Double Entry Book-Keeping - Fin. Transactions

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Basics of financial accounting Name of the subject: Basic accounting & financial List of financial transactions using double-entry b Nature of transaction

Buying goods in cash

Buying goods on credit Buying goods through bank (cheque) Selling goods in cash

Selling goods on credit Selling goods through bank (cheque) Buying assets in cash Buying asset on credit Buying asset through bank (cheque) Selling asset in cash

Selling asset on credit Selling asset through bank (cheque) Pay telephone bill (expense) in cash Pay telephone bill (expense) on credit Pay telephone bill (expense) through bank Receive rent in cash Receive rent on credit

 

Receive rent through bank

Pay loan installement through bank account Bill sent for collection credited to bank account Interest on fixed deposit credited to bank account Purchase machinery machinery out of bank loan Debtor received through bank Creditor paid through bank

Capital received from owners through bank Salary paid through bank Advance paid in cash for goods

Goods received against advance as above Advance received through bank for sale

Goods supplied against advance as above

 

reporting ok-keeping principles Whic Wh ich h acc accou ount nt to be debi debite ted d

Whic Which h acc account ount to be cr cred edit ited ed

purchases account (real account cash account (real account and goes & goods coming in) out) purchases account (real account supplier's account as creditor (personal account - credit the giver) & goods coming in) purchases account (real account bank account (personal account credit the giver ) & goods coming in) cash account (real account - debit what comes in)

sales account (real account & goods go out)

purchaser's account as debtor (personal account account - debit the

sales account (real account &

receiver) bank account (personal account debit the receiver)

goods go out) sales account (real account & goods go out)

asset account (real account & coming in)

cash account (real account - credit what goes out)

asset account (real account & coming in)

supplier's account (real account credit the giver)

asset account (real account & coming in)

bank account (personal account credit the giver)

cash account (real account - debit what comes in)

asset account (real account credit what goes out)

purchaser's account as debtor (personal account account - debit the receiver)

asset account (real account credit what goes out)

bank account (personal account debit the receiver)

asset account (real account credit what goes out)

Telephones (nominal account debit expense)

cash account (real account - credit what goes out)

Telephones (nominal account debit expense)

Outstanding expenses - payable

Telephones (nominal account debit expense)

bank account (personal account credit the giver )

cash account (real account - debit what comes in)

Rent account (Income - nominal -

Outstanding income - receivable

Rent account (Income - nominal -

 

bank account (personal account debit the receiver)

Rent account (Income - nominal -

loan account (personal account - Current account (personal debit the receiver) account - credit the giver) bank account (personal account debtors (personal account - debit the receiver) credit thegiver) account (personal account nominal Interest account -bank debit the receiver) - credit) (income asset account (real account & coming in) bank account (receiver)

bank loan account (personal account - credit the giver) debtors (giver)

creditors (receiver)

bank account (personal account credit the giver)

owners' capital account bank account (personal account (personal account - credit the giver) - debit the receiver) Salary (nominal account - debit expense)

bank account (personal account credit the giver)

supplier's account (receiver)

cash account (real account credit what goes out)

purchases account (expense)

supplier's account (personal account - reversing previous debit entry )

bank account (personal account purchaser's account (personal - debit the receiver) account - credit the giver) purchaser's account (personal account - reversing previous credit entry)

Sales income (real account credit what goes out)

 

Examples of real, nominal and personal accounts & accounting rules and Real accounts

Nominal accounts

Any Asset account that is tangible

  not have any life of its own Has to be either in real account form or personal account form

Purchases & purchase returns Sales & sales returns Goods Fixed assets Cash Raw materials Semi-finished goods Finished goods

Income Expense Net income = profit Loss

Rule: Debit what comes in & credit what goes out

Rule: Debit expense and loss Credit income and profit

 

regulations Personal accounts   is done or cash transactions/cheque transactions transactio ns are regularly made like a bank  Trade creditors  Trade debtors Banks

Rule: Debit the receiver and credit the giver

 

Accounting system

Cash accounting

Accrual system of accounting

Only cash transactions are accounted for

Cash and credit transactions are accounted

Cash has to come in for sale/income

Cash has to go out for purchase/expense

Profits can be manipulated & hence less reliable

Profits are more reliable as all the transactions are accounted

Suitable for small firms and

Mandatory for limited companies in India in terms of The Companies' Act; lenders insist on

proprietary concerns

this for partnership firms

 

Impact of 'Accrual system' on accounts

Des esc crip ipti tio on of of the the account ount

Nam Name of of tthe he account ount

Income receivable

Outstanding income (current asset)

Expense payable

Outstanding expenses (current liability)

Amount paid in advance for an expense (partially or fully) Prepaid expenses (current asset)

Amount received in advance for an income (partially or

Income received in advance (current

fully)

liability)

 

Examples

Double-entry

Rent, interest, consultancy consultanc y etc.

Outstanding income debit & income credit

Rent, interest, consultancy charges, salary, wages & a host of  Expense debit & outsstanding expense administrative administra tive expenses credit

Prepaid expense debit and expense credit (reducing the expense amount for the accounting period); usually this Usually insurance; can be is done at the end of the accounting year rent or consultancy At the time of payment, full amount charges or AMC on would be booked as expense annual basis

Usually rent or

Income received in advance credit (reducing the amount for the accounting period) & income debit; usually this is done at the end of the accounting year At the time of receipt, entire amount

consultancy charges

would have been credited to 'Income'

 

When it is reversed the next accounting year

When the amount is received

When the amount is paid

Can be reversed any time and is not linked to any payment

Can be reversed any time and is not linked to any receipt

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