Decoding of
Accounting
Name – Ishaan Singh
Class – 11 –
Commerce
Academic Year –
2023 – 2024
Contents
Accountin Recording Balancing
g for Define of of
Dummies Transactio Transactio Accounts
– What, ns as per n – Types, –
When, Accountin How, implicatio
Where & g theory WHAT & n if not
Why What not balanced
The main difference
between journals and
ledgers comes down to
ease of use and
accessibility. Journals are
typically used by
individuals or small
businesses who only have a
few accounts and don't
need to track lots of
detailed information.
Ledgers are better for
larger businesses who
need to see an overview of
There are all three
their accounts at once,
different or types
for tracking There
specific are four
of ledgers:
information such as
different types of
general inventory or customer
journals: general,
accounts payments.
sales, purchases,
receivable, and
and cash receipts.
accounts
General journals
payable. General
are used to record
ledgers are used
all transactions
to record all
that cannot be
transactions
classified into one
that cannot be
of the other three
classified into
types.
one of the other
two types.
What is Accountancy/Accounting
for Dummies?
Accounting is the process of systematically recording, analyzing, and
interpreting your business's financial information. Business owners use
accounting to track their financial operations, meet legal obligations, and
make stronger business decisions. Accounting is a necessary part of running
a business.
Golden rules of
accounting
Rule 1: Debit all expenses and losses,
credit all incomes and gains.
Rule 2: Debit the
receiver, credit the
giver.
Rule 3: Debit what comes in,
credit what goes out.
When is Accounting
done?
The main purpose of the
accounting cycle is to keep
track of all financial
activities that occur during a
specific accounting period,
be it monthly, quarterly
or annually.
Question - Is accounting
done monthly?
Answer - The month-end
close is an accounting
procedure that finalizes and
closes out all financial
activity for a business for the
preceding month.
Where is Accounting
done ? The early development of Ac
accounting dates to r ol co
b e u
ancient Mesopotamia, tr eca in nti
and is closely related to ex ac u ru ng
e s developments in writing, st p e k se n
pr at n ni pl
o
d g ?
counting and money and
early auditing systems by
m ov ut it i it ng ys
o
g an id r u nc
d
a
a
qu ove ag e y c res om hel bu a
e i n the ancient Egyptians and
in a rn em om , e ps sin vit
r n t m Babylonians. By the time u f n m
of the Roman Empire, the d se ormtita e en pl es a l
he ou fro
t ia e y s
government had access eci d at tiv nt , i nc n a ou
nv e s nd
s i in io e
es , a ure
W cc e to detailed
information.
financial on m n
s. a w
ki hi fi
to nd
a om ng ch n w an s,
a
r
d
c bu ca nc ith
si n ial
ne b e
ss
Why is Accounting
done
The ?of accounting
purpose
is to accumulate and report
on financial information
about the performance,
financial position, and cash
flows of a business. This
information is then used to
reach decisions about how
to manage the business, or
invest in it, or lend money
to it.
Define Transactions as per Accounting
Theory
What is known as
transaction
?
A transaction is an agreement
between two parties: a buyer and a
seller. In a transaction, the seller
supplies goods, services or other
financial assets in exchange for cash
funds.
A transaction is a monetary activity that is
recorded as an entry in accounting records
and has a monetary effect on the financial
statements. The following are some
examples of transactions: Making a
payment to a business for their service or
products delivered.
Types of Recording of
Transactions in Accounting
The three types
are:
Nominal
Personal
Account- Debit
Account- Debit
all expenses
the receiver
and losses,
and credit the
credit incomes
giver.
and gains.
Real Account-
Debit what
comes in and
credit what
goes out.
HowHoware is Recording of Transaction being done in
Accounting ?
transactio
ns Recording
transaction- I is
of
a
recorded process of
transactions
accounting
of the
in business in several
books of accounts like
accountin cash book, journal
book, a ledger account,
g ? profit & loss account,
etc.
The first step involves
identifying the
transactions to be
recorded and preparing
the source documents
which are in turn
recorded in the basic
book of original entry
called journal and are
then posted to
individual accounts in
the principal book
called ledger.
What is Recording of
Transactions ?
What Is Transaction in Accounting?
Your first customer comes in and buys multiple items with cash. The first customer represents
one transaction even though they purchased multiple items. The total cost of the sale was
$100. To record the sale in your books, debit the cash account $100 and credit the sales
account for the same amount's one transaction even though they purchased multiple items. The
total cost of the sale was $100. To record the sale in your books, debit the cash account $100
and credit the sales account for the same amount.
It is a process of accounting transactions of the business in
several books of accounts like cash book, journal book, a ledger
account, profit & loss account, etc.
What is not Recording of Transactions ?
What transactions should not be
recorded ?
When a transaction is omitted in recording in the books of
account, this is an error of omission. Hence, a transaction
not recorded at all is called as an error of complete omission.
The transaction except for purchase, purchase
return, sales, sales return, accounts receivable,
accounts payable, and cash is not recorded
under special journals. For example:
Depreciation. Selling expenses.
Balancing of Accounts
Balancing of an
account means
that the two
sides are totalled
and the
difference Capital: Expense
between them is This and
What is What is Liabilitie Revenue:
shown on the Assets: account is
balancing Balancing s: All These
balancing side, which is All asset
Liability always
shorter in order different of accounts balanced Accounts
of an Different accounts
to make their types of are and are not
account in totals equal. The Types of are balanced
accounts balanced. usually
accounting words 'balance Accounts ...
balanced.
has a but are
?
carried down ? ... simply
(c/d)' are written credit
balance. totaled up.
against the
amount of the
difference
between the two
sides.
Implication if not Balanced of Accounts
Buildings, land and
equipment owned by
the company are
categorized as assets
What will on the balance sheet.
Assets represent the
affect equity in the
business. As the value
If your balance sheet balance of the assets
doesn't balance it
likely means that sheet? increases, the equity
in the business
there is some kind of increases. The equity
What will mistake. Your balance calculation on the
sheet is the best
happen if indicator of your
balance sheet is
directly impacted by
balanced sheet business's current the value of the
and future health. If
is not balanced your balance sheet is
company assets.
? chock-full of mistakes,
you won't have an
accurate snapshot of
your business's
financial health.
Conclusion on Decoding of Accounting
• The accounting not only helps an
enterprise to conduct its day to
day activities smoothly but also
helps in its future growth. At the
same time financial statements
produced by various accounting
systems are used by multiple
stakeholders to take economic
decisions.