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WHAT IS ACCOUNTING?WHAT IS ACCOUNTING?
ACCOUNTING IS A BUSINESS LANGUAGE
ACCOUNTING IS A PROCESS ACCOUNTING IS A SCIENCE
ACCOUNTING IS AN ART
ACCOUNTING IS A INFORMATION SYSTEM
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MEANING OF ACOUNTINGMEANING OF ACOUNTING
Accountancy is science ofclassifying the recorded businessinformation, summarizing it and then analyzing and
interpreting this information and lastly communicating the
results to the persons who need this information. Accountancy
is the language used to communicate with the outsiders.
ESSENTIAL FEATURES OF ACCOUNTING:
1. Business Information2. Only those transactions measurable in terms of money are recorded.3. Recording the transactions.4. Art of Classifying Business Transactions5. Art of summarizing the recorded information6. Interpreting the Recorded Information7. Communicating the Results
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TYPES OF ACCOUNTSTYPES OF ACCOUNTS
PERSONAL : Accounts in the name of Persons (Ravi,Mohan etc.) or Artificial Persons (Name of a Company or
Bank).
REAL :Accounts of Assets (Machine, Furniture, Land etc.)
and Liabilities (Capital, Bills Payable, Loan etc.).
NOMINAL :Accounts of Expenses (Salaries, Rent,postage etc.) and Incomes (Sales, Interest, Dividends etc.)
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PERSONAL :- Natural Personal A/c
- Artificial Personal A/c
- Representative Personal A/c
REAL :- Tangible Real A/c
- Intangible Real A/c
NOMINAL :- Accounts of Expenses or Losses
- Accounts of Incomes or Profits
TYPES OF ACCOUNTSTYPES OF ACCOUNTS
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Debit the Receiver and Credit the Giver( Applicable on PERSONAL ACCOUNT )
DebitWhat Comes in and CreditWhat Goes out( Applicable on REAL ACCOUNT )
Debit all Expenses & Losses and Credit all Incomes & Gains.(Applicable on NOMINAL ACCOUNT )
GOLDEN RULES OF ACCOUNTINGGOLDEN RULES OF ACCOUNTING
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TransactionsTransactions AccountsAccountsInvolvedInvolved Nature of AccountNature of Account Change Debit/CreditDebit/Credit
PurchasePurchase
Machine For CashMachine For Cash
MachineMachine
CashCash
Real (Asset)
RealReal (Asset)
Increase
Decrease
Debit (Dr.)Debit (Dr.)
Credit (Cr.)Credit (Cr.)
Interest receivedInterest received CashCash
InterestInterest
Real (Asset)Real (Asset)
Nominal (Revenue)Nominal (Revenue)
Increase
Increase
Debit (Dr.)Debit (Dr.)
Credit (Cr.)Credit (Cr.)
Deposited CashDeposited Cash
Into BankInto Bank
BankBank
CashCash
RealReal (Asset)
RealReal (Asset)
Increase
Decrease
DebitDebit (Dr.)(Dr.)
CreditCredit (Cr.)(Cr.)
Salary PaidSalary Paid SalarySalary
CashCash
Nominal (Expense)Nominal (Expense)
Real (Asset)Real (Asset)
Increase
Decrease
DebitDebit (Dr.)(Dr.)
CreditCredit (Cr.)(Cr.)
Paid to SureshPaid to Suresh SureshSuresh
CashCash
Personal (Liability)Personal (Liability)
Real (Asset)Real (Asset)
Decrease
Decrease
DebitDebit (Dr.)(Dr.)
CreditCredit (Cr.)(Cr.)
EXAMPLES:EXAMPLES:
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JOURNALJOURNAL
It records all the transactions of a business into the order in
which they occur. It is a book containing chronological record
of all the transactions.
DATE PARTICULARS L.F AMOUNT (Dr) AMOUNT (Cr)
01/04/10
CASH A/c . . Dr 850000
TO CAPITAL A/c 850000
1. Started business with cash Rs. 850000 on 01/04/10.
2. Purchased goods for cash Rs. 50000 on 02/04/10.
02/04/10
PURCHASE A/c.. .Dr 50000
TO CASH A/c 50000
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3. Cash paid to Ram Rs. 5000. He allowed discount Rs. 100 on 03/04/10.
03/04/10
RAM A/c Dr. 5000
TO DISCOUNT A/c 100
TO CASH A/c 4900
4. Cash received from Ram Rs. 6000. Allowed him discount Rs. 200 on 04/04/10.
04/04/10
CASH A/c Dr. 5800
DISCOUNT A/c .. .. .. .. Dr. 200
TO RAM A/c 6000
5. Cash received from Ram Rs. 6000. Allowed him discount Rs. 200 on 04/04/10.
5/04/10
Cash A/c Dr. 5000
To Bank A/c 5000
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Contains all the asset, liability, and stockholders equity,
Expenses and Incomes accounts
LEDGERLEDGER
POSTINGPOSTINGTransferring information from the journals to the ledger
accounts
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POSTING ENTRIESPOSTING ENTRIES
DATE PARTICULARS J.F AMT DATE PARTICULARS J.F AMT
2010
April 1
April 3April 5
May 1
To Balance b/d
To RamTo Bank
To Balance b/d
850000
58005000
2010
April 2
April 4April 31
By Purchases
By RamBy Balance c/d
50000
4900805900
860800 860800
805900
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TRIAL BALANCE OF MR. GULSHAN MEHTATRIAL BALANCE OF MR. GULSHAN MEHTA
PARTICULARS AMOUNT PARTICULARS AMOUNT
DEBIT BALANCES:
Opening StockDrawingsDebtorsInterest On LoanMotor TrucksCashBuildingsBad DebtsCarriage InwardCarriage Outward
PurchasesSales ReturnSalariesInsurance
60003000
40000300
400001500080000
60040001500
70000600080004500
CREDIT BALANCES:
CapitalCreditorsSales
6% LoanProvision for DoubtfulDebtsPurchases ReturnRent ReceivedDiscountsCommission
6000016100
18000010000
8003000480012003000
278900 278900
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ADJUSTMENTS :ADJUSTMENTS :
1. 6% Loan was taken on July 1, 2004.
2. Depreciate Buildings at 5% on Motor Trucks at 10%.3. Salaries Rs. 500 are outstanding.
4. Closing stock was Rs. 4000
5. Stock worth Rs. 500 was stolen full claim was received by Inc. company.
6. Prepaid Insurance is Rs. 500.
7. Create Provision for Doubtful debts at the rate of 6% on Debtors.
8. There are further Bad Debts of rs. 800.
9. Goods drawn for private use Rs. 1500.
10. Goods costing Rs. 600 were sent to a customer for approval for Rs. 800.
They have been recorded as Sale and they are likely to be returned.
11. Provide Managers Commission at 10% after charging such
commission
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BOOKSBOOKS OFOF THETHE FIRMFIRM
TRADINGTRADING ACCOUNTACCOUNT FORFOR THETHE YEARYEAR ENDEDENDED MARCHMARCH 3131,, 20052005
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Opening StockTo Purchases 70000Less: Return 3000
Less: Drawings 1500Less: Lost by theft 500
To Carriage InwardsTo Gross Profit c/d
6000
65000
4000102800
177800
By Sales 180000Less: Sales on
approval 800
Less: Returns 6000
By Closing Stock 4000Add: Cost of good
sold onapproval 600
173200
4600
177800
Dr. Cr.
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PARTICULARS AMOUNT PARTICULARS AMOUNT
To Bad Debts 600Add: New Bad Debts 800Add: Provision (new) 2304Less: Provision (old) 800
To Interest on Loan 300
Add: Outstanding 150To Carriage Outward
To Salaries 8000Add: Outstanding 500
To Insurance 4500Less: Prepaid 500
To DepreciationBuilding 4000Motor Truck 4000
2904
4501500
8500
4000
8000
By Gross ProfitBy Rent ReceivedBy DiscountBy Commission
102800480012003000
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2005PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2005
carried forward .
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To Profit BeforeCommission
To Managers Commission
[86446 * 10/110]
To Net Profit
86446
111800
7859
78587
86446
By Profit BeforeCommission
111800
86446
86446
brought forward
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LIABILITIES AMOUNT ASSETS AMOUNT
Capital 60000Add: Net Profit 78587Less: Drawings 3000Less: Goods Used 15006% LoanCreditorsManagers CommissionSalaries OutstandingInterest On LoanOutstanding
1340871000016100
7859500
150
168696
Building 80000Less: Depreciation 4000
Motor Trucks 40000Less: Depreciation 4000Closing Stock 4000Add: Stock on
approval 600
Debtors 40000Less: New Debts 800Less: Sale on
Approval 800Less: Provision 2304Prepaid InsuranceInsurance Co.Cash
76000
36000
4600
36096500500
15000
168696
BALANCE SHEET AS ON MARCH 31, 2005BALANCE SHEET AS ON MARCH 31, 2005
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