Chap 1-4
Chap 1-4
Chap 1-4
OF ACCOUNTING
PART-1
ACCOUNTING- It is a systematic method of recording, analyzing and evaluating figurative
information in such a manner that the user of the information gets a fair and clear view regarding
the financial performance of the business
BOOK-KEEPING- It involves all the activities of recording business dealings in a set of books.
Keeping the most basic records is described as bookkeeping.
OBJECTIVES OF ACCOUNTING
• Monitoring and control over the use of resources
• Preparing Financial position to calculate profits and losses
• Effective financial planning and decision making
• Measuring the performance of the business
• Mistakes and fraud detection
• Comply with law (tax)
EVENT
Monetary Event Non- Monetary Event
Personal Business
Transaction
LIABILITY- is an amount that a business OWES to someone else (a supplier, bank, lender etc.).
A liability can be considered a source of funds
Example: Bank loans, accounts payable etc.
ACCOUNT is a place where all the information referring to a particular asset or liability, or to
capital, is recorded. It is a history of all transactions of similar nature and it separates what is
received from what is given.
T-accounts used to classify and summarize the increase, decrease and balance of a particular
account involved in transaction.
DRAWING UP A T-ACCOUNT
T-account check list: Account title, Date, Cross reference of other accounts title, Currency, Total
amount
DOUBLE ENTRY AND T-ACCOUNT EXAMPLES
_____________________________________________________________________________
PART-3
THE ASSET OF STOCK
PURCHASE- Purchases in accounting means the purchase of goods which the business buys
with the prime intention of selling.
SALES- Sales means the sale of those goods in which the business normally deals and which
were bought with the intention of resale. Note: Sale of asset is a part of disposal, not Sales.
INVENTORY/STOCK MOVEMENT:
INCREASE IN STOCK
• Purchase of goods. Purchase Account - purchases of goods are entered
• Return in to the business of goods previously sold. Return Inwards Account - in which
goods being returned in to the business are entered. (This is also known as the Sales
Returns Account.)
DECREASE IN STOCK
• The sale of goods. Sales Account - sales of goods are entered
• Good previously bought by the business now being returned to supplier. Return Outwards
Account- in which goods being returned out to a supplier are entered. (This is also known
as the Purchases Returns Account.)
_______________________________________________________________________
PART-4
REVENUES means the sales value of goods and services that have been supplied to customers.
(Price * Quantity Sold)
EXPENSES means the cost value of all the assets that have been used up to obtain those
revenues.
CLASSWORK: 6.2
HOMEWORK: 6.3 and 6.4
Sales
Debit: Accounts Receivable
Credit: Sales Account
Return Inwards
Debit: Return Inwards
Credit: Accounts Receivable/Cash/Bank
Purchase
Debit: Purchase Account
Credit: Accounts Payable
Return Outwards
Debit: Accounts Payable/Cash/Bank
Credit: Return Outwards
Expense
Debit: Expense Account
Credit: Cash/Bank
Income
Debit: Cash/Bank
Credit: Income Account
DAY BOOKS
Sale of goods
Debit: Accounts Receivable
Credit: Sales Account
Return Inwards
Debit: Return Inwards
Credit: Accounts Receivable/Cash/Bank
Purchase of goods
Debit: Purchase Account
Credit: Accounts Payable
Return Outwards
Debit: Accounts Payable/Cash/Bank
Credit: Return Outwards
Expense
Debit: Expense Account
Credit: Cash/Bank
Income
Debit: Cash/Bank
Credit: Income Account