- Introduction

- Meaning and Definition of Book-keeping

- Systems of Book-keeping
- Accounting
 Meaning
 Objectives
 Functions
 Advantages and Limitations
- Accounting Cycle
- Users of accounting information
Introduction:
Accounting is the language of business by serving as means of
communication
It communicates results of business operations to stakeholders viz.,
owners,
creditors, investors, government, management and employees
Helps in ascertaining the soundness of business
Highly useful to the management for taking rational decisions
Reveals financial information pertaining to business transactions
Definition of Book Keeping :
It is the branch of knowledge which tells how to keep a record
of business
transactions which can be expressed in terms of money
Definition:
Book Keeping is the science and art of correctly recording in the books of
account all those business transactions that result in the transfer of money
or monies worth - R.N.Carter.
The process of book keeping includes the identification of transactions or
events, measurement of events into monetary terms recording them into
chronological order and grouping them according to their nature in
ledgers.
 Accountancy, Accounting and Book-Keeping:
Accountancy refers to a systematic knowledge of accounting. It tells

why and how to prepare the books of accounts and how to summarize the
accounting information and communicate it to the interested parties.
 Accounting refers to the process of preparing and presenting the
accounts.
Putting academic knowledge of accountancy into practice.
 Book-keeping is a part of accounting and is concerned with record

keeping
or maintenance of books of accounts.
SYSTEMS OF BOOK-KEEPING
There are two types of book-keeping
1. Single entry system
2. Double entry system
1.Single entry system: Transactions are recorded only in cash book
and personal accounts, but not in real and nominal accounts.
 It is a simple method of recording transactions and suitable for
the businesses with limited transactions.
 Complete transaction is not maintained.
2. Double entry system : It records both the aspects of the transaction. Every
transaction closely analyze and reveals two aspects i.e. receiving aspect or
incoming aspect and giving aspect or outgoing aspect in other words
Debit
aspect to
According andJ.R.
Credit aspect“every business transaction has two fold effect and
Batliboi,
that it affects two accounts in opposite directions and if a complete
record were to be a made of each such transaction, it would be necessary
to debit one account and credit to another account. The recording of two
fold effect of every transaction has given rise to the double entry system.
Features:
 Every business transaction effects two accounts.
 Each transaction has two aspects i.e. Debit and Credit
 Based on accounting concepts and principles and also assumptions
 Helps in preparing trial balance which is a test of arithmetical accuracy in
accounting
 Helps in preparation of final accounts
Approaches of Recording :
1. Accounting Equation Approach
 This approach is called American approach.
 The accounting equation is Assets = Liabilities + Capital
2. Traditional Approach
 This approach is also called as British approach.
 Under this approach, business transactions are formed on the basis of
existence of two aspects i.e. Debit and Credit
 Transactions are recorded as under the Double Entry System
Meaning and Definition of Accounting :
According to AICPA (American Institute of Certified Public Accountants),
Accounting is the art of recording, classifying, summarizing in a
significant manner and in terms of money, transactions and events which
are in part, at least of a financial character and interpreting the results
thereof”
In simple words, Accounting is the process of recording, classifying,
summarizing the financial transactions and events and communicating
the information to its users who need it for decision making.
 Objectives of
Accounting
To have a permanent, accurate and complete record of all business transactions
 To keep records of income, expenses, losses in such a way that the net profit or loss
may be ascertained
 To keep records of assets and liabilities in such a way that the financial position of
the business may be ascertained at any point of time.
 To keep control on expenses with a view to minimize the same in order to maximize
profits
 To provide important information for legal and tax purposes
Functions of Accounting
1. Identifying - Business transactions from the source documents
2. Recording – Systematic record of business transaction based on the occurrence
3. Classifying – Recorded transactions will be grouped similar type at one place
4. Summarizing – Classified information from trial balance used to preparation of
financial statements
5. Analyzing – To identify the financial strength and weakness of the business and
provide
the basis for interpretation
6. Interpreting – Concerned with explaining the meaning and significance of the
relationship established by analysis and useful for taking correct decision
7. Communicating – The results obtained from summarized, analyzed and interpreted
information and communicated to interested parties
Advantages of Accounting
 Permanent and Reliable record
 Arithmetical accuracy of accounts
 Net result of business operations
 Ascertainment of financial position
 Ascertainment of progress of business
 Calculation of dues
 Control over assets
 Control over borrowings
 Identifying do’s and don’ts
 Fixing selling price
 Taxation
 Management decision making
 Legal requirements
Limitations of Accounting
 Records only monetary transactions
 Historical in nature
 Price-level changes are not considered
 Does not provide realistic information
Accounting Cycle
An Accounting Cycle is a complete sequence of accounting process that
begins with the recording of business transaction and ends with the
preparation of final accounts these includes Journal, Ledger, Trial Balance
and Financial Statements including Trading Account, Profit & Loss
Account and Balance Sheet

Journal

Financial Accounting
Statements Ledger
Cycle

Trail
Balance
Users of Accounting
Information
1. Internal users
Owners, Management , Employees and Trade Unions
2. External users
Creditors, Investors, Banks and Other Lending Institutions, Present and
Potential Investors, Government, Tax Authorities, Regulatory
Agencies, Suppliers, Customers, and Researchers
 CONCEPTS OF ACCOUNTING
 In order to uniformity and consistency in preparing and maintenance
of books of accounts, certain rules or principles have been evolved.
 These rules are classified into accounting concepts and conventions.
 Definition: Accounting Concepts refers to the basic assumptions , rules
and principles which work as the basis of recording business transactions
and preparing accounts
 These are universally accepted rules.
 TYPES OF ACCOUNTING CONCEPTS:
1. Business entity concept
2. Money measurement concept
3. Going concern concept
4. Accounting period concept
5. Accounting cost concept
6. Realization concept
7. Accrual concept
8. Matching concept
9. Dual concept
 TYPES OF ACCOUNTING CONCEPTS:
1.Business Entity concept:
According this concept the business and owner are treated as separate entities
Transactions of business and owner are separate
For example ---Investment made by owner is capital to business
Helps in ascertaining profit of business by taking the business expenses
and
revenues into business A/C and personal expenses are ignored .
Records personal transactions separately
It is the base of all other accounting principles and conventions.
2. Money Measurement Concept:
It assumes all business transactions must be in terms of money i.e., in
the currency of the country.
The transactions which can not be expressed in money are not
recorded
Transactions are to be kept in monetary units not in physical units.
For example --- Regularity, Sincerity, Loyalty, Honesty of employees etc.
Guides the accountants what to record ? and what not to record ?
Helps in maintaining uniformity
Easy to understand and made job easy (comparison)
 TYPES OF ACCOUNTING CONCEPTS:
3.Going Concern Concept:
This concept states a business firm will continue to carry on its activities for
an indefinite period of time.
Every business unit has continuity of life. Thus, it will not be dissolved in
near future.
For eg --- A machine bought for Rs. 1,00,000/- with a life span of 10
years.
It means every year some amount will be shown as expense and remaining
value will be as balance in the asset A/c.
Assures the investors about the continuity of business and their income
from
their investment.
Facilitates in preparation of financial statements.
4. Accounting Period Concept:
Under this concept transactions are recorded on the assumption that profits
on these transactions are to be ascertained for a specified period.
At regular intervals the financial statements will be prepared.
Usually financial year /Accounting period consists of 12 months .
Helps in predicting future prospects of business and calculating tax on
income for a particular period of time.
 TYPES OF ACCOUNTING CONCEPTS:
5. Accounting Cost Concept:
According to this concept all the assets are recorded in the books of accounts at their
purchase price, which includes cost of acquisition, transportation, and installation
and not at market price.
Helps in accounting accuracy.
6. Dual Concept:
Transactions are recorded on the basis of double entry system .
Based on accounting equation, Assets = Liabilities+ Capital
Based on accounting rules transactions will be recorded.
Helps in detecting errors of accounting
7. Realization Concept:
According to this concept the revenue from any business transaction should be
included in the records only when it is realized.
Realization means creation of legal right to receive money.
For eg--- Selling goods is realization but not receiving order
Makes accounting information more objective
Transaction will be recorded only when goods are delivered to the buyer.
8. Accrual
Concept:
According to this concept if some thing become due i.e., called as Accrual.
The amount of money that is yet to be received or paid at the end of the accounting
period.
Revenues are recognized , when they become receivable and also expenses are
recognized, when they are become payable.
This concept makes a distinction between accrual receipt of cash and the right to
receive cash as regards revenue.
Actual payment of cash and the obligation to pay cash is regard as expense.
In brief the revenue is recognized when realized and expense they become due and
payable without regard to the time of cash receipt and cash payment.
Helps in knowing actual expense and actual income during a particular period .
Helps in calculating net profit of the business.
9. Matching Concept:
 This concept says that the revenue and expenses incurred to earn revenues must be
belong to the same accounting period.
 Once revenue is realized , the next step is to allocate it to the relevant accounting
period with the help of accrual concept.
 Expenses should be matched with revenue to determine exact profit .
ACCOUNTING CONVENTIONS:
Accounting conventions refers to the common practices, which are universally
followed in recording and presenting accounting information of the business entity.
These are followed like customs and traditions in the society.
 Helps in comparing accounting data of different business units for same period or
same unit data for different year.
 Following are the important conventions:
1. Convention of Consistency
2. Convention of Full Disclosure
3. Convention of Materiality
4. Convention of Conservatism
1. Convention of Consistency:
According to this convention same accounting principles should be used for
preparation of financial statements year after year.
A meaningful conclusion can be drawn from financial statements of the same
enterprise when it is compared over a period of time.
🞂 TYPES OF CONSISTENCY:
a. Vertical consistency (same organization)
b. Horizontal consistency (time basis)
c. Dimensional consistency (two organizations in same
trade)
2. Convention of Full Disclosure :
🞂 All material and relevant facts concerning to financial statements should be fully disclosure .
🞂 FULL Disclosure means : complete information and detailed presentation
🞂 FAIR Disclosure means : equitable treatment of users
🞂 ADEQUATE Disclosure : sufficient set of information
3. Convention of Materiality :
 The accountant should attach importance to material details and ignore insignificant details.
 Unimportant items are either left out or merged with other items.
 The information is material or not depends on the circumstances of the case and common sense.
 The rule to be kept in mind is that if omission of the information impairs the decision or conduct
of its user, it should be regarded as material.
4. Convention of conservatism :
 As per this convention al prospective losses are taken into consideration but not all prospective
profits.
 Anticipate no profit but provide for all possible losses.
 It encourages secret reserves by making excess provision for depreciation, bad and doubtful
debts etc.
 Income statement shows lower income and B/S overstates the liabilities and understate the
assets.


 JOURNALISING OF TRANSACTIONS
 MEANING OF ACCOUNT
 An account is the summary of the record of all transactions relating to a person, an
asset, expense or gain.
 The receiving or incoming is termed as DEBIT and giving or outgoing referred as
CREDIT
 For every DEBIT there must be corresponding value of CREDIT
 These two important aspects of a transaction form the basis of Double Entry System
 The common form of an account has three parts: The Title, Debit side and Credit
side.
Title of the Account
Dr
Particulars Rs Particulars Rs
Cr
 Classification of
Accounts:

Accounts

:Personal Impersonal

Artificial Natural Nominal Real

Intangible Tangible
 ACCOUNTING RULES:

TYPE OF ACCOUNT ACCOUNTING RULE

Personal Account DEBIT the RECEIVER
and CREDIT the GIVER
Real Account DEBIT what COMES IN and CREDIT what
GOES OUT
Nominal Account DEBIT all EXPENSES and LOSSES and
CREDIT all INCOMES and GAINS
 A. Personal accounts: These accounts are relating to natural persons and
artificial persons , which are created by law
 Example: Rama A/C, KITS A/C
 B. Impersonal Account: The accounts which are not personal called as
Impersonal Accounts.
 i) Real accounts: These are related to properties or assets of business includes
 a) Tangible Assets – Buildings ,Machines, Furniture etc
 b) Intangible – Goodwill, Trademarks etc
 ii) Nominal Accounts: deals with expenses, losses, incomes, and
gains.
 Example: Rent, Travelling expenses, discount allowed, commission
received etc.
 TRACING THE NATURE OF TRANSACTIONS
 From the following data trace out the nature of accounts and
also debit and credit A/cs.
1. Salaries paid
2. Rent paid
3. Telephone charges paid
4. Interest received
5. Purchased furniture for cash
6. Paid to Anil
7. Received from Anandi
8. Machinery sold for cash
9. Purchased goods for cash
10. Sold goods for cash
Sl.no Transaction Account involved Nature of A/c Debit/Credit
1 Salaries paid Salaries A/c Nominal A/c Debit
Cash A/c Real A/c Credi
t
2 Rent paid Rent A/c Nominal A/c Debit
Cash Real A/c Credi
A/c t
3 Telephone charges Telephone charges A/c Nominal A/c Debit
paid Cash A/c Real A/c Credit

4 Interest received Cash A/c Real A/c Debit

Interest A/c Nominal A/c Credit

5 Purchased furniture for cash Furniture A/c Real A/c Debit

Cash A/c Real A/c Credit

6 Paid cash to Anil Anil’s A/c Personal A/c Debit

Cash A/c Real A/c Credit
7 Received cash from Anandi Cash A/c Real A/c Debit
Anandi’s A/c Personal A/c Credit
8 Machinery sold for cash Cash A/c Real Debit
Machinery A/c A/c Credi
Real t
A/c
10 Sold goods for cash Cash A/c Real A/c Debit
Sales Nominal A/c Credi
A/c t
9 Purchased goods for cash Purchases A/c Nominal A/c Debit
Cash A/c Real A/c Credit
 JOURNAL
 Journal records all daily transactions of a business into the order in
which they occur
 It is also called as ‘ Book of First Entry’ or ‘Book of Original Entry’
 A Journal is defined as a book containing a chronological record of
transactions.
 In this book the transactions are recorded for the first time under
double
entry system.
 The entries made are called Journal Entries. The process is called
Journalizing.
DATE
PROFORMA OF JOURNAL
PARTICULARS LEDGER DEBIT (Rs) CREDIT
FOLIO (Rs)
NO.
 Journalize the following entries in the books of Amit during the year
2019-
 2020.
Jan 1 Amit commenced business with Rs. 50,000
 Jan 2 Cash sales Rs. 19,000
 Jan 5 Bought Machinery Rs. 6,000
 Jan 7 Sold goods for cash Rs. 17,000
 Jan 9 Rent paid Rs. 4,000
 Jan 10 Received commission Rs. 3,000
 Jan 12 Paid to Ankith Rs.
7,500
 Jan 14 Cash deposited into bank Rs. 10,000
 Jan 15 Purchased furniture Rs.
5,000
 Jan 16 Stationery expenses Rs. 1,250
 LEDGER
 Journal records all daily transactions of a business into the order in which they occur, it is not
possible
 to know the net result at a glance.
To ascertain the net effect of all the transactions relating to a particular account are collected at
 one place in the Ledger.
 All the transactions entered in the journal are posted in the ledger to their respective accounts.
 Therefore , ledger is called as Book of final entry.
According to L.C Cropper , the book which contains a classified and permanent record of all the
 transactions of a business called as Ledger.
The process of transferring all the debit and credit aspects which are recorded in the joural is called
 as ledger posting.
It enables to ascertain how much money is due to suppliers and how much amount is to be
 received from customers and items of revenue and expenses.
Facilitatesofpreparation
Classification of trail balance and final accounts.
ledger accounts:
1. Sales Ledger or Debtors Ledger: Accounts of all the customers who purchased goods from
the
business on credit are maintained here.
 It is easy to ascertain the amount due from each customer at any point of time.
2.  Purchase
It showsLedger
the amountor due from customers
Creditors Ledger:(Debit Balance)
All accounts of the suppliers from whom the
business
purchase goods on credit are maintained.
 It enables know how much amount the business is due to each supplier at any point of time.
3.  It shows
General the amount
Ledger: due to suppliers(Credit
All accounts Balance)
related to assets, incomes, expenses are
maintained.
 FORMAT OF LEDGER
Dr Name of the A/c Cr

Date Particulars J.F. Amoun Date Particulars J.F.n Amoun

no t (Rs) o t (Rs)
2019 To Cash A/c XXXX 2019 By Purchases A/c XXXX
Jan1 Jan 5

Balancing of an Account:
 Balance is the difference between the total debits and the total credits of an account
 Balancing means the writing of the difference between the amount columns of the two sides in
the smaller total side. So that the grand totals of the two sides become equal.
 There are three possibilities while balancing accounts during a given period. They are
i. Debit Balance: The excess of debit total over the credit total is called as debit balance. When
there is more amount in debit entries it will occur.
ii. Credit balance : The excess of credit balance over debit total is called as credit balance. When
credit side amount is more then it will occurs.
iii. Nil Balance : When the total of debits and credits are equal .
 Advantages of Ledger:
i. Complete information at a glance
ii. Arithmetic accuracy
iii. Results of business operation
iv. Accounting information
Dr Bills receivable A/c Cr
Date Particulars J.F. Amount Date Particulars J.F. Amount
no (Rs) no (Rs)
2015 To Cash A/c 15,000 2015 By Purchases 10,000
Mar 1 Mar 5
9 To Bank A/c 5,000 31 By Balance c/d 10,000

31 Total 20,000 Total 20,000

Apr 1 To Balance b/d 10,000

 TRAIL BALANCE:
 Trail Balance is a statement which shows debit balances and credit balances of all accounts in
the ledger.
 Since every debit should have corresponding credit, the total of debit and credit balances should
tally.
 If any difference occurs it indicates the entries or amounts brought forward are wrong.
 According to Spicer and Peglar “ A trail balance is a list of all balances standing on the ledger
accounts and cash book of a concern at any given date”.
 According to J.R.Batliboi “trail balance is a statement , prepared with a debit and credit
balances of ledger accounts to test the arithmetic accuracy of the books”.
 ADVANTAGES:
i. Helps to ascertain the arithmetical accuracy of the book-keeping work done during the period.
ii. Ready reference to all balances of the ledger accounts.
iii. If any error found in trail balance that can be rectified before the preparation of final accounts.
iv. Base for preparation of final accounts.
 METHODS OF PREPARATION OF TRAIL BALANCE:
i. The Totals Method: According to this method, the total amount of debit side an d credit side
of
ii. the ledger accounts are recorded.
The Balances Method: In this method only the balances of an account either debit or credit ,
as
the case may be , are recorded against their respective accounts.
PROFORMA OF TRAIL BALANCE:
Trail Balance of as on
-
S.No Name of the Account L.F.NO Debit Credit
Balance(Rs) Balance(Rs)

NOTE: Debit Balances: Assets, expenses, losses, debtors, drawings etc.

Credit Balances: Capital account. Loan A/c, Profits and Gains etc.
.
ILLUSTRATION: Prepare Trail Balance of Sri Sai &Co. as on 31st march, 2019.

particulars Rs particulars Rs
cash 85,600 Bank 7,800
capital 1,00,000 Creditors 6,000
purchases 40,000 Discount received 200
sales 35,000 Discount allowed 500
salaries 5,000 advertisement 700
furniture 300 Interest received 500
stationery 800 drawings 1,000