Accrual Basis

Accrual Basis

Accrual Basis :

Ø  The income whether received or not but has been earned or accrued during the period forms part of the total income of the period.

Ø  The firm has taken benefit of a particular service, but has not paid within that period, the expenses will relates to the period in which the service has been utilized and not to the period in which payment for it is made.

Mixed basis : Combination of cash and accrual basis.

System of Accounting

1.       Single Entry System :  This system has no complete record of business transaction done during a specified period.

2.      Double Entry System : One account is given debit while the other account is given credit with an equal amount.

Account : An account is a statement of transactions affecting any particular asset, liability, expense or income.

Classification of Accounts :

  

Nature person’s Personal Accounts: An account recording transactions with an individual human being is known as a natural person’s personal Accounts. (eg. Krishna Account)

Artificial person’s Personal Account : An account recording financial transaction with an artificial person created by law or otherwise is called an artificial person’s personal account. (eg. VSL College)
Representative Person’s Personal Account : An account indirectly representing a person or person is known as a representative account. (eg. Salaries Account)

Tangible Real Account : An assets which can be touched, seen, and measured. (eg. Machinery Account)

Intangible Real Account : An assets which can’t be touched, physically but can be measured in value. (eg. Goodwill)

Types of Accounts

There are basically three types of Accounts maintained for transactions:

ü  Personal Accounts

ü  Real Accounts

ü  Nominal Accounts

Personal Accounts

Personal Accounts are Accounts which relate to persons. Personal Accounts include the following-

ü  Suppliers

ü  Customers

ü  Lenders

Real Accounts

Real Accounts are Accounts relating to properties and assets, which are owned by the business concern. Real accounts include tangible and intangible accounts. For example-

ü  Land

ü  Building

ü  Goodwill

ü  Purchases

ü  Cash

Nominal accounts

Nominal Accounts are Accounts which relate to incomes and expenses and gains and losses of a business concern. For example-

ü  Salary Account

ü  Dividend Account

ü  Sales

Accounts can be broadly classified under the following four groups.

ü  Assets

ü  Liabilities

ü  Income

ü  Expenses

The above classification is the basis for generating various financial statements viz., Balance Sheet, Profit & Loss A/c and other MIS reports. The Assets and liabilities are taken to Balance sheet and the Income and Expenses accounts are posted to Profit and Loss Account.

Golden Rules of Accounting

	Personal Accounts	Real Accounts	Nominal Accounts
Debit	The Receiver	What Comes in	Expenses and Losses
Credit	The Giver	What Goes out	Incomes and Gains

The following are the most common source documents.

ü  Vouchers

ü  Receipt

ü  Invoice or Bill 

ü  Journals and Ledgers

ü  Cash Memo

ü  Debit Note 

ü  Credit Note

Voucher

A voucher is a document in support of a business transaction, containing the details of such transaction.

Accounting Vouchers are of two types :

(i) Cash Voucher and

(ii) Non Cash Voucher.

1. Cash Vouchers:

Cash Vouchers are vouchers that are prepared at the time of receipt or payment of cash. It also includes receipt and payment through cheque.

Cash Vouchers are of two types:

(i) Credit Vouchers and

(ii) Debit Vouchers.

(i) Credit Vouchers:

Credit Vouchers are vouchers that are prepared at the time when cash is received.

Cash may be received when:

(i) Goods are sold

(ii) Sale of assets or investments etc.

Format of credit voucher:

Content of Credit Vouchers:

1. Name and address of entity

2. Date of Preparing Voucher

3. Accounting Voucher Number

4. Title of Accounting Credited

5. Net amount of transaction.

6. Narration (a brief description about the transaction).

7. Signature of the person who has prepared the voucher.

8. Signature of authorized signatory.

9. Supporting voucher number.

(ii) Debit Vouchers:

Debit Vouchers are vouchers that are prepared when payment is made. Payment may be on account of expenses, purchases, drawing of the proprietor, payment to creditor etc.

Format of Debit Voucher: