Journal To Final Accounts

ASNC L A S S E S
CHAPTER 1 ACCOUNTING EQUATION

Accounting Equation: Accounting Equation is based on dual aspect concept, according to
which double entry is made for each transaction in debit and credit. The entire system of
recording business transactions is based on accounting equation.
It signifies that the assets of a business are always equal to the total of capital and liabilities.
Accounting equation is an accounting formula expressing equivalence of the two expressions of
Assets and Liabilities of the business concern.
Accounting Equation:- Capital + Liabilities = Assets
Balance Sheet (Format)

Liabilities Amount Assets Amount
Capital Fixed:
Reserve and surplus Land & building
Loans& Advances Plant &machinery
Current: Furniture
Creditors Goodwill
Bills Payable Current:
Bank Overdraft Debtors
Outstanding Expenses Cash in hand
Investments
Cash at bank
Bills Receivable
Closing Stock
Prepaid Expenses
Others:
Preliminary Expenses etc.
(1) Capital: It refers to the amount invested by the proprietor (owner) in a business
enterprise. It is the amount with the help of which goods and assets are purchased in the
business.
Capital = All assets – External liabilities
(2) Liabilities: It refers to the amount which the firm owes to outsiders (except the amount
owed to proprietors).For example, when a firm purchases goods on credit from A, the
amount owing to A is a liability.
Liabilities may be classified into two parts as under;

(a) Long term liabilities or fixed liabilities: These refer to those liabilities which fall due for
payment in a relatively long period (normally more than one year).For example, long–
term loans and debentures etc.
(b) Current liabilities: Current liabilities refer to those liabilities which are to be paid in
near future (normally within one year). For example, Bank overdraft, bills payable,
creditors, outstanding expenses and short term loans.
(3) Assets: Any thing which is in the possession (ownership) or is the property of a business
enterprise including the amounts due to it from others is called an asset.
Assets may be classified into following categories:
(a) Fixed Assets: Fixed assets refer to those assets which are held for continued use in the
business for the purpose of producing goods or services and are not meant for resale. For
example, Land and building, Plant and machinery, motor vehicles, furniture etc.
(b) Floating Assets: Those assets whose value is constantly changing as the business proceeds
like stock, debtors etc.
These booklet is prepared by ASNCLASSES 1

85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
(c) Fictitious Assets: Assets of no real value but included in the balance sheet for legal or
technical reasons. It includes such items which are not actually assets but are such
expenses & losses which have not yet been written off in P&L a/c. Since these items have
Dr. Balances so these are shown in asset side of balance sheet. For e.g. preliminary
expenses, deferred revenue exp., discount on issue of shares etc.
(d) Tangible Assets: Those assets which can be seen and touched are called tangible assets. In
other words, which have a physical existence such as land, building, plant, furniture, stock,
cash etc.
(e) Intangible Assets: Intangible assets are those assets which do not have a physical
existence and which cannot be seen or felt. For e.g. Goodwill, patent, trade marks and
copyrights.
(f) Liquid Assets: Assets that can be easily converted into cash like bank account, bills
receivable, short term investment, debtors, stock etc.
(g) Wasting Assets: Wasting assets are those assets which are consumed through being
worked or used, such as mines, oil wells etc.
OTHER TERMS
• Debtors – Persons to whom we sale goods on credit.

• Creditors – Persons from whom we purchase goods on credit.
• Revenue – Money received from sale of goods
• Expense
• Purchase – Cash purchase & Credit purchase
• Sales – Cash sales & Credit Sales
• Purchase return
• Sales Return
• Stock – opening stock & Closing stock
• Goods
• Drawings – goods or cash taken away by the owner for personal use
• Discount – Cash discount & Trade discount
• Bad Debts -
• Insolvent
• Transaction - Exchange of something or two way process. Accounts consider only
monetary transactions.

Double Entry System
Meaning: This system is based on the principle that every transaction includes two persons. One
is the giver and the other one is the receiver. That is why every transaction has two sides one is
debit and other is credit. Thus every transaction will include two accounts for recording of every
transaction in two separate accounts. This method is called double entry system.
Characteristics:
1. Every business transaction affects two accounts: One of them is debited and other is
credited. Certain transaction may affect more than two accounts but the amount of the
accounts to be debited and credited will always be equal.
2. Recording of both personal and impersonal aspects: It is possible that both the aspects
of a transaction may be personal or both may be impersonal or one may be personal or
one may be impersonal.
3. Recording is made according to certain specified rules: In double entry one account is
debited and the other is credited. It does not mean that any account may be debited or
any account may be credited. There are certain rules for debiting and crediting and
debits and credits are made on the basis of these rules. The 3 rules are :
*Debit what comes in & Credit what goes out
*Debit the receiver & Credit the giver
*Debit all expenses & losses & Credit all incomes & gains (profits)
4. Preparation of trial balance: Since one account is debited and the other is credited,
total of all debits is always equal to the total of all credits. This is done by preparing a
trial balance.
Advantages:
1. Complete Record of every transaction: Maintain all type of records i.e. personal or
impersonal account.
2. Preparation of trial balance: It provides basis for checking the arithmetical accuracy (Debit
side = Credit Side).
3. Preparation of final accounts: From this system final accounts are prepared from the ledger
accounts and Trial balance, Trading and P & L a/c is prepared to arrive at net profit / loss
for the year.
4. Financial Position of the business: Balance sheet is prepared from this system so that the
financial position of a business will be calculated.
5. Prevention of Frauds: There is no scope for frauds due to this system.
6. Fulfillment of legal requirements: This accounting system meets requirements of banks,

insurance etc.
7. Comparative study of expenditures and income: Management can compare cash, and
expenditure as compared to previous year.
8. Helps in decision making: By this system management can get all information very quickly
which helps in decision making.
9. Internationally Accepted: This system is accepted throughout the world. It is flexible.
Disadvantages:
1. A number of books are to be kept under this system.
2. It is quite difficult to apply the rules of debit and credit.
3. Errors of omission: If a transaction remains altogether unrecorded in the books of original
entry.
4. Error of Commission: If wrong amount is recorded in the books of original entry.
5. Error of principle: If the amount is recorded on the correct side though in a wrong
account.

JOURNAL
“Journal is a business record in which business transaction are recorded. It represents all the
transaction date wise at one place in organized manner.”
Transaction: - Exchange of something or two way process.

Accounts consider only monetary transaction.
Two effects
E.g. Purchase of machinery for Rs. 5000
1st Effect-Machinery is coming
2nd Effect-Cash is going.
In accounts one/more effect(s) is debited & other is credited.
Rules of Debit & Credit Type of Accounts
(i) Dr. the receiver Personal A/c

Cr. the Giver
(ii) Dr. what comes in

Cr. what goes out
Real A/c
(iii) Dr. all expenses & losses

Cr. all income & gains Nominal A/c
Extra: Dr. if Assets increase Cr. if Liabilities increase

Cr. if Assets decrease Dr. if Liabilities decrease
Types of account:
1) Personal Account: Accounts which relate to individual firm, company or an institution are
called personal accounts. These can be classified into three categories:
a) Natural Personal Accounts: Accounts of natural Persons means the account of

human beings, e.g. Mohan’s A/c, Sohan’s A/c etc. Proprietor’s capital account,
Proprietors Drawing account, Debtors and Creditors A/c are also included in this
category.
b) Artificial Personal Accounts: These Accounts do not have physical existence as
human beings but they work as personal accounts, e.g. any firm’s a/c, any limited
company’s a/c, any bank’s a/c etc.
c) Representative personal Accounts: When an account represents a particular or
group of persons, it is termed as a representative personal account, e.g. Salary for
the month of March not paid to the employees, the amount payable to these
employees will be added and put under one common title “Outstanding Salaries
Account”.
2) Real Account: The accounts of all those things which really exist and whose value can be
measured in terms of money and which are the properties of the business are termed as
Real accounts. Real accounts can be classified into following two categories.
a) Tangible Real Accounts: Tangible Real Account are the accounts of those things
which can be touched, felt, measured, purchased, sold etc. e.g. Cash a/c, Land A/c,
Building A/c etc.
b) Intangible Real Accounts: These accounts represent such things which cannot be
touched, But of course, their value can be measured in terms of money, e.g.
Goodwill a/c, Patent a/c, Trademark a/c, copyright a/c etc.
3) Nominal Account: These accounts are opened in the books to simply explain the nature
of transaction. Examples of nominal accounts are Salary paid, Rent paid, Discount
allowed, Commission received, Interest received, Discount received etc.

Journal (Format)
Date Particulars L.F. Dr. Amount Cr. Amount
L.F. – Ledger Folio (page number)
List of Debit side and Credit Side Items:

Debit Credit
Purchase Sales
Sales return Purchase return
Discount Allowed Discount Received
Expenses - Salary, Rent etc Income - Interest received, Rent received
Drawings Capital
Loss by fire/theft Donation Received
Bad Debts Bad Debts Recovered
Assets Liabilities
Charity
Livestock Purchase
Important Terms
1) Purchase a/c: It is always debited. But in the following 4 conditions it is credited -
a) When goods are taken away by the proprietor Drawings a/c Dr.
To Purchase a/c
b) When goods are given away as charity Charity a/c Dr.

To Purchase a/c
c) When goods are destroyed by fire Loss by fire a/c Dr.

To Purchase a/c
d) When goods are distributed as free samples Advertisement/Free Samples a/c Dr.
To Purchase a/c
3) Bad Debts: When debtor becomes insolvent/bankrupt, the amount due cannot be
realized. This is called bad debts. It is a loss, so it is debited.
Entry - Cash a/c Dr.
Bad debts a/c Dr.
To Debtor’s a/c
4) Bad debts recovered: If the amount of bad debts is recovered from the debtor later on, it
is called bad debts recovered.
To Bad debts recovered a/c
2) Discount: It is of two types:
Basis Trade Discount Cash Discount
1.Definition It is given by the manufacturer It is given by the seller to the customer/debtor
to the trader/customer. to make payment within a particular time.
2. Objective It is given to increase sales. It is given to get prompt (timely, early)
payment.
3. Time It is given at the time of sale It is given when payment is made. It does
contract. It reduces the selling not reduce the selling price.
price.
3. Entry It is not shown in the journal It is shown in the journal entry
entry.
4. Example Sold goods Rs.5,000 . 10% Sold goods Rs.5,000 . 10% cash discount
trade discount given. given.
Cash a/c Dr. 4500 Cash a/c Dr. 4500
To Sales a/c 4500 Discount a/c Dr. 500
To Sales a/c 5000

5) Livestock: When animals are purchased in the business, they are called livestock. They
are the assets of the business. Death of animals is loss & shown in P&L account.
Entry - Livestock a/c Dr.
To Cash a/c
6) Sales tax: When sales tax is received with sales

To Sales a/c
To Sales Tax a/c
7) Interest on capital paid:
Entry – Interest on Capital a/c Dr.
To Capital a/c
8) Interest on drawings:
Entry – Drawings a/c Dr.
To Interest on Drawings a/c
9) Paid Income Tax: Income tax is the personal expense of the owner, so it is treated as
drawings.
Entry – Drawings a/c Dr.
To Cash a/c
Compound Entry: Sometimes more than one transactions of similar nature take place on one
date or with one person and then instead of passing two journal entries one compound entry may
be passed.
For Example: 1) Salary a/c Dr.

To Cash a/c
2) Rent a/c Dr.

To Cash a/c
Now, compound entry will be:
Salary a/c Dr.

Rent a/c Dr.
To Cash a/c

Journal Entries:
1. Sold goods in cash Rs.200 15. Cash withdrew from bank for office use
Cash a/c Dr. 200 Rs.600 (Contra entry)
To Sales a/c 200 Cash a/c Dr. 600
2. Purchased goods for cash Rs.500 To Bank a/c 600
Purchases a/c Dr. 500 16. Entries in which Purchase Account is
To Cash a/c 500 credited :
3. Sold goods to Ram on credit Rs.600 a) Goods withdrawn by proprietor for Rs.400
Ram a/c Dr. 600 Drawings a/c Dr. 400
To Sales a/c 600 To Purchases a/c 400
4. Purchased goods from Shyam on credit b) Goods destroyed by fire/stolen Rs.900
Rs.700 Loss by fire/Loss by theft a/c Dr. 900
Purchases a/c Dr. 700 To Purchases a/c 900
To Shyam a/c 700 c) Goods given away as charity Rs.100
5. Purchased furniture on credit from Seema Charity a/c Dr. 100
& Co. Rs.1000 To Purchases a/c 100
Furniture a/c Dr. 1,000 d) Goods distributed as free samples Rs.1500
To Seema & Co. 1,000 Advertisement Exp. a/c Dr. 1500
6. Sold machinery in cash Rs. 3,000 To Purchases a/c 1500
Cash a/c Dr. 3000 17. Salary outstanding Rs.6000
To Machinery a/c 3000 Salary a/c Dr. 6000
7. Goods returned by Rakesh Rs.4500 To outstanding salary a/c 6000
Sales Returns a/c Dr. 4500 18. Old newspaper sold Rs.50
To Rakesh 4500 Cash a/c Dr. 50
8. Goods returned to Tarun Rs.350 To Sundry receipts a/c 50
Tarun a/c Dr. 350 19. Depreciation charged on furniture Rs.300
To Purchase Returns a/c 350 Depreciation a/c Dr. 300
9. Started business with cash Rs.10,000 To Furniture a/c 300
Cash a/c Dr. 10,000 20. Purchased a horse for business Rs.2500
To Capital a/c 10,000 Livestock a/c Dr. 2500
10. Reema commenced business with Stock To Cash a/c 2500
Rs.2000, Furniture Rs.5000 & Cash 21. Discount: Trade discount & Cash
Rs.20000 discount.
Cash a/c Dr. 20,000 a) Sold goods Rs.5000. 10% trade discount
Furniture a/c Dr. 5,000 given.
Stock a/c Dr. 2,000 Cash a/c Dr. 4500
To Capital a/c 27,000 To Sales a/c 4500
11. Rent paid Rs.200 b) Sold goods Rs.5000. 10% cash discount
Rent a/c Dr. 200 given.
To Cash a/c 200 Cash a/c Dr. 4500
12. Commission received Rs.800 Discount a/c Dr. 500
Cash a/c Dr. 800 To Sales a/c 5000
To Commission a/c 800 c) Sold goods Rs.1000. 10% trade discount
13. Salary paid to Rajeev Rs.2000 given & 5% cash discount given.
Salary a/c Dr. 2,000 Cash a/c Dr. 855
To Cash a/c 2,000 Discount a/c Dr. 45
14. Cash deposited in bank Rs.3000 To Sales a/c 900
(Contra entry) 22. Interest received from bank Rs.250
Bank a/c Dr. 3000 Bank a/c Dr. 250
To Cash a/c 3000 To Interest a/c 250
23. Paid interest on capital Rs.400
Interest on capital a/c Dr. 400
To Capital a/c 400
These booklet is prepared by ASNCLASSES
85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216 7
24. Charged Interest on drawings Rs.150 30. Insurance Co. accepted claim Rs.12,000
Drawings a/c Dr. 150 Insurance Co. Dr. 12000
To Interest on drawings a/c 150 P & L a/c Dr. 3000
25. When Bad debts occurred. To Loss by fire a/c 15000
Cash a/c Dr. 600 31. Received claim from Insurance Company
Bad debts a/c Dr. 400 Cash a/c Dr. 12000
To Debtor’s a/c 1,000 To Insurance Co. 12000
26. When bad debts recovered Rs.300 32. Received V.P.P for Rs.1000
Cash a/c Dr. 300 Purchases a/c Dr. 1000
To Bad Debts recovered a/c 300 To Cash a/c 1000
27. Sold goods Rs.5000 & charged sales tax @ 33. Cash stolen from Iron safe Rs.500
10% Loss by theft a/c Dr. 500
Cash a/c Dr. 5,500 To Cash a/c 500
To Sales a/c 5,000 34. Proprietor deposited into fixed deposit a/c
To Sales Tax a/c 500 Rs.2000 by withdrawing from current a/c
28. Paid Income Tax Rs.200. Fixed Deposit a/c Dr. 2000
Drawings a/c Dr. 200 To Bank a/c 2000
To Cash a/c 200 35. Paid wages on installation of machinery
29. Goods destroyed by fire Rs.15,000 Rs.200
Loss by fire a/c Dr. 15000 Machinery a/c Dr. 200
To Purchases a/c 15000 To Cash a/c 200
Give Journal Entries:
Q.1.
1. Shubham started business with Rs. 2,00,000 as capital &
building Rs.50,000
2. She purchased new machinery by taking a bank loan of Rs.40,000
3. Rent paid Rs.10,000
4. Commission received Rs.20,000
5. Withdrew for personal use. (Drawings) Rs.10,000
Q.2.
1. Komal commenced(started) business with cash Rs.1,00,000
2. Bought goods from Romil Rs.25,000
3. Bought furniture on credit from Manu Rs.10,000
4. Komal invested additional capital Rs.15,000
5. Paid salary Rs.3,000
6. Paid cash to Manu Rs.5,000
7. Cash purchases Rs.40,000
Q.3.
1. Started business with cash Rs.4,00,000
2. Paid wages Rs.10,000
3. Purchased goods for cash Rs.1,40,000 and credit Rs.40,000
4. Sold goods for cash Rs. 1,00,000, costing Rs.40,000
5. Rent Paid Rs.24,000 and outstanding Rs.10,000
6. Withdrew for personal use Rs.20,000
7. Purchased Equipment for cash Rs.12,000
8. Paid to creditors Rs.10,000
9. Charge depreciation on equipment Rs.1,000

Q.4.
1. Started business with cash Rs.25,000
2. Goods purchased on credit Rs.15,000
3. Bought furniture on credit Rs.10,000
4. Cash paid to creditors Rs.6,000
5. Purchased goods Rs.1,000
6. Sold goods(Costing Rs. 1,000) for cash Rs.7,500
Q.5.
1. Started business with cash Rs.3,00,000
2. Paid wages Rs.20,000
3. Purchased goods for cash Rs.1,40,000 and credit Rs.50,000
4. Sold goods for cash Rs. 2,00,000, costing Rs.50,000
5. Rent Paid Rs.14,000 and outstanding Rs.6,000
6. Withdrew for personal use Rs.10,000
7. Purchased Equipment for cash Rs.15,000
8. Paid to creditors Rs.5,000
9. Charge depreciation on equipment Rs.500
Q.6. Give journal entries in the books of Amit for the following transactions:-
(Prepare the format & write narration also)
Date Particulars Amount
Nov.1 Goods purchased from Sumit Rs.40,000
Nov.4 Goods sold to Kumbhat Rs.20,000
Nov.7 Loan received from bank Rs.2,22,000
Nov.8 Rent paid to Suresh Rs.7,500
Nov.10 Goods returned to Sumit Rs.5,000
Nov.14 Goods returned by Kumbhat Rs.3,000
Nov.17 Goods given in charity Rs. 400 & cash in charity Rs. 600 Rs.1,000
Nov.25 Paid to Sumit in full settlement Rs.34,500
Nov.29 Received from Kumbhat in full settlement Rs.16,000
Nov.30 Paid for stationary Rs. 5,000 & salaries Rs. 15,000 Rs.20,000
Q.7. Record the following transaction in the journal of Parvati

Date Particular Amount
Jan.1 Parvati commenced business by bringing cash Rs.1,00,000
Jan.3 Purchased goods Rs.20,000
Jan.5 Purchased goods from Ram Rs.30,000
Jan.7 Sold goods to Shyam Rs.10,000
Jan.9 Purchased furniture from Godrej Ltd. for cash Rs.8,000
Jan.10 Received cash from Shyam Rs.10,000
Jan.12 Received commission Rs.1,500
Jan.15 Paid shop rent to Girish Rs.1,000
Jan 18 Purchased goods from Vinay Bros. for cash Rs.15,000
Jan.22 Sold goods to Megha Rs.15,000
Jan.25 Paid cash to Ram as part payment Rs.20,000
Jan.28 Paid salary to manager Rs.1,500

Q.8. Journalise the following: (prepare the format & write narration also)
Date Particulars
Jan.1. Started business with cash Rs. 20,000 , goods worth Rs. 10,000 & furniture Rs. 5,000
Jan.2. Deposited in bank Rs. 10,000
Jan.3. Bought goods from John Bros. on credit Rs. 6,000
Jan.4 Goods returned to John & Bros. 2,000
Jan.4. Bought a horse for Rs.2,000 for delivering goods to customers
Jan.5. Ravi gave a cheque & deposited in bank Rs. 4,000
Jan.6. Paid for repairs to furniture Rs. 500
Jan.8. Interest received from bank Rs. 700
Jan.9. Salary for the month of Jan. remained unpaid Rs. 300
Jan 10. Depreciation charged on furniture 10%.
Q.9. Journalise the following: (prepare the format & write narration also)
Date Particulars
Mar 1. Paid for repairs to machinery Rs. 1,000
Mar 2. Supplied goods costing Rs.600 to Mohan issued invoice at 10% above cost less
5% trade discount.
Mar 3. Sold goods to Teena of Rs.6,500
Mar 4. Sold goods to Krishna on list price Rs.3,400 - trade discount 10% & cash
discount 5%. He paid the amount on the same day & availed cash discount.
Mar 5. Goods given as charity Rs.2,760
Mar 6. Sohan is declared insolvent .Received from his official receiver a first & final
dividend of 60 paisa in a rupee on a debt of Rs.100.
Mar 7. Paid to Ram Rs 95 in full settlement of his account of Rs.100.
Mar 8. Received a V.P.P for Rs.1,250.
Mar.9 Insured goods destroyed by fire Rs.14,000
Mar.10 Insurance company accepted the claim and amount of claim received. Rs.12,000
Mar.11 Cash sales Rs.20,000 Sales tax realized @ 10% on sales amount
Mar.12 Goods worth Rs.5000 and cash Rs.1500 drew for personal use

ASNC L A S S E S
CHAPTER 2 LEDGER AND SUBSIDIARY BOOKS
Ledger
Journal is a book in which all the transactions are recorded date wise. But on particular date
what are total purchases, total sales, debtors, creditors, incomes, expenses may not be known
from journal .To get this information, entries made in journal are classified on the basis of
their nature in another book which is known as ‘Ledger’ .In other words Ledger is a book in
which personal, real and nominal accounts are opened and posting is made in these accounts
of all business transactions.
Ledger A/c (Format)
Dr. Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
J.F. - Journal Folio (page number)
Balancing of Ledger Account: After completion of posting of all transaction, accounts are
balanced every year or after a certain period. Balancing of accounts means making the total of
both the sides of account equal and to write the difference in the side whose total is short. The
rule is : If debit side total is more, it is debit balance.
If credit side total is more, it is credit balance.
Simple entry: Purchase a/c Dr. 1000

To Cash a/c 1000
Dr. Purchase a/c Cr.
To cash a/c 1000 By balance c/d 1000
1000 1000
Dr. Cash a/c Cr.

To balance c/d 1000 By Purchase a/c 1000
1000 1000
Compound entry: Bank a/c Dr. 900

Discount a/c Dr. 50
To Mohan a/c 950
Dr. Bank a/c Cr.
To Mohan a/c 900
Dr. Discount a/c Cr.

To Mohan a/c 50
Dr. Mohan a/c Cr.

By Bank a/c 900
By Discount a/c 50

Subsidiary Books
Meaning:
The journal is sub divided into subsidiary books or the books of original entry. Each subsidiary
book is meant for recording all the transaction of similar nature.
Type Of subsidiary Books
1. Cash Book: All cash receipts and cash payments are recorded in cash book.
2. Purchase Book: Only credit purchases are recorded into this book.
3. Sales Book: Only credit sales of goods are recorded into this book.
4. Purchases Return Book: When the goods previously purchased are returned to the
supplier, such returns are recorded in this book.
5. Sales Return Book: When the goods previously sold are returned by the customer,
such returns are recorded in this book.
6. Bills Receivable Book: This book is used for recording the receipt of bills receivable,
promissory notes or hundies from various parties. The trader is to receive payment of
these bills.
7. Bills Payable Book: This book is used for recording the issue of bills payable,
promissory notes or hundies from various parties. The trader is to make payment of
these bills.
8. Journal Proper or General Journal: This book is used for recording the
transactions which cannot be recorded in any of the above mentioned books.
CASH BOOK
It is of four types
1. Single column cash book.
2. Double/Two column cash book.
3. Three column cash book.
4. Petty Cash Book.
Contra entry: Some transactions are recorded in three column cash book which are related
to both cash and bank i.e. balance of one will be decreased and other will be increased due to
such transactions. Such transactions are entered on both sides of cash book .Such entries are
known as contra entries.
Examples of contra entry:

*cash deposited into bank
*Cheque or draft received from customers earlier and deposited in to bank on the another day
*cash is withdrawn from the bank for business use.
These transactions are entered on both the sides of cash book in the opposite columns and ‘C’
is marked in L.F. column of both the sides with the transactions.
Format of Three Column Cash Book

Dr. Cr.
Date Particulars LF V.No Cash Bank Discount Date Particulars LF V.No Cash Bank Discount
I II III I II III

Petty Cash Book
In every business, there are many payments which are of small amount and high frequency like
carriage, cartage, coolie hire, postage etc. So to record such petty expenses a separate cash book
is maintained which is known as petty cash book. The petty cashier is given a small sum, which,
from past experience is found sufficient enough to meet the requirements of a fixed period (say
one month). This small amount is called ‘imprest’ or ‘float’. The petty cashier makes the payment
of petty expenses and records them in petty cash book. At the end of the month the petty cashier
submits the account to the cashier, who makes the payment of the amount spent by the petty
cashier. Thus again on the first day of the next month the petty cashier is found with the same
cash balance which he had on the first day of the previous month.
Performa of Petty Cash Book
Amount Date Particulars V. No. Amount Postage Cartage Stationery Wages Refreshment Misc.
Received & printing expenses
V.No. – Voucher (bill) number
Debit Note/ Credit Note

When goods are returned to vendor (seller), buyer sends a debit note to inform him that his
account has been debited with the amount shown in debit note. Debit note reduces the payment
liability. In turn vendor sends credit note in favour of purchaser to inform him that his account
has been credited.
Sales Book/Purchase Book

Date Particulars Invoice No. L.F. Detailed Amount Net Amount
Sales Return/Purchase Return book

Date Particulars V.N. or Debit/Credit L.F. Detailed Net Amount
Note No. Amount
Performa of Bills Receivable Book
S.No. Date From whom Acceptor Date of Term Date of L.F. Amount Remarks
received bill maturity Rs.
The total of B/R book is posted in the ledger on debit side by writing ‘To Sundries as per B/R
Book’.
Performa of Bills Payable Book

S.No. Date Drawer Payee Date of Term Date of L.F. Amount Remarks
bill maturity Rs.
The total of B/P book is posted in the ledger on credit side by writing ‘By Sundries as per B/P
Book’.

Journal Proper:
Transactions which are not covered under seven subsidiary books will be recorded in a special
book known as journal proper.
1. Opening Entry: To bring the balance of assets and liabilities from previous year’s balance
sheet in the books of new year, a journal entry is passed in the journal proper which is
called opening entry.
2. Closing Entry: At the end of the year the accounts which are to be closed are transferred
to trading account and profit & loss account and entries to this effect are passed in journal.
These entries are known as closing entries.
3. Transfer Entries: Transfer entry is an entry which is made to transfer one account to
another account such as transfer of drawings account into capital account.
4. Adjustment Entries: While preparing final accounts at the end of the accounting period
some unadjusted and unrecorded items are to be adjusted, so entries of such recording
are called adjustment entries, e.g. outstanding expenses, prepaid expenses ,accrued
income , unearned income, interest on capital, interest on drawings, bad debts provisions
etc.
5. Rectifying Entries: Entries to rectify the errors in the books of original entries or of ledger
are recorded in journal proper.
6. Other entries: Entries related to purchase and sale of assets on credit, goods withdrawn
for personal use by the proprietor, goods given away as charity or distributed as free
samples or lost by fire, bad debts etc. are recorded in journal proper.
Example
1) Purchased furniture from Rohit on credit. Rs.1,000

2) Sold old machinery to Charu on credit. Rs.2,000
3) Goods taken away for personal use from the shop. Rs.3,000
4) Rs.4,000 due from Nikhil was written off as bad debts. Rs.4,000
5) Goods given as charity. Rs.5,000
6) Goods lost by fire. Rs.6,000
Journal Proper of …………….

Date Particulars L.F. Dr. Amount Cr. Amount
1) Furniture a/c Dr. 1,000
To Rohit’s a/c 1,000
(Being furniture purchased from Rohit)
2) Charu a/c Dr. 2,000
To Machinery a/c 2,000
(Being machinery sold to Charu)
3) Drawings a/c Dr. 3,000
To Purchase a/c 3,000
(Being goods withdrawn for personal use)
4) Bad debts a/c Dr. 4,000

To Nikhil’s a/c 4,000
(Being amount written off as bad debts in Nikhil’s
account )
5) Charity a/c Dr. 5,000
(Being goods given away as charity)
6) Loss by fire a/c Dr. 6,000

(Being goods lost by fire)

LEDGER AND SUBSIDIARY BOOKS
Questions:
Q. 1. Post the following journal entries into the ledger:

1) Drawing a/c Dr. 20,000
To Bank a/c 20,000
(Cheque drawn out of bank for personal use)
2) Rajesh a/c Dr. 3,70,000

To Bank a/c 3,69,000
To Discount Received a/c 1,000
(Paid to Rajesh by cheque, he allowed us discount)
3) Purchase a/c Dr. 1,000

Carriage a/c Dr. 50
To Mahi 1,050
(Being purchase goods from Mahi and carriage paid)
4) Cash a/c Dr. 5,000

Traveling Expenses a/c Dr. 500
To sales a/c 5,500
(Received cash from traveling salesman after deducting traveling exp.)
SUBSIDIARY BOOKS (QUESTIONS)
Cash Book
Q.1. Prepare a three column cash book from the following transactions
(i) Cash in hand Rs.4,000
(ii) Cash at Bank Rs.10,000
(iii) Cash purchases Rs.1,500
(iv) Wages paid Rs.50
(v) Cash withdrawn for personal use Rs.500
(vi) Cash received from Suresh & discount allowed Rs.1,80,000 & Rs.50
(vii) Cash paid to Munna and discount received Rs.98,000 & Rs. 20
(viii) Cash paid to Radhey Rs.500
(ix) Withdrew from bank Rs.5,000
Q.2. Enter the following transactions in three column cash book of ABC & Co.
March, 1 Balances: Cash Rs.2000 & Bank Overdraft Rs.48,000
March, 2 Introduced additional capital Rs.48,000
March, 5 Deposited Rs.30,000 in the bank
March, 8 Received from Raman Rs.3,560 , allowed him discount Rs.20
March, 8 Paid Rs.4,800 to Girdhari who allowed discount of Rs.40
March, 9 Bought goods for cash Rs.2,000
March, 15 Received dividend by cheque Rs.150 deposited in the bank same day
March, 16 Paid commission by cheque Rs.600
March, 17 Withdrew for personal use Rs.1,500
March, 25 Paid electricity bill by cheque Rs.200
March, 29 Paid salary Rs.1,400, rent Rs.800 & wages Rs.600

Purchase Book
Q.3. From the following transactions of Mudit Prakashan, prepare the Purchase Book:
2001
May, 15 Purchased from Sahil Book Depot on Credit.
5 copies of financial Accounting @ Rs.100 each
10 copies of cost accounting @ Rs.10 each
Less: Trade Discount @ 15%
May, 18 Purchased From Harsh Publishing House on Credit

20 copies of economics @ Rs.50 each
50 copies of law @ Rs.60 each
10 copies of management @ Rs.200 each
Less: Trade Discount @10%
Q.4. Prepare the purchase book of M/s Kamal & Co., cloth merchant from the following
transactions:
2004
Dec.1 Bought from Sonia & Co. on credit
50 m silk @ Rs. 140 per m.
30 m. Nylon @ Rs. 70 per m.
Trade Discount 10%, voucher No.10
Dec.5 Bought furniture on credit from Kapil & sons

for Rs. 5,000 Vocher No. 101
Dec.20 Bought From Manu Kumar on credit

200 m. Cotton silk @ Rs. 100 per m.
100 m. suit length @ Rs. 200 per m.
Trade Discount 10% voucher No. 501
Dec.30 Bought from Santosh Brothers in cash

40 m. Silk @ Rs. 150 per m.
Voucher No. 1003
(HINT: Purchase of furniture on credit & cash purchase of goods will not be recorded)
Sales Book
Q.5. From the following transactions of Sudhir Book Depot, Prepare the Sales Book:
2001
March, 3 Sold to Nilesh Book Depot on Credit.
50 copies of World History @ Rs.65 each
100 copies of Political Science @ Rs.75 each
March, 10 Sold to Romil Book Depot on Credit
80 copies of Medieval India @ Rs.60 each
120 copies of National Movements @ Rs. 25 each
Less: Trade Discount @12.5%
March, 17 Sold to Boby Book Company on credit
70 copies of Hindi @ Rs.100 each
50 copies of English@ Rs.70 each
March, 25 Sold to Payal Book Depot on credit
60 copies of Modern India @ Rs.55 each
110 copies of Business news @ Rs.40 each
Less: Trade Discount @ 17 %
March, 30 Sold to Avi Book Depot on credit
90 copies of Gandhian Philosophy @ Rs.25 each
60 copies of Social System @ Rs.35 each
Less: Trade Discount @ 10 %
Petty Cash Book
Q.6. The Petty cashier of M/s Jyoti Prakashan maintains a petty cash balance of Rs. 100 and
receives Rs. 400 from chief cashier on 1st March, 2001. From the following transactions write
petty cash book according to Imprest system:
Rs.
March, 3 Paid for Postage 40
March, 8 Paid for Cartage 60
March, 9 Paid for Telegram Charges 25
March, 12 Paid for Wages 15
March, 14 Paid for Refreshment 40
March, 16 Paid for Printing Expenses 60
March, 20 Paid for Coolie Charges 10
March, 27 Paid for Refreshment 25
March, 30 Paid for Wages 25
March, 31 Paid for Miscellaneous Expenses 30

Solution:
Petty Cash Book of M/s Jyoti Prakashan

Amt Date Particulars V. Amount Post & Cartage Print & Wages & Refreshment Miscellaneous
Recd No. Telegram Stationery Coolie Charges
Charges
Rs. 2001 Rs. Rs. Rs. Rs. Rs. Rs. Rs.
100 Mar1 To bal. b/d
400 Mar1 To Cash a/c
Mar3 By Postage 40 40
Mar5 By Cartage 25 25
Mar8 By Stationery 60 60
Mar9 By Telegram 25 25
Mar12 By wages 15 15
Mar14 By Refreshment 40 40
Mar16 By Printing 60 60
Mar20 By Coolie Charges 10 10
Mar25 By Postage 30 30
Mar27 By Refreshment 25 25
Mar30 By Wages 25 25
Mar31 By Miscellaneous Exp. 30 30
470 95 110 120 50 65 30
Mar31 By Balance C/d 30
500 500
2001
30 April1 To Balance B/d
470 April1 To Cash

18
ASNC L A S S E S
CHAPTER 3 TRIAL BALANCE
Meaning: Trial balance is a list of debit and credit balances which is prepared to check the
arithmetical accuracy of ledger and which is also helpful in preparing final accounts.
Characteristics:
1. Trial Balance is a statement, not an account.
2. It has two columns for amount- one for debit balance and another for credit balance.
3. Closing balance of ledger accounts are shown in trial balance.
4. Trial balance can be prepared at any date.
5. It is system adopted to judge the mathematical accuracy of ledger accounts.
6. Final accounts of business i.e. trading account, profit & loss account and balance sheet are
prepared with the help of Trial Balance.
Objects:
1. To judge the arithmetical accuracy of ledger accounts: The main object of preparation of
trial balance is to check the ledger posting which has been made on the basis of principles
of double entry system of accounting. If all the entries are correctly made then total of
Dr. and Cr. Columns of trial balance will be equal.
2. Basis of final accounts: It is a summary of all transactions of an accounting period. In trial

balance some accounts are related to income and expenses which are recorded in trading
and profit & loss account and other are related to assets and liabilities which are placed in
balance sheet.
3. Summary of ledger accounts: Trial balance is a schedule of ledger accounts. The entire
ledger is summarized in the form of trial balance. The position of any account may be
known by studying the trial balance rather than turning over the pages of ledger unless full
description is required.
Methods:
1. By Total Of Accounts: When trial balance is prepared on the basis of totals then Dr. and Cr.
side of each account of ledger is totalled without balancing the account and the same total
of Dr. side is recorded in trial balance in the debit column and of Cr. Side in Cr. Column.
2. By Balance Of Accounts: Under this method the balance of each account is found out by
comparing totals of debit and credit side and the same balance is recorded in trial balance,
debit balance in Dr. column and credit balance in Cr. Column.
Errors not disclosed by Trial Balance:

There are certain errors which do not affect trial balance. Such errors are:
1. Errors of omission: When any transaction is omitted to be recorded either in journal or
subsidiary books, or posting in both the ledger accounts is omitted, it is called error of
omission. E.g. goods purchased from Rahul omitted to record in the books of accounts will
not affect trial balance.
2. Error of Commission: Recorded in the books of original entry with wrong amount or in
wrong account or making posting in wrong account with correct amount and in correct side
are known as errors of commission, e.g. goods sold to Sameer of Rs.15,000 entered in
journal with Rs.1,500. Similarly, if posting of Dr. Side of Shyam’s account is made in
Ram’s account in Dr. Side will also not affect trial balance.
3. Errors of principle: When rules of double entry system are not followed, it is known as
error of principle e.g. Machinery purchased is debited to purchases account instead of
Machinery account
4. Errors of Compensation: If one error is compensated by another error then it is called error
of compensation. For example, while recording transaction Megha’s account was debited
by Rs.100 in place of Rs.1,000 where as in Hari’s account in debit side Rs.1,000 are
recorded in place of Rs.100.

Errors which affect Trial Balance:
1. Wrong C/F and B/f of total in subsidiary books.
2. Wrong posting in ledger from subsidiary books
3. Error in balancing of account.
4. Error in preparing debtors and creditors schedules.
5. Error in writing the balances in Trial balance.
Suspense Account:
When errors are not disclosed and final accounts are to be prepared in time, in such case the
amount of difference is put in a new account named ‘Suspense account’ till errors are detected. If
the total of Dr. Column is more than credit of trial balance Suspense account will reveal Cr.
Balance and vice versa debit balance. At the time of rectification, suspense account will be closed
through rectification entries.
List of Debit side and Credit Side Items:

Debit Credit
Purchase Sales
Sales return Purchase return
Discount Allowed Discount Received
Expenses - Salary, Rent Income - Interest received,
etc Rent received
Drawings Capital
Loss by fire/theft Donation Received
Bad Debts Bad Debts Recovered
Assets Liabilities
Charity
Livestock
FORMAT
Trial Balance as on …..
S.No. Name of ledger accounts L.F. Debit Amount Credit Amount
*Q. “If a trial balance tallies, it can be concluded that there are no errors in the books of
accounts.” Explain?

TRIAL BALANCE
Questions:
Q.1 Prepare a Trial Balance from the following balances extracted from the books of
Ashoka Bros:
Opening Stock 10,000 Rent 3,000
Purchases 2,00,000 Wages 1,500
Debtors 60,000 Insurance &Taxes 500
Cash in hand 1,000 Building 40,000
Cash in bank 3,000 Capital Account 44,000
Creditors 50,000 Purchase Returns 12,000
Sales 2,40,000 Sales Returns 13,000
Salaries 14,000
Q.2 Totals of both sides of Ledger Account of Simran are as follows. Prepare a Trial
Balance by Total and Balance Combined method:
Name of Ledger Accounts Debit Total Credit Total

Cash Account 19,600 2,700
Capital Account - 40,000
Drawing Account 700 -
Furniture Account 7,000 1,500
Scooter Account 24,000 -
Purchases Account 3,700 600
Mahesh’s Account 1,000 6,000
Sales Account 400 7,000
Discount Account 200 -
Rent Account 2,000 -
Commission Account - 800
Q.3. An Inexperienced Accountant has prepared the following trial balance, you have to
prepare it in correct form:
Particulars Dr. Cr.

Amount Amount
(Rs.) (Rs.)
Capital - 2,70,000
Interest Allowed 11,880 -
Drawings - 27,000
Paid Octroi - 21,600
Sales Return 16,200 -
Purchaser Returns 5,400 -
Commission Received - 2,700
Discount Allowed 1,620 -
Loan from Arushi 43,200 -
Repairs to machinery - 59,400
Sales 7,02,000 -
Purchases - 4,32,000
Cash 54,000 -
Bank Overdraft 27,000 -
Creditors 32,400 -
Debtors - 54,000
Furniture 27,000 -
Buildings - 2,16,000
Machinery 1,62,000 -
10,82,700 10,82,700

Q.4 Prepare a Trial Balance of Mr. Sushant from the following balances as on 31.3.2008:
-
Purchases 5,75,000 Sales 8,30,000 Bank 24,000
Closing Stock 1,45,000 Cash 4,200 Drawings 8,000
Capital A/c 5,77,000 Income Tax Refund 200 Commission on 70,000
Sales
Salaries 64,000 Postage 23,000 Advertisement 34,000
Insurance 16,000 Prepaid Insurance 3,000 Stationery in 1,000
Hand
Furniture 44,000 Stationery Used 5,000 Bad Debts 4,000
Motor Car 90,000 Depreciation on Motor 6,000 Wages 40,000
Car
Dis. Given 10,000 Provision For Bad 2,000 Debtors 2,00,000
Debts
Gen. Exp. 62,000 Provision for 2,000 Carriage 44,000
Repairing Outward
Creditors 80,000 Carriage Inwards 20,000
Outstanding Wages 5,000 Assured Interest on 4,000
Deposit

ASNC L A S S E S
CHAPTER 4 FINAL ACCOUNTS
MEANING:
Every businessman wishes to know the profit or loss of his business after a certain period & also
the state of affairs (position) to judge whether his business is financially sound or weak. The
books of original entry do not disclose (show) this information. It is provided by two statements:
1. Income statement (Trading & P&L a/c): It discloses profit or loss derived during a certain
period of time.
Trading Account: All expenses which relate to either purchase of raw material or manufacturing of
goods are recorded in Trading Account. All such expenses are called direct expenses. Trading
account shows the gross profit.
Profit & Loss Account: All indirect expenses & incomes are recorded in P&L a/c. It shows the net
profit or net loss.
2. Position Statement (Balance Sheet): It presents the financial position of business on a

particular date. It shows all the assets & liabilities of the business.
These statements are known as Final Accounts
NEED & IMPORTANCE
1. It helps in knowing whether business is progressing well or not.

2. It helps in providing about the financial position of the company which helps the company while
obtaining loans.
3. It helps the company in deciding about the tax liability of the company.
Reasons for making adjustments in Final Accounts

1) To know the true profit or loss of the business.
2) To know the true financial position of the business.
3) To record the transactions which are omitted.
4) To rectify the errors made.
5) To provide for depreciation & other provisions.
6) Recording of expenses which have accrued but have not been paid.
7) Recording of incomes which have accrued but have not been received.
DIFFERENCE
Basis Trading & P&L a/c Balance Sheet

1. Form It is an account It is a statement
2. Sides Debit & Credit Assets & Liabilities
3. Accounts Accounts relating to goods Personal, Real & Nominal a/c
Shown & nominal a/c
4. Order No specific order Specific Order
5. Period One year On a particular date
6. Object Determination of profit/loss. Presentation of financial position
7.Presentation Use of To & By Not used
8. Summary Summary of nominal a/c only Complete summary of all the
accounts

DIFFERENCE
Basis Trial Balance Balance Sheet
1. Object Testing the Arithmetical Presentation of Financial State of
Accuracy of ledger a/c. Affairs.
2. Balance of Balance of all real, personal & Balances Of Accounts in the form
a/c Nominal a/c are shown. of assets & Liability are shown
3. Sides Columns of Debit & Credit. Assets & Liability Sides.
4. Format Journal Ledger
5. Closing of
books Not necessary Must
6. Necessity Not necessary Must, Presents financial position.
TRADING & PROFIT AND LOSS ACCOUNT:
Format
Trading & profit & loss account
For the year ending 31st March ………
Particulars Amount Particulars Amount
To opening stock By Sales a/c
To Purchase a/c Less: Sales Return
Less: Purchase Return Less: Sales on approval basis
To All direct expenses (cost + Profit)
To wages By Loss by fire (total loss)
Add: outstanding wages By closing stock
To carriage Add: Sales on approval basis(cost)
To manufacturing expenses By Gross Loss c/d
To factory lighting
To wages & salaries
To factory rent& rates
To Gross Profit c/d
- -
To Gross Loss b/d By Gross Profit b/d

To Loss by fire (amt. not By interest received
recovered by insurance co.) Less: Unearned Interest
To Advertisement Expenses By Commission
To Traveling Expenses Add: Accrued Commission
To Bad Debts By Discount
Add: Further bad debts By Interest on Drawings
Add: New Prov. For bad debts By Income from Inv.
Less: Old Prov. For bad debts By Net Loss Transferred to
To Godown Rent Capital a/c
To Rent ,rates & Taxes
To legal fees
To insurance
Less: Prepaid Insurance
To audit fees
To Depreciation
To Repairs & Maintenance
To interest on capital
To Manager’s commission
To Net profit transferred To
Capital a/c
- -

Difference
Basis Gross Profit Net Profit
1) Definition The residual income after It is the residual income which is
deducting the direct costs from given to the entrepreneur after
the total revenue is called Gross deducting all implicit & explicit
Profit. costs from its total revenue.
2) Calculation It is calculated as the balancing It is calculated as the balancing
figure in Trading Account. figure in Profit & Loss Account.
3) Transfer It is transferred to Profit & Loss It is transferred to Capital

Account. Account.
4) Formula G.P. = Total Revenue - All Direct N.P. = G.P. – All indirect
expenses of current year. expenses of current year.
Forms of Balance Sheet

Balance sheet can be prepared in 2 orders:
1) Permanency Order
2) Liquidity Order
Balance sheet of ……………………………….
As on…………… (Permanency Form)
Capital Goodwill
Add: Net profit Freehold Premises
Add: Interest Plant & Machinery
Less: Drawings Furniture
Loan Investments
Sundry Creditors Prepaid Expenses
Outstanding Expenses Stock-in-trade
Bills Payable Sundry Debtors
Bank Overdraft Bills Receivable
Cash at Bank
Cash in hand
Balance sheet of ……………………………….

As on…………… (Liquidity Form)
Bank Overdraft Cash in hand
Bills Payable Cash at Bank
Outstanding Expenses Bills Receivable
Outstanding Manager’s Sundry Debtors
Commission Less: Sales on approval
Unearned Income (cost + profit)
Sundry Creditors Less: Further bad debts
Loan Less: New Prov. For bad debts
Capital Less: Prov. For discount for Drs.
Add: Net profit Closing Stock
Add: Interest on capital Add: Sales on approval (cost)
Less: Drawings Prepaid Expenses
Less: Interest on drawings Accrued Income
Investments
Furniture
Plant & Machinery
Less: Depreciation
Freehold Premises
Goodwill
Insurance Company(If accepted
the claim but pay next year)
- -

ADJUSTMENTS
1. Closing Stock
It is valued at cost price or market price whichever is less.
* Trading a/c Cr. Side * Balance Sheet assets side (Current Assets)
1. Outstanding Expenses
Such expenses which are related to current year but have not been paid are known as
outstanding expenses. For example: - Rent, Salaries, Wages.
Amount of outstanding expenses will be added to relevant expenses in the trading and profit and
loss account and will be shown on the liability side of balance sheet.
* Trading / P & L Account * B / S Liab. Side (Current Liability)

To wages: ----
Add: O/S wages: ---
2. Prepaid Expenses
Normally payment of certain expenses like- Insurance, rent of shop etc. are paid in advance. Such
expenses are termed as advance or prepaid expenses. Benefit of such expenses shall be available
in the next year and are not related to current year. The amount should be deducted from the
relevant expenditure and should be shown as an asset in the balance sheet.
* Trading & P/L a/c * B / S Assets side (Current Assets)

To insurance: ----
Less: Prepaid insurance: ---
3. Accrued Income (Income earned but not Received)

That income which has been earned during the current year but the amount has not been
received till the end of the year is called accrued income. In final accounts accrued income
account shall be added in the relevant item in profit and loss account and shall be shown in the
asset side of balance sheet.
* P & L A/C Cr. Side * B/S Assets side

By interest
Add: Accrued interest: ---
5. Unearned Income or Income Received In Advance

Sometimes some income is received in advance for the work which has to be performed in the
subsequent year or years. Such receipts are known as unearned income or income received in
advance. For example, rent, Commission etc. can be received in advance.
Amount of unearned income shall be deducted from related income in profit and loss
accounts
and it will be shown in liabilities side in the balance sheet.
* P & L A/C Cr. Side by interest * B / S Liab. Side

Less: Unearned interest: ---
6. Depreciation
* P & L A/C Dr. Side * B / S Assets Side
To Depreciation E.g. Machinery: ---
Less: Dep. on machinery.
7. Interest on Capital & Interest on Drawings
Liab. Assets
B/S
Dr. P & L A/C Cr.
Capital
To Int. on By Int. on Add: Int. on cap.
capital Drawing
Less: Drawings
Less: Int. on Drawings

8. Provision for Discount on Debtors & Provision for Discount on Creditors
B/S
Dr. P & L A/C Cr. Liab. Assets
To Prov. For Dis. By Prov. For Dis. Creditors Debtors
On Debtors On Creditors Less: Prov. For Less: Prov. For
Dis. Dis.
9. Commission payable to the manager on profit (net profit).
* Shown on debit side of P&L a/c
* Shown on liabilities side of B/S
If % of commission is given on N.P. before charging commission, then
Commission = Rate x N.P. before commission

Adjustment Entry
100
Mgr. Comm. a/c Dr.
To o/s Comm. a/c
If % of commission is given on N.P. after charging commission, then
P&L a/c Dr.
To o/s Comm. a/c
Commission = Rate x N.P. before commission
100 + Rate
10. Goods sent on return basis or goods sent on approval

It means goods are sold on the condition that customer will keep the goods if he is satisfied
completely otherwise he can return back the goods. If customer’s consent is not received then no
entry is made. If entry is made by mistake as actual sales then
* Selling price of goods is deducted from sales & debtors

* Cost price of goods is subtracted from Closing stock in Trading a/c & Assets side of B/S.
11. Loss of goods by fire
12. Bills Receivable discounted this year whose maturity date is in next year.
No adjustment is made. It is a contingent liability & is shown as a footnote below the balance
sheet.
Adjustments for which reverse entry is made at the beginning of next year
(Entries at the end of current year)
1) Outstanding Expenses : Rent a/c Dr.

To Outstanding Rent a/c
2) Prepaid Expenses : Prepaid Salary a/c Dr.

To Salary a/c
3) Accrued Income : Accrued Interest a/c Dr.

To Interest a/c
4) Unearned Income : Commission a/c Dr.

To Unearned Commission a/c
Reverse of these entries is passed at the beginning of next year

Closing Entries
Q. From the following trial balance of Shri Ganesh iron store, prepare trading and profit & loss
account for the year ended 31st march 2002 and a balance sheet as on that date. Also pass the
necessary closing entries.
Dr. (Rs.) Cr. (Rs.)

Capital - 50,000
Drawings 5,000 -
Furniture 15,000 -
Purchase and sales 1,50,000 2,50,000
Debtors & creditors 25,000 30,000
Returns 3,500 1,500
Bad debts 500 -
Advertisement 1,000 -
Rent Rates & taxes 1,000 -
Bills Receivable and bill payable 15,000 7,000
Discount 250 500
Plant & machinery 22,500 -
Carriage on purchases 5,500 -
Carriage on sales 750 -
Opening Stock 34,000 -
Manufacturing expenses 19,000 -
Trade expenses 1,500 -
Salaries 5,500 -
Cash in hand 14,500 -
Cash in bank 17,500 -
Wages 2,000 -
3,39,000 3,39,000
The closing stock on 31.3.2002 was Rs. 12,500.
Solution: Closing Entries

Date Particulars Amount Amount
2002 Rs. Rs.
Mar 31 Trading a/c Dr. 2,14,000
To opening stock a/c 34,000
To purchase a/c 1,50,000
To sales returns a/c 3,500
To carriage a/c 5,500
To manufacturing exp a/c 19,000
To wages a/c 2,000
(Debit balance transferred to trading account)
Sales a/ c Dr. 2,50,000

Purchase returns a/ c Dr. 1,500
To trading a/c 2,51,500
(credit balance transferred o trading account)
Stock a/c (closing) Dr. 12,500

To trading a/c 12,500
(credit stock transferred o trading account)
Trading a/ c Dr. 50,000

To profit & loss a/c 50,000
(Gross profit transferred to P7L a/c)
Profit & loss a/ c Dr. 10,500

To bad debts a/c 500

To advertisement a/c 1,000
To rent, rates & taxes a/c 1,000
To discount a/c 250
To carriage a/c 750
To trade exp a/c 1,500
To salaries a/c 5,500
( Debit balance transferred to P&L a/c)
Discount a/ c Dr. 500

To profit & Loss a/c 500
(Discount transferred to P&L a/c)
Profit & Loss a/ c Dr. 40,000

To capital a/c 40,000
( Net profit transferred to capital account)
Capital a/ c Dr. 5,000

To drawing a/c 5,000
(Drawing transferred to capital account)

QUESTIONS
Q.1. From the following Trial Balance of Nitesh, Prepare Trading and Profit & Loss
Account for the year ending 31st March 2007 and Balance Sheet as on that date:
Debit Balance Amount Credit Balance Amount

Opening Stock 31,350 Sales 4,02,160
Purchases 2,80,000 Purchases Return 1,150
Sales return 2,000 Creditors 62,000
Carriage Inward 8,710 Discount 90
Wages 58,840 Capital 50,000
Coal, Gas, & Wages 42,860
Manufacturing Expenses 4,840
Debtors 67,900
General Expenses 4,890
Salaries 4,300
Rent. Rates and Taxes 1,910
Cash in hand 70
Cash at Bank 4,730
Drawing 3,000
5,15,400 5,15,400
Closing stock as on 31st March 2007 Rs.53,800.

[Hint: * Carriage Inward is shown in Trading a/c Dr. Side
* General Expenses are shown in P&L a/c Dr. Side
* Drawings will be deducted from Capital in the Balance Sheet Liabilities side]
[Ans: Gross Profit 28,510 Net Profit 17,500]
Q.2. Prepare Trading and Profit & Loss Account and Balance Sheet of M/s Suraj General
Store for the year ended 31st March, 2002 from the following:
Rs. Rs.
Mr. Suraj’s Capital 50,000 Sales 60,575
Mr. Suraj’s Drawings 5,000 Salaries 8,600
Opening Stock 20,000 B/R 2,650
Sundry Creditors 49,000 B/P 2,100
Sundry Debtors 40,000 Bad Debts 1,500
Cash at Bank 17,200 Insurance 1,400
Cash in hand 900 Purchases 35,000
Discount allowed 1,500 Machinery 22,000
Carriage inwards 1,300 Furniture 1,500
Returns outward 1,000 Rent & Taxes 1,450
Printing & Stationery 675 Return inward 2,000
Adjustments:
(i) Closing Stock Rs.25,500.
(ii) Write off Rs.400 as bad and maintain provision for bad debts on Sundry Debtors at 5%
(iii) Depreciate machinery and furniture by Rs.2,700 and Rs.150 respectively.
(iv) Prepaid insurance Rs.300
(v) Purchase of machinery worth Rs.5,000 has wrongly been debited to purchases account
(vi) Unpaid salary Rs.500
[Hint: * Discount allowed will be shown in P&L a/c Dr. Side
* Returns Outward means Purchase Return
* Returns Inward means Sales Return
* Unpaid salary means outstanding salary]
[Ans: Gross Profit 33,775 Net Profit 13,220 Balance Sheet 1,09,820]
Q.3. The following trial balance is extracted from the books on Sudhir as on 31st March,
2004:
Dr. Cr.
Capital ---- 28,000
Drawings 3,000 ----
Debtors and Creditors 19,500 10,401
Loan on Mortgage ---- 9,500
Interest on Loan 300 ----
Cash in hand 2,050 ----
Provision for bad debts ---- 710
Stock 1.4.2003 6,839 ----
Motor Vehicles 10,000 ----
Cash at bank 3,555 ----
Land & building 12,000 ----
Bad debts 525 ----
Purchase and Sales 66,458 1,09,643
Purchase Return and Sales Return 7,821 1,346
Carriage outwards 2,404 ----
Carriage inwards 2,929 ----
Salaries 9,097 ----
Rates, taxes and Insurance 2,891 ----
Advertising 3,264 ----
Discount ---- 540
General Expenses 3,489 ----
Bills Receivable and Bills payable 6,882 2,614
Rent Received ---- 250
Total 1,63,004 1,63,004
Prepare trading and profit and loss account for the year ended 31st March, 2004 and a balance
sheet as on that date taking into consideration the following matters:
1. Stock on 31st March,2004 was valued at Rs. 6,750

2. Interest on Loan at 6% annum is unpaid for six months.
3. Salaries outstanding Rs. 750 and rates outstanding Rs. 350
4. Prepaid Insurance Rs. 150.
5. Depreciation is to be provided on land and building at 2.5 % and motor vehicles at 20%.
6. Goods costing Rs. 758(sale price Rs. 1,000) were sent on approval on 25th March, 2004 and
recorded as sales but no consent has been received upto 31st March.
7. The provision for doubtful debts is to be maintained at 5 % on sundry Debtors.
8. Provide for Manager’s commission at 10% on net profit after charging such commission.
[Ans. Gross Profit Rs.33,450 Net Profit Rs.7,745 Balance Sheet Rs.57,420]
[Hint: * Loan on Mortgage is liability shown in B/S

* Interest on loan is expense shown in P&L a/c
* Carriage outward is shown in P&L a/c Dr. Side
* Rates, taxes and Insurance is shown in P&L a/c Dr. Side
* Discount & Rent received are shown in P&L a/c Cr. Side
Adj. 6) Sales – 1,000 8) Mgr. Commission= 10 x 8,520 (N.P. before charging comm.)
Debtors – 1,000 110
Closing Stock + 758 = 775 shown in P&L a/c Dr. Side & B/S liab.]

Q.4. The following balances have been drawn from the account books of Rahaan on
31st December, 2008:
Opening Stock 34,000 Bad Debts Provision 3,000

Purchases 3,70,000 Stable Expenses 5,000
Sales 5,50,000 B/P 12,000
Selling Expenses 30,000 Bank Loan 20,000
Capital 2,50,000 B/R 18,000
Creditors 60,000 Carriage & Horse 7,000
Returns inwards 4,000 Fire Insurance Premium 2,000
Fuel & Power : Factory 16,000 Returns Outward 2,000
Salaries & Wages 47,000 Debtors 87,000
Interest on Bank Loan 2,000 Machinery 1,00,000
Commission Received 3,000 Buildings 1,40,000
Bad Debts 2,000 Drawings 30,000
Cash in hand 6,000
Other information:
(1) On 31st December, 2008 the stock was Rs.49,400.
(2) Credit purchases of Rs.1,000 and credit sales of Rs.3,000 were not recorded in account
books.
(3) Prepaid fire insurance premium Rs.500, outstanding interest on bank loan Rs.400, and
accrued commission Rs.1,000.
(4) The provision for bad debts on Debtors is to be kept at 5%.
(5) Charge depreciation on buildings at 5% p.a. and on machinery at 10% p.a.
(6) Make provision for manager’s commission at 10% of net profit, after charging such
commission.
Prepare Trading Account, Profit and Loss Account for the year ending 31st December, 2004, and
a Balance Sheet as on that date.
[Hint: * Selling Expenses is shown in P&L a/c
* Fuel & Power: Factory is shown in Trading a/c Dr. Side
* Commission Received is shown in P&L a/c Cr. side
* Stable Expenses is shown in P&L a/c Dr. Side
* Carriage & Horse is Asset shown in B/S
* Fire Insurance Premium is shown in P&L a/c Dr. Side
Adj. 6) Mgr. Commission= 10 x 77,000 (N.P. before charging comm.)
110
= 7,000 shown in P&L a/c Dr. Side & B/S liab.]
[Ans. Gross Profit Rs.1,79,400 Net Profit Rs.70,000 Balance Sheet Rs.3,90,400]
Q.5. The following balances are obtained from the Books of Parul on 31st December,
2001:
Dr. Cr.
Capital - 50,000
Opening Stock 10,000 -
Discount 500 -
Goodwill 10,000 -
Provision for Bad and Doubtful Debts - 3,000
Bills Receivable and Bills Payable 3,000 2,000
Wages 9,000 -
Purchases and Sales 80,000 1,20,000
Returns 2,000 3,000
Carriage inwards 2,000 -
Factory Rent 1,500 -
Commission - 2,000

Machinery 20,000 -
Furniture 6,000 -
Insurance Premium 1,800 -
Salaries (11 months paid) 4,400 -
Loan to Ram on 1.7.01 (Interest on Loan 12% Annually) 10,000 -
Trade Mark 8,800 -
Total 2,00,000 2,00,000
Taking into consideration the following adjustments prepare Trading Account and Profit & Loss
Account for the year ending 31st December, 2001 and Balance Sheet as on that date:
(1) Closing Stock Rs.30,000.

(2) Goods costing Rs.1,800 was sent to a customer on sale or return basis for Rs.2,000 on
31st December, 2001, which was wrongly shown as sales in the books.
(3) Provide depreciation on Machinery and furniture @ 10%.
(4) Interest on capital is payable @ 10% per annum.
(5) Write off further bad debts Rs.500 and increase Provision for Bad and Doubtful Debts by
Rs.1,500
(6) A bill for Rs.2,000 was discounted on 20th December, 2001, the maturity date
of which is 23rd January, 2002
(7) ¼ Share of commission relates to the next year.
[Hint: * Goodwill is Asset

* Factory Rent is shown in Trading a/c Dr. side
* Salaries (11 months paid): It means 1 month salary is unpaid or outstanding.
11 months salary is 4400 so 1 month salary is 4400/11=400.
* Loan to Ram on 1.7.01 (Interest on Loan 12% Annually) : Loan is given to Ram so it
is a asset. Interest will be charged from 1.7.01 to 31.12.01 (6 months)
Interest = 10,000 x 6 x 12 = 600 It is accrued interest on loan.
12 100
* Trade Mark is Asset shown in B/S
Adj. 5) The amount of new Provision for bad debts is calculated as:
Balance of Old Provision 3,000
Less: Bad Debts (in Trial Balance) -
Less: Further Bad Debts 500
2500
Add: Increase in provision 1500
New P.B.D. 4000
6) Bill discounted is contingent liability & will be shown as footnote under the balance
sheet.
[Ans. Gross Profit Rs. 48,300 Net Profit Rs. 34,200 Balance Sheet Rs. 1,12,100]
Q.6. The following trial balance was extracted from the books of Kush Kumar & Sons
on 31st March, 2004. Dr. Cr.
Drawings and Capital 5,000 1,00,000
Purchase and sales 68,000 1,20,000
Opening Stock 30,000 ----
Return Inwards 3,000 ----
Bank Overdraft ---- 12,000
Salaries 17,000 ----
Heating and Lighting - office 2,000 ----
Leasehold property 80,000 ----
Commission Received ---- 2,000
Travelling Expenses 3,000 ----
Printing and Stationary 1,000 ----
Furniture 9,000 ----

Provision for doubtful debts ---- 4,000
Wages and freight 10,000 ----
Apprentice Premium ---- 5,000
Total 2,73,000 2,73,000
Prepare trading account and profit and loss account for the year ending 31st March, 2004 and a
balance sheet as on that date, from the above trial balance and the following adjustments:
1. Closing Stock Rs.15,000.
2. Rs.1,000 for wages is still payable.
3. 75% of work for commission received has been completed.
4. Charge depreciation at 5% on leasehold property and at 10% on furniture.
5. The provision for doubtful debts is to be maintained at 6% on Debtors.
6. A new machine was purchased for Rs.10,000 and the payment was made by cheque, the
entry for this purchase has not made in the books.
7. Rs.2,000 for salaries relates to next year.
[Hint: * Bank Overdraft is liability.

* Heating and Lighting - office is shown in P&L a/c Dr. Side
* Leasehold property is Asset shown in B/S
* Apprentice Premium is business income & is shown in P&L a/c Cr. side]
Q.7. From the following trial balance of Rishi as at 31st march 2004, you are required
to prepare the trading and profit and loss account for the year ended 31st March,
2004 and a balance sheet as at that date, after making the necessary adjustment:
Trial Balance
Rs. Rs.
Rishi’s Capital ---- 80,000
Rishi’s Drawing 6,000 ----
Plant and Machinery balance 1.4.2003 20,000 ----
Plant and machinery addition on 1.10.2003 5,000 ----
Stock on 1.4.2003 15,000 ----
Purchase 82,000 ----
Return Inwards 2,000 ----
Sundry Debtors 20,600 ----
Furniture and Fixtures 5,000 ----
Freight and duty 2,000 ----
Carriage outward 500 ----
Rent, Rates and Taxes 4,600 ----
Printing and Stationary 800 ----
Trade Expenses 400 ----
Sundry creditors ---- 10,000
Sales ---- 1,20,000
Return outward ---- 1,000
Postage and Telegram 800 ----
Provision for doubtful debts ---- 400
Discount ---- 800
Rent of premises sublet for a year to 30th Sept., 2004 ---- 1,200
Insurance charges 700 ----
Salaries and wages 21,300 ----
Cash at bank 20,500 ----
Total 2,13,400 2,13,400
Adjustment:
1. Stock on 31st March, 2004 was valued at Rs.14,600.
2. Write off Rs.600 as bad debts.
3. A provision for doubtful debts is to be maintained at 5% on Sundry Debtors.

4. Create a provision for discount on Debtors and reserve for discount on creditors at 2%.
5. Provide for depreciation on furniture and fixtures at 5% per annum and on plant and
machinery at 20% per annum.
6. Insurance prepaid was Rs.100.
7. A fire occurred on 25th March, 2004 in the Godown and stock of the value of Rs.5,000 was
destroyed. It was fully insured and the Insurance Company admitted the claim in full.
[Hint: * Freight and duty is shown in Trading a/c Dr. Side.

* Rent of premises sublet for a year to 30th Sept., 2004: It means some property is
given on rent & rent is received for 1 year from 30.09.2003 to 30.09.2004. This
means 6 months rent is received in advance.]
[Ans. Gross Profit Rs. 39,600 Net Profit Rs. 5,870 Balance Sheet Rs. 90,270]
Q.8. From the following balance and information received from the books of Mr.
Abhinav on 31st March, 2002 you are required to prepare the final accounts:
Particulars Dr. Cr.
Capital - 50,000
Plant and Machinery 18,000 -
Depreciation on Plant and Machinery 2,000 -
Repairs to Plant 1,600 - P&L
Wages 28,000 -
Salaries 4,000 -
Income Tax 500 -
Land and Building 74,500 -
Depreciation on Building 2,500 -
Purchases less Returns and Sales 1,23,500 2,49,000
Bank Overdraft - 3,800
Accrued Income 1,500 -
Salaries Outstanding - 2,000 Asset
Bills Receivable and Bills Payable 10,000 3,000 Liability
Provision for Bad Debts - 6,000
Bad Debts 1,000 -
Discount on Purchases - 4,000
Debtors and creditors 35,000 23,300
Stock on 1.4.01 37,000 -
3,41,100 3,41,100
Other Information
1. Stock on 31st March,2002 was Rs.30,000
2. Write off Rs.3,000 bad debts and maintain a provision of 5% on Debtors.
3. Goods costing Rs.5,000 was sent to a customer on sales or return basis on 1st March, 2002.
This was recorded as actual sales. The rate of gross profit was 1/6th of sales.
4. Rs.1,200 paid as rent of the office were debited to landlord account and were included in
the list of Debtors.
5. General Manager is to be given commission at 10% of net profit after charging the
commission of works manager and his own.
6. Works manager is to be given commission at 5% on gross profit.
[Hint: * Income Tax is treated as drawings in case of sole trader. But in case of partnership
and company it is treated as business expense.
* Calculation of Total Debtors
Debtors in Trial Balance 35,000
Less: Sale on approval 6,000
Further bad debts 3,000
Landlord for rent 1,200 10,200
Total Debtors 24,800
* Work Manager Commission = 89,500 x 5% = 4,475 Rs.
* General Manager Commission: N.P. before commission 82,960
= 78,485 x 10/110 Less: Work Mgr. Comm. 4,475
= 7,135 N.P. after Work Mgr. Comm. 78,485 ]

Q.9. The following is the Trial Balance of Shri Krishna as at 31st March, 2002:
Name of Account Debit Credit

Capital - 86,690
Stock on 1st April, 2001 46,800 -
Sales - 3,89,600
Returns Inwards 8,600 -
Purchases 3,21,700 -
Returns Outwards - 5,800
Freight and carriage 18,600 -
Rent and Taxes 5,700 -
Salaries and Wages 9,300 -
Sundry Debtors 24,000 -
Sundry Creditors - 14,800
Bank Loan @ 6% p.a. - 20,000
Bank Interest 900 -
Printing and Advertising 14,600 -
Miscellaneous Income - 250
Cash at bank 8,000 -
Discount earned - 4,190
Furniture and Fittings 5,000 -
Discount Allowed 1,800 -
General Expenses 11,450 -
Insurance 1,300 -
Postage and Telegrams 2,330 -
Cash in hand 380 -
Travelling Expenses 870 -
Drawings 40,000 -
Total 5,21,330 5,21,330
The following adjustments should be made:
(a) Included amongst the Debtors is Rs.3,000 due from Nitin and included among
the Creditors Rs.1,000 due to him.
(b) Provision for Bad and Doubtful debts be created at 5% and Reserve for Discount @ 2%
on Sundry Debtors.
(c) Depreciation on Furniture and Fittings @ 10% shall be written off.
(d) Personal purchases amounting to Rs. 600 has been included in the Purchases book.
(e) Interest on Bank Loan shall be provided for the whole year.
(f) A quarter of the amount of Printing and Advertising is to be carried forward to the next
year.
(g) Closing Stock Rs.78,600
(h) Omitted to be recorded purchase invoices of Rs.400.
Prepare Trading and Profit & Loss Account and Balance Sheet.
[Hint: * Bank Loan @ 6% p.a. is a liability.

* Miscellaneous Income is shown in P&L a/c Cr. side
Adj. a) 1,000 will be subtracted from debtors & creditors both.]
[Ans. Gross Profit Rs.78,500 Net Profit Rs. 35,953 Balance Sheet Rs. 1,16,543]

Q.10. From the following trial balance of a trader, prepare trading and profit and loss
account for the year ending 31st March, 2004 and a balance sheet as on the date.
Dr. (Rs.) Cr. (Rs.)

Capital ---- 1,20,000
Loan-15% p.a.- Jan. 1, 2004 ---- 10,000
Commission ---- 600
Provision for bad debts ---- 1,000
Purchases and sales 80,000 90,000
Returns 10,000 2,000
Drawings 5,000 ----
Furniture 5,000 ----
Machinery 30,000 ----
Opening Stock 20,000 ----
Octroi 5,000 ----
Import Duty 2,000 ----
Salaries and Wages 20,000 ----
Bad debts 500 ----
Rent, rates and taxes 4,000 ----
Life Insurance Premium 2,000 ----
Interest on loan 200 ----
Cash 19,400 ----
Total 2,53,600 2,53,600
Adjustments:
1. Stock on 31st March, 2004 was Rs.20,000.
2. Write off further bad debts Rs.500 and make provision for bad debts at 5% and provision
for discount at 2% on Debtors.
3. The proprietor withdrew goods costing Rs.600 for personal use and gave goods costing Rs.
400 in charity.
4. Create reserve for discount on creditors at 3%.
5. 60% of the work relating to commission received has been completed in this year.
6. Rs.4,000 of salaries and wages is outstanding.
[Hint: * Loan-15% p.a. - Jan. 1, 2004: It means loan is taken on Jan.1 2004 & interest
should be given for 3 months upto March 31, 2004.
Interest = 10,000 x 15% x 3/12 = 375
Interest on loan Rs. 200 is already given so 375 – 200 = 175 is outstanding.
* Octroi & Import Duty is shown in Trading a/c.
* Life Insurance Premium is treated as drawings & subtracted from capital.]
[Ans. Gross Loss Rs.4,000 Net Loss Rs.34,965 Balance Sheet Rs.1,20,950 ]
EXAM QUESTION:
(2009)
Q. 11. Following balances have been extracted from the books of Shri Gagan Shivani on 31st
March, 2008:
Opening stock Rs. 15,000, Purchases Rs. 50,000, Sales Rs. 80,000, Return Inward Rs. 300,
Return outward Rs. 2000, Debtor Rs. 40,500, fixed deposit in bank Rs. 10,000, Creditors Rs.
25,000, B/R Rs, 11,400, B/P Rs. 8,000, interest received on fixed deposit Rs. 900, Drawing Rs.
6,300, Cash Rs. 1,000, Capital Rs. 37,300, Discount (Dr.) Rs. 600, Commission (Cr.) Rs. 2,200,

Repairs Rs. 800, wages Rs. 2,400, salaries for 11 months Rs. 5,500, Advertisements Rs. 1,200,
Trademark Rs. 1,500, Building Rs. 10,000, Bad-debts Rs. 800, Provision for Bad-debts Rs.
1,900.
Prepare Final account for the year ending 31st March, 2008 after taking in to consideration of
following adjustments:
(i) Closing stock on 31st March, 2008 Rs. 28,400.

(ii) Interest accrued on fixed deposit in bank for 3 months, commission received in advance Rs.
400.
(iii) Further bad-debts Rs. 500 and maintain provision for bad debts at 5% on debtors.
(iv) Depreciate Building by 5%.
(v) Goods worth Rs. 300 were denoted for which no entry was made in the books.
(vi) Provide for manager’s commission 5% on net profit after charging this commission.


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ASNC L A S S E S

CHAPTER 1 ACCOUNTING EQUATION

Accounting Equation:- Capital + Liabilities = Assets

Balance Sheet (Format)

Liabilities may be classified into two parts as under;

Assets may be classified into following categories:

These booklet is prepared by ASNCLASSES 1

• Debtors – Persons to whom we sale goods on credit.

These booklet is prepared by ASNCLASSES 2

5. Prevention of Frauds: There is no scope for frauds due to this system.

6. Fulfillment of legal requirements: This accounting system meets requirements of banks,

9. Internationally Accepted: This system is accepted throughout the world. It is flexible.

These booklet is prepared by ASNCLASSES 3

Transaction: - Exchange of something or two way process.

Rules of Debit & Credit Type of Accounts

(i) Dr. the receiver Personal A/c

(ii) Dr. what comes in

(iii) Dr. all expenses & losses

Extra: Dr. if Assets increase Cr. if Liabilities increase

a) Natural Personal Accounts: Accounts of natural Persons means the account of

These booklet is prepared by ASNCLASSES 4

L.F. – Ledger Folio (page number)

List of Debit side and Credit Side Items:

b) When goods are given away as charity Charity a/c Dr.

c) When goods are destroyed by fire Loss by fire a/c Dr.

These booklet is prepared by ASNCLASSES 5

6) Sales tax: When sales tax is received with sales

For Example: 1) Salary a/c Dr.

2) Rent a/c Dr.

Now, compound entry will be:

Salary a/c Dr.

These booklet is prepared by ASNCLASSES 6

Give Journal Entries:

These booklet is prepared by ASNCLASSES

Q.7. Record the following transaction in the journal of Parvati

These booklet is prepared by ASNCLASSES

These booklet is prepared by ASNCLASSES

J.F. - Journal Folio (page number)

Simple entry: Purchase a/c Dr. 1000

Dr. Cash a/c Cr.

Compound entry: Bank a/c Dr. 900

Dr. Discount a/c Cr.

Dr. Mohan a/c Cr.

These booklet is prepared by ASNCLASSES

Type Of subsidiary Books

Examples of contra entry:

Format of Three Column Cash Book

These booklet is prepared by ASNCLASSES

V.No. – Voucher (bill) number

Debit Note/ Credit Note

Sales Book/Purchase Book

Sales Return/Purchase Return book

Performa of Bills Receivable Book

Performa of Bills Payable Book

These booklet is prepared by ASNCLASSES

1) Purchased furniture from Rohit on credit. Rs.1,000

Journal Proper of …………….

4) Bad debts a/c Dr. 4,000

6) Loss by fire a/c Dr. 6,000

These booklet is prepared by ASNCLASSES

Q. 1. Post the following journal entries into the ledger:

2) Rajesh a/c Dr. 3,70,000