Double Entry Book-keeping - Fin. Transactions

Basics of financial accounting Name of the subject: Basic accounting & financial reporting List of financial transactions using double-entry book-keeping principles 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 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

inancial reporting

-entry book-keeping principles Which account to be debited

Which account to be credited

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

sales account (real account & goods go out)

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

sales account (real account & goods go out)

bank account (personal account debit the receiver)

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 - 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) Outstanding income - receivable

Rent account (Income - nominal 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) bank account (personal account Interest account (income - debit the receiver) nominal - credit) 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 - debit the receiver) giver) 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 regulations Real accounts

Nominal accounts

Any Asset account that is tangible

Recorded for the purpose of details; does 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

ules and regulations Personal accounts Usually the persons with whom trading is done or cash transactions/cheque transactions 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 proprietary concerns

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

Impact of 'Accrual system' on accounts

Description of the account

Name of the account

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 fully)

Income received in advance (current liability)

Examples

Double-entry

Rent, interest, consultancy etc.

Outstanding income debit & income credit

Rent, interest, consultancy charges, salary, wages & a host of Expense debit & outsstanding expense administrative 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 rent or consultancy year charges or AMC on At the time of payment, full amount annual basis would be booked as expense

Usually rent or consultancy charges

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 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