MODULE - 3

MECHANICS OF ACCOUNTING

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 (A) Journal
1) Meaning :
• Means daily recording of transactions
• Book of original entry or prime entry
• Every transaction is first recorded in journal
• Recording is known as journalising or journal entry
• From journal transaction posted to ledger
• It is a subsidiary book of A/Cs
• Significance
- Detail information of business transaction
- Day to day control on expenses
- Useful for locating & preventing errors
- Brings financial discipline in business
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 2) Rules For Journalising

Asset Increase Debit (Dr) Asset A/c

Asset Decrease Credit (Cr) Asset A/c

Liability/capital Increase Cr Liability A/c

Liability/capital Decrease Dr Liability A/c

Income /gain Cr Income /gain

A/c
Expense /loss Dr Expense /loss
A/c 3
 3) Ruling Of Journal
Date Particular L/F Debit (Rs) Credit (Rs)
5/4 Purchase A/c Dr 106 1,23,000
To Sahu & Co A/c 406 1,23,000
(Being goods
purchased vide
Inv. No.145 dt.5/4 )

15/4 R. Mohan’s A/c Dr 321 56,000

To sales A/c 562 56,000
(Being goods sold
on credit vide Inv.
no. 1785 dt. 15/4

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 (B) Subsidiary Books
(1) Meaning & Significance
• Sub-division of journal
• Convenient as recording all transactions in one
journal is tedious & impractical
• Division of accounting work
• Efficiency & speed of recording improves
• Time of accounting process reduced
• Facilitates audit work
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 (2) Types of subsidiary Books
Subsidiary Book Used to Record
Sales Day Book Credit sale
Sales Ret. or (Ret. I/W) Book Goods returned by customers
Purchase Day Book Credit purchases
Pur. Ret. or (Ret. O/W) Book Goods returned to suppliers

Bills Receivable (B/R) Book Bills raised by co. on customer

Bills Payable (B/P) Book Bills raised by supplier on co.
Cash Book All cash receipts & payments
Journal Proper Remaining transactions
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 (C) Format of subsidiary Books

Sales Day book of Jairam Industries for April 2006

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Date Name of customer L/F invoice no. Amount (Rs.) Remarks
-------------------------------------------------------------------------------------------
4/4 Alpha Industries 1001 25,000 2/30
5/4 Zee & Co. 1002 48,000 2/30
10/4 Quest Associates 1008 1,18,000 45 days Cr.
25/4 Salaron (I ) Ltd. 1029 7,000 3/15
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Total 1,98,000
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 Purchase Day Book of Jairam Industries for April 2006
-------------------------------------------------------------------------------------------
-
Date Name of supplier L/F I/W ref. No. Amount(Rs.) Remarks
-------------------------------------------------------------------------------------------
2/4 Sumeet Industries 4/1001 10,000 3/30
5/4 Rameez & co. 4/1025 30,000 2/45
15/4 Ajit Technologies 4/1089 90,000 1/15
28/4 Max Ind. Ltd. 4/1180 10,000 2/30
-------------------------------------------------------------------------------------------
-
Total 1,40,000
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 Return I/W book of Jairam Industries for April 2006
------------------------------------------------------------------------------------------------
-
Date Name of customer L/F Cr.Note No. Amount (Rs.) Remarks
------------------------------------------------------------------------------------------------
-
7/4 Alpha Industries 104 5,000 Damaged goods
10/4 Zee & Co. 105 8,000 Poor quality
15/4 Quest Associates 106 12,000 Wrong specs.
------------------------------------------------------------------------------------------------
-
Total 25,000
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-
Return O/W Book of Jairam Industries for April 2006
------------------------------------------------------------------------------------------------
-
Date Name of supplier L/F Dr.Note No. Amount (Rs.) Remarks
------------------------------------------------------------------------------------------------
-
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6/4 Sumeet Industries 27 2,000 Damaged goods
 B/R Book of Jairam Industries for April 2006
------------------------------------------------------------------------------------------------------------
Date Received Bill Term Maturity Amount Payable Disposal
from date date (Rs.) at
------------------------------------------------------------------------------------------------------------
12/4 Gupta & Co.8/4 90 days 10/7 5,00,000 SBI/ Mumbai
18/4 Das & Co. 16/4 60 days 17/6 2,00,000 BOI/Mumbai
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Total 7,00,000
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B/P Book of Jairam Industries for April 2006
------------------------------------------------------------------------------------------------------------
Date Received Bill Term Maturity Amount Payable Remarks
from date date (Rs.) at
------------------------------------------------------------------------------------------------------------
12/4 Varma & Co. 25/4 90 days 27/7 4,00,000 B.O.B. Mumbai
18/4 Rao & C0. 25/4 90 days 27/7 3,00,000 S.B.I. Mumbai
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Total 7,00,000
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 Dr. Cash Book of Jairam Industries for April 2006 Cr.
-------------------------------------------------------------------------------------------------
--
Dt. Particulars L/F dis cash Bank Dt. ParticularsL/Fdis cash Bank

-------------------------------------------------------------------------------------------------
--
1/4 To op.bal. 2,000 1/4 By op.bal. 15,000
5/4 To sales 3,000 7/4 By rent 500
12/4 To RM Asso. 5,000 18/4 By salaries 2,500
23/4 To AZ & Co. 100 9,900 25/4 By S.M.&Co. 200 9,800
29/4 To Raj Bros. 20,000 30/4 By Sam Bros.
1,700
By Clo.bal. 4,500 5,900
-------------------------------------------------------------------------------------------------
--
100 5,000 34,900 200 5,000 34,900
-------------------------------------------------------------------------------------------------
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--
 Journal proper of Jairam Industries for April 2006
------------------------------------------------------------------------------------------------------------
Date Particulars L/F Debit(Rs.) Credit(Rs)

5/4 Furniture A/C Dr. 106 1,23,000

To Sahu & Co. A/C 456 1,23,000
(Being assets purchased on Cr. of 1 month)
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15/4 R.Mohan’s A/C. Dr 321 56,000
To G.Sohan’s A/C 562 56,000

(Being transfer from one to other A/C )

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23/4 Depreciation A/C Dr. 251 10,000
To Machinery A/C 801 10,000
(Being deprn. for April 2006 )
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Notes:
Following transactions are entered in journal proper:
i) Credit sale & purchase of assets
ii) Transfer from one A/C to other A/C
iii) Opening & closing entries
iv) Adjusting entries e.g. pre-paid &
outstanding expenses
v) Rectifying entries
vi) Depreciation
vii) Any other entry which cannot be
entered in any other book.

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 (C) Cash Book
(1)Meaning:
-Records all cash transactions
-Book of original entry
-Also acts a ledger hence called as ‘Journalised ledger’

(2)Types:
-Single column (All receipts & payments in same column)
-Double column (Cash & cheques column)
-Triple column (Cash, cheques, discount column)
-Petty cash book ( Recording small payments)
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 Rules for entering transactions in cash book
Transaction & Entry
Cheque recd.on 14/7 & no further 14/7 Bank A/C Dr.
information is given To Debtor’s A/C
Cheque recd.on 14/7 & deposited on 16/7 14/7 Cash A/C Dr.
To Debtor’s A/C
16/7 Bank A/C Dr.
To Cash A/C
Above Cheque dishonoured on 18/7 18/7 Debtor’s A/C Dr.
To Bank A/C
Cheque received from debtor on14/7 14/7 Cash A/C Dr.
endorsed to creditor on 18/7 To Debtor’s A/C
18/7 Creditor’s A/c Dr.
To Cash A/c
Discount allowed entered on Dr. side & If cheque net of discount
discount received on Cr. Side is dishonoured reverse15
entry
 (D) Ledger Accounts
(a) Meaning of Account (A/C):
• Basic block of any accounting system.

• Standard format to maintain record for each individual item.

• Facilitates preparation of periodical financial statements &

Provides check on accuracy of recording of transactions.

• Account is used to record increase or decrease in Assets,

Liability, Capital, Revenue & Expenses

• Account has following components:

- Account title
- Place to write debit & credit amounts
- Dates & description of transactions
- Cross reference to journal

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 Major categories of accounts
Dr Asset A/Cs (Amt.Rs.)
Cr

To balance b/d 10,000

Increase 50,000 By Decrease 30,000

By balance c/d 30,000

______ ______

60,000 60,000

Liability & Owners equity A/Cs

By balance b/d 30,000

Decrease in Liability & equity 30,000 Increase in Liability &
equity 30,000

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To Balance c/d 30,000
Dr Revenue/ Income A/Cs Cr

To balance c/d 60,000 By Income a/c 60,000

_________
_________
60,000 60,000
_________ _________

Dr Expenses A/Cs Cr

To Expense a/c 60,000 By balance c/d 60,000

_________ _________
60,000 60,000
_________ _________

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 Balancing of an account

Dr ABC( Sundry Creditor) A/C Cr

To Purchase return A/C 35,000 By Balance b/d 20,000

To Bills Payable A/C 15,000 By Purchase A/C 70,000

To Bank A/C 10,000
To Balance c/d (cr. bal) 30,000
_________ _________
90,000 90,000
__________ _________

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 (b) Ledger
• Principal book of accounts
• Every entry in journal is posted in ledger
• Ledger is a book containing all accounts
• Posting:
-Open separate A/C for each asset, liability, income, expense
-When there is posting on Dr. side of one A/C there must be
simultaneous entry on credit side of other A/C

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 (E) Trial Balance
Meaning
• Statement of Dr. & Cr. Balances extracted from ledger
A/Cs on a particular date
• Summary of all the ledger balances outstanding on a
particular date
Objective
• To check mathematical accuracy of accounting entries
posted in ledger
• Basic document for preparing final accounts

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 Format of Trial Balance

Ledger A/C ( closing balances) Dr Cr

Capital xxx
Liability xxx
Sales & gains xxx
Purchase return ( return o/w) xxx
Assets xxx
Purchases xxx
Expenses xxx
Sales returns (return i/w) xxx

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