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Session on AccountingBy $treet 20

IntroductionWhat is accounting ?

Language of business

Means to communicate financial information

A way to convey information about a business to users.

Branches of Accounting Financial Accounting

Cost Accounting

Managerial Accounting

Tax Accounting

Elements of Financial Statements Assets :- Economic resources of the enterprise that carry future economic benefits

Current AssetsCash & Cash EquivalentsAccounts ReceivablesPrepaid ExpensesMarketable SecuritiesInventory

Non-current AssetsProperty Plant & Equipment (PPE)

Elements of Financial Statements Liabilities :- Financial obligations of an enterprise

Current LiabilitiesAccounts PayablesUnearned RevenueCurrent portion of Long Term Debt

Non-current LiabilitiesLong Term Debt

Elements of Financial Statements Equity :- Residual claim on the assets after deducting the liabilities

Common StockPreferred StockRetained Earnings

Revenue :- Inflows from sale of goods/services

Expenses :- Amounts incurred to generate revenue

Accounting Equation Assets = Liabilities + Owners Equity

The equation should always be in balance. This equation is used to create a :-

Balance Sheet

Double Entry Book-Keeping A transaction has to be recorded in at least two accountsEg. Purchase equipment for Rs. 10000 cash ?

Major Financial Statements Balance Sheet :- Outlines Fundamental Accounting Equation

Income Statement : - Profit & Loss Statement. Revenues & Expenditure

Cash Flow Statement :- Cash Inflows & Outflows

Some more concepts TermCashGoods/ServiceExampleAsset/LiabilityUnearned RevenueReceivedMagazine SubscriptionLiabilityAccrued RevenueProvidedGoods sold on creditAssetDeferred ExpensePaidPrepaid RentAssetAccrued ExpenseReceivedLabour WagesLiability

Accural Revenue recognized when earned and Expense recognised when incurred9 DEBIT/CREDIT RULE-1Assets = Liabilities + Owners Equity

If increase in Assets --> Then Debit the account If increase in Liabilities/Owners Equity --> Then Credit the account

If decrease in Assets --> Then Credit the account If decrease in Liabilities/Owners Equity --> Then Debit the account

AssetsLiabilities/Owners EquityDebitCredit

No superiority relationship between Debit & CreditDebit balance should be equal to credit balance10DEBIT/CREDIT RULE-2Types of AccountsMeaningExampleDebit/Credit RuleReal accountsAccounts relate to tangible or intangible real assetsLand A/c, Goodwill A/c

Debit what comes in Credit what goes outPersonal accountsAccounts relate to a person or an entityRams A/c, Marutis A/cDebit the receiver Credit the giverNominal accountAccounts relate to losses, expenses, profit and gainsPurchase A/c, Sales A/c, Loss A/c, Discount Received A/cDebit all expenses & lossesCredit all gains &profits

Accural Revenue recognized when earned and Expense recognised when incurred11Sample CaseTransactionsDateDetailsOpening bank balance Rs. 91,000Opening cash balance Rs. 1,20,000Travel Advance Account Rs. 10,0001-Jan-11Sold goods worth Rs. 100,000 for cash with 10% discount.3-Jan-11Purchased goods worth Rs. 30,000 for cash 15-Jan-11Incurred office expenses of Rs. 50,000.16-Jan-11Paid staff salary of Rs. 100,000 for the month which is net of tax deducted at source (TDS) of Rs. 30,000.17-Jan-11Deposited TDS of Rs. 30,000 with tax authorities.3-Feb-11Purchased an equipment of Rs. 5,00,000 from M/s. ABC and paid by check4-Feb-11Borrowed Rs. 10,00,000 from bank. The money is deposited in the business bank account5-Feb-11Purchased computer for Rs. 50,000 and payment made by check.Transactions

Transactions (Contd.) DateDetails21-Feb-11Purchased goods on credit Rs. 25,00,000.1-Mar-11Sold goods on credit Rs.40,00,000.3-Mar-11One old customer who owned Rs. 20,000 could pay only Rs. 15,000 in full settlement of his dues.5-Mar-11Brought ten personal computers for Rs. 3,00,000 and the amount is paid by check.15-Mar-11Paid annual maintenance charges (AMC) for the computers Rs. 6,000.21-Mar-11Paid staff welfare expenses of Rs. 5,000 by check23-Mar-11Received check of Rs. 38,00,000 from customers.27-Mar-11Paid suppliers by check Rs. 22,00,000.30-Mar-11Paid advance income tax of Rs. 10,00,000 by check.31-Mar-11Settled travel bills of sales manager of Rs. 15,000 and adjusted travel advance of Rs. 10,000.

Transactions (Contd.)

Journal EntriesDateTransaction Dr. Amount Cr. Amount 1-Jan-11Cash Account 90,000 To Sales Account 90,000 (Sale of goods at 10% discount)3-Jan-11Purchase Account 30,000 To Cash Account 30,000 (Purchase of goods)15-Jan-11Office Expenses Account 50,000 To Cash Account 50,000 (Being office expenses incurred)16-Jan-11Salary Account130,000 To Cash Account 100,000 To TDS Account 30,000 (Paid salary after TDS)Journal Entries

Journal EntriesDateTransaction Dr. Amount Cr. Amount 17-Jan-11TDS Account 30,000 To Cash Account 30,000 (Deposited TDS with tax authorities)3-Feb-11Equipment Account 500,000 To Bank Account 500,000 (Equipment purchased)4-Feb-11Bank Account 1,000,000 To Loan Account 1,000,000 (Loan taken from Bank)5-Feb-11Computer Account 50,000 To Bank Account 50,000 (Paid M/s ABC by check)Journal Entries

Journal EntriesDateTransaction Dr. Amount Cr. Amount 21-Feb-11Purchase Account 2,500,000 To Creditors Account 2,500,000 (Goods purchased on credit)1-Mar-11Debtors Account 4,000,000 To Sales Account 4,000,000 (Goods sold on credit)3-Mar-11Cash Account 15,000 Discount Allowed Account 5,000 To Debtors Account 20,000 (Realised Rs. 15,000 from a customer in full settlement of his due)5-Mar-11Computer Account 300,000 To Bank Account 300,000 (Brought ten computers and paid by check)Journal Entries

Journal EntriesDateTransaction Dr. Amount Cr. Amount 15-Mar-11Maintenance Charges Account 6,000 To Cash Account 6,000 (Paid annual maintenance charges for computers)21-Mar-11Staff Welfare Expenses Account 200,000 To Bank Account 200,000 (Being staff welfare expenses incurred)23-Mar-11Bank Account 3,800,000 To Debtors Account 3,800,000 (Amount realised from customers)27-Mar-11Creditors Account 2,200,000 To Bank Account 2,200,000 (Paid suppliers by check)Journal Entries

Journal EntriesDateTransaction Dr. Amount Cr. Amount 30-Mar-11Advance Income Tax Account 1,000,000 To Bank Account 1,000,000 (Advance Tax Paid)31-Mar-11Travelling Expenses Account15,000 To Travel Advance Account 10,000 To Cash Account 5,000 (Settled travel bill and adjusted travel advance)Journal Entries

Ledger AccountsPurchases AccountDateParticulars Debit Date Particulars Credit 3-Jan-11To Cash Account 30,000 31-Mar-11By Profit and Loss Account 2,530,000 21-Feb-11To creditors account 2,500,000 2,530,000 2,530,000 Office Expenses AccountDateParticulars Debit Date Particulars Credit 15-Jan-11To cash Account 50,000 31-Mar-11By Profit and Loss Account 50,000 50,000 50,000 Salary AccountDateParticulars Debit Date Particulars Credit 16-Jan-11To cash account 100,000 31-Mar-11By Profit and Loss Account 130,000 17-Jan-11To TDS Account 30,000 130,000 130,000 Ledger Accounts

Ledger AccountsSales AccountDateParticulars Debit Date Particulars Credit 1-Mar-11By Debtors Account 4,000,000 31-Mar-11To Profit and Loss A/c 4,090,000 1-Jan-11By Cash Account 90,000 4,090,000 4,090,000 Discount Allowed AccountDateParticulars Debit Date Particulars Credit 3-Mar-11To debtors account 5,000 31-Mar-11By Profit and Loss Account 5,000 5,0005,000TDS AccountDateParticulars Debit Date Particulars Credit 16-Jan-11To cash account30,000 17-Jan-11By Salary Account 30,000 30,000 30,000 Ledger Accounts

Ledger AccountsCash AccountDateParticulars Debit Date Particulars Credit 1-Jan-11To opening balance b/d 120,000 3-Jan-11By Purchases Account 30,000 1-Jan-11To Sales A/c 90,000 15-Jan-11By Office Expenses A/c 50,000 3-Mar-11To Debtors A/c 15,000 16-Jan-11By Salary A/c 100,000 16-Jan-11By TDS A/c 30,000 15-Mar-11By Maintenance chgs A/c 6,000 31-Mar-11By Travelling expenses A/c 5,000 31-Mar-11By Balance C/d 4,000 225,000 225,000 Bank AccountDateParticulars Debit Date Particulars Credit 1-Jan-11To opening balance b/d 91,000 3-Feb-11By Equipment Account 500,000 4-Feb-11To Loan Account 1,000,000 5-Feb-11By Computer Account 50,000 23-Mar-11To Debtors Account 3,800,000 3-Mar-11By Computer Account 300,000 21-Mar-11By staff welfare exp A/c 200,000 30-Mar-11By Adv. Income Tax A/c 1,000,000 31-Mar-11By Creditors Account 2,200,000 31-Mar-11By Balance c/d 641,000 4,891,000 4,891,000 Ledger Accounts

Ledger AccountsDebtors AccountDateParticulars Debit Date Particulars Credit 1-Mar-11To sales account 4,000,000 3-Mar-11By discount allowed A/c 5,000 3-Mar-11By Cash account 15,000 23-Mar-11By bank account 3,800,000 31-Mar-11By Balance c/d 180,000 4,000,000 4,000,000 Creditors AccountDateParticulars Debit Date Particulars Credit 27-Mar-11To bank account 2,200,000 21-Feb-11By Purchases Account 2,500,000 31-Mar-11To balance c/d 300,000 2,500,000 2,500,000 Ledger Accounts

Ledger AccountsEquipments AccountDateParticulars Debit Date Particulars Credit 3-Feb-11To Bank A/c 500,000 31-Mar-11By Balance c/d 500,000 500,000 500,000 Staff Welfare Expenses AccountDateParticulars Debit Date Particulars Credit 21-Mar-11To Bank A/c 200,000 By Profit and Loss A/c 200,000 200,000 200,000 Advance Income Tax AccountDateParticulars Debit Date Particulars Credit 30-Mar-11To Bank A/c 1,000,000 31-Mar-11By balance c/d 1,000,000 1,000,000 1,000,000 Ledger Accounts

Ledger AccountsTravel Advance AccountDateParticulars Debit Date Particulars Credit 1-Jan-11To balance b/d 10,000 31-Mar-11By travelling expenses A/c 10,000 10,000 10,000 Computers AccountDateParticulars Debit Date Particulars Credit 5-Feb-11To Bank A/c 50,000 31-Mar-11By Balance c/d 350,000 5-Mar-11To Bank A/c 300,000 350,000 350,000 Loan AccountDateParticulars Debit Date Particulars Credit 31-Mar-11To balance c/d 1,000,000 4-Feb-11By Bank A/c 1,000,000 1,000,000 1,000,000 Ledger Accounts

Trial BalanceTrial Balance 31 March, 2011 Debit Credit Cash 4,000 Bank 641,000 Debtors 180,000 Creditors 300,000 Profit and Loss Account 1,375,000 Equipments 500,000 Computers 350,000 Loan Account 1,000,000 Advance Income Tax Account 1,000,000 Total 2,675,000 2,675,000 Trial Balance

Profit and Loss AccountDateParticulars Debit Date Particulars Credit 31-Mar-11To Purchases A/c 2,530,000 31-Mar-11By Sales A/c 4,090,000 31-Mar-11To Office Expenses A/c 50,000 31-Mar-11To Salaries A/c 130,000 31-Mar-11To Discount Allowed A/c 5,000 31-Mar-11To Profit Transferred to 1,375,000 Balance Sheet 4,090,000 4,090,000 Profit and Loss Account

Balance SheetBalance Sheet as at 31st March 2011 Liabilities(Rs) Assets(Rs) Creditors 300,000 Cash 4,000 Profit and Loss Account 1,375,000 Bank 641,000 Loan Account 1,000,000 Debtors 180,000 Equipments 500,000 Computers 350,000 Advance Payment of Tax1,000,000 2,675,000 2,675,000 Balance Sheet

Hope You All Are Still Awake

Team $treet :-Rohit ChopraAnupam DhamijaApoorva GargMeera MohanKumar UtkarshPinaki GhoshSourav BhattacharyaNitin Sengar