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CHAPTER 1

ASNC L A S S E S

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.

Capital + Liabilities = Assets

Accounting Equation:- Balance Sheet (Format) Liabilities Amount Assets Amount Capital Reserve and surplus
Accounting Equation:-
Balance Sheet (Format)
Liabilities
Amount
Assets
Amount
Capital
Reserve and surplus
Loans& Advances
Current:
Fixed:
Creditors
Bills Payable
Bank Overdraft
Outstanding Expenses
Land & building
Plant &machinery
Furniture
Goodwill
Current:
Debtors
Cash in hand
Investments
Cash at bank
Bills Receivable
Closing Stock
Prepaid Expenses
Others:
Preliminary Expenses etc.
Capital = All assets – External liabilities

(2)

(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.

of which goods and assets are purchased in the business. Liabilities : It refers to the

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.

(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)

(f)

(g)

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.

For e.g. Goodwill, patent, trade marks and copyrights. Liquid Assets : Assets that can be easily

Liquid Assets: Assets that can be easily converted into cash like bank account, bills receivable, short term investment, debtors, stock etc.

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

• Discount – Cash discount & Trade discount • Bad Debts - • Insolvent

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.

accounts to be debited and credited will always be equal. 2. Recording of both personal and

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.

is prepared to arrive at net profit / loss for the year. 4. Financial Position of

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.

the amount is recorded on the correct side though in a wrong

5. Error of principle:

If

account.

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

3

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 1 st Effect-Machinery is coming 2 nd Effect-Cash is going. In accounts one/more effect(s) is debited & other is credited.

Type of Accounts Dr. the receiver Cr. the Giver Personal A/c Dr. what comes in
Type of Accounts
Dr. the receiver
Cr. the Giver
Personal A/c
Dr. what comes in
Cr. what goes out
Real A/c
Dr. all expenses & losses
Cr. all income & gains
Nominal A/c
Dr. if Assets increase
Cr. if Assets decrease
Cr. if Liabilities increase
Dr. if Liabilities decrease
a)
b)
c)
a)

Rules of Debit & Credit

(i)

(ii)

(iii)

Extra:

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:

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. 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.

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.

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.

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

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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 return Discount Allowed Expenses - Salary,Rent etc Drawings Loss by fire/theft
Debit
Credit
Purchase
Sales return
Discount Allowed
Expenses -
Salary,Rent etc
Drawings
Loss by fire/theft
Bad Debts
Assets
Charity
Livestock Purchase
Sales
Purchase return
Discount Received
Income - Interest received, Rent received
Capital
Donation Received
Bad Debts Recovered
Liabilities
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
Entry -
Cash a/c
Dr.
Bad debts a/c Dr.
To Debtor’s a/c

Important Terms 1) Purchase a/c: It is always debited. But in the following 4 conditions it is credited -

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.

4) Bad debts recovered: If the amount of bad debts is recovered from the debtor
4) Bad debts recovered: If the amount of bad debts is recovered from the debtor later on, it
is called bad debts recovered.
Entry -
Cash a/c
Dr.
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
to the trader/customer.
It is given by the seller to the customer/debtor
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
contract. It reduces the selling
price.
It is given when payment is made. It does
not reduce the selling price.
3.
Entry
It is not shown in the journal
entry.
It is shown in the journal entry
4.
Example
Sold goods Rs.5,000 . 10%
trade discount given.
Sold goods Rs.5,000 . 10% cash discount
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

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

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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

Entry -

Cash a/c

Dr.

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
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

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

6

Journal Entries:

1. Sold goods in cash Rs.200 Cash a/c Dr. 200 15. Cash withdrew from bank
1. Sold goods in cash Rs.200
Cash a/c
Dr.
200
15. Cash withdrew from bank for office use
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.
To Cash a/c
500
500
16. Entries in which Purchase Account is
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
900
Purchases a/c Dr.
To Shyam a/c
700
Loss by fire/Loss by theft a/c Dr.
To Purchases a/c
900
700
c)
Goods given away as charity Rs.100
5. Purchased furniture on credit from Seema
& Co. Rs.1000
Charity a/c
Dr.
100
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
To Purchases a/c
Dr.
1500
6. Sold machinery in cash Rs. 3,000
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.
To Rakesh
4500
18.
Old newspaper sold Rs.50
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
To Furniture a/c
Dr.
300
9. Started business with cash Rs.10,000
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
Rs.2000, Furniture Rs.5000 & Cash
To Cash a/c
2500
21.
Discount: Trade discount & Cash
Rs.20000
Cash a/c
Dr.
20,000
a)
Furniture a/c
Dr.
5,000
discount.
Sold goods Rs.5000. 10% trade discount
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
Rent a/c
To Cash a/c
b)
Dr.
200
Sold goods Rs.5000. 10% cash discount
given.
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)
13. Salary paid to Rajeev Rs.2000
Sold goods Rs.1000. 10% trade discount
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
(Contra entry)
To Sales a/c
900
22. Interest received from bank Rs.250
Bank a/c
To Cash a/c
Dr.
3000
Bank a/c
Dr.
250
3000
To Interest a/c
250
23. Paid interest on capital Rs.400
Interest on capital a/c
To Capital a/c
Dr.
400
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.
24. Charged Interest on drawings Rs.150
30. Insurance Co. accepted claim Rs.12,000
Drawings a/c
Dr.
150
Dr. 12000
To Interest on drawings a/c
150
Insurance Co.
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.
To Debtor’s a/c
400
Cash a/c
Dr.
12000
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
Dr.
1000
To Bad Debts recovered a/c
300
Purchases a/c
To Cash a/c
1000
27. Sold goods Rs.5000 & charged sales tax @
33. Cash stolen from Iron safe Rs.500
10%
Dr.
500
Cash a/c
Dr.
5,500
Loss by theft a/c
To Cash a/c
500
To Sales a/c
To Sales Tax a/c
5,000
500
34. Proprietor deposited into fixed deposit a/c
Rs.2000 by withdrawing from current a/c
28. Paid Income Tax Rs.200.
Fixed Deposit a/c
To Bank a/c
Dr.
2000
Drawings a/c
To Cash a/c
Dr.
200
2000
200
35. Paid wages on installation of machinery
29. Goods destroyed by fire Rs.15,000
Rs.200
Loss by fire a/c
To Purchases a/c
Dr. 15000
15000
Machinery a/c
To Cash a/c
Dr.
200
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
These booklet is prepared by ASNCLASSES
85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
8

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
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

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

9

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 &
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

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

10

CHAPTER 2

ASNC L A S S E S

LEDGER AND SUBSIDIARY BOOKS

Ledger

Journal is a book in which all the transactions are recorded date wise. But on
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.
To Cash a/c
1000
1000
Dr.
Purchase a/c
Cr.
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
To cash a/c
1000
By balance c/d
1000
1000
1000
Dr.
Cash a/c
Cr.
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
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.
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
To Mohan a/c
900
Dr.
Discount a/c
Cr.
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
To Mohan a/c
50
Dr.
Mohan a/c
Cr.
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
By Bank a/c
By Discount a/c
900
50

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

11

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
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

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12

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.

Amount Date Particulars V. No. Amount Postage Cartage Stationery Wages Refreshment Misc. Received &
Amount
Date
Particulars
V. No. Amount
Postage
Cartage
Stationery
Wages
Refreshment
Misc.
Received
& printing
expenses
Date
Particulars
Invoice No.
L.F.
Detailed Amount
Net Amount
Date
Particulars
V.N. or Debit/Credit
Note No.
L.F.
Detailed
Net Amount
Amount
S.No.
Date
From whom
Acceptor
Date of
Term
Date of
L.F.
Amount
Remarks
received
bill
maturity
Rs.

Performa of Petty Cash Book

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

Sales Return/Purchase Return book

Performa of Bills Receivable Book

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’.

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13

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
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.
2) Sold old machinery to Charu on credit.
3) Goods taken away for personal use from the shop.
4) Rs.4,000 due from Nikhil was written off as bad debts.
5) Goods given as charity.
6) Goods lost by fire.
Rs.1,000
Rs.2,000
Rs.3,000
Rs.4,000
Rs.5,000
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
(Being furniture purchased from Rohit)
1,000
2)
Charu a/c
Dr.
2,000
To Machinery a/c
(Being machinery sold to Charu)
2,000
3)
Drawings a/c
Dr.
3,000
To Purchase a/c
(Being goods withdrawn for personal use)
3,000
4)
Bad debts a/c Dr.
To Nikhil’s a/c
(Being amount written off as bad debts in Nikhil’s
account )
4,000
4,000
5)
Charity a/c
Dr.
5,000
To Purchase a/c
(Being goods given away as charity)
5,000
6)
Loss by fire a/c
Dr.
6,000
To Purchase a/c
(Being goods lost by fire)
6,000

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

14

LEDGER AND SUBSIDIARY BOOKS

Questions:

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

1) Drawing a/c

To Bank a/c (Cheque drawn out of bank for personal use)

Dr.

20,000

20,000

2) Rajesh a/c Dr. 3,70,000 To Bank a/c To Discount Received a/c (Paid to Rajesh
2) Rajesh a/c
Dr.
3,70,000
To Bank a/c
To Discount Received a/c
(Paid to Rajesh by cheque, he allowed us discount)
3,69,000
1,000
3) Purchase a/c
Carriage a/c
To Mahi
Dr.
1,000
Dr.
50
1,050
(Being purchase goods from Mahi and carriage paid)
4) Cash a/c
Dr.
5,000
Traveling Expenses a/c Dr.
To sales a/c
500
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
(vii)
Cash paid to Munna and discount received
Rs.1,80,000 & Rs.50
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

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15

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 copies of law @ Rs.60 each

50 10 copies of management @ Rs.200 each Less: Trade Discount @10% 50 m silk
50
10
copies of management @ Rs.200 each
Less: Trade Discount @10%
50
m silk @ Rs. 140 per m.
30
m. Nylon @ Rs. 70 per m.
Trade Discount 10%, voucher No.10
200
m. Cotton silk @ Rs. 100 per m.
100
m. suit length @ Rs. 200 per m.
Trade Discount 10% voucher No. 501
40 m. Silk @ Rs. 150 per m.
Sold to Nilesh Book Depot on Credit.
50 copies of World History @ Rs.65 each
100 copies of Political Science @ Rs.75 each
Less: Trade Discount @ 10%
80 copies of Medieval India @ Rs.60 each
120 copies of National Movements @ Rs. 25 each

Bought from Sonia & Co. on credit

Bought furniture on credit from Kapil & sons for Rs. 5,000 Vocher No. 101

Q.4. Prepare the purchase book of M/s Kamal & Co., cloth merchant from the following transactions:

2004

Dec.1

Dec.5

Dec.20 Bought From Manu Kumar on credit

Dec.30 Bought from Santosh Brothers in cash

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

March, 10 Sold to Romil Book Depot on Credit

Less: Trade Discount @12.5% March, 17 Sold to Boby Book Company on credit

70

50 copies of English@ Rs.70 each

copies of Hindi @ Rs.100 each

Less: Trade Discount @ 15% 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 %

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16

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 1 st March, 2001. From the following transactions write petty cash book according to Imprest system:

Rs.

March, 3 40 March, 5 25 March, 8 60 March, 9 25 March, 10 60
March, 3
40
March, 5
25
March, 8
60
March, 9
25
March, 10
60
March, 12
15
March, 14
March, 16
March, 20
March, 24
March, 25
March, 27
March, 30
March, 31
Paid for Postage
Paid for Postage
Paid for Cartage
Paid for Telegram Charges
Paid for Cartage
Paid for Wages
Paid for Refreshment
Paid for Printing Expenses
Paid for Coolie Charges
Paid for Cartage
Paid for Postage
Paid for Refreshment
Paid for Wages
Paid for Miscellaneous Expenses
40
60
10
25
30
25
25
30

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

17

Solution: Petty Cash Book of M/s Jyoti Prakashan Amt Date Particulars V. Amount Post &
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
Mar3
40
40
Mar5
25
25
Mar8
To Cash a/c
By Postage
By Cartage
By Stationery
By Telegram
By Cartage
By wages
By Refreshment
By Printing
By Coolie Charges
By Cartage
By Postage
By Refreshment
By Wages
By Miscellaneous Exp.
60
60
Mar9
25
25
Mar10
60
60
Mar12
15
15
Mar14
40
40
Mar16
60
60
Mar20
10
10
Mar24
25
25
Mar25
30
30
Mar27
25
25
Mar30
25
25
Mar31
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

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216 18

CHAPTER 3

ASNC L A S S E S

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.

balance of ledger accounts are shown in trial balance. 4. Trial balance can be prepared at

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.

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

19

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

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

20

TRIAL BALANCE

Questions:

Q.1 Prepare a Trial Balance from the following balances extracted from the books of Ashoka
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
Capital Account
Drawing Account
Furniture Account
Scooter Account
Purchases Account
Mahesh’s Account
Sales Account
Discount Account
Rent Account
Commission Account
19,600
2,700
-
40,000
700
-
7,000
1,500
24,000
-
3,700
600
1,000
6,000
400
7,000
200
-
2,000
-
-
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
Interest Allowed
Drawings
Paid Octroi
Sales Return
Purchaser Returns
Commission Received
Discount Allowed
Loan from Arushi
Repairs to machinery
Sales
Purchases
Cash
Bank Overdraft
Creditors
Debtors
Furniture
Buildings
Machinery
-
2,70,000
11,880
-
- 27,000
- 21,600
16,200
-
5,400
-
-
2,700
1,620
-
43,200
-
-
59,400
7,02,000
-
-
4,32,000
54,000
-
27,000
-
32,400
-
-
54,000
27,000
-
-
2,16,000
1,62,000
-
10,82,700
10,82,700

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

21

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
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
Car
6,000
Wages
40,000
Dis. Given
10,000
Provision For Bad
Debts
2,000
Debtors
2,00,000
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
Deposit
4,000

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

22

CHAPTER 4

ASNC L A S S E S

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.

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

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

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23

DIFFERENCE

Basis Trial Balance Balance Sheet 1. Testing the Arithmetical Accuracy of ledger a/c. Object 2.
Basis
Trial Balance
Balance Sheet
1. Testing the Arithmetical
Accuracy of ledger a/c.
Object
2. Balance of all real, personal &
Nominal a/c are shown.
Balance of
a/c
Presentation of Financial State of
Affairs.
Balances Of Accounts in the form
of assets & Liability are shown
3. Columns of Debit & Credit.
Sides
4. Format
Journal
Assets & Liability Sides.
Ledger
5. Closing of
books
Not necessary
6. Necessity
Not necessary
Must
Must, Presents financial position.
Format
Trading & profit & loss account
For the year ending 31 st March ………
Particulars
Amount
Particulars
By Sales a/c
Less: Sales Return
Less: Sales on approval basis
(cost + Profit)
By Loss by fire (total loss)
By closing stock
Add: Sales on approval basis(cost)
By Gross Loss c/d
-
-
By Gross Profit b/d
By interest received
Less: Unearned Interest
By Commission
Add: Accrued Commission
By Discount
By Interest on Drawings
By Income from Inv.
By Net Loss Transferred to
Capital a/c

-

TRADING & PROFIT AND LOSS ACCOUNT:

Amount

To opening stock To Purchase a/c Less: Purchase Return To All direct expenses To wages Add: outstanding wages To carriage To manufacturing expenses To factory lighting To wages & salaries To factory rent& rates To Gross Profit c/d

To Gross Loss b/d To Loss by fire (amt. not recovered by insurance co.) To Advertisement Expenses To Traveling Expenses To Bad Debts Add: Further bad debts Add: New Prov. For bad debts Less: Old Prov. For bad debts To Godown Rent 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

-

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

24

Difference

Basis Gross Profit Net Profit 1) Definition The residual income after deducting the direct costs
Basis
Gross Profit
Net Profit
1) Definition
The residual income after
deducting the direct costs from
the total revenue is called Gross
Profit.
It is the residual income which is
given to the entrepreneur after
deducting all implicit & explicit
costs from its total revenue.
2) Calculation
It is calculated as the balancing
figure in Trading Account.
It is calculated as the balancing
figure in Profit & Loss Account.
3) Transfer
It is transferred to Profit & Loss
Account.
It is transferred to Capital
Account.
4) Formula
G.P. = Total Revenue - All Direct
expenses of current year.
N.P. = G.P. – All indirect
expenses of current year.
1) Permanency Order
2) Liquidity Order
Balance sheet of ……………………………….
As on…………… (Permanency Form)
Liabilities
Amount
Assets
Amount
Capital
Add: Net profit
Add: Interest
Less: Drawings
Loan
Sundry Creditors
Outstanding Expenses
Bills Payable
Bank Overdraft
Goodwill
Freehold Premises
Plant & Machinery
Furniture
Investments
Prepaid Expenses
Stock-in-trade
Sundry Debtors
Bills Receivable
Cash at Bank
Cash in hand
Balance sheet of ……………………………….
As on…………… (Liquidity Form)
Liabilities
Amount
Assets
Amount
Bank Overdraft
Bills Payable
Outstanding Expenses
Outstanding Manager’s
Commission
Unearned Income
Sundry Creditors
Loan
Capital
Add: Net profit
Add: Interest on capital
Less: Drawings
Less: Interest on drawings
Cash in hand
Cash at Bank
Bills Receivable
Sundry Debtors
Less: Sales on approval
(cost + profit)
Less: Further bad debts
Less: New Prov. For bad debts
Less: Prov. For discount for Drs.
Closing Stock
Add: Sales on approval (cost)
Prepaid Expenses
Accrued Income
Investments
Furniture
Plant & Machinery
Less: Depreciation
Freehold Premises
Goodwill
Insurance Company(If accepted
the claim but pay next year)
-
-

Forms of Balance Sheet Balance sheet can be prepared in 2 orders:

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

25

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
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
To wages: ----
Add: O/S wages: ---
* B / S Liab. Side (Current Liability)
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
To insurance: ----
Less: Prepaid insurance: ---
* B / S Assets side (Current Assets)
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
By interest
Add: Accrued interest: ---
* B/S Assets side
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
Less: Unearned interest: ---
* B / S Liab. Side
6.
Depreciation
*
P & L A/C Dr. Side
To Depreciation
* B / S Assets Side
E.g. Machinery: ---

7.

Less: Dep. on machinery.

Interest on Capital & Interest on Drawings

Dr.

B/S P & L

A/C

Cr.

To Int. on

capital

By Int. on Drawing

Liab.

Assets

Capital Add: Int. on cap. Less: Drawings Less: Int. on Drawings

Capital Add: Int. on cap. Less: Drawings Less: Int. on Drawings
Capital Add: Int. on cap. Less: Drawings Less: Int. on Drawings
Capital Add: Int. on cap. Less: Drawings Less: Int. on Drawings

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

26

8.

Provision for Discount on Debtors & Provision for Discount on Creditors B/S

Dr.

P & L

A/C

Cr.

To Prov. For Dis. On Debtors

To Prov. For Dis. On Debtors By Prov. For Dis. On Creditors

By Prov. For Dis. On Creditors

To Prov. For Dis. On Debtors By Prov. For Dis. On Creditors

Liab.

Assets

Creditors Less: Prov. For Dis.

Debtors Less: Prov. For 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

(Entries at the end of current year) : Rent a/c Dr. To Outstanding Rent a/c
(Entries at the end of current year)
:
Rent a/c
Dr.
To Outstanding Rent a/c
:
Prepaid Salary a/c Dr.
To Salary a/c
:
Accrued Interest a/c Dr.
To Interest a/c
:
Commission a/c
Dr.

If % of commission is given on N.P. before charging commission, then

Commission = Rate x N.P. before commission

100

Adjustment Entry

Mgr. Comm. a/c

Dr.

To o/s Comm. a/c

Dr.

P&L a/c

To o/s Comm. a/c

If % of commission is given on N.P. after charging commission, then

Commission =

Rate

100 + Rate

x N.P. before commission

10.

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

Goods sent on return basis or goods sent on approval

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

1) Outstanding Expenses

2) Prepaid Expenses

3) Accrued Income

4) Unearned Income

To Unearned Commission a/c

Reverse of these entries is passed at the beginning of next year

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

27

Closing Entries Q. From the following trial balance of Shri Ganesh iron store, prepare trading
Closing Entries
Q. From the following trial balance of Shri Ganesh iron store, prepare trading and profit & loss
account for the year ended 31 st 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

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

28

To advertisement a/c 1,000 To rent, rates & taxes a/c 1,000 To discount a/c 250
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)

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

29

QUESTIONS

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

Debit Balance Amount Credit Balance Amount Opening Stock Purchases Sales return Carriage Inward Wages Coal,
Debit Balance
Amount
Credit Balance
Amount
Opening Stock
Purchases
Sales return
Carriage Inward
Wages
Coal, Gas, & Wages
Manufacturing Expenses
Debtors
General Expenses
Salaries
Rent. Rates and Taxes
Cash in hand
Cash at Bank
Drawing
31,350
Sales
Purchases Return
Creditors
Discount
Capital
4,02,160
2,80,000
1,150
2,000
62,000
8,710
90
58,840
50,000
42,860
4,840
67,900
4,890
4,300
1,910
70
4,730
3,000
5,15,400
5,15,400
* 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
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
(i) Closing Stock Rs.25,500.

Net Profit 17,500]

Closing stock as on 31 st March 2007 Rs.53,800. [Hint: * Carriage Inward is shown in Trading a/c Dr. Side

Q.2. Prepare Trading and Profit & Loss Account and Balance Sheet of M/s Suraj General Store for the year ended 31 st March, 2002 from the following:

Adjustments:

(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]

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

30

Q.3. The following trial balance is extracted from the books on Sudhir as on 31 st March,

2004:

Dr.

Cr.

----

28,000

3,000

----

19,500

10,401

----

9,500

300

----

2,050

----

----

710

Capital Drawings Debtors and Creditors Loan on Mortgage Interest on Loan Cash in hand Provision for bad debts Stock 1.4.2003 Motor Vehicles Cash at bank Land & building Bad debts Purchase and Sales Purchase Return and Sales Return Carriage outwards Carriage inwards Salaries Rates, taxes and Insurance Advertising Discount General Expenses Bills Receivable and Bills payable Rent Received Total

6,839 ---- 10,000 ---- 3,555 ---- 12,000 ---- 525 ---- 66,458 1,09,643 7,821 1,346 2,404
6,839
----
10,000
----
3,555
----
12,000
----
525
----
66,458
1,09,643
7,821
1,346
2,404
----
2,929
----
9,097
----
2,891
----
3,264
----
----
540
3,489
----
6,882
2,614
----
250
1,63,004
1,63,004
Net Profit Rs.7,745
Balance Sheet Rs.57,420]
8) Mgr. Commission= 10

110

Prepare trading and profit and loss account for the year ended 31 st March, 2004 and a balance sheet as on that date taking into consideration the following matters:

1. Stock on 31 st 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 25 th March, 2004 and recorded as sales but no consent has been received upto 31 st 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

[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 Debtors – 1,000 Closing Stock + 758

x 8,520 (N.P. before charging comm.)

= 775 shown in P&L a/c Dr. Side & B/S liab.]

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

31

Q.4. The following balances have been drawn from the account books of Rahaan on 31 st 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
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
(1) On 31 st 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
* 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
x 77,000 (N.P. before charging comm.)
110
= 7,000 shown in P&L a/c Dr. Side & B/S liab.]
Net Profit Rs.70,000
Balance Sheet Rs.3,90,400]
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
Cash in hand
1,000
-
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

Other information:

commission. Prepare Trading Account, Profit and Loss Account for the year ending 31 st December, 2004, and a Balance Sheet as on that date. [Hint: * Selling Expenses is shown in P&L a/c

Adj. 6) Mgr. Commission= 10

[Ans. Gross Profit Rs.1,79,400

Q.5. The following balances are obtained from the Books of Parul on 31 st December,

2001:

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

32

Machinery

20,000

-

Furniture

6,000

-

Debtors and Creditors

30,000

20,000

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
Taking into consideration the following adjustments prepare Trading Account and Profit & Loss
Account for the year ending 31 st 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
31 st 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 20 th December, 2001, the maturity date
of which is 23 rd 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
Less: Bad Debts (in Trial Balance)
Less: Further Bad Debts
3,000
-
500
2500
Add: Increase in provision
New P.B.D.
1500
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 31 st March, 2004.
Drawings and Capital
Purchase and sales
Debtors and Creditors
Opening Stock
Return Inwards
Bank Overdraft
Salaries
Heating and Lighting - office
Leasehold property
Commission Received
Travelling Expenses
Printing and Stationary
Furniture
Dr.
Cr.
5,000
1,00,000
68,000
1,20,000
40,000
30,000
30,000
----
3,000
----
----
12,000
17,000
----
2,000
----
80,000
----
----
2,000
3,000
----
1,000
----
9,000
----

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

33

Provision for doubtful debts

----

4,000

Wages and freight

10,000

----

Apprentice Premium

----

5,000

Cash in hand

5,000

----

Total

2,73,000

2,73,000

Prepare trading account and profit and loss account for the year ending 31 st 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
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.
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]
[Ans. Gross Profit Rs. 23,000
Net Profit Rs. 5,200
Trial Balance
Rs.
Rs.
Rishi’s Capital
Rishi’s Drawing
Plant and Machinery balance 1.4.2003
Plant and machinery addition on 1.10.2003
Stock on 1.4.2003
Purchase
Return Inwards
Sundry Debtors
Furniture and Fixtures
Freight and duty
Carriage outward
Rent, Rates and Taxes
Printing and Stationary
Trade Expenses
Sundry creditors
Sales
Return outward
Postage and Telegram
Provision for doubtful debts
Discount
----
80,000
6,000
----
20,000
----
5,000
----
15,000
----
82,000
----
2,000
----
20,600
----
5,000
----
2,000
----
500
----
4,600
----
800
----
400
----
----
10,000
----
1,20,000
----
1,000
800
----
----
400
----
800

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.

Balance Sheet Rs. 1,53,700]

Q.7. From the following trial balance of Rishi as at 31 st march 2004, you are required to prepare the trading and profit and loss account for the year ended 31 st March, 2004 and a balance sheet as at that date, after making the necessary adjustment:

Rent of premises sublet for a year to 30 th Sept., 2004 ----

1,200

Insurance charges

700

----

Salaries and wages

21,300

----

Cash in hand

6,200

----

Cash at bank

20,500

----

Total

2,13,400

2,13,400

Adjustment:

1. Stock on 31 st 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.

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

34

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 25 th 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 30 th 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.]

Net Profit Rs. 5,870 Balance Sheet Rs. 90,270] Particulars Dr. Cr. Capital Plant and Machinery
Net Profit Rs. 5,870
Balance Sheet Rs. 90,270]
Particulars
Dr.
Cr.
Capital
Plant and Machinery
Depreciation on Plant and Machinery
Repairs to Plant
Wages
Salaries
Income Tax
Cash in hand
Land and Building
Depreciation on Building
Purchases less Returns and Sales
Bank Overdraft
Accrued Income
Salaries Outstanding
Bills Receivable and Bills Payable
Provision for Bad Debts
Bad Debts
Discount on Purchases
Debtors and creditors
Stock on 1.4.01
- 50,000
18,000
-
2,000
-
P&L
1,600
-
28,000
-
4,000
-
500
-
2,000
-
74,500
-
2,500
-
1,23,500
2,49,000
-
3,800
1,500
-
Asset
-
2,000
Liability
10,000
3,000
-
6,000
1,000
-
-
4,000
35,000
23,300
37,000
-
3,41,100
3,41,100
35,000

[Ans. Gross Profit Rs. 39,600

Q.8. From the following balance and information received from the books of Mr. Abhinav on 31 st March, 2002 you are required to prepare the final accounts:

Other Information

1. Stock on 31 st 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 1 st March, 2002. This was recorded as actual sales. The rate of gross profit was 1/6 th 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 Less: Sale on approval Further bad debts Landlord for rent Total Debtors

* Work Manager Commission = 89,500 x 5% = 4,475 Rs.

6,000

3,000

1,200

10,200

24,800

* 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

]

[Ans. Gross Profit Rs. 89,500

Net Profit Rs. 71,350

Balance Sheet Rs. 1,64,560]

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

35

Q.9. The following is the Trial Balance of Shri Krishna as at 31 st March,
Q.9. The following is the Trial Balance of Shri Krishna as at 31 st March, 2002:
Name of Account
Debit
Credit
Capital
-
86,690
Stock on 1 st 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]

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

36

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

Dr. (Rs.) Cr. (Rs.) Capital Loan-15% p.a.- Jan. 1, 2004 Commission Provision for bad debts
Dr. (Rs.)
Cr. (Rs.)
Capital
Loan-15% p.a.- Jan. 1, 2004
Commission
Provision for bad debts
Purchases and sales
Returns
Debtors and Creditors
Drawings
Furniture
Machinery
Opening Stock
Octroi
Import Duty
Salaries and Wages
Bad debts
Rent, rates and taxes
Life Insurance Premium
Interest on loan
Cash
Total
----
1,20,000
----
10,000
----
600
----
1,000
80,000
90,000
10,000
2,000
50,500
30,000
5,000
----
5,000
----
30,000
----
20,000
----
5,000
----
2,000
----
20,000
----
500
----
4,000
----
2,000
----
200
----
19,400
----
2,53,600
2,53,600
Adjustments:
1. Stock on 31 st 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 31 st 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,

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

37

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 31 st March, 2008 after taking in to consideration of following adjustments:

(i) Closing stock on 31 st March, 2008 Rs. 28,400.

(ii)

Interest accrued on fixed deposit in bank for 3 months, commission received in advance Rs.

400.

(iii)

(iv)

(v)

(vi)

Further bad-debts Rs. 500 and maintain provision for bad debts at 5% on debtors.

Depreciate Building by 5%.

for bad debts at 5% on debtors. Depreciate Building by 5%. Goods worth Rs. 300 were

Goods worth Rs. 300 were denoted for which no entry was made in the books.

Provide for manager’s commission 5% on net profit after charging this commission.

These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216

38