fianciak accounting

7/27/2019 Fianciak Accounting

http://slidepdf.com/reader/full/fianciak-accounting 1/27

FINANCIAL ACCOUNTING

Reference Books:

Accountancy by D. K. Goel

Rajesh Goel

OR

Double Entry Book keeping by T. S. Grewal



MEANING OF ACCCOUNTING

DEFINITION

Accounting is recording, classifying & summarizing, in monetary terms,information about business. Only those transactions are recorded which can be expressed in financial terms

RECORDING

Accounting is an art of recording business transactions according to some

specific accounting principles. All the transactions are first recorded in abook called “JOURNAL”

CLASSIFYING

Classification is the process of grouping the transactions of one nature at one place.

The book in which various accounts are opened is called “LEDGER”

SUMMARISING

is the presentation of classified data in a manner that it becomes understandable

to the management and other users. In involves preparation of

“TRIAL BALANCE” from the balance of ledger accounts.



CAPITAL - Is the amount invested by the owner in a business. It can be in

cash or in kind

DRAWINGS- Is the cash/ goods withdrawn by the owner from the business.

LIABILITIES - Is the amount which the firm owes to outsiders.

Eg Creditors, Bank Loan etc

ASSETS - Anything which is in possession of the business from which

future benefit is expected to come.

Eg. Cash, Bank, Stock , Machinery, Building, Land, Debtors

BASIC ACCOUNTING TERMS



REVENUE: Is the income of regular nature. It includes amount received from

sale of goods, rent, commission, interest received.

Revenue is related to day to day affairs of business

Eg. Capital contribution or loan borrowed is not revenue

EXPENSE : Expense is the cost incurred in producing and selling the goods and

services.

eg: Cost of goods sold Amt. Paid for salary, Advertisement, Rent etc Depreciation

INCOME: Is the surplus of revenue over Expense

LOSS: Is the amount by which the Expense exceeds the revenue.



PROCEDURE OF PREPARATION OF ACCOUNTS

Journal Entries

Ledger Accounts

Trial balance

Trading & Profit & Loss A/c AND Balance Sheet



TYPES OF ACCOUNTS

THERE ARE THREE TYPES OF ACCOUNTS

PERSONAL ACCOUNTS

Eg. Debtors, Creditors etc..

REAL ACCOUNTS

Eg. Land, Building, Cash, etc..

NOMINAL ACCOUNTS

Eg. Expenses & Incomes



DOUBLE ENTRY SYSTEM

Every business transactions affects twoaccounts, one debit and the other Credit & recording is made according to certain specificrules.



RULES FOR ENTRY

REAL ACCOUNT: Debit what comes in, Credit whatgoes out.

PERSONAL ACCOUNT: Debit the receiver, Credit thegiver.

NOMINAL ACCOUNT: Debit all expenses and losses,

credit all incomes and gains.



BOOKS OF PRIMARY ENTRY - JOURNAL

In journal, transactions are recorded in chronologicalorder

PERFORMA

DATE PARTICULARS L/F AMOUNT

DR.

AMOUNT

CR.



JOURNAL ENTRIES in the book of A

01.04.05 Mr. A started business with cash Rs. 100000

01.04.05 Cash purchases Rs. 4800001.04.05 Goods sold to Mr. B Rs. 10000

01.04.05 Returned defective goods Rs. 1000

by Mr. B

01.04.05 Received Cash from Mr. B Rs. 9000

01.04.05 Mr. C sold goods to us Rs. 2000010.04.05 Mr. P purchased goods from us Rs. 12000

15.04.05 Lent to Mr. M Rs. 5000

18.04.05 Paid wages Rs. 400

31.04.05 Received Interest Rs. 100




DR.

AMOUNT

CR.

01.04.07

01.04.07

01.04.07

01.04.07

01.04.07

Cash a/c Dr To Capital a/c

(Being cash introduced as capital)

Purchases a/c

To Cash a/c

(Being goods purchased for cash)

Mr. B

To Sales a/c

(Goods sold to Mr. B on credit)

Sales Return a/c

To Mr. B

(Defective goods returned from B)Cash a/c

To Mr. B

(Cash received from B)

100000

48000

10000

1000

9000

100000

48000

10000

1000

9000




DR.

AMOUNT

CR.

01.04.07

10.04.07

15.04.07

18.04.07

31.04.07

Purchases a/c Dr To C

(Being gods purchased from C)

P Dr

To Sales a/c

(Being goods sold to P on credit)

Mr. M Dr

To Cash a/c

(Lent to M)

Wages a/c Dr

To Cash

(Paid wages)Cash a/c Dr

To Interest

(Received interest)

20000

12000

5000

400

100

20000

12000

5000

400

100



NOTE

1. TRADE DISCOUNT AND CASH DISCOUNT

TRADE DISCOUNT

Trade discounted is the discount given by the seller to his customer,at fixed rate on the listed price

No separate entry is passed for trade Discount. It is deducted from theinvoice price and then recorded in the books

Eg. Sold goods of invoice price Rs 10000 at trade discount of 20 %

Cash A/c Dr. 8000

To Sales 8000

(Being Cash sales)



CASH DISCOUNT

Cash discount is allowed if the customer makes payment within fixed period.

Since it is allowed at the time of payment its entry is made with the entry of payment.

Eg. Goods sold to Mr. S Rs.20000

Cash received from S Rs. 18000

Discound allowed Rs. 2000

ENTRIES

S Dr. 20000

To Sales 20000

(Being credit sales )

cash a/c Dr. 18000

Discount a/c Dr. 2000To S 20000

(Being cash received & discount allowed)



•Notes 2 :

Opening Entry

The first entry in each year‟s Journal will be torecord the previous year‟s closing balances of all the assets andliabilities.

In this entry the accounts of all assets are debited because assetsalways show debit balances and the accounts of liabilities andcapital are credited.

If the balance of the capital account is not given in the question, itwill be found out by deducting the total of liabilities from the total of assets. On the contrary, if the total of liabilities exceeds the total of assets, the difference will be treated as the amount of Goodwill andthe same will be debited in the opening entry.

• Assets : Cash Rs. 8,000 ; Bank Balance Rs. 20,000 ; Stock Rs.54,000 ; Debtors Rs. 47,000 (Ashok Rs. 12,000, Pawan Rs. 15,000,

Vivek Rs. 20,000); Machinery Rs. 60,000.•Liabilities : Creditors Rs. 20,000 (Chaman Lal Rs. 7,000 ; Om Pal Rs.13,000), Capital Rs. 2,00,000.



• Notes : 3

Outstanding Expenses

•Notes : 4Prepaid Expenses

• Notes : 5

Depreciation

• Notes : 6

Expenditure on the installation of Machinery and on the erection of Building : Machinery and Building are the assets of the business. Assuch, any expenditure incurred on the carriage and installation of machinery is debited to the Machinery Account. Similarly anyexpenditure incurred for the construction of a Building, are also

treated debited to the Building Account. However, repair chargesincurred on an asset which is already appearing in the books aredebited to repairs account.



LEDGERS



MEANING AND DEFINITION

Business transaction are first entered in Journal. Thenext step Is to transfer the entries to respectiveaccounts in Ledger.

Ledger is the book which contains a classified andpermanent record of all the transaction of a business.



NEED AND IMPORTANCE

The basic objective of accounting is to ascertain as to

(I) How much amount is due from each customer or how muchamount the firm has to each supplier,

(II) How much is the amount of purchase and sale during a particularperiod ;

(III) How much amount has been spent on each head of expenditureand how much amount has been earned on account of each headof income.

The Journal fails to provide us the above information because it isonly a chronological record of the daily transactions of a business.



PERFORMA OF LEDGER

Dr Name of Account Cr.

Date Particulars J.F. Amount

Rs.


Rs.



RULES OF POSTING

Posting is the process of transferring entries from Journal tothe Ledger.

• All transactions relating to one account should be entered atone place.

• The word „To‟ is used before the accounts which appear on thedebit side of an account. Similarly, the word „By‟ is use beforethe accounts which appear on the credit side of account.

• If an account has been debited in the Journal entry , theposting in the Ledger should also be made on the debit side of

such account. In the Particulars column, the name of the otheraccount which has been credited in the Journal entry shouldbe written for reference.




Rs.


Rs.


Rs.


Rs.


Rs.


Rs.

Dr Cash a/c Cr.

01.04.07 To Capital 10000 01.04.07 By Purchases 4800

01.04.07 To B 9000 10.04.07 By M 500031.4.07 To Interest 100 15.04.07 By Wages 400

Dr. Purchase a/c Cr.

01.04.07 To C 20000

Dr. Sales a/c Cr.

01.04.07 By B 100

10.04.07 By P 12000



CLOSING & BALANCING OF ACCOUNTS

Balancing of an account means that the Debit and Credit sides aretotaled and the difference between the two sides is inserted on theside which is shorter so as to make their totals equal. If the debit side

exceeds the credit side, the balance is called the debit balance. If thecredit side exceeds the debit side, the balance is called the creditbalance.

Significance of various balances relating to Accounts:• A debit balance is either an assets or an expense.

A credit balance shows liability, capital or the income earned.



POSTING OF OPENING ENTRIES

As the accounts of all the assets will be debited in an opening entry, an

account for each asset will be opened in the ledger and posting will be

made on the debit side by writing the words To Balance b/d

Similarly as the accounts of the liability will be credited in an opening

entry, an account of each liability will be opened in the ledger and posting

will be made to the credit side by posting the words By Balance B/d



Eg. JOURNAL ENTRIES

In the books of ABC & Co.

Date Particulars L.F Amount(Rs.) Amount(Rs.)

01.04.02 Cash A/c

Stock A/c

Anil Brothers

Gopal

Machinery A/c

To Jay

To Capital A/c

(Being Opening entry

recorded in Journal)

20000.00

45000.00

15600.00

22000.00

60000.00

4000.00

158600.00



TRIAL BALANCE



TRIAL BALANCE

When posting of all the transactions into the Ledger is completed andthe accounts are balanced off the balance of each and every accountin the Ledger is put on a list. The list so prepared is called a trialbalance.

Ledger account which shows a debit balance is put on the debit side of the trial balance and the account which shows a credit balance is puton the credit side of the trial balance. Account which shows nobalance, i.e., whose debit and credit totals are equal, is not entered inthe trial balance.

Objectives of Preparing Trial Balance :-

(1) To ascertain the arithmetical accuracy of the ledger account

(2) To help in locating errors.

(3) To help in the preparation of Final Accounts.

Trial Balance is always prepared on a particular date

fianciak accounting

Documents