Presentation

Topics covered:
 Accounting Equation
 Journal
 Ledger
 Trial Balance

Presented By: Bhawana and Esha

PGDM 1st Sem
 ACCOUNTING EQUATION
OR
DUAL CONCEPT

Each Business transaction has a two fold effect and it is referred to

as dual aspect or duality of a transaction.The dual aspect states
that for each debit there is a credit i.e “for every debit there is a
credit”.

An acconting equation is a statement of equality between the

assets and the sources through which the assets have been
financed and this can be expressed as

Assets=Sources
Assets=Liabilities+ Capital
Assets=Liabilities+Owner’s equity
 CLASSIFICATION
OF
ACCOUNTS:

Personal Account:-
 Natural Personal Account i.e. account of natural or physical persons e.g Ram’s A/c,
Sita’s A/c etc.

 Artificial Personal Accounts i.e accounts of artificial or legal person e.g.accounts of

firms,companies,banks,government,schools and colleges etc.

 Representative personal accounts –these accounts are called representative personal account as they
represent certain person behind them e.g outstanding expenses account,income received account
Impersonal Account:-

 Real Account: Real accounts are accounts of properties,assets or things owned by a

concern and with which the business is carried on.Real or assets accounts may be-

1)Tangible Assets-assets such as goods account,cash

account,furniture account etc.

2)Intangible Assets- such as goodwill account,patent

account,copyrights etc.

 Nominal Account: Nominal or fictitious accounts are accounts of the expenses and
loses and income and gains which a concern earn in the course of its business-

1)income account-accounts of revenue,income,gains etc

2)Expenses account-accounts of loses such as bad debts ,discount

allowed.
 RULES OF DEBIT AND CREDIT

Personal Accounts:
Debit the receiver
and
credit the giver
Real Accounts:
Debit what comes in
and
Credit what goes out
Nominal Account:
Debit expenses and loses
and
Credit incomes and gains
 JOURNAL

• Acc to Cropper “A journal is a book employ to classify or sort out

transactions in a form convenient for their subsequent entry in the
ledger”

• Acc to Rowland “the basic book of Journal is called Journal

The process of recording the transaction into journal is called
journalising.
 NECESSITY OF JOURNAL
Convenient recording of transaction
Maintaining and preserving the identity of
transaction
Ascertaining the true nature of transaction
Maintaining permanent record of
information
 FUNCTIONS OF JOURNAL
To analyse each transaction into debit and
credit so as to enable their posting in the
ledger

To arrange transaction ,chronological i.e

in order of date.
 ADVANTAGES OF JOURNAL
• Show all necessary information relating to
a transaction
• Provide the explanation of the transaction
• Date wise record of all the transaction can
be obtained
• Help in locating and preventing the errors
 LIMITATIONS OF JOURNAL
• Recording all the transaction in a journal requires:
1)writing down name of account involved
2)individual posting of each account debited and credited

• Does not provide information on prompt basis

• Does not facilitate the internal check system since the journal
can be handled only by one person

• Journal become bulky and voluminous

 LEDGER
• It is the principal book of accounts where
similar transactions relating to particular
person or thing are recorded
• Acc to cooper “ledger epitomizes the
general operations of principles of book
keeping”
 FEATURES OF LEDGER
• Book of principal entry
• Classified and summarized record
• Posting
 ADVANTAGES
• Transactions relating to a particular person, item or heading of
expenditure or income are grouped in the concerned account at
one place.
• When each account is periodically balanced it reflects the net
position of that account.
• Ledger is the stepping stone for preparing Trial Balance - which
tests the arithmetical accuracy of the accounting books.
• Since the entries recorded in the journal are referenced into
ledger the possibility of errors of defalcations are reduced to the
minimum.
• Ledger is the destination of all entries made in journal or sub-
journals.
• Ledger is the "store-house" of all information which
subsequently is used for preparing final accounts and financial
statements.
 TRIAL BALANCE

• It is a statement of all the balances

from the ledger and cash book on a
particular date.
• Total debits should be equal to total
credits.
Acc to carter “trial balance is the list of
debit and credit balances ,taken out from
ledger it also includes the balances of
cash and bank taken from cash book”
 Features of trial balance
• Particular date
• Agreement
• Arithmetical accuracy
• Errors
• Not conclusive
• Journalising and Ledger balances required
 objectives
• To check arithmetic accuracy of books of
accounts
• Completion of double entry system
• To detect errors
• Connecting link
• To facilitate preparation of financial
statements
 Advantages

• correct ledger balance

•Helps in preparation of final accounts
•Arithmetical accuracy
• errors are revealed
• If the total debit is not equal to the credit,
it reveals the presence of some errors during
the process of journalising or posting.
 Limitations of Trial Balance…
A Trial Balance does not
necessarily prove that all the transactions
have been recorded.
It also does not shows the profit n loss of the
business
It does not give the information about each
account
There are some kinds of error that can still
cause the Trial Balance to balance and not
easy to detect.
Errors that can affect the Trial Balance:

• Errors of calculation
• Errors of omission of one entry
• Posting to the wrong side of an account
• Errors in amount
Errors not revealed by the Trial Balance:

• Errors of Commission
• Errors of Omission
• Errors of Principle
• Compensating errors
• Errors of Original entry
•Complete Reversal of entries
 Methods for preparation of trial
balance
• Total method • Balances method
Trail balance is • Trail balance is made
prepared by taking on the basis of the
into account the totals balances of the
of debit and credit accounts. it is also
balances of each known as net trial
account recorded in balance.
the ledger.