BBA (Financial Markets) Accounting for Business – Accounting Process

2
ACCOUNTING PROCESS
Ø WHAT IS AN ACCOUNT?

A large number of economic transactions take place in a business every day.

Certain transactions of same type occur frequently. For example, there are cash
receipts and payments frequently. There are purchases and sales or frequent
transactions with a person. When transactions affecting a particular aspect or
matter are recorded properly at one place and a summary is drawn, that is
known as an account.

For example: Cash received is recorded on one side of the cash account and cash
paid is recorded on the other side of account. In this way, the entries affecting the
cash account are automatically divided into two parts. As a result, the difference
(receipt-payment) i.e., closing cash balance can be known.

Thus, every account is divided into two parts. The left-hand side is known as the
“Debit side” and the right-hand side as the “Credit side”.

Ø TYPES OF ACCOUNTS

• Every economic transaction has at least two effects and so two accounts are
affected.
• For example: Goods sold for cash
Cash comes in Cash account is affected
Goods goes out Goods (sales) account is affected
• If we study the accounting transactions of a business, mainly there are
1. Transactions with a person
2. Transactions relating to goods or assets
3. Transactions relating to income & expenses
• Accordingly, types of accounts can be shown as under:

Ø TRADITIONAL CLASSIFICATION OF ACCOUNTS:

• PERSONAL ACCOUNTS:

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Credit transactions in a business are carried out with a living person, an institution or an
artificial person. As a result of such credit transactions, debtor-creditor (receiver or giver)
relationship arises. There are three types of personal accounts-
1. Natural personal account
• Such individuals can be living persons.
• For e.g., Urmila’s account, Umang’s account.

2. Artificial personal account

• When a transaction takes place with an institution or an individual who is
legally accepted as artificial person.
• Such artificial person includes sole proprietor, partnership firm, company, co-
operative society, association, banks, clubs, etc.
• For e.g., Dena Bank’s account, Dave medical store account, SJ furniture mart’s
account.

3. Representative personal account

• These are accounts which represents a certain person or a group of people.
• If any prefix or suffix is added to Nominal account, it becomes a
Representative personal account.
• For example, Interest account is a nominal account but outstanding interest
account, Interest received in advance account, Prepaid interest account are
representative personal account.

• REAL ACCOUNTS:
The real accounts of a business can be classified into two groups:
1. Goods Accounts.
• The product traded in a business is known as goods. Separate accounts are
maintained for incoming and outgoing of goods.
• Goods are purchased frequently so ‘Purchase account’ is prepared. In the
same way, goods are sold, so ‘Sales account’ is prepared.
• Generally, the following account arises as a result of the transactions
relating to the exchange of goods:
ü Purchase account
ü Sales account
ü Purchase Return account
ü Sales Return account
ü Stolen Goods account
ü Goods withdrawn for personal use account
ü Goods destroyed by fire account
ü Goods give as free sample account

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BBA (Financial Markets) Accounting for Business – Accounting Process

ü Goods given as charity account

2. Assets Accounts:
• An item or a right owned by the business and having financial value is known as
asset. Such assets are useful for the proper running of the business. Such assets
include the following accounts:

ü Fixed or long-term assets which benefit the business for a long period
(more than 1 year) e.g., Land and building, machinery, furniture, vehicles,
goodwill, patent, copyright etc.
ü Investment such as Shares of ITC Ltd., Debentures of Reliance Ltd.,
Kishan Vikas Patra, Post Office Savings Certificates etc.
ü Current assets accounts, e.g., Cash account, Stock account, Debtors account
etc.

• NOMINAL ACCOUNTS:

• Certain expenses have to be incurred for carrying on the business. There are
various incomes also in the business. Such accounts are known as nominal
account.
• For e.g. Wages account, Salary Account, Discount allowed account etc.

Ø Modern Classification of Accounts:

• Assets Accounts: These accounts are accounts of assets and properties such
as Land, Plant & Machinery, Furniture, Patents, Inventory etc.

• Liabilities Accounts: These accounts are accounts of lenders, creditors for

goods etc.

• Capital Accounts: These refer to the accounts of the proprietors/ partners

who invested money in the business.

• Revenue Accounts: These are accounts of incomes and gains. Examples

are: Sales, Interest Received etc.

• Expense Accounts: The accounts which show the amount spent or loss
incurred in carrying on the business. Examples are: Purchases, wages paid,
depreciation, rent etc.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Ø TRADITIONAL RULES OF DEBIT AND CREDIT:

• The word Double Entry System of accounting shows two effects or dual effect. As
seen earlier, every accounting transaction has two effects, and it affects at least
two accounts.
• One effect is on the debit side of one account & the other effect is on the credit
side of some other account.
• A transaction cannot have both effects on the debit side only. Similarly, a
transaction cannot have both effects on the credit side only.
• At the time of recording an accounting transaction, one or more accounts are
debited, and one or more other accounts are credited. Now the question is which
account will be debited and which account will be credited?
• The general rule for keeping accounts of a business is that the account of the one
receiving the benefit should be debited and the account of one giving benefit
should be credited.
• According to the types of accounts, three rules of debit and credit have been
decided for the sake of convenience. These rules are the basic rules of double
entry accounting system.

Ø Rules for Personal Accounts:

• If a personal account is associated with an accounting transaction, then

determine whether that person is the receiver of the benefit or the giver of
the benefit.
“Debit the receiver, Credit the giver”
• For example:
1. Purchased goods of Rs. 1,000 from Jayshri.
In this transaction, Jayshri is the giver, so her account will be credited.
2. Deposited Rs. 500 in Dena Bank.
Dena Bank being the receiver, in this transaction Dena Bank’s account will be
debited.
3. Sold goods of Rs. 1,500 to Savita.
Savita being the receiver of goods, her account will be debited.

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BBA (Financial Markets) Accounting for Business – Accounting Process

Ø Rules for Real Accounts:

• If a goods or an asset account is associated with an accounting transaction;

then if goods or asset comes into the business, it is debited. If goods or
assets go out of the business, it is credited.
“Debit what comes in, Credit what goes out”
• For example:
1. Purchased goods of Rs. 1,000 from Rohini.
Goods come into the business. So, goods (Purchase) account will be
debited.
2. Sold goods of Rs. 1,200 to Mukesh.
Here goods go out of the business. So, goods (Sales) account will be
credited.
3. Purchased furniture of Rs. 5,000 from Vijay Furniture Mart.
Here furniture (asset) comes into the business. So, furniture account will be
debited.
4. Paid salary Rs. 1,000.
Here cash goes out of the business. So cash (asset) account will be credited.

Ø Rule for Nominal Accounts:

• When due to an accounting transaction, the business receives a gain or an

income, then that account is credited. If the business suffers a loss or incurs
an expense, then that account is debited.
“Debit the expenses and losses, Credit the income and gains”
• For example:
1. Paid wages Rs. 500.
Here wages are an expense for the business. So, wages account will be
debited.
2. Goods of Rs. 1,500 were destroyed by fire.
Here there is a loss of Rs. 1,500 due to fire. So, loss due to fire account
will be debited.
3. Received interest of Rs. 1,000.
Here, the business has an income or gain due to interest. So, interest
account is credited.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Ø MODERN RULES OF DEBIT AND CREDIT:

ASSET DEBIT ASSET CREDIT

EXPENSE DEBIT EXPENSE CREDIT

LIABILITY CREDIT LIABILITY DEBIT

INCOME CREDIT INCOME DEBIT

CAPITAL CREDIT CAPITAL DEBI

JOURNAL
Ø INTRODUCTION

Transactions are recorded in the books of accounts which are divided into two classes –
Journal and Ledger. A Journal is a book of original entry wherein transactions are
first recorded. Ledger is called principal book of accounts as all the accounting
information can be collected from this book.

Ø MEANING: JOURNAL

A journal is the primary book of accounts in which financial transactions are first
recorded in a chronological order, i.e. as they are entered into. Transactions are recorded
in the Journal book from the accounting voucher that is prepared on the basis of source
documents.

“A Journal is a chronological record of financial transactions of a business.”

Ø STEPS IN JOURNALISING

The process of analysing the business transactions under the heads of debit and credit and
recording them in the Journal is called Journalising. An entry made in the journal is
called a ‘Journal Entry’.

Step 1 Determine the two accounts which are involved in the transaction.
Step 2 Classify the above two accounts under Personal, Real or Nominal.
Step 3 Find out the rules of debit and credit for the above two accounts.
Step 4 Identify which account is to be debited and which account is to be credited.

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BBA (Financial Markets) Accounting for Business – Accounting Process

Step 5 Record the date of transaction in the date column. The year and month is written
once, till they change. The sequence of the dates and months should be strictly
maintained.
Step 6 Enter the name of the account to be debited in the particulars column very close to
the left hand side of the particulars column followed by the abbreviation Dr. in the same
line. Against this, the amount to be debited is written in the debit amount column in the
same line.
Step 7 Write the name of the account to be credited in the second line starts with the word
‘To’ a few space away from the margin in the particulars column. Against this, the
amount to be credited is written in the credit amount column in the same line.
Step 8 Write the narration within brackets in the next line in the particulars column.
Step 9 Draw a line across the entire particulars column to separate one journal entry from
the other.

Example: January 1, 2016 – Mr. A started business with Rs. 1,00,000.

Analysis of Transaction
Step 1 Determine the two accounts involved in the transaction.
Cash Account, Mr. A’s Capital Account

Step 2 Classify the accounts under Real Personal or nominal.

Real Account, Personal Account

Step 3 Find out the rules of debit and credit.

Debit what comes in, Credit the giver

Step 4 Identify which account is to be debited and credited

Cash A/c is to be debited and Capital A/c is to be credited

Date Particulars L.F Debit Credit

2016 Cash A/c Dr. 12 1,00,000
Jan 1 To Mr. A’s Capital A/c 45 1,00,000
(Being: The amount invested in the business)

The Ledger Folio column indicates 12 against Cash Account which means that Cash
Account is found in page 12 in the ledger and this debit of Rs.1,00,000 to Cash A/c can
be seen on that page. Similarly 45 against Mr. A’s Capital A/c indicates the page number
in which Saravanan’s Capital account is found and the credit of Rs.1,00,000 indicated
there in.

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BBA (Financial Markets) Accounting for Business – Accounting Process

Ø TRADE DISCOUNT

Trade discount is allowed when goods are purchased in large quantity. It is

usually allowed by one business to another business which is making a purchase
for resale to an ultimate customer. Trade discount availed by retailer allows him
improved profit margin by selling the product at the list price while purchasing
goods at lesser price. Trade discount is allowed on both, cash purchases and credit
purchases. The amount of the purchase made, is always arrived at after deducting
the trade discount, i.e., only the net amount is considered.

For example, if the list price (price prescribed by the manufacturers or

wholesalers) of a commodity is Rs.100, and trade discount granted by
manufacturer to the wholesaler is 20% then cost price of the commodity to the
wholesaler is Rs.80. Trade discount is not recorded in the books.

Ø CASH DISCOUNT

Sale of goods on credit is a common phenomenon in any business. When goods

are sold on credit the customers enjoy a facility of making payment on some date
in the future. In order to encourage them to make the payment before the expiry of
the credit period a deduction is offered. The deduction so made is known as cash
discount.

For example, If Ram purchases goods worth Rs.5,000 on 30 days credit then, as
per the terms of contract, he is authorized to make payment 30 days after the date
of purchase. If he is offered a cash discount of 2% on payment within 10 days and
if he does so, he is entitled to deduct Rs.100 from the invoice price and pay
Rs.4,900. In this case Rs.100 is cash discount. But if he does not choose to make
payment within 10 days then he will not get any cash discount. In this case he will
pay Rs.5,000 after 30 days. The amount of cash discount is calculated always
after deducting trade discount from the invoice price.

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BBA (Financial Markets) Accounting for Business – Accounting Process

Ø JOURNALISE THE FOLLOWING TRANSACTIONS :

• Simple Journal Entries

1. Trishneet started his business with cash 50,000

2. Purchased goods 5,000
3. Purchased goods for cash 10,000
4. Purchased goods from Mr. Ramesh for cash 15,000
5. Purchased goods from Mr. Sachin 10.000
6. Sold goods 6,000
7. Sold goods for cash 12,000
8. Sold goods to Mr. Vandit for cash 18,000
9. Sold goods to Mr. Pranav 12,500
10. Mr. Pranav returned goods 2,500
11. Returned goods to Mr. Sachin 2,000
12. Paid into bank 7,000
13. Paid rent to landlord 500
14. Withdrew for personal use 1,000
15. Paid salary to Mr. Ankit an employee 500
16. Brought goods for cash 500
17. Draw cash from bank for office 100
18. Purchased goods from Priya of the list price of Rs. 30,000 at a trade discount of
10%.
19. Rejected and returned 10% of goods supplied by Priya.
20. Paid into bank Rs. 11,000 for opening a current account.
21. Received Rs. 900 from Kinjal on her account for Rs. 1,000.
22. Paid Rs. 450 to Anil on his account for Rs. 500
23. Withdrew for private expense Rs. 1,000
24. Withdrew from bank Rs. 3,000
25. Withdrew from bank for private use Rs. 1,500
26. Placed on fixed deposit A/C at bank by transfer from current account Rs. 5,000
27. Paid Rs. 480 to Sarita on his account for Rs. 500.
28. Bank charges (half yearly) Rs. 100
29. Purchased 100 war bonds for Rs. 100 each at Rs.95 each and paid for them by
cheque.
30. Honoured our acceptance in favour of Shyam by cheque Rs. 5,000.
31. Received Rs. 2,000 for a B/E from Hari Ram and deposited the same into the
bank
32. Received payment of a loan of Rs. 5,000 and deposited Rs. 3,000 out of it into
the bank.

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BBA (Financial Markets) Accounting for Business – Accounting Process

33. Paid life insurance premium Rs. 2,000.

34. Paid income tax Rs. 3,000.
35. Salary due to clerk Rs. 500.
36. Charge depreciation on furniture @10% p.a. for one month (furniture Rs.
12,000).
37. Provide interest on capital (Rs. 60,000) at 15% p.a. for six months.
38. Charge interest on drawings (10,000) at 18% p.a. for six months.
39. Provide interest on loan to Ram (Rs. 1,00,000) at 18% p.a. for two months.
40. Charge interest on loan to Shyam (Rs. 2,00,000) at 18% p.a. for two months.
41. Brokerage due to us Rs. 500.
42. Received an order from Shyam for supply of goods of the list price of
Rs.1,00,000 with an advance of 10% of list price.
43. Supplied the above goods at 10% trade discount.
44. Shyam became insolvent and paid 80 paise in a rupee in full and final
settlement.
45. Withdrawn goods for personal use. (sales price Rs. 600, cost Rs. 500)
46. Goods costing Rs. 1,000 distributed as free sample (sales price Rs. 1,200)
47. Goods stolen in transit (Sale price Rs. 1,000, cost Rs. 800)
48. Goods destroyed by fire (sale price Rs. 1,000, cost Rs. 800)
49. Goods stolen by an employee (sale price Rs. 1,000 cost Rs. 600)
50. Goods used in making of furniture (sale price Rs. 2,000, cost Rs. 1,500)
51. Sold household furniture for Rs. 5,000 and invested the money into the business.
52. Cheque received from Rahul and deposited into bank the same day
53. Cheque received from Ankur and not deposited into bank the same day.
54. Above cheque deposited in the bank.

• Compound Journal Entries

1. Received from Mr. Pranav 9,900

Allowed him discount 100
2. Paid to Mr. Sachin 7,880
Discount allowed by him 120
3. Bought goods of the list price of Rs. 1,25,000 from Jinal less 20% trade discount
and 2% cash discount and paid 40% by cheque
4. Sold goods to Sunita of the list price of Rs. 1,25,000 less 20% trade discount and
2% cash discount and paid 40% by cheque
5. Received Rs. 975 from Harsh in full settlement of his account for Rs. 1,000
6. Paid Rs. 480 to Mira in full settlement of her account for Rs. 500
7. Paid Rs. 480 to Mohan in full settlement of his account for Rs. 500
Received a cheque from Ramesh & Co. to whom goods were sold for Rs. 2,000
last month. Allowed him 1% discount
8. Purchased machinery from Rajiv for Rs. 5,000 and paid him by means of a bank

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BBA (Financial Markets) Accounting for Business – Accounting Process

draft purchased from bank for Rs. 5,020.

9. Discounted a bill of exchange for Rs. 10,000 at 1% through bank
10. Ramesh & Co’s cheque deposited into bank
11. Ramesh & Co’s cheque dishonoured (bank charged Rs. 10)
12. Ramesh & Co. settled his account by means of a cheque for Rs. 2,025, Rs. 15
being for interest charged
13. Ramesh & Co’s cheque deposited into bank
14. Received from Shyam a cheque for Rs. 725. Discount allowed Rs.25
15. Shyam’s cheque was returned dishonoured.
16. Shyam settled his account by means of a cheque for Rs. 755, Rs. 5 being for
interest charged.
17. Paid rent of building Rs. 12,000 half of the building is used by the proprietor for
residential use.
18. Paid fire insurance of the above building in advance Rs. 1,000.
19. Received commission Rs. 1,000 half of which is in advance.
20. Sold goods to Sunil of the list price of Rs. 1,25,000 less 20% trade discount and
2% cash discount and paid 40% by cheque.
21. Received a first and final dividend of 60 paise in the rupee from the official
receiver of Mr. Rajan who owed us Rs. 1,000
22. Goods worth Rs. 1,000 damaged by fire and insurance company accepted claim
of Rs. 800.

LEDGER
• Meaning:

The transactions relating to person, assets, expenses and income are journalized
chronologically, i.e. date- wise. But one cannot find similar transactions at one place in
the journal. Therefore, to have a consolidated view, we have to prepare different accounts
in the ledger. No transaction gets into the ledger unless it appears first in the journal. The
source of information for the ledger is the journal.

The method of writing from journal to the ledger is called posting or ledger posting.
According to L.C. Cropper, ‘the book which contains a classified and permanent
record of all the transactions of a business is called the Ledger’.

An account is a summary of business transactions affecting a person or property or

an income or an expense. An account has two sides- Debit and Credit. The left side is
known as Debit and the right side is known as Credit.

The books in which the business transactions are recorded first of all are termed as
“Books of original entry” or “Special purpose Subsidiary Book”. The transactions

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

from these books are then transferred into the ledger accounts. As such, the Ledger
is called the “Principal Book”.

Ø RELATIONSHIP BETWEEN JOURNAL AND LEDGER:

i. Transactions are entered first in the journal and then these entries are posted to
appropriate accounts in the ledger.
ii. The journal is subsidiary book, while the ledger is the Principal Book of accounts.
iii. The journal shows the transactions in chronological order, that is, journal is a daily
record. Posting from the journal is done periodically, may be weekly or fortnightly etc.
iv. Entering the transactions in the journal is called journalising and the act of recording
in the ledger is called posting.

Ø FORMAT OF LEDGER:

ü Explanation:

i. Each ledger account is divided into two parts. The left hand side is known as the debit
side and the right hand side is known as the credit side. The words ‘Dr.’ and ‘Cr.’ are
used to denote Debit and Credit.

ii. The name of the account is mentioned in the top (middle) of the account.

iii. The date of the transaction is recorded in the date column.

iv. The word ‘To’ is used before the accounts which appear on the debit side of an
account in the particulars column. Similarly, the word ‘By’ is used before the accounts
which appear on the credit side of an account in the particulars column.

v. The name of the other account which is affected by the transaction is written either in
the debit side or credit side in the particulars column.

vi. The page number of the Journal or Subsidiary Book from where that particular entry is
transferred, is entered in the Journal Folio (J.F) column.

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BBA (Financial Markets) Accounting for Business – Accounting Process

vii. The amount pertaining to this account is entered in the amount column.

Ø POSTING:

The process of transferring the entries recorded in the journal or subsidiary books to the
respective accounts opened in the ledger is called Posting. In other words, posting means
grouping of all the transactions relating to a particular account at one place. It is
necessary to post all the journal entries into various accounts in the ledger because
posting helps us to know the net effect of various transactions during a given period on a
particular account.

• Procedure of posting:

The procedure of posting is given as follows:

I. Procedure of posting for an Account which has been debited in the journal entry.

Step 1 Locate in the ledger, the account to be debited and enter the date of the transaction
in the date column on the debit side.

Step 2 Record the name of the account credited in the Journal in the particulars column
on the debit side as “To..... (name of the account credited)”.

Step 3 Record the page number of the Journal in the J.F column on the debit side and in
the Journal, write the page number of the ledger on which a particular account appears in
the L.F. column.

Step 4 Enter the relevant amount in the amount column on the debit side.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

II. Procedure of posting for an Account which has been credited in the journal
entry.

Step 1 Locate in the ledger the account to be credited and enter the date of the transaction
in the date column on the credit side.

Step 2 Record the name of the account debited in the Journal in the particulars column on
the credit side as “By...... (name of the account debited)”

Step 3 Record the page number of the Journal in the J.F column on the credit side and in
the Journal, write the page number of the ledger on which a particular account appears in
the L.F. column.

Step 4 Enter the relevant amount in the amount column on the credit side.

• EXAMPLE:

Ø BALANCING AN ACCOUNT:

Balance is the difference between the total debits and the total credits of an account.
When posting is done, many accounts may have entries on their debit side as well as
credit side. The net result of such debits and credits in an account is the balance.
Balancing means the writing of the difference between the amount columns of the two
sides in the lighter (smaller total) side, so that the grand totals of the two sides become
equal.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

• Significance of balancing:

There are three possibilities while balancing an account during a given period. It may be
a debit balance or a credit balance or a nil balance depending upon the debit total and the
credit total.

i. Debit Balance: The excess of debit total over the credit total is called the debit
balance. When there is only debit entries in an account, the amount itself is the balance
of that account, i.e., the debit balance. It is first recorded on the credit side, above the
total. Then it is entered on the debit side, below the total, as the first item for the next
period.

ii. Credit Balance: The excess of credit total over the debit total is called the credit
balance. When there is only credit entries in an account, the amount itself is the balance
of that account i.e., the credit balance. It is first written in the debit side, as the last item,
above the total. Then it is recorded on the credit side, below the total, as the first item for
the next period.

iii. Nil Balance: When the total of debits and credits are equal, it is closed by merely
writing the total on both the sides. It indicates the equality of benefits received and given
by that account.

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Balancing of different accounts

Balancing is done periodically, i.e., weekly, monthly, quarterly, half yearly or yearly,
depending on the requirements of the business.

i. Personal Accounts: These accounts are generally balanced regularly to know the
amounts due to the persons (creditors) or due from the persons (debtors).

ii. Real Accounts: These accounts are generally balanced at the end of the financial year,
when final accounts are being prepared. However, cash account is frequently balanced to
know the cash on hand. A debit balance in an asset account indicated the value of the
asset owned by the business. Assets accounts always show debit balances.

iii. Nominal Accounts: These accounts are in fact, not to be balanced as they are to be
closed by transfer to final accounts. A debit balance in a nominal account indicates that it
is an expense or loss. A credit balance in a nominal account indicates that it is an
income or gain. All such balances in personal and real accounts are shown in the
Balance Sheet and the balances in nominal accounts are taken to the Profit and Loss
Account.

• Procedure for Balancing:

While balancing an account, the following steps are involved:

Step 1 Total the amount column of the debit side and the credit side separately and then
ascertain the difference of both the columns.

Step 2 If the debit side total exceeds the credit side total, put such difference on the
amount column of the credit side, write the date on which balancing is being done in the
date column and the words “By Balance c/d” (c/d means carried down) in the particulars
column.

OR

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BBA (Financial Markets) Accounting for Business – Accounting Process

If the credit side total exceeds the debit side total, put such difference on the amount
column of the debit side, write the date on which balancing is being done in the date
column and the words “To Balance c/d” in the particulars column.

Step 3 Total again both the amount columns, put the total on both the sides and draw a
line above and a line below the totals.

Step 4 Enter the date of the beginning of the next period in the date column and bring
down the debit balance on the debit side along with the words “To Balance b/d” (b/d
means brought down) in the particulars column and the credit balance on the credit side
along with the words “By balance b/d” in the particulars column.

Note: In the place of c/d and b/d, the words c/f or c/o (carried forward or carried over)
and b/for b/o (brought forward or brought over) may also be used. When the balance is
carried down in the same page, the words c/d and b/d are used, while balance is carried
over to the next page, the term c/o and b/o are used. When balance is carried forward to
some other page either in same book or some other book, the abbreviations c/f (carried
forward) and b/f (brought forward) are used.

Numerical

Q-1 Journalise the following transactions and post them into the Ledger. Also, balance
the accounts:
2014
April Ramesh started business with cash 1,00,000
1
2 Paid into Bank 70,000
3 Bought goods for cash 5,000
4 Drew cash from bank for office 1,000
13 Sold to Krishna goods on credit 1,500
20 Bought from Shyam goods on Credit 2,250
24 Received from Krishna 1,500
28 Paid cash to Shyam 2,150
Discount allowed by him 100
30 Cash sales for the month 8,000
30 Paid rent 500
30 Paid salary to Ram 3,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Q-2 Journalise the following transactions, post them in Ledger accounts and balance
them:

2014
April Kamal started business with cash 1,00,000
1
2 Bought goods for cash 30,500
3 Opened Bank account with cash 50,000
4 Sold goods for cash 40,000
7 Bought goods from Surya on credit 30,000
10 Sold goods to Rakesh on credit 25,000
15 Purchased plant & machinery and payment is made by cheque 16,600
19 Paid to Surya in cash 10,000
21 Received loan from Anil and deposited the same into bank 8,000
23 Goods returned to Surya 1,000
26 Withdrew from bank for personal use 5,000
27 Paid to Surya by cheque 8,000
29 Received cash from Rakesh 10,000
30 Purchased stationery for cash 200
30 Paid wages and salaries 10,000

Q-3 Ashok started business on 1st April 2014 with Plant & Machinery worth Rs.
4,00,000, Furniture worth Rs. 1,00,000, Building worth Rs. 5,00,000 and cash Rs.
1,00,000. Journalise the following transactions for the month of April, prepare the Ledger
Accounts and ascertain the balances in the books of Ashok:

2014 Rs.
April Purchased goods for cash from Ram 55,000
1
4 Purchased goods from Naresh 40,000
6 Sold goods for cash 70,000
12 Cash deposited into bank 80,000
14 Purchased machinery for cash 10,000
15 Sold goods to Priya 30,000
16 Returned goods to Naresh 2,000
18 Paid Naresh by cheque 20,000
20 Withdrawn from bank for personal use 10,000
25 Received cheque from Priya and deposited into bank 20,000
28 Paid salary for the month of April 10,000
30 Received bank interest 400
30 Purchased stationery for cash 1,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Q-4 From the following particulars, prepare the account of Mr. B the proprietor of the
business: Capital Introduced30,000; Drawings made by him 6,500; Further capital
introduced 22,000; Profits for the period 7,500. Balance the same and explain what does
the closing balance indicate.

Q-5 Prepare a Stationery Account of a firm for the year ended 31st March, 2014, duly
balance off from the following details:

2013 Rs.
April 1 Stock in hand 960
12 Purchased of stationery by cheque 1,600
10 Purchased of stationery on credit from Indian Stationery Mart 2,500
22 Purchased of stationery by cash 500
2014
March 31 Stock in hand 2,200

Q-6 The following balances appeared in the ledger of M/s Marble Traders on 1st April
2006:

Cash in hand6,000; Cash at bank 12,000; Bills receivable 7,000; Ramesh (Cr.) 3,000;
Stock (goods) 5,400; Bills payable 2,000; Rahul (Dr.) 9,700; Himanshu (Dr.) 10,000.
Transaction during the month were:

April Goods sold to Manish Rs.

1 3,000
2 Purchased goods from Ramesh 8,000
3 Received cash from Rahul in full settlement 9,200
5 Cash received from Himanshu on account 4,000
6 Paid to Ramesh by cheque 6,000
8 Rent paid by cheque 1,200
10 Cash received from Mukesh 3,000
12 Cash sales 6,000
14 Goods returned to Ramesh 1,000
15 Cash paid to Ramesh in full settlement (Discount received Rs. 300) 3,700
18 Goods sold to Kushal 10,000
20 Paid trade expenses 200
21 Drew for personal use 1,000
22 Goods returned from Kushal 1,200
24 Cash received from Kushal 6,000
26 Paid for Stationery 100
27 Postage charges 60
28 Salary paid 2,500

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

29 Goods purchased from Sheetal traders 7,000

30 Sold goods to Kirti 6,000
30 Goods purchased from Heer Traders 5,000

TRIAL BALANCE

A trial balance is a schedule or list of balances of both debit and credit extracted
from various accounts in the including cash and bank balances from cash book.
Since every transaction has a dual effect i.e. every debit has a corresponding credit and
vice versa, the total of the debit balances and credit balances extracted from the ledger
must tally. Thus, at the end of the accounting period or at the end of each month, the
balances of the ledger accounts are extracted and trial balance is prepared to test as to
whether the total debits are equal to total credits.

• Features of a Trial Balance

1. It is a statement prepared in a tabular form. It has two columns one for debit balances
and another for credit balances.

2. The balances at the end of the period as shown by ledger accounts are shown in the
statement.

3. It can be prepared on any date provided accounts are balanced.

4. It is a method of verifying the arithmetical accuracy of entries made in the ledger.

5. It is just a statement, and not an account.

6. A tallied Trial Balance is not a conclusive proof of the accuracy of the books of
accounts since certain type of errors remain even when the Trial Balance tallies..

• Methods of Preparing the Trial Balance

(i) Total Method: In this method, the totals of debit and credit sides of the ledger
accounts are shown in the trial balance. The sum totals of debit and credit columns of the
trial balance must be equal. This is less popular method.

(ii) Balance Method: In this method, the balances of ledger accounts are taken to
respective debit and credit columns of the trial balance and then grand total is taken out.
The total of balances in the debit column must be equal to the total balances in the credit
column of the trial balance.

• Suspense Account

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

A suspense account is a account in which the difference in the Trial Balance is

transferred. If the trial balance does not agree, it means there are certain errors in the
books of accounts. If it is not possible to locate the errors, the difference in the trial
balance is temporarily transferred to suspense account.

Whenever one- sided error is detected it is subsequently rectified through suspense

account. If the total of debit items is more than the total of the credit items, the suspense
account is credited by the differential amount. Similarly, if the total of the credit items is
more than the total of the debit items, the suspense account is debited by the differential
amount.

Numerical

Q-1 Prepare a Trial Balance from the following balances of Gopal Chand as at 31st
March, 2012:

Name of accounts Amount

Opening stock 20,000
Purchases 85,000
Purchase returns 5,000
Sales 1,60,000
Sales return 6,200
Rent 1,200
Salaries 5,700
Advertisement 880
Commission Received 1,440
Discount Received 710
Furniture 6,000
Machinery 62,000
Debtors 36,000
Creditors 12,750
Bills receivable 4,600
Bills payable 2,500
Cash in hand 5,220
Bank overdraft 10,000
Interest on overdraft 1,800
Capital 50,000
Drawings 7,800

Q-2 From the following list of Balances extracted from the books of Balaji, prepare a
Trial Balance as at 31st March, 2014:

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Name of accounts Amount

Stock on 1st April 2013 2,20,000
Purchases 25,75,000
Investments 3,00,000
Interest on investments 27,000
Sales 36,18,000
Carriage inward 3,000
Carriage outward 1,200
Return inwards 85,000
Return outwards 20,000
Debtors 3,20,000
Creditors 1,74,000
Bad debts 6,000
Stationery 4,200
Insurance 3,400
Wages and salaries 1,85,000
Cash 12,400
Premises 6,00,000
Fixtures 1,40,000
Miscellaneous exp. 5,200
Miscellaneous income 1,400
Loan from ICICI bank 2,50,000
Interest on above 30,000
Capital 7,00,000
Proprietor’s withdrawals 60,000
Computers 90,000
Goodwill 1,50,000

Q- 3 From the following list of balances extracted from the books of Richard, prepare a
Trial Balance as at 31st March, 2104. The amount required to balance should be entered
as capital.

Name of accounts Amount

Stock on 1st April 2013 3,50,000
Purchase 18,20,000
Sales 40,00,000
Sundry expenses 15,000
Leasehold premises 5,00,000
Freehold premises 18,00,000
Return inwards 25,000
Furniture and fixtures 2,90,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Equipment 8,00,000
Repairs to equipment 5,000
Depreciation 80,000
Proprietor’s withdrawals 60,000
Sundry debtors 3,60,000
Sundry creditors 1,20,000
Bad debts 10,000
Investment @ 10% 2,00,000
Interest on investment 20,000
Long term borrowings 6,00,000
Loan from U.T.I. Bank 8,00,000
Interest on loan 65,000
Petty cash account 400
Balance at bank 34,600
Stock on 31.3.2014 (not adjusted) 4,60,000

Q-4 From the following list of balances, prepare a Trial Balance:

Capital A/c 2,00,000

Debtors A/c 30,000
Fixed assets A/c 1,92,000
Sales A/c 1,10,000
Return Outward A/c 1,000
Bills Payable A/c 8,000
Bank Overdraft A/c 11,000
Opening Stock A/c 15,000
Creditors A/c 30,000
Purchase A/c 70,000
Return Inward A/c 2,000
Wages & Salaries A/c 30,000
Bills Receivable A/c 15,000
Rent A/c 6,000

Q-5 From the following list of balances, prepare a Trial Balance:

Fixed asset A/c 2,46,000

Capital A/c 2,50,000
Debtors A/c 20,000
Creditors A/c 22,000
Purchase A/c 35,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Sales A/c 53,000

Return Outward A/c 500
Return Inward A/c 1,000
Bills payable A/c 4,000
Bills receivable A/c 8,000
Bank overdraft A/c 6,000
Opening stock A/c 7,500
Wages A/c 6,000
Salaries A/c 9,000
Rent A/c 3,000

Q – 6 From the following list of balances, prepare a Trial Balance:

Purchases 1,70,000
Stock (1st April,2014) 24,000
Sales 1,05,000
Sundry Debtors 23,800
Discount Received 3,500
Carriage Outwards 700
Cash in hand 3,500
Machinery 1,24,500
Provision for dep on machinery 24,200
Drawings 7,700
Return Inward 3,500
Premises 5,28,000
Sundry Creditors 16,100
Discount allowed 2,800
Carriage Inwards 1,400
Cash at bank 17,500
General expenses 2,100
Bad debts written off 2,450
Provision for doubtful debts 2,380

Q-7 A businessman wrongly prepared the following Trial Balance. You are required to
prepare Trial Balance correctly:

TRIAL BALANCE
For the year ended 31st March, 2015
Debit Rs. Credit Rs.
Opening stock of material 1,00,000 Capital 3,00,000

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University

BBA (Financial Markets) Accounting for Business – Accounting Process

Opening stock of finished 1,50,000 Sales 13,00,000

goods
Wages 3,00,000 Return inward 50,000
Salary 2,00,000 Bills receivable 1,20,000
Purchases 8,00,000 Creditors 50,000
Return inward 10,000 Discount allowed 30,000
Debtors 2,00,000 Carriage outwards 5,000
Bills payable 80,000 Fixed assets 1,50,000
Discount received 60,000 Closing stock of material 5,000
Carriage inwards 30,000 Closing stock of finished 15,000
goods
Fuel 15,000
Accrued wages 10,000
Cash in hand 20,000
Bank overdraft 50,000
20,25,000 20,25,000
Q-8 Redraft the following trial balance:

In the books of ABC

Trial Balance for the year ended 31st March, 2015

Debit Rs. Credit Rs.

Capital 1,50,000 Drawings 27,000
Opening stock 1,10,000 Purchases 3,50,000
Sales 6,20,000 Return outward 8,000
Return inward 12,000 Salaries 82,000
Wages 57,400 Electric charges 11,200
Discount 7,700 Discount 3,000
Carriage inwards 1,200 Depreciation 7,500
Carriage outwards 3,000 Depreciation reserve 45,000
Plant and machinery 1,50,000 Provision for doubtful debt 10,000
Debtors 80,000 Creditors 1,98,000
Cash in hand 7,000 Closing stock (unadjusted) 1,35,000
Cash at bank 1,28,000 Suspense account 4,49,600
13,26,300 13,26,300

Happy Reading & Solving!!!

Prof. Prachi Gadhiya, Faculty of Liberal Studies, Marwadi University