Concept of Hotel Accountancy

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Lesson 1Financial Accounting:

Contents1.1Introduction1.2Need for Accounting1.3Objectives of Accounting1.4Functions of Financial Accounting1.5Bookkeeping V/s Accounting

ObjectiveThe objective is to familiarize the students with due purpose of accounting. After going throughthis section should be able to understand as to why should study the subject and itsimportance in the long run.

1.1IntroductionRecording the financial aspects of a transaction and event of a business enterprise refers toaccounting. Normally the financial aspects, when recorded relate to financial accounting,whereas if the cost aspects of transactions are recorded it is called Cost accounting. Costaccounting is used to analyze the costing information by the management for cost controlpurposes whereas analyzing the financial aspects of the transactions and reporting them to theshareholders is the financial accounting.

1.2Need for accountingAccounting is the language of the business. Language should always be lucid and easy tocommunicate. Similarly accounting is a mode of communication to the interested parties, like

investors, creditors, proprietors, government and other agencies. The need for accounting isfelt not only by the businessmen but also by small grocers shop. It is essential for anybusinessman to know:

1) What is the deployment of funds?2) What he owns?3) What he owes?4) Where he has earned profit and where he has suffered loss?5) What is his financial position?

The answers to all these questions are supplied to the small or big businessman through thelanguage of financial accounting, which has adequate communication power. Even a

housewife needs to record expenses and income of her household to track her financialposition.

1.3Objectives of Financial accountingObjectives of financial accounting can be:

1) To keep a record of transactions2) To disclose the true and fair view of the state of a business3) To disclose the operating results4) To intimate the interested parties about the financial position of the business.

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1.4Functions of Financial Accounting

The analysis of financial accounting provides the following function:1) Recording: this function ensures that the transactions of financial nature are recorded

properly in the journal book. Depending on the type of transactions the journals arefurther subdivided into purchase journal (records credit purchase of goods). Salesjournal (for recording credit sale of goods) etc. The number of subsidiary books to bemaintained is according to nature and size of the business.

2) Classifying: classification is concerned with systematic analysis of the recorded data,with a view to group transactions or entries of a particular nature at one place. Theclassification is done in the books called ledger. In this book, different pages containindividual account-heads under which all financial transactions of similar nature arecollected. For example; there may be separate account heads fro traveling expenses,printing & stationary, advertising etc.All expenses under these head after being recorded in the journal will be classified

under separate heads in the ledger. This will help in finding total expenditures incurredunder different heads.3) Summarizing: the various transactions are summarized in the final statements like trial

balance, income statement, and balance sheet. These summarized statements areuseful not only for the internal users but also the external end-users.

4) Interpretation: the recorded data is interpreted to analyze the profitability, growth andfinancial condition of the business. This is useful to prepare the future course of actionfor the business.

Accounting Information and Its UsersAccounting information is utilized by external and internal users, who are associated with the

management of the concern and can generate an effective output because of the informationso obtained.

Financial Statements

Internal users External users1. Board of directors 1. Investors2. Partners 2. Lenders3. Managers 3.Suppliers4. Officers 4.Govt. agencies

5. Employees

6. Customers

1.5Book keeping v/s AccountingBoth these are synonymous terms for a layman but for a student of financial accounting theyare different from each other. Book keeping is an art of recording transactions chronologically.A bookkeeper may keep all the record of a business or a minor segment and is mainly ofclinical nature, which is accomplished through electronic devices.Accounting is designing the system for recording, classifying and summarizing the recordeddata and interpreting them for the external and internal users. The responsibility of theaccountant increases with the increase in the size of the firm. An accountant is required tohave conceptualized knowledge of accounting and analytical skills than compared to a

bookkeeper.

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Questions:1. Define accounting. Explain the scope of accounting.2. Explain the objective & function of financial accounting.3. Elucidate the difference between book keeping and accounting.4. What is the need for accounting?

SummaryProper recording of financial transactions of an organization is called financial accounting. It isimportant for the interested parties to know the actual condition of the business, which isdisclosed through the language of the business, i.e financial accounting. Recording,classifying, summarization, interpretation are some of the core functions of financialaccounting. Bookkeeping is only recording the transactions, whereas recording and analyzingthe transactions are among the major functions of accounting.

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Lesson 2

Objective

This section is prepared to give an insight into the accounting principle.

Contents2.1 Accounting concepts2.2 Accounting conventions2.3 Systems of bookkeeping

2.3.1 Accounting equation approach2.4 Important accounting terms

Accounting principles are those defined parameters, which are universally followed forrecording accounting transactions.These principles are necessary because in the absence of common principles every

accountant would formulate his/her own principle thereby rendering the comparison of resultsof organizations impossible. In order to avoid such a chaotic situation it becomes mandatory toformulate common set of principles for all organizations. These principles can be classified intotwo categories: a) Accounting concepts (b) Accounting conventions

GAAP (Generally accepted accounting principles) they are the conventions, rules, andprocedures necessary to define accepted accounting practice at a particular time. They act asthe foundation for presentation of accounts. GAAP is a conventional phenomenon and that iswhy it is generally accepted because they are evolved out of a experience, reason, custom,usage and hence of practical necessity.

2.1 Accounting concepts

The term concept relates to those basic parameters on which the science of accounting isbased. The following are the important accounting concepts:1. Business entity concept.2. Going concern concept3. Money management concept4. Cost concept5. Dual Concept.6. Accounting period concept7. Realization concept

8. Matching concept

Following are the important accounting conventions:

Business entity concept-

In accounting, business is treated as a separate entity from its owners. A distinction is madebetween the personal and business transactions. Suppose a car dealer purchased a car forhis own use and another one for business purpose. The first transaction is shown as drawingand the car bought for resale is shown as business transaction. Therefore the business and itsowner are treated as separate entities.

In the eyes of the law business and proprietor are two different legal entities. This makes itpossible for business to sue the proprietor or for that matter proprietor to sue the business.

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The capital belongs to the owner and is not payable to anyone still it is considered as a liabilityof the business. The proprietor extends capital to the business and in return he receives profits.So capital becomes a liability for the business towards the proprietor of the business. , that iswhy Capital + Liability = Assets.In case the private and the business transactions are not segregated, it will not be possible todetermine profitability of the concern.

Going concern concept

It is presumed that the business will continue to exist forever. The values of the assets arerecorded at the price at which they are purchased and not at the market values. Since thebusiness is not assumed to be liquidated in the near future so the market value of the assetshas less significance. The concept implies that liabilities will be paid on maturity. The purchaseand sales made in the ordinary course of time are written off in the same year. Only the unsoldgoods are taken to the next year as stock. The assets which are to be used over a period oftime for the purpose of generating revenues are taken to next year. They are written off over an

estimated period of time that is taken to be the life of the asset. This is only possible whenbusiness is taken as continuing one.The definition of capital and revenue expenditure becomes possible because of the goingconcern concept. The benefit of expenditure for a shorter period of time and longer period oftime (normally amortized) is segregated because of the concept of going concern. Even theincome received in advance is taken to the next period because of this concept. An investorwill only invest money in the company only when he knows that the concern will continue.

Cost concept

It states that the value of the asset is recorded on an objective basis and not on subjective

basis. Such as, if an asset is purchased it is not recorded on the purchase price and not on themarket price. This concept requires the uniform valuation of assets as in the absence of thisconcept value of the assets will be recorded at different figures by different individuals. So thisconcept is helpful in making truthful records. Thus the records become more reliable andcomparable.Though assets are valued on the cost basis it does not mean that they are always shown at thesame figure. Every year this asset diminishes in value due to wear and tear, so these areshown at cost less depreciation. The life of an asset is estimated and depreciation is based onthis basis. So, approximation can also be avoided from this concept.

Dual aspect concept:

Accounting system is based on dual aspect concept. It is based in the principle that for everydebit transaction there is a corresponding credit transaction. For every benefit provided by aperson there exists a receiver of the benefit. Suppose a person purchases an Elmira worth Rs.10,000; he will get the object and part with the cash for the similar amount. Dual aspectconcept states that debit is always equal to credit. This concept has led to the formation ofdouble entry system of book keeping. This can be explained with the help of an example:

Mr. X started business with a Capital of Rs 10000. Cash will be debited and Xs capitalaccount will be credited. Capital = Cash

Rs 10000 = Rs 10000If x purchases goods on credit for Rs 20000 the position becomes:

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Liabilities Side Assets SideCapital +Creditors = Cash + Stock10000+20000 = 10000+20000

Money Measurement concept-

Money is a matter of functions of four a medium, a measure, a standard and a share. Theconcepts state that transactions are recorded in accounting, which can be expressed in termsof money.As mentioned above money is a medium of exchange and a share of value, which make iteasier to value all the transactions in terms of money. If the value of the asset is not stated inmoney terms the total asset or liability of the business cannot be determined.

Accounting period concept:

The concept states that the accounting is done for a specified period say fro six months or 1

year and the transaction related to that period are accounted for. Trading, profit & lossaccount, and even the balance sheet is prepared for a specified period. The owners, creditors,investors, govt. departments are interested in knowing the profitability at the end of the specificfinancial period. Therefore accounting period concept refers to a set frame of time within whichall the financial transactions are recorded and disclosed to the stakeholders on the basis ofwhich dividends or taxes are paid.

Realization concept

It applies to the sale of product or rendering of services as because in either of them revenue isrealized. As general principle revenue is considered to be realized when sale is made in case

of goods and when service is performed in case of service contracts. The sale is treatedwhen goods are delivered or title to goods is changed. Some people hold the view that cashor near cash assets should be considered for the purpose of realization whereas some holdthe view that receipt of an asset in exchange constitutes realization.

Matching concept

This refers to matching of cost to the revenue. The expenditure is matched against therevenue and the difference is accepted as the profit. When business is taken as a goingconcern then it becomes necessary to evaluate its performance periodically.

The revenue and costs of same period are matched, when income of a particular

accounting period is taken to profit & loss account then all expenses of that period whetherpaid or not is also debited to profit and loss account.The costs may be associated with particular product or services. In this case the revenueeared from the sale of that product or revenue received for providing service is matched tothe cost of production of that product or service. There may be another situation whererevenue and cost can be determined according to an accounting period and not accordingto a product. In such cases the costs are matched according to the period.

Accounting Convention

The conventions are those customs or traditions, which guide the accountant while preparingthe accounting statements. Some of the accounting conventions are as:

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The claim of the proprietor is known Capital while the contribution of the outsider is calledliabilities. The total assets of a business entity are equal to its Capital & Liabilities, that isdenoted by Capital + Liability = AssetSuppose, Ram started business with Rs. 1, 00,000 cash. The accounting equation will be asfollows:-

Capital + Liability = AssetRams Capital cash

1, 00,000 1, 00,000

he buys furniture from S.K. & Co. on credit for Rs. 12,000. Now the accounting equation willbe as follows:

Capital + Liability = AssetRams Capital + S.K.& co cash + Furniture

1, 00,000+ 12,000 1, 00,000+ 12,000Further suppose Ram buys for cash goods in trade for Rs. 50,000. The new equation will be :-

Capital + Liability = Asset

Rams Capital + S.K & .co cash + Furniture + Goods in trade1, 00,000+ 12,000 50,000+ 12,000+50,000[ Note : Because the goods were purchased in cash and therefore cash balance diminishedand goods in trade increased.]Example of an accounting equation with respect to transactions of a business:

Assets = Liabilities + capital1. PR starts business with cash Rs 100,000 100000 = 0 + 1000002. Purchases goods on credit for Rs 2000 2000 = 2000 + 0

----------------------------------New Equation 1, 02,000= 2000 + 1020003. Purchased goods for cash Rs 10,000 (+) 10,000 = 0 + 0

(-) 10,000------------------------------------------New Equation

1, 02,000 = 2000+1, 00,0004. Purchased furniture for cash Rs 5,000 (+) 5,000

(-) 5,000 = 0 + 0` ---------------------------------------------

New Equation 1, 02,000 =2000+100,0005. Withdrew cash for private use Rs 7000 (-) 7000= 0 (-) 7000

-------------------------------------New Equation 95,000=2000+93000

6. Paid to creditors Rs 1,000 (-)1000 =(-)1000+0

---------------------------------New Equation 94,000=1000+93000

Important accounting terms

1. Capital & Revenue

Profit is result of economic activity of business and apparently it is the excess of what isreceived i.e. income over what is paid i.e. expenses. Thus profit for a period means excess of

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income of the said period over expenses for that period. Now what constitutes income orexpenses for a period calls for attention.Suppose a machine is purchased during a year. The cost of the machine cannot be regarded

as expense of the year of acquisition. The reason is, since the machine is expected to serve fora number of years to come, the income generated by the use of the machine is likely to bespread over number of future years. This means, the cost of the machine should likewise bespread over a number of future years, preferably a proportion of income generated by themachine. In the first year operations, when a great deal of equipment is purchased andpossibly the business done, this seems to be vital. However, this should not be taken tosuggest that, it is unimportant for other years.Following above, an expenditure, benefit from which is not exhausted in short time, is spreadover the number of year during which the benefit is expected. These are called the capitalexpenditure, as distinguished from other expense called revenue expenditure.Capital expenditure is incurred in purchasing or constructing property which is intended toassist in the production of profit, or in permanently improving, enlarging or extending existingproperty, in order to increase it s profit earning capacity. It is the expenditure, the direct profit of

which will extend over general trading periods and which replaces cash by permanent asset.Example of capital expenditure includes purchase or extension of buildings. The capitalexpenditure is debited to concerned asset account.

Charge against profit/approximation of profit

Profit is excess of income over expense incurred to generate that income. Thus only suchexpenses are to be deducted from income to arrive at profit and are called charges againstprofit. Following this, cost of a machine is not charged against profit, but depreciation, whichrepresents wear and tear of the machine, through use in business in charge against profit.

Approximation of profit, are deduction from profit (note, charge are deduction form income) tobreak the profit in different parts, e.g. transfer to reserve, representing profits retained inbusiness, share of profit of each partners, representing profit available for partners etc.Charges against profits are debited in the income statement above the line i.e inmanufacturing/trading/ profit & loss a/c. appreciation on the other hand are debited below theline i.e. in P&L Appropriation a\c .

3. Deferred revenue expenditureThe benefit of income expected from certain types of expenditure does not accrue immediately.There is usually a lag between the expenditure and the income which it produces. In suchcases it is proper to charge only a part of the total cost to the current years profit and loss a/c,

carry the balance forward as deferred revenue expenditure, which will be charged to revenueover the period during which the benefit is expected to be derived. For example, expenditureon advertisement may be apportioned over say, four years in the proportion of benefits in eachof the said four years.4. Non cash chargesCertain charges e.g provision for doubtful debts, depreciation etc, do not involve any of cash,the difference between the two, called cash profit, represent net inflow of cash. However netprofit in cash minus non cash charges. Thus, non cash charges reduce profit availability fordrawings/dividends without reducing available cash. As a result of which, a part of availablecash can go out of business by way of drawings/dividend, and is retained in business.

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SummaryThe universally accepted parameters are divided into accounting concepts and conventions.Accounting concepts are basic accounting parameters that guide the accounting procedurewhereas accounting conventions are traditions which guide the accountants. Disclosure saysdisclose the transactions and materiality says disclose material items, which are contradictoryin nature. The fundamental accounting equation of asset = capital + liabilities change afterevery transaction but follows the double entry system of accounting. The capital and revenueexpenditure are differentiated on the basis of benefits and non-cash charges refer to non-outflow of cash. The lag between the benefit and the expenditure is variated overtime is calleddeferred revenue expenditure.

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Lesson 3

Accounting Standards

Objective:

Is to familiarize the standards with the basic accounting standards issued and to intimate themabout the prevailing guidelines regarding the accounting standards.

Contents

3.1. International Accounting standards3.2 Accounting standards in India

3.2.1 Introduction3.2.2 List of accounting standards in India

3.1 International Accounting Standards

The International Accounting Standard Committee (IASC) was formed in 1973. The leadingaccounting institutes joined their hands to form the committee to lay out a systematicaccounting procedure namely Australia, Canada, France, Germany, Japan, Mexico,Netherlands, U.K. & Ireland and U.S.A.List of International accounting standards are: -IAS1. Disclosure of Accounting Policies.

IAS2. Valuation & presentation of inventories in the context of the historical costsystem.

IAS3. Consolidated financial statement.IAS4. Depreciation accountingIAS5. Information to be disclosed in financial statements.IAS6. WithdrawnIAS7. Statement of change in financial positionIAS8. Unused & prior period items and changes in accounting policies.IAS9. Accounting for research and development costs.IAS10. Contingencies and events occurring after the balance sheet date.

The above is the list of first ten international accounting standards and the list goes on

to disclose 29 international accounting standards.

3.2 Accounting Standards in India

3.2.1 IntroductionIn order to facilitate a better Presentation of accountants and to remove the ambiguity thatmay arise on account of conflicting which states the presentation of accountsshould be true and fair. Accounting standard board clarifies the concept of true & fairview. (ASB). Of India which was formed on 21st April 1977 by Institute of CharteredAccountants of India (ICAI).The main function of ASB is to formulate different accounting standards after taking into

consideration the applicable laws, customs, usage and business environment.

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23 AS 23 Accounting for investments in associates in consolidatedfinancial statements ( Mandatory on or after 1.4.2002)

24 AS 24 Discontinuing operations (Effective & Mandatory on or after 1.4.2004)

25 AS 25 Interior financial reporting ( Mandatory on or after 1.4.2002)

26 AS 26 Intangible assets ( Mandatory on or after 1.4.2003)

27 AS 27 Financial reporting of interests in jointventures( mandatory on or after 1-04-2002

28 AS 28 Impairment of assets (effective and mandatory on or after 1-4-2004

Note1. All the accounting periods commencing on or after 1-4-2001, in respect of the following:i) Enterprises whose equity debt securities are listed on a recognized stock exchange

in India and enterprises that are in the process of issuing equity or debt securitiesthat will be listed on a recognized stock exchange in India as evidenced by the boardof directors resolution in this regard.

ii) All the enterprises of a group, if the parent presents consolidated financialstatements and the accounting standards is mandatory in nature in respect of any ofthe enterprises of that group in terms of the (i) above.

2) All the accounting periods commencing on or after 01-04-2002 in respect of companiesnot covered by (1) above.

3) All the accounting periods commencing on or after 1-4-2003 in respect of all otherenterprises

Lesson 4

Journal

Objective: The objective is to familiarize the students with the rules of debit and credit to getthem acquainted with the golden rules of journalism, classification of accounts andpassing the final journal entry in the books.

Contents:4.1 Classifications of accounts

4.1.1 Rules of debit and credit4.2 Journals

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4.1 Classification of accountsAccounts

Personal account Impersonal accounte.g. XYZ Co A/c

Real account Nominal accounte.g. Cash, Furniture e.g. expense, loss gain

As the chart explains above, there is basically 3classifications of accounts i.e. personalaccounts, real accounts and nominal accounts

4.1.1. Rules of debit and credit

The rules of debit & credit are guided by three golden rules of accounting, i,e,a. Debit the receiver, Credit the giver- Personal A/cb. Debit what comes in, Credit what goes out- Real A/cc. Debit expenses & losses, Credit incomes & gains Nominal A/c

Normally to record the transactions the first criteria is to find out the two accounts affected.Then it becomes necessary to clarify the amount and determine whether it belongs toPersonal, Real or Nominal A/c. Finally, using the rules a particular A/c is debited or credited.

Example 1: Purchased goods for cash.Two Accounts affected are: i) Goods A/c ii) Cash A/cClassify the Accounts:

i) Goods A/c Real A/c ii) Cash A/c Real A/cNature of transaction is: Goods come in, Cash goes out.Using the rules of Real A/c What comes in is debited & what goes out is debited. So,Goods A/c is debited and as the cash goes out, the cash A/c is credited.Example 2: Sold goods for cash.Goods go out , Cash comes in.Goods A/c Credit (Real A/c)

Cash A/c Debit (Real A/c)Example 3: Purchased goods from XGoods come in X is the giver.Goods A/c Debit, X A/c CreditExample 4. Received cash for interestCash comes in, Interest is an incomeCash A/c Real A/c, Interest A/c Credit (Nominal A/c)

4.2 JournalA Journal records the daily transaction in the order in which they occur. It is the bookunder which the transactions are recorded first of all under the double entry system.

Ledger follows after a transaction is recorded I the journal.

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Date Particulars L/F Debit Credit

A B C D E

A) Date: the date on which the transaction takes place is recorded here.B) Particulars: the two aspects of the transaction recorded in this column, i.e. the details

regarding the accounts, which have to be debited and credited.C) L.F: I t means ledger folio. The transactions entered in the journals are later on posted

in the ledger.D) Debit: the amount to be debited is entered.E) Credit: the amount to be credited is entered.

Notes1. When trader purchases different articles for resale then all the different articles aregrouped into a single item called purchase. If a chair and a table is purchased then itcan be grouped into a single item called furniture.

2. Instead of passing two journal entries it is possible that a single journal entry can bepassed. E.g.

Date Particulars L/F Debit Credit

A B C D E

Salary A/c DrTo cash

(Being thesalary paid)

Purchase a/cDr

To Cash(Being thepurchasemade)

300

700

300

700

These two entries may be combined in the following form:

Date Particulars l/f Debit Credit

A B C D E

Salary A/c DrPurchase A/c Dr

To cash(Being the salary paid& purchase made)

300700

1000

Note: i) The date of the transaction has to be same when the combined entry is passedii) Either the debit or the credit for the two transactions should be for the same a/c.

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Illustration :

Journalize the following transactions in the books of a trader.Debit balance on Jan 2003:Cash in hand Rs 8000, cash at bank Rs 25000, stock of goods Rs 20000, furniture Rs 2000,buildings Rs 10000, sundry debtors Ankit (Rs 2000), Rohit (Rs 1000) and Sweta (Rs 2000)Credit balance on Jan 2003:Sundry Creditors - Rishi (Rs 5000), loan from Bina Rs 10000Following were the further transactions in the month of Jan 2003:

a) Jan 1, purchased goods Worth Rs 5000 for cash less 20% trade discount and 5%cash discount.

b) Jan 4 received Rs 1980 from Ankit and allowed him Rs 20 as discount

Solution

Sl.No

Date Particulars L.F Debit (Rs) Credit (Rs

1 01/01/03 Cash A/c Dr 8000

Bank A/c Dr 25000

Stock A/c Dr 20000

Furniture A/c Dr 2000

Building A/c Dr 10000

Ankit A/c Dr 2000

Rohit A/c Dr 1000

Sweta A/c Dr 2000

To Rishi A/c 5000To Binas loan A/c 10000

To capital A/c 55000

(being balances broughtforward

From last year)

2 01/01/03 Purchased A/c Dr 4000

To cash A/c 3800

To discount 200

(being goods purchased for

Cash worth Rs 5000 allowed20% trade discount and 5%cash

Discount on Rs 4000

3 04/01/03 Cash A/c Dr 1980

Discount A/c Dr 20

To Ankit A/c 2000

(Being cash received fromAnkit

Allowed Rs 20 as discount)

Total 76000 76000

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Lesson 5Ledger and Trial Balance

Objective:

The concept of transferring form journal to ledger and how an account is balanced inledger. Trial balance preparation and the purpose of preparing the same.

Concept:5.1 Ledger

5.1.1Introduction5.1.2 Ledger posting5.1.3 Rules regarding posting5.1.4 Classification of ledger accounts

5.2 Trial balance5.2.1 Introduction

5.1 Ledger

5.1.1 Introduction

This is a book of ultimate entry, contains details of pecuniary transactions. The word ledger isderived from the word ledger. The prime entry made in the journal books is ultimatelyrecorded in the ledger. The method of entering the transactions from the journal to the ledger isknown as posting. The ledger is classified into personal ledgers and impersonal ledgers whichcontains all other accounts. Fictitious and nominal accounts are maintained in the nominalledger, which is also a subdivision of impersonal ledger. A type of general ledger is also invogue which homes all other accounts like property or real accounts. It is also customary tosubdivide the ledger or personal ledger, general ledger and nominal ledger.

First of all, opening entry should be posted as it indicates the balance with which assets andliabilities start the new period. The way to post the opening entry is to write on the debit side ofvarious assets (which have to be debited according to the opening entry). to balance broughtdown or just to balance forward and then enters the amount against this. In the case ofliabilities and capital accounts, the entry is by balance brought down or just by balancebrought forward and then the amount is written against it.The ledger rulings are as follows:Dr. Cr.

Date Particulars JF Amount Date

Particulars JF Amount

The ledger is a very valuable record of great importance and significance. The entries made init cannot be scrumptiously altered or erased. This is a questionable practice. If any correctionhas to be done it is to be passed through a separate journal entry.

5.1.2 Ledger PostingThe term posting means transferring the debit and credit items form the journal to theirrespective account in the ledger. Exact names are to be carried to the ledger. For example, if inthe journal, expenses account has been debited, it would not be correct to debit the officeexpenses account in the ledger, though in the journal, it might have been indicated clearly inthe narration that it is an item of office expense. The correct course would have been to recordthe amount to the office expenses account in the journal as well as in the ledger. Posting maybe done at any time. However it should be completed before the financial statements are

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prepared. It is advisable to keep the more active accounts posted to date. The examples ofsuch accounts are the cash account, personal accounts of various parties etc.The bookkeeper from the journal to the ledger may do the posting by any of the followingmethods:i) He may take a particular side first, for example, he may take the debits first and make thecomplete postings of all debits from the journal to the ledger.ii) He may take a particular account and post all debits and credits relating to that accountappearing on one particular page of the journal. He may then take some other account andfollow the same procedure.iii) He may complete postings of each journal entry before proceeding to the next entry. It isbetter to follow the last method. One should post each debit and credit item as it appears in thejournal.The ledger folio (L/F) column in the journal is used at he time when debits and credits areposted to the ledger. The page number of the ledger on which the posting has been done ismentioned in the L.F column of the journal.

5.1.3 Rules regarding postingThe following rules should be observed while posting transactions in the ledger from thejournal:1) Separate accounts should be opened in the ledger for posting transactions relating todifferent accounts recorded in the journal. For example, separate accounts may be opened forsales, purchases, sales returns, purchases returns, salaries, rent, cash etc.2) The relevant account, which has been debited in the journal, should also be debited in theledger. However, a reference should be made of the other account, which has been credited inthe journal. For example, for salaries paid, the salaries account should be debited in the ledger,but references should be given of the cash account, which has been credited in the journal.3) The relevant account, which has been credited in the journal, should also be credited in the

ledger. However, a reference should be made of the other account, which has been debited inthe journal. It will be credited in the ledger also, but reference will be given of the salariesaccount in the ledgerTo and ByIt is customary to use words to and by while making postings in the ledger. The word to beused with the account which appears on the debit side of a ledger book. Double entry affect ofthe transaction is maintained because for energy debit there assist a corresponding credit.Classification of ledger accountsLedger accounts

| |Personal ImpersonalAccount account

(Impersonal ledger)

Debtor CreditorAccounts Accounts(Debtor (creditorLedger) ledger)

To facilitate easy reference there are separate ledger. They are

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To Cash A/c Cr 2060

To Discount A/c Cr 40

(being the cash paid to Sal and discount

Allowed to us)

Jan 15 Balarama A/c Dr 2600

To Sales A/c Cr 2600

(being the goods sold on credit to Balaram)

Jan 17 CAs A/c Dr 1080

Discount A/c Dr 20To Rajas A/c Cr 1100

(Being the entry for cash received from Raja and discountallowed)

Jan 18 Stationery A/c Dr 300

To Cash A/c Cr 300

(being the stationery purchased)

Jan 19 Cash A/c Dr 1600

To Balarams A/c Cr 1600

(being the cash received from Balaram)

Jan 21 Cash A/c Dr 100

To furniture A/c Cr 100

(being the sale of furniture)

Jan 23 Commission A/c Dr 100

To Cash A/c Cr 100

(being the commission paid)

Jan 25 Drawings A/c Dr 1000

To Cash A/c Cr 1000

(being the drawings made by the proprietor)

Jan 27 Salary A/c Dr 900

Rent A/c Dr 300

To Cash A/c Cr 1200

(being the salary & rent paid)

Jan 30 Postage A/c Dr 50

To Cash A/c Cr 50

(Being the purchase of postage stamps)

Jan31 Cash A/c Dr 1000

To Balarams A/c Cr 1000

(being the cash received from Balaram)

LEDGER NO 1Debtors Ledger

Page 1Rajas Account

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan

9

To Sales A/c 4000 Jan

11

By Sales return

A/c

600

17 By Cash A/c 1080

17 By Discount A/c 20

_____ 31 By balance c/d 2300

4000 4000

Feb1

To balance b/d 2300

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Hotel Accountancy

Page 2Balarams A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan15

To Sales A/c 2600 Jan 1 By Cash A/c 1600

_____ 31 By Cash A/c 1000

2600 2600

LEDGER NO 2Creditors Ledger

Page 1Sads A/c

Dr. Cr.

Date

2003

Particulars J

F

Amount

( Rs)

Date

2003

Particulars J

F

Amount

( Rs)Jan5

To PurchaseReturn A/c

700 Jan 2 By Purchase A/c 6000

5 To Cash A/c 2060

To Discount A/c 40

31 To balance c/d 3200 _____

6000 6000

Feb 1 By balance b/d 3200

LEDGER NO 3General Ledger

Page 1Furniture A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan1

To Capital A/c 1000 Jan21

By Cash A/c 100

_____ 31 By balance b/d 900

1000 1000

Feb

1

To balance b/d 900

Page 2Stock A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan15

To Capital A/c 6000 Jan31

By balance c/d 6000

_____ _____

6000 6000

To balance b/d 6000

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Hotel Accountancy

Cash A/cDr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan1

To Capital A/c 3000 Jan 7 By Purchase A/c 3000

4 To Sales A/c 3000 5 By Sads A/c 2060

17 To Rajas A/c 1080 23 By Stationary A/c 300

19 To Balarams A/c 1600 25 By CommissionsA/c

100

21 To Furniture A/c 100 25 By Drawings A/c 1000

31 To Balarams A/c 1000 27 By Salary A/c 900

By Rent A/c 300

By Postage A/c 50

_____ 31 By Balance c/d 2070

9780 9780

Feb1

To balance b/d 2070

Page 4Capital A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan31

To balance c/d 10000 Jan 1 By Furniture A/c 1000

1 By Cash A/c 3000

_____ 1 By Stock A/c 6000

10000 10000


Page 5Purchase A/c

Dr. Cr.Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan2

To Sads A/c 6000 Jan31

By balance c/d 9000

7 To Cash A/c 3000__ _____

9000 9000

Feb1

To balance b/d 9000

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Hotel Accountancy

Page 6Sales A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan31

To balance c/d 9600 Jan 4 By Cash A/c 3000

9 By Rajas A/c 4000

_____ 15 By Balarams A/c 2600

9600 9600


Page 7Purchase Return A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan 31 To balance c/d 700 Jan 1 By Sads A/c 700

700 700


Page 8Sales Return A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan 31 To Rajas A/c 600 Jan31

By balance c/d 600

600 600

To balance b/d 600

Page 9Discount A/c

Dr. Cr.

Date

2003

Particulars J

F

Amount

( Rs)

Date

2003

Particulars J

F

Amount

( Rs)Jan 31 To Rajas A/c 20 Jan31

By Sads A/c 40

To balance c/d 20 ____

40 40


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Hotel Accountancy

Page 10Stationery Account

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan 18 To Cash A/c 300 Jan31

By balance c/d 300

300 300

To balance b/d 300

Page 11Commission Account

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)

Jan 23 To Cash A/c 100 Jan

31

By balance c/d 100

100 100

To balance b/d 100

Page 12Drawings A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)


By balance c/d 1000

1000 1000To balance b/d 1000

Page 13Salary A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)


By balance c/d 900

900 900To balance b/d 900

Page 14Rent A/c

Dr. Cr.

Date2003

Particulars JF

Amount( Rs)

Date2003

Particulars JF

Amount( Rs)


By balance c/d 300

300 300

To balance b/d 300

24


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Hotel Accountancy

i) Omission to postii) Duplication of postingsiii) Errors by way of wrong postings, to wrong side or of wrong amounts.iv) Totaling mistakes or the mistakes in carry forwards.

IllustrationPrepare the Trial Balance on the basis of Ledger A/c given as a illustration in ledgerchapter-first illustration.

SolutionTrial Balance

(as on 31st January , 2003)

Particulars Debit Amount(Rs.) Credit Amount(Rs.)

Rajas A/c 2300

Sads A/c 3200Furniture A/c 900Stock A/c 6000Cash A/c 2070

Capital A/c 10000Purchases A/c 9000

Sales A/c 9600Purchase return A/c 700

Sales return A/c 600Discount A/c 20

Stationery A/c 300

Commission A/c 100Drawings A/c 1000

Salary A/c 900Rent A/c 300

Postage A/c 50TOTAL 23520 23520

1) What is a Trial Balance and what purpose does it serve?2) Trial Balance cheeks only the arithmetical accuracy of accounts. Is this true? If yes, how?3) Prepare the trial balance from the following details:

Particulars Rs

Capital Account 50000/-Freight 10000/-Rent paid 9000/-Motor lorry 14000/-Petty Expenses 1040/-Drawings 48000/-Wages& Salary 17000/-Trade Debtors 19000/-Mortgage 2640/-Advertising 2000/-Carriage outward 2600/-

Purchase 210000/-Office expenses 800/-

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Hotel Accountancy

Trade expense 200/-Goodwill 20000/-Cash on hand 500/-Stock (1-1-02) 20000/-Sales 320000/-Discount Received 11500/-Building 20000/-Roles paid 4800/-Commission Received 860/-Bills payable 13940/-

(Ans:-Trial Balance total Rs 398940).

4. From the following Ledger Balance prepare a Trial Balance:--Bills Receivable Rs 1500/,Bad Debts Rs 140; Discount earned Rs 395; Rates,Taxes, and Insurance Rs 370,General expenses Rs 210, Sundry receipts Rs30, Coal Rs 150, Manufacturing Expenses Rs 700, Sale Rs 16500, BillsPayable Rs 1400, Cash on deposit Rs 300, Cash on current Account Rs 700,Sundry Creditors Rs 6000, Planets Rs 1000, Office furniture Rs 800, Plant &Machinery Rs 2500 Drawings Rs 1500, Interest on deposit Rs 100, Rent earnedRs 50. Traveling expenses Rs 300, Discount allowed Rs 280, Office salaries Rs1200, Gas& water Rs 180,Renewals & Replacement Rs 250,Purchase Rs9600, Mortgage Loan Rs 800, Loan to Antario Rs 2000, Cash on hand Rs 95,Sundry Debtors Rs 7500, Patterns & Models Rs1200, Stock in Trade Rs 4500,

Freehold property Rs 2000, Capital Rs 15000,(Ans:- Trial Balance Total Rs 39275)

5) Correction of wrong Trial Balance.

Correct the following Trial Balance :

Debit Balances Amount Credit Balances AmountRs Rs

===============================================================Return Outward 16000 Debtors 15000Opening Stock 34200 Carriage Outward 5000

Salaries 12000 Capital 55200Creditors 28000 Machinery 18000Bank 6000 Return Inwards 3000Carriage Inwards 3000 Discount Received 4000Rent Received 2000 Trade Expenses 6000Discount allowed 2000 Sales 140000Purchase 100000 Building 20000Bills Payable 20000

_____________________ ________________ 266200 266200

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Documents

Concept of Hotel Accountancy