Book Keeping & Accountancy Page 1 of 17 Sanjay Patel : +91 96246 69492 : [email protected]201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India (please ignore typographical or grammatical or other error, if any) Syllabus 1 The meaning and objects of Book Keeping, Double Entry Book Keeping. 2 Books of Prime Entry and Subsidiary Books: Cash Book, Bank Book, Journal, Ledger, Purchase and Sale Books, Debit and Credit Notes Register, Writing of Books, Posting and Closing of Accounts 3 Trading Account, Profit and Loss Account, Income and Expenditure Account 4 Preparation of Balance Sheet for Individuals and Companies and Disclosure Requirements 5 Cost, Costing and Elements of Cost, Fixed Expenses, Variable Expenses, Break-Even Point
17
Embed
Book Keeping & Accountancy Page Syllabus€¦ · Book Keeping & Accountancy Page 1 of 17 Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Book Keeping & Accountancy Page 1 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Syllabus
1 The meaning and objects of Book Keeping, Double Entry Book Keeping.
2 Books of Prime Entry and Subsidiary Books: Cash Book, Bank Book, Journal, Ledger,
Purchase and Sale Books, Debit and Credit Notes Register, Writing of Books, Posting
and Closing of Accounts
3 Trading Account, Profit and Loss Account, Income and Expenditure Account
4 Preparation of Balance Sheet for Individuals and Companies and Disclosure
Requirements
5 Cost, Costing and Elements of Cost, Fixed Expenses, Variable Expenses, Break-Even
Point
Book Keeping & Accountancy Page 2 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
1 The meaning & objects of Book Keeping
Book Keeping
Book Keeping is involved in the recording of transactions
It is the systematic recording and classification of financial data of an
organization in an orderly manner
It is to show correct position regarding each head of income and expenditure as
well as assets and liabilities
It is essentially a record-keeping function done to assist in the process of
accounting
It is preliminary step of ‘Book of Account’
It is actually a recording function & the analysis is done during accounting
Objectives of Book Keeping
To keep a complete and accurate record of all the financial transactions in a
systematic orderly, logical manner.
To ensures that the financial effects of these transactions are reflected in the
books of accounts
To ascertain the overall effect of all recorded transactions on the final statement
of the company
To measure all financial transactions in monetary value
To record all financial transactions in the books of prime entry in chronological
order
To record all financial transactions by classifying them as personal, real and
nominal account
To keep all records of financial transactions permanently for future reference
To summarize the cumulative effect of all economic transactions of business for a
given period by maintaining permanent record of each business transaction with
its evidence and financial effects on accounting variable
Importance and advantages of Book Keeping
It helps to ascertain the profit and loss of the business
It helps to provide financial information and data for the purpose of cost
ascertainment.
It helps to provide financial information for planning, budgeting and forecasting.
It helps to know the true and correct financial position of the business at any time
It helps to provide information to ascertain tax liability
It records all financial transactions systematically and chronologically so it is
Book Keeping & Accountancy Page 3 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
detect frauds and errors
It is helpful to Present the financial information to business owners and other
stake holders
“Book Keeping involves journal, ledger, cash book and other subsidiary books, it cannot disclose the
results of Business.”
“Accounting is process of identifying, measuring, recording, classifying, summarizing and
communicating the financial information to the users.”
Double Entry Book Keeping
Double-entry book keeping (or double-entry accounting) means that every
transaction will result in entries in two accounts.
A minimum of one amount will be a debit (entered on the left side of the account)
and at least one amount must be a credit (entered on the right side of the account)
Every transaction must have the total of the debits equal to the total of the credits
Example
Let’s assume that a person invests Rs. 100,000 in exchange for 10,000 shares of the
common stock of a new corporation.
The corporation will debit the asset account Cash for Rs. 100,000 and will credit the
stockholders’ equity account Common Stock for Rs. 100,000.
In the double-entry accounting system, each accounting entry records related
pairs of financial transactions for asset, liability, income, expense, or capital
accounts
Recording of a debit amount to one or more accounts and an equal credit amount
to one or more accounts results in total debits being equal to total credits for all
accounts in the general ledger
Accounting entries that debit and credit related accounts typically include the
same date and identifying code in both accounts, so that in case of error, each
debit and credit can be traced back to a journal and transaction source document,
thus preserving an audit trail
Book Keeping & Accountancy Page 4 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
2 Books of Prime Entry and Subsidiary Books
Source document
Business transactions are recorded in the books of accounts on the basis of some written
evidence called source document.
Common Source documents are Cash Memo, Invoice or Bill, Receipts, Debit Note,
Credit Note, Cheque, Pay in slip etc.
Voucher
Documentary evidence in support of the transaction is known as voucher.
Journal
Journal is a book of prime entry in which transactions are copied in order of date from a
memorandum or waste book.
Steps of Accounting Cycle
Classification of Books
Book of Prime Entry – Journal
A journal is often referred to as Book of Prime Entry or the book of original
entry.
Recording of Transaction
Journal Ledger Trial Balance
Adjustment Entries
Adjusted Trial Balance
Closing Entries Financial Statement
Book Keeping & Accountancy Page 5 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
In this book transactions are recorded in their chronological order
The process of recording transaction in a journal is called as ‘Journalisation’
The entry made in this book is called a ‘journal entry’
Functions of Journal
Analytical Function
Each transaction is analyzed into the debit aspect and the credit aspect. This helps
to find out how each transaction will financially affect the business
Recording Function
Accountancy is a business language which helps to record the transactions based
on the principles. Each such recording entry is supported by a narration, which
explain, the transaction in simple language
Historical Function
It contains a chronological record of the transactions for future references
General Journal
This is a book of chronological record of transactions
This book records those transactions which occur so infrequently that they do not
warrant the setting up of special journals
Subsidiary Books
Subsidiary Books refers to books meant for specific transactions of similar nature.
Subsidiary Books are also known as Special journals or day books. To overcome
shortcoming of the use of the journal only as a book of original entry, the journal is
subdivided into specific journals or subsidiary books.
Cash Book
It is a special journal which is used for recording all cash receipts and all cash
payments
It is a book of original entry since transactions are recorded for the first time from
the source documents
On the debit side, all cash receipts are recorded while on the credit side, all cash
payments are recorded
In case of cash transactions, only a single aspect of transactions is recorded in
ledger because the other aspect has to be recorded in Cash Book
It is both a journal and a ledger
Type of Cash Book
1. Single Column Cash Book
Book Keeping & Accountancy Page 6 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
2. Double Column Cash Book
3. Triple Column Cash Book
Purchase Day Book
The purchase day book records the transactions related to credit purchase of
goods only
It follows that any cash purchase or purchase of things other than goods is not
recorded in the purchase day book
Periodically, the totals of Purchase day book are posted to Purchase account in
the ledger
Sales Day Book
The sales day book records transaction of credit sale of goods to customers
Sale of other things, even on credit, will not be entered in the sales day book but
will be entered in Journal Proper
If goods are sold for cash, it will be entered in cash book
Total of sales day book is periodically posted to sales account in the ledger
Return Inward Book
The transactions relating to goods which are returned by the customers for
various reasons, such as not according to sample, or not up to the mark etc
contain in this book
Return Outward Book
This book contains the transactions relating to goods that are returned by us to our
creditors e.g. goods broken in transit, not according to the sample etc.
Bills Receivable Book
It is such a book where all bills received are recorded and therefore posted
directly to the credit of the respective customer’s account
The total amounts of the bills so received during the period (either at the end of
the week or month) is to be posted in one sum to the debit of Bills Receivable
A/c.
Bills Payable Book
All the particulars relating to bills accepted are recorded and therefore posted
directly to the debit of the respective creditor’s account.
The total amounts of the bills so accepted during the period (either at the end of
the week or month) is to be posted in one sum to the credit of Bills Payable
Account.
Journal Proper
Book Keeping & Accountancy Page 7 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Journal Proper is a residuary book in which those transactions are recorded which
cannot be recorded in any other subsidiary book
The various examples of transactions entered in a Journal Proper are Opening
entry, Closing entries, Transfer entries, Adjusting entries, Rectifying entries &
other misc. entries.
Ledger
The Ledger is the main or principal book of accounts in which all the business
transactions would ultimately find their place under various accounts in a duly classified
form.
After recording the business transaction in the journal or special purpose subsidiary
books, the next step is to transfer the entries to the respective accounts in the ledger.
Ledger Accounts
The book which contains accounts is known as the ledger
Finding information pertaining to the financial position of a business emerges
only from the accounts
The ledger is also called the Principal Book or Book of Final Entry
All the necessary information relating to any account is available from the ledger
Posting
Posting means transferring the debit and credit items from the Journal to their respective
accounts in the ledger.
Ledger Posting
As and when the transaction takes place, it is recorded in the journal in the form
of journal entry. This entry is posted again in the respective ledger accounts under
double entry principle from the journal
Posting to Ledger Accounts from Subsidiary Books
There is a ledger account e.g. for purchase book, there is Purchase Account, for
sales book there’s Sales A/c, for cash book there will be Cash A/c as well as Bank
A/c and so on
Classification of Ledger
Book Keeping & Accountancy Page 8 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Personal Ledger
The ledger where the details of all transactions about the persons who are related
to the accounting unit, are recorded
Debtors’ Ledger
The ledger where the details of transactions about the persons to whom goods are
sold, cash is received, etc. are recorded
Creditors’ Ledger
The ledger where the details of transactions about the persons from whom are
purchase goods on credit, pay to them etc. are recorded
Impersonal Ledger
The ledger where details of all transactions about assets, incomes & expenses etc.
are recorded
Cash Book
The Book where all cash & bank transactions are recorded
General Ledger
The ledger where all transactions relating to real accounts, nominal accounts,
details of debtors’ ledger and creditors’ ledger are recorded
Nominal Ledger
The ledger where all transactions relating to incomes and expenses are recorded
Private Ledger
The ledger where all transactions relating to assets and liabilities are recorded
Trial Balance
Trial Balance is the list of debit and credit balances taken out from ledger and it
Book Keeping & Accountancy Page 9 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
also includes the balances of cash and bank taken from the cash book
When posting of all the transactions into the Ledger is completed and accounts
are balanced off, then the balance of each account is put on a list called Trial
Balance
Functions of Trial Balance
It helps in ascertaining the arithmetical accuracy of ledger accounts
Helps in locating errors
Provides the summary of Ledger A/c’s
Helps in the preparation of Final A/c’s
Bank Book
When an individual or a firm deposits any money into a bank or withdraw money
by issuing a cheque from a bank, he/it records the transaction in the debit side of
the bank columns of the Cash Book for such deposits and credit side of the
bank column of the Cash book for such withdrawals
On the other hand, bank also records such transactions in its book i.e. credit such
account for deposits and debit such account for any withdrawals.
The Bank issues a book to the account holder after recording such transactions.
The book which is prepared by the bank for accountholder is known as Pass
Book.
Purchase Book
Purchases book is destined for recording the purchase of goods on credit only
Cash purchases are not recorded in this book
Entries in the purchases book are made from the invoices received from the
suppliers. Posting is done in the supplier’s/ creditors account daily from the
purchases book with their respective amounts
At the end of week/month, the total of the purchases book is debited to the
purchases account in the ledger
Sale Book
In the Sales Book, only credit sale of goods are recorded
It is prepared on the basis of copies of invoice sent to customers
To post sales book, the accounts of the customers are individually debited with
respective amounts at the end of every month
Sales Account is credited with the monthly total of the Sales Book
Cash Sales will be entered in the Cash Book; credit sale of various assets or
Book Keeping & Accountancy Page 10 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
investments will be recorded in General Journal
Debit and Credit Notes Register
Debit Note
When the goods are returned to the suppliers, an intimation is sent to them
through what is known as a debit note
These debit notes serve as vouchers for these entries
It is a statement sent by a businessman to another person, showing the amount
debited to the account of the later
It is usually serially numbered and are prepared in the same form as that of the
invoice
Credit Note
Customers who return goods should be sent a credit note
It is a statement sent by a business to another person showing the amount credited
to the account of the later
Credit notes are serially numbered and are similar in form to the invoices
Credit notes issued to customers are vouchers for the entries appearing in the
sales returns book
GST Law has however provided them a legal recognition as a document on which tax incidence can be
passed or excess tax can be refunded or credited back. Section 34 of CGST Act, 2017 details out the
provisions on debit note and credit note.
Personal Accounts
Debit the receiver and credit the giver
If you purchase goods from Ram on credit, the two accounts involved are Goods
(Purchase) Account and Ram’s Account.
Ram is the giver in this transaction, his account will be credited
If cash is paid to Ram, Ram’s Account will be debited since he is the receiver
Book Keeping & Accountancy Page 11 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Real Accounts
Debit what comes in and credit what goes out
For example, where furniture is purchased for cash, furniture account is debited
while cash account is credited
Nominal Accounts
Debit all expenses and losses and credit all incomes and gains
For example, if firm/business pays salary to its clerk, the two accounts involved
are salary account and cash account
Salary account is a nominal account
Salary paid is an expense of the business and therefore this account will be
debited
Similarly if interest is received, interest account will be credited, since interest is
an income item
Rules
Assets Accounts: debit increases in assets and credit decreases in assets
Capital Account: credit increases in capital and debit decreases in capital
Liabilities Accounts: credit increases in liabilities and debit decreases in liabilities
Revenues or Incomes Accounts: credit increases in incomes and gains and debit
decreases in incomes and gains
Expenses or Losses Accounts: debit increases in expenses and losses and credit
decreases in expenses and losses
Book Keeping & Accountancy Page 12 of 17
Sanjay Patel : +91 96246 69492 : [email protected] 201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
3 Trading Account, Profit and Loss Account, Income and Expenditure Account
Trading Account
It is the first part of income statement which is prepared to ascertain the gross
profit or gross loss for a given accounting period
It is prepared before the preparation of profit & loss account
It shows the result of trading activities relating to purchases & sales of goods &
services
It is prepared to calculate separately the profit from sale & purchase transactions
only
The profit or loss is termed as gross profit or gross loss as various other expenses
of an organization like administrative, selling & distribution and maintenance
expenses etc. are not deducted
Only the direct expenses which are incurred to bring goods into saleable
condition like freight, insurance, carriage inwards, fuel, power, royalties on
production, consumption of stores etc. are taken into account to calculate gross
profit/loss
Gross Profit = Net Sales – Cost of the Goods Sold
Gross Loss = Cost of the Goods Sold – Sales
Net Sales = Total Sales – Sales Returns (Return Inwards)
Cost of goods sold = Opening stock of goods + net purchases - closing stock of goods
at the end + all direct expenses
Net Purchases = Total Purchases – Purchases Returns (Returns Inwards)
Important points regarding trading account are Stock, Purchases, Direct
Expenses like Carriage Inward, Freight and insurance, Wages, Fuel, Power and Lighting Expenses,