Account...

an individual accounting record of

increases and decreases in a
specific Asset, Liability, or
Stockholders’ Equity item.

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 TYPES OF ACCOUNTS
 PERSONAL : Accounts in the name of Persons (
Ravi, Mohan etc.) or Artificial Persons ( Name of
a Company or Bank )

 REAL : Accounts of Assets ( Machine, Furniture,

Land etc.) and Liabilities ( Capital, Bills Payable,
Loan etc.)

 NOMINAL : Accounts of Expenses ( Salaries,

Rent, postage etc.) and Incomes ( Sales, Interest,
Dividends etc.)
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 TYPES OF ACCOUNTS
 PERSONAL : Includes Capital, Drawings, Bank,
Bank Overdraft, Debtors, Creditors, Salary
Outstanding*, Insurance Prepaid*
When any word (as a prefix or suffix) is added to a
Nominal Account, it becomes a Personal Account.
For Ex:
Rent is Nominal Accounts whereas Outstanding
Rent and Prepaid Rent are Personal Accounts.
Similarly for Salary, Commission, etc.

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 GOLDEN RULES OF
ACCOUNTING
 Debit the Receiver and Credit the Giver
( Applicable on PERSONAL ACCOUNT )

 Debit what Comes in and Credit what Goes out

( Applicable on REAL ACCOUNT )

 Debit all Expenses and Credit all Incomes

(Applicable on NOMINAL ACCOUNT )
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 Debits

Increase assets
and expenses
Decrease
liabilities,
common stock
and revenues

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Credits

Decrease assets
and expenses
Increase liabilities,
common stock and
revenues

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 LET’S DO PRACTICE
Transactions Accounts Nature of Debit/Credit
Involved Account
Rent paid Rent A/c Nominal Debit
Cash A/c Real Credit
Interest received Cash Real Debit
Interest Nominal Credit
Furniture Furniture Real Dr.
purchased Cash Real Cr.
Salary Salary Nominal Dr.
Outstanding Salary o/s Personal Cr.
Paid to Suresh Suresh Personal Dr.
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Cash Real Cr.
 Illustration 3-16

Analyze each Enter each Transfer journal

transaction transaction in a information to
journal ledger accounts
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 The Recording Process
 Analyze each transaction
 Enter information in a journal
 Transfer the information to the
appropriate accounts

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 The Journal...
is an accounting record where the
transactions are recorded in chronological
order.

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 JOURNAL
 It records all the transactions of a business
into the order in which they occur. It is a
book containing chronological record of all
the transactions.

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 JOURNAL
DATE PARTICULARS L.F. DEBIT CREDIT

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JOURNAL

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Let’s Look at Few Transactions!

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Let’s Look at Few Transactions!

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Let’s Look at Few Transactions!

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Let’s Look at Few Transactions!

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 Ledger

A ledger is a book containing accounts in

which the classified and summarized
information from the journals is posted as
debits and credits. It is also called the second
book of entry.

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Ledger

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 Posting

Transferring information from

the journals to the general ledger
accounts

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 Posting Entries

2004

Account CASH Acct 1010

Date Particular Amt Particular Amt
Oct. 1 To Common Stock 10000

Account COMMON STOCK Acct 3010

Date Particular Amt Particular Amt
By Cash 10000
 Posting Entries

2004

Account CASH Acct 1010

Date Particular Amt Particular Amt
Oct. 1 To Common Stock 10000

Oct. 2 By Purchase 5000

Account COMMON STOCK Acct 3010

Date Particular Amt Particular Amt
Oct. 2 To Cash 5000
 Trial Balance
A list of all the accounts and their balances at
a given time.
It serves to prove the
mathematical equality
of debits and credits
after posting.

It aids in the
preparation of financial 23
statements.
 Sierra Corporation
Trial Balance
October 31, 2004
Debit Credit
Cash $15,200
Advertising Supplies 2,500
Prepaid Insurance 600
Office Equipment 5,000
Notes Payable $ 5,000
Accounts Payable 2,500
Unearned Service Revenue 1,200
Common Stock 10,000
Dividends 500
Service Revenue 10,000
Salaries Expense 4,000
Rent Expense 900
$28,700 $28,700
 Sources

Secondary sources on google

Books of various authors

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