Financial Accounting - I – MGT101 VU

Lesson # 14

POSTING TO LEDGERS AND RECORDING OF STOCK

We have demonstrated the carrying forward of balances in lecture-13. Another solved example
is given below:

Illustration

Following is the Trial Balance of Rahil & Co. for the month ended January 31, 2002.

Rahil & Co..

Trial Balance
As on January 31, 2002
Title of Account Code Dr. Rs. Cr. Rs.
Cash Account 01 30,000
Accrued expense Account 02 10,000
Bank Account 03 50,000
Loan Account 04 100,000
Furniture Account 05 20,000
Office Equipment 06 10,000
Debtors account 07 12,000
Creditors account 08 10,000
Sales account 09 20,000
Purchase account 10 18,000
Total 140,000 140,000

During the month, following entries took place:

No. Date Particulars

01 Feb 07 They purchased stationery worth of Rs. 3,000
02 Feb 10 They paid their first installment of loan Rs. 12,000
03 Feb 12 They received a cheque from a customer of Rs. 5,000
04 Feb 13 They paid a cheque of Rs. 8,000 to a creditor
05 Feb 15 Purchased goods of Rs 6,000 & paid through cheque
06 Feb 17 Accrued expenses of Rs. 5,000 are paid.
07 Feb 20 They purchased furniture of Rs. 2,000
08 Feb 21 Sold goods for cash Rs.5,000
09 Feb 22 Purchased goods on credit Rs. 5,000
10 Feb 23 Office equipment of Rs. 5,000 is Purchased
11 Feb 25 Staff salaries are paid by cheque Rs. 15,000
12 Feb 28 Utility expenses of Rs. 3,000 are accrued.

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Ledger accounts of Rahil & Co. during the month will show following picture:
Cash Account Account code # 1
Date Particulars Code Amount Date Particulars Code Amount
# Rs. # Rs.
(Dr.) (Cr.)
1-2-02 Balance c/f 01 30,000 7-2-02 Stationery a/c 10 3,000
21-2-02 Sold a/c 09 5,000
10-2-02 Loan a/c 04 12,000
17-2-02 Accrued 02
expenses 5,000
05 2,000
Furniture a/c
23-2-02 06 5,000
Office equipment
8,000
Balance c/d
Total 35,000 Total 35,000

Accrued Expenses Account Account code # 2

Date Particulars Code Amount Date Particulars Code Amount
# Rs. # Rs.
(Dr.) (Cr.)
17-2-02 Accrued 01 5,000 1-1-02 Balance c/f 10,000
expenses Expenses accrued 3,000

Balance c/d 8,000

Total 13,000 Total 13,000

Bank Account Account code # 3

Date Particulars Code Amount Date Particulars Code Amount
# Rs. # Rs.
(Dr.) (Cr.)
Balance c/f 50,000 13-2-02 Paid to creditors 08 8,000
12-2-02 Cheque 15-2-02 Purchases 10 6,000
received 07 5,000 25-2-02 Salaries a/c 11 15,000

Balance c/d 26,000

Total 55,000 Total 55,000

Loan Account Account code # 4

Date Particulars Code Amount Date Particulars Code Amount
# Rs. # Rs.
(Dr.) (Cr.)
10-2-02 Installment 01 12,000 Balance c/f 100,000
paid
88,000
Balance c/d
Total 100,000 Total 100,000
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Furniture Account Account code # 5

Date Particulars Code Amount Date Particulars Code Amount
# Rs. # Rs.
(Dr.) (Cr.)
10-2-02 Balance c/f 20,000 23-2-02
20-2-02 Furniture a/c 01 2,000
Balance c/d 22,000

Total 22,000 Total 22,000

Office Equipment Account Account code # 6
Date Particulars Code Amount Date Particulars Code Amount
# Rs. # Rs.
(Dr.) (Cr.)
Balance c/f 10,000
23-2-02 Office 01 5,000
Equipment a/c

Balance c/d 15,000

Total 15,000 Total 15,000

Debtors Account Account code # 7

Date Particulars Code Amount Date Particulars Code Amount
# Rs. # Rs.
(Dr.) (Cr.)
Balance c/f 12,000 12-2-02 Cheque received 03 5,000

Balance c/d 7,000

Total 12,000 Total 12,000

Creditors Account Account code # 8

Date Particulars Code Amount Date Particulars Code Amount
# Rs. # Rs.
(Dr.) (Cr.)
13-2-02 Paid to 03 8,000 Balance c/f 10,000
creditors 22-2-02 Purchases a/c 10 5,000

Balance c/d

7,000
Total 15,000 Total 15,000

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Financial Accounting - I – MGT101 VU
Sales AccountAccount code # 9
Date Particulars Code Amount Date Particulars Code Amount
# Rs. # Rs.
(Dr.) (Cr.)
Balance c/f 20,000
21-2-02 Sales a/c 01 5,000

Balance c/d 25,000

Total 25,000 Total 25,000

Purchases Account Account code # 10

Date Particulars Code Amount Date Particulars Code Amount
# Rs. (Dr.) # Rs.
(Cr.)
Balance c/f 18,000
15-2-02 Purchases a/c 03 6,000

22-2-02 Purchases a/c 07 5,000 Balance c/d 29,000

Total 29,000 Total 29,000

Salaries Account Account code # 11
Date Particulars Code Amount Date Particulars Code Amount
# Rs. (Dr.) # Rs.
(Cr.)
25-2-02 Salaries a/c 03 15,000

Balance c/d 15,000

Total 15,000 Total 15,000

Stationery Account Account code # 12

Date Particulars Code Amount Date Particulars Code Amount
# Rs. (Dr.) # Rs.
(Cr.)
25-2-02 Stationery a/c 01 3,000

Balance c/d 3,000

Total 3,000 Total 3,000

Utility Expenses Account Account code # 13

Date Particulars Code Amount Date Particulars Code Amount
# Rs. (Dr.) # Rs.
(Cr.)
28-2-02 Accrued 02 3,000 Balance c/d 3,000
utility exp

Total 3,000 Total 3,000

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The Trial Balance at the end of the month is as follows:

Rahil & Co..

Trial Balance
As on January 31, 2002
Title of Account Code Dr. Rs. Cr. Rs.
Cash Account 01 8,000
Accrued expense Account 02 8,000
Bank Account 03 26,000
Loan Account 04 88,000
Furniture Account 05 22,000
Office Equipment 06 15,000
Debtors account 07 7,000
Creditors account 08 7,000
Sales account 09 25,000
Purchase account 10 29,000
Salaries Account 11 15,000
Stationery Account 12 3,000
Utility Expenses Account 13 3,000
Total 128,000 128,000

Difference between expenses & Purchases

• If business purchases items for its own use (items that are not meant to be resold) such
items are charged to expense account.
• If business purchases items for resale purposes, such items are charged to purchases
account.

Stock

Stock is the quantity of unutilized or unsold goods lying with the organization.

Stock is termed as “the value of goods available to the business that are ready for sale”. For
accounting purposes, stock is of two types:

1. In trading concern, Stock consists of goods that are purchased for the purpose of resale,
but not sold in that accounting period. Trading concern is that organization, which
purchases items for resale purposes.
2. In manufacturing concern, (an organization that converts raw material into finished
product by putting it in a process) stock consists of:
o Raw material
o Work in process
o Finished goods

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Raw Material

Raw material is the basic part of an item, which is processed to make a complete item.

Work in Process

In manufacturing concern, raw material is put into process to convert it into finished goods. At
the end of the year, some part of raw material remains under process. It is neither in shape of
raw material nor in shape of finished goods. Such items are taken in stock as work in process.

Finished Goods

Finished goods contain items that are ready for sale, but could not be sold at the end of
accounting period.

Recording of Stock Account

• Stock Account is Debited with the Value of the Goods Purchased

• Stock account is credited with the Purchase Price of the Goods Sold / Issued for
Production.
• Stock Account shows the cost / purchase value of unsold goods.

In manufacturing concern, entries for stock are:

For Purchase of Stock

Debit: Stock Account

Credit: Cash/Supplier /Creditors Account
When the stock is purchased, stock account gets the benefit, so it is debited & cash or supplier
account provides the benefit, so it is credited.

For Payment to Creditors

Debit: ` Supplier / Creditors account

Credit: Cash account

For Consumption of goods

Debit: Cost of goods sold

Credit: Stock Account

Cost of goods sold

Cost of goods sold is different in both forms of organizations:

• In trading concern, cost of goods sold is the value of goods unsold (goods stands for the
items purchased for resale purpose)
• In manufacturing concern, cost of goods sold is the value of raw material consumed
plus any other manufacturing cost. e.g., salaries of labor cost of machinery etc.

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Stock and cost of goods sold in manufacturing concern

Raw Material Stock Other Costs Accounts

Work in Process Account

Finished Goods Account

Cost of Goods Sold Account

In manufacturing concern, Raw material stock is put into process. For accounting purposes, all
value of stock and other manufacturing costs are charged to work in process account. When the
process is completed and the goods are prepared, all the value of work in process is charged to
finished goods account. The business sells finished goods for the whole accounting year. At the
end of the year, goods that are unsold are deducted from cost of goods sold account.

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