Accounting Mechanics is a vast topic, where collecting and recording accounting data for preparation of principal financial statements required by GAAP. For more such innovative content on management studies, join WeSchool PGDM-DLP Program: http://bit.ly/ZEcPAc

1. Importance
Importance
‘ Accounting Mechanics ’ shows us how
Accountants collect and record accounting data for
preparation of principal financial statements
required by GAAP.

2. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
‘ Account ’ is a summary device to record
transactions in Company’s books of accounts.
It is a label to record changes in assets, liabilities
and shareholders’ equity.
Account Head
_________________________________________
Debit Credit
The balance in an account is the difference between the totals of
debits and credits.

3. Cash vs. Accrual Accounting
Cash vs. Accrual Accounting
‘
Accrual Accounting Cash Accounting
Record Income When earned. When money received.
Record Expense When Incurred When Paid.
Use Universal Small units.
Mandatory Yes. GAAP Not Recognized.
Requirement.
In this course we will use the accepted accrual
system of accounting.

4. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
‘
Accounts are classified as :
Personal Accounts
Real Accounts
Non Personal Accounts }
Nominal Accounts

5. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
‘
Accounts are classified as :
Personal Accounts – related to persons
like debtor, creditor, supplier or
customer.

6. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
‘
Accounts are classified as :
• Personal Accounts
Real Accounts – related to assets,
of the firm but not its debt. e.g.
Land , Buildings, Plant, Cash etc.

7. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
‘
Accounts are classified as :
• Personal Accounts
• Real Accounts
Nominal Accounts – related to
expenses, incomes, losses and gains.
e.g. salaries, interest, travel etc.

8. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
‘
Accounts are classified as :
• Personal Accounts
• Real Accounts
• Nominal Accounts – related to
expenses, incomes, losses and
gains. e.g. salaries,
interest, travel etc.
‘ net result of all the nominal accounts
is reflected as P & L for the
accounting year.’

9. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
‘
Golden rules of double entry
#1 For real accounts; debit (dr) what
comes in, and credit (cr) what goes out.
Purchased materials – dr Inventory.
Issued cheque for it - cr Bank

10. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
‘
Golden rules of double entry
#1 - For real accounts; debit (dr) what
comes in, and credit (cr) what goes
out.
# 2 - For personal accounts; debit (dr)
the receiver, and credit (cr) the giver.
Issued cheque to Sachin – dr Sachin
Recd. cheque from Sachin – cr Sachin

11. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
Golden rules of double entry
#1 - For real accounts; debit (dr) what comes
in, and credit (cr) what goes out.
#2 - For personal accounts; debit (dr) the
receiver, and credit (cr) the giver.
#3 - For nominal accounts; debit (dr)
expenses / assets, and credit (cr)
income /liabilities.
Distributed salaries – dr Salaries
Recd. Interest cheque – cr Interest

12. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
Golden rules of double entry :
You buy a machine for Rs 15,000/- & issue
cheque.
Dr Machinery ( Rule # 3 – dr expenses )
Cr Bank ( Rule # 1 – cr what goes out )

13. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
Golden rules of double entry :
You issue cheque of Rs 10,000/- for car hire.
Dr Travel ( Rule # 3 – dr expense )
Cr Bank ( Rule # 1 – cr what goes out )

14. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
Golden rules of double entry :
You receive cheque of Rs 10,000/- for
interest on Fixed Deposit.
Dr Bank ( Rule # 1 – dr what comes in )
Cr Interest ( Rule # 3 – cr incomes )

15. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
Golden rules of double entry :
You sell goods worth Rs. 10,000/- and offer 5%
quantity ( trade ) discount. You receive cheque.
Dr Bank Rs 9,500/-
Cr Sales Rs 9,500/-
‘trade discount is a reduction in market
price. Market price is not relevant in
accounting, & is ignored.

16. Concept & Operation of ‘‘ Account ’’
Concept & Operation of Account
Golden rules of double entry :
You sell goods worth Rs. 10,000/- and offer 5%
cash discount. You receive cheque.
Dr Bank Rs 9,500/-
Dr Discount allowed Rs 500/-
Cr Sales Rs 10,000/-
Cash discount is an extra discount allowed
(or earned) for early cash settlement, hence
recorded in the books’

17. ‘‘ Journal & Ledger’
Journal & Ledger’
The Journal
‘is the Book of Prime Entry where all
entries are first recorded in a
chronological order.’

18. ‘‘ Journal & Ledger’
Journal & Ledger’
The Journal ‘is the Book of Prime Entry
where all entries are first recorded in
a chronological order.’
The General Ledger
‘ is the book where details of all accounts
are maintained.’
Entries in the Journal are periodically
posted to the respective accounts in the
Ledger.

19. ‘‘ Journal & Ledger’
Journal & Ledger’
The Journal ‘is the Book of Prime Entry
where all entries are first recorded in
a chronological order.’
The General Ledger ‘ is the book where
details of all accounts are maintained.’
“ in computerized environment these two
stages get rolled into one “

20. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
- recognizable, recordable event with
monetary impact.

21. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
- a source document bearing approved
monetary value e.g. cash receipt, cheque,
customer invoice, deposit slip, supplier
invoice, material receipt etc.

22. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
- identify accounts affected, find out
whether to be debited or credited & by
how much.

23. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
4 Record
By preparing entry in
appropriate journal ( manual
accounting)

24. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
4 Record
5 Post journal entry into ledger
account
Thus all transactions on an account
are available at one place & net
balance can be arrived at

25. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
4 Record
5 Post in the Ledger
6 Prepare a trial balance
a simple listing of all the accounts with
their net balances. Ensure debits equal
credits to eliminate recording errors.

26. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
4 Record
5 Post in the Ledger
6 Prepare a trial balance
Remember balanced listing does not
eliminate compensating errors or
missing entries.

27. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
4 Record
5 Post in the Ledger
6 Prepare a trial balance
7 Prepare adjusting entries for
deferrals, accruals & depreciation.

28. ‘‘ Accounting Process ’’
Accounting Process
7 Prepare adjusting entries for
deferrals, accruals & depreciation.
Deferral : An adjustment for which the business
paid or received cash in advance.

29. ‘‘ Accounting Process ’’
Accounting Process
7 Prepare adjusting entries for
deferrals, accruals & depreciation.
Deferral : An adjustment for which the business
paid or received cash in advance.
Accrual : An expense or a revenue occurring
before the business pays or receives
cash.

30. ‘‘ Accounting Process ’’
Accounting Process
7 Prepare adjusting entries for
deferrals, accruals & depreciation.
Deferral : An adjustment for which the business
paid or received cash in advance.
Accrual : An expense or a revenue occurring
before the business pays or receives
cash.
Depreciation : An allocation of the cost of a
plant asset to expense over the
asset’s useful life.

31. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
4 Record
5 Post in the Ledger
6 Prepare a trial balance
7 Prepare adjusting entries and post into ledger.

32. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
4 Record
5 Post in the Ledger
6 Prepare a trial balance
7 Prepare adjusting entries and post into ledger.
8 Prepare adjusted trial balance.
- include adjusting entries

33. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
4 Record
5 Post in the Ledger
6 Prepare a trial balance
7 Prepare adjusting entries and post into ledger.
8 Prepare adjusted trial balance.
9 Prepare principal financial statements.

34. ‘‘ Accounting Process ’’
Accounting Process
9 Prepare principal financial statements.
Income Statement
- from the revenue, expenses,
gains and losses.

35. ‘‘ Accounting Process ’’
Accounting Process
9 Prepare principal financial statements.
$ Income Statement
$ Balance Sheet
- prepared from the assets,
liabilities and equity accounts.

36. ‘‘ Accounting Process ’’
Accounting Process
9 Prepare principal financial statements.
$ Income Statement
$ Balance Sheet
$ Statement of Retained Earnings
- prepared from the net income and
dividend information.

37. ‘‘ Accounting Process ’’
Accounting Process
9 Prepare principal financial statements.
$ Income Statement
$ Balance Sheet
$ Statement of Retained Earnings
$ Cash Flow Statement
- prepared from other financial
statements by direct or indirect
method ( discussed in Chapter Five
later).

38. ‘‘ Accounting Process ’’
Accounting Process
9 Prepare principal financial statements.
$ Income Statement
$ Balance Sheet
$ Statement of Retained Earnings
$ Cash Flow Statement
With these four you are in compliance with GAAP.

39. ‘‘ Accounting Process ’’
Accounting Process
1 Identify the transaction.
2 Prepare a voucher
3 Analyze and classify transaction
4 Record
5 Post in the Ledger
6 Prepare a trial balance
7 Prepare adjusting entries and post into ledger.
8 Prepare adjusted trial balance.
9 Prepare principal financial statements.
and the job is
complete!

40. ‘‘ Accounting Process ’’
Accounting Process
and the job is complete!
However, you have still to
i) prepare closing journal entries that
close temporary accounts & post them to
Ledger

41. ‘‘ Accounting Process ’’
Accounting Process
and the job is complete!
However, you have still to
i) prepare closing journal entries that
close temporary accounts & post them to
Ledger
ii) prepare after-closing trial balance
‘ to make sure that debits equal credits’

42. ‘‘ Accounting Process ’’
Accounting Process
and the job is complete!
However, you have still to
i) prepare closing journal entries that
close temporary accounts & post them to
Ledger
ii) prepare after-closing trial balance
iii) Prepare reversing journal entries;
this way you have ensured that accruals and
deferrals of this year do not result in double
accounting next year.

43. “ Theimportance of “accounting
mechanics : processing accounting
information “ is to collect, process,
classify, compile, check and present
meaningful financial data for
decisions that have to taken in the
modern business world!”