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PROJECT OF ACCOUNTS ON DOUBLE ENTRY SYSTEM

PROJECT OF ACCOUNTS ON DOUBLE ENTRY SYSTEM. DOUBLE ENTRY SYSTEM. INTRODUCTION ORIGINATES It origin to an Italian merchant named Luco Pacioli who wrote the first book named ‘De Computis et Scripturis’ on double entry accounting in the year 1494. ASPECTS

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PROJECT OF ACCOUNTS ON DOUBLE ENTRY SYSTEM

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  1. PROJECT OF ACCOUNTSONDOUBLE ENTRY SYSTEM

  2. DOUBLEENTRYSYSTEM INTRODUCTION • ORIGINATES • It origin to an Italian merchant named Luco Pacioli who wrote the first book named ‘De Computis et Scripturis’ on double entry accounting in the year 1494. • ASPECTS Two business aspects, i.e., when we receive something, we give something in return • .TOTALTotal of all debits must be equal to the all credit.

  3. COMMON FACTORS • PERSONAL ACCOUNTS – To keep a record of each asset of the business an account of each person or firm, with whom the business has its dealings, is opened. • REAL ACCOUNTS - An account of each asset in the business is opened for keeping a record of each asset of the business. • NOMINAL ACCOUNTS - An account of each expense and income is opened in the books for ascertaining profit or loss of the business for a particular period.

  4. CLASSIFICATION OF ACCOUNTS ACCOUNTS PERSONAL ACCOUNTS IMPERSONAL ACCOUNTS NATURALPERSON’S A/C ARTIFICIAL PERSON’S A/C REPRESENTATI-VE PERSON’S A/C REALA/C NOMINAL A/C TANGIBLEA/C INTANGIBLE A/C

  5. NATURAL PERSON’S ACCOUNT – An accountrecording transactionswith an individual human being. e.g. , Ram’s Account. • ARTIFICIAL PERSON’S PERSONAL ACCOUNT - An account recording financial transactions with an artificial person created by law. e.g. , Mohan Industries Ltd. • REPRESENTATIVE PERSONAL ACCOUNT - An account indirectly representing a person or persons. e.g. , Salaries Outstanding Account. • TANGIBLE REAL ACCOUNT – It relates to an asset which can be touched, felt, seen and measured. e,.g. , Machinery Account. • INTANGIBLE REAL ACCOUNT – It relates to an asset which cannot be touched but can be measured in value. e.g. , Goodwill Account.

  6. RULES • PERSONAL ACCOUNT - The person receiving something is given debit and person giving something is given credit. e.g. , if Ram sells goods to Sham on credit, Sham’s a/c will be given debit (in Ram’s book) as he is the receiver of goods & Ram’s a/c will be credited (in Sham’s book) as he is the giver of goods. • REAL ACCOUNT – Asset entering the business is given debit & asset leaving the business is given credit. e.g. , when goods sold for cash. Cash a/c will be given debit as cash comes in & sales a/c will be credited as goods go out.

  7. NOMINAL ACCOUNT – Accounts of expenses & losses are debited and accounts of incomes & gains are credited. e.g. , when rent is paid to landlord, Rent a/c will be debited as it is an expense and Cash a/c will be credited as it goes out. REAL A/C PERSONAL A/C NOMINAL A/C DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT RECEIVER GIVER WHAT COMES IN WHAT GOES OUT EXPENSES &LOSS INCOMES & GAINS

  8. ANALYSIS OF TRANSACTIONS Following questions may be asked in respect of analysis of transactions – • Which are the two accounts involved ? • Whether the two accounts involved are personal, real or nominal ? • Which rules of debit and credit are applicable to the accounts involved ? • Which account should be debited or credited ?

  9. ADVANTAGES • COMPLETE RECORD – It records both the aspects of every financial transaction. • ACCURATE INFORMATION – A complete record of amount due from various debtors and amount due to various creditors is kept by maintaining personal account of debtors and creditors. • ARITHMETICAL ACCURACY OF THE BOOKS – It can be tested by preparing a trial balance by taking balances of all ledger accounts. • PREVENT FRAUDS & ERRORS – In case of disagreement of the trial balance, efforts are made to locate errors so that books may be set right.

  10. HELPFUL IN ASCERTAINING PROFIT& LOSS – By this profit & loss account of a particular period can be prepared. Profit or Loss of the current year can be compared with profit or loss of previous year which enables the business unit to take action to increase the profit. • FINANCIAL POSITION – It can be ascertained by preparing Balance Sheet because it provides full particulars of various assets and liabilities by maintaining their accounts in the ledger. • READYMADE INFORMATION – It makes available readymade information to be sent to income tax and sales tax authorities. • FILING ACCURATE CLAIM FOR LOSS OF STOCK – It is helpful in filing claim as a result of fire to insurance company because a complete record of material or goods is kept in Material or Goods Account.

  11. DISADVANTAGES • NUMBER OF BOOKS This system involves number of books of accounts which is not practical in small concerns. • COSTLY This system is costly because a number of records are to be maintained. • NO GUARANTEE OF ABSOLUTEACCURACY There are some errors like error of principles, errors of omission etc which remain undeducted inspite of agreement of trial balance.

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