Symbiosis Institute of Telecom Management

Accounting Mechanics Module II

A.V.Chirputkar, Faculty - Finance, SITM. M.Com. F.C.A. M.B.F. (ICAI), C.I.S.A. (USA)

2006 Cisco Systems, Inc. All rights reserved.

Cisco Public

Accounting Cycle
Identifying monetary transactions; Recording transactions; Classifying the transactions; Summarizing the transactions; Interpreting the results.

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

Oct 21, 2012

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Journal First Step

The journal records all daily transactions of a business in the order in which they occur. The process of recording the transactions in a journal is called as Journalizing The transactions are recorded under the double entry system. The recording of transactions Batch processing to real time processing.

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

Oct 21, 2012

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Journal
a) b) c) The transactions are recorded with the help of Rules of Debit & Credit. For this purpose, business transactions are classified into three categories; Transactions relating to persons; Transactions relating to assets; Transactions relating to incomes and expenses.

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

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Classification of Accounts
a) b) c) For transactions relating to persons called as Personal Accounts; Types of Personal Accounts; Natural: eg: natural person Artificial : Company, bank Representative Personal Accounts: It is a certain group of persons like salaries payable etc.

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

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Rule Personal Account

Debit the receiver and Credit the giver

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

Oct 21, 2012

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Classification of Accounts
For Transactions relating to Assets called as Real Accounts. It is classified as; a)Tangible Real Accounts Cash, building, stock etc. a)Intangible Accounts Goodwill, License, Bandwidth, software etc.

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

Oct 21, 2012

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Rule Real Account

Debit What Comes In and Credit What Goes Out

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

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Nominal Accounts
For transactions relating to income and expenses called as Nominal Accounts; Types of Nominal Accounts; a)Expenses / Losses b)Incomes / Gains

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

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Rule Nominal Accounts

Debit all expenses / losses And Credit all incomes / gains

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

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Case Study
Journalize the transactions; Ledger Posting Trial Balance

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

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Final Account Adjustments

Opening Stock in the trial balance is debited to the trading account. Closing Stock (generally given as additional information) is credited to Income Account and shown as an asset in the balance sheet. Purchases / Sales returns are deducted from total purchases / total sales appearing in the Income Statement to arrive at Net Purchases and Net Sales.

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

Oct 21, 2012

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Adjustments
Prepaid expenses: Deduct from the respective expense in the P & L A/c. and show as an asset in the balance sheet. Illustration: Prepaid Insurance: Insurance premium paid for the year July 2011 to June 2012 -Rs. 12,000. How it will appear in Income Statement and Balance Sheet?

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

Oct 21, 2012

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Adjustments
Outstanding expenses: Add to the respective expense in the P & L A/c. and show as a liability in the balance sheet. Illustration: Outstanding salary: Salary as per trial balance Rs.5,50,000. Salary for the month of March 2012 (as salary payable in April, yet to be accounted for Rs. 50,000.)

How it will appear in Income Statement and Balance Sheet?

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

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Adjustments
Pre-received income (Unearned Revenue): (If accounted for as revenue): Deduct from the revenue in the P & L A/c. and show as liability in the balance sheet Illustration: Advance from customers: Annual revenue Rs. 51,00,000, including Rs. 1,00,000 Advance received from customers accounted for as revenue. How it will appear in Income Statement and Balance Sheet?

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

Oct 21, 2012

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Adjustments
Accrued Income: Credit the P & L A/c. with appropriate income account and show income accrued (but not received) as an asset in the balance sheet. Illustration: Deposit of Rs. 10,000 kept with bank on July 1, @ 12% p. a. for 5 years.

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

Oct 21, 2012

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Adjustments
Provision for Doubtful Debts: Debit the P & L A/c. with the provision and show the provision as a deduction from Sundry Debtors in the balance Sheet. Illustration: Sundry Debtors as per the trial balance Rs. 5,00,000. Create a provision of 5 % for doubtful debts. How it will appear in Income Statement and Balance Sheet?

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

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Adjustments
Depreciation: It means diminution in the utility value of assets due to wear and tear or passage of time. Illustration: Provide depreciation @ 15% on Plant and machinery of Rs. 10,00,000.

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Depreciation
Meaning Importance Legal Requirement Effect on Dividend, Taxation, Managerial Remuneration and cash flows of the company. Accounting Standard Methods of Depreciation.

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2006 Cisco Systems, Inc. All rights reserved. Cisco Public

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Bank Reconciliation Statement

Meaning Importance Method of preparation Managerial aspect as control

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