Accounting Process (Journal, Ledger, Trial Balance, Cash Book, Subsidiary Books) Basics of Interpretation – CA Foundation, CPT notes, PDF
This article is about the Accounting Process (Journal, Ledger, Trial Balance, Cash Book, Subsidiary Books) Basics of Interpretation. we also provide pdf file at the end.
♦ Accounting records (written data).
♦ This section covers in detail the procedure of book keeping & accounting.
♦ Accounting basically gets completed in two steps 1 st an entry in the book of the entry (recording) & then its posting in Accounts in ledger (classifying).
♦ In this section we will study meaning of various terms which will be useful while doing accounting.
♦ We will understand:
■ double entry system,
■ the various ways of forming (making) a double entry,
■ its recording in various books of entry &
■ completion of accounting by posting into ledger accounts.
8.1 MEANING OF IMPORTANT TERMS:
8.1.1 Double Entry System:
♦ This system was invented by an Italian merchant named Fra Luco Pacioli in 1494 A.D.
♦ According to this system, every transaction has got a two-fold aspect (dual aspect), i.e., one party giving the benefit and the other receiving the benefit and it has effect of opposite nature on two financial items.
♦ Information of one financial nature at one place is known as an account which is divided into two sides, debit and credit.
♦ In short, one account is to be debited and another account is to be credited for every transaction in order to have a complete record of the same.
♦ Therefore, every transaction affects two accounts in opposite direction.
♦ For example, if goods are sold to Mr. A on credit, the same will affect goods/sales account and A’s account and entries will be made in opposite direction in these two accounts.
♦ This system is called Double Entry System since it keeps records for every transaction in two accounts.
♦ Therefore, the basic principle, under this system, is that for every debit there must be a corresponding credit or vice versa.
♦ Before going to discuss the double entry principle it becomes necessary to explain certain terms which are frequently used in accounting. They are discussed in later questions.
8.1.2 Meaning of Transactions:
♦ A business dealing, which can be measured and expressed in lei insol mono) and must be recorded in the books of account, is called a ‘transaction’.
♦ In a transaction, there must be some monetary change between the parties.
♦ In other words, the meaning of a transaction is to ‘receive’ and ‘give’, \ i/.., one party receive and the other party gives, e.g. if X gives Rs. 400 to Y, Y is receiving Rs. 400 whereas X is giving the same and there is a monetary change between the parties.
♦ This give and lake can be of Cash, Property, Goods, Services and benefits etc. which has monetary value.
♦ So, a transaction also means a change in affairs that alters the financial state of parties in any way.
♦ There are always two parties in a 1transaction of which one must be the entity in whose books, accounting is being done.
|(Transaction is a give & take which has some financial effect on entity)|
|Real Account||Nominal Account||Personal Account|
|Assets||Expense or Income||Asset or Liability|
- Goods a/c if prepared is treated as a real a/c but instead of preparing goods a/c, we prepare Purchase a/c, Sale a/c etc. to get full information, which are treated as nominal a/c.
- In the above analysis you can observe:
(a) There are two persons of which one is the entity.
(b) Something (i.e. cash, property, goods, service or benefits) is given & in return something else is taken.
(c) These both the arrows indicating give & take may take place at the same point of time (known as cash transaction) or at different point of time.(known as credit transactions).
(d) Irrespective of whether both give & take is done at same time or at different point of time (i.e. indicating only one arrow at a time), there are always two accounts involved in a transaction (dual aspect concept).
(e) These accounts can be classified according to function into Real, Nominal & Personal a/c or according to nature into Expense, Income, Asset or liability.
8.1.3 Meaning of Events:
♦ Event is happening of something, which has financial effect on the entity.
♦ Ex. A fire destroys furniture, Stock Balance at the end of the year etc.
♦ Student should not be confused with the dictionary meaning of goods (i.e. any tangible item).
♦ Goods in accounting specifically includes only those items which are purchased for resale or consumption in the process of production.
♦ Whether it is goods or not should be viewed from entities view point.
♦ Ex. Table-chair for a furniture dealer is goods but for others it will be fixed Asset.
♦ Sales account & Purchase account are of goods only.
♦ Assets is what belongs to entity, what it owns, and which is valuable.
♦ It may be in the nature of property like Land, Building, Goodwill etc. or
♦ In the nature of rights (right to receive money or money’s worth) like debtors, Bills receivable etc.
♦ Liability is what the entity owes to others i.e. liable to give/pay something to others.
♦ Capital & Reserves though appears on liability side of Balance Sheet but are part of owners equity & are commonly viewed distinctly from liability towards outsiders.
♦ Liabilities are like creditors, Loans taken, expense payable, advance received etc.
8.1.7 Expense/Revenue expenditure:
♦ The value/price/charges of goods, services & other benefits received by an entity is an expense.
♦ These arc the charges benefit of which is usually enjoyed or consumed within an accounting year.
♦ Ex.: Salary paid, Purchases, Discount allowed, Rent expense etc.
♦ The value/price of goods, services & others benefits which entity gives/provides to others is the income.
♦ Income is earned from the usual activity (ordinary activity) by the enterprise.
♦ Ex.: Fees received, Sales, Discount received, Interest income etc.
♦ It has already been stated above that every transaction must be recorded in two accounts in the ledger which is done after proper classification of all transactions.
♦ Complete records are also to be made by posting the transactions in different accounts which, in other words, supply all information to the management.
♦ Therefore, it may be stated that account is the code or language of the accountant, and that is why it has been rightly said, an account is the code or language in which accountancy records and supplies information.
♦ An account has two sides, viz. debit — the left hand side and credit — the right hand side.
In simple words if we record one type/one nature of information at one place it is called an account. So an account gives information about one particular item of asset, liability, expense, loss, income etc.
8.2.1 Classification of Accounts:
♦ Traditionally all accounts are broadly classified into two heads : (a) Personal Account and (b) Impersonal Account.
♦ The Impersonal Account may further be sub-divided into (i) Real Account, and (ii) Nominal Account.
♦ So, accounts can be classified into Personal, Real and Nominal.
126.96.36.199 Personal Account:
♦ It deals with the accounts relating to persons and takes the following forms-
- Natural Person: e.g. the name of an individual, the suppliers and buyers, say, Ram, Shyam etc.
- Artificial Person or legal or Notional Person: e.g. Bank, Firm, Association, Company etc.
- Representative Personal Account: e.g. Outstanding liabilities for Rent, Salary etc., i.e. Rent Payable a/c etc.
Capital a/c is also a personal a/c. It is the account of owner. Similarly Drawings a/c is also a personal a/c of owner.
188.8.131.52 Real Account:
♦ It stands for properties and assets which are broadly classified as tangible and intangible
♦ e.g. Plant, Cash, Land, Building etc. are tangible real a/c
♦ whereas goodwill, patent, trade mark etc. are intangible assets.
184.108.40.206 Nominal/Fictitious Account:
♦ It relates to items which exist in name only.
♦ This account incorporates items relating to ‘Expenses and I.osses’, and ‘Income and Gains’.
♦ e.g. Rent, Salary, Dividend, Bad Debts etc.
♦ Thus it represents the accounts oi Goods/Sei vices/bcnelits consumed or rendered to others.
Adjustment Accounts: Certain accounts do not have meaning on stand alone basis but they are adjustment to some other accounts like Provision for bad debt a/c, Depreciation provision a/c. etc.
8.2.2 Alternative Classification of Accounts:
The basic accounting equation specifies those broad categories, which are as follows:
(f) Assets: These arc resources controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise, namely cash, stock of goods, land, buildings, machinery etc.
(ii) Liabilities: These are financial obligations of an enterprise other than owners’ funds, namely long term loans, creditors, outstanding expenses etc.
(iii) Capital: It generally refers to the amounts invested in an enterprise by its owner(s), the accretion to it or a reduction in it. Since capital is affected by expenses and incomes of revenue nature, there are two more categories of accounts, namely expenses and incomes. The difference between incomes and expenses known as profit or loss are taken into capital account.
(a) Expenses : These represent those accounts which show the amount spent or even lost in carrying on operations.
(b) Incomes: These represent those accounts which show the amounts earned by the enterprise.
8.3 FORMING ENTRY:
Following are the four ways in which entry for a transaction or event can be made: Entry is simply “to decide which account is to be debited & which credited”.
8.3.1 Deciding Entry by using classification of Accounts
Golden Rule (rules for Ascertaining ‘DEBIT’ & ‘CREDIT’)
Personal Account: ** Debit the receiver/the person who takes the benefit/the person from whom something is receivable.
** Credit the giver/the person who sacrifices the benefit/the person to whom we are liable to give/pay.
Real Account: ** Debit What comes into the business.
** Credit What goes out of the business.
Nominal Account: ** Debit All Expenses/losses
** Credit All Incomes/gains
Analysis of Transaction and Entry made from it
|It goes out||It is given to others||He is receiver|
|Real A/c.||Nominal A/c. (income)||Personal A/c.|
|Real A/c.||Nominal A/c. (expense)||Personal A/c.|
|It comes in||It is received/enjoyed||He is Giver|
Illustration 8.1: State with the help of a table, which account will be debited & which account will be credited.
(a) Commenced business with Rs. 1 0,000.
(b) Purchased goods worth Rs. 1,000
(c) Purchased machinery from Jay Engineering Works Rs. 3,000
(d) Purchased 95b preference share in TISCO Lid. Rs. 1,000
(e) Bought goods for cash Rs. 500
(f) Paid rent to landlord Rs. 300
(g) Paid for office stationery Rs. 50
(h) Opened an account with State Bank of India Rs. 500
(i) State Bank of India received dividend on our behalf Rs. 500
(j) Sita paid Rs. 100 on our behalf to Ram
(k) Borrowed Rs. 1,000 from wife for doing business
(l) Paid for Life Insurance Premium Rs. 200
(m) Received Rs. 100 from Anjali as commission
(n) Paid Rs. 400 to Anita on account
(o) Cash sales Rs. 700
Entry formed using classification of account
|Transaction||Account effected||Classification||Dr./Cr. With reason|
|(a) Commenced business with Rs. 10,000||Cash a/c|
|Real a/c Personal||Cash comes in hence cash a/c Dr.|
Owner is the giver of cash hence owners a/c i.e. Capital a/c Cr.
|(b) Purchased goods worth Rs.|
1000 (assumed as cash purchase because suppliers name not given)
|Purchase a/c Cash a/c||Nominal a/c Real a/c||Purchase is an expense hence purchase a/c Dr. Or Goods comes in hence purchase a/c Dr. Cash goes out hence Cash a/c Cr.|
|(c) Purchase machinery from Jay Engg. Works Rs. 3000||Machinery a/c Jay Engg. Work a/c||Real a/c Personal a/c||Machinery comes in hence machine a/c Dr. Jay Engg. Works is giver of machinery hence Jay Engg. Works a/c Cr.|
|(d) Purchase 9% pref. shares in TISCO Ltd. Rs. 1000||Shares a/c (Investment a/c) Cash a/c||Real a/c Real a/c||Shares comes in hence shares a/c Dr. Cash is given, hence cash a/c Cr.|
|(e) Bought goods for cash Rs. 500||Purchase a/c Cash a/c||Nominal a/c Real a/c||It is an expense, hence purchase a/c Dr. Cash goes out hence cash a/c Cr.|
|(f) Paid rent to landlord Rs. 300||Rent a/c Cash a/c||Nominal a/c Real a/c||Rent paid is an expense hence rent a/c Dr. Cash goes out, hence cash a/c Cr.|
|(g) Paid for office stationery Rs.50||Stationery a/c Cash a/c||Nominal a/c Real a/c||Stationery is an exp., hence stationery a/c Dr. Cash goes out, hence cash a/c Cr.|
|(h) Opened an a/c with SB1 Rs. 500||SBIa/c Cash a/c||Personal a/c Real a/c||SBI is receiver of cash hence SBI a/c Dr. Cash goes out hence cash a/c Cr.|
|(i) SBI received dividend on our behalf Rs. 500||SBI a/c Divided a/c||Personal a/c Nominal a/c||SBI is receiver of our money, hence SBI a/c Dr.|
Dividend received is an income, hence dividend a/c Cr.
|(j) Sita paid on our behalf lo Ram Rs. 100||Ram a/c Sita a/c||Personal a/c Personal a/c||Ram is receiver of money hence Ram a/c Dr. Sita is gi\ er of monev. hence Sita a/c Cr.|
|(k) Borrowed Rs. 1000 from wife for business||Cash a/c Wife’s a/c||Real a/c Personal a/c||Cash comes in business, hence cash a/c Dr. Wife is giver of cash, hence wife’s a/c (loan a/c) Cr.|
|(l) Paid for life insurance premium Rs. 200||Drawings a/c Cash a/c||Personal a/c Real a/c||Owners insurance premium paid hence he is receiver, hence his a/c (drawing a c) Dr. Cash goes out, hence cash a/c Cr.|
|(m) Received Rs. 100 as comm. from Anjali||Cash a/c Comm. a/c||Real a/c Nominal a/c||Cush comes in hence cash a/c Dr. Comm. received is income, hence commission a/c Cr.|
|(n) Paid Rs. 400 to Anita on account||Anita a/c Cash a/c||Personal a/c Real a/c||Anita is receiver, hence Anita a/c Dr. Cash goes out. hence cash a/c Cr.|
|(o) Cash sales Rs. 700||Cash a/c Sales a/c||Real a/c Nominal a/c||Cash is received, hence cash a/c Dr. Sales is income hence sales a/c Cr. Or Goods goes tntt hence sales a/c Cr.|
8.3.2 Forming an entry using the Nature of an Account:
|The following Principles can also be applied for Ascertaining ‘DEBIT’ & ‘CREDIT’|
Here one should keep in mind that Asset, Expenses and Stock/goods a/c. have debit balance and liability, income and capital account have credit balance. And further remember that Debit – Debit figures in same account will be added, Credit – Credit figures will be added but debit and credit figures will be subtracted from each other just like (+) & (-) in mathematics.
|When there is||Effect to that a/c||When there is||Effect to that a/c|
|1. Increase in Asset||– Dr.||4. Increase in Income or Profit||-Cr.|
|Decrease in Asset||-Cr.||Decrease in Income or Profit||– Dr.|
|2. Increase in Stock/Goods||– Dr.||5. Increase in Capital||– Cr.|
|Decrease in Stock/Goods||– Cr.||Decrease in Capital||– Dr.|
|3. Increase in Expense or Loss||– Dr.||6. Increase in Liability||-Cr.|
|Decrease in expense or Loss||-Cr.||Decrease in Liability||– Dr.|
Entries made on the basis of nature of Account
|Nature of A/c.||Type of A/c.||Balance in the Account||Effect of the transaction on it|
|Increases it||Decreases it|
|Assets||Real or Personal||Dr.||Dr.||Cr.|
While making entries remember the following
|(1) Dr.||(2) Cr.||(3) Dr.|
|(will get added)||(will get added)||(will get subtracted from each other)|
Illustration 8.2 : Journalise the following transactions-
|1 April 06||Mr. Rajendra started business with cash Rs. 2,000. Furniture Rs. 8,000. Stock of goods Rs. 5,000|
|2||Bought goods from Ajay for Rs. 5,000 less trade discount 10uo|
|4||Bought one table and one chair for Rs. 500, and paid for it cash|
|6||Sold goods to Kanta for Rs. 3,000 on credit|
|7||Received a cheque of Rs. 2,500 from Kanla|
|8||Received house rent of Rs. 2,400 from Miss Lalita|
|15||Bought one second hand typewriter for Rs. 500 and spent Rs. 200 for repairing it|
|20||Cash sales Rs. 5,000|
|22||Paid for travelling expenses Rs. 4,000|
|22||Paid allowances and commission to the travelling agent Rs. 1400|
|25||Received Rs. 4,000 as advance from Pawai Bros.|
|28||Sold goods of Rs. 6,000 to Pawar Bros.|
|29||Pawar Bros, returned defective goods of Rs. 500|
|30||Paid staff salary for the month Rs. 500 and general expenses Rs. 1,000|
Entry formed using nature of Recount
|Date||Effect of transaction||Account||Nature||Bala|
|1.4.06||Rajendra (owner) bring cash, furniture and sock (Capital a/c is the personal a/c of Rajendra)||Cash a/c||Asset a/c.||Dr.||Increases||Cash a/c Dr.||2000|
|Furniture a/c||Asset a/c.||Dr.||Increases||Furniture a/c Dr||8000|
|Stock a/c||Asset a/c.||Dr.||Increases||Stock a/c Dr.||5000|
|Rajendra a/c||Liability a/c.||Cr.||Increases||To Capital a/c||15000|
|2.406||Goods purchased from Ajay (creditor) 5000 – 10% i.e. 500 = Rs. 4500||Purchase a/c||Expense||Dr.||Increases||Purchase a/c Dr.||4500|
|Ajay a/c||Liability||Cr.||Increases||To Ajay a/c||4500|
|44.06||Furniture (table, chair) purchased & paid by cash Rs. 500||Furniture||Asset||Dr.||Increases||Furniture a/c Dr.||500|
|Cash||Asset||Cr.||Decreases||To Cash a/c||500|
|6.4.06||Goods sold to kanta (debtor) on credit Rs. 3000||Kanta||Asset||Dr.||Increases||Kanta a/c Dr.||3000|
|Sales||Income||Cr.||Increases||To Sales a/c||3000|
|7.4.06||Received cheque (& deposited in bank) from Kanta (debtor) Rs. 2500||Bank||Asset||Dr.||Increases||Bank a/c Dr.||2500|
|Kanta||Asset||Cr.||Decreases||To Kanta a/c||2500|
|8.4.06||Received cash as rent from Lalita Rs. 2400||Cash||Asset||Dr.||Increases||Cash a/c Dr.||2400|
|15.4.06||Old typewriter purchased and repaired and paid cash Rs. 700||Typewriter||Asset||Dr.||Increases||Typewriter a/c Dr.||700|
|Cash||Asset||Cr.||Decreases||To Cash a/c||700|
|20.4.06||Goods sold & cash received Rs. 5000||Cash||Asset||Dr.||Increases||Cash a/c Dr.||5000|
|Sales||Income||Cr.||Increases||To Sales a/c||5000|
|22.4.06||Travelling exp. paid in cash Rs. 4000||Travelling exp.||Expense||Dr.||Increases||Travelling exp. a/c Dr.||4000|
|Cash||Asset||Cr.||Decreases||To Cash a/c||4000|
|22.4.06||Travelling exp. paid to agent Rs. 1400||Travelling exp.||Expense||Dr.||Increases||Travelling exp. a/c Dr.||1400|
|Cash||Asset||Cr.||Decreases||To Cash a/c||1400|
|25.4.06||Cash Rs. 4000 received from Pawar Brothers (advance – liability)||Cash||Asset||Dr.||Increases||Cash a/c. Dr.||4000|
|Pawar||Liability||Cr.||Increases||To Pawar Bros, a/c||4000|
|28.4.06||Goods sold to Pawar brothers (customer debtor) Rs. 6000||Pawar Bros.||Asset||Dr.||Increases||Pawar Bros, a/c Dr.||6000|
|Sales||Income||Cr.||Increases||To Sales a/c||6000|
|29.4.06||Pawar bros, returns goods (sales return) Rs. 500||Sales return||(-) Income||Dr.||Increase||Sales return a/c Dr.||500|
|Pawar bros.||Asset||Cr.||Decrease||To Pawar Bros, a c||500|
|30.4.06||Salary & general expenses paid by cash||Salary||Expense||Dr.||Increase||Salary a/c Dr.||500|
|Gen. exp.||Expense||Dr.||Increase||General exp. a c||1000|
|Cash||Asset||Cr.||Decrease||To Cash a/c||1500|
(1) In the two previous problems how entry is made is explained by analyzing transactions and using either classification of account or nature of account. Student can adopt either or both whichever is convenient. But there is no need to write those details in exam, there only entry need be written.
(2) There need not be two a/c for Pawar brothers. The same a/c. when shows credit balance represent advance received from customer hence liability and when goods is sold to him and debited to his a/c, then the debit balance (6000-4000 = Rs. 2000) is receivable hence an asset.
8.3.3 Transfer Entries:
When an account is to be transferred (i.e. it is being reduced/nullified) to some other a/c, the entry can be formed as follows:
|If an account having debit balance is to be transferred. Then credit this account and debit the account where it is to be transferred. Ex. Salary Expense account Rs. 30,000 transferred to P&L account.|
|P&L A/c Dr.||30,000|
|To Salary Expense A/c||30,000|
|Similarly if an account having credit balance is to be transferred. Then debit this account and credit the account where it is to be transferred. Ex. Interest Income account Rs. 5,000 transferred to P&L A/c.|
|Interest Income A/c Dr.||5,000|
|To P&L A/c||5,000|
8.3.4 Reversal Entries:
When an information is just a reversal/cancellation of an earlier transaction, then its entry can be formed as follows:
|Sometimes a transaction is not a new transaction rather it is the cancellation of some earlier transaction. In such cases simply reverse the original entry.|
For example – Cheque received from Satish deposited in Bank Rs. 10,000
|Bank A/c Dr.||10,000|
|To Satish A/c||10,000|
|Later on we got the information that above cheque is dishonoured. Then simply reverse the above entry.|
|Satish A/c Dr.||10,000|
|To Bank A/c||10,000|
|Entries for a transaction/event can be made by any one or more than one of the above listed 4 ways, but entry will be same.|
8.4 ACCOUNTING PROCESS (SUMMARIZED):
♦ Opening balance : Last years balances of assets (Dr. balance) & liabilities (Cr. balance) as shown in the balance sheet, will be recorded 1st in Journal and then posted to respective accounts in the ledger.
♦ Transactions: Accounting starts with Transactions. Transaction means Receipts, Payments, Sale, Purchase etc. It is any give & take which has financial effects. Which affects the concern. (Business Entity concept)
♦ Entry: Transaction is recorded by way of an entry in the Cash book/Journal/Purchase Register/Sale Register (books of entry) etc. as per Double Entry Principle i.e. Debiting some accounts & Crediting others with the equal amounts.
♦ Posting Ledgers : Above entries are posted in the ledger books in respective accounts.
Different accounts are prepared for each & every different nature of items. Each account will provide the complete details about the transaction of a particular nature for that accounting period. Accounts will have two sides known as Debit & Credit sides.
♦ Balancing : At the end of accounting year all accounts are totalled & balanced, some accounts may have Nil balance, other may have Debit balance (i.e. Debit total is more) & some other may have credit balance (i.e. credit total is more.)
♦ Trial Balance : The accounts having balances are listed in a statement known as Trial Balance giving Debit & Credit balances separately.
Total of debit & credit side must tally because accounting is done by double entry system.
If it doesn’t tally that means there are errors which will have to be located & rectified.
♦ Final a/c: With the help of this Trial Balance and other Adjustment/additional information the Final Statement of Accounts i.e. (a) Trading profit & loss Account and (b) Balance Sheet is prepared.
♦ This adjustment/additional Information are the transactions which have not been recorded in the books of account so far, therefore double effect (i.e. debit & credit) has to be given lot them.
♦ Closing entries: All the accounts (accounts of Income & Expenses) ti ansi erred to Trading profit & loss account gets closed & their net result i.e. the profit or loss is transferred to Capital Account.
♦ Whereas the accounts (accounts of Assets & Liabilities) shown in the Balance Sheet are carried forward to next year’s books of account as opening balances.
8.5 BOOKS OF ACCOUNT:
♦ Books of account can be classified into following two category:
■ Books of entry : (also known as Subsidiary book, book of original entry or prime book of entry)
■ Ledger : (also known as Principal book, book of 2nd entry)
8.5.1 Book of Entry:
♦ It is book of 1 st entry in which transactions are recorded date wise, in the chronological order of their happening.
♦ Even’ transaction will be recorded in any one book of entry.
♦ There arc many books of entry which can be prepared.
♦ Which books of entry are to be prepared depends upon the size of the business, nature of business and volume of transactions.
♦ If it is very small business we may prepare only Journal or Cash book & Journal.
♦ If the size grows we may prepare other books of entry also. e.g. Sales book, Purchase book, Return books. Bills Payable book, Bills Receivable book.
♦ Whichever may be book of entry, double entry effect (i.e. debit & credit) will be always there, & it will be always same.
- Every transaction must be recorded.
- It must be recorded in any one book of entry depending upon which books of entry are being maintained.
- It must be recorded by double entry principle.
- Double entry for a transaction will be always same irrespective of the book of entry in which it is being recorded.
- Concern must maintain at least one book of entry but there is no maximum limit.
8.5.2 Important Books of Entry are as follows:
- CASH BOOK:
♦ All cash transactions i.e. receipts & payments will be recorded in the cash book.
♦ Cash book will be prepared in the form of an account having debit and credit side.
♦ Receipt will be recorded on the debit side and payments on the credit side.
♦ The cash book itself serves the purpose of cash A/c & hence we don’t have to prepare separate cash A/c in Ledger.
♦ The receipt side items will be posted on credit side in respective accounts in ledger.
♦ Payment side items will be posted on debit side in respective account in ledger.
♦ Only one posting is made because cash book itself is also a cash account & hence when we write an entry on receipt side it means cash a/c is debited
♦ When we write an entry on payment side it means cash a/c is credited &
♦ Balance of Cash a/c is cash balance & will be taken in Trial balance.
Illustration 8.3: Opening balance Rs.400. Cash sales made Rs.500. Interest received Rs.300. Cash purchases made Rs.400. Salary paid Rs.200. Write cash book.
|Cash Book (Single column)|
|To Opening balance||400||By Purchase a/c||400|
|To Sales a/c||500||By Salary a/c||200|
|To Interest a/c||300||By Balance c/f||600|
|Sales A/c||Purchase A/c|
|By Cash a/c||500||To Cash a/c 400|
|Interest A/c||Salary A/c|
|By Cash a/c||300 To Cash a/c||200|
|Similarly a single column Bank book can also be prepared.|
- CASH CUM BANK BOOK:
♦ We can make cash book with two columns, one for cash transactions & other for Bank transactions.
♦ All deposits into & withdrawal from the bank will be recorded in bank column, & this itself is a bank a/c also.
♦ No need to prepare now Cash & Bank a/c in ledger.
♦ Posting from Bank column & cash column is made in the same way as explained in case of cash book.
♦ Balance of Cash and Bank columns will come in Trial balance as cash and bank balances.
- Double column cash book can be of the following three types (i) Cash & Bank column (ii) Cash & discount column (iii) Bank & discount column.
- The discount columns are opened when the transactions involving discount allowed & discount received are frequent.
- Discount allowed will be entered on debit side and discount received on credit side. Posting to other accounts will be the cash/bank amount plus discount.
- Unlike Cash & Bank column, discount column is not treated as an account & hence total of discount column is posted in Discount account in ledger.
Illustration 8.4: Opening balance Rs.400. Cash received from Anand Rs.480 & Discount allowed Rs.20. Rupesh settled his dues Rs.200 @5% discount. We settled Truptis dues Rs.300 at 5% discount. Paid to Rajani Rs. 195 & discount received 2.5%. Write cash book with discount column.
Cash Book (Double column)
|To Opening balance||400||By Trupti a/c||15||285|
|To Anand a/c||20||480||By Rajani a/c||5||195|
|To Rupesh a/c||10||190||By Balance c/f||590|
|Anand A/c||Trupti A/c|
|By Sundry a/c||500||To Sundry a/c||300|
|Rupesh A/c||Rajani A/c|
|By Cash a/c||190||To Cash a/c||195|
|By Discount a/c||10||To Discount a/c||5|
|Discount allowed A/c||Discount received A/c|
|To Sundry a/c||30||By Sundry a/c 20|
- TRIPLE COLUMN CASH BOOK:
♦ It will have three columns on both sides for cash, bank & discount.
♦ Entry in this book & posting to ledger accounts will be same as mentioned above.
Cash column i.e. Cash account will always have debit balance but Bank column i.e. bank account can have either debit or credit balance.
Illustration 8.5: Opening balance Cash Rs. 200 & Bank Rs. 400. Cheque received from Anand Rs. 480 & Discount allowed Rs. 20. Rupesh settled his dues Rs. 200 discount by cash. We settled Truptis dues Rs. 300 at 5% discount by cheque. Paid cash to Rajani Rs. 195 & discount received 2.5%. Write Triple column cash book.
Cash Book (Triple column)
|To Opening bal.||200||400||By Trupti a/c||15||–||285|
|To Anand a/c||20||–||480||By Rajani a/c||5||195||–|
|To Rupesh a/c||10||190||–||By Balance c/f||195||595|
|Anand A/c||Trupti A/c|
|By Bank a/c||480||To Bank a/c||285|
|By Discount a/c||20||To Discount a/c||15|
|Rupesh A/c||Rajani A/c|
|By Cash a/c||190||To Cash a/c||195|
|By Discount a/c||10||To Discount a/c||5|
|Discount allowed A/c||Discount received A/c|
|To Sundry a/c 30||By Sundry a/c 20|
- PETTY CASH BOOK:
♦ This is to be prepared to record the petty (small) expenses, which are incurred frequently.
♦ On the payment side the amount is classified into various columns depending upon the account to which it has to be debited.
♦ The columns can be for conveyance expenses, postage, repairs & maintenance, printing & stationery, salary, wages and so on.
♦ It is also known as analytical cash book.
♦ In petty cash book receipt will be from main cash book.
♦ The total of this column is debited to respective expense accounts in the ledger after a specific period may be monthly, weekly etc.
♦ The Balance of petty cash book (i.e. receipts (-) payments) shows the balance of cash in hand which will be shown in Trial balance.
Illustration 8.6: Opening balance of petty Cash Rs. 100 Received from main Cashier Rs. 900. Petty cashier spent during the period: Rs. 50 for Conveyance, Rs. 80 for Stationery, Rs. 60 paid for postage stamps, Rs. 150 for repairs of furniture. Rs. 40 for carting. Rs. 200 paid to workers, Rs. 100 for office cleaning.
Petty Cash Book (Analytical cash book)
|To Op. bal.||100|
|To Main Cash||900|
|By Office exp.||100||100|
|By Closing bal.||320|
Posting of total amount will he made to respective expense account in ledger.
- IMPREST SYSTEM:
♦ An amount is fixed which is given to petty cashier who meets expenses out of it & periodically or when the amount is spent, he takes reimbursement from main Cashier exactly equal to amount spent hence his cash balance again becomes equal to fixed imprest amount.
♦ This is the upper limit of cash which petty cashier can have.
♦ It is a version of Petty cash book only.
♦ Ex. Imprest amount is fixed at Rs. 1000. Petty cashier has spent Rs. 785 in that period, thus he has balance of Rs. 215. Now he will get reimbursement from main cashier Rs. 785, thus his balance will again become Rs. 1000.
- SALES BOOK:
♦ The Sales Day-Book is a register specially kept to record credit sales of goods dealt in by the firm.
♦ Cash sales are entered in the Cash Book and not in the Sales Day Book.
♦ Credit sales of things other than the goods dealt in by the firm are not entered in the Sales day Book; they are journalised.
♦ For accounting, Goods means only those items in which the particulars concern is doing business i.e. purchasing & selling it.
♦ It is a subsidiary book/subsidiary journal & posting is made from it to the sales account and accounts of the customers.
♦ The total of sales register is credited to sales a/c periodically say monthly.
♦ And individual amounts are debited to respective parties (debtors) a/c.
Sales Account is a final record and postings are made to it from Cash Book (Cash sales) and Sales Day Book (credit sales).
Sales Account is maintained in the ledger in the manner, the other accounts are maintained.
Sales Account is a nominal account and its balance is used for ascertaining gross profit or gross loss.
Illustration 8.7: Credit sales of goods made to Pravin Rs. 2,000, Pranay Rs. 1,500 & Prashant Rs. 1,000
|Date||Particulars||Party /Customer/Debtor||LF||Amount Rs.|
|Sales A/c||Pranay A/c|
|By Sundry a/c||4,500 To Sales a/c||1,500|
|Pravin A/c||Prashant A/c|
|To Sales a/c||2,000||To Sales a/c||1,000|
- PURCHASE BOOK:
♦ All credit purchases of goods are recorded in purchase book.
♦ Cash purchases are entered in the Cash Book and not in the Purchases Day Book.
♦ Credit purchases of things other than the goods dealt in by the firm are not entered in the Purchases day Book; they are journalised.
♦ It is a subsidiary book / subsidiary journal & posting is made from it to the purchases account and accounts of the suppliers.
♦ The total of purchase register is debited to purchase a/c periodically say monthly &
♦ Individual amounts are credited to respective parties (suppliers) a/c.
Cash sales & Cash Purchases will be recorded in Cash Book and credit sales & credit purchase of Assets will be recorded in Journal. Comments for sales account made above equally apply to purchase account.
Illustration 8.8: Credit purchase of goods made from Prateek Rs. 1,800, Puneet Rs. 1,200 & Praneeta Rs. 1,000.
|Date||Particulars||Party /Supplier/Creditor||LF||Amount Rs.|
|Prateek A/c||Praneeta A/c|
|By Purchase a/c||1,800||By Purchase a/c||1,000|
|Puneet A/c||Purchase A/c|
|By Purchase a/c||1,200||To Sundry a/c||4,000|
- BILLS RECEIVABLE & BILLS PAYABLE BOOKS:
♦ All Bills Receivables received are recorded in Bills Receivables book &
♦ Bills Payables issued will be recorded in Bills Payable book.
♦ The total of Bills Receivable register is debited to Bills Receivable a/c.
♦ Individual amounts are Credited to respective parties a/c.
♦ Similarly the total of Bills Payable register is Credited to Bills Payable a/c. and
♦ Individual amounts are Debited to respective parties a/c.
Entry for Discounting, Payment, Receipt, Dishonour etc. will not be recorded in this registers but will be recorded in Cash book/Journal etc.
Bills Receivable Endorsed book:
♦ If there are regular/frequent cases of endorsing the Bills Receivable then instead of recording the same in Journal, we can prepare a Bills Receivable endorsed Book.
♦ All Bills Receivable endorsed will be entered in it.
♦ The parties account to whom bill is endoi sed will be debited from here and
♦ Total of this book will be monthly credited to Bills Receivable a/c.
Illustration 8.9: Refer Credit sales made in illustration 8.7 to Pravin Rs. 2,000, Pranay Rs. 1,500 & Pr ashant Rs. 1.000 and now bills are drawn on them.
Hills Receivable Rook
|Bills Receivable A/c||Pranay A/c|
|To Sundry a/c||4,500||To Sales a/c||1,500||By Bills receivable a/c||1,500|
|Pravin A/c||Prashant A/c|
|To Sales a/c||2,000||By Bills receivable a/c||2,000||To Sales a/c||1,000||By Bills receivable|
Illustration 8.10: Refer Credit purchase made as per Illustration 8.8 from Prateek Rs. 1,800, Puneet Rs. 1,200 & Praneeta Rs. 1,000 and bills drawn by them accepted.
Bills Payable Book
|Date||Particulars||Party /Supplier /Creditor||LF||Amount Rs.|
|Prateek A/c||Praneeta A/c|
|To Bills Payable a/c||1,800||By Purchase a/c||1,800||To Bills Payable a/c||1,000||By Purchase a/c||1,000 !|
|Puneet A/c||Bills Payable A/c|
|To Bills Payable|
|1,200||By Purchase a/c||1,200||By Sundry a/c||4,000|
♦ Similarly Purchase Return Register, Sales Return Register, can be prepared if number of such transactions are large.
♦ The procedure of preparing such books & posting from them is exactly similar to that seen for sales book & purchase book.
Sales Return Book
|Date||Particulars||Party /Customer /Debtor||LF||Amount Rs.|
|Purchase Return Book|
♦ The remaining transaction which cannot be recorded in any of the above books will be recorded in journal.
♦ In journal normally following types of entry will come:
■ Opening entries (Previous years assets & liabilities are brought forward),
■ Closing entries (Making provisions, adjustments & transferring all incomes & expenses into Trading & Profit & Loss account)
■ Transfer entries, Rectification entries, credit sale/Purchase of fixed assets, investment etc.
If any of the above hooks mentioned In (1) to (9) are not maintained then the entries related to that book will also he recorded In Journal.
From each entry debit and credit both will be posted Into respective accounts In ledger.
|Date||Particulars||LF||Debit Rs.||Credit Rs.|
- IF A CONCERN MAINTAINS ONLY JOURNAL AS BOOK OF ENTRY:
♦ Transactions are first entered in a book called ‘Journal’ to show which account should be debited and which credited.
♦ Journal creates preliminary records and is also called subsidiary book.
♦ All transactions are first recorded in the journal as and when they occur, the record is chronological, otherwise it would be difficult to maintain the records in an orderly manner.
♦ Journal gives details regarding any transaction. Thus Journal tells the accounts to be debited and credited and also the accounts involved.
- IF A CONCERN MAINTAINS ONLY CASH BOOK AS BOOK OF ENTRY:
♦ Usually journal is always maintained hence all non-cash transactions are recorded in journal and only cash transactions are recorded in cash book.
♦ But suppose concern is maintaining only cash book as book of entry i.e. it is not maintaining journal then even non-cash transaction will have to be recorded in cash book.
♦ It will be recorded on both side of the cash book, hence, it will not have any effect on the cash balance and by making appropriate posting from both the sides of cash book the debit and credit effect will be created in relevant accounts in ledger.
Illustration 8.11: If a concern maintains only Cash book then non cash transaction also will be entered through cash book as illustrated below:
(a) Credit sale to A & Co. Rs. 5,000/- Dt. 5.1.06 (b) Credit purchase from M/s XYZ Rs. 3,000/- Dt. 10.1.06
|5.1.06||To Sale a/c||5,000||5.1.06||By A & Co A/c||5,000|
|10.1.06||To XYZ a/c||3,000||10.1.06||By Purchase a/c||3,000|
When posting is made from above the A & Co a/c will be debited and Sales a/c will be credited, the same effect would have been given through Journal or Sales book.
Similarly Purchase a/c will be debited and XYZ a/c will be credited, the same effect would have been given through Journal or Purchase book.
8.5.3 Ledger (Principal Book):
♦ All accounts are opened in a separate register known as a ledger
♦ Only exception is cash & Bank a/c. which are not prepared in ledger because cash <& Bank book itself is cash & Bank account also (when Cash cum Bank Book is prepared).
♦ All other books are only books of entry they are not ledger accounts.
♦ Hence when we enter a transaction in a book of entry, we decide/write which account should be debited & which account should be credited.
♦ But actual debit & credit gets completed only when we write the amount from this book to respective accounts in ledger on debit or credit side as the case may be.
♦ This process of writing the amount from books of entry to ledger account is known as ‘posting’.
♦ Each account will have two sides, left hand side is known as debit side & right hand side as credit side.
♦ If the amount is written on debit side that means that account is debited
♦ If written on credit side means that account is credited.
♦ All these accounts are then totalled & balanced.
♦ All the accounts which are having balances either debit or credit are listed on a statement known as Trial Balance &
♦ With the help of this Trial Balance, Final accounts namely Trading & P&L A/c and Balance sheet is prepared.
Instead of one ledger, concern can maintain multiple ledgers like Debtors ledger, Creditors ledger, General ledger etc.
|Date||Particulars||F||Amount Rs.||Date||Particulars||F||Amount Rs.|
8.6 ANNUAL FINANCIAL STATEMENT (ALSO KNOWN AS FINAL ACCOUNTS):
The end results of book-keeping & accountancy, comes in the form of following two statements:
(a) Profit & Loss Account: It shows result of the business (performance) for a particular period i.e. the profit earned or loss suffered by the concern.
(b) Balance Sheet: It shows the financial position at the end of the year i.e. Assets and properties of the concern and the liabilities of the concern.
Certain enterprises prepares Cash Flows statement also. It is covered in your Intermediate syllabus, hence not covered in this book.
Details about Final Account is covered in Chapter 13 in this Book.
8.7 OTHER SPECIAL POINTS:
8.7.1 Accrual basis of accounting (Mercantile System of Accounting) & cash basis of accounting:
♦ A transaction is recognized when either a liability is created (i.e. when goods/services/benefits or properties are received) and/or an asset is created (i.e. when goods/services/benefits or properties are given).
♦ Whether payment is made or received is immaterial in accrual basis accounting.
♦ Accrual basis of accounting is also known as mercantile basis of accounting.
♦ On the other hand, cash basis of accounting is system of accounting by which a transaction is recognized only if cash is received or paid, no entry is being made when a payment or receipt is merely due.
♦ Accrual basis accounting is the only generally accepted accounting method for business entities which are supposed to operate for long period.
♦ Cash basis accounting is suitable for short duration ventures.
♦ All the chapters which you will study are on accrual basis only exception may be joint venture.
♦ Commission may he defined as remuneration of an employee or agent relating to services performed in connection with sales, purchases, collections or other types of business transactions and is usually based on a percentage of the amounts involved.
(i) Commission paid to selling or buying agents.
(ii) Commission paid to brokers and bankers for services rendered.
(iii) Commission paid to property dealers for assistance in renting out properties or for services in connection with purchases/sale of properties.
(iv) Commission to export import agent in foreign trade.
♦ Commission earned is accounted for as an income, by the party rendering such facility/services and
♦ Commission allowed or paid is accounted for as an expense by the party availing such facility or service.
♦ The term discount refers to any reduction or rebate allowed and is used to express one of the following situations:
(i) An allowance given for the settlement of a debt before it is due i.e., cash discount.
(ii) An allowance given to the wholesalers or bulk buyers on the list price or retail price, known as trade discount. A trade discount is not shown in the books of account separately and it is shown by way of deduction from purchases/sales value.
(iii) The excess of par or face value of shares or debentures over the amount paid by subscriber i.e. discount on issue of a security.
(iv) The amount charged by a bank on discounting of a bill of exchange.
8.7.4 Trade discount & Cash discount:
♦ Trade discount is a discount on the selling price for bulk purchase or for purchasing above a minimum quantity or is offered generally to regular customers.
♦ It is also called quantity discount.
♦ This is a technique of sales promotion.
♦ It is generally determined at the stage of sale itself & is deducted from the sale/purchase value & hence doesn’t appear separately in the Books of a/cs & Final a/cs.
♦ Cash discount is the discount offered by the supplier in consideration of early or timely payment.
♦ It may vary with the period of payment.
♦ It is accounted as a separate item & appears in the Profit & loss a/c.
♦ Cash discount is usually given at the time of payment/receipt as against trade discount is given at the stage of sale/purchase.
8.7.5 Debit Note:
♦ A debit note is a statement sent by one party to the other stating/informing him that his account has been debited with a specified amount and the reason for debit.
♦ A debit note is sent to the supplier when the goods purchased from him are returned (purchase return) or for discount to be received from him or for any expenses incurred for him.
|Entry:||In the books of sender of Debit note||In the books of receiver of Debit note|
|Party (to whom it is sent) a/c Dr.||Sales return/Discount allowed etc. a/c Dr.|
|To Purchase ret urn/Discount received etc.||To Party (who sent it) a/e|
8.7.6 Credit Note:
♦ A Credit note is a statement/letter sent by one party to the other stating/informing him that his account has been credited with a specified amount and the reason for credit.
♦ A credit note is sent to the customer when we receive Rood returned by them or for discount to be allowed to him or for any expenses incurred for us by him.
|Entry:||In the books of sender of Credit note||In the books of receiver of Credit note|
|Sales return/Discount allowed etc. a/c Dr.||Party (who sent it) a/c Dr.|
|To Party (to whom it is sent) a/c||To Purchase return/Discount received etc.|
Entity concepts: Business vs. Personal transactions
Illustration 8.11 A: Ramlal carries on business as a cloth dealer. State which of the following are transactions to be recorded in his business books.
(a) He purchases a perambulator for his son.
(b) He employs a typist for official correspondence and pays him Rs. 450 P.M.
(c) He buys a showcase for Rs. 350.
(d) He sells old domestic furniture for Rs. 300.
(e) He purchases cloth Rs. 15,000.
(f) He buys a Cash Register Machine for Rs. 15,000.
(g) He purchases domestic utensils for Rs. 200 for which he gives cloth from the shop.
(h) He takes cloth Rs. 25 for use at home.
(i) He pays salary to his domestic servant, Rs. 50 from private funds.
(j) He takes a loan of Rs. 10,000 from a friend for the marriage of his daughter.
Analysis of the financial effect (both aspect)
|It is a transaction for & hence to be recorded in|
|Business (concern’s) Book||Personal books, of Ramlal|
|(a)||Personal exp., paid from personal sources||No||Yes|
|(b)||Office exp. paid from office a/c||Yes||No|
|(c)||Office Asset, paid from office (assumed that show case is for shop)||Yes||No|
|(d)||Personal income, Money received in personal a/c||No||Yes|
|(e)||Office exp. paid from office a/c||Yes||No|
|(f)||Office Assets, paid from office a/c||Yes||No|
|(g)||Personal exp. paid giving goods from shop||Yes||Yes|
|(h)||Personal exp., goods taken from shop||Yes||Yes|
|(i)||Personal exp., paid from personal sources||No||Yes|
|(j)||Personal liability, Money kept for personal use||No||Yes|
- While deciding whether it is a transaction or not see both the aspects in it & if it creates any financial effect on entity like something is coming/received, something is going/paid, it is an expense or income, a change in an asset or a liability, then it is a transaction to be recorded in that entities books.
- The question is f or the concern’s books only, but we have added personal books also. So as to give a comparative idea of whether it is a business transaction, personal transaction or both.
Classification of Accounts
Illustration 8.12: Classify the following accounts into Personal, Real and Nominal.
(a) Cash Account (b) Wages Account
(c) Building Account (d) Calcutta Tramway Co. Account
(e) East Bengal Club Account (f) Rent Account
(g) Capital Account (h) Drawings Account
(i) Interest Account (j) Trade Mark Account
(k) Dividend Account (l) Land Account
(m) Goodwill Account (n) Patent Account
(o) Bad Debts Account (p) Bank Account
(q) Discount Allowed Account (r) Interest Received Account
(s) Discount Received Account (t) Salary Payable
(u) Bills Receivable
Solution : Personal Accounts – d, e, g, h, p, t, u
Real Accounts – a, c, j, l, m, n
Nominal Accounts – b, f, i, k, o, q, r, s
Identification of Accounts in a transaction
Illustration 8.13: Mention the accounts affected in the following transaction:
(a) Bought goods of Pran (b) Sold goods to Somnath
(c) Paid rent by cash (d) Received cash from Premnath
(e) Received commission in cash (f) Paid salaries in cash
(g) Purchased furniture from Deodas (b) Sold Machinery to Devanand
(t) Received cash from Sharmaji (j) Paid Cash to Rakesh.
(k) Cash sales to Mr. A. (f) Purchases from ‘B’ & paid cash.
(m) Salary payable to ‘C’.
Solution : Accounts affected
(a) Pran a/c (P) & Purchase a/c (N)
(b) Somnath a/c (P) & Sale a/c (N)
(c) Rent a/c (N) & Cash a/c (R)
(d) Cash a/c (R) & Premnath a/c (P)
(e) Cash a/c (R) & Commission a/c (N)
(f) Salary a/c (N) & Cash a/c (R)
(g) Furniture a/c (R) & Deodas a/c (P)
(h) Machinery a/c (R) & Devanand a/c (P)
(i) Cash a/c (R) & Sharmas a/c (P)
(j) Cash a/c (R) & Rakesh a/c (P)
(k) Cash a/c (R) & Sales a/c (N)
(l) Cash a/c (R) & Purchase a/c (N)
(m) Salary a/c (N) & Salary payable a/c OR ‘C’ a/c (P)
Though not required by question, the classification of a/c has been marked. P = Personal a/c, R = Real a/c, N = Nominal a/c.
Classification of effect of Payment
Illustration 8.14: Which of the following payments are assets, which expenses and which are losses.
(a) Purchasing typewriters. (b) Acquiring trade marks.
(c) Paying salaries. (d) Compensation to injured workers.
(e) Paying Interest. (f) Securing a lease of land for 20 years.
(g) Paying Rent. (h) Advertising.
(i) Stationery. (j) Patents.
(k) ‘Theft of cash’ (l) Purchases of goods
Solution : Assets: a, b, f, j
Expenses: c, e, g, h, i, l
Losses: d, k
Classification of effect of Receipt
Illustration 8.15: Which of the following receipts are incomes?
(a) Interest on loans. (b) Repayment of a loan.
(c) Sale of Building. (d) Rent for premises sublet,
(e) A loan taken from a bank. (f) Sale of goods
Solution : Income (Revenue Receipt) – a, d, f
Capital Receipts – b, c, e
Forming Journal Entry * 1
Illustration 8.16: Explain that each of the following transactions has two fold effect?
- Paid Rs. 650/- to Jaideo
- Received Rs. 550/- from Ramdeo
- Paid Rs. 350/- toward interest
- Received Rs. 990/- on account of commission
- Bought goods worth Rs. 1,600/- for cash
- Bought goods worth Rs. 1,650/- on credit from Somdeo
- Sold goods worth Rs. 1,700/- on credit to Namdeo
- Paid loading charges Rs. 10
- Received Rs. 10,000 as loan from Mr. Sanjay
- Paid for office cleaning Rs. 60
- Cash goes out, therefore, cash a/c. is (credited) and it is paid to Jaideo he is the receiver hence Jaideo a/c. is (debited).
- Cash is received hence cash a/c. is (debited) and it is received from Rarndeo, he is the giver hence Ramdeo a/c is (credited).
- Interest payment indicates that somebody’s money used by us. i.e. benefit received hence Interest account is (debited) and Cash is paid, as cash goes out of business hence (credited).
- Cash is received hence cash a/c. is (debited) and commission received means we have given services hence commission is an income & is (credited).
- Goods purchased and cash given. Goods a/c (it comes in)/purchase a/c (expense) hence (debited) and cash goes out hence cash a/c. is (credited).
- Goods purchased on credit. Goods a/c (it comes in)/Purchase a/c (expense) hence (debited) and Somdeo is the giver hence Somdeo’s a/c. will be (credited).
- Goods sold to Namdeo on credit. He is the receiver hence Namdeo’s a/c. is (debited) and goods goes out of the business it is income hence sales a/c. is (credited).
- Loading charges paid. Services received hence it is an expense so loading charges a/c. will be (debited) and cash goes out hence cash a/c. (credited).
- In this transaction, cash is received and therefore cash a/c. will be (debited). And Sanjay is the giver, hence Sanjay s loan a/c. will be (credited).
- Cleaning charges paid. Services received hence it is an expense so Office expense a/c. will be (debited) and cash goes out hence cash a/c. will be (credited).
Illustration 8.17: Journalize the transactions given below in the books of Kohli.
- Kohli starts business with Rs. 25,000. Kohli opens account with bank and deposits Rs. 18.000.
- Kohli purchases furniture, Rs. 850 and typewriter, Rs. 1500. Payment made by cheque.
- Goods purchased from M/s. Kao and Murty on credit, Rs. 5,600
- Goods purchased from M/s. Khan & Singh for cash, Rs. 1,100.
- Goods sold on credit to M/s Mohan Lal & Co., Rs. 1500/-
- Goods sold on credit to M/s Basu & Co., Rs. 2,800/-
- Paid for office stationery. Rs. 250/-
- Paid rent for April Rs. 200/-
- Installed neon sign at a cost of Rs. 1,000.
- Received cash from M/s. Mohnnlal & Co., Rs 1470; allowed them discount, Rs. 30.
- Issued cheque for Rs. 5,500 in full settlement (i.e. nothing more is due them) to M/s Rao & Murty,
- Deposited Rs. 1,200 in bank.
- Received bill for two table fans. Rs. 300 from M/s Electrician Bros.
- One electric fan stolen.
- Paid insurance premium, Rs. 450 by cheque.
- Insurance Premium Rs. 200 paid to L I C.
Journal of Kohli
|To Kohli’s A/c/Capilal a/c||25000|
|(Being Kohli brings cash as Capital contribution)|
|To Cash A/c||18000|
|(Being Bank a/c opened by depositing cash)|
|To Bank A/c||2350|
|(Being Furniture & typewriter purchased & payment made by cheque)|
|To Rao & Murty a/c||5600|
|(Being goods purchased on credit from Rao & Murty)|
|To Cash A/c||1100|
|(Being goods purchased on cash)|
|5.5.06||M/s Mohan Lal & Co.||Dr.||1500|
|To Sales A/c||1500|
|(Being goods sold on credit to Mohanlal & Co.)|
|6.4.06||M/s Basu & Co.||Dr.||2800|
|To Sales a/c||2800|
|(Being goods sold on credit to Basu & Co.)|
|To Cash a/c||250|
|(Being stationary purchased on cash)|
|To Cash a/c||200|
|(Being rent paid in cash)|
|9.4.06||Furniture & fixture a/c/Advertiseπient A/c Dr.||1000|
|To Cash a/c||1000|
|(Being neon sign installed & cash paid for it. It can be debited to furniture if treated as capita) expenditure. If treated as revenue expenditure then can he debited to Advertisement a/c)|
|To M/s Mohan Lal & Co||1500|
|(Being cash received from Mohanlal & Co. & discount allowed to them)|
|11.4.06||M/s Rao & Murty||Dr.||5600|
|To Discount a/c||100|
|To Bank a/c||5500|
|(Being paid to Rao & Murty by cheque & discount received from them.)|
|To Cash A/c||1200|
|(Being cash deposited in Bank a/c)|
|13.4.06||Furniture & fixture a/c||Dr.||300|
|To Electrician Brothers A/c||300|
|(Being 2 table fans purchased on credit from Electrician Brothers)|
|14.4.06||Loss by theft A/c||Dr.||150|
|To Furniture & fixture A/c||150|
|(Being one of the above fan lost by theft.)|
|15.4.06||Insurance Expense A/c||Dr.||450|
|To Bank a/c||450|
|(Being property insurance premium paid by cheque)|
|To Cash a/c||200|
|(Being personal life insurance premium paid by cash)|
Journal Entry including for Opening Balances
Illustration 8.18: Pearey Lal was carrying on business as a stationery merchant. On 1 st January, 2006 his assets and liabilities were as under
Assets: Furniture and Fixtures Rs. 2,400; Stock of Stationery Rs. 35,600; Cash at Bank Rs. 3,500; Cash in Hand Rs. 400; due from Bimal Rs. 1,600; Due from Kewal Rs. 800.
Liabilities: Due to Landlord (December rent), Rs 150;DuetoSharmaBros.Rs. 1,400: Due to Verma Sons, Rs. 550. Prepare Journal The Transactions during January 2006 were:
|2||Sales to J.P. Stores on credit||450|
|3||Purchases from Verma Sons||380|
|4||Paid rent to Landlord (for December 1998)||150|
|Used Stationery for office||60|
|Used Stationery for domestic Purposes||20|
|6||Sold Stationery to I.P. College on Credit||250|
|Bought Postage stamps||15|
|7||Paid Insurance Premium by cheque||350|
|Received cheque from Kewal in full settlement||780|
|9||Issued cheque in favour of Verma Sons in full settlement of the amount due on 1st Jan.||540|
|11||Sent Cash to Bank||500|
|Received cheque from Bimal on account||1000|
|Cash received from J.P. Stores||430|
|Goods received back from J.P. Stores||20|
|13||Bimal’s Cheque returned dishonoured.|
Issued cheque in favour of Sharma Bros, in full settlement.
|15||Sales on credit to Kewal||500|
|16||Cheque in favour of Sharma Bros, returned dishonoured because of improper rubber stamp.|
|17||Incurred advertising, Rs. 250; paid cash Rs. 100 and stationery given for balance.|
|20||Exchanged old furniture for new; price of new furniture Rs. 600; value of old furniture Rs. 200 (cost Rs. 350); balance paid in cash.|
|22||Bimal declared insolvent; 40% received against amount due from him.|
|Sent cheque to Sharma Bros. Rs. 1400.|
|23||Kewal claims Rs. 50 as special allowance because of defect in goods: allowance agreed to.|
|25||Borrowed Rs. 10,000 from Mrs. Pearey Lal @ 9% p.a. Money put in Bank.|
|Installed a small printing machine at a cost of Rs. 9,500; paid by cheque.|
|Repairs to furniture Rs. 100.|
|28||Cash sales Rs. 400. Paid Income Tax Rs. 100.|
|30||Withdrawn for domestic use Rs. 200. Amount drawn from bank for office use Rs. 600.|
|31||Paid salaries, Rs. 250. Amount due to Landlord as rent for January Rs. 150.|
Journal of M/s. Pearelal
|1.1.2006||Furniture & Fixture A/c||Dr.||2400|
|Opening Stock A/c||Dr.||35600|
|To Landlord A/c (Rent payable A/c)||150|
|To Sharma Bros. A/c||1400|
|To Verma Sons A/c||550|
|To Capital A/c (Balancing figure)||42200|
|(Being opening balances recorded. Balancing figure i.e. Assets – liabilities is capital of the owner)|
|To Sales A/c||150|
|(Being Goods sold for cash)|
|2.1.2006||J.P. Stores A/c||Dr.||450|
|To Sales A/c||450|
|(Being goods sold to J.P. stores on credit)|
|To Verma Sons A/c||350|
|(Being goods purchased on credit from Verma Sons)|
|4.1. 2006||Landlord A/c (Rent Payable A/c)||Dr.||150|
|To Cash A/c||150|
|(Being rent for Dec. 5 paid)|
|4.1. 2006||Stationary expenses A/c||Dr.||60|
|To Goods used A/c||60|
|(Being goods (stationery) used for office)|
|4.1 2006||Drawing A/c||Dr.||20|
|To Goods used A/c||20|
|(Being goods used for domestic purpose)|
|6.1. 2006||J.P. College A/c||Dr.||250||250|
|To Sales A/c|
|(Being goods (stationery) sold to I P College oil credit)|
|6.1. 2006||Postage A/c||Dr.||15||15|
|To Cash A/c|
|(Being postal stamps put chased)|
|7.1 2006||Insurance premium A /c||Dr.||350|
|To Bank A/c||350|
|(Being insurance premium paid by cheque)|
|To Kewal A/c||800|
|(Being cheque received in full settlement from Kewal)|
|9.1. 2006||Verma Sons A/c||Dr.||550|
|To Bank A/c||540|
|To Discount A/c||10|
|(Being cheque issued to Verma Sons in full settlement)|
|10.1. 2006||Cash A/c||Dr.||600|
|To Sales A/c||600|
|(Being goods sold for cash)|
|11.1. 2006||Bank A/c||Dr.||500|
|To Cash A/c||500|
|(Being cash deposited in Bank)|
|11.1. 2006||Bank A/c||Dr.||1000|
|To Bimal A/c||1000|
|(Being cheque received from Bimal)|
|To J.P. Stores A/c||430|
|(Being cash received from J.P. stores)|
|11.1.2006||Sales return A/c||Dr.||20|
|To J.P. Stores||20|
|(Being goods received back from J.P. stores)|
|To Bank A/c||1000|
|(Being Bimal’s cheque is dishonoured)|
|13.1.2006||Sharma Bros. A/c||Dr.||1400|
|To Bank A/c||1350|
|To Discount A/c||50|
|(Being cheque issued in full settlement to Sharma Bros)|
|To Sales A/c||500|
|(Being goods sold on credit to Kewal)|
|16.1. 2006||Bank A/c||Dr.||1350|
|To Sharma Bros. A/c||1400|
|(Being cheque issued to Sharma Bros, returned dishonoured)|
|To Cash A/c||100|
|To Sales A/c||150|
|(Being advertising exp. is paid, partly by cash & partly by stationery)|
|20.1. 2006||New furniture A/c||Dr||600|
|To Old furniture A/c||200|
|To Cash A/c||400|
|(Being old furniture was exchanged by new furniture and balance paid in cash)|
|20.1. 2006||Loss on sale of asset A/c||Dr.||150|
|To Old furniture A/c||150|
|(Excess of book value of furniture over sale value being loss transferred)|
|22.1. 2006||Cash A/c||Dr.||640|
|Bad debts A/c||Dr.||960|
|To Bimal A/c||1600|
|(Bimal was declared insolvent & he paid 40% of amount due from him)|
|22.1. 2006||Sharma Bros. A/c||Dr.||1400|
|To Bank A/c||1400|
|(Being cheque issued to Sharma Bros.)|
|23.1. 2006||Allowance A/c||Dr.||50|
|To Kcwal A/c||50|
|(Being Kewal claims allowance because of defect in goods)|
|25.1. 2006||Cash A/c||Dr.||10000|
|To Mrs. Pearelal A/c||10000|
|To Cash A/c||10000|
|(Cash received from Mrs. Pearelal as loan and the same is deposited in Bank)|
|25.1. 2006||Machine A/c||Dr.||9500|
|To Bank A/c||9500|
|(Being installed machine & payment made by cheque)|
|25.1. 2006||Repairs A/c||Dr.||100|
|To cash A/c||100|
|(Being cash paid for repairs of furniture)|
|28.1. 2006||Cash A/c||Dr.||400|
|To Sales A/c||400|
|(Being goods sold for cash)|
|28.1.2006||Income tax A/c||Dr.||100|
|To Cash A/c||100|
|(Being income tax paid)|
|30.1. 2006||Drawing A/c||Dr.||200|
|To Cash A/c||200|
|(Being cash withdrawn for domestic use)|
|30.1. 2006||Cash A/c||Dr.||600|
|To Bank A/c||600|
|(Being cash withdrawn from Bank for office use)|
|31.1. 2006||Salaries A/c||Dr.||250|
|To Cash A/c||250|
|(Being salaries paid in cash)|
|31.1. 2006||Rent A/c||Dr.||150|
|To Rent payable A/c||150|
|(Being amount due to landlord)|
Note: (1) Goods used a/c will be credited to purchase a/c at the time of finalisation of a/c
(2) F = Folio number = Page number LF = ledger Folio JF = Journal Folio etc.
Single Column Cash Book
Illustration 8.19: Anand starts business with Rs. 10,000 on I st July. 2006 of this he pays Rs. 9,000 into his bank account. His cash transactions during the first week were.
|Purchased Stationery, paid cash||40|
|Purchased goods for cash||650|
|Purchased office Table and Chair||200|
|3||Received from Gopal, cash as Advance||200|
|4||Paid to Sethi & Sons, cash||140|
|5||Paid for signboard||130|
|7||Purchased old Typewriter||300|
Make out the Cash Book (Single column)
Cash Book (Single column)
|1.7.06||To Anand’s capital A/c||10,000||1.7.06||By Bank A/c||9,000|
|2.7. 06||To Sales A/c||150||1.7.06||By Stationary A/c||40|
|3.7. 06||To Gopal’s A/c||200||By Purchase a/c||650|
|6.7. 06||To Sales A/c||160||By Furniture A/c||200|
|4.7.06||By Sethi & Sons A/c||140|
|5.7.06||By Office expense A/c||130|
|7.7.06||By Office equipment A/c||300|
|7.7.06||By balance c/d||50|
|8.7. 06||To balance b/d||50|
Posting: From Receipt side each a/c will be credited in ledger & from payment side each a/c will be debited in ledger narration should be written in cash book also.
Double Column Cash book
Illustration 8.20: From the following transactions prepare the Cash Book with cash and discount columns:
|1||Opening cash balance||2500.00|
|3||Received from D & Co. Rs. 1,350 in full settlement of Rs. 1,400|
|4||Received for cash sales||1250.00|
|5||Paid to Rajesh & Co. Rs. 775 in full settlement of his account for||800.00|
|7||Purchased office furniture||670.00|
|13||Paid for postal stamps||25.00|
|15||Paid for office rent for month of July, 2006||125.00|
|17||Used office cash for meeting personal expenses||150.00|
|19||Sold goods on credit to Mr. Faithful||1700.00|
|20||Paid to Rajnikant Rs. 670 in lull settlement of his account for Rs. 700|
|20||Deposited in the Bank all cash in excess of Rs. 1,200.|
Double Column Cash Hook
|1.8.2006||To Opening b/f||2500||5.8.2006||By Rajesh & Co.||25||775|
|3.8.2006||To D & Co. a/c.||SO||1350||7.8.2006||By Furniture a/c||670|
|4.8.2006||To Sales a/c||1250||13.8.2006||By Postage exp. a/c||25|
|15.8.2006||By Rent payable a/c’||125|
|17.8.2006||By Drawings a/c||150|
|20.8.2006||By Rajnikant a/c||30||670|
|20.8.2006||By Bank a/c||1485|
|20.8.2006||By Balance c/f||1200|
♦ It is assumed that in July month provision for rent payable was made, hence now on payment rent payable account is debited.
♦ Credit sale of 19.08.06 will be entered in sales book or in Journal, if sales book is not maintained.
Triple Column Cash book
Illustration 8.21: Write up a three column cash book from the following
|5||Received from Dinanath cash Rs. 750 and a cheque of Rs. 860 in full settlement of Rs. 1650|
|7||Paid for office rent by cheque||500.00|
|8||Paid for wages in cash||250.00|
|9||Sold goods for cash Rs. 1500 and received half the amount in cash and half by cheque which is deposited in the bank|
|10||Bank pass book states that the bank has collected interest on investment||660.00|
|12||Cheque received on 5th paid into bank|
|15||Transferred Rs. 3000 from fixed deposit to Current account|
|20||Drew for personal use cash Rs. 250 and a cheque of Rs. 375|
|25||Made cash purchase and paid by cheque Rs. 1595|
|30||Paid Dinesh Rs. 800 by cheque|
|Dr.||Triple Column Cash Book||Cr.|
|Sept 2006||1 Sept 06||By Opening baL (O.D.)||—||5600|
|1||To Opening Balance||1700||—||7||By Rent a/c||500|
|To Dinanath a/c|
|5||(cash +chcq tie)||40||1610||—||8||By Wages a/c||250||*|
|9||To Saks a/c||750||750||12||By Bank (ch deposit)||C||860|
|10||To Interest a/c||660||20||By Drawings a/c||250||375|
|12||To Cash (ch. Deposited)||C||860||25||By Purchase a/c||1595|
|15||To Fixed deposit a/c||3000||30||By Dinesh a/c||800|
|30||To Balance c/f. (OD)||3600||30||By Balance c/f||2700|
Cheque received but not deposited in bank – The usual practice in the books on accounting is to show such amount as cash and when the same is deposited in bank then cash a/c. is credited and bank a/c. debited (As done for Rs. 860 in above problem). I (author) don’t consider it appropriate and suggest the following –
- In real life if will he a daily routine to receive cheque and deposit it next day hence to obviate unnecessary confusion and complication, it should he debited to hank a/c. on receipt itself.
- When it is a year end situation, debit such cheque to cheques in hand a/c. rather than in cash a/c. So that in balance sheet we will show cash balance (which is actual cash), cheques in hand and bank balance, (which does not include cheque received but not deposited).
Illustration 8.22: Enter the following transactions in a three column cash book of M/s. Barket & Co.
1 Cash on hand Rs. 237; Balance at bank Rs. 6,594.
2 Received from K. Agrawal cash Rs. 590, allowed him discount Rs. 10.
4 Paid salaries for March by cash Rs. 200. Cash sales, Rs. 134.
5 Paid B.K. Bose by cheque Rs. 300. Cash Purchases Rs. 60.
7 Paid 0. Ahmad by cheque Rs. 585; discount received 2 1/2%.
8 Cash Sales Rs. 112. Paid cartage and coolie Rs. 6.
10 Paid rent in cash Rs. 50
14 Cash Sales Rs. 212. Received from G.C. Dhar Rs. 194 by cheque discount 3%.
16 Deposited into Bank Rs. 600. Purchased a motor car for Rs. 5,800 and drawn a cheque for the amount 23 Received a cheque from Robert & Co. for Rs. 291; discount received 3%.
28 Cash Sales Rs. 298.
29 Bank notifies that Robert & Co’s cheque has been dishonoured.
30 Deposited with Bank Rs. 300. Paid wages Rs. 72. Bank charges as shown in Pass Book Rs. 5.
|Dr.||Triple column cash book||Cr.|
|1.4.06||To Bal b/d||237||6594||4.4.06||By Salary payable a/c||200|
|2.4.||To Agrawal A/c||10||590||5.4.||By B.K. Bros. A/c||300|
|4.4.||To Sales A/c||134||5.4.||By Purchase A/c||60|
|6.4.||To Sales A/c||112||7.4.||By Q. Ahmad A/c||15||585|
|14.4.||To Sales A/c||212||285 1 C 1C|
×2.5 = 15
|14.4.||To G.S. Dhar A/c||6||194||8.4.||By Cartage & coolie||6|
|16.4.||To Cash A/c||C||600||10.4||By Rent A/c||50|
|23.4.||To Robert & Co.||9||291||16.4.||By Bank A/c||C||600|
|28.4.||To Sales A/c||298||16.4.||By Motor car A/c||5800|
|30.4||To Cash A/c||C||300||29.4.||By Robert & Co. A/c||9||291|
|30.4.||By Bank A/c||C||300|
|30.4.||By Wages A/c||72|
|30.4.||By Bank charges||• 5|
|30.4.||By balance c/d||295||998|
|13||To balance b/d||295||998|
*Posted to discount account in ledger
Petty Cash Book
Illustration 8.23: Enter the following transactions in a columnar Petty Cash Book kept on the Imprest System and balance the cash book. Also post the transaction to the respective ledger accounts.
|1||The Petty Cash received by cheque||300.00|
|10||Bought stationery for office use||14 90|
|17||Safety pin box||5.00|
|23||Travelling expenses to salesman||45.25|
|25||Subscription to Economic Times||10.50|
|26||Paid to Waikar on account||17.00|
|27||Railway fare for sale executive||35.60|
|28||Tea to office staff||31.40|
|30||Paid advertising bill||10.25|
Petty Cash Book (Analytical Cash Book)
|Date||Particulars||Receipt||Payment||Carriage||Postage & Coolie||Office|
|1||To Main cash/Bank a/c.||300.00|
|3||By Coolie charges||5.50||5.50|
|6||By Postage exp.||17.75||17.75|
|8||By Revenue stamp||4.50||4.50|
|13||By Stationery (envelop)||9.40||9.40|
|17||By Stationery (Pins)||5.00||5.00|
|19||By Stationery (Printing)||25.00||25.00|
|23||By Travelling exp.||45.25||45.25|
|25||By Office exp.||10.50||10.50|
|26||By Advance (Waikar)||17.00||17.00|
|27||By Travelling exp.||35.60||35.60|
|28||By Office exp. (Tea)||31.40||31.40|
Posting from above petty cash book to ledger accounts will be made as follows:
Carriage and Coolie Charges Account
|3112006||To Petty Cash||9.50|
|31.1.2006||To Petty Cash||17.75|
Office Expenses Account
|31.1.2006||To Petty Cash||46.40|
Stationery Expenses Account
|31.1.2006||To Petty Cash||54.30|
Travelling Expenses Account
|31.1.2006||To Petty Cash||80.85|
|31.1.2006||To Petty Cash||10.25|
|31.1.2006||To Petty Cash||17.00|
Illustration 8.24: From the transactions given below prepare the Sales Book of Amin Chand, a furniture dealer:
|5||Sold on credit to Ideal College :||10 tables @ Rs. 25 less 10%|
|10 chairs @ Rs. 15|
|8||Sold Mohan Bros.: 5 stools @ Rs. 10|
|10||Sold on credit M/s. Golchand & Co.: 3 tables @ Rs. 75, 5 chairs @ Rs. 30|
|20||Sold to M/s. Ram Lal & Sons for cash 5 tables @ Rs. 40|
|27||Sold on credit to Anand Pal & Co. old typewriter for Rs. 400|
Sales Book of Amin Chand
|5.6.06||Table 10 × 25||250||Ideal College||28||360|
|Chairs 10 × 15||150|
|Less: 10% Trade Discount||40|
|8.6.||Stool 5 × 10||50||Mohan Bros.||17||50|
|10.6||Tables 3 × 75||225||M/s Golchand & Co.||35||375|
|Chairs 5 × 30||150|
- Cash transaction of 20.6 will not be entered in sales book. Asset sale will not be recorded in sales book. Cash sale will be recorded in cash book &i sale of Asset on credit will be recorded in Journal
- Additional columns to note other details, can be made as per requirement.
Posting from sales book will be done as follows: (hypothetical folio numbers have been used)
Ideal College account
|5.6||To Sales A/c||11||360|
Mohan Bros. Account
|8.6||To Sales A/c||11||50|
Golchand & Co. Account
|10.6||To Sales A/c||11||375|
page No. 4
|20.6||By Cash a/c||200|
|30.6||By sundry debtors||11||785|
- Balancing of accounts is not done because these are not yet complete.
- Folio numbers have been hypothetically given to explain the concept of folio number.
Illustration 8.25: From the following transactions prepare the purchase book of Admas for July, 2006 and prepare ledger accounts connected with this book.
|1.7.06||Purchased on credit from Paul & Co.: 50 Electric Irons @ 25, 10 Toasters @ Rs. 30|
|6||Purchased for Cash from John & Bros.: 25 Table Lamps @ Rs. 15|
|10||Purchased from Harsh & Sons on credit: 20 Electric Stoves @ Rs. 20, 10 Heaters @ Rs. 30.|
|16||Purchased on credit from More & Co.: 15 Heaters @ Rs. 20.|
|20||Purchased on credit one typewriter from Remington and for 1,500/-|
Purchase Book of Admas
|1.7.06||Electric iron||50 × 25||1250||Paul & Co.||1550|
|Toaster||10 × 30||300|
|10.7||Electric stove||20 × 20||400||Harsh & Sons||700|
|Heater||10 × 30||300|
|16.7||Heater||15 × 20||300||More & Co.||300|
Posting: Total Rs. 2550 shall be debited to purchase a/c & individual figures will be credited to respective parties a/c.
Note: Cash purchase of 6.7 will be entered in Cash Book & Purchase of Asset (Typewriter) on Credit will be recorded in Journal.
Multiple Books of Entry
Illustration 8.26: Record the following transactions in the proper subsidiary books as prepared for 6 Sept.
|1||Faithful invoiced for goods||2,200|
|2||Sold goods to Chandarana||950|
|3||Bought goods from Ramchandra||1,500|
|4||Sent invoice to Vijaya for goods||1,000|
|5||Returned goods to Ramchandra||50|
|8||Padmini purchased our goods||900|
|10||Received an Invoice from Rekha||1,600|
|14||Sent credit Note to Padmini for Rs. 100 for goods returned||–|
|17||Sold goods to Chanda for Rs. 900 less 10% trade discount||–|
|23||Vijaya returned goods to us||75|
|25||Returned goods to Rekha||300|
|28||Purchased Typewriter from NGIM||975|
|30||Bought goods from Hiralal for cash||1,450|
|17.9||900- 10% T.D.||Chanda||810|
Purchase Return Book
Sales Return Book
|Typewriter a/c/Office equipment a/c Dr||975|
|To NGDA a/c||975|
|By Purchase a/c||1450|
Mote: From all this books of entry posting will be made to Accounts in ledger.
Illustration 8.27: Prepare Mr. S. Das Gupta’s Account as it would appear in the books of Shri. K. Roy.
|1||Sold goods to Mr. Dasgupta||1,000|
|2||Received goods from Mr. Dasgupta||500|
|3||Purchased goods from Mr. Dasgupta||400|
|4||Paid to Mr. Dasgupta||300|
|5||Sold goods to Mr. Dasgupta||2,000|
|6||Allowed him discount||200|
|7||He returned goods valued||300|
|8||Received cash from Mr. Dasgupta||1,000|
|9||Purchased goods from Mr. Dasgupta||1,000|
|10||Discount received from him||100|
|11||Goods returned to him||300|
|12||Paid to Mr. Dasgupta||500|
Books of K Roy
|Dr||S. Das Gupta’s a/c||Cr.|
|1.||To Sales a/c||1000||2.||By Cash/Bank A/c||500|
|4.||To Cash a/c||300||3.||By Purchase a/c||400|
|5.||To Sales a/c||2000||6.||By Discount a/c||200|
|10.||To Discount a/c||100||7.||By Sales return a/c||300|
|11.||To Purchase return a/c||300||8.||By Cash a/c||1000|
|12.||To Cash a/c||500||9.||By Purchase a/c||1000|
|By Balance c/f||800|
|To Balance b/d||800|
- As the dates are not given serial number is written
- The transactions will be 1st entered in the respective book of entry & from there posting is made to all accounts including S. Das Gupta’s a/c.
- Rs. 800 is the debit balance of S. Das Gupta’s a/c, it means we (i.e. K. Roy) have to receive from him Rs. 800 i.e. he is our debtor.
Complete Books of Account
Illustration 8.28: Enter the following transactions in the proper books of Indian Tobacco Co. Jan-6.
Assets: Leasehold premises, Rs. 18,000; Machinery Rs. 27,600; Stock of leaf tobacco, Rs. 51,900; Cash at Bank Rs. 7,620; Cash-in-hand, Rs. 860 due from Mohan & Co. Rs. 1,460; Due from Cavendish & Co. Rs. 1,260; Furniture Rs. 1,500;
Liabilities: Loan @6% Rs. 20,000, due to Wilson & Grey 6,000
|3||Drawn from Bank (for wages to be paid the following day)||1.500|
|7||Bought of Wilson & Grey 896 Kg. Borneo Leaf @ Rs. 4.00 per kg. 627 Kg. west Indian Leaf @ Rs. 3.50 per kg. Charges Rs. 47|
|9||Returned 128 Kg. of West Indian Leaf as not being upto quality.|
|10||Sales of Tea & Cigarettes & cash received||900|
|12||Paid customs duty by cheque||6,860|
|14||Cash purchases of tea||800|
|17||Sold to Mohan & Co. 75 Kg. Royal Mixture @ Rs. 20.00 per Kg. 20,000 Agromatic Cigarettes @ Rs. 50.00 per 1,000; 40 kg. Five Flakes @ Rs. 80.00 per kg.|
|18||Paid Wilson & Grey by cheque in full settlement of amount due on January 1.||5,850|
|18||Received from Cavendish & Co. by cheque in full settlement||1.235|
|19||Bought of Sharp Bros. & Co. advertising posters||1,100|
|24||Northern Engine Co. Ltd. charge for repairing machinery paid cash||250|
|24||Sold to Cavendish & Co. 10000 Agrometic cigarettes @ Rs. 50 per 1000|
|25||Bought of John Barnes & Co. Indian Leaf, 1,120 Kg. @ Rs. 3.00 per kg.|
|26||Received from Mohan & Co. on account cheque||2,000|
|27||Received for boiler parts sold (part of machinery)||300|
|27||Bank notifies that Cavendish & Co. cheque is dishonoured.|
|28||Bought of Dele & Sons : Borneo Leaf 882 kg. @ Rs.4.00 per kg. and Indian Leaf 560 kg. @ Rs. 3.00 per kg. Charges Rs. 7|
|29||Paid for advertisements||230|
|31||Paid for repairs to furniture||30|
|31||Paid for Ground Rent||600|
|31||Drawn from Bank for private use||400|
|31||Bank charged interest for the month||35|
|31||Received intimation that Cavendish & Co. are insolvent, no possibility of recovering anything.|
|31||Allow interest on capital @ 5% per annum.|
|31||Allow interest on loan.|
|31||Cigarettes taken for private use (sale value)||10|
|31||Salaries for the month of January unpaid||2,000|
|31||Sold to Blunt & Co. 50 kg. Five Flakes @ Rs. 80; 10,000 Aromatic Cigarettes @ Rs. 52.00 per 1,000. Packing charges Rs. 30|
M/s INDIAN TOBACCO CO.
CASH BOOK (Triple Column)
(Page No. 1)
|Date||Particulars (Receipt)||LF||Dis||Cash||Bank||Date||Particulars (payment)||LF||Dis||Cash||Bank|
|To Balance b/f||J1||860||7620||2006|
|By Cash a/c||C||1500|
|03.1||To Bank a/c||C||–||1500||–||04.1||By Wages a/c||10||–||1435||–|
|10.1||To Sales a/c||26||–||900||–||12.1||By Custom duty a/c||11||–||–||6860|
|18.1||To Cavendish & Co.||05||25||–||1235||14.1||By Purchases a/c||27||–||800||–|
|26.1||To Mohan Si Co.||04||–||–||2000||18.1||By Wilson & Grey||08||150||–||5850|
|27.1||To Machinery a/c||02||–||300||–||24.1||By Repairs Si Mt.||14||–||250||–|
|27.1||By Cavendish a/c||05||25||–||1235|
|29.1||By Advertisement a/c||12||–||230||–|
|31.1||By Repairs & Mt.||14||–||30||–|
|31.1||By Ground rent||17||–||600||–|
|31.1||By Interest a/c||19||–||–||35|
|31.1||To Bal. C/f (overdraft)||5025||31.1||By balance c/f||–||215||–|
‘Posted to discount account in ledger on page No. 30
Posting: From receipt (debit) side of Cash book, Credit the respective account in ledger & from payment (credit) side of Cash book, debit the respective account in ledger.
(Page No. 1)
|17.1||Mohan & Co.||Royal Mixture||75 × 20||=||1500|
|Agromatic Cigarettes||20 × 50||=||1000|
|Fire Flakes||40 × 80||=||3200||04||5,700|
|18.1||Cavendish & Co.||Aromatic Cigarettes||10 × 50||=||500||05||500|
|31.1||Blunt & Co.||Five Flakes||50 × 80||=||4000|
|Aromatic Cigarettes||10 × 52||=||520|
Posting : Debit the individual party a/c with respective amount & credit the total to sales a/c.
|07.01||Wilson & Grey||Borneo leaf||896 × 4||3,584|
|West Indian leaf||627 × 3.5||=||2,195|
|25.01||John Barnes & Co.||Indian leaf||1,120 X 3||=||3,360||15||3,360|
|28.01||Dele & Sons||Borneo leaf||882 × 4||=||3,528|
|Indian leaf||560 × 3||=||1,680|
Posting: Credit the individual party a/c with respective amount & debit the total to purchase a/c.
Purchase return book
(Page No. 1)
|09.01||Wilson & Grey||West Indian leaf||128 × 3.5 = 448||08||448|
Posting: Debit the individual party a/c with respective amount & Credit the total to Purchase Return a/c.
Sales return book
(Page No. 1)
(Page No. 1)
|01.01||Leasehold Premises a/c||Dr.||01||18,000|
|Opening stock a/c||Dr.||03||51,900|
|Mohan & Co. a/c||Dr.||04||1,460|
|Cavendish & Co. a/c||Dr.||05||1,260|
|To Loan a/c||07||20,000|
|To Wilson & Grey a/c||08||6,000|
|To Capital a/c (Balancing figure)||9||84.200|
|To Sharp Brothers a/c||13||1,100|
|31.01||Bad debts a/c||Dr.||20||1.760|
|To Cavendish & Co. a/c||05||1.760|
|31.01||Interest on Capital a/c||Dr.||21||351|
|To Capital a/c||09||351|
|To Interest Payable a/c||22||100|
|Interest accrued on loan for 1 month on 20000/- (u 6%|
|To Salary Payable a/c||25||2,000|
Pooling: Make debit & credit postings to respective accounts,
Leasehold Premises a/c (Page No. 1)
|01.01||To Balance b/f||J1||18,000||31.01||By Balance c/f||18,000|
Machinery a/c (Page No. 2)
|01.01||To Balance b/f||J1||27,600||27.01||By Cash a/c||C1||300|
|31.01||By Balance c/f||27300|
Opening Stock a/c (Page No. 3)
|01.01||To Balance b/d||J1||51,900||31.01||By Balance c/f||51,900|
|Mohan & Co. a/c (Page No. 4)|
|01.01||To Opening Balance||J1||1,460||By Bank a/c||C1||2,000|
|17.01||To Sales a/c||J1||5,700||31.01||By Balance c/f||5,160|
Cavendish & Co. a/c (Page No. 5)
|01.01||To Opening Balance||J1||1,260||18.01||By Bank a/c||C1||1335|
|24.01||To Sales a/c||J1||500||18.01||By Discount a/c||C1||25|
|27.01||To Bank a/c||C1||1,235||31.01||By Bad Debts||J1||1,760|
|27.01||To Discount a/c||C1||25|
Furniture a/c (Page No. 6)
|01.01||To Opening Balance||J1||1,500||31.01||By Balance c/f||1,500|
|Loan (6%) a/c (Page No. 7)|
|31.01||To balance c/f||20,000||01.01||By Opening Balance||J||20,000|
|Wilson & Grey a/c (Page No. 8)|
|18.01||To Bank a/c||C1||5,850||01.01||By Opening balance||J1||6,000|
|18.01||To Discount a/c||30||150||07.01||By Purchases a/c||P1||5,826|
|09.01||To Purchase return a/c||Pr1||448|
|31.01||To Balance c/f||5,378|
|Capital a/c (Page No. 9)|
|31.01||To Balance c/f||84,551||01.01||By Opening Balance||J1||84,200|
|31.01||By Interest on Capital||J1||351|
|Wages a/c (Page No. 10)|
|04.01||To Cash a/c||C1||1,435||31.01||By Balance c/f||1,435|
|Customs Duty a/c (Page No. 11)|
|12.01||To Bank a/c||C1||6,860||31.01||By Balance c/f||6,860|
|Advertisement a/c (Page No. 12)|
|19.01||To Sharp Bros & Co. a/c||J1||1,100||31.01||By Balance c/f||1,330|
|29.01||To Cash a/c||C1||230|
|Sharp Bros. & Co. a/c (Page No. 13)|
|31.01||To Balance c/f||1,100||19.01||By Advertisement a/c||J1||1,100|
|Repairs & Maintenance a/c (Page No. 14)|
|24.01||To Cash a/c||C1||250||31.01||By balance c/f||280|
|31.01||To Cash a/c||C1||30|
|John Barnes & Co. a/c (Page No.15)|
|31.01||To Balance c/f||3,360||25.01||By Purchase a/c||P1||3,360|
|Dele & Sons a/c (Page No.16)|
|31.01||To Balance c/f||5,215||28.01||By Purchase a/c||P1||5,215|
|Ground Rent a/c (Page No. 17)|
|31.01||To Cash a/c||C1||600||31.01||By Balance c/f||600|
|Drawings a/c (Page No. 18)|
|31.01||To Bank a/c||C1||400||31.01||By Balance c/f||410|
|31.01||To Goods used a/c||23||10|
Interest a/c (Page No. 19)
|31.01||To Bank a/c||C1||35||31.01||By Balance c/f||135|
|31.01||To Interest Payable||J1||100|
|Bad debt a/c (Page No.20)|
|31.01||To Cavendish & Co.||05||1,760||31.01||By Balance c/f||1,760|
|Interest on Capital a/c (Page No.21)|
|31.01||To Capital a/c||J1||351||31.01||By Balance c/f||J1||351|
|Interest Payable a/c (Page No.22)|
|31.01||To Balance c/f||100||31.01||By Interest a/c||J1||100|
|Goods used a/c (Page No.23)|
|31.01||To Balance c/f||10||31.01||By Drawings a/c||18||10|
|Salary a/c (Page No.24)|
|31.01||To Salary Payable a/c||J1||2,000||31.01||By Balance c/f||2,000|
|Salary Payable a/c (Page No.25)|
|31.01||To Balance c/f||2,000||31.01||By Salary a/c||J1||2,000|
|Sales a/c (Page No.26)|
|31.01||To Balance c/f||11,650||10.01||By Cash a/c||C1||900|
|31.01||By Sundry Debtors||S1||10,750|
|Purchase a/c (Page No.27)|
|14.01||To Cash a/c||C1||800||31.01||By Balance c/f||15,201|
|31.01||To Sundry Creditors||P1||14,401|
Sales Return a/c (Page No.28)
|Purchase Return a/c (Page No.29)|
|31.01||To Balance c/f||448||31.01||By Sundry||Pr1||448|
|Discount a/c (Page No.30)|
|31.01||To Balance c/f||150||31.01||By Sundry a/c||C1||175|
|Blunt & Co. a/c (Page No.31)|
|31.01||To Sales a/c||J1||4,550||31.01||By Balance c/f||4,550|
Page numbers have been written to give an idea of how folio numbers are used. In book of entry, ledgers page number & in ledger, book of entries page number is written i.e. cross reference is given.
TRIAL BALANCE OF M/s INDIAN TOBACCO CO.
Period 1.1.06 to 31.1.06
|Account Head||Amount (Dr.)||Amount (Cr.)|
|Cash in Hand||215|
|Bank balance (Overdraft)||5,025|
|Leasehold Premises a/c||18,000|
|Opening stock a/c||51,900|
|Mohan & Co. a/c||5,160|
|Wilson and Grey a/c||5,378|
|Customs Duty a/c||6,860|
|Sharp Bros. & Co. a/c||1,100|
|Repairs & Maintenance||280|
|John Barnes and Co. a/c||3,360|
|Dele & Sons a/c||5,215|
|Ground Rent a/c||600|
|Bad debts a/c||1,760|
|Interest on Capital||351|
|Interest Payable a/c||100|
|Goods used a/c||10|
|Salary Payable a/c||2,000|
|Purchase Return a/c||448|
|Blunt & Co. a/c||4,550|
Similarly Trial balance is prepared at the end of year.
Identification of Accounts in a Trial balance
Illustration 8.29: State in which side of trial balance, the following accounts appear. Also classify the account & write its nature.: Capital, Drawings, Opening stock, Purchases, Sales, Returns Inward, Returns Outwards, Wages, Carriage Inward, Freight, Royalty on production, Gas and Fuel, Discount Received, Discount Allowed, Bad debts, Commission received, Repairs, Rent, Salaries, Loan secured, Interest received, Interest paid, insurance, Carnage Outwards, Advertisement, Sundry Expenses, Trade charges, Miscellaneous Receipts, Income Tax, Office Expenses, Import Duty, Allowance, Sales Tax, Sundry Creditors; Sundry Debtors, Goodwill, Plant and Machinery, Land and Building, Furniture, Fixture and fittings, Investment, 5% G.P. Notes, Cash-in-hand, Cash at Bank, Loan Advanced, Horses and carts, Export Duty, Deposit with Mr. A. Roy, Bills receivable, Bills payable, Advance payment of Income Tax, Depreciation, Accrued Rent, Bank Overdraft, Outstanding salaries, prepaid Insurance, Income Tax refunded, Bad debt recovered, Patents and Trade Marks, Accrued Income, Rent received in Advance, Motor Cycle.
|Debit Balances||Nature of Account||Credit Balances||Nature of Account|
|Purchase||– do –||Interest received||– do –|
|Wages||– do –||Income tax refunded||– do –|
|Carriage Inward||– do –||Discount received||– do –|
|Freight||– do –||Commission received||– do –|
|Royalty on production||– do –||Miscellaneous Receipt||– do –|
|Gas and fuel||– do –||Capital||Liability|
|Discount allowed||– do –||Loan secured||– do –|
|Bad Debts||– do –||Sundry creditor||– do –|
|Repairs||– do –||Bills payable||– do –|
|Rent||– do –||Accrued rent (Rent payable)||– do –|
|Salaries||– do –||Rent received in advance||– do –|
|Interest paid||– do –||Bank Overdraft||– do –|
|Insurance||– do –||Outstanding Salaries||– do –|
|Carriage Outwards||– do –||Returns Outwards (Purchase||(-) Expense|
|Advertisements||– do –||Return)|
|Sundry expenses||– do –|
|Trade Charges||– do –|
|Income tax||– do –|
|Office expenses||– do –|
|Import duty||– do –|
|Sales tax||– do –|
|Allowance||– do –|
|Advance payment of income – tax||– do –|
|Export Duty||– do –|
|Depreciation||– do –|
|Land and Building||– do –|
|Furniture||– do –|
|Fixture & Fitting||– do –|
|Investment||– do –|
|Cash in hand||– do –|
|Cash at bank||– do –|
|Horses & Carts||– do –|
|Prepaid Insurance||– do –|
|Bills Receivable||– do –|
|Patent||– do –|
|Trade Mark||– do –|
|Accrued Income||– do –|
|Motor Cycle||– do –|
|Goodwill||– do –|
|Plant & Machinery||– do –|
|5% G.P. Notes||– do –|
|Loan Advanced||– do –|
|Deposit with A. Roy||– do –|
|Returns Inwards (Sales Return)||(-) Income|
- Advance Income lax is classified as expense a/c, because though termed as Advance tax, it is tax on the current years profit only & hence an expense for current year. Obviously adjustment for some excess or short payment will be made at the time of finalisation.
- (-) Sign indicates that the concerned account is to be ultimately reduced from some other account. For example Sales Return (- income) will be deducted from sales (income) or drawing (-liability) will be deducted from capital a/c (liability) and so on.
(Answers & Hints given at the end of the Chapter)
P.1 : Mr. Rakesh carries on business as a stationery dealer under the name of Novelty stores. State which of the following are transactions to be recorded in his business books.
1 Cash Sales
2 Sales to J.P. Stores on credit
3 Purchases Sarees from Verma Sons
4 Paid rent to Landlord where Rakesh resides, from his personal bank a/c
5 Used Stationery for domestic Purposes
6 Stationery given from shop to I.P. stores from whom utensils taken for home
7 Paid stock Insurance Premium by cheque
8 Wifes life Insurance Premium Rs. 200/- paid to LIC from Novelty stores
9 Sent Cash to Bank
10 Exchanged old domestic furniture for new furniture for shop
11 Borrow ed Rs. 10,000 from Mrs. Rakesh @ 996 p.a. for shop.
12 Withdrawn from shop for domestic use Rs. 200.
13 Paid salaries of domestic servant from shop.
P.2 : State whether the following accounts are Real, Personal or Nominal:
(a) Capital account
(b) Drawings account
(c) Bad debt account
(d) Debtors account
(e) Stock account
(f) Cash account
(g) Goods account
(h) Purchase account
(i) Sales account
(j) Interest account
(k) Salary outstanding account
(l) Discount account
(m) Loss by fire account
(n) Printing and stationery account
(o) Bank of India account
(p) Mr. Ramrao account
(q) ABC partnership firm account
(r) Building account
(s) Investment account
P.3 : Mention the accounts affected in the following transaction and classify as Real, Personal or Nominal:
1 Cash Sales
2 Sales to J.P. Stores on credit
3 Purchases from Verma Sons
4 Paid rent to Landlord
5 Used Goods for domestic Purposes
6 Bought Postage stamps
7 Sent Cash to Bank
8 Received cheque from Bimal on account
9 Cash received from J.P. Stores
10 Goods received back from J.P. Stores
11 Incurred advertising. Rs. 250; paid cash Rs. 100 and goods given for balance.
12 Installed a small printing machine at a cost of Rs. 9,500; paid by cheque.
13 Repail’s to furniture Rs. 100.
14 Received cash from M/s. Mohanlal & Co., Rs 1470; allowed them discount, Rs. 30.
15 Issued cheque for Rs. 5,500 in full settlement of Rs. 5700 to M/s Rao & Murty.
16 Received Rs. 10,000 as loan from Mr. Sanjay
P.4 : Which of the following payments are assets, which expenses and which are losses.
1 Paid rent to Landlord
2 Paid Insurance Premium by cheque
3 Issued cheque in favour of Verma Sons for supply of Furniture
4 Issued cheque in favour of Sharma Bros, in full settlement of damages claimed by them.
5 Installed a small printing machine at a cost of Rs. 9,500; paid by cheque.
6 Repairs to furniture Rs. 100 paid in cash.
7 Paid salaries.
8 Purchases Trade mark and Patent. Payment made by cheque.
9 Paid for purchase of office stationery.
10 Paid compensation to injured employees.
11 Bought goods for cash.
12 Paid loading & installation charges for machinery.
P.5 : Which of the following receipts are incomes?
1 Cash Sales
2 Received cheque from Kewal in full settlement of old machinery sold to them.
3 Received cheque from Bimal on account
4 Cash received from J.P. Stores for goods supplied
5 Borrowed Rs. 10,000 from Mrs. PeareyLal @ 9% p.a. Money put in Bank.
6 Received cash from M/s. Mohanlal & Co., being amount due for sales on credit.
7 Received Rs. 550/- from Ramdeo being interest.
8 Received Rs. 990/- on account of commission
9 Received back Rs. 10,000 as loan given to Mr. Sanjay
10 Cash withdrawn from Bank.
P.6 : The following were the transaction of Pannalal Bros., a furniture dealer:
|1||Started business with :Cash||12000|
|: Furniture (for office)||5000||25,000|
|3||Bought furniture from R. Bros.||2,000|
|5||Bought furniture for the office||1,000|
|6||Sold furniture to J. Jaju||2,000|
|10||Returned furniture to R. Bros.||50|
|12||J. Jaju returned furniture||200|
|14||Paid taxi fare||10|
|15||Sold to A, furniture for Rs. 500 less trade discount @10%|
|17||Received commission from J. Das||15|
|18||Paid to R Bros, by cheque||1,000|
|19||Sent to Bank||200 1|
|20||Received a cheque of Rs. 425 from A. in full settlement of his account|
|22||Received a cheque of Rs. 500 from J. Jaju and deposited the same into Bank|
|23||Lent to Naren||150|
|24||J. Jaju’s cheque dishonoured|
|31||Withdrawn from bank for office use||2,000|
|31||Paid for taxes||150|
Journalize the above transactions in the books of the firm.
P.7 : Mr. Nagindas was carrying on business as a merchant. On 1st September, 2013 his assets and liabilities were as under
Assets : Furniture and Fixtures Rs. 2,400; Stock Rs. 35,600; Cash at Bank Rs. 3,500; Cash in Hand Rs. 400; due from Narendra Rs. 1,600;
Liabilities : Due to Landlord (August rent), Rs. 150; Due to J Das Rs. 1,400:
Following are the transaction which took place during the month of September, 2013. Journalize them in the books of Mr. Nagindas.
|1||Rs. 20,000 borrowed from his friend, Mr. Ajay @15% p.a.|
|4||Purchased goods worth Rs. 10,000 less 20% trade discount and 5% cash discount from Sai Bros, for cash and sent them to Yeshwant at list price less 5% trade discount.|
|5||Paid rent of August Rs.150.|
|10||Purchased 60 shares of G. Ltd. at Rs. 110 each and brokerage paid Rs. 60|
|14||Narendra is declared insolvent and a dividend of 50 paise in a rupee is received from his estate in full settlement.|
|16||Purchased a Motor Van for Rs. 10,000|
|20||Sold 20 shares of G Ltd. at Rs. 115 each and brokerage paid Rs. 20|
|21||Purchased goods worth Rs. 1000 from J. Das and supplied them to K.. Das at Rs. 1500.|
|23||K. Das returned goods worth Rs. 300 which was sent back to J. Das|
|26||Paid for repairs of motor van Rs. 200|
|28||Goods worth Rs. 400 and cash Rs. 300 were taken away by Mr. Nagindas for personal use.|
|30||One month’s interest on loan from Ajay became due and paid|
|30||Rent for Sept. Rs. 200 due.|
P.8 : From the following information, prepare Swati’s account in the hooks of M/s Shinde Bros.
|1||Balance on account (Dr.)||1,800|
|3||Supplied goods to Swati||8,000|
|4||Received a cheque from Swati||5,000|
|10||Swati returned some defectives||500|
|15||Received cash from Swati||3,000|
|15||Allowed cash discount to Swati||300|
P.9 : Enter the following transactions in the cash book for the month of March 2013, and post them into the ledger:
|1||Commenced business with cash||8,000|
|4||Purchased goods from Rajendra for cash||500|
|8||Purchased goods from Ranjana on credit||2,500|
|11||Sold goods to Raman for cash||3,200|
|14||Purchased Furniture for office||1,000|
|14||Purchased stationery for office||200|
|16||Paid to Ranjana on account||1,500|
|19||Received for commission||250|
|24||Paid for advertisement||300|
|30||Paid for salaries||250|
|31||Deposited in Bank all cash after retaining Rs. 1,000 at hand|
P.10: From the following transactions compile a cash book with cash, bank and discount columns for the month of January, 2013:
|1||Balance of cash Rs. 4050 Bank balance Rs. 8390|
|3||Received from Punam on account Rs. 1585 and allowed a discount of Rs. 15|
|7||Made cash sales Rs. 990|
|8||Received from Purnima Rs. 2100 by crossed cheque in full settlement of Rs. 2,150|
|10||Paid RatanBhandar by cheque Rs. 3360, they allowed discount Rs.140|
|13||Paid for printing by cheque Rs. 328|
|15||Deposited Rs. 550 in the Bank|
|17||Made cash purchase and gave a cheque Rs. 750|
|18||Paid by cheque to Tanuja Rs. 865|
|20||Drew from Bank for office use Rs. 1000|
|23||Received from Shukla Rs. 1500 as advance by cheque|
|24||Cheque received from Shukla deposited in Bank|
P.11: Rule a Petty Cash Book with four analysis columns for (a) Postage and Stationery, (b) Travelling Expenses, (c) Carriage, (d) Office expenses and enter up the following transactions:
The book is kept on Imprest System – the amount being Rs. 6500 only.
|1||Petty cash in hand||266|
|1||Received cash to make up the imprest amount|
|6||Paid bus fare||42|
|8||Paid railway fare||2520|
|10||Paid telegraph charges||437|
|12||Bought short hand note book||66|
|15||Paid carriage on small parcel||237|
|18||Paid repairs to typewriter||737|
|23||Paid cart hire||1025|
|31||Paid office cleaning||500|
Balance the Petty Cash Book as on 31st January, 2013 and bring down the balance.
P.12 : Enter the following transactions in the proper subsidiary books and prepare necessary ledger accounts:
|1||Purchased goods from Arvind Panchakshri||500|
|2||Bought goods from Anand Mehta||340|
|3||Purchased Furniture from Verma||500|
|5||Sold goods to Sinha||400|
|8||Sold goods on cash to Sagar||200|
|10||Sinha returned goods||50|
|23||Purchased from M/s Sundar Electronics 10 Electric Irons @ Rs. 300, 10 Toasters @ Rs. 500, 5 Table fans (& Rs. 1000, 5% Trade discount is received on total purchases.|
|25||Invoiced to M/s Sonali Electrical stores 10 Electrical Irons @ Rs. 400 each 5 Toasters @ Rs. 600 each 4 Table fans @ Rs. 1200 each. Allowed 10% discount on total sales.|
|26||M/s Sonali Electrical Stores returned 2 Electrical Irons, 1 Toaster and 1 Table Fan.|
|27||Returned to M/s Sunder Electronics, following defective items: 2 Electric iron, 1 Toaster, 1 Table fan.|
P.13 : ABC & sons was carrying on business as a trader in various goods. On 1st January, 2013 his assets and liabilities were as under:
Assets : Furniture and Fixtures Rs. 12,000; Stock of merchandise Rs. 35,000; Cash at Bank Rs. 6,500; Cash in Hand Rs. 4000; due from J P Stores Rs. 1,600; Due from Kewal Rs. 800.
Liabilities : Salary Due (for December), Rs. 1500; Due to Sharma Bros. Rs. 1,400: Due to Verma Sons, Rs. 550.
The Transactions during January 2013 were:
|2||Sales to J.P. Stores on credit||450|
|3||Purchases from Verma Sons||800|
|4||Paid salary of December||1500|
|Used goods for domestic Purposes||200|
|Received cheque from Kewal in full settlement||780|
|9||Issued cheque in favour of Verma Sons in lull settlement of the amount due on 1st Jan.||540|
|10||Goods purchased from M/s. Kao and Murty on credit, Rs. 5,600.|
|11||Goods returned to M/s. Rao and Murty||500|
|Issued cheque in favour of Sharma Bros, in full settlement.||1350|
|15||Sales on credit to Kewal||500|
|Goods purchased from M/s. Khan 6i Singh tor cash, Rs. 1,100.|
|16||Cheque in favour of Sharma Bros, returned dishonoured because of improper rubber stamp.|
|18||Borrowed Rs. 10,000 from Mi s. Sharma (∩ 9% p.n. Money pul in Bank.|
|Goods sold on credit to M/s Mohan Lal & Co. Rs. 1500|
|20||Installed a small printing machine at a cost of Rs. 9,500; paid by cheque.|
|21||Repairs to furniture Rs. 100.|
|Received Rs. 990 on account of commission|
|30||Withdrawn for domestic use Rs. 200.|
|Goods returned by M/s Mohan Lal & Co. Rs. 600.|
|31||Salaries due, Rs. 1,750.|
Prepare complete books of account and trial balance.
P.14 : Make the following calculations.
(a) Rs. 20,000 is due to X, 5% discount is allowed by him due to early payment. Calculate discount.
(b) Rs. 7,600 is paid to ‘Y’ at a discount of 5%. Calculate discount.
(c) Goods are sold at 30% Profit on sales. Selling Price is Rs. 390. Calculate cost.
(d) Goods are sold at 30% Profit on cost. Selling Price is Rs. 390. Calculate cost.
(e) Goods costing Rs. 300 is sold at a Profit of 25% on Cost. Calculate Selling price.
(f) Goods costing Rs. 300 is sold at a Profit of 25% on Selling price. Calculate Selling price.
(g) Income earned Rs. 25,20,000 & Expenses incurred excluding managers commission is Rs. 20,00,000. Calculate Managers commission which is 4% of profit before commission.
(h) Income earned Rs. 25,20,000 & Expenses incurred excluding managers commission is Rs. 20,00,000. Calculate Managers commission which is 4% of profit after charging his commission.
ANSWERS AND HINTS FOR
|P.No.||Answers & Hints|
|1.||Transactions to be recorded in his business books Nos. 1, 2, 5 to 13|
|2.||Real Account: e, f, g, r, s, Personal Account: a, b, d, k, o, p, q, Nominal Account: c, h, i, j, l, m, n,|
|3.||(1) Cash a/c- Real a/c, Sales a/c – Nominal a/c;|
(2) J.P. Stores a/c – Personal a/c, Sales a/c – Nominal a/c
(3) Verma Sons a/c – Personal a/c, Purchase a/c – Nominal a/c
(4) Cash a/c- Real a/c, Rent a/c – Nominal a/c;
(5) Drawings a/c – Personal a/c, Goods used a/c or Purchase a/c – Nominal a/c
(6) Cash a/c- Real a/c, Postage & Stamps a/c – Nominal a/c;
(7) Bank a/c- personal a/c & Cash a/c – Real a/c
(8) Bank a/c- personal a/c & Bimal a/c – Personal a/c
(9) J P Stores a/c- personal a/c & Cash a/c – Real a/c
(10) J P Stores a/c- personal a/c & Sales return a/c – Nominal a/c
fl 1) Advertisement a/c- Nominal a/c, Cash a/c- Real a/c, Sales a/c – Nominal a/c;
(12) Bank a/c- personal a/c & Machinery a/c – Real a/c
(13) Cash a/c- Real a/c, Repairs a/c – Nominal a/c;
(14) Mohanlal & Co. a/c- Personal a/c, Cash a/c- Real a/c, Discount a/c – Nominal a/c;
(15) Rao &i Murthy a/c- Personal a/c, Bank a/c- Personal a/c, Discount a/c – Nominal a/c;
(16) Sanjay Loan A/c- personal a/c & Cash a/c – Real a/c
|4.||Asset: 3, 5, 8, 12, Expense: 1, 2, 6, 7, 9, II, Losses; 4, 10|
|5.||Income: 1, 4, 7, 8|
|6.||Refer solved illustrations given in the book.|
|7.||Refer solved illustrations given in the book. Opening Capital Rs. 41,950.|
|8.||Closing Balance Rs. 1,000|
|9.||Deposit in Bank Rs. 6,700|
|10.||Closing Balance : Cash Rs. 7,075, Bank Rs. 6,237|
|11.||Closing Balance of petty cash Rs. 411|
|12.||Sales book total Rs. 11,020; Purchase book total Rs.13,190; Purchase return book total Rs.1,995; Sales return book total Rs.2,390;|
|13.||Opening Capital Rs. 56,450, Cash balance Rs. 2,240, Bank balance Rs.7,240|
|14.||(a) Rs. 1,000, (b) Rs. 400, (c) Rs. 273, (d) Rs. 300, (e) Rs. 375, (f) Rs. 400, (g) Rs. 20,800, (h) Rs. 20,000|
8.8 BASICS OF INTERPRETATION
Some illustration to explain that proper reading of sentence will help in correct accounting:
♦ “How it is read” column contains the way sentence are usually read & are written in books and in questions also.
♦ There is nothing wrong in it the only problem is that the students (who are learner) gets confused & interpret it wrongly & consequently commits mistake in accounting.
♦ “How it should be read column” contains suggested reading which will help to overcome this problem.
|How it is Read||How it should be read|
|1.||He brings Capital (it creates an impression that capital is something real a/c) which he is bringing||He brings Cash as Capital Contribution or on a/c of Capital|
|Cash a/c Dr.|
|To Capital a/c (Owners/Givers a/c) –|
|2.||Discount given to ‘A’ (we feel ‘A’ is receiver & his a/c should be debited)||A gives early payment (a benefit) & hence we allow him discount|
|Discount a/c Dr. –|
|To ‘A’s a/c|
|3.||Salary given to clerk (As if salary is something which we are giving to clerk)||Cash given on a/c of Salary. (Clerk gives us services (named salary a/c) & we give its price in cash)|
|Salary a/c Dr. –|
|To Cash a/c|
|4.||Depreciation written off (Commonly understood as if depreciation a/c is written off) (closed/reduced)||Furniture written off on a/c of Depreciation|
|Depreciation a/c Dr.|
|To Furniture a/c|
|(Depreciation a/c is created which will be written off by transferring to P&L a/c at the end)|
|5.||Bad Debts written off (Same as above)||A debtor which has become bad (unrecoverable) is written of f|
|Bad Debts a/c Dr.|
|To Party (Debtors) a/c|
|6.||X a/c Dr.||–||X a/c is to be debited & Sales a/c is to be credited.|
|To Sales a/c||–||It will give an idea that by passing entry. accounting doesn’t get completed. One more part is required that is posting to respective a/cs in ledger. When we write amount on debit side of Xs a/c then his a/c is debited & similarly when we write on credit side of sales a/c then sales a/c is credited.|
|Commonly read as X a/c debited to sales a/c. It gives an that X a/c is debited & Sales a/c is impression credited whereas in reality when we write journal entry neither debit is completed nor credit is completed.|
|7.||Reserves & Fund a/c, P&L a/c (Student usually have an impression that this is the cash (money). How then it appears on liability side of Balance Sheet).||Fund word is used to refer money. But w hen we talk of Fund a c. Reserves a/c, P&L a/c these are only nominal (notional) a/cs & are not accumulated (i.e. not distributed out). But in the concern it might he in any form cash bank or Assets or investments etc.|
|8.||Sales A/c||Apart from date (because accounting is done date wise) three things are written:|
(a) Amount: It is must. Posting is completed/accounting is done if you write correct amount in correct a/c on correct side.
(b) Name of other a/c i.e. in sales a/c A s name & in A s a/c sales a/c name. This is advisible to write on debit side the name of the a/c credited & on the credit side the name of the a/c debited so as to get full idea about the transaction. But even if it is missed or wrongly written it doesn’t change the accounting, so far as the correct amount is written in correct a/c on correct side.
|10.1 By A a/c||5,000|
|10.1 To Sales a/c||5000|
|This is absolutely correct way of posting but we must distinguish between their significance.|
In the 1st a/c we commonly read By A s a/c credit, rather we should say sales a/c credited.
In 2nd a/c it is read as To Sales a/c debit, to give correct emphasis we should say A’s a/c debited.
|(c) To & By: It’s a convention to write To’ on debit side & By on credit side. As a student please do continue writing it. But remember it is useless. It neither affects correctness nor gives any meaning or information.|
Many such incidents can be cited, but above may be sufficient to get a feel that to become proficient in accounting develop a habit of reading correctly & fully, in a manner which clearly relates sentence to accounting done.
8.9 GUIDELINES FOR INTERPRETATION:
♦ Many times students will observe that the sentence used in a question doesn’t give a clear cut/categorical meaning.
♦ It may be ambiguous or having more than one alternative.
♦ In such cases students can interpret the same as follows.
♦ Unless otherwise clarified by the sentence or the question or by the circumstances, the interpretation will be made as follows:
- If paid, received or similar words are not used then
■ If parties name is given it is assumed as a credit transaction.
■ If parties name is not given it is assumed as a cash transaction.
- A business expense is paid from business concern and business income is received in concern.
- A personal expense is paid from personal sources and personal income is received in personal account.
- When more than one meaning is possible the meaning which is more probable should be accepted.
- In case of possibility of normal and abnormal situations, we will always consider normal situations. Abnormal/exceptional/rare situations will be considered only when specifically mentioned in the question.
- While formulating entry for a given transactions, read the sentence in such a way that you speak, names of both the accounts involved in it. Ex.: Don’t say rent given, say cash given on account of Rent.
- While doing accounting put yourself in the position of entity (i.e. as if we are the entity) & then interpret it.
8.10 THE SAME ITEMS GOODS/SERVICES/BENEFITS RESULT INTO EXPENSE OR INCOME:
|It is an expenses if we receive||It is an income if we give|
|(When, we receive goods, services & benefits from||(When we give goods, services or benefits to others we|
|others, we have to give charges for it hence it is||get the price/value of it hence it is our income)|
|Goods (purchase a/c.)||Goods (sale a/c.)|
|Services (salary a/c, etc.)||Services (fees a/c, etc.)|
|Charges for Money received for use (interest a/c)||Charges for Money given for us0 (interest a/c)|
|Charges for Property received for use (rent a/c)||Charges for Property given for use (rent a/c)|
|Benefit received say early payment (discount a/c)||Benefit given say early payment (discount a/c)|
8.11 PAYMENT Vs. EXPENSE:
The two terms are entirely different. The following charts will clarify it.
Effect of Payment:
Credit cash or Bank A/c.
|2ND EFFECT DEBIT TO EITHER OF FOLLOWING A/cs.|
→ Capital Expenditure /Fixed Assets (Benefit is for long, term)
→ Revenue expenditure/Expenses (Benefit is enjoyed within an accounting year)
→ Loss (No benefit is received nor receivable)
→ Prepaid/advance (benefit will be received in future year)
→ Deffered revenue expenditure (benefit is expected in 3-4 years)
→ Loan given (Asset)
→ Repayment of loan/payment of a liability (Reduction of liability)
8.12 RECEIPT Vs. INCOME:
The two terms arc entirely different. The following charts will clarify it.
Effect of Receipts:
Debit cash or Bank A/c.
|2ND EFFECT CREDIT TO EITHER OF FOLLOWING A/cs.|
→ Sales of fixed assets as it’s a capital receipt
→ Revenue receipt /Income (Value of Goods, Services or Benefits given to others)
→ Advance (for which goods, services or benefits to be given in future years)
→ Deferred income (which is deferred in 3-4 years)
→ Loan taken (Liability)
→ Repayment of loan received (Reduction of asset)
From above students can observe that payment may have an equal effect on expense, but there are other possibilities too. Similarly receipt may have effect on income, but it can have so many other possible effects.
Thus the second effect (because one effect is always on Cash/Bank a/c) of payment & Receipt depends upon its nature.
*This article contains all topics about the Accounting Process (Journal, Ledger, Trial Balance, Cash Book, Subsidiary Books) Basics of Interpretation.
For notes on all CA foundation topics, you can visit this article CA foundation note