accounting procedure
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SESSION 2
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Accounting Process (Stages)
Identify transactions
Prepare Businessdocuments
Record transaction
Financial
Statements
Post into ledger A/c
Prepare unadjustedTrial Balance
Pass adjustingentries
Prepare adjusted
Trial Balance
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Accounting cycle
Journal
Subsidiary books-Purchase, Sales & Return books
Cash bookLedger
Trial Balance
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An account is a summarized record of all transactionsrelating to a particular revenue, expense, asset,liability or owners equity a/c.
Broad classifications :-1. Revenue - Sales, Interest / Dividend earned etc.2. Expense - Rent, Salaries, Depreciation etc.3. Assets Land, Machinery, Cash etc4. Liabilities Loans / Interest / Bills payable etc5. Capital Equity, Share Premium etc
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Accounts may also be classified as follows :-
1. Personal accounts Debtors / Creditors etc
2. Tangible accounts Cash, Land, Car etc(Real a/c)
3. Intangible accounts Patents, Goodwill, Incomes, Losses,
(Nominal a/c) Expenses etc
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Since the transactions can either increase ordecrease these items, an account is structuredinto two parts like a capital T, denoted by
Debit on the LHS and Credit on the RHS.
Debit Cash account Credit
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In the context of accounting , a transaction isan event that has the effect of changing therevenue, expense, asset, liability, or owner(s)equity of a business entity.
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DEBIT CREDIT1. Increase in Assets Decrease in Assets
2. Decrease in Liabilities Increase in Liabilities
3. Decrease in Owners Equity Increase in Owners Equity4. Decrease in Revenues Increase in Revenues
5. Increase in Expenses Decrease in Expenses
DEBIT CREDIT
1. Personal A/c The Receiver The Giver2. Tangible A/c What comes in What goes out
3. Intangible A/c All Expenses/Losses All Gains / Profits
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Primary record of a transaction
Chronological record of all transactions
Also contains a narrative description
Debit account is recorded first and then the credit account
Does not replace but precedes the LEDGER
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Date Description L F Ref Debit Credit
11/8/10 Furniture A/c Drto M/s XYZ Furnishers Ltd
(Being purchase of furniture on credit videInvoice no: 205)
Invoice205
2000
2000
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Date Transaction Rs.
January 1 Starts business with 1000
January 8 Buys goods and stores them 800
January 10 Receives order from A 500
January 15 Delivered the goods to A, customer invoiced 500
January 31 Customer A pays 500
The following information relates to Shyam EnterprisesLtd. Pass Journal Entries.
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Date Description L F Ref Debit Credit
1st Jan Cash A/c Drto Capital A/c
(Being capital introduced in cash)
1000
1000
8th Jan Purchase A/c Dr
to Cash A/c(Goods purchased in cash vide cash memo no378 of M/s XYZ Ltd)
378 800
800
15th Jan Mr As A/c Drto Sales A/c
(Goods sold to Mr A vide sale Bill No: 001)
001 500
500
31st Jan Cash A/c Drto Mr As A/c
(Being cash received on account)
500
500
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Subsidiary Books Divisions of
Journal When volume of transactions of a business is large it is
highly advantageous to classify them into groups of similartransactions
All those transactions repeatedly affecting one aspect of anaccount are grouped together and recorded in a subsidiary
book, Ex. Sales journal, Cash receipts journal, etc.
All transactions not passed through the subsidiary books
will be passed through the general journal
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Some subsidiary books
Sales Book Recording all credit sales
Purchase Book Recording all credit purchases
Cash Book - records all receipts and payments of cash
Sales Return Book-
Purchase Return Book-
Bills Receivable Book-
Bills Payable Book
Journal proper - Other transactions
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Posting from Subsidiary Books
Jan. 1 Roy and Co. Rs.2,000
Jan. 2 Sen and Co. 3,000
Jan. 3 Carmaker and Co. 1,500
Jan. 4 Mondal and Co. 6,000Jan. 5 Naskar and Co. 3,500
Following are the transactions of credit purchases on differentdates
o Possible to post the transactions periodically
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Purchase Journal
PURCHASES JOURNALDate Name of the Supplier Amount
Jan. 1 Roy and Co. Rs.2,000
Jan. 2 Sen and Co. 3,000
Jan. 3 Carmaker and Co. 1,500
Jan. 4 Mondal and Co. 6,000
Jan. 5 Naskar and Co. 3,500
Total Rs 16,000
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Purchases A/c Dr 16000To Sundry Creditors
16000
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Ledger is a set of accounts.Ledger is called main or principal book.It contains all accounts of the enterprise.
It classifies the transactions recorded in the Journal.May also be classified into groups of accounts,eg Sundry Debtors / Sundry Creditors Ledger etc.
Proforma of a LEDGERDr Cr
Date Explanation J F Amount Date Explanation J F Amount
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It is the process of transferring the debit and credit items from theJOURNAL to their respective accounts in the LEDGER.
The dual aspect ensures that each transaction finds a place in atleast two accounts.
Total amount of debits as a result of each transaction will be equal tothe credits.
Debit entry will be posted on the debit side
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Dr. Cash Account
Cr.Date Explanation Amoun
tDate Explanation Amoun
t
Jan 1 To Capital A/c 1,000Jan 8 By PurchasesA/c
800
Jan 31To Mr As A/c 500
Dr. Capital AccountCr.
Date Explanation Amount
Date Explanation Amount
Jan 1 By Cash A/c 1,000
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Dr. Purchases AccountCr.
Date Explanation Amount Date Explanation Amount
Jan 8 To Cash A/c 800
Dr As Account or Account ReceivableCr.
Date Explanation Amount Date Explanation Amount
Jan
15
To Sales A/c 500Jan 31By Cash A/c 500
Dr. Sales AccountCr.
Date Explanation Amount Date Explanation Amount
Jan 15By Mr As A/c 500GEETHA IYER
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1. Entries in the cash book can be passed directly asit is a Subsidiary Book (Journal)
2. It is also a complete a/c showing the Cash Balancewhich can be directly taken to the Balance Sheet,
hence also a Principal Book3. Three types of Cash Book :-
a. Simple or Single Columnb. Two Column (Cash & Bank, or Cash & Discount)c. Three Column (Cash, Bank, & Discount)
4. Receipts on left and Payments on right side5. Discount columns are totaled but not balanced and
posted to the discount a/c in ledger
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Illustration
M/s Subham & Co. purchases furniture for Rs.10,000 on which he gets a discount of 10%.He also sells goods to M/s Sohan for Rs.15,000. It is known that M/s Sohan also makes
the full payment after availing a discount of10%. The opening cash balance is Rs. 5,000.Prepare Cash Book.
Date Receipts LF Dis. Amount Date Payments LF Dis. AmountTo Bal B/dTo Sales
1500
5,00013,500
By FurnitureBy Bal C/d
1,000 9,0009,500
1,500 18,500 1,000 18,500
M/s. Subham & Co.Cash Book
Taken to thediscount
account in theledger
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Balancing is the technique of finding the netbalance of a particular account by separately
totaling the debit and the credit sides.
The balance is put on the side which is lighterthus equating the debits with the credits.However, the nature of the balance in any account(debit or credit) is always known by the side thatis heavier.
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1. Asset accounts Debit
2. Liability accounts Credit3. Capital/Equity accounts Credit4. Revenue accounts Credit5. Expense accounts Debit
Account type Balance
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TRIAL BALANCE
Balances of both debit and credit accounts are firsttransferred to a worksheetcalled original trial balanceor unadjusted trial balance
Adjustments are worked out giving rise to an Adjusted trialbalance
Finally, based on the type of the account it is, the balances ofindividual accounts are then taken to either P & L a/c orthe Balance Sheet
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Payment made by cheques,Bearer cheques,Crossed cheques (& co, or A/c payee)Endorsing cheques to 3rd partiesCheques deposited for collection,
Cheques received but not deposited into bank,Deposit/withdrawal of cash from bank,Dishonour of cheques,Overdraft,Bank charges
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1. It is the statement prepared to compare Bank a/cin the books with the Bank Statement (Pass Book)received from the bank
2. It is prepared at regular intervals so that errors,if any, may be detected and rectified
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ILLUSTRATION
Prepare a Bank Reconciliation Statement to reconcile the
differences between the cash book and the bank pass book.
Balance as per the cash book Rs 2687 and balance as perbank pass book is Rs 4399
Cheques issued but not presented:Mr. A Rs 3200
Mr. B Rs 1350
Cheques deposited but not cleared from Mr. P Rs 2486
Bank debited charges Rs 352.
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Balance as per Cash Book 2,687
ADD Cheques issued not 1. To Mr A 3,200yet presented 2. To Mr B 1,350 4,550
7,237LESS Cheques deposited
not yet collected 1.From Mr P 2,486
Other debits by bank 1. BankCharges 3522,838 2,838
Balance as per Bank Statement 4,399
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Mr. As Bank Book shows a debit balance of 10,500.40
Prepare a Bank Reconciliation considering following facts
1. Cheques deposited on 3oth Dec not collected by 31st Dec(a) 300.24 (b) 500.00 (c) 200.15
2. Cheques issued but not cashed by 31st Dec(a) 600.25 (b) 200.00 (c) 489.25 (d) 50.00
3. Dividend recd directly in the bank a/c, without intimationto Mr A, amounting to 1500.00
4. Bank allowed interest 20.30 and debited charges 9.20 on 31stDec
Ans: 12350.61
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