This presentation covers the process of recording transactions that results in the finalization of financial statements, i.e. balance sheet, income statement, cash flow statement. The first step of recording transactions chronologically in the journal, then transferring the transactions to the ledger and finally to the trial balance is covered. All transactions are recorded using double entry. The double entry system is explained along with the accounting equation. Some examples are discussed to explain the concepts.

1. ACCOUNTING
RECORD
KEEPING

2. CONTENTS
• ACCOUNTING PROCESS
• DOUBLE ENTRY BOOK KEEPING
• EXAMPLE
© 2023 Dr. Meera Sharma

3. ACCOUNTING
PROCESS
• TRANSACTIONS ARE ANALYZED AND
INITIALLY RECORDED IN A JOURNAL
• THE JOURNAL IS A CHRONOLOGICAL
RECORD OF TRANSACTIONS
• ENTRIES IN THE JOURNAL ARE
PERIODICALLY TRANSFERRED TO THE
LEDGER
© 2023 Dr. Meera Sharma

4. ACCOUNTING
PROCESS
• THE LEDGER IS A COLLECTION OF
ACCOUNTS
• TRANSFERRING ENTRIES TO THE
LEDGER RESULTS IN ENTRIES BEING
GROUPED ACCOUNT WISE
• ACCOUNTS IN THE LEDGER ARE CALLED
T ACCOUNTS
© 2023 Dr. Meera Sharma

5. ACCOUNTING
PROCESS
• FOR EXAMPLE THE LEDGER CONTAINS A T
ACCOUNT FOR CASH
• ALL CASH TRANSACTIONS ARE PERIODICALLY
TRANSFERRED FROM THE JOURNAL TO THIS
ACCOUNT
• SIMILARLY THE LEDGER HAS T ACCOUNTS FOR
SALES, EXPENSES, INVESTMENTS ETC.
© 2023 Dr. Meera Sharma

6. ACCOUNTING
PROCESS
• ALL TRANSACTIONS ARE RECORDED IN
LINE WITH THE DOUBLE ENTRY BOOK
KEEPING SYSTEM
• THE DOUBLE ENTRY BOOK KEEPING
SYSTEM IS ATTRIBUTED TO LUCAS
PACIOLI
© 2023 Dr. Meera Sharma

7. ACCOUNTING
PROCESS
• THE LAST STEP BEFORE FINALIZING FINANCIAL
STATEMENTS IS TO PREPARE A TRIAL BALANCE
• THE TRIAL BALANCE IS A SUMMARY OF THE
FINAL BALANCES OF ALL THE T ACCOUNTS AT
THE END OF A PERIOD
• FOR EXAMPLE THE FINAL CASH ACCOUNT
BALANCE FROM THE T ACCOUNT FOR CASH
WILL BE TRANSFERRED TO THE TRIAL BALANCE
© 2023 Dr. Meera Sharma

8. ACCOUNTING
PROCESS
• THE FINAL TRIAL BALANCE IS USED TO
PREPARE THE FINANCIAL STATEMENTS,
I.E. THE BALANCE SHEET AND INCOME
STATEMENT AND THE CASH FLOW
STATEMENT
© 2023 Dr. Meera Sharma

9. DOUBLE ENTRY BOOK
KEEPING
 EVERY TRANSACTION IS RECORDED WITH A
DEBIT AND A CREDIT
 FOR EVERY TRANSACTION THE DEBIT
AMOUNT MUST EQUAL THE CREDIT AMOUNT
TO ENSURE THAT THE ACCOUNTING
EQUATION HOLDS
 Assets = Liabilities + Owners’ Equity
© 2023 Dr. Meera Sharma

10. DOUBLE ENTRY BOOK
KEEPING
• DEBIT
– LEFT HAND SIDE OF AN ACCOUNT
– ABBREVIATED AS dr.
• CREDIT
– RIGHT HAND SIDE OF AN ACCOUNT
– ABBREVIATED AS cr.
© 2023 Dr. Meera Sharma

11. Assets
Debit Credit
+ -
= Liabilities
- +
Debit Credit
+ Owners’ Equity
Debit Credit
- +
DOUBLE ENTRY BOOK
KEEPING
INCREASES
IN ASSETS
ARE
RECORDED
AS DEBITS
INCREASES IN
LIABILITIES AND
OWNERS
EQUITY ARE
RECORDED AS
CREDITS
• DEBITS = CREDITS
DOUBLE ENTRY BOOK
KEEPING
© 2023 Dr. Meera Sharma

12. • REVENUES INCREASE OWNERS EQUITY
• EXPENSES DECREASE OWNERS EQUITY
EXPENSES
Dr. Cr.
REVENUES
Dr. Cr.
OWNERS’ EQUITY
Dr. Cr.
INCREASES
TO
REVENUES
ARE CREDITS
INCREASES TO
EXPENSES ARE
RECORDED AS
DEBITS
DOUBLE ENTRY BOOK
KEEPING
© 2023 Dr. Meera Sharma

13. EXAMPLE
• Example - Owner contributing Rs
5,000 cash for stock:
Dr. Cash 5,000
Cr. Paid-in-capital 5,000
• CASH IS AN ASSET AND PAID-IN-CAPITAL IS
OWNERS EQUITY
EXAMPLE
© 2023 Dr. Meera Sharma

14. Owner invests Rs.5,000 in Business
Cash
5,000
Paid-in-Capital
5,000
© 2023 Dr. Meera Sharma

15. ACCOUNTING
RECORDS
• EXAMPLE
– WRITE JOURNAL ENTRIES FOR THE FOLLOWING
TRANSACTIONS THAT OCCURRED AT ABC COMPANY
DURING MAY,
• THE COMPANY PREPAID Rs. 10,000 RENT FOR THE
PERIOD MAY 1 TO JUNE 31
EXAMPLE
© 2023 Dr. Meera Sharma

16. ACCOUNTING
RECORDS
• ANSWER
• THE COMPANY PREPAID Rs.10,000 RENT FOR THE
PERIOD MAY 1 TO JUNE 31
• Dr. Prepaid Rent 10000
Cr. Cash 10000
EXAMPLE
© 2023 Dr. Meera Sharma