Basic Concepts, Rules, Double

Entries & Formats for

Accounting Students(Level# 1)
I.Com Part 1

JAWAD AHMAD [Date] [Course title]

 Compulsory Chapters in I.Com Part 1

1. Rectification of errors

2.Capital & Revenue

3.Bank Reconciliation statement

4.Single, double & treble cash book

5.Journal & ledger

6.Final Accounts
(Profit & loss a/c & Balance Sheet)

7.Bill of Exchange

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Basic Concepts
Accounting
Accounting is the recording, reporting & analysis of financial
transactions of a business.
1. Assets: Anything that gives benefit is called Asset. These are owned
resources
E.g. Car, AC, Television, Mobile, laptop computer, furniture (all
things in our surroundings)
There are 2 types of Assets

Non-Current Assets Current Assets

Non-Current Assets: Those assets that give benefit more than 1 year
(>1)
E.g. Furniture, Refrigerator, AC, Car, Plant & Machinery, Property land
etc.
Current Assets: Those assets that give benefit for one year only (<1)
E.g. Cash, Bank, Debtors, Stock (Inventory) etc.

2. Liabilities: It is the burden or sense of Responsibility that we have

to pay for anything purchased or used on credit.
E.g. Creditor, Payable for Fixed asset, Bank loan, Expense payable etc.

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 There are 2 types of liabilities
Non-Current Liabilities Current Liabilities

Non-Current Liabilities: Amount payable in more than 1 year (>1)

E.g. Long term bank loans, deferred taxes, Debentures etc.
Current liabilities: Amount Payable within 1 year (<1)
E.g. Creditor, Short term bank loans, Bills payable etc.

3. Capital/Owner Equity: The amount brought by the owner for

starting or running the business operations. (It’s a liability on business)
Capital = Total Assets - Total Liabilities
Non-Current Current Non-Current Current

4. Sales Revenue: Amount earned by selling goods or rendering

services to customers.
5. Expenses: Cost incurred for earning revenue or running business
operations
E.g. Electricity expense, Rent expense, Legal fees etc.
6. Drawings: Amount withdrawn or goods taken by the owner for
personal use.
7. Other Income: Income earned from non-core business activities
E.g. Commission received income, Profit on sale of fixed asset etc.

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Rules of Debit & Credit

Increase in Asset & Expense Debit

Decrease in Asset & Expense Credit

Increase in Credit
Capital,Liabilty,Income,Sales
Revenue
Decrease in Debit
Capital,Liabilty,Income,Sales
Revenue

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 Important Concepts:-

 When Income, Sales & Expenses should be recorded

Income, Sales Revenue & Expenses should be recorded when they

have incurred (not necessary payment is received or paid).
E.g. Income should be recorded when we earned it (after providing
services) (not on receiving payments)
Dr. Income Receivable
Cr. Income

Sales Revenue should be recorded when product sold or services are

rendered to customers.
Dr. Receivable(Debtor)
Cr. Sales Revenue

Expenses should be recorded when they incurred (means we have used

the facility now become liable to pay for it whether bill is received or
not)
Dr. Expenses
Cr. Payable

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Double Entries

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Sr.No Particulars
Capital
Transactions
1 Cash
Capital
(Owner Brought cash for starting business)

2 Fixed Asset
Bank
Cash
Building
Purchases
Capital
(Owner brought Cheque, cash,building,stock for starting business)

Drawing
Transactions
3 Drawing
Cash/Bank
(Owner withdraw Cash/Cheque from business for Personal use)

4 Drawing
Purchases
(Owner withdraw goods from business for personal use)

5 Drawing
Fixed Asset
(Fixed asset taken by the owner from business for personal use)

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Purchases Of
Goods
Transactions
6 Purchases
Cash/Bank
(Purchase of Stock On Cash/Cheque)
7 Purchases
Creditor
(Purchase of Stock on credit)
8 Creditor
Cash/Bank
(Cash/Cheque paid to Creditor)
9 Creditor
Cash/Bank
Discount Received income
(Cash/Cheque paid to Creditor as full settlement)
10 Creditor
Purchase Return
(Good return to Creditor due to some issues)
Sale of Goods
Transactions
11 Cash/Bank
Sales
(Goods sold on Cash/Bank)
12 Debtor
Sales
(Goods sold on Credit)
13 Cash/Bank
Debtor
(Cash/Bank received from debtor)

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14 Cash/Bank
Discount Allowed Expense
Debtor
(Cash/Bank received from debtor as full settlement)
15 Sale Return
Debtor
(Goods return by Debtor due to some issues)
Fixed Asset
Transactions
16 Fixed Asset
Cash/Bank
(Fixed asset purchased on Cash/Bank)
17 Fixed Asset
Payable for Fixed Asset
(Fixed asset purchased on Credit)
18 Payable For Fixed Asset
Cash/Bank
(Paid for fixed asset supplier)
19 Payable for fixed asset
Fixed Asset
(Fixed asset return to supplier)
20 Depreciation Expense
Fixed Asset
(Fixed asset used in business)
Bank To cash
Transactions
21 Bank
Cash
(Cash deposited into Bank)

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22 Cash
Bank
(Cheque withdrawn from bank)
Expenses
Transactions
23 Expense
Cash/Bank
(Expense paid in cash/Bank)
24 Drawing
Cash/Bank
(Expenses done for personal use)
Interest
Transactions
25 Interest Expense
Cash/Bank
(Interest paid in cash/Bank)
26 Interest Expense
Interest Payable
(Interest expense payable)
27 Interest Payable
Cash/Bank
(Interest liability is paid in cash/Bank)
28 Cash/Bank
Interest Income
(Interest received in cash/Bank)
29 Interest income receivable
Interest Income
(Interest income still receivable)
Dishonored Debtor
Cheque
Bank

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Accounting Equation:-
Equality of entity’s Assets to entity’s Capital & liabilities.
Format:-
Mr. ABC
Accounting Equation
Dr. For the month ended Jan 31,20xx Cr.
Date Particulars Rs. Date Particulars Rs.
Assets Capital & Liabilities

Journal:-
It is a book that is use to record day to day transactions of a business
in accounting records.
Format:-
Mr. ABC
Journal
For the year ended Dec 31,20xx
Date Particulars L/f Debit Credit
Rs. Rs.

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Ledger:-
It is a book that is use to record transaction from journal to respective
T accounts of each head.
Format:-
Dr. Account Name Cr.
Date Particulars J.R Rs. Date Particulars J.R Rs.

Trial Balance:-
It is a book that is use to record totals(c/ds) of each account head
(T accounts)
Format:-
Mr. ABC
Trail Balance
For the year ended Dec 31,20xx
Date Particulars Debit Credit
Rs. Rs.

Total

 Debit, Credit total must be equal

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Trading & Profit & Loss Account:-
It is a statement that is used to calculate Net Profit/loss of a business
for an accounting period.
Accounting Data is entered from trial balance to Trading & Profit &
loss account.
Direct Expenses & Income are recorded in Trading account to calculate
Gross Profit/Loss
While
Indirect Expenses & Income are recorded in Profit & Loss Account to
calculate Net Profit/Loss.
Direct Expenses & Income:-
These are the expenses & incomes incurred/earned by the business in
his core business activities i.e. through selling & purchasing goods &
services.
Gross Profit= Net Sales Revenue – Cost of Sales
Here
Net Sales Revenue= Gross Sales Revenue – Sales Return
Cost Of sales= Opening stock + Purchase cost - Purchase Return -
Direct Expenses - closing stock

Indirect Expenses & Income:-

These are the expenses & incomes incurred/earned by the business in
his non-core business activities i.e. through selling & purchasing items
other than goods & services.
Net Profit=Gross profit + Other income(indirect) – Indirect Expenses

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Format:-
Mr. ABC
Trading & Profit & Loss Account
Dr. For the year ended Dec 31,20xx Cr.
Particulars Rs. Particulars Rs.
Purchases Sales
Less: Purchase Less: Sales Return
Return

Direct Closing Stock

Expenses
Carriage in Direct Income

Gross Profit (bal.) Gross Loss(Bal.)

Total Total
Gross Profit b/d
Indirect Indirect income
expenses
Electricity Commission
expense income
Rent Expense Profit on sale of
fixed asset
Depreciation
Expense

Net Profit(Bal.) Net loss(Bal.)

Total Total

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Balance Sheet:-
It is a statement of the entity’s assets, liabilities, and capital of a
business at a particular point of time.
Accounting values are entered from Trial balance and Net profit is
taken from Trading & Profit & Loss account.
Format:-
Mr. ABC
Balance Sheet
Dr. As on Dec 31,20xx Cr.
Assets Rs. Capital & Rs.
Liabilities

Non-Current Capital
Property, Plant & Opening Capital
Equipment Add: Net Profit
Less: Drawing

Current
Liabilities
Non-Current

Current

Total Total
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Single Column Cash Book:-
It is a type of Cash book in which cash receipt & cash payments are
recorded.
Format:-
ABC
Dr. Cash Book (Single Column) Cr.
Date Particulars J.R Amount Date Particulars J.R Amount
Rs. Rs.
Opening xx
Balance(b/d)

Closing xx
Balance(c/d)
Total Total

Double Column Cash Book:-

It is a type of Cash book in which two columns are maintained
I.e. 1st Option
First Column for cash receipt & cash payments
And
Other for Bank receipt & Bank payments.
(OR) 2nd Option
First Column for cash receipt & cash payments
And Other for Discount Allowed & Discount Received.

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 Format:-
ABC
Dr. Cash Book (Double Column) Cr.
Date Particulars J.R Cash Bank Date Particulars J.R Cash Bank
Opening Xx xx
Balance(b/d)

Closing xx xx
Balance(c/d)
Total Total

Format:-
ABC
Dr. Cash Book (Double column) Cr.
Date Particulars J.R Cash Discount Date Particulars J.R Cash Discount
allowed Received
Opening xx xx
Balance(b/d)
Closing xx xx
Balance(c/d)
Total Total

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Treble Cash Book
It is a type of Cash book in which three columns are maintained
I.e. First Column for cash receipt & cash payments,
Other for Bank receipt & Bank payments
And
Third for Discount Allowed & Discount Received.
Format:-
ABC
Dr. Cash Book (Treble Column) Cr.
Date Particulars J.R Cash Bank Discount Date Particulars J.R Cash Bank Discount
Allowed Received

Opening Xx Xx Xx
balance(b/d)

Closing Xx Xx xx
balance(c/d)
Total Total

Bank Reconciliation Statement

A bank reconciliation Statement is the process of matching the
balances in an entity's accounting records for a cash account to the
corresponding information on a bank statement.
Purpose:-
The goal of this process is to ascertain the differences between the
two, and to book changes to the accounting records as appropriate.

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Types of Questions:-
 If balance as per cash book/Bank a/c is given and requiring
balance as per pass book
Format:-
ABC
Bank Reconciliation Statement
As on Dec 31,20xx

Particulars Nature Amount(Rs.)

Balance as per Adjusted Cash Book Dr./(Cr.) xxx

(Unadjusted closing balance +/- Adjustments)
Add: Unpresented Cheques xx
Wrong Credit appearing xx

Less: Uncredited Cheques (xx)

Wrong Debit appearing (xx)

Balance as per Pass Book Cr./(Dr.) xxx

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  If Balance as per pass book is given and requiring Bank
balance/Cash balance
Format:- ABC
Bank Reconciliation Statement
As on December 31, 20xx
Particulars Nature Amount(Rs.)
Balance as per Pass Book Cr./(Dr.) xxx

Less: Unpresented Cheques (xx)

Wrong Credit appearing (xx)

Add: Uncredited Cheques xxx

Wrong Debit appearing xx

Adjustments (Relating to Cash Book)

Bank charges
Bank commission
Collection Charges
Direct Collection
Direct Payments

Balance as per Adjusted Cash Book Dr./(Cr.) xxx

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  If Balance as per Cash Book & Balance as per Pass Book both are
given (it is called BRS with Double Column)
Format:- ABC
Bank Reconciliation Statement (With Double Balance)
As on December 31, 20xx
Particulars Nature Amount(Rs.)
Balance as per Pass Book Cr./(Dr.) xxx
Less: Unpresented Cheques (xx)
Wrong Credit appearing (xx)
Add: Uncredited Cheques xxx
Wrong Debit appearing xx

Balance as per Pass Book Cr./(Dr.) xxx

Balance as per Unadjusted Cash Book Dr./(Cr.) xxx
Add: Dividend Income
Interest Income
Debit side under casted
Credit side overstated
Less: Bank Charges
Credit side understated
Debit side overstated
Balance as per Adjusted Cash Book Dr./(Cr.) xxx
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Note:-
Under this method, balance as per pass book and balance as
per adjusted cash book will be equal after making above
adjustments.
Some Hand Written Concepts

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Capital, Revenue & Deferred Expenditure:-

1) Capital Expenditure:-
All those expenses that are necessary to bring a non-current asset into
a workable condition (as intended by management).They are non-
recurring in their nature.
E.g. Purchase cost, Installation Expenses, Carriage in, Handling charges,
custom duty, octori charges, net sale proceed from selling samples,
purchase of fixed asset on lease, Premium on Leased asset, Sale &
purchase of Shares/debentures etc.
Before reaching to intended position all expenses should be charged
to asset account i.e.
Purchase cost of fixed asset Asset
Cash
Installation Expenses Asset
Cash
Carriage in Asset
Cash
Handling charges Asset
Cash
Custom duty Asset
Cash
Octori charges Asset
Cash

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Net sale proceed from selling Asset
samples Cash

After reaching this position, all subsequent expenses will be charge to

their respective heads
Expense
Cash
Except those that will increase the productivity, efficiency, useful life
& workable condition of asset.
2) Revenue Expenditure:-
All those expenses that are done in the ordinary course of business.
They are recurring in their nature. These are charged to their
respective heads. The word Re also indicates these expenses.
E.g. Repair expense, carriage out, electricity expense and replacement
of ordinary part (that does not increase productivity and useful life of
asset), Purchase & sale of goods etc.
Expense
Cash

3) Deferred Expenditure:-
All those revenue expenses that are incurred to facilitate the business
in future
(Or)
All expenses whose benefit spread over more than one year
E.g. Preliminary Expenses, Discount on issue of shares & debentures,
Heavy Advertisement done for new fixed asset
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 Rectification of Error:-
Rectification means finding the error in the whole accounting
process and correcting it by passing the rectified entry which
will help you to make the corrections in the entry which are
passed wrongly.
The Rectification of errors can be done, after trial balance but
before preparation of final accounts.
Types of Error:-
There are 7 types of errors. These are as follow:-
Error of Omission If we omit to record any entry in books of
accounts.
Casting Error If there is mistake in calculating total of any
account.
I.e. understatement/overstatement
Posting error If any entry is correctly recorded in journal but
wrongly posted in ledger.
Compensating Any error done which correct the other error
Error previously done.
E.g. Debtor Sale
Sale Debtor
Principal Error If any entry is make by considering it
principally false.E.g. Revenue expenditure is
consider as Capital Expenditure
Error of If entry is made to a similar false account.
Commission E.g. Usman account is debited instead of
uzman
Transposition If mistake is made in writing digits position
Error E.g.180 is written as 810.

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WO tamam entries Jo understatement/ overstatement kee hoon os ka
2nd impact Suspense account KO deen gee

Format of Questions
Mr. ABC
Rectifying Entries
For the year ended Dec 31,20xx
Rectifying Entry Original Entry Wrong Entry

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Method to solve this chapter Questions
 Record the original entry & wrong entry.
 Now for rectification of error, record the original entry &
reverse the wrong entry, cancel like items with each other
and remaining entry will be your rectified entry.

Rectifying Entry Original Entry Wrong Entry

Debtor A 1000 Debtor A 1000 Suspense 1000
Debtor A 1000 Sale 1000 Debtor A 1000
Sale 1000
Suspense 1000

Bill of Exchange
A written, unconditional order by one party (the drawer) to
another (the drawee) to pay a certain sum, either immediately
(a sight bill) or on a fixed date (a term bill), for payment of
goods and/or services received.
The drawee accepts the bill by signing it, thus converting it into
a post-dated check and a binding contract.

A bill of exchange is also called a draft but, while all drafts are
negotiable instruments, only "to order" bills of exchange can be
negotiated

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It’s a negotiable instrument under the Negotiable Instrument Act, 1881.
It is an instrument in writing
There are three parties i.e.
Drawer
Drawee
Payee

Treatment of Bills of Exchange

The drawer can treat the bill in the following ways:

1. Retain it till maturity

2. Discount it with the bank
3. Endorse it in favor of another person
On the due date, there can be two situations:

1. The bill is honored.

2. The bill is dishonored.

Format:- Mr. ABC

JOURNAL

For the year ended Dec 31,20xx

Date Particulars L.F Debit Credit
Rs. Rs.

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 Journal Entries

Sr. No. Particulars

Drawer’s Books

Bills Receivable A/c

1. The issue of bill Drawee’s A/c

(Being bill was drawn and accepted)

2. The Bill is retained No entry
until maturity

Cash/Bank A/c

2a. In case of honor Bills Receivable A/c

of Bill
(Being bill retained till maturity and payment
received)
2b. In case of Drawee’s A/c
dishonored of bill
Bills Receivable A/c

(Being bill retained till maturity and dishonored)

3. The bill is Bank A/c (amount actually received)
discounted with the
bank Discount A/c (amount of discount)

Bills Receivable A/c

(Being bill discounted with the bank)

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3a. In the case of No entry
honor(by bank)
3b. In case of Drawee’s A/c
dishonor by bank
Bank A/c

(Being discounted bill dishonored)

4. The bill is Creditor’s/ Endorsee’s A/c
endorsed
Bills Receivable A/c

(Being bill endorsed in favor of creditor)

4a. In case of honor No entry

4b. In case of Drawee’s A/c

dishonor
Creditor’s/ Endorsee’s A/c

(Being bill endorsed dishonored)

Drawee’s or the
Payer’s Books

5. The issue of bill Drawer’s A/c

Bills Payable A/c

(Being bill was drawn and accepted)

6. The Bill is retained No entry
until maturity
6a. In case of honor Bills Payable A/c

Cash/ Bank A/c

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 (Being payment made against the bill)

6b. In case of Bills Payable A/c

dishonor
Drawer’s A/c

(Being bill dishonored)

7. The bill is Bills Payable A/c
discounted with the
bank Cash/ Bank A/c

(Being payment made against the bill)

8. The bill is Bills Payable A/c
endorsed
Cash/ Bank A/c

(Being payment made against the bill)

Holder/endorsee’s
Books

9. Endorsed to a Bills Receivable A/c

creditor
Drawer’s / Debtor’s A/c

(Being endorsed bill received)

9a. In case of honor Cash/ Bank A/c

Bills Receivable A/c

(Being payment received against the bill)

9b. In case of Drawer’s A/c
dishonor
Bills Receivable A/c

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