Accounting Procedure

7/30/2019 Accounting Procedure

1/32

1/16/13 GEETHA IYER

SESSION 2

GEETHA IYER


2/32

1/16/13 GEETHA IYER

Accounting Process (Stages)

Identify transactions

Prepare Businessdocuments

Record transaction

Financial

Statements

Post into ledger A/c

Prepare unadjustedTrial Balance

Pass adjustingentries

Prepare adjusted

Trial Balance

GEETHAIYER


3/32

1/16/13 GEETHA IYER

Accounting cycle

Journal

Subsidiary books-Purchase, Sales & Return books

Cash bookLedger

Trial Balance

GEETHA IYER


4/32

1/16/13 GEETHA IYER

An account is a summarized record of all transactionsrelating to a particular revenue, expense, asset,liability or owners equity a/c.

Broad classifications :-1. Revenue - Sales, Interest / Dividend earned etc.2. Expense - Rent, Salaries, Depreciation etc.3. Assets Land, Machinery, Cash etc4. Liabilities Loans / Interest / Bills payable etc5. Capital Equity, Share Premium etc

GEETHA IYER


5/32

1/16/13 GEETHA IYER

Accounts may also be classified as follows :-

1. Personal accounts Debtors / Creditors etc

2. Tangible accounts Cash, Land, Car etc(Real a/c)

3. Intangible accounts Patents, Goodwill, Incomes, Losses,

(Nominal a/c) Expenses etc

GEETHA IYER


6/32

1/16/13 GEETHA IYER

Since the transactions can either increase ordecrease these items, an account is structuredinto two parts like a capital T, denoted by

Debit on the LHS and Credit on the RHS.

Debit Cash account Credit

GEETHA IYER


7/32

1/16/13 GEETHA IYER

In the context of accounting , a transaction isan event that has the effect of changing therevenue, expense, asset, liability, or owner(s)equity of a business entity.

GEETHA IYER


8/32

1/16/13 GEETHA IYER

DEBIT CREDIT1. Increase in Assets Decrease in Assets

2. Decrease in Liabilities Increase in Liabilities

3. Decrease in Owners Equity Increase in Owners Equity4. Decrease in Revenues Increase in Revenues

5. Increase in Expenses Decrease in Expenses

DEBIT CREDIT

1. Personal A/c The Receiver The Giver2. Tangible A/c What comes in What goes out

3. Intangible A/c All Expenses/Losses All Gains / Profits

GEETHA IYER


9/32

1/16/13 GEETHA IYER

Primary record of a transaction

Chronological record of all transactions

Also contains a narrative description

Debit account is recorded first and then the credit account

Does not replace but precedes the LEDGER

GEETHA IYER


10/32

1/16/13 GEETHA IYER

Date Description L F Ref Debit Credit

11/8/10 Furniture A/c Drto M/s XYZ Furnishers Ltd

(Being purchase of furniture on credit videInvoice no: 205)

Invoice205

2000

2000

GEETHA IYER


11/32

1/16/13 GEETHA IYER

Date Transaction Rs.

January 1 Starts business with 1000

January 8 Buys goods and stores them 800

January 10 Receives order from A 500

January 15 Delivered the goods to A, customer invoiced 500

January 31 Customer A pays 500

The following information relates to Shyam EnterprisesLtd. Pass Journal Entries.

GEETHA IYER


12/32

1/16/13 GEETHA IYER

Date Description L F Ref Debit Credit

1st Jan Cash A/c Drto Capital A/c

(Being capital introduced in cash)

1000

1000

8th Jan Purchase A/c Dr

to Cash A/c(Goods purchased in cash vide cash memo no378 of M/s XYZ Ltd)

378 800

800

15th Jan Mr As A/c Drto Sales A/c

(Goods sold to Mr A vide sale Bill No: 001)

001 500

500

31st Jan Cash A/c Drto Mr As A/c

(Being cash received on account)

500

500

GEETHA IYER


13/32

1/16/13 GEETHA IYER

Subsidiary Books Divisions of

Journal When volume of transactions of a business is large it is

highly advantageous to classify them into groups of similartransactions

All those transactions repeatedly affecting one aspect of anaccount are grouped together and recorded in a subsidiary

book, Ex. Sales journal, Cash receipts journal, etc.

All transactions not passed through the subsidiary books

will be passed through the general journal

GEETHA IYER


14/32

1/16/13 GEETHA IYER

Some subsidiary books

Sales Book Recording all credit sales

Purchase Book Recording all credit purchases

Cash Book - records all receipts and payments of cash

Sales Return Book-

Purchase Return Book-

Bills Receivable Book-

Bills Payable Book

Journal proper - Other transactions

GEETHA IYER


15/32

1/16/13 GEETHA IYER

Posting from Subsidiary Books

Jan. 1 Roy and Co. Rs.2,000

Jan. 2 Sen and Co. 3,000

Jan. 3 Carmaker and Co. 1,500

Jan. 4 Mondal and Co. 6,000Jan. 5 Naskar and Co. 3,500

Following are the transactions of credit purchases on differentdates

o Possible to post the transactions periodically

GEETHA IYER


16/32

1/16/13 GEETHA IYER

Purchase Journal

PURCHASES JOURNALDate Name of the Supplier Amount

Jan. 1 Roy and Co. Rs.2,000

Jan. 2 Sen and Co. 3,000

Jan. 3 Carmaker and Co. 1,500

Jan. 4 Mondal and Co. 6,000

Jan. 5 Naskar and Co. 3,500

Total Rs 16,000

GEETHA IYER

Purchases A/c Dr 16000To Sundry Creditors

16000


17/32

1/16/13 GEETHA IYER

Ledger is a set of accounts.Ledger is called main or principal book.It contains all accounts of the enterprise.

It classifies the transactions recorded in the Journal.May also be classified into groups of accounts,eg Sundry Debtors / Sundry Creditors Ledger etc.

Proforma of a LEDGERDr Cr

Date Explanation J F Amount Date Explanation J F Amount

GEETHA IYER


18/32

1/16/13 GEETHA IYER

It is the process of transferring the debit and credit items from theJOURNAL to their respective accounts in the LEDGER.

The dual aspect ensures that each transaction finds a place in atleast two accounts.

Total amount of debits as a result of each transaction will be equal tothe credits.

Debit entry will be posted on the debit side

GEETHA IYER


19/32

1/16/13 GEETHA IYER GEETHA IYER


20/32

1/16/13 GEETHA IYER

Dr. Cash Account

Cr.Date Explanation Amoun

tDate Explanation Amoun

t

Jan 1 To Capital A/c 1,000Jan 8 By PurchasesA/c

800

Jan 31To Mr As A/c 500

Dr. Capital AccountCr.

Date Explanation Amount

Date Explanation Amount

Jan 1 By Cash A/c 1,000

GEETHA IYER


21/32

1/16/13 GEETHA IYER

Dr. Purchases AccountCr.

Date Explanation Amount Date Explanation Amount

Jan 8 To Cash A/c 800

Dr As Account or Account ReceivableCr.


Jan

15

To Sales A/c 500Jan 31By Cash A/c 500

Dr. Sales AccountCr.


Jan 15By Mr As A/c 500GEETHA IYER


22/32

1/16/13 GEETHA IYER

1. Entries in the cash book can be passed directly asit is a Subsidiary Book (Journal)

2. It is also a complete a/c showing the Cash Balancewhich can be directly taken to the Balance Sheet,

hence also a Principal Book3. Three types of Cash Book :-

a. Simple or Single Columnb. Two Column (Cash & Bank, or Cash & Discount)c. Three Column (Cash, Bank, & Discount)

4. Receipts on left and Payments on right side5. Discount columns are totaled but not balanced and

posted to the discount a/c in ledger

GEETHA IYER


23/32

1/16/13 GEETHA IYER

Illustration

M/s Subham & Co. purchases furniture for Rs.10,000 on which he gets a discount of 10%.He also sells goods to M/s Sohan for Rs.15,000. It is known that M/s Sohan also makes

the full payment after availing a discount of10%. The opening cash balance is Rs. 5,000.Prepare Cash Book.

Date Receipts LF Dis. Amount Date Payments LF Dis. AmountTo Bal B/dTo Sales

1500

5,00013,500

By FurnitureBy Bal C/d

1,000 9,0009,500

1,500 18,500 1,000 18,500

M/s. Subham & Co.Cash Book

Taken to thediscount

account in theledger

GEETHA IYER


24/32

1/16/13 GEETHA IYER

Balancing is the technique of finding the netbalance of a particular account by separately

totaling the debit and the credit sides.

The balance is put on the side which is lighterthus equating the debits with the credits.However, the nature of the balance in any account(debit or credit) is always known by the side thatis heavier.

GEETHA IYER


25/32

1/16/13 GEETHA IYER

1. Asset accounts Debit

2. Liability accounts Credit3. Capital/Equity accounts Credit4. Revenue accounts Credit5. Expense accounts Debit

Account type Balance

GEETHA IYER


26/32

1/16/13 GEETHA IYER

TRIAL BALANCE

Balances of both debit and credit accounts are firsttransferred to a worksheetcalled original trial balanceor unadjusted trial balance

Adjustments are worked out giving rise to an Adjusted trialbalance

Finally, based on the type of the account it is, the balances ofindividual accounts are then taken to either P & L a/c orthe Balance Sheet

GEETHA IYER


27/32

1/16/13 GEETHA IYER

Payment made by cheques,Bearer cheques,Crossed cheques (& co, or A/c payee)Endorsing cheques to 3rd partiesCheques deposited for collection,

Cheques received but not deposited into bank,Deposit/withdrawal of cash from bank,Dishonour of cheques,Overdraft,Bank charges

GEETHA IYER


28/32

1/16/13 GEETHA IYER

1. It is the statement prepared to compare Bank a/cin the books with the Bank Statement (Pass Book)received from the bank

2. It is prepared at regular intervals so that errors,if any, may be detected and rectified

GEETHA IYER


29/32

1/16/13 GEETHA IYER

ILLUSTRATION

Prepare a Bank Reconciliation Statement to reconcile the

differences between the cash book and the bank pass book.

Balance as per the cash book Rs 2687 and balance as perbank pass book is Rs 4399

Cheques issued but not presented:Mr. A Rs 3200

Mr. B Rs 1350

Cheques deposited but not cleared from Mr. P Rs 2486

Bank debited charges Rs 352.

GEETHA IYER


30/32

1/16/13 GEETHA IYER

Balance as per Cash Book 2,687

ADD Cheques issued not 1. To Mr A 3,200yet presented 2. To Mr B 1,350 4,550

7,237LESS Cheques deposited

not yet collected 1.From Mr P 2,486

Other debits by bank 1. BankCharges 3522,838 2,838

Balance as per Bank Statement 4,399

GEETHA IYER


31/32

1/16/13 GEETHA IYER

Mr. As Bank Book shows a debit balance of 10,500.40

Prepare a Bank Reconciliation considering following facts

1. Cheques deposited on 3oth Dec not collected by 31st Dec(a) 300.24 (b) 500.00 (c) 200.15

2. Cheques issued but not cashed by 31st Dec(a) 600.25 (b) 200.00 (c) 489.25 (d) 50.00

3. Dividend recd directly in the bank a/c, without intimationto Mr A, amounting to 1500.00

4. Bank allowed interest 20.30 and debited charges 9.20 on 31stDec

Ans: 12350.61

GEETHA IYER


32/32

1/16/13 GEETHA IYERGEETHA IYER

Accounting Procedure

Documents

Transcript of Accounting Procedure