Books of Accounts

Types Of Accounts :

1. Personal Accounts : Accounts of Persons, institutions Like

Employees ,Banks, Other Companies
 " Debit the Receiver Credit the Giver "

2. Real Accounts: All Assets are real accounts. Like Furniture ,

Inventory
 " Debit What comes in Credit What goes out "

3. Nominal Accounts : All expenses, Losses, Income , Gains

 " Debit all Expenses and losses Credit all Income and gains"
Books of Accounts
Before preparation of financial statements following
books of accounts are prepared :
 Journal
 Ledger
 Trial Balance

Before computers were in common use, bookkeeping

was done by an actual bookkeeper.
Books of Accounts
JOURNAL
 Recording a transaction

 record that keeps accounting transactions in chronological

order, i.e. as they occur

 It’s the primary BOOK OF ENTRY

 The journal entry includes - date, the name of the accounts to

be debited and credited, and the amounts.
Books of Accounts
LEDGER
 Posting the transaction

 Secondary book of Accounts

 The bookkeeping process further required that all journal

amounts be "posted" to the company's general ledger and
subsidiary ledger accounts.
Books of Accounts
TRIAL BALANCE

 A trial balance prepared with the balances of all the

accounts

 If the trial balance does not balance - the bookkeeper

will go back, find & correct any disparity.

 When trial balance is balanced- preparation of financial

statements.
Journal

Journal entries are of 2 types :

 Simple Journal Entry
 Compound Journal Entry

Date Name of Account debited …xxx

Name of Account credited ….xxx
Journal

Format of A Simple Journal Entry

Date Name of Account debited ……xxx

Name of Account credited ..….xxx
( Short Description of the Transaction )
Journal
 Example 1:  Financing Activities
Owner invested $10,000 in the company.
   Analysis of Transaction
Steps  Debit or Credit ?
1Increase in Assets (Cash) by $10,000 Debit
2Increase in Owner's Equity by $10,000 Credit
   Journal Entry
  Debit Credit
Cash 10,000
Owner's Equity 10,000
   Description of Journal Entry
Owner invested $10,000 in the company.
Results of Journal Entry
Cash balance increases by $10,000.  --> Increase in Assets
Owner's Equity balance increases by $10,000.  -->  Increase in Owner's Equity
Journal
 Example 2:  Financing Activities
The company borrowed $20,000 from a bank.
   Analysis of Transaction
Steps  Debit or Credit ?
1Increase in Assets (Cash) by $20,000 Debit
2Increase in liability ( Loan ) by $10,000 Credit
   Journal Entry
  Debit Credit
Cash 10,000
Loan A/C 10,000

Description of Journal Entry

Borrowed $20,000 from a bank .  
Results of Journal Entry
Cash balance increases by $10,000.  --> Increase in Assets
Borrowings balance increases by $10,000.  -->  Increase in Liabilities
Journal
 Example 3:  Investing Activities
The company purchased $12,000 equipment and paid in cash.
   Analysis of Transaction
Steps  Debit or Credit ?
1Increase in Assets (Equipment) by $12,000 Debit
2Decrease in Assets (Cash) by $12,000 Credit
   Journal Entry
  Debit Credit
Equipment 12,000 
Cash 12,000
   Description of Journal Entry
Purchased $12,000 equipment in cash.
   Results of Journal Entry
Equipment balance increases by $12,000.  --> Increase in Assets
Cash balance decreases by $12,000.  -->  Decrease in Assets
Journal
 Example 3:  Operating Activities
The company purchased $6,000 merchandise (600 units) on credit.
   Analysis of Transaction
Steps  Debit or Credit ?
1Increase in Assets (Merchandise) by $6,000 Debit
2Increase in Liabilities (Accounts Payable) by $6,000 Credit
   Journal Entry
  Debit Credit
Merchandise 6,000 
Accounts Payable 6,000
   Description of Journal Entry
Purchased $6,000 merchandise on credit.
   Results of Journal Entry
Merchandise balance increases by $6,000.  --> Increase in Assets
Accounts Payable balance increases by $6,000.  -->  Increase in Liabilities
Journal

Format of A Compound Journal Entry

Date Name of Account debited …xxx

Name of Account 1 credited ….xxx
Name of Account 2 credited ….xxx

( Short Description of the Transaction )

Journal
 Example 4:  Operating Activities

 The company sold 500 units of merchandise at the price of $11,000. 

Customer paid $9,000 in cash at the time of sale.

 Steps  Debit or Credit?

1Increase in Assets (Cash) by $9,000 Debit
2Increase in Assets (Accounts Receivable) by $2,000 Debit
3Increase in Revenue (Sales) by $11,000 Credit
Journal
 Journal Entry  
Debit Credit
Cash 9,000
Accounts Receivable 2,000
Sales Revenue 11,000  
Description of Journal Entry
Sold merchandise at $11,000 price and received $9,000 in cash.
 Results of Journal Entry
Cash balance increases by $9,000.  --> Increase in Assets Accounts
Receivable balance increases by $2,000.  --> Increase in Assets
Sales Revenue account balance increases by $11,000.  -->  Increase in
Revenue
Journal
 Example 6:  Operating Activities  
   The company paid $3,500 salaries.
   Analysis of Transaction
 Steps Debit or Credit ?
1 Increase in Expenses (Salaries Expense) by $3,500 Debit
2 Decrease in Assets (Cash) by $3,500 Credit
   Journal Entry
  Debit Credit
 Salaries Expense 3,500 
Cash 3,500
   Description of Journal Entry
Paid $3,500 salaries.
  
Results of Journal Entry
Cash balance decreases by $3,500.  --> Decrease in Assets
Salaries Expense account balance increases by $3,500.  -->  Increase in Expenses
Journal
 Example 7:  Operating Activities  
   The company paid $1,500 rent.
   Analysis of Transaction
Steps Debit or Credit ?
 1Increase in Expenses (Rent Expense) by $1,500 Debit
 2Decrease in Assets (Cash) by $1,500 Credit
  
Journal Entry
  Debit Credit
 Rent Expense 1,500 
Cash 1,500
   Description of Journal Entry
Paid $1,500 rent.
   Results of Journal Entry
Cash balance decreases by $1,500.  --> Decrease in Assets
Rent Expense account balance increases by $1,500.  -->  Increase in Expenses
Journal

Journal entry for

 Prepaid Expense ( Eg: Rent )
 Accrued Expense ( Eg: Salaries )
 Accrued Revenue
 Unearned Revenue
Practice Questions
 In the Books of X Ltd. Trial Balance as on Feb 28, 2009

Account Dr Cr
Equipment 4900
Supplies 2760
Debtors 1290
Cash 1540
Creditors 230
Share Capital 6000
Retained Earnings 1120
Dividends 400
Practice Questions

Account Dr Cr
Service Revenue Earned 6975
Salaries exp 3000
Electricity exp 90
Telephone exp 45
Rent Exp 300
Total 14325 14325
Practice Questions
Following transactions took place in March
 1- received payment from customers previously billed Rs 410
 4-paid for supplies purchased on credit rs 480
 5-Paid rent for march Rs 150
 7-Purchased supplies on credit rs 480
 8- received cash for services provided rs 980
 13-paid monthly electricity bill rs 80
 16-Purchased equipment on credit rs 1400
Practice Questions
 18-billed customers for services provided rs 1300
 20-Paid for supplies purchased on 7th march
 27-paid telephone expense for month rs 65
 29-Paid beauticians salary rs1000
 30-Declared & paid dividend rs 500
 31-received cash for services to be provided later,rs 970

Prepare Journal , ledger & Trial Balance as on 31st March