Accounting

Vista Academy
 Definition of Accountancy.
Accountancy is an ART of Recording,
Classifying and Summarizing in a
significant manner and in terms of
money, financial transactions and
events which are in part at least of a
financial character and interpreting the
result thereof.

“American Institute of Certified Public

Accountant”
 Fundamental Points of
Accountancy.
• In Accountancy “DEBIT” means ‘+’, ‘Addition’.
• In Accountancy “CREDIT” means ‘-’,
‘Subtraction’.
• In every transactions there is a ‘Receiver’ and
there is a ‘Giver’.
• In every transactions some thing comes IN the
business and something goes OUT of the
business.
• In accountancy the ‘Transactions’ are recorded
in the books of Accounts from the point of view
of the BUSINESS only.
 Fundamental Points of
Accountancy.
• In Accountancy only Business
transactions are recorded in the
books of Accounts and the Personal
transactions of the Owner are not
recorded.
• The amount which the owner invest
into the business is known as
CAPITAL
 Fundamental Points of
Accountancy.
• The amount which the owner withdraws
from the business for his PERSONAL USE
is known as DRAWINGS.
Types of activities
• Economic Activities
• Non – economic activities
 DIVISION OF ECONOMY
PERSONAL REAL ACCOUNTS NOMINAL
ACCOUNTS ACCOUNTS

1. RAM 1. LAND & 1. EXPENSES

2. SHYAM BUILDING 2. INCOMES
3. SITA 2. PLANT & 3. PROFITS
4. GEETA MACHINERY 4. LOSSES
5. COMPANY 3. FURNITURE &
6. BANK A/C FIXTURES
7. Capital a/c 4. CASH A/C
8. Drawing s a/c
 Application

DEBIT
•Dr(+)

CREDIT •Cr (-)

 3 Golden Rules
• DEBIT” THE RECEIVER
PERSONAL • “CREDIT” THE GIVER
ACCOUNTS

REAL • “DEBIT” WHAT COME IN

ACCOUNTS • “CREDIT” WHAT GOES OUT

• “DEBIT” ALL EXPENSES &

NOMINAL LOSSES
ACCOUNTS • “CREDIT” ALL INCOMES & GAINS
 Application
• There are four (4) steps in the construction
of a journal entry
1. Understanding the transaction.
2. Identifying the accounts to be opened.
3. Classifying the accounts as per the
division of the economy.
4. Applying the rules.
 Journal Entry

Account DrAmount
To Account Amount
(BEING_________________)
Journal Entry in the books of
Accounts
Example of journal entry
Started business with cash Rs 100000.
Cash A/c (real)
Capital A/c (personal)

Cash A/c Dr. 100000

To Capital A/c 100000
(being business started with cash)
Deposited into bank Rs.
50,000
Bank A/c (Personal a/c)
Cash A/c (real A/c)

Bank A/c Dr 50,000

To cash A/c 50,000
(being business with cash )
Purchase goods for cash Rs
10,000
Purchase A/c (real A/c)
Cash A/c (real A/c)

Purchase A/c Dr. 10,000

To cash A/c 10,000
(being cash deposited into bank)
Purchase goods from
Mohan Rs. 9000
• Purchase A/c ( Real A/c)
• Mohan (Personal)

Purchase A/c Dr. 9,000

To Mohan 9,000
(being goods purchased from mohan)
Purchase goods by cheque
Rs. 7000.
Purchase A/c (Real A/c)
Bank A/c ( personal a/c)

Purchase A/c Dr. 7000

To Bank A/c 7000
(being goods purchase by cheque)
Sold goods for cash Rs
9000.
Sales A/c (real a/c)
Cash A/c ( real A/c)

Cash A/c Dr. 9,000

To sales A/c 9000
(being goods sold for cash)
Sold goods by cheque Rs
9000
Sale A/c (real a/c)
Bank (personal A/c)

Bank A/c Dr. 9,000

To sale A/c 9,000
(being goods sold by cheque)
Sold goods from Ramesh Rs
3000.
• Sale A/c (real A/c)
• Ramesh ( personal a/c)

Ramesh Dr. 3,000

To sale A/c 3,000
Purchase Machinery for
cash Rs. 20,000
Machinery A/c (real A/c)
Cash a/c (real A/c)

Machinery A/c 20,000

To cash A/c 20,000
(being machinery purchased)
Paid Rent Rs 8000
Rent A/c (nominal A/c)
Cash A/c (real A/c)

Rent A/c Dr 8000

To Cash A/c 8000
(being rent paid )
Received Commission Rs
800 by cheque.
Cash A/c ( real A/c)
Commission ( Nominal A/c)

Cash A/c Dr 800

To commission A/c 800
(being commission received for cash )
Trade Discount
and
Cash Discount
Trade discount and cash
Discount
PURPOSE Trade discount Cash discount

Meaning A discount given by A deduction in the

the seller to the buyer amount of invoice
as a deduction in the allowed by the
list price of the seller to the buyer
commodity is trade in return for
discount. immediate payment
is cash discount.
Purpose To facilitate a bulk To facilitate a
sales. prompt payment.
Invoice It is shown in invoice It is not shown in
as a deduction itself. invoice.
 Trade discount Cash
Discount

When allowed? At the time of At the time of

purchase. payment.
Allowed to all Yes No
customers
Entry in books No Yes
Vary with Time period, when
payment is made.
Format of bill
S.NO ITEM PRICE UNITS TRADE AMOUNT
DISCOU
NT
1 X 100 100 !0% 9000
Total 9000/
amount
Journal entry of trade
discount
• Purchase goods from Mohan Rs
10,000 and trade discount received
10% .
• 10,000 X 10% = 1000
• 10,000 – 1000 = Rs 9000
• Journal entry for the transaction will
be
Purchase goods from
Mohan Rs 10,000 and trade
discount received 10% .
Purchase A/c Dr. 9,000
To Mohan 9000
• ( being goods purchased from
Mohan)
Journal entry of trade
discount
• Sold goods to Disha Rs 20,000 and
trade discount allowed 10% .
• 20,000 X 10% = 2000
• 20000-2000= 18,000

• Journal entry of transaction will be.

Sold goods to Disha Rs
20,000 and trade discount
allowed 10% .
Disha Dr. 18,000
To Sales A/c 18,000
• (being goods sold to Disha and trade
discount allowed 10% )
Cash Discount
• Purchase Goods from Mahesh Rs
10,000
• Purchase A/c (r)
• Mahesh (P)
Purchase A/c 10,000
To Mahesh 10,000
• (being goods purchased from
Mahesh)
Paid cash to Mahesh Rs
9500 and received cash
discount Rs 500
Cash A/c (r )
Mahesh ( P)
Discount received ( N)
Mahesh Dr. 10,000
To cash A/c 9,500
To discount received A/c 9,500
(being cash paid to Mahesh)
Sold goods to Varun Rs
20,000
Sale A/c (r)
Varun (p)

Varun Dr . 20,000
To sales A/c 20,000
(being goods sold to Varun)
Received cash from Varun
Rs 19,500 and discount
allowed 500
• Cash A/c ( r)
• Varun ( P)
• discount Allowed (N)
Cash A/c Dr. 19,500
Discount Allowed A/c Dr. 500
To varun 20,000
(being cash received from Varun and
discount allowed)
Purchase goods Rs 20000
and trade discount 10% and
cash discount 5%
• Purchase A/c (r)
• cash A/c (r)
• Discount Received A/c (n)
• 20,000 - 10% of 20,000
• 20,000-2000 =18,000
• 18,000 X 5% = 900 (cash discount
Purchase goods Rs 20000
and trade discount 10% and
cash discount 5%
• Purchase A/c (r)
• cash A/c (r)
• Discount Received A/c (n)
Purchase A/c Dr. 18,000
To Ravi
To discount Received A/c
 Purchase goods Rs 20000 from
Ravi and trade discount 10% and
paid 60% amount immediately
and gets cash discount 5%
• Purchase A/c (R)
• Ravi A/c (P)
• Discount Received A/c (N)
• Cash ( R)
• 20,000- 10% of 20,000= 18,000
• 18000 X 40/100 = 10800
• 10,800 X 5% = 900
• 10,800 -900 = 9900
• 40% X 18000 = 7200
Purchase goods Rs 20000 from
Ravi and trade discount 10% and
paid 60% amount immediately and
gets cash discount 5%
Purchase A/c Dr . 18,000
To Ravi 7,200
To cash A/c 9,900
To Discount rec.A/c 900
• (being goods purchased from Ravi
and trade discount allowed and
discount received)
Sold goods to Atul Rs 20,000 and trade discount
allowed 10%. If payment is made with in 10days
5% cash discount is allowed. Atul paid ½ of the
payment with in 5 days.

Atul Dr. 18,000

To sales A/c 18,000
• (being goods sold to Atul)
Sold goods to Atul Rs 20,000 and trade discount
allowed 10%. If payment is made with in 10days
5% cash discount is allowed. Atul paid ½ of the
payment with in 5 days.

18,000/2 = Rs. 9000

9,000 X 5% = 450
9,000-450 =8550
Cash A/c dr. 8,850
Discount Allowed A/c 150
To Atul 9,000
• (being cash paid to Atul and discount
allowed)
Entries of Expense

DEBIT +
Assets
●

●
Credit -

Liabiliti ●
DEBIT -
CREDIT +
es
●
Cash paid to Mahesh Rs.
10,000 Asse DEBIT +
• Mahesh (liability )(p)
●

Credit -
ts
●

• Cash (Asset) (R)

Liabil ●
DEBIT -

ities CREDIT +
●

Mahesh 10,000
To cash A/c 10,000
• (being cash paid to Mahesh)
Cash received from Atul
5000 Asset ●
DEBIT +
Credit -
s
●

• Atul (P) (A )
Liabili
• Cash (r ) (A) ties
●

●
DEBIT -
CREDIT +

Cash A/c Dr. 5000

To Atul 5000
• (being cash received form Atul)
 Type of Expenses
.

• Rent paid
• Rent Paid In Advance/Prepaid rent
• Rent Unpaid/Outstanding rent
Rent Paid Rs 1000
Rent A/c Dr.   1000
To cash A/c   1000
(being rent paid)
 Rent paid Rs.2000. but
Actual Rent Rs. 1000
It is (prepaid rent) it is an Current. assets.
Rent A/c   Dr.     2000 • DEBIT +
Assets • Credit -
To cash A/c  2000
(being rent Paid) Liabilities DEBIT -
•
• CREDIT +
Prepaid Rent (Asset)
Prepaid Rent A/c   Dr 1000
To Rent A/c 1000
(Being adjustment made)
 
Rent paid Rs.2000. but
Actual Rent Rs. 1000
Rent A/c Dr 1000
Prepaid Rent A/c Dr 1000
To cash A/c 2,000
Rent Paid Rs 500 Actual
Rent 1000.
Rent A/c   Dr   500
To cash A/c  500 • DEBIT +
Assets • Credit -
(being rent paid)
• DEBIT -
Liabilities
• CREDIT +
Rent A/c Dr  500
To outstanding Rent A/c  500
(being Adjustment made)
Rent Paid Rs 500 Actual
Rent 1000.
Rent A/c Dr 1000
To O/S Rent A/c 500
To Cash A/c 500
Question for all ?
1 Jan. Electricity bill received Rs 500.
10 Jan Electricity bill paid Rs 500
Types of income
• Income Received
• Income earned but not yet
received /accrued income
• Income received in advance
/unearned income / Advance income
Income received Rs 1000

Cash A/c Dr 1000

To Income A/c 1000
(Being income received)
Income received Rs 2000
actual income 1000
• DEBIT +
Assets • Credit -
Cash A/c Dr. 2,000
To Income A/c 2,000 Liabilities DEBIT -
•
• CREDIT +
(being salary received)
Income A/c Dr 1,000
To Unearned Income A/c 1,000
(Being salary received in advance)
Unearned Income – Income earned in
advance Its is current liabilities
Income received Rs. 2000
actual Income 1000
Cash A/c Rs. 2000
To Income A/c 1,000
To Unearned Income 1,000
• DEBIT +
Assets • Credit -

• DEBIT -
Liabilities
• CREDIT +
Income received Rs 500
actual Income1000
Cash A/c Dr. 500
To Income A/c 500
(being income Received)
Accrued Income A/c 500
To Income A/c 500
(being accrued Income)
Accrued Income Current assets
Income received Rs 500
actual Income1000
Cash A/c Dr. 500
Accrued Income A/c Dr. 500
To Income A/c 1,000
Question for all ?
• Received advance from Naresh Rs
10,000
• Sale made to Naresh Rs 20,000 and
and advance adjusted against it .
www.thevistaacademy.com
Journal Entry of exchange
LEDGERS

IMPORTANT POINTS

• A ledger is a collection of accounts

• A ledger is prepared for a fixed
period, usually a month
• A ledger is prepared in continuation,
viz, month after month.
 POSTING IN LEDGERS
1. First of all we make a journal entries of the
transaction.
2. From journal entries we do the posting in the
respective ledgers accounts
3. Beginning from the very first entry, we have to
see that whose ledger is being prepared, is
debited or credited.
4. If the particular ledger account is debited in the
journal entry, than we will post it to the debit side
of ledger a/c.
 Posting in Ledgers.

1. Or if the particular ledger account is

credited in the journal entry, than we will
post it to the credit of ledger a/c. Basically
it all depends upon the whether the
particular ledger which we are preparing
is being debited or credited in the journal
entries.
2. If the particular ledger is being debited in
the journal entry, than we will post the
entry to the debit side of that particular
ledger.
 Important Points regarding
Ledgers
1. Whenever we post any entry to the debit
side of ledger we prefix TO.
2. Whenever we post any entry to the credit
side of ledger we prefix BY.
3. The balancing figures of Personal a/c can
ONLY be either To bal c/c or By bal c/d.
4. The balancing figures of Real a/c can be
ONLY By bal c/d.
 Important points regarding
LEDGERS
• The nominal a/c are never balanced.
• They are transferred to P/L a/c, except 5
(five) accounts, these are:
Purchase a/c, Sales a/c, Purchase return a/c,
Sales return a/c and Stock a/c – these five
accounts are transferred to TRADING A/C.
The rest of the Nominal accounts are
transferred to P/L account respectively.
 Important points regarding
LEDGERS
• The balancing figure of nominal
account which are transferred to
Trading a/c can either be To Trading
a/c or By Trading a/c.
• The balancing figure of nominal
account which are transferred to P/L
a/c can either be To P/L a/c or By P/L
a/c.
Balancing a ledger

• Balancing a ledger is an important

step in preparing a ledger.
• The left hand side of a ledger is a
“debit” side and the right hand side of
a ledger is a “credit” side
• Now first of all we sum up the debit
side and than the credit side.
• The bigger amount of the two sides is
Important
• Now we have to record these infinite
transactions in the books of accounts,
since these transactions are infinite,
unlimited and different in nature we face
difficulties in recording them.
• Before recording these transactions we
have to understand them, since their
number is very large (infinite/unlimited), we
face difficulties in their recording.
 Balancing a ledger

Is than written on both the sides as totals of

both the sides.
• The deficiency in either side is the
balancing figure of the ledger.
• The balancing figure is thus written
according to the points mentioned in the
earlier points.
Important points regarding ledgers
• If the debit side total is bigger than the
credit side total than it is called a DEBIT
BALANCE.
• If the credit side total is bigger than the
credit side total than it is called a CREDIT
BALANCE.
• If both the credit side total and the debit
side total is equal by themselves than the
ledger is not balanced as it is already
balanced and there is NO balancing figure.
Leger example from Journal
Entry
1. Started Business with Cash Rs.
100000
Cash A/c Dr 100000
To Capital A/c 100000
(being business stared)
2. Purchase goods of X Rs. 10,000
Purchase A/c 10,000
To X 10,000
 Capital A/c
Particular Amount Particular Amount

To Cash 100000
By Bal. C/d 100000
100000 100000
 Format of ledgers
ACCOUNTING EQUATIONS
Assets = Capital + Liabilities
Ledgers are of two types:
Of Assets & Of Liabilities
The opening balances of the ledgers of
Assets:
To bal b/d.
The closing balances of the ledgers of
Assets:
By bal c/d.
 Format of Ledgers.
The opening balances of the ledgers of
Liabilities:
By bal b/d.
The closing balances of the ledgers of
Liabilities:
To bal c/d.
 Balancing of Ledgers.
The balancing figures of the ledgers
accounts are as Follows:
Personal a/c’s
The balancing figures of the Personal
accounts can either be only:
To bal c/d or By bal c/d
Real a/c’s
The balancing figures of the Real
accounts can be only:
By bal c/d.
 Balancing of Ledgers.
Nominal a/c’s
The nominal accounts are never
balanced in real sense of the term.
Instead the balances of these accounts
are transferred to P/L accounts except
the balances of five accounts namely:
Purchase a/c, Sales a/c, Purchase
Return a/c, Sales Return a/c, Stock a/c
are transferred to Trading a/c:
 TRIAL BALANCE
A TRIAL BALANCE IS JUST PREPARED TO CHECK THE

MATHEMATICAL ACCURANCY OF THE BOOKS OF

ACCOUNTS.

THE BALANCING FIGURES FROM THE RESPECTIVE

LEDGERS ACCOUNTS IS POSTED TO THE TRIAL BALANCE

AND IF THE TRIAL BALANCE’S DEBIT AND THE CREDIT

SIDES ARE EQUAL, THAN THE MATHEMATICAL ACCURACY

IS PROVED AND IF THE DEBIT AND THE CREDIT SIDES

TOTALS DO NOT MATCH THAN IT MEANS THAT SOME

ERRORS HAVE BEEN CREATED.

 Bank Reconciliation
Statement
The back bone of the economy is our
Financial Institutions popularly known as
BANKS.
Every enterprise in the world does economic
activities with the help of BANKS.
The primary relation of the enterprises with
the banks is that they deposit money with the
banks and withdraw or pay the money
according to their requirement.
Now the transactions are recorded from the
point of view of both the parties.
 How to prepare a BRS.
As we have studied in the previous
slides that if the debit balance as
shown by the bank column of the cash
book is not equal to the ‘credit’ balance
as shown by the pass book, it means
that some errors have been created in
recording the transactions in either of
the books.
 How to prepare a BRS.
After knowing that the ‘debit’ balance as per cash
book is no equal with the ‘credit’ balance as per
pass book, our primary step is to find the errors
and reconcile the ‘debit’ balance as per cash
book with the ‘credit’ balance as per bank pass
book.
 How to prepare BRS

If the balance as shown by Cash book

(bank column) and the balance as
shown by the Pass book do not tally,
i.e. to say if both the balances are not
equal, it simply means that error in
recording have been made.
The next step is to find the errors and
reconcile both the balances.
This process is done by making a
Statement called BRS.
Cash book and pass book
Cash book (bank column) is simply a ledger,
consisting of all the transactions of the
enterprise with that of a bank ONLY.
The enterprise records all its transaction with
the bank in the bank column of Cash book.
The bank column of the cash book is debited
when the enterprise receives any Cheque
and the bank column is credited when the
enterprise makes payment through
cheque.
Recording of transaction by
the bank.
The bank prepares PASS BOOK.
A pass book is simply a ledger account of the
customer (enterprise) in the books of the
bank.
The bank records the transaction entered
into by it in the bank pass book.
The transactions are recorded in the bank
pass book from BANK’s point of view.
 Recording of transaction in
the Bank’s pass book
Whenever the customer (enterprise), as all
are customers from bank’s point of view,
deposited money into the bank, it is credited
into the bank pass book.
It is credited into the bank pass book
because the money which the customer
(enterprise) has deposited into the bank is
NOT the banks money, it is still the
customer’s (enterprise’s) money, which the
customer has deposited into the bank for the
sake of safety and also for the sake of
interest which the bank pays on the deposits.
Recording of transactions in
bank pass book.
That is to say whenever a depositor,
customer or an enterprise deposits money
into the bank, the money deposited by the
customer into the bank is not the BANK’s
money and it stills belongs to the customer.
From BANK’s point of view, now the bank
has to pay the amount of money deposited
with it any time the customer demands.
Recording of transaction by
the bank
The BANK now has a liability towards the customer.
In the books of the BANK, the bank creates its
LIABILITY by crediting the customer, depositor or
enterprise as the case may be.
The depositor, customer or enterprise is a SUNDRY
CREDITOR from the view point of the BANK,
because the bank has to pay to the customer,
depositor or the enterprise the money deposited by
them into the bank ANYTIME as demanded by them.
 Recording of transaction by
the bank
If the bank fails to pay the deposited amount
to the customer, depositor or the enterprise,
it the failure of the entire banking system and
the failure of the economy as a whole.
Such situation does not arises because the
financial institution are well aware of their
duties and responsibilities.
 How to make a bank
reconciliation statement
First of all lets understand the
transaction.
Transaction: A customer deposited Rs.
10000.00 into the bank.
The customer and the bank both will
record the transaction in their
respective books of accounts.
 How to make a BRS.
The customer prepares a CASHBOOK.
The bank prepares a PASSBOOK.
From the view point of CUSTOMER:
The customer will pass the journal
entry:
Bank a/c dr 10000.00
To cash a/c 10000.00
(being cash deposited into the bank)
 How to make a BRS
The customer prepares a cash book.
The customer passes the journal entry.
In the journal entry the bank a/c is
being ‘debited’, accordingly the
customer debit the bank’s ledger in his
books and also his asset is being
created, that is also the reason why the
customer debits the bank a/c in his
books of accounts.
 How to prepare a BRS
Now from the view point of the bank,
the bank’s liability is being created, as
he has to pay the deposited amount to
the customer as and when he
demands; from the view point of the
bank the depositor is a sundry creditor,
as he has to pay the deposited amount
to the depositor.
 How to prepare a BRS

The bank now credits the amount

deposited by the depositor. In simple

words the depositor creates his liabiliby

in his books of accounts, which is

popularly known as bank PASSBOOK.

 How to prepare a BRS

The ‘debit’ balance as shown by the

bank column cash must always be
equal with the ‘credit’ balance as
shown by the bank pass book.
If these two balances do not tally, in
other words if these two balance are
not equal, than some errors might have
created.
 Reasons of ERRORS in
BRS.
Errors in a Bank Reconciliation is
caused by circumstances and they
cannot be termed as ERRORS in real
sense of the term.
In order to under stand the errors in
bank reconciliation statements, in other
words to find out the reasons as to why
the “debit” balance as per cash book is
 Reasons of ERRORS in
BRS.

Not equal with the “credit” balance as per pass

book or the “credit” balance as shown by the cash

book is not equal with the “debit” balance as

 How to identify the Errors in
BRS.
Now for example: if we assume that we have got
Rs. 10000.00 into the bank and the pass book
also shows that there is 10000.00 into the bank.
It simply means that ‘debit’ balance as per Cash
book is equal with ‘credit’ balance as per Pass
book, that is both the balances are equal.
 How to prepare a BRS.
Now we issue a Cheque to a creditor worth Rs.
1000. we as a customer will prepare a bank
column cash book and immediately records this
transaction in our cash book and subtract from
the balance as shown by our cash book the
amount of cheque issued to a creditor.
In our example we have taken that the balance
as shown by our cash book is Rs. 10000. and
when we subtract the amount of cheque issued
to a creditor, we are left with Rs. 9000 (10000-
1000), the new balance as per cash book.
 How to prepare a BRS.
Now we are assuming that the creditor to whom
the cheque was issued has not presented the
cheque to the bank. Accordingly the bank will not
deduct the amount from the pass book the ‘credit’
balance as per bank pass book will remain un
effected, i.e. the credit balance as per bank pass
book will be Rs. 10000.
Here arises a difference between both the
balances, the debit balance as per cash book is
Rs. 9000 whereas the credit balance as per pass
book is un effected, Rs. 10000.
 Reasons for errors in BRS.
Reasons of errors in BRS are as follows:
• Interest credited by the bank – it means that the
bank has allowed us an interest and it has
simply deposited the amount of interest in our
bank account in their bank, i.e. a bank has
credited Rs. 1000.00 as interest in our account
, we as a customer would not come to know
that the interest has been credited in our
account and assuming that we are unaware of
the interest credited by the bank.
 Reasons for errors in BRS.
Assuming un up figure from 10000.00, if we
assume that we have a balance of Rs. 15000.00
in the bank: accordingly the ‘debit’ balance as per
cash book will be equal with ‘credit’ balance as
per pass book.
When the bank credits Rs. 1000.00 as interest it
will add the amount in the existing balance which
is Rs. 15000.00 and the new balance as per bank
pass book is Rs. 16000.00.
We as a customer are unaware of the fact that
bank has credited any interest in our bank a/c.
 Reasons for errors in BRS.
As we are unaware of any interest being ‘credited’
by the bank in our bank a/c, we will not record this
transaction in our books of accounts, thereby
resulting in discrepancies/difference in the
balances as shown by both the books.
Rectifications of Errors:
Suspense a/c
The general rule of accountancy is that
corresponding to a ‘debit’ there must be
a ‘credit’ of the equivalent amount.
Than only our trial balance will tally and
our Balance-sheet’s are equal.
In rectifications of errors when we
rectify the errors, there is a
corresponding ‘credit’ for every ‘debit’.
Rectifications of Errors:
Suspense a/c

But after rectifications, if the error is

rectified either by ‘debiting’ a ledger
and there in NO corresponding ledger
to be ‘credited’ or if the error is rectified
by ‘crediting’ a ledger and there is NO
corresponding ledger to be ‘debited’
than we ‘debit’ the SUSPENSE A/C or
we ‘credit’ the SUSPENSE A/C as the
case may be.
 FINANCIAL STATEMENTS
Financial statements are of two types:
1. Income statements
2. Statement of financial position.
Under the head income statement we prepare
Trading a/c and Profit and loss a/c.
Under the head Statement of financial position,
we prepare Balance sheet.
A balance sheet is a statement which shows the
financial position of the company on the specified
date.
 Financial Statements.
Vital important Points regarding Financial
Statements.
Financial Statements are prepared for a fixed
period of 12 months.
This period of 12 months is known as financial
year.
We record only those revenue and expenditure
in the financial statements which belongs to the
Current financial year, that is to say, that the
revenue and capital expenditure of the previous
year and the future years are not considered in
 Format of the Financial
Statements
AMOUNT PARTICULARS AMOUNT
PARTICUALRS

To Opening Stock By Sales a/c -

To Purchases - (-) sales return a/c -
(-) purchase return - By Closing stock
To all Direct Expenses By g/l c/d
Wages a/c
Carriage inward a/c
Octroi
Fuel, power, gas
To g/p c/d
 Format of profit and loss a/c
Particulars Amount Particulars Amount

To g/l b/d By g/p b/d

To all Indirect expenses By all Indirect Incomes
To all Losses By all Gains
To N/P b/d By N/L c/d
 format of Balance sheet
LIABILITES AMOUNT ASSETS AMOUNT

CAPITAL Fixed Assets

+N/P Land & Buildings -
-N/L (-) depreciations -
-DRAWINGS Plant & Machinery -
+Interest on Capital (-) depreciations -
-Interest on Drawings Furniture & Fixtures –
(-) depreciation -
CURRENT Current Assets:
LIABILITEIS Cash in hand
Sundry Creditors Cash at Bank
Bills payable Stock
Bank overdraft Sundry Debtors
o/s expenses Bills Receivables
Advance incomes Prepaid Expenses
Accrued Incomes
LOANS Short term
Secured Loans Investments
Unsecured Loans Investments
Goodwill
thevistaacademy.com
 Fundamental Journal
Entries
• Mohan started business with cash
Rs. 1000000.00.
• Deposited Rs. 100000.00. into the
State bank of India.
• Purchased goods worth Rs.
100000.00.
• Purchased goods worth Rs.
100000.00 from Aman international
under a trade discount @ 10%.
• Paid the amount due to Aman
international after a cash discount @
 Fundamental Journal
Entries.
• Sold goods worth Rs. 50000.00.
• Sold goods worth Rs. 50000.00 to
Bhawna at a trade discount @ 10%
• Received the amount due to Bhawna
After a cash discount @ 10%.
• Paid electricity bill Rs. 1000.00.
• Paid telephone bill Rs. 2000.00. by
cheque.
• Paid interest Rs. 3000.00.
• Received interest Rs. 1000.00 by
 Fundamental Journal
Entries.
• Paid commission Rs. 700.00 by
cheque.
• Received commission Rs. 700.00
• Purchased furniture worth Rs.
2000.00.
• Purchased machinery worht Rs.
10000.00 by cheque.
• Mohan withdrew Rs. 50000.00 for
personal use.
 Advance Journal Entries.
• Paid Rs. 20000.00 as salaries by
cheque, salary is payable @
Rs.2000.00 per month, pass the
necessary journal entry and the
adjustment entries.
• Paid Rs. 30000.00 as salaries, salary
is payable @ Rs.2000.00 per month,
 Advance Journal Entries.
• Paid Rs.60000.00 as Insurance
premium by cheques, Insurance
premium is payable @ Rs.50000.00
p.a. pass the necessary journal entry
and the adjustment entry.
• Paid Rs.40000.00 as Insurance
premium, Insurance premium is
payable @ 50000.00, pass the
journal entry and the adjustment
entry.
 Advance Journal Entries.
Rectifications of Errors.
• Machinery worth Rs.10000.00
purchased by cheques, debited to
purchase a/c.
• Repairs to Building worth
Rs.20000.00, debited to Building a/c.
• Rs.3000.00 paid to Avinash, recorded
as Rs.300.00 in the books of
accounts.
• Rs.3000.00 paid to Bhupesh,
recorded as Rs.30000.00 in the
books of accounts.
 Advance Journal Entries.
Rectifications of Errors.
• Rs.4000.00 received from Chander
recorded as Rs.400.00 in the books
of accounts.
• Rs.4000.00 received from Dinesh
recorded as Rs.40000.00 in the
books of accounts.
• Purchase book under cast by
Rs.1000.00
• Purchase book overcast by
Rs.1000.00
 Advance Journal Entries.
Rectifications of Errors.
• Sales book overcast by Rs.1000.00.
• Sales book undercast by Rs.1000.00.
• Rs.2000.00, previously written off as
bad debts from Mohan was
unexpectedly recovered and was
‘credited’ to Mohan a/c.
• A cheques of Rs. 2000.00 received
form Mohan dishonored, and wrongly
credited to Mohan a/c.
 Advance Journal Entries.
Rectifications of Errors.
• A B/R discounted and dishonored,
debited to wages a/c.
• A credit purchases from Rohit, worth
Rs. 2000.00 recorded in Sales day
book.
• A credit purchases from Rohit, worth
Rs. 3000.00 recorded in Sales day
book, however Rohit’s account was
correctly credited.
• A credit sales to Mohit, recorded in
the Purchase day book.
 Advance Journal Entries.
Rectifications of Errors.
• A credit sales to Mohit worth Rs.
10000.00 recorded in the purchase
day book, however, Mohit’s a/c was
correctly debited.
 Some common BRS errors.
• Cheques issued to the Creditors but
not yet presented for Payment.
• Cheques deposited into the bank but
not yet cleared by the bank.(generally
the bank takes minimum 3 working
days to clear the cheques received
by it and than it ‘credits’ the account
of the concerned customer).
• Direct deposit by a Customer into the
bank.
Some common BRS errors.
• Direct deposit by a customer into the
bank a/c.
• ‘Debited’ by the bank according to the
standard instruction of the customers.
• Any income received and ‘credited’
by the bank but NO advice given to
the customer.
• Cheques received by the customer,
recorded in the Cash book, but
omitted to be banked.
Some common BRS errors.
• Bill receivable (B/R) earlier
discounted by the customer,
dishonored.
• Obligation met by the bank under a
rebate, no advice given to the
customer.