Basics of Accounting

Accounting Equations (AE)

Effect Of Business Transactions on AE Rules of Business Transactions Classification of Accounts Rules of Accounts

Journal Entry

Accounting Equations Assets = Liabilities + Capital

Capital = Assets - Liabilities

Liabilities = Assets - Capital

Assets = Total Equity

1)Commencement Of Business - Ram Starts his business with capital of Rs 1,00,000

2)Purchase of an Asset - Ram purchased furniture for cash Rs.10,000 3)Purchase of an asset on credit - Ram purchases an asset of Rs.20,000 on credit from Shyam 4)Payment to Shyam - Cash Rs.5,000 paid to Shyam 5)Drawings for personal use - Ram withdrew Rs.15,000 for his personal use 6)Salary paid Rs.1,000 7)Cash Purchase - Goods worth Rs 40,000 purchased for Cash 8)Goods worth Rs.40,000 sold for cash for Rs 60,000 9)Rent outstanding Rs.500

Rules of Account Equation

Debit if increase in asset & credit if decrease in asset Credit if increase in capital & debit if decrease in capital
Credit if increase in liabilities & debit if decrease in liabilities Credit if there is increase in income & debit if decrease in income

1)Commencement Of Business Ram Starts his business with capital of Rs 1,00,000

Assets Cash

Rs Liabilities Rs 100000 Liabilities

Capital Rs 0 Ram's capital 100000

B/S as on 28/07/2011

Liabilities Amount Assets Ram's capital 100000 Cash

Amount 100000

2)Purchase of an Asset Ram purchased furniture for cash Rs 10,000

Assets Cash Furniture Total

Rs

Liabilities Rs 90000 Liabilities 10000

Capital Rs 0 Ram's capital 100000

100000
B/S as on 28/07/2011

100000

Liabilities Amount Assets Amount Ram's capital 100000 Cash 90000 furniture 10000 Total 100000 100000

3)Purchase of an asset on credit Ram purchases an asset of Rs20000 on credit from Shyam

Assets Cash Furniture Asset Total

Rs

Liabilities Rs Capital Rs 90000 Shyam 20000 Ram's capital 100000 10000 20000 120000 20000 100000

B/S as on 28/07/2011

Liabilities Amount Assets Amount Ram's capital 100000 Cash 90000 Shyam 20000 furniture 10000 Asset 20000 Total 120000 120000

4)Payment to Shyam Cash Rs 5000 paid to Shyam

Assets Cash Furniture Asset Total

Rs

Liabilities Rs Capital Rs 85000 Shyam 15000 Ram's capital 100000 10000 20000 115000 15000 100000

B/S as on 28/07/2011

Liabilities Amount Assets Amount Ram's capital 100000 Cash 85000 Shyam 15000 furniture 10000 Asset 20000 Total 115000 115000

5)Drawings for personal use Ram withdrew Rs15000 for his personal use

Assets Cash Furniture Asset Total

Rs

Liabilities Rs Capital Rs 70000 Shyam 15000 Ram's capital 85000 10000 20000 100000 15000 85000
B/S as on 28/07/2011

Liabilities Amount Assets Ram's capital 85000 Cash Shyam 15000 furniture Asset Total 100000

Amount 70000 10000 20000 100000

6)Salary paid Rs 1000

Assets Cash Furniture Asset Total

Rs

Liabilities Rs Capital Rs 69000 Shyam 15000 Ram's capital 84000 10000 20000 99000 15000 84000

B/S as on 28/07/2011

Liabilities Amount Assets Amount Ram's capital 84000 Cash 69000 Shyam 15000 furniture 10000 Asset 20000 Total 99000 99000

7)Cash Purchase Goods worth Rs 40000 purchased for Cash

Assets Cash Furniture Asset Stock Total

Rs

Liabilities Rs Capital Rs 29000 Shyam 15000 Ram's capital 84000 10000 20000 40000 99000 15000 84000

B/S as on 28/07/2011

Liabilities Amount Assets Ram's capital 84000 Cash Shyam 15000 furniture Asset Stocks Total 99000

Amount 29000 10000 20000 40000 99000

8)Goods worth Rs40000 sold for cash for Rs 60000

Assets Cash Furniture Asset Stock Total

Rs

Liabilities Rs Capital Rs 89000 Shyam 15000 Ram's capital 104000 10000 20000 0 15000 104000

119000

B/S as on 28/07/2011

Liabilities Amount Assets Ram's capital 104000 Cash Shyam 15000 furniture Asset

Amount 89000 10000 20000

Total

119000

119000

9)Rent O/S Rs 500

Assets Cash Furniture Asset Stock Total

Rs

Liabilities Rs Capital Rs 89000 Shyam 15000 Ram's capital 104000 10000 Rent O/S 500 20000 0 15500
B/S as on 28/07/2011

119000

103500

Liabilities Amount Assets Ram's capital 103500 Cash Shyam 15000 furniture Rent O/S 500 Asset

Amount 89000 10000 20000

Total

119000

119000

Double Entry System - Classification of Account

TYPES OF A/C

PERSONAL A/C

IMPERSOANL A/C

NATURAL PERSONS PERSONAL A/C

ARTIFICIAL PERSONS PERSONAL A/C

REAL A/C REPRESENTATIVE PERSONAL A/C

NOMINAL A/C

TANGIBLE REAL A/C

INTANGIBLE REAL A/C

Classify the following into personal, real and nominal accounts. A single entry can have one or more classifications. Transaction . A/Cs. A)Rent Paid. B)Salaries Paid. C)Interest recvd. D)Dividend recvd. E)Machinery Sold . F)O/S for Salaries. A/Cs involved. a)Rent a/c. b)Cash a/c. a)Salaries a/c. b)Cash a/c. a)Cash a/c. b)Interest a/c. a)Cash a/c. b)Dividend a/c. a)Cash a/c. b)Machinery a/c. a)Salary a/c. b)O/S a/c. a)Lighting a/c. b)Cash a/c. a)Suresh a/c. b)Cash a/c. a)Telephone a/c. b)Cash a/c. Nature of 1)Nominal a/c. 2)Real a/c. 1)Nominal a/c. 2)Real a/c. 1)Real a/c. 2)Nominal a/c. 1)Real a/c. 2)Nominal a/c. 1)Real a/c. 2)Real a/c. 1)Nominal a/c. 2)Personal a/c. 1)Nominal a/c. 2)Real a/c. 1)Personal a/c. 2)Real a/c. 1)Nominal a/c. 2)Real a/c.

G)Lighting.
H)Paid to Suresh. I)Telephone Charge Paid.

DOUBLE ENTRY SYSTEM

TYPES OF A/C

PERSONAL A/C

IMPERSOANL A/C

DEBIT THE RECEIVER

CREDIT THE GIVER

REAL A/C

NOMINAL A/C

DEBIT WHAT COMES IN

CREDIT WHAT GOES OUT

DEBIT ALL EXPENSES AND LOSSES

CREDIT ALL INCOMES AND GAINS

Three Golden Rules of Accounting Personal Account

Debit the receiver and Credit the giver.

Real Account

Debit what comes-in and Credit what goes-out.

Nominal Account Debit all expenses and losses and Credit all incomes and gains

Journal
A Journal is a book or computer file in which monetary transactions are entered the first time they are processed. This journal lists transactions in chronological sequence by date prior to a transfer of the same transactions to a ledger in the process of bookkeeping. According to Cropper: A journal is a book, used to record, classify or sort out transactions in a convenient form to record their subsequent entry in ledger.

Journal
Objectives: 1) Correct Knowledge 2) Complete Record 3) Proof 4) Helpful in Auditing 5) Helpful in location Error 6) To fulfill the requirement of Ledger

Date Particulars L.F Dr Amount (Rs) Cr Amount (Rs) 28/07/2011Name of the a/c to be debited page no of the ledger amount to be debited Name of the a/c to be credited amount to be credited

Rules of Journalizing:
1. Proper Performa.

2. Name of journal.
3. Sorting of two a/cs.

4. Uses of Dr. and To.

5. On personal accounts.

6. Write narrations.
7. Totalling of amounts.

Sample: Ram started business with a capital of Rs 50,000/A/Cs involved: cash a/c and Ram's capital a/c Cash a/c is a real and Ram's capital a/c is a personal a/c

Date Particulars LF 28/07/2011 Cash A/c Dr. To Ram's Capital a/c (being biz. Started with Rs 50,000)

Dr (Rs) Cr (Rs) 50000 50000

Purchased furniture for Rs 1,500/- A/Cs involved: Furniture a/c and Cash a/c Both are real a/cs

Date Particulars 28/07/2011 Furniture a/c Dr. To Cash a/c (being furniture purchased)

LF

Dr (Rs) Cr (Rs) 1500 1500

Opened an a/c with a bank depositing Rs5,000/A/Cs involved: Bank a/c and Cash a/c Bank a/c is personal and cash a/c is real

Date Particulars LF 28/07/2011 Bank a/c Dr. To Cash a/c (being amount deposited to Bank)

Dr (Rs) Cr (Rs) 5000 5000

Purchased goods for Rs20,000/A/Cs involved:Purchase a/c and Goods a/c Both are real a/cs

Date Particulars LF 28/07/2011 Purchase a/c Dr. To Goods a/c (being goods purchased for cash)

Dr (Rs) Cr (Rs) 20000 20000

Sold goods for Rs 8,000/A/Cs involved: Sales a/c and Cash a/c Both are real a/cs

Date Particulars 28/07/2011 Cash a/c Dr. To Sales a/c (being goods sold for cash)

LF

Dr (Rs) Cr (Rs) 8000 8000

Purchased goods from Sunil on credit for Rs.12,000/A/Cs involved: Purchase a/c and Sunil's a/c Purchase a/c is a real a/c and Sunil's a/c is a personal a/c

Date Particulars LF 28/07/2011 Purchase a/c Dr. To Sunil's a/c (being goods purchased from Sunil)

Dr (Rs) Cr (Rs) 12000 12000

Paid Sunil Rs 7000/- on account A/Cs involved:Sunil's a/c and Cash a/c Sunil's a/c is a personal a/c and cash a/c is a real a/c

Date Particulars 28/07/2011 Sunil a/c Dr. To Cash a/c (being amount paid to Sunil)

LF

Dr (Rs) Cr (Rs) 7000 7000

Paid rent for the shop Rs 800/A/Cs involved: Rent A/C and cash A/C Rent a/c is nominal a/c and cash a/c is a real a/c

Date Particulars 28/07/2011 Rent a/c Dr. To Cash a/c (being rent Paid)

LF

Dr (Rs) Cr (Rs) 800 800

Paid salary to clerk Rs500/A/Cs involved: Salary A/C and Cash A/C Salary is a nominal a/c and cash is a real a/c

Date Particulars 28/07/2011 Salary a/c Dr. To Cash a/c (being salary Paid)

LF

Dr (Rs) Cr (Rs) 500 500