ACCOUNTS FROM INCOMPLETE RECORDS SINGLE ENTRY SYSTEM MODULE IV(1) OF IV

CA Intermediate (IPC) Course Paper 1 Accounting Chapter 10

CA. Prathap. S.S 1

The Institute of Chartered Accountants of India

This e-Lecture was Recorded on: December 18, 2012

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IMPORTANT NOTES

This e-Lecture was Recorded on: December 18, 2012

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AGENDA To learn to do full fledged 16 marks/20 marks sum which were asked in the previous exams.

IPCC(RASHID SUM) (20 marks Intermediate May 1998)

Rashid Sum Shri Rashid furnishes you with the following information relating to his business (a) Assets and Liabilities as on : 1.1.97 31.12.97 Rs Rs Furniture (W.D.V) 6000 6350 Stock at cost 8000 7000 Sundry debtors 16000 ? Sundry creditors 11000 15000 Prepaid expenses 600 700 Unpaid expenses 2000 1800 Cash in hand and at Bank 1200 625

.....Rashid Sum (b) Receipts and payments during 1997. 1. Collection from trade debtors after allowing

discount of Rs. 1500 amounted to Rs. 58500 . 2. Collection on discounting of bills of exchange

after discounting of Rs.125 by the bank, totalled to Rs.6125.

3. Creditors of Rs.40000 were paid Rs. 39200 in full settlement of their dues.

4. Payment for freight inwards Rs. 3000.

.....Rashid Sum

5. Amount withdrawn for personal use Rs.7000. 6. Payment for office furniture Rs.1000. 7. Investment carrying annual interest of 4%

was purchased at Rs.96 on 1.7.97 and payment made.

8. Expenses including salaries paid Rs.14500. 9. Miscellaneous receipts Rs.500.

.....Rashid Sum

(c) Bills of exchange drawn on and accepted by customers during the year amounted to Rs.10000 of these, bills of exchange of Rs.2000 were endorsed in favour of creditors and endorsed bill of exchange of Rs. 400 was dishonored.

(d) Goods costing Rs. 900 were used as advertising materials.

(e) Goods are invariably sold to show a gross profit of 331/3% on sales.

.....Rashid Sum

(f) Differences in cash book, if any, is to be, treated as further drawings or introduction by Shri Rashid.

(g) provide 2.5% for doubtful debts on closing debtors

Rashid asks you to prepare a trading and profit and loss A/c for the year 31.12.97 and the balance sheet as on that date.

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APPROACH TO THE SUM In this sum all the figures for Opening Balance Sheet have been provided .

The Balancing figure is the Opening Capital of Rashid , which comes to Rs.18,800 , which is ascertained as follows from the Opening Balance Sheet.

Balance Sheet of Rashid as on 01.01.1997

Opening Capital 18,800 Sundry Debtors 16,000 (balancing figure) Furniture 6,000 Stock 8,000 Outstanding exp. 2,000 Prepaid expenses 600 Sundry Creditors 11,000 Cash 1,200 Total 31,800 31,800

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REQUIREMENTS OF THE SUM The following A/cs need to be opened : (i)Trading , Profit and Loss A/c y.e 31.12.1997 (ii)Cash and Bank A/c (iii)Sundry Debtors A/c & Bills Receivables A/c (iv)Sundry Creditors A/c (v)Furniture A/c

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STEPS TO BE FOLLOWED We will now deal with the details of

Rashids cash and bank transactions one by one , giving journal entries and posting it in their respective T a/cs.

JOURNAL ENTRIES

(1)Collection from trade debtors after allowing discount of Rs. 1500 amounted to Rs. 58500 .

Cash A/c Dr. 58,500 Discount A/c Dr. 1,500 To Sundry Debtors A/c 60,000 Cash A/c Debtors A/c

To Opening Balance 1,200 To Sundry Debtors 58,500 By Closing balance 625

To Opening Balance 16,000 By Cash 58,500 By Discount 1,500

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(2)Collection on discounting of bills of exchange after discounting of Rs.125 by the bank, totalled to Rs.6125.

Cash A/c Dr. 6,125 Discount A/c Dr. 125 To Bills Receivables A/c 6,250 Cash A/c Bills Receivables A/c

To Opening Balance 1200

To Sundry Debtors 58,500

To Bills of Exchange 6125 By Closing Balance 625

By Cash 6125 By Discount 125

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(3)Creditors of Rs.40000 were paid Rs. 39200 in full settlement of their dues.

Sundry Creditor A/c Dr. 40,000 To Cash A/c 39,200 To Discount A/c 800

Cash A/c Creditor A/c

To Opening Balance 1200 To Sundry Debtors 58,500 By Sundry Creditors 39,200 To Bills of Exchange 6125 By Closing Balance 625

To Cash 39,200 By Opening Balance 11,000 To Discount 800 To Balance b/d 15,000

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(4)Payment for freight inwards Rs. 3000.

Freight Inwards A/c Dr. 3,000 To Cash A/c 3,000

Cash A/c Freight Inward will be debited to Trading A/c .

To Opening Balance 1200 By Sundry Creditors 39,200 To Sundry Debtors 58,500 By Freight Inward 3,000 To Bills of Exchange 6125 By Closing Balance 625

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(5)Amount withdrawn for personal use Rs.7000.

Drawings A/c Dr. 7,000 To Cash A/c 7,000 Cash A/c Drawings will be reduced from the closing capital in the closing Balance Sheet

To Opening Balance 1200 By Freight inward 3,000 To Sundry Debtors 58,500 By Sundry Creditors 39,200 To Bills of Exchange 6125 By Drawings 7,000

By Closing Balance 625

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(6)Payment for office furniture Rs.1000.

Furniture A/c Dr. 1,000 To Cash A/c 1,000

Cash A/c Furniture A/c

To Opening Balance 1200 By Freight inward 3,000

To Sundry Debtors 58,500 By Sundry Creditors 39,200

To Bills of exchange 6125 By Drawings 7,000

By Furniture 1,000

By Closing balance 625

To opening balance 6,000 To Cash 1,000 By closing balance 6350

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(7)Investment carrying annual interest of 4% was purchased at Rs.96 on 1.7.97 and payment made

Assumptions : The face value of investment was

Rs.100 but was purchased for Rs.96 on 1st July 1997 at 4 % interest.

Interest receivable = 100 * 4 % * (6/12) = Rs.2 All Interest Receivables should

be credited to P&L a/c & added to the investment in the Balance Sheet. ICAI, 2012

....Contd 4% Investment A/c Dr. 96 To Cash A/c 96 Interest Accrued A/c Dr. 2 To Interest Receivables A/c 2 Cash A/c

To Opening Balance 1200 By Freight inward 3,000

To Sundry Debtors 58,500 By Sundry Creditors 39,200

To Bills of exchange 6,125 By Drawings 7,000

To Misc. Receipts 500 By Furniture 1,000

By 4% Investment 96

By Closing balance 625

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(8)Expenses including salaries paid Rs.14500.

Calculation of Exp : Cash paid for expenses 14,500 (+) Prepaid expenses paid last year 600 (-) Prepaid expenses paid this year (700) (-) Last year outstanding expenses (2,000) (+) This year outstanding expenses 1,800 Amount to be debited to P&L 14,200

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(9)Miscellaneous receipts Rs.500.

Cash A/c Dr. 500 To Miscellaneous Receipts A/c 500 Cash A/c Miscellaneous Receipts will appear in the Credit side of P & L A/c

To Opening Balance 1200 By Freight inward 3,000 To Sundry Debtors 58,500 By Sundry Creditors 39,200 To Bills of exchange 6,125 By Drawings 7,000 To Misc. Receipts 500 By Furniture 1,000

By 4 % Investment 96 By Closing balance 625

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Bank and Cash A/c To Opening Balance 1,200 By Freight inward 3,000 To Sundry Debtors 58,500 By Sundry Creditors 39,200 To Bills of exchange 6,125 By Drawings 7,000 To Misc. Receipts 500 By Furniture 1,000 By Expenses paid 14,500 By Investment 96 By Drawings 904 By Closing balance 625 66,325 66,325 ICAI, 2012

(C)Bills of exchange drawn on and accepted by customers during the year amounted to Rs.10000 , of these bills of

exchange of Rs.2000 were endorsed in favour of creditors and endorsed bill of exchange of Rs. 400 was dishonored.

Bills of exchange drawn on & accepted by customers during the year amounted to Rs.10,000. Bills Receivables A/c Dr. 10,000 To Sundry Debtors A/c 10,000 Of these Rs.2000 were endorsed in favour of Creditors. Sundry Creditors A/c Dr. 2,000 To Bills Receivables A/c 2,000 An endorsed Bill of exchange of Rs.400 was dishonoured. Sundry Debtors A/c Dr. 400 To Sundry Creditors A/c 400

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Sundry Debtors A/c To Opening 16,000 By Cash 58,500 balance By Discount 1,500 To Sundry Creditors 400 By Bills Receivables 10,000 To Credit Sales 73,050 By Bal c/d ?

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To Sundry Debtors 10,000 By discount 125 (Bills Receivables By bank 6,125 drawn & accepted) By Sundry Creditors 2,000 By Closing balance ?

Bills Receivables A/c

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Sundry Creditors A/c To Cash 39,200 By o/p balance 11,000 To Discount 800 By Credit To Bills Purchase ? Receivables 2,000 By Sundry Debtors 400 To closing balance 15,000

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Sundry Creditors A/c To Cash 39,200 By o/p balance 11,000 To Discount 800 By Credit To Bills Purchase 45,600 Receivables 2,000 By Sundry Debtors 400 To closing balance 15,000 57,000 57,000

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To Sundry Debtors 10,000 By discount 125 (Bills Receivables By bank 6,125 drawn & accepted) By Sundry Creditors 2,000 By Closing balance 1,750 10,000 10,000

Bills Receivables A/c

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(d)Goods costing Rs.900 were used as advertising materials.

Advertisement A/c Dr. 900 To Purchases A/c 900 Note : Advertisement will be debited to P&L A/c and reduced from Purchases in Trading A/c.

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(f)Differences in cash books, if any, is to be, treated as further drawings or introduction by Shri Rashid.

The Balancing figure in Cash Book is Rs. 904 appearing on the credit side , so it represents drawings by Rashid.

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Bank and Cash A/c To Opening Balance 1,200 By Freight inward 3,000 To Sundry Debtors 58,500 By Sundry Creditors 39,200 To Bills of exchange 6,125 By Drawings 7,000 To Misc. Receipts 500 By Furniture 1,000 By Expenses paid 14,500 By Investment 96 By Drawings 904 By Closing balance 625 66,325 66,325 ICAI, 2012

Furniture A/c

To Opening By Depreciation 650 Balance 6,000 To Cash 1,000 By Closing Balance 6,350 7,000 7,000

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(e)Goods are invariably sold to show a gross profit of 331/3% on sales.

Calculation of Gross Profit : COGS = O/p stock + Purchases + Direct expenses - c/s stock = 8,000 + 44,700 + 3,000 - 7,000 = 48,700 G.P = 1/3 on sales = 1/2 on cost

= 1/2(48,700) G.P = 24,350

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Trading A/c To Opening Stock 8,000 By Sales 73,050 To Purchases 45600 (-)Advertisement 900 44,700 By Closing Stock 7,000 To Freight Inward 3,000 To Gross Profit 24,350 80,050 80,050

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Sundry Debtors A/c To Opening 16,000 By Cash 58,500 balance By Discount 1,500 To Sundry Creditors 400 By Bills Receivables 10,000 To Credit Sales 73,050 By Bal c/d 19,450 4,27,500 4,27,500

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(g)Provide 2.5% for doubtful debts on Closing Debtors.

Provision for Bad Debts = 19,450 * 2.5 % = 486.25 Rs.486

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( Provision for Bad Debts will be

Debited to P&L a/c & Deducted from the Closing Debtors in the Closing Balance Sheet )

Provision for Bad Debts will not

appear in Sundry Debtors a/c because they are calculated on Closing Balance of Sundry Debtors as they are only anticipated losses and not actual losses.

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Profit & Loss A/c To Expenses 14,200 By Gross 24,350 To Discount allowed 1,500 Profit b/d To Discounting of Bills 125 By Discount Received 800 To Advertisement 900 By Interest Receivable 2 To Provision for Bad By misc. Receipts 500 Debts 486 To Net profit c/d 7,791 25,652 25,652

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B/s of Rashid as on 31.12.97 Capital 18,800 S. Debtor 19450 (-)Drawings(7,000) (-)Provision 486 18,964

(+)Profit 7791 (-)Drawings (904) Furniture 7000 18,687 (-)depreciation 650 6,350

Stock 7,000 Prepaid Expenses 700 Cash 625 S. Creditor 15,000 Bills Receivables 1,750 Unpaid Expenses 1,800 4% Investment 96 (+)Int.Receivable 2 98 35,487 35,487

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Summary

This is a very comprehensive sum with some beautiful adjustments . Students practising it can indeed master Single Entry.

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THANK YOU

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Accounts from Incomplete Records Single Entry SystemModule IV(1) of IVDisclaimerImportant NotesAgendaIPCC(Rashid Sum)Rashid Sum.....Rashid Sum.....Rashid Sum.....Rashid Sum.....Rashid SumApproach to the Sum Balance Sheet of Rashid as on 01.01.1997Requirements of the SumSteps to be followedJournal Entries(1)Collection from trade debtors after allowing discount of Rs. 1500 amounted to Rs. 58500.(2)Collection on discounting of bills of exchange after discounting of Rs.125 by the bank, totalled to Rs.6125.(3)Creditors of Rs.40000 were paid Rs. 39200 in full settlement of their dues. (4)Payment for freight inwards Rs. 3000.(5)Amount withdrawn for personal use Rs.7000.(6)Payment for office furniture Rs.1000.(7)Investment carrying annual interest of 4% was purchased at Rs.96 on 1.7.97 and payment made ....Contd(8)Expenses including salaries paid Rs.14500.(9)Miscellaneous receipts Rs.500.Bank and Cash A/c(C)Bills of exchange drawn on and accepted by customers during the year amounted to Rs.10000 , of these bills of exchange of Rs.2000 were endorsed in favour of creditors and endorsed bill of exchange of Rs. 400 was dishonored.Slide Number 28Slide Number 29Sundry Creditors A/cSundry Creditors A/cSlide Number 32 (d)Goods costing Rs.900 were used as advertising materials.(f)Differences in cash books, if any, is to be, treated as further drawings or introduction by Shri Rashid.Bank and Cash A/cFurniture A/c(e)Goods are invariably sold to show a gross profit of 331/3% on sales.Trading A/cSlide Number 39(g)Provide 2.5% for doubtful debts on Closing Debtors.Slide Number 41 Profit & Loss A/cB/s of Rashid as on 31.12.97SummaryThank You