books and
principle books.
28. PURPOSE
• Cash book – record receipts and payments of cash and
bank
• Purchase book - record credit purchase
• Purchase returns – record return of goods purchased
• Sales book – record credit sales
• Sales return book – record return of goods sold
• Bills receivable books – receipts of promissory notes,
etc.
• Bills payable book – issue of promissory notes, etc,
• Journal proper – transactions which cannot be recorded
in any of the above.
29. ADVANTAGES
• Division of work
• Specialisation and efficiency
• Saving of the time
• Availability of the information
• Facility in checking
30. CASH BOOK
• It is a type of cash book but treated as
principal book
• Kinds of cash books
• Technique of preparation of
– Single column cash book
– Double column cash book
– Three column cash book
• Petty cash book
31. KINDS OF CASH BOOK
• Simple Cash Book
• Two – Column Cash Book
• Three – Column Cash Book
32. CAPITAL AND REVENUE
EXPENDITURE & RECEIPTS
• Criteria for identifying and distinguishing
• Deferred Revenue Expenditures
• Distinction between Capital and Revenue
Receipts
• Linkage of distinction with the preparation of
final accounts
33. CONSIDERATION IN DETERMIING
CAPITAL&REVENUE EXPENDITURE
• Nature of business
• Recurring nature of expenditure
• Purpose of expenses
• Effect on revenue generating capacity of
business
• Materiality of the amount involved
34. DEFERRED REVENUE
EXPENDITURE
• The expenditure for which the payment has
been made or a liability incurred but which is
carried forward on the presumption that it will
be of benefit over a subsequent period or
periods.
• It refers to that expenditure that is, for the
time being, charged against income.
• Such suspension of ‘charging of’ operation
may be due to the nature of expenses and the
benefits and the benefits expected there from.
• Balance sheet – Miscellaneous Expenditure
35. CAPITAL AND REVENUE
RECEIPTS
• Receipts which are obtained in course of
normal business activities are revenue
receipts.
• Receipts which are not revenue in nature are
capital receipts.
• These receipts are recognised on accrual basis
• Revenue receipts should not be equated with
the actual cash receipts
• Revenue receipts are credited to the Profit and
Loss Account.
36. RECTIFICATION OF ERRORS
• Types of errors
• Location of errors
• Nature of one-sided and two-sided errors
• Suspense account is opened for rectification of
errors
• Correcting errors of one period in the next
accounting period.
37. TYPES OF ERRORS
• Errors of principle
• Clerical errors
– Errors of omission
– Errors of commission
– Compensating errors
– Errors of principle
