Basic Accounting procedures-journal Entries
Double Entry System
ð Double Entry system of
Book-keeping is accounting technique. It is scientific system of accounting.
ð According to it every
transaction has two fold aspect-debit and credit and both aspects are to be
recorded in books of accounting.
ð Suppose we purchase
furniture ofRs. 5,00,000/-. Here two things are happening-- furniture coming
into business and cash is reducing.
ð So in double entry system
both the aspect are recognized and recorded.
Advantages of Double Entry system are
as follows:-
(1) By using this system accuracy of
accounting can be obtained through trial balance.
(2) The profit and loss of business
can be determined.
(3) Financial position of business
can be known at the end of accounting period by preparing balance sheet.
(4) Accounting records can be kept
in details which help in control.
TRADITIONAL CLASSIFICATION OF ACCOUNTS:
a)
Personal Accounts:-These accounts relate to natural persons(Ram, Mohan
etc.), artificial/ Legal persons( Govt. companies, Clubs, co-operative
societies etc and representative persons( capital a/c, Drawing A/c, Prepaid
a/c, outstanding exp A/c.
b) Impersonal
Accounts:
i.
Real Accounts:- These accounts relate to the tangible or intangible real
assets (i.e. accounts of properties and assets): and ii. Nominal Accounts:-These accounts relate to incomes, expenses or
losses.
RULES( imp):—The following three are the basic rules ( traditional
method)for recording the transaction:—
i.
Personal Accounts :- Debit the receiver and credit the giver.
ii.
Real Accounts :- Debit what comes in and credits what goes
out.
iii.
Nominal Accounts :- Debit all exp. (and losses) and credit
all incomes & gains.
The left-hand side of an account is called the debit
side and the right-hand side of an account is called credit side.
ACCOUNTING EQUATION BASED CLASSIFICATION:
|
1. Assets Accounts |
➢ These accounts relate to tangible or intangible
real assets. Eg. Land A/c, Building A/c, Patents, Goodwill, trademark etc. |
|
2. Liabilities Accounts |
➢ These accounts relate to the financial obligations
of an enterprise towards outsiders. Eg. Trade Creditors, Bills Payable, Bank
Overdraft, Loans, Outstanding Exp. etc |
|
3. Capital Accounts |
➢ These accounts relate to owners of an enterprise.
Eg. Capital A/c, Drawings A/c. |
|
4. Revenue Accounts |
➢ These accounts relate to the amount charged for
goods sold or services rendered or permitting others to use enterprise’s
resources yielding interest, royalty or dividend. Ex. Sales A/c, Discount
Received A/c, Dividend Received A/c, Interest Received A/c. |
|
5. Expenses Accounts |
➢ These accounts relate to the amount incurred or
lost in the process of earning revenue. Ex. Purchase A/c, discount allowed
A/c, Royalty paid A/c, Interest Payable A/c, Loss by Fire A/c etc. |
Distinction between Real Account and Nominal
Account
|
Real Account ð These accounts relate to properties of
the business. ð These accounts are shown in Balance
Sheet. ð Closing balances of these accounts are
carried over to the next year as opening balances. ð These accounts indicate financial
position of the business. ð As per double entry rule, property
received is debited and property given is credited. |
Nominal Account ð These accounts relate to expenses,
losses, income and gains. ðThese accounts are shown in profit and
loss account. ð Closing balance of these accounts are
closed by transfer to profit and loss account. ð These accounts assist in calculating
profit and loss of the business. ð As per double entry rule expenses and
losses are debited and income and gains are credited. |
JOURNAL:A Journal is a book in which transactions are recorded in the order
in which they occur i.e. in Chronological order. A Journal is the primary books
of account under which all the transactions are recorded with complete
narration on the basis of three basic rules given for recording the
transactions. The process of recording a
transaction in a journal is called Journalizing. An entry made in the
journal is called a 'Journal Entry'. A journal entry is an analysis of all the
effects of a single transaction on the various accounts, usually accompanied by
an explanation. For each transaction, this analysis identifies the accounts to
be debited or credited.
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