Lecture 02- Accounting Process
Introduction
The double entry accounting system is the foundation of overall accounting system.
Today's financial statements are prepared by following the double entry accounting
system.
Double entry Accounting
Double entry accounting system means that every transaction has two aspects, and
we have to recognize and then give debit or credit effect to one of the accounts. This
way, the transaction will be completely recorded in the first book of accounts.
History
In 1494, an Italian merchant named Fra Luco Pacioli invented the double entry
accounting system. Today, most businesses follow the double entry accounting
system, and it was invented long back when business was going on.
Two Aspects
This merchant wrote a book called "De Computis Et Scripturis", which was the first
book on the double entry accounting system. This system has two aspects: a debit
and a credit effect, and the total of the debit side should equal the total of the credit
side.
Three Accounts
There are three different types of accounts in a business, including a personal
account, a real account and a nominal account. All businesses have three accounts,
including transnational companies, multinational companies, single man controlled
organizations and sole proprietorships.
All the natural human beings and all the organizations have personal accounts,
including businesses, banks, suppliers, and other organizations.
Real accounts take into consideration all the properties, all the assets, including
plant, building, machinery, furniture, even cash.
We have three accounts: personal, real and nominal. Personal account covers all the
natural and artificial persons, real account covers all the properties, and nominal
account covers all the expenses.
This three accounts are important to be recognized because every transaction has
two aspects, a debit effect and a credit effect.
Three Rules
The rule for recording business transactions is debit the receiver, credit the giver. If
something is coming into the firm that will be debited, and if something is going out of
the firm that will be credited, then, the real account.
Introduction
The double entry accounting system is the foundation of overall accounting system.
Today's financial statements are prepared by following the double entry accounting
system.
Double entry Accounting
Double entry accounting system means that every transaction has two aspects, and
we have to recognize and then give debit or credit effect to one of the accounts. This
way, the transaction will be completely recorded in the first book of accounts.
History
In 1494, an Italian merchant named Fra Luco Pacioli invented the double entry
accounting system. Today, most businesses follow the double entry accounting
system, and it was invented long back when business was going on.
Two Aspects
This merchant wrote a book called "De Computis Et Scripturis", which was the first
book on the double entry accounting system. This system has two aspects: a debit
and a credit effect, and the total of the debit side should equal the total of the credit
side.
Three Accounts
There are three different types of accounts in a business, including a personal
account, a real account and a nominal account. All businesses have three accounts,
including transnational companies, multinational companies, single man controlled
organizations and sole proprietorships.
All the natural human beings and all the organizations have personal accounts,
including businesses, banks, suppliers, and other organizations.
Real accounts take into consideration all the properties, all the assets, including
plant, building, machinery, furniture, even cash.
We have three accounts: personal, real and nominal. Personal account covers all the
natural and artificial persons, real account covers all the properties, and nominal
account covers all the expenses.
This three accounts are important to be recognized because every transaction has
two aspects, a debit effect and a credit effect.
Three Rules
The rule for recording business transactions is debit the receiver, credit the giver. If
something is coming into the firm that will be debited, and if something is going out of
the firm that will be credited, then, the real account.
