Bookkeeping and accounting pdf download

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Keeping track of the finances is fundamental to the success of every business, but tackling the task yourself can be intimidating. Separate books for recording transactions pertaining to these activities are maintained, registering in them the details of respective transaction.

This exercise is called Bookkeeping. Why are Books of Accounts Maintained? It is extremely important to have the latest information about what is hap- pening in business. This helps in taking appropriate and timely action. A doc- tor needs details about the physiological conditions of a patient to diagnose the illness, its causes and its remedies. Just like that the owner of the business, creditor, or banker needs to know about the latest financial health of the busi- ness for taking suitable decisions about the future course of action.

Bookkeeping helps in maintaining and providing the latest financial position of the business and, therefore, assumes great significance. It is advisable to maintain books of accounts for the following reasons as well: z They provide up-to-date information about the business. The accounting information of business is required not only by the owner of the business but by various other parties too. They are the government, sup- pliers, creditors, bankers, investors, shareholders, auditors, etc. They depend on the information prepared by financial accounting for taking various deci- sions pertaining to their activities.

This emphasises the need for writing books of accounts in a systematic and methodical way. They have to be written as per the norms and principles of techniques and systems of accounting used the world over. There are a few accounting techniques avail- able for writing accounts but the Double Entry Bookkeeping System has uni- versal acceptability and credibility.

It is the modern and scientific accounting system designed to reflect the true and fair position of the business. Double entry bookkeeping is designed in such a way that, while entering the credit entry of a particular transaction, the details of the corresponding debit entry is also given.

The effect of these trans- actions on the business is recorded in the books of accounts. Only those trans- actions, which result in exchange of money or exchange of goods or services, whose value can be measured in monetary terms, need accounting treatment. Transactions may be of the following nature: a.

Payment of cash to creditors e. Receipt of cash from debtors f. Exchange of goods against assets g. There are two types of transactions: i Cash transactions and ii Credit transactions. There are total three types of accounts: i. Personal Account or Individual account: This group of accounts includes all accounts of individuals and organisations like a firm, a corporate entity, a society, etc. Assets Account: This group of accounts covers all types of assets.

Assets mean all those investments made in tangible or intangible form of assets, which have utility value or use value. Moreover, these assets can also be disinvested and converted into cash.

Income-Expenditure Account: This group of accounts encompasses all accounts, which represent revenue income and revenue expendi- ture of the business. Thus each transaction has minimum one debit effect and minimum one corresponding credit effect. There are prescribed rules for debiting and crediting various accounts, which are classified under three major groups as mentioned above. These rules form the basis of accounting under Double Entry Bookkeeping System. Explanation: Any person involved in a transaction can either be a receiver of cash, asset or services, or be a giver of cash, asset or services, without any immediate consideration.

The account of the person who receives is debited, while the account of the person who gives is credited. All those revenue incomes that are generated during the course of the business are credited in their respective accounts and all such revenue expenditures incurred during the course of the business are debited in their respective accounts.

Steps for Identifying Debit or Credit Effect i. Decide whether the transaction needs accounting treatment. Determine which are the two accounts involved in the transaction. Apply the rules of debit and credit for the identified accounts as per their classification. Every transaction must have a debit and a corresponding credit. The Journal Entry A journal entry is the first noting in the books of accounts whereby debit and credit effects of each transaction on accounts are identified and noted along with proper description.

Journal entries help in preparing several books of accounts. Amount Amount Explanation: i. Date: The journal entries must be written date-wise in a chronologi- cal sequence. It is ideal to make entries of the transactions daily. Particulars: In this column, for each transaction, the account to be debited and the account to be credited is mentioned.

The account, which is to be debited, is written first followed by the account to be credited. Ledger Folio No. This helps trace the posting of each transaction and verify it. Debit and Credit: In this column the amount by which the respec- tive account is debited and credited is mentioned. At the end of every page the total of debits and credits is made and is carried forward to the next page. Ledger A ledger is a book, which contains details of all accounts in which transac- tions are made.

It contains a condensed and classified record of all business transactions transferred from the journal or subsidiary books. Ledger is the principal book under the double entry bookkeeping system. It contains up-to- date information about all accounts, e.

If such accounts were not maintained in the ledger, the owner would be required to go through each transaction involving Mr. X to find out the payment liability. This exercise is time-consuming and inconvenient. For businesses with a sizeable number of transactions, it is impossible to scan the primary books or journal every time to know the exact position of any account.

It is, therefore, very important to maintain a ledger. Each side is further divided into four sections, viz. Date: In this column, the date of a transaction as entered in the jour- nal book from where the entry is brought to the ledger account, is mentioned.

Particulars: In this column the name of the account in which the corresponding credit or debit under the double entry principle is found, is mentioned.

Journal Folio Number: In this column the page number of the jour- nal book or subsidiary book from where the transaction is brought to the account is mentioned. Amount: In this column the amount, with which the account is deb- ited or credited, is mentioned. Transactions Transactions are entered, as and when they occur in the journal book or sub- sidiary books. From there necessary records are created in the ledger.

If an account is debited with an amount as entered in the debit column of the journal book, the same is posted to the debit side of the account in the ledger. Similarly, if an account is credited in the journal book, it is posted to the credit side of the account. While posting entries, care should be taken to see that the name of the account in which the entry is posted is not mentioned in the column of particulars. Instead the name of the other account, which is affected under the same trans- action, should be mentioned.

Balancing the Account Normally as it happens, the total of all postings to the debit side and the credit side of the account is not equal. Following accounts always have debit balances: a.

Stocks Account e. Revenue Expenses Account f. Losses Account g. Investment Account ii. Following accounts always have credit balances: a. Revenue Income's Account c. Bank Loan Account e. Interest Received As seen earlier, the journal book is the first book required to be kept in the business where all transactions are recorded. It is the book of original entry. Likewise, the ledger is the most important basic book, which records all accounts.

So long as the transactions in the business are limited and simple, it is possible to enter all transactions first in the journal book and then in respective accounts in the ledger. But with the size of a business and the number of transactions increasing, it becomes difficult to maintain a journal book for all the transactions and post them in the ledger.

Under such circumstances, it becomes necessary to divide the journal books and the ledger into some separate subsidiary books, each of which is reserved for recording one particular class of transactions, e. Such businesses must maintain a set of books as sug- gested below. By doing so, the businesses can get a correct and fair picture of the activities speedily. Journal: All transactions except those which are to be recorded in sub- sidiary books are properly recorded here.

Subsidiary books for journal i. Purchase book: In the purchase book, all transactions pertaining to purchases, be it on credit or by cash, are recorded.

Transactions of pur- chase returned are also recorded here separately. Sales book: In the sales book, all transactions pertaining to credit or cash sales are recorded. Transactions of sales returned are also recorded separately. Ledger: All accounts involved in the transactions recorded in the jour- nal or its subsidiary books are maintained here, and necessary posting is made. Stock register: This is a register where the movement of stock is maintained.

The formats for the journal book and the ledger accounts were discussed ear- lier. The formats of subsidiary books like purchase book, sales book, cash- book, bankbook and stock register are given here along with a brief explana- tion for its usage. Date: The date on which the purchase was made is mentioned here. Particulars: The name of supplier of the materials and necessary details of the invoice are mentioned here.

Bill No. Ledger Folio: The folio number of the ledger, on which either the supplier's account if credit purchase or cash account if cash pur- chase is credited, is mentioned here. Amount: The net amount of purchase made is mentioned here.

Terms: The terms of purchase, as on cash terms or credit terms, etc. Folio Name Total Explanation: i. Date: Date on which the sales transaction took place is mentioned here. Particulars: The name of the purchaser of the goods and necessary details of the transaction are mentioned here. Ledger folio: The folio number of the ledger on which either the buyer account if credit sales or cash account if cash sales is deb- ited is mentioned here.

Amount: The amount of sales done through this transaction is men- tioned here. Like other asset accounts, this account is also required to be mentioned in the ledger. However, because of the multiplicity of cash transactions and for convenience, cash account is not maintained in the general ledger but maintained as a separate account and named as cash book.

All the rules of maintaining accounts in ledger apply to this account also. Since the transactions involving bank are increas- ing, it is convenient and proper to keep a separate bank account where all transactions involving the bank are posted.