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2009 Rs.
Jan. 1 Commenced business with cash 25,000
5. Purchased goods for cash 10,000
6. Paid for salaries 5,000
9. Sold goods for cash 8,000
12. Purchased goods from latha 2,500
16. Purchased goods from shekhar from us 5,000
26. Received cash from shekhar 4,000
28. Paid rent 500
31. Paid salaries 2,500
2009
Jan 1 Cash a/c Dr. 25,000
To capital a/c 25,000
(Being business started with cash)
To understand clearly as to how to write the accounts in ledger, the standard form of
an account is given below with two separate transactions:
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Total Debit = Total Credit = Nil balance
From the furnished information prepare journal entries and post them into ledger and
balance the accounts in the books of Narayan & Narayan Manufacturing.
2010 Amount in Rs
May 1 Narayan Started business 2,00,000
May 1 Purchased goods from Krishna 20,000
May 2 Sold Goods to Roshan lal 40,000
May 4 Cash Purchases 40,000
May 6 Paid for Advertisement 10,000
8 Finished goods sold for cash 30,000
9 Bought computer paid by cheque 4,000
10 Bought goods from Sambhu 20,000
13 Cash paid to Krishna 19,600
Discount received 400
15 Received cash from Roshan lal 39,000
Discount allowed 1,000
17 Deposited into bank 20,000
19 Paid for salaries by cheque 1,400
21 Printing expenses 1,600
23 Sold old computer 3,400
26 Paid cash to Sambhu 8,000
28 Received commission through cheque and
Deposited into bank same day 1,000
30 Expenses related to owners personal use 2,000
Sol:
Journal entries in the books of Narayan & Narayan Manufacturing for May, 2010
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May28 Bank a/c 1,000
To commission a/c 1,000
(Being commission received by
cheque and deposited into bank)
CASH ACCOUNT
Dr Cr.
Date Particulars L. Amount Date Particulars L.F Amount
F In Rs In Rs
May01 To capital a/c 200000 May 04 By purchases a/c 40000
May08 To sales a/c 30000 ,, 06 By advertisement a/c 10000
May15 To Roshan a/c 39000 14 By Krishna a/c 19600
May23 To computer a/c 3400 17 By bank a/c 20000
21 By printing a/c 1600
26 By sambhu a/c 8000
30 By drawings 2000
31 By balance c/d 171200
272400 272400
CAPITAL ACCOUNT
Dr Cr.
Date Particulars L.F Amount Date Particulars L.F Amount
In Rs In Rs
May01 To Balance 200000 May01 By Cash A/C 200000
c/d
200000 200000
PURCHASES ACCOUNT
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Dr Cr.
Date Particulars L.F Amount Date Particulars L.F Amount
In Rs In Rs
May1 To Krishna a/c 20000 May1 By Balance c/d 80000
,, 4 To cash a/c 40000
,, 10 To sambhu a/c 20000
80000 80000
KRISHNA ACCOUNT
Dr Cr.
Date Particulars L.F Amount Date Particulars L.F Amount
In Rs In Rs
May15 To cash a/c 19600 May1 By Purchases a/c 20000
,, 15 To discount a/c 400
20000 20000
SALES ACCOUNT
Dr Cr.
Date Particulars L.F Amount Date Particulars L. Amount
In Rs F In Rs
May31 To Balance a/c 70000 May2 By Roshan A/C 40000
May8 By Cash A/C 30000
70000 70000
June1
By Balance b/d 70000
Dr Cr.
Date Particulars L.F Amount Date Particulars L.F Amount
In Rs In Rs
May2 To Sales a/c 40000 May15 By cash A/C 39000
May15 By discount 1000
allowed A/C
40000 40000
ADVERTISEMENT ACCOUNT
Dr Cr.
Date Particulars L.F Amount Date Particulars L.F Amount
In Rs In Rs
May6 To cash a/c 10000 May31 By Balance b/d 10000
6
10000 10000
June1 To Balance b/d 10000
COMPUTER ACCOUNT
Dr Cr
Date Particulars L Amount Date Particulars L.F Amount
. In Rs In Rs
F
May9 To Bank a/c 40000 May23 By cash a/c 3400
,, 15 To Discount a/c May31 By balance b/d 36600
40000 40000
SHAMBU ACCOUNT
Dr Cr
Date Particulars L.F Amount Date Particulars L. Amount
In Rs F In Rs
May26 To cash a/c 8000 May10 By purchases a/c 20000
May31 To balance c/d 12000
20000 20000
Dr Cr
Date Particulars L.F Amount Date Particulars L.F Amount
In Rs In Rs
May To Balance c/d 400 May13 By Krishna a/c 400
31
400 400
June1 By Balance b/d 400
1000 1000
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SALARIES ACCOUNT
1400 1400
PRINTING ACCOUNT
1600 1600
COMMISSION ACCOUNT
1000 1000
DRAWINGS ACCOUNT
2000 2000
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RECTIFICATION ERRORS (Extra topic not in syllabus)
Error is a mistake committed in book-keeping. Errors can be broadly divided into two types.
1. Errors of Principle and
2. Clerical Errors.
EXAMPLE PROBLEM:
The following errors were located in the books of a business concern after books
were closed and suspense account was created in order to agree the trial balance.
1. An amount of Rs. 600 paid for the repair of furniture was debited to Furniture
Account.
2. Goods bought from a merchant amounting to Rs. 55 had been posted to the credit of
his account as Rs. 550
3. A Dishonoured bill Receivable for Rs 400 returned by the bank had been credited to
bank account and debited to Bills Receivable Account.
4. Sales Day book was overcast by Rs. 400.
5. General expenses Rs. 28 were posted in the ledger as Rs. 82.
Pass Journal entries to rectify the above mistakes and prepare the Suspense Account.
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Solution:
Journal Entries
Suspense Account
Dr Cr
Particulars Amount Particulars Amount
FINAL ACCOUNTS
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One of the main objectives of maintaining accounts it to find out the profit or
loss made by the business during a period and to ascertain the financial position of the
business as on a given date. In order to know the profit or Loss made by the business,
Trading and Profit and loss account is prepared. The position of the business on the
last date of the financial year will be revealed by the Balance sheet. The Trading,
Profit & loss account and balance sheet prepared by the business-man at the end of
the trading period are called Final Accounts.
They are called Final accounts due to following reasons.
They are prepared finally, i.e. after all the books of accounts are closed and
trial balance is extracted.
They are prepared at the end of the Trading period.
They show the Final results of business.
Capital Expenditure: Capital expenditure is that expenditure which results in the
acquisition of an asset or which results in an increase in the earning capacity or which
Affords some other advantage to the firm. In brief, if the benefits of expenditure are
expected to accrue for a long time, it is called capital expenditure. Examples of capital
expenditure are acquisition of land, building, machinery etc.
Revenue Expenditure: All the expenditures which are incurred in the day to day
conduct and administration of a business and the effect-of which is completely
exhausted within the current accounting year are known as "revenue expenditures".
These expenditures are recurring by nature i.e. which are incurred for meeting day
today requirements of a business and the effect of these expenditures is always short-
lived i.e. the benefit thereof is enjoyed by the business within the current accounting
year.
Examples of Revenue expenditures are Purchase of goods, salaries paid, postages,
rent, travelling expenses, stationery purchased, wages paid on goods purchased etc.
TRADING ACCOUNT
A trading account is an account which contains, in summarized form, all the
transactions, occurring, throughout the trading period, in commodities in which he
deals and which gives the gross trading result. In short, trading account is the
account which is prepared to determine the gross profit or the gross loss of a trader.
Trading account considers the all direct expenses which are incurred at the
time of production of goods and services.
The difference between the two sides of the trading account represents either gross
profit or gross loss.
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ADVANTAGES OF TRADING ACCOUNT
Trading account shows the relationship between gross profit and sales that
helps to measure profitability position.
Trading account shows the ratio between cost of good sold and gross profit.
Trading account gives the information about efficiency of trading activities.
Trading account helps to compare between cost of good sold and gross profit.
Trading account provides information regarding stock and cost of good sold.
1. Profit and loss account gives the actual information abut net profit or net loss of the
business for an accounting period.
2. Profit and loss account gives the actual information abut indirect expenses.
3. Profit and loss account serves to determine the ratio between nte profit to sales.
4. Profit and loss account helps to determining the ratio between net profit to operating
expenses.
5. Profit and loss account helps in controlling indirect expenses.
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PROFORMA FOR P/L ACCOUNT
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DIFFERENCE B ETWEEN TRADING & PROFIT AND LOSS ACCOUNT
BALANCE SHEET
Advantages:
By comparing past balance sheets with the present balance sheet, the growth
or decline of the business assets, loans and net worth can be determined.
The balance sheet is used to calculate ratios, such as the current ratio, acid test
ratio, leverage ratio. These ratios are used to evaluate the financial
performance of the business.
The owner may need to negotiate a long-term loan on the basis of non-current
asset values.
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THE PROFORMA OF BALANCE SHEET
Note:
1. While preparing the balance sheet Net profit is added to Capital and Net loss is deducted
from Capital
2. Drawings are deducted from Capital.
Problem:
Form the following particulars prepare Final Accounts as on 31-03-2009.
Adjustments:
1. Closing Stock Rs. 10,000.
2. Create 5% Reserves for Doubtful debts
3. Out standing Salaries Rs 200
4. Depreciation @ 10% on Machinery and 5% on Furniture.
5. Fire accident destroyed goods worth Rs 5000 and Insurance company agreed
to Pay Rs 4000
Solution:
Trading and Profit and loss account as on 31-03-2009
Dr Cr
Particulars Amount Particulars Amount
Note:
1. Stock destroyed is added to closing stock because this stock is wastage for trading
period but the end the closing stock is Asset to next year.
Note: For calculating total debtors we deduct the Doubtful debtors from total debtors.
Here we can consider the bad debts because these debts are their beginning of the
year.
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