Mechanics of AccountingClassification of Accounts Is of 2 types namely English & American System a) English System Accounts

Personal Accounts

Impersonal Accounts

Natural

Artificial (legal)

Representative

Real

Nominal

Personal Accounts relate to persons, debtors or creditors. Examples would be account of Ram & Co a credit customer or account of Jhaveri & Co a supplier of goods. The capital account is the account of the proprietor & therefore it is also personal but adjustment on account of profits & losses are made in it. This account is further classified into: Natural personal accounts relates to transactions of human beings like Ram, Rita etc Artificial (legal) personal account- examples Government (central & state), Companies (private or limited), clubs, cooperative societies, banks, partnership firms, associations, Institutions, undertakings, Municipality etc Representative personal accounts these are not in the name of any person or organization but are represented as personal accounts examples outstanding liabilities, prepaid account, Income receivable, Income received in advance, Capital account, drawings account Impersonal Accounts Accounts which are not personal such as machinery account, cash account, rent account etc. These can be further sub divided as follows Real Accounts Accounts which relates to tangible & intangible assets of a firm example accounts relating to Land, building, machinery, investment, fixed deposits, cash in hand & at bank are tangible, goodwill is intangible Nominal accounts Accounts which relate to expenses, losses, gains, revenue etc like salary account, interest paid account, commission received account. The net result of all nominal accounts is reflected as profit or loss which is transferred to Capital account. Nominal accounts are temporary

b) American System identifies 5 types of accounts

Capital Account An amount invested by proprietor for commencement of business is called capital. Asset Accounts Account maintained for properties like Land, building, Machinery (popularly called as fixed assets), stock in trade, sundry debtors, bills receivable, cash at bank (popularly called as current assets) etc Liability Accounts These are accounts for loans borrowed, bank overdraft, creditors, bills payable, incomes received in advance etc Incomes & gains Income is the money or other assets received especially periodically from ones business or investments or lands. Gain is an increment in wealth that results either from operations or from holding assets or liabilities Expenses or losses Expenditure refers to the amount spent on or cost of acquiring a service or using up an asset. Loss refers to the act of losing. A businessman loses when he allows commission or discount Illustration 1- Classify the following accounts based on above 1. Capital a/c 2. Drawings a/c 3. Building purchased 5. Sales a/c 6. Carriage inward 7. Carriage outward 9. Cash paid 10.Interest paid 11. Interest received 13. Commission recd 14. Discount allowed 15. Conveyance 17. Entertainment 18. Subscription paid 19. Subscription recd 21. Telephone/ gram 22. Repairs 23. Insurance paid 25. Bad debts recov 26. Discount received 27. Stationery 29.Bank a/c 30. Salary & wages 31. Traveling charges 33. Partner loan a/c 34. Sales returns 35. Bank overdraft 37. Outstanding Salary 38. Prepaid rent 39. Interest accrued Solution 1According to traditional approach ( English system): Personal Accounts- 1, 2, 29, 32, 33, 35, 37, 38, 39 & 40 Real Accounts- 3, 8, 9, 27, 28 Nominal Accounts- 4, 5, 6, 7, 10 to 26, 30,31,34,36 According to Modern approach (American system): Assets Accounts- 3, 8, 9, 27, 28, 29, 38, 39 Liabilities Account- 33, 35, 37, 40 Capital Accounts- 1, 2, 32 Revenue Accounts- 5, 11, 13, 19, 25, 26, 34 Expenses Account- 4,6, 7, 10, 12, 14 to 18, 20 to 24, 30, 31, 36 Rules of Debit & Credit a) Under the English System (traditional approach) Types of Accounts Rules for Debit Personal Accounts Debit the receiver Real Accounts Debit what comes in Nominal Accounts Debit all expenses & losses 4. Purchases a/c 8. Cash received 12.Commission paid 16. Sales Promotion 20. Power & light 24. Bad debts w/o 28. Furniture 32. Partner current a/c 36. Purchase returns 40. Int recd in advance

Rules for Credit Credit the giver Credit what goes out Credit all gains & profits

b) Under the American System (Accounting equation approach) Types of Accounts Rules for Debit Rules for Credit Assets Accounts Debit the increase Credit the decrease Liabilities Accounts Debit the decrease Credit the increase Capital Accounts Debit the decrease Credit the increase Revenue Accounts Debit the decrease Credit the increase Expenses Accounts Debit the increase Credit the decrease Accounting Equation ASSETS = CAPITAL + LIABILITIES CAPITAL = ASSETS LIABILITIES LIABILITIES = ASSETS CAPITAL Steps involved in developing an Accounting Equation Ascertain the variables ( Assets, Liabilities or Capital) of an equation affected by a transaction Find out the effect ( in terms of increase or decrease) of a transaction on the variables of an equation Show the effect on the appropriate side of an equation & ensure that the total of right hand side is equal to the total of left hand side Example 1 - Bhaskar introduces Rs.100000 as capital & also borrows Rs.30000 as loan A = L + C 130000 = 30000 + 100000 C = A L 100000 = 130000 30000 L=AC 30000 = 130000 100000 Example 2 Transactions Started business with cash Rs.10000 Borrowed Rs.5000 Withdrew cash from business Rs.2000 Loan repaid to extent of Rs.1000 Balance Example 3 Transactions Started business with cash Rs.100000 Bought goods on credit from M Rs.80000 Bought furniture for cash Rs.10000 Sold goods for cash Rs.40000 Paid M on account Rs.40000 Paid shop rent Rs.10000 Paid salaries Rs.5000 Sold goods on credit to V for Rs.5000 New Equation Total Assets +10000 + 5000 - 2000 - 1000 12000 Total Assets 100000 80000 +10000 - 10000 +40000 - 40000 - 40000 - 10000 - 5000 - 5000 + 5000 125000 = Liabilities +5000 - 2000 - 1000 4000 = Liabilities 80000 8000 + Capital 100000 + Capital +10000

-40000 - 10000 - 5000 40000 85000

Illustration 2- Analyze transactions of Sam & Co for month of March 2009 on basis of double entry system by adopting following 2 approaches- Accounting equation & traditional approach transactions were as follows:Sam introduced cash Rs.40000; Cash deposited in the HDFC Bank Rs.20000 ; Cash loan of Rs.5000 taken from Rajesh ; Salaries paid for March09 Rs.3000 & Rs.1000 is still payable for the month ; Furniture purchased Rs.5000 Solution 2: Analysis of transactions-Accounting Equation approach Transaction Analysis Account affected and nature of a/c Cash introduced by Cash received Cash Asset proprietor Rs.40000 Investment by Capital- Capital owner

Rule

Entry

Debit increase in Debit Cash asset Credit Capital Credit increase in capital Cash deposited in Bank balance Bank Asset Debit increase in Debit Bank bank Rs.20000 increases & cash Cash- Asset asset Credit Cash balance decreases Credit decrease in asset Loan from Rajesh Cash balance Cash Asset Debit increase in Debit Cash Rs.5000 increases, creates Rajesh loanasset Credit Rajesh loan an obligation to liability Credit increase in repay Rajesh liabilities Salaries pd Rs.3000 Salaries Rs.4000 Salary Temporary Debit increase in ex Debit salary 4000 and outstanding paid Rs.3000 and capital expenses expenses Credit cash 3000 Rs.1000 obligation to pay Cash- Asset Credit increase in credit outstanding Rs.1000 Outstanding salary-liabilities salaries 1000 liability Credit decrease in asset Furniture purchased Increases furniture Furniture Asset Debit increase in Debit Furniture Rs.5000 cash decreases Cash- Asset asset Credit Cash Credit decrease in asset Analysis of transactions-Accounting Equation approach Transaction Analysis Account affected and nature of a/c Cash introduced by Cash is received Cash Real proprietor Rs.40000 Owner has given Capital- Personal cash Cash deposited in Bank receive cash Bank Personal bank Rs.20000 Cash goes out Cash- Real Loan from Rajesh Rs.5000 Business receives sCash Real Cash Rajesh loanRajesh pays cash Personal Rule Debit what comes in Credit the giver Debit the receiver Credit what goes out Debit what comes in Credit the giver Entry Debit Cash Credit Capital Debit Bank Credit Cash Debit Cash Credit Rajesh loan

Salaries pd Rs.3000 Cost of services Salary Nominal Debit expenses and still payable used Rs.4000 Cash- Real Credit what goes Rs.1000 Cash goes out Outstanding salary-out Rs.3000 still Personal Credit the giver payable Rs.1000 Furniture purchased Furniture purchased Furniture Real Debit what comes Rs.5000 Cash is paid Cash- Real in Credit what goes out

Debit salary 4000 Credit cash 3000 credit outstanding salaries 1000 Debit Furniture Credit Cash

Journal & Subsidiary BooksJournal Word journal is derived from French word jour meaning a day. Hence Journal means a daily record of transactions Is a book in which transactions are recorded in the order in which they occur It is called book of prime entry( also called book of original entry) Process of recording a transaction in journal is called Journalizing & an entry made in journal is called Journal entry. Format of Journal is as follows: Journal Date Particulars LF Debit Amount Credit Amount Steps in Journalizing: Ascertain what accounts are involved in a transaction Ascertain what is nature of the accounts involved Ascertain which rule of debit & credit is applicable for each of the accounts involved Ascertain which account is to be debited & which is to be credited Record the date of transaction in date column Write name of account to be debited in Particulars column along with abbreviation Dr on the same line & amount to be debited in Debit amount column Write the name of account to be credited on next line preceded by word To in the particulars column & amount to be credited in credit amount column Write narration (brief description of transaction) within brackets on next line in Particulars column Draw a line across the entire particulars column to separate one journal entry from other Illustration 1- Journalise following transactions in books of Srinath: Date Particulars 2009 April 1 Srinath commenced business with Rs.20000 2 Opened current account with Karnataka Bank Ltd Rs.12000 4 Purchased goods from Kapil Dev Rs.4000 5 Sold goods to Srikanth Rs.3000 6 Bought 2 tables Rs.500 7 Returned goods to Kapil Dev Rs.500

Purchased stationery(paper ink etc) Rs.50 Paid Kapil Dev Rs.3500 by cheque Srikanth returned goods worth Rs.200 Srikanth paid Srinath Rs.2800 Cash sales Rs.150 Bought of Sanjay Rs.1000 Sales to BCCI Enterprises Rs.600 Cash purchases Rs.300 Goods returned to Sanjay Rs.200 Paid Sanjay by cheque Rs.800 Received cheque from BCCI Enterprises Rs.600 Drawings Rs.250 Sold goods to Sachin & cash received Rs.300 Paid rent Rs.150 by cheque Paid salary Rs.400 Srinaths Journal Date Particulars LF 2009 C Apr 1 ash Account Dr To Capital Account (Being the cash invested in business) Apr 2 Bank Account Dr To Cash Account (Being the cash deposited into Bank) Apr 4 Purchases Account Dr To Kapil Devs Account (Being the credit purchase of goods from Kapil Dev) Apr 5 Srikanths Account Dr To Sales Account (Being credit sale of goods to Srikanth) Apr 6 Office Furniture Account Dr To Cash Account (Being the purchase of office furniture for cash ) Apr 7 Kapil Devs Account Dr To Return Outwards Account (For goods being returned to Kapil Dev) Apr 11 Stationery Account Dr To Cash Account (Being purchase of paper, ink etc for cash ) Apr 12 Kapil Devs Account Dr To Bank Account (Being the amount due to Kapil Dev paid by cheque)

11 12 14 15 18 19 20 21 23 25 26 27 28 29 30

Debit Amount Credit Amount 20 000 20000 12000 12000 4000 4000 3000 3000 500 500 500 500 50 50 3500 3500

Apr 14 Apr 15

Apr 18 Apr 19

Apr 20

Apr 21 Apr 23

Apr 25

Apr 26

Apr 27

Apr 28 Apr 29 Apr 30

Return Inwards Account Dr To Srikanths Account (Being the goods returned by Srikanth) Cash Account Dr To Srikanths Account (Being the amount due from Srikanth received) Cash Account Dr To Sales Account (Being the cash sale of goods) Purchases Account Dr To Sanjays Account (Being the credit purchase of goods from Sanjay) BCCI Enterprises Account Dr To Sales Account (Being the credit sale of goods to BCCI Enterprises) Purchases Account Dr To Cash Account (Being the cash purchase of goods) Sanjays Account Dr To Return Outwards Account (Being part of the goods purchased from Sanjay returned to him) Sanjays Account Dr To Bank Account (Being the amount due to Sanjay paid by cheque) Cash Account Dr To BCCI Enterprises Account (Being cheque received from BCCI Enterprises for the amount due) Drawings Account Dr To Cash Account (Being the withdrawal of cash for personal use) Cash Account Dr To Sales Account (Being cash sale of goods) Rent Account Dr To Bank Account (Being payment of rent by cheque) Salaries Account Dr To Cash Account (Being the payment of salaries)

200 200 2800 2800 150 150 1000 1000 600 600 300 300 200 200 800 800 600 600 250 250 300 300 150 150 400 400

Illustration 2- Journalize the following transactions in books of Border: Date Particulars 2009 May 1 Started business with cash Rs.90000 2 Paid into bank Rs.25000 3 Goods purchased for cash Rs.30000 4 Bought furniture & issued a cheque Rs.10000 6 Sold goods for cash Rs.10000 7 Sold goods to Moody Rs.8000 10 Purchased goods from Taylor Rs.15000 11 Returned goods to Taylor Rs.2000 14 Goods returned by Moody Rs.800 16 Cash received from Moody Rs.7000 & discount allowed to him Rs.200 20 Withdrew cash for personal use from the bank Rs.1500 22 Withdrew cash from bank for office use Rs.5000 23 Paid Telephone rent Rs.800 26 Cash due to Taylor paid 31 Paid for stationery Rs.200, Rent Rs.1500 & salaries Rs.2000 31 Cash sale of goods to Boon Rs.2000 Date 2009 May 1 May 2 May 3 May 4 Borders Journal Particulars ash Account Dr To Capital Account (Being business commenced with cash) Bank Account Dr To Cash Account (Being cash paid into Bank) Purchases Account Dr To Cash Account (Being cash purchase of goods) Furniture Account Dr To Bank Account (Being goods purchased and paid by cheque) Cash Account Dr To Sales Account (Being cash sale of goods) Moodys Account Dr To Sales Account (Being sale of goods to Moody on credit) Purchases Account Dr To Taylors Account (Being credit purchase of goods from Taylor) LF C Debit Amount Credit Amount 90 000 90000 25000 25000 30000 30000 10000 10000 10000 10000 8000 8000 15000 15000

May 6 May 7 May 10

May 11

May 14 May 16

May 20

May 22

May 23 May 26 May 31

May 31

Taylors Account Dr To Return outward Account (Goods purchased fro Taylor partially returned to him) Return Inwards Account Dr To Moodys Account (Being the goods returned by Moody) Cash Account Dr Discount Account Dr To Moodys Account (Being the amount due from Moody received) Drawings Account Dr To Bank Account (Cash withdrawn from bank for personal use) Cash Account Dr To Bank Account (Being cash withdrawn from the bank for office use) Telephone Rent Account Dr To Cash Account (Being telephone rent paid) Taylors Account Dr To Cash Account (Being the amount due to Taylor paid) Stationery Account Dr Rent Account Dr Salaries Account Dr To Cash Account (Being stationery charges, rent & salaries paid) Cash Account Dr To Sales Account (Being cash sale of goods to Boon)

2000 2000 800 800 7000 200 7200 1500 1500 5000 5000 800 800 13000 13000 200 1500 2000 3700 2000 2000

Illustration 3- Journalize the following transactions in the books of Imran Khan: 2009 Jun 1 Imran started his business with the following assets & liabilitiesCash in Hand Rs.1500; Goods in Hand Rs.2500; Furniture Rs.600; Buildings Rs.2000; Due by Miandad Rs.600; Due to Inzamam Rs.800; Due to Moin Rs.1200 His transactions for the month are : Jun 1 Purchased goods from Moin subject to a Trade discount of 5% Rs.1000 Jun 2 Sold goods to Qadir subject to a trade discount of 2% Rs.500 Jun 5 Received from Miandad Rs.580, discount allowed Rs.20 Jun 10 Received from Qadir in full settlement of his account Rs.450

Jun 15 Paid Inzamam in full settlement of his account Rs.775 Jun 20 Paid Moin Rs.1000,discount allowed Rs.50 Journal of Imran Khan Date 2009 Jun 1 Particulars LF C ash Account Dr Stock Account Dr Furniture Account Dr Building Account Dr Miandads Account Dr To Inzamams Account To Moins Account To Capital Account (Being the assets & liabilities introduced by Imran into the business) Purchases Account Dr To Moins Account (Being the purchase of goods worth Rs.1000 at a trade discount of 5%) Qadirs Account Dr To Sales Account (Being the sale of goods to Qadir worth Rs.500 subject to a trade discount of 2%) Cash Account Dr Discount Account Dr To Miandads Account (Being cash received from Miandad & discount allowed to him) Cash Account Dr Discount Account Dr To Qadirs Account (Being cash sale of goods) Inzamams Dr To Cash Account To Discount Account (Being the payment of Rs.775 to Inzamam in full settlement of his a/c for Rs.800) Moins Account Dr To Cash Account To Discount Account (Being the amount due to Mohan paid & a discount of Rs.50 allowed by him) Debit Amount Credit Amount 15 00 2500 600 2000 600 800 1200 5200 950 950 490 490 580 20 600 450 40 490 800 775 25 1050 1000 50

Jun 1

Jun 2

Jun 5

Jun 10

Jun 15

Jun 20

Illustration 4- Show how the following transactions would appear in the Journal of Ram & Rahim: 1. Ram bought goods from Rahim Rs.100 2. Rahim bought goods from Ram for cash Rs.800 3. Rahim received from Ram Rs.500 & allowed him discount of Rs.25 4. Ram sold goods to Rahim Rs.700 5. Rahim supplied goods worth Rs.250 for Rams domestic use 6. Ram received Rs.500 from Rahim for repairing the private car of Rahim Sl No 1 Rams Journal Particulars LF Purchases Account Dr To Rahims Account (Being credit purchase of goods from Rahim) Cash Account Dr To Sales Account (Being cash sale of goods to Rahim) Rahims Account Dr To Cash Account To Discount Account (Being cash paid to Rahim & discount allowed by him) Rahims Account Dr To Sales Account (Being credit sale of goods to Rahim) Drawings Account Dr To Rahims Account (Being credit purchases of goods from Rahim for personal use) Cash Account Dr To Repairs Account (Cash received for repairing Rahims car) Rahims Journal Sl No 1 2 3 Particulars Rams Account To Sales Account (Being sales on credit to Ram) Purchases Account To Cash Account (Being cash purchase of goods) Cash Account Discount Account To Rams Account (Being cash received from Ram and discount allowed to him) LF Dr Dr Dr Dr Debit Amount Credit Amount 100 100 800 800 500 25 525 Debit Amount Credit Amount 100 100 800 800 525 500 25 700 700 250 250 500 500

2 3

4 5

6

4

5 6

Purchases Account Dr To Rams Account (Being credit purchase of goods from Ram) Rams Account Dr To Sales Account (Being credit sale of goods to Ram) Drawings Account Dr To Cash Account (Being the repair charges of car used for private purposes)

700 700 250 250 500 500

Subsidiary Books When transactions are large it is impossible to record all transactions through one Journal. Involving repetitive journalizing & posting labour thus Journal becomes bulky & voluminous To overcome the shortcomings of use of journal as book of original entry, it is subdivided into special Journals which are known as subsidiary or day books. Specific transactions are recorded in following Special Journals Name of the Special Journal Specific transactions to be Recorded I. Cash Journals Simple Cash Book Cash Transactions b) Cash Book with Bank Column Cash & Bank Transactions c) Cash Book with Bank & Discount Cash, Bank & Discount transactions Column Petty Cash Transactions d) Petty Cash Book II Goods Journals a) Purchases Book Credit Purchases of goods b) Sales Book Credit Sales of goods c) Sales Returns / Return Inwards Book Goods returned by customers to whom supplied on credit d) Purchase Returns/ Return Outwards Book Goods returned to those suppliers from whom purchased on credit III Bills Journal a) Bills receivable Book Bills receivable Drawn b) Bills Payable Book Bills Payable Accepted IV Journal Proper Transactions not covered elsewhere Advantages of special Journal or Subsidiary Books Facilitates division of work- work can be divided among many persons Permits installation of Internal check system- work of one is automatically checked by another person. Occurrence of errors/ frauds may be avoided. Permits the use of specialized skill- Persons possessing required skills are assigned work thus prompt, economical & accurate accounting information may be obtained Time & labour saving in journalizing & posting- Time of accounting process is reduced

Cash Book Is a special journal used for recording all cash receipts & cash payments Is a book of original entry or (prime entry) since transactions are recorded for first time from the source documents Is a ledger in the sense that it is designed in the form of a cash account & records receipts on Debit side & payments on Credit side. Thus it is both a journal & a Ledger. Format of a Single Column Cash BookDr Single column Cash Book Date Particulars LF Amount Date Particulars Format of Cash Book with Discount ColumnDr Cash Book with Discount Column Date Particulars LF Discount Cash Date Particulars Format of Three Column Cash Book Dr Three Column Cash Book Date Particulars LF Dis Cash Bank Date Particulars count Cr Amount

LF

Cr LF Discount Cash

LF Dis Cash count

Cr Bank

Rules for entering transactions in Cash Book: a) When cheque is received & no further information is given at a later date about that cheque it is to be assumed that cheque is deposited in Bank on same date entry isBank A/c Dr To Debtors A/c b) If cheque is received on 2nd April & deposited in bank on 4th April entries are as follows2nd April Cash A/c Dr To Debtors A/c 4th April Bank A/c Dr To Cash A/c c) It above cheque is dishonored by bank entry isDebtors A/c Dr To Bank A/c d) Cheque is received from Debtor is endorsed to Creditor: When cheque is received- Cash A/c Dr To Debtors A/c When cheque is endorsed- Creditors A/c Dr To Cash A/c e) If endorsed cheque is dishonored there will be no entry in cash book f) Discount is allowed when payment is received from debtors & is entered on debit side. Discount is received when payment is made to creditors. If cheque net of discount amount is

dishonored entry for dishonor is done in cash book by reversing original entry but cancellation of discount is not made through cash book but through journal proper. Format of various subsidiary booksSales Day Book of Anil Industries for April 2009 Date Name of Customer LF Invoice No Amount Return Inward Book of Anil Industries for April 2009 Name of Customer LF Cr.Note No Amount

Remarks

Date

Remarks

Date

Purchase Day Book of Anil Industries for April 2009 Name of Supplier LF I/W Ref. No Amount Remarks Return Outward Book of Anil Industries for April 2009 Name of Supplier LF Dr.Note No Amount

Date

Remarks

Date

Bill Receivable Book of Anil Industries for April 2009 Received Bill date Term Maturity Amount Payable at Disposal from Date Bill Payable Book of Anil Industries for April 2009 Received Bill date Term Maturity Amount Payable at Disposal from Date

Date

Journal Proper Role of Journal is thus restricted to following type of entries Opening & closing entries- When new business is started or when books are started for new year opening balance of assets & liabilities are journalized, similarly at year end balances of all nominal accounts are transferred to Profit & loss a/c Rectification entries- If error has been committed it is rectified Transfer entries- If some amount is to be transferred from one account to another Adjusting entries- At year end amount of expenses or incomes have to be adjusted for amounts received in advance or for amounts not yet settled in cash. Few examples are: Outstanding expenses- expenses incurred but not yet paid Prepaid expenses- expenses paid in advance for some period in the future Interest on Capital- interest which proprietor thinks proper to allow on his investment Depreciation- fall in the value of the asset used on a/c of wear& tear Credit sale & purchase of assets Any other entry which cannot be entered in any other book

Illustration 1- Enter the following transactions in the proper subsidiary books of Mr.Anand 1/6/09 Purchased goods worth Rs.25000 from Akhil with trade discount @10% 3/6/09 Placed an order with M/s Patel & sons for goods worth Rs.16000 8/6/09 Cash sales Rs.10000 10/6/09 Sold goods of Rs.15000 to Nikhil. We paid carriage Rs.300 on Nikhils behalf 13/6/09 Goods returned by Nikhil Rs.500 14/6/09 Returned goods to Akhil of catalogue price of Rs.200 16/6/09 Purchased furniture on credit from Ravi for Rs.5000 20/6/09 Took for private use goods of Rs.100 25/6/09 Nikhil paid office rent of Anand Rs.500 & balance due from him in cash In the Books of Anand Sales Day Book for June 2009 Name of Customer LF Invoice No Nikhil Purchase Day Book for June 2009 Name of Supplier LF I/W Ref No Akhil

Date 10/6/09 Date 1/6/09 Date 14/6/09 Date 13/6/09

Amount 15000 Amount 22500

Purchase Returns Book for June 2009 Name of Supplier LF Debit Note No Amount Akhil 180 Sales Returns Book for June 2009 Name of Customer LF Credit Note No Amount Nikhil 500 Single column Cash Book LF Amount Date Particulars 10000 10/6/09 By Nikhil 14300 30/6/09 By Balance c/d 24300 24000 LF LF Cr Amount 300 24000 24300

Dr Date Particulars 8/6/09 To Sales 25/6/09 To Nikhil 1/7/09 To Balance b/d Date 6/6/09

Anands Journal Particulars Furniture Account Dr To Ravis Account (Being furniture purchased on credit) 20/6/09 Drawings Account Dr To Purchases Account ( goods withdrawn for personal uses)

Debit Amount Credit Amount 5000 5000 100 100

25/6/09 Office Rentnt Dr 500 To Nikhils Account 500 (Being office rent paid by Nikhil) Illustration 2- Enter the following transactions in the proper subsidiary books of Madhav 1/6/09 Purchased goods worth Rs.10000 from Anand @10% trade discount 4/6/09 Placed an order with M/s Patel & sons for goods worth Rs.16000 8/6/09 Cash purchases Rs.5000 & cash sales Rs.10000 10/6/09 Purchased goods of Rs.15000 from Nikhil. He paid carriage Rs.300 on our behalf 13/6/09 Goods returned to Nikhil Rs.5000 15/6/09 Received ordered goods from M/s Patel & sons & paid Rs.300 as carriage 17/6/09 Sold goods of Rs.18000 to Akhil & paid Rs.200 as carriage on his behalf 20/6/09 Akhil paid life Insurance premium Rs.5000 of Madhav & Rs.5000 in cash 21/6/09 Goods distributed as free sample Rs.1000 22/6/09 Received goods returned by Akhil Rs.2000 In the Books of Madhav Sales Day Book for June 2009 Name of Customer LF Invoice No Akhil Purchase Day Book for June 2009 Name of Supplier LF I/W Ref No Anand Nikhil M/s Patel & sons

Date 17/6/09 Date 1/6/09 10/6/09 15/6/09

Amount 18000 Amount 9000 15000 16000 40000

Date 13/6/09 Date 22/6/09

Purchase Return Book for June 2009 Name of Supplier LF Debit Note No Amount Nikhil 5000 Sales Returns Book for June 2009 Name of Customer LF Credit Note No Amount Akhil 2000 Single column Cash Book LF Amount Date Particulars 10000 8/6/09 By Purchases 5000 15/6/09 By carriage 17/6/09 By Akhil 30/6/09 By Balance c/d 15000 9500 Madhavs Journal LF LF Cr Amount 5000 300 200 9500 15000

Dr Date Particulars 8/6/09 To Sales 20/6/09 To Akhil

1/7/09 To Balance b/d Date Particulars

Debit Amount Credit Amount

10/6/09 Carriage Account Dr To Nikhils Account (Carriage paid by Nikhil on our behalf) 20/6/09 Drawings Account Dr To Akhils Account ( LIC of proprietor paid by Akhil) 21/6/09 Advertisement A/c Dr To Purchases(goods) Account (Being goods distributed as free samples)

300 300 5000 5000 1000 1000

Illustration 3- Prepare Purchase & sales books of Olympic sports house 1/6/09 Purchased from Delhi sports Mart -10 A grade bats @ Rs.100 each , 20 B grade bats @ Rs.50 each & 100 balls @ Rs.25 each 5/6/09 Purchased from Nadkarni stores 100 full size rackets @Rs.95 each & 100 small size rackets @ Rs.50 each 7/6/09 Sold to Samanta club 5 A grade bats @ Rs.125 each , 5 B grade bats @ Rs.80 each & 25 balls @ Rs.40 each 10/6/09 Sold to sky sports club 10 B grade bats @ Rs.75 each , 20 balls @ Rs.35 each & 50 full size rackets @Rs.120 each 12/6/09 Sold goods to Nashik gymkhana Rs.8000 15/6/09 Sold goods to Shivaji gymkhana Rs.5000 In the Books of Olympic Sports House Purchases Day Book for June 2009 Name of Customer LF I/W Ref No Delhi Sports Mart Bats: 10 A grade @ Rs.100 1000 20 B grade @ Rs.50 1000 Balls: 100 @ Rs.25 2500 Nadkarni Stores 100 Full size rackets @ Rs.95 100 small size rackets @ Rs.50 9500 5000

Date 1/6/09

Amount

4500 5/6/09

14500 19000 Amount

Date 7/6/09

10/6/09

Sales Day Book for June 2009 Name of Supplier LF Invoice No Samanta Club Bats: 5 A grade @ Rs.125 625 5 B grade @ Rs.80 400 Balls: 25 @ Rs.40 1000 Sky Sports club Bats: 10 A grade @ Rs.75 750 20 B grade @ Rs.35 700 50 Full size rackets @ Rs.120 6000

2025

7450

12/6/09

Nashik Gymkhana Shivaji Gymkhana

8000 5000 22475

Illustration 4- Prepare Purchase Returns and Sales Returns books 1/6/09 Om traders returned 10 bags of sugar @ Rs. 950 each, 50 bags of wheat @ Rs.450 each. Credit Note No 1001 7/6/09 Returned to Daruwala & sons Debit note 57- 10 bags of rice @ Rs.350 each 10/6/09 Returned to Samant Bros 20 bags of wheat @ Rs.500 each Debit note 1002 15/6/09 Received from Ram & sons credit note 1003 for 10 sugar bags @ Rs.750 each, 5 bags of rice @ Rs.450 each Date 7/6/09 10/6/09 Purchases Returns Book for June 2009 Name of Customer LF Debit Note Amount Daruwala & sons 57 10 bags of rice @ Rs.350 3500 Samant Bros 1002 20 bags of wheat @ Rs.500 10000 13500 Sales Returns Book for June 2009 Name of Supplier LF Credit Note Om Traders 1001 10 bags of sugar @ Rs.950 9500 50 bags of wheat @ Rs.450 22500 ----------Ram & sons 1003 10 bags of sugar @ Rs.750 7500 5 bags of rice @ Rs.450 2250 ---------

Date 1/6/09

Amount

32000

15/6/09

9750 41750

Illustration 5- Prepare a single column cash book of Handsome from following details1/6/09 Opening Cash on hand Rs.2500 2/6/09 The proprietor introduced Rs.37500 as further capital 5/6/09 Sold goods for Rs.3000 6/6/09 Received commission Rs.1200 from SBI 7/6/09 Paid Rs.2000 to Madhuri on a/c 9/6/09 Purchased goods for Rs.15000 11/6/09 Deposited Rs.3000 into bank 17/6/09 Paid interest on loan taken from Sachin Rs.1200 22/6/09 Received Rs.4000 from Swati 23/6/09 Withdrew Rs.1700 for paying college fees 24/6/09 Withdrew Rs.4000 for office use 26/6/09 Cash sales Rs.15000 & carriage paid Rs.400

27/6/09 Purchased goods for Rs.41000 30/6/09 Deposited into bank all excess cash Dr Cr Date 1/6/09 2/6/09 5/6/09 6/6/09 22/6/09 24/6/09 26/6/09 Single column Cash Book of Handsome Particulars R.no LF Amount To Balance b/d 2500 To Capital a/c 37500 To Sales a/c 3000 To Commission a/c 1200 To Swatis a/c 4000 To Bank a/c 4000 To Sales a/c 15000 67200 Date 7/6/09 9/6/09 11/6/09 17/6/09 23/6/09 26/6/09 27/6/09 30/6/09 Particulars V.no LF Amount By Madhuris a/c 2000 By Purchases a/c 15000 By Bank a/c 3000 By Interest a/c 1200 By Drawings a/c 1700 By Carriage a/c 400 By Purchases a/c 41000 By Bank a/c 2900 67200

Illustration 6- Prepare a double column cash book from following details1/6/09 Started business with cash Rs.140000 & had a bank a/c with Rs.60000 balance 2/6/09 Deposited Rs.18000 into bank 8/6/09 Sold goods for Rs.40000 less 10% trade discount & 5% cash discount 14/6/09 Purchased goods for Rs.35000 less 10% cash discount 18/6/09 Received Rs.11930 from Patel in full & final settlement of Rs.12000 22/6/09 Paid Rs.18000 to Suresh & earned from him a discount of Rs.200 24/6/09 Received commission of Rs.2000 from Mehta 26/6/09 Paid salaries Rs.2600 to staff 28/6/09 Withdrawn from bank Rs.10000 for office use 29/4/09 Withdrawn from office Rs.4000 for personal use 30/6/09 Withdrawn sufficient cash from bank to keep Rs.150000 in hand Dr Date 1/6/09 8/6/09 18/6/09 24/6/09 28/6/09 30/6/09 1/7/09 Cash Book with Discount Column Cr Particulars R.no LF Disc Cash Date Particulars V.no LF Disc Cash To Capital a/c 140000 2/6/09 By Bank a/c 18000 To Sales a/c 1800 34200 14/6/09 By Purchases a/c 3500 31500 To Patels a/c 70 11930 22/6/09 By Sureshs a/c 200 18000 To Comm a/c 2000 26/6/09 By Salaries a/c 2600 To Bank a/c 10000 29/6/09 By Drawings a/c 4000 To Bank a/c 25970 30/6/09 By Balance c/d 150000 1870 224100 3700 224100 To Balance b/d 150000

Illustration 7- Prepare a three column cash book from following details1/5/09 Opening cash Balance Rs.50000, Bank Balance Rs.40000 4/5/09 Deposited Rs.18000 in bank 6/5/09 Received cash Rs.2400 & a cheque for Rs.1570 from Anil in full settlement of Rs.4000 & deposited the cheque into bank 9/5/09 Received a cheque for Rs.1480 from Bhaskar in full settlement of Rs.1550 11/5/09 Received interest Rs.500 from Chandrakant by cheque 13/5/09 Endorsed Bhaskars cheque to Venkatesh in full settlement of his dues Rs.1500 16/5/09 Deposited Chandrakants cheque into bank 18/5/09 Paid cash Rs.1200 & a cheque for Rs.1250 to Yeshwant in full settlement of Rs.2500 19/5/09 Bank informed that Chandrakants cheque is dishonored & debited our A/c by Rs.540 including Rs.40 as bank charges 22/5/09 Paid commission of Rs.300 to Zeba by cheque 24/5/09 Withdrew Rs.2000 from office & Rs.1000 from bank for personal use 25/5/09 Withdrew Rs.3000 from bank for office use 30/5/09 Learnt from passbook that bank hasCredited our a/c with interest Rs.1000 Debited our a/c with bank charges Rs.120 Collected on our behalf dividends Rs.1500 & Paid on our behalf electricity bill Rs.170 31/5/09 Transfer Rs.15000 from fixed deposit a/c to current a/cDr Date 2009 1-May 4-May 6-May 9-May 11-May 16-May 25-May 30-May 30-May 31-May Particulars To Bal b/d To Cash a/c 'C' To Anil's a/c To Bhaskar's a/c To Interest a/c To Cash a/c 'C' To Bank a/c To Interest a/c To Dividend a/c To FD a/c Cash Book with Cash Bank & Discount Columns Dis c Bank Cash Date Particulars 2009 40000 50000 4-May By Bank 'C' 18000 13-May By Venkatesh a/c 30 1570 2400 16-May By Bank 'C' 70 1480 18-May By Yeshwant a/c By Interest a/c 500 19-May By Bank charges 500 22-May By Commission a/c 3000 24-May By Drawings a/c 1000 25-May By Cash a/c By Bank charges 1500 30-May a/c 15000 30-May By electricity a/c 31-May By Balance c/d 100 77570 57380 71190 34200 Cr Dis c Bank Cash 18000 1480 500 1200

20 50 1250 500 40 300 1000 3000 120 170 71190 77570

2000

70

34200 57380

1-Jun

To Bal b/d

Ledger Accounts & Trial BalanceLedger Is a collection of all the accounts debited or credited in the general journal & various special journal It contains all the accounts (asset accounts, liability accounts, Capital accounts, Revenue accounts, expense accounts) to which transactions recorded in books of original entry are transferred. It is the ultimate destination of all transactions & is called Book of Final Entry It is considered as a permanent record & is more frequently referred to. An account is a formal record of all transactions relating to a change in a particular item It facilitates the preparation of Final Accounts Ledger account is conventionally in T shape. The left side of account is called debit & right side is called credit. Format isDr Account Name Cr Date Particulars Folio Amount Date Particulars Folio Amount Distinction between Journal & ledger Posting is the process of transferring entries from books of original entry to ledger. It means grouping of all the transactions in respect of one particular a/c at one place for meaningful conclusions & to further accounting process. It may be done daily or periodically as per requirements of business Specimen example of Ledger postingTransaction Paid rent Rs.670 on 30th Jun09 Journal entry - Rent a/c Dr 670 To Cash a/c 670 Ledger PostingDr Rent Account Date Particulars JF Amount Date Particulars 30/6/09 To Cash a/c 670 Dr Date Particulars JF Cash Account Amount Date Particulars 30/6/09 By Rent a/c

JF

Cr Amount Cr Amount 670

JF

While posting to debit side of Rent a/c (in particulars) we write name of other a/c i.e Cash a/c & the amount for which Rent a/c & Cash A/c are debited & credited is mentioned in amount

column. While posting to the credit side of cash a/c we have to write By Rent a/c in particulars column Thus when there is posting in Dr side of one a/c simultaneously there must be entry in credit side of other a/c Rules of posting of various subsidiary booksCash Book Transactions recorded on Dr/Cr side of cash book are to be posted on Cr/Dr side of accounts in Ledger Contra entries are not posted Total of discount columns in cash book are to be posted in Dr & Cr side of Discount received & Discount Allowed a/cs Balance in cash & bank columns are not posted any where they are shown on asset side of Balance sheet Purchase Day Book Open ledger a/cs for all suppliers (creditors) Cr these suppliers a/cs by amount of purchases made from them Total of Purchase Day Book is posted on Dr side of Purchases a/c Purchase Returns or Return Outward Book Total of Purchase Return Book is posted on Cr side of Purchase Return a/c Individual purchase returns are Dr to respective suppliers a/c Sales Day Book Open ledger a/cs for all customers (debtors) Dr these customers a/cs by amount of sales made to them Total of Sales Day Book is posted on Cr side of Sales a/c Sales Returns or Return Inward Book Total of Sales Return Book is posted on Dr side of Sales Return a/c Individual sales returns are Cr to respective customers a/c Bills Receivable Book Individual Bill amount Cr to Partys a/c Total of Bills Receivable Book is posted on Dr side of Bills Receivable a/c Bills Payable Book Individual Bill amount Dr to Partys a/c Total of Bills Payable Book is posted on Cr side of Bills Payable a/c Fixed Assets Purchase or acquisition cost includes basic price+ taxes+ transport charges+ interest on borrowed capital paid upto installation & commissioning of asset & the charges for the same Sale of asset may result in profit or lossProfit/ Loss = Sale Value Book Value Book Value = Cost of Acquisition Accumulated Depreciation Accounting Entry for Loss - Bank a/c Dr (amount realized) P & L a/c Dr (Loss on sale) To Asset a/c (Book value of asset) Accounting Entry for Profit - Bank a/c Dr (amount realized)

To P & L a/c To Asset a/c

(Profit on sale) (Book value of asset)

Balancing an a/c Each a/c in a ledger may have some entries on debit side & some entries on credit side of an a/c. The difference in totals of both the sides is termed as Balance of an a/c. The difference arrived at is inserted on the side the total of which is less, writing against it By Balance c/d ( for inserting the difference the credit side of an a/c) or To Balance c/d (for inserting the difference on the debit side) c/d means carried down & b/d means brought down. c/f means carried forward & b/f means brought forward After inserting the difference the totals of both sides are made (which equal). Thus the accounting is closed. The process of extracting the balance & inserting it on lesser side of an a/c is called Balancing or Closing of an a/c If the debit side of an a/c is heavier than its credit side the balance is called a Debit Balance & if the credit side of an a/c is heavier than its debit side it is called a Credit Balance Both debit & credit side totals of a ledger account are equal then it is called nil balance The usual period adopted for balancing of a/cs is as underType of Accounts Balanced Balanced at Remarks monthly at year end Debtors & Creditors a/cs Yes Yes Balance c/f to next accounting year Capital a/c, Drawings a/c --Yes Drawings a/c balance transferred to Capital & and Other Personal a/cs the balance in Capital or Personal a/cs are c/f to next accounting year Cash & Bank a/cs Yes Yes Balance c/f to next accounting year Real (Asset) a/cs --Yes Balance c/f to next accounting year Purchase /Sales Returns Yes Transferred to Purchases & Sales es accounts respectively at year end Sales & Purchases a/cs Yes Transferred to Trading a/c at yr end Nominal a/cs Yes At Yr end Transferred to Trading, or P& L Illustration 1- Journalize the following transactions in the books of a trader Debit Balance as on 1st April 2009 Cash in Hand Rs.8000; Cash at Bank Rs. 25000; Stock of Goods Rs.20000; Building Rs.10000; Sundry Debtors-Vijay Rs.2000 & Madhu Rs.2000 Credit Balances on 1st April 2009 Sundry Creditors-Anand Rs.5000 Following were the transactions in the month of April 2009Apr 1 Purchased goods worth Rs.5000 for cash less 20% trade discount & 5% cash discount Apr 4 Received Rs.1980 from Vijay & allowed him Rs.20 as discount Apr 8 Purchased Plant from Mukesh for Rs.5000 & paid Rs.100 as cartage for bringing the plant to the factory & another Rs.200 as installation charges Apr 12 Sold goods to Rahim on credit Rs.600 Apr 15 Rahim became insolvent & could pay only 50 paise in a Rupee Apr 18 Sold goods to Ram for Cash Rs.1000

Dr Date Particulars 30/4/09 To Balance c/d

Dr Date 1/4/09 4/4/09 15/4/09 18/4/09

Particulars To Balance b/d To Vijay T Rahim To Sales a/c

1/5/09 To Balance b/d Dr Date Particulars 1/4/09 To Balance b/d 1/5/09 To Balance b/d Dr Date Particulars 1/4/09 To Balance b/d 1/5/09 To Balance b/d Dr Date Particulars 1/4/09 To Balance b/d 1/5/09 To Balance b/d Dr Date Particulars 1/4/09 To Balance b/d

Anands Account JF Amount Date 5000 1/4/09 5000 1/5/09 Cash Account JF Amount Date 8000 1/4/09 1980 8/4/09 300 30/4/09 1000 11280 7180 JF

Particulars By Balance b/d By Balance b/d

JF

Particulars JF By Purchases a/c By Plant a/c By Balance c/d

Cr Amount 5000 5000 5000 Cr Amount 3800 300 7180 11280

Bank Account Amount Date Particulars 25000 30/4/09 By Balance c/d 25000 25000 Stock Account Amount Date Particulars 20000 30/4/09 By Balance c/d 20000 20000 Building Account Amount Date Particulars 10000 30/4/09 By Balance c/d 10000 10000 Vijay Amount Date 2000 4/4/09 2000 Particulars By Cash a/c By Discount

JF

Cr Amount 25000 25000 Cr Amount 20000 20000 Cr Amount 10000 10000 Cr Amount 1980 20 2000 Cr Amount 2000 2000

JF

JF

JF

JF

JF

JF

Dr Date Particulars 1/4/09 To Balance b/d 1/5/09 To Balance b/d Dr

JF

Madhu Amount Date Particulars 2000 30/4/09 By Balance c/d 2000 2000 Capital Account

JF

Cr

Date Particulars 30/4/09 To Balance c/d

JF

Amount 62000 62000

Date 1/4/09

Particulars By Balance b/d

JF

Dr Date Particulars 1/4/09 To Cash 1/4/09 To Discount a/c 1/5/09 To Balance b/d Dr Date Particulars 4/4/09 To Vijay 30/4/09 To Balance c/d

JF

1/5/09 By Balance b/d Purchases Account Amount Date Particulars 3800 30/4/09 By Balance c/d 200 4000 4000

JF

Amount 62000 62000 62000 Cr Amount 4000 4000 Cr Amount 200 200 180 Cr Amount 5300 5300 Cr Amount 5000 5000 5000 Cr Amount 600 1000 1600 1600 Cr Amount 300 300 600

JF

Discount Account Amount Date Particulars JF 20 1/4/09 By Purchases a/c 180 200 1/5/09 By Balance b/d Plant Account Amount Date Particulars 5000 30/4/09 By Balance c/d 300 5300 5300 Mukesh Amount Date 5000 8/4/09 5000 1/5/09 Particulars By Plant a/c By Balance b/d Particulars By Rahim By Cash a/c By Balance b/d Particulars JF By Cash a/c By Bad debts a/c JF JF

Dr Date Particulars 8/4/09 To Mukesh 8/4/09 To Cash a/c 1/5/09 To Balance b/d Dr Date Particulars 30/4/09 To Balance c/d

JF

JF

JF

Dr Date Particulars 30/4/09 To Balance c/d

Dr Date Particulars 12/4/09 To Sales a/c

Sales Account JF Amount Date 1600 12/4/09 18/4/09 1600 1/5/09 Rahim JF Amount Date 600 15/4/09 15/4/09 600

Dr

Bad Debts Account

Cr

Date Particulars 15/4/09 To Rahim 1/5/09 To Balance b/d

JF

Amount 300 300 300

Date Particulars 30/4/09 By Balance c/d

JF

Amount 300 300

Illustration 2- The following data is given by S the owner with a request to compile only the 2 personal accounts of H & R in his ledger for the month of April 2009 1st Apr S owes R Rs.15000; H owes S Rs.20000 4th Apr R sold goods worth Rs.60000 @ 10% trade discount to S 5th Apr S sold to H goods priced at Rs.3000 17th Apr Record a purchase of Rs.25000 net from R which are sold to H at a profit of Rs.15000 18th Apr S rejected 10% of Rs goods of 4th Apr 19th Apr S issued a cash memo for Rs.10000 to H who came personally for this consignment 22nd Apr H cleared half his totalk dues to S enjoying a % cash discount (of the payment Rs.20000 was by cheque) 26th Apr Rs total dues (less Rs.10000 held back) were cleared by cheque enjoying a cash discount of Rs.1000 on the payment made 29th Apr Close Hs account to record the fact that all but Rs.5000 was cleared by him, by a cheque, because he was declared bankrupt 30th Apr Balance Rs account In the Books of S Dr Date 1/4/09 5/4/09 17/4/09 Particulars To Balance b/d To Sales a/c To Sales a/c JF Hs Account Amount Date 20000 22/4/09 30000 22/4/09 40000 29/4/09 29/4/09 29/4/09 90000 Particulars JF By Bank a/c By Cash a/c By Disc Allow a/c By Bank a/c By Bad debts a/c Cr Amount 20000 24775 225 40000 5000 90000

Sale of Rs10000 on 19th Apr is cash sales hence not included in personal a/c of H On 22nd Apr H owes S Rs.90000 & paid amount paid by H is of 90000 less % discount hence of 90000 = 45000 & % of 45000 is 225. Hence 45000-225 = 44775 out of which 20000is in cheque & balance 24775 in cash Dr Rs Account Cr Date Particulars JF Amount Date Particulars JF Amount 18/4/09 To Pur Ret A/c 5400 1/4/09 By Balance b/d 15000 26/4/09 To Bank a/c 77600 4/4/09 By Purchases a/c 54000 26/4/09 To Disc recd a/c 1000 17/4/09 By Purchases a/c 25000 30/4/09 To Balance c/d 10000 94000 94000 1/5/09 By Balance b/d 10000

Trial Balance Is a statement showing the balances or total of debits & credits of all the accounts in the ledger with a view to verifying the equality of debits & credits posted to the ledger a/cs It helps to ascertain the accuracy of ledger a/cs & in locating errors It helps in preparation of Final a/cs. All the revenue & expenses a/cs appearing are transferred to Trading or Profit & Loss a/c. All assets, liabilities & capital a/cs are transferred to Balance sheet The balance of all Asset a/cs, Expenses, Losses, Drawings, Cash & Bank balances, B/R, Debtors, Stocks, Purchases, Sales Returns are placed in the debit column & balances of all Liabilities a/cs, Income, Profit, Capital a/cs, B/P, Bank overdraft, Creditors, Loan, Sales, Purchase Returns are placed in credit column Following are the methods of preparing a Trial Balance Total Amounts Method (Gross TB) - Every ledger a/c is totaled & that total amount (both of debit side & credit side) is transferred to TB. Under this method balance can be found out in TB itself. This method is not commonly used Balance method ( Net TB) Every ledger a/c is balanced & those balances only are c/f to the TB. This method is commonly used in preparation of Financial Statements Adjusted TB through Suspense a/c If TB does not agree after transferring all balances & errors are not located timely, then TB is tallied by transferring difference of debits & credits to a suspense a/c. This is a temporary a/c opened to proceed further to prepare final a/cs Illustration 1- Journalise the following transactions, post into ledger & prepare a Trial BalanceMay 1 Started business with Rs.10000 & paid into bank Rs.5000 May 3 Bought Furniture for Rs.900 May 4 Purchased goods worth Rs.4000 from Mohan for cash May 5 Sold goods for Rs.1700 May 7 Paid telephone rent Rs.400 May 8 Purchased goods for Rs.1000 from Bijur May10 Paid Rs.100for advertisement by cheque May11 Bought one typewriter for Rs.750 from Universal Typewriter on credit May12 Sold goods to Bedi for Rs.2900 May14 Withdrew Rs.350 from the bank for private use May16 Sold goods worth Rs.650 to Omega for cash May25 Received cash from Bedi Rs.2850, discount allowed Rs.50 May26 Paid into bank Rs.2500 May31 Issued cheque for Rs.300 in favour of landlord for rent Paid salaries to staff Rs.600 Paid Bijur Rs.950 cash in full settlement of his account Journal

Date 2009 May 1 May 1 May 3 May 4 May 5 May 7 May 8 May 10 May 11 May 12 May 14 May 16 May 25

Particulars ash Account Dr To Capital Account (Cash brought in as capital) Bank Account Dr To Cash Account ( cash paid into Bank) Furniture Account Dr To Cash Account (Furniture purchased) Purchases Account Dr To Cash Account (goods purchased for cash) Cash Account Dr To Sales Account (goods sold for cash) Telephone rent Account Dr To Cash Account (Paid telephone rent) Purchases Account Dr To Bijurs Account (goods purchased on credit) Advertisement Account Dr To Bank Account (Being advertisement made by cheque) Office Equipment Account Dr To Universal Typewriter Account (Purchased one typewriter on credit) Bedi Account Dr To Sales Account (Goods sold on credit) Drawings Account Dr To Bank Account (amount withdrawn for personal use) Cash Account Dr To Sales Account (goods sold for cash) Cash Account Dr Discount Allowec Account Dr To Bedis Account (Cash received & discount allowed) Bank Account Dr To Cash Account (Cash deposited) Rent Account Dr

LF C

Debit Amount Credit Amount 10 000 10000 5000 5000 900 900 4000 4000 1700 1700 400 400 1000 1000 100 100 750 750 2900 2900 350 350 650 650 2850 50 2900 2500 2500 300

May 26 May 31

May 31 May 31

To Bank Account (cheque paid for rent) Salaries Account To Cash Account (Being cash sale of goods to Boon) Bijurs Account To Cash Account To Discount received Account ( Cash paid in full settlement) Particulars To Balance b/d To Sales To Sales To Bedis a/c JF

300 Dr Dr 600 600 1000 950 50 Cr Amount 5000 900 4000 400 2500 600 950 850 15200

Dr Date May 1 May 5 May 16 May 25

Jun 1

To Balance b/d

Cash Account Amount Date 10000 May 1 1700 May 3 650 May 4 2850 May 7 May 26 May 31 May 31 May 31 15200 850

Particulars JF By Bank a/c By Furniture a/c By Purchases By Tel Rent By Bank a/c By Salaries a/c By Bijurs a/c By Balance c/d

Dr Date Particulars May 31 To Balance c/d

Capital Account JF Amount Date 10000 May 1 10000 Jun 1

Particulars By Cash a/c By Balance b/d

JF

Cr Amount 10000 10000 10000 Cr Amount 900 900

Dr Date Particulars May 3 To Cash a/c Jun1 To Balance b/d

JF

Furniture Account Amount Date Particulars 900 May 31 By Balance c/d 900 900 Bank Account Amount Date 5000 May 10 2500 May 14 May 31 May 31 7500 6750

JF

Dr Date Particulars May 1 To Cash a/c May 26 To Cash a/c

JF

Particulars JF By Advertisemnt By Drawings By Rent By Balance c/d

Jun1 Dr

To Balance b/d

Cr Amount 100 350 300 6750 7500

Discount Allowed Account

Cr

Date Particulars May 25 To Bedis a/c Jun1 To Balance b/d

JF

Amount 50 50 50

Date Particulars May 31 By Balance c/d

JF

Amount 50 50

Dr Date Particulars May 7 To Cash a/c Jun 1 To Balance b/d

JF

Telephone Rent Account Amount Date Particulars 400 May 31 By Balance c/d 400 400 Advertisement Account Amount Date Particulars 100 May 31 By Balance c/d 100 100

JF

Cr Amount 400 400 Cr Amount 100 100 Cr Amount 50 50 50 Cr Amount 5000 5000 Cr Amount 1700 2900 650 5250 5250 Cr Amount 1000 1000 Cr

Dr Date Particulars May 10 To Bank a/c Jun 1 To Balance b/d

JF

JF

Dr Date Particulars May 31 To Balance c/d

Discount Received Account JF Amount Date Particulars 50 May 31 By Bijurs a/c 50 By Balance b/d JF Purchases Account Amount Date Particulars 4000 May 31 By Balance c/d 1000 5000 5000 Sales Account Amount Date 5250 May 5 May 12 May 16 5250 Jun 1 Particulars By Cash a/c By Bedis a/c By cash a/c By Balance b/d

JF

Dr Date Particulars May 4 To Cash a/c May 8 To Bijurs a/c Jun 1 To Balance b/d

JF

Dr Date Particulars May 31 To Balance c/d

JF

JF

Dr Date Particulars JF May 31 To Cash a/c May 31 To Disc recd a/c

Bijurs Account Amount Date 950 May 8 50 1000 Bedis Account

Particulars JF By Purchases a/c

Dr

Date Particulars May 12 To Sales a/c

JF

Amount 2900 2900

Date Particulars May 25 By Cash a/c May 25 By Disc All a/c

JF

Amount 2850 50 2900 Cr Amount 750 750 Cr Amount 750 750 750 Cr Amount 350 350 Cr Amount 300 300 Cr Amount 600 600

Dr Office Equipment Account Date Particulars JF Amount Date Particulars May 11 To Universal a/c 750 May 31 By Balance c/d 750 Jun 1 To Balance b/d 750 Dr Universal Typewriter Account Date Particulars JF Amount Date Particulars May 31 To Balance c/d 750 May 11 By Off Eqp a/c 750 Jun 1 By Balance b/d Dr Date Particulars 1/4/09 To Bank a/c Jun1 To Balance b/d Drawings Account JF Amount Date Particulars 350 May 31 By Balance c/d 350 350 JF Rent Account Amount Date Particulars 300 May31 By Balance c/d 300 300 Salaries Account Amount Date Particulars 600 May 31 By Balance c/d 600 600 Trial Balance as at May 31 Amount Credit Balances 850 Capital account 6750 Sales account 900 Universal Typewriters 400 Discount Received 100 5000 750 350 300

JF

JF

JF

Dr Date Particulars May31 To Bank a/c Jun1 To Balance b/d

JF

Dr Date Particulars May 31 To Cash a/c Jun1 To Balance b/d

JF

JF

Debit Balances Cash Account Bank Account Furniture Account Telephone rent account Advertisement account Purchases account Office Equipment account Drawings Rent account

Amount 10000 5250 750 50

Salaries account Discount allowed account

600 50 16050

16050

Illustration 2- From the following balances, prepare a trial balance of Anuradha Traders as on 31/3/2009: Capital Rs.100000; Sales Rs.166000; Purchases Rs.150000; Sales Returns Rs.1000; Discount allowed Rs.2000; Expenses Rs.10000; Debtors Rs.75000; Creditors Rs.25000; Investments Rs.15000;Cash in bank & hand Rs.37000; Interest received on investments Rs.1500; Insurance paid Rs.2500 Trial Balance of Anuradha Traders as at 31/3/2009 Debit Balances Amount Credit Balances Amount Purchases 150000 Capital 100000 Sales Returns 1000 Sales 166000 Discount allowed 2000 Creditors 25000 Expenses 10000 Interest received on Investment 1500 Debtors 75000 Investments 15000 Cash in Bank & Hand 37000 Insurance paid 2500 292500 292500

Illustration 3- One of your clients Singhania has asked you to finalize his accounts for year ended 31/3/09. Till date he himself has recorded the transactions in books. As a basis of audit Singhania furnished following statement. Particulars Debit Balance Credit Balance Singhanias Capital 1556 Singhanias Drawings 564 Leasehold Premises 750 Sales 2750 Due from Customers 530 Purchases 1259 Purchases Returns 264 Loan from Bank 256 Creditors 528 Trade Expenses 700 Cash at Bank 226 Bills Payable 100 Salaries & wages 600 Stock 264 Rent & Rates 463 Sales Returns 98 5454 5454

Check accuracy of above Trial Balance

Corrected Trial Balance of Singhania as on 31/3/09 Particulars Debit Balance Credit Balance Singhanias Capital 1556 Singhanias Drawings 564 Leasehold Premises 750 Sales 2750 Due from Customers 530 Purchases 1259 Purchases Returns 264 Loan from Bank 256 Creditors 528 Trade Expenses 700 Cash at Bank 226 Bills Payable 100 Salaries & wages 600 Stock 264 Rent & Rates 463 Sales Returns 98 5454 5454

Due from Customers is an asset so its balance will be a debit balance Purchase return a/c always shows a credit balance because asset goes out Creditors is a liability so its balance will be a credit balance Bills Payable is a liability so its balance will be a credit balance Stock represents assets so it will have a debit balance Sales return a/c always shows a debit balance because asset comes in Types of Errors Errors affecting a Trial Balance (other than those committed while preparing a TB) Errors of Partial Omission e.g omission of posting in any one a/c of a transaction Errors of commission Related to Subsidiary books Error of casting ( under casting or over casting in totaling) Error in carrying forward Related to Ledger Book Error of posting on wrong side of a correct a/c( eg instead of debiting a customer who has bought on credit his a/c might be credited) Error of Posting of wrong amount( eg a customer who has purchased Rs.100 will be debited but wrongly with Rs.1000)

Wrong balancing/ totaling of an a/c Error in c/f of a total of an a/c Errors not affecting a Trial Balance Error of Complete OmissionRelated to Subsidiary Books- Omission of recording a transaction Related to Ledger Book- Omission of posting in all related a/cs of a transaction Errors of commission Related to Subsidiary books Error of recording in the correct book Recording in a wrong book Related to Ledger Book Posting of a correct amount on correct side of a wrong account Error of Principle Compensatory Errors

Illustration 1- Rectify the following errors a) Sale of old machinery Rs.1000 has been entered in sales book b) The total of discount column debit sude of cash book is Rs.10 short c) A sale of Rs.250 to Murthy has been debited to him as Rs.520 d) Haridas pays of Rs.200. This amount has been credited to Hariram e) A purchase of typewriter for Rs.5000 on credit has not been entered in books at all f) Rs.210 received from estate of Gopi has been credited to his a/c. His a/c was written off last year as bad Rectified Entry a) Sales a/c Dr 1000 To Machinery a/c 1000 c) Murthys a/c is to be credited For Rs.270 (520-250) d) Cash a/c Dr 200 Cash a/c Dr 200 Harirams a/c Dr 200 To Haridas 200 To Hariram 200 To Haridas a/c 200 e) _______ _______ Typewritr a/c Dr 5000 To Suppliers a/c 5000 f) Cash a/c Dr Cash a/c Dr Gopis a/c Dr 210 To Bad debts recovered To Gopis a/c To Bad debts rec 210 b) The error is rectified by debiting Discount Account for Rs.10 Correct Entry Debtors a/c Dr To Machinery a/c Murthys a/c Dr 250 Wrong Entry Debtors a/c Dr To Sales Murthys a/c Dr 520