Financial Accounting with journal entries

Financial Accounting Introduction Introduction to Accounting

Accounting American Institute of Certified Public Accountants Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money; transactions and events which are, in  part at least, of a financial character, character, and interpreting the results thereof. American Accounting Association Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information

Accounting American Institute of Certified Public Accountants Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money; transactions and events which are, in  part at least, of a financial character, character, and interpreting the results thereof. American Accounting Association Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information

Accounting Process Financial Transact Transactions ions or Events Eve nts Communicating to the Users

Analysis & Interpretation

1. 2. 3. 4. 5. 6. 7.

Journal Cash Book Purchase Book Sales Book Purchase Return Book Sales Return Book Bills Payable Book Bills Receivable Book

Summarizing Classifying (Posting into Ledger)

Recording

Characteristics Of Accounting Accounting  Identification

of

financial

transactions

Events  Measuring

the identified transactions (Money)

 Recording

(Journal)

 Classifying

(Ledger)

 Summarizing  Analysis

& Interpretation

 Communicating

&

Branches Of Accounting Financial Accounting • • • •

Journal Ledger Trial Balance Final Accounts

Cost Accounting • Cost Sheet • Job & Contract Costing • Operating Costing

Management Accounting • • • •

Ratio Analysis Break Even Point Analysis Standard Costing Analysis of Financial Statement

Tax Accounting • • • •

Sales Tax Income Tax Wealth Tax Excise Duty

Government Accounting • Budget • Consolidated Fund

Objectives of Accounting •

•

•

•

•

Record of financial transactions & events Determine profit or loss Determine financial  position Assisting the Management Communicating Accounting Information to Users

Functions Of Accounting  Maintaining  Preparation  Meeting

Systematic Accounting Record

of Financial Statements

Legal Requirements

 Communicating  Assistance

the Financial Data

to Management

Advantages Of Accounting Advantages to Businessmen

• • • • • • • • • •

Recording of transactions Replacement of memory Provides Information Availability of net results Knowledge of Financial Position Reference in future Comparative Study Check on errors & frauds Helpful in management Helpful in the sale of business

Advantages to Consumers

• Proper price • Quality goods

Advantages Of Accounting Advantages to the Government

• • • • •

Financial assistance Knowledge of financial position of the country Granting License Tax Assessment Settlement of disputes

Advantages to Employees

• Increase in Salary & Bonus Other Advantages

• • • • • •

Helpful in planning Helpful in decision making Helpful in borrowing Determination of goodwill Helpful in partnership Assessment of progress

Limitations of Accounting  Incomplete  Influence

by personal judgement

 Realisable  Complete

information

value is not shown

control on frauds is impossible

 Manipulations  Does

in accounts

not provide timely information

Users of Accounting Information Internal Users External Users

•Lenders

•Consumer Groups

•Managers

•Sales Staff

•Shareholders

•External Auditors

•Officers

•Budget Officers

•Governments

•Customers

•Internal Auditors

•Controllers

Users of Accounting Information External Users

Internal Users

Financial accounting provides external users with financial statements (shareholders, lenders, etc.).

Managerial accounting provides information needs for internal decision makers (officers, managers, etc.).

Accounting Terminology •

Account:- Account is a statement in which all transactions for a definite period relating to a  particular person or particular assets are recorded. Dr

Date

Cr

Particulars

J.F.

Amount

Date

Particulars

J.F. Amount

Accounting Terminology Assets:- An assets is anything that is owned by a business and with the help of which the work of the business is carried on. Assets are classified into the following types: a. Fixed Assets:- Fixed Assets are those assets which are  purchased for long term use in the business with the  purpose of producing goods or services and are not meant for resale. For examples:- Land & Building, Plant & Machinery, Furniture. b. Current Assets:- Assets which are meant for sale or which would be converted into cash within one year. For examples:- Cash in hand, Cash at bank, Bills Receivables, Sundry Debtors, Marketable Securities, Stock. •

Accounting Terminology c. Tangible Assets:- tangible assets are those assets which have a physical existence or can  be seen and touched.

For example:- Cash, Furniture, stock and tools

Format of Balance Sheet Liabilities

Amount

Assets

Amount

Sundry or Trade Creditors

-----------

Cash in Hand

------------

Bills Payable

-----------

Cash at Bank

------------

Bank Overdraft

-----------

Bills Receivable

------------

Employees Provident Fund

-----------

Sundry Debtors/Book Debts

------------

Loans (Cr.)

-----------

Loans(Dr.)

------------

Mortgage

-----------

Closing Stock

------------

Reserve or Reserve Fund

-----------

Loose Tools

------------

Investment

------------

Furniture & Fittings

------------

Plant & Machinery

------------

Land & Building

------------

Freehold/Leasehold Land

------------

Business Premises

------------

Patents & Trademarks etc

------------

Goodwill

------------

Capital Add:- Interest on Capital  Net Profit Less:- Drawings Income Tax Interest on Drawings  Net Loss

----------------------------

Golden Rules Of Accounting Personal A/c (Name, Bank) Debit The Receiver Credit The Giver Real A/c (Assets:- Cash, Goods, Machinery, furniture, Land, Building ) Debit what comes in Credit what goes out Nominal A/c (Stationery, Electricity bill, telephone bill, Discount, Carriage) Debit all expenses & losses Credit all gains & Income

Sold goods for cash

Cash Goods Personal A/c Debit The Receiver Credit The Giver

Real A/c Debit what comes in Credit what goes out

Nominal A/c Debit all expenses & losses Credit all gains & Income

Entries Sold goods for cash Cash A/c……………………………Dr.

To Sales A/c (Being goods sold for cash)

Sold goods to Ram

Ram Goods Personal A/c Debit The Receiver Credit The Giver

Real A/c Debit what comes in Credit what goes out

Nominal A/c Debit all expenses & losses Credit all gains & Income

Entries Sold goods to Ram Ram A/c……………………………Dr.

To Sales A/c (Being goods sold to Ram)

Purchased Goods for cash

Personal A/c Debit The Receiver Credit The Giver

Real A/c Debit what comes in Credit what goes out

Nominal A/c Debit all expenses & losses Credit all gains & Income

Entries Purchased Goods for cash Purchases A/c……………………………Dr.

To Cash A/c (Being goods purchased for cash)

Purchased Goods from Mohan

Personal A/c Debit The Receiver Credit The Giver

Real A/c Debit what comes in Credit what goes out

Nominal A/c Debit all expenses & losses Credit all gains & Income

Entries Purchased Goods from Mohan Purchases A/c……………………………Dr.

To Mohan A/c (Being goods purchased from Mohan)

Cash Deposited in bank

Personal A/c Debit The Receiver Credit The Giver

Real A/c Debit what comes in Credit what goes out

Nominal A/c Debit all expenses & losses Credit all gains & Income

Entries Cash Deposited in bank Bank A/c……………………………Dr.

To cash A/c (Being cash deposited in bank)

Journal Entries 4.(i) Provide depreciation on furniture Rs 1,500 and on machinery Rs 3,500 Date

Particulars

(i)

Depreciation A/c ……………….Dr To Machinery A/c To Furniture A/c (Being depreciation charged on Assets)

Amount Debit

Credit

5,000 3,500 1,500

4.(ii) Received cash Rs 2,000 for bad-debts written off last year Date

Particulars

(ii)

Cash A/c ……………………….Dr  To Bad Debts Recovered A/c (Being cash Received)

Amount Debit

Credit

2,000 2,000

4.(iii) Rakesh was declared bankrupt, he owned Rs 5,000 to us. This amount was written off as bad debts. Date

Particulars

(iii)

Bad Debts A/c …………………Dr  To Rakesh A/c (Being written off bad debts)

Amount Debit

Credit

5,000 5,000

4.(iv) Rs 2,000 for wages and Rs 3,000 for salaries are outstanding. Date

Particulars

(iv)

Wages A/c ……………………...Dr  Salaries A/c……………………..Dr  To Outstanding Exp. A/c (Being wages and sales outstanding)

Amount Debit

Credit

2,000 3,000 5,000

4.(v) Purchased furniture for Rs 10,000 for the proprietor and  paid the amount by cheque. Date (v)

Particulars Drawings A/c …………………Dr  To Bank A/c (Being furniture purchased for the  proprietor )

Amount Debit

Credit

10,000 10,000

Date 4.(i)

(ii)

(iii)

(iv)

(v)

Particulars

Amount Debit

Depreciation A/c ……………….Dr  To Machinery A/c To Furniture A/c (Being depreciation charged on Assets)

5,000

Cash A/c ……………………….Dr  To Bad Debts Recovered A/c (Being cash Received)

2,000

Bad Debts A/c …………………Dr  To Rakesh A/c (Being written off bad debts)

5,000

Wages A/c ……………………...Dr  Salaries A/c……………………..Dr  To Outstanding Exp. A/c (Being wages and sales outstanding)

2,000 3,000

Drawings A/c …………………Dr  To Bank A/c (Being furniture purchased for the  proprietor ) Grand Total

10,000

Credit 3,500 1,500

2,000

5,000

5,000

10,000

27,000

27,000

7.(i) Purchased Machinery for Rs 50,000 and paid Rs 1,000 for its carriage. Date

Particulars

(i)

Machinery A/c …………………Dr  To Cash A/c (Being machinery purchased and  paid carriage )

Amount Debit

Credit

51,000 51,000

7.(ii) Received a cheque of Rs 9,500 from AVI in full settlement of his account of Rs 10,000. Date

Particulars

(ii)

Cash A/c……...………………....Dr  Discount A/c…………………....Dr  To AVI A/c (Being cash received and discount allowed )

Amount Debit

Credit

9,500 500 10,000

7.(iii) Received a first and final payment of 50 paisa in a rupee from Mohan who owed us Rs 20,000. Date (iii)

Particulars Cash A/c…….. …………………Dr  Bad Debts A/c…………………..Dr  To Mohan A/c (Being cash received and bad debts written off)

Amount Debit

Credit

10,000 10,000 20,000

7.(iv) Sold goods to Rahul for Rs 20,000 at a Trade discount of 20%. Next day a cheque was received from him after deducting 5% cash discount. Cheque was immediately deposited into bank. Date (iv)

Particulars Rahul A/c…….. ………………..Dr  To Sales A/c (Being goods sold on 20% trade discount) Bank A/c……………………..…Dr  Discount A/c……………………Dr  To Rahul A/c (Being cheque received and deposit in the bank )

Amount Debit

Credit

16,000 16,000 15,200 800 16,000

7.(v) Goods costing Rs 10,000 sold to Ashok at a profit of 25% on cost less 10% trade discount. Date

Particulars

(v)

Ashok A/c…….. ………………Dr  To Sales A/c (Being goods sold)

Amount Debit

Credit

11,250 11,250

Working Notes (iv)

Goods Less:- Trade Discount 20% on Rs 20,000 Sales Price Less- Cash Discount 5% on Rs 16,000 Cash Received

20,000 4,000 16,000 800 15,200

(v)

Goods Add:- Profit of 25% on Cost (Rs 10,000)

10,000 2,500 12,500 1,250 11,250

Less:- Trade Discount 10% on Rs 12,500

Amount

Date

Particulars

7.(i)

Machinery A/c …………………Dr  To Cash A/c (Being machinery purchased and paid carriage)

51,000

Cash A/c……...………………....Dr  Discount A/c…………………....Dr  To AVI A/c (Being cash received and discount allowed)

9,500 500

Cash A/c…….. …………………Dr  Bad Debts A/c…………………..Dr  To Mohan A/c (Being cash received and bad debts written off)

10,000 10,000

Rahul A/c…….. ………………..Dr  To Sales A/c (Being goods sold on 20% trade discount)

16,000

Bank A/c……………………..…Dr  Discount A/c……………………Dr  To Rahul A/c (Being cheque received and deposit in the  bank)

15,200 800

Ashok A/c…….. ………………Dr  To Sales A/c (Being goods sold)

11,250

(ii)

(iii)

(iv)

(v)

Debit

Credit 51,000

10,000

20,000

16,000

16,000

11,250 Grand Total

1,24,250

1,24,250

9.(i) Purchased business for Rs 90,000. Date

Particulars

(i)

Business Purchases A/c ………...Dr  To Vendor’s A/c (Being Business purchase)

Amount Debit

Credit

90,000 90,000

(ii) Purchased machinery from Mohan brothers, kolkata for Rs 15,000 on which they paid Rs 150 freight on my behalf. Date (ii)

Particulars Machinery A/c ………...Dr  To Mohan Brothers (Being machinery purchase)

Amount Debit

Credit

15,150 15,150

(iii) The erection charges of machinery amounted to Rs 450 which were paid in cash. Date

Particulars

(iii)

Machinery A/c ………………....Dr  To cash A/c (Being Erection Charges paid)

Amount Debit

Credit

450 450

(iv) A cashier has stolen Rs 700 and now he is absconding. Date

Particulars

(iv)

Loss by Theft A/c ……………....Dr  To Cash A/c (Being cash stolen)

Amount Debit

Credit

700 700

(v) On claim being made for theft of cash, insurance company  paid Rs 700. Amount

Date

Particulars

(v)

Insurance Claim A/c……………Dr  To Loss by Theft A/c (Being claim admitted)

700

Cash A/c………………………..Dr  To Insurance Claim A/c (Being receipt of claim money)

700

Debit

Credit 700

700

(vi) Received an order from Dinesh for supply of goods worth Rs 2,000. Date (vi)

Particulars No Entry

Amount Debit

Credit

(vii) Goods were supplied as per order of Dinesh and on it freight of Rs 100 was paid. Date

Particulars

(vii)

Dinesh A/c ……………………..Dr  To Sales A/c To Cash A/c (Being goods supplied and freight  paid)

Amount Debit

Credit

2,100 2,000 100

(viii) Goods worth Rs 50 were distributed as sample free of charge. Date (viii)

Particulars Free Sample A/c………………Dr  To Purchases A/c (Being free sample distributed)

Amount Debit

Credit

50 50

(ix) Goods, the list price of which is Rs 20,000 are sold to Suresh at 8% trade discount on list price. Date

Particulars

(ix)

Suresh A/c………………………Dr  To Sales A/c (Being goods sold at 8% trade discount)

Amount Debit

Credit

18,400 18,400

(x) Goods worth Rs 150 were spoiled in transit and a claim was made to Railway in this respect. Date

Particulars

(x)

Insurance Claim A/c……………Dr  To Spoiled in Transit A/c (Being claim admitted)

Amount Debit

Credit

150 150

(xi) Rs 150 were received in cash from railway in the payment of claim. Date

Particulars

(xi)

Cash A/c…………..……………Dr  To Insurance Claim A/c (Being claim money received)

Amount Debit

Credit

150 150

Working Notes (ix)

Goods Less:- Trade Discount 8% on Rs 20,000

20,000 1,600 18,400

Date 9.(i)

(ii)

(iii)

(iv)

(v)

Particulars

Amount Debit

Business Purchases A/c ………...Dr  To Vendor’s A/c (Being Business purchase)

90,000

Machinery A/c ………...Dr  To Mohan Brothers (Being machinery purchase)

15,150

Credit 90,000

15,150

Machinery A/c ………………....Dr  To cash A/c (Being Erection Charges paid)

450

Loss by Theft A/c ……………....Dr  To Cash A/c (Being cash stolen)

700

Insurance Claim A/c……………Dr  To Loss by Theft A/c (Being claim admitted)

700

Cash A/c………………………..Dr  To Insurance Claim A/c

700

450

700

700

700

Amount Date

Particulars

9.(vi)

 No Entry

(vii)

Dinesh A/c ……………………..Dr  To Sales A/c To Cash A/c (Being goods supplied and freight paid)

(viii)

(ix)

(x)

(xi)

Free Sample A/c………………Dr  To Purchases A/c (Being free sample distributed) Suresh A/c………………………Dr  To Sales A/c (Being goods sold at 8% trade discount)

Debit

Credit

2,100 2,000 100

50 50

18,400 18,400

Insurance Claim A/c……………Dr  To Spoiled in Transit A/c (Being claim admitted)

150

Cash A/c…………..……………Dr  To Insurance Claim A/c (Being claim money received)

150

150

150

1,28,550

1,28,550

7(i) Business commenced with a capital of Rs 6,00,000. Date

Particulars

(i)

Cash A/c ……………...………...Dr  To Capital A/c (Being Business Started with capital)

Amount Debit

Credit

6,00,000 6,00,000

(ii) Rs 4,50,000 deposited in a bank account. Date

Particulars

(ii)

Bank A/c ……………..………...Dr  To Cash A/c (Being cash deposited in bank)

Amount Debit

Credit

4,50,000 4,50,000

(iii) Rs 2,30,000 plant and machinery purchased by paying Rs 30,000 cash immediately. Date

Particulars

(iii)

Plant & Machinery A/c ………...Dr  To Cash A/c To Creditors A/c (Being plant and machinery  purchased)

Amount Debit

Credit

2,30,000 30,000 2,00,000

(iv) Purchased goods worth Rs 40,000 for cash and Rs 45,000 on account. Date

Particulars

(iv)

Purchases A/c ………………......Dr  To Cash A/c To Bank A/c (Being goods purchased)

Amount Debit

Credit

85,000 40,000 45,000

(v) Paid a cheque of Rs 2,00,000 to the supplier for plant and machinery. Date

Particulars

(v)

Creditors A/c …………………...Dr  To Bank A/c (Being paid to supplier of plant and machinery)

Amount Debit

Credit

2,00,000 2,00,000

(vi) Rs 70,000 cash sales (of goods costing Rs 50,000) Date (vi)

Particulars Cash A/c …………………...Dr  To Sales A/c (Being sold goods for cash)

Amount Debit

Credit

70,000 70,000

(vii) Withdrawn by the proprietor Rs 35,000 cash for personal use. Date (vii)

Particulars Drawings A/c ………………...Dr  To Cash A/c (Being cash withdrawn by the  proprietor)

Amount Debit

Credit

35,000 35,000

(viii) Insurance Paid by cheque of Rs 2500 Date (viii)

Particulars Insurance A/c ……………...Dr  To Bank A/c (Being paid insurance by cheque)

Amount Debit

Credit

2,500 2,500