syllabus of advocate on record exam (ELEMENTARY KNOWLEDGE OF BOOK KEEPING AND ACCOUNTS)

ELEMENTARY KNOWLEDGE OF BOOK KEEPING AND ACCOUNTS

1. INTRODUCTION TO ACCONTING

A. NEED AND IMPORTANCE

B. BASIC ACCOUNTING TERMS

2. CONCEPTUAL FRAMEWORK OF ACCOUNTING

A. TYPES OF ACCOUNTS

B. DIFFERENT SYSTEMS OF ACCOUNTING

BASIC ACCOUNTING PROCEDURE

A. DOUBLE ENTRY SYSTEM OF BOOK KEEPING

1. MEANING

2. ADVANTAGE

B. LEDGER

1. MEANING

2. UTILITY

3.FORMATE

4. DISTINCTION BEETWEEN JOURNAL AND LEDGER

C. CASH BOOK

1.FEATURES

2. ADVANTAGE

3.KINDS OF CASH BOOKS

D BANK RECONCILLIATION STATEMENT

1. PASS BOOKS

2. DIFFERENCE BETWEEN CASH BOOK AND PASS BOOK

3. CAUSE OF DISAGREEEMENT BETWEEN CASH BOOK AND PASS BOOK

E.TRIAL BALANCE

DEFINATION

ADVANTAGES

how is accounting useful to me?

A: Accounting is the international "language" of business, so if you have ever thought that you may work in a business of any kind, knowing accounting will give you an edge over others who don't. 

By "international language of business" I mean accounting contains things like income statements and balance sheets and other accounting reportswhich communicate how a business is performing and what sort of position they are in. If you know accounting you can read these reports and understand them. if you don't know accounting they will be meaningless.

Your accounting studies give you the theoretical basis of the subject and teach you the rules and practices of accounting. After your studies you will start to see it in practice in business. There you will get first-hand experience with income, expenses, assets, liabilities and owner's equity. You will see these things in action.

Having accounting studies as part of your resume or curriculum vitae will definitely make you more of an asset to prospective employers, even if you are not applying for a job as a bookkeeper or accountant. So in other words, it makes you generally more hire-able by companies.

As a final note, knowing accounting is also useful from the point of view of being able to handle your own finances better. You can budget and plan your spending and even draw up personal financial statements - a personal income statement and/or balance sheet. So knowing accounting would then give you more control over your personal finances too.

An account (in bookkeeping) refers to assets, liabilities, income, expenses, and equity, as represented by individual ledger pages, to which changes in value are chronologically recorded with debit and credit entries. These entries, referred to as postings, become part of a book of final entry or ledger. Examples of common financial accounts are cash, accounts receivable, mortgages, loans,PP&E, common stock, sales, services, wages, and payroll.

A chart of accounts provides a listing of all financial accounts used by particular business, organization, or government agency.

The system of recording, verifying, and reporting such information is called accounting. Practitioners of accounting are called accountants.

INTRODUCTION
The purpose of accounting is to provide a means of recording, reporting, summarizing, and interpreting economic data. In order to do this, an accounting system must be designed. A system design serves the needs of users of accounting information. Once a system has been designed, reports can be issued and decisions based upon these reports are made for various departments. Since accounting is used by everyone in one form or another, a good understanding of accounting principles is beneficial to all.

All of the following accounting terms have precise definitions when used in business:

• Sales or revenue
• Cost of goods sold
• Expenses
• Gross profit
• Fixed assets
• Current assets
• Current liabilities
• Working capital
• Liquidity
• Debtor
• Creditor
• Bad Debt
• Depreciation
• Accrual Accounting

Read the following definitions carefully and make sure that you understand exactly what is meant by each of these accounting terms. This Accounting Terminology Checklist outlines the terminology, concepts and conventions that are accepted within the accounting profession.

Sales or Revenue
Revenue is the income that flows into an organization, and it is often used almost synonymously with sales. In government and nonprofit organizations it includes taxes and grants.

Don't confuse revenues with receipts. Under the accrual basis of accounting, revenues are shown in the period they are earned, not in the period when the cash is collected. Revenues occur when money is earned; receipts occur when cash is received.

Cost of Goods Sold
This is the purchase cost of the merchandise that was subsequently sold to customers.

Expenses
Refers to the other costs that are not matched with sales as part of the cost of goods sold. They may be matched with a specific time, usually monthly, quarterly, or annually or they may also be one-off payments. Expenses include: staff wages, rent, utility bills, insurance, equipment, etc.

Gross Profit
Refers to what is left after you subtract the cost of goods sold from the sales. It is also called gross margin. For example, if an organization buys in an item for $50 and sells it for $75 (plus sales tax), then the gross profit will be $25.

Fixed Assets
This refers to all of those things that the business owns which will have a value to the business over a long period. This is usually understood to be any time longer than one year. It includes freehold property, plant, machinery, computers, motor vehicles, and so on.

Current Assets
This refers to assets with the value available entirely in the short term. This is usually understood to be a period of less than a year. This is either because they are what the business sells or because they are money or can quickly be turned into money. Examples of assets include inventory/stock, money owing by customers, money in the bank, or other short-term investments.

Current Liabilities
This refers to those things that the business could be called upon to pay in the short term - within the year. Examples include bank overdrafts and money owing to suppliers.

Working Capital
This is the difference between current assets and current liabilities. An organization without sufficient working capital cannot pay its debts as they fall due. In this situation it may have to stop trading even if it is profitable.

Liquidity
This is the ability to meet current obligations with cash or other assets that can be quickly converted into cash in order to pay bills as they become due. In other words the organization has enough cash or assets that will become cash so that it is able to write checks without running out of money.

Debtor
A debtor is a person owing money to the business, for example a customer for goods delivered.

Creditor
A creditor is a person to whom the business owes money, for example a supplier, landlord, or utility organization.

Bad Debt
All reasonable means to collect a debt have been tried and have failed so the amount owed is written off as a loss and becomes categorized as an expense on an income statement. This results in net income being reduced.

Depreciation
Assets have a certain length of time in which they operate efficiently, referred to as 'an asset's useful life.' During this period the value of that asset depreciates due to age, wear and tear, or obsolescence. The loss in value is recorded in accounts as a non-cash expense, which reduces earnings whilst raising cash flow.

Accrual Accounting
Accrual accounting relies on two principles, which have already been alluded to:
The revenue recognition principle states that revenues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when the payment is received.

The matching principle states that expenses are recognized when goods are transferred or services rendered, and offset against recognized revenues, which were generated from those expenses, no matter when the cash is paid out.

These two principles are absolutely central to understanding how accrual accounting works and are described in detail in the next section

An account may be classified as real, personal or as a nominal account

Type	Represent	Examples
Real	Physically tangible things in the real world and certain intangible things not having any physical existence	Tangibles - Plant and Machinery, Furniture and Fixtures, Computers and Information Processing Equipment,Cash Accounts etc. Intangibles -Goodwill, Patents and Copyrights
Personal	Business and Legal Entities,Bank Accounts	Individuals, Partnership Firms, Corporate entities, Non-Profit Organizations, any local or statutory bodies including governments at country, state or local levels
Nominal	Temporary Income and Expenditure Accounts for recognition of the implications of the financial transactions during each fiscal year till finalisation of accounts at the end	Sales, Purchases, Electricity Charges

Example: A sales account is opened for recording the sales of goods or services and at the end of the financial period the total sales are transferred to the revenue statement account (Profit and Loss Account or Income and Expenditure Account).

Similarly expenses during the financial period are recorded using the respective Expense accounts, which are also transferred to the revenue statement account. The net positive or negative balance (profit or loss) of the revenue statement account is transferred to reserves or capital account as the case may be.

The accounting process is three separate types of transactions used to record business transactions in the accounting records. This information is then aggregated into financial statements. The transaction types are:

1.    The first transaction type is to ensure that reversing entries from the previous period have, in fact, been reversed. 

2.    The second group is comprised of the steps needed to record individual business transactions in the accounting records. 

3.    The third group is the period-end processing required to close the books and produce financial statements. 

We will address these three parts of the accounting process below.

Beginning of Period Processing

Verify that all transactions designated as reversing entries in preceding periods have actually been reversed. Doing so ensures that transactions are not recorded twice in the current period. These transactions are usually flagged as being reversing entries in the accounting software, so the reversal should be automatic. Nonetheless, examine the accounts at the beginning of the period to verify the reversals. If a reversing flag was not set, an entry must be reversed manually, using a new journal entry.

Individual Transactions

The steps required for individual transactions in the accounting process are:

1.    Identify the transaction. First, determine what kind of transaction it may be. Examples are buying goods from suppliers, selling products to customers, paying employees, and recording the receipt of cash from customers.

2.    Prepare document. There is frequently a business document to be prepared or recognized to initiate the transaction, such as an invoice to a customer or an invoice from a supplier.

3.    Identify accounts. Every business transaction is recorded in an account in the accounting database, such as a revenue, expense, asset, liability, or stockholders' equity account. Identify which accounts are to be used to record the transaction.

4.    Record the transaction. Enter the transaction in the accounting system. This is done either with a journal entry or an on-line standard transaction form (such as is used to record cash receipts against open accounts receivable). In the latter case, the transaction forms record information in a pre-determined set of accounts (which can be overridden).

These four steps are the part of the accounting process used to record individual business transactions in the accounting records.

Period-End Processing

The remaining steps in the accounting process are used to aggregate all of the information created in the preceding steps, and present it in the format of financial statements. The steps are:

1.    Prepare trial balance. The trial balance is a listing of the ending balances in every account. The total of all the debits in the trial balance should equal the total of all the credits; if not, there was an error in the entry of the original transactions that must be researched and corrected.

2.    Adjust the trial balance. It may be necessary to adjust the trial balance, either to correct errors or to create allowances of various kinds, or to accrue for revenues or expenses in the period.

3.    Prepare adjusted trial balance. This is the original trial balance, plus or minus all adjustments subsequently made.

4.    Prepare financial statements. Create the financial statements from the adjusted trial balance. The asset, liability, and shareholders' equity line items form the balance sheet, while the revenue expense line items form the income statement.

5.    Close the period. This involves shifting the balances in the revenue and expense accounts into the retained earnings account, leaving them empty and ready to receive transactions for the next accounting period.

6.    Prepare a post-closing trial balance. This version of the trial balance should have zero account balances for all revenue and expense accounts.

In reality, any accounting software package will automatically create all versions of the trial balance and the financial statements, so the actual steps in the accounting process may be considerably reduced. Instead, the steps used in a computerized environment are likely to be:

1.    Prepare financial statements. This information is automatically compiled from the general ledger by the accounting software.

2.    Close the period. The accounting staff closes the accounting period that has just been completed, and opens the new accounting period. Doing so prevents current-period transactions from being inadvertently entered into the prior accounting period. In a multi-division company, it may be necessary to complete this period closing step in the software for each subsidiary.

Similar Terms

The accounting process is also known as the accounting cycle.

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business.^[1] Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation. There are several standard methods of bookkeeping, such as the single-entry bookkeeping system and the double-entry bookkeeping system, but, while they may be thought of as "real" bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process.

Bookkeeping is usually performed by a bookkeeper. A bookkeeper (or book-keeper) is a person who records the day-to-day financial transactions of a business. He or she is usually responsible for writing the daybooks, which contain records of purchases, sales, receipts, and payments. The bookkeeper is responsible for ensuring that all transactions are recorded in the correct daybook, supplier's ledger, customer ledger, and general ledger; an accountant can then create reports from the information concerning the financial transactions recorded by the bookkeeper.

The bookkeeper brings the books to the trial balance stage: an accountant may prepare the income statement and balance sheetusing the trial balance and ledgers prepared by the bookkeeper

Two common bookkeeping systems used by businesses and other organizations are the single-entry bookkeeping system and the double-entry bookkeeping system. Single-entry bookkeeping uses only income and expense accounts, recorded primarily in a revenue and expense journal. Single-entry bookkeeping is adequate for many small businesses. Double-entry bookkeeping requires posting (recording) each transaction twice, using debits and credits.

Single-entry system

Main article: single-entry bookkeeping system

The primary bookkeeping record in single-entry bookkeeping is the cash book, which is similar to a checking account (UK: cheque account, current account) register, but allocates the income and expenses to various income and expense accounts. Separate account records are maintained for petty cash, accounts payable and receivable, and other relevant transactions such as inventory and travel expenses. These days, single-entry bookkeeping can be done with DIY bookkeeping software to speed up manual calculations.

Double-entry system

Main article: double-entry bookkeeping system

A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts.

Daybooks[edit]

A daybook is a descriptive and chronological (diary-like) record of day-to-day financial transactions also called a book of original entry. The daybook's details must be entered formally into journals to enable posting to ledgers. Daybooks include:

·         Sales daybook, for recording all the sales invoices.

·         Sales credits daybook, for recording all the sales credit notes.

·         Purchases daybook, for recording all the purchase invoices.

·         Purchases Debits daybook, for recording all the purchase Debit notes.

·         Cash daybook, usually known as the cash book, for recording all money received as well as money paid out. It may be split into two daybooks: receipts daybook for money received in, and payments daybook for money paid out.

·         General Journal daybook, for recording journals.

Petty cash book[edit]

A petty cash book is a record of small-value purchases before they are later transferred to the ledger and final accounts; it is maintained by a petty or junior cashier. This type of cash book usually uses the imprest system: a certain amount of money is provided to the petty cashier by the senior cashier. This money is to cater for minor expenditures (hospitality, minor stationery, casual postage, and so on) and is reimbursed periodically on satisfactory explanation of how it was spent.

Journals

Journals are recorded in the general journal daybook. A journal is a formal and chronological record of financial transactions before their values are accounted for in the general ledger as debits and credits. A company can maintain one journal for all transactions, or keep several journals based on similar activity (e.g., sales, cash receipts, revenue, etc.), making transactions easier to summarize and reference later. For every debit journal entry recorded, there must be an equivalent credit journal entry to maintain a balanced accounting equation.^[3]

Ledgers

A ledger is a record of accounts. These accounts are recorded separately, showing their beginning/ending balance. A journal lists financial transactions in chronological order, without showing their balance but showing how much is going to be charged in each account. A ledger takes each financial transaction from the journal and records it into the corresponding account for every transaction listed. The ledger also sums up the total of every account, which is transferred into the balance sheet and the income statement. There are three different kinds of ledgers that deal with book-keeping:

·         Sales ledger, which deals mostly with the accounts receivable account. This ledger consists of the records of the financial transactions made by customers to the business.

·         Purchase ledger is the record of the purchasing transactions a company does; it goes hand in hand with the Accounts Payable account.

·         General ledger, representing the original five, main accounts: assets, liabilities, equity, income, and expenses.

Abbreviations used in bookkeeping

·         A/C – Account

·         Acc – Account

·         A/R – Accounts receivable

·         A/P – Accounts payable

·         B/S – Balance sheet

·         c/d – Carried down

·         b/d – Brought down

·         c/f – Carried forward

·         b/f – Brought forward

·         Dr – Debit

·         Cr – Credit

·         G/L – General ledger; (or N/L – nominal ledger)

·         P&L – Profit and loss; (or I/S – income statement)

·         P/R - Payroll

·         PP&E – Property, plant and equipment

·         TB – Trial Balance

·         GST – Goods and services tax

·         VAT – Value added tax

·         CST – Central sale tax

·         TDS – Tax deducted at source

·         AMT – Alternate minimum tax

·         EBITDA – Earnings before interest, taxes, depreciation and amortisation

·         EBDTA – Earnings before depreciation, taxes and amortisation

·         EBT – Earnings before tax

·         EAT – Earnings after tax

·         PAT – Profit after tax

·         PBT – Profit before tax

·         Depr – Depreciation

·         Dep – Depreciation

·         CPO – Cash paid out

·         CP - Cash Payment

Chart of accounts[edit]

A chart of accounts is a list of the accounts codes that can be identified with numeric, alphabetical, or alphanumeric codes allowing the account to be located in the general ledger. The equity section of the chart of accounts is based on the fact that the legal structure of the entity is of a particular legal type. Possibilities include sole trader,partnership, trust, and company.^[4]

Computerized bookkeeping[edit]

Computerized bookkeeping removes many of the paper "books" that are used to record the financial transactions of an entity—instead, relational databases take their place, but they still typically enforce the double-entry bookkeeping system and methodology.

 

Difference Between Journal and Ledger

Double entry system of bookkeeping says that every transaction affects two accounts. There is a proper procedure for recording each financial transaction in this system. The procedure starts from journal followed by ledger, trial balance and final accounts. Journal and Ledger are the two pillars which creates the base for preparing final accounts. The Journal is a book where all the transactions are recorded immediately when they take place which are then classified and transferred into concerned account known as Ledger.

A little bit of confusion takes birth in the mind of all the accounting students regarding these two books. In this article we have compiled all the important differences between Journal and Ledger.

Content: Journal Vs Ledger

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

 

 

 

 

Comparison Chart

BASIS FOR COMPARISON	JOURNAL	LEDGER
Meaning	The book in which all the transactions are recorded, as and when they arise is known as Journal.	The book which enables to transfer all the transactions into separate accounts is known as Ledger.
What is it?	It is a subsidiary book.	It is a principal book.
Also known as	Book of initial entry.	Book of final entry.
Process	The process of recording transactions into Journal is known as Journalizing.	The process of transferring entries from the journal to ledger is known as Posting.
How transactions are recorded?	Sequentially	Account-wise
Debit and Credit	Columns	Sides
Narration	Must	Not necessary.
Balancing	Need not to be balanced.	Must be balanced.