Accounting Process & Procedure
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The document provides information about accounting processes and procedures. It discusses transactions and events recorded in the general ledger. It describes different types of vouchers like supporting, journal, receipt, and payment vouchers. It also explains steps to prepare journal entries and the utility and limitations of journals. Furthermore, it discusses subsidiary books, ledger, trial balance and various financial statements like trading account, profit and loss account and balance sheet. It provides details about preparing bank reconciliation statements and their benefits.
Accounting Process & Procedure
- 1. ACCOUNTING PROCESS & PROCEDURE Conducted by Dr. Sushil. B. Bansode (M.Com., G.D.C.& A., D.I.D., NET, SET, Ph.D.)
- 2. Transaction/ Event • Transactions are usually related to the exchange of goods, services, or money between parties. • Events can be any significant occurrence that takes place within the company or its environment. • Transactions can be recorded in the company's general ledger, while events are not recorded in the financial records.
- 3. Voucher • A voucher is an important document of financial accounting. • A voucher in Accounting is defined as a document used by the accounts department of an entity that contains documents related to an invoice. It can be simply stated as backup documents for a bill. • A voucher may contain documents such as the general ledger accounts, supplier’s invoice, shipping receipts, the amount owed and the due date etc. Furthermore, it is used everywhere in private and public businesses as well as government businesses. • Types of Vouchers – Supporting voucher – Journal voucher – Receipt or Credit voucher – Payment or Debit voucher
- 4. Types of Vouchers • Supporting voucher These vouchers are created during the transaction and hence are known as a source or supporting vouchers. These vouchers are written documentary proof of the business transaction in support of the transaction that has occurred. These are also subdivided into two types – • Internal supporting vouchers • External supporting vouchers • Journal voucher Journal Or Non-Cash Vouchers are vouchers prepared to support non-cash transactions such as credit sales of investments, credit sales of fixed assets, credit purchases of goods, depreciation, and return inward or outward. • Credit or Receipt voucher Credit vouchers involve cash receipts and are used when transactions involve cash receipt, such as cash received from account receivable, cash sales of goods, cash sale of investments rent, cash sales of fixed assets, cash receipt of interest and receipt of the amount owed to employees as a loan, etc. • Debit or Payment voucher Debit or Payment vouchers support cash payments and are thus prepared for recording transactions involving cash outflows such as the acquisition of an investment in cash, acquisition of fixed assets in cash, granting loans and advances to employees and other parties cash payment of salaries, repayment of loans and advances, purchases of goods, payment to creditors, and cash deposits to the bank.
- 5. JOURNAL • A Journal is called a book of prime entry. The process of recording a transaction in a journal is called Journalizing. An entry made in the journal is called Journal entry. • Journal is the book of original entry in which, after following the rules of debit and credit, all business transactions are recorded in a chronological order. • Format of Journal Date Particulars LF Dr. Amount Cr. Amount
- 6. STEPS OF PREPARING JOURNAL ENTRIES Step 1: Identify the statement given in an event or transaction. Step 2: Identify the accounts involved in the transaction. Step 3: Determine the type of accounts involved. Step 4: apply appropriate rules of accounting. Step 5: Inside the journal book, record the transaction along with narration or a short description.
- 7. UTILITY OR FEATURES OF JOURNAL • A Primary book of original entry. • A Fundamental book in line with the double entry book-keeping. • Transaction in chronological order. • Complete transaction about business transaction. • Classification of all transaction become easier. • Ensure arithmetical accuracy.
- 8. LIMITATIONS OF JOURNAL • Bulky and Voluminous. • Information in Scattered form. • Time consuming • Lack of Internal Control
- 9. Subsidiary Books • Subsidiary Books are books of Original Entry. They are also known as Day Book or special journals. We record transactions of similar nature are in Subsidiary Books. They are useful in overcoming the limitations of journal book or journal entries. • Different Types of Subsidiary Books • Purchase Book • Sales book • Purchase return Book • Sales return book • Cash book • Bills receivable book • Bills payable book • Journal proper
- 10. Purchase Book • A firm records all its credit purchases of goods in Purchase Book or Purchase Day Book. While it records all the cash purchases of goods in the Cash Book. • We do not record Purchases of assets in Purchase Book. Thus, they are recorded in the Journal Proper.
- 11. Sales Book A firm records all credit sales of goods in the Sales Book or Sales Day Book. It records cash sales of goods in the Cash Book. We do not record the sale of assets in the Sales Book.
- 12. Purchase Return Book • We record the return of goods purchased in the Purchase Return Book. A Debit Note is prepared for every return of goods in duplicate. • It contains the name of the supplier, details of goods returned and reason thereof. It needs to be dated and serially numbered.
- 13. Sales Return Book • We record the return of goods sold in the Sales Return Book. A Credit Note is prepared for every return of goods in duplicate. • The Credit Note contains the name of the customer, details of goods returned and reason thereof. It also needs to be dated and serially numbered.
- 14. Cash Book • Cash Book records all the cash and bank receipts and payments. It is a book of original entry as we record transactions in it for the first time from the source documents such as vouchers, invoices, etc. A cash book has a debit and a credit side both. Thus, it is similar to a ledger account. Hence, it acts as a subsidiary book as well as a ledger account. • An organization can maintain a single column, double column or triple column cash book as per its requirements. A single column cash book consists of only cash column. A double column cash book consists of cash and bank column. While the triple column cash book consists of cash, bank, and discount column. Usually, the firms use triple column cash book. • Some organizations also maintain a petty cash book which records the petty or small cash expenses of the firm.
- 15. Bills Receivable Book • We record all the acceptance of the bills in our favor in the Bills receivable book. We need to post the total of bills receivable book to the Bills receivable A/c. Also, we need to post the individual accounts of the customers.
- 16. Bills Payable Book • We record all the acceptance of the bills that we issue in favor of others in the Bills payable book. We need to post the total of bills payable book to the Bills payable A/c. Also, we need to post the individual accounts of the suppliers.
- 17. Journal Proper • It includes transactions relating to credit purchase and sale of assets, depreciation, outstanding and pre-paid expenses, accrued and unearned income, opening and closing entries, adjustment entries and rectification entries.
- 18. LEDGER • The book which contains a classified and permanent records of all the transactions of business is called the ledger. - L. C. Cropper • The ledger is the chief book of accounts and it is in this book that all the transactions would ultimately find their place under their accounts in duly classified form. - J.R. Batliboi • Format of Ledger Name of Ledger Accounts Dr. Cr. Date Particular JF Amount Date Particular JF Amount
- 19. UTILITY OF LEDGER • Quick information about particular item. • Proper control over transaction. • Help in preparing trail balance. • Helps in preparing financial statement.
- 20. TRIAL BALANCE • Trial balance is statement of debit and credit balance taken out from ledger accounts including cash book. • Trial Balance is the list of debit and credit balance, taken out from ledger. It also includes the balances of cash and bank taken from cash. - Carter • The statement prepare with the help of ledger balance, at the end of the financial year to find out whether debit total agree with credit total is called trail balance. - William Pickles • Format of Trail Balance Trail Balance of…… as at …….. s. No. Name of Accounts LF Debit Balance Rs. Credit Balance Rs. Total XXX XXX
- 21. CHARACTERISTICS OF TRIAL BALANCE • It contains the balance list of ledger account and cash book. • It is not a account, but a statement. • It is just a working paper, but not the part of double entry system and does not appear in the actual books of account. • It is not prepare for the particular period. On a particular date it is prepared. • Prepared to check out the arithmetical accuracy of the ledger accounts.
- 22. OBJECTIVES OF TRIAL BALANCE • To ascertain the arithmetical accuracy of ledger accounts. • To help in locating or we can say to help in detecting of errors. • To help in the preparation of financial statement. • To obtain a summary of the ledger accounts.
- 23. LIMITATION OF TRIAL BALANCE • Transaction has not been entreated at all i.e. completely omission of transaction in the journal. • A wrong amount has been both debit and credit in the journal. • A wrong account has been mentioned in the journal. • A transaction entered in journal, but not posted at all in ledger. • In ledger, entry posted in twice time.
- 24. METHODS OF PREPARING TRIAL BALANCE • There are two methods for preparing trial balance. 1. Balance Method. Under this method, the balance of all the accounts are incorporated in the trial balance. In order to prepare trial balance under this method, all the accounts showing debit balance in the ledger are put on the debit side of trial balance and the accounts showing credit balance are put on its credit side. 2. Total amount Method. Under this method, trial balance is prepared with the total of each and every ledger accounts including cash book. The total amount of debit items and credit items in each ledger accounts are incorporated in the trial balance. It may be noted that trial balance under this method can be prepared immediately after the completion of posting to the ledger.
- 25. FINALACCOUNTS • Financial Accounts/ Statements are collectively given to income statement and positional statement of an enterprises, which show the financial position of business concerned on an organized manner. • Financial statements refer to such statements, which report the profitability and financial position of the company at the end of accounting period. • Financial accounts contain the following. 1. Trading account 2. Profit and loss Account 3. Balance sheet
- 26. PREPARATION OF TRADING ACCOUNTS • Trading account is one of the financial statements, which shows the results of buying and selling of goods and services during an accounting period. • Trading account is prepared for calculating the gross profit or gross loss arising or incurred as a result of the trading activities of a business. • The trading account shows the results of buying and selling of the goods. In preparing this account, the general establishment charges are ignored and only the transactions in goods are included. - J. R. Batliboi.
- 27. TRADING ACCOUNTS
- 28. PREPARATION OF PROFIT & LOSS ACCOUNT • P & L A/c are prepared after preparation trading account. • The profit and loss account is prepared to ascertain the net profit earned or net loss include by the business entity during an accounting period. • A Profit and loss account is an account into which all gains and losses are collected, in order to ascertain the excess of the gains over the losses or vice-versa. - Professor Carter
- 29. PROFIT & LOSS ACCOUNT
- 30. PREPARATION OF BALANCE SHEET • Balance sheet is one of the financial statements. • A Balance sheet is a statement of assets and liabilities of an enterprise at a given date. • The balance sheet is a statement at a particular date showing on one side the trader’s property and positions and on the other hand the liabilities. - A. Palmer • A Balance sheet is a statement prepared with a view to measure the exact financial position of a business on certain fixed date. - J. R. Batliboi
- 31. BALANCE SHEET
- 32. Bank Reconciliation Statement (BRS) • A bank reconciliation statement could be defined as the summary of the banking and business accounts that reconciles a company's bank account with its financial record. The statement contains a record of all the deposits, withdrawals and other financial activities with a bank over a certain period of time. It is a useful tool to control fraudulent activities.
- 33. Need of Bank Recompilation Statement • Accuracy Each month, the passbook of the bank and the cash book of a firm, display a particular amount, which is the balance in the bank as on that date. However, due to delay in the recording time and period of the same in the respective books, there is a high possibility that on the day of comparison the balances in the two books, would not match. Hence, having prepared a bank reconciliation statement, one can determine the reasons and amounts by which the two balances differ. This analysis would further help the accountant in recording the missing amounts in each book. Hence, after the preparation of a bank reconciliation statement, the books of accounts would actually display a true and fair position of the firm. • Check on the Entries In the process of preparing a bank reconciliation statement, an accountant will be able to point out all entries or amounts, recorded incorrectly in either of the books. Thus, it is quite useful to prepare a bank reconciliation statement, which would help in eliminating any entries recorded erroneously. • Rectifying Incorrect Entries In case an amount or entry has been recorded incorrectly in both, the passbook and the cash book, the accountant will be able to rectify those entries, so as to arrive at the amount of correct bank balance in the passbook and the cash book. • Updated Cash Book Again, due to the irregularity in posting amount of entries in the cash book and due to the delays in the recording of such amounts, it is quite possible that the cash book would fail to show the updated balance of bank as on a particular date. When compared with the passbook, an accountant would be able to identify such entries and record them in the cash book instantly. This would help in reconciling the balances of both the cash book and the bank book instantly. • Detection of Delays Due to the preparation of bank reconciliation statement, it is possible to discover any amount of cheques that gets deposited in the bank but have aren’t credited. This difference would be evident because the amount of such deposit would appear in the cash book but not in the bank book, hence giving rise to a difference in the bank balance of both. Thus, cheques deposited but not yet collected can come to notice quickly. • Check on the Dishonest Behavior of Employees Preparation of regular bank reconciliation statement has several benefits. It would act as a moral check on employees so that they do not indulge in the embezzlement of bank cheques, which would ultimately cause loss to the firm. This is so because even a low-value cheque can come in detection if it has been accepted but not deposited. In this way, a bank reconciliation statement serves a large purpose for a firm’s accounting cycle and people.
- 34. Preparing a Bank Reconciliation Statement • To complete a bank reconciliation statement, the accountant needs the following data – Current and previous month's bank statement – The closing balance of the bank account – Any outstanding payments or withdrawals (cheque that haven't been processed yet) – Any fees charged by the bank on the account – Interest earned on the bank balance
- 35. Steps to Prepare a Bank Reconciliation Statement • Compare the financial record on the company book to the bank statement. • For any errors (unaccounted for deposits and represented withdrawals) changes are made to the corresponding bank statements • Make necessary changes in the log book and bank statements for fees, charges deducted and interest credited. • The final step is to compare the two records - the company's own financial statement and the account statement. If they are the same, your bank reconciliation is done. If not repeat the process.
- 36. Benefits of a Bank Reconciliation Statement • A bank reconciliation statement ensures that all payments made by the company are processed and all deposits are correctly made on time. • This statements are great for detecting frauds in financial transactions of large companies (which are difficult to keep track of, otherwise). • The statements also help to analyze errors that can affect the financial transactions of a company or business. • Such statements aid to assess the financial health of a company and take adequate financial decisions for the betterment of business. • Bank reconciliation statements are also a key to accurate tax reporting. Without a proper financial statement, a company may end up paying too much or too less taxes.
- 37. Thank You… E-mail ID: bansodes1994@gmail.com Mob. No. 9404286605