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FAC Accounting Cycle

The document discusses the basic accounting cycle which includes recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements such as the income statement and balance sheet. It also covers key accounting concepts such as debits and credits for different types of accounts, classifying expenditures and revenues as capital or revenue items, and definitions of capital and revenue receipts and expenditures.

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shubh jain
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76 views14 pages

FAC Accounting Cycle

The document discusses the basic accounting cycle which includes recording transactions in a journal, posting to ledgers, preparing a trial balance, and ultimately financial statements such as the income statement and balance sheet. It also covers key accounting concepts such as debits and credits for different types of accounts, classifying expenditures and revenues as capital or revenue items, and definitions of capital and revenue receipts and expenditures.

Uploaded by

shubh jain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Financial Accounting

M B Ragupathy – FAC-SME @ SNU


Golden Rules of Accounting

Personal account
• Debit the receiver
• Credit the giver

Real account
• Debit what comes in
• Credit what goes out
Nominal account
• Debit all expenses and losses
• Credit all incomes and gains
Basic Accounting Cycle
• Journal
– Record of primary entry
– In chronological order
– Loose leaf form / book form
– Vouchers and the data entry
• Ledger
– Classification part of accounting process
– One separate ledger a/c will be opened for every item of
transaction
– Posting  entering the transaction into the ledger
– Balancing  … at the end of the month
Basic Accounting Cycle
• Trial Balance
– Summary of all balances of ledger a/c
– Excess debit will be debited and the excess
credit, credited in the T B.
– Debit and credit sides must be equal
– Checks the arithmetic accuracy of transactions
– Final a/c s will be prepared with the help of
Trial Balance
Basic Accounting Cycle
• The Income Statement
– Trading a/c.: All direct expenses and direct
incomes related with manufacturing / trading
are entered
– Profit & Loss a/c.: All indirect / office and
administrative expenses will be entered.
– Profit & Loss Appropriation a/c.: Allocation of
Net Profit to various stake holders’ purposes.
Basic Accounting Cycle
• Balance sheet
– A position statement
– Statement of assets and liabilities of the firm on a
particular date.
– Capital and profit are liabilities
– No closing of balance sheet entries
• The equation
– Total liabilities = Total assets
– Capital + outside liabilities = Total assets
• Liquidity or Permanency order or marshalling
Capital and Revenue…
• Classifying expenses and incomes into
capital and revenue items.
• Capital items are entered in balance sheet
• Revenue items are entered in profit and loss
a/c
• Written-off or amortised expenses will be
entered at P&L a/c.
Capital Expenditure
• … of fixed assets (purchase / value adition)
• … utility period more than one accounting
year
• … materiality concept can also be applied
for classification
Revenue Expenditure
• … benefits enjoyed immediately or within
one accounting year
• … routine and recurring in nature
• … wages, salaries, rent etc.
Receipts
• Capital receipts
– Makes a long term claim or from disposal of
fixed assets
– Bank loan, income from sale of machinery etc.
• Revenue receipts
– Arises during the regular course of business
– Recurring in nature
– … sale of goods
Deferred revenue expenditure
• Revenue in nature but usefulness stretches
to more than one accounting year
• Written-off over a period
• Preliminary expenses, share issue expenses
etc.
Warming up to accounting cycle
– On August 1, Roshan invested Rs.5,000 in business as
owner
– On August 1, the firm paid Rs.750 rent for the month of
August
– The firm borrowed Rs.4000 from a bank on a 9% note
payable, with interest payable quarterly and the principal
due in full at the end of two years.
– Equipment costing Rs.7,200 was purchased for cash. The
expected life of the equipment was 10 years
Warming up to accounting cycle
– An initial inventory of pizza ingredients and boxes
was purchased on credit for Rs.800
– In August pizza sales were Rs.12,000, all for cash.
– During August, the pizzeria’s employees were paid
Rs.3,000 in wages.
– During the month, an additional Rs.5,750 of
ingredients and boxes was purchased on credit.
– August sales consumed Rs.6,000 of ingredients
and boxes.
Warming up to accounting cycle
– At the end of the month, bills for various utilities
used in August were received and paid, totaling
Rs.450.
– During the month, Rs.4,800 of accounts payable
was paid
– On August 13, the firm catered a party for a fee of
Rs.200. Because the customer was a friend of
Roshan, the customer was told that payment could
be made later in the month.
– On August 29, a cheque was received rom
Roshan’s friend for the party of August, 13.

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