XI Commerce Accounting

Classification of Accounts:
Assets:

Assets are the economic resources owned by the business to generate revenue from
operations. Assets are classified into current asset and non-current (fixed) asset.
Current assets have useful life with-in a year, whereas Non-current assets have
useful life more than a year.

Examples of Current Assets:

Cash/Bank
Account Receivable
Note Receivable
Prepaid Assets
Merchandise/Inventory
Office Supplies
Advance to Employees

Examples of Non-Current Assets:

Machinery
Plant
Equipment
Furniture
Land
Building
Vehicle

Examples of Intangible Assets (Assets which have no physical existence):

Goodwill PatentCopyrights

Liabilities:

Liabilities are the economic resources owned by the business. Liabilities are
obligations to pay. Liabilities are classified into current and long-term liabilities.
Current Liability that will accrue within a year. Long-term liability is a liability which
will come due after a year.

Examples of Current Liabilities:

Account Payable
Bank Overdraft
Short-Term Loan
Notes Payable
Salaries Payable
Interest Payable
Unearned Income
Advance from Customer
Examples of Long-Term Liabilities:

Debentures Payable
Long-Term Loan

Revenue:

Inflow of assets (cash or others) for the goods sold or services rendered in a given
period.

Examples of Revenue:

Rent Income
Commission Income
Interest Income
Purchase Discount
Sales
Sales Return and All.

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1|Page Prepared by: Naheed MBA, MS

XI Commerce Accounting

Classification of Accounts:
Expense:

The economic costs that a business incurs through its operations to earn revenue. In
order to maximize profits.

Examples of Expense:

Rent Expense
Commission Expense
Interest Expense
Sales Discount
Bad Debt Expense
Depreciation Expense
Purchases
Purchases Return & All.
Salaries Expense
Accrued Expense

Owners Equity:

The portion of the balance sheet that represents the capital received from investors
in exchange for stock, donated and retained earnings. In other words, investment in
particular business.

Drawing:

Withdrawal of investment/cash from business by owner for it personal/private use.

Rules of Debit and Credit:

Increase

Decrease
Assets
Debit
Credit
Liabilities
Credit
Debit
Capital/Owner Equity
Credit
Debit
Revenue
Credit
Debit
Expenses
Debit
Credit
Drawing
Debit
Credit

Accounting Equation:

Assets = Liabilities + Equity

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2|Page Prepared by: Naheed MBA, MS

XI Commerce Accounting

Definitions:
List of Complete Accounting Cycle:

1.) Journalizing the Transactions in 2.) Posting made into effected ledger
General Journal account

3.) Foot and balance the ledger account
5.) Prepare pre-closing trail balance
7.) Repost, re-footing and balancing in
affected account
9.) Pass closing entries and setup
expense and revenue summary
4.) Prepare schedule of accounts
receivable and account payable
6.) Collect data and pass adjusting
entries
8.) Prepare adjusted trail balance
10.) Prepare post-closing trail balance

11.) Prepare income statement and 12.) Prepare cash-flow and statement of
balance sheet changes in equity

13.) Prepare opening entries

List of Books of Original Entries:

2.) Cash Book
1.) General Journal / Day Book 4.) Sales Book
3.) Purchase Book 6.) Sales Return Book
5.) Purchase Return Book 8.) Bills Payable Book
7.) Bills Receivable Book

List of Books of Final Entries:

1.)
Ledger Book
2.)
Control Ledger
3.)
Subsidiary Ledger
4.)
Inventory Control
5.)
Final Account

List of Statements:

1.)
Bank Reconciliation Statement
2.) Profit or Loss Statement
3.)
Financial Position Statement
4.)
Inventory Card
5.) Fund Flow Statement

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3|Page Prepared by: Naheed MBA, MS