–
Every subject has its merits and demerits.
World’s most difficult numerical subjects are mathematics, physics, chemistry and accounting.
World’s most difficult theoretical subjects are English grammar and Economics.
Above subjects need more times to practice.
Very old saying ‘practice makes man perfect.’
As well as a learner makes practice and understands concept of chapter, above subject will be interesting.
Accounting is the process or work to keep recording financial transactions.
It is broader than bookkeeping.
It starts when bookkeeping ends.
Accounting is the language of business.
It is an analysis and interpretation of book keeping records.
It is an art of measuring, recording and communicating of financial information.
It includes maintenance of accounting records as well as preparation of financial and economic information.
Accounting is an information system.
It measures, processes and communicates financial information for decision makers.
Business activities are identified and measured in terms of money.
Then processed and finally communicated to the various groups of users.
Without accounting, the financial transactions are only data.
They are converted to information by the accounting processing system.
In simple meaning, accounting is a story of value or money.
From where the money come, how much the money worth, how much the money cost, how much value for money exchange and how much of money is in hand at any given time.
Entire financial accounting is based on five elements.
These accounting elements are presented as:
Keep in Mind
Some writers write seven elements of accounting in place of five elements. |
They are capital, incomes, profits, liabilities, assets, expenses, losses. |
Accounting equation is: |
Assets = Capital + Liabilities |
|
Capital is the first element of accounting.
Without investing capital in the business, no one business can be started.
When a businessperson starts his business, he must invest cash.
He can start business with cash, inventory (business goods and merchandise) and fixed assets.
Generally, there are four types of business; sole proprietorship, partnership, private limited company and limited company.
It is basic journal entry; so we are going to study according to sole proprietorship and limited company.
Owner’s equity is also known as capital or shareholders’ equity.
Owner’s equity is the capital amount of sole proprietor and partners invested in the business.
Shareholders’ equity is the capital amount of private limited company and limited company.
Expenses, income, profit or loss is the part of owner’s equity; they are adjusted with capital.
Income and profit are added with capital (owner’s equity).
Expense and loss are deducted from capital (owner’s equity).
Journal Entry of Business Started of Sole Proprietorship
Cash account |
Dr |
Cash introduction |
Increase asset |
Bank account |
Dr |
Account open (bank balance) |
Increase asset |
Stock (Inventory) account |
Dr |
Value of business goods |
Increase asset |
Plant and machinery account |
Dr |
Value of assets |
Increase asset |
Land and building account |
Dr |
Value of assets |
Increase asset |
Furniture and fitting account |
Dr |
Value of assets |
Increase asset |
Computer and equipment account |
Dr |
Value of assets |
Increase asset |
Other assets account ………………… |
Dr |
Value of assets |
Increase asset |
To Owner’s equity or Capital account |
|
Total capital |
Increase liability |
(Being- business started with ……………… |
|
|
|
Journal Entry of Additional Capital
Cash account |
Dr |
Additional capital introduction |
Increase asset |
Bank account |
Dr |
Additional capital introduction |
Increase asset |
To Owner’s equity or Capital account |
|
Total capital |
Increase liability |
(Being- additional capital brought by owner) |
|
|
|
Business Commenced of Private Limited and Limited Company
Private Limited Company, Limited Liabilities Company (LLC), Limited Company or Joint Stock Company starts its business by issuing common stock (equity shares, ordinary share).
These companies first issue equity shares to the public; then they collect money from public.
After collecting cash, they purchase land, building, machinery, equipment, materials, inventory etc according to their need.
Journal Entry of Business Started of Limited Company
Cash account |
Dr |
Cash introduction |
Increase asset |
Bank account |
Dr |
Account open (bank balance) |
Increase asset |
To Equity shares capital account |
|
Total capital |
Increase liability |
(Being- business commenced with cash/bank and converted into xxxx common stock of $/₹/Rs … each) |
|
|
|
Keep in Mind
Sometimes owner or proprietor of the business takes (withdrawal) money or goods from business his personal, private or domestic use; it is known as drawings or withdrawals. |
The uses of business assets for domestic purposes are also considered as drawings. |
If cash is taken, it is deducted from cash as well as capital. |
If goods are taken, it is deducted from cash and purchase (inventory). |
For accounting purposes, drawings and withdrawals are different. |
Drawings are made out of business profits and withdrawals are made out of proprietor’s capital contribution. |
#####
Click on link for YouTube videos |
|
Share (Accounting for Share) |
|
Share in Nepali |
|
Debentures |
|
Final Account: Class 12 |
|
Final Account in Nepali |
|
Work Sheet |
|
Ratio Analysis (Accounting Ratio) |
|
Fund Flow Statement |
|
Cash Flow Statement |
|
Theory Accounting Xii |
|
Theory: Cost Accounting |
|
Cost Accounting |
|
LIFO−FIFO |
|
Cost Sheet, Unit Costing |
|
Cost Reconciliation Statement |
#####
There are two types of the business on the basis of revenues.
First is goods selling organization and second is service providing organization.
Trading firms purchase readymade goods and sell at profit.
Assembling firms purchase ready-made components; them make new product and sell.
Manufacturing firms purchase raw materials and semi-famished goods; then make new product and sell.
Goods selling organizations sell goods and receive sales revenues.
Service providing organizations sell services and receive service revenues.
Sales revenues or service revenues are major incomes for any business organization.
Besides this, organizations receive or earn some other incomes; these incomes are:
Discount received
Interest received
Commission received
Dividend received
Rent received
Other income
Journal Entry of Sundry Income
Cash account |
Dr |
Income received in cash |
Increase in assets |
Bank account |
Dr |
Income received by cheque |
Increase in assets |
Income receivable account |
Dr |
Income earned but not received |
Increase in assets |
Accrued income account |
Dr |
Income earned but not received |
Increase in assets |
To Income account (by name) |
|
Name of income head |
Increase in income |
(Being- income received or receivable) |
|
|
|
Liabilities are obligation of a person or an organization; they are recorded in liabilities side of balance sheet.
Liabilities are known as current liabilities or non-current liabilities.
Current liabilities are for 12 months or one year.
Non-current liabilities or long-term liabilities are for more than one year.
This time limit may be upto 30 years.
Sometimes one transaction heading may be short-term or long-term.
Mortgage loan and notes payable payments due during the current year is recorded as current liability.
Mortgage loan and notes payable payments due in more than one year is recorded as non-current liability.
Long-term liabilities (Non-current liabilities) |
Current liabilities (Short-term liabilities) |
Debentures or bonds |
Creditors and suppliers |
Mortgage loan |
Bills payable, account payable |
Notes payable |
Notes payable |
Long-term loan |
Short-term loan |
Bank loan |
Bank overdraft |
Deferred tax |
Provision for tax |
|
Outstanding expenses (expenses payable or due) |
|
Advance income |
Journal Entry of Short-term Liabilities
Cash account |
Dr |
Cash received as loan |
Increase asset |
Bank account |
Dr |
Loan received through bank |
Increase asset |
Purchase account |
Dr |
Inventory purchased on credit |
Increase inventory |
To Short-term loan |
|
Short-term loan took |
Increase liability |
To Creditor or supplier |
|
Inventory purchased on credit |
Increase liability |
To Expenses payable |
|
Expense occurred but not paid |
Increase liability |
(Being: …………………. |
|
|
|
Journal Entry of Long-term Liabilities
Bank account |
Dr |
Loan received through bank |
Increase asset |
To Debentures or Bonds |
|
Debentures or bond issue |
Increase liability |
To Mortgage loan or Long-term loan |
|
Mortgage loan took |
Increase liability |
To Bank loan |
|
Bank loan took |
Increase liability |
(Being: …………………. |
|
|
|
#####
Click on link for YouTube videos |
|
Share (Accounting for Share) |
|
Share in Nepali |
|
Debentures |
|
Final Account: Class 12 |
|
Final Account in Nepali |
|
Work Sheet |
|
Ratio Analysis (Accounting Ratio) |
|
Fund Flow Statement |
|
Cash Flow Statement |
|
Theory Accounting Xii |
|
Theory: Cost Accounting |
|
Cost Accounting |
|
LIFO−FIFO |
|
Cost Sheet, Unit Costing |
|
Cost Reconciliation Statement |
#####
Assets are the economic resources; they are recorded in assets side of balance sheet.
Assets represent probable future economic benefits.
Tangible assets have their physical substance.
Tangible assets are also known as fixed assets.
Intangible assets do not have physical substance.
Intangible assets are also known as fictitious assets.
Tangible assets |
Intangible assets |
Current assets |
Land and building |
Goodwill |
Cash in hand |
Plant and machinery |
Trade mark and copy rights* |
Cash at bank |
Equipment |
Preliminary expenses |
Stock, inventory or merchandise |
Furniture and fitting |
Loss on issue of debentures |
Debtors or customers |
Vehicle etc. |
Discount on issue of shares |
Bills receivable |
|
P&L account (Dr) or Deficit |
Account receivable |
|
|
Prepaid expenses etc. |
Tangible assets are used to generate sales or service revenues.
Tangible assets represent probable future economic benefits.
They are not purchased for resale.
After using these assets their life will be decreased; and their value also will be decreased.
This decreased value is known as depreciation.
Journal Entry of Tangible Assets Purchased
Plant and machinery account |
Dr |
Value of assets |
Increase assets |
Land and building account |
Dr |
Value of assets |
Increase assets |
Furniture and fitting account |
Dr |
Value of assets |
Increase assets |
Equipment account |
Dr |
Value of asset |
Increase assets |
Vehicle account |
Dr |
Value of asset |
Increase assets |
Computer/laptop account |
Dr |
Value of asset |
Increase assets |
To Cash account |
|
Cash given |
Decrease in assets |
To Bank account |
|
Cheque given |
Decrease in assets |
To XYZ Suppliers account |
|
Credit purchased from firm |
Increase in liabilities |
To Bills payable account |
|
Credit purchased and bill accepted |
Increase in liabilities |
(Being- assets purchased ……………. |
|
|
|
After using fixed asset, it becomes old.
Sometime it may be useless or outdated.
After using for long time, these tangible assets become useless or outdated; then they are sold.
At the time of asset selling, there may be capitalized profit or capitalized loss.
Loss is debited but profit is credited in journal entry.
Accumulated depreciation = Original value – Book salvage value
Profit = Cash salvage value − Book salvage value
Loss = Book salvage value − Cash salvage value
Journal Entry of Tangible Assets Sold
Cash account |
Dr |
Cash received |
Increase in assets |
Bank account |
Dr |
Cheque received |
Increase in assets |
Customer or debtors |
Dr |
Credit sold to person or firm |
Increase in assets |
XYZ Trader account |
Dr |
Credit sold to firm |
Increase in assets |
Profit and loss (loss) account |
Dr |
If assets sold at loss |
Increase of loss |
To Asset account (name of asset) |
|
Value of assets |
Decrease in assets |
To Profit and loss (profit) |
|
If assets sold at profit |
Increase of profit |
(Being- assets sold at ………… |
|
|
|
Every business firm has to do expenses to operate business.
These expenses maybe daily, weekly, monthly, quarterly, half yearly and yearly on regular basis.
There are three types of operating expenses; they are:
(a) Trading or manufacturing expenses
(b) Office and administration expenses
(c) Selling and distribution expenses
Trading Account |
Office or Administrative Expenses: |
Selling and Distribution Expenses: |
Purchase expenses: |
Salary and wages |
Carriage or freight outward |
Carriage or carriage inward |
Director’s fees |
Carriage or freight on sales |
Freight or freight inward |
Office rent, rates and tax |
Travelling expenses |
Carriage on purchase |
Printing and stationery |
Advertisement and publicity |
Purchase expenses |
Postage expenses |
Free sample |
Octoi |
Insurance |
Sales expenses |
Import duty or custom duty |
Phone, mobile, internet expenses |
Packing expenses |
Clearing charge |
Bank charge |
Salary to sales agent |
Dock charge (dock dues) |
Legal charge |
Commission to sales agent |
Coolie and cartage |
License fees |
Rent of warehouse or godown |
Packing on purchase |
Audit fee |
Stationery, postage expenses |
Factory expenses: |
Interest on loan |
Phone, mobile, internet expenses |
Wages and salary |
Staff benefits |
Insurance of warehouse |
Productive wages |
Bonus to staff |
Trade or trading expenses |
Store keeper’s salary |
Office lighting and power |
Delivery expenses |
Fuel and power |
Entertainment expenses |
Bad debts |
Motive power |
General expenses |
Provision for bade debts |
Store consumed* |
Establishment expenses |
Discount allowed |
Coal, gas, stem and water |
Commission paid |
Sales tax or VAT or GST |
Heating and power |
Manager’s commission |
|
Excise duty |
Interest on capital |
Non-cash expenses: |
Royalty (for manufacturing) |
Non-cash expenses: |
Depreciation on warehouse |
Factory insurance |
Depreciation on equipment |
Depreciation on delivery van |
Factory rent, rates and taxes |
Depreciation on furniture |
|
Estimate expenses |
Depreciation on land building etc. |
Other expenses and losses: |
Benefit to workers etc. |
|
Loss by fire or theft etc. |
Journal Entry of Operating Expenses
Salary account |
Dr |
salary paid to person |
Increase in expenses |
Wages account |
Dr |
wages paid to person |
Increase in expenses |
Rent account |
Dr |
rent paid to house owner |
Increase in expenses |
Telephone and internet bill account |
Dr |
telephone and internet bill paid |
Increase in expenses |
Stationery account |
Dr |
stationery purchased |
Increase in expenses |
Electricity and water bill account |
Dr |
electricity and water bill paid |
Increase in expenses |
Interest and commission |
Dr |
interest and commission paid |
Increase in expenses |
Other expenses account |
Dr |
other expenses paid |
Increase in expenses |
To Cash account |
|
paid in cash |
Decrease in assets |
To Bank account |
|
paid by cheque |
Decrease in assets |
To Expenses payable |
|
Expenses incurred but not paid |
Increase liabilities |
(Being- ….expenses paid by) |
|
|
|