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Accounting basics

The document outlines key accounting concepts, including the double entry and single entry systems, which detail how transactions are recorded. It explains the structure of accounts, the basis of accounting (accrual vs. cash), and the processes involved in maintaining journals and ledgers, culminating in the preparation of trial balances and final accounts. Final accounts consist of the trading account, profit and loss account, and balance sheet, which collectively provide a comprehensive view of a business's financial position.

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22 views25 pages

Accounting basics

The document outlines key accounting concepts, including the double entry and single entry systems, which detail how transactions are recorded. It explains the structure of accounts, the basis of accounting (accrual vs. cash), and the processes involved in maintaining journals and ledgers, culminating in the preparation of trial balances and final accounts. Final accounts consist of the trading account, profit and loss account, and balance sheet, which collectively provide a comprehensive view of a business's financial position.

Uploaded by

NIPS WebTech
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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ACCOUNTING

DOUBLE ENTRY SYSTEM OF


ACCOUNTING
 It is a system of accounting under which both, debit and
credit, aspects of accounting are recorded.
 A transaction has two aspects, debit and credit. For
example: at the time of cash purchases, goods are received
and in return cash is paid. In the transaction, two aspects
are involved i.e., receiving goods and paying cash .

Under the Double entry system, both these aspects are


recorded. One part, i.e., the receipt of goods, is
debited and the second part, i.e. payment of cash, is
credited.
SINGLE ENTRY SYSTEM

 In this system, all transactions are not recorded on double entry


system.

 It is an incomplete system of accounting.

 Personal accounts and Cash book are maintained under this


system.
WHAT IS ACCOUNT?

 Account is a record of transactions under a particular head.


 It records not only the amount of transactions but also their effect
and direction
 An account is divided into two parts i.e., debit and credit. It is
usually in a “T” form.
LEFT HAND SIDE RIGHT HAND SIDE
BASIS OF ACCOUNTING

ACCRUAL BASIS CASH BASIS


1 Both cash and credit 1. Only cash transactions
transactons are are recorded.
recorded.
2. Totally ignore credit
transactions. Incomplete
2. Complete record.
record.

3. It is suitable for 3. Suitable for professional


business enterprenuer. nature.eg: doctor, lawyer.
JOURNAL
AND LEDGER
PROCEDURE

RECORD------JOURNAL

CLASSIFY----- LEDGER

SUMMARY---
TRIALBALANCE/FINANCIAL
STATEMENTS.
JOURNAL

 It is a primary book of accounts in which transactions are first


recorded in a chronological order.
 It is the book in which a transaction is first recorded, i.e., Journal
Book.
 Journal is a daybook which record everyday transactions
LEDGER:
 Ledger is a book containing ledger accounts.
 It is prepared from journal
 The process of transferring entries from the journal to the ledger
accounts is termed as posting.

 “SAME SIDE OPPOSITE DIRECTION”


TRIAL BALANCE

 After posting the transactions on the accounts and


balancing them, a statement is prepared to show
separately the debit and credit balances. Such a statement
is known as Trial balance.

 A Trial balance is a list of accounts showing debit balances


and credit balances.

 If the trial balance agrees it proves that;


 The accounts are arithmetically accurate.
 Both aspects of all the transactions have been recorded.
 Both debit and credit entries are posted in the ledger.
FINAL
ACCOUNTS
Definition:

Final accounts are the financial statements prepared at the


end of the financial year to disclose the financial position of
the business concern.”

Final account includes :

Trading account

Profit & loss account

Balance sheet
1. Trading account:

Trading account is the first stage in the process of preparing final


accounts

Trading account shows the gross profit or gross loss during an


accounting year.

It consists of two sides “dr. and cr.”. It is a summary of all direct
exps. And direct revenue. It is a nominal account.

 DEBIT- ALL DIRECT EXPENSES


 CREDIT- ALL DIRECT INCOME
2. Profit and loss a/c

•This account shows a company’s revenue and expense over


a particular period for time.

•It represents the profitability of a business.

•It shows Net profit or Net loss during an accounting year.

• Debit--- all indirect exps.


• Credit--- all indirect incomes.
3. Balance sheet

Balance sheet refers to the position statement, it


is a statement of the financial position of a
business which states the assets, liabilities,
capital.

Balance Sheet is the financial statement of a


company which includes assets, liabilities, equity
capital, total debt, etc. at a point in time. Balance
sheet includes assets on one side, and liabilities
on the other. Liabilities on are debts or obligations
of a company.
Thanks
Dear Student –Just Remember

“The Distance between your Dream &


Reality is
Discipline”

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