Financial and Management Accounting Notes 3

7/28/2019 Financial and Management Accounting Notes 3

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Financial and Management Accounting Unit 3

Sikkim Manipal University 29

Unit 3 Double Entry Accounting

Structure

3.1 Introduction

Objectives

3.2 Meaning of double entry accounting

Self Assessment Questions 1

3.3 Cash and mercantile system of double entry system


3.4 Accounting trail

Self Assessment Questions 33.5 Transactions and events


3.6 Preparation of vouchers


3.7 Financial statements and their nature


3.8 Accounting equation


3.9 Effect of transactions on accounting equation


3.10 Meaning and rules of debit and credit Short Answer Questions


Terminal Questions

Answer to SAQs and TQs

3.1 Introduction:

The dual aspect concept of accounting is a full-proof system of recording, having the advantageof internal checking. The very fact that every transaction is recorded of its debit and credit

aspects indicates that the final accounts of an organization takes into consideration every small or

big transaction and the impact is every account is absorbed in the preparation of final financial

statements. Double entry book keeping is definitely an improvement and more systematically


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designed than single entry system, where only a few personal and real accounts are considered.

In this unit, the process of accounting recording, journalizing, posting, ledger balancing,

preparation of trial balance, preparation of final statements of accounts is described along with

the effect of every transaction on accounting equation. The rules of debit and credit as applicableto various types of accounts are also discussed.

Learning Objectives:

After studying this unit, you should be able to understand the following

1. To know what double entry book keeping means.

2. To understand the process of accounting, known as accounting trail.

3. To know the nature of financial statements.

4. To formulate an Accounting equation basing on debits and credits.

5. To know practically the impact of each transaction on the Accounting Equation.

6. To summarize the rules of debit and credit as applicable to different types of accounts.

The students should be able to appreciate the double entry system and know the accounting

process.

3.2 Meaning of Double Entry Accounting

We have learnt that the dual aspect recording is the most important accounting concept.

According to the concept, every business transaction involves receiving aspect and giving aspect.

If capital is brought in by the owner of the business unit, the owner is the giver of the benefit and

the business unit is the receiver of the benefit. It is a liability to the business unit and it is equally

balanced by an asset in the business unit, in the form of cash received towards capital. Therefore

every liability is represented by an asset. This is also expressed as every debit has an equivalent

credit.

The logic adopted in double entry accounting can well be understood by an illustration. We shall

consider five transactions and show how they are accounted for in the books of the business.

a. Mr. Abhi brings Rs.100000 cash as capital into his business.

b. He purchases furniture to his shop Rs.10000

c. He buys goods for cash Rs.50000

d. He sells goods worth Rs.30000 for Rs.40000 on credit to Arjun

e. He pays wages to servants Rs.1000


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In the first transaction, the business receives capital in cash and so capital account and cash

account are affected. Capital is a liability and cash is an asset to the business.

Capital Rs.100000 (Liability) = Cash Rs.100000 (Asset)

In the second transaction, Furniture is purchased for cash and so furniture account and cash

account are affected. This transaction can be reflected as under

Capital Rs.100000 Cash Rs. (100000- 10000) 90000

Furniture 10000

100000 100000

The third transaction is buying goods for cash, which means that stock of goods are received andcash balance is reduced and this can be reflected in the statement as under.

Capital Rs.100000 Cash Rs (90000 50000) 40000

Furniture 10000

Stock of goods 50000

100000 100000

The fourth transaction is a credit transaction of selling goods for Rs40000, the cost of which is

only Rs. 30000 to Arjun. So the accounts affected are goods account, Arjun account and profit

account. Since the profit belongs to the owner and it is fair to add it to the owners capital. The

effect of this transaction can appear on the statement as shown below:

Capital Rs. 100000 Cash 40000

Profit 10000 Furniture 10000

Stock of goods(50000-30000) 20000

Arjun (Debtor) 40000

110000 110000

The fifth transaction is payment of wages, which means that cash account is affected and profit is

reduced as a result of the expenditure(wages account). This changes the statement as shown

below:


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Capital Rs. 100000 Cash (40000 1000) 39000

Profit (10000-1000) Furniture 10000

9000 Stock of goods 20000

Arjun 40000

109000 109000

From the above illustration, it is clear that every transaction has dual effect and recording these

two aspects which are known as debit and credit aspects is the fundamental idea behind double

entry system of book keeping. So the meaning of double entry system is that every transaction is

recorded by identifying the two or more accounts affected therein and suitably reflect them in the

financial statements. This is a system where internal cross checking is ensured.

Self Assessment Questions 1:

1. The system of recording transactions based on dual aspect concept is called

i) Double account system

ii) Double entry system

iii) Single entry system

2. Show the dual aspect effect of the following transactions on the assets and liabilities of

business.

a. Purchased goods for cash Rs.80000

b. Purchased delivery van on credit for Rs.400000

c. Paid Rs.5000 to a supplier of goods on credit

d. The proprietor withdrew Rs.20000 from the bank account of business for Personal

expenses.

3.3 Cash and mercantile system of double entry system

There are two systems of double entry book keeping namely cash system and mercantile system.

In case of cash system, transactions are recorded only if cash is received or paid. Government

accounting is done basing on this system. On the other hand, mercantile system is one where

both cash and credit transactions are recorded. Besides, outstanding expenses or incomes also

find place in the mercantile system. It is fair enough to adopt mercantile system because when an

event takes place, it gets recorded irrespective of its immediate impact on the cash position. In

case of credit transactions, cash does not flow immediately but it takes place at a future point of


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time. Transactions like sales or purchases on credit, salary payable, rent receivable, interest

accrued but not received, depreciation provided etc., influence on the financial position of the

business unit and therefore they should be recorded. Mercantile system facilitates this. Hence

double entry recognizes the fact that every transaction, whether cash or credit, influences at leasttwo accounts one representing debit aspect and another credit aspect.


1. The two systems of double entry book keeping are ________ and __________ .

2. Government accounting is based on mercantile system. True or false?

3. All credit transactions come under mercantile system. True or False?

4. Interest receivable, rent receivable, dividend receivable are recorded in cash system of book

keeping. True or False?

5. Profit as per cash system and mercantile system of double entry show different figures. True

or False

3.4 Accounting Trail

Accounting trail is the process of identifying the transactions or events, preparation of vouchers,

recording them as journal entries, preparation of ledger accounts, balancing the ledger accounts,

incorporating all adjustments, preparation of a trail balance and finally preparing the financial

statements and balance sheet. It is a sequential order in which the accounting process flows. All

transactions are recorded first in a book called journal. The transactions are posted to the

respective accounts, maintained in a separate book called ledger. Later, all adjustments such asopening entries, closing entries, adjusting entries are made in a book called journal proper and

there from, the ledger balances are summarized to form a trial balance. From trial balance,

trading account, profit and loss account and balance sheet are prepared.

The identification of the accounts affected in the transactions is a major task. There are three

types of accounts, namely personal accounts, real accounts and nominal accounts. An account is

a summary of transactions pertaining to a particular head.

Personal accounts include accounts of natural persons, such as Abhi account, Mohans account,

Sonali account etc artificial personal accounts such as Syndicate Bank account, X Co. Ltdaccount, a club account etc representative personal account like outstanding rent account,

salaries payable account etc.

Real accounts are those which may be tangible real accounts and intangible real accounts.

Tangible real accounts relate to things that can be touched, felt, physically measurable. Building


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account, furniture account, stock account, cash account etc are tangible real accounts. Intangible

real accounts are such that they can not be seen or touched. They can be measured in terms of

money such as goodwill, patent rights etc.

Nominal accounts are also known as impersonal accounts. They are in the form of expenses or

losses, incomes or gains. They do not really exist in physical form, but behind every nominal

account cash is involved. For example, salary account is a nominal account and when salary is

paid, the reality is the cash goes out and there is nothing salary in physical form. Therefore salary

account is regarded as nominal account. Similarly all expenses and losses and all incomes and

gains accounts are regarded as nominal accounts.


1. Accounting trial is a process starting from identifying the transactions or events to preparation

of final statement of accounts. True or False2. There are three types of accounts namely ____________ and ________________.

3. A trial balance is the summarized form of ledger balances. True or False

4. Classify the following accounts into personal, real and nominal

i) Bank of Baroda Account ii) Printing and stationery expenses Machinery Outstanding salary

iii) Copy Rights iv) Sock of goods v) Loan given to Krishna vi) Loan from Bank

vii) Dividend received viii) Discount Account

3.5 Transactions and Events

A transaction is a business activity involving transfer of money or moneys worth. It may be cash

transaction or credit transaction. In cash transaction cash flows immediately where as in credit

transaction cash will be paid or received at future date. Assets acquired or sold, liabilities incurred

or paid, expenses paid or payable, incomes received or receivable are all business

transactions. But there are events which are neither cash nor credit transactions but it has an

impact on the financial position of a business. These events may include provision for bad debts,

provision for repairs, depreciation, taxation, transfer of profit towards reserve fund or sinking fund

or investment fluctuation fund, etc., Events happen as a result of internal policies or external

needs. In accounting, transactions and events have equal relevance and they must be recorded

to arrive at the financial results of the business concern.


1. A transaction is a business activity where there is transfer of money or moneys worth.

True or False

2. An event happens as a result of internal policy of an organization. True or False


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3. Business transactions and events have equal importance in finding the financial results of the

business concern. True or False?

4. Identify the following as transactions or events as the case may be.

i) Depreciation of assets ii) Tax rates iii) Acquisition of assets iv) Selling an asset v) Transferof profits to Reserve Fund

3.6 Preparation of Vouchers

A voucher is a document in support of a business transaction. It may b e a receipt, a counterfoil of

a receipt, an invoice or even correspondence with the concerned parties. Usually in large

organizations, voucher system is adopted to record payments. Some organizations will have

printed voucher book and each voucher contains the number of voucher, date, the name of

payee to whom the payment is made, the amount, the purpose for which payment is made,

signature of the person authorized to pay and the person who receives the payment. For

instance, Ram has supplied to us goods worth Rs5000, for which he has given an invoice. This

invoice itself can be regarded as voucher, against which the payment is made. If carriage charges

of Rs100 are paid, we prepare a voucher and take the signature of the person who receives it.

When we pay cash, the receiver will give us a receipt, that itself becomes a voucher. Vouchers

are often prepared basing on the invoices received or goods received returns. The actual

payment may be made partially or completely and it may be made in course of time. In such

cases, they are entered in Voucher register. The payment of a voucher is recorded in cheque

register. The system has the following advantages:

1. It safeguards all cash disbursements

2. Total amount payable to creditors can be found out with the help of unpaid

3. vouchers.

4. Internal check is ensured

5. Information about future cash requirements can be found out.

However, the system is not suitable for small organizations because it involves personnel and the

cost of maintenance.


1. Voucher system is adopted to record payments. True or False?

2. Voucher system is suitable for small organizations. True or False?

3. Voucher is a document showing the__________for which payment is made.

4. Voucher system ensures internal check . True or False?


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3.7 Financial statements and their nature

Financial statements are prepared to find out the profit or loss at the end of an accounting period.

In a trading concern, trading account and profit and loss account are prepared. The purpose of

preparing trading account is to find out the gross profit / loss. Similarly, profit and loss account is

prepared to find out net profit / loss. Both these accounts are revenue accounts. In other words,

all revenue receipts and revenue payments are considered. Revenue expenses are those which

are incurred in day to day business activities. Examples may include wages, carriage expenses,

insurance premium paid on stocks, salaries, printing, stationary, administrative expenses, selling

expenses and so on. Revenue receipts are called incomes and the examples include rent

received, sales made, interest received, dividend received, discount received, royalty received,

compensation received etc. More details about trading and profit and loss account are given in

Unit 7.

After preparing final accounts, a balance sheet is prepared containing capital and liabilities on

one side and assets on the other side of a statement. Balance sheet is a statement of affairs and

not an account. Liabilities of a business include trade creditors, bills payable, bank over draft,

loans payable, outstanding expenses, pre-received incomes etc. Capital of the owner, which is

called equity, is added with liabilities on the left side of the balance sheet. Assets of a business

include fixed assets like buildings, plant, machinery, furniture etc current assets like sundry

debtors, bills receivable, closing stock of materials, outstanding incomes, prepaid expenses, cash

in hand, cash at bank etc., Trading account or profit and loss account and balance sheet are

prepared at the end of a particular accounting period, say one year. In Unit 7, details about

balance sheet preparation are given.


1. Trading account and Profit and loss account are revenue accounts. True or False?

2. What is the purpose of preparing Trading Account?

3. What is the end result of preparing profit and loss account?

4. Is balance sheet an account? What is it otherwise?

5. What items are shown on the left hand side of balance sheet?

6. Assets are shown on which side of balance sheet?

7. What is the purpose of preparing a balance sheet?


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3.8 Accounting equation

The preparation of balance sheet is the final step in accounting process. The accounting equation

indicates that the sources of funds should be equal to uses of funds. In other words, proprietors

equity and liabilities to outsiders should be equal to assets.

Sources of Funds = Application of funds OR

Owners equity = Asset OR

Owners equity + outside liabilities = Assets OR

L + P = A, where L is liabilities, P is proprietor equity and A

means assets. From this equation, the following expressions can be obtained

L = A P

P = A L

A L P = Zero


1. Liabilities plus Equity is equal to ____________________________.

2. Assets minus liabilities to outsiders is equal to __________________.

3. If assets are Rs.5 lakhs, liabilities are Rs.3 lakhs, find out equity.

4. If Owners equity is Rs3 lakhs, Outsider liabilities are Rs.2 lakhs, Owners share of profit is

Rs.1 lakhs, find out the total value of assets.

5. Every transaction influences balance sheet and it is shown by accounting equation True or

False?

3.9 Effect of Transactions on Accounting Equation

As said earlier, every transaction has its effect on the balance sheet equation. This has been

amply illustrated while discussing the meaning of double entry. The dual aspect of a transaction

is reflected on the balance sheet, ultimately making liabilities side equal to asset side of a

balance sheet. The following are the possible sets of transactions that can change the values of

assets and liabilities but the changes are equal on both sides of balance sheet.

1. Increase in one asset with a decrease in another asset. For example, goods are purchased

for cash. It affects cash balance to come down and stock balance increases and both ofthem are assets.

2. An increase in one asset with an equal amount of increase in liability. For example, a

building is purchased for business for Rs500000 by raising a loan from bank. Here an asset

is created and a loan is also raised and the balance sheet tallies.


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3. An increase in asset with an equivalent rise in the proprietors equity. When an additional

capital is obtained in cash, Cash account on the asset side increases and capital account on

the liabilities side also increases with the same amount.

4. An increase in a liability causing an equal amount of decrease in another liability. Ex: A

banks overdraft is paid out of debenture amount collected. Here debenture liability

increases with an equal amount of decrease in banks overdraft.

5. Increase in a liability, followed by decrease in proprietors equity. If debentures are issued for

the purpose of paying redeemable preference shares, the owners equity gets reduced and

an additional liability of debentures is added up.

6. Decrease in an asset and equivalent decrease in a liability. For instance, bills payable are

paid out by cheque. The bank balance which is an asset is decreased and correspondingly

the liability of bills payable is also decreased.

7. Decrease in an asset and corresponding decrease in owners equity. If capital is paid out for

any reason, cash to that extent is decreased on the asset side and the capital is reduced to

that extent on the liabilities side.


1. The principle of accounting equation is that the total of assets should be equal to total of

liabilities side. True or False.

2. Show how the accounting equation is affected in the following transactions

a. Lal started business with Rs20000 cash

b. He purchased goods on credit Rs.80000

c. He sold goods costing Rs.25000 for Rs.30000 on cash.

d. He purchased furniture for cash Rs14000

e. He sold goods to Hari costing Rs500 for Rs.800

f. He received dividend on securities Rs.2000

3.10 Meaning and rules of debit and credit

Debit and credit are the two words basic for accounting. Debit represents receiving aspect and

credit represents giving aspect. However the meaning of debit and credit depends upon the

classification of accounts. An account, as we have understood is a summary of transactions

pertaining to a particular head. The account may be personal, real and nominal. Before grasping

the rules of debit and credit as applicable to various classes of accounts, it is necessary to know

how an account appears in the books of accounts. An account is recorded in a T form, the left


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side indicating the debit of the account and the right side representing the credit of the account.

On the left side of an account the columns are - date, particulars, ledger folio and amount and

similarly on the right side (credit side), the columns are date, particulars, ledger folio and amount.

The following illustration may be observed:

CASH ACCOUNT

Debit Side Credit Side

Date particulars Ledger Amount

Folio (Rs)

Date Particulars Ledger Amount

Folio (Rs)

2005 2005

Jan. 1 To Balance brought down 20000 Jan 05 By salaries 10900

Jan15 To Joseph 35 10900 Jan 25 By Furniture 123 6000

Jan 28 To Sales 18 108900 Jan 30 By purchases 19 58800

Jan 31 By Rent 298 7500

By balance c/d 56600

139800 139800

Feb 1 To balance b / d 56600

Observe from the above form of an account the following:

1. The balance brought down is the closing balance of the last month, December,2004

2. The amount received from Joseph is Rs.10900 and his account is prepared in the in the page

number 35 of the ledger. Similarly from sales and its account is found in the ledger folio

(page) 18.

3. The credit side contains payment of cash towards salary, furniture, purchase of goods and

rent respectively on different dates.

4. The balance carried down is the closing balance on the last day of January, 2005 and it is

brought down as opening balance on Feb,1

5. On the debit side, To and credit side By are the prefix used for every entry as a matter of

convention.

There is a standard form of drawing a ledger account. It is similar to that of a pass book issued by

a bank. The above illustration is shown in the standard form.


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CASH ACCOUNT

Date Particulars Post. Ref. Debit Credit Balance

2005 LF Rs Rs Rs

Jan 1 Opening balance b /d 20000 20000

Jan 5 Salaries 10900 9100

Jan 15 Joseph 35 10900 20000

Jan 25 Furniture 123 6000 14000

Jan 28 Sales 18 108900 122900

Jan 30 Purchases 19 58800 64100

Jan 31 Rent 298 7500 56600

The rules of debit and credit for different classes of accounts are the following

1. In respect of personal accounts : Debit the receiver and credit the giver

2. In respect of real accounts : Debit what comes in and credit what goes out

3. In respect of nominal accounts : Debit all expenses and losses and credit all incomes

and gains.

The following steps should be remembered to apply debit and credit principles

a) Identify the accounts affected in a transaction from business point of view

b) If a personal account is involved, find whether the person is receiver or giver of benefit

c) If the real account is affected, find whether it is coming in or going out

d) If the account is nominal account, find out if it is expenditure or income or loss or gain.

e) Apply the suitable principle to debit or credit the respective affected account.

Illustration: Show what accounts are affected in the following transactions.

Also show the accounting equation for the transactions

1. Madan commenced business with cash Rs. 70000

2. Purchased goods on credit 14000

3. Withdrew for private use 3000

4. Goods purchased for cash 12000

5. Paid wages 5000

6. Paid to creditors 10000

7. Sold goods on credit (cost price Rs18000) 22000

8. Sold goods for cash (Cost price Rs.3000) 6000

9. Purchased furniture for cash 5000


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10. Received from debtors 11000

Solution:

Transaction

No

Accounts affected in the

books of the business

Account to be debited and account to be

credited

01 Capital account and cash

account

Cash account being real account is debited

and Capital account being personal account

is credited

02 Goods account and creditors

account

Goods account being real account is debited

and creditors account being personal

account is credited

03 Personal drawings account and

cash account

Drawings account being personal account is

debited and cash account being real accountis credited

04 Goods account and cash

account

Goods account being real account is debited

and cash account being real account is

credited

05 Wages account and cash

account

Wages account being nominal account is

debited and cash account being real account

is credited

06 Cash account and creditors

account

Creditors account being personal account

is debited and cash account being real

account is credited

07 Goods account, Debtors

account and profit account

Debtors account being personal account is

debited, profit transferred to capital account

being personal account is credited and

goods account being real account is also

credited

09 Furniture account and Cash

account

Furniture account being real account is

debited and cash account being real account

is credited

10 Cash account and debtors

account

Cash account being real account is debited

and debtors account being personal

account is credited.


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Accounting equations for the transactions

Transaction Assets = Liabilities + Owners

Equity

Cash + Goods + Debtors + Furniture +=

Creditors+

Madanscapital

01 70000 70000

02 14000 14000

03 - 3000 -3000

04 - 12000 +12000

05 - 5000 -5000

06 -10000 -10000

07 -18000 22000 +4000

08 +6000 - 3000 +3000

09 -5000 5000

10 +11000 - 11000

End equation 52000 + 5000 + 11000 + 5000 + 4000 + 69000

73000 73000


1. Rules of debit and credit are different for different types of accounts. True or False?

2. Debit the receiver and _______________ the giver.

3. Debit all assets and credit all ________________.

4. Debit _____________________ and credit what goes out.

5. All expenses are ___________________ type of accounts.

6. Incomes and gains are always _________ as per principle of debit and credit for nominal

accounts.

7. Capital is ____________________ when it is withdrawn.

8. When cash is received from debtors, debtors account is ______ .

Terminal Questions

1. The accounting equation is Assets = _______________ + _______________.

2. State the meaning of double entry book keeping.


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3. State the remarkable difference between cash system and mercantile system of double

entry.

4. State the important accounting trail.

5. Classify the following accounts as personal, real and nominal

a. Land account b. outstanding expenses account c. capital account

d. ABC co Ltd., account e. Discount received account f. salaries account

6. A voucher is a document which _______________ cash disbursement.

7. What is a trading account?

8. The result of a trading account is ____________ or _______________.

9. Net profit or net loss is the result of ____________________account.

10. Give a list of any four items of assets.

11. Name any four items that appear on the liabilities side of balance sheet.

12. Balance sheet is a ________________________ of affairs of a business.

13. Find the value of the following:

a. If the total assets are Rs87000 and the liabilities are Rs47000, find out the amount of

capital.

b. If the capital of proprietor is Rs400000 and the total assets are Rs600000, what is the

amount of liabilities to outsiders?

c. If creditors are Rs56000, bank overdraft is Rs100000 and outstanding expenses are

Rs.8000, what is the total amount of assets?

d. Fixed assets are Rs.70000 and current assets are Rs.100000 and the creditors are

Rs.30000. What is capital?

14. Show the effect of the following transactions on assets, liabilities and owners

Equity of the business:

i. Ganesh started business with a capital of Rs.40000

9. He purchased stock of goods Rs.30000

10. Sold goods on cash Rs.40000, cost of which is Rs25000

11. Bought goods on credit Rs.1000012. Sold goods on credit for Rs18000, the cost of which being Rs10000

13. Paid Sales commission Rs.5000

14. Received cash discount Rs3000

15. Purchased furniture Rs.10000.


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16. Received cash from debtors Rs.15000

17. Paid cash to creditors Rs.6000.

Answer for Self Assessment QuestionsSelf Assessment Questions 1:

1. Double entry system

2. a. Stock of goods increases and cash balance is reduced

b. Delivery Van is an asset and the supplier of the delivery van becomes a creditor and it

appears as liability

c. Creditors balance is reduced on liabilities side and cash paid brings down the cash

balance on the asset side

d. The bank balance comes down on asset side and capital account is reduced by the

amount of drawings on the liabilities side.


1. Cash system, Mercantile system

2. False

3. True

4. False

5. True.


1. True

2. Personal, real and nominal

3. True

i. Personal

ii. Nominal

iii. Real

iv. Personal

v. Real

vi. Real

vii. Personal

viii. Personal

ix. Nominal

x. Nominal


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1. True

2. True

3. True4. i) Event ii) Event iii) Transaction iv) Transaction v) Event


1. True

2. False

3. Purpose

4. True


1. True

2. To find out gross profit or gross loss

3. To find out net profit or loss

4. No. It is a statement of assets and liabilities

5. Capital, liabilities are shown on the left hand side of Balance Sheet

6. On right hand side

7. To know the financial position of the business.


1. Assets

2. Equity

3. Rs.2 lakh

4. Assets are Rs.6 lakh

5. True


a) True

b)

i. Lals capital increases on liabilities side and Cash balance increases on the asset side byRs.20000

ii. Creditors on liabilities side and stock of goods on the asset side increase by Rs.80000

iii. Profit of Rs.5000 is added to capital on the liabilities side, stock of goods is reduced by

Rs.25000 and Cash balance increases by Rs.30000


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iv. Furniture value increases by Rs.14000 on the asset side, Cash balance is reduced by

Rs.14,000, thus making no effect on liabilities side.

v. Hari appears as debtor on the asset side for Rs.800, Stock of goods gets reduced by

Rs.500 on the asset side but on liability side the profit of Rs.300 is added to capital.vi. Cash balance on asset side increases by Rs2000, dividend being income results in profit

of Rs.2000 and so added to capital on liability side.


1. True

2. Credit

3. Liabilities

4. What comes in

5. Nominal

6. Credited

7. Debited

8. Credited.

Answers for Terminal Questions:

1. Liabilities + Owners capital

2. Every transaction has two aspects, debit and credit and for every debit, there is equivalent

credit.

3. 3.All cash transactions are recorded in cash system, while both cash and credit transactions

are recorded in mercantile system

4. Identification of accounts affected in transactions, recording them in Journal, post them to

ledger, balance the ledger accounts, prepare trial balance, finally prepare final accounts.

5. a) Real b) Personal c) personal d) Personal e) Nominal f) Nominal

6. Records

7. Account showing the result of trading activities (Purchase and sale of goods)

8. Gross profit or gross loss

9. Profit and Loss Account

10. Land and Buildings, Plant and Machinery, Furniture and Fixtures, Debtors, Cash in hand,

and Bank, Closing stock etc.

11. Bills Payable, creditors, Bank overdraft, Capital etc.,

12. Statement


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13. a) Rs.40000 b) Rs.200000 c) Rs.164000 d) Rs.140000

14. Refer to Illustration under sub head 9.

Documents

Financial and Management Accounting Notes 3