Process and Basis of Accounting | Class 11 | Accountancy | One Shot

Summary

In this video, the host continues the '100 Days Commerce Pro' series by diving into the process and basis of accounting. The session covers the five steps in the accounting process: identifying transactions, creating vouchers, recording journal entries, posting to the ledger, and preparing trial balances, leading to financial statements. Additionally, the video explains two accounting bases: cash basis and accrual basis, highlighting their differences, benefits, and legal standings. The host also introduces the mixed or hybrid basis of accounting. The chapter ends with a promise of future lessons on journal entries, ledgers, and trial balances.

Takeaways

• 📚 This is Day 12 of the 100 days commerce pro series, focusing on the 'Process and Basis of Accounting'.
• 📝 The chapter covers two main topics: the process of accounting and the basis of accounting.
• 🔍 The process of accounting starts with the identification of transactions, followed by recording, classification, summarizing, and creating financial statements.
• 💼 The first step in accounting is identifying transactions that are monetary in nature.
• 🧾 Each transaction must have evidence, such as a bill or invoice, which is called a source document.
• 🧮 After identifying the transaction, vouchers are created to determine what should be debited and credited.
• 📘 Journal entries are made based on vouchers, followed by posting to the ledger.
• ⚖️ The ledger is used to track all transactions for individual accounts, which leads to the creation of a trial balance.
• 📊 The final step is creating financial statements, including the profit and loss account and balance sheet.
• 💵 There are two accounting bases: the cash basis (records only when cash is exchanged) and the accrual basis (records transactions when they occur, regardless of cash flow).

Q & A

What is the main focus of the video script?

The main focus of the video script is to explain the process and basis of accounting, specifically covering the accounting process, the cash basis, and the accrual basis of accounting.

What are the two main topics discussed in the script?

The two main topics discussed are the process of accounting and the basis of accounting.

What is the process of accounting according to the script?

The process of accounting begins with the origin and identification of transactions, followed by recording, classifying, summarizing transactions, preparing a trial balance, and finally preparing financial statements to determine profit or loss.

What is the first step in the accounting process?

The first step in the accounting process is the identification of transactions, which involves determining which transactions to record based on the money measurement concept.

What is a voucher in the context of accounting?

A voucher is a document that focuses on debits and credits, clarifying which transactions will be debited and which will be credited, based on the double-entry system.

What is the purpose of a journal entry in accounting?

A journal entry is used to record transactions day by day in chronological order, which is the basis for subsequent accounting processes like ledger posting.

What is the difference between the cash basis and accrual basis of accounting?

The cash basis records transactions only when cash is received or paid, while the accrual basis records transactions when they are incurred, regardless of the cash flow timing.

Why is the accrual basis more commonly used than the cash basis?

The accrual basis is more commonly used because it provides a more comprehensive and accurate picture of a business's financial position by recording all transactions when they are due, not just when cash is exchanged.

What is the hybrid or mixed basis of accounting?

The hybrid or mixed basis of accounting is a combination of the cash and accrual bases, where revenues and assets are recorded on a cash basis, and expenses and liabilities are recorded on an accrual basis.

What is the significance of a source document in accounting?

A source document provides evidence and proof of a transaction, such as an invoice for a purchase, and serves as the origin for recording transactions in the accounting process.

What is the purpose of a trial balance in accounting?

A trial balance is prepared to match debits and credits and ensure that the accounting equations are balanced, which is a prerequisite for preparing accurate financial statements.