journa entry

Example: Pass Journal entries from the following transactions in the books of Irfan for the month of January 2007 and also post them in Ledger Account. Rs.

1st Jan 2007 - Started business with cash 450001st Jan 2007 - Paid into Bank 250003rd Jan 2007 - Goods cash Purchased 150004th Jan 2007 - Furniture cash purchased 50005th Jan 2007 - Cash sales 850026thJan 2007 - Paid rent 100027th Jan 2007 - Withdrawn from bank (personal use) 100030th Jan 2007 - Salaries paid 2500

Journal in the books of Irfan for the month of January 2007Date Particular LF Dr. Amount Cr. Amount 1-1-07 CashA/c Dr.

To Capital A/c( Being Business Started with cash)

45000---------

----------45000

1-1-07 BankA/c Dr. To Cash A/c( Being cash deposited in bank )

25000----------

--------25000

3-1-07 PurchaseA/c Dr. To Cash A/c( Being goods purchased for cash )

15000----------

---------15000

4-1-07 FurnitureA/c Dr. To Cash A/c (Being furniture purchased for cash )

5000----------

----------5000

5-1-07 CashA/c Dr. To Sales A/c( Being goods sold for cash )

8500---------

------------8500

26-1-07 RentA/c Dr. To Cash A/c ( Being rent paid by cash )

1000----------

----------1000

27-1-07 DrawingA/c Dr. To Bank A/c( Being cash withdrawn for personal use )

1000------------

------------1000

30-1-07 SalariesA/c Dr. To Cash A/c( Being salaries paid by cash )

2500------------

-------------2500

Total 103000========

103000========

After journalizing, the entries will be Posted in to Ledger Accounts and balancing of Accounts can be done.Ledgers: * A ledger account may be defined as a statement of all the transactions relating to a person, assets, expenses or income which have taken place during a given period of time and shows their net effect.* Ledger is a book of accounts having suitable and systematic classified forms.* It is also called as book of “Secondary Entry”.Dr. Mr. X A/c (Performa) Cr.Date Particulars JF Amount Date Particulars JF Amount

Journal entry

Considering the previous example, Ledgers can be prepared as follows:Dr. Cash A/c Cr.Date Particulars JF Amount Date Particulars JF Amount 1.1.075.1.07

1.2.07

To Capital A/cTo Sales A/c

To Balance b/d

450008500

----------53500======15000

1.1.073.1.074.1.0726.1.0730.1.0731.1.07

By Bank A/cBy Purchase A/cBy Furniture A/cBy Rent A/cBy Salary A/cBy Balance c/d

25000150005000100025001500053500======

Dr. Capital A/c Cr.Date Particulars JF Amount Date Particulars JF Amount 1.1.07 To Balance c/d 45000

----------45000======

1.1.07

1.2.07

By Cash A/c

By Balance b/d

45000----------45000======45000

Dr. Bank A/c Cr.Date Particulars JF Amount Date Particulars JF Amount 1.1.07

1.2.07

To Cash A/c

To Balance b/d

25000----------25000======24000

27.1.0731.1.07

By Drawing A/cBy Balance c/d

100024000----------25000======

Dr. Purchase A/c Cr.Date Particulars JF Amount Date Particulars JF Amount 3.1.07

1.2.07

To Cash A/c

To Balance b/d

15000----------15000======15000

31.1.07 By Balance c/d 15000----------15000======

Dr. Furniture A/c Cr.Date Particulars JF Amount Date Particulars JF Amount 4.1.07

1.2.07

To Cash A/c

To Balance b/d

5000----------5000======5000

31.1.07 By Balance c/d 5000----------5000======

Dr. Sales A/c Cr.Date Particulars JF Amount Date Particulars JF Amount

Journal entry

31.1.07 To Balance c/d 8500----------8500======

5.1.07

1.1.07

By Cash A/c

By Balance b/d

8500----------8500======8500

Dr. Rent A/c Cr.Date Particulars JF Amount Date Particulars JF Amount 26.1.07

1.2.07

To Cash A/c

To Balance b/d

1000----------1000======1000

31.1.07 By Balance c/d 1000----------1000======

Dr. Drawing A/c Cr.Date Particulars JF Amount Date Particulars JF Amount 27.1.07

1.2.07

To Bank A/c

To Balance b/d

1000----------1000======1000

31.1.07 By Balance c/d 1000----------1000======

Dr. Salary A/c Cr.Date Particulars JF Amount Date Particulars JF Amount 30.1.07

1.2.07

To Cash A/c

To Balance b/d

2500----------2500======2500

31.1.07 By Balance c/d 2500----------2500======

Subsidiary books: Subsidiary book are the sub division of journal where the business transactions are first time recorded. It is nothing but a ledger, which can be maintained by big organization concerns.

Subsidiary books are the following- Sales book, Sales returns book, Purchase book, Purchase returns book, Bills receivable book, Bills payable book, Cash book, journal proper etc...A subsidiary ledger is a group of similar accounts whose combined balances equal the balance in a specific general ledger account. The general ledger account that summarizes a subsidiary ledger's account balances is called a control account or master account. For example, an accounts receivable subsidiary ledger (customers' subsidiary ledger) includes a separate account for each customer who makes credit purchases. The combined balance of every account in this subsidiary ledger equals the balance of accounts receivable in the general ledger. Posting a debit or credit to a subsidiary ledger account and also to a general ledger control account does not violate the rule that total debit and credit entries must balance because subsidiary ledger accounts are not part of the general ledger; they are supplemental accounts that provide the detail to support the balance in a control account.

Subsidiary books are special journals where separate books are maintained to record each particular class of transactions. In this system transactions similar in nature are entered in the relevant subsidiary book. This system reduces the labour and time of recording transactions in the traditional method. Subsidiary books are considered as the books of primary entries from where ledger posting can be made.

Journal entry

Types of Subsidiary Books : i) Cash Book (Single Column, Double Column, Triple Column ) ii) Purchase Book iii) Sales Book iv) Return Inward Book v) Return Outward Book vi) Bills Receivable Book vi) Bills Payable Book etc.

* Cash Book records all receipts and payments of cash. * It records transactions affecting cash and bank.* Cash book serves the role of Journal as well as Ledger. Types of Cash Book:

i) Single Column cash book ii) Double column cash book iii) Triple column cash book iv) Petty cash book

Cash Book: (Single Column) : (Performa) Dr. Cr.Date Particulars LF Amount Date Particulars LF Amount

Example: Enter the following transactions in a single column cash book.1) Jan 1 – Cash in hand Rs. 500002) Jan 3 - Bought goods for cash Rs. 130003) Jan 5 - Paid wages Rs. 70004) Jan 8 - Cash sales Rs. 80005) Jan 12- Amount paid into the bank Rs. 150006) Jan 17- Paid cash Rs. 3000 for travelling expenses7) Jan 20- Paid cash for stationary Rs. 30008) Jan 25- Cash Purchase Rs. 100009) Jan 29- Paid salary Rs. 900010) Jan 31-Cash Sales Rs.18000

Journal entry

Dr. Cash Book Cr.

By GOURI SANKAR MOHARANA

Date Particulars LF

Amount Date Particulars LF

Amount

1.1.098.1.0931.1.09

1.2.09

To Balance b/dTo Sales A/cTo Sales A/c

To Balance b/d

50000800018000

-------------76000========16000

3.1.095.1.0912.1.0917.1.0920.1.0925.1.0929.1.0931.1.09

By Purchase A/cBy wages A/cBy Bank A/cBy Travelling Exp A/cBy Stationary A/cBy Purchase A/cBy Salary A/cBy Balance c/d

130007000150003000300010000900016000-----------76000======

Cash Book: (Single Column) :

Cash Book: (Double Column : Performa)Dr. Cr.Date Particulars LF Discount Cash Date Particulars LF Discount Cash

Example: Enter the following transactions in a cash book with cash and discount column for the year 2009 and month of June.June 1 - Balance of cash in hand Rs. 6000June 1 - Received cash from Sohan Rs.1000June 3 - Paid into bank Rs. 1800June 9 - Paid to Meheta and sons for goods purchased Rs.2000June 10- Received Rs. 1800 from cash salesJune 11- Paid for cash purchase Rs.1920 & received Rs. 80 as discountJune 13- Withdrew for personal use Rs. 1000June 19- Received Rs. 1160 from Kapoor Bros.& allowed Rs.40 as discountJune 20- Drew from Bank for office use Rs. 1800June 25- Paid cash for electricity charges Rs.120June 26- Paid rent for March Rs.320June30- Deposit in Bank Rs. 1000June30- Paid cash for advertisement Rs.80June30- Paid Salaries in Cash Rs. 140

Journal entry

Dr. Cr.


Date Particulars LF

Discount

Cash Date Particulars LF

Discount

Cash

1-6-092-6-0910-6-0919-6-09

20-6-0929-6-09

1-7-09

To Balance b/dTo SohanA/cTo Sales A/cTo KapoorBros.A/cTo Bank A/cTo Sales A/c

To Balance b/d

40

-----40===

6000100013001160

13001400

--------12160=====3780

3-6-099-6-0911-6-0913-6-0925-6-0926-6-0930-6-0930-6-0930-6-0930-6-09

By Bank A/cByMehta&SonsA/cBy PurchaseA/cBy DrawingA/cBy Electricity A/cBy RentA/cBy BankA/cByAdvertisementA/cBy SalariesA/cBy Balancec/d

80

-----80===

18002000192010001203201000801403780------12160=====

Cash Book: (Double Column) Cont…

Cash Book: (Triple Column) : Performa Dr. Cr.Date Particulars LF Discount Cash Bank Date Particulars LF Discount Cash Bank

Example: Enter the following transactions in a triple column cash book.

1) Jan-1 Opening balance of cash Rs.3000 & at bank Rs. 40002) Jan-4 Rent paid by cheque Rs. 20003) Jan-5 Paid into bank Rs. 10004) Jan-6 Received on account of cash sales Rs.30005) Jan-8 Paid to Mehta Bros by cheque Rs.2000 &earned Rs.200 as cash discount.6) Jan-10 Received from Suresh by cheque Rs.2000 & allowed Rs.100 as discount.7) Jan-12 Cash sales Rs.200008) Jan-20 Cash purchases Rs.15000

Journal entry

Dr. Cr.


Date

Particulars LF

Discount

Cash Bank Date

Particulars LF

Discount

Cash Bank

01.1

05.106.110.112.1

01.2

To Balance b/dTo Cash A/cTo sales a/cTo SureshA/cToSalesA/c

To balance b/d

C

100

-----100===

3000

3000

20000

---------26000=====6000

4000

1000

2000

-------7000====2000

05.106.108.1

20.131.131.1

By Bank A/cBy RentA/cBy MehtaBrosA/cBy PurchseA/cBy SalariesA/cBy Balance C/d

C

200

-----200===

1000

1500050005000---------26000=====

2000

2000

3000-------7000====

Cash Book: (Triple Column)

Petty Cash Book: (Performa) Date Amount

Received Particulars VNTotal

Payment Postage & Telegram

Printing & Stationery

Conveyance Wages Sundry Expenses

Example: the following are the petty expenses of a business concern for the month of March 1996. Each month starts with in opening cash balance of Rs.700. Enter the following transactions in the petty cash book & balance it.

Rs.March-1 Wages paid to Peon 150March-3 Coolie wages 60March- 5 Stationery 25March- 6 Railway Freight 10March- 7 Postage Stamp 50March- 8 Ink 10March- 10 Telephones 10March- 18 Unpaid letters 4March- 25 Soap 6

Journal entry

March- Sweeper’s wages 30March- Sundry Expenses 100March- Thela hire 15March- Printing price list 90


Date Amount Received

Particulars VN Total Payment

Postage & Telegram

Printing & Stationery

Conveyance

Wages

Sundry Expenses

1-31-33-35-36-37-38-310-318-325-326-327-328-330-331-3

1-4

700

------700====140

Balance b/dBy Peon WagesBy Coolie wages By Stationery By Railway Freight By Postage Stamp By Ink By Telephones By Unpaid letters By SoapBy Sweeper’s wages By Sundry Expenses By Thela hire By Printing price list

By balance c/d

To balance b/d

12345678910111213

15060251050101046301001590560140700====

50

104

-------64

25

10

90125

10

15-------25

15060

30

-------240

6

100

-------106

Petty Cash Book: Cont…


Date Purchase Invoice No.

Particulars LF

Details Rs.

Amount Rs.

Date Sales Invoice No.

Particulars LF

Details Rs.

Amount Rs.

Purchase Book : (Performa)

Sales Book : (Performa)

Journal entry

Example: From the following transactions prepare the purchase book of Adams of July 1978.July-5 Purchased on credit from Paul & Co. 50 electric irons @ Rs.25, 10 Toasters @ Rs.30July-10 Purchased from Harsha & Sons on credit 20 electric bulb @ Rs.20, 10 Heaters @ Rs.30July-15 Purchased on credit from More & Co. 15 Heaters @ Rs.20Date Purchase

Invoice No. Particulars LF Details

Rs. Amount Rs.

5-7-7810-7-7815-7-78

Paul & Co.50 Electric irons @ Rs.2510 Toasters @ Rs.30Harsha & Sons.20 Electric bulb @ Rs.2010 Heaters @ Rs.30More & Co.15 Heaters @Rs.20 Total

1250300---------400300---------300

1550

700300-----------2550======

Example : Write up sales book from the following transactions for April 2008April-10 Sold goods to Sita Ram, Ahmedabad, 60 meters silk @ Rs. 50 meter, 50 meters velvet @ Rs. 80 meter, Less 10% trade discount for allApril-12 Sold goods to Radhey Syam, Delhi, 30 meters Silk @ Rs.55 meter, 20 meter velvet @ Rs. 80 meter, Less 10% trade discount for allApril-18 Roop Narayan & Sons Purchased from US, 10 meters Silk @ Rs.60 meter, 5 meter velvet @ Rs. 90 meter, Less 10% trade discount for allApril-25 Sold goods to Brij Mohan & Bros. Mathura, Shirting Cloth Rs.700, Sarees on Rs. 2500


Date Sales Invoice No.

Particulars LF

Details Rs.

Amount Rs.

10-4-08

12-4-08

18-4-08

25-4-08

Sold goods to Sita Ram, Ahmedabad60 meters silk @ Rs. 50 meter50 meters velvet @ Rs. 80 meterLess 10% trade discount

Sold goods to Radhey Syam, Delhi30 meters Silk @ Rs.55 meter20 meter velvet @ Rs. 80 meterLess 10% trade discount

Roop Narayan & Sons Purchased from US10 meters Silk @ Rs.60 meter5 meter velvet @ Rs. 90 meterLess 10% trade discount

Sold goods to Brij Mohan & Bros. MathuraShirting Cloth Rs.700Sarees on Rs. 250

Total

30004000(700)

16501600(325)

600450(105)

7002500======

6300

2925

945

3200======13370

Sales Book : Cont…

Journal entry


Date Debit Note No.

Particulars LF

Details Rs.

Amount Rs.

Date Credit Note No.

Particulars LF

Details Rs.

Amount Rs.

Purchase Return Book : (Return Outward): Performa

Sales Return Book : (Return Inward) : Performa

Example: From the following transactions prepare the purchase return book for March 2008

Mar-04 Sumit & Co. were returned 20 bags of rice @ Rs.200 per BagMar-10 Hari & Co. were returned 20 tons of ground nut oil @ Rs.200 per tonMar-14 Pratap & Sons were returned 20 bags of sugar @ Rs.400 per BagMar-18 Abhilash & Co. were returned 25 bags of wheat @ Rs.500 per BagMar-25 Lalit & Co. were returned 40 packets of palm oil @ Rs.50 per packetMar-29 goods worth Rs.1000 returned to Shyamlal & Co.Date Debit

Note No. Particulars LF Details

Rs. Amount Rs.

4-4-0810-4-0814-4-0818-4-0825-4-0829-4-08

Sumit & Co. were returned 20 bags of rice @ Rs.200 per BagHari & Co. were returned 20 tons of ground nut oil @ Rs.200 per tonPratap & Sons were returned 20 bags of sugar @ Rs.400 per BagAbhilash & Co. were returned 25 bags of wheat @ Rs.500 per BagLalit & Co. were returned 40 packets of palm oil @ Rs.50 per packetGoods worth Rs.1000 returned to Shyamlal & Co. Total

40001200080001500020001000-----------42000======

Example: From the following transactions prepare the Sales return book of Babu Trading Co. for Jan 2008

Jan-01- Prabhakar & Co. returned 50 Bags of rice @ Rs. 550 per BagJan-02- Raja & Co. returned 40 Bags of sugar @ Rs. 750 per BagJan-10- Subhash & Sons. returned 10 tons of ground nut oil @ Rs. 600 per tonJan-20- Gangadhar returned goods worth Rs. 400

Journal entry

Date Credit Note No.

Particulars LF Details Rs.

Amount Rs.

01-1-0802-1-0810-1-0820-1-08

Prabhakar & Co. returned 50 Bags of rice @ Rs. 550 per BagRaja & Co. returned 40 Bags of sugar @ Rs. 750 per BagSubhash & Sons. returned 10 tons of ground nut oil @ Rs. 600 per tonGangadhar returned goods worth Rs. 400 Total

27500300006000400-----------63900======


SL No

Date of Receipt

Customer Name

AcceptorName

Date of Withdrawal

Term DueDate

LF

AmountRs.

Remarks

SL No

Date ofBill

Name of Drawer Name of Payee Term DueDate

LF Amount Rs.

Bills Receivable Book : (Performa)

Bills Payable Book : (Performa)Example: From the following particulars taken from the books of Chaterjee & Co. prepare Bills Receivable book for the period Jan 2008Jan-01- Acceptance received from Raj payable three months after data for Rs.6500Jan-04- Drew a bill on Yusuf for Rs. 2500 for three monthsJan-13- Received a bill from Naresh for Rs. 1000 for one monthJan-24- Drew a bill on Yusuf for Rs. 2000 for two months and accepted by him payable at Bank of India, Chandigarh

Journal entry


SL No

Date of Receipt

Customer Name

Acceptor Name

Date ofDrawal

Term DueDate

LF

AmountRs.

Remarks

1234

1-1-084-1-0813-1-0824-1-08

Raj YusufNareshYusuf

SelfSelfSelfSelf

1-1-085-1-0815-1-0827-1-08

3 months3 months1 months2months

Total

1-4-0817-4-0828-2-083-3-08

6500250010002000

12000

Retired

Bills Receivable Book : Cont…

Example: From the following particulars taken from the books of Suresh & Co. prepare Bills Payable book for the period Jan 2008 Jan-1- Accepted Hari draft for Rs. 4000 for 2 monthsJan-2- Gave Roja acceptance for Rs. 5000 payable 4 months after dateJan-3- Accepted bills of Patel for Rs. 4500 for 2 monthsJan-4- Accepted Subhash draft for Rs. 2000 for 1 monthSL No

Date of Bill

Name of Drawer Name of Payee Term Due Date LFAmount Rs.

1234

1-1-082-1-083-1-084-1-08

Hari Roja PatelSubhash

Hari Roja Rakesh Sukesh

2 months4 months2 months1 month

Total

5-3-085-4-081-3-085-2-08

4000500045002000---------------15500========

Trial Balance: Trial Balance is a statement containing list of the ledger accounts on a particular date, showing debit amount and the credit amount. Trial Balance can be prepared only when the posting to the ledger and its balancing is complete. Hence normally it is prepared on the closing date of the accounting period. The Trial Balance, which can be taken at any point in time, lists all ledger accounts and their balances and is used to prove the equality of debits and credits. Assets are listed first followed by liabilities and then owner's equity. Debit balances are listed in the left column and credit balances in the right column. The trial balance proves that the accounts balance, but it does ensure that all transactions were entered or entered into the proper accounts.

Journal entry


Sl No. Name of the Account Dr. Balance (Rs) Cr. Balance (Rs)

1234567891011

Cash A/cSundry Debtors A/cClosing Stock A/cPrepaid Expenses A/cMachinery A/cBuilding A/cFurniture & Fixtures A/cGoodwill A/cBills Payable A/cSundry Creditors A/cBank Overdraft A/c

---------------------XXXXXXXXXXX============

--------------------XXXXXXXXXXXX============

Trial Balance of ……………As on 31st Mar 2010: Trial Balance : ( Performa )

Trial Balance of Your Business Name As on June 31, 2008

Debit CreditCashAccounts ReceivableSuppliesPrepaid RentEquipmentAccounts Payable.Owner, Capital.Owner, DrawingSales.Salary ExpenseMisc. Expense

800.00400.00600.00

1,200.0010,000.00

000000000000

1,000.000000000

700.00300.00

000000000000000000000000000000000003,000.009,000.0000000003,000.0000000000000000

Rs15,000.00 Rs15,000.00

A trial balance is an internal document used only by company employees; it is not meant to be available to persons outside the company.Considering the previous example from which we have prepared Journal and posted them into Ledgers where balancing of Accounts were done, and now Trial Balance can be prepared from the said given information as follows:-

Journal entry


Sl No. Name of the Account Dr. Balance (Rs) Cr. Balance (Rs)

123456789

Cash A/cCapital A/cBank A/cPurchase A/cFurniture A/cSales A/cRent A/cDrawings A/cSalary A/c

53500--------25000150005000--------100010002500

--------------------103000

============

48500450001000------------------8500--------------------------

--------------------103000============

Trial Balance of ……………As on 31st Mar 2010: Trial Balance : ( Total Method )

Example: From the following balance of M/s Soubhagya prepare a trial balance as on 31.12.2007


Sl No. Particulars Amount (Rs)1234567891011121314151617181920

Salary A/cRent A/cSundry Debtors A/cLoan A/cCash A/cSundry Creditors A/cInterest A/cCapital A/cFurniture A/cSales A/cInsurance Premium A/cPurchase A/cRent A/cOutstanding Salary A/cOutstanding interest A/cDepreciation A/cInsurance Premium paid in advance A/cRent inward A/cRent outward A/cClosing stock A/c

20002000204003000020001350090016250987536800400278501250040030012580050050018400

Trial Balance Cont…

Journal entry


Sl No. Heads of Account Dr.Amount (Rs) Cr. Amount (Rs)1234567891011121314151617181920

Salary A/cRent A/cSundry Debtors A/cLoan A/cCash A/cSundry Creditors A/cInterest A/cCapital A/cFurniture A/cSales A/cInsurance Premium A/cPurchase A/cRent A/cOutstanding Salary A/cOutstanding interest A/cDepreciation A/cInsurance Premium paid in advance A/cRent inward A/cRent outward A/cClosing stock A/c

Total

2000200020400----------2000----------900-----------9875---------4002785012500---------------125800500-------18400--------------------97750=============

------------------------30000---------13500---------16250----------36800--------------------------400300------------------500-------------------------97750============

Trial Balance of M/S SOUBHAGYA as on 31st Dec 2007:

Trial Balance : Cont…

A trial balance is a list and total of all the debit and credit accounts for an entity for a given period – usually a month. The format of the trial balance is a two-column schedule with all the debit balances listed in one column and all the credit balances listed in the other. The trial balance is prepared after all the transactions for the period have been journalized and posted to the General Ledger.

Key to preparing a trial balance is making sure that all the account balances are listed under the correct column. The appropriate columns are as follows: Assets = Debit balance Liabilities = Credit balance Expenses = Debit Balance Equity = Credit balance Revenue = Credit balance

The trial balance ensures that the debits equal the credits. It is important to note that just because the trial balance balances, does not mean that the accounts are correct or that mistakes did not occur. There might have been transactions missed or items entered in the wrong account – for example increasing the wrong asset account when a purchase is made or the wrong expense account when a payment is made. Another potential error is that a transaction was entered twice. Nevertheless, once the trial balance is prepared and the debits and credits balance, the next step is to prepare the financial statements.

Errors of trial balance: Part 1 illustrates the errors that do not affect the Trial Balance.

In this article, we shall discuss the different type of errors which affect the agreement of the Trial Balance. To make the Trial Balance agree, a suspense account is used as a balancing figure. Suspense account which is :

Journal entry

Is created when we discovered errors before the Final Accounts and Balance Sheet are prepared,

The account is to records the difference between the total of the debits and the total of the credits in the Trial Balance and

Suspense account helps to balance the Trial Balance by temporarily putting into an account which after the errors being found, the suspense account be adjusted and become zero/nil balance.

Trial Balance As At 31 st March 2006 Debit Rs. Credit Rs.

Total of accounts listed 10,500 10,000

Suspense Account (balancing figure) 500

Before the differences are discovered, the suspense account will appear as either a debit item (current asset) or credit item (credit liability) in the Balance Sheet. It is a must that wherever possible suspense account should never be in the books.

Suspense account can be treated in two ways when errors are discovered:

It might need to be expensed off or written back into the Income Statement when the correcting entry is to the items in the Income Statement. Hence, it might over or under state profits. ( Credit suspense a/c and Debit into Income statement )

Or the errors in the suspense can actually relate to the Balance Sheet which will have the effect of overstating or understated assets and liabilities. ( Credit suspense a/c and Debit into Assets a/c in the Balance Sheet)

Next, let’s look at what are the types of errors that affect the Trial Balance:

Omission Of One Entry In A TransactionExample: Assuming there is a debit balance of Rs100.00 appearing in the Suspense account. It was subsequently discovered that this is due to:

Postages paid of Rs100.00 was correctly taken up in the Cash book but omitted in the Postage account

The correcting entry should be: Debit: Postage Rs100.00 Credit: Suspense a/c Rs100.00

Being omission of one entry in the postage account for Rs100.00Incorrect Additions In The BooksExample: Assuming there is a debit balance of Rs1,000.00 appearing in the Suspense account. It was subsequently discovered that this is due to: Purchases being under-cast by Rs1,000.00

The correcting entry should be: Debit: Purchases Rs1,000.00 Credit: Suspense a/c Rs1,000.00

Journal entry

Being correction of incorrect/under cast in the purchases account.Caused By More Than One ErrorExample 1: Assuming there is a credit balance of Rs1,800.00 appearing in the Suspense account. It was subsequently discovered that this is due to: Returns Outwards of Rs900.00 been debited to Return Inwards Account

The correcting entry is: Debit: Suspense a/c Rs1,800.00 Credit: Return Outwards a/c Rs900.00

Credit: Return Inwards a/c Rs900.00 Being correction of error, Return Outwards treated incorrectly as Return Inwards

Example 2: Assuming there is a credit balance of Rs 400.00 appearing in the Suspense account. It was subsequently discovered that this is due to: Discount received Rs200.00 was wrong treated as discount allowed.

The correcting entry is: Debit : Suspense a/c Rs400.00 Credit: Discount allowed Rs200.00

Credit: Discount received Rs200.00 Being correction of error, discount received Rs200 wrongly treated as discount allowed.

This article discussed the different type of errors which do not affect the agreement of the Trial Balance. When these type of errors are discovered, their correction is journalized in the General Journal to be posted to their respective ledgers.

Errors Of OmissionOccurs when a transaction is being COMPLETELY OMITTED from the books

Example: A cash receipt of Rs500.00 from a trade debtor, Mr.ABC has been omitted from the books

The correcting entry should be: Debit: Bank Rs 500.00 Credit: Mr ABC Rs 500.00

Being omission of aforesaid entry now adjustedErrors Of CommissionAn entry has been posted to the correct side of the Ledger but to the wrong account.

Example: Billing to Mr. A of Rs 500.00 was wrongly posted to Mr B’s a/c [ both are trade debtors in the books of account]

Debit: Mr. A Rs500.00 Credit: Mr. B Rs500.00

Being correction of error, sales to Mr. A wrongly debited to Mr. B’s account.Errors Of PrincipleA transaction which is incorrectly dealt with like should be taken up into expenses a/c (income statement) but now wrongly taken up into the balance sheet a/c

Journal entry

Example: Office maintenance of Rs1,000.00 wrongly posted into Machinery a/c

Debit: Office maintenance a/c Rs1,000.00 Credit: Machinery a/c Rs1,000.00

Being correction of error, revenue expenditure being treated incorrectly as capital expenditureCompensating ErrorsAn error on the debit side being compensated by an error of equal amount on the credit side.

Example: Purchases a/c was overcast by Rs1,000.00 and so is Sales a/c

Debit: Sales A/c Rs1,000.000 Credit: Purchases a/c Rs1,000.00

Being correction of overcasts of Rs 1,000 each in the Sales a/c and Purchases a/c which compensated for each other.Errors Of Original EntryA wrong amount is recorded in the subsidiary book and posted to the accounts

Example: A sales to Mr. A Rs560.00 was entered in the books as Rs650.00

Debit: Sales Rs90.00 Credit: Mr. A’s a/c Rs 90.00 Being correction of error, sales overstated by Rs90.00Complete Reversal Of EntryThis is where the correct accounts are used but each item is shown on the wrong side of the account.

Example: Payment of Rs100.00 to trade creditor Mr. X was entered on the debit side of the Cash book in error and credited to Mr. X’s a/c. This type of error requires an adjustment to cancel the error and the actual entry itself. Normally, this is done by one journal adjustment by doubling the actual amount first recorded.

Debit: Mr X’s a/c Rs100.00 x 2 = Rs200.00 Credit: Bank a/c Rs200.00

Being correction of error, payment of cash to Mr. X Rs100.00 debited to cash and credited to Mr. X incorrectly.Preparation of Final Accounts: Financial Statement is prepared for the purpose of presenting a periodic review or reports on the performance of the business by the management. The Financial statement deals with the status of the investment made in the business and the result achieved during the period under review. The main two objectives of maintaining accounts are:

A) To find out the profit & loss made by the business at the end of regular periodic intervalsB) To ascertain the financial position on the closing date of accounting period.

Final Accounts of a firm include: * Manufacturing Account * Trading Account

* Profit & Los Account * Balance Sheet

Journal entry

Manufacturing Account: The manufacturing account is the part of a profit-and-loss account in which the manufactured cost of goods sold is calculated by taking direct costs, factory overheads, etc., and adjusting for changes in stocks of raw material and work in progress. The purpose of the manufacturing account is to calculate the factory cost of goods manufactured for inclusion in the Trading Account. However this account is not necessary for trading concerns. The main objectives of manufacturing account are to show:* Cost of Finished Goods * Constituent items thereof such as cost of material consumed, productive wages, direct and indirect expenses.

Dr. Cr.


Particulars Amount (Rs) Particulars Amount (Rs)To Raw material consumed: Opening stock of raw materialAdd: Purchase of raw material(net)Add: Freight, carriage, import duty etc. on purchase of raw materialsLess: Closing stock of raw materialTo Direct LabourTo Direct ExpensesTo Factory Overheads(Rent, maintenance, depreciation, supervisor salary, repairs & renewals, fuel, gas & water)

By Closing stock of Finished goods transferred to trading A/c

To Opening stock of WIPLess: Closing stock of WIP ---------------- ---------------

XXXXXXXX=========

XXXXXXXXX==========

Manufacturing A/C of M/S…….for the year ended as on…. :

Example: From the following balances of M/s Sandhu prepare a manufacturing A/c for the year ended as on 31-12-2009. Opening stock of raw material (01-01-2009) Rs. 20350, Opening stock of WIP (01-01-2009) Rs.15270, Purchase of raw material Rs. 80300, Carriage inwards Rs2300, Direct Labour Rs. 10000, Factory Lighting Rs.1000, Factory depreciation Rs.2000, Factory Rent Rs. 2500, Factory Repairs Rs.1500, Closing stock of raw material (31-12-2009) Rs.35000, Closing stock of WIP (31-12-2009) Rs.30000.

Journal entry

Dr. Cr.


Particulars Amount (Rs) Particulars Amount (Rs)To Raw material consumed: Opening stock of raw materialAdd: Purchase of raw materialAdd: carriage inwards

Less: Closing stock of raw materialTo Direct LabourTo Factory Overheads:Factory RentFactory lightingFactory depreciationFactory repairs

2035080300

2300102950350006795010000

2500100020001500

By Closing stock of Finished goods transferred to trading A/c

70220

To Opening stock of WIP

Less: Closing stock of WIP

152701002203000070220=====

-----------70220======

Manufacturing A/C of M/S Sandhu for the year ended as on 31-12-2009

Trading Account: it is a part of Final Account, which ascertains the gross profit and loss during the accounting period. It is important to remember that the trading business which buys items for immediate resale. Thus the trading account calculates gross profit as the difference between the revenue earned by selling the items and the cost of buying them. The main objectives of Trading Accounts are: * It provides information about gross profit and loss, which shows the success of the trading concern. * It facilitates in working out the important ratios, which are necessary for comparing the performance of the firm in different periods.

Dr. Cr.

NB: If there is gross profit, there is no gross loss and vice versa.By GOURI SANKAR MOHARANA

Particulars Amount (Rs) Particulars Amount (Rs)

To Opening stock To PurchasesLess: Purchase ReturnTo FreightTo carriage inwardTo import duty To wagesTo Stores consumed To Factory expensesTo gas & water To RoyaltiesTo Coal & CokeTo oilTo OctroiTo dock charges/ custom duty

By SalesLess: sales ReturnBy Closing stockBy gross loss transferred to P/L A/C (if there is a loss)

To Primary packagingTo Gross profit transferred to P/L A/C

--------------

========

-------------

=======

Trading A/C of M/S ….. for the year ended as on ……..

Final Accounts Preparation: Cont…

Journal entry

Example: From the following balances of M/s Sam prepare a Trading A/c for the year ended as on 31-3-2008. Opening stock Rs. 125000, Purchases Rs. 600000, Carriage inwards Rs5000, Wages Rs. 55000, Closing stock Rs.75000, Sales Rs.1000000, Return Inward Rs. 100000, Return Outward Rs. 50000, Fuel, gas & water Rs.15000 Trading A/C of M/S Sam for the year ended as on 31-3-2008Dr. Cr.Particulars Amount (Rs) Particulars Amount (Rs) To Opening stock To Purchases 600000Less: Purchase Return 50000 To carriage inward To wagesTo Fuel, gas & water

12500055000050005500015000

By Sales 1000000Less: sales Return 100000By Closing stock

90000075000

To Gross profit transferred to P/L A/C 225000-------------975000========

-------------975000========

Profit and loss account: The Profit & Loss account is prepared to ascertain the net profit or loss for the given accounting period. After ascertaining the gross profit or loss, it is transferred to the profit and loss account. All the indirect expenses or losses are to be debited and the operating income or gains are to be credited to the profit and loss account. When the sides are balanced the Net profit or loss is derived and transferred to the capital accounts.

Journal entry

Dr. Cr.



To gross loss transferred from Trading A/C (if there is a loss)To salaryTo Rent, rates & taxesTo Postage and telegramTo Printing & stationeryTo Audit feesTo insuranceTo discount (allowed) To Packing chargesTo Trade expensesTo DepreciationTo Bad DebtTo Provision for discount on debtorTo Interest on CapitalTo Traveling expensesTo Net profit transferred to CapitalA/C

--------------

========

By gross profit transferred from Trading A/C By Rent from TenantsBy discount (received)By CommissionBy Bad debt recoveredBy Income from investmentBy Interest receivedBy Net Loss transferred to Capital A/C ( if there is loss)

-------------

=======

Profit & Loss A/C of M/S ….. for the year ended as on ……..


Example: From the following details prepare the Profit & Loss A/C of M/S Silpa for the Year ending as on 31-12-2009. Gross profit transferred from Trading account Rs.18500, Salaries Rs. 10500, Discount allowed Rs. 350, Discount received Rs. 700, Bad debt Rs. 250, Depreciation Rs. 300, Insurance Rs. 1250 Interest Received Rs. 200

Dr. Profit & Loss A/C of M/S Silpa for the year ended as on 31-12-2009 Cr.


Journal entry

To salary

To insurance

To discount (allowed)

To Depreciation

To Bad Debt

To Net profit transferred to Capital A/C

10500

1250

350

300

250

6750

-------------

19400

========

By gross profit transferred from Trading A/C

By discount (received)

By Interest received

18500

700

200

------------

19400

=======

Example: The following details are available in the ledger A/C of M/S Surendra for the Year ending as on 31-3-2009.

Prepare Manufacturing, Trading & Profit and Loss Account for the year ended on 31st March 2009. The stock as at 31-3-2009 was Raw Materials Rs. 46900 and Finished Goods Rs. 152300.



Items Amount Rs. Items Amount Rs.Discount allowedCarriage InwardRent, rate & TaxesPrinting & StationeryPurchase of Raw materialSalesOpening stock of RMOpening stock of FGFactory wagesCarriage outward

250010200133002600349800560000124400638005970012400

AdvertisementMiscellaneous ExpensesInterest paidFuel & CoalFactory PowerInsurance (Fire)Staff SalariesElectricityBad DebtsDepreciation on PlantDepreciation on Furniture

12000330010792112002500017601380025006080116902860

Journal entry

Dr. Cr.



To Raw material Used:Opening stock 124400Add: Purchase 349800

474200Less: Closing Stock 46900To Carriage InwardsTo Factory WagesTo Fuel & CoalTo Factory PowerTo Dep. On Plant

To Opening stock of FGTo Cost of goods ManufacturedTo Gross Profit c/d

427300102005970011200250001169054509063800

545090103410712300

By Cost of Goods Manufactured transferred to trading A/c

By SalesBy Closing stock

545090

----------545090560000152300

-----------712300

Manufacturing, Trading & Profit / Loss Account of Mr. Surendra for the year ended as on 31-Mar-2009



To Carriage OutwardsTo AdvertisementTo DiscountTo Rent, Rate & TaxesTo Printing & StationeryTo Bad DebtsTo Misc. ExpensesTo InterestTo InsuranceTo Staff SalariesTo Electricity To Dep. On FurnitureTo Net profit transferred to Capital a/c

12400120002500133002600608033001079217601380025002860

19518103410========

By Gross profit b/d 103410

-------------103410=========

Profit / Loss Account of Mr. Surendra Cont…

Journal entry

journa entry

Documents