The System of Accounting Volume Ii 291 Pages

Volume – II
WRITTEN BY:
SYED AQEEL RAZA
YEAR 2015
THE SYSTEM OF ACCOUNTING
VOLIUM – I
Written by;
Syed Aqeel Raza
<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>
FATHER OF ACCOUNTING
Fra Luca Bartolomeo de Pacioli (1445–1517) was an Italian
mathematician and seminal contributor to the field now known
as accounting. He is referred to as the Father of Accounting and
Bookkeeping (he was the first to publish a work on a double-entry
system of bookkeeping). He was also called Luca di Borgo after
his birthplace, Borgo Sansepolcro, Tuscany.
<THE SYSTEM OF ACCOUNTING < VOLIUMII< SYED AQEEL RAZA<aqeelraza@live.com>
PREFACE
First and foremost, I want thank to Almighty Allah who attached
me to the Door-of-knowledge and encouraged me to serve
mankind by spreading education which made the human
supreme in creation.
The object of writing this book “The System of Accounting” is to

provide basic accounting concept in easy way of styles and
illustrations makes readers, students and business executives
acquainted with the concept of accounting.
This book is primarily written for the use of beginners of this

subject and for those who wish to have knowledge of it to keep
eyes on their finance applied in business.
At last in short, I shall say that this is my a little contribution

based on your suggestions.
I tried my best to avoid errors, but errors may be being human then
please notify and suggest anything for improvement with liberty on my
email addresses aqeelraza97@yahoo.com.
FORWARD
I am in great pleasure of presenting my Book “The
System of Accounting Volume II which I think, will
be proved different others because of the reason
that I tried utmost to select suitable words with
Urdu translation where necessary to make it
comprehensive to readers and the students of
commerce.
I hope my a little struggle for this noble cause will

be admirable with suggestions for improvement.
COPYRIGHT
Copyright of this book goes to writer and not
allows others to use its contents to publish but
downloads for reading and study
All the best to my readers
DISCLAIMER
The name of the book “The System of Accounting”,
contents, definition, and written material of this book is
of the writer not copied from any source but taken
guideline from many other sources to complete thinking
and saving errors. The name, amount, addresses, and
anything relating to personal in written materials are
imaginary and thinking of writer.
In the opinion of the writer, same views or concepts of
accounting being the same subject with others may be
resemblance but difference in the idea of writing and
presentation.
All the best to readers

The Mode of Transaction & its driver
THE MODE OF TRANSACTION

All transactions need cash to settle down and cash requires to pay and to receive
in form of cash and bank.
The parties relating to business usually give cheque or do on line in the account of
the company. The checks are deposited in the account and on line transactions
are confirmed with bank statement.
The person who deals with banks called accountant-bank who issues checks for
payment to accountant-cash, petty cashier/assistant to accountant-cash under
head cash-in-hand and petty cash funds, to parties and to pay expenses under
limit. He is also responsible to check and balance cash into banks under Bank
Reconciliation Statement.
The cash is drawn from bank for paying vouchers requiring cash such as cash
vouchers and petty cash vouchers handled by the person maintaining cash called
accountant-cash and petty cashier. The responsibility of them is to receive cash
from bank with security provided by the company and to pay the cash against
vouchers verified by the persons authorized and keep in balance cash on daily
basis.
The payment by cash must be limited by security reason and the cash which is
drawn from bank will also be insured at an average drawing rate. The locker for
keeping cash and instruments must also be provided.
Accountant-cash
In order to handle cash, the following points are created which I think are the
main responsibilities of accountant-cash;
- To use security for fetching cash from bank.
The question of security should be on priority in this dangerous period

wherein terrorism, loot, street crimes, etc are in full swim do not permit
anyone to get handle or handle this out nature work alone.
The security must be given to person; must be two or more; handle this
work and the best way of it are to hire security services and to insure the
amount at average by insurance company.
The person or persons handling the work in question must be protected by

insurance company in case of any difficulty in performing the work.
Security is the measure that ensures safety.
- To care in receiving the cash from bank.
The person submits cheque to bank must care the amount which he
receives. It is better to count cash and matches it to the figure of cheque. In
case of cheque more than one, he should total them in his diary before
submitting. The cash in domination as per cash requirement must be taken
from bank.
Care saves from coming difficulty.
- To keep cash notes & coins domination-wise bundled separately.

In order to operate cash, the cash must be in domination-wise as coin 1, 2 & 5 and
notes 10, 20, 50, 100, 1000 & 5000 and bundled separately which will keep
accountant-cash in accuracy and save him keeping balance to give or to receive in
case of short or excess payment or receipt.
To keep set everything is good habit.
- To view payment instruments and vouchers that they are completed

as per rule.
The instrument and voucher are like bankers cheques given to someone to take
cash from bank or transferring in the name given when the voucher is used to
take cash internal must be viewed that they are completed especially date,
amount and particular as well as the signature of authorized person as per rule.
- To pay after getting signature of receiving person on voucher.
The signature of receiving person must be taken which shows the purity of
payment and saves future claim for non-payment. The signatures must be listed
to match with the signature in payment instrument at the time of payment in
case of internal and if the voucher is paid to outer, the signature must be verified
by CNIC if unknown.
The voucher will consider unpaid if not signed.

- To care in giving cash to irrelevant person or ask for

authorization.
The payment to the person to whom the voucher is being paid must be
in his name otherwise ask for authorization in black and white or in
case of emergency, confirm on phone but get the signature later.
The voucher or payment instrument may be void in case of signature of

irrelevant person.
- To prepare summary of cash receipts and payments on daily

basis.
After payments and receipts all the day, it is necessary to prepare

summary of payments and receipts which show your daily activity of
cash in and out and facilitate to record them in cash book and ledger. It
will also recheck cash balance vs. summary and cash book.
The summary of payments and receipts named the daily cash report
which is designed here;


The daily cash report has three segments as receipt, payment and
temporary advances wherein receipt segment has opening balance of
cash which adds receipts; cash, sale, other etc. becomes cash available
for payments, payment segment contains name of person to whom the
voucher is paid, description shows details of spending money and
advance against salary or loan which is recoverable shown separately
but include in sub -total of payment and the temporary advance
segment is for payment of advances like I.O.U. (I owe you) for
purchases, expenses and others. Total payments are reduced by total
cash available and cash remains shown in closing balance which in next
report will become opening cash of the day.
As far as temporary advances are concerned, it is given to person,

assigned for purchases, repair works, is responsible for settle it within
short period of time as soon as job is completed.
The vouchers relating to temporary advances are kept separately and

on receiving adjustment form/voucher as prescribed below attached
with bill/invoice and audited from the person taken temporary
advance, the balance payable or receivable is paid or received to or by
the person.


The final adjustment voucher is written in shade line and balance if
payable in payment column and the balance if receivable in the receipt
column is written. The adjustment voucher is recorded without
deduction of temporary advance in cash book.
Other advances of long term nature are recorded in cash book directly
in person’s account because of risk in handling balance in cash and
keeping voucher in safe custody.
The work of making daily cash report and recording in cash book is look
like double but auditing, cross checking, cross matching and showing
the daily activity of cash to management point of view is good besides
this the person recording transactions will be separate as to accountant
or data entry operator.
- To balance cash with receipts and payments summary of the

day.
The balance of cash in hand and the recording of voucher in cash book
or in system must be on daily basis at the end of the day and the
balance of cash in hand and the balance in cash book must match with
each other like this;

CASH MATCHING
Cash in cash book Cash in daily cash report
10,000. - 6,000.-
Unrecorded T/Advances 3,000.-
---------
9,000.-
I.O.U. (I owe you) 1,000.-
--------------- -------------
Cash Balances 10,000. - 10,000.-
========= ========
Now this question arises that temporary advances are just like I.O.U.
but shown in cash matching unrecorded temporary advances and I.O.U.
both. It must be cleared that temporary advances are shown in daily
cash report but not I.O.U. because of small nature emergencies for
short time.

- To keep balance cash in lock and key.
After recording and matching of cash, the cash may be counted domination-wise
below and is kept under lock and key.
5,000 x 1 = 5,000
1000 x 2 = 2,000
500 x 2 = 1,000
100 x 10 = 1,000
50 x 10 = 500
20 x 10 = 200
10 x 20 = 200
5 x 10 = 50
2 x 10 = 20
1 x 30 = 30
- To keep in record any amount given other than voucher.

Sometime, emergency is occurred and/or unavailability of domination, the cash is
paid or received in short or excess but not properly documented, the accountant-
cash must note the amount for his memory and future settlement.

- To maintain temporary advances or I.O.U.
The temporary advances are given for purchases, repair work and others signed
by authorized person under limit when I.O.U. advances are of small nature like
conveyance, cartage, entertainment, food, tea, out work etc. relates to
accountant-cash and the person taken it settle able in short period and work like
give and take and it does not require to record in cash book or in daily cash report
but to work in balancing of cash.
Therefore, temporary advances or .I.O.U will be on written paper means voucher

and may be kept in file in safe place.
- To record vouchers in the system or in cash book and in ledger.
The accountant, data entry operator or cash accountant is responsible for

recording vouchers date and head wise in the system of accounting in computer
or in cash book and in ledger.
- To check vouchers posted that they are in right place or in right head of account.
After recording in computer or in cash book, check vouchers that they are posted
in right place or in right head of account.
The checking system on daily basis must be practiced because of which the
difficulty of adjusting and reversing entries will be minimized.

- To submit vouchers to auditors/accountant for verification and audit.
All cash payment vouchers must be verified and audited internally by internal
auditor who verifies vouchers that qualify under the rule and posted in cash book
or ledger correctly. Otherwise, he will be responsible to get it corrected and in
case of any discrepancy in taking cash, he will ask for the cause and get it
refunded.
- To file vouchers with serial numbers.
After positing and auditing, all vouchers must be kept in file with serial number as
cash payment voucher in cash payment voucher file and cash receipt voucher in
cash receipt voucher file. The file must indicate file number the nature of voucher,
serial number start to end and period of vouchers.
The petty cashier or assistant to accountant-cash will also be required according

to the nature or volume of business especially in manufacturing concern where
every time cash is required for repairing of machineries, advances to workers,
small purchases and others need for cash. He will also be helpful in place of
accountant-cash because the cash requires responsibilities and continuous
demand to keeping in run business smoothly.
As far as the responsibilities of accountant-cash, the person handling banks

named accountant-bank is responsible for;
- Keeping cheque books in lock and key.
It is the responsibility of accountant-bank to keep cheque books in lock and key.

In case of cancellation of cheque, the cancellation part must be attached with
relevant counter folio of cheque book.
- Viewing payment instruments and vouchers that they are completed as per rule.
The bill, invoice, forms, request, voucher etc must be viewed in making cheque
that are aged, approved and rightly calculated as per rule. By this way, the papers
will be rechecked educating to cheque maker in understanding the contents like
things, rates, sales, income tax and deductions. The balance of the party whose
cheque is being made should be confirmed from his account in ledger.
- Making cheques in cash, self, name, account payee, net amount; after deductions
income tax, sales tax, advance, loan, etc. and gets signature of account holder .
It will be cared in making cheque that it will be paid in cash, self, name and on
account payee and net amount which comes after deductions like income tax,
sales tax, advance, loan, etcetera. After making cheque, signature of account
holder on it will be obtained.

- Giving cheques after getting signature of receiving person on voucher.
He will get the signature of receiving person on voucher without any difference lower
and higher rank. The receiving indicate that the amount has paid and any claim of non-
payment will be challenged especially on cash cheques.
The payment may be void in case of signature of cheque receiving person on voucher.
- Caring on giving cash cheque to irrelevant person or ask for authorization.
All cheques of cash, of name, of account payee and of self must be given to the owner and in
case of other than the owner asks for authorization.
It will also be cared that cash cheque must be given to relevant person and in case of receiving
person is other than the owner, ask for him the authorization.
Care is better and saves future.
- Depositing cheques receipt into specific bank on daily basis or as soon as it

received.
It is seen that debtors give cheque and/or deposit on line in the account of the company but
cheques are deposited and on lines come directly in account.
The accountant-bank will deposit cheques into bank on daily basis as soon as they received.
- Preparing cheques receipts and payments summary on daily basis.
The accountant-bank will prepare daily bank report consists on receipts and payments
reconciled daily with bank and cash book which will become the reporting to management and
control check and balance.
Like daily cash report, I designed the internal daily bank report below;


Daily bank report has two sides; receipt and payment; wherein receipt side
describes opening balance with bank statements or from bank reconciliation
statement adds receipts in shape of cheques, on line and other sources becomes
total receipts means funds available and payment side describes payments to
parties, staff and others which is reduced by total receipts resulting in closing
balance means the funds remain in bank and the closing balance will become
opening in next daily bank report.
- Balancing cheques receipts and payments summary with the specific bank daily.
Actually, the amount does not transfer into account immediately but take some
day when on line transfers come into account immediately from elsewhere.
Therefore, the actual balance will be considered as cash into bank.
Because of doing payments, daily bank report must be balanced with the
specified bank and cheques will be made on the basis of actual balance or cash
available into bank.
- Preparing bank reconciliation statement at the end of the month.
It will be the responsibility of accountant-bank to reconcile banks with cash book

at the end of the month and bank charges, commission, cheque book charges,
Excise duty and tax on cash withdrawn etcetera will record in cash book.
The structure of bank reconciliation statement is as follows;

The above structure of bank reconciliation statement shows two

columns one is for bank statement and other for cash book and
calculated as;
Bank book column; balance in bank statement at the end of the month
less out-standing cheque add deposit in transit.
Cash book column; balance in cash book at the end of the month less
unknown debits and bank charges add unknown credits.
- Recording vouchers in the system or in cash book up to

ledger.
The accountant-bank or date entry operator will record vouchers in

cash book and in ledger or in the computerized system of accounting.
- Checking vouchers posted that they are in right place or in head of

account.
- <THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>
The accountant-cash will check bank vouchers which has been posted
that they are in right place of in right head of account. This will
minimize correction at the end of the financial year.
- Controlling debtors and creditors accounts.
The debtors and creditors are concerned with the payment and
receiving from and to parties payable and receivable hence they may
be maintained age-wise. The accountant-bank will make the schedule
of parties payable and receivable separately and issues cheques and
reminds to parties for settling the amount receivable from him.
The best to control debtors and creditors account is accrual, because of

which receivable and payable can be seen in ledger.
- Filing vouchers with serial numbers bank wise.
Vouchers must be kept in file with serial number bank wise and in case
of need to see it, the voucher can be easily available.
EXTERNAL MODE
Some transactions need to pay and receive through bank and bank has many
products to meet the purpose. The products for doing transactions through bank
are mainly;
- Pay Order
- Demand Draft
- On Line transfer
- Many other sources
PAY ORDER
The pay order is used to pay the parties that requires assurance wherein cash is
given to bank and in result bank gives assurance to pay hundred percent to the
person for whom it made.
The pay order is used to pay within city.
The accountant-bank gives cheque with pay order form for making pay order and
bank makes and delivers it to him.
DEMAND DRAFT
The demand draft is like a pay order but used to pay out –side the city.
The accountant-bank gives it to the party instead of cheque as assurance of

money definitely will pay.
ON LINE TRANSFER
Another useful medium of payment is on line transfer from which money is

transferred at once by Internet system.
MANY OTHER SOURCES
Besides pay order, demand draft and on line many other sources for payment and
receipt are provided by the bank wherein ATM Machine, Visa Card, Credit Card,
Debit Card, Money gram transfer, western union, etc. etc.
Result is that accountant-bank transacts bank’s products with cheque and

reconciles his accounts with cheque matching bank statement.

ACCOUNTING DRIVERS
In order to run any business, man power is needed and to

control it the accounting set-up is required. Apparently, the
man power needs salaries, over time, transport, food and other
monetary requirements.
Besides man power many other kinds of monetary
requirements are needed for machineries, payment to
creditors, receiving from debtors, utility bills, water, light,
repair and maintenance works in machineries and building,
director expenses and internal and external monetary control.
In the nutshell, the need of money in business is like blood in
body. Therefore, persons to control finances are required as
stair in ladder which may be set up like this or according to the
requirement and length of business;

ACCOUNTING DRIVERS
1- Accountant-Chief
2- Assistant to Accountant-chief
3- Accountant-Support
4- Accountant-Taxes
5- Accountant-Cash
6- Accountant-Bank
7- Assistant to Accountant-cash
8- Assistant to Accountant-Bank
DIRECTOR
Assistnt to
Accountant-
Accountant-
Chief
Chief
Accountant- Accountant- Accountnat- Accountant-

Audit Taxes Cash Bank
Assistant to Assistant to
Accountant- Accountant-
Cash Bank
Medium Size Company set up

1- ACCOUTANT-CHIEF
The Accountant-chief is the person that has higher degree in accounting because
who drives persons under chart, will make accounts set up and ensures;
- That all accounts are in balance.

- That cash flow is in favor of company.
- That cost flow goes in profit.
- That finances are under requirements or not to acquire from other
sources.
- That all payments and receipts of debtors and creditors are smoothly
running.
- That all matters relating to taxes are running smoothly and get them
reconciled with tax authorities.
- That the financial statements of company are audited and submitted to
tax authorities in time.
- That income tax, sales tax and all other taxes are being paid and
submitted to tax authorities in time.
- That tax, finances and relating monetary knowledge are up dated.
- To report of all accounting matters to director.

2- ASSISTANT TO ACCOUNTANT-CHIEF
The assistant to accountant-chief will be the person who helps accountant-chief
in;
- In accounts reconciliation
- In making cash flow and cost flow statements.
- In preparing financial statements.
- In taking reports under chart accounting drivers.
- In making budget, planning and all statements relating accounts.
He will follow assistant to accountant-chief in all matters.
3- Accountant-support
Actually, an accountant will be required to support accounting matters in;
- Preparing salaries and employees’ relating statements.

- Checking indents/purchase orders/inventory/consumables
- Checking invoices/bills/cash memos compare to purchase order/requests
- Checking and calculation of invoice/bills/cash memo in compassion to rate
- Getting awareness with rates according to market.
- Raising questions about rates and purchases above than purchase order.
- Verified payment instrument that has been audited.
- Finding mistakes in wrong postings and make them corrected.
- Keep an eye on receiving and payments
4- Accountant-Taxes
The taxes are the matters which need fully attention of an

employer which saves him in future difficulty for which a
person is required who can handle taxes independently and
must have knowledge of taxes, able to face audit and can keep
records according to taxes.
The accountant-taxes will have following responsibilities;
- In making records of taxes
- Keep books of accounts according to taxes.
- Preparing sales tax records
- Preparing income tax records
- Depositing taxes in time
- E-filing or submitting statement to tax authorities before
due date.
- Ensure deduction of taxes
- Update knowledge in taxes
5- Accountant-Cash
Accountant-cash
- To use security for fetching cash from bank.
- To care in receiving the cash from bank.
- To keep cash notes & coins domination-wise bundled
separately.
- To view payment instruments and vouchers that they are
completed as per rule.
- To pay after getting signature of receiving person on voucher.
- To care in giving cash to irrelevant person or ask for
authorization.
- To prepare summary of cash receipts and payments on daily
basis.
- To balance cash with receipts and payments summary of the
day.
- To keep balance cash in lock and key.
- To keep in record any amount given other than voucher.
- To maintain temporary advances or I.O.U.
- To record vouchers in the system or in cash book and in ledger.
- To check vouchers posted that they are in right place or in right
head of account.
- To submit vouchers to auditors/accountant for verification and
audit.

6- Assistant to accountant cash
The assistant to accountant-cash will be responsible;
- To handle petty cash under fixed limit.

- To keep cash in safe custody.
- To maintain petty cash book as prescribed.
- To give request for replenishing of petty cash funds.
- To submit vouchers and petty cash book to auditors/accountant for
verification or audit of petty cash activities during the period.
- To assist accountant-cash in daily cash activities.
- Outdoor assignments.
The assistant to accountant-cash must follow accountant-cash.

7- Accountant-bank
Accountant-bank is responsible for;
- Keeping cheque books in lock and key.

- Viewing payment instruments and vouchers that they are
completed as per rule.
- Making cheques in cash, self, name, account payee, net
amount; after deductions income tax, sales tax, advance, loan,
etc. and gets signature of account holder.
- Giving cheques after getting signature of receiving person on
voucher.
- Caring on giving cash cheque to irrelevant person or ask for
authorization.
- Depositing cheques receipt into specific bank on daily basis or
as soon as it received.
- Preparing cheques receipts and payments summary on daily
basis.
- Balancing cheques receipts and payments summary with the
specific bank daily.
- Preparing bank reconciliation statement at the end of the
month.
- Recording vouchers in the system or in cash book up to ledger.
- Checking vouchers posted that they are in right place or in
head of account.
- Controlling debtors and creditors accounts.
- Filing vouchers with serial numbers bank wise.
8- Assistant to accountant-bank
An assistant to accountant-bank is recommended for smooth working

and replacement of accountant-bank who assigned for working and
helping accountant bank;
- In bank reconciliation.
- In filing vouchers with serial number bank-wise.
- In making entries in cash book and ledger in absence of
accountant-bank.
- In depositing cheques and drawing cash.
- In outdoor works.
- In keeping update bank balances.
- In other works assigned to him.
Assistant to accountant-bank must follow accountant-bank.

JOURNAL MAKING
USE OF JOURNALS
The system of any existence requires devices or methods which
empower its mechanism to run smoothly achieving target of its
own made for that purpose. In accounting many devices or
methods have been invented for recording business
transactions and/or under journals columnar designed to make
easy book keeping.
There are several kinds of journal used in book keeping
designed according to the nature of business or the volume of
transactions from which some are mentioned here;
KINDS OF JOURNALS
1-GENERAL JOURNAL (JV)

2-CASH BOOK (CB)
3-PETTY CASH BOOK (PCB)
4-CASH RECEIPT JOURNAL (CRJ)
5-CASH PAYMENT JOURNAL (CPJ)
6-PURCHASE JOURNAL (PJ)
7- PURCHASE RETURN AND ALLOWANCES JOURNAL (PR&AJ)
8-SALES JOURNAL (SJ)

9- SALES RETURN AND ALLOWANCES JOURNAL (SR&AJ)
<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZAaqeelraza@live.com
JOURNAL MAKING
1-STEPS FOR JOURNALS

- Source document
The first step for moving towards journals is source

document meant by any information relating to business
transaction enables journals to fill its columnar
requirement like cash memo, bill, invoice, sales tax
invoice, purchase invoice etc. and the source document
also provides evidence or support to the transaction
consists on date, serial number, the name of seller and
purchaser, quantity, description of goods, rate of goods,
amount and tax involved in etc. etc. as specified in
accounting cycle or below;
JOURNAL MAKING
CASH MEMO
S.No
. Date

M/S.

Quantit Amount
S.No. Particulars Rate y (Rs.)

Total
Goods once sold will not be back. E.&.O.E.
Signature
JOURNAL MAKING
COMPANY LOGO Invoice No.

Date
COMPANY NAME P.Order No.
(Company Slogan)
(Address )
No., Street, City, code
Phone, Fax
e-mail
SALES TAX NO.
To
Name
Company Name
Address
Phone No.
SALES TAX NO.
S.NO. QUANTITY DESCRIPTION RATE AMOUNT

SUB TOTAL
SALES TAX
TOTAL
THANK YOU FOR YOUR BUSINESS
JOURNAL MAKING
- Voucher system
The second step for entering in journals is voucher system
contains the information of source document as well as the
voucher number, date of payment or receipt, and folio number;
the journal or ledger page number supported by source
document or works alone as source document.
The specimen of vouchers; cash payment voucher, cash receipt
voucher, petty cash voucher, bank payment voucher, bank
receipt voucher and journal voucher, used in recording as
specified below;
Journal voucher is used to record liabilities and adjustments in
ledger.
The source document supports to voucher and voucher to
journal and both play very important role in crystallizing the
system of accounting. They provide references to auditors to
reach the required transaction in no time then we can say true
accounting is behind to source document and voucher.
JOURNAL MAKING
CASH PAYMENT VOUCHER
Name of Company
Date
Voucher No.
C.B. Folio
A/
DEBIT c
PAID TO
On account
of Amount
Rs
. Ps.

TOTAL
RUPEES

Prepared by: Checked by: Authorized by: Received By:
JOURNAL MAKING
CASH RECEIPT VOUCHER
Name of Company
Date
Voucher No.
C.B. Folio
CREDIT A/c
Received
from
On account of Amount
Rs. Ps.

TOTAL
RUPEES

JOURNAL MAKING
`

Name of Company

PETTY CASH VOUCHER
No.

Paid to

Rupees Rs.

on account of


JOURNAL MAKING
BANK PAYMENT VOUCHER
Name of Company
Date
Voucher No.
C.B. Folio
DEBIT A/c
PAID TO
Rs
. Ps.

TOTAL
RUPEES

JOURNAL MAKING
BANK RECEIPT VOUCHER
Name of Company
Date
BP.V NO.
C.B. Folio
CREDIT A/c
Received
from
Rs. Ps.

TOTAL
RUPEES

JOURNAL MAKING

JOURNAL VOUCHER
JV.No. DATED :

S.NO. HEAD OF ACCOUNTS FOLIO DR. (Rs.) CR. (Rs.)

TOTAL

NARRATION:

Signed Signed Signed Signed
JOURNAL MAKING
1- GENERAL JOURNAL (GJ)
General Journal is used for sequential record of all

business transactions in low volume otherwise spread in
specialized journals consists on date, description,
reference, debit and credit and the transactions involves
the date of the transaction, the title of the accounts
which have to debit and credit and the explanation of
transaction.
There are two types of general journals “Standard Form
and Skeleton Form as designed below;
JOURNAL MAKING
1 - STANDARD FORM
PAGE NO.
GENERAL JOURNAL
DATE
2015- DESCRIPTION REF. DEBIT CREDIT

JOURNAL MAKING
The standard form of general journal contains five

columns namely date, description, reference, debit and
credit and the method of recording is given below;
DATE
In this column, the year is written on top as 2015, divided
into two portions bigger and small, bigger is for month
i.e. Jan, Feb, Mar, Apr, May, June and son so and, small
the date of the month i.e. 1, 2, 3, 4, 5, 6, 7 so on.
DESCRIPTION
The column of description contains the name or head of
account of the transaction indicating debit and credit.
The debit is written first nearest to the date of the
transaction and the credit on the second line giving space
to the debit. The third under line in the bracket is of
narration or explanation of the transaction which
separates each transaction.
JOURNAL MAKING
REFERENCE/REF:
The voucher number oblique page number of the ledger
where the account is mentioned is referred in the
column “Ref.” as to cash account on page 5, capital
account on page 01, Furniture account on page 50 and so
on.
DEBIT AND CREDIT
The amount of transaction is written on the column debit
and credit.
Therefore, the general journal covers all the aspects of
transaction involves date, description, posting reference
and accounting methods.
JOURNAL MAKING
2 – SKELETON FORM
Skeleton Form of general journal is only column-less but

the entries of the transactions are recorded as same as in
General Journal. This form is generally used to save time
or for practice purposes.
1.1.2015 CASH
CAPITAL
(Narration…………………..)
JOURNAL MAKING
Illustration No.1
Jan1, 2015: Rizwan commences trading business in the
name of Rizwan Traders with a cash of Rs.100, 000/=.
Jan 5, 2015: Paid shop rent for three months @ Rs.2000/= per
month as shop deposit and Rs. 2000/= for the month.
Jan 6, 20105: Purchased merchandise on cash Rs.60, 000/=.
January 7, 2015: Purchase Furniture for shop 5000/= in cash.
January 10, 2015, Purchase Merchandise for Rs.25, 000/= on
credit from Imran Trading Co.
Jan 11, 2015: Paid for cartage on carrying merchandise at shop
Rs.2000/=.
Jan 15, 2015: Sold merchandise of Rs.50, 000/= in cash.
Jan 18, 2015, Sold merchandise on credit for Rs.30, 000/= to
A.A. Enterprises, S.I.T.E., Karachi.
Jan 20,2015: Cash deposited into bank Rs.10, 000/= as an
initial deposit for opening account into MCB Bank Ltd, K.I.A.
Br. Karachi.
JOURNAL MAKING
Jan 22, 2015: Paid electricity bill for Rs.1500/= for the month
of January 2015
Jan 22, 2015: Returned defective goods worth Rs.1000/= to
M/s. Imran Trading Company.
Jan 23, 2015 Cash Rs.23, 520/= paid to M/s. Imran Trading Co.
and received 2% discount Rs.480/= on payment within time.
Jan 24, 2015: Cash Rs.28, 500/= received from M/s. A.A.
Enterprises and allowed them discount Rs.500/- on payment
within time.
30, Paid salary to sale man Rs. 5000/= by cheque.
Jan 31, 2015: Unsold goods of Rs.1000/= returned from M/s.
A.A. Enterprises.
JOURNAL MAKING
Solution:
Jan1, 2015: Rizwan commences trading business in the

name of Rizwan Traders with a cash of Rs.100, 000/=.
FIRST STEP = SOURCE DOCUMENT = CASH MEMO/INVOICE
SECOND STEP = VOUCHER SYSTEM = CASH PAYMENT
THIRD STEP = JOURNALS = GENERAL JOURNAL

JOURNAL MAKING
RIZWAN TRADERS
Date 1/1/2015
Voucher No. CR-1
Folio 1
CREDIT CAPITAL A/C (RIZWAN) A/c
Received
from RIZWAN TRADERS
Rs. Ps.
100,00
Mr. Rizwan invested cash for starting business 0 00
under the name of Rizwan Traders

TOTAL
RUPEES ONE HUNDRED THOUSAND ONLY

100,00
0 00
signed signed signed signed

JOURNAL MAKING
PAGE NO. 1
GENERAL JOURNAL
DATE
DESCRIPTION REF. DEBIT CREDIT
2015
100,000.
Jan 1 Cash A/c CR-1 -
Capital A/c (Rizwan) CR-1 100,000.-
(Cash invested by Rizwan)
Jan 5, 2015: Paid shop rent for three months @
Rs.2000/= per month as shop deposit and Rs. 2000/= for
the month.
FIRST STE = SOURCE DOCUMENT = RENT AGREEMENT/RENT RECEIPT
JOURNAL MAKING
RIZWAN TRADERS
Date 5/1/2015
Voucher No. CP-1
C.B.
Folio 1
A/
DEBIT SHOP DEPOSIT A/C & PREPAID RENT c
PAID
TO SHOP OWNER
Rs. Ps.
Paid shop rent for three months @ Rs.2000/month as shop deposit
and Rs.2000 for the month
SHOP DEPOSIT 6,000 00

PREPAID RENT 2,000 00

TOTAL 8,000 00
RUPEES EIGHT THOUSAND ONLY


JOURNAL MAKING
PAGE NO. 1
GENERAL JOURNAL
DATE
2015
6,00
Jan: 5 Shop Deposit A/c CP1 0.-
2,00
Prepaid Rent A/c CP1 0.-
8,00
Cash A/c CP1 0.-
(3 month shop rent as deposit & 1 month rent in
advance)
Jan 6, 20105: Purchased merchandise on cash Rs.60, 000/=.
FIRST STE = SOURCE DOCUMENT = CASH MEMO/INVOICE
CASH MEMO
S.No
. 700 Date 06.1.2015

M/S. RIZWAN TRADERS

S.No. Particulars Rate Quantity Amount (Rs.)
01 RADIO 100/= 100 10,000.-
02 TAPE RECORDER 500/= 30 15,000.-

03 SPEAKERS JAPAN 200/= 50 10,000.-
04 V.C.R. 500/= 30 15,000.-
05 CAMRAS 100/= 100 10,000.-

KAMRAN ELECTRONICS
I.I.Chundrigar Road
Total 60,000.-
Signature
JOURNAL MAKING

RIZWAN TRADERS
Date 6/1/2015
Voucher No. CP-2
Folio 1
A/
DEBIT PURCHASES c
PAID TO CASH
Rs. Ps.
60,00 0
Merchandise purchased on cash from M/s. Kamran Electronics 0 0
Vide C/M No.700 dated 6.1.2015
-
-

60,00
TOTAL 0 00
RUPEES SIXTY THOUSAND ONLY


JOURNAL MAKING
PAGE NO. 1
GENERAL JOURNAL
DATE
2015
60,00
Jan: 6 Purchases A/c CP2 0.-
60,00
Cash A/c CP2 0.-
(Merchandise purchased in cash)
January 7, 2015: Purchase Furniture for shop 5000/= in

cash.
JOURNAL MAKING
CASH MEMO
S.No
. 100 Date 07.1.2015

M/S. RIZWAN TRADERS

01 CHAIR 200/= 5 1,000.-
02 TABLE 500/= 1 500.-
03 SHOW CASE 1000/= 1 1,000.-
04 STOOL 100/= 5 500.-
05 SIDE RACK 1,000/= 2 2,000.-

SHAHID FURNITURE MART
Liaquatabad, Karachi
Total 5,000.-
Signature
JOURNAL MAKING

RIZWAN TRADERS
Date 7/1/2015
Voucher No. CP-3
Folio 1
DEBIT FURNITURE A/C A/c
PAID TO CASH
Rs. Ps.
5,00
Purchased furniture for shop in cash 0 00

5,00
TOTAL 0 00
RUPEES FIVE THOUSAND ONLY


JOURNAL MAKING
PAGE NO. 1
GENERAL JOURNAL
DATE
2015
5,00
Jan: 7 Furniture A/c CP3 0.-
5,00
Cash A/c CP3 0.-
(Purchased furniture for shop)
January 10, 2015, Purchase Merchandise for Rs.25, 000/=

on credit from Imran Trading Co.
SECOND STEP = VOUCHER SYSTEM = JOURNAL VOUCHER
JOURNAL MAKING
INVOICE
COMPANY LOGO Invoice No. 0102
Date 10.1.2015
COMPANY NAME IMRAN Trading Company P.Order No. PO-RT-5
(Company Slogan)
(Address ) I.I. Chundrigar Road,

No., Street, City, code Karachi
Phone, Fax 0213712586
e-mail imranstores@yahoo.com
SALES TAX NO.
To
Name MR. RIZWAN
Company Name M/S. RIZWAN TRADERS
Address KORANGI, KARACHI
Phone No. 0215067012
SALES TAX NO.
01 10 T.V. SETS TOSHIBA B&W 2000/= 20,000.-

02 10 V.C.P. China 500/= 5,000/=

2% discount on payment within 15 days from the date
Of purchase.

25,000.-
SUB TOTAL 25,000.-
SALES TAX 0
TOTAL 25,000.-

JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER
JV.No. JV-1 DATED : 10/1/2015

1 Purchases A/c JV1/6 25,000.-
2 A/c Payable (Imran Trading Co.) JV1/7 25,000.-

TOTAL

NARRATION: TO RECORD PURCAHSE OF MERCHANDISE FROM Imran TRADING CO.

JOURNAL MAKING
PAGE NO. 1
GENERAL JOURNAL
DATE
2015
25,00
Jan: 10 Purchases A/c JV1 0.-
A/c Payable (Imran Trading) JV1 25,000.-
(Merchandise purchased on credit from Imran
Trading)
Jan 11, 2015: Paid for cartage on carrying merchandise

at shop Rs.2000/=.
FIRST STE = SOURCE DOCUMENT = NONE
SECOND STEP = VOUCHER SYSTEM = CASH PAYMENT VOUCHER
JOURNAL MAKING
RIZWAN TRADERS
Date 11/1/2015
Voucher No. CP-4
Folio 2
DEBIT CARTAGE A/C A/c
PAID TO CASH
Rs. Ps.
2,00
Paid cartage on carrying merchandise to shop 0 00

2,00
TOTAL 0 00
RUPEES TWO THOUSAND ONLY


JOURNAL MAKING
PAGE NO. 2
GENERAL JOURNAL
DATE
2015
1 2,0
Jan: 1 Cartage A/c CP4 00.-
2,0
Cash A/c CP4 00.-
(paid cartage for merchandise)
Jan 15, 2015: Sold merchandise of Rs.50, 000/= in cash.
SECOND STEP = VOUCHER SYSTEM = CASH RECEIPT VOUCHER

JOURNAL MAKING
<THE SYSTEM OF ACCOUNTING

CASH MEMO < VOLIUM II< SYED AQEEL
S.No RAZA<aqeelraza@live.com>
. 700 Date 15.1.2015

M/S. CHAUDRY TRADERS
KARACHI
01 RADIO 200 50 10,000.-
02 TAPE RECORDER 600 15 9,000.-
03 SPEAKERS JAPAN 300 24 7,200.-
04 V.C.R. 600 15 9,000.- JOURNAL MAKING
05 CAMRAS 200 50 10,000.-
06 T.V. SETS TOSHIBA BW 600 8 4,800.-

RIZWAN TRADERS
Date 15/1/2015

Voucher No. CR-2
Folio 2
RIZWAN TRADERS
CREDIT SALE A/C A/c
Korangi-Karachi
CASH Received from; M/S. CHAUDHRY TRADERS
Total 50,000.-
Signature
Rs. Ps.
50,0
Cash received from cash customer for sale of merchandise 00 00
Cash Memo No.700 dated 15.1.2015

TOTAL
RUPEES FIFTY THOUSAND ONLY

50,0
00 00

JOURNAL MAKING
PAGE NO. 2
GENERAL JOURNAL
DATE
2015
50,000
Jan: 15 Cash A/c CR2 .-
50,000
Sale CR2 .-
(Merchandise sold in cash)
Jan 18, 2015, Sold merchandise on credit for Rs.30, 000/=
to A.A. Enterprises, S.I.T.E., Karachi.
FIRST STE = SOURCE DOCUMENT = INVOICE
JOURNAL MAKING
INVOICE
COMPANY LOGO Invoice No. 002
Date 18.1.2015
COMPANY NAME RIZWAN TRADERS Order No. AAE-002
(Company Slogan)
(Address )
No., Street, City, code KORANGI, KARACHI
Phone, Fax 0215067012
e-mail Rizwantraders@yahoo.com
SALES TAX NO.
To
Name
Company Name M/S. A.A. ENTERPRISES
Address S.I.T.E. KARACHI
Phone No. 0213892065
SALES TAX NO.

01 4 T.V. SETS TOSHIBA B&W 2500/= 10,000.-
02 50 RADIO 200/= 10,000.-
03 25 CAMRA 200/= 10,000.-

30,000.-
SUB TOTAL 30,000.-
SALES TAX 0
TOTAL 30,000.-

JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER
JV.No. JV-2 DATED : 18/1/2015

1 A/c Receivable (A.A. Enterprises) 2 30,000.-
2 Sales 2 30,000.-

TOTAL

NARRATION: TO RECORD SALE OF GOODS ON CREDIT

JOURNAL MAKING
PAGE NO. 2
GENERAL JOURNAL
DATE
2015
30,00
Jan: 18 A/c Receivable (A.A. Enterprises) JV2 0.-
30,00
Sales A/c JV2 0.-
(Sold merchandise on credit to A.A.
Enterprises, Karachi)
Jan 20,2015: Cash deposited into bank Rs.10, 000/= as
an initial deposit for opening account into MCB Bank
Ltd, K.I.A. Br. Karachi.
FIRST STE = SOURCE DOCUMENT = BANK DEPOSIT SLIP
SECOND STEP = VOUCHER SYSTEM = BANK PAYMENT VOUCHER

JOURNAL MAKING
RIZWAN TRADERS
Date 20/1/2015
Voucher No. CP5
Folio 2
DEBIT BNAK A/c
PAID TO MCB, KIA BRANCH
Rs. Ps.
Cash deposited into bank as an initial deposit for opening 10,000 00
account into MCB Bank Ltd, K.I.A., Branch, Karachi

TOTAL 10,000 00
RUPEES TEN THOUSAND ONLY


JOURNAL MAKING
PAGE NO. 2
GENERAL JOURNAL
DATE
2015
2 CP5 10,000
Jan: 0 Bank A/c / .-
CP5 10,000
Cash / .-
(Cash deposited into Bank)
Jan 22, 2015: Paid electricity bill for Rs.1500/= for the
month of January 2015
FIRST STE = SOURCE DOCUMENT = ELECTRICITY BILL
SECOND STEP = VOUCHER SYSTEM = CASH PAYMENT VOUCHER

JOURNAL MAKING
RIZWAN TRADERS
Date 22/1/2015
Voucher No. CP-6
Folio 2
DEBIT UTILITY EXPENSES A/c
PAID TO CASH
Rs. Ps.
1,50
Cash paid for Electricity bill for the month of January 2015 0 00
Into MCB, KIA Branch, Karachi.
-
-

1,50
TOTAL 0 00
RUPEES ONE THOUSAND FIVE HUNDRED ONLY


JOURNAL MAKING
PAGE NO. 2
GENERAL JOURNAL
DATE
2015
2
Jan: 2 Utilities Expense CP6/ 1,500.-
Cash CP6/ 1,500.-
(paid electricity bill)
Jan 22, 2015: Returned defective goods worth
Rs.1000/= to M/s. Imran Trading Co.
FIRST STEP = SOURCE DOCUMENT = DEBIT NOTE
JOURNAL MAKING
ISSUED BY PURCHASER
SPECIMEN OF DEBIT MEMORANDUM

RIZWAN TRADERS,
P.O.Box 125,
Korong, Karachi
Debit Memorandum NO. 001
To: Date: January 22,2015
M/s. Imran Trading Co.
I.I.Chundrigar Road, Karachi

We are debiting your account with the value of under mentioned goods
returned;

Qty. Particulars Amount(Rs.)
2 Tape Record @ Rs.500 as per invoice. 1,000.-
No. 102 dated 10.1.2015
Less

Returned goods being of inferior quality
via Courier Company E.&O.E.
Signature
JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER
JV.No. JV-3 DATED : 22/1/2015

1 A/c Payable (Imran Trading) 3 1,000.-
2 Purchase Return 3 1,000.-

TOTAL

NARRATION: TO RECORD THE RETURN OF DFECTIVE GOODS TO IMRAN TRADING CO VIDE

DEBIT NOTE # 001 DATED 22.1.2015

JOURNAL MAKING
PAGE NO. 3
GENERAL JOURNAL
DATE
2015
Jan: 23 A/c Payable (Imran Trading) JV3/ 1,000.-
Purchase Return A/c JV3/ 1,000.-
(goods returned to Imran Trading)
23, Cash Rs.23, 520/= paid to M/s. Imran Trading Co.
and received 2% discount Rs.480/= on payment within
time.
FIRST STEP = SOURCE DOCUMENT = /CASH RCEIPT FROM SUPPLIER
JOURNAL MAKING
RIZWAN TRADERS
Date 23/1/2015
Voucher No. CP-7
Folio 3
DEBIT A/C PAYABLE (IMRAN TRADING) A/c
PAID TO IMRAN TRADING
Rs. Ps.
Cash paid to Imran Trading against merchandise purchased on 23,520 00
account)

-

TOTAL 23,520 00
RUPEES Twenty three thousand five hundred twenty only


JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER
JV.No. JV-4 DATED : 22/1/2015

1 A/c Payable (Imran Trading) 3 480.-
2 Purchase Discount 3 480.-

TOTAL

NARRATION: TO RECORD PURCAHSE DISCOUNT RECEIVED ON PAYMENT WITHIN TIME.

JOURNAL MAKING
PAGE NO. 3
GENERAL JOURNAL
DATE
2015
2
Jan: 3 A/c Payable (Imran Trading) Cp7/ 23520.-
CP7 23,520
Cash A/c / .-
(Cash paid to Imran Trading against purchases)
A/c Payable (Imran Trading) JV4/ 480.-
Purchase discount JV4/ 480.-
(To record purchase discount)
Jan 24, 2015: Cash Rs.29, 000/= received from M/s. A.A.
Enterprises and allowed them discount Rs.500/- on
payment within time.
FIRST STEP = SOURCE DOCUMENT CREDIT NOTE/CASH RCEIPT FROM SUPPLIER
SECOND STEP = VOUCHER SYSTEM = CASH RECEIPT VOUCHER/JOURNAL VOUCHER
JOURNAL MAKING
RIZWAN TRADERS
Date 24/1/2015
Voucher No. CR-3
Folio 3
CREDIT A/c Receivable (A.A. Enterprises) A/c

Cash Received from M/S.A.A. ENTERPRISES
Ps
Rs. .
28,5
Cash received from M/s. A.A. Enterprises 00 00

TOTAL 28,500 00
RUPEES Twenty eight thousand five hundred only


JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER
JV.No. JV-5 DATED : 24/1/2015

1 Sales Discount 3 500.-
2 A/c Receivable (A.A. Enterprises) 3 500.-

TOTAL

NARRATION: TO RECORD DISCOUNT ON SALE ALLOWED TO M/S. A.A. ENTERPRISES ON TIMELY PAYMENT.

JOURNAL MAKING
PAGE NO. 3
GENERAL JOURNAL
DATE
2015
2 CR3
Jan: 4 Cash A/c / 28,500.-
A/c Receivable (A.A. Enterprises) CR3/ 28,500.-
Unsold goods returned from A.A.
Enterprises)
Sales Discount JV5/ 500.-
A/c Receivable (A.A. Enterprises) JV5/ 500.-
(To record Sales Discount)
30, Paid salary to sale man Rs. 5000/= by cheque.
FIRST STE = SOURCE DOCUMENT = SALARY SLIP DULY RECEIVED
SECOND STEP = VOUCHER SYSTEM = BANK PAYMENT VOUCHER
JOURNAL MAKING
RIZWAN TRADERS
Date 30/1/2015
Voucher No. BP-1
Folio 3
DEBIT SALARIES A/C A/c
PAID TO MR. KASHIF, SALES MAN
Rs. Ps.
Paid cheque against salary for the month of January 2015 5,000 00

TOTAL 5,000 00
RUPEES FIVE THOUSAND ONLY


JOURNAL MAKING
PAGE NO. 3
GENERAL JOURNAL
DATE
2015
3 BP1 5,000
0 Salaries Expense A/c / .-
BP1 5,000
Bank A/c / .-
(paid for salary to sale man at shop)

Jan 31, 2015: Unsold goods of Rs.1000/= returned from

M/s. A.A. Enterprises.
FIRST STE = SOURCE DOCUMENT = CREDIT NOTE

JOURNAL MAKING
ISSUED BY SELLER
SPECIMEN OF CREDIT MEMORANDUM

RIZWAN TRADERS,
KORANGI
KARACHI-PAKISTAN

To: Credit Memorandum No. 001
A.A. Enterprises Date: January 31,2015
S.I.T.E.,
KARACHI- PAKISTAN

We are crediting your account with the value of under mentioned goods
Received from you for the reason stated in your Debit Note.

Qty. Particulars Amount(Rs.)
5 Radio @ Rs.200 as per Debit Note 1,000.-
No. 501 dated 19.1.2015

Returned (goods being unsold as
greed to return)
E.&O.E.
Signature
<THE SYSTEM OF ACCOUNTING < VOLUME II< SYED AQEEL RAZA<aqeelraza@live.com>
JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER
JV.No. JV-6 DATED : 31/1/2015

1 Sales Return 3 1,000.-
2 A/c Receivable (A.A. Enterprises) 3 1,000.-

TOTAL

NARRATION: TO RECORD THE RETURN OF UNSOLD GOODS FROM M/S. A.A. ENTERPRISES AS AGREED.

JOURNAL MAKING
PAGE NO. 1
GENERAL JOURNAL
DATE REF
DESCRIPTION DEBIT CREDIT
2015 .
Jan: 3 Sale Return JV6 1,000.-
1 /
JV6
A/c Receivable (A.A. Enterprises) / 1,000.-
(unsold goods returned)
JOURNAL MAKING
PAGE NO. 1
GENERAL JOURNAL
Page No.1
DATE
2015
CR1
Jan 1 Cash A/c / 100,000
CR1
Capital A/c (Rizwan) / 100,000
5 Shop Deposit A/c CP1/ 6,000
Prepaid Rent A/c CP1/ 2,000
Cash A/c CP1/ 8,000
(3 month shop rent as deposit & 1 month rent in advance)
6 Purchases A/c CP2/ 60,000
Cash A/c CP2/ 60,000
7 Furniture A/c CP3 5,000
Cash A/c CP3 5,000
1
0 Purchases A/c JV1 25,000
A/c Payable (Imran Trading) JV1 25,000
Trading)
C/O 198,000 198,000
JOURNAL MAKING
GENERAL JOURNAL
Page No.2
DATE DESCRIPTION REF. DEBIT CREDIT
2015
198,00 198,00
C/O 0 0
2,00
11 Cartage A/c CP4/ 0
2,00
Cash A/c CP4/ 0
50,00
15 Cash A/c CR2/ 0
Sale CR2/ 50,000
30,00
18 A/c Receivable (A.A. Enterprises) JV2/ 0
Sales A/c JV2/ 30,000
(Sold merchandise on credit to A.A. Ent.)
10,00
20 Bank A/c CP5/ 0
1,50
Jan: 22 Utilities Expense CP6/ 0
1,50
Cash CP6/ 0
291,50 291,50
C/O 0 0
PAGE NO. 3
GENERAL JOURNAL
DATE
2015
C/O 291,500 291,500
Jan: 22 A/c Payable (Imran Trading) JV3/ 1,000
1,00
Purchase Return A/c JV3/ 0
(goods returned to Imran Stores)
Jan: 23 A/c Payable (Imran Trading ) CP7/ 23,520
(Cash paid to Imran Trading against
purchases)
A/c Payable (Imran Trading Co.) JV4/ 480

Purchase Discount JV4/ 480
(To record Purchase discount)
Jan: 24 Cash A/c CR3/5 28,500
A/c Receivable (A.A. Enterprises) CR3/ 28,500
(Cash received from A.A. Enterprises)
Sales Discount JV5/ 500

A/c Receivable (A.A. Enterprises) JV5/ 500
(To record sales discount)
30 Salaries Expense A/c BP1/ 5,000
Bank A/c BP1/ 5,000

Jan: 31 Sales Return A/c JV6/ 1,000
A/c Receivable (A.A. Enterprises) JV6/ 1,000

(Unsold goods returned from A.A.
Enterprises)
TOTAL 353,480 353,480
<THE SYSTEM OF ACCOUNTING < VOLUME II< SYED AQEEL RAZAaqeelraza@live.com
JOURNAL MAKING
SKELETON FORM:
Jan 1 Cash A/c CR1/ 100,000
Capital A/c (Rizwan) CR1/ 100,000


Cash A/c CP1/ 8,000


Cash A/c CP3 5,000


(Merchandise purchased on credit from Imran Trading)
JOURNAL MAKING
11 Cartage A/c CP4/ 2,000
Cash A/c CP4/ 2,000

15 Cash A/c CR2/ 50,000

Sale CR2/
50,000
18 A/c Receivable (A.A. Enterprises) JV2/10 30,000
Sales A/c JV2/9 30,000

20 Bank A/c Cp5/ 10,000
Cash A/c Cp5/ 10,000

Jan: 22 Utilities Expense CP6/ 1,500
Cash CP6/ 1,500

JOURNAL MAKING
Purchase Return A/c JV3/ 1,000


Cash A/c CP7/
24,000
(Cash paid to Imran Trading against purchases)
A/c Payable JV4/ 480

Jan: 24 Cash A/c CR3/5 29,000


Bank A/c BP1/ 5,000


(Unsold goods returned from A.A. Enterprises)
JOURNAL MAKING
2 – CASH BOOK (CB)

Cash book is maintained to record date-wise all
accounting transactions relating to cash/bank receipts
and cash/bank payments.
The cash book has two sides “Receipts on debit side and
Payments on credit side” each side has same column as
to date, description, folio, cash and bank. Cash debit is
recorded in receipt side and credit on payment side.
It works as Journal and Ledger both and saves time of

posting journal entries and their posting to ledger in
Cash account and Bank account.
JOURNAL MAKING
DISCOUNT
The trade discount on sale or purchase is not recorded
as shown as deduction in invoice and purchaser or seller
record the net amount of the commodities.
The discount, allowed on the amount receivable from
the customer to collect the money at an early date or
some reasons, is recorded to ledger through journal
voucher.
Contra Entry:
Contra entry means no effect of transaction, or transfer
the amount from one place to another place or replace
the place of account as cash replace with bank marked
as “C”.
Banks;
In case of more than one bank, the column can be
added.
JOURNAL MAKING
JOURNAL MAKING
Illustration 1.1
Feb: 1, 2105: Issued cheque Rs.2000/= as Petty Cash
Fund.
RIZWAN TRADERS
Date 01/2/2015
Voucher No. BP-3
Folio 4
DEBIT PETTY CASH FUND A/c
PAID TO Mr. Abdul Lateef
Rs. Ps.
Cheque No. 1125678 dated 1.2.2015 2000 00
Initial payment for petty cash expenses

TOTAL 2000 00
RUPEES TWO THOUSAND ONLY


JOURNAL MAKING
PAGE NO. 4
GENERAL JOURNAL
DATE
2015
Feb: 01 Petty Cash Fund Bp3 2,000.-
Bank BP3 2,000.-
(Cash for petty cash expenses)
3-PETTY CASH BOOK (PCB)

Petty cash book is the journal where small payments
like conveyance, cartage, postage, Entertainment, Office
supplies etc. etc. are recorded under separate columns
head wise and other columns corresponding to the
nature of transactions refer to page number or account
number of ledger.
It contains five columns namely; Receipt, Date,
Description, Voucher Number and payments
spreadable.
JOURNAL MAKING
Cash or cheque of specified amount or in lump sum as
Petty Cash Fund is issued from cash book to petty
cashier and petty cashier makes payments of petty cash
expenditure, records all these payments in petty cash
book in their respective columns and then submits to
the accountant who checks the values and statements
and then issues cheque or cash of the amount spent
against replenishment of petty cash funds.
Illustration 1.2
2.2.2015: Purchase Carbon paper, calculator, pen, pencil Rs.300.-
3.2.2015: Tea, Cold Drink, biscuits Rs.100.-
4.2.2015: Taxi fare of Mr. Rizwan Rs.100.-
5.2.2015: Paid for postage Rs. 50.-
6.2.2015: Paid charity Rs. 20.-
7.2.2015: Paid for office chair repaired Rs.300.-
10.2.2015: Purchase ink, marker etc Rs.100.-
JOURNAL MAKING
12.2.2015: Purchase tissue paper, mosquito spray Rs.200.-
15.2.2015: paid for tea, biscuits Rs. 50.-
16.2.2015: Paid taxi fare of Mr. Rizwan Rs.100.-
18.2.2015: paid for telephone expense Rs. 50.-
20.2.2015: Paid for letter pads Rs.100.-
22.2.2015: Paid for Stapler Rs. 50.-
25.2.2015: Paid advance to Kashif, S/Man Rs.400.-
Solution;
Petty Cash Voucher will be filled as specified below and attach support if
available. Cash memos for purchases of 2/2/2015, 10/2/2015, 12/2/2015,
22/2/2015 & 22/2/15 shall be attached with petty cash vouchers and remaining
singed by paying person or receiving person on voucher.
JOURNAL MAKING

Rizwan Traders

PETTY CASH VOUCHER
No.

Paid to

Rupees Rs.

on account of


JOURNAL MAKING
The petty cashier will submit to Accountant petty cash book along with all
vouchers for getting further funds who checks and verifies the values and
statement and then issues a cheque or cash further to replenish petty cash fund
like before.
The Accountant will journalize petty cash expenses to ledger accounts as;
JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER
JV.No. JV-7 DATED : 28/2/2015

1 Stationery A/c 550
2 Entertainment A/c 150
3 Conveyance A/c 200
4 Postage A/c 50
5 Charity A/c 20
6 Furniture Repair A/c 300
7 Janitorial A/c 200
8 Telephone Charges A/c 50
9 Advance to Staff 400
Petty Cash Funds 1,920

TOTAL

NARRATION: TO RECORD PETTY CASH EXPENSES.

JOURNAL MAKING
4-CASH RECEIPT JOURNAL (CRJ)
The cash receipt journal is used to record all transactions
involve the receipt of cash.
The sale of merchandise mostly involves the amount of
receivables or sometime discount on sale, the columns of
Sales (Cr.), account receivable (Cr.) and sales discount
(Dr.) are shown for the receipt relating to sale.
The columns “Other Accounts” is for all other types of
cash receiving transaction which do not involves sales or
accounts receivable.
Posting in account receivable column links to subsidiary

ledger account of customers to have an up to date record
of balances of customers and a check mark ( _/) is marked
in Ref: column of accounts receivable as a proof of
posting in subsidiary ledger.
At the end of the period, the total of all debit and credit
columns is made as equal and the totals are posted in their
respective accounts in ledger under reference crj.
JOURNAL MAKING
JOURNAL MAKING
5- CASH PAYMENT JOURNAL (CPJ)

Like cash receipt journal, the cash payment journal is
used to control all cash payments and payments to
creditors for purchases.
The cash payment journal involves columns date,
description and voucher number
Date, description and voucher number is used commonly,
other accounts like shop rent, office supplies, office
equipment besides purchases shown in other account
column.
Posting in account payable column links to subsidiary
ledger account of suppliers to have an up to date record of
balances of supplies and a check mark ( _/) is marked in
Ref: column of accounts payable as a proof of posting in
subsidiary ledger.
At the end of the period, the total of all debit and credit
columns is made as equal and the totals are posted in their
respective accounts in ledger under reference cpj.
JOURNAL MAKING
6- PURCHASE JOURNAL (PJ)
Purchase journal relates to transactions of credit

purchases of merchandise only.
Purchase journal consists on columns date, invoice
number, name of supplier, post reference and amount.
JOURNAL MAKING
Purchase journal links to controlling ledger of Purchases Account and Account
Payable and account payable links to subsidiary ledger of suppliers and subsidiary
ledger links to accounts payable schedule or list of account payable balances of
suppliers.
A check mark (_/) is marked in Ref: column of purchase journal as a proof of

posting in subsidiary ledger of account payable.
Illustration 1.3
Rizwan Traders purchased merchandise on account during March 2015 as below;
100 radio set @ 100/= for Rs.8000/- Bilal Store vide Invoice No.305 dated
1.3.2015.
10 T.V. set @ 1500/= for Rs.15000/= from Asim Traders vide Invoice No. 1005
dated 10.3.2015.
25 VCR @ 500/= for Rs.12500 from Khan & Co. Vide Invoice NO. 203 dated
15.3.2015.
50 radio set @ 100/= amounting to Rs.5000/= from Imran Traders under Invoice
No.400 dated 20.3.2015.
25 cameras @ 100 each amounting to Rs.2500/= from Sumair Enterprises under

Invoice NO.506 dated 28.3.2015.

JOURNAL MAKING
PURCHSASE JOURNAL
Page No. 01
DATE POST
NOVICE NO. NAME OF SUPPLIER AMOUNT
2015 Ref.
Jan' 10 102 Imran Trading Co. _/ 25,000

Mar’01 305 Bilal Store _/ 8,000
Mar’10 1005 Asim Traders _/ 15,000
Mar’15 203 Khan & Co. _/ 12,500
Mar’2
0 400 Imran Traders _/ 5,000
Mar’2
8 506 Sumair Enterprises _/ 2,500

TOTAL 68,000
Purchases 11205 68,000
Accounts Payable 22101
JOURNAL MAKING
7-PURCHASE RETURN AND ALLOWANCES JOURNAL (PR&AJ)
Purchase Return and Allowances journal relates to credit

notes issued by supplier, who credited the account of
purchaser, against debit note of goods returned and debit
to supplier is recorded.
Purchase Return & Allowances Journal consists on

columns date, credit memorandum, Name of supplier,
post reference and amount.
Purchase Return and Allowances journal links to
controlling ledger of Accounts Payable of supplier (Dr.)
and Purchase Return and Allowances account (Cr.) and
Purchase Return and Allowances effects to subsidiary
ledger of suppliers.
A check mark (_/) is marked in Post Ref: column of sale

return and allowances journal as a proof of posting in
subsidiary of account payable.
JOURNAL MAKING
Illustration 1.4
Merchandise returned to following suppliers;

01 VCR @ 500/= for Rs.500 to Khan & Co. received
credit memo No.1023 dated 20.3.2015 against debit
memo No.102.
2 radio set @ 100/= Rs.200/= to Imran Traders under
received memo No.203 dated 25.3.2015 against debit
memo No.103.
1 cameras @ 100 for Rs.100/= to Sumair Enterprises
issued debit memo No. 104 and received credit memo No.
1036 dated 30.3.2015.

PURCHASE RETURNS AND ALLOWANCES JOURNAL
Page No. 01
DATE POST
CREDIT MEMO NO. NAME OF SUPPLIER AMOUNT
2015 Ref.
Jan' 22 201 Imran Trading Co. _/ 1,000

Mar’20 1023 Khan & Co. _/ 500
Mar’25 203 Imran Traders _/ 200
Mar’30 1036 Sumair Enterprises _/ 100

TOTAL 1,800
2210
Account Payable 1 1,800
1110
Purchase Return & Allowances 8
JOURNAL MAKING
8-SALES JOURNAL (SJ)
Sales journal relates to record the credit sale of
merchandise.
Sales journal consists on columns date, invoice number,
name of customers, post reference and amount.
Sales journal links to controlling ledger of Sales Account
and Account Receivable and account Receivable links to
subsidiary ledger of customer and subsidiary ledger links
to accounts receivable schedule; a list of account payable
balances of customers.
A check mark (_/) is marked in Ref: column of Sales

journal as a proof of posting in subsidiary ledger of
account receivable.
JOURNAL MAKING
Illustration 1.5
Rizwan Traders sold merchandise on account during

April 2015 as below;
100 radio set @ 200/= for Rs.16000/- to Umair Electric
vide Invoice No.2255 dated 1.4.2015.
10 T.V. set @ 1600/= for Rs.16000/= to Ali Imran & Co.
vide Invoice No. 506 dated 8.4.2015.
25 VCR @ 600/= for Rs.15000 to Murad Electronics
Vide Invoice NO. 5206 dated 15.4.2015.
50 radio set @ 200/= amounting to Rs.10000/= to Talpur
& Co. under Invoice No.1005 dated 20.4.2015.
25 cameras @ 200 each amounting to Rs.5000/= to Moon
Electronics under Invoice NO.605 dated 30.4.2015.
JOURNAL MAKING
SALES JOURNAL
Page No.01
DATE POST
ACCOUNT DEBITED INVOICE NO. AMOUNT
2015 Ref.
Jan'18 A.A. Enterprises 2 _/ 30,000

Apr’01 Umair Electric 2255 _/ 16,000
Apri’0
8 Ali Imran & Co. 506 _/ 16,000
Apr’15 Murad Electronic 5206 _/ 15,000

Apr’20 Talpur & Co. 1005 _/ 10,000
Apr’30 Moon Electronic 605 _/ 5,000

TOTAL 92,000
Account Receivable 11203 92,000
Sales 40002
1- SALES RETURN AND ALLOWANCES JOURNAL (SR&AJ)
Sales Return and Allowances journal relates to credit

notes of goods returned by customer and credit to
customer account under account receivable is recorded.
Sales Return & Allowances Journal consists on columns
date, debit memorandum, Name of customer, post
reference and amount.
Sales Return and Allowances journal links to controlling
ledger of Accounts Receivable of Customer (Cr.) and
Sales Return and Allowances account (Dr.) and Sales
Return and Allowances effects to subsidiary ledger of
customer.
A check mark (_/) is marked in Post Ref: column of sale
return and allowances journal as a proof of posting in
subsidiary of account receivable.
JOURNAL MAKING
Illustration 1.6
Sold Merchandise returned from following suppliers;
1 T.V. set for Rs.1600/= from Ali Imran & Co. and issued a
credit memo No. 2 dated 10.4.2015
1 VCR for Rs.600 from Murad Electronics and issued a credit
memo No. 3 dated 20.4.2015.
SALES RETURNS AND ALLOWANCES JOURNAL

Page No. 01
DATE CREDIT POST
ACCOUNT CREDITED AMOUNT
2015 MEMO Ref.
Jan' 31 A.A. Enterprises 1 _/ 1,000

Apr’10 Ali Imran & Co. 2 _/ 1,600
Apr”20 Murad Electronics 3 _/ 600

TOTAL 3,200
Sales Return & Allowances 41001 3,200
Accounts Receivable 11203
JOURNAL MAKING
Illustration 2
Apr: 1, Arshad started business with a cash of Rs100000/= in
the name of Arshad Enterprises.
2, Purchased merchandise on cash Rs.20, 000/=.
3, Paid shop deposit Rs.5000/=.
5, Purchase Furniture on cash Rs.5000/=.
6, Paid for transporting expenses Rs.1000/=.
7, Purchase merchandise on cash Rs.5000/=.
8, Merchandise purchased on credit from Yousuf Brothers
Rs.10, 000/=.
9, Sold merchandise on cash Rs.25, 000/=.
10, Sold merchandise on credit to Ameen & sons Rs.10,
000/=.
11, Paid Electricity bill for Rs. 2000/=.
12, Paid petty cash funds Rs.3000/=.
13, Paid cash to M/s. 5,000/= to Yousuf & Brothers.
14, Goods returned to Yousuf & Brothers Rs.500/=.
JOURNAL MAKING
15, Cheque Rs.5000 received from Ameen & sons and

deposited into bank account.
16, Paid for advertising expense Rs.2000/=.
20, Sold goods returned from M/s. Ameen & sons
Rs.2000/=.
21, Merchandise purchased on credit from Ghaffar & Co.
Rs.15, 000/=.
22, Merchandise purchased on cash for Rs.5000/=
23, Merchandise sold on cash Rs. 5000/=.
24, Sold merchandise on cash Rs.2000/=.
25, Sold merchandise on account to Malik Brothers Rs.
5000/=.
28, Cash deposited into bank account Rs. 8000/=.
JOURNAL MAKING
30, paid salary to employee for the month Rs.3000/=.

30, Paid rent for the month Rs.3000/=.
30, Paid by cheque 2,000/= to Yousuf Brothers and got
5% discount over it.
30, Cash Rs.5000/= received from Ameen & Sons and
allowed Rs.200 discount.
Required: GENERAL JOURNAL
JOURNAL MAKING
GENERAL JOURNAL
Page # 1
DATE REF
2015 .
April
: 1 Cash 100,000
Capital 100,000
(Arshad invested cash for business)
2 Purchases 20,000
Cash 20,000
(Merchandise purchase for business in cash)
3 Shop deposit 5,000
Cash 5,000
(Paid cash for shop deposit)
5 Furniture & Fixtures 5,000
Cash 5,000
(Purchase furniture in cash)
6 Cartage 1,000
Cash 1,000
(Paid cartage for merchandise)
7 Purchases 5,000
Cash 5,000
(Merchandise purchased for business in cash)
8 Purchases 10,000
A/c Payable (Yusuf Bros.) 10,000
(Merchandise purchased from Yusuf Bros.)
9 Cash 25,000
Sale 25,000
(Sold merchandise on cash)
C/o 171,000 171,000
JOURNAL MAKING
GENERAL JOURNAL
Page # 2
DATE REF
2015 .
Apr
: 9 B/f 171,000 171,000
10 A/c Receivable (Ameen & Sons) 10,000
Sale 10,000
(sold merchandise on credit to Ameen & Sons)
11 Utility Expenses 2,000
Cash 2,000
(Paid Electricity bill)
12 Petty Cash Funds 3,000
Cash 3,000
(Paid petty cash Funds to petty cashier)
13 A/c Payable (Yusuf Bros) 5,000
Cash 5,000
(cash paid to Yusuf Brothers)
14 Account Payable (Yusuf Bros.) 500
Purchase Return 500
(Goods returned to Yusuf & Bros.)
15 Bank 5,000
A/c Receivable (Ameen & Sons) 5,000
(Cheque received form Ameen & sons & deposited)
C/o 196,500 196,500
JOURNAL MAKING
GENERAL JOURNAL
Page # 3
DATE REF
2015 .
Apr
: 15 B/f 196,500 196,500
16 Advertising Expense 2,000
Cash 2,000
(Cash paid for advertising)
20 Sales Return 2,000
A/c Receivable (Ameen & sons) 2,000
(Sold goods return from Ameen & sons)
21 Purchases 5,000
A/c Payable (Ghaffar & Co.) 15,000
(Merchandise Purchased from Ghaffar & Co.)
22 Purchases 5 ,000
Cash 5,000
23 Cash 5,000
Sale 5,000
24 Cash 2,000
Sales 2,000
(Sold merchandise on cash)

C/o 227,500 227,500
JOURNAL MAKING
GENERAL JOURNAL
Page # 4
DATE REF
2015 .
Apr 2
: 4 B/f 227,500 227,500
2
5 A/c Receivable (Malik Bros.) 5,000
Sales 5,000
(Sold Merchandise on account to Malik Bros.)
2
8 Bank 8,000
Cash 8,000
(Cash deposited into Bank account)
3
0 Salaries Expenses 3,000
Cash 3,000
(Paid salary to employee)
Rent Expenses 3,000
3
0 Cash 3,000
(Cash paid for Rent)
3
0 A/c Payable (Yusuf Bros.) 2,100
Bank 2,000
Purchase Discount 100
(paid to Yusuf Bros. & got 5% discount)
3
0 Cash 5000
Sales Discount 200

A/c Receivable (Ameen & Sons) 5,200
(cash & discount received from Ameen & Sons)
TOTAL 253,800 253,800

JOURNAL MAKING
Illustration 3
The following selected transactions are taken from M/s.
Iqbal Traders;
2015;
July 01, Purchased merchandise from Aslam Brothers
Rs. 10,000/= vide Invoice No.320.
July 05, Purchased merchandise from Half Moon
Enterprises Rs.5000/= vide Invoice No. 430.
July 06, Purchase merchandise from General Traders of
Rs.6000/= under Invoice No.1002.
July 07, Purchase merchandise from Ismail Bros of
Rs.15, 000/= under Invoice No.502.
July 10, Received an Invoice # 600 against purchase of
merchandise of Rs.20, 000/= from A.R. Traders.
July 20, Purchase goods for Rs.10, 000/= from Shakir
Traders under Invoice No.10020.
JOURNAL MAKING
July 25, Received Bill No. 800 for Rs.5000/= from Akram
Electronics against purchase of goods.
July 30, Merchandise purchase on credit from M/s. Azad
Store for Rs.20, 000/= under Invoice No. 108.
Prepare;
Purchase Journal
PURCHSASE JOURNAL
Page No. 01
DATE POST
2015 Ref.
Jul’1 320 Aslam Brothers _/ 10,000

5 430 Half Moon Enterprises _/ 5,000
6 1002 General Traders _/ 6,000
7 502 Ismail Brothers _/ 15,000
10 600 A.R. Traders _/ 20,000
20 10020 Shakir Traders _/ 10,000
25 800 Akram Electronics _/ 5,000
30 108 Azad Store _/ 20,000

TOTAL 91,000
Accounts Payable 22101 91,000

JOURNAL MAKING
Illustration 3.1 (Iqbal Traders)

July 10, Merchandise returned to Aslam Brothers
Rs.1000/= credit memorandum NO.3005.
July 12, Merchandise returned to Half Moon
Enterprises Rs.500/= under credit memo # 2501.
July 15, Debit Note issued to M/s. General Traders for
Rs.300/= of damaged goods returns, and received credit
note No. 1102.
July 20, merchandise return to M/s. A.R. Traders for
Rs.500/= vide credit memo No.300.
Prepare;
Purchase Return & Allowances Journal
JOURNAL MAKING

Page No. 01
DATE POST
2015 Ref.
Jul” 10 3005 Aslam Brothers _/ 1,000

12 2501 Half Moon Enterprises _/ 500
15 1102 General Traders _/ 300
20 300 A.R. Traders _/ 500

TOTAL 2,300
Account Payable 22101 2,300
Purchase Return & Allowances 11108 2,300

JOURNAL MAKING

Aug 1, 2015, Cash paid to Aslam Brothers R.5000/=.
Aug 5, 2015, Payment made by cheque to Half Moon Enterprises 2500/= and got discount Rs.200/=.
Aug 6, 2015, Paid by bank to General Traders Rs.3000/=.
Aug 7, 2015, Cash paid to Ismail Brothers Rs.7500/=.
Aug 10, 2015, Cheque given to A.R. Traders Rs.5000/-.
Aug 20, 2015, Cash paid to Shakir Traders Rs.2500/=.
Aug 25, 2015, payment by cheque to Akram Electronics Rs.2500/=.
Aug 30, 2015, Paid by Cheque to Azad Store Rs.10000/=.
Account payable 38,200

Cash 15,000
Bank 23,000

JOURNAL MAKING

July 1, Sold merchandise to Hakim & Co. Rs.15, 000/= vide Invoice
No.005.
July 2, Sold merchandise to Rahim & Karim Traders Rs.5, 000/= vide
Invoice No. 006.
July 6, issued an Invoice No.007 for Rs.15, 000/= on account of

merchandise sold to M/s. Mushtaq & Co.
July 10, Sold merchandise on account to M/s. Khan Khan Traders for Rs.
10,000/= vide Invoice NO. 008.
July 15, Merchandise consigned to Ashraf Brothers for Rs.10, 000/=

under Invoice NO.009.
July 20, Merchandise sold to Imran Sons for Rs.5, 000/= under Invoice
No. 010.
July 25, Merchandise sold to Kamran & Brothers for Rs.6, 000/= vide
Invoice No. 011.
July 30, Goods on account to M/s. Nadeem & Co. for Rs.10, 000/= vide
invoice No. 012.
Prepare;
Sales Journal
JOURNAL MAKING
SALES JOURNAL
Page No.01
DATE POST
2015 Ref.
Jul’01 Hakim & Co. 005 _/ 15,000.-

2 Rahim & Karim Traders 006 _/ 5,000.-
6 Mushtaq & Co. 007 _/ 15,000.-
10 Khan Khan Traders 008 _/ 10,000.-
15 Ashraf Brothers 009 _/ 10,000.-
20 Imran Sons 010 _/ 5,000.-
25 Kamran & Brothers 011 _/ 6,000.-
30 Nadeem & Co. 012 _/ 10,000.-
TOTAL 76,000
Sales 40002 76,000

JOURNAL MAKING

July 5, Merchandise return from Hakim & Co. Rs.500/=
and issued them a credit memo No. 101.
July 6. Received merchandise as return from M/s.
Rahim & Karim Traders Rs.500, issued credit memo No.
102.
July 12, damaged goods return from Khan Khan Traders
Rs.500/= credit memo No. 103.
July 20, Goods return from Ashraf Brothers Rs.1000/= as
damaged during transportation credit memo No. 104.
July 30, Merchandise return from;
Kamran & Brothers Rs.200/= credit note # 105.
Nadeem & Co. Rs. 500/= credit note # 106.
JOURNAL MAKING

Page No. 01
DATE CREDIT POST
2015 MEMO Ref.
Jul’5 Hakim & Co. 101 _/ 500.-

6 Rahim& Karim Traders 102 _/ 500.-
12 Khan Khan Traders 103 _/ 500.-
30 Kamran Brothers 105 _/ 200.-
30 Nadeem & Co. 106 _/ 500.-
TOTAL 3,200.-
Sales Return & Allowances 41001 3,200.-
Accounts Receivable 11203 3,200.-

The receipts from debtor or customer are made through cash receipt journal which affects to
general ledger control account and subsidiary ledger of each party like other journals as;
Aug 1, 2015, Cash receipt from Hakim & Co. Rs.5000/=.
Aug 2, 2015 Cheque Rs.2500/= received from Rahim & Karim Traders and given discount
Rs.200/=.
Aug 6, 2015, Cheque received from Mushtaq & Co Rs.5000/=.
Aug 10, 2015, Cash received from Khan Khan Traders Rs.3000/=.
Aug 15, 2015, Cheque received from Ashraf Brothers Rs.5000/=.
Aug 20, 2015, Cash received from Imran Sons Rs. 2000/=.
Aug 25, 2015, Pay Order received from Kamran & Bros. Rs.3000/=.
Aug 30, 2015, Cash received from Nadeem & Co. Rs.5000/=.
Cash 15,000
Bank 15,500
Sales Discount 200
Accounts Receivable 30,700
JOURNAL MAKING
Something about journalizing;
The journalizing is the art of recording business transactions in
journals like general journal, cash book, petty cash book, cash receipt
journal, cash payment journal, purchase journal, purchase return and
allowances journal, sales journal, sales return and allowances journal
and many other creations in journals according to the nature or
volume of business designed to make easy book keeping.
All journals require source document means evidence of transaction

which supports to voucher and voucher helps recording in journals.
The example of journalizing we take from a diary maintains to

memorize day to day events either in personal life or in business
operation.
In connection with journalizing I must say only that the journal is the
structure of accounting that supports to whole accounting strategies
and crystallizes the system of accounting.
Writer’s view
LEDGER MAKING
After making journals of transactions for the period, another device which shows the end result
of account is required and the group of accounts is known as ledger which is also known as “
The Book of Final Entry”.
All journals show increase or decrease in all nature of accounts not in particular account but the
ledger account is a particular account showing increase and decrease during the period with
final balance.
The ledger is maintained in different ways as in bounded register and in loose leaf already
designed in manual accounting system as contains below;
The ledger page contains page number; in which the transactions are recorded or a page is
allocated for an account, that page number is called the account number of that account.
There are two sides in standard ledger form; each side contains four columns (1) Date (2)
Description (3) Reference (4) Debit/Credit.
Date: in this column, year, month and date is written as in general journal.
Description: in this column, the head of account of opposite account is written for example
the ledger account Capital which affected with opposite account cash; cash is written in Capital
account and capital in cash account.
Reference: The account number/ledger folio/page number of the opposite account is written in
reference column.
Debit/Credit: The amount of the account is recorded; debit in debit column and credit in credit
column.
There are three forms account as specified below:
1- Standard Form
2- Skeleton form “T” Account
3- Self balancing form
LEDGER MAKING
1- STANDARD FORM LEDGER

Head of Account CASH
Date Date
Description Ref: Debit Description Ref: Credit
2015 2015
Jan' 1
2
3
4
5
c/f _/

Feb' 1 b/f _/
2
3
4
5
c/f _/

Mar' 1 b/f _/

LEDGER MAKING
2- Skeleton form “T” Account

Skeleton or “T” form ledger is derived from Standard form ledger. The columns
have been removed and the positing is recorded keeping in mind the Standard
Form ledger.
Cash Acc: No.

3- Self balancing form
Self balancing ledger form contains date, description, reference, debit, credit
and balance is suitable for all accounts especially for account payable and
receivable. It shows the latest balance of debit or credit at a glance. Banks also
use this form of ledger.
LEDGER MAKING
GENERAL LEDGER
COMPANY NAME LEDGER
Account of
Dr.
DEBIT CREDIT / BALANCE
DATE PARTICULARS FOLIO Rs. Rs. Cr. Rs.

Self balancing form
LEDGER MAKING
There may be some kind of ledger books according to business requirements

but here are following ledger books mostly used as described;
General ledger
Subsidiary Ledger
 Accounts Payable
 Accounts receivable
Expense & Revenue Ledger
General Ledger
A general ledger may contain all accounts for recording business transactions
relating to assets, liabilities, owner’s equity, revenue and expenses under double
entry accounting system.
In order to control huge business information, general ledger may be divided for
permanent accounts or balance sheet accounts; assets, liabilities and owner’s
equity named general ledger and temporary accounts or income statement
accounts; revenue and expense named expense and revenue ledger under control
account as sequence;
LEDGER MAKING
Balance Sheet Accounts

ASSETS EQUITIES
CURRENT ASSETS LIABILITIES
Bank CURRENT LIABILITIES
Cash Accounts payable
Petty Cash Funds Salaries/wages payable
Accounts receivable Bank Loan
Merchandise Inventory Unearned Revenue
Prepaid Expense
Investments short term
Non-current Liabilities
Contra Current Assets
Mortgage payable
Allowance for uncollectible Long term loan
NON-CURRENT ASSETS
Land
Building OWNER'S EQUITY
Equipment Owner's capital
Furniture & Fixtures Owner's drawings
Other Assets
Investments long term
Contra Non-current Assets

Accumulated depreciation-Asset
Income Statement Accounts
Revenues:
Sales/Fees/Commission/
Rent Income/Interest
LEDGER MAKING
Direct Expenses
Cartage
Wages/Labor
Custom Duty
Selling Expenses
Advertising Expenses
Sales Promotion Expenses
Sales Distribution Expenses
Financial Expenses
Bank Commission
Bank Charges
Administrative Expenses
Salaries Utility Expenses Stationery Entertainment Conveyance
Postage Charity Furniture Repair Janitorial Telephone Charges
Bad Debt Expenses - Depreciation Expenses
Purchases
Purchase Return
Purchase Discount
LEDGER MAKING
Illustration 1
PAGE NO. 1
GENERAL JOURNAL
DATE
2015
CR1
Jan 1 Cash A/c / 100,000
CR1
Capital A/c (Rizwan) / 100,000
Cash A/c CP1/ 8,000
Cash A/c CP3 5,000
1
Trading)
C/O 198,000 198,000

LEDGER MAKING
Page No.2
GENERAL JOURNAL
Page # 2
DATE
2015
198,00 198,00
C/O 0 0
2,00
11 Cartage A/c CP4/ 0
2,00
Cash A/c CP4/ 0
50,00
15 Cash A/c CR2/ 0
Sale CR2/ 50,000
30,00
18 A/c Receivable (A.A. Enterprises) JV2/ 0
Sales A/c JV2/ 30,000
10,00
20 Bank A/c CP5/ 0
1,50
Jan: 22 Utilities Expense CP6/ 0
1,50
Cash CP6/ 0
291,50 291,50
C/O 0 0
LEDGER MAKING
PAGE NO. 3
GENERAL JOURNAL
DATE
2015
C/O 291,500 291,500
1,00
Purchase Return A/c JV3/ 0
(Cash paid to Imran Trading against
purchases)
A/c Payable (Imran Trading Co.) JV4/ 480

Jan: 24 Cash A/c CR3/ 28,500

Bank A/c BP1/ 5,000


(Unsold goods returned from A.A.
Enterprises)
TOTAL 353,480 353,480
LEDGER MAKING
Illustration 1.1
PAGE NO. 4
GENERAL JOURNAL
DATE
2015
Feb: 01 Petty Cash Fund Bp3 2,000.-
Bank BP3 2,000.-
(Cash for petty cash expenses)
Illustration 1.2
LEDGER MAKING

RIZWAN TRADERS

JOURNAL VOUCHER
JV.No. JV-7 DATED : 28/2/2015

1 Stationery A/c 550
2 Entertainment A/c 150
3 Conveyance A/c 200
4 Postage A/c 50
5 Charity A/c 20
6 Furniture Repair A/c 300
7 Janitorial A/c 200
8 Telephone Charges A/c 50
9 Advance to Staff 400
Petty Cash Funds 1,920

TOTAL

NARRATION: TO RECORD PETTY CASH EXPENSES.

LEDGER MAKING
The entries from general journal or from journal voucher will be posted in
ledger column as in general journal date in date column, opposite account in
particular column, debit in debit column and credit in credit column of the
ledger following reference number as shown below;
LEDGER MAKING
LEDGER MAKING
LEDGER MAKING
LEDGER MAKING
LEDGER MAKING
LEDGER MAKING
LEDGER MAKING
Illustration 1-1.2 (RIZWAN TRADERS)
In self balancing form, the balance of the ledger automatically will come by
adding the amount debit with debit and credit with credit and reducing debit
from credit and credit from debit with each transaction.
LEDGER MAKING
SUBSIDIARY LEDGER
Subsidiary ledger contains on detailed information is a sub ledger or book of general ledger
designed for recording of specific types of business transactions where the volumes of
transactions are usually high which links with general ledger under control account. There is no
need of creating subsidiary ledger in small concern.
The subsidiary of an account can make which has various accounts or parties and things like
parties in sale and purchase, things in assets and materials, etc.
The subsidiary ledger has same contains like ledger but difference is to separate specific
account involves various parties or things links with the specific account.
The subsidiary ledger is periodically summarized and posted to an account in the specified
general ledger control account.
The following subsidiary ledgers may usually require for controlling huge business information;
o Accounts payable
o Accounts receivable
o Purchase Ledger
o Sale Ledger
ACCOUNTS PAYABLE SUBSIDIARY LEDGER

Accounts payable refers to creditors who deliver goods for business and get
payment after sometime. The amount of invoice is journalized as inventory
account debit and party’s account credit in ledger account directly or through
purchase journal. The purchases in business may be from different persons or
firm may require the separate book of accounts like subsidiary ledger which
provide detailed information of each person or firm to accountant. It is controlled
in general ledger by Account payable control account.
LEDGER MAKING
Purchase journal, purchase return and allowances journal, cash payment journal
and journal voucher are the source of transferring data to account payable
subsidiary ledger accounts.
Illustration 1.3
RIZWAN TRADING
PURCHSASE JOURNAL
Page No. 01
DATE POST
2015 Ref.
Mar’01 305 Bilal Store _/ 8,000

Mar’10 1005 Asim Traders _/ 15,000
Mar’15 203 Khan & Co. _/ 12,500
Mar’2
0 400 Imran Traders _/ 5,000
Mar’2
8 506 Sumair Enterprises _/ 2,500

TOTAL 43,000
Accounts Payable 22101
LEDGER MAKING
The details of credit transactions as to date of purchase, Invoice
number, name of supplier and amount payable to supplier are recorded
in purchase journal daily or date wise without debit or credit.
The total amount of purchase journal at the end of the month or on

accounting period payable to suppliers is recorded in General Ledger as
purchases (Inventory) debit and account payable control account credit
as shown below;
LEDGER MAKING
The detail of accounts payable 22101 of each party subsidized by March 31,2015
is made as below;
The details of account payable 22101 of each party subsidized by March

31, 2015 are recorded through purchase journal on daily basis or as
soon as transaction occurred date wise and a tick as post reference
marked in purchase journal as a sign of recording in subsidiary ledger of
particular account as;
LEDGER MAKING
LEDGER MAKING
Illustration 1-1.3
In case of goods return to suppliers, general ledger control account will be affect
by the total of purchase return and allowance journal account payable debit and
purchase return & allowances credit under purchase Return and Allowances
journal.
Illustration 1.4

RIZWAN TRADERS Page No. 01
DATE POST
2015 Ref.
Mar’20 1023 Khan & Co. _/ 500

Mar’25 203 Imran Traders _/ 200
Mar’30 1036 Sumair Enterprises _/ 100

TOTAL 800
2210
Account Payable 1 800
1110
Purchase Return & Allowances 8
LEDGER MAKING
In connection purchase return and allowances, the subsidiary ledger of creditors/parties will be
affected by the individual amount of party through purchase return and allowances journal.
The post reference column of purchase return and allowances journal is marked by ticking _/ as
a sign of positing against each party in subsidiary ledger.
LEDGER MAKING
LEDGER MAKING
The Subsidiary ledger of creditors following general ledger may also be affected by adjustment
through journal voucher, in case of any such transaction that does not belong to purchase journal,
purchase return and allowances journal, cash payment journal.
The another step of subsidiary ledger is to reconcile it with general ledger control account making
schedule of account payable’s subsidiary accounts consist on balances of the period. The total amount
of parties in subsidiary ledger and in control account of accounts payable in general ledger must be
equal with each other like;
LEDGER MAKING
The account payable schedule one side works as a trial balance of creditors and on other side is shown
in financial statement under note.
RIZWAN TRADERS
The accounts mostly used are shown but many other accounts according to
business nature means manufacturing, services and trading may be formed in
order.
LEDGER MAKING
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
Account receivable account in general ledger indicates that the amount is
receivable from the party to whom the goods was sold on credit that party is
called debtor and the gathering of parties comes under debtor accounts which in
order words are accounts receivable.
For making subsidiary ledger of accounts receivable or debtor accounts, we have

to maintain journals like sales journal, sales return and allowances journal, cash
receipt journal and adjustments through journal vouchers of those transactions
that do not belong to journals or come after positing of entries from journals.
Illustration 1.5 Rizwan Traders
SALES JOURNAL
Page No.01
DATE POST
2015 Ref.
Apr’01 Umair Electric 2255 _/ 16,000

Apri’0
8 Ali Imran & Co. 506 _/ 16,000
Apr’15 Murad Electronic 5206 _/ 15,000
Apr’20 Talpur & Co. 1005 _/ 10,000
Apr’30 Moon Electronic 605 _/ 5,000

TOTAL 62,000
Sales 40002
LEDGER MAKING
The details of debit transactions in terms of receivable as to date of
sale, account debited by name of customer, Invoice number, tick mark
as a post reference and amount receivable from customer are recorded
in sales journal daily or date wise.
The total amount of sales journal at the end of the month or on

accounting period receivable from customer is recorded in General
Ledger as account receivable debit and sales credit as shown below;
Illustration 1.6 Rizwan Traders

Page No. 01
DATE CREDIT POST
2015 MEMO Ref.
Apr’10 Ali Imran & Co. 2 _/ 1,600

Apr”20 Murad Electronics 3 _/ 600

TOTAL 2,200
Sales Return & Allowances 41001 2,200
Accounts Receivable 11203
LEDGER MAKING
In case of goods return to customer, general ledger control account will be affect
by the total of sales return and allowance journal account receivable credit and
sales return & allowances debit under sales return and allowances journal.
In connection with sales return and allowances, the subsidiary ledger of debtors/customers will
be affected by the individual amount of party through sales return and allowances journal.
The post reference column of sales return and allowances journal is marked by ticking _/ as a
sign of posting against each party in subsidiary ledger.
LEDGER MAKING
LEDGER MAKING
The another step of subsidiary ledger is to reconcile it with general ledger control account making
schedule of account receivable subsidiary accounts consist on balances of the period. The total
amount of parties in subsidiary ledger and in control account of accounts payable in general ledger
must be equal with each other like;
The account receivable schedule one side works as a trial balance of debtors and on other side is
shown in financial statement under note.
LEDGER MAKING
RIZWAN TRADERS
LEDGER MAKING
Illustration 3
From the following selected purchase journal, purchase return and allowances journal and cash
payment journal of M/s. Iqbal Traders require accounts payable subsidiary ledger under control
accounts under “T” Form.
PURCHSASE JOURNAL
IQBAL TRADERS P1
DATE POST
2015 Ref.
Ju
l 1 320 Aslam Bothers _/ 10,000
5 430 Half Moon Enterprises _/ 5,000
6 1002 General Traders _/ 6,000
7 502 Ismail Brothers _/ 15,000
10 600 A.R. Traders _/ 20,000
20 10020 Shakir Traders _/ 10,000
25 800 Akram Electronics _/ 5,000
30 108 Azad Store _/ 20,000

TOTAL 91,000
Purchases (Inventory) 91,000
Accounts Payable 91,000
LEDGER MAKING
Illustration 3.1
PURCHASE RETURN AND ALLOWANCES JOURNAL
IQBAL TRADERS Page No. 1
POS
DATE
CREDIT MEMO NO. NAME OF SUPPLIER T AMOUNT
2015 Ref.
Jul 10 3005 Aslam Brothers _/ 1,000
12 2501 Half Moon Enterprises _/ 500
15 1102 General Traders _/ 300
20 300 A.R. Traders _/ 500

2,300
Accounts payable (22101) 2300
Purchase Return & Allowances (1108) 2300
LEDGER MAKING
Illustration 3.2
The payment to creditors or supplier is made through cash payment journal which affects to
Account payable 38,200

Cash 15,000
Bank 23,000
LEDGER MAKING
LEDGER MAKING
ACOUNTS PAYABLE SCHEDULE
Accounts Payable (22101)

30/7 PRJ1 2,300 30/7 PJ1 91,000
31/8 CPJ1 38,200 32/8 c/f 50,500

IQBAL TRADERS
SCHDULE OF ACCOUNTS PAYABLE
Aslam Brothers 4,000

Half Moon Enterprises 1,800
General Traders 2,700
Ismail Brothers 7,500
A.R. Traders 14,500
Shakir Traders 7,500
Akram Electronics 2,500
Azad Store 10,000
TOTAL 50,500
LEDGER MAKING
SALES JOURNAL
Page No.01
DATE POST
2015 Ref.
Jul’01 Hakim & Co. 005 _/ 15,000.-

Rahim & Karim T
2 raders 006 _/ 5,000.-
6 Mushtaq & Co. 007 _/ 15,000.-
10 Khan Khan Traders 008 _/ 10,000.-
20 Imran Sons 010 _/ 5,000.-
25 Kamran & Brothers 011 _/ 6,000.-
30 Nadeem & Co. 012 _/ 10,000.-

TOTAL 76,000
Sales 40002 76,000
LEDGER MAKING

Page No. 01
DATE CREDIT POST
2015 MEMO Ref.
Jul’5 Hakim & Co. 101 _/ 500.-

6 Rahim& Karim Traders 102 _/ 500.-
12 Khan Khan Traders 103 _/ 500.-
30 Kamran Brothers 105 _/ 200.-
30 Nadeem & Co. 106 _/ 500.-
TOTAL 3,200.-
Sales Return & Allowances 41001 3,200.-
Accounts Receivable 11203 3,200.-
LEDGER MAKING

The receipts from debtor or customer are made through cash receipt journal which affects to
Aug 1, 2015, Cash receipt from Hakim & Co. Rs.5000/=.

Aug 2, 2015 Cheque Rs.2500/= received from Rahim & Karim Traders and given discount
Rs.200/=.
Aug 6, 2015, Cheque received from Mushtaq & Co Rs.5000/=.
Aug 10, 2015, Cash received from Khan Khan Traders Rs.3000/=.
Aug 15, 2015, Cheque received from Ashraf Brothers Rs.5000/=.
Aug 20, 2015, Cash received from Imran Sons Rs. 2000/=.
Aug 25, 2015, Pay Order received from Kamran & Bros. Rs.3000/=.
Aug 30, 2015, Cash received from Nadeem & Co. Rs.5000/=.
Cash 15,000
Bank 15,500
Sales Discount 200
LEDGER MAKING
LEDGER MAKING
Accounts Receivable (11203)
30/7 SJ1 30/7 SRJ1
76,000 3,200
30/8 CRJ1
30,700
30/8 c/f
42,100

LEDGER MAKING
Expense and Revenue Ledger

Expense and revenue ledger consists on income statement accounts may be created to view
the position of changing revenue under control account in general ledger as Revenue Control
A/c or Expense and revenue accounts as well as to concise general ledger.
On making income statement accounts at the end of the year, the balances in expense and
revenue ledger will move as revenue control account debit and expense and revenue accounts
credit and balance in revenue control account will be income or loss matching with revenue
control account in general ledger. The contra balance in revenue control account of expense
and revenue ledger will be transferred to revenue control account in general ledger.
If, we are maintaining general ledger only, the balances of revenue and expenses will contra at
the end of the period by creating expense and revenue summary account.
Expense and revenue accounts or Income Statement Accounts are temporary accounts link to
general ledger under revenue control account showing the actual position of profit and loss.
The ledger of expense and revenue may be formed under alphabetically order or account
following after account as mentioned below;
LEDGER MAKING
Illustration 1-1.6
GENERAL LEDGER
RIZWAN TRADERS LEDGER
Account of REVENUE CONTROL ACCOUNT
Dr.
FOLI
DATE PARTICULARS DEBIT CREDIT / BALANCE
O
2015 Rs. Rs. Cr. Rs.
60,00
Jan 6 To purchases cp1/1 0 Dr. 60,000
25,00
Jan 10 To purchases jv1/1 0 Dr. 85,000
2,00
Jan 11 To Cartage cp4/2 0 Dr. 87,000
50,00
Jan 15 BY Sale cr2/2 0 Dr. 37,000
1,00
Jan 22 By Purchase Return jv3/3 0 Dr. 36,000
1,50
Jan 22 Utility Exp cp6/2 0 Dr. 37,500
Jan 24 Sales Discount jv5/3 500 Dr. 38,000
5,00
Jan 30 To Salaries bp1/4 0 Dr. 43,000
30,00
Jan 18 By Sale jv2/2 0 Dr. 13,000
1,00
Jan 31 To Sales Return jv6/3 0 Dr. 14,000
1,52
Feb 28 To petty cash pc1 0 Dr. 15,520
July 23 By Purchase Discount jv4/4 480 Dr. 15,040
Ma 43,00
r 31 To Purchase Journal pj1 0 Dr. 58,040
Ma
r 31 By Purchase Return prj1 800 Dr. 57,240
62,00 (4,760
Apr 30 By Sales Journal sj1 0 Cr. )
2,20 (2,560
Apr 30 To Sales Return sjr1 0 Cr. )

Self balancing form of ledger
Illustration 1-1.6
LEDGER MAKING
LEDGER MAKING
LEDGER MAKING
LEDGER MAKING
The credit balance in revenue control account will show that revenue is above than expenses and
debit below than expenses.

LEDGER MAKING
The subsidiary ledgers may also be created in following conditions;
Trade Creditors
Trade creditors are who, who supply goods or services other than expenses for business referred to
accounts payable.
Purchase Ledger
Subsidiary ledger for purchase is required where, where the variety of items purchased for selling
are involved. Every item with quantity account is maintained under control account of purchases
account either on cash or credit.
Sundry Creditors (Account Payable)
In case of getting something relating to expense from a person or an organization on credit basis,
the company accrues or creates its liability debiting expense account and crediting person or firm
account in general ledger under sundry creditors. Sundry creditors do not belong to trade relating
to the purchase of merchandise for doing business.
Therefore, a person or firm supplies goods or services on credit basis relating to expense are also
referred to sundry creditors or sundry payables.
The subsidiary ledger of sundry creditors may be made in case of huge volume of transactions
under control account of Accrued Expenses payable in general ledger otherwise no need of creating
subsidiary ledger.

LEDGER MAKING
Advance from customers
If a company sells goods or services in advance, it records entry as cash debit and advance from
customer credit in ledger account may refer to deferred revenue or unearned revenue and has
obligation to deliver the goods or services in future otherwise to return cash under liability account.
The subsidiary ledger of customers under control account of advance from customers in general
ledger can be created.
Trade Debtors
Account receivable account in general ledger indicates that the amount is receivable from the
party to whom the goods was sold on credit that party is called trade debtor and the gathering
of parties comes under trade debtor accounts which in order words are accounts receivable.
For making subsidiary ledger of accounts receivable or trade debtor accounts, we have to
maintain journals like sales journal, sales return and allowances journal, cash receipt journal
and adjustments of trade debtors through journal vouchers of those transactions that do not
belong to journals or come after posting of entries from journals.
Trade debtors relate to goods or services for doing business.
LEDGER MAKING
Sundry Debtors
Sometimes, the firm may have to give advance to suppliers for goods or services, deposit as security,
loan or advance to staff etc. which are received after meeting the purpose may also come under sundry
debtors and recorded in general ledger or we can subsidiary ledger of accounts having various persons
or firms involved like loan to staff in large organization which is receivable bit by bit may be subsidized.
Hence, a person or firm is given money for something other than goods or services sold to them comes
under sundry debtors.
Sale Ledger
Subsidiary ledger for sale either on cash or credit may be useful to control the variety of units sold under
control account of sale.
The exact stock for trade may be ascertained by maintaining purchase and sales ledgers.
Loan to staff
It is seen that large organization which has thousands of employees require loan and advance
against salaries; advance against salaries are adjusted in salaries for the month but loan requires
time to settle, hence subsidiary ledger of loan to staff individually may be created under control
account “loan to staff” in general ledger. The adjustment of loan deductions is journalized by pay
roll as salaries expenses debit and loan to staff credit in general ledger and loan to staff individual
account of subsidiary ledger in credit side.
Loan to staff belongs to the category of accounts receivable or sundry debtors.

LEDGER MAKING
Ledger making
The art of recording transactions in specified columns is named ledger

accounts under book title general ledger may be divided into two as
general ledger and expense and revenue ledger and sub divided in
subsidiary ledgers under control account especially accounts receivable
and accounts payable and many other accounts as required to create
according to requirement.
The gathering of accounts in debit and credit may be called trial balance
which moves accounts towards financial position of the period.
The ledger account balances enable management to pay, receipt or

adjust accounts. We may say that the best way to concise accounts is
ledger accounting system.
WRITER’S VIEW

TRIAL BALNACES
The ledger accounts show the position of each account and the balances of
accounts at the end of specified period and to known the correctness of
accounts require making equal debit and credit balances.
Another device or to trial balances, we need trial balance having column title of
Accounts, account number, debit and credit where we put balance debit in debit
column and credit in credit column as accounts sequence as assets, liabilities,
proprietorship, income and expenses.
There will be following steps of accounts summary or trial balance;
Trial Balance – unadjusted
Trial balance – adjusted
Post closing Trial balance
TRIAL BALNACE - UNADJUSTED
Trial balance unadjusted means a trial balance which was created before
adjustment in accounts for seeing the equality of balances in debit and credit. If
the sum of debit and the sum of credit have no difference, the posting is
considered correct otherwise the difference is ascertained by checking accounts.
TRIAL BALNACES
Illustration 1-1.6
TRIAL BALNACES
If we are maintaining Expense and Revenue ledger, the general ledger
and expense and revenue ledger is over viewed as illustration 1-1.6.
TRIAL BALNACES
TRIAL BALNACES
TRIAL BALNACE ADJUSTED
After journalizing and posting in respective accounts of all adjusting entries,

an adjusted trial balance is prepared. The adjustment or settlement of an
account is made at the end of the period like accrued expense, bad debts or
uncollectible, unused supplies or merchandise, accrued income, unearned
revenue etc. The same contents as trial balance are used herein but with
the replacement of balance amount in account.
The adjustment, reversal and correction of errors are made before making
adjusted trial balance.
An adjusting entry is the entry that updates the balance of an account at

the end of the period; financial period or month like below;
Accrued expenses or accrual of expenses
Accrued expenses means recording of expenses in accounts of the period

to be settled in next month or financial period like salaries, wages, rent,
interest on loan, advertising expenses, telephone charges, electricity
charges, insurance expenses etc. which are debited and payable of each
account or accrued expense account credited.
The expense, which has been made or to be made but not recorded in
accounts are recorded by adjusting entries like adjusting entries of (A);
a) Salaries Rs.10, 000/= for the last month not yet paid.
b) Wages Rs.2, 000/= for the last 5 days are remained unpaid.
Salaries Expenses 10,000/=

Salaries Payable 10,000/=
Wages Expenses 5, 000/=

Wages payable 5, 000/=
(B) Interest on notes payable Rs.10 for 15 days is accrued as;
Suppose that a firm signed on 6% interest bearing promissory note of

Rs.4, 000/= for 60 days on June 16 and June 30 is ending accounting
period, the calculation will be;
Computation on 60 days @ 6% note of Rs. 4, 000/=
Signed Date June 16

Ending Accounting Date June 30
Maturity Date August 15
6% of Rs.4, 000 makes 120 one month Rs.240 for 12 months

Rs.240 divided by 12 months Rs.20 for 30 days
Rs.20 is divided by 30 days Rs.0.666667 for 1 day
Interest from June 16 to June 30 Rs.0.666667 x 15 days = Rs.10/=
Interest from July 1 to June 30 Rs.0.666667 x 45 days = Rs.30/=
Total 60 days interest Rs.0.666667 x60 days = Rs.40/=
Journal Entry;
Dr. Interest Expenses
Cr. Interest payable on notes payable
The accrual of expenses will increase both liabilities and expenses.
Accrued revenue or accrual of revenue

The revenue, which has been earned but not received or recorded in
accounting period, will be recorded in accounts by adjusting entries such
as; services rendered but not received, rent for the last three months not
received, commission due but not received.
The adjusting entries will be service revenue receivable debit and services
revenue credit, accrued rent revenue receivable debit and rent revenue
credit and commission revenue receivable debit and commission credit.
Examples:
- Services rendered but not billed.

- Commission receivable.
- Interest receivable on note receivable
Adjustments;
Services revenue receivable

Service revenue
Commission revenue receivable

Commission Income
Accrued Interest receivable

Interest Income
TRIAL BALNACES
Interest on notes bearing Rs.8000/= receivable as calculated below;
Suppose that a firm had received interest 10% of Rs.8000/= for three months on May
1 and closed accounts on June 30. It means it earned two months interest Rs.133/= as
per following calculation.
Computation on 3 months interest @ 10% on Rs.8000/=
8000x10/100 = Rs.800 for one year; 800x3/12 = Rs.200/= interest revenue will be
earned after 3 months.
Rs.200 = 3 months interest
200/3 = 66.66667 one month interest revenue
66.66667x2 = Rs.133/= two months interest revenue.
Journal Entry;
I June 30, Interest receivable on Notes receivable 133/=
Interest revenue 133/=
The accrued revenues or unrecorded revenues increases in assets (to be received) and
increases in revenue (to be received).
TRIAL BALNACES
Prepaid Expenses
Which expenses paid in advance e.g. insurance, rent, advertising etc. may
be adjusted at the end of the period against a portion of the period
expired or consumed by making adjusting entries as; Insurance Expense
debit and prepaid insurance credit, rent expense debit and prepaid rent
credit, advertising expense debit and prepaid advertising credit.
For example on May 1, 2014, paid cash Rs.3, 000/= to Radio Pakistan for
advertising for a period of three month and passed entry as;
Prepaid Advertising 3,000/=
Cash 3, 000/=
At the end of the accounting period June 30, 2015, a portion of the period
services expired i.e. May 1, 2014 to June 30, 2015 for two months Rs.2,
000/= and another period of services i.e. July 1, 2015 to July 30, 2015
remained unexpired Rs.1, 000/= will remain in asset.
The portion of expired period will be treated in expense as
Advertising Expense 2000
Prepaid Advertising 2000
The Prepaid expenses are record in assets.
TRIAL BALNACES
Unearned Revenue
Such revenues are received in advance against merchandise to be
supplied or services to be rendered. At the end of the accounting period,
the earned revenue is recorded, and the balance is treated as liability and
referred to as a deferred revenue account.
For example;
On May 1, ABC Company received Rs. 3, 000/= for the fees revenue of
services to be given from May 1 to July 30 and recorded it;
May 1, Cash 3,000.-
Advance fees revenue 3,000.-
Since the receipt against fees is for three months i.e. 3000/3 =
Rs.1000/month income and on closing at June 30, the revenue will be
Rs.2000/= for two months (May 1 to June 30, the entry will be;
June 30, Unearned fees revenue 2,000/=
Fees Revenue (earned) 2,000/=
And if, On May 1, ABC Company services rendered but not billed for Rs.2,
500/= will pass journal entry as accrual;
May 1, Fee Revenue Receivable 2,500/=
Fees Revenue 2,500/=

Depreciation
The allocation of the cost of fixed assets to the period the services are
receivable may call depreciation neither the physical deterioration nor
decrease in market value. The expired cost of tangible asset is also
referred to depreciation.
There are many methods for calculation of depreciation on tangible assets

especially straight line method, declining balance method and sum of the
year digit method on time basis and depreciation on tangible asset used
basis.
A new account named “accumulated depreciation” is generated as contra

asset of particular asset account.
For example, a firm purchased office equipment Rs.30, 000/= and given it
life for 10 years and after ten year, it will be sold at Rs.3000/= at salvage
cost as computed under constant annual depreciation under straight light
method below;
Depreciation per year = Cost – Salve Value

Useful life years
Depreciation per year = 30,000-3000 = 27,000 = Rs.2, 700 per year

10 years 10
Depreciation per year x 100 = 2700 x 100 = 27 = 9%

Cost 30,000 3
The portion of the depreciated period will be treated as depreciation

under accumulated depreciation (O.E.) as;
Depreciation Expense 2700

Accumulated Depreciation (O.E.) 2700
The allowance on depreciation on the cost of fixed asset over its expected
useful life is written off as “allowance for depreciation” and charged in
expense account.
Bad debt/Uncollectible
Bad debt is the amount that is uncollectable because of certain reasons

such as death of the customer, bankruptcy, lack of cash flow, poor
management and unforeseen causes which have to write off at the end of
the period by adjusting entry as bad debt expense debit and account
receivable credit.
If businessman has an idea of credit sales which will remain uncollectable

because of the reason above, he estimates the portion of the amount
uncollectable and allocates the amount estimated uncollectible at the end
of accounting period by adjusting entry Uncollectible/Bad Debt expenses
debit and allowance for uncollectible/Bad Debts credit.
The account allowance for uncollectible/Bad Debts is known as contra

assets account against account receivable account.
Suppose that on June 30, ABC & Company estimated uncollectable Rs.2,
000/= of 1% on credit sales or on accounts receivable Rs.200, 000/=
Dr. Uncollectable/Bad Debts Expenses
Cr. Allowance for uncollectable/Bad Debts

Merchandise Inventory
Merchandise inventory means the goods or materials for business

remains unsold at the end of the period and the market cost of
merchandise inventory is recorded as merchandise inventory opening of
the period in general ledger account transferred by expense and revenue
accounts closing as Merchandise inventory debit and expense and
revenue summary credit.
The opening inventory in general accounts is transferred to expense and

revenue accounts for calculating income or loss as expense and revenue
accounts debit and merchandise inventory account credit.
Closing Entries;
Closing entries are the process of transferring balances of expense and

revenue accounts and the net income or loss to capital account from
expense and revenue summary for the next period. All expense and
revenue relating accounts become the part of making profit or loss and
profit or loss, unsold merchandise, unearned revenue, etc remain to go
for the next period.
TRIAL BALNACES
Reversing Entries
Some entries like un-recorded expenses, un-recorded income, prepaid
expenses, un-earned revenues, etc. need reversal optionally to simplify
bookkeeping in the New Year which erases the prior year’s accrual.
The reversing entry will create balance in reverse account which on

payment and receipt in New Year will clear the affect of payable or
receivable as wages expense debit and accrued wages payable in previous
period and reversing entry in new period accrued wages payable debit
and wages expenses credit shows the balance of wages payable moves to
wages expenses and on payment wages expenses will clear by cash or
bank.
There is no need to record reversing entries if transactions were originally

transactions were originally recorded in assets or liabilities.
Correction of errors
The erasing, omitting and rubbing of any mistake in transaction make

accounts doubtful. The cause of mistakes may occur in journal or ledger
such as wrong posting, wrong head of account, wrong amount, missing of
one account in ledger, errors in balancing or transferring balances and
many other reasons may come in accounting process. Therefore, the
correction of errors by making entries is made such as;
1- Plant repaired Rs.900/= and debited to account Repair & Maintenance

plant by Rs.700 wrongly.
Repair & Maint. (Plant) 200
Suspense Account 200

2- Purchase of stationery for Rs.1000/= but recorded in purchase
account.
Stationery 1000
Purchases 1000
3- Wages Rs.500/= paid for repair building but debited to wages account.
Building Repair 500/=
Wages 500/=
TRIAL BALNACES
Illustration i
Adjustments:
The following adjustments of ABC & Co. rendering services business are
made at the end of the period 30th June 2015;
Adjustments:
1 Rs. 2700 of depreciation on office equipment.
2 Rs.1350 of depreciation on furniture.
3 Rs. 2000/= of prepaid advertisement expired.
4 Rs.1000/= of unexpired insurance expired.
5 Salaries Rs.10, 000/= for the last month not yet paid.
6 Wages Rs.2000/= for the last 5 days are remained unpaid.
7 Interest on notes payable Rs. 10/= for 15 days is accrued.
8 Unearned concession revenue earned Rs.5000/=.
9 Unearned fees revenue Rs.2000/= earned.
1
0 Fee revenue earned but not yet received Rs.2500/=.
Adjusting Entries:
1. Depreciation Expense 2,700/=

Accumulated Depreciation (O.E.) 2,700/=
2. Depreciation Expense 1,350/=

Accumulated Depreciation (F) 1,350/=
3. Advertising Expense 2,000/=

Prepaid Advertising 2,000/=
4. Insurance Expense 1,000/=

Prepaid Insurance 1,000/=
5. Salaries Expense 10,000/=

Salaries Payable 10,000/=
6. Dr. Wages Expense 2,000/=
Cr. Wages Payable 2,000/=
7. Interest Expense 10/=

Interest on notes payable 10/=
8. Unearned concession revenue 5,000/=

Concession revenue 5,000/=
9. Unearned fees revenue 2,000/=

10. Fees Revenue Receivable 2,500/=

An adjusted trial balance from the above adjusting entries has been
prepaid along with trial balance and adjustments below;
TRIAL BALNACES
Illustration ii
Adjustments:
Rs.2700/= depreciation on Office Furniture.

Rs.900/= depreciation on Office Equipment.
Rs.2000/= prepaid rent expired.
Rs.133/= interest on notes receivable.
Rs.2000/= prepaid advertising expired.
Rs.3000/= unearned subscription revenue earned.
Rs.1000/= rent for the last month not yet received.
Rs.4000/= commission receivable.
Rs.5000/= services rendered but not yet received.
Adjusting Entries
Depreciation Expense 2700/=

Accumulated Depreciation (O.F.) 2700/=

Accumulated Depreciation (O.E.) 900/=
Rent Expense 2000/=

Prepaid Rent 2000/=
Interest Receivable on notes receivable 133/=
Interest Income 133/=
Advertising Expense 2000/=
Prepaid Advertising 2000/=
Unearned subscription revenue 3000/=

Subscription revenue 3000/=
Accrued Rent Revenue receivable 1000/=

Rent Revenue 1000/=
Commission revenue receivable 4000/=

Commission Income 4000/=
Services revenue receivable 5000/=

Service revenue 5000/=
The above adjustments and entries related to the account of M/s.

Helping- Hands are made at the end of the period at 30 th June 2015 and
on the basis of adjustments the following adjusted trial balance has been
made showing complete picture of trial balance, adjustment and adjusted
trial balance;
Illustration iii
Adjustments:
Rs.2700/= estimated accumulated depreciation on Office Furniture.

Rs.2700/= estimated accumulated depreciation on Office Equipment.
Rs.5000/= estimated accumulated depreciation on Plant & Machinery.
Rs.500/= of prepaid rent expired.
Rs.200/= interest due on notes receivable.
Rs.1000/= of prepaid insurance expired.
Rs.5000/= of prepaid advertising expired.
Rs.2000/= estimated allowance for uncollectable on accounts receivable.
Rs.1500/= office supplies used.

Accumulated Depreciation (O.F.) 2700/=

Accumulated Depreciation (O.E.) 2700/=

Accumulated Depreciation (P&M) 5000/=
Rent Expense 500/=

Prepaid Rent 500/=
Interest on notes receivable 200/=
Interest Income 200/=

Insurance Expense 1000/=
Prepaid Insurance 1000/=
Advertising Expense 5000/=

Prepaid Advertising 5000/=
Bad Debt 2000/=

Allowance for Uncollectable/Bad Debt 2000/=
Office Supplies Expense 1500/=

Office Supplies 1500/=
The above adjustments and entries made at the end of the period are of
M/s. Moon Enterprises as shown in trial balance, adjustments and
adjusted trial balance below;
The ledger shows activity in accounts individually and the summary of
accounts consists on ending balance may call trial balance by rectified by
adjusting entries and correction of errors which ensures the equality of all
debits and credits.
After moving balance of temporary accounts relating to income and

expenses to Expense and Revenue summary, the rest of accounts are
transferred under post closing trial balance to next accounting cycle.
WRITER
FINANCIAL STATEMENTS
A financial statement is former written report duly signed

by owner/owners shows financial activities and the
position of a business or any entity.
There may be some financial possible statements like

Profit and loss statement, balance sheet, cash flow
statement and the statement of retained earnings
wherein profit and loss statement and balance sheet are
basically used in all type of businesses.
WORKSHEET
Worksheet is an initial columnar statement but not mandatory contains

on the information of accounts’ ending balances comes to work for
preparing financial statements. It usually contains columns; account
number, head of accounts, ten columns of debit and credit for trial
balance, adjustments, adjusted trial balance, and income statement
accounts and balance sheet accounts.
The worksheet is automatically solve, if you enter the amount of trial

balance in trial balance column, adjusting entries in adjustment column,
the total of adjustment amount and trial the balance amount in
adjusted trial balance column and keep in write place of income and
expense accounts and balance sheet account.
By making worksheet, profit and loss is ascertained before making

profit and loss account and post closing accounts transferable to next
accounting cycle.
Hence, we may say that the worksheet is the end of accounts

statement which provides fuel for preparing financial statements and
saves energy to go back.
Illustration I
Illustration ii
Illustration iii
EXPENSE AND REVENUE SUMMARY ACCOUNT
A new account in the name of Expense and revenue summary is

generated where all accounts relating to Expense and Revenue will be
transferred through closing journal entries by debiting all credit
accounts and crediting all debit accounts to expense & revenue
summary account and the net income or loss is transferred to Capital
account.
All temporary accounts relating to Expense and revenue summary

accounts will have zero balance.
Illustration i
CLOSING JOURNAL ENTRIES:
ABC & CO.
June 30, Fee Revenues 52,500/=

Concession Revenue 5,000/=
Expense and revenue summary 57,500/=
Expense and Revenue Summary 59,560/=

Utility Expenses 5,000/=
Office Maintenance Expenses 9,000/=
Office Supplies Expenses 2,000/=
Depreciation Expenses 4,050/=
Insurance Expense 1,000/=
Wages Expenses 2,000/=
Interest Expenses 10/=
Miscellaneous Expenses 6,000/=
Advertising Expenses 5,000/=
Bank Charges/Commission 500/=
Illustration ii

HELPING HANDS
June 30, Fees Revenue 30,000/=

Commission Income 39,000/=
Rent Revenue 4,000/=
Other Income 3,000/=
Interest Revenue 3,133/=
Subscription Revenue 6,000/=
Services Income 5,000/=
Expenses and Revenue Summary 90,133/=
June 30, Expense & Revenue Summary 29,900/=

Telephone Expenses 1,000/=
Office Maintenance Expenses 2,000/=
Office Supplies Expenses 2,000/=
Depreciation Expenses 3,600/=
Insurance Expenses 5,000/=
Miscellaneous Expenses 2,150/=
Rent Expenses 2,000/=
Electricity Expenses 2,000/=
Advertising Expenses 2,000/=
Bank Charges/Commission 150/=
MOON ENTERPRISES
June 30, Sales 400,000/=

Expense & Revenue Summary 400,000/=

Sales Return & Allowances 1,000/=
Sales Discount 1,000/=
Expense & Revenue Summary

Purchases 350,000/=
Merchandise Inventory (Opening) 25,000/=
Purchase Return & Allowances 2,000/=

Purchase Discount 3,000/=

Transpiration 2,000/=
Custom duty 1,000/=
Telephone Expense 1,000/=
Office Maintenance Expense 3,000/=
Repair & Maintenance (P&M) 5,000/=
Salaries Expense 25,000/=
Office Supplies Expense 1,500/=
Depreciation Expense 10,400/=
Insurance Expense 3,000/=
Wages Expense 3,000/=
Uncollectable/Bad Debt Expense 2,000/=
Miscellaneous Expense 2,000/=
Rent Expense 500/=
Electricity Expense 5,000/=
Advertising Expense 15,000/=
Sales Promotion Expense 15,000/=
Sales Distribution Expense 15,000/=
Bank Commission 100/=
Bank Charges 200/=
INCOME STATEMENT
Income statement or Profit and Loss Statement is the financial statement which
describes the company’s financial performance in term of net profit or loss over a
specified period. It comprises over two segments as;
Income: Income or revenue describes that the business has earned over a period
from income sources according to nature of business like sales revenue, dividend
income, fees income, commission income, rent income, interest revenue,
subscription revenue, service revenue and so on.
Expenses: Expenses is the cost which incurred during business operation over a
period like salaries, wages, rent expense, insurance expense, and depreciation
expense etc.
Net profit or loss is diagnosed by deducting expenses from income.
COST OF GOODS SOLD
In Manufacturing and trading business, the cost of goods is ascertained by The

Cost of goods sold statement prepared before making income statement or
reported in it.
The cost of goods sold may be ascertained by different methods such as

increasing or decreasing in inventory, beginning inventory + Net Purchases +
Direct Expenses incurred on purchases = cost of goods available – ending unsold
inventory, average cost method etcetera.
Illustration i
INCOME STATEMENT OF ABC & CO.

FOR THE YEAR ENDED JUNE, 2015
REVENUES
Fee Revenues 52,500.00
Concession Revenue 5,000.00
Gross Revenue 57,500.00

Less: Expenses
Utilities expenses 5,000
Office Maintenance expense 9,000
Salaries Expenses 25,000
Office Supplies Expenses 2,000
Depreciation Expenses 4,050
Insurance Expense 1,000
Wages Expenses 2,000
Interest Expenses 10
Miscellaneous expenses 6,000
Advertising Expenses 5,000
Bank Charges/Commission 500
Total Expenses 59,560 (59,560)
Net Loss transferred to Capital (2,060)

Illustration ii
INCOME STATEMENT OF HELPING HANDS

FOR THE YEAR ENDED JUNE, 2015
REVENUES
Fees Revenue 30,000.00
Commission Income 39,000.00
Rent Revenue 4,000.00
Other Income 3,000.00
Interest Revenue 3,133.00
Subscription Revenue 6,000.00
Services Income 5,000.00
Gross Revenue 90,133.00

Less: Expenses
Telephone Expenses 1,000
Office Maintenance Expenses 2,000
Salaries Expenses 8,000
Office Supplies Expenses 2,000
Depreciation Expenses 3,600
Insurance Expenses 5,000
Miscellaneous Expenses 2,150
Rent Expenses 2,000
Electricity Expenses 2,000
Advertising Expenses 2,000
Bank Charges/Commission 150
Total Expenses 29,900 (29,900)
Net Income Transferred to Capital 60,233

Illustration iii
BALANCE SHEET
A Balance sheet is a financial statement which represents company’s

assets, liabilities and equity in summarized way under accounting
formula assets = liabilities + owner’s equity.
It comprises over two sides as;
ASSETS SIDE
EQUITY SIDE
- The assets side describes non-current assets and current assets

reduced by contra assets like accumulated depreciation,
allowance for bad debts etc.
- The Equity side describes long term liabilities and current

liabilities plus owners’ equity reduced by contra equity like
drawings etc.
The way of presenting the financial position over a specific period of

the business is named Balance Sheet.
Illustration i
Illustration ii
Illustration iii
POST CLOSING TRIAL BALANCE
A post closing trial balance contains accounts relating to permanent

account such as assets, liabilities and owners’ equity which will be open
in next accounting year by opening general entries or opening balances.
The post closing trial balance is prepared from the last balance sheet
indicating the balances of ledger accounts which gives assurance that
the books are in balance and ready for transferring accounts shown as
balance sheet in new accounting period.
OPENING JOURNAL ENTIRES
The opening journal entries provide opening balances of accounts

shown in balance sheet or in post closing trial balance to next
accounting period for further recording transactions.
Illustration i
Opening General Entries:
ABC & CO.

July 1, Building 100,000
Furniture 15,000
Office Equipment 30,000
Cash 6,000
Bank 8,100
Unexpired Insurance 2,000
Prepaid Advertising 1,000
Fees Revenue Receivable 2,500
Accumulated Depreciation (OE) 10,800

Accumulated Depreciation (Fur) 5,400
Notes Payable 4,000
Income Tax Payable 1,000
Sales Tax Payable 2,000
Salaries Payable 10, 000
Wages Payable 2,000
Interest payable on notes payable 10
Telephone Expense Payable 1,000
Electricity Power & Light Payable 2,000
Unearned fees Revenue 1,000
Unearned revenue from concession 3,000
Capital 127,390
Illustration ii
HELPING HANDS
July 1, Furniture 30,000
Shop Deposit 10,000
Cash 13,700
Bank 10,000
Prepaid Rent 4,000
Notes Receivable 8,000
Accrued Rent Revenue R/A 1,000
Commission Revenue R/A 4,000
Service Revenue R/A 5,000
Interest receivable on Notes R/A 133
Accumulated Depreciation (OE) 900
Notes Payable 10,000
Unearned Subscription Revenue P/A 3,000
Capital 85,233
Illustration iii
MOON ENTERPRISES
July 1, Land 100,000
Building 30,000
Furniture 30,000
Plant & Machinery 50,000
Shop Deposit 10,000
Cash 25,000
Bank 20,000
Prepaid Rent 4,500
Notes Receivable 10,000
Prepaid Insurance 4,000
Interest R/A on Notes R/A 200
Office Supplies 500
Merchandise Inventory (End) 100,000
Accumulated Depreciation (OE) 2,700
Accumulated Depreciation (P&M) 5,000
Allowance for Uncollectable/Bad Debts 2,000
Loan 50,000
Notes Payable 10,000
Income Tax Payable 5,000
Sales Tax Payable 10,000
Interest Payable on Bank Loan 500
Interest Payable on Notes P/A 200
Telephone Expense Payable 3,000
Electricity Light & Power Payable 2,000
Capital 336,100

1- Can ledger make without journal?
Journal is the source of providing information to ledger
accounts relating to transaction’s date, nature of account,
reference number, applied rubes and amount. The information
in journal comes from vouchers which make base to source
documents.
Ledger is the bunch of accounts requires prescribed
information which may be supplied by journals or from the
source documents to which journal make base for recording.
Then we are in right to say that ledger can be made from
source documents but the importance of maintaining journals
is in its own place. The diary for cash or bank will have to
maintain necessarily if ledger is made without journals or cash
book.
In small business where some transactions occurred in a
month, it can be applied but where transactions’ volume is
huge, the practice of maintaining journals must be adopted.
The good way is to walk step by step.
2- What is the difference between cash book and journals?
Cash book is a form of journal mostly used to control receipts

and payments of cash. It works as a ledger of cash and bank
which balance at the end is shown in balance sheet. The cash
book deals with only transactions occurred in cash or by bank
and for small transactions, petty cash book is maintained.
When general journal is the form of mixtures of all transactions
cash, credit, adjustments, discounts and goods returns and
some special journals like cash receipt journal, cash payment
journal, sales journal, sales return and allowances journal and
purchase journal, purchases return and allowance journals
support to general journal.
The cash book is the best replacement of cash receipt and cash
payment journals.
3- Does petty cash book link to cash book, explain?

Petty cash book is the part of cash book, it maintains to record
small transactions such as conveyance, cartage, entertainment,
postage, small repairs, etc.
Petty cash fund is issued by cash book debiting petty cash funds
account. The petty cash fund decrease cash from cash book and
increase cash in petty cash book. Petty cash expenses are paid
through petty cash voucher and recorded into petty cash book
in specific column and many other accounts which have no
column is written in other account.
Having been paid expenses, the total of each account is
journalized into ledge as petty cash expenses; head wise debt
and petty cash fund credit. The ledger balance becomes equal
to petty cash book balance and for the same way the fund
issued and spends.
In other words, we can say the petty cash book is the sub book
of cash book.
4- What do you mean by journals and journalizing?

Journal is a book or diary columnar designed to make easy record
keeping but journalizing is the method of recording transaction in
general journal or in specified journals but where cash book is used
instead of journals, journal entry affects general ledger or to its
subsidiary ledger accounts.
In business, sale or purchase on credit; the payment of which made

later; is journalized by journal voucher which effect debtor or creditor
accounts.
All adjustments such as sales discount, purchase discount, sale return,

purchase return, transfer of amount from an account to another
account and so on in accounts are made through journalizing.
Journalizing mostly affects general ledger consists on permanent

accounts and sometimes affects temporary accounts for adjustment
purposes.
Because of journalizing, we find the actual balance of debit and credit

fluctuating immediately from the process of journalizing facilities one to
pay or receive the amount payable or receivable.
Journalizing is mostly used for correction the amount of an account or

transfers the balance from an account to another account freely.
5- Explain the function of ledger?

The bunch of accounts is called ledger, its main function is to
provide end result of amount as to balance in debit or in credit.
If balance in general ledger which consists on assets, liabilities
and owner’s equity, as asset is debit means to have or to
receive, liabilities is debit means to pay the amount to whom
the debit taken and owner’s equity is credit means to have the
amount of investment. The balances in temporary accounts;
expense and revenue; are ended on calculation of profit and
loss which is transferred to general ledger account.
The main function of maintaining ledger is to provide end
balance of all accounts to next stage as to trial balance.
6- What do you mean by purchase merchandise; assets or
expense?
All purchases unsold for doing business are assets for example a
trader purchases items for sale and to get profit over it and a
manufacturer purchases different materials to make goods of
his business. All goods sold help to recover the amount of
purchases as well as profit over it. Therefore, the purchases
which were assets unsold when sold changed the name as sale.
Because of the reason in question, the purchase of
merchandise is treated as expense to make gross profit or loss
and the unsold merchandise will be the part of permanent
account as current asset.
All purchase returns and purchase discounts which are contra
assets but reduce purchases in income summary are temporary
accounts may belong to expense and revenue ledger.
7- Subsidiary ledger and the benefit of making it, explain?
Subsidiary ledger is a sub book of general ledger mostly makes

for account receivable and account payable having various
parities or clients to whom the goods sold and purchase are
made on credit.
The subsidiary ledger helps for receiving the amount balance in
party’s account as well as giving discounts on sale or purchases
which sometime seller or purchaser issues on early payment.
The party’s account in subsidiary ledger is increased or
decreased in balance by discounts
The subsidiary ledger helps in doing returns of sale or purchase
to any party due to defect in goods or any reason and is
affected by increase or decrease in balance.
All accounts which have windows or various accounts relating
to specific account may be opened by subsidiary ledger
account.
The main benefit of subsidiary accounts is to make separate
account of any specific account having multiple parties or
clients.
8- What do you understand by accounts receivable and
accounts payable and its schedule?
The list of debtors or creditors consists on parties name,
amount etc. is the schedule of accounts receivable or account
payable scratched from subsidiary ledger; sub ledger of general
ledger; especially made for parties.
Creditors are those from whom we purchase merchandise on
credit by crediting their accounts as account payable and
debtors are the parties to whom we sell merchandise on
account by debiting their accounts as account receivable. For
example, we purchase merchandise goods worth Rs.10, 000/=
from A.I. Traders on credit, we shall open A.I. Traders Account
(A/c payable) and on paying some amount or Rs.5000/= from
his account shall debit his account as A.I. Traders (A/c Payable),
the balance will remain in credit Rs.5000/= indicate us to pay
later.
The schedule of debtors and creditors may indicate the position
of parties altogether or individually for management purposes
that requires with a payment or receiving point of view and for
linking with general ledger control account.
9- Is purchase asset or an expense?
All purchases which have no concern with the goods applied in
sale are expenses and the goods sold which consumed in sale
will also be an expense but the goods unsold is current asset.
Hence, purchase for doing business is a temporary asset or may
be considered expense but relates to the ledger of expense and
revenue or income statement accounts.
Further, Purchase for doing business is a temporary account
relates to inventory and inventory is asset until in hand but may
be considered as expense because of its relation to income and
the balance remains unsold will be permanent account as asset
which is transferable to the next accounting cycle.
10- Is purchase return asset or an expense?

The purchase returns and allowances have relation to
purchase merchandise which reduce purchases is not
expense directly but may be contra expense.
11- Is purchase discount asset or an expense?
Purchase discount offered by supplier to purchaser on
payment in time is not an expense directly but relates to
goods purchased for business and does contra to the
value of goods purchased. It is reduced by purchases in
income statement may be contra expense account.
12- Describe the net and gross method of purchase

discount.
Purchase discount is given by the supplier to the
purchaser on payment in time and may be recorded
under gross method and net method of accounting.
In gross method, the total cost of purchase is credited to
accounts payable and discount at the time of payment if
realized will be recorded as accounts payable debit; the
total amount of payable against invoice; discount credit;
the amount of discount; cash credit; the payment after
deducting discount and payment after discount period;
accounts payable debit and cash credit.
In net method of accounting, the total net cost of
purchase (gross value less discount) is debited and
account payable credited and on payment account
payable is debited and purchase discount credited.
If the payment is not made in time, an anti-revenue
account named purchase discount lost is debited to
record the loss as accounts payable debit, purchase
discount loss debit and cash credit.
13- How to close an opening and closing inventory

account?
An opening inventory is the balance of closing inventory
at the start of accounting cycle transferred by expense &
revenue summary to general ledger account as opening
inventory debit and income summary credit.
In order to make income statement, the opening
inventory is transferred to expense summary under
journal entry as income summary debit and inventory
opening credit.
The inventory unsold is transferred to general ledger
account under journal entry as inventory ending debit
and income summary credit.
The inventory ending is a current asset shown in balance
sheet.
14- Is the cost of goods sold an expense?

The cost of goods sold is obtained by cost of goods sold
statement under formula cost of goods sold =
merchandise inventory opening + net purchases –
merchandise inventory closing. On selling, the cost of
goods sold is converted into cash and cash is asset, the
sale above than cost of goods will definitely be profit and
profit is the part of capital but the consumption process
of cost of goods is considered as an expense.
15. Discuss briefly on asset, liabilities, equities,

revenue and expenses.
The discussion on assets, liabilities, proprietorship,
revenue and expense is like to draw water from sea and
to count stars from sky because of their involvements in
every places entire subject but in shortly we can describe
them;
- Assets represent to resources or things having
economical value equal to liabilities plus
proprietorship under different classifications.
- Liabilities are the claims of suppliers and borrowers
in short term and long term.
- Equities are the sources of providing funds to
business by internal or external ways.
- Expenses help to generate profit.
The result is concluded that assets are resources
obtained by sources or equities which can have liabilities
from internal or external but revenues and expenses are
applied in the process of income.
The assets, liabilities and equities are the member of
accounting cycle but revenues and expenses are expired
on income and loss sate.
16- What do you mean by working capital?
Money invested in business is recognized by capital

which enables business to buy assets and pay for
obligations.
Working capital is a measure to weigh the financial
health of an entity by increasing or decreasing in assets
and liabilities under formula working capital = current
assets – current liabilities. The increase in current assets
means the efficiency in business and decrease in current
assets defines deficiency.
The working capital ratio can be calculated by dividing all
current assets with all current liabilities indicating
increase and decrease in assets comparatively as;
Year 1 Year 2 Year 3
Current Assets 400,000 600,000 800,000
Current Liabilities 200,000 300,000 500,000

Working capital ratio 2:1 2:1 1.6:1
17- What do you mean by other assets, sundry

creditors and sundry debtors?
Other assets, sundry creditors and sundry debtors

represent to different types of assets, creditors and
debtors require classification separately in lieu of
opening the different accounts of irregular assets,
creditors and debtors.
The benefit of them is to save the time of searching, to
see in a list and they work like control account of
miscellaneous accounts relating to like these.
18- Described about cash base accounting, accrual

base accounting and cash base and accrual base mix
accounting.
CASH BASE ACCOUNTING
In cash base accounting system, transactions are
recognized on receipt and payment of cash. It is usually
applied or followed by individual or small business
concerns. Revenues and are report in income statement
when the cash is received and expenses occurred.
ACCRUAL BASE ACCOUNTING
In accrual base accounting, transactions are recorded in
ledger under journalizing and as when they transact and
reported in income statement when they earned or
occurred of the period that closes accounting. Now, the
cash received or paid will have no concern with revenues
and expenses but payment and receipt.
As far as usually expenses are concerned, the accrual of
them daily is not in practice. Now, this question can be
arisen that will the profit cover the transaction of the
date? The answer will be no, then the accrual base
accounting need to accrue all transactions on accrual
basis if we require profit and loss and balance sheet on
daily basis.
CASH AND ACCRUAL BASE MIX ACCOUNTING
In cash base accounting cash is received or paid against
transactions as and when they occurred and in accrual
base accounting, the journal entry of the transactions is
recorded as and when it occurred before cash receipt
and payment.
In cash and accrual mix base accounting, usually cash is
received or paid against transactions but the transactions
relate to receivable or payable are journalized and
remaining transactions of the date of accounting period
are recorded at the time of closing accounts.
It is up to entity’s requirement that it adopts the system

among cash, accrual and mix accounting system.
19 - What is suspense account?

A suspense account in debit or credit is an account which
is opened in general ledger temporarily to record
doubtful transactions requires proper account undefined.
On meeting the proper account, the amount recorded in
suspense account is transferred to its proper account
from suspense account.
Suppose that on reconciliation of bank statement, an
amount of Rs.50000/= is found in credit in bank
statement may be sent by someone or party. It needs to
store in account temporarily to imbalance cash book till
the party is ascertained, it will kept in suspense account
like; bank debit and suspense account credit and like this
way an amount is found in payment by bank statement,
will be in suspense account debit and bank credit.
Further, a suspense account is used to record the
difference in amount of an account like;
- Machinery repaired at Rs. 900/= has been debited to Machinery
repair account Rs. 800/=.
The difference in account has been noted Rs.100/=
because machinery was repaired Rs.900/= and the
original entry will be machinery repair debited by
Rs.900/= and cash credited by Rs.900/= but difference in
positing in machinery repair account is recorded
Rs.800/= instead of Rs.900/= then the difference will go
in machinery repair account in debit Rs.100/= and
suspense account in credit Rs.100/=.
Discuss about the need of internal audit.
Everything which has weight if let it idle will cause faulting, this is the fact that
everyone has no way to deny. Just like this, accounts to which we say are the
characters of accounting need to have checking and finding mistakes at an early
stage will save the difficulty of presenting true accounting.
Hence, accounts are needed to check daily and to do it an auditor is required

internally who sees every transaction with bird’s eye view and finds mistakes in
source documents and in recording. I think he will be responsible for;
- Checking indents/purchase orders/inventory/consumables

- Checking invoices/bills/cash memos compare to purchase
order/requests
- Checking and calculation of invoice/bills/cash memo in compassion
to rate
- Getting awareness with rates according to market.
- Raising questions about rates and purchases above than purchase
order.
- Verified payment instrument that has been audited.
- Finding mistakes in wrong postings and make them corrected.
- Keep an eye on receiving and payments
Volume – II
WRITTEN BY:
SYED AQEEL RAZA
YEAR 2015
THE END

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Volume – II

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

<THE SYSTEM OF ACCOUNTING < VOLIUMII< SYED AQEEL RAZA<aqeelraza@live.com>

The object of writing this book “The System of Accounting” is to

This book is primarily written for the use of beginners of this

At last in short, I shall say that this is my a little contribution

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

I hope my a little struggle for this noble cause will

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

The Mode of Transaction & its driver

THE MODE OF TRANSACTION

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

The Mode of Transaction & its driver

The question of security should be on priority in this dangerous period

The person or persons handling the work in question must be protected by

Security is the measure that ensures safety.

- To care in receiving the cash from bank.

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

The Mode of Transaction & its driver

- To keep cash notes & coins domination-wise bundled separately.

To keep set everything is good habit.

- To view payment instruments and vouchers that they are completed

- To pay after getting signature of receiving person on voucher.

The voucher will consider unpaid if not signed.

The Mode of Transaction & its driver

- To care in giving cash to irrelevant person or ask for

The voucher or payment instrument may be void in case of signature of

- To prepare summary of cash receipts and payments on daily

After payments and receipts all the day, it is necessary to prepare

The Mode of Transaction & its driver

The Mode of Transaction & its driver

As far as temporary advances are concerned, it is given to person,

The vouchers relating to temporary advances are kept separately and

The Mode of Transaction & its driver

The Mode of Transaction & its driver

- To balance cash with receipts and payments summary of the

The Mode of Transaction & its driver

Cash in cash book Cash in daily cash report

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

The Mode of Transaction & its driver

- To keep in record any amount given other than voucher.

The Mode of Transaction & its driver

Therefore, temporary advances or .I.O.U will be on written paper means voucher

- To record vouchers in the system or in cash book and in ledger.

The accountant, data entry operator or cash accountant is responsible for

The Mode of Transaction & its driver

- To file vouchers with serial numbers.

The petty cashier or assistant to accountant-cash will also be required according

As far as the responsibilities of accountant-cash, the person handling banks

- Keeping cheque books in lock and key.

It is the responsibility of accountant-bank to keep cheque books in lock and key.

The Mode of Transaction & its driver

- Caring on giving cash cheque to irrelevant person or ask for authorization.

Care is better and saves future.

- Depositing cheques receipt into specific bank on daily basis or as soon as it

- Preparing cheques receipts and payments summary on daily basis.

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>

- Preparing bank reconciliation statement at the end of the month.

It will be the responsibility of accountant-bank to reconcile banks with cash book

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<aqeelraza@live.com>