CHAPTER -1

INTRODUCTION TO
ACCOUNTING
ACCOUNTING :
Accounting is the process of
I.
II.

collecting,
recording,(i.e.JOURNAL ENTRY) it is further divided into subsidiary
books

cash journal
others
or cash book
return book,
(for recording
sales return book,
cash transaction)
payable book,

purchase journal

sales book

or purchase book
(for recording
credit purchase of

purchase
(for recording
credit sales)

bills

goods.)
bills receivable book,

III.
IV.

V.

journal proper

classifying,(POSTING into LEDGERS of the transaction recorded

in JOURNAL or SUBSIDIARY BOOKS i.e. step II.)
summarising,(i.e. preparing trail balance, trading and profit & loss
account, balance sheet. These are collectively known as final
accounts or financial statement)
and
communicating financial information
TO USERS.

ACCOUNTANCY :

Accountancy is a systematic knowledge of accounting. i.e. it

educates how to maintain the books of accounts.

INCOME STATEMENT:
Income statement refers to TRADING and PROFIT & LOSS
ACCOUNT.
(STATEMENT OF PROFIT & LOSS , in case of COMPANIES).
It shows the
profit earned or
loss incurred
by the enterprise DURING the ACCOUNTING YEAR.
(eg. 01/04/2015 to 31/03/2016)
FORMAT OF TRADING AND PROFIT & LOSS ACCOUNT:
TRADING ACCOUNT
PARTICULARS

AMOUN
T
XXXX

TO OPENING STOCK
TO PURCHASE

PARTICULARS
BY SALES

AMOUN
T
XXXX

XXXX

TO
GROSS
PROFIT(BAL.FIG) {c/d}

XXXX

BY CLOSING STOCK
BY GROSS LOSS(BAL.FIG)
{c/d}

XXXX
XXXX

PROFIT & LOSS ACCOUNT

PARTICULARS

AMOUN
T

PARTICULARS

AMOUN
T

TO GROSS LOSS (b/d)

XXXX

TO SALARY
TO DEPRECIATION
TO
STAFF
WELFARE
EXPENSES
TO ELECTRICIRTY BILL

XXXX
XXXX
XXXX
XXXX
XXXX

BY GROSS PROFIT(b/d)

BY DIVIDEND

BY NET LOSS(BAL.FIG)

XXXX

XXXX

XXXX

TO NET PROFIT(BAL.FIG)

POSITION STATEMENT :
Position statement refers to BALANCE SHEET which shows the
financial position of the enterprise ON A PARTICULAR DATE.
(eg. 31st march 2016)
BALNCE SHEET AS AT 31st March 2016
LIABLITIES

AMOU
NT

OPENING CAPITAL
ADD: PROFIT DURING THE X
YEAR
X
LESS: DRAWINGS
CLOSING CAPITAL
X
LOAN
X
CREDITORS
PROVISION FOR TAXES
X

ASSETS

XXX FIXED ASSETS

Building
XXX Plant & machinery
Motor car
XXX Furniture
XXX CURRENT ASSETS
Closing Stock
Debtors
XXX Cash balance
Bank balance
XXX

X
XXX

AMOUN
T
XXXX
XXXX
XXXX
XXXX

XXXX
XXXX
XXXX
XXXX

BRANCH OF ACCOUNTING:
Three types of branch of accounting
Financial accounting

Cost accounting

Discussed above

It ascertains the cost of

products manufactured
or services rendered
and
helps
the
management
in
decisionmaking(say
price
fixation)
and
exercising controls.

Management
accounting
It is most recently
developed branch of
accounting. Simply say,
it is useful for single
user group
i.e. the
management.

Difference b/w Book keeping and accounting :

These two terms are often considered as same. But it is not so. These
terms are distinct from each other.
Accounting is wider concept than book keeping. Accounting includes
Book Keeping.
Accounting
BookKeeping

Book Keeping is a part of accounting.

BOOK KEEPING

ACCOUNTING

BASIS
Stage
Objective

Nature of job
Performance
Special skills
Scope
(recall definition of
accounting)
(Simply say, it is
definition of
accounting)

BOOK KEEPING
Primary stage
To maintain systematic
records of financial
transactions.

ACCOUNTING
Secondary stage
To ascertain net results of
operations and financial
position and to
communicate to the
interested parties.
Routine in nature
Analytical and dynamic in
nature.
Junior staff performs this Senior staff performs this
function.
function.
Not required
Required.
Book keeping is
Accounting is concerned
concerned with
with
identifying
Summarising the
financial
recorded
transactions,
transactions,
(i.e. preparing
Measuring them in
trial balance,
money,
trading and P&L
Recording
account, balance
( journal entry
sheet)
or subsidiary
Interpreting them
books)them in
and
books of accounts
communicating the
And
Classifying
results.
them.(posting
into ledgers),