E-LESSON-2 OK

1 IDOL Institute of Distance and Online Learning ENHANCE YOUR QUALIFICATION, ADVANCE YOUR CAREER. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

BBA/BCOM 2 All right are reserved with CU-IDOL Basic Accounting Course Code: BBA101/BCM101 Semester: First e-Lesson: 2 SLM Unit: 2 www.cuidol.in Unit-2(BBA101/BCM-101)

BASIC ACCOUNTING 33 OBJECTIVES INTRODUCTION To discuss accounting framework In this unit we are going to learn about the concept of Double Entry System. To get familiarized with the role of accounting in Under this you will be able to understand business.. classification of account . To be able to apply accounting principles, concepts and Students will be able to understand conventions to record business transactions culminating Stage or parts of double entry system; into final accounts. Advantages and Disadvantages of double entry system. www.cuidol.in Unit-2(BBA101/BCM-101) INSTITUTE OF DISTANACEll ArNigDhtOaNrLeINreEsLeErAvRedNIwNiGth CU-IDOL

TOPICS TO BE COVERED 4  Double Entry System  Classification of Account  Stage or parts of double entry system  Advantages and Disadvantages of double entry system. www.cuidol.in Unit-2(BBA101/BCM-101) All right are reserved with CU-IDOL

Double-entry bookkeeping 5  Double entry bookkeeping is a system of bookkeeping where every entry to an account requires a corresponding and opposite entry to a different account.  The double-entry has two equal and corresponding sides known as debit and credit.  In a normally debited account, such as an asset account or an expense account, a debit increases the total quantity of money or financial value, and a credit decreases the amount or value.  On the other hand, for an account that is normally credited, such as a liability account or a revenue account, it is credits that increase the account's value and debits that decrease it. www.cuidol.in Unit-2(BBA101/BCM-101) All right are reserved with CU-IDOL

6  In double-entry bookkeeping, a transaction always affects at least two accounts, always includes at least one debit and one credit, and always has total debits and total credits that are equal. This is to keep the accounting equation (below) in balance. For example, if your business takes out a bank loan for $10,000, recording the transaction would require a debit of $10,000 to an asset account called \"Cash\", as well as a credit of $10,000 to a liability account called \"Notes Payable“.  The accounting equation is an error detection tool; if at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. However, satisfying the equation does not guarantee that there are no errors; the ledger may still \"balance\" even if the wrong ledger accounts have been debited or credited. www.cuidol.in Unit-2(BBA101/BCM-101) All right are reserved with CU-IDOL

Double Entry System 7 Double Entry is the methods of writing every transaction in two aspects-  Debit A debit is an accounting entry that either increases an asset or expense account, or decreases a liability or equity account. It is positioned to the left in an accounting entry.  Credit -A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Classifications of Accounts 8  Personal-personal accounts are kept for each of the credit customers or suppliers of a business. Here we have the purchases or sales record in a PERSONAL account which is between the business and another specified business. Incidentally, the personal accounts are kept in personal ledgers and of two types namely the sales ledger and purchase or bought ledger.  Impersonal-In the accounts of the nominal ledger, we have different types of expenses for different purposes like rent, insurance, telephone and others. As these expenses are related NOT to the person to whom the money is paid and more concerned towards the reason for payment these are known as IMPERSONAL accounts. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Personal Accounts 9  Natural Person’s Account-Natural Persons are human beings. Therefore, we include the accounts belonging to them under this head. For instance, Debtors, Creditors, Capital A/c, Drawings A/c, etc.  Artificial person’s Account-Artificial persons are not human beings but can act and work like humans. They have a separate identity in the eyes of law and are capable to enter into agreements. These include H.U.F, partnership firms, insurance companies, co-operative societies, companies, municipal corporations, hospitals, banks, government bodies, etc. For example, Bank of Baroda, Oriental Insurance Co,  Representatives Person’s Account-These accounts represent the accounts of natural or artificial persons. When the expenses become outstanding or pre-paid and incomes become accrued or unearned, they fall under this category. For example, Outstanding Salary A/c, Pre-paid Rent A/c, Accrued Interest A/c, Unearned Brokerage A/c, etc. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Impersonal Account  Real Account-These are the accounts of all the assets and liabilities of the organization. We do not close 10 these accounts at the end of the accounting year and appear in the Balance Sheet. Thus, we carry forward the balances of these accounts to the next accounting year. Therefore, we can also say that these are permanent accounts. • Tangible Real a/c-It consists of assets, properties or possessions that can be touched, seen and measured. For example, Plant A/c, Furniture and Fixtures A/c, Cash A/c, etc. • Intangible Real a/c-It consists of assets or possessions that cannot be touched, seen and measured but possess a monetary value and thus can be purchased and sold also. For example, Goodwill, Patents, Copyrights, etc.  Nominal Account-Nominal Accounts are the accounts relating to the expenses, losses, incomes, and gains. These are temporary accounts and thus we need to transfer their balances to Trading and Profit and Loss A/c at the end of the accounting year. Therefore, these accounts have no balance to be carried forward next year as they are closed. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

11 Rules of Double Entry System www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Personal Account 12 www.cuidol.in Debit Credit Receiver Giver Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Personal Account 13 www.cuidol.in Debit Credit Receiver Giver Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Personal Account 14 www.cuidol.in Debit Credit Receiver Giver Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

EXAMPLE: RAM PAID 2000 RS. to SHAM Sham a/c dr. 2000 To Ram 2000 (being ram paid to sham)

Real Account 16 www.cuidol.in Debit Credit What Comes What Goes In Out Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Real Account 17 www.cuidol.in Debit Credit What Comes In What Goes Unit-1(BBA101/BCM101) Out All right are reserved with CU-IDOL

Real Account 18 www.cuidol.in Debit Credit What Comes What Goes In Out Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

EXAMPLE: Furniture purchased RS. 2000. Furniture a/c dr. 2000 To cash a/c 2000 (being furniture purchased)

Nominal account 20 www.cuidol.in Debit Credit Expenses Incomes & & Losses Gains Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Nominal account 21 www.cuidol.in Debit Credit Expenses Incomes & & Losses Gains Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Nominal account 22 www.cuidol.in Debit Credit Expenses Incomes & & Losses Gains Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

EXAMPLE: Rent paid Rs. 2000. Rent a/c dr. 2000 To cash a/c 2000 (being rent paid)

EXAMPLE: Interest received Rs. 2000. Cash a/c dr. 2000 To interest a/c 2000 (being rent paid)

Advantages 25  Records the aspects of every financial transaction.  Gives accurate information of amount.  Helpful in preventing frauds & errors.  Helpful in preparing the profit and loss account. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Disadvantages 26  Requires the maintenance of multiple books.  System is costly.  There is no guarantee of absolute accuracy of books. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Multiple Choice Questions 27 1. Double Entry System is a – [a] Reporting system [b] Financial Statement preparation system [c] Recording system [d] Debit and Credit determining system 2. The features of Double Entry System are- i) It has two parties; Receiver and Giver ii) Total amount of Debit will be equal to total amount of Credit iii) Receiver is Debit and Giver is Credit. Which one is correct? [a] i & ii [b] ii & iii [c] i & iii [d] i, ii & iii Answers: 1.[d] 2. [a] www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Summary 28  Double-entry bookkeeping, in accounting, is a system of bookkeeping where every entry to an account requires a corresponding and opposite entry to a different account. The double-entry has two equal and corresponding sides known as debit and credit. The left-hand side is debit and right-hand side is credit.  Debit-A debit is an accounting entry that either increases an asset or expense account, or decreases a liability or equity account. It is positioned to the left in an accounting entry.  Credit -A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account.  Real Account- These are the accounts of all the assets and liabilities of the organization. We do not close these accounts at the end of the accounting year and appear in the Balance Sheet.  Nominal Account- Nominal Accounts are the accounts relating to the expenses, losses, incomes, and gains. These are temporary accounts and thus we need to transfer their balances to Trading and Profit and Loss A/c at the end of the accounting year. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

Frequently Asked Questions Q.1 What is Double Entry? 29 A-Double Entry is recorded in a manner that the Accounting Equation is always in balance. Assets - Liabilities = Capital Q 2 : A fleet owner purchases delivery trucks on credit. The total credit purchase is of Rs. 50,00,000/-. All new trucks will be used in daily business operations and will not be sold for the next 10 years. The estimated life of trucks is 10 years. Explain in respect to the Double Entry System. Ans: This is a credit purchase of trucks. For the transaction, there are two activities, one is credit purchase of the trucks and another is an addition in new inventory. Entries are in respective accounting ledgers. As the business has accumulated the assets, a debit entry will be made in inventory with the amount equal to the cost of trucks i.e. Rs. 50,00,000/-. As these are credit purchases, an entry with an equal amount has to be made on the credit side in accounts payable. We see that the debit entry increases the inventory asset balance and credit entry increases the accounts payable liability balance with the same amount. Double entries can also affect the same class of accounts. If the fleet owner would have bought the trucks in cash, then a credit entry has to be made in cash account and a debit entry to the inventory account. Still, the result in balance will be the same. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

REFERENCES 30 1. Gupta, R.L., Radhaswamy,M.(2012). Advanced Accountancy. New Delhi: Sultan Chand&Sons. 2. Maheswari S.N.,(2018). Introduction to Accounting.New Delhi: Vikas Publishing House. 3. Shukla, M.C.,Grewal, T.S.,Gupta S.C.(2007). Advanced Accounts.New Delhi:S.Chandand Company Ltd. 4. Ulmer presentation-on-double-entry-system. www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL

31 THANK YOU For queries Email: [email protected] www.cuidol.in Unit-1(BBA101/BCM101) All right are reserved with CU-IDOL