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Books of Accounts
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Types Of Accounts :
1. Personal Accounts : Accounts of Persons, institutions LikeEmployees ,Banks, Other Companies
" Debit the Receiver Credit the Giver "
2. R eal Accounts: All Assets are real accounts. Like Furniture ,Inventory
" Debit What comes in Credit What goes out "
3. Nominal Accounts : All expenses, Losses, Income , Gains
" Debit all Expenses and losses Credit all Income and gains"
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Books of AccountsBefore preparation of financial statements following
books of accounts are prepared :
Journal Ledger
Trial Balance
Before computers were in common use, bookkeeping wasdone by an actual bookkeeper .
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Books of Accounts JOURNAL
Recording a transaction
record that keeps accounting transactions inchronological order, i.e. as they occur
It·s the primary BOOK OF ENTRY
The journal entry includes - date, the name of theaccounts to be debited and credited, and the amounts.
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Books of AccountsLEDGER
Posting the transaction
Secondary book of Accounts
The bookkeeping process further required that alljournal amounts be "posted" to the company's general
ledger and subsidiary ledger accounts.
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Books of Accounts TRIAL BALANCE
A trial balance prepared with the balances of all theaccounts
If the trial balance does not balance - the bookkeeper will go back, find & correct any disparity.
When trial balance is balanced- preparation of financialstatements.
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Journal Journal entries are of 2 types :
S imple Journal Entry
Compound Journal Entry
Date Name of Account debited «xxx
Name of Account credited «.xxx
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Journal
Format of A Simple Journal Entry
Date Name of Account debited ««xxx
Name of Account credited ..«.xxx
( Short Description of the Transaction )
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Journal Example 1: Financing Activities
Owner inv ested $10,000 in the compan y.
Anal ysis of Transaction
Steps Debit or Credit ?1Increase in Assets (Cash) by $10,000 Debit
2Increase in Owner's Equity by $10,000 Credit Journal Entry
Debit Credit
Cash 10,000Owner's Equity 10,000
Description of Journal EntryOwner invested $10,000 in the company.
R esults of Journal EntryCash balance increases by $10,000. --> Increase in AssetsOwner's Equity balance increases by $10,000. --> Increase in Owner's Equity
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Journal Example 2: Financing Activities
The compan y borrow ed $20,000 f rom a bank .
Anal ysis of Transaction
Steps Debit or Credit ?1Increase in Assets (Cash) by $20,000 Debit2Increase in liability ( Loan ) by $10,000 Credit
Journal EntryDebit Credit
Cash 10,000Loan A/C 10,000
Description of Journal EntryBorrowed $20,000 from a bank .
R esults of Journal EntryCash balance increases by $10,000. --> Increase in AssetsBorrowings balance increases by $10,000. --> Increase in Liabilities
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Journal Example 3: Inv esting Activities
The compan y purchased $12,000 equipment and paid in cash.
Anal ysis of Transaction
Steps Debit or Credit ?1Increase in Assets (Equipment) by $12,000 Debit2Decrease in Assets (Cash) by $12,000 Credit
Journal EntryDebit Credit
Equipment 12,000
Cash 12,000Description of Journal EntryPurchased $12,000 equipment in cash.R esults of Journal Entry
Equipment balance increases by $12,000. --> Increase in AssetsCash balance decreases by $12,000. --> Decrease in Assets
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Journal Example 3: Operating Activities
The compan y purchased $6,000 merchandise (600 units) on credit.
Anal ysis of Transaction
Steps Debit or Credit ?1Increase in Assets (Merchandise) by $6,000 Debit
2Increase in Liabilities (Accounts Payable) by $6,000 Credit Journal Entry
Debit Credit
Merchandise 6,000 Accounts Payable 6,000
Description of Journal EntryPurchased $6,000 merchandise on credit.R esults of Journal Entry
Merchandise balance increases by $6,000. --> Increase in Assets Accounts Payable balance increases by $6,000. --> Increase in Liabilities
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Journal
Format of A Compound Journal Entry
Date Name of Account debited «xxx
Name of Account 1 credited «.xxx
Name of Account 2 credited «.xxx
( Short Description of the Transaction )
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Journal Example 4: Operating Activities
The company sold 500 units of merchandise at the price of
$11,000. Customer paid $9,000 in cash at the time of sale.
Steps Debit or Credit?1Increase in Assets (Cash) by $9,000 Debit2Increase in Assets (Accounts Receivable) by $2,000 Debit3Increase in Revenue (Sales) by $11,000 Credit
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Journal Example 6: Operating Activities
The compan y paid $3,500 salaries.
Anal ysis of Transaction
Steps Debit or Credit ?1 Increase in Expenses (Salaries Expense) by $3,500 Debit2 Decrease in Assets (Cash) by $3,500 Credit
Journal EntryDebit Credit
Salaries Expense 3,500Cash 3,500
Description of Journal EntryPaid $3,500 salaries.
R esults of Journal EntryCash balance decreases by $3,500. --> Decrease in AssetsSalaries Expense account balance increases by $3,500. --> Increase in Expenses
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Journal
Example 7: Operating Activities The compan y paid $1,500 rent.
Anal ysis of Transaction
Steps Debit or Credit ? 1Increase in Expenses (Rent Expense) by $1,500 Debit 2Decrease in Assets (Cash) by $1,500 Credit
Journal EntryDebit Credit
Rent Expense 1,500
Cash 1,500Description of Journal Entry
Paid $1,500 rent.R esults of Journal Entry
Cash balance decreases by $1,500. --> Decrease in AssetsRent Expense account balance increases by $1,500. --> Increase in Expenses
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Journal
Journal entry for
Prepaid Expense ( Eg: Rent )
Accrued Expense ( Eg: Salaries )
Accrued Revenue
Unearned Revenue
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Practice Questions
In the Books of X Ltd. Trial Balance as on Feb 28, 2009
Account Dr Cr
Equipment 4900
Supplies 2760Debtors 1290
Cash 1540
Creditors 230
Share Capital 6000
Retained Earnings 1120
Dividends 400
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Practice Questions
Account Dr Cr
Service Revenue Earned 6975
Salaries exp 3000
Electricity exp 90
Telephone exp 45
Rent Exp 300
Total 14325 14325
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Practice Questions
Following transactions took place in March
1- received payment from customers previously billed Rs 410
4-paid for supplies purchased on credit rs 480 5-Paid rent for march Rs 150
7-Purchased supplies on credit rs 480
8- received cash for services provided rs 980
13-paid monthly electricity bill rs 80 16-Purchased equipment on credit rs 1400
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Practice Questions
18-billed customers for services provided rs 1300
20-Paid for supplies purchased on 7th march
27-paid telephone expense for month rs 65 29-Paid beauticians salary rs1000
30-Declared & paid dividend rs 500
31-received cash for services to be provided later,rs 970
Prepare Journal , ledger & Trial Balance as on 31st March
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