Principles of Accounting (Grade-XI)

Welcome to you in Global College of

Management
Principles of Accounting (Grade-XI)

Faculty: Prakash Bohara

Department of Accountancy
Induction

Induction
• Total No. of Questions = 22 Que. (F.M.: 100)
• No. of theory questions= 7 Que. (18 marks)
• No. of numerical questions= 15 Que. (82 marks)
 Contents of Grade XI Accountancy
SN Chapter Name of the chapter
1. Chapter 1 BOOK-KEEPING AND ACCOUNTING CONCEPT
2. Chapter 2 DOUBLE ENTRY BOOKKEEPING SYSTEM
3. Chapter 3 ACCOUNTING EQUATION
4. Chapter 4 JOURNAL ENTRY
5. Chapter 5 LEDGER ACCOUNT
6. Chapter 6 SUBSIDIARY BOOKS
7. Chapter 7 CASH AND BANKING TRANSACTIONS
8. Chapter 8 BANK RECONCILIATION STATEMENT
9. Chapter 9 TRIAL BALANCE
10. Chapter 10 JOURNAL PROPER
11. Chapter 11 RECTIFICATION OF ACCOUNTING ERRORS
12. Chapter 12 CAPITAL AND REVENUE CONCEPT
13. Chapter 13 FINAL ACCOUNT
14. Chapter 14 ACCOUNTING FOR DEPRECIATION
15. Chapter 15 RESERVES AND PROVISIONS
16. Chapter 16 ACCOUNTING FOR NON-TRADING CONCERN
17. Chapter 17 ACCOUNTING FOR INCOMPLETE RECORDS
18. Chapter 18 GOVERNMENT ACCOUNTING
19. Chapter 19 NEW ACCOUNTING SYSTEM
20. Chapter 20 JOURNAL VOUCHER
21. Chapter 21 BANK CASH BOOK
22. Chapter 22 BUDGET SHEET
23. Chapter 23 PETTY CASH FUND
24. Chapter 24 STATEMENT OF EXPENDITURE
 Weightage and teaching hours

Unit-Wise Weightage and teaching hours

Number of Questions Marks Allocated Teaching
Units Title
Th. Pr. Total Th. Pr. Total Hours
1 Book-keeping and accounting 2 1 3 6 2 8 8
2 Recording of transactions - 2 2 - 6 6 18
3 Cash and banking transactions - 2 2 - 12 12 15
4 Trial balance and accounting errors 1 1 2 2 4 6 10
5 Final accounts 1 2 3 2 18 20 36
6 Depreciation - 1 1 - 8 8 8
7 Reserve and provisions 1 1 2 2 2 4 4
8 Accounting for Non-profit organization - 1 1 - 10 10 15
9 Accounting for incomplete records - 1 1 - 4 4 6
10 Government accounting 2 3 5 6 16 22 33
  Total 7 15 22 18 82 100 150
 Induction

Accounting Terminology
• Account

• Accounting

• Accountancy
Account:
simply, the records of transactions
Accounting:
act or process of maintaining account.
Accountancy:
a subject or one of the field of study that teaches us
how to maintain the records of transactions.
 Terminologies used in accounting
Business:
• An act of being busy in economic legal activities.
• Activities relating to production and sales with the objectives of
earning profit.
• Human economic activities, which include the exchange of goods
and services with the objective of earning profit.
 Terminologies used in accounting

Transaction:
 An Activity is simply called transaction.
 An activity carried out by a person or organization.
 Terminologies used in accounting

Financial Transaction:
• A transaction which can be measured and expressed in terms of
money or monetary value.
• Accounting deals with financial transactions.

.
 Terminologies used in accounting
Assets:
• Goods or properties are simply the asset
• An asset is a resource with economic value that an individual or
a company owns or controls and has right to use.
• Assets provide the economic benefit in future. 
 Terminologies used in accounting

Examples of assets:

  Land          Building 
Plant Machine
Furniture Fixtures
Vehicle Premises

.
 Terminologies used in accounting

• Accrued income
• Stock/Inventory
• Advance payment/Prepaid expenses
• Bank balance
• Account receivables
• Debtors
• Cash etc.
 Terminologies used in accounting

Types of Assets

Assets
Assets

Fixed/Non-Current
Fixed/Non-Current Current Assets Fictitious Assets
Assets Current Assets Fictitious Assets
Assets

Tangible Assets
Tangible Assets

Intangible Assets
Intangible Assets
 Terminologies used in accounting
• Fixed assets
• Fixed assets are the assets which are owned, possessed and used by
the business for a longer period of time.

• Two types:
– Tangible fixed assets: exist in their physical form.
– For eg., land, building, plant, machinery, furniture, fixture,
vehicles, premises etc.
 Terminologies used in accounting

• Fixed assets
– Intangible fixed assets: do not exist in their physical form but
exist only in their financial values.
– For eg., trademark, copyright, patent, goodwill etc.
 Terminologies used in accounting

• Current assets
• Cash or other assets which are expected to be converted into cash
within one year period of time are known as current assets.
• For eg., cash, bank balance, stock or inventory, debtors, bills
receivable, prepaid expenses, accrued income, income receivables
etc.
 Terminologies used in accounting

Liabilities:
• Any amount payable to others by a person or a company
• Monetary obligations/responsibility to pay by a person or a
company to others
Example:
Account payable (A/P)
Notes payable (N/P)
Creditors
Loan
Wage and salary payable
Interest payable
Tax payable
Other accrued liabilities etc.
 Terminologies used in accounting

Types of Liabilities:

Types of liabilities

Current Liabilities Long Term Liabilities

 Terminologies used in accounting

– Long-term liabilities: are the liabilities that are to be paid after one
year period of time.
– For eg., bank loans, mortgage loans, debentures etc.

– Short-term liabilities: are the liabilities that are to be paid within

one year period of time.
– Also known as current liabilities.
– For e.g., creditors, bills payable, bank overdraft, expenses
payables, outstanding expenses etc.
 Terminologies used in accounting

Expenses:
• Simply the amount of services or goods received from day to day
operation, production process and purchase of goods or services.
• Amount paid or not after getting services and provides benefit at
present.
• Does not have physical form or existence.
• Amount of cash paid is not important to be expenses but must be
incurred.
 Terminologies used in accounting

Income/Revenue:
• Any amount of goods supplied or services rendered to day to day
operation.
• Amount received or not after sales of goods or rendering services
• Amount of cash received is not important to be income but must be
realized.
 Terminologies used in accounting

Debtors:
 Debtors are the customers or clients who purchase goods or
services from the business on credit.
 In another words debtors are the business parties from whom
business has to receive cash against the credit sales.
 Terminologies used in accounting

Creditors:
 Creditors are the sellers or suppliers of goods or services to
the business on credit.
 In another words creditors are the business parties to whom
business has to pay cash against the credit purchase.
 Terminologies used in accounting

Capital:
• Any properties invested in the business by an individual to start the
business, to operate business, to hold powers and to earn profit.
• Investment of assets in the form of cash, bank balance, furniture,
machine, land & building etc.
 Terminologies used in accounting

Drawing:
• Any amount of properties withdrawn by owners from business for
own private/personal/ domestic use in the sole trading and
partnership business.
 Terminologies used in accounting
Overdraft/Bank Overdraft:

 A line of credit that covers your transactions if bank

deposit or account balance drops below zero.
 When an individual or company takes out excess money
from his bank account when the balance drops below the
allowed amount or minimum balance fixed by the bank.
 Short term loan borrowed from the bank, which is
payable with interest in the future.
 Terminologies used in accounting

Retained Earnings:
• Amount of profit remained after distributing dividend (profit) to
the owners/shareholders of the company.

• E.g.
• Profit earned by a company = Rs. 500,000
• Profit distributed to the owner (dividend) = Rs. 200,000
• Profit remained = Rs. 300,000 (Retained earnings)
 Terminologies used in accounting

Accounting Equation:
Mathematical model that shows the relationship among the
accounting variables like assets, capital and liabilities.
Accounting Equation:
Assets = Capital + Liabilities.

Eg. Started business with cash Rs. 200,000

Assets = Capital + Liabilities.
Cash 200,000 = Capital 200,000 + 0

Eg. Purchased machine Rs. 40,000 on credit from Ram.

Assets = Capital + Liabilities.
40,000 machine = 0 + 40,000 Ram
 Terminologies used in accounting

Eg. Purchased machine Rs. 40,000.

Assets = Capital + Liabilities.
+ 40,000 machine =0 +0
- 40,000 cash

Or, 0 = 0 + 0

This is also accounting equation

 Terminologies used in accounting
Debit and Credit:
Debit is simply ‘increase’ and credit is simply ‘decrease’. OR,
debit is benefit taking and credit is benefit sacrificing.

In another word, debit is left side of ledger account and credit is right
side of the ledger account. Example,
Purchased a pen of Rs.10 Dr Cash acc Cr
Pen Pen is Debit 10
Cash Cash is Credit
Sold vehicle for Rs. 40,000 Debit Pen Account Credit

Cash Cash is Debit 10

Vehicle Vehicle is Credit
 Terminologies used in accounting

Journal:
The first book of account where all the financial transactions
are recorded showing both debit and credit effects applying the
rules of debit and credit.
.
 Terminologies used in accounting

Ledger:
The second book of account where all the transactions having
common feature and nature, are recorded in debit and credit
side OR, individual record of every effect.
 Terminologies used in accounting

Trial Balance:
A statement/list of ledgers prepared to find out the errors and
frauds and to check the arithmetical accuracy in the books.

.
 Terminologies used in accounting

Entry:
Debit (Dr.) and Credit (Cr.) record of the transactions in
journal.

Journalizing:
An act of recording the transactions in journal showing dual
effects (debit and credit effect).

Posting:
An act of recording transactions from journal to ledgers.
 Terminologies used in accounting

Cash purchase:
Purchase of goods on cash or by cheque

Cash Sale:
Sale of goods on cash or by cheque

Credit Sale:
Sale of goods on credit to Debtors (without receiving cheque/cash
immediately) but a business has right to receive cash in future.
Credit Purchase:
Purchase of goods on credit from Creditors (without paying
cheque/cash immediately) but a business has responsibility to pay
cash in the future.
 Terminologies used in accounting
Income Statement:
A statement prepared to determine net income/loss by
deducting total expenses from total revenues.

Balance Sheet/Statement of Financial Position

A statement prepared showing assets, liabilities and capital to
determine strength and weakness and financial position of the
business.
Book Keeping:
• Keeping the records of transaction in the book
• An act of keeping records of financial transactions in a book of
account for future reference.
 Terminologies used in accounting

Bank statement/Pass book:

A statement supplied by the bank to show summary of current
balance, deposits & withdrawals by a customer from his/her bank
account.

.
 Terminologies used in accounting

Account
Records of the transactions is account

Accounting:
• Maintaining account is called accounting.
• An act of collecting financial transactions, recording and
classifying them into different groups, summarizing the results,
analyzing & interpreting and communicating.
 Features of double entry book keeping system

Features of double entry book keeping system

 Dual effect
 Use of debit and credit
 Ownership transfer
 Classification of accounts
 Equal amount recording
Double Entry Book keeping
System
 Book Keeping System

Double Entry Book Keeping:

 Modern, scientific and complete record keeping system of all
types of financial transactions showing two folds of effects (i.e.
debit and credit).
 First, concept of double entry was introduced in 1458 A. D. by
Cotrugle
 But, it was propounded by Luca De Pacioli in 1494 A. D. with
the basic principles, books of account and two aspects of the
transactions.
 Terminologies used in accounting

Eg. Purchased machine Rs. 40,000.

Assets = Capital + Liabilities.
+ 40,000 machine =0 +0
- 40,000 cash

Under Double Entry Book Keeping System,

Machine is debit Rs. 40,000

Cash is credit Rs. 40,000
 Book Keeping System

Single Entry Book Keeping:

 The oldest record keeping system, which has no definite rules
and principles to keep the records of financial transactions
 It is incomplete and unscientific record keeping system.
 It does not show the double effect of the transactions.
 It does not maintain all types of records.
 It records only the transactions of personal and cash account
and ignores others.
 Features of single entry book keeping system

Features of single entry book keeping system

 Incomplete system.

 Recording single effect.

 Recording cash and personal transactions.
 No fixed rules and principle of record keeping.
 Rules of Debit and Creidt

• Personal Account (Records of transactions relating to persons)

Debit : The receiver
Credit : The giver

Eg. Purchased machine from Ram Rs. 20,000

on credit.
Here, Ram is giver, as per the rules of personal account,
Ram account is credit.

Paid to Hari Rs. 20,000

Here, Hari is receiver, as per the rules personal account,
Hari account is debit
 Rules of Debit and Creidt

• Real Account

(Records of transactions relating to assets)

Debit : What comes in
Credit : What goes out
Eg. Purchased machine Rs. 40,000
Machine comes in and cash goes
out, so they both fall in real account.
Thus, machine account is debit and cash account is credit.

Eg. Purchased machine Rs. 40,000 from Rohit on credit.

Machine is real account and Rohit is personal account.
As per the rules of real account, machine is debit, as per the rules of personal account, Rohit
is credit.
 Rules of Debit and Creidt

• Nominal Account ( records relating to the transactions of

expenses, loss, profit and income)
Debit : Expenses/Losses
Credit : Incomes/Profit
 A. Paid rent Rs. 10,000     (Exp.)
 B. Paid rent Rs. 10,000 for Kartik and Mangsir.   (Assets, 
prepaid rent or advance payment)
Here, in first example, rent is expense, as per the rules of
Nominal account, rent account is debit.
Similarly, cash is paid and cash falls in real account. Cash goes out
from the business. So, as per the rules of real account, cash account is
 Rules of Debit and Creidt

• Nominal Account ( records relating to the transactions of

expenses, loss, profit and income)
Debit : Expenses/Losses
Credit : Incomes/Profit
 Paid salary Rs. 20,000
Here, salary is expense, as per the rules of
Nominal account, salary account is debit.
Similarly, cash is paid and cash falls in real account. Cash goes out
from the business. So, as per the rules of real account, cash account
is credit.
 Rules of Debit and Creidt

• Nominal Account ( records relating to the transactions of

expenses, loss, profit and income)
Debit : Expenses/Losses
Credit : Incomes/Profit
 Received rent Rs. 20,000
Here, Rent is income, as per the rules of
Nominal account, rent account is credit.
Similarly, cash is received and cash falls in real account. Cash
comes in the business. So, as per the rules of real account, cash
account is debit.
 Rules of Debit and Creidt

• Nominal Account ( records relating to the transactions of

expenses, loss, profit and income)
Debit : Expenses/Losses
Credit : Incomes/Profit
 On Ashwin 13, Received rent Rs. 20,000
for the month of Kartik.
Here, Rent is not income, it is advance rent income or
Pre-received rent.
Cash is real account. account is debit.