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Accounting Process CA Foundation Notes

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 Process

Accounting Process



♦     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.


8.1.1 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)
EntityOther person
Real AccountNominal AccountPersonal Account
AssetsExpense or IncomeAsset or Liability
  1. 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.
  2. 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.

8.1.4    Goods:

♦     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.

8.1.5    Assets:

♦     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.

8.1.6    Liability:

♦     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.

8.1.8 Income/Revenue:

♦     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. Personal Account:

♦     It deals with the accounts relating to persons and takes the following forms-

  1. Natural Person: e.g. the name of an individual, the suppliers and buyers, say, Ram, Shyam etc.
  2. Artificial Person or legal or Notional Person: e.g. Bank, Firm, Association, Company etc.
  3. 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. 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. 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.


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 outIt is given to othersHe is receiver
Real A/c.Nominal A/c. (income)Personal A/c.
Cash/PropertyGoods/Services/Belief its
Real A/c.Nominal A/c. (expense)Personal A/c.
It comes inIt is received/enjoyedHe 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

Solution :

Entry formed using classification of account

TransactionAccount effectedClassificationDr./Cr. With reason
(a) Commenced business with Rs. 10,000Cash a/c

Owner/Capital a/c

Real a/c PersonalCash 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/cNominal a/c Real a/cPurchase 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. 3000Machinery a/c Jay Engg. Work a/cReal a/c Personal a/cMachinery 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. 1000Shares a/c (Investment a/c) Cash a/cReal a/c Real a/cShares comes in hence shares a/c Dr. Cash is given, hence cash a/c Cr.
(e) Bought goods for cash Rs. 500Purchase a/c Cash a/cNominal a/c Real a/cIt is an expense, hence purchase a/c Dr. Cash goes out hence cash a/c Cr.
(f) Paid rent to landlord Rs. 300Rent a/c Cash a/cNominal a/c Real a/cRent paid is an expense hence rent a/c Dr. Cash goes out, hence cash a/c Cr.
(g) Paid for office stationery Rs.50Stationery a/c Cash a/cNominal a/c Real a/cStationery is an exp., hence stationery a/c Dr. Cash goes out, hence cash a/c Cr.
(h) Opened an a/c with SB1 Rs. 500SBIa/c Cash a/cPersonal a/c Real a/cSBI 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. 500SBI a/c Divided a/cPersonal a/c Nominal a/cSBI 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. 100Ram a/c Sita a/cPersonal a/c Personal a/cRam 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 businessCash a/c Wife’s a/cReal a/c Personal a/cCash 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. 200Drawings a/c Cash a/cPersonal a/c Real a/cOwners 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 AnjaliCash a/c Comm. a/cReal a/c Nominal a/cCush comes in hence cash a/c Dr. Comm. received is income, hence commission a/c Cr.
(n) Paid Rs. 400 to Anita on accountAnita a/c Cash a/cPersonal a/c Real a/cAnita is receiver, hence Anita a/c Dr. Cash goes out. hence cash a/c Cr.
(o) Cash sales Rs. 700Cash a/c Sales a/cReal a/c Nominal a/cCash 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 isEffect to that a/cWhen there isEffect 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 AccountEffect of the transaction on it
Increases itDecreases it
AssetsReal or PersonalDr.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 06Mr. Rajendra started business with cash Rs. 2,000. Furniture Rs. 8,000. Stock of goods Rs. 5,000
2Bought goods from Ajay for Rs. 5,000 less trade discount 10uo
4Bought one table and one chair for Rs. 500, and paid for it cash
6Sold goods to Kanta for Rs. 3,000 on credit
7Received a cheque of Rs. 2,500 from Kanla
8Received house rent of Rs. 2,400 from Miss Lalita
15Bought one second hand typewriter for Rs. 500 and spent Rs. 200 for repairing it
20Cash sales Rs. 5,000
22Paid for travelling expenses Rs. 4,000
22Paid allowances and commission to the travelling agent Rs. 1400
25Received Rs. 4,000 as advance from Pawai Bros.
28Sold goods of Rs. 6,000 to Pawar Bros.
29Pawar Bros, returned defective goods of Rs. 500
30Paid staff salary for the month Rs. 500 and general expenses Rs. 1,000


Entry formed using nature of Recount

DateEffect of transactionAccountNatureBala


1.4.06Rajendra (owner) bring cash, furniture and sock (Capital a/c is the personal a/c of Rajendra)Cash a/cAsset a/c.Dr.IncreasesCash a/c Dr.2000
Furniture a/cAsset a/c.Dr.IncreasesFurniture a/c Dr8000
Stock a/cAsset a/c.Dr.IncreasesStock a/c Dr.5000
Rajendra a/cLiability a/c.Cr.IncreasesTo Capital a/c15000
2.406Goods purchased from Ajay (creditor) 5000 – 10% i.e. 500 = Rs. 4500Purchase a/cExpenseDr.IncreasesPurchase a/c Dr.4500
Ajay a/cLiabilityCr.IncreasesTo Ajay a/c4500
44.06Furniture (table, chair) purchased & paid by cash Rs. 500FurnitureAssetDr.IncreasesFurniture a/c Dr.500
CashAssetCr.DecreasesTo Cash a/c500
6.4.06Goods sold to kanta (debtor) on credit Rs. 3000KantaAssetDr.IncreasesKanta a/c Dr.3000
SalesIncomeCr.IncreasesTo Sales a/c3000
7.4.06Received cheque (& deposited in bank) from Kanta (debtor) Rs. 2500BankAssetDr.IncreasesBank a/c Dr.2500
KantaAssetCr.DecreasesTo Kanta a/c2500
8.4.06Received cash as rent from Lalita Rs. 2400CashAssetDr.IncreasesCash a/c Dr.2400
RentIncomeCr.IncreasesTo Rent2400
15.4.06Old typewriter purchased and repaired and paid cash Rs. 700TypewriterAssetDr.IncreasesTypewriter a/c Dr.700
CashAssetCr.DecreasesTo Cash a/c700
20.4.06Goods sold & cash received Rs. 5000CashAssetDr.IncreasesCash a/c Dr.5000
SalesIncomeCr.IncreasesTo Sales a/c5000
22.4.06Travelling exp. paid in cash Rs. 4000Travelling exp.ExpenseDr.IncreasesTravelling exp. a/c Dr.4000
CashAssetCr.DecreasesTo Cash a/c4000
22.4.06Travelling exp. paid to agent Rs. 1400Travelling exp.ExpenseDr.IncreasesTravelling exp. a/c Dr.1400
CashAssetCr.DecreasesTo Cash a/c1400
25.4.06Cash Rs. 4000 received from Pawar Brothers (advance – liability)CashAssetDr.IncreasesCash a/c. Dr.4000
PawarLiabilityCr.IncreasesTo Pawar Bros, a/c4000
28.4.06Goods sold to Pawar brothers (customer debtor) Rs. 6000Pawar Bros.AssetDr.IncreasesPawar Bros, a/c Dr.6000
SalesIncomeCr.IncreasesTo Sales a/c6000
29.4.06Pawar bros, returns goods (sales return) Rs. 500Sales return(-) IncomeDr.IncreaseSales return a/c Dr.500
Pawar bros.AssetCr.DecreaseTo Pawar Bros, a c500
30.4.06Salary & general expenses paid by cashSalaryExpenseDr.IncreaseSalary a/c Dr.500
Gen. exp.ExpenseDr.IncreaseGeneral exp. a c1000
CashAssetCr.DecreaseTo Cash a/c1500

(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/c30,000
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/c5,000

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/c10,000
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/c10,000


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.


♦     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.


♦     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.

Important Points:

  1. Every transaction must be recorded.
  2. It must be recorded in any one book of entry depending upon which books of entry are being maintained.
  3. It must be recorded by double entry principle.
  4. Double entry for a transaction will be always same irrespective of the book of entry in which it is being recorded.
  5. 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:


♦     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.

Solution :

Cash Book (Single column)
To Opening balance400By Purchase a/c400
To Sales a/c500By Salary a/c200






To Interest a/c300By Balance c/f600


Sales A/cPurchase A/c
By Cash a/c500To Cash a/c 400
Interest A/cSalary A/c
By Cash a/c300 To Cash a/c200
Similarly a single column Bank book can also be prepared.

♦     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.

  1. Double column cash book can be of the following three types (i) Cash & Bank column (ii) Cash & discount column (iii) Bank & discount column.
  2. The discount columns are opened when the transactions involving discount allowed & discount received are frequent.
  3. 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.
  4. 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.

Solution :

Cash Book (Double column)

To Opening balance400By Trupti a/c15285
To Anand a/c20480By Rajani a/c5195
To Rupesh a/c10190By Balance c/f590


Anand A/cTrupti A/c
By Sundry a/c500To Sundry a/c300
Rupesh A/cRajani A/c
By Cash a/c190To Cash a/c195
By Discount a/c10To Discount a/c5
Discount allowed A/cDiscount received A/c
To Sundry a/c30By Sundry a/c 20

♦     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.

Solution :

Cash Book (Triple column)

To Opening bal.200400By Trupti a/c15285
To Anand a/c20480By Rajani a/c5195
To Rupesh a/c10190By Balance c/f195595


Anand A/cTrupti A/c
By Bank a/c480To Bank a/c285
By Discount a/c20To Discount a/c15
Rupesh A/cRajani A/c
By Cash a/c190To Cash a/c195
By Discount a/c10To Discount a/c5
Discount allowed A/cDiscount received A/c
To Sundry a/c 30By Sundry a/c 20

♦     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.

Solution :

Petty Cash Book (Analytical cash book)







To Op. bal.100
To Main Cash900
By Conveyance5050
By Stationery8080








By Postage6060
By Repairs150150
By Cartage4040
By Wages200200
By Office exp.100100
By Closing bal.320

Posting of total amount will he made to respective expense account in ledger.


♦     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.


♦     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

Solution :

Sales Book

DateParticularsParty /Customer/DebtorLFAmount Rs.


Sales A/cPranay A/c
By Sundry a/c4,500 To Sales a/c1,500
Pravin A/cPrashant A/c
To Sales a/c2,000To Sales a/c1,000

♦     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.

Solution :

Purchase Book

DateParticularsParty /Supplier/CreditorLFAmount Rs.


Prateek A/cPraneeta A/c
By Purchase a/c1,800By Purchase a/c1,000
Puneet A/cPurchase A/c
By Purchase a/c1,200To Sundry a/c4,000

♦     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.

Solution :

Hills Receivable Rook

DateParticularsParty/Customer/DebtorLFAmount Rs.


Bills Receivable A/cPranay A/c
To Sundry a/c4,500To Sales a/c1,500By Bills receivable a/c1,500
Pravin A/cPrashant A/c
To Sales a/c2,000By Bills receivable a/c2,000To Sales a/c1,000By 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.

Solution :

Bills Payable Book

DateParticularsParty /Supplier /CreditorLFAmount Rs.


Prateek A/cPraneeta A/c
To Bills Payable a/c1,800By Purchase a/c1,800To Bills Payable a/c1,000By Purchase a/c1,000 !
Puneet A/cBills Payable A/c
To Bills Payable


1,200By Purchase a/c1,200By Sundry a/c4,000


♦     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

DateParticularsParty /Customer /DebtorLFAmount Rs.
Purchase Return Book
DaleParticularsPatty/Supplier/CreditorLFAmount Rs.

♦     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.


DateParticularsLFDebit Rs.Credit Rs.

♦     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.


♦     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

Cash Book

5.1.06To Sale a/c5,0005.1.06By A & Co A/c5,000
10.1.06To XYZ a/c3,00010.1.06By Purchase a/c3,000

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.

Ledger Account
DateParticularsFAmount Rs.DateParticularsFAmount Rs.


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.


8.7.1 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.

8.7.2 Commission:

♦     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.

For example:

(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.

8.7.3 Discount:

♦     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 noteIn 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 noteIn 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/cTo 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) BookPersonal books, of Ramlal
(a)Personal exp., paid from personal sourcesNoYes
(b)Office exp. paid from office a/cYesNo
(c)Office Asset, paid from office (assumed that show case is for shop)YesNo
(d)Personal income, Money received in personal a/cNoYes
(e)Office exp. paid from office a/cYesNo
(f)Office Assets, paid from office a/cYesNo
(g)Personal exp. paid giving goods from shopYesYes
(h)Personal exp., goods taken from shopYesYes
(i)Personal exp., paid from personal sourcesNoYes
(j)Personal liability, Money kept for personal useNoYes
  1. 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.
  2. 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?

  1. Paid Rs. 650/- to Jaideo
  2. Received Rs. 550/- from Ramdeo
  3. Paid Rs. 350/- toward interest
  4. Received Rs. 990/- on account of commission
  5. Bought goods worth Rs. 1,600/- for cash
  6. Bought goods worth Rs. 1,650/- on credit from Somdeo
  7. Sold goods worth Rs. 1,700/- on credit to Namdeo
  8. Paid loading charges Rs. 10
  9. Received Rs. 10,000 as loan from Mr. Sanjay
  10. Paid for office cleaning Rs. 60

Solution :

  1. 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).
  2. 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).
  3. 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).
  4. Cash is received hence cash a/c. is (debited) and commission received means we have given services hence commission is an income & is (credited).
  5. 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).
  6. 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).
  7. 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).
  8. 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).
  9. 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).
  10. 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).

Preparing Journal

Illustration 8.17: Journalize the transactions given below in the books of Kohli.

2006 April:

  1. Kohli starts business with Rs. 25,000. Kohli opens account with bank and deposits Rs. 18.000.
  2. Kohli purchases furniture, Rs. 850 and typewriter, Rs. 1500. Payment made by cheque.
  3. Goods purchased from M/s. Kao and Murty on credit, Rs. 5,600
  4. Goods purchased from M/s. Khan & Singh for cash, Rs. 1,100.
  5. Goods sold on credit to M/s Mohan Lal & Co., Rs. 1500/-
  6. Goods sold on credit to M/s Basu & Co., Rs. 2,800/-
  7. Paid for office stationery. Rs. 250/-
  8. Paid rent for April Rs. 200/-
  9. Installed neon sign at a cost of Rs. 1,000.
  10. Received cash from M/s. Mohnnlal & Co., Rs 1470; allowed them discount, Rs. 30.
  11. Issued cheque for Rs. 5,500 in full settlement (i.e. nothing more is due them) to M/s Rao & Murty,
  12. Deposited Rs. 1,200 in bank.
  13. Received bill for two table fans. Rs. 300 from M/s Electrician Bros.
  14. One electric fan stolen.
  15. Paid insurance premium, Rs. 450 by cheque.
  16. Insurance Premium Rs. 200 paid to L I C.


Journal of Kohli





1.4.06Cash AcDr.25000
To Kohli’s A/c/Capilal a/c25000
(Being Kohli brings cash as Capital contribution)
1.4.06Bank A/cDr.18000
To Cash A/c18000
(Being Bank a/c opened by depositing cash)
2.4.06Furniture A/cDr.850
Typewriter A/cDr.1500
To Bank A/c2350
(Being Furniture & typewriter purchased & payment made by cheque)
3.4.06Purchase A/cDr.5600
To Rao & Murty a/c5600
(Being goods purchased on credit from Rao & Murty)
4.4.06Purchase A/cDr.1100
To Cash A/c1100
(Being goods purchased on cash)
5.5.06M/s Mohan Lal & Co.Dr.1500
To Sales A/c1500
(Being goods sold on credit to Mohanlal & Co.)
6.4.06M/s Basu & Co.Dr.2800
To Sales a/c2800
(Being goods sold on credit to Basu & Co.)
7.4.06Stationary A/cDr.250
To Cash a/c250
(Being stationary purchased on cash)
8.4.06Rent A/cDr.200
To Cash a/c200
(Being rent paid in cash)
9.4.06Furniture & fixture a/c/Advertiseπient A/c Dr.1000
To Cash a/c1000
(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)
10.4.06Cash a/cDr.1470
Discount a/cDr.30
To M/s Mohan Lal & Co1500
(Being cash received from Mohanlal & Co. & discount allowed to them)
11.4.06M/s Rao & MurtyDr.5600
To Discount a/c100
To Bank a/c5500
(Being paid to Rao & Murty by cheque & discount received from them.)
12.4.06Bank A/cDr.1200
To Cash A/c1200
(Being cash deposited in Bank a/c)
13.4.06Furniture & fixture a/cDr.300
To Electrician Brothers A/c300
(Being 2 table fans purchased on credit from Electrician Brothers)
14.4.06Loss by theft A/cDr.150
To Furniture & fixture A/c150
(Being one of the above fan lost by theft.)
15.4.06Insurance Expense A/cDr.450
To Bank a/c450
(Being property insurance premium paid by cheque)
16.4.06Drawings A/cDr.200
To Cash a/c200
(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:

2Cash Sales150
2Sales to J.P. Stores on credit450
3Purchases from Verma Sons380
4Paid rent to Landlord (for December 1998)150
Used Stationery for office60
Used Stationery for domestic Purposes20
6Sold Stationery to I.P. College on Credit250
Bought Postage stamps15
7Paid Insurance Premium by cheque350
Received cheque from Kewal in full settlement780
9Issued cheque in favour of Verma Sons in full settlement of the amount due on 1st Jan.540
10Cash Sales600
11Sent Cash to Bank500
Received cheque from Bimal on account1000
Cash received from J.P. Stores430
Goods received back from J.P. Stores20
13Bimal’s Cheque returned dishonoured.

Issued cheque in favour of Sharma Bros, in full settlement.

15Sales on credit to Kewal500
16Cheque in favour of Sharma Bros, returned dishonoured because of improper rubber stamp.
17Incurred advertising, Rs. 250; paid cash Rs. 100 and stationery given for balance.
20Exchanged old furniture for new; price of new furniture Rs. 600; value of old furniture Rs. 200 (cost Rs. 350); balance paid in cash.
22Bimal declared insolvent; 40% received against amount due from him.
Sent cheque to Sharma Bros. Rs. 1400.
23Kewal claims Rs. 50 as special allowance because of defect in goods: allowance agreed to.
25Borrowed 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.
28Cash sales Rs. 400. Paid Income Tax Rs. 100.
30Withdrawn for domestic use Rs. 200. Amount drawn from bank for office use Rs. 600.
31Paid salaries, Rs. 250. Amount due to Landlord as rent for January Rs. 150.

Solution :

Journal of M/s. Pearelal





1.1.2006Furniture & Fixture A/cDr.2400
Opening Stock A/cDr.35600
Bank A/cDr.3500
Cash A/cDr.400
Bimal’s A/cDr.1600
Kewal A/cDr.800
To Landlord A/c (Rent payable A/c)150
To Sharma Bros. A/c1400
To Verma Sons A/c550
To Capital A/c (Balancing figure)42200
(Being opening balances recorded. Balancing figure i.e. Assets – liabilities is capital of the owner)
2.1.2006Cash A/cDr.150
To Sales A/c150
(Being Goods sold for cash)
2.1.2006J.P. Stores A/cDr.450
To Sales A/c450
(Being goods sold to J.P. stores on credit)
3.1.2006Purchase A/cDr.350
To Verma Sons A/c350
(Being goods purchased on credit from Verma Sons)
4.1. 2006Landlord A/c (Rent Payable A/c)Dr.150
To Cash A/c150
(Being rent for Dec. 5 paid)
4.1. 2006Stationary expenses A/cDr.60
To Goods used A/c60
(Being goods (stationery) used for office)
4.1 2006Drawing A/cDr.20
To Goods used A/c20
(Being goods used for domestic purpose)
6.1. 2006J.P. College A/cDr.250250
To Sales A/c
(Being goods (stationery) sold to I P College oil credit)
6.1. 2006Postage A/cDr.1515
To Cash A/c
(Being postal stamps put chased)
7.1 2006Insurance premium A /cDr.350
To Bank A/c350
(Being insurance premium paid by cheque)
7.1.2006Bank A/cDr.780
Discount A/cDr.20
To Kewal A/c800
(Being cheque received in full settlement from Kewal)
9.1. 2006Verma Sons A/cDr.550
To Bank A/c540
To Discount A/c10
(Being cheque issued to Verma Sons in full settlement)
10.1. 2006Cash A/cDr.600
To Sales A/c600
(Being goods sold for cash)
11.1. 2006Bank A/cDr.500
To Cash A/c500
(Being cash deposited in Bank)
11.1. 2006Bank A/cDr.1000
To Bimal A/c1000
(Being cheque received from Bimal)
11.1.2006Cash A/cDr.430
To J.P. Stores A/c430
(Being cash received from J.P. stores)
11.1.2006Sales return A/cDr.20
To J.P. Stores20
(Being goods received back from J.P. stores)
13.1.2006Bimal A/cDr.1000
To Bank A/c1000
(Being Bimal’s cheque is dishonoured)
13.1.2006Sharma Bros. A/cDr.1400
To Bank A/c1350
To Discount A/c50
(Being cheque issued in full settlement to Sharma Bros)
15.1.2006Kewal A/cDr.500
To Sales A/c500
(Being goods sold on credit to Kewal)
16.1. 2006Bank A/cDr.1350
Discount A/cDr.50
To Sharma Bros. A/c1400
(Being cheque issued to Sharma Bros, returned dishonoured)
17.1.2006Advertising A/cDr.250
To Cash A/c100
To Sales A/c150
(Being advertising exp. is paid, partly by cash & partly by stationery)
20.1. 2006New furniture A/cDr600
To Old furniture A/c200
To Cash A/c400
(Being old furniture was exchanged by new furniture and balance paid in cash)
20.1. 2006Loss on sale of asset A/cDr.150
To Old furniture A/c150
(Excess of book value of furniture over sale value being loss transferred)
22.1. 2006Cash A/cDr.640
Bad debts A/cDr.960
To Bimal A/c1600
(Bimal was declared insolvent & he paid 40% of amount due from him)
22.1. 2006Sharma Bros. A/cDr.1400
To Bank A/c1400
(Being cheque issued to Sharma Bros.)
23.1. 2006Allowance A/cDr.50
To Kcwal A/c50
(Being Kewal claims allowance because of defect in goods)
25.1. 2006Cash A/cDr.10000
To Mrs. Pearelal A/c10000
Bank A/cDr.10000
To Cash A/c10000
(Cash received from Mrs. Pearelal as loan and the same is deposited in Bank)
25.1. 2006Machine A/cDr.9500
To Bank A/c9500
(Being installed machine & payment made by cheque)
25.1. 2006Repairs A/cDr.100
To cash A/c100
(Being cash paid for repairs of furniture)
28.1. 2006Cash A/cDr.400
To Sales A/c400
(Being goods sold for cash)
28.1.2006Income tax A/cDr.100
To Cash A/c100
(Being income tax paid)
30.1. 2006Drawing A/cDr.200
To Cash A/c200
(Being cash withdrawn for domestic use)
30.1. 2006Cash A/cDr.600
To Bank A/c600
(Being cash withdrawn from Bank for office use)
31.1. 2006Salaries A/cDr.250
To Cash A/c250
(Being salaries paid in cash)
31.1. 2006Rent A/cDr.150
To Rent payable A/c150
(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.

July 1Rs.
Purchased Stationery, paid cash40
Purchased goods for cash650
Purchased office Table and Chair200
2Cash Sales150
3Received from Gopal, cash as Advance200
4Paid to Sethi & Sons, cash140
5Paid for signboard130
6Cash Sales160
7Purchased old Typewriter300

Make out the Cash Book (Single column)

Solution :

Cash Book (Single column)

1.7.06To Anand’s capital A/c10,0001.7.06By Bank A/c9,000
2.7. 06To Sales A/c1501.7.06By Stationary A/c40
3.7. 06To Gopal’s A/c200By Purchase a/c650
6.7. 06To Sales A/c160By Furniture A/c200
4.7.06By Sethi & Sons A/c140
5.7.06By Office expense A/c130
7.7.06By Office equipment A/c300
7.7.06By balance c/d50
8.7. 06To balance b/d50

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:

Aug. 2006Rs.
1Opening cash balance2500.00
3Received from D & Co. Rs. 1,350 in full settlement of Rs. 1,400
4Received for cash sales1250.00
5Paid to Rajesh & Co. Rs. 775 in full settlement of his account for800.00
7Purchased office furniture670.00
13Paid for postal stamps25.00
15Paid for office rent for month of July, 2006125.00
17Used office cash for meeting personal expenses150.00
19Sold goods on credit to Mr. Faithful1700.00
20Paid to Rajnikant Rs. 670 in lull settlement of his account for Rs. 700
20Deposited in the Bank all cash in excess of Rs. 1,200.

Solution :

Double Column Cash Hook

1.8.2006To Opening b/f25005.8.2006By Rajesh & Co.25775
3.8.2006To D & Co. a/c.SO13507.8.2006By Furniture a/c670
4.8.2006To Sales a/c125013.8.2006By Postage exp. a/c25
15.8.2006By Rent payable a/c’125
17.8.2006By Drawings a/c150
20.8.2006By Rajnikant a/c30670
20.8.2006By Bank a/c1485
20.8.2006By Balance c/f1200

♦     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

Sept 2006Rs.
1Cash balance1,700.00
Bank overdraft5,600.00
5Received from Dinanath cash Rs. 750 and a cheque of Rs. 860 in full settlement of Rs. 1650
7Paid for office rent by cheque500.00
8Paid for wages in cash250.00
9Sold goods for cash Rs. 1500 and received half the amount in cash and half by cheque which is deposited in the bank
10Bank pass book states that the bank has collected interest on investment660.00
12Cheque received on 5th paid into bank
15Transferred Rs. 3000 from fixed deposit to Current account
20Drew for personal use cash Rs. 250 and a cheque of Rs. 375
25Made cash purchase and paid by cheque Rs. 1595
30Paid Dinesh Rs. 800 by cheque

Solution :

Dr.Triple Column Cash BookCr.
Sept 20061 Sept 06By Opening baL (O.D.)5600
1To Opening Balance17007By Rent a/c500
To Dinanath a/c
5(cash +chcq tie)4016108By Wages a/c250*
9To Saks a/c75075012By Bank (ch deposit)C860
10To Interest a/c66020By Drawings a/c250375
12To Cash (ch. Deposited)C86025By Purchase a/c1595
15To Fixed deposit a/c300030By Dinesh a/c800
30To Balance c/f. (OD)360030By Balance c/f2700

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 –

  1. 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.
  2. 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.

April 2006

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.

Solution :

Dr.Triple column cash bookCr.
1.4.06To Bal b/d23765944.4.06By Salary payable a/c200
2.4.To Agrawal A/c105905.4.By B.K. Bros. A/c300
4.4.To Sales A/c1345.4.By Purchase A/c60
6.4.To Sales A/c1127.4.By Q. Ahmad A/c15585
14.4.To Sales A/c212285 1 C 1C

×2.5 = 15


14.4.To G.S. Dhar A/c61948.4.By Cartage & coolie6
16.4.To Cash A/cC60010.4By Rent A/c50
23.4.To Robert & Co.929116.4.By Bank A/cC600
28.4.To Sales A/c29816.4.By Motor car A/c5800
30.4To Cash A/cC30029.4.By Robert & Co. A/c9291
30.4.By Bank A/cC300
30.4.By Wages A/c72
30.4.By Bank charges• 5
30.4.By balance c/d295998
13To balance b/d295998

*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.

Jan 2006Rs.
1The Petty Cash received by cheque300.00
3Coolie charges5.50
6Postal stamps17.75
8Revenue stamps4.50
10Bought stationery for office use14 90
13Bought envelopes940
17Safety pin box5.00
19Printing bill25.00
23Travelling expenses to salesman45.25
25Subscription to Economic Times10.50
26Paid to Waikar on account17.00
27Railway fare for sale executive35.60
28Tea to office staff31.40
30Paid advertising bill10.25

Solution :

Petty Cash Book (Analytical Cash Book)

DateParticularsReceiptPaymentCarriagePostage & CoolieOffice


StationeryTravelling exp.AdvertisementAdvance
Jan 2006
1To Main cash/Bank a/c.300.00
2By Carriage4.004.00
3By Coolie charges5.505.50
6By Postage exp.17.7517.75
8By Revenue stamp4.504.50
10By Stationery’14.9014.90
13By Stationery (envelop)9.409.40
17By Stationery (Pins)5.005.00
19By Stationery (Printing)25.0025.00
23By Travelling exp.45.2545.25
25By Office exp.10.5010.50
26By Advance (Waikar)17.0017.00
27By Travelling exp.35.6035.60
28By Office exp. (Tea)31.4031.40
30By Advertisement10.2510.25
By balance63.95

Posting from above petty cash book to ledger accounts will be made as follows:

Carriage and Coolie Charges Account

3112006To Petty Cash9.50

Postage Account

31.1.2006To Petty Cash17.75

Office Expenses Account

31.1.2006To Petty Cash46.40

Stationery Expenses Account

31.1.2006To Petty Cash54.30

Travelling Expenses Account

31.1.2006To Petty Cash80.85

Advertisement Account

31.1.2006To Petty Cash10.25

Advance Account

31.1.2006To Petty Cash17.00

Sales Book

Illustration 8.24: From the transactions given below prepare the Sales Book of Amin Chand, a furniture dealer:

June, 2006
5Sold on credit to Ideal College :10 tables @ Rs. 25 less 10%
10 chairs @ Rs. 15
8Sold Mohan Bros.: 5 stools @ Rs. 10
10Sold on credit M/s. Golchand & Co.: 3 tables @ Rs. 75, 5 chairs @ Rs. 30
20Sold to M/s. Ram Lal & Sons for cash 5 tables @ Rs. 40
27Sold on credit to Anand Pal & Co. old typewriter for Rs. 400

Solution :

Sales Book of Amin Chand

page No.-11

5.6.06Table 10 × 25250Ideal College28360
Chairs 10 × 15150
Less: 10% Trade Discount40
8.6.Stool 5 × 1050Mohan Bros.1750
10.6Tables 3 × 75225M/s Golchand & Co.35375
Chairs 5 × 30150
  1. 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
  2. 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

page No.-28

5.6To Sales A/c11360

Mohan Bros. Account

page No.-17

8.6To Sales A/c1150

Golchand & Co. Account

page No.-35

10.6To Sales A/c11375

Sales Account

page No. 4

20.6By Cash a/c200
30.6By sundry debtors11785
  1. Balancing of accounts is not done because these are not yet complete.
  2. Folio numbers have been hypothetically given to explain the concept of folio number.

Purchase Book

Illustration 8.25: From the following transactions prepare the purchase book of Admas for July, 2006 and prepare ledger accounts connected with this book.

1.7.06Purchased on credit from Paul & Co.: 50 Electric Irons @ 25, 10 Toasters @ Rs. 30
6Purchased for Cash from John & Bros.: 25 Table Lamps @ Rs. 15
10Purchased from Harsh & Sons on credit: 20 Electric Stoves @ Rs. 20, 10 Heaters @ Rs. 30.
16Purchased on credit from More & Co.: 15 Heaters @ Rs. 20.
20Purchased on credit one typewriter from Remington and for 1,500/-

Solution :

Purchase Book of Admas

1.7.06Electric iron50 × 251250Paul & Co.1550
Toaster10 × 30300
10.7Electric stove20 × 20400Harsh & Sons700
Heater10 × 30300
16.7Heater15 × 20300More & 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.

1Faithful invoiced for goods2,200
2Sold goods to Chandarana950
3Bought goods from Ramchandra1,500
4Sent invoice to Vijaya for goods1,000
5Returned goods to Ramchandra50
8Padmini purchased our goods900
10Received an Invoice from Rekha1,600
14Sent credit Note to Padmini for Rs. 100 for goods returned
17Sold goods to Chanda for Rs. 900 less 10% trade discount
23Vijaya returned goods to us75
25Returned goods to Rekha300
28Purchased Typewriter from NGIM975
30Bought goods from Hiralal for cash1,450

Solution :

Purchase Book


Sales Book

17.9900- 10% T.D.Chanda810

Purchase Return Book


Sales Return Book



Typewriter a/c/Office equipment a/c Dr975
To NGDA a/c975

Cash Book

By Purchase a/c1450

Mote: From all this books of entry posting will be made to Accounts in ledger.

Ledger Account

Illustration 8.27: Prepare Mr. S. Das Gupta’s Account as it would appear in the books of Shri. K. Roy.

1Sold goods to Mr. Dasgupta1,000
2Received goods from Mr. Dasgupta500
3Purchased goods from Mr. Dasgupta400
4Paid to Mr. Dasgupta300
5Sold goods to Mr. Dasgupta2,000
6Allowed him discount200
7He returned goods valued300
8Received cash from Mr. Dasgupta1,000
9Purchased goods from Mr. Dasgupta1,000
10Discount received from him100
11Goods returned to him300
12Paid to Mr. Dasgupta500

Solution :

Books of K Roy

DrS. Das Gupta’s a/cCr.
1.To Sales a/c10002.By Cash/Bank A/c500
4.To Cash a/c3003.By Purchase a/c400
5.To Sales a/c20006.By Discount a/c200
10.To Discount a/c1007.By Sales return a/c300
11.To Purchase return a/c3008.By Cash a/c1000
12.To Cash a/c5009.By Purchase a/c1000
By Balance c/f800
To Balance b/d800
  1. As the dates are not given serial number is written
  2. 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.
  3. 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

3Drawn from Bank (for wages to be paid the following day)1.500
4Wages paid1,435
7Bought 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
9Returned 128 Kg. of West Indian Leaf as not being upto quality.
10Sales of Tea & Cigarettes & cash received900
12Paid customs duty by cheque6,860
14Cash purchases of tea800
17Sold 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.
18Paid Wilson & Grey by cheque in full settlement of amount due on January 1.5,850
18Received from Cavendish & Co. by cheque in full settlement1.235
19Bought of Sharp Bros. & Co. advertising posters1,100
24Northern Engine Co. Ltd. charge for repairing machinery paid cash250
24Sold to Cavendish & Co. 10000 Agrometic cigarettes @ Rs. 50 per 1000
25Bought of John Barnes & Co. Indian Leaf, 1,120 Kg. @ Rs. 3.00 per kg.
26Received from Mohan & Co. on account cheque2,000
27Received for boiler parts sold (part of machinery)300
27Bank notifies that Cavendish & Co. cheque is dishonoured.
28Bought 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
29Paid for advertisements230
31Paid for repairs to furniture30
31Paid for Ground Rent600
31Drawn from Bank for private use400
31Bank charged interest for the month35
31Received intimation that Cavendish & Co. are insolvent, no possibility of recovering anything.
31Allow interest on capital @ 5% per annum.
31Allow interest on loan.
31Cigarettes taken for private use (sale value)10
31Salaries for the month of January unpaid2,000
31Sold to Blunt & Co. 50 kg. Five Flakes @ Rs. 80; 10,000 Aromatic Cigarettes @ Rs. 52.00 per 1,000. Packing charges Rs. 30

Solution :


CASH BOOK (Triple Column)

(Page No. 1)

DateParticulars (Receipt)LFDisCashBankDateParticulars (payment)LFDisCashBank


To Balance b/fJ186076202006


By Cash a/cC1500
03.1To Bank a/cC150004.1By Wages a/c101435
10.1To Sales a/c2690012.1By Custom duty a/c116860
18.1To Cavendish & Co.0525123514.1By Purchases a/c27800
26.1To Mohan Si Co.04200018.1By Wilson & Grey081505850
27.1To Machinery a/c0230024.1By Repairs Si Mt.14250
27.1By Cavendish a/c05251235
29.1By Advertisement a/c12230
31.1By Repairs & Mt.1430
31.1By Ground rent17600
31.1By Drawings18400
31.1By Interest a/c1935
31.1To Bal. C/f (overdraft)502531.1By balance c/f215

‘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.

Sales book

(Page No. 1)

17.1Mohan & Co.Royal Mixture75 × 20=1500
Agromatic Cigarettes20 × 50=1000
Fire Flakes40 × 80=3200045,700
18.1Cavendish & Co.Aromatic Cigarettes10 × 50=50005500
31.1Blunt & Co.Five Flakes50 × 80=4000
Aromatic Cigarettes10 × 52=520
Packing charges=30314,550

Posting : Debit the individual party a/c with respective amount & credit the total to sales a/c.

Purchase book

07.01Wilson & GreyBorneo leaf896 × 43,584
West Indian leaf627 × 3.5=2,195
25.01John Barnes & Co.Indian leaf1,120 X 3=3,360153,360
28.01Dele & SonsBorneo leaf882 × 4=3,528
Indian leaf560 × 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)

09.01Wilson & GreyWest Indian leaf128 × 3.5 = 44808448

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)

01.01Leasehold Premises a/cDr.0118,000
Machinery a/cDr.0227,600
Opening stock a/cDr.0351,900
Bank a/cDr.C-l7,620
Cash a/cDr.C-l860
Mohan & Co. a/cDr.041,460
Cavendish & Co. a/cDr.051,260
Furniture a/cDr.061,500
To Loan a/c0720,000
To Wilson & Grey a/c086,000
To Capital a/c (Balancing figure)984.200
09.01Advertisement a/cDr.121,100
To Sharp Brothers a/c131,100
31.01Bad debts a/cDr.201.760
To Cavendish & Co. a/c051.760
31.01Interest on Capital a/cDr.21351
To Capital a/c09351
31.01Drawings a/cDr.1810
31.01Interest a/cDr.19100
To Interest Payable a/c22100
Interest accrued on loan for 1 month on 20000/- (u 6%
31.01Salary a/cDr.242,000
To Salary Payable a/c252,000

Pooling: Make debit & credit postings to respective accounts,


Leasehold Premises a/c (Page No. 1)

01.01To Balance b/fJ118,00031.01By Balance c/f18,000

Machinery a/c (Page No. 2)

01.01To Balance b/fJ127,60027.01By Cash a/cC1300
31.01By Balance c/f27300

Opening Stock a/c (Page No. 3)

01.01To Balance b/dJ151,90031.01By Balance c/f51,900
Mohan & Co. a/c (Page No. 4)
01.01To Opening BalanceJ11,460By Bank a/cC12,000
17.01To Sales a/cJ15,70031.01By Balance c/f5,160

Cavendish & Co. a/c (Page No. 5)

01.01To Opening BalanceJ11,26018.01By Bank a/cC11335
24.01To Sales a/cJ150018.01By Discount a/cC125
27.01To Bank a/cC11,23531.01By Bad DebtsJ11,760
27.01To Discount a/cC125

Furniture a/c (Page No. 6)

01.01To Opening BalanceJ11,50031.01By Balance c/f1,500
Loan (6%) a/c (Page No. 7)
31.01To balance c/f20,00001.01By Opening BalanceJ20,000
Wilson & Grey a/c (Page No. 8)
18.01To Bank a/cC15,85001.01By Opening balanceJ16,000
18.01To Discount a/c3015007.01By Purchases a/cP15,826
09.01To Purchase return a/cPr1448
31.01To Balance c/f5,378
Capital a/c (Page No. 9)
31.01To Balance c/f84,55101.01By Opening BalanceJ184,200
31.01By Interest on CapitalJ1351
Wages a/c (Page No. 10)
04.01To Cash a/cC11,43531.01By Balance c/f1,435
Customs Duty a/c (Page No. 11)
12.01To Bank a/cC16,86031.01By Balance c/f6,860
Advertisement a/c (Page No. 12)
19.01To Sharp Bros & Co. a/cJ11,10031.01By Balance c/f1,330
29.01To Cash a/cC1230
Sharp Bros. & Co. a/c (Page No. 13)
31.01To Balance c/f1,10019.01By Advertisement a/cJ11,100
Repairs & Maintenance a/c (Page No. 14)
24.01To Cash a/cC125031.01By balance c/f280
31.01To Cash a/cC130
John Barnes & Co. a/c (Page No.15)
31.01To Balance c/f3,36025.01By Purchase a/cP13,360
Dele & Sons a/c (Page No.16)
31.01To Balance c/f5,21528.01By Purchase a/cP15,215
Ground Rent a/c (Page No. 17)
31.01To Cash a/cC160031.01By Balance c/f600
Drawings a/c (Page No. 18)
31.01To Bank a/cC140031.01By Balance c/f410
31.01To Goods used a/c2310

Interest a/c (Page No. 19)

31.01To Bank a/cC13531.01By Balance c/f135
31.01To Interest PayableJ1100
Bad debt a/c (Page No.20)
31.01To Cavendish & Co.051,76031.01By Balance c/f1,760
Interest on Capital a/c (Page No.21)
31.01To Capital a/cJ135131.01By Balance c/fJ1351
Interest Payable a/c (Page No.22)
31.01To Balance c/f10031.01By Interest a/cJ1100
Goods used a/c (Page No.23)
31.01To Balance c/f1031.01By Drawings a/c1810
Salary a/c (Page No.24)
31.01To Salary Payable a/cJ12,00031.01By Balance c/f2,000
Salary Payable a/c (Page No.25)
31.01To Balance c/f2,00031.01By Salary a/cJ12,000
Sales a/c (Page No.26)
31.01To Balance c/f11,65010.01By Cash a/cC1900
31.01By Sundry DebtorsS110,750
Purchase a/c (Page No.27)
14.01To Cash a/cC180031.01By Balance c/f15,201
31.01To Sundry CreditorsP114,401

Sales Return a/c (Page No.28)

Purchase Return a/c (Page No.29)
31.01To Balance c/f44831.01By SundryPr1448
Discount a/c (Page No.30)
31.01To Balance c/f15031.01By Sundry a/cC1175
Blunt & Co. a/c (Page No.31)
31.01To Sales a/cJ14,55031.01By Balance c/f4,550

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.


Period 1.1.06 to 31.1.06

Account HeadAmount (Dr.)Amount (Cr.)
Cash in Hand215
Bank balance (Overdraft)5,025
Leasehold Premises a/c18,000
Machinery a/c27,300
Opening stock a/c51,900
Mohan & Co. a/c5,160
Furniture a/c1,500
Wilson and Grey a/c5,378
Capita] a/c84,551
Wages a/c1,435
Customs Duty a/c6,860
Advertisement a/c1,330
Sharp Bros. & Co. a/c1,100
Repairs & Maintenance280
John Barnes and Co. a/c3,360
Dele & Sons a/c5,215
Ground Rent a/c600
Drawings a/c410
Interest a/c135
Bad debts a/c1,760
Interest on Capital351
Interest Payable a/c100
Goods used a/c10
Salary a/c2,000
Salary Payable a/c2,000
Sales a/c11,650
Purchases a/c15,201
Purchase Return a/c448
Discount a/c150
Blunt & Co. a/c4,550

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.

Solution :


Debit BalancesNature of AccountCredit BalancesNature of Account
Opening stockExpensesSalesIncome
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 –CapitalLiability
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 –
Sundry DebtorsAssets
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
Drawings(-) Liability
  1. 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.
  2. (-) 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:

Mar 2013Rs.
1Started business with :Cash12000
: Bank8000
: Furniture (for office)500025,000
3Bought furniture from R. Bros.2,000


Mar 2013Rs.
5Bought furniture for the office1,000
6Sold furniture to J. Jaju2,000
8Bought furniture1,800
10Returned furniture to R. Bros.50
12J. Jaju returned furniture200
14Paid taxi fare10
15Sold to A, furniture for Rs. 500 less trade discount @10%
17Received commission from J. Das15
18Paid to R Bros, by cheque1,000
19Sent to Bank200 1
20Received a cheque of Rs. 425 from A. in full settlement of his account
22Received a cheque of Rs. 500 from J. Jaju and deposited the same into Bank
23Lent to Naren150
24J. Jaju’s cheque dishonoured
26Received interest10
31Withdrawn from bank for office use2,000
31Paid for taxes150

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.

Sept. 2013
1Rs. 20,000 borrowed from his friend, Mr. Ajay @15% p.a.
4Purchased 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.
5Paid rent of August Rs.150.
10Purchased 60 shares of G. Ltd. at Rs. 110 each and brokerage paid Rs. 60
14Narendra is declared insolvent and a dividend of 50 paise in a rupee is received from his estate in full settlement.
16Purchased a Motor Van for Rs. 10,000
20Sold 20 shares of G Ltd. at Rs. 115 each and brokerage paid Rs. 20
21Purchased goods worth Rs. 1000 from J. Das and supplied them to K.. Das at Rs. 1500.
23K. Das returned goods worth Rs. 300 which was sent back to J. Das
26Paid for repairs of motor van Rs. 200
28Goods worth Rs. 400 and cash Rs. 300 were taken away by Mr. Nagindas for personal use.
30One month’s interest on loan from Ajay became due and paid
30Rent for Sept. Rs. 200 due.

P.8 : From the following information, prepare Swati’s account in the hooks of M/s Shinde Bros.

Jan. 2013Rs.
1Balance on account (Dr.)1,800
3Supplied goods to Swati8,000
4Received a cheque from Swati5,000
10Swati returned some defectives500
15Received cash from Swati3,000
15Allowed cash discount to Swati300

P.9 : Enter the following transactions in the cash book for the month of March 2013, and post them into the ledger:

Mar. 2013Rs.
1Commenced business with cash8,000
4Purchased goods from Rajendra for cash500
8Purchased goods from Ranjana on credit2,500
11Sold goods to Raman for cash3,200
14Purchased Furniture for office1,000
14Purchased stationery for office200
16Paid to Ranjana on account1,500
19Received for commission250
24Paid for advertisement300
30Paid for salaries250
31Deposited 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:

Jan 2013
1Balance of cash Rs. 4050 Bank balance Rs. 8390
3Received from Punam on account Rs. 1585 and allowed a discount of Rs. 15
7Made cash sales Rs. 990
8Received from Purnima Rs. 2100 by crossed cheque in full settlement of Rs. 2,150
10Paid RatanBhandar by cheque Rs. 3360, they allowed discount Rs.140
13Paid for printing by cheque Rs. 328
15Deposited Rs. 550 in the Bank
17Made cash purchase and gave a cheque Rs. 750
18Paid by cheque to Tanuja Rs. 865
20Drew from Bank for office use Rs. 1000
23Received from Shukla Rs. 1500 as advance by cheque
24Cheque 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.

Jan 2013Rs.
1Petty cash in hand266
1Received cash to make up the imprest amount
4Bought stamps525
6Paid bus fare42
8Paid railway fare2520
10Paid telegraph charges437
12Bought short hand note book66
15Paid carriage on small parcel237
18Paid repairs to typewriter737
23Paid cart hire1025
31Paid office cleaning500

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:

Jul. 2013Rs.
1Purchased goods from Arvind Panchakshri500
2Bought goods from Anand Mehta340
3Purchased Furniture from Verma500
5Sold goods to Sinha400
8Sold goods on cash to Sagar200
10Sinha returned goods50


23Purchased 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.
25Invoiced 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.
26M/s Sonali Electrical Stores returned 2 Electrical Irons, 1 Toaster and 1 Table Fan.
27Returned 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:

2Cash Sales150
2Sales to J.P. Stores on credit450
3Purchases from Verma Sons800
4Paid salary of December1500
Used goods for domestic Purposes200
Received cheque from Kewal in full settlement780
9Issued cheque in favour of Verma Sons in lull settlement of the amount due on 1st Jan.540
10Goods purchased from M/s. Kao and Murty on credit, Rs. 5,600.
11Goods returned to M/s. Rao and Murty500
Issued cheque in favour of Sharma Bros, in full settlement.1350
15Sales on credit to Kewal500
Goods purchased from M/s. Khan 6i Singh tor cash, Rs. 1,100.
16Cheque in favour of Sharma Bros, returned dishonoured because of improper rubber stamp.
18Borrowed 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
20Installed a small printing machine at a cost of Rs. 9,500; paid by cheque.
21Repairs to furniture Rs. 100.
Received Rs. 990 on account of commission
30Withdrawn for domestic use Rs. 200.
Goods returned by M/s Mohan Lal & Co. Rs. 600.
31Salaries 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.


Practice Problems

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


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 ReadHow it should be read
1.He brings Capital (it creates an impression that capital is something real a/c) which he is bringingHe 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/cIt 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/cApart 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/c5,000
A a/c
10.1 To Sales a/c5000
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.


♦     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:

  1. 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.

  1. A business expense is paid from business concern and business income is received in concern.
  2. A personal expense is paid from personal sources and personal income is received in personal account.
  3. When more than one meaning is possible the meaning which is more probable should be accepted.
  4. 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.
  5. 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.
  6. While doing accounting put yourself in the position of entity (i.e. as if we are the entity) & then interpret it.


It is an expenses if we receiveIt 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 isget the price/value of it hence it is our income)
our expense)
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)


The two terms are entirely different. The following charts will clarify it.

Effect of Payment:


Credit cash or Bank A/c.


→ 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)


The two terms arc entirely different. The following charts will clarify it.

Effect of Receipts:


Debit cash or Bank A/c.


→ 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

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