Financial Accounting

CLASSIFICATION OF ACCOUNTS
 Golden rules of accounting
• Rule No 1 Debit What come in ---- Credit What
Goes out
• Rule No 2, Debit The receiver and Credit Giver
• Rule No 3, Debit All Expense and Losses ----
Credit Income and profit
 CLASSIFICATION OF ACCOUNTS
• Personal Accounts: Personal Accounts also includes
accounts in the names of firms, companies or institutions
such as Malini & sons account, Nagarjuna finance limited
account, Andhra Bank Account etc. Debit the receiver &
Credit the giver
• Real Accounts: Accounts relating to properties or assets are
known as ‘ Real Accounts’. Every business needs assets
such as machinery, furniture etc., for running its activities.
A separate account is maintained for each asset owned by
the Business. Debit what comes in Credit what goes out
• Nominal accounts: Accounts relating to expenses, losses
and incomes and gains are known as ‘ Nominal Accounts’
Examples of Nominal Account Wages, salaries, commission,
interest received accounts. Debit all expenses and losses
credit all incomes and gains
 JOURNAL
• Introduction: The word is “Journal” is derived from the
Latin word ‘Journ’ which means a day. Therefore, journal
means a day book where in day-to-day business
transactions are recorded in chronological order.
• Ledger: As stated above, all transactions, irrespective of
their nature, are recorded in the journal in a chronological
order. After a certain period, if we want to know whether a
particular account is showing a debit or credit balance it
becomes very difficult, so the ledger is designed to
accommodate the various accounts maintained by a trader.
• Sub-division of ledger: The impersonal ledger, on the other
hand, contains all real and nominal accounts.
• Credit ledger: All accounts of credits will be found in this
book. It can also be called ‘Suppliers Ledger’
• Debtors ledger: All accounts of debtors will be found in this
book. It can also be called ‘Customers Ledger’.
• General ledger: It contains all accounts other than debtors
and creditors. Accounts of owner’s expenses, incomes,
capital, drawings, etc., will be found in this book. It may
also be called ‘Impersonal Ledger’.
• Private ledger: Sometimes, the capital account and
drawings account of the proprietor may be separately
maintained in another ledger called private ledger. Journal
Ledger Journal is the book of first or original entry. The
Ledger is the book of second entry In the preparation of
final accounts journal is not useful. In the preparation of
trail balance and final accounts ledger is a must.
Transaction in the journal will be recorded immediately.
Depending upon his conveniences the trader records the
transactions in the ledger. Journal may not reveal whether
one customer is a debtor or creditor. Ledger, however, will
reveal whether one person is a debtor or creditor to the
business.
• TRIAL BALANCE The first step in preparation of
Final Accounts is the preparation of Trial Balance.
In the double entry system of book keeping,
there will be credit for every debit and there will
not be any debit without credit. The trail balance
generally does not include stock in hand at the
end of the period. All adjustments required to be
done at the end of the period, including closing
stock, are generally given under the trail balance.
definition A trial balance is a list of all the
balances standing on the Ledger accounts and
cash Book of a concern at any given data. “Spicer
and Pegler”
Illustration 1
• Jeyaseeli is a sole proprietor having a provisions store. Following
are the transactions during the month of January, 2018. Journalise
them.
• Jan. Rs.
• 1 Commenced business with cash 80,000
• 2 Deposited cash with bank 40,000
• 3 Purchased goods by paying cash 5,000
• 4 Purchased goods from Lipton & Co. on
credit 10,000
• 5 Sold goods to Joy and received
cash 11,000
• 6 Paid salaries by cash 5,000
• 7 Paid Lipton & Co. by cheque for the purchases made on 4th
Jan.
• 8 Bought furniture by cash 4,000
• 9 Paid electricity charges by cash 1,000
• 10 Bank paid insurance premium on furniture as per standing
instructions 300
• Illustration 2
• Ananth is a trader dealing in textiles. For the following transactions,
pass journal entries for the month of January, 2018.
• Jan. Rs.
• 1 Commenced business with cash 70,000
• 2 Purchased goods from X and Co. on credit 30,000
• 3 Cash deposited into bank 40,000
• 4 Bought a building from L and Co. on credit 95,000
• 5 Cash withdrawn from bank for office use 5,000
• 6 Cash withdrawn from bank for personal use of Ananthu 4,000
• 7 Towels given as charities 3,000
• 8 Shirts taken over by Ananth for personal use 12,000
• 9 Sarees distributed as free samples 3,000
• 10 Goods (table clothes) used for office use 200
• Solution
• Illustration 3
• Arun is a trader dealing in automobiles. For the following
transactions, pass journal entries for the month of January,
2018
• Jan. Rs.
• 1 Commenced business with cash 90,000
• 2 Purchased goods from X and Co. on credit 40,000
• 3 Accepted bill drawn by X and Co. 20,000
• 4 Sold goods to D and Co. on credit 10,000
• 5 Paid by cash the bill drawn by X and Co.
• 6 Received cheque from D and Co. in full settlement and
deposited the same in bank 9,000
• 7 Commission received in cash 5,000
• 8 Goods costing Rs. 40,000 was sold and cash
received 50,000
• 9 Salaries paid in cash 4,000
• 10 Building purchased from Kumar and Co. for Rs. 1,00,000
and an advance of Rs. 20,000 is given in cash
• Illustration 4
• Bragathish is a trader dealing in electronic goods who commenced
his business in 2015. For the following transactions took place in
the month of March 2018, pass journal entries.
• March Rs.
• 1. Purchased goods from Y and Co. on credit 60,000
• 2. Sold goods to D and Co. on credit 30,000
• 3. Paid Y and Co. through bank in full settlement 58,000
• 4. D and Co. accepted a bill drawn by Bragathish 30,000
• 5. Sold goods to L on credit 20,000
• 6. Sold goods to M on credit 40,000
• 7 Received a cheque from M in full settlement and deposited the
same to the bank 39,000
• 8. Goods returned to Y and Co. 4,000
• 9. L became insolvent and only 90 paise per rupee is received by
cash in final settlement
• 10. Goods returned by M 3,000
• Illustration 5
• Valluvar is a sole trader dealing in textiles. From the following
transactions, pass journal entries for the month of March, 2018.
• March
• 1 Commenced business with cash 90,000
• with goods 60,000
• 2 Purchased 20 readymade shirts from X and Co. on credit 10,000
• 3 Cash deposited into bank through Cash Deposit Machine 30,000
• 4 Purchased 10 readymade sarees from Y and Co. by cash 6,000
• 5 Paid X and Co. through NEFT
• 6 Sold 5 sarees to A and Co. on credit 4,000
• 7 A and Co. deposited the amount due in Cash Deposit Machine
• 8 Purchased 20 sarees from Z & Co. and paid through debit card
12,000
• 9 Stationery purchased for and paid through net banking
6,000
• 10 Bank charges levied 200
• Illustration 6
• Deri is a sole trader dealing in automobiles. From the following
transactions, pass journal entries for the month of January, 2018.
• Jan. Rs.
• 1 Commenced business with cash 1,00,000
• with goods 2,00,000
• with buildings 5,00,000
• 2 Purchased goods from A and Co. on credit 3,00,000
• 3 Cash deposited into bank 80,000
• 4 Purchased goods from B and Co. and payment made through credit
card 5,000
• 5 Paid A and Co. through RTGS
• 6 Sold goods to C and Co. and cheque received 50,000
• 7 Deposited the cheque received from C and Co. with the bank
• 8 Purchased goods from Z & Co. and paid through debit card 12,000
• 9 Stationery purchased for and paid through net banking 6,000
• 10 Income tax of Deri is paid by cheque 10,000
Illustration 7
• Chandran is a sole trader dealing in sports items. From the following
transactions, pass journal entries for the month of March, 2018.
• March Rs.
• 1 Commenced business with cash 4,00,000
• 2 Cash deposited into bank 3,00,000
• 3 Purchased goods from Ravi and payment made through net
banking 90,000
• 4 Sales made to Kumar, who deposited the money through CDM 10,000
• 5 Sales made to Vivek, who made the payment by debit card 60,000
• 6 Sold goods to Keerthana, who made the payment through credit
card 50,000
• 7 Dividend directly received by bank 2,000
• 8 Money withdrawn from ATM 3,000
• 9 Salaries paid through ECS 6,000
• 10 Cricket bats donated to a trust 10,000
• Illustration 8
• Deepak is a dealer in stationery items. From the
following transactions, pass journal entries for the
month of January and February, 2018.
• Jan. Rs.
• 1 Commenced business with cash 2,00,000
• 2 Opened a bank account by depositing
cash 1,00,000
• 3 ‘A 4 papers’ sold on credit to Padmini and
Co. 60,000
• 4 Bills received from Padmini and Co. for the amount
due
• 5 Bills received from Padmini and Co. discounted with
the bank 58,000 Feb.
• 15 Bills of Padmini and Co. dishonoured
• Format of ledger account
• The ledger account is prepared in T format. It
is divided into two parts. Left side is debit side
and right side is credit side. Each side contains
four columns. The name or title of the account
is placed at the top middle and the details are
entered in the ledger. The format of ledger
account is given below:
• Following are the details contained in the various columns in the
ledger:

• Date : Date of the transaction is recorded in this column.

• Particulars : The account debited or credited is recorded in this

column. On the debit side, the entries are made starting with ‘To’
and on the credit side, entries are made starting with ‘By’.

• Journal Folio (J.F.): In this column, the page number of the journal
or subsidiary books from which the entry has been posted to the
ledger is noted.

• Amount : The amount of the transaction is recorded in this column.

• Pass journal entries for the following transactions
and post them in the ledger accounts.
• 2017
• June 1 Basu started business with cash Rs.
50,000
• June 4 Purchased furniture by paying cash
for Rs. 6,000
• June 7 Purchased machinery on credit from
Harish Rs. 10,000
• June 10 Bought goods for cash Rs. 4,000
• June 18 Paid insurance premium Rs. 100
• Solution
• Prepare necessary ledger accounts in the books of Joy from the following opening
entry:
• In the books of Joy Journal entries
• Solution
• Ledger accounts
• Journalise the following transactions and post them to ledger. On May 20,
2018, Ram paid salaries Rs. 15,000; Electricity charges Rs. 8,000 and
wages Rs. 2,000.
• Solution
• Ledger a/c
• On 15th March, 2017, Ramesh paid Rs. 13,800 in full settlement of his
account Rs. 15,000 due to his creditor Dinesh. Pass journal entry and
prepare ledger accounts.
• Solution
• In the books of Ramesh
• Journal entry
• Ledger a/c
• Thmizhanban started book selling business on
1st January, 2018. Following are the transac-tions took
place in his business for the month of January, 2018.
Pass journal entries and pre-pare ledger accounts.
• 2018
• Jan. 1 Started business with cash Rs. 3,00,000
• Jan. 2 : Opened bank account by
depositing Rs. 2,00,000
• Jan. 5 : Goods bought from Tamilnadu Textbook
Corporation for cash Rs. 10,000
• Jan. 15 : Sold goods to MM Traders for cash Rs. 5,000
• Jan. 22 : Purchased goods from X and Co.
for Rs. 15,000 and the payment is made through net
banking.
• Jan. 25 : Sold goods to Y and Co. for Rs. 30,000 and the
payment is received through NEFT
• Bharathi is a sole trader dealing in oil products for the
past five years. The books of accounts showed the
following balances on 1st April, 2018: Cash in
hand Rs. 25,000; Cash at bank 3,00,000. The following
transactions took place for the month of April 2018.
• April 1 : Goods bought by giving cheque Rs. 30,000
• April 5 : Goods sold to Naveen and payment received
through NEFT Rs. 40,000
• April 6 : Goods sold to Xavier for cash Rs. 20,000
• April 9 : Goods sold on credit to Abdul for Rs. 25,000
• April 18 : Cash received from Abdul Rs. 10,000
• Pass Journal entries for the above transactions and
prepare ledger accounts.
• Prepare cash account from the following
transactions for the month of January 2018.
• Jan 1 Commenced business with
cash Rs. 62,000
• Goods purchased for cash Rs. 12,000
• Goods sold for cash Rs. 10,000
• Wages paid Rs. 4,000
• Furniture purchased for cash Rs. 6,000
• The following are the transactions of Kumaran, dealing
in stationery items. Prepare ledger accounts.
• 2017
• June 5 : Started business with cash Rs. 2,00,000
• June 8 : Opened bank account by depositing Rs. 80,000
• June 12 : Bought goods on credit from Sri Ram
for Rs. 30,000
• June 15 : Sold goods on credit to Selva for Rs. 10,000
• June 22 : Goods sold for cash Rs. 15,000
• June 25 : Paid Sri Ram Rs. 30,000 through NEFT
• June 28 : Received a cheque from Selva and deposited
the same in bank Rs. 10,000