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Transcript of 1 Financial Accounting Module 1 An Overview. 2 Module 1 (6 Hours) Financial Accounting An overview,...
1
Financial Accounting
Module 1
An Overview
2
Module 1(6 Hours)
Financial Accounting
An overview, Accounting concepts, principles, accounting standards. Ledger posting, Trial Balance.
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Definition And Meaning Of Accounting
The American Institute of Certified Public Accountants (1941) defines ‘Accounting is the art of recording, classifying and summarising in significant manner and in terms of money, transactions and events which are in part, at least of a financial character and interpreting the results thereof.
Accounting As An Information Cycle
Input Process Output
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Accountancy, Accounting And Book-keeping
5
IMPORTANCE OF ACCOUNTING
1. Facilitates to replace memory and comply with
legal requirements
2. Facilitates to ascertain net result of operations
and also to know the financial position
3. Facilitates the users to take effective decisions
4. It is helpful in a comparative study
5. It assists the management
6. It facilitates to have control over assets
7. It facilitates the settlement of tax liability
8. It facilitates raising of loans
9. It acts as a legal evidence
10. It facilitates ascertainment of value of business.
6
SCOPE OF ACCOUNTING
• Identifying• Measuring• Recording• Classifying• Summarising• Analysing• Interpreting• Communication
7
Accounting Principles
Accounting principles are a body of doctrines commonly associated with the theory and procedures and as a guide for selection of conventions or procedures where alternatives exist.
These principles are classified into two categories: 1. Accounting Concepts
2. Accounting Conventions
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TYPES OF ACCOUNTING
Accounting
Financial Accounting
Cost Accounting
Management Accounting
Social Responsibility
Accounting
9
ACCOUNTING CONCEPTS
Concept means a general notion, a theory or belief held by person or group of persons. The term ‘concepts’ includes those basic assumptions or conditions upon which the science of accounting is based.
1. Business entity concept2. Money measurement concept3. Cost concept4. Going concern concept5. Dual aspect concept6. Realisation concept7. Accrual concept
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ACCOUNTING CONVENTIONS
A convention means a custom or an established usage formed or adopted by an agreement. The term ‘conventions’ includes those customs or traditions which guide the accountant while preparing the accounting statements. 1. Convention of consistency2. Convention of full disclosure3. Convention of conservatism4. Convention of materiality
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Accounting StandardsThe Accounting standards bring uniformity in the preparation and presentation of financial statements and aids in comparison of different financial statements of companies in the same or different industries.
Procedure for framing Accounting Standards
• The International Accounting Standards are issued by the IASC • These Standards are received by ICAI assigned to ASB• The Accounting standards are issued under the authority of the council of ICAI.So far the ASB of ICAI has issued 28 Accounting standards as shown below:
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Accounting
Standard Title Mandatory for
Accounting period beginning on or after
AS-1 Disclosure of Accounting Policies 1.4.1991
AS-2(Revised)
Valuation of inventories 1.4.1999
AS-3(Revised)
Cash Flow Statements 1.4.2001
AS-4(Revised)
Contingencies and Events occurring after Balance Sheet Date
1.4.1995
AS-5(Revised)
Net Profit or Loss, prior period items and changes in Accounting policies
1.4.1996
AS-6(Revised)
Depreciation Accounting 1.4.1995
AS-7(Revised)
Accounting for construction contracts 1.4.2003
13
AS-8 Accounting for Research and Development
1.4.1991
AS-9 Revenue Recognition 1.4.1991
AS-10 Accounting of Fixed Assets 1.4.1991
AS-11(Revised) Accounting for the effect of changes in foreign exchange rates
1.4.1995
AS-12 Accounting for Government Grants 1.4.1994
AS-13 Accounting for Investments 1.4.1995
AS-14 Accounting for Amalgamations 1.4.1994
AS-15 Accounting for retirement benefits in the financial statements of employers
1.4.1995
AS-16 Borrowing costs 1.4.2000
AS-17 Segment reporting 1.4.2001
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AS-18 Related Party Disclosures 1.4.2001
AS-19 Leases 1.4.2001
AS-20 Consolidated Financial Statements 1.4.2001
AS-21 Earnings per share 1.4.2001
AS-22 Accounting for taxes on income 1.4.2001
AS-23 Accounting for investments in consolidated finance statements
1.4.2002
AS-24 Discounting operations 1.4.2004
AS-25 Interim financial reporting 1.4.2002
AS-26 Intangible assets 1.4.2003
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AS-27 Financial reporting of interest in joint ventures 1.4.2002
AS-28 Impairment of Assets 1.4.2004
AS-29 Provisions, Contingent Liabilities and Contingent Assets
1-4-2004
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USERS OF FINANCIAL STATEMENTS 1. Creditors (short term & long term) 2. Investors (present & potential) 3. Management 4. Employees 5. Tax Authorities 6. Customers 7. Government and their agencies 8. Public
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Double Entry System Of Book-keeping
The main principle involved in Double Entry system is the duality transactions i.e., for every debit, there is an equal and opposite credit.
Total Debits = Total Credits
Personal Accounts Real Accounts
Nominal Accounts
Names of individuals, firms, companies and
other entities
Expenses, losses and incomes and gains
Assets And Liabilities
Principles Of Double Entry System
Classifications of accounts under double entry system
Traditional classification of Accounts
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Assets: Resources, things or rights or value owned by a businessLiability: Claims of others against a business / Assets owned by the business to
the outsidersExpenses:An expenditure in return for which a benefit is received.Loss: An expenditure in return for which no benefit is received.Income: Refers to the earnings of a business for the expenses incurredProfit: Refers to the earnings of a business for no expenses incurred or
proportionally meagre expenses incurred
Type of Account Debit Credit
Personal Account The receiver The giver
Real Account What comes in What goes out
Nominal Account All expenses and losses All incomes and gains
Rules for debit and credit under traditional classification
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ACCOUNTING CYCLEACCOUNTING CYCLE
Final Final AccountsAccounts
20
Records Maintained By An Organisation
The books of accounts maintained by an organisation may be classified into two as
a. Books of Prime / Original Entry
b. Books of Second entry / Final entry
Books of Prime / Original Entry
1. Journal
2. Cash Book
3. Subsidiary Books
21
JOURNAL / DAY BOOK
Journal is a daily record of each business transaction. It is also called a day book and it is used for recording all day to day transactions in the order in which they occur.
Format of a JournalFormat of a Journal
……………. Dr To………….(Being…………)
Credit
Rs.
DebitRs.
Ledger Folio
ParticularsDate
22
C A S H B O O K
Debit: All Cash receipts and Bank receipts and Discount Allowed
Credit: All Cash payments and Bank payments and Discount Received.
The cashbook is classified into 4 types viz.,
1. Single column cash book
2. Two columnar cash book
3. Three columnar cash book
4. Petty cash book
23
Tips to decide whether a cash
transaction or not
24
In a purchase or a sale:
If there is no mention about the payment made, No name of the party given, but the amount is given, then It is a cash transaction
Ex: If there is the name of the party and no mention about the payment, then it is a credit transactionIf name of the party given and payment in cash or credit then it is a cash transaction.
25
LEDGER
Also called as General Ledger, this is a principal book that contains all the accounts i.e., accounts of Assets liabilities, capital, revenue and expenses. The entries from the books of original entry are transferred to this book. Hence it is also called as a book of final entry. There are a number of accounts in a general ledger. All similar transactions are grouped under one account.
The opening and closing balances will appear only in case of assets, liabilities and capital accounts but not in case of incomes and expenditures.
Date Particulars Folio Amount
Rs.
Date Particulars Folio Amount
Rs.
To Balance b/d
(Opening balance)
--------
By Balance c/d
(Closing balance) --------
Dr Cr
26
Format of a single column cash book
Date Particulars L.F. Amount
Rs.
Date Particulars L.F. Amount
Rs.
To Balance b/d
(Opening balance)
-------
By Balance c/d
(Closing balance) -------
Dr Cr
27
Illustration:Illustration:
I. Single column cash bookI. Single column cash book
2007 June2007 June
1. Balance as on 31/5 42,0001. Balance as on 31/5 42,000
2. Purchases made 12,0002. Purchases made 12,000
3. Cash drawn from Bank 5,0003. Cash drawn from Bank 5,000
4. Cash paid towards salary 8,0004. Cash paid towards salary 8,000
5. Purchased goods from Kishan & co. on credit 8,0005. Purchased goods from Kishan & co. on credit 8,000
6. Rent payable 5,0006. Rent payable 5,000
7. Cash deposited into Bank 20,0007. Cash deposited into Bank 20,000
28
DateDate ParticularsParticulars LFLF AmountAmount DateDate ParticularsParticulars LFLF AmounAmountt
1/6/071/6/073/6/073/6/07
To balance b/dTo balance b/dTo BankTo Bank
42,00042,000 5,0005,000
2/6/072/6/074/6/074/6/077/6/077/6/07
By PurchasesBy PurchasesBy SalaryBy SalaryBy BankBy BankBy balance c/dBy balance c/d
12,00012,000 8,0008,00020,00020,000 7,0007,000
47,00047,000 47,00047,000
Soln:Soln: Single Column Cash BookSingle Column Cash Book
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JAN 1 : Opening cash balance Rs 5,000
JAN 4 : Rent paid Rs 2,000
JAN 6 : Interest received Rs 3,000
JAN 15 : Cash purchases Rs 4,000
JAN 25 : Cash sales Rs 8,000
JAN 31 : Salaries paid Rs 2,000
PROBLEM
30
Format of a single column cash book
DateDate ParticularsParticulars L.FL.F..
AmounAmountt
Rs.Rs.
DateDate ParticularsParticulars L.L.F.F.
AmounAmountt
Rs.Rs.
JAN 1JAN 1
JAN 2JAN 2
JAN JAN 2525
To Balance To Balance b/db/d
To InterestTo Interest
To SalesTo Sales
To Balance To Balance b/db/d
5,0005,000
3,0003,000
8,0008,000
----------------------
16,00016,000
----------------------
8,0008,000
JAN 4JAN 4
JAN JAN 1515
JAN JAN 3131
JAN JAN 3131
By RentBy Rent
By Purchase By Purchase a/ca/c
By Salaries By Salaries a/ca/c
By Balance By Balance c/dc/d
2,0002,000
4,0004,000
2,0002,000
8,0008,000
----------------------
16,00016,000
----------------------
Dr Cr
31
Format of a double column cash book
Date Particulars L.F
Discount
Rs.
Cash
Rs.
Date Particulars L.F
Discount
Rs. Cash
Rs.
To Balance b/d
(Opening balance)
------
By Balance c/d
(Closing balance)
------
Dr Cr
OR
32
Format of a double column cash book
Date Particulars L.F
Discount
Rs. Bank
Rs.
Date Particulars L.F
Discount
Rs. Bank
Rs.
To Balance b/d
(Opening balance)
------
By Balance c/d
(Closing balance)
------
Dr Cr
OR
33
Format of a double column cash book
Date Particulars L.F
Cash
Rs.
Bank
Rs.
Date Particulars L.F
Cash
Rs.
Bank
Rs.
To Balance b/d
(Opening balance)
------
By Balance c/d
(Closing balance)
------
Dr Cr
34
Two Columnar Cash Book with discount and cash columns:Two Columnar Cash Book with discount and cash columns:
2006 October2006 OctoberOpening balance 80,000Opening balance 80,000Paid salary 10,000Paid salary 10,000Purchased goods 12,000Purchased goods 12,000Purchases made from Shreya & co. 25,000 Purchases made from Shreya & co. 25,000 Cash sales 1,15,000Cash sales 1,15,000Sales made to Rajinikanth & co. 60,000Sales made to Rajinikanth & co. 60,000To Shreya returned 20% of goods due to damage, paid to 18,000/- in To Shreya returned 20% of goods due to damage, paid to 18,000/- in full Settlement of the account.full Settlement of the account.Received from Rajinikanth 48,000/- in full settlement after he madeReceived from Rajinikanth 48,000/- in full settlement after he madereturns 10,000/-returns 10,000/-Deposited into Bank 3,000Deposited into Bank 3,000
PROBLEM
35
Date Particulars LF
Discountallowed
Cash Date Particulars LF
Discountreceived
Cash
To balance b/dTo salesTo Rajinikanth & co.
2,000
80,0001,15,000 48,000
By SalaryBy PurchasesBy Shreya & co.By BankBy balance c/d
2,000
10,000 12,000
18,000
3,000 2,00,000
2,000 2,43,000 2,000 2,43,000
Working Note:Shreya & co. Rajinikanth & co. Puchases 25,000 Sales 60,000(-)Returns 20% 5,000 (-)Returns 10,000Payable 20,000 Receivable 50,000(-)Paid 18,000 (-)Received 48,000Discount received 2,000 Discount allowed 2,000
Solution:Solution:
36
JAN 1 : Cash Balance Rs 5,000
JAN 6 : Sold Goods to Mahesh Rs 4,000
JAN 8 : Purchased Goods from Mukesh Rs 3,000
JAN 15 : Cash Received from Mahesh Rs 3,900 in full settlement
JAN 20 : Paid to Mukesh Rs 2,850 in full settlement
JAN 25 : Sold Goods to Suresh Rs 3,000
JAN 31 : Received Cash from Suresh Rs 2,900
PROBLEM
37
double column cash book
DatDatee
ParticularsParticulars LL..FF
DiscoDiscountunt
Rs.Rs.
CashCash
Rs.Rs. DatDatee
ParticularsParticulars L.L.FF
DiscoDiscountunt
Rs.Rs.
CashCash
Rs.Rs.
To Balance To Balance b/db/d
To MaheshTo Mahesh
To SureshTo Suresh
100100
100100
--------------
200200
--------------
5,0005,000
3,9003,900
2,9002,900
------------------
11,80011,800
------------------
By MukeshBy Mukesh
By Balance By Balance c/dc/d
150150 2,8502,850
8,9508,950
------------------
11,80011,800
------------------
Dr Cr
38
Format of a three columnar cash book
Date Particulars L.F
Discount
Rs.
Cash Bank
Rs. Date Particulars L.
F Disco-unt
Rs.
Cash
Rs.
Bank
Rs.
To Balance b/d
(Opening balance)
------
By Balance c/d
(Closing balance)
------
Dr Cr
OR
39
• It is an accounting transaction that involves both CASH account and BANK account
• No posting will be done from the CASH BOOK to the LEDGER in case of a contra entry
• A contra entry is indicated by the letter C which gives a hint to the ledger keeper that no posting is required
CONTRA ENTRY
40
Ex : Cash deposited to bank
Credit side of cash book : Amount will be entered in cash column against the words “ By Bank”
Debit side of cash book: Amount will be entered in bank column against the words “To Cash”
Ledger folio column : C which represents a contra entry is entered
CONTRA ENTRY
41
Ex : Cash withdrawn from bank
Credit side of cash book : Amount will be entered in bank column against the words “ By Cash”
Debit side of cash book: Amount will be entered in cash column against the words “To Bank”
Ledger folio column : C which represents a contra entry is entered
CONTRA ENTRY
42
JAN 1 : Paid into Bank Rs 6,000
JAN 2 : Withdrew for private expenses Rs 1,000
JAN 3 : Withdrew from bank Rs 3,000
JAN 4 : Withdrew from bank for private use Rs 1,500
PROBLEM
43
Format of a three columnar cash book
DDaattee
ParticularsParticulars L.L.FF
DiscDisco-o-
untunt
Rs.Rs.
CashCash BankBank
Rs.Rs. DatDatee
ParticularsParticulars L.L.FF
DiscDisco-o-
untunt
Rs.Rs.
CashCash
Rs.Rs.BankBank
Rs.Rs.
11
33To Cash a/cTo Cash a/c
To Bank a/c To Bank a/c CC
CC 30030000
60060000
11
22
33
44
By Bank By Bank a/ca/c
By By DrawingsDrawings
By Cash a/c By Cash a/c
By By DrawingsDrawings
CC
CC
60060000
10010000
30030000
15015000
Dr Cr
44
III. Three Columnar Cash BookIII. Three Columnar Cash Book
On 1On 1stst Jan 2001 Raj Opened a Bank account by depositing 6,000/- in cash. Jan 2001 Raj Opened a Bank account by depositing 6,000/- in cash.
All remittances are to be paid to the BankAll remittances are to be paid to the Bank
Date Date ParticularsParticulars
Jan 2 Goods sold to Mohan for cash 9,250/-Jan 2 Goods sold to Mohan for cash 9,250/-
Jan 5 Settled Harish’s account of 200/- at a discount of 5%Jan 5 Settled Harish’s account of 200/- at a discount of 5%
Jan 7 Received from Shyam a cheque of 725/- discount allowed 25/- Jan 7 Received from Shyam a cheque of 725/- discount allowed 25/-
Jan 10 Purchased Typewriter for 200/- and spent 50/- on its repairsJan 10 Purchased Typewriter for 200/- and spent 50/- on its repairs
Jan 12 Shyam’s cheque was returned as dishonouredJan 12 Shyam’s cheque was returned as dishonoured
Jan 15 Received a money order for 25/- from HarishJan 15 Received a money order for 25/- from Harish
Jan 20 Shyam settled his accounts by means of a cheque for 755/-, 5/- Jan 20 Shyam settled his accounts by means of a cheque for 755/-, 5/-
for being Interest charge.for being Interest charge.
Jan 27 Purchased Machinery from Rajeev for 5,000/- and paid him by Jan 27 Purchased Machinery from Rajeev for 5,000/- and paid him by
means of a Bank draft purchased from a Bank for 5,005/-means of a Bank draft purchased from a Bank for 5,005/-
45
Date Particulars
LF
Disallowed
Cash Bank Date Particulars LF
Disreceived
Cash Bank
1/12/17/115/120/120/1
To CashTo SalesTo ShyamTo HarishTo ShyamTo Intt charge
c
259,250
25
6,000
725
750
5
1/15/110/1
10/112/127/1
31/1
By BankBy HarishBy TypewriterBy RepairsBy ShyamBy MachineryBy balance c/d
c10
6,000 190
200
50
2,835
725
5,0051,750
25 9,275 7,480 10 9,275 7,480
SolutionSolution::
46
Petty cash bookPetty cash bookPetty cash bookPetty cash book
It is a cash book in which all the petty cash It is a cash book in which all the petty cash expenses incurred daily by an organisation is expenses incurred daily by an organisation is
recorded. Such as postage, cartage, recorded. Such as postage, cartage, stationery, cleaning charges, etc.stationery, cleaning charges, etc.
47
A petty cashier is appointed to make payments of all such types, he works under the supervision of chief cashier, who advances money in the beginning
of every period to meet such expenses.
At the end of the period the petty cashier submits a statement of
accounts of the expenses incurred by him during the period and gets a fresh
advance.
48
Petty Cash Book
It is a cash book in which all the petty cash expenses incurred daily by an organisation is recorded.
Dt Particulars CBF Total
Rs.
Dt Particulars Vr.
No
Postage Conveyance Wages Business
Promotion
Total
Rs.
Dr Cr
49
PETTY CASH BOOK PETTY CASH BOOK
Record the following petty cash book maintained on the Record the following petty cash book maintained on the imprest system imprest system
1-10-2007 cash received from cashier 1-10-2007 cash received from cashier Rs 10000 Rs 100002-10-2007 paid for coffee and tea for staff 2-10-2007 paid for coffee and tea for staff Rs 125 Rs 1253-10-2007 travelling expense by the sales manager 3-10-2007 travelling expense by the sales manager Rs 1200Rs 12004-10-2007 subscription for the newspaper 4-10-2007 subscription for the newspaper Rs 100 Rs 1005-10-2007 purchase of paper and other stationery 5-10-2007 purchase of paper and other stationery Rs 250Rs 2506-10-2007 expenses for taking employees for an outing 6-10-2007 expenses for taking employees for an outing Rs 4200Rs 4200
50
PETTY CASH BOOK
Dt10/07
Particulars
CBF
Total
Rs.
Dt10/07
Particulars
Vr.No
Employees welfare exp
Travelling exp
Newspapers & stationery
postage
Total
Rs.
1 To cash from head cashier
10000
2
3
4
5
6
7
By coffee & tea
By travelling exp of manager
By newspaper
By stationery
By staff outing
By postage
By balance c/d
1
2
3
4
5
6
125
4200
1200
100
250
75
125
1200
100
250
4200
75
4050
10000
4325 1200 350 75 10000
51
Problem: Enter the following transactions in petty cash book for the month of Problem: Enter the following transactions in petty cash book for the month of JanuaryJanuary, 1999., 1999.
Problem: Enter the following transactions in petty cash book for the month of Problem: Enter the following transactions in petty cash book for the month of JanuaryJanuary, 1999., 1999.
Jan 1, cash received from the chief cashier Rs.200Jan 1, cash received from the chief cashier Rs.200Jan 3, typing papers Rs. 8Jan 3, typing papers Rs. 8Jan 6, office cleaning Rs.4Jan 6, office cleaning Rs.4Jan 8, postage Rs. 2Jan 8, postage Rs. 2Jan 10, cartage Rs. 2Jan 10, cartage Rs. 2Jan 15, postage Rs. 6Jan 15, postage Rs. 6Jan 18, ink Rs 3, typing paper Rs. 10Jan 18, ink Rs 3, typing paper Rs. 10Jan 20, type writer ribbon Rs. 10Jan 20, type writer ribbon Rs. 10Jan 22, telephone charges Rs. 7Jan 22, telephone charges Rs. 7Jan 24, office cleaning Rs. 2Jan 24, office cleaning Rs. 2Jan 25, nail polish Rs. 27Jan 25, nail polish Rs. 27Jan 27, telegrams Rs. 25Jan 27, telegrams Rs. 25Jan 29, typing paper Rs. 30Jan 29, typing paper Rs. 30
52
DtDt PartiParticularcularss
CBCBFF
ToTotaltal
RsRs..
DDtt
ParticParticularsulars
Vr.Vr.
NoNoStatStationeioneryry
PostaPostage ge charchargesges
CarCartagtagee
CleaninCleaningg
miscmiscellanellaneouseous
totaltotal
JanJan11
to to cash cash
From From chief chief cashiecashierr
202000
33
66
88
1100
1155
1188
2200
TypingTyping
CleanClean
Post n Post n off off cleanclean
CartagCartagee
PostagPostagee
Ink, Ink, typing typing paperpaper
Typ Typ ribbonribbon
1,21,2
33
4,54,5
66
77
8,98,9
1010
88
1313
1010
44
22
6622
44
22
1212
44
44
22
66
1313
1010
Dr Cr
53
DtDt PartiParticularcularss
CCBBFF
TotTotalal
Rs.Rs.
DDtt
ParticParticularsulars
Vr.Vr.
NoNoStatStationeioneryry
PostaPostage ge charchargesges
CarCartagtagee
CleaninCleaningg
miscmiscellanellaneouseous
totaltotal
Fe Fe 11
Fe Fe 11
To bal To bal b/db/d
Cash Cash from from chief chief cashiecashierr
200200
5858
142142
2222
2244
2255
2277
2299
TelephTelephone one chargechargess
CleaninCleaningg
Nail Nail polishpolish
TelegraTelegramsms
Typing Typing paperpaper
Lf bal Lf bal c/dc/d
1111
1212
1313
1414
1515 3030
6161
22
77
2525
4444
3322
44
22
88
55
2727
2727
66
77
22
2727
2525
3030
142142
5858
200200
54
PURCHASES BOOK
This is a subsidiary book in which all the credit purchases made by the organisation is recorded. The monthly total from the purchase book is transferred to the General Ledger to the Purchases Account.
Date Purchase invoice
no.
Name of the supplier LF
Details Total Amount
Rs. Ps. Rs. Ps.
55
PURCHASE RETURNS BOOK
A book in which all the purchase returns (returns outwards) are recorded.
Date Debit Note No.
Name of the supplier LF
Details Total Amount
Rs. Ps. Rs. Ps.
56
SALES BOOK
The credit sales are recorded in this book. The monthly totals are transferred to the sales account in the General Ledger.
Date Sales invoice
no.
Name of the purchaser LF
Details Total Amount
Rs. Ps. Rs. Ps.
57
Date Credit Note No.
Name of the Purchaser LF
Details Total Amount
Rs. Ps. Rs. Ps.
SALES RETURNS BOOK
A book of account in which all the sales returns (returns inwards) made by the organisation are recorded.
58
Enter the following in subsidiary books.Jan 1: Purchased goods from Sudarshan paid by cheque Rs.15000 3: Sold goods to Bimal Rs.11000. 6: Purchased goods from Satish & co Rs. 12000. Returned goods to him Rs. 700 . 8: Purchased stock worth Rs.42000 from Reliance industries of which only 40% is on cash basis. 10: Sold goods worth Rs.38000 to Karimlal & co allows him a trade discount of 1% . 11: Murugeshan & co supplies stock worth Rs. 64000 and allowed us a trade discount of 1.5% . 12: Returns out of the previous 2 transactions amount to
5% each.
59
Purchases Book
Date Purchase Invoice No.
Name of the supplier LF Amount
(Rs)
Total (Rs)
Amount
Jan 6
Jan 8
Jan 11
Satish & Co
Reliance & Co.
Murugesh & Co.
21
23
25
12000
25200
63040
100240
12000
25200
63040
100240
60
Purchases Returns Book
Date Debit Note No.
Name of the Party LF Amount
(Rs)
Total (Rs)
Amount
Jan 6
Jan 12
Satish & Co
Murugesh & Co.
21
25
700
3152
3852
700
3152
3852
61
Sales Book
Date Invoice No.
Name of the Party LF Amount
(Rs)
Total (Rs)
Amount
Jan 3
Jan 10
Bimal & Co.
Karimlal & Co. ( -1%)
32
35
11000
37620
48620
11000
37620
48620
62
Sales Returns Book
Date Credit Note No.
Name of the Party LF Amount
(Rs)
Total (Rs)
Amount
Jan 12
Karimlal & Co. ( -1%) 35 1881
1881
1881
1881
63
JOURNAL PROPER
Those journal entries that cannot be recorded in any of the subsidiary books are recorded in the journal proper. The following are recorded in the journal proper:
a. Opening Entries
b. Closing Entries
c. Transfer Entries
d. Adjustment Entries
e. Rectification Entries
64
TRAIL BALANCE
A trail balance may be simply defined as a statement prepared by putting all debits on one side and all credits on the other side to check the arithmetical accuracy of the ledger balances.
In otherwords,the trail balance is a connecting link between the ledger accounts and final accounts.
65
TRIAL BALANCE
It is a statement that shows the balance in all the accounts in a ledger. It contains all the debit and credit balances. A trial balance is a list of debit and credit balances of all the ledger accounts prepared on any particular date to verify whether the entries in the books of accounts are arithmetically correct or not.
Sl.No.
Head of Account LF Debit Balance Credit Balance
Rs. Ps. Rs. Ps.
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characteristics
basically trial balance is a statement or list.It contains all the debit and credit
balances.The trail balance is the only base for the
preparation of final accounts.Trail balance can be prepared at any time
and not necessarily at the end of a calendar or accounting year.
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Importance
• Before preparing the final accounts, the accountant should prove/satisfy the arithmetical accuracy and correctness on which the entire final accounts were prepared. The net profit/balance sheet does not resemble true and fair picture which which was prepared from a trail balance which lacks the quality of arithmetical accuracy.
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Advantages
To examine the implementation of a double entry book keeping and its principles.
To know the arithmetical accuracy. To find the profit of the firm. To find out the errors and mistakes in passing
journal entries and their posting. To facilitate the process of the preparation of
final accounts.
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Preparation of Trail balance
• Debit side
• Assets accounts: land, building, machinery, furniture, debtors, stock, bills receivables etc.
• Accounts relating to expenses and losses: salaries, wages, rent, carriage, discount, bad debts, depreciation, purchases, return inward.
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• Credit side
• Liabilities accounts: creditors, loan, mortgage, bills payable, bank overdraft, reserves and funds.
• Incomes and gain account: interest realised, rent collected, discount received, sales account, returns outward.
• Capital Account
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Trail balance methods
• Trail balance can be prepared in two methods. They are total balances method and net balances method.
• Total balances method: in this method, debit as well as credit sides of all accounts will be summed up and with this totals the trail balance will be prepared. This method is called “gross trail balance method”. This method is now out of use.
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• Net balances method: this is the most commonly used trail balance. In this method the net balance of the accounts were ascertained on a particular date and arranged in the proforma of trail balance. If these totals of debit and credit agree, we can say the trail balance has arithmetical accuracy.
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Example:
Prepare a trial balance from the following balances of the year 2002. (Dec 05/ Jan 06- 10M)
Capital 28,000 Purchases 15,000Stock of goods 4000 plant 15,000Motor car 8000 furniture 5000Discount received 400 wages 8200Bad-debts 400 creditors 6500Sales 40,000 salaries 2800Cash-at-bank 4000 commission (cr) 600Return inwards 2000 return outwards 1000Cash in hand 600 debtors 5600Rent 3500 general expenses 300Discount allowed 300 interest received 200Carriage 1500 advertisement 500
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dt Name of the account LF Debit credit
1 Capital 28,000
2 Stock of goods 4000
3 Motor car 8000
4 Discount received 400
5 Bad-debts 400
6 Sales 40,000
7 Cash-at-bank 4000
8 Return inwards 2000
9 Cash in hand 600
10 Rent 3500
11 Discount allowed 300
SOLUTION: DEBIT(ASSETS & EXPENSES) CREDIT (LIABILITIES & REVENUES)
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dt Name of the account LF Debit credit
12 Carriage 1500
13 Purchases 15,000
14 plant 15,000
15 furniture 5000
16 wages 8200
17 creditors 6500
18 salaries 2800
19 commission (cr) 600
20 return outwards 1000
21 debtors 5600
22 general expenses 300
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dt Name of the account LF Debit credit
23 Interest received 200
24 Advertisement 500
TOTAL 76,700 76,700
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End of the Module