Study Live Education Pvt Ltd

for FY 2014-15

Steps in Journalising

The process of analysing the business transactions under the
heads of debit and credit and recording them in the Journal is called
Journalising. An entry made in the journal is called a ‘Journal Entry’.

Solve it...

Solution

Accounting Equation

Assets = Equities
Assets = Capital + Liabilities (A = C+L)
Capital = Assets – Liabilities (C = A–L)
Liabilities = Assets – Capital (L = A–C)

Classification of Accounts

BASIC ACCOUNTING PROCEDURES - I
DOUBLE ENTRY SYSTEM OF BOOK KEEPING

Double Entry System

the basic principle of this system is, for every debit, there
must be a corresponding credit of equal amount and for every credit,
there must be a corresponding debit of equal amount

Features
i. Every business transaction affects two accounts.
ii. Each transaction has two aspects, i.e., debit and credit.
iii. It is based upon accounting assumptions concepts and
principles.
iv. Helps in preparing trial balance which is a test of arithmetical
accuracy in accounting.
v. Preparation of final accounts with the help of trial balance.

Basic Accounting Terms

Proprietor
A person who owns a business is called its proprietor. He
contributes capital to the business with the intention of earning profit.

Capital
It is the amount invested by the proprietor/s in the business.

Assets
Assets are the properties of every description belonging to the
business

Liabilities
Liabilities refer to the financial obligations of a business

Drawings
It is the amount of cash or value of goods withdrawn from the
business by the proprietor for his personal use

Debtors
A person (individual or firm) who receives a benefit without
giving money or money’s worth immediately, but liable to pay in
future or in due course of time is a debtor.

Creditors
A person who gives a benefit without receiving money or money’s
worth immediately but to claim in future, is a creditor

Purchases
Purchases refers to the amount of goods bought by a business
for resale or for use in the production.

Purchases Return or Returns Outward
When goods are returned to the suppliers due to defective quality
or not as per the terms of purchase, it is called as purchases return

Sales
Sales refers to the amount of goods sold that are already bought
or manufactured by the business.

Sales Return or Returns Inward
When goods are returned from the customers due to defective
quality or not as per the terms of sale, it is called sales return or
returns inward.

Stock
Stock includes goods unsold on a particular date. Stock may be
opening and closing stock.

Revenue
Revenue means the amount receivable or realised from sale of
goods and earnings from interest, dividend, commission, etc.

Expense
It is the amount spent in order to produce and sell the goods
and services.

Income
Income is the difference between revenue and expense.

Voucher
It is a written document in support of a transaction

Invoice
Invoice is a business document which is prepared when one sell
goods to another

Receipt
Receipt is an acknowledgement for cash received. It is issued
to the party paying cash

Account
Account is a summary of relevant business transactions at one
place relating to a person

Distinction between Book-keeping and Accounting