ICE BREAKER

Introduction

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Accounting as a source of Information

Accounting provides information to:
Owners/shareholders of the company. Directors/managers Creditors (lenders) Prospective investors Government and regulatory agencies

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Objectives of Accounting
The main objectives of accounting are: Record the business activities in a systematic manner. Evaluate the performance of business in terms of profit. Know the financial position of business. Control the business activities effectively. Provide information to various stake holders in the business.

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Points to Remember
Accounting is the process of identifying, measuring, recording and communicating the required information relating to the economic events of an organisation. Accounting provides information to management at all levels and to those having direct as well as indirect financial interest in the enterprise. An important objective of accounting is to record the business activities in a systematic manner.

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Generally Accepted Accounting Principles (GAAP)

The set of rules and practices followed in recording transactions and preparing financial statements are usually called Generally Accepted Accounting Principles. GAAP provides guidelines which can be categorised into:

Basic assumptions
Principles Modifying principles and Accounting standards.

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Accounting Cycle
The sequence of accounting procedures involved in an Accounting Cycle are: Identification of transactions. Preparation or receipt of business documents. Recording of transactions in books of original entry.

Posting of transactions to Ledgers.

Preparation of trial balance. Preparation of final accounts.

Passing of closing and adjustment entries.

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Rules of Accounting
Account Type Debit Credit

Assets Expenses Drawings

Liabilities Income Capital

Increases

Decreases

Decreases

Increases

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Mnemonics for Principles of Accounting

DEAD CLIC
D E A D

Debited in Trial Balance Debtors Expenses Assets Drawings

Credited in Trial Balance C Creditors L Liabilities I Income C Capital

PEARLS
Debited in Trial Balance P Purchases E Expenses A Assets
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Credited in Trial Balance R Revenue L Liabilities S Sales

Books Of Original Entry & Rules for Entry

In accounting, the terms debit and credit indicate whether the transactions are to be recorded on the left hand side or right hand side of the account. All the transactions are first recorded in Journal, hence it is regarded as the book of original entry.

Journal means a day book or a daily record, wherein the transactions are recorded in the chronological order.
The journal is subdivided into Journal Proper, Cash book and Other day books.

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Special Purpose Books

Most of the business transactions which are repetitive in nature can be easily recorded in special purpose books. The Special purpose books are:

Cash Book: Cash book is an accounting book which documents both cash
receipts and disbursements. Purchases Book: To record credit purchases using invoices or bills

received from supplier of goods.

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Special Purpose Books

Purchases Return (Return Outwards) Book: To record return of goods purchased to the supplier using a debit note. Sales Book: To record all credit sales using sales invoice or bill issued to the customers. Sales Return (Return Inwards) Book: To record the goods returned by the customers using a credit Note. General Journal: It is a book maintained to record adjustment entries.

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Balancing the Account

While Balancing an account the two sides are totalled and the difference between them is shown on the deficit side in order to make their totals equal. Balancing is generally done at the end of the accounting period, in order to ascertain the net position of each account. The words balance carried down (c/d) indicates that the balance in that account has been carried down to the next period.

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Balancing the Account

The words balance brought down (b/d) indicates that it is a continuing account

till finally settled or closed.

While balancing the account if the debit side exceeds the credit side, the difference is written on the credit side and is called debit balance. While balancing the account if the credit side exceeds the debit side, the difference is written on the debit side and is called credit balance.

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Points to Remember
A cash book is an accounting book which documents both cash receipts and disbursements. Purchase book, Purchase Returns book, Sales Book, Sales Returns Book,

and Journal Proper are Special Purpose books.

Balancing of an account helps to ascertain the net position of each account.

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Thank You

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