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Teaching Manual, Accountancy,, Grade XI

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Teaching Manual

Subject : Accountancy I

Class : XI

Full Marks: 100

Teaching Hours: 100

I. Introduction

Accounting is a process designed to identify, measure and communicate financial

information about an organization or other entity. It is both an art and a science

of keeping record of financial transactions, presenting and analyzing financialinformation of government and non-government enterprises. It is an essential

component of commerce education.

II. General Objectives

General Objectives of this course are to:

a. Introduce to the students the basic principles of book-keeping and accounting,accounting of non-profit organization, and governmental accounting.

b. Provide them with fundamental knowledge of book-keeping and accountingrequired while pursuing higher education in commerce and management

field.

III. Specific Objectives

On completion of this course, the student will be able to;

a. develop strong foundation of knowledge and understanding required foradvanced level education in management and accounting.

b. Learn basic concepts and procedures to prepare financial statements.c. Understand the procedures of accounting for government, non-government

and non-profit organizations.

d. Ascertain profit or loss from incomplete accounting records.


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IV. Unit-wise Teaching Hours

Units Chapters Teaching Hours

1 Book-keepting and accounting concept 8

2 Recording of transactions 18

3 Cash and Banking transactions 15

4 Trial Balance and Accounting Errors 10

5 Final Account 36

6 Depreciation 8

7 Reserve and Provision 4

8 Accounting for non-profit organization 15

9 Accounting for Incomplete Records 610 Government Accounting 30

Total 150

V. Course Content

Unit 1

Book Keeping and Accounting Concept

A. Introduction

Accounting is the language of business. It is necessary for business activities aswell as for all types of economics activities. On one hand it maintains the records of

business and on the other it supplies the required information to managers and other

interested parties in order to make better business decisions. For this reason, the

business (Management students, business executives and other must be familiar with

accounting discipline.

This unit is related with the conceptual meaning of book-keeping and accounting

with their objectives, functions and scopes. It also includes basic accounting concept,

Double entry book-keeping, Accounting cycle and accounting equation.


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B. Objectives

The main objectives of this unit is to help the students to acquire knowledge of

book keeping and accounting. After studying this unit the students would be able to:

(i) Define book-keeping and accounting.(ii) Know the functions, objectives and scopes of book keeping and accounting.(iii) Explain about origin and evolution of book-keeping.(iv) Understand the meaning, features and advantages of double entry system.(v) List the steps in accounting cycle.(vi) Know the procedure for developing an accounting equation.

C. Specification of Content Area of the Unit

The sub-unit and teaching hours allotted for the sub-units are given below.

However, the teacher being the ultimate guide of the class, may arrange the teaching

hour as per convenient:

Serial Number Areas of Units Teaching

Hours

1.1 Introduction to book keeping and

accounting

2

1.2 Basic accounting concepts 2

1.3 Double entry book keeping 4

Total 8

D. Description of Content Areas of the Unit

1.1. Introduction to Book Keeping and Accounting

1.1.1. Concept and meaning of Book Keeping.

The meaning of book-keeping should include the following points:

- The act of keeping the accounts of a business concern and other

organizations.

- The science and art of recording of business transactions in a

systemic manner.


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- It is a process of identifying, measuring and communicating

economic information to permit informed judgment and decisions

by users of information.

1.1.2. Concept and meaning of Accounting.

Further to other points the meaning to accounting should includes the

following points:

- It is the language of business- It is an analysis and interpretation of book keeping records.- It includes maintenance of accounting records as well as

preparation of financial and economic information, which

involves the measurement of transactions and other events

pertaining to a business.

- It is an art of measuring, recording and communicating offinancial information.

1.1.3. Origin and Evolution of Book-Keeping

The origin of book-keeping can not be exactly traced out. It has been

practiced from ancient time. The system of book-keeping was first

conceived by Luca Pacioli, in his book "De compectic at scriptures"

(Italian). This work was translated and published in english by Hugh

Old Castle in 1543. Later on James Paula improved the method of

book-keeping with his view and concepts about keeping the complete

records of debtors and creditors.

In 1795 AD, Edward Jones published a subject matter about the book-

keeping, in which he advocates for two columns in Journal. The art of

accounting has been practiced for centuries but only since the late

thirties, has been it seriously take-up.

1.1.4. Functions of Accounting

The main functions of Accounting are as under:

(i) To keep complete and systematic records of businesstransactions according to specified rules.


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(ii) To ascertain the net profit earned or loss suffered during theparticular period.

(iii) To ascertain the financial position of the business at a certainperiod.

(iv) To summaries, analyze and interpret the data.(v) To communicate accounting information to the management,

creditors, employees and the government to serve the interest of

a business as a whole.

1.1.5. Objectives of Accounting

The primary objectives of accounting are giver below:

(i) To maintain proper record of business transactions.(ii) To ascertain profit or loss made by an enterprise.(iii) To present financial position of a business concern.(iv) To communicate the accounting information to different users.(v) To help in determining the tax amount.

1.1.6. Scopes of Accounting

Accounting is useful to trading concern as well as non-trading concern.

So, its scope is unlimited. The scope of accounting can be highlighted

as under:

(i) Accounting helps to trading concern by recording entiretransactions and preparing financial statements.

(ii) It also helps to non-trading organizations by preparing Receiptand Payment Account, Income and Expenditure Account and

Balance Sheet.

(iii) Accounting can also be great helpful to the government of everycountry.

(iv) Accounting helps to professional and individuals.1.2. Basic Accounting Concepts

The rules that have been commonly accepted by the professional accounting

would as general guideline for preparing account may be referred adGenerally Accepted Accounting Principles (GAAP). Those principles are also


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known as Basic Accounting Concepts or Assumptions. Some accounting

concepts are as under;1. Business Entity Concept: For accounting purpose, a business is treated as

a repartee entity. It is distinct from its owners and all other economic

activities.

2. Money Measurement Concept: All business transactions will be recordedin monetary terms. Those transactions which cannot be in terms of money

cannot be recorded, therefore, should be ignored.

3. Going Concern Concept: A business will have indefinite life unless it islikely to be sold or wound up in the near future.

4. Accounting Period Concept: The economic life of an entity to be dividedinto arbitrary periods, usually 12 months period to report on the

performance and financial position of a concern to its users.

5. Revenue Realization Concept: Revenue should be considered as earnedon the date when it is realized. The revenue is realized by the amount

changed for goods sold or service rendered to the customers.

6. Cost Concept: The transactions and events of the business are to berecorded at the amount actually received or spent.

7. Matching Concept: The expenses for an accounting period should becompared or matched with the revenue of that period in order to finding

out the net profit or loss. The expenditure incurred for generating revenue

in the future should not be taken as expenses for current period.

1.3. Double Entry Book Keeping.

1.3.1. Meaning and Concept

Further to other points, the meaning of double entry book keeping

should enclose the following points:

- Every transaction has two fold effects debit and credit, and the setof record based on two duality is called double entry system of

book keeping.

- The system under which under which both receiving and giving(debit and credit) aspects are recorded.

- It is the most modern, progressive, scientific and best system ofrecording the financial transactions of a business.


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1.3.2. Features of Double Entry System

The features of double entry system are as follows:(i) Both the aspects of transaction which are described as debit and

credit are recorded under double entry system.

(ii) Two fold effects of the transactions are shown with equal effectdebit to credit in monetary terms.

(iii) Recording is made on the basis of certain prescribed rules.(iv) The arithmetical accuracy of recording can be checked by

preparing a trial balance.

1.3.3. Advantages of Double Entry System

The advantages of double entry system can be mentioned in the

following ways:

(i) All the transactions are recorded so that if the need arises, fulldetails of each and every transaction can be obtained.

(ii) Arithmetical accuracy of the accounts can be tasted by preparinga list of balances (Trial Balance).

(iii) `Profit or loss made by a business, during an accounting period,can be ascertained by preparing Trading and Profit and Loss

Account.

(iv) The exact financial position of a business at a particular date canbe noticed by preparing Balance Sheet.

(v) It helps the owner to judge the progress of the business bycomparing current year activities and results with previous.

(vi) It also helps to defect frauds and errors.(vii) It covers all types of accounts including Nominal, Personal &

Nominal Account.

(viii) It is a scientific system and transactions are recorded accordingto certain specified rules.

(ix) It is accepted as a necessary document for court of law andincome tax authorities which rely on the books prepared under

this system.

1.3.4. Accounting Process or Cycle

A complete sequence of accounting procedures is known as AccountingProcess or Cycle. It includes recording, classifying, summarizing and


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interpreting. An accounting cycle begins with the recording of

transactions and ending with the preparation and interpretation of thefinal account.

Accounting process is of cyclic and sequential order which is portrayed

in the following diagrams:

The Accounting Process Chart

Documenting the transactions

Classifying and recording the

transactions

Positing the transactions

Balancing the ledgers

Preparing a trial balance

Preparing the financial

statements

Interpreting the transactions

Trading Account

Profit and Loss Accounting

Balance Sheet


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1.3.5. Accounting Equation

The value of resources and sources must be equal. The expression of

this equality in the terms of equation is known as accounting equation.

An accounting equation. An accounting equation is expressed as under

Resources = Sources of Finance

Resource denotes assets. Capital and liabilities are included in source of

finance. So the above equation can be expressed in the following ways

also:

Assets = Capital + Liabilities

Capital = Assets Liabilities

Liabilities = Assets Capital

Assets, capital and liabilities are three basic elements of every business

bans action. The relationship between these three elements remains

unaltered. Change in one element results in corresponding change in the

same item or in other element. Such change can be summed up as

follows:

(i) An increase in assets side with corresponding increase in capital.(ii) An increase in assets with corresponding increase in liabilities.(iii) An increase and decrease in assets.(iv) A decrease in assets with corresponding decrease in capital.(v) An increase and decrease in liabilities.(vi) An increase and decrease in capital.(vii) An increase in capital and decries in liabilities.(viii) An increase in liabilities and decrease in capital.(ix) A decrease in assets with corresponding decrease in liabilities.Procedure for Developing and Accounting Equation

The steps required for developing as accounting equation are as under:

Step 1: To find out the variables affected by a transaction (i.e. Capital

Assets or Liabilities).


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Step 2: To find out the effects on variables (in terms of increase or

decrease)

Step 3: To show the effect on the appropriate side of an equation.

Illustration

Binayak had the following transactions:

(i) Commenced business with cash Rs. 1,00,000(ii) Purchased goods for cash Rs. 50,000 and credit Rs. 30,000(iii) Paid rent in advance Rs. 1,000(iv) Sold goods for cash Rs. 40,000 costing Rs. 30,000(v) Paid salary Rs. 1,000 and salary outstanding Rs. 100Required: Accounting equation for the above transactions.

Solution:

Transactions Assets (=) Liabilities + Capital

(i) Commenced business with

cash Rs. 1,00,000

Cash 1,00,000

1,00,000

Liabilities 0

+ Capital 1,00,000

1,00,000

(ii) Purchased goods for cash Rs.

50,000 and credit Rs. 30,000

Cash 50,000

+Stock 80,000

1,30,000

Liabilities 30,000

+ Capital 1,00,000

1,30,000

(iii) Paid rent in advance Rs.

1,000

Cash 49,000

+ Prepaid rent 1,000

+ Stock 80,000

1,30,000

Liabilities 30,000

+ Capital 1,00,000

1,30,000

(iv) Sold goods for cash Rs.

40,000 costing Rs. 30,000

Cash 89,000


+ Stock 50,000

1,40,000

Liabilities 30000

+ Capital 1,00,000

+ Profit 10,000

1,40,000

(v) Paid salary Rs. 1,000 and

salary outstanding Rs. 100

Cash 88,000


+ Stock 50,000

1,39,000

Liabilities 30,000

+ Outstanding and Salaries 100

+ Capital 1,000

+ Profit 8,900

1,39,000


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F. Evaluation Scheme

This unit has been designed for short answer theoretical and practical questions

carrying 2 to 3 marks and the students requiring to give answer in 3 to 5 effective

sentences. The number of questions and marks allocated for this unit are as under:

Types of Question No. of Questions Marks

Theoretical 2 3+3=6

Practical 1 2

Total 3 8

F. Some Model Question:

1. What do you understand by Book-keeping ? Mention any twoobjectives of Book-keeping [2+1]

2. Write the meaning of Accounting with its two objectives. [2+1]3. Write in brief about the historical background of book-keeping. [3]4. State any three objectives of Accounting. [3]5. Write in brief any three accounting concept. [3]6. Briefly write the functions of Accounting. [3]7. Briefly explain any three advantages of double entry system. [3]8. What is meant by the basic principle of accounting? Enumerate any

two basic principles of accounting. [1+2]

9. What do you meant by Double Entry System of book-keeping ? Giveany two advantages of double entry system. [1.5+1.5]

10.Write the meaning of following accounting concepts:(i) Business entity concept(ii) Money measurement concept(iii) Going concern concept

11. What do you understand by Accounting Cycle? Give the diagram of

Accounting cycle. [1.5+1.5]

12. You are given the following transactions:(a) Commencement of business with Rs. 2,00,000


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(b) Purchased goods for cash Rs. 50,000 and credit Rs. 20,000

(c) paid Salary Rs. 10,000

Required: Acclunting Equation [2]

13. The following transactions relate to Mr. Ganesh, a sole proprietor:

(i) Started a business with Rs. 1,00,000

(ii) Purchased goods for a cash amounting Rs. 40,000

(iii) Purchased goods on credit from Mr. Narayan Rs. 30,000

(iv)Sold goods worth Rs. 50,000 for a cash amount of Rs. 60,000Required: Accounting Equation [2]

Key-terms introduced in the unit:

Book keeping, Account, Basic accounting concept, Business entity

concept, Money measurement concept, Going concern concept,

Accounting period concept, Revenue realization concept, Accounting

period concept, Matching concept, Cost concept, Accounting process

of cycle, Double entry book keeping, Assets, Accounting equation,

Capital, Liabilities.

Unit 2

Recording of TransactionsA. Introduction

Accounting records are made for transactions only. This unit is related with

recording of those business transactions. It includes the preparation of Journal,

ledger and sub-division of journal. This unit also gives the knowledge of the

different basic accounting terminologies.

B. Objectives

The objective of the unit is to help the student to understand the ways of

recording and posting the transactions. After studying this unit, the students

would be able to:


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(i) Define the different accounting terminologies.(ii) Know various rules for debit and credit.(iii) Make entries in the journal.(iv) Understand the meaning, importance's and objectives of ledger.(v) Learn posting technique in ledger.(vi) Illustrate and balancing ledger.(vii) Describe the concept of different subsidiary books.(viii) Prepare various subsidiary books and posting them into ledgers.

C. Specification of Conduct Area of the Unit.

The total teaching hours allocated for this unit as per syllabus is 18 hours. The

total hours can be sub-divided in the following way. However, the teacher can

arrange the sub-division of hours as per his/her convenient.

Serial

No.

Areas of Units Teaching Hours

2.1

2.2

2.3

2.4

2.5

Basic terminologies

Rules of debit and credit

Books of original entry

Ledger account

Subsidiary books and its types

1

2

6

6

3

Total 18


2.1. Basic Terminologies

(a) Capital: The excess of assets over liabilities is capital. It is the amount

invested in an enterprise by the proprietor. It is also known as net worth.

(b) Liabilities: The financial obligation of an enterprise other than owner's fund is

known as liabilities.

(c) Long term liabilities: Those liabilities which are payable after a long period.

(d) Short term liabilities: Those liabilities which fall due for payment within aspan of one year.


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(e) Assets: The valuable resources owned by a business and acquired at a

measurable money cost are known as assets. It is the property of all sorts of

business. It is the economic resources of an enterprise that can be expressed

in monetary terms.

(f) Fixed assets: The assets which are acquired for use in long run is known as

fixed assets. These assets are not acquired for resale purpose.

(g) Current assets: The assets which can be converted into cash as soon as

possible or within one year.

(h) Investment: It represents an expenditure on assets invested outside the

business to earn interest, dividend or other benefits.

(i) Tangible assets: It refers to assets that can be existed in physical forms.

(j) Intangible assets: It refers to assets that has no physical properties.

(k) Inventory: The tangible property held for sale in the ordinary course of

business.

(l) Revenue: The amount charged for goods sold or service rendered is known as

revenue. It refers to the monetary expression of the aggregate of products or

services transferred by an enterprise to its customers during a period of time.

(m) Expenses: The amount incurred in the process of earning revenue.

2.2. Rules of Debit and Credit

Every business transaction has dual effects. One side of the transaction is debit

and next credit. The account receives the benefit is termed as 'debit' and the

accounts that gives the benefit is credit. The rules of debit and credit can be

identified in two ways, which are as under:

(i) On the basis of types of accounts(ii)On the basis of increase or decrease in assets, capital and liabilities.(i) On the basis of types of accounts

There are three types of accounts:

(a)Personal account: It relates to individual, firms, companies orinstitution.


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(b)Real account: It relates to all those things which exist and whosevalue can be measured in the terms of money.

(c)Nominal account: It relates to expenses, losses, profit and gains.Rules for Debit and Credit: On the basis of types of accounts.

Types of Accounts Debit Credit

For personal account

For real account

For nominal account

Receiver

What comes in

All expenses & losses

Giver

What goes out

Al income and gain

The following three steps can be applied for the rules of debit and credit on the

basis of types of accounts:

Step 1: Identify the accounts involved in the transaction.

Step 2: Classify the accounts involved in the transaction.

Step 3: Apply the rules of debit and credit according to the nature of accounts.

Illustration 1.

The following transactions are given:

(a)Mr. X commenced business with a capital of Rs. 1,00,000(b)Purchased goods for cash(c)Purchased furniture on credit from furniture company(d)Goods sold for cash(e)

Goods sold on credit to Mr. Y.

(f) Paid wages(g)Paid to furniture company for credit purchase Borrowed from Bank(h)Interest paid on bank loan(i) Cash collected from Mr. Y.Required: Analyse the above transactions and find out debit and credit according

to the traditional approach.


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Solution:

Transactions Accounts Classification Effects Debit/

Credit

(a) Mr. X commenced

business with a

capital of Rs.

1,00,000

Cash

Capital

Real

Personal

Comes in

Giver

Debit

Credit

(b) Purchased Goods for

Cash

Purchase

Cash

Nominal

Real

Expenses

Goes out

Debit

Credit

(c) Purchased Furniture

on credit form

Furniture co.

Furniture

Furniture

Co.

Real

Personal

Comes in

Giver

Debit

Credit

(d) Goods Sold for cash Cash Sales

Sales

Real

Nominal

Comes in

Income

Debit

Credit

(e) Goods sold on credit

to Mr. Y.

Y

Sales

Personal

Nominal

Receiver

Income

Debit

Credit

(f) Paid wages Wages

Sales

Nominal

Real

Expenses

Goes out

Debit

Credit

(g) Paid to furniture Co.

for credit purchase

Furniture

Cash

Personal

Real

Receiver

Goes out

Debit

Credit

(h) Borrowed from bank CashBank Loan

RealPersonal

Comes inGiver

DebitCredit

(i) Interest paid on bank

loan

Interest

Cash

Nominal

Real

Expenses

Goes out

Debit

Credit

(j) Cash collected from

Mr. Y

Cash Y

Y

Real

Personal

Comes in

Giver

Debit

Credit

(ii)On the basis of increase or decrease in assets, capital and liabilities.For knowing the rules for debit and credit on the basis of accounting

equation, the accounts are classified into following categories:

(a) Assets account (b) Liabilities account


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(c) Capital account (d) Revenue account (e) Expenses

account

The steps which can be followed for applying the rules of debit and credit on

the basis of equation approach are:

Step 1: Identify the elements (accounts) involved in the transaction.

Step 2: Analyse the type of change in elements increase or decrease in

amounts

Step 3: Apply the following rules of debit and credit:

- Increase in assets is debited and decrease in assets in credited.- Decrease in liability is debited and increase in liability is created.- Decrease in capital is debited and increase in capital is credited.- Increase in expenses and losses is debited and decrease in

expenses and losses is credited.

- Decrease in revenue and profit is debited and increase in revenueand profit is credited.

Some examples for understanding the rules of debit and credit on the basis of

increase or decrease in assets, capital & liabilities are given below:

1. Transaction : Goods purchased for cashDebit : Goods or purchase account asset

Credit : Cash account asset

Reason : Increase in asset is debited and decrease in assets

credited.

2. Transaction : Goods purchased on credit from RamCredit : Ram account liability

Debit : Goods or purchase account asset

Reason : Increase in asset is debited and increase in liability is

credited.

3. Transaction : Started business with a capital of Rs. 5,00,000

Debit : Cash account asset

Credit : Capital account capital

Reason : Increase in assets and liability are debited and credited4. Transaction : Borrowed from bank


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Debit : Cash account - asset

Credit : Bank loan account - liability

Reason : Assets increased debited and liability increased credited

5. Transaction : Payment made to Ram for credit purchase

Debit : Ram A/C liability

Credit : Cash A/C assets

Reason : Decrease in liability and assets are debited and credited

6. Transaction : Withdrawn from the business for personal use

Debit : Capital A/C liability

Credit : Cash A/C asset

Reason :Decrease in liability is debited and assets credited

7. Goods returned to Ram

Debit : Ram A/C - Liability

Credit : Purchase A/C - Asset

Reason : Decrease in liability is debited and assets credited

8. Rent paid

Debit : Rent A/C - Expenses

Credit : Cash A/C Asset

Reason : Expenses incurred is debited and decrease in cash is

credited

9. Commission received

Debit : Cash A/C Asset

Credit : Commission A/C Income

Reason :Income is credited and increase in assets is debited

10. Purchased furniture on credit from Hari

Debit : Furniture A/C Asset

Credit : Hari A/C Liability

Reason : Increase in assets is debited and liability is credited

11. Received advance from customers

Debit : Cash/ A/C - Asset

Credit : Advance from customers LiabilityReason :Increase in assets is debited and liability is credited.


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2.3. Books of Original Entry

2.3.1. Meaning of Journal

The book is which all transactions are recorded in the order in which they

are occurred is known as Journal. A transaction is recorded for the first time

in this book and hence, it is also known as "Books of Original Entry".

2.3.2. Meaning and Steps in JournalisingJournalising is a process of recording of transactions in Journal. The

various steps in Journalising are given below:

Step 1: Ascertain what accounts are involved in a transaction.

Step 2: Identifying what types of accounts are involved.

Step 3: Think about the rule of debit and credit applicable for each

of the accounts involved and ascertain which account is to

be debited and which is to be credited.

Step 4: Record the date of transaction in the 'date' column and

write the name of account to be debited and credited in the

particular column along with their related amounts.

Step 5: Write brief description of transaction within bracket in the

next line in the particular column

2.3.3. Format of JournalGenerally, the Journal includes five columns. The format of Journal is

as under:Journal

Date Particulars L.F. Dr. Amount Cr. Amount

Column 1: Date


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The date on which the transaction has occurred is recorded under this

column. In the opening entry of every page, the year is written. After

that, month and date are noted down respectively.

Column 2: Particulars

The name of accounts to be debited and credited is shown in this

column. The name of the account to be debited is written on the first

line. Leaving a space below on the second line the name of account to

be credited is written beginning with 'To'. For instance, the entry for the

transaction wage paid is written in particulars column as under:

The narration is also entered in this column. A brief explanation of the

transaction is known as narration. The reason for debited and credited is

written under narration.

Column 3: Ledger Folio (L.F.)

In this column, the page number of ledger at the time of posting is

recorded. It is not recorded at the time of Journalising. It is recorded at the

time of posting only.

Column 4: Debit Amount (Dr.)

In this column, the debit amount of transaction is entered.

Column 5: Credit Amount (Dr.)

The credit amount of the transaction is entered under this column.

According to curriculum, the following transactions and their recording

should be taught:

(a) Capital (b) Liabilities (c) Assets (d) Purchase

(e) Sales (f) Credit Purchase (g) Credit Sale (h) Loss and Gain

(i) Revenue (j) Expenses (k) Return Outward

(l) Return Inward (m) Compound Transactions (n) Bills of

exchange: Accepting, Discorenting and Dishonour.

Wage A/C Dr.

To Cash A/C


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Illustration 2

Journalise the following transactions:

Sharawan:

1. Ganesh started business with cash Rs. 5,00,000

2. Deposited cash into Bank Rs. 3,00,000

3. Purchased goods for cash Rs. 1,00,000

4. Sold goods for cash Rs. 80,000

5. Purchased furnitures and paid by cheque Rs. 60,000

6. Purchase dgoods from Binayak Rs. 80,000

7. Returned goods to Binayak Rs. 10,000

8. Cash paid to Binayak in full settlement Rs. 69,000

9. Sold goods to Kumar Rs. 60,000

10. Withdrew goods for personal use Rs. 5,000

11. Received from Kumar in full settlement Rs. 59,000

12. Paid telephone charge Rs. 3,000

13. Paid for stationery Rs. 500

14. Cash withdrew form Bank for personal use Rs. 10,000

15. Paid salaries by cheque Rs. 20,000

16. Purchased goods and paid by cheque Rs. 25,000

Solution:

In the Books of Ganesh

Journal

Date Particulars L.F. Dr.(Rs.) Cr. (Rs.)

Sharawan

1 Cash A/C Dr.

To Capital A/C

(For cash brought for

capital)

5,00,000

5,00,000

2 Bank A/C Dr.

To Cash A/C

3,00,000

3,00,000


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(For cash deposited into

Bank)

3 Purchase A/C Dr.

To Cash A/C

(For goods purchased)

1,00,000

1,00,000

4 Cash A/C Dr.

To Sales A/C

(For cash sale of goods)

80,000

80,000

5 Furniture A/C Dr.

To Bank A/C

(For furniture purchased

and payment made by

cheque)

60,000

60,000

6 Purchase A/C Dr.

To Binayak's A/C

(For credit purchase of

goods)

80,000

80,000

7 Binayaks' A/C Dr.

To Purchase Return A/C

(For goods returned to

Binayak)

10,000

10,000

8 Cash A/C Dr.

Discount A/C Dr.

To Binayak A/C

(For cash received from

Binayak and discount

allowed)

69,000

1,000

70,000


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9 Kumar A/C Dr.

To Sales A/C

(For goods sold to Kumar

60,000

60,000

10 Drawing A/C Dr.

To Purchase A/C

(For goods withdrawn by

proprietor)

5,000

5,000

11 Cash A/C Dr.

Discount A/C Dr.

To Kumar's A/C


Kumar in full settlement of

Rs. 60,000 and allowed him

Rs. 1,000 discount)

59,000

1,000

60,000

12 Telephone charge A/C Dr.

To Bank A/C

(For payment of telephone

charge)

3,000

3,000

13 Stationery A/C Dr.

To Cash A/C

(For stationery purchased)

500

500

14 Drawing A/C Dr.

To Bank A/C

(For withdrawn from bank for

personal use)

10,000

10,000

15 Salaries A/C Dr.

To Bank A/C

(For payment of salaries by

cheque)

20,000

20,000

16 Purchase A/C

To Bank A/C

25,000

25,000


24/197


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Illustration 3

Following transactions are given:

1. Binayak started business with cash Rs. 5,00,000, furniture Rs. 50,000,and stock Rs. 20,000.

2. Purchased goods from ganesh Rs. 40,000, Kumar Rs. 30,000 andMahesh Rs. 20,000.

3. Sold goods to Krishna Rs. 20,000 received cash Rs. 15,000.4. Received cash from Krishna Rs. 4,900 in full settlement of his

account Rs. 5,000.

5. Paid to Ganesh Rs. 39,500 in full settlement of Rs. 40,000.6. Salaries Rs. 50,000, Advertising Rs. 10,000, Sales commission Rs.

1,000, Rent Rs. 10,000 and carriage Rs. 100 were paid on 31st March.

7. A running business purchased with following assets and liabilities forRs. 2,50,000;

Land and Building Rs. 2,50,000

Furniture Rs. 15,000

Stock-in-trade Rs. 30,000

Creditors Rs. 40,000

Bank overdraft Rs. 5,000

Required: Journal Entries.

Solution:

Journal

Date Particulars L.F. Dr.(Rs.) Cr. (Rs.)

1 Cash A/C Dr.

Furniture A/C Dr.

Stock A/C Dr.

To Capital A/C

(For business started with

cash, furniture and stock) )

5,00,000

50,000

20,000

5,70,000

2 Purchase A/C Dr.

To Ganesh A/C

To Kumar's A/C

90,000

40,000

30,000


25/197


//25//

To Mahesh's A/C

(For goods purchased A/C/)

20,000

3 Cash A/C Dr.

Krishna's A/C Dr.

To Sales A/C

(For goods sold to Krishna

for cash and on credit)

15,000

5,000

20,000

4 Cash A/C Dr.

Discount A/C Dr.

To Krishna's A/C

(For amount received from

Krishba and discount

allowed)

4,900

100

5,000

5 Ganesh A/C Dr.

To Cash A/C

To Bank A/C

(For amount paid to Ganesh

and discount received)

40,000 39,500

500

6 Salaries A/C Dr.

Advertising A/C Dr.

Sales Commission A/C Dr.

Rent A/C Dr.

Carriage A/C Dr.To Cash A/C

(Being payment of different

expenses)

50,000

10,000

1,000

10,000

10071.100

7 Land & Building A/C Dr.

Furniture A/C Dr.

Stock-in-trade A/C Dr.

To Creditors A/C

To Bank Overdraft A/C

To Cash A/C

(For business purchased)

2,50,000

15,000

30,000

40,000

5,000

2,50,000


26/197


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3.2.4. Journal Entries for Bills of Exchange

A bill of exchange has been defined as an "instrument in writing

containing an unconditional order signed by the maker directing a

certain person to pay a certain sum of money only to or to the order of a

certain person or to the bearer of the instrument".

Parties to the bill of exchange:

(i) Drawer: The person who draws or makes bill.

(ii) Drawer: Also known as 'accepter', to whom the order is made.

(iii) Payee: The person who receives the payment.Maturity of a bill of exchange: The date on which the bills falls due for

payment and 3 days grace must be allowed or finding the due date.

Accounting Treatment of Bills of Exchange

(a)When a bill is drawn and accepted:In the books of the drawer In the books of the drawer

Bills Receivable A/C Dr. Drawer's A/C Dr.

To Drawer's A/C To Bills payable

(b) When a bill is discharged:

In the books of the drawer In the books of the drawer

Cash A/C Dr. Bills payable A/C Dr.

To bills receivable A/C To Cash A/C

(c) When a bill is dishonored:


Drawer's A/C Dr. Bills payable A/C Dr.

To bills receivable To drawer's A/C

(d) When a bill is discounted:


Bank A/C Dr. No entry

Discount A/C Dr.

To bills receivable A/C


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(e) When a discounted bill is discharged:


No entry Bills payable A/C Dr.

To bank A/C

(f) When a discounted bill is dishonored:


Drawer's A/C Dr. Bills payable A/C Dr.

To bank A/C To drawer's A/C

2.4. Ledger Account2.4.1. Meaning and Concept

- A principle book which contains all accounts to which the

transactions recorded in the books of original entry are transferred.

- A summarized form of all the transactions that have taken place

with the particular person or things specified.

2.4.2. Objectives of Ledger Accounts

(i) To present the financial position of the business.

(ii) To provide information about income and expenses.

(iii)To find out the position of purchase and sale of goods.

(iv)To ascertain the creditors and debtors.(v)To supply financial information to the concerned parties.(vi)To ascertain the cash and other assets position of the business.

2.4.3. Importance and Utility fo Ledger Accounts

(a) The debtors and to be collected from them can be ascertained

through the help of ledgers. Likewise, creditors and amount to be

paid to them also can be found out.

(b) It helps in ascertaining the existing assets in business and their

value recorded in books.

(c) it is useful to provide the information about nominal accounts:

expenses, loss, income as well as profit.

(d) Immediate checking of the book-keeping is possible. The

correctiveness of recording can be easily found out by preparing aTrial Balance.


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(e) The financial position of the business can be easily found out.

(f) It facilitates the preparation of final account.

2.4.4. Format of Ledger Accounts

There are two types of forms of ledger accounts. They are 'T' and

continuous balance form.

(i) Standard form of ledger account

The simplified representation of ledger account is "T" Account

which is profusely brought to use in business firms. It is divided

into two parts: Debit on the left and credit on the right. At the left

corner "Dr." and at the right corner "Cr." Are inscribed. Each side

of the ledger has following four columns:

First column: date

The date of transaction is entered in this column.

Second column: Particular

The name of the account for which accounts debited and credited

given is entered in this column. The name of the account is written

with "To" and "By" in debit and credit side respectively.

Third column: folio

The page number of journal, from where the transaction is posted

into ledger is recorded in this column.

Fourth column: Amount

The relevant amount of transaction is entered on amount column.

The format of ledger in "T" form is given below:

. Account

Date Particulars Folio Amount Date Particulars Folio Amount


29/197


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(ii) Running balance form of ledger account

An alternative form of ledger account is running balance form,

that is often adopted by commercial banks and other business

firms. Accouding to this rule, this account is divided into six

columns: Date, Particulars, Folio, Debit Amount, Credit Amount

and Balance. The specimen of Running Balance form is as

follows:

Date Particulars Folio Amount Date Particulars Folio Amount

2.4.5. Posting

The process of transferring entries form journal to the respective

account in the ledger is known as posting. The following rules should

be followed while posting the entries into the ledger:

(i) A separate account with respective heading should be opened for

each item appearing in the journal.

(ii) The date of transaction should be entered in the date column.

(iii) The relevant account debited in the journal should be debited in

the ledger and the name of the credit account of the same entry in

the journal should be written in the particular in the debit column

with a word 'To'.

(iv) Likewise, the relevant account credited in the journal should be

credited in the ledger and the name of the debit account in the

journal should be written in the particular column in the credit side

with a word 'By'.

(v) The page number of the journal, from where the transaction has

been posted, should be entered in the 'Folio' column.


30/197


//30//

(vi) The corresponding amount of transaction should be entered in the

amount column.

2.4.6. Balancing and Closing of Ledger Accounts

The process of equalizing the two sides of an account is known as

balancing. Balancing of an account is completed by totaling the debit

and credit side of the account and noting the difference. The

difference between the total of debit and credit of an account is known

as balance.

The procedure for balancing a ledger is given below:

Step 1: To find out the total amount separately of both debit and

credit amount column on a rough sheet.

Step 2: If the debit side exceeds the credit side, that is known as

debit balance. Put the difference amount on credit side in

credit amount column by writing the date of which

balancing is being done and the words "By Balance c/d"

In particular column. Similarly, if credit side total

exceeds that is known as credit balance and put such

difference in debit column by including closing date on

date column and "To Balance c/d" in particular column.

Step 3: Sum both the debit and credit amount column and put the

total on both sides and draw double line immediatelybeneath the totals.

Step 4: Enter the date of the beginning of next period in 'Date'

column and bring down the debit balance or credit

balance.

The balancing of different accounts shows the following result:

Types of Accounts Balance Result

1. Personal Account Debit Balance The person is debtor for

the firm

Credit

Balance

The person is debtor for

the firm


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2. Real Account Debit Balance The assets owned by the

firm

(other than Goods

Account)

Credit

Balance

Deficit

3. Nominal Account Debit Balance Debited to Trading or

P/LA/C

Credit

Balance

Credited to Trading or

P/LA/C

Illustration

The following transactions are given:

1. Goods purchased for cash Rs. 25,000

2. Goods purchased from Ganesh Rs. 15,000

3. Goods sold for cash Rs. 30,000

4. Goods returned by Kumar Rs. 2,000

5. Cash received from Kumar Rs. 3,000

6. Cash paid to Ganesh Rs. 4,000

7. Goods returned to Ganesh Rs. 2,000

Required: (i) Journal entries

(ii) Cash Account, Purchase Account, Sales Account and

Ganesh Account.

Solution:

Journal

Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)

1 Purchase A/C Dr.

To Cash A/C

(For goods purchased)

25,000

25,000

2. Purchase A/C Dr.

To Ganesh A/C

(For credit purchase of

goods)

15,000

15,000

3. Cash A/C Dr.To Sales A/C

30,000 30,000


32/197


//32//

(for goods sold)

4. Kumar A/C Dr.

To Sales A/C

(For credit sale of goods)

10,000

10,000

5. Sales Return A/C Dr.

To Kumar's A/C

(for goods returned by

Kumar)

2,000

2,000

6. Cash A/C Dr.

To Kumar's A/C


Kumar)

3,000

3,000

7. Ganesh A/C Dr.

To cash A/C

(For cash paid to Ganesh)

4,000

4,000

8. Ganesh A/C Dr.

To purchase return A/C

(For goods returned)

2,000

2,000

Dr. Cash Account Cr.

Date Particulars F. Amount Date Particulars F. Amount

3

6

To Sales A/C

To Kumar's A/C

Balance b/d

30,000

3,000

33,000

4,000

1

7

By Purchase A/C

By Ganesh A/C

By Balance c/d

25,000

4,000

4,000

33,000

Dr. Purchase Account Cr.


1

2

To Cash A/C

To Ganesh A/C

To Balance b/d

25,000

15,000

40,000

40,000

By Balance c/d 40,000

40,000


33/197


//33//

Dr. Sales Account Cr.


To Balance b/d 40,000

40,000

By Cash A/C

By Kumar's A/C

By balance c/d

30,000

10,000

40,000

40,000

Dr.

Ganesh Account Cr.


7

8

To Cash A/C

Return A/C

To Balance c/d

4,000

2,000

9,00015,000

2 By Purchase A/C

By Balance b/d

15,000

15,000

15,000

Illustration 2

Post the following transactions post them into Ledger Accounts and

balance the necessary accounts on 30th

Jestha, 2059:

1. Started business with cash Rs. 50,000

2. Goods purchased for cash Rs. 20,000

3. Furniture purchased Rs. 10,000

4. Goods purchased from Ram Rs. 10,000


6. Goods sold to Hari Rs. 10,000

7. Cash paid to Ram Rs. 3,000

8. Cash received from Hari Rs. 8,000

9. Goods returned by Hari Rs. 2,000

10. Rent paid Rs. 5,000


12. Salary paid Rs. 5,000


34/197


//34//

Solution:

Dr. Cash Account Cr.


059-2-1

8

14

25

058-3-1

To Capital A/C

To Sales A/C

To Hari A/C

To Sales A/C

To Balance b/d

50,000

20,000

8,000

10,000

88,000

45,000

059-2-1

3

13

17

30

By Purchase A/C

By Furniture A/C

By Ram A/C

By Rent A/C

By Salary A/C

By Balance d/c

20,000

10,000

3,000

5,000

5,000

45,000

88,000

Dr. Capital Account Cr.

Date Particulars F Amount Date Particulars F. Amount

059-2-30 To Balance c/d 5,00,000 059-2-1

059-3-1

By Cash A/C 50,000

50,000



059-2-2

059-2-5

059-3-1

To Cash A/C

To Ram A/C

To Balance b/d

20,000

10,000

30,000

30,000

059-2-30 By Balance c/d 30,000

30,000

Dr. Furniture Account Cr.


059-2-3

059-3-1

To Cash A/C

To Balance C/D

10,000

10,000

059-2-30 By Balance c/d 10,000

Dr. Ram's Account Cr.


059-2-12

059-2-13

059-2-30

To Purchase

Return A/C

To Cash A/C

To Balance c/d

1,000

3,000

6,000

10,000

059-2-5

059-3-1

By Purchase A/C

By Balance c/d

10,000

10,0006,000


35/197


//35//

Dr. Sales Account Cr.


059-2-30 To Balance c/d 40,000

40,000

059-2-8

059-2-10

059-2-25

059-3-1

By Cash A/C

By Hari's A/C

By Cash A/C

By Balance

b/d

20,000

10,000

10,000

40,000

40,000

Dr. Rent Account Cr.


059-2-17

059-3-1

To Cash A/C

To Balance b/d

5,000

5,000

059-2-30 By Balance c/d 5,000

Dr. Salary Account Cr.


059-2-30

059-3-1

To Cash A/C

To Balance b/d

5,000

5,000

059-2-30 By Balance c/d 5,000

Dr. Hari's Account Cr.


059-2-10 To Sales A/C 10,000

10,000

059-2-14

059-2-15

By Cash A/C

By Sales

Return A/C

8,000

2,000

10,000

Dr. Purchase Return Account Cr.Date Particulars F Amount Date Particulars F. Amount

059-2-30 To Balance c/d 1,000 059-2-12

059-3-1

By Ram's A/C

By Balance b/d

1,000

1,000

Dr. Sales Return Account Cr.


059-2-15

059-3-1

To Hari's A/C

To Balance b/d

2,000

2,000

059-2-30 By Balance c/d 2,000

2.5. Subsidiary Books and its types

Some items of transactions are repeated many times in a day. Recording

of these in a Journal will involve money and efforts. Therefore,

transactions are recorded in a separate book.


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2.5.1. Purchase Book

Concept: All credit purchase of merchandise are recorded in this

book. Cash purchases and assets purchases are not recorded in this

book. It is also known as 'Invoice Book'. Purchase Book is maintained

on the basis of invoice received from the supplier, from whom the

goods are purchased on credit. It shows the details of quantities and

price of material purchased.

Invoice: It details the quantity and price of each item sold on credit by

a trader to its customer. It also states discount allowance on the basis

of invoice, both parties, seller and buyer make entries in their book.

The some invoice would be sales invoice to the seller and purchase

invoice to the buyer.

The specimen of the invoice is as follows:

Invoice

(Firm's Name & Address)

Telephone: Invoice No:

Fax: Date: ..

To: ..

.

.

Qty. Description Rate Amount

(Rs.)

Remarks

It is clear from the specimen that an invoice contains the following

details:(i) Names and address of both parties-seller and buyer.


37/197


//37//

(ii) An exact description of the goods, including the quantity rate and

total value of goods.

(iii) The terms and conditions of sale (on the overleaf

Specimen of purchase book:

The standard form of purchase book is as under:

Date Invoice

No.

Particulars L.F. Details (Rs.) Amount (Rs.)

Explanation:

First column 'Date': It shows the dates of transaction in serial order.

Second column 'Invoice No.': It reveals the invoice number is serial

order.

Third column 'Particulars': It records the name of supplier and

particulars of goods purchased.

Fourth column 'L.F.': It mentions the page number of book posted.

Fifth column 'Details': It represents the amounts of different goodspurchased and the amount of trade discount, if any.

Sixth column 'Amount': This column shows net amount payment of

each purchase.

Trade Discount and Cash Discount

Trade Discount: It is a deduction from the catalogue, list or published

price. It is an allowance made by the supplier to the

buyer.


38/197


//38//

Cash Discount: Allowance made by the supplier to the buyer for the

payment made within a certain period.

Posting from Purchase Book

The following rules are applicable for posting from purchase book:

(i) Posting to Personal Account: Individual amounts are daily posted

to the credit side of supplier's account by writing 'By Purchase

A/C'

(ii) Posting to Purchase Account: Periodic total is posted to the debit

of purchase account by writing "To sundries as per Purchase

Book".

Illustration 1

From the following transaction prepare the purchase book of A & Co.,

a readymade garment dealer and post the transactions recorded in the

purchase book to ledger:

Ashadh 1

Purchased from P on credit

10 Shirts @ Rs. 400 each

15 Trousers @ Rs. 600 each

Ashadh 5

Purchased from Q on credit

20 Hats @ Rs. 120 each

20 Coats @ Rs. 1,200 each

Trade discount @ 10% is made both on coats and hats purchases.

Ashadh 11

Purchased for cash from R


Ashadh 15

Purchased from S on credit




39/197


//39//

Solution:

Purchase Book

Date Invoice

No.

Particulars L.F. Details

(Rs.)

Amount

(Rs.)

Ashadh 1 P:

10 Shirts @ Rs. 300 each 15

Trousers @ Rs. 600 each

3,000

9,000 12000

5 Q:

20 Hats @ Rs. 120 each


Less: 10% Trade Discount

2,400

24,000

26,000

2,640

15 S:



6,000

10,000

23,700

16,000

Total:- 51,760

Ledger

Dr. P's Account Cr.

Date Particulars F. Rs. Date Particulars F. Rs.

3.1 By Purchase A/C 12,000

Dr. Q's Account Cr.



Dr. S's Account Cr.





3.1

3.15

To Cash A/C

To Sundries

3,500

51,760


40/197


//40//

2.5.2. Sales Book

Concept: All credit sales of merchandises are recorded in the Sales

Book. The cash sale of merchandise and sale of other assets are not

recorded in this book.

Specimen of sales book:

The simplest format of sales book is shown below:

Sales Book

Date Invoice No. Particulars L.F. Details

(Rs.)

Amount

(Rs.)

Explanation:

First column 'Date': It states the date of transaction in serial order.

Second column 'Invoice No.': It reveals the serial number of the

outward invoices.

Third column 'Particulars': It includes the name of the customers and

particulars of goods sold.

Fourth column 'L.F.': It mentions the page number of book posted.

Fifth column 'Details': It represents the amount of goods sold and theamount of trade discount if allowed.

Sixth column 'amount': This column shows net amount recoverable

from the customers.

Posting from sales book:

The following rules are applicable for posting from sales book:

(i) Posting of individual customers are debited with the amount and "To

Sales Account" is mentioned in the particular column.

(ii) Posting of periodic total to credit side of sales account by

mentioning "By Sundries Account" in the particular column.


41/197


//41//

Illustration 2

Enter the following transactions in the sales Book of Bishal and Co,

Ltd. And post them into ledgers:

Jestha,

1

Sold to Brihat on credit

10 Shirts @ Rs. 500 per shirt

10 Trousers @ Rs. 600 per trousers

4 Sold for cash to Bijaya



6 Sold on credit to Biraj

5 Coats @ Rs 1,400 each


Trade discount @ 10%

7 Sold on credit to Bilash


Solution:

In the Books of Bishal & Co.

Sales Book

Date Invoice

No.


(Rs.)

Amount

(Rs.)

Jestha 1 Brihat



5,000

6,000

6

Biraj:




7,000

2,500

9,500

950

11,000

7

Bilash:


8,550

14,000

Total:- 33,550


42/197


//42//

Ledger's

Dr. Brihat's Account Cr.


2.1 To Sales A/C 18,000

Dr. Biraj's Account Cr.


2.6 To Sales A/C 8,550

Dr. Bilash's Account Cr.


2.7 To Sales A/C 14,000

Dr. Sales's Account Cr.

Date Particulars F. Rs. Date Particulars F. Rs.2.4

2.7

By Cash A/C

By Sundries A/C

16,000

33,550

2.5.3. Purchase Return Book

Concept: It is used for the purpose of recording the return of

merchandise purchased on credit.

Concept of Debit note: It is prepared by the buyer when the goods are

returned to supplier. It is sent along with goods. It contains the date of

return, name of the supplier to whom the goods have been returned

details of the goods returned and reasons for returning the goods.

The specimen of Debit Note is given below:Debit Note


Telephone: Debit Note No:

Date: .

To: ..

.

Dear Sir,

We have debited your account for the goods returned by us as

under:


43/197


//43//

Date Description Rate Amount (Rs.) Remarks

For:

Specimen of purchase return book::

The format of purchase return book is given below:

Date Debit Note

No.

Particulars L.F. Details (Rs.) Amount (Rs.)

Posting from purchase return book:

Posting into ledger from purchase return book involves the following

steps:

Step 1: Posting of individual amount

The account of the supplier to whom debit note is sent is debited

individually with their respective amounts.

Step 2: Posting of periodic total

The total of the amount column of the purchase return book is

credited to purchase return account.

Illustration 3

From the following particulars, prepare a purchase return book of a

firm and post them into respective ledgers:

Ashad 3 Returned to P

5 cricket balls @ Rs. 100 each

10 table tennis rackets @ Rs. 300 each


44/197


//44//

Ashad 6 Returned to R

5 footballs @ Rs. 500 each

5 table tennis rackets @ Rs. 400 each

Trade discount 10%

Solution:

Purchase Return Book

Date Invoice

No.


(Rs.)

Amoun

t (Rs.)

Ashadh 3 P:

5 Cricket Balls @ Rs. 100 each

10 Table Tennis Rackets @ Rs.

300 each

500

3,000

6 R:

5 Footballs @ Rs. 500 each

5 Table Tennis Rackets @

400 each


2,500

2,000

450

3,500

4,050

Total:- 7,050

Ledger

Dr. P's Account Cr.


3 To Purchase

Return A/C 3,500

Dr. R's Account Cr.


6 To purchase

Return A/C 4,050


45/197


//45//

Dr. Purchase Return Account Cr.


6 By Sundries 7,550

2.5.4. Sales Return Book

Concept: It is used for the recording of the return of merchandise sold

on credit.

Credit Note: It is acknowledgement of return intimating the customer

that his account has been credited for the goods returned by him.

Credit Note


Telephone: Credit Note

No:

Date:

.

To: ..

.

We have debited your account in respect of the following goods

returned by you:

Date Description Rate Amount

(Rs.)

Remarks

For:

Specimen of sales return book

The outline of a sales return book is presented below:

Return Inward or Sales Return Book


46/197


//46//

Date Credit

Note No.


(Rs.)

Amount

(Rs.)

Posting from sales return book

When the sales return book is properly recorded, they should be

posted to the respective ledgers in the following steps:

Step 1: Posting of individual accounts

Every day the posting is made from this book to the account of theparticular column

Step 2: Posting of periodic total

At the last date of the specific period, the grand total amount of the

sales return book is to be posted on the debit side of the sales return

account with to Sundries' mentioned.

Illustration 4

The following transactions are summarized:

Ashadh 2 Sent a credit Note No. c/002 to P for the returned 2

Shirts @ Rs. 300 each and Trousers 5 pieces @ Rs.

400 each.

Ashadh 5 Sent a credit Note No. c/003 to Q and received a debit

note from him as he returned 5 coats @ Rs. 1,500 each

and 5 shirts @ Rs. 400 each. In the outward invoice he

was allowed a trade discount of 10%

Required: (i) Draw the ruling of a suitable sales return book and

enter therein the above transactions.

(ii) Open the relevant ledgers.


47/197


//47//

Solution:

Sales Return Book

Date Credit

Note No.


(Rs.)

Amount

(Rs.)

Ashadh 2 C/002 P:

2 shirts @ Rs. 300 each

5 Trousers @ 400 each

600

2,000

5 C/003 Q:




7,500

2,000

9,500

950

2,600

8,550

Total 11,150

Ledger

Dr. P's Account Cr.


3.2 By Sales Return A/C 2,600

Dr. R's Account Cr.


3.5 By Sales Return A/C 8,550

Dr. Purchase Return Account Cr.


3.5 To Sundries 11,150


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E. Evaluation Scheme

The competency achieved by a student in this unit will be evaluated on the following

basis:

Types of Questions No. of Questions Marks

Practical 2 3+3=6

F. Some Model Questions

1. Following transactions are given:

a. Started business with Rs. 40,000

b. Purchased goods for Rs. 10,000 from Ram and made partial payment of

Rs. 8,000

c. Equipment costing Rs. 5,000 were sold for Rs. 5,500

d. Paid Rs. 1,950 to Ram in full settlement of his account.

Required: (i) Journalise the transactions

(ii) Ram's account 2+1

2. Journalise the following transactions:

a. Goods purchased for cash Rs.1,00,000

b. Goods purchased from Hari Rs. 40,000

c. Goods sold for cash Rs. 60,000

d. Goods sold to Bishnu Rs. 30,000

e. Goods taken by the proprietor for domestic use Rs. 5,000

f. Goods distributed as free sample Rs. 100

g. Goods destroyed by fire Rs. 5,000, claims admittedonly for Rs. 4,000. 3

3. Prepare (a) Bank A/C (b) Mrs. Radha A/C (c) Hira & Co. A/C from the

following transactions:

a. Open a bank account by depositing Rs. 20,000

b. Purchased goods for Rs. 5,500 from Hira & Co. and issued a cheque of

Rs. 3,500

c. Received Rs. 10,000 from Mrs. Radha as a loan.

d. Paid Rs. 6,000 in cash to Mrs. Radha as repayment of her loan. 3

4. Following purchase transaction of business selling Jute goods were given to

you:a. Bought following items from Gupts Store of Jhapa


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(i) 1,000 pieces of Jute bag @ Rs. 12 per bag.

(ii) 500 plastic coated Jute bag @ Rs. 15 per bag.b. Bought from Goyal store of Dharan 500 metres of Jute carpet @ Rs. 80

per metre.

c. Bought furniture valued Rs. 50,000 from classic furniture shop of

Biratnagar for cash.

Required: (a)Purchase Book

(b) Purchase Account 3+1

5. Following are the transactions relating to credit sales:

a. Sold to Rai and Sons Udayapur:

110 fan heaters @ Rs. 400 per heater

b. Sold to Kumar Stores of Bhojpur:

55 Table fans @ Rs. 600 per fan

c. Sold to Rampur stores of Rampur:

40 Electric Heater @ Rs. 300 per heater

Required: Sales Book 2+1

G. Key - terms introduced in the unit:

1. Capital 2. Liabilities 3. Long term liabilities

4. Short terms liabilities 5. Assets 6. Fixed assets

7. Current assets 8. Investment 9. Tangible assets10. Intangible assets 11. Inventory 12. Revenue

13. Expenses 14. Debit 15. Credit

16. Personal account 17. Real account 18. Nominal account

19. Journal 20. Bills of exchange 21. Drawer

22. Drawee 23. Bills Receivable 24. Bills payable

25. Ledger account 26. Maturity of bills 27. Posting

28. Balancing 29. Closing 30. Subsidiary books

31. Purchase book 32. Invoice 33. Trade discount

34. Cash discount 35. Sales book 36. Purchase return book

37. Debit note 38. Sales return book 39. Credit note

--


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Unit 3

Cash and Banking Transactions

A. Introduction

Cash Book is a sub-division of a Journal, like in other subsidiary books, all

transactions relating to cash receipt and cash payment are recorded in the cash book.

There are different types of cash books such as simple cash book, double column

cash book, triple column cash book and petty cash book. This unit includes all these

types of cash book. It also includes accounting treatment of different transactions

between a business enterprise and the bank.

Generally the bank balance shown by the cash book & pass book must be tally. But

sometimes the bank balance shown by the cash book does not tally with the balance

reported by the bank. To reconcile these balance, the bank reconciliation statement is

prepared. This unit gives the technical know how far the preparation of such a

statement.

B. Objectives

The main objective of this unit is to help the students to understand the meaning ofcash and banking transactions and their accounting treatment. After studying this

unit, the student would be able to:

(a)Understand the meaning and different types of cheques.(b)Prepare different types of cash book with single, double and triple column

cash book.

(c)Prepare petty cash book(d)State the meaning of and to prepare bank reconciliation statement.(e)Describe the reasons for difference in balance of bank pass book and cash

book.


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C. Specification of Content Area of the Unit

The following are the content areas of the unit and their suggested teaching hours.

The teaching hours allocated could very depending upon a teacher's style of teaching.

Hence, they could be suitable modified but limiting the total hours to 15 hours:

S.N. Content Areas of the Unit Teaching hours

3.1

3.2

3.3

Banking concepts

Cash book

Bank reconciliation statement

Total:-

2

7

6

15


3.1. Banking Concepts

3.1.1. Cheque meaning, types and parties to cheque.

Cheque is a written order given to the bank by a person or institution for the

payment of a certain amount out of deposit to the self or others. In short, a

cheque is an order on a banker to pay the money.

In the cheque, the amount to be withdrawn should be written in figures as

well as in words. The person who issues the cheque has to put the signatureon the cheque and also he should mention the date. Generally, there are

three parties connected with the cheque. Those are:

(a)Drawer(b)Drawee(c)Payee

(a)Drawer: The depositer who writes and issues the cheque is known asdrawer. Only the holder of bank account can issue the cheque and he is

described as a drawer.

(b)Drawee: the cheque is drawn on bank and bank is known as drawee.(c)Payee: The person or the firm in whose favour the cheque is issued isknown as payee. However, it the depositor writes the cheque for himself


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to be paid in the bank, in that case drawer and payee happen to be one

and same.

Types of Cheque: Mainly there are three types of cheques, in practice.

They are:

(a) Bearer cheque (b) Order cheque (c) Crossed cheque

(a)Bearer cheque: This type of cheque is liable for payment to the personwho present it to the bank for encashment.

(b)Order cheque: That type of cheque which is payable to the person, ofwhose name is written on the cheque or to his order after proper

identification.

(c)Crossed cheque: The cheque that has two slanted lines drawn on thefront position is called the crossed cheaue. When a cheque is crossed,

the bank will not make payment on presentation of cheque. It will be

credited in the account of customer. The words '& Co." are inscribed

between the slanted line. There are three types of crossed cheque. They

are:

(i) Ordinary Crossed Cheque(ii) Special Crossed Chequee(iii) Account Payee Cheque

3.1.2. Endorsement of Cheque:

The task of putting a signature on the cheque with an intention of handing

over the ownership of the cheque to any one is described as the

endorsement of cheque. If the payee of the cheque authorizes someone to

receive the amount mentioned in the cheque, the cheque is endorsed. The

person referred puts a signature on the back of the cheque and hands it over

to the other party. The former is called the "Endorser" and the latter receive

of the cheque- is said to be the "Endorsee". The endorsement of cheque can

be as follows:


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(i) Blank or general endorsement: If the signature is put on the back of the

cheque only by the endorser, it is called blank or general endorsement.

(ii) Special endorsement: In this kind of endorsement, the endorser, in

addition to putting the signature on the back of the cheque, mentions the

name of the endorser.

(iii) Restrictive endorsement: The endorser puts the signature on the back of

the cheque while stating that the payment should be made only to the

person referred. As the payment of the cheque is made to the person

mentioned and, thereby, the power of handing over the cheque is

restricted, it is described as the restrictive endorsement.

(iv) Partial endorsement: The cheque endorsed with a provision of giving a

partial amount of the cheque is called partial endorsement. This kind of

endorsement is seldom found in practice.

3.1.3. Dishonour of Cheque

When the Bank refuses for the payment of cheque the cheque is said to

have been dishonoured. The reasons for dishonour of cheque are as under:

(i) In case of the death of the customer and its notification to the bank.

(ii) In case of the customer being bankrupt of insolvent.

(iii) If the Bank receives the prohibition order from the court about the

payment.

(iv) In case the Bank is informed that the customer writing the cheque has

been deranged and insane.

(v) If there is no sufficient amount in the account of the customer for the

payment and also if there is no provision of overdraft.

(vi) In case the figure and words within about the amount, signature of the

drawer, date, account number etc. are inappropriate and out of order.

(vii) If the time or duration of the cheque is expired.

(viii) If the concerning parties notifies the Bank to stop the payment.

(ix) If the cheque is not handed over according to rules and regulations.


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3.2. Cash Book:

3.2.1. Meaning and Concept:

The book which keeps records of all cash transactions is called a Cash

book. It records both cash receipt and payment. The cash book is a sub

division of the books of original entry. All cash transactions are recorded

first in it, and, thereafter posted from cash book into ledger. So it can be

called the book of original entry.

Cash Book being a sub-division of Journal, all entries in it should be

supported by narration like in case of making of a Journal entry. However,

if a cash book is maintained as a part of ledger account, narration is not

necessary.

3.2.2. Features of Cash Book

The main features of Cash Book are as follows:

(i) Only cash transactions are recorder in Cash Book

(ii) Cash Book is both a principal book and subsidiary book.

(iii) All the amounts received are recorded on the debit side and paid on the

credit side.

(iv) The dates of all transactions are recorded chronologically.

(v) As only the cash transactions are recorded in the Cash Book, it does not

show the credit balance at all.

(vi) The Cash Book presents the true position of cash transactions.

(vii) It serves as a documentary evidence for the available cash balance.

3.2.3. Types of Cash Book

The various types of Cash Books are as follows:

A. Single column Cash Book:

(i) Simple Cash Book

(ii) simple Bank Book

For recording cash transactions

For recording banking transactions

B. Double column Cash Book:


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(ii) Simple bank book: Simple bank book is similar to simple cash book.

It records only the receipt and payment of cheque. The transactions made

through bank are recorded in this book. It is suitable for those

organizations, where both payments and receipts are made through

organizations, where both payments and receipts are made through bank

(chequer). The format of simple bank book is given below:

Dr. Simple Bank Book Cr.

Date Particulars L.F. Amount Date Particulars L.F. Amount

b. Double Column Cash Book

(i) Cash book with cash and discount columns: When there is discount,

the cash book is maintained by adding one more amount column.

"Discount" on each side. All cash receipts and discount allowed are

recorded on the debit side. Similarly, all cash payment and discount

received are recorded on the credit side. Discount allowed is an expense.

So, it is recorded on debit side. In the same way, discount received is an

income and hence. It is recorded on the credit side of cash book with cashand discount columns.

Dr. Cash Book with Cash and Discount Column Cr.

Date Particulars L.F. Disc. Cash Date Particulars L.F. Disc Rs.

(ii) Cash book with bank and discount column: This book is similar to

a cash book with cash and discount column. Instead of cash column, therewill be bank column on each side. It is maintained by those persons or


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firms which carry out their business exclusively through the bank. Receipt

of cheques and discount allowed out are recorded on the debit side.

Similarly, all payments by cheques and discount received are recorded on

the credit side.

(iii) Cash book with cash and bank column: This type of cash book is

the combination of simple cash book and bank book. It will have two

amount columns on each side. One for cash column and next for book

column, The first column is meant for cash receipt on debit side and

payment on credit side. In the same way, the second column is meant for

cash deposit on debit and withdrawal from bank on credit.

Contra entry: The cash book with cash and bank columns represents

both cash and banking transactions. So, some of the transactions have to

be recorded in the both sides of the same book. Such a transaction

increases cash in hand on one side and decreases cash at bank on another

side or vice-versa. Those entries which affect both sides of the cash book

are known as contra entries. Some of the contra entries are as under:

(i) Opening account with bank

(ii) Depositing money into bank

(iii) Depositing cheque into bank

(iv) Withdrawing money for office use from bank.

Illustration

Prepare cash book with cash and bank columns from the following

transactions:

(a)Opening cash balance Rs. 25,000(b)Open a bank account with Rs. 10,000(c) Issued a cheque of Rs. 1,500 to Mr. Ram Pradhan(d)Paid into bank Rs. 1,500(e)

Paid to Hada & Sons by cheque Rs. 1,500 and cash Rs. 700.


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Solution:

Dr. Cash Book with Cash & Bank Column

Cr.

Date Particulars L.F. Cash Bank Date Particular L.F. Cash Bank

(a)

(b)

(c)

To Balance b/d

To Cash A/C

To Cash A/C

To Balance b/d

(c)

(c)

25,000

25,000

9,800

10,000

4,500

14,500

11,500

(b)

(c)

(d)

(e)

By Bank A/C

By Ram Pradhan A/C

By Bank A/C

By Hada & Sons A/C

By Balance c/d

(c)

(c)

10,000

4,500

700

9,800

25,000

1,500

1,500

11,500

14,500

Illustration:

Following cash and banking transactions were given to you:

Chaitra 1, Balance of cash in hand Rs. 7,200 and at Bank Rs. 21,500

8, Received cheque of Rs. 4,000 from Puja Karki

16, Bought goods for Rs. 8,000 and paid cash Rs. 3,000 and balance

by cheque.

21, Drawn for office use Rs. 7,000

30, paid salary of Rs. 1,200 by cheque and rent of Rs. 500 in cash.

Required: Cash Book with cash and bank column.

Solution:Dr. Cash Book with Cash & Bank Column Cr.

Date Particulars L.F Cash Bank Date Particular L.F Cash Bank

Chaitra

1

8

21

Baisakh

1

To Balance b/d

To Puja Karki A/C

To Bank A/C

To Balance b/d

(c)

7,200

7,000

14,200

10,700

21,500

4,000

25,500

12,300

Chaitra

16

21

30

30

By Purchases A/C

By Cash A/C

By Salary A/C

By Rent A/C

By Balance c/d

(c)

3,000

500

10,700

14,200

5,000

7,000

1,200

12,300

25,500


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c. Triple Column Cash Book

This type of cash book has three amount columns on each side. They are: one for

cash, another for bank and third one for discount. This book serves the purpose of

cash account and bank account. All cash receipts, deposited into bank and

discount allowed are recorded on the debit side. All cash payments, withdrawals

from bank and discount received are recorded on credit side.

Illustration

Following cash and banking transactions are given:

2059 Magh 1: Cash in hand Rs. 475, bank Rs. 4,965

" Magh 5: Bought goods & paid by cash Rs. 400 by cheque Rs. 650

" Magh 10: Paid Archana's account of Rs. 600 discount at 2%

" Magh 15: Cash sales Rs. 750

" Magh 20: Deposited into the bank Rs. 375

" Magh 25: Received cash Rs. 1,900 from Nanu after deducting discount

Rs. 100

Solution:

Dr. Triple Column Cash Book

Cr.

Date Particulars L.F Dic. Cash Bank Date Particular L.F Dic. Cash Bank

Magh 1

" 15

" 20

" 25

Falgun 1

To Bal. b/d

To Sales A/C

To Cash A/C

To Nanu's

A/C

To Bal. b/d

(c)

100

100

475

750

1,900

3,125

1,762

4,965

375

5,340

4,690

Magh

" 5

"

10

" 20

" 30

By Purchase A/C

By Archana A/C

By Bank A/C

By Balance c/d

(c)

12

1

2

400

588

375

1,762

3,125

650

4,690

5,340

d. Petty Cash Book

All the business firms usually spend a small amount of money for postage,magazines, refreshment stationery, bus fare, carriage, cleaning etc. There are


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regular expenses and need immediate payments. It is impracticable to pay these

expenses through cheque. These expenses are to be paid in cash. If all these

expenses are recorded in the cash book, it will unnecessarily be overburdened. To

avoid such difficulties, a petty cashier is appointed for making and recording

these expenses.

Petty cash means a small amount of cash. The cash book for recording small

payment is known as petty cash book. The cashier who handles the petty

expenses and petty cash book is known as petty cashier.

Types of petty cash book: There are two types of petty cash book. They are:

(i) Simple Petty Cash Book

(ii) Analytical Petty Cash Book

(i) Simple Petty Cash Book: It is similar to simple cash book. Receipt of cash

received by petty cashier is recorded on debit side and petty cash payment on

credit side. The date and particulars of every transaction will be written in the

same date and particular column. The ruling of a simple petty cash book is given

below:

Dr. Simple Cash Book Cr.

Date Particulars L.F. Rs. Date Particulars L.F. Rs.

(ii) Analytical Petty Cash Book: Under this system, an analytical or columnar

form for various expenses are maintained. The credit side of analytical petty cash

book contains number of columns for different heads of expen

tm account xi

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