Accounting cycle refers to the sequence of accounting procedures for recording, classifying and summarizing the transactions.

Asset- Anything which enables the firm to get benefit in future is an asset. asset Eg: land, land building, building machinery, furniture, stock, debtors, cash and bank balance etc. Liabilities- The amount which the business owes to outsiders, , excepting p g the p proprietor. p Eg: g Long g term loans, debentures, creditors, bills payable, short term loans etc. Capital- The amount invested by the owner in the business.

Debtors- A person who owes money to the firm generally on account of credit sales of goods or services. Creditors- A person to whom an enterprise owes money on account of credit purchases of goods or services. D i I h amount of f money or value l DrawingsIt i is the of goods which the proprietor takes for his domestic or personal use use.

A Journal is a book containing a chronological record of transactions transactions. Journal is the book of original record. A Journal does not replace but precedes the ledger. The process of recording transactions in a journal is termed as Journalising.

Personal account- It include accounts of persons i.e natural personal account, artifical personal account and representative personal account. RULE: Debit the receiver, Credit the giver.

Real account- It includes accounts which relate to tangible or intangible assets of the firm. firm Eg. Eg of tangible assets are: land, biulding, plant and machinery, stock, cash etc. Eg. Of intangible assets are: Goodwill, patents.

Rule: Debit what comes in, Credit what goes out. Nominal account- Accounts which relate to expenses, losses, gains, revenue etc. are termed as nominal accounts. Eg: Salary, Purchases, sales, interest paid, commission received. received Rule: Debit all expenses and losses, Credit all incomes and gains gains.

1. Ram starts a business with capital of Rs. 20 000 on J 20,000 January 1 1, 1998 1998. Accounts involved: C it l A/C Personal Capital P l A/CA/C Credited C dit d Cash A/C Real A/C- Debited Journal Entry:Cash A/C Dr To Capital A/C

20 000 20,000

20,000

2. He purchased furniture for cash for Rs. 5 000 5,000. Accounts involved: Furniture A/C Real A/C Debited Cash A/C Real A/C Credited Journal Entry:Furniture A/C To Cash A/C

Dr 5,000

5,000

3. Purchased goods for cash Rs. 1,00,000. A Accounts involved: i l d Purchases A/c- Nominal A/c- Debited Cash A/c A/c- Real A/c A/c- Credited Journal Entry: Purchases A/c To Cash A/c

Dr. 1,00,000

1 1,00,000 00 000

4. Sold goods for cash Rs. 1,50,000. Accounts involved: Cash A/c- Real A/c- Debited Sales A/c- Nominal A/c- Credited Journal Entry: Cash A/c Dr. 1,50,000 / 1,50,000 , , To Sales A/c

5. Received interest from Ram in cash Rs. 500. Accounts involved: Cash A/c- Real A/c- Debited Interest A/cA/c Nominal A/c A/c- Credited Journal Entry: Cash A/c Dr. 500 500 To Interest A/c /

6. Sold goods to Ashok for Rs. 60,000. Accounts involved: Ashok A/c- Personal A/c- Debited Sales A/cA/c Real A/CA/C Credited Journal Entry: Ashok A/c Dr. 60,000 60,000 To Sales A/c / ,

7. Paid Wages Rs. 20,000. Accounts Involved: Wages A/c- Nominal A/c- Debited Cash A/c A/c- Real A/cA/c Credited J Journal Entry: y Wages A/c Dr. 20,000 To Cash A/c 20,000

8. Purchased goods from Mohan on credit Rs. 50,000. Accounts Involved: / Nominal A/c/ Debited Purchases A/cMohan A/c- Personal A/c- Credited Journal Entry: Purchases A/c Dr. 50,000 To Mohan A/c 50,000