CA Foundation Accounts Recodring of Transactions Students

5.
RECODRING OF TRANSACTIONS
Q. No. R1 R2 R3 Special Point
Class Work
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5. RECODRING OF TRANSACTIONS
1. ACCOUNTING PROCEDURE
Evidence of the Record the

Contains the totals from
transactions transactions for the
various ledger accounts
first time
Source Book of Ledger Trial Final

Documents Original Entry Accounts Balance Accounts
Classification and grouping of Statement of the financial

recorded entries performance and position of a
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business entity
2. DOUBLE ENTRY SYSTEM

Every business transaction has two-fold effect and recording of both aspects of
a transaction is called double entry system of book-keeping. For e.g. On purchase
of furniture cash balance will be reduced.
Identify the two accounts Involved in each of the following transactions
Transaction Accounts Involved

• Salary A/c
Salary paid to Ratnakar Rs. 7,500
• Cash A/c
• Goods A/c
Purchased goods from Diwakar Rs. 1,000 on Credit.
• Diwakar A/c
• Prabhakar A/c
Sold goods to prabhakar Rs. 8,000
• Goods A/c
• Cash A/c
Received Rs. 500 as commission
• Commission A/c
• Furniture A/c
Bought furniture from Kamalakar Rs. 3,500
• Kamalakar A/c
• Rent A/c
Paid to shubham Rs. 1,200 for rent.
• Cash A/c
• Bank A/c
Deposited Rs. 5,000 in Bank.
• Cash A/c

3. DEBIT AND CREDIT
The ledger account is divided into two parts. Left and right-hand sides of the account are
conventionally called debit side (Dr.) and credit side (Cr.) respectively. Entries on left
and right hand side are called debit and credit entries respectively. It is customary to
right ‘To’ and ‘By’ respectively while recording entries on debit and credit side of the
account.
Left Side Debit To
Right Side Credit By
• Increases in assets are debits; decreases are credits;

• Increases in liabilities are credits; decreases are debits;
• Increases in owner’s capital are credits; decreases are debits;
• Increases in expenses are debits; decreases are credits; and
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• Increases in revenue or incomes are credits; decreases are debits.
4. TRADITIONAL APPROACH
Transactions in the journal are recorded on the basis of the rules of debit and credit only
4.1. CLASSIFICATION OF ACCOUNTS
Accounts
Personal Accounts Impersonal Accounts
Natural Artificial (Legal) Representative
Real Nominal
Tangible Intangible
A. PERSONAL ACCOUNTS : Accounts recording transactions with a person or group of persons

are called personal accounts. Personal accounts are of following types:
1. NATURAL PERSON(S) ACCOUNTS :- are accounts of individual living beings
and include accounts of individuals such as Rohit Capital Account, Ram
Account, Neha Account and so on.

2. ARTIFICIAL LEGAL PERSONAL ACCOUNT :- For business purpose, a business
entity is treated to have separate entity. They are recognised as persons
in the eye of law for dealing with other persons. Eg. Government,
Companies, Clubs, Cooperative societies.
3. GROUP/REPRESENTATIVE PERSONAL ACCOUNT :-Group personal accounts are accounts

of natural and legal persons grouped together such as debtors account, creditors
account, share capital account etc. Commission outstanding account, salaries
outstanding account etc. represent the person to whom commission or salary is
payable and not yet paid and are called representative personal accounts.
B. IMPERSONAL ACCOUNTS: Accounts which are not personal are termed as personal
accounts and are divided into real and nominal accounts.
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1. REAL ACCOUNTS : Real Accounts relate to properties of a business enterprise, which

can be tangible or intangible:
a) TANGIBLE REAL ACCOUNTS : - Accounts of properties having physical
existence like cash, building, stock of goods, furniture etc.is called
tangible real accounts.
b) INTANGIBLE REAL ACCOUNTS :- Includes accounts of things which
cannot be physically felt or touched but are capable of monetary
measurement such as accounts of goodwill, patents rights, trade
marks right, copy rights etc.
Thus real accounts are accounts of tangible objects or intangible rights, legal or self-
created, owned by a business enterprise.
2. NOMINAL ACCOUNTS: Accounts relating to income, revenue, gain,

expenses and losses are termed as nominal accounts. Examples of
nominal accounts are salaries, rent, commission, discount allowed,
rent received, sales, interest received etc.
4.2. GOLDEN RULES OF ACCOUNTING
Personal Account Debit the receiver, Credit the giver
Real Account Debit what comes in, Credit what goes out
Nominal Account Debit all expenses and losses, Credit all income and gains

5. ACCOUNTING EQUATION APPROACH
The relationship of assets with that of liabilities and owner’s equity in the equation form
is known as ‘Accounting Equation’.
Equality of assets on one hand and liabilities and capital on the other hand is called as
basic accounting equation.
EQUITY + LIABILITIES = ASSETS
OR,
EQUITY + LONG TERM LIABILITIES = FIXED ASSETS + CURRENT ASSETS – CURRENT LIABILITIES
This accounting equation holds good at all points of time and for any number of
transactions and events except when there are errors in accounting process.
6. CLASSIFICATION OF ACCOUNTS
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Classification of Accounts
Assets Liabilities Equity Income Expenses
Debit Credit
Asset Increase Decrease
Liabilities Decrease Increase
Income Decrease Increase
Expenses Increase Decrease
Equity Decrease Increase
7. CLASSIFICATION OF ACCOUNTS UNDER TRADITIONAL AND ACCOUNTING EQUATION

APPROACH
Title of Account Traditional Approach Accounting Equation Approach
Building Real Asset
Sales Nominal (revenue) Temporary Capital (Rev.)
Rent Nominal (Expense) Temporary Capital (Exp.)
Rent Outstanding Personal Liability
Adjusted purchases Nominal (Expense) Temporary Capital (Exp.)
Closing stock Real Asset
Discount Allowed Nominal (Expense) Temporary Capital (Exp.)
Capital Personal Capital
Drawings Personal Temporary Capital (Drawings)
Purchases Real Asset

Interest receivable Personal Asset
Provision for depreciation Real (Valuation) Asset
Rent received in Advance Personal Liability
Prepaid salary Personal Valuation (Asset)
Bad debts recovered Nominal (Gain) Temporary capital (Gain)
Personal Income tax Personal (Drawings) Temporary capital (Drawings)
Stock Reserve Valuation (Real) Valuation (Asset)
Provision for discount on creditors Valuation (Personal) Valuation (liability)
Debtors Personal Asset
8. JOURNAL
Transactions are first entered in this book to show which accounts should be
debited and which credited. Journal Book systematically records business
transaction on the basis of a source document in a chronological (day to day)
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order for the first time. Therefore, it is also called the Book of Prime or Original
entry. Journal is also called subsidiary book.
Journal Entries in the Books of ……..
Date Particulars L.F Debit (Rs) Credit (Rs)
8.1. JOURNALISING:
Recording of business transactions in the journal book on the basis of rules of double entry
system is called journalising. The record of a business transaction in journal is called a
journal entry.
There are basically two types of journals:-
1. General journal
2. Specialized journal (Subsidiary Books – To be discussed later on)
8.2. ADVANTAGES OF JOURNAL:

• Complete information about a business transaction
• Entries recorded in the journal are supported by a note termed as narration
which is a precise explanation of the transaction
• Journal forms the basis for posting the entries in the ledger. This eases the accountant
in their work and reduces the chances of error

9. LEDGER
After recording business transaction in the journal, recorded information is
classified by preparing accounts. The book containing various accounts related to
assets, liabilities and capital is called ledger book.
It is a main book of accounts and contains all accounts needed for preparing
financial statements. Therefore, it is also called Book of Principle Entry.
Dr. Account Cr.
Date Particulars J.F. Rs. Date Particulars J.F Rs.
9.1. LEDGER POSTING

The process of recording business transactions in ledger accounts on the basis of journal
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entries in the journal book is called ‘Ledger posting’ or simply ‘Posting’. Journal entries in
the journal clearly indicate the accounts and amounts to be debited and credited to
different accounts. Preparation of ledger accounts in the above discussed form is called
‘T’ form of presentation because ledger accounts take the form of a capital letter ‘T’
9.2. STEPS IN PREPARING LEDGER
Step 1 Step 2 Step 3 Step 4
Post the
Prepare a
Make a transaction Balance the
ledger
journal entry account from journal ledger
to ledger
9.3. RULES REGARDING POSTING OF ENTRIES IN THE LEDGER

• Separate account is opened in ledger book for each account and
entries from journal posted to respective account accordingly.
• It is practice to use words ‘To’ and ‘By’ while posting transactions in the ledger.
• The word ‘To’ is used in the particular column with the accounts written on the debit
side while ‘By’ is used with the accounts written in the particular column of the credit
side.
• The concerned account debited in the journal should also be debited in the ledger but
reference should be of the respective credit account.

9.4. BALANCING OF LEDGER ACCOUNTS
Balancing of an account means to make the total of amounts columns appearing on debit
and credit side of an account equal to each other.
9.5. STEPS IN BALANCING A LEDGER

Total the debit and credit sides. Calculate the difference between the two sides
Find the balancing figure
• If the debit side exceeds the credit side then it is a debit balance and is written as “by
balance c/d” on credit side. In the next year debit balance is written on debit side as
"To balance b/d".
• If the credit side exceeds the debit side then it is a credit balance and is written as “To
balance c/d” on debit side. In the next year credit balance is written on the credit side
as “By balance b/d”
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9.6.GOLDEN RULE
It should be noted that nominal accounts are not balanced; the balance in the
end are transferred to the profit and loss account. Only personal and real accounts
ultimately show balances.
10. TRIAL BALANCE

After the transactions are posted to various ledger accounts, and they are
balanced, the next stage is to draw up the list of all balances. All accounts
balances are listed to ensure that total of all debit balances are equals the
total of all credit balances. This is because every debit has equal
corresponding credit. This list of balances is called as a Trial Balance.
10.1.MEANING OF TRIAL BALANCE

Trial Balance is a statement which lists as on any given date debit and credit balances
of ledger accounts including cash and bank balances, to check arithmetical accuracy of
recording, posting and balancing.
Trial Balance As at (Date)
Sr.No. Particulars L.F. Amount (Dr.) Amount (Cr.)

After listing of ledger accounts along with their balances, Amount (Dr.) and Amount (Cr.)
columns are totaled. Totals of debit and credit amounts column must agree if:
a) Double entry system is followed.
b) Transactions are correctly recorded in books of original entry;
c) Posting into ledger accounts from books of original entry is correctly done; and
d) All accounts in ledger books are correctly balanced.
Thus, trial balance checks the accuracy of recording, posting and balancing of ledger. If it
does not tally, an attempt is made to find out reason for the difference and to rectify the
errors in recording, posting and balancing.
10.2. OBJECTIVES OF PREPARING THE TRIAL BALANCE

• Establish arithmetical accuracy
• Preparation of financial statements
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• Serves as a summary of ledger
10.3. LIMITATIONS OF TRIAL BALANCE

In spite of the agreement of the trial balance, following types of errors may remain.
• Transaction has been not entered at all in the journal
• A wrong amount has been written in the both columns of the journal
• A wrong account has been mentioned in the journal
• An entry has not at all been posted in the ledger
• Entry is posted twice in the ledger
10.4. METHODS OF PREPARATION OF TRIAL BALANCES

10.4.1. TOTAL METHOD - Every ledger account is totaled and that total amount (both of debit
and credit side) is transferred to trial balance.
Sr. no. Name of Account Total Debit Items Rs Total Credit Item Rs.
10.4.2. BALANCE METHOD - Every ledger account is balanced and those balances only are
carried forward to the trial balance. This method is used commonly by the accountants and
helps in the preparation of the financial statements. It is known as net trial Balance.
Sr. no Name of Account Debit Balance(Rs) Credit Balance(Rs)

10.4.3. TOTAL AND BALANCE METHOD- The above two explained methods are combined.
No. Name of Account L.F. Debit Balance (Rs) Credit Balance (Rs) Debit Total (Rs) Credit Total (Rs)
10.5. ADJUSTED TRIAL BALANCE:

If the trial balance does not agree after transferring the balance of all ledger
accounts including cash and bank balance and also errors are not located timely,
then the trial balance is tallied by transferring the difference of debit and credit
side to an account known as Suspense Account. This is a temporary account opened
to proceed further and to prepare the financial statements timely.
10.6. RULES OF PREPARING THE TRIAL BALANCE

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How items will appear under Trial Balance
Debit Credit
Assets
Expenses Liabilities
Losses Income
Drawings Profit
Cash and Bank Capital
11. SUBSIDIARY BOOKS

The entries are easy to be written, but if transactions are too many, it is difficult
to manage. As journal record all the transactions chronologically, it may be
possible that all purchase transactions could be scattered i.e. they may not come
all together one after the other. And at the end of the day, if owner wants to
know the total purchases made during the day, then accountant will first take time to
find out the transactions and then make total.
12. INTRODUCTION
• Bulk of transactions of a business house relate to cash (and bank) and purchase and
sale of goods. Such transactions will often be numerous even in a single day and,
therefore, journalizing each one of these transactions will involve a good deal of labour.
To avoid this labour, a separate register (or book) for each group of transactions is kept.
• These books of original or prime entry are also called subsidiary books.
• The system of recording transactions in separate books, instead of journal only, and
then posting them into ledger accounts is called practical system of book-keeping.
Special journals frequently used are as follows:
Subsidiary Books Nature of Transactions Recorded
1. Cash Book (including petty cash book) 1. Cash and bank transactions
2. Purchases Book 2. Credit purchase of goods
3. Sales Book 3. Credit sale of goods
4. Sales Return Book 4. Goods returned by customers
5. Purchases Return Book 5. Goods returned to suppliers
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6. Bills Receivable Book 6. Bills drawn on customers
7. Bills Payable Book 7. Bill accepted in favour of suppliers
8. Journal Proper or General Journal 8. Transactions not classified above and

for which there is no special journal
• As transactions are recorded in these journals in chronological order i.e. date wise,
these journals are also known as day books.
13. ADVANTAGES OF SUBSIDIARY BOOKS

• Division of work
• Specialisation and efficiency
• Saving of the time
• Availability of information
• Facility in checking
14. PURCHASE BOOK

• Special journal maintained to record transactions relating to purchase of goods on
credit is called purchases journal or purchase book.
• The entries in the purchases book are made on the basis of Purchase Invoices received
from the suppliers.

Golden Rules:
a) Only credit purchases are to be recorded in this journal. Cash purchases are
entered in cashbook.
b) Only purchases of goods are to be recorded in purchases journal. If a business
entity buys an item not for resale in the normal course of business, it is treated as
purchase of an asset, not of goods.
Purchase Book
Date Particulars Invoice No. L.F Amount Rs.
Posting of Purchase Book
Posting of Individual Amount Posting of Periodic Total

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Posted to the credit of Supplier’s A/c Posted to the debit of Purchase A/c
- By Purchases A/c -To Sundries as per Purchase Book
15. SALES BOOK

• Special journal maintained to record transactions relating to sale of goods on credit
is called sales journal or sales book.
Golden Rules:
• Only credit sales are to be recorded in sales journal. Cash sales are entered
in cashbook.
• Only sale of goods are to be recorded in sales journal. Credit sales of things,
other than the goods dealt in by firm are not entered in sales book; they are
journalized
Sales Book
Date Particulars Details L.F Amount Rs.

Posting of Sales Book
Posted to the debit of the Customer’s A/c Posted to the credit of the Sales A/c
- To Sales A/c -By Sundries as per Sales Book
16. PURCHASES RETURN BOOK (RETURN OUTWARD BOOK)

• Purchases return book records details of return of goods to the supplier.
• Entries are passed in Purchase Return Book on the basis of Debit Notes.
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Posting of Purchase
Returns Book
Posted to the debit of the Supplier’s

A/c Posted to the credit of the Purchase
Returns A/c
- To Purchase Returns A/c
-By Sundries as per Purchase Returns
Book
17. SALES RETURN BOOK (RETURN INWARD BOOK)

• Sales return journal is prepared to record goods returned by customers.
• Entries are passed in Sales Return Book on the basis of Credit Notes.

Posting of Sales Returns Book
Posted to the credit of the Customer’s A/c Posted to the debit of the Sales Returns A/c
-By Sales Returns A/c -To Sundries as per Sales Returns Book
18. BILLS RECEIVABLE BOOKS

• Bills receivable Book is used for the purpose of recording the details of bills receivable
in favour of a person who is maintaining the Bills Receivable Account.
• It doesn’t record further transactions like honour of bill, endorsement of bill, dishonour
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of bill etc.
Date BR No Particulars Customer/ Drawee L.F Amount Rs.
Posting of Bills Receivable Book
Daily posted to the credit of the Posted to the debit of Bills receivable
accounts of individual debtors Account
To Sundries as per B/R Book.
19. BILLS PAYABLE BOOKS

• Bills Payable Book is used for the purpose of recording the details of bills Payable
accepted by the person who is maintaining the Bills Payable Book.
• It doesn’t record further transactions like honour of bill, endorsement of bill, dishonour
of bill etc.
Date B.P.no. Particulars Supplier/Drawer L.F Amount Rs.

Posting of Bills Payable Book
Daily posted to the debit of the Posted to the credit of Bills Payable
accounts of individual creditors to Account in the ledger by writing
whom acceptances have been given. By Sundries as per B/P Book.
20.JOURNAL PROPER
“Journal Proper is a residuary book in which those transactions are recorded
which are not recorded in any other subsidiary book such as Cash Book,
Purchase Book, Sales Book, Purchase Return Book, Sales Returns Book, Bills
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Receivable Book and Bills Payable Book.”
OPENING ENTRY :- An Opening Entry is passed in the journal for bringing the balance of
various assets, liabilities and capital appearing in the Balance Sheet of the previous
accounting period, in the books of current accounting period.
CLOSING ENTRY :- Closing Entries are passed in the journal for closing the nominal
accounts by transferring them to the Trading and Profit & Loss Account. These are
needed at the end of the accounting year, when the final accounts are prepared.
TRANSFER ENTRIES :- Transfer Entries are passed in the journal for transferring an
amount from one account to another account, i.e. transfer of Total Drawings from
Drawings A/c to Capital A/c.
ADJUSTING ENTRIES :- Adjusting Entries are passed in the journal to bring into the books
of accounts certain unrecorded items like closing stock, depreciation on fixed assets,
outstanding and prepaid items. These are needed at the time of preparing the final
accounts.
RECTIFYING ENTRIES :- Rectifying Entries are passed in the journal to rectify the various
errors committed while posting, totalling, balancing etc.

MISCELLANEOUS ENTRIES :-
• Capital brought in kind
• Credit Purchases of Assets (other than Stock-in-trade)
• Credit Sales of Assets (other than Stock-in-trade)
• Return of Assets (other than Stock-in-trade) - which were sold on credit
• Return of Assets (other than Stock-in-trade) – which were bought on credit
• Endorsement of Bills Receivable to a creditor.
• Dishonor of Bills Receivables (not discounted with bank).
• Cancellation of Bills Payable.
• Abnormal Loss of Stock-in-trade/other assets by theft, accident, fire, etc.
• Writing – off Bad Debts.
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• Drawings.
• Goods distributed as free samples

Let’s Get Started….With Class Work
1. Following are the transactions entered into by R after he started his business. Show
how various accounts will be affected by these transactions:
April Particulars (` in 000)
2017
1. R started business with 5,000
2. He purchased furniture for 1,200
3. Paid salary to his clerk 1,100
4. Paid rent 1,150
5. Received interest 2,000
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SOLUTION
Date Particulars L.F. Debit Credit

2. Develop the accounting equation from following information available at the beginning
of accounting period:
Particulars (` in 000)
Capital 51,000
Loan 11,500
Trade payables 5,700
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Fixed Assets 12,800

Inventory 22,600
Trade receivables 17,500
Cash and Bank 15,300
At the end of the accounting period the balances appear as follows:
Particulars Rs in 000
Capital ?
Loan 11,500
Fixed Assets 12,720
Inventory 22,900
Cash at Bank 15,600
(a) Reset the equation and find out profit.
(b) Prepare Balance Sheet at the end of the accounting period.
SOLUTION

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Balance Sheet
Liabilities ` ` Assets `
3. Mr. Dravid. has provided following details related to his financials. Find out the missing
figures:
Particulars (` in’000)
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Profits carved during the year 5,000

Assets at the beginning of year A
Liabilities at the beginning of year 12,000
Assets at the end of the year B
Liabilities at the end of the year C
Closing capital 35,000
Total liabilities including capital at the end of the year 50,000
SOLUTION

4. Analyse transactions of M/s Sahil & Co. for the month of March, 2017 on the basis of
double entry system by adopting the following approaches:
(A) Accounting Equation Approach.
(B) Traditional Approach.
Transactions for the month of March, 2017 were as follows (figures are in ‘000):
1. Sahil introduced capital through bank of ` 4,000.
2. Cash withdrawn from the City Bank ` 200.
3. Loan of ` 500 taken from Mr. Y.
4. Salaries paid for the month of March, 2017, ` 300 and ` 100 is still payable for the
month of March, 2017.
5. Furniture purchased ` 500.
Required
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What conclusion one can draw from the above analysis?
SOLUTION

(B) Analysis of Business Transactions: Traditional Approach
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5. Journalise the following transactions. Also state the nature of each account involved in
the Journal entry.
Following figures are given in (‘00)
1. December 1, 2016, Ajit started business with capital ` 4,00,000
2. December 3, he withdrew cash for business from the Bank ` 2,000.
3. December 5, he purchased goods making payment through bank` 15,000.
4. December 8, he sold goods` 16,000 and received payment through bank.
5. December 10, he purchased furniture and paid by cheque ` 2,500.
6. December 12, he sold goods to Arvind ` 2,400.
7. December 14, he purchased goods from Amrit ` 10,000.
8. December 15, he returned goods to Amrit ` 500.
9. December 16, he received from Arvind ` 2,300 in full settlement.
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10. December 18, he withdrew goods for personal use ` 1,000.
11. December 20, he withdrew cash from business for personal use ` 2,000.
12. December 24, he paid telephone charges ` 110.
13. December 26, amount paid to Amrit in full settlement ` 9,450.
14. December 31, paid for stationery ` 200, rent `5,000 and salaries to staff ` 2,000.
15. December 31, goods distributed by way of free samples ` 2,000.
SOLUTION

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6. Show the classification of the following Accounts under traditional and accounting
equation approach:
(a) Building; (b) Purchases; (c) Sales; (d) Bank Fixed Deposit; (e) Rent; (f) Rent
Outstanding; (g) Cash; (h) Adjusted Purchases; (i) Closing Inventory; (j) Investments;
(k) Trade receivables; (l) Sales Tax Payable, (m) Discount Allowed; (n) Bad Debts;
(o) Capital; (p) Drawings; (q) Interest Receivable account; (r) Rent received in
advance account;(s) Prepaid salary account; (t) Bad debts recovered account; (u)
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Depreciation account, (v) Personal income-tax account.
SOLUTION
Nature of Account
Sr.No. Title of Account Traditional Approach Accounting Equation Approach
(a) Building
(b) Purchases
(c) Sales
(d) Bank Fixed Deposit
(e) Rent
(f) Rent Outstanding
(g) Cash
(h) Adjusted Purchases
(i) Closing Inventory
(j) Investment
(k) Trade receivables
(l) Sales Tax Payable
(m) Discount Allowed
(n) Bad Debts

(o) Capital
(p) Drawings
(q) Interest receivable
(r) Rent received in advance
(s) Prepaid Salary
(t) Bad debts recovered
(u) Depreciation
(v) Personal Income Tax
7. Transactions of Ramesh for April are given below. Journalise them.

2017 S.No. Particulars `
April 1 Ramesh started business with 1000000
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April 3 Bought goods for cash 50000
April 5 Drew cash from bank 10000
April 13 Sold to Krishna-goods on credit 150000
April 20 Bought from shyam goods on credit 225000
April 24 Received from Krishna 145000
April Allowed him discount 5000
April 28 Paid shyam cash 215000
April Discount allowed 10000
April 30 Cash sales for the month 800000
April Paid Rent 50000
April Paid Salary 100000
SOLUTION
JOURNAL
Date Particulars L.F. Amount Amount

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8. Prepare the Stationery Account of a firm for the year ended 31.12.2015 duly balanced
off, from the following details:
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2015 Particulars ``
Jan. 1 Inventory of stationery 480
April 5 Purchase of stationery by cheque 800
Nov. 15 Purchase of stationery on credit from Five Star Stationery Mart 1,280
Dec. 31 Inventory of stationery 240

SOLUTION
Stationery Account
Date Particulars Rs. Date Particulars Rs.

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9. Prepare the ledger accounts on the basis of following transactions in the books of a
trader.
Debit Balances on January 1, 2015:
Cash in Hand ` 8,000, Cash at Bank ` 25,000, inventory of Goods ` 20,000, Building
` 10,000. Trade receivables: Vijay ` 2,000 and Madhu ` 2,000.
Credit Balances on January 1, 2015:
Trade payables: Anand ` 5,000, Capital ` 55,000
Following were further transactions in the month of January, 2015:
Jan. 1 Purchased goods worth ` 5,000 (payable at later date) for cash less 20% trade
discount and 5% cash discount.
Jan. 4 Received ` 1,980 from Vijay and allowed him ` 20 as discount.
Jan. 8 Purchased plant from Mukesh for `5,000 and paid `100 as cartage for bringing
the plant to the factory and another `200 as installation charges.
Jan. 12 Sold goods to Rahim on credit `600.
Jan. 15 Rahim became insolvent and could pay only 50 paise in a rupee.
Jan. 18 Sold goods to Ram for cash `1,000.

SOLUTION
Cash Account
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Bank Account
Inventory Account

Building Account
Vijay Account

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Madhu Account
Capital Account

Purchases Account
Discount Account
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Plant Account
Mukesh Account

Sales Account
Rahim Account

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Bad Debts Account
10. The following data is given by Mr. S, the owner, with a request to compile only the two
personal accounts of Mr. H and Mr. R, in his ledger, for the month of April, 2015.
1. Mr. S owes Mr. R ` 15,000; Mr. H owes Mr. S ` 20,000.
2. Mr. R sold goods worth ` 60,000 @ 10% trade discount to Mr. S.
3. Mr. S sold to Mr. H goods prices at ` 30,000.
4. Record a purchase of ` 25,000 net from R, which were sold to H at a profit of `15,000.
5. Mr. S rejected 10% of Mr. R’s goods of 4th April.
6. Mr. S issued a cash memo for `10,000 to Mr. H who came personally for this
consignment of goods, urgently needed by him.
7. Mr. H cleared half his total dues to Mr. S, enjoying a ½% cash discount (of the
payment received,20,000 was by cheque).
8. R’s total dues (less `10,000 held back) were cleared by cheque, enjoying a cash
discount of `1,000 on the payment made.
9. Close H’s Account to record the fact that all but ` 5,000 was cleared by him, by a
cheque, because he was declared bankrupt.
10. Balance R’s Account.
SOLUTION
Mr. H Account
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Mr. R Account
11. Given below is a ledger extract relating to the business of X and Co. as on March, 31,

2016. You are required to prepare the Trial Balance by the Total Amount Method.
Dr. Cash Account Cr.
Particulars ` Particulars `
To Capital A/c 10,000 By Furniture A/c 3,000
To Ram’s A/c 25,000 By Salaries A/c 2,500
To Cash Sales 500 By Shyam’s A/c 21,000
By Cash Purchases 1,000
By Capital A/c 500
By Balance c/d 7,500
35,500 35,500
Dr. Furniture Account Cr.
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To Cash A/c 3,000 By Balance c/d 3,000

3,000 3,000
Dr. Salaries Account Cr.
To Cash A/c 2,500 By Balance c/d 2,500
2,500 2,500
Dr. Shyam’s Account Cr.
To Cash A/c 21,000 By Purchases A/c (Credit 25,000
To Purchase Returns A/c 500 Purchases)
To Balance c/d 3,500 –
25,000 25,000
Dr. Purchases Account Cr.
To Cash A/c (Cash 1,000 By Balance c/d 26,000
Purchases)
To Sundries as per Purchases
Book
(Credit Purchases) 25,000 –
26,000 26,000
Dr. Purchases Returns Account Cr.

To Balance c/d 500 By Sundries as per Purchases 500
500 Return Book 500
Dr. Ram’s Account Cr.
To Sales A/c (Credit Sales) 30,000 By Sales Returns A/c By Cash 100
A/c 25,000
By Balance c/d 4,900
30,000 30,000
Dr. Sales Account Cr.
To Balance c/d 30,500 By Cash A/c (Cash Sales) 500
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By Sundries as per Sales Book
(Credit sales) 30,000
30,500 30,500
Dr. Sales Returns Account Cr.
To Sundries as per Sales By Balance c/d 100
Returns Book 100
100 100
Dr. Capital Account Cr.
To Cash A/c 500 By Cash A/c 10,000
To Balance c/d 9,500
10,000 10,000
SOLUTION

Trial Balance of X and Co. as at 31.03.2016
No. Name of Account Total Debit Total Credit
CHAPTER 05
12. Taking the same information as given in Illustration 11, prepare the Trial Balance by
Balance Method.
SOLUTION
Trial Balance of X and Co. as at 31.03.2016
No. Name of Account Debit Credit

13. Taking the same information as given in Illustration 11, prepare the Trial Balance by
Total and Balance Method.
Trial Balance of X as at 31.03.2016
Sl. Heads of Account Debit Credit Debit Credit
No. Balance Balance Total Total
CHAPTER 05
14. From the following ledger balances, prepare a trial balance of Anuradha Traders as on
31st March, 2016:
Account Head `
Capital 1,00,000
Sales 1,66,000
Purchases 1,50,000
Sales return 1,000
Discount allowed 2,000
Expenses 10,000
Investments 15,000

Cash at bank and in hand 37,000
Interest received on investments 1,500
Insurance paid 2,500
SOLUTION
Trial Balance of Anuradha Traders as on 31.03.2016
Dr. balance ` Cr. balance `
CHAPTER 05
15. One of your clients, Mr. Singhania has asked you to finalise his accounts for the year
ended 31st March, 2016. Till date, he himself has recorded the transactions in books of
accounts. As a basis for audit, Mr. Singhania furnished you with the following
statement.
Particulars Dr. Balance Cr. Balance
Singhania’s Capital 1,556
Singhania’s Drawings 564
Leasehold premises 750
Sales 2,750
Due from customers 530
Purchases 1,259
Purchases return 264

Loan from bank 256
Trade payables 528
Trade expenses 700
Cash at bank 226
Bills payable 100
Salaries and wages 600
Inventories (1.4.2015) 264
Rent and rates 463
Sales return 98
5,454 5,454
The closing inventory on 31st March, 2016 was valued at ` 574. Mr. Singhania claims that
he has recorded every transaction correctly as the trial balance is tallied. Check the
CHAPTER 05
accuracy of the above trial balance.
SOLUTION
Corrected Trial Balance of Mr. Singhania as on 31st March, 2016
Particulars Dr. Amount Cr. Amount

16. The Rough Book of M/s. Narain & Co. contains the following :
2016 Feb.
1. Purchased from Brown & Co. on credit :
5 gross pencils @ `100 per gross,
1 gross registers @ ` 240 per doz.
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Less : Trade Discount @ 10%

2. Purchased for cash from the Stationery Mart; 10 gross exercise books @ ` 300 per
doz.
3. Purchased computer for office use from M/s. office Goods Co. on credit for ` 30,000.
4. Purchased on credit from The Paper Co.
5 reams of white paper @ `100 per ream.
10 reams of ruled paper @ `150 per ream.
5. Purchased one dozen gel pens @ `15 each from M/s. Verma Bros. on credit.
6. Make out the Purchase Book of M/s. Narain & Co.
SOLUTION

Purchases Book
Date Particulars Details LF Amount
CHAPTER 05

17. Enter the following transactions in Purchase Book and post them into ledger. 2017
April 4 Purchased from Ajay Enterprises, Delhi
100 Doz. Rexona Hawai Chappal @ `120 per doz.
200 Doz. Palki Leather Chappal @ `300 per Doz.
Less : Trade discount @ 10%
Freight charged `150.
April 15Purchased from Balaji Traders, Delhi
50 doz. Max Shoes @ `400 per doz.
100 pair Sports Shoes.
`140 per paid.
Less : Trade discount @ 10%.
CHAPTER 05
April 28 Purchased from Tripti Industries, Bahadurgarh

40 pair leather shoes @ `400 per pair
100 doz. Rosy Hawai Chappal @ `180 per doz.
Less : Trade discount @ 10%.
SOLUTION
Purchase Book
Date Particulars Gross Trade Net Price Freight Total
2017 Amount Discount Amount

CHAPTER 05
LEDGERS
Dr. Purchases A/c Cr.
Dr. Freight A/c Cr.

Dr. Ajay Enterprises Cr.


Dr. Balaji Traders Cr.
Dr. Tripti Industries Cr.

18. The following are some of the transaction of M/s Kishore & Sons of the year 2017 as per their
Waste Book. Make out their Sales Book.
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Sold to M/s. Gupta & Verma on credit:

30 shirts @ ` 800 per shirt.
20 trousers @ `1,000 per trouser.
Sold furniture to M/s. Sehgal & Co. on credit `8,000.
Sold 50 shirts of M/s. Jain & Sons @ `800 per shirt.
Sold 13 shirts to Cheap Stores @ `750 each for cash.
Sold on credit to M/s. Mathur & Jain.
100 shirts @ `750 per shirt
10 overcoats @ `5,000 per overcoat.
Less: Trade Discount @ 10%
SOLUTION
Sales Book

CHAPTER 05

19. Post the following into the ledger
Returns Outward Book
Date Particulars L.F. Details Amount
2017 ` `
Nov. 20 Rajindra Prakash & Sons
One 36” Usha Ceiling Fan 200.00
Less : Trade Discount @ 10% (20.00) 180.00
“ 30 Modern Electric Company 100.00
Total 280.00
CHAPTER 05
SOLUTION
Ledger
Dr. Rajindra Prakash & Sons Cr.
Date Particulars Folio Amount Date Particulars Folio Amount
2017
Dr. Modern Electric Co. Cr.

2017
Dr. Returns Outward Account Cr.

2017

CHAPTER 05

20.From the following transactions, prepare the Purchases Returns Book of Alpha & Co., a
saree dealer and post them to ledger :
Date Debit Particulars
Note No.
04.01.2016 101 Returned to Goyal Mills, Surat - 5 polyester sarees @ ` 1,000.
09.01.2016 Garg Mills, Kota- accepted there turn of goods (which were
purchased for cash) from us - 5 Kota sarees @ ` 400.
16.01.2016 102 Returned to Mittal Mills, Bangalore - 5 silk sarees @ `2,600.
Returned one computer (being defective) @ `35,000 to B &
30.01.2016
Co.
CHAPTER 05
SOLUTION
Purchase Returns Book
Date Debit Note No. Name of supplier L.F. Amount
2016

Nazar Hati Durghatna Ghati…
Test In Time…Pass In Time
1. Journalise the following transactions. Also state the nature of each account involved
in the Journal entry.
Following figures are given in (‘00)
1. December 1, 2016, Ajit started business with capital ` 4,00,000
2. December 3, he withdrew cash for business from the Bank ` 2,000.
3. December 5, he purchased goods making payment through bank` 15,000.
4. December 8, he sold goods` 16,000 and received payment through bank.
5. December 10, he purchased furniture and paid by cheque ` 2,500.
CHAPTER 05
6. December 12, he sold goods to Arvind ` 2,400.
7. December 14, he purchased goods from Amrit ` 10,000.
8. December 15, he returned goods to Amrit ` 500.
9. December 16, he received from Arvind ` 2,300 in full settlement.
10. December 18, he withdrew goods for personal use ` 1,000.
11. December 20, he withdrew cash from business for personal use ` 2,000.
12. December 24, he paid telephone charges ` 110.
13. December 26, amount paid to Amrit in full settlement ` 9,450.
14. December 31, paid for stationery ` 200, rent `5,000 and salaries to staff ` 2,000.
15. December 31, goods distributed by way of free samples ` 2,000.
SOLUTION

CHAPTER 05

CHAPTER 05

2. The following data is given by Mr. S, the owner, with a request to compile only the two
personal accounts of Mr. H and Mr. R, in his ledger, for the month of April, 2015.
1. Mr. S owes Mr. R ` 15,000; Mr. H owes Mr. S ` 20,000.
2. Mr. R sold goods worth ` 60,000 @ 10% trade discount to Mr. S.
3. Mr. S sold to Mr. H goods prices at ` 30,000.
4. Record a purchase of ` 25,000 net from R, which were sold to H at a profit of `15,000.
CHAPTER 05
5. Mr. S rejected 10% of Mr. R’s goods of 4th April.

6. Mr. S issued a cash memo for `10,000 to Mr. H who came personally for this
consignment of goods, urgently needed by him.
7. Mr. H cleared half his total dues to Mr. S, enjoying a ½% cash discount (of the
payment received,20,000 was by cheque).
8. R’s total dues (less `10,000 held back) were cleared by cheque, enjoying a cash
discount of `1,000 on the payment made.
9. Close H’s Account to record the fact that all but ` 5,000 was cleared by him, by a
cheque, because he was declared bankrupt.
10. Balance R’s Account.
SOLUTION
Mr. H Account

Mr. R Account
3. From the following ledger balances, prepare a trial balance of Anuradha Traders as on
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31st March, 2016:
Account Head `
Capital 1,00,000
Sales 1,66,000
Purchases 1,50,000
Sales return 1,000
Discount allowed 2,000
Expenses 10,000
Investments 15,000
Cash at bank and in hand 37,000
Interest received on investments 1,500
Insurance paid 2,500
SOLUTION
Trial Balance of Anuradha Traders as on 31.03.2016
Dr. balance ` Cr. balance `

4. The following are some of the transaction of M/s Kishore & Sons of the year 2017 as per their
Waste Book. Make out their Sales Book.
Sold to M/s. Gupta & Verma on credit:
30 shirts @ ` 800 per shirt.
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20 trousers @ `1,000 per trouser.

Sold furniture to M/s. Sehgal & Co. on credit `8,000.
Sold 50 shirts of M/s. Jain & Sons @ `800 per shirt.
Sold 13 shirts to Cheap Stores @ `750 each for cash.
Sold on credit to M/s. Mathur & Jain.
100 shirts @ `750 per shirt
10 overcoats @ `5,000 per overcoat.
Less: Trade Discount @ 10%
SOLUTION
Sales Book

CHAPTER 05

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5.

CA Anand R Bhangariya 96323 96323 5.1 www.cavidya.com

Evidence of the Record the

Source Book of Ledger Trial Final

Classification and grouping of Statement of the financial

2. DOUBLE ENTRY SYSTEM

Transaction Accounts Involved

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• Increases in assets are debits; decreases are credits;

Personal Accounts Impersonal Accounts

Natural Artificial (Legal) Representative

A. PERSONAL ACCOUNTS : Accounts recording transactions with a person or group of persons

CA Anand R Bhangariya 96323 96323 5.3 www.cavidya.com

3. GROUP/REPRESENTATIVE PERSONAL ACCOUNT :-Group personal accounts are accounts

1. REAL ACCOUNTS : Real Accounts relate to properties of a business enterprise, which

2. NOMINAL ACCOUNTS: Accounts relating to income, revenue, gain,

4.2. GOLDEN RULES OF ACCOUNTING

Personal Account Debit the receiver, Credit the giver

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Assets Liabilities Equity Income Expenses

7. CLASSIFICATION OF ACCOUNTS UNDER TRADITIONAL AND ACCOUNTING EQUATION

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8.2. ADVANTAGES OF JOURNAL:

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9.1. LEDGER POSTING

9.2. STEPS IN PREPARING LEDGER

Step 1 Step 2 Step 3 Step 4

9.3. RULES REGARDING POSTING OF ENTRIES IN THE LEDGER

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9.5. STEPS IN BALANCING A LEDGER

10. TRIAL BALANCE

10.1.MEANING OF TRIAL BALANCE

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10.2. OBJECTIVES OF PREPARING THE TRIAL BALANCE

10.3. LIMITATIONS OF TRIAL BALANCE

10.4. METHODS OF PREPARATION OF TRIAL BALANCES

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10.5. ADJUSTED TRIAL BALANCE:

10.6. RULES OF PREPARING THE TRIAL BALANCE

How items will appear under Trial Balance

11. SUBSIDIARY BOOKS

2. Purchases Book 2. Credit purchase of goods

3. Sales Book 3. Credit sale of goods

4. Sales Return Book 4. Goods returned by customers

5. Purchases Return Book 5. Goods returned to suppliers

7. Bills Payable Book 7. Bill accepted in favour of suppliers

8. Journal Proper or General Journal 8. Transactions not classified above and

13. ADVANTAGES OF SUBSIDIARY BOOKS

14. PURCHASE BOOK

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Posting of Purchase Book

Posting of Individual Amount Posting of Periodic Total

15. SALES BOOK

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Posting of Individual Amount Posting of Periodic Total

- To Sales A/c -By Sundries as per Sales Book

16. PURCHASES RETURN BOOK (RETURN OUTWARD BOOK)

Posting of Individual Amount Posting of Periodic Total

Posted to the debit of the Supplier’s

17. SALES RETURN BOOK (RETURN INWARD BOOK)

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Posting of Individual Amount Posting of Periodic Total