THE INSTITUTE OF CHARTERED ACCOUNTANTS
OF SRI LANKA
POSTGRADUATE DIPLOMA IN BUSINESS AND
FINANCE - 2013/2014
Principles of Financial and Cost Accounting
Thilanka Warnakulasooriya
B.Com Special (Col), ACA
Accounting Process
Accounting Input
(Events &
Transactions)
Accounting
Process
Accounting out
put
(Financial
Statements)

Every Business transaction has two fold aspects
called Debit & Credit.

Double Entry system transactions are recorded in
terms of debits and credits. Since a debit in one
account will be offset by a credit in another account
Accounting Equation

Mathematical presentation of the relationship
between resource providers and resource holders .

At any given time aggregation of the equity & the
total liabilities of an accounting unit should be equal
to total assets of the Organization.
Assets= Liabilities

Ownership can be divided in to two
◦ Internal Ownership or capital
◦ External Ownership or Liabilities

Ownership can be divided in to two
◦ Internal Ownership or capital
◦ External Ownership or Liabilities
◦ Therefore Accounting Equation is
Assets= Capital + Liabilities

Ex: Show how following transactions in affect Accounting Equation
1.
Mr. Kamal Start a Business by investing cash of 100,000 , Land
of 150,000 ,plant & machinery of Rs. 200,000.
2.
Purchase goods of Rs. 50,000 on cash
3.
Purchase goods of Rs. 100,000 on credit
4.
Sold goods worth of Rs. 10,000 for Rs. 15,000 on cash
5.
Paid Utility bills of Rs. 5000
6.
Drawing cash of Rs, 6000 for personal use.
7.
Settled Rs. 20,000 of Creditors
8.
Sold goods worth of 12,000 for 16,000 on credit basis
9.
Received Rs, 10,000 from Debtors
10.
Drawing Rs.5,000 goods for personal use
Accounts

Accounts use to record transactions. Normally
called ledger accounts

Type of Accounts
1.
2.
3.
4.
5.
Asset Accounts
Liability Accounts
Capital Accounts
Income Accounts
Expense Accounts
Format of Ledger Account
 T account
debit
Date
Credit
Description
Page No
Value
Date
Description
Page
No
Value
Double Entry Principle

According to the double entry Principle each
transactions gives a dual side impact and those
dual side are recorded in the Ledger Account
Assets/ Expenditure account
Debit
Credit
Increase ( + )
Decrease ( - )
Capital/ Liabilities/ Income Accounts
Debit
Decrease ( -)
Credit
Increase (+)

Fill The following Table
Ledger Account
Asset Account
Expense Account
Liability Account
Income Account
Capital Account
Increase
Decrease
Generally the
side in Higher
Value

Fill The following Table
Ledger Account
Asset Account
Expense Account
Liability Account
Income Account
Capital Account
Increase
Decrease
Generally the
side in Higher
Value
Ex: Write the double entry for following transitions
Transaction
Relevant Ledger
Account
1.
Owner invest Rs. 10,000 cash
2.
Purchase Machinery for Rs. 12,000
3.
Paying Electricity bill of Rs 2,000
4.
Purchase Rs, 17,000 goods on cash basis
5.
Receipt of Rs. 12,000 from debtors
6.
Settle Rs, 5000 Creditors
7.
Obtain a bank loan of Rs, 50,000
8.
Write of bad debt of Rs, 500
9.
Credit sales of Rs. 50,000
10.
Drawing of cash of Rs. 10,000
11.
Credit Purchases of goods of Rs,. 40,000
12.
Discounts given to debtors Rs. 2,000
Debit
Credit
Accounting Process
Indentify
Transaction &
events
Classifying
Transactions &
events
Accounting the
transactions
Preparing the
Trail balance
Prepare
Financial
Statements
Recording in
primary books
Preparing
adjusted trail
balance
Brought forwarding the
balances to next year

Transactions initiating through Source Documents
includes transaction values and other relevant
information
◦ i.e: Receipt, Invoice
Data captured in source documents is recorded in
the Primary books
Recording batch total or individual figures in ledger
account
Prepare financial statements from balances
obtained by balancing the general ledger.
Source Document
Primary Books or
Journal
Ledger Account
Receipt of Cash
Receipt
Cash Book
Cash Book
Cash Payment
Payment Voucher
Cash Book
Cash Book
Credit Purchase
Purchase Invoice
Purcahse Journal/
Purchase day Book
Purchse Account
Transaction
Purchase Returns
Debit Note
Purcahse Return
Journal/ Return outward Purchse return Account
day book
Credit Sales
Sales Invoice
Sales Journal/ Sales day
book
Sales Account
Sales Return
Credit Note
Sales Return Journal/
Return inward day book
Sales return Account
Petty Cash Voucher
Petty Cash book
Petty Cash book
Journal Voucher
General Ledger
Respective ledger
accounts
Petty cash expenses
Purchase Fixed Assets,
Bad debts, etc.
Format of Three Columnar Cash book
Petty cash book
Credit Transactions





Purchase day Book
Return outward day book
Sales day book
Return inward day book
General Journal
Purchase day Book
Sales day book
Return outward day book
Return inward day book
General Journal