Accounting Equation Assets = Liabilities + Capital

Accounting (Definition):- is art of recording, classifying and summarizing the financial transactions and interpreting the result therefore.

Accounting cycle
Recording the transaction- journal
Classifying Ledger Summarizing Trial Balance/ Profit & Loss

account/ Balance Sheet Interpretation- Ratio analysis

Systems Of Accounting
Cash System- Receipt and expenditure account

Accrual System- Profit and loss account/ Balance

sheet

Types of accounts

Personal
Natural Artificial Representative

Real
Tangible Intangible

Nominal
Expenses/ Losses Incomes/ Gains

Example
Transactions 1 Rent paid Account involved Rent Cash 2 Salaries paid Salary Cash 3 Interest received Interest Cash 4 Furniture purchased Furniture Cash Nature of accounts Nominal Real Nominal Real Nominal Real Real Real

Outstanding Salary

Outstanding salary Salary

Personal Nominal Personal Real

Paid to Suresh

Suresh Cash

Received from Mohan Proprietor

Cash Capital

Real Personal

Journal (Rules)
For Personal account
1. 2.

Debit the receiver Credit the Giver

For Real Account

1.
2. 1. 2.

Debit what comes in Credit what goes Out

Debit all expenses/losses Credit all income/gains

For Nominal Account

Example
Transactions 1 Rent paid Account involved Rent Cash 2 Salaries paid Salary Cash 3 Interest received Interest Cash 4 Furniture purchased Furniture Nature of accounts Nominal Real Nominal Real Nominal Real Real Debit/Credit Debit Credit Debit Credit Credit Debit Debit

Cash
5 Outstanding Salary Outstanding salary Salary 6 Paid to Suresh Suresh Cash 7 Received from Mohan Proprietor Cash Capital

Real
Personal Nominal Personal Real Real Personal

Credit
Credit Debit Debit Credit Debit Credit

Journal
Ram purchased furniture for cash for Rs 5000 on Jan 5 1990

Date

Particulars Dr

L.F

Rs 5000

Rs

1990 Jan 5 Furniture Account

To Cash Account ( Being purchase of furniture)

5000

Ram paid rent for Business premises Rs 2000 on Jan 10 1990

Date

Particulars

L.F

Rs

Rs

1990 Jan, 10

Rent account To Cash account ( Being payment of rent)

Dr

2000 2000

Compound Journal
Payment maid to Ram Rs 1000 and he allowed a cash discount of Rs 50

Date

Particulars
Ram account .Dr

L.F

Rs
1050

Rs

To Cash account To Discount account ( Being payment maid to Ram Rs 1000 and he allowed a Rs 50 as a discount

1000 50

Ledger (Rules)

Separate account should be opened in the ledger for posting transactions relating to different accounts recorded in the journal The concerned account which has been debited in the journal should also be debited in ledger. However a reference should be made of the other account which has been credited in journal The concerned account which has been credited in the journal should also be credited in ledger. However a reference should be made of the other account which has been debited in journal

Ledger
Date Particulars L.F Amount Date Particulars L.F Amount

Balancing of ledger
The balance is put on the side of the account which is smaller and a reference is given that it has been carried forward or carried down (c/f or c/d) to the next period. On the other hand in the next period a reference is given that the opening balance has been brought the forward or brought down (b/f or b/d) from the previous period.

Ledger

Ledger
Balancing
Date Particulars L.F Amount Date Particulars L.F Amount

Summarize the debit and credit balances of different accounts (Account ledger balances) in vertical form.

Trial Balance
Particulars Debit Credit

Figure in lakhs Particulars stock(1.4.2008) Purchase & Sales Discount Furniture & Fitting$ Rent Share (5 lakhs@100) Plant General reserve 145 85 20 Dr 375 1225 Cr Particulars Purchase return 1700 wages 15 carriage inward Salaries Sundry expenses 500 Interim dividend Debtor & creditor 77.5 cash 150 2.75 37.5 35.25 45 137.5 231 87.5 Dr Cr 50

Bill receivable Bill payable

P&L(31.3.2008) Debenture Debenture interest

25

patent 35 prelim expenses

75 development rebate res 2500 investment

24 30
28 2250 5068 5068

250

Total

Trial Balance of Flex industries on 31.03.2009 . Prepare P&L A/c and Balance sheet with following adjustments
Stock on 31.3.09 was 840 Lakhs

Make provision for income tax @35%

Transfer 10 lakhs in development rebate reserve on 31.3.09 Write off one third prelim expenses Create debenture redemption reserve of Rs 100 lakhs

Depreciation (Plant @ 10% ) (Furniture @ 10%) (Patent @ 5%)

On 31.3.09 outstanding rent 4 lakhs and outstanding salary 4.5 lakhs Debtors include 25 lakhs for more than 6 months so make provision for

doubtful debts 15 lakhs Proposal for dividend @ 15% per annum for the year after transfer to general reserve @ 5 % Provide managerial remuneration @ 10% on net profit before tax