01-02-2013, 01:02 PM
FINANCIAL ACCOUNTING
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Accounts and their Classifications
An account is a summarized record of all transactions relating to a particular revenue, expense, asset, liability or owners equity a/c.
Broad classifications :-
1. Revenue - Sales, Interest / Dividend earned etc.
2. Expense - Rent, Salaries, Depreciation etc.
3. Assets – Land, Machinery, Cash etc
4. Liabilities – Loans / Interest / Bills payable etc
5. Capital – Equity, Share Premium etc
Transactions and their Records
In the context of accounting , a transaction is
an event that has the effect of changing the
revenue, expense, asset, liability, or owner(s)
equity of a business entity.
Subsidiary Books – Divisions of Journal
When volume of transactions of a business is large it is highly advantageous to classify them into groups of similar transactions
All those transactions repeatedly affecting one aspect of an account are grouped together and recorded in a subsidiary book, Ex. Sales journal, Cash receipts journal, etc.
All transactions not passed through the subsidiary books will be passed through the general journal
BALANCING AND CLOSING OF ACCOUNTS
Balancing is the technique of finding the net
balance of a particular account by separately
totaling the debit and the credit sides.
The balance is put on the side which is lighter
thus equating the debits with the credits.
However, the nature of the balance in any account
(debit or credit) is always known by the side that
is heavier.