PRACTICE QUESTIONS

1.

2.

3.

4.
Sample format for accounting/balance sheet equation
Sol: land-real account
building-real account
investment-real account
discount allowed-nominal account
machinery-real account
goodwill-real account
cash in hand-real account
cash at bank-real account
leasehold property-real account
trademark-real account
carriage outwards-nominal account
interest paid-nominal account
discount received-nominal account
interest received-nominal account
loan to Ram- personal account
loan from Madhu-personal account
capital A/c-personal account
bank(loan)-personal account
Tata Iron and Steel Co.ltd.,a supplier-personal account
Arun Kumar(a customer to whom goods were sold on credit)- Personal account
Drawings account-personal account
copyright-real account
purchases account-nominal account
sales-nominal account
returns inward account-Nominal account
returns outward-nominal account
carriage inward-nominal account

Rent – nominal account

Bills payable – personal account
Q.Classify the following accounts according to the American Approach.

Purchase Sales Returns inward Returns outward

Carriage inward Carriage outwards Discount allowed Discount received
Interest received Interest paid Rent paid Rent payable
Bad debt Outstanding salary Depreciation Commission paid
Commission received Dividend received Dividend paid Plant & Machinery
 LIMITATIONS OF JOURNAL
The following are the limitations of journal-
1. Long and unwieldy – The journal will be long and unwieldy if the business has too
many transactions.
2. Difficulty in ascertainment of daily cash balance – It is not possible to ascertain the
daily cash balance from journal. A separate book is to be maintained for this purpose.
3. Difficult to locate a transaction – It is difficult to locate a transaction in the journal if
the date of transaction is forgotten.
4. Time consuming process of posting – It is tedious and time consuming to post each
and every transaction from the journal to the ledger.
STEPS IN JOURNALISING
The following steps are to be followed while recording the transaction in a journal:
1. Identify the accounts involved in the business transaction.For example:Rashid
started business with cash ₹1,00,000.In this case,cash account and capital account
are involved.
2. Identify the nature of the accounts involved.For example-In step 1, cash account is
an asset/real account and capital account is a capital/personal account.
3. Ascertain the rule of debit and credit that is applicable for each of the accounts
involved
4. Ascertain which account is to be debited and which account is to be credited.In the
above example- Cash account is to be debited and capital account is to be credited.
5. Fill in the ‘date column’.The year,month and day of the first entry are written in the
date column.The year and month need not be repeated for subsequent entries until a
new page or a new month begins.
6. The name of the account to be debited is written on the first line of the entry in the
particulars column.It is customarily placed at the extreme left next to the date
column along with the abbreviation ‘Dr.’ on the same line at the extreme right
against the name of the account.The amount of the debit is entered on the same line
at the left hand amount column.
7. The name of the account to be credited is written on the next line preceded by the
word ‘To’.The amount to be credited is entered on the same line at the right hand
amount column.
8. A brief explanation of the transaction, i.e., narration is given on the next line
immediately below the last account that was credited.The narration is provided in
brackets and is preceded by the word ‘Being’.
9. After the narration, a horizontal line is drawn in the particulars column to separate
one journal entry from another.
10. ‘Ledger folio’ column just to the right of ‘particulars column’ is usually left blank at
the time of making the journal entry.Later, when the entries are posted to the ledger,
this column is filled with the page number of ledger to facilitate cross reference.
11. Journal entries could be simple or compound. Regardless of the number of debits
and credits involved in entries, all debits are customarily entered before credits.
PROCEDURE FOR POSTING FROM A JOURNAL TO A LEDGER
A.Procedure for posting of ‘debit account’ in a transaction
1. With the help of an index, open the page on which the concerned accounts
appears.
2. Enter the date of the transaction in the ‘date column’ on the debit side
 3. In the particulars column on the debit side, the name of the account credited in
the journal should be recorded as: “To ….(name of the account credited)”
4. In the J.F column on the debit side, write the page number of the journal where
the transaction was originally recorded.In the L.F. column, write the page number
of the ledger in which the concerned account appears.
5. Enter the relevant amount the ‘amount column’ on the debit side.
B.Procedure for posting of ‘credit account’ in a transaction
1. With the help of an index, open the page on which the concerned accounts
appears.
2. Enter the date of the transaction in the ‘date column’ on the credit side
3. In the particulars column on the credit side, the name of the account debited in
the journal should be recorded as: “To ….(name of the account debited)”
4. In the J.F column on the debit side, write the page number of the journal where
the transaction was originally recorded.In the L.F. column, write the page number
of the ledger in which the concerned account appears.
5. Enter the relevant amount the ‘amount column’ on the credit side.
PROCEDURE FOR BALANCING OF AN ACCOUNT
FORMATS OF SOME LEDGER ACCOUNTS
DIFFERENCES BETWEEN JOURNAL AND LEDGER

BASIS JOURNAL LEDGER

Nature It is a book of primary entry It is a book of final entry
Basis of Transactions are recorded on the Transactions are recorded from the
recording basis of voucher journal
 Manner of Transactions are recorded ‘date Transactions are recorded on the
recording wise’ basis of ‘account heads’
Narration Every journal entry is followed by Posting in the ledger is not
a narration followed by any narration
Form of It provides information in It provides information in a
information scattered form classified and summarized form
Process Process of recording in the Process of recording in the ledger is
journal is called journalising called posting

Practical question
Q.Journalise the following transactions/enter the following transactions in the books of Mr.Aman
Gupta and post them to ledger.

Feb 2024
1 Started business with a capital of Rs.500000
2 Received cash from Ram Rs.200
3 Purchased furniture for cash Rs.7000
4 Purchased goods for cash from Sheela Rs.2000
7 Withdrew Rs.500 in cash for personal use.
8 Withdrew Rs.800 by cheque for personal use
9 Took goods worth Rs.1000 for personal use
14 Purchased furniture on credit from M/s SKL Rs.16000
18 Bought goods on credit from Ramchandra Rs.4000
19 Bought goods from Mr.Deol Rs.1000
20 Sold goods for cash Rs.2000
21 Sold goods to Nirma Rs.1000
22 Paid salary Rs.30000,wages Rs.3000,Rent Rs.6000 in cash
23 Paid wages Rs. 2000
24 Provide depreciation of furniture Rs.500
25 Shalini returned goods Rs.1000
26 Returned goods to Bahubali Rs.500
27 Deposited into bank Rs.9500
28 Purchased furniture for office use Rs.6000
29 Drew from bank for Rs.1600

Sol:
In the books of Mr.Aman Gupta
Journal
Date Particulars L.F. Dr. Cr.
Amount (Rs.) Amount (Rs.)

2024 Cash A/c Dr. 500000

Feb 1 To Capital A/c 500000
(Being cash brought in as capital)
2 Cash A/c Dr. 200
To Ram A/c 200
(Being cash received from Ram)
Date Particulars L.F. Dr. Cr.
Amount (Rs.) Amount (Rs.)
2024 Furniture A/c Dr. 7000
Feb 3 To Cash A/c 7000
(Being furniture purchased in cash)
4 Purchases A/c Dr. 2000
To Cash A/c 2000
(Being goods purchased in cash)
7 Drawings A/c Dr. 500
To Cash A/c 500
(Being cash withdrawn for personal use)
8 Drawings A/c Dr. 800
To Bank A/c 800
(Being amount withdrawn by cheque for
personal use)
9 Drawings A/c Dr. 1000
To Purchases A/c 1000
(Being goods taken for personal use)
14 Furniture A/c Dr. 16000
To M/S SKL A/c 16000
(Being furniture purchased on credit)
18 Purchases A/c Dr. 4000
To Ramchandra A/c 4000
(Being goods bought on credit)
19 Purchases A/c Dr. 1000
To Mr.Deol A/c 1000
(Being goods bought from Mr.Deol)
20 Cash A/c Dr. 2000
To Sales A/c 2000
(Being goods sold for cash)
21 Nirma A/c Dr. 1000
To Sales A/c 1000
(Being goods sold to Nirma)
22 Salary A/c Dr. 30000
Wages A/c Dr. 3000
Rent A/c Dr. 6000
To Cash A/c 39000
(Being expenses made in cash)
23 Wages A/c Dr. 2000
To Cash A/c 2000
(Being wages paid in cash)
24 Depreciation A/c Dr. 500
To Furniture A/c 500
(Being depreciation provided for
furniture)
Date Particulars L.F. Dr. Cr.
Amount (Rs.) Amount (Rs.)
2024 Returns Inward A/c Dr. 1000
Feb 25 To Shalini A/c 1000
(Being goods returned by Shalini)
26 Bahubali A/c Dr. 500
To Returns Outward A/c 500
(Being goods returned to Bahubali)
27 Bank A/c Dr. 9500
To Cash A/c 9500
(Being cash deposited into bank)
28 Furniture A/c Dr. 6000
To Cash A/c 6000
(Being furniture purchased for office use)
29 Cash A/c Dr. 1600
To Bank A/c 1600
(Being cash drew from bank)

Ledger
Similarly, prepare the remaining accounts too.
Note: While preparing ledger, just go through the journal entries in sequence and prepare
ledger for every account involved.This way you won’t miss out on any ledger.
HOW DID WE APPLY THE RULES OF DEBIT/CREDIT IN THE JOURNAL ENTRY QUESTION.

DATE ACCOUNTS TRADITIONAL APPROACH MODERN APPROACH

FEB INVOLVED
2024
1 Cash Real (Dr. what comes in) Asset Dr.
Capital Personal (Cr. The giver) Capital Cr.
2 Cash Real (Dr. what comes in) Asset - increase Dr.
Ram Personal (Cr. The giver) Asset(debtor) - decrease Cr.
3 Furniture Real(Dr.what comes in) Asset - increase Dr.
Cash Real (Cr.what goes out) Asset - decrease Cr.
4 Purchases Nominal (Dr. expenses & losses) Expense - increase Dr.
Cash Real (Cr. What goes out) Asset - decrease Cr.
7 Drawings Personal – Dr. the receiver/owner here Capital - decrease Dr.
Cash Real – Cr. What goes out Asset – decrease Cr.
8 Drawings Personal – Dr. the receiver/owner Capital – decrease Dr.
Bank Real – Cr. What goes out Asset decrease Cr.
9 Drawings Convenient to apply rather modern Capital – decrease Dr.
Purchases approach Expense - decrease Cr.
14 Furniture Real -Dr. what comes in Asset - increase Dr.
SKL Personal – Cr. The giver Liability (creditor) – increase Cr.
18 Purchases Nominal – Dr. expenses/losses Expense – increase Dr.
Ramchandra Personal – Cr. The giver Liability (creditor)- increase Cr.
19 Purchases Nominal -Dr. expense/losses Expense – increase Dr.
Mr. Deol Personal -Cr. The giver Liability (creditor)- increase Cr.
20 Cash Real – Dr. what comes in Asset increase Dr.
Sales Nominal-Cr. Income/gains/revenue/profit Revenue – increase Cr.
21 Nirma Personal – Dr. the receiver Asset(debtor) – increase Dr.
Sales Nominal – Cr. Income/gain/revenue/profit Revenue increase Cr.
22 Salary Nominal- Dr. expenses/losses Expenses increase Dr.
Wages Nominal
Rent Nominal
Cash Real – Cr. What goes out Asset decrease Cr.
23 Wages/trade Nominal – Dr.expenses/losses Expense increase Dr.
expenses/rent
etc.
Cash Real – Cr. What goes out Asset decrease Cr.
24 Depreciation Nominal – Dr. losses/expenses Expense increase Dr.
Furniture Real – Cr. What goes out Asset decrease Cr.
25 Returns Nominal – Dr. losses (since revenue Revenue (revenue decrease Dr.)
inward/sales decreases)
return
Shalini Personal – Cr. The giver Asset (customer/debtor) decrease
Cr.
26 Bahubali Ambiguous to apply this approach Liability/creditor decrease Dr.
Returns Expense decrease Cr.
outward
27 Bank Real Dr. what comes in Asset increase Dr.
Cash Real Cr. What goes out Asset decrease Cr.
28 Furniture Real Dr. what comes in Asset increase Dr.
Cash Real Cr. What goes out Asset decrease Cr.
29 Cash Real Dr. what comes in Asset increase Dr.
bank Real Cr. What goes out Asset decrease Cr.
REMEMBER THESE WHILE PREPARING A SIMPLE CASH BOOK
Q.Enter the following transactions in a simple cash book

February 2024
1 Cash in hand ₹30000
2 Received from Rahim ₹300
3 Paid to Manoj ₹700
4 Received from Santanu ₹100
5 Bought goods ₹200
6 Bought goods on credit from Umesh ₹900
7 Sold goods ₹600
 9 Sold goods on credit to Neena ₹600
14 Purchased furniture ₹1000
16 Paid wages ₹335
21 Paid salary ₹1500
22 Paid carriage ₹20
23 Paid rent 3000
29 Withdrew for personal use Rs.300

Sol:
Cash Book with Cash Column only
Dr. Cr.
Date Particulars R. L. Amount Date Particulars Vr. L.F Amount
No. F. ₹ No. ₹
2024 2024
Feb 1 To balance b/d 30000 Feb 3 By Manoj A/c 700
2 To Rahim A/c 300 5 By Purchases 200
4 To Santanu A/c 100 A/c
7 To Sales A/c 600 14 By Furniture 1000
A/c
16 By Wages A/c 335
21 By Salary A/c 1500
22 By Carriage A/c 20
23 By Rent A/c 3000
29 By Drawings 300
A/c
29 By Balance c/d 23945

31000 31000

Mar 1 To Balance b/d 23945

DIFFERENCES BETWEEN TRADE DISCOUNT AND CASH DISCOUNT

TRADE DISCOUNT CASH DISCOUNT

It helps retailers to make some profit It encourages the debtors to pay within
specified time

Only retailers are entitled to it All categories of customers are entitled to it

It is calculated at a given rate on the It is calculated on the net amount payable

published price

It is not generally accounted for It is generally accounted for.

Q. State whether the items below are expenditure/receipt of capital or revenue nature-

Items

A second hand car was purchased for a sum of Rs.30000.A Capital expenditure
sum of Rs.8000 was spent on its overhauling

An amount of Rs.3000 was spent on painting the factory Revenue expenditure

Rs.18000 was spent for furnishing the newly constructed Capital expenditure
building

An amount of Rs.25000 was spent for electrical installation in Capital expenditure

the newly constructed building

Rs.3000 was paid for insurance of the building Revenue expenditure

Started business with cash Rs.80000 Capital receipt

Amount realised by sale of goods Rs.25000 Revenue receipt

Rent received from premises sublet Rs.4000 Revenue receipt

Sale of land costing Rs.10000 at Rs.12000 Revenue receipt

Amount received from sale of scraps ie.empty boxes,bottles Revenue receipt

Rs.250