ACCOUNTANCY

TOPIC: SUMMARIZATION OF THE TRANSACTIONS PLAYS A

PIVOTAL ROLE IN FINANCIAL ACCOUNTING SYSTEM

SUBMITTED BY:-

HEENA YASMIN GULAMMUSTAFA SHAIKH

BBA LLB SEM -I

ROLL NO. -25

GUIDED BY:-

Mr. Sanajy Bhattacharjee

ASST. PROF OF ECONOMICS

Indian Institute of Legal Studies

Dagapur, Matigara, Siliguri, Darjeeling, West Bengal 734010

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 ACKNOWLEDGEMENT

With profound gratitude and sense of indebtedness I place on record my sincerest thanks
to Mr. Sanjay Bhattacharjee, Asst. Prof In Accountancy, Indian Institute of Legal Studies,
for his invaluable guidance, sound advice and affectionate attitude during the course of my
studies.

I have no hesitation in saying that he molded raw clay into whatever I am through his
incessant efforts and keen interest shown throughout my academic pursuit. It is due to his
patient guidance that I have been able to complete the task.
I would also thank the Indian institute of Legal Studies Library for the wealth of
information therein. I also express my regards to the Library staff for cooperating and
making available the books for this project research paper.

Finally, I thank my beloved parents for supporting me morally and guiding me throughout
the project work.

_____________ Heena yasmin gulammustafa shaikh

Teacher’s Signature Student’s Signature

Date: __/__/____ Date: / /2017

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 TABLE OF CONTENTS

RESEARCH METHODOLOGY.................................................................................................... 5

CHAPTER- 1 INTRODUCTION ................................................................................................. 8

CHAPTER- 2 MEANING OF ACCOUNTING .......................................................................... 9

CHAPTER-3 OBJECTIVES OF ACCONTING ....................................................................... 12

CHAPTER-4 ACCOUNTING PROCESS ................................................................................ 13

CHAPTER-5 LEDGER ............................................................................................................. 15

CHAPTER-6 UTILITY OF LEDGER…………………………………..…………………….17

CONCLUSION

BIBLIOGRAPHY.

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RESEARCH METHODOLOGY

A. AIMS AND OBJECTIVES

The aims and objectives of this project are to understand the role of transaction . This project
also aims at studying the objectives of accounting, how it is done and what is ledger and utility
of ledger.

B. STATEMENT OF PROBLEM
Financial accounting system cannot be imagined to be a successful concept had there not
been methods for summarization of the transactions. This project tries to bring about the
ways in which summarization of the transactions plays a pivotal role in financial
accounting system.

C. RESEARCH HYPOTHESIS

Research is commonly referring to a search of knowledge. It is done with the help of study,
observation, comparison and experiment. Thus, the search for knowledge through objective and
systematic method of finding solution to a problem is research. This research work is an attempt
of learning the financial accounting systems.

D. RESEARCH QUESTIONS:
1. What is accounting?
2. What are the objectives of accounting?
3. What is ledger?

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E. METHODOLOGY OF RESEARCH

“Methodology” does not merely mean the methods used by the researcher to complete his
research work but it also means and implies the concepts and theories which underlie the
methods. The methodology used for the completion of this project is Doctrinal and Analytical.
Doctrinal research in law field indicates arranging, ordering and analysis of the structure,
framework and laws by extensive surveying of literature but without any field work.

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CHAPTER: 1

INTRODUCTION

Accounting has rightly been termed as the language of the business. The basic function of a
language is to serve as a means of communication. Accounting also serves this function. It
communicates the results of business operations to various parties who have some stake in the
business viz, the properties, creditors, investors, government and other agencies. Though,
accounting is generally associated with business but it is not only business which makes use of
accounting. Persons like housewives, government and other individuals also make use of a
accounting. For example, a housewife has to keep a record of the money received or spent by her
during a particular period. She can record her receipts of money on one page of her ‘household
diary’ while payments for different items such as milk, food, clothing’s, house, education. Etc.
on some other page or pages of her diary in a chronological order. Such a record will help her in
knowledge about:

a. The sources from which she received cash and the purposes for which it was utilized.
b. Whether her receipts are more than her payments or vice-versa?
c. The balance of cash in hand or deficit is any as the end of the period.

In the case the housewife records her transactions regularly; she can collect valuable information
about the nature of her receipts and payments. For example, she can find out the total amount
spent by her during a period, on different items say milk, food, education, entertainment, etc.
similarly she can find the sources of her receipts such as salary of her husband, rent from
property, cash gifts from her relatives, etc. thus, at the end of a period she can see for herself
about her financial position i.e., what she owes. This will help her in planning her future income
and expenses to a great extent.

The need for accounting is all the more great for a person who is running a business. He must
know:-

 What he owns?
 What he owes?
 Whether he has earn a profit or suffered a loss on account of running a business?

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  What is his financial position i.e., whether he will be in a position to meet all his
commitments in the near future or he is in the process of becoming a bankrupt.

Accounting is the systematic and comprehensive recording of financial transactions pertaining to

a business, and it also refers to the process of summarizing, analyzing and reporting these
transactions to oversight agencies and tax collection entities. Accounting is one of the key
functions for almost any business; it may be handled by a bookkeeper and accountant at small
firms or by sizable finance departments with dozens of employees at large companies.
The financial statements that summarize a large company's operations, financial position and cash flows
over a particular period are concise statements based on thousands of financial transactions. As a result,
all accounting designations are the culmination of years of study and rigorous examinations combined
with a minimum number of years of practical accounting experience.
Financial accounting is the process of recording, summarizing and reporting the myriad of transactions
resulting from business operations over a period of time. These transactions are summarized in the
preparation of financial statements, including the balance sheet, income statement and cash flow
statement, that encapsulate the company's operating performance over a specified period.

Accounting is defined as “the art of recording, classifying and summarizing in terms of money
transactions and events of financial character and interpreting the results thereof.”

In simple words we can say that-

 accounting is an art…….
 of recording, classifying and summarizing………
 in terms of money……
 transactions and events of financial nature and
 interpreting the results thereof.
Accounting is an art of correctly the day to day business transactions. It is a science of keeping
the business records in a regular and most systematic manner so as to know the business results
with minimum trouble. Therefore, it is said to be statistical procedure for the collection,
classification and summarization of financial information.

“Accounting is a means of collecting, summarizing, analyzing and reporting in monetary terms,

information about the business.”

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Now a day’s accounting is regarded as a “service activity”. In 1970 the Accounting Principles
Board of the American Institute of Certified Public Accountants enumerated that, “The function
of accounting is to provide quantitative information, primarily of financial nature, about
economic entities that is needed to be useful in making economic decisions.”

Basic of Accounting Systems

Cash or receipt basis
Is the method of recording transactions under which revenues and costs and assets and liabilities
are reflected in accounts in the period in which actual receipt or actual payments are made.
“Receipt and payments account” in case of clubs, societies, hospitals etc., is the example of cash
basis of accounting.

Accrual or mercantile basis

Is the method of recording transaction by which revenues, costs, assets and liabilities are
reflected in accounts in the period in which they accrue. This basis includes considerations
relating to outstanding; prepaid, accrued due and received in advance.

Hybrid or mixed basis

Is the combination of both the basis i.e. cash as well as mercantile basis. Incomes are recorded on
cash basis but expenses are recorded on mercantile basis. The following illustration will make
the distinction clear between cash and mercantile basis of accounting.

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Chapter: 2

MEANING OF ACCOUNTING

The main purpose of accounting is to ascertain profit or loss during a specific period, to
show financial condition of the business (and communicate information) on a particular date and
to have control over the firm’s property.Accounting is a discipline which records, classifies,
summaries and interprets Financial information about the activities of a concern so that
intelligent decisions may be made about the concern.

Recording: it is concerned with the recording of financial transactions in an orderly manner, soon
after their occurence in the proper books of accounts. In the paper books of accounts.

Classifying: it is concerned with the systematic analysis of the recorded data so as to accumulate
the transactions of similar type at one place. This function is performed by maintaining the
ledger in which different accounts are opened to which related transaction are posted.

Summarizing: it is concerned with the systematic analyse of the recorded data so as to

accumulate the transactions of similar type at one place. The function is performed by maintain
the ledger in which different accounts are opened to which related transaction are posted.

Interpreting: nowadays, the aforesaid three functions are preformed by electronic data possessing
devices and the accountant has to concentrate mainly on the interpretation aspects of accounting.
The accountants should interpret the statements in a manner useful to action. The accountant
should explain not only what has happened but also

 Why it happened, and

 What is likely to happen under specified conditions.

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Chapter: 3

OBJECTIVES OF ACCOUNTING

The following are the main objectives of accounting:-

1) To keep the systematic records:-

Accounting is due to keep a systematic record of financial transactions. Is the absence of
accounting there would been terrific burden on human memory which in most cases
would have been impossible to bear.

2) To protect business properties:-

Accounting provides protection to business properties from unjustified and unwarranted
use. This is possible on account of accounting supplying the following information to the
manages or the properties.
 The amount of the propertor’s fund invested in the business.
 How much the business have to pay to others?
 How much the business has to recover from others?
 How much the business has in the form of a)fixed assets; b) cash in hand; c) cash at bank;
d) stock of raw materials, work in progress and finished goods

3) To ascertain the operational profit or loss:-

Accounting helps in ascertaining the net profit earned or loss suffered on accountant of
carrying the business. This is done by keeping a proper record of revenue and expenses of
a particular period. The profit and loss account is prepared at the end of the period and if
the amount of revenue for the period is more than the expenditure incurred in earning that
revenue, there is said to be a profit. In case the expenditure exceeds the revenue, there is
said to be a loss.

4) To ascertain the financial position of the business:-

The profit and loss account gives the amount of profit and loss made by the business
during a particular period.

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 The balance sheet is a statement of assets and liabilities of the business on a particular
date. It serves as barometer for ascertaining the financial health of the business.
5) To facilitated rational decision making:-
According these days has taken upon itself the task of collection, analysis and reporting
of information t the required levels of authority in order to facilitate rational decision
making.

6) Information system:-
Accounting functions as an information system for collecting and communicating
economic information about the business enterprise.
7) To maintain the cash accounts through the Cash Book and to find out the Cash balance on
any particular day.
8) To maintain various other Journals for recording day-to –day non –cash transactions.
9) To maintain various Ledger Accounts to find out the exact amounts of incomes and
expenses or gain and losses or receivables and payables.
10) To furnish information regarding Purchases and Sales, both Cash and Credit.
11) To find out the net profit or net loss or surplus or deficit for any particular period.
12) To find out the total capital on a particular date.
13) To find out the positions of assets on a particular date.
14) To find out the position of liabilities on a particular date.
15) To detect any defalcations and to check the frauds and misappropriations of money.
16) To detect the various errors and to rectify those through entries in the journal proper.
17) To confirm about the arithmetical accuracy of the books of accounts.
18) To help the management by supplying accounting ratios, reports and relevant data.
19) To calculate the cost of productions.
20) To help the management formulate policies for controlling cost, preparation of quotation
for competitive supply etc.

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There are many advantages of learning accounting theory. These are enumerated as
follows:

1. By learning accounting theory only one can know the basic reasons behind all accounting
practices.
2. After learning theory only one can know that practical accounting is not so dull and
monotonous as to be the summation of some debits and credits.
3. By learning accounting theory only the accountant can perform his work more skillfully and
flawlessly.
4. An accountant, perfectly equipped with sound knowledge of accounting theory, cannot only
understand his job-problems better, but also can make others understand the same in a better
way.
5. There are many processes of practical accounting. A single process cannot be applicable to all
cases. If the accountant knows the theories well, he can select the correct process of accounting
applicable to a particular case.
6. There may be may flaws and defects in the accounting system of a concern. If the accountant
has got sufficient knowledge of accounting theory, he can easily find these out and administer
advices to the management as to the way of future protection.
7. Present day business is full of diverse Socio-economic problems. So, accounting, now-a-days
has become complicated and complete. Knowledge of accounting theory helps the accountant to
tide over real world-accounting problems very easily.
8. An accountant, fully equipped with the knowledge of accounting theory, can easily help the
management in an effective manner by supplying proper accounting information at the proper
time.
9. Valuation of various assets and liabilities can be more or less accurately if the accountant has
the knowledge of accounting theory.
10. The various persons and parties interested in the business, like, the Government, public,
investors, Money-lenders, Researchers etc., rely more on the accountant knowing theories than
the accountant without any theoretical knowledge.

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CHAPTER: 4

Accounting process

Introduction:

Any economic transactions or event of a business which can be expressed in monetary terms
should be recorded. Traditionally, accounting is a method of collecting, recording , classifying,
summarizing, presenting, and interpreting financial data of an economic activity.

1. Identification of transaction:- in accounting, only financial transactions are recorded. A

financial transactions are recorded. A financial transaction is an event which can be
expressed in terms of money and which brings change in the financial position of a
businesss enterprise. Therefore, all transactions are events but all transactions are events
but all events are not transactions.
2. Recording the transaction:- journal is the first book of original entry in which all
transactions are recorded event wise and date wise and presents a historical record of all
monetary transactions.
3. Classifying:- accounting is the art of classifying business transactions. Classifying means
statement setting out for a period where all the similar transactions relating to a person, a
thing etc.,
4. Summarizing:- summarizing is the art of making the activities of business enterprise as
classified in the ledger for the use of management or other or other user groups.
5. Analysis and interpretation:- the financial information or data is recorded in the books
of account must futher be analysed and interpreted so to draw meaning full conclusion.
6. Presentation or reporting the financial information:- the end users of accounting
statement must be benefited from analysis and interpretation of data as same of them are
the “share holders” and other one the “stake holders”. Comparison of past and present
statement and reports, use of ratios and trend analysis are the different tools of analysis
and transactions.

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Chapter: 5

LEDGER

Journal is a daily record of all business transaction. In the journal all transactions relating
to persons expenses not give a complete picture of the fundamental elements of book keeping i.e,
properties, liabilities, expenses and income at a glance and at one place. Business transaction
being recurring in nature, a number of entries are made for a particular type of transactions such
as sales, purchases; receipts; payment of cash etc. the entries are therefore scattered over in the
Jouranal. Yhe whole journal will have to be gone through to find out the combined effect of
various transactions on a particular account.

The ledger is a permanent summary of all amounts entered in supporting journals which list
individual transactions by date. Every transaction flows from a journal to one or more ledgers. A
company's financial statements are generated from summary totals in the ledgers.

Ledgers include:

 Sales ledger, records accounts receivable. This ledger consists of the financial transactions
made by customers to the company.
 Purchase ledger records money spent for purchasing by the company.
 General ledger representing the five main account types: assets, liabilities, income, expenses,
and Capital.
 Distributed ledger, sometimes called a shared ledger, is a consensus of replicated, shared,
and synchronized digital data geographically spread across multiple sites, countries, and/or
institutions.

For every debit recorded in a ledger, there must be a corresponding credit so that the debits equal
the credits in the grand totals.

RELATIONSHIP BETWEEN JOURANAL AND LEDGER:

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Journal and ledger are the most useful books kept by the business entity.

1. The journal is a book of original entry where as the ledger is the main book of
account.
2. In the journal business transactions are recorded as and when they occur.
However, posting from the journal is done practically.
3. The journal does not disclose the complete position of account.
4. The record of transactions in the journal is in the form of journal where as the
record in the ledger in the form of an account.

TYPES OF LEDGER:

The three types of ledgers are the general, debtors, and creditors.[5] The general ledger
accumulates information from journals. Each month all journals are totaled and posted to the
General Ledger. The purpose of the General Ledger is therefore to organize and summarize the
individual transactions listed in all the journals. The Debtors Ledger accumulates information
from the sales journal. The purpose of the Debtors Ledger is to provide knowledge about which
customers owe money to the business, and how much. The Creditors Ledger accumulates
information from the purchases journal. The purpose of the Creditors Ledger is to provide
knowledge about which suppliers the business owes money, and how much.

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CHAPTER: 6

UTILITY OF LEDGER

1. It provides complete information about all accountants in one book.

2. It enables the ascertainment of the main items of revenues and expenses.
3. It enables the ascertainment of the value of assets and liabilities.
4. It facilitates the preparation of final accountants.

1. Quick Information about Particular Items:

The ledger sets the relationship between the business enterprise and a particular item with the
help of an account which is maintained specifically for that item only. For example, if a business
enterprise wants to know the position of total sales of the enterprise during any accounting year,
then sales account will serve the purpose because in the sales account the position of total sales
(including credit sales) is given.

Similarly, debtors account and creditors account show the position of total debtors and total
creditors of the business enterprise. It is worth mentioning here that getting information from the
journal is very difficult.

2. Proper Control over Transactions:

In ledger, separate accounts are maintained for each type of transactions. Various accounts are
opened on the basis of classification of transactions. These accounts record the transactions
related to a particular field only. Therefore, after proper analysis of the accounts, transactions can
be controlled.

3. Helps in Preparing Trial Balance:

The final balances of all ledger accounts are to be shown in the trial balance from which
arithmetical accuracy of the accounts can be checked.

4. Helps in Preparing Financial Statements:

The financial statements of any business concern consist of income statement viz. Trading and
Profit & Loss Account and positional statement viz. Balance Sheet. Both these statements are
prepared from the ledger accounts.

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Format of Ledger Account:
Ledger is a book containing various accounts of a business enterprise. At the beginning of
ledger, an index is provided showing all accounts contained therein. Each account is allotted a
code number for easy identification. The name or title of each account is written at the top
middle and usually in bold capital letters.

Ledger account is prepared in ‘T’ shape and usually known as ‘T’ account. Ledger account is
basically divided into two parts. Left side is known as ‘debit side’ and right side is known as
‘credit side’. On the left side, all debits are recorded and on the right, all credits are recorded. To
record necessary details of each transaction, each side of account is further divided into four
columns.

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 CONCLUSION:

Financial accounting is the communication of information about a business or other type of

organization (such as a charity or government) so that individuals can assess its financial health
and prospects. Probably no single word is more relevant to financial accounting than
“information.” Whether it is gathering financial information about a specific organization,
putting that information into a structure designed to enhance communication, or working to
understand the information being conveyed, financial accounting is intertwined with information.

In today’s world, information is king. Financial accounting provides the rules and structure for
the conveyance of financial information about businesses (and other organizations). At any point
in time, some businesses are poised to prosper while others teeter on the verge of failure. Many
people are seriously interested in evaluating the degree of success achieved by a particular
organization as well as its prospects for the future. They seek information. Financial accounting
provides data that these individuals need and want.

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 BIBLIOGRAPHY:

WEBSITES REFFERED:

1) www.investopedia.com
2) http://en.m.wikippedia.org
3) https://www.cleverism.com
4) https://yourbusiness.azcentral.com

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