A Seminar Report on

Management Accounting
CHAPTER 2 (Basic Accounting Terminologies)

By,

(MBA-1)

Definition of Accounts

An Account is defined as a Systematic and summarized record of transaction relating to: 1. A person 2. A property 3. Expenses and gains

Classification of Accounts
Accounts

Personal

Impersonal

Natural

Artificial

Representative

Real

Nominal

There are two types of accounts: 1. Personal Account 2. Impersonal Account

1.

Personal Accounts:Personal accounts relate to persons, debtors or creditors. These are the accounts of

persons firms, companies, institutions etc.

Eg: credit customers, supplier of goods etc. Personal Account takes place only when There is a credit transaction When previous debit is settled

Rules for Double Entry of Personal Account Debit the receiver Credit the giver. There are three types of personal accounts: 1. Natural Personal Accounts 2. Artificial Personal Accounts 3. Representative personal Accounts
1.

Natural Personal Accounts:

It relates to the transactions between human beings.

2. Artificial Personal Accounts:

These accounts are also called as legal accounts. These accounts are related to business purpose. Business entities are treated to be separate entities. They are considered as persons in the eyes of law for dealing with other persons. Eg: Government, companies, clubs, co-operative societies.

3. Representative Personal Accounts:

There are not in the name of any organization but are representated as personal accounts. E.g. Outstanding Liability Accounts, Prepaid Accounts, Capital Accounts, Drawings Accounts.

1.

Impersonal Accounts:These are the accounts which are not personal such as machinery, cash account, real account. These types of account are again divided into two types of accounts: 1. Real accounts 2. Nominal accounts

1. Real Accounts:
Accounts in respect of properties, assets or possessions of businessman are called Real Account. E.g.: Accounts regarding land, building, investment, fixed deposits etc. Cash in hand, bank accounts are also real. Rules for Double Entry for Real Accounts Debit What comes in Credit What goes out

2. Nominal Accounts: Accounts which relate to expenses, losses, gains, revenues etc. The net result of all nominal accounts is reflected as profit or loss which is transferred to capital account. Nominal accounts are therefore temporary. E.g.: Salary Account, Interest Paid Account, Commission Received Account. Rules for Double Entry of Nominal Accounts Debit all Expenses and Losses Credit all Income and Gains

Journal
Journal is derived from the French word jour which means a day. Journal therefore means a daily record. A Journal is a book of Original Entry. First all transactions are recorded in journal and then these business transactions are subsequently posted in the ledger.

Definition Of Journal:
A Journal is a book of original entry in which the transactions are recorded in a particular way by following the rules of debit and credit. -E.L.Kohler

Importance Of Journal:
1. It contains record of various transactions that take place every day.
2. It provides a complete record of transactions, as both the aspects of transactions are

recorded at one place.

3. Since the narration ( a brief information about the journal entry) of a transaction is

written in the journal, there is no need to give explanation in the ledger.

4. It facilitates cross - checking of transactions. 5. It provides data wise, up to-date record of business transactions.

Contents of Journal:
1.

Date column :
In this column the date of transaction is written. The year is also written in the beginning of the page. Therefore it is not necessary to write the year of each transaction, as it is common for each transaction. Generally this transaction is divided into two parts namely for writing the month and the date of the transaction.

2.

Particular column:
Before the details are written in this column, the book-keeper decides as to what accounts are affected and which account is to be debited and which account is to be credited. The account to be debited is written on the first line just near the date column. On the second line account to be created is written. On the third line a brief description of transaction is written which is known as narration.

3.

Ledger column:
While recording the transaction nothing has to be written against this column. The journal entries are required to be posted to the debit and credit of accounts in the ledger. At that time the page number of the ledger on which the two accounts are appeared are entered against this column.

4.

Debit Amount column:

In this column the amount of transaction is written against the word or in particulars column on that line.

5.

Credit Amount column:

In this column the amount of transaction is written against the name of account credited on that line.

Procedure for Journalizing the Transactions:

1. Record the transaction in the Waste Book. 2. Determine the nature of transaction 3. Determine the two aspects of the transaction 4. Determine the types of accounts affected in a transaction 5. Determine how the accounts are affected

6. Apply the rule of journalizing and decide which account is debited and which is credited.

Ledger
A Ledger is the principle book of accounts. All the entries made in the journal must be posted in the ledger. A Ledger is a bound book. It contains many pages which are called folios. These pages are consecutively numbered. For each account, a separate page is kept. It is generally an alphabetic index. The ledger is a book containing many ledger accounts. It is a group or set of accounts. In other words, ledger is a book in which various accounts (personal, real and nominal) are opened.

Its source of information are the books of original entry called journals. Usually only one account is placed on each page of the ledger. The ledger helps to achieve the following results: 1. All personal accounts would show how much money is payable to creditors and receivable from debtors.
2. The real accounts would show how the value of assets and properties. 3. The nominal accounts would show the sources of income and the amount spent on

various heads of expenses.

Format of Ledger:
1. Date column 2. Particulars column 3. Folio 4. Debit amount column 5. Credit amount column