Explain each real account and nominal account with examples

Real Account is an account of assets and Liabilities

Types of Real account

o Furniture Account
o Land Account
o Machinery Account
o Building Account
o Goodwill Account
o Patents & Trade Marks Account
Nominal Account is an account of incomes or expenses
Types of Nominal account

o Salary Account,
o Commission Paid/Received Account,
o Telephone Expenses Account,
o Wages Account,
o Printing & Stationery Account,
Interest Paid/Received Account

Personal account ;-Debit the receiver ,credit the giver

Real account ;- Debit what comes in ,credit what goes out

Nominal account;- Debit all expenses and losses ,credit all incomes and revenues

Types of personal account

An individual

Any entity representing as an owner

Govt organization as a whole like sbi

What are he four phases of accounting

 Recording
 Classifying
 Summerising
 Interpretation
Accounts payble ;-Ap is an accounting entry that represents an entity’s obligation to pay off a short term debt to its
creditors. Accounts payable are the debits that must be paid off within a given period to avoid default.

Journal entry

1. Goods purchase on credit

Purchase account DR.

To accounts payable account CR.

2. A ltd returned goods to us worth 20000

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 Sales return account Dr.

To A ltd.
3. Accrued income ;-
Accrued income account debit
To income account
4. Started business with cash
Cash account debit
To capital account
5. Goods withdrawn by owner
Drawing a/c debit
To purchase a/c
6. Sold furniture for cash
Cash account Debit
To sales a/c
7. Goods given as charity
Charity a/c Dr.
To purchase a/c

8. Bad debts: Bad debts denote the amount lost from debtors to whom the goods were sold on credit.
Bad debts arise from a customer’s failure to pay the amount owed to the business from a prior credit sale.
Journal entry for Bad Debts Loss
Bad debts a/c Dr.
To Debtors a/c (Ram’s account) Or bills receivable a/c
9. Journal Entry for Bad Debts Recovered
Bank Account Debit
To Bad Debts Recovered Account Credit
Give an example of compensating error

Payment of 100 rs made to Ram recorded as 1000 rs as on 1.1.2004

& paymennt made of 1000 made to ram recorded as 100 rs on 1.3.2004

Most liquid assets

Bills receivable

Which accounting principle requires,,that same accounting methods should be used from one period to another

Consistency

Personal transactions are distinct from business transactions in accordance with which accounting assumption?
Separate entity concept

Debit note & credit note

Debit note ;- It is an intimation sent to a person dealing with the business that his account is being debited for the purpose
indicated one is sent to the purpose indicated there in.

Credit note;- It is an intimation sent to a person dealing with the business that his account is being credit for the purpose
indicated there in.

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Trading account
The account which is prepared to determine the gross profit or gross loss of a business concern is called trading account.It
takes only those expenses which are directly related with core operations of the business concern.

It should be noted that the result of the business determined through trading account is not true result. The true result is the
net profit or the net loss which is determined through profit and loss account.

What are the items included in profit & loss account

A profit and loss statement (P&L) is a financial statement that summarizes the revenues, costs and expenses incurred
during a specific period of time, usually a fiscal quarter or year.
The P&L statement is also referred to as "statement of profit and loss", "income statement
Salaries, Rent, rate and taxes, commission trade expenses, printing & stationery Advertisement & repairs, traveling
expenses etc. It includes all the indirect expenses.

The result is net profit/Net income of the business

What is trial balance?

It is a statement which contains various ledger balances on a particular date.it proves the arithmetic accuracy of a business
transaction. It compares two sides of balance i.e debit & credit ,if both sides balance is tally it shows the trial balance is
fine & correct.

Accounting standards
They are used for financial reporting.accounting standards specify how transactions & other events are to be
recognized,measured presented & disclosed in financial statements
An accounting standard is a guideline for financial accounting such as how a company prepares & presents its business
income,expenses,assets,liablities.

What is meant by book keeping?

BOOK KEEPING IS MAINLY CONCERNED WITH RECORDING OF FINANCIAL DATA RELATING TO
BUSINESS OPERATIONS IN A SIGNIFICANT & ORDERLY MANNER

What is bank reconcilliation statement?

It is a statement to check whether balance shown by company’s balance shown by books of accounts are tallied with
balance shown by pass book entries or not.
Bank reconciliation statement is a statement prepared at periodical intervals, with a view to indicated the items which
cause disagreement between the balances as per the bank columns of the cash book and the bank pass book on any given
date.
Follow the below steps to prepare a bank reconciliation statement
o Take the balance either as per cash book or as per pass book as a starting point.

o Compare the items appearing in the bank column of the cash book with the item appearing in the bank pass book.
o Tick off the items in the pass book with the entries in the cash book. A list of unticked items either in cash book
or pass book will be found.

o Add or deduct items from the balance which has been taken as a starting point.

o The resultant figure will be the balance as shown by the pass book or vice versa.
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Mention what are things will not be included in bank reconciliation statement?

In a bank reconciliation statement, following thing can be excluded.

 Direct payments made by bank not entered in Cash book

 Cheques deposited but not cleared

 Cheques dishonored not recorded in cash book

 Wrong debits given by bank

 Bank Charges or Interest debited by bank

 Banks direct payment not entered in Cash book

What are the reasons for the difference in the balances as shown by the cash book and the pass book?

o cheques issued by other party but not presented by the bank

o Cash received but not recorded in the books accounts

o either bank or organization has made some mistake

o Cheques deposited into the bank but not yet collected and credited.

o Cheques issued but not yet presented for payment.

o Bank Charges.

o Amount collected or credited by bank on standing instructions.

o Amount paid or debited by the bank on standing instructions.

o Interest credited by bank.

o Interest debited by bank on overdraft.

o Direct payment by customers into the bank account.

o Dishonour of cheques or bills.

o Errors in recording of transactions by either the firm or the bank.

There could be another 4 types of error

Error of omission

Error of principle

Error of commission

Compensating error

Accrued income
It is an income earned by the business but not yet been collected by the firm.

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Suspense account
The suspence account is an account to which the difference in the trial balance has been put temprorily
Distinguish between cost accounting & Financial accounting
Cost accounting
Its aim is to provide cost information to the
management for decision making
It is maintained to fulfil the internal requirements of
management
In cost accounting stocks are valued at cost
Cost reports are continous process & prepared as per
the requirements of the management may be
daily,weekly,quaterly or annually
Distinguish between Financial accounting & Managerial accounting
Financial accounting
Its objective is to provide information of profit and loss
account& balancesheet to outsider parties such as
shareholders ,creditors etc
it can only measure which can be expressed in terms of
money
It will not reveal whether pllans are properly
implemented
Financial accounting
Its main objective is to prepare profit & loss account &
balancesheet & report this to the owners &outsiders
It Is maintained as per the requirement of companies
act & income tax
In finance accounts ,stocks are valued at cost or
realisable value,whichevr is lessor
Financial reports are prepared annually
Managerial accounting
Its objective is to provide information for the internal
users of management
Mgt accounting records moneytary as well as non
moneytary events such as politics technical changes etc
It will reveal the definatios actual from planned
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