PRINCIPLES OF BOOK KEEPING.

Prof. Pallavi Vartak MMS Batch 2011-2013 Sem - I

Important terms in Accounting

Asset An Asset is anything of value owned by an

enterprise. They consist of tangible objects such as land, plant and machinery, furniture, building, cash and Bank. The examples of intangible asset are goodwill, petants, copyrights and trademarks.
Liabilities - It is an financial obligation of business or

owners fund. These are Debts. They are consist of obligation to pay money or render services to another person either now or in future. The term liability includes all claims against assets e.g. Amt due to creditors, Bank Overdraft, Bills payable, loan from Banks/ financial institutions

Important terms in Accounting

Equities - Equities are all claims against or rights in assets. The term equity includes liabilities towards creditors, liability towards owners and proprietors. In the formal case it is called as creditors equity while in the later case it is called as owners equity. Fixed Asset Asset held for long term use in business itself for the purpose of producing goods or providing services. It is not held for resale in the normal course of business. Capital It generally refers to amount invested by owners to the business along with the accumulated profits years after years. The loss if any is deducted from the capital.

Important terms in accounting

Balance sheet- It is a statement of financial position of an enterprise

at a given date which exhibits( shows) all assets, liabilities, capital, reserves etc at their book values.

Current Asset - This are cash, Bank and other assets which are

expected to be converted into cash or consumed in the production of goods or rendering services in the normal course of business operations. Current liabilities- This are liabilities which are due for payment in a relatively short period which is generally not more than 12 months e.g. Trade creditors, Bills payable, Bank overdraft etc.

Important terms in accounting

Long term liability- A liability which does not fall due for

payment in a relatively short period. It is payable after a period of more than 12 months e.g. Bank loans
Revenue It is the gross inflow of cash receivables. Other

consideration arising in the course of ordinary business operation of an enterprise from the sale of goods. Arising cash from rendering of services, from use by other or enterprises resources , yielding interest, royalty and dividend

Net profit This is the excess of revenue over expenses during a

particular accounting period. If expenses are more than revenue it termed as net loss.

Important terms in accounting

Sundry creditors this is the amount owed by an

enterprise to outsider for supply of goods or services received or in respect of contractual obligations. It is also termed as account payable or trade creditors.
Sundry Debtors This are the parties from whom the

money is due to the business for sale of a goods/services on credit or in respect of contractual obligation. This are also termed as accounts receivable or Trade debtors.
Working Capital-

This are the funds available to an enterprise for conducting day to day operations. This is represented by excess of current assets over current liabilities including short term loans.

Classification of Accounts

An account is a summarized record of all transaction pertaining to one person, one kind of asset, expenses or income. Accounts are classified as under Personal Account 2. Real Account 3. Nominal Account 1.Personal A/c- Personal A/c are the accounts of person. There are two types of persons i.e. Natural and Artificial. Natural persons have physical existence and includes living individuals. Artificial persons having no physical existence.. They are recognized by law and includes firms, companies, local government etc. Rule- Debit the receiver Credit the giver E.g.-Natural persons- Ajit, Rita, suneeti , swanandi, prem etc Artificial persons- Banks, clubs, Local authority, schools etc. Representative persons- rent prepaid, int.received in advance, salaries outstanding etc.

Classification of Accounts
2. Real Account . Real Accounts are the accounts of assets or properties owned by business. There are two types of assets namely tangible and intangible assets.

Rule- Debit what comes in Credit what goes out

E.g. -tangible assets-land, building, plant and machinery, furniture, computer Intangible assets- goodwill, petants, trademarks, copyrights,

Classification of Accounts
3.Nominal Accounts- Nominal Accounts are the accounts of

expenses, incomes, losses and gains. When services are received by business the amount paid in return is known as expenses and when services are given by business the amount received in return is known as Income

Rule- Debit all Expenses or losses Credit all Incomes or gains or profit

E.g. Interest paid/ received, salaries paid/ received, commission

paid/received, rent paid /received, profit/loss on sale of asset

Tutorial Note

The student should note that when some prefix or suffix is added to a nominal Account, it becomes a personal Account.

Sr. No.
1. 2. 3. 4.

Nominal Account
Rent Account Interest Account Salary A/c Insurance A/c

Personal Account
Rent pre-paid Account, outstanding rent account Outstanding Interest A/c, Interest received in advance A/c o/s salary A/c, prepaid salary A/c O/s insurance A/c, Prepaid insurance A/c

5.

Commission A/c

O/s Comm A/c , P/p Comm. A/c

DOUBLE ENTRY SYSTEM

SCIENTIFIC SYSTEM: EVERY TRANSACTION HAS TWO ASPECTS. CRUX (Bottom) OF ACCOUNTANCY IS TO FIND OUT WHICH TWO

ACCOUNTS ARE EFFECTED AND WHICH IS TO BE DEBITED AND WHICH IS TO BE CREDITED.

JOURNAL
JOURNAL RECORDS EACH AND EVERY RECORD.

TO FIND OUT A TRANSACTION EFFECTING A PERSON, EXPENSES ACCOUNT OR ASSET ONE HAS TO TURNOVER ALL PAGES OF JOURNAL .

HENCE TRANSACTIONS ARE POSTED FROM JOURNAL TO

PARTICULAR PAGES OF LEDGER.

HENCE JOURNAL CONTAIN A COLUMN L.F

JOURNAL FORMAT
DATE PARTICULARS L.F DEBIT RS. CREDIT RS.

RECORD KEEPING BASIS

RECORDING: JOURNALISING AS AND WHEN

TRANSACTION TAKES PLACE. JOURNAL IS BOOK OF ORIGINAL OR FIRST ENTRY.

CLASSIFYING: ALL ENTRIES IN JOURNAL OR

SUBSIDARY BOOKS ARE POSTED TO LEDGER ACCOUNT(POSTING) TO FIND OUT AT A GLANCE THE TOTAL EFFECT OF ALL SUCH TRANSACTIONS. LEDGER IS BOOK OF SECONDARY ENTRY.

RECORD KEEPING CONTD..

SUMMASRISING: LAST STAGE IS TO PREPARE THE

TRIAL BALANCE AND FINAL ACCOUNTS WITH A VIEW TO ASCERTAIN THE PROFIT OR LOSS DURING PARTICULAR PERIOD.

 IT IS CUSTOMARY TO USE TO AND BY WHILE POSTING

LEDGER. BALANCING AN ACCOUNT MEANS EQUALIZING TWO SIDES. IF DEBIT SIDE OF ACCOUNT EXCEED CREDIT SIDE, DIFFERENCE IS PUT ON CREDIT SIDE AND IT IS SAID TO HAVE DEBIT BALANCE AND VICE VERSA..

LEDGER

DR

CR

DATE

PARTIC J.F ULARS

AMOU NT(RS)

DATE

PARTIC J.F ULARS

AMOU NT RS.

Questions.

1. CREDIT BALANCE IN CAPITAL ACCOUNT IS A A. LIABILITY B. A REVENUE C. AN EXPENSE D. NONE OF THESE.

2. AMOUNT BROUGHT IN BY PROPRIETOR IN BUSINESS SHOULD BE CREDITED TO A. PROPRIETORS ACCOUNT B.DRAWINGS ACCOUNT C.CAPITAL ACCOUNT D.ASSET ACCOUNT

QUESTION
3.WAGES PAID TO RAJU TO BE DEBITED TO A. RAJU B WAGES C. CASH D. BANK 4. CREDIT SALES MADE TO ROHIT TO BE DEIBTED TO A. SALES B. PURCHASE C. CASH D. ROHIT

QUESTIONS

5.FURNITURE PURCHASED BY ISSUING CHEQUE

DEBIT FURNITURE AND CREDIT BANK ACCOUNT DEBIT BANK ACCOUNT AND CREDIT FURNITURE DEBIT FURNITURE AND CREDIT CASH. DEBIT BANK AND CREDIT FUNITURE SHOP ACCOUNT

6. RETURN OF GOODS SHOULD BE CREDITED TO A. SALES RETURN B PURCHASE RETURN C.CUSTOMER ACCOUNT D. GOODS ACCOUNT

MATCH FOLLOWING
A B

A
B C

RAMESH
DENA BANK RENT

1
2 3

REAL
PERSONAL NOMINAL

D
E F

COMPUTER
LAND DISCOUNT

4
5 6

REAL
NOMINAL PERSONAL

QUESTION
1.WHAT IS JOURNAL ENTRY

A. ORIGINAL ENTRY B. DOUBLE ENTRY C. DUPLICATE ENTRY D. NONE

QUESTION
PASS JOURNAL ENTRY: 1. RENT PAID FOR OFFICE PREMISES RS.30000 OUT OF WHICH PART

AMOUNT OF RS.10000 PAID BY CHEQUE AND REST BY CASH.

2. PURCHASED 100 SHARES OF CENTRAL BANK OF INDIA FOR

RS.100 PER SHARE.

3. SOLD GOODS TO TENDULKAR RS.15000 4. DRAVID INVOICED GOODS FOR RS.12000 TO US.

QUESTIONS
PASS JOURNAL ENTRY: 5.

RECEIVED DUE AMOUNT FROM ALLOWED HIM DISCOUNT OF 10%.

TENDULAKAR AND

6. PAID SALARY AND RENT RS.1200 AND 1500 RESPECTIVELY. 7.

PAID MONTHLY CAR INSTALMENT OF PROPRIETORS PERSONAL CAR RS.12000

8. BOUGHT FURNITURE FROM GODREJ & BOYCE CO. LTD AND

PAID BY CHEQUE RS.50000

QUESTION
JOURNALIZE FOLLOWING: 9. COMMENCED BUSINESS WITH Rs.15000 OF WHICH RS.5000 WAS BORROWED FROM HIS WIFE AT 12% INTEREST P.A. 10. PURCHASED GENERATOR FROM RAMA & CO. RS.50000

11.BOUGHT GOODS FROM SATISH AT ONE MONTHS CREDIT RS.6000

12.OUT OF WHICH HALF WAS INVOICED TO MR. RAM AT 30% ABOVE COST.