ASNC L A S S E S CHAPTER 1
ACCOUNTING EQUATION
Accounting Equation: Equation : Accounting Equation is based on dual aspect concept , according to which double entry is made for each transaction in debit and credit. The entire system of recording business transactions is based on accounting equation. It signifies that the assets of a business are always equal to the total of capital and liabilities. Accounting equation is an accounting formula expressing equivalence of the two expressions of Assets and Liabilities of the business concern. Accounting Equation:-
Liabilities Liabilities Capital Reserve and surplus Loans& Advances Current: Creditors Bills Payable Bank Overdraft Outstanding Expenses
Capital + Liabilities = Assets
Balance Sheet (Format) Amount Assets Fixed: Land & building Plant &machinery Furniture Goodwill Current: Debtors Cash in hand Investments Cash at bank Bills Receivable Closing Stock Prepaid Expenses Others: Preliminary Expenses etc.
Amount
(1) Capital: It refers to the amount invested by the proprietor (owner) in a business enterprise. It is the amount with the help of which goods and assets are purchased in the business. Capital = All assets – External liabilities (2) Liabilities: Liabilities : It refers to the amount which the firm owes to outsiders (except the amount owed to proprietors).For example, when a firm purchases goods on credit from A, the amount owing to A is a liability. Liabilities may be classified into two parts as under; (a) Long term liabilities or fixed liabilities: These refer to those liabilities which fall due for payment in a relatively long period (normally more than one year).For example, long– term loans and debentures etc. (b) Current liabilities: Current liabilities refer to those liabilities which are to be paid in near future (normally within one year). For example, Bank overdraft, bills payable, creditors, outstanding expenses and short term loans. (3) Assets : Any thing which is in the possession (ownership) or is the property of a business enterprise including the amounts due to it from others is called an asset. Assets may be classified into following categories: (a) Fixed Assets: Fixed assets refer to those assets which are held for continued use in the business for the purpose of producing goods or services and are not meant for resale. For example, Land and building, Plant and machinery, motor vehicles, furniture etc. (b) Floating Assets: Those assets whose value is constantly changing as the business proceeds like stock, debtors etc.
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
1
(c) Fictitious Assets: Assets of no real value but included in the balance sheet for legal or technical reasons. It includes such items which are not actually assets but are such expenses & losses which have not yet been written off in P&L a/c. Since these items have Dr. Balances so these are shown in asset side of balance sheet. For e.g. preliminary expenses, deferred revenue exp., discount on issue of shares etc. (d) Tangible Assets: Those assets which can be seen and touched are called tangible assets. In other words, which have a physical existence such as land, building, plant, furniture, stock, cash etc. whi ch do not have a physical (e) Intangible Assets: Assets: Intangible assets are those assets which existence and which cannot be seen or felt. For e.g. Goodwill, patent, trade marks and copyrights. (f) Liquid Assets: Assets that can be easily converted into cash like bank account, bills receivable, short term investment, debtors, stock etc. (g) Wasting Assets: Wasting assets are those assets which are consumed through being worked or used, such as mines, oil wells etc. OTHER TERMS • • • • • • • • • • • • • • •
Debtors – Persons to whom we sale goods on credit. Creditors – Persons from whom we purchase goods on credit. Revenue – Money received from sale of goods Expense Purchase – Cash purchase & Credit purchase Sales – Cash sales & Credit Sales Purchase return Sales Return Stock – opening stock & Closing stock Goods Drawings – goods or cash taken away by the owner for personal use Discount – Cash discount & Trade discount Bad Debts Insolvent Transaction - Exchange of something or two way process. Accounts consider only monetary transactions.
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
2
(c) Fictitious Assets: Assets of no real value but included in the balance sheet for legal or technical reasons. It includes such items which are not actually assets but are such expenses & losses which have not yet been written off in P&L a/c. Since these items have Dr. Balances so these are shown in asset side of balance sheet. For e.g. preliminary expenses, deferred revenue exp., discount on issue of shares etc. (d) Tangible Assets: Those assets which can be seen and touched are called tangible assets. In other words, which have a physical existence such as land, building, plant, furniture, stock, cash etc. whi ch do not have a physical (e) Intangible Assets: Assets: Intangible assets are those assets which existence and which cannot be seen or felt. For e.g. Goodwill, patent, trade marks and copyrights. (f) Liquid Assets: Assets that can be easily converted into cash like bank account, bills receivable, short term investment, debtors, stock etc. (g) Wasting Assets: Wasting assets are those assets which are consumed through being worked or used, such as mines, oil wells etc. OTHER TERMS • • • • • • • • • • • • • • •
Debtors – Persons to whom we sale goods on credit. Creditors – Persons from whom we purchase goods on credit. Revenue – Money received from sale of goods Expense Purchase – Cash purchase & Credit purchase Sales – Cash sales & Credit Sales Purchase return Sales Return Stock – opening stock & Closing stock Goods Drawings – goods or cash taken away by the owner for personal use Discount – Cash discount & Trade discount Bad Debts Insolvent Transaction - Exchange of something or two way process. Accounts consider only monetary transactions.
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
2
Double Entry System Meaning: This system is based on the principle that every transaction includes two persons. One is the giver and the other one is the receiver. That is why every transaction has two sides one is debit and other is credit. Thus every transaction will include two accounts for recording of every transaction in two separate accounts. This method is called double entry system. Characteristics: 1. Every business transaction affects two accounts: One of them is debited and other is credited. Certain transaction may affect more than two accounts but the amount of the accounts to be debited and credited will always be equal. 2. Recording of both personal and impersonal aspects: aspects: It is possible that both the aspects of a transaction may be personal or both may be impersonal or one may be personal or one may be impersonal. 3. Recording is made according to certain specified rules: In double entry one account is debited and the other is credited. It does not mean that any account may be debited or any account may be credited. There are certain rules for debiting and crediting and debits and credits are made on the basis of these rules. The 3 rules are : *Debit what comes in & Credit what goes out *Debit the receiver & Credit the giver *Debit all expenses & losses & Credit all incomes & gains (profits) 4. Preparation of trial balance: Since one account is debited and the other is credited, total of all debits is always equal to the total of all credits. This is done by preparing a trial balance. Advantages: 1. Complete Record of every transaction: Maintain all type of records i.e. personal or impersonal account. 2. Preparation of trial balance: It provides basis for checking the arithmetical accuracy (Debit side = Credit Side). 3. Preparation of final accounts: From this system final accounts are prepared from the ledger accounts and Trial balance, Trading and P & L a/c is prepared to arrive at net profit / loss for the year. 4. Financial Position of the business: Balance sheet is prepared from this system so that the financial position of a business will be calculated. 5. Prevention of Frauds: There is no scope for frauds due to this system. 6. Fulfillment of legal requirements: This accounting system meets requirements of banks, insurance etc. 7. Comparative study of expenditures and income: Management can compare cash, and expenditure as compared to previous year. 8. Helps in decision making: By this system management can get all information very quickly which helps in decision making. 9. Internationally Accepted: This system is accepted throughout the world. It is flexible. Disadvantages: 1. A number of books are to be kept under this system. 2. It is quite difficult to apply the rules of debit and credit. 3. Errors of omission: If a transaction remains altogether unrecorded in the books of original entry. 4. Error of Commission: If wrong amount is recorded in the books of original entry. 5. Error of principle: If the amount amount is recorded on the correct side though in a wrong account.
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
3
JOURNAL “Journal is a business record in which business transaction are recorded. It represents all the transaction date wise at one place in organized manner.” Transaction: - Exchange of something or two way process. Accounts consider only monetary transaction. Two effects E.g. Purchase of machinery for Rs. 5000 1st Effect-Machinery is coming 2nd Effect-Cash is going. In accounts one/more effect(s) is debited & other is credited. Rules of Debit & Credit
Type of Accounts
(i)
Dr. the receiver Cr. the Giver
Personal A/c
(ii)
Dr. what comes in Cr. what goes out
Real A/c
Dr. all expenses & losses Cr. all income & gains
Nominal A/c
(iii)
Extra:
Dr. if Assets increase Cr. if Assets decrease
Cr. if Liabilities increase Dr. if Liabilities decrease
Types of account: 1) Personal Account: Accounts which relate to individual firm, company or an institution are called personal accounts. These can be classified into three categories: a) Natural Personal Accounts: Accounts of natural Persons means the account of human beings, e.g. Mohan’s A/c, Sohan’s A/c etc. Proprietor’s capital account, Proprietors Drawing account, Debtors and Creditors A/c are also included in this category. b) Artificial Personal Accounts: These Accounts do not have physical existence as human beings but they work as personal accounts, e.g. any firm’s a/c, any limited company’s a/c, any bank’s a/c etc. c) Representative personal Accounts: When an account represents a particular or group of persons, it is termed as a representative personal account, e.g. Salary for the month of March not paid to the employees, the amount payable to these employees will be added and put under one common title “Outstanding Salaries Account”. 2) Real Account: The accounts of all those things which really exist and whose value can be measured in terms of money and which are the properties of the business are termed as Real accounts. Real accounts can be classified into following two categories. a) Tangible Real Accounts: Tangible Real Account are the accounts of those things which can be touched, felt, measured, purchased, sold etc. e.g. Cash a/c, Land A/c, Building A/c etc. b) Intangible Real Accounts: These accounts represent such things which cannot be touched, But of course, their value can be measured in terms of money, e.g. Goodwill a/c, Patent a/c, Trademark a/c, copyright a/c etc. 3) Nominal Account: These accounts are opened in the books to simply explain the nature of transaction. Examples of nominal accounts are Salary paid, Rent paid, Discount allowed, Commission received, Interest received, Discount received etc.
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
4
Date
Particulars
Journal (Format) L.F. Dr. Amount
Cr. Amount
L.F. – Ledger Folio (page number) List of Debit side and Credit Side Items: Debit Credit Purchase Sales Sales return Purchase return Discount Allowed Discount Received Expenses Salary, Rent etc Income - Interest received, Rent received Drawings Capital Loss by fire/theft Donation Received Bad Debts Bad Debts Recovered Assets Liabilities Charity Livestock Purchase Important Terms 1) Purchase a/c: It is always debited. But in the following 4 conditions it is credited a) When goods are taken away by the proprietor Drawings a/c Dr. To Purchase a/c b) When goods are given away as charity
Charity a/c Dr. To Purchase a/c
c) When goods are destroyed by fire
Loss by fire a/c Dr. To Purchase a/c
d) When goods are distributed as free samples
Advertisement/Free Samples a/c Dr. To Purchase a/c
3) Bad Debts: When debtor becomes insolvent/bankrupt, the amount due cannot be realized. This is called bad debts. It is a loss, so it is debited. Entry Cash a/c Dr. Bad debts a/c Dr. To Debtor’s a/c 4) Bad debts recovered: If the amount of bad is called bad debts recovered. Entry Cash a/c Dr. To Bad debts recovered 2) Discount: It is of two types: Basis Trade Discount 1.Definition It is given by the manufacturer to the trader/customer. 2. Objective It is given to increase sales. 3. Time
It is given at the time of sale contract. It reduces the selling price.
3. Entry
It is not shown in the journal entry. Sold goods Rs.5,000 . 10% trade discount given. Cash a/c Dr. 4500 To Sales a/c 4500
4. Example
debts is recovered from the debtor later on, it
a/c Cash Discount It is given by the seller t o the customer/debtor to make payment within a particular t ime.
It is given to get prompt (timely, early) payment. It is given when payment is made. It does not reduce the selling price. It is shown in the journal entry Sold goods Rs.5,000 . 10% cash discount given. Cash a/c Dr. 4500 Discount a/c Dr. 500 To Sales a/c 5000
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
5
5) Livestock: When animals are purchased in the business, they are called livestock. They are the assets of the business. Death of animals is loss & shown in P&L account. Entry Livestock a/c Dr. To Cash a/c 6) Sales tax: When sales tax is received with sales Entry Cash a/c Dr. To Sales a/c To Sales Tax a/c 7) Interest on capital paid: Entry – Interest on Capital a/c Dr. To Capital a/c 8) Interest on drawings: Entry – Drawings a/c Dr. To Interest on Drawings a/c 9) Paid Income Tax: Income tax is the personal expense of the owner, so it is treated as drawings. Entry – Drawings a/c Dr. To Cash a/c Compound Entry: Sometimes more than one transactions of similar nature take place on one date or with one person and then instead of passing two journal entries one compound entry may be passed. For Example:
1)
Salary a/c Dr. To Cash a/c
2)
Rent a/c Dr. To Cash a/c
Now, compound entry will be: Salary a/c Dr. Rent a/c Dr. To Cash a/c
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
6
Journal Entries:
1. Sold goods in cash Rs.200 Cash a/c Dr. 200 To Sales a/c 200 2. Purchased goods for cash Rs.500 Purchases a/c Dr. 500 To Cash a/c 500 3. Sold goods to Ram on credit Rs.600 Ram a/c Dr. 600 To Sales a/c 600 4. Purchased goods from Shyam on credit Rs.700 Purchases a/c Dr. 700 To Shyam a/c 700 5. Purchased furniture on credit from Seema & Co. Rs.1000 Furniture a/c Dr. 1,000 To Seema & Co. 1,000 6. Sold machinery in cash Rs. 3,000 Cash a/c Dr. 3000 To Machinery a/c 3000 7. Goods returned by Rakesh Rs.4500 Sales Returns a/c Dr. 4500 To Rakesh 4500 8. Goods returned to Tarun Rs.350 Tarun a/c Dr. 350 To Purchase Returns a/c 350 9. Started business with cash Rs.10,000 Cash a/c Dr. 10,000 To Capital a/c 10,000 10. Reema commenced business with Stock Rs.2000, Furniture Rs.5000 & Cash Rs.20000 Cash a/c Dr. 20,000 Furniture a/c Dr. 5,000 Stock a/c Dr. 2,000 To Capital a/c 27,000 11. Rent paid Rs.200 Rent a/c Dr. 200 To Cash a/c 200 12. Commission received Rs.800 Cash a/c Dr. 800 To Commission a/c 800 13. Salary paid to Rajeev Rs.2000 Salary a/c Dr. 2,000 To Cash a/c 2,000 14. Cash deposited in bank Rs.3000 (Contra entry) Bank a/c Dr. 3000 To Cash a/c 3000
15. Cash withdrew from bank for office use Rs.600 (Contra entry) Cash a/c Dr. 600 To Bank a/c 600 16. Entries in which Purchase Account is credited : a) Goods withdrawn by proprietor for Rs.400 Drawings a/c Dr. 400 To Purchases a/c 400 b) Goods destroyed by fire/stolen Rs.900 Loss by fire/Loss by theft a/c Dr. 900 To Purchases a/c 900 c) Goods given away as charity Rs.100 Charity a/c Dr. 100 To Purchases a/c 100 d) Goods distributed as free samples Rs.1500 Advertisement Exp. a/c Dr. 1500 To Purchases a/c 1500 17. Salary outstanding Rs.6000 Salary a/c Dr. 6000 To outstanding salary a/c 6000 18. Old newspaper sold Rs.50 Cash a/c Dr. 50 To Sundry receipts a/c 50 19. Depreciation charged on furniture Rs.300 Depreciation a/c Dr. 300 To Furniture a/c 300 20. Purchased a horse for business Rs.2500 Livestock a/c Dr. 2500 To Cash a/c 2500 21. Discount: Trade discount & Cash discount. a) Sold goods Rs.5000. 10% trade discount given. Cash a/c Dr. 4500 To Sales a/c 4500 b) Sold goods Rs.5000. 10% cash discount given. Cash a/c Dr. 4500 Discount a/c Dr. 500 To Sales a/c 5000 c) Sold goods Rs.1000. 10% trade discount given & 5% cash discount given. Cash a/c Dr. 855 Discount a/c Dr. 45 To Sales a/c 900 22. Interest received from bank Rs.250 Bank a/c Dr. 250 To Interest a/c 250 23. Paid interest on capital Rs.400 Interest on capital a/c Dr. 400 To Capital a/c 400
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
7
24. Charged Interest on drawings Rs.150 Drawings a/c Dr. 150 To Interest on drawings a/c 150 25. When Bad debts occurred . Cash a/c Dr. 600 Bad debts a/c Dr. 400 To Debtor’s a/c 1,000 26. When bad debts recovered Rs.300 Cash a/c Dr. 300 To Bad Debts recovered a/c 300 27. Sold goods Rs.5000 & charged sales tax @ 10% Cash a/c Dr. 5,500 To Sales a/c 5,000 To Sales Tax a/c 500 28. Paid Income Tax Rs.200 . Drawings a/c Dr. 200 To Cash a/c 200 29. Goods destroyed by fire Rs.15,000 Loss by fire a/c Dr. 15000 To Purchases a/c 15000
30. Insurance Co. accepted claim Rs.12,000 Insurance Co. Dr. 12000 P & L a/c Dr. 3000 To Loss by fire a/c 15000 31. Received claim from Insurance Company Cash a/c Dr. 12000 To Insurance Co. 12000 32. Received V.P.P for Rs.1000 Purchases a/c Dr. 1000 To Cash a/c 1000 33. Cash stolen from Iron safe Rs.500 Loss by theft a/c Dr. 500 To Cash a/c 500 34. Proprietor deposited into fixed deposit a/c Rs.2000 by withdrawing from current a/c Fixed Deposit a/c Dr. 2000 To Bank a/c 2000 35. Paid wages on installation of machinery Rs.200 Machinery a/c Dr. 200 To Cash a/c 200
Give Journal Entries: Q.1. 1. 2. 3. 4. 5.
Shubham started business with Rs. 2,00,000 as capital & building Rs.50,000 She purchased new machinery by taking a bank loan of Rent paid Commission received Withdrew for personal use. (Drawings)
Rs.40,000 Rs.10,000 Rs.20,000 Rs.10,000
1. 2. 3. 4. 5. 6. 7.
Komal commenced(started) business with cash Bought goods from Romil Bought furniture on credit from Manu Komal invested additional capital Paid salary Paid cash to Manu Cash purchases
Rs.1,00,000 Rs.25,000 Rs.10,000 Rs.15,000 Rs.3,000 Rs.5,000 Rs.40,000
1. 2. 3. 4. 5. 6. 7. 8. 9.
Started business with cash Paid wages Purchased goods for cash Rs.1,40,000 and credit Sold goods for cash Rs. 1,00,000, costing Rent Paid Rs.24,000 and outstanding Withdrew for personal use Purchased Equipment for cash Paid to creditors Charge depreciation on equipment
Q.2.
Q.3. Rs.4,00,000 Rs.10,000 Rs.40,000 Rs.40,000 Rs.10,000 Rs.20,000 Rs.12,000 Rs.10,000 Rs.1,000
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
8
Q.4. 1. 2. 3. 4. 5. 6.
Started business with cash Goods purchased on credit Bought furniture on credit Cash paid to creditors Purchased goods Sold goods(Costing Rs. 1,000) for cash
1. 2. 3. 4. 5. 6. 7. 8. 9.
Started business with cash Paid wages Purchased goods for cash Rs.1,40,000 and credit Sold goods for cash Rs. 2,00,000, costing Rent Paid Rs.14,000 and outstanding Withdrew for personal use Purchased Equipment for cash Paid to creditors Charge depreciation on equipment
Rs.25,000 Rs.15,000 Rs.10,000 Rs.6,000 Rs.1,000 Rs.7,500
Q.5. Rs.3,00,000 Rs.20,000 Rs.50,000 Rs.50,000 Rs.6,000 Rs.10,000 Rs.15,000 Rs.5,000 Rs.500
Q.6. Give journal entries in th e books of A mit for the follow ing transactions:(Prepare the format & w rite narration also) Date Particulars Amount Nov.1 Goods purchased from Sumit Rs.40,000 Nov.4 Goods sold to Kumbhat Rs.20,000 Nov.7 Loan received from bank Rs.2,22,000 Nov.8 Rent paid to Suresh Rs.7,500 Nov.10 Goods returned to Sumit Rs.5,000 Nov.14 Goods returned by Kumbhat Rs.3,000 Nov.17 Goods given in charity Rs. 400 & cash in charity Rs. 600 Rs.1,000 Nov.25 Paid to Sumit in full settlement Rs.34,500 Nov.29 Received from Kumbhat in full settlement Rs.16,000 Nov.30 Paid for stationary Rs. 5,000 & salaries Rs. 15,000 Rs.20,000
Q.7. Record the follow ing transaction in the journal of Parvati Date Particular Amount Jan.1 Parvati commenced business by bringing cash Rs.1,00,000 Jan.3 Purchased goods Rs.20,000 Jan.5 Purchased goods from Ram Rs.30,000 Jan.7 Sold goods to Shyam Rs.10,000 Jan.9 Purchased furniture from Godrej Ltd. for cash Rs.8,000 Jan.10 Received cash from Shyam Rs.10,000 Jan.12 Received commission Rs.1,500 Jan.15 Paid shop rent to Girish Rs.1,000 Jan 18 Purchased goods from Vinay Bros. for cash Rs.15,000 Jan.22 Sold goods to Megha Rs.15,000 Jan.25 Paid cash to Ram as part payment Rs.20,000 Jan.28 Paid salary to manager Rs.1,500
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
9
Q.8. Journalise the follow ing: (prepare the format & w rite narration also) Date Particulars Jan.1. Started business with cash Rs. 20,000 , goods worth Rs. 10,000 & furniture Rs. 5,000 Jan.2. Deposited in bank Rs. 10,000 Jan.3. Bought goods from John Bros. on credit Rs. 6,000 Jan.4 Goods returned to John & Bros. 2,000 Jan.4. Bought a horse for Rs.2,000 for delivering goods to customers Jan.5. Ravi gave a cheque & deposited in bank Rs. 4,000 Jan.6. Paid for repairs to furniture Rs. 500 Jan.8. Interest received from bank Rs. 700 Jan.9. Salary for the month of Jan. remained unpaid Rs. 300 Jan 10. Depreciation charged on furniture 10%. Q.9. Journ alise the follow ing : (prepare the format & w rite narration also) Date Particulars Mar 1. Paid for repairs to machinery Rs. 1,000 Mar 2. Supplied goods costing Rs.600 to Mohan issued invoice at 10% above cost less 5% trade discount. Mar 3. Sold goods to Teena of Rs.6,500 Mar 4. Sold goods to Krishna on list price Rs.3,400 - trade discount 10% & cash discount 5%. He paid the amount on the same day & availed cash discount. Mar 5. Goods given as charity Rs.2,760 Mar 6. Sohan is declared insolvent .Received from his official receiver a first & final dividend of 60 paisa in a rupee on a debt of Rs.100. Mar 7. Mar 8. Mar.9 Mar.10 Mar.11 Mar.12
Paid to Ram Rs 95 in full settlement of his account of Rs.100. Received a V.P.P for Rs.1,250. Insured goods destroyed by fire Rs.14,000 Insurance company accepted the claim and amount of claim received. Rs.12,000 Cash sales Rs.20,000 Sales tax realized @ 10% on sales amount Goods worth Rs.5000 and cash Rs.1500 drew for personal use
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
10
ASNC L A S S E S CHAPTER 2
Ledger Journal is a book in which all the transactions are recorded date wise. But on particular date what are total purchases, total sales, debtors, creditors, incomes, expenses may not be known from journal .To get this information, entries made in journal are classified on the basis of their nature in another book which is known as ‘Ledger’ .In other words Ledger is a book in which personal, real and nominal accounts are opened and posting is made in these accounts of all business transactions. Ledger A/ c (Format) Dr. Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount
J.F. - Journal Folio (page number) Balancing of Ledger Account: After completion of posting of all transaction, accounts are balanced every year or after a certain period. Balancing of accounts means making the total of both the sides of account equal and to write the difference in the side whose total is short. The rule is : If debit side total is more, it is debit balance. If credit side total is more, it is credit balance. Simple entry: Purchase a/c Dr. 1000 To Cash a/c 1000 Dr. Purchase a/ c Date Particulars J.F. Amount Date Particulars To cash a/c 1000 By balance c/d
Cr. J.F.
1000 Dr. Date
Particulars To balance c/d
J.F.
Cash a/ c Amount Date 1000 1000
Compound entry: Bank a/c Dr. 900 Discount a/c Dr. 50 To Mohan a/c 950 Dr. Bank a/ c Date Particulars J.F. Amount Date To Mohan a/c 900
Dr. Date
Dr. Date
Particulars To Mohan a/c
Particulars
J.F.
J.F.
1000 Cr. Particulars By Purchase a/c
Particulars
Discount a/ c Amount Date Particulars 50
Mohan a/ c Amount Date
Amount 1000
Particulars By Bank a/c By Discount a/c
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
J.F.
J.F.
Amount 1000 1000
Cr. Amount
Cr. J.F.
J.F.
Amount
Cr. Amount 900 50
11
Subsidiary Books Meaning: The journal is sub divided into subsidiary books or the books of original entry. Each subsidiary book is meant for recording all the transaction of similar nature. Type Of subsidiary Books 1. Cash Book: All cash receipts and cash payments are recorded in cash book. 2. Purchase Book: Only credit purchases are recorded into this book. 3. Sales Book: Only credit sales of goods are recorded into this book. 4. Purchases Return Book: When the goods previously purchased are returned to the supplier, such returns are recorded in this book. 5. Sales Return Book: When the goods previously sold are returned by the customer, such returns are recorded in this book. 6. Bills Receivable Book: This book is used for recording the receipt of bills receivable, promissory notes or hundies from various parties. The trader is to receive payment of these bills. 7. Bills Payable Book: This book is used for recording the issue of bills payable, promissory notes or hundies from various parties. The trader is to make payment of these bills. 8. Journal Proper or General Journal: This book is used for recording the transactions which cannot be recorded in any of the above mentioned books. CASH BOOK It is of four types 1. Single column cash book. 2. Double/Two column cash book. 3. Three column cash book. 4. Petty Cash Book. Contra entry: Some transactions are recorded in three column cash book which are related to both cash and bank i.e. balance of one will be decreased and other will be increased due to such transactions. Such transactions are entered on both sides of cash book .Such entries are known as contra entries. Examples of contra entry: *cash deposited into bank *Cheque or draft received from customers earlier and deposited in to bank on the another day *cash is withdrawn from the bank for business use. These transactions are entered on both the sides of cash book in the opposite columns and ‘C’ is marked in L.F. column of both the sides with the transactions.
Format of Three Column Cash Book Dr. Date
Cr. Particulars
LF
V.No
Cash I
Bank II
Discount III
Date
Particulars
LF
V.No
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
Cash I
Bank II
Discount III
12
Petty Cash Book In every business, there are many payments which are of small amount and high frequency like carriage, cartage, coolie hire, postage etc. So to record such petty expenses a separate cash book is maintained which is known as petty cash book. The petty cashier is given a small sum, which, from past experience is found sufficient enough to meet the requirements of a fixed period (say one month). This small amount is called ‘imprest’ or ‘float’. The petty cashier makes the payment of petty expenses and records them in petty cash book. At the end of the month the petty cashier submits the account to the cashier, who makes the payment of the amount spent by the petty cashier. Thus again on the first day of the next month the petty cashier is found with the same cash balance which he had on the first day of the previous month.
Performa of Petty Cash Book Amount Date Received
Particulars
V. No. Amount
Postage
Cartage
Stationery Wages & printing
Refreshment
Misc. expenses
V.No. – Voucher (bill) number Debit Note/ Credit Note When goods are returned to vendor (seller), buyer sends a debit note to inform him that his account has been debited with the amount shown in debit note. Debit note reduces the payment liability. In turn vendor sends credit note in favour of purchaser to inform him that his account has been credited. Sales Book/ Purchase Book Date Particulars
Invoice No.
L.F.
Detailed Amount
Net Amount
Sales Return/Purchase Return book Date
Particulars
V.N. or Debit/Credit Note No.
L.F.
Detailed Amount
Net Amount
Performa of Bills Receivable Book S.No.
Date
From whom received
Acceptor
Date of Term bill
Date of maturity
L.F.
Amount Rs.
Remarks
The total of B/R book is posted in the ledger on debit side by writing ‘To Sundries as per B/R Book’.
Performa of Bills Payable Book S.No.
Date
Drawer
Payee
Date of Term bill
Date of maturity
L.F.
Amount Rs.
Remarks
The total of B/P book is posted in the ledger on credit side by writing ‘By Sundries as per B/P Book’. These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
13
Journal Proper: Transactions which are not covered under seven subsidiary books will be recorded in a special book known as journal proper. 1. Opening Entry: To bring the balance of assets and liabilities from previous year’s balance sheet in the books of new year, a journal entry is passed in the journal proper which is called opening entry. 2. Closing Entry: At the end of the year the accounts which are to be closed are transferred to trading account and profit & loss account and entries to this effect are passed in journal. These entries are known as closing entries. 3. Transfer Entries: Transfer entry is an entry which is made to transfer one account to another account such as transfer of drawings account into capital account. 4. Adjustment Entries: While preparing final accounts at the end of the accounting period some unadjusted and unrecorded items are to be adjusted, so entries of such recording are called adjustment entries, e.g. outstanding expenses, prepaid expenses ,accrued income , unearned income, interest on capital, interest on drawings, bad debts provisions etc. 5. Rectifying Entries: Entries to rectify the errors in the books of original entries or of ledger are recorded in journal proper. 6. Other entries: Entries related to purchase and sale of assets on credit, goods withdrawn for personal use by the proprietor, goods given away as charity or distributed as free samples or lost by fire, bad debts etc. are recorded in journal proper. Example 1) 2) 3) 4) 5) 6)
Date 1)
2)
3)
4)
5)
6)
Purchased furniture from Rohit on credit. Sold old machinery to Charu on credit. Goods taken away for personal use from the shop. Rs.4,000 due from Nikhil was written off as bad debts. Goods given as charity. Goods lost by fire. Journal Proper of ……………. L.F.
Rs.1,000 Rs.2,000 Rs.3,000 Rs.4,000 Rs.5,000 Rs.6,000
Particulars Furniture a/c Dr. To Rohit’s a/c (Being furniture purchased from Rohit)
Dr. Amount 1,000
Charu a/c Dr. To Machinery a/c (Being machinery sold to Charu)
2,000
Drawings a/c Dr. To Purchase a/c (Being goods withdrawn for personal use)
3,000
Bad debts a/c Dr. To Nikhil’s a/c (Being amount written off as bad debts in Nikhil’s account )
4,000
Charity a/c Dr. To Purchase a/c (Being goods given away as charity)
5,000
Loss by fire a/c Dr. To Purchase a/c (Being goods lost by fire)
6,000
Cr. Amount 1,000
2,000
3,000
4,000
5,000
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
6,000
14
Questions: Q. 1. Post the following journal entries into the ledger: 1) Drawing a/ c Dr. 20,000 To Bank a/ c 20,000 (Cheque drawn out of bank for personal use)
2) Rajesh a/ c Dr. 3,70,000 To Bank a/ c 3,69,000 To Discount Received a/ c 1,000 (Paid to Rajesh by cheque, he allowed us discount)
3) Purchase a/ c Dr. 1,000 Carriage a/ c Dr. 50 To Mahi 1,050 (Being purchase goods from Mahi and carriage paid)
4) Cash a/ c Dr. 5,000 Traveling Expenses a/ c Dr. 500 To sales a/ c 5,500 (Received cash from traveling salesman after deducting traveling exp.)
SUBSIDIAR Y BOOKS (QUESTIONS) Cash Book Q.1. Pre pare a three column cash book from the follow ing transactions (i) Cash in hand Rs.4,000 (ii) Cash at Bank Rs.10,000 (iii) Cash purchases Rs.1,500 (iv) Wages paid Rs.50 (v) Cash withdrawn for personal use Rs.500 (vi) Cash received from Suresh & discount allowed Rs.1,80,000 & Rs.50 (vii) Cash paid to Munna and discount received Rs.98,000 & Rs. 20 (viii) Cash paid to Radhey Rs.500 (ix) Withdrew from bank Rs.5,000
Q.2. Enter the follow ing transactions in three column cash boo k of ABC & Co. March, 1 Balances: Cash Rs.2000 & Bank Overdraft Rs.48,000 March, 2 Introduced additional capital Rs.48,000 March, 5 Deposited Rs.30,000 in the bank March, 8 Received from Raman Rs.3,560 , allowed him discount Rs.20 March, 8 Paid Rs.4,800 to Girdhari who allowed discount of Rs.40 March, 9 Bought goods for cash Rs.2,000 March, 15 Received dividend by cheque Rs.150 deposited in the bank same day March, 16 Paid commission by cheque Rs.600 March, 17 Withdrew for personal use Rs.1,500 March, 25 Paid electricity bill by cheque Rs.200 March, 29 Paid salary Rs.1,400, rent Rs.800 & wages Rs.600
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
15
Purchase Book Q.3. From the follow ing transactions of Mudit Prakash an, prepare the Pu rchase Book: 2001 May, 15 Pur chased from Sahil Book Depot on Credit. 5 copies of financial Accounting @ Rs.100 each 10 copies of cost accounting @ Rs.10 each Less: Trade Discount @ 15% May, 18
Purchased From Harsh Publishing House on Credit 20 copies of economics @ Rs.50 each 50 copies of law @ Rs.60 each 10 copies of management @ Rs.200 each Less: Trade Discount @10%
Q.4. Pre pare the purchase book of M/ s Kamal & Co., cloth merchant from the follow ing transactions: 2004 Dec.1 Bought from Sonia & Co. on credit 50 m silk @ Rs. 140 per m. 30 m. Nylon @ Rs. 70 per m. Trade Discount 10%, voucher No.10 Dec.5
Bought furniture on credit from Kapil & sons for Rs. 5,000 Vocher No. 101
Dec.20 Bought From Manu Kumar on credit 200 m. Cotton silk @ Rs. 100 per m. 100 m. suit length @ Rs. 200 per m. Trade Discount 10% voucher No. 501 Dec.30 Bought from Santosh Brothers in cash 40 m. Silk @ Rs. 150 per m. Voucher No. 1003 (HINT: Purchase of furniture on credit & cash purchase of goods will not be recorded)
Sales Book Q.5. From the follow ing transactions of Sudhir Book Depot, Prepare the Sales Book: 2001 March, 3 Sold to Nilesh Book Depot on Credit. 50 copies of World History @ Rs.65 each 100 copies of Political Science @ Rs.75 each Less: Trade Discount @ 10% March, 10 Sold to Romil Boo k Depot on Credit 80 copies of Medieval India @ Rs.60 each 120 copies of National Movements @ Rs. 25 each Less: Trade Discount @12.5% March, 17 Sold to Boby Book Company on credit 70 copies of Hindi @ Rs.100 each 50 copies of English@ Rs.70 each Less: Trade Discount @ 15% March, 25 Sold to Payal Book Depot on credit 60 copies of Modern India @ Rs.55 each 110 copies of Business news @ Rs.40 each Less: Trade Discount @ 17 % March, 30 Sold to Avi Book Depot on credit 90 copies of Gandhian Philosophy @ Rs.25 each 60 copies of Social System @ Rs.35 each Less: Trade Discount @ 10 % These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
16
Petty Cash Book Q.6. The Petty cashier of M/s Jyoti Prakashan maintains a petty cash balance of Rs. 100 and receives Rs. 400 from chief cashier on 1 st March, 2001. From the following transactions write petty cash book according to Imprest system: Rs. March, 3 Paid for Postage 40 March, 5 Paid for Postage 25 March, 8 Paid for Cartage 60 March, 9 Paid for Telegram Charges 25 March, 10 Paid for Cartage 60 March, 12 Paid for Wages 15 March, 14 Paid for Refreshment 40 March, 16 Paid for Printing Expenses 60 March, 20 Paid for Coolie Charges 10 March, 24 Paid for Cartage 25 March, 25 Paid for Postage 30 March, 27 Paid for Refreshment 25 March, 30 Paid for Wages 25 March, 31 Paid for Miscellaneous Expenses 30
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
17
Solution:
Amt Recd
Date
Particulars
Rs. 100 400
2001 Mar1 Mar1 Mar3 Mar5 Mar8 Mar9 Mar10 Mar12 Mar14 Mar16 Mar20 Mar24 Mar25 Mar27 Mar30 Mar31
To bal. b/d To Cash a/c By Postage By Cartage By Stationery By Telegram By Cartage By wages By Refreshment By Printing By Coolie Charges By Cartage By Postage By Refreshment By Wages By Miscellaneous Exp.
Mar31
By Balance C/d
2001 April1 April1
To Balance B/d To Cash
500 30 470
V. No.
Petty Cash Book of M/s Jyoti Prakashan Amount Post & Cartage Print & Telegram Stationery Rs.
Rs.
40 25 60 25 60 15 40 60 10 25 30 25 25 30 470 30 500
40
Rs.
Rs.
Wages & Coolie Charges Rs.
Refreshment
Miscellaneous Charges
Rs.
Rs.
25 60 25 60 15 40 60 10 25 30 25 25 95
110
120
50
65
30 30
These booklet is prepared by ASNCLASSES 18 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
ASNC L A S S E S CHAPTER 3
Meaning: Trial balance is a list of debit and credit balances which is prepared to check the arithmetical accuracy of ledger and which is also helpful in preparing final accounts. Characteristics: 1. Trial Balance is a statement, not an account. 2. It has two columns for amount- one for debit balance and another for credit balance. 3. Closing balance of ledger accounts are shown in trial balance. 4. Trial balance can be prepared at any date. 5. It is system adopted to judge the mathematical accuracy of ledger accounts. 6. Final accounts of business i.e. trading account, profit & loss account and balance sheet are prepared with the help of Trial Balance. Objects: 1. To judge the arithmetical accuracy of ledger accounts: The main object of preparation of trial balance is to check the ledger posting which has been made on the basis of principles of double entry system of accounting. If all the entries are correctly made then total of Dr. and Cr. Columns of trial balance will be equal. 2. Basis of final accounts: It is a summary of all transactions of an accounting period. In trial balance some accounts are related to income and expenses which are recorded in trading and profit & loss account and other are related to assets and liabilities which are placed in balance sheet.
3. Summary of ledger accounts: Trial balance is a schedule of ledger accounts. The entire ledger is summarized in the form of trial balance. The position of any account may be known by studying the trial balance rather than turning over the pages of ledger unless full description is required
ASNC L A S S E S CHAPTER 3
Meaning: Trial balance is a list of debit and credit balances which is prepared to check the arithmetical accuracy of ledger and which is also helpful in preparing final accounts. Characteristics: 1. Trial Balance is a statement, not an account. 2. It has two columns for amount- one for debit balance and another for credit balance. 3. Closing balance of ledger accounts are shown in trial balance. 4. Trial balance can be prepared at any date. 5. It is system adopted to judge the mathematical accuracy of ledger accounts. 6. Final accounts of business i.e. trading account, profit & loss account and balance sheet are prepared with the help of Trial Balance. Objects: 1. To judge the arithmetical accuracy of ledger accounts: The main object of preparation of trial balance is to check the ledger posting which has been made on the basis of principles of double entry system of accounting. If all the entries are correctly made then total of Dr. and Cr. Columns of trial balance will be equal. 2. Basis of final accounts: It is a summary of all transactions of an accounting period. In trial balance some accounts are related to income and expenses which are recorded in trading and profit & loss account and other are related to assets and liabilities which are placed in balance sheet.
3. Summary of ledger accounts: Trial balance is a schedule of ledger accounts. The entire ledger is summarized in the form of trial balance. The position of any account may be known by studying the trial balance rather than turning over the pages of ledger unless full description is required. Methods: 1. By Total Of Accounts: When trial balance is prepared on the basis of totals then Dr. and Cr. side of each account of ledger is totalled without balancing the account and the same total of Dr. side is recorded in trial balance in the debit column and of Cr. Side in Cr. Column. 2. By Balance Of Accounts: Under this method the balance of each account is found out by comparing totals of debit and credit side and the same balance is recorded in trial balance, debit balance in Dr. column and credit balance in Cr. Column. Errors not disclosed by Trial Balance: There are certain errors which do not affect trial balance. Such errors are: 1. Errors of omission: When any transaction is omitted to be recorded either in journal or subsidiary books, or posting in both the ledger accounts is omitted, it is called error of omission. E.g. goods purchased from Rahul omitted to record in the books of accounts will not affect trial balance. 2. Error of Commission: Recorded in the books of original entry with wrong amount or in wrong account or making posting in wrong account with correct amount and in correct side are known as errors of commission, e.g. goods sold to Sameer of Rs.15,000 entered in journal with Rs.1,500. Similarly, if posting of Dr. Side of Shyam’s account is made in Ram’s account in Dr. Side will also not affect trial balance. 3. Errors of principle: When rules of double entry system are not followed, it is known as error of principle e.g. Machinery purchased is debited to purchases account instead of Machinery account 4. Errors of Compensation: If one error is compensated by another error then it is called error of compensation. For example, while recording transaction Megha’s account was debited by Rs.100 in place of Rs.1,000 where as in Hari’s account in debit side Rs.1,000 are recorded in place of Rs.100.
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
19
Errors w hich affect Trial Balance: 1. 2. 3. 4. 5.
Wrong C/F and B/f of total in subsidiary books. Wrong posting in ledger from subsidiary books Error in balancing of account. Error in preparing debtors and creditors schedules. Error in writing the balances in Trial balance.
Suspense Account: When errors are not disclosed and final accounts are to be prepared in time, in such case the amount of difference is put in a new account named ‘Suspense account’ till errors are detected. If the total of Dr. Column is more than credit of trial balance Suspense account will reveal Cr. Balance and vice versa debit balance. At the time of rectification, suspense account will be closed through rectification entries. List of Debit side and Credit Side Items: Debit Credit Purchase Sales Sales return Purchase return Discount Allowed Discount Received Expenses Salary, Rent Income - Interest received, etc Rent received Drawings Capital Loss by fire/theft Donation Received Bad Debts Bad Debts Recovered Assets Liabilities Charity Livestock
S.No.
FORMAT Trial Balance as on … .. Name of ledger accounts L.F. Debit Amount
Credit Amount
*Q. “If a trial balance tallies, it can be concluded that there are no errors in the books of accounts.” Explain?
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
20
Questions: Q.1 Prepare a Trial Balance from the follow ing balances extracted from the books of Ashoka Bros : Opening Stock 10,000 Rent 3,000 Purchases 2,00,000 Wages 1,500 Debtors 60,000 Insurance &Taxes 500 Cash in hand 1,000 Building 40,000 Cash in bank 3,000 Capital Account 44,000 Creditors 50,000 Purchase Returns 12,000 Sales 2,40,000 Sales Returns 13,000 Salaries 14,000 Q.2 Totals of both sides of Ledger A ccount of Simran are as follow s. Prep are a Trial Balance by Total and Balance Combined method: Name of Ledger Accounts Cash Account Capital Account Drawing Account Furniture Account Scooter Account Purchases Account Mahesh’s Account Sales Account Discount Account Rent Account Commission Account
Debit Total 19,600 700 7,000 24,000 3,700 1,000 400 200 2,000 -
Credit Total 2,700 40,000 1,500 600 6,000 7,000 800
Q.3. An I nexperienced A ccountant has prepared the follow ing trial balance, you have to prepare it in correct form: Particulars
Capital Interest Allowed Drawings Paid Octroi Sales Return Purchaser Returns Commission Received Discount Allowed Loan from Arushi Repairs to machinery Sales Purchases Cash Bank Overdraft Creditors Debtors Furniture Buildings Machinery
Dr. Amount (Rs.) 11,880 16,200 5,400 1,620 43,200 7,02,000 54,000 27,000 32,400 27,000 1,62,000 10,82,700
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
Cr. Amount (Rs.) 2,70,000 27,000 21,600 2,700 59,400 4,32,000 54,000 2,16,000 10,82,700
21
Q.4 Pr epare a Trial Balance of M r. Sushant from the fo llow ing balances as on 3 1.3.2008: Purchases 5,75,000 Sales 8,30,000 Bank 24,000 Closing Stock 1,45,000 Cash 4,200 Drawings 8,000 Capital A/c 5,77,000 Income Tax Refund 200 Commission on 70,000 Sales Salaries 64,000 Postage 23,000 Advertisement 34,000 Insurance 16,000 Prepaid Insurance 3,000 Stationery in 1,000 Hand Furniture 44,000 Stationery Used 5,000 Bad Debts 4,000 Motor Car 90,000 Depreciation on Motor 6,000 Wages 40,000 Car Dis. Given 10,000 Provision For Bad 2,000 Debtors 2,00,000 Debts Gen. Exp. 62,000 Provision for 2,000 Carriage 44,000 Repairing Outward Creditors 80,000 Carriage Inwards 20,000 Outstanding Wages 5,000 Assured Interest on 4,000 Deposit
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
22
ASNC L A S S E S CHAPTER 4
MEANING: Every businessman wishes to know the profit or loss of his business after a certain period & also the state of affairs (position) to judge whether his business is financially sound or weak. The books of original entry do not disclose (show) this information. It is provided by two statements: 1. Income statement (Trading & P& L a/ c): It discloses profit or loss derived during a certain period of time. Trading Account: All expenses which relate to either purchase of raw material or manufacturing of goods are recorded in Trading Account. All such expenses are called direct expenses. Trading account shows the gross profit. Profit & Loss Account: All indirect expenses & incomes are recorded in P&L a/c. It shows the net profit or net loss. 2. Position Statement (Balance Sheet): It presents the financial position of business on a particular date. It shows all the assets & liabilities of the business. These statements are known as Final Accounts NEED & I MPORTANCE 1. It helps in knowing whether business is progressing well or not. 2. It helps in providing about the financial position of the company which helps the company while obtaining loans. 3. It helps the company in deciding about the tax liability of the company. Reasons for making adjustments in Final Accounts 1) To know the true profit or loss of the business. 2) To know the true financial position of the business. 3) To record the transactions which are omitted. 4) To rectify the errors made. 5) To provide for depreciation & other provisions. 6) Recording of expenses which have accrued but have not been paid. 7) Recording of incomes which have accrued but have not been received. DIFFERENCE Basis 1. Form 2. Sides 3. Accounts Shown 4. Order 5. Period 6. Object 7.Presentation 8. Summary
Trading & P& L a/ c It is an account Debit & Credit Accounts relating to goods & nominal a/c No specific order One year Determination of profit/loss. Use of To & By Summary of nominal a/c only
Balance Sheet It is a statement Assets & Liabilities Personal, Real & Nominal a/c Specific Order On a particular date Presentation of financial position Not used Complete summary of all the accounts
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
23
DIFFERENCE Basis 1. Object 2. Balance of a/c 3. Sides 4. Format 5. Closing of books 6. Necessity
Trial Balance Testing the Arithmetical Accuracy of ledger a/c. Balance of all real, personal & Nominal a/c are shown. Columns of Debit & Credit. Journal
Balance Sheet Presentation of Financial State of Affairs. Balances Of Accounts in the form of assets & Liability are shown Assets & Liability Sides. Ledger
Not necessary Not necessary
Must Must, Presents financial position.
TRADING & PROFIT AND LOSS ACCOUNT : Format Trading & profit & loss account For the year ending 31st March ……… Particulars Amount Particulars To opening stock By Sales a/c To Purchase a/c Less: Sales Return Less: Purchase Return Less: Sales on approval basis To All direct expenses (cost + Profit) To wages By Loss by fire (total loss) Add: outstanding wages By closing stock To carriage Add: Sales on approval basis(cost) To manufacturing expenses By Gross Loss c/d To factory lighting To wages & salaries To factory rent& rates To Gross Profit c/d -
To Gross Loss b/d To Loss by fire (amt. not recovered by insurance co.) To Advertisement Expenses To Traveling Expenses To Bad Debts Add: Further bad debts Add: New Prov. For bad debts Less: Old Prov. For bad debts To Godown Rent To Rent ,rates & Taxes To legal fees To insurance Less: Prepaid Insurance To audit fees To Depreciation To Repairs & Maintenance To interest on capital To Manager’s commission To Net profit transferred To Capital a/c
Amount
-
By Gross Profit b/d By interest received Less: Unearned Interest By Commission Add: Accrued Commission By Discount By Interest on Drawings By Income from Inv. By Net Loss Transferred to Capital a/c
-
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
-
24
Difference Basis
Gross Profit
Net Profit
1) Definition
The residual income after deducting the direct costs from the total revenue is called Gross Profit.
It is the residual income which is given to the entrepreneur after deducting all implicit & explicit costs from its total revenue.
2) Calculation
It is calculated as the balancing figure in Trading Account.
It is calculated as the balancing figure in Profit & Loss Account.
3) Transfer
It is transferred to Profit & Loss Account. G.P. = Total Revenue - All Direct expenses of current year.
It is transferred to Capital Account. N.P. = G.P. – All indirect expenses of current year.
4) Formula
Forms of Balance Sheet Balance sheet can be prepared in 2 orders: 1) Permanency Order 2) Liquidity Order Balance sheet of ………………………………. As on…………… (Permanency Form) Liabilities Amount Assets Capital Goodwill Add: Net profit Freehold Premises Add: Interest Plant & Machinery Less: Drawings Furniture Loan Investments Sundry Creditors Prepaid Expenses Outstanding Expenses Stock-in-trade Bills Payable Sundry Debtors Bank Overdraft Bills Receivable Cash at Bank Cash in hand Balance sheet of ………………………………. As on…………… (Liquidity Form) Liabilities Amount Assets Bank Overdraft Cash in hand Bills Payable Cash at Bank Outstanding Expenses Bills Receivable Outstanding Manager’s Sundry Debtors Commission Less: Sales on approval Unearned Income (cost + profit) Sundry Creditors Less: Further bad debts Loan Less: New Prov. For bad debts Capital Less: Prov. For discount for Drs. Add: Net profit Closing Stock Add: Interest on capital Add: Sales on approval (cost) Less: Drawings Prepaid Expenses Less: Interest on drawings Accrued Income Investments Furniture Plant & Machinery Less: Depreciation Freehold Premises Goodwill Insurance Company(If accepted the claim but pay next year) -
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
Amount
Amount
-
25
ADJUSTMENTS 1. Closin g Stock It is valued at cost price or market price whichever is less. * Trading a/c Cr. Side * Balance Sheet assets side (Current Assets) 1. Outstanding Expenses Such expenses which are related to current year but have not been paid are known as outstanding expenses. For example: - Rent, Salaries, Wages. Amount of outstanding expenses will be added to relevant expenses in the trading and profit and loss account and will be shown on the liability side of balance sheet. * Trading / P & L Account To wages: ---Add: O/S wages: ---
* B / S Liab. Side (Current Liability)
2. Prepaid Expenses Normally payment of certain expenses like- Insurance, rent of shop etc. are paid in advance. Such expenses are termed as advance or prepaid expenses. Benefit of such expenses shall be available in the next year and are not related to current year. The amount should be deducted from the relevant expenditure and should be shown as an asset in the balance sheet. * Trading & P/L a/c To insurance: ---Less: Prepaid insurance: ---
* B / S Assets side (Current Assets)
3. Accrued Income (I ncome earned but not Received) That income which has been earned during the current year but the amount has not been received till the end of the year is called accrued income. In final accounts accrued income account shall be added in the relevant item in profit and loss account and shall be shown in the asset side of balance sheet. * P & L A/C Cr. Side By interest Add: Accrued interest: ---
* B/S Assets side
5. Unearned Income or I ncome Received In A dvance Sometimes some income is received in advance for the work which has to be performed in the subsequent year or years. Such receipts are known as unearned income or income received in advance. For example, rent, Commission etc. can be received in advance. Amount of unearned income shall be deducted from related income in profit and loss accounts and it will be shown in liabilities side in the balance sheet. * P & L A/C Cr. Side by interest Less: Unearned interest: ---
* B / S Liab. Side
6. Depreciation * P & L A/C Dr. Side To Depreciation
* B / S Assets Side E.g. Machinery: --Less: Dep. on machinery. 7. Interest on Capital & Interest on Draw ings
D r. To Int. on capital
B/ S P & L A/ C By Int. on Drawing
Liab. Cr .
Assets
Capital Add: Int. on cap. Less: Drawings Less: Int. on Drawings
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
26
8. Pro vision for Discount on Debtors & Pro vision for Discount on Creditors B/ S Dr. P & L A/ C Cr. Liab. Assets To Prov. For Dis. On Debtors
By Prov. For Dis. On Creditors
Creditors Less: Prov. For Dis.
Debtors Less: Prov. For Dis.
9. Commission payable to the manager on pro fit (net profit). * Shown on debit side of P&L a/c * Shown on liabilities side of B/S If % of commission is given on N.P. before charging commission, then
Commission = Rate x N.P. before commission 100 If % of commission is given on N.P. after charging commission, then
Commission =
Rate x N.P. before commission 100 + Rate
Adjustment Entry Mgr. Comm. a/c Dr. To o/s Comm. a/c P&L a/c Dr. To o/s Comm. a/c
10. Goods sent on return b asis or goods sent on appr oval It means goods are sold on the condition that customer will keep the goods if he is satisfied completely otherwise he can return back the goods. If customer’s consent is not received then no entry is made. If entry is made by mistake as actual sales then * Selling price of goods is deducted from sales & debtors * Cost price of goods is subtracted from Closing stock in Trading a/c & Assets side of B/S. 11. Loss of goods by fire 12. Bills Receivable discounted this year w hose maturity date is in next year. No adjustment is made. It is a contingent liability & is shown as a footnote below the balance sheet. Adjustments for w hich reverse entry is made at the beginning of next year (Entries at the end of current year) 1) Outstanding Expenses
:
Rent a/c Dr. To Outstanding Rent a/c
2) Prepaid Expenses
:
Prepaid Salary a/c Dr. To Salary a/c
3) Accrued Income
:
Accrued Interest a/c Dr. To Interest a/c
4) Unearned Income
:
Commission a/c Dr. To Unearned Commission a/c
Reverse of these entries is passed at the beginning of next year
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
27
Closing Entries Q. From the following trial balance of Shri Ganesh iron store, prepare trading and profit & loss account for the year ended 31 st march 2002 and a balance sheet as on that date. Also pass the necessary closing entries.
Capital Drawings Furniture Purchase and sales Debtors & creditors Returns Bad debts Advertisement Rent Rates & taxes Bills Receivable and bill payable Discount Plant & machinery Carriage on purchases Carriage on sales Opening Stock Manufacturing expenses Trade expenses Salaries Cash in hand Cash in bank Wages
Dr. (Rs.) 5,000 15,000 1,50,000 25,000 3,500 500 1,000 1,000 15,000 250 22,500 5,500 750 34,000 19,000 1,500 5,500 14,500 17,500 2,000 3,39,000
Cr. (Rs.) 50,000 2,50,000 30,000 1,500 7,000 500 3,39,000
The closing stock on 31.3.2002 was Rs. 12,500. Solution: Closing Entries Date Particulars 2002 Mar 31 Trading a/c Dr. To opening stock a/c To purchase a/c To sales returns a/c To carriage a/c To manufacturing exp a/c To wages a/c (Debit balance transferred to trading account)
Amount Rs. 2,14,000
Amount Rs. 34,000 1,50,000 3,500 5,500 19,000 2,000
Sales a/ c Dr. Purchase returns a/ c Dr. To trading a/c (credit balance transferred o trading account)
2,50,000 1,500
Stock a/c (closing) To trading a/c (credit stock transferred o trading account)
Dr.
12,500
Trading a/ c To profit & loss a/c (Gross profit transferred to P7L a/c)
Dr.
Profit & loss a/ c To bad debts a/c
Dr.
2,51,500
12,500
50,000 50,000
10,500
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
500
28
To advertisement a/c To rent, rates & taxes a/c To discount a/c To carriage a/c To trade exp a/c To salaries a/c ( Debit balance transferred to P&L a/c)
1,000 1,000 250 750 1,500 5,500
Discount a/ c To profit & Loss a/c (Discount transferred to P&L a/c)
Dr.
Profit & Loss a/ c To capital a/c ( Net profit transferred to capital account)
Dr.
Capital a/ c To drawing a/c (Drawing transferred to capital account)
Dr.
500 500
40,000 40,000
5,000
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
5,000
29
Q.1. From the following Trial Balance of Nitesh, Prepare Trading and Profit & Loss Account for the year ending 31 st March 200 7 and Balance Sheet as on that date: Debit Balance Opening Stock Purchases Sales return Carriage Inward Wages Coal, Gas, & Wages Manufacturing Expenses Debtors General Expenses Salaries Rent. Rates and Taxes Cash in hand Cash at Bank Drawing
Amou nt 31,350 2,80,000 2,000 8,710 58,840 42,860 4,840 67,900 4,890 4,300 1,910 70 4,730 3,000
Credit Balance Sales Purchases Return Creditors Discount Capital
5,15,400
Amou nt 4,02,160 1,150 62,000 90 50,000
5,15,400
Closing stock as on 31st March 2007 Rs.53,800. [Hint: * Carriage Inward is shown in Trading a/c Dr. Side * General Expenses are shown in P&L a/c Dr. Side * Drawings will be deducted from Capital in the Balance Sheet Liabilities side] [Ans: Gross Profit 28,510 Net Profit 17,500] Q.2. Prepare Trading and P rofit & Loss Account and Balance Sheet of M/ s Suraj General Store for the year ended 31 st March, 2002 from the following:
Mr. Suraj’s Capital Mr. Suraj’s Drawings
Rs. 50,000 5,000
Sales Salaries
Opening Stock
20,000
B/R
2,650
Sundry Creditors Sundry Debtors
49,000 40,000
B/P Bad Debts
2,100 1,500
Cash at Bank Cash in hand
17,200 900
Insurance Purchases
1,400 35,000
1,500 1,300
Machinery Furniture
22,000 1,500
Discount allowed Carriage inwards
Rs. 60,575 8,600
Returns outward 1,000 Rent & Taxes 1,450 Printing & Stationery 675 Return inward 2,000 Adjustments: (i) Closing Stock Rs.25,500. (ii) Write off Rs.400 as bad and maintain provision for bad debts on Sundry Debtors at 5% (iii) Depreciate machinery and furniture by Rs.2,700 and Rs.150 respectively. (iv) Prepaid insurance Rs.300 (v) Purchase of machinery worth Rs.5,000 has wrongly been debited to purchases account (vi) Unpaid salary Rs.500 [Hint: * Discount allowed will be shown in P&L a/c Dr. Side * Returns Outward means Purchase Return * Returns Inward means Sales Return * Unpaid salary means outstanding salary] [Ans: Gross Profit 33,775 Net Profit 13,220 Balance Sheet 1,09,820] These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
30
Q.3. The follow ing trial balance is extracted from the books on Sudhir as on 31 st March, 2004: Dr. Cr. Capital ---28,000 Drawings 3,000 ---Debtors and Creditors 19,500 10,401 Loan on Mortgage ---9,500 Interest on Loan 300 ---Cash in hand 2,050 ---Provision for bad debts ---710 Stock 1.4.2003 6,839 ---Motor Vehicles 10,000 ---Cash at bank 3,555 ---Land & building 12,000 ---Bad debts 525 ---Purchase and Sales 66,458 1,09,643 Purchase Return and Sales Return 7,821 1,346 Carriage outwards 2,404 ---Carriage inwards 2,929 ---Salaries 9,097 ---Rates, taxes and Insurance 2,891 ---Advertising 3,264 ---Discount ---540 General Expenses 3,489 ---Bills Receivable and Bills payable 6,882 2,614 Rent Received ---250 Total 1,63,004 1,63,004 Prepare trading and profit and loss account for the year ended 31 st March, 2004 and a balance sheet as on that date taking into consideration the following matters: Stock on 31st March,2004 was valued at Rs. 6,750 Interest on Loan at 6% annum is unpaid for six months. Salaries outstanding Rs. 750 and rates outstanding Rs. 350 Prepaid Insurance Rs. 150. Depreciation is to be provided on land and building at 2.5 % and motor vehicles at 20%. Goods costing Rs. 758(sale price Rs. 1,000) were sent on approval on 25 th March, 2004 and recorded as sales but no consent has been received upto 31 st March. 7. The provision for doubtful debts is to be maintained at 5 % on sundry Debtors. 8. Provide for Manager’s commission at 10% on net profit after charging such commission. 1. 2. 3. 4. 5. 6.
[Ans. Gross Profit Rs.33,450
Net Profit Rs.7,745
Balance Sheet Rs.57,420]
[Hint: * Loan on Mortgage is liability shown in B/S * Interest on loan is expense shown in P&L a/c * Carriage outward is shown in P&L a/c Dr. Side * Rates, taxes and Insurance is shown in P&L a/c Dr. Side * Discount & Rent received are shown in P&L a/c Cr. Side Adj. 6) Sales – 1,000 Debtors – 1,000 Closing Stock + 758
8) Mgr. Commission= 10 x 8,520 (N.P. before charging comm.) 110 = 775 shown in P&L a/c Dr. Side & B/S liab.]
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
31
Q.4. The following balances have been drawn from the account books of Rahaan on 31 st December, 2008: Opening Stock Purchases Sales Selling Expenses Capital Creditors Returns inwards Fuel & Power : Factory Salaries & Wages Interest on Bank Loan Commission Received Bad Debts
34,000 3,70,000 5,50,000 30,000 2,50,000 60,000 4,000 16,000 47,000 2,000 3,000 2,000
Bad Debts Provision Stable Expenses B/P Bank Loan B/R Carriage & Horse Fire Insurance Premium Returns Outward Debtors Machinery Buildings Drawings Cash in hand
3,000 5,000 12,000 20,000 18,000 7,000 2,000 2,000 87,000 1,00,000 1,40,000 30,000 6,000
Other information: (1) On 31st December, 2008 the stock was Rs.49,400. (2) Credit purchases of Rs.1,000 and credit sales of Rs.3,000 were not recorded in account books. (3) Prepaid fire insurance premium Rs.500, outstanding interest on bank loan Rs.400, and accrued commission Rs.1,000. (4) The provision for bad debts on Debtors is to be kept at 5%. (5) Charge depreciation on buildings at 5% p.a. and on machinery at 10% p.a. (6) Make provision for manager’s commission at 10% of net profit, after charging such commission. Prepare Trading Account, Profit and Loss Account for the year ending 31st December, 2004, and a Balance Sheet as on that date. [Hint: * Selling Expenses is shown in P&L a/c * Fuel & Power: Factory is shown in Trading a/c Dr. Side * Commission Received is shown in P&L a/c Cr. side * Stable Expenses is shown in P&L a/c Dr. Side * Carriage & Horse is Asset shown in B/S * Fire Insurance Premium is shown in P&L a/c Dr. Side Adj. 6) Mgr. Commission= 10 x 77,000 (N.P. before charging comm.) 110 = 7,000 shown in P&L a/c Dr. Side & B/S liab.] [Ans. Gross Profit Rs.1,79,400
Net Profit Rs.70,000
Balance Sheet Rs.3,90,400]
Q.5. The following balances are obtained from the Books of Parul on 31 st December, 2001: Dr. Cr. Capital 50,000 Opening Stock 10,000 Discount 500 Goodwill 10,000 Provision for Bad and Doubtful Debts 3,000 Bills Receivable and Bills Payable 3,000 2,000 Cash in hand 1,000 Wages 9,000 Purchases and Sales 80,000 1,20,000 Returns 2,000 3,000 Carriage inwards 2,000 Factory Rent 1,500 Commission 2,000 These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
32
Machinery Furniture Debtors and Creditors Insurance Premium Salaries (11 months paid) Loan to Ram on 1.7.01 (Interest on Loan 12% Annually) Trade Mark Total
20,000 6,000 30,000 1,800 4,400 10,000 8,800 2,00,000
20,000 2,00,000
Taking into consideration the following adjustments prepare Trading Account and Profit & Loss Account for the year ending 31st December, 2001 and Balance Sheet as on that date: (1) Closing Stock Rs.30,000. (2) Goods costing Rs.1,800 was sent to a customer on sale or return basis for Rs.2,000 on 31st December, 2001, which was wrongly shown as sales in the books. (3) Provide depreciation on Machinery and furniture @ 10%. (4) Interest on capital is payable @ 10% per annum. (5) Write off further bad debts Rs.500 and increase Provision for Bad and Doubtful Debts by Rs.1,500 ( 6 ) A b i l l f o r Rs .2 , 0 0 0 w a s d i sc o u n t e d o n 2 0 t h D ec em b e r , 2 0 0 1 , t h e m a t u r i t y d a t e o f w h i ch i s 2 3 r d Ja n u a r y , 2 0 0 2 (7) ¼ Share of commission relates to the next year. [Hint: * Goodwill is Asset * Factory Rent is shown in Trading a/c Dr. side * Salaries (11 months paid): It means 1 month salary is unpaid or outstanding. 11 months salary is 4400 so 1 month salary is 4400/11=400. * Loan to Ram on 1.7.01 (Interest on Loan 12% Annually) : Loan is given to Ram so it is a asset. Interest will be charged from 1.7.01 to 31.12.01 (6 months) Interest = 10,000 x 6 x 12 = 600 It is accrued interest on loan. 12 100 * Trade Mark is Asset shown in B/S Adj. 5) The amount of new Provision for bad debts is calculated as: Balance of Old Provision 3,000 Less: Bad Debts (in Trial Balance) Less: Further Bad Debts 500 2500 Add: Increase in provision 1500 New P.B.D. 4000 6) Bill discounted is contingent liability & will be shown as footnote under the balance sheet. [Ans. Gross Profit Rs. 48,300
Net Profit Rs. 34,200
Balance Sheet Rs. 1,12,100]
Q.6. The following trial balance was extracted from the books of Kush Kumar & Sons on 31 st Mar ch, 2004 . Dr. Cr. Drawings and Capital 5,000 1,00,000 Purchase and sales 68,000 1,20,000 Debtors and Creditors 40,000 30,000 Opening Stock 30,000 ---Return Inwards 3,000 ---Bank Overdraft ---12,000 Salaries 17,000 ---Heating and Lighting - office 2,000 ---Leasehold property 80,000 ---Commission Received ---2,000 Travelling Expenses 3,000 ---Printing and Stationary 1,000 ---Furniture 9,000 ---These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
33
Provision for doubtful debts Wages and freight Apprentice Premium Cash in hand Total
---10,000 ---5,000 2,73,000
4,000 ---5,000 ---2,73,000
Prepare trading account and profit and loss account for the year ending 31 st March, 2004 and a balance sheet as on that date, from the above trial balance and the following adjustments: 1. Closing Stock Rs.15,000. 2. Rs.1,000 for wages is still payable. 3. 75% of work for commission received has been completed. 4. Charge depreciation at 5% on leasehold property and at 10% on furniture. 5. The provision for doubtful debts is to be maintained at 6% on Debtors. 6. A new machine was purchased for Rs.10,000 and the payment was made by cheque, the entry for this purchase has not made in the books. 7. Rs.2,000 for salaries relates to next year. [Hint: * * * *
Bank Overdraft is liability. Heating and Lighting - office is shown in P&L a/c Dr. Side Leasehold property is Asset shown in B/S Apprentice Premium is business income & is shown in P&L a/c Cr. side]
[Ans. Gross Profit Rs. 23,000
Net Profit Rs. 5,200
Balance Sheet Rs. 1,53,700]
Q.7. From the follow ing trial balance of Rishi as at 31 st march 2004, you are required to prepare the trading and pro fit and loss account for the year ended 31 st March, 2004 and a balance sh eet as at that date, after making the n ecessary adjustment: Trial Balance Rs. Rishi’s Capital ---Rishi’s Drawing 6,000 Plant and Machinery balance 1.4.2003 20,000 Plant and machinery addition on 1.10.2003 5,000 Stock on 1.4.2003 15,000 Purchase 82,000 Return Inwards 2,000 Sundry Debtors 20,600 Furniture and Fixtures 5,000 Freight and duty 2,000 Carriage outward 500 Rent, Rates and Taxes 4,600 Printing and Stationary 800 Trade Expenses 400 Sundry creditors ---Sales ---Return outward ---Postage and Telegram 800 Provision for doubtful debts ---Discount ---Rent of premises sublet for a year to 30 th Sept., 2004 ---Insurance charges 700 Salaries and wages 21,300 Cash in hand 6,200 Cash at bank 20,500 Total 2,13,400
Rs. 80,000 ---------------------------------------10,000 1,20,000 1,000 ---400 800 1,200 ------------2,13,400
Adjustment: 1. Stock on 31st March, 2004 was valued at Rs.14,600. 2. Write off Rs.600 as bad debts. 3. A provision for doubtful debts is to be maintained at 5% on Sundry Debtors. These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
34
4. Create a provision for discount on Debtors and reserve for discount on creditors at 2%. 5. Provide for depreciation on furniture and fixtures at 5% per annum and on plant and machinery at 20% per annum. 6. Insurance prepaid was Rs.100. 7. A fire occurred on 25th March, 2004 in the Godown and stock of the value of Rs.5,000 was destroyed. It was fully insured and the Insurance Company admitted the claim in full. [Hint: * Freight and duty is shown in Trading a/c Dr. Side. * Rent of premises sublet for a year to 30 th Sept., 2004: It means some property is given on rent & rent is received for 1 year from 30.09.2003 to 30.09.2004. This means 6 months rent is received in advance.] [Ans. Gross Profit Rs. 39,600
Net Profit Rs. 5,870
Balance Sheet Rs. 90,270]
Q.8. From the follow ing balance and information received from the books of Mr. Abhinav on 31 st March, 2002 you are required to prepare the final accounts: Parti culars Capital Plant and Machinery Depreciation on Plant and Machinery Repairs to Plant Wages Salaries Income Tax Cash in hand Land and Building Depreciation on Building Purchases less Returns and Sales Bank Overdraft Accrued Income Salaries Outstanding Bills Receivable and Bills Payable Provision for Bad Debts Bad Debts Discount on Purchases Debtors and creditors Stock on 1.4.01
Dr. 18,000 2,000 1,600 28,000 4,000 500 2,000 74,500 2,500 1,23,500 1,500 10,000 1,000 35,000 37,000 3,41,100
Cr. 50,000 2,49,000 3,800 2,000 3,000 6,000 4,000 23,300 3,41,100
P&L
Asset Liability
Other Information 1. Stock on 31st March,2002 was Rs.30,000 2. Write off Rs.3,000 bad debts and maintain a provision of 5% on Debtors. 3. Goods costing Rs.5,000 was sent to a customer on sales or return basis on 1 st March, 2002. This was recorded as actual sales. The rate of gross profit was 1/6 th of sales. 4. Rs.1,200 paid as rent of the office were debited to landlord account and were included in the list of Debtors. 5. General Manager is to be given commission at 10% of net profit after charging the commission of works manager and his own. 6. Works manager is to be given commission at 5% on gross profit. [Hint: * Income Tax is treated as drawings in case of sole trader. But in case of partnership and company it is treated as business expense. * Calculation of Total Debtors Debtors in Trial Balance 35,000 Less: Sale on approval 6,000 Further bad debts 3,000 Landlord for rent 1,200 10,200 Total Debtors 24,800 * Work Manager Commission = 89,500 x 5% = 4,475 Rs. * General Manager Commission: N.P. before commission 82,960 = 78,485 x 10/110 Less: Work Mgr. Comm. 4,475 = 7,135 N.P. after Work Mgr. Comm. 78,485 ] [Ans. Gross Profit Rs. 89,500
Net Profit Rs. 71,350
Balance Sheet Rs. 1,64,560]
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
35
Q.9. The follow ing is the Trial Balance of Shri Krishna as at 31 st March, 2002: Name of Account Capital Stock on 1st April, 2001 Sales Returns Inwards Purchases Returns Outwards Freight and carriage Rent and Taxes Salaries and Wages Sundry Debtors Sundry Creditors Bank Loan @ 6% p.a. Bank Interest Printing and Advertising Miscellaneous Income Cash at bank Discount earned Furniture and Fittings Discount Allowed General Expenses Insurance Postage and Telegrams Cash in hand Travelling Expenses Drawings Total
Debit 46,800 8,600 3,21,700 18,600 5,700 9,300 24,000 900 14,600 8,000 5,000 1,800 11,450 1,300 2,330 380 870 40,000 5,21,330
Credit 86,690 3,89,600 5,800 14,800 20,000 250 4,190 5,21,330
The following adjustments should be made: ( a ) I n c lu d e d a m o n g s t t h e D e b t o r s i s Rs .3 , 0 0 0 d u e f r o m N i t i n a n d i n c l u d ed a m o n g t h e Cr e d i t o r s Rs .1 , 0 0 0 d u e t o h i m . (b) Provision for Bad and Doubtful debts be created at 5% and Reserve for Discount @ 2% on Sundry Debtors. (c) Depreciation on Furniture and Fittings @ 10% shall be written off. (d) Personal purchases amounting to Rs. 600 has been included in the Purchases book. (e) Interest on Bank Loan shall be provided for the whole year. (f) A quarter of the amount of Printing and Advertising is to be carried forward to the next year. (g) Closing Stock Rs.78,600 (h) Omitted to be recorded purchase invoices of Rs.400.
Prepare Trading and Profit & Loss Account and Balance Sheet. [Hint: * Bank Loan @ 6% p.a. is a liability. * Miscellaneous Income is shown in P&L a/c Cr. side Adj. a) 1,000 will be subtracted from debtors & creditors both.] [Ans. Gross Profit Rs.78,500
Net Profit Rs. 35,953
Balance Sheet Rs. 1,16,543]
These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
36
Q.10. From the follow ing trial balance of a trader, prepare trading and p rofit and loss account for the year ending 31 st March, 2004 and a balance shee t as on the date.
Capital Loan-15% p.a.- Jan. 1, 2004 Commission Provision for bad debts Purchases and sales Returns Debtors and Creditors Drawings Furniture Machinery Opening Stock Octroi Import Duty Salaries and Wages Bad debts Rent, rates and taxes Life Insurance Premium Interest on loan Cash Total
Dr. (Rs.) ------------80,000 10,000 50,500 5,000 5,000 30,000 20,000 5,000 2,000 20,000 500 4,000 2,000 200 19,400 2,53,600
Cr. (Rs .) 1,20,000 10,000 600 1,000 90,000 2,000 30,000 ------------------------------------2,53,600
Adjustments: 1. Stock on 31st March, 2004 was Rs.20,000. 2. Write off further bad debts Rs.500 and make provision for bad debts at 5% and provision for discount at 2% on Debtors. 3. The proprietor withdrew goods costing Rs.600 for personal use and gave goods costing Rs. 400 in charity. 4. Create reserve for discount on creditors at 3%. 5. 60% of the work relating to commission received has been completed in this year. 6. Rs.4,000 of salaries and wages is outstanding. [Hint: * Loan-15% p.a. - Jan. 1, 2004 : It means loan is taken on Jan.1 2004 & interest should be given for 3 months upto March 31, 2004. Interest = 10,000 x 15% x 3/12 = 375 Interest on loan Rs. 200 is already given so 375 – 200 = 175 is outstanding. * Octroi & Import Duty is shown in Trading a/c. * Life Insurance Premium is treated as drawings & subtracted from capital.] [Ans. Gross Loss Rs.4,000
Net Loss Rs.34,965
Balance Sheet Rs.1,20,950 ]
EXAM QUESTION: (2009) Q. 11. Following balances have been extracted from the books of Shri Gagan Shivani on 31 st March, 2008: Opening stock Rs. 15,000, Purchases Rs. 50,000, Sales Rs. 80,000, Return Inward Rs. 300, Return outward Rs. 2000, Debtor Rs. 40,500, fixed deposit in bank Rs. 10,000, Creditors Rs. 25,000, B/R Rs, 11,400, B/P Rs. 8,000, interest received on fixed deposit Rs. 900, Drawing Rs. 6,300, Cash Rs. 1,000, Capital Rs. 37,300, Discount (Dr.) Rs. 600, Commission (Cr.) Rs. 2,200, These booklet is prepared by ASNCLASSES 85 Shree Gopal Nagar, Gopal Pura bypass, 5177216, 3241216
37