Stages in preparing the Final Accounts

 Journalizing
 Posting in the Ledger
 Preparing the Trial Balance
 Manufacturing Account
 Trading Account
 Profit & Loss Account
 Balance Sheet.
Unit-2, Accounting

 There are three types of accounts;

 Personal accounts which relate to persons and further
can be of the following;
- Natural person eg Krishna’s a/c
- Artificial persons or body of persons.
eg Banks accounts, firms account.
- Representative personal accounts eg.
Prepaid expenses, outstanding wages.
 Real Accounts or Property Accounts eg Machinery a/c,
cash a/c, goodwill account.
 Nominal account relating to business incomes or gains
or expenses or losses eg salaries, interest sales,
purchases. They get closed within the same accounting
year.
Unit-2, Accounting
 Golden Rules of Accounting
- Every transaction has two aspects;
- Receiving / Incoming /Expenditure
Aspect or the DEBIT aspect

- Giving / Outgoing / Income Aspect

or the CREDIT aspect.

- The Debit Aspect and the Credit aspect form

the basis of Double Entry
Unit-2, Accounting

 Rules of Double Entry

- Personal Accounts
a) DEBIT the RECEIVER
b) CREDIT the GIVER
- Real or Property Accounts
a) DEBIT what COMES IN
b) CREDIT what GOES OUT
- Nominal Accounts
a) DEBIT all EXPENSES & LOSSES
b) CREDIT all INCOMES & GAINS
Unit-2, Accounting

 Journal is the book of Original Entry or Prime Entry

containing date wise transactions form which posting is
done to the ledger

The recording of the transactions in the journal is

called the Journalising
Format of Journal

Date Particulars LF Debit Credit

Name of the account to be Debited *** *****

Name of the account to be Credited *** *****
(Narration)
Unit-2, Accounting
 Steps of Journalising

Step 1 – Ascertain what accounts are involved in

the transaction.(Cash a/c or Purchase a/c)
Step 2 – Ascertain what is the nature of the
account (Personal/Real/Nominal)
Step 3 – Ascertain which rule of Debit or Credit
is applicable for each of the accounts
involved.
Step 4 – Ascertain which account is to be
debited & which is to be credited.
Unit-2, Accounting

Step 5 – Record the date of the transaction.

Step 6 – Write the name of the account to be

debited along with abbreviation Dr. in
the particulars column and the amount
in the Debit column.

Step 7 – Write the name of the account to be

Credited in the next line preceded with
the word To in the particulars column
and the amount in the Credit column.
Unit-2, Accounting

Step 8 – Write “narration” brief description of the

transaction

Step 9 – Draw a line across the entire

particulars column to separate one
journal from the other.
Unit-2, Accounting
 Opening Journal Entry
- In a going concern, previous balances are brought
forward at the beginning of each new year. Such an
entry is known as opening entry

- In Journalising all
Asset A/c’s are Debited
Liabilities A/c’s are Credited
&
Excess of Assets over Liabilities are
Credited to Capital Account
Unit-2, Accounting
 Format of Ledger Account in “T Form”
Dr. Name of account Cr.

Date Particulars L/f Amount Date Particulars L/f Amount

To (Name of By (Name of
Credit Debit
Element) Element)

1. The Left hand side is the Debit Side and the Right hand side is the Credit side
2. It contains the date, the account to be debited or credited , folio no. (which is the
Page number in Journal from where it originated)
Unit-2, Accounting
 Posting of Journal Entries into Ledger :
- Posting means the transferring of the Debits & Credits
of Journal into the ledger accounts.

 Rules of Posting :
1. The amount in Debit Column of Journal is
posted to the debit side of ledger.
2. The amount in Credit column of journal is
posted to the credit side of ledger.
3. Separate accounts should be opened for
posting transactions relating to assets, persons,
expenses or income.
Unit-2, Accounting

4. While Debiting the concerned account, the

name of the other account which has been
credited in the journal is entered in the Debit
side of the account with prefix “To”
5. While Crediting the concerned account, the
name of the other account which has been
debited in the journal is entered in the Credit
side of the account with prefix “By”
6. Date of transaction, page number of journal
from which entry is posted and amount of
transaction is to be entered.
Unit-2, Accounting
7. The Balancing is to be done in order to find
the net balance;

- Total the Debits & Credits of the

account separately & find the
difference.

- The difference is entered on the side

that is smaller and the difference is the
“Closing balance” and this would be
carried forward as the “opening
balance”.
Unit-2, Accounting

8. If Debit side is smaller than the credit side

difference is entered in the debit side to close
the account and is known as the Credit
Balance.

If Credit side is smaller than the debit side

difference is entered in the credit side to close
the account and is known as the Debit
Balance
Unit-2, Accounting

 C/d is the abbreviation for carried down

 It means that the closing balance in the concerned

account is taken (carried) down to the next period as
the opening balance.

 B/d is the abbreviation for brought down

 It means that the closing balance of the previous

period has been brought down as the opening
balance.
Unit-2, Accounting
 Trial Balance :
- In a double entry system for every debit there
is a corresponding credit and equal amount
appear in each side.

- The total of debit balances equals the total of

credit balances in a ledger account.

- A statement containing the debit balances

in one column and the credit balances on
the other would be equal which is called
the trial balance.
Unit-2, Accounting
 Format of Trial Balance

Trail balance as on ……. (closing date)

Particulars L.F. Debit Credit
balance balance
amount amount

1. All assets, property accounts, expenses or losses will always show debit
balances and will be shown on debit side/column of the trial balance.
2. All liabilities, Income or gain accounts will always be shown on the credit
balances and will be shown in the credit side/column of the trial balance.
Unit-2, Accounting
TRADING ACCOUNT for the year ended………...
Dr Cr

Particulars Amount Particulars Amount

To Opening Stock By Sales *****

To Purchases ***** Less Returns ****
Less Returns **** By Closing Stock
To Direct Expenses By Gross Loss trans-
To Gross Profit Trans- ferred to P & L
ferred to P& L
Unit-2, Accounting

Closing Entries of Trading Account
- Closing Entries are journal entries required
to close the various ledgers by
transferring them into final accounts.
- Transferring the opening & Closing stock,
purchases & Sales, direct expenses to the
trading account are the closing entries.
For Transferring the opening stock, purchases & expenses to
trading a/c
Trading A/c Dr.
To opening Stock
To Purchases
To Direct Expenses
Unit-2, Accounting

 For Transferring the Net Sales, Closing Stock to trading

Account a/c
Sales a/c Dr.
Closing Stock a/c Dr.
To Trading A/c

 For Transferring of Gross Profit to Profit & Loss Account

Trading Account Dr.
To Profit & Loss Account

 For Transferring of Gross Loss to Profit & Loss Account

Profit & Loss Account Dr.
To Trading Account
Unit-2, Accounting

Profit & Loss Account for the year ended ……..

Dr Cr
Amount
Particulars Amount Particulars

To Gross Loss By Gross Profit

(Tr from Trading A/c) (Tr from Trading A/c
To Salaries By Dividend Income
To Rent By Interest
To Commission By Commission
To Advertising By Net Loss Tr to B/S
To Discounts allowed
To Interest
To Postage
To Print & Stationary
To Depreciation
To Net Profit Tr to B/S
Unit-2, Accounting
 For Transferring the Expenses to Profit & Loss Account
Profit & Loss A/c Dr.
To Expenses A/c
 For Transferring of Incomes to Profit & Loss Account
Income & Gains A/c Dr.
To Profit & Loss Account
 For Transferring of Net Profit to Balance Sheet
Profit & Loss Account Dr.
To Capital A/c (Liability Side)
 For Transferring of Net Loss to Balance Sheet
Capital A/c Dr. (Assets Side)
To Profit & Loss A/c
Unit-2, Accounting
 Manufacturing Account for the year ended ………….

Particulars Amt Particulars Amt

To opening Stock By Closing Stock

Raw Materials Raw Material
Goods in Process Goods in Process

To Purchase of Raw mat. By Cost of Prod

To Man. Expense (Transferred to
To Repairs Trading A/c )

To Depreciation
Unit-2, Accounting
Balance Sheet of ………………………….. As at ………………………

Liabilities Amt Assets Amt

Share Holders Funds Fixed Assets

Land/Building/Plant & Machinery
Share Capital Furniture & Fixtures
Reserves & Surplus Investments

Add Net Profit of P& L Loans & Advances

Loans
Long Term Liabilities
Advances
Secured Loans & Debentures
Current Assets
Unsecured Loans
Cash in hand
Current Liabilities & Provisions Bank
Sundry Debtors/Bills receivable
Bank OD
Prepaid Expenses
Sundry Creditors/Bills Payable Closing Stock
Outstanding Expenses
Provisions