.

ACCOUNTING
Classification of Accounts

Personal Accounts Real Accounts Nominal Accounts

Owner Land Income

Customer Building Losses
Suppliers Plant Gains
Money Lenders Machinery Expenses
Bank Patent Wages paid
Investment Discount Allowed
Inventory Purchase
Money Lenders Sales
Cash Commission
Bills Receivable Rent
Trade Mark Returns Outward
Purchase
Import Duty
Bad Debt
Depreciation
Salaries
Interest

GOLDEN RULE OF ACCOUNTING :

1. Personal Accounts : Debit the person who Receives.

Credit the person who Gives something.

2. Real Accounts : Debit the Asset / Property Comes Into Business.

Credit the Asset / Property Goes Out of Business.

3. Nominal Accounts : Debit the accounts Expenses and Losses.

Credit the accounts Incomes and Gains.
 JOURNAL

The first book in which the transactions of business unit are

recorded is called a JOURNAL.
P1. Journalize the following transaction :
2003 January
1. Mr. Brad commences business as a computer merchant, start trading
with the Capital of Rs. 3,00,000.
3. He buys on credit from HUL 10 machine @ 10,000 each.
12. He received an invoice from Airway Crop. Respect of 5000 carriage
of m/c.
18. He opens bank a/c by depositing Rs. 50,000
22. He sells 6 m/c on credit to Softech @ Rs. 15,000 each.
27. He paid 4000 by cheque the amt for carriage.
31. He received cash Rs. 1,00,000 from softech.
31. He issue a cheque to HUL of Rs. 50,000.
 In the books of Mr. Brad Journal Dr. Cr.
Date Particulars LF. Rs. Rs.
2003, Jan
1 Cash A/c …………………………………Dr. 3,00,000
To Capital A/c 3,00,000
( Being Business Starts With Capital )

3 Purchase A/c ………………………………Dr. 1,00,000

To HUL A/c 1,00,000
( Being the purchase of 10 m/c @ 10,000 each)

12 Carriage Inward A/c ……………………...Dr. 5,000

To Airways corp. A/c 5,000
( Being Carriage charges payable )

18 Bank A/c …………………………………..Dr. 50,000

To Cash A/c 50,000
( Being opening of bank A/c )

22 Softech A/c …………………….Dr. 90,000

To Sales A/c 90,000
( Being the sell of 6 m/c @ 15,000 each )

27 Airways Corp. A/c ……………………….Dr. 4,000

To Bank A/c 4,000
( Being Paid by cheque )

31 Cash A/c ………………………………… ..Dr. 1,00,000

To Softech A/c 1,00,000
( Being Cash received )

31 HUL A/c ………………………………….Dr. 50,000

To Bank A/c 50,000
( Being paid by cheque )

GRAND TOTAL 6,99,000 6,99,000

 LEDGER
The ledger is the principal book of accounts where similar
transactions relating to a particular person or thing are recorded.
Ledger of P1 as follows :

Dr. Bank Account Cr.

Date Particulars J.F. Amt Date Particular J.F Amt

18.1.03 To Cash A/c 50,000 27.1.03 By Air Crop. A/c 5,000

31.1.03 To Balance c/d 5,000 31.1.03 By HUL A/c 50,000

55,000 55,000

1.02.03 By Balance b/d 5,000

Cash Account
Date Particulars J.F. Amt Date Particular J.F Amt

1.1.03 To Capital A/c 3,00,000 18.1.03 By Bank A/c 50,000

31.1.03 To Softech A/c 1,00,000 31.1.03 By Balance c/d 3,50,000

4,00,000 4,00,000

1.2.03 To Balance b/d 3,50,000

Purchase Account

Date Particulars J.F. Amt Date Particular J.F Amt

3.1.03 To HUL A/c 1,00,000 31.1.03 By Balance c/d 1,00,000

1,00,000 1,00,000

1.2.03 To Balance b/d 1,00,000

 Dr. HUL Account Cr.
Date Particulars J.F. Amt Date Particular J.F Amt

31.1.03 To Bank A/c 50,000 3.1.03 By Purchase A/c 1,00,000

31.1.03 To Balance c/d 50,000

1,00,000 1,00,000

1.2.03 By balance b/d 50,000

Carriage Inward Account

Date Particulars J.F. Amt Date Particular J.F Amt

12.1.03 To Airways corp. 5,000 31.1.03 By Balance c/d 5,000

A/c

5,000 5,000

1.2.03 To Balance b/d 5,000

Softech Account
Date Particulars J.F. Amt Date Particular J.F Amt

22.1.03 To Sales A/c 90,000 31.1.03 By Cash A/c 1,00,000

31.1.03 To Balance c/d 10,000

1,00,000 1,00,000

1.2.03 By balance c/d 10,000

Airways Account
Date Particulars J.F. Amt Date Particular J.F Amt

27.1.03 To Bank A/c 4,000 12.1.03 By Carriage 5,000

31.1.03 To Balance c/d 1,000 Inward A/c

5,000 5,000

1.2.03 By Balance c/d 1,000

From the following transaction create the Ledger

2003, Jan
1 Started Business with cash 6000 19 Sold goods for cash 350
4 Bought goods for resale 500 20 Bought stationeries 80
7 Bought stationary 50 21 Paid wages 100
10 Bought goods for resale 750 23 Bought goods for resale 200
12 Paid Wages 100 24 Sold goods for cash 600
15 Sold goods for cash 350 25 Paid Postage 80
16 Sold goods for cash 300 26 Paid for Advertisement 30
17 Paid electricity bill 70 31 Sold good for cash 700
31 Paid Wages 150

Ledger Of The Transaction

Cash A/c
Date Particulars J.F. Amt Date Particular J.F Amt
2003,Jan 2003,Jan
1 To Capital A/c 6,000 4 By Purchase A/c 500
15 To Sales A/c 350 7 By Stationary A/c 50
16 To Sales A/c 300 10 By Purchase A/c 750
19 To Sales A/c 350 12 By Wages A/c 100
24 To Sales A/c 600 17 By Electricity A/c 70
31 To Sales A/c 700 20 By Stationary A/c 80
21 By Wages A/c 100
23 By Purchase A/c 200
25 By Postage A/c 80
26 By Ad A/c 30
31 By Wages A/c 150
31 By Balance c/d 6,190

8,300 8,300

Purchase A/c
Date Particulars J.F. Amt Date Particular J.F Amt
2003,Jan 2003,Jan
4 To Cash A/c 500 31 By Balance c/d 1,450
10 To Cash A/c 750
23 To Cash A/c 200

1,450 1,450
 Sales A/c

Date Particulars J.F. Amt Date Particular J.F Amt

2003,Jan 2003,Jan
31 To Balance c/d 2,300 15 By Cash A/c 350
16 By Cash A/c 300
19 By Cash A/c 350
24 By Cash A/c 600
31 By Cash A/c 700
2300 2300

INTRODUCTION TO ACCOUNTING
ACCOUNTING : Accounting is an art of recording, classifying,
summarizing, and reporting of transaction with the aim of showing the
financial condition of a business organization or a co.

FUNCTIONS OF ACCOUNTING :

1. Resource Management.
2. Manages Claims and Interests.
3. Measure changes of those Resources, Claims and
interests.
4. Take Economic measures.

ADVANTAGES OF ACCOUNTING :

1. It provide useful information to take economic

decision.
2. It provide useful information to investors and creditors
for prediction, evaluation and potential cash flow in the
terms of amount, timing and related uncertainty.
3. It provide useful information to the management to
utilize enterprise economic resources effectively.
4. It provide overall information of all the transaction
happen in a Financial Year.
LIMITATION OF ACCOUNTING :

1. Accounting is the records of previous years so it never reflects the

current and future economic condition of an organization.
2. The P/L account tend to match current revenues with previous cost
not with the current or future cost.
3. Accounting never show the effects of economic uncertainties on
business.
4. Accounting principals are not always static even alternatives
accounting procedures are also acceptable.

TYPES OF ACCOUNTING :

1. FINANCIAL ACCOUNTING .

2. COST ACCOUNTING.

3. MANAGEMENT ACCOUNTING.

TRIAL BALANCE

Before using the account balances to prepare Final Accounts, an attempt is

made to prove that the total of accounts with debit balances is in fact equal
to the total of accounts with credit balances. The proof of the equality of
debit and credit balances is called a Trial Balance.
DEBIT COLUMN OF TRIAL BALANCE

1. ASSETS.
2. EXPENSES.
3. LOSSES.
4. DRAWINGS.
5. DEBTORS.

CREDIT COLUMN OF TRIAL BALANCE

1. LIABILITIES.
2. INCOME.
3. REVENUE.
4. GAIN.
5. CREDITORS.

From the following list balance prepare a Trial balance as on

30.6.2003

Rs. Rs.
1. Opening Stock 18,300 13. Plant & m/c 7,500
2. Wages 10,000 14. Loose Tools 1,800
3. Sales 1,20,000 15. Lighting 2,300
4. Bank Loan 4,400 16. Creditors 8,000
5. Coal & Coke 3,000 17. Capital 40,000
6. Purchase 75,000 18. Misc. Receipt 600
7. Repair 2,000 19. Office Salaries 2,500
8. Carriage 1,500 20. Office Furniture 600
9. Income tax 1,500 21. Patents 1,000
10.Debtors 20,000 22. Goodwill 15,000
11.Leasehold premises 6,000 23. Cash In Bank 5,100
12.Cash In hand 200 24. Closing Stock 6,000
 Trial Balance as at 30th June , 2003
SL No. Heads Of Account LF Debit Balance Credit
Balance
1 Opening Stock 18,000
2 Wages 10,000
3 Sales 1,20,000
4 Bank Loan 4,400
5 Coke & Coal 3,000
6 Purchase 75,000
7 Repairs 2,000
8 Carriage 1,500
9 Income Tax 1,500
10 Debtors 20,000
11 Leasehold Premises 6,000
12 Cash In hand 200
13 Plant & Machineries 7,500
14 Loose Tools 1,800
15 Lighting 2,300
16 Creditors 8,000
17 Capital 40,000
18 Masc. Receipt 600
19 Office Salaries 2,500
20 Office Furniture 600
21 Patents 1,000
22 Goodwill 15,000
23 Cash In Bank 5,100

TOTAL 1,73,000 1,73,000

DEBIT : CREDIT:
ASSETS. LIABILITIES.
EXPENSES. INCOME.
LOSSES. REVENUE
DRAWINGS. GAIN.
DEBTORS CREDITORS.
2006 WBUT QUESTION ON TRIAL BALANCE

SL NO. Particulars L.F Dr. (Rs.) Cr. (Rs.)

1. Capital A/c 2,00,000

2. Debtors A/c 40,000
3. Fixed Asset A/c 1,84,000
4. Sales A/c 2,20,000
5. Return Outward A/c 2,000
6. Bills Payable A/c 16,000
7. Bank Overdraft A/c 22,000
8. Opening Stock A/c 30,000
9. Creditors A/c 40,000
10. Return Inward A/c 4,000
11. Purchase A/c 1,40,000
12. Wages A/c 72,000
13. Bills Receivable 30,000

5,00,000 5,00,000

☻ERRORS NOT DISCLOSED BY TRIAL BALANCE :

*ERRORS OF OMISSION : If in any particular transaction is omitted

altogether from the book of original entry, it will not disturb the
arrangement of the trial balance.

*COMPENSATING ERROR : These are a group of errors, the total

effect of which is not reflected in the trial balance. These errors are
neutralizing in nature. For eg if an extra amount debited in salary acc
and it is compensated by other credit acc like sales.

*Recording Both Aspects of a transaction more than once in the

Books Of Account.
 FINAL ACCOUNTS

FINAL ACCOUNT consist of : 1. TRADING ACCOUNT.

2. PROFIT & LOSS ACCOUNT.
3. BALANCE SHEET.

FORMAT OF TRADING A/C

TRADING A/C For the yr ………..

Dr. Cr.

Particulars. Rs. Rs. Particulars Rs. Rs.

To Opening ****** By Sales ******

Stock (Less) Return
Inward ****
To Purchase ******* ******
(Less) Return By Closing Stock ******
Outward *****
******

To Wages *****
(Add) Outstanding ***
******
To Freight & Carriage ******

To Other Factory
Expenses ******

To Gas, Water &

Electric charges ******

To Customs &
Insurance ******

To Royalty on
Production ******

To Gross Profit c/d ******

TOTAL TOTAL
( All Direct Expenses) ( All Direct Income)
 FORMAT FOR PROFIT & LOSS A/c
In the book of Profit & Loss a/c
For the year ended ……….
( All Indirect Expense) (All Indirect Income)
Dr. Cr.
Particulars Rs. Rs Particulars Rs. Rs.
To Rent
By Gross Profit
To Salaries (Transferred from
(Add)Outstanding Trading A/c)
To General Expenses
By Commission Received
To Carriage Outward
By Discount Received
To Sundry Expenses
By provision for Bad
To Insurance Premium Debt (Recovered)

To Advertisement
By Interest on fixed
To Stationeries Deposit

To Sales Expenses By Dividend Received

To Audit Fees By Interest on drawings

To Rates & taxes By Profit Sell On M/c

or Plants
To Postage & Telegram

To Office Maintenance

To Interest on Capital

To Discount Allowed

To Interest on Loan

To Commission Paid

To Bad Debts

To Provision for Bad Debt

To Depreciation
On m/c & plant
On Furniture
On Building
To Abnormal loss

To Net Profit
 FORMAT FOR BALANCE SHEET

Balance Sheet As On …………

LIABILITIES Rs. Rs. ASSETS Rs. Rs.

Capital A/c Goodwill A/c

(Add) Net Profit ****
(Add) Interest **** Trademark A/c
On Capital
(Less) Drawings **** Copyright A/c
(Less) Interest ****
On Drawing Patent A/c

******** Plant &

Machineries A/c *****
(Less) Dep
General Reserve
Land & Building
Bank loan A/c
(Less) Dep
*****
Bank Overdraft
Furniture &
Sundry Creditors Fixture A/c
(Less) Dep *****
Bills Payable
Instruments A/c
Outstanding
Expenses Sundry Debtors
(Less) Provision *****
for Bad Debt
(Less) Reserve
Closing Stock

Bills Receivable

Cash In Hand or
Bank

Prepaid
Expenses

TOTAL TOTAL
P-1. The following balances are extracted from the books of a trader on 31st
December, 2002, prepare a Trading Accounts And a P/L A/c for the year
ended 31st December, 2002 and a Balance Sheet as at that date :

Particulars Rs. Particulars Rs.

Capital 50,000 Rent Paid 6,500

Plant & M/c 35,000 Ad 4,00
Furniture & Fitting 5,000 Sundry Debtors 12,000
Opening Stock 10,500 Sundry Creditors 10,000
Purchase 28,500 Bills receivable 7,000
Sales 64,000 Bills Payable 6,000
Carriage Inward 500 Cash In Hand 7,900
Wages 6,000 Trade Expenses 2,180
Salaries 8,000 Insurance 320
Discount allowed 200

The following adjustment are required :

( I ) Closing Stock Rs. 15,000.

( II ) Reserve for doubtful debts is to be created at 5%.
( III ) Depreciation Plant & M/c @ 5% and Furniture & Fitting @10%.
( IV ) Prepaid trade expenses Rs. 180.
( V ) Outstanding Liabilities for wages Rs. 300 and salaries Rs. 500.

Sol : In The Book Of Trading A/C

Dr. Cr.

Particulars. Rs. Rs. Particulars Rs. Rs.

To Opening 10,500
By Sales 64,000
To Purchase 28,500
By Closing Stock 15,000

To Wages 6000
(Add) Outstanding 300
6,300
To Carriage Inward 500

Gross Profit c/d 33,200

79,000 79,000
Dr. Profit & Loss A/C for the year ended 2003 Cr.

Particulars Rs. Rs. Particulars Rs. Rs.

To Rent 6,500 By Gross Profit 33,200

(Transferred from
To Salaries 8,000 Trading A/c)
(Add)Outstandin 500
g 8,500

400
To Advertisement
200
To Discount
Allowed

To Depreciation 1,750
On m/c & plant
500
On Furniture
2180
To Trade Expense 180
(Less)Prepaid 2000

320
To Insurance

To Reserve for 600

Doubtful Debt
12,430
To Net Profit

33,200 33,200
 Balance Sheet as on 31.12.2003

LIABILITIES Rs. Rs. ASSETS Rs. Rs.

Capital 50,000 Plant & 35,000

(Add) Net Profit 12,430 Machineries A/c
62,430 (Less) Dep 1750
Sundry Creditors 10,000 33,250
Furniture &
Bills Payable 6,000 Fixture A/c 5,000
(Less) Dep 500
Outstanding 500 4,500
Salaries Sundry Debtors 12,000
(Less) Reserve 600
Outstanding 11,400
Wages 300 Closing Stock 15000

Bills Receivable 7000

Cash In Hand 7,900

Prepaid Trade
Expenses 180
79,230
79,230

WORKING NOTES :

1. Reserve for Doubtful Debts = 12,000 * 5/100 = 600

2. Depreciation On Plant & M/c = 35,000 * 5/100 = 1750

3. Depreciation on Furniture = 5,000 * 10/100 = 500

P-2. The following trial balance relates to a proprietary concern as at 31.12.02

Dr. Cr.
Rs. Rs.

Opening Stock 20,000

Debtors 40,000
Furniture & Fixture 10,000
Plant & m/c 40,000
Land & Building 60,000
Wages 24,000
Salaries 12,000
Rent & Taxes 5,000
Bad Debt 1,000
Traveling Expense 2,000
Purchase 1,50,000
Electric Charges 1,500
Telephone Charges 2,500
General Expense 100
Postage & Telegram 2,900
Sales 2,75,000
Purchase Return 1,000
Creditors 40,000
Capital 1,00,000
Sales Return 1,000
Insurance Premium 1,500
Cash In Hand 500
Cash In Bank 42,500

The following matters are to be taken into account :

( I ) Closing Stock valued at Rs. 5,000

( II ) Outstanding Liabilities for wages Rs. 1,000 ; Salaries Rs. 2,000
( III ) Depreciation @ 10% per annum is to be provided on all fixed asset except
land and building.
( IV ) provision for doubtful debt is to be made @ 5% on debtors.

Prepare a Trading and P/L account and a Balance Sheet as on that date.
 In the books of ……………
Dr. Trading A/C Cr.
Particulars Rs. Rs. Particulars Rs. Rs.

To Opening Stock 20,000 By Sales 2,75,000

(less) Sales 1,000
To Purchase 1,50,000 Return
(less) purchase 1,000 2,74,000
return 1,49,000

To Wages 24,000
Add: Outstanding 1,000 Closing Stock 5,000
25,000

To Gross Profit 85,000

2,79,000 2,79,000
 Profit & Loss A/C for the year ended 31/12/98
Dr. Cr.
Particulars Rs. Rs. Particulars Rs. Rs.

To Rent & Rates 5,000 By Gross Profit 85,000

(Transferred from
To Salaries 12,000 Trading A/c)
(Add)Outstandin 2,000
g 14,000

1,000
To Bad Debts
2,000
To Traveling
Expense
1,500
To Electric
Charges
2,500
To Telephone
Charges
100
To General
Expense
2,900
To postage & Tel
To Insurance 1,500
premium

To Provision for 1,950

bad debts

To Dep on 1,000
Furniture &
Fittings
(10,000 * 10/100)
4,000
To Dep on Plant
& Machineries
(40,000 * 10/100)

47,550
Net Profit
85,000 85,000
 Balance Sheet as on 31.12.02
LIABILITIES Rs. Rs. ASSETS Rs. Rs.

Capital A/c 1,00,000 Plant & 40,000

(Add) Net Profit 47,550 Machineries A/c 4,000
1,47,550 (Less) Dep 36,000

Sundry Creditors 40,000 Furniture & 10,000

Fixture A/c
(Less) Dep 1,000
Outstanding 2000 9,000
Salaries Sundry Debtors 40,000

Outstanding (Less) Provision 1,950

Wages 1000 for bad debt
(39,000* 5/100) 38,050

Land & Building 60,000

500
Cash In Hand 42,000
Cash In Bank 5,000
Closing Stock
1,90,550 1,90,500
 PROBLEM SET

P-1. Mr. Mitra started a business on 1st Jan , 2010 with cash Rs. 80,000, Furniture Rs.
20,000 and a delivery van Rs. 50,000.
Following information were obtained from the book of Mr. Mitra during Jan
2010. Prepare a Journal and Ledger .......

DATE PATICULARS AMOUNT(Rs.)

2.1.10 Open bank a/c with SBI 10,000
2.1.10 Purchase goods by cash 40,000
2.1.10 Paid carriage on above purchase 1,000
3.1.10 Purchase goods from Bose & Co. on credit 50,000
3.1.10 Paid carriage on above purchase 4,000
6.1.10 Sold goods to Sen on credit 60,000
6.1.10 Paid carriage on above sales 2,000
8.1.10 Purchased stationary goods by cash 1,500
8.1.10 Purchase furniture by cash 5,000
9.1.10 Cheque received from Sen 40,000
11.1.10 Purchased goods from S.Bhadra on credit 80,000
12.1.10 Paid to Bose by cheque in full settlement 48,000
15.1.10 Sold goods on cash 50,000
18.1.10 Received from Sen in full by cheque 19,000
20.1.10 Paid rent by cash 3,000
21.1.10 Purchase goods with 2% trade discount & 50,000
10% cash discount
22.1.10 Sold goods after 10% cash discount & amt 40,000
deposited to bank
28.1.10 Withdrawn from bank for office use 10,000
31.1.10 Paid salary 5,000
paid electricity 600
paid telephone 700
P-2. Following balances are extracted from the books of Mr. A as on 31.3.10. Prepare a
Trial balance as on that date.
Plant & m/c 14,000 Land & Building 16,000
Goodwill 10,000 Rent Received 300
Salary 2,600 Interest received 600
wages 1,200 lighting 300
Commission paid 600 Interest paid 400
Drawings 4,800 capital 64,000
cash 900 bank 5,700
Opening stock 2,500 Sundry debtors 11,400
Sundry creditors 4,600 Bills receivable 6,400
Bills payable 3,000 sales 14,600
purchase 11,200 Sales return 600
Purchase return 1,100