Accounting

SYNOPSIS OF ACCOUNTING RULES OF ACCOUNTING There are two types of Accounting. Personal A/c Impersonal A/c Rule ( Debit the Receiver, Credit the Giver. Real A/c Nominal A/c Rules ( Debit What Comes In, Credit What Goes Out Debit All Expenses & Losses, Credit All Incomes and Gains Meaning ( Every Debit must have a corresponding Credit and every Credit must have a corresponding Debit. Meaning of Debit ( Debit comes from Latin language Debitum means Due For That, we use short term Debit it’s a symbol (Dr.) of Accounting and its use on the left side of Accounting. Credit ( This word also comes from Latin language credre, which means Due To That we use short term Credit it’s a symbol (Cr.) of Accounting and it’s use on the right side of Accounting. Double Entry System ( When one A/c Debited then there must be another side Credited. There are some certain rules of Accounting by which we work the Accounting Entry. It should be arithmetical correct (accuracy) both side. If we Debit any amount one side then we must Credit the same amount on Credit side. Personal A/c ( Name of Person, Firm or Company, Banks Etc. Impersonal A/c ( All Incomes & Expenses. Real A/c ( Assets, Cash, Land and Building, Plant and Machinery etc. Nominal A/c ( Profit & Loss A/c, Commission, Wages & Salary etc. Accounting Structure Under Double Entry System Transaction Purchases Book Sales Book Purchases Ret. Book Sales Ret. Book Bills Receivable Book Bills Payable Book Cash Book Journal Book Ledger Trial Balance Final A/c Profit & Loss A/c Balance Sheet Analysis Manufacturing A/c Trading A/c Rough Work to Remember ( Transaction ( Wastage Book ( Journal Book ( Ledger ( Trail Balance ( Profit & Loss ( Balance Sheet JOURNAL BOOK Day Book or Wastage Book ( It’s a 1st step of writing Books of Accounts where business man noted Expenses or Income roughly because its not easy to remember all the transaction. Rules ( Entry made in the order of date. Date Particulars L.F Amount Amount Journal Entry Rules of Journalising Let’s remember three golden rules of Journal Entry :- Personal A/c Nominal A/c Example ( Amount Paid to Ravinesh Determination of Dr. or Cr. Ravinesh is a Personal A/c because it’s a name of a Person. Amount / Cash paid is a Nominal A/c Rules of Personal A/c ( Debit the receiver and Credit the giver. Here Ravinesh is receiver so Ravinesh’s A/c will be Debited. Now, 1st A/c has been Debited lets consider about Credit A/c Amount/Cash Paid ( It will be treated as Nominal A/c and rules to be applied, Debit all Expenses & Losses and credit all incomes & gains. So the Journal entry will be:- Journal Entry Date Particulars L.F Amount Amount 17th May, 2007 Ravinesh’s A/c -------------------------- Dr. To Cash A/c (Being amount paid to Ravinesh) ---------- ----------- Rules of Real A/c Debit What Comes In, Credit What Goes Out Purchased Furniture ( 1st is furniture and 2nd is cash. Here both A/c is Real A/c so the Journal Entry will be. Journal Entry Date Particulars L.F Amount Amount 17th May, 2007 Furniture A/c -------------------------- Dr. To Cash A/c (Being Furniture Purchased) ---------- ----------- Rules of Nominal A/c Debit All Expenses & Losses, Credit All Incomes and Gains. Example: - Rent paid Rent is expenses and it’s a nature of Nominal A/c, so it will be debited another A/c is Cash and it’s a Real A/c. Journal Entry Date Particulars L.F Amount Amount 17th May, 2007 Rent A/c -------------------------- Dr. To Cash A/c (Being Rent paid) ---------- ----------- Ledger Ledger ( It is a book where each and every Account properly arranged, classified and condensed (to put such as a piece of writing into fewer words; to put a lot of information into a small space/ book). The basic advantage of Ledger:- Time saving All information regarding accounts in a single book Helpful to make trail balance The actual position of Debtors, Creditors, Assets, Capital etc. Posting in ledger A/c:- To make entry from rest of Books into Ledger is called posting. For Example:- Dr. Journal Entry Cr Date 2007 Particulars L.F Amount Amount 17th May Ravinesh’s A/c -------------------------- Dr. To Cash A/c (Being amount paid to Ravinesh) ---------- ----------- Date Particulars J.F Amount Date Particulars J.F Amount In this Journal Entry two Ledger Accounts creating 1st is Ravinesh’s A/c 2nd Cash A/c Ravinesh’s Account Date Particulars J.F Amount Date Particulars J.F Amount To Cash A/c -------- By Balance C/d --------- Cash Account Date Particulars J.F Amount Date Particulars J.F Amount To Balance C/d ---------- By Ravinesh’s A/c --------- Trial Balance Trial Balance: - Trial Balance is a summery of all Books of Accounts; purpose of Trial Balance is to know the closing Balance of all Ledgers. After making the Trial Balance, it comes to know that if there is any error in ledger during posting. In short, to know the error in ledgers & closing Balance of all ledgers. TRIAL BALANCE Date Particulars LF Amount Amount Trading Account and Profit & Loss Account Profit and loss Account:- it’s an account to show all the expenses and income during a particular period, usually ending of the financial period. It is prepared by such a concern whose motto is earning profit, to understand its better only one thing keep in our mind that:- Difference between Income & Expenditure and Profit & Loss A/c ( Income and Expenditure prepare by such a concern whose motto is not earning Profit. Its is prepare by Club, Trust, Society Etc. All Incomes Less all expenses = Net Profit or Net Loss Trading Account and Profit & Loss Account of M/s…………….. for the year ending 31st March 2008 Particulars Amount Particulars Amount To Opening Stock To Direct Expenses To Gross Profit (Transferred To P.L A/c) Total To Indirect Expenses To Net Profit (Transferred To Balance Sheet) Total ____________ ____________ By Direct Incomes By Closing Balance By Gross Loss (Transferred To P.L A/c) By Gross Profit (Transferred From Trading A/c) By Indirect Incomes By Net Loss (Transferred To Balance Sheet) ___________ ___________ BALANCE SHEET Balance Sheet is not an Account but a statement to show all the Assets and Liabilities during a Financial Period. Balance Sheet of M/s………………………………………………………as at 31st March 2008 Capital and Liabilities Amount Assets and Properties Amount CAPITAL RESERVE AND SURPLUS SECURED LOANS UNSECURED LOANS CURRENT LIABILITIES AND PROVISIONS PROVISIONS __________ __________ FIXED ASSETS INVESTMENT CURRENT ASSETS LOANS AND ADVANCES MISCELLANEOUS EXPENDITURE PROFIT & LOSS ACCOUNT _________ _________ Regards, Ravinesh Kumar.