Financial Accounting 1

Average due date:

Average due-date is a single date on which single payment can be
made in lieu of different payments without any loss of interest to either party. Average
due date may be called as equated date or particular date calculated in such a way that the
payment should be made on that particular date instead of several payments on different
dates. In order to stop tedious process and a particular single date is calculated by which
all transactions are settled without loss of interest to either party is known as average due
date. Generally, it is done by both the parties mutually.
Average due date = Base date + Product /Amount.

Steps for calculating average due date:

Selection of base date from due date transaction.
Calculate the number of days for each of transaction from base date.
Multiply the number of days to with amount of each transaction to derive
product.
Make out the total of amount as well as the product.
Divide the product on amount and add with the base date to fin the
average due date.

Account current:
Account current is a statement of mutual transactions between two
parties for a given period and includes interest receive and interest payable at an agreed
rate.
For example: Account rendered by Akram shah to Mohsin shah is as follows.
Mohsin shah in current Account with Akram shah
Methods of preparing Account current:
a) Product Method:
Under this method the interest are calculated at the end of
account using the following formula.
Interest = Balance of product / 365 * rate of interest
b) Interest Method:
Under this method the interest are not calculate at the end, but
it is calculated with each transaction respectively the following formula:
Interest = Amount * No. of days / 365 * Rate of interest

Red ink interest:

There are some cases where the due date of a bill or transaction
falls beyond the closing date. The interest calculated from due date to maturity period
is called red- ink interest. This is written as red-ink interest Actually, it is written
with red-ink in books of account. This type of interest is treated on the opposite of
the transaction.

Prepared By: Mutahar hayat Student of Muslim commerce College & Management
B.com
Mail:Mutahar_hayat@yahoo.com
Contact: 0335-5202081
Financial Accounting 2

SECTIONAL AND SELF BALANCING SYSTEM

Introduction:
After the transactions, being recorded in the journal, are classified in the ledger. A small
enterprise normally has less number of accounts are therefore can maintain
all the a c c o u n t s i n o n e l e d g e r a l o n e . H o w e v e r, i n c a s e o f a b i g
e n t e r p r i s e , t h e n u m b e r o f accounts are large and, therefore, it becomes
inconvenient to maintain all accounts into one ledger alone. Hence in such a condition the
ledger is sub-divided into the following three ledgers:

Trade Debtors / Customers / Sales / Sold Ledger:

This ledger contains the personal accounts of the Trade Debtors to whom credit sales are
affected. Here Trade Debtors word stands for only those debtors to whom goods are sold.
Creditors / Suppliers / Purchase / Bought Ledger:
This ledger contains the personal accounts of the Trade Creditors who supply the goods
on credit. Here Trade Creditors word stands for only those creditors to whom those goods
are sold.
General Ledger / Nominal / Impersonal Ledger:
This ledger contains all nominal accounts, real accounts and the remaining personal
accounts other than trade debtors accounts and trade creditors accounts. Having sub-
divided the ledger into the above categories the enterprise may record the transactions
either according to the Sectional Balancing or Self Balancing System
Sectional balancing system:
Sectional Balancing arises only for those transactions which
involve Trade Debtors and Trade Creditors, which is explained by the help of the
following problem: If in any transaction Trade Debtor is involved then one aspect of that
transaction will be recorded in the Debtors Ledger and the other aspect will be recorded
in the General Ledger. By this the double entry is not completed in either ledger and due
to which Trial Balance can also not be prepared, because in any of the ledger double
entry related to trade debtor is not completed.
Items not to be recorded in Total Debtors Account:
Following are the items which do not affect total debtors accounts,
hence, such items should not be taken into account while preparing total
debtors accounts:
(i)Cash sales
(ii)Provision for bad and doubtful debts
(iii)Provision for discount on debtors
(iv)Bad debts previously written off, now recovered
(v)B /R discounted
(vi)Trade discount
(vii)Cash received from bills receivable on due date

Prepared By: Mutahar hayat Student of Muslim commerce College & Management
B.com
Mail:Mutahar_hayat@yahoo.com
Contact: 0335-5202081