Module 2-Accounting

Mechanics
Journal, Ledger and Trial balance
Accounting Procedures
This module describes some of the accounting
procedures that are used in practice.
Mechanical means that makes it easier to record and
summarize transactions.
Manual and computer based systems.
Basic steps are the same.
Account
Account is a device used of calculating the net change
of an item
T account
T account
 Debit Credit rules
Debit = Credit
Assets = Liabilities + Equity
Assets=Liabilities+(Capital-withdrawals+Revenue-Exp)
Assets+withdrawals+Exp= Liabilities+Capital+Revenue
Normal balance
Debit Credit
Assets Liabilities
Expenses Equity
Withdrawals Capital
Revenues
Normal balance
Increases – same as normal balance
Decreases – Opposite of normal balance
Rules of debit and credit
Debit [dr.] and Credit [cr.] denote entry on left side
and right side of an account.
No value connotations.
Increase in assets Debit
Decrease in assets Credit
Increase in Liabilities and OE Credit
Decrease in Liabilities and OE Debit
Rules of Debit and Credit
Revenues Credit
Expenses Debit
Dividends Debit
Drawings Debit
Recording Process
Transaction ---------Documentation-----------
Journal------Ledger---------Trial balance---------Financial
statements.
Journal is a chronological record of transactions.
Ledger contains the records for a group of related
accounts.
Trial balance is a list of all the accounts with their
balances.
Permanent or Real Accounts
The accounts maintained for the various items on the
balance sheet.
Balances in these accounts are reported in the balance
sheet as of the end of the period.
The year end balances in the permanent account are
carried forward into the next accounting period as the
beginning balance.
Temporary or Nominal Accounts
Revenue and expenses increases and decreases
retained earnings respectively.
Though they can be directly entered in the retained
earnings account , this is not done in practice.
To avoid cluttering/ intermingling of various items, a
temporary account is maintained for each revenue and
expense item that will appear in the income statement.
These accounts are closed every year
Chart of accounts
The accounts included in a company’s system are
listed in a chart of accounts.
For most items, there are detailed accounts and there
may be several levels of this detail
For quick and easy reference , accounts are usually
numbered or coded.