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ACCOUNTING MECHANISM

ACCOUNTING MECHANISM. Learning objectives:. To understand the Accounting mechanism To understand the Double Entry system To understand the meaning of account and classification of accounts Conceptual frame work of Financial Accounting To know how to prepare the Final Accounts.

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ACCOUNTING MECHANISM

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  1. ACCOUNTING MECHANISM

  2. Learning objectives: • To understand the Accounting mechanism • To understand the Double Entry system • To understand the meaning of account and classification of accounts • Conceptual frame work of Financial Accounting • To know how to prepare the Final Accounts.

  3. Double Entry System • It recognizes that every transaction has a twofold effect. • The method of writing every transaction in to two accounts, of these two accounts, one A/c is given ‘Debit’ while other one is given ‘Credit’ with an equal amount so that the Accounting Equation is always in balance. • On any date Total Debits = Total Credits

  4. The Recording Process • The sequence of steps in recording transactions: Transactions Documentation Journal Financial Statements Trial Balance Ledger

  5. ACCOUNTING MECHANISM • Recording • Journalizing 2. Classifying • Ledger preparation 3. Summarizing • Balancing the ledger • Preparation of Trial Balance • Preparation of Profit and Loss A/c • Preparation of Balance Sheet 4. Interpreting the results.

  6. JOURNAL • The book of original entry. • Recording of entries in the journal is known as Journalising. • Large Firms/Concerns maintain special journals also known as Subsidiary Books.

  7. SUBSIDIARY BOOKS • Cash Book: • Simple • Two column • Three column 2. Purchase Book 3. Purchase returns Book 4. Sales Book 5. Sales returns book 6. Bills Receivable book 7. Bills Payable Book 8. Journal Proper

  8. LEDGER • It is set of all accounts. • It contains a classified summery of all transactions recorded in journal.

  9. ACCOUNT - MEANING • An individual record of increases and decreases in an item that is likely to be of interest or importance. • It is “T” shaped Debit is left side of “T” account Credit is right side of “T” account

  10. Classification of Accounts

  11. Rules of Double Entry System

  12. Conceptual frame work of Financial Accounting

  13. TRIAL BALANCE • A statement of Debit and Credit totals or balances extracted from the various accounts in the Ledger. • Objectives: • To facilitate the preparation of Final Accounts. • To check the arithmetical accuracy of the books.

  14. CAPITAL AND REVENUE ITEMS • Capital Expenditure: • The benefit of which is not fully derived in one year but spread over several periods. • Eg: Acquisition of assets, additions to fixed assets • Revenue Expenditure: • The benefit of which is derived in the year in which the expenditure was incurred. • Eg: Raw material, Rent, wages and salaries.

  15. FINAL ACCOUNTS • Include preparation of: • Trading and Profit and Loss A/c • To know the operating performance of the business i.e.profitability. • Balance Sheet • To know the financial position of the firm on a particular date.

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