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Basic Accounting & Finance Fundamentals….

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Training : Finance For Non Finance

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Aarti Wani
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 What's there in store for you today…??

 Meaning Of Accounting
 Necessity Of Accounting
 Procedure Of Accounting
 Users Of Accounts
 Branches Of Accounting
 Components
 Types of Accounts
 Rules for Accounting
 Principles/Assumptions/Conventions
 Source Documents
 Process of preparing Financial Statements

TCS Internal 2
 Introduction
 All activities whether Business /Non Business

Require Money & Other Resources

To account for the Same  Accounting is Required

 Accounting is required wherever money is involved

 Accounting is called the Language of Business
(as it serves as medium of communication of business activities)

TCS Internal 3
 Definition-Accounting

 The American Institute of Certified Public Accountants defines

Accounting as

“The art of recording, classifying and summarising in a significant

manner and in terms of money, transactions and events which are, in
part at least, of a financial character and interpreting the results
thereof. ”

TCS Internal 4
 Meaning Of Accounting

 Its an Information System

 It identifies the transaction and
events

 Process of
Identifying

Measuring

&

Communicating the economic information

TCS Internal 5
 Accounting Terms - Transaction

 Transaction means an Exchange

 Each party either receives or sacrifices value
 Basically the GIVE & TAKE
 Types of Transactions

Cash Transaction  Involves immediate cash

payment/receipt
E.g.: Purchase of Stationery for cash

 Credit Transaction  Deferment of Payment i.e.:

Postponement of payment
E.g.: Purchase of Raw materials on credit

TCS Internal 6
 Accounting Terms - Event

 Event means the consequences

 Internal or external happenings in Business

• Eg: Use of raw materials for production

• Eg: Deal of new business opportunity
• Eg: One segment of Business to be closed

TCS Internal 7
 Accounting Terms - Business Entity

 Independent and separate person

 Distinct legal identity
 E.g.: A limited company and its shareholders are treated as separate
from each other

TCS Internal 8
 Necessity for Accounting

 Permanent Record of Financial transactions

 Analyse the performance of business
 Profitability of business
 Financial standing and credibility of the business
 Comply with legal requirements
 Facilitate Decision Making
 Reporting
 Taxation

TCS Internal 9
 Necessity for Accounting
 Maintain Accounting records  Why?

 Written records are always better than oral records

 It can be used by different persons
 Acts as evidence
 To manage huge records
 Facilitates easier decision making
 Systematic recording of Financial Transactions, Assets & Liabilities

 Calculate Results of operations i.e. Profit /Loss of the Organization

 Communicate to users effectively

TCS Internal 10
 Necessity for Accounting
 Ascertain Financial Position
 Evaluation of organization's Strengths & Weakness
 Amount that company owes to others (Bank Loans)
 Amount others owe to company (Debtors)
 What company owns (Assets)
 How has the capital and fund been used

 Facilitates internal comparison &

also comparison with peers

TCS Internal 11
 Process of Accounting

Procedure Of Accounting

Generating
Financial Using Financial
Information Information

1. 2. 3. 4. 5. 6.Comm-
Record Classify Summarize Analyse Interpret unicate

TCS Internal 12
 Process of Accounting

 Recording
 Recording of Financial Transactions
 In an orderly manner

 Classifying
 Grouping of transactions of similar type
 How it is done ?  Ledger

TCS Internal 13
 Process of Accounting

 Summarizing
 Preparation and presentation of classified data
 Serves the purpose of communicating requisite information
 This includes preparation of financial statements

• Profit & Loss A/c

Financial • Balance Sheet
Statements

TCS Internal 14
 Process of Accounting

 Analyzing
 Establishing relationship among different components of Financial
Statement
 Various ratios are used
 E.g.: Net Profit ratio : Measures how is profit related to sales

Sales

1st Qtr
2nd Qtr
3rd Qtr
4th Qtr

TCS Internal 15
 Process of Accounting

 Interpreting
 Understanding & Interpreting the relationship established by the analysis
 To enable the decision making
 Thus Accountant has to Explain
 What happened?
 Why it happened?
 What is likely to happen under specified conditions
 What would be the course of action ?

TCS Internal 16
 Process of Accounting

 Communicating
Refers to communicating the financial information to the users of
finance

TCS Internal 17
Users of Financial Information

FINANCIAL
STATEMENTS

TCS Internal 18
 Users of Financial Information – Internal Users

 Why management needs Financial Information?

 To review the firm's

Short term solvency
 Long term solvency
Activity (Utilisation of resources  Whether effective or not)
Profitability in relation to Turnover(Sales)
Profitability in relation to investments
To decide upon future course of action

TCS Internal 19
 Users of Financial Information – External Users

 Long term (Lenders E.g.: Banks Offering loan) / Short term

Creditors
 To determine whether their principals and interest components
would be timely repaid
 Whether they should extend,
maintain or restrict the flow of
credit to the enterprise.

Employee Groups
 To judge the ability of the firm for paying higher
wages
 Its Growth prospects

TCS Internal 20
 Branches of Accounting

 Financial Accounting
 Cost Accounting
 Social Responsibility Accounting

TCS Internal 21
 Financial Accounting

 Recording of financial events , analyzing & communicating them to

interested parties
 Viewing financial performance
 Determining financial position

TCS Internal 22
 Cost Accounting

 Mainly concerned with costing aspects of a Product/Service

 Ascertaining, recording and analyzing cost
 To Control costs
 Taking effective decisions

TCS Internal 23
 Social Responsibility Accounting

 Organization uses the resources that belong to society

 So in turn even business have to contribute back to the society
 This branch of accounting accounts for social responsibility aspects.
 It is a process of identifying, measuring & communicating the social effects
of business decisions
 Difficult to measure as it cannot be sometimes measured it terms of money
 Includes Accounting for environment and ecology

TCS Internal 24
 Accounting Terminologies - Debtors

 Refers to persons to whom goods & services are provided

 Amounts are due for goods/services provided
 E.g: 100 units sold to Mr. X for Rs.5/- each
Thus Mr. X would be termed as debtor for Rs.500/-

 For cash transaction will debtors come into picture

 In cash transactions amounts are immediately received

Thus nothing is due from anyone in cash transaction
 Thus we infer that only for credit transaction debtors would be created

TCS Internal 25
 Accounting Terminologies - Creditors

 To whom amounts are due

 May be due for goods /Services
 Purchase of raw materials(Current Assets) or Purchase of Machinery(Fixed
Assets  Both are creditors
 E.g:100 units purchased from Mr. Y for Rs 6/- per unit on credit.
Mr. Y would be creditor for RS.600/-

TCS Internal 26
 Main Components

Expenditure

Income Assets

Equity Accounting Liabilities

TCS Internal 27
 Equity

 Owner's Funds
 Contribution of shareholders
 Money put in by the owners
 Also includes assets brought into business by the owners

TCS Internal 28
 Incomes

 Income :Earned from sale of goods & services

(i.e. Business Income)

TCS Internal 29
Incomes

INCOME ( Our Revenue)

Business Income Non- Business Income

From selling Goods /Services Lending of Business Assets

E.g.:
Consultancy Eg.: Bank
fees, Selling Interest, Rent
Goods
TCS Internal 30
 Expenditures

 Expenses: Amount spent in course of business

(E.g.: Rent, Salaries etc)

Capital Expenditure

Expenditure

Revenue Expenditure

TCS Internal 31
 Expenditures

EXPENSES ( Our Outflow )

Deferred
Capital Expenditure Revenue Expenditure Revenue
Expenditure

Obtaining Asset for Benefits spread

Business Future Day to day expenses over future
Benefits years

E.g.: Purchase Eg.: Electricity, Eg.:

of Machinery Telephone Bill, Advertisement
Rent paid.

TCS Internal 32
Examples Of Revenue Expenses

TCS Internal 33
Capital Expenditures

TCS Internal 34
 Profit/Loss Equation
 PROFIT = Income ( - ) Expenses
i.e. Excess of Income Over Expenses

Profit (Increases) = When Income Increases/

Expenses Decreases

Profit (Decreases) = When Income Decreases/

Expenses Increases

 LOSS = Expenses ( - ) Income

i.e. Excess of Expenses over Income

TCS Internal 35
 Assets

 ASSETS: Something valuable that an entity

owns Required for  generating
income

Fixed Assets Current Assets

Land &
Cash/Bank
Building

Machinery Inventory

Debtors
TCS Internal 36
Assets

TCS Internal 37
 Liabilities

 Liabilities: Obligations of business i.e. Payables

 Current liabilities  payable within one year

(E.g.: Creditors , Salaries)

 Long-term liabilities  payable over a

longer period.( E.g.: Loans )

TCS Internal 38
 Accrual System -Double Entry System

 For Ages accountants are using the method called as Double Entry System
 It means each amount would be recorded in atleast 2 accounts
 For Each transaction there would be 2 aspects
First  Receiving Aspect / Incoming Aspect /Expenses/Loss Aspect

Debit Aspect

Second  Giving Aspect / Outgoing Aspect /Income/Gain Aspect

Credit Aspect

 For every debit there should be one

credit
TCS Internal 39
Accounts

“Debit” refers to the

Title left side

Debit

TCS Internal 40
 Accounts
Credit refers to the
right side

Title
Debit Credit

TCS Internal 41
 Rules Of Debit And Credit For Assets

 Asset accounts have debit balances

 Increased by debits and
 Example: Cash
CASH A/c

+
DEBITS INCREASE

TCS Internal 42
 Rules Of Debit And Credit For Liabilities

 Liability, Equity accounts have credit balances

 Increased by credits
 Example: Creditors

CREDITORS A/c

+
CREDITS
INCREASE

TCS Internal 43
 Rules Of Debit And Credit For Revenue

 Revenue accounts Have credit balances

 Increased by credits

REVENUE ACCOUNTS

+
CREDIT
BALANCE

TCS Internal 44
 Rules Of Debit And Credit For Expenses

 Expense accounts Increased by debits

 Have debit balances

EXPENSE ACCOUNTS

+
DEBIT
BALANCE

TCS Internal 45
 RULE OF DEBIT & CREDIT

 For each transaction

 Total debits will equal total credits
TRANSACTION

TOTAL TOTAL
DEBITS CREDITS

TCS Internal 46
Types Of Accounts

Personal Accounts

Real Accounts

Nominal Accounts

TCS Internal 47
 Personal Accounts

 Accounts of various persons

Artificial/Legal
Natural Person Persons
E.g.: Debtors, E.g.: Limited
Creditors Company, Bank, etc.

Accounting Entry
DEBIT the RECEIVER
CREDIT the GIVER
TCS Internal 48
 Real Accounts

Fixed Assets Investments

(E.g.:Machines, (E.g.:Shares,
Building) Securities)

Current Assets Intangible

(E.g.:Cash, Assets
(E.g.:
Bank, etc.) REAL Goodwill)
ACCOUNTS

Accounting Entry
Debit what comes in
Credit what goes out
TCS Internal 49
 Nominal Accounts

Nominal
Accounts

Incomes Gains Losses Expenses

Accounting Entry
Debit  Expenses and Losses
Credit  Gains and Incomes

TCS Internal 50
 Easy To Remember

 Generally following Accounts Are debited when increased

TCS Internal 51
 Easy To Remember

 Generally following types of accounts are increased with a credit

G •Gains

I •Incomes

R •Revenues

L •Liabilities

S •Stockholder’s Equity
TCS Internal 52
 Case Studies
CASE STUDY 1:

Identify accounts of ABC Corporation with normal debit

balances.
1. Creditors for 6. Car
machinery 7. Commission paid
2. Electricity Exps 8. Capital
3. Interest payable on 9. Investments
loan
4. Salary paid
5. Loans Taken

TCS Internal 53
 Case Studies
CASE STUDY 2:

Identify accounts of ABC Corporation with normal credit

balances.
1. Salary Payable 6. Creditors
2. Fuel expense 7. Salary Paid
3. Loan payable 8. Capital
4. Sales revenue 9. Investments
5. Commissions 10. Bank Interest
expenses Received

TCS Internal 54
 Accounting Principles/Concepts/Assumptions

 Why are Principles / Concepts /Assumptions are

required.??
Imagine that you are a business owner, and you
take copies of your financial records to
six different accountants. You ask each one to
calculate your profit for the year. A
fortnight later they each provide you with their
answers. There are six different profit figures,
with very wide variations between them. What
impression do you now have of
the accounting profession?

 To avoid this …various principles /concepts

&assumptions are required….

TCS Internal 55
 Few Concepts

 Accounting Entity Assumption

 Accounting Period Assumption
 Matching Principle

TCS Internal 56
 Accounting Entity Assumption

 Business is treated as a separate entity

 Distinct from its owners
 Distinction would be made between
1. Personal transactions & Business transactions
2. One business entity and other business entity

 Why this concept?

Answer : To ascertain profits and business position correctly
E.g:If personal expenses of proprietor Rs.10000/- are
shown in profit and loss account of the company
 It will result in company’s profit less by Rs.10000/-

TCS Internal 57
 Accounting Entity Assumption

If Proprietor’s

expenses not
included

If Proprietor’s
expenses
included

TCS Internal 58
 Accounting Period Assumption

 Known As Periodicity Assumption – Time Period Assumption

 According to this assumption the economic life of entity is split into
specific periodic intervals  Known as Accounting Periods
 Usually for external reporting the period is 12 months
 For internal reporting enterprise can prepare for any time period
even shorter than 12 months
 This facilitates comparison, easier decison making

TCS Internal 59
 Matching Principle

 Basically based on Accrual Concept

 Thus disregards the actual receipt or payment of money
 Gives rise to following

TCS Internal 60
 Prepaid Expenses

 Prepaid expenses are those expenses which have been paid during
the current accounting period BUT the benefit of which will be
received in subsequent accounting period.

ASSETS...

 So Prepaid Insurance should be of which type of Account

 Example
Fire Insurance premium of RS.720/- paid on 01-Oct-2012 a policy
which will expire on 30-Sep-2013.Accounts will be closed on 31-Mar-
2013.

TCS Internal 61
 Prepaid Expenses

Rs 720/-
01-Apr-2012 To 31-Mar-2013 01-Apr-2013 To 31-Mar-2014

01-OCT-2012 TO 31-Mar-2013 01-APR-2013 TO 30-SEP-2013

RS 360/- RS 360/-

TCS Internal 62
 Accounting Entry for Prepaid Expenses

 Accounting Entries
1. Insurance A/c Rs.720/-
To Bank A/c Rs.720/-

2. Prepaid Insurance A/c Rs.360/-

To Insurance A/c Rs.360/-

3. Entry in next year i.e. 01-Apr-2013 to 31-Mar-2014

Insurance A/c Rs. 360/-
To Prepaid Insurance A/c Rs.360/-

TCS Internal 63
 Outstanding Expenses

 Outstanding Expenses refer to those expenses which have been

incurred but not paid during the current period
 Example : Telephone Expenses for the month May paid in June
So in month of May telephone expenses would be outsanding
 So Outstanding expenses will be categorized into which type of A/c

TCS Internal 64
 Outstanding Expenses -Accounting Entry

Telephone Expenses for the month May paid in June

So in month of May telephone expenses would be outsanding

 Entry in Month of May

Telephone Expenses A/c
To Outstanding Telephone Expenses A/c

 Entry in Month of June

Outstanding Telephone Expenses A/c
To Bank A/c

TCS Internal 65
 Accrued Income

 Accrued Income refers to that income which

 Has been earned but not received during the current
accounting year.

Example
Suppose a company gives a loan of Rs.10000/- @12% p.a. on
01/04/2012.During the year Interest was received only for 11
months.
1200 Accrued
10000*12%
Income

Received 1100 100 Not

Received

TCS Internal 66
 Accrued Income Accounting Entries

1. Bank A/c Rs.1100/-

To Interest on loan (Income) Rs.1100/-

2. Accrued Interest on Loan Rs.100/-

To Interest on loan (Income) Rs.100/-

Accounting Entry in next year when actual interest would be

received.
In next year would
Interest Income
3. Bank A/c Rs.100/- account be charged
(Credited)
To Accrued Interest Rs.100/- Why…???

TCS Internal 67
 Unaccrued Income

 Unaccrued income
 Is that income which has been received but not earned during
the year
Example
Suppose a loan is given on 01-Feb-2013 for 10000/- @ 12%
Interest was received for three months as on 31 March 2013
Total Interest received for 3 months = 300 (Interest)
Income
pertaining
for next
Actual amount Feb & Mar Apr year
pertaining to this Rs.200/- Rs.100/-
year

TCS Internal 68
 Accounting Entries

 Bank A/c Rs 300/-

To Bank Interest A/C Rs.200/-
To Unaccrued Bank Interest A/c Rs. 100/-

TCS Internal 69
 Lets discuss what's depreciation…???
What Is Depreciation..?

 Purpose is to allocate Assets Value to Assets Useful life

 Spread the cost of an asset over the span of several years
 In common, depreciation is the reduction in the value of an asset used for
business purposes during certain amount of time due to usage, passage of
time.
 Assets decrease in value year after year due to wear and tear or as time
passes by
This reduction in value of Fixed Assets is called

DEPRECIATION…

TCS Internal 70
 Illustration

 Illustration
1. Suppose a company owns a machinery worth Rs.500000/-
2. Estimated life 10 years

 Since machine is being used in business The value of machine is

reducing every year.
 Hence necessary to spread it cost over years
 The cost should be spread for the number of years the benefit is
expected to be received.
 Therefore in this case
Depreciation =500000/10 Yrs = 50000/-

TCS Internal 71
Causes Of Depreciation

Wear & Tear Disuse

Maintenance Depletion

TCS Internal 72
 Causes of Depreciation

 Wear & Tear:

Wear and tear means decrease in assets value, arising from its use in
business operations
 Disuse:
When a machine is kept continuously idle, it becomes potentially less
useful
 Maintenance:
When the machine is not maintained properly its condition deteriorates
 Depletion:
Depletion means physical reduction of natural resources by exhaustion
e.g.:mines, quarries, oil wells etc.

TCS Internal 73
 Depreciation Methods

 Calculation of Depreciation
 2 Basic types of Depreciation methods

Straight Written
Line Down
Method Method

Depreciation
Methods

TCS Internal 74
 Straight Line Method

 Called as Fixed Installment Method

 Same amount of depreciation is charged every year throughout the
life of the asset.
 Calculation Formula
 Amount Of Depreciation

Total Cost (-) Scrap Value

-----------------------------------
Estimated Life

TCS Internal 75
 Straight Line Method

 Case Study

 Machinery purchased at Rs.200000/-

Installation Costs @ Rs.10000/-
Estimated Life = 5 years
Scrap Value = 10000/-

Solution :
Total Costs = 200000+10000=210000
Amount Of Depreciation = (210000-10000) / 5
= 40000/- per year

TCS Internal 76
 Written Down Method

 Known as Diminishing Value Method

 Depreciation is charged at a fixed percentage each year on the
reducing balance
 The amount of depreciation goes on decreasing every year

 Case Study
 If the asset is purchased for Rs.2, 00,000 and depreciation is to be
charged at 10% p.a. on reducing balance method, then
 Depreciation for the 1st year = 10% on Rs.2, 00,000, i.e., Rs.20,000
 Depreciation for the 2nd year = 10% on Rs.1, 80,000
(Rs.2,00,000 –– Rs.20,000)

TCS Internal 77
 Accounting Entry For Depreciation

 For the amount of depreciation to be provided at the end of the

Year:
Depreciation A/c….. Dr.
To Asset A/c.

TCS Internal 78
 Profit/ Loss on Sale of Assets

 A business may dispose an asset when it is worn out

 Necessary to find the profit or loss on sale of asset
 This is done by comparing the selling price with the book value of the
asset.
 Book value = Cost Price - Total Depreciation provided till
date of sale

 If Selling Price > Book Value  Profit

 If Selling Price < Book Value  Loss

TCS Internal 79
 Case study

 Purchase Price of Machinery on 01-Apr-2007 =200000

 Estimated life =10 years
 After using for 3 years company decides to sell it
 Selling price 160000/-
 Depreciation rate straight line method

TCS Internal 80
 Solution for Straight Line Method

 Solution
Particulars Rupees

Cost Of Machinery 200000

Less: Depreciation 07-08 20000
Balance 180000
Less : Depreciation 08-09 20000
Balance 160000
Less: Depreciation 09-10 20000
Book Value 140000

Profit / Loss on sale = 160000-140000 =20000

TCS Internal 81
 Case study for WDV method

 Purchase Price of Machinery on 01-Apr-2007 =200000 /-

 Estimated life =10 years
 After using for 3 years company decides to sell it
 Selling price 110000/-
 Depreciation rate =10%
 Calculate Depreciation Written down method

TCS Internal 82
 Solution for WDV case study
Particulars Rupees
Cost Of Machinery 200000
Less: Depreciation 07-08 (20000)
Balance 180000
Less : Depreciation 08-09 (18000)
Balance 162000
Less: Depreciation 09-10 (16200)
Book Value 145800

PROFIT / LOSS = 110000-145800 = -35800

TCS Internal 83
 Source Documents (Evidence)

 Transaction source documents contain information about the nature

of
the transaction,
the date,
the amount and
the parties involved in it.
 Required for audit, tax assessment and serves as evidence in case of
dispute
 Various forms of source documents are invoice, cash memos,
receipts etc.

TCS Internal 84
 Process Of Accounting

• Transaction
1

• Recording in Primary Books

2

• Posting in Ledger (Secondary Books)

3

• Balancing of Ledger
4

• Preparation of Trial Balance

5

• Preparation of Final Books of A/C’s – P&L A/C & Balance

6 Sheet

TCS Internal 85
 JOURNAL

 Known as book of Prime Entry

 For recording day-to-day transactions
 Recorded as and when they occur
 Date wise records

TCS Internal 86
Posting to Ledger

After posting, the GENERAL

LEDGER accounts contains the
same information as in
JOURNAL, just in a different
format.

TCS Internal 87
 LEDGER

 Account wise details

 Summary of transactions of a particular account for a specific period

TCS Internal 88
LEDGER

TCS Internal 89
 Balancing of Ledgers of Assets & Liabilities
(OPENING
BALANCE)
DEBIT BALANCE-
ASSET

86000=[(100000+1000) – (5000+10000)]
Balance of 86000/- would be carried forward in next
period.
In case of year end balance it would get reflected in
Balance sheets.
TCS Internal 90
 Balancing For Incomes & Expenses Ledgers

 All expenses and incomes accounts would be balanced in this

way
 The balances will get transferred to Profit & Loss A/c

TCS Internal 91
 Process Of Accounting

• Transaction
1

• Recording in Primary Books

2

• Posting in Ledger (Secondary Books)

3

• Balancing of Ledger
4

• Preparation of Trial Balance

5

• Preparation of Final Books of A/C’s – P&L A/C & Balance

6 Sheet

TCS Internal 92
Trial Balance

Credits
Debits

The trial balance is used to

verify that the total of the debit
balances is equal to the total of
the credit balances.

TCS Internal 93
Types Of Errors

Errors Of • Partial Omission

Omission • Complete Omission

Errors Of • Wrong Recording

• Wrong Posting
Commission • Wrong Balancing
• Wrong Casting

Error Of Principle
Compensating
Errors

TCS Internal 94
Errors Of Omission

 A transaction is not at all

recorded by mistake

 Examples
Goods purchased on credit
not
recorded
Asset sold apparently
omitted to be recorded
Why …???
Because neither aspect of
transaction has been
recorded
Neither Debit nor Credit
TCS Internal 95
 Error Of Omission
Failure in posting to Ledger

TCS Internal 96
 Error Of Commission

Recording
Casting Posting
Error
Entered Error Errors
wrongly in Totaling Wrong Side
original book Mistake posting

Eg: Wrong
amount
Wrong
Eg:Purchases amount
of 500/-
recorded as
5000/-
Wrong
Account
Wrong
account

TCS Internal 97
 Error Of Principle

 Incorrect Allocation of Expenses or revenue

 Incorrect distinction between capital and revenue expenditures
 Eg: Expenses incurred as freight on new machinery are to be capitalised 
Means added to machinery account
But wrongly debited to freight Account  Would result in Increase in
Freight Expenses but reduced Depreciation.

TCS Internal 98
 Compensating Errors

 These errors arise when 2 or more errors are committed in such a

way that the net effect on debits and credits of accounts is
nullified
 Effect of one error is compensated by the effect of other errros

 Example : Total of purchases book is posted in ledger as 1000/- instead

of Rs.100/- .At the same time total of Sales Book's total is posted as 1000/-
instead of 1000/- by mistake.
Thus the effect is nullified.

 Thus trial balance will tally

BUT
At wrong amounts

TCS Internal 99
 Financial Statements

 Financial Statements are formal record of the financial activities

of the business for the stakeholders.

 Financial Statements consist of

 Profit And Loss Account
 Balance Sheet

TCS Internal 100

 Profit And Loss Account

 Account showing closing balances of expenses and incomes

 Closing balances are transferred from Respective ledger accounts
 The balancing figure depicts the NET PROFIT/LOSS
 It is transferred to BALANCE SHEET

TCS Internal 101

 Balance Sheet

 Statement showing the financial position of the company

 Balances of Assets and Liabilities
 Balances are transferred from respective ledgers of Assets and
Liabilities

TCS Internal 102

 Accounting Equation

The Accounting Equation

Assets = Liabilities + Owners Equity

The resources
owned by a
business

TCS Internal 103

Accounting Equation

The Accounting Equation

Assets = Liabilities + Owners Equity

The rights of
the creditors,
which
represent debts
of the business
TCS Internal 104
Accounting Equation

The Accounting Equation

Assets = Liabilities + Owners Equity

The rights of
the owners

TCS Internal 105

 Case Study

 CASE STUDY :

Suppose Mr A. is starting a new business.He brings in Rs.100000/- for

business which are deposited in Bank Account.

The Accounting Entry

Bank A/c Dr. 100000/-
To Capital A/c 100000/-

TCS Internal 106

 Case Study

 CASE STUDY :

Purchase of new machinery for Rs.25000/-.Money paid out of Bank

Account.

The Accounting Entry

Machinery A/c Dr. 25000/-
To Bank A/c 25000/-

TCS Internal 107

 Case Study

 CASE STUDY :

Purchase of Building by opting for loan from Bank Rs.100000/-.

The Accounting Entry

Building A/c Dr. 100000/-
To Bank Loan Payable A/c 100000/-

TCS Internal 108

 Case Study

 CASE STUDY :

Salary paid to employees through Bank account Rs.100000/-

The Accounting Entry

Salary A/c Dr. 100000/-
To Bank A/c 100000/-

TCS Internal 109

 Case Study

 CASE STUDY :

Salary payable to employees through Rs.100000/-.(Not paid yet)

The Accounting Entry

Salary A/c Dr. 100000/-
To Salary Payable A/c 100000/- ( Liability)

TCS Internal 110

 Case Study

 CASE STUDY :
Telephone bill received (Rs.500) on 30-Mar-2011 and paid on 05-
Apr-2011

The Accounting Entry

30-MAR-2011
Telephone Exp A/c Dr. 500/-
To Telephone Exp Payable A/c 500/- ( Liability)

On Actual payment (05-APR-2011)

05-APR-2011
Telephone Exp Payable A/c Dr. 500/-
To Bank A/c 500/-

TCS Internal 111

 Case Study

 CASE STUDY :

Services provided to clients . Rs.20000/-

The Accounting Entry

Debtors A/c Dr. 20000/-
To Revenue A/c 20000/-

TCS Internal 112

 Case Study

 CASE STUDY :

Debtors paid back Rs.20000/-

The Accounting Entry

Bank A/c Dr. 20000/-
To Debtors A/c 20000/-

TCS Internal 113

Thank
You………..

TCS Internal 114