ACCOUNTING - Introduction

1) Cash Accounting System.

System is based on cash inflow and outflow i.e. accounted for when
money is received or paid.
Only cash Transactions.
No credit Transactions.
2) Double Entry System.
a) Debit (Dr) and Credit (Cr) Transactions (Dr=Cr).
b) Assets and Liabilities. Assets = Liabilities.
3) Assets.
*+ve- increase, -ve decrease/reduces
a) Fixed Assets Land, Building, Motor car, Plant and Machinery. Asset
+ve. *
b) Cash in Hand. Asset +ve.
c) Money Lying at Bank Account. Asset +ve.
d) Stock In Hand (Inventory). Asset ve. *
e) Loans to Employees. Asset ve.
f) Loans Recoverable at a date. Asset ve.
g) Advances (given to Vendor). Asset ve.
h) Reimbursement Deposits (with Govt., Govt. Electricity Company,
Telephone Company). Asset +ve.
i) Prepaid Expenses (5 years Subscription paid for a journal).
Asset ve.
j) Sundry debtors. (Balance due from Customers). Asset +ve.
4) Liabilities.
a)
b)
c)
d)

Secured and Unsecured Loans from bank. Liabilities +ve.

Debentures/Bonds. Liabilities ve.
Sundry Creditors. (Balance due to Customers). Liabilities +ve.
Duties and taxes. Liabilities +ve.

5) Capital.
a) Proprietor or Partners Capital. (Initial Investment and yearly
Investment. (Liabilities +ve)
b) Company shares buying (Liabilities ve) and Company shares selling
(Liabilities +ve).
c) Reserve and Surplus. (Liabilities +ve).
d) Net Profit/Loss ultimately will partially merged with the Owners Capital
and Reserve and Surplus. (Liabilities +ve).
e) Capital is included in Liabilities.
6) Book Accounts.
a) Cash Book.
b) Journal Book.

c) General ledger.
7) Cash Book.
a) Payments in Cash and Cheque. (Include share purchase and selling).
b) Deposits into and withdrawals from Bank Accounts. (e-FD)
c) Inter transfer of money between cash and bank. (NEFT).
8) Journal.
a) Purchase Book - Record Purchase transactions made in credit
(Payment later). (Credit Card).
b) Purchase return Book Purchase Damaged return
transactions.(IRCTC)
c) Sales Book All credit sales Transactions. Sold on credit for which
Payment will be received later. (COD).
d) Sales return Book Damaged returns.
e) Journal Proper Not in above transactions.(olx.in)
9) General ledger
a) Summary and reclassifying of cash and journal transaction.
10)

(Purchase)
Debit

(Selling)
Assets

Credit

(+) Increase Asset

(-) decrease Asset

(Delivery charges not billed)

(Billed/Invoiced)

Debit

Expenses

(+) Increase expense

Credit
(-) decrease expense

(Taxes paid)/exemptions

(Taxes charged/pending)

Debit

Credit

Liabilities

(-) Decrease Liabilities

(+) Increase Liabilities

(Investment withdrawn)
(Shares Sold from Company/ies
Debit
(-) Decrease Capital

Capital

(Investment Increase)
(Shares Purchased from company/ies)
Credit
(+) Increase Capital

(Interest spent)
Debit

(Interest Saved)
Income

(-) Reduce income

Credit
(+) Increase income

11) Financial Statements.

a) Trial Balance is the closing balance of all Accounts for a specific date
(monthly, quarterly, midyear etc).
From Trial Balance the following statements are compiled for a period.
1) Profit and loss Accounts. (Income and Expenditure Statement).
2) Balance sheet. (Assets, Liabilities, Capital (in Liabilities), Taxes,
Profit after Tax (PAT)).
3) Prepare Budget (Current Asset and Current Liabilities). Update in
Trial Balance for a period.
4) Every Project Status, criticality/bottlenecks, Significant
Achievement /milestone required, Identify sales based on
pending deliveries. Requirement of specialized employees for
completion. Customer Interactions requirement areas.
5) Prepare Priority and Random Planning.
6) Prepare Roll on Plan. For present and future 5 years.
12) Accounts In General Ledger.
a) Personal Account - (Liabilities- in Balance sheet)
i)

Natural Persons like Vinod etc

ii)

Artificial Persons- Companies and Organisations like clubs,

Society etc.

iii)

Representative Persons
Outstanding salaries representing employees.
Prepaid Rent.
Taxes and Duties.

b) Real Accounts
Properties and Possessions are recorded.
Fixed and Current Assets in Balance sheet.
c) Nominal Accounts

Income and expenditure recording

Losses and Gains recording.
Sales
Purchase
Discount allowed during Customer Quote.
Discount Received from vendor Quote.
Repairs works Billing.
Annual Maintenance contract.
Replacement items billing.
Overtime
Annual/period Indirect expense like water consumption bill,
electricity bill, Customer Entertainment, Vendor meeting
expense.
Outstation expenses of employees.
Training expenses.
International Certifications.
Confirming to State Pollution Control Board Requirement
clearance/ Certifications and its taxes.
Salaries.
Interest.
Depreciation.
13)
Accounts
Personal
Real
Nominal

Debit

Credit

Receiver (Beneficiary)

Giver

What comes in

What comes
out

Cash outflow

Cash inflow

In & out from

3rd party

Accounting

Cash transactions

Non Cash transactions

Recorded in
Cash Book

Recorded in
Journal Book

General Ledger

(Classified summary of all transactions)

Closing balance of all Accounts as at a given date

Trial balance at a given date

Nominal Account

Profit & Loss A/c

For a specified date

Real Account

Personal Account

Balance sheet as
at a given date

Ledger Account

Personal Accounts

Impersonal Accounts

Real Account

Nominal Account