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Approaches to Book Keeping
1. Accounting Equation Approach
            g q         pp
  •   Transaction is recorded in such way that
      equation is always maintained
2. Traditional / Conventional Approach
  •   Transaction is recorded in such way that
      accounts are debited & credited with same
      amount
                       narain@fms.edu
Formal process of Accounting
1.   Identification of transactions
2.   Preparation of vouchers
3.
3    Recording in Subsidiary books: Journalising
4.   Posting to Ledger: Ledger posting
5.   Preparing Trial Balance
6.   Drawing GPFS
             g
                      narain@fms.edu
Account?
  Acco nt?
• An account is an aggregated description of
                      gg g          p
  all the transactions occurred in the
  accounting period related to a person,
            g p                      p
  property, revenue or expense.
• Every account is a T-shaped and has two
                        T shaped
  sides Debit and Credit.
• Accounts are of three types –
  • Personal
  • R l
    Real
                   narain@fms.edu
  • nominal
Check d t di
Ch k understanding
Identify Real, Nominal & Personal accounts
  Capital introduced             Drawings A/c
  Cash received                  Interest paid
  Discount received              Bank A/c
  Bank overdraft                 Bad debt written off
  Outstanding salaries           Prepaid rent
  Purchases A/c                  Sales A/c
  Carriage inward                Bad debt recovered
  Interest accrued A/c           Goodwill
  Plant & Machinery narain@fms.edu
                                 Leasehold property
Golden rules of Accounting
• For personal accounts –
  • Debit the Receiver & credit the Giver
• For real accounts –
  • Debit what comes in & credit what goes out
• For nominal accounts –
  • Debit all losses and expenses & credit all gains
    and incomes
                        narain@fms.edu
Golden rules under the
      Equation Approach
               Asset
               A t               Liability
                                 Li bilit

Increase (+)   Debit              Credit

Decrease (-)   Credit             Debit
                narain@fms.edu
Check your understanding
Will you do debit or credit?
     y
1. Increase in Revenue
2.
2 Decrease in expenses
3. Drawing
4. Further capital introduction

                     narain@fms.edu
A Special Account: Goods
• Too important to balance
         p
• This real account is broken into –
  •   Sales Account – Nominal
  •   Purchase Account – Nominal
  •   Sales Return Account – Nominal
  •   Purchase Account – Nominal
  •   Closing Account – Real
              Acco nt
                       narain@fms.edu
Trial Balance
• An off-ledger statement
• Lists all account balances
• A debit balance represents: Asset or Expense
• A credit balance represents: Liability or
    co e
  Income
• Nominal accounts are not balanced
    • Rather transferred to P/L A/c via closing entries
                         narain@fms.edu

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Fma4

  • 1. Approaches to Book Keeping 1. Accounting Equation Approach g q pp • Transaction is recorded in such way that equation is always maintained 2. Traditional / Conventional Approach • Transaction is recorded in such way that accounts are debited & credited with same amount narain@fms.edu
  • 2. Formal process of Accounting 1. Identification of transactions 2. Preparation of vouchers 3. 3 Recording in Subsidiary books: Journalising 4. Posting to Ledger: Ledger posting 5. Preparing Trial Balance 6. Drawing GPFS g narain@fms.edu
  • 3. Account? Acco nt? • An account is an aggregated description of gg g p all the transactions occurred in the accounting period related to a person, g p p property, revenue or expense. • Every account is a T-shaped and has two T shaped sides Debit and Credit. • Accounts are of three types – • Personal • R l Real narain@fms.edu • nominal
  • 4. Check d t di Ch k understanding Identify Real, Nominal & Personal accounts Capital introduced Drawings A/c Cash received Interest paid Discount received Bank A/c Bank overdraft Bad debt written off Outstanding salaries Prepaid rent Purchases A/c Sales A/c Carriage inward Bad debt recovered Interest accrued A/c Goodwill Plant & Machinery narain@fms.edu Leasehold property
  • 5. Golden rules of Accounting • For personal accounts – • Debit the Receiver & credit the Giver • For real accounts – • Debit what comes in & credit what goes out • For nominal accounts – • Debit all losses and expenses & credit all gains and incomes narain@fms.edu
  • 6. Golden rules under the Equation Approach Asset A t Liability Li bilit Increase (+) Debit Credit Decrease (-) Credit Debit narain@fms.edu
  • 7. Check your understanding Will you do debit or credit? y 1. Increase in Revenue 2. 2 Decrease in expenses 3. Drawing 4. Further capital introduction narain@fms.edu
  • 8. A Special Account: Goods • Too important to balance p • This real account is broken into – • Sales Account – Nominal • Purchase Account – Nominal • Sales Return Account – Nominal • Purchase Account – Nominal • Closing Account – Real Acco nt narain@fms.edu
  • 9. Trial Balance • An off-ledger statement • Lists all account balances • A debit balance represents: Asset or Expense • A credit balance represents: Liability or co e Income • Nominal accounts are not balanced • Rather transferred to P/L A/c via closing entries narain@fms.edu