Date post: | 28-Oct-2014 |
Category: |
Documents |
Upload: | paramveer-khosa |
View: | 38 times |
Download: | 2 times |
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 1
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 2
2Apr 7, 2023SITM
Accounting Cycle
Identifying monetary transactions;
Recording transactions;
Classifying the transactions;
Summarizing the transactions;
Interpreting the results.
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 3
3Apr 7, 2023SITM
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.
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 4
4Apr 7, 2023SITM
Journal
The transactions are recorded with the help of “Rules of Debit & Credit”.
For this purpose, business transactions are classified into three categories;
a) Transactions relating to persons;
b) Transactions relating to assets;
c) Transactions relating to incomes and expenses.
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 5
5Apr 7, 2023SITM
Classification of Accounts
For transactions relating to persons – called as Personal Accounts;
Types of Personal Accounts;
a) Natural: eg: natural person
b) Artificial : Company, bank
c) Representative Personal Accounts: It is a certain group of persons like salaries payable etc.
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 6
6Apr 7, 2023SITM
Rule – Personal Account
Debit the receiver
and
Credit the giver
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 7
7Apr 7, 2023SITM
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.
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 8
8Apr 7, 2023SITM
Rule – Real Account
Debit What Comes In
and
Credit What Goes Out
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 9
9Apr 7, 2023SITM
Nominal Accounts
For transactions relating to income and expenses – called as Nominal Accounts;
Types of Nominal Accounts;
a)Expenses / Losses
b)Incomes / Gains
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 10
10Apr 7, 2023SITM
Rule – Nominal Accounts
Debit all expenses / losses
And
Credit all incomes / gains
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 11
11Apr 7, 2023SITM
Case Study
Journalize the transactions;
Ledger Posting
Trial Balance
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 12
12Apr 7, 2023SITM
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.
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 13
13Apr 7, 2023SITM
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?
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 14
14Apr 7, 2023SITM
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?
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 15
15Apr 7, 2023SITM
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?
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 16
16Apr 7, 2023SITM
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.
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 17
17Apr 7, 2023SITM
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?
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 18
18Apr 7, 2023SITM
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.
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 19
Depreciation
Meaning
Importance
Legal Requirement
Effect on Dividend, Taxation, Managerial Remuneration and cash flows of the company.
Accounting Standard
Methods of Depreciation.
19Apr 7, 2023SITM
© 2006 Cisco Systems, Inc. All rights reserved. Cisco Public 20
Bank Reconciliation Statement
Meaning
Importance
Method of preparation
Managerial aspect as control
20Apr 7, 2023SITM