Accounting Practical Aspects

By Abdulla Israr & Simran Rani

Accounting Practical Aspects

Introduction

·       Accounting is the systematic process of recording, classifying, summarizing, and interpreting financial transactions of a business.

·       To maintain accuracy and transparency, businesses follow a step-by-step process that begins with recording in the Journal, then posting to the Ledger, preparing a Trial Balance, and finally drawing up Profit & Loss Account and Balance Sheet.

Journal Entries

Definition: A journal is the book of original entry where all business transactions are recorded in chronological order using the double-entry system.

Example Transaction: Business started with cash ₹1,00,000.

Entry:
Cash A/c Dr 1,00,000
   To Capital A/c 1,00,000
(Being business started with cash)

Additional Numerical Applications:

·       Purchased goods for cash ₹20,000
Purchases A/c Dr 20,000
   To Cash A/c 20,000

·       Sold goods for cash ₹30,000
Cash A/c Dr 30,000
   To Sales A/c 30,000

 

Ledger Posting

Definition: Ledger is the book of final entry, where transactions from the journal are classified and posted into individual accounts (Cash, Purchases, Sales, etc.).

Example Posting:

Cash A/c → Debit: +₹1,00,000 (Capital), +₹30,000 (Sales); Credit: -₹20,000 (Purchases); Balance = ₹1,10,000
Capital A/c → Credit: ₹1,00,000
Purchases A/c → Debit: ₹20,000
Sales A/c → Credit: ₹30,000

Trial Balance

Definition: Trial Balance is a statement showing debit and credit balances of all ledger accounts on a particular date to check arithmetical accuracy.

Account

Debit (₹)

Credit (₹)

Cash A/c

1,10,000

 

Purchases A/c

20,000

 

Sales A/c

 

30,000

Capital A/c

 

1,00,000

Total

1,30,000

1,30,000

Profit & Loss Account

Definition: P&L Account is prepared to find the net profit or net loss of a business for a specific period.

Debit side → Expenses & Losses; Credit side → Incomes & Gains.

Particulars

Debit (₹)

Credit (₹)

Purchases

20,000

 

Sales

 

30,000

Net Profit

 

10,000

Balance Sheet

Definition: A Balance Sheet is a statement of financial position on a specific date, showing Assets, Liabilities, and Capital.

Formula: Assets = Liabilities + Capital.

Liabilities

Amount (₹)

Assets

Amount (₹)

Capital A/c

1,10,000

Cash A/c

1,10,000

Total

1,10,000

Total

1,10,000

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