Module 1 Introduction to Accounting

1. Classify the following into:

a) Personal account
b) Nominal account
c) Real account

Sl No Name of Account Type of account Remarks

1. Bad Debts Account Nominal Account Bad Debts is a expense
/ Loses ie, Nominal
Account
2. Bad Debts Recovery Account Nominal Account Bad Debts Recovery
Account is a gain/
Income
3. Shivamogga Corporation Account Personal Account Account of a person
4. Bank Account Personal Account Account of a Person in a
bank
5. Bank OD Account Personal Account Money is borrowed in a
name of the person –
Personal Account
6. Bills Payable A/c Real Account Bills exchange happen –
tangible in nature
7. Bills receivable Account Real Account Bills exchange happen –
Account of assets-
tangible in nature
8. Book Debts Account Personal Account Account of a person
9. Building account Real Account It’s an asset
10. Capital Account Personal Account Generally a proprietors
account
11. Carriage Account Nominal Account It is an expense
12. Cash Account Real Account Account of Assets
13. Charity Account Nominal Account Kind of expense for the
company
14. Commission Received In advance Personal Account Commission is received
Account (representative) in advance as
representation personal
Acc
15. Depreciation Account Nominal account Account of expenses
16. Shivamogga Sports Club Account Personal Account Accounts of a club ie,
person acount
17. Discount Account Nominal Account It’s a sort of expense
18. Drawings Account Personal Account Account of person
19. Furniture Account Real Account Tangible assets ie
Goodwill
20. Good will account Real Account Intangible assets ie
Goodwill
21. Interest Account Nominal Account Account of expenses
22. National Traders Account Personal Account Account of a person ie,
Traders
23. International Traders Account Personal Account Account of a person ie,
Traders
24. Investment Account Real Account Assets Account
25. Loan Account Personal Account Account of a person to
whom the loan is
borrowed
Module 1 Introduction to Accounting

26. Loose tools account Real Account Investment for assets

27. Loss of Good by Fire Account Nominal Account Account for losses
28. Motor Vans Account Real Account Assets account
29. SBI Bank Account Personal Account Account of a person
30. Mysore Bank Account Personal Account Account of a person
31. JNNCE College Account Personal Account Account of a person
32. Nyle Pvt Ltd Account Personal Account Account of a person
33. Outstanding Wages Account Personal Account Account of a person
34. Postage Account Nominal Account Account of expenses
35. Prepaid Insurance Account Personal Account Representation of
person
36. Purchases Account  Nominal  Account of
Account expenses
 Real Account  Account of
Goods/ assets
37. Purchase Returns Account  Nominal  Account of
Account Income
 Real Account  Account of
Assets
38. Rent Account Nominal Account Account of expenses
39. Repairs Machinery Account Nominal Account Account of expenses
40. Salaries account Nominal Account Account of expenses
41. Sales Account Nominal Account Account of income
42. Sales return account Real Account Related to goods ie,
assets
43. Stationery Account Real Account Related to goods ie,
assets
44. Stock Account Real Account Related to goods ie,
assets
45. Trade Mark Account Real Account Related to goods ie,
assets
46. Wages Account Nominal Account Account of expenses
47. Zodiac Pvt Ltd Account Personal Account Account of a person
48. Printing & Stationery Real Account Related to goods
49. Marketing Account Nominal Account Account of expenses
50. Donations Account Nominal Account Kind of Expense

2. From the following transactions listed, indicate the name of accounts, nature of accounts involved and
state whether they are to be debited or credited in the books of accounts.

1. Radha started a business

2. Withdraw from bank
3. Goods purchased for cash from kishor
4. Sold goods for cash to soma
5. Paid carriage on machinery purchased
6. Returned goods to kishor
7. Made repairs to machinery
8. Returned goods from soma
9. Deposited cash in bank
10. Till taking ( Cash Sales)
11. Received a bank draft from Shivamogga Stores
Module 1 Introduction to Accounting

12. Paid Commission

13. Paid Salary to Nisam
14. Received interest on government securities
15. Withdrew from bank for personal use.

Sl No Particulars Name of Nature of Debit Credit Reasons

Account Account

1. Radha started a Cash Account Real Acc Debit Cash comes in

business Capital Giver of benefit
Account Personal acc Credit
2. Withdraw from Cash Acc Real Acc Debit Comes in
bank Bank Acc Personal Acc Credit Giver of Benefit
3. Goods Purchase Acc Real Account Debit Comes In
purchased for
cash from Cash Acc Real Account Credit Goes Out
kishor
4. Sold goods for Cash Acc Real Account Debit Cash Comes in
cash to soma
Sales Account Nominal/Real Credit Goes out
Account
5. Paid carriage on Machinery Real Account Debit Comes in
machinery Account
purchased
Cash Account Real Account Credit Goes out
6. Returned goods Kishor Acc Personal Account Debit Receiver benefit
to kishor
Purchase return Real Account Goes out
Account Credit
7. Made repairs to Repairs Nominal Account Debit Expenses
machinery Account

Cash account Real Account Credit Goes out

8. Returned goods Sales Return Real Account Debit Comes In
from soma Account

Somas Account Personal Account Credit Giver Of the

benefit
9. Deposited cash Bank Account Personal Account Debit Receiver of
in bank Benefit
Cash Account Real Account Credit Goes out
10. Till taking ( Cash Account Real Account Debit Comes In
Cash Sales) Sales Account Real Account Credit Goes Out
11. Received a bank Cash Account Real Account Debit Comes In
draft from
Shivamogga Shivamogga Personal Account Credit Giver of Benefit
Stores Stores Account
12. Paid Commission Nominal A/c Debit Expenses
Commission A/c
Cash A/c Real Account Credit Goes out
13. Paid Salary to Salary Account Nominal Account Debit Expenses
Nisam Cash Account Real Account Credit Goes Out
Module 1 Introduction to Accounting

14. Received Cash Account Real Account Debit Comes In

interest on
government Interest Nominal Account Credit Income
securities Account
15. Withdrew from Drawings Personal Account Debit Receiver of
bank for Account benefit
personal use.
Bank Account Personal Account Credit Giver of Benefit

Journal Entries (Book of Original Entry)

A journal is a chronological systematic record of day to day transactions entered into by a Business. It is a
book where the transactions are recorded first of all according to double entry system.

1. Pass the Journal Entries.

Gopala Commenced Business with:

 Cash in hand Rs 75000

 Cash at bank Rs 225000
 Goods in Hand Rs 50000
 Furniture Rs 30000
 Plant & Machinery Rs 120000
 Land and Building Rs 300000
 Creditors Rs 80000
 Debtors Rs 60000
 Due by Narendra 15000
 Due to Nikhil Rs 90000
 Borrowed from wife Rs 45000

Journal Entries

Sl Particulars LF Debit Credit

No
Cash Account Dr 75000
Bank Account Dr 225000
Goods in hand (stock account) Dr 50000
Furniture Account Dr 30000
Plant and Machinery Account Dr 120000
Land and Building Dr 300000
Debtors Account Dr 60000
Narendras Account Dr 15000

To Creditors account 80000

To Nikhil Account 90000
Module 1 Introduction to Accounting

To Gopala Wife Account 45000

To Capital Account 660000
Capital = Assets total – Liabilities total
Capital = 875000 - 215000

Problem:

Prepare Rams Account in the ledger for Sham and Shams Account in ledger of Ram from the following
transaction

Date Particulars
1 Opening balance of Sham to Ram Rs 3500
3 Ram sold goods to Sham Rs 6000
6 Sham returned goods to ram Rs 500
11 Ram received cash from sham Rs 5300 in full
settlement of Rs 5500
15 Sham sold goods to Ram Rs 2500
13 Sham paid cash to Ram Rs 1500
25 Ram returned goods to Sham Rs 150
30 Ram received cash from Sham Rs 2000

In the Ledger of Sham

Rams Account

Date Particular JF Amount Date Particular JF Amount

(Dr) (Cr)
6th To Purchase 500 1st By Opening Bal 3500
return
11 To cash Account 5300 3rd By Purchases 6000
11 To discount 200 25th By sales Return Account 150
Account
15th To sales account 2500 31st By Bal c/d 2350
18th To cash account 1500
30th To Cash Account 2000
12000 12000
st
1 To balance b/d 2350

In the Ledger of Ram

Sham Account

Date Particular JF Amount Date Particular JF Amount

(Dr) (Cr)
1st To opening bal 3500 6th By sales Return Account 500
3rd To sales account 6000 11th By Cash account 5300
25th To purchase 150 11th By Discount Account 200
return Account
31st To Bal c/d 2350 15th By purchases account 2500
Module 1 Introduction to Accounting

18th By Cash Account 1500

30th By Cash Account 2000
12000 12000
st
1 By Bal b/d 2350

Trial Balance
A trial balance is a bookkeeping worksheet in which the balance of all ledgers is compiled into
debit and credit account column totals that are equal. A company prepares a trial balance
periodically, usually at the end of every reporting period.

OR

A trial balance is a report that lists the balances of all general ledger accounts of a company
at a certain point in time. The accounts reflected on a trial balance are related to all
major accounting items, including assets, liabilities, equity, revenues, expenses, gains, and
losses. It is primarily used to identify the balance of debits and credits entries from the
transactions recorded in the general ledger at a certain point in time.

Taking all the ledger balances and presenting them in a single worksheet as on a particular date
is Trial Balance.

 Double entry system – Recording two entries for a single transaction that is equal and
opposite in nature
 Journal – All transactions recorded in double entry system of bookkeeping
 Ledger – Summary of all journals of a similar nature.

Purpose of Trial Balance

The preparation of the trial balance helps in developing financial statements. The assets and
liabilities find their place in the balance sheet. The Income and expenses appear in the profit
and loss account. Based on all these accounts, the preparation of Final accounts takes Place.

Features of Trial Balance

1. Trial balance in accounting lists down all the ledgers, including the cash book.
2. It does not form a part of the Double-entry System of Accounting. It serves only as a
reference.
3. A trial balance can be prepared any time- weekly, monthly, quarterly, and year-end.
4. It serves as a vital tool to verify the arithmetical accuracy of the books.
5. It forms a connecting point between the Profit and Loss Account and Balance sheet.
6. It does not provide conclusive proof of the absence of error. Errors such as errors of
principal may still exist.
Objectives of Trial Balance
1. Bird Eye View: The trial balance gives the summary of all the ledgers. Since the net amount
gets displayed, you can save time by not viewing the concerned ledger again.
 Module 1 Introduction to Accounting

2. Pointing out Error: The trial balance aids in pointing out errors. It is also used to check the
arithmetical accuracy of books of accounts.

Limitations of Trial Balance

1. The error of principle and compensating error may still exist even after the trial balance
matches.

2. The trial balance matches even when the transactions are completely omitted from recording
in the books if they are not accounted for.

Accounts in trial Balance

The debit side of the trial balance has:

 Assets- Cash, Inventory, Building, land, plant, and Machinery.

 Trade Receivables- Debtors and Bills receivables.
 Expenses- Wages and salary.
 Losses- Loss on sale of PPE, land, etc., other than inventory.
 Consumption and Purchase Account

The Credit Side of the Trial Balance has:

 Liabilities- Expenses payable, Short term bank credits, loans, and other borrowings.
 Trade Payable- Bills payable and sundry creditors
 Sales and Revenue
 Profit and Gain- Profit on sale of assets such as land, building, or PPE.
 Reserves- These include accumulated Depreciation reserve, General reserve, Securities
Premium, etc.

Debit Side Credit Side

Total Assets (Cash in bank/ hand, Buildings and Land, Total liabilities (Unsecured/ Secured loans,
Inventory, Plant and Machinery, and more.) Bank overdrafts, mortgage loans,
outstanding bills and expenses payable, and
Expenses (Freight, inward carriage expenses, rents, more.)
salary, rebates, Commission, etc.)
Reserves in funds, depreciation provisions,
Sundry debtors in the trial balance general reserves, accumulated depreciation
on plant and machinery, etc.

Sundry Creditors
Losses (Inward returns, bad debts, depreciation, debits
to P&L A/c, etc.) Gains (Outward returns, recovered bad
debts, discount received, credits to P&L,
etc.)

Purchases Sales
Module 1 Introduction to Accounting

Format:

As shown above, the ledger accounts are mentioned in the first column, and their various entries
are shown as credit or debit entries in the respective columns.

Format of trial balance:

Trial Balance of ABC Ltd as on dd/mm//yy.

SI No Particulars L.F Amount (Rs)Dr Amount (Rs)Cr

Methods of Preparation of Trial Balance

Mainly Two methods used in the preparation of the trial balance are:

1. Balance Method: In this method, it is the net amount of a ledger that gets displayed in a trial
balance. It can either be debit or credit balance. Under this method, the trial balance can be
prepared only after all the accounts get balanced. This is one of the accurate methods for the
preparation of final accounts.

2. Totals Method: In this method, the total of each side of the account (debit and credit) gets
posted in the trial balance. This method provides higher mathematical accuracy. However, the
preparation of final accounts is not usually conducted using this method because of the scope of
duplication, resulting in errors.

3. Combined Method: It’s a combination of balance and total method.

Module 1 Introduction to Accounting

Prepare the trial balance for the following transactions.

Date Particulars
2nd Feb 2022 Praveen started business with cash Rs 30000 and goods Rs 10000
3rd Sold goods to Pallavi Rs 3000
4th Sold goods to Rahul Rs 1000
6th Purchased goods from Deepak Rs 4000
8th Sold Goods for Cash Rs 2000
9th Purchased goods for Cash Rs 6000
11th Pallavi returned goods Rs 400
16th Purchased goods from Raj Rs 2400
17th Received from Pallavi Rs 2520 and discount allowed Rs 80
19th Rahul paid in full settlement Rs 980
22nd Sold goods for cash Rs 2000
23rd Paid to Deepak Rs 2400
24th Sold goods for cash Rs 1600
25th Paid to Raj for full settlement Rs 2300
27th Cash withdrawn for personal use Rs 3000
28th Paid wages Rs 100, paid salaries Rs 400, Paid rent Rs 200

Sales Account

Date Particulars LF Amount Date Particulars LF Amount

3rd By Pallavi 3000
4th By Rahul A/c 1000
8th By Cash A/c 2000
22nd 2000
24th 1600
28th To bal c/d 9600 9600
1st Mar By Bal B/d 9600
2022

Sales Return Account

Date Particulars LF Amount Date Particulars LF Amount

11th feb To Pallavi A/c 400 28th By Bal C/d 400
400 400
1st Mar To Bal b/d 400
2022
Module 1 Introduction to Accounting

Cash Account

Date Particulars LF Amount Date Particulars LF Amount

2nd Feb To Capital A/c 30000 9th By Purchases 6000
8th To Sales A/c 2000 23rd By Deepak A/c 2400
17th To Pallavi A/c 2520 25th By Rajkumar A/c 2300
19th To Rahul A/c 980 28th By Drawings A/c 3000
22nd To Sales A/c 2000 By Wages A/c 100
24th To Sales A/c 1600 By Salaries A/c 400
By Rent A/c 200
By Balance C/d 24700
39100 39100
st
1 To Bal b/d 24700

Note: for Cash Account in totals method : 39100 – 24700 = 14400

Total Method-Trial Balance

Trial balance as on 28th Feb 2022

Ledger Accounts LF Debit Credit

Capital Account 40000
Cash Account 39100 14400
Purchases 12400
Stock account 10000
Sales Account 9600
Sales Return Account 400
Pallavi Account 3000 3000
Rahul Account 1000 1000
Deepak Account 2400 4000
Raj Account 2400 2400
Discount Account 100 100
Wages Account 100
Salary Account 400
Rent Account 200
Drawings Account 3000
Total 74500 74500
Module 1 Introduction to Accounting

Balance Method

Trial balance as on 28th Feb 2022

Ledger Accounts LF Debit Credit

Capital Account 40000
Cash Account 24700
Purchases 12400
Stock account 10000
Sales Account 9600
Sales Return Account 400
Pallavi Account
Rahul Account
Deepak Account 1600
Raj Account
Discount Account
Wages Account 100
Salary Account 400
Rent Account 200
Drawings Account 3000
Total 51200 51200

Combined Method

Trial balance as on 28th Feb 2022

Ledger Accounts LF Total Method Balance Method

Debit Credit Debit Credit
Capital Account 40000 40000
Cash Account 39100 14400 24700
Purchases 12400 12400
Stock account 10000 10000
Sales Account 9600 9600
Sales Return Account 400 400
Pallavi Account 3000 3000 1600
Rahul Account 1000 1000
Deepak Account 2400 4000
Raj Account 2400 2400
Discount Account 100 100
Wages Account 100 100
Salary Account 400 400
Rent Account 200 200
Drawings Account 3000 3000
Total 74500 74500 51200 51200