11th Accounting Topic 1 To 3 Updated

Maharashtra Board
Book-Keeping
&
Accountancy
11th Standard
New Syllabus
CA CS
Harish
A Math
ariya
Also available
Video Lectures & Colored Notes
12th Book-Keeping &

Accountancy
CA-Foundaion: Principles &
practices of Accounting
CMA-Foundation:
Fundamentals of Accounting
98220 93220
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INDEX
S.N. Chapter Name Pg. No.

1 Introduction to Book- Keeping and Accountancy 1.1 – 1.24
2 Fundamentals of Double Entry Book-Keeping 2.1 – 2.20
3 Journal 3.1 – 3.19
4 Ledger
5 Subsidiary Books
6 Bank Reconciliation Statement
7 Depreciation
8 Rectification of Errors
9 Final Accounts of a Proprietary Concern
10 Single Entry System
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Study Planner
S. Reading Reading Reading Reading Test

Chapter Name
No. 1 2 3 4
1 Introduction to BK&A
2 Double Entry Book-Keeping
3 Journal
4 Ledger
5 Subsidiary Books
6 BRS
7 Depreciation
8 Rectification of Errors
9 Final Accounts of Prop.
10 Single Entry System
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Chapter 1: Introduction to BK & AC
CHAPTER 1: INTRODUCTION TO BOOK-KEEPING AND ACCOUNTANCY

BOOK-KEEPING INTRODUCTION:
In simple language, book-keeping refers to an art of maintaining the
records of the business transactions in the proper form and order.
Book-keeping is a branch of Accounting that deals with the systematic
analysis, classification, summarising and recording of the financial
transactions in the books of accounts.
It was very difficult for businessmen to remember each and every
transaction of the business and therefore, recording all the transactions became necessary.
Process of recording all the transactions in a systematic manner is known as Book-Keeping.
Definitions:
J. R. Batliboi:
Book-Keeping is an art of recording business dealings in a set of books.
R.N Carter:
Book-Keeping is an art of recording in the books of accounts, all those business transactions
that result in transfer of money's worth
Spicer and Pegler:

Book-Keeping is a systematic recording of all the transactions in a manner enabling the
relationship of business with other persons to be clearly disclosed and the cumulative effect
of transactions on the financial position of the business itself can be correctly ascertained.
FEATURES OF BOOK-KEEPING
i. To record business transactions.
ii. Records only monetary transactions.
iii. Transactions are recorded in a given set of Books of Accounts.
iv. Transactions recorded for a specific period are presented for future reference.
v. Records business transactions in a scientific manner.
OBJECTIVES OF BOOK-KEEPING:
i. To maintain a complete, systematic and permanent record of business
transactions for future reference in chronological order.
ii. To know profit or loss made by the business during the financial year.
iii. To know the total amount of capital invested into the business.
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iv. To know the financial position i.e. the amount of assets and liabilities of
business on a particular day.
v. To know the amount due to business from various debtors and to know
the amount due to creditors from business.
vi. To know the progress of the business. This is judged by comparing present
financial position with that of the past few years.
vii. To know the efficiency of the business. This is judged by comparing the
financial position of our business with that of other concerns carrying on
similar type of business.
viii. To know the amount of various taxes payable to the Government.
ix. To meet the legal requirements.
x. To prevent and minimise the accounting errors and frauds.
xi. To have a control over various assets of the business.
xii. To provide valuable information to various groups.
xiii. To take decision on important business matters.
IMPORTANCE OF BOOK-KEEPING
i. Record: Book-Keeping is recording transactions in a systematic manner. It may not be
realistic for a businessman to remember all the transactions over a period of time. Thus
Book-Keeping ensures that the record of all the transactions is kept on a permanent
basis.
ii. Financial Information: Book-Keeping records the financial activities of a business. This
financial record helps in generating financial information of the business regarding the
Assets, Liabilities, Profit, Loss, Stock Investment etc.
iii. Decision Making: All the information provided by Book-Keeping helps the company,
business or businessman to make decisions for successful business operations.
iv. Controlling: Management uses the financial records of business to manage and control
the business operations in a smooth manner. Such financial records are available from
Book-Keeping.
v. Evidence: Book-Keeping records can be used as legal evidence in Courts as all the recorded
transactions of a business are recorded from source documents which act as evidence in
case of any disputes.
vi. Comparison: Record of transactions in the books of accounts helps businesses to compare
their financial positions year after year and with other business units.
vii. Tax Liability: Book-Keeping helps the businessman in ascertaining the amount payable
for Sales Tax, Property Tax, Income Tax etc.

UTILITY OF BOOK-KEEPING
Book-Keeping is vital for the below parties:
i. Owner: Book-Keeping helps to ascertain the financial information and
position of the business at any time. Financial information includes Profits,
Losses, Assets, Liabilities etc.
ii. The various Management functions such as Planning, Organising, Directing and
Controlling can be performed effectively and efficiently by the management based on
the records and reports available through Book-Keeping.
iii. Government: The various sources of information available through Book-Keeping facilitate
the Government and the Tax Authorities to ascertain the tax liabilities of the business.
iv. Investors: Investors are interested in the financial statements of a business before
investments are made. It provides them with assurance about the safety of their
investments.
v. Customers: Customers are assured about the financial capacity of the business as well
as the quality and quantity of goods supplied by the business, based on the information
available through Book- Keeping.
vi. Lenders: Book-Keeping provides financial information to the lenders enabling them to
judge the credit worthiness of the business thus, ensuring uninterrupted supply of funds.
vii. Employees: In every organisation employees usually have their association called trade
union to find out their problems. On the basis of information provided by the business
enterprises through their book-keeping records, the employee’s trade union justifies its
demand for wage hike. It also helps the trade union to ascertain whether wages, salaries,
various facilities, bonus, etc. given to the employees are fair and equitable or not.
ACCOUNTANCY
Meaning:
Accountancy is a broad concept and Book-Keeping is the recording branch of Accounting.
Accounting includes recording of transactions, classifying them in different books of accounts,
summarising the transactions in the form of reports and interpreting them in financial
statements. Accountancy helps management in decision making. Accountancy starts when
Book-Keeping ends.
Definitions:
An act of recording, classifying and summarising the business transactions, balancing of
accounts, drawing conclusions and interpreting the results thereof.

Kohler:
Accountancy refers to the entire body of the theory and process of accounting.
Prof. Robert N. Anthony:

Nearly every business entrerprise has an accounting system. It is a means of collecting,
summarising, analysing and reporting in monetary terms information about the business
transactions.
Thus, accountancy is concerned with the following:

i. Preparing records in the form of financial statements such Trading Account and Profit
and Loss Account and Balance Sheet on the basis of book-keeping records,
ii. Preparing cash flow and fund flow statements,
iii. Calculating various accounting ratios,
iv. Providing information helpful to the management,
v. Conducting audit, etc.
OBJECTIVES OF ACCOUNTANCY:
The objectives of accountancy are as follows:
i. Ascertain the Profit or Loss of a business for a particular accounting period.
ii. Ascertain financial position of a business during a given accounting period
iii. Arrive at the Total Capital on any given date.
iv. Determine the positions of Assets and Liabilities on any given date.
v. Identify and keep a check on any frauds and misappropriations of money.
vi. Spot the various errors and rectify them by passing the necessary entries.
vii. Verify the arithmetic accuracy of the books of accounts.
viii. Compute the cost of production.
ix. Facilitate the management in decision making by providing ratios, reports.
x. Helps management in preparing, analysing and controlling the cash flows of
the business.
xi. Help the management form policies for controlling cost, preparation of
quotation for competitive supply etc.
BASIS OF ACCOUNTING: There are two basic methods for accounting as stated below:
i. Cash Basis:
All the transactions of business which take place in cash are called Cash transactions. In Cash
basis of accounting, only cash transactions are recorded. This is a very popular form of

Accounting. In this method, an expense is recorded only when it is actually paid in cash.
Similarly, an income is booked only when it is actually received in cash. The specific reason of
the cash inflow or cash outflow is recorded with every transaction.
ii. Accrual Basis: (Mercantile Basis)

Both Cash and Credit transactions are recorded in this system of accounting. Here, transactions
are recorded as and when they occur. Incomes are recorded when they are earned, irrespective
of whether the cash has been received or not and Expenses are recorded when they become
payable, irrespective of whether they have been actually paid in cash or not. Accrual Basis of
QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION

Accounting information recorded in books of accounts must possess the below mentioned
qualitative characteristics:
i. Reliability: Accounting information should be recorded on the basis of documentary evidence
which is verifiable and reliable. The accounting facts should be presented in an unbiased
(impartial) manner.
ii. Relevance: Relevant information should be included in the books of accounts. Relevant
information is any information which may change the results of the business if disclosed.
At the same time, any irrelevant or unnecessary information should be ignored.
iii. Understandability: As it is utilised by various parties hence, accounting information should
therefore, be recorded, presented and interpreted in a manner that can be understood easily
by all its users. It should be brief, clear, concise, exact and suitable to all its users.
iv. Comparability: Accounting information should be recorded and presented in a consistent
manner so that it can be easily compared year after year. (helps in decision making)
BRANCHES OF ACCOUNTING
As per the requirement of people:
i. Financial Accounting: Financial Accounting is
the process of identifying, recording, measuring,
classifying, summarising, interpreting, analysing
and communicating the accounting transactions
of business organizations. It is the original form
of accounting. The main objective of Financial
Accounting is to make the financial information
of the business available to outsiders like Crediters, Customers, Banks, Financial
Institutions, Investors etc. The purpose of Financial Accounting is to maintain systematic

records for the ascertainment of the financial performance and the financial position of a
business and communicate the same to the various interested parties. This information is
presented in the form of Profit and Loss Account and Balance sheet which show the
performance of the business during the specified period.
ii. Cost Accounting: Cost Accounting is a process to control the cost of product. The purpose
of this branch of accounting is to determine the cost, control the cost and to communicate
the cost related information to the various departments in order to make decisions and
take corrective actions.
iii. Management Accounting: Management Accounting is used by top management to make
business decisions. It is essential for the top management to perform the various
management functions. It covers various areas like Cost Accounting, Budgetory Control,
Inventory Control, Statistical Methods, Internal Auditing etc.
ACCOUNTING TERMINOLOGIES
i. Business Transactions:
Every transaction of a business, which deals in buying and selling of goods in exchange of
money is called a Business Transaction. Every transaction should have a financial impact and
it should be measurable in terms of money.
There are two main types of Transactions: (Monetary & Non-monetary)

a. Monetary Transactions: The transactions which involve an exchange of money or money's
worth, directly or indirectly, are called as Monetary Transactions. Only Monetary transactions
are recorded in books of accounts. These can be further classified into two types :
1. Cash Transactions: Cash transactions are those transactions where the payment / receipt
of cash occurs at the time of transaction only.
2. Credit Transactions: Credit Transactions are those transactions where the payment or
receipt of cash takes place after a specified period of time.
b. Non-Monetary Transactions: The transactions carried out without the involvement of money
or money's worth, directly or indirectly, are called Non-Monetary transactions. These
transactions are not recorded in the books of accounts.
c. Barter System: Barter System is when goods and services are exchanged against other
goods and services.

d. Entry: Entry is a first record of a business transaction in the books of accounts. To pass
an entry means to record a transaction in a proper form by using the correct technique in the
books of accounts.
e. Narration: Narration is a short explanation of the business transaction for an entry . It

starts with the word 'Being' and is written in brackets below the entry.
ii. Goods: Goods are commodities or articles bought or sold by a businessman with the motive
to earn profit. The businessman may manufacture the goods himself or he may purchase them
for the purpose of sale.
iii. Profit / Loss:

a. Profit: The excess of Income over Expenses during an accounting year is known as 'Profit'.
b. Loss: The excess of Expenses over Income during an accounting year is known as 'Loss'.
c. Gross Profit: Gross profit is the excess of the Net Sales over the Cost of Goods Sold.
Net Sales is the revenue (income) received after deducting the goods returned by the customer
out of the total goods sold.
Cost of Goods Sold includes the direct expenses related to the manufacture or purchase of
goods.
Net Sales = Cash Sales + Credit Sales - Sales Return Gross Profit = Net Sales - COGS
d. Operating Profit: The excess of Gross Profit over Operating Expenses is known as Operating
Profit. Operating Profit is a result of conducting the Operational Activities of a business.
Operational activities are the activities performed to generate revenue for the business.
Operating Expenses are the expenses incurred for Administraion of Office, Selling and
Distribution of goods and the Financial Expenses of a business.
Operating Profit = Gross Profit - Operating Cost
Operating Cost = Admin. & Office Expenses + Selling and Distribution Exp. + Financial Expenses
e. Non-Operating Profit: Non-Operating Profit is generated from activities which do not involve
any production of goods or services. It is the profit arising out of the Non Operational activities
of a business.
Non-Operating Profit = Non-Operating Income (–) Non-Operating Expenses
f. Normal Gain: When goods are manufactured they pass from various processes. Every process
has a defined output. Output of one process becomes input of another process. If the quantity
of output increases during the normal course, it is called 'Normal Gain'. Normal Gain is when
the actual ouput is equal to the expected output. It happens under normal circumstances and
does not affect the cost of production.

g. Abnormal Gain: During the production process, when the goods are transferred from one
process to another, there is a possibility that the quantity may increase to much more than
what is expected. Such an unexpected increase in the quantity is known as 'Abnormal Gain'.
The actual output in this situation, is much higher than the expected output of production.
Abnormal Gain may also arise when there is reduction of wastage. When the actual wastage is
lesser than the normal wastage, it is also termed as Abnormal Gain.
Abnormal Gain is essentially a result of an increase in the effeciency of the production
department.
h. Income: The revenue arising from the sale of goods or services is called Income. It also
includes revenues from other sources, common to most businesses such as Interest on
Investments, Dividend, Rent, Commision etc.
iv. Assets, Liabilities and Net Worth:

a. Assets: An Asset is any property owned by a business unit. Assets can be classified in
three types:
1. Fixed Assets: Assets which are purchased for the purpose of long term use and are
not usually sold until they are worn out are called Fixed Assets. They provide long term
benefits to the Business.
2. Current Assets: Current Assets are the assets which remain in the business for a
short period of time (usually less than a year) and can be converted into cash easily.
3. Fictitious Assets: Fictitious Assets are intangible in nature. These assets cannot be
seen or touched. They can only be felt. They do not have any physical form of existence
but they can be valued in terms of money. They are imaginary assets and generally
do not have any exchange value.
b. Liabilities: The amount payable by business to outsiders is known as Liability. It is the
amount due from the business to various parties for the benefits received by the business unit.
1. Fixed Liabilities: Fixed Liabilities, also known as Long Term Liabilities, are funds made
available to business units from various sources for long term use. They are the major source
of funds for the business.
2. Current Liabilities: Liabilities which are payable in a short period of time (generally within
a year) are called Current Liabilities. These are sources of short term finance for business
units,
c. Net Worth / Owners Equity or Capital: Capital is the money invested by the proprietor of
a firm to start a business. Additionally, the excess of the Assets over Liabilities is also known
as 'Capital' or 'Net Worth' of a business. As per the business entity concept, business and its
owner are separate entities.

Net worth = Owners Equity = Capital Owner's Equity = Total Equity (Assets) - Creditors
Equity (Liabilities)
Net Worth = Capital + Reserves Capital = Total Assets - Total Liabilities
Total Assets = Fixed Assets + Current Assets
v. Contingent Liabilities: Contingent Liability is a liability which may have to be paid at a

future date, depending upon the happening or non happening of a certain event. It does not
affect the financial position of a business and hence it is not recorded in the books of accounts
till the event actually occurs. A contingent liability is stated as a foot note to the Balance
sheet, simply for information.
vi. Capital and Drawings:

a. Capital: Total amount of funds invested by proprietor in the business is called capital.
In accounting sense, the excess of Assets over Liabilities is called capital. Capital is a
liability of the business as the amount is repayable to the owner of the business unit.
Given below is the equation for the calculation of Capital:
Capital = Assets - Liabilities
b. Drawings: Any goods or amount withdrawn by the proprietor from the business for his
personal use is called Drawings.
vii. Debtors and Creditors:

a. Debtors: A person who pays money to the business for goods and services purchased by him
on credit is called a Debtor. A Debtor is a person who owes money to the business.
b. Creditors: A person to whom money is payable for goods and services purchased or received
by the business is known as a Creditor. A creditor is a person to whom business owes money.
viii. Expenditure: The amount paid by a business to receive any services or purchase goods is
called Expenditure. When a consideration is received against a payment, the amount paid is
known as Expenditure.
a. Capital Expenditure: The amount paid to acquire an Asset or to increase the value of Fixed
Assets is called Capital Expenditure. This type of expenditure is non-recurring in nature and
the benefits can be availed over a longer period of time. It increases the earning capacity of a
business.
b. Revenue Expenditure: Revenue Expenditure is expenditure from which the benefit is received
immediately or for a short term, generally less than one year. It is expenditure incurred on
operating expenses / day to day expenses of a business which are recurring in nature. Such

expenses do not increase the profit earning capacity of a business. Revenue expenditures appear
on the debit side of the Trading Account or Profit and Loss Account.
c. Deferred Revenue Expenditure: Expenditure incurred which is revenue in nature and provides
benefit for more than one year is called Deferred Revenue Expenditure. This expenditure is
written off in Profit and Loss A/c over a period of time. Amount written off is shown in debit
side of Profit and Loss Account and amount which is not written off yet is shown in the
Balance sheet - Asset side.
ix. Cash Discount and Trade Discount: Discount is a concession on payment given by the
seller to the buyer,
a. Cash Discount: Concession provided to customers for prompt payment of debt. It is deducted
from the amount recievable or payable at the time of payment and is given for either spot
payment or payment made within a specified time period. Cash discount is given on the price
calculated after the deduction of Trade Discount. Cash Discount is a loss to seller and gain for
the buyer and hence, it is always recorded in books of accounts
b. Trade Discount: Allowance or concession given to the buyer on list price of goods at the
time of sale. Trade discount is not recorded in books of accounts as it helps the retailer to sell
the goods on printed price and yet make profit.
x. Solvent and Insolvent:

a. Solvent: A Solvent person is someone who is financially sound and is in a position to
pay off all his debts. The Assets of a Solvent person are equal to or more than his Liabilities.
b. Insolvent: An Insolvent person is someone who is not in a position to pay off his Total
Debts from his Total Assets and who is not in a financially sound position. The Assets of an
Insolvent person are less than his Liabilities.
xi. Accounting Year: In order to find out the financial position and performance of the Business,
preparation of financial statements is essential. Financial statements are prepared for a period
of 12 months. In earlier times, businessmen were allowed to prepare or close the accounts as
per their traditional calendars. However, now, in India, as per the Income Tax rules, an
accounting year should be of 12 months starting from 1 st April to 31st March. A Businessman
is required to prepare the Trading Account, Profit and Loss Account and Balance sheet to
ascertain the financial position of the business.
xii. Trading Concern and Non Trading Concern:

a. Trading Concern: A business or a firm established to perform trading activities, with

the objective of earning profit is called a Trading Concern. A Trading Concern is also known as
a Profit Making Organization or Commercial Organization.
b. Non Trading Concern: An organization which is established for rendering services to the
society and does not operate with the objective of earning profit is known as a Non Trading
Concern. A Non Trading Concern may be formed with the objective of promoting a useful
object such as art, science, sports, culture, charity etc.
xiii. Goodwill: Reputation of the business in the market, valued in terms of money, is called
Goodwill. It is an Intangible Asset. An Intangible asset is one which cannot be seen or touched.
It can only be felt. Goodwill is the name established by the business in the market, measured
in monetary terms. It adds value to the business in addition to the value of the Tangible
Assets however, Goodwill does not have any physical existence. It is recorded on the Asset side
of the Balance sheet.
ACCOUNTING CONCEPTS, CONVENTIONS AND PRINCIPLES

Professional Accounting bodies have developed the Generally Accepted Accounting Principles
(GAAP) which confirm the established practices and principles for recording transactions. All
accountants are expected to follow these accounting principles while preparing accounts as they
facilitate ease of comparison of accounts between different organizations. It is also beneficial
for auditors to check accounts of various organizations as the basic concepts followed while
preparing the accounts are standardised.
Meaning of Accounting Concepts:

Accounting concepts are the general rules of accounting to be followed and practiced by an
accountant while preparing the accounts of a firm. Accounting is the language of business and
this language needs to be consistent for all businesses else it would be difficult for the various
interested parties to interpret the accounts of a business. In order to standardise this language,
accounting concepts have been developed over the years. Accounting Concepts are general
guidelines for sound accounting practices.
Importance of Accounting Concepts:

i. Reliable Financial Statements
ii. Uniformity in presentation
iii. Generally acceptable basis of measurement
iv. Proper information to all

v. Valid and appropriate assumptions
KEY ACCOUNTING CONCEPTS:

i. Business Entity: The concept of Business Entity states that a Business and its Owner are
two separate entities. As per this concept, a business should record transactions only related
to business. Proprietors personal transactions are not to be recorded in the books of the
business. For e.g.: Payment of the Electricity bill for the residence of the owner will not be
recorded as an expense in the books of accounts. It will simply be deducted from the capital
account of the owner.
ii. Money Measurement Concept: Business transactions need to be recorded in a common unit
of measurement. Money is used as a common measurement unit to record all the business
transactions. As a result of this concept, only monetary transactions are recorded in the books
of accounts. In India, transactions can only be recorded in Indian currency, i.e. 'Rupee' (Rs.).
iii. Cost Concept: The Cost concept states that all the assets purchased should be recorded
at cost price and the cost paid will be the base for further accounting. Market price of an
asset keeps fluctuating. Hence, it becomes necessary to record the transactions at cost price.
iv. Consistency Concept: The consistency concept states that any policies adopted for
accounting should not change frequently unless it is the demand of the changing circumstances.
Poilicies adopted for accounting should be consistent and continuous. This concept does not
prevent introduction of any new techniques or the improvement of any existing techniques but
any deviations from the existing methods should be disclosed separately as a note.
v. Conservatism Concept: In accounting, a business should not anticipate future profits but
anticipate future losses and make provisions for all the possible expenses. This helps create
some reserves in the books of accounts which can absorb the unexpected expenses, if any. The
Profit and Loss Account may show lower income and in Balance sheet may overstate the
Liabilities and understate the Assets. This policy of recording is asking the accountant 'to play
safe' while recording transactions in the books of accounts.
vi. Going Concern Concept: Going Concern Concepts states that a business should function
for a long period of time. It should not be closed down in a short period of time. If a new
business suffers losses, it should not be closed but given a chance to make profits in the long
run. This concepts builds confidence in Investors, Creditors, Customers and Employees.
vii. Realization: This concept states that an income is realized only when it is received or
earned. Similarly, revenues are recorded only when goods are sold or services are provided. Sales
revenues are considered as recognized when sales are effected during the accounting period,
irrespective of whether the payment has been received or not.

viii. Accrual: Expenses are recorded when they are accrued i.e. when they become payable.
Similarly, Income is also recorded when it is accrued i.e. when it becomes receivable. Actual
payment and receipts are not concerned with recording of the expenses or incomes. As per the
Accrual concept, Incomes and Expenses related to the specific accounting period should be
recorded in the books of accounts, irrespective of whether they have been paid or not.
ix. Dual Aspect Concept: Every business transaction has two effects and involves exchange of
benefits. Benefit received and benefit given, both the aspects should be recorded in the books.
The system which records such dual aspects in the books of accounts is known as Double
Entry System.
This principle is also referred to as the Debit and Credit concept. The account where the
benefit comes in is debited and the account where the benefit goes out is credited.
x. Disclosure: This concept states that the accounts must disclose all the material information.
Accounts should disclose true, fair and complete information to all the related parties. The
Balalance sheet and the Profit and Loss Account should present the true picture of the financial
performance and the financial position of the business. The information disclosed should possess
the qualities of relevance, reliability, comparability and it should be easy to understand for all
the concerned authorities.
xi. Materiality Concept: As per this concept, it would not be very economical for a business
to record all the small details in accounting. This concept states that rather significant and
important monetary matters need to be recorded in the books of accounts. The utility of the
transaction and information should be related to the time, efforts and the cost involved in
accounting of such transactions. Items with value/weightage on the financial condition of a
business need to be recorded and disclosed. The remaining information can be merged with
other items or it may be shown as foot notes.
xii. Revenue Recognition Principle: Revenue is the gross inflow of cash receivable by the
business. It also includes the other considerations (cash inflows) arising out of the ordinary
activities of the business. This principle states that the revenue earned in a particular
accounting period should be recognized and recorded in the books of accounts irrespective of
whether it has been received during that period or not.
xiii. Matching Principle: Matching principle states that all the income received or earned in an
accounting year should be matched with the expenses incurred in that accounting year. This
concept considers the accrual basis of accounting. Therefore, it includes all the adjustments
related to Prepaid Expenses, Outstanding Income, Outstanding Expense and Prerecieved Income.
The matching principle does not enforce that each expense should be matched with or linked
to every revenue. Expenses incurred may or may not be directly attributable to the revenue. In

cases where relevant, the appropriate expenses should be matched against the appropriate
revenues as per this concept.
ACCOUNTING STANDARDS
In the words of Kohler, "Accounting standards are codes of conduct imposed by customs, law
or professional bodies for the benefit of public accountants and accountants generally."
i. Concepts: Standards of Accounting are recommended by the Institute of Chartered
Accountants of India (I.C.A.I.) and prescribed by the Central Government in
consultation with the National Advisory Committee of Accounting Standards
(N.A.C.A.S.).
ii. Accounting standards are written policy documents issued by the expert accounting
body or by Government or other regulatory body covering following aspects:
a. Recognition
b. Measurement
c. Treatment
d. Presentation
iii. Objectives: The objective of Accounting standards is to standardize the diverse
accounting policies and practices witl a view to eliminate the non-comparability of
financial statements and add reliability to the financial statements.
iv. Some Accounting Standards (AS):
The Council of the Institute of Chartered Accountants of India has so for issued thirty two
accounting standards. Some of these accounting standards are explained below:
a. AS-1 Disclosure of Accounting Policies: (1-4-1991)
Accounting to this standard, the accounting policies followed in the preparation and presentation
of financial should form a part of the financial statement and normally be disclosed in one
place.
b. AS-2 Valuation of Inventories: (1-4-2000)
According to this standard, inventories in general should be valued at lower of historical cost
and net realisable cost.
c. AS-3 Cash Flow Statements: (1-4-2000)
According to this standard, a cash flow statement is prepared and presented for the period for
which the profit and loss account is prepared.
d. AS-6 Depreciation Accounting: (1-4-1995)
According to this standard, the depreciation amount of an asset should be allocated on a
systematic basis for each accounting period during the useful life of an asset.
e. AS-8 Accounting for Research and Development: (1-4-1991)

According to this standard, the amount of research and development costs should be charged
as an expense of the period in which they are actually incurred.
f. AS-9 Revenue Recognition: (1-4-1991)
This standard deals with the basis required for recognition of revenue items in the Profit and
Loss Account of an enterprise. It lays down conditions to recognize revenues that arise from
the various transactions of an enterprise.
g. AS-10 Accounting for Fixed Assets: (1-4-1991)
According to this standard, the cost of fixed assets should comprise of the purchase price and
any attributable cost of bringing the asset to its working conditions for its intended use. The
fixed assets should be eliminated from the financial statement on disposal or when no further
benefit is expected from their use.
h. AS-12 Accounting for Government Grants: (1-4-1995)
According to this standard, government grants should be recognised when there is an assurance
that the enterprise will comply with the conditions attached to them.
i. AS-13 Accounting for Investments: (1-4-1995)
According to this standard, an enterprise should disclose the current and long-term investments
distinction in its financial statements. Current investments should be carried in the financial
statements at the lower cost or fair value. However, long-term investments should always be
carried in the financial statement at the cost price.
j. AS-22 Accounting for Taxes on Income: (1-4-2001)
According to this standard, tax expenses for the period comprising current tax and deferred tax
should be included in the determination of the net profit or loss for the period.
DISTINGUISH BETWEEN -
i. Profit and Income:
Profit Income
Meaning
a. Income earned over and above the Amount received from the sale of goods or
expenses incurred is known as Profit. services rendered or any other revenue receipt.
Formula
b. Profit = Selling price - Cost price No formula is required to calculate Income.
Example
c. Goods costing Rs. 10,000, sold to Raj for Office is given on Rent for Rs. 2,000 per
Rs. 12,000. Profit earned = Rs. 2,000 month. Rs. 24,000 will be p.a. income
ii. Trade Discount and Cash Discount:

Trade Discount Cash Discount

Meaning
a. Trade discount is an allowance on the list Is an allowance on the amount to be paid in
price of the goods. cash.
Calculation
b. Calculated on Gross Price or List Price. Cash discount is calculated on the Net Price.
Given by
c. Trade discount is provided to increase Given by the person receiving cash payment to
trade by the seller the person making the cash payment.
Purpose
d. Trade discount allows businessmen to sell Cash discount is given to encourage buyers to
goods at the list price and yet earn profit. make early and prompt payment.
Recording
e. Not recorded in the books of accounts. Recorded in the books of accounts.
iii. Difference between Book-keeping and Accountancy:

Book-keeping Accountancy
1. Meaning
Book-keeping is an art and science of Accountancy refers to the analysis and
recording business transactions systematically interpretation of book-keeping records to
in the separate set of books. obtain significant information from them.
2. Stage
Book-keeping is the primary or preliminary Accountancy is the advance stage. Its works
(first) stage and its recording start soon after start after recording and classification. Its
the completion of every business transaction. works start only after completion of book-
keeping work.
3. Objectives
The main objectives of book-keeping are to The main objectives of accountancy Eire to
record the financial transactions correctly in analyse and interpret the book-keeping
the books of accounts, viz., journal, subsidiary records to find out the financial efficiency and
books and journal proper and to provide primary position of the business.
information.
4. Responsibility

Book-keeping is mechanical and repetitive in Accounting requires skill, experience and

character and generally handled by the junior imagination and is looked after by the mature,
staff of the organisation. more experienced and better qualified staff of
the organisation.
5. Result
Book-keeping does not show the net result and Accounting shows the net result in the form
the financial position of business. of profit or loss and financiEd position in the
form of assets and liabilities.
6. Period
The datewise records made and available in The details of entire year are made available
the book-keeping. in the accountancy.
7. Scope
Book-keeping is part and parcel of Accountancy has many subfields like
accountancy. It is a narrow concept. It has bookkeeping, financial accounting and
limited scope. management accounting. It is a wider and
broader concept and has vast and unlimited
scope.
8. Procedure
In book-keeping entries for day to day In accountancy, primary information available
transactions Eire recorded by following basic from book-keeping records are further
rules of double entry book-keeping. classified, Emalysed, interpreted and financial
statements are prepared.
9. Base
Transactions of the business provides the base The work of book-keeping provides the base
for book-keeping work. for accountancy work.
10. Principles
While performing the work of book-keeping, The principles adopted and followed in the
accounting principles like accounting concepts accountancy to interpret the book-keeping
and accounting conventions are followed to records and to prepare various statement are
have uniformity and universal acceptability. not uniform, but Vary from one business
organisation to another.

TEXTUAL QUESTIONS:
Answer the following questions:
*1. Explain the importance and utility of Book-keeping
*2. Explain the difference between Book-keeping and Accountancy.
*3. What are the objectives of Book-keeping and Accountancy?
*4. What do you mean by accounting principles?
Que. List out the various concepts and principles

i. Business Entity ii. Money Measurement Concept
iii. Cost Concept iv. Consistency Concept
V. Conservatism Concept vi. Going Concern Concept
vii. Realizaton viii. Accrual
ix. Dual Aspect Concept X. Disclosure
xi. Materiality Concept xii. Revenue Recognition Principle
xiii. Matching Principle
OBJECTIVE TYPE QUESTIONS

1. Answer in one sentence only: [1 mark each]
*1. What is Book keeping?
Ans: Book-Keeping is a systematic manner of recording transactions related to business in the
books of accounts.
2. What is Accountancy?
Ans: Accounting is recording of transactions, classifying them in different books of accounts,
summarising the transactions in the form of reports and interpreting them in financial
statements.
3. What is Cash Basis of Accounting?

Ans: Cash basis of accounting is when an expense is recorded only when it is actually paid in
cash and an income is booked only when it is actually received in cash.
*4. What is 'transaction'?

Ans: A transaction is any event that occurs in a business which directly or indirectly deals
with the buying and selling of goods / services. It may or may not involve money.
*5. What is meant by goods?

Ans: Goods are commodities or articles bought or sold by a businessman with the motive to
earn profit. The businessman may manufacture the goods himself or he may purchase them
for the purpose of sale.
6. What is Operating Profit?

Ans: Operating Profit is the excess of Gross Profit over Operating Expenses.
7. State the meaning of Abnormal gain?

Ans: During the production process, when the goods are transferred from one process to another,
there is a possibility that the quantity may increase to much more than what is expected.
Such an unexpected increase in the quantity is known as 'Abnormal Gain'.
8. What is Income?
Ans: The revenue arising from the sale of goods or services is called Income. It also includes
revenues from other sources, common to most businesses such as Interest on Investments,
Dividend, Rent, Commision etc.
9. What do you mean by Fixed Assets?
Ans: Assets which are purchased for the purpose of long term use and are not usually sold
until they are worn out, are called Fixed Assets. They provide long run benefits to a Business.
10. What is capital?

Ans: Capital is the money invested by the proprietor of a firm to start a business. Additionally,
the excess of the Assets over Liabilities is also known as 'Capital' or 'Net Worth' of a business.
11. What is Deferred Revenue Expenditure?

Ans: Expenditure incurred which is revenue in nature and provides benefits for more than one
year is called Deferred Revenue Expenditure.
12. What is Cash Discount?

Ans: Cash discount is an allowance or concession provided to customers for prompt payment
of debt.

13. What is Trade Discount?

Ans: Trade Discount is the allowance or concession given to the buyer on list price of goods at
the time of sale.
It is not recorded in the books of accounts.
*14. What is entity concept?

Ans: The concept of Business Entity states that a Business and its Owner are two separate
entities and a business should record transactions only related to business. Proprietors personal
transactions are not to be recorded in the books of the business.
15. What is 'Money Measurement Concept'?

Ans: Business transactions need to be recorded in a common unit of measurement. Money is
used as a common measurement unit to record all the business transactions.
16. Give the meaning of Cost Concept?

Ans: The Cost concept states that all the assets purchased should be recorded at cost price
and the cost paid will be the base for further accounting.
17. What is Consistency Concept?

Ans: The consistency concept states that policies adopted for accounting should be consistent
and continuous and they should not change frequently unless it is the demand of the changing
circumstances.
18. What is Conservatism?

Ans: The conservatism concept states that a business should not anticipate future profits but
anticipate future losses and make provisions for all the possible expenses. This helps create
some reserves in the books of accounts which absorb the unexpected expenses, if any.
19. What is Accrual Concept?

Ans: The Accrual concept states that Incomes and Expenses related to the specific accounting
period should be recorded in the books of accounts, irrespective of whether they have been
paid or not.
20. What are Accounting Standards?

Ans: Accounting Standards are codes of conduct imposed by customs, law or professional bodies
for the benefit of public accountants and accountants generally.

II. Write the word/ term/ phrase which can substitute each of the following statements:
[1 mark each]
1. Permanent record of date wise transactions.
2. In this basis of accounting, expenses are recorded when cash payment is made.
3. Income is recorded when it is earned in this basis of accounting.
4. Financial position of the business is ascertained for the use of interested parties in this
branch of accounting.
5. The process that controls the cost of a product
6. This branch of accounting provides information to top level management.
7. Dealings between two persons.
8. Business transaction in which cash is not paid or received immediately.
9. Excess of expenses over income
10. Property of any description owned by Proprietor.
11. Liability which depends on happening or not happening of certain event.
12. Amount invested in business by the proprietor *13. A person to whom amount is payable.
14. Expenditure on fixed assets which increases the earning capacity of the business.
15. An allowance given by receiver of the cash to the giver of cash at the time of payment.
16. A person whose assets are sufficient enough to meet business obligations.
17. A person who's financial position is sound.
18. The language of business.
19. Assets are recorded at cost price as per this concept.
20. Concept under which comparison of one accounting period with the other period is possible.
21. System in which entry is recorded for cash as well as credit transactions.
22. This accounting principle is mainly concerned with Revenue.
Ans: 1. Book-Keeping 2. Cash basis of accounting
3. Accural basis of accounting 4. Financial Accounting
5. Cost Accounting 6. Management Accounting
7. Transaction 8.. Credit Transaction
9. Loss 10. Assets
11. Contingent Liability 12. Capital
13. Creditor 14. Capital Expenditure
15. Cash Discount 16. Solvent person
17. Solvent person 18. Accounting
19. Cost Concept 20. Consistency Concept

21. Accrual System 22. Revenue Recoginition
III. Select the most appropriate alternative from those given below and rewrite the
statements: [1 mark each]
1. Entry on cash and credit transaction is recorded in .............. system.
(A) Cash basis (B) Accrual basis
(C) Credit Transation (D) Cost Concept
2. .............. Accounting keeps record of financial position and financial performance.
(A) Cost (B) Financial
(C) Management (D) None of these
*3. A commodity in which a trader deals is known as .
(A) Property (B) Goods
(C) Expediture (D) Income
*4. Surplus of income over expenses is .............. .
(A) Loss (B) Profit
(C) Deficit (D) Financial Societies
5. Amount received from sale of goods .............. .
(A) Profit (B) Normal gain
(C) Abnormal gain (D) Income
6. Assets which have a short term life are called .............. .
(A) Fixed Assets (B) Fictitious Asset
(C) Current Assets (D) Intangible Assets
7. Amount invested by proprietor in business .............. .
(A) Capital (B) Drawings
(C) Investment (D) Asset
8. Amount withdrawn form business for personal use .............. .
(A) Drawings (B) Creditor
(C) Capital (D) Interest
*9. Amount which is not recoverable from customer is known as .............. .
(A) Debts (B) Debtors
(C) Bad Debts (D) Doubtful debts
10. Amount payable for goods purchased is .............. .
(A) Loss (B) Income
(C) Expense (D) Profit
*11. Expenditure incurred on purchase of Fixed Asset is .............. .
(A) Revenue Expenditure (B) Capital Expenditure

(C) Deferred revenue expenditure (D) None of these

*12. Heavy advertising expenditure for launching a new product is called as ..............
(A) Capital expenditure (B) Revenue Expenditure
(C) Deferred revenue expenditure (D) None of these
13. Heavy expenditure on Legal expenses is .............. expenditure.
(A) Revenue (B) Deferred revenue
(C) Capital (D) Direct
14. .............. is calculated on list price.
(A) Cash Discount (B) Income
(C) Depreciation (D) Trade Discount
*15. Money value or the reputation of business-is known as .............. .
(A) Copyright (B) Goodwill
(C) Patents (D) Trademark
16. .............. concepts are general guidelines for sound accounting principles.
(A) Materiality (B) Accounting
(C) Consistency (D) Revenue Recoginition
*17. The immediate recognition of loss is supported by principle of .............. .
(A) Matching (B) Conservatism
(C) Consistency (D) Objective
*18. Concept which provides a link between present and future is known as .............. .
(A) Going Concern (B) Cost Concept
(C) Accrual Concept (D) Entity Concept
*19. Accounts must be honestly prepared and they must disclose all material information is
known as .............. .
(A) Disclosure Concept (B) Entity Concept
(C) Cost Concept (D) Dual Aspect Concept
*20. Totalling of Journal or ledger is called as .............. .
(A) Posting (B) Folio
(C) Casting (D) Journalising
IV. State whether the following statements are TRUE or FALSE: [1 mark each]
1. Book-keeping is an art as well as science.
2. Book-Keeping ignores Tax liabilities
3. Book-Keeping and accounting are one and the same thing.
4. Accountancy is a broader concept than Book-keeping
5. Book-keeping is the recording branch of accountancy.

6. Accounting is useful only to the owner.

7. A transaction is concerned with money or money's worth
8. In Book-keeping and Accountancy non-monetary transactions are also recorded.
9. Profit = Cost Price - Selling Price
10. Excess of income over expense is Loss.
11. Non-operating profit is earned on operational activities.
12. Abnormal gain is increase in output at normal expectations.
13. Fictitious assets are tangible in nature.
14. Cash discount is not recorded in the books of accounts
15. Cash discount encourages prompt payment
16. Solvent person is a person whose assets are more than his liabilities.
17. Trading concern is established for rendering services to the society.
18. Goodwill is reputation of business valued in terms of money.
19. Perpetual succession is explained by concept of entity.
20. Conservatism means to follow safe side.
21. The double entry system is based on "Dual Aspect" concept.
Ans 1. True 2. False 3. False 4. True

5. True 6. False 7. True 8. False
9. False 10. False 11. False 12. False
13. False 14. False 15. True 16. True
17. False 18. True 19. False 20. True
21. True

Chapter 2: Double Entry Book Keeping
CHAPTER 2: Meaning & Fundamentals of Double Entry Book Keeping

INTRODUCTION:
 Double Entry Book Keeping System was based on the fact that in every
business transaction, two persons / parties / accounts are involved.
 Out of the two parties involved, one is considered as a receiver of the
benefit while the other as provider of the benefit.
 There will be always two aspects to a transaction i.e. if something comes
in the business it has to go out from other business.
 Recording such dual aspects of business transactions in the books of
accounts in the form of Debit and Credit is known as "Double Entry
System of Book Keeping".
 “In 1494, Luca D Bargo Pacioli, an Italian merchant, a great philosopher
and mathematician, evolved the present Double Entry Book Keeping
System”
SYSTEMS OF RECORDING ACCOUNTING INFORMATION:

i. Indian System:
a. This system of accounting is also known as Mahajani, Marwadi, Deshi Nama
System, etc.
b. Most traditional and conventional system of accounting (maintained in different
languages such as Marathi, Hindi, Marwadi, Urdu etc.)
c. Here the business transactions are maintained books known as Kird and Bahi
Khata. (For small scale)
d. Such system is not scientific in nature as it is not based on Double Entry Book
Keeping System.
ii. English Entry System:
Under English Entry System, there are two systems of recording accounting information
Single Entry System:
o This system maintains only Cash Book and Personal Accounts.
o This system changes with the suitability of businessmen for recording
transactions
o Hence, it is known as an incomplete system of accounting.
o This system has several defects and faults and it is also unscientific in nature.
o It does not provide a true picture or accurate information about the financial
position of business.
o It is suitable to small scale businesses only.
 Double Entry System:

o This system is regarded as the most accurate, scientific and complete system of
recording business transactions.
o It has established due to the evolution of various accounting methods and
techniques.
o It assumes that every transaction have two aspects which affect two accounts.
Principles of Double Entry System

The main principles of Double Entry Book Keeping System can be stated as follows:
i. Minimum two aspects are there for every business transaction.
ii. These two aspects involve minimum two accounts.
iii. Out of the two accounts involved, one is the receiver of the benefit and the other is
the giver of benefit.
iv. If one account is debited then the other must be credited with equal amount, i.e. every
debit has corresponding credit and every credit has corresponding debit of an equal
amount.
Comparison between Conventional Accounting System and Double Entry Book Keeping
System
Conventional Accounting System Double Entry Book Keeping System
Meaning
l-
Conventional Accounting System is Double Entry Book Keeping System is
unscientific in nature and records scientific in nature and records complete
incomplete business transactions. business transactions.
Coverage
ii. Less information of business Complete and full information of business
transactions are covered in this method transactions are covered in this method of
of accounting. accounting.
Accuracy
iii. Arithmetical accuracy is not definite. Arithmetical accuracy is guaranteed and
definite.
Nature
iv. Its nature is traditional. Its nature is modern.
Number of Books of Accounts
V. In this system, two books are In this system, all Subsidiary Books,
maintained i.e. Cash Book and Ledger. Journals and Ledgers are maintained.
Recording

vi. Transactions are recorded in cash book Transactions are recorded in various
only. subsidiary books / journals.
Advantages of Double Entry Book-keeping System

1. Complete Record: All business transactions are recorded
2. Accuracy: Both aspects are recorded in the books of accounts
3. Business Results: All expenses, losses, income, gains, liabilities, assets, debtors and
creditors all these transactions are recorded
4. Common Acceptance: It is widely accepted since it follows universal accounting principles
Meaning of Account and Accounting Equation Rules

Meaning of Account:
An account is a summarized form of recording business transactions relating to a specific
person, specific asset, specific liability, specific head of an expense or income recorded at one
place. (Summary of related information at one place)
It becomes important for the businessman to balance the accounts on a particular date in
order to find out information related to the business such as:
i. Amount of capital in business.
ii. Amount incurred for the business expenses.
iii. Balance of Cash in Hand and Cash at Bank.
iv. Position of fixed and current assets in business.
v. Total liabilities of business.
vi. Amount of goods or cash taken away by the businessmen for his own personal or
domestic use i.e. Drawings.
vii. Income received by business from various sources.
When such transactions are recorded systematically on the debit and credit sides, it gives
complete and accurate information about the financial position of the business to the
businessman. Its simple form is "T".
Specimen of an Account:
Dr. (Left hand side) Name of Account (Right hand side) Cr.
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
Total: Total:
An account is divided into two equal parts by drawing a double line in the middle of the
account. The left hand side is "Debit Side" whereas the right hand side is "Credit Side".

CLASSIFICATION OF ACCOUNTS
Meaning:
Classification of Accounts is when different accounts are grouped or divided or arranged in
certain well-defined classes for the objective of making entries in the books of accounts.
The accounts can be classified into Personal and Impersonal accounts.
Personal Accounts:
It includes the account of Natural persons / Artificial persons and group of persons with whom
the business deals. It consists of the
Following accounts:
i. Natural Person's Account: The account which is related to the human beings individually
is known as "Natural Personal Account". For e.g., Ram’s Account, Shyam Account etc.
ii. Artificial Person's Account: The account which is recognized as an artificial person by
law in business dealings is known as "Artificial Person's Account". These include
organisations, associations, institutions, etc. For e.g. Hospital’s A/c, Health Club
Account, Bank of Baroda Account, Company Account, Sports Club Account etc.
iii. Representative Personal Account: Such type of account represents a certain person or
group of persons in business dealings. It includes accounts relating to Outstanding and
Prepaid items. For e.g. Outstanding Expenses Account, Prepaid Expenses Account,
Outstanding Income Account (income due but not received), Income Received in
Advance Account, Creditors Account, Debtors Account etc.
Impersonal Accounts:
i. Real Account: Real Account includes the account of things, articles or commodities
which can be seen and are tangible in nature. It states the value of various assets held by
the business such as land and building, machinery, furniture etc. It consists of the following
accounts:
a. Tangible Real Account: Tangible Real Account consists of all those items which can be
touched, measured, felt and have some physical form such as Cash Account, Goods Account,
Furniture Account etc.
b. Intangible Real Account: Intangible Real Account consists of all those items which
cannot be touched, felt and does not have any physical form. However, the items can be
measured in monetary terms such as Goodwill Account, Patent Account, Trademark Account,
Copyright Account, etc.
ii. Nominal Account: Nominal Account refers to the accounts of losses and expenses and
incomes and gains. It does not represent any tangible item but exists in name only. For e.g.,

Printing and Stationery Account, Salaries Account, Rent, Rates and Taxes Account, Commission
Received Account, Interest Received Account, etc.
A brief review of Real Accounts, Nominal Accounts and Personal Accounts is as below:
Real Accounts Nominal Accounts Personal Accounts
Leasehold Building A/c Printing and Stationery A/c Mr. Raman's A/c
Building A/c Salaries A/c Lifeline Hospital's A/c
Plant and Machinery A/c Royalties A/c Bank A/c
Furniture and Fixtures A/c Wages A/c Bank of Baroda's A/c
Land A/c Freight A/c Loan from Sairaj's A/c
Premises A/c Trade Expenses A/c Drawings A/c
Copyright A/c Advertising A/c Capital A/c
Goodwill A/c Loss by Fire A/c Advance Received A/c
Office Equipment’s A/c Import Duty A/c Outstanding Commission A/c
Computer A/c Electricity Charges A/c Outstanding Interest A/c
Electrical Fittings A/c Audit Fees A/c Outstanding Salaries A/c
Investments A/c Repairs and Maintenance A/c Outstanding Interest A/c
Shares in XYZ Ltd.'s A/c Rent A/c Prepaid Salaries A/c
Freehold Premises A/c Interest A/c Prepaid Insurance A/c
Patents A/c Commission A/c Pre-received Interest A/c
Motor Van A/c Bank Charges A/c Subscription Accrued A/c
Debentures A/c Travelling Expenses A/c Interest Receivable A/c
Stock of Goods A/c Conveyance Expenses A/c Zilla Parishad's A/c
Livestock A/c Clearing Charges A/c Government of India's A/c
Stock of Stationery A/c Insurance Premium A/c Sports Club of Pune's A/c
Cash A/c Brokerage A/c Commission Received in Advance
Loose Tools A/c Dividend A/c -
Bills Receivable A/c Bad Debts A/c -
- Sundry Expenses A/c -
- Discount A/c -
MEANING OF DEBIT AND CREDIT

Debit refers to the benefit or gain received by a certain account. All debit items are to be
recorded to the left hand side of the account. 'Debiting an Account' refers to making a record
of a transaction after the proper and relevant rule is applied.

Credit means the benefit or gain given by a certain account. All credit items are recorded to
the right hand side of the account. 'Crediting an Account' refers to making a record of a
transaction after the proper and relevant rule is applied.
Basic rules of Debit and Credit for different Accounts:

1. Personal Account: "Debit the Receiver" and "Credit the Giver".
2. Real Account: "Debit what Comes In" and "Credit what Goes Out".
3. Nominal Account: "Debit all Expenses and Losses" and "Credit all Incomes and Gains".
Illustration - Analysis of Business Transactions

Prepare chart showing Analysis of the following transactions in a Tabular form:
i. Mr. HAM started Pioneer Communication and introduced Rs. 15,00,000 into business.
ii. Opened a Bank A/c with State Bank of India and deposited Rs. 12,00,000.
iii. Purchased machinery worth Rs. 2,00,000 and payment made by cheque.
iv. Paid office Rent Rs. 12,000 by cheque.
v. Purchased office phone worth Rs. 5,000.
vi. Purchased office equipments worth Rs. 20,000 and payment make by cheque.
vii. Purchased goods worth Rs. 12,000 from Mr. Maganlal & Sons.
viii. Cash sales amounted to Rs. 10,000.
ix. Mr. HAM withdrew Rs. 5,000 for personal use.
x. Paid conveyance expenses of salesmen Rs. 2,000.
ACCOUNTING EQUATION:
Accounting Equation refers to the type of equation which signifies that the Assets of a concern
are always equal to the total of its Capital (proprietor’s equity) and Liabilities.
"Assets = Liabilities + Capital" OR "A = L + C"
Illustration - Accounting Equation

Show the accounting equation on the basis of the following transactions:
i. Mr. Rohit commenced business with cash Rs. 10,00,000.
ii. Purchased furniture worth Rs. 50,000.
iii. Purchased goods from Mr. Mehra worth Rs. 10,000 and payment made by cash.
iv. Goods purchased from Sai Traders Rs. 1,00,000 and payment made in cash.
v. Paid carriage inward Rs. 1,000.
vi. Paid for sundry expenses Rs. 500

vii. Took a bank loan of Rs. 1,00,000

viii. Bought new machinery worth Rs. 4,00,000.
ix. Paid rent Rs. 5,000.
x. Cash sales made worth Rs. 7,000.
INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS) —

Introduction:
i. Globalization of the economy led to many changes in Indian economy.
ii. Such changes demand that the Indian accounting system should meet or be well-
suited with the Standard of International Accounting Practices.
iii. But different countries have their own criteria with respect to accounting treatments,
disclosures and patterns to be adopted with same economic event which may create
chaos and disorder among the uses while translating the financial statements.
iv. For such reasons, IFRS has been adopted and established in order to bring uniformity
in the accounting practices followed by most of the countries.
v. IFRS is a single set of high quality, understandable and enforceable global accounting
standards. It is a principle based on set of standards which are drafted in a simple
manner and are easy to understand and apply.
It comprises of:
i. International Accounting Standards (IAS) issued before 2001.
ii. International Financial Reporting Standard (IFRS) issued after 2001.
iii. Standing Interpretation Committee (SIC) issued before 2001.
Above all, there exists a particular "Framework" for the preparation and presentation of financial
statements which describes the principles underlying IFRS.

ACCOUNTING CYCLE
EXERCISE:
Classification of Accounts
*Q.l. Classify the following accounts under the types of Personal, Real and Nominal Account,
i. Life Insurance Premium A/c ii. Mr. Kulkarnis's Capital A/c
iii. Goods A/c iv. Freight A/c
v. Wages A/c vi. Goodwill A/c
vii. Copyright A/c viii. Outstanding Income A/c
ix. Bank Charges A/c x. Outstanding Expenses A/c
xi. Sundry Income A/c xii. Income Receivable A/c
xiii. Export Duty A/c xiv. Furniture A/c
xv. Import Duty A/c xvi. Free Sample Distribution A/c
xvii. Sundry Expenses A/c xviii. Discount A/c
xix. Drawings A/c xx. Fixed Deposit A/c
xxi. Profit on Sale of Furniture A/c xxii. Office Equipment A/c
xxiii. Bank of India A/c xxiv. Machinery A/c

xxv. Carriage Outward A/c xxvi. Loss on Sale of Machinery A/c

xxvii. Loan A/c xxviii. Deposits with MSEB A/c
xxix. Loss by Fire A/c xxx. Legal Expenses A/c
Q.2. Classify the following mentioned accounts into Asset, Liability, Capital, Revenue and
Expense.
i. Life Insurance Premium A/c ii. Mr. Kulkarnis's Capital A/c
iii. Goods A/c iv. Freight A/c
V. Wages A/c vi. Goodwill A/c
vii. Copyright A/c viii. Outstanding Income A/c
ix. Bank Charges A/c X. Outstanding Expenses A/c
xi. Sundry Income A/c xii. Income Receivable A/c
xiii. Export Duty A/c xiv. Furniture A/c
XV. Import Duty A/c xvi. Free Sample Distribution A/c
xvii. Sundry Expenses A/c xviii. Discount A/c

xix. Drawings A/c XX. Fixed Deposit A/c
xxi. Profit on Sale of Furniture A/c xxii. Office Equipments A/c
xxiii. Bank of India A/c xxiv. Machinery A/c
xxv. Carriage Outward A/c xxvi. Loss on Sale of Machinery A/c
xxvii Loan A/c xxviii Deposits with MSEB A/c

xxix. Loss by Fire A/c xxx. Legal Expenses A/c
Q.3. Show the accounting equation on the basis of the following transactions.
i. Mr. Kumar commenced business with cash Rs. 50,000.
ii. Paid salary Rs. 1,200.
iii. Purchased furniture Rs. 5,000.
iv. Purchased goods from Rakesh for cash Rs. 7,500.
v. Sold goods to Shyam costing Rs. 13,000.
vi. Paid Rent Rs. 500.
i. Mr. Rohit Kulkarni started business with cash Rs. 70,000.
ii. Bought goods from Sanjay Rs. 10,000.
iii. Sold goods to Shyam for Rs. 50,000 (costing Rs. 30,000).
iv. Goods destroyed by fire (cost Rs. 500, sale price Rs. 600).

v. Purchased Furniture from J.K. Furniture on credit Rs. 5,000.
i. Rajkumar started business with cash Rs. 30,000.
ii. Purchased goods for cash Rs. 1,000.
iii. Paid salary Rs. 400.
iv. Paid rent in advance Rs. 2,000.
v. Charged depreciation Rs. 300 on Furniture and Rs. 500 on Machinery.
i. Mr. Ketan Shah started business with cash Rs. 50,000.
ii. Purchased goods from Ramesh Rs. 30,000.
iii. Withdrew goods for personal use Rs. 2,000.
iv. Purchased household goods for Rs. 15,000 giving Rs. 5,000 in cash and balance
through loan.
v. Paid cash Rs. 300 for interest.
Q.7. Prepare chart showing Analysis of the following transactions in a Tabular form.
i. Raghav started business with cash Rs. ii. Sold goods for Rs. 1,500.
50,000.
iii. Purchased goods for Rs. 1,000 from Amit. iv. Deposited into Bank of India Rs.
5,000.
V. Paid salary of Rs. 1,200. vi. Received commission Rs. 250 from
Ram.
vii. Purchased goods for cash worth Rs. 750 viii Withdrew Rs. 500 for personal use.
from Jay.
ix. Sold goods to Roshan worth Rs. 1,500. X Withdrew money for office use Rs.
1,300.
xi. Paid for transportation Rs. 430. xii. Loan taken from Mr. Mehta Rs.
5,000.
Q.8. Prepare chart showing Analysis of the following transactions in a Tabular Form.
i. Mr. Rohit Shah started business with cash Rs. 10,000.
ii. Purchased goods for cash Rs. 1,500.
iii. Deposited into Bank of Maharashtra Rs. 1,000.
iv. Sold goods to Rakesh Rs. 500.

v. Paid Rent of Rs. 200.

vi. Received dividend of Rs. 550.
vii. Loan taken from SBI Rs. 2,000.
viii. Withdrew for office use Rs. 2,000.
ix. Paid for repairs Rs. 150.
x. Paid wages to Rane Rs. 200.
Extra Practice Problems

Classification of Accounts
Q.l Classify the following accounts under the types of Personal, Real and Nominal Account:
i. Octroi A/c
ii. Insurance Company's A/c
iii. Loan A/c
iv. Goodwill A/c
v. Furniture A/c
vi. Archana's A/C
vii. Conveyance A/c
viii. Prepaid Insurance A/c
ix. Commission A/c
x. Goods stolen by theft A/c
xi. Bank A/c
Q.2. Classify the below mentioned accounts into Asset, Liability, Income and Expenditure:
i. Octroi A/c
ii. Loan A/c
iii. Copyright A/c
iv. Goodwill A/c
v. Prepaid Insurance A/c
vi. Furniture and Fixtures A/c
vii. Commission paid A/c
viii. Land A/c
ix. Livestock A/c
x. Rent received
xi. Patents A/c

Q.3. Mr. Shyam Ghosh submits the following information for the month ended 31st March,
2014. You are required to show the accounting equation for the same.
i. Opening Balances: Cash Rs. 1,00,000, Balance in Bank of Baroda A/c Rs. 3,50,000.
ii. Ghosh paid salaries to staff Rs. 30,000 by cheque.
iii. Paid Rs. 1,000 by cash towards office maintenance expenses.
iv. Purchased on credit from Sinha & Co. goods worth Rs. 79,000.
v. Paid Rs. 1,325 to Marketing Executive towards conveyance expenses.
vi. Paid Rs. 975 by cheque towards electricity expenses.
vii. Paid Rs. 12,000 by cheque towards office rent.
viii. Issued a cheque to Sinha & Co. of Rs. 78,000 towards full and final settlement
and received a discount of Rs. 2,000 against purchase made.
Q.4. Given below are some of the transactions from the books of Sunrise Ltd. Show how the
accounting equations tallies for each of them.
i. Brought in Rs. 15,00,000 as capital into the business.
ii. Opened account with SBI bank and deposited full amount therein.
iii. Leased a premise for office and paid rent of Rs. 20,000 by cheque.
iv. Purchased a second hand computer for office use on credit from Mr. Aniket Rs.
12,000.
v. Withdrew from bank for business use Rs. 5,000.
vi. Took a personal loan from Sudha Rs. 50,000.
vii. Brought into business, additional capital in the form of Cash Rs. 25,000 and
Furniture Rs. 40,000.
viii. Bought Machinery worth Rs. 15,00,000 after paying 50% amount by cheque.
Q.5. Following are the transactions for the month of April extracted from the books of Jugnu
Enterprises. You are required to prepare chart showing accounting equation of each of them.
i. Opening Balance: Cash Rs. 50,000, HDFC Bank A/c Rs. 1,50,000, Stock Rs.
45,000.
ii. Paid Rs. 4,500 by cheque towards stationery expenses.
iii. Purchased goods from Mr. Bharat worth Rs. 12,500 on 15 days credit.
iv. Purchased a computer from Global Computers on credit at Rs. 25,000.
v. Cash sales made Rs. 19,500.
vi. Depreciation charged on Computer Rs. 600.
vii. Purchased a Motor Car worth Rs. 2,25,000 by issuing cheque.
viii. Sold goods to Sharma Traders and received Rs. 11,600 by cheque.

Q.6. Show the accounting equation on the basis of the following transactions:
i. Rajesh started business with cash Rs. 40,000.
ii. Purchased goods on credit Rs. 4,000.
iii. Paid rent in advance Rs. 2,500.
iv. Paid cash Rs. 500 for loan and Rs. 200 for interest.
v. Sold goods to Rupal costing Rs. 25,000 for Rs. 30,000.
vi. Paid salary Rs. 5,000.
vii. Purchased chair for Rs. 500 in cash.
viii. Paid rent Rs. 600.
i. Morari started business with cash Rs. 35,000.
ii. Borrowed from Palak Rs. 10,000.
iii. Goods destroyed by fire [cost price Rs. 400, sale price Rs. 500],
iv. Paid salary Rs. 2,500.
v. Purchased goods on credit Rs. 5,000.
vi. Withdrew for personal use Rs. 500.
vii. Received interest of Rs. 1,500.
viii. Charged depreciation on Machinery Rs. 400.
i. Mr. Maulik started business with cash Rs. 25,000.
ii. Sold goods to Suhani costing Rs. 20,000 for Rs. 30,000.
iii. Paid rent Rs. 2,000.
iv. Purchased goods on credit Rs. 10,000.
v. Withdrew for personal use Rs. 500.
vi. Received commission Rs. 1,500.
vii. Goods worth Rs. 5,000 were distributed as free samples.
viii. Purchased furniture for business Rs. 6,000.
i. i. Ronit commenced business with Rs. 60,000.
ii. ii. Bought Machinery from Sumaria Rs. 4,000 on credit.
iii. Sold goods to Rajan costing Rs. 20,000 for Rs. 30,000.
iv. Paid rent Rs. 5,000.

v. Received dividend of Rs. 3,500.

vi. Charged depreciation Rs. 600 on furniture.
vii. Goods destroyed by fire [cost price Rs. 600, sale price Rs. 700],
viii. viii. Paid salary Rs. 2,500. Rs.
i. Jackie started business with cash Rs. 30,000.
ii. Cash Sales Rs. 8,000.
iii. Received commission Rs. 1,500.
iv. Cash purchases Rs. 7,000.
v. Purchased machinery from Thacker and Sons Rs. 11,000 on credit.
vi. Purchased goods for Rs. 4,500 on credit.
vii. Paid salary Rs. 6,000.
viii. Received interest Rs. 1,000.
Q.11 Show the accounting equation on the basis of the following transactions:
i. Cash introduced in business Rs. 5,00,000.
ii. Opened an Account with Bank of Baroda and deposited Rs. 4,00,000.
iii. Bought Machinery by issuing a cheque from Bank of Baroda A/c Rs. 50,000.
iv. Goods purchased from Mr. Sarang on credit worth Rs. 50,000.
v. Paid to Mr. Sarang in full by issuing a cheque.
vi. Paid wages Rs. 5,000.
vii. Royalty received in cash Rs. 7,000.
viii. Paid salary by cheque Rs. 12,000.
ix. Legal expenses paid in cash Rs. 2,500.
x. Paid conveyance expenses Rs. 250.
i. Mr. Rahul had an opening balance of Rs. 25,000 Cash, Rs. 30,000 Machinery,
Rs. 3,70,000 Bank Balance and Rs. 30,000 Furniture.
ii. Bought computer from Ahmed on credit Rs. 20,000.
iii. Advance from customer received in cash Rs. 10,000.
iv. Sold machinery costing Rs. 20,000 at Rs. 25,000.
v. Withdrew from Bank for business use Rs. 5,000.
vi. Introduced additional capital of Rs. 50,000.
vii. Charged depreciation on Machinery Rs. 500.

viii. Carriage inward paid in cash Rs. 500.
Q.13 Carefully examine the following transactions and advice as to which of the accounts will
be affected and accordingly classify the same.
i. Started business with cash Rs. 21,000.
ii. Deposited into the bank Rs. 5,500.
iii. Purchased goods for cash Rs. 7,000.
iv. Paid salaries Rs. 7,700.
v. Received rent Rs. 1,000.
vi. Cash sales amounted to Rs. 5,000.
vii. Bought goods from Viral Rs. 8,000.
viii. Purchased furniture for cash Rs. 6,000.
ix. Withdrew cash from business for personal use Rs. 1,500.
x. Paid advertisement Rs. 7,000.
Q.14 Following are the balances extracted from the books of Mr. Mahesh. You are required
prepare a chart showing analysis of the following transactions in a Tabular form:
i. Mahesh commenced business with a capital of Rs. 2,00,000.
ii. Purchased goods from Mr. Raj Rs. 6,000 and payment made in cash.
iii. Paid telephone bill by cash Rs. 3,000.
iv. Paid for electrical fittings for his business premises Rs. 5,000.
v. Paid conveyance expenses in cash Rs. 2,000.
vi. Paid for advertisement Rs. 6;000.
vii. Took loan from bank Rs. 5,00,000.
viii. Salary paid Rs. 9,000.
ix. Mahesh bought a Laptop for his personal use by withdrawing Rs. 30,000 from
business.
x. Sold goods to Mr. Sunil on credit Rs. 7,000
Q.15. Following are the balances extracted from the books of Mr. Rahul. You are required prepare
chart showing analysis of the following transactions in a Tabular form:
i. Mr. Rahul commenced business by introducing machinery worth Rs. 30,00,000.
ii. Bought computer from Ahmed on credit Rs. 20,000.
iii. Mr. Rahul paid LIC premium Rs. 5,000.
iv. Advance from customer received in cash Rs. 10,000.
v. Sold machinery costing Rs. 20,000 at Rs. 25,000.

vi. Deposited into HDFC Bank amount of Rs. 20,000.

vii. Introduced additional capital in the form of Furniture worth Rs. 50,000.
viii. Interest on investments Rs. 2,500 received in cash.
ix. Carriage Inward paid in cash Rs. 500.
Q.16. Following are the balances extracted from the books of Mr. Mohite. You are required to
prepare a chart showing analysis of the following transactions in a Tabular form:
i. Cash introduced in business Rs. 5,00,000.
ii. Opened an account with Bank of Baroda and deposited Rs. 4,00,000.
iii. Bought machinery by issuing a cheque from Bank of Baroda A/c Rs. 50,000.
iv. Goods purchased from Mr. Sunder on credit worth Rs. 50,000.
v. Paid to Mr. Sunder in full by issuing a cheque.
vi. Paid wages Rs. 1,000.
vii. Royalty received in cash Rs. 7,000.
viii. Paid salary by cheque Rs. 12,000.
ix. Legal expenses paid in cash Rs. 2,500.
x. Paid conveyance expenses Rs. 250.
OBJECTIVE TYPE QUESTIONS

I. Answer in one sentence only: [1 mark each]
1. What is Double Entry System of Book Keeping?
Ans: Recording dual aspects of business transactions in the books of accounts in the form of
Debit and Credit is known as "Double Entry System of Book Keeping".
2. What is the main principle of Double Entry System of Book Keeping?

Ans: The main principle of Double Entry System of Book Keeping is that "every debit has
corresponding credit and every credit has corresponding debit with equal amount".
3. What is an Account?
Ans: An account is a summarized record of transactions affecting one person, one kind of
property or one class of gain or losses.
4. Give two examples of Personal Account.

Ans: Mr. Sahani's Account and Bank of Maharashtra's Account are examples of personal account.
5. What is Artificial Person's Account?

Ans: The Accounts which are recognized by a low in business dealings as an artificial person
are known as artiticial person's account such as account of organization, associations,
institutions etc. For example, Helth Club's Account, Bank of Baroda's Account etc.
6. What is Real Account?

Ans: Real Account refers to an account of things, articles or commodities in the business which
can be seen and
are tangible in nature.
7. Give two examples of Real Account.

Ans: Building Account and Stock of Goods Account are the examples of real account.
8. What is Nominal Account?

Ans: Nominal Account refers to an account of expenses, losses, incomes, gains.
*9. What do you mean by debit?

Ans: Debiting an account refers to recording a transaction on the left hand side of an account.
*10. State the meaning of Accounting Equation.

Ans: Accounting Equation refers to the equation which signifies that the assets of a business
are always equal to the total of its liabilities and capital.
*11. State whether drawings increases or decreases owner's equity.

Ans: Drawings decreases the owner's equity.
*12. State the rule for Personal Account.

Ans: The general rule applied for debiting and crediting the Personal account is "Debit the
Receiver" and "Credit the Giver".
*13. What is rule of debit and credit for Nominal Account?

Ans: The rule of nominal account states that "Debit all Expenses or Losses" and "Credit all
Incomes, Gains".
14. Define IFRS.

Ans: IFRS is a single set of high quality, understandable and enforceable global accounting
standards which is based on set of standards which are drafted in a simple manner and are
easy to understand and apply.
II. WRITE THE WORD/ TERM/ PHRASE WHICH CAN SUBSTITUTE EACH OF THE
FOLLOWING STATEMENTS: [1 MARK EACH]
1. The system of accounting which is regarded as the most accurate, scientific and
complete system of recording business transactions.
2. The person who has evolved the present double entry book keeping system.
3. The system of accounting which is also known as Mahajani, Marwadi, Deshi Nama
system.
4. Business Assets which cannot be seen, touched but can be sold for cash.
5. Accounts other than the impersonal account.
6. The account which includes accounts related to outstanding and prepaid items.
7. Accounts of properties.
8. Left hand side of an account.
9. Right hand side of an account.
10. Name the account which is debited when the proprietor uses business money for
domestic use.
11. Proprietor's personal account.
12. The amount paid to owner / author of book copyright for the use of book.
13. Name the account which is debited when dog is purchased for business security.
14. Name the account which is debited for payment of import duty.
Ans:
1. Double Entry System of Book Keeping 2. Luca D Bargo Pacioli
3. Indian System 4. Intangible Assets

5. Personal Account 6. Representative Account
7. Real Account 8. Debit side A/c

9. Credit Side 10. Drawings
11. Capital Account 12. Royalty
13. Livestock A/c 14. Import duty
III. SELECT THE MOST APPROPRIATE ALTERNATIVE FROM THOSE GIVEN BELOW AND
REWRITE THE STATEMENTS: [1 MARK EACH]
1. Indian system is most .............. system of accounting.

(A) traditional (B) accurate

(C) scientific (D) complete
2. .............. system is known as incomplete system.

(A) Indian system (B) Single entry system
(C) Double entry system (D) None of these
3. Under Conventional accounting system, .............. book is maintained.

(A) cashbook (B) subsidiary books
(C) journals (D) none of these
4. Copyright Account is an example of .............. .

(A) Tangible Real Account (B) Intangible Real Account
(C) Nominal Account (D) None of these
5. Debit all .............. .

(A) expenses and losses (B) incomes and gains
(C) expenses and revenue (D) losses and gains
IV. STATE WHETHER THE FOLLOWING STATEMENTS ARE TRUE OR FALSE [1 MARK EACH]
1. Under Double Entry System, one is the receiver of the benefit and the other is the
giver of benefit.
2. Arithmetical accuracy is not guaranteed and definite under double entry book keeping
system.
3. Every transaction has only one effect.
4. Single Entry System is suitable to small scale business.
5. Every debit has an equal and corresponding credit.
6. The law gives recognition to Conventional Accounting System.
7. Debit the Receiver and Credit the Giver; is the rule applicable to Personal Account.
8. Personal transactions of proprietor are recorded in the books of account of business.
9. An order placed for the goods, entry is passed / recorded in the books of accounts.
10. Accounting Equation signifies that the capital and liabilities of the business are
always equal.
11. Prepaid insurance is a Nominal Account.
12. Loan Account is Personal Account.
13. Drawings Account is a Real Account.

14. Commission received is a Nominal Account.

15. Outstanding wages is a Nominal Account.
16. Bank of India is an example of Real Account.
17. IFRS stands for Indian Financial Recording Standard.
Ans 1. True 2. False 3. False 4. True
5. True 6. False 7. True 8. False
9. False 10. False 11. False 12. True
13. False 14. True 15. False 16. False
17. False

Chapter 3: JOURNALS
CHAPTER 3: JOURNALS
INTRODUCTION:
 Book Keeping records all day to day business transactions on the basis of
supporting documents. (which provides detailed information as a legal
nature)
 Every entry in books of accounts is supported by the relevant documentary
evidence
 These papers are called ‘Accounting documents’
#Why Accounting Documents are important (Utility):

 necessary for recording all transactions
 transactions are recorded in proper mode and computer based
 Documents are stored in physical files or in software.
 Documents are legal evidence for court matters.
 are required for charity commissioner's office
 are required for payments of state government and local body authority
Source Documents
↓
↓ ↓ ↓ ↓ ↓
1. Vouchers 2. Memos 3. Receipts 4. Trader’s documents 5. Bank documents
↓ ↓ ↓ ↓
1. Internal vouchers 1. Cash memo 1. Debit note 1. Pay-ln-slip
2. External vouchers 2. Credit memo 2. Credit note 2. Withdrawal slip
3. Cash vouchers 3. Cheque
4. Petty cash vouchers 4. Bank Passbook
5. Bank statement
6. Bank advice
IMPORTANT ACCOUNTING DOCUMENTS FOR RECORDING TRANSACTIONS:

VOUCHER
 Voucher is a document that supports a payment made by the businessmen.
 It is a legal evidence that certain sum of money has been paid to a specific person or
party.
 e.g. Cash voucher, Bank voucher, Purchase vouchers, Sales Vouchers, Travel bills, Wages
bill, Salaries bill etc.

Chapter 3: JOURNALS
Types of Voucher
Internal Voucher: Prepared internally by an

entity & signed by payee (When we can not External Voucher: Generated outside the entity
get receipt as a proof)
Journal Voucher:
Basic/original voucher on the basis of which the transactions should be Journalised in journal
book.
Cash voucher
 The evidence of cash payments and cash receipts is called cash voucher.
 If any document from the payee is obtained then that itself can be treated as a voucher
 It is a document on the basis of which entries will be made in the Cash Book.
Cash Voucher
Hari Mani Ltd.
Voucher No.: Chandani Chowk, Pune-21 Date:

Chapter 3: JOURNALS
Tax Invoice:
 Tax Invoice is a document prepared by the seller
 To inform the buyer about the quantity of goods supplied, rates and terms of payment
trade discount if any allowed, CGST and SGST and the total amount payable by him.
 It is 'purchase invoice' or inward invoice for the buyer and ‘sales invoice’ or outward
invoice for the seller.
 Entries in the Purchase Books are made on the basis of the purchase invoices received.
 Entries in the Sales Book are made on the basis of sales invoices.
 Tax invoice is sent by the seller to the buyer when goods are supplied by him
Credit Memo
 A Credit Memo is also known as an Invoice or bill.
 When goods are purchased on credit basis a seller prepares the credit memo (sales
Invoice or tax Invoice) and sends it to the customer along with the articles.
 When same memo is issued to the buyer it is called ‘Inward Invoice’ and the same is
treated as ‘Outward Invoice’ by the seller.
 Therefore a credit memo is a statement given by the seller to the customer providing
the details of goods sold for which certain amount becomes due from the customer.
 In the Purchase Book and the Sales Book entries are made on the basis of an invoice
Receipt:
 To increase the profit the businessmen sells goods on credit
 At the time of making payment the receiver is required to acknowledge the payment
for this purpose a document is prepared called as receipt.
 On the basis of this document entries will be made in the Cash Book.

Chapter 3: JOURNALS
Cheque
“A cheque is a written unconditional order signed by the Account holder directing a specific
Banker to pay on demand certain sum of money only to a person named there in or to the
bearer”.
Parties to a Cheque
There are three parties to cheque
 The Drawer: The person who draws a cheque is called as drawer.
 The Drawee: The bank on whom the cheque is drawn is called a drawee. The drawee is
always the bank.
 The Payee: The person in whose favour a cheque is issued is called as a payee.
Contents of Cheque
1) Name of the Bank and address of the branch.
2) The date of issuing cheque.
3) Name of the payee.
4) Amount in words and figures.
5) Name and signature of account holder.
6) Cheque number.
7) MICR number.
8) IFSC code.
9) Account number.
Types of Cheques
1) Bearer cheque
2) Order cheque

Chapter 3: JOURNALS
3) Crossed cheque
1) Bearer Cheque:
 Any person who can get the payment of the cheque at the counter of the bank is called
as a bearer cheque.
 Any person who holds the cheque and is physically present at the counter and signs
the same in front of the banker can get the amount of cheque.
2) Order cheque:
 When a cheque is drawn payable to a specific person or order is called as an order
cheque.
 The payment of order cheque is made by the bank to the person's name mentioned
therein or to any other person ordered by him.
 When the word Bearer is struck off it becomes an Order Cheque.
3) Crossed Cheque:
 For the safe interest of the account holder and the drawee drawing two parallel,
transverse lines on the face of the cheque is called as a crossed cheque.
 Crossed cheque has to be deposited into bank account and payment is made only
through the bank.

Chapter 3: JOURNALS
 The effect of this cheque is that the payment of cheque is received by the right person
Crossed Account Payee Cheque:

 Is similar to the crossed cheque.
 In this type of cheque specific person/ organisation deposited cheque into the bank and
the amount is credited to his specific account only.
 When two parallel lines across the cheque are drawn with the word “Account payee”
only it is called as a crossed account payee cheque.
MEANING, DEFINITION, IMPORTANCE AND UTILITY OF JOURNAL

 The word ‘journal’ is derived from the French word ‘jour ’ which means ‘a day’.
 Accordingly, a journal is a book of daily record and shows in a systematic manner all
transactions of a business arranged in a chronological or datewise order (Chronological).
 As soon as a transaction takes place, it is recorded in the journal, which is therefore
called a book of first, original or prime entry.
 In a journal, all types of business transactions are recorded systematically on the basis
of source documents, by debiting one account and crediting another account.

Chapter 3: JOURNALS
Prof. Carter, had defined Journal as, ‘‘the Journal as originally used, is a book of prime entry
in which transactions are copied in order of date from a memorandum or waste book. The
entries as they are copied are classified into debits and credits, so as to facilitate they are
being correctly posted, afterwards in the ledger.”
According to Cropper, “a journal is a book, employed to classify or sort out transactions in a

form convenient for their subsequent entry in the ledger.”
Thus, journal is a book wherein the accounts to be debited and credited are written along with
date, amount and explanation of the transaction.
Importance and utility of Journal:

(1) Journal is a preliminary book in which a complete and permanent records of all business
transactions in the form of debit and credit aspects are made. Thus, a complete record
of all transactions are available at one place.
(2) It is easier to find out needed reference of the transaction from the journal as
records are maintained in chronological or date wise order.
(3) In the journal, brief explanation of the transactions called ‘narration’ is given below every
entry. By reading the narration, one can easily understand the extent, nature and scope
of business transactions entered in the journal.
(4) Entries for various transactions recorded in the journal as well as in the ledger can be
easily verified or checked and errors if any can also be found out. This ensures accuracy.
(5) In the journal, all entries are made on the basis of source documents such as vouchers,
receipts, cash memos, credit memos, debit notes, credit notes, banking documents, etc.
Thus, information recorded in the journal are acceptable by the court of law as primary
and original evidence to prove the claims against third party.
(6) In the journal, the amount of each transaction (in figures) is recorded in debit and credit
amount columns. Arithmetical accuracy of the entries made in the journal is automatically
ensured when the to tells of debit and credit amount columns get agreed.
(7) Records made in the journal facilitate the preparation of final accounts at the end of the
accounting year.

Chapter 3: JOURNALS
Journal Format
Date Particulars L.F. Debit Credit
Rs. Rs.
Year Name of the Account Debited XXX
Month/Date To Name of the Account credited XXX
(Being .......................... ) (Narration)
Total Total
Journalisation:
(1) Meaning: The process of recording or entering business transactions systematically in a
summarised form in the journal is known as Journalisation. In other words, Journalisation
refers to recording two fold aspects of business transactions in the form of debit and
credit with some explanation in the journal.
(2) Steps in Journalisation: The following steps should be taken while forming a journal
entry from the given transactions :
i. As soon as transactions take place, record those transactions in a waste book or diary
kept for that purpose.
ii. Read those transactions and find out two accounts involved in each of those
transactions.
iii. Find out the type of accounts involved in the transaction.
iv. Apply the rules of Journalisation to give debit effect and credit effect to the affected
accounts
v. Record the date of the transaction in the ‘Date Column’ in the order of year, month
and date. For subsequent transactions only ‘date’ is to be mentioned as long as that
page of journal is concerned.
vi. Write the name of account to be debited on the first line and the name of account
to be credited on the next line in the ‘Particulars’ column.
vii. Write the word Dr.’ i.e debited against name of account debited. The word ‘To’ is to
be written just before the name of account to be credited
viii. Write the amount in figures in Debit amount column as well as in credit amount
column against the name of the account respectively.
ix. Write brief explanation of the transaction i.e. narration just below the entry in brackets
in the ‘particulars’ column. It should start with the word ‘Being’. Just below the
narration a line is drawn only in particular column to separate one entry from the next
entry.

Chapter 3: JOURNALS
x. Write ledger page number in the L.F. No. Column in red ink. This is for easy reference.
GST: (Goods and Service Tax)

 GST stands for Goods and Service Tax.
 Before GST every State had variety of taxes levied at different stages of trading.
 Taxes that existed before were Excise Duty, Custom Duty, VAT, Entertainment Tax,
Central Sales Tax, Service Tax, Octroi etc.
 All these taxes are included under GST, that is why GST is One nation, One tax, One
market.
 GST is started from 1st of July 2017.
 In the tax invoice for Goods, there is HSN i.e. Harmonised System of Nomenclature code
while in service invoice there is SAC.
 Services are also classified and special code numbers are given. These are called SAC or
Service Accounting Code.
S.N. Types Rate of GST Gods & Service items

1 Zero 0% Goods: Essential Commodities like food grains, fruits,
Rated vegetables, milk, salt, earthen pots etc. Services : Charitable
trust activities, transport of water use of roads and bridges,
public library, agriculture, related services, Education and
Health care services etc
2 Low 5% Goods: Commonly used items- LPG cylinder, Tea, coffee,
Rated oil, Honey, Frozen vegetables, spices, sweets etc. Services :
Railway transport services, bus transport services, taxi
services
3 Standard 12% Goods: consumer goods: butter, ghee, dry fruit, jam, jelly,
rate: sauces, pickles, mobile phone etc. Services : Printing Job-
Slab 1 work, Guest house, Services, related to construction
business.

Chapter 3: JOURNALS
4 Standard 18% Goods: Marble, Granite, Perfumes, Metal items, Computer,

rate: (Most of Printer, Monitor, CCTV etc. Services : Courier services,
Slab II the Goods & Outdoor catering, Circus, Drama, Cinema, Exhibitions,
Services Currency exchange, Broker Services in share trading etc.
included in
this slab)
5 Highly 28% Goods: Luxury items, Motor Cycles and spare parts, Luxury
Rated cars, Pan-masala, Vacuum cleaner, Dish washer, AC,
Washing machine, Fridge, Tobacco products, Aerated water
etc. Services : Five star Hotel accommodation, Amusement
parks, Water parks, Theme parks, Casino, Race course, IPL
games, Air transport (business class) etc.
Note : The rates and types of GST are as prescribed by the government. GST rates are subject
to change. Electricity, petrol, diesel etc are not under purview of GST.
Illustration 1:
Example 1: Purchased Computer from Harimani co. worth Rs. 50,000 at 18% GST and amount
paid by cheque
Cost of Computer 50,000
Add: CGST (9%) 4,500
Add: SGST (9%) 4,500
Net Value 59,000
Journal Entry for Above:
Date Particulars L/F Dr. Rs Cr. Rs
Computer A/c Dr. 50,000
Input SGST A/c Dr. 4,500
Input CGST A/c Dr. 4,500
To Bank A/c 59,000
(Being Computer purchased @ 18% GST)
Illustration 2:
Sold Motor Car for Rs. 1,00,000 at 28% GST and amount received by cheque
Cost of Car 1,00,000
Add: CGST (14%) 14,000
Add: SGST (14%) 14,000
Net Value 1,28,000

Chapter 3: JOURNALS
Journal Entry for Above:

Date Particulars L/F Dr. Rs Cr. Rs
Computer A/c Dr. 1,00,000
Input SGST A/c Dr. 14,000
Input CGST A/c Dr. 14,000
To Bank A/c 1,28,000
(Being Computer purchased @ 18% GST)
PRACTICAL:
Que. 1
Journalise the following transactions in the books of Hari Bhau for the month of April
2020:
Started business with cash Rs. 10,00,000.
Sold one of the personal residential flat for Rs. 15,00,000 and brought in business Rs. 10,00,000
of the proceeds by opening a current account and depositing the amount in the Bank.
Hari Bhau has one shop in ABC mall which he is going to use for his business Rs. 16,00,000.
3 Goods purchased and cash paid Rs. 12,000.
3 Placed an order with M/s Mittal Enterprise for goods worth Rs. 50,000.
7 Cash Sales Rs. 20,000
10 He withdrew cash from business for personal use Rs. 10,000.
II Life insurance premium paid from business Rs. 22,000 by cheque.
15 Hari Bhau's house rent paid Rs. 55,000.
20 Goods distributed as a free samples worth Rs. 5,000.
22 Goods purchased from Pari Rs. 30,000 on credit.
22 Goods sold to Pritesh Rs. 19,000 on credit.
25 Goods worth Rs. 500 which were bought from Pari returned to her.
26 Received goods worth Rs. 800 from Pritesh which were sold to him before.
Que. 2
Jounalise the following transactions in the books of Ram Bhau Traders:
i. Goods sold to Vijay Traders Rs. 20,000 and received a bearer cheque.
ii. Loan of Rs. 1,00,000 was taken from Ramesh.
iii. One of our customer Mr. Naresh has given cheque of Rs. 5,000 in advance.
iv. Cheque received from Vijay Traders deposited into bank.
v. Interest on Ramesh's loan Rs. 1,000 paid to him in cash.
vi. Interest on Bank overdraft Rs. 600 debited to the current account.

Chapter 3: JOURNALS
vii. Paid Personal Income Tax Rs. 5,000.

viii. Bank informed that cheque of Vijay Traders has been dishonoured.
ix. Purchased Laptop and Printer from Keshav and Co. and paid him cash Rs. 40,000.
x. Loan given to Sanjay Rs. 20,000.
xi. Interest on Investment received Rs. 300 by cheque.
Que. 3 *
Journalise the following transactions in the books of Narendra General Stores (April 2020)
1 Narendra commenced business with Cash Rs. 80,000
3 Purchased goods from Kiran Rs. 40,000 on credit
5 Paid rent Rs. 2,000
10 Sold goods to Mr.Vikas Rs. 5,500 on credit
15 Purchased Furniture of Rs. 30,000 @ GST 18%
18 Received a Bearer Cheque of Rs. 25,000 from Mr.Vikas
21 Paid to Kiran by Cheque of Dena Bank Rs. 20,000
30 Paid Salary Rs. 5000
Que. 4*
Journalise the following transactions in the books of Rajkumar Grocery Seller.
2019 April
1 Rajkumar started business with Cash Rs. 2,00,000, Building Rs. 2,00,000 and borrowed loan
from Rakesh Rs. 50,000.
4 Deposited Cash into Dena Bank Rs. 50,000.
7 Purchased Computer from Brijesh of Rs. 30,000 @ 18% GST and paid by Cheque.
10 Cash Sales Rs. 90,000..
12 Goods sold on credit to Ganesh Rs. 10,000 at 5% Trade Discount.
15 Ganesh returned goods of Rs. 950.
18 Goods taken by Rajkumar for his personal use Rs. 1,000.
20 Paid Telephone Charges Rs. 500 and Taxi Fare Rs. 200.
22 Paid Transport Charges Rs. 5,000 @ 5% GST.
24 Paid Audit Fees Rs. 5,000 by Cheque.
26 Purchased Furniture of Rs. 70,000 and amount paid by cheque @ 12% GST.
28 Sold Motor Car worth Rs. 1,00,000 @18% GST and Sales proceeds credited to our account.
30 Paid cash to Kavita Rs. 15,500,who allowed us discount Rs. 500.
Que. 5*

Chapter 3: JOURNALS
Journalise the following transactions in the books of Harimani Medical Store

2019 August
1 Harimani started business with own Cash Rs. 90,000 , Stock of goods worth Rs. 40,000
Machinery worth Rs. 70,000 and borrowed money Rs. 50,000 from her friend Konika at 12%
p.a.
4 Bought goods worth Rs. 50,000 from Madhuri @ 10% trade discount .
6 Returned goods worth Rs.450 to Madhuri for not being as per sample
8 Sold goods worth Rs. 80,000 to Kiran @ 10% trade discount and received cash after allowing
her 5% cash discount.
13 Paid for Rent Rs. 4,000.
17 Purchased a new Machinery worth Rs.1,00,000 from Bajaj Ltd. at 28% GST and amount
paid by debit card. 20 Paid for Salary Rs. 27,000.
27 Purchased 4 Computers of Rs. 1,20,000 @18% GST and amount paid by Debit Card.
31 Withdrew from Bank Rs. 10,000 for personal use.
Que. 6*
Journalise the following transactions in the books of Rajwade Trading Company 2019
May
1 Started business with Cash Rs. 1,00,000,Bank Balance Rs. 2,00,000 and Building Rs. 2,00,000
3 Purchased goods from Ram of Rs. 50,000 at 18% GST.
5 Sold goods to Rakesh of Rs. 70,000 at 18% GST for Cash.
7 Paid for Repairs Rs. 5,000.
10 Placed an order with Ranveer and Sons for goods Rs. 60,000 at 12%GST
15 Paid for Wages Rs. 15,000.
18 Purchased goods from Mohan of Rs. 10,0000 at 12% GST.
20 Paid for Conveyance Expenses Rs. 7,000.
25 Purchased goods from Kishor of Rs. 50,000 at 28% GST and paid half the amount by
Cheque.
30 Purchased Machinery of Rs. 50,000 at 18% GST and half the amount paid immediately by
Cheque.
31 Withdrew from Bank Rs. 10,000 for personal use.
Que. 7*
Journalise the following transactions in the books of Saniya Electronics, Pune
Debit balance: on 1st April 2019 Cash at bank Rs. 50,000, Sundry Debtors Rs. 15,000, Stock
Rs. 35,000, Plant & Machinery Rs. 1,00,000,

Chapter 3: JOURNALS
Credit balances: on 1st April 2019 Sundry Creditor Varsha Rs. 10,000 Bank loan Rs. 40,000 .
2019 April
1 Purchased goods worth Rs. 90,000 from Kangana @ 12% GST and amount paid by Cheque.
5 Sold goods to Neha Rs.30,000 @ 18% GST.
10 Sold goods to Sanjay of Rs. 50,000 @ 28% GST and payment received by Cheque.
14 Purchased Goods for Cash Rs. 50,000 @ 18% GST less 10% Cash Discount.
18 Paid for Advertisement Rs. 8,000.
20 Purchased a Horse for Rs. 40,000 and paid Carriage Charges Rs. 2,000.
22 Paid for Printing & Stationery Rs. 11,000.
26 Sold goods to Alok for Cash Rs. 13,000 @ 12% GST less 10% Cash Discount.
28 Received an amount of Rs. 1,000 from Varsha which was previously written off as Bad
Debts.
30 Goods costing Rs. 5,000 distributed as Free Sample.
Que. 8*
Journalise the following transactions in the books of Reymond for the Month of April 2019
2019 April
1 Purchased goods from Kajal worth Rs. 2,00,000 at 5% Trade Discount and @ 18% GST and
½ amount paid by cheque.
4 Purchased Shares of Mahindra Company Rs. 60,000 and Rs. 1,000 paid as Brokerage.
9 Sold goods to Ravikant worth Rs. 60,000 at 10% Trade Discount and @ 18% GST 1/3 amount
received by cash at 5% Cash Discount.
10 Paid College Fees of proprietor’s son Rs. 1,000.
12 Purchased Computer of Rs. 50,000 @ 18% GST 15 Paid Transport charges on the above
computer of Rs. 2,000. 20 Paid for Salary Rs. 15,000.
26 Paid for Rent Rs. 5,000 and Rs. Advertisement 15,000.
27 Sold goods to Salman Rs. 20,000 @ 18% GST.
30 Purchased Goods for Rs. 1,00,000 @ 12%GST and paid by cheque.
30 Wages Outstanding Rs. 20,000.
EXERCISE*
Part I
State whether the following statements are True or False with reasons.
1) Narration is not required for each and every entry.
2) A journal voucher is must for all transactions recorded in the Journal.
3) Cash discount allowed should be debited to discount A/c.

Chapter 3: JOURNALS
4) Journal is a book of prime entry.

5) Trade discount is recorded in the books of accounts.
6) Goods lost by theft is debited to goods A/c.
7) If rent is paid to landlord, landlord's A/c should be debited.
8) Book Keeping records monetary and non-monetory transactions.
9) Drawings made by the proprietor increases his capital.
10) GST paid on purchase of goods Input tax A/c should be debited.
Part II
Fill in the blanks.
1) The first book of original entry is the ………
2) The process of recording transaction into journal is called ……
3) An explanation of the transaction recorded in the journal ……
4) …… discount is not recorded in the books of accounts.
5) …… is concession allowed for bulk purchase of goods or for immediate payment.
6) Every Journal Entry requires ……
7) …… discount is always recorded in the books of accounts.
8) …… is the document on the basis of which the entry is recorded in journal.
9) There are …… parties to a cheque.
10) The …… cheque is more safe than other cheques as it cannot be en-cashed on the counter
of the bank.
Part III
1) Prepare specimen of Tax Invoice
2) Prepare specimen of Receipt
3) Prepare specimen of Crossed cheque
4) Prepare specimen of Cash voucher.
Part IV
Answer in One Sentence:
1) What is Journal ? 2) What is Narration ?
2) What is GST ?
3) In which year GST was imposed by the Central Government of India ?
4) What is meant by simple entry ?
5) What is the meaning of combined entry ?
6) Which account is debited, when rent is paid by Debit card ?

Chapter 3: JOURNALS
7) Which discount is not recorded in the books of account ?

8) In which order monthly transactions are recorded in a Journal ?
9) Which account is credited, when goods are sold on credit ?
Part V
Give one word/term or phrase for each of the following statements:
1) A book of prime entry.
2) The tax imposed by Central Government on Goods and Services
3) Brief explanation of an entry.
4) The process of recording transactions in the Journal.
5) The French word from which the word Journal is derived.
6) Concession given for immediate payment.
7) Entry in which more than one accounts are to debited or credited.
8) Anything taken by proprietor from business for his private use.
9) Tax payable to the Government on purchase of goods.
10) Page number of the ledger.
Part VI
Select the most appropriate alternative from the alternatives given below and rewrite the
statement
1) ……… means explanation of the transactions recorded in the Journal.
a) Narration b) Journalising
c) posting d) Casting
2) ……… discount is not recorded in the books of accounts.

a) Trade b) Cash
c) GST d) VAT
3) Recording of transaction in Journal is called ……

a) posting b) journalising
c) narration d) prime entry
4) Every Journal entry require ……

a) casting b) posting
c) narration d) journalising

Chapter 3: JOURNALS
5) The ……… column of the Journal is not recorded at the time of journalising.
a) date b) particulars
c) ledger folio d) amount
6) Goods sold on credit should be debited to ………

a) purchase A/c b) customer A/c
c) sales A/c d) cash A/c
7) Wages paid for installation of Machinery should be debited to ……

a) wages A/c b) machinery A/c
c) cash A/c d) Installation A/c
8) The commission paid to the agent should be debited to ………

a) drawing A/c b) cash A/c
c) commission A/c d) Agent A/c
9) Loan taken from Dena Bank should be credited to ……

a) Capital A/c b) Dena Bank A/c
c) Cash A/c d) Dena Bank Loan A/c
10) Purchase of animals for cash should be debited to ……

a) Live stock A/c b) Goods A/c
c) Cash A/c d) Bank A/c
Part VII
Correct the following statements and rewrite the statements
1) All business transactions are recorded in the Journal.
2) Cash discount is not recorded in the books of accounts.
3) Journal is a book of Secondary entry.
4) GST is imposed by the Government of India from 1st July 2018.
5) Machinery purchased by the Proprietor decreases his capital.
Part VIII
Do you agree or disagree with following statements.
1) Narration is required for every entry.
2) GST stands for Goods and Sales Tax.

Chapter 3: JOURNALS
3) Trade discount is not recorded in the books of accounts.

4) Wages paid for installation of Machinery is debited to Wages Account.
5) The process of entering or recording the transactions in a Journal is called as
Journalising.
Part IX
Calculate the following:
1) Purchased Motor Car from Tata & Company worth Rs. 2,00,000 at 18% GST. Find out
GST amount.
2) Paid Transport charges Rs. 10,000 @ 5% GST. Calculate CGST & SGST.
3) Bought goods from Ranjan Rs. 10,000 @ 5% GST and 10% cash discount. Calculate
cash discount.
4) Received cheque of Rs. 90,000 from Kiran in full settlement of his account Rs. 1,00,000/.
Calculate discount rate.
5) Sold goods of Rs. 1,00,000 at 10%. Trade Discount and 10% cash discount to Ram and
received 50% amount by cheque. Calculate the amount of cheque received.
Part X
Complete the following table.
S. No. Transactions Dr Account Rs. Cr. Account Rs.
1 Paid Income Tax Rs. 5,000 by cheque
2 Received from Sonali Rs. 20,000 by RTGS
3 Sanjay became insolvent and not received Rs.
500
4 Purchased Horse for Rs. 10,000
5 Transferred from Fixed deposit A/c of
proprietor to business Bank A/c Rs. 50,000
Part XI
Journalise the following transactions in the books of Harbhajan & Co. for the month of
1st April 2019.
Balance on 1st April 2019
Cash in hand Rs. 35,000, Cash at Bank Rs. 25,000, Furniture Rs. 1,50,000, Laptop Rs.1,00,000,
Debtors : Sangita Rs. 40,000, Viru Rs. 30,000 2019
Creditors : Ganesh Rs. 10,000, Garima Rs. 40,000, Bank loan Rs. 50,000.
April

Chapter 3: JOURNALS
1 Purchased goods from Ajay kumar worth Rs. 2,50,000 at 10% Trade discount @18% GST and
paid 1/4 amount in Cash.
5 Purchased shares of Infosysis Company Rs. 50,000 and Rs. 500 paid as brokerage by
DematA/c.
8 Sold goods to Raj worth Rs. 90,000 at 10% Trade discount and 1/3 amount received by cash
and 5% cash discount is allowed.
12 Paid house rent of proprietor Rs. 9,000 and office rent Rs. 5,000.
15 Purchased Laptop of Rs. 60,000 @ 18% GST and paid amount by cheque.
20 Paid transport charges on the above Laptop Rs. 1,000 @ 18% GST.
25 Paid Commission Rs. 20,000 to Ram.
26 Paid Telephone Charges Rs. 1,000.
28 Transferred from private Bank A/c of proprietor to business Bank A/c Rs. 40,000.
30 Bought goods for Rs. 1,50,000 @ 12% as GST by cheque.
30 Exchanged our Furniture of Rs. 30,000 against a Motor car of the same value for business.

YOUR ACCOUNTS FEAR ENDS HERE…
CA CS HARISH A. MATHARIYA
(B.Com; CA; CS; GDC&A; LL.B p)
 Mr. Harish A. Mathariya, a Chartered Accountant as well as Company
Secretary devoted to the cause of students.
 He is a faculty at various renowned Classes for mechanical subjects like
Accounts, FM & Auditing at various levels of professional courses.
 His credential lies in Logical & simple technique of teaching from very
basics.
 Having experience of more than 9 years in teaching
 He is well known for taking Accounts in a very conceptual way for Non-
commerce students.
 He has provided corporate consultancy in the area of Accounting &
Finance system.
 Many of rankers give him credit for their success.
 His students speak: In A/C, “Don’t worry Bol-Hari”
98220 93220
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Maharashtra Board

12th Book-Keeping &

S.N. Chapter Name Pg. No.

2 Fundamentals of Double Entry Book-Keeping 2.1 – 2.20

3 Journal 3.1 – 3.19

6 Bank Reconciliation Statement

9 Final Accounts of a Proprietary Concern

10 Single Entry System

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com

S. Reading Reading Reading Reading Test

2 Double Entry Book-Keeping

9 Final Accounts of Prop.

10 Single Entry System

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com

CHAPTER 1: INTRODUCTION TO BOOK-KEEPING AND ACCOUNTANCY

Spicer and Pegler:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.1

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.2

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.3

Prof. Robert N. Anthony:

Thus, accountancy is concerned with the following:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.4

ii. Accrual Basis: (Mercantile Basis)

QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.5

There are two main types of Transactions: (Monetary & Non-monetary)

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.6

e. Narration: Narration is a short explanation of the business transaction for an entry . It

iii. Profit / Loss:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.7

iv. Assets, Liabilities and Net Worth:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.8

v. Contingent Liabilities: Contingent Liability is a liability which may have to be paid at a

vi. Capital and Drawings:

vii. Debtors and Creditors:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.9

x. Solvent and Insolvent:

xii. Trading Concern and Non Trading Concern:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.10

a. Trading Concern: A business or a firm established to perform trading activities, with

ACCOUNTING CONCEPTS, CONVENTIONS AND PRINCIPLES

Meaning of Accounting Concepts:

Importance of Accounting Concepts:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.11

v. Valid and appropriate assumptions

KEY ACCOUNTING CONCEPTS:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.12

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.13

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.14

ii. Trade Discount and Cash Discount:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.15

Trade Discount Cash Discount

iii. Difference between Book-keeping and Accountancy:

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.16

Book-keeping is mechanical and repetitive in Accounting requires skill, experience and

CA CS HARISH A MATHARIYA 98220 93220 | For video lectures: OnlyLectures.com 1.17

*2. Explain the difference between Book-keeping and Accountancy.