Principles of Financial Accounting

First Semester

JOURNAL
‘Account’—It is the summary of the relevant transactions at one place relating to a particular head of ‘account’ e.g.,
‘Building’, ‘Shyam’, ‘Wages’, ‘Discount Received’. Hence an ‘account’ not only reflects the no. of transactions with their
relevant amount recorded therein but also their effect and direction. These ‘accounts’(‘Building’, ‘Shyam’, ‘Wages’) can be
classified as per the ‘Types of Accounts’ in two ways viz.,(i) Traditional approach [British System]&(ii) Accounting Equation
Approach [American System].
(X)In ‘Traditional Approach’ the ‘Types of Accounts’, can be first classified in two ways viz.,(A) Personal Account & (B)
Impersonal Account and this ‘Impersonal Account’ can be further classified in two ways viz., ways--- (i) Real Accounts and
(ii) Nominal Accounts. And these three types of accounts (i.e., Personal, Real and Nominal) are further subdivided as
follows:-
(a) Personal Accounts:- (i) Natural ( e.g.,Ram, Shyam ,etc.,) ,(ii) Artificial or Legal (e.g., XYZ Ltd., Allahabad Bank,etc.,)(iii)
Groups or representatives (e.g.,Outstanding Salaries & wages, Sundry Debtors etc.,)
(b)Real Accounts (relating to property/assets of the business):- (i) Tangible (e.g., Machinery, Building, Cash ,Stock of goods, )
(ii) Intangible (e.g., Goodwill, Copy rights, Patents rights, Trade-mark rights etc.,)
(c) Nominal Accounts :- relating to(i) ‘income/gain’[e.g., Commission received, brokerage received, discount received, profit
on sale of vehicle,etc.,and (ii) ‘expense/loss’[e.g., Interest on loan paid, Salaries paid, Cartage and coolie charges paid, loss of
stock by fire, loss due to theft of materials, etc.,
Rule for(‘Debit’ and ‘Credit’) passing entries :-
Rule No. I- for ‘Personal Accounts’--- ‘Debit’ the receiver and ‘Credit’ the giver
Rule No. II-for ‘Real Accounts’--- ‘Debit’ what comes in and ‘Credit’ what goes out
Rule No. III- for ‘Nominal Accounts’---‘Debit’ all expenses and losses and ‘Credit’ all incomes and gains.
Dear students so far we have learnt about the classification of ‘accounts’(‘Building’, ‘Shyam’,
‘Wages’) as per ‘Traditional Approach’ i.e., where the ‘Types of Accounts’, are first classified in
two ways viz.,(A) Personal Account & (B) Impersonal Account and then this ‘Impersonal
Account’ is further classified in two ways viz., (i) Real Accounts and (ii) Nominal Accounts and
this three ways of classification is widely known as classification of accounts based on
GOLDENRULE
. Students, very recently we have also learnt the preparation of (i) Trading, Profit & Loss A/c.
and (ii) Balance Sheet and wherein we have noticed the existence of Golden Rule in dealing
‘Types of Accounts’[ viz., ‘personal’, ‘nominal’ & ‘real’]in the following manner--(A)‘accounts’
of ‘Nominal Accounts’ nature[i.e., related to all (a) expenses, losses, and (b) profits and gains]
are appearing in ‘Trading and Profit & Loss Account’ whereas(B)‘accounts’ of(i)‘Personal
Accounts’ nature[i.e., Natural (say Rabi’s A/c.), Artificial (say, Jadu & Co’s A/c., Allhabad Bank
A/c.) and Representative(say, Outstanding Salary A/c.)]and (ii)‘Real Accounts’ nature[i.e.,
Tangible(e.g. land, Building)and Intangible (e.g., Goodwill, Patents, Trademarks)]are appearing
in Balance Sheet.

(Y) Now we will see that the same ‘accounts’ [‘Building’(i.e., Real), ‘Shyam’ (i.e., Personal),
‘Wages’(i.e.,Nominal)] can be classified in another way and which is known as ‘Accounting
Equation Approach’
‘Accounting Equation Approach’ deals –equality of (a)assets on one hand (Resources)and (b)
liabilities and capital on the other hand (Sources of Fund) and the same is represented by the
equation as---
ASSETS(what the business own)== [LIABILITIES (External Equity) + CAPITAL (Internal Equity)]
(indicate what business owes)and the ‘Types of Accounts’ dealt here in are classified in five
ways viz.,(i) Assets Accounts (ii) Liabilities Accounts (iii) Capital Accounts (iv) Revenue Accounts
& (v)Expenses Accounts and in brief these are--
(i) Assets Accounts refers to resources which are owned by the organization and are expected
to render benefits from future activities/operations. These relate to tangible (e.g.,
cash/land/building/stock/etc.) and intangible (e.g., Goodwill, Copyrights, Patents rights, Trade-mark rights
etc.,)real assets.
(ii) Liabilities Accounts refers to ‘debts’ which are payable to parties external to business i.e.,
financial obligation of a business organization to the outsiders (e.g., Sundry Creditors,
Outstanding Salaries & wages, Bank Overdraft, Loan Account, Bills Payable, etc.,)
(iii) Capital Accounts [Owner’s equity – in case of a company it is called Shareholders’ equity
which include share capital, share premium and retained profit]mean what amount is payable
by the ‘business’ to the owner(s) of the Organisation (e.g., Capital A/c., Drawings A/c, Current
A/c. of a partner).
. Balance Sheet of Mr. Victor Fietzarald Vicajee as at 31 st March 2013 .
. Liabilities (Rs) Amount in Rupees Assets Amount in Rupees
OpeningCapital 60,000 Land & Building 4,02,000
. Less Drawings 20,000 Plant & Machinery 2,76,000
40,000 Furniture & Fixture 1,23,000
.Add Profit for the year90,000 1,30,000 Investments 1,50,000
Long term Bank loan 9,00,000 Current Assets
Current Liabilities: (i) Sundry Debtors 81,000
(i)Sundry Creditors 86,000 (ii)Prepaid Insurance 15,000
(ii) o/s. Wages 36,000 (iii)Bills Receivable 24,000
(iii)Bills Payable 24,000 1,46,000 (iv)Closing Stock 36,000
(v) Cash in hand 21,000
(vi)Cash at Bank 48,000 2,25,000
11,76,000 11,76,000
@Red for “CAPITAL” “Internal Equity”(Rs.1,30,000) #Blue for “LIABILITIES” or “External Equity”
[(Rs.9,00,000 +Rs.1,46,000)= Rs.10,46,000] $Green for “ASSETS” or “Resources”
(Rs.11,76,000)
Internal Equity+External Equity=Assets Or CAPITAL+LIABILITIES=ASSETS
Again CAPITAL+LIABILITIES=SOURCES OF FINANCE [AND]SOURCES OF FINANCE=RESOURCES
.
(iv)Revenue Accounts include amounts charged to customers for goods sold or services
rendered or depositing with others the resources of the organization in order to yield interest,
royalty or dividend there from [e.g., Sales A/c., Commission Received A/c., Brokerage Received
A/c., Dividend Received A/c., Interest Received A/c., Royalty Received A/c., etc.,
(v) Expenses Accounts are generally the costs of earning revenues and also include loss
suffered in the process of earning revenue [e.g., Cartage& coolie Account, Salaries & wages
A/c., Purchase A/c., Discount Allowed A/c., Royalty Paid A/c., Interest Payable A/c., Loss of
stock by fire, etc.,]
Students the stage now we have reached from where we can easily identify from above that
out of above five ‘Types of Accounts’, the first three [viz.,(i) Assets Accounts (ii) Liabilities
Accounts (iii) Capital Accounts]relate to Balance Sheet [this approach deals –equality of
(a)assets on one hand (Resources)and (b) liabilities and capital on the other hand (Sources of
Fund) and the same is represented by the equation as--- ASSETS(what the business own)==
[LIABILITIES (External Equity) + CAPITAL (Internal Equity)] (indicate what business owes). ]
and rest two[viz.,(iv) Revenue Accounts & (v)Expenses Accounts] relate to ‘Trading and Profit
& Loss Account’
.We have already seen the classification of accounts as per Golden Rule and now we will see
that what are the Rules for Debit and Credit when said ‘accounts’ (e.g., ‘Building’, ‘Shyam’,
‘Wages’, ‘Discount Received’) are being classified as per ‘Accounting Equation Approach’.
. .
.Types of Accounts Rules for Debit Rules for Credit .
. (i) For Assets Accounts Debit the Increase Credit the Decrease
.(ii) For Liabilities Accounts Debit the Decrease Credit the Increase
.(iii) For Capital Account Debit the Decrease Credit the Increase
.(iv) For Revenue Accounts Debit the Decrease Credit the Increase
.(v) For Expenses Accounts Debit the Increase Credit the Decrease .

.Now we will see the classification of accounts as per Golden Rule vis-a-vis as per ‘Accounting
Equation Approach’.
COMPARISION OF CLASSIFICATION AS PER TRADITIONAL APPROACH AND ACCOUNTING EQUATION APPROACH
TRADITIONAL APPROACH.......................................................................................... ACCOUNTING EQUATION APPROACH
1. PersonalAccounts
--(other than those relating to owner) having debit balances --Assets Accounts
--(other than those relating to owner) having credit balances --Liabilities Accounts
--those relating to owner --Capital Accounts
2. Real Accounts --Assets Account
3. Nominal Accounts
----relating to Revenue -- Revenue Accounts
----relating to Expenses --Expenses Accounts
.......................................................................................................................................................................................

From above we learnt that “ASSETS= CAPITAL+ LIABILITIES”. By applying this Accounting
Equation on the following transactions we may prepare Balance Sheet.
From the Books of M/s. P. M. Narielvala & Co. following transactions are available for the
year ended 31/03/2012
(1)Sri Narielvala commenced his business with cash Rs.1,50,000 and opened one Bank A/c. by
depositing Rs.50,000 from the Cash brought in. [(i)Cash(i.e. Assets) came in & ‘Capital’ also
came in i.e., each of “Asset” & “Capital” is increased by Rs.1,50,000 (ii) To open Bank A/c. Cash
Rs.50,000 is deposited to Bank. This mean that ‘Cash A/c.’ (i.e., “Asset”) is reduced by Rs.50,000
and ‘Bank A/c.’ (i.e., “Asset”) is increased by Rs.50,000].
(2)Purchased Goods for Cash Rs 30,000 [Cash reduced (i.e. Asset reduced) and ‘goods’i.e.
‘Stock’ came in i.e., “Asset” increased.
(3) Purchased Goods from Sohan for Rs.45,000 [‘Purchased Goods’ means ‘Stock’ increased i.e.,
“Asset” increased and since purchase is made on credit ,so ‘Creditor A/c.’ i.e. “Liability”
increased and both by same amount i.e., Rs.45,000]
(4) Sold Goods (costing Rs.25,000) to Bramha for Cash Rs. 42,000 [‘Sold Goods’ means ‘Stock’
i.e. “Asset” reduced by Rs. 25,000(cost) and ‘Cash’ came in for Rs.42000 i.e., “Asset” increased
by Rs.42,000. ‘Profit’ earned from this transaction is Rs.17, 000 (i.e.,42,000-25,000) i.e., Capital
(as in Balance Sheet ,profit is added with ‘Capital ) is increased by Rs.17,000.]
(5) Sold Goods (costing Rs 30,000) to Vishnu on Credit for Rs.57,000 [‘Sold Goods’ means ‘Stock’
i.e. “Asset” reduced by Rs. 30,000 (cost) and Vishnu stands here as Debtor so ‘Debtor A/c’. is
added by Rs. 57,000 hence “Asset” is increased by Rs.57,000. ‘Profit’ earned from this
transaction is Rs.27,000 (i.e.,57,000--30,000) i.e., Capital (as in Balance Sheet ,profit is added
with ‘Capital ) is increased by Rs.27,000.]
(6) Purchased one LAPTOP for Office purpose for Rs. 48,000 on credit from Great Eastern Co.[
LAPTOP came in i.e., “Asset” increased by LAPTOP value Rs.48,000 and since it is Purchased on
credit from Great Eastern Co. so ‘Creditor A/c.’ is increased by LAPTOP value of Rs.48,000 and
accordingly Liability is also increased by same amount (i.e., Rs. 48, 000).]
(7)Sold Goods (costing Rs. 42,000) to Ranajoy for Rs. 75,000 out of which for sale value of Rs.
51,000 received a Cheque amounting to Rs.48,000 by allowing him a discount of Rs.3,000 and
the Cheque was deposited on the same day. [‘Sold Goods’ means ‘Stock’ i.e. “Asset” reduced by
Rs. 42,000(cost) and ‘Cash’ came in for Rs.48000(51,000—Discount allowed Rs. 3,000) i.e.,
“Asset” increased by Rs.48,000 .As ‘discount allowed’ is a loss so “Capital A/c.” will be reduced
by Rs. 3,000. ‘Profit’ earned from this transaction is Rs.33, 000 (i.e., Sale value75,000-
Cost25,000) i.e., “Capital A/c.” is increased by Rs.33,000 (as in Balance Sheet ,profit is added
with ‘Capital ).] {** in this transaction,“Capital A/c.” is net increased by Rs.30,000 (i.e., profit
Rs.33,000---loss Rs.3,000)}]
(8) Purchased Goods from Maheswar for Rs.50,000 and out of which on account paid cash for
Rs.45,000. [‘Purchased Goods’for Rs.50,000 means ‘Stock’ increased i.e., “Asset” increased by
Rs. 50,000 and since payment made for Rs.45,000‘on account’ so balance purchase value of
Rs.5000 is on credit. Hence for payment of Rs.45,000, ‘Cash A/c.’ is credited i.e., “Asset” is
reduced by Rs.45,000 and for credit purchase of Rs. 5,000, Maheswar A/c. /‘Creditor A/c.’ is
credited i.e. “Liability” increased by credit purchase amount i.e., Rs.5,000]
(9) Payments received, against credit sales made earlier, from Vishnu and Ranajoy for
Rs.57,000 in Cheque & Rs.24,000 in Cash respectively . The Cheque was deposited on the same
day. [Payments received in Cash and Cheque against ‘credit sales’ mean payments received
from ‘Debtors’ (here, Ranajoy & Vishnu). As payments in Cash and Cheque are coming in so
both ‘Cash A/c.’ (Rs.24,000) and ‘Bank A/c.’ (Rs.57,000) will be ‘Debited’ i.e., “Asset” will be
increased or Debited. As paymets have been received from ‘Debtors’ (here, Ranajoy & Vishnu)
so ‘Debtors A/c.’ i.e., “Asset” will be credited (i.e., reduced) for Rs.81,000 (24,000+57,000)
(10) Payment of Rs.45,000 in Cheque made to Sohan for credit purchase made from him
[Payment made in Cheque means ‘Bank A/c.’ is credited I,e., “Asset” is reduced by Rs.45,000 .As
payment made to Sohan (Creditor) so ‘Creditor A/c.’ i.e., “Liability” is reduced.]
(11) Advance payment made for Rs.50,000 by Cheque against supplies to be made by
Meghdoot (Supplier ). [Here two Account heads i.e., (i)‘Advance Payment to Meghdoot
(supplier)’ and (ii)‘Bank A/c.’ are involved and both are of “Asset” category. Former ‘Account’
will be ‘Debited’ i.e., “Asset” will be increased by Rs.50,000 and later ‘Account’ will be
‘Credited’ i.e., “Asset” will be reduced by Rs.50,000 (12)
Goods destroyed by fire ( cost Rs.21,000 Sale Price Rs.33,000).[‘Goods’ means ‘Stock’ i.e.,
“Asset”. ‘Stock’ when ‘Debited’ is increased.

S. No. Transactions Assets = Liabilities + Capital

JOURNAL:- The word ‘journal’ has been derived from the French word jour which means a
‘diary’. It is a book where daily transactions of a firm are recorded in the order in which they
occur, i.e., in chronological order with a description (i.e. narration) under the double entry
system of book-keeping. A journal is called a book of prime entry (also called a book of
originalentry) because all business transactions are first recorded in the journal book. The
process of recording a transaction in the journal is called journalising. An entry made in the
journal is called a‘journal entry’.
Steps involved in Journalising may be summarised as below:-

(1) ‘Accounts’(‘Building’, ‘Shyam’, ‘Wages’) which are involved in the ‘transaction’ to be

determined.
(2) ‘Nature/type of accounts’ (Personal Account/ Real Account/ Nominal Account) involved are
to be ascertained.
(3) Applicability of ‘rule of debit and credit’ for each ‘Nature/type of accounts’ (i.e., Personal
Account/ Real Account/ Nominal Account, as the case may be) involved is to be ascertained.
(4) Based on (3) above determine which account is to be debited and which account is to be
credited.
(5) Appropriate format of a journal should have five columns viz.,(i) Date (ii) Particulars (iii)
L.F.(or, Ledger Folio) (iv) Debit Amount (Rs.) and (v) Credit Amount (Rs.)
(6) The ‘Date of transaction’ to be recorded in ‘Date’ column.
(7) The ‘Account’ to be ‘debited’ will be placed in 1st line and ‘Account’ to be ‘credited’ will be
placed below the line of the ‘Account’ debited and both will be placed within the ‘Particulars
column’.
(i) The name of the account to be debited will be placed very close to the left hand side line
demarcating the ‘Date column’ along with the abbreviation ‘Dr.’ (stands for ‘Debit’) to be
recorded on the same line against (after) the name of the account within the ‘Particulars
column’ and almost close to the right hand side line demarcating the ‘L.F.’ (stands for ‘Ledger
Folio’) column. The related amount of this ‘debit account head’ will be placed on the same line
against the name of the account in the ‘Debit Amount column’.
(ii) The name of the account to be credited (within the ‘Particulars column’) will be preceded by
the word ‘To’ and placed beneath the debit account head bit away from the left hand side line
demarcating the ‘Date column’. The related amount of this ‘credit account head’ will be placed
on the same line against the name of the account in the ‘Credit Amount column’.
(8) ‘Narration’ is the brief description of the transaction and is placed within brackets below the
credit account head line in the ‘Particulars column’.
(9) It is the practice of separating one journal entry from the other (in the ‘Particulars column’
only) by way of drawing one horizontal line connecting ‘Date column’ and ‘L.F. column.’
(10) The ‘Ledger Folio column’ is used at the time of posting from ‘journal’ to ‘Ledger’ and not
at the time of ‘Journalising’.
 Principles of Financial Accounting (PFA-109)
Application of Traditional Approach (GOLDEN) Rules for Debiting or Crediting an Account

. .
. . When it will be .

Name of account Nature of Account Debited Credited

Capital Representative Personal Account For Decrease For Increase
Cash Real/ Asset For Increase For Decrease
Machinery Real/ Asset For Increase For Decrease
Goodwill Real/ Asset For Increase For Decrease
Patent Real/ Asset For Increase For Decrease
Furniture Real/ Asset For Increase For Decrease
Building Real/ Asset For Increase For Decrease
Stock of goods Real/ Asset For Increase For Decrease
Purchase Nominal/ Expenditure For Increase For Decrease
Sales Return/Return Inward Nominal/ Expenditure For Increase For Decrease
Salaries Nominal/ Expenditure For Increase For Decrease
Wages Nominal/ Expenditure For Increase For Decrease
Carriage-inward Nominal/ Expenditure For Increase For Decrease
Carriage- outward Nominal/ Expenditure For Increase For Decrease
Postage & Telegram Nominal/ Expenditure For Increase For Decrease
Telephone charges Nominal/ Expenditure For Increase For Decrease
Printing&Stationery Nominal/ Expenditure For Increase For Decrease
Depreciation Nominal/ Expenditure For Increase For Decrease
Insurance Nominal/ Expenditure For Increase For Decrease
Commission (payment) Nominal/ Expenditure For Increase For Decrease
Dividend (payment) Nominal/ Expenditure For Increase For Decrease
Advertisement Nominal/ Expenditure For Increase For Decrease
Trade expenses Nominal/ Expenditure For Increase For Decrease
Discount Allowed Nominal/ Expenditure For Increase For Decrease
Freight paid Nominal/ Expenditure For Increase For Decrease
Transport Expenses Nominal/ Expenditure For Increase For Decrease
Travelling Expenses Nominal/ Expenditure For Increase For Decrease
Manufacturing Expenses Nominal/ Expenditure For Increase For Decrease
Sales Promotion Expenses Nominal/ Expenditure For Increase For Decrease
Bad debt Nominal/ Expenditure For Increase For Decrease
Water& Electricity charges Nominal/ Expenditure For Increase For Decrease
Entertainment Expenses Nominal/ Expenditure For Increase For Decrease
Legal charges Nominal/ Expenditure For Increase For Decrease
Loss by fire Nominal/ Expenditure For Increase For Decrease
Loss by Theft Nominal/ Expenditure For Increase For Decrease
Loss by Embezzlement Nominal/ Expenditure For Increase For Decrease
Loss on sale of Fixed Assets Nominal/ Expenditure For Increase For Decrease
Audit Fee Nominal/ Expenditure For Increase For Decrease
Administrative Expenses Nominal/ Expenditure For Increase For Decrease
Sales& Distribution Expenses Nominal/ Expenditure For Increase For Decrease
Miscellaneous Expenses Nominal/ Expenditure For Increase For Decrease
Bank charges Nominal/ Expenditure For Increase For Decrease
Insurance Premium Nominal/ Expenditure For Increase For Decrease
Sales Nominal/ Income For Increase For Decrease
Purchase Return/ Nominal/ Expenditure For Increase For Decrease
Return Outward
Commission received Nominal/ Income For Decrease For Increase
Dividend received Nominal/ Income For Decrease For Increase
Discount received Nominal/Income For Decrease For Increase
Profit on sale of Nominal/ Income For Decrease For Increase
Fixed Assets Real/ Asset For Increase For Decrease
Bank Interest (received) Nominal/ Income For Decrease For Increase
Bad debts recovered Nominal/ Income For Decrease For Increase
Debtors Representative Personal Account For Increase For Decrease
Creditors Representative Personal Account For Decrease For Increase
Outstanding Salaries Representative Personal Account For Decrease For Increase
Prepaid Rent Personal Account For Increase For Decrease
Interest Accrued Personal Account For Increase For Decrease
Income received in Adv. Personal Account For Decrease For Increase

...............................................................................................................................................
...............................................................................................................................................

OPENING ENTRY:- An ‘Opening Entry’ is a Compound Journal entry and is the balances of
various Assets, Liabilities and Capital, appearing in the Balance Sheet appearing on the closing
date of previous accounting period are brought forward in the books of current accounting
period.
Method:-While passing an opening entry, all asset accounts (individually) are debited and all
liabilities accounts (individually) are credited and net worth (i.e., excess of assets over liabilities)
is credited to proprietor’s Capital A/c. (in case of a proprietary concern).

Q.Pass the opening entry in the books of Shri.Meghdoot as on april1 ,2012:-

Assets:- Cash in hand Rs.6,900, Cash at bank Rs. 1,36,200, Plant and machinery Rs. 4,35,000 ,
Land and building Rs. 2,88,000, Furniture and fixture Rs.1,98,000, Office equipment Rs.
2,46,000 , Sundry debtors Rs. 3,04,000 , Prepaid insurance Rs. 5,400.

Liabilities:- Sundry creditors- 4,41,000 , Bank loan Rs. 3,87,000 , Loan from DebdootRs.
1,50,000,Income received in advance Rs. 1,77,000 , Outstanding salaries and wages accountRs.
2,22,800.
 OPENING ENTRY IN THE BOOKS OF SRI MEGHDOOT
. AS ON 1st APRIL, 2012
JOURNAL
DATE PARTICULARS L. DEBIT CREDIT
F.
2012 PARTICULARS Amount A Amount
(Rs.) (Rs.)
APRIL,1 Cash in hand A/c. Dr. 6,900
Cash at bank A/c. Dr. 1,36,200
Plant & Machinery A/c. Dr. 4,35,000
Land &Building A/c. Dr. 2,88,000
Furniture & Fixture A/c. Dr. 1,98,000
Office Equipment A/c. Dr. 2,46,000
Sundry Debtors A/c. Dr. 3,04,000
Prepaid Insurance A/c. Dr. 5,400
To Sundry Creditors A/c. 4,41,000
To Bank Loan A/c. 3,87,000
To Loan (from Debdoot) A/c. 1,50,000
To Income Received in Advance A/c. 1,77,000
To Outstanding Salaries & Wages A/c. 2,22,800
To Capital Account (Balancing figure) 2,37,000
[Being the balances of various Assets, Liabilities and
Capital Accounts of the preceding accounting period are
brought forward (Capital being the excess of Assets over
Liabilities)] 16,20,000 16,20,000

LEDGER
It is a set of accounts or book where different types of accounts are maintained. After
preparation of journal entries for all transactions (in Journal proper and other books of original
or prime entry e.g., Cash book, Purchase day book, Sales day book, Return inward book, Return
outward book, Bills receivable book, Bills payable book, etc.) at first, these are transferred to
ledger book under different heads of accounts to know net or final position of a particular
account at the end of a certain period. The entries are first recorded in journal and then are
posted (recorded) in the ledger. It is the book of final entry. Each account has its dual side i.e.,
Debit side (left- hand side) and Credit side (right-hand side).Eric C Kohler defined a ledger
account as “A formal record of a particular type of transactions expressed in money or other
unit of measurement and kept in a ledger.” We know that ‘accounting’ involves ‘recording’,
‘classifying’ and ‘summarising’ of the financial transactions. ‘Recording’ is done in the Journal.
‘Classifying’ of the recorded transaction is done in the Ledger.

Ledger may be subdivided as (i) General ledger (ii) Debtors ledger (iii) Creditors
ledger.Posting:-The process or technique of recording / transferring the transactions from the
journal to the ledger is called the posting.
Rule for posting in ledger:-The account which has been debited in the journal should also be
debited in the ledger (left- hand side of the ledger account), stating or putting the other credit
account’s name (with the same amount). On the other hand, the account which has been
credited in the journal should be credited in the ledger also (right-hand side of the ledger),
putting the other debit account’s name. This will be clear with the following example:-
‘Purchases has been made in cash for Rs.33,000’ and this transaction will be passed in the
Journal as- Purchase Account (i) Dr. Rs.33,000

To Cash Account (ii) Rs.33,000

and the above two accounts will appear in Ledger as below:-

Dr. Purchase Account (i) Cr.

.Date Particulars Folio Amt.(Rs.) Date Particulars Folio Amt.(Rs.).
To Cash (ii) 33,000 By Balance C/d. 33,000.
To Balance B/d. 33,000

Dr. Cash Account (ii) Cr.

.Date Particulars Folio Amt.(Rs.) Date Particulars Folio Amt.(Rs.)

. To Balance C/d. 33,000 By Purchase (i) 33,000.

By Balance B/d. 33,000

Balancing of an account in ledger:-To know the net or ultimate position of a particular account
at the end of a certain period the process of ‘balancing’ is adopted. For doing this ‘balancing’ at
first, two sides (debit and credit) are added up and if they are not equal, then the difference is
ascertained and this difference is put on the side whose total amount is smaller than the other
side and written as ‘To Balance c/d’(when debit side total is smaller than credit side) or By
Balance c/d.(when credit side total is smaller than debit side) where ‘c/d’ stands for ‘carried
down’.

DEBIT BALANCE/ CREDIT BALANCE:-When for ‘balancing’ purpose the two sides (debit and
credit)of any Ledger Account are added up and if they are not equal, then the ‘difference’ is
ascertained and this ‘difference’ is put on the side whose total amount is smaller than the other
side. This ‘difference’ is denoted as ‘balance’. This ‘balance’ will be termed as ‘Debit balance’, if
the ‘Debit’ side total is higher than the ‘Credit’ side and will be termed as ‘Credit balance’, if the
‘Credit’ side total is higher than the ‘Debit’ side. One Ledger Account is drawn below for easy
understanding of the above.
Dr. CASH ACCOUNT Cr.
Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt(Rs.)
2012 2012
Sept.3 To Capital A/c. 90,000 Sept.4 By Bank A/c. 30,000
. ,, 6 To Sales A/c. 9,900 ,, 7 By Carriage Outward A/c. 1,500
. ,, 12 To Bank A/c. 6,000 ,, 9 By Carriage Inward A/c. 1,200
. ,, 18 To Dobson A/c. 9,000 ,, 12 By Purchase A/c. 4,200
. ,, 15 By Vehicle Repair A/c. 3,600
. ,, 18 By Dew & Co. A/c.5,400 .
. ,, 21 By Municipal Taxes A/c. 11,400.
. ,, 27 By Electricity Charges A/c. 15,300
. ,, 30 By Conveyance Charges A/c. 900
. ,, 30 By Balance C/d. 44,400.
. TOTAL Rs. 1,14,900 TOTAL Rs.1,14,900
.Oct.1 To Balance B/d. 44,400.
In the above Ledger(Cash) Account it reveals that ‘Debit’ side total is higher than the ‘Credit’
side total by Rs.44,400 which indicates that above ‘Cash Account’ is showing a ‘Debit Balance’
of Rs.44,400 as on 30th September,2012 and if any Trial Balance is drawn as on 30/ 09/2012 and
this balance is to be considered thereat then the said balanceof ‘Cash Account’ will be shown
under Debit Amount Column of Trial Balance.

PROBLEM:-From the following transactions prepare (i)Ledger& (ii) Trial Balance as on 15th
May,2012 in the books of Ramesh Goyel-------

2012
April,1RameshGoyel started his business with cash 4,50,000
,, 3 Took loan from Balaram @ 15% interest p.a. 1,50,000
,, 4 Opened Bank account with Allahabad Bank for 4,50,000
May,5 Purchased Goods from Bramha by issuing cheque on same day 1,20,000
,, 6 Sold goods to Vishnu by receiving a cheque amounting to 1,11,000
. and allowed him a cash discount of 6,000
,, 7 Deposited the Cheque, received from Vishnu, to Bank
,, 9 Following payments made :-
. (i) Transport charges to Maheswar Brothers through cheque 18,900
. (ii) Office Rent paid in cash for 7,500
. (iii)Weekly wages to newly engaged workers in cash 50,000
,, 12 Purchased Building for office purposes and paid the following :-
. to the owner of the building in cheque for Rs.3,00,000
. . Registration charges in cash for Rs.81,000
. and Brokerage charges in cash for Rs.30,000 4,11,000
,, 14 Cheque of Vishnu returned unpaid as informed by the Bank
,, 15 Vishnu was asked to settle the account &accordingly he remitted the entire amount in cash.

Dr. CASH ACCOUNT Cr.

Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012
Apr. 1 To Capital Account 4,50,000 Apr.4 By Bank 4,50,000
. ,, 3 To Loan from Balaram 1,50,000 May 7 By Bank 1,11,000
. ,, 6 To Sales 1,11,000 ,, 9 By Office Rent 7,500 .
,, 15 To Vishnu 1,17,000 ,, 9 By Wages( new workers) 50,000
. ,, 12 By Building (brokerage) 30,000
. ,, 12 By Building(regn.charge)81,000
. ,, 15 By Balance C/d. 98,500.
. TOTAL Rs. 8,28,000 TOTAL 8,28,000
May 16 To Balance B/d. Rs. 98,500

Dr. CAPITALACCOUNT Cr.

Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012
. Apr.1 By Cash 4,50,000
May15 To Balance C/d. 4,50,000 ..
TOTAL Rs. 4,50,000 TOTAL Rs.4, 50,000.
. May 16 By Balance B/d. Rs. 4,50,000

Dr. LOAN FROM BALARAMACCOUNT Cr.

Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012.
. Apr.1 By Cash 1,50,000
May15 To Balance C/d. 1,50,000.. . TOTAL Rs.
. 1,50,000 TOTAL Rs. 1,50,000.
May 16 By Balance B/d. Rs. 1,50,000.

Dr. BANK ACCOUNT Cr.

Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012
Apr.4 To Cash Account 4,50,000 May 5 By Purchase 1,20,000
May 7 To Cash Account 1,11,000 ,, 9 By Transport charges 18,900 .
. ,, 12 By Building Account 3,00,000 .
. ,, 14 By Vishnu 1,11,000 . .
,, 15 By Balance C/d. 11,100. .
TOTAL 5,65,000 TOTAL 5,65,000
May 16 To Balance B/d. 11,100
Dr. PURCHASE ACCOUNT Cr.
Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012
May 5 To Bank Account 1,20,000
. May15 By Balance C/d. 120,000.
. TOTAL 1,20,000 TOTAL 1,20,000
May 16 To Balance B/d. Rs. 1,20,000

Dr. SALES ACCOUNT Cr.

Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012
. May 6 By Cash Account 1,11,000
. ,, 6 By Discount Account 6,000
May 15 To Balance C/d. 1,17,000 ..
. TOTAL 1,17,000 TOTAL 1,17,000
. May 16 By Balance B/d. Rs. 1,17,000

Dr. DISCOUNT ACCOUNT Cr.

Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012
May 6 To Sales Account 6,000
. May15 By Vishnu 6,000 .
. TOTAL 6,000 TOTAL 6,000
.May 16 To Balance B/d. 6,000

Dr. TRANSPORT CHARGES ACCOUNT Cr.

Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012

May 9 To Bank 18,900

. May15 By Balance C/d. 18,900.

. TOTAL 18,900 TOTAL 18,900
.May 16 To Balance B/d. 18,900

Dr. OFFICE RENT ACCOUNT Cr.

Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012
May 6 To Cash Account 7,500
. May15 By Balance C/d. 7,500 .
. TOTAL 7,500 TOTAL 7,500
.May 16 To Balance B/d. 7,500
Dr. WAGESACCOUNT Cr.
Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012

May 9 To Cash 50,000

. May 15 By Balance C/d. 50,000.

. TOTAL 50,000 TOTAL 50,000
.May 16 To Balance B/d. 50,000

Dr. BUILDING ACCOUNT Cr

. Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012
May 12 To Bank Account 3,00,000

To Cash(Regn. Charges) 81,000

To Cash(Brokerage Charges) 30,000

. May 15 By Balance C/d. 4,11,000.

. TOTAL 4,11,000 TOTAL 4,11,000
.May 16 To Balance B/d. 4,11,000

Dr. VISHNU ACCOUNT Cr.

Date Particulars Fol. Amt.(Rs.) Date Particulars Fol. Amt.(Rs.)
2012 2012
May 12 To Bank Account 1,11,000

To Discount 6,000

. May 15 By Cash 1,17,000.

TOTAL 1,17,000 TOTAL 1,17,000

In the books of Ramesh Goyel

Trial Balance as on 15th May,2012
Debit Credit
Particulars Balance(Rs.) Balance(Rs.)
(i) Cash Account 98,500
(ii) Capital Account 4,50,000
 (iii)Loan from Jaganath Account 1,50,000
(iv) Bank Account 11,100
(v) Purchase Account 1,20,000
(vi) Sales Account 1,17,000
(vii) Transport Charges Account 18,900
(viii) Office Rent Account 7,500
(ix) Wages Account 50,000
(x) Building Account .4,11,000 .
TOTAL 7,17,000 7,17,000

ADJUSTMENT ENTRIES

(1)ADJUSTMENT OF CLOSING STOCK:(a)When value of ‘Closing Stock’ is Rs.3,000 (say) and not
appearing in ‘Trial Balance’ but Accounts are to be closed for preparation of ‘Trading and Profit & Loss
A/c. Etc.’ then we need to pass ‘adjusting entry’ as below.
. Closing Stock Account Dr.Rs.3,000 .
To Trading Account Rs.3,000
.(b)However if we want to include the value of ‘Closing Stock’ in the ‘Trial Balance’ then after
ascertaining the value of ‘Closing Stock’ ( on the principle of ‘cost or market price whichever is lower’)
one entry is to be passed i.e., .
. Closing Stock Account Dr.Rs. 3,000 .
. To Purchase Account Rs.3,000 .
In situation(b), ‘Purchase Account’ in ‘Trial Balance’ will appear as ‘Adjusted Purchase Account’ and
‘Closing Stock Account’ will not appear on the credit side of the ‘Trading Account’ with the reason
that the same has already been taken into consideration. So in this situation, the value of closing
stock will appear only in ‘Balance Sheet’ on the ‘Asset’ side.

Journal Entries for Adjustment:

(1)Closing Stock [ always to be considered at ‘Market Value or Book Value whichever is lower’]
(i) when not appearing in T/B then lower of the above two value will appear in Trading A/c. after Sales
A/c. and in Balance Sheet on the Asset side under the head Current Assets. Adjusting Entry is Debit
‘Closing Stock’ and Credit ‘Trading Account’.
(ii)but when appearing in T/B then lower of the two value will only appear in Balance Sheet on the
Asset side under the head Current Assets.

(2)ADJUSTMENT OF OUTSTANDING EXPENSES:- It means the expense which has already been incurred
but payment for which has not been done within the related accounting period. e.g., for 12-month
period ended 31/3/2012, ‘Office Rent’ was to be paid for 12 months but on scrutiny it is revealed that
‘Rent’ for March,’12(say, Rs. 6,000) has not been paid . So, in order to incorporate Rent of March,2012 in
the Accounting Year 2011- ’12 (ended 31/3/2012) the following steps are followed by passing Adjusting
Journal Entry .
(i)Rent AccountDr.Rs. 6,000 Similarly(ii)(say) Wages Account Dr.Rs. 9,000
. To Outstanding Rent AccountRs. 6,000 To Outstanding Wages Account Rs. 9,000
(iii)We know that ‘Account’ appearing In Trading Account is a direct expense and ‘Account’ appearing
in Profit & Loss A/c. is an indirect expense.
So, Wages Account (9,000) and Rent Account (6000) will appear on the ‘Debit’ side of ‘Trading Account’
and ‘Profit & Loss A/c.’ respectively and will be added with existing Wages/Rent amount as below:-

. To Rent Rs.66,000 To Wages Rs.99,000(say)

.Add. Outstanding Rs. 6,000 Rs.72,000 Add Outstanding Rs. 9.000 Rs.1,08,000
.If ‘Outstanding Rent/Wages’ are not appearing in ‘Trial Balance’ but appearing as ‘Additional
Information’ to ‘Trial Balance’, then both ‘Wages’ &‘Rent’ will appear in ‘Trading A/c.’ and ‘Profit & Loss
A/c.’ respectively as shown above (i.e., respective “Outstanding” amount will be added with the
respective “Trial Balance” amount). Obviously both “Outstanding” wages & rent amounts will also
appear in Balance Sheet on the Liability side as “Current Liability”.
.However, if above ‘Outstanding Expenses’ already appear in Trial Balance, then adjusting entry [i.e.,
Wages/Rent A/c. Dr. Rs. (9,000+6000)
. To Outstanding (Wages/Rent) A/c. . Rs.(9,000+6,000) ]
as required above is not to be passed in this situation. More precisely each of ‘Outstanding Wage’ and
‘Outstanding Rent’ as appearing in ‘Trial Balance’ shall not be added with ‘Trial Balance’ ‘Wages’ and
‘Rent’ figures respectively and whatever figure appearing against each of ‘wages’ and ‘rent’ will appear
in ‘Trading A/c.’ and ‘Profit & Loss A/c.’ respectively with the reason that the said ‘Wages’ and ‘Rent’
figures have been arrived at after taking into account ‘Outstanding Wages’ and ‘Outstanding Rent’
respectively . Hence both ‘Outstanding Wages’ and ‘Outstanding Rent’ figures as appearing in ‘Trial
Balance’ will respectively feature only in Balance Sheet separately on the Liability side as ‘Current
Liability’ .

(3)ADJUSTMENT OF PREPAID EXPENSES:- It means the expense which have been paid during the
current accounting period but the benefit of which will accrue in subsequent accounting period(s).
(i)Let us consider (a)Prepaid Wages [9,000] and Insurance Premium unexpired [6,000].
’Wages’ is direct expense whereas Insurance Premium is indirect expense and will appear on ‘Debit’ side
of ‘Trading Account’ and ‘Profit & Loss Account’ respectively and ‘prepaid wages’ & ‘prepaid/ unexpired
insurance’ will be deducted from the existing Wages/Insurance Premium amount as below:-
To Wages Rs.1,17,000(say) To Insurance Premium Rs.36.000(say)
Less Prepaid Rs. 9,000Rs. 1,08,000. Less Unexpired expense Rs.6,000 Rs.30,000

(4)ADJUSTMENT OF ACCRUED INCOME :-It means the income which has not been received earlier or
during the period in which it is earned . Let, interest on Investment @Rs.300/month is receivable in the
month itself. During the year ending 31st March,2012,the interest for March,’12 has not been received.
So in order to account for the same the Adjusting Entry will be: .
Accrued Interest A/c. Dr. Rs.300 [with the amount of Interest for Rs.300 for March,’12] .
To Interest A/c. Rs.300 .
Interest is indirect expense and will appear in ‘Debit’ side of ‘Profit & Loss Account’ and ‘Accrued
Interest’ for March,’12 will be added with the existing ‘Interest’ amount as below :-
. To Interest Rs. 3,300
. Add Accrued Rs. 300 Rs. 3,600 . Profit & Loss A/c. will show a total
amount of Rs.3,600 against ‘Interest’ and ‘Balance Sheet’ will reflect ‘Accrued Interest Rs.300’ on the
Asset side as ‘Current Asset’. ACCRUED INCOME can be termed as OUTSTANDING INCOME also.

(5)UNACCRUED INCOME or INCOME RECEIVED IN ADVANCE:- It means the income which has been
received earlier to the period during which it is to be earned. Any income received in advance is a
liability as benefits are yet to be conferred to the person or authority from whom the amount has been
received. .
The Adjusting (Journal) Entry to record the adjustment of any income received in advance is
. Income A/c. Dr.
. To Income Received in Advance A/c.

For example, Law Publications has received Rs.60,000 on 05/01/2012 as Subscriptions for one year
during the financial year ending 31/03/2012. Out of this Rs.15,000 [(60,000/12)x3months] relates to
financial year 2011-12 and rest Rs.45,000 relates to next financial year 2012-13 and in the books of Law
Publications this Subscription income of Rs.45,000 will be shown as ‘Subscriptions (Income) Received in
Advance’ . The (a) ‘Journal Entry ‘ and (b) ‘Trading Account’ in this situation will reflect as below:

(a)Subscriptions A/c. Dr. Rs.45,000

. To Subscriptions Received in Advance A/c. Rs.45,000

.(b)Dr. TRADING ACCOUNT Cr.

. Particulars Amount (Rs.) Particulars Amount(Rs.)
. By Subscriptions Rs.60,000 .
. less Received in Advance Rs.45,000 15,000
. This Subscriptions Received in Advance A/c. of Rs.45,000 will be shown as a Current Liability item on
LIABILITY side of Balance Sheet.
The UNACCRUED INCOME illustrated above considering that this is not appearing as an item Trial
Balance but appearing as ‘additional information’ to Trial Balance.
Note: If UNACCRUED INCOME already appears in the Trial balance, then no adjusting entry is required
to be passed since it has already been excluded while computing amount of relevant Subscription
income and in such situation ‘Un accrued Income’/ ‘Income Received in Advance’ will be only shown as
a Current Liability item on LIABILITY side in Balance Sheet and not in Income Statement. .

(6) ADJUSTMENT OF DEPRECIATION:- Depreciation represents that portion of the cost of a fixed asset
which has been used in the business for the purpose of earning profits. Generally the term
‘depreciation’ is used to denote decrease in value but in accounting the term is used to decrease in the
book value of a fixed asset. Depreciation is the permanent and continuous diminution in the book value
due to wear and tear of a fixed asset caused by usage, passage of time, technological obsolescence,
expiration of legal rights or for any other cause. Depreciation does not involve payment of money to any
third party, it is nevertheless an accounting entry in the books.
. If Depreciation appear as an additional information to Trial Balance then Depreciation amount will
appear in Income Statement as well as in Balance Sheet and the Adjusting Entry for the purpose is:
Depreciation A/c. Dr.
. To Respective Asset A/c. / Provision for Depreciation A/c.
.In Profit & Loss A/c., Depreciation appear on the Debit side as a separate item.
In Balance Sheet Depreciation appear on the Asset side by way of deduction from the value of
concerned Asset.
Note: If Depreciation already appear in the Trial Balance, then no adjusting entry is required to be
passed since it has already been taken into account while computing the closing book value of the
relevant fixed asset. Hence such Depreciation will be shown only on Debit side of the Profit & Loss
Account and not in the Balance Sheet. In other way it may be said that ‘Depreciation’ figure as per ‘Trial
Balance’ will appear only in ‘Profit & Loss A/c. and related ‘Fixed Asset’ figure as per ‘Trial Balance’ only
will appear in ‘Balance Sheet’(i.e., depreciation figure as per trial balance will not be shown by way
deduction from fixed asset) .

FIXED ASSETS/CURRENT ASSETS and CAPITAL EXPENDITURE /REVENUE EXPENDITURE

FIXED ASSETS include items acquired not for sale but for use in the operation of the business for a
long period of time e.g., Plant & Machinery, Furniture & Fixture, Land, Building, Vehicle, Patents, Trade
Mark. Fixed Assets do not change their ‘form’ during utilisation for operation of business and for this
reason they are referred as Permanent Assets.
. CURRENT ASSETS include the items like Cash in hand, Bank balance, Sundry Debtors, Bills Receivable
and Stock. It refers to those items which are held –(i) in the form of cash e.g., Cash in hand, Cheques in
hand and Cash at Bank (ii) for conversion into Cash during normal operating cycle of business e.g.
,(a)Cash to Stock(b) Stock to Debtors (c) Debtors to Bills Receivable and (d)finally Bills Receivable to
Cash again.[ Due to this convertibility nature, items under Current Assets are also called Fluctuating
Assets.] (iii) for their consumption in the production of goods or rendering of services in the normal
course of business e.g., stock of raw materials, WIP. Prepaid Expenses and Accrued Incomes are also
treated as CURRENT ASSETS

Capital and Revenue Expenditure

In any business transaction, we have seen that it may relate to any expenditure/income (receipts)
made or to be made. Further, this expenditure/income may be of capital/revenue nature. In other
way we can say that (i) expenditure may be either capital or revenue and similarly (ii) receipts may
be either capital or revenue.
Capital Expenditure- It is an expenditure which is incurred to acquire or bring into existence an asset
/advantage/benefit of enduring nature to increase the productivity or earning capacity.
Revenue Expenditure- It is an expenditure which is incurred to maintain the productivity or
earning capacity of any business organisation and to carry out operating activities in the normal
course of business.
EXPENDITURE :- Revenue expenditure- It refers to the amount spent by the business enterprise
for running the business or day-to-day conduct of the business for a short-period of time (i.e.,
accounting period) and the benefit of which also accrues within the same period of time e.g.,
Purchases of stock of goods (cost of materials consumed), Sales, Salaries & Wages, Salesman’s
 commission, Rent, Carriage inward/outward, Postage & Telegram, Discount allowed/received on
sales/purchases, Interest on loan, Repairs or Renewals of Assets, Depreciation on Fixed Assets(refer,
‘Adjustment on Depreciation’), etc., etc.,. An expenditure that arises out of and in the course of
regular business transactions of a concern is termed as revenue transaction or may be called as
‘expense’. It is incurred for generating revenue in the current accounting period and its benefit
expires within such period. It is a recurring expense. It helps to maintain the normal working
condition of any organisation. Revenue expenses are charged as expenses against revenue in
Trading/Profit & Loss A/c. etc.

PREPARATION OF JOURNAL/LEDGER/FINAL ACCOUNTS

PROBLEM:- The following is the Trial Balance of Zedda Brothers as on 31/03/2012. .
PARTICULARS Dr.Amount(Rs.) Cr. Amount(Rs.)
(1)Land and Building (wdv) 4,11,000 ………………………..…………..
(2) Plant & Machinery (wdv) 3,45,000 … …….………..…..……….
(3) Furniture & Fixture (wdv) 1,47,000……. ………………….……
(4)Motor Vehicles (wdv) 2,79,000…….. …………….. …
(5)Stock of Purchased Goods (as on 1/4/2011) 1,65,000…… .... ...……………… …
(6) Purchases / Sales 9,99,000…………….…….19,62,000
(6)Returns 12,000............................18,000
(7)Carriage Inward 48,000...................................
(8)Wages & Salaries 2,25,000…….........…................
(9)Interest 63,000........ .................26,250
(10) Insurance 39,000......….………..................
(11)Printing & Stationery 54,000 ......…...................…….
(12)Postage&Telegram 9,000....................................
(13)TravellingExpenses 33,000...................................
(14)BadDebts 17,100..................................
(15)Depreciation 43,200................................ ..
(16) Municipal Tax(Annual) 10,500……………………………….…
(17) Income Tax Paid 2,100……………………………..
(18) Sales Tax Collected ………………………………………12,600
(19)Sundry Debtors/Creditors 88,500...... .........……...1,98,000
(20)15%Investments(purchasedon01/07/2011) 3,60,000........................................
(21)18% Loan (Long-term)[Taken on 01/07/2011] ……….. ..............................6,90,000
(22)Cash in hand 18,300...........................….…………….
(23)CashatBank 55,200.…………..................……….......
(24) Capital Account .......................…….5,17,050
. TOTAL Rs.34,23,900 Rs. 34,23,900.
Additional Information :

(1) Value of Closing Stock as on 31/03/2012 was Rs. 1,98,000.

(2)Interest accrued on Investment but not yet received & payment of interest on Loan is also
outstanding-both to be considered
(3)Insurance premium paid for the year started from 01/10/2011
(4)Wages outstanding for Rs.54,000
(5)Advance Salary paid to an employee for Rs.12,000
(6)Sales include an Advance of Rs. 51,000 received from one prospective buyer (KABIR)
(7) (a) Depreciation on Already provided(Rs.) To be provided further(Rs.)
. Land & Building 15,021 26,079
. Plant & Machinery 12,609 21,891
. Furniture & Fixture 5,373 9,327
. Motor Vehicle 10,197 17,703
. TOTAL 43,200 75,000
. (B) Depreciation on each Asset has “to be provided further” as indicated above.

Prepare Trading and Profit & Loss Account for the year ended 31/03/2012 as well as Balance Sheet as
on that date.

Q.1)--Journalise the following transactions in the books of Mr. Joseph who started his
business w.e.f.01/06/2012
Q.2) Also prepare (i) Ledger Accounts (ii) Trial Balance and (iii) P/L Account &Balance Sheet .

(1/6 ) Started business with Cash Rs.2, 70,000/-

(2/6) Opened Bank A/c. with S.B.I and deposited Rs.7 5,000/
(3/6) Procured Furniture for office use in Cash for Rs.18,000/- and engaged Raktim as Cashier
for a salary of Rs.10,000/ p.m.
(4/6) Purchased Machinery from Batliboy& Co. for Rs. 1,20,000/-
(4/6) Purchased Goods worth Rs.90,000/- from Persi& Co.
(5/6) Sold Goods to Arjun for Rs.30,000/- in Cash
(5/6) Sold Goods to Hanif for Rs.70,000/-
(6/6) Paid Persi& Co. on account Rs.72,000/-.
(6/6) Procured Goods worth Rs. 1,20,000/- from Persian & Co.
(7/6)Arjun returned Goods worth Rs.12,000/-
(9/6) Returned Goods worth Rs. 45,000/-to Persi& Co.
(9/6) Received a Cheque from Hanif for Rs.50,000/- on account and deposited the same to
Bank on the same day.
(11/6)Hanif returned Goods of Rs. 9,000/- which in turn were sent to Venkatat same value
(11/6) Drew Rs.15,000/-for personal use from Bank
(11/6) Cheque of Rs. 10,000/-received from Hanif in full and final settlement and deposited to
Bank on the same day.
(11/6) Venkat remitted his entire dues in Cash
(12/6) Withdraw Goods worth Rs.6,000/-
(12/6) Withdraw from Bank for office use Rs.15,000/-
(12/6) Goods sold to Venkat for Rs.52,000/- and received a Cheque for Rs.50,000/- after
allowing the balance as cash discount and deposited the chequeto Bank on the same day.
(12/6) Took Loan from Gandhi for Rs. 50,000/- @ 18% interest p.a.
(12/6) Paid Transportation charges of Rs.12,600/- to Mahaveer Transporter for carrying the
Goods from the factory of Persian &Co. on 4/6 and 6/6 respectively.
(14/6) Sold Goods to Sea-Ocean &Co.forRs 60,000/-against which Cheque received for
Rs.45,000/-and deposited this cheque to Bank on 15/6 .
(15/6) Goods purchased for Rs.24,000/- from Rajnish and paid him by Cheque after deducting
discount of Rs.4000/-
(16/6)Bank informed that cheque of Venkat (Rs.50,000/-)has been returned as dishonoured and
Bank debited the account for Rs.250/- as their charges.
(16/6) Purchased Office Stationery for Rs.5,400/-
(16/6) Commission paid Rs.3,000/-toErshad
(18/6) Returned Goods of value Rs.9,000/- to Rajnish.
(18/6) Received one cheque as advance of Rs.30,000/- from one new customer(zaved) and
deposited the cheque to Bank on the same day.
(21/6)Rajnish informed that Cheque has been returned as ‘Signature not tallied’ and asked for
fresh Cheque for an amount by disallowing the related earlier ‘discount allowed’ amount.
(21/6) Purchased gift materials for Rs. 42,000/- in cash for distributing among customers.
(21/6) Venkat settled his account by means of a Cheque including interest of Rs.700/-
(25/6) Venkat returned goods of value Rs.24,000/- and claimed for refund of money.
(27/6) Venkat’s claim admitted for Rs.23,400/- which he too accepted.

Q.1)Journalise the following transactions in the books of Sri Amitava

Q.2) Also prepare (i) Ledger Accounts (ii) Trial Balance and (iii) P/L Account &Balance Sheet

PARTICULARS AMOUNT (Rs.)

1) Sri Amitava started his business withcash 3,90,000
2) Took loan from Jagannath @ 18% interest p.a. 1,60,000
3) Opened Bank account with S.B.I 4,60,000
4) Purchased Goods 18000
5) Purchased Goods for cash 9000
6) Purchased Goods from Jitendra for Cash 12000
7) Sold Goods 33000
8) Sold Goods for Cash 21000
9) Sold Goods to Raktim for Cash 15000
10) Purchased Goods from Bhakti 21000
11) Purchased Goods from Shakti on Credit 24000
 12) Sold Goods to Agni 24000
13) Sold Goods to Raja on credit 36000
14) Goods returned to Jitendra 3000
15) Goods returned by Raktim 6000
16) Paid to Bhakti in full & final settlement 18000
17) Paid to Shakti on account 9000
18) Received chequepayment from Agni in full
and final Settlement 21000
19) Received payment in cheque from Raja on account 24000
20) Agni’s chequedishonoredas informed by bank ------
21) Received payment from Raja in Cheque 12000
22) Paid to Shakti by Cheque 15000
23) Agni was asked to pay due balance with interest ofRs.630& he paid the same in Cash
24) Bank informed that Rs.12,000cheque of Raja returned unpaid-------
25) Shakti informed the Cheque received by him is returned due
tosome technical reason -------
26) Shakti asked to pay due balance plus additional amount of
Rs.350 towardsbank charges, etc., for the dishonoredcheque
and accordingly payment made to him in Cash on 27/3/’12. -------
27) Purchasedgoodsdistributed as free samples to customers 22,350
28) (N)Paid Transport charges to Mahaveer Brothers in cash 13,500
29) (N) Paid Office Rent in cash 7,500
30) (N) Purchased Office Furniture from M/s. Omprakash 18,300
31) (N)Purchased a 5 Kotthas Land @Rs.90,000/Kotthas by cheque and paid both Registration
charges@8% along with a payment of Rs.9,000 to a land broker in cash
32) (N)Paid salary to Driver 12,000
33) (N) Bought one Air-Cooling Machine 39,000

.(1)Prepare Trial Balance as at 31st March, 2012 from the following Ledger Balances as obtained from the
Books of M/s. Winover Bros. and
(2) Prepare (i) Trading and Profit & Loss Account for the year ended 31/3/2012 and (ii) Balance Sheet as
at 31st March, 2012 after taking into account the undernoted adjustments .

Account Head Ledger Balance(Rs.) Account Head Ledger Balance(Rs.)

(1)Creditors……………………………1,00,000……………………..(2)Bills Payable…………………………...…5,600
(3)Loan from Bank…………………1,40,000………………………(4) Capital A/c…………………………...4,54,000
(5)Sales ...................................6,30,000........................(6)Purchase Returns .........................5,000
(7)Discount Earned/ .....................................................(8)Bad Debt Recovered .....................3,500
. .........Received ...........................1,000.........................(9)Interest on Investment...................3,000
(10)Fixed Assets......................6,00,000........................(11) Opening Stock.............................75,000
(12)Sundry Debtors.................1,05,000........................(13) Bills Receivable............................10,000
(14)Investments.........................50,000........................(15)Cash-in-Hand..................................5,000
(16) Cash at Bank ......................10,000........................(17) Drawings (Dr.)................................9,000
(18) Purchases .......................3,25,000.........................(19)Sales Return..................................10,000
(20)Freight Inward.......................1,400.........................(21)Freight Outward .............................2,000
(22)Duty paid on Purchases ........1,600.........................(23) Primary Packing Expenses............13,200
(24) Bad Debts.............................5,000..........................(25) Interest on Loan taken..........................
(26)Rent Paid...............................3,000 ..........................................from Bank.............................2,500
(27)Insurance Paid ......................3,600..........................(28)Office & Administration Expenses..13,200
(29)Discount Allowed..................2,000..........................(30)Wages & Salaries.............................96,600
(31)Selling & Distribution Exps...10,000.........................(32)Income Tax Paid................................1,000
(33) Sales Tax Collected................2,000.........................(34) Loose Tools.......................................2,000
(35) Apprentice Premium Recd.......425..........................(36) Commission Received..........................375
. TOTAL Rs.25,99,800
Additional Information :- (a) Closing Stock: (i) Book Value Rs. 50,000 and (ii) Market Value Rs45,000 as
on 31/03/2012,
(b)Goods costing Rs. 30,000 destroyed by fire on 30/03/2012. Insurance Co. accepted claim to the tune
of 60% and paid the same on 09/04/2012,
(c)Invoice for Goods purchased on Credit received on 28/03/2012 and the same recorded in Purchase
Day Book but goods were not received till 31/03/2012,
(d)Goods valuing Rs. 36,000 were sent to one customer on approval basis on 25/03/2012 and have been
recorded in the Books as actual Sales but remained unsold till 31/03/2012. Cost of such Goods were
Rs.27,000,
(d) Fixed Assets comprises (i)Building-Rs. 2,00,000, (ii) Plant & Machinery-Rs.2,75,000 & (iii)Furniture
and Fixture- Rs.1,25,000,
(e)Provide Depreciation on Straight Line Method for (i)Plant & Machinery @ 10% (ii)Building @5% and
(iii)Furniture & Fixture @8%,
(f)Rent of Rs.1,000 for March,’12 is outstanding,
(g)Interest on Investment Accrued Rs.1,200,
(h)Loose Tools are valued at Rs.1,200 on 31/3/2012,
(i)Insurance unexpired amount is Rs.600 as on 31/3/2012,
(j) Allow Interest on Capital @6%,
(k) Charge Interest @9% on the Closing Balance of Drawings
(l)Wages & Salaries include (i) Salary paid in Advance Rs.12,000 and (ii) wages outstanding for Rs.39,000.

Journal Entries for Adjustment:

(1)Closing Stock [ always to be considered at ‘Market Value or Book Value whichever is lower’]
(i) when not appearing in T/B then lower of the above two value will appear in Trading A/c. after Sales
A/c. and in Balance Sheet on the Asset side under the head Current Assets. Adjusting Entry is Debit
‘Closing Stock’ and Credit ‘Trading Account’.
(ii)but when appearing in T/B then lower of the two value will only appear in Balance Sheet on the
Asset side under the head Current Assets.

PROBLEM:- The following is the Trial Balance of Zedda Brothers as on 31/03/2012. .

PARTICULARS Dr.Amount(Rs.) Cr. Amount(Rs.)
(1)Stock of Purchased Goods (as on 1/4/2011)………………..1,65,000.....................…………..
(2) Purchases / Sales ………………………………………………………..9,99,000.....................17,39,050
(3)Returns ……………………………………………………………………………12,000.........................18,000
(4)Carriage Inward ………………………………………………………………48,000...................................
(5)Wages&Salaries………………………….…………………………………2,25,000…….........…................
(6)Insurance………………………………………………………………………….39,000......….………..................
(7)Sales Tax Cllected …………………………………………………………………………………………………54,000
(8)IncomeTaxPaid…………………………………………………………………….9,000....................................
(9)BadDebts……………………………………………………………………………17,100.................................
(10) Plant & Machinery……………………………………………………….. 3,45,000.........................……….
(11)Furniture&Fixture……………………………………………………………1,47,000.....................…………...
(12)Sundry Debtors/Creditors………………………………………………… 88,500.............……...1,98,100
(13)Cash in hand……………………………………………………………………….18,300................….…………….
(14)CashatBank…………………………………………………………………………55,400.…………........……….......
(15) Capital Account……………………………………………………………………........................…….2,67,150
…………………………………………………………………..TOTAL …………Rs.22,22,300…………..Rs. 22,22,300.

Additional Information :

(1) Value of Closing Stock as on 31/03/2012 was Rs. 1,98,000.

(2)Provide depreciation @10% on (a)Plant& Machinery and (b)Furniture&Fixture.
(3)Insurance premium paid for the year started from 01/10/2011
(4)Wages outstanding for Rs.54,000
(5)Advance Salary paid to an employee for Rs.12,000
(6)Sales include an Advance of Rs. 51,000 received from one prospective buyer (KABIR).

Prepare Trading and Profit & Loss Account for the year ended 31/03/2012 as well as Balance Sheet as
on that date.
 BANK RECONCILIATION STATEMENT
When a person[ natural (e.g.,Ram,jadu) or artificial/legal (e.g.,XYZ Ltd. Allhabad Bank Ltd.,etc.)] is having
a Bank Account with any Bank then Bank provides Bank Statement or Bank Pass Book to the said
customer. This Bank Statement or Bank Pass Book, as the case may be, contains the monetary
transactions between Bank and its customer. Generally the Bank Balance as per Cash Book and balance
as per Pass book as on any date do not tally. Due to this disagreement, the need for preparing Bank
Reconciliation Statement arises.
Bank Reconciliation Statement is prepared to reconcile the Bank Balance as per Cash Book with the
balance as per Bank Pass Book (or Statement), by showing all causes of differences between the two and
to take necessary follow-up action.
At the outset it needs to be mentioned that---
(i) Bank transactions of the Debit side of the Cash Book will appear as the Credit side transactions of the
Bank Pass Book. Similarly Bank transactions of the Credit side of the Cash Book will appear as the Debit
side transactions of the Bank Pass Book. (ii)
Debit Bank Balance as per Cash Book= Credit Bank Balance as per Pass Book
. and
Credit Bank Balance (i.e., Overdraft) as per Cash Book= Debit Bank Balance(i.e., Overdraft) as per Pass
Book.
(iii)(a)Cash Book shows Debit Balance = Favourable Balance
(b) Pass Book shows Credit Balance = Favourable Balance
(c) Cash Book shows Credit Balance = Unfavourable/Overdraft Balance
(d) Pass Book shows Debit Balance = Unfavourable/Overdraft Balance
However – ‘Bank Balance’ means favourable balance unless otherwise stated.

Q.How to make Bank Reconciliation Statement (without amending Cash Book)

SOLUTION (hints) PLUS MINUS
. (+) (-)
. Rs. Rs.

(i) If the starting is ‘Bank balance as per Cash Book’ +ive or -ive
(ii)Cheque deposited but not cleared (15,000) 15,000
(iii) Cheque issued but not yet presented to Bank (9,000) 9,000
(iv)Cheque directly deposited in Bank by customer(6,000) 6,000
(v)Income(e.g., interest from UTI, Dividend from Investment)
. directly received by Bank (33,000) 33,000
(vi) Expenses(e.g., insurance premium, telephone bill) directly
. paid by bank as per Standing Order/Instructions(24,000) 24,000
(vii) Bank Charges levied by Bank (3,600) 3,600
(viii) Locker Rent levied by Bank (5,700) 5,700
(ix) Instead of debiting Bank Col.(9,000) of Cash Book debited
. Cash Col.(8,000) 9,000
(x) Instead of crediting Bank Col.(3,000) of Cash Book credited
. Cash Col.(7,000) 3,000
(xi) Instead of debiting Cash Col. (4,000)of Cash Book debited
. Bank Col. (6,000) 6,000
(xii) Instead of crediting Cash Col.(11,000) of Cash Book credited
. Bank Col. (94,000) 94,000
(xiii) Wrong debit in Pass Book (600) 600
(xiv) Wrong credit in Pass Book (700) 700
(xv) Cheques received and recorded in Bank Col. but not
. deposited to Bank (24,000) 24,000
(xvi) Cheques issued and returned unpaid/dishonoured(3,000) 3,000
(xvii) Cheques deposited and returned unpaid/dishonoured (4,000) 4,000
(xviii) Undercasting of Dr. Side of Bank Col. in Cash Book (15,000) 15,000
(xix) Overcasting of Dr. Side of Bank Col. in Cash Book (7,000) 7,000
(xx) Undercasting of Cr. Side of Bank Col. in Cash Book (9,000) 9,000
(xxi) Overcasting of Cr. Side of Bank Col. in Cash Book (2,000) 2,000
(xxii) Dr. Balance of Bank col. of Cash Book of previous day (2,900)
. brought forwarded as Cr. Balance of Bank col. of Cash Book of
. next day (9,200) [2,900+9,200] 12,100
(xxiii) Cr. Balance of Bank col. of Cash Book of previous day(3,200)
. brought forwarded as Dr. Balance of Bank col. of Cash Book of
. next day (2,300) [3,200+2,300] 5,500
(xxiv) Bank charged interest on Bank Overdraft (3,600) 3,600

From above, without considering starting ‘Bank balance as per Cash Book’, total of ‘PLUS’ is
coming for Rs.1,09,100 and total of ‘MINUS’ is coming as Rs.1,11,000.
Now, if Opening Balance be favourable (i.e. ‘+’) for Rs. 10,000/Rs.1,000 then Bank Balance as
per Pass Book will be [10,000+1,09,100-1,11,000]8,100(favourable)/[1,000+1,09,100-1,11,000]
900(un favourable).
However, if Opening Balance be un favourable (i.e. ‘-’) for(say,3000) then Bank Balance as per
Pass Book will be[1,09,100-(1,11,000+3,000)] 4,900(un favourable)

Q.-From the following particulars, as obtained from the books of Desai & Brothers, prepare Bank Recon-
-ciliation Statement as at 31st March,2012 without amending Cash Book:- .Rs.
Bank balance as per Cash Book 54,000
Cheques received and recorded in Bank column but not sent to Bank for collection till (31/3) 18,000
Cheques deposited to Bank but not yet recorded in Cash Book 36,000
Cheques deposited but not yet collected by Bank 27,000
Cheques issued but not yet presented for payment 42,000
Bank charges debited in Pass Book only 600
Interest credited in Pass Book only 2,400
Insurance Premium paid directly by Bank as per Standing Order 9,300
Cheques deposited returned unpaid and recorded in Pass Book only 15,000
Cheques ‘Issued’ but returned on technical grounds. 21,000
A wrong debit given by Bank in Pass Book 3,300
A wrong credit given by Bank in Pass Book 4,500
Customer paid directly into the Bank but not appearing in the Cash Book 30,000
A Cash receipt recorded in Bank Column 9,000
A Cash payment recorded in Bank Column 12,000
The payment side of the Cash Book(Bank Column) has been under cast by 3,000
Bank charges entered twice in Cash Book 330
Debit balance of the previous day in Cash Book(Bank Column) was brought forward
as a credit balance in Cash Book (Bank Column) 3,900
Cash Sales wrongly recorded in Bank Column 18,600
Cash Purchases wrongly recorded in Bank Column 12,900
Bank Purchases wrongly recorded in Cash Column 13,800

Q.1--State whether each of the following statement is true or false:-

(a) The process of recording a transaction in the Journal is called ‘Posting’ (F) (it is Journalising)
(b) The individual record of a person or thing or an item of income or an expense is called an ‘account’
(T)
(c) The Ledger is the ultimate destination of all transactions (T)
(d) The Ledger is called the ‘Book of Prime entry’ (F) (Final entry)
(e) A journal entry by means of which the balances of various assets, liabilities and Capital appearing in
the Balance Sheet of previous accounting period are brought forward in the books of current accounting
period, is known as ‘Posting’ (F) (Opening entry)
(f) The Ledger is a book of ‘Original entry’ (F) (Final entry)
(g) L.F.(i.e., ‘Ledger Folio Column’) in the Journal is filled at the time of Journalising (F) (it is done at
the time of ‘posting’ in to the ledger)
(h) Discount column of Cash Book may have either Debit Balance or Credit Balance (F) (it is not
balanced rather each balance is transferred to respective account)
(i) The allowance given to customer for prompt payment is called Trade Discount (F) (Cash discount)
(j) Discount received is recorded on the Debit side of the Cash Book (F) (Credit side)
(k) Trade Discount received is recorded on the Credit side of Triple Column Cash Book (F) (it is not
recorded in transactional entries)
(l) The total of Discount column on Debit side of Cash Book is posted to the Credit side of Discount
Account (F) (it is posted to the Debit side of Discount Account)
(m) ‘Rent Outstanding’ is a Nominal A/c. (F) (Representative Personal A/c.)
(n) A list which contains balances of accounts to know whether the total of ‘Debit Balances’ and ‘Credit
Balances’ are tallied is known as Balance Sheet (F) (Trial Balance)
(o) Any unexpired expenses account is a Nominal A/c. (F) (Representative Personal A/c.)
(p) Purchase of second-hand Building for business purposes by a Hardware merchant to be recorded in
Purchase Day Book (F) (Journal)
(q) Sales Tax Collected is shown as Liability in Balance Sheet (T)
(r) In Trial Balance both Debit and Credit Balances appear and this is why it is an ‘Account’ (F)
‘Statement’
(s) Income Tax paid in a Proprietorship organization is to be shown on the Debit side of Profit & Loss
Account (F) (it will be shown on Liability side in Balance Sheet under the caption
head ‘Capital’ and the amount will be deducted (as drawings)from the favourable ‘Capital’ balance)
(t) Goods worth Rs.5,000 taken by proprietor for personal use to be credited to Drawings A/c. (F)
(It will be Credited to Purchase A/c. considering Proprietor is running business as a Trader. However if
Proprietor is running a manufacturing business and Proprietor takes manufactured goods for personal
use then instead of ‘Purchase A/c.’, Trading A/c. will be Credited)
(u) Both ‘Cash Sales’ and ‘Credit Sales’ are recorded in ‘Sales Day Book’ (F) (Sales Account)
(v) All Direct Expenses are Debited to Profit & Loss A/c. (F) (Trading Account)
(w)Capital + Long Term Liabilities==Fixed Assets+ Investments+ Current Assets—Short Term Liabilities
(T)(Capital+ Long Term Liabilities +Short Term Liabilities==Fixed Assets + Investments +Current Assets)
(x) ‘Debit Balance’ in Bank Pass Book indicates ‘Overdraft Balance’ (T )
(y) A Profit and Loss Account is a point statement whereas a Balance Sheet is a period statement (F) --
A Profit and Loss Account is a period statement whereas a Balance Sheet is a point statement
(z) Balance sheet is prepared to know the financial position of an enterprise at a particular time (T)
(za)Trading and Profit & Loss Account is prepared to ascertain the results of business operation during
an accounting period (T)
(zb)Trial Balance is prepared to check the arithmetical accuracy of the posting of transactions to the
Ledger (T)
(zc)In Joint Venture, persons carrying on business are called partners (F) [co-venturers]
(zd) In Partnership, persons carrying on business are called co-venturers (F) [Partners]
(ze) In Partnership a minor can be admitted as a Partner to the benefits of a firm (T)
(zf) In Joint Venture, a minor cannot be a co-venturer as he is incompetent to contract (T)
(zg)In Cosignment, both ownership and risk of Goods remain with the Consignor and Consignee (F) .
[both remain with consignor]
(zh)In Consignment while sending goods to Consignee, Consignor forwards a statement showing the
particulars of Goods e.g., quality, quantity, price, markings, packing etc. and this Statement is known as
‘Account Sales’ (F) [Proforma Invoice]
(zi) In Consignment, periodically or when the goods consigned are sold by the Consignee, Consignee
sends a Statement to the Consignor containing the information like (i) Sales made (ii) Expenses incurred
on behalf of the Consignor (iii) Commission earned (iv) An Advance (if any) given (v) the balance due to
Consignor (principal). This Statement is known as ‘Sales Account’ (F) [The concerned
Statement is known as ‘Account Sales’ whereas ‘Sales Account’ provides only the summary of sales
made for Cash and on credit]
(zj) Del-credere Commission is allowed by the Consignor only when Consignee undertakes the risk of bad
debts arising out of credit sales made by him (T)
(zk) Del-credere Commission is calculated at an agreed rate either on total sales (if no agreement) or
credit sales (if agreement provides) (T)
(zl) In Partnership, where each date and amount of Drawings are properly indicated, the interest is
calculated for an average period of six months (F) [It is calculated with the help of
Product Method]
(zm) In Partnership, where each date and amount of Drawings during the period of 12 months are not
properly indicated then interest is calculated on Product Method (F)
[Interest is calculated on the total amount of drawings for an average period of 6 months assuming each
drawing was made evenly in the middle of each month throughout the year and amounts were drawn
evenly during the year]
(zn) In Partnership where during the period of 12 months fixed amount is withdrawn on the first day of
every month, interest on total amount of Drawings is calculated for an average period of 6.5 months
(T)
(zo) In Partnership where during the period of 12 months fixed amount is withdrawn during the middle
of every month, interest on total amount of Drawings is calculated for an average period of 6.0 months
(T)
(zp) In Partnership where during the period of 12 months fixed amount is withdrawn on the last day of
every month, interest on total amount of Drawings is calculated for an average period of 5.5 months
( zq) In Partnership where during the period of 12 months fixed amount is withdrawn in the beginning of
each quarter, interest on total amount of Drawings is calculated for an average period of 7.5 months (T)
(zr) In Partnership where during the period of 12 months fixed amount is withdrawn in the middle of
each quarter, interest on total amount of Drawings is calculated for an average period of 6.0 months (T)
(zs) In Partnership if during the period of 12 months fixed amount is withdrawn at the end of each
quarter, interest on total amount of Drawings is calculated for an average period of 4.5 months (T)
(zt) If Partnership agreement is silent as to Interest on Capital then Interest on Capital is allowed
. (F) [Interest on Capital is not allowed]
(zu) In Partnership in absence of any agreement or deed partners are not entitled to share Profit & Loss
equally (F) [partners are entitled to share Profit & Loss equally]
(zv) In Partnership even in absence of any agreement or deed, Interest on Drawings is to be charged

(F) [ No Interest on Drawings is to be charged]

(zw) In Partnership in absence of any agreement or deed, Interest on Advances/Loans by a partner is

not to be allowed (F) [Interest on Advances/Loans by a partner is to be allowed @ 6% p.a.
even if there are losses]
(Zx) In Partnership even in absence of any agreement or deed, partners are entitledfor Salary and/or
commission (F) [No such Salary and/or commission is allowed].

Which of the following options is correct?

(a) Return inward from Zedda is entered in (i) Sales Return Book (ii) Journal (iii) Purchase Return Book
(iv) None of this. Ans— (i)
(b)Which of the following have ‘contra’ entries ?(i) Cash Book only record cash transactions (ii) Petty
Cash Book (iii)Three column Cash Book (iv)All Cash Books. Ans— (iii)
(c) Which of the following accounts is increased by debit entries?(i) Building account (ii) Commission
Received account (iii) Purchase Return account (iv) All of these. Ans— (i)
(d) In order to determine the total amount of sales(i.e., cash+credit) to which of the following records
one should refer? (i) Sales Day Book (ii) Sales Account (iii) Journal (iv)Total Debtors Account. Ans.— (ii)
(e)Salary paid to Kankan(employee) in Cash, will be debited to (i) Kankan’s Account (ii)Cash Account
(iii) Salaries Account (iv) Trading Account Ans.— (iii)
(f)A second hand machine purchased for Rs.33.000. To make the machine operative repairing cost
incurred for Rs.3,000. Freight and labour charges incurred Rs.2,000 and Rs. 500 respectively to
(ii)Rs.36,000 (iii) Rs.38,000 (iv)Rs.38,500. Ans—(iv)
(g) ‘Debit’ signifies (i) Increase in Asset account (ii) Decrease in Liability account (iii) Decrease in Capital
account (iv) All of the above. Ans—(iv)
(h)Capital of the business is Rs.9,00,000 and total outside Liability is Rs.3,00,000 then total assets of
business would be (i) Rs.3,00,000 (ii) Rs. 6,00,000 (iii) Rs.12,00,000 (iv) Rs.9,00,000. Ans— (iii)
(i) Rule regarding ‘Real Account’ is (i) Debit what comes in, Credit what goes out (ii)Debit all expenses
and losses, Credit all incomes and gains (iii) Debit the receiver, Credit the giver (iv) None of these. Ans.--
(i)
(j) Cheques received and deposited with the Bank but not realised before the year end, should be
shown in the Balance Sheet (i) as part of Cash in hand (ii) as part of Bank balance (iii) as Cheques in
hand (iv) should not be accounted at all . Ans—(ii)
(k) Balances of Accounts are transferred to (i) Trial Balance (ii) Trading Account (iii) Profit & Loss
Account (iv) Balance Sheet. Ans.—(i)
(l) The next step after preparation of Ledger is the preparation of---------- (i) Trial Balance (ii)Final
Accounts (iii) Cash Flow Statement (iv) Balance Sheet Ans.—(i)
(m) A business technique by which one person/firm sends goods to another on such basis that goods will
be sold on behalf of and at the risk of the former, is known as : (i) Partnership (ii) Joint Venture (iii)
Consignment (iv) Sales on approval Ans.—(iii)
(n) A periodic statement furnished by the consignee to the consignor stating therein, the quantity sold,
price charged, expenses incurred on behalf of the consignor and commission payable to him in respect
of a particular consignment, and the net amount due from him and remittance made, if any, etc. is
known as: (i) Account Current (ii) Consignment Account (iii) Account Sales (iv) Consignee Account,
Ans.—(iii)
(o)The Consignor sends----------------along with the consigned goods to the consignee (i) Account Sales (ii)
Proforma Invoice (iii) Both [i & ii] (iv) None, Ans.—(ii)
(p) The risk of ‘Stock on consignment’ (i.e., lying in the Godown of consignee as unsold stock) lies with:
(i) Consignee (ii) Consignor (iii) Buyer (iv) Seller . Ans.—(ii)
(q) When a business is jointly undertaken by two or more persons/firms sharing profits and
losses at an agreed ratio (if agreement is silent on this point, then in equal ratio) to execute a
particular job or service contract or so (e.g. Joint Consignment of goods, Joint Construction of a
building, etc.) for a limited purpose and automatically expires on the completion of the subject
job for which it was formed is known as: (i) Partnership (ii) Joint Venture (iii) Consignment (iv)
Sales on approval, Ans.—(ii)
(r) The parties to a Joint Venture are called : (i) Partners (ii) Principal and Agent (iii) Co- venturers’ (iv)
None of the above, Ans.—(iii)
(s) While preparing Annual Financial Accounts the following actions will be taken in which order?
(1) Preparation of Trial Balance, (2) Balancing of Ledger Accounts (3) Preparation of Annual Financial
Account (4) Passing Adjusting entries.
Select the correct answer from the following: (i) 4,2,1,3 (ii) 2,4,3,1 (iii) 2,1,4,3 (iv) 4,2,3,1,
Ans.—(iii).
(t) In the absence of an agreement to the contrary, the parteners shall (i) be paid salaries (ii) not be paid
salaries (iii) be paid salaries but only to working partners. (iv) none of this Ans.—(ii)
(u) Partners’ Current Accounts are opened when their Capital Accounts are :(i) Fluctuating (ii) Fixed (iii)
In both the above case (iv) None of these. Ans.—(i)

Q.3 i) In case of purchase and sales, if the name of the purchaser or seller is not mentioned in
the given transaction . purchase/ sales then such transactions are to treated to be as cash
transactions.Eg. Goods purchased for Rs 3000 or sold goods for Rs 6000

II) If case of purchase and sales , if names of the purchaser/ seller is mentioned and also
included, the word “in cash”/ “for cash” Eg purchased goods from X in cash or sold goods to Y
for cash then such transactions will be considered as cash transactions also.

III) In case of purchases and sales, if the name of purchaser or seller is not given and also not mentioned
that whether the transaction is dealt in cash or cheque (Bank), then it will be presumed that the
transaction is dealt in cash and for any cheque(Bank) transaction , the cheque(Bank) should be
mentioned specifically in the transaction.

iv) In case of purchases and sales if the name of the purchaser or seller is given but whether the
transaction is dealt ‘in cash’ or ‘for cash’ or’by cheque’ or ‘in cheque ‘ is not mentioned then such
transations are to be treated as credit transation. Eg Sold good to wife for Rs 6000 (credit sales) or
purchased good from X for Rs 3000 ( credit purchases)

v) When cash / cheque (Bank) or an asset is brought in by proprietor in the business , it is to recorded in
books as his (proprietor) capital for which capital account is to be credited and the cash or asset account
is to be debited correspondingly.

EG- Cash/cheque(Bank) A/c Dr ( Amount brought in)

 Asset (Furniture) A/c Dr ( Value of the asset brought in )

To Capital A/c ( Amount brought in+ Value of the asset brought in)

vi) When cash /cheque(Bank) and/or goods are withdrawn by the proprietor from the business or for
any personal expenses of the proprietor are paid from the business in cash /by cheque(Bank), then it is
to be considered as a drawing and drawings a/c is to be debited and cash /Bank /op.stock/purchases /
trading a/c is to be credited .Entry for the same will be
Drawing A/c Dr
To Cash/bank A/c (cash or cheque amount withdrawn by proprietor)
To Opening stock A/c ( value of the goods withdrawn from opening stock)
To Purchases A/c (If the goods are withdrawn from the current year’s purchase)
To Trading A/c (in case of manufacturing organisation if the manufactured goods are
withdrawn then trading account will be credited ,however if raw material is
withdrawn it will go to the purchase account)
vii) In the case of payment of any expenditure or income to or from a person , the name of the person to
whom the payment is paid or from whom the payment is received should not be recorded .
eg. – Salary paid to K in cash for Rs 3000 , here the salary a/c is to be debited and K’s a/c is not to be
debited
viii) Goods lost by fire or stolen .
Entry…. Good lost by fire A/c Dr
Goods stolen A/c Dr
To Opening stock/Purchase / Trading A/c
ix) Goods distributed as charity
Entry…… Charity a/c Dr
To Opening stock/Purchase / Trading A/c
x) Goods distributed as free samples
Advertisement A/c Dr.
To Opening stock/Purchase / Trading A/c
xi) Wages paid for Installation of plant
Situation
a) if the wages are not booked in ‘salaries and wages’ or ‘ wages’ or ‘wages and salaries’ then entry
will be-----
Plant A/c Dr
To Cash/ Bank a/c
b) if the wages are booked in ‘salaries and wages’ or ‘ wages’ or ‘wages and salaries’ then entry will
be
Plant A/C Dr.
To ‘Salaries and wages’ or ‘ Wages’ or ‘Wages and salaries’ A/c
xii) if similarly wages are paid for construction of buildings or carriage is paid for transportation of fixed
assets(say for, Plant and Machineries)_
Situation
a) if the wages are not booked in ‘salaries and wages’ or ‘ wages’ or ‘wages and salaries’ and
carriage paid for convenience is not booked in carriage a/c . then entry will be
Building a/c Dr
Plant and Machinery a/c Dr
To Cash /Bank A/c.
b) if the wages are booked in ‘salaries and wages’ or ‘ wages’ or ‘wages and salaries’ and carriages
paid for convenience is booked in carriage a/c then entry will be
Building a/c Dr
Plant and machinery A/c Dr.
To ‘salaries and wages’ or ‘ wages’ or ‘wages and salaries’ A/c
To carriage a/c