Vocational Course Accounts (V999110)

Accounts & Tally

The history of accounting is a long and evolving process that reflects the changing economic,
social, and technological contexts. Here’s a brief overview of its key developments:
1. Ancient Accounting Systems (Pre-500 AD)
2. Medieval and Renaissance Development (500–1500 AD)
• Double-Entry Bookkeeping (13th–15th centuries): In Italy, particularly in Venice,
the development of double-entry bookkeeping emerged.
• Merchants and Trade Guilds: With the rise of trade and commerce in Europe,
merchants developed sophisticated accounting systems to track transactions, debts,
and credits.
3. Industrial Revolution and Modern Accounting (1700s–1900s)
• Industrial Revolution (18th–19th centuries): The massive economic expansion
and the rise of factories required more complex financial tracking systems.
Companies began recording not only profits and losses but also the cost of materials,
labor, and overhead.
• Development of Corporations: The need for public accountability led to formalized
financial statements to inform investors. The UK Companies Act of 1844 required that
incorporated companies maintain proper accounting records.
• Accounting as a Profession: In the mid-19th century, accounting evolved into a
formal profession. The first professional accounting body, the Institute of Chartered
Accountants of Scotland, was founded in 1854. Others followed, including the
American Institute of Certified Public Accountants (AICPA) in 1887.
4. 20th Century Developments
• Accounting Standards: The 20th century saw the development of formal accounting
standards. The US developed Generally Accepted Accounting Principles (GAAP) in
the 1930s after the Great Depression. International accounting standards also
evolved, with the establishment of the International Accounting Standards
Committee (IASC) in 1973, later replaced by the International Accounting Standards
Board (IASB).
5. 21st Century: Technological Revolution and Globalization
• Automation and Software: The advent of computers revolutionized accounting in
the late 20th century, and software such as QuickBooks, SAP, and Oracle became
integral tools. Automation has led to faster and more accurate financial reporting.
• Globalization: With increased global trade and multinational corporations, the need
for standardized international accounting frameworks grew. The International
Financial Reporting Standards (IFRS), adopted by many countries, aimed at
harmonizing financial statements across borders.

What is Account?
An account is a statement that records the financial transactions of an asset, liability, expense,
or income. It records the transaction with the amount and date. It has two sides i.e. debit and
credit. It also shows the opening and closing balance for a particular period.
Definition of Accounting: Accounting is the systematic process of recording, classifying,
summarizing, and interpreting financial transactions and information to provide insights
into a business’s financial status. It helps stakeholders, such as managers, investors, and
regulators, make informed decisions. Accounting provides a clear and structured way to
track a company’s financial performance, ensuring legal compliance, transparency, and
efficient financial management.
Key Aspects of Accounting:
1. Recording – Tracking all financial transactions (e.g., sales, purchases, salaries).
2. Classifying – Organizing transactions into categories (e.g., assets, liabilities, revenue).
3. Summarizing – Preparing financial statements (e.g., balance sheets, income
statements) to give a clear overview of financial health.
4. Interpreting – Analyzing financial data to provide insights, such as profitability,
liquidity, and efficiency.
Example of Accounting in Practice:
Let’s take the example of a small business, ABC Bakery.
Step 1: Recording Transactions
• Sale: On October 10, ABC Bakery sells cakes worth Rs. 500 to a customer.
• Expense: On October 12, ABC Bakery buys baking ingredients for Rs. 200.
Step 2: Classifying Transactions
• The sale of Rs 500 is recorded as revenue under income.
 • The purchase of ingredients for Rs 200 is recorded as expenses under costs of goods
sold.
Step 3: Summarizing in Financial Statements
• By the end of the month, ABC Bakery summarizes these transactions in an income
statement:
o Revenue = Rs 500
o Expenses (ingredients) = Rs 200
o Net Income (Profit) = Rs 500 – Rs 200 = Rs 300
Step 4: Interpreting Results
• The bakery can now interpret that it earned a profit of Rs 300 from the sale of cakes
after accounting for the cost of ingredients.
• This information helps the bakery’s owner understand the business's performance
and make decisions, such as whether to reinvest profits or improve marketing to
increase sales.
Manual accounting
Manual accounting is the traditional method of recording financial transactions by hand,
without the use of computerized systems or accounting software. In manual accounting,
transactions are entered into physical accounting books such as ledgers, journals, and other
financial records. Manual accounting can be time-consuming and prone to errors, especially
with large volumes of transactions, as everything is recorded and calculated by hand.
However, it remains useful in certain smaller organizations or for personal bookkeeping.
This system typically involves the following steps:
1. Journal Entries: Recording all financial transactions chronologically in a journal.
Each transaction is entered by hand with details like the date, accounts affected, and
the amounts.
2. Posting to Ledger: After being recorded in the journal, the transactions are
transferred (posted) to individual accounts in a ledger. This includes accounts for
assets, liabilities, equity, income, and expenses.
3. Trial Balance: At the end of an accounting period, the balances of all ledger accounts
are compiled into a trial balance to ensure that total debits equal total credits.
4. Financial Statements: Once the trial balance is verified, financial statements such as
the income statement, balance sheet, and cash flow statement are prepared manually.
 5. Closing Entries: At the end of the accounting period, the accounts are closed by
transferring the balances of temporary accounts (like revenues and expenses) to
permanent accounts (like retained earnings).
Practical manual accounts
Practical manual accounts refer to the hands-on process of recording, maintaining, and
managing financial transactions using a traditional paper-based system. It involves applying
the principles of manual accounting in real-world settings, where individuals or businesses
track their financial activities without the aid of accounting software. This process is often
part of accounting training or practice for those looking to understand the fundamentals of
bookkeeping. Practical manual accounts offer a detailed understanding of the accounting
cycle and foundational concepts, allowing one to grasp the logic behind accounting systems.
It's especially valuable for small businesses or individuals learning accounting basics without
relying on technology.
Key elements of practical manual accounts include:
1. Real-Life Transactions: Recording actual financial transactions such as sales,
purchases, expenses, and payroll manually in physical books (journals and ledgers).
2. Double-Entry System: Applying the double-entry system, where every transaction
affects at least two accounts—one debited and one credited. For example, when cash
is received from a sale, both the cash account and the sales account are updated.
3. Journal Entries: Writing detailed entries for each transaction, including the date,
description, debit and credit amounts, and reference to specific accounts.
4. Posting to Ledgers: After recording transactions in the journal, posting them to the
appropriate ledger accounts such as Cash, Accounts Receivable, and Inventory.
5. Trial Balance and Financial Statements: Creating a trial balance by adding the
balances of all accounts to ensure that debits equal credits. Using this information to
prepare financial statements like income statements and balance sheets.
6. Bank Reconciliation: Comparing manual cash records with the bank statement to
ensure accuracy, adjusting for any discrepancies like unrecorded transactions or bank
charges.
7. Physical Documentation: Handling physical invoices, receipts, and checks as
evidence for transactions and filing them for future reference.
8. End-of-Period Adjustments: Recording adjustments such as depreciation, accrued
expenses, or prepaid expenses at the end of the accounting period.