Financial Accounting:

A Managerial Perspective
Sixth Edition

Prepared by
R. Narayanaswamy
Indian Institute of Management Bangalore

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 Chapter 3
Processing Transactions

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 The Accounting System

Account

Ledger

Chart of accounts

Special ledgers

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 Commonly Used Accounts

How many accounts, and what

account titles, to use?

Companies Act

Income Tax Act

Assets

e.g. land, buildings, equipment, trade receivables

Liabilities

e.g. bills payable, trade payables, unearned revenue

Equity

e.g. share capital, retained earnings, revenues, expenses

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 The Double-entry System

The T account

The T account
Debit = Left Credit = Right

Debits = Credits

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 The Accounting Equation Revisited

The equation, Assets = Liabilities + Equity

can be rewritten as
Assets = Liabilities + Capital + Revenues
– Expenses – Drawings – Dividends

which can be further rewritten as

Assets + Expenses + Drawings + Dividends
= Liabilities + Capital + Revenues

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 Debit and Credit Rules

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 Analyzing the Effect of Transactions

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 Accounting Records

Journal (or day book)

Chronological record

General journal and special journals

Ledger

Classification of transactions

Posting

T account and standard form

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 Trial Balance

Total of debit balances = Total of

credit balances

Trial balance is not an accounting
record

Detecting errors

Correcting entries

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 Technology in Accounting

Cloud computing

Blockchain technology

Machine learning

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 Internal Control Systems

Internal control

Accounting controls and
administrative controls

Features of a good internal
control system

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 End of Chapter 3
Processing Transactions

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