Accounting

It is a business language, information system.

It is a science, which follow some rules.
It is an art, which follow some traditions.

It is a process of recording, classifying,

summarizing, analyzing and communicating
the data in the form of money.
Types of accounts
There are three types of accounts
Personal account : Personal account further classified into three
categories
Natural Personal account : It means the account of human beings. For
example, Mohan’s Account.
Artificial Personal account : These account don’t have physical
existence as human being but they work as personal account.
For example, any Firm’s account.
Representative Personal account : When an account represents a
particular person or group of persons, it is termed ad a representative
personal account. For example,
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Real account : It is classified as
Tangible Real account : Tangible real account are the accounts of
those things which can be touched, felt, measured, purchased, sold
etc. For example, Furniture account, Building account etc.

Intangible Real account : These account represent such things

which can not be touched, but, of course, their value can be
measured in terms of money. For example Goodwill account, Patent
account, etc.
Nominal account :
The example of nominal accounts relating to expenses are
Purchases, Salaries paid, Rent, Discount allowed, Bad Debts etc.

The example of nominal accounts relating to income are Sales,

Commission received, Interest received, Discount received etc.

Rule :- Rule for recording in nominal account is, ”Debit the

expenses and losses and Credit the income and gains”.
 GOLDEN RULES OF ACCOUNTING
 Debit the Receiver and Credit the Giver
( Applicable on PERSONAL ACCOUNT )

 Debit what Comes in and Credit what Goes out

( Applicable on REAL ACCOUNT )

 Debit all Expenses and Credit all Incomes

(Applicable on NOMINAL ACCOUNT )
 Journal Entry
1. Ram started business with cash Rs.400000, and a
buildingworth of Rs. 200000
2. He paid into the bank Rs. 200000
3. He purchased furniture and paid by cheque Rs. 50000

Date Particular LF Debit Credit

1 Jan Cash A/C Dr. 400000
Building A/C Dr. 200000
600000
To Capital A/C
2 Jan Bank A/C Dr 200000
To Cash A/C 200000
5 Jan Purchased Furniture A/C Dr. 50000
To Bank A/C 50000
 Ledger Entry
Dr. Cash A/C Cr.
Date Particular JF Amount Date Particular JF Amount
1. To Capital A/C 400000 2. By Bank A/C 200000
By Balance C/D 200000
400000 400000
To Balance B/D 200000

Dr. Building A/C Cr.

Date Particular JF Amount Date Particular JF Amount
1. To Capital A/C 200000 By Balance C/D 200000
200000 200000
To Balance B/D 200000
 Trial Balance

From the following Trial Balance of the Gupta Furniture House, prepare
Trading and Profit & Loss Account and a Balance Sheet as on 31st December ,
1994
Particular Dr. Cr.
Purchases 1,80,000
Return Inwards 4,500
Sales 3,60,000
Returns Outwards 6,200
Carriage on Purchases 2,600
Carriage on Sales 1,500
Stock 1-1-1994 32,200
Cash 3,000
Building 1,50,000
Machinery 72,000
Particular Dr. Cr.
Fuel and Power 8,500
Debtors 81,500
Investment 16,000
Rent 4,000
General Expenses 15,000
Wages and Salaries 21,000
Creditors 28,000
Interest on Investments 3,600
Provision for Bad Debts 2,900
Sales tax Paid 4,400
Commission Received 7,500
Capital 2,10,000
Drawings 22,000

6,18,200 6,18,200
Adjustments:-
• Write off Rs. 1,500 as Bad-debts and create a provision for Doubtful Debts
@5% on debtors.
• Provide 2% for discount on debtors.
• Depreciate Building by 5% and Machinery by 10%.
• Rent is payable at the rate of Rs. 400 per months.
• One third of the commission received is in respect of work to be done
next year.
• Rs. 1,100 is to be provided as Interest on Drawings.
• Closing Stock was valued at Rs. 56,700
 Trading A/C
Particular Dr. Particular Cr.
To Stock(1-1-1994) 32,200 By Sales 3,60,000
To Purchases 1,80,000 Less : Returnns Inwards (4,500)
Less : Return Outwards (6,200) Less : Sales Tax Paid (4,400)
To Carriage on Purchases 2,600 By Closing Stock 56,700
To Fuel and Power 8,500
To Wages and Salaries 21,000
To Gross Profit c/d 1,69,700

4,07,800 4,07,800
 Profit and Loss Account
Particular Dr. Particular Cr.
 Balance Sheet
Particular Dr. Particular Cr.