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BUSINESS ACCOUNTING
Unit -2 : Book Keeping
Dr. J.Mexon ,
Department of Management,
Kristu Jayanti College, Bengaluru.
Contents
Double Entry System
Accounting Cycle
Preparation of Journal
Posting Ledger
Preparation of Trial balance
Double Entry System
According to this system, every transaction has two aspects.
One is benefit receiving aspect or incoming aspect and the
other one is benefit giving aspect or outgoing aspect.
For every transaction, one account is to be debited and
another account is to be credited in order to have a complete
record of the transaction.
Therefore, the basic principles, under this system is that for
every debit, there must be a corresponding and equal credit
and for every credit there must be a corresponding and equal
debit.
Debit and credit
• Debit – the benefit receiving aspect of a transaction is known
as debit.
• Credit – the benefit giving aspect of a transaction is known
as credit.
• The abbreviations ‘Dr’ for Debit and ‘Cr’ for Credit are
usually used.
• By convention, the left hand side of an account is termed as
debit side and right hand side of an account is termed as
credit side.
Accounting Cycle
Recording, classifying, summarising and finalising all business
transactions are the important stages in Accounting cycle.
• Recording is the first step which is usually accomplished
through Journal or Subsidiary books.
• Classifying is the second step (Ledger)
• Summarising is accomplished through preparation of Trial
balance
• Finalising is accomplished through preparation of Trading
Account, Profit and Loss Account and Balance Sheet.
Journal
• This is the basic book of original entry. In this book,
transactions are recorded in the chronological order,
as and when they take place.
• Afterwards, transactions from this book are posted to
the respective accounts. Each transaction is separately
recorded after determining the particular account to
be debited or credited.
Transactions are recorded in chronological order based on
dates.
Particular column specifies the accounts to be debited and
credited.
LF represents Ledger Folio (page number in ledger).
Debit amount and Credit amount represent the amount to
be debited and credited in the entry.
All journal entries accompanied by a ‘narration’.
Transaction Analysis for Journal Entries
• The accounts affected by the transaction have to be
identified.
• The identified accounts should be classified as to
personal or real or nominal.
• The accounts to be debited and credited should be
decided on the basis of ‘Rules’ governing debiting and
crediting.
Accounting Rules
• Personal Accounts: Debit the Receiver
Credit the Giver
• Real Accounts: Debit what comes in
Credit what goes out
• Nominal Accounts: Debit all expenses and losses
Credit all incomes and gains
Accounts
1. Personal Accounts:
Proprietor
Creditor
Debtors
2. Real Accounts:
Assets (Meant for use)
Goods (Meant for resale)
3. Nominal Accounts:
Expenses & Losses
Income & Gains
Personal
Accounts
Debit the Receiver
Credit the Giver
Proprietor
Creditor
Debtors
Real
Accounts
Debit what comes in
Credit what goes out
Assets (Meant for use)
Goods (Meant for resale)
Nominal
Accounts
Expenses & Losses
Income & Gains
Expenses & Losses
Income & Gains
MODERN APPROACH
Account type Normal
balance
Increase Decrease
Asset Debit Debit Credit
Expense/ Loses Debit Debit Credit
Equity/Capital Credit Credit Debit
Revenue/ Gains Credit Credit Debit
Liabilities Credit Credit Debit
The following rules are applied for treating the transactions into the
books of accounts:
Important points for Journal
• When money is paid for expenses like rent, commission,
salary etc., the particular expense should be debited (not the
person who received the money).
• Expenses incur to acquire fixed assets (building, machinery
etc.) should be added to the cost of the asset.
• Goods Account: The articles or products in which a firm deals
are termed as ‘goods’ for that firm. Purchase A/c, Sales A/c,
Purchase returns A/c, And Sales return A/c are all different
types of goods accounts and thus ‘Real accounts’ by nature.
• Purchase A/c is meant for purchase of goods only, not used
for purchase of assets.
• Sales A/c is meant for sales of goods only, not used for sale
of assets.
• When owners provides money to the business, it is Capital
A/c (Credited).
• When owners withdraws money it is Drawing A/c (Debited).
• Loss of goods by fire, theft or pilferage etc., treated as
abnormal losses and credited to Trading A/c, after debiting
the respective loss accounts.
Problem No: 1
Journalise the following transactions:
1. Purchased goods for cash Rs.20,000
2. Purchased stationery for cash Rs. 1000
3. Purchased furniture for cash Rs. 6,000
4. Sold goods for cash Rs. 16,000
5. Sold goods to John for cash Rs. 6,000
6. Sold goods to Joseph Rs. 4,000
7. Paid Rent to Krishnan, the landlord Rs. 1,600
8. Paid salary of Rs. 16,000
9. Paid Lokesh, the manager his salary of Rs. 6,000
10. Paid freight on goods purchased Rs. 600
11. Paid freight on machine purchased Rs. 800
12. Paid wages Rs. 1,000
13. Paid wages to erect a machine Rs. 2,000
14. Received Rs. 1,600 from Kamal
15. Received Rs. 1,200 from Kamal as interest
16. Received Rs. 14,000 from Kamal as loan at 5% interest
Problem No: 2
• Journalise the following transactions of M/s Sindhu & Sons.
2020, July
1. Business started with Rs. 2,50,000 and cash deposited with Bank
3. Purchased machinery on credit from Mr. John Rs. 50,000
6. Bought furniture from Mr. Siva for Cash Rs. 27,000
12. Goods sold to Ms. Sneha Rs.24,000
13. Goods returned by Ms. Sneha Rs. 2,800
15. Goods sold for cash Rs. 52,000
17. Bought goods for cash Rs. 26,000
20. Cash received from Ms. Sneha Rs. 11,000
21. Cash paid to Ramesh Rs. 21,000
25. Cash withdrawn from bank Rs. 52,000
28. Paid advertisement expenses Rs. 13,500
29. Bought office stationery for cash Rs. 5,500
30. Cash withdrawn from bank for personal use of proprietor Rs. 6,000
31. Paid salaries Rs. 14,500
31. Paid rent Rs. 3,000
Problem No:3
On 1st May, 2020, the books of account of Mr. Ram disclosed the
following position: Cash in hand Rs. 20,000; Cash at bank Rs. 66,000;
Stock of goods Rs. 42,000; Machinery Rs. 1,00,000; Furniture Rs.
15,000; Debtors: Ramesh Bros Rs. 15,000; Suresh Bros Rs. 25,000;
Sundry creditors : John Bros Rs. 20,000; Loan Rs. 50,000.
Transaction during the month:
May, 2020
3, Purchased goods on credit from Siva & Co., Rs. 10,000
5, Sold goods for cash Rs. 5,000
Sold goods to Jacob Bros Rs. 10,000
6, Received from Jacob Bros. in full settlement of amount due on May
1. Rs. 14,500
7, Payment made to Isaac Bros. by Cheque Rs. 9,800, they allowed discount Rs.
200
8, Paid repairs to Machinery Rs. 500
10, Received Cheque from Jacob Bros., Cheque deposited in bank Rs. 9,600;
Discount allowed to them Rs. 400
15, Bank intimated that Cheque of Jacob Bros. has been returned unpaid.
18, Old newspaper sold Rs. 50
20, Drew cash from bank for office use Rs. 1,000
21, Drew out of bank for private use Rs. 2,500
22, purchased adding machine & typewriter (Payment made by cheque) Rs.
8,000
Exercise Problem:
• Salary paid Rs. 9,000 (Salary, Cash)
• Rent paid to house owner Rs. 2,000 (Rent, Cash)
• Credit purchase from Mr. Bharat Rs. 3,000 (Purchase, Mr.Bharat)
• Discount Received Rs. 1,000 (Cash, Discount Received)
• Cash Sales Rs. 1,500 (Cash, Sales)
• Cash deposited in Bank Rs. 4,000 (Bank, Cash)
• Received cash from Mr. Sharma Rs. 800 (Cash, Mr.Sharma)
• Sold goods to Ms. Ganga on credit Rs.1,500(Ganga, Sales)
LEDGER
• The ledger is the principal book of accounting system. It
contains different accounts where transactions relating to
that account are recorded.
• A ledger is the collection of all the accounts, debited or
credited, in the journal proper and various special journal. A
ledger may be in the form of bound register, or cards, or
separate sheets may be maintained in a loose leaf binder.
• In the ledger, each account is opened preferably on separate
page or card.
• A ledger account may be described as “A summary
statement of all the transactions relating to a person,
asset, expense or income which have taken place
during a given period of time and shows their net
effect”.
• Ledger account contains two sides- the left hand side
called “Debit side” and the right hand side called
“Credit side”. The heading mentions the name of the
account. On both sides of the account, date column is
maintained.
Distinction between Journal and Ledger
1. Primacy: Journal is the book of Original entry; ledger is dependent
on journal for data.
2. Recording: Journal is recording in chronological order as and when
transactions take place. In ledger transactions relating to particular
accounts are entered.
3. Evidence Value: Journal has better evidence value for legal
problems. But ledger is the source for assessing business results.
4. Focus: Journal focusing on transactions. But Ledger focus on
accounts.
5. Timing: Journal has to be done day after day, as and when
transaction take place. Ledger can be done anytime, either daily or
once in a while, according to need or convenience.
Problem No: 4
Record the following transactions in the personal accounts of Mr. Virat:
2020, May
• 1 Sold goods to Virat Rs. 6,000
• 5 Cash received from Virat Rs. 5,800 and allowed him discount Rs.
200
• 18 Sold goods to Virat Rs. 8,000
• 30 Received Cash from Virat on account Rs. 4,500
June 1 Balance from last month b/d Rs. 3,500
• 12 Sold goods to Virat Rs. 12,000
• 22 Received Cash from Virat Rs. 4,850 and allowed him discount Rs.
150
• 31 Received Cash in full settlement of Virat A/c Rs. 10,250
Problem No:5
Enter the following transactions in the journal and ledger of Hari Prasad
of Hyderabad. 2000 July
• 1 Commenced business with Cash Rs. 1,80,000
• 3 Deposited into Bank Rs. 55,000
• 4 Purchases goods for cash Rs. 22,000
• 5 Bought goods of Swaminathan Rs. 72,000
• 8 Cash sales Rs. 16,200
• 11 Cash deposited into bank Rs. 23,000
• 14 Purchased furniture for cash Rs. 4,000
• 18 Paid Swaminathan cash Rs. 12,000, discount allowed by him Rs.
240
• 21 Sold goods to Jagadeesan Rs. 35,000
• 22 Paid cash for trade expenses Rs. 150
• 25 Received from Jagadeesan Rs. 21,000, allowed him discount Rs.
525
• 26 Paid Swaminathan cash on account Rs. 24,000
• 31 Withdrew cash for private expenses Rs. 1,480
Problem No:6
Enter the following transactions in the journal and ledger of Sharma of
Chennai. 2021 June,
• 1 Sharma commenced business with cash Rs. 30,000
• 3 Purchased goods for cash Rs. 1,500
• 4 Deposited into bank Rs. 21,000
• 5 Withdrew from bank for office use Rs. 1,500
• 6 Sold goods to Ram Rs. 1,500
• 10 Purchased goods on credit from Kannan Rs. 680
• 19 Received from Ram Rs. 1,470 and allowed him discount 30
• Cash sales Rs. 2,400
• Paid to Kannan in full settlement Rs. 150
• Paid rent Rs. 150
Trial Balance
• “Trial balance is a statement containing the balances
of all ledger account, as at any given date, arranged in
the form of debit and credit columns placed side by
side and prepared with the object of checking the
arithmetic accuracy of ledger postings”
Objectives of Trial balance
1. To ascertain the arithmetical accuracy of the ledger
accounts.
2. To help in locating errors.
3. To help in the preparation of the financial statements.
(Profit & Loss account and Balance Sheet) with the balances of
accounts.
Methods of Preparing Trial Balance
• Totals method: Under this method, total of each side in the ledger
(debit and credit) is ascertained separately and shown in the trial
balance in the respective columns. The total of debit column of trial
balance should agree with the total of credit column in the trial
balance because the accounts are based on double entry system.
• Balances Method: This is the most widely used method in practice.
Under this method trial balance is prepared by showing the balances
of all ledger accounts and then totalling up the debit and credit
columns of the trial balance to assure their correctness. The account
balances are used because the balance summarises the net effect of
all transactions relating to an account and helps in preparing the
financial statements.
Classification of Errors
• Errors of Commission: These are the errors which are
committed due to wrong posting of transactions, wrong
totalling or wrong balancing of the accounts, wrong casting of
the subsidiary books, or wrong recording of amount in the
books of original entry etc.
• Errors of Omission: The errors of omission may be
committed at the time of recording the transaction in the
books of original entry or while posting to the ledger. These
can be of two types:
(i) Error of complete omission
(ii) Error of partial omission
• Errors of Principle: Accounting entries are recorded as per
the generally accepted accounting principles. If any of these
principles are violated or ignored, errors resulting from such
violation are known as errors of principle.
• Compensating Errors: When two or more errors are
committed in such a way that the net effect of these errors on
the debits and credits of accounts is nil, such errors are called
compensating errors.
Problem No: 7
• The following balances were extracted from the ledger of Ram engineering works
on 31st May 2020. You are required to prepare a trial balance as on that date in
proper form. Rs. Rs.
Drawings
Capital
Sundry Creditors
Bills Payable
Sundry Debtors
Bills Receivables
Loan from Karthik
Furniture
Opening Stock
Cash in hand
Cash at bank
6,000
24,000
43,000
4,000
50,000
5,200
10,000
4,500
47,000
900
12,500
Tax
Sales
Salaries
Sales Return
Purchase Return
Travelling expenses
Commission paid
Trading expenses
Discount earned
Rent
Bank Overdraft
Purchases
3,500
1,28,000
9,500
1,000
1,100
4,600
100
2,500
4,000
2,000
6,000
70,800
Problem No: 8
• Antony of Bangalore is not an accounting expert. He prepared the following trial
balance. You are requested to correct it and prepare a corrected trial balance.
Name of the Account LF Debit Credit
Capital
Sales
Sales return
Drawings
Sundry Debtors
Freehold premises
Purchases
Return Outwards
Loan from Sharma
Sundry Creditors
Administration expenses
Cash in hand
Bills Payable
Wages
Opening stock
Factory expenses
-
-
-
5,640
-
7,410
12,680
2,640
-
5,280
7,840
1,420
1,000
5,980
-
4,650
54,540
15,560
27,560
980
-
5,300
-
-
-
2,500
-
-
-
-
-
2,640
-
54,540
Problem No: 9
• The following trial balance has been prepared wrongly. You are asked to prepare
the trial balance correctly.
Name of the Account LF Debit Credit
Cash in hand
Purchase return
Wages
Establishment expenses
Sales return
Capital
Carriage outwards
Discount received
Commission earned
Machinery
Stock
-
4,000
8,000
12,000
-
22,000
-
1,200
800
-
-
2,000
8,000
-
2,000
-
-
20,000
10,000
Name of the Account LF Debit Credit
Debtors
Creditors
Sales
Purchases
Bank OD
Manufacturing expenses
Loan from Ashok
Carriage inwards
Interest on investments
8,000
-
-
28,000
14,000
-
14,000
1,000
-
1,13,000
-
12,000
44,000
-
-
14,000
-
-
1,000
1,13,000
Problem No:10
Journalise the following transactions. Post them in the ledger, balance the
ledger accounts and prepare trial balance: 2021 June,
• 1 Joseph commenced business with a capital of Rs. 80,000
• 3 Purchased goods for Rs. 24,000
• 4 Bought furniture for Rs. 20,000
• 5 Sold goods for Rs. 18,000
• 6 Sold goods to kumar on credit for Rs. 15,000
• 10 Purchased goods on credit from David Rs. 6,000
• 19 Cash received from Kumar Rs. 14,950 and allowed him discount Rs. 50
• 22 Paid Cash to David Rs. 2,000
• 25 Drawn for personal use Rs. 3,000
• 28 Open a bank account by depositing Rs. 11,000
• 29 Cash sales Rs. 5,000
• 31 Rent paid Rs. 2,000 and Salary Paid Rs. 3,500
Thank you

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Book Keeping

  • 1. BUSINESS ACCOUNTING Unit -2 : Book Keeping Dr. J.Mexon , Department of Management, Kristu Jayanti College, Bengaluru.
  • 2. Contents Double Entry System Accounting Cycle Preparation of Journal Posting Ledger Preparation of Trial balance
  • 3. Double Entry System According to this system, every transaction has two aspects. One is benefit receiving aspect or incoming aspect and the other one is benefit giving aspect or outgoing aspect. For every transaction, one account is to be debited and another account is to be credited in order to have a complete record of the transaction. Therefore, the basic principles, under this system is that for every debit, there must be a corresponding and equal credit and for every credit there must be a corresponding and equal debit.
  • 4. Debit and credit • Debit – the benefit receiving aspect of a transaction is known as debit. • Credit – the benefit giving aspect of a transaction is known as credit. • The abbreviations ‘Dr’ for Debit and ‘Cr’ for Credit are usually used. • By convention, the left hand side of an account is termed as debit side and right hand side of an account is termed as credit side.
  • 5. Accounting Cycle Recording, classifying, summarising and finalising all business transactions are the important stages in Accounting cycle. • Recording is the first step which is usually accomplished through Journal or Subsidiary books. • Classifying is the second step (Ledger) • Summarising is accomplished through preparation of Trial balance • Finalising is accomplished through preparation of Trading Account, Profit and Loss Account and Balance Sheet.
  • 6. Journal • This is the basic book of original entry. In this book, transactions are recorded in the chronological order, as and when they take place. • Afterwards, transactions from this book are posted to the respective accounts. Each transaction is separately recorded after determining the particular account to be debited or credited.
  • 7.
  • 8. Transactions are recorded in chronological order based on dates. Particular column specifies the accounts to be debited and credited. LF represents Ledger Folio (page number in ledger). Debit amount and Credit amount represent the amount to be debited and credited in the entry. All journal entries accompanied by a ‘narration’.
  • 9. Transaction Analysis for Journal Entries • The accounts affected by the transaction have to be identified. • The identified accounts should be classified as to personal or real or nominal. • The accounts to be debited and credited should be decided on the basis of ‘Rules’ governing debiting and crediting.
  • 10. Accounting Rules • Personal Accounts: Debit the Receiver Credit the Giver • Real Accounts: Debit what comes in Credit what goes out • Nominal Accounts: Debit all expenses and losses Credit all incomes and gains
  • 11. Accounts 1. Personal Accounts: Proprietor Creditor Debtors 2. Real Accounts: Assets (Meant for use) Goods (Meant for resale) 3. Nominal Accounts: Expenses & Losses Income & Gains
  • 12. Personal Accounts Debit the Receiver Credit the Giver Proprietor Creditor Debtors Real Accounts Debit what comes in Credit what goes out Assets (Meant for use) Goods (Meant for resale) Nominal Accounts Expenses & Losses Income & Gains Expenses & Losses Income & Gains
  • 13. MODERN APPROACH Account type Normal balance Increase Decrease Asset Debit Debit Credit Expense/ Loses Debit Debit Credit Equity/Capital Credit Credit Debit Revenue/ Gains Credit Credit Debit Liabilities Credit Credit Debit The following rules are applied for treating the transactions into the books of accounts:
  • 14. Important points for Journal • When money is paid for expenses like rent, commission, salary etc., the particular expense should be debited (not the person who received the money). • Expenses incur to acquire fixed assets (building, machinery etc.) should be added to the cost of the asset. • Goods Account: The articles or products in which a firm deals are termed as ‘goods’ for that firm. Purchase A/c, Sales A/c, Purchase returns A/c, And Sales return A/c are all different types of goods accounts and thus ‘Real accounts’ by nature.
  • 15. • Purchase A/c is meant for purchase of goods only, not used for purchase of assets. • Sales A/c is meant for sales of goods only, not used for sale of assets. • When owners provides money to the business, it is Capital A/c (Credited). • When owners withdraws money it is Drawing A/c (Debited). • Loss of goods by fire, theft or pilferage etc., treated as abnormal losses and credited to Trading A/c, after debiting the respective loss accounts.
  • 16. Problem No: 1 Journalise the following transactions: 1. Purchased goods for cash Rs.20,000 2. Purchased stationery for cash Rs. 1000 3. Purchased furniture for cash Rs. 6,000 4. Sold goods for cash Rs. 16,000 5. Sold goods to John for cash Rs. 6,000 6. Sold goods to Joseph Rs. 4,000 7. Paid Rent to Krishnan, the landlord Rs. 1,600 8. Paid salary of Rs. 16,000
  • 17. 9. Paid Lokesh, the manager his salary of Rs. 6,000 10. Paid freight on goods purchased Rs. 600 11. Paid freight on machine purchased Rs. 800 12. Paid wages Rs. 1,000 13. Paid wages to erect a machine Rs. 2,000 14. Received Rs. 1,600 from Kamal 15. Received Rs. 1,200 from Kamal as interest 16. Received Rs. 14,000 from Kamal as loan at 5% interest
  • 18. Problem No: 2 • Journalise the following transactions of M/s Sindhu & Sons. 2020, July 1. Business started with Rs. 2,50,000 and cash deposited with Bank 3. Purchased machinery on credit from Mr. John Rs. 50,000 6. Bought furniture from Mr. Siva for Cash Rs. 27,000 12. Goods sold to Ms. Sneha Rs.24,000 13. Goods returned by Ms. Sneha Rs. 2,800 15. Goods sold for cash Rs. 52,000 17. Bought goods for cash Rs. 26,000 20. Cash received from Ms. Sneha Rs. 11,000
  • 19. 21. Cash paid to Ramesh Rs. 21,000 25. Cash withdrawn from bank Rs. 52,000 28. Paid advertisement expenses Rs. 13,500 29. Bought office stationery for cash Rs. 5,500 30. Cash withdrawn from bank for personal use of proprietor Rs. 6,000 31. Paid salaries Rs. 14,500 31. Paid rent Rs. 3,000
  • 20. Problem No:3 On 1st May, 2020, the books of account of Mr. Ram disclosed the following position: Cash in hand Rs. 20,000; Cash at bank Rs. 66,000; Stock of goods Rs. 42,000; Machinery Rs. 1,00,000; Furniture Rs. 15,000; Debtors: Ramesh Bros Rs. 15,000; Suresh Bros Rs. 25,000; Sundry creditors : John Bros Rs. 20,000; Loan Rs. 50,000. Transaction during the month: May, 2020 3, Purchased goods on credit from Siva & Co., Rs. 10,000 5, Sold goods for cash Rs. 5,000 Sold goods to Jacob Bros Rs. 10,000 6, Received from Jacob Bros. in full settlement of amount due on May 1. Rs. 14,500
  • 21. 7, Payment made to Isaac Bros. by Cheque Rs. 9,800, they allowed discount Rs. 200 8, Paid repairs to Machinery Rs. 500 10, Received Cheque from Jacob Bros., Cheque deposited in bank Rs. 9,600; Discount allowed to them Rs. 400 15, Bank intimated that Cheque of Jacob Bros. has been returned unpaid. 18, Old newspaper sold Rs. 50 20, Drew cash from bank for office use Rs. 1,000 21, Drew out of bank for private use Rs. 2,500 22, purchased adding machine & typewriter (Payment made by cheque) Rs. 8,000
  • 22. Exercise Problem: • Salary paid Rs. 9,000 (Salary, Cash) • Rent paid to house owner Rs. 2,000 (Rent, Cash) • Credit purchase from Mr. Bharat Rs. 3,000 (Purchase, Mr.Bharat) • Discount Received Rs. 1,000 (Cash, Discount Received) • Cash Sales Rs. 1,500 (Cash, Sales) • Cash deposited in Bank Rs. 4,000 (Bank, Cash) • Received cash from Mr. Sharma Rs. 800 (Cash, Mr.Sharma) • Sold goods to Ms. Ganga on credit Rs.1,500(Ganga, Sales)
  • 23. LEDGER • The ledger is the principal book of accounting system. It contains different accounts where transactions relating to that account are recorded. • A ledger is the collection of all the accounts, debited or credited, in the journal proper and various special journal. A ledger may be in the form of bound register, or cards, or separate sheets may be maintained in a loose leaf binder. • In the ledger, each account is opened preferably on separate page or card.
  • 24. • A ledger account may be described as “A summary statement of all the transactions relating to a person, asset, expense or income which have taken place during a given period of time and shows their net effect”. • Ledger account contains two sides- the left hand side called “Debit side” and the right hand side called “Credit side”. The heading mentions the name of the account. On both sides of the account, date column is maintained.
  • 25. Distinction between Journal and Ledger 1. Primacy: Journal is the book of Original entry; ledger is dependent on journal for data. 2. Recording: Journal is recording in chronological order as and when transactions take place. In ledger transactions relating to particular accounts are entered. 3. Evidence Value: Journal has better evidence value for legal problems. But ledger is the source for assessing business results. 4. Focus: Journal focusing on transactions. But Ledger focus on accounts. 5. Timing: Journal has to be done day after day, as and when transaction take place. Ledger can be done anytime, either daily or once in a while, according to need or convenience.
  • 26. Problem No: 4 Record the following transactions in the personal accounts of Mr. Virat: 2020, May • 1 Sold goods to Virat Rs. 6,000 • 5 Cash received from Virat Rs. 5,800 and allowed him discount Rs. 200 • 18 Sold goods to Virat Rs. 8,000 • 30 Received Cash from Virat on account Rs. 4,500 June 1 Balance from last month b/d Rs. 3,500 • 12 Sold goods to Virat Rs. 12,000 • 22 Received Cash from Virat Rs. 4,850 and allowed him discount Rs. 150 • 31 Received Cash in full settlement of Virat A/c Rs. 10,250
  • 27. Problem No:5 Enter the following transactions in the journal and ledger of Hari Prasad of Hyderabad. 2000 July • 1 Commenced business with Cash Rs. 1,80,000 • 3 Deposited into Bank Rs. 55,000 • 4 Purchases goods for cash Rs. 22,000 • 5 Bought goods of Swaminathan Rs. 72,000 • 8 Cash sales Rs. 16,200 • 11 Cash deposited into bank Rs. 23,000 • 14 Purchased furniture for cash Rs. 4,000
  • 28. • 18 Paid Swaminathan cash Rs. 12,000, discount allowed by him Rs. 240 • 21 Sold goods to Jagadeesan Rs. 35,000 • 22 Paid cash for trade expenses Rs. 150 • 25 Received from Jagadeesan Rs. 21,000, allowed him discount Rs. 525 • 26 Paid Swaminathan cash on account Rs. 24,000 • 31 Withdrew cash for private expenses Rs. 1,480
  • 29. Problem No:6 Enter the following transactions in the journal and ledger of Sharma of Chennai. 2021 June, • 1 Sharma commenced business with cash Rs. 30,000 • 3 Purchased goods for cash Rs. 1,500 • 4 Deposited into bank Rs. 21,000 • 5 Withdrew from bank for office use Rs. 1,500 • 6 Sold goods to Ram Rs. 1,500 • 10 Purchased goods on credit from Kannan Rs. 680 • 19 Received from Ram Rs. 1,470 and allowed him discount 30 • Cash sales Rs. 2,400 • Paid to Kannan in full settlement Rs. 150 • Paid rent Rs. 150
  • 30. Trial Balance • “Trial balance is a statement containing the balances of all ledger account, as at any given date, arranged in the form of debit and credit columns placed side by side and prepared with the object of checking the arithmetic accuracy of ledger postings”
  • 31. Objectives of Trial balance 1. To ascertain the arithmetical accuracy of the ledger accounts. 2. To help in locating errors. 3. To help in the preparation of the financial statements. (Profit & Loss account and Balance Sheet) with the balances of accounts.
  • 32. Methods of Preparing Trial Balance • Totals method: Under this method, total of each side in the ledger (debit and credit) is ascertained separately and shown in the trial balance in the respective columns. The total of debit column of trial balance should agree with the total of credit column in the trial balance because the accounts are based on double entry system. • Balances Method: This is the most widely used method in practice. Under this method trial balance is prepared by showing the balances of all ledger accounts and then totalling up the debit and credit columns of the trial balance to assure their correctness. The account balances are used because the balance summarises the net effect of all transactions relating to an account and helps in preparing the financial statements.
  • 33. Classification of Errors • Errors of Commission: These are the errors which are committed due to wrong posting of transactions, wrong totalling or wrong balancing of the accounts, wrong casting of the subsidiary books, or wrong recording of amount in the books of original entry etc. • Errors of Omission: The errors of omission may be committed at the time of recording the transaction in the books of original entry or while posting to the ledger. These can be of two types: (i) Error of complete omission (ii) Error of partial omission
  • 34. • Errors of Principle: Accounting entries are recorded as per the generally accepted accounting principles. If any of these principles are violated or ignored, errors resulting from such violation are known as errors of principle. • Compensating Errors: When two or more errors are committed in such a way that the net effect of these errors on the debits and credits of accounts is nil, such errors are called compensating errors.
  • 35. Problem No: 7 • The following balances were extracted from the ledger of Ram engineering works on 31st May 2020. You are required to prepare a trial balance as on that date in proper form. Rs. Rs. Drawings Capital Sundry Creditors Bills Payable Sundry Debtors Bills Receivables Loan from Karthik Furniture Opening Stock Cash in hand Cash at bank 6,000 24,000 43,000 4,000 50,000 5,200 10,000 4,500 47,000 900 12,500 Tax Sales Salaries Sales Return Purchase Return Travelling expenses Commission paid Trading expenses Discount earned Rent Bank Overdraft Purchases 3,500 1,28,000 9,500 1,000 1,100 4,600 100 2,500 4,000 2,000 6,000 70,800
  • 36. Problem No: 8 • Antony of Bangalore is not an accounting expert. He prepared the following trial balance. You are requested to correct it and prepare a corrected trial balance. Name of the Account LF Debit Credit Capital Sales Sales return Drawings Sundry Debtors Freehold premises Purchases Return Outwards Loan from Sharma Sundry Creditors Administration expenses Cash in hand Bills Payable Wages Opening stock Factory expenses - - - 5,640 - 7,410 12,680 2,640 - 5,280 7,840 1,420 1,000 5,980 - 4,650 54,540 15,560 27,560 980 - 5,300 - - - 2,500 - - - - - 2,640 - 54,540
  • 37. Problem No: 9 • The following trial balance has been prepared wrongly. You are asked to prepare the trial balance correctly. Name of the Account LF Debit Credit Cash in hand Purchase return Wages Establishment expenses Sales return Capital Carriage outwards Discount received Commission earned Machinery Stock - 4,000 8,000 12,000 - 22,000 - 1,200 800 - - 2,000 8,000 - 2,000 - - 20,000 10,000
  • 38. Name of the Account LF Debit Credit Debtors Creditors Sales Purchases Bank OD Manufacturing expenses Loan from Ashok Carriage inwards Interest on investments 8,000 - - 28,000 14,000 - 14,000 1,000 - 1,13,000 - 12,000 44,000 - - 14,000 - - 1,000 1,13,000
  • 39. Problem No:10 Journalise the following transactions. Post them in the ledger, balance the ledger accounts and prepare trial balance: 2021 June, • 1 Joseph commenced business with a capital of Rs. 80,000 • 3 Purchased goods for Rs. 24,000 • 4 Bought furniture for Rs. 20,000 • 5 Sold goods for Rs. 18,000 • 6 Sold goods to kumar on credit for Rs. 15,000 • 10 Purchased goods on credit from David Rs. 6,000 • 19 Cash received from Kumar Rs. 14,950 and allowed him discount Rs. 50 • 22 Paid Cash to David Rs. 2,000 • 25 Drawn for personal use Rs. 3,000 • 28 Open a bank account by depositing Rs. 11,000 • 29 Cash sales Rs. 5,000 • 31 Rent paid Rs. 2,000 and Salary Paid Rs. 3,500