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Journal, Ledger, Trial Balance

Commonly Used Accounts

• Revenues
Income earned from sales; revenue from services commission
income; interest income; professional fee etc.

• Expenses
Amount spent to operate a business: salaries ; rent; insurance; etc.

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

• Retained Earnings
PAT (-) Dividends
Assets
Resources which have value and which help in the conduct of the
business operations.

• Fixed Assets : land ,building ,plant , machinery ,patents ,


copyrights etc.
• Investments : securities such as equity , bonds , debenture etc.
• Current Assets : cash , debtors , inventories , pre-paid
expense , bills receivable etc.
• Loans & Advances
• Other Current Assets may include Miscellaneous
expenditure such as preliminary expense , pre-operative
salaries etc.
Liabilities

These represent what the business entity owes to others.


• Share Capital : equity and preference
• Retained Earnings
• Reserves & Surplus
Revenue Reserves : general reserve , free reserve etc.
Capital Reserve : premium on issue of shares , gain on
revaluation of assets
• Provisions
• Long Term Loans : secured & unsecured debentures, bonds
,loans etc.
• Short Term Liabilities : trade payables ; B/P , wages payable;
dividends payable; interest payable; taxes payable; overdraft;
unearned revenue etc.
Exercise
Classify the following items and also state the statement in which they should be
included :

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

• Bank : current asset – B/S


• Overdraft : current liability – B/S
• Motor Vehicles : fixed asset – B/S
• Profit earned on sale of old M/E : non operating income – income statement
• Commission paid to sales fleet : operating expense - income statement
• Loan given to a friend : loans & advances – B/S
• Profit on sale of goods : operating income - income statement
• Discount given to customers : operating expense - income statement
TYPES OF ACCOUNTS

Personal Non Personal

Capital A/c Real Nominal


Drawings A/c
Bank A/c
Ram’s A/c
Company’s A/c Land & Building Wages A/c
Outstanding Rent A/c A/c Discount A/c
Govt A/c Plant & Interest Paid A/c
Machinery A/c Rent Paid A/c
Fixtures & Commission
Fittings A/c Received A/c
Cash A/c Electricity A/c
Stock A/c
Rules of Debit and Credit

1 Personal Account : Debit the Receiver


Credit the Giver

2 Real Account : Debit what Comes In


Credit what Goes Out

3 Nominal Account : Debit all Expenses & Losses


Credit all Incomes & Gains
Assets

Debit all Credit all


Increases Decreases

Liabilities

Debit all Credit all


Decreases Increases

Capital

Debit all Credit all


Decreases Increases
JOURNAL PROPER

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

Date Particulars L. Debit (Rs) Credit (Rs)


F.
JOURNAL PROPER

Journalize the following transactions in the books of Mohan.

• Mohan started a stationery shop in the name of ‘Zen Y Stationers’ in Gomti Nagar Lucknow. He
commenced business with his past savings of Rs 1,00,000 in cash ; a shop of Rs 5,00,000 that was owned
by his family; and furniture of Rs 20,000 that was also provided by his family. Mohan opened a current
account in SBI and deposited Rs 25,000 in that bank account. He also purchased wooden racks for Rs
20,000 for the storage and display of the items, from Deluxe Furniture house on credit basis. Mohan then
furnished his shop with the stationery items he purchased the following stationery items: paper reams
worth Rs 25,000 from JK Papers, different types of pens of Rs 15,000 from Linc Pens pvt. ltd., pencils,
sharpeners eraser etc. of Rs 10,000 from Hindustan Pencils pvt. ltd., against cash payment. At the end of
the month Mohan received an electricity bill amounting to Rs 2,000 from the state electricity board, which
he paid through cheque. He also paid wages to two of his helpers Suraj Rs 3,000 and Ramu Rs 2,000, in
cash. The sales done by him during the month amounted to Rs 75,000. Mohan does not have knowledge
of accounting so he has approached you for help. You are required to help Mohan in assessing whether he
has done a fair job and should he continue doing this business or should he wind up? You may use the
balance sheet equation method and/or final accounts methods to assist him in the decision making. Also
give necessary arguments for the same.
Books of Zen ‘Y’ Stationers

Journal Proper

Date Particulars L. Debit (Rs) Credit (Rs)


F.
Cash A/c ------------------------Dr. 1,00,000
Building A/c--------------------Dr. 5,00,000
Furniture A/c--------------------Dr. 20,000
To Mohan`s Capital A/c 6,20,000
( commences business with cash;
building and furniture)

SBI A/c-------------------------Dr. 25,000


To Cash A/c 25,000
(being cash deposited into bank)

Furniture A/c -------------------Dr. 20,000


To Deluxe Furniture House A/c 20,000
(being furniture purchased on credit
basis)
Purchases A/c ------------------Dr. 50,000
To Cash A/c 50,000
(bought goods for cash)

Electricity A/c -----------------Dr. 2,000


To SBI A/c 2,000
(electricity bill paid by cheque)

Wages A/c ---------------------Dr. 5,000


To Cash A/c 5,000
(wages paid to Suraj - Rs 3,000 ; Ramu-
Rs 2,000)

Cash A/c ----------------------Dr. 75,000


To Sales A/c 75,000
(goods sold for cash)
Ledgers

Dr Cash A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs

To Capital A/c 1,00,000 By Bank 25,000


Ledgers in the Books of Zen ‘Y’ Stationers
Dr Cash A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs

To Mohan`s Capital 1,00,000 By SBI A/c 25,000


A/c
To Sales A/c 75,000 By Purchases A/c 50,000

By Wages A/c 5,000

31 By Balance c/d 95,000


Jan

1,75,000 1,75,000

Dr Building A/c Cr

Date Particulars J.F. Rs Date Particulars J.F. Rs


To Mohan`s Capital 5,00,000 31 By Balance c/d 5,00,000
A/c Jan

5,00,000 5,00,000
Dr Furniture A/c Cr
Date Particulars J.F. Rs Date Particulars J.F. Rs

To Mohan`s Capital 20,000


A/c

To Deluxe 20,000 31 By Balance c/d 40,000


Furniture House Jan
A/c
40,000 40,000

Dr. Mohan`s Capital A/c Cr

Date Particulars J.F. Rs Date Particulars J.F. Rs

By Cash A/c 1,00,000


By Building A/c 5,00,000
By Furniture A/c 20,000
31 To Balance c/d 6,20,000
Jan
6,20,000 6,20,000
Dr SBI A/c Cr

Date Particulars J.F Rs Date Particulars J.F Rs


. .
To Cash A/c 25,000 By Electricity 2,000
A/c
31 By Balance c/d 23,000
Jan
25,000 25,000

Dr Deluxe Furniture House A/c Cr

Date Particulars J.F. Rs Date Particulars J.F. Rs

31 To Balance c/d 20,000 By Furniture A/c 20,000


Jan

20,000 20,000
Dr Purchase A/c Cr

Date Particulars J.F Rs Date Particulars J.F Rs


. .
To Cash A/c 50,000 31 By Balance c/d 50,000
Jan

50,000 50,000

Dr Electricity A/c Cr

Date Particulars J.F. Rs Date Particulars J.F. Rs

To SBI A/c 2,000 31 By Balance c/d 2,000


Jan

2,000 2,000
Dr Wages A/c Cr

Date Particulars J.F. Rs Date Particulars J.F. Rs

To Cash A/c 5,000 31 By Balance c/d 5,000


Jan

5,000 5,000

Dr Sales A/c Cr
Date Particulars J.F Rs Date Particulars J.F Rs
. .
31 To Balance c/d 75,000 By Cash A/c 75,000
Jan

75,000 75,000
TRIAL BALANCE

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

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


Trial Balance as on 31 Dec, 200…..

SN Particulars Debit (Rs.) Credit (Rs.)

1 Capital **
2 Assets **
3 Expenses & Losses **
4 Income & Gains **
5 Liabilities
Total *** ***
Trial Balance In The Books of Mohan
as on 31 Jan , 200…..

SN Particulars Debit (Rs.) Credit (Rs.)


1 Cash A/c 95,000
2 Building A/c 5,00,000
3 Furniture A/c 40,000
4 Capital A/c 6,20,000
5 SBI A/c 23,000
6 Deluxe Furniture House A/c 20,000
7 Purchases A/c 50,000
8 Electricity A/c 2,000
9 Wages A/c 5,000
10 Sales A/c 75,000
Total 7,15,000 7,15,000
2 From the following balances pertaining to Khaitan Sons Ltd. Prepare the
Trial Balance as on March 31,2000.

Particulars Rs Particulars Rs
Capital 25,000 Discount Received 1,000
Salaries 6,000 Machinery 10,000
Purchases 26,000 Insurance 5,000
Sales 47,000 Interest Received 2,000
Trade Expense 1,000 Rent Received 5,000
Opening Inventory 7,000 Free Distribution of 4,000
good
Debtors 35,000 Creditors 20,000
Drawings 10,000 Overdraft 4,000
Trial Balance of Khaitan Sons Ltd .as on 31 Dec, 200…..

S Particulars Debit (Rs) Credit (Rs)


N
1 Capital 25,000
2 Salaries 6,000
3 Purchases 26,000
4 Sales 47,000
5 Trade Expense 1,000
6 Opening Inventory 7,000
7 Debtors 35,000
8 Drawings 10,000
9 Discount Received 1,000
10 Machinery 10,000
11 Insurance 5,000
12 Interest Received 2,000
13 Rent Received 5,000
14 Free Distribution of good 4,000
15 Creditors 20,000
16 Overdraft 4,000

Total 1,04,000 1,04,000


Entries for some Specific Transactions

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

2. Bad Debts Recovered


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

3. Cash withdrawn from bank for personal use


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

5. Distribution of Goods as Free Sample


Advertisement A/c -----------------------------Dr
To Purchases A/c

6. Cash and Goods withdrawn by Proprietor for Personal Use


Drawings A/c --------------------------------------Dr
To Cash A/c
To Purchases A/c
7. Goods Lost by Fire / Theft

A. Uninsured
Loss by Fire/ Theft -------------------------------------Dr.
To Purchases A/c

B. Insured
a) Insurance Company A/c -----------------------------Dr.
To Purchases A/c

b) When claim is received but not in full :

Bank A/c---------------------------------------------Dr.
Profit & Loss A/c ---------------------------------Dr.
To Insurance Company A/c
8. Interest on Capital
Interest A/c ---------------------------------------Dr
To Capital A/c

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

10. Revenue from Services


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

11. Advance Received from a Customer


Cash A/c ---------------------------------------------Dr
To Advance Received
12. Sales Return
Sales Return A/c --------------------------Dr.
To Debtors A/c

13. Cash Discount to customers


Cash A/c -----------------------------------Dr.
Discount A/c -----------------------------Dr.
To Debtors A/c

14. Purchase Return


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

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

1 Cash A/c ----------------------------Dr 2,400


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

2 Cash A/c ---------------------------------------Dr 700


To Bad Debts Recovered A/c 700

3 Drawings A/c ---------------------------------Dr 500


Advertisement A/c ------------------------------------Dr 600
To Purchases A/c 1,100
4 General Insurance Co Ltd.----------------------Dr 3,000
To Purchases A/c 3,000

Bank A/c ------------------------------------Dr 2,100


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

5 Drawings A/c ---------------------------------Dr 100


To Interest on Drawings A/c 100

6 Signing an agreement with a customer is not an accounting transaction since it


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

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