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Lesson 1: basics of accounting

IntroductionAccounting is a finance support system that

Report transactions Classifies transactions events. Expresses transactions in monetary terms. Helps to monitor the financial performance and condition of the business. Help to evaluate the business. Help to establish control for the business.

1.TRANSCTIONSA transaction is an event that changes the organizations

financial position and/or its earnings.

Receipts-cash or bank Payment-cash or bank Purchase Sales

The usual transactions of a business are

Purchase of goods either as raw material for further processing oras finished goods for resale.

Payment of expenses incurred towards business.

Sale of goods or services Receipts, in cash or via cheques Other payments,in cash and cheque.


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In case of doing business , the parties dealt with are

parties dealt with in a business process

TYPES OF ACCOUNTS

The three types of accounts maintained for transactions with parties

are

Personal account Real account Nominal accountPERSONAL ACCOUNT is the account of persons whom the

business is required to deal with

example include

BUSINESS

Investors

Employees

Banks

Financier

Suppliers

Costomers


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suppliers customers lenders

Real account is nominated for assets owned or possessed by the

business.Example include

building furniture

cash

Nominal account are accounts where income and expenses are

recorded. Examples include

sales cost of goods sold salary expenses

Accounts can be broadly classified under the following five groups

Assets Liabilities Capital Revenue Expenses

Double entry system

Voucher

transactions

Primary books-registers

Cash, purchase, sales etcLedgers collection of accounts


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The overall equation thar need to be kept in mind is

Value of things/amount owned by the business=amount owned by the business

The relationship is expressed in the form of following accounting equation

Assets =Liabilities +Equity

Rule of accounting

PERSONAL ACCOUNT REAL ACCOUNT NOMINAI ACCOUNT

Debit the receiver what come in expences and losses

Credit the giver what goes out income,gains and pr


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Mode of accounting

Journals and ledgers

A journal is a book In which business transactions are

entered in chronological order. a record of single

business transaction is called a journal entry. every

journal entry is supported by a voucher, evidenceing the

related transaction.

a voucher is a document containing the details of a

financial transaction. examples include sales invoice,

purchase invoice, payslip, rent receipt and so on.

an account is a statement of transactions affecting any

particular asset, liability, expense or income. a ledger is

the book in which all the accounts are maintained. a

chart of accounts is a list of all accounts titles used by an

organisation.

posting

posting is the process by which information about

transaction is transferred or moved to an account.


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accounting period

a regular period of time, such as a quarter or a year, for

which a financial statement is generated is called anaccounting period.

Trial balance

a trail balance is a list of the balances of all ledger

accounts. it is prepared after all the transactions are

entered in a journal, journal entries posted to the ledger

and ledger accounts balanced. it is the sum of balances of

all real, personal and nominal accounts of the

organisation.

a details trail balance has columns for

account name debit balance credit balance

FINANCIAL STATEMENTS

a financial statement is a periodic report prepared fromthe accounting records of a company. Financial

statements include the profit and loss statement (or

income statement), the balance sheet and cash flow

statement.


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financial statements are usually compiled on a quarterly

or an annual basis.

for reporting convenience, the profit and loss statementis divided into

trading account profit and loss account

The profit an loss statement can be further classified into

2 level-

gross profitgross profit = netsales cost of sales

net profitnetprofit = (gross profit + other income )(selling and

administrative expenses + depreciation + interest + taxes

+ other expenses )

TRADING ACCOUNT

the trading account is prepared so as to arrive at the

gross profit earned by an organisation over a specified

period.

PROFIT AND LOSS ACCOUNT


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the profit and loss account gives the net profit earned by

a company, after considering all other incomes and

expenses incurred over a period.

BALANCE SHEET

the balance sheet is a statement that summarises the

assets and liabilities of a business. the excess of assets

over liabilities is the net worth of a business.


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Lesson -2

Business organizations

Introduction

Business organizations perform a variety of transactions and can classifies as

Services organizations Trading organizations

Manufacturing organizations


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Services organizations

An organization providing services is called a

services organization.

Accounting in a service organization

business process in a services organization

Customer

Payment of bills

Service organization

Services


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Trading organizations

An T organization involved in the process of buying and selling is calles a Tradingorganizations

business process in a Trading organizations

collections

demandcustomer Trading organization

Inventory based on costomer demand

Arrival of stock

sale


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Accounting in a manufacturing organization

Business process in a manufacturing organization

Finished goods

Working capital

management

Inventory

planning

Manufacturing

organization

Customer

Demand

Market

Consumption


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lesson 3

accounting on computers

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