books of accounts-session edit

8/8/2019 Books of Accounts-Session Edit

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Books of Accounts



Types Of Accounts :

1. Personal Accounts : Accounts of Persons, institutions LikeEmployees ,Banks, Other Companies

" Debit the Receiver Credit the Giver "

2. R eal Accounts: All Assets are real accounts. Like Furniture ,Inventory

" Debit What comes in Credit What goes out "

3. Nominal Accounts : All expenses, Losses, Income , Gains

" Debit all Expenses and losses Credit all Income and gains"



Books of AccountsBefore preparation of financial statements following

books of accounts are prepared :

Journal Ledger

Trial Balance

Before computers were in common use, bookkeeping wasdone by an actual bookkeeper .



Books of Accounts JOURNAL

Recording a transaction

record that keeps accounting transactions inchronological order, i.e. as they occur

It·s the primary BOOK OF ENTRY

The journal entry includes - date, the name of theaccounts to be debited and credited, and the amounts.



Books of AccountsLEDGER

Posting the transaction

Secondary book of Accounts

The bookkeeping process further required that alljournal amounts be "posted" to the company's general

ledger and subsidiary ledger accounts.



Books of Accounts TRIAL BALANCE

A trial balance prepared with the balances of all theaccounts

If the trial balance does not balance - the bookkeeper will go back, find & correct any disparity.

When trial balance is balanced- preparation of financialstatements.



Journal Journal entries are of 2 types :

S imple Journal Entry

Compound Journal Entry

Date Name of Account debited «xxx

Name of Account credited «.xxx



Journal

Format of A Simple Journal Entry

Date Name of Account debited ««xxx

Name of Account credited ..«.xxx

( Short Description of the Transaction )



Journal Example 1: Financing Activities

Owner inv ested $10,000 in the compan y.

Anal ysis of Transaction

Steps Debit or Credit ?1Increase in Assets (Cash) by $10,000 Debit

2Increase in Owner's Equity by $10,000 Credit Journal Entry

Debit Credit

Cash 10,000Owner's Equity 10,000

Description of Journal EntryOwner invested $10,000 in the company.

R esults of Journal EntryCash balance increases by $10,000. --> Increase in AssetsOwner's Equity balance increases by $10,000. --> Increase in Owner's Equity



Journal Example 2: Financing Activities

The compan y borrow ed $20,000 f rom a bank .


Steps Debit or Credit ?1Increase in Assets (Cash) by $20,000 Debit2Increase in liability ( Loan ) by $10,000 Credit

Journal EntryDebit Credit

Cash 10,000Loan A/C 10,000

Description of Journal EntryBorrowed $20,000 from a bank .

R esults of Journal EntryCash balance increases by $10,000. --> Increase in AssetsBorrowings balance increases by $10,000. --> Increase in Liabilities



Journal Example 3: Inv esting Activities

The compan y purchased $12,000 equipment and paid in cash.


Steps Debit or Credit ?1Increase in Assets (Equipment) by $12,000 Debit2Decrease in Assets (Cash) by $12,000 Credit


Equipment 12,000

Cash 12,000Description of Journal EntryPurchased $12,000 equipment in cash.R esults of Journal Entry

Equipment balance increases by $12,000. --> Increase in AssetsCash balance decreases by $12,000. --> Decrease in Assets



Journal Example 3: Operating Activities

The compan y purchased $6,000 merchandise (600 units) on credit.


Steps Debit or Credit ?1Increase in Assets (Merchandise) by $6,000 Debit

2Increase in Liabilities (Accounts Payable) by $6,000 Credit Journal Entry

Debit Credit

Merchandise 6,000 Accounts Payable 6,000

Description of Journal EntryPurchased $6,000 merchandise on credit.R esults of Journal Entry

Merchandise balance increases by $6,000. --> Increase in Assets Accounts Payable balance increases by $6,000. --> Increase in Liabilities



Journal

Format of A Compound Journal Entry

Date Name of Account debited «xxx

Name of Account 1 credited «.xxx

Name of Account 2 credited «.xxx

( Short Description of the Transaction )




The company sold 500 units of merchandise at the price of

$11,000. Customer paid $9,000 in cash at the time of sale.

Steps Debit or Credit?1Increase in Assets (Cash) by $9,000 Debit2Increase in Assets (Accounts Receivable) by $2,000 Debit3Increase in Revenue (Sales) by $11,000 Credit




The compan y paid $3,500 salaries.


Steps Debit or Credit ?1 Increase in Expenses (Salaries Expense) by $3,500 Debit2 Decrease in Assets (Cash) by $3,500 Credit


Salaries Expense 3,500Cash 3,500

Description of Journal EntryPaid $3,500 salaries.

R esults of Journal EntryCash balance decreases by $3,500. --> Decrease in AssetsSalaries Expense account balance increases by $3,500. --> Increase in Expenses



Journal

Example 7: Operating Activities The compan y paid $1,500 rent.


Steps Debit or Credit ? 1Increase in Expenses (Rent Expense) by $1,500 Debit 2Decrease in Assets (Cash) by $1,500 Credit


Rent Expense 1,500

Cash 1,500Description of Journal Entry

Paid $1,500 rent.R esults of Journal Entry

Cash balance decreases by $1,500. --> Decrease in AssetsRent Expense account balance increases by $1,500. --> Increase in Expenses



Journal

Journal entry for

Prepaid Expense ( Eg: Rent )

Accrued Expense ( Eg: Salaries )

Accrued Revenue

Unearned Revenue



Practice Questions

In the Books of X Ltd. Trial Balance as on Feb 28, 2009

Account Dr Cr

Equipment 4900

Supplies 2760Debtors 1290

Cash 1540

Creditors 230

Share Capital 6000

Retained Earnings 1120

Dividends 400



Practice Questions

Account Dr Cr

Service Revenue Earned 6975

Salaries exp 3000

Electricity exp 90

Telephone exp 45

Rent Exp 300

Total 14325 14325



Practice Questions

Following transactions took place in March

1- received payment from customers previously billed Rs 410

4-paid for supplies purchased on credit rs 480 5-Paid rent for march Rs 150

7-Purchased supplies on credit rs 480

8- received cash for services provided rs 980

13-paid monthly electricity bill rs 80 16-Purchased equipment on credit rs 1400



Practice Questions

18-billed customers for services provided rs 1300

20-Paid for supplies purchased on 7th march

27-paid telephone expense for month rs 65 29-Paid beauticians salary rs1000

30-Declared & paid dividend rs 500

31-received cash for services to be provided later,rs 970

Prepare Journal , ledger & Trial Balance as on 31st March

books of accounts-session edit

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