THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA

1. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA Thilanka WarnakulasooriyaB.Com Special (Col), ACA POSTGRADUATE DIPLOMA IN BUSINESS AND FINANCE - 2013/2014Principles of Financial and Cost Accounting

2. Accounting Process • Every Business transaction has two fold aspects called Debit & Credit. • Double Entry system transactions are recorded in terms of debits and credits. Since a debit in one account will be offset by a credit in another account Accounting Input (Events & Transactions) Accounting Process Accounting out put (Financial Statements)

3. Accounting Equation • Mathematical presentation of the relationship between resource providers and resource holders . • At any given time aggregation of the equity & the total liabilities of an accounting unit should be equal to total assets of the Organization. • Ownership can be divided in to two • Internal Ownership or capital • External Ownership or Liabilities Assets= Liabilities

4. Ownership can be divided in to two • Internal Ownership or capital • External Ownership or Liabilities • Therefore Accounting Equation is Assets= Capital + Liabilities

5. Ex: Show how following transactions in affect Accounting Equation • Mr. Kamal Start a Business by investing cash of 100,000 , Land of 150,000 ,plant & machinery of Rs. 200,000. • Purchase goods of Rs. 50,000 on cash • Purchase goods of Rs. 100,000 on credit • Sold goods worth of Rs. 10,000 for Rs. 15,000 on cash • Paid Utility bills of Rs. 5000 • Drawing cash of Rs, 6000 for personal use. • Settled Rs. 20,000 of Creditors • Sold goods worth of 12,000 for 16,000 on credit basis • Received Rs, 10,000 from Debtors • Drawing Rs.5,000 goods for personal use

6. Accounts • Accounts use to record transactions. Normally called ledger accounts • Type of Accounts • Asset Accounts • Liability Accounts • Capital Accounts • Income Accounts • Expense Accounts

7. Format of Ledger Account • T account debit Credit

8. Double Entry Principle • According to the double entry Principle each transactions gives a dual side impact and those dual side are recorded in the Ledger Account Assets/ Expenditure account DebitCredit Increase ( + )Decrease ( - )Capital/ Liabilities/ Income Accounts DebitCredit Decrease ( -) Increase (+)

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11. Ex: Write the double entry for following transitions Owner invest Rs. 10,000 cash Purchase Machinery for Rs. 12,000 Paying Electricity bill of Rs 2,000 Purchase Rs, 17,000 goods on cash basis Receipt of Rs. 12,000 from debtors Settle Rs, 5000 Creditors Obtain a bank loan of Rs, 50,000 Write of bad debt of Rs, 500 Credit sales of Rs. 50,000 Drawing of cash of Rs. 10,000 Credit Purchases of goods of Rs,. 40,000 Discounts given to debtors Rs. 2,000

12. Accounting Process Indentify Transaction & events Classifying Transactions & events Recording in primary books Accounting the transactions Preparing the Trail balance Preparing adjusted trail balance Brought forwarding the balances to next year Prepare Financial Statements

13. Transactions initiating through Source Documents includes transaction values and other relevant information • i.e: Receipt, Invoice Data captured in source documents is recorded in the Primary books Recording batch total or individual figures in ledger account Prepare financial statements from balances obtained by balancing the general ledger.

15. Format of Three Columnar Cash book

16. Petty cash book

17. Credit Transactions • Purchase day Book • Return outward day book • Sales day book • Return inward day book • General Journal

18. Purchase day Book

19. Sales day book

20. Return outward day book

21. Return inward day book

22. General Journal