Accounting - Accounting is a process of identifying, recording, summarizing and

reporting economic information to decision makers in the form of financial statements.

Financial statements will be useful to the following parties:
1.Suppliers 2. Customers 3.Employees 4.Banks 5.Suppliers of equipments, buildings
and other assets 6.Lenders 7.Owners

Economics Events - Business organizations involves economic events. An

economic event is known as a happening of consequence to a business organization
which consists of transactions and which are measurable in monetary terms. For
example, purchase of machinery, installing and keeping it ready for manufacturing is
an event which comprises number of financial transactions such as buying a machine,
transportation of machine, site preparation for installation of a machine, expenditure
incurred on its installation and trial runs. Thus, accounting identifies bunch of
transactions relating to an economic event. If an event involves transactions between
an outsider and an organization, these are known as external events. The following are
the examples of such transactions:
 Sale of Reebok shoes to the customers.
 Rendering services to the customers by Videocon Limited.
 Purchase of materials from suppliers.
 Payment of monthly rent to the landlord.
An internal event is an economic event that occurs entirely between the
internal wings of an enterprise, e.g., supply of raw material or components by
the stores department to the manufacturing department, payment of wages to
the employees, etc.

Basic Terms in Accounting –

1. Transaction –
A event involving some value between two or more entities. It can be a purchase of
goods, receipt of money, payment to a creditor, incurring expenses, etc. It can be a cash
transaction or a credit transaction.

2. Assets-
Assets are economic resources of an enterprise that can be usefully expressed in
monetary terms. Assets are items of value used by the business in its operations. For
example, Super Bazar owns a fleet of trucks, which is used by it for delivering
foodstuffs; the trucks, thus, provide economic benefit to the enterprise. This item will
be shown on the asset side of the balance sheet of Super Bazaar. Assets can be broadly
classified into two types: Fixed Assets and Current Assets.
Fixed Assets are assets held on a long-term basis, such as land, buildings, machinery,
plant, furniture and fixtures. These assets are used for the normal operations of the
business.
Current Assets are assets held on a short-term basis such as debtors (accounts
receivable), bills receivable (notes receivable), stock (inventory), temporary
marketable securities, cash and bank balances.

3. Liabilities
Liabilities are obligations or debts that an enterprise has to pay at some time in the
future. They represent creditors’ claims on the firm’s assets. Both small and big
businesses find it necessary to borrow money at one time or the other, and to purchase
goods on credit.
Liabilities are classified as long-term liabilities and short-term liabilities (also known
as short-term liabilities).
Long-term liabilities are those that are usually payable after a period of one year, for
example, a term loan from a financial institution or debentures(bonds) issued by a
company.
Short-term liabilities are obligations that are payable within a period of one year, for
example, creditors, bills payable, bank overdraft.

4. Capital
Amount invested by the owner in the firm is known as capital. It may be brought in the
form of cash or assets by the owner for the business entity capital is an obligation and
a claim on the assets of business. It is, therefore, shown as capital on the liabilities side
of the balance sheet.

5. Sales
Sales are total revenues from goods or services sold or provided to customers.
Sales may be cash sales or credit sales.

6.Revenue
These are the amounts of the business earned by selling its products or providing
services to customers, called sales revenue. Other items of revenue common to many
businesses are: commission, interest, dividends, royalties, rent received, etc. Revenue
is also called income.

7. Expenses
Costs incurred by a business in the process of earning revenue are known as expenses.
Generally, expenses are measured by the cost of assets consumed or services used
during an accounting period. The usual items of expenses are: depreciation, rent,
wages, salaries, interest, cost of heater, light and water, telephone, etc

8. Profit
The excess of revenues of a period over its related expenses during an accounting year
profit. Profit increases the investment of the owners.

9. Gain
A profit that arises from events or transactions which are incidental to business such
as sale of fixed assets, winning a court case, appreciation in the value of an asset.

10. Loss -The excess of expenses of a period over its related revenues its termed as
loss. It decreases in owner’s equity.

11. Discount - Discount is the deduction in the price of the goods sold. It is offered in
two ways. Offering deduction of agreed percentage of list price at the time selling
goods is one way of giving discount. Such discount is called ‘trade discount’. It is
generally offered by manufactures to wholesalers and by wholesalers to retailers. After
selling the goods on credit basis the debtors may be given certain deduction in amount
due in case if they pay the amount within the stipulated period or earlier. This
deduction is given at the time of payment on the amount payable. Hence, it is called as
cash discount.

12. Voucher- The documentary evidence in support of a transaction is known as

voucher.

13. Goods -It refers to the products in which the business units is dealing, i.e. in terms
of which it is buying and selling or producting and selling. The items that are
Purchased for use in the business are not called goods. For example, for a furniture
dealer purchase of chairs and tables is termed as goods, while for other it is furniture
and is treated as an asset.

14. Drawings - Withdrawal of money and/or goods by the owner from the business
for personal use is known as drawings. Drawings reduces the investment of the
owners.

15. Purchase - Purchases are total amount of goods procured by a business on credit
and on cash, for use or sale. In a trading concern, purchases are made of merchandise
for resale with or without processing. In a manufacturing concern, raw materials are
purchased, processed further into finished goods and then sold. Purchases may be cash
purchases or credit purchases.

16. Stock -Stock (inventory) is a measure of something on hand-goods, spares and

other items in a business. It is called Stock in hand. In a trading concern, the stock on
hand is the amount of goods which are lying unsold as at the end of an accounting
period is called closing stock (ending inventory). In a manufacturing company, closing
stock comprises raw materials, semi-finished goods and finished goods on hand on the
closing date.
17. Debtors - Debtors are persons and/or other entities who owe to an enterprise an
amount for buying goods and services on credit. The total amount standing against
such persons and/or entities on the closing date, is shown in the balance sheet as
sundry debtors on the asset side.

18. Creditors - Creditors are persons and/or other entities who have to be paid by an
enterprise an amount for providing the enterprise goods and services on credit. The
total amount standing to the favors of such persons and/or entities on the closing date,
is shown in the Balance Sheet as sundry creditors on the liabilities side.

19. Going Concern Concept - The concept of going concern assumes that a business
firm would continue to carry out its operations indefinitely, i.e. for a fairly long period
of time and would not be liquidated in the foreseeable future. This is an important
assumption of accounting as it provides the very basis for showing the value of assets
in the balance sheet.

Basis of Accounting - From the point of view the timing of recognition of revenue
and costs, there can be two broad approaches to accounting. These are:
(i) Cash basis
(ii) Accrual basis.

(1) Cash Basis - Entries in the book of accounts are made when cash is
received or paid and not when the receipt or payment becomes due.

(2) Accrual Basis - revenues and costs are recognized in the period in which they
occur rather when they are paid. A distinction is made between the receipt of cash and
the right to receive cash and payment of cash and legal obligation to pay cash. Thus,
under this system, the monitory effect of a transaction is taken into account in the
period in which they are earned rather than in the period in which cash is actually
received or paid by the enterprise. This is a more appropriate basis for the calculation
of profits as expenses are matched against revenue earned in relation thereto.
Accounting Equation –
Accounting equation signifies that the assets of a business are always equal to the total
of its liabilities and capital (owner’s equity). The equations reads as follows:
A=L+C
Where,
A = Assets
L = Liabilities
C = Capital
The balance sheet is a statement of assets, liabilities and capital.
The claim of the proprietors is called capital and that of the outsides is known as
liabilities. Asset side of the balance sheet is the list of assets, which the business entity
owns. The liabilities side of the balance sheet is the list of owner’s claims and
outsider’s claims.

Using Debit and Credit

In double entry accounting, every transaction affects and is recorded in at least two
accounts. When recording each transaction, the total amount debited must equal to the
total amount credited. In accounting, the terms — debit and credit indicate whether
the transactions are to be recorded on the left hand side or right hand side of the
account.

Rule of Debit and Credit-

All accounts are divided into five categories for the purposes of recording the
transactions: (a) Asset (b) Liability (c) Capital (d) Expenses/Losses, and (e)
Revenues/Gains.
Types of Accounts
There are basically three types of Accounts maintained for transactions :

 Real Accounts
 Personal Accounts
 Nominal Accounts

Real Accounts
Real Accounts are Accounts relating to properties and assets, which are owned by the
business concern. Real accounts include tangible and intangible accounts. For example,

 Land
 Building
 Goodwill
 Cash
Personal Accounts- Personal Accounts are Accounts which relate to persons.
Personal Accounts include the follow-ing.

 Suppliers
 Customers
Nominal accounts - Nominal Accounts are Accounts which relate to incomes and
expenses and gains and losses of a business concern. For example,

 Salary Account
 Dividend Account
  Purchases
 Sales
Accounts can be broadly classified under the following four groups.

 Assets
 Liabilities
 Income
 Expenses
The above classification is the basis for generating various financial statements viz.,
Balance Sheet, Profit & Loss A/c and other MIS reports. The Assets and liabilities are
taken to Balance sheet and the Income and Expenses accounts are posted to Profit and
Loss Account.

Golden Rules of Accounting

Real Account – What Comes in Dr.
What Goes out Cr.

Personal Account- The Receiver Dr.

The Giver Cr.

Nominal Account - Expenses and Losses are Dr.

Income and Gains are Cr.

Two fundamental rules are followed to record the changes in these accounts

DOUBLE ENTRY SYSTEM

Double entry system of accounting is more than 500 years old. “Luca Pacioli” an Italian
friar & mathematician published Summa de Arithmetica, Geometria, Proportioni, et
Proportionalita (“Everything about Arithemetic Geometry and proportions”). The fi rst
book that described a double entry accounting system.
Double entry system of book-keeping has emerged in the process of evolution of
various accounting
techniques. It is the only scientifi c system of accounting. According to it, every
transaction has two-fold aspects–debit and credit and both the aspects are to be
recorded in the books of accounts. Therefore, in every transaction at least two
accounts are eff ected.
For example, on purchase of furniture either the cash balance will be reduced or a
liability to the supplier will arise. and new asset furniture is acquired . This has been
made clear already, the Double Entry System records both the aspects. It may be
defined as the system which recognises and records both the aspects of transactions.
This system has proved to be systematic and has been found of great use for recording
the financial affairs for all institutions requiring use of money.

1.2 ADVANTAGES OF DOUBLE ENTRY SYSTEM

This system aff ords the under mentioned advantages:
(i) By the use of this system the accuracy of the accounting work can be established,
through the device of the trial balance.
(ii) The profi t earned or loss suff ered during a period can be ascertained together
with details.
(iii) The fi nancial position of the fi rm or the institution concerned can be ascertained
at the end of each period, through preparation of the balance sheet.
(iv) The system permits accounts to be kept in as much details as necessary and,
therefore aff ords signifi cant information for the purposes of control etc.
(v) Result of one year may be compared with those of previous years and reasons for
the change may be ascertained.
It is because of these advantages that the system has been used extensively in all
countries.

1.4 DEBIT AND CREDIT

We have seen that in T-accounts increase and decrease entries are made on the left
and right side of the accounts for assets respectively and vice-versa for liabilities. But,
formally accountants use the term Debit (Dr.) to denote an entry on the left side of any
account and Credit (Cr.) to denote an entry on the right side of any account.
We know that by deducting the total of liabilities from the total of assets the amount of
capital is ascertained, as is indicated by the accounting equation.
Assets = Liabilities + Capital
or
Assets – Liabilities = Capital
To understand the equation better , let us expand it:-
Assets = Liabilities + Stockholders’ Equity

Assets = Liabilities + ( contributed capital + beginning retained earnings + revenue -

expense - dividends)
Here, Contributed capital = the original capital introduced by the owner.
Beginning retained earnings = previous earnings not distributed to the shareholders.
Revenue = generated from the ongoing activities of the business
Expenses = cost incurred for the operations of the company.
Dividends = earnings distributed to the shareholders of the company

We have also seen that if there is any change on one side of the equation, there is
bound to be similar
change on the other side of the equation or amongst items covered by it or an opposite
change on the same
side of the equation. This is illustrated below:
Transactions Total
Assets = Liabilities + Owner’s Capital
`
It is a tradition that:
(i) increases in assets are recorded on the left-hand side and decreases in them on the
right-hand side; and
(ii) in the case of liabilities and capital, increases are recorded on the right-hand side
and decreases on the left-hand side. When two sides are put together in T form, the
left-hand side is called the ‘debit side’ and the right hand side is ‘credit side’. When in
an account a record is made on the debit or left-hand side, one says that one has
debited that account; similarly to record an amount on the right-hand side is to credit
it.
From the above, the following rules can be obtained:
(i) When there is an increase in the amount of an asset, its account is debited; the
account will be credited if there is a reduction in the amount of the asset concerned :
Suppose a fi rm purchases furniture for ` 8,00,000 the furniture account will be debited
by ` 8,00,000 since the asset has increased by this amount. Suppose later the fi rm sells
furniture to the extent of ` 3,00,000 the reduction will be recorded by crediting the
furniture account by ` 3,00,000.

ii) If the amount of a liability increases, the increase will be entered on the credit side
of the liability account, i.e. the account will be credited: similarly, a liability account will
be debited if there is a reduction in the amount of the liability. Suppose a fi rm borrows
` 5,00,000 from Mohan; Mohan’s account will be credited since ` 5,00,000 is now owing
to him. If, later, the loan is repaid, Mohan’s account will be debited since the liability no
longer exists.

(iii) An increase in the owner’s capital is recorded by crediting the capital account:
Suppose the proprietor introduces additional capital, the capital account will be
credited. If the owner withdraws some money, i.e., makes a drawing, the capital
account will be debited.
(iv) Profit leads to an increase in the capital and a loss to reduction: According to the
rule mentioned in
(iii)above, profit & incomes may be directly credited to the capital account and losses
& expenses may be similarly debited.
However, it is more useful to record all incomes, gains, expenses and losses separately.
By doing so, very useful information will be available regarding the factors which have
contributed to the year’s profits and losses. Later the net result of all these is
ascertained and adjusted in the capital account.
(v) Expenses are debited and Incomes are credited: Since incomes and gains increase
capital, the rule is to credit all gains and incomes in the accounts concerned and since
expenses and losses decrease capital, the rule is to debit all expenses and losses. Of
course, if there is a reduction in any income or gain, the account concerned will be
debited; similarly, for any reduction in an expenses or loss the concerned account will
be credited.
The rules given above are summarised below:
(i) Increases in assets are debits; decreases are credits;
(ii) Increases in liabilities are credits; decreases are debits;
(iii) Increases in owner’s capital are credits; decreases are debits;
(iv) Increases in expenses are debits; decreases are credits; and
(v) Increases in revenue or incomes are credits; decreases are debits.
The terms debit and credit should not be taken to mean, respectively, favourable and
unfavourable things.
They merely describe the two sides of accounts
Heads Of Account-

1. List of Ledger for Trading Account

Sales Sales Nominal A/c

Sales Return Sales Nominal A/c
Purchase Purchase A/c Nominal A/c
Purchase Return Purchase A/c Nominal A/c
Carriage Inward Direct Exp. Nominal A/c
Wages Direct Exp. Nominal A/c

2. List of Ledger for Profit & Loss Account

Advertisement Exp Indirect Exp. Nominal A/c

Bank Charges Indirect Exp. ,,
Carriage Outward Indirect Exp. ,,
Commission Allowed Indirect Exp. ,,
Discount Allowed Indirect Exp. ,,
Donation Indirect Exp. ,,
Insurance Premium Indirect Exp.
Interest on loan Indirect Exp. ,,
Legal Charge Indirect Exp. ,,
Loss By Fire Indirect Exp. ,,
Office Lighting Indirect Exp. ,,
Postage & Courier Indirect Exp. ,,
Printing & Stationery Indirect Exp. ,,
Rent Exp. Indirect Exp. ,,
Repair Charge Indirect Exp. ,,
Salary Indirect Exp. ,,
Sales Tax Indirect Exp. ,,
Telephone Charges Indirect Exp. ,,
Travelling Exp. Indirect Exp. ,,
Deprecation Exp Indirect Exp. ,,
Commission Received Indirect Income ,,
Interest on Drawing Indirect Income ,,
Discount Received Indirect Income ,,
Interest on Investment Indirect Income ,,

3. List of Ledger for Balance Sheet-

Capital Capital A/c Real A/c

Drawing Capital A/c Real A/c
Income Tax Capital A/c Real A/c
Reserve & Surplus Reserve & Surplus Real A/c
Advance Current Liabilities Real A/c
Bank Overdraft Current Liabilities Real A/c
Bill Payable Current Liabilities Real A/c
Outstanding Exp. Current Liabilities Real A/c
Salary Payable Current Liabilities Real A/c
Creditor Name Sundry Creditor Personal A/c
Loan Loan Liabilities Real A/c
Branch In Division Branch In Division Personal A/c
Accrued Expenses Sundry Creditor Real A/c
Furniture Fixed A/c Real A/c
Land & Building Fixed A/c Real A/c
Investment Investment Real A/c
Bank Bank A/c Real A/c
Cash A/c Cash in Hand Real A/c
Stock Stock in Hand Real A/c
Debtors Name Sundry Debtors Personal A/c
Bills Receivable Current Assets Real A/c
Prepaid Exp. Current Assets Real A/c
Accrued Income Current Assets Real A/c
Prepaid Rent Current Assets Real A/c

Journal Entries :-
1. Capital Introduces into Business- (F6-Receipt)
Cash A/c Dr *
Capital A/c *
2. Cash Deposited into Bank. (F4-Contra)
Bank A/c Dr *
Cash A/c *
3. Bank Transfer- (F4- Contra)
Bank A/c (1) Dr *
Bank A/c *

4. Cash Transfer to Petty Cash (F4- Contra)

Petty Cash A/c Dr. *
Cash A/c *

5. Raw Material Purchase In Cash (F9- Purchase Acct. Invoice)

Purchase A/c Dr. *
Cash/ Bank A/c *
6. . Raw Material Purchase for Credit- (Purchase)
Purchase A/c Dr *
Party A/c *
(Sundry Creditor)
7. Wages Paid (Payment)
Wages A/c Dr. *
Cash/ Bank A/c *
8. Carriage Inward Paid –(Payment )
Carriage Inward A/c Dr. *
Cash/ Bank *

9. Indirect Expenses Paid-(Payment)

All Expenses A/c Dr *
Cash /Bank A/c *
10. Indirect Income Received- (Receipt)
 Cash /Bank A/c Dr *
All Indirect Income A/c *
11. Purchase Fixed Assets In Cash (Payment)
Fixed Assets A/c Dr *
Cash / Bank A/c *
12 Purchase Fixed Assets on Credit (Journal)
Fixed Assets A/c Dr *
Party A/c (Creditors) *
13. Outstanding Salary-(Journal)
Salary A/c Dr *
Salary Payable A/c *
14. Outstanding Rent – (Journal)
Rent A/c Dr *
Rent Payable A/c *
15. Interest Receivable (Journal)
Interest Receivable A/c Dr *
Interest Income *
16. Sales Goods In Cash (Sales)
Cash A/c/Bank A/c Dr *
Sales A/c *
17. Sales Goods for Credit (Sales)
Party A/c (Debtors) Dr *
Sales A/c *
18. Net Profit Transfer to Capital A/c
Profit & Loss A/c Dr *
Capital A/c *
 Personal A/c and Real A/c is carry forward for the Next Year.
 Nominal A/c cannot carry forward for the Next Year his Net Profit Transfer to
Capital A/c.

Points to be taken into care while recording a Transaction in the Journal

1. Journal entries can be single entry (i.e. one debit and one credit) or compound entry
(i.e. one debit and two or more credits or two or more debits and one credit or two or
more debits and credits). In such cases, it is important to check that the total of both
debits and credits are equal.
2. If journal entries are recorded in several pages then both the amount column of each
page should be totalled and the balance should be written at the end of that page and
also that the same total should be carried forward at the beginning of the next page.
An entry in the journal may appear as follows:

` ` May 5 Bank Account Dr. 14,50,000

To Mohan 14,50,000
(Being the amount received from Mohan in payment of the amount due from him)
We will now consider some individual transactions.
(i) Mohan commences business with ` 50,00,000 in his bank account. This means that
the firm has 50,00,000 in bank. According to the rules given above, the increase in an
asset has to be debited to it.
The fIrm also now owes ` 50,00,000 to the proprietor, Mohan as capital. The rule given
above also shows that the increase in capital should be credited to it. Therefore, the
journal entry will be:
Bank A/c Dr. 50,00,000
To Capital Account 50,00,000

(ii) Out of the above, 25,000 is withdrawn from the bank. By this transaction the bank
balance is reduced by 25,000 and another asset, cash account, comes into existence.
Since increase in assets is debited and decrease is credited, the journal entry will be:
Cash Account 25000
To Bank Account 25000
(iii) (iii) Furniture is purchased for 12,00,000. Applying the same reasoning as above
the entry will be:
Furniture A/c Dr 12,00,000
To Bank A/c 12,00,000
(iv) Purchased goods for cash ` 4,00,000. The student can see that the required entry
is:
Purchase a/c Dr 4,00,000
To Bank A/c 4,00,000
(v) Purchased goods for ` 10,00,000 on credit from M/s Ram Narain Bros. Purchase of
merchandise is an expense item so it is to be debited. ` 10,00,000 is now owing to the
supplier; his account should therefore be credited, since the amount of liabilities has
increased. The entry will be:
Purchase A/c Dr 10,00,000
To Ram Narain Bros A.c 10,00,000
(vi) Sold goods to M/s Ram & Co. for ` 6,00,000. Amount is received in cheque. The
amount of bank increases and therefore, the bank amount should be debited; sale of
merchandise is revenue item so it is to be credited. The entry will be:
Bank Account Dr. 6,00,000
To Sales Account 6,00,000
(Being goods sold vide CM No....)
(vii) Sold goods to Ramesh on credit for ` 13,00,000. The Inventories of goods has
decreased and therefore, the goods account has to be credited. Ramesh now owes `
13,00,000; that is an asset and therefore, Ramesh should be debited. The entry is:
Ramesh Dr. 13,00,000
To Sales Account 13,00,000
Note: There are two views on classification of “Purchase Account” and “Sales Account”.
One view is that they represents “flow of goods”, so they should be classified as ‘Real
A/c’. However, others are of the opinion that only nominal a/cs are closed by
transferring to ‘Trading or Profit and Loss A/c’. Therefore, purchases and sales shall be
classified as Nominal A/cs. However, in both the views, there will be debit balance of
Purchase A/c and credit balance of Sales A/c.
(viii) Received cheque from Ramesh 13,00,000. The amount of bank increased
therefore the bank account has to be debited. Ramesh’s liability towards firm has
decreased infact in this case he no longer owes any amount to the firm, i.e., this
particular form of assets has disappeared; therefore, the account of Ramesh should be
credited. The entry is:
Bank Account Dr. 13,00,000
To Ramesh 13,00,000
(Being cheque received against Bill No....)
(x) Paid rent ` 1,00,000. The bank balance has decreased and therefore, the bank
account should be credited. No asset has come into existence because the payment is
for services enjoyed and is an expense. Expenses are debited. Therefore, the entry
should be:
Rent Account Dr. 1,00,000
To Bank Account 1,00,000
(xi) Paid 22,000 to the clerk as salary. Applying the reasons given in (x) above, the
required entry is:
Salary Account Dr. 22,000
To Bank Account 22,000
(xii) Received ` 2,20,000 interest. The bank account should be debited since there is an
increase in the bank balance. There is no increase in any liability; since the amount is
not returnable to any one, the amount is an income, incomes are credited. The entry is :
Bank Account Dr. 2,20,000
To Interest Account 2,20,000
When transactions of similar nature take place on the same date, they may be
combined while they are journalised. For example, entries (x) and (xi) may be
combined as follows:
Rent Account Dr. 1,00,000
Salary Account Dr. 22,000
To Bank Account 1,22,000

When journal entry for two or more transactions are combined, it is called composite
journal entry. Usually, the transactions in a firm are so numerous that to record the
transactions for a month will require many pages in the journal. At the bottom of one
page the totals of the two columns are written together with the words “Carried
forward” in the particulars column. The next page is started with the respective totals
in the two columns with the words “Brought forward” in the particulars column.

ILLUSTRATION
Journalise the following transactions. Also state the nature of each account involved in
the Journal entry.
Following fi gures are given in (‘00)
1. December 1, 2016, Ajit started business with capital ` 4,00,000
2. December 3, he withdrew cash for business from the Bank ` 2,000.
3. December 5, he purchased goods making payment through bank` 15,000.
4. December 8, he sold goods` 16,000 and received payment through bank.
5. December 10, he purchased furniture and paid by cheque ` 2,500.
6. December 12, he sold goods to Arvind ` 2,400.
7. December 14, he purchased goods from Amrit ` 10,000.
8. December 15, he returned goods to Amrit ` 500.
9. December 16, he received from Arvind ` 2,300 in full settlement.
10. December 18, he withdrew goods for personal use ` 1,000.
11. December 20, he withdrew cash from business for personal use ` 2,000.
12. December 24, he paid telephone charges ` 110.
13. December 26, amount paid to Amrit in full settlement ` 9,450.
14. December 31, paid for stationery ` 200, rent `5,000 and salaries to staff ` 2,000.
15. December 31, goods distributed by way of free samples ` 2,000.
Entry
1. Dec. 1 Bank Account Dr. Personal A/c 4,00,000
To Capital Account Personal A/c 4,00,000
(Being commencement of business)
2. Dec. 3 Cash Account Dr. Real A/c 2,000
To Bank Account Personal A/c 2,000
(Being cash withdrawn from the Bank)

3. Dec. 5 Purchases Account Dr. Real A/c 15,000

To Bank Account Personal A/c 15,000
(Being purchase of goods for cash)

4. Dec. 8 Bank Account Dr. Personal A/c 16,000

To Sales Account Real A/c 16,000
(Being goods sold for cash)

5. Dec. 10 Furniture Account Dr. Real A/c 2,500

To Bank Account Personal A/c 2,500
(Being purchase of furniture, paid by cheque)

6. Dec. 12 Arvind Dr. Personal A/c 2,400

To Sales Account Real A/c 2,400
(Being sale of goods)

7. Dec. 14 Purchases Account Dr . Real A/c 10,000

To Amrit Personal A/c 10,000
(Being purchase of goods from Amrit )

8. Dec. 15 Amrit Dr. Personal A/c 500

To Purchases Returns Account Real A/c 500
(Being goods returned to Amrit)

9. Dec. 16 Bank Account Dr. Personal A/c 2,300

Discount Account Dr. Nominal A/c 100
To Arvind Personal A/c 2,400
(Being cash received from Arvind in full settlement and allowed him ` 100
as discount)
10. Dec. 18 Drawings Account Dr . Personal A/c 1,000
To Purchases Account Real A/c 1,000
(Being withdrawal of goods for personal use)

11. Dec. 20 Drawings Account Dr . Personal A/c 2,000

To Cash Account Real A/c 2,000
(Being cash withdrawal from the business for personal use)

12. Dec. 24 Telephone Expenses Dr. Nominal A/c 110

To Bank Account Personal A/c 110
(Being telephone expenses paid)

13. Dec 26 Amrit Dr. Personal A/c 9,500

To Bank Account Personal A/c 9,450
To Discount Account Nominal A/c 50
(Being cash paid to Amrit and he allowed 50 as discount)

14. Dec. 31 Stationery Expenses Dr. Nominal A/c 200

Rent Account Dr. Nominal A/c 5,000
Salaries Account Dr. Nominal A/c 2,000
To Bank Account Personal A/c 7,200
(Being expenses paid)
15. Dec. 31 Advertisement Expenses Dr. Nominal A/c 2,000
To Purchases Account Real A/c 2,000
(Being distribution of goods by way of free samples)