Fundamental Notes and Conceptual Problem of Journal Ledger Trial Balance and Cash Book

…………………………………………………….…..1…………………………………………………………I.I.P.S.

FUNDAMENTALS ACCOUNTS PERSONAL A/c

IMPERSONAL A/c

REAL A/c NOMINAL A/c 1).PERSONAL A/c : Denotes a particular person, 2).REAL A/c :- Denotes all properties & possession e.g. Land, Firm or institution. Building, Car, Goodwill, Patent, Trade mark, Copyright, Persons :- Ram, Shyam etc. Leasehold etc. Firms : ABC Co. Ltd. Chopra & Sons Ltd. 3). NOMINAL A/c:- Denotes all exp. & losses and all incomes Institutions: Calcutta Medical College, & gains e.g. Salary, Rent, Discount Allowed, Commission Jain Vidhyalaya,etc. . received etc. Types of Personal A/c Debtors (Receivable)

Creditors (Payable)

Natural Person -Denotes names of HumansRam, Mohan, etc

Characteristics of Personal A/c

Artificial Person -Denotes names of firms & Institutions; ABC Co. Ltd,. Nopani Vidyalaya. Etc.

Representative Person e.g. Capital, drawings; O/s exp.; prepaid exp. Accrued income, Unearned incomes.

Rules for Dr. & Cr. We can follow 1-Golden Rules. 2-Modern Concepts. **Golden Rules: This gives 3 rules depending on the types of account-

Rule I: For Personal A/c : Dr. the receiver Rule II: For Real A/c: Dr. what comes in Cr. the giver Cr. what goes out Rule III: For Nominal Account- Dr. all the losses and expenses. Cr. all the incomes and gains **Modern Concept :- To apply the modern concept we have to understand 4 types of items in A/cs. (1) Assets (2) Liabilities (3) Exps. & Losses (4) Incomes & Profits. Let us know about Assets & Liabilities : Assets Liabilities 1. That a business owns . 1. That a business owes. 2. Which are receivable 2. Which are payable. 3. They may be Real A/c or Personal A/cs 3. They are Personal A/c having Cr. Balances. having Dr. Balances. E.g. Land, Building, Patent, e.g. Capital, Bank O/d, Sundry Creditors, B/P, Cash, Bank, Prepaid exp. Drawings etc. O/s, exp. Unearned Incomes etc. Rules for Debit. & Credit under the Modern Concept :1- For Assets : + Dr. 2. For Liab.– Dr. 3. For Exp. or Losses + Dr. 4. For Incomes/gains –Dr. – Cr. + Cr. – Cr. + Cr. [Now prepare a drill table to understand Dr. & Cr. and then do journal.] Important Journal Items 1. Compound Entries 5. Confusing Nominal 9. Bad Debts Recovery 12. Appreciation 16. Discounting of bills 19. Adjusting Entries.

2. Goods A/c. 3. Fixed Asset A/c. 4. Carriage A/c 6. Banking Transactions 7. Discount 8. Bad Debts 10. Drawings, Donation / Charity. 11. Depreciation. 13. Defalcation 14. Bills receivable 15. Bills Payable 17. Loan 18. Goods used otherwise. 20. Abnormal loss of goods. 21. Retiring of bills.

Now, let us discuss each & every important Journal Entry as under:1. Compound Entries :- For a transactions, if there is one Debit for many Credits or Many Debits for one Credit or, many debits for many credits then recording of that transaction all together is called compound entry. e.g. Started business with Cash Rs. 1500 , Furniture- 200, Land- 10000 and stock– 1000. Ans.: Cash A/c Dr. 1500 Furniture A/c Dr. 200 Land A/c. Dr. 10000 Stock A/c Dr. 1000 To Capital A/c 12700

…………………………………………………….…..2…………………………………………………………I.I.P.S. (Being business started with various assets) 2. Goods Account :- Goods :- Anything which is produced or purchased for re-sale is called goods, which is not for sale is not goods. Here we are concerned with four behaviour of goods. Goods Purchase

Sale

Purchase return or, Return onward or, Return to Suppliers

Sales return or, Return inward or, Return from Customers.

Purchase of Goods Purchase for cash :Purchase A/c Dr.; To Cash A/c (Being goods purchased for cash ) Purchase for credit : Purchase A/c ..Dr.; To Creditors A/c. (Being goods purchased on credit.) Purchased by Cheque : Purchase A/c ..Dr; To Bank A/c. (Being goods purchased by Cheque) Sale of Goods 1. On Cash – Cash A/c Dr. To Sales A/c 1 Purchase Return – Creditors A/c- Dr. (Name) 2. By Cheque – Bank A/c Dr. ,, ,, ,, To Purchase Return A/c 3. On Credit – Debtors A/c Dr. ,, ,, ,, ( Being goods returned to …….) 2. Sales Return :- Sales Return A/c Dr. To Debtors A/c. (Name) (Being goods returned by …….) 1. 2. 3.

3. FIXED ASSETS ACCOUNT: Any thing which is purchased for permanent use in the business is called a FIXED ASSET e.g. Furniture, Building, Machinery, Car, etc. They are not meant for sale but they can be sold to discard them. A) When fixed Asset is purchasedC) When purchased fixed Asset is returned to Fixed Assets (name) A/c .Dr. the Supplier. To Cash / A/c- If in cash. Creditors A/c. Dr. ,, Bank / A/c -If by Cheque To Fixed Asset A/c ,, Creditor’s A/c – If on credit. B) When fixed Asset is soldD) When sold fixed Asset is returned by the Cash / Bank/ Debtors A/c Dr. purchaser To Fixed Assets A/c. Fixed Asset A/c. Dr. To Debtors A/c.

4. CARRIAGE Carriage is of two types :-

A - Carriage Inward or Carriage on Purchase

B - Carriage Outward or Carriage on Sale

Both are exp. and so when paid they should be debited. Carriage Inward/ Outward A/c. Dr. To Cash A/c. *** Carriage paid on purchase of goods only to be debited to Carriage Inward A/c, carriage paid on purchase of fixed Asset is not debited to Carriage Inward A/c. Similarly, Import Duty, Installation Charge, Erection Charge, Repairing (in case of 2nd hand asset purchased), etc. are not debited to these Exp. A/c. Simply these exp. to be added to that particular asset A/c. only. Ex-1Goods purchased for 5000 and Carriage paid thereon -200. Purchase A/c. Dr. 5000 Carriage Inward A/c. Dr. 200 To Cash A/c. 5200. (Being goods purchased & carriage paid thereon) Ex-2. Machinery purchased for –5000 and Carriage paid thereon -1000. Machinery A/c…Dr. 6000 To Cash A/c. 6000. (Being machinery purchased for –5000 & carriage paid thereon –1000)

5.Confusing Nominal A/c. Same Nominal A/c are exp. and as well as income. Ex- Rent, commission, Interest, Discount etc. When such items are paid then they are exp. & should be debited, but if they received they should be credited as income, if it is not mentioned that whether paid or received we should take it as paid i.e. expense.1.Rent paid- 500: Rent A/c Dr 500

2. Rent Received –200 : Cash A/c. Dr. 200

3. Rent-700: Rent A/c Dr. 700

…………………………………………………….…..3…………………………………………………………I.I.P.S. To Cash A/c 500 (Being rent paid)

To Rent A/c 200 (Being rent received)

To Cash A/c. 700 (Being rent paid.)

6. BANKING TRANSACTIONS : 1) When bank A/c is opened–Bank A/c Dr. 6) When a Cheque is issued for an expense.To Cash A/c Exp. A/c Dr. 2) When money is deposited in bank- Bank A/c Dr. To Bank A/c. To Cash A/c. 7) When a Cheque is issued for a party- Party A/c Dr. 3) When a Cheque is received for income- Bank A/c Dr. To Bank A/c. To Income A/c. 8) When above Cheque is dishonored4) When a Cheque is recd from a party- Bank A/c Dr. Bank A/c Dr. To Party A/c To Party A/c. 5)When the above Cheque is dishonored – Party A/c Dr. 9) When Int. is allowed by the bank- Bank A/c Dr. To Bank A/c. To Int. A/c. 10) When Int. or Banking charge is charged by the Bank. Int. A/c Dr./ Bank Charge A/c Dr. To Bank A/c. 7. DISCOUNT :- First, discount can be divided in two types. Trade Discount Cash Discount 1. It is allowed on both cash and credit transactions. 1. Allowed only when cash payment is made. 2. Calculated on list – price/ marked price/ book Price/ catalogue price. 3. Not recorded in the books.

2. Calculated on (list Price – T. discount). 3. Recorded in the books.

Thus, only cash discount is to be considered for accounting purpose- Cash discount is to be divided in two groups 1] Discount allowed; it is loss, must be debited . 2] Discount received ; it is profit, must be credited.

Ex.- 1. Goods sold for – 10000 subject to trade discount 10% and cash discount @ 5%. Cash A/c Dr. 8550 Discount Allowed A/c Dr. 450 To Sales A/c. 9000. ( Being goods sold for –1000, subject to T.D. @ 10% and cash discount @ 5%.)

2]- Cash paid to Mr. X Rs. 490 in full settlement of–Rs. 500. X’s A/c… Dr. 500 To Cash A/c 490 To Disc. Recd A/c 10. (Being cash paid and discount received )

**[To remember, when cash is paid disc. is received & when cash is received, discount is allowed.] 8. BAD DEBTS :- Due to an ill motive or financial bankruptcy a debtor may prove to be bad e.g. irrecoverable such a debtor is called bad debts. A Debtors may be fully bad or partial bad. 1) Partial bad : Mr. X who our debtor for –1000 became 2. Fully Bad:- Mr. X who was our debtor bad and only 40% of the due realised from his estate. for –1000 proved bad. Cash A/c Dr. 400 Bad Debts A/c 1000 Bad Debts A/c 600 To X’s A/c. 1000 To Mr. X. A/c 1000 (Being bad debts written off) (Being 40% of the due realized from X’s estate and balance written off as bad.)

9. BAD DEBTS RECOVERY :- When a debtor who was written off as bad, now paying, it becomes our income. Ex. Mr. X who was written off as bad for – 200 recovered now— Cash A/c. Dr. To Bad debts recovery A/c 10. Drawings / Donations / Charity :-When the proprietor takes anything from business for his personal use it is called Drawings A/c. It is Asset for us and so should be debited. When we give anything to others without charging anything for it or in exchange of no benefit, it is donation or charity . This is our exp. and must be debited. The mode of Drawing / Donation /charity may be as under :By Cash Drawings A/c Dr. Or, Donation A/c .Dr. To Cash A/c.

By Cheque Drawings A/c Dr. Or, Donation A/c .Dr. To Bank A/c.

11. Depreciation on any Asset :

By Goods Drawings A/c Dr. Or, Donation A/c .Dr. To Purchase A/c

By Assets Drawings A/c Dr. Or, Donation A/c .Dr. To Asset A/c.

12. Appreciation of any Asset :.

…………………………………………………….…..4…………………………………………………………I.I.P.S. Depreciation A/c. .Dr. Asset A/c Dr. To Asset A/c To Appreciation .A/c 13. Defalcation or Embezzlement: Defalcation A/c. Dr,

To Purchase A/c – If goods is defalcated. Or, To Asset A/c If- Asset is defalcated.

Note:- If someone is held responsible such defalcation: then defalcation A/c will be replaced by the personal A/c. of the person responsible for such defalcation. 14. Bill Receivable : 1) When someone accepts a bill for us – 2) When such bill is met on due date-

Bill /R. A/c ..Dr. To Party A/c Dr.

Cash A/c Dr. To B/R. A/c

3) When such bill is dishonored on maturity-

Party A/c ..Dr. To B/R A/c

15 Bill Payable : 1) When we accept a bill for other – 2) When such bill is met on maturity-3) When such bill is dishonored on maturity Party A/c ..Dr. B/P. A/c ..Dr. B/P. A/c ..Dr To B/P A/c To Cash A/c. To Party. A/c 16. Discounting of Bill Receivable :- Ex. A B/R of Rs.1000 was discounted by the bank for Rs.900. Bank A/c Dr. 900 Discount on Bill A/c Dr. 100 To B/R A/c. 1000 17. LOAN : It may be two types; (1) Loan Borrowed :- It’s our liability. 1* When Loan borrowed from Mr. X.-500 Cash A/c . Dr. 500 To Loan from X A/c 500 (2) Loan Lent (Given) : It’s our Asset. * When loan given to BLoan to B A/c Dr. To Cash a/c

2* When repaid X’s loan is repaid. Loan from X A/c. Dr. To Cash A/c. * When B repays itCash A/c Dr. To Loan to B A/c

18. Adjusting Entries :1- O/s Exp. –Liability 2- Prepaid Exp. –Asset Treatment- 1] For Liab.-Exp./ Income A/c.Dr To Liability A/c

3* When Int. on loan paidInt. on Loan A/c Dr. To Cash A/c.

* When Int. on Loan is recd. Cash A/c Dr To Int. on Loan A/c.

3- Accrued Income—Asset 4- Unearned Income- Liability 2] For Asset- Asset A/c. Dr. To Exp./Income A/c

Ex.1) Salary payable to staff-500.:- Salary A/c Dr. 500 2) Salary paid in advance –500:- Prepaid salary A/c Dr. 500 To O/s Salary A/c 500 To Salary A/c. 500

19. Abnormal Loss : They are loss of an incidental & accidental nature. Ex. 1] Loss in transit.

2] Loss due to fire

3] Loss by theft etc.

Ex.-:- Goods costing Rs. 5000 damaged by fire, the Insurance Co. admitted the claim for Rs. 2000. For Total loss- Goods lost by fire A/c Dr.5000 To Purchase A/c. 5000 For Insurance claim & for actual loss : Admitted Insurance claim A/c Dr. 2000 Profit & Loss A/c Dr. 3000

To Goods lost by fire A/c 5000. 20. Retirement of Bill :1) When B/R is retired :-

Cash A/c Dr. Rebate A/c ….Dr. To B/R A/c 2) When B/P is retiredB/P. A/c Dr. To Cash A/c

21. Goods used otherwise:(i) If distributed as free sample: Advertisement A/c………………….Dr. To Purchase A/c. (ii) If used for stationery:Stationery A/c………………………Dr. To Purchase A/c.

…………………………………………………….…..5…………………………………………………………I.I.P.S. To Rebate Recd. A/c

CPT FUNDAMENTALS (PRACTICAL) JOURNAL & LEDGER 1. Journalise : Mr. Girdhari retired from service on 1.1.95 and got Rs. 5,00,000 from the employer; On 2.1.95 he acquired a running business of Mr. Periwal consisting Machinery 50,000; Land 1,00,000; Stock 70,000; Furniture 7,000; Debtors 75,000; B/P 17,000; Creditors 40,000. He paid Rs. 3,00,000 to Mr. Periwal as price for the business. Jan 2. Cash deposited into Bank Rs. 9,000. Jan 4. Bought goods in cash from Mr. X Rs. 6,000 & on credit from Y Rs. 4,000. Jan 5. Sold goods in cash Rs. 12,000 & out of it Rs. 8,000 deposited into Bank. Jan 7. Cash paid to Y Rs. 3,800 and was allowed discount Rs. 200. Jan 10. Sold goods to Gupta & Co. Rs. 7,000. Jan 12. Cash received from Gupta & Co. Rs . 6,800 in full settlement of his account. Jan 15. Received commission in cash Rs. 1500. Jan 18. Sold goods to Nirmal Das Rs. 10,000 less trade discount @ 10%. Cash Purchases Rs. 6,000. Jan 20. Paid rent out of Personal Cash Rs. 2,000. Jan 23. Defective goods returned by Nirmal Das Rs. 2,000. Jan 26. Cheque received from Nirmal Das as the payment of his dues. Jan 30. Paid Salary by Cheque Rs. 650.

2. Record the following transactions occurred in a business in the journal: (a) Goods purchased from Raman for Rs. 15,000 at a trade discount of 20% and cash discount of 5%. (b) Cash paid to Batuklal Rs. 1,500 as house rent of the proprietor; (c) Charge depreciation on Plant & Machinery Rs. 2,000 and on Factory Building Rs. 3,000; (d) Repaid loan to the Bank Rs. 20000 with interest accrued on such loan Rs.2500 (e) Goods purchased from Kamal Rs.5000 and sold them immediately to Bimal at Rs.6000. (f) Goods returned by customer, Pallason, valuing Rs.1500 for which goods were exchanged for the similar amount. (g) Cash of Rs.2000 and goods of Rs.2500 paid to Bharat Sevashram Sangha as donation for flood relief. (h) Cash paid to Haradhan Rs.4750 in full settlement of our dues at a discount of 5%. (i) Cash amounting to Rs.200 was stolen from cash box and Mr. Sengupta, the cashier was held responsible for this. (j) Amount of cash received from a customer Rs.2500 whose due of Rs.4000 was written off two years ago as Bad debt. (k) Purchased a building for Rs.60000 from landlord on instalment basis and paid down payment Rs.10000 by cheque. (l) A bill received from M/S Bikash & Company for Rs.4500 for repair done to some machine. (m) Received sample from some different suppliers valuing Rs.400. 3. On Jan. 1, 1986, K. Bose started his business with a capital of Rs. 12,000. His transactions during the month were as follows: 1986 Rs. 1986 Rs. Jan. 2 Purchased furniture 4,000 Jan. 18 S. Roy returned goods 1,000 ,, 3 Purchased goods from ,, 20 Paid for advertisement 300 B. Sen 7,000 ,, 23 Received interest 50 ,, 5 Sold goods to S. Roy 5,000 ,, 26 Received from S. Roy 1,800 ,, 7 Paid to B. Sen 3,000 ,, 28 Paid commission 80 ,, 8 Returned goods to B. Sen 500 ,, 29 Paid office rent 200 ,, 12 Goods sold for cash 2,500 ,, 31 Paid salaries to staff 450 Record the above transactions in Journal, post them into Ledger Accounts of K. Bose and prepare a T. Balance on 31.1.86. (T.B. – Rs.23,550; Goods A/c – nil) TRIAL BALANCE 4. Prepare a Trial Balance of Mr. Basak from the following balances:Stock (1.1.85) Stock (31.1.85) Purchase Purchase Return Sales Return Carriage Salary Acceptance (accepted) Bad Debts

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

9,000 9,000 41,000 500 700 1,000 2,000 1,700 200

Goods invoiced to Purchase Ledger Bal. Rent paid Bills Receivable Customer's Bal. Rent Receivable Salary Payable Provision for Discount Buildings

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

70,000 15,000 4,000 2,000 7,000 5,000 200 2,000 40,000

…………………………………………………….…..6…………………………………………………………I.I.P.S. Advance for sale Rs. 700 Loan on Mortgage of building Rs. 20,000 Profit on sale of Investment Rs. 200 G. P. Notes Rs. 4,000 [Total: Rs.1,15,900; Capital Rs.5,600] 5.The total of the debit side of the T. Balance of a large Boot and Shoe repairing firm as at December 31, 1991 is Rs.1,66,590 and that of the credit side is Rs.42,470. After several checkings and re-checkings the following mistakes are discovered: Item of A/cs Opening Stock Repairs Rent and Rates S. Creditors S. Debtors

Correct figure Rs. 14,900 61,780 2,160 6,070 8,060

(as it should be)

Ascertain the correct total of the T. Balance.

Figure as it appears in the T. Balance Rs. 14,800 61,780 (but appears on the debit side) 2,400 5,900 8,310 [Total: Rs.1,04,420]

6. Eleven Bullets Club has the following ledger balance as on 31.3.1999. Prepare a trial balance as on that date: subscription received Rs.15000; Donation received Rs.10000; Entrance fees received Rs.3000; Stock of bats, balls and wickets etc. on 1.4.98 Rs.2300; Purchase of sports material Rs.10500; Rent Rs.1800; Electricity Rs.800; Newspaper Rs.200; Sale of newspaper Rs.50; Books Rs.3000; Locker Rs.4000; Locker Rent received Rs.500; Sports expenses Rs.2300; Furniture Rs.2500; Cash in hand Rs.500; Cash at Bank 2900; Reserve Fund Rs.2500; Subscription Outstanding on 1.4.98 Rs.750; Subscription received in advance on 1.4.98 Rs.500; Stock of bats balls and wickets etc. on 31.3.99 Rs.1700; Subscription outstanding on 31.3.99 Rs.800; Subscription received in advance on 31.3.99 Rs.450 CASH BOOK Prepare a suitable Cash Book of Mr. Marchant.

7. Jan 1. Jan 2. Jan 3.

Cash Balance 5000. Purchase goods from Mr. A for 10,000; half of which for ready cash subject to 10% T. D. and 5% C. D. as & when payment is made. Sold goods for cash 8000 & opened a Bank A/c out of the proceeds keeping 500 in hand.

Jan 4. Jan 5. Jan 6. Jan 7. Jan 8. Jan 9. Jan 10. Jan 11. Jan 12. Jan 13. Jan 14. Jan 31.

Sold goods for 10,000 to Mr. P. Prakash who accepted a bill for payment. The bill of P. Prakash was got discounted with the bank for Rs. 9800. P. Prakash's bill was dishonoured and the banker charged a noting charge of RS. 15. Discount allowed to a Debtors in cash RS. 50. A Cheque issued for Mr. M for 475 after receiving a discount @ 5% on due. Cheque issued Mr. M. dishonoured. Recd three Cheque from X - 500; Y - 700; and Z - 900. X's Cheque endorsed to Mr. P for a settlement of 550. Y's Cheque sent to Bank. All the Cheque reed on 10th Jan. was dishonoured. Borrowed a loan of 10,000 from Mr. Moneywala. Keeping RS. 800 in till balance deposited into the bank.

8. B. Bhatia, a dealer in furniture, requires you to write his Cash Book with Cash, Bank and Discount Columns for the month of October, 1991 from the following transactions. Write up and balance the Cash Book and show the relevant Discount A/cs as they would appear in the General Ledger. 1991 Oct. 2. Opening Cash Balance Rs.530. Opening Bank Balance Rs.7,400. 4. Received from A. Arora Rs.250 in cash being rent for the month of September, 1991. 5. L. Laha paid Rs. 780 by Cheque on account and allowed him discount Rs.20. 7. H. Hasan paid Rs. 1,500 for sale for furniture by Cheque. 10. Withdrew from Bank Rs.800. 12. Paid N. Nag Rs 540 in cash in full settlement of his account of Rs. 550. 13. Sold furniture to J. Jalan for Rs. 2,000 for Cheque. 16. B. Banerjee paid Rs.1,000 cash against sale of furniture. 19. Deposited Rs. 1,200 into Bank. 22. paid R. Rustam, Rs.2,500 by Cheque for furniture purchased in September, 1991. Discount allowed by him Rs. 50. 23. S. Saha settled his account of Rs.400 in cash subject to 5% discount. 30. Paid staff salaries for October, Rs.2,600 by Cheque.

…………………………………………………….…..7…………………………………………………………I.I.P.S. 31. Paid cash in excess of Rs. 500 into Bank.