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Basics Of AccountingBasics Of Accounting

Asha E. ThomasAsha E. ThomasAssistant ProfessorAssistant Professor

SCMS COCHINSCMS COCHIN

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AccountingAccounting--DefinitionDefinition

According to American Institute ofAccording to American Institute ofCertified Public Accountants definedCertified Public Accountants definedaccounting as the art of recording,accounting as the art of recording,classifying and summarizing in aclassifying and summarizing in asignificant manner and in terms ofsignificant manner and in terms ofmoney, transactions and eventsmoney, transactions and eventswhich are ,in part at least ,of financialwhich are ,in part at least ,of financialcharacter, an interpreting the resultscharacter, an interpreting the resultsthereofthereof

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Objectives of AccountingObjectives of Accounting

Ascertain Operating results of theAscertain Operating results of thecompanycompany

To reveal the Financial PositionTo reveal the Financial Position

To have better ControlTo have better Control

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PRINCIPLES OF ACCOUNTINGPRINCIPLES OF ACCOUNTING

Principles of Accounting

Accounting Concepts Accounting Conventions

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Accounting Concepts

Business Entity Concept

Going Concern Concept

Dual Aspect Concept

Cost Concept

Money measurement Concept

Realization Concept

Accrual Concept

Matching Concept

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Accounting Conventions

Convention of Conservatism

Convention of Consistency

Convention of Material Disclosure

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At a GLANCE.At a GLANCE.

DefinitionDefinition

Objectives of AccountingObjectives of Accounting

Users of AccountingUsers of AccountingAccounting PrinciplesAccounting Principles

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Business Transactions Journal Ledger

Final Accounts

P & L Account Balance Sheet

Trial Balance

Steps in Accounting

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Systems of AccountingSystems of Accounting

Cash System of AccountingCash System of Accounting

Mercantile System or Accrual systemMercantile System or Accrual systemof Accountingof Accounting

Systems of Book KeepingSystems of Book Keeping

SingleSingle--entry Systementry System

DoubleDouble Entry SystemEntry System

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Terms Used in AccountancyTerms Used in Accountancy

Book KeepingBook Keeping

TransactionsTransactions

EntryEntry DebtorDebtor

CreditorCreditor

GoodsGoodsAccountAccount

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Types of AccountsTypes of Accounts

Personal AccountsPersonal Accounts

Real Accounts or Property AccountsReal Accounts or Property Accounts

Nominal accountsNominal accounts

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ExamplesExamples

1.1. Karthik commenced business withKarthik commenced business withcapital of Rs.1,00,000capital of Rs.1,00,000

2.2. Purchased Furniture for Rs.5,000Purchased Furniture for Rs.5,000

3.3. Paid Salaries Rs.10,000Paid Salaries Rs.10,000

4.4. Paid o/s expenses Rs.900Paid o/s expenses Rs.900

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Rules of Double EntryRules of Double Entry

Personal Account: Debit the receiverPersonal Account: Debit the receiverCredit the giverCredit the giver

Real Account: Debit what comes inReal Account: Debit what comes inCredit what goes outCredit what goes out

Nominal Accounts: Debit all Expenses andNominal Accounts: Debit all Expenses and

LossesLossesCredit all incomes andCredit all incomes andGainsGains

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ExamplesExamples

1.1. Sold Goods For CashSold Goods For Cash

2.2. Sold Goods to Raj for Rs.20,000Sold Goods to Raj for Rs.20,000

3.3. Purchased goods from Ram for cashPurchased goods from Ram for cashRs.2000Rs.2000

4.4. Commission Received Rs.5000Commission Received Rs.5000

5.5. Purchased Land for Rs 200000Purchased Land for Rs 2000006.6. Paid Interest on Loan Rs.10000Paid Interest on Loan Rs.10000

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ExamplesExamples

Rent PaidRent Paid

Salaries PaidSalaries Paid

Interest ReceivedInterest Received

Dividends ReceivedDividends Received Machinery purchased for CashMachinery purchased for Cash

Furniture soldFurniture sold

Telephone charges paidTelephone charges paid

Paid To SureshPaid To Suresh

Received from Mohan (the Proprietor)Received from Mohan (the Proprietor)

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ExamplesExamples

Ajith started business with cash Rs.40,000Ajith started business with cash Rs.40,000

He Paid in to bank Rs.2,000He Paid in to bank Rs.2,000

He purchased goods for cash Rs.15,000He purchased goods for cash Rs.15,000

He Sold goods for cash Rs.6,000He Sold goods for cash Rs.6,000

He purchased furniture and paid byHe purchased furniture and paid byCheque Rs.5,000Cheque Rs.5,000

He sold goods to Aravind Rs.4,000He sold goods to Aravind Rs.4,000 He withdrew goods for personal useHe withdrew goods for personal use

Rs.1,000Rs.1,000

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At a GLANCE.At a GLANCE.

Accounting CycleAccounting Cycle

Systems of accounting/Book KeepingSystems of accounting/Book Keeping

Types of AccountsTypes of Accounts

Rules of Double entryRules of Double entry

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JOURNALJOURNAL

Book Containing Chronological Record ofBook Containing Chronological Record ofTransactionsTransactions

DateDate ParticularsParticulars L.FL.F DebitDebit CreditCredit