ACCOUNTING FOR

BUSINESS

UNIT-2

BASIC ACCOUNTING PROCEDURES

 Syllabus of Unit – 2
BASIC ACCOUNTING PROCEDURES

• Double Entry System of Book-Keeping –

Golden rules of accounting
• Journal– Books of original entry
• Ledger – Posting – Balancing an account -
simple problems on Journal & ledger
 MEANING OF ACCOUNT
• An account may be defined as a systematic and
summarized record of transactions pertaining to
one person, one property or one head of
expense/loss or gain. An account is given a
suitable heading which may be of the person,
property or an expense or a gain.

• An account is always divided into two sides. The

left hand side is known as the debit side and the
right hand side is known as the Credit side.
 CLASSIFICATION OF ACCOUNTS

Accounts may be classified as under:

1. Personal Accounts
2. Impersonal Accounts
a)Real or Property accounts
b)Nominal or Fictitious Accounts
CLASSIFICATION OF ACCOUNTS
 Types of Accounts
1. Personal Accounts: These are the accounts of
individuals, firms, limited companies, local authorities,
associations with whom the businessman deals. A
separate account is maintained for every person or firm
or company. These accounts may be of creditors,
debtors, bankers etc. For recording transactions, these
accounts are treated as “Personal Accounts”. Personal
account may be
 Types of Personal Accounts
a) Natural Personal Accounts: - Accounts of natural or physical persons
i.e. Accounts of Human being e.g. Ram Account, Sita Account etc.
 
b) Artificial Personal Accounts: - Artificial personal accounts are
accounts of artificial or legal person i.e. Accounts of partnership firm,
companies, clubs, associations, banks, government institutions, school
and colleges etc.
 
c) Representative Personal Accounts: - Representative personal
accounts i.e. accrued expenses accounts, outstanding expenses
accounts, prepaid expenses accounts, outstanding incomes accounts
and income received in advance accounts etc. These accounts are
called representative personal account, as they represent certain
person behind them.
•  
 Types of Account

2. Impersonal Accounts: These are the

accounts which relate to other than
persons. These are again decided into
further two types, viz
 Types of Impersonal Account
a) Real Accounts: These are the accounts of properties,
assets or possessions of the businessman. These accounts
represent the belongings of the businessman. A separate
account is maintained for each class of property or asset.
Real account may assume the following two forms:
– Tangible Real Accounts: These accounts consists of
assets and properties which can be seen, touched, felt,
measured, purchased and sold.  
– Intangible Real Accounts: These accounts consist of
assets and properties which cannot be seen, touched, felt
but they are capable of measurement in terms of money.
•  
 Types of Impersonal Account
b) Nominal Accounts: These are the accounts of expenses
or losses and gains or income. These accounts are called
fictitious account as they do not represent any tangible
asset. They exist only in name and cannot be seen or
touched. A separate account is maintained for each head
of expense or loss or gain or income. For example,
interest account, commission account, discount account,
postage and telegrams account, rent account, salaries
account, etc. These accounts cannot be seen, touched
and hence they are unreal.
 
RULES OF DOUBLE ENTRY SYSTEM
• Personal Accounts: - “DEBIT THE RECEIVER
AND CREDIT THE GIVER”

• Real Accounts : - “DEBIT WHAT COMES IN

AND CREDIT WHAT GOES OUT”

• Nominal Accounts: - “DEBIT ALL EXPENSES

AND LOSSES AND CREDIT ALL GAIN OR
INCOME’.
 STAGES OF ACCOUNTING
Double Entry Bookkeeping
1) Day Book
2) Journal
3) Ledger
4) Trial Balance
Final Accounts
5) Trading Account
6) Profit and Loss account and
7) Balance sheet
 Accounting Cycle
• It is the name used for the various works
involved in accounting. It represents the
sequence of work involved in accounting
in each accounting year.
• As the works follows the same sequences
each year, the works collectively is called
as “ Accounting Cycle”.
Accounting Cycle
 Accounting Equation
• Every Business receives the fund from
many resources and spends the amounts
for different purposes. The amounts
received should be equal with the amount
spend at every stage.
• The amount received should be equal to
the amount spend. This is known as
“Accounting Equation”.
 Accounting Equation

Assets = Capital + Liabilities

 Meaning of Journal
• Journal is derived from a French word
‘Jour’ which means a day.
• Journal , therefore means a daily
record of business transactions.
Journal is a book of original entry
because transaction is first written in
the Journal from which it is posted to
the ledger at any convenient time.
 Features of Journal
• Is a book of original entry because
transaction is recorded at first stage in this
book.
• Is the first step in the recording process of
double entry system of book-keeping.
• Is also known as day book or diary because
transactions are recorded in it on day to day
basis as and when they take place.
• Is a chronological record of all transactions
taking place according to the order of
occurrence.
• Every entry in journal is accompanied with
narration which describes, briefly, true nature
and context of the transactions.
• Amount of the transaction is recorded in both
debit and credit column-side by side. It helps
in maintaining arithmetical accuracy of the
books.
• Journal and ledger are inter linked because
next step after journal is the ledger.
 Format of Journal
Date Amount
Year & Particulars L.F. Debit Credit
Date
Month (Rs) (Rs)
Name of Account to be debited(Dr)
To Name of the Account to be Credited (Cr)
 Journalize the following transactions in the
books of Ram
• 1st June 2017- Started business with cash Rs
45,000.
• 1st June 2017- Paid into bank Rs. 25,000.
• 2nd June 2017- Goods purchased for cash Rs.
15,000.
• 3rd June 2017- Purchase of furniture &
payment by cheque Rs. 5,000.
• 5th June 2017- Sold goods for cash Rs. 8,500.
 June 2017- Sold goods to Arvind Walia
8th

Rs. 4,000.
10th June 2017- Goods purchased from
Amrit Lal Rs. 7,000.
12th June 2017- Goods returned to Amrit lal
Rs. 1000.
15th June 2017- Goods returned by Arvind
Walia Rs. 200.
18th June 2017- Cash received from Arvind
Walia Rs 3760 & discount allowed to him Rs.
40.
• 21st June 2017-Withdrew for Pvt use Rs.
1,000.
• 21st June 2017-Withdrew from for business

Rs. 5,000.
• 25th June 2017- Paid telephone rent for one
year Rs. 400
• 28th June 2017- Cash paid to Amrit Lal in
full settlement of his account Rs. 5940.
• 30th June 2017 Paid for: Stationary Rs. 200,
Rent Rs. 1000 & salaries to staff Rs. 2500.
 Ledger
• A ledger account may be defined as a
summary statement of all transactions
relating to a person, asset, expense or
income which have taken place during a
given period of time and shows their net
effect.
 b.

Features of Ledger

•Ledger keeps all related information

at one place.
•Ledger is used to classify information.
•Ledger facilitates reporting.
•Ledger facilitates timely payment &
receipt.ipt.er facilitates reporting
 Ledger keeps all related information at one
place
 Cash Account
Date Particulars L Amount Date Particulars L Amount
F Rs. F Rs.

01/06/17 To Capital 45000 01/06/17 By Bank A/c 25000

05/06/17 A/c 8500 02/06/17 By Purchases A/c 15000
18/06/17 To Sales A/c 3760 25/06/17 By Telephone Rent 400
To Arvind 28/06/17 A/c 5940
21/06/17 Walia 5000 30/06/17 By Amrit Lal A/c 200
To Bank A/c 30/06/17 By Stationary A/c 1000
30/06/17 By Rent A/c 2500
30/06/17 By Salaries A/c 12220
By Bal c/d
62260 62260

01/07/17 12220
To Bal b/d
 Bank Account
Date Particulars L Amou Date Particulars L Amount
F nt Rs. F Rs.
01/06/17 To Cash A/c 25000 03/06/17 By Furniture A/c 5000
21/06/17 By Drawings A/c 1000
21/06/17 By Cash A/c 5000
30/06/17 By Bal c/d 14000

25000 25000

01/07/17 To Bal b/d 14000

 Capital Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
30/06/17 To bal c/d 45000 01/06/17 By cash a/c 45000

45000 45000

01/07/17 By bal b/d 45000

Purchases Account
Date Particulars L Amount Date Particulars L Amount
F Rs. F Rs.
02/06/17 To Cash A/c 15000 30/06/17 By bal c/d 22000
10/06/17 To Amrit Lal 7000

22000 22000

01/07/17 By bal b/d 22000

 Furniture Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
3/06/17 To Bank A/c 5000 30/06/17 By Bal c/d 5000

5000 5000

01/07/17 By Bal b/d 5000

Sales Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
30/06/17 To Bal c/d 12500 05/06/17 By Cash A/c 8500
08/06/17 By Arvind Walia 4000

12500 12500

01/07/17 By Bal b/d 12500

 Returns Inwards Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
15/06/17 To Arvind 200 30/06/17 By Bal c/d 200
Walia A/c

200 200

01/07/17 To Bal b/d 200

Return Outward Account

Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
30/06/17 To Bal c/d 1000 12/06/17 By Amrit Lal A/c 1000

1000 1000
 Returns Inwards Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
15/06/17 To Arvind 200 30/06/17 By Bal c/d 200
Walia A/c

200 200

01/07/17 To Bal b/d 200

Return Outward Account

Date Particulars L Amount Date Particulars L Amou
F Rs. F nt Rs.
30/06/17 To Bal c/d 1000 12/06/17 By Amrit Lal A/c 1000

1000 1000
 Discount Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
18/06/17 To Arvind 40 28/06/17 By Amrit Lal A/c 60
Walia
30/06/17 To Bal c/d 20

60 60

01/07/17 By Bal b/d 20

Drawings Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
21/06/17 To Bank A/c 1000 30/06/17 By Bal c/d 1000

1000 1000
 Telephone Rent Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
25/06/17 To Cash A/c 400 30/06/17 By Bal c/d 400

400 400

30/06/17 To Bal b/d 400

Stationery Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
30/06/17 To Cash A/c 200 30/06/17 By Bal c/d 200

200 200
 Rent Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
25/06/17 To Cash A/c 1000 30/06/17 By Bal c/d 1000

1000 1000

30/06/17 To Bal b/d 1000

Salary Account
Date Particulars L Amou Date Particulars L Amou
F nt Rs. F nt Rs.
30/06/17 To Cash A/c 2500 30/06/17 By Bal c/d 2500

2500 2500
 Trial Balance
A Trial Balance may be defined as a
Statement of debit and credit totals or
balances a view to test the arithmetic
accuracy of the.
 Objectives of preparing Trial
Balance
• To have balances of all the accounts of
the ledger in order to avoid the necessity
of going through the pages of the ledger to
find it out.
• To have a proof that the double entry of
each transaction has been recorded
because of its agreement.
• To have arithmetic accuracy of the books of
accounts because of the agreement of the
trial balance.

• To have material for preparing the profit &

loss account and balance sheet of the
business
 Preparation of Trial Balance
• Total Method: The debit & credit totals of
each account are shown in the two amount
columns against it.
• Balance Method: The difference of each
account is extracted. If the debit side of the
account is bigger in amount than the credit
side, the difference is put in the debit
column of the trial balance & vice versa.
 Trial Balance of Ram
as on 30th June 2017
SL No Name of the Account Debit Balance Rs. Credit Balance Rs.
1 Cash Account 12220 -
2 Capital Account - 45000
3 Bank account 14000 -
4 Purchases Account 22000 -
5 Furniture Account 5000 -
6 Sales Account - 12500
7 Return Inward Account - 1000
8 Return Outward Account - 20
9 Discount Account 1000 -
10 Drawings Account 400 -
11 Telephone Rent Account 200 -
12 Stationery Account 1000 -
13 Rent Account 2500 -
14 Salaries Account 200 -