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Finance

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Finance

  1. 1. Finance & Accounting Training Material —Presentation Transcript • 1. Prepared by: Ramendra Choudhary Accounting Basics • 2. INDEX TOPIC Slide No. Accounting – Definition ---------------------- 4 Accounting - Basic Purpose --------------------- 5 Users of Accounts ----------------------- 6 Accounting Terms ------------------- 7-15 Accounting Equation----------------------- 16 Methods of Accounting ---------------------- 17 Fundamental Accounting Assumptions --------------------- 18 Account Classification ---------------------------------- 19 Golden Rules of Accounts------------------ 20 Accounting Steps ---------------------- 21 Journal -------------------- 22-23 Ledger ----------------------- 24 Trial Balance ------------------- 25-26 Continued... • 3. INDEX Continued ….. TOPIC Slide No. Financial Statements ------------------- 27-32 Accounting Services being Outsourced ------------------- 33 Accounts Payable ------------------ 34-36 Accounts Receivable ----------------- 37-38 Fixed Assets ------------------ 39-42 Chart of Accounts ------------------ 43-45 General Ledger ------------------ 46-47 Reconciliations ----------------- 48-49 Bank Reconciliation Statement ---------------- 50-51 Rectification of Errors ---------------- 52-59 • 4. Accounting Accounting is the process of identifying, measuring, and communicating economic information to help informed judgments and decisions by the users of the information . The Following steps are included in Accounting: Forecasting and planning for future operation of the business by providing management with evaluations of the viability of proposed operations. The key forecasting and planning tool is the "Budget" Forecasting and Planning Interpreting and communicating the performance of the business to the management and its owners Interpreting and Communicating Summarising data to produce statements and reports that will be useful to the various users of accounting information - both external and internal Summarising Recording and classifying data into a permanent and logical form. This is usually referred to as "Book-keeping" Recording and Classifying Collection in money terms of information relating to transactions that have resulted from business operations Collection • 5. Accounting- Basic purpose To keep a record of all financial events that have taken place in the business as and when they happen To record and classify information extracted from books of accounts To summarize what has happened – collecting and recording information about the financial events To provide a means of interpreting and analyzing the information To present financial statements to shareholders and other stakeholders • 6. Users of Accounts Investors Lenders Suppliers and Creditors Employees Customers Government
  2. 2. • 7. Accounting Terms Debits and Credits These are the backbone of any accounting system. Understand how debits and credits work and youll understand the whole system. Every accounting entry in the general ledger contains both a debit and a credit. Further, all debits must equal all credits. If they dont, the entry is out of balance. Thats not good. Out-of-balance entries throw your balance sheet out of balance. Depending on what type of account you are dealing with, a debit or credit will either increase or decrease the account balance. The below example illustrates the entries that increase or decrease each type of account. Account Debit Credit Assets Increases Decreases Liabilities Decreases Increases Income Decreases Increases Expenses Increases Decreases Note: For every increase in one account, there is an opposite (and equal) decrease in another. Thats what keeps the entry in balance. Also notice that debits always go on the left and credits on the right.• 8. Accounting Terms Continued… Assets : Meaning Simply stated, assets are those properties, resources, things of value that your company owns. Assets are the valuable things owned by the firm. Assets increase the profit earning capacity of the business. Rule for Assets : Increase assets with a debit and decrease them with a credit. Examples of assets : The cash in your bank account is an asset. Since your company has a right to the future collection of money, accounts receivable are an asset-probably a major asset, at that. The machinery on your production floor is also an asset. There may also be intangible assets owned by your company. Patents, the exclusive right to use a trademark, and goodwill from the acquisition of another company are such intangible assets.• 9. Accounting Terms Continued… Liabilities : Meaning Liabilities are the Claims of outsiders( Creditors) and proprietor’s Claim against the business of the company. Rule for Liabilities : Increase liabilities with a credit and decrease them with a debit. Examples of Liabilities: Accounts payable are liabilities, since they represent your companys future duty to pay a vendor. So is the loan you took from your bank. If you were a bank, your customers deposits would be a liability, since they represent future claims against the bank.• 10. Accounting Terms Continued… Expense- Meaning : Money expended or cost incurred in a firms efforts to generate revenue , representing cost of doing business. Rule for Expenses: Increase Expenses with a Debit and decrease them with a Credit. Example of Expenses: Expenses may be in the form of actual cash payments (such as wages and salaries ), a computed expired portion (depreciation) of an asset , or an amount taken out of the firms earnings (such as bad debts ). Expenses are summarized and charged in the firms income statement as deductions from the income before assessing income tax .• 11. Accounting Terms Continued… Income: Meaning: It is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends. Rule for Income : Increase Income with a credit and decrease them with a debit. Example of Income : Income from sale of goods or services, Interest on investments, Dividend received etc.
  3. 3. • 12. Accounting Terms Continued… Capital: Meaning It is money (i.e. Cash ) or money’s worth ( i.e. goods, furniture, etc) which the proprietor has introduced in the business. It is the proprietor’s claim against the assets of the business. Rule for Capital : Increase Capital with a credit and decrease it with a debit. Drawings: Meaning It refers to the goods, cash or any other thing withdrawn from the business by the proprietor for his personal or domestic use. Rule for Drawings : Increase drawings with a debit and decrease them with a credit.• 13. Accounting Terms Continued… Reserves : Meaning These are amounts retained in the business and not distributed to owners. Reserves can be: Profits made and not passed on to owners. These are some times also known as retained earnings. Reserves will be shown on “Liabilities side” of Balance sheet under the head “ Reserves and Surplus”. Provision for doubtful debts: Meaning This represents an estimate of amounts customers have difficulty paying due to their cash flow problems. This figure will be deducted from the profit in the Profit and loss Account and will also be deducted from the Debtors figure in the Balance Sheet.• 14. Accounting Terms Continued… Stock : Meaning- Stock are assets: In the form of raw materials or supplies to be consumed in the production process or in the rendering of services, In the process of production for such sale i.e. Work in progress, Held for sale in the ordinary course of business i.e. Finished goods; Opening stock : Meaning It is the value of stock which exists at the beginning of the accounting period It appears on the Debit side of Trading account. Closing stock: Meaning It is the value of stock which exists at the end of the accounting period In other words, it is the value of goods purchased during the year and in stock at the beginning of the year, less those items sold during the year. It includes Stocks of raw materials, partially finished good known as work in progress and finished goods . Closing Stock= Opening stock + Purchases - Cost of Sales Note: Closing stock appears both in the Balance sheet( Under Current Assets) and in the Trading & Profit and Loss Account( on Credit side).• 15. Accounting Terms Continued… Depreciation- Meaning: The reduction in the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached. There are several Depreciation methods like Straight Line, Written down value method ,etc that are used in order to write off an assets depreciation cost over the period of its useful life. Depreciation will be deducted from the profit in the Profit and loss Account and will also be deducted from the Fixed Asset figure in the Balance Sheet. As depreciation is a non-cash expense, it allows the money to be retained in the business, thus maintaining the capacity of the business to replace its assets.• 16. Accounting Equation Accounting Equation: Meaning The financial position of a company is measured by the following items: Assets (what it owns) Liabilities (what it owes to others) Owner’s Equity (the difference between assets and liabilities) The accounting equation (or basic accounting equation) offers us a simple way to understand how these three amounts relate to each other. The accounting equation for a Company is: Assets = Liabilities + Capital
  4. 4. • 17. Methods of Accounting There are 2 Methods of Accounting as mentioned below: 1. Accrual Basis Expenses are recognized as and when they are incurred & not when actually paid and Revenue is recognized once it is earned & not when the actual cash is received. 2. Cash Basis Transactions are accounted for based on cash inflow / outflow. Expenses and Incomes are recognized based on Cash going out or Cash coming in respectively. Note: Generally, Accrual Basis of Accounting is followed in almost all the organizations.• 18. Fundamental Accounting Assumptions The following are the Accounting Assumptions: 1. Going concern The Accounts are prepared based on the assumption that business will continue for the foreseeable future and it does not have the intention of winding up. 2. Consistency The Accounts for an accounting year are prepared based on the assumption that all the accounting policies followed are consistent with the prior accounting periods. In case there is any deviation then it should be stated as a note to Financial statements. 3. Accrual Incomes and expenses are recognized when they accrued or incurred respectively and not when they are received/paid .• 19. Account Classification Personal Accounts People, Companies etc. and representative personal accounts like bank account. The balances of real accounts are not cancelled out at the end of an accounting period but are carried over to the next period Example: Ledger accounts that record transactions with individuals as debtors/creditors. . Real Accounts Asset , liability , reserve, and capital accounts that appear on a balance sheet . The balances of real accounts are not cancelled out at the end of an accounting period but are carried over to the next period. Example : Land & Building, Plant & Machinery ,etc Nominal Accounts Expense and Income accounts. Example: Rent, Salary, repairs, interest received, Dividend received• 20. Golden Rules for Accounting The Below are the 3 Golden rules of Accountancy: Personal Account Debit the receiver Credit the giver Real Account Debit What comes in Credit what goes out Nominal Account Debit all expenses & losses Credit all incomes & gains• 21. Accounting Steps Entering the transactions in terms of money Journalizing Ledger posting and balancing Preparation of Trial Balance Preparation of Final accounts ( Profit and loss account and Balance sheet)• 22. Journal It is a book containing the record of all transactions in a chronological order. The process of recording transactions in a journal is called Journalizing . Ravi commences business introducing cash of Rs. 50,000 Cash a/c Dr. 50,000 To Capital a/c 50,000 Ravi purchases a machinery for Cash Machinery a/c Dr. 20,000 To Cash a/c 20,000• 23. Journal Continued Purchases goods for Cash Rs.5,000. Gets a discount of Rs.500 Purchases a/c Dr. 5,000 To Cash a/c 4,500 To Discount Received 500 Sells goods for Cash Rs.10,000 for Credit Rs.2000 Cash a/c Dr. 10,000 Sundry Debtors a/c Dr. 2,000 To Sales a/c 12,000• 24. Ledger Ledger is a book which contains all accounts of the business enterprise. The bookkeeper posts the entries into the ledger with the help of the Journal Posting refers to the transferring of debit and credit items from the journal to their respective accounts in the ledger Sundry Debtors a/c 1000 To opening
  5. 5. balance 1-Feb 5000 Total 5000 Total 1000 By closing balance Jan 30 200 By bad debt Jan 25 300 By discount given Jan 22 500 By bills receivable Jan 20 4500 To credit sales Jan 15 3000 By cash Jan 10 500 To opening balance 1-Jan Amount Particulars Date Amount Particulars Date Cr. Dr.• 25. Trial Balance After posting the accounts in the ledger, a statement is prepared to show separately the credit and debit balances. Such a statement is called a Trial Balance The total of the debit side should always be equal to the total of the credit side which proves the arithmetic accuracy of the ledger entry It acts as a tool to detect any errors which may have occurred in posting the journal entries in the ledger and in balancing the ledger Financial statements are prepared on the basis of the agreed trial balance• 26. Eg: Trial Balance 70,000 70,000 Total 250 Interest received 500 Salary to clerk 6,000 Sales 2,500 Purchases 5,000 Loan given to Vijay 10,000 Loan from Ravi 3,750 Sundry Creditors 1,000 Sundry Debtors 20,000 Machinery 50,000 Capital 41,000 Cash Credit Debit Particulars• 27. Financial Statements Trading and Profit & loss account Trading accounts gives the overall result of trading, i.e. purchasing and selling goods. It includes the Direct expenses incurred and incomes earned during the financial accounting year . Profit and loss account shows the overall result of financial operations during the given period. It includes all the Indirect expenses incurred and incomes earned during the financial accounting year . Balance Sheet It shows the financial position of an enterprise at given particular date . It includes Assets, Owner’s Capital and Liabilities. Cash Flow Statement: It shows inflow and outflow of cash . As the financial statements are prepared on accrual basis , they do not reflect amount and timing of cash flow. This necessitates a Cash Flow Statement.• 28. Financial Statements - Components Cash Flow Statement Trading and Profit & Loss A/c Investing Financing Operating• 29. Financial Statements: Example of Trading Account NOTE: When Credit side total is more than Debit side total, the bal. figure is Gross profit, whereas when Debit total is more than Credit total, then the bal. figure is Gross loss. xxx Total xxx Total xxx To Gross Profit * xxx To factory rent xxx To factory lighting xxx To power and fuel xxx To Manufacturing wages xxx By Gross Loss * xxx To Carriage inwards xxx By closing stock xxx To Purchases less returns xxx By Sales less returns xxx To opening Stock Amount Particulars Amount Particulars Cr. Dr.• 30. Financial Statements: Example of P&L Account NOTE: When Credit side total is more than Debit side total, the bal. figure is Net profit, whereas when Debit total is more than Credit total, then the bal. figure is Net loss. xxx Total xxx Total To Net Profit * xxx To Depreciation on Plant & Machinery xxx To Provision for Bad debt Xxx To Depreciation xxx To Discount allowed xxx By Net Loss * xxx To Salaries xxx By Interest Received xxx To Commission paid xxx By Discount received xxx To Rent paid xxx By Gross Profit * xxx To Gross Loss * Amount Particulars Amount Particulars Cr. Dr.• 31. Financial Statements: Example of Balance Sheet xxx Closing Stock Current Liabilities xxx Cash at Bank Accounts Receivable X xxx Accounts Payable xxx
  6. 6. Less:Provision for Bad debt (X) Provisions xxx Cash in Hand xxx Provision for Tax XXX TOTAL XXX TOTAL Current Assets xxx Unsecured Loans xxx Investments xxx Secured Loans (xxx) P/L A/C ( Loss) xxx Less: Depreciation (xx) xxx Add/ (Less): P/L A/C Profit Plant & Machinery xx xxx Reserves xxx Furniture & Fixtures Reserves & Surplus Fixed Assets xxx Share Capital Amount Assets Amount Liabilities• 32. Financial Statements: Example of Cash Flow Statement Cash Flow from Operating Activities Sale of Goods X Purchase of Goods (X) Salaries/ Commission paid (X) Income tax paid (X) Cash from Operating Activities Total XX Cash Flow From Investing Activities Sale of Fixed Assets/ Investments X Purchase of Fixed Assets/ Investments (X) Cash from Investing Activities Total XX Cash Flow From Financing Activities Issue of Shares/ Debentures X Redemption of Shares/ Debentures (X) Cash from Investing Activities Total XX Net Increase/ (Decrease) in Cash during the Year XX Add: Opening Cash and Cash Equivalents XX Closing Cash and Cash Equivalents Total XX• 33. Accounting Services being Outsourced Accounts Payable Accounts Receivable Fixed Assets General Ledger – Reconciliations Treasury Management Payroll Note: Treasury & Payroll has not been included in Training process.• 34. Accounts Payable - Definition In accounting, accounts payable are debts resulting from purchasing goods or receiving services on credit . You have accounts payable when you have not yet paid for the goods or services you have received. Another common usage of AP refers to a business department or division that is responsible for making payments owed by the company to suppliers. Accounts payable are often referred to as "payables" . Journal Entries in Accounts Payable: 1. On Purchase : 2. Payment to Creditors Purchase A/C Dr. ( Note1) Creditors A/C Dr. To Creditors (Note 2) To Bank / Cash A/C Note 1. Purchases A/C will be shown on Debit side of Profit & Loss A/ C. Note 2. Creditors A/C will appear under Current Liabilities in the Balance Sheet.• 35. Accounts Payable- Activities involved Activities involved in Accounts payable Process are: Receiving Invoices from the Vendor Verifying authenticity of the Invoice Verify invoice calculation and terms Matching the Invoice against Purchase Order and Goods Received Note and Input invoice details in the System( 3- Way Matching). Ensure Timely payment to the Vendors on due date Respond to vendor inquires Perform Monthly accounts payable aging and report to the Management.• 36. Accounts Payable Process Flow Process Flow Mail House Onsite/Near shore DMS ERP/LEGACY SYSTEMS Approvals PO Verification Non PO Verification Invoice Accounting Payment Proposal Payment Run Update Vendor Master Invoice Deduping Vendor reconciliation Client’s Local Business Client’s Supplier Goods or Service Purchase Order Invoice Vendor Portal Client’s Bank• 37. Accounts Receivable Definition: Accounts Receivable is the money due for merchandise or service sold, but not yet collected What is Accounts Receivable? It deals with the collection of money which the customer owes the business for the goods or services we have rendered to them. An invoice is generated and mailed or electronically delivered to the customer The customer must pay the
  7. 7. invoice within an established timeframe This established time frame is called credit or payment terms• 38. Accounting aspects of Accounts Receivables Journal Entries in Accounts Receivable Process: 1. On Credit Sale : 2. Payment received from Debtors Debtors A/C Dr. ( Note1) Bank / Cash A/C Dr. To Sales (Note 2) To Debtors A/C Note 1. Debtors A/C will appear under Current Assets in the Balance Sheet.. Note 2. Sales A/C will be shown on Credit side of Profit & Loss A/C• 39. Fixed Assets Fixed Assets are the assets acquired for Long term use in the Business. Examples: Building, Plant and Machinery Activities involved in Fixed Assets are: Acquisition/Creation of fixed assets Calculate/record depreciation Process fixed assets additions/Disposals/Transfers. Account for Repair and Maintenance Charges.• 40. Accounting aspects of Fixed Assets Journal Entries in Fixed Assets: 1. On Acquisition of Building 2. Depreciation entry: Building A/C Dr. ( Note1) Depreciation A/C Dr. (Note 2) To Bank /Cash A/C To Building A/C Note 1. Building A/C will appear under Fixed Assets in the Balance Sheet.. Note 2. Depreciation A/C will be shown on Debit side of Profit & Loss A/C.• 41. Asset Management – Creation of Asset Process Flow• 42. Asset Management – Retirement of Asset Process Flow• 43. CHART OF ACCOUNTS- MEANING In accounting, a standard chart of accounts is a numbered list of the accounts that comprise a company’s general ledger The company chart of accounts is basically a filing system for categorizing all of a company’s accounts and classifying all transactions according to the accounts they affect The chart of accounts list of categories will include: Assets, liabilities, owners’ equity, revenues, cost of goods sold, operating expenses, and other relevant accounts. For example , if assets are classified by numbers starting with the digit 1, then cash accounts might be labeled 101, Land & Building might be labeled 102, inventory might be labeled 103, and so on. And if liabilities accounts are classified by numbers starting with the digit 2, then accounts payable might be labeled 201, short-term debt might be labeled 202 and so on.• 44. Example of Chart of Accounts 1000 ASSETS 1010 Plant & Machinery 1020 Cash 1030 Bank 2000 PAYABLES 2010 A/P Trade Creditors 2020 A/P Accrued Accounts Payable 3000 REVENUE 3010 Revenue from Sales 3020 Interest Income 3030 Other Income 4000 OPERATING EXPENSES 4010 Advertising Expense 4020 Amortization Expense 4030 Auto Expense 4040 Bad Debt Expense 4050 Bank Charges• 45. Categories of Accounts There are seven basic categories in which all accounts are grouped: Assets Liability Owners equity Revenue Expense Gains Losses• 46. General Ledger The general ledger , sometimes known as the nominal ledger , is the main accounting record of a business which uses double-entry bookkeeping. It will usually include accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, gains and losses. The general ledger is a collection of the group of accounts that supports the items shown in the major financial statements. It is built up by posting transactions recorded in the general journal. The general ledger can be supported by one or more subsidiary ledgers that provide details for accounts in the general ledger. For instance, an accounts
  8. 8. receivable subsidiary ledger would contain a separate account for each credit customer, tracking that customers balance separately. This subsidiary ledger would then be totaled and compared with its controlling account (in this case, Accounts Receivable) to ensure accuracy as part of the process of preparing a trial balance.• 47. Posting of GL The Balance sheet and the Profit & Loss Account are both derived from the general ledger. Each account in the general ledger consists of one or more pages. The general ledger is where posting to the accounts occurs. Posting is the process of recording amounts as credits, (right side), and amounts as debits, (left side), in the pages of the general ledger. Additional columns to the right hold a running activity total (similar to a checkbook). The listing of the account names is called the chart of accounts. The extraction of account balances is called a trial balance. The purpose of the trial balance is, at a preliminary stage of the financial statement preparation process, to ensure the equality of the total debits and credits. The main categories of the general ledger may be further subdivided into subledgers to include additional details of such accounts as cash, accounts receivable, accounts payable, etc.• 48. Reconciliation Why Reconciliation is performed? It is important to reconcile balance sheet accounts at the end of a period (month, quarter, or year-end) as part of the closing process as it helps to identify errors before closing . Differences caused by any error or due to difference in the timing of transactions, such as outstanding checks, are identified as reconciling items. Reconciliations- Meaning: Balance sheet account reconciliation is the comparison of the account’s general ledger with another source, be it internal, such as a sub ledger, or external, such as a bank statement or any other statement from an independent source. When reconciling an account to an ageing, different detail ledgers are used. Example: Cash accounts are reconciled against a bank statement. Accounts receivable and accounts payable are reconciled against aging schedules. Inventory and fixed assets can be reconciled against a physical count.• 49. Example of Account Reconciliation Statement: Account Reconciliation Statement Balance per general ledger (source #1): x Add/(Less) Items in general ledger not in the independent source statement: x Add/(Less) Items in independent source statement but not in general ledger: x Balance per independent source statement (Source #2) x Note : Here the General Ledger account balance is being reconciled with the Balance as per the Independent source statement identifying the reconciling items i .e. the reasons for variance between the two balances.• 50. Bank Reconciliation Statement Bank reconciliation statement is a statement prepared by organizations to reconcile the balance of cash at the bank in companys own records with the bank statement on a particular date This statement is the most common tool used by organizations for reconciling the balance as per books of company with the bank statement and is made at the end of every month. The main objective of reconciliation is to ascertain if the discrepancy is due to error rather than timing The difference between the two records on a given date may arise because of the following: Cheques drawn but not yet presented to the bank Cheques received but not yet deposited in the bank
  9. 9. Interest credited and not recorded in the organizations books Bank charges debited but not recorded in the organizations books• 51. Example of Bank Reconciliation Statement• 52. Rectification of Errors The following are the Types of Errors : Errors of Principle Errors of omission Errors of commission Compensating errors• 53. Rectification of Errors -Errors of Principle 53 When a transaction is recorded against the fundamental principles of accounting, it is an error of principle. Example: Machinery Overhauled, a capital expenditure wrongly treated as revenue expenditure Correct Entry Machinery a/c……………Dr To Cash/Bank a/ c Incorrect Entry Repairs to Machinery a/c…..Dr To Cash/Bank a/c The above entry shows the amount debited to Repairs to machinery a/c instead of machinery -this error would reduce the profit as well as the Machinery a/c. Hence the rectification entry would be as follows Rectification Entry Machinery a/c……………..Dr To Repairs to Machinery a/c• 54. Rectification of Errors -Errors of Omission 54 When a transaction is either wholly or partially not recorded in the books, it is an error of omission. The error may be with regard to omission to enter a transaction in the books of original entry (Journal) or with regard to omission to post a transaction from the books of original entry to the account concerned in the ledger. Example: Correct Entry Discount Allowed a/c……….Dr 50 To Debtor a/c 50 Discount allowed to Debtor Rs. 50, not posted to discount account. It means that the amount of Rs. 50 which should have been debited in discount account has not been debited, so the debit side of discount account has been reduced by the same amount but the same stands posted to the debtor account. We should debit Rs. 50 in discount account now, which was omitted previously and the discount account shall be corrected. Rectification Entry Discount Allowed a/c ……….Dr 50 To Suspense a/c 50• 55. Rectification of Errors -Errors of Commission 55 When an entry is incorrectly recorded either wholly or partially-incorrect posting, calculation, casting or balancing. Some of the errors of commission effect the trial balance whereas others do not. Example: Error not affecting the trail balance . Goods sold to Mr. X on credit, wrongly debited to Mr. Y Correct Entry Mr. X a/c…………………….Dr To Sales a/c Incorrect Entry Mr. Y a/c…………………….Dr To Sales a/c Rectification Entry Mr. X a/c…………………….Dr To Mr. Y a/c• 56. Rectification of Errors -Compensating Errors 56 Sometimes an error is counter-balanced by another error in such a way that it is not disclosed by the trial balance. Such errors are called compensating errors. Example Goods purchased from Mr. Shashi worth Rs.1000 Correct Entry Purchase a/c………Dr 1000 To Shashi a/c 1000 Incorrect Entry Purchase a/c………Dr 100 To Shashi a/c 100 Rectification Entry Purchase a/c………Dr 900 To Shashi a/c 900 Here both debit and credit had been undercasted by Rs. 900 respectively. Even if the rectification hadn’t been done the Errors would have compensated itself• 57. Rectification of Errors- Exercise Pass Rectification entries for the following transactions. Cash sale of Rs.5,000 made to ABC Ltd – ABC Ltd was debited and Sales was credited Salary paid to Manager Rs.15,000 was debited to Manager a/c and credited to Cash a/c. Interest Received Rs.2,500 was credited to Dividend
  10. 10. account and debited to Bank a/c Credit purchases made for Rs.50,000 from Dell Corporation was debited to bank a/c and credited to HP a/c. Installation charges for Machinery Rs.750 was debited to Furniture account and credited to cash a/c. Freight inwards Rs.2,500 was debited to Freight Outward account. Amount paid by Samsung to its subsidiary Sansui was debited to Mr. Samson a/c and cash a/c was credited. Rs.20,000 withdrawn from bank for office use was debited to Bank a/c and credited to Cash a/c. Rs.50,000 deposited into bank a/c. Cash a/c was debited and Bank a/c was credited. Amount paid by customer into HSBC account Rs.65,000. HDFC account was credited while entering it.• 58. Solutions to Rectification of Errors- Exercise Rectification Entries 1. Cash sale of Rs.5,000 made to ABC Ltd. ABC Ltd was debited and Sales was credited. Cash a/c …Dr 5000 To ABC a/c 5000 2. Salary paid to Manager Rs.15,000 was debited to Manager a/c and credited to Cash a/c. Salary a/c ………..Dr 15000 To Manager a/c 15000 3. Interest Received Rs.2,500 was credited to Dividend account and debited to Bank a/c Dividend a/c ……Dr 2500 To Interest Received a/c 2500 4. Credit purchases made for Rs.50,000 from Dell Corporation was debited to bank a/c and credited to HP a/c. H.P a/c …..Dr 50000 Purchase a/c….Dr 50000 To Bank a/c 50000 To Dell a/c 50000 5. Installation charges for Machinery Rs.750 was debited to Furniture account and credited to cash a/c . Machinery A/c……………Dr 750 To Furniture a/c. 750• 59. Solutions to Rectification of Errors- Exercise Continued….. 6. Freight inwards Rs.2,500 was debited to Freight Outward account. Freight Inward a/c …………………Dr 2500 To Freight Outward a/c 2500 7. Amount paid Rs. 10000 by Samsung to its subsidiary Sansui was debited to Mr. Samson a/c and cash a/c was credited . Sansui a/c ………………Dr 10000 To Samson A/c 10000 8. Rs.20,000 withdrawn from bank for office use was debited to Bank a/c and credited to Cash a/c. Cash a/c……………….Dr 40000 To Bank a/c 40000 9. Rs.50,000 deposited into bank a/c. Cash a/c was debited and Bank a/c was credited Bank a/c …..Dr 100000 To Cash a/c 100000 10. Amount paid by customer into HSBC account Rs.65,000. HDFC account was credited while entering it HDFC Bank a/c……Dr 65000 To HSBC Bank a/c 65000• 60. Thank You

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