Accounting Introduction to snistforum.com

Backdrop of Accounting Accounting did exist as long as 2600 B.C. In India thousand years ago accounting was being practiced, ‘Kautilya’s Arthashastram’ Modern Accounting came into existence in 17 th Century Father of modern accounting is Fra Luka Paciolo, Franciscan monk, in 1494 Premier Accounting Institutions: CAI, ICWAI, IASC, ASB etc…. snistforum.com

Definition of Accounting AICPA : “Accounting as an art of recording, classifying and summarizing in a significant manner, and in terms of money and events which are, in part at least, of a financial character and interpreting the result thereof” AAA : “Accounting as the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of the information” snistforum.com

Simple Definition of Accounting “Accounting system is a means of collecting, summarizing, analyzing and reporting in monetary terms and transactions, the information about the business” “Accounting is a means of measuring and reporting the results of economic activities of a business” “Accounting is a systematic process of collecting, measuring, recording, summarizing, analyzing and reporting of all monetary transaction of a business” snistforum.com

Significance of Accounting To maintain its Own Records of Business To Monitor the business activities To calculate Profit or Loss for a given period To fulfill Legal Obligations To show Financial Position for a given period To communicate Information to Interested Parties snistforum.com

Accounting Cycle Transacti ons Journal Entry Ledger Posting Trial Balance Trading Account Profit & Loss Account Balance Sheet snistforum.com

Double Entry System There are two systems of book-keeping and recording financial transactions 1. Single Entry System (Unorganized, Unscientific) 2. Double Entry System (Organized, Scientific) Double Entry book keeping is a scientific way of recording transactions based on the fact that for every debit, there is a corresponding credit. Finally Total Debits equal to Total Credits for all transaction over a period of time Ex: Suppose GMR firm buys Machine worth of Rs.1,00,000/- snistforum.com

Types of Accounts Personal Accounts Natural Personal Accounts (Ex: Ramu A/c, Rani A/c) Artificial Personal Accounts (Ex: Indian Bank A/c, General Mills A/c) Representative Personal Accounts (Ex: Outstanding Rent A/c, Outstanding Salaries A/c) Real Accounts Tangible Real Accounts (Ex: Building A/c, Furniture A/c, Sale A/c, Cash A/c, Machine A/c, Purchase A/c ) Intangible Real Accounts (Ex: Patent A/c, Goodwill A/c) Nominal Accounts Expenses and Losses Accounts ( Ex: Rent A/c, Insurance A/c, Dividend A/c, Salaries A/c, Advertising A/c, Depreciation A/c, Interest A/c) Income and Gains Accounts ( Ex: Interest Received A/c, Discount Received A/c) snistforum.com

Golden Rules of Accounting Debit the Receiver Credit the Giver Personal Accounts Debit what comes In Credit what goes Out Real Accounts Debit all Expenses & Losses Credit all Gains & Incomes Nominal Accounts snistforum.com

Prepare Journal entries for given transactions Problem 1 : Journalize the following transactions in the book of Suraj Pvt. Limited Company. 1. The firm brought furniture worth Rs. 4000/- for cash on Paid salaries Rs. 20,000/- to the employees on Sold good worth Rs. 5000/- on credit to Mr. Madhu on snistforum.com

Example 1 to Application of Golden Rules Transaction 1: The firm brought furniture worth Rs. 4000/- for cash on Furniture A/cCash A/c Real Account Debit what comes In Credit what goes Out Debit what comes In Credit what goes Out Debit (Dr.) the Furniture A/c Credit (Cr.) The Cash A/c snistforum.com

Example 2 to Application of Golden Rules Transaction 2: Paid salaries Rs20,000/- to the employees on Salaries A/cCash A/c Nominal AccountReal Account Debit all Expenses & Losses Credit all Gains & Incomes Debit what comes In Credit what goes Out Debit (Dr.) the Salaries A/c Credit (Cr.) the Cash A/c snistforum.com

Example 3 to Application of Golden Rules Transaction 3: Sold good worth Rs. 5000/- on credit to Mr. Madhu on Sales A/cMadhu A/c Real AccountPersonal Account Debit what comes In Credit what goes Out Debit the Receiver Credit the Giver Credit (Cr.) The Sales A/c Debit (Dr.) The Madhu A/c snistforum.com

Suraj Pvt. Limited Company JOURNALIZATION (Journal Book) DateParticularsL.F. No Amount Dr. Amount Cr Furniture A/c Dr. To Cash A/c (Being furniture purchased on cash ) 4, , Salaries A/c Dr. To Cash A/c (Being salaries paid to employees by cash) 20, , Madhu A/c Dr. To Sales A/c (Being goods are sold to Madhu on credit) 5, , Total29, snistforum.com

Problem 2 : Journalize the following transactions in the books of Akash Limited Company Jan, 2014 – Akash started business with cash Rs. 50, Jan, 2014 – He paid into the Bank Rs. 10, Jan, 2014 – He purchased snistforum.com

Accounting Accounting Concepts (rules/regulations) Accounting Conventions (customs/usages) snistforum.com

Accounting Concepts Business Entity ConceptGoing Concern ConceptMoney Measurement ConceptCost ConceptAccounting Period Concept Dual Aspect ConceptMatching Cost ConceptRealization Concept snistforum.com

Accounting Conventions Full DisclosureMaterialityConsistencyConservatism snistforum.com

Trial Balance Problems - Solutions on snistforum.com

Rules for Trail Balance Expenses Losses Assets Debit Aspects Income Gain Liability Credit Aspects snistforum.com

Illustration V: Solution: Trial Balance as on ParticularsDebit (Rs.)Credit (Rs.) Opening Stock Wages Sales Bank Loan Coal Coke (RM) Purchases Repairs Carriage Expenses Income Tax Debtor Leasehold Premises Cash in hand20.00 Plant Machinery Tools Lighting Creditor Capital Misc. Receipts Office Salaries Office Furniture60.00 Patents Goodwill Cash at Bank TOTAL snistforum.com

Final Accounts Problems - Solutions on snistforum.com

Prepare Final Accounts for the year ended from given trial balance ParticularsDebit (Rs.)Credit (Rs.) Furniture6500 Plant and Machinery60000 Buildings75000 Capital Bad Debts1750 Reserves for Bad Debts3000 Sundry Debtors40000 Sundry Creditors24000 Stock ( )34600 Purchases54750 Sales Bank Overdraft28500 Sales Returns2000 Purchase Returns1250 Advertising4500 Interest1080 Commission Received3750 Cash in hand6500 Salaries33000 General Expenses7820 Car Expenses9000 Tax and Insurance3500 TOTAL Closing stock valued at Rs snistforum.com

Prepare Final Accounts for the year ended from given trial balance ParticularsDebit (Rs.)Credit (Rs.) Furniture6500 Plant and Machinery60000 Buildings75000 Capital Bad Debts1750 Reserves for Bad Debts3000 Sundry Debtors40000 Sundry Creditors24000 Stock ( )34600 Purchases54750 Sales Bank Overdraft28500 Sales Returns2000 Purchase Returns1250 Advertising4500 Interest1080 Commission Received3750 Cash in hand6500 Salaries33000 General Expenses7820 Car Expenses9000 Tax and Insurance3500 TOTAL Closing stock valued at Rs snistforum.com