SESSIO N2

1 Accounting Primer (June-July, 2012)

Account:
Accounts are the basic storage units for accounting data and are used to accumulate amounts from similar transactions. An accounting system has a separate account for each asset, each liability, and each component of stockholders equity, including revenues, expenses. NAME OF THE ACCOUNT LEFT DEBIT RIGHT CREDI T

Accounting Primer (June-July, 2012)

NAME OF THE ACCOUNT

DEBIT

CREDIT

I ACCOUNTS PERSONAL REAL

IMPERSONA L
NOMINAL

NATURAL

REPRESENTATI VE

TANGIBLE

ARTICIFICIA INTANGIBLE L Accounting Primer (June-July, 2012) 3 Class Exercise: Classify the accounts into Personal, Real and Nominal

Double Entry System The two rules of the double-entry system are that every transaction affects at least two accounts and that total of debits must equal to total credits.

Business Transaction Analysis State the transaction Analyze the transaction to determine which accounts are affected Apply the rules of double entry accounting Show the transaction in journal form Provide the comment

Accounting Primer (June-July, 2012)

Rules of the Double Entry System

PERSONAL

REAL

NOMINAL

DEBI T

CREDIT

DEBI T

CREDIT

DEBI T

CREDIT

RECEIV ER
5

GIVER

WHAT

COMES IN

WHAT GOES OUT

EXPENSES AND LOSSES

INCOMES AND GAINS

Accounting Primer (June-July, 2012)

Class Exercise: Analysis of various business transactions

Accounting Concepts and Conventions An Overview:

Accounting concepts are such fundamentals that are time tested and applicable universally. Majority of the concepts are based on accounting standards developed by ICAI Separate entity concept Owner and that of the business organization are considered separate from each other. Money Measurement concept Transactions that can be measured in money value Going concern concept Enforces that once a business is started, the owner foresees to continue it for a significantly longer time period that might even be an infinite time period. Cost concept All the transactions are recorded at the cost for the transaction, irrespective of the market price/value of the transaction
6 Accounting Primer (June-July, 2012)

Dual aspect concept Every monetary transaction affects a minimum of two accounts/aspects, and value wise magnitude of this effect on both the accounts is equal.
Accounting Period concept Books of accounts are finalized at regular intervals. Revenue recognition concept Revenue recorded in the books of accounts only when it has been receive or there is a significant claim of the business organization to receive it from the other party. This implies that the final accounts should incorporate only the income that has been earned during the year whether received cash or not. Matching concept While arriving at the profit for the year, all the expenses relevant for the current years sales as well as for the current accounting period should be shown, irrespective of the fact whether these are cash or non-cash expenses or paid-in cash or not. Accrual Concept Implies that final accounts should incorporate expenses and revenue that is Accounting Primer (June-July, 2012) relevant for the current accounting year whether settled in cash or not.

Accounting conventions: Accounting conventions are certain accounting policies and procedures that are followed as a matter of practice in the business organization.
Convention of conservatism Account should foresee future losses and provide for such losses in the books of accounts at the time of preparing final accounts. But he/she should never anticipate and provide expected/future profits in the books of accounts. Convention of consistency Once an accounting policy or procedure adopted should be followed continuously for a longer time period continuously without any significant change. Convention of full disclosure Any change in accounting policies and procedures should be disclosed properly along with the monetary implication of such change. Convention of materiality The main purpose of following this convention is to avoid maintaining too much of accounts by maintaining the originality of the accounting work without having much effect on the reported profits.
8 Accounting Primer (June-July, 2012)