Financial Accounting

Dr. Amit Banerji

Department of Management Studies
NIT Bhopal-MP
Double Entry System

There are numerous transactions in a business concern. Each transaction, when closely analysed,
reveals two aspects. One aspect will be “receiving aspect” or “incoming aspect” or
“expenses/loss aspect”. This is termed as the “Debit aspect”. The other aspect will be “giving
aspect” or “outgoing aspect” or “income/gain aspect”. This is termed as the “Credit aspect”.
These two aspects namely “Debit aspect” and “Credit aspect” form the basis of Double Entry
System.

Definition According to J.R.Batliboi “Every business transaction has a two-fold effect and that it
affects two accounts in opposite directions and if a complete record were to be made of each such
transaction, it would be necessary to debit one account and credit another account. It is this
recording of the two fold effect of every transaction that has given rise to the term Double Entry
System”
Introduction

Accountancy, Accounting and Book-keeping

 Accountancy refers to a systematic knowledge of accounting. It explains “why to do” and “how to do” of
various aspects of accounting. It tells us why and how to prepare the books of accounts and how to
summarize the accounting information and communicate it to the interested parties.

 Accounting refers to the actual process of preparing and presenting the accounts. In other words, it is the art
of putting the academic knowledge of accountancy into practice.

 Book-keeping is a part of accounting and is concerned with record keeping or maintenance of books of
accounts. It is often routine and clerical in nature.
Classification of Accounts
Journal Entry

 Pass the journal entries for the following business transactions:

 April 1, 2022: M/s M started a business with a capital of Rs. 500000.
 April 4, 2022 : Purchased furniture worth Rs. 75000.
 April 6, 2022 : Purchased goods worth Rs. 100000, on credit from N.
 April 9, 2022 : Rent paid Rs. 10000 for April.
 April 11, 2022 : Goods sold for Rs.18000.
 April 15, 2022 : Sold goods worth Rs. 15000 to P at a 10% cash discount.
 April 18, 2022 : Rs.10000 deposited into the bank.
 April 20, 2022 : Paid Rs. 20000 to N.
 April 21, 2022 : M withdraw cash of Rs. 2000 for personal purpose.
 April 31, 2022 : Paid salary Rs. 5000 to Q.
 Final Account
Final Accounts Meaning
Final accounts are those accounts that are prepared by a joint stock company at the end of a
fiscal year. The purpose of creating final accounts is to provide a clear picture of the financial
position of the organisation to its management, owners, or any other users of such accounting
information.
Final account preparation involves preparing a set of accounts and statements at the end of an
accounting year. The final account consists of the following accounts:
 Trading and Profit and Loss Account
 Balance Sheet
 Profit and Loss Appropriation account
Objectives of Preparing Final Accounts

 To Ascertain the Results of Transactions.

 To Know the Financial Position of the Business. Determine profit or loss incurred by
a company in a given financial period
 To act as a source of information to convey the users of accounting information
(owners, creditors, investors and other stakeholders) about the solvency of the
company.
Trading, Profit & loss Account
Balance Sheet

 Balance sheet is defined as ‘a statement which sets out the assets and liabilities of a
business firm and which serves to ascertain the financial position of the same on any
particular date’.
Need: The need for preparing a Balance sheet is as follows:
 To know the nature and value of assets of the business
 To ascertain the total liabilities of the business.
 To know the position of owner’s equity.
Types of balance Sheet

The Balance sheet of a business concern can be presented in the following two forms
 Horizontal form or the Account.
 Vertical form or Report form
Horizontal form or the Account.
Vertical form or Report form