Finance Basics

• Introduction to Accounting
• Need for Accounting
• Meaning of Accounting
• Attributes of Accounting
• Branches of Accounting
• Users of Accounting Information
• Accounting Cycle
• Accounting Equation
• Introduction and Meaning
• Effects of Business Transactions on Accounting Equation
• Purchase of an asset of credit
• Rules of Accounting Equation
 Finance Basics

• Double Entry System

• Types of Accounting
• Rules of the Double Entry System (Debit and Credit)
• Advantage of Double Entry System
• Journal
• Meaning of Journal
• Objectives of Journal
• Rules of Journalizing
• Miscellaneous Journal Entries
 Finance Basics

• Ledger
• Meaning of Ledger
• Rules of the Double Entry System (Debit and Credit)
• Advantage of Double Entry System
• Journal
• Trial Balance
• Cash Book
 Finance Basics

• Double Entry System

• Types of Accounts
Types of Accounts

Personal Impersonal
Accounts Accounts
 Finance Basics

• Double Entry System

• Types of Accounts
• Personal Accounts: Personal accounts are those
accounts which record the transactions relating to
individuals, firms, instaurations, organizations,
companies
• Impersonal Accounts: All accounts other than
personal accounts are known as impersonal
accounts, which record transactions related to
assets, properties, expenses, losses, income and
gains.
 Finance Basics

• Double Entry System

• Rules of the double entry system or Rules of
debit and credit
• According to the double entry system, every
transaction has two aspects. It means every
transaction has two accounts.
• One account is debited and the other is credited.
• Thus, every debit has a credit aspect and every
credit has a debit aspect.
• The total of all debits must be equal to the total of
all credits.
 Finance Basics

• Double Entry System

• Rules of the double entry system or Rules of
debit and credit
• Example:
– Goods worth SAR 400 sold to XYZ for cash, it will be
recorded as:
Cash A/c 400
To Sales A/c 400
 Finance Basics

• Double Entry System

• Rules of the double entry system
Types of Accounts

Personal Impersonal
Accounts Accounts

Debit the receiver Credit the Giver Real Nominal

Debit what Credit what Debit all Credit All

comes in goes out expenses Incomes and
and losses Gains
 Finance Basics

• Double Entry System

• Advantage of Double Entry System
1. Completer and scientific record: The main
advantage of the double entry system is that it
helps to maintain a completer and scientific
record of business transactions as both the
aspects of each and every transaction are
recorded in it.
 Finance Basics

• Double Entry System

• Advantage of Double Entry System
2. Arithmetical check of accounts: It provides an
arithmetical check on the accuracy of records
maintained in the books of accounts. Since the total
of all debits must be equal to the total of all credits,
the system provides an arithmetical check on the
accounting records by drawing up a trial balance.
This helps in he detection of errors and frauds.
 Finance Basics

• Double Entry System

• Advantage of Double Entry System
3. To meet legal requirements: It meets the
requirements of various government authorities.
If accounts are maintained on the double entry
system, many legal problems can be
automatically solved as government and tax
authorities give more reliance to the accounts
kept on the double entry system.
 Finance Basics

• Double Entry System

• Advantage of Double Entry System
4. Helpful in comparison: This system is helpful in
making comparison of business results over
different periods of time.
5. Helpful in preparing final accounts: With the
help of the trial balance prepared on the basis
of the double entry system, the profit and loss
account can be prepared to know the amount of
net profit or net loss of a business.
 Finance Basics

• Double Entry System

• Advantage of Double Entry System
6. Reveals the true financial positions: It reveals the true
financial position of a business. Balance sheet can be
prepared to reveal the financial position of a business on
particular date.
7. Efficient management control system: It facilitates an
efficient management control system. As the information
in the accounts covers both the aspects-personal and
Impersonal - the management control of the business
can be exercised in a more efficient manner.
8. Helpful in preventing errors and frauds: It is helpful in
preventing errors and frauds. In case of any disagreement
of the trail balance, efforts are made to locate the errors
so that the books can be set correct. It can work well with
the help of the internal check system.
 Finance Basics

• Double Entry System

• Advantage of Double Entry System
9. Results of business operations: It reveals the
end result of business operations. Trading and
profit and loss accounts can be prepared under
this system to know the net result of doing
business, i.e. the amount of profit or loss
incurred during a particular period
 Finance Basics

• Double Entry System

• Disadvantage of Double Entry System
1. The system is not suitable for small concerns,
because it requires the maintenance of the
number of books of accounts which is not
possible in a small business.
2. This is an expensive system because the
maintenance of a large number of books
requires an expert staff of accountants. Hiring
the services of an accountant is not possible for
small concerns from the point of view of
resources.
 Finance Basics

• Double Entry System

• Disadvantage of Double Entry System
3. There is no guarantee of complete accuracy in
the books of accounts even if the trial balance
agrees, because there are some errors which
may return undetected in spite of the agreement
of the trial balance.
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
1. The basic rule of book-keeping “debit what comes
and credit what goes out” is applicable to which
account:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
1. The basic rule of book-keeping “debit what comes
and credit what goes out” is applicable to which
account:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
2. Goodwill account is related to:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
2. Goodwill account is related to:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
3. Commission account is related to:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
3. Commission account is related to:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
4. Drawings account is related to:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
4. Drawings account is related to:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
5. Depreciation account is related to:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
5. Depreciation account is related to:
a) Personal account
b) Real account
c) Nominal account
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
6. ….. is considered as one of the disadvantage of the
double entry system:
a) Efficient management control system
b) Arithmetical check of accounts
c) Not suitable for small concerns
 Finance Basics

• Double Entry System

• Questions
• Choose the correct answer
6. ….. is considered as one of the disadvantage of the
double entry system:
a) Efficient management control system
b) Arithmetical check of accounts
c) Not suitable for small concerns