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