Fundamentals of

Accounting

By Prof. Neha Patel

(c) Prof. Neha Patel, GLSICT-MBA

Definition of Accounting
Accounting is the art of
Recording, classifying and summarizing, in
terms of money
Transactions and events which are in part at
least of a financial character
Interpreting the results thereof.
To provide quantitative information

Primarily financial in nature

About economic entities that is intended to be
useful in making economic decisions

(c) Prof. Neha Patel, GLS

ICT-MBA

Class definition of Accounting

Accounting is the process of:

Identifying,
Measuring, &
Communicating

Economic
information
about an
entity

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ICT-MBA

For making
Decisions &
Informed
judgments

Users of Accounting Information

Management
Investors
Creditors
Employees / Unions
Government Agencies / Regulatory bodies

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ICT-MBA

Classification of Accounting
Financial accounting
Managerial accounting / cost accounting
Auditing (public / internal)
Governmental accounting
Income Tax accounting

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ICT-MBA

Double Entry Accounting System

In accounting, every entry has dual impact.

As, the entry made for each transaction has 2

parts:

Debit
Credit

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ICT-MBA

The Fundamental Accounting

Equation
Assets

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ICT-MBA

The Fundamental Accounting

Equation (cont..)
Assets

Liabilities

I.O.U.

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ICT-MBA

Treatment of Accounting Entries

1. Asset account

Debit
Credit

2. Liabilities account

Debit
Credit

3. Owners equity account Debit

Credit
4. Revenue Account

Debit
Credit

5. Expenses Account

Debit
Credit

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ICT-MBA

Debit/ Credit Rules

Personal Accounts
Creditors
Debtors
Bank

Real Accounts
Plant & Machinery
Land & Building
Goodwill

Nominal Accounts
Income or Expenses
Profit or Loss

Debit the receiver

Credit the giver

Debit what comes in

Credit what goes out

Debit all expenses & losses

Credit all incomes & gains

(c) Prof. Neha Patel, GLS

ICT-MBA

Accounting Cycle
Analyze Transactions
Journalize Original Entries
Post Journal Entries
Make Ledger accounts/ T a/cs
Move Entries to Trial Balance
Create Financial Statements
i.e. P&L a/c & Financial
Statement
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ICT-MBA

Journal Book
It is a book containing chronological record of

financial transactions taking place in an

organization

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ICT-MBA

The Journal Entry Box

1. What accounts are affected?
Assets

Increase
2. What is the direction
of the effect?
Decrease
(c) Prof. Neha Patel, GLS
ICT-MBA

Liabilities and
= Stockholders Equity

The Journal Entry Box

1. What accounts are affected?
Assets

Liabilities and
= Stockholders Equity

Increase
2. What is the direction
of the effect?

3. What is the rupee value

of the transaction?

Decrease
(c) Prof. Neha Patel, GLS
ICT-MBA

The Journal Entry Box

1. What accounts are affected?
Assets

Liabilities and
= Stockholders Equity

Asset Accounts
Increase
2. What is the direction
of the effect?

$Debit
(left)
3. What is the dollar value
of the transaction?

Decrease
(c) Prof. Neha Patel, GLS
ICT-MBA

The Journal Entry Box

1. What accounts are affected?
Assets

Liabilities and
= Stockholders Equity

Asset Accounts
Increase
2. What is the direction
of the effect?

$Debit
(left)
3. What is the dollar value
of the transaction?

Decrease
(c) Prof. Neha Patel, GLS
ICT-MBA

The Journal Entry Box

1. What accounts are affected?
Assets
Asset Accounts
Increase
2. What is the direction
of the effect?

Liab/Stock Eq. Accounts

$Debit
(left)

$Credit
(right)
3. What is the dollar value
of the transaction?

Asset Accounts
Decrease

Liabilities and
= Stockholders Equity

$Credit
(right)

(c) Prof. Neha Patel, GLS

ICT-MBA

The Journal Entry Box

1. What accounts are affected?
Assets
Asset Accounts
Increase
2. What is the direction
of the effect?

Liab/Stock Eq. Accounts

$Debit
(left)

$Credit
(right)
3. What is the dollar value
of the transaction?

Asset Accounts
Decrease

Liabilities and
= Stockholders Equity

$Credit
(right)

(c) Prof. Neha Patel, GLS

ICT-MBA

Liab/Stock Eq. Accounts

$Debit
(left)

Recognizing Gains
and Losses
Often investments and non-current assets are sold

for more or less than the amounts at which they are

carried on the balance sheet.
In such cases a gain or loss must be recognized.

(c) Prof. Neha Patel, GLS

ICT-MBA

Journal Entries in the books of Bimal

Corporation
Mr. Bimal brought Rs. 1,00,000 as capital to business
Cash a/c Dr.
1,00,000
To Capital a/c
1,00,000
Taken Loan worth Rs. 80,000 from State Bank of

India

Cash a/c Dr.

To State Bank of India

80,000
80,000

Acquired Office Furniture worth Rs. 45,000

Furniture a/c
Dr.
45,000
To Cash a/c
45,000

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ICT-MBA

Journal Entries in the books of Bimal

Corporation
Sold goods worth Rs. 15,000 for cash and on

account.

Cash a/c Dr.

To Sales a/c

15,000
15,000

Spent Rs. 5000 on Stationary

Stationary a/c Dr.
5,000
To Cash a/c
5,000
Opened current account with State Bank of India
SBI a/c Dr.
80,000
To Cash a/c
80,000

(c) Prof. Neha Patel, GLS

ICT-MBA

Ledger
Ledger is an accounting record that summarizes the financial

affairs of a business under various business heads.

It contains details of assets, liabilities, capital as well as income
& expenditure
Categories of Ledger accounts:
Asset account
Liabilities account
Capital account
Revenue account
Expense account
Types of Ledger
Permanent Ledger a/c

It has both opening & closing balance

Temporary Ledger a/c

It doesnt have opening & closing balance

(c) Prof. Neha Patel, GLS

ICT-MBA

Ledger Entries of Bimal Enterprise

Cash a/c
Dr.

Cr.

Date Particulars L.F Amt (Rs.)

Date Particulars

L.F Amt (Rs.)

To Capital

100000

By Furniture

45000

To SBI

80,000

By Stationery

5000

To Sales

15000

By SBI A/c

80000

By Bal c/f

65000

Total

195000

Total

(c) Prof. Neha Patel, GLS

ICT-MBA

195000

Ledger Entries of Bimal Enterprise

Capital a/c
Dr.
Date

Cr.
Particulars

L.F

Amt (Rs.)

Date

To Bal c/f

100,000

Total

100000

Particulars

L.F

Amt (Rs.)

By Cash

100000

Total

100000

SBI a/c
Dr.
Date

Cr.
Particulars
To Cash
To Bal c/f
Total

L.F

Amt (Rs.)
80000

Date

Particulars

L.F.

Amt (Rs.)

By Cash

80000

Total

80000

NIL
80000

(c) Prof. Neha Patel, GLS

ICT-MBA

Ledger Entries of Bimal Enterprise

Sales a/c
Dr.
Date

Cr.
Particulars

L.F.

Amt (Rs.)

To Bal c/f

15,000

Total

15000

Date

Particulars

L.F.

Amt (Rs.)

By Cash

15000

Total

15000

Furniture a/c
Dr.
Date

Cr.
Particulars
To Cash
Total

L.F.

Amt (Rs.)

Date

Particulars

L.F.

Amt (Rs.)

45000
45000

By Bal c/f

45000

Total

45000

(c) Prof. Neha Patel, GLS

ICT-MBA

Ledger Entries of Bimal Enterprise

Stationery a/c
Dr.
Date

Cr.
Particulars
To Cash

Total

L.F.

Amt (Rs.)

Date

Particulars

L.F.

Amt (Rs.)

5000

5000

By Bal c/f

5000

Total

5000

(c) Prof. Neha Patel, GLS

ICT-MBA

Trial Balance
It is the listing of all the accounts & their

balances
Here, the debit & credit balances are
extracted from the ledger account
Objectives of a Trial Balance:
Confirms arithmetical accuracy
Forms the basis of financial statements
Summarizes Ledger a/c

(c) Prof. Neha Patel, GLS

ICT-MBA

Trial Balance of Bimal

Corporation
Trial Balance of Bimal Corporation
Sr. No.

Account

L.F.

Dr.

Cr.

1 Capital Account
2 Cash Account

100,000
65,000

3 Sales Account

15,000

4 Furniture Account

45,000

5 Stationery Account

5,000

Total

115,000

(c) Prof. Neha Patel, GLS

ICT-MBA

115,000

Thank You!!
(c) Prof. Neha Patel, GLSICT-MBA