MANAGEMENT

ACCOUNTING - I
- Dr. Sandeep Coel
OCUS
ACCOUNTING
ENVIRONMENT
- Dr. Sandeep Coel
ACCOUNTING PROCESS
Identifying the inancial Transactions
Recording In the book oI original entry, i.e., in Journal`
Classifying rouping into various Accounts in a Ledger
Book`
Summarising Into Statements:
(i) Trial Balance, ii) ProIit and Loss Account,
and (ii) Balance Sheet.
Analysis and Interpretation
Communication / Reporting
RANCHES
O
ACCOUNTING
inancial
Accounting
Cost
Accounting
inding the proIit / loss
Determining the Iinancial position
Cost ascertainment , and
Cost control
PRIME USINESS ELEMENTS
Capital
Assets
Liabilities
Revenue
Expenses
CAPITAL
ners` Contribution /
Shareholders` unds
ASSETS
ixed Assets Current Assets
Land and Buildings Cash and Bank
Plant and Machinery Stock / Inventory
urniture and ixtures - Ra material
Investments - Work-in-Progress
oodill - inished oods
Debtors
ixed Assets
Tangible ixed Assets Intangible ixed Assets
Land and Buildings oodill
Plant and Machinery Patents
urniture and ixtures Trademarks
Investments Copyrights
LIAILITIES
Long-Term
Liabilities
Current
Liabilities
Loans Irom Banks & inancial Institutions Creditors
Loans Irom Public Bank verdraIt
Short-term Loans
Contingent Liabilities
- Liabilities that may or may not be incurred by a company
and hich depend on the outcome oI say a Iorthcoming
event e.g. a court case.
REVENUE /
INCOME
Operating Income
Non- operating
Income
Sales and services inancial income
- Interest income
- Dividend income
ain on sale oI Iixed assets
EXPENSES
Operating Expenses
Non- operating
Expenses
Wages inancial Expenses
Salaries - Interest on Loan
Rent oI oIIice
Electricity
Selling &Distribution
Miscellaneous Expenditure not yet written off
(ictitious Assets)
- Preliminary Expenses / Pre-operative Expenses
- Discount alloed on Issue oI securities
ASIS O ACCOUNTING
Cash asis of Accounting
- Here, Cash` is the deciding Iactor.
ProIit / Loss Cash Sales Cash Expenses
Example : (i) overnment Accounting, (ii) Charitable institutions, and
(iii) Educational institutions
Accrual or Mercantile asis of Accounting
- Here, ccurrence oI Transaction` is the deciding Iactor
ProIit / Loss Total Income earned Total Expenses incurred
Solution
IdentiIy the items as assets, liabilities, capital, revenue and expenses:
(i) Machinery ixed Asset
(ii) Ra material purchased on credit Liability (Creditors)
(iii) Shares issued by AIL Capital (Share capital)
(iv) Sales Revenue / Income
(v) Borroings Irom IDBI Liability (Long-term loan)
(vi) Cash Current Asset
(vii) Debtors Current Asset
(viii) Rent perating Expense
(ix) Interest Payable Liability (Current Liability)
(x) Salaries Payable Liability (Current Liability)
(xi) Interest Received Non-operating Income
(xii) Poer and uel perating Expense
(xiii) Salaries perating Expense
(xiv) Interest paid on Loans Non-operating Expense
Example
During 2007-08, Ram & Bros. had cash sales oI Rs. 3,90,000 and
credit sales oI Rs. 1,60,000.Their expenses Ior the year ere
Rs. 2,70,000 out oI hich Rs. 80,000 is still to be paid. Commission
received in the current year, due oI last year oI Rs. 5,000. Interest
due on investments Ior the year, Rs. 10,000.
ind out their ProIit/Loss Ior 2007-08 as per:
(i) Cash Basis oI Accounting
(ii) Accrual Basis oI Accounting
Solution
1. Profit/Loss as per Cash asis
Revenue (Cash InIlo or Cash Sales) Rs. 3,90,000
Commission received , due oI last year 5,000
3,95,000
ess. Expenses (Cash utIlo) Rs. 1,90,000
(Rs. 2,70,000 Rs. 80,000)
ProIit Rs. 2,05,000
2. Profit/Loss as per Accrual asis
Revenue (Total Sales) Rs. 5,50,000
Interest due on investments 10,000
5,60,000
ess. .Total Expenses Ior the Year Rs. 2,70,000
ProIit Rs. 2,90,000
OULE ENTRY SYSTEM O
ACCOUNTING
ouble Entry System
Here, every transaction aIIects to heads to accounts.
Every transaction has to aspects.
Example
1. Issue oI Shares Rs. 10,00,000
2. Purchase oI Ra material on credit Rs. 10,000
3. Machine purchased Ior cash, Rs. 1,00,000
Solution
1. Share Capital A/c 10,00,000
Cash A/c 10,00,000
2. Inventory A/c 10,000
Creditors A/c 10,000
3. Machine A/c 1,00,000
Cash A/c 1,00,000
ACCOUNTING PROCESS
Identifying the inancial Transactions
Recording In the book oI original entry, i.e., in Journal`
Classifying rouping into various Accounts in a Ledger
Book`
Summarising Into Statements:
(i) Trial Balance, ii) ProIit and Loss Account,
and (ii) Balance Sheet.
Analysis and Interpretation
Communication / Reporting
ACCOUNTING PROCESS
1. RECORING
(1OURNALIZING)
Dr. Name oI the Account Cr.
EIT - CREIT
RULES O EIT AN CREIT
1. ssets are debits; are credits.
2. Expenses are debits; are credits.
3. Liabilities are credits; are debits.
4. Owners capital are credits; are debits.
5. Revenues or Incomes are credits; are debits.
orm oI a Journal
J&RNAL
Date
(1)
Particulars
(2)
L..
(3)
Dr.
Amount
(4)
Rs.
Cr.
Amount
(5)
Rs.
(L.. Stands Ior Ledger olio)
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
2
Cash A/c ..Dr.
To Capital A/c
( or/Being the capital brought in by
Mohan)
50,000
50,000
Case Study (Mohan &Co.)
1.Mohan commences business ith Rs. 50,000 on March 2, 2007.
2. March 2, 2007: pened an account in State Bank oI India and deposited Rs. 5,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
2
Bank A/c ..Dr.
To Cash A/c
(or cash deposited into bank to open an
account)
5,000
5,000
J&RNAL
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
2
urniture A/c ..Dr.
To Cash A/c
( or Iurniture purchased Ior cash)
2,000
2,000
3. March 2, 2007: Purchased Iurniture Ior Rs. 2,000.
4. March 5, 2007: Purchased goods Ior cash Rs. 4,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
5
Purchase A/c ..Dr.
To Cash A/c
(or goods purchased Ior cash)
4,000
4,000
J&RNAL
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
8
Purchases A/c ..Dr.
To Ram Narain Bros.
( or goods purchased Irom Ram Narain
Bros. on credit)
10,000
10,000
5. March 8,2007: Purchased goods Ior Rs. 10,000 on credit Irom M/s. Ram Narain Bros.
6. March 12, 2007: Sold goods to M/s. Ram &Co. Ior cash, Rs. 6,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
12
Cash A/c ..Dr.
To Sales A/c
(or goods sold Ior cash)
6,000
6,000
J&RNAL
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
15
Ramesh`s A/c ..Dr.
To Sales A/c
( or goods sold on credit to Ramesh)
3,000
3,000
7. March 15,2007: Sold goods to Ramesh on credit Ior Rs. 3,000.
8. March 17, 2007: Received cash Irom Ramesh Rs. 2,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
17
Cash A/c ..Dr.
To Ramesh
(or the amount received Irom Ramesh)
2,000
2,000
J&RNAL
9. March 31, 2007: Paid Rent Rs. 1,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
31
Rent A/c ..Dr.
To Cash A/c
(or rent paid )
1,000
1,000
J&RNAL
10. March 31,2007: Paid Rs. 2,500 to the clerk as salary.
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
31
Salaries A/c ..Dr.
To cash A/c
( or salary paid in cash)
2,500
2,500
Exercise II
n hich side ill the increase in the Iolloing accounts be
recorded? Also, mention the nature oI the account:
(i) Machinery A/c (ii) Creditor's A/c (iii) Mohan (Proprietor)
(iv) Sales A/c (v) Carriage utard A/c (vi) Cash A/c
(vii) Debtor's A/c (viii) Rent A/c (ix) Interest Payable A/c
(x) Bills Payable A/c
Solution
(i) Debit-Asset (ii) Credit-Liability
(iii) Credit-Capital (iv) Credit-Revenue
(v) Debit-Expense (vi) Debit-Asset
(vii) Debit-Asset (viii) Debit-Expense
(ix) Credit-Liability (x) Credit-Liability
Exercise III
n hich side ill the decrease in the Iolloing accounts be
recorded? Also, mention the nature oI the account:
(i) Jack (Proprietor) (ii) reight A/c (iii) Cartage A/c (iv) Bank
A/c (v) urniture A/c (vi) Machinery A/c (vii) Bills Payable
A/c (viii) Salary utstanding A/c (ix) Ram (Supplier)
(x) Sohan (Customer)
Solution
(i) Debit-Capital (ii) Credit-Expense
(iii) Credit-Expense (iv) Credit-Asset
(v) Credit-Asset (vi) Credit-Asset
(vii) Debit-Liability (viii) Debit-Liability
(ix) Debit-Liability (x) Credit-Asset
ACCOUNTING PROCESS
2. CLASSIYING
(LEGER POSTING)
Date Particulars olio Amount Date Particulars olio Amount
-
Name oI other
account
Page No.
oI
Journal
here
Entry as
Iirst
recorded
- -
Name oI other
account
Page No.
oI
Journal
here
Entry as
Iirst
recorded
-
Dr. Name oI the Account Cr.
RM AN ACC&NT
HAT IS A
LEGER?
A Ledger may be deIined as a "book or register hich contains
all the accounts oI a business."
The Ledger is called the Principal Book.`
The process oI transIerring the inIormation contained in a
Journal to a Ledger is called posting.`
J&RNAL
Date Particulars L..* Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
1
urniture A/c ..Dr.
To Cash A/c
( or/Being Iurniture purchased Ior cash)
5
1
1,500
1,500
Illustration
urniture purchased Ior cash Rs. 1,500 on March 1, 2007
- contd.-
* L.. Page Number oI the Ledger Book on hich the account appears
Page No.1
Dr. &RNIT&RE ACC&NT Cr.
Date Particulars olio* Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March
1
April
1
To Cash A/c
To Balance
b/d
1 1,500
1,500
1,500
2007
March
31
By Balance c/d 1,500
1,500
Page No. 5
LEDER
* olio Page Number oI the Journal on hich the transaction appears
Dr. CASH ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio* Amount
Rs.
2007
March
31
To Balance c/d 1,500
1,500
2007
March
1
April
1
By urniture A/c
By Balance b/d
1 1,500
1,500
1,500
Page No. 1
* olio Page Number oI the Journal on hich the transaction appears
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
2
Cash A/c ..Dr.
To Capital A/c
( or/Being the capital brought in by
Mohan)
50,000
50,000
Case Study (Mohan &Co.)
1.Mohan commences business ith Rs. 50,000 on March 2, 2007.
2. March 2, 2007: pened an account in State Bank oI India and deposited Rs. 5,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
2
Bank A/c ..Dr.
To Cash A/c
(or cash deposited into bank to open an
account)
5,000
5,000
J&RNAL
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
2
urniture A/c ..Dr.
To Cash A/c
( or Iurniture purchased Ior cash)
2,000
2,000
3. March 2, 2007: Purchased Iurniture Ior Rs. 2,000.
4. March 5, 2007: Purchased goods Ior cash Rs. 4,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
5
Purchase A/c ..Dr.
To Cash A/c
(or goods purchased Ior cash)
4,000
4,000
J&RNAL
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
8
Purchases A/c ..Dr.
To Ram Narain Bros.
( or goods purchased Irom Ram Narain
Bros. on credit)
10,000
10,000
5. March 8,2007: Purchased goods Ior Rs. 10,000 on credit Irom M/s. Ram Narain Bros.
6. March12, 2007: Sold goods to M/s. Ram &Co. Ior cash, Rs. 6,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
12
Cash A/c ..Dr.
To Sales A/c
(or goods sold Ior cash)
6,000
6,000
J&RNAL
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
15
Ramesh`s A/c ..Dr.
To Sales A/c
( or goods sold on credit to Ramesh)
3,000
3,000
7. March 15,2007: Sold goods to Ramesh on credit Ior Rs. 3,000.
8. March 17, 2007: Received cash Irom Ramesh Rs. 2,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
17
Cash A/c ..Dr.
To Ramesh
(or the amount received Irom Ramesh)
2,000
2,000
J&RNAL
9. March 31, 2007: Paid Rent 1 Rs.1,000.
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
31
Rent A/c ..Dr.
To Cash A/c
(or rent paid )
1,000
1,000
J&RNAL
10. March 31,2007: Paid Rs. 2,500 to the clerk as salary.
J&RNAL
Date Particulars L.. Dr. Amount
Rs.
Cr. Amount
Rs.
2007
March
31
Salaries A/c ..Dr.
To cash A/c
( or salary paid in cash)
2,500
2,500
Dr. CASH ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March 2
March
12
March
17
April 1
To Capital A/c
To Sales A/c
To Ramesh
To Balance b/d
50,000
6,000
2,000
58,000
43,500
2007
March 2
March 2
March 5
March
31
March
31
March
31
By Bank A/c
By urniture A/c
By Purchase A/c
By Rent A/c
By Salaries A/c
By Balance c/d
5,000
2,000
4,000
1,000
2,500
43,500
58,000
LEGER ACCOUNTS
Dr. CAPITAL ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March
31
To Balance c/d 50,000
50,000
2007
March
2
April 1
By Cash A/c
By Balance b/d
50,000
50,000
50,000
Dr. BANK ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March 2
April 1
To Cash A/c
To Balance b/d
5,000
5,000
5,000
2007
March
31
By Balance c/d 5,000
5,000
Dr. &RNIT&RE ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March 2
April 1
To Cash A/c
To Balance b/d
2,000
2,000
2,000
2007
March
31
By Balance c/d 2,000
2,000
Dr. P&RCHASES ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March
5
March
8
April 1
To Cash A/c
To Ram
Narain Bros.
To Balance b/d
4,000
10,000
14,000
14,000
2007
March
31
By Balance c/d 14,000
14,000
Dr. RAM NARAIN BRS. ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March
31
To Balance c/d 10,000
10,000
2007
March
8
April 1
By Purchases A/c
By Balance b/d
10,000
10,000
10,000
Dr. SALES ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March
31
To Balance c/d 9,000
9,000
2007
March
12
March
15
April 1
By Cash A/c
By Ramesh A/c
By Balance b/d
6,000
3,000
9,000
9,000
Dr. RAMESH ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March
15
April 1
To Sales A/c
To Balance b/d
3,000
3,000
1,000
2007
March
17
March
31
By Cash A/c
By Balance c/d
2,000
1,000
3,000
Dr. RENT ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March
31
April 1
To Cash A/c
To Balance b/d
1,000
1,000
1,000
2007
March
31
By Balance c/d 1,000
1,000
Dr. SALARIES ACC&NT Cr.
Date Particulars olio Amount
Rs.
Date Particulars olio Amount
Rs.
2007
March
31
April 1
To Cash A/c
To Balance b/d
2,500
2,500
2,500
2007
March
31
By Balance c/d 2,500
2,500
ACCOUNTING PROCESS
3. SUMMARISING
(TRIAL ALANCE AN PROIT
AN LOSS ACCOUNT AN
ALANCE SHEET)
HAT IS TRIAL ALANCE?
Trial Balance is a list oI accounts shoing balances oI the
ledger accounts, i.e. debit balances and credit balances.
TRIAL BALANCE
as at March 31,2007
S. No. Name oI Accounts L.. Dr. Balance
Rs.
Cr. Balance
Rs.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Cash A/c
Capital A/c
Bank A/c
urniture A/c
Purchases A/c
Ram Narain Bros. A/c
Sales A/c
Ramesh A/c
Rent A/c
Salaries A/c
43,500
5,000
2,000
14,000
1,000
1,000
2,500
50,000
10,000
9,000
69,000 69,000
INANCIAL STATEMENTS
1. Profit and Loss Account
2. alance Sheet