The document discusses journal entries for various types of business transactions including purchases, sales, expenses, banking transactions, and discounts. It provides examples of journal entries for purchasing goods for cash or credit, selling goods for cash or credit, paying expenses like salaries and wages, banking activities like depositing and withdrawing cash, and allowing trade or cash discounts to customers. It also discusses complex entries for bad debts, bad debts recovered, withdrawals by the owner, and various types of common banking transactions.
This document introduces the key financial statements prepared at the end of an accounting period: the trading account, profit and loss account, and balance sheet. It explains that the trial balance is prepared first using debit and credit columns to show asset/expense and liability/income balances. The trading account calculates gross profit by subtracting the cost of goods sold from net sales. The profit and loss account then calculates net profit by subtracting total expenses from total profits including gross profit and other income. Finally, the balance sheet presents the financial position by showing assets, liabilities, and capital/net assets.
This document discusses accounts from incomplete records, which often occur in small businesses due to the high costs and time requirements of full record keeping. It describes what incomplete records typically include, such as cash and credit transactions. It explains that incomplete records can still be used to determine approximate profit, but converting to a full double-entry system is necessary to accurately assess financial position and file tax returns. The document provides a method for converting incomplete records to a double-entry system by determining major income and expense items and the accounts to reference to find missing figures like credit sales, collections, and payments.
The document outlines the steps for completing incomplete accounting records:
1) Prepare an opening statement of affairs with headings like assets, liabilities, capital.
2) Set up control accounts for debtors, creditors, cash, and the bank account.
3) Insert available figures and calculate any missing values, like gross profit or fixed assets.
4) Draft the required statements, including profit and loss, balance sheet.
This document discusses three methods of departmental accounting:
1) The columnar basis method maintains a single set of books with department accounts recorded together in a columnar or tabular form to enable preparation of departmental trading and profit/loss accounts.
2) The independent basis method maintains separate accounts for each department, with each department preparing its own trading and profit/loss account which are then consolidated.
3) Inter-departmental transfers must be credited to the supplying department and debited to the receiving department, and if transfers are made at cost price then no further adjustment is needed.
The Trial Balance is a statement of ledger account balances as on a particular date (instance).
Final Accounting is done towards the end of the accounting period.
The trial balance that we consider in the preparation of final accounts is the one that is prepared towards the end of the accounting period i.e. on the last day of the accounting period.
There might be a number of accounting transactions which might not have been taken into consideration by the time the Trial Balance has been prepared.
The transactions which have not yet been journalized, appended to the trial balance are what we call adjustments.
Any irrecoverable portion of sundry debtors is termed as bad debts. Bad debt is a loss to the business. If it is given in the Trial balance, it should be shown on the debit side of Profit & Loss Account. Bad debts given in the adjustment is to be deducted from sundry debtors in the Balance Sheet and the same is debited to the Profit & Loss Account.
Subsidiary books are books of original entry where transactions are first recorded. They include purchase books, sales books, cash books, and return books. Subsidiary books allow for division of labor and increased efficiency. However, they require some accounting knowledge and can be expensive for small businesses.
The main types of subsidiary books are discussed, including cash books, purchase books, and sales books. Cash books record all cash transactions and come in simple, double-column, and triple-column formats. Double-column cash books include a discount column while triple-column cash books also include a bank column. Petty cash books are used to record small expenses.
This document introduces the key financial statements prepared at the end of an accounting period: the trading account, profit and loss account, and balance sheet. It explains that the trial balance is prepared first using debit and credit columns to show asset/expense and liability/income balances. The trading account calculates gross profit by subtracting the cost of goods sold from net sales. The profit and loss account then calculates net profit by subtracting total expenses from total profits including gross profit and other income. Finally, the balance sheet presents the financial position by showing assets, liabilities, and capital/net assets.
This document discusses accounts from incomplete records, which often occur in small businesses due to the high costs and time requirements of full record keeping. It describes what incomplete records typically include, such as cash and credit transactions. It explains that incomplete records can still be used to determine approximate profit, but converting to a full double-entry system is necessary to accurately assess financial position and file tax returns. The document provides a method for converting incomplete records to a double-entry system by determining major income and expense items and the accounts to reference to find missing figures like credit sales, collections, and payments.
The document outlines the steps for completing incomplete accounting records:
1) Prepare an opening statement of affairs with headings like assets, liabilities, capital.
2) Set up control accounts for debtors, creditors, cash, and the bank account.
3) Insert available figures and calculate any missing values, like gross profit or fixed assets.
4) Draft the required statements, including profit and loss, balance sheet.
This document discusses three methods of departmental accounting:
1) The columnar basis method maintains a single set of books with department accounts recorded together in a columnar or tabular form to enable preparation of departmental trading and profit/loss accounts.
2) The independent basis method maintains separate accounts for each department, with each department preparing its own trading and profit/loss account which are then consolidated.
3) Inter-departmental transfers must be credited to the supplying department and debited to the receiving department, and if transfers are made at cost price then no further adjustment is needed.
The Trial Balance is a statement of ledger account balances as on a particular date (instance).
Final Accounting is done towards the end of the accounting period.
The trial balance that we consider in the preparation of final accounts is the one that is prepared towards the end of the accounting period i.e. on the last day of the accounting period.
There might be a number of accounting transactions which might not have been taken into consideration by the time the Trial Balance has been prepared.
The transactions which have not yet been journalized, appended to the trial balance are what we call adjustments.
Any irrecoverable portion of sundry debtors is termed as bad debts. Bad debt is a loss to the business. If it is given in the Trial balance, it should be shown on the debit side of Profit & Loss Account. Bad debts given in the adjustment is to be deducted from sundry debtors in the Balance Sheet and the same is debited to the Profit & Loss Account.
Subsidiary books are books of original entry where transactions are first recorded. They include purchase books, sales books, cash books, and return books. Subsidiary books allow for division of labor and increased efficiency. However, they require some accounting knowledge and can be expensive for small businesses.
The main types of subsidiary books are discussed, including cash books, purchase books, and sales books. Cash books record all cash transactions and come in simple, double-column, and triple-column formats. Double-column cash books include a discount column while triple-column cash books also include a bank column. Petty cash books are used to record small expenses.
- Subsidiary books are sub-divisions of the journal where transactions of a similar nature are recorded instead of one journal. This includes books like purchases book, sales book, returns book, and cash book.
- Maintaining subsidiary books provides benefits like proper recording of transactions, convenient posting, division of work, and prevention of errors. The cash book specifically shows the cash and bank balances and helps in effective cash management.
- There are different types of cash books - single column for only cash, double column with cash and discount, and three column with cash, discount, and bank columns. Subsidiary books like purchases book and sales book also have specified formats for recording transactions.
Accounts project on Ledger and Trial BalanceYash Trivedi
A ledger is an accounting book that records journal entries in individual accounts in chronological order. There are three main types of ledgers: the purchase ledger, which records supplier accounts and purchases; the sales ledger, which records customer accounts and sales; and the general ledger, which organizes transactions from all journals. A trial balance is a worksheet that compiles the debit and credit balances of all ledger accounts to check that the accounting entries are mathematically correct. An unbalanced trial balance indicates there is an error in the accounting process, while a balanced trial balance means the debit and credit totals match.
This material is a part of PGPSE / CSE study material for the students of PGPSE / CSE students. PGPSE is a free online programme for all those who want to be social entrepreneurs / entrepreneurs This material is a part of PGPSE / CSE study material for the students of PGPSE / CSE students. PGPSE is a free online programme for all those who want to be social entrepreneurs / entrepreneurs
Marginal costing is an alternative to absorption costing. Under marginal costing, only variable costs are charged as cost of sales and contribution is calculated. Fixed costs are treated as period costs. Contribution is the difference between sales revenue and variable costs, and it goes towards recovering fixed costs and generating profit. The key principles of marginal costing are that fixed costs do not change with volume, so increasing or decreasing sales only impacts profits by the amount of the variable cost per unit. Inventory is valued at marginal/variable cost under marginal costing.
This document provides information about single entry bookkeeping systems. It defines single entry as an informal system without defined rules that is used by small sole proprietor businesses. Transactions are not systematically recorded. The document discusses two methods for single entry - the net worth method which uses statements of affairs to calculate profit or loss, and the conversion method which converts single entry records into a double entry format. It provides examples of accounting questions involving single entry systems, showing how to prepare statements of profit and loss and statements of financial position from incomplete single entry records.
The document discusses trial balance, which is a statement that lists the debit and credit balances of ledger accounts to test the arithmetical accuracy of accounting books. A trial balance has certain features, such as being prepared on a specific date and including all ledger accounts. It also discusses the purpose of a trial balance, which is to test accuracy, provide a summary of ledger account balances, and serve as the basis for preparing final financial statements. The document outlines different methods for preparing a trial balance and provides examples of common account adjustments that are made, such as for closing stock, depreciation, outstanding expenses, and prepaid expenses.
This document describes different types of cash books used to record cash transactions. A cash book is a book of primary entry that records all cash receipts on the debit side and cash payments on the credit side. It serves as both a journal and ledger for the cash account. The key types discussed are simple, double-column, and triple-column cash books. A simple cash book records cash transactions in one column, while double-column and triple-column cash books record cash and additional accounts like discounts or bank in multiple columns. Petty cash books are also mentioned for recording small expenses.
In order to increase the sales, business houses are required to market their products over a larger territory and may generally split their business into certain divisions or parts, if the various certain divisions or parts, if the various parts or divisions are located in different parts of the same city as Chandni chowk, Karol bagh, Connaught place, Nehru place (in delhi) or in different cities of the same country as Calcutta, Chennai, Mumbai, Kanpur and Delhi (in india) or in different countries (in the world) as Canada, USA, England, Japan, U.S.S.R and Germany, these are known as branches, head office contracts the activities of various branches
1. The document discusses accounting for branch operations, including different types of branches and systems for maintaining branch accounts.
2. It provides the format and journal entries for the debtor system, where the head office maintains separate branch accounts based on location. Goods sent to branches are recorded at cost price or invoice price.
3. The key aspects covered are opening and closing entries for branch assets/liabilities, recording supply of goods between branches, remittances received, and transferring profit/loss to the head office accounts.
Preparation of financial statements for a business which has not maintained proper records(Double Entry records)
Profit Equation method or Converting incomplete records to complete records.
This document discusses various subsidiary books used in accounting. It describes 8 main subsidiary books: cash book, purchase book, sales book, purchase return book, sales return book, bills receivable book, bills payable book, and journal proper. It provides details on the purpose and structure of each book for recording transactions in a specialized and organized manner before posting to the ledger.
1. Errors can occur during recording transactions, posting transactions, or both. Errors that affect only one side of a transaction or account are easier to rectify than two-sided errors.
2. Corrections are made by drawing lines through incorrect entries and inserting the right information, or by making correcting journal entries. Suspense accounts are used when trial balances do not match due to unidentified errors.
3. The timing of corrections depends on whether errors are identified before or after key financial statements are prepared. Individual accounts can be corrected before statements, while after requires netting corrections through profit/loss or balance sheet accounts.
Project on trial balance, p & l account, balance sheet.rgarude
This document is an introduction to a student project on trial balance, profit and loss account, and balance sheet for an accounting class. It provides background on the course and assignments. It discusses the objectives of reconciling accounting theory with practice through this project. The document thanks the teacher and school for providing the opportunity and resources for the project. The overall goal is to create a helpful reference for commerce and accounting students.
- The document discusses key steps in the accounting process including preparing trial balance, final accounts (trading account, profit & loss account, balance sheet), and various adjustments needed for the financial statements.
- It provides examples and explanations of key final account components like trading account, profit & loss account, balance sheet, and adjustments for closing stock, outstanding expenses, prepaid expenses, accrued income, and more.
- The purpose is to explain how to close accounts and prepare final financial statements that show the profit/loss for the period and current financial position.
Preparation of financial statements using incomplete recordsSheham Aliyar
This document discusses techniques for preparing financial statements using incomplete records, including constructing opening and closing balance sheets to calculate profit or loss based on changes in capital amounts. It provides examples of using cash/bank summaries to calculate missing sales or purchase amounts, constructing control accounts to calculate missing sales figures, and using gross/net profit percentages to calculate missing costs, sales, or stock amounts from available data. The examples walk through calculations of profit, closing stock, and preparing statements of profit or loss based on incomplete records about assets, liabilities, capital introduced or withdrawn, and gross profit percentages.
1. Invested Rs. 2,000 in shares of Tata Cotton Mills Ltd.
2. Placed order with Mr. Shah for goods worth Rs. 1,500.
3. Invoiced goods to Mr. Love for Rs. 1,000 after allowing 2% trade discount and paid carriage and freight.
4. Paid rent in goods, sold old car and invested proceeds in business, and wrote off bad debt of Rs. 250 from Mr. Gobind.
CA NOTES ON ACCOUNTING PROCESS
FREE AFFIDAVITS AND NOTICES FORMATS
FREE AGREEMENTS AND CONTRACTS FORMATS
FREE LLB LAW NOTES
FREE CA ICWA NOTES
FREE LLB LAW FIRST SEM NOTES
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FREE CA ICWA FOUNDATION NOTES
FREE CA ICWA INTERMEDIATE NOTES
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LAW FIRMS IN DELHI
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VISIT : https://hirelawyeronline.com/
- Subsidiary books are sub-divisions of the journal where transactions of a similar nature are recorded instead of one journal. This includes books like purchases book, sales book, returns book, and cash book.
- Maintaining subsidiary books provides benefits like proper recording of transactions, convenient posting, division of work, and prevention of errors. The cash book specifically shows the cash and bank balances and helps in effective cash management.
- There are different types of cash books - single column for only cash, double column with cash and discount, and three column with cash, discount, and bank columns. Subsidiary books like purchases book and sales book also have specified formats for recording transactions.
Accounts project on Ledger and Trial BalanceYash Trivedi
A ledger is an accounting book that records journal entries in individual accounts in chronological order. There are three main types of ledgers: the purchase ledger, which records supplier accounts and purchases; the sales ledger, which records customer accounts and sales; and the general ledger, which organizes transactions from all journals. A trial balance is a worksheet that compiles the debit and credit balances of all ledger accounts to check that the accounting entries are mathematically correct. An unbalanced trial balance indicates there is an error in the accounting process, while a balanced trial balance means the debit and credit totals match.
This material is a part of PGPSE / CSE study material for the students of PGPSE / CSE students. PGPSE is a free online programme for all those who want to be social entrepreneurs / entrepreneurs This material is a part of PGPSE / CSE study material for the students of PGPSE / CSE students. PGPSE is a free online programme for all those who want to be social entrepreneurs / entrepreneurs
Marginal costing is an alternative to absorption costing. Under marginal costing, only variable costs are charged as cost of sales and contribution is calculated. Fixed costs are treated as period costs. Contribution is the difference between sales revenue and variable costs, and it goes towards recovering fixed costs and generating profit. The key principles of marginal costing are that fixed costs do not change with volume, so increasing or decreasing sales only impacts profits by the amount of the variable cost per unit. Inventory is valued at marginal/variable cost under marginal costing.
This document provides information about single entry bookkeeping systems. It defines single entry as an informal system without defined rules that is used by small sole proprietor businesses. Transactions are not systematically recorded. The document discusses two methods for single entry - the net worth method which uses statements of affairs to calculate profit or loss, and the conversion method which converts single entry records into a double entry format. It provides examples of accounting questions involving single entry systems, showing how to prepare statements of profit and loss and statements of financial position from incomplete single entry records.
The document discusses trial balance, which is a statement that lists the debit and credit balances of ledger accounts to test the arithmetical accuracy of accounting books. A trial balance has certain features, such as being prepared on a specific date and including all ledger accounts. It also discusses the purpose of a trial balance, which is to test accuracy, provide a summary of ledger account balances, and serve as the basis for preparing final financial statements. The document outlines different methods for preparing a trial balance and provides examples of common account adjustments that are made, such as for closing stock, depreciation, outstanding expenses, and prepaid expenses.
This document describes different types of cash books used to record cash transactions. A cash book is a book of primary entry that records all cash receipts on the debit side and cash payments on the credit side. It serves as both a journal and ledger for the cash account. The key types discussed are simple, double-column, and triple-column cash books. A simple cash book records cash transactions in one column, while double-column and triple-column cash books record cash and additional accounts like discounts or bank in multiple columns. Petty cash books are also mentioned for recording small expenses.
In order to increase the sales, business houses are required to market their products over a larger territory and may generally split their business into certain divisions or parts, if the various certain divisions or parts, if the various parts or divisions are located in different parts of the same city as Chandni chowk, Karol bagh, Connaught place, Nehru place (in delhi) or in different cities of the same country as Calcutta, Chennai, Mumbai, Kanpur and Delhi (in india) or in different countries (in the world) as Canada, USA, England, Japan, U.S.S.R and Germany, these are known as branches, head office contracts the activities of various branches
1. The document discusses accounting for branch operations, including different types of branches and systems for maintaining branch accounts.
2. It provides the format and journal entries for the debtor system, where the head office maintains separate branch accounts based on location. Goods sent to branches are recorded at cost price or invoice price.
3. The key aspects covered are opening and closing entries for branch assets/liabilities, recording supply of goods between branches, remittances received, and transferring profit/loss to the head office accounts.
Preparation of financial statements for a business which has not maintained proper records(Double Entry records)
Profit Equation method or Converting incomplete records to complete records.
This document discusses various subsidiary books used in accounting. It describes 8 main subsidiary books: cash book, purchase book, sales book, purchase return book, sales return book, bills receivable book, bills payable book, and journal proper. It provides details on the purpose and structure of each book for recording transactions in a specialized and organized manner before posting to the ledger.
1. Errors can occur during recording transactions, posting transactions, or both. Errors that affect only one side of a transaction or account are easier to rectify than two-sided errors.
2. Corrections are made by drawing lines through incorrect entries and inserting the right information, or by making correcting journal entries. Suspense accounts are used when trial balances do not match due to unidentified errors.
3. The timing of corrections depends on whether errors are identified before or after key financial statements are prepared. Individual accounts can be corrected before statements, while after requires netting corrections through profit/loss or balance sheet accounts.
Project on trial balance, p & l account, balance sheet.rgarude
This document is an introduction to a student project on trial balance, profit and loss account, and balance sheet for an accounting class. It provides background on the course and assignments. It discusses the objectives of reconciling accounting theory with practice through this project. The document thanks the teacher and school for providing the opportunity and resources for the project. The overall goal is to create a helpful reference for commerce and accounting students.
- The document discusses key steps in the accounting process including preparing trial balance, final accounts (trading account, profit & loss account, balance sheet), and various adjustments needed for the financial statements.
- It provides examples and explanations of key final account components like trading account, profit & loss account, balance sheet, and adjustments for closing stock, outstanding expenses, prepaid expenses, accrued income, and more.
- The purpose is to explain how to close accounts and prepare final financial statements that show the profit/loss for the period and current financial position.
Preparation of financial statements using incomplete recordsSheham Aliyar
This document discusses techniques for preparing financial statements using incomplete records, including constructing opening and closing balance sheets to calculate profit or loss based on changes in capital amounts. It provides examples of using cash/bank summaries to calculate missing sales or purchase amounts, constructing control accounts to calculate missing sales figures, and using gross/net profit percentages to calculate missing costs, sales, or stock amounts from available data. The examples walk through calculations of profit, closing stock, and preparing statements of profit or loss based on incomplete records about assets, liabilities, capital introduced or withdrawn, and gross profit percentages.
1. Invested Rs. 2,000 in shares of Tata Cotton Mills Ltd.
2. Placed order with Mr. Shah for goods worth Rs. 1,500.
3. Invoiced goods to Mr. Love for Rs. 1,000 after allowing 2% trade discount and paid carriage and freight.
4. Paid rent in goods, sold old car and invested proceeds in business, and wrote off bad debt of Rs. 250 from Mr. Gobind.
CA NOTES ON ACCOUNTING PROCESS
FREE AFFIDAVITS AND NOTICES FORMATS
FREE AGREEMENTS AND CONTRACTS FORMATS
FREE LLB LAW NOTES
FREE CA ICWA NOTES
FREE LLB LAW FIRST SEM NOTES
FREE LLB LAW SECOND SEM NOTES
FREE LLB LAW THIRD SEM NOTES
FREE LLB LAW FOURTH SEM NOTES
FREE LLB LAW FIFTH SEM NOTES
FREE LLB LAW SIXTH SEM NOTES
FREE CA ICWA FOUNDATION NOTES
FREE CA ICWA INTERMEDIATE NOTES
FREE CA ICWA FINAL NOTES
KANOON KE RAKHWALE INDIA
HIRE LAWYER ONLINE
LAW FIRMS IN DELHI
CA FIRM DELHI
VISIT : https://www.kanoonkerakhwale.com/
VISIT : https://hirelawyeronline.com/
This document provides examples of accounting entries for uncollectible accounts (bad debts) using both the direct write-off method and provision method. Under the direct write-off method, uncollectible accounts are directly expensed against accounts receivable when deemed uncollectible. The provision method estimates bad debts at the end of each period by debiting bad debt expense and crediting an allowance account to match expenses with revenues. When debts are written off, the allowance is reduced and receivables are credited.
The document provides rules for debit and credit entries in accounting. Increases in assets and expenses are debited, while decreases in assets and increases in liabilities and capital are credited. It also gives examples of basic double-entry transactions like starting a business, purchases, sales, and payments.
Double entry bookkeeping involves making equal debit and credit entries for every transaction in a ledger. A ledger contains T-shaped accounts with debit entries on the left and credit entries on the right. Accounts that receive value are debited, while accounts that give up value are credited. Balancing ledger accounts involves calculating totals for each side of an account, inserting any difference on the opposite side as a balance, and ensuring total debits equal total credits. Common accounts include purchases, sales, expenses, income, assets, and liabilities.
Accounting involves recording financial transactions and preparing financial statements. It uses concepts like duality, accrual, matching and consistency. Transactions are recorded in journals like purchase, sales and cash books. The trial balance shows debit and credit balances of all accounts. The trading account calculates gross profit/loss and the profit and loss account calculates net profit/loss. The balance sheet presents the assets, liabilities and capital of a business at a point in time, with assets and liabilities ordered by liquidity or permanence. Adjustments to the trial balance ensure items are fully reflected in the final accounts.
This document provides an overview of accounting concepts including:
1) Accounting is defined as the systematic recording, analysis, and reporting of financial transactions pertaining to a business. It involves recording revenues, expenses, assets, liabilities, and equity over time.
2) Accounting rules include debiting assets and expenses, and crediting liabilities, equity, revenues, and gains. Personal accounts are either debited as receivers or credited as givers.
3) Owner's equity represents the owners' ownership stake in a business and is calculated as total assets minus total liabilities. It increases through owner investments or business profits retained over time.
The document discusses various accounting concepts like journal, ledger, trial balance and subsidiary books. It provides definitions and explanations of these concepts along with examples. The key points are:
1. A journal records transactions with debit and credit entries. The ledger organizes journal entries into individual accounts to track balances.
2. A trial balance lists account balances to check the equality of total debits and credits, assisting with error detection and financial statement preparation.
3. Subsidiary books record specific transaction types like purchases, sales, returns to track details, while the journal and ledger summarize activity.
How To Solve Difficult Adjustments And Journal Entries In Financial AccountsAugustin Bangalore
The document provides explanations and journal entries for various accounting adjustments and concepts:
1. It explains the order of assets and liabilities in the balance sheet as well as the concepts of order of permanence and order of liquidity.
2. It discusses how income tax is treated for sole proprietorships, partnerships, and companies and provides the related journal entries.
3. It explains the treatment of indirect taxes as business expenditures and provides a journal entry example.
Here are the journal entries for Bell's Computers transactions:
1. Capital $60,000
Bank $60,000
2. Equipment $7,000
Bank $7,000
3. Drawings $200
Bank $200
4. Bank $14,000
Income $14,000
5. Debtors $30,000
Income $30,000
6. Bank $4,000
Rent Expense $4,000
7. Bank $1,500
Supplies Expense $1,500
Recording of Special Transactions of Accounting in Saparate books, includes :
1."Cash Book" for Cash, Bank & Discount transactions
2. "Purchase Book" for Credit purchases of goods
3. "Returns Outward Book" for Return of Credit purchases goods
4. "Sales Book" : Credit Sale of goods
5."Return Inwards Book" for Return of Credit Sold goods; 6. "Bills Receivable" book: Details of Bills drawn &
7. "Bills Payable" Book.
8. "Journal Proper": for the remaining Transactions.
For more information visit - http://www.takshilalearning.com or call +91-8800999280
Recording of Special Transactions of Accounting in Saparate books, includes :
1."Cash Book" for Cash, Bank & Discount transactions
2. "Purchase Book" for Credit purchases of goods
3. "Returns Outward Book" for Return of Credit purchases goods
4. "Sales Book" : Credit Sale of goods
5."Return Inwards Book" for Return of Credit Sold goods; 6. "Bills Receivable" book: Details of Bills drawn &
7. "Bills Payable" Book.
8. "Journal Proper": for the remaining Transactions.
For more information visit - http://www.takshilalearning.com or call +91-8800999280
The document discusses the accounting process for merchandising businesses, including recording purchases and sales, calculating sales tax, tracking accounts receivable, recording cash receipts including payments from customers and cash sales, and providing sales discounts to customers. It introduces new accounts needed for merchandising businesses like merchandise inventory and sales, and explains how to record various sales and cash receipt transactions in the general journal.
The document provides an overview of Chapter 1 of an accounting fundamentals course. It includes:
1) An agenda that outlines the key topics to be covered in the chapter, including understanding accounting concepts and golden rules, preparing financial statements, maintaining subsidiary books, and depreciation.
2) Descriptions of the meaning and phases of the accounting cycle, accounting terminology, concepts, and the double entry system.
3) Explanations of personal, real, and nominal accounts and the golden rules for debiting and crediting each type.
4) Examples of journal entries, posting journal entries to ledgers, and the preparation and format of a trial balance.
5) An overview of key
Accounting is the language of business used to communicate financial information about a company. It involves recording, classifying, and summarizing financial transactions and events and conveying this information to various users through financial statements. There are three main branches of accounting: financial accounting which prepares external reports, management accounting for internal use, and cost accounting for determining costs. The accounting equation forms the basis of double-entry bookkeeping where debits and credits are used to record increases and decreases in asset, liability, and equity accounts so that the equation remains balanced.
The document discusses the differences between accrual and cash basis accounting. Under the accrual method, revenues are recorded when earned and expenses are recorded when incurred, rather than when cash is received or paid out. This provides a more accurate picture of a company's financial activities. The document uses examples of recording sales and inventory purchases to illustrate the journal entries under accrual accounting versus cash accounting. While accrual basis is required for GAAP financial statements, cash basis can be used for tax reporting purposes if the accrual accounts are adjusted at year-end.
Accounting errors can occur unintentionally when recording transactions or preparing financial statements. There are two types of accounting errors: errors not affecting the trial balance, and errors affecting the trial balance. Errors not affecting the trial balance include errors of commission, principle, original entry, omission, and compensating errors. Errors affecting the trial balance result in an unbalanced trial balance, requiring the use of a suspense account to balance. Correcting entries must be made to clear the suspense account and properly reflect transactions in individual accounts. Corrections may also require adjustments to the income statement and balance sheet to accurately report profit and account balances.
This is the method by which revenues are recorded when earned, and expenses are recorded when they are incurred, as opposed to a cash-basis method of accounting that measures revenue when cash is received and expenses when they are paid
A N N U I T Y Q U E S T I O N S F O R A P T I T U D E T E S T SDr. Trilok Kumar Jain
This document provides an overview of basic accounting concepts and transactions. It discusses the fundamentals of debit and credit, the three types of accounts (real, nominal, personal), and how to record common accounting transactions like purchases, sales, expenses, and payments. It also covers accounting books like journals, ledgers, and cash books, and concepts like assets, liabilities, shares, debentures, and the accounting equation. Hypothetical transactions are provided as examples.
This document provides an overview of key accounting concepts for entrepreneurs, including:
1. The differences between debit and credit entries and how they relate to assets, expenses, and liabilities.
2. Examples of common accounting transactions and their journal entries.
3. The three main types of accounts - real, nominal, and personal.
4. Key financial instruments like shares, debentures, and their characteristics.
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How to Invest in Cryptocurrency for Beginners: A Complete GuideDaniel
Cryptocurrency is digital money that operates independently of a central authority, utilizing cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies are decentralized and typically operate on a technology called blockchain. Each cryptocurrency transaction is recorded on a public ledger, ensuring transparency and security.
Cryptocurrencies can be used for various purposes, including online purchases, investment opportunities, and as a means of transferring value globally without the need for intermediaries like banks.
An accounting information system (AIS) refers to tools and systems designed for the collection and display of accounting information so accountants and executives can make informed decisions.
University of North Carolina at Charlotte degree offer diploma Transcripttscdzuip
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Digital, interactive art showing the struggle of a society in providing for its present population while also saving planetary resources for future generations. Spread across several frames, the art is actually the rendering of real and speculative data. The stereographic projections change shape in response to prompts and provocations. Visitors interact with the model through speculative statements about how to increase savings across communities, regions, ecosystems and environments. Their fabulations combined with random noise, i.e. factors beyond control, have a dramatic effect on the societal transition. Things get better. Things get worse. The aim is to give visitors a new grasp and feel of the ongoing struggles in democracies around the world.
Stunning art in the small multiples format brings out the spatiotemporal nature of societal transitions, against backdrop issues such as energy, housing, waste, farmland and forest. In each frame we see hopeful and frightful interplays between spending and saving. Problems emerge when one of the two parts of the existential anaglyph rapidly shrinks like Arctic ice, as factors cross thresholds. Ecological wealth and intergenerational equity areFour at stake. Not enough spending could mean economic stress, social unrest and political conflict. Not enough saving and there will be climate breakdown and ‘bankruptcy’. So where does speculative design start and the gambling and betting end? Behind each fabular frame is a four ratio problem. Each ratio reflects the level of sacrifice and self-restraint a society is willing to accept, against promises of prosperity and freedom. Some values seem to stabilise a frame while others cause collapse. Get the ratios right and we can have it all. Get them wrong and things get more desperate.
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Ponzi schemes, a notorious form of financial fraud, have plagued America’s investment landscape for decades. Named after Charles Ponzi, who orchestrated one of the most infamous schemes in the early 20th century, these fraudulent operations promise high returns with little or no risk, only to collapse and leave investors with significant losses. This article explores the nature of Ponzi schemes, notable cases in American history, their impact on victims, and measures to prevent falling prey to such scams.
Understanding Ponzi Schemes
A Ponzi scheme is an investment scam where returns are paid to earlier investors using the capital from newer investors, rather than from legitimate profit earned. The scheme relies on a constant influx of new investments to continue paying the promised returns. Eventually, when the flow of new money slows down or stops, the scheme collapses, leaving the majority of investors with substantial financial losses.
Historical Context: Charles Ponzi and His Legacy
Charles Ponzi is the namesake of this deceptive practice. In the 1920s, Ponzi promised investors in Boston a 50% return within 45 days or 100% return in 90 days through arbitrage of international reply coupons. Initially, he paid returns as promised, not from profits, but from the investments of new participants. When his scheme unraveled, it resulted in losses exceeding $20 million (equivalent to about $270 million today).
Notable American Ponzi Schemes
1. Bernie Madoff: Perhaps the most notorious Ponzi scheme in recent history, Bernie Madoff’s fraud involved $65 billion. Madoff, a well-respected figure in the financial industry, promised steady, high returns through a secretive investment strategy. His scheme lasted for decades before collapsing in 2008, devastating thousands of investors, including individuals, charities, and institutional clients.
2. Allen Stanford: Through his company, Stanford Financial Group, Allen Stanford orchestrated a $7 billion Ponzi scheme, luring investors with fraudulent certificates of deposit issued by his offshore bank. Stanford promised high returns and lavish lifestyle benefits to his investors, which ultimately led to a 110-year prison sentence for the financier in 2012.
3. Tom Petters: In a scheme that lasted more than a decade, Tom Petters ran a $3.65 billion Ponzi scheme, using his company, Petters Group Worldwide. He claimed to buy and sell consumer electronics, but in reality, he used new investments to pay off old debts and fund his extravagant lifestyle. Petters was convicted in 2009 and sentenced to 50 years in prison.
4. Eric Dalius and Saivian: Eric Dalius, a prominent figure behind Saivian, a cashback program promising high returns, is under scrutiny for allegedly orchestrating a Ponzi scheme. Saivian enticed investors with promises of up to 20% cash back on everyday purchases. However, investigations suggest that the returns were paid using new investments rather than legitimate profits. The collapse of Saivian l
The Rise and Fall of Ponzi Schemes in America.pptx
Journal notes
1. CA CHHAVI COMMERCE CLASSES
JOURNAL NOTES CLASS XI
Goods Account is classified into four accounts for the purpose of passing the Journal entries:—
(1) Purchases A/c. When goods are purchased, instead of debiting Goods A/c ‘Purchase A/c’ is
debited. Purchase A/c is a nominal account and while passing a Journal entry ‘Purchase A/c’ should
always be debited because of the rule of “Debit all Expenses and Losses.”
(2) Sales A/c. When goods are sold, instead of crediting Goods A/c ‘Sales A/c’ is credited. Sales
A/c is a nominal account and while passing a Journal entry ‘Sales A/c’ should always be credited
because of the rule of “Credit all Incomes and Gains”.
(3) Purchases Return A/c. This account is also named as ‘Returns Outward’. It is a nominal account
and should always be credited because purchases i.e., expenses are reduced.
(4) Sales Return A/c. This account is also named as ‘Returns Inward’. It is a nominal account and
should always be debited because incomes i.e., sales are reduced.
1. Ram started business with 20,000. From accountancy point of view business is a separate
entity. So the existence of the business is different from a businessman. The double effect
of the above transaction will be that the Cash balance of the business will be increased by
20,000 on the one hand and the Capital of the business will also be created by 20,000 on the
other hand. Cash is an asset and any increase in the asset is debited. So the Cash A/cwill be
debited and increase in Capital is credited. So the Capital A/c will be credited.
Following entry will be passed for the above transaction :
Cash Account Dr. 20,000
To Capital Account 20,000
2. Purchase furniture for cash 4,000. There are two accounts in this transaction, Furniture A/c
and Cash A/c. Both are Assets Accounts. The result of this transaction will decrease in cash and
increase in furniture. Increase in an asset is debited, so the Furniture A/c will be debited. Decrease
in an asset is created, so the Cash A/c will be credited.
Following entry will be passed :
Furniture Account Dr. 4,000
To Cash Account 4,000
2. CA CHHAVI COMMERCE CLASSES
3. Goods purchased for Cash 8,000. There are two accounts in this transaction, Goods A/c
(Purchases A/c) and Cash A/c. Both are Assets Accounts. The result of this transaction will decrease
in cash and increase in goods. Increase in an asset is debited, so the Purchases A/c will be debited.
Decrease in asset is credited, so the Cash A/c will be credited. Following entry will be passed :
Purchases Account Dr. 8,000
To Cash Account 8,000
4. Goods purchased from M/s Hari & Sons on credit for 6,000. This transaction again involves
two accounts, Goods A/c (Purchases A/c) and Hari’s A/c. Goods A/c is anAsset. Goods are increased
by this transaction. So the Purchases A/c will be debited. The other account is that of Hari ‘Creditor’
which increases the liabilities of the business. Such an increase is credited. Following entry will be
passed :
Purchases Account Dr. 6,000
To M/s Hari & Sons 6,000
5. Goods sold for Cash 7,000. The double entry effect of this transaction will be that on one side
the assets in the form of goods will be decreased and another asset cash will be increased. The
transaction involves two accounts : Cash Account and Goods Account (Sales Account) and both are
real accounts. Therefore, Cash Account will be debited because cash balance is increased and Sales
Account will be credited because stock of goods is decreased. Following journal entry will be passed
Cash Account Dr. 7,000
To Sales Account 7,000
6. Goods sold to M/s Shyam & Sons on Credit 7,000. This transaction affects two accounts—
Goods A/c (Sales A/c) and M/s Shyam Lal & Sons Debtor’s A/c. Sale of goods will decrease the goods
and decrease in an asset is credited. So the Sales A/c will be credited. Goods have been sold on
credit to M/s Shyam Lal & Sons. So he becomes the debtor of the business. Debtors are our ‘Assets’
and any increase in assets is debited. So M/s Shyam Lal & Sons’s account will be debited. Following
entry will be passed :
M/s Shyam Lal & Sons Dr. 7,000
To Sales Account 7,000
7. Paid Salaries 5,000. This transaction affects Salaries A/c and Cash A/c. Salaries paid will
increase the expenses. So Salaries A/c will be debited. It also reduces the Cash balance of the
business. Cash A/c is an asset. Any decrease in assets should be credited. So the Cash A/c will be
credited. Following entry will be passed :
Salaries Account Dr. 5,000
To Cash Account 5,000
Practice : Journalise the following transactions :
2020
Jan. 1 Anil Kumar started business with cash 1,00,000
Jan. 3 Goods purchased for cash 30,000
Jan. 5 Goods purchased from Sunil Kumar 20,000
3. CA CHHAVI COMMERCE CLASSES
Jan. 7 Goods sold for cash 10,000
Jan. 10 Goods sold to Vikas 30,000
Jan. 12 Cash paid to Sunil Kumar 10,000
Jan. 17 Cash received from Vikas 20,000
Jan. 23 Paid for wages 5,000
Jan. 25 Furniture purchased from Vansh for cash 2,000
Jan. 28 Paid for interest 1,000
Jan. 31 Paid for salaries 1,000
Simple and Compound Journal Entry
Simple Entry
Simple entry are those entries in which only two accounts are affected, one account is related to
debit and another account is related to credit.
Compound Entry
Compound entries are those entries in which at least two accounts are either debited or credited.
These entries are recorded for those transactions which are similar in nature and occur on the same
day.
ENTRIES OF SOME SPECIFIC TRANSACTIONS
Now we will discuss some complex journal entries of some special business transactions:
A. Bad Debts
When the business debtors are unable to pay their debts, or become insolvent, then the unrealised
amount is treated as a loss to the business firm and is termed as Bad debts.
Journal entry passed in the case :
(i) When the amount is irrecoverable :
Bad Debts A/c Dr.
To Debtor’s Personal A/c
(Being the amount not recoverable written off as bad debt)
(ii) When a part of the debt is recoverable : When a debtor becomes bankrupt, i.e., he is unable to
pay his total debt, the unrealised amount is a loss to the business, i.e., a bad debt. The Journal entry
passed is :
Cash or Bank A/c Dr. (With the amount received)
Bad Debts A/c Dr. (With the amount not recovered)
To Debtor’s Personal A/c (Total amount of debtor)
(Being the amount received and balance written off as bad debt being not recoverable)
B. Bad Debts Recovered
Sometimes an insolvent debtor whose account had been earlier written off as ‘Bad Debts’ pays some
amount. The amount so recovered is treated as a gain to the business and is termed as Bad Debts
Recovered. Journal entry passed in this case :
Cash or Bank A/c Dr.
4. CA CHHAVI COMMERCE CLASSES
To Bad Debts Recovered A/c
(Being the amount earlier written off as bad debt, now recovered)
C. Cash Withdrawn for Personal Use
Cash withdrawn for personal use is termed as ‘Drawings’. The entry passed is :
Drawings A/c Dr.
To Cash A/c
(Being the cash withdrawn for personal use)
D. Banking Transactions
In the real life business transactions, it is not viable to transact the business only through cash.
Moreover, expansion of trade meant maintaining banking account through which most of the
transactions are carried out. Let us discuss these transactions one by one :
RECORDING OF BANKING TRANSACTIONS
1. When cash is deposited into the bank
Bank A/c Dr.
To Cash A/c
2. When cash is withdrawn from the bank.
Cash A/c Dr.
To Bank A/c
3. When cheques, drafts etc. received from the customers are deposited into the bank on the same day
Bank A/c Dr..
To Customer’s Personal A/c
4. When cheques, drafts etc. received from the customers. are not sent to bank on the same day.
Cheque in Hand A/c Dr
To Customer’s Personal A/c
5. On the date when above cheques, drafts are sent to the bank.
Bank A/c Dr
To Cheque in Hand A/c
6. When a customer directly deposits the amount in our Bank.
bank A/c DR.
To Customer Personal A/c
5. CA CHHAVI COMMERCE CLASSES
7. When a cheque previously deposited into the bank is dishonoured.
Customer’s Personal A/c Dr.
To Bank A/c
8.When a cheque is received from a customer and discount is allowed to him, and if the cheque is deposited
into the bank on the same day.
Bank A/c Dr
Discount Allowed A/c Dr.
To Customer’s Personal A/c
9. In case the above cheque is dishonoured, the discount allowed to the customer will also be withdrawn.
Customer’s Personal A/c Dr.
To Bank A/c
To Discount Received A/c
10. When payment is made by issue of a cheque.
Personal A/c Dr.
To Bank A/c
11. When expenses are paid by the issue of a cheque.
Expenses A/c Dr.
To Bank A/c
12. When cash is withdrawn from the bank for the personal use of the proprietor.
Drawings A/c Dr.
To Bank A/c
13. When interest is charged by the bank
Interest A/c Dr.
To Bank A/c
14. When interest is allowed by the bank
Bank A/c Dr.
To Interest A/c
15. When bank charges some amount for the services rendered by the bank.
Bank Charges A/c Dr.
To Bank A/c
6. CA CHHAVI COMMERCE CLASSES
16. Bank makes payment on firm’s behalf (say insurance premium)
Insurance Premium A/c Dr
To Bank A/c
17. Collection by bank on our behalf(say dividend)
Bank A/c Dr.
To Dividend A/c
18. Repayment of bank loan in cash
Bank Loan A/c Dr
To cash A/c
19. Repaymant of bank loan by issue of cheque
Bank Loan A/c Dr
To Bank A/c
20. Transfer of funds from one bank to another. (say from ICICI to HDFC)
Bank (HDFC) A/c Dr.
To Bank (ICICI) A/c
E. Trade Discount and Cash Discount
Any incentive in the form of reduction in sale price, given to encourage more purchases or prompt
and timely payment is called discount. Discount is classified into :
Trade Discount. The discount allowed to a customer if he purchases goods above certain
quanity/amount is termed as trade discount. Such discount is reduced from the sale value and
sale/purchase is recorded in the books at the net value.
Cash Discount. The discount allowed to a customer to encourage prompt payment of due amount, is
termed as cash discount. Cash discount allowed is debited to Discount Allowed Account and discount
received is credited to Discount Received Account. Trade Discount is not recorded in the books and
entry is made with the catalogue or list price less trade discount. However, cash discount is
debited/credited with the cash receipts/payments. Following journal entries shall made.
A. In Case of Sale :
7. CA CHHAVI COMMERCE CLASSES
Cash/Cheque in Hand A/c Dr. [With the net amount received]
Discount Allowed A/c Dr. [With the amount of discount allowed]
To Sales A/c [With the gross sale amount]
(Being the goods sold at cash discount)
B. In Case of Purchase :
Purchase A/c Dr. [With the gross purchase amount]
To Cash/Bank A/c [With the net amount paid]
To Discount Received A/c [With the amount of cash discount received]
(Being the goods purchased at cash discount)
F. Goods Given as Charity
When the goods are given as charity the amount of purchases is reduced with the value of goods
given away as charity. Journal entry passed in this case is :
Charity A/c Dr.
To Purchase A/c
(Being the goods given as charity, hence credited to Purchases Account)
G. Goods Given as Free Samples
Sometimes firms adopt the method of free distribution of goods to increase sales. It is a part of
advertisement expense hence, it is debited to advertisement account and deducted from purchases
:Journal entry passed in this case is :
Advertisement A/c / Samples A/c Dr.
To Purchase A/c
(Being the goods distributed as free samples)
H. Goods withdrawn by properietor for Personal Use :
Sometimes proprietor withdraws goods or cash from the business for his personal use. So the total
amount of purchase should be reduced by the amount of goods if goods are withdrawn. Journal entry
passed in this case is
Drawings A/c Dr.
To Purchases A/c
(Being the goods taken for personal use)
I. Loss by Theft or Fire
Sometimes business may incur some abnormal losses, due to theft or fire i.e., other than due to
natural calamities. All these losses are recorded in the books in following way :
8. CA CHHAVI COMMERCE CLASSES
(i) For recording the loss
Loss by Fire/Theft A/c Dr.
To Purchases A/c
(Being the loss of goods by theft or fire)
Note. Loss by Theft or Fire Account is debited because the loss is a nominal account and
the Purchase Account is credited because the purchases decrease. The loss will be treated
in accounts as follows :
(i) When goods (stock) are fully insured, loss is to be borne by the Insurance Company.
The entry passed is :
Insurance Co. Or Insurance Claim A/c Dr.
To Loss by Theft or Fire A/c
(Being the loss of goods recoverable from the insurance company)
Insurance claim is an asset and will be shown as an asset in the Balance Sheet until actually received in cash.
(ii) When the full amount of claim is received from the Insurance Company :
Bank A/c/Cheque in Hand A/c Dr.
To Insurance Co.
(Being the insurance claim received)
(iii) When the Insurance Company does not admit full claim :
Bank A/c/Cheque in Hand A/c Dr. [claim admitted]
Profit & Loss A/c Dr. [claim not admitted]
To Insurance Co.
(iv) When the stock is not insured, whole of the loss will be borne by the firm. At the end
of the year balance in loss by Theft or Fire Account is transferred to Profit and Loss
Account
Profit and Loss A/c Dr.
To Loss by Theft Or Fire A/c
(Being the loss transferred to Profit and Loss Account)
Practice : Illustration . Journalise the following transactions :
1. Goods worth 2,000 were used by proprietor for personal use.
2. Goods worth 10,000 and cash 4,000 were stolen by an employee.
3. Goods worth 7,000 were destroyed by fire and the insurance company admitted
the claim of 5,000.
4. Goods worth 2,000 were given in Prime Minister Relief Fund as a charity.
5. Goods worth 2,000 were distributed as free samples.
J. Purchase and Sale of Asset
When a firm bought some asset, the particular asset account is debited and likewise when a asset is
sold, the account of that particular asset is credited. Assets may be bought on cash or on credit
9. CA CHHAVI COMMERCE CLASSES
basis. If an asset is bought on credit basis the account of seller is credited and similarly in case of
sale, the account of purchaser is debited. Purchase of fixed asset is not debited to Purchase Account
as fixed asset is not for the purpose of sales. Similarly, when fixed asset is sold, it is credited to
Asset Account and not to Sales Account. Journal entries passed in this case will be :
(i) On Purchase of Asset for Cash :
Asset A/c Dr.
To Cash or Bank A/c
(Being the asset purchased against cash)
(ii) On Sale of Asset for Cash :
Cash or Bank A/c Dr.
To Asset A/c
(Being the asset sold against cash)
(iii) On Purchase of Asset on Credit :
Asset A/c Dr.
To Supplier’s A/c
(Being the asset purchased on credit)
(iv) On Sale of Asset on Credit :
Purchaser’s A/c Dr.
To Asset A/c
(Being the asset sold on credit)
Note. Sometimes while purchasing machinery expenditure is incurred on the carriage and installation
of machinery i.e., freight, wages paid for the installation etc. These expenses are treated as ‘capital
expenditure’ and is debited to Machinery Account. Likewise, any expenditure incurred for the
construction of building such as purchase of construction materials and payment of wages are also
capital expenditure and debited to the Building Account.
K. Income Tax
In the case of sole proprietorship, income tax shall be treated as drawings of the proprietor because
it is neither loss nor an expense of the business.
Drawings A/c Dr.
To Cash A/c
(Being the income tax paid transferred to drawings)
L. Closing Stock
Closing Stock is the goods unsold at the end of the year. It is not given in Trial Balance but is given
as an additional information. In order to calculate the correct gross profit or gross loss, it should be
brought into the books. Adjustment entry for Closing Stock is as follows :
Closing Stock A/c Dr.
To Trading A/c
(Being the Closing Stock recorded)
10. CA CHHAVI COMMERCE CLASSES
Remember. Closing Stock is to be valued at cost or net realisable value (market price) whichever
is lower.
M. Depreciation
Due to continuous use or wear-tear of fixed asset, its value keeps on decreasing every year. This
decreased value is called depreciation. Following journal entry is passed in this case:
Depreciation A/c Dr.
To Concerned Asset A/c
(Being the depreciation asset provided)
N. Interest on Capital and Drawings
Interest on capital is loss for business and thus interest account is debited and capital account is
credited by the amount of interest. In case of drawings also, capital of the business gets reduced.
But interest charged on drawings is a gain for the business. For this, drawings account is debited and
interest on drawings account is credited.
Journal entries passed in these cases :
(i) In case of interest on capital
Interest on Capital A/c Dr.
To Capital A/c
(Being the interest on capital allowed @ . . . . .%)
(ii) In case of interest on drawings :
Drawings A/c Dr.
To Interest on Drawings A/c
(Being the interest on drawings charged @ . . . . .%)
O. Sundry Expenses
Often petty expenses, such as refreshment, postage, conveyance, etc., are incurred in a routine
business. It is not viable to record all such expenses in a separate account. Thus these expenses
generally are debited in one account i.e., Sundry Expenses Account.
Sundry Expenses A/c Dr.
To Cash A/c
(Being the sundry or miscellaneous expenses incurred)
P. Outstanding Expenses
According to the Accrual Concept of Accounting, expenses incurred during the accounting year should
be accounted whether they have been paid or not. Outstanding expenses are the expenses that relate
to the current accounting year but have not been paid till the year end. They should be recorded as
expenses and also payable.
Example. Wages for the year ended 31st March, 2020 are 8,000. Out of this, 1,000 for the month
of March, 2020 have been paid in April, 2020. Since, 1,000 as on 31st
March, 2020 is yet to be paid
it should be recorded in the books by passing the following Journal entry :
Wages A/c Dr. 1,000
11. CA CHHAVI COMMERCE CLASSES
To Outstanding Wages A/c 1,000
(Being the outstanding wages accounted)
Note. Outstanding wages is a liability.
Q. Prepaid Expenses
According to the Matching Concept of Accounting, expenses should be debited to Profit and Loss
Account, if their benefit has expired. Expenses like—Insurance, Rent of Shop, etc., are paid in
advance but their benefit may expire in the next accounting year. Such expenses are termed as
advance or prepaid expenses. Example. On 1st July, 2020, 3,600 were paid as insurance premium of
the shop for the whole year. Final accounts have to be prepared on 31st March, 2020. It means
advance payment has been made for the period 1st April, 2020 to 30th June, 2020. it should be
recorded in the books for the year ended 31st March, 2021 as prepaid expenses. Journal entry passed
is :
Prepaid Insurance A/c Dr. 900
To Insurance Premium A/c 900
(Being the amount transferred to Prepaid Expenses A/c of insurance for the period 1st April, 2020 to
30th June, 2020)
Note. Prepaid Insurance Premium A/c is an asset.