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Accounting Management system:-

In this report,I have explained about accounting .manual & computerized accounti
ng & also the reasons for which computerized accounting overlaps the manual acco
unting ,which I have gained under training.
Meaning of accounting :-
Accounting is often called the language of business .The basic function of any
language is to communicate .Accounting communicates the results of the business
to the users of accounting information to enable them to make reasoned decisions
.To communicate information, accounting follows a systematic process of recordi
ng ,classifying and summarizing of numerous business transactions resulting in c
reation of financial statements.The two most important financial statements are
profit and loss a/c& Balance sheet .Profit &loss during an accounting period and
balance sheet depicts the nature and amount of assets , liabilities & capital o
f a business and indicates the financial position of the business at a particula
r date.
Definition of accounting:-
“Accounting is the art of recording ,classifying and summarizing in a significan
t manner and in terms of money ,transactions and events which are, in part atlea
st ,of a financial character , and interpreting the results thereof .”
-American Institute of Certified Public Accountants
Characteristics of Accounting :-
1. Identifying Transactions of financial Character:-
Only those transactions are recorded in accounting which is of a
financial character and which can be expressed in terms of money .

2. Recording :-
Accounting is the art of recording business transactions accordi
ng to some specifies rules .In a small business where the no. of transactions is
quite small, all transactions are first of all recorded in a book called ‘journ
al’ .But in a big business where the no. of transactions is quite large ,the jou
rnal is further subdivided into various subsidiary books such as (1) ‘cash book
‘ for recording cash transactions ;(2) ‘Purchase Book’ for recording credit purc
hase of goods ;(3)’Sales Book’ for recording credit sales of goods ;(4)’Purchase
Return Book’ for recording the return of credit purchase;(5) ‘Sales Return Book
’ for recording the return of credit sales .
3. Classifying :-
After recording the transactions in journal the transactions are
classified .Classification is the process of grouping the transactions of one n
ature at one place , in a separate account .The book in which various accounts a
re opened ‘Ledger’. Separate accounts are opened for purchases ,sales assets .Si
milarly , all expenses and incomes which are already recorded in journal are aga
in classified under separate heads in the ledger ,such as Wages A/c, Salary A/c
,and Commission A/c.
4. Summarizing :-
Summarizing is the art of presenting the classified data in a ma
nner which is understandable and useful to management and other users of such da
ta .This involves the balancing of ledger accounts and the preparation of Trial
Balance with the help of such balances .Financial Statements are prepared with t
he help of Trial Balance which includes Trading and Profit & Loss A/c and a Bala
nce Sheet.
5. Interpreting the results :-
In Accounting ,the results of the business are presenting in such a manner (i.e.
by preparing Trading and Profit & Loss A/c and Balance Sheet ) that the parties
interested in the business such as owners, managers , banks , creditors, employ
ees can have full information about the profitability and the financial position
of the business. The accounting should explain not only what has happened but a
lso (a) why it has happened , and (b) what is likely to happen in future .
6. Communicating :-
It refers to transmission of summarized and interpreted information to a
variety of users has an interest in the enterprise to enable them to make reaso
ned decisions.
Objectives or Functions of Accounting :-

Maintenance of systematic record of business transactions:-


The main objective of accounting is to maintain complete record of business tran
sactions according to specified rules .Complete record of business transactions
helps to avoid the transactions are first of all recorded in journal for subsidi
ary books and then posted into ledger.
Calculation of profit or loss:-
The 2nd main objective of accounting is to ascertain the net profit earned or lo
ss suffered on a/c of business transactions during a particular period .For this
purpose Trading and Profit & Loss a/c of the business is prepared at the end of
each accounting period. All the items related to purchases, sales ,expenses and
revenues of the business are recorded in Trading and Profit & Loss a/c.If the a
mount of revenue exceeds the expenditure incurred in earning that revenue, there
is said to be a profit.In the case expenditure exceeds the revenue ,there is s
aid to be loss. In addition , a businessman is able to get the following inform
ation by preparing a trading and profit & loss a/c-
1. How much goods have been purchased during a particular period .
2. How much goods have been sold during a particular period.
3. How much goods have remained unsold and what is its value.
Depiction of financial position of business:-
For a businessman merely ascertaining profit & loss of the business is not suffi
cient .The businessman must also know the financial health of the business. For
this purpose , after preparing the profit &loss a/c a statement called ‘Balance
Sheet’ is prepared which shows the assets and their value on the one hand and th
e liabilities and capital on the other hand . A Balance Sheet is actually a scre
en picture of the financial position of business .
To portray the liquidity position :-
Another objective of accounting is to provide information about how an enterpris
e obtains and spends cash .For this purpose it prepares a cash flow statement de
picting inflows and outflows of cash from operating ,investing and financial act
ivities .
To file tax returns :-
One of the main objectives of accounting is to provide bases for filing tax retu
rns relating to income tax , sales tax ,VAT, services tax.
Communicating accounting information to various users:-
Another main objective of accounting is to communicate the accounting informatio
n to various interested parties like owners ,investors ,creditors, banks ,employ
ees and government .The information helps them in taking sound and judicious dec
isions about the business entity.

Accounting Principles:-
Accounting principles are described by various terms such as assumptions ,conven
tions ,concepts ,doctrines, postulates. These principles are classified mainly i
nto two categories:-
Accounting Concepts or Assumptions:-
Accounting concepts provide a foundation for accounting process. No enterprise c
an prepare its financial statements without considering these basic concepts .Fo
llowing may be treated as basic concept :-
Accounting Conventions:-
An accounting convention may be defined as a custom or generally accepted practi
ce which is adopted either by general agreement or common consent among accounta
nts .Following are the main accounting conventions :-

Accounting concepts or Assumptions:- Accounting Conventions:-


1. Business Entity Concept 1. Conventi
on of full disclosure
2. Money Measurement Concept 2. Convention of c
onsistency
3. Going Concern Concept 3. Convention
of conservatism
4. Accounting Period Concept 4. Convention
of materiality
5. Cost Concept or Historical Cost Concept
6. Dual Aspect Concept
7. Revenue Recognition Concept
8. Matching Concept
9. Accrual Concept
10. Objectivity Concept
Accounting Standards:-
Accounting standards are norms for accounting policies and accounting practices.
These are an effort to bring uniformity in accounting procedure followed all ov
er the world. These determine how to treat various transactions and events and h
ow to present these in financial statements.
Institute of Chartered Accountant of (ICAI) India is the apex body in India whic
h regulates and governs these accounting standards.
At present there are 29 accounting standards of which except AS-24 all accountin
g standards are mandatory for companies .
1. Accounting Standard (AS)-1, Disclosure of Accounting Policies
2. AS - 2 Valuation of Inventories
3. AS - 3 Cash Flow Statement
4 .AS- 4 Contingencies and Events Occuring after the Balance Sheet Date
5. AS - 5 Net Profit or loss for the Period ,Prior Period Item and Changes in Ac
counting Policies
6. AS- Depreciation Accounting
7.AS- Accounting for Construction Contracts
8. AS- Accounting for Research and Development
9. AS- Revenue Recognition
10. AS- Accounting for Fixed Assets
11. AS- Accounting for the Effects of Changes in Foreign Exchange Rates
12. AS- Accounting for Government Grants
13. AS- Accounting for Investment
14. AS- Accounting for Amalgamation
15. AS- Accounting for Retirement Benefits in the Financial Statements of
Employees
16. AS- Borrowing Cost
17. AS- Segment Reporting
18. AS- Related Party Disclosure
19. AS- Leases
20. Earning Per Share
21. Consolidated Financial Statements
22. Accounting for Taxes on Income
23. Accounting for investment in Associates in consolidated financial
statements
24. Discontinued Operation
25. Interim Financial Reporting
26. Intangible Assets
27. Financial Reporting of Interests in Joint Ventures
28 . Impairment of Assets
29. Provisions , Contingent Liabilities and Contingent Assets .

Double Entry System:-


There is a saying physics that “matter can neither be created nor be destroyed
“.It only changes from similarly ,in accounting system ,we have a parallel.”
Income & expenditure ,direct or indirect are what constitute an accounting envir
onment when expenditure incurred , you always get some .We have used here the te
rms income & expenditure in literal sense .In accounting the corresponding terms
are “Debit & Credit translating our concepts of income & expenditure to account
ing terminology ,we say that for every debit transactions there is a credit tran
saction also.e.g. if we purchase vegetables for using at dinner of rest 20/- the
n we will debit the head of vegetables by rest 20/- & credit the cash book a/c f
or rest 20/-,but the problem we have is to decide which a/c is to be created & w
hich a/c is to be debited .Thus double entry system affects atleast two accounts
. If one account is debited , the other must be credited and vice-versa.
The Main principle of double entry system is “Every debit has a credit and every
credit has a debit”
There are some e.g. of some transaction posting into journal or subsidiary books
:-
1) Purchase of Land & Building for rest. 50000.
Land a/c Dr. 500000
To Cash a/c 500000
2) Sales of old furniture for rs. 20000
Cash a/c Dr. 200000
To Sales a/c 200000
2) Cash given for expenses worth rs. 500
Expenditure a/c Dr. 500
To cash a/c 500
But the problem is that which a/c is to be credited and which a/c is to be debit
ed There is a definite rule for every kind of account to post a transaction to D
r. and Cr. Side:-
PERSONAL A/C’s Rule-
“Dr. all the receiver and Cred
it all the giver.”
REAL A/C’s Rule-
“Dr. What comes in and Cr. What
goes out .”
NOMINAL A/C’s Rule-
“Dr. all the expenses & losses , Cr.
All the
Income & gains.
Manual Accounting System:-
As the name suggests ,in manual accounting , all the work is done manually. This
means that various accounts are made ,balance manually & also the results are i
nterpreted manually. Manual accounting system in which all records and transacti
ons are stored in books and files ,so it is called manual accounting system.
Process in manual accounting system:-
The various processes used under a manually operated accounting system in a larg
e or small company may involve the use of all or a suitable mix with of followin
g steps:-
Accounting process starts with origin and identification of transactions and
then proceeds on with recording , classifying and ends with summarizing which in
cludes preparing trial balance and financial statement .
1. Identification of Transactions:-
In Accounting only those transactions are recorded which can be measured in term
s of money .For accounting transactions it is necessary that these transactions
can be verified by source documents.
2. Preparing of Vouchers:-
On the basis of source document firstly entries are recorded on the basis of vou
chers. and after that these are recorded in the primary books.

3. Recording in the books of original entry:-


Accounting is the art of recording business transactions accounting to some spec
ified rules .In a small business where the no. of transactions is quite small ,a
ll transactions are first of all recorded in a book called ‘journal’. But in a b
ig business where the no. of transactions is quite large ,the journal is further
sub-divided into various subsidiary books.
1.1 Journal:-
Journal is one of the basic books of original entry in which transactions are or
iginally recorded in a day-to-day order according to principles of double entry
system.
Subdivision of Journal:-
1.2 Cash Book :-
This book is used for recording all transactions relating to cash receipts and c
ash payments .All banking transactions relating to receipts and payments are als
o recorded in this book.
1.3 Purchase Book:-
This book is used for recording of all credit purchases of goods.
1.4 Sales Book:-
This book is used for recording the credit sales of goods.
1.5 Purchase Return Book:-
When the goods previously purchased on credit are returned to the suppliers ,su
ch returns are recorded in this book .
1.6 Sales Return Book :-
When the goods previously sold on credit are returned by the customers ,such re
turns are recorded in this book.
1.7 Bills Receivable Book:-
This book is used for recording the receipts of bills receivable .The trader is
to receive payment for these bills.
1.8 Bills Payable Book:-
This book is used for recording the issue of bills payables .The trader is to ma
ke payment for these bills.
1.9 Journal Proper :-
This book is used for recording the transactions which cannot be recorded in any
of the above mentioned books.
4. Classifying(posting to ledger):-
The next step in accounting process is to transfer the all entries made in books
of original entry to the corresponding accounts in Ledger. In ledger separate a
ccounts are opened for each a/c After recording the transactions in journal the
transactions are classified . Classification is the process of grouping the tran
sactions of one nature at one place , in a separate account .. Separate accounts
are opened in the ledger in the name of each person .Likewise ,separate account
s are opened for purchases ,sales ,and assets . Similarly all expenses and incom
es which are already recorded in journal are again classified under separate hea
ds in the ledger, such as Wages A/c ,Salary A/c, and Commission A/c.

5 Summarising(trial Balance and Financial Statements):-


Summarizing is the art of presenting the classified data in a manner which is un
derstandable and useful to management and other users of such data. In this l
ast step of accounting process Trial Balance is prepared with the help of balanc
es obtained of ledger accounts. The purpose of preparing Trial Balance is to che
ck the accuracy of accounof utmost important for any or
Manual Accounting System Illustration:-
Suppose A person Mr. X commenced business introducing capital of 10,00,000 .He p
urchased machinery worth rs. 1,00,000 ; building worth rs. 1,20,000; furnitu
re worth rs. 30000.He purchased goods worth rs. 2,00,000 including rs. 50,000 cr
edit purchase; incurred expenses :-Wages 20,000, Salary 40,000, Rent 30,000 , A
dvertisement 40,000He sold goods for rs. 3,80,000 out of which credit
sales of rs 80,000 and had stock lying with him was rs 40,000 at the end o
f the year ,A provision of 5% is to be provided for doubtful debts and 10% of De
preciation is to be provided on machinery. Prepare the accounts from beginning
to end.
Step-1 Identification of transaction of financial nature
Step-2 Recording in Journal
Date Particulars
L.F. Amount(Dr.) Amount(Cr,)
Cash A/c
Dr. 10,00,000
To Capital A/c
10,00,000
(capital brought in by owner)
Machinery A/c
Dr. 1,00,000
To Cash A/c
1,00,000
(machinery purchased for cash)

Date Particulars
L.F. Amount(Dr.) Amount(Cr.)

Building A/c
Dr. 1,20,000
To Cash A/c
1,20,000
( building purchased for cash)
Furniture A/c
Dr. 30,000
To Cash A/c
30000
(furniture purchased for cash)
Purchases A/c
Dr. 2,00,000
To Cash A/c
1,50,000
To Creditors
50,000
(goods purchased including credit purchase of rs. 50,000)
Wages A/c
Dr. 20,000
To Cash A/c
20,000
(wages paid)
Salary A/c
Dr. 40,000
To Cash A/c
40,000
(salary paid)
Rent A/c
Dr. 30,000
To Cash A/c
30,000
(rent paid)
Advertisement A/c
Dr. 40,000
To Cash A/c
40,000
(advertisement expensed paid)
Cash A/c
Dr. 3,00,000
Debtors A/c
Dr. 80,000
To Sales A/c
3,80,0000
(goods sold including goods of rs. 80,000 on credit)
Stock A/c
Dr. 40,000
To Purchases A/c
40,000
(unsold stock adjusted)
Depreciation A/c
Dr. 10,000
To Machinery A/c
10,000
(depreciation provided on machinery @ 10%)

Step-3 Posting In Ledger:- Ledger Accounts


Cash Acco
unt
Machinery A
/c
Building A/c
Purchases A/
c
Creditors A/c

Wages A/c
Salary A
/c

Rent A/
c

Advertisement A/c
Sales A/c
Debtors
A/c

Depreciation A/c
Capital A
/c

Furniture A/c
Note - * means these account are transferred to Trading and Profitless A/c at th
e end of the year after preparing Trial Balance .

Step-4 Preparing of Trial Balance:-


Trial Balance of X

Adjustment and Transfer Entries at the end of the year:-


Profit & Loss A/c D
r. 1,600
To provision for Doubtful Debts
1,600
(making provision for doubtful debts @ 5% of rs. 80,000)
Trading A/c
Dr. 1,60,000
To Purchases A/c
1,60,000
(adjusted purchases transferred to trading a/c)

Sales A/c
Dr. 3,80,000
To Trading A/c
3,80,000
(sales transferred to trading a/c)
Trading A/c
Dr. 20,000
To Wages A/c
20,000
(wages transferred to trading a/c)
Profit & Loss A/c
Dr. 40,000
To Salary A/c
40,000
(salary transferred to pal a/c)
Profit & Loss A/c
Dr. 30,000
To Rent A/c
30,000
(rent transferred to P & L A/c)
Profit & Loss A/c
Dr. 40,000
To Advertisement A/c
40,000
(ad expenses transferred to P&L A/c)
Profit & Loss A/c
Dr. 10,000
To Depreciation
10,000
(depreciation charged from P&L A/c)

Step-5 Preparing of Financial Statements:-


1. Trading and Profit & Loss A/c.
2. Balance Sheet.
Trading and Profit & Loss A/c is prepared to ascertain the p
rofit or loss of the business and
Balance Sheet is prepared to ascertain the financial positi
on of the business.

Trading and Profit & Loss A/


c of X
for the year
ending …………

Balance Sheet of X
as on …………