Learn basics of Accounting fundamentals easily

Accounting is art of recording, Classifying and summarizing of transaction in money or money's worth.

STEPS IN ACCOUNTING:-

Ø  Recording of transaction: -As soon as transaction happens it is first recorded in book.

Ø  Journal: - The transactions are recorded in chronologically (i.e.in order of time from the earliest to the latest).

Ø  Ledger: -All journals are posted into ledger chronologically.

Ø  Trail Balance-After closing all Ledgers accounts, a trail balance is prepared at the end of the period.

Ø  Adjustment Entries: -All the adjustments entries are to be recorded properly.

Ø  Adjusted Trail Balance: -An adjusted Trail Balance may also be prepared.

Ø  Closing Entries: -All the nominal accounts are to be closed by the transferring to trading account and profit and loss account.

Ø  Financial Statements: - Financial statement can be prepared after passing closing entries. Financial statements consists of Balance sheet, Profit & Loss Account & Cash Flow Statement.

EVENTS AND TRANSACTIONS

Event is a transaction or change recognized on the financial statements of an accounting entity. The events are both external and internal. An external event is occurred outside the entity Ex: - Purchase or sales. An internal event would involve change in the accounting policies Ex:- Change in Deprecation method from Straight Line method to Written Down Value Method.

Transaction is exchange of an asset with consideration of monetary value. Ex:-Purchase of goods or sale of goods, so all transactions are events but all events are not transactions.

VOUCHERS

A voucher is a document that shows services or goods received, payment authorized .It is a written instrument that serves to confirm or acts as an evidence for a fact for such respective transaction.

Types of Vouchers :

        I.            Receipt voucher

     II.            Payment Voucher

   III.            Non Cash or Transfer Voucher (Goods sent on credit)

   IV.            Supporting Voucher

SOURCE DOCUMENTS   

         

Name of the Book                                                         Source of document

        I.            Cash Book                                   Cash Memos, Cash receipts & Issue vouchers

     II.            Purchase Books                           Inward Invoice received from the creditors of goods

   III.            Sales Book                                  Outward Invoice issued to debtors

   IV.            Return Inward Book                    Debit note received from Debtors/Credit Note Issued to debtors                                                              (Sales Return)

     V.            Return Outward Book                  Debit Note Issued to Creditor/Credit Note received from                                                                        creditor(Purchase Return)

CONCEPT OF ACCOUNT, DEBIT AND CREDIT

One must get cognizant with these terms before learning actual record keeping based on the rules.

An ‘Account’ is well-defined as a summarized record of transactions related to person or things. EX:-Customers and Vendors, for each customer & Vendor separate account will be maintained.

An Account is expressed as a statement in form of letter ‘T’.It has two sides. The left hand side is called as “Debit” side and the right hand side is “Credit” side.

Each side of the account will indicate effects, so that one can easily take totals of both sides and find out the difference if,any.Such difference in the two sides of an account is called ‘balance’ .If the total of debit side is more than credit side ,the balance is called as ‘debit balance’ and vice versa .

The balance is to be computed at the end of the year (i.e. Accounting Year).Then balances are used to prepare the trail balance.