Account

Account comes out from count which means number.

Actually account define as “The art of recording”
(Accounting is the language of business)

Transaction
Any dealing between two persons or things is call transaction.
Bookkeeping
Book keeping define as recording of business transactions in a regular and
systematic manner.
Regular Every day
Systematic Double entry system
Into double entry system credit and debt will come.
Business
Activity of undertaken for the purpose of earning profit e.g.
Banking Business, an insurance business etc.
Proprietor
He is the owner of a business.
Capital
A mount for starting a business or amount, which is actually invested in a
business.
Drawings
The cash or goods taken away by the owner (proprietor) from the business
for his personal use are called drawings.
Purchases
Goods purchased are called purchases.
When the Goods purchased from cash they are called cash purchases.
But if they are purchases for which payment will have to be made at some future date it
is known s credit purchases.

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Returns purchases
If goods purchases are found defective or unsatisfactory that is called
returns purchases.
Sales
Goods sold are called sales.
Revenue
Revenue means any type of incomes directly or indirectly of the business
for example interest received, sale of goods.
Expenditure
Expenditure takes place when assets or service is acquired.
Assets
These are the things of value possessed by a trader such as building, land,
machinery etc.
{Asset means the resources of the business}
Expense
It means an expenditure whose benefit is finished.
Or expenses mean any type of expenses directly or indirectly of the business e.g. rent,
Salary, Carriage, Wages etc.
Debtor
A personal that receive money and will repay that person called debtor.
Debtor means account receivable
Short from of debit is Dr.
What comes in is called debit
Creditor
A person who pays out something is called creditor or creditor are the
persons who supply good on credit or bankers or lenders of money.
Creditor means account payable.
Short from of credit is Cr.
What goes out is called credit.

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Liabilities
Liabilities mean responsibilities or liabilities means the claims of the
suppliers of cash.
Liabilities define as the equity of the creditors represent debts of the business is called
liabilities or there are the debts due by a business to its proprietors and others.
Voucher
Any paper for writing to support business transaction is called voucher.
Single entry Vs Double entry: -
1 Single entry system is a system of book keeping which does not follow the
double entry system.
2 Single entry system of bookkeeping is not perfect and trades and mistake can
be handle be detected.
Recording
Recording is done in the book of Journal.
Classifying
Classification is done in the book of Ledger.
Summarizing
Presenting the classified data in a manner, which is understandable and
useful to management and other interested parties.
Statements which is must for summarizing
1 Trading of profit or loss.
2 Balance sheet.
Stock
To takes care of Goods with inventory.
Management
Management is the art of getting thing done through others.
Branches of accounting
Accounting has three main from of branch.

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 1 Financial accounting it is mainly define to the preparation of financial
statement for the use of out sides likes creditors, banks and financial
institutions etc.
2 Cost accounting Function of cost accounting is to ascertain to cost of a
product and to help the management in the control of cost.
3 Management accounting it is accounting for the management “to take
decisions and to control activities”
Employees
Employees are interested in the financial position.
Investors
The projective investors who want to invest their money in a business and
want to know the progress.
Consumers
Consumers need accounting information for establishing good accounting
control so the cost of production may be reduced with the resultant
reduction.
Functions of accounting
1 Record keeping function the primary function of accounting is to keep a
systematic record of financial transaction.
2 Protect business properties the second function of accounting is to protect
the property of the business from unjustified.
3 Legal requirement function the third function of accounting is to devise
such a system as will meet the legal requirement.
4 Communicating the results accounting is the language of business various
transaction are communicated through accounting.
System of accounting
There are basically two system of accounting.
1 Cash system of accounting it is a system in which accounting entries are
made only when cash is received or paid.
2 Accrual system of accounting it is a system in which accounting entries are
made on the basis of amount having become due for payment or receipt.

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Kind of account “Classification of Accounts”
Account

Personal A/c Impersonal A/c

Real A/c Nominal A/c

1 Personal A/c is the name of any person or company for example Ali, National
bank etc.
2 Real A/c is account of real things for example equipment, building,
mechanize etc
3 Nominal A/c all profit, loses, gain, earns etc
Accounting cycle
It refers to a complete sequence of accounting procedures, which are requires to be
repeated in same order during each accounting period. Accounting cycle includes

a) Recording First all transactions should be recorded in the journal or books of

original entry known as sub sidiary books as and when they take place.
b) Classifying All entries in the journal or book of original entry should be posted to
the appropriate ledger accounts to find out at a glance the total effect of all such
transaction in a particular account.
c) Summarizing Last stage is to prepare the trial balance and final accounts with a
view to ascertaining the profit or loss made during a trading period and the
financial position of the business on a particular date.

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Note: - All these successive stages will be discussed in detail one bye one in the
subsequent pages.
Rules of Debit and Credit accounting of classification of Account
When know that two party’s or rather two accounts are concerned in each
transaction. One of them must be debtor and other creditor. The following rules are
applied for debiting and crediting accounts.
1 Personal A/c Debit the account of person receiving and credit the account of
person giving.
2 Real A/c Debit the account of property or thing coming in and credit the
account of that going out.
3 Nominal A/c Debit the account of all expenses and losses and credit the
account of all gains.
Effect
Debit Name of A/c Credit
Increase 1- Assets Decrease
Increase 2- Expenses Decrease
Decrease 3- Liabilities Increase
Decrease 4- Proprietor ship Increase
Decrease 5- Revenues Increase
Accounting equation
The dual aspect may be state, as “for every debit there is a credit” every
transaction should have two-fold effect to the extent of some amount. This
concept have resulted in accounting equation which states that at any point of
time the assets of any entity must be equal to the total of equities or the sum of the
rights to the properties is equal to the sum of the properties owned.
Right to the properties = Equities
Properties owned = Assets
The formula of accounting equation known as
Assets = Equities
Or

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 Assets = Liabilities + Proprieship
Or
Assets-Liabilities = Proprieship
Journal
The word “Journal” has been derived from the French word “Jour”. Jour
means day. So Journal means daily. Transactions are recorded daily in Journal and it is a
book of original entry to record chronologically (i-e in order of date) and in detail the
various transaction of a trader. It is also known as “Day book” because it contains the
account of every day’s transaction.
Ledger
When all the transaction for given period has been journalized. The next
thing is to classify them according to the accounts affected that one is called ledger or the
book in which this classification is done is called the ledger.
The ledger is called the kind of all books of account because all the entries from the
books of original entry must be posted to the various accounts in the ledger.
It should be noted that Journal contains a record while ledger contains a classified record
of all transactions.
Trial balance
Having posted all the transactions into the ledger, it is before proceeding
further.
In order to test the arithmetical accuracy of our ledger we should prepare a
statement called the trial balance.
A trial balance is a statement prepared by taking out the debit end credit balances
of all accounts appearing in the ledger.
Cashbook
The cashbook is a book of original entry in which transaction relating only
to cash receipts and payments are recorded in detail. When cash is received it is entered
on the debit or lift hand side. Similarly when cash is paid out the same is recorded on the
credit or the right hand side of the cashbook.
Kind of cashbook
The following are tree from of cashbook.

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 1 Single column cashbook or simple cashbook.
2 Double column cashbook.
3 Treble column cashbook.
Petty cashbook
Into petty cashbook all small thing will be recorded just like pin, book,
notebook, calculator and other small thing, which is bought from shops.
Bank Reconciliation
If this is difference amount, which we have and amount of Bank then Bank reconciliation
need to do.
Into bank reconciliation what paper to need for checking.
1 Bank statement from bank.
2 Cash book from NGO.
Need a Bank Loan
What are the questions the Bank will ask?
1 Who are you?
 Capacity to Borrow
 Character
 Security
 Conditions
 Capital
2 What do you have?
 What do you have?
 What does your business have?
 Balance sheet or Statement of Financial Position
3 How do you make your money?
4 Can you pay the loan back?

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