1st Lecture Overview of Accounting Process

8/9/2019 1st Lecture Overview of Accounting Process

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A C C O U N T I N G : I T I S T E R M E D A S T H E

L A N G U A G E O F T H E B U S I N E S S

Overview of Accounting Process

Prepared by Rajkumar Giridhari


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Transactions

y Events or movements that involve money or moneyrelated activities from one person to another person.



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Accounts

y A summarised statement of anything having twosides: the debit and the credit.

y Left hand side is known as the debit side(Dr.)

y The Right hand side is known as the credit side(Cr.)



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Definition of Accounting

y Accounting is an art of recording , classifying andsummarising in a significant manner and in terms ofmoney, transactions and events which are in part at

least of financial character and interpreting theresults thereof.

American Institute of Certified Public Accountants (AICPA)



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Definition 2

y Accounting is the process of identifying, measuringand communicating economic information to permitinformed judgments and decisions by users of the

information. American Accounting Association(AAA)



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Branches of Accounting

y Financial Accounting

y Cost Accounting

y Management Accounting



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Cost Accounting

y Determination of the cost of products (goods &services), operation, functions and fixing the price ofthe products.



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Management Accounting

y Management accounting is the presentation ofaccounting information in such a way as to assistmanagement in the creation of policy and in the

day-to-day operations of an undertaking.y It includes financial accounting, cost accounting, &

budgeting, budgetary control, etc.

y It is mostly for internal management.



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Accounting concepts

y Separate entity concept

y Going concern concept

y Money measurement concept

y Cost concept

y Dual Aspect Concept

y Accounting period concept

y The Matching concepty Realisation concept



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Accounting conventions

y Convention of Disclosure

y Convention of Materiality

y Convention of Consistency

y Convention of Conservatism



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System of Accounting

y Cash System of Accounting

y Accrual or Mercantile system of accounting.



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Types of Accounts

y Personal Accounts

y Real Accounts

y Nominal Accounts



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Golden Rules of Accountancy

Debit Credit

Personal A/c Debit, the receiver Credit, the giver

Real A/c What comes in What goes out

Nominal A/c All losses & expenses All incomes & gains



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Accounting Cycle

TRANSACTIONS JOURNAL LEDGER TRIAL BALANCE

FINAL ACCOUNTS

TRADING & PROFIT & LOSS A/c BALANCE SHEET



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Types of Journal

y Journal Proper

y Purchase Journal

y Sales Journal

y Purchase return Journal

y Sales return Journal

y Cash Journal or Cash Book



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Cash Book

y Simple column Cash Book

y Cash book with Discount column

y Cash book with Bank column

y Cash book with Bank & Discount column

y Multi columnar Cash Book

y Subsidiary Cash book



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Subsidiary cash book

y Petty cash book

y Cash book for recording collections from debtors

y Cash book for recording payments to creditors

y Cash book for recording remittances from thebranches



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Ledger & Ledger Posting

y Ledger: A set of Accounts

y Posting: the process of entering in the ledger theinformation given in the journals.

y Separate accounts should be opened in the ledger forposting transactions relating to different accountsrecorded in the journal.



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Trial Balance

y When all the balances of all the accounts in theledger are put in a list , debit balance on one sideand the credit balance on the other side, the list so

prepared is called a Trial Balance.

y The total of the debit side balances should alwaysequalto that of its credit side balances.



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FINAL ACCOUNTS

y Income Statement(Trading & Profit & Loss Account)

y Position Statement(Balance Sheet)



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Trading Account

y To find the Gross Profit or Gross Loss

y Gross Profit= Sales Cost of goods sold

y Cost of goods sold =Opening Stock + Purchases + Direct

Expenses + Closing Stock



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Profit & Loss Account

y Gross Profit or Gross Loss so calculated from theTrading Account is taken to the Profit & Loss

Account

y All the remaining expenses and losses are shown inthe debit side.

y All the remaining gains are shown in the credit side.

y The difference of the two sides is either Net Profit or

Net Loss.

y Net Profit is added to Capital whereas Net Profit isdeducted from Capital



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Trading & Profit & Loss Account

Particulars Amount Particulars Amount

To Opening Stock ..To Purchases Less Return ..To Direct Expenses ..To Gross Profit* .

-------To Gross Loss .To Indirect Expenses .To Net Profit** .

-------

By Sales .Less .. .B

y Closing Stock .By Gross Loss* .-------

By Gross Profit* ..By Indirect Incomes ..By Net Loss** ...

-------


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Balance sheet

y A statement of Assets & Liabilities.

y Liabilities are written on the left hand side.

y Assets are written on the right hand side.

y The total amount of Liabilities should be equal to thetotal amount of the Assets.



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Classification of Assets

y Current Assets

y Liquid Assets

y Fixed Assets

y Intangible Assets

y Fictitious assets



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Liabilities

y It denotes the claims against the assets of a firmwhether those of the owners of the business or of thecreditors.

y They can be arranged either In the order of urgency of payment

In the order of descending urgency.



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Types of Liablities

y Current Liabilities

y Long-term Liabilities

y Contingent Liabilities



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Balance Sheet

Liabilities Amount Assets Amount

Share Capitals .Add Net Proit* .Less Net Loss *

Long Term Liabilities ..Short Term Liablities ..

Fixed Assets ..Current Assets (Cash)

1st Lecture Overview of Accounting Process

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