PRINCIPLES OF BOOK KEEPING.

Prof. Pallavi Vartak

MMS Batch
2010-2012
Sem - I
What is Accounting ?
 Accounting is a language of business.

 Accounting is an efficient system that express the numerous

activities of organizations in a concise manner.

 Accounting is an Information system (system contains Input,

processing of input and output)
ACCOUNTANCY INVOLVES:

 SYSTAMATIC CLASSIFICATION OF BUSINESS

TRANSACTIONS IN TERMS OF MONEY AND
FINANCIAL CHARACTER.

 SUMMARIZING : TRIALBALANACE AND B/S

 INTERPRETING THE FINANCIAL TRANSACTIONS.

Process of Accounting

Accounting
Accounting Decision Makers

Information needs

Information
Business Processing
Recording
Activities Of Communi-
of
and Data cation
Data
transactions
DEFINITIONS

 ACCOUNTING IS AN ART OF RECORDING CLASSIFYING

AND SUMMARIZING IN TERMS OF MONEY
TRANSACTIONS AND EVENTS WHICH ARE IN PART AT
LEAST, OF A FINANCIAL CHARACTER AND INTERPRETING
THE RESULTS THEREOF.

 THE AMERICAN ACCOUNTING ASSOCIATION (AAA)

DEFINES “ACCOUNTING IS THE PROCESS OF IDENTIFYING,
MEASURING AND COMMUNICATING ECONOMIC
INFORMATION TO PERMIT INFORMED JUDGEMENTS AND
DECISIONS BY USERS OF THE INFORMATION”
DIFFERENCE BETWEEN BOOKKEEPING..AND ACCOUNTANCY

BOOK KEEPING ACCOUNTANCY

It is on primary stage It is on secondary stage

The basic objective of B.K. is to maintain The basic objective of accounting is to

systematic record of transaction ascertain net profits and financial position

Scope – Identifying, measuring, Summarizing, analyzing, interpreting,

recording, and classifying communicating
It is done by junior staff It is done by senior staff.

The book keeper can not supervise the The accountant supervises the work of
work of an accountant. book keepers.
USERS OF FINANCIAL STATEMENTS

 Investors
 Lenders
 Security Analysts
 Managers
 Employees and Trade Unions
 Customers
 Suppliers and Trade Financiers
 Government and Regulatory Authorities
 The Public
 Advantages of Accounting
 Maintenance of business Records
 Preparation of Financial statement
 Comparison of results
 Decision Making
 Good evidence in court
 Planning & Control operations
 Provides information to interested groups
 Taxation matters
 Valuation of business
Important terms in Accounting

 Asset – An Asset is anything of value owned by an

enterprise. They consist of tangible objects such as land,
plant and machinery, furniture, building, cash and Bank.
The examples of intangible asset are goodwill, petants,
copyrights and trademarks.

 Liabilities - It is an financial obligation of business or

owners fund. These are Debts. They are consist of
obligation to pay money or render services to another
person either now or in future. The term liability includes
all claims against assets e.g. Amt due to creditors, Bank
Overdraft, Bills payable, loan from Banks/ financial
institutions
Important terms in Accounting
Equities - Equities are all claims against or rights in assets. The
term equity includes liabilities towards creditors, liability towards
owners and proprietors. In the formal case it is called as creditors
equity while in the later case it is called as owners equity.
Fixed Asset – Asset held for long term use in business itself for the
purpose of producing goods or providing services. It is not held for
resale in the normal course of business.

Capital – It generally refers to amount invested by owners to the

business along with the accumulated profits years after years. The
loss if any is deducted from the capital.
Important terms in accounting
 Balance sheet- It is a statement of financial position of an enterprise
at a given date which exhibits( shows) all assets, liabilities, capital,
reserves etc at their book values.

 Current Asset - This are cash, Bank and other assets which are
expected to be converted into cash or consumed in the production of
goods or rendering services in the normal course of business
operations.

 Current liabilities- This are liabilities which are due for payment in
a relatively short period which is generally not more than 12 months
e.g. Trade creditors, Bills payable, Bank overdraft etc.
 Important terms in accounting
 Long term liability- A liability which does not fall due for
payment in a relatively short period. It is payable after a period of
more than 12 months e.g. Bank loans

 Revenue – It is the gross inflow of cash receivables. Other

consideration arising in the course of ordinary business operation
of an enterprise from the sale of goods. Arising cash from
rendering of services, from use by other or enterprises resources ,
yielding interest, royalty and dividend

 Net profit – This is the excess of revenue over expenses during a

particular accounting period. If expenses are more than revenue it
termed as net loss.
Important terms in accounting

 Sundry creditors – this is the amount owed by an

enterprise to outsider for supply of goods or services
received or in respect of contractual obligations. It is also
termed as account payable or trade creditors.
 Sundry Debtors –This are the parties from whom the
money is due to the business for sale of a goods/services
on credit or in respect of contractual obligation. This are
also termed as accounts receivable or Trade debtors.
 Working Capital- This are the funds available to an
enterprise for conducting day to day operations. This is
represented by excess of current assets over current
liabilities including short term loans.
 Classification of Accounts
 An account is a summarized record of all transaction
pertaining to one person, one kind of asset, expenses or income.
Accounts are classified as under
 Personal Account 2. Real Account 3. Nominal Account

 1.Personal A/c- Personal A/c are the accounts of person.

There are two types of persons i.e. Natural and Artificial.
Natural persons have physical existence and includes living
individuals. Artificial persons having no physical existence..
They are recognized by law and includes firms, companies,
local government etc.
 Rule- Debit the receiver
 Credit the giver
 E.g.-Natural persons- Ajit, Rita, suneeti , swanandi, prem etc
 Artificial persons- Banks, clubs, Local authority, schools etc.
 Representative persons- rent prepaid, int.received in advance,
salaries outstanding etc.
 Classification of Accounts

2. Real Account – .Real Accounts are the accounts of assets or properties

owned by business. There are two types of assets namely tangible and
intangible assets.

Rule- Debit what comes in

Credit what goes out

E.g. -tangible assets-land, building, plant and machinery, furniture,

computer
Intangible assets- goodwill, petants, trademarks, copyrights,
 Classification of Accounts
 3.Nominal Accounts- Nominal Accounts are the accounts of expenses, incomes, losses and gains. When services are
received by business the amount paid in return is known as expenses and when services are given by business the
amount received in return is known as Income

 Rule- Debit all Expenses or losses

 Credit all Incomes or gains or profit

 E.g. Interest paid/ received, salaries paid/ received, commission paid/received, rent paid /received, profit/loss on sale of
asset
 Difference between – Traveling Exp and conveyance
 Freight and Carriage inward
Tutorial Note
 The student should note that when some prefix or suffix is added to a nominal
Account, it becomes a personal Account.

Sr. No. Nominal Account Personal Account

1. Rent Account Rent pre-paid Account, outstanding rent

account
2. Interest Account Outstanding Interest A/c, Interest
received in advance A/c
3. Salary A/c o/s salary A/c, prepaid salary A/c

4. Insurance A/c O/s insurance A/c, Prepaid insurance A/c

5. Commission A/c O/s Comm A/c , P/p Comm. A/c

DOUBLE ENTRY SYSTEM

 SCIENTIFIC SYSTEM:

 EVERY TRANSACTION HAS TWO ASPECTS.

 CRUX (Bottom) OF ACCOUNTANCY IS TO FIND OUT WHICH TWO

ACCOUNTS ARE EFFECTED AND WHICH IS TO BE DEBITED
AND WHICH IS TO BE CREDITED.
JOURNAL

 JOURNAL RECORDS EACH AND EVERY RECORD.

 TO FIND OUT A TRANSACTION EFFECTING A PERSON,

EXPENSES ACCOUNT OR ASSET ONE HAS TO TURNOVER ALL
PAGES OF JOURNAL .

 HENCE TRANSACTIONS ARE POSTED FROM JOURNAL TO

PARTICULAR PAGES OF LEDGER.

 HENCE JOURNAL CONTAIN A COLUMN L.F

JOURNAL FORMAT
DATE PARTICULARSL.F DEBIT RS. CREDIT RS.
CASH BOOK

 CASH BOOK KEEPS RECORDS OF ALL CASH TRANSACTIONS

I.E. CASH RECEIPTS AND CASH PAYMENTS.

 ALL RECEIPTS ARE RECORDED ON LEFT SIDE AND ALL

PAYMENTS ON RIGHT SIDE.

 CASH BOOK IS BOOK OF ORIGINAL ENTRY.

CASH BOOK FORMAT
DR. CR
DATE PART R.NO L.F CASH BANK DIS DATE PART VR.NO. LF CASH BANK DISC
RECORD KEEPING BASIS

 RECORDING: JOURNALISING AS AND WHEN

TRANSACTION TAKES PLACE. JOURNAL IS BOOK OF
ORIGINAL OR FIRST ENTRY.

 CLASSIFYING: ALL ENTRIES IN JOURNAL OR

SUBSIDARY BOOKS ARE POSTED TO LEDGER
ACCOUNT(POSTING) TO FIND OUT AT A GLANCE
THE TOTAL EFFECT OF ALL SUCH TRANSACTIONS.
LEDGER IS BOOK OF SECONDARY ENTRY.
RECORD KEEPING CONTD..

 SUMMASRISING: LAST STAGE IS TO PREPARE

THE TRIAL BALANCE AND FINAL ACCOUNTS
WITH A VIEW TO ASCERTAIN THE PROFIT OR
LOSS DURING PARTICULAR PERIOD.
 IT IS CUSTOMARY TO USE TO AND BY WHILE
POSTING LEDGER.
 BALANCING AN ACCOUNT MEANS EQUALIZING
TWO SIDES.
 IF DEBIT SIDE OF ACCOUNT EXCEED CREDIT
SIDE, DIFFERENCE IS PUT ON CREDIT SIDE
AND IT IS SAID TO HAVE DEBIT BALANCE AND
VICE VERSA..
LEDGER

DR CR

DATE PARTICU J.F AMOUNT DATE PARTICU J.F AMOUNT

LARS (RS) LARS RS.
Questions.
 1. CREDIT BALANCE IN CAPITAL ACCOUNT IS LIABILITY OR AN ASSET:
 A. LIABILITY
 B. A REVENUE
 C. AN EXPENSE
 D. NONE OF THESE.

 2. AMOUNT BROUGHT IN BY PROPRIETOR IN BUSINESS SHOULD BE

CREDITED TO
 A. PROPRIETORS ACCOUNT
 B.DRAWINGS ACCOUNT
 C.CAPITAL ACCOUNT
 D.ASSET ACCOUNT
QUESTION

 3.WAGES PAID TO RAJU TO BE DEBITED TO

 A. RAJU
 B WAGES
 C. CASH
 D. BANK

 4. CREDIT SALES MADE TO ROHIT TO BE DEIBTED TO

 A. SALES
 B. PURCHASE
 C. CASH
 D. ROHIT
QUESTIONS
 5.FURNITURE PURCHASED BY ISSUING CHEQUE
 WHAT ENTRIES TO BE PASSED
 DEBIT FURNITURE AND CREDIT BANK ACCOUNT
 DEBIT BANK ACCOUNT AND CREDIT FURNITURE
 DEBIT FURNITURE AND CREDIT CASH.
 DEBIT BANK AND CREDIT FUNITURE SHOP ACCOUNT

 6. RETURN OF GOODS SHOULD BE CREDITED TO

 A. SALES RETURN
 B PURCHASE RETURN
 C.CUSTOMER ACCOUNT
 D. GOODS ACCOUNT
 MATCH FOLLOWING
A B

A RAMESH 1 REAL

B DENA BANK 2 PERSONAL

C RENT 3 NOMINAL

D COMPUTER 4 REAL

E LAND 5 NOMINAL

F DISCOUNT 6 PERSONAL
QUESTION

 1.WHAT IS JOURNAL ENTRY

 A. ORIGINAL ENTRY
 B. DOUBLE ENTRY
 C. DUPLICATE ENTRY
 D. NONE

 2. TRANSACTION IN BANK COLUMN ON CREDIT SIDE OF THREE COLUMNAR

CASH BOOK INDICATE
 A. AMOUNT WITHDRAWN FROM BANK
 B. AMOUNT DEPOSITED IN BANK
 C. BOTH A AND B
 D. NONE
QUESTION
 PASS JOURNAL ENTRY:
 1. RENT PAID FOR OFFICE PREMISES RS.30000 OUT OF WHICH PART
AMOUNT OF RS.10000 PAID BY CHEQUE AND REST BY CASH.

 2. PURCHASED 100 SHARES OF CENTRAL BANK OF INDIA FOR RS.100 PER

SHARE.

 3. SOLD GOODS TO TENDULKAR RS.15000

 4. DRAVID INVOICED GOODS FOR RS.12000 TO US.

QUESTIONS

 PASS JOURNAL ENTRY:

 5. RECEIVED DUE AMOUNT FROM TENDULAKAR AND ALLOWED HIM
DISCOUNT OF 10%.

 6. PAID SALARY AND RENT RS.1200 AND 1500 RESPECTIVELY.

 7. PAID MONTHLY CAR INSTALMENT OF PROPRIETOR’S PERSONAL CAR

RS.12000

 8. BOUGHT FURNITURE FROM GODREJ & BOYCE CO. LTD AND PAID BY
CHEQUE RS.50000
QUESTION
JOURNALIZE FOLLOWING:
9. COMMENCED BUSINESS WITH Rs.15000 OF WHICH RS.5000 WAS
BORROWED FROM HIS WIFE AT 12% INTEREST P.A.

10. PURCHASED GENERATOR FROM RAMA & CO. RS.50000

11.BOUGHT GOODS FROM SATISH AT ONE MONTHS CREDIT RS.6000

12.OUT OF WHICH HALF WAS INVOICED TO MR. RAM AT 30% ABOVE

COST.
Why student should study Accounting in MBA