Notes of Accounts[1]

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Commerce: Commerce is started with human activities.

Human activities are divided into 2 groups.

1. Economic activities

2. Non-Economic activities

1 Economic activity: Economic activities are those activities in which money is involved.

Economic activities are divided into 3 groups.

1. Business

2. Profession

3. Employment

2 Non-Economic activities: Non-Economic activities are those activities in which money is not

involved.

Ex: Love and affection

1.1Business: Business is an economic activity which is carried on with the intention ofearning profit by doing business.

Business means a state of being busy.

Industry: Industry is the place where goods are manufactured and produced

Industry is the back bone for business

1.2 Profession: Profession means rendering special services of exports in terms of money is

called profession

Professionals will get money in the form of Fee, remuneration

1.3 Employment: Employment means rendering services to the employer under agreement interms of money is called employment.

In employment employee will get money in the mode of salary.

Commerce: The Exchange and Distribution of goods or services in terms of money is called

commerce.

Commerce includes Trade and Aids to Trade.

Exchange: Exchange means transferring goods or services from one person to another

person in terms of money with in a place.

In the method of exchange only one place of people will get benefit.

Distribution: Distribution means transporting goods or services from one place to another

place in terms of money.

In the method of distribution so many places of people will get benefit.

Ex: Production - distribution (so many places) - exchange (one place) consumers

Goods: Goods means Articles, Commodities, and Things which are purchased for resale in

the business.

In other countries Goods are called as merchandise.

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Services: Services means Doing or Offering or Rendering some thing in terms of money is

called Services.

Ex: Hotel, Transportation,

Currency: Currency is administrative money of one country.

Trade: Trade means buying and selling goods or services in terms of money.Trade is divided into 3 groups.

1. International trade

2. Domestic trade

3. Re entry port trade.

Aids to trade: Aids to Trade means the facilities which are very use full to run the Trade.

Ex: Transporting, Warehouse, Godown, Banking, Insurance and so on.

Business: Business is divided into 3groups

1. Sole trade ship.

2. Partner ship.3. Company.

1 Sole Trade ship: The Business which is owned and controlled by single individual person is

called Sole Trade Ship Business.

Sole trade ship is also called as proprietor ship.

In sole trade ship the liability of the proprietor is un limited

In sole trade ship business the proprietor is a responsibility for all profits and losses

whatever incurred in the business.

2Partner ship business: Partner ship business is the business which is carried on by two or

more persons who joined to gather to share profits and losses whatever incurred in the

business.

In partner ship business the liabilities of the partners is un limited

In the partner ship business the minimum number is 2 and maximum number for

general business 20, bank business 10.

3 Company: Company is a voluntary association of persons who contributes capital tocompany

Company is an artificial person which created by law, having a Common Seal and a

separate legal entity.

A Company which is framed established and registered according to companies Act

1956is called company

Companies are divided into 2 types

1. National companies

2. Multinational companies.

1 National companies: National companies are those companies which are located with in the

boundaries of a country are called national companies.

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National companies are divided into 2 groups.

1.1 Government Sector

1.2 Private Sector

Private sector also divided into 2 groups1.2.1. Private company

1.2.2. Public company

1.2.1 Private company: Private company is a company which is not a public company and a

company by which its articles of association.

Limits-its members are maximum to 50

Restricts-The rights to transfer its shares and debentures to any one.

Prohibits-Issuing prospectus to the public to subscribe its shares and

debentures

Private Ltd: private means private company

Ltd means our liability is limited to par value of share

Ex: We purchased one share of Rs 100 in private company then our liability Ltd is 100.

If we paid only 50 R s then we have to pay again 50 R s when the company is in loss or

liquidation

Common seal: Common seal is a seal or a stamp having company name and it used for every

business paper and kept under authorized person.

Legal entity: Legal entity means company is separated from the share holders.

Company can sue on share holders and share holders can sue on company

Ltd: Ltd means our liability is limited to extend of share value.

1.2.2 Public company: Public company is a company which is not a private company and a

company by which its articles of association.

Ex: Reliance, Satyam, Infosys, wipro.

Does not restricts, the rights to transfer its shares and debenture to any one.

Does not limits its maximum numbers its depends upon its capital, minimum numbers

is 7.

Does not prohibits issuing prospectors to the public to subscribe its shares and

debentures.

Public Ltd: Here Ltd means the liability of the share holder is Ltd to the extend of share par

value

1 Government sector:

1.1.1Public enterprises (Govt company)

1.1.2Corporation.

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1.1.1 Govt company: Govt company is the company which is established for the welfare ofgeneral public.

A company is called as a govt company if 51%of Its share capital is held either state govt

of or central govt

Ex: IDPL ECIL BSNL HMT.

1.1.2 Corporations: Corporation is an autonomous body which is created by the parliamentact Ex: RBI FCI LIC.

Which is the 1st corporation in India RBI.

MNC: It is a company which is framed established and registered in one country and having

its number of places of business in so many countries.

Ex: IBM, Microsoft,

Foreign company: Foreign Company is a company which is framed established and

registered in one country and having its establishment place of business in another country is

called Foreign Company.

BPO: It means BUSINESS PROCESS OUTSOURCING

In BPO we provide services to the customers through online.

By providing services to the customer we get services charge.

Now a day BPOs are providing so many Job opportunities to the Job aspirants

Ex: Genpact, Accenture

BPO = Business Process Out sources

It is established framed and registered in one country and having its operational

functions in other country

It is one of the booming sector in India

The main intention of the BPO is bringing projects from other countries and

providing services to them and earning money

In Indian economy BPO plays a vital role there are many BPOs providing jobs to the

job aspirants

BPOs are changing the life style of the people thats why Indian economy is

increasing day by day

ACCOUNTING PRINCIPLES

Principle: Principle means a fundamental belief or a general truth, which is ones established

does not change in future.

Accounting Principles includes. Accounting concepts, accounting conventions.

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Accounting Concepts: Accounting concepts means Basic assumption or basic conditions

based on the accounting is done.

Concept: Concept means an Idea, Notion, or a thought which is universally accepted.

A: Accrual concept, Account period concept.

B: Business entity concept.C: Cost concept.

D: Dual aspect concept.

M: Money measurement concept, matching concept.

G: Going concern concept.

R: Realization concept.

H: Historical concept.

Accrual concept: (Accrual means outstanding): According to accrual concept all the business

transactions even though not yet settled in cash must be taken into the Books of Accounts.

This concept is the base for Accrual bases or mercantile bases.

Based on this concept we are taking all credit transaction in the Books of Accounts.

Ex: Salary Payable,

Rent payable,

Interest receivable,

Dividend receivable,

Goods purchases on credit (Accounts payables)

Goods sold on credit (Accounts Receivables)

Accrual concept is recognized by the companies Act 1956.

Here all the business transaction means Credit transaction and priority is given to

credit transactions.

On 1st

April goods purchased from tulasi 50,000, on 15th

April cash paid 50,000 toTulasi.

1st Purchase a/c Dr 50,000

To Tulasi a/c 50,000

15th Tulasi a/c Dr 50,000

To cash a/c 50,000,

Accounting period concept: According to accounting period concept all the Business

transactions should be recorded in the Books of Accounts for the period of 12 months that is

April 1st to 31st March.

Based on this concept we are preparing Final Accounts that is Trading, P&L A/cBalance sheet.

Business Entity Concept: According to business entity concept the business is treated as a

separate entity or a person

Business is separated from the proprietor

Proprietor is the owner of the business

Based on this concept the capital is treated as a liability to the business

Net profit is treated as liability to the business because it belongs to owners

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If the business is a sole tradeship or partnership business then the net profit is added

to their capital

If the business is a company then net profit (undistributed) is kept under the Reserves

and Surplus in balance sheet at liability side.

Cost Concept: According to cost concept all the business transactions should be recorded in

the books of accounts at cost price only (actual amount involved) ignoring market price.

Cost price should be considered for all the transactions except closing stock

Closing stock is calculated at cost price or market price which ever is less we have

taken into the books of accounts

Dual aspect concept: According to dual aspect concept every business transaction shall have

two aspects one is debit aspect and another one is credit aspect

Based on this concept all the business transactions are classified into debit and credit

Based on this concept accounting systems, accounting equation are implemented and

balance sheet is tallied.

Accounting systems: are those systems in which all the business transactions are recordedinto the books of accounts after classifying them into debit and credit

Accounting systems are two types

1) Single entry system

2) Double entry system

Single entry system: Every business transactions shall have two aspects one is debit aspect

another one is credit aspect

The system of recording only one aspect of the business transactions is called single

entry system

This system is universally accepted and in this only cash transactions are recorded

and it followed by the professionals (e.g. Lawyers, Doctors etc.,)

If this system implemented in business then we will not prepare balance sheet and we

do not know the profitability and financial position of the business

Double entry system: Every business transactions shall have two aspects one is debit aspect

another one is credit aspect

The system of recording both aspect of the business transactions is called double entry

system

Based on this concept accounting systems are implemented and it is scientific and

universally accepted

The whole accounting is based on double entry system as well as GAAP. Based on this system the double entry system of book keeping is implemented

If this system is implemented in the business then we will prepare balance sheet and

we will know the true profitability and the financial position of the business.

Money Measurement Concept: According to money measurement concept all the business

transactions which are being expressed in monetary terms should be recorded in the books of

accounts ignoring the non-monetary transactions

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Based on this concept we are recording all the business transactions in the books of

accounts in which money is included

E.g.: goods sold for cash (credit)

Based on this concept all the business transactions should be recorded in the books of

accounts in the uniform monetary terms

Matching concept: According to matching concept all the expenses whatever incurred in the

business should be compared with the revenues whatever earned by the business for the

particular period

Based on this concept we are preparing trading and profit and loss accounts

This concept is based for accounting period concept

Going concern concept: According to going concern concept the business is assumed to run

for a longer period

This concept is also called as a continuous concept

If we implemented this concept in the business first we will get credit regular

costumers, faith and stability

Based on this concept depreciation is provide on fixed assets.

Based on this concept Prepaid expenses are treated as a current assets.

Realization concept: According to Realization concept the income is considered and recorded

in the books of accounts when it is realized (when it comes in the form of cash)

Revenue is considered as income when sales is affected

Historical concept: According to Historical concept all the business transactions are recorded

into the books of accounts as a systematically like date wise

Accounting conventions: Accounting conventions means traditions, customs andcircumstances which are adopted in preparation of final accounts.

They are CMCD. C =consistency

M =Materiality

C =Conservatism

D =Disclosure.

Consistency : (Consistency means constantly): According to convention of consistency any

rule, policy or method which are adopted in preparation of final accounts should be followed

constantly

Based on this convention depreciation methods are implemented

Materiality: According to convention of Materiality all material information should be

disclosed in the financial statements

Based on this convention paisa is converted into rupee

E g 1.80p = 2.00 rupee

1.30p=1.00 rupee

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Every small expense have to record into the books of accounts under this convention

E g; Xerox= printing and stationary

Postal stamps = Postage and telegram

Tea=staff welfare expense

Conservatism: According to convention of conservatism all expected expenses and losses

should be taken into the books of accounts ignoring expected incomes and gains

Based on this convention we are providing depreciation on fixed assets (in real time)

Based on this convention closing stock is calculated at cost price or market price

which ever is less

Disclosure: According to convention of Disclosure all the financial information should be

disclosed in the financial statements

Note: Dual aspect concept is the basic concept of accounting

o Fundamental concepts of accounting are Business entity concept and money

measurement concept

o Fundamental accounting assumptions are Accrual, Going concern Consistency

o Accounting assumptions are implemented in preparation of final accounts

GOLDEN RULES OF ACCOUNTANCY: The debit and credit of personal and impersonal

accounts are called golden rules of accountancy.

Classification of accounts: 1) Personal accounts. 2) Impersonal accounts

Accounts are again divided into two groups:

Temporary accounts : the accounts which comes in profit and loss accounts under nominal

account e g : salaries, int. receivable.

Permanent accounts : The accounts which comes in balance sheet under Real, Personnel

accounts. E. g: All balance sheet items

Personal accounts: The accounts which deals with only the persons

In this only names are reflected. Ex: Ramesh a/c, Laxmi & co, Andhra Bank.

Personal accounts are divided into 3 groups: they are

1) Natural personal account

2) Artificial personal account

3) Representative personal account.

Natural personal accounts: The accounts which deals with only human beings

E g Ramu a/c

Manju a/c

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Artificial personal accounts: The accounts which deals with only artificial persons which are

created by law and having common seal and separate legal entity.

E g: Vardhan & co a/c

Tulasi & co a/c

ICICI Bank & co a/c

Representative personal accounts: The accounts which deals indirectly with the persons

E g: Staff, Union, Salary Payable, Prepaid Rent.

Impersonal account : The accounts which doesnt deals with persons.These accounts are divided into 2 types: They are

1 Real account

2 Nominal account

Real account : The accounts which deals with only the assets.Real account is divided into 2 types:

Tangible real account : Tangible real account deals with only Tangible Assets.

Theses assets which we can Touch, Feel, and See and measured in value.

E g plant and machinery a/c

Land and building a/c

Furniture a/c

Intangible real account: Intangible real account deals with only Intangible Assets.

These assets which we cannot Touch, Feel, and See But measured in value

E g Goodwill a/c

Patents a/c

2)Nominal account: Nominal account is an accounts which deals with only Expenses &

Losses and Incomes &gains.

E g Rent a/c

Salary a/c

Interest receivable a/c

Depreciation a/c

Account principles: Personal account

Real account

Nominal account

Personal account: Personal accounts are those accounts which deals with only the persons

Debit = the receiver

Credit = the giver

Real account : Real account is an account which deals with only the assets

Debit = what comes in

Credit=what goes out

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Nominal account: Nominal account is an account which deals with only expenses & loses and

Incomes & gains

Debit-=all expenses and losses

Credit =all incomes and gains

Note:

o Personal accounts are opened in the books of accounts only for credit transactions or

liabilities or dues

o Every transaction are recorded in the books of accounts in customer point of view

o Personal accounts are natural, artificial and Representative

Accounting methods (basis): Cash basis

Mercantile basis or Accrual basis

Mixed basis

Cash basis: In this system only cash transactions (cash receipts and cash payments) are

recorded in the books of accounts

Implementation: Lawyers, chartered accounts, doctors, government, professional experts

Mercantile (accrual) basis: In this is system only credit transactions are recorded in the

books of accounts

o In this system cash will come in future so present this method is not used

Mixed basis: In this system cash and credit transactions are recorded in the books of

accounts

o This system is follows so many companies.

Accounting transactions: Cash transactions

Credit transactions

Non-cash transactions

Cash transactions: If the cash receipt or cash payment is made immediately after the

completion of business transaction is called cash transactions

E g: Goods purchased for cash

Goods sold for cash

Credit transaction: If the cash payment or cash receipt of a transaction is postponed to the

future date is called credit transaction

E.g.: Goods purchased on credit

Goods sold on credit

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Non cash transitions: It is a transaction in which cash is not involved but the books are

adjusted.

Generally this transactions are effected the financial statements

Ex: Bad debts. Depreciation.

Financial transactions: Financial transactions are those transactions in which money is

included.

Business transactions: Business transactions are those transactions which belongs to

business.

Accounting branches: Cost accounting

Financial accounting

Management accounting

Cost accounting: Cost accounting is an accounting in which we will know the cost price of 1

unit produced

In cost accounting we will prepare only cost sheet In cost accounting we do not prepare financial statements

Financial accounting: Financial accounting is an accounting in which we will know the

profitability by preparing profit & Loss account for the particular period. And we will know

the financial position by preparing balance sheet for the particular date.

In financial accounting we will prepare the financial statements (final accounts i.e., p

& L a/c, and balance sheet)

What are financial Statements?

The financial statements are two types they are:

o P & L account (income statement)

o Balance sheet (position statement)

o Audit Report.

o According sec 210 of the companies act 1956

Management accounting: It is an accounting in which we will take rational management

decisions by analyzing the recorded data

It is also called decision making accounting

Accounting subfields: Financial accounting

Management accounting

Book keeping accounting

Book keeping accounting: keeping the books in the business to recording day to day business

transactions

In book keeping clerical work is involved

Object of book keeping

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Books of accounts:

o The books which are used only to record business transactions and kept in the

business are called books of accounts

o Purchase book

o Purchase returns book

o Sales book

o Sales returns book

o Cash book and so on.

Account: It is a statement summarizing the record of business transactions in the form of

Debit and Credit.

According to Bank point of view: account: It is a statement which is setting out for the

particular period all the transactions relating to a person or any other subject and the

benefits which received are mentioned at one side and the benefits given are mentioned other

side

Ex: Pass book, Bank statement,

Universally definition: Account is a consolidated statement of picture of all the business

transactions.

Note: All the business transactions are recorded in accounts only.

Accounts are 3types Personal, Nominal, Real accounts.

All Accounts are opened in Ledger only except cash account

Accounts are prepared based on accounts Principles.

Statement: Statement is that which contains, all the information regarding accounts

Statements are prepared to know the position is profitability of accounts

Accounts Vs Statement:

o Accounts are created depends upon business transactions But statements are

not created

Ex: Purchased goods for cash, Purchase a/c Dr

To Cash a/c

o Statements are prepared based on accounts.

o Accounts are prepared based on accounts principles but Statements are

prepared based on accountso Account contains Debit and Credit columns but Statement does not contain

Debit and Credit.

o Accounts are prepared for the particular period and statements are prepared

for the particular date.

o Ex: Trading Account, P&L account Balance sheet, Trail balance

o Every business transaction is entered in account but not in Statement

o Generally account contains opening balance but Statement does not contain

opening balance

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o Accounts are balanced for the particular period but Statements are closed for

the particular date

o Statement contains generally addition and deduction but accounts doe snot

contains

Debit: The left hand column of an account is called Debit.

Credit: The right hand column of an account is called Credit

The reputation of a person or firm

Credit is the power full instrument to promote the sales

Credit means cash receipts or payment is postponed to future date

Transaction: Transaction means An act of performance in terms of money

Event: The event means the end result of the business transaction

Ex: closing stock, Balance sheet.

Birth is transaction Death is an event

All the transactions becomes events But event are not becomes transaction.

ACCOUNTING:

Accounting is the language of business (accounting is the commercial language)

Accounting is very important to know the status of the firm.

Accounting means the process of R=Recording (journal)

C=Classifying (ledger)

S=Summarizing (trail balance)

A=Analyzing

I=Interpreting

R=Reporting Business transactions.

Recording: Recording is the basic function of accounting.

Recording is the first function of accounting process.

All the business transactions are financial characters has evidence by supporting

documents and entering into Books of Accounts is called recording.

Recording is done in the Journal.

Q) Which type of transactions we have to record into the Books of Accounts?

We have to record only Business transactions which includes money into the Books of

Accounts

Classifying: Classifying means the systematic analyzing of the recorded data.

In classifying we group all the Business transaction of one nature at one place

Classifying is done in Ledger.

Summarizing: The preparation of a trail balance is called a summarizing.

In summarizing we keep all closing balances of ledger accounts ion one sheet

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Summarizing leads to prepare trail balance, trading account, P&l account, Balance

sheet.

Analyzing: The establishment of relationship between P&l account And Balance sheet is

called analyzing.

Interpreting: Interpreting means input the data in correct manner while preparing final

account

Reporting: Reporting means disclosing the financial statement to interested parties.

Ex: Share holders, Board of directors, Management, employees.

JOURNAL: Journal is a preliminary Book, in which all the Business transactions are first

recorded in chronological order after classifying them into Debit and Credit.

Journal is the first step (book)of accounting process

Journal is the base for ledger preparation

Journal is also called

Preliminary Book

Primary Book

Book of first entry

Book of original entry

Day book

Prime Book

Prime entry Book

Note: Before writing entry in Journal

First identify those transactions whether it is business transactions or non business

transaction.

After identifying then analyses the business transaction whether it is cash transactions

and identity accounts which involved the accounts.

After analyzing then classify that transaction into Debit and Credit.

Procedure of Journal:

Identify (B tror non Btr)

Analyzing (cash/ credit or accounts involved)Classifying (Dr Cr)

Recording (Journal)

Chronological order.

Entry: Entry means entering a Business transaction in Journal after analyzing and

classifying

Entry shall have 3 lines

1st Debit line

2nd Credit line

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Narration means explanation of transaction giving a small description.

Journal entry: The format in which a transaction is recorded that is journal entry.

Q) Which transaction is recorded in systematically is called journal entry.

Chronological order:

Date Particulars L.F Debit Credit

Journalizing: Recording a business transaction in journal is called journalizing

LEDGER: The Book which contained classified accounts information is called ledger.

Ledger is a book which facilities recording of all types of transactions related to

personal real and nominal accounts separately in related accounts

The group of accounts recorded in a book is called ledger

Ledger is the second step of accounting process.

Ledger is prepared based on journal.

Ledger is the base to prepare trail Balance

Ledger is also called

Book of final entry

Final Book

Principle Book

Main Book

The King of Books of Accounts.

Secondary Book.

Date Particulars L.F Debit

amnt

Credit

amnt

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Ledger is the permanent source for all accounting information for the future purpose

We will open all account in ledger except cash account because cash transactions are

numerous.

It transactions are heavy then we will open separate Book (ledger)(sub ledger)

Ledger Posting: Transferring the debit and credit items from the journal into their

respective accounts in the Leger is called Ledger Posting.

Format of Ledger Account

Date particulars L.F Amount Date particulars L.F Amount

Types of ledgers: Debtors ledger (trade debtors/customers)

Creditors ledger (trade suppliers/vendors)

General ledger

Self ledger (proprietor)

Debtors ledger: When all the debtors accounts are recorded in one book that is known asDebtors Ledger

It shows always debit balance

The total balance of these accounts indicates the total amount to be received from the

customers

Creditor ledger: When all the creditors accounts are recorded in one book that is known as

creditors ledger

It shows always credit balance

The total balance of these accounts indicates the total amount to be paid by the

company to the suppliers

General ledger: When the company records all accounts related to the assets income and

expenditure in one book that book is known as General Ledger.

Accounts payables (trade suppliers/venders)

Accounts receivables (customer)

Expense accrual (Payable)

Income accrual (receivables)

Fixed assets

Current assets

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Self ledger: When all accounts which indicate the relation ship between proprietor and the

business firm are recorded in one book that book is known as Self ledger.

Discount: Discount is an amount reduction in the sales price.

Cash discount: Cash discount is an allowance which is given to attractive quick payments

Cash discount should be shown in the books of accounts

The percentage of cash discount is very low like 1%, 2%, 3%.

Drawings: Drawings means the amount goods or services withdrawn by the proprietary from

the business for his personal use

Drawings may be Cash drawings, Goods drawings, Services drawings.

Entry for Cash Drawing: Drawing a/c Dr xxx

To Cash a/c xxx

Capital a/c Dr xxx

To Drawing a/c xxxCapital a/c Dr xxx

To Cash a/c xxx

Entry for Goods Drawing: Drawing a/c xxx

To Purchase a/c xxx

Entry for Service Drawing:

TRIAL BALANCE

Q) What is mean by Trial Balance?

Trial balance is a statement which contain of ledger accounts closing balances

(or)

Trial balance is the summery of ledger accounts closing balances.

Q) Why should prepare the Trial Balance?

We should prepare the trial balance to check the arithmetically accuracy of Books of

Accounts.

Q) What is mean by Arithmetically accuracy?

Accuracy means to verify all the transactions correctly entered in accounts or not.

Q) What is the important of Trial Balance?

The importance of the trial balance is base to prepare final accounts

Trial balance is prepared with all ledger accounts closing balances

In trial balance all types of accounts will be shown.

Preparation of trial balance methods:

Total Method: In this Method

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Net balance method:

Balancing method is universally accepted method

Trial balance is prepared based on Real, Nominal, and Personal accounts.

While preparing of trial balance show all assets, expenses, and losses at Debit column,

and all liabilities, incomes, and gains at Credit column

Trial balance is a statement not an account.

Generally closing stock will not come in trial balance because it is not closing balance

of account

Revised trial balance: A trial balance which is prepared with standing entries like salary

payables, rent payables, sales tax, is called Revised T/B

Suspense account: Due to some reasons trial balance may not agree and mistakes cannot be

rectify them and preparation of Final account is very urgent that time the difference amount

will be transferred to temporarily one separate account such account is called suspense

account

FORMATE OF TRIAL BALANCEDate Particulars L.F Debit Credit

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Personal Accounts:

Sundry Debtors

Sundry Creditors

Capital

Drawings

Outstanding Expenses

Prepaid Expenses

Outstanding incomesIncome received in advance

Bills payables

Bills receivables

Bank

Real Accounts:

All type of assets and properties

Good will

Trade Marks

Preliminary Expenses

Purchases

Purchase Returns

Sales

Sales returns

Opening stock

Closing stock

Nominal Accounts:

All types of Expenses and losses

(Salaries, Wages, Rent ets)

All types of incomes and profits

Provisions and Reserves:

All types of provisions and reservesDiscount on Creditors

Discount on Debtor

General Reserve

Special reserve and fund

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

Xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

Opening stock: Opening stock means last year closing stock.

Closing stock: Closing stock means unsold goods and left in the godown at the time of

preparation of final accounts.

If closing stock is given only in the trial balance then we will take in balance sheet at

asset side.

Closing stock a/c Dr

To Purchase a/c

If closing stock is given only adjustments then we will take in trading account at

credit side and balance sheet at asset side.

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If closing stock is given in trial balance and adjustments also then we will take which

ever is less we have to take into Books of Accounts.

Godown: Godown is a place which is used to kept all produced goods

Warehousing: Warehousing is the place which is created with artificial facilities to kept a

specified goods.

Ex: medicines, egg, vegetables,

TRADING ACCOUNT: Trading account is an account it is prepared at the end of

accounting period to asses the Gross Profit or Gross Loss is called Trading account.

Trading account is an account which is prepared to know the gross profit or loss

Trading account is a account it is not a statement

Trading account is prepared based on Nominal and Real account.

While preparing the Trading account, Opening Stock, Purchase, and Direct Expenses

are Debited to Trading account and Sales, Closing Stocks are Credited to Trading

account

FORMATE OF TRADING ACCOUNT

Dr Cr

Date Particulars Amount

In R.s

Date Particulars Amount

In R.s

To Opening Stock

To Purchases

To Sales Returns

To Wages

To Carriage inwards

To Freight

To Duty and Clearingcharges

To Marine insurance

To Gross profit

(Transferred to P and L

account)

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxxx

By Sales

By Purchase Returns

By Closing Stock

By Gross Loss (Transferred

to P and L account)

xxxx

xxxx

xxxx

xxxx

Gross profit: The net sales are more than the cost of goods sold, then the difference amount

is called gross profit

Gross loss: The net sales are less then cost of goods sold then the different amount is called

gross loss

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PROFIT AND LOSS ACCOUNT

Profit and Loss Account it is prepared to know the Net profit or Net loss for the

particular period.

To profit and loss account as it is called profit and loss account because generally the

business man expects profit only.

It is a 100% Nominal account.

Profit and Loss account is an account it not a statement Generally profit and loss account starts with Gross profit at credit side

It is also called as income statement

While preparing profit and Loss account Debit all expenses and losses Credit all

incomes and gains

It is prepared based on matching concept (Nominal account)

Profit and loss account will not contain any opening balance but its started with gross

profit or gross loss

N P = G P + O I I E

Net profit is a profit which comes after deducting all indirect expenses and losses from

gross profit + other incomes.

Net profit: The Revenue and Gross Profit is more then Indirect Expenses then the difference

amount is called Net profit

Net loss: The Revenue and Not Profit is less then Indirect Expenses then the difference

amount is called Net loss

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Dr Cr

Date Particulars Amount Date Particulars Amounts

To Administrative/Office

Management Expenses:

To Office salariesOffice rent

Rates and TaxesOffice Lighting

Office Insurance

Printing and Stationery

Legal Expenses

Audit Fee

General Expenses

Repair and Renewals

Bank charges andcommission

Telephone charges

Staff Expenses

To Selling and Distribution

Expense:

Godown rent& InsurancePacking Exp

AdvertisingAgents Commission

Bad debts

Traveling Exp

Discount allowed

Brokerage

Free samplesTrade exp

Sales mans salaryCarriage outwards

Delivery charges

Subscriptions

To Financial Exp:

Discount allowed

Interest on capitalInterest on loans

ToMaintenanceand

Depreciation

Repairs to building

Repairs to furniture

By Gross profit b/d

Discount received

Commission received

Interest receivedDividends

Income from InvestmentsReserve for discount on

Creditors

Bad debts recovered

Apprentice premium

Profit on sale of asset

other incomes

Net loss

TYPES OF EXPENSES, EXPENDITURES, GAINS, AND LOSSES

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Expense: Expense is an amount which is spent to get a short term benefit Or from day to day

business operations (or)

Expense is an amount with the hope of getting something.

Expenses reduce the owners capital

Expenses are debited to Profit and loss account

Expenses are 2 types: 1 Direct Expense

2 Indirect expenses

1 Direct expenses: Direct expenses are those expenses which are direct involved in the

Purchasing (production) goods or services

Ex: wages

Factory rent rates taxes.

Warehousing rent

Gas, fuel, coal clearing

Fright inwards

Carriage inwards

Existed charges

2 Indirect expenses: Indirect expenses are those expenses which are involved to promote the

sales or services

Indirect expenses are 4 types: 1 Selling and distribution expenses

2 Administration or managerial expenses

3 Financial expenses

4 Non operating expenses

All Indirect Expenses and Losses debited to P & L a/c & Incomes and Gains are

Credited to P & L a/c Under Nominal account

Expense accrual: The expenses are incurred but not yet paid is called expense accrual.

EXPENDETURES: Expenditure is an amount which is spent to purchase something

Ex: purchasing goods or services and so on

Expenditure will give a long term benefit.

Expenditure is increases owners capital.

Expenditure helps to increase the capital

Ex: 1) Purchasing petrol is expenditure

Consuming petrol is expense

2) Purchasing stationary is expenditure

Consuming stationary is expense3) Purchasing = Expenditure

Consuming = Expense

Expenditure is divided.: 1 Capital Expenditure.

2 Revenue Expenditure.

3 Differed Revenue Expenditure.

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1 Capital expenditure: Capital expenditure is an expenditure which is used to acquire fixed

asset.

Ex: Land and building, Plant and machinery, Furniture.

Capital Expenditure is an expenditure which gives the benefits to the business more

then years

Ex: Purchasing copy rights is comes under capital expenditure (Books)

Purchasing patents is comes under capital expenditure (medicines)

Purchasing trademarks is comes under capital expenditure (Colleges)

Purchasing an old cinema theatre and additional constructions to building comes

under capital expenditure

Getting license certificates is comes under capital expenditure

Registration fee is comes under capital expenditure

Business expansion is comes under capital expenditure

Revenue Expenditure: Revenue expenditure is an expenditure which is used to purchase

goods or services

The Expenditure which benefit will expire with in one year

The Revenue Expenditure which gives a short term benefitEx; Purchasing goods is comes under Revenue Expenditure.

Purchasing services is comes under revenue Expenditure.

Panting an old cinema theatre is come under revenue Expenditure.

Differed Revenue Expenditure: It is an Amount which is incurred in the current year but

the benefit will come in the subsequent years.

( or )

It means an amount incurred initially but we will get benefit in subsequent years.

Ex: Heavy advertisements, Preliminary Expenses.

Differed Revenue Expenditure will come in Balance Sheet at Asset side under thehead of Miscellaneous Expenses

Preliminary expenses: Preliminary Expenses are those expenses which are incurred at the

time incorporation of an organization.

Ex: registration fee

Prepaid Expense: Prepaid expenses are those expenses which have been paid in advance and

whose benefit will be available in future

Ex: prepaid salaries, rent,

Capital receipts: The amount which is recovered for selling fixed assets (machine)

Capital gain: The amount which is received for selling fixed assets more then its value Ex;

asset sold for 1 00 000 (actual value 80 000), Gain = 20 000.

Capital loss: The amount received for selling fixed assets at lower than its value.

Ex: Assets sold for 60000 (actual value 100000), Loss = 40 000.

Goods loss by fire (not insured) capital loss.

If the owners are the responsible for any loss then it comes capital loss.

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Revenue: It means getting amount by selling Goods or Services

Revenue is the main source to the business

Earning from interest and investments.

Revenue receipts: The amount received from selling goods or services is called revenue

receipts. Ex: Sold a pen Rs 10.

Revenue gain: The amount received from selling goods or services more than its value is

called revenue gain. Ex: Sold a pen Rs 10 (Cost price 8) Gain = 2.

Revenue loss: The amount received from selling goods or services at lower than its value.

Ex: Sold a pen Rs 6 (Cost price 8) Loss = 2.

Cash theft by employee is called revenue loss.

Income: Income is an amount which comes with efforts.

Income accrual: The amount is receivable but not yet received is called Income accrual.

Gain: Gain is an amount which comes with out effort. Ex: Received Rent, Dividend.

Loss: Loss is an amount which is suffered accidentally in the normal causes of business.

Ex: loss by fire, loss by theft

Normal Loss:

Arises on account of inherent quality in the goods which is unavoidable.

Abnormal Loss: The loss which arises on account of the operation of external forces andwhich is avoidable. Ex: By theft, loss by fire, etc.

Depreciation: Types of depreciation:1Depreciation

2Depletion

3Amortization

1 Depreciation: Depreciation means the reduction in the value of fixed assets due to wear and

tear.

The permanent end gradually decreases in the Quality or Quantity or Value of fixed

asset every year.Ex: Fixed Assets Machine, Fixtures.

2 Depletion: Depletion means the reduction in the value of Natural resource due to wear and

tear.

Ex: Quarries, Mines.

3 Amortization: Amortization means the reduction in the value of Intangible assetsEx: Good will, trademarks.

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Note:

Depreciation methods are implemented based on convention of consistency.

Depreciation is providing Based on going concern concept.

Depreciation is provided based on convention of conservatism

Reasons of Depreciation:

Wear and tear

Depletion

Obsolesce

Accidents

Lapse of time

Natural defects

Structural defects.

Need of depreciation:

To know the actual fixed asset value To know actual profits

To know actual financial position of the business

To make a provision for replacement of old assets

Depreciation is not provided on Land.

Methods of depreciation:

Straight line method

Written down value method

Annuity method

Depletion method

Insurance policy method

Sinking fund method

Time hour method

Revaluation method

Machine hour rate method

Straight line method: It is also called Fixed Install Method under this method a fixed

percentage of Depreciation is a written off every year.

Written down value method: It is also called diminishing balance method under this method

the depreciation is going down on every year

Q) What is difference between straight line method and written down value methods?

In straight line method the profit is decreased, but in written down value method

profit is increased.

Q) What is the Entry for Depreciation?

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Depreciation a/c Dr xxxx

To Fixed asset a/c xxxx.

Q) What is the Entry for provide Depreciation?

Depreciation a/c Dr xxxxTo provision for depreciation a/c xxxx.

Q) What is the final Entry

Provision for depreciation a/c Dr xxxx

To Fixed asset a/c xxxx

Principle of depreciation:

Annual depreciation = Asst total value scrap value

No of years of asset

Depreciation rate of percentage = Annual depreciation

Total asset value *100

Q) If depreciation rate is given and purchase date is not given?

In this case we have to provide depreciation for 6months

Q) If purchase date is given implementation date is not given?

In this case we have to provide depreciation from purchase date.

Q) If purchase date is not given and implemented date is given?

Depreciation is calculate from implementation date

Rate of Depreciation is imposed on various articles

Equipment 15%

Fixed assets 10%

Vehicle 15%

Plastic item 50%

Computers 60%

Temporary items 100%

Provisions and reserves:Provisions: Provision means any amount written By way of providing Depreciation due to

wear and tear or Bad debts.

Provisions are created before calculating the Net profit.

All provisions are shown in the profit and loss account at debit side.

Creation of provision is compulsory.

Provisions are reduced the net profit.

Reserves: Reserves means the amount kept a side out of the profit to face future risk.

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Reserve means an amount kept in the business for its future risks.

Creation of reserves is possible when there are net profits.

It is not compulsory

Reserves are debited to profit and loss appropriation account.

PROFIT AND LOSS APPROPRIATION ACCOUNT

P&L appropriation A/c: To know how much net profit is available to the equity share

holders

Preparation of P&L appropriation A/c is possible when there is net profit

Generally P&L Appropriation A/c is starts with lost year net profit (If there is )

It is prepared only by the join stock companies ( pvt or pbl)

Debit side

Transfers to general reserve

Transfers to other reserve

Dividend paid (declared )

In termed dividend (paid)

Tax

Bonus

Works men compensation

The remaining balance is called surplus

Credit side

Last year profit and present year profit

Surplus is an amount which is available to distributed equity share holders

E P S = Net profit available to equity share holderNo of equity shares

Income statement: It is a statement which is prepared to find out net income which is

available to equity shares holder

Income statement is the mixture of trade account profit and loss account, profit and

loss appropriation account

This is original statement in real time

BALANCE SHEET

Balance sheet is a statement which contains liabilities and assets as a particular date

Balance sheet indicates the financial position of the business for the particular date

Balance sheet also called position statement

Balance sheet is a fundamental statement of accounting

Basically financial statements are 4 types

Position statement

Income statement

Retained earning statement

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Cash flow statement

According to GAAP

Balance sheet is a fundamental as well as basic statement

Balance sheet is prepared based Real a/c and Personal a/c

Marshalling: The arrangement of assets and liabilities in balance sheet is called Marshalling.

Liabilities: Liability means borrowing from out side.

Liabilities are divided into 2 types: 1 Short term liabilities

2 Long terms liabilities

Short time liabilities: Short time liabilities are those liabilities which are repayable with in

one year

Short term liabilities are also called as current liabilities.

Ex: Sundry Creditors

Trade creditorsBills payables

Bank over draft

Long term liabilities (loans): Long term liabilities are those liabilities which are repayable

after one year that is 2year or 3year

Ex: Debentures

Loans and advances

Loans taken from the financial institution.

Contingent liabilities: Contagions liabilities are those liabilities which are waiting for

judgment under disputes Ex; Workmen compensation

Loan: Loan is an amount which is taken from any financial institution or any person.

Loan=cash.

Total liabilities: Total liabilities include capital +s hare premium + reserves and surplus +

long term liabilities + short term liabilities.

Total liabilities mean all the liabilities including Capital which are mentioned at the

liabilities side of the Balance sheet.

Total liabilities mean all the liabilities which are mentioned at left hand column of

Balance sheet.

CAPITAL: Capital is the contribution of the businessmen to the business, which is invested

with the intention of earn profit by doing business.

Capital is the primary investment to the business by proprietor/Partners/share

holders

Capital is divided into 2: 1 Fixed capital

2 Working capital

Fixed capital: Fixed capital is that which is used to purchase fixed assets

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L&B

P&M

Furniture

Computer

Fixed capital which will stay forever in the business.

Fixed capital is divided into 2: 1 Owner capital

2 Borrowed Capitals

1 Owners capital: The capital which is raised through issue of equity and preference shares

+ retained earnings is called owners capital

In sole trade ship the capital which is invested by the proprietor.

In partnership the capital which is invested by the partners.

In Company the capital which is invested by share holders

Borrowed Capital: The capital which is raised through issue ofDebentures

Loans taken from financial institutions

Accepted a deposit from the general public.

Working Capital: It is an amount which is used to conduct day to day business operations.

Working capital is calculated as total current assets-current liabilities

ASSETS:

Asset is an economic resource to the business

Asset is an expenditure which gives a long term benefit to the business

Assets are acquired for the use in the business for a long term basis not for re-saleQ)Assets always show which balance?

Ans: Debit

Q) Assets are shows Debit balance why?

Note: If any property is used in the business it is called asset

If that asset is not used in the business then it is called property.

Asset is used in business but property is not used In the business.

Asset Vs property

Property belongs to individual person whereas assets belong to business.

Property indicates financial status whereas assets indicate position of the business.

Property can be sold and transferred to any one but assets should not be transferred

Assets are divided into 3 Groups: Fixed assetsCurrent assets

Other assets.

Fixed asset: Fixed assets are those assets which are in fixed nature, which gives long term

benefit to the business.

Ex: Land and building.

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Plant and machine

Furniture

Fixed assets are divided into 2 groups:

Tangible assets: Tangible assets are those assets which we can touch, feel, seen and measured

in value.

Ex: Land and building, plant and machine.

Intangible assets: Intangible assets are those assets which we cannot touch, seen, feel but

measured in value

Ex: Good will, copyright, patents, trademarks,

Good will means the value of the reputation.

Current assets: Current assets are those assets which are converted into cash within one year

(one accounting year)

Ex: Cash in hand

Cash at bankDebtors

Stock in hand

Interest accrued on investments

Loose Tools.

Fictitious assets: Fictitious assets are those assets which will not have any physical form, and

there value is not real.

Fictitious assets are those assets which are created by the Business.

Ex: Preliminary Exp, Differ revenue Exp, Prepaid Exp,

Wasting assets: Wasting assets are those assets which are in fixed nature and which aregradually decreased by using.

Ex: Natural resource, Quarries, mines

Liquid assets: Liquid assets are those assets which are easily converted into cash into with in

short period.

Ex: all current assets except stock and prepaid expense.

Absolute liquid assets:The assets which are already in the form of cash. Ex: Cash in hand, cash at bank, short term investment,

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Liabilities Amount Assets Amount

Share Capital:

1 Authorized capital

2 Issued capital

3 Subscribed capital

4 Called up capital

Less: Calls in arrearsAdd: Forfeited Shares

Reserves & Surplus:1 Capital Reserve

2 Capital

Redemption Reserve

3 Share Premium

4 Other Reserves

Less: Debit balance of

P&L a/c

5 P&L Appropriation6 Proposed additions

to reserve7 Sinking Fund

Secured Loans:

1 Debentures

Add: Outstanding

2 Loans & Advances fromBank

3 Loans& Advances

from subsidiaries

4 Other loans & advances

Unsecured Loans:

1 Fixed deposits

2 Loans and advances

from subsidiaries

3 Short term loansand advances

Current liabilities

& provisions:

a)Current Liabilities:

1 Bills payable

2 Sundry creditors

3 Income received in advance4 Interest accrued but

not due on loans

b)Provisions:

1 Provision for taxation

2 Proposed dividends

3 For contingencies

4 For P F and Pension

Foot Note:

Contingent Liabilities

Fixed Assets:

1 Goodwill

2 Land

3 Buildings

4 Lease hold Property

5 Railway sidings6 Plant and Machinery

7 Furniture and Fittings

8 Development of property9 Patents Trade marks and Designs 10

Vehicles

Investments:

Current assets, Loans and Advances

A. Current Assets:

1 Interest accrued on Investments

2 Stores and spare parts3 Loose tools

4 Stock5 Work in Progress

6 Sundry Debtors

Less: Provision for doubtful debts

7 Cash in hand

8 Cash at Bank

B)Loans and Advances:

1 Advances to subsidiaries

2 Bills receivable

3 Prepaid Expenses

Miscellaneous Expenses:

1 Preliminary Expenses

2 Discount allowed on issue during

construction

3 Underwriting Commission4 Interest paid out of capital during

construction

5 Development Expenditure

not adjusted

Profit and Loss account:

(Show the Debit balance of P&L a/c carried

forward after deduction of the uncommittedreserves)

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BANK RECONCILIATION STATEMENT

Bank: Bank is a financial institution which is licensed to accept deposits from the general

public and gives loans to them. (or)

Bank is a financial institution which deals with the finance and accepts deposits from

the general public and gives the loans to them.

Bank transactions: Cash Deposits.

Cash withdrawals

Cheques deposits.

Cheques withdrawals

Demand draft.

Cash Deposit: I will deposit cash by filling pay in-slip and mentioned the following details

Date

Account no

Name of the account holderAmount in figures and words

Signature (depositor)

Denomination

Cash with draws: I will withdraw cash from the bank in three ways

By ATM card

By self cheque (if we have cheque book)

By withdrawal form (if we have pass book)

ATM card: ATM card is a plastic card which is issued by the bank to withdraw cash from

ATM (Automatic teller machine)

Debit card:Debit card is plastic card which is issued by the bank to withdraw cash as well asto purchase goods or services instead of cash

Credit card: Credit card is a plastic card which is issued by the bank to the customer after

verifying the customers standard income. It gives credit facility up to certain limit

By using this card we can with draw cash from the ATM (limit) and we can purchase

goods or services certain limit.

Cheque deposits: We will deposit cheque by filing pay-in-slip and following the details.

Date

Account no.

Name of the account holder.

Cheque date.

Cheque no

Bank name

Name of Branch

Amount in words

Depositor signature

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Types of cheques:

Self Cheque

Barer cheque and in cash met cheque

Crossed cheque and in cash met cheeque

Funds transfers: Transferring from one account to another account within the same bank

and branch

Demand draft: I will take DD by submitting DD application form along with your self cheque

(cash)

Private bank will not give DDs (cash) but gives account holders

Discount Procedure: Discount facility is available only for faithful customers

We can discount DDs in any bank if we have account.

Step 1 Fill up pay-in-slip

Attached cheque or DDs along with the pay-in-slip

Fill up bill purchase form (Discounting form)

Approach manager or authorized person

After taking permission from manager then process it

After competing all the formalities your cheque amount or DD amount

will be credited to your account

Local cheques within five days out of 10 to 15 days according to 1949 Banking act

under article 14

Over draft: Over draft is a loan facility which is given by the bank to faithful customer after

taking a necessary security

Q) What is the relationship between the Banker and customer?

Debtor and Creditor relationship

Q) What is the creditor?

If customer deposited cash in the bank then customer becomes creditor to the bank,

bank becomes debtor to the customer

Q) What is the Debtor?

If bank gives loan to the customer then customer becomes debtor to the bank and

bank becomes a creditor to the customer

Cash credit: Cash credit is an account Cash credit is the loan facility which is given by the bank to any customer after taking

guarantee and security

It is the loan facility to give big industries

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Q) What is the Deferences between Overdraft and Cash credit?

In over draft account the amount is debit in pass book, but in cash credit account loan

amount is credited impossible

In over draft interest is charged entire amount, but in cash credit interest is charged

only utilized amount

In over draft account the rate of interest is very high , but in cash credit account rate

of interest is very low

Overdraft account will be closed but cash credit account never end

Types of Bank accounts

Saving account

Current account Joint account

Demit account

Cash credit

DD account

IMPARTANT QUESTIONS

If Cash book shows debit balance

It means cash in hand

If pass book shows credit balanceIt means cash at bank

If pass book shows debit balance what it means

It means over draft and unfavorable balance

Reconciliation: Reconciliation means finding the reasons for the difference between any 2

accounts and their should be rectified

Q) Why should be reconciliation?

Finding the outstanding balance which is payable and receivable (or)

We should reconciliation to know how much amount we have to pay to the suppliers

and how much amount we have to receive from the customer or any others at a

particular date

Ex: Purchase account is showing Rs 1000, Cash account is showing is 10,000

Purchase account Dr 9,000

To Cash account 9,000

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Bank reconciliation: Finding the reasons for the difference between cash and pass book

balances, If there is any mistake is done it should be rectified them

B R S: BRS means Bank reconciliation statement in which reconciliation is done and which

gives a complete and satisfactory explanation for the deference between cash book and pass

book balances.

Pass Book: Pass Book is a Book which is issued by the bank to the customer to record bank

transactions on behalf of the customer (or)

Pass Book is nothing but a true copy of the bank ledger account

Q) Who will prepare the Cash Book?

By business man

Q) Who will prepare the Pass Book?

By the Banker

Q) Who will prepare the BRS?

By business man who has a current account in any Bank.

Q) When will prepare the BRS?

We will prepare the BRS after receiving the Bank statement from the bank, then I

will compared with Cash Book, If any mistake is done, then I will prepare the BRS at

the end of the month or depends up on transactions.

Q) Is it compulsory to prepare the BRS?

No, that time I will not prepare BRS, if the transactions are correctly entered in cashbook and pass book.

Needs of BRS:

Reflect the actual bank balance position

To find out any mistake is done in recording banking transactions

To know the delay in the collection of cheques

Reasons of BRS:

1. Cheques issued but not presented for payment.2. Cheques issued but not presented for payment. That time Banker Debited same

amount of LIC premium on behalf of the customer.

3. Cheques deposited in the bank but not credit in the pass book.

4. Cheques deposited in the bank but not credit in the pass book. That time bankercredited same amount Interest on debenture.

5. bank charges.

6. direct deposits by the customer

7. wrongly deposited in cash book.

8. wrongly credited in cash book.

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Treatments:

1) Cheques issued but not presented payment.(+)

If cheques issue to the supplier then immediately I will reduce the cash book by passing

this entrySuppliers account Dr xxx

To Bank account xxx

If that cheque is not presented by the supplier then first I will do BRS after receiving bank

statement from the bank then I will increase the cash book by passing this entry.

Bank account Dr xxx

To Supplier account xxx

Remaining 5 months nothing I will do but If the cheque is presented by the supplier then I

will reduce the cash book passing this entry.

Supplier account Dr xxxTo Bank account xxx

2)Cheques deposited in bank but not presented (credited) (-)

If the cheque is recived from the customer then I will immediately increase the cash

book by passing this entry

Bank account Dr xxx

To Customer a/c xxx

If the cheque is bounced then I will do BRS after receiving bank statement form the bank

and decrease the cash book by passing this entry

Customer account Dr xxx

To Bank account xxx

If it is cleared in the remaining period then I will increase cash book after receiving Bank

statement from the bank by passing this entry

Bank account Dr xxx

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To Customer account xxx

3)Bank charges: (-)

In this case I will do BRS after receiving bank statement then I will reduce the cash

book by passing the entry

Bank charges account Dr xxx

To Bank account xxx

4) Direct deposits by the customer (+)

In this case first I will prepare BRS after receiving a bank statement from the bankthen I will increase cash book by passing this entry

Bank account Dr xxx

To Customer account xxx

5)Incomes collected by the bank on behalf of customer

Final treatment is add after preparing the BRS

6) Wrongly debit in cash book

In this case first I will do BRS after receiving bank statement from the bank

Final treatment less

7) Wrongly credit in cash book

In this case first I will do BRS after receiving Bank statement from the bank

Final treatment is Add

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SUBSIDIARY BOOKS: The different transactions are classified into various groups and

relevant transactions are recorded in a separate journal such journals are called subsidiary

journals or Books of original entry or subsidiary books

Subsidiary books are derived from the journals

Q) Why should you maintain the subsidiary books in the business?

We should maintain the subsidiary books in the business mainly to save the time and to

do work easily

Q) What is the important of subsidiary books?

The importance of the subsidiary books are to reduce the work pressure

Q) Do you maintain subsidiary books in software?

No, We do not maintain Subsidiary books in software

We can maintain subsidiary books in manually

Q) When the subsidiary books maintain in the business that time you will prepare journal

entries or not?

Generally we do not write Journal entries. (If we maintain Subsidiary books)

TYPES OF SABSIDIARY BOOKS

1) Purchase Book

2) Purchase returns Book

3) Sales Book

4) Sales returns Books

5) Cash Books

6) Bills payables Book

7) Bills receivables Book

8) Journal proper

PURCHASE BOOK:

Purchase: Purchase means buying goods or services in terms of money with the intention of

re-sale.

Purchase account: Purchase account is an account in which recorded Credit and Cash

purchases

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Dr Cr

Date Particular J.F

No

Total

amount

Date Particulars J.F

No

Total

amount

To Balance d/d

By Balance c/d xxxx

xxxx xxxx

xxxx

Purchase Books: Purchase a book is subsidiary book in which recorded only credit purchase

of goods or services.

Purchase Book is kept in the Business to record credit purchase of goods or services

with the intention of re-sale

In purchase Book Asset purchases and Cash purchases are not recorded

Total purchases includes cash and credit purchase

Net purchases = Total purchases ( purchase returns + other)

Format of Purchase Book:Date Particular In word

Invoice no

L.F

No

Amount in

Rs

25-9-08 10 Urea bags 1 1,50,000

Purchase returns Book

: It is a Book in which recorded only credit purchase returns of goods due to poor

quality (or)

It is kept in the business to record only credit purchase returns of goods.

Supplier account Dr xxx

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To Purchase returns a/c xxx

Format of purchase book

Date Particulars Debit Note no L.Fno Amount

Debit Note: (Debit memo) means credit purchase returns.

Debit note is a document which is issued to the suppliers, when the goods purchased

from them are returned due to poor quality

What = Debit note

To Whom = Supplier

When = Purchase returns

Why =Poor quality

Debit note is a document in which all the details relating to returned goods and theirvalue is mentioned.

Q) Why it is called as a debit note?

It is called as a Debit note because the party a/c is debited

It is prepared 2 copies, one is sent to the Suppliers, and another one is kept in the

business.

Q) If we issued/sent Debit note to the supplier then what will happened?

If we issued Debit note to the supplier then the payable amount is reduced by

(debiting) passing this entry.

Suppliers a/c Dr xxx

To Purchase returns a/c xxx

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Telephone : Grain market road Jammikunta

Telegram : Date 02-06-2008

To

NAGARGUNA FERTILISER BAGYA LAXMI FERTILESER

KAKINADA JAMMIKUNT, KARIMNAGAR

The goods are returned because of the following reasons

We seek for your acceptance

Quantity Particular

Rate. Rs Amount

50 Potash 250 12,500

Reason: Order for 50 urea bags but received potash bags

Reference Invoice no7438, Date 15-05-08

Signiture:BAGYA LAXMIFERTILISER

Sales Books:

Sales: Sales means selling goods or services in terms of money with the intention of to earn

profit by doing business

Sale of goods to the customer with the intention to earn profits

Sales account: Sales account is an account in which recorded credit and cash sales

Format of sales account:

Dr Cr

Date Particular J.F

No

Total

amount


No

Total

amount

To Balance c/d

xxxx

xxxx xxxx

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By Balance b/d xxx

Sales Book: Sales Book is a subsidiary book in which recorded only credit sales of goods

Sales book is kept in the business to record only credit sales of goods.

In Sales book asset sales and cash sales are not recorded

Total sales includes cash and credit sales

Net sales = Total sales (sales returns + others)

Format of Sales Book:

Date Particular In word

Invoice no

L.F

No

Amount in

Rs

10-9-08 10 Urea bags 1 1,50,000

Sales return Book: It is a book in which recorded only credit sales return of goods due to

poor quality ( or)

It is kept in the business to record only credit sales returns of goods or services

Sales returns a/c Dr xxx

To Customer a/c xxx

Format of Sales return book:

Date Particulars Credit Note n L.Fno Amount

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Credit Note : (Credit memo) It means credit sales returns

Credit note is a document which is issued to the customer when the goods sold to them

are returned due to poor quality

What = credit note

To whom =customer

When = sales returns

Why =poor quality

Credit note is a document in which all the details relating to returned goods or

services and their value is mentioned

Q) Why it is called as a credit note?

It is called as a credit note because the party account is credit

It is prepared 2 copies one is sent to the customer an other one is keep in the firm

Q) If issued credit note to the customer then what will happen?

If it is issued credit note to customer then the receivable amount is reduced from

them by crediting ( passing this entry)

Sales returns a/c Dr xxxTo Customer a/c xxx

Credit Note

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Telephone : Grain market road Jammikunta

Telegram : Date 02-06-2008

To

THIRUPATHI FERTILISER BAGYA LAXMI FERTILESER

HUZURABAD JAMMIKUNT, KARIMNAGAR

Quantity Particular

Rate. Rs Amount

50 Urea 400 20,000

Reason: Goods damaged on transit

Reference Invoice no4581, Date 15-05-08

Signiture:BAGYA LAXMIFERTILISER

CASH BOOK: Cash book is a subsidiary book in which cash receipts and payments are

recorded.

Q) Who is the cashier?

The person who maintains cash book is called a cashier

$ Cash book plays double role, Ledger as well as Subsidiary book

Q) Why should the cash book always shows debit balance?

Cash book always shows debit balance because the cash payments cannot exceed

more then opening balance + Cash receipts.

Types of cash books: Simple cash book

Double column cash book

Three column cash book

Petty cash book

Format of Cash book:

Dr Cr

Date Particular J.F

No

Total

amount


No

Total

amount

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To Balance b/d

By Balance c/d

xxxx

Xxxx xxxx

xxx

General cash book maintained in all types of business

In general cash book only cash receipts and payments are recorded

Double column cash book contain cash, Discount columns.

Triple column cash book contain cash, discount and bank, columns

Petty cash book: The book which is used only to record small cash payments to words pettyexpenses is called petty cash book

Q) Who is the petty cashier?

The person who has maintained petty cash book, that person is called petty cashier.

Q) What is the specialty of petty cash book?

$ The specialty of petty cash book is every payment is entered 2 times, one is total column,

Second one is Analytical column

Cash

recieved

In r.s

Lf

no

date particular Vch

no

total

pymnt

Analytical of expenses

Postg

exp

Offce

exp

Tlgrm

exp

Crg

exp

Sndry

exp

remia

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Q) What is the deference between cash book and petty cash book?

In cash book cash receipts and payments are recorded, but in petty cash book only

small payments are recorded except cash receipts from the customer

Q) What is the importance of petty cash book?

The importance of petty cash book is to control the over payments

Q) Defined imprested system?

Under imprested system the petty cashier will set an amount from the head office

what ever he expensed last week or last month

JOURNAL PROPER: Journal proper is a subsidiary book in which only specifiedtransaction are recorded such transactions are not recorded in remaining subsidiary books

Opening entries: Opening entries are those entries which are comes in journal proper at the

time of new business started as well as new books are opened in running business

In new business: Stock a/c Dr Xxx

Cash a/c Dr Xxx

Machine a/c Dr Xxx

To Capital a/cxxxx

In running business: Cash a/c Dr Xxx

Asset a/c Dr Xxx

To Capital a/c xxx

To Liabilities a/c xxx

Combined entries:(Compound entries) Combined entries are those entries which contain

more than one debit or more than one credit is called combined entries

Cash a/c Dr Xxx

Asset a/c Dr Xxx

Good will a/c Dr Xxx

To Capital a/c xxx

To Loan a/cxxx

To profit a/c xxx

Closing entries: Closing entries are those entries which are comes in Journal proper after

balancing all Nominal accounts such balances transferred to trade, profit and loss account at

the end of the year

Trading a/c Dr Xxx

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To Opening BAL a/c xxx

To Purchase a/c xxx

To direct exp a/c xxx

Adjustment entries: Adjustment entries are posted at the end of accounting period to reflect

the correct balances of revenue expenses between accrual basis and cash basis.

Accrual entry: Salary a/c Dr xxxxSalary payable a/c xxxx

Adjustment entry/Cash entry: Salary payable a/c Dr xxxx

To Cash a/c xxxx

Final entry: Salary a/c Dr xxxx

To Cash a/c Dr xxxx

Prepaid rent a/c Dr Xxx

To rent a/c xxx

Depreciation a/c Dr Xxx

To Fixed Asset a/c xxx

Rectification entries: If an error has been committed it is rectified through a journal entry is

called rectification entries.

RECTIFICATION OF ERRORS:Error is a mistake committed in book keeping

Error can be broadly divided into 2 types: 1 Errors of Principle

2 Clerical Errors.

1 Errors of Principle: Errors of principle are committed when a transaction is not recorded

according to accounting principles

Ex: Capital expenditure treated as revenue, business expenditure treated as personal

expenditure etc.

2Clerical errors: Clerical errors are those errors which are generally committed by theclerical staff while recording the transactions in the account books such errors may be.

a) Errors of omission: when a transaction is either completely or partially omitted fromthe books it is called error of omission.

Ex: Purchase of goods on credit may be omitted to be entered in the purchases book sales

of goods on credit omitted to be posted in the personal account of the customer

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b) Errors of Commission: Such errors arise when any transaction is incorrectly

recorded either wholly or partially.

Ex: Entering wrong amount to wrong side of an account etc.

c) Compensating errors: In case of such errors one error is compensated by other

Errors are divided into 2 categories:

1 Errors disclosed by disagreement of trial balance2 Errors not disclosed by disagreement of trial balance

1 Errors disclosed by trial balance:

Wrong totaling of subsidiary books

Items omitted to be posted from a subsidiary book into ledger

Posting of a wrong amount to a ledger account

Posting an amount on the wrong side of the ledger account

Wrong additions or balancing of ledger accounts

An item of subsidiary book posted twice to ledger account

Omission of a balance of an account in the trial balance Balance of some account wrongly entered in the trial balance

Balance of some account written on wrong side of trial balance

2Errors not disclosed by trial balance:

Omission of an entry altogether in a subsidiary book

Writing the wrong amount in the subsidiary books

Posting an item on the correct side but in the wrong account

Compensating errors

Errors of principle

NATURE OF WORK

Voucher: Voucher is an evidencing document to support cash payment or cash receipt.

Generally we pay cash to the suppliers are some one after taking a signature on

voucher.

Voucher is divided into 2 types: 1 Cash voucher.

2 Bank voucher.

Cash voucher: Cash voucher is voucher which is used only for cash payments and cash

receipts. (Or)

Cash voucher is an evidencing document which is used only for cash payments and

cash receipts

Cash voucher is 2 types 1 Cash payment voucher

2 Cash received voucher

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Cash payment voucher: Cash payment voucher is a voucher which is used only for cash

payments. (Or)

Cash payment voucher is an evidencing document which is used only for cash

payments

Format of the cash payment voucher

No payment is made with out proper authorization.

Q) What are the content of the cash payment voucher?

$ The content of cash payment voucher,

Voucher date,

Name of the party,

Amount in words and figures,

Name of the head,

Narration,

Authorized signature,

Cashier signature,

Receiver signature.

Q) How to prepare the Voucher?

We have to prepare voucher by giving the details

Voucher date,

Name of the party,


Name of the head,

Narration,

Authorized signature,Cashier signature,

Receiver signature.

Q) How to verify the Voucher?

We have to verify the Voucher with Supporting Documents or Bills and

Voucher date,

Name of the party,

BLF

GM road , jammikunta , karimnagar

Cash payment voucher

Date :__________

Name/To : _______________

Amount:_________________

Head :___________________

Narration :_______________

Prepared Accountant Authorized Receiver

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Name of the head,

Narration,

Authorized signature,

Cashier signature,

Receiver signature.

Q) What are the Supporting Documents?

$ The documents which is evidencing to support a business transaction is called Supporting

Documents.

Ex: Vouchers, Bill, Counter files, Invoice.

Q) How to processing Voucher?

After completion of the voucher preparation and verification then I will take approval

from the authorized person and I will make payment after taking signature from customer

or some one. I will enter the same date into Cash Book, & system and. I will give a number to

the voucher after the filing

Q) What is filing?

After recording in cash book then giving ledger folio no.

Cash receipt voucher: Cash receipt voucher is voucher which is used only for cash receipts

(or)

Cash receipt voucher is an evidencing document which is used only for cash receipts

Format of the cash receipt voucher

BLF

GM road , jammikunta , karimnagar

Cash Receipt voucher

Date :__________

Name/from : _____________

Amount:_________________

Head :___________________

Narration :_______________


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Bank Voucher: Bank voucher is a voucher which is used only for bank receipts and

payments.(or)

Bank voucher is an evidencing document which is used only for bank receipts and

payments

Bank Voucher is 2 types 1 Bank payment voucher

2 Bank receipt voucher

1Bank payment voucher: Bank payment voucher is a voucher which is used for only bank

payments.(or)

Bank payment voucher is an evidencing document which is used for only bank

payments.

It is used only when the amount is more than 25000

It is prepared when the transactions are made through cash

Format of Bank payment voucher

Bank receipt voucher: Bank receipt voucher is a voucher which is used only for bank

receipts.(or)

Bank receipt voucher is an evidencing document which is used only for bank receipts

Format of Bank Receipt voucher

BLFGM road , jammikunta , karimnagar

Bank Payment voucher

Date :__________

Name/To : _______________

Amount:_________________

Cheque no:______________ Cheque date:___________

Bank name:_____________ Branch name:__________

Head :__________________

Narration :______________


BLFGM road , jammikunta , karimnagar

Bank Receipt voucher

Date :__________

Name/From : ____________

Amount:________________

Cheque no:______________ Cheque date:___________

Bank name:_____________ Branch name:_

Notes of Accounts[1]

Documents

Transcript of Notes of Accounts[1]