Double Entry Accounting System

TopicsDouble Entry Accounting System-What it is?Cash and Accrual based AccountingConcept of Debit and CreditRevenue & Capital Accounting definitions.

What is Accounting?

Accounting is an art of recording ,classifying and summarizing the financial information in a significant manner.

Single Entry SystemUnder this system both the

aspects of transaction are not recorded.

Only Personal accounts & cash book are opened.

Under this system balance sheet is not prepared.

This system is therefore not considered as an authentic one.

Double Entry Accounting System

Based on principle of duel aspect of each transaction.For correct presentation both of them should be recorded.Requires maintenance of records of assets, liabilities, revenues and expenditure.Impact of each transaction can be seen or measured.Total assets are equal to total equities.

Classification of Accounts

Personal Account

Real Account

Nominal Account

Personal AccountDefinition & Examples of

accounts:- Personal Account: Personal

accounts are accounts relating to persons or organisations with whom the business has transactions.

E.g Customer, Supplier, Money lenders etc.

Real Accounts• Real Accounts: Real

accounts refer to accounts in which property and possession are recorded.

E.g Land, Building, Plant & Machinery, Vehicle Cash, Bank etc.

Nominal Accounts

Nominal Accounts: Nominal accounts are revenue, expenses, gains, and losses.

E.g. Wages, Salary, Discount etc .

Concept of Debit & Credit(Golden Rules)

For Personal Accounts :Debit the receiver and credit the giver.

E.g. Furniture has been purchased from Godrej & Boyce Ltd on credit of Rs.2,00,000/-

Journal Entry: Furniture A/C Dr. Rs.2,00,000/- To Godrej & Boyce Ltd Cr. Rs.2,00,000/-

Concept of Debit & Credit(Golden Rules)

• For Real Accounts: Debit what comes in and credit what goes out.

A vehicle has been purchased of Rs. 8,00,000/- by cheque.

Journal Entry: Vehicle A/C Dr. Rs.8,00,000/- To Bank Cr. Rs.8,00,000/-

Concept of Debit & Credit(Golden Rules)

• For Nominal Accounts: Debit all expenses (and loses) and Credit all incomes(and gain).

E.g Telephone bill amounting to Rs.25,000/- paid by cheque.

Telephone Expense A/c Dr. Rs.25000/-

To Bank A/c Cr. Rs. 25000/-

Double Entry Accounting System classification

Cash Based :- Cash basis of accounting is a method of accounting in which transactions are recorded in the books of account when cash is actually received or paid out.

Eg .Property Tax has been received of Rs.10,000/-Cash A/C Dr Rs.10,000/-

To Property Tax Cr. Rs.10,000/-

Accrual Based Accrual Based:- Accrual basis of

accounting is an accounting system which recognises revenues and expenses as they are earned or incurred , not as cash received or paid respectively.

Eg .Raised demand and sent Property Tax bills of Rs.10,000/- on 10th May2014 and the same amount has been received against the demand on 30th May,2014.

Accrual Based10.05-2014

Property Tax Receivable A/C Dr 10,000/To Property Tax A/C Cr. 10,000/-

30-05-2014 Cash/Bank A/C Dr 10,000/- To Property Tax Receivable A/C Cr 10,000/-

Accrual Based A)Received a bill for construction of road from

NBCC Ltd for Rs.10,00,000/-(Bill Processed and deductions made Security Money Rs.1,00,000/-,TDS Rs.50,000/- ,TVAT 1,20,000,labour Cess Rs.10,000/-) on 30th May,2014.

B)Paid Rs.7,20,000/- to NBCC Ltd on 3rd June,2014.

30-05-2014 Roads A/C Dr 10,00,000/-To, Security Money 1,00,000/-To, TDS, Income Tax 50,000/-To, TVAT 1,20,000/-To, Labour Cess 10,000/-To, NBCC Ltd 7,20,000/-3-06-2014 NBCC Ltd A/C Dr 7,20,000 /- To, Bank 7,20,000/-

Capital and Revenue Expenditure

Capital expenditure is the expenditure where the benefits are not fully consumed in a year but spread over several years.

Revenue Expenditure is the expenditure which provides benefits in the current accounting year only. It can not be forwarded to next year or years.

Primary Accounting Documents

• Following primary accounting documents have to be maintained:

Receipt Vouchers Payment Vouchers Fund Transfer Vouchers/Contra

Vouchers. Journal Vouchers

Primary Books of Accounts

Before preparation of Financial Statements we have to prepare following primary books of accounts: Cash bookBank book ( incl. Bank

Reconciliation Statement) Journal book Ledger Trial Balance

Financial Statement

Receipts & Payments Statement.

Income & Expenditure Account.

Balance Sheet.

Why the Financial Statement is mandatory for

ULB.

• To know the actual position of the assets, liabilities and reserve of the ULB.

• Shows the position of general fund of ULB.

Receipts & Payments Account.

Receipts Amount(Rs

)Payments Amount(

Rs)

To Balance b/d 1,00,00,000

By Salary 3,00,000

To Share of Taxes(SOT)

1,00,00,000 By Wages 1,00,000

To TUEP 50,00,000 By Electricity Expenses

50,000

To Property Tax 5,00,000 By Fuel 10,00,000

To Water Tax 6,00,000 By TUEP 13,00,000

By Balance c/d 2,33,50,000

2,61,00,000 2,61,00,000

Income & Expenditure Account

Expenditure Amount(Rs)

Income Amount(Rs)

To Salary 10000 By Property Tax 1,00,000

Wages 5000 Add-Outstanding 50,000

1,50,000

Printing & Stationery

3000 By Water Tax

30,000

Interest 5000 By Profit on sale of refreshment(50,000-20,000)

20,000

Insurance 1000

Excess of Income over Expenditure

1,86,000

2,00,000 2,00,000

Balance Sheet.

Liabilities Amount

Assets Amount

Capital Fund Rs. 10,00,00,000

Less: Excess of Income over Exp. Rs. 1,86,000

8,14,000 Furniture 5,00,000

Loan from HUDCO 1,00,000 Cash in Hand 10,000

Outstanding Rent 20,000 Cash at Bank 3,29,000

Subscription received in advance

5,000 Stock 1,00,000

9,39,000 9,39,000

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