qwertyuiopasdfghjklzxcvbnmqwerty

uiopasdfghjklzxcvbnmqwertyuiopasd
fghjklzxcvbnmqwertyuiopasdfghjklzx
cvbnmqwertyuiopasdfghjklzxcvbnmq
ACCOUNTANCY FOR LAWYERS
wertyuiopasdfghjklzxcvbnmqwertyui
Project for semester 1.

opasdfghjklzxcvbnmqwertyuiopasdfg
10/1/2019

Vansh sehgal – A3221519133

hjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmrtyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmqwert
yuiopasdfghjklzxcvbnmqwertyuiopas
 QUESTION: Explain double entry system.
Write notes on:-
(i) Books of original entry
(ii) Subsidiary books { and make specimens of
both of the above}
ANSWER: DEFINITION: Double entry accounting is a system of recording
business transactions where each transaction affects at least two accounts and
requires an equal debit and credit. This system was created in the 13th century as a
way to double check the accuracy of recorded numbers.
A double entry accounting system established the accounting equation where assets
must always equal liabilities plus owner’s equity. Everything on the left side of the
equation, the assets, has a debit balance. Everything on the right side of the equation,
liabilities and equity, has a credit balance.

ACCOUNTING EQUATION: Assets = Liabilities + Equities

Assets = debit balance
Liabilities = credit balance
Equity = credit balance

The total debits and credits in an accounting system must always be equal just like
the equation itself. This is basis for recording all modern day business transactions.

 Types of Accounts

Bookkeeping and accounting are ways of measuring, recording, and

communicating a firm's financial information. A business transaction is an
economic event that is recorded for accounting/bookkeeping purposes. In
general terms, it is a business interaction between economic entities, such as
customers and businesses or vendors and businesses.

Under the systematic process of accounting, these interactions are generally

classified into accounts. There are seven different types of accounts that all
business transactions can be classified:

• Assets
• Liabilities
 • Equities
• Revenue
• Expenses
• Gains
• Losses

Bookkeeping and accounting track changes in each account as a company

continues operations.

Debits and Credits

Debits and credits are essential to the double entry system. In accounting, a
debit refers to an entry on the left side of an account ledger, and credit refers
to an entry on the right side of an account ledger. To be in balance, the total of
debits and credits for a transaction must be equal. Debits do not always equate
to increases and credits do not always equate to decreases.

A debit may increase one account while decreasing another. For example, a
debit increases asset accounts but decreases liability and equity accounts,
which supports the general accounting equation of Assets = Liabilities +
Equity. On the income statement, debits increase the balances in expense and
loss accounts, while credits decrease their balances. Debits decrease revenue
and gains account balances, while credits increase their balances.

The Double-Entry Accounting System

Double-entry bookkeeping was developed in the mercantile period of Europe
to help rationalize commercial transactions and make trade more efficient. It
also helped merchants and bankers understand their costs and profits. Some
thinkers have argued that double-entry accounting was a key calculative
technology responsible for the birth of capitalism.

The accounting equation forms the foundation of the double-entry accounting

and is a concise representation of a concept that expands into the complex,
expanded and multi-item display of the balance sheet. The balance sheet is
based on the double-entry accounting system where total assets of a company
are equal to the total of liabilities and shareholder equity.

Essentially, the representation equates all uses of capital (assets) to all sources
of capital (where debt capital leads to liabilities and equity capital leads to
shareholders' equity). For a company keeping accurate accounts, every single
business transaction will be represented in at least of its two accounts.
 For instance, if a business takes a loan from a financial entity like a bank, the
borrowed money will raise the company's assets and the loan liability will also
rise by an equivalent amount. If a business buys raw material by paying cash,
it will lead to an increase in the inventory (asset) while reducing cash capital
(another asset). Because there are two or more accounts affected by every
transaction carried out by a company, the accounting system is referred to as
double-entry accounting.

This practice ensures that the accounting equation always remains balanced – that is,
the left side value of the equation will always match with the right side value.

Example:
The idea behind the double entry system is that every business transaction affects
multiple parts of the business. For example, when a company receives a loan from a
bank, cash is received and an obligation is owed. There are two sides to the
transaction.

Thus, the asset account is increased with a debit and the liabilities account is equally
increased with a credit. After the transaction is completed, both sides of the equation
are in balance because an equal debit and credit were recorded.

Every business transaction is like this. There are always two sides to the event even if
two assets are traded. Take the purchase of a vehicle for example. When a company
buys a new delivery car, it gives the car dealership cash and receives the car in
exchange. One asset is going out and one asset is coming in—two sides to the
transaction.

The double entry accounting system would record this even by crediting cash, an
asset account, for the payment to the dealership and debiting vehicles, another asset
account, for the receipt of the new car. Since the asset account decreased and
increased by the same amount, the overall accounting equation didn’t change in this
case.

CASE: A bakery purchases a fleet of refrigerated delivery trucks on credit; the

total credit purchase was $250,000. The new set of trucks will be used in
business operations and will not be sold for at least 10 years—their estimated
useful life.

To account for the credit purchase, entries must be made in their respective
accounting ledgers. Because the business has accumulated more assets, a
debit to the asset account for the cost of the purchase ($250,000) will be
made. To account for the credit purchase, a credit entry of $250,000 will be
made to notes payable. The debit entry increases the asset balance and the
credit entry increases the notes payable liability balance by the same amount.
 Double entries can also occur within the same class. If the bakery's purchase was
made with cash, a credit would be made to cash and a debit to asset, still resulting in
a balance.

(i) Books of original entry

Books of original entry refers to the accounting journals in which business

transactions are initially recorded. The information in these books is then
summarized and posted into a general ledger, from which financial statements
are produced. Each accounting journal contains detailed records for the types of
accounting transactions pertaining to a specific area. Examples of these
accounting journals are:

 Cash journal

 General journal

 Purchase journal

 Sales journal

The general ledger is not considered a book of original entry, if it only contains
summarized entries posted to it from one of the underlying accounting journals.
However, if transactions are recorded directly into the general ledger, it can be
considered one of the books of original entry.

Books of original entry are extremely useful for investigating individual

accounting transactions, and are commonly accessed by auditors, who verify a
selection of business transactions to ensure that they were recorded correctly, as
part of their audit procedures.

This concept only applies to manual record keeping. A computerized accounting

system no longer makes reference to any of the accounting journals, instead
recording all business transactions in a central database.
Example of Journal:

Journalise the following transactions:

2005

Feb. 3 X commenced business with a capital of $15,000

05 Purchased good $6,000

07 Purchased goods on credit from S & Co. $3,000

10 Purchased furniture $2,400

11 Sold goods $3,900

15 Sold goods on credit to D $2,250

20 Paid salaries $960

25 Received commission $75

26 Returned goods to S & Co. $600.

27 Returned goods by D $450

28 Received from D $1,500

Paid to S & Co. $1,800

X withdrew from business $900
Charged depreciation on $240
Borrowed from K $1,500

Solution:

Journal

Date Particular L.F Amount Amount

2005

Feb. Cash A/C 15,000

3 ......................................................Dr. 15,000
Capital
(Being capital brought in)
5 Purchases 6,000
A/C...............................................Dr. 6,000
Cash A/C
(Being goods purchased for cash)

7 Purchases 3,000
A/C...............................................Dr. 3,000
S & Co. A/C
(Being goods purchased form S & Co on
credit)

10 Furniture 2,400
A/C.................................................Dr. 2,400
Cash A/C
(Being furniture purchased for cash)

11 Cash 3,900
A/C......................................................Dr. 3,900
Sales A/C
(Being goods sold for cash)

15 D Bros. 2,250
A/C..................................................Dr. 2,250
Sales A/C
(Being goods sold on credit to D)

20 Salaries 960
A/C.................................................Dr. 960
Cash A/C
(Being salaries paid)

25 Cash 75
A/C......................................................Dr. 75
Commission A/C
(Being commission received)

26 S & Co. 600

A/C..................................................Dr. 600
Purchases A/C Return
(Being goods returned to S & co.)

27 Sales Returns 450

A/C........................................Dr. 450
 D Bros. A/C
(Being goods returned by D Bros.)

28 Cash 1,500
A/C......................................................Dr. 1,500
D Bros. A/C
(Being amount received from D Bros.)

" S & Co. 1,800

A/C..................................................Dr. 1,800
Cash A/C
(Being amount paid to S & Co.)

" Drawings 900

A/C................................................Dr. 900
Cash A/C
(Being amount paid to S & Co.)

" Depreciation 240

A/C...........................................Dr. 240
Furniture A/C
(Being depreciation charged on furniture)

" Cash 1,500

A/C......................................................Dr. 1,500
K A/C
(Being amount borrowed from K)
(ii) Subsidiary books :

Accounting can be a tiresome process. A company has thousands of financial

transactions in a year and journalizing them all can get quite bothersome. So
some companies choose to prepare subsidiary books, in which we record
transactions of a similar nature in chronological order. Let us learn about
them

Subsidiary books are books of original entry. In the normal course of business,
a majority of transactions are either relate to sales, purchases or cash. So we
record transactions of the same or similar nature in one place, i.e. the
subsidiary book. And we record these transactions in chronological order.
This actually saves a lot of man-hours and tiresome clerical work. Instead of
journalizing each entry, they are recorded into various subsidiary books. Think of
your subsidiary book as sub-journals that record only one type of transaction.

There is no separate entry for these transactions in the general ledger. The
posting to the Ledger Accounts is done from the subsidiary book itself. This
method of recording is known as the Practical System of Accounting or
sometimes the English System.
One thing to remember is that such a system does not violate the rules of
Double Entry System. We have still recorded the transactions according to
this system. All transactions are still affecting two accounts. Only instead of a
journal, we are using subsidiary books as the books of original entry.

Types of Subsidiary Books

The following are the subsidiary books a company will generally maintain
while writing their accounts,
• Cash Book- It is a book which records the receipts and payment
of cash transaction.
• Purchase Book- It is a book which records all the credit
purchases of goods of the company.
• Purchase Return Book- It is a book which records all the return
of credit purchases of goods of the company.
• Sales Book- It is a book which records all the credit sales of
goods of the company.
• Sales Return Book- It is a book which records all the return of
credit sales of goods of the company.
• Bills Receivable Book- It is a book which records all the bills
receivable.
 • Bills Payable Book- It is a book which records all the bills
payable.
• Journal Proper- All the transactions which are not recorded in
the above books are recorded here.
It’s Advantages
Let us now take a look at some of the advantages these subsidiary books
provide in the process of accounting
• Saving Labour Hours: Recording in a subsidiary book saves a lot
of time and clerical hours. Firstly there is no need to journalize and/or give
narrations for every transaction. This helps reduce the time it takes to
completely record a transaction. Also since we use a number of subsidiary
books, various accounting process can be undertaken simultaneously. This
will save the time of the clerks/accountants.
• Division of Work: In place of one general journal, we have
several subsidiary books, So the resulting work may be divided among several
members of the staff. This will save time, improve efficiency and result in
fewer errors as well.
• Specialization of Work: If one person maintains the same
subsidiary book over many years he acquires full knowledge and
understanding of the work. We can say he becomes a specialist in one type of
transaction (say purchases for example). He becomes very efficient in
handling such transactions and hardly any error gets made.
• Easy for Reference: When transactions of all types are in the
same subsidiary book it becomes easy to search for them. Whenever any
information is needed we directly refer the subsidiary book to get said
information.
• Easier for Checking: If the Trial Balance does not match, it will be
much easier to locate the error thanks to the existence of separate books i.e. a
subsidiary book. Same goes if you want to detect fraud.

Enter the following transactions in the Purchase Journal (Book) of M/s

Gupta Traders of July 2014:
01 Bought from Rahul Traders as per invoice no.20041
40 Registers @ ₹ 60 each
80 Gel Pens @ ₹ 15 each
50 note books @ ₹ 20 each
Trade discount 10%.

15 Bought from Global Stationers as per invoice no.1132

40 Ink Pads @ ₹ 8 each
50 Files @ ₹ 10 each
20 Color Books @ ₹ 20 each
Trade Discount 5%
 23 Purchased from Lamba Furniture as per invoice no.3201
2 Chairs @ ₹ 600 per chair
1 Table @ ₹ 1000 per table

25 Bought from Mumbai Traders as per invoice no.1111

10 Paper Rim @ ₹ 100 per rim
400 drawing Sheets @ ₹ 3 each
20 Packets water colour @ ₹ 40 per packet

Please note that as M/s Gupta traders are in the business of stationery, the furniture
purchased will be for office use and hence will not be considered as goods. Due to
this reason, it can not be entered into the purchases book. All the other transactions
are tracked in the purchases book.

Also note that the purchases book will not have the details column. It is added here
for the understanding of the user.

Books of M/s Gupta Traders

Purchases Book

Name of the
Invoice Supplier Details Amount
Date L.F.
No. (Account to be ₹ ₹
credited)

2014

01 Jul 20041 Rahul Traders

40 Registers @ ₹ 60 2,400
each

80 Gel Pens @ ₹ 15 1,200

each

50 Note Books @ 1,000

₹ 20 each

4,600

Less: Trade (460) 4,140

Discount 10%
 Books of M/s Gupta Traders
Purchases Book

Name of the
Invoice Supplier Details Amount
Date L.F.
No. (Account to be ₹ ₹
credited)

15 Jul 1132 Global Stationers

40 Ink Pads @ ₹ 8 320

each

50 Files @ ₹ 10 each 500

20 Colour Books @ 400

₹ 20 each

1,220

Less: Trade discount (61) 1,159

5%

25 Jul 1111 Mumbai Traders

10 Paper rims @ 1,000

₹ 100 each

400 Drawing Sheets 1,200

@ ₹ 3 each

20 Packets Water 800 3,000

Colour @ ₹ 40 per
pack

Purchases 8,299
Account