BASIC CONCEPT OF ACCOUNTING

Accounting: It is an art of recording, classifying and summarizing in significant

manner and in terms of money, transactions and events which are of financial character
and interpreting the results thereof.

Business transaction: A business transaction is “The movement of money and

money’s worth form one person to another”. Or exchange of values between two parties
is also known as “Business Transaction”.

Purchase: A purchase means goods purchased by a businessman from suppliers.

Sales: Sales is goods sold by a businessman to his customers.

Purchase Return or Rejection in or Outward Invoice: Purchase return

means the return of the full or a part of goods purchased by the businessman to his
suppliers.

Sales Return or Rejection out or Inward Invoice: Sales return means the
return of the full or a part of the goods sold by the customer to the businessman.

Assets: Assets are the things and properties possessed by a businessman not for resale
but for the use in the business.

Liabilities: All the amounts payable by a business concern to outsiders are called
liabilities.

Capital: Capital is the amount invested for starting a business by a person.

Debtors: Debtor is the person who owes amounts to the businessman.

Creditor: Creditor is the person to whom amounts are owed by the businessman.

Debit: The receiving aspect of a transaction is called debit or Dr.

Credit: The giving aspect of a transaction is called credit or Cr.

Drawings: Drawings are the amounts withdrawn (taken back) by the businessman
from his business for his personal, private and domestic purpose. Drawings may be
made in the form cash, goods and assets of the business.

Receipts: It is a document issued by the receiver of cash to the giver of cash

acknowledging the cash received voucher.

Account: Account is a summarized record of all the transactions relating to every

person, everything or property and every type of service.
Ledger: The book of final entry where accounts lie.

Journal entries: A daily record of transaction.

Trail Balance: It is a statement of all the ledger account balances prepared at the end
of particular period to verify the accuracy of the entries made in books of accounts.

Profit: Excess of credit side over debit side.

Profit and loss account: It is prepared to ascertain actual profit or loss of the
business.

Balance Sheet: To ascertain the financial position of the business. It is a

statement of assets and liabilities.

Types of accounts

Personal account: Personal accounts are the accounts of persons, firms, concerns
and institutions which the businessmen deal.

Principles: Debit the receiver

Credit the giver

Real Account: These are the accounts of things, materials, assets & properties.
It has physical existence which can be seen & touch.
Ex. Cash, Sale, Purchase, Furniture, Investment etc.

Principles: Debit what comes in

Credit what goes out

Nominal account: Nominal account is the account of services received (expenses

and Losses) and services given (income and gain)
Ex. Salary, Rent, Wages, Stationery etc.

Principles: Debit all expense/losses

Credit all income/ gains
Goods :- The things which are produced or purchased not for use but for the selling purpose are
known as goods.
Assets :- The things which are produced or purchased not for sale but for the use in the business
are known as assets.
Liability :- The money or money’s worth payable by business to the outsider are known as liability.
Capital :- The money or money’s worth invested by the owner to start a business are known as
capital.
Further capital :- The money or money’s worth invested by the owner in order to develop the
business are known as further capital.
Drawings:- The money or money’s worth withdrawn by the owner for his personal use are known as
drawings.

Expenses:- The amount which is paid by the business to the outsider for getting any benefit are
known as expenses.
Losses :- The amount which is paid by the business to the outsider without getting any benefit are
known as losses.
Income :- The amount which is received by incurring some expenditure are known as income.
Gain :- The amount which is received without incurring any expenditure are known as gain.
Profit :- Excess of income over the expenditure are known as profit.
Direct expenses :- The expenses directly engaged in production are known as direct expenses. Or
the expenses completely relating to the factory are known as direct expenses.
Direct income :- The income which comes from factory are known as direct income.
Indirect expenses :- The expenses completely relating to the office are known as indirect
expenses.

Indirect income:- The income which comes from office are known as indirect income.
Purchase :- The process of collecting goods from the supplier with some consideration is known as
purchase.
Purchase return:- The goods return to supplier on inferiority is termed as ‘purchase return’.
Sales :- The process of transferring the goods to the customer with some consideration is known as
sales.
Sales return:- The goods return from customer on inferiority is termed as ‘sales return’.
Fixed asset:- The assets which are used for more than one accounting period are known as fixed
asset.
Debtor :- The credit customer of the business is known as debtor.
Creditor : The person from whom businessman used to purchase certain items is known as creditor
Sundry debtor:- All the credit customers are known as sundry debtor.
Sundry creditor:- The summation of all the creditors are known as sundry creditor.

Depreciation :- The amount which is reduced by the regular use of fixed asset is known as
depreciation.
Proprietor:- The real owner of the business is known as proprietor.
Outstanding expenses:- The amount which is due but not yet paid are known as outstanding
expenses.
Prepaid expenses:- The amount which is paid in advance but the benefit will get in future period are
known as prepaid expenses.
Accrued income:- The income which are earned but not yet received are known as accrued
income.
Income received in advance:- The income which is received in advance but not yet earned are
known as income received in advance.
 Journalize the following transactions

1. Commenced business with cash Rs.10, 000.

2. Deposit into bank Rs. 15,000
3. Bought office furniture Rs.3,000
4. Soled goods for cash Rs.2,500
5. Purchased goods form Mr X on credit Rs.2,000
6. Soled goods to Mr Y on credit Rs.3,000
7. Received cash form Mr. Y on account Rs.2,000
8. Paid cash to Mr X Rs. 1,000
9. Received commission Rs. 50
10. Received interest on bank deposit Rs. 100
11. Paid into bank Rs. 1,000
12. Paid for advertisement Rs.500
13. Purchased goods for cash Rs. 800
14. Sold goods for cash Rs. 1,500
15. Paid salary Rs. 500

American accounts

1. Commenced business with cash 10,000

2. Deposited into bank 5,000
3. Purchased goods for cash 3,000
4. Sold goods for cash 2,500
5. Purchased goods from A on credit 4,000
6. Sold goods to B on credit 4,500
7. Withdraw from bank 3,000
8. Paid A on account 2,000
9. Received from B on account 2,500
10. Took loan from C 5,000
11. Gave loan to D 4,000
12. Paid salary 1,000
13. Cash withdraw from the business for personal use 200
14. Rent paid to E 1,000
 Memorandum book
Particulars
1. Commenced business with cash Rs. 10,000.
2. Purchased goods for cash Rs.3,000.
3. Opened a bank account with Rs.2,000.
4. Purchased stationary Rs.1,00.
5. Purchased furniture Rs.1,000.
6. Sold goods to A Rs.2,000.
7. Purchased goods from B Rs.2,000.
8. Sold goods for cash Rs.1,000.
9. Paid for postage Rs.20.
10. Took loan from C Rs.1,500.
11. Paid rent Rs.300.
12. Withdraw from bank Rs.800.
13. Received from A on account Rs.500.
14. Paid commission by cheque Rs.200.

Roa and company

Particulars Rs.

1. Bought goods for cash 2,500

2. Bought office furniture for cash 500
3. Paid for postage 10
4. Purchased goods from Rajkamal 2,000
5. Sold goods for cash 150
6. Bought goods from Rahim 400
7. Sold goods to Suresh 400
8. Sold goods to Nayak 250
9. Purchased goods for cash 400
10. Recevied cash from Nayak 200
11. Paid cash to Rahim 50
12. Returned goods to Ralkamal 200
13. Suresh returned goods 50
14. Paid salary 150
15. Sold goods for cash 500
16. Rao withdraw for his personel use 800
17. Paid for stationery 100
18. Paid rent 50
19. Received commission 225
 Rakesh and company

1. Arjun Started business with cash Rs. 2,000.

2. Issued cheque for goods purchased Rs. 1,000.
3. Bought goods for cash Rs.8,000.
4. Bought furniture from Anil for cash Rs.100.
5. Bought goods from harish Rs. 1,500.
6. Bought goods from chandan on credit Rs. 5,800.
7. Returned damaged goods to Chandan Rs.800.
8. Bought goods from Naveen and paid by cheque immediately Rs.400.
9. Sold goods to Guptha Rs. 1,000.
10. Received a cheque from Guptha Rs.1,000 for goods sold.
11. Paid commission Rs.2,000.
12. Paid wages by cheque Rs.4,000.
13. Draw cheque for personal use Rs.4,000.
14. Draw cash for personal use from bank Rs.3,000.
15. Receive a cheque from Manju Rs.2,800.
16. Borrow loan from Anands Rs.1,000.
17. Paid Anands Loan with interest Rs.1,000.

Haridas and company

1.Started business with cash Rs.10,000,furniture Rs.4,000 and machinery Rs.5,000.

2.Bought goods from Anil on credit Rs. 4,000 and for cash Rs.5,000.

3.Sold goods to Rajesh on credit Rs.5,000 and for cash Rs.3,000.

4. Bought goods from Arun Subject to trade discount of 2% of Rs.2,000.

5. Sold goods to Ramesh subject to trade discount of 5% of Rs.4,000.

6. Paid salary Rs.1,000, printing Rs.150 and wages rs.100.

7.Received rent Rs.500, commission Rs.400.

8. Received a cheque from Ganesh Rs.1,000.

 Learning Tally with assignment
M/s Arjun ltd. Co.
2010 Oct:1 Arjun started a business with cash Rs. 10,00,000

Oct: 2 Received a bank loan from HDFC Bank Rs. 5,00,000

Opened a bank account with Bank SBT Rs. 2,00,000

Oct: 3 Bought Furniture from Furniture Mart Rs. Rs. 1,00,000

Advertisement payable to Media Advertiser Rs. 1,00,000 (Inv. No. 1284, due days 10

days)

Oct: 4 Paid printing charge Rs. 500

Bought Machinery Rs. 1,20,000

Oct: 5 Purchased goods from Aroma Traders Rs. 85,000 (bill No: 108)

Purchased goods for cash Rs. 10,000

Oct: 6 Telephone charge paid by SBT cheque Rs. 1800 (Ch No:123456789)

Oct: 7 Cash sales Rs. 50,000

Oct: 8 Goods returned to Aroma traders Rs. 5,000 (agst Bill No: 108)

Oct:10Cash paid to Aroma Traders Rs. 25,000 (Bill 108)

Oct: 11Sold goods to Kishore Rs. 40,000 ( Bill No: 2)

Oct: 12Cash received from Kishore Rs. 25,000 (Bill No: 2)

Oct: 13Goods returned from Kishore Rs. 5,000 (Bill No: 2)

Oct:15Cash withdrawn from SBT Bank Rs. 10,000

Oct: 16 Paid loan of HDFC Rs. 1,00,000

Oct: 17 Cheque of Bank SBT issued to Furniture Mart Rs. 50,000

Oct: 18 SBT Cheque issued to Media Advertiser Rs. 50,000

Oct: 25 Cash withdrawn from SBT Bank for personal use Rs. 5,000

Oct: 30 Paid salary Rs. 12,000

 Ledger
Ledger is the secondary books of account in which the business transaction are recorded
individually in a systematic order

Ledgers can be maintained by two different way.

1. Single ledger.
2. Multiple ledger.

Single ledger: - It is a method of dealing with the ledger one by one. It means a business man
can maintain only one item at a time under single ledger. Single ledger contain 4 different
program.
1. Create ledger.
2. Display ledger.
3. Alter ledger.
4. Delete ledger.

Procedure of creating the ledger.

1. Go to gateway of tally.
2. Choose account info option.
3. Choose ledgers option.
5. Choose create option
6. Type ledger name
7. Select ledger under group
9. Accept it.

Multiple ledger: - It is a method of dealing with the ledger all at a time. It means a business
man can deal with more than one item under multiple ledger. Multiple ledger also contain four
different program.
1. Create ledger.
2. Display ledger.
3. Alter ledger.
4. Delete ledger.*

Procedure of creating ledger under multiple ledger.

1. Go to gateway of tally.
2. Choose account info option.
3. Choose ledger option.
4. Choose create option under multiple ledger.
5. A dialog box will appear.
6. Choose all item from that dialog box.
7. Create all the ledgers at a time under one screen.
8. Accept it.
 Voucher
Voucher is the written documentary evidence of day to day activities of the business. It means it
is the primary of books of account in which the business transaction are recorded in a systematic
order.

Vouchers are of different type.

1. Contra Voucher.-F4
2. Payment Voucher.F5
3. Receipt voucher.-F6
4. Journal voucher.-F7
5. Sale voucher.-F8
6. Purchase voucher.-F9
7. Credit note.-Ctrl+F8
8. Debit note.-Ctrl+F9
9. Memorandum voucher.-Ctrl+F10.

1. Contra voucher:- The transaction completely related to the bank should be recorded under
contra voucher.
Eg :- Cash deposited into bank.
Cash withdrawn from bank
2. Payment voucher:- Any payment made by business to the outsider in terms of cash or cheque
should be recorded.
Eg :- Salary paid by cash.
Rent paid by cheque.
3. Receipt voucher:- In this voucher any receipt made by business from the outsider in terms of
cash or cheque should be recorded.
Eg :- Discount received by cash
Commission received by cheque.
4. Journal voucher:- All the non monetary transaction should be recorded under journal
voucher.
Eg :- Depreciation on machinery.
Salary outstanding.
5. Sales voucher:- All the credit sale and cash sales of goods should be recorded.
Eg :- goods sold by cash.
Goods sold on credit to Mr. Anup.
6. Purchase voucher:- All the credit purchase and cash purchase of goods should be recorded.
Eg :- Purchase goods by cash.
Purchase goods on credit from Mr. Ankit.
7. Credit Note:- The goods return from customer for any inferior quality should be recorded.
 Eg :- The goods return from Mr.Anil.
8. Debit note:- The goods return to supplier for any inferior quality should be recorded.
Eg :- The goods return to Mr.Ankit.
9. Memorandum Voucher:- All the doubtful transaction should be recorded under this voucher.
Eg:- All Mis- happening entries.