Principle of accounting I

Chapter 1 Book keeping and accounting concept

Meaning and concept of book keeping

An activity done continuously by the people to earn profit is known as a business.

The book keeping is mainly concerned with the recording of business transaction in specified book according to the rule and principles. The book keeping is an art and science of keeping records of business transaction in systematic way.

Book keeping is composed of two words “book” and “keeping”. The word “book” means collection of financial evidence, data and information and “keeping” means act of maintaining these collected data and information in the book of account. Thus book keeping is the act of keeping records of financial transaction of business.

According to R.N Carter, “Book keeping may be described as the science and art of correctly recording in the books of account all those business transactions that result in the transfer of money or money’s worth.”

Chapter 2 Double entry book keeping system

 Features of double entry system

1.    Two aspects

2.    Equal effect

3.    Use of prescribed rule

4.    Checking mathematic accuracy

5.    Scientific and wide use

Account

•         Personal account

•         Personal account

Personal account

Receiver …Dr

Giver ….. Cr

Real account

What comes in … is Dr

What goes out … is Cr

Nominal account

All the expenses and losses …Dr

All the incomes and gain …Cr

Procedure of Preparing accounting equation

a)    Ascertain the factor which affects on assets, capital and liabilities

b)    Find out the effect increase or decrease

c)     Show the effect on appropriate side of accounting equation

d)    Both sides of accounting equation ( assets and capital plus liabilities) must be equal  i.e.

Format of accounting equation

Transactions	Assets	=	Capital	+	Liabilities

Some examples

Transactions	Assets	=	Capital	+	Liabilities
1)    Starting business/introduction or addition of capital					0
2)    Purchase of assets, merchandising goods a)    For cash b)    For credit			0 0		0
3)    Sales of goods for cash and on credit Sales value Cost of goods sold Profit If loss
4)    Collection of debts			0		0
5)    Payments of creditors
6)    Drawing
7)    Payment for expenses			0
8)    Outstanding expenses
9)    Income received or due
10)          Dividend Received
11)          Advance Income Expenses
12)          Loan taken

How to know the effect of transaction?

The effect of transaction can be easily known by making journal entries of the given transaction let’s take some example to make the concept clear.

       I.            Hari started business with capital

Date	Particular	L/F	Debit amount	Credit amount
I.	Cash a/c…. Dr      To capital a/c (Being business started) Here cash is real account so what comes in debit therefore cash increases in business which shows assets increase too.