include full information about accounting process

1. ACCOUNTING PROCESS

2. INTRODUCTION TO ACCOUNTING
Accounting may be defined as the process of recording, classifying, summarizing, analyzing and interpreting
the financial transactions and communicating the results.
The American Institute of Certified Public Accounts (AICPA) defined Accounting as “Accountancy is the art of
recording classifying and summarizing in a significant manner and in terms of money transactions and events
which are in part of at least a financial characters and interpreting the result there of”.
Again in 1966, AICPA defines Accounting as “The process of identifying, measuring and communicating
economic information to permit; informed judgment and decisions by the uses of accounts”.

3. ACCOUNTING PRINCIPLES
Accounting Concepts Accounting Conventions
a) Business entity
b) Going Concern
c) Money Measurement
d) Cost Concept
e) Accounting period
f) Duel aspect
g) Accrual Concept
h) Matching Cost
i) Realization
a) Disclosure
b) Materiality
c) Consistency
d) Conservatism

4. BRANCHES OF ACCOUNTING
Accounting has forms of branches as under :-
Accountancy
Financial
Accounting
Cost
Accounting
Management
Accounting
Tax
Accounting

5. The
Accounting
Process
1) Identification of Transaction
2) Preparation of Documents
3) Recording of Transaction in Journal
4) Posting to ledger
5) Preparation of Trial Balance
6) Passing Adjusting Entries
7) Preparation of Final A/Cs
Profit & Loss A/C
Balance Sheet
Fund Flow Statement
Cash Flow Statement

6. ACCOUNTING SYSTEM
Single Entry System Double Entry System
Accrual systemCash System

7. Single Entry System
• The single entry system appears to be time saving and economical but it is unscientific, having
number of defects.
• Under single Entry system only few personal accounts are kept, as nothings; Expenses / Income
accounts are totally ignored.
• This system is followed by sole proprietor, having total control on cash as well as on goods.
• However this system is not generally followed by any trader.

8. Double Entry System
• The Double entry system is based on scientific principle and is used universally by most of business
organizations
• Every business transaction involves exchange of equal values or benefits.
• Exchange means the act of giving or receiving one thing in return of the other thing or service or
benefit. Thus every transaction has two aspects i.e. receiving and giving.
• The receiving aspect is also known as the incoming aspect (Debit) and going aspect is known as
the outgoing aspect (credit).
• Under double entry system books of accounts can be maintained by either cash basis or accrual
basis.

9. Cash System of Accounting
• Under cash system of accounting entries are made only when cash is received or paid.
• No entry is made when amount is due for receipts or payments.
• Income is received is accounted irrespective of period for which relates.
• Similarly expenses are restricted to the actual payments made in cash, during the current period is
immaterial whether the payments have been made for previous year or subsequent year.
• This type of financial statement is suitable for very small business organization, for individual to
record his own transaction, for professionals like doctors, lawyers, Chartered Accountant etc.

10. Accrual System of Accounts
• This is also known as mercantile system of accounts.
• Under this system business transactions are recorded as and when it take place irrespective of
amount / cash received or paid.
• Income earned as well as expenses incurred are recorded related to the Particular period.
The following are the essential features of accrual basis.
a) Revenue is recognized on it is earned, irrespective of whether cash is received or not.
b) Costs are matched against revenues on the basis of relevant time period to determined
periodic income.
c) Costs which are not charged to income are carried forward. Any cost that lost its utility is
written off as a loss.

11. Account
• An account is summarized record or statement of all transactions relating to a particular person or
to a Assets or liability or income or expense.
• According to Koehler's Dictionary for accounts, An account has been defined as a formal record of
a particular type of transaction expressed in money.
DATE PARTICULARS JF AMOUNT DATE PARTICULARS JF AMOUNT
Dr. Cr._________________ Account

12. Classification of Account
Personal Accounts Impersonal Accounts
Real Accounts
Nominal Accounts
Valuation Accounts

13. Personal Accounts
• These accounts show the transactions with customers, suppliers, Money lenders, the banks and the
owner.
• For example: Aditya’s A/c, Chetan’s A/c, Mr. Hrishikesh and Co. Reliance Industries Ltd., Apna Bazar
Co-operative Society Ltd., Mumbai University, Dena Bank etc.
Real Accounts
Real accounts may be the following types.
1. Tangible real Accounts: These are accounts of such things which are tangible i.e. which can be seen
touched or felt physically. Example: Land, Building, Furniture, Cash etc.
2. Intangible real Accounts: These accounts represent such things which cannot be touched, seen or
felt physically. Example: Goodwill, Trade marks, Patent right etc.

14. Nominal Accounts
• Nominal Accounts includes accounts of all expenses, losses, incomes and gains.
• Nominal Accounts represent only services or uses.
Valuation Accounts
• Valuation accounts are accounts open to adjust values of assets e.g. provision for Depreciation,
Stock Reserve, Provision for doubtful debt A/c.

15. Personal Account Impersonal Account
Accounts
Real Account Nominal Account
Relating to persons
or Institutions.
Examples:
Akshay’s A/c,
Soham’s A/c,
Hitesh’s A/c,
Bank A/c, University,
School, Company
Firm etc.
Relating to
Assets or
property
Examples: Land &
Building A/c, Cash
A/c, Debtors A/c,
Stock A/c, Goodwill
A/c etc.
Relating to
expenses and
Incomes.
Examples: Salaries
A/c, Rent A/c,
Commission A/c,
Discount A/c etc.

16. Rules Of Debit & Credit
• The two sides of any account are arbitrarily distinguished. The left hand side of an Account is
called Debit side and Right hand side is called the Credit side.
• When entry on the left side is made it is called account is debited, and an Entry made on the right
hand side of account is called account is credited.
Golden Rules Of Debit & Credit
Debit the receiver,
Credit the giver
Debit what comes in,
Credit what goes out
Debit expenses or losses,
Credit Income & gains
A
Personal A/c
B
Real A/c
C
Nominal A/c

17. Personal Accounts
• The personal Account which receives the benefit is debited, while the personal account which gives
the benefit is credited.
• The rule means, if a person receives anything from the business, his account will be debited in the
books of business, and if person gives anything to the business, his account will be credited.
Real Accounts
• As a thing either comes in into business or goes out of business.
• Real account relates to things or property. Hence the rule says if anything is coming into business,
account of thing is to be debited and anything is going out of business account of that thing is to be
credited.

18. Nominal Accounts
• Being the accounts of losses and expenses or gains and incomes.
• The accounts of expenses or losses of the business are to be debited where as the accounts of
Incomes or profits are to be credited Exp. Paid salaries.
• Here Salary is on expenditure of the business and therefore Salary account is to be debited.
• In the transaction “Received Interest from A & Co” Interest is an Income of the business and hence
Interest Account is to be credited.
Payment of Salary, rent loss on sale
of Assets. Bad Debts etc.
Debit losses and expenses.
Received Commission. Interest
Discount etc.
Credit Incomes and Gains.
Nominal AccountsDr. Cr.

19. BOOKS OF ACCOUNTING
JOURNAL LEDGER TRIAL BALANCE FINAL ACCOUNT

20. JOURNAL
 It is essential in a business to record each and every transaction immediately after it takes place.
 To record transaction a separate book called “Journal” is maintain.
 To record non cash transactions like Credit Sales, Credit Purchases, Sales Returns, Purchase Returns. These
Books are called Subsidiary books.
 Journal can be defined as a subsidiary book in which all day-to-day monetary transactions of business
are recorded first as and when they take place in chronological order (i.e. date wise), in debit and credit
form and in a systematic manner.
 Journal is also known as “Prime Entry” or “Original Entry” book. Because transactions are first entered in
this book and then they are posted in the Ledger.

21. Date Particulars Voucher
No.
LF Dr.
Amt
(Rs.)
Cr.
Amt
(Rs.)
Layout of Journal

22. LEDGER
 It is principle book of accounts relating to a particular person or property or revenue or expenses are
recorded in summarize form.
 It contains all accounts i.e. set of accounts such as real, nominal and personal.
 Main function is to sort out all items from journal.

23. Date Particulars J.F. Amount Date Particulars J.F. Amount
Dr. Cr.

24. POSTING
 Every transaction is first recorded in book of original entry and then it is posted in to ledger.
 Posting is made on debit side account which is debited and also to credit side account which is
credited.
 Entry on debit side starts with ‘To’ whereas on credit side its starts with “by”.
 Name of credit account is written on credit side and name of debit account is written on debit
side.

25.  Each account in ledger may have same entries on debit side of account & credit side of accounts.
 Difference in total both sides termed as “ Balance Of Accounting”.
 Process of extracting balance and inserting it on lesser side of an account is called ‘Balancing’ or ‘Closing’
of accounts.
BALANCE AND BALANCING ACCOUNTS

26. TYPES OF BALANCE
 Debit - If the debit side of account is heavier then its credit side balance is debit balance.
 Credit - If the credit side of account is heavier then its debit side, balance is credit balance.

27. TRIAL BALANCE
• The fundament principle of double entry book keeping is that debit must be equal to credit. In other
words, debit aspect of any transaction is always equal to its credit aspect.
• A trial balance is a summary of all the ledger balances outstanding as on particular date.
• List of debit balances and credit balances should be equal. It said that Trial balance is tallied.
• When trial balance tallies it establishes the arithmetical accuracy of record.
• It is a statement prepared before preparing the final accounts.
• It is a link between books of account and final accounts i.e. the Trading & Profit & Loss A/c and
Balance Sheet.

28. Types of Trial Balance
Trial balances are of two types:
1. Gross Trial Balance
• Gross Trial Balance is prepared by taking all ledger account debit total and credit total, instead of
considering ledger balances, as on a particular date.
2. Net Trial Balance (concern with)
• Net trial balance is list of debit & credit balance, taken from ledger accounts on particular date.
• Normally, net trial balance is prepare, since it is transferred to final accounts and personal and real
accounts balance are carried forward from current year to subsequent year.

29. Sr.
No.
Name of Account Total debit
side (Rs.)
Total credit
side (Rs.)
1 Ketan‟s Capital 5,000 76,000
2 Opening Stock 10,000 -
3 Purchases 2,10,000 2,000
4 Sales 2,000 3,05,000
5 Sales Return 18,000 -
6 Expenses 27,000 -
7 Customers 1,20,000 26,000
8 Suppliers 12,000 80,000
9 Cash 6,000 -
10 U. C. Bank 96,000 17,000
5,06,000 5,06,000
Gross Trial Balance can be as under –

30. Net Trial Balance can be as under –
Sr.
No.
Name of Account Total debit
side (Rs.)
Total credit
side (Rs.)
1 Opening Stock 12,000 -
2 Capital - 1,02,000
3 Purchases 2,10,000 -
4 Purchase Return - 6,000
5 Sales - 3,11,000
6 Sales Return 4,000 -
7 Expenses 28,000 -
8 Plant & Machinery 1,20,000 -
9 Customers 80,000 -
10 Suppliers - 62,000
11 Cash 6,000 -
12 Bank balance 21,000 -
4,81,000 4,81,000

31. SOME IMPORTANT ITEMS AND THEIR BALANCES
Drawings Debit Balance
Purchases Debit Balance
Expenses Debit Balance
Carriage
Inwards
Debit Balance
Carriage
Outwards
Debit Balance
Stock (opening) Debit Balance
Interest Paid Debit Balance
Loan Given Debit Balance
Assets Debit Balance
Sales Return Debit Balance
Investments Debit Balance
Goodwill Debit Balance
Cash Debit Balance
Capital Credit Balance
Incomes Credit Balance
Loan Taken Credit Balance
Interest
Received
Credit Balance
Suppliers Credit Balance
Return
Outwards
Credit Balance

32. Example

33. Date Particulars Amount
Jan 1 Pandu started business with cash 20000
Jan 3 He opened a current account in the bank 5000
Jan 7 Purchased goods on credit from shubham and discount of
Rs100 was given
4000
Jan 10 Paid to shubham in full settlement 3900
Jan 13 Machinery Purchase 2000
Jan 16 Goods sold to swati 3000
Jan 18 Amount Received from swati 1000
Jan 20 Salaries Paid 700
Jan 23 Rent Received 300
Jan 28 Goods Purchased from Shrikant 4000
Jan 31 Depreciation on Machinery 700
Pass Journal Entries with the following information also prepare Ledger and Trial
Balance

34. Date Particulars L.F. Debit Rs. Credit Rs.
2006
Jan 1
Cash A/c Dr.
To Capital A/c
(Being Pandu started
business wit cash)
20000
20000
Jan 3 Bank A/c Dr.
To Cash A/c
(Being amount paid into
Bank)
5000
5000
Jan 7 Purchase A/c Dr.
To Shubham A/c
(Being goods purchase from
shubham)
3900
3900
Jan 10 Shubham A/c Dr.
To Cash A/c
(Being amount paid to
shubham who allowed
discount)
3900
3900
Journal:

35. Date Particulars L.F. Debit Rs. Credit Rs.
Jan 13 Machinery A/c Dr.
To Creditors A/c
(Being purchase of machinery
on credit)
2000
2000
Jan 16 Swati A/c Dr.
To Sales A/c
(Being sales of goods to swati)
3000
3000
Jan 18 Cash A/c Dr.
To Swati
(Being amount received from
swati)
1000
1000
Jan 20 Salaries A/c Dr.
To Cash A/c
(Being payment of salaries)
700
700
Jan 23 Cash A/c Dr.
To Rent A/c
(Being rent received)
300
300

36. Date Particulars L.F. Debit Rs. Credit Rs.
Jan 28 Purchas A/c Dr.
To Shrikant A/c
(Being goods purchased from
Shrikant)
4000
4000
Jan 31 Depreciation A/c Dr.
To Machinery A/c
(Being depreciation on
machinery)
100
100
Total 44100 44100

37. Date Particulars J.F. Amount
(Rs.)
Date Particulars J.F
.
Amount
(Rs.)
2006
Jan 1
Jan 18
Jan 23
Feb 1
To Capital A/c
To Swati
To Rent A/c
To Balance b/d
20000
1000
300
2006
Jan 3
Jan 10
Jan 13
Jan 20
Jan 31
By Bank A/c
By Shubham
By Machinery A/c
By Salaries A/c
By Balance c/d
5000
3900
2000
700
9700
21300 21300
9700
Ledger Accounts
Cash Account
Dr. Cr.

38. Date Particulars J.F. Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 3
Feb 1
To Cash A/c
To Balance b/d
5000
5000
5000
2006
Jan 31 By Balance c/d 5000
5000
Bank Account
Dr. Cr.
Purchases Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 7
Jan 28
To Shubham
To Shrikant
3900
4000
7900
2006
Jan 31 By Trading A/c 7900
7900

39. Shubham’s Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 10 To Cash A/c
To Discount A/c
3900
100
4000
2006
Jan 7 By Purchas A/c 4000
4000
Discount Received Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 31 To Profit and Loss A/c 100
100
2006
Jan 10 By Shubham 100
100

40. Capital Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 31 To Balance c/d 20000
20000
2006
Jan 1
Feb 1
By Cash A/c
By Balance b/d
20000
20000
Machinery Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 13 To Cash A/c 2000
2000
2006
Jan 31 By Depreciation A/c
By Balance c/d
100
1900
2000

41. Swati’s Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 16
Feb 1
To Sales A/c
To Balance b/d
3000
3000
2000
2006
Jan 18
Jan 31
By Cash A/c
By Balance c/d
1000
2000
3000
Salaries Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 20 To Cash A/c 700
700
2006
Jan 31 By Profit and Loss A/c 700
700

42. Sales Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 31 To Trading A/c 3000
3000
2006
Jan 16 By Swati 3000
3000
Rent Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 31 To Profit and Loss A/c 300
300
2006
Jan 23 By Cash A/c 300
300

43. Shrikant’s Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 31 To Balance c/d 4000
4000
2006
Jan 28
Feb 1
By Purchase A/c
By Balance b/d
4000
4000
4000
Depriciation Account
Dr. Cr.
Date Particulars J.F
.
Amount
(Rs.)
Date Particulars J.
F.
Amount
(Rs.)
2006
Jan 31 To Machinery A/c 100
100
2006
Jan 31 By Profit and Loss A/c 100
100

44. Trial Balance
as on 31 January 2006
Particulars L.F. Debit (Rs) Credit (Rs)
Cash A/c
Capital A/c
Bank A/c
Purchases A/c
Machinery A/c
Swati’s A/c
Salaries A/c
Sales A/c
Rent A/c
Depreciation A/c
Srikant’s A/c
Total
9,700
-
5,000
7,900
1,900
2,000
700
-
-
100
-
-
20,000
-
-
-
-
-
3,000
300
-
4,000
27,300 27,300

45. Notes :
1. The trial balance, prepared as above contains the list of all ledger accounts except Shubham’s account which is closed
and does not show any balance (the totals of the debit and credit of Shubham’s account are equal).
2. Cash account, bank account, purchases account, machinery account, Swati’s account, salaries account, depreciation
account, and interest on capital account show debit balance (excess of debit over credit). Hence, the balance has been
shown in the debit column. In the same way, capital account, discount account, sales account, rent account, and Srikant’s
account show credit balance, so the amount has been written in the credit column.
3. The total of the debit and credit side each is Rs. 27,400 and is equal.

46. Project Made By:
• Soham Pawar 16106A1002
• Aditya Phatak 16106A1012
• Hitesh Bhagwat 16106A1022
• Hrishikesh Patil 16106A1032
• Akshay Indalkar 16106A1042
• Chetan Patil 16106A1052

47. Thank You