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Accounting conventions & accounting process

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Date: 18.07.2009
Accounng convenons & accounng process:

 
  ! 
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' &(&
)  ! 
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0 1%. .& 

!2.
Accounting Process
Financial transaction takes
place in the Enterprise – it
could be cash or on credit –
if it is Cash, it could result
in cash inflow or outflow
Decide on which Account to be
debited or credited in accordance with
‘Accounting principles’ & the
Relevant Rules & Regulations
Transactions are
maintained in ledgers –
Creditors’, debtors’ etc.
and Registers – Sales,
Purchases etc. on
individual transaction
basis
Transactions are consolidated in a
control book of accounts named
3General Ledger” – this contains a
single consolidated account for each
item of income, expense, asset and
liability – example, one account for
operating income, one debtors
account, one creditors account etc.
Verification step – whether the sum of all credits is equal
to sum of all debits as it should be in case the business
enterprise is following double-entry book-keeping system
also known as Accrual Accounting System
This is done by extracting all the balances of General
Ledger in a statement known as “Trial Balances”. In this
statement, the income and liabilities will appear under
“Credit” side while assets and expenses will appear under
“Debit” side. This statement will however disclose errors
of some types like wrong head of accounting, error of
omission or commission on both the sides to the same
extent. Example customer debited for credit sale by
Rs.10,000/- more and sales also credited by Rs.10,000/-
more.
Process of rectification of errors pointed out by the Trial
Balance statement. Further where the errors are not shown
by the Trial Balance, the process of reconciliation is
initiated especially in the case of creditors, debtors and
bank accounts. This is done by asking for statements of
our accounts with them so that we can go through entry
by entry and verify whether the entries are correct or not.
If there is a mistake correction is carried out
Closing entries are then made –
depreciation on fixed assets, provision
for bad and doubtful debts, provision for
outstanding expenses, outstanding
income, adjustment for pre-paid
expenses and income received in
advance etc. are made before
preparation of final financial statements
for the accounting year, namely Profit &
Loss statement & Balance Sheet

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Date: 18.07.2009 Accounting conventions & accounting process: Accounting convention: 1. Double-entry book-keeping - one account is debited and the second account is credited 2. Sum of debits = sum of credits 3. Based on funds flow principle, any transaction bringing in funds - transaction is credited and the transaction taking funds out is debited 4. A business enterprise has income, expense, assets and liabilities 5. Sum of assets = sum of liabilities 6. Income and expenses are a part of 'Profit and loss' account while assets and liabilities form a part of 'balance sheet' 7. These two are ...
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