MBA- I Sem.

UNIT -I
JOURNAL BOOK OF ORIGNAL OR FIRST ENTRY
What is Journal?
A journal may be defined as the book of original or prime entry containing
chronological record of the transactions from which posting is done to the ledger. The
transactions are recorded first in the journal in the order. In which they occur. The process of
recording the transactions in a journal is called as journalizing. The prescribed format of
journal is shown below.
Journal
Date
(1)
Year
Month
Date

Particulars (2)

L.F.
Debit
(3) Amount (4)

Credit
Amount (5)

Name of the A/c to be debited

Name of the A/c to be credited
[Narration]

Explanation:
1. Date: The date on which the transaction takes place is entered here.
2. Particulars: The name of the account to be debited is written in the first line and the
abbreviation Dr. is written against it. In the second line, the account to be credited is
written preceded by the word To. An explanation of the entry known as narration is
also give within bracket explaining briefly about the transaction.
3. L.F: Stands for Ledger Folio, which means the page number in the ledger in which
the entry is posted.
4. Debit: In this column the amount to be debited against the dr account is entered.
5. Credit: in this column the amount to be credited against the cr account is entered.
Described the Procedure for Journalizing.
From the given business transaction, the receiving aspect and the giving aspect should
be identified. Depending upon the nature of account that is affected by the transactions, the
rule for journalizing should be selected as follows:
Nature of Account
Personal Account
Real Account
Nominal Account

Rule for Debiting an account

Debit the Receiver A/c
Debit what comes in
Debit all expenses and losses

Introduction to Accounting (MBA I Sem)Page 1

Rule for Crediting an account

Credit the Giver A/c
Credit what goes out
Credit all incomes and gains

These rules may be used either jointly or separately for journalizing each and every
transaction.

What is a Compound Journal Entry?

If two or more transactions of the same nature occur on the same day and either debit
account and/or credit account are common in them, then instead of passing a separate entry
for each such transaction, one combined entry may be passed. Such type of entry is known as
compound journal entry.
For example, a trader pays postage, stationary and cartage on the same day, then
instead of passing separate entries for each of these three expenses, the following compound
entry may be passed:
Postage A/c

dr.

Stationary A/c

dr.

Cartage A/c

dr.

To Cash A/c

Meaning of Discounts Transactions

Discount is an allowance in the form of reduction in the value of an item. There are
two types of discounts viz., trade discount and cash discount.
Trade Discount is allowed at the time of purchase or sale of goods by one trader to
another in order to promote sales. For example, a manufacturer may allow discount on sale of
the goods to wholesaler or wholesaler may allow discount to a retailer. It is always allowed as
certain percentage on sale price i.e., invoice price. The trade discount is not normally
recorded in the books of account. In other words, only the net amount of purchase or sale i.e.,
invoice price minus trade discount is recorded in the journal.
Cash Discount is a discount allowed at the time of making payments or receipts of
cash. It is allowed as certain percentage on the amounts due. It is allowed to a debtor by a
creditor in order to reduce him to pay on time. As the cash discount allowed to a debtor is a
loss and it should be debited to discount a/c. Cash discount received from a creditor is a gain
and it should be credited to discount a/c.

Introduction to Accounting (MBA I Sem)Page 2

Distinctions between Trade Discount and Cash Discount

Trade Discount
It is allowed at the time of making
purchases or sales.
It is calculated as certain percentage on the
invoice price of goods purchased or sold.

Cash Discount
It is allowed at the time making payments
or receipts of cash.
It is calculated as certain percentage on the
amounts due to creditors or amounts due
from debtors.
It is not shown in the books of accounts. It is shown in the books: discount allowed
Only the net amount of purchase or sale is as debit entry and discount received as a
recorded in the books.
credit entry.
It is allowed in order to promote more sales It is allowed in order to encourage parties
or purchases.
to make payments on time.

1
.
2
.
3
.
4
.

LEDGER BOOK OF FINAL ENTRY

What is Ledger?
A ledger is a book of main entry and it contains various accounts such as personal
accounts, real accounts and nominal accounts. It is the Principle book of accounts where
identical transactions related to specific person or nothing are entered. A ledger account is
nothing but a summary statement of all transactions relating persons, assets or liabilities and
expenses or incomes, which have taken place during a period of time showing their net affect.
Journal records all business transactions separately and as per the order of the date of the
transaction. The transaction pertaining to a particular person, asset or expenses are recorded
at different places in the journal as they occur on different dates. Hence, journal fails to bring
the similar transactions together and it is not useful for any reference. In order to have a
consolidated view of the similar transactions, the transactions entered in the journal are
transferred to the ledger accounts. The transferring process from journal to ledger is known as
posting.
Specimen of Ledger Account
Dr.

Name of Account

Date

Particulars

Year
Month
Date

To [Name of
credit element]

J.F.

Amounts
Rs.

Cr.
Date

Particulars

J.F.

Amounts
Rs.

Year
By [Name of
Month debit element]
Date

This is the standard form of ledger account, which is in T form. It is widely used.
Each account in the ledger is divided into two equal parts. The left hand side is the debit side
[Dr.] and the right hand side is the credit side [Cr.]. Each of the two sides is further divided
into four columns for recording the date of transactions, the name of the account to be debited
Introduction to Accounting (MBA I Sem)Page 3

or credited, and the amount of the transaction. J.F. stands for journal folio i.e., the page
number in the journal or subsidiary book from where the posting to the account is made.
Running Balance From Ledger Account. This form has six columns, viz., (1) Date; (2)
Particulars; (3) L.F.; (4) Dr. Amount [Rs.]; (5) Cr. Amount [Rs.]; and (6) Balance.
Commercial banks and some business houses use this type of ledger.
Advantages of a Ledger
The main advantages of a ledger are:
1. The journal gives information regarding various transactions chronologically. But the
ledger gives information regarding all transactions of a particular account in a
summary form.
2. In the journal one account is debited and another account is credited at different dates.
The final affect of a series of transactions of a certain customer or certain property or
a certain expenses is not disclosed by the journal. It is not designed in that way. But
the final effect is known at a glance.
3. Similarly the journal could not provide immediately the totality of certain dealings.

Meaning of Loose leaf Ledger

The ledger that is normally used in majority of business concerns is a bound book, so
that it can be preserved for a long time. But in bigger concerns bound books may not be used.
Appropriately ruled sheets in thick paper are introduced and fixed up with the help of binder.
The sheets can be removed whenever necessary. Therefore, this type of ledger is known as
loose-leaf ledger. There is of course a danger that an unscrupulous employee may remove a
sheet. To prevent such removal, this type of ledger is locked and will be with a responsible
official.
How can a ledger be sub divided?
In small concerns all accounts relating to persons, assets, expenses and income etc. can be
maintained in one ledger and in one Cashbook. In a board sense, Cashbook is also a part of
the ledger. But in bigger concerns, as the accounts are too many, the ledger is further subdivided. They maintain the following three types of ledgers.
(1) The Creditors Ledger: All accounts of creditors will be found in this ledger. It can
be also called as Bought Ledger or Suppliers Ledger. Entries in this ledger are
usually made from Purchases daybooks, Purchases Return Books and Cashbook.
(2) The Debtors Ledger: It contains accounts of those customers to whom goods are
sold on credit. It is also known as Customers Ledger or Sales Ledger. Entries in this
ledger are usually made from Sales daybooks, Sales Return Books and Cashbook.
(3) General Ledger/Nominal Ledger: It contains all accounts other than debtors and
creditors. Accounts of properties, expenses, incomes, capital drawings, etc., will be
found in this ledger. It may also be called as Impersonal Ledger.
Introduction to Accounting (MBA I Sem)Page 4

Subdivision of Ledger
Ledger

Cashbook

Personal Ledger

Impersonal Ledger

General Ledger
Creditors Ledger [Accounts of
all Creditors]

Debtors Ledger[Accounts
of all Debtors]
Real
AccountsAccounts

Nominal

Procedure for Posting of Journal Entries into Ledger Accounts

Posting means transferring the debits and credits from the journal to ledger accounts.
Each amount recorded in the debit column of the journal is posted to the debit side of an
account in the ledger. And each amount recorded in the credit column of the journal is posted
to the credit side of an account in the ledger.
Separate accounts should be opened in the ledger for posting transactions relating to
separate persons, assets, expenses or incomes as shown in the journal.
The concerned account that has been debited in the journal should also be debited in
the ledger. While debiting the concerned account, the name of the other account, which has
been credited in the journal, is entered in the debit side of this account with a prefix To.
Similarly, the concerned account that has been credited in the journal should also be
credited in the ledger. While crediting the concerned account, the name of the other account
that has been debited in the journal, is entered on the credit side of this account with prefix
By.
The date of the transaction in the date column, the page number of the journal form
which the entry is posted in J.F. column, and the amount of the transaction in the amount
columns should be entered in the concerned account.
Finally the concerned account should be balanced in order to find out the net balance
in the account.

Meaning of Trail Balance

Introduction to Accounting (MBA I Sem)Page 5

When the transactionsare recorded under double entry system there is credit for every
debit. When one account is debited, another account is credited with equal amount.
Therefore, it is quite evident that the total of debit balances of the ledger accounts of given
transactions will be equal to the total of the credit balances. If a statement is prepared with
debit balances in one side/column and credit balances on the other side/column, the totals of
the two sides/columns will be equal. Such a statement is called as Trial Balance. Or simply
a trail balance may be defined as a list of balances standing on the ledger accounts and
cashbook of a concern.
Features:
The following are its main features:
1. It is a tabular statement having separate sides/columns for debit balances and credit
balances.
2. Closing balances of the various ledger accounts are bought to this statement.
3. It can be prepared at any date on which accounts are closed and balanced. But it is
usually prepared at the end of the accounting year.
4. Trial balance is not an account. It is only statement.
Advantages [or Functions] of a Trial balance
The important advantages of trial balance are:
1. It presents to the businessman a consolidated list of all ledger balances.
2. It is the shortest method of verifying the arithmetical accuracy of entries made in the
ledger.
3. If the total of debit side/column is equal to the total of credit side/column, the trail
balance is said to agree. Otherwise it is implied that some errors have been committed
in the preparation of accounts.
4. It helps in the preparation of the final accounts i.e., Trading a/c. Profit & Loss a/c and
Balance Sheet.
Method of Preparing a Trail Balance:
There are two methods of preparing of trial balance. They are: (1) Total Method and
(2) Balance Method.
Total Method: In this method, ledger accounts are not balanced. They are totaled.
These totals are entered in the debit and credit columns. The grand total of debit column will
be equal to the total of the credit column. The format of the Trial balance under this method is
as follows:

Trial Balance as on . [Closing date]

Particulars [Name of the Accounts]

L.F.

Dr. Total of A/c

Amount [Rs.]

Introduction to Accounting (MBA I Sem)Page 6

Cr. Total of A/c

Amount [Rs.]

Balance Method: Under this method, the closing balances of the ledger accounts are
tabulated in a separate statement. The brought down balances are brought to this statement.
All debit balances are shown in the debit column and all credit balances in the credit column.
This method is more commonly used one. The format of Trial Balance under this method is
as follows:
Trial Balance as on .. [Closing Date]
Particulars [Name of the Accounts]

L.F.

Dr. Total of A/c

Amount [Rs.]

Cr. Total of A/c

Amount [Rs.]

Important Note: All debtors accounts, Assets or Properties accounts, all expenses or
losses accounts will always show debit balances. They will be shown in the debit side/column
of the trial balance.
All creditors accounts, Liabilities accounts, Income and Gains accounts will always
show credit balances. They will be shown in the credit side/column of the trial balance.

Difference between Capital Expenditure and Revenue Expenditure:

1
.

2
.
3
.
4
.
5
.
6
.

7
.
8
.

Revenue Expenditure
Its effect is temporary, i.e. the benefit 1
is received within the accounting .
year.
Neither an asset is acquired nor is the
value of an asset increased.
It has no physical existence because it
is incurred on items which are used
by the business.
It is recurring and regular and it
occurs repeatedly.
This expenditure helps to maintain
the business.
The whole amount of this expenditure
is shown in trading P & L A/c or
income statement.

2
.
3
.
4
.
5
.
6
.

It does not appear in the balance 7

sheet.
.
It reduces revenue (profit) of the 8
business.
.

Capital Expenditure
Its effect is long-term, i.e. it is not
exhausted within the current accounting
year-its benefit is received for a number of
years in future.
An asset is acquired or the value of an
existing asset is increased.
Generally it has physical existence except
intangible assets.
It does not occur again and again. It is
nonrecurring and irregular.
This expenditure improves the position of
the business.
A portion of this expenditure (depreciation
on assets) is shown in trading & P & L A/c
and the balance are shown in the balance
sheet on asset side.
It appears in the balance sheet until its
benefit is fully exhausted.
It does not reduce the revenue of the
concern. Purchase of fixed asset does not
affect revenue.

Introduction to Accounting (MBA I Sem)Page 7

SUBSIDIARY BOOKS
Basic Accounting Records Maintained by a Business Firm
In small businessconcerns where the numbers of transactions are few the basic
accounting records are mainly the journal book, ledger and a cashbook. One person can
maintain all books and record all transactions in these books. However, in big firms having
numerous transactions, in addition to these three books separate books are maintained for
recording credit purchases, credit sales, bills transactions, etc. They are Purchases Day book,
Sales Day book, Returns Inward and Outward books, Bills Receivable and Payable books,
and Petty Cash book.
What does Subsidiary Books Mean?
Subsidiary Books are those books of original entry in which transactions of similar
nature are recorded at one place and in chronological order. In a big concern, recording of all
transactions in one Journal and posting them into various ledger accounts will be very
difficult and involve a lot of clerical work. This is avoided by sub-dividing the journal into
various subsidiary journals or books. The subdivisions of journal into various subsidiary
journals for recording transactions of similar nature are called as Subsidiary Books. The
different subsidiary books and their purpose are shown below:
1. Purchases Day Book: - For recording credit purchase of goods only. Cash purchase or
assets purchased on credit are not entered in this book.
2. Sales Day Book: - For recording credit sales of goods only. Assets sold or cash sales
are not recorded in this book.
3. Purchases Return Book: - For recording the goods returned to the suppliers when
purchased on credit.
4. Sales Return Book: - For recording the goods returned to the customers when sold on
credit.
5. Bills Receivable Book: - For recording the bills received [Bills Receivables] from
customers for credit sales.
6. Bills Payables Book: - For recording the acceptance [Bills Payables] given to the
suppliers for credit purchases.
7. Cash Book: - For all receipts and payments of cash.
8. Journal Proper: - for recording any transaction which could not be recorded in the
above mentioned subsidiary books. For example, assets purchased or sold on credit
and opening entry etc., entered in this book.
Advantages of Subsidiary Books
The following are the advantages of Subsidiary books or Special Journal:
1. Saving of Clerical Labour: Subsidiary books effect considerable saving of clerical
labour in posting and narration. Transactions of any one class such as credit
purchases, credit sales, cash transactions etc., are recorded through separate subsidiary
Introduction to Accounting (MBA I Sem)Page 8

journals and there is no need for giving narration. For example, by recording the
transactions in the Purchase Day book 50% of the labour in posting is saved. The
periodical total of this book is to be debited to the Purchases a/c. Only the personal
accounts of the suppliers are to be credited.
2. Division of Clerical Work: As separate journals are used for recording the
transactions of each particular type, the division of clerical labour amongst several
office clerks becomes possible. This makes speedy record of day to day transactions
practicable.
3. Minimizes Frauds: These books make possible the introduction of internal check
systems under which the systems of rotation of writing up books can be adopted. This
helps minimizing errors and detecting frauds.
4. Facilities further reference:As transactions of similar nature are grouped together in
a separate book, the further reference to any particular item is considerably facilitated.
Preparation of Cash Book
In most of the business concerns, the number of cash transactions will usually be
large. Hence, a separate Cash Book is maintained for recording such transactions. This book
keeps a record of transactions of cash receipts and cash payments. Cash Book plays dual role.
It is both a book of original entry as well as book of final entry [i.e., ledger]. It is book of
original entry because all cash transactions are first of all recorded in the cash book and then
posted to various accounts in the ledger. It is also acts as a ledger account since the receipts of
cash are entered on the debit side and payments of cash on the credit side. So it is not
necessary to have a Cash Account in the ledger.
Types of Cash Book
Cash Book with different rulings is used in different concerns depending upon the
nature of the business and the manner in which cash is dealt with. However, the following are
most common forms:
1.
2.
3.
4.

Simple Cash Book

Two column Cash Book
Three column Cash Book
Petty Cash Book

Simple Cash Book: This is the simplest form of Cash Book and is used in businesses
where payments are made and received mostly in cash and where usually no cash discounts is
received or given. However, if there are any discount or cheque transactions, it is recorded in
a separate account in the ledger. The ruling of Simple Cash Book is like an ordinary cash
account.
Cash Book
Dat
e

Particulars

J.F.

Amount

Date

Introduction to Accounting (MBA I Sem)Page 9

Particulars

J.F.

Amount

Posting:All the items on the debit side of the Cash Book are posted to the credit and
those on the credit side are posted to the debit side of the respective ledger accounts affected.
The Cash Book is balanced regularly, mostly daily and the balance should be equal to cash in
hand. The Cashbook will always show debit balance only.
Two Column Cash Book: This type of cashbook has two columns, viz., cash
column and discount column. Usually cash discount allowed or received when payment is
made. So, it is necessary to record this fact at the same place where the cash transaction is
recorded. This type is similar to Simple Cash Book, except that one additional column on
each side is provided for recording cash discount. As discount is a nominal account, discount
allowed being a loss is shown on the debit side and discount received being a gain is shown
on the credit side.
Three Column Cash Book:
In modern times, banking habit has become so widespread and is so convenient and
safe that a large number of payments of big concerns are made and received through cheques.
In such cases, the Cash Book with bank column in addition to the cash and discount columns
is found convenient. Such type of cashbook is known as three-column cashbook. In such a
Cash Book, cash columns and bank columns represents cash a/c and bank a/c respectively.
Contra Entries:When transactions affect both sides of the Cash Book, such
transaction is entered on both the sides and is called as contra entry. For example, when cash
is deposited into bank, it is entered in the debit side of the Cash Book by writing To Cash
and entering the amount in the bank column. The other entry is on the credit side by writing
By Bank and entering the amount in the Cash column. When the cash is withdrawn from
the bank, the reverse entry is made, i.e., by writing To Bank in the debit side and entering
the amount withdrawn in the cash column and the other entry is on the credit side by writing
By Cash and entering the amount in the bank column of the Cash book. Entering the letter
C in the L.F. column indicates such entries. As the double entry is complete for such
transactions in the Cash Book itself, no further posting is required in the ledger.
Rules for recording transactions in the Cash Book.
1.
All items of cash receipts are entered in the cash column of the receipt side;
cash payment in the payment side. Discount allowed on the debit side and discount received
on the credit side of the Cash Book [in the discount columns].
2.
When cheques are received from customers and deposited immediately they
are entered in the bank column of the Cash Book [debit side]. If they are sent to the bank at a
later date, it becomes deposit of money into bank and, therefore, a contra entry. It is shown
on the bank column on the debit side and cash column on the credit side.
3.
If cheques are received by the business and endorsed to creditors, they are
taken into cash columns as cash receipt and cash payment.
Bank Pass Book
Introduction to Accounting (MBA I Sem)Page 10

Passbook or Bank Statement is a copy of the account of the customer as it appears in

the banks books. When a customer deposits money and cheques into his bank account or
withdraws money, he records these transactions in the bank column of his cashbook
immediately. Correspondingly, the bank records them in the customers account maintained
in its books. Then they are copied in a passbook and given to the customer. With the
computerization of banking operations, bank statements (in lieu of passbook) are issued to the
customers periodically. Thus passbook is a record of the banking transactions of a customer
with a bank. All entries made by a customer in his cashbook (bank column) must be entered
by the bank in the passbook. Hence, the balances as per bank column of the cashbook must
agree with the balance as per passbook. Of course the balances will be equal and opposite in
nature. For example, if the cash book shows a debit balance of Rs. 5 000, then the passbook
must show a credit balance of Rs. 5 000 and vice versa. But in most cases, these two balances
may disagree on account of various reasons.
Format of a Bank Passbook or Bank Statement
Name of the bank ____________________________________
Address of the bank ___________________________________
Account No. _________________________________________
Customer Name ______________________________________
Address of the customer ________________________________
Dat
e

Particulars

Cheque No.

Withdrawals (debits)

Deposits (credits)

Balanc
e

Initials

Bank Reconciliation Statement :

When the customer finds the balances shown by the Cashbook and Bank Passbook different
he will prepare a statement in order to reconcile these two balances. Such a statement is
called as Bank Reconciliation Statement. The main purpose of such a statement is to explain
the causes of difference between these two balances and find out whether any errors have
been committed in the cashbook or passbook and rectify them immediately. This statement is
prepared usually at the end of a period on a particular date in order to confirm that the
cashbook balance is correct.
Guidelines for preparing the Bank Reconciliation Statement
1.

Usually the heading is given as follows:

Bank Reconciliation Statement as on particular date --------

Introduction to Accounting (MBA I Sem)Page 11

2.
The starting point shall be either Balance as shown by the Cashbook or
Balance as shown by the Passbook. The ordinary bank balance in the cashbook is debit
balance in the passbook it is credit balance. On the other hand, the overdraft balance in the
cashbook is the credit balance and in the passbook it is the debit balance.
3.
The various causes for the disagreement between the two balances should be
ascertained by comparing the entries made in these two books during the concerned period.
4.
The effect of the particular cause on the balance shown by the other book
should be studied in terms of increase or decrease in the balance.
5.
It the result is increase in balance shown by the other book (say, passbook
balance), then the amount of such increase should be added to the starting balance (say,
cashbook balance). On the other hand, if the result is decrease in passbook balance, then the
amount of such decrease should be deducted from the cashbook balance.
Thus by adjusting all increase and decrease items to the starting balance, the
balance as shown by the other book will be arrived at. When the balance shown by the
cashbook and passbook agree as per Bank Reconciliation Statement, then it will be construed
that there are only difference but no errors in the entries made in these two books. These
guidelines are explained through the following illustrations.

Introduction to Accounting (MBA I Sem)Page 12

Practical Problems
Problem: 1.Enter the following transaction in the journal of Mr. Ramkumar.
2012Jan. 1
1
2
2
3
4
5
6
8
11
12
13
14
15
15
16

Particulars
Started business by investing cash
Purchased land for
Purchased goods for cash
Purchased goods from Ajit on credit
Sold goods for cash
Sold goods to Arun on credit
Paid freight
Donated to Charities
Paid salaries to Ramesh
Deposited cash into bank
Withdrawn from bank for office use
Withdrawn from bank for private use
Charged interest on capital
Rent received
Loan from bank

Rs
70,000
20,000
30,000
10,000
20,000
6,000
300
1,000
1,200
16,000
4,000
6,000
1,000
2,000
20,000

*******
Problem: 2. Journalize the following transactions.
Durga of Chennai stared business on 1-1-2002 by investing cash of Rs. 50,000. She
brought goods Rs. 20,000 and furniture Rs. 2500. She borrowed from her friend PriyaRs.
25,000 the same day. Her transactions for the month are as follows:
January
1

Purchased goods worth Rs. 25,000 less 20% trade discount and 5% Cash
discount.

Opened a current a/c in State Bank of India with Rs. 15,000.

Sold goods worth Rs. 15,000 to Vicky and allowed 10% discount.

Received Rs. 13,250 from Vicky in full settlement of his account.

Sold goods to Ravi for cash Rs. 3,500

Sold goods to KrishnaRs. 5,000

10

Received Rs. 4,925 from Krishna in full settlement.

15

Paid by cheque:

Introduction to Accounting (MBA I Sem)Page 13

16

Salaries Rs. 2,500

Postage Rs. 50
Stationery Rs. 175
Repair of furniture Rs. 100

18

Withdraw for personal use Rs. 3500

20

Goods given in donation Rs. 3500

31

Sold goods to Ram at invoice price of Rs. 10,000 on the terms of trade
Discount at 20% and cash discount at 10%. He paid half in cash.
*******

Problem: 3
An accountant made the following entries in his account books. Are these entries
correct? If not, give correct entries.
1.

2.

3.

4.

5.

6.

Cash a/c
To Raman a/c
[Sold goods to Raman for cash]
Goods a/c
To Lakshman a/c
[Purchased goods for cash from Lakshman]
Ravi a/c
To Cash a/c
[Paid salary to Ravi]
Purchase a/c
To Cash a/c
[Furniture purchased for cash]
Freight a/c
To Cash a/c
[Freight paid on behalf of the purchaser, Raman]
Charity a/c
To Sales a/c
[Goods given for charity]
Sathya a/c
To Cash a/c
[Paid rent to Sathya]
*******

Introduction to Accounting (MBA I Sem)Page 14

Dr.

Rs.
3,500

Rs.
3,500

Dr.

6,000
6,000

Dr.

2,000
2,000

Dr.

1,000
1,000

Dr.

350
350

Dr.

500
500

Dr.

1,250
1,250

Problem: 4Journalize the following transactions extracted from the books of a bookseller.
May 2012
1
2
3
4
7
8
10
17
19
25
27
30

Started business with capital of Rs. 1,50,000.

Barrowed from bank Rs. 40,000.
Furniture purchased Rs. 10,000.
Purchased books Rs. 50,000 and paper Rs. 25,000.
Sold books and paper for cash Rs. 35,000.
Purchased books from Bharat Book House for Rs. 50,000.
Sold books worth Rs. 25,000 to Bharat University Library.
Paid postage Rs. 250.
Paid Rs. 49,500 to Bharat Book House in full settlement.
Received rent Rs. 750 from Mahesh who is using a portion of the shop for his
business.
Sold book on credit to LaxmanRs. 15,000.
Paid Rent Rs. 2,250 and Salary RS. 2,500.
*******

Problem: 5. Enter the following transactions in the Journal of Alpesh Enterprises of

March, 2012:
March 1.

Commenced business with:

March 10.

Cash
Rs.10,000
Goods
Rs.15,000
Building
Rs. 25,000
Paid Expenses:
Salary
Rs. 800
Wages
Rs. 400
Rent
Rs. 600
Purchased goods from Mr.Aaditya of Rs. 2,000

March 13.

Sold goods to Mr. NileshRs. 5000

March 15.

Received cheque from Mr. Nilesh allowing 5% cash discount, in full

settlement

March 20.

Paid cash to Mr.Aaditya and availed 2% cash discount.

March 23.

Purchased Machinery by cheque Rs. 10,000 and installation charges of

Machinerypaid in cash in Rs. 200

March 27.

Purchased goods of list price of Rs. 2000 at trade discount of 10% and
cash discount 2% and half the amount paid in cash.

March 31.

Amount withdrawn by Alpesh:

March 6.

Introduction to Accounting (MBA I Sem)Page 15

Cash Rs. 600; Cheque Rs. 700

*******
Problem: 6.Journalize the following transaction in the books of M/s. Lal Sons.
Rs.
1)
2)
3)
4)

Borrowed from Mr.Lal and introduced in business

Cash deposited in Dena Bank
Cash loan taken form City Financial
Purchased Computer on 100% finance & 0% interest from
M/s Computerwala
5) Purchased goods for Cash
6) Purchased goods from Mr. A and issued Cheque
7) Purchased good form Mr. B
8) Paid Salary in advance
9) Paid for Stationary
10) Goods returned to Mr. B
11) Cash Sales
12) Credit Sales
13) Goods taken for personal use
14) Wages paid
15) Rent paid by cheque
16) Goods sold and cheque
17) Electricity Bill received
18) Goods sold for Cash after allowing discount of Rs 500
19) Received goods on consignment
*******
Problem: 7.Journalise the following transaction in the book of Ram Nath:
1) He commenced from Dalal worth Rs.12,000.
2) Goods purchased for cash Rs. 34,000.
3) Goods sold to Vikram for Rs. 27,000.
4) Goods sold to SubhashRs. 9,000.
5) Goods sold for cash to Mohan Rs. 8,000.
6) Received cash form SubhashRs. 8,900 in full settlement of his account.
7) Paid for repairs Rs. 500
8) Vikram returned goods worth Rs. 2,000.
9) Vikram paid cash for goods sold to him on 2nd Jan.
10) Bought furniture Rs. 11,750 discount availed Rs.250.
11) Goods purchased from Dalal (subject to 10% trade discount) Rs.15,000
12) Paid to DalalRs. 11,750 discount availed Rs. 250.
13) Purchased postal stamps Rs.50
14) Paid salaries Rs. 2,000 and Electric charges Rs. 1,000
*******
Introduction to Accounting (MBA I Sem)Page 16

50,000
20,000
5,000
21,000
6,000
4,000
10,000
500
600
900
1,200
2,800
500
200
800
4,000
200
5,500
6,000

Problem: 8.Jouranlise the following transaction in the Books of Mr.Punit

October-2006
Rs.
1
Purchased good from Pradip.
4,500
3
Sold goods for cash
1,500
5
Paid to Himanshu by cheque
5,500
10
Deposited in Bank
2,800
13
Sold good on credit to Mr.Mangesh
1,700
15
Paid for postage
100
16
Received cash from Somesh
2,200
17
Paid telephone charges
250
18
Cash Sales
1,500
20
Purchased Government Securities
5,000
22
Purchased good worth Rs.16,000 less 20% trade discount and
Supplied them toRajesh & Co at list price less 10%trade discount
25
Cash Purchases
16,000
28
Suraj in declared insolvent and a dividend of Rs. 1,000
@ 50 paisa per Rupee isreceived from him in full settlement.
28
Bought a horse for Rs.2,600 and a carriage for Rs. 1,200 for delivering goods
to customers.
30
The horse bought on 28th October died and the carcass (Dead body) is sold for
31
Allowed interest on capital of Rs.22,000 @ 10%per annum for one year
31
Paid Salaries
1,500
Rent
600
*******
Problem: 9. Journalize the following transactions in the books of Mr. Rawan:
a) Mr. Nagesh who owes Rs. 10,000 pays Rs. 9,930 in full settlement.
b) M/s. Mohanlal& Co. who owner Rs. 30,000 became insolvent. Only 45%of amount is
realised.
c) Issued cheque in favor of Patel Brothers on account of the purchase of furniture for
Rs.15,000.
d) Received cheque from Mr.RaneRs.62,000. Allowed him discount Rs.800
e) A sum of Rs. 3,000 is received from Singh & co against a debt previously written off.
f) Returned goods to M.S. Cables Ltd. of the value of Rs. 6000
g) Withdraw goods for domestic use of Rs. 600.
h) Paid railway freight on behalf of customer Mr. Suresh Rs. 800.
i) Received interest on investment Rs. 500.
j) Paid office expense Rs. 1,500 from Personal cash and stationery expenses Rs. 2,500
from cash.
*******
Problem: 10. Journalise the following transactions in the books of Mr. Sagar:
Introduction to Accounting (MBA I Sem)Page 17

2006
Jan.1 Sagar having no capital of his own started business With Rs. 50,000 borrowed from
his friend Mr. Vasant @ 10% p.a jan.5Purchased good for cash Rs. 5,000.
Jan.12 Received invoice at 10% trade discount from Anant& Sons and supplied these goods
toMr.Madan,listed at Rs.3.000.
Jan.20 Mr. Madan is declared insolvent and 25% is recovered in full settlement.
Jan.25 Purchased goods for Rs. 1,000 from Mr.Nanda and Supplied it to Mr.Amir for
Rs.1,300. Mr. Amir returned goods worth Rs.390, Which is turn returned to
Mr.Nanda.
Feb.9 Purchased a horse for RS. 1,500 and a cart for Rs. 2,000 for delivering goods to the
customer
Feb.25 The horse bought on Feb.9 died and its carcasses (dead body) was sold for Rs.200.
Feb.28 Supplied goods for Rs.300 to Mr. Sagar for domestic use.
Mar.3 Rs.400 was paid to Mr.Akash out of business fund for the repair of Mr. Sagars
household furniture.
*******
Problem: 11. Journalise the following transaction:
1) Mr. borrowed Rs. 1,00,000 from his father and started business.
2) Mr. B stared a business with the following assets and liabilities. :
Cash Rs. 40,000; Building Rs.60,000; Creditor Rs. 25,000.
3) Create a Reserve for Bad & Doubtful Debts Rs. 6,00,
4) Goods sold to Mr. C worth Rs. 40,000 and allowed him a trade discount of 10% He
paid 50% of the sale price immediately.
5) Rs.250 found credited in pass-book toward interest.
6) Outstanding Salary Rs. 3,000.
7) R. D. D. to be written back Rs. 2,000.
8) Depreciation to be changed Rs. 1,500 on Dead Stock.
9) Interest due but not received Rs. 150.
10) Create Reserve for depreciation Rs. 2,000.
*******
Problem:11. Journalise the following transaction of Mr. Saket:
2009
Jan.1 Saket having no capital of his own, started business with Rs.1,00,000, borrowed from
his friend Bhushan @12%p.a.
Jan.4 Purchased Goods worth Rs. 60,000, less 20% trade discount from Namrata and co. for
cash, and supplied them to Reena at list price less 10% trade discount.

Introduction to Accounting (MBA I Sem)Page 18

Jan.6 Goods worth Rs. 2,000 were damaged in transit, a claim was made on the railway
authoritiesfor the same.
Jan.10 Under instruction from Namrata& co., Saket supplied goods listed at Rs. 10,000 to
Selwyn.Received the invoice at 20% trade discount from Namrta& Co.
Jan.12 Received cash from the railway in full settlement of claim for damages in transit.
Jan. 15 Received from travelling salesman Rs. 14,000 for goods sold by him after deducting
his travelling expenses Rs. 500.
Jan.18 Bought 25 shares in xyz and Co. Ltd., at Rs. 600 per share, brokerage paid Rs.100.
Jan.21. Selwyn is declared insolvent and a dividend of Rs. 0.50 in rupee is received from him
in fullsettlement.
Jan.25. Sold 10 shares in xyz and Co. Ltd. at Rs. 650 per Share, Brokerage paid Rs. 100.
Jan.29. Bought g0ods worth Rs. 7,000 from David and supplied them to Karan at Rs. 10,000.
Jan.30 Karan returned goods worth Rs. 500, which in turn sent to David.
Jan.30 One months interest to Bhushan on capital supplied by him, became due, but could
not bepaid.
*******
Problem: 12. Journalize the following transactions and prepare necessary ledger accounts
and verify the arithmetical accuracy of the ledger accounts.
2012, January
Rs.
1
Vicky started business with a capital of
1,00,000
3
Purchased goods from Ajit for cash
30,000
6
Cash Sales
2,000
8
Goods sold to Shankar on credit
6,0000
10
Purchased goods form Anil on credit
10,000
15
Received from Shankar in full settlement
5,900
20
Paid to Anil
5,000
24
Purchased furniture for office use
4,000
31
Paid shop rent Rs. 2,000 and salaries
3,000
Solution:
Journal of Vicky
Date
2012 Jan.
1
3

Particulars
Cash a/c
To Capital a/c
[Being Capital Introduced]
Purchases a/c
To Cash a/c

L.F.
Dr.

Rs.
1,00,000

Rs.
1,00,000

Dr.

Introduction to Accounting (MBA I Sem)Page 19

30,000
30,000

10

15

20

24

31

[Being cash purchases]

Cash a/c
Dr.
To Sales a/c
[Being cash sales]
Shankars a/c
Dr.
To Sales a/c
[Being Credit sales]
Purchases a/c
Dr.
To Anils a/c
[Being credit purchases]
Cash a/c
Dr.
Discount a/c
Dr.
To Shankars a/c
[Being cash received in full settlement]
Anils a/c
Dr.
To Cash a/c
[Being cash paid]
Furniture a/c
Dr.
To Cash a/c
[Being furniture purchased]
Rent a/c
Dr.
Salaries a/c
Dr.
To Cash a/c
[Being rent and salaries paid]

Introduction to Accounting (MBA I Sem)Page 20

2,000
2,000
6,000
6,000
10,000
10,000
5,900
100
6,000
5,000
5,000
4,000
4,000
2,000
3,000
5,000

Dr.
Date
Particulars
2012
Jan.1 To Capital A/c
6
To Sales A/c
15
To Shankars A/c

Feb1

J.F.

VICKEYS LEDGER
Cash A/c
Amount
Date
Particulars
Rs.
2012
1,00,000 Jan. 3 By Purchases A/c
2,000
20
By Anils A/c
5,900
24
By Furniture A/c
31
By Rent A/c
31
By Salaries A/c
31
By Balance c/d
1,07,900

J.F.

To Balance b/d

Dr.
Date
Particulars
2012
Jan. To Balance c/d
31

J.F.

Capital A/c
Amount
Date
Rs.
2012
1,00,000 Jan. 1

Particulars

J.F.

By Cash A/c

1,00,000
Feb.1
Dr.
Date
2012
Jan.3
10

To Cash A/c
To Anils A/c

Feb.1

To Balance b/d

Dr.
Date
2012
Jan.
31

Particulars

Particulars

J.F.

To Balance c/d

Dr.
Date
Particulars
2012
Jan.8 To Sales A/c

Dr.

J.F.

J.F.

Sales A/c
Amount
Date
Rs.
2012
8,000 Jan. 6
8
8,000
Feb.1

Particulars

Introduction to Accounting (MBA I Sem)Page 21

J.F.

Cr.
Amount
Rs.
40,000
40,000
40,000

J.F.

By Cash A/c
By Shankar A/c
By Balance B/d

Purchases A/c
Amount
Date
Particulars
Rs.
2012
6,000 Jan15 By Cash A/c
15
By Discount A/c
6,000
Anils A/c

Cr.
Amount
Rs.
1,00,000
1,00,000
1,00,000

By Balance B/d

Purchases A/c
Amount
Date
Particulars
Rs.
2012
30,000 Jan. By Balance c/d
10,000
31
40,000

Cr.
Amount
Rs.
30,000
5,000
4,000
2,000
3,000
63,900
1,07,900
63,900

J.F.

Cr.
Amount
Rs.
2,000
6,000
8,000
8,000
Cr.
Amount
Rs.
5,900
100
6,000
Cr.

Date
2012
Jan.20
31

Particulars

J.F.

To Cash A/c
To Balance c/d

Amount
Rs.
5,000
5,000
10,000

Date
2012
Jan.
10
Feb.1

Dr.
Date
Particulars
2012
Jan.15 To Shankar A/c

Feb.1

Dr.
Date
2012
Jan.31

Feb.1

By Purchases A/c

Discount A/c
Amount
Date
Particulars
Rs.
2012
100 Jan. By Balance c/d
31
100

J.F.

Furniture A/c
Amount
Date
Particulars
Rs.
2012
4,000 Jan. By Balance c/d
31
4,000

Particulars

J.F.

To Cash A/c

Rent A/c
Amount
Date
Rs.
2012
2,000 Jan.
31
2,000

Particulars

J.F.

J.F.

To Balance b/d

Cr.
Amount
Rs.
4,000
4,000
4,000

J.F.

Cr.
Amount
Rs.
2,000
2,000
2,000

To Balance b/d

J.F.

Cr.
Amount
Rs.
100
100
100

By Balance c/d

Salaries A/c
Amount
Date
Particulars
Rs.
2012
3,000 Jan. By Balance c/d
31
3,000

Amount
Rs.
10,000
10,000
5,000

By Balance B/d

To Balance b/d

Dr.
Date
Particulars
2012
Jan.31 To Cash A/c

Feb.1

J.F.

To Balance b/d

Dr.
Date
Particulars
2012
Jan.24 To Cash A/c

Feb.1

J.F.

Particulars

J.F.

Cr.
Amount
Rs.
3,000
3,000
3,000

To verify the arithmetical accuracy of ledger accounts, the trail balance should be
prepared.

Introduction to Accounting (MBA I Sem)Page 22

Cash A/c
Capital A/c
Furniture A/c
Purchases A/c
Sales A/c
Anils A/c
Rent A/c
Discount A/c
Salaries A/c

Trial Balance as on January 31, 2012

Particulars
Debit (Rs.)
63,900

Credit (Rs.)
1,00,000

4,000
40,000
8,000
5,000
2,000
100
3,000
1,13,000

Total

1,13,000

*******
Problem: 13. From the following ledger balances, prepare Trial balance.
Sr. No.
Particulars
1.
Opening stock
2.
Purchases
3.
Closing stock
4
Debtors
5
Cash
6
Discount allowed
7
Bank
8
Creditors
9
Sales
10
Salaries
11
Rent
12
Postage
13
Taxes
14
Machinery
15
Drawings
16
Capital
17
Purchase returns
18
Sales returns

Amount (Rs.)
30,000
3,00,000
14,000
1,20,000
3,000
3,400
5,600
90,000
4,20,000
42,000
9,000
4,500
1,500
1,20,000
20,000
1,52,000
6,000
9,000

*******
Problem: 14. The following Trial balance contains certain obvious errors. Point out the
errors and prepare a correct Trial Balance.
Name of the Accounts
Debit (Rs.) Credit (Rs.)
Purchases
70,000
Sales
1,00,000
Purchases returns
4,000
Introduction to Accounting (MBA I Sem)Page 23

Sales returns
Opening stock
Closing stock
Trade expenses
Outstanding expenses
Cash in hand
Bank overdraft
Debtors
Creditors
Carriage inwards
Carriage outwards
Discount received
Loan from Chaco
Capital
Buildings

8,000
60,000
56,000
8,000
4,000
10,000
50,000
56,000
12,000
4,000
6,000
10,0000
30,000
1,12,000
1,00,000
3,50,000

Total

3,50,000

*******
Problem: 15. Journalize the following transaction and post them to various ledger accounts.
Also prepare a Trial balance as on 31st December. 2012.
December
1
2
3
15
18
19
27
28
31

Raj started business with capital of Rs. 50,000

He purchased computer for office use for Rs. 24,000
Bought goods on credit from Vignesh for Rs. 18,000.
Sold goods to Sabbu on credit Rs. 15,000
Purchased goods for cash Rs. 12,000
Sold goods for cash Rs. 9,000.
Received cash from SabbuRs. 3,000
Paid rent Rs. 1,500
Paid VigneshRs. 9,000 on account.
*******

Problem: 16.Mr. Nirmal commenced business January 1, 2012 with Rs. 50,000 borrowed
from his friend Ramesh. Her transactions for the month of January were as follows:
January
1
3
4
7

Deposited in Bank Rs. 20,000

Purchased goods worth Rs. 25,000 from Meeran for cash who allowed 20%
trade discount and 10% cash discount.
Sold goods for cash Rs. 20,000
Purchased goods from Raju Rs. 20,000

Introduction to Accounting (MBA I Sem)Page 24

10
11
20

Returned goods to Raju worth Rs. 2,000.

Paid Rs. 17,500 to Raju in full settlement.
Purchased furniture from RaghavRs. 5,000. He paid freight Rs. 2,000 on our
behalf.
Paid rent Rs. 2,500
Received commission Rs. 800.
Paid salaries Rs. 3,000

21
27
31

Pass journal entries and post them into various ledger accounts.
*******
Problem: 17. Entre the following transactions in Cash Book.
2012 March

Rs.

Balance Cash in hand

15,000

Received from Khanna

10,000

Purchased goods for cash

17,000

11

Cash Sales

10,000

15

Deposited into Bank

3,000

18

Bought furniture for cash

4,000

22

Paid Salaries

1,500

25

Withdrew from Bank

2,500

27

Cash Sales

14,000

30

Paid to Ram

8,000

31

Rent Paid

1,000
*******

Problem: 18. Enter the following transaction in a Double Column Cash Book:
2012, March
Particulars
1
Cash in Hand
5
Received from Krishna
Allowed him discount
7
Bought goods for cash
9
Cash paid to Yusuf
Discount allowed by him
Introduction to Accounting (MBA I Sem)Page 25

Rs.
11,000
38,000
2,000
40,000
7,000
500

12
14
18
22
25
28
31

Goods sold for cash

Withdrawn from Bank
Credit purchases from Mukesh
Paid to Mukesh in full Settlement
Received interest on investments
Deposited into bank
Paid salaries

17,000
52,000
25,000
24,000
27,000
40,000
5,000

*******
Problem: 19. From the following particulars, prepare a Bank Reconciliation Statements
showing the balance as per Passbook as on 31st March, 2012. As on that date the cashbook of
Mr. Ramniklal showed bank balance of Rs. 8,850. On verifying the passbook, the following
facts were ascertained:
(a) Cheques deposited into bank before 31st March, 2012, but not credited by the bank
amounted in all Rs. 1,850.
(b) Cheques issued but not presented for payment before 31st March, 2012 amounted to
Rs. 2,500.
(c) The bank has charged Rs. 150 as bank charges and credited Rs. 350 as interest.
(d) The bank has given a wrong debit for Rs. 450.
(e) A customer has paid directly into bank account a sum of Rs. 590 on 30 th March, 2012,
which has not been into the cashbook.
(f) A cheque for Rs. 275 sent for collection and returned unpaid has not been entered in
the cash book.
Solution:
Bank Reconciliation Statement of Mr. Ramaniklal as on
31st March, 2012
Particulars
Bank Balance as per Cashbook
Add: 1. Cheques issued but not presented for payment
2. Interest credited in the passbook only
3. Amount directly paid into bank but not entered in the
cashbook

Rs.

Rs.
8,850

2,500
350
590
3,440
12,990

Less: 4. Cheques deposited into bank but not credited in the

Passbook
5. Bank charges debited in the passbook only
6. Wrong debit given by the bank
7. Cheques dishonored entered in the passbook but not in
the cashbook
Introduction to Accounting (MBA I Sem)Page 26

1,850
150
450
275

Bank Balance as Passbook

2,725
9,565

*******
Problem: 20. Assist Mr. Hemachandra in ascertaining his cashbook balance as on 30 th June,
2012 for No. 1 Account from the following information:
(a) His passbook No. 1 Account showed a balance of Rs. 10,500.
(b) Cheques issued on 25th June were for Rs. 3,800; out of which Rs. 1,200 only had been
presented for payment before 30th June.
(c) Rs. 6,200 paid into bank on 27th June was wrongly credited to another account.
(d) A bills receivable for Rs. 800 was collected by the bank on 28 th June, but not
corresponding entry was made in the cashbook.
(e) A payment of Rs. 500 from another account had been wrongly debited by the bank to
his account.
(f) A credit of Rs. 400 relating to the same other account appeared in the passbook.
(g) The bank has recovered an insurance claim of Rs. 2,500 and incurred Rs. 150 as
charges and commission the entries for these were made only in the passbook.
(h) The bank has credited interest Rs. 400 and debited Rs. 90 as bank charges.
*******
Problem: 20. From the following particulars, prepare a Bank Reconciliation Statement of Mr.
Shyamsunder as on 31st December, 2012:
Particulars
Overdraft balance as per Cashbook (credit balance on 31st December)

Rs.
14,380

Interest on overdraft debited in the passbook only

320

Bank charges debited in the passbook only

140

Cheques drawn but not cashed before 31st December

2,540

Cheques sent for collection but not collected before 31st December, 2012

4,420

A Bills Receivable discounted with the bank dishonored on 31 st December,

2012
1,2000
*******
Problem: 21. From the following particulars, prepare a Bank Reconciliation Statement and
ascertain the balance as per cashbook as on 31st December, 2012:
(1) The bank passbook showed an overdraft balance of Rs. 25,200.
Introduction to Accounting (MBA I Sem)Page 27

(2) Cheques drawn in December, 2012 amounting in all Rs. 25,000, of which Rs. 16,000
worth has been cashed in the same month, a cheque of Rs. 6,000 has been cashed on
4th January 2013, and the rest have not been presented at all.
(3) Out of the cheques of Rs. 16,400 deposited on 27 th December 2012, Rs. 11,400 worth
appears to have been credited in the passbook only on 3rd January 2013.
(4) A cheque of Rs. 1,200 paid into my account has been wrongly credited another
account.
(5) Interest on overdraft Rs. 1,200 and Bank charges Rs. 150 debited in my passbook on
31st December 2012 have been credited in my cashbook only on 3rd January, 2013.
(6) Interest on investments amounting to Rs. 1,500 has been credited in my passbook
only.
*******

Introduction to Accounting (MBA I Sem)Page 28