ACCOUNT CURRENT

INTRODUCTION USE OF PRODUCTS (PRODUCT OF INDIVIDUAL TRANSACTION METHOD) PRODUCTS OF BALANCE METHOD:
An Account Current is a statement of mutual transactions between two parties
for a given period of time, and includes interest payable to or receivable from FORMAT FORMAT
the other party at an agreed rate. ….in Account Current with …For the period ……Rate of Interest = …% p.a. ….in Account Current with …For the period …Rate of Interest = …% p.a.

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These statements are mostly used for rendering accounts between -
Date Particulars Due Days Products. Amt Date Particulars Due Days Products. Amt
Supplier and Customer Date Date Particulars Dr. Cr. Dr. or Cr. Balance Days Dr. Product Cr.Product

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Date
Lender and Borrower
Broker and Client
Principal and Agent
Head Office and Branch

Steps in the preparation of Account Current
Co-venturers
Step 1: Provide three additional columns on each side of the ledger account – One
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Steps in the preparation of Account Current
Step 1: Provide three additional columns on each side of the ledger account –

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for Due date, second for Days and third for 'Products' One for 'Days', second for 'Dr. Product' and third for 'Cr. Products'
PARTIES IN ACCOUNT CURRENT Step 2: Calculate due date of each transaction and enter in due date column.

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An Account Current has two parties — one who renders the account and the Step 2: Calculate number of days from the date of one transaction to the date
Step 3: Calculate number of days from the due date of each transaction to the
other to whom the account is rendered. of next transaction and enter the number of days in 'Days' column.

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date of closing the account and enter the number of days in 'Days' column.

If X renders the account to Y, then in the books of X, the heading of the Step 4: Calculate the products by multiplying the amount of transaction by Step 3: Calculate the products by multiplying the balance by corresponding

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account is written as 'Y in Account Current with X'. corresponding number of days and enter the product in product column. number of days and enter the product of debit balance in 'Dr. Product Column'
and the credit balance in 'Cr. Product Column'.
Step 5: Calculate the balance of the product, enter such balance on the

B
METHODS OF PREPARATION ACCOUNT CURRENT appropriate side in the 'Product Column' and total up the Product Columns. Step 4: Calculate the total of 'Dr. Product Column' and 'Cr. Product Column'.
Step 6: Calculate the interest at the given rate of interest on the balance
Methods of Step 5: Calculate the interest on 'Total Dr. Product' and 'Total Cr. Product'
Account Current of the products for a single day.

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at the given rates of interest.
Step 7: Enter the interest on the appropriate side in the 'Amount Column'. This
entry is made on the side other than that on which the balance of product Step 6: Calculate the net interest (i.e. difference between the interest on

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Interest on Individual Product of Individual Product of Balance
Transaction Method Transaction Method Method 'Total Dr. Product' and interest on 'Total Cr. Product'.
appears if the number of days is calculated from the due date of transaction to

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the date of closing the account. Step 7: Enter the net interest payable to the customer as 'By Interest A/c'
Forward Method Epoque Method and the net interest receivable from the customer as 'To Interest A/c'

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Daily Products = Amount (Rs.) x Number of days
Monthly Products = Amount (Rs.) x Number of months
HINTS FOR CALCULATIONS OF NUMBER OF DAYS
INTEREST ON INDIVIDUAL TRANSACTION METHOD:

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Products Balance (Dr.) = Interest receivable dr. side amount column
FORMAT (Cr.) = Interest Payable cr. Side amount column If no specific date is mentioned as the date on which the payment is due,
…..in Account Current with …For the period …Rate of Interest = ….% p.a. the date of the transaction itself is to be presumed to be the due date.

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Daily Products 1
Date Particulars Due Days Int. Rs Date Particulars Due Days Int. Rs Interest = x x Rate of Interest In calculating the number of days, either the date of the transaction or
Date Date 100 365 the due date is excluded.

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Steps in the preparation of Account Current
Step 1: Provide three additional columns on each side of the ledger account
– One for Due date, second for Days and third for 'Interest'
Step 2: Calculate due date of each transaction and enter in due date column.
Step 3: Calculate number of days from the due date of each transaction to
the date of closing theaccountand enter the number of days in 'Days' column.
Step 4: Calculate the interest on a given rate of interest on the amount of
individual transaction for the number of days entered against that item in'Days
column' and enter the interest in 'Interest Column'.
Step 5: Calculate the balance of interest columns, enter such balance on the
appropriate side in the 'Interest Column' and total up the interest column.
Step 6: Enter the net interest on the appropriate side in the 'Amount Column'.
This entry is made on the side other than that on which the balance of interest
appears.
For Leap year, 366 days [1996, 2000, 2004 etc.] In case of opening balance, number of days are to be calculated including
both opening and closing dates.
Monthly Products 1
Interest = x x Rate of Interest For the purchase return transaction, take the same due date of related
100 12
purchase transaction. Similarly for the sale return transaction, take the
same due date of related sale transaction.
RED INK INTEREST (Module has Different Approach)
In case the due date of a bill falls after the date of closing the account, then no
interest is allowed for that. However, interest from the date of closing to such
due date is written in “Red-Ink” in the appropriate side of the 'Account current'.
This interest is called Red-Ink interest.
This Red Ink interest is treated as negative interest.
Forwards Method: Here numbers of days are calculated from the due date of
transaction to the date of closing the account.
Backward Method or Époque Method: Here numbers of days are calculated from
the opening date of the statement to the due date of transaction. www.cavidya.com
84218 84218 ,75887 75887
 ISSUE OF SHARES

Business Organisation Ownership Type Of Capital Liability Of Owners

Share Capital
Total Capital of a company is Dividend into a number of Small indivisible units of a fixed Amount and each such unit is called share
Sole Proprietership Proprietor Capital Unlimited
Partnership Partners Partners Capital Unlimited Share Capital
Company Share Holder Share Capital Limited to issue Prize
Of Shares Held
Authorised Share Capital Issued Share Capital Subscribed Share Capital Called up Share Capital Paid-up share capital Reserve share Capital
(Registered/Nominal)
Types Of Shares
Portion Of Share Part Of Issued Share portion of issue Prize of portion of Called up Portion of uncalled
Maximum Amount of capital issued by Capital Which Is shares which a company capital which is paid capital which a company
Preference share Equity Shares Capital that a company the Company Subscribed by the Public has demanded by the shareholders has decided to call only
-Cumulative Preference Shares. Do not enjoy any preferential rights Can raise Balance Amt is Called as in Case of liquidation
-Non-Cumulative Preference Shares. in payment of Dividend or repayment uncalled Capital
-Participating Preference Shares. of Capital Issued Capital + unissued Capital = Authorised Capital
-Non- Participating Preference Shares. Rate Of Dividend vary from
Paid up Capital + Calls in arrears is any Less Calls in Advance if any = Called Up Capital
-Redeemable Preference Shares. Year to Year
-Non-Redeemable Preference Shares. Reserve Capital Capital Reserve (Part of reserves & Surplus )
-Convertible Preference Shares.
-Non-Convertible Preference Shares. Joural entry Interest On Calls In Adv. (@12%) Interest On Calls In Arrears. (@10%)
Priority in payment of Dividend and (1) Recd.
payment of Capital 1.For interest Due 1. For Int. Recd. On Call-in- Arrears
Fixed Rate Of Dividend Cash / Bank Dr. XXX Int. on Calls-in-Adv A/c Dr. Shareholder’s A/c Dr.
To Eq. Application A/c XXX To shareholder’s A/c To Int. On Calls-in-arrears A/c
Shares Issued at (2) Due. 2.For Payment of Interest 2. For receipt of interest
Eq Share App. Dr. XXX Shareholder’s A/c Dr. Bank A/c Dr.
Discount Par Premium To Eq. SC A/c XXX To Bank A/c To Shareholders A/c
(3) Due.
Issue price is Less than the IP=FV Issue price is more Eq Share Allot. Dr. XXX Balance sheet
nominal or Par Value of Shares than the Face value To Eq. SC XXX Particulars Note No. Rs.
To security Premium XXX Equity & Liabilities Reissue
Issue of shares at discount shall (4) Recd. (1) Shareholder’s Fund
Case I
Premium amount is credited Share Capital 1 xx
be void except in the ase of issue C/B Dr. XXX SF=40 Reissue Price = 90 Fv 100
to a separate account called Reserve And Surplus 2 xx
of sweat equity shares (issued to To Eq. Share Allot XXX xx
“Securities premium Account” 1. Cash / Bank 90
employees and directors) (5) Due (2) Non Current Liab. xx Share Forfeiture 10
Eq. Share first call Dr. XXX (3) Current Liab. xx To SC 100
Issued At Premium Issued At Par Accounting Treatment of To Eq. SC. xx 2. Share Forfeiture 30
XXX
Securities premium Assets To Capital Reserve 30
FV = 100 IP = 120 FV = 100 IP = 100 Securities Premium is not a part of (6) Recd. (1) Non Current Assets xx
20 App. 20 App. share capital. It represents a gain C/B Dr. XXX
20 20 (2) Current Assets Case II
of Capital Nature to The Company
If nothing is
under the heading,“Reserves and To Eq. Share first Call XXX Cash & Cash Equipments xx
30 Allot. 50 said Premium 30 Allot. 30 xx SF=40 Reissue Prize = 130 Fv 100
Is included
in Allotment
Surplus”.However,'Reserves and (7) Due.
Surplus' is shown as 'shareholders 1.Cash / Bank 130
40 First 40 40 First 40 Eq. Share final Call Dr. XXX To SC 100
funds' in the Balance Sheet as per Notes To Accounts
Schedule III. To Eq. SC XXX Rs. Rs. To SP 30
10 Final 10 10 Final 10
(8) Recd. 1. Share capital 2. Share Forfeiture 40
C/B Dr. XXX Authorised SC xxx To Cap Rec. 40
Company Issue Shares (5,000)
To Eq. Share Final Call XXX Issued SC xxx
Subscribed SC xxx Case III
Application Allotment First Call Final Call
Called Up And Paid Up SC SF=40 Reissue Prize = 130
Forfeiture of Shares (...Eq. Sn. Of Each Rs. called Up) xxx
Fv 100 Paid Up Value = 70
(5,000) (48,000) (59,000) Less :- Calls Unpaid (xxx)
Under Subscription Cancellation of shares because of non-Paymentof amount due
Full Subscription Over Subscription Add :- Forfeited Share xxx 1. Cash/ bank 50
is Called share Forfeiture
Bank 50,000 Bank 48,000 Bank 59,000 2. Reserve And Surplus Sh. Forfeiture 20
Entry
To Share App. 50,000 To Share App. 48,000 To Share App. 59,000 Securities Premium xxx To Share Capital 70
Share Capital (Called Up Value)
Capital Reserve xxx 2. Sh. Forfeiture 20
Share App. 50,000 Share App. 48,000 Share App. 59,000 Securities Prem. (not Received)
To Cr. 20
To Share Cap. 50,000 To Share Cap. 48,000 To Share Cap. 50,000 To Share Forfeiture (amt Recd. (-) Sp If any received)
Calls In advance (Int. @ 12% PA) Case IV
To Share Allot. (Adjusted With Allot.) To calls in Arrears
1. Eq. Sh. Allotment 5L SF=40 Reissue Prize = 130
(minimum 90% To Share 1st and (Adjusted With
To Eq. SC 5L
subscription final Call Call.) Fv 100 Paid Up Value = 70
To Bank A/c (Refunded) Calls In Arrears (Int. @ 10% PA) 2. Bank A/c (5L + 20k) 520k
otherwise refund) To Eq. Sh allot 5L
1. Cash / Bank 90
1. Eq. Sh. Allotment 5L To Calls In Advance 20K
To Eq. SC 5L
To SC 70
3.Eq. Sh. Final Call 6L
Short Cut To SP 20
2. Bank 4,90,000 To Eq 5L 6L
2. SF 40
(1) Eq. SC. A/c - Allot. x FV (2) Eq. Sh. App. - Applied x IP
Calls In Arrears 10,000 4.Bank A/c 580k
(3) Eq. Sh. Allot. - Allot. x IP (4) Eq. Sh. Last Call - Allot. x IP To Cap. Res. 40
Calls In Adv 20K
(5) Eq. Sh. Final Call - Allot. x IP To Eq. Sh. Call 5L
To Eq. Sh. Final Call 6L
 PARTNERSHIP
Accounting of Goodwill RETIREMENT OF PARTNER CONCEPT OF MINIMUM GUARANTEE FOR ALLOWING INTEREST ON CAPITAL
Goodwill Brought in cash Special Point -: Profit and Loss Appropriation Account Dr.
Cash / Bank A/c Dr. minimum guarantee given
1 Where will be Balance of retiring To (Individual) Capital (or Current) Accounts of Partners
To Sacrificing Partners Capital A/c by A Rs. 100000
Partner will be transferred –
Goodwill is given Personally to partners A B C Net loss and Interest on Capital
Balance of retiring partner will
No Entry
be transferred to Loan A/c or paid 3 : 2 : 1 Subject to contract between the partners,
Goodwill is not brought in cash
a Loan – Case 1 – interest on capitals is to be provided
Gaining Partners capital A/c Dr.
Retiring Partner's Capital A/c Dr. Profit Rs. 500000 out of profits only. Thus in case of loss,
To Sacrificing Partners Capital A/c
To Partner Loan A/c no interest is provided. But in case of
b Paid - A B C insufficient profits (i.e. net profit less
Common Adjustment Retiring partner's Capital A/c Dr. 2,50,000 1,66,667 85,333 than the amount of interest on capital),
To Cash/ bank A/c (-) 16,667 B (+) 16,667 the amount of profit is distributed in the
Journal Entries
2,33,333 1,00,000 ratio of capital as partners get profit by
Revaluation of Assets & Liabilities
2 Joint Life Policy A C way of interest on capital only.
Assets ( ) Assets A/c Dr. guarantee given by A
Accounting of JLP
To Revaluation A/c Case 2 –
Premium is charged to P&L A/c Profits Rs. 7,20,000
Assets ( ) Revaluation A/c Dr. [ JLP does not appear in B/s ] Interest on Drawing
To Assets A/c
JLP Premium A/c Dr. ( Exp ) 3,60,000 2,40,000 1,20,000 Calculation of Interest on Drawings: Total Drawings x
Liabilities ( ) Revaluation A/c Dr.
To Cash Bank A/c C will get Rs. 1,00,000 or his share of Interest Rate x Multiplication Factor
To Liability A/c (a)Fixed Amount is drawn:
Profit whichever is more
Liabilities ( ) Liability A/c Dr.
To Revaluation A/c P&L A/c Dr. Case 3 – Time of Multiplication Time of Multiplication
drawings Factor drawings Factor
Profits on Revaluation To JLP premium A/c Loss Rs. 1,80,000
Revaluation A/c Dr. IN OLD Beginning of Beginning of
PSR 6.5/12 7.5/12
To old partners Capital A/c Death Alive every month each quarter
(90,000) (60,000) (90,000)
Revaluation Loss
[Sum Assured] [ Surrendered Value ] (-) (1,80,000) (+) 1,80,000
Old Partners Capital A/c Dr. Middle of Middle of
IN OLD
PSR 2,70,000 60,000 1,00,000 every month 6/12 each quarter 6/12
To Revaluation A/c Cash / Bank Dr. Cash / bank Dr.
A B C
New partner introduced Capital To JLP A/c To JLP A/c End of End of each
every month 5.5/12 4.5/12
Cash / Bank A/c Dr. quarter
To Capital A/c JLP A/c Dr. JLP A/c Dr. Hidden Goodwill
Goodwill Withdrawn by Partners To old Partners To old partners Firm's Capital xxx Note: Where the date of drawings not given then interest
Withdrawing Partner's Capital A/c Dr. in Old PSR in old PSR (-) All partners Capital
on drawing is always calculated for 6 months /multiplication
factor will be 6/12
To Cash / Bank A/c JLP is maintained at surrendered Value – [ appears in B/S ] A xxx (a)Different amount is withdrawn at various dates:
Accumulated Profits / Reserve's / Surplus B xxx use product method For charging interest on drawings
Balance sheet
Accumulated Reserve/Surplus A/c Dr. C xxx xxx (Individual) Capital (or Current) Accounts of Partners Dr.
To Partners Capital A/c (Old PSR) JLP xxx To Profit and Loss Appropriation Account
(-) Expenses & surplus xxx
Accumulated Losses Surrendered value
Hidden Goodwill xxx
Partners Capital A/c Dr. Only surplus will be distributed to old Partners in old PSR
To Accumulated Losses A/c (Old PSR)
Unrecorded Liability to be recorded DEATH OF A PARTNER JLP Does not appear in B/S
Re valuation A/c Dr.
To liability A/c Joint Life policy A Live – surrendered value
Unrecorded Assets to be recorded 1] Cash / Bank A/c Dr.
Assets A/c Dr. JLP (Single policy ) Joint & several To old Partners in Old PSE
To revaluation A/c A & B policy surrender 2] Gaining partner Dr.
A B C A B C nahi karenge To Sacrificing Partner
Assets Taken Over By Partner
Partners Capital A/c Dr. Joint policy
Policy 1 Policy 2 Policy 3 A & B total surrender [ change ho sakti hai ]
( Profit / Loss Sum assured + Surrendered value will be given to
To Assets A/c
go to Premium is paid by firm value of alive Partners
Liability Taken Over by Partners 'C's Legal Hire is PSR Death matured JLP
Revaluation Premium is paid by firm
Liability A/c Dr. Sum assured Sum Assured
A/c ) Example
To partners capital A/c 1] Cash / Bank A/c Dr.
Died
A B C To JLP A/c
Gaining Ration 50,000 50,000 50,000 [Sum Assured] 2] JLP A/c Dr. When policy
20,000 20,000 20,000 [surrendered value] To old Partners in old PSR is not
Difference between new profit sharing ratio [C Ka sum assured + A & B Kii Surrendered value Ka share ] Appears in Balance sheet
and old profit sharing ratio surrendered
Only credit profit to partners
 GUARANTEE OF MINIMUM PROFIT

However, if share of the partner is less than

the guaranteed amount, he takes minimum
profit and the excess of guaranteed share of profit
over the actual share is borne by the remaining
partners as per the agreement.

There are three possibilities as far as share of

deficiency by other partners is concerned. These are
as follows:
•Excess is payable by one of the remaining partners.
•Excess is payable by at least two or all the partners in an
agreed ratio.
•Excess is payable by remaining partners in their mutual
profit sharing ratio.

If the question is silent about the nature of guarantee,

the burden of guarantee is borne by the remaining partners
in their mutual profit sharing ratio.

CAPITAL RATIO
Partners may agree to share profits and losses in the capital ratio.
Capital Ratio

If capitals are fluctuating

and partners introduce or
If capitals are fixed
withdraw capitals during the
withdraw capitals during the

the capitals for the purpose

of ratio would be determined
profits will be shared in the
with reference to time on the
ratio of given capitals
basis ofweighted average
method
 ISSUE OF DEBENTURE

REDEEMABLE @ PREMIUM
Issued @ Par @ Deb = 100 Face Value = 100
Example - why Company redeme debentures @ premium?

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BATA
Redeemable Redeemable Debenture of Rs. 10,000 @ 6%

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@ Par ( 100 ) @ Premium (110) Redeemable after 6 years
Company
Shivam Baydi
C/B A/c Dr. (100) C/B A/c Dr. ( 100 ) ga
emange With Shivam’s
To 10% Deb. A/c (100) Loss on Issue A/c Dr. (10) is pais money company
Wap

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To 10% Deb A/c (100) Accident ho gaya
purchased
To Pemiumon Redumption A/c ( 10 )

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Factory

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Issued @ Premium @ Deb 110 Face Value=100 6% 6% 6% 6% 6% 6%

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Rs. 10,000 600 600 600 600 600 Rs. 12,500
Loan Matarity

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Redeemable Redeemable Date
Rs. 10,000 hi wapis milenge Redeemable
@ Par ( 100 ) @ Premium (120)
@ Premium

B
C/B A/c Dr. (110) C/B A/c Dr. 110
To 10% Deb A/c (100) Loss on Issue A/c Dr. (20)
To SP A/c (10) To 10% Deb A/c (100)
Collateral Security

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To SP A/c (10)
To Premium on redemptions (20)

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security = Land & Building
ICICI TATA

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Issued @ Discount @ Deb=95 Face Value=100
Loan

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Redeemable Redeemable ICICI Company
Collateral Security
Bank

A
@ Par ( Rs.100) @ Premium (120)
C/B A/c Dr.
Debentures
C/B A/c Dr. (95) C/B A/c Dr. (95) To Loan From ICICI bank
Disc. A/c Dr. (05) Disc . A/c Dr. (05)

A
Debentures tabhi active honge jabhi
To 10 % Deb A/c (100) Loss on issue A/c Dr. (20)
company fails to pay amount of loan
To 10% Deb . A/c (100)

C
To Premium on redemption (20) Once the debentures are activated all
the compliances should be followed
Money

9% Treatment of collateral security

Company
Debentures Issue Option 1 – company Option 2 – Journal
Also Known As Bond balance sheet entry karo
No entry
Dept Acknowledge under Balance sheet [Extract] Debenture Suspense A/c Dr. (B/s – non
the seal of the company Loan xxx To debentures A/c current
Debenture = Loan (Secured by [B/s (L)] assets)
collateral security
Issued Issued Issued
@ Par @ Premium Debentures )
@ discount

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 RECTIFICATION OF ERROR

Types Of Errors INTRA CATEGORY

Special Case
Points to be remember
Error of Error of Error of Compensating

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- Enter / recorded
Ommission principle commission error Rectification error before Rectification of error after Rectification of errors when
- Dr. Dr.
preparing Trial balance errors are rectified in next year

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Preparing Trial balance
- Cr. Cr.
Accountant is not Books ki adla One error Example
Entry karna
Aware about badli & wrong compensate Rectification should be Rectification should be
bhul gaye All nominal Accounts included In
the principle of amount ETC. another error Purchase book sales return book done in respective Done with preparing rectification entry replaced with

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( No entry in accounting (Does Not affect
the book ) Ledgers A/c Suspense A/c profit & loss Adjustment A/c
Eg. Capital Receipt Trial balance) Dr. Dr.
(all items which directly hit to

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treated Purchase goods from Vinay Was
as revenue receipt recorded in sales Return book Rs. 4000 trading / P&L A/c should be
No use of
replaced )

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Purchase A/c Dr. 4000
Suspense A/c
Costing Error (total main gadbad ) To Sales Return A/c 4000

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Balance of Suspense A/c as well as profit &
Under casting Over casting
Loss Adjustment Account transferred to

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INTER CATEGORY
Purchase book Purchase A/c Dr. Suspense A/c Dr. capital A/c Because P&L Adjustment Account
To Suspense A/c To Purchase A/c Points to be remember directly affects Capital A/c

B
- Enter / Recorded
Sales book Suspense A/c Dr. Sales A/c Dr.
- Dr. Cr. Errors
To sales A/c To Suspense A/c
- Cr. Dr.

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Sales Return book Sales Return A/c Dr. Suspense A/c Dr. Example Errors that effect Errors that don’t
To Suspense A/c To Sales return A/c trial Balance effect trial Balance

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Purchase book sales book
Purchase return book Suspense A/c Dr. Purchase return A/c Dr. Errors of Calculation Errors of omission

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Dr. Cr. Errors of omission of one Errors of commission
To Purchase return A/c To Suspense A/c
Purchase goods from Rani was entry Errors of principle

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recorded in sales book ( amt Rs. 5000) Posting to the wrong side of Complete reversal of entries
an account Compensating errors
Purchase A/c Dr. 5000
POSTED DEBITED CREDITED sales A/c Dr. 5000 Errors in amount Errors of original entry

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Rectification should be done by – To Rani A/c 10,000
Wrong Entry Correct Entry Rectification Entry Note –: whenever Debit become credit
& credit becomes debit effect is added.

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Correction of Errors

C
Suspense Account Committed & discovered in the Prior period errors
Current year Committed earlier but discovered in the current year
A Suspense Account is an account in which the amount of difference in the trial balance
is put till such time that errors are located and rectified. Includes both types of errors that can be or cannot be
Includes both types of errors that
can or cannot be highlighted By highlighted by extraction of a trial balance
Suggestion •Before rectification suspense has credit balance. extraction of a trial balance
Definetly refer •After rectification suspense has debit balance Errors relating to Errors relating to period
the prior period(s) before the earliest
exam problems Impact on P & L A/c Rectify immediately in
reported prior period(s) reported
the current year
and Master
Table in text book After Reconciliation Before Reconciliation Adjust the effect of error
Restate the FS of the in the opening balance
Profit prior period(s) of assets, liabilities
Increase Decrease reported & equity of the earliest
prior period reported
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 BANK RECONCILIATION STATEMENT

The Statement Which reconciles the Bankbalance as per cash book with REVISE BEFORE EXAM PURPOSE OF BRS
the balance as per Pass Book by showing all the causes of difference

Bal as per CB - Given

CAUSES OF DIFFERENCE Maintain up-to-
check the accuracy find Timing

a
Timing: Transactions are recorded at two different times in the cash (1) of the total cheque amounting to Rs. 11,514drawn in the last week find mistakes date record for
of account difference company
book and pass book of Dec 2019, cheque of Rs. 7815 were encashed in Dec.

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Ans -:
Transaction: Bank Carries Out various Transaction by itself without
Add -:3699
intimating the customer
(2) Instruction For Payment given to the Bank on 31st Dec 2020 but Assess whether Assess whether difference in Helps in obtaining
Errors: Errors made in preparing the Accounts either by Bank on by the same effected by Bank on 1st Jan 2021 transactions actually Amounts or nature of balance due to quick records for
the customer entered by the entity entries are correct time factor company
Ans -:

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Add -: 4000
RECTIFICATION OF ERRORS IS DONE BEFORE PREPAIRING
(3) Bank Credited cheque of Rs. 2000 in savings A/c of proprietor

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BRS
instead of crediting in current A/c Amount means exact Cheques deposited on
CB PB 1.Left Hand= Pass Book Ans -: figure and 28-03-2006but

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(1) Cheque Deposited 1 2 Right Hand = Cash Book Less -: 2000 nature means cleared on
(2) Cheque issued 1 2 2. Make Both Hands Equal receipt or issue 02-04-2006
(4) 500 disc Recd. Wrongly entered in Bank Column of CB.

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3. Move any Hand As per
(3) Direct Diposit 2 1 Ans -:
Transaction
(4) Cheque Dishonoured 2 1 4. Freeze the Hand for which Add -: 500

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(5) Standing Instruction 2 1 bal is not Known
(6) Bank Charges 2 1 5. If Other Hand Goes
Up +
(7) Interest Received 2 1 CASH BOOK SHOW BANK O/D

B
Down -

Bal as Per CB 10,000 Old as Per PB 2,000 (1) Cheque deposited in his another A/c Rs. 1550 Wrongly Credited to
+- +- this Account By Bank
+- +-

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Bal as Per PB 12,000 Old as Per PB 3,000 Ans -:
Less -: 1550
Bal as Per CB 10,000 Old as Per PB 2,000

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+- (2) Cheque drawn on this A/c Wrongly Dr. to another A/c By Bank
+-
+- +- Rs. 800
Bal as Per PB (-)3,000

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Old as Per PB (-) 12,000 Ans -:
Less -: 800
If You Start With Old (3) Debit of Rs. 3500 Appearing in bank statement for an unpaid cheque

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Cr. bal as per CB xx {Opposite} returned for being out of date had been redated
Dr. bal as per PB xx
Ans -:

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Add -: 3500
Transaction recorded in PB and correct Record in CB (4) Customer Received Cash Disc. 4% on Rs. 1,00,000 The Cashier
(1) Direct Deposit entered Gross Amount in bank column
(2) Bank Charges

A
Ans -:
(3) Payment As per Standing instructions Add -: 4,000
(4) Int. credited y Bank

C
Transaction recorded in PB and Wrong do not Record in CB
Show in BRS
Transaction recorded in CB and not Record in PB
Show in BRS
Transaction recorded in CB and Wrong
Rectify In CB

CB Dr. Side [R] Cr. Side [P]

R B P B
R B P B
PB Cr. Side [R] Dr. Side [P]
Cr. Bal. Dr. B
Cr. Bal. B
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 AVERAGE DUE DATE

MEANING
WHERE AMOUNT IS LENT IN ONE INSTALMENT AND
Average due date is a mean date on which
a single amount can be paid
REPAYMENT IS DONE IN VARIOUS INSTALMENT
in lieu of several payments on different dates
without any loss of interest to either party. Step 1: Calculate number of days/monthly/years from the date of
lending money to the date of each repayment
MONTHS AND NO OF DAYS Step 2: Find the total of such days/months/years

Month No. of Days Step 3: Average Due Date

January 31 =Date of loan
February 28/29 Sum of days/months/Years from the date of lending to the
March 31 date of repayment of each instalment
+-
April 30 Number of instalments
May 31
June 30
July 31
AMOUNTS ARE RECEIVABLE AS WELL AS
August 31
September 30 PAYABLE ON DIFFERENT DATES
October 31
November 30 Receivable
December 31
Total 365/366
Step 1: Select the first due date as the base date.
Step 2: Calculate the number of days from the base date.
Step 3: Multiply the amounts by the number of days (calculated above)
CALCULATION OF DUE DATES
Payables
Date of Date of Payable Date of Step 4: Take the same due date (as above) as the base date.
drawings Acceptance Maturity
1 month after date 03.03.1999
Step 5: Calculate the number of days from the base date.
31.01.1999 02.02.1999
29.01.1999 03.02.1999 30 Days after date 03.03.1999
Step 6: Multiply the amounts by the number of days (calculated above).
29.01.1999 02.02.1999 2 Months after date 01.04.1999 Step 7: Now, add both amounts and products of Receivable and Payable column separate evately
12.07.1999 14.07.1999 1 Months after date 14.08.1999 Step 8: Find out the balance of amounts and balance of Products column.
3 Months after date 30.09.1999
27.06.1999 28.06.1999 Step 9: Divide ‘the balance of the product’ by’ the Balance of the amount
28.09.1999 01.10.1999 2 Months after sight 04.12.1999
23.12.1999 24.12.1999 1 Month 25.01.2000 Step 10:
Balance of product
15th August is Public Holiday Average Due Date = Base Date +-
Since 26th Jan is Public Holiday Balance of Amount

AMOUNT IS LENT IN VARIOUS INSTALMENTS APPLICATION TO PARTNERSHIP

Assume any of the due dates as a base date
(also called as" Zero date" or" Start date”). Interest on Drawing
Calculate the number of days from the base date Calculate the average due date in the usual manner.
to the due date of each transaction
Calculate Interest
from begen of Find out the difference between the average due date
Multiply the number of days so calculated by the
corresponding amount of transaction. The resultant loan date to (as computed above) and the date of closing the books
figure is called 'Products'.
Average Due Date of account.
Sum up the amount and product columns.
Divide the total of product by the total of amount.
Calculate interest by applying the following formula:
The result is the number of days
Total Product Days Interest = Number of months from ADD to YE9Year End) x Rate of Interest x Amount
Average Due Date = Base Date +- 12
Total Amount
 FINANCIAL STATEMENTS OF NON PROFIT ORGANISATION
FINAL ACCOUNTS NPO FUNDS ACCOUNTING – JOURNAL ENTRIES
1. P & L A/c 1.Income & Expenditure A/c
2. Balance sheet 2. Balance sheet / statement of Affairs
NPO 1. Fund Received :-
Cash /Bank A/c Dr. xxx
3. Capital 3. Accumalated fund / Capital Fund To fund A/c xxx

a
4. Profit 4.Surplus
5. Loss 5.Deficit Museum Rotary club Ajmer dargah sharif University 2. Fund converted into Investment -:
Taj mahal Lions club Dagadushet Halwai Ganpati College Investment A/c Dr. xxx

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6. Cash Bool 6. Receipt & Payment A/c
To Cash / Bank A/c xxx
Maratha chembur Tirupati Tirumala School
ACCOUNTS BOLE TO ENTRY 3. Interest rec. on Fund Investment -:
of commers
Subscription ( Income ) -: Cash / Bank A/c Dr. xxx
Trade unions
To Interest on Investment xxx
1 Subscription Received -:

a
Cash / Bank A/c Dr. xxx 4. Interest on Investment Transferred to Fund A/c - :
To Subscription A/c xxx Fees Subscription Donation Fees Interest on Investment A/c Dr. xxx

g
2 Subscription receivable -: To Fund A/c xxx

Subscription Receivable A/c Dr. xxx 5. Funds Used-: eg. Prises given from Prize Fund

n
Income source
To Subscription A/c xxx Fund A/c (Expenses) Dr. xxx
To Cash A/c/ Bank A/c xxx

a
3 Subscription received -in- advance :-
Subscription A/c Dr. xxx Expenses A/c Income A/c Entrance Fees – Kai salo ki income hai
To Subscription Rec. in Adv. A/c xxx

h
To Income By rec. in Entries
STOCK CREDITORS To Prepaid Exp. (op) xxx By O/s Exp. (OP) xxx Receivable (op) xxx Adv. (op) xxx Cash / bank A/c Dr. xxx

B
Stock consumed :- To Cash Bank A/c xxx By I&E A/c To Income and By Cash / Bank To Entrance Fees A/c xxx
xxx
Opening stock xxx O.P B/s -A To O/s exp (C.l) xxx By Prepaid Exp. (c.l) xxx Expenditure A/c xxx A/c xxx Depends on problem
(+) Purchases xxx To Income Rec. By Income
xxx xxx
Entrance fees A/c Dr. xxx

d
(-) Closing Stock xxx (Cl. B/s – A) in Adv. (C.l) xxx receivable (c.l) xxx
To income and expenditure A/c xxx
xxx xxx
Consumed xxx (I&E A/c Dr.) To Capital Fund A/c xxx

n
Receipts & Payment A/c -: Income and expenditure A/c -: BALANCE SHEET / STATEMENT OF AFFAIRS -:

a
In the books of In the books of
Receipts & payments A/c For the year Ended Income and expenditure A/c for the year end Statement of affairs /balance sheet as on .................

n
Receipts Rs. Payments Rs. Expenditure Rs. Income Rs. Liabilities Rs. Assets Rs.
To Balance b/d By salaries xxx To salaries xxx By subscription xxx Creditors xxx Cash xxx

A
-Cash xxx To insurance xxx By Entrance fees xxx Outstanding expenses xxx Bank xxx
- Bank xxx To rates and taxes xxx By interest Advance subscription xxx Accrued Subscription xxx
xxx
To subscription received xxx By insurance xxx Prepaid expenses xxx
To honorarium xxx By donation xxx Donation for building fund xxx

A
To membership Fees xxx By rates & taxes xxx
To postage and telegram xxx By profit from Sale of assets xxx Prize fund -: Fixed assets -:
To entrance Fees / By postage and telegram xxx
To printing and By profit from sale of (+) Receipt (-) Sale

C
Admission Fees xxx
stationary xxx refreshment xxx (+) Interest (+) Purchases
To Life membership fees xxx By Printing and stationary xxx
To internet xxx By purchase of fixed assets xxx To newspaper and By profit from sale of old (-) Expenses xxx (-) Depreciation xxx
To donation xxx By newspaper and periodicals xxx periodicals xxx news paper xxx Capital fund Investment xxx
To donation for building By payment for purchase To general exp. xxx By sale of sport material xxx (+) surplus Prize fund investment xxx
fund xxx of food stock xxx To sport material xxx By excess of expenditure (-) deficit
To receipts for Prize fund xxx By general exp. xxx over income ( deficit) xxx (+) Life membership fees
To Interest on prize By sport material xxx xxx
To loss on sale of assets (+) legacies
Fund investment xxx
By prizes awarded To depreciation on (+) Donation xxx
To sale of refreshments xxx xxx
To sale of old news paper xxx By balance c/d fixed assets xxx Stock xxx
-Cash xxx To excess of income xxx xxx
-Bank xxx over expenses (surplus ) xxx
To sale sport material xxx xxx xxx
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 TREATMENT OF SPECIAL ITEMS

Donation Legacy Entrance or Admission Fee Life Membership Fee Special Fund Endowment Fund Grants

Special Purpose General Balance Sheet 1) Capital receipt Balance 1) Created for any specific purpose,
Donation Donation Liability Side sheet Liability Side Special purpose - Capital Receipt
treated like special funds general Purpose - General Receipt
2) Small Amount Can be Shown 2) Credited for general purpose ,
as Income & Exp. A/c income from investments made
1) Income & Exp. A/c
2) If amount of Donation is Against such fund , credited to
Large - Liability Side of B/s Income & Expenditure Account
1) Credited to “ life
Membership Fee A/c”
Normal Annual Subscription
2) Liability Side of transferred to credit of
Received for Received for Balance Sheet income & Exp. Account &
Capital expenditure onetime revenue 3)In A Case of Death of Balance is Shown in Liability
Expenses member his subscription Side of Balance Sheet
will be transferred to
Liability Side of accumulated fund Account
Balance Sheet Expenses incurred Expenses not
in current incurred in current
1) Amt. Recd - Credited to fund A/c
financial year financial year
2) Amt Expended - Debited to fund A/c
3) If Fund Amt. invested in securities
Income & Exp. A/c Liability Side of 4) Income on - Credited to fund A/c
Balance Sheet 5) Closing Bal. of Fund - Liability side of B/s
6) Investment - Assets Side of Balance Sheet
 INVENTORY
Definition :
Inventories are assets
INVENTORY VALUATION HISTORICAL COST METHODS
Held for sale in the ordinary Course of business
Homogeneous Heterogeneous Valuation
Used in the process of production for such sale
Used in the from of materials or supplies to be consumed in the Ex. Laptop, camera, Ex. Gold Jewellery Specific Identification
It attributes specific costs to identified goods

a
production process or in the rendering of services Pen drive .etc , furniture. Method

Cost of Goods sold ·FIFO ·Adjusted selling price method

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· LIFO ·Specific identification Method The FIFO formula assumes that the items of inventories which were purchased or
Opening inventory xx
·Average price FIFO (First in produced first are consumed or sold first and consequently items remaining in the
Add : Purchases xx
·WAC , etc . Adjusted selling method first out) Method inventory at the end of the period are those most recently purchased or produced.
Add :Direct Expenses xx
Cost of Purchase Thus, the closing inventory is valued at the price paid for latest consignments.
Less : Closing inventory xx

a
Purchases Goods from supplier xx
Cost of Sales xx (Less) Trade discount xx goods issued are valued at the price paid for the latest lot of goods on hand which
LIFO (Last in means inventory of goods in hand is valued at price paid for the earlier lot of
Add) transport & package xx

g
first out) Method Goods.
Types of Inventory Cost of Purchase xx
The price paid for the earliest consignments is used for valuing closing inventory.

n
Calculation of GP
In Case of In Case of Sales xx In Simple Average Price method, all the different prices are added together and
Manufacturing Trading Simple Average
Concerns Concerns
(+) closing stock at sp xx then divided by the number of prices.

a
A xx Price Method
The closing inventory is then valued according to the price ascertained.
(-) Op Stock xx
Traded Goods (-) Purchases xx

h
Weighted average price per unit =
B xx
Raw Work in Finished Stores & Packing GP (A – B) xx Total cost of goods available for sale during that period
Spares Weighted Average
material Progress Goods Material Total number of units available for sale during that period

B
GP Rate = (GP / A) x 100 Price Method
Closing inventory = No. of units in inventory × Weighted average price per unit
THE SIGNIFICANCE OF INVENTORY VALUATION Closing Stock at Cost Cost of goods sold = No. of units sold ×Weighted average price per unit.
Closing stock at SP - GP rate

d
Determination of Income
Ascertainment of Financial position

n
Liquidity Analysis INVENTORY RECORD SYSTEM
Statutory Compliance

a
Periodic Inventory System
Inventory is valued At cost or NRV whichever is lower opening Closing
Purchase Inventory Cost of

n
inventory -
Cost of Inventories (Known)
+ (Known) (Physically = goods sold.
NRV
Counted )
Perpetual inventory system

A
Selling price in ordinary
Manufactured Purchased for sale in
Course of business xx Closing
/ Produced ordinary course of business (Less) Cost to complete opening Cost of
Purchases Stock
Will study Purchases xx
the product xx inventory + (known) - goods sold = (balancing
(Less) Selling Expenses xx (Known) (Known)

A
in inter (Less) Trade discount xx figure)
xx
(Add) Non- refundable cost xx GP rate will not apply on
(Add) Transportation xx abnormal item

C
xx RETAIL INVENTORY METHOD
OR ADJUST SELLING PRIZE METHOD
Following Cost will not be added
Abnormal Cost The cost of the Inventory is determined by reducing
Selling Cost from the sales Value of the inventory an appropriate
Administrative Cost
percentage of Gross Margin
Borrowing Costs
Storage Cost
Carriage outward

NET REALISABLE VALUE When physical inventory

taken before or after
In Case of replacement cost is generally considered as net realisable
Raw Material value.
In case Net realisable value mean expenses and overheads required Before After
of work to be incurred to convert work in progress into finished goods
in progress (+) Purchases xx (-) Purchases xx
and making it ready for sale as reduced from selling price.
(-) Purchase return xx (+) Purchase return xx
In case of (-) Sales @ Cost xx (+) Sales xx
Net realisable value means selling price reduced by selling (+) Sales return @ Cost xx (-) Sales return xx
finished goods www.cavidya.com
and distribution expenses.
and traded goods
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 CONCEPT AND ACCOUNTING OF DEPRECIATION
Depreciation is the systematic allocation of the depreciable Amount of an asset over its useful life

Factors Affecting Depreciation COST OF FIXED ASSETS

Revaluation
Purchase price xx
Increase Decrease
life Cost Residual Value

a
ADD installation exp. xx
Credited directly to Exception: When it Charged to the Exception: When it Carriage xx
Residual Value refers to Statement of is subsequent Decrease

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owners' interests under is subsequent Increase
The period over which a estimated net realisable value the heading of (Initially Decrease) profit and loss (Initially Increase) All taxes xx
depreciable asset is expected of an asset at the end of its Revaluation surplus Trial run cost xx
to be used by the enterprise useful life. it is also called scrap Decrease should be debited directly Less Refundable Taxes xx
Value or Salvage Value Recognised in the Statement of to owners' interests under the heading

a
Profit and loss to the extent that of Revaluation surplus to the extent of Trade Discount xx
it reverses a revaluation decrease any credit balance existing in the
Cost - Scrap Value Cost of fixed Assets xx
Depreciation = of the same asset previously recognised Revaluation surplus in respect of that

g
Estimated Useful Life in the Statement of profit and loss asset
WDV METHOD

n
Methods of Providing Depreciation CHANGE IN THE METHOD OF DEPRECIATION Depreciation is charged on the book value of
the assets each year. Thus, the amount of

a
The depreciation method applied to an asset should be reviewed, depreciation decreases every year
Uniform Charge method Declining Charge method at least at each financial year-end and,

h
if there has been a significant change, Diminishing Balance Depreciation Rate

Fixed Installment Method Diminishing balance method in the expected pattern of consumption of the future economic benefits embodied in the asset, Residual Value
= 1 -n x 100
the method should be changed to reflect the changed pattern. Cost of Assets

B
Production unit method Sum of years digits method
Depletion method Whenever any change in depreciation method is made such change in method is treated as change in R
1
Machine hour rate method accounting estimate as per Accounting Standards. C
Its effect needs to be quantified and disclosed. 2 12 Times

d
3 3-1
FIXED INSTALMENT METHOD DEPLETION METHOD 4 +1

n
According to this method, an equal amount is written off every year during the Cost of assets – Scrap Value 5 x 1 = 1 (12 Times)
Dep = x Quantity taken during year
working life on an asset so as to reduce the cost of the asset to nil or its

a
Total expected output (where, n = Useful Life)
residual value at the end of its useful life Written Down Value ( WDV )
Cost of assets – Scrap value MACHINE HOUR METHOD

n
Annual dep. = = Cost - Accumulated Depreciation
Useful Life
cost of assets – Scrap Value Annual Depreciation =
Depreciable amt Dep = x Hr in current year
Depreciation = x cost x Rate Life of the assets in hr Written Down Value ( WDV ) x

A
useful life Diminishing Balance Depreciation rate
Depreciable Amt = Cost – Scrap value REVISION OF THE ESTIMATED USEFUL LIFE
OF PROPERTY, PLANT AND EQUIPMENT

A
Rate Base = Calculated per Annual EXAMPLE:
straight line dep x 100 Whenever there is a revision in the estimated useful life of the asset,
Straight line dep rate = A machine of cost R12,00,000 is depreciated straight-

C
Cost of assets
the unamortised depreciable amount line having useful life of 10 years and zero residual value
Book Value or WDV = cost – Accumulated dep.
for three years. At the end of third year, the machine
should be charged over the was revalued upwards by R60,000 the remaining useful
SUM OF DIGIT YEAR METHOD
life was reassessed at 9 years. In this case, Depreciation
revised remaining estimated useful life of the asset.
per year charged for three years
Remaining life of the assets (including Current year)
Depreciation = x Original Cost = R12,00,000 / 10 = R1,20,000
Sum of All the digits of the life of the assets in year PROFIT OR LOSS ON THE SALE /DISPOSAL OF PROPERTY, WDV of the machine at the end of third year
PLANT AND EQUIPMENT = R12,00,000 – R1,20,000 × 3 = R8,40,000.
Cost of assets – Scrap Value
Dep. Amt. = Depreciable amount after revaluation =
Useful Life
Whenever any depreciable asset is sold during the year, depreciation is charged on it for the period R8,40,000 + R60,000 = R9,00,000
Dep. Amt. it has
Dep. rate = x 100 Remaining useful life as per previous estimate = 7 years
Cost of Assets
been used in the sale year. Remaining useful life as per revised estimate

The written down value after charging such depreciation is used for calculating the profit or loss on = 9 years
PRODUCT UNIT METHOD
the sale of that asset. Depreciation for the fourth year onwards =
Actual production during the period
Depreciation for period =Depreciable Amount x R9,00,000 / 9 = R1,00,000. www.cavidya.com
The resulting profit or loss on sale of the asset is ultimately transferred to profit and loss account.
Estimated total production
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 EXAMPLES OF DIRECTLY ATTRIBUTABLE COSTS ARE

cost of employee benefits cost of testing whether the asset is

professional fees e.g.
arising directly from functioning properly, after deducting
Directly Attributable cost of site initial delivery installation and engineers hired for
acquisition or construction the net proceeds from selling the

a
cost include preparation and handling costs assembly costs helping in installation
of an item of property, items produced while testing (such as
of a machine
plant and equipment. samples produced while testing)

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COST OF PROPERTY, PLANT AND EQUIPMENT FACTORS AFFECTING THE AMOUNT OF DEPRECIATION

Estimated life of asset

a
(a) its purchase price, including (b) any cost directly attributable to bring the C) the initial estimate of the costs of
non-refundable import duties and asset to the location and condition necessary dismantling, removing, the item and
purchase taxes, after deducting for it to be capable of operating in a manner restoring the site on which an asset Cost of Property, Plant and Equipment Cost of the asset

g
trade discounts and rebates. intended by the enterprise. is located. Residual value of the asset at the end of the of its estimated useful life

n
OBJECTIVES OF PROVIDING DEPRECIATION JOURNAL ENTRIES

a
Provision for depreciation Provision for depreciation
A/c is maintained A/c is not maintained

h
For providing depreciation
Depreciation A/c Dr. Depreciation A/c Dr.

B
To Provision for Dep To Assets A/c
Correct income True position Ascertainment of Funds for
measurement: statement: true cost of production: replacement: For transfer of Depreciation to the profit and Loss
Profit and loss A/c Dr. Profit and loss A/c Dr.

d
To depreciation A/c To depreciation A/c
On sale of Assets

n
THUS ALL THE EXPENSES WHICH ARE NECESSARY FOR ASSET TO BRING IT IN CONDITION AND
Provision for Dep. A/c Dr. Bank A/c Dr.
LOCATION OF DESIRED USE WILL BECOME PART OF COST OF THE ASSET
Bank A/c Dr.

a
To assets A/c
Expenses should not become part of cost of asset To Assets A/c

n
In case of profit on sale of assets
(a) costs of opening new facility or business, (b) cost of introducing new product or service (for example cost of Profit
such as inauguration costs; advertisement or promotional activities). Assets A/c Dr. Assets A/c Dr.

A
To Profit & loss A/c To Profit & loss A/c
Loss
c) cost of conducting business in a new location or with a new class of (d) administration and other general overhead costs Profit & Loss A/c Dr.
customer (including cost of staff training); and Profit & Loss A/c Dr.

A
To Assets A/c To Assets A/c

C
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 FINAL ACCOUNT
Manufacturing A/c PREPARATION OF FINAL ACCOUNTS BALANCE SHEET
Particulars unit Amt. Particulars unit Amt. (I) a distinction should be made between capital and revenue receipts and payments;
Liabilities Rs. Assets Rs.
To Raw +Material By by- Products at (II) also income and expenses relating to a period of account should be separated
XX Capital: Fixed Assets:
Consumed net realisable value from those of another period.
Opening Balance XXX Goodwill XXX
By Closing WIP (III) different items of income and expenditure should be accumulated under significant
Opening Stock XX XX Add: Net Profit XXX Land XXX
heads so as to disclose the sources from which capital has been procured and the
(+) Purchases XX By Trading A/c nature of liabilities, which are outstanding for payment. Less: Net loss XXX Building XXX
XX
(Cost of Production) Less: Drawings XXX XXX Plant & machinery XXX

(-) Closing Inventory XX XX BUSINESS ENTITIES Long Term Liabilities: Furniture & fixture XXX

Direct Wages XX Loan XXX Investment: XXX

Manufacturing Non-Manufacturing Current Liabilities: Current Assets:
Direct Expenses XX Business Entities Business Entities Closing stock
Prime Cost XX Income received - XXX

To Factory Overhead in-Advance XXX

Final Accounts Final Accounts
Royalty XX Sundry Creditors XXX Accrued Investment XXX
Hire Changes Outstanding Expenses XXX Prepaid Expenses XXX
XX
To Indirect Expenses Manufacturing Trading Accounts Profit & Loss Balance Sheet Bills payable XXX Sundry Debtors XXX
XX
Repairs & Maintenance XX Account (for Gross Profit Accounts for Net (for Position of Bank overdraft XXX Bills Receivable XXX
Profit Assets and Cash at Bank XXX
Depreciation XX XX Liabilities)
Factory Cost XX Cash In Hand XXX

To Opening WIP Trading A/c XXX XXX

XX
Particulars Rs. Rs. Particulars Rs. Rs.
To opening Stock XX By Sales INDIRECT MANUFACTURING EXPENSES
BY PRODUCT XX
To Purchase XX Less: Return Inward XX XX
These are also called Manufacturing overhead, Production overhead,
The Production of the main product is accompanied by the production of a Less: Returns outwards XX XX By Closing Stock XX
Works overhead, etc. Overhead is defined as total cost of indirect
subsidiary or Secondary Product having A sale Value is Called By product By To direct expenses XX By Gross Loss transferred
material, indirect wages and indirect expenses.
Product generally have insignificant Value They Are generally valued at Net To Gross Profit Transferred XX To P&L A/c XX
Realizable Value To P&L A/c XX Overhead = Indirect Material + Indirect Wages + Indirect Expenses
It Is Treated As Miscellaneous income. XX XX

Profit and Loss A/c T.B

MANUFACTURING COSTS Particulars Rs. Particulars Rs.
To Gross Loss b/d XXX By Gross Profit b/d XXX Rent -(P&L Dr.)
Raw Material Consumed XX To salaries & Wages XXX By Discount Received XXX Prepaid rent -(B/S A.)
Direct Manufacturing Wages To Rent, Rates, & Taxes XXX By Commission Earned XXX O/s Exp. (B/S Liability
XX
Direct Manufacturing Expenses To fire Insurance premium XXX By Interest on Marketable Closing Stock (B/s A.)
XX XXX
Prime Cost Securities Bad Debts (P&L Dr.)
XX
Indirect Manufacturing expenses or Manufacturing Overhead XX To Repairs & Maintenance XXX By Profit on Sale of
XXX
Total Manufacturing Cost XX Marketable Securities
To Depreciation XXX By Rent Earned XXX
Raw Material Consumed = Opening Stock of Raw Materials + Purchases - To audit Fees XXX By Interest Earned XXX
Closing Stock of Raw Materials To Bank Charges XXX By Profit on Sale of fixed
XXX
Assets
To Legal Charges XXX By Income From Investment XXX
DIRECT MANUFACTURING EXPENSE
To Expenses XXX By Dividend Received XXX
To Carriage outward XXX
Direct manufacturing expenses are costs, other than material or wages,
which are incurred for a specific product or saleable service. To Freight outward XXX
To commission to salesmen XXX
To travelling Expense XXX
Examples of direct manufacturing
To Entertainment Expenses XXX
expenses are
To sales Promotion Expenses XXX
To Advertising and Publicity XXX
Royalties for using license or technology To bad debts XXX
if based on units produced,
To Packing Expenses XXX
To Interest on loan XXX
Hire charge of the plant and machinery To loss on Sales of Fixed Assets XXX
used on hire, if based on units produced, etc. To Net Profit XXX
XXX
By Net Loss XXX
XXX
CA ANANDH BHANGGARIYA
 Example
No Adjustment Journal Entry or effect
Facts of the Case Working Note Adjustment Entry Treatment in FS
Outstanding Expenses Expenses incurred Exp. A/c Dr. Rent payable is Rs. 200 p.m. Rent p.a. = 200 x 12 months = 2400 Rent A/c Dr. 400 Dr Effect : Rs. 400 to P & L A/c
1.
but not paid at the end of the year To O/s Exp. A/c Rent paid for year Rs. 2,000 O/s Rent = 2,400 - 2,000 = 400 To O/s Rent A/c 400 Cr Effect : Rs. 400 to Liabilities

Prepaid ExpensesAmount paid in current Pre. Exp. A/c Dr. Premium paid Rs. 4,000 Premium Rs. 4,000 x 9 months Pre. Premium A/c Dr.3,000 Dr Effect : Rs. 3,000 to Assets
2. year for services to be received in next To Exp. A/c for 9 months is paid in advance. ÷ 12 months = Rs. 3,000 To Premium A/c 3,000 Cr Effect : Rs. 3,000 to P & L A/c
year.

Income received in advance Income Rs. 56,000 x 2 months ÷ Dr Effect : Rs. 8,000 to P & L A/c
Income A/c Dr. Rent received Rs. 56,000 Rent Rent recd. A/cDr. 8,000
3. received in current year against which
To Inc. in adv. A/c for 2 months is recd. in advance 14 months = Rs. 8,000 To Rent recd. in adv. A/c 8,000 Cr Effect : Rs. 8,000 to Liabilities
services are to be provided in next year.

Dr Effect : Rs. 9,000 to P & L A/c

Income earned but not received (Accrued
Accr. Inc. A/c Dr. Amt of invest. Rs. 2,000 Rate Interest p.a. = 2,000x 18% = Rs. 360 Accr. Int. A/c Dr. 90 Cr Effect : Rs. 9,000 to Liabilities
4. Income)Income for the current year is not
To Income A/c of int. 18%Int. recd. Rs. 270 Accr. Int. = Rs.360 – Rs. 270 = Rs.90 To Interest A/c 90 (Add to Capital)
recd. during the year.

Dr Effect : Rs. 2,000 to Liabilities

Int. on cap. A/c Dr. Capital Rs. 50,000 Interest p.a. = 50,000 Int. on cap. A/c Dr. 9,000
5. Interest on Capital (less from Capital)
To Cap. A/c Interest on Cap. 18% x 18% = Rs. 9,000 To Cap. A/c 9,000
Cr Effect : Rs. 2,000 to P & L A/c

Drawings A/c Dr. Drawings A/c Dr. 2,000 Dr Effect : Rs. 90 to Assets
6. Interest on Drawings Int. on Drawings Rs. 2,000 -
To Int. on Drawings A/c To Int. on Drawings A/c 2,000 Cr Effect : Rs. 90 to P & L A/c
Dr Effect : Rs. 3,500 to P & L A/c
Bad Debts A/c Dr. Bad debts not recorded Bad debts A/c Dr. 3,500
7. Bad Debts - Cr Effect : Rs. 3,500 to Assets
To Debtors A/c in the books Rs. 3,500 To Debtors A/c 3,500
(less from Debtors)

P & L A/c Dr. 100 Dr Effect : Rs. 100 to P & L A/c

8. Provision for Bad and P & L A/c Dr. Debtors balance Rs.2,000 Provision = Rs. 2,000 To Pro. for doubtful Debts A/c 100- Cr Effect : Rs. 100 to Assets
doubtful Debts To Pro. for doubtful Debts A/c 5% Pro. for doubtful debts x 5% = Rs. 100 (less from Debtors)

Provision = Rs. 5,000 Dr Effect : Rs. 150 to P & L A/c

9. Provision for discount P & L A/c Dr. Debtors balance Rs.5,000 P & L A/c Dr. 150
x 3% = Rs. 150 Cr Effect : Rs. 150 to Assets
on debtors To Pro. for Dis. Debtors A/c 3% Pro. for doubtful debts To Pro. for Dis. Debtors A/c 150
(less from Debtors)

P & L A/c Dr. 500 Dr Effect : Rs. 500 to Liabilities

Prov. for Dis. on creditors A/c Dr. Creditors Rs. 10,000 Provision = Rs. 10,000
10. Provision for Discount on To Prov. Dis. on creditors A/c 500 (less from creditors)
Creditors To P & L A/c Create provision 5% x 5% = Rs. 500
Cr Effect : Rs. 500 to P & L A/c

Dr Effect : Rs. 2,000 to Liabilities

undry Debtors include Rs. 4,000
Common Debt Creditors & Debtors include Creditors A/c Dr. Lower of the amt. i.e. Rs. 2,000 is Creditors A/c Dr. 2,000 (less from creditors)
11. due from Mr. X & Sundry Creditors
amt due from & due to each other To Debtors A/cS known as common debt. To Debtors A/c 2,000 Cr Effect : Rs. 2,000 to Assets
include Rs. 2,000 due to Mr. X
(less from Debtors)

Adjustment of stock of material in hand Stock of Materials A/c Dr Stores of Rs. 5,000 debited to Stores A/c Dr. 5,000 Dr Effect : Rs. 5,000 to Assets
12. -
debited to Exp A/c To Appropriate Exp. A/c Repairs A/c To Repairs A/c 5,000 Cr Effect : Rs. 5,000 to P & L A/c

Purchases include chairs Dr Effect : Rs. 5,000 to P & L A/c

13. When goods are given away as donation Donation A/c Dr. purchased @ Rs. 200 per chair. Donation = 25 chairs x 200 Donation A/c Dr. 5,000
Cr Effect : Rs. 5,000 to Trading A/c
To Purchases A/c Out of the chairs purchased = Rs. 5,000 To Purchases A/c 5,000
(less from purchases)
for resale, 10 chairs were taken
Dr Effect : Rs. 2,000 to Liabilities
by the proprietor for domestic
When goods are used by the proprietor Drawings = 10 chairs x 200 (less from Capital)
Drawings A/c Dr. use, 20 chairs were distributed Drawings A/c Dr. 2,000
14. Cr Effect : Rs. 2,000 to Trading A/c
for his personal use To Purchases A/c as free samples, 25 chairs were = Rs. 2,000 To Purchases A/c 2,000
(less from purchases)
donated to old aged home & 5
When goods are distributed as chairs were used for Dr Effect : Rs. 4,000 to P & L A/c
Free Samples A/c Dr Free Samples = 20 chairs x 200 Free Samples A/c Dr 4,000
15. business purpose. Cr Effect : Rs. 4,000 to Trading A/c
free samples To Purchases A/c = Rs. 4,000 To Purchases A/c 4,000
(less from purchases)
When goods are used in business for Assets A/c Dr. For Business = 5 chairs x 200 Furniture A/c Dr. 1,000 Dr Effect : Rs. 1,000 to Asset
16. Cr Effect : Rs. 1,000 to Trading A/c
construction of Building or the Machinery To Purchases A/c = Rs. 1,000 To Purchases A/c 1,000
(less from purchases)

17. When goods are used for maintenance Repairs A/c Dr.
of business premises To Purchases A/c CA ANANDH BHANGGARIYA
 CASH BOOK
Cash book is a special journal in which all cash transactions are recorded It is both subsidiary book & a principle book

Simple cashbook Double column cashbook Triple column cashbook Petty cashbook
An ordinary account with one column for cash Two separate columns. Three columns for cash, Bank and discount column Are small cash transactions such as payments for postage
Cashbook is balanced One for cash and, stamps ,transport Etc .
One for either bank or for discount
Format -: Need for petty cash records
Dr. Cash Book Cr.
Cash and bank column is balanced.Discount columns are not balanced. They are merely Totalled.
Date Receipt Lf Amt Date Receipt Lf Amt
xxx To Bal b/d Format -: Format -: Analysis of transaction into Control & Maintain Avoid misuse of cash
Dr. Cash Book Cr. Dr. Cash Book Cr. different Accounting Heading Cash & theft
xxx By Bal c/d Date Receipt Lf Cash Bank Date Receipt Lf Cash Bank
Date Receipt Lf Cash Bank Dis. Date Receipt Lf Cash Bank Dis.
xxx To Bal Allowed Rec’d. Petty cash ----- petty cashier
Receipt of Cash -------Dr. cash b/d xx xx Assets
xxx By Bal Cash --------- head cashier
Payment of Cash ------Cr. Cash xx xx
c/d
Cash A/c will always have Dr. balance Petty cash A/c Dr.
Discount coloum is not balanced
To cash A/c
Receipt α Cash Bal R Bal Rectification entries
Format -:
Discount Allowed
Payment α1 Cash Bal R Bal Overast
Suspense
Petty Cash Book
To Disount Allowed Dr. Cr.
P Bal
P Bal Undercast Discount Allowed Rs. Particulars Date Particulars VN Printing Postage Wages Repair Total
To Suspense xx To bal. b/d xxx xxx
By print
Receipt side of cash book Overcast Balance is overcast Discount Recived Discount Received
Overast By post xxx xxx
Receipt side of cash book undercast Balance is Under cast To Suspense
Payment of cashbook overcast Balance is Under cast By repair xxx xxx
Undercast Suspense
Payment of cashbook undercast Balance is overcast
To Discount Received By wages xxx xxx

Operation of a petty cash Imprest system

Float Total Expenses Balance Refund to Cashier Float
Rs. 500 Rs. 350 Rs. 150 Rs. 350 Rs. 500
At any point of time , the cash in hand plus the total of vouchers not yet
reimbursed must be equal to the Imprest or float amount
Operation of a petty cash non Imprest system
These is no amount fixed as float
The amount & timing of reimbursement are decided by people operating the system

SPECIAL TRANSACTION

CONTRA ENTRY TRANSACTION THROUGH CHEQUE -: JOURNAL ENTRY CHEQUE DISHONOURED -: CHEQUE ENDORSED
Discount allowed -: Generally reverse the entry passed also check Anand
Cheque received Cheque issued
Contra entry is used when both the Discount allowed A/c Dr.
Day 1 :- Received cheque Balaji A/c Dr. ue en
eq d
effect of transaction are given on To Debtors A/c
When discount is allowed received at the time of r ch . Vi orse
Cash A/c re c e sh t
same page in same account To bank A/c cheque received / paid reverse it if cheque is ea re Cash nu o
B
To Mahesh Discount received -: To Ganesh
Cash deposited – Bank to cash dishonoured Ganesh Vishnu
Day 2 -:Deposited cheque Creditors A/c Dr. Vishnu A/c
Contra
Cash withdrawn – cash to bank To discount received A/c Cheque dishonoured (Reverse Entry ) To Cash A/c
Bank A/c
Cash Withdrawn for personal use -
To Cash A/c Dishonoured -: cheque received and Deposited DISHONOURED OF CASH ENDORSED
drawing to bank Not a Contra
a)Cheque deposited and Dishonoured Cash A/c Dr. To bank A/c Dr. Ganesh A/c Dr.
Day 1 Day 1 Bank Bank
Party A/c Dr. To Dhanaji A/c To cash A/c
To JAY HIND To Vishnu A/c
To bank A/c Consolidated effect
cash Anand
Day 1 Day 2 Bank To JAY HIND b)Cheque issued & honoured Bank A/c Dr.
Bank Bank A/c Dr. 10
To Dhanaji A/c
0 00 ,5
00
To party A/c ,
To Cash Cheque dishonoured 10 Cash 10,000
Dhanaji A/c Dr. To Ganesh 10,000
Ganesh Vishnu
To Bank A/c
Vishnu A/c 10,500
Cheque issued & dishonoured To Cash A/c 10,000
Sakshi Bank A/c Dr. To discount A/c 500
To Bank To Sakshi Ganesh A/c Dr. 10,000
(issued) (dishonoured of Cheque)
Discount A/c Dr. 500
To Vishnu A/c 500