Lecture Notes

Book Keeping

Book keeping

 Book keeping is an art of recording day to business transactions in a set of books in a systematic manner, so as to indicate the
profit or loss of the business.
 It presents the clear picture of the financial position of the business.

Objective of Book keeping

1. Permanent record of all the transaction

2. Net results for a particular year

3. Exact reason for leading to profit or loss

4. To know the amount due from the business

5. To know the amount due to the business

6. Exact financial position

7. To check progress of the business year to year

8. Minimize error and frauds

9. Future planning

Advantages of Book keeping

 1. It acts as a permanent record for all the transactions

2. Net results can be correctly ascertained

3. Complete information about losses and expenses, incomes and gains for a given period of time.

4. True and correct financial position can be known

5. Helps in detecting frauds and errors

6. Comparison of results

Disadvantages of Book keeping

1. Only monetary transactions can be recorded and non-monetary transactions are not recorded

2. Timely information is not available to the management to take corrective actions

Meaning
The term “LEDGER” is derived from the Dutch word ‘LEGGER’, which means to keep.
Therefore ledger means a book where the various transactions are kept.
Ex: we record all sales made by the company in a particular ledger account called as “Sales Account”

Format of ledger account

Name of the Ledger Account

Date Particulars Amount Date Particulars Amount

 XXX XXX

Trial balance
Meaning: It is a list of debit and credit balances of all ledger accounts prepared on any particular date to verify the arithmetical
accuracy of books of account. It is based on the principle that for every debit in one account, there is a corresponding credit in some
other account.
A trial balance may be simply defined as a statement prepared by putting all debits on one side and all credits on the other side to
check the arithmetical accuracy of the ledger balances.
In other words, the trial balance is a connecting link between the ledger accounts and final accounts.
Features of Trail Balance:

 A trail balance is just a statement, and not an account.

 It is prepared as on a particular date and not for a particular period.
 A trail balance may be prepared any number of times during a year and it can be prepared at any time. But it must be
prepared at the close of the accounting year before the preparation of the final accounts.
 It is not prepared in any book of account. It is prepared in a separate sheet of paper or book outside the books of
account.
 A trail balance does not form part of the double-entry system of accounting.
 Its preparation is not obligatory. But, in practice it is invariably prepared.

Format for preparing Trial Balance

 Name of the Ledger Debit Credit
Accounts balance balance

XXX XXX

Subsidiary books

 Subsidiary books or special Journals is a book, which is maintained for recording special / specific transactions.

 They are called as subsidiary books, as they do not provide the final accounting information relating to a business, but helps in
preparing ledger accounts and financial statement of a business concern.
Types of subsidiary books

1. Purchase book – to record all credit purchase of goods.

2. Sales books - to record all credit sales of goods.

3. Purchase Return book – to record all purchase returns.

4. Sales Return book – to record all sales returns.

5. Cash book - to record all Cash receipts and cash payments

6. Journal proper

Purchase books
Is a book used to record only credit purchase of goods.
Cash purchases are recorded in cash book & not in purchase book
What about credit purchase of things other than goods?

 Should be recorded in Journal Proper

Date Particulars Inward L.F Amount

Invoice

Sales books
Is a book used to record only credit sales of good.
Cash sales are recorded in cash book & not in sales book
What about credit sales of things other than goods?

 Should be recorded in Journal Proper

Date Particulars Outward L.F Amount

Invoice

Purchase Return books

Sometimes the goods which are purchased by the business on credit are returned to the supplier for various reasons
Goods returned by the business to its suppliers is called as Purchase returns.

 If the goods are returned for cash, then it should be recorded in cash book.
Sales Return books
Sometimes the goods which are sold by the business on credit are returned by the customers for various reasons. Goods returned by
the customers to the business is called as Sales returns.
Only the return of goods sold on credit, should be recorded in sales return book

 If the goods are returned for cash, then it should be recorded in cash book.

Cash books
Is a book used to record all cash receipts and payments.
Types of cash book

1. Simple or single column cash book

2. Two column cash book (with discount and cash columns)

3. Three column cash book (with discount, cash and bank columns)

Contra entry: Often cash is withdrawn from bank for use in the office. In such a case the amount is entered in the bank column on the
payments side and also in the cash column on the receipts side. In the reverse case of cash being sent to the bank, the amount is
recorded in the bank column on the receipts side and in cash column on payment side. Against such entries, the letter ‘C’ should be
written in the L.F column, to indicate that these are Contra transaction and no further posting is required for them.

Journal proper
Is a book used to record all those transactions which cannot be recorded any of the other subsidiary books. Journal proper is book of
original entry (simple journal) in which miscellaneous credit transactions which do not fit in any other books is recorded. It is also
called miscellaneous journal. The form and procedure for maintaining this journal is the same that of simple journal.
It is used to record the following types of transaction:

1. Opening entries

2. Adjusting entries

3. Transfer entries

4. Credit purchase and credit sales of things other than goods

5. Closing entries

1st June, 2020: Sold goods to Mr. A worth Rs. 80,000

10th June, 2020: Received cash from Mr. A Rs. 60,000
15th June, 2020: Sold goods to Mr. A worth Rs. 50,000
18th June, 2020: Paid cash to Mr. A Rs. 30,000

Type of
Date Particulars account Types of aspect
1-Jun Mr A a/c Personal Dr
Sales a/c Real Cr
10-
Jun Cash a/c Real Dr
Mr A a/c Personal Cr
15-
Jun Mr A a/c Personal Dr
Sales a/c Real Cr
 18-
Jun Cash a/c Real Cr
Mr A a/c Personal Dr

Date Particulars LF no Debit Credit

1-Jun Mr A a/c Dr 80,000
To Sales a/c 80,000

10-
Jun Cash a/c Dr 60,000
To Mr A a/c 60,000

15-
Jun Mr A a/c Dr 50,000
To Sales
a/c 50,000

18-
Jun Mr A a/c Dr 30,000
To Cash a/c 30,000

List of Ledger accounts

Mr A's a/c
Sales a/c
Cash a/c

Dr Sales a/c Cr
Particulars
Date Particulars JF No Amount Date 2 3 Jf No 4 Amount 5
30-Jun To Balance c/d 130000 1-Jun By Mr A a/c 80,000
15-Jun By Mr A a/c 50,000

130000 130000

1-Jul By Balance b/d 130000

Dr Cash a/c Cr
Date Particulars JF No Amount Date Particulars Jf No Amount

10- By Mr A s
Jun To Mr A 's a/c 60,000 18-Jun a/c 30,000

30-Jun By Balance c/d 30,000

60,000 60,000

1-Jul To Balance B/D 30,000

Dr Mr A's Cr
 a/c
Date Particulars JF No Amount Date Particulars Jf No Amount
1-Jun To Sales a/c 80,000 10-Jun By Cash a/c 60,000
15-
Jun To Sales a/c 50,000
18-
Jun To Cash a/c 30,000

30-Jun By Balance C/D 1,00,000

1,60,000 1,60,000

1-Jul To Balance B/D 1,00,000

1st June, 2020: Sold goods to Mr. A worth Rs. 80,000

10th June, 2020: Received cash from Mr. A Rs. 60,000
15th June, 2020: Sold goods to Mr. A worth Rs. 50,000
18th June, 2020: Paid cash to Mr. A Rs. 30,000

Type of
Date Particulars account Types of aspect
1-Jun Mr A a/c Personal Dr
Sales a/c Real Cr
10-
Jun Cash a/c Real Dr
 Mr A a/c Personal Cr
15-
Jun Mr A a/c Personal Dr
Sales a/c Real Cr
18-
Jun Cash a/c Real Cr
Mr A a/c Personal Dr

Date Particulars LF no Debit Credit

1-Jun Mr A a/c Dr 80,000
To Sales a/c 80,000

10-
Jun Cash a/c Dr 60,000
To Mr A a/c 60,000

15-
Jun Mr A a/c Dr 50,000
To Sales a/c 50,000

18-
Jun Mr A a/c Dr 30,000
To Cash a/c 30,000
List of Ledger accounts
Mr A's a/c
Sales a/c
Cash a/c

Dr Sales a/c Cr
Jf
No Amount
Date Particulars JF No Amount Date 2 Particulars 4 5
30-Jun To Balance c/d 130000 1-Jun By Mr A a/c 80,000
15-Jun By Mr A a/c 50,000

130000 130000

1-Jul By Balance b/d 130000

Dr Cash a/c Cr
Jf
Date Particulars JF No Amount Date Particulars No Amount

10-
Jun To Mr A 's a/c 60,000 18-Jun By Mr A s a/c 30,000

30-Jun By Balance c/d 30,000

 60,000 60,000

1-Jul To Balance B/D 30,000

Dr Mr A's a/c Cr
Jf
Date Particulars JF No Amount Date Particulars No Amount
1-Jun To Sales a/c 80,000 10-Jun By Cash a/c 60,000
15-
Jun To Sales a/c 50,000
18-
Jun To Cash a/c 30,000

30-Jun By Balance C/D 1,00,000

1,60,000 1,60,000

1-Jul To Balance B/D 1,00,000

Prepare a trial balance from the following ledger balances.

Capital 60,000
Loan taken 20,000
Machinery account 27,000
Investment 20,000
 Sales account 70,000
Purchases account 62,000
Wages 5,000
Cash at bank account 36,000

Trial Balance
Sl no Name of Ledger accounts LF No Debit Credit
1 Capital A/c 60,000
2 Loan Taken a/c 20,000
3 Machinery a/c 27,000
4 Investment a/c 20,000
5 Sales a/c 70,000
6 purchases a/c 62,000
7 Wages a/c 5,000
8 Cash at bank a/c 36,000

Total 150,000 150,000

 Cash a/c
By
To Sales 10,000 Purchases 10,000

10,000 10,000