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ABSTRACT

To make accounting record of all the transaction from the very start of

business of Mr. Ram. To prepare profit and loss account of the business to ascertain

the new profit for the period. To prepare the balance sheet of the business to

ascertain the net profit for the period. To interpret the profitability and the financial

position on the basis of profitability ratios and other information.


CONTENTS

CONTENTS PAGE NUMBER


Meaning :- Journal, Ledger 1
Meaning :-Trial Balance, Trading and Profit and loss 2
account
Meaning :-Balance Sheet 3
Transaction( question) 4
Solution 5-14
Conclusion, Reference 15

JOURNAL
Journal is a book of original entry in which the transactions are recorded first of

all as and when they take place. Transactions are originally recorded in a chronological order

according to the principles of double entry system.

FEATURES OF JOURNAL

 A journal records both debit and credit aspects of a transaction according to the double

entry system of book keeping.

 Each entry in a journal is followed by a brief explanation of the transaction.


 A single entry is capable of recording more than one transactions involving more than

two accounts, such an entry is called compound entry.

 It provides a basis for posting into ledger.

 It maintains a identify of each transaction by keeping a complete record of each

transaction at one place on a permanent basis.

LEDGER
The ledger is the chief book of accounts, and it is in this book that all the business

transaction would ultimately find their place under their accounts in a duty classified manner.

RULE OF POSTING

 All the transactions relating to an account should be created at one place.

 The word To is used before the accounts which appear on the debit side of an account.

Similarly, the word By is used before the accounts which appear on the credit side of an

account.

 If an account is debited in journal entry, the posting in the ledger should also be made on

the debit side of such an account.

 Similarly, if an account has been posted on the credit side of an account should also be

posted on the credit side of an account.

TRIAL BALANCE
The trial balance is a statement preparation with the help of ledger balances, at the end of

financial year to find out whether debit total agrees with the credit total.

CHARACTERISTICS OF TRIAL BALANCE

 It is a list of balances of all ledger accounts and the cash book.

 It is just an statement not an account.

 It can be prepared at any time during the accounting period.

 It is prepared to check the arithmetical accuracy of ledger accounts.

 It helps in preparation of the final accounts.

 It is to obtain the summary of the ledger accounts.

TRADING AND P/L ACCOUNT

Trading and Profit and Loss accounts are the part of final accounts. It is also

called the Income Statements. It is divided into two parts :-

 Trading Account

 Profit and Loss Account


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Trading Account is prepared for calculating gross profit or gross loss arising or

incurred as a result of trading activities of a business. Profit and Loss Account is

an account into which all gains and losses are collected. In order to ascertain the excess

gain over losses or losses over gains.

BALANCE SHEET

A balance sheet is a statement at a particular date showing on one side the trader

property and possessions and on the other hand the liabilities.

FEATURES OF BALANCE SHEET

 A balance sheet is a part of final accounts. This is the reason that trading

and profit and loss a/c and the balance sheet are called final accounts.

However Balance sheet is a statement not an account having assets and

liabilities side that is why it is also called Position Statement.

 Balance Sheet is prepared on particular date and not on a fixed period.

 It shows the financial position of the business according to going concern

concept.

 The total of the two sides of balance sheet must be equal. If the two sides

are not equal, there will be an error somewhere.


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TRANSACTIONS

From the following transactions prepare Journal, Ledger and Trial Balance for the month

of March 2016. Also prepare Trading and P/L Account and Balance Sheet on the basis:-

Date Transaction

2016

March 1 :- Ram started business with Rs 20,000/- and goods Rs 5,000/-.

March 2 :- Purchase goods worth Rs 8000/- from Shyam.

March 4 :- Purchase furniture for Rs 5000/-.

March 5 :- Sold goods Rs 7000/-.

March 8 :- Purchase goods for Rs 2000/-.

March 10 :- Paid cartridge Rs 50/0.

March 14 :- Sold goods to Mohan Rs 2500/-.

March 21 :- Cash withdrawn from business Rs 5000/-.

March 22 :- Good returned by Mohan Rs 300/-.

March 25 :- Goods sold for cash Rs 2500/-.

March 28 :- Office expenses Rs 450/-.

March 31 :- Salary paid Rs 7500/-.

March 31 :- Closing stock valued Rs 20000/-.


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JOURNAL ENTRIES (BOOKS OF RAM)


Date Particulars L.F. Debit Credit
(Rs) (Rs)

Mar 1 Cash A/C Dr 20000


Stock A/C Dr 5000
To Ram’s Capital Account 25000
(Being Ram started business with cash
Rs 20000/- and good Rs 5000/-)
Mar 2 Purchase A/C Dr 8000
To Shyam A/C 8000
(Being purchased goods worth Rs 8000/-
from Shyam)
Mar 4 Furniture A/C Dr 5000
To Cash A/C 5000
(Being purchased furniture for Rs 5000/-)
Mar 5 Cash A/C Dr 7000
To Sales A/C 7000
(Being sold goods Rs 7000/-)
Mar 8 Purchase A/C Dr 2000
To cash A/C 2000
(Being purchase goods Rs 2000/-)
Mar Cartage A/C Dr 50
10 To Cash A/C 50
(Being paid cartage Rs 50/-)
Mar Mohan A/C Dr 2500
14 To Sales A/C 2500
(Being sold goods to Mohan Rs 2500/-)
Mar Drawing A/C Dr 5000
21 To Cash A/C 5000
(Being cash withdrawn from business
Rs 5000/-)
Mar Sales return A/C Dr 300
22 To Mohan A/C 300
(Being goods returned by Mohan Rs 300/-)
Mar Cash A/C Dr 2500
25 To Sales A/C 2500
(Being goods sold for cash)
Mar Office expenses A/C Dr 450
28 To cash A/C 450
(Being office expense A/C debited Rs 450/-)
Mar Salary A/C Dr 7500
31 To Cash A/C 7500
(Being salary paid Rs 7500/-)
Mar Closing stock A/C Dr 20000
31 To Trading A/C 20000
(Being closing stock returned for Rs 20000/-)
Total 80800 80800
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CASH A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amoun


t t
2016 2016
Mar 1 To Ram’s Capital A/C 20000 Mar 4 By Furniture A/C 5000
Mar 5 To Sales A/C 7000 Mar 8 By Purchase A/C 2000
Mar 25 To Sales A/C 2500 Mar 10 By Cartage A/C 50
Mar 21 By Drawings A/C 5000
Mar 28 By Office exp. A/C 450
Mar 31 By Salaries A/C 7500
Mar 31 By Balance c/d 9500

29500 29500

Apr 01 To balance b/d 9500

PURCHASE A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amoun


t t
2016 2016
Mar 2 To Shyam A/C 8000
Mar 8 To Cash A/C 2000

Mar 31 By Balance c/d 10000

Apr 01 10000 10000


To balance b/d
10000
7

FURNITURE A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amoun


t t
2016 2016
Mar4 To Cash A/C 5000

Mar 31 By Balance c/d 5000

5000 5000

Apr 01 To balance b/d 5000

SHYAM A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amoun


t t
2016 2016
Mar 08 By Purchase A/C 8000

Mar 31 To Balance c/d 8000


8000 8000
8000
Apr 01 By Balance b/d
8

SALES A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amoun


t t
2016 2016
Mar 05 By Cash A/C 7000
Mar 14 By Mohan A/C 2500
Mar 25 By Cash A/C 2500

Mar 31 To Balance c/d 12000


12000 12000
Apr 01 By Balance b/d 12000

CARTAGE A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amount


t
2016 2016
Mar 10 To Cash A/C 50
Mar 31 By Balance c/d 50

50 50
Apr 01 To Balance b/d
50

MOHAN A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amount


t
2016 2016
Mar 14 To Sales A/C 2500 Mar 20 By Sales return 300

Mar 31 By Balance c/d 2200

2500 2500

Apr 01 To Balance b/d 2200

RAM’S CAPITAL A/C


Dr Cr

Date Particulars JF Amoun Date Particulars JF Amount


t
2016 2016
Mar 01 By Cash A/C
Mar 01 By Purchases A/C 20000
5000
Mar 31 To Balance c/d 25000

25000
Mar 31 By Balance b/d 25000
25000

10

DRAWINGS A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amount


t
2016 2016
Mar 21 To Cash A/C 5000

Mar 31 By Balance c/d 5000


5000 5000

Apr 01 To Balance b/d 5000

SALES RETURN A/C


Dr Cr

Date Particulars JF Amoun Date Particulars JF Amount


t
2016 2016
Mar 22 To Mohan A/C 300

Mar 31 By Balance c/d 300


300 300

Apr 01 To Balance b/d 300

OFFICE EXPENSES A/C


Dr Cr

Date Particulars JF Amoun Date Particulars JF Amount


t
2016 2016
Mar 28 To Cash A/C 450

Mar 31 By Balance c/d 450


450 450

Apr 01 To Balance b/d 450

SALARIES A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amount


t
2016 2016
Mar 31 To Cash A/C 7500

Mar 31 By Balance c/d 7500


7500 7500

Apr 01 To Balance b/d 7500

STOCK A/C
Dr Cr

Date Particulars JF Amoun Date Particulars JF Amount


t
2016 2016
Mar 1 To Ram’s capital a/c 5000

Mar 31 By Balance c/d 5000


5000 5000

Apr 01 To Balance b/d 5000

CLOSING STOCK A/C


Dr Cr

Date Particulars JF Amoun Date Particulars JF Amount


t
2016 2016
Mar 31 To Trading a/c 20000

Mar 31 By Balance c/d 20000


20000
20000
Apr 01 To Balance b/d
20000

12

TRIAL BALANCE
Particulars Debit Credit
Cash 9500 -

Stock 5000 -

Capital - 25000

Purchases 10000 -

Shyam - 8000

Furniture 5000 -

Sales - 12000

Cartage 50 -

Mohan 2200 -

Drawing 5000 -

Sales return 300 -

Office Expenses 450 -

Salary 7500 -

Total 45000 45000

13

TRADING AND PROFIT AND LOSS A/C


Particulars Amount Particulars Amount
To Opening Stock 5000 By Sales 12000

To Purchases 10000 Less Sales Return (300) 11700

To Cartage 50 By Closing Stock 20000

To Gross Profit c/d 16650

31700 31700
7500 16650
To salary By Gross profit b/d
450
To office expenses

8700
To Net Profit
(Being added to Capital) 16650 16650

14

BALANCE SHEET
Particulars Amount Particulars Amount
Capital Fixed Asset

Opening Balance 25000 Furniture 5000

Add Net profit 8700

33700

Less Drawing (500) 38700

Current Liabilities Current Assets

Creditors 2500 Debtors 2200

Closing Stock 20000

Cash in hand 14000

41200 41200

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CONCLUSION
The efficiency of this business is quite good since Gross Profit Ratio and Net Profit Ratio

are sufficiently, higher than the norms set for similar type of Business enterprises. There are not

any other types of problems like loss by fire, insolvency etc.

REFERANCE
 Wikipedia

 Accountancy (V.K.. publications)

 Papers on financial accounting