FINANCIAL ACCOUNTING LEARNING OBJCTIVES       BASIC CONCEPTS IN ACCOUNTING JOURNAL LEDGER CASH BOOKS TRIAL BALANCE PREPERATION OF FINAN

ACCOUNTS ACCOUNTING Accounting is concerne !it" t"e #rocess o$ recor ing% c&'ssi$(ing 'n su))'rising 't' resu&ting $or) *usiness o#er'tions 'n e+ents, Accor ing to A)eric'n Accounting Associ'tion 'ccounting is -t"e #rocess o$ i enti$(ing% )e'suring 'n co))unic'ting econo)ic in$or)'tion to #er)it in$or)e .u ge)ents 'n ecision *( users o$ t"e in$or)'tion/, T"e e$inition gi+en *( t"e 0AICPA1 A)eric'n institute o$ Certi$ie Pu*&ic Account'nts c&e'r&( *rings out t"e )e'ning 'n $unctions o$ 'ccounting, Accor ing to it 'ccounting is 2t"e 'rt o$ recor ing% c&'ssi$(ing 'n su))'rising in ' signi$ic'nt )'nner 'n in ter)s o$ )one(% Tr'ns'ctions 'n e+ents !"ic" 're in #'rt% 't &e'st% o$ ' $in'nce c"'r'cter 'n inter#reting t"e resu&ts t"ereo$3, T"e Gener'& E4u'tion o$ Accounting Assets = Liabilities + Owner’s Equity GAAP Gener'&&( Acce#te Accounting #rinci#&es% A !i e&( 'cce#te set o$ ru&es% con+entions% st'n 'r s% 'n #roce ures $or re#orting $in'nci'& in$or)'tion% 's est'*&is"e *( t"e Fin'nci'& Accounting st'n 'r s Bo'r 0FASB1, GAAP PRINCIPLES T"e co))on set o$ #rinci#&es% st'n 'r s 'n #roce ures t"'t co)#'nies use to co)#i&e t"eir $in'nci'& st'te)ent, GAAP 're ' co)*in'tion o$ 'ut"orit'ti+e st'n 'r s 0set *( #o&ic( *o'r s1 'n si)#&( t"e co))on&( 'cce#te !'(s o$ recor ing 'n re#orting 'ccounting in$or)'tion A +'nt'ges o$ Accounting5 T"e #resent G&o*'& econo)ic !or& t"e Accounting #rocess "'s t"e $o&&o!ing ' +'nt'ges, 6, Pro+i es in$or)'tion $or S(ste)'tic recor s5 Since '&& t"e $in'nci'& tr'ns'ctions 're recor e in t"e *oo7s% one nee not re&( on )e)or(, An( in$or)'tion re4uire is re' i&( '+'i&'*&e $ro) t"ese recor s, 8, F'ci&it'tes t"e #re#'r'tion $or $in'nci'& st'te)ents5 Pro$it 'n &oss 'ccount 'n *'&'nce s"eet c'n *e e'si&( #re#'re !it" t"e "e&# o$ t"e in$or)'tion in t"e recor s, T"is en'*&es t"e tr' er to 7no! t"e net resu&t o$ *usiness o#er'tions, 0 i,e #ro$it 9 &oss1 uring t"e 'ccounting #erio 'n t"e $in'nci'& #osition o$ t"e *usiness 't t"e en o$ t"e 'ccounting #erio ,

:, Pro+i es t"e contro& o+er Assets5 Boo7 7ee#ing #ro+i es t"e in$or)'tion reg'r ing c's" in "'n % c's" 't *'n7% stoc7 o$ goo s% 'ccounts recei+'*&e $ro) +'rious #'rties 'n t"e 'ccounts in+este in +'rious ot"er 'ssets, As t"e tr' er 7no!s t"e +'&ues o$ t"e 'ssets "e !i&& "'+e contro& o+ert t"e), ;, Pro+i es t"e re4uire in$or)'tion5 Intereste #'rties suc" 's o!ners, Len ers% cre itors etc,,, Get necess'r( in$or)'tion 't $re4uent inter+'&s, <, Co)#'r'ti+e Stu (5 One c'n co)#'re t"e #resent #er$or)'nce o$ t"e org'nis'tion !it" t"'t o$ its #'st, T"is en'*&es t"e )'n'gers to r'! use$u& conc&usions 'n )'7e #ro#er ecisions, =, T'> )'tters5 Pro#er&( )'int'ine *oo7?7ee#ing recor s !i&& "e&# in t"e sett&e)ent o$ '&& t'> )'tters !it" t"e t'> 'ut"orities, @, He&#$u& to )'n'ge)ent5 Accounting is use$u& to t"e )'n'ge)ent in )'n( !'(s, It en'*&es t"e )'n'ge)ent to 'ssess t"e 'c"ie+e)ent o$ its #er$or)'nce, T"e !e'7nesses o$ t"e *usiness c'n *e i enti$ie 'n correcti+e )e'sure)ents c'n *e '##&ie to re)o+e t"e) !it" t"e "e&# o$ 'ccounting, T!PES OF ACCOUNTS An 'ccount is ' su))'r( o$ t"e re&e+'nt tr'ns'ctions 't one #&'ce re&'ting to ' #'rticu&'r "e' , B'se on 'ccounting #rinci#&es 'ccounts 're i+i e into t"ree t(#es, T"e( 're 's $o&&o!s, 6, Pers"nal A##"unts5 T"ese 'ccounts 're re&'tes to n'tur'& #ersons% 'rti$ici'& #ersons 'n re#resent'ti+e #ersons, For e>')#&es% R') 'ccount% R') A co)#'n( Account, 8, Real A##"unts T"ese 'ccounts re&'te to 'ssets, For e>')#&es% P&'nt 'n B'c"iner( Account% L'n 'n Bui& ings Account% Furniture Account etc, :, N"$inal A##"unts T"ese 'ccounts re&'te to e>#enses% &osses 'n inco)es 'n #ro$its, For e>')#&e% S'&'r( e>#en iture% Rent #'i % Rent recei+e % Co))ission recei+e etc,,, Rules "% A##"untin&
ACCOUNTING TYPE PERSONAL ACCOUNTS REAL ACCOUNTS NOMINAL ACCOUNTS DEBIT Receiver What comes in Ex enses an! "osses CREDIT Giver What goes out Incomes an! gains

N"te Re'& 'n No)in'& Accounts 're c'&&e I)#erson'& Accounts, 'RANC(ES OF ACCOUNTING Accounting Br'nc"es c'n *e c&'ssi$ie into t"e $o&&o!ing c'tegories5 )* Finan#ial A##"untin& T"e )'in #ur#ose o$ t"is t(#e o$ 'ccounting is to recor *usiness tr'ns'ctions in t"e *oo7s o$ 'ccounts in suc" ' !'( t"'t o#er'ting resu&ts $or ' #'rticu&'r #erio 'n $in'nci'& con ition on ' #'rticu&'r 'te c'n *e 7no!n $or t"e in$or)'tion o$ t"e +'rious grou#s o$ #ersons, +* C"st A##"untin& It re&'tes to t"e co&&ection% c&'ssi$ic'tion% 'scert'in)ent o$ cost 'n its 'ccounting 'n cost contro& re&'ting t"e +'rious e&e)ents o$ cost% i,e, )'teri'&s 'n L'*our,

8

,*

-ana&e$ent A##"untin&5 It re&'tes to t"e use o$ 'ccounting 't' co&&ecte !it" t"e "e&# o$ $in'nci'& 'ccounting 'n cost 'ccounting $or t"e #ur#ose o$ #o&ic( $or)'tion% #&'nning contro& 'n ecision )'7ing *( t"e )'n'ge)ent,

O'.ECTI/ES OF ACCOUNTANC! )* To #ro+i e 7no!&e ge o$ tr'ns'ctions,,, +* To #ro+i e 7no!&e ge '*out cre itors% e*tors 'n o+er'&& $in'nci'& #ositions, ,* To $in our tot'& #urc"'ses% tot'& s'&es 'n c&osing stoc7 etc, 0* To $in out net #ro$it or &oss )' e uring ' #'rticu&'r $in'nci'& #erio , 1* To #ro+i e 7no!&e ge '*out c'#it'& 'ssets 'n &i'*i&ities o$ t"e $ir) 't 'n( #'rticu&'r ti)e, 2* To #ro+i e re' ( in$or)'tion to '&& intereste #'rties, Li$itati"ns "% A##"untin& T"e $o&&o!ing 're t"e &i)it'tions o$ 'ccounting, 6, Does not recor t"e '&& e+ents, 8, Does not re$&ect t"e current +'&ues :, Esti)'tes *'se on #erson'& .u ge)ent ;, In' e4u'te in$or)'tion on costs 'n #ro$its, A##"untin& Prin#i3les T"e ter) Princi#&e re$ers to $un ')ent'& *e&ie$ or ' gener'& trut" !"ic" once est'*&is"e oes not c"'nge, Accounting #rinci#&es or st'n 'r s 're gener'& ru&es ' o#te in 'ccounting, T"ese #rinci#&es en'*&e st'n 'r iC'tion in recor ing 'n re#orting o$ $in'nci'& in$or)'tion, T"e( 're e+e&o#ing $or co))on us'ge to ensure uni$or)it( 'n un erst'n '*i&it(, Accounting Princi#&es c'n *e c&'ssi$ie into t!o c'tegories, 6, Accounting conce#ts 'n 8, Accounting con+entions T"e conce#ts 'n con+ention c'n *e #ut in t"e $or) o$ ' c"'rt 's gi+en *e&o! A##"untin& 3rin#i3les

A##"untin& #"n#e3ts 6, Business entit( 8, Bone( Be'sure)ent :, Going concern ;, Cost <, Du'& As#ect Accounting #erio =, B'tc"ing @, Re'&is'tion D, O*.ecti+e E+i ence E, Accru'&

A##"untin& C"n4enti"ns 6, Fu&& Disc&osure 8, Conser+'tis) :, B'teri'&it( ;, B'teri'&it(

A##"untin& #"n#e3ts Accounting conce#ts )'( *e consi ere 's #ostu&'tes i,e,% *'sic 'ssu)#tions or con itions u#on !"ic" t"e science o$ 'ccounting is *'se , T"ere is no 'ut"orit'ti+e &ist o$ t"ese conce#ts *ut )ost o$ t"e $o&&o!ing conce#ts "'+e $'ir&( gener'& su##ort,

:

A##"untin& C"n4enti"ns . It #ro+i es t"'t re+enues !"ic" 're recogniCe on&( !"en t"e goo s 're e&i+ere to t"e custo)ers 'n "e *eco)es &eg'&&( *oun to #'(. !it"out #erson'& *i'sness eit"er si e.ecti+e e+i ences i. T"is c'n *e e>#&'ine !it" t"e "e&# o$ 'n 'ccounting e4u'tion. T"ese su##orting ocu)ents 're +ouc"ers% in+oices etc. As 'n entit(% it is '#'rt $ro) its o!ners% cre itors 'n ot"ers. C"st #"n#e3t Accor ing to t"is conce#t% 'n 'sset is recor e in t"e *oo7s 't t"e #rice #'i to 'c4uire it 'n t"is cost is t"e *'sis $or '&& su*se4uent 'ccounting $or t"e 'sset.ecti+e o$ running ' *usiness is to 'scert'in #ro$it #erio ic'&&(. Si)i&'r&(% 'ccor ing to t"is conce#t% e>#enses 're recogniCe in t"e 'ccounting #erio in !"ic" t"e( "e&# in e'rning t"e re+enue !"et"er c's" is #'i or not. 5ual as3e#t #"n#e3t Accor ing to t"is conce#t% e+er( tr'ns'ction "'s t!o $o& e$$ect i. A&& t"e tr'ns'ctions 're recor e in t"e *oo7s o$ 'ccounts 's 'n entit(. Realisati"n 7 Re4enue Realisati"n #"n#e3t Accor ing to t"is conce#t% re+enue is re'&ise !"en 'ctu'& s'&e too7 #&'ce.e. A##rual C"n#e3t T"e essence o$ 'ccru'& conce#t is t"'t re+enue i recogniCe !"en it i re'&ise % t"'t is !"en s'&e is co)#&ete or ser+ices 're gi+en 'n it is i))'teri'& !"et"er c's" is recei+e or not. T"e eter)in'tion o$ #ro$it o$ ' #'rticu&'r 'ccounting #erio is essenti'& ' #rocess o$ )'tc"ing t"e re+enue recogniCe uring t"e #erio 'n t"e costs to *e '&&oc'te to t"e #erio to o*t'in t"e re+enue. It )e'ns t"e contri*ution )' e *( t"e #ro#rietor 'n contri*ution )' e *( t"e outsi er )ust *e e4u'& to t"e tot'& 'ssets.'usiness entity #"n#e3t Accor ing to t"is conce#t% ' *usiness unit is reg'r e 's ' se#'r'te 'n istinct 'ccounting entit(.ecti+e or e+er( *usiness is to 7ee# t"e su##orting ocu)ents $or 'u iting #ur#ose.e. E+i ences s"ou& $ree $or) in i+i u'& *i'sness or $r'u % '&& t"e e+i ences o$ t"e *usiness tr'ns'ction s"ou& *e o*. T"e )ost i)#ort'nt o*. G"in& #"n#ern C"n#e3t5 Accounting is one on t"e 'ssu)#tion t"'t t"e *usiness s"'&& "'+e ' &ong &i$e 'n it !i&& continue to e>ist unti& it is isso&+e . It is $or t"is re'son t"'t $i>e 'ssets 're recor e 't origin'& cost 'n 're e#reci'te on t"e *'sis o$ t"eir e>#ecte &i$e r't"er t"'n on t"e *'sis or )'r7et +'&ue. Assets = Liabilities + Ca3ital A = L + C -at#6in& #"n#e3t T"e conce#t is *'se on t"e 'ccounting #erio conce#t. Assets 're not recor e 't )'r7et +'&ue *ec'use t"ese +'&ues 7ee# on c"'nging !it" c"'nges in #rice &e+e& $ro) ti)e to ti)e. -"ney $easure$ent #"n#e3ts T"e )one( )e'sure)ent conce#t signi$ies t"'t in 'ccounting ' recor is )' e on&( o$ t"ose tr'ns'ctions or e+ents !"ic" c'n *e e>#resse in ter)s o$ )one(. Un er t"ese circu)st'nces Assets 're e4u'&s to t"e E4uities. T"e #ro#rietor is reg'r e 's ' cre itor to t"e e>tent o$ "is c'#it'&. An( "'##ening or $'ct !"ic" c'n not *e e>#resse in ter)s o$ )one( c'n not *e recor e in 'ccounting *oo7s. . Ob8e#ti4e e4i9en#e C"n#e3t Accor ing to t"is conce#t% '&& t"e tr'ns'ctions !"ic" 're recor e in t"e *oo7s o$ 'ccount )ust *e su##orte *( *usiness ocu)ents $or re&i'*i&it(% trust!ort"iness 'n +eri$i'*i&it(. Accor ing to t"is conce#t 'sset +'&ues 're esti)'te *'se on e#reci'tion !it" res#ect to its &i$e #erio . T"e o*. De*it 'n Cre it.

G"et"er in$or)'tion is )'teri'& or i))'teri'& e#en s u#on t"e circu)st'nces o$ in i+i u'& c'se o$ *usiness. Boo7 ? 7ee#ing inc&u es recor ing in . C"n4enti"n "% -ateriality Accor ing to t"is con+ention% $in'nci'& st'te)ents s"ou& inc&u e '&& )'teri'& $'cts. 0Ho!e+er% it is #ossi*&e to o#er'te ' si)#&e s'&es &e ger 'n #urc"'se &e ger using sing&e entr(1 . Dou*&e Entr( *oo77ee#ing )'7es #ro ucing t"e (e'r en 'ccounts e'sier. =. 0T"ere/s so)et"ing $un ')ent'&&( !rong i$ t"is isn/t t"e c'se1 :. usages or practices followed by accountants as guide in preparation of financial statements. Iou c'n see t"e $in'nci'& #osition o$ t"e *usiness )uc" )ore c&e'r&(% 't 'n( gi+en ti)e% using ou*&e entr(. Done #ro#er&(% it c'n "e&# etect 'n re uce 'ccounting errors. C"n4enti"n "% #"nsisten#y T"e con+ention o$ consistenc( signi$ies t"'t t"e 'ccounting #r'ctices 'n )et"o s s"ou& re)'in consistent 0unc"'nge 1 $ro) one 'ccounting (e'r to 'not"er. :ee3in&5 Boo7 H Kee#ing is t"e science 'n 'rt o$ correct&( recor ing in t"e *oo7s o$ 'ccounts '&& t"ose tr'ns'ctions t"'t resu&t in t"e tr'ns$er o$ )one( or )one(/s !ort". B'teri'&it( e#en s on t"e ')ount in+o&+e in t"e tr'ns'ction. C"n4enti"n "% 5is#l"sure T"e con+ention o$ isc&osure )e'ns t"'t '&& t"e )'teri'& $'cts )ust *e isc&ose in t"e $in'nci'& st'te)ents. <.. A&& t"e recor s *e$ore t"e #re#'r'tion o$ t"e tri'& *'&'nce is c'&&e *oo7 ? 7ee#ing. It #ro+i es ' s#eci$ic )e'ns o$ e'&ing !it" o#ening 'n c&osing *'&'nces 0't t"e st'rt 'n en o$ t"e (e'r1 8. 5IFFERENCE 'ET=EEN 'OO<> <EEPING AN5 ACCOUNTING < . I$ (ou use 'n 'ccount'nt to #ro uce (our (e'r?en 'ccounts% "'+ing goo ou*&e?entr( recor s )'( &o!er (our 'ccount'nc( $ees. An ite) )'( *e )'teri'& $or one #erson 'n i))'teri'& $or 'not"er #erson.ourn'& #osing to &e ger 'n *'&'ncing o$ 'ccounts. T"ose #ersons !"o recor t"e tr'ns'ctions in t"e *oo7 7ee#ing 're c'&&e 2Boo7?Kee#ers3. '"": .Accounting conventions refer to customs. traditions. C"n4enti"n "% C"nser4atis$ "r Pru9en#e5 T"is con+ention is *'se on t"e #o&ic( o$ -#&'(ing s'$e/ Accor ing to t"is con+ention '&& #ossi*&e or e>#ecte &osses s"ou& *e #ro+i e $or *ut une'rne or unre'&iCe #ro$it s"ou& *e &e$t out. It #ro+i es 'n 'rit")etic c"ec7 on (our *oo77ee#ing% since t"e tot'& ')ount o$ e*it entries )ust e4u'& t"e tot'& ')ount o$ cre it entries. A5/ANTAGES OF 'OO< <EEPING 6. In ot"er !or s% 'ccounting #r'ctices s"ou& re)'in t"e s')e $ro) one #erio to 'not"er is #ossi*&e on&( !"en s')e 'ccounting ru&es 're $o&&o!e . Accor ing to In i'n Co)#'nies 'ct 6E<=F $in'nci'& st'te)ents 're to *e #re#'re !it" ')#&e #ro+isions $or t"e isc&osure o$ essenti'& in$or)'tion so t"'t t"ere !i&& no c"'nce o$ 'n( )'teri'&s in$or)'tion *eing &e$t out. Using ' S'&es Le ger 'n Purc"'se Le ger )e'ns (ou c'n tr'c7 !"o o!es t"e *usiness )one( 'n !"o t"e *usiness o!es )one( to )uc" )ore e'si&(. They are followed to make the financial statements clear and meaningful.

It "'s Li)ite Sco#e <. In si)#&e c"ec7 *oo7% e'c" tr'ns'ction is recor e in one co&u)n o$ 'n 'ccount 's eit"er ' #ositi+e or ' neg'ti+e ')ount in or er to re#resent t"e recei#t or is*urse)ent o$ c's". T"e #ersons in+o&+e in 'ccounting !or7 're c'&&e 'ccount'nts.'"": . Sing&e Entr( Boo7 Kee#ing 8.. It s"o! t"e net resu&ts o$ t"e $ir) 're ACCOUNTING S!STE-S B'se on t"e 'ccounting #rinci#&es 'ccounting s(ste)s 're i+i e into $o&&o!ing t!o t(#es 6.ect is #re#'re origin'& *oo7s o$ 'ccounts 8. :. .ourn'& $or e'c" tr'ns'ction. <ee3in& 6. Dou*&e Entr( Boo7 Kee#ing SINGLE ENTR! 'OO< <EEPING A sing&e entr( s(ste) is si)i&'r to ' c"ec7 *oo7 register 'n is c"'r'cteriCe *( t"e $'ct t"ere is on&( ' sing&e &ine entere in t"e . Since e+er( e*it oes not "'+e ' corres#on ing cre it% ' Tri'& B'&'nce c'n Not *e e>tr'cte to test t"e 'rit")etic'& 'ccur'c( o$ t"e entries. On&( insi ers 're intereste Boo7 H 7ee#ing. T"e #ersons in+o&+e in *oo7? 7ee#ing !or7 're c'&&e Boo7 H 7ee#ers.. T"is s(ste) is e)onstr'te in t"e $o&&o!ing e>')#&e $or ' re#'ir s"o# *usiness. = . :. It oes not s"o! t"e net resu&ts o$ t"e $ir). SINGLE COLU-N S!STEDATE JAN 6 JAN 8 JAN : PARTICULAR ABOUNT IN Rs BEGINNING BALANCE 6JJJ PURCHASED SHOP 8JJJ SUPPLIES PERFORBED SEVICES REPAIR :JJJ 5isa94anta&es "% Sin&le Entry Syste$* 6. Insi ers 'n Outsi ers intereste in Account'nts . T"e )'in o*. in A##"untin& 6.ect is to recor % c&'ssi$(% su))'rise% 'n'&(se 'n inter#ret t"e *usiness tr'ns'ctions. 8. Its )'in o*. It "'s !i er sco#e <.

An inco)e 'n e>#en iture 'ccounts c'n *e #re#'re to 7no! t"e e>cess inco)e9 e>#en iture uring ' #'rticu&'r #erio 'n to 7no! "o! suc" e>cess inco)e9 e>#en iture "'s 'risen <. To t"e &e$t o$ t"e +ertic'& &ine o$ t"e T 're t"e e*itsF to t"e rig"t o$ t"e T 're t"e cre its.> 6. 8.. *( @ . It is too e's( to #er#etr'te t"e errors 'n $r'u s 'n too i$$icu&t to etect t"e). Tr'ns'ctions 're recor e in ' scienti$ic 'n s(ste)'tic )'nner 'n t"us t"e *oo7s o$ 'ccounts #ro+i e t"e )ost re&i'*&e in$or)'tion $or contro&&ing t"e Org'niC'tion e$$icient&( 'n e$$ecti+e&(. T"is s(ste) is e)onstr'te in t"e $o&&o!ing e>')#&e $or ' re#'ir s"o# *usiness.ourn'& $or e'c" tr'ns'ction.8. 5ebit A e*it is 'n 'sset% c's" in "'n % or 'n ')ount o!e to (ou. To escri*e t"e tr'ns'ctions in ou*&e entr( s(ste) !e use 2T3 'ccounts conce#t T6e T A##"unt C"n#e3t T"in7 o$ t"e &etter T re#resenting 'n 'ccount. :. . <EEPING SINGLE ENTR! 'OO< <EEPING A sing&e entr( s(ste) is si)i&'r to ' c"ec7 *oo7 register 'n is c"'r'cteriCe *( t"e $'ct t"ere is on&( ' sing&e &ine entere in t"e . E>')#&e $or T 'ccount 5E'IT CRE5IT An 'ccount is re'&&( . It is #ossi*&e to 7ee# ' $u&& recor o$ u'& 's#ect o$ e'c" tr'ns'ction. So ' T 'ccount recor s t"e in 0recei+e 1 'n out 0gi+en o+er1 'cti+ities o$ '&& tr'ns'ctions o$ t"e s')e n'ture. In si)#&e c"ec7 *oo7% e'c" tr'ns'ction is recor e in one co&u)n o$ 'n 'ccount 's eit"er ' #ositi+e or ' neg'ti+e ')ount in or er to re#resent t"e recei#t or is*urse)ent o$ c's".ust ' *uc7et !"ere !e 7ee# '&& tr'ns'ctions o$ ' si)i&'r n'ture. Cre9it A cre it is 'n ')ount (ou o!e% c's" #'i out *( (ou% or )one( in+este in (our *usiness 0c'#it'&1. A5/ANTAGE OF 5OU'LE ENTR! S!STE. Since t"e tot'& e*it un er t"is s(ste) *e e4u'& to tot'& Cre it% 'rit")etic'& 'ccur'c( o$ t"e *oo7s c'n *e teste *( )e'ns o$ ' tri'& *'&'nce. 5OU'LE ENTR! 'OO< . T"e $in'nci'& #osition o$ t"e Org'niC'tion c'n *e re' i&( 'scert'ine #re#'ring ' B'&'nce S"eet. In '*sence o$ #ro#er recor s o$ 'n( 'ssets 'n o$ 'n( '&&o!'nces $or e#reci'tion or ot"er &osses o$ +'&ue% it is not #ossi*&e to #re#'re ' B'&'nce S"eet :.

 Inco)e is t"e i$$erence *et!een re+enue 'n e?3ense  T"e e*ts o!ing to ot"ers *( t"e *usiness is 7no!n 's Liabilities  Assets )inus &i'*i&ities is Ca3ital  A !ritten ocu)ent in su##ort o$ ' tr'ns'ction is c'&&e /"u#6er  Business tr'ns'ctions )'( *e c&'ssi$ie into tw" ty3es  Purc"'ses return )e'ns goo s returne to t"e su##&ier ue to 5e%e#ti4e quality  A)ount s#ent in or er to #ro uce 'n se&& t"e goo s 'n ser+ices is c'&&e E?3ense  Stoc7 in tr' es 're to *e recor e 't cost or )'r7et #rice !"ic"e+er is &ess is *'se on Pru9en#e #rinci#&e.  Recei#t is 'n 'c7no!&e ge)ent $or Cas6 re#ei4e9.  Tr'ns'ctions *et!een o!ner 'n *usiness 're recor e se#'r'te&( ue to 'usiness 'ssu)#tion. D .  Business concern )ust #re#'re $in'nci'& st'te)ents 't &e'st once in ' (e'r is *'se on A##"untin& 3eri"9 'ssu)#tion.  /"u#6er is ' !ritten ocu)ent in su##ort o$ ' tr'ns'ction.  Li'*i&ities re$er to t"e %inan#ial o*&ig'tions o$ ' *usiness.  O!ner o$ t"e *usiness is c'&&e Pr"3riet"r  An 'ccount is ' Su$$ary o$ re&e+'nt *usiness tr'ns'ctions 't one #&'ce re&'ting to ' #erson% 'ssets% e>#ense or re+enue n')e in t"e "e' ing.  T"e 'ssets 're recor e in *oo7s o$ 'ccounts in t"e cost o$ Ac4uisition is *'se on (ist"ri#al #"st conce#t. Fr'u s 're #re+ente % *ec'use '&ter'tion in 'ccounts *eco)es i$$icu&t 'n isco+er( o$ irregu&'rities is $'ci&it'te Abbreviations used in bookkeeping  a/c – account  B/S – Balance Sheet  c/d – carried down  b/d – brought down  b/f – brought forward  Dr – Debit record  Cr – Credit record  G/L – General Ledger: (or N/L – Nominal Ledger)  !L – rofit ! Lo""  #B – #rial Balance P"ints t" re$e$ber  T"e ')ount !"ic" t"e #ro#rietor "'s in+este in t"e *usiness is Ca3ital  Boo7?7ee#ing is 'n 'rt o$ recor ing 'usiness transa#ti"ns in t"e *oo7 o$ 'ccounts.  C"nsisten#y #rinci#&es re4uire t"'t t"e s')e 'ccounting )et"o s s"ou& *e $o&&o!e $ro) one 'ccounting #erio to t"e ne>t.  Accounting *egins !"ere '"":> :ee3in& en s.  T"e *ene$its to *e eri+e $ro) t"e 'ccounting in$or)'tion s"ou& e>cee its cost is *'se on C"st bene%it #rinci#&e.=.

 P&'nt 'n )'c"iner( is 'n e>')#&e o$ Real 'ccount.  I)#erson'& 'ccounts 're c&'ssi$ie into tw" t(#es. As #er t"e *usiness entit( 'ssu)#tion% t"e *usiness is i$$erent $ro) t"e "wner  Going concern 'ssu)#tion te&& us t"e &i$e o$ t"e *usiness is /ery l"n&  Cost incurre s"ou& *e )'tc"e !it" t"e re+enues o$ t"e #'rticu&'r #erio is *'se on -at#6in& #"n#e3t  As #er u'& 's#ect conce#t% e+er( *usiness tr'ns'ction "'s Tw" #"n#e3ts  Accounting )'( *e consi ere 's 'asi# #"n9iti"ns u#on !"ic" t"e science o$ 'ccounting is *'se .  Discount '&&o!e re&'te to N"$inal 'ccount  T"e recei+ing 's#ect in ' tr'ns'ction is c'&&e 's 5ebit as3e#t T"e gi+ing 's#ect in ' tr'ns'ction is c'&&e 's Cre9it as3e#t  Bur'&i 'ccount is 'n e>')#&e $or Pers"na A7#  C'#it'& 'ccount is c&'ssi$ie un er Pers"nal A7#  A #rinci#&e is "b8e#ti4e to t"e e>tent t"'t t"e 'ccounting in$or)'tion is not in$&uence *( t"e #erson'& *i's o$ t"ose !"o $urnis" t"e in$or)'tion.  T"e ter) Con+entions enotes #ust"$s "r tra9iti"ns !"ic" gui e t"e 'ccount'nt !"i&e #re#'ring t"e 'ccounting st'te)ents.  C'#it'& 'ccount is 'n e>')#&e o$ Pers"nal 'ccount.  T"e A)eric'n '##ro'c" is ot"er!ise 7no!n 's A##"untin& Equati"n '##ro'c".  Co))ission recei+e !i&& *e c&'ssi$ie un er N"$inal 'ccount.  A #rinci#&e is %easible to t"e e>tent t"'t it c'n *e '##&ie !it"out un ue co)#&e>it( or cost  Goo !i&& is 'n e>')#&e o$ Intan&ible real  Co))ission recei+e is 'n e>')#&e o$ N"$inal  Outst'n ing rent A9c is 'n e>')#&e $or Re3resentati4e 3ers"nal A7#  No)in'& Account is c&'ssi$ie un er I$3ers"nal A7#  Dr'!ings 'ccount is c&'ssi$ie un er Pers"nal A7#  T"e F't"er o$ Accounts is Lu#a 3a#i"li E .  Tr' ition'& '##ro'c" o$ 'ccounting is '&so c'&&e 's 'ritis6 '##ro'c".  T"e inco)ing 's#ect o$ ' tr'ns'ction is c'&&e 5ebit 'n t"e outgoing 's#ect o$ ' tr'ns'ction is c'&&e Cre9it  T"e *usiness entit( conce#t i)#&ies t"'t ' *usiness unit is se3arate $ro) t"e #erson !"o su##&ies c'#it'& to it.

Tr'ns'ctions 're recor e c"rono&ogic'&&(% So% . A tr'ns'ction is recor e $irst o$ '&& in t"e . when the "um of debit "ide amount" e-ual" to the "um of credit "ide amount"( OR An 'ccounting recor !"ere '&& *usiness tr'ns'ctions 're origin'&&( entere % ' . Journ'& entries 're usu'&&( recor e in c"rono&ogic'& or er% 'n using t"e ou*&e?entr( )et"o o$ *oo77ee#ing.ourn'& is c'&&e c"rono&ogic'& *oo7 . 8.ourn'& et'i&s !"ic" tr'ns'ctions occurre 'n !"'t 'ccounts !ere '$$ecte . A tr'ns'ction is recor e on t"e s')e '( it t'7es #&'ce. :. C6ara#teristi#s "% .JOURNALS Definition of Journal: $ %ournal i" a record that &ee'" accounting tran"action" in chronological order i(e( a" the) occur( $ll accounting tran"action" are recorded through %ournal entrie" that "how account name"* amount"* and whether tho"e account" are recorded in debit or credit "ide of account"( $ %ournal entr) i" called +balanced. So t"e .ourn'&.ourn'& is c'&&e Origin'& or Pri)e entr( *oo7s o$ Accounts.ourn'& is c'&&e t"e *oo7 o$ origin'& entr(. For e'c" tr'ns'ction t"e n')es o$ t"e t!o concerne 'ccounts in ic'ting !"ic" is e*ite 'n !"ic" is cre ite % 're c&e'r&( !ritten in t!o 6J ."urnal5 Journ'& "'s t"e $o&&o!ing c"'r'cteristics5 6. A .ourn'& is c'&&e D'( Boo7. So% .. Journ'& is t"e $irst success$u& ste# o$ t"e ou*&e entr( s(ste).

"urnal 5ate Parti#ulars L*F* 5r* A$"unt Cr* A$"unt L. Journ'& s"o!s t"e co)#&ete stor( o$ ' tr'ns'ction in one entr(.F st'n s $or Le ger Fo&io nu)*er. So% t"ere is no #ossi*i&it( o$ co))itting 'n( )ist'7e in !riting t"e &e ger. $or #'ssing 'n entr( in t"e Journ'& t"e $o&&o!ing ste#s re4uire to *e t'7en. F"r$ "% . T"is )'7es &e ger?#osting e's(. So t"ere is no #ossi*i&it( o$ 'n( tr'ns'ction *eing o)itte $ro) t"e *oo7s o$ 'ccount. 8. T"is re#resents t"e P'ge nu)*er o$ t"e Le ger. <.ourn'&% c"rono&ogic'&&( !it" n'rr'tion% it c'n *e e'si&( 'scert'ine !"en 'n !"( ' tr'ns'ction "'s t'7en #&'ce. :. Ste3s %"r 3"stin& ."urnalisin& For Journ'&ising ' tr'ns'ction% i.e. An'&(se t"e n'ture o$ 'ccount. . T"en '##&( t"e corres#on ing or re&e+'nt ru&es $or e*it 'n cre it 'n $in out !"ic" 'ccounts is to *e e*ite 'n !"ic" 'ccount is to *e cre ite .. Since t"e tr'ns'ctions 're 7e#t recor e in . =.OURNAL ENTRIES 66 . Since '&& t"e e*its o$ tr'ns'ction 're recor e in . T"'t is !"( . Consi er t"e tr'ns'ctions !"ic" 're e'&ing t"e $ir). 6. 8. A94anta&es "% . As ' resu&t &e ger is 7e#t ti ( 'n *rie$.consecuti+e &ines.ourn'&. T"e ')ount is !ritten in t"e &'st t!o co&u)ns ? e*it ')ount in e*it co&u)n 'n cre it ')ount in cre it co&u)n. For e'c" 'n e+er( tr'ns'ction !"ic" o$ t"e t!o concerne 'ccounts !i&& *e e*ite 'n !"ic" 'ccount cre ite % 're c&e'r&( !ritten in . E'c" tr'ns'ction is recor e 's soon 's it t'7es #&'ce. N'rr'tion is !ritten *e&o! e'c" entr(. =."urnal T"e $o&&o!ing 'rte t"e ' +'nt'ges o$ . An( )ist'7e in &e ger c'n *e e'si&( etecte !it" t"e "e&# o$ . E@A-PLES ON .ourn'&% it is not necess'r( to re#e't t"e) in &e ger.ourn'& is c'&&e KAssist'nt to Le gerK or Ksu*si i'r( *oo7K <.ourn'&5 6. :.ourn'&. First 'scert'in t"e t!o 'ccounts in+o&+e t"e tr'ns'ction.

He *oug"t $urniture $or Rs.)*E@ERCISE Journ'&ise t"e $o&&o!ing tr'ns'ctions 'n gi+e t"e n'ture o$ 'ccount 0!"et"er #erson'&% re'& or no)in'&1 in e'c" c'se. 6<JJ J'n D So& goo s to Ani& on cre it $or Rs. 6JJJ J'n 6J De#osite c's" in *'n7 Rs. )o"'n st'rte *usiness !it" 6JJJ c's". 6<JJ An goo s $or 6JJJ J'n 8 Purc"'se goo s on cre it $or) So"'n L'& $or Rs. 6EE= J'n 6 Br. J'n : P'i $or c'rri'ge Rs. <JJ. <JJ SOLUTION . <J J'n = Purc"'se goo s on c's" #'()ent $or Rs. DJJ J'n 68 P'i rent Rs.OURNAL ENTR! 5ate )AA2 J'n 6 Parti#ulars C's" A9c Dr To Bo"'n/s c'#it'& A9c 0st'rte *usiness !it" c's"1 Furniture A9c Dr To c's" A9c 0*oug"t $urniture $or c's"1 Purc"'se A9c Dr To c's" A9c 0*oug"t goo s $or c's" Purc"'se A9c Dr To so"'n &'& A9c 0#urc"'se goo s on cre it1 C'rri'ge A9c To c's" A9c c'rri'ge in c's"1 Dr 0P'i l*F 5ebit A$t In Rs 6JJJJ 6JJJJ 6<JJ 6<JJ 6JJJ 6JJJ Cre9it A$t Nature "% In Rs a##"unt Re'& Person'& Re'& Person'& Re'& Person'& J'n 8 <JJ <JJ Re'& Person'& J'n : <J <J 8=JJ 8=JJ 6<JJ 6<JJ 6JJJ No)in'& Re'& Re'& Re'& Person'& Re'& Person'& 68 J'n = Purc"'se A9c Dr To c's" A9c 0Purc"'se goo s in c's" 1 C's" A9c Dr To s'&es 0so& goo s on c's"1 Ani&/s A9c Dr J'n @ J'n D . 8=JJ J'n @ So& goo s to Kris"n'n L'& on c's" $or Rs.

A#ri& 8 T"e $ir) #urc"'se $urniture $or Rs D<J 'n te&e#"one $or Rs.Be icines !ere s7i i* cre it to B9s P'u& Be ic'& H'&& $or Rs :JJJ A#ri& @ P'i $or o$$ice st'tion'r( Rs 6JJ A#ri& D P'i ' +'nce rent $or A#ri& Rs <JJ A#ri& E Recei+e c's" #'()ent $or) B9s #'u& Be ic'& H'&& $or Rs 8<JJ A#ri& 6J De#ostie Rs 8JJJ in *'n7 A#ri& 68 P'i $or e&ectric *i&& Rs .To s'&es 0 so& goo s on cre it1 J'n 6J B'n7 A9c Dr To c's" 0 e#osite c's" in *'n71 Rent A9c Dr To c's" 0B( rent P'i 1 TOTAL DJJ 6JJJ Re'& Person'& Re'& DJJ J'n 68 <JJ <JJ )A01B )A01B No)in'& Re'& +*E?er#ise Journ'&ise t"e $o&&o!ing tr'ns'ctions in t"e *oo7s o$ B9s Pre) Be ic'& H'&&. Be icines !ere so& on cre it to G'rg son/s $or Rs 68JJ A#ri& = . To c's" 'ccount 0c's" e#osite in *'n71 Furniture A9C Dr To *'n7 'ccount 0 $urniture #urc"'se $or Rs. 6DJJJ in t"e *'n7. A#ri& 8 D<J D<J 6: . D<J 'g'inst c"e4ue1 L. T"e $ir) o#ens 'n Account !it" *'n7 'n e#osits Rs.8<JJ. D'te 6EE= A#ri& 6 2 6 P'rticu&'rs C's" A9C Dr To c'#it'& 'ccount 0st'rte *usiness !it" Rs 8JJJ1 B'n7 A9C Dr. T"e T"e #'()ent !'s )' e *( c"e4ue. 8JJJJ. <DJJ on cre it A#ri& . 6EE= A#ri& 6 B9s Pre) Be ic'& H'&& st'rts *usiness !it" Rs.F Dr 8JJJJ 8JJJJ 6DJJJ 6DJJJ Cr.DJ A#ri& 6< Recei+e c's" $ro) G'rg Son/s Rs 6JJJ SOLUTION5 Journ'& entr( o$ B9S #re) Be ic'& H'&& . A#ri& : Be icines !ere #urc"'se $ro) R')es" Be ic'& H'&& $or Rs.

1 B'n7 A9c Dr To c's" 'ccount 0 e#osite c's" in *'n71 E&ectricit( A9c Dr.1 C's" A9c Dr To G'rg son/s 'ccount 0recei+e c's" $ro) G'rg Son/s +i e recei#t No..1 P'u& Be ic'& H'&& A9c Dr To s'&es 'ccount 0so& )e icines to B9s #'u& Be ic'& "'&& +i e in+oice NoL1 St'tioner( A9c Dr To c's" 'ccount 0#'i st'tioner( +i e c's" )e)o NoL1 Rent A9c Dr To c's" 'ccount 0#'i ' +'nce rent $or A#ri& +i e &'n &or /s recei#t NoL1 C's" A9c Dr To B9s P'u& Be ic'& H'&&/s 'ccount 0recei+e c's" $ro) B9s P'u& )e ic'& "'&& +i e recei#t No. ..DJ 6JJJ 6JJJ A#ri& 68 A#ri& 6< 6.. 1 8<JJ 8<JJ A#ri& : <DJJ <DJJ A#ri& .DJ . To c's" 'ccount 0#'i e&ectric *i&& +i e recei#t No. 68JJ 68JJ A#ri& = :JJJ :JJJ A#ri& @ 6JJ 6JJ A#ri& D <JJ <JJ A#ri& E 8<JJ 8<JJ A#ri& 6J 8JJJ 8JJJ . . 8<JJ 'g'inst c"e4ue1 Purc"'se A9c Dr To r')es" Be ic'& H'&& 'ccount 0Purc"'se )e icines $ro) R')es" Be ic'& H'&& on cre it1 G'rg Son/s A9c Dr To s'&es 'ccount 0so& )e icines to G'rg Son/s on cre it +i e in+oice No..2 8 Te&e#"one A9c Dr To *'n7 'ccount 0te&e#"one #urc"'se $or Rs.

ourn'&s 0t"e M*oo7s o$ $irst entr(M1 's e*its 'n cre its% 'n s"o!s t"eir current *'&'nces.  'a9 9ebts 'ccount is e*ite $or t"e ')ount not reco+ere $ro) t"e custo)er. OR Co&&ection o$ 'n entire grou# o$ si)i&'r 'ccounts in ou*&e?entr( *oo77ee#ing% A&so c'&&e *oo7 o$ $in'& entr(% ' &e ger recor s c&'ssi$ie 'n su))'riCe $in'nci'& in$or)'tion $ro) .B 1CA.  C&osing cre it *'&'nce o$ ' cre itor !i&& *e !ritten on t"e 9ebit si e o$ t"e Cre itor/s Account.ourn'& is c'&&e .  In ou*&e entr( *oo7?7ee#ing% e+er( tr'ns'ction '$$ects 't &e'st t!o A##"unts. Hence% it is i$$icu&t to get $u&& in$or)'tion '*out ' #'rticu&'r 'ccount.ourn'& re#resents t"e #&'ce o$ #osting o$ 'n entr( in t"e &e ger 'ccount.B P"ints t" Re$e$ber  T"e source ocu)ent gi+es in$or)'tion '*out t"e n'ture o$ t"e Transa#ti"ns  T"e 'ccounting e4u'tion is ' st'te)ent o$ Equality *et!een t"e e*its 'n cre its. In co)#uteriCe s(ste)s% it consists o$ inter&in7e igit'& $i&es% *ut $o&&o!s t"e s')e 'ccounting #rinci#&es 's t"e )'nu'& s(ste). T"ese 's#ects re&'te to #erson'&% re'& 'n no)in'& 'ccounts. Since% ' se#'r'te 'ccount is o#ene in t"e &e ger $or e+er( *usiness tr'ns'ctionF 'ccounting in$or)'tion is )' e '+'i&'*&e $ro) ti)e to ti)e to t"e )'n'gers 'n #ro#rietors.TOTAL 1CA. In )'nu'& 'ccounting s(ste)s% ' &e ger is usu'&&( ' &oose &e'$ *in er !it" ' se#'r'te #'ge $or e'c" &e ger 'ccount."urnalisin&  T"e L*F co&u)n o$ .  Assets 're '&!'(s e4u'& to &i'*i&ities #&us Ca3ital  A tr'ns'ction !"ic" incre'ses t"e c'#it'& is c'&&e Re4enue "r In#"$e  T"e .  An entr( is #'sse in t"e *eginning o$ e'c" current (e'r is c'&&e O3enin& Entry  Goo s istri*ute 's $ree s')#&es s"ou& *e e*ite to A94ertise$ent Account.  T"e origin o$ ' tr'ns'ction is eri+e $ro) t"e S"ur#e 9"#u$ent  A)ount o!ne *( t"e #ro#rietor is c'&&e Ca3ital  T"e Accounting E4u'tion is connecte !it" AssetsD Liabilities an9 #a3ital  Git" r'!'&s o$ c's" $ro) *'n7 *( t"e #ro#rietor $or o$$ice use s"ou& *e cre ite to 'an: A7#  Bui& ing Account in ic'te ' 9ebit *'&'nce. A5/ANTAGES OF LE5GER 6.ourn'& 's #er t"eir 'te o$ occurrence. 6< . A&& t"e tr'ns'ctions o$ t"e *usiness 're recor e in t"e . LE5GERS 5EFINITION OF LE5GER A &e ger is ' *oo7 cont'ining 'ccounts o$ +'rious 's#ects.ourn'& is ' *oo7 o$ "ri&inal entry "r 3ri$e  Recor ing o$ tr'ns'ction in t"e .

T"is is ' *oo7 o$ origin'& entr(. 6. In c'se o$ ' &'rge concern% t"e $o&&o!ing t(#es o$ &e ger )'( *e $oun . :. T"e #rocess o$ recor ing ' tr'ns'ction is c'&&e . Journ'& entries 're &'ter #oste into t"e &e ger :. LE5GER 6. Pr"%"r$a "% Le9&er Dr 5ate Parti#ulars F A$"unt 5ate Parti#ulars F Cr A$"unt F st'n s $or $o&io !"ic" re#resents t"e #'ge no o$ &e ger T!PES OF LE5GER In c'se o$ ' s)'&& *usiness concern !it" ' &i)ite nu)*er o$ tr'ns'ctions% t"e &e ger is )' e to cont'in '&& t"e #erson'&% re'& 'n no)in'& 'ccounts. 8. :. Ho!e+er% !"ere t"e tr'ns'ctions 're +o&u)inous% it *eco)es necess'r( to )'int'in ' nu)*er o$ &e gers. Tr'ns'ctions 're $irst recor e in t"is *oo7 :.. #re#'ring $in'& 'ccounts to 7no! t"e $in'nci'& resu&ts 'n $in'nci'& Position.ourn'&is'tion.ourn'& entries in &e ger 'ccount is c'&&e &e ger #osting. P"int t" be n"te9 w6ile 3re3arin& le9&er a##"unts 6= . Gener'& &e ger H $or re'& 'n no)in'& 'ccounts. .. T"is oes not "e&# in 'ssessing t"e su))'r( . Boug"t &e ger or Cre itor/ &e ger H $or 'ccounts o$ cre itors. % !ou& '+'i&'*&e in t"e &e ger.e. In$or)'tion re&'te to e>#en iture is #resent in t"e e>#en iture 'ccount in t"e &e ger. .. In+est)ent &e ger H $or in+est)ents o$ +'rious t(#es. s'&es% #urc"'ses% i$$erent t(#es o$ e>#en iture% inco)es etc. 8. T"is is ' *oo7 o$ $in'& entr(. 8.. T"is "e&#s in #ro+i ing t"e su))'r( o$ tr'ns'ctions 'n in O$ tr'ns'ctions 're resu&ts t"ereo$. Hence% it is #ossi*&e to contro& t"e *usiness e>#en iture !it" t"e in$or)'tion '+'i&'*&e $ro) t"e 'ccount. . S'&es Le ger or De*tor/ &e ger H $or 'ccounts o$ e*tors. 5IFFERENCE 'ET=ENN . Pro$it 'n &oss 'ccount is #re#'re 't t"e en o$ t"e 'ccounting (e'r to $in out #ro$it 'n &osses o$ *usiness.OURNAL 6. In$or)'tion re&'te to $in'nci'& st'tus 0Assets 'ccount% Li'*i&ities 'ccount1 o$ t"e co)#'n( is '+'i&'*&e $ro) t"e &e ger etc. A&& t"e in$or)'tion re&'te to t"ese 'ccounts i.. T"e #rocess o$ entering t"e .8.OURNAL AN5 LE5GER .

*F E.  c9 )e'ns Carrie9 9"wn 'n *9 )e'ns 'r"u&6t 9"wn.. T"e .F.ourn'& is . POINTS TO RE-E-'ER  Le ger is t"e Princi#'& "r %inal *oo7 o$ 'ccount.  De*iting 'n 'ccount signi$ies recor ing t"e tr'ns'ctions on t"e 5ebit si e.  Cre it B'&'nce )e'ns Cre9it t"tal is "e'+ier t"'n 5ebit t"tal*  Re'& 'ccounts c'nnot "'+e #re9it *'&'nce. G"i&e )'7ing #osing in 'n( &e ger 'ccount% t"e n')e o$ t"'t 'ccount s"ou& not '##e'r eit"er on t"e e*it si e or on t"e cre it si e o$ t"e 'ccount.  T"e #rocess o$ tr'ns$erring entries $ro) Journ'& to t"e Le ger is c'&&e P"stin&.  Account "'+ing e*it *'&'nce is c&ose *( !riting by balan#e #79*  L. Use *( $ir)s !it" &'rger nu)*er o$ custo)ers 0or cre itors1% t"ese &e gers i+i e )'sses o$ $in'nci'& 't' into )ore )'n'ge'*&e #'rts.ourn'&. :. . For e>')#&e in Rent 'ccount% !e c'n not "'+e To Rent 'ccount or *( rent 'ccount.  c9$ )e'ns Carrie9 %"rwar9 an9 b7% $eans br"u&6t %"rwar9.  T"e tec"ni4ue o$ $in ing g t"e net *'&'nce o$ 'n 'ccount '$ter consi ering t"e tot'&s o$ *ot" e*its 'n cre its '##e'ring in t"e 'ccount is 7no!n 's 'alan#in& "% a##"unts  Le ger is ' *oo7 o$ Final Entry  Person'& 'n re'& 'ccounts 're 'alan#e9  T"e co&u)n o$ &e ger !"ic" &in7s t"e entr( !it" . Tot'& o$ '&& in i+i u'& 'ccounts in ' su*si i'r( &e ger e4u'&s t"e *'&'nce o$ t"e corres#on ing su))'r( 'ccount 0c'&&e contro& 'ccount1 in t"e gener'& &e ger.  T"e &e$t "'n si e o$ 'n 'ccount is 7no!n 's 5ebit 'n t"e rig"t "'n si e 's Cre9it si9e. For '&& t"e tr'ns'ctions re&'ting to 'n( #'rticu&'r 'ccount% on&( one 'ccount s"ou& *e o#ene .ourn'& entries s"ou& *e #oste to t"e &e ger 'ccounts in t"e or er o$ t"eir 'tes. In t"e &e ger% ' se#'r'te 'ccount s"ou& *e o#ene $or e'c" 'ccount '##e'ring in . 8.ourn'& is $i&&e 't t"e ti)e o$ P"stin&. Su*si i'r( *oo7s 're o$ eig"t t(#es."urnal F"li"F  Posting on t"e cre it si e o$ 'n 'ccount is !ritten 's 'y  No)in'& 'ccount "'+ing cre it *'&'nce re#resents In#"$e an9 &ain  No)in'& 'ccount "'+ing e*it *'&'nce re#resents E?3enses an9 L"sses  Re'& 'ccounts '&!'(s s"o! 5ebit balan#es  G"en t"e tot'& o$ e*its 'n cre its 're e4u'&% it re#resents Nil balan#e  T"e *'&'nces o$ #erson'& 'n re'& 'ccounts 're s"o!n in t"e 'alan#e s6eet SU'SI5IAR! 'OO<S Su*si i'r( *oo7s 're S#eci'& or su##orting &e ger 0suc" 's cost &e ger% #urc"'ses &e ger% s'&es &e ger1 t"'t #ro+i es )ore et'i&e in$or)'tion '*out in i+i u'& 'ccounts t"'n ' gener'& &e ger.6. 6@ . co&u)n in t"e .

e. It is use to recor c's" recei#ts 'n c's" #'()ents si e *( si e. 'ills re#ei4ables it recor s '&& recei#ts !"ic" t"e co)#'n( is recei+ing $ro) custo)ers or outsi ers in $uture. T"e c's" *oo7 is i+i e into $our t(#es. Sales b"": to recor '&& cre it s'&es o$ goo s. Purc"'se returns *oo75 to recor '&& #urc"'ses returns i. '&& goo s returne *( t"e tr' er to "is su##&iers. 'ill 3ayables5 it recor s '&& #'()ents !"ic" t"e co)#'n( "'s to #'( to custo)ers or outsi ers in $uture. 8. Sales returns b"": to recor '&& s'&es returns i. @. . Subsi9iary b"":  Su* i+ision o$ t"e . 6D . As suc"% t"e *oo7 is ru&e &i7e ' &e ger 'ccount% !it" t"e e*it 'n cre it si es% 'n t"e *'&'nce re#resents c's" on "'n 't t"e en o$ t"e 'ccounting #erio . Cas6 b"": to recor recei#ts 'n #'()ent o$ c's" inc&u ing e#osits 'n #'()ents o$ c's" inc&u ing e#osits 'n #'()ents out o$ *'n7.ourn'&s into +'rious *oo7s $or recor ing Tr'ns'ctions o$ si)i&'r n'ture 're c'&&e Subsi9iary b"":s*  T"e tot'& o$ t"e Pur#6ases *oo7 is #oste to t"e e*it o$ #urc"'ses 'ccount.. '&& goo s returne *( t"e tr' er to "is su##&iers.  Purc"'ses *oo7 is 7e#t to recor On&( #as6 3ur#6ase  Cre it s'&es 're recor e in Sales b"":  Goo s returne *( custo)ers 're recor e in Sales return b"":  On 6st J'nu'r( 8JJ:% C"'n r'n r'!s ' *i&& on Sun 'r $or : )ont"s% its ue 'te is 0t6 A3ril CAS( 'OO< 5EFINITION OF CAS( 'OO< T"e c's" *oo7 is ' *oo7 o$ origin'& entr( $or c's" tr'ns'ctions.e."urnal 3r"3er It recor s '&& t"ose tr'ns'ctions t"'t c'n not *e recor e in 'n( o$ t"e '*o+e *oo7s. Pur#6ase b"": to recor cre it #urc"'ses o$ goo s. D. <. =. .6. :. E>')#&e o#ening entries 'n c&osing entries 'n ' .ust)ents. Besi es *eing ' *oo7 o$ origin'& entr(% t"e c's" *oo7 '&so ser+es 's ' &e ger 'ccount.  T"e #erson !"o #re#'res ' *i&& is c'&&e t"e 5rawer*  D'(s o$ gr'ce 're t6ree in nu)*er.

Si)#&e c's" *oo7 8. T"e s#eci)en Per$or)' o$ ' si)#&e c's" *oo7 is gi+en 's $o&&o!s5 5r Re#ei3ts 5ate Parti#ulars A$"unt Pay$ents 5ate Parti#ulars Cr A$"unt Tw" #"lu$n #as6 b"": A t!o H co&u)n c's" *'c7 recor s iscount '&&o!e 'n A&ong !it" t"e c's" #'()ents 'n c's" recei#ts iscount recei+e PROFOR-A OF T=O COLU-N CAS( 'OO< 5r Re#ei3ts Pay$ents Cr 5ate Parti#ulars A$t A$t 5ate Parti#ulars A$t A$t 5is#"unt Cas6 5is#"unt Cas6 N"te Discount co&u)ns 're not *'&'nce t"e( 're )ere&( tot'&&e . G"en c's" e#osite in *'n7 8. T!o? co&u)n c's" *oo7 :.. T"ree co&u)n c's" *oo7 . C"ntra entry Contr' entr( is ' tr'ns'ction !"ic" '$$ects *ot" t"e e*it 'n cre it si es o$ t"e c's" *oo7.6. T"e recei#ts 're Recor e in t"e Dr Si e 'n t"e #'()ents 're recor e in t"e Cr si e o$ t"e C's" *oo7. It c'n *e recor e in t!o situ'tions 6. Pett( c's" *oo7. T6ree #"lu$n #as6 b"": A t"ree co&u)n c's" Boo7 is ' c's" *oo7 !"ic" cont'ins *'n7 co&u)n '&ong !it" c's" 'n iscount co&u)ns. G"en c's" !it" r'!n $ro) *'n7 6E . SI-PLE CAS( 'OO< A si)#&e c's" *oo7 is #re#'re &i7e 'n( or in'r( 'ccount. Contr' entr( is re&'te to *'n7 tr'ns'ctions.

 Interest "r 9i4i9en9 "n se#urities is #"lle#te9 by t6e ban: It "'s to *e entere in t"e *'n7 co&u)n on t"e e*it si e 's -To interest9 i+i en on securities/.  Cas6 wit69rawn %r"$ ban: It is t"e Contr' entr(% $or c's" it *eco)e Recei#t 'n $or *'n7 it *eco)e P'()ent. L'ter on !"en C"e4ue 7e#t in t"e c's" *o> is sent to t"e *'n7 $or co&&ection% Contr' entr( !i&& *e recor e in t"e c's" *oo7 *( gi+ing e*it to *'n7 co&u)n recor ing t"e $'ct o$ C"e4ue co)ing to t"e *'n7 'n cre it to c's" co&u)n in ic'ting t"'t C"e4ue is gone out o$ t"e o$$ice. F"r$at "% T6ree C"lu$n Cas6 b"": 5r Re#ei3ts Pay$ents Cr 5ate Parti#ulars A$t A$t A$t 5ate Parti#ulars A$t A$t A$t 5is# Cas6 'an: 5is# Cas6 'an: R"lls %"r 3"stin& t6ree #"lu$n Cas6 b"":  Cas6 Pai9 int" ban: It is t"e contr' entr(% $or c's" it *eco)e P'()ent 'n $or *'n7 it *eco)e recei#t.  C6eque is 9rawn %"r 3ers"nal use It "'s to *e entere in t"e *'n7 co&u)n on t"e cre it si e 's -B( r'!ing 'ccount3 in suc" c'se no contr' entr( is in+o&+e .  Re#ei3t "% C6eque I$ ' C"e4ue is recei+e 'n 7e#t in t"e c's" *o> 0i.  'an: #6ar&es an9 Pay$ents $a9e by t6e ban: "n be6al% "% t6e #ust"$er T"ese entries s"ou& *e entere in t"e *'n7 co&u)n on t"e cre it si e o$ t"e c's" *oo7 's t"e( re uce t"e *'&'nce 't *'n7. not sent to t"e *'n7 $or co&&ection1% it s"ou& *e e*ite in t"e c's" co&u)n% *ut i$ it is i))e i'te&( sent to t"e *'n7 $or co&&ection% t"e e*it s"ou& *e gi+en in t"e *'n7 co&u)n. De*it t"e C's" 'ccount 2To *'n73 in C's" co&u)n% 'n Cre it t"e *'n7 'ccount 2B( c's"3 in *'n7 co&u)n. De*it t"e *'n7 'ccount 2To c's"3 in *'n7 co&u)n% 'n Cre it t"e C's" 'ccount 2B( *'n73 in C's" co&u)n.  5is6"n"ure9 C6eque I$ ' C"e4ue sent to t"e *'n7 $or co&&ection is is"onoure % it s"ou& *e cre ite in t"e *'n7 co&u)n o$ t"e c's" *oo7 to c'nce& t"e #re+ious e*it gi+en to t"e *'n7 co&u)n !"en t"e C"e4ue !'s e#osite in t"e *'n7.Contr' entries 're re#resente !it" 2C3 in Le ger $o&io co&u)n.  Pay$ent by C6eque Suc" #'()ent s"ou& *e cre ite in t"e *'n7 co&u)n o$ t"e c's" *oo7. Petty Cas6 b"": A *usiness "ouse )'7es ' nu)*er o$ s)'&& #'()ents &i7e te&egr')% te>ti&es% c'rt'ge etc.e. I$ '&& t"ese tr'ns'ctions 're recor e in c's" *oo7 t"e c's" *'n7 )'( *eco)e *u&7( 'n t"e )'in c's"ier/s !or7 !i&& '&so incre'se t"ere$ore usu'&&( $ir)s '##oint ' #ett( c's"ier !"o )'7es t"ese s)'&& #'()ents 'n 7ee# recor o$ t"ese #'()ents in ' se#'r'te c's" *oo7 !"ic" is c'&&e Pett( C's" *oo7. 8J .

ect o$ c"ec7ing t"e 'rit")etic'& 'ccur'c( o$ t"e &e ger #ostings.% Tr' ing 'n Pro$it A Loss Account 'n B'&'nce s"eet. S.  A c"e4ue recei+e 'n #'i into t"e *'n7 on t"e s')e '( is recor e in t"e 'an: co&u)n o$ t"e t"ree co&u)n c's" *oo7.  T"e *'&'nce in t"e #ett( c's" *oo7 is an asset TRIAL 'ALANCE 5e%initi"n "% Trial balan#e It is ' st'te)ent #re#'re 't t"e en o$ t"e $in'nci'& (e'r or 't 'n( ot"er ti)e !it" t"e net *'&'nces o$ +'rious 'ccounts s"o!n in t"e &e ger or !it" t"e tot'&s o$ +'rious 'ccounts on *ot" t"e si es *e$ore $in ing t"e net *'&'nces or c'sting.  I$ ' c"e4ue sent $or co&&ection is is"onoure % t"e e*it is gi+en to #ust"$ers A7#  I$ ' c"e4ue issue *( us is is"onoure t"e cre it is gi+en to su33lier’s A7#  T"e *oo7 t"'t recor s '&& s)'&& #'()ents is c'&&e Petty Cas6 b"":. T"is st'te)ent "e&#s in testing t"e 'rit")etic 'ccur'c( or 'ccounts 'n &oc'ting errors% i$ 'n(% co))itte .o* o$ #re#'ring $in'& st'te)ents i.  T"e #erson !"o )'int'ins #ett( c's" *oo7 is 7no!n 's Petty Cas6ier  An'&(tic'& #ett( c's" *oo7 is .Pr"%"r$a "r F"r$at "% 3etty #as6 b"": Re#ei3ts 5ate /"u#6er N" Parti#ula r T"tal C"n4eyan#e Carta&e P"sta&e An9 Tele&ra$ Stati"nery Sun9ries P"ints t" Re$e$ber  Discount '&&o!e co&u)n '##e'rs in 5ebit si e o$ t"e c's" *oo7.e. 2T"e Tri'& B'&'nce is ' st'te)ent cont'ining t"e *'&'nces o$ '&& &e ger 'ccounts% 's 't 'n( gi+en 'te% 'rr'nge in t"e $or) o$ e*it 'n cre it co&u)ns #&'ce si e *( si e 'n #re#'re !it" t"e o*.  Discount recei+e co&u)n '##e'rs in Cre9it si e o$ t"e c's" *oo7. T"is st'te)ent #ro+i es t"e net *'&'nces o$ se+er'& 'ccounts t"ere*( si)#&i$( t"e .  G"en ' c"e4ue recei+e $ro) ' custo)er is is"onoure % "is Account is 9ebite9.ust &i7e t"e C's" '"":.  C's" Boo7 is one o$ t"e Subsi9iary *oo7s.  T"e #erio ic tot'& o$ e'c" co&u)n in t"e 'n'&(tic'& #ett( c's" Boo7 is #oste to t"e concerne N"$inal 'ccounts.3 ? B. Gous'+ 86 .  T"e c's" *oo7 recor s all #as6 re#ei3ts G 3ay$ents  G"en goo s 're #urc"'se $or c's"% t"e entr( !i&& *e recor e in t"e #as6 b"":  T"e *'&'nce o$ c's" *oo7 in ic'tes #as6 in 6an9  In tri#&e co&u)n c's" *oo7% c's" !it" r'!n $ro) *'n7 $or o$$ice use !i&& '##e'r in *ot" si9es "% t6e #as6 b"":.  In t"e tri#&e co&u)n c's" *oo7% !"en ' c"e4ue is recei+e t"e ')ount is entere in t"e Cas6 co&u)n.

. To &oc'te t"e errors o$ co))ission etc. :.A5/ANTAGES OF TRIAL 'ALANCES 6. To #ro+i e ' *'sis% su*.ust)ents $or t"e #re#'r'tion o$ $in'& 'ccounts or $in'nci'& st'te)ents H t"e #ro$it 'n &oss 'ccount 'n t"e *'&'nce s"eet.. To test t"e 'rit")etic'& 'ccur'c( o$ t"e *oo7s 8. Rules "% Trial 'alan#e Parti#ulars C'#it'& O#ening stoc7 S'&es Return In!'r s Return out!'r s G'ges Freig"t Tr'ns#ort E>#ense Purc"'se Ro('&ties G's A Fue& *' e*ts *' e*ts reser+es Re#'irs Rent S'&'ries Lo'n t'7en Interest Recei+e Interest '&&o!e Insur'nce C'rri'ge Out!'r s A +ertise)ents Pett( E>#enses Tr' e E>#enses De*tors Cre itors Bi&&s P'('*&e Bi&&s Rules In balan#e Cre it De*it Cre it De*it Cre it De*it De*it De*it De*it De*it De*it De*it Cre it De*it De*it De*it Cre it Cre it De*it De*it De*it De*it De*it De*it De*it Cre it De*it Cre it Trial 88 . To su))'riCe t"e e$$ects o$ '&& tr'ns'ctions o$ 'n 'ccounting #erio so t"'t t"e )'n'ge)ent c'n "'+e co)#'r'ti+e $igures $or 'rri+ing 't use$u& conc&usions..ect to ' .

 S"ort cre it o$ 'n 'ccount ecre'ses t"e Cre9it co&u)n o$ t"e tri'& *'&'nce.Recei+'*&e De#reci'tion Pre#'i Insur'nce In+est)ents Pre#'i rent 0Recei+e 1 Out st'n ing rent Gener'& Reser+e L'n A Bui& ing Furniture C's" in "'n C's" 't *'n7 De*it De*it De*it Cre it Cre it Cre it De*it De*it De*it De*it Sus3ense A##"unt A sus#ense Account is 'n 'ccount in t"e gener'& &e ger t"'t is use to te)#or'ri&( store 'n( tr'ns'ctions $or !"ic" t"ere is so)e uncert'int( '*out t"e 'ccount.  Sus#ense 'ccount "'+ing e*it *'&'nce !i&& *e s"o!n on t"e Asset si e o$ *'&'nce s"eet.  E>cess e*it o$ 'n 'ccount c'n *e recti$ie *( Cre9it Et6e e?#ess a$"unt inF t"e s')e 'ccount.  I$ t"e tot'& e*it *'&'nce o$ t"e tri'& *'&'nce e>cee s t"e tot'& cre it *'&'nces% t"e i$$erence is tr'ns$erre to t"e Cre9it si e o$ t"e sus#ense 'ccount..  I$ t"e t!o si es o$ t"e tri'& *'&'nce t'&&(% it is 'n in ic'tion o$ t"e $'ct t"'t t"e *oo7s o$ 'ccounts 're arit6$eti#ally a##urate 8: .  G"en errors 're &oc'te 'n recti$ie % Sus3ense a##"unt 'uto)'tic'&&( gets c&ose . OR A sus#ense 'ccount is 'n 'ccount use te)#or'ri&( to c'rr( ou*t$u& recei#ts 'n is*urse)ents or iscre#'ncies #en ing t"eir 'n'&(sis 'n #er)'nent c&'ssi$ic'tion. P"ints t" Re$e$ber  Tri'& B'&'nce s"ou& *e t'&&ie *( $o&&o!ing t"e ru&es o$ 5"uble entry syste$*  I$ t"e tot'& e*it e>cee s t"e tot'& cre its o$ tri'& *'&'nce% sus#ense 'ccount !i&& s"o! Cre9it *'&'nce.  Sus#ense 'ccount "'+ing cre it *'&'nce !i&& *e s"o!n on t"e Liabilities si e o$ t"e *'&'nce s"eet.  Journ'& entries #'sse to correct t"e errors 're c'&&e re#ti%yin& entries*. An entr( into sus#ense 'ccount )'( *e ' De*it or Cre it.

Journ'&is'tion Fin'& Accounts Le ger #osting Tri'& B'&'nce 8. .  Tri'& *'&'nce is #re#'re to $in out t"e Arit6$eti#al a##ura#y "% t6e a##"unts  Sus#ense 'ccount in t"e tri'& *'&'nce is entere in t"e 'alan#e s6eet  Sus#ense 'ccount "'+ing cre it *'&'nce !i&& *e s"o!n on t"e Liabilities si9e "% 'alan#e s6eet  Errors !"ic" '$$ect one si e o$ 'n 'ccount 're c'&&e Sin&le si9e9 err"rs  I$ t"e t!o si es o$ t"e tri'& *'&'nce t'&&(% it is 'n in ic'tion o$ t"e $'ct t"'t t"e *oo7s o$ 'ccounts 're arit6$eti#ally a##urate  Goo s t'7en *( t"e #ro#rietor $or o)estic use s"ou& *e cre ite To 3ur#6ase A##"unt  C's" recei+e $ro) B'ni !"ose 'ccount !'s #re+ious&( !ritten o$$ 's ' B' De*t s"ou& *e cre ite to5 'a9 9ebt a##"unt A##"untin& Cy#le5 Accounting c(c&e is ' s(ste) o$ co&&ection% stor'ge 'n #rocessing o$ $in'nci'& 'n 'ccounting 't' t"'t is use *( ecision )'7ers 0t"e #ersons !"o #re#'res 'ccounts in ' $ir)1. T"e $o&&o!ing i'gr') e#icts t"e 'ccount c(c&e in ' *usiness org'niC'tion. S"ort e*it o$ 'n 'ccount c'n *e recti$ie *( %urt6er 9ebit o$ t"e s')e 'ccount.

Be$ore iscussing t"e #re#'r'tion o$ $in'& 'ccounts% it is necess'r( to 7no! t"e istinction *et!een c'#it'& 'n re+enue ite)s. 8. One o$ t"e )'in o*. Tr' ing Account 8. 6. E>')#&es 're% e>#enses incurre in t"e nor)'& course o$ *usiness suc" 's e>#enses o$ ' )inistr'tion% e>#en iture incurre in )'nu$'cturing 'n '&& se&&ing goo s etc. T"is istinction is necess'r( *ec'use re+enue ite)s 're s"o!n in t"e tr' ing 'n #ro$it 'n &oss 'ccount 'n c'#it'& ite)s 're s"o!n in t"e *'&'nce s"eet. Fin'& 'ccounts inc&u es t"e $o&&o!ing t"ree $'ctors 6. T"e '*o+e t"ree $'ctors 're c'&&e $in'& 'ccount ue to $o&&o!ing re'sons.FINAL ACCOUNTS Final A##"unts5 T"e $in'nci'& st'te)ents o$ 'n org'niC'tion )' e u# 't t"e en o$ 'n 'ccounting #erio % usu'&&( t"e $isc'& (e'r 're c'&&e $in'& 'ccounts. Pro$it 'n &oss 'ccount :. T"e( 're #re#'re 't t"e en o$ t"e Tr' ing Perio . 8< . Ca3ital e?3en9iture C'#it'& e>#en iture is t"'t e>#en iture !"ic" resu&t in t"e 'c4uisition o$ 'n 'sset or !"ic" resu&ts in 'n incre'se in t"e e'rning c'#'cit( or !"ic" '$$or s so)e ot"er ' +'nt'ge to t"e $ir).ect o$ t"e )'int'ining t"e $in'& 'ccounts is to $in out t"e #ro$it or &oss )' e *( t"e *usiness uring ' #erio 'n to 'scert'in t"e $in'nci'& #osition o$ t"e *usiness 's on ' gi+en 'te. :. A)ount re'&iCe on t"e s'&e o$ goo s in !"ic" t"e #ro#rietor e'&s% interest on in+est)ents etc. B'&'nce s"eet To 7no! t"e Pro$it 'n &oss )' e *( t"e *usiness% Tr' ing 'n #ro$it 'n &oss 'ccount is #re#'re . Re4enue e?3en9iture An( ite) o$ e>#en iture !"ose *ene$it e>#ires !it"in t"e (e'r or e>#en iture !"ic" )ere&( see7s to )'int'in t"e *usiness or to 7ee# 'ssets in goo !or7ing con ition is re+enue e>#en iture. T"e #osition o$ t"e *usiness on t"e &'st 'te o$ t"e $in'nci'& (e'r !i&& *e re+e'&e *( t"e B'&'nce s"eet. E>')#&es o$ c'#it'& e>#en iture 're $or t"e 'c4uisition o$ &'n % *ui& ing% )'c"iner( etc. T"e( 're #re#'re $in'&&(% '$ter '&& t"e *oo7s o$ 'ccounts 're c&ose 'n tri'& *'&'nce is e>tr'cte . Ca3ital an9 re4enue re#ei3ts A)ount re'&iCe *( !'( o$ &o'n% s'&e o$ #er)'nent or $i>e 'ssets etc in c'#it'& recei#t. T"e( s"o! t"e $in'& resu&ts o$ ' *usiness. 're re+enue recei#ts.

e. 5ebit Si9e Ite$s 6.% net s'&es.TRA5ING ACCOUNT A tr' ing 'ccount is 'n 'ccount !"ic" cont'ins% 2in su))'riCe $or)% '&& t"e tr'ns'ctions% occurring% t"roug"out t"e tr' ing #erio % in co))o ities in !"ic" "e e'&s3 'n !"ic" gi+es t"e gross tr' ing resu&t. In s"ort% tr' ing 'ccount is t"e 'ccount !"ic" is #re#'re to eter)ine t"e gross #ro$it or t"e gross &oss o$ ' tr' er. Net Purc"'se )' e uring t"e (e'r 0i. De*it e>#enses% i$ 'n(.e. :. ITE-S OF TRA5ING ACCOUNT T"e $o&&o!ing 're t"e ite)s usu'&&( '##e'r in t"e e*it 'n cre it si es o$ t"e tr' ing 'ccount. T"e +'&ue o$ o#ening stoc7s o$ goo s 0i. Cre9it Si9e Ite$s 6.% t"e stoc7 o$ goo s !it" !"ic" t"e *usiness !'s st'rte 1. T"e +'&ue o$ c&osing stoc7 o$ goo s. In tr' ing 'ccounting !e consi ere '&& irect e>#en iture to esti)'te t"e +'&ue o$ gross #ro$it.% Purc"'ses &ess returns1. 8.e. 8. Tot'& s'&e )' e uring t"e #erio &ess t"e +'&ue o$ returns% i. Tra9in& A##"unt Pr"%"r$a Parti#ulars A$"unt Parti#ulars A$"unt To O#ening stoc7 >>>> To Purc"'ses >>>> B( s'&es >>>> Less5 Purc"'se returns >>>> >>>> Less5 S'&es Returns >>>> >>>> T" 5ire#t e?3enses B( c&osing stoc7 >>>> To C'rri'ge in!'r >>>> B( Gross Loss c9 >>>> %% G'ges >>>> %% Fue& 'n Po!er >>>> -anu%a#turin& Or Pr"9u#ti"n E?3enses To Co'&% !'ter 'n G's >>>> %% Boti+e #o!er >>>> %% F'ctor( Lig"ting >>>> %% Octroi >>>> %% I)#ort ut( >>>> %% Custo) ut( >>>> %% E>cise ut( >>>> %% Consu)'*&e stores >>>> %% F'ctor( rent% r'tes 'n t'>es >>>> %% Fore)'n9 !or7s B'n'ger/s s'&'r( >>>> %% Ro('&t( on B'nu$'cture Goo s >>>> %% Ot"er irect c"'rges >>>> To Gross #ro$it c9 >>>> 8= .

Pro$it 'n &oss 'ccount "e&#s to eter)ining t"e r'tio *et!een net #ro$its to o#er'ting e>#enses. A5/ANTAGES OF PROFIT AN5 LOSS ACCOUNT 6. Tr' ing 'ccount s"o!s t"e re&'tions"i# *et!een gross #ro$it 'n s'&es t"'t "e&#s to )e'sure #ro$it'*i&it( #osition. Pro$it 'n &oss 'ccount "e&#s in contro&&ing in irect e>#enses. In #ro$it 'n &oss 'ccount !e consi ere '&& in irect e>#enses to esti)'te t"e +'&ue o$ Net #ro$it..T"tal ???? T"tal ???? A5/ANTAGES OF TRA5ING ACCOUNT 6. 8. 8. :. Pro$it 'n &oss 'ccount gi+es t"e 'ctu'& in$or)'tion '*ut in irect e>#enses. PROFIT AN5 LOSS ACCOUNT An 'ccount in t"e *oo7s o$ 'n org'niC'tion to !"ic" inco)es 'n g'ins 're cre ite 'n e>#enses 'n &osses e*ite % so 's to s"o! t"e net #ro$it or &oss o+er ' gi+en #erio .0OR1 A $in'nci'& st'te)ent s"o!ing ' co)#'n(Ms net #ro$it or &oss in ' gi+en #erio 0OR1 An 'ccount )' e u# o$ re+enue 'n e>#ense 'ccounts !"ic" s"o!s t"e current #ro$it or &oss o$ ' *usiness 0i. Tr' ing 'ccount s"o!s t"e r'tio *et!een cost o$ goo so& 'n gross #ro$it :.. Tr' ing 'ccount "e&#s to co)#'re *et!een cost o$ goo so& 'n gross #ro$it <. . <.e. Tr' ing 'ccount #ro+i es in$or)'tion reg'r ing stoc7 'n cost o$ goo so& . Tr' ing 'ccount gi+es t"e in$or)'tion '*out e$$icienc( o$ tr' ing 'cti+ities . 8@ . !"et"er ' *usiness "'s e'rne )ore t"'n it "'s s#ent in t"e current (e'r1. O$ten re$erre to 's ' PAL. Pro$it 'n &oss 'ccount ser+es to eter)ine t"e r'tio *et!een net #ro$its to s'&es. Pro$it 'n &oss 'ccount gi+es t"e 'ctu'& in$or)'tion '*ut net #ro$it or net &oss o$ t"e *usiness $or 'n 'ccounting #erio .

PROFOR-A FOR P7L ACCOUNT PARTICULARS To Gross Loss *9 T" sellin& an9 5istributi"n e?3enses5 A +ertise)ent Tr'+e&&er/s S'&'ries% E>#enses A co))ission B' De*ts Go o!n Rent E>#ort E>#enses C'rri'ge Out!'r s B'n7 c"'rges Agent/s co))ission U#7ee# o$ Botor &orries T" -ana&e$ent E?3enses Rent% R'tes 'n t'>es He'ting 'n Lig"ting O$$ice s'&'ries Printing A st'tioner( Post'ge ATe&egr')s Te&e#"one c"'rges Leg'& c"'rges Au it c"'rges Au it $ees Insur'nce Gener'& e>#enses 5e3re#iati"n an9 -aintenan#e De#reci'tion Re#'irs A B'inten'nce T" Finan#ial E?3enses Discount A&&o!e Interest on C'#it'& Interest on Lo'ns Discount on Bi&&s T" E?tra"r9inary E?3enses Loss *( $ire 0not co+ere *( insur'nce1 C's" e$'&c'tions To Net #ro$it tr'ns$erre to A-OUNT PARTICULARS >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> B( Gross #ro$it *9 ..... Interest on De*entures . Rent $ro) Ten'nts . Discount Recei+e .. Inco)e $ro) 'n( ot"er Source .... Bisce&&'neous Re+enue Recei#ts . Inco)e $ro) In+est)ents .. Interest Recei+e . A##rentices"i# #re)iu) . B( Net &oss Tr'ns$erre to C'#it'& A9C A-OUNT >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> >>>> 8D . co))ission Recei+e ..

c'#it'& A9C T"tal >>>> ???? T"tal ???? 'ALANCE S(EET A *'&'nce s"eet is ' st'te)ent o$ t"e tot'& 'ssets 'n &i'*i&ities o$ 'n org'nis'tion 't ' #'rticu&'r 'te ? usu'&&( t"e &'st 'te o$ 'n 'ccounting #erio . Does not gi+e 'ccur'te #icture on re'& ti)e *'sis since out 'te +'&ue o$ 'ssets 're use 8E . A #ro#er&( r'!n u# *'&'nce s"eet gi+es in$or)'tion re&'ting to 6. T"e n'ture 'n e>tent o$ &i'*i&ities :. N'ture 'n +'&ue o$ 'ssets.. T"e *'&'nce s"eet is use to c'&cu&'te r'tios% suc" 's t"e current r'tio% 'ci test r'tio% 'n &e+er'ge r'tio. 5ISA5/ANTAGES I. B( co)#'ring #'st *'&'nce s"eets !it" t"e #resent *'&'nce s"eet% t"e gro!t" or ec&ine o$ t"e *usiness 'ssets% &o'ns 'n net !ort" c'n *e eter)ine . 8. 8. G"et"er t"e $ir) is o+er tr' ing A94anta&es "% balan#e s6eet 6. T"ese r'tios 're use to e+'&u'te t"e $in'nci'& #er$or)'nce o$ t"e *usiness. G"et"er t"e $ir) is so&+ent .

T"e t!o $o& e$$ect o$ t"e ' . it !i&& *e e ucte $ro) t"e concerne e>#ense 'ccount in #ro$it 'n &oss 'ccount 'n 81 s"o!n on t"e 'sset si e o$ *'&'nce s"eet 's #re#'i e>#enses.ourn'&iCe *( t"e en o$ t"e 'ccounting #erio . !"ose *ene$it !i&& *e '+'i&'*&e in $uture 're c'&&e une>#ire or #re#'i e>#enses. T"e $o&&o!ing 're t"e i)#ort'nt ' .e. .* Une?3ire9 an9 3re3ai9 e?3enses E>#enses !"ic" "'+e *een #'i in ' +'nce i.ust)ent is 61 it !i&& *e ' e to t"e concerne e>#ense 'ccount 'n 81 Out st'n ing e>#enses !i&& *e s"o!n on t"e &i'*i&ities si e o$ *'&'nce s"eet. T"e t!o $o& e$$ect o$ ' . +* Outstan9in& e?3enses E>#enses !"ic" "'+e *eco)e ue *ut not #'i 't t"e en o$ t"e $in'nci'& (e'r 're c'&&e outst'n ing e>#enses.ust)ents s"o!n '$$ect on B'&'nce s"eet 'n Tr' ing9Pro$it &oss 'ccount.ust)ent is 61.T(E PROFOR-A OF 'ALANCE S(EET LIA'ILITIES A-OUNT Current Li'*i&ities5 Bi&&s P'('*&e Sun r( cre itors B'n7 o+er r'$t Out st'n ing e>#enses Inco)e Recei+e in ' +'nce Long ter) Li'*i&ities5 Lo'ns $ro) B'n7 De*entures An( ot"er &o'n Fi>e Li'*i&ities5 C'#it'& A 5 Net #ro$it Less5 Dr'!ings ASSET A-OUNT Li4ui Assets5 C's" in "'n C's" in *'n7 F&o'ting Assets5 Sun r( De*tors In+est)ents Bi&&s Recei+'*&e Stoc7 in Tr' e Pre#'i E>#enses Accrue Inco)e Fi>e Assets5 B'c"iner( Bui& ing Furniture A Fi>tures Botor C'r Fictitious Assets5 A +ertise)ent Bisce&&'neous E>#enses Pro$it A Loss A9c Int'ngi*&e Assets5 Goo !i&& P'tents Co#(rig"t Licenses @@@@ TOTAL @@@@ TOTAL A98ust$ents A . A .ust)ents in $in'& 'ccounting )* Cl"sin& st"#: T"e unso& stoc7 o$ goo s re)'ining 't t"e en o$ t"e 'ccounting #erio is ter)e 's 2C&osing stoc73. :J .ust)ents 're tr'ns'ctions re&'ting to *usiness !"ic" "'+e not *een . T"e t!o $o& e$$ect o$ t"e ' .ust)ent entr( is 61 It !i&& *e '##e're in tr' ing 'ccount on t"e cre it si e 'n 81 It !i&& '##e're in 'ssets si e o$ *'&'nce s"eet.

T"e t!o $o& ' .ust)ent is 61 +'&ue o$ goo !it" r'!n *( t"e #ro#rietor s"ou& *e e ucte $ro) #urc"'se 'ccount on t"e e*it si e 'n 81 e ucte $ro) t"e c'#it'& on t"e &i'*i&ities si e.ust)ent entr( is 61 is s"o!n on e*it si e o$ t"e #ro$it 'n &oss 'ccount 'n 81 it is e ucte $ro) sun r( e*tors on t"e 'ssets si e o$ t"e *'&'nce s"eet.ust)ent entr( is 61 S"o!n on e*it si e o$ #ro$it 'n &oss 'ccount 81 T"e ')ount o$ interest on c'#it'& is ' e to t"e c'#it'& on t"e &i'*i&ities si e. 1* In#"$e re#ei4e9 in A94an#e Inco)e recei+e in ' +'nce *ut not e'rne uring t"e 'ccounting #erio is c'&&e inco)e recei+e in ' +'nce. C* Interest "n #a3ital So)e ti)es interest is #ro+i e on t"e c'#it'& in+este *( t"e #ro#rietor in t"e *usiness. ))* Reser4e %"r 9is#"unt "n #re9it"rs I$ t"e *usiness is run on t"e soun *'sis t"en it !i&& )'7e #'()ents to its cre itors 's e'r&( 's #ossi*&e. )B* Pr"4isi"n %"r 9is#"unt "n 9ebt"rs It is ' nor)'& #r'ctice to '&&o! iscount to custo)ers $or #ro)#t #'()ent. T"e t!o $o& ' .ust)ent entr( is 61 s"o!n on cre it si e o$ t"e #ro$it 'n &oss 'ccount 'n 81 t"e ')ount o$ interest on r'!ings is ' e to r'!ings% !"ic" is u&ti)'te&( e ucte $ro) c'#it'&.ust)ent entr( is 61 it is e ucte in #ro$it 'n &oss 'ccount on t"e cre it si e $ro) t"e concerne inco)e 'ccount 'n 81 s"o!n in *'&'nce s"eet on t"e &i'*i&ities si e 's inco)e recei+e in ' +'nce. 2* 5e3re#iati"n De#reci'tion is t"e re uction in t"e +'&ue o$ 'n 'sset ue to !e'r 'n te'r% &'#se o$ ti)e etc.ust)ent entr( is 61 e#reci'tion is s"o!n on t"e e*it si e o$ #ro$it 'n &oss 'ccount 'n 81 it is s"o!n 's ' e uction $ro t"e concerne 'sset 'ccount in *'&'nce s"eet. T"e t!o $o& ' .ust)ent entr( is 61 It s"o!n on e*it si e #ro$it 'n &oss 'ccount 81 s"o!n on t"e 'sset si e o$ t"e *'&'nce s"eet *( !'( o$ e uction $ro) sun r( e*tors. H* Interest "n 9rawin&s I$ interest on c'#it'& is c"'rge % it is *ut n'tur'& t"'t interest on r'!ings s"ou& *e c"'rge to t"e #ro#rietor. )+* A##i9ental l"sses So)e *usiness 'ssets &ost ue to $ire% t"e$t or ot"er re'sons. :6 . T"e t!o $o& ' . ).ust)ent entr( is 61 is s"o!n on cre it si e o$ #ro$it 'n &oss 'ccount 'n 81 s"o!n on t"e &i'*i&ities si e o$ t"e *'&'nce s"eet *( !'( o$ e uction $ro) sun r( cre itors. It is tre'te 's *usiness e>#ense. A* 'a9 9ebts e*ts 're irreco+er'*&e 're c'&&e *' e*ts. I$ t"e 'ssets 're estro(e *( t"e $ire t"e t!o $o& ' .* G""9s wit69rawn %"r 3ers"nal use I$ t"e goo s 're !it" r'!n *( t"e #ro#rietor $or #erson'& use t"e t!o $o& entr( $or t"is ' . T"e t!o $o& entr( $or t"is ' .ust)ent entr( is 61 &oss *( $ire is e*ite to #ro$it 'n &oss 'ccount 81 T"e ')ount is e ucte $ro) t"e #'rticu&'r 'sset 'ccount on t"e 'sset si e o$ *'&'nce s"eet.ust)ent entr( is 61 it !i&& *e ' e to t"e concerne inco)e 'ccount in #ro$it 'n &oss 'ccount on t"e cre it si e 'n 81 s"o!n in t"e *'&'nce s"eet on t"e 'ssets si e.ust)ent is 61 it s"o!n e*it si e o$ t"e #ro$it 'n &oss 'ccount 'n 81 s"o!n on t"e &i'*i&ities si e o$ t"e *'&'nce s"eet. )0* Reser4e %un9 Reser+e $un is 'n '##ro#ri'tion o$ net #ro$it $or strengt"ening t"e $in'nci'& #osition o$ t"e *usiness. Interest on r'!ings is 'n inco)e o$ t"e *usiness. T"e t!o $o& ' . T"e t!o $o& ' . T"e t!o $o& ' . T"e t!o $o& e$$ect ' .0* A##rue9 In#"$e T"e Inco)e !"ic" is e'rne *ut not recei+e uring t"e 'ccounting (e'r is c'&&e 'ccrue inco)e. T"e #r'ctice e'rns *ot" goo !i&& 'n iscount $or t"e *usiness.

:8 .