CHAPTER 02 - ACCOUNTING PROCESS 2.1
CHAPTER 02 – ACCOUNTING PROCESS
Trial Balance
6
5
4
3
2
1
0
May 18 Nov 18 May 19 Nov 19 Nov 20 Jan 21 July 21 Dec 21 May 22 Nov 22 May 23 Dec 23
5 5 4
Ledger
6
5
4
3
2
1
0
May 18 Nov 18 May 19 Nov 19 Nov 20 Jan 21 July 21 Dec 21 May 22 Nov 22 May 23 Dec 23
5
Subsidiary Books
12
10
8
6
4
2
0
May 18 Nov 18 May 19 Nov 19 Nov 20 Jan 21 July 21 Dec 21 May 22 Nov 22 May 23 Dec 23
10 4
,CHAPTER 02 - ACCOUNTING PROCESS 2.2
Evidence of the Record the
Contains the totals from
transactions transactions for the
various ledger accounts
first time
Source Book of Ledger Trial Final
Documents Original Entry Accounts Balance Accounts
Classification and grouping of Statement of the financial
recorded entries performance and position of
a business entity
Every business transaction has two-fold effect and recording of both aspects of a transaction
is called double entry system of book-keeping. For e.g. On purchase of furniture cash balance
will be reduced.
Identify the two accounts Involved in each of the following transactions
Transaction Accounts Involved
• Salary A/c
Salary paid to Ratnakar Rs. 7,500
• Cash A/c
• Goods A/c
Purchased goods from Diwakar Rs. 1,000 on Credit.
• Diwakar A/c
• Prabhakar A/c
Sold goods to prabhakar Rs. 8,000
• Goods A/c
• Cash A/c
Received Rs. 500 as commission
• Commission A/c
• Furniture A/c
Bought furniture from Kamalakar Rs. 3,500
• Kamalakar A/c
• Rent A/c
Paid to shubham Rs. 1,200 for rent.
• Cash A/c
• Bank A/c
Deposited Rs. 5,000 in Bank.
• Cash A/c
,CHAPTER 02 - ACCOUNTING PROCESS 2.3
The ledger account is divided into two parts. Left and right-hand sides of the account are
conventionally called debit side (Dr.) and credit side (Cr.) respectively. Entries on left and
right hand side are called debit and credit entries respectively. It is customary to right ‘To’
and ‘By’ respectively while recording entries on debit and credit side of the account.
Left Side Debit To
Right Side Credit By
• Increases in assets are debits; decreases are credits;
• Increases in liabilities are credits; decreases are debits;
• Increases in owner’s capital are credits; decreases are debits;
• Increases in expenses are debits; decreases are credits; and
• Increases in revenue or incomes are credits; decreases are debits.
Transactions in the journal are recorded on the basis of the rules of debit and credit only
Accounts
Personal Accounts Impersonal Accounts
Natural Artificial (Legal) Representative
Real Nominal
Tangible Intangible
, CHAPTER 02 - ACCOUNTING PROCESS 2.4
A. PERSONAL ACCOUNTS :
Accounts recording transactions with a person or group of persons are called personal accounts.
Personal accounts are of following types:
1. NATURAL PERSON(S) 2. ARTIFICIAL LEGAL 3. ROUP/REPRESENTATIVE
ACCOUNTS :- are accounts PERSONAL ACCOUNT :- PERSONAL ACCOUNT :-Group
of individual living beings For business purpose, a personal accounts are accounts
and include accounts of business entity is treated of natural and legal persons
individuals such as Rohit to have separate entity. grouped together such as debtors
Capital Account, Ram They are recognised as account, creditors account, share
Account, Neha Account persons in the eye of law capital account etc. Commission
and so on. for dealing with other outstanding account, salaries
persons. Eg. Government, outstanding account etc.
Companies, Clubs, represent the person to whom
Cooperative societies. commission or salary is payable
and not yet paid and are called
representative personal
accounts.
B. IMPERSONAL ACCOUNTS:
Accounts which are not personal are termed as personal accounts and are divided into real and
nominal accounts.
REAL ACCOUNTS : Real Accounts relate to properties of a NOMINAL ACCOUNTS:
business enterprise, which can be tangible or intangible: Accounts relating to
income, revenue, gain,
TANGIBLE REAL INTANGIBLE REAL ACCOUNTS :- expenses and losses are
ACCOUNTS : - Includes accounts of things which termed as nominal
Accounts of cannot be physically felt or touched accounts. Examples of
properties having but are capable of monetary nominal accounts are
physical existence measurement such as accounts of salaries, rent, commission,
like cash, building, goodwill, patents rights, trade marks discount allowed, rent
stock of goods, right, copy rights etc. received, sales, interest
furniture etc.is Thus real accounts are accounts of received etc.
called tangible real tangible objects or intangible rights,
accounts. legal or self-created, owned by a
business enterprise.
CHAPTER 02 – ACCOUNTING PROCESS
Trial Balance
6
5
4
3
2
1
0
May 18 Nov 18 May 19 Nov 19 Nov 20 Jan 21 July 21 Dec 21 May 22 Nov 22 May 23 Dec 23
5 5 4
Ledger
6
5
4
3
2
1
0
May 18 Nov 18 May 19 Nov 19 Nov 20 Jan 21 July 21 Dec 21 May 22 Nov 22 May 23 Dec 23
5
Subsidiary Books
12
10
8
6
4
2
0
May 18 Nov 18 May 19 Nov 19 Nov 20 Jan 21 July 21 Dec 21 May 22 Nov 22 May 23 Dec 23
10 4
,CHAPTER 02 - ACCOUNTING PROCESS 2.2
Evidence of the Record the
Contains the totals from
transactions transactions for the
various ledger accounts
first time
Source Book of Ledger Trial Final
Documents Original Entry Accounts Balance Accounts
Classification and grouping of Statement of the financial
recorded entries performance and position of
a business entity
Every business transaction has two-fold effect and recording of both aspects of a transaction
is called double entry system of book-keeping. For e.g. On purchase of furniture cash balance
will be reduced.
Identify the two accounts Involved in each of the following transactions
Transaction Accounts Involved
• Salary A/c
Salary paid to Ratnakar Rs. 7,500
• Cash A/c
• Goods A/c
Purchased goods from Diwakar Rs. 1,000 on Credit.
• Diwakar A/c
• Prabhakar A/c
Sold goods to prabhakar Rs. 8,000
• Goods A/c
• Cash A/c
Received Rs. 500 as commission
• Commission A/c
• Furniture A/c
Bought furniture from Kamalakar Rs. 3,500
• Kamalakar A/c
• Rent A/c
Paid to shubham Rs. 1,200 for rent.
• Cash A/c
• Bank A/c
Deposited Rs. 5,000 in Bank.
• Cash A/c
,CHAPTER 02 - ACCOUNTING PROCESS 2.3
The ledger account is divided into two parts. Left and right-hand sides of the account are
conventionally called debit side (Dr.) and credit side (Cr.) respectively. Entries on left and
right hand side are called debit and credit entries respectively. It is customary to right ‘To’
and ‘By’ respectively while recording entries on debit and credit side of the account.
Left Side Debit To
Right Side Credit By
• Increases in assets are debits; decreases are credits;
• Increases in liabilities are credits; decreases are debits;
• Increases in owner’s capital are credits; decreases are debits;
• Increases in expenses are debits; decreases are credits; and
• Increases in revenue or incomes are credits; decreases are debits.
Transactions in the journal are recorded on the basis of the rules of debit and credit only
Accounts
Personal Accounts Impersonal Accounts
Natural Artificial (Legal) Representative
Real Nominal
Tangible Intangible
, CHAPTER 02 - ACCOUNTING PROCESS 2.4
A. PERSONAL ACCOUNTS :
Accounts recording transactions with a person or group of persons are called personal accounts.
Personal accounts are of following types:
1. NATURAL PERSON(S) 2. ARTIFICIAL LEGAL 3. ROUP/REPRESENTATIVE
ACCOUNTS :- are accounts PERSONAL ACCOUNT :- PERSONAL ACCOUNT :-Group
of individual living beings For business purpose, a personal accounts are accounts
and include accounts of business entity is treated of natural and legal persons
individuals such as Rohit to have separate entity. grouped together such as debtors
Capital Account, Ram They are recognised as account, creditors account, share
Account, Neha Account persons in the eye of law capital account etc. Commission
and so on. for dealing with other outstanding account, salaries
persons. Eg. Government, outstanding account etc.
Companies, Clubs, represent the person to whom
Cooperative societies. commission or salary is payable
and not yet paid and are called
representative personal
accounts.
B. IMPERSONAL ACCOUNTS:
Accounts which are not personal are termed as personal accounts and are divided into real and
nominal accounts.
REAL ACCOUNTS : Real Accounts relate to properties of a NOMINAL ACCOUNTS:
business enterprise, which can be tangible or intangible: Accounts relating to
income, revenue, gain,
TANGIBLE REAL INTANGIBLE REAL ACCOUNTS :- expenses and losses are
ACCOUNTS : - Includes accounts of things which termed as nominal
Accounts of cannot be physically felt or touched accounts. Examples of
properties having but are capable of monetary nominal accounts are
physical existence measurement such as accounts of salaries, rent, commission,
like cash, building, goodwill, patents rights, trade marks discount allowed, rent
stock of goods, right, copy rights etc. received, sales, interest
furniture etc.is Thus real accounts are accounts of received etc.
called tangible real tangible objects or intangible rights,
accounts. legal or self-created, owned by a
business enterprise.
