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1. Define and explain cash book. 2. How a cash book is balanced. 3. Prepare a format of the simple cash book.
Cash book is a book of original entry in which transactions relating only to cash receipts and payments are recorded in detail. When cash is received it is entered on the debit or left hand side. Similarly, when cash is paid out the same is recorded on the credit or right hand side of the cash book. The cash book, though it serves the purpose of a cash book of original entry viz., cash journal really it represents the cash account of the ledger separately bound for the sake of convenience. It is more a ledger than a journal. It is journal as cash transactions are chronologically recorded in it. It is a ledger as it contains a classified record of all cash transactions. The balances of the cash book are recorded in the trial balance and the balance sheet.
For Every entry made in the cash book there must be a proper voucher. Vouchers are documents containing evidence of payment and receipts. When money is received generally a printed receipt is issued to the payer but counterfoil or the carbon copy of it is preserved by the cashier. The copy receipts are called debit vouchers, and they support the entries appearing on the debit side of the cash book. Similarly when payment is made a receipt is obtained from the payee. These receipts are known as credit vouchers. All the debit and credit vouchers are consecutively numbered. For ready reference the number of the vouchers are noted against the respective entries. A column is provided on either side of the cash book for this purpose.
Balancing Cash Book:
The cash book is balanced at the end of a given period by inserting the excess of the debit on the credit side as "by balance carried down" to make both sides agree. The balance is then shown on the debit side by "To balance brought down" to start the next period. As one cannot pay more than what he actually receives, the cash book recording cash only can never show a credit balance.
The following is the simple format of a cash book:
Single Column Cash Book:
1. Define and explain single column cash book. 2. Prepare a single column cash book.
Definition and Explanation:
Single column cash book records only cash receipts and payments. It has only one money column on each of the debit and credit sides of the cash book. All the cash receipts are entered on the debit side and the cash payments on the credit side. While writing a single column cash book the following points should be kept in mind:
1. The pages of the cash book are vertically divided into two equal parts. The left hand 2. 3. 4. 5. 6.
side is for recording receipts and the right hand side is for recording payments. Being the cash book with the balance brought forward from the preceding period or with what we start. It appears at the top of the left side as "To Balance" or "To Capital" in case of a new business. Record the transactions in order of date. If any amount of cash is received on an account, the name of that account is entered in the particulars column by the word "To" on the left hand side of the cash book. If any amount is paid on account, the name of the account is written in the particulars column by the word "By" on the right hand side of the cash book. It should be balanced at the end of a given period.
The balance at the beginning of the period is not posted but other entries appearing on the debit side of the cash book are posted to the credit of the respective accounts in the ledger, and the entries appearing on the credit side of the cash book are posted to the debit of the proper accounts in the ledger.
Format of the Single Column Cash Book:
Following is the format of the single column cash book: Date Particulars L.F. Amount Date Particulars L.F. Amount
Write the following transactions in the simple cash book and post into the ledger: 1991 Jan. 1 Cash in hand " 6 Purchased goods for cash 15,000 2,000 3,000 1,000 4,000 60 1,000 2,000
" 16 Received from Akbar " 18 Paid to Babar " 20 Cash sales " 25 Paid for stationary " 30 Paid for salaries " 31 Purchased office furniture
Cash Book Date 1991 Jan. 1 To Balance b/d 16 To Akbar 20 To sales a/c 15,000 3,000 4,000 Jan. 6 By Purchases a/c 18 By Babar 25 By stationary 30 By Salaries a/c 2,000 1,000 60 1,000 Particulars L.F. Amount Date Particulars L.F. Amount
31 By Furniture a/c 22,000 By Balance c/d
To Balance b/d
Two Column Cash Book/Double Column Cash Book:
1. Define and explain a two/double column cash book. 2. Prepare a two column cash book. 3. What is the difference between a single column cash book and a double column cash
Definition and Explanation:
A double column cash book or two column cash book is one which consists of two separate columns on the debit side as well as credit side for recording cash and discount. In many concerns it is customary for the trader to allow or to receive small allowance off or against the dues. These allowances are made for prompt settlement of accounts. In certain business almost all receipts or payments are accompanied by such discounts and in order to avoid unnecessary postings separate columns in the cash book are introduced to record the discounts received or allowed. These discount columns are memorandum columns only. They do not form the discount account. The discount column on the debit side of the cash book will record discounts allowed and that on the credit side discounts received.
The cash columns will be posted in the same way as single column cash book. But as regards discount column, each item of discount allowed (Dr. side of the cash book) will be posted to the credit of the respective personal accounts. Similarly each item of discount received will be posted to the debit of the respective personal account. Total of the discount column on the debit side of the cash book will be posted to the debit side of the discount account in the ledger and the total of discount column on the credit side of the cash book on the credit side of the discount account. The discount columns are not balanced like cash column of the tow column cash book.
Format of the Double Column Cash Book:
Debit Side Credit Side
L. $200.F. discount allowed $15 Paid Hussan & Sons $300.N.000 200 1. Bought furniture for cash $100 Paid rent $100 Solution: Cash Book Debit Side Date 1991 Jan. Sales a/c Salman 10 15 2. L.F. discount received $15 Purchased goods for cash $300 Received from Salman $500.N. discount allowed $10 Cash sales $1.F.400 . Discount Cash Date Particulars V. 1 Cash in hand $2.1 To " 7 To " 12 To " 25 To Particulars V. Discount Cash Example of Two Column Cash Book: From the following transactions write up a two column cash book and post into ledger: 1991 Jan.F.N.5 By " 20 By " 27 By " 28 " 31 By By By Particulars Credit Side V. Discount Cash Date 1991 Jan.000 " 7 " 12 " 15 " 20 " 25 " 27 " 28 " 31 Received from Riaz & Co. L. Discount Cash Balance b/d Riaz & Co.Date Particulars V.N.000 500 Zahoor & Sons purchase a/c Hussan&Sons Furniture a/c Rent a/c Balance c/d 15 500 300 300 100 100 2.000 Paid Zahoor Sons $500. L.
since it reveals the cash and bank deposits at a glance Writing a Three column Cash Book: Opening Balance: Put the opening balance (if any) on cash in hand and cash at bank on the debit side in the cash book and bank columns.700 15 3. The amount will be shown in the bank column. the second is used to record bank transactions and third is used to record discount received and paid. One of the main advantages of a three column cash book is that it is very helpful to businessmen. One is used to record cash transactions.700 2. Prepare a three column cash book. Cash received will be recorded in the usual manner in the cash column.1991 Feb1 To Balance b/d 25 3. If the opening balance is credit balance (overdraft) then it will be put in the credit side of the cash book in the bank column. 2. Fir this purpose one additional column is added on each side of the cash book. If the cheque received is not deposited into the bank on the same date then the amount will appear in the cash column. What is the difference between a single column cash book.400 Three Column Cash Book: Learning Objectives: 1. Cheque/Check or Cash Received: If a cheque is received from any person and is paid into the bank on the same date it will appear on the debit side of the cash book as "To a Person".debit and credit side. 3. Define and explain a three column cash book/treble column cash book. a double column cash book and a three column cash book? Definition and Explanation: A three column cash book or treble column cash book is one in which there are three columns on each side . Payment By Cheque/Check or Cash: . When a trader keeps a bank account it becomes necessary to record the amounts deposited into bank and withdrawals from it.
All other items on the debit side will be posted to the credit of respective accounts in the ledger and all other items on the credit side will be posted to the debit of the respective accounts. 3. DisCash count Bank Date Particulars Credit Side V. bank column "Bank Charges. it is called "contra entry". Bank Charges and Bank Interest Allowed: Bank charges appear on the credit side. and the exact amount is again entered on the credit side of the same account. L. Similarly an amount entered on the credit side of an account also may have a contra entry on the debit side of the same account. The reason for making two entries is to comply with the principle of double entry which in such transactions is completed and therefore. cash column "By Bank" and on debit side bank column "To Cash". Contra entries are passed when: 1.N. Format of the Three Column Cash Book: Debit Side Date Particulars V. this will appear on the credit side "By a person" and the amount in the bank column.F. bank column "By Cash". The opening balance of cash in hand and cash at bank are not posted. As regards discounts the total of the discount allowed will be posted to the debit of the discount account in the ledger and total of the discount received to the credit side of the discount account.F. Contra Entries marked with "C" are not posted. Such entries are marked in the cash book with the letter "C" in the folio column 2. no posting of these items is necessary. If the payment is made in cash it will be recorded in usual manner in the cash column. Therefore. Therefore. 2. cash column "To Bank" and on credit side. Cheque/Check is drawn for office use: It is payment by bank and receipt in cash. L. enter on credit side. Contra Entries: If an amount is entered on the debit side of the cash book. enter on the debit side. 4. Discount Cash Bank . Cash is deposited into bank by office: It is payment from cash and receipt in bank.N. Posting: The method of posting three column cash book into the ledger is as follows: 1. bank column "To Interest"." Bank interest allowed appear on the debit side.When we make payment by cheque.
" " " " " 31 " 31 You are required to enter the above transactions in three column cash book and balance it. discount received $5 27 Paid to Gulzar Ahmad by cheque $650 30 Paid salaries by cheque $1. 10 Received from Hayat Khan a cheque for $775 in full settlement of his account and allowed him discount $15. 1991 Jan. During the month of January following business was transacted. 12 Sold merchandise to Divan Bros.Example of Three Column Cash Book: On January 1. cash sales $315 " " " " " 4 6 8 Deposited cash $500 Received from A.575.500 who paid by cheque which was deposited in the bank. for $1.550 in part payment of his account Paid by cheque for merchandise purchased worth $1. 16 Paid Salman $915 by cheque. Hussan. Hussan a cheque for $2. Drew from bank for office use $250.750 Deposited into bank the cheque of Hayat Khan. 1991 Noorani Stores cash book showed debit balance of cash $1. Solution: Noorani Stores Cash Book Debit Side Credit Side .1 Purchased office typewriter for cash $750.005 Deposited into bank the cheque received from A.550 and bank $13.
The balance shown by the bank column of the cash book should always agree with the balance shown by the bank statement.315 " 6 500 By " 8 2.F. Define and explain bank reconciliation statement.550 By " 16 2.865 14. So for as bank balance is concerned.330 Bank Reconciliation Statement: Learning Objectives: 1.N. 2. 3.575 Jan.865 14. L.1 To " 1 To " 3 To " 4 " 8 To " 10 To " 12 To " 31 To " 31 To To Balance b/d Sales a/c Cash a/c A Hussan Cash Hayat Khan Sales a/c Cash Bank C C 15 C C 1991 1.330 C C 15 1991 Feb.550 915 650 1.N.550 13.440 18. 2. Thus reconciliation of the cash column is simple matter.1 To Balance b/d 6.Date Particulars V. What are the reasons of disagreement of the balances of cash book and bank statement. DisCash count 1991 Jan. 1. L. Prepare bank reconciliation statement.750 775 250 1. The balance shown by the cash column of the cash book must agree with amount of cash in hand on that date. DisCash count Date Particulars V.005 2. 5. because the bank statement is a copy of the customer's account in the banks ledger.440 18. its reconciliation is not so simple. The reason for the difference is ascertained and cash book can be corrected. Bank Purchases a/c Bank Salman Gulzar Salaries a/c Bank Cash Balanced c/d C C 5 750 500 1.900 1. Definition and explanation Causes of disagreement between cash book balance and bank statement balance How to prepare a bank reconciliation statement Example1 Example 2 Definition and Explanation: From time to time the balance shown by the bank and cash column of the cash book required to be checked. 4.F.500 " 31 By 775 " 31 By 250 By By Office Equip. Prepare the format of the statement.1 By " 3 By 1. But the bank . 3. 4.900 5 6.550 " 27 By 775 " 30 By 1. If it does not agree it means that either some cash transactions have been omitted from the cash book or an amount of cash has been stolen or lost.
2. The banker might have credited our account with amount of a bill of exchange or any other direct payment into bank and the same may not have been entered in the cash book. 7. 4. the following rules may be useful for the students: 1. 3. Make a list of these items. Adjust the cash book by recording therein those items which do not appear in it but which are found in the bank statement. That some of the cheque which we drew and for which we credited our bank account prior to the date of closing.. Items not ticked on either side of the bank statement will represent those which have not yet been passed through the cash book. were not presented at the bank and therefore. incidental charges etc. 6. 4. Items not ticked on either side of the cash book will represent those which have not yet passed through the bank statement. not debited in the bank statement. 5. 3. Make a list of these items. therefore. That our banker might have allowed interest which have not yet been entered in our 2. and to test whether the apparently conflicting balance do really agree. cash book. Causes of Disagreement Between Bank statement and Cash book: Usually the reasons for the disagreement are: 1. 5. That our banker might have debited our account for any such item as interest on overdraft. a statement is prepared called bank reconciliation statement to find out the reasons for disagreement between the bank statement balance and the cash book balance of the bank. How to Prepare a Bank Reconciliation Statement: To prepare the bank reconciliation statement. Periodically. Prepare the bank reconciliation statement reconciling the bank statement balance with the correct cash book balance in either of the following two ways: (i) First method (Starting with the cash book balance) (ii) Second method (Starting with the bank statement balance) . Check the cash book receipts and payments against the bank statement.balance as shown by the cash book and bank balance as shown by the bank statement seldom agree. That cheques dishonoured might have been debited in the bank statement but have not been given effect to in our books. 6. That some cheques or drafts which we have paid into bank for collection and for which we debited our bank account. were not realised within the due date of closing and therefore. commission for collecting cheque. which we have not entered in the cash book. thus computing the correct balance of the cash book. not credited by the bank.
. deduct from it all cheques. The new balance will then be agree with the balance of the cash book. drafts etc.. (b) If the bank balance of the cash book is a credit balance (overdraft).e. paid into the bank but not collected by the bank and deduct from it all cheques drawn on the bank but not yet presented for payment. Second Method (Starting With the Bank Statement Balance): (a) If the bank statement balance is a debit balance (an overdraft). if any in the bank statement Add BS to CB Less CB to BS Less BS to CB Add Information Less Add Add Less Add Less Less Add less Add Add Less . add to it all cheques. (b) If the bank statement balance is a credit balance (in favor of the depositor). paid into bank but not collected and credited by the bank and add to it all cheques drawn on the bank but not yet presented for payment. add to it all cheques. drafts. The new balance will agree with bank statement.. bank balance i. The new balance will then agree with the balance of the bank statement. etc. The new balance will agree with the balance of the cash book. drafts.. Alternatively: Cash book shows debit Cash book shows credit balance i. bank statement shows credit statement shows debit balance balance CB to BS Cheques issued but not presented in the bank Cheques paid into bank but not collected and credited by the bank Credit. drafts. paid into the bank but not collected and credited by the bank and added to it all cheques drawn on the bank but not yet presented for payment. etc.. deduct from it all cheques.. if any in the bank statement Debit. etc.e.First Method (Starting With the Cash Book Balance): (a) If the cash balance is a debit balance. paid into the bank but not collected and credited by the bank and deduct from it all cheques drawn on the bank but not yet presented for payment.
253.253 Second Method: Balance as per bank statement .Cr. Bashir & Co. Less cheques drawn but not presented 2. 2.285 Add cheques drawn but not presented: Rashid & Sons Bashir & Co. $132.Dr.. On checking the bank statement with the cash book it was found that a cheque for $116 paid in on the 31st December was not credited until the 1st January. MA Jalil Khalid Bros.Example 1: On December 31 1991 the balance of the cash at bank as shown by the cash book of a trader was $1. $801.253 968 .Cr. Prepare a statement recording the two balances: Solution: Bank Reconciliation Statement on 31st December 1991 First Method: Balance as per cash book . 29 801 6 132 968 Balance as per bank statement . Less cheques paid in but not collected 1. MA Jalil $6.401 and the balance as shown by the bank statement was 2. 1992 and the following cheques drawn prior to 31 December were not presented at the bank for payment until the 5th January 1992. Rashid & Sons $29.401 116 1. Khalid Bros.
1.401 Example 2: On 31st March. Find out the balance as per cash book. 1991 the bank statement showed the credit balance of $10.200 10.1.200 had not been presented for payment in the bank up to 31st March. Solution: Bank Reconciliation Statement as on 31st March.500 750 11.250 Less cheques issued but not presented 1.085 Less omission in cash book ($800 + $130) 930 Balance as per cash book 9. 1991 Balance as per bank statement .155 Format of the Petty Cash Book: .Cr.500. Cheques amounting to $3. Bank had given the debit of $35 for sundry charges and also bank had received directly from customers $800 and dividend of $130 up to 31st March. Add cheques deposited but not credited 10.Dr. Cheque amounting to $2.750 were deposited into the bank but only cheque of $750 had not been cleared up to 31st March. but cheque for $1.050 Add bank charges made by the bank 35 10.500 were issued.285 Add cheques paid in but not collected 116 Balance as per cash book .
Total Postage Printing and Stationary Cartage Traveling Expenses Misc.The following is the simple format of a petty cash book: Example: Enter the following transactions in the columnar petty cash book of a cashier who was given $100 on 1st March. 1991 on the imprest system:1991 March 2 " 2 " 3 " 3 " 8 " 12 " 18 " 23 " 25 " 26 " 28 " 29 " 30 " 31 Paid for postage stamps Paid for stationary Paid for cartage Paid for postage stamps Paid for paper Paid for cartage Paid for trips to office peons Paid for ink and nibs Paid for Tiffin to office peons Paid for train fair Paid for bus fair Envelops and letter heads Printing address on above Taxi fare to manager 8 10 4 6 1 6 2 4 6 5 4 6 4 10 Solution: Amount Date Received $ 1991 $100 March1 " 2 " 2 " 3 " 3 " 3 " 12 " 18 " 23 " 25 " 26 " 28 " 29 " 30 " 31 " 31 100 Particulars To By By By By By By By By By By By By By By By Cash Postage Stationary Cartage Postage Paper Cartage Tip to peon Ink & nibs Tiffin to Peon train fair bus fair Envelops et.N. printing Taxi fair balance c/d V. 8 10 4 6 1 6 2 4 6 5 4 6 4 10 24 100 8 10 6 1 6 4 5 4 6 4 2 6 4 10 10 19 8 14 25 24 76 April 1 To Balance b/d " 1 To Cash Purchases Day Book: Learning Objectives: .
the name of the supplier or the seller.1. Posting: The total of the purchases book is posted to the debit of purchases account. L. description of the article. The first column in this book is for date. The last column gives the total amount to the supplier. Purchases book is written up daily from the invoices received. They are. The invoice of each number is noted in the purchases book. Definition and Explanation: Purchases book or purchases day book is a book of original entry maintained to record credit purchases. The third column is for invoice number.. The total shows the total amount of goods purchased on credit. The double entry will thus be completed. quantity of each article bought. What are the ruling and posting of the purchases book? 3. Sometimes a separate column to record the details of the transactions is added in the purchases day book. therefore. Ruling: It is not ruled like the ordinary journal.No. In the second column. At the end of each month. Amount Example: . These parties have supplied the goods. Define and explain purchases day book. Names of the suppliers appear in the purchases book. The invoices are consecutively numbered. The fourth column is for ledger folio.F. rate etc. credited with the amount appearing against their respective names. are recorded. Format: The following is the format of purchases day book: Date Particulars Inv. You must note that cash purchases will not be entered in purchases day book because entries in respect of cash purchases must have been entered in the cash book. 2. the purchases book is totaled. Prepare a purchases day book.
400 6. Particulars Inv. Maqbool & Co.From the following transactions of a trader prepare the purchases day book and post it into ledger:1991 January 5 " " " 15 25 30 Purchased goods from Rasool & Co.No.500 3. The ruling of this book is absolutely the same as of purchases day book. Posting: The total of the purchases returns or returns outwards book is credited to returns outward account or purchases return account (being the goods sent out).400 6. L.000 Purchases Returns Book: Definition and Explanation: Purchases returns book is a book in which the goods returned to suppliers are recorded. Iqbal Bros. 5 Rasool & Co.000 1. Debit Note: . Goods may be returned because they are of the wrong kind or not up to sample or because they are damaged etc. Individual suppliers to whom goods are returned are debited (because they receive the goods). Purchased goods from More & Co. Purchased goods from Iqbal Bros. Purchased goods from Maqbool & Co. More & Co.500 3.000 Solution: Purchases Day Book Date 1991 Jan.000 1. It is also called returns outward book or purchases returns day book.F. $ 2. Amount $ 2. The book and entries are made therein just the same as those made in the purchases day book.
... an intimation is sent to them through what is known as a debit note. 1991.. Debit notes are usually serially numbered and are prepared in the same form as that of the invoice.... 120 200 E & O. Partner Format of Purchases Returns Book: The following is the format of purchases Returns book: Date Particulars D/N L. To goods returned: 10 shirts at $12 10 pairs trousers at $20 Goods returned as per R/R No. showing the amount debited to the account of the later.F. A debit note is a statement sent by a businessman to another person.. $ 135 150 . March 19.. Amount Example: From the following transactions of a trader prepare the purchases returns day book and post it into ledger:1991 January 8 " 20 Karim & Sons Fazal Din & Co.When the goods are returned to the suppliers. E 320 For Good Luck & Co... These debit notes serve as vouchers for these entries...dated. Form of the Debit Note: Debit Note Messrs Rehman & Sons Standard Road Multan Lahore..
Amount $ 135 150 250 535 Purchases Returns Account 1991 Jan. Amount .F. Format of Sales Day Book: The following is the format of sales day book: Date Particulars Inv. Customers whose names appear in the sales book are debited with the amount appearing against their names. 8 " 20 " 31 Karim & Sons Fazal Din & Co. Saeed Bros.B. Double entry is thus completed." 31 Saeed Bros.R. $ 535 Sales Day Book: Definition and Explanation: A sales book is also known as sales day book is a book of original entry in which are recorded the details of credit sales made by a businessman. Total of sales book shows the total credit sales of goods during the period concerned. Particulars D/N L. The sales day book is written up daily from the copies of invoices sent out. No.F. L. Usually the sales book is totaled every month. 31 By Purchases as per P. Posting: The total of the sales book is credited to sales account. 250 Solution: Purchases Day Book Date 1991 Jan.
Example: From the following transactions of a trader prepare the sales day book of M. 5 " 10 " 20 " 31 Idea college Ahmad & Co. 31 By Sundries as per s/Book $ 800 . Karim Bakhish Cheap stores Particulars D/N L. Amount $ 200 100 400 100 800 Sales Account 1991 Jan. Credit sales to Karim Bakhish Sold goods to cheap stores $ 200 100 400 100 Solution: Purchases Day Book Date 1991 Jan.F. Amin and post it into ledger:1991 January 5 " " " 10 20 31 Sold goods to ideal college Sold goods to Ahmad & Co.
Credit Note: Customers who return goods should be sent a credit note.... in account with Messrs Good luck & Co. Posting: The of the returns inwards book or sales returns book is debited to returns inwards account or sales returns account. It is used for recording goods returned to us by our customers. Peshawar Cr. It is a statement sent by a business to another person showing the amount credited to the account of the later.. March 19. Lahore By 100 shirt at $2 Goods returned as per I/No... & O.F. Prepare a sales returns book and post into ledger.. These are usually printed in red ink. Credit notes are serially numbered and are similar in form to the invoices. Partner Format of Sales Returns Book: The following is the format of sales returns book: Date Particulars C/N L. The ruling of this books is exactly as for sales day book. 2..Dated. Dollars two hundred only E. Credit notes issued to customers are vouchers for the entries appearing in the sales returns book.. Define and explain sales return book. Lahore. Definition and Explanation: Sales returns book is also called returns inwards book. 1991 200 For Good luck & Co. The customers who have returned the goods are credited with the amount shown against their names. What is a credit note? 3..Sales Returns Book: Learning Objectives: 1.. Form of Credit Note: Messrs Ideal Traders. Amount . E.....
Ideal Traders Riaz & Co. 8 " 20 " 31 Parker & Co. Definition and Explanation: . Amount $ 40 52 100 192 Bills Receivable Book: Learning Objectives: 1. Define and explain bills receivable book. Goods returned by Ideal Traders $52 Allowance granted to Riaz & Co.Example: From the following transactions of a trader prepare the sales returns book and post it into ledger:1991 January 8 " " 20 31 Goods returned by Parker & Co. Prepare a bills receivable book and post into ledger. Particulars D/N L. 2.F... for short delivery $ 40 52 100 Solution: Sales Returns Book Date 1991 Jan.
details of it are recorded in the bills receivable book. When a bill is received. Posting: In the ledger the account of the person from whom each bill is received is credited with the amount of that bill and the periodical total of the book is posted to the debit of bills receivable account. Amount Example: From the following transactions of a trader prepare the bills receivable book and post it into ledger:1991 January 5 Drew a bill on Abdullah & Co.F.Bills receivable book is used to record the bills received from debtors. . Amount Remarks (2) Bills Receivable Book Date From whom received Term Due date L. at 2 m/d for $700. Format of Bills Receivable Book: The following is the format of bills receivable book: (1) Bills Receivable Book No. the bills receivable book is ruled according to the requirements of a particular account.F. of Bills Date From whom received Drawer Acceptor Where payable Term Due date L.
Format of Bills Receivable Book: The following is the ruling and format of bills payable book: . A. Riaz Bashir Particulars Term 2 m/d 3 m/d 3 m/d 2m/d Due Date L. 2. Definition and Explanation: Bills payable book is used to record bill accepted by us. Rahim Bakhish A. Solution: Bills Receivable Book Date 1991 Jan.F.000 800 100 March 8 April 13 " 21 March 3 2. the account of each person whose bill has been accepted is debited with the amount of the bill. The monthly total of the bills accepted is credited to the bills payable account ledger. Posting: In the ledger. Amount $ 700 1. Riaz gives his acceptance at 3 m/d for $800. 5 " 10 " 20 " 30 Abdullah & Co. Prepare a bills payable book and post into ledger." " " 10 20 30 Acceptance received from Rahim Bakhish at 3 m/d for $ 1. Bill at 2 m/d for $100 is drawn on Bashir.000. When a bill drawn by our creditor is accepted particulars of the same are recorded in this book. Define and explain bills payable book.600 Bills Payable Book: Learning Objectives: 1.
F. Amount Remarks (2) Bills Payable Book Date To whom given Term Due date L.(1) Bills Payable Book Date To whom given Drawer Payee Where payable Term Due date L. Amount Example: From the following transactions of a trader prepare the bills payable book and post it into ledger:1991 January 5 " " 20 30 Accepted a bill at 3 m/d for $200 drawn by Rahmat & Co. Solution: Bills Payable Book Date 1991 Jan. Particulars Term 3 m/d 2 m/d 1 m/d Due Date April 8 March 23 " 30 L. Amount $ 200 500 500 . 5 " 20 " 30 Rahmat & Co.F. Kamal Feroz & Co. gave acceptance at 2 m/d for $500 to Kamal. Acceptance at 1 m/d for $ 500 given to Feroz & Co.F.
Suppose a businessman opens a new set of books on January 1. stock in trade $320. When a journal proper is used? Definition and Explanation: ournal proper is book of original entry (simple journal) in which miscellaneous credit transactions which do not fit in any other books are recorded. The use of journal proper is confined to record the following transactions:- 1. Define and explain journal proper. capital $1.200 Journal Proper: Learning Objectives: 1. machinery $700. 2. The journal entries so passed are called "opening entries". furniture $150. 7. bank loan $300. 2. it is necessary to Journalise the various assets and liabilities before the new accounts are opened in the ledger.070 the respective opening entry in the journal will be: Cash Sundry debtors Stock in trade Machinery Furniture & fitting To Sundry creditors To Bank loan 100 200 320 700 200 150 300 . Opening entries Closing entries Transfer entries Adjustment entries Rectification entries Entries for which there is no special journal Entries for rare transactions Opening Entries: When a businessman wants to open the book for a new year. 5. 6. 4. debtors $200. 3. It is also called miscellaneous journal.1. 1991 with cash in hand $100. The form and procedure for maintaining this journal is the same that of simple journal.
To Capital 1. 1991 the balance in expenses accounts are: Salary $500. Stationary $50. rent $200. legal charges $100. The process of transferring balances to the trading and profit and loss account at the end of year is called closing the books and entries passed at that time are called closing entries. The transfer entry will be passed as follows: Capital Account To Drawings account (Being the transfer entry) 500 500 Adjusting Entries: . it is necessary to pass transfer entry. These balance will be recorded in profit and loss account though the following closing entries: Profit and loss account To Salary To Rent To Stationary To Legal charges (Being the closing entry) 850 500 200 50 100 Commission received account To Profit and loss account (Being the closing entry) 50 50 Transfer Entries: When accounts are transferred from one account to another for combination of allied items. Drawings $500 is transferred from the drawings account to the capital account to find out the net capital. For example on 31st December. For example. and income accounts are: commission received $50.070 (Being the incorporation of assets and liabilities at this date) Closing Entries: When the books are balanced at the close of the accounting period with a view to paper final accounts it is necessary that balance of all the income and expenses accounts must be transferred to trading and profit and loss account.
Modification of the accounts at the end of an accounting period is called adjustments. If there be any event affecting the related period of accounts but left out of the books. This is done by means of adjusting entries through the journal proper. The common transactions which cannot be recorded in any of the book of original entry are: y y y y y Distribution of goods as free sample. Pro-forma profit and loss account and balance sheet of a sole trader (Name of business) Trading and Profit and Loss Account for the year ended (date) Sales . the same are entered in the journal proper. Entries for Rare Transactions: In a business it may happen sometimes that transactions are usually rare. It will be taken into account by means of adjusting entry which is as follows: Rent account To Outstanding rent account (Being outstanding rent recorded) 50 50 Rectification Entries: When an error is detected in the books. Goods destroyed by fire. it was detected that an expenditure of $ 100 on repair to building was charged to building account. For example at the end of the year it is found that rent $50 is outstanding. Goods stolen away by employees. It is corrected through the following entry in the journal proper: Building repair account To Building account 100 100 Entries of Which There is No Special Journal: When a trader cannot record the entries in the above mentioned sub-journals. the same is rectified through an entry in the journal proper. For example. It is not recorded in the books. thus is called rectification entry. Journal proper is used for such rare transactions. the same should be incorporated in the books before the preparation of the final accounts. Exchange of one asset for another asset etc. Distribution of goods as charity.
Less Cost of Goods Sold Opening stock Add Purchases Less Closing stock Gross Profit Less Expenses (list here) Net Profit .
Balance Sheet as at (date) Cost Accumulated Depreciation Fixed Assets Net Book Value Current Assets Stock Debtors Prepayments Bank balance Cash Less Current Liabilities Creditors Accruals Net current assets Total net assets Capital Opening balance Add Net Profit Less Drawings .
... It is the account which reveals the net profit (or net loss) of the trader.. The account is closed by transferring the net profit or loss to capital account of the trader.. Prepare closing journal entries profit and loss account. these will be credited to the profit and loss account. The profit and loss account is opened with gross profit transferred from the trading account (or with gross loss which will be debited to profit and loss account). Define and explain profit and loss account. 3.Profit and Loss Account: Learning Objectives: 1. After this all expenses and losses (which have not been dealt in the trading account) are transferred to the debit side of the profit and loss account. Prepare the format of profit and loss account (account form and statement form)... The excess of the gain over the losses is called the net profit and that of the loss over the gain is called the net loss. Format of the Profit and Loss Account: Profit and Loss Account For the year ended ..... . 2. Definition and Explanation: Profit and loss account is the account whereby a trader determines the net result of his business transactions... If there are any incomes or gains.
. xxxx xxxx xxxx xxxx By Gross Profit By Interest Received By Discount Received By Commission Received By Other Receipts By Etc.To Gross Loss To Salaries To Rent To Rent and Rates To Discount Allowed To Commission Allowed To Insurance To Bank Charges To Legal Charges To Repairs To Advertising To Trade Expenses To Office Expenses To Bad Debts To Traveling Expenses To Etc. Transferring all expenses or losses: Profit and loss account To Each of the various expenses or losses (This entry will close the expenses accounts) . Etc. 1. Etc. xxxx xxxx xxxx xxxx xxxx xxxx By Net Loss (transferred to capital account of the trader) xxxx To Net Profit (transferred to capital account of the trader) xxxx Closing Entries for Profit and Loss Account: The following usual entries are passed at the end of each trading period. xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx ex..
199----- Income From Sales: Sales Less: Sales returns Sales discount --------------------- Net Sales ------ . Trading and profit and loss account in both the forms give the same information. Transferring net loss to capital account: Capital account To Profit and loss account (This entry closes the P & L account) Profit and Loss Account in Statement Form/Income Statement: Trading and profit and loss account/income statement may be prepared either in account form (T form) or in report form (statement form). Transferring net gain to capital account: Profit and loss account To Capital account (This entry closes the P & L account) 4. Format of Profit and Loss Account/Income Statement in Statement Form: Trading and Profit and Loss Account/Income Statement For the year ended 31st December.2. Transferring all items of gains etc: Various nominal accounts (representing gains) To Profit and loss account (This entry will close all the remaining nominal accounts) 3. The account or T form is traditional and is used widely but in recent years many business houses prefer to present the profit and loss account/income statement in the report form.
Cost of Goods Sold: Merchandise is stock on 1st January Purchases Less: Purchases returns ---------------- Net purchases ------ Cost of goods available for sale Less merchandise in stock on 31st December ----------- Cost of goods sold ------ GROSS PROFIT ------ Operating Expenses: Selling Expenses: Sales salaries Advertising expenses Insurance expense .selling Store supplies expenses Sundry selling expenses Total selling expenses -----General Expenses: -------------------------- .
In order to calculate the cost of goods sold we should deduct from the total cost of goods purchased the cost of goods at the end of the year. It is as gross because all other . Sales returns and allowances and sales discounts are deducted from the gross amount to yield net sales.Closing stock = Cost of goods sold Gross Profit: The excess of the net income from sales over the cost of goods sold is also called gross profit on sales. Cost of Goods Sold: Cost of goods sold refers to the cost price of goods which have been sold during a given period of time. both for cash and on credit. trading profit or gross margin. is reported in this section.Office salaries Taxes Insurance expenses general Office supplies expenses Sundry general expenses -------------------------- Total general expenses ------ Total operating expenses ------ Net profit from operations Other Income: Rent income Other Expenses: Interest expenses ----------- ------ ------ NET PROFIT ------ Explanation of Certain Items of Income Statement: Income from sales: The total of all charges to customers for goods sold. This can be explained with the help of following formula/equation: (Opening stock + Cost of goods purchased) .
Examples of Trading and Profit and Loss Account and Balance Sheet: Learning Objectives: 1. are offset against each other on the profit and loss account. 1. the excess is added to net profit from operations. other income and other expenses. If operating expenses should exceed gross profit. Other Expenses: Expenses that cannot be associated definitely with the operations are identified as other expenses or non-operating expenses. Net Profit from Operations: The excess of gross profit on sales over total operating expenses is called net profit or net profit from operations. Expenses that are incurred directly in connection with the sale of goods are known as selling expenses. if the reverse is true. Interest expense that results from financing activities and losses incurred in the disposal of fixed assets are examples of items reported in this section. selling expenses include salaries or the salesmen. rent. Other Income: Minor sources of income are classified as other income or non-operating income. Example 1: . Expenses incurred in the general administration of the business are known as administrative expenses or general expenses. the difference is subtracted from net profit from operations. depreciation of the store equipment. Operating Expenses: The operating expenses also called operating costs of a business may be classified under any desired number of headings and sub-headings. If the total of other income exceeds the total other expenses. Prepare trading and profit and loss account and balance sheet. and office supplied used. dividends and gains from the sale of fixed assets. the excess is designated as net loss or net loss from operations. The two categories of non-operating items. It is the net increase in capital from profit making activities. and advertising. Net Profit: The final figure on the profit and loss account is labeled as net profit (or net loss) or net profit carried to balance sheet.expenses for the period must be deducted from it to obtain the net profit or net income of the business. In a merchandising business this category often include income from interest. In small retail business it is usually satisfactory to classify operating expenses as selling or general. 2. Examples of general expenses are office salaries. store supplies used. depreciation of equipment.
000 19.800 700 30..000 3.000 |By Sales 60.000.000 | | .900 The stock on 21st December.700 | Less returns i/w | | By Closing stock 25.500 39.450 60.000 500 38.100 1. Trading and Profit and Loss Account For the year ended 31st December.650 17.) Interest on capital Stationary Returns inwards 11.000 4.300 Returns outwards Trade expenses Office fixtures Cash in hand Cash at bank Tent and taxes Carriage outwards Sales Bills payable Creditors Capital $ 500 200 1.800 11.000 2.From the following balances extracted from the books of X & Co.000 800 800 700 450 1.750 1. 1991. 1991 was valued at $25.000 1. 1991 To Opening stock To Purchases Less returns o/w 39. prepare a trading and profit and loss account and balance sheet on 31st December.300 58.500 To Carriage inwards To Wages 800 2. $ Stock on 1st January Bills receivables Purchases Wages Insurance Sundry debtors Carriage inwards Commission (Dr. Solution: X & Co.000 500 4.
500 |Sundry |Bill receivable .650 3. 1991 Liabilities Creditors Bills payable Capital Add Net profit 17.600 X & Co.600 | | 30.100 1.700 To Stationary To Rent and rates To Carriage outwards To Insurance To Trade expenses To Commission To Interest on capital To Net profit transferred to capital a/c 450 1. Balance Sheet As at 31st December.700 | | 83.To Gross profit c/d 30.750 30.600 | | 83.450 700 200 800 700 | By Gross profit b/d 30.900 25.000 4.600 | | | | | | | 25.000 | |Cash |Cash Assets in hand at bank debtors $ 500 4.200 | | 30.200 $ 19.
750 | Example 2: The following trial balance was taken from the books of Habib-ur-Rehman on December 31.000 500 1.000 78.100 |Stock |Office | 25.000 1.000 20.43...200 .000 100.750 | 65.000 8. 19 .000 65.000 equipment 1.500 45.000 15.000 10.000 5.000 13.000 50.000 10.500 9. Cash Sundry debtors Bill receivable Opening stock Building Furniture and fittings Investment (Temporary) Plant and Machinery Bills payable Sundry creditors Habib's capital Habib's drawings Sales Sales discount Purchases Freight in Purchase discount 400 30..
Sales salary expenses Advertising expenses Miscellaneous sales expenses Office salary expenses Misc.000 45..000 4.000 1.000 400 Net Sales 99. 19 .000 1.000 1.. 19.. general expenses Interest income Interest expenses 5.700 Closing stock on December 31. Solution: Habib-ur-Rehman Income Statement/Profit and Loss Account For the year ended December 31..08.000 . Gross sales Less: Sales discount 100.000 800 2..700 2.000 Required: Prepare income statement/trading and profit and loss account and balance sheet from the above trial balance in report form.000 500 8. was $10..600 Cost of Goods Sold: Opening stock Purchases Add: Freight in 30.08.
000 Total operating expenses 18.000 Less purchase discount 500 Net purchases 30.31.500 Gross profit 34.100 Operating Expenses: Selling Expenses: Sales salary expenses Advertising expenses Misc.500 10.000 500 9.500 .000 9. general expenses 8. selling expenses 5.000 4.000 1.000 Cost of goods sold 65.500 Cost of goods available fort sale Less closing stock 75.500 General Expense: Office salaries expenses Misc.
ASSETS Current Assets: Cash Sundry debtors Bills receivable Stock on Dec.500 10. 19 . 19.500 ..000 Total Current Assets Fixed Assets: Buildings Plant and Machinery Furniture and fittings 50.000 800 Net increase 200 Net income 15..000 15. Investment 13.000 10.500 10.Net profit from operations 15.. 31.000 46...000 8.800 Habib-ur-Rehman Balance Sheet As at December 31.000 5.600 Other Expenses and Incomes: Interest income Interest expenses 1.
Total Fixed Assets 75.200 15.500 Total Assets 122.000 .000 Less: Drawings 1.000 9.000 Total Liabilities and Capital 122.000 94.000 Total Current Liabilities Fixed Liabilities: Habib's capital Net income for the year 78.000 LIABILITIES: Current Liabilities: Sundry creditors Bills payable 20.800 29.000 93.
The balance sheet is generally marshaled in three ways: 1. Assets Rs.the assets being shown on the right side and the liabilities on the left hand side. The remaining balances of personal or real accounts represent either assets or liabilities at the closing date. . Grouping and Marshalling: In a balance sheet assets and liabilities should be properly grouped and classified under appropriate headings. What are the objectives of preparing a balance sheet? Definition and Explanation: A balance sheet is a statement drawn up at the end of each trading period stating therein all the assets and liabilities of a business arranged in the customary order to exhibit the true and correct state of affairs of the concern as on a given date. 2.. The grouping together of dissimilar assets will make the balance sheet misleading... The following is a format of a balance sheet based on this order: Balance Sheet as at . Liabilities Rs. The term marshalling means the order in which assets and liabilities are stated on the balance sheet as the balance sheet exhibits the financial position of a concern even to a non technical observer. The individual balance of each debtor's and creditor's account need not be shown. Define and explain balance sheet.. Debtors and creditors should be shown in total. A balance sheet is prepared from a trial balance after the balances of nominal accounts are transferred to the trading account or to the profit and loss account. These assets ant liabilities are shown in the balance sheet in a classified form .. The Order of Liquidity or Realizability: According to this method assets are entered up in the balance sheet following the order in which they can be converted into cash and the liabilities in the order in which they can be paid off.Balance Sheet: Learning Objectives: 1.. How is a balance sheet prepared? 3. It is of great importance that the different assets and liabilities should be arranged in the balance sheet on certain principles....
...Bills Payable Loans Trade Creditors Capital Cash in hand Cash at Bank Investments Bills Receivables Debtors Stock (Closing) Stores Furniture & Fixtures Plant & Machinery Land & Buildings 2. Assets Land & Buildings Plant & Machinery Furniture & Fixtures Stores Stock (Closing) Debtors Bills Receivables Investments Cash at Bank Cash in hand Rs. firms and partnership concerns. Under this method the assets are stated according to their permanency i. The first method is adopted by sol proprietors. Liabilities Capital Trade Creditors Loans Bills Payable Rs. Objectives of the Balance Sheet: . The following is a specimen of a balance sheet based on this order: Balance Sheet as at .. Similarly the fixed liabilities are stated first and the floating liabilities follow. Mixed Order of Arrangement: This method is the combination of the first two methods.e. The Order of Permanence: This method is the reverse of the first method... 3. The second method is adopted by companies and the third method is adopted by banking concerns.... Under this method the assets are arranged in order of realisability and liabilities are arranged in order of permanence. permanent assets are shown first and less permanent are shown one after another..
Which can neither be seen with eyes not touched with hands. whose values expire with lapse of time or that become exhausted through working are known as wasting assets. These assets help the business to be carried on.. plant and machinery. investments etc.g. Outstanding Assets: . Current Assets Or Circulating Assets or Floating Assets: Current assets denote those assets which are held for sale or to be converted into cash after some time e. Contingent Assets: A contingent asset is one which comes into existence upon the happening of a certain event. Classification of Assets: The properties and possessions of a business are called assets and they are classified into the following classes: Fixed assets: Fixed assets are assets which are acquired not for sale but for permanent use in the business e. This is a subclass of fixed assets e.. Intangible or Fictitious Assets: There are assets which have no physical existence.. goodwill etc. If that event happens the asset becomes available. mines etc. otherwise not.The function of the correctly prepared balance sheet is to exhibit the true and correct view of the state of affairs of any concern.g. Wasting Assets: The assets that depreciate through "wear and tear". stock of goods etc.. sundry debtors. land and buildings. These are called intangible assets or fictitious assets. For example uncalled capital of a limited company. furniture etc. They include debit balance of profit and loss account. In a balance sheet as the assets and liabilities are shown in details after being properly valued. a trader can judge the position of his business from it. cash in hand. Liquid Assets: Liquid assets are those assets which are with us in cash or easily converted into cash e.g.g. They do not represent any thing valuable. cash at bank. bills receivables. plant machinery.
Contingent Liabilities: Contingent liabilities are those liabilities which arise only on the happening of some event. The event may or may not happen. Thus a contingent liability may or may not involve the payment of money. and income earned but not received are known as outstanding assets. Long term loans. he may thereby become liable to pay compensation. Current Liabilities: These are the liabilities which are payable immediately or in the near future. bank loans etc. Liability in respect of a pending suit: A suit pending against a person in a court is a contingent liability because if the decision of the court goes against him. Contingent liabilities are not recorded in the books not they are included in the balance sheet.e. These liabilities are payable after a long period. Classification of Liabilities: The liabilities of a business are classified as follows: Fixed Liabilities: These are the liabilities which are payable immediately or in the near future. Liability under guarantee: In case the debtor fails to fulfill his obligation. 3. Outstanding Liabilities: Outstanding expenses and unearned income are examples of outstanding liabilities. Capital may be classified as follows on the basis of the capital fund invested: Trading Capital: . such as creditors. Liabilities on bills discounted: In case the bill is dishonored by the acceptor. Examples of contingent liabilities are: 1.. the man who has given a guarantee or surety have to make good the loss to the creditor. capital of the proprietor are the examples of such kind of liabilities. Classification of Capital: The surplus or excess of assets over liabilities is called the capital or the proprietor. the holder may be called upon to pay the amount to the discounter. prepaid expenses. They are simply referred to by way of foot notes on the balance sheet. 2.Expenses paid in advance i.
Valuation of Assets: In order to exhibit a true financial position of a business . Watered Capital: It is represented by fictitious assets. . Loan Capital: The debentures and other fixed loans are sometimes called loan capital. It is never valued at a price exceeding the cost even if the market price is in excess of the cost price at the date of such valuation. The following principles." They are valued at a figure which they are likely to realize when converted into cash and as such they are valued at cost price or market price if the same is below the cost price at the date of valuation. The basis upon which the various assets are valued depends to some extent on the nature of the business and the objects for which the assets are held. Working capital: It is the amount which remains for the working of the business after the liabilities for acquiring the fixed assets have been discharged.The portion of the funds of a concern which is represented by the fixed and floating assets is called the trading capital Fixed Capital: The portion of the funds of a concern which is represented by the fixed assets is called fixed capital. Floating Assets: Floating assets are valued on the principle of the "cost or market price whichever is less." Valuation of the fixed assets must be ascertained from their capacity to earn revenue and that is shy they should be valued for the purpose of the balance sheet at cost price less depreciation which is an estimated loss arising out of the use of the fixed assets in course of the business. assets are to be valued carefully. The excess of the floating assets over the floating liabilities is also called the working capital. however. will serve as a valuable guide in this respect: Fixed Assets: Fixed assets are valued on the method "going concern. Circulating Capital: The portion of the funds of a concern which is represented by the floating or circulating assets is called the circulating or floating capital.
Vertical or Report Form of Balance Sheet ASSETS Current Assets: Cash-in-hand Cash at bank Debtors (Accounts receivable) Bills receivable (Notes receivable) Stock in trade (Inventory) ----------------------------------------- Total Current Assets --------- Fixed Assets: Furniture and fittings Buildings Plant and machinery Land --------------------------------- Total Fixed Assets --------- Total Assets --------- Liabilities: Current Liabilities: Creditors (Accounts payable) --------- .
Bills payable (Notes payable) Bank overdraft ----------------- Total Current Liabilities --------- Fixed Liabilities: Long terms loans Owner's capital Add net income for the year ------------------------- --------- Total Liabilities and Capital --------- .
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