Contents of Income Statement

1. Net Sale
Invoice Price of Goods Sold (-) Returns Inwards

2. Cost of Goods Produced
The cost of goods produced in a particular accounting
year.

3. Cost of Goods Sold [ COGS]
The total cost incurred for the manufacturing the goods
sold during the accounting year.

4. Gross Profit
Net Sale (-) COGS



5. Operating Expense
General Administration Expense (+) Selling & Distribution
Cost (+)Depreciation (+) Rent (+) Insurance (+)..

6. Operating Profit
Gross Profit (-) Operating Expense

7. Non Operating Surplus
Gains from sources other than routine business
activities such as income from investments , gain from
disposal of assets etc.

8. Profit / Earning Before Interest and Tax [ PBIT/EBIT]
Operating Profit (+) Non Operating Surplus





9. Interest
Expense on term loans , debentures , public deposits ,
working capital advance.

10. Profit Before Tax [ PBT]
PBIT (-) Interest

11. Tax
Income tax for the year

12. Profit After Tax [PAT]
PBT (-) Tax


13. Dividends
Part of profit to be distributed to the shareholders.

14. Retained Earnings
PAT (-) Dividends





Contents of Balance Sheet

1. Assets
Resources which have value and which help in the conduct of
the business operations.

a) Fixed Assets : land ,building ,plant , machinery ,
patents , copyrights etc

b) Investments : securities such as equity , bonds ,
debentures etc



c) Current Assets : cash ,bank, debtors , inventories , pre-
paid expense , bills receivable etc
d) Loans & Advances
e) Miscellaneous Expenditure : preliminary expense , pre-
operative salaries etc


2. Liabilities
These represent what the business entity owes to others.

a) Share Capital : equity and preference

b) Reserves & Surplus
Revenue Reserves : retained earnings, general reserve
Statutory Reserves :investment allowance reserve etc
Capital Reserve : premium on issue of shares , gain on
revaluation of assets
c) Provisions : provision for bad debts
d) Loans : Long Term ,Medium Term Short Term
;Secured & Unsecured
e) Current Liabilities : creditors , B/P , outstanding
expenses, overdraft etc

Exercise
Classify the following items and also state the statement in which they
should be included :

Bank
Overdraft
Motor Vehicles
Profit earned on sale of old M/E
Commission paid to sales fleet
Loan given to a friend
Profit on sale of goods
Discount given to customers




Solution
Bank : current asset Balance Sheet
Overdraft : current liability Balance Sheet
Motor Vehicles : fixed asset Balance Sheet
Profit earned on sale of old M/E : non operating income Income
Statement
Commission paid to sales fleet : operating expense - Income Statement
Loan given to a friend : loans & advances Balance Sheet
Profit on sale of goods : operating income - Income Statement
Discount given to customers : operating expense - Income Statement






Jet Airways Ltd

1. Air Fuel Consumed
2. Employee`s Remuneration and Benefits
3. Deferred Tax Liability
4. Selling and Distribution Expense
5. Purchase of Investments
6. Provision for Leave Encashment and Gratuity
7. Proceeds from Sale of Old Aircrafts
8. Revenue Operating Activities
9. Proposed Dividend
10.Share Capital









Jet Airways Ltd
11.Repayment of Term Loans
12.Interest and Finance Charges
13.Capital Work - in Progress
14.Inventories
15.Fringe Benefit Tax
16. Aircraft Lease Rental
17.Intangible Assets
18. Interest Income on Fixed Deposits
19. Audit Fee
20. Loans and Advances
21. Landing, navigation and other airport charges
22. Insurance










Solution Jet Airways Ltd

1. Air Fuel Consumed Operating Expense Profit and Loss A/c
2. Employee`s Remuneration and Benefits - Operating Expense Profit and
Loss A/c
3. Deferred Tax Liability Liability Balance Sheet
4. Selling and Distribution Expense - Operating Expense Profit and Loss
A/c
5. Purchase of Investments - Assets Balance Sheet
6. Provision for Leave Encashment and Gratuity - Liability Balance Sheet
7. Proceeds from Sale of Old Aircrafts- Non Operating Surplus- Profit and
Loss A/c
8. Revenue Operating Activities - Operating Income Profit and Loss A/c
9. Proposed Dividend Liability Balance Sheet
10.Share Capital Liability Balance Sheet









Jet Airways Ltd
11.Repayment of Term Loans and Subordinated Debts-Reduction in Liability
Balance Sheet
12.Interest and Finance Charges Operating Expense Profit and Loss A/c
13.Capital Work - in Progress - Assets Balance Sheet
14.Inventories - Assets Balance Sheet
15.Fringe Benefit Tax - Operating Expense Profit and Loss A/c
16. Aircraft Lease Rental - Operating Expense Profit and Loss A/c
17.Intangible Assets - Assets Balance Sheet
18. Interest Income on Fixed Deposits - Non Operating Surplus- Profit and
Loss A/c
19. Audit Fee - Operating Expense Profit and Loss A/c
20.Loans and Advances - Assets Balance Sheet
21. Landing, Navigation and Other Airport Charges - Operating Expense
Profit and Loss A/c
22. Insurance - Operating Expense Profit and Loss A/c










Capital A/c
Drawings A/c
Bank A/c
Rams A/c
Companys A/c
Outstanding Rent A/c
Govt A/c




Personal Non Personal
TYPES OF ACCOUNTS
Real Nominal
Land & Building A/c
Plant & Machinery A/c
Fixtures & Fittings A/c
Cash A/c
Stock A/c
Goodwill A/c





Wages A/c
Discount A/c
Interest Paid A/c
Rent Paid A/c
Commission
Received A/c
Electricity A/c




Rules of Debit and Credit

1 Personal Account : Debit the Receiver
Credit the Giver

2 Real Account : Debit what Comes In
Credit what Goes Out

3 Nominal Account : Debit all Expenses & Losses
Credit all Incomes & Gains
Assets
Liabilities
Capital
Debit all
Increases
Credit all
Decreases
Debit all
Decreases
Credit all
Increases
Debit all
Decreases
Credit all
Increases
Income & Gains
Expenses & Losses
Credit all
Increases
Debit all
Decreases
Debit all
Increases
Credit all
Decreases

JOURNALS

Simple books of accounts in which all the business transactions are
originally recorded in chronological order and from which they are posted
in ledger accounts.
Sub Division of Journals

1 Purchase Day Book
2 Sales Day Book
3 Purchase Return Book
4 Sales Return Book
5 B/R Book : B/E ; promissory notes and Hundies received by the
company
6 B/P Book : B/E ; promissory notes and Hundies issued by the company
7 Cash Book
8 Journal Proper




Sample : Books of M/S Mehta and Sons

Journal Proper

Date Particulars L.
F.
Debit (Rs) Credit (Rs)
2013
Jan.1
Cash A/c ------------------------Dr
Furniture A/c--------------------Dr
To Capital A/c
(being commencement of business
with cash and furniture)
1,00,000
1,50,000



2,50,000
Jan. 3 Good A/c-------------------------Dr
To Cash A/c
(being goods purchased on cash basis)
25,000
25,000
Sample: Ledgers in the Books of M/S Mehta and Sons
Dr Cash A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs
2013
Jan 1
To Capital A/c 1,00,000 2013
Jan 5
By Bank A/c 25,000
Jan 7 By Purchases A/c 50,000
Jan
31
By Wages A/c 5,000
Jan 4 To Sales A/c 25,000
31
Dec
By Balance c/d 45,000
1,25,000 1,25,000


Journalize the following transactions in the books of Mohan.

a) Mohan commences business with cash Rs 1,00,000 ; building
Rs 5,00,000 ; furniture Rs 20,000
b) He deposits Rs 25,000 in bank
c) Purchased office table and chair for Rs 20,000 from Deluxe
Furniture house
d) Bought goods for Rs 50,000 for cash
e) Paid electricity bill of Rs 2,000 by cheque
f) Paid wages to Suraj Rs 3,000 and Ramu Rs 2,000
g) Sold good for Rs 25,000

Books of Mohan

Journal Proper

Date Particulars L.
F.
Debit (Rs) Credit (Rs)
a) Cash A/c ------------------------Dr
Building A/c--------------------Dr
Furniture A/c--------------------Dr
To Capital A/c
(being commencement of business
with cash; building and furniture)
1,00,000
5,00,000
20,000



6,20,000
b) Bank A/c-------------------------Dr
To Cash A/c
(being cash deposited into bank)
25,000
25,000
c) Furniture A/c -------------------Dr
To Deluxe Furniture House A/c
(being furniture purchased on credit
basis)
20,000
20,000
d) Purchases A/c ------------------Dr
To Cash A/c
(bought goods for cash)
50,000
50,000
e) Electricity A/c -----------------Dr
To Bank
(electricity bill paid by cheque)
2,000
2,000
f) Wages A/c ---------------------Dr
To Cash A/c
(wages paid to Suraj - Rs 3,000 ; Ramu-
Rs 2,000)
5,000
5,000
g) Cash A/c ----------------------Dr
To Sales A/c
(goods sold for cash)
25,000
25,000
Ledgers in the Books of Mohan
Dr Cash A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs
a To Capital A/c 1,00,000 b By Bank A/c 25,000
d By Purchases A/c 50,000
f By Wages A/c 5,000
g To Sales A/c 25,000
31
Dec
By Balance c/d 45,000
1,25,000 1,25,000
Dr Building A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs
a To Capital A/c 5,00,000 31
Dec
By Balance c/d 5,00,000
5,00,000 5,00,000
Dr Furniture A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs
a To Capital A/c 20,000 31
Dec
By Balance c/d 40,000
c To Deluxe
Furniture House
A/c
20,000
40,000 40,000
Dr Capital A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs
a By Cash A/c 1,00,000
a By Building A/c 5,00,000
a By Furniture A/c 20,000
To Balance c/d 6,20,000
6,20,000 6,20,000
Dr Bank A/c Cr
Date Particulars J.F
.
Rs Date Particulars J.F
.
Rs
b To Cash A/c 25,000 e By Electricity
A/c
2,000
31
Dec
By Balance c/d 23,000
25,000 25,000
Dr Deluxe Furniture House A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs
c By Furniture A/c 20,000
31
Dec
To Balance c/d 20,000
20,000 20,000
Dr Purchase A/c Cr
Date Particulars J.F
.
Rs Date Particulars J.F
.
Rs
d To Cash A/c 50,000 31
Dec
By Balance c/d 50,000
50,000 50,000
Dr Electricity A/c Cr
Date Particulars J.F
.
Rs Date Particulars J.F
.
Rs
e To Bank A/c 2,000 31
Dec
By Balance
c/d
2,000
2,000 2,000
Dr Wages A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs
f To Cash A/c 5,000 31
Dec
By Balance c/d 5,000
5,000 5,000
Dr Sales A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs
31
Dec
To Balance c/d 25,000 g By Cash A/c 25,000
25,000 25,000

TRIAL BALANCE

A Trial Balance is a summary of all general ledgers balances as on a
particular date.

Helps in checking the arithmetical accuracy of the books of accounts.



SN Particulars Debit (Rs) Credit (Rs)
1
Capital **
2
Assets **
3
Expenses & Losses **
4
Income & Gains **
5
Liabilities **
Total *** ***

Trial Balance as on 31 Dec, 200..

Trial Balance as on 31 Dec, 200..
SN Particulars Debit (Rs) Credit (Rs)
1
Cash 45,000
2
Building 5,00,000
3
Furniture 40,000
4
Capital 6,20,000
5
Bank 23,000
6
Deluxe Furniture House 20,000
7
Purchases 50,000
8
Electricity 2,000
9
Wages 5,000
10
Sales 25,000
Total 6,65,000 6,65,000

Entries for Some Specific Transactions


1. Bad Debts
Cash A/c------------------------------Dr
Bad Debts A/c ---------------------Dr
To Debtor's Personal A/c

2. Bad Debts Recovered
Cash/Bank A/c --------------------------Dr
To Bad Debts Recovered A/c

3. Cash withdrawn from bank for personal use
Drawing A/c ------------------------------Dr
To Bank A/c




4. Goods given as Charity
Charity A/c -----------------------------Dr
To Purchases A/c

5. Distribution of Goods as Free Sample
Advertisement A/c -----------------------------Dr
To Purchases A/c

6. Cash and Goods withdrawn by Proprietor for Personal Use
Drawings A/c --------------------------------------Dr
To Cash A/c
To Purchases A/c





7. Goods Lost by Fire / Theft [uninsured]
Loss by Fire/ Theft -------------------------------------Dr
To Purchases A/c
[ insured]
Insurance Company A/c -----------------------------Dr
To Purchases A/c

when claim is recd but not in full :

Bank A/c---------------------------------------------Dr
Profit & Loss A/c ---------------------------------Dr
To Insurance Company


8. Interest on Capital
Interest A/c ---------------------------------------Dr
To Capital A/c

9. Interest on Drawings
Drawings A/c -----------------------------------Dr
To Interest

10. Revenue from Services
Cash A/c -------------------------------------------Dr
To Revenue from Services

11. Advance Received from a Customer
Cash A/c ---------------------------------------------Dr
To Advance Received



12. Sales Return
Sales Return--------------------------Dr
To Debtors

13. Cash Discount to customers
Cash A/c -----------------------------------Dr
Discount A/c -----------------------------Dr
To Debtors

14. Purchase Return
Suppliers A/c -----------------------------Dr
To Purchase Return







Exercise

1 Sohan is declared insolvent. Recd from his official receiver a first
and final settlement of 60 paisa in a rupee on a debt of Rs 4,000.
2 Received cash for a bad debt written off last year Rs 700
3 Taken out goods worth Rs 500 for personal use and worth Rs 600 for
free distribution as samples
4 Goods worth Rs 3,000 were destroyed by fire , but the General
Insurance Company Ltd accepted to pay 7/10 of the claim amount.
5 Provide 5% interest on drawing of Rs 2,000.
6 Wizcraft Computer Systems signed an agreement with a client to
design a soft ware. The agreement provided for payment of a fee of
Rs 50,000 on completion of the work.
7 Appointed an office secretary for a monthly salary of Rs 10,000/-
8 A sale of Rs 1,000 on June 1 is on terms of 2/10 , n/30.On June 11
the buyer clears the payment.




Solution

1 Cash A/c ----------------------------Dr 2,400
Bad Debts A/c ---------------------Dr 1,600
To Sohan`s A/c 4,000


2 Cash A/c ---------------------------------------Dr 700
To Bad Debts Recovered A/c 700


3 Drawings A/c ---------------------------------Dr 500
Advertisement A/c ------------------------------------Dr 600
To Purchases A/c 1,100




4 General Insurance Co Ltd.----------------------Dr 3,000
To Purchases A/c 3,000

Bank A/c ------------------------------------Dr 2,100
P/L A/c --------------------------------------Dr 900
To General Insurance Co Ltd A/c 3,000

5 Drawings A/c ---------------------------------Dr 100
To Interest on Drawings A/c 100

6 Signing an agreement with a customer is not an accounting
transaction since it does not create any asset or revenue.
7 Appointing an employee is not an accounting transaction since it
does not create an expense or liability.
8 Cash A/c ----------------------------Dr 980
Discount A/c -----------------------Dr 20
To Debtor 1,000