ACCOUNTANCY HIGHER SECONDARY —FIRST YEAR, Untouchability isa Sin Untouchability is a Crime Untouchability s Inhuman, ‘TAMILNADU TEXTBOOK CORPORATION College Road, Chennai - 600 006.(© Goverament of Tailnads int Eton 2008 CHAIRPERSON Driv) R. AMUTHA Reader in Commerce Sustce Basher Ahmed Sayed College for Women Chennai - 60 018. REVIEWERS De.K.GOVINDARAJAN DeM.SHANMUGAM, Reader in Conszece Reader in Commerce ‘Aertel Unive SIVET College “Aanazla Nagar 608002, ‘Gosivataz Cheaa601302. ‘Mrs. AKTHAR REGUM ‘SG. Lecturer in Commerce (Quside Milt Govt, College for Women ‘Anna Salt, Chennai 600002. AUTHORS “Thiru G RADHAKRISHNAN ‘Thi SS.KUMARAN SG, Leste in Commerce Covrnr, Panning Unit SIVET Calge| (Gadget & Acouns) GGowrivaban, Chennai -€01302. Education for All Project College Road, Chenat-600008, ‘Thiru N.MOORTHY Ms X.RAMA, PG. Asst. Special Grae) PG. Asseant Govt Higher Secondary School Lay Anda Venkatasibba Rao [Nayakanpenal 631601 ‘Kancheepuram Distt. Price: Rs. “Tir book har ben prepared he Directors of School Education onbehalf othe Govt. of Tula, "Ths book bas boon printd oa 0 GSM. paper Printed by Offset at Matriculation He. Se. Schoo! (Ceipet, Chennai 600031 PREFACE “Thebcok on Accountany hasbeen writen scl in asconance vith thenew syllabus framed by the Government of Tari Nad Ascurrculum renewal isa continuous process, Accountancy caerculum has undergode various types of changes from tie totimein accordance withthe changing needs ofthe society. The presenteffort ‘of refaming and updstingthc curriculum n Accountancy atte Higher Secondary level san exercise based onthe feedback rom the wer. ‘This prescribed txt book serves as a foundation forthe basic principles of Accountancy. By introducing the subject tthe higher Secondary level, great care hasbeen taken to emphasize on minute {details to enable the students o grasp the concept with este. The ‘vocabulary and terminology used in te text bookisin accordance with ‘he comprehension and maturity lve ofthe students ‘Thistext would serveasa fox stool while they pune theirhigher stuics,Sinoe the textcaties practical methods of maintaining accounts ‘he students could wsethis for their carer. Along withexampies lating tothe immediate envionment ofthe students innovative leaming methods like chats, diagrams apd tables havebeen presented simplify conceptualized Ieming. Asmentonad earl, ths text servesasa foundation course which iscoupled with sample questions and examples. These questions and ‘exampes serve forabeter understanding ofthe subject. Questions for examinations need not be restricted to the exercises alone ChairpersonL SYLLABUS Introduction to Accounting [14 Periods ] Need and Importance ~ Book-keeping ~ Accounting ~ ‘Accountancy, Accounting and Book-keeping ~ Users of ‘scvounting information ~ Branches of accounting ~ Basic sccountng terms, Conceptual Frame workof Accounting (7 Perads Basic assumptions ~ Basic concepts Modifying principles — Accounting Stns Basic Accounting Procedures 1 ~Double Entry System af Book-Keeping (7 Periods Doublecary sytem Account~Golenrulesof accounting Basic Accounting Procedures TI Journal [21 Periods} ‘Source documents ~ Accounting equation - Rules fr debiting sndreding - Books of rginal entry ~Joural- strains. Basic Accounting Procedures IT. Ledger [21 Periods} ‘Meaning ~ Utility ~Format Posting Balancing an account — Distinction between oumal and ledger Subsidiary Books 1 = Special Purpose Books [21 Periods} ‘Need — Purchase book ~ Sales book Returns books — Bills of exchange ~Bls book —Joumal proper * %. 10, wu. 2 Subsidiary Books 1. = Cash Book [21 Periods | Features Advantages Kinds of cash books Subsidiary Books IT = Petty Cash Book 17 Periods ‘Meaning —Impres sytem — Analytical pet cash book —Format Balancing of petty cash book ~ Posting of petty cash book cents Advantages, ‘Bank Reconciliation Statement [21 Periods Pass book ~ Difference between cath book and pass book — ‘Bank econcliton stiement~ Causes disagreement between balance shown by cash book and the balance shown by pass ‘book Procedure for preparing bank reconcitation statement — Format. ‘Trial Balance and Rectification of Errors 21 Periods ] Definition ~ Objectives - Advantages ~ Methods ~ Format ~ ‘Sundry debtors and creditors ~ Limitations ~ rosin secounting Steps o locate the errs ~ Suspense account Rectification of (Capital and Revenue Transactions 17 Periods | Capital transactions - Revenue transactions ~Defered revenie transactions — Revenue expenditure, Capital expenditure and Deferred revenue expenditure Distinction ~ Capital profitand revenue profit ~ Capital loss and even os Final Accounts 122 Periods Pua of Final Accounts Trading account ~Proftand loss accourt Balance sheet Preparation of Final AccountsCONTENTS: Chapter 1, Introduction o Accounting 2, Conceptual Frame Work of Accounting 3. Basie Accounting Procedures 1 Double Entry System of Book-Keeping 4, Basie Accounting Procedures Journal 5. Basic Accounting Procedures II—Ledger 6, Subsidiary Books I-Special Purpose Books 7. Subsidiary Books II-Cash Book 8, Subsidiary Books IIl~Petty Cash Book 9, Bank Reconciliation Statement 10, Trial Balance and Rectification of Errors 11, Capita and Revenue Transactions 12, Final Accounts Page No. a 28 38 82 109 140 176 194 22 256 20 Books for further reference: u. 2 1B 14 15, 16. 0” 18 1, ‘TSGreval ~ Double Enrry Book Keeping, RL. Gupta ~ Principles and Practice of Accountancy TS Grewal —Inioduction o Accountancy Pail & Kerlahll ~ Principles and Practices of Accountancy SKePaul~ Accountancy Vol. MLPithal, $K Sharma & 88 Sehrawart- Accountancy Textbook Jor Class X1 NCERT. Institute of Company Secretaries of In ‘Aecountaney. ‘Vinsyagam, PLMani,K.Nagaajn Principe of Accountancy. PCTulsia, §.D Tuli ~ SC Accountancy for Class XI ‘Jambunian, $ Arobisany, VM Gopala Kesha, PNatalan ~ Book-kecping and Principles of Commerce Principle of [Narayan Vash ~ Bookkeeping and Aecous. Tamil Nada Textbook Corporation ~ Accountancy Higher Secondary First Year. LS Porwal, RG Sasena, BBaneree, Man Mohan, NK Agarwal ~ Accounting A Textbook for Class XI Part I, NCERT. Jain & Narang ~ Financlal Acouaing RL.Gopta, Radha Swamy ~ Financial Accounting RKGupta, VAC Gupte ~ Financial Accounting. Basu Das ~ Practice in Accountancy. SKePoul - Practical Accounts Voll (Ghose Dostdar Das ~ Graded Accounting Problems, MLC Shokla ~ Advanced AccountacyCHAPTER - 1 INTRODUCTION TO ACCOUNTING Learning Objectives After snudying this Chapter, you will be able to: > understand the Need, Meaning, Deftnition, Objectives and Advantages of Book-Keeping. > know the Need, Definition, Objectives and Process of Accounting. > distinguish beeween Book-Keeping and Accounting. > identify the Users of Accounting Information and their Need. > know the Basic Accounting Terms. "Accounting is as old as money itself. Since in early ages ‘commercial activities were based on barter sytem, record keeping was nota necessity. The Indastal Revolution of 19* century along, with pid rise in population, paved way forthe development of commercial activites, mass production and credit terms. Thus recowng of business transaction has become an important feature. In recent years with the change of technologies and marketing along With stiff competion, accountng system as undergone remarkable tangs 11.1 Need and Importance of Accounting ‘When a person stars a business, whether large or small, his main aim iso eam profit. He receives money from certain sources like sale of goods, interest on bank deposits tc. He has to spend :money on certain items like purchase of goods, salary, rent te: ‘These sctivities tke place during the normal course of his business. “He would naturally be anxious tthe yea end, to know the progress of is business. Business transactions aze numerous, tat its not possible to recall hs memory as to how the money had been eames and spent. At the same time fhe had noted down his incomes and expenditures, he can recy gt the required information Hence, the ets of the business transctons have tobe recoded in clear and systematic manner to get answers easily and accurately forthe following questions at anytime te ies What has happened this investment? ‘Whats the result ofthe business transactions? ‘What a the earings and expenses? low much amounts ecevable from customers to whom ‘goods have been sold on credit? How mach amount is payable to suppliers on account of ‘ret purchases? ‘i. Whatare the nature and value of asets possessed bythe ‘business concern? vii Whatare the mature and valucof liabilities of the business Pa These and several other questions are answered with the help ‘of accountng. The need for recording business ansactions ina clear ‘and systematic manner is th basis which gives 1se to Book kooping. 1.2. Bookkeeping ‘Book: keeping stat branch of knowledge which ells vs how to keep a record of business transactions. Its often routine and erica in nature ts important to note tht only those transactions related to business which can be expressed in terms of money are recorded. The activites of book-keeping include recording inthe Joumal, posting tothe ledger and balancing of account, 1.24 Definition AN. Carter says, “Book-keeping is the Science and art of correctly recording in the books of acount all those business lransoctions that result inthe transfer of money or money's wort 1.22 Objectives “The objectives of book-keeping are |. to have permanent record ofall the business transactions fi. tokeep records of income an expenses in such away that the net profit or net loss may be calculate. to keep records of asets an abilities in such a way that ‘the financial poston ofthe business may be ascertained, fx to koop control on expenses with a view to minimise the same inorder to maximise profit, ‘to know te names ofthe customers and the amount due from them. & Vi, to know the names of suppliers and the amount due to ‘tem, ‘to have important information for legal end tax purposes1.2.3 Advantages From the above objectives of book-keeping, the following advantages can be noted i, Permanent and Reliable Record: Book:-kecping provides permanent record forall business transaction, replcing the memory ‘which fais to remember everthing i, Avithmetical Accuracy ofthe Accounts: Wit the help of ‘book Keeping trial balance canbe easily prepared. This is used to check the arithmetical accuracy of acount. ‘i, Net Result of Business Operations: The result Profit or Loss of business can be correctly calculated, iv, Ascertainment of Financial Position: It's not enough to ‘know the profit or los; the proprietor should have fll pictare of fis financial positon in mains Once the ful picture (sy fora year) {is known, thie helps him to plan forthe next years business 1% Ascertainment of the Progress of Business: When proprietor prepares Financial statements evey year he wil bein 8 position to compare the statement, This wil enable him to ascertain the growth of his business. Thus book keeping enables long range ‘laning of business aves besides satsying the short tem objective ‘of caleulation of annual profits o losses. vi. Calculation of Dues: For certain transactions payments ‘may be made late. Therefore, the businessman has to know how much he as to pay others. i, Control over Assets: In the course of business, the proprietor acquires various asset ike building, machines faites, tc, He bas to keep a check over them and find out heir values year afer yer. Control over Borrowings: Many businessmen borrow from banks and other sources. These loans aze repayable, Just as he must have @ control over assets, he should have contrel over labs tx, Kdentifying Do’s and Don's: Book keeping enabes the proprietor 9 make an intelligent and period analysis of various specs ofthe business such as purchases, sales, expenditures and incomes. From such analy, it wl be possible to foes his tention ‘on what should be dane ed wht should not he done to enhance his profit earning capacity. x. Fixing the Selling Price: In fixing the selling price, the bwsinessmen have to consider many aspects of accounting information such a cost of production, cost of purchases and other expenses Accounting infomation is essential n detennining selling pices. 3: Taxation: Businessmen py sles tx, income tax. The ‘ax authorities eguire them to sub ther aooants. For his purpose, they have to maintain a record of ll ther business transactions. ‘Management Decision-making: Planning, reviewing, revising, contoling and de know the Basic Assumptions of Accounting. > understand the Basie Accounting Concepts. > know the Modifying Principles of Accounting. Accounting isthe language of business. I records business transactions taking place during the accounting period. Accounting communicates the result ofthe busines transaction inthe form of final sccounts, Witha view to make the sccouating results understood in thesame seneby al interested partis cerain accomtingasaumptons, concepts and principles have been developed aver a course of peed 2.1 Basic Assumptions “Thebasic assumptions of accounting ae ike the foundation pillason which te structure of accounting is based. The fourbasic ‘sumptions areas follows a2.1.1 Accounting Entity Assumption Acconling to this assumption businssis treated asa unitorentty apart from its owners, creditors and others. In other words, the ropritor fs business concer is always considered tobe separate And distinct from the business which he contgos. All the business ‘eansations are recoded inthe books of aecoun fom the view point of the business. Even the proprietor is treated asa creditor to the extent his capital 2.1.2 Money Measurement Assumption Tnaccourting, onl those busines transactions and events which aof financial natu are recorded, For example, when Sles Manager {is noton good terms with rodvetion Manager, the business is bound tosufer. This fact will not be recorded, because itcannotbe measured intemns of money. 2.1.8 Accounting Period Assumption ‘The users of financial statements need periodical reports to know the operational result andthe financial postion ofthe business concer. Hence itbecomes necessary to close the accounts at regula inervals, Usually a period of 365 days or 52 weeks o I yearsconsidered as the accounting esiod 2.1.4 Going Concern Assumption As per this assumption, te business wll exist for along period and transactions are recorded from his pointof view. There either the intention nr the necessity to windup the business inthe foreseeable fina. 2.2 Basic Concepts of Accounting ‘These concepts guide how business transactions are reported, (On the basis ofthe above four assumptions the following concepts (rincples) of accounting have been developed. n 22.1 Dual Aspect Concept Dual aspect principles the basis for Double Entry System of book keeping Al business transactions recorded in acountshave two aspocts-receving benefit and giving benefit For example, when & business acquires an eset (ceiving benefits pay cash (giving ‘of bene 2.2.2 Revenue Realisation Concept According tothis concept, revenue is considered asthe income ‘amedon the dte when sealised, Uncared or unrealised revene should not be taken into account. The realisation concepts vital for determining income pertaining tan accounting period. havo the possibilty of nlating incomesane profi. 2.2.3 Historical Cost Concept ‘Under this concep, assets are recorded atthe price pal to aque ‘hem and this costs the basis for al subsequent accounting forthe asset For example, ifapcce of lands purchased for Rs 5.00000 and itsmarket value is Rs 8.00000 atthe time of preparing final accounts the land valve is recorded only for Rs 5,00 000, Thus, the balance sheet does not indicate the price st which the asset could be sold for, 2.24 Matching Concept ‘Matching the revenes eamed during an accountng period with the cost associated with the perodto ascertain the resultf the business concern scaled the matching concept. isthe basis fr finding accurate Profit fora ptiod which ean be safely disubuted tothe owner. 2.25 Full Disclosure Concept Accounting statements should disclose fully and compleayallthe significant information Based onthis,deisionscan betakenby various 2interested parties. Itinvolves proper clasfiction and explanations of ‘accountng information which are published inthe financial stements. 2.2.6 Veifiable and Objective Evidence Concept ‘This principeroquires that each recorded business trunstons in the books of accounts shoald have an adequate evidence to support it For example, cash receipt for payments made. The documentary idence of transactions shouldbe fre from ay bas. As accounting records are based on documentary evidence which are capable of ‘etficaton itis universally acceptable. 2.3 Modifying Principles ‘Tomake the accounting information useful 'o various interested artics,the asic assumptions and concepts iscussedeaerhavebeen ‘mode These modifying principles areas une. 2.3.1 Cost Benefit Principle ‘This mfg principle states thatthe cost of applying principle should not be mere than the benefit derived fromit. the costs more ‘han the benefit then that principle should be modified. 2.3.2 Materiality Principle ‘The materiality principle requires al eltvely relevent information should be disclosed in the financial statements, Unimportant and ‘immatralinformation ar eitheleftoutor merged with other items 2.3.8 Consistency Principle ‘The simof consistency principle isto preserve the comparability ‘of financial statements. The rules, practices concepts and principles ‘sed inaocouting shouldbe continuously observed and appli year after yeat. Comparisons of financial results ofthe business among ferent accountng pris canbe significant and meaningful only when consistent practices were followed in ascertaining them. Forexample, ‘depreciation of assets can be provided under different methods, ‘whichever method isfollowed it shouldbe followed regula. 2 2.34 Prudence (Conservatism) Principle Prudence principle aes into consideration al prospective losses but leaves all prospective profits. The essence ofthis principe is “anticipate no profit and provide forall possible loses" Forexampl, while valuing stock rade, market price orcost price whicheveris| lessisconsidered. Frame Work of Accounting —_ Assumptions Concepts ModtyngPricpes Accounting Baty}. Dual Aspect 1. CostBenet S.AccomingPesod 3.Hstenel Cost 3. Comtency GoingComee 4 Matching A Pree ‘FllDcloure (Nees btn evince 24 Accounting Standards ‘To promote world-wide uniformity in published accounts the International Accounting Standards Committee (IASC) has been setupin June 1973 wih nine nations founder members. The purpose ofthis commniteeis formulated publishin publicist, stands tobe observed inthe presentation of wut financial statents and topromote their world-wide acceptance and observance. IASC exist to reduee the differences between diferent countries” accounting practices. This proces of harmonisation will make iteasier forthe ‘srs and prepare of rans stisemnttoopente crosintrstion boundaries. In our county, the Institute of Chartered Accountants ‘of ndiahas constituted Accounting Standard Board (ASB) in 1977 ‘The ASB has been empowered to formulate and issue accounting ‘tandards, tat shouldbe followed by all business concern in kia asQUESTIONS 1. Objective Type = 2) Fill in the Blanks: 1. Stockintade eto be recorded at cost or marke price whichever islessisbesed on principle 2. The assets are recorded in books of accounts in the cost of acquisitions based on. concept. 3. Thebenefistobe derived from the accounting information should exceoditscost is based on priniple 4, Transationsbetwoen owner and business are recorded separately doco assumption. ‘5. Business concern must prepare financial statements atleast once Inayearisbased on assumption. 6 rincipe requires thatthe same accounting ‘methods shouldbe followed from one accounting period tothe [Answers: 1 prudence, 2 historical cost,3.cost benefit. business centy,5.accounting period, 6.consstency] 1b) Choose the correct answer: 1. Aspecthe businessentity assumption, the business is different ‘rome owners banker ©) government 2. Going concem assumption ilu the life of the business it a)veryshat ——Byverylong—c) ane 3. Costncured shouldbe matches withthe revenues he particular petiodis based on ‘)matchingeoneept __b) historical cost concept ©) flesciowure concept 6 4. Asperdual aspect concep, every business transaction has a)threaspects —bJoncaspect —_c)twoaspects [Answers I (a),2.(6),3.(@o4.(0) 1 Otner Questions : 1. Whatare te basicassumpdons of accounting?” 2, Whatdo you mean by business ett assumption? 3, White short notesonthe following assumgtion. 2) Money measurement b) Accounting period ‘Whatdo you mean by going concem assumption? ‘Whatarethe asic concepts of eccountng? ‘What do you understand by revenue realisation concep? ‘What do you mean by historical eostconcept? Describe the folowingconceps Matching») Fulldsclosure 9. What do you understand by verifiable and objective evidence concept? 10, Explain in detail the mocying principles of ccountng. 1, Whatdo you mean by materiality principle? 12, Whatdo you understand by consistency principle? 13, Waite shortnoteson )Prudenceprinciple _b)Dualaspectconcept 14, Briefly explanthe varousaccounting concepts. 15, ‘Briefly explain the various accounting assumptions. ”CHAPTER -3, BASIC ACCOUNTING PROCEDURES -I DOUBLE ENTRY SYSTEM OF BOOK KEEPING Learning Objectives “After studying this Chapter, you will be able to: > understand the Meaning, Features and Advantages of Double Eniry Sysem, now the Meaning and Types of Accounts identify the Accounting Rules Recording of business transactions has been in vogue in all ‘counties ofthe word. In nia maintenance of sccount was pracised ‘oti such a developed form es we have tod. Kautilya’s famous Arthasastra not only ete to Polis and Economies but also explains the artof account keeping ina separate chapter. Writen in century BC, the book gives details about account Keeping, methods of supervising and checking of accounts end also about the cstnction ‘between cepitl an revenu, income and expenses. Double entry system wasintroduced tothe business world by an lin merchant named Lucas Paciol in 1494 A.D. Thoughtbesystem 8 ofreconting business transactions ina systematic manne hss originate in tly it was perfected in England and other European countries during the 18° century only .ftrthe Industrial Revoltion. Many countieshave adopted this system today. 8.1 Double Entry System “There are numerous transsctions in a business concer. Each transaction, when closely analysed, reveals wo aspects. One aspect will be “receiving aspect” or “incoming aspect” or“expensevoss| aspest” This s termed a the “Debit aspect”. The other aspect will being aspect” or“outpoing agpector“income(gain aspect” This, istermedas the “Credit aspect". These two aspects namely "Debit ‘spec and “Credit aspect” form the sis of Double Entry System, “The double entry system s so named since itreeordsbaththe aspects ofa transaction, Inshore basic principle ofthis system for every cei, there must bea coresponding credit of equal amount and for every credit, ‘here must be acomespoading debitof equal amoun!. 3.11 Definition According to JR.Batibl “Every business transaction bas & two-fold effect and tha itaffees two accounts in opposite directions and if complet record were to be made of each such transaction it ‘would be necessary to debit one account and cet anther account It isthis recording ofthe two fold effectof every transaction tht has sivenrsew the term Double Entry System”. 3.41.2 Features 4. Every business tansaction affects two accounts, i Each trunsoction has two aspects. debit and eed »e Jt is based upon accourting assumptions concepts and ncpes iv. Tetpsin preparing ira bance whichisa eof witumetcal sccuacy accounting. \ Preparstionof final accounts with tehelpof wal blancs. 5.1.3 Approaches of Recording ‘There aretwoapproscbes for recording atrasartion. 1. Accum Equation Approach 1, Tradition Approach 1. Accounting Equation Approsch ‘Thisapprosch is also called us de American Approach. Under ‘his method ransacionsare recorded tasedon tke accounting equation, ‘Asses =Liblities+ Capita) ‘Thiswillbediscused in detaiinthe next chapter. |. Traditional Approach ‘Thisapprocch alo called a the Meith Approach, Recording of business ansacions under this method are formed ote bss oF ‘teexisenceoftwoaspect (ébitant cei in cach of the transactions. All the business transactions are recorded in the hocks of sccounts| ‘ner tho" Double Emry Sysem 3.1.4 Advantages ‘Theadvantigesortnssystemareas flows: 4. Scene system: Ihisisthe only scenic system of ranting Dusness transactions, Thelps to attain the objectives of scouting, ” ‘Completerccord of transactions: This system maintains ‘complete econ ofallbusinestransactions. |_A check onthe accuracy of accounts: By the use f this ‘ner theacerary ofthe secountng work sane eatblshed by he reparation of ial balance. 2 Ascertainment of profit or oss The profiteztned cr loss ‘ceuredduringa period canbe ascerained by the preparation cf prfirandlossacceust. \. Knowledge the financial position: The financial positon cf the concem canbe ascertained the end ofeach period ‘roughthe preparation of balance shee. ‘Mi Ful detalisfor control This stom pommits accounts tbe sepeina very cetlled form, and thereby providessufficint informations for ibe purpose fear ‘i. Comparative study + The results of one year may be ‘compared with hase of previous years andthe reasons for change may beascerained. ‘il Hedpsin decision making: Te mangement maybe able bwin fcinnfemation for te work copia Sormaling cecisions, Weaknesses can be detected aud remedial ‘menses may be applied Detection offraud: The systematicand sintifierecending ‘fbusnens tarsactons onthe basis of hiss thechauees of rau 22 Account ‘Bvery trrsation hao pectand each aspethasan scout. us seu uat ‘am account sa summary of relevant transactlons atone place relating to particular head” a2.21 Classification of Accounts ‘Transactions can be divided io tree categories. i. Trarsaction rlatingtoindiviuasad fms 4. Transactions relating to properties, goodsor cash fi, Transoctons relating to expenses olossts ad incomes or sins. ‘Therefore, accounts can also be classified into Personal Real snd Nominal. Tho clasitication maybe lasted a follows Accounts Naural Atfcial Representative Nomi [ 1 “Tangible ntrgie 4. Bersonal Accounts : The accounts which late t persons, Peon accountinclad thefslowin 4. Naturalersoas: Accounts whichrelate to inividoals.Por ‘example, Mohan’ A, Shyan’s Ace Artificial persons: Azcounts which relate toa group of penoas orfimscrinstitens, Forcrample.IML Ltd nion ‘Overseas Bank, Life Insurance Comporation of india, Coaraetitin chine, x 4. Representative Persons: Accounts which represent a Drticular person or group of persons. For example, ‘tetanding slay acount, prepaid insurance account ‘The business concera may keepbusinessrelations withall the shove personalaccounts, because of buying goods romthem cr ling goed to them or berowing frmthem or lending to them. Thus they ‘become ether Debio or Creors. ‘The proprietar being an individual his capital account and ‘is drawings account are alse personal accounts. 1. Impersonal Accounts: Athos accouns which arene personal ccs. Thisisfatherdivied into types viz. Real Nominal Real Accounts: Accounts relating io properties and assets ‘which are owned by the husiness coacera. Real accounts ‘clade tangible and iangibeaccouns. Fer example, Land, Building, Goodwil, Purchases, tc. 4 Nominal Accounts: These secounts do act have any cexisence, form orstage. They elaetoincomes and eaperses and gainsand losses ofa business concern Forexample, Salary Account Dividond Accoustcte. Masiration : 1 Classify the folowing items into Personal, Real end Nominal Accounts 1. Capra 2. Sales 3. Dawings 4. Outstanding salary 5. Cash 6 Rest 7. Interest aid 8. Indian Banke 9. Discountreceved 10, Buiding1, Bask 12. Chandmsckar 13, MurganLerdingLibmry 14. Advertisement 15, Purchases Solution: 1. Perwonalescount 2, Real sexount 3. Pononalaccount 4. Personal Representative) account 5. Real account 6, Nominal arcount 1. Nominal ecount 8, Personal (Lezal Body) account 9. Nomizalaccouat —10,Real secount 1. Penonal excount 12.Penonal acount 13, Peronal sccount 14.Nominal ascount 15, Real accom 3.3 Golden Rules of Accounting ‘All the business transactions aze recorded onthe basis of he followingrues. ‘SNo:| Name of Account_| Debit Aspect | Credit Aspect te | resent Toe neces | Thesver a | eat wratcomesin_| _Whurgoesout 3. | Nominal Alewenses | Allincomes oad oss nd us, ” QUESTIONS lective Type = 1) Pullin the blanks: "The suthe ofthe famous book “Arthasasta is Every businss wausscton reveals spots. “The incong aspect of eamsseon called anda ‘outgoing aspect ofa tansaction icalled 4, Traditional approach of accounting isalsocalledas ‘approach 5. The American approach is otherwise known as approach, 6. Impersonal sccours are clasitied int ype. 7. Plantand machivery is ancsampleof. scout. 8. Capital accounts an example of. eceount 9. Commission ecivedwil belated under. seco [Arswen: | Kauiys,2.two,3.detit,cedit 4. British 5. Accounting ‘cquation, 6, two, 7-rel,8:porsonal,9, seminal) by Choose the correct answer: 1, “Therecelvingaspectin a wansscton scaledas ©) debitaspect 6) erodieepoet 2) acitheroftho two 2 The gvingspect ina transection sealed as 2 debitaspect —) eredtaspect) neither ofthetwo 3. Murali account isan example for ©) prone 6) real) nominal Ale 384. Ceptalaccountsclassiedunder 4) pessoal le) realAle 6) nominal Ale 5. Goodwillisancxampleot 4) tangilereal Ac 6) intangiblereal Ale) nominal Ae 6. Commission mosivedis an exumpl cf 2) malAle 1) penonal le) nominal Ne 7. Onttanding ren Aleisanexample for 2) rominalaccant 1) personal account ©) representative persona acxoant 8, Nominal Accousts cassie under 2) enonal A >) impersonal Ale ©) eiheraf he two 9, Daawings accounts clasifiedunder 1) reall, D) personal Ne. ©) nominal A. [Answers 1. (a), 2. (D], 3. (2), 4. (@y 3: ), 8. (©), F- (Oy 8.06).8. 6) (Other Questions: 1. Explsinthe meaning of Double Enty Syste. DefinoDouble Entry Systm, What ccthe advantages of Double Enty System? low ac acsonnsclssfod? Waite noteson personal accounts. Wits notesom rel accounts % 7. Explinnoninal ccouns. ‘Whatare the golden rules of Acouaiag? 9, Clsstythe following tensino ed, pessoal ancnominal sous 4. Capital State Bank of India by, Parcases fg. Blesicty Caages ©. Cocdvil 1. Dividend 4. Conpright i Ramesh © Latha J. Oustandingrent [Aswers: Personal axcount— (a), (€). (04040 Real account -(6),(€) (4) Nominal account (g). (3) 37CHAPTER -4 BASIC ACCOUNTING PROCEDURES - II JOURNAL Learning Objectives After learning this chapter. you wil be able to: > understand the Origin of Transactions — Source Documenss. > nderstand the Concept of Accounting Equation, > bow the Rules of Debit and Credit 2 bow the Meaning and the Preparation of Journal > bring out the Advantages of Journal Accounting process stars with deatifying the transactions be recorded inthe books of counts. Accounting identifies only those tansacionsandevens whichinvcivermowey. They shouldbe ofTinarca character. Accountant does so by sorting cut variows cash memos, ‘nvoice, ils resp end vouchers. In the accounting proccss the fist stop is tho recording of transactions in ebooks accnuals. The ongin ofa transactions derived fom the seurse document. Ey 4.1 Source Documents Source documents ae the evidences of busitess transactions ‘which provide informutionatout te nturofthe transection he dite, ‘he amount ac te partes involvedinit. Transactions are recoded in the boots of accounts when they actully take place and are daly supported by soureedoeurents. According the verifiable ojecve principe of Accouating,each transaction record inthe books of sscounts should have adequate proof tosuppor i. Thesesapporing ddvounents ete writen and aathentk: proof the corectessof Ue recorded vansactons These documents are requied for auditandtax assesimert. They ao serve asthe legal videnceineaseofadnpat ‘he following ae the mostcormmon source documents. 4.141 Cash Memo ‘When a trader tells gon forcath he gives s cash memo ani ‘when purchases goods for eas, erecevesa cash meno. Detll regarding the tems, quantity, rate andthe pric are mentioned the cash mom ‘Cah Meme ‘Vinoth Watch Co. 135, South Usman Road, Thyagaraye Nagar, Chern Nois2 Dawe: 18.82003 To Qy. Desctiptin = |e 3 | TuaRegais iso | 5,400 2 | inmkas 1200 |_ 2.300 71300 Leas: Discount 10%, 790. Sos 790 Goadsoace sold are notabea back. Manager for Vincth Watoh Co,442 Invoice or Bil ‘When trader sells goodson credit he prepares asleinvcice. It contains fll details reiating tothe aman thetemsef payment the ame andacdess of the seller ani buyer The rignalccpy ofthese inwoive sseat othe purchaser andi duplicate copyiskept freaking _econds inthe books of accousts, Similaly, whena waiorpurcasos goods oncret he receives a «redi il from de supplier of gon INVOICE Ramesh Electronics 206, Anna Sala, Chena - 600 002. No. 405 Date: 20.8.2003, ‘Name @ address ofthe Customer: BhanuEnterpises 43, EldamsRoad, Teyrampet, Chearal- 18 "Terms 5% cash discount payment ismade within 30 days. Rae | Ama lav. Deserpton ra | te, 3) Refigeos 3.000) #5000 10 | Washing Machines 15,000 | 1 50000 7.95100 Sales Tax @ 10% 19.500 2.14500 Handing & delivery harges 1.500 Ts) Ta 2.1600 (Ghupes!I Wolds sneon touseadonl) Parner Eeoe for Bemosh Electonics ” Note: E.8OE,meanscrors andomissions excepted Inotier words, i there 38 any error inthe invoice, the same has 10 be adjusted soning. 449 Receipt ‘When atrader receives cash from acustomes ensues receipt containing te date ie amount and the mame of the customer. The ‘xigial copy is handed overto he customer andthe dupicate copy is ‘kept forrecord. Inthe same way, whenever we make Fayment, We btn ares fom the party to whom we make payment FECERT Seravana Book House 43, IstMain Road, Chennai - 3. ReceiptNo.315 ate 1692008 Reseived with thanks 8 sum of Re. 15,000 (Rupees fiteen {housandonly) rom Ms Sulthané Sons being the supply of ks sper thelist enclosed, (Choque/DDINo.: 10345 Dt :10.0.2008 (Canara Bask, Tic Signe Seal "Note: the amount is morethan Rs £00, xa ovonve stamp. 4.14 Debit Note A ceoitnte is prepared bythe buyeraud i cout he date of of the goeds retureed, name ofthe supplier details oF the goods _tumed and reasons forrcuming the goods. achdebit notes serially ‘numbered. A duplicate copy or counerfollofthecebitacte sree by eye. On tsa debit te the pps acco dite inticbooks, acredit note i retained forthe record purpose. Ox thesis of reat othe customer's account iscreted inthe Books, ‘CREDTTNOTE No:243 Dae: 139.2003 COTTON WORLD. 22, Meth Nagar,Chenai- 600 029 [Name & Adress ofthe Customer: Paarchami Sons 122, Oppanakkara Steet Coimbatere-6. ‘Term: 2% cash discount if payments made within 30 days. Deprrnore ‘Ganesh Traders No:315 22,Ram Nagar, Date: 145.2093, ‘Chensal 600013 Named Adéresof Supplier: Shanmug Trades 122,11 Seat emma 69002 ‘Teams: $5cahelscoan i pymensmade within 30 dys Dass Parco & Re 2008 | 20FMRailn set porchaced une 14 | tnderyurinvice No 0s, ‘ited, 2nd Tune, 2003 2097 {etree tsa 9 inwoaiigeeaitons @Rey9 persel 1500 ‘Add:Puckingexpases | 100 100 ‘Tt 10 F&O.E Menage credit note is prepared bythe slleranditcentuinsthe dts on hich goods are reumed, rare of the customer, deta the gods secoived back, amountet such goods and sons for rtuming the ‘gods. Tach reditnoteisseially numbered. A duplicae copy ofthe 2 Dae Pails B® ]&. 2003 | T.Shirts-32°- 200 Nos Sept 15 | @Rs100each 20.000 Less: Discount @10% 2,000 18,000 (Ret cue to inferior quality) eal 18,000) E&OE, Manager 416Peyinestip -Pay-in-sipisa form availabe in banks end is used to deposit money iin abank asonunt Each pa--lip asa counter which returse tothe depositor dly scaled nd signed by the bark ficial “This source docemest relates to bank transactions It gives details garding date accu rumber amount deste (in cash or cheque) sadnamc ofthe secountholéer 8Payiip ae err Ne Gearcoves nave TEED lee sen ane) naa gos 4:18 Vouchers A voucher is a waiten document in support of a business transaction. Voucher are prepared by naccourtantand each voucher ‘counter signed an atharsed perion ofthe rpenisation. — SS VOUCHER wf ieee sabes Tosa beso an o Achuqueiss documentin wring drawa vpons specitid banker 1 pay a specified sum w the bearer or the persos named in it and payable on demand. Eschcheque book hs scounterfilin which the samodstle inthe choquear filed, The countorol rnsins with the sccountholer fr is fue reference The wrt fos the source document forenrisstobe made inthe books of secoan [wens] =p) ‘The Tia Ne Ste ApexCo-opatve lnk Li, “ ‘The wovcters are propel ied according otheirserel numbers so ther tho auditors may cay vouch hem end thesemay alo serves oeunentny evidence infuure Dill receivable ills payable wage sheet'laies ray acguitance, comospondencs et, also serveasthoscurcedecumests Thus thos ‘mus dea source documen or eachtrensactionrezcrdd inte BOOKS| ofacannts ‘Note: ‘Ihe formats of the source documents are given above, ‘only to know the details Hut not forthe preparation. 4.2 Accounting Equation ‘The source documentisth: orzi fs transection anditintites ‘he accountng proces, whone ting pointiathe accounting equation. Accounting equations asa on dualaspectooncept Detitand Cedi). temphasizssonthe fact that every transaction es atwosided 48 Determine the two accounts which ee involved in the ‘ransacien, ‘Step 2 > Classify hesbovetwoaccourtsunder Personal Real ex Nori Step 3.9 Findout the rales of debit andere forthe shove two Step 4 > enify which account isto edebted and which account Istobectodited. ‘Step 5 > Record thedateo transaction inthe date column. The yearard month is writen ance, il they change, ‘The Sequence of the dates and months should be sietly smaiaied, Step 6 > Trter the name of the account to be debited in the particulars column very lose tothe left hand sée ofthe atculacolurn followed the abbreviation De inthe ‘aunt lin. Against dor amountiobe debied is wanen inthe doit mountcolimn nth sume ine. Step 7 > Witethoname ofthe nccount 0 be cred inthe second line tarts with te word To" afew spazeaway fromthe margnintheparicuarscolumn. Against is, theameunt ‘obecrated s writen inthe colitamcurt colamaninthe sameline, ‘Sep > Wate thonurmtion within rackets inthe nextlins inthe ‘patculr column, Stop 9-2 Draw line xs tent patel coun seperate one journal cary om the ter. 374s tluatations comple 2: Jan. 3,2004: Received essh rom Balan Rs.25 00 Example 1: January 1, 2004 —Saravanan Sante busines Wit RS. 190,00, Analysis of Tramsaetion Analysis of Transaction SepT | Dari herwo oom) — Ch — Bi invivedinthetamaction, | _Ascout | Account ‘Sepl | Deemisettewoucoums | Cash] Caial invtedinthe rane | _Assorm_|Accoue sup? | Cauity ie accoms ander | Rat | Penonal sep2 | Clesiyise wcoursunier | edt | enema ee — — oral calor son account| Ascoute sups | raconmenuesoraeorms | 25) 16 ca. Debsinbae | crete ssep3 | rintcutertercecatisne | 3a) 1 comin. | ger cal. Debewvhat | Crete conesin_| giver sept | tecmisywtihaccou btote | Cab Atis | Baan Aci eps | teaty wich aceatistote | CashAtis | Copia Acs “ " ited a ie, robedebive | robe crated Solation : Solution Journal Joerna Dae | Patiaes | Daw | Gar wm rfm ob ae] raseates of am | cas re we | 2} igo | ~ mr lamac @ [al ome tnt | Te Cait Ale 4| 1anato} ~ gana | tons At ® 2spro| waintns (Cass nceeatron eat i se ‘he Leg oto colurm inate 12 agunst Cash Accoumtwhich ‘TheLedgerFoioeclumm indies 12 aginst Cash Account whic roars hat Cash Account is found in page 12 theledgerardthis means tat Cash Accounts found in page 12inthe ledger and this Acbitof Rs. 00.000 to Cash Alc canbe seen om tha page. Snilrly BLOF Rs 25,000 Cash Ac can he seen tha! page Silay Bl 4Sagainst Capital Alcindieais the page mumberin which Capital sagas Balan A(cndicasthe ec number which Blan Accounts secount ie foundard the ceditoFR.| 000 indicated thers in found andthe rei of RS 25,000 indicated therein, es 3cape: ly? Bet Paatena RT — se ‘nw ten - — == ‘Step1 | Determine the two accounts Pema Cash wr Bek o [siawsosr |G | cm or ean wal ald eee | coat ae aces | oa | a7 | “toom ne t somo | - ea oot sor flantnnsacnae) San) “Ss oes was | Soa ‘Siep4 | Testify wtick account is tobe [Perumal leis | Cash Alcis Example $; March 10,2004 ~ Cash sales Rs.90 100. Gawasa [etude] sea ee Soiution il ‘Step 1] Determine the ewe accounts Cash ‘Sales oo = ee =| = = ar [ease SP] Bs perso real or nominal. Account Aceonnt mm fem fs) a) | war Pantene |e |e ay vane | eclan may? | moana = mom) - omesin | om enol aor aaibal. Aewost_| Account Sep3 | downs es of encand | 10) 2) mea2s) Teo ve evo) - eccer_| ot cn Example 11: April 14,2004 Commission received Rs 5,00. Sepa | Wony whieh xanmtverte] Jones Ne [Pastas ren shied nd oa. ‘stobe tote] At tebe Analy of Transaction este Sup! | Deeminctisiwoacoms | Cast | Conminioe Sotaion + oornal motelintermucton | _Aecoent_| CAccout Sup? [cussty es uns uncer | new | — Nec a a) penal rar secunt_| _Accous - ee ws ele Sept | Fn otte mies of ein | 0) 30) am | san ne || asm conesin_ [noms Mirc25] —ToPuchaesremn Ale vam Sept | Hesniy which coos Te) Cash Ae | Comminin A (Genta reued) bid and ete atobe debe ate eating Example 10: Merch 25,2004 Paid salves in ash 600. Sotton: Journal Ansty of Tramacton Ba oa [Sept | Dosmnnotie wean | Sulwin oy worl Pe iworedinue ranaton| Accum | _ Asc an [Gan ne 3 sa] Bend [Chay the sconnts under | Nonid Rel ‘pita ToConmasion Ae som | enol alornominl-—| _Agenunt | Accout corse) sep3 | oun ai of ie 36) 20) incest. ata — | cettanat 45:1 Cepltel and Drawings sores esses | _ ses ot ‘Lis mporantionotethathusinessitreatodas asepersoentty Sepe | Woah oimouns | falvinae [Gah az nal ‘rom the business nan. All ransactions of the sins bave tobe wbedehiedant ceded, | isrobedbind | teaetied analy fom the basnes pi of view arent Fm the propre rn 6spointof view. Theamoust with whicha trader starsthe busncisis ‘now as Capital, The proprietor may withdraw cern amount from, the business to mest personal expense ce goods for personal use. Its called Drawings. Drawings rom Business can Chee Goods caton —sentser wien “a Debi Drawings AC DehitDawings Me Debt Drawings Ale CrdtCah Ale CrolliBank Ae CreditPuchases A/c Solution: Journal tae | nia ta Det | ne Bs P| RP. “uor_| DavirgsAe cs mm] = ins. | "Toca we 2mm} — (Theanouswithewa for perma) 452 Bank Traneaetione Tank trmsactios that occur often inthe business concemsare cash pai into bank, cheques and bills received from customers paid late bane forcallecton, payment of cheques forexpenses aud cheques ‘issued to suppliers orcrediters. When achegue is received tet ia ca, ‘Example 13: January 18,2008 -Openeda cunt accourt with Inian (Overseas Bank Rs.10,000. Analysis of Transueton ample 12: January 31,2004 ~Saravanan withdrew for personal Gag | Booms ewoancnas | Bak con se Rs. 20,00, motte indie wanaction, | Account| _Ascous ‘Analysis of Sipe | Classy ts eenans under | —Penowal | Ral " persoral lorena ‘ccount_ | Account Spe | Find ourae mes orsearana| 1) 20) Spl [Bacmioei wean | Dawe | Cub ep) | Finds vee | cer nat enol lore Account | Account ted su nets intebe debe sisted Spe [Fado ttonbsotdasiand| 1) 20) a seccve:_| gs oot se | aries we ‘sep | oenuy wniencvoumtastone| Onnangs ve | Casa sve sdviedard ortied vane dat) etn pera “mo [Taka Denes BA Be roo] arnt | ToC Ae vox} (Opened curane Ne) 6 7Example 14: Fob 3, 2004 Rent paid by cheque Rs. 000. Solution: Journal Anais of Trarsaction oar Date | Particulars us} De Ca Sept [Dacmiete me acest] Rew Bask tse imoveliectsmacion | agsont_| secant =e =} foe SET] Che soe ace] — Nec —] anol | ae em ar » personal. eal or nominal. Account Account tvarssan A/G van | Sep | Fntoraeinursen | 30) > oe eenitmerst xpos ua] ger Sept [Kh wahoo | Rw nc | Da Example 16: Merch 15,2004 — Chega recived from Sathosh tobectine wdamtiee. | inobedeisd ft becid 1 0 0and imme barked Sotto: 1 Anais of ‘Transaction Sepl | Desmsetewoasoms | ant | Seon we nae =) voieéietermoe | Accom | Acca mr mF Sip? | cine conn mdr] tenon | Feo 2m | Rem ale be 90 | -| ‘Supe enone y 7 Foo | Tome ae saw |- Me ene | coe cast yc Ho) patie | cna Exarsple 16: March 5, 2004 - Received cheque from Elaverscen ‘steps | ‘entity whic account isu ‘Bank Ave | Santhosh Ale 520000, (eid me cen. | tobe died Sa Anais of Transaction Sept [Bacar we mons | Gan | Sivan Solution: Journal imocimecmmcioe | accom | ‘Account Ser cts deans ner | Rat | ora oe he oe) =) powers vum_| Acc Pri ml ner foe emcee eam | cts as Jaakae m | | me cmon _| per micas] Toscan Ae seam | - sepa [Ta wich oonicnt] ew Ac [Fare a min neve esieden relied | tot etiniisecrd oy ba rs «4.8.8 Compound Journal Entry ‘When twocr mere uansections of sina amare wk place on te same dite, sich tansacinscan eerteed nthe journal by means of ‘combined joumal en i called Compound Journal Entry. The ‘only precaulon sha the tora debits shoud be equaltottal credits. Example 17: June 1, 2004 Axjucontibuted capital Rs.50.000 Manju contributed capital Rs. 70,00 Solution: Journal ‘ue | Parueatan ee | TERA Bra use | To Anjos Capt ae sosoo| ToManis Capital Ae *osto| (he sont ined by Asjvae Mare) Bampe 18 July1,2004~ Ajgycontibutedcapial~ Cash Rs.90:000 umitue Rs. 2000 ‘iy comnibuedespial~ Cash s.50,000, ‘Stock Rs. 70,000, Solution: Journal am] Cana fran] uy) | stock ae be ‘us| ~ amine Ae & uo] Taty’ Cap ve 2aoawo| - “HVipy Capel Ne sans] (cspialinvodued by Ais Via) Example 19:July 13,2003 ~ Received cash Rs. 24700 rom Shanthi in fllsetementof her account of 5.2500. Herecash received is Rs. 24.700 nfl setlement of 825,000 sothedifference Rs 300isdinoountaliowed. ‘Sotaton: Journal ee Due | Pasiaes uF wees eb ma [Gane = 20] duly 18 | Discounaiones Ne De a ‘To Shanti Ne se} (shan seta nr ecu) Example 20: July 14,2003 - Paid cash to TheummorhiRs.14:500,ia fallsctlment ofheraccountofRs.15 000, Horo cash paid Re.14.500 in setoment of RE.15,000 co the atierenceRs. 500 isciscount received. Solution: Jourzal i: is we pfep ra | themotie & ssn] — auyls | Toca ae a0 | - (Getlet Teneezout) 454 Bad Debts ‘When te geod aresoldtoacusareron credit if theamourt becomes recoverable due to his insolvency erforsome other reason, ‘thcamoutt uot rocoveredisclled baa debts, Forrccorcig ths 7tad dtescccurtis debited because theunrcaliscd antountisalossto ‘hebsnessand the customer's aceounts credited. Example 21: Jamuna who cwed us Rs.10,000i declared insolvent snd 25 pissin arupeois received from heron 18th Jy, 2008. Solution: Journal Dae | Paricales ur ne a » am [cana > 20 Ju 18 | 30d Det Alc & 130 | ‘oamuna As sono] - (2spuise i rupee ected on ‘aeovemy). Bad Debts Recovered Scene times is happens tha the bad debts previously written offar subsequetly recovered. In schesse cash account is dbited and bad dotesrovoveredtcsourt is credited bocause the amount so received is gain to tho business. Example 22: Received cash for a Bad debt written off last your Rs7.50000 18th Jaruary, 2004, Solution: Journal ae | Paris 17 eae ame | can are be oso] - es dotoreorerd) n 455 Opening Ertry Opening Enryisanestry whichis pase inthehegining ofeach crea year to record the closing balance ofasetsandHabiltiesof he vious yea- In thisenty asetaccountsarecetited an abilities and capital acount are credited If expt isnot giver inthe queston,itwill ‘found out deducting wl ofibilies fro woul of ese, [Example 22; The following balaaces appeared in the books of [Nadas on Ist aruary 2004 —CashRs.7.9C0, Bank RS.70,000, Stork Rs. 80,00, Forniture Rs. 10000, Computer RS.50:000, Debtors 33,000 and Creditors Rs. 90,0. ‘Thecpeningertry is Journal Dat] Cra ac | Paricte vf ey es ar _| Gon ne & “70m for | taka & ‘9000 Sock Ae & 0 Dettos Ale b 00) Friars Ate b ro2o| Computer Ale b> sm "Teer: Ae ogo] ‘ToCapial Ae Balai ga) sean) (sen abies gh Serva) ‘458 Advantages ‘The main advantage ofthe Kouralare: 1. Itreduces the possbilty fans. 2 tprevidesanexplnationof te ransacion. 1X. provides achronological rondo ll renaationt. 457 Untatone “The Linitaiens ofthe lone: L Ttillbetoo long if all ransactions are recoded here. 2. Riscifcalrteacerin th blanc of ach accouet.QUESTIONS | Objective Type: 2) Fil inthe Blanks = 1, ‘The sourcedocurent gives information about te nature ofthe 2, The accountingequation isa statement of between she debits andere Indoubleenuy book-keeping, every ansecton fees east wo. 4. Assetsare always equal to ltiltes plus 5. transaction which ncreasesthe capital called 6, The journalisabook of 1. Recording oftansacion inte jum called 8 The. columr of joumalrpreseat the place of posting of agent inibe ledger account. 6 scoot bite forte amon natresoveed from ecanomer 10, Thoasses of business on 3st December. 2002 were worth -25.50,000 and its copia was Ra.35,000. la liabilities om chat daewore Rs, PAscwer: 1 transactions, 2 equality, 1 accounts, 4 capital, S.reventeor income 6.ougina ext, 7.jouuasing, BLF9. bad detes,10.Rs.15000) ” ) Choose the correct answer 1 “The arginofatransictionis derived from he s)Sourcedccumest —b) Journal ©) Accountingeqution Which ofthe flowing comet? 4) Capital = Assets + Linbities 1) Capital Ausets-Lisbiéos ©) Asws=Lishilitos Capital Amount owned bythe proprictariscaled DAseis DyLisbltes Capital ‘The Accounting Equatonisconnacod with DAswtsonly ——_‘b)Litiesonly ©) Asses, Liniltes nd capital Gorn sold io Srinivas should be debited to a.Cashare b)Srinivasin Ac.) Sales A. ‘Purchased goods from Venkat for cas should be creitedto 2) Veakat Alc DyCash Ae) Purchases Ale Withdrawals of cash from bank by the proprietor for office use should booredited io DDewingsAle —b)Bank Also) CashAle ‘Purchased goods from Murthy on ero should be reed to Mery —-BYCash Ale Purchases Ale Anentry i pased inthe beginning of each caren cris called )Orginaenty —)Enalenty —-)Openingenty 1810. The liabiles of a business are Rs.30,000; the capital ofthe proprietor is RS. 70,000, The total eset ere: 4) Rs.70900 [Answers £1. (8,2. (0), 3. ©). 4.(€), 5b), 6. (6), 7.00) 8.08), B)Rs.19000 — RsA0.900 946),1000) 1, Other Questions = Explain hemomiagofscuce documents ‘What icash memo? ‘Whatisan mice? What sercesgt? ‘Whats py-in-lip? What sedebit noe? ‘What ecreditnote? Exphinthomeaning of Accounting unio, Whatis Journal? ). Mettionthe five categoriesof Accounts. How isthe Journalruled? 2. Whst Joma! ‘What oyu mean by 1.F.2 Flow do yo filinthis columa? ‘Whats anarmation? Whats capital? ‘Whats drawings? 1. Whats Compound Joural Entry? . Expkintheries for joumalising, 9. Explaiathestepsinjounalising? ‘Bring ouithe advantages md telimitaions ofjoura. % 10, Probleme: 1 ‘On 31st December 2003, the total ests end liabiitis wore 5.1 DOWand R30 00 respectively. Caculae capt. Incicatehow assets, lables and capital ee atfectedby exch of thefollowing transactions wih anaccoumting equation: Purchase ofmachiney fr cash Rs. 300,000, Receipt of eat romadebtor Rs, 5000. H._Cashpaymentof acreditor 8.30.00. Give mnsacions wthimaginary guresinvsling the llsing Increase in assets and capt, Increase and decrease in sss, Teens in sn aset anda Fiability, Decrease ofan asset and owners capita ‘Supp the missingammouns onthe basisofAsoountng Fysaton Assets = Liabilities + Capa Asc + Capital i 20900 a) io? + 10p00 100 = 2 + 8900 Sethe ature accounted show which account willbe bite sd which account wil beercted” 1. Renteesived 2. Bulling putas 2. Machinery tld 4. Dscountallowed 5. Discount ecivedCoro the following etree wherever you thik: i. Brought capital in business: Capital Are De ‘ToCash Ale CashPurchas Cash Ave De. ‘ToSeler Ae fi, Sdaries paid wo cerk Mr-Kenniyanpen: Salaries Ve Dr ToKunaiyappan Ac iv. Paideariage Caniageac Dr “ToCash Ale What oth fllowing Jourral Enis mean? i Cashale Dr, ‘ToPunitureAle i Rew Ale Dr ‘ToCash Ale A Bank Ale Dr “ToCash Ale iv. TaribehiAe Dr ToSdles Ne Show dhe accounting equa om the basis of the following ‘ransictons, Re i Ramyastredasinesswitheash 25000 41. Purchased goods tom Shoban 20000 4. Soldgoodsto Amalacosting Rs.18,00 25000 Iv. Ramyaidaow from business 500 [Assets Rs. 47/000 ~ Cepitel Rs.27 000+ Liabilities Rs.20,000) 6 9, Preparcaccoustingcquationand blac shot onthe basis ofthe following: Rs i Pallavan started business with ash 60,000 i Hepurchasetfurinre 10000 HL Hepeidrent 2000 Iu, Hepurchsed goods oneredt fram MeMaberdan| 30,000 © Hesold goodscost price Re. 20,9C0)for cash 25,000 [Assets Rs. 93,000 = Capitals 63,00 + Lishilities Rs. 30,000) 10. Joualisete flowing Opening Erry: Bs Cashinhané 2.000 Plat 50.00, Purine 5900 redone 3.000 Debrors 18.00 1 Jounalisetts following rnsactions inthe books of Tat Amutha Bs. 2004,yan. | Tim. Amubucermenced business witheash 50,000 2. Purchased gootstorcash ro.p00 5 Purchased geodsfrom Mohen oncredit 6,000 7 Paidinto Bark 5.000 10 Pachased furitune 2000 20 Sold goods to Suresh oncredit 5000 »25 Cashsales 26 Paid ie Moban on account 31 Paid salaries 12, Joumaise the following uarsactons of Ms ama 200$,Jan | MrsRama commenced business with ash Pad imo bank Purchased goods by cheque Dreweash fom bank for ofie we be 13, Foumalc th fllowing transaction of MrMoont 2004, tune 3 Reveivedcashfrom Ramkumar 4 Purchased goods forcash 11 Sold geods 0 Damsodaran 15 PadioRamkumr 17 Received rem Damodar, 20 BonghtfminrefomJegadkesan 21 aidseat 30° Paidsalary 3,500 3,000 2,800 Rs 30,000 21,000 1500 3,000 15,000 30,000 14750 250 2000 Rs 0,000 15,000 22.000 40,900 20,000 51000 4.200 2.500 14, Jourtalic the followinginthe Jounal of This Gowri Shankar Rs, 2003, Oct. 1 ReecivedcashfromSiva 75,000 7 Paid cashto Ssyeed 45,00 10 Bought goods forcash 27,000 12 BoughtgcodsoncredtfremDavid 48,000 15 Soll goods forcash 70.00 15, Record. the following transactions in the Journal of Trt Bhananai 2004,Feb.3 Bought goods oreash Rs84,500 7 Sok goods to Dhanalakshmi oncredt RS 5500, 9 Received commission Rs.3,000 10 Cash Seles Rs.1.09000 12 Bought geods from Mahala Rs 6000 1S Received five his fom Revathi & Co. eekeAlOoach 20 2 Paid Reva & Co cash fortivectairs Paid Salaries Rs.10000 Fold Keats 5000 16, Journalise the following transactions in the books of ‘Th Kalynasndarsn, 2004, March 1 2 1s Pa 2s Sold goeds on credit to Mohanasusdaram 75006, Purchased goods on credit from Bashyam Rs 70000. Sold gandsforcush to David Rs 50,000. -Roccived rem Mohanasuadara RS70000, ald w Beshyem Rs 2000. oCHAPTER -5 BASIC ACCOUNTING PROCEDURES - lil LEDGER Learning Objectives After suying this chapter, you will be able to: > understand the Meaning and Procedure for posing. > laow the Procedure for Balancing and the Significance ofBalances. > know the Relationship benveen Journal and Ledger. nthe Journal cechransactons cal with seperately. Thecfor, itisnotpexsbetoknowalaglancehe retest of many fractions, So,incrdertoascctinthe notes of allthe rmnsacensrelating 0 ‘ partcular account eecelleced atone place in the Ledger. A Ledger 8 & book which contains all he accounts whether pessoal, ral or nominal, which are fst entredin journal ce spacial purpose Subsidiary books. Accoring to LiC. Cropper, hok whichcantaon acid nd permanent record al te tarsactoes of abusness called the Lodger 2 “Theleerthatisnamaly soda major ofbusnssconem isaboundntte bok. Tiscan preserved ora longtime pages tre centequeny mmbered. Each arcountinths ledgers opened pretation sept pag fone pageiscunpeed, he cont ‘illbsentrodin he nextr some ter pase. Bu ininrereor=ns, itianotpracealto kept loger ava bound notebook ans ed ledge: mow kes he pace ofatound ret tok Ir aloe eager, anrrepiie med shets ef hiskpaprare inode and xed up ththchclofebindr Whence erence agsinny be insert comple acon car beremoved and the aeons may bearanged and esrange inte dxied onder: There, pe of ger snow ss Loosen Lage 5:1 Unity oli icp rnin bck hihi elie scons inynih etrnsactons recorded inthe took cf rginal ety are trarsered Ladies soiled Rook ia ter ook fSeomlary Entry ects te tansicen ne ly iconpred IntheLdgc The folowing are he sdvansessfledae {compete itomaton a « ance: ‘Al he wanscions periningoar ascoutarcecta atone piacinth doer 35 aking th: alnceo tat ecto can Indian hcollacte eetoal ach ranactonsala lee tare Accuroy With ap cf nsarbalanse Teac con bo ep owns antmeta asaya I. Rest of Busnes Operations "intethe reason of fralaccourtate acento cern sland fuel pnt anes con “The ata supp y various eer accountsare sured. soared for cbning sonra inom 8Personal Accounts Namo of Account be Santhosh Account “ De oe Debit Santhosh whenhereceives | CreitSanthsh when be ives rou | rasan [or] oar [race palm specs, money orvaive fromthe | goes, money ovale tothe Ba. business Dasiness Yer | Nee? Tex]; Ganeot Mowe) Ceo Acoum| Sent] Deb aco Bae | Sr) Dae [intra Real Accourts be Computer Account Explanation: DebiPuchscofat | GeliSileciost iL Buch edge ccountiscivided into two pars Thelet hand sides known es he cobitsid an the right hand sid is ‘Knownas the credit side. Te words Dr and’Cearcused Nominal Accounts toxdenoteDebitad Crit Salaries Account j be ce 4 Menamofieacounts enn inten of 2s ee HThedateofthe ransactonseconded inthe date coliran, iv. Theword To is we before the accounts which appear on Commission Received Account heb en account prtcaarsechan, Silay, De es the word ‘By’ isused before the accounts which pear on (Celiinsanesor gens the creitside ofan acount inthe partiulan colar \. Thename ofthe other account which is afectel bythe 5.3 Posting ‘uamsctonis ys ether ine debisideorctectside “The processof transfering the cares recorded in the jumal cr thepariclarseslare, subsitiary book tothe respective accounts opened inthe ledger vic Thepage numkerof the loural or Subsidiary cok from called Posting. in otterwows, posting means grouping ofall the whore tht particular entry istrnsfoneg sentoredin the ‘tacts rebtinto apartcularecountat one pace. snes ‘June Folo (1 column, topintal fe joumaenties into varnu sccouns in theledger care a ie stots acwuntscutzeindammunt posing eipsusto know te acifoct of vrious tansectons during xls, ra (Gvenperindo apartiulae scent ss5.01 Procedure of posting “The procedure of postagisgvenss follows: 1. Procedure af posting for an Account which has ben debited ‘nthe Jourra entry. Stap 1 Locate in theledger, the acccunt to be debited end eater the cae o he tansécton in thedtecoluma enthe debit site Step? > Record thename of he accomntcrecited inthe Joumalin the paticularscoluron thedebit side as "To..namme ofthe accom cotied)”. Sup3P Record hepegenuinberoftheJournalin tbe IF column ‘te debitside andin the Journal. wit thepege number ‘ofthe ledger on whicha paticularaccourt epparsin the Lexum. Step 49 Enter he levantamouatintbe eo debit sce Procedure of esting oran Accourt which has been created Inthe Jourral ent. Sup 1 > Locate in te ledgerthesecount tobe credited endenter the date of he transaction nthe date coms. onthecrscit site, Step? 3 Record thoname ofthe ccountdebited in the Journal in Ihe pariculan column on Ge eed side as... (name ofthe accomtcetited)* Suap3-P Record thepage numberof the Jourralin be Feo ‘nthe cndtsdesadintheJoural wit taopegs amber ofthe edger on which patcu account appearsin the LFeclume. ‘Step 4-> ater the relevant amountinthe mount column on the crate, ra Mlustration 1 ‘Mr, Ram started business with cash Rs. 5,00,000 on Ist June 2003, “The above amsacton wllappear in Joumal and Leger 4s unde, ‘Solution : 4a the Books of Rama Sear a saan a= | = or [Can Re [sof Be | escort ae cen romeneed toe oa 0 Note - Here to accounts are invelved, Cath Agéount and Ram's capital account, 0 we shoul alin ledge foreach account. Leaier cotton ‘ be [pam fr] [ne reel 2 | Tones F mw emitne | | st be uC dot fe Date Aces | Due | Pascua | ur] Assert Jase foyenn} | ssaMtastation 2: Journals the following transactions in thebooksof Amarard post heminthe Lalger~ 2008 ‘Explanation; There ae six acount involved: Cash, Purchases, Sales, Fumitue, Gopi é Robert sx aosountsare to be opened in thelodger. ‘March Sought goodstor cash 8.23000 Laigr of Arar 2 Sold goods foreash Rs. 5000 ath Acsnat 3. Bought goods fer cei fom Gopis.190€0 b a 5 Soldgoodsoncreditto Robert Rs8.90) = = 7 Recetvedfrom Robert Rs 6090 bee | Poniuan [PF PROT Bae] oacinten pep OM 9 Paid oGopt Rs 3,00 20 Bough furniture foreashRs.7 ma ae mus mo Mars | tosussa | | son}star sy Preaes 7 |ToRoser se] | “st At 2st tion journal of Amar Solution Seorestof —— olay cepine si ate ariels eS axl nyramave nc] | 750 an | Pacis A mY [sm | Bee Seah 2soo| ~ (con peace) Purcnas cos 7 [cai ar aE * Bouse soe 2 — x (can Sse) So ee oe ee [Boras A =] eae |= 5 oa eC Ae vom | Miri] tocanac | | 2 cot pecters) 3 | recon ne 8 5 [Rover Ae Be] a= oi to “oSaes Ae sim - (cra) orb Ne com ~ b. o (cansses) Ta a 7 Gait [ps = Se ee ToCiah Ac ssa] - oo cup st2| yeaa | | som] 3 [eee de 3 |Byamen ae] | Sint uit purchase’)be © Mar 2] ToCash At sae opt Accouet Due | tarcues [3=[ 25" oae | Pannen px] SR Mar9| rocanac som md | ny Peccne ne va) ober Acount be © owe | Parca [JF[ SE] Dae | Paces fr S| 208 ate ‘Mae S| ToStles te sumo|xir7}aycasnace || eam Muastraon 3 Jen.12, 2003, Cash sale Rs 10000, Cash recived fom Kaman Rs 5900 and commsson eared RS 2,00, ‘5.32 Posting of Compound Journal Entries (Compoundor Combined Joumal Eriryisone where mae tn ‘one arsstionsarerecordacby passingonlyonejourzalentry instead ‘of passing several joumal enfes, Since overy debit must have the comespording equa amount of credit, special care must betaken i postingthe compound joumnal ney. wha there maybe enly ane debit {spec bu many correrpanding credit aspects equal value or vise vers, The posting of such transactions is done inthe same way as slreadyexphinod. *” a = = oe 30 [ean ae m| | nso Wis |e i Texas Ne sa Ree ig (on ‘Sonu sont sete can tut be o rw | pasar |or{***"L one [renin [or] A Bidowew | pom)” = aa Sat ccunt be « a is |ovcane| | som omKannan’ Account De ex. Dew] Perea [JF] Amount] Dae] Paniealas SF] Amount Rs Bs ae Jan 12] By Cab ave soo Dr ce Dae] Pastas [JF] Arvount | Date] Paricales [JF] Amant Jan 12] By Cu Ave 250 Note In theahovetransactions, there sony onedebit aspect rarely ‘ash account andthree credit aspects. Therefor, whi posting inthe ‘ash account, she names of tree ced aspects are entered inthe cash ecounton fede side thus having steal of R.17.500 whic sequal to maul te debit cola of he our The cad accounts weiter en thocret sdb of the thre secon, ‘sane, Sales, Kanuand Commision rceveda ats san opposie ind eorespening secoanss for Soles Rs 10,00, Kannan Rs 5000 ard (Commiesinn Re 2500 repens shich we oil tthe riuntin the ‘raitcolim of be jour 5.3.3 Posting the Opening Entry The opening ety i passed to open the hooks of accounts fr the sev fmol you Tae debi er ee balance of ez account WHat we petal he eal of the accouaing ped is knowa 2 losing balance of 2 ‘hat accoust. This losing balance becomes the opening balance ia the next secounting year “The proeture of posting a opening etry is sume asin the case of ordinary journal ety. An account which has «debi ance, the ‘ols "Tobalanes bi srerecordsdon the debi de ie the pata ‘olen. Aa account which has were balance, the words" By balance Di" are record in the particles columa on the cred. sie. Infact, opening eatry isnot actually posted but the accouats are merely Jncorported nthe Ider, if te lodgsrie a row one ce old Msteaon 4 os the opening nym the lpr of Rajenason Te Apri!2003, ‘vsh i nd RS. 10,00; Loan Rs 10000, Solution: In the Books of Rajan Cash Accouat De . aw ] races [5] “"""]pue] raicats Jar] “7 pi {msuumeos| | 9p. Loan Account ate | rectus [ar] “PY ae] reetes [ox] aus ve | | wow 935.4 Balancing an Account ‘alae i the diference between the total debits and the otal edi ofan ascout. When posting is dane, many accounts may tave ‘reson their dette wll a credit ie. The net rsa of ich fehitand orci in an sosount i th bala, Balancing nce the writin ofthe difference betwosnthe smouat ‘columns ofthe wo sides ne itr (smaller ea) sce, 0 that the sand totals ofthe two sides become equal 5.4.1 Signttcance of balancing There are tre posites wails balancing an account during 8 sivenpaiod ltmay beadebithulnce ors cedithaance or anil halance Eapondin upon thedeb total nthe ordi tal 1. Debit Balance The oxcoss of debi ttl over the rea is cates te debi balance. Whenther Is only Set enies ih anacceutt, ‘veamcunt sels the balance ofthat account. ie, be debit balance It Bint recseed onthe ered side, above the fta The tener 08 {debi ide, below thot os he Fistite foc the nest pee pee | rasa [re] nae] raat [ar] ‘ica | rosucsave | | sso [urs|ay Pact son ‘| toxmarsagd | 4g) 2s/sysuary ae 20 3i/ayBaancecss |_| asm oa OT ppar ape 1] toramcena) [aw J 9 Credit Balance : Tre excess of credit total over the debit totals called the ereit balance. Whenthere sony credit entries in an secount, the amount ites the balance of that azeount athe ccedithlance first writen inthe debit sie, asthe site, above the otal Then tis recorded onthe credit side, below the ttl, asthe first forthe rex pero. be Capital Acct ce. Tom [enone nae | rarcuss fis] °°] pe] raza [se AO om bara Nara toRaaseesst| | som [apes | aya ‘0100 ono 00 we [aor +) sy Buen b| Pome 1HL.NiL Balance : Whentto alot debts and creda equal, Itisclosed by morly wrtingthe total on best sides. Itindicatsthe ‘equity ofbenefs ceived and gvenby tha account. ales = ites fx] ‘Nar2q] To Saks Ave ono Jota 24 By Cask m0 aio ot 985.4.2 Balancing of diferent aocounte Bulacing isdone paid, i, wooly, mently, quer early r yearly, depending on he euremerts of the business, 1. Personal Accounts : These wocouns are geverly balanced ‘eguunly 10 Know the amounts due tote persons (ereditors) or due from the persens (debtor). i Real Accownis: These acount ae peeraly balanced atthe nd of the Gsancal yeu, when final accounts ae being propel However cash account sequently balasced wv Laow te cash on hand, ‘A edit balance in an ast account indicated che value of the asset owned bythe business. Assets accounts always show debit lances ‘WiNominal Accounts : These accounts ae in ft, not to be Ialaned a hey ae to be closed by tamer o sa accoust A debit ‘altve it anominel account adiates at iti an expease or Base. A ‘credit alance ma noma scsoant indicts tha i sam income or fain Al sch balances in pessoal and eal cecounts are shown in the ‘Balance Sheet andthe Yalce in secinal account ae te to the 5.4.3 Procedure for Balancing ‘Whiledalaningan asonunt,tne follow seps ar moves: Sup > Tota be amount column of We debit side and te cet ‘ile separately and then ascertain te dfleenee cf bo Step 2.2 the dsbitsige ntl exceed the ert i tal, pt ch ference ea the esount eal ofthe credit ee, wets Ue date ca which blacing is bea dene ia de date lc and he words" By Balance” (eld meats ceed dwn) nthe pacularseolume or % de crit sid otal ncend the debit side ttl pu ate siferene on earns colar of debi ide, Neth dda on which balancing is being done inthe date cola, andthe worde“To Balance nthe partearcole, ‘Step 3 > Tosa agnin both he senouat columns. Ut the toa on bh ‘he sides and dr «Ine above ata ine bow th ae. ‘Stop 4 > north das of he bogintng of tenet print ats colums and bring down Ue dbitbalace on he debi sid lang with he words "Te Balance bd (hd meansbmovght down) in he yaricaasealuma andthe eet balance oo ‘he ere sid long wih th words "By balance bd” n ‘he priests cotum. ‘Nowe: In he place of fd and, he Words orl caedForwars or card over and bf or ho rough forward o: brought oven) may tlkc be weed. When the tals scared down inthe same page, the ‘wows ed and bi are wed, while Daluce is cared ove: tothe wet age, the term clo and bo ae used. When balance cated foreard © Some other page either in sume book or some other Bcok, the [Sievitions ef lured forward) and bf (rough forward) aro woe Mstraion $ : Balaace te following Ledges Account 28 02 31st March 2008 ‘Siva’s Account br. ce, poate | partowars [1] 2 | pac | purscuters [se] 22 - Rs. Bs, ars {rosaseae| | ssogno | Mara | ny sace “ ffosses ae] | “name earsad | ogee 2] sycshac) | sm 21 | aysskac| | somoExplanation :Taestops involved ia balancing Siva's Account. Step 1 Total heamoun: column ofthe debi sido Rs. 14000 “Total We amount colt ofthe reise _RA._#5900, Hiustration 6: Balancethe ledger eccoants for Ulustaton 2. Balance /Diference Ri 500) & ‘Since te wal of det sountcotumn exceaste wu of Tanonn ‘credit amount columa, the difference is Debit balance. ie ‘Step 2 Eater tre date ofbalancing, when's onmally tetas dete ofthe sccounin peviod (.e31st March 2003) inthe dae ‘oluma, “By Belasce dite parealars cola, aed as Ite difeenscin the semua caluan onthe credit side A a ‘Step 3-> Total toh he arnoust cola and draw alin dove sada “rx line below twas San Sup 4-> Eater thedaco te begining ofthe nest pedi the date Ey column (4. 1st Apri 203), "To Balen Dd mn the particulars column and enter the balance amount in the lnmoant corn onthe det sie Pareles Neco Alle king ito cansdertien of te above steps, Sivas Aout o will eopear as flows:- a Solution Sivas Account 00 “anon “ern =a panccias [3|*%"| paw | pecans sr] ar rosaesae | | sng] aurs) sy sues c Tose Ae ‘osm eum ae | | roam er zipyeanae | | 200 Be |Byekwe | | soon a1 |Byomeeid [ram "ant iam] | Tow) er tepusces| | rsa En 98Parte Acct 55 Distinction between Journal and Ledg be = oat ‘Books of original eatry Goumal) end Lodger canbe distinguished a a a flows fae i — Fatal rocanae | | ra0[Sttsiyaninece| | ray J Tate Din 7] 705] 1, Book his tte book of prime | It is the main tock of | romancsu) [a os ‘ou cot eee | oe Ps & +3. Process, “The process of recording | The process of foe | Pericies [JF [SS] ac] Panicum pr cette is tee books i | secon eae i te 2 i se Bes rocanae | | softly recta ee we | | 1900 omen pony | paar ni) reoumecos| | 3 Stine we wate | Ste ime pn] Tommy SNe wtiea | The faa postin ofa] The final pasion ofa sorifsyauansna| [To reste mont ct | peu Sac etd Citceat ae "oe A Ls pa eo So [en fcr ta ai ar arc speed Mar S) ToSales Ate 8000) Mar7| ByCash Ale som} 7. Tax authorities | Do no rely upon these | Rely on the ledger for sf aymameced | any Ss ee ai a sor t[rondncenal [ana 10 01QUESTIONS | Objective Type: bok of account, 2, The proces of wansfrring errs from Joumltothe Lodger scaled ld means ard b/d means 4. offmeans and Nmeans ‘Debiinganaccount signifies rocondingthe tansactionsox the se 6, Thelelthand ideo an secountis known as and shovight hand ideas, 7. Cre Balance meas ‘shaver tan 8. Reataccouns camer have atace, 9. Account having debit alanceislosed by writing 10. LF column in the joa i fed atthe tie of [Anawert 1. principal, 2. posting 3. cared down; brought down, ‘3 earied forwand broug Orwar, 5, dei side, 6. cet Side: ceitsie. 7. cetera: dehittol. 8 credit. 9. By Palencecld, 10, posting] 1) Choose the correet answer: 1. Ledgerinabook of . Giginalemy . finaleny ©. all eau rntactions a0 2, Personal and eal accounts re: closed bi, blenvod closed andtransered 3, Thecolurmof ledger whichlinks the ery with joumals 4. LFoolumn b. JFeohmn «. Paricaleresiumn 4. Postingon the ret sie ofan accountis written as 2 by Being ‘Nominal account having coditbalance represents income gin , expenses /losses 6. Nominal accoun: having cebitbaance represents 1 income /gsin 1b expenses loses . lbiy 7. Realaccountsalwaysstow deta balances , crecitbalances ©. nilbalnce 8, Accomm baving crit bnlanceisclosed by writing . ToDalance bd be ByBalaesld ©. ToBaanceea 9. When thecal of debits anderedits are qual epreents debit balance bs. creithalance & ailbalance 10, Thebularces of personal and real accounts reshownin the 4 profitandiosssccou ——b,_balanve sheet © both ([Anowers:1(6),2.(0) 3: (0) 40). 10.0) 6.0.7.0 8.(0),94(c). 31, Other Questions: ‘Whats edger? Defneleo=. Exphiathoutlitesofalodger. ‘What is aLoese-Leaf Ledger? What isposting? What arctho toosinposing? ‘Explala the meaning ofblancing an acount Explin the steps in balancing. ‘Whatisdetitbalaace? Whatiscreatbalance? [Explain tesigificanoe of debitand credit balances of various ‘yposefeccouns. Indicate thonarue feral balance nthe following socouns. a Cah Debtors Creditors a. Purctaes c. Sales 1». Capit 4. Fumie i Salrcepaid| ©. Commissonrscried —j. Computer [Explain the poting of « compound jours enty with an example. Distinguish Foural with Teer 108 10, Probleme: 1, Jouraisete folowing wansactions of MeRaviand poster in ‘heledger and baance these, 2004 une 1 Ravi invested Rs 5 90/000 cash nthe business Paid nto Bank Rs 0.900 Purchusedbuiliing for Rs 360/000 Purchased goods for Rs 70,000 Sold goods for Rs 90.060 ‘With dew ces from bank Rs. 10000 Paid leet chargesRs3 00 Paid Salary Rs, 15900 2 Record the following transactions in the Journal of “MrRadhecshnan ad pst thom in the ledger and balancethe 2004, Jan. 1 _Rachalcishnan commenced business with sh Rs. 15, 90,00. Pid nto Bask Rs 500,900 ought goods forRs.3, £0.00 ald uavelling charges Rs.5,£00 Sold gods ors 2.50000 Sold sods to Balan Rs.2.40.000, Purhastd goods from Naryanaa B5210,000 Withérewcash Rs 40000 usJoumalise the following transactions in the Journal of Mr-Shanmugur, post them in the ledger and elance ther, 2003,Aug. 1 Started business wih 430,900 3 Goods purchased Rs 70,000 5 Goods sold 51,900 10 Goods purchased from Rengasany R520 C0 16 Goods rotumed ty Rangasamy Rs$£00 23. Drow frombankRs.30000 26 Fumirue purchased Rs. 10,000 27 Settied Rangasamy’sacconrt 31 Salaries pid, Re.12,00 4, Joamakse tts folowing rsnstcnsin Tint RansJoursalaad post ahem to edger andbeance them. Rs 2003,Sepl.| Tint Ranistaredbasinesswith 30,000 5 Openedacurentacenunt with Incian Overseas Bank 0.000 12 BeughtgcodsiromimtSumathi 90,000 18 Paidto Tint. Sumathi 90.000 20. Sold gondstoTimt. Chita 126000 28 “Tmt.Chitasctled her ecount 5. Joumalise the olowingtransactionsin'Thia Manieandan'sbooks ‘nd pont thm toladger andbalance them. 2003, Aug Sold goods to Anamugim on Cra, 17,500 9 Bought goods for cash fom Chellappen &s.22,500 108 12 Mer Travellingonpemscs s.2,500 1S Received Rs 80000 fom Sivakumar asloen 21 Paid wages to werkors Rs 3,200 6. Enterthe following tansectionsinjoumal end pos theminthe der of MirGovieerajan and balance them 2003, Aug] Govindarajan commenced his business wih the following sts andlihlites, rant and Machinery Rs2.50.000. Swoek Rs. 90.000. Fumitue Rs7 000. Cash Rs. 50000, Sandy creditors. 1 50,200. Sold goods wo Sunt Rs.1 50000. Bought goods from Natarajan R565 £00. Satur paid cashRs.1 25000, Returaed damaged goods io Natrajan Rs2.900. Paid to Natarajan Rs.28000. Paid rent Rs. 500, Paid salaries Rs. 9,900, 7. Post efllowing tansactons direct no ledger of Tina Kart ‘ne balancether, 2003, Oct 1 Received cash from RameshRs.1,60, 000. 5 Bought goss forcash Rs. 50,00. 7 Sold to Suresh: 20000. 15 Bought romDayalans 40000. ww8 20 2s 20 31 Sold toGancsan Rs. 50000, \Withdrow cash for personal use Re. 18,000, Rocoived commision Rs 2000, Paid vent Rs 5000. Paid salary Rs.10,00. Prepare the necesery accounts inthe Inger adbving the balances for 8, ProblemNo.|1inChapter4 9. ProblemNo.!2inChapters 10, ProblemN.13inChepterd. 11, ProblemNo.L4inChepeer4, 12, Problemo.t5inChepeerd, 105CHAPTER - 6 SUBSIDIARY BOOKS | - SPECIAL PURPOSE BOOKS Learning Objectives After suudying this Chapter, you will be uble > understend the Meaning, Kinds and Advantages of ‘Subsidiary Books > know the Purpose, Format, Foutng and balancing of Parchases, Sales, Purchaves Return and Sales Retars Books. underitand Bill of exchange and the Different Term: Imvelved tn bil wansactions. > know she Meaning, Purpose ond Posting of entries tn Teurnal Prorer Fors business having @ large number of transection: itis practically impossible townie ll transactions i ane jum, bose (Fhe flowing Tntatiens. Periodical deal of ome impextantbesinessranactons caanot be known. from the jou eas.c., monty sales, monthly purchases 34. Suchasystem dacs mot fixate he instalation of mitral check system sinc the uml can be hanced by only one person. “The journal becomes bulky and volun, 6.1 Neod Morsover, transactions can be clasified and grouped convenicely according wo bir nature, as some emisciens are ustaly of repetitive in nature. Generally transactions are of two types: (Cash and Credit Cah transactions ean be grouped inane oaiogory ‘whereas credit transactions canbe grouped in another category. Ts, in practice, the main journal is sab-cvided in sach a way that a scpazats book is used for cach category or group of transactions ‘hich ere repetitive end sufficiently large in amber. ach one of the subsidiary books isa special journal and a book of original or prime entry. Though the usual type of journal ‘nies aren pase in these sub-divided journals, the double entry principles of accounting ae stictly followed. 6.1.1 Kinds of Subsidiary Books ‘The numberof subsidiary bocks may vary according tothe requirements ofeach busiest. The fellowing ae the special purpose sutsiay books, ‘Transoetions| ay Books Tits Books Cash ook Sours Pope Prchasse Solos Porches Siete ie Bok Book Retin Rete Rechuble yu 0 6.12 Purpose i Porehases Book recorés only credit purchases of goats by he rader. i. Sales Book is meant fer entering only ereit sles of goods by he trader. i. Porchanes Return Bok ocords the goeds tured by the trader to supplies. ‘Sales Return Book deals with goods returned (out of revius sales) by the customers, ‘Bills Recevable Book records the recepis of bills (Bills Receivable) ‘i, Bills Payable Book records the issue of bills Bills Pryable) ‘iL.Cash Book is use for recording ely cash transactions i, seceipts and payments of eh. vii. Journal Proper isthe journal which records the entries ‘which cannot be onzred in any ofthe above ited subsitiary bok. 6.1. Advantages "The advanages of maintaining subsidiary books can be sammaised as under 4, Division of Labour The division of joumal, resulting in Avision of work, ensures mere clerks working independerily in recording original encs inthe subssiary books. 3, Bffcieney : The division of abou also helps the reduction in workload, suving in tine ard staionsry. also gives advantages of secidnalon lating oeicenc. ‘i Prevents rzors and Frouds ‘Tae occovating work cam be Bnties willbe posted ode cet side of he respective ceditors (supplier) account isthe ledger by weting "BY Purchases Alc in he particslars cole, ‘Step 2 > Peiodic wal is posed w the debit purchases accourt by waiting "To sundries as per purchases book” in the parca columa, Mastracon 1: Pros te following, ransations of Ras for uly, 2003 prepare the Purchases Book and ledger accounts connected vith this book 2003 Jily Purchased on credit fom Kannan & Co, ‘0 fron boxes @ Rs. 500 10 Grinders @ Bs. 3000 6 Purchased for cash From Siva & Bros. 25 Fans @ Rs. 1250 10) Purchase from Balan & Sons credit 20 Grinders © ks. 2500 10Mixic @ Bs. 3000 20. Purchased, oa credit, one Computer from ‘Kamar for Rs. 35,000. usSotaton: thee o Rarn Purchases Rosi nwa] ate Parca teva Oe i | ke a Daly 5] Kagan & Co, “0 rn bores @ Re. tO sno] 0.Gendon @ Re.3000, ‘os0o| Soeds prcise vide the sso iINooeDa. 10) Bane ce ‘Grind @ ns2-00 some} I Mice Rs.3r00 ‘oino| Goad parasol vide thie son Teal =a dee | Paves R| [Due] Dyan [i] a Peps | hasan) dee] nici pref Dwe| rear [ar] RS rans a |y Pectaes | | ss s ‘ae no aa % a as uty [ay Petes | | sooo ho ‘poshuse cep uit 2 Soh nal aot be coded he purus Bose us 6.3 Sales Book “The sales book is used vo recrd al ret sales of goods dealt with bythe trader in his business. Cash sales,cashand credit sales ‘of ascts are not entered inthis ook. The entries in the sales bck are onthe bass of the lavolces issued tthe customers with the net soon of sa. The Format of sales bookie shown below 63:1 Format ue | Panewar, [Baas | Tea] Rem Da Column ‘Represent the date on wich the transaction took plac. | Paticulirs Column ‘Triscclurn includes the name of purchases and che particular of goods sol, Ouward invoice No. Comm Rovoal the ceil member of tho fouwardmvoee w. LE.Colums Dela Cote The pugenuber of hecasiomess accounts in the Ledger is recorded. CContsine the amount of goode sold and te amount of trade Aicouat ay. mwvi Teal Column = This column shows the net ameunt which s receivable from the customers vi. RemartsColumn —— Any cthe extra information wil bbe recorded 3.2 Posting and Balancing Atte cod of th month the individ entice andthe teal ofthe sales ook column ae posed into the ledgers asunder. ‘Step 1 > Individual amounts are daily posed to the debit of ‘Casiomers’ Accounts by writing “To Sales Vo" inthe articular column Step 2 > Grand wal ofthe sales book is posted wo the ced of sedesaccountby wring "By Sundies as per Sales Book” inthe particular column, Mlastration2 Proc: ine tasactions given below prepare the Sales Book of Ram for July 2003, 2003 dhly 5 Sold oncreditte $8. Baders 10 Chai @ Rs 250) Lew 1056 10 Tables @Rs3s) } Dicom 8 Sold w Rafe forcast 15 Chairs @ Rs. 29 20 Sold 1 Motan & Co. SAiminh @ Rs. 2200 To Tables @ Re 850 23 Sold oncrectto Narayanan old computer for Rs. 5000 28 Sold to Kumaran forcash 15 Chass @ R250 us ‘Soe: Inthebeoksot Rom De a oamae) 5 | __Aam Taroie | Daa a x is |e aan ily 5} s8.trdes & Co chu @ Re 250 aan 10 Maes @ Ho. 850 30 Ti} Lis: 16 Dscost 100 Sul to $8. Tefen ve ox Now dt 2] Moran & co S Alniah @ Rs.2200 wipe] To tates @ Re 880 | "ra ‘Sa a be Sales Accomt o tw] Paves PFDA | ae] pataan pm sr | pf sunt | | sosave pa! Prersaee ue] Peacen Ane cian [am REE ail fo : aD in [te sates at owe & ‘Motan Coe Renae @ ue | prvews PFRE | oe] runcus [|i Bay | Te ser As 90 ws6.4 Returns Books: Returns Books as thse books ia which the goods retamed tothe supplies and goods retumed by the customers are recorded. ‘The reasons for the eetum af goods ate i, no according to the order placed. not po the samples which were already shovtn. ‘due to damage condition, ue to difference inthe prices charged. ‘undue delay in he delivery ofthe goods. 6.4.1 Kinds of Retums Books ‘The following are the kinds of Returns Books; |. Purchases Retara or Returns outward book 4A Sales Return or Returas izward Dook When th business concem returns part of the goods parchased oncrodit, the reumns fall under th cetogery Purchases Return or ecurns Outward. When the busines concer receives. pat ofthe gods sold on credi the rotons fall under the catgory of les Retura or Returns aac 4.2 Purchases Return Book ‘Thisboot i sed io record returns of goods by the business 1 the supplies. ‘Ibo enaies ir the Purchasos Rotums Book are ‘ually made on Ui buss of debit note fsued Lo the supplies or «ret ote received fom the supplies. We call ita debtote became the par’ cupplicr account s debited with the arpount writen in tis roe. The same note stemmed as ee note From the receiving party's oir of view because he will xedit the account ofthe pary foom whom tas received the nce gether with gcd, The ow of notes is ss follows. 10 et Pas sey cred Nite Dano Send _7e 6421 Format Purchases turn Book |_| aaa Date Particulars ‘Note | F/Detaiis | Total] Remurks m | Pe |e Note The reson for pcos retired isecored in Remarks colume Posting and Balancing “The individual ens andthe peciocic total of the Purchase Retum Rook ire posed into the Ledger as under: ‘Step 1 > tnvidul amounts are daly posted tothe dei of super sccounts by writing “To Parchaoos Return Alc” in ths ‘pataulas corn, ‘Step 2. > Periodic otal is postd to th ert of purcheec tan ‘sccoun by wnliig"By Sundress per Purchases Retum ‘Blok in the particulars coun Mlastrtion 3 ‘Ener the foloming tansectos inthe purchasesrtum book of “ati and post them int the ledger 2003 Tan S. Returoel good to Anand S chairs @ Rs200 each, in eocondenco with onder. 14 Remacd goods 10 Chancran 4 chairs @ Rs.2X0 cach and ID tabler @ R350 each, due to inferior quality. m1 tStun Inthe tot tart Parcs Retiro De ar ae | raciausn | Noe [ur) Bais oar] Ramee x ma | ae aT Tou Sie 5 Anand Jenne Sis @ R200 10 wis re 1 [snare / scars @ R20 so Deew foie @ 3 ‘ae Bs Pants ar cla « ae) Peas 7 = ar v hin \ be an ene, © o [Pace ee a Cand desnt a ais Sie | Ts Purchase aa an 6.49 Gales Return Book “This book is ued wo record all returns of gos 1 te business by the customers. The entries inthe sales ura book are usally on the basis fered notes issued tothe cust: cr dit notes assed by te customers. PSEC Ss Credit Note purchaser Sales Retuens Book Gat | CE] — Ano Note |” [Dai] Tear ‘Note: Reaarks column is meant ta vord thereon for eturn of sped Posting and Balancing ‘The individual entries andthe period total of sees return book sco posted into the edger ae under, ‘Step L > Individual amounts ave daly posted to th credit of customers degoun! ty writing “By Sales return Ain ‘he panialarscolurn. ‘Step 2. vids totals posted he doit of clos etum acceust by writing “Lo Sundtcs as pr sles eum book inthe arcu coir, msMasertion 4 age Aca ere flowing wanssctioas in Retr Iaward Book: a ot * pac | purities [or [8R2Y Dae] rails [ar] Am 2003 zo ‘sgl 6 Resumed by Shankar 30 shits ach owing Rs 15D, due ‘get Ts Sandon ws toner ct. | | al 8 Amar Tilo ture 10 Babasits, cach coving R100, “account of being not in aesodanoe with te order te Shankar Account © 21 TN. Sores reamed 12 Sulvar ss each contng Rs.200, nae] rac eM] one] reuse] ne being mot in accordance with oer. om Solution: PoP acu we ™ Sales Retura Book Doc | Farias | ON, [TF] Pate Ao Rens Dan] Pence PR]AROY nae] Pace or) AR hisere) | wa | te ze = a5 Daw 8 ‘oat | stants infer spy sacs ‘xn & | Sasha @ Reis aso | |atiy Fetes Net Tana ian 8 | sens soane Se 10 Bia ts nie | eR io wom | | Spt] Ry Sa 240 Este stm 65 Bill of exchange eR 2a vine “When one wants to increse the business rasctions, dit a0 oer nay te allowed and tie amounts aur wxeved after some tn. Ifthe amount involved in the eet ransation i large, the eller needs Tat 200 securily andevidence over the dealings. Mere he Blof Eachaage a solves the problems ofthe seller. ns6.6.1 Definition ‘According tothe Nogotable Instruments Act, 1881, ‘Bl of xchange’ an insaumet in writing conning an urconitonal onder, signed hy the maker, directing a certaix person to pay a cenain sm cf money only to, ortothe onder of « certain perce orto the bearer ofthe instrument An analysisof the dfrition given above Hightightsthe following impertent features of abill of exchange. iL Ttisa written document, Itis anurconaitional rds, Its an order to pay a certain sam of money. Its signed by the drawer, 1 bears stamp or its drafted on a stamp paper 1 accepted by the acoptor vil The amount is pid to drawer or enone 22 Fomat ail of Exchange 328, Bua Suet, Stamp oo Tichy S858 01.06.2002 Rs. 10,000/- xe ‘Taree months aftr date pay to me or to my order the sum of Rupees Ten Thousand only for value received. To Damesiran ‘Tia Sundarn, 40, Mint Steet, Chennai 106 653 Important terme Explanstion of some terms contested with bill of exchange is gvenbelow. 4. Drawing of @ i ‘Th seller (rediter)propaes the bill in the form prosontod avove. The ac of preparing the bili ts complete form withthe signatures known a “dastng il i “There are thtoe patos to abil of exchange asunder, i Draver: The person who prepares the bill is called the dreweris.,acreiter, Deawees The perion who has to make the payment or ‘who accepts to make the payments called the drawer i, debtor. L_Payee: Ihe person who roeves the payment I payee. He ‘nay be athird party or the drawer hime -n he above format ckaver and payee is Damodaran. Sundaram is the dawee. 2 Aecoptence In a bill drawer gives his acceptance by writing the word ‘accepted! and also pus his signature and the date. Now the bill becomes @ legal document enforceable inthe court of Law. 4. Due date and Days of grace ‘Wher abil is dav payable wr «specific pid the dite on which he payment stall be made is caled “Due Date’. In the lela of the die de thee ext dys me ade to he sei ‘period of the bill are Known as “Days of Grace” IF the date of -uaurty falls ona holiday. the bill will be due for peyment on the reveeding day. amExample : Date ¢ ai [Period ora [Days otGrave | __ Duc de ath | 1 momh 3 [tah Ang, snoe 1s ag eng Intend a) is obi oli. toa | soa 3 [uxoreater 5. Endorsement “Endorsement means wring of oa's signature cn te fce or ‘ack of abil for the purpose of transfering the ile of the bill 0 node peron. The penson who endorses i called the "Endorse “The person to winom bl is endorsed is called the “odersee”. The ‘endoriee is ered to collect the money. 6. Discounting ‘When the holder of bil sin need of money before the due ate of bil be can convert it ito cash by discounting the bill with Tis banker. This process i refered to a8 discentng of bil, The twnker deducts anal amount ofthe ll which scaled discount ad pay te balance incash immediately tothe hor of te bill. 7. Retiring of Bi An acertor may make the payment of abl before se date tan cischarge is Tabi, itis called as retirement fab, Usaly ‘ac holder of tho bil allows a concestin called rebate to the drawoe forthe unepied peri ofthe bil Renews ‘When the acceptor of ill knows in advance that he will not De able meet the ion its du date he may approach the Graver 1s vith «request for extnsion of ime for payment The rawer ofthe billmay agre to cancel the orginal bill anc draw a new bill forthe mount due with interest thrsoa, Ths is refered too renewal 8 Diehenour Dishonour af the ill means the non-payment of bill when tis presented for payment, 10, Noting ane Protesting abillisdihonoue the drawer may agprowch be cout and ‘lea su sens he drawer. none to collet documentary evidence, the drawermay appro alanyer and expsin the fact of th dshono of teil Te lawyer wil take teil w the crave ar ask forthe pment, Ifthe drawee does not make the payment. the lawyer will rote the statement of the drawer and gel the satzrent signed by ‘um The lawyer will then pat his signae. The statemen: noted by the lawyer will be the documentary evidence forthe dshonowr ofthe Di. Wri this statement by the lawyer's kown as nog oF the bl The ewe: periomnng this work of ncixg the billiscalled asthe ‘Netary Publie’.A rotary public isan official eppoined by the ovement After reccrng 2 uote of dsbonour on the csbonouted bl the ‘Notary Public isses certificate this effec: whch is called protest. A pret corticate sued ny the Notry Public asin thatthe blhas boon cstououred, 66 Bills Books ‘When the nmin of bills rceved rss sarge jeumsising ‘fal bill waasacons will esult in exomous waste of me. Hence, Slab reser like bls receivable book ard ills payable book are _nantanod © rcord the receit of bills rccivabe and issuc of tills ‘pajuble respectively, These took are alo called Bills Journals / Books ns6.6.1 Bills Receivabie Book Bills recelrable (BR) beok is used for the purpese of recording the deals of ils rcsivable. The individual accounts of pies from whom bills are received wil be reed with he amount {nthe bills recetvable book. Te period cas posted othe debit of bills receivahle account inthe leer by writing "To sundes as et Bills Receivabie Book” 662 Payable Book Bil payable (IVP) hook is used forthe purpose of recording ‘the details of bil payable. The ndvidual accounts of the partes 10 ‘whom the bills are isned willbe debited with the coresponding ‘uvount inthe bills payable ook. The perede wal is posted wo the credit of ils payable account inthe ledger by wring "By Sundies per Bills Payable Book” 67 Journal Proper oural proper is uscd for making the eiginal record of such ‘easictions for whic no special jou hes ben keptin te buses. ‘The usual entries thal are pu through this jouralisexpained below. 1. Opening Entries Opening enres ar used atthe beginning ofthe financial year to open the books by reccrdng the asst, Tibi and copia! sppearing in te buanoo sheet ofthe previous year, Example: ‘Me Rammath commcnced busincss withthe fllowing tems, sake the opeaingentres in journal proper as on I" January 2003, 190 Stock Rs. 1500 Foie Rs. 3900 Sundry eedtors Rs, 1000 Dai | Goat Dae | Paticulr| ie] Peat ] Ces 2008 lin |casn ave ve} | 30g00 Stock Ale pe} | 18,00 Furie Ae Dr 3,000 "To Sundry creditor: Ve 10000 To Capital Ae 38,000 (Commencement of business with assets & ibis) 2 Closing Enties CCosing entries sre corde tthe end of the accountng year fox closing account relating to expenses aa evens. These accounts sxe closed by transferring the balances tothe Trading, Profit and Toss Account Reample :Salasics paid Rs 1500. Give the closing entry as on Dee. 31, 2003. Due | Patiulan fr] Debit 7 Codie a | Re. 2003 |rometoss ae De} | 15.000 JDce31 | ‘ Salaies Ale 15000 (Closing cur forsalaies psa) a5. Adjusting Enties ‘Toarrive ata comet figure of profits and los, ceria accouns require some adjustments, Entries for making sch adjustments ae called es adjting entries. These are needed a he time of preparing the nal accounts, Example : Provide depreciation on future Rs1,00,000 @ 10% per anrum. Give adjustment entry as on Dec. 31,2003 Dae Particuans Ley ek | cee 12003 | Peprevstion Ac De) | 10,000 IDee31 | To Furniture Ae 10900 (Depreciation writen off) ‘Transfer enries are passe in he journal prope for transfering ante entered in one accouat to another accourk, Example : When the proprietor takes goods Rs 500 fer personal se, Give trfor entry on Doe. 31, 2003, Dae | Parieas in| Dai | Cedi ‘2003. | rrawings Ae De 5,000 peesi | ToPurcnases Ale 3100 (Goods withdrawn for peroral ut) a 5 Restying Entice Rewtfying envis are pase for eclying eros which might have commited inthe book of ccoxnss. Example : Puchase of furniture for Rs.10000 was debited to Purchases Account, Pass rectifying eniry on Dec. 31,2008. Dae | Pariculsn ue] Debt | Ceat Re | Re. 2003 | runitue are px] | 10.00 Dect | To Pacchases Ae 10,000 (Wrong debit to purchases account rex) 6. Miscellaneous Envles oF Envies of Casual Nature “These are ents of casual nature which do not oocur so fequerly Sach taneiesion ncade the following: Credit puchasos and eit sl of assets which cannot b> ‘eeonded through purchases or sales book [Endorsement renewal ard dshonour of bill of exchange ‘which saanot be recorded thovgh bills book. 4A Other adjustments lke interest on capital and lean, bad debts reserves ete, a0QUESTIONS 1 Objective type: 2) Flin the blanks: 1 2 x 4 ‘Subdivision of the oumalsino various books fer cording ‘wansactions of silarnaruearecalec ‘The wal ofthe book is posted tothe debit of purchases secon ‘Theperson who prepares abil s called the. Days of grace are innumber. | Answers: 1 subsidiary books, 2. purchase, 3. drawer, 4.thre] 1 by Choose the correctanswver: Purchase of machinery inreconddin )scler book journal propor purchases book Purchases boak iskept to record sal purchases only cash purchases only cedit purchases Cretitaale areresordadin a)sales Book cash hook ©) joumal proper Goods reeumedby enstomersarerecorded in a)seles book by salesrenim book ‘pares tu Book 13 (On 1 January 2003 Chandran crawsabil on Sundar for3 months is duc dae 2) 31" March 2003 .©)48 Apel 2003 [Answers £1. 0),2.©,3.@,4-0)5-0 by Apair2005 1 Other Questions: 1 2 ‘What ace the vatious types of subsidiary books? ‘What rethe advantages of subsidy books? ‘What ach dion? ‘What ace the ifrences between Trae Discount and ash Discount? ‘Whats Purchases Book? ‘What is Sales Retums Book? Defizeabill ofexchange. What are its features? ‘Waite notesonpates involved in abil of exchange Wha isDaysof race? What isendorment? White ratesonraiingof ail ‘White notesonrenewalofa bil of exchange ‘What is Foural Proper? For what purpose ite used? |. Weitenotssonclosing entice, ‘White noen onreiying enti. nsProblems: Enter the following tansactos Jn the Purchase Book of Mis Subhash 2003 March 1 Purchased 100 Ky, of coffee seeds from Suresh @ Rs 40 perke. Purchased 80 Ke of tea dust from Has @ Rs.20 perks ought from Rekha Sagas, Tchy 1200 Kg.af Sugar@ Re per ‘Bought fom Perumal Sweets, Conan, 40 sins of wees Rs.20 pert Pavtused rom Govinda seu Compary, Chena 2 ince scite@ Re AD pon [Answer Purchases book total 31.200) From the following pariculars propare the sales Sook of ‘Modera Fumikwre Matt 2003 Jime § Soloncredit to Awvind & Co, 10 2 bles @ Rs.600 pe table Di chairs @ Rs 300 perchair Cash salesto Anand & Co., TD tables @ Rs 300 per tale 20 chalis @ Rs.150 perc Sold toBaskar & Co, on credit [Dalmiahs @Rs3000 per almiah 10 bles @ Rs.200pertadle 136 Sold od ypemsteforRs.1,000te Madan encredt 20, Sold Gopinath oncret. 10 tables @ Rs. JK per table revolving chairs @ Re | 20 per chair [Answer Salesboot Rs 2.400), 3. _Enverthe following ranesctins in proper subsidiary bocks. 2003 ‘Ma | aril 20 ‘Pures goods from Baleramans 2000, ‘Sold goodsto SerbiT Rs 1.900 Goeal purchase from DuraiRs. 1000 ‘Sold goods to Saravana KS.700 ‘Sold goods to Senthil Rs.500 arched gon fern Eangewsn Rs 00 Purchased goods fromParhiban RS3C0 Sold goods to Sulamar Rs 00 | Answer: Purchase book Rs.3.$00; Sales book Rs 2.800) 4. Record following wansations in the propersubsidiey books of MisKam & Co,, nd pos themtotte edger. 3003, ' s s 0 5 Gora od to Ramesh Rs.,000 Sold goods to Kumar Ra.2.200 Sold goods to Shankar. 300 Goods retumed by Kumar Rs 600 (Credit Note sont 1 Shanker for Rs 200 being the invcis overcoarged (Answer: Sales book Rs 3300; Sales retum book Rs} a‘Writ the following transactions in proper subsidiary books of MrKapsekarn. 2003 May 10° Purchased goods from Raman Rs.15,000 14 Returned goods to Raman R500 18 Purchased goods from SekaranRe.10,000 20, Pradeopsald goods tous Rs 20,000 24 Sent adebit noe Sekaran for goes damaged in ‘earsitRs.1 900, [Anowor: Parchases book RAS 000 Purchases eum book .| 500] rte the following rarsations in the proper subsiciary books of MeSora 2003 Nov. 1 Bought ree Goral 300 bagsof wheat Rs. per baglosstrdeciscoune 10% 3. Purchisedfrom Madhavan 150 bage otis Re QUO perbag ess ralediscount 10% 5. Returned to Gopal 10 bags of what which were purchasedon 1.11.03, 7 Sold Shiva 0 pagsor ree Rs. 200 perbag ess ‘de Discoent 5%. 12 Soldto Sharms 25 bags of WheatRs.1 200 perbag Tess Trade Discs 105% 4 Returned IShags of rice te Matava, 1S. Shivareuumed age of tie 138 17 Bough from Rajan 200 begs of wheat Rs.950 per a 24 S0-ags of wheat returned to Rajan [Amswer: Purchases book Rs. 500; Seles book Rs80,250;, Purchases retim book RS.68,650; Sales retum book 5,700] 7, verte folowing wansactons isthe appropvse Special Joumal of Mis. Sita &Co, 2002 Oct 2 Bought goods rom Satish Rs 200 as prince Noss 4 Sold to Sivagami goods Rs 1.500 as per invoice No 7. Returned to Satish geod of Re 250 as por debit nteNod 8 Sivegaml retumed goods Rs.120 as percredit not Nos 12 Soldto Vieyagoodsof Rs. 950 as per invoice No72 14 Purchased frm Velan goods worth Rs.1100, 18 Returred to Sampath goods of Rs. 150s per debit nteNoS 22. Vijayarcturned goods of Rs 240 Credit NeteNo.9 [Amewer: Purchases book Re.3,500% Sales book Re.2.550: Parca rer back RS 00 Sues reir 0K ROI] asCHAPTER -7 SUBSIDIARY BOOKS II - CASH BOOK Learning Objectives After learning tis chapter you wil be abie to: > undersiandthe Need and Meaning ofthe various Kinds of Cash Book > prepare ihe various Kinds of Cash Books. -mevery business house there are cash ransectlons as well as cralitrimaetons. Allow ravacsenswillheccme ca rmsctons ‘when payments are madeto creditors or cas eeeved fomdebor, Since, cas ransactons will benumerous, is beter tkeepaseparie boaktorecer only the cash transactions. 7-1 Features -Acash book saspecial journal which susedtorecerd all ash seceipts andcash paymens. Ihecash boot is abook of orignal eaty or rime enty sre traction rerecrded forthe isttire from the source documents, ‘The cash book sa odger ia the sense thats designed n the form of aeashsecountand econ cash receipts on the écbitside and cock payments o tho credit side-Thus the cash book. 4s Doma Journal and a edger. Cash Book wil always show debit 10 blanca cash payments can aever exceed cash available. In shor, cashtock special joumal whichisued for eeoniegalleahrese ps sndossh payments. 7.2 Advantages |. Savestime and shane: When cashtransctons are recorded in te journal ale of ime and labour willbe involve Toavoid this cash tensctons are straight away recoded inthe cash bookewhichis inthe form afa ledger 2, To know cash and bank bataace: It helps the preprierar to [know the cashard bank blenceatary pin! of tin 3. Mistakes and frauds can be prevented: Reguler balancing cof cash book reveals the balance of cash mand. Incase the «ash bok it rairtaine by business concer, ean oid Frat, Discrepancies if any,caa be Mentifid and ret. 4. Bective cash management: Cash book provides all ‘nfommaticn eganingtoalrewep andpeymens ofthe bsines, concern al aparticulr period, Sotha, effective policy of cash smenegement canbe formulaed. 7.3 Kinds of Cash Book “Tho vasiows kinds of cosh bock from the pint of view of uses may be follow: Kinds of ash book I a mt v Snglecclumm Duublecslirm ——‘Tilecokmn Paty cash 9) Wihdiscout nd withdiscoust, asco csh and beak by Wik cashand —calumns a7.31 Single Column Cash Book Siagle column cash boot (simple cash book) as one amount column in each sie. All eash ee’pis re recorded onthe debit side tnd all cash payments onthe cet sid. In fact,this book s nothing buraCash Accoum, Hence, thre aoneed to cpen cashacceunt in theledger. The format fa single calurrncashheok is givenbelow. Format DebitGide Single Calmn Cash oko Cie Explanation: 4. Dave +‘Thiscolumnappeasin both dcitand credit sido. [Lrecords the date f receiving cash al debt side and paying cash at ered si. artiewars This column is ved at both cobit ad erect ‘Side. recon the namics cf arcs (perso accom) eas (oorninal account and items eal account) from whom ‘paymentas boca recived and fo whom payment ans been tral ner of Receipt Namor (RN): This refers to the serial thecesh veep. aa |i. Voucher Number (VN) This fers tothe serial mumber of the vouches for which payments made. Ledger Foo (La): This column is used in both the debit and ret sie of ashok. The lger page fli) afevery ‘sccountinthe cash book srecerded against ‘i: Amount; Tis colurmappears in both siesofthe cash ook ‘The actual amount of cash receipt is ecordedon the debit Sie. The actual payment are entered onthe ere side, ataveing = “The cash book balanced ike any other account. Te total of the recep (cetitside) column wll always greater than the total of the payment column (ereditsde). The diference wil be writen onthe crpdltsideas “By Balance of". Inthe deplaning of te next period, 19 show the cas balance in hard the Ralance amounts recorded the cebitsigens“Tobalance bd. Mtuseation 1 -Engrthe folowing warsactios na single column cashbook of MeKanann. 2O04Jan 1 Surtdbusinesswitheash Rs. 1,000 3° Purchased goods forcesh Rs 500 4 Sodgoots Rs. 1,700) 5 Cashreceived rom Siva Rs. 200 12 PridBlan Rs 150 14 Boughtfirninwe Rs. 200 15 Purchased goods fiom Kelaonroiit Rs. 2,000 20 Paidoleetic chagse ke 205 24 Pridsaiatos m RS. 250 28 Received commision Re 75 3ot Neko be G sunt capa A ova | in fy Pons 5 rosa ve 90) 12). A rob romance 14s Note: The ransacion date Janay 15! will not be ocd in he ‘cath hook a tea ret anescton 17.8.2 Double Column Cash Book ‘The most common double columa cash books are i. Coshbcok wit scout snd veh colamns | Cashbcok wits cash and bankcolumas Leash Book with éscount and cash eolumns Oncthersieoftt sing colamncesh boc, another columns acide to ovand discouat allowed and ciscout recived, The frat isgivenbelow, aa Double Column Csh Book (Cash book wih Discount and Cash Cour ) 1 should be noted that in the double column cash book, cash colurm istlanced lice ary oerlngersccoun. tthe dscounecoiame ‘ovcach side's merely ould. The tal of the dscoun: column onthe ‘ebitside shows thetctal discountalowed cutamer andisdebted teDitcourt Allowed Account. The tot fhe dicoant colar onthe credit sie shows teal dlscoun rcelved ane is created Discount Roce Account, ustration 2: Prepare 2 Double Column Cash Book ftom the {ellowing tansstionsof MeGopalae Rs. 2008 Jan, Cushinhand 4900 5 Casnrurcases 2.000 10 Wages paid 0 11 CashSales 6900 12. Cashrecrived ftom Surshand 198) ‘lowed brn acre ‘0 19 Casi paid o Moca 2470 ard discount eceived x” 27 Cash pid to Radha 400 28 Purchased goods forcast 200 usDoubleColuran Cash Book of Mr-Gopalan (Cash book wth Discount Column) Solution : i Cash Book with Gash ane Bank Columns a gr ESEE le . ‘Whea bank transactions are more in number, itis advisable 1 = = = ‘open cash tookby providing a separate column oneither sie ofthe u cash honctorescrdthe bak amass therein Se Insudhcwe tsneteecessyoopenaseprte Bank ACU 3 inthe Lager because the two columns inthe cash book serve the z ‘purpose of Cath Account and Bak Account respectively. is a > ombanatonofCash Account Bank ASoUNL. The format of is : 2.4.38 cashookis given belo. i Sadie Double Cote Cad Rs i gidad Diese __Cahvaurth Cod nen) Cote BaRR EE se Se [efi Se [ee fe] Se Ri] Se [8 z gore. fa 582 5 a ® a z Tere wo amount columason eb i on for ashree pS = and the other for hank deposits Ge. payment mace int Bank Accrwt) Sil there re twonmount colomas one cet sise,one er . 2.4 2 yentsncahand lhe aheropuymensbychequesrespciv2s i 3eG i Conta Eny E gaa a ‘Whoa an onary affect both cash and bank accoutsitis called a eee é ‘contra entry. Contra in Latin means eppenite.Inconractries both z Tae = thedbit and crofitaspes of enstten are reored inthe cash A 5 2 tek. 5 ur‘Example 1: Cash pidintobank Bark Are De xan ‘ToCash Ale ax (Cashpuidintobank) ‘Tiisisacoraeaty. Astle cas book withcash and bak columns ‘sacombine! cash and Fark acsoin, oth Be apectsof the nsaction| will entered in the sane book, lathe debit side “To Cash A will beer inthe particulars column andthe arent willbe entered in ‘te bank colamn Inthe credit side 'y Bank Al” wil beortre inthe paniculas colin ad the zmpount wl he ered in the cashcolurm, ‘Such canrs entries are denoted by waiting the letter ‘Cin the F.colums, onboth sides ofthe cash book. They indicat tha 90 Postnginespect thereof isnecessary inthe ledger. Exanple?: Cash wihirawn rombankforoMfie ws. cst are De xxx To Bank Ale xxx (Cosh withdraw foroieus) ‘Thisisatsoa conte entry Te the dabiside "Tonk Ale wile ‘nveredinde pticulars column ant ine ammount wil be emer i he cash columa. Inthe credit side ‘By Cash Ac’ willbe enteredinthe aticulars colar andthe smut willbe eteredin the bank ech Such eorira entries are derotedby writing he etter "Cin the LE colum, onboth sides the cash boa. They indicat that no postagin respect tccof isacecsary athe ledges, 1a Mlustration 3 Ener the following uamsactons i the double column cash book of MrRajesh and balance it 2003 ‘Aug. Oponing Balance: Cah in Hand Re 250 Cash at Bank Rs.13.750 2 Paid to petty cashier Rs.2.500 2 Cash sales Be. 1.750 3 Paid to Arun by choque Rs3.750 3 Received cheque from Mea Babu Rs. $00 pid into ‘ark, 5S Received cheque from Mr Jayaraman Rs 6/100 paid ints bk 8 Cash purchases &52,500 8 Paid rentby chee Rs. 2.900 9. Cash withdiawn from hank for office use Re 2.500 10 Cash sles Rs3750 ME Stationery prshased Rs 00 20 Cash sales Rs6750 21. aid into bank Rs.10.000, 23 Withrow exsh for personal use Rs.1.£00 25 Salasos pid by choque Rs. 9000. us(Cashbaok wih Cashand Bank Column) Double Columa Cash Book of MisRajest, Sotuton: De s Pons to beremenberd he roprng ash book gel 8 FE bale poring oo dq gf 88 alg &] mame | DURGS | ome oe 2 5 ‘oiscanat = ae 1. | Cash’MO/PO.- recived Debit Cash, 22 2 | Cash pai Credit Cash, sag 3 |ieoanatwed Den | Boal El] 22]2.8s323 | piconrrscies ‘eat | Dison wanes i Bigadaiei f22b233233 5 [Gnicoacintctar| pS i yippee = 2 SSEEE © [cantante mane cam ale cover ny ss ale F a 7 [ee mene Dee on ee] ¢* 5 i a2 8. | Cheque deposited Debit(O) ‘Bork 5 chee eat cat aa] G2 GPE EB = ~ . foe collection immediacy #7 WL | Cheque issued Credit Bark ¢ 2 11, | Costome ciecty paid Debit enk i] edieee i ae E22 22 z E| Pee 33 i 12 [mses dep and cote fa 29182441 i soe = = 18 [ensue iat end ei ak ile? PRS 3 cishoaoaed 19 us1 [occas xt ai ode 15 [lenwatieedrtak_| tat oe Ta 15 [Inmotororet | Ona = afd 2 ; EI fyocunpeseact” |e sex 7.3.3 Triple Golumn Cash 800% Large business concems reve nnd make pymentsincashad Dy cheques. Where eash lseountisa regular feature, «Triple Coluren (Cash Book is more avantageous. This cash book as three amouat colunms cash, bankanddiscound om each side, Alleash receipe, deposits no bankand discount allowed recorded on debit side andalleashpeyments, withdrawals from bank rd discount eceived trerwcorded on ered sid, ‘The fomratis given in thenextpege ast ‘Triple Column Cash Rook of Mr. (Casn book wit Discour, Ceshand Bank Colum) Format Dae Pcs Dr, Dae 180Musiration 4 Compile thee column cash book of MrSundar from the folowing tenacions 2002 ‘Aug | Sendar started business with ash Rs.20,000 2 Deposited into Bank Rs 50.000, 4 Cash purchasor Re 5 000. 5 Purchases by chegue Rs.O100, § —Gocds sold to Nathan on creit Rs. 5,000. Received chaque tom Mano KSA, Dscountaloned R10 10 Paid eariage Rs 00, 12 Withckew from Bank fr office se Rs. 10.000. 15 Paid 0 Sundari Ra..960, Discount allomed by hee BA. 20 Recsivd a cheque for Rs.4950 from Nathaa in ful ‘element of his account, whic s deposited into Bank, ast ce “Triple Column Cash Beok of MrSunder ia 3 s (8 fa) 8 2 8 8 /E 277 7 i] 2))esi 3 2| 222543 He : wloOUE#!#C«S qe i Bo: [;| as] & FE q lz 2 §| i| g2222 y Note: Trnsstiondoled 6 Augu wil not pes i teeth bonk ast tet sation,Mlusration Enter the following transactions in three colunm cash book of ‘MrMucha and balance the same, 2003 Aug | 4 6 8 10 un 15 18 n Cash in hand R&.75,000 Cash at bank Rs0,000 Paid into hank Rs.20.000, Purchased machinery by cheque Rs10 000. ‘Received from Mohaa Rs250 Dicount allowed Rs 0, Plc to Somu by cheque Rs3970 infu setlement of Fis account Rs 4.00, Witickew eas ftom Bank for personal use Rs 5,000. Received cheque from Balan Rs 4.90. Allowed him discount Rs, 100, ‘Balan's cheque deposited into Bank ‘Anandan cur customer has pid direty into our banke accoust Rs. 10,90. -Ront paid by choque Rs. 3,000. 156 Saltion: “TipleColamn Cush Book of Meu 58 8 4 [8 PF ik = 5 i | efits = i) ashlai | Type qa) ff 88 ez a ee: ia[ 7 28 a8 ERIE ee = 4 | debts a a 5 astIusraion 6 Saale 8 ale Pepe econ catok fs svat foe bg : 3 transactions end balance the cash hock on 30th June 2003 qa) 2a 2 f 8/8 2003 le 5? Sime Cash inhand Rs 50.000 a poe. 3 Sank overtt Re 00 = 3 Paid into bank Rs.25,000 = £ gla eesisiei 3 Pariban ttn acon forR8.3750by ging |i) 92822264) ‘cheque for Rs 3,699. g i aand:iai Para's chaque seatto ban or cllction Sitka 10 Cash withdrawn from bank Rs.8,000. a = élm 228 = 14 Paribas cee reamed dtm [a 8 Ee 5 15 Reese rom Ramesh caency tov for Re 0 gla f § F E ‘and gave him a change for it. 2 WEF i= 18 Paid mor RS, ep. woe 20 Bank charges as per pass book Rs.150, ss - 30 Deposited nro Banc all cash in excess of Rs 5,000. Zedge z tes 5 i ai bé 2 1s 188 Note: Transaction dated [SthJine will note recerdd in the cash book.Mlasiration 7 ‘Enter the following transactions in dee colunin cath book of Mrs Anu Radha, 202 Sep 1 R “ 16 18 (Cash in baxd Rs 50.000 Bank balance R000 Sold goods to Vdayahumar for Rs.1500, cash discount allowed | and received cash forthe balance Tax paid Rs.1.000. Beaigh goods from Munuway for Bs200,cathdacount recelved 2% and paid cheque forthe balance, ‘Received repayment of loa from Elangovan Rs 10000. Paid into Bank Rs 5000. Paid Re.100 to Aravind & Co, hai by cach end bl by cheque, Dividend coleced bythe Bark as per pass book KS.2.000. Sold goods for cash and deposited into the bank on the ame diy Ra.5 000, Seatto Basra by money onder R460, the money cde commission being R20. 160 ‘Triple Colum Cash Beokof Mis.Ana Raha ge 28 Eg f Fala 4 ai j 1.283 Blau iil alseo Be Slee = a) FO OERE Be 3a] 28 ze a2 8 g 8 . Zo 2 i] iebeq: i 2 aaga3 a aleg °"*F 3 16uusration & From the folowing information show how Mi Nenu Gopal’ tile colums cash book would eppear fr the week exdod 7th October 2002 and close the cash book forte day 2002 oa 1 Cesh in ana Rs 20.00, Bank balance R100 Sivan, our custome has pad directly imo our bank cconmt RS 50. aid ret by cheque Rs 500. Choque issued in favour of Bharath for purchase of fumiture Rs.2,0. Reocived from Vinh Rs 2.225 Discount alowed R175, Paid ino bank Rs4000 (Cash withdrana from bank RS.2,90. Bharathi to whom we have ised a cheque of Rs2.400 ‘nas eponted that our cheque is dishououred 162 ‘TiplsColumn Cash Book of Mr Ven Gopal 163 za, FR 8 eS fa 5 ala ts) ise 3 plalag | Pai : diggs" : ga] 222 2 [f lias fa] 4a) 8 & : |3 23] e g 232, ,2 z Ba222 i ELL a ales" 7 "re g7.34 Postings from cash book to concerned ledger accounts, 1. Opening (Cas end Bank) balance appearing inthe cash took is not posted to ary account in the ledger. 2. Contra erties ace not posted to any account 3. Bachitem of diooure allowed appearing on the debit id of ‘he cash book wil be peste othe credit oF respetine persoral account. Teal of dscoare ellowed calaman should be posted {© the bit side of dscount alowed account withthe words “Tp Sundry Accounts 4, Bachitem of isount received eppearing onthe cet side of ‘hccash tock willbe posted the debit of respective personal ccoun. Tal of ciscountrecsved cola shoal be posted t the creitof acount received account with the words “By Suny Accounts 5. ‘The otter transactions recorded onthe debt sie ofthe cash took are posted the crit of he respective aceenis in he Azer 6. ‘The otter transaction recorded onthe credit sie ofthe cash ook ate post othe debit the espectiveaccursin the ge 168 QUESTIONS |. Objective Type: a) Fill in the Blanks: 1. Discount allowed cluma sppears in side of the cash ook, 2. Inthe triplecoluma cash book, when ¢ cheque s received the smount is entered inthe columa, 3. Discount received column appears in _ sie ofthe cash took. 4. A cheque received and pi into the bank on the same day is ‘monred inthe column ofthe tre column eash book 5. When acheque received from a cusiomer is dishonoured his 6. Cash Rook is one ofthe books Answers: 1. debit, 2. eash, 3. credit, 4. bank, 5. debited, S.swpsdary) by Choose the correct answ 1 The eath book reconde 4) all cash payreats ») all cash receipts ©) all cash eceipts de payments 2 Yhen tse pertt rhe ny wie namie 2) cash book, ©) parehses book ©} jaune 6s1 2 ‘The balance of cash book indicates 2) retincome ) cash in hand ©) difference between debtors and creditors Intrpl colamn cash boot, cash wthrayn from bank force ‘ase will sppearin 2) cite ofthe cash book only ) both sides ofthe cash book, ©) ered side ofthe cash book only cheque set for collections dshonoured, the dit is given » ©) supplics Ale ©) eastomers Ale ») bank Ale fa cheque issued by us is dithoroared the credits given to 2) suppliers Ale 2») ausomer’s Ale ©) bank Ate [Answers : 1 (€),2. (0,3. 0).4. 0), 3. (6), 8.) ‘otner Questions: What is eash boot? What are its featares? ‘What re the advaniages of ash book? What arc th verious Kids of cash book? ach ok? ‘What single eo ‘What is double ccluma cash book? Whats trple column cash book’? ‘Write notes on ‘conraeaty’ Give the specimen of tripe colums cach book 166 9, Whatare the rules for making exsissin the doable column cash book with cash and bank column’? 10, How are postings made from the cash back? 1. Problems: 1. Fremithe folowing paicula, prepare single cola cash book of MeKokil, 2002 ar.) Cash inhand Rs-20,00. 4 Gath purchases R54 00. 7 Cash sles Rs8:00. 3 Paid 0 Balan Rs. 5,600 9) Received cash from Choran Rs 10100, 13. Paid into hank s.10.000. 34 Cash withirawn from bank Rs.4,000. 38 Paid salaries R.1 £00, 20 Bought famine Rs 3.000, 28 Rent paid Rs. 1000, (Ancwer: Cash balance Rs. 18,000) 2. Ener the following waseetions in the single column cash book of Ms. Laltha, zona ‘Aug. 1 Cain hand Rs-46,000 3 Paid in to Bank Rs.12,00, 4 Cash salos Rs. 24,000. 5 Credit sales to Mani B¢3,000, 7 Printing etarges R630, 9 Received cheque ftom Natesan Rs 8,000, 162 “4 0 Dividend recived Rs200. Compute: purchased Rs-35 00, (Cash received from Mani Rs3,900. Cash withdrawn from bank Rs 2,000. (Answer : Cash balancs RS35,000) 3. Prepare single column cash book frm the folowing particulars of MeChandean, 2002 Doc 1 1 9 2 “ ” Ba 2 Cash balance Rs.80 900. Bought goods for cath Rs. 25,000 Purchased goods on crit srom Guru Rs.6,00, Soid goods to Somu on credit RSBC0. Paid Guru Rs 6 00. (Cash received from Soma Rs38 00. aid rade expenses Rs.10.00. Received cheque from Krishna Rs.10 000. Commission rosived Rs5000. (Answer : Cash balance Rs62,(00) 4. Bier the lowing tntetion in the double chum ah ok, of MrSrinivase, 2002 Mey 3 Cash in hand Rs.50 000, (Cash pad to Rajan Rs6.000. ‘Discount alowed by him Rs. 10. (Cash purchases Ks.10.000. 168 Received cash from Arun Rs.2,900 and allowed him discount KS100, (Cash sales R6.15 000. jestricty charges pad Rs |,00. Pid for miscellaneous expenses Rs.2,00. Received cash from Murali R.3 450 Discount allowed S30, (Answer : Cash balance RS.52;350) 5. Enter the following ransations in cash book with cash nd understand the Meaning and Uses of Feny Cash Book 2 know the Procedare for Recording ix Peay Cash Book. Inevery business. of whatever size there ae many small cash payrentssuch a: conveyance, cariage postage telegram ele. These cexpeasesare generally epetitiveinnature. fall ese small payments are recardedin the cash book, twill be difficult fe the cashier 70 ‘maintain the record by hill Ir onder to make the task the cashier easy, test small and recurring expenses are recorded ina ‘eparate cach ouk called “Petty Cash Bonk” and the person who smaluzalns the poy cash scaled the “Fety Cashier” Petty means ‘smal’ Thepety cash books book where small securing paymcnslite cai. carage,postige telegram, petting and stationery ee, arerecondsdhy the petty cashiee, eperson other then te mincashisr. 16 8.1 Imprest System Imprest means ‘money advanced on loan”, Under this systema the amourt required to meet xt varicus petty expensesisestimated and givento the pty cashier atthe beginning of the specifi period, ‘sualy a month. llth payments ae supported by vouchers. Atte ‘endothe given period reaver, when the petty cashier hae spentthe poty cash amouat,be closes the petty cash book forthe petiod and blances it Then he submis he accounts tothe cashier. He veifisthe ‘ety eashbook wih the vouchers. After stsfyinghimeif as tothe conecines and genus ofthe paymes an amounzequalotbe cash sgentis vent he pty cashier. This amountiogether With te urspent amount willbring upthe cashinhand to the amount with which he niginally started i, the imprest amount. Thus the system of reimbursingthe srount spent by the peu cashiers fixed period, Snown as the imprest sytem of petty cash. or example, On June 1,2002,RsJ,000 was given to te petty cashier: Head gent Rs 940 rig the month He willbe paid Rs 940, 22300 Juneby the cashiers tha a ay againaye R100 forth rextnioathie. Ju, 8.2 Analytical Petty Cash Book -Asinthe cave of anyother cash book, poty ces book leo has he debi side an hecredi side. The debi side sallerund has ery infrequent entries because cash receipt by he petycashierismainly ‘rom the cashier athe begining or close of specificd period. Ths reside sbggerandthas his many colurns. Fr each porta pty expenses there is asoperat column. zndthereforecolumnx cash Zack isanathername fords ply catback. These anal clus helpstokrow tbe actual aunt spentor ech and every typeo! ety ‘xprses forthe specified pviod. Rachptty payment is itentcrod in ‘Be ol payments column an en rece ne apt ve analy colon, so that: mnthe ttl emt spent on cach expenses ora paticularetid ‘can be easily ascertained ty adding upthe espctve clu, only the periodical taofeachcalumn spe tothe ler the total pety payment for any period can be easily scene fom th total peyments colar, ‘The analytical pty cash book may be designed acconting tothe reurement of thebasines 8.3 Format ‘Thofomas given in thonoxtpage. ‘Explanation of columns ia he analytical petty cash book 1 Receipts This the fest colunm of the ptr cash book. ‘Amountreceived by the petty cashier for meeting pty ‘expenses andthe opening balance of pty cash will be recorded inthis column, BEN: Thissefers to Cash Book Folio Number. ln thiscoluma we write the pge numberof thecesh book ‘where cash paid bythe cashiers ecard Date: In thscolurmn, the dat of rocoipt/ payment of ‘ash seconded. Particutares This colume seconds the details of the receipts payments. Cash received inthe beeinning is shownas ‘Tocast and ll he poly expensesare shown, as ‘By expenses" uame of he expetse). VN. "The scnlmubcr of ta vous (cas payne) writen hs clu. Tote Payments: This colren exons amount eve ccxpinie, Att end ofthe week or momthexpenies are 1s Analytical Petty Cash Book of. Ania Papas jossect 20 rors sou 179w. tetaled and afterverds balanced. Thotctal expenses of the week or the month is compared wih the total of the ‘recep column andthe balance isobtaine. Postage and Telegrams: Ths colar recerds postal ‘expenses lc pos card, envelope, inland letter, posage stamps. registered letter, parcel telegrams and telephone charge. ‘Printing &Staionery i cludesexpenses incate for pprehasing materials suchas paper. ink. pencil. reser, ‘cashon pupsraral other tins of saiovery (Carage | Freight / Carriage: this column carriage inward of gonds i ecorded. Itincladescartage pa 0 oni tempo charges ct ‘Traveling Expenses (Conveyance: In iscolumn tare forhiringautorickshaw. bus, tain. taxieteare recorded, Office Repeases & Repairs: Minor repairing charges ad poy offic expcuseslike leasing arvinclwdedinthis colunn, ‘Sundry Expenses | Sundries: Gencelly columns of important pty expenses ofthe busines aoconing tthe natureandtype of business are prepared. In addition io these importntexpenes, thee may be oxtan expenses, ‘whlehimaynot ave specific colamns forthe Expenses like eteshmen, cary tps. amount paid seavangers ‘fae recorded inthis column, LF This fers to hepage numberof thelalger where the rspective accoumtisrecored. _ Personal Accounts : Small amcust of money paid 10 lnniridnlsare cuted colar, 180 8.4 Balancing Petty Cash Book _Atihe end of the period 2, week or month the wil payments column ard individual expenses colurens ae totaled. It shouldbe ascertained thatthe total of pty expenses coluran must be equal to ttetoalofpeymens colamn, Tuetorapxymen column scompared ‘with hetotal of eceiptscolumn and falanceis obtained. Theclsing balances is showa a ‘By Balance ci The closing blagce is cred forwardtothe begining othe aext week or month It3sshown as“To Balineebi Masration 1 =A Petty cas book is hept on Imprest system, the amount of imprest being Rs. £00 andhas even anasiscolumnsfor Postage ard Telegrams, Printing snd Sationery, Trveling Eapenies, ‘Repals, Canlage, Sundry Expensesand Persona Accounts, Ener following ansactors: 2003 March 1. Petty cash in hands 350 1, Reseived est wo makeup imprestR&.650 3. Pad for stationery Rs.155 5. Paidoficeespenscs Rs. 78 8. Bogie stampsRs.50 13, Paid forsainay fare R256 16, Faié to Shankar. 100, 20, Paid forcaiage R45 25, Paid forprining charges. 175, 27, Pad forelegram R65 181sma Anais Parnes seer pees ‘Aaalyteal Petty Cash Book oe Sotatoat 8.5 Posting of Entries in the Petty Cash Account 1. When petty cashisadvanced atthe beginning A spare pty cash ascountis openedinthe Ilr When ‘vance isrocived by th poty cashiec petty cash accoart willbe detited ard cash aczcunt will be rete. TL When individual expeneescolumn are periodically toalled “Thctctalof various poty expanses ar debited and te pty cash anount screed wih thet ofthe payments mae. ‘The ptt cath accor’ wilshow thebalane ofeach Thishslance ville show inthe balance seta pat of eas balance. stration 2:Reco the following tarsctons in bearaltcl pty cath booko# MrMazoharaa, Balance the bookoa 6th May, 2008 (Give outa entesand post the blancestocencered Jeger accounts, 203 May 1. Received forpetycesh payment Rs1 500 Paidta ite Rs. 250 Bought stamps Rs.75 Paid For caniage Rs. 120, Paid Telegrams RS.73 Paid for auto Rs. 125 Paid for caring Rs. 300 Bought revensostarspe Ro. 50 18Anat Parmete Analytical Pity Cash Hook of Mr. Manokaran Solation: E Inthe Books of Mr. Mancharan iy Journal cm E baw | Plan “l= [= He = cain acne x pty ween FEE sem — a & ie 6 [Postage & Tolegrame De x0 — Tee mae x) | 2 iy ze i -raeanet | | a oman Pay ah Ae os patna [Z cago ce pe penrenh st) ssamafom, | wae [FE A C 2 Ledger won (g Ee = le sls etry Cash Account “ Date | Pariculirs [2 [82 Date | Puricubars | 17] “22 TS is & af; is a fsa wos | Gat if Moifraw ve | | sso PP fysuaie e55 Hee lee | | x0 i lime. | | 3s wre liysuce’ | |_3p - - SE so 1 18sPostage and Telegrams Account oa & Dus] Paris [iE [Ameo | Bas | Penoulas [JR ]Amcont Rs Be we aay 6| Paty exh ™ ‘Dae | Pasian PF [acon] Dawe [Pariaaan | ZR]Amowat Re Re na Mayé{roreycan vc] | a0 ‘TravllingFEspenies Account ‘Dae | Patcars JE [Ancur] Dae | Tantalan | TR]Arouat my6|roperyea ac] | os 8. Advantages Theadvantages of analytic pety cashback i givenbelow: L. Simple Metiod: tsa simple methos of recording pety ‘expenses. The maintenance petly cash hook dees reuie speraisedknowkde of accounting. i. Keanomy of Time: requires lesser time ir recording ard ‘slsceavesthe tie of therein cai 186 i, Lesser chances of mistakes: Tho pty cash bock's checked by the main cashier atthe end of the specified period. This proces mrimisesthe chances of mistake, Iv, Frauds can be minimised: Recerding ransactions onthe besisofvouchersandcheccingofeashbook by themain cashier minimises thecharess of re lustration 3: Propve ety Cath Book on imprest yer fromthe following particulars, 2003 Sept. 1. Received forpetty cas payments RS1,000 4. Pad forstationery Rs.140 9. Paid forpostage Rs 80 10, Paid or printing charges. 150 11, Pad forcoorage Rs. 125 17, Paidfortegrams R25, 20, Parcsed envelepsRs. 30 21. Paid forces office staf Rs. 30 22, Pad foroffice leaning Rs.50 20, Paid to Rajesh Rs, 200 ws‘Analytical Petty Cash Hook ao Payment i Rese sours 18 QUESTIONS |. Objective type : 2) Flin the blanks + | ‘The book tha seconds allsmal payments called 2, ‘The person whe mains peny cash book fs known a 43, Analstcal pety cash book sjutlie the. 4, "The periodic total ofeach oluma inthe analytical pty cash Donk ispostedtothe concerned ______accouns. 5. Thepety cashier generally works. sem, [Answers 1. Petty sash book, 2. Pelty cashier, 3. Cash book, 4.Nominal,5.Lmprest} 1) Choose the errect answer: | Patty eash may beused to ray 9) sluisstosttt b) puchas ef fariuesndfitings ©) expenses lating to post andteegras 2.The balance in the petty cach books apanasset ‘aliaity ———_c)an income 3.0 Jan 1s 2002,Rs.1 000 siver to pty cashier, Hehasspert Re.860 ducing the month of Sanuary. On Feb Into rake the lunprestte wil ocivechegue for, 8) Rs.1000 b) Rs.800 ce) RS. 1,800 (Answer: 110). 2.(a). 3 63) 891, Other Questions: 1. Whetis potty cash took? Expl the ixprest syste Give spocinen of wily petty cash ok, Welt wowson posting the pety cash book. ‘What ae the advantages of petty cash book? What purpese does en analytical petty cashbook serve? Probleme: 1. eterthe following tansactoasin petty cach bookafMJask .withanalytcal columns. The pet cashier begins witha imprest amomofRS1,000. 2002 Re. Jhme 4 Postage tamps 0 5 Tawolingenponsss 1 6 Lavchenpentet 150 8 LatourchurzsfertringingcBcctables 50 10 Repuirchargestofax machine 250 12 Posige stamps 0 15. Ceaningteottice so 17 Satna purchased as 27 PaictoRavs 130) (Answer: Balance Rs. 40) 190 Prepare petty ash book cn insprest system from the folowing articular givenbeiow: 2002. Dee. Prepare the analytical petty ash book of Mis. Mala from the fang: 2002 Dee. 1 4 7 8 3 Pa 21 4 26 20, Dales onhin ‘Received cheque to maketh impres. Pridforpostege Paidfersationcry Paid fer wanes Paidfercariage Paldforwavellngeageases Paidfortelegramsexpenses Coffs aft Texhie Answer Balances, 70) Re, (Cashinhand 435 Reccved fiom easier 1065 ugh postage stamps 18 Paidtorsaieney Bs) PidtoMaaimarna ca sovoant 415 ‘Tea to salesagents 5 Bough ink paper 3 Paidforcariage 4s Senta elegram to Macura 25 Paldter satay 120 rid fr registered pont 0 (Answer:Balanee Rs 507} ww Rs, 3 913 40 2s 10 120 150 0 45 130,4. Extecthe following ety bansatons inthe Anusical ety Cash 2003 R. Book of Mr. Hangovan Apa Postage stamps purchased 0 0 Bs. 3. Sweeporand yeavanger paid 25 Oct. 1 Balenceinhand 410 3 Conveyance manager “7 1. Receive fom the heat cashier 1090 6 TelopramtoMumbai “4 3. Paid electric charges 335 7 Stationery purchased os 3. Boxgheaaony 28 16 Lomyhir forgo sent 250 8 Pintingehares 150 13. Cartage nd conly on gods bought 5 9. Postage stamps purchased 63 18 Repartocyeles 0 15, Repass ium bs 19. Service chagestoTypewriters 13 14, Telegram sent to supper 30 22 Trcand Gum purchased a 15. Repairs 0 computer 230 24 Adverismcet charge 100 27 Subscipton paid The Hinds 15 [aswer BalanceRs.2971 ohne 3 5. Prepare pty cash tookof Mz.Nandakunar wit suablecolumns ArawersBelance Re 166) andenterthereinthe following transactions, Ralncetheback on 10" Mare 2001. 7. Ener the following transactions in a petty cash book of 2001 Rs MMraganmaintaneonimpme syste with naa colar Mar 1 Balencinhnd 158 2003 Bs. Roceivd from chifcastier 59 dhly 15. Cashin and 3 2 Paid forpestage stamps 50 ‘Recelved fom the chit cashier or 5 Paidforstaionery 105, 16 Rough stamps 25 6 Paid Forcaringe 8 17 Paidesrage “o 7 aig forpestage samp 8 18 Teaand lmeexpensertocastomers ot Paid fortlegsne 35 19 Teegramsean 23 8 Paid rorcarige a 20) Paidta bine 150 9 Paid forstionery ® 21 Purchwetearciops 2 (answer Balances. 292) 22 Paid forrmpais oftypewnier 6 23 Purchoodons boelefinke 2 6. Recor following transaction ian analytical pty cath nck 2) Paudleulwaytaeioivanager is of MeScathlard blanc the seme. On Ist Ape 2003 the pety 31 Paidwocoote 20 cathicrstared with an imprest of RS. 1 500. ae ws (Answer :Balance 86.132)CHAPTER -@ BANK RECONCILIATION STATEMENT Learning Objectives Aer sudying his Chapter, you willbe able to: > keow the Importance and Need of Bark Reconciliation Statement. > understand the Causes for Disagreement between Cash Book end Pass Book Balances > prepare Bonk Reconciliation Statement Cash hock widhcash andbenkcolurans have een explained in ‘hecatier chapter. Onthe debitsife ofthe cash book, ae benkcolumn reprecents: 1. Cheques deposited into bank for collection 2. Cash paid nto bankand 3. Somecriesthat arene ony aftcreecvingthe information from tb i, 4 Amouutscullcied by he tankcou cur behalf as pr the standing instructions forexampl,Tnterestcallecied on Interest given hy the hanker forthe balance kept hy usin urban scout. 1s ‘i. Theamouatpaidby onr customer dircly into our bank saecount COnthe ctherhand, onthe ced side of the cash book, represents 1. Chequesissued for payment. 2. Cash withdrawn fiom bank for office use and personal use 3, Inackcon some ents aremade afer rveivinginfermation frome bankviz., 4 Amourtspaidby th bankor our betas perthe standing insructonsforexserple, payment inasrarce prea i Interest charged thebank forthe amount drawn over and above the actual balance kept inthe bank account. i, Benkcharges peysblofortho agency and tity services renderedby the bank 9.1 Bank Pass Book Bank Pass Book (satementof account is merely acopy ofthe customer's sccount in thebooks ofa bank. shows al the Gepost, ‘withdrawals and he balance avalableinths customers secount, 941 Fermet crue | Pescurs | witcwals] Deposits | Deir | siaInthe dats column, the dats of the transactions are econded. In the parcalars column withdrawals and deposits are recorded. The talance ater each traction is recordedin the next columa and the tank ficial signin oclastcohmn. Feallowing the prncipies of Double Entry banker ceditsthe sccountofthe cute fral theamourts reseed rem he eatomer and onisbehalf Simul the tanker debi th account ofthe customer foralwithdruvais and amcurtspeid nother on hha ofthe cst. ‘The main polatiobe remenberedisthatenttes are made only fier cash received o paid, exceptin the case of interest and bank ‘charge. Interestard bank charges are mere beok ajar and in ‘these there ae meter receiptof cash norpaymentofcash. 9.2 Difference between Cach Book and Pass Book S80 etincion Bank Calum) Pebeoe 2. [ante leases pune 2. | nepostsor Cash [Furs cathodes | menedonthe cea [sie of te as bok, feta of the pass eek 4. | Coeques deposit Entered coe ener inte pass ‘Srcolecion [debe vdeo the | tock only onthe date Isok mhedite of [efereiton Urpesing be chews [afte chee 196 5. Jerecns ised [eztendon ke rite Entered on he dit fseqec tome codiues [onic aey ae ete ab pi 6. |comctorsane feneedintie can — [eatsed lnaments ase freokaersesigthe inthe Pss hook fin. 1. fsienuare fis srsenesdy te |iisigns ye fauhee Barf ares pfaspesisedpiriod [ech wascton 9.3 Bank Reconciliation Statement “The balance ofthe bank column the double or tiple celuma cash book represents he cusomners cashalance at bank Ttsould be ‘thesame es shown by his bank pss book on any paricalar day. For ‘overyontry madein the oss beok if thors a comespondiagentry in {Bepas book mainsined by hear) or vce vena, he bank lance vill be the seme in hohe book. However teas be noted that theese book en the pee book sremainlanedby two clleren| parties end Renceitisnct ceri hal ‘entry in one hook wil alwaychase'aeomespondingeny inthe ther "Noma ene inthe cash book shouldtally (gece) with those inthe pass book ard the balances showy bot the books shold be the sume. But in pracco, the balances generally differ In case of isgrecrrent in the balunceof the cashbook andthe passbook the ‘eel forpreraring Bank Reconslaion Stementarises i8.941 Definition "Rank reconeation satement isa istin whichthe vaiousitems that cause adiference between bank balance as percash book and passbook on any given date are indicated’ 9.3.2 Need and Importance Alt tracing the various tras of difference, abark weoreiiaion sazerentis prepued.Thefollowing re itsavantagesin whichis 2s sportnce.| |. Theerrorsthat might have taken place inthe cash book in ccnrection withbank transictonscan be cil fond. Regal preperation ofan reconcitionststementpeeents frau, |i. indice impososmoral shock n the accountng sa. 'v.By the preparstion of bank reconciliation statement ‘uncredited cheque cax be detected and stpscan betaken, forther colecton Causes of disagreement between the balance shown by the e2eh book and the balance ehown by the pase bock 1. Cheques paid inte bank tut not yet collected ‘THe ceucs pinto bank for cllecion but not redid ino the sccount of the customer, because th choqueis| not coleted and credited that date, ‘collected te bank tala forgotten io make ey. callctod bt credited to wrong sovoant, dshoroured. collect for No account but credited wo No HlacccurLof (hesamecastorer ae 198 _Asscon asthe cheques ar seat othe bank, etree are made in the debit side ofthe cash book (bankcolumn) But usualy barkeredt the customers accountonly when they havereceived payment rmth> tn concern cer words, when he cheques have beencollece Hence there willbe atime gap between the depositing the cheques andthe colleston bythe tank. Focexample, Bharat Company Limited deposited chaque on Maceli28,2003 ora sum of Rs 3,000. The cheque wascollected on April, 2003. In case the bank sends a satement of account upto ‘March 31,2008, thor wil bea difference of Rs 3.000 between th balance shown by the cash book andthe pss book. 2. Cheques isued but not yet presented for payment ‘The cheques issued bu not debited customers azeount ray be bocatsethe chequeie i notessheill date. not presented til date, ‘i. presented but dstonoured for somereasons or other Jn. lestby the party to whom thechecue was issued. ‘cashed out of No. account bt wrongly debited 10 No ‘account of he samecuster In all ofthe above cases, the entry inthe cash hook is made ‘immediately onthe suc of ebequ:butmaturlly then wil bem by bank only whenthechequeispresertelforpayment. Thus here willbe gap afscme days sxwcen th catyforiews of heqveinthe cash book urd teeny For payment mate inthe passbook Foretample, hart Company Limited insuol achequein favour cf MKcishra on March 8, 2003 fora sum of Rs.5.000, Te cheque { proveated for payment tthe ban on April 42002, ln eso, bane Sends stalemert of accouslupro March 31,2003, there will bea wsdifference of Rs.5 100 between the balance as shown bythe ash bok ‘nd thebalance as shownby the pess book. ‘3. Amount credited by the banker inthe passbook withoat the immediate knowledge ofthe customer’ “Thefollowing are someof the examples forth shove statement 4 The bunk might have collected rent, dividend, bills of exchange, inteesttc defor the customer as per standing ‘Sone debtors ighthave dre pad ino bank ‘Bank cess interestor te credithalanceof the curre's sccaumt |e Thobankorhas wrongly ceditedshissecountinsteadofsome other account Tall heabove cass, teeny willbe istenteredin the pass book ‘The casiomer willow thisonly afte veifiesthe entries in the pass book So there may bea tine gop of some days before the customer includes eraries made in the pas book. For example the bark has ceded Bharat Company Linted’s sccountforinterest amonntng toRs.500 on March 31,2003. The ‘bank prepares and sends tlerent of account on March 31,2003, -fthecastomerrceives the satemeat of account on Ap! 4, 2003, there uillbe difference of Rs S00 bewteen the alanceshownby he stu book and the balance shown by the pas book, 4. Amounts debied by dhe banker In the pass book wit the ‘immediate knowledge of the customer ‘he folowing we some of the examples fortis, 4. ‘The banker has recorded tank charges, intrest on overreft 20 "The banker has pai insurance premium, subscription for periocicalset.on beta of thecustomerasperthe ancing “Thebankerhis wnoly debited thisscccustincesdof seme other scout. ik, Thebankerhaspaid the bllspeysble of the customer ase standinginstucions \ Dishonour of a cheque depesited and discounted bills reccivable Inallthe above cases, thceaty wil be fistenteredin the pass bockofthe customer. And the customer willknow ony alr verifies the erties inthe passbook or atementof account. So thereray be atime gapofscme days before the cusomer incudes teenies made jn the passbook Forexamle, the hake has debited Bhar Company Limited's sccount fr iischarges amounting oR 250 on March 31,2003. 1h case the bank sends statement of account upto March 31,2003, ‘there willbe adiference of Re. 250 between the balance as perthe cash book and he balance as per the pas ook. Forexample, A cheque for Ks.5,000 dshonoured on March 28, 2043. Tease, he hank sends astaterent of account upio March 31, 2008 there wil be a dffereace of Rs 5000 berween the balance as ‘Shown hy the cash book andthe balarce as shown bythe passbook Aftrrcingthe vaionsiteas offences aBanc reconciliation satmeatis prepare by starting withthe balance shown by any ofth> two hooks. BuLinacual practice, aTank econcilivionstaterert 5 repay the customer starting withthe balanceasper cash book ‘nd will ensure thatthe balance as er pans hock in ariveda. 201Bank Overdrat 4 | cnrestee| cones] on te [ct Dea rrr anton ordain soars [sol vce btn ena ns hy aco te =e si ‘curent account holders. Ieterest will be charged for the amount ‘sui bai e ate sweeney ra Tc Cabo wifi sontace Ee je ,unfavourable balance. The pss book wll how adebtalane. sive Asian resco esnlson este eon siverta the bis below << 85. Procedure for Preparing Bank Reconclaton Stetement * amar [ozse~|meie [ones Fei Teer pose ae sues [omar faces [ i nome lema [soy "(Mops [ECOG eee oa] Sosa a i Tige [Sexegheeleel — | pert eos ieee oes)96 Format ‘The form of Rank Reconsiaton Statement when banklance ser esse |S ssperah sens arog pa fers. fea” (em see | ow Dink Reino Stent on =e sa Pas 1 ase fain es fae] a | oe nc Cat * ice [sccwrna's [oie || 8 | adi: Chews issued but nt presented so Scot omen ” a tees ceded by bak bt rt Sxitnonnine ” 2 [eset [ne femme Joe eso ety iin ub sitpyascer [nites ct [tera | om tn ‘ot recorded in cash book ” peer feces, ot ss | oo . Q ao to CoTbeioss ny banker as per casioner es ie eta ” > rece feces, fos, eee] = [= as) . eee octet [orem | ic Tet A+) + ace |v | tesc Cheques depot bu mt ceded se aha ” Dior! he ase np © femme fico, ome fem] om [om Pitta cesta] »= Peta cen feat || Batdupemerpatet | 2 pest eee Young 280 aes . ime Poms pr gine | ** uli) fe | tatans a pocprahonk (C2) 205Points tobe noted: R “To work cutie problems on Bank Recondition Staement the |. Choqueedaporied bet oct yatccllectathythobank 1500 followin pointsare tb heemembere. 2 Cheque ised to MeRaj ns nat et ben presente i. Theheacing isgivenas “Bank Reconciliation Statements Seren 250 a 3. Bank chars debied inthe pes bok 20 vomnuta 4. eres: allowed the bank 0 % Allitemstobe ado are grouped together and shown nthe © see ctiuun unl thetealictaen tenerate colette 5. Imsesce renin dct pid banka per purpose ofadiion B) mong nen 5. Ralance a por eth book 0 HL Allitomsto te doductd ar grouped together in the ianor lum and thetsalcanbe showa in toate column for Solution dadveton ‘Bank Reconciliation Statement ason December31,2003 jh. Favourable balance means the cash bok wil have «bit ‘lance and the pssbvok wilve sceditbalance. Particular ‘Amat | Amu Rs] Rs Bank overéraftoruafavourable balance means ash book ‘wil havea credit talc and passbook will have debit A] Balane as per Cash Bock 20 balance, 3 [Aa Cheqesissuedto Mau bu sot ‘pesetd for payment 290 Toreasy reference the ale given bow will beseh Irs loons tk roe Gates Daas revered in ea ck 10 rock | Favourable ee 2900 Com Dei Cre om |Loss Chaquesdeposted butt erated Paw Gre Dae hy mebenk 1m Bank spi insurance premium Mlasraion T: When balance as per cas book ts favourable. ss peraending istracions =o From te folowing tas, ake cutatarkeonctiaion saement Bank charges as er pas ok = ‘orM/s Bavarsan & Comparyasox December31,2003tofiad at 220 Shebalance asper passbook, D| Balance as per Pass Book a 206 207‘Msteaton 2: When balence as per pass book (arourabe is given Mrs Jame’s pass book showed atalazceof Rs 25,000 08 June 30,2003. Hercashbook shows a diferent balance. On examination. iinfoundthat 1. Novecord has been made in the cash hook for adishorour ‘ofachsque for 250 2. Chequespuid into bank smounting Rs. 3.500 were paid {othe bankon June 28, 2003and the samc hd noe been etered inthe pus book. 3. Bank charges of Rs. 300huve notbeen enteredinthe cash book. 4. Choquss amounting toRs.9,£00 issued to MsDevi has not been presented forpayimentstil, 5. MrBaluwhoowes Rs.3:000hus dct pid dhe sumo the bark acount. Youare required to prepare Bank reconciliation atementand sscerinthe balances por cash book, Solution, Bank Reconciliation Sttementason Sone30, 2003 ‘noxst | Amouat Lest Choque issued but notpresnzed forpsyment 9.000 Amount zee paldby Mrs into thebank 3.000 12000 Balance as per eash book 17080 iustnaion 3: When overdraft as per cash book x given Preparea Bank ReconclstonStterent at une30, 2001 for _M/s Jol Sales Pivate Linked fom the infomation given bow Bs 1. Bank overdraft spor cash book 1.10/80 2. Cheques ssued on June 20,2003 butnot yet presented for payment 15000 3. Cheques depositedbatnetyetereditadby bark — 22,750 4. Billsecevablecirey collect tark $7200 55. Interestonavercaft debited by baake was {6 Armount wrong dbited by bank 2400 Solution ‘Bank Recensilation Sttementason Jae 30,2003 Pariculin me | Re Toa] Aro Balance asper Passbook 25000 arial Rs | Rs ‘Adi: Dishonour ofchoque motrecorded 7 Tpuau Datosowsaf 250 ‘Overhalt halance ax per ash book 1.10450 (Cheques paidiniobart,soxeoTected | 3,500 ‘Bank chargos as porpass bock actontcredin the cash book, 300 4050 29,050 ‘Adi: Cheques deposited but motyetreied | 22.750 Inserest onoverdraf debited bybank | 12,15 ‘Wring det by bent 2.400 37265 Lanis 209Less: Cheques isuod butnot presented forpayment 1500 Dillsreccivablecolkcied by ak | 47,200 62200 (Overdraft sanee ss per ‘bank passbook was Itasraion 4: When overdraft os per Pars Book ix given Ms Haritha gives youthe following information epunngertake sccoun. shows an everdrat balan of Rs 6500 on March 31,2003, ‘his does not agree with thecash book balance. 1. Cheques amouniing to Rs.15 £00 vere pai into hank out of ‘hich, only chequesamcuntingto Rs4,500 werecredited by the hank, 2. Cheques issued during March amounted in all oRs11 900, outof these, chequesamnourtng ORs 2000 were unpaid Maren31, 2003 4, Thebankhas wrongly dehitedaccount No.1 with Rs SOD in sespectofacheque dawa on soceunt No2, 4. Theaccountstands debited with 150 frinteres. ands. 30 forbank charges. ‘5. The bankas paid he anal subseripdou of. 100 to lub ascconingtoistuctions. Youare requis to secon balance a pereashbooke 20 Solution ‘Bank Recorciiation Stutement 2s on March 31,2003 Rat | Amoat Paola Rm | Re Overdraf bulancoas per passbook 6500 ‘Adk: Choquesissucd butnotpresened — | 3,000 3.000 9.500 [Less Chaques palin hank bat not colleted (Rs. 5000-83500) 10,500 ‘Wrong debit in pas ook naccount No. instead of aceoane No 500 Interest andbunk changeset enlered ‘nthecash book (Ks.150+Ks.30) 180 Subscription pid perstanding iutrtion 100 i280 Balance as per cash book (Fevourebk)| 780) ‘When anextract of cash book (bank column) and pass book is sven. Mlastraton §: Given how ae the entries inthe bank coun ofthe casa book and the pass book. Prepare Bunk Recoaciistion Sttement of MrSekarason August’, 2003, muCash Book Dr (BaakColums) ce Dae | Paicusn [paw | Paricans |“ 2108 a8 ‘Aug 1) Toatance @ | 20325 | aug | Byxokieve | 12000 18] Tosrankor Ais] 6903 | 26|RyGoahs re | 9.700 ws{rosusac | 40] 28 |pytanane | 170 aan) 50 | By Salaries ve 20] to Cominion (eal) 20 iccbanuy | 209 | 31 | By Balances | 1688 20|toNinmaia Ale | 7810 BoB Boe sort | ToBalsnee bs [1988 Pass Book pee | Pact | yindawal | Depouts | Drte | Hi Re Re Re 1a0s [By busca 5c aos | toxin oo e530 1960] By Starker 60s | iss 25105] Bye wo | suc 2ets| ToGo 970 rnc 27805 By Bae ww | ome 2405] Toma ™ ase 8 ines. > By Toe on 1105] toRe 400 nance a Solution: Inthe above problem. an extac ofthe cash book (bank column) andthe pars book of MSclaris given, The tems givenon the debit ‘de of tiecesh book should match withthe ems givenon the credit column ofthe pass back an vce vera ‘Theitems, which donet march cunetho dfferros hotweer both thebalaness ‘Bask Reconiison Sttemen ss on August 31.2003 Parieslrs a |e ‘Balance as per cash took 1688 ‘Ade: ils eeivabecolected oleate ‘cash book 20000 terest cllected, matentere a ‘ash book 2s Interest on investment clleced ot ‘entered in cash book zo Cheques issued butnot collected Lal 1,780 33605 35313 ‘Less: Cheques pai into bank, bunot collected = Nirmsla 7810 Bil payable pu, otentered in cath book 20 11g10 Daiauce a per pss bok, 23.503 asQUESTIONS | Objective type: ©) Pil in the Blanks: 1, Thebankstitement sent by. othe customer 2, Overdrat means cre halance ae per. ook 3. When cad within from th bank, th ben the castrncr's secu. 4 tla in pass took showsbunk overdraft 5, Forthopurposos of reconsilaton ony the column of the ash book ae ioe consicered. 6. bank reconciliation satementis prepared the [Answers bank 2-cash3. debits, 4.debit,5 ban, 5. customer] 1) Choose the correct answer 1, BankRecoscilistionsttomentispropazed bythe 2) bank ») creditor of abusiness ©) customer ofa bank 2, Debit balanceinthe Cash Rock means 2) overdraft spor Pass Beok 1) eredithalance as pe Pass Book ©) venta as per Cash Rook 3. When balance a peeCash Mookinthe tating pint, to ssc ‘alance as per pass took inset alowedby Basis 4) sabirated) added €) notated 4. When lance a porCash Mookinthe tating pint tv asceain ‘he talanocas per passbook interest charged by Bank ‘)alded —) sabtadel—c)_notadjusted as 5, Whenthotolarceasper CashBook isthe stating post tesceraia balance as perpess book, direst deposi by cstomers ae: 2) adled —b) aubtraced 6) nckadjasied ©, WienthetelanceasperCashBook te stting point taser ‘balances per passbook, direct payment by bank are: 2) added =») suburaced —c)_notalased 7. A bank passbook sa copy of 4) theeash columnot acustomer"seash bok. 1) thekank column of easiomer's ash hook 6) the customer's socountin the bank's ledge, 8. Thehank stitementshowsan overdrawm balance of Rs. 2.000. A. cheque for Rs SCD drawn in favour ofa creditor hasnt yerbsen presented for payment. Whenthe rector presents the cheque {orpayment, the bank balance willbe 2) Rs.1500 ») Rs.2.500 (overdrawn) 9) Rs2500 [Answers 1.(€),2.(6),3.(6),4. (6), 5.(2),6.(6),7-(6), 8.06) 1 Other Questions : 1. Whatisa Bank Pass ook? ‘Whatisa Bank Reconeliaion Staten? “When canatank reconciliation be prepared? ‘Whopreparesabank statment? ‘Why is the preparation of Rank Reconciliation Statement nocesxy? 6. Liste fiveitems having the efoctofhigherbelance in heCash Rookinthe five items haviag tho effect of owerbalance inthe Pass Book. ‘State any to causes of asagrcentbetweenthe balances shown bythe Cash Rook ard Pass Book, Probleme: Make e bank reconiistion statement of Mr Udayahuma from ‘hefollowing paiculas, 3) Balanceasper cashbook Rs 1.500. >) Cheyuesdeposited burnoccleared Rs.100. ©) Chequesissued but not presented for payment Rs.150, D)Imterctalowed by banks 20. {Ansier: Balance as pr pass book Rs.1 970] Prepare abank recomlition stutomest of Me Goutham from the Following data aon 31.12.2003 Rs 2) Bolanseas poreash book 12,500 >) Cheques issued butnot presented for payment 900 ©) Cheques depnsitedinbank hutnot collected 1.200) 4) Borkpailinsummce premium ‘500 ©) Direcideposit by customer 800 2) lnterstoninvestmentcellscted by bank 200 ® Darkchurges 100 { Answer: Balance asper passbook Rs, 12,600), ‘rom the following arculars, accra fn bank balances per cashbook of Mr.uthn asat31st March 2003, Rs. 4) Credit balance as per pass book ason 31 3.2003Rs, 200. 1) Raskchargorof Ras ad nat heen entered inthe cask 216 ©) Outofthe cheques of Rs3.500 paid int the bank, acheque ‘of Rs, 000 was not yeterecitedby the Denker. 48, Outofthochoqaesisstod for Rs.4 500 chaqueso Ra 3800 ‘only were presented for payment. ©) Acdividentof Rs 400 was collected by the baner directly but ‘notemered in thecash book. 8 Acheque of Re Ohad heen dishonoured prioe'o 3132008, ‘batnoentry was made in thecashbock. (Answer: Balance as percash book Rs. 3060) ‘On3istMarch 2004 the cash book of Fashion World showeda balance of Ks.1 00 as cash atbank, but the bank passbook as ‘on hat dat showed that cheques for RS.185,RS.175 and R10) tad notber presented for payment. Also cheques totheamourt ‘of Rit O paid int thebank had not boon leured Find oath balance as per pass book as on that date. (Answer: Balance as per passbook RS.1 550} ‘On ist December 2003 the pass hook of Ms Rosy shows a cred bulanceof R53.257. "The cheques seat to the bank but not collected and credited _anpunted oRs.190and tee cheques drawn for R300, S19) and Rs 200 spectively wer not presented forpeymenttill 1st Jaury 2004. ‘Dank has paid billpyabie urounting 1 Re. 100 bu ithas nce bomontered inthe Cash Book snd sbllreccivabloof Rs 500 ‘which war discounted wit the bank was dishenoused by the rawecon Cue date “The bank has charged Rs.12 as its commission fr collectn ‘outstation checues ani as allowed interes Rs 10a the trader's talaroe, aPrepare a Bank Reconciliation Statement adsbow the balance asper cash book. [Answer Beance as er cas BOOK RS 499] Frm the following particular of MeMnizandan, pepe Bank ‘Revonellaton Suzementas on March 31,2003: 2) Thefollowing cheques were pi into thefimn's cument Ae Jn March but were credited by the bank in Apr: Aa Rs. 250, Balu Rs 350 and Chandra Rs 190. >) Thefolowing cheques were issued te finn Marchand ‘were cashed in Apri: Prince Rs.250, Queen Rs. 450 and ajo R400. ©) Achoque forRs.100 which was received from a customer ‘wascntered inthe bank column ofthe cashbook in March but the seme was paid int the bank in Api 4) Thopassbook shows acreditofRs.250 for intrestanda debit of Rs. 100 for bank charges. ©) The balence as yer Cash Book was Rs. 18,000 as on 3132003, { Answer: Balance asper pass boo Ks. 18,360) ‘From te following particulars, ascertain he balance that Would ‘appear in the Bank Piss Book of Cotton World Lid at 31st Deventer, 2003. 2) Thebnk overdrafts per Cish Book on 31st December, Rs. 126,800, 5) Interest on overdraft or 6 months ending 4st December, 'Rs.3.200isentered inthe Pass Book. (Rank charges Rs 0 forthe shove pero ane debited in th Pass Book. 4) Choquos issued but not caskod prior to 31st December, averted R823 360, 218 ©) Cheques paid into bank but net cleared before 3st December, were for Rs. 43400, 1) Inereston investments collected th banka rete in the Pass Book, Rs. 24.000. (rswer:Overcratas pr pass Dook RS.1.26,640) ‘The Cash Book of MrElaverasen showed that he had an (Overiraftof Rs 8,000 cn 31st October, 2003. On verification of ‘heCash Bookard the Bark Pass Book thefllowing points wer oteed: 4) Chequss worth Rs.1 400 paid into the Ban ad rot been collected: 31s October, D) Cheques worth Rs. 20issuadbefore 31st Octoberhad net beenpresenedforpeyment. ©) Interesion Overdraft Rs 110 charged by the Bank was net nteedinthe Cash Bool, 6) A Bill Receivable worth Rs. 800 discounted on Ist September was dshenourd ©) Acastomerhai pins the Bank dietly Rs 450 ard this ‘vas ct cared inthe Cash Book, Prepare a Rank Reconciliation talementason 31.10.73, (Answer: Overdraft hlaneasporeash book Rs. 0,140) ‘The Cash boo Dhandapaishowedas Overra of Ra 15,000. ‘he Cash Book ens were checked wahntho ents inthe Fass Book. The following details were disclosed. Prepare a Ban. ‘Rowouelinton Statemcato show the Bank Balazcrs sox Fass Book as on 30th une, 2003, 2) Out of the four cheques insued on 270 June, 2003 for 2Rs21,000,two cheaues fr 12.000 alone were presented Toepaymenton 20h June, 203. as1) Choquos pad into the Bank amounted to Rs.17,800..ut the Bank had nt cashed and credited nthe Pass Book Deore that, ©) There wasaneatry onthe debit side ofthe Pass Rook for ‘Bank Charges, R5.150. 8) TheDank had alse debitedthe eccoun for interes on O1D Tor RS 20. ©) Teas aso noticed thatthe Bank ha paid Rs.2,750 as Insurance premiam as perstaninginsrucionson 2%h ne, 2003. [Answer: Overdraft balance asper passbook RS. 26 980] ‘rom thefollowing particulars of M-Jacob ascertain the Banke ‘lance a8 per Pass Rook on December 31,2003, 2) The Bank balance as per Cash Book was Rs-11,500 on. Decemiber31,2003. Y) Choqucsisued but notcashed before thatdate amounted Rs1.750. ©) Cheques pid into Bark. but aot cleared before December 31,2008 amouatedro 2,150. 2) Tnteret on Invertmerts collected the Rank htc enteed inthe Cash Book armoured to RS275, ©) Local cheque pail in but not entered in te Cash Book e250, 1) an Changes debitedinthe Pass Rook Ri 95, (Answer: Balance asper pass 00 Ks. 11,530) 1. Prepare a Bank Roconeliston Statement of MeScnivasan, Cash Book Dr. ce 20 2B Fb 1] tonsa — | mus] Fe 3) Beata 2m 18) Toxieae — | rrp) is] Bycis = v9) rosdevtanm| 20) ai] ycndantenm | 37 23| Toba 8335] | Pires -Panal 1 abs ao) 25) Come 520 2] toventaes | 342] 2s} Rangan 2316 pytatos | a7 aS =a Pass Book Te ee oe fet 1] bypumeva ae 4| Tos Eye ‘26 16 | toon ey 1576 19) ByKamar non | 56 | ByRimm 0 Pwo w za | tosem ‘0 nar 28 | TotnwancePenium 2 TonPAL 280 By ut 20 Bs ie 2 ‘Byles cn neste as BBR Al 7m | ance a2CHAPTER -10 TRIAL BALANCE AND RECTIFICATION OF ERRORS Learning Objectives Mier learning this Chapter, yo willbe able to: row the Moning, Objctves ean! Preparetion of Trial Balance. identify the Rin of Errors. understand the Procedure for Rectification of Errors. Inthe previouschapes. youhavelearthow in econdandcasi'y ‘thctranectons inthe various aocoants along wih balancing thoce. “The next step inthe accounuing process o prepare astalement check te arithmetical nsuracy of the ransactins recorded fer. "This sete ical “rial Balance’ ‘ntarbalance st stterca which sows cet balances andcrot ‘alanes ofall acccuntsinthe ledge. Since, every debit should haven comesponding ccditasper the rules of doublecntry system. the tt fhe debit balances and cod balnocs shoal tai (@00). Incas, thereisa difference, one has to check the correctness the halanees am trough forward from the respective accoutts ial balance canbe Prepared in ny te provided accoantsare balanced, 10.1 Definition “Tia balance isa sateen, prepared withthe debitand credit balances of ledgeraccounts to test the arithmetical accuracy ofthe books" J.2. Batlibl 10.2 Objectives ‘The chjetiveso preparing tial balance are: 1 Tocheck theanthmeticl accuracy ofthe ledger accounts ‘Toocate tremors, 5. Tofactia the preparation of fina coun 10.3 Advantages: ‘The advantages of he ial lance are i Tehelps to ascertain the arithmetical accuracy of the bok keoping workdons duins the period. |i tsupplissinoze place ready farce of llth balances ofthelodger accauns, iL Tanyemor is found outby preparing atrial balance, the sare can he rectified belore preparing final acount '&, Iisthebasison whe final sccounts ae prepared 10.4 Methods tial balancccan beprepardin the following metho, i The Total Method : According tv this method, dhe tot amount of debit side of taeledgeraccountsand the total amoart cf thecret side cftheledger acount re rear as4. The Ralance Method: Inthis method, only the balasoes ‘ofan account iter debit or credit asthe case may be, ae recorded against their respective sccounts ‘Thebalance method is more widely used, asitsupplissready ‘igures for preparing the nal account. 10.5 Format ‘Til al of ABC LC, SiNo| Nameof Accout LE] Det | tit Pointe to bonoted ji, Deon whishtril balance ispepmedshoudbe mertioned ache wp. [Name of Account column contains the is of all ledger sccom. AL Ledge fli of he especve accounts eeredin tbe next column, |v. nthe detitcommn, debirbalace ofthe respective account isenere, ¥. Creditbalance ofthe respectiveaccount is wateninthe sredcoarn, vi. Thelasttwocolamns actosled a theend, 2 10.8 Sundry Debtors and Sundry Creditors ‘ne ledger here axe many personal socounts, some of thera may shew debit balances, seme others may show cre balances. IF allhensmesare to be writen inthe tial balancet wil bourdly lng, ‘Therefore also names wit te deb balances reper. TRslist isknown as ‘Sundry Debtors (Sundry means many’. Sirilry.a list ofmames with the credit balances i prepued. This is skaown ss *Sunry Creditors Mastration 1 ‘Thefollowinghalances were extract fromthe ledger cf Rul 60031" March, 2008. Youare requested o prepare a wal balance as ‘a that date inthe proper form. Bs, Rs. Sars 36320 Panchases 144670 Sales 173500. Sty Debtors 1430 Pantie Michisery 34300 ‘Thvelingxpensss 2630 CommisionPxid 1.88) Caniageloward 240 Stockon 142002 11,400 SintyCredos 14.260 eras 1670 Capit 14.2002 62500 Sundry Expenses 46) Dranings 3.500 Reuse 1900 Cashat ask 10 Dincourt Allowed 1,150 Retares Outward 490 Rertant Ras 322 Tenens 6.000‘TralBalence of Rel se on31*March, 2003 S[wancracasam [o] De] & | Naareot Batce No |_| re | WiyDeorco © | sires Teme] — [Romina Aer 2. | ses -| 17580 Ret Ave gods & | mincant mistinery sss] et aise | common ast 1350] — |NominatAisorpnse | sckoe 2002 nia] eal Ale ots «| separs ren] — |Nommtac-epene 1 | Sandy Bienes 0) — frcminNeorpme 1 | Reumstnward vam] eat Ae goes 8. | Dicour atone iso] — [Nominate -tss | Rots Race sae] — [Noni -eareme 11] Prchaes aig] eat Ale goes 12 Sundry Debs 140] —|psnorat Ae 15,| ovemsgtpenes reo] — |sommtac-epene 14. | cuvngetnard 20 Namie A oxo 15,| Sond Cri =) 0 [Reo 16 | caian one -|_ e230 |rosnat AS -ownee s.| comedian rae] — |e eset 19_| ReumsOuard | a0 fret aie gods 2a,| tremens sero] —— peat ave-aset ToT zn] 2] Note: Thest column given inthe slusion doesnt epper in practice, isincludedhere toilusiate the folowing generalised ules that 1 adebitbslance is either a asetorlossor expense; and 1) acreditbalance sites alibiltyorincome or gai. 107 Limitations “Thoughthe til balance lps to eneue the aithmatcal accuracy of thebooksof accounts, iis posible oly when te accountant has notcommittedany ero. Asalltheerrors made are not disclosed by Letra balance, it would not be regarded es aconchsive proof ef comoctness af he booksof accounts mantined. 108 Errors in Accounting ‘The fandanental principle the double-enyspsteristbatevery debits 1 comesponding cred of equal amount and vicevers. “Therefore the ital ofall debit balances indifferent accountsmasibe ‘equaltothe toalof all rei balances in different acount, the ‘otal of netwocalumasshouldtally (e100). ‘The tallyingofthe two totals (Gott balances and creditbalnces) sf het halance ensres only armel accuracy bunt socouiing, accanicy. If howeves, the two roa co ne ally, impLiesthat some ‘errors hive been committed whilerecordng te transections inthe ‘books of accounts. The following are the various kinds of ers 10.8.1. Kinds of Errors ‘Keeping in view he rature of enor allthe errs commit in the aeouting process cant clasiied into wo, {tron or Principicand 3. Clerical Ezors aKinde of Errore — Brrorset ripe (Cerca Bers Erosot Ernie Comping Onisien commision Erne I l ‘.Pwalomisson —1.Emorof esondag SConpat emission ii Frere rosine in Borat exe fowaed | Errors of Prinlple ‘Trnactions are recorded a per geneilysecelel secouring piace, any ofthese rncplesis vied or ignored errsresuing ‘romsuch violation are known as errors of principle. For example, Purchate of asets recorded inthe purchasssboot. Tis anerer of Principe, because the purchases book s meant for recording cect puchaesof gos meant foresaleand rot fied assets. Atal lance willnotelsclow eros rice. |. Carica Errors ‘These eum arse because of mistakes comnited ia theontinary course ofaccourting work. These can be further classified into three ‘ypena fellows. 6) Rerors of Onission ‘Thiseor arises when atrensaction s completely or partaly omit to he oconded inthe books cf sccomnes. Eras of emission nny bechstified asbelo. 2 i Eror of Complete Omission: This enor arises when tmarsscton is totally cmittedtobe recorded inthe books of account, Forexample, Goods purchased from Rem completely omittaéte bo recorded Thisearr does act affect the tial balance. 4. Error of Partial Omission: This ero rises when only one sxpeco the wansacion elt debit or reds recorded. For example, acrdt sale of goods o Siva recerdin sles book but omitted tobe posted in Sivas account. This eroraffest the ral balance, ) Errors of Commission ‘This eorasises due to wrong recording, wrong posting, wrong casting, wrong balancing, wrong carrying forward ete. Ezors of commission may bechssifodasfllows: i. Brror of Recording: "Tis ecroratses when atrarsection is ‘wrongly recorded in Gaebooks of original entry. Forexanple, Goods of RSS X0,purchssed once irom Vijistecordodinthe bokefor Re 5500, Thigeror does no aectthe tal balance Error of Posting: Tis error arses when information recoded Jnthebooks original enty re wrongly enteredinthe ledger. Eixor of posting maybe iL Rightamountin de rigtside of wrong accourt i Riehtamountin the wrongs ofcerectaccount Wrong amouatinthe right ede of corectacoust iy. Wrong amountindhe wrong ide of comes account ‘Wrong amountinthe wrong side of wrong count ‘i Wrong amouatintherghtside of wrong account. “This errr or nay rotaffect he tal lence. it, Error of Casting (Totaling) : This ecor arises wea & nae iscommited while tcalingthesabsifiary book. Forexample. instead of Rs.1200 tray be wroegy totalled as Rs. 3,000. This i called overeating. [F itis wrongiy totalled 8s Xs 11,000, it scaled ay1. Error of Carrying Forward : ‘This error asses when a mistake iscormitedincarying forward atlal of one pee tthe next page. For example, Totalof purchase book in page 242 ofthe edger Rs. 10,686, while carrying forward the balance tothe nest pageit was recorded asRs.10.866 ©) Compensating Errors ‘Theerrors arising fremexcess debits orunder debits of accounts being neutralised bythe excess creditor under credits tothe arte ‘exe one ode axaountiscompensating er. Sincetieerosin ‘one drectonarecompenssted by ers inanother ection, erihmetical sccuracy ofthe tril balance i not al faced insite of sac eno. For example, he purchases book and sles bookare bom overcast (excesstcaling) by Rs 10,00. the erorsmatvally compensate each ciber This ror will ntalfect the agrerretof wal blanc. 10.82 Errors aisciosed and not disclosed by wll balance Ifthe impact of the errors on rial balance i considered, errors say heclansifadintn tuo categories Firen dichnadhy tralbalance, and Eons not disclosed by wal balance. rorsdicoway wean dladondy I 1 mon pattie 1 Gronteompiteoninion 2. anmeccaang 2. enum otmcunang 3. Enon fear foward 3. Sronsfsiniple tbe caret ccune count inthe il ee i 5 Eromef sing memnec ——S._Cempesstina Frans 20 Mlustration 2 Sutethe type of erorinvelvedin the folowing tarsaction and ‘ay wheter it wil affect the agreemert ofthe tril bulance orn. 1. The salesbook is undercastby Rs. 2000, ‘The purchases hooks overcast by. 1 50D. ‘Tho purchases tum books overast by Rs 5,000, ‘The talosretumbook i overcast by Rs. 1,000, Goods retumed by Vani worth Rs. $00 werent entered Goods reumed by Venu & Co. Ks4000 were not posed. Goois sold to Rebia for Rs. 2,600 hus beea debited to Robert's A Acroditsleto Basha forks. 3300 wasentered a5 RS 5300. 9. Appurchase of Machinery for Rs 5000s besnetered ‘he parchases book. 10, credit purchase fom Seni Fors 6250 wasdebited i» Santhosh's A/c. from purchases book. 1, Cashreceived for commission R8.2,139 ws postedtothe commission ancountasRé. 2.375. 12, ‘The monthly ttl of dtcount column othe debitside ofthe cash booie Re. 1,350 was eroded to eiseount allowod 133. Caspuidorinurance Rs. 6310 was posted the insurance ‘Ave. as RS. 6,130. 134. ‘The mnuhly wal ofdscoun column one ceditsideofte cash book Rs. 72.500 was debited to discount received 1S. Scaleto Kaveri. 6900has heenerdenad in thepurchaes book, 23110. 4 “This is aa erorof esting andi affctscles account only. “Theta balarce wilnot tly. ‘This isan errorof eastng and ie affet parchasesaccount only. The talbalance wil rotagre. ‘This nan cror of casting and it affect purchases rium accoust ony. The trial balance will ot agree. ‘Thisisanerrorof casting anditafectsalesretumaccount only. The tialbalance will otagree. ‘Thisisax emer of comple omission. Since dette sspocts hove been omitted thiserer wil not aflecttheagreement of tho tial balance ‘This isan exorofpurtalomission Since theprincipls of double entry is not completed, tis errr will alect the agresmeat ofthe tia balance. ‘Thisisanenorcf posing. cig amountinte igh side of the wrong zccount. This err willnol affect the agreement ofthe trial balance ‘Tisisaneror of meting, wrongentyinhesbiiary ‘book, Since the mistakes ound in both debit and erect specs tote same ent Theagreerent ol theta balance wllnot be affcod. ‘This isan errorolprieciple. Thiserrr wll not alTet the agrocmeatof the tal balans, Thisisanenorof recoring.c.wrong enty inthe sabsiiry book. Sinco, the mistake is found in both ébitand eroeit age: tote saneextent Theagreerent of teal balance vwillnce secre “hiss momorot posing nvolingpestngof wrong amcutt ‘Since thocommission counts mexresseedtof #536), (he tial talancewilbeaected. 23 12, Thisisanemorof posting involving posting onthe wrong sie ofan account. The amount must have teen debited 19 dscoustllowed account, Therial balance wil ntagres to ‘heententofRs2,700;e,twicethe amoutof te: warsacton. 13, This sanemorof posting involving postagof wroegamoun Since the insurance account has shertdbitof Rs.180,the trial balance willbe affected, 14, Thisisanemarof posting involving pesting onthe wrong side of an acconnt. Theamcurt musthave ben credited 19 Ascent eeived account Theta blanc: will motegre= the extent of RS45,000, ie, twice the amount of the 15. Thisisan ervorof recording, In this ransaction error is smade inthe book of arigtal entry the al balance willact beafiaad. Aneaty hasbeen made wrens inthe purcheses bookirscadof te sales book. Tori this, Kaveri Alcs ‘o bedebited with Rs.13 800 and Purchases Ac. and Seles ‘Aveare tobe credited withRs 6,000 each, 10.9 Stops to Locate the Errore: 1 thetriablance docs ak ly trans there are son era it the books of socom. The varius steps which may betaenb locate the errs nce the fllowing: ‘Step 1D Check the tt of terial blanc and ascetndheenait srmountof dlerenesnthe tia talance. ‘Step 2 > The difereace is halved to find ot whether theres any balance of the same amoont in the trai Palane. Ie x ‘pecans, suchabulaee mighthevebeen weneded onde ‘wrong side ofthe ual balance and bence. the ditference 5 doublethe erent 233‘Step 3 Phe second sep fis locate theener, the difference in ‘Ue ial bance scividedby9.Tits dvs 9 witout any reminder the ener is eto uanspositiono figures. Forexmpkrnsposiionof iguresrepesents wing of 5.180 for Rs 870. ‘Step 4 > See wheter the balance ofall ledges account inc ding ‘ceshandbank balancer ereincludedinthe tial balance, ‘Stop 5 > Ensate that al the opening bolanceshave been comectly ‘rough onward in Checarent year's boeks. Step 6 > Mibeciterenceinte ba balanceinof lage amount the ‘tal belnce ofthe cunt yearis compared with that of the previous year ndanseoount showing alge dleence ‘ove the igure in he previeus yea'stralbalance should berecheskod, ‘Step 7 If te ecorisnct detected by the above steps, care should De tukentoserunise he 4. totasofall thesubsiiary books. |i posing made fom the jours andthe stsiiar books to Dereevant edger accounts, fi_balances extracted fromthe vicious ledger accounts ix. toulingot eledgerbalances, ‘Byen after folowing the above steps ifthe err could not he Jocated,the whois of he prime entry mustonce again be checkedand in case of need, the posting to the ledger should he rechecked ‘beroxehly. 10.10 Suspense Account ‘When tic difficult olocateterristakasbalee preparing the ial cous hc eliffrence in trl ace strafed o newly opened ‘imaginary andtemporary socount called Suspense Account Suspense secount i prepared to avoid the delay in Uhe preparation of inal 234 sccounts Ifthe total debiztalances ofthe tial balance exceeds the total credit balances, the cfferenceistrensferredto the credit Se of the suspense account. On te oer hand if the total ret balances the trial balance exceeds the total debt balances the differeace is tmarsfered tothe debit side othe suspense account, When theeros affecting the suspense secount ae located they awe retifed wid suspense account. Suspense account iscontinucd ia the books untlthe errs ae located ané ecified. Such balance will ‘be showniin the balance sheet. Debit balance willbe shown on the asset sce and the rot balance willbe shown an the Lalit side. ‘Whenall the eros aflecting the ial alance are lcstel and reife. the suspense acoount automaticaly ges close, ‘he folowing lustaion wil help to understand the suspense axcount tuserarion 3 ‘The following balances were extracted from the ledger of [Mi Ramakrishaa ss on 21 Mase 2003, You sr equi o prepare atralbaance aso that date Rs, Rs, Draws 00 Salaies »s.00 Carita 24090) Silesretura 0.000 Sundrycrediors 4.30000 Purchusessctum 11,000 Billspayatle 40000 Commissionpaid 1.000 Suidiy debxors 500.007 Trallngespenses 25,000 Titkrecivahle 52.00 Diseouni eared 51000 Plant Machinery 45900 Re 20,000 Openingsock 3.70.00). Barkoverérft 60.000 Cashin aad 9000 Purchases 798,000 Cashatbenk 25000 Sales n180p00 235Inthebootsof MrRamabrishna ‘Trial Balance ason 31* March 2003 Ey] Nanwatite count tl oe Q Toa a 2 | Drewngs 0000 . | sandy ereirs ~ | son 4 | Bilspasate “om | Sanday ester ‘sons - 4 | Planets macy ‘suo = | opening soe amo | cahintana on 10. | Cotati 2000 u,| sae ~ | soon 12 | Saires vsan0 * 1 | Sserou son80 : 15 | Commision uid 1900 16 | Traingesperen sino as | ger oxo - 9.| Pactases ‘rosa 2 TOR wea [ee a00 Note: The difernce nthe Tal Balanos is tanned to wpense sccount to avid delay in he preparation of fin accoans, 40.11 Rectification of Errore ‘Contetion of cxers ln the books of secounts is not done by erasing rewriting or striking he figures which are incomet.Conectng 236 the ors that has cccuredis called Rectification. Appropristecetry Jgpastedorsutabie explanatory notes writen inthe espectveaccourt cor accounts to neutralise the effect of errors. From the point of ‘eeificaion errs may beclsifed as follows {Single sided errors are errors which afest one side of a i Double sided errareare erorewhichaffactboththesecounts inayansaaion. Basle Principles for Rectifleation of Errors Allez, whatever may bethels kind or ature result in one of the following four positions in cme or more accourts. Brees debitin one ormore accounts: Tis mus be ties by “retin th excessarourt to therespesive acount ce Short debi in one or more accounts: Thisrmst be rectified by 2 “Turther debit’ to the respective account or counts inv |. Bxeess retin one or more accounts: is ca be wetifiod ‘by "debiig” the respective aocount withthe excess asi Luvetved, is, Shorteredtin one ormore sceounts: Tis canbe recified by urtber eredt’ tothe respective account or counts invohed ‘The following thee steps may be adopted while stempting > reclfy nero 1 Asconni whats atallybeon one, whats the ereur 3 Make sure what ought io have been done, i thecarrect scord, [Decide whats ine done vew of what ashes done and ‘what ough to have beon done. 237