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ACCOUNTING MECHANICS:

BASIC RECORDS

Fundamentals of
Accounting 1
Objectives
• Introduction to Accounting Mechanics
• Symbols and Sources and Uses
• Debit and Credit
• Types of Accounts
• Books of Accounts
• A Conceptual Framework of Financial Accounting
• Recording of Transactions
• Ledger Posting
Fundamentals of
Accounting 2
Introduction to Accounting
Mechanics

• All the business transactions have twofold effect.


Recording of both aspects of a transaction is called
Double Entry system of bookkeeping.

• Under the duality concept, that sources of funds must


always equal to uses of funds and from this equality
was derived.

Fundamentals of
Accounting 3
Introduction to Accounting
Mechanics
The Fundamental Accounting Equation:

Total Liabilities = Total Assets

(or)

Owners’ Equity + Outside Liability = Assets

Fundamentals of
Accounting 4
Symbols and Sources and Uses
• The accepted symbol for sources is Cr. and that for
uses is Dr.

• The symbol Cr. is commonly pronounced as ‘CREDIT’


and the symbol Dr. as ‘DEBIT’.

• increase in liabilities, revenues or profits being


sources of funds are all called ‘Cr’ items. Similarly,
increase in assets, expenses and losses being uses of
funds are all called ‘Dr’ items.
Fundamentals of
Accounting 5
Symbols and Sources and Uses

Increase Decrease
Liability, Revenue and Profit CR = Source DR = Use
Asset, Expense and Loss DR = Use CR = Source

Fundamentals of
Accounting 6
Nature of Debit and Credit

Inflow of
Resources

Fundamentals of
Accounting 7
Types of Accounts
Accounts

Personal Accounts Impersonal Accounts

Real Accounts Nominal Accounts


Eg: Individuals,
Firms, Companies,
Banks, etc.

Eg: Individuals, Eg: Individuals,


Firms, Companies, Firms, Companies,
Banks, etc. Banks, etc.

Fundamentals of
Accounting 8
Rules of Debit and Credit

Rules of Debit and Credit

Personal Real Nominal


Accounts Accounts Accounts

Debit The What All


Receiver Comes in expenses
and losses

Credit The Giver What goes All incomes


out and gains

Fundamentals of
Accounting 9
Books of Accounts

• Cash Book
• Journal
• Ledger

Fundamentals of
Accounting 10
A Conceptual Framework of
Financial Accounting

Fundamentals of
Accounting 11
Eg: Subject: Financial Accounting

Principle: Double Entry System

For Cash For Credit


Transactions Transactions
Integrated
into

Cashbook Journal

Ledger

Output: Trial
Balance

Trading/ Mfg. P&L A/c/ B/S.


A/c.
Fundamentals of
Accounting 12
Recording of Transactions

Cash Transactions Non-Cash


Transactions

Recorded in Cash Recorded in Journal


Book

Ledger Classified
Summary of all
Transactions

Fundamentals of
Accounting 13
Journal

• The daily business transactions are recorded in a


book called Journal. The journal is called ‘book of
original entry.’

• All the transactions are first entered in the journal in


the order of their occurrence.

• Recording of entries in the journal is known as


journalizing.
Fundamentals of
Accounting 14
Format of a Journal

Date Particulars L.F. Debit Credit


Rs. Rs.

Fundamentals of
Accounting 15
Steps in Journalizing
• Analyze the transaction and identify the two accounts
that are being affected by the transaction.

• Ascertain the nature of the accounts involved as real,


personal or nominal.

• Determine which rule of debit and credit is applicable


for each of accounts involved.
Fundamentals of
Accounting 16
Steps in Journalizing

• Ascertain the account to be debited and the account to


be credited.

• Write the name of the account to be debited along with


the abbreviation “Dr” on the same line against the
name of the account in particulars column and the
amount to be debited in the debit amount column
against the name of the account.

Fundamentals of
Accounting 17
Steps in Journalizing

• Write the name of the account to be credited in the


next line preceded by the word “To” at a few spaces
towards the right in the particulars column, and the
amount to be credited in the credit amount column
against the name of the account.

• Write Narration (a brief description of the transaction)


within brackets in the next line in particulars column.
Fundamentals of
Accounting 18
Ledger

• Ledger contains a classified summary of all


transactions recorded in Cashbook and journal. It is
the main book of account. Ledger is also called
Principal book as final information pertaining to the
financial position of a business emerges only from the
accounts.

Fundamentals of
Accounting 19
Format of Ledger

Dr. Account Title Cr.

Date Particulars J.F. Amoun Date Particulars J.F. Amount


t

Fundamentals of
Accounting 20
Ledger Posting

• The process of transferring of debits and credits


entries from the journal to the ledger is called ledger
posting.

• A separate account is opened in ledger for each


account. All the debit entries and credit entries are
duly entered.

Fundamentals of
Accounting 21
Steps in Ledger Posting

• Enter the date of the transaction on the debit side of


the relevant account.

• The title of the account to be credited is preceded by


the word “To” is entered in the particulars column.

Fundamentals of
Accounting 22
Steps in Ledger Posting

• In Journal Folio (J.F.) column enter the page number


of the journal on which the journal entry is passed.

• Amount column records the amount mentioned in the


journal against title of the account under
consideration.

Fundamentals of
Accounting 23
Balancing of Ledger

• Balancing of an account means to make the total of


amounts column appearing on the debit and credit
side equal to each other.

• If the total of debit side is greater than the credit side,


the difference between the two sides is known as debit
balance and likewise, if the total of credit side is
greater, the difference is known as credit balance.

Fundamentals of
Accounting 24
Cash Book

• Cashbook is a special journal in which all cash


transactions are recorded directly. Cashbook shows
the cash receipts and the cash payments. The
Cashbook resembles a ledger with the debit and credit
sides, and the balance represents cash on hand at the
end of the accounting period.

Fundamentals of
Accounting 25
Kinds of Cash Book

• Single Cash Book / Single Column Cashbook.


• Double Column Cashbook
• Triple Column Cashbook
• Petty Cashbook

Fundamentals of
Accounting 26
Subsidiary Books

• All non-cash transactions should be recorded in the


journal. The journal is inadequate as the single book
of the original entry when the transactions are
voluminous in number. The journal divided into
divisions and they are commonly termed as Subsidiary
books.

Fundamentals of
Accounting 27
Subsidiary Books

• Purchase Book
• Purchase Returns Book
• Sales Book
• Sales Returns Book
• Bills Receivable Book
• Bills Payable Book
• Journal Proper

Fundamentals of
Accounting 28
Summary

• All the business transactions have twofold effect.


Recording of both aspects of a transaction is called
Double Entry system of bookkeeping.

• The accepted symbol for sources is Cr. and that for


uses is Dr. These symbols are purely incidental and
could well have been switched or entirely changed
without any loss in generality whatsoever.

Fundamentals of
Accounting 29
Summary

• All the accounts are classified into three types, they


include Personal accounts, Real accounts and
Nominal accounts.

• A business organization maintains three important


books of accounts, namely Cash Book, Journal and
Ledger.

Fundamentals of
Accounting 30

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