Anurag Sharma

Centre Director

Chapter 1. Meaning and Objective of Accounting

Definition
“Nearly every business enterprise has accounting system. It is a means of collecting,
summarizing, analyzing and reporting in monetary terms, information about business.”
- R.N. Anthony
Characteristics of Accounting

1. Accounting is an Art as well as Science

Art is the technique of attaining some pre-determined objectives. Accounting is an art
of recording. Accounting is an art of recording, classifying and summarizing business
transaction with a view to ascertain the net profit and financial position of the business
enterprise.
Any organized body of knowledge which is based on certain specified principles is
called science. In this respect accountancy is also a science since it is also an organized body of
knowledge based on certain specified principles and accounting standards.

2. Recording of Financial Transaction Only

Only those transaction and events are recorded in accounting which are of a financial
character. There are so many transaction which are very important fir business but which
cannot be measured and expressed in terms of money and hence such transaction will not be
recorded. For example, the quarrel between the production manager and the sales manager,
resignation by an able and experienced manager, strike by employees.

3. Recording in Terms of Money

Each transaction is recorded in the books in terms of money only. For example, if a
business man purchases 200 chairs and 10 tables, their value in terms of money will be
recorded in the books.

4. Classifying
After recording the transaction in journal or subsidiary books, the transactions are
classified. Classification is the process of grouping the transaction of one nature at one place,
in a separate account. The book in which various accounts are opened is called ‘Ledger’.
Separate accounts are opened in ledger in the name of each person, whether customer or
supplier. Likewise, separate accounts are opened for purchases, sales, assets etc.

5. Summarizing
Summarizing the art of presenting the classified data in a manner which is
understandable and useful to management and other users of such data. This involves the
balancing of ledger accounts and the preparation of Trial Balance with the help of such
balances.
The given diagram shows the accounting cycle. This accounting cycle starts with the
recording of business transactions in the journal or subsidiary books and after passing through
ledger and trial balance, it results in the preparation of final accounts (i.e. trading and profit &
loss account and balance sheet). This accounting cycle is generally completed in an accounting
year and is again repeated in each subsequent year.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

6. Interpretation of the Result

In accounting, the results of the business are presented in such a manner (i.e. by
preparing trading and profit & loss account and balance sheet) that the parties interested in the
business such as proprietors, managers, banks, creditors, employees etc. can have full
information about the profitability and the financial position of the business.
7. Communicating
Accounting attributes also includes the communication of financial data to the users
who analyze them as per their individual requirements.

Objectives of Accounting

1. To keep systematic record of business transaction

The main objective of accounting is to keep complete record of business transaction
according to specified rules. Complete records of business transaction helps to avoid the
possibility of omission and fraud. For this purpose, all the business transactions are first of all
recorded in journal or subsidiary books and then posted into ledger.

2. To Calculate Profit or Loss

The second main objective if accounting is to ascertain the net profit earned or loss
suffered on account of business transactions during a particular period. For this purpose trading
and profit & loss account of the business is prepared at the end of each accounting period.

3. To know the exact reasons leading to net profit or net loss.

4. To Ascertain the Financial Position of the Business

The businessman must also know the financial health of the business. For this purpose,
after preparing the profit and loss account a statement called ‘balance sheet’ is prepared which
shows the assets and their values on the one hand and the liabilities and capital on the other
hand. A balance sheet is actually a screen picture of the financial position of the business.

5. To ascertain the progress of the business from year to year.

6. To prevent and detect errors and frauds.
7. To provide information to various parties.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

Functions of Accounting

1. Maintain Complete and Systematic Records

Main function of accounting is to maintain complete and systematic records of business
transactions, post them to ledger and to prepare the financial statements i.e. statement of profit
& loss and balance sheet.

2. Communicating the Financial Results to Various Parties

Another main function of accounting is to communicate the information regarding net
profit (or loss), assets, liabilities etc. to the interested parties.

3. Providing Assistance to Management

By providing timely information, accounting assists the management in the task of
planning, controlling and decision making.

4. Compliance of Legal Needs

Under the provisions of various laws such as Companies Act, Income Tax Act, Goods
and Services Tax (GST) etc. A business firm has to submit various statements such as annual
accounts, income tax and GST returns etc. Accounting performs this function by supplying the
information to the government agencies.

Distinctions Between Book-Keeping and Accounting

Basis of distinction Book-keeping Accounting

1. Stage Book-keeping is primary stage. It is the secondary stage. Accounting
starts where Book-keeping ends.
2. Objective The main objective of Book- Its main objective is to ascertain the net
keeping is to maintain systematic results and financial position of the
records of transactions of financial business and to communicate them to
nature. interest parties.
3. Nature of Job The Book-keeping function is The Accounting function is analytical in
routine and clerical in nature. nature.
4. Who Performs The Book-keeping function is The Accounting function is performed
performed by junior staff. by senior staff.
5. Knowledge Level It can be performed by persons It is performed by persons having higher
having limited level of knowledge. level of knowledge than that of Book-
keeper.

Distinction Between Accounting and Accountancy

Basis Accounting Accountancy
1. Meaning It is concerned with recording, It is a body of knowledge
classifying and summarizing of prescribing certain rules or
transaction. principles to be observed while
recording, classifying and
summarizing of transaction.
2. Scope It is narrow in scope. Accounting starts It is much wider in scope and
where book-keeping ends. includes book-keeping as well as
accounting.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

3. Relation It depends on book-keeping. It depends both on book-keeping

and accounting.
4. Function Its main function is to ascertain the net It includes the decision making
results and the financial position of the function also in the basis of
business and to communicate them to information provided by book-
interested parties. keeping and accounting.

Types or Sub-Fields of Accounting

1. Financial Accounting
The main purpose of this branch of accounting is to record the business transaction in a
systematic manner, to ascertain the profit or loss of the accounting period by preparing a profit
and loss account and to present the financial position of the business by preparing a balance
sheet. This branch of accounting provides information required by the management and various
interested parties.

2. Cost Accounting
The main purpose of cost accounting is to ascertain the total cost and per unit coust of
goods produced and services rendered by a business.

3. Management Accounting
The main purpose of management accounting is to present the accounting information
in such a way as to assist the management to planning and controlling the operations of a
business. The management accountant uses various techniques and concepts to make the
accounting data more useful for managerial decision making. These techniques include ration
analysis, budgetary control, fund flow statement, cash flow statement etc.
4. Tax Accounting
The branch of accounting which is used for tax purposes is called tax accounting.
Income tax and sales tax are computed on the basis of this accounting.

5. Social Responsibility Accounting

The society provides the infrastructure and the facilities without which business cannot
operate at all. Hence the business also has a responsibility to the society.
The contribution of a business to the society consists of providing employment to under-
privileged, providing financial and manpower support for public programs, environmental
contribution, product safety, product durability, customer satisfaction etc.

Users of accounting information and their needs or

Parties interested in Accounting Information

1. Internal Users
Internal users are the persons who have a direct interest in the business enterprise such
as owners, management and employees.

(A) Owners
Owners (or present investor) contribute capital in the business and as such want to
know about the profitability and financial soundness of the business. They also want to know
whether the profits are increasing or decreasing.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

(B) Management
Management needs accounting information for the efficient and smooth running of the
business enterprise. Their needs are met by the accounting information provided by
published reports of the business enterprise such as profit and loss account, balance sheet
and cash flow statement.
(C) Employees
Employees need information about the profits of a business to assess the ability of the
business to pay higher wages and bonuses. They may also use the financial statements (i.e.
accounting information) to ascertain whether various amounts due to them such as
provident fund is being deposited regularly.

2. External Users:-
Individuals or organization who have present or future interest in the business enterprise but
are not part of the management are called external users of accounting information.

1) Potential Investors (for example, those who want to invest)

Potential investors need information to judge how safe and rewarding the proposed
investment will be.

2) Short-term creditors (For example, suppliers of goods and services on credit)

They want information about the creditworthiness of the business enterprise.

3) Long-Term Creditors (Such as Financial Institutions)

They want to judge whether their principal and the interest thereof will be repaid when
due.
4) Tax Authorities
Tax authorities need information for the assessment of income tax, excise duty, Value
Added Tax (VAT), service tax etc.
5) Government and Their Agencies
Government and their agencies need information to form politics relating to taxation,
allocation of resources and for providing subsidies etc.
6) Social Responsibility Groups (Such as environmental protection groups)
They need information on the impact on environment and the steps taken by the
enterprise for the protection of environment.

Advantage or Uses of Accounting

(1) Helpful in Management of Business:-Management needs a lot of information for the

efficient running of the business. All such information is provided by the accounting which
helps the management in the following:-
(A) Helpful in Planning
(B) Helpful in Decision Making
(C) Helpful in Controlling

(2) Provides Complete and Systematic Record:-Business transactions have growth in size
and complexity and it is not possible to remember each and every transaction. Accounting
keeps a prompt and systematic record of all transactions and summarizes them in order to
provide a true picture of the activities of the business entity.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

(3) Information Regarding Profit or Loss:- Accounting reports the net result of business
activities of an accounting period. The Profit & Loss Account prepared at the end of each
accounting period discloses the net profit earned or loss suffered during that period.

(4) Information Regarding Financial Position:- Accounting reports the financial position of
the business by preparing a Balance Sheet at the end of each accounting period. Balance Sheet
discloses the position of assets and their values on the one hand and liabilities and capital on
the other hand.

(5) Enables Comparative Study:- By keeping a systematic record accounting helps the owners
to compare one year’s costs, expenses, sales and profit etc. with those of other years.

(6) Helpful in Assessment of Tax Liability:- Properly maintained records will be of great
help when the firm is assessed to income tax or sale tax. Such records when audited are trusted
by the taxation authorities.

(7) Evidence in Legal Matters:- Properly maintained accounts, supported by authenticated

documents are accepted by the courts as a firm evidence.

(8) Helpful in Raising Loans:- Accounting information is of great help while raising loans
from banks or other financial institutions. Such institutions before sanctioning loan screen
Various financial statements of the firm such as final accounts, fund flow statement, cash flow
statement etc.

(9) Helpful in Prevention and Detection of errors and Frauds.

Limitations of Accounting

(1) Influenced by Personal Judgments:- Accounting is as yet an exact science and accountant
has to exercise his personal judgment in respect of various items. For example, it is extremely
difficult to predict with any degree of accuracy the actual useful life of an asset which is
needed for calculating depreciation. The same is true about method of valuation of stock and
making provision for doubtful debts. Different persons are bound to have different opinions in
respect of such things and hence it will result in ascertainment of different figure of profit or
loss of a business by different persons.

(2) Based on Accounting Concepts and Conventions:- Accounts are prepared on the basis
of a number of accounting concepts and conventions. Hence, the profitability and the financial
position disclosed by it may not be realistic. For example, fixed assets are shown in the
balance sheet according to the ‘going concern concept’. This means that the fixed assets are
shown at their cost and not at their market value. The values realized on their sale may be more
or less than the values stated in the balance sheet.

(3) Omission of Qualitative Informations:- Accounts contain only those informations which
can be expressed in terms of money. Qualitative aspects of business units are completely
omitted from the books as these cannot be expressed in monetary terms. Thus, changes in
management, reputation of the business, cordial management- labour relation, firm’s ability to
develop new products, efficiency of management, satisfaction of firm’s customers etc. which
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

have a vital bearing on the profitability of the firm are all ignored and omitted from being
recorded because all of these are qualitative in nature.

(4) Based on Historical Costs:- Account are prepared on the basis of historical cots (i.e. the
original costs) and as such the figures given in financial statements do not show the effect of
changes in price level. The assets remain undervalued in many case particularly land and
building. The outcome of this practice is that balance sheet values of assets are not helpful in
estimating the true financial position of the business.

(5) Affected by Window Dressing:- Window dressing refers to the practice of manipulating
accounts, so that the financial statements may disclose a more favourable position than the
actual position. For example, the purchases made at the end of the year may not be recorded or
the closing stock may be over-valued. Hence, correct decisions cannot be taken on the basis of
such financial statements.

Qualitative Characteristics (Attributes) of Accounting Information

(1) Reliability:- Accounting information must be reliable. Reliability implies that the information
must be factual and verifiable. The accounting information is said to have verifiability if such
information can be verified from sources documents such as cash memos, purchase invoices,
sales invoices, correspondence, agreements, property deed and other similar documents.
Verifiability ensures the truthfulness of the recorded transactions.

(2) Relevance:- Accounting informations depicted by financial statements must be relevant to the
objectives of the enterprise. Unnecessary and irrelevant informations should not be
included in financial statements. For example, the information regarding the rate of divided
paid by a company in previous year is a relevant information for the investors. Similarly, while
reporting debtors in the balance sheet, it is the total amount of debtors which is relevant and
not the number of debtors.

(3) Understandability:- Accounting informations should be presented in such a simple and

logical manner that they are understood easily by their users such as investors, lenders,
employees etc. A person who does not have any knowledge of accounting terminology
should also be able to understand them without much difficulty. This can be done by
giving relevant explanatory notes to explain the information given in financial statements.
These explanatory notes make the financial statements more useful and understandable.

(4) Comparability:- Comparability is a very useful quality of the accounting information. The
Financial statements should contain the figures of previous year along with the figures of
current year so that the current performance can be compared with past performance.
Similarly, the financial statements should be prepared in such a way that the profitability and
financial position of the concern may be compared with other concerns of the similar type.
Comparison reveals the strong and weak points of the business entity. Comparability is
possible when different firms in the same industry adopt the same accounting principles from
year to year.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 Anurag Sharma -1-
Centre Director

Chapter2. Basic Accounting Terms

1. Business Transaction
A business transaction is an economic activity of the business that changes its financial position.
Whenever any business transaction takes place, it results in a change in the values of some of the assets,
liabilities or capital.

The chief features of a transaction are:-

(i) It involves an economic activity. For example, when goods are purchased. Social activities are not
considered as transactions. For example if X purchase a gift for his friend, it will not be considered
as a transaction
(ii) Transaction may be classified into two types- external and internal. External transactions are those
which involve economic activities between two independent business entities such as purchase or
sale of goods. Internal transactions are those economic activities that take place entirely within one
business entity such as depreciation charged on fixed assets.
(iii) It results in a change in the financial position of the firm – a change in the values of some of the
assets, liabilities or capital.
(iv) The change must be capable of being expressed in terms of money.

2. Event
An event is the consequence or result of a transaction example : Closing balance of cash, Closing
stock, Closing capital etc.

3. Account
The individual transactions of like nature are recorded, added and subtracted at one place. Such
place is customarily termed as an ‘Account’.
An account is a record of all business transactions relating to a particular person or item. In
accounting we keep a separate record of each individual, asset, liability, expenses or income. The place
where such a record is maintained is termed as an ‘Account’ All transactions entered into with
Ghanshyam will be recorded in the Account of Ghanshyam
“ An account is a ledger record in a summarized form, of all the transactions that have taken
place with the particular person or things specified.” - Carter

All accounts are divided into two sides. The left side of an account is called Debit side and the right side
of an account is called Credit side. In the abbreviated form, Debit is written as Dr. and Credit is written
as Cr. The account resembles English capital letter ‘T’. As such, it is often called ‘T’ shape account. An
account is abbreviated as A/c.

4. Capital :- It refers to the amount invested by the proprietor in a business enterprises. It is the
amount with, the help of which goods and assts are purchased in the business.
Capital = Assets – Liabilities
Capital is also known as Owner’s Equity or Net Worth or Net Asset.
5. Drawing
Any cash or value of goods withdrawal by the owner for personal use or any private payments made
out of business funds are called drawings.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -2-
Centre Director

6. Liability
It refers to the amount which the firm owes to outsiders (excepting the amount owed to proprietors).
In the words of Finney and Miller, “Liabilities are debts, they are amounts owed to Creditors.” This can
be expressed as –
Liabilities = Assets – Capitals
The bills payable, creditors, unpaid wages are the examples of liability.
Liability may be divided into two parts –

(i) Internal liabilities

All amounts which a business entity has to pay to the proprietor or owners are internal
liabilities such as capital and accumulated profits.

(ii) External liabilities

All amounts which as business entity has to pay to the outsiders are known as external
liabilities such as creditors, bank overdraft, loans etc.

Liabilities may be further classified into two parts as under –

(a) Non-current liabilities
These refer to those liabilities which fall due for payment in a relatively long period
(normally after more than one year). For example, long term loans and debentures etc.
(b) Current liabilities
Current liabilities refer to those liabilities which are to be paid in near future
(normally within one year). For example, bank overdraft, bills payable, creditors,
outstanding expenses and short term loans etc.

7. Assets
Anything which is in the possession or is the property of a business enterprise including the amounts
due to it from others, is called an asset. In other words anything which will enable a business enterprise
to get cash or a benefit in future is an asset. This, cash and bank balances, stock, furniture, machinery,
land and building, bills receivable, money owning by debtors etc. are all assets.
Assets may be classified into the following categories –
(i) Non-current asset
Non-current assets refer to those assets which are held for continued use in the business for
the purpose of producing goods or services and are not meant for sale. Example for non-current
assets are long term investments and fixed assets such as land and building, plant and machinery,
computer, motor vehicles, furniture etc.
Fixed assets are further classified into –

(a) Tangible Assets

Tangible assets are those assets which can be seen and touched. In other words, which
have a physical existence such as land and building, plant and machinery, computer,
motor vehicle, furniture, stock, cash etc.
(b) Intangible Assets
Intangible assets are those assets which do not have a physical existence and this,
cannot be seen or felt. Examples of such assets are goodwill, patents, copyright, trade
marks, computer software and prepaid expenses.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -3-
Centre Director

(ii) Current Assets

Current assets are those assets which are meant for sale or which the management would
want to convert into cash within one year. As such, these assets are also termed as ‘short-lived or
active assets’. For example, debtors are expected to be converted in to cash within a reasonable
short period, stock is continuously sold and bills receivable are also converted into cash. current
assets are also known as floating assets or circulating assets.

(iii) Fictitious or Nominal Assets

These are the assets which cannot be realized in cash or no further benefit can be derived
from these assets. Such assets include Debit balance of P&L A/c and the expenditure not yet written
off such as Advertisement Expenses etc. These assets are not really assets but are shown on the
assets side only for the purpose of transferring them to Profit & Loss Account gradually over a
period of time.

8. Capital Receipts and Revenue Receipts

The revenue receipts are shown on the credit side of Trading and Profit & Loss Account whereas the
capital receipts are shown in the Balance Sheet either as increase in liabilities or as reduction in the value of
the assets.

Capital Receipts
Examples of capital receipts are
(i).Amount received from the sale of fixed assets or investments.
(ii).Capital contributed by proprietors, partners or money obtained from issue of shares and
debentures in case of company.
(iii).Amount received by way of loans.

Revenue Receipts

(i). Money obtained from sale of goods.

(ii). Commission and fees received for services redered.
(iii). Interest and dividend received on investment.

9. Expenditure
Any disbursement of cash or transfer of property or incurring a liability for the purpose of acquiring
assets, goods or services is called expenditure. It means that any type of payment for the receipt of a benefit
is termed as expenditure. Expenditure may be classified into three categories (i) Capital expenditure, (ii)
Revenue expenditure and (iii) Deferred revenue expenditure.
(i). Capital Expenditure
Any expenditure which is incurred in acquiring or increasing the value of a
fixed asset is termed as capital expenditure. As such, the amount spent on the purchase or
erection of Building, Plant, Furniture etc. is capital expenditure. Such expenditure yields
benefit over a long period and hence written in Assets.
(ii). Revenue Expenditure
Any expenditure, the full benefit of which is received during one accounting
period is termed as revenue expenditure. As such, all the revenue expenditure are debited to
Trading and Profit & Loss Account. Such only helps in maintaining the existing capacity.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -4-
Centre Director

Distinction between Capital Expenditure and Revenue Expenditure

I. Capital expenditure is incurred for the acquisition or erection of a fixed asset, whereas revenue
expenditure is incurred for the day to day running of the business.
II. Capital expenditure in incurred for the purpose of increasing the earning capacity of the business,
whereas revenue expenditure for maintenance of earning capacity i.e., for keeping the assets in as
efficient working order.
III. Capital expenditure yields benefit normally over a long period , whereas revenue expenditure yields
benefit for maximum period of one year.
IV. Capital expenditure is written in the balance sheet, whereas revenue expenditure is written in Trading
and Profit & Loss Account.

(iii). Deferred Revenue Expenditure

There are certain expenditure which are revenue in nature but the benefit of which is likely to
be derived over a number of years. Such expenditure are termed as ‘Deferred Revenue Expenditure’
The benefit of such an expenditure generally lasts between 3 to 7 years. As such, the whole of such
expenditure is not debited to the Profit and Loss Account of the current year but spread over the years
for which the benefit is likely to last. Thus, only a part of such expenditure is taken to Profit & Loss
Account every year and the unwritten off portion is allowed to stand on the assets side of the Balance
Sheet. For example, a firm spent a huge amount of 2,00,000 on advertising to introduce a new
product in the market and it is estimated that its benefit will last for 4 years. In this case, 50,000 will
be charged to the P&L A/c of each year for four consecutive years.
50,000 will be debited to P&L A/c of each year and the balance will be treated as an assets
and shown on the Assets side of the Balance Sheet.
10. Expenses
Expenses is the cost incurred in producing and selling the goods and services. Following are included
in the term Expenses
I. Cost of goods sold
II. Amount paid for Rent, Commission, Salary, Advertisement etc.
III.Decline in the value of an assets caused by the use of such asset for business
purpose or depreciation is also an expense.

11. Income
‘Income’ is different from ‘revenue’. Amount received from sale of goods is called ‘Revenue’ and
the cost of goods sold is called ‘Expense’. Surplus of revenue over expenses is called ‘Income’. For
example, the goods costing 4,00,000 are sold for 5,00,000. The sale amounting to 5,00,000 is the
revenue, the cost amounting to 4,00,000 is expenses and the difference between the two i.e. 1,00,000 is
the income. It can thus, be expressed as
Income = Revenue – Expense
12. Profit
It is the excess of total revenues over total expenses of a business enterprise for an accounting period.
Profit increases the investment of the owners.
13. Gain
It is a monetary benefit, profit or advantage resulting from events or transactions which are incidental
to business such as sale of fixed assets, winning a court case or appreciation in the value of an asset. For
example, if a building costing 10,00,000 is sold for 12,00,000; 2,00,000 will be the gain on sale of
building.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -5-
Centre Director

13. Loss
The term conveys two different meanings. First, it conveys the result of the business for a period
when total expenses exceed the total revenues. For example, if revenues are 2,00,000 and expenses are
2,40,000, the loss will be 40,000. Second, activity against which firm receives no benefit. For example,
loss due to fire, theft, accident etc. It may be noted that losses differ from expenses. Expenses are incurred to
generate revenues whereas losses do not. For example, the theft of an assets is a loss but its depreciation is
an expense.

15. Purchase
The term purchase is used only for the purchase of ‘Goods’ in which the business deals. In case of a
manufacturing concern ‘goods’ means acquiring of raw material for the purpose of conversion into finished
product and then sale. In case of trading concern ‘goods’ are those things which are purchased for resale. In
both the cases the purpose is to make a profit by its revenue. For example, if a cloth dealer purchases cloth
for sale, the cloth so purchased will be called ‘goods’. However, if the same cloth dealer purchases furniture
for seating the customers, such furniture will not be termed as goods, but it will be an ‘Assets’ and a separate
account named ‘Furniture Account’ will be opened for it.

Purchase Return :- When purchased goods are returned to the suppliers these are known as purchase
returns. Such returns are also termed as ‘returns outwards’.

16. Sales
Sales means transfer of ownership of goods or services to customer for a price. For example, if Tarun
sells a Computer to Varun, the ownership of computer will be transferred form Tarun to Varun and Tarun is
entitled to receive the agreed price of computer from Varun. The term ‘sales’ is used only for the sales of
those goods which are purchased for resale purpose. It also includes revenues from services provided to
customer. The term ‘sales’ is never used for the sale of assets. For example, if a cloth dealer sells cloth, it
will be termed as sales, but if the same cloth dealer sells old furniture or a typewriter, it will not be termed as
sales. The term sales includes both Cash and Credit sales.

Sales Return :- some customers might return the goods sold to them. Theses are termed as sales returns or
‘returns inwards’.

17. Stock or Stock-in-trade

The term ‘stock’ includes the value of those goods which are purchased for reselling and which are
lying unsold at the end of accounting period. The sale may be two types.
(i) Opening Stock, (ii) Closing Stock.
The term ‘Opening Stock’ means are the value of goods lying unsold at the beginning of the
accounting period whereas the term ‘Closing Stock’ means the value of goods lying unsold at the end of the
accounting period.

18. Inventory
In case of a manufacturer, there can be opening and closing inventory of four types.

(i). Inventory of Raw Material :- It includes inventory of raw material purchased for using them in
the products manufactured but still lying unused. For example, the value of cotton in case of cloth
mills is the inventory of raw material.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -6-
Centre Director

(ii). Inventory of Work-in-progress :- It is also termed as inventory of partly finished goods. It

means goods in semi-finished form. Such goods need further processing for converting into finished
products. In case of cloth mills the value of threads and the unfinished cloth will be the inventory of
work in progress.
(iii). Inventory of Finished Goods :- It includes the inventory of those goods which have been
completely processed and are ready for sale but are lying unsold at the end of the accounting period.
In case of cloth miles the value of finished cloth will be the value of finished goods.
(iv). Inventory of stock-in-trade :- In includes the value of those goods which are purchased for
reselling.

19. Trade Receivables

Trade receivables refer to the amount receivables on account of sale of goods or services rendered
by the company in the normal course of business.
Trade receivables include both Debtors and Bills Receivables.

Debtors :- The term ‘Debtors’ represents those persons of firms to whom goods have been sold
or services rendered on credit and payment has not been received from them. They still owe
some amount to the business. For example, if goods worth 50,000 have been sold to Mohan
on Credit, he will continue to remain the debtor of the business so long as, he does not make the
full payment.

Bill Receivables :- A bill of exchange becomes bill receivable for the person who draws it
(drawer) and gets it back, after its acceptance from the drawee. Thus bill receivable is an
accounting term for bills of exchange drawn on debtors or received by way of endorsement from
them. The amount specified in such a bill is receivable at a future date.

20. Trade Payables

Trade payables is the amount payable on account of good purchased or services taken in the natural
course of business.
Trade payable include both ‘Sundry Creditors’ and ‘Bill Payables’.

Creditors :- The term ‘Creditors’ represents those persons or firms from whom good have
been purchased or services procured on credit and payment has not been made to them. Some
money is still owing to them. For example, if goods worth 20,000 are purchased from Govind
on Credit, he will continue to remain the creditor of the firm so long as, the full payment is not
made to him.

Bill Payable :- A bill of exchange becomes bill payable for the person who accepts it (drawee)
and returns it to the drawer. Thus bill payable is an accounting term for bills of exchange
accepted in favour of creditors. The amount specified in such a bill is payable at a future date.

21. Goods
Goods include all those things which are purchased for resale or which are used for producing the
finished products which are also meant to be sold. Thus, for a furniture dealer purchase of chairs and tables
is termed as goods, while for others it is future and is termed as an asset. Similarly, for a stationary trader,
stationary is goods, whereas for others it is expense.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -7-
Centre Director

22. Cost
Cost can be termed as the amount of resources given up in exchange for same goods or services. The
resources given up are money or money’s equivalent expressed in terms of money. For example, cost of
machinery will include purchase price, freight and installation expenses etc. Further, the expenditure
incurred may be actual or national. The amount spent on the purchase of raw materials is the actual
expenditure whereas national expenditure is one which does not involve any cash outlay. National
expenditure is conceptual and deemed to have been incurred, e.g. rent of owned factory, interest on owned
capital etc.

23. Voucher
A voucher is a document which provides the authorization to pay and on the basis of which the
business transactions are, first of all, recorded in the books of accounts. A separate voucher is prepared for
each transaction and it specifies the accounts to be debited or credited. The form of a voucher varies from
firm to firm since vouchers are printed separately by different firms I their own names. Vouchers are
prepared by accountant and each voucher is numbered and countersigned by an authorized person of the
firm.

24. Discount
It is a rebate or an allowance given by the seller to the buyer. It is of two types :
(i). Trade Discount :- When discount is allowed by a seller to its customers at a fixed percentage
on the list or catalogue price of the goods it is called trade discount. It is not recorded in the
books of accounts as it is deducted in the invoice or cash memo itself from the gross value of
goods.
(ii). Cash Discount :- When discount is allowed to the customers for making prompt payment it
is called cash discount. For example, if a seller allows 2% discount for payment within a
week it will be called cash discount. It is always recorded in the books of accounts.

25. Entry
When a transaction or event is recorded in the books of accounts, it is called ‘Entry’

26. Bad Debts

It is the amount that has become irrecoverable from a debtor. It is a business loss and is debited to
Profit & Loss Account as an expenses.

27. Insolvent
A person or an enterprise which is not in a position to pay its debts in called insolvent.

28. Solvent
A person or an enterprise which is in a position to pay its debts in called solvent.

29. Stores
The term ‘stores’ is used to denote materials held by an enterprise for the purpose of consumption in
the business and not for resale. Examples are lubricants, spare parts of machinery, packing materials etc.

30. Revenue
Revenue in accounting means the income of a recurring (regular) nature from any source. It consists
of the amount received from sale of goods and from service provided to customers. Is also includes receipt
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -8-
Centre Director

of rent, commission, dividend, interest etc. revenue is related with day-to-day affairs of the business and
should also be regular in nature.

31. Entity
An entity or business entity means an economic unit which is formed for earning income by
providing service or selling goods (for example L.G. Electronics, Wipro, Maruti Suzuki etc.

32. Turnover
Turnover means total sales made in a particular period.

33. Livestock
Domestic animals, such as cattle or horses are known as livestock.

34. Investment
Investment refers to deployment of funds in the shares or debentures of companies with the intention
of earning a return.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -1-
Anurag Sharma
Centre Director

Chapter-3 Accounting Principles

Nature or Characteristics of Accounting Principles:

(i) Accounting principles are uniform set of rules or guidelines developed to ensure uniformity
and easy understanding of the accounting information.

(ii) Accounting principles are manmade and are derived from experience and reason. They are
not laboratory tested and hence they lack universal applicability.

(iii) Accounting principles are not static and are bound to change with the passage of time in
response to the changes in business practices, government policies and needs of the users.

(iv) The general acceptance of an accounting principle depends upon how well it statisfies the
following three criteria:

(a) Relevance : A principle is relevant if it results in information that is useful to the user.
(b) Objectivity: A principle is objective if it is free from personal bias or judgements of
those who furnish the information. Objectivity also implies verifiability which means
that there is some way of finding out the truthfulness or correctness of the information
reported.
(c) Feasibility: A principle I feasible if it can be applied without undue complexity or cost.

Need of Accounting Principles

In order to make the accounting information meaningful to its internal and external
users, it is significant that such information is reliable as well as comparable. The comparability of
information is required to see how a firm has performed as compared to the other firms and how it
has performed as compared to the previous years. This becomes possible only if the information
provided by the financial statements is based on some set rules known as policies, principles and
conventions. These rules (usually called GAAP, Generally Accepted Accounting Principles) bring
uniformity and consistency to the process of accounting and enhance its utility to different users of
accounting information.

Kinds of Accounting Principles

I. Accounting Concepts or Assumptions
II. Accounting Principles
I. Accounting Concepts or Assumptions

1. Going Concern Concept :

As per this concept it is assumed that the business will continue to exist for a long
period in the future. The transactions are recorded in the books of the business on the
assumption that it is a continuing enterprise. If a machinery purchased which would last, say, for
the next 10 years, the cost of this machinery will be spread over the next 10 years for calculating the
net profit or loss of each year. It is also because of the going concern concept that outside parties
enter into long-term contracts with enterprise, give loans and purchase the debentures and shares of
the enterprise. Prepaid expenses, which have no realisable value are shown as assets in the balance

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -2-
Anurag Sharma
Centre Director

sheet, because the benefit of such expenses will be received in future without this concept, the
classification of current and fixed assets and short and long term liabilities cannot be made.
2. Consistency Concept
This concept states that accounting principles and methods should remain
consistent from one year to another. These should not be changed from year to year, in
order to enable the management to compare the Profit & Loss Account and Balance Sheet
of the different periods and draw important conclusions about the working of the
enterprise. If a firm adopts different accounting principles in two accounting periods, the profit
of current period will not be comparable with the profits of the preceding period. For example,
a firm can choose any one of the several methods of depreciation, i.e. straight line method,
written down value method or any other method. But it is expected that the method once choose
will be followed consistently year after year. Likewise, the method of stock valuation or making
provisions for likely bad debts should remain consistent with the previous years otherwise the
decisions taken on the basis of accounts will be misleading.
But the consistency concept should not be taken to mean that it does not allow a firm to
change the accounting methods according to the changed circumstances of the business.
Otherwise, the accounting will become non-flexible and the improved techniques of accounting
will not be used. As such, of the accountant feels that change in a particular method will lead to
the better disclosure of the profits and the financial position of the business, the changed method
may be adopted. However, the nature and effect of the change of method and justification for the
change, must be stated clearly by way of footnotes to enable the users of the financial statements
to be aware of the change.

3. Accrual Concept/ Matching Concept

In accounting, accrual basis is used for recording of transactions. Accrual concept
applies equally to revenues and expenses. Revenue is recorded when sales are made or
services are rendered and it is immaterial whether cash is received or not. Expenses are
recorded in the accounting period in which they assist in earning the revenues whether the
cash is paid for them or not. Thus, to ascertain true profits or loss for an accounting period
and to show the true financial position of the enterprise at the end of the accounting period all
expenses and incomes relating to the accounting period are recorded whether actual cash has
been paid or received or not. Accrual concept is often described as matching concept.

II. Accounting Principles

1. Business Entity Principles

According to this concept, business is treated as separate unit and distinct from its owners.
Business unit should have a completely separate set of books and we of view of the proprietor.
The proprietor is treated as a creditor of the business to the extent of capital invested by him in
the business. The capital is treated as a liability of the firm because it is assumed that the firm has
borrowed funds from its own proprietors instead of borrowing it from outside parties. It is for this
reason that we also allow interest on capital and treat it as an expense of the business. Interest on
capital reduces the profits of the firm and at the same time it increases the capital of the proprietor.

2. Money Measurement Principle –

Only those transactions and events are recorded in accounting which are capable of being

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -3-
Anurag Sharma
Centre Director

expressed in terms of money. An event, even though it may be very important for the business, will
not be recorded in the books of the business unless its effect can be measured in terms of money
with a fair degree of accuracy. For example, accounting does not record a quarrel between the
production manager and sales manager; it does not report that a strike is beginning and it does not
reveal that a competitor has placed a better product in the market. These facts or happenings cannot
be expressed in money terms and thus are not recorded in the books.

3. Accounting Period Principle –

The users of the financial statements need to know the results of the business at
frequent intervals. Thus, the entire life of the firm is divided into time-intervals for the
measurement of the profits of the business. Twelve month period is usually adopted for this
purpose. According to the amended income tax law, a business has compulsorily to adopt financial
year beginning on 1st April and ending on 31st March in the next calendar year, as its accounting
period. Apart from this, companies whose shares are listed on the stock exchange are required to
publish quarterly results to depict the profitability and financial position at the end of three months
period.

4. Principle of Full Disclosure:- This principle requires that all significant information
relating to the economic affairs of the enterprise should be completely disclosed. In other
words, there should be a sufficient disclosure of information which is of material interest to
the users of the financial statements such as proprietors, present and potential creditors,
investors and other. The principle is so important that the Companies Act makes ample
provisions for the disclosure of essential information in the financial statement of a Company.
Various items or facts which do not find place in accounting statements are shown in the Balance
Sheet by way of footnotes. Such as:-

(i) Contingent Liabilities :- A claim of a very big sum pending in a court of law against
the enterprise should be brought to the notice of the users of the financial statements,
otherwise the statements would be misleading.

(ii) If there is a change in the method of valuation of stock, or for providing depreciation
or in making provision for doubtful debts, it should be disclosed in the Balance Sheet by
way of a footnote.

(iii) Market value of investments should be given by way of a footnote.

5. Principle of Materiality:- This principle is an exception to the principle of full disclosure.

According to this principle, items having an insignificant effect or being irrelevant to the user
need not be disclosed. These unimportant items are either left out or merged with other items,
otherwise accounting statements will be unnecessarily overburdened. It should be noted that
what is material for one concern may be immaterial for another.

6. Principle of Conservatism or Prudence:- According to this principle, all anticipated

loses should be recorded in the books of accounts, but all anticipated or unrealized gains
should be ignored. In other words, conservatism is the policy of playing safe. Provision is
made for all known liabilities and losses even though the amount cannot be determined
with certainty. Following are the examples of the applications of the principle of conservatism:-

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -4-
Anurag Sharma
Centre Director

(i) Closing stock is valued at cost price or realizable value whichever is less.

(ii) Provisions for doubtful debts is created in anticipation of actual bad-debts.

Effect of Principle of Conservatism
(i) Profit & Loss Account will disclose lower profits in conservation to the actual profits.

(ii) Balance Sheet will disclose understatement of assets and overstatement of liabilities in
comparison to the actual values.

7. Cost Principle or Historical Cost Principle:-

According to this principle, an assets is ordinarily recorded in the books of
accounts at the price at which it was acquired. This cost becomes the basis of all
subsequent accounting for the asset. Since the acquisition cost relates to the past, it is
referred to as historical cost. This cost is the basis of valuation of the assets in the financial
statements. For example, if a business entity purchase a building for Rs 20,00,000, it would
be recorded in the books at this figure. Subsequent increase or decrease in the market value
of the building would not be recorded in the books of accounts. If two years later the market
value of the building shots up to Rs 60,00,000, the increased value will not be ordinarily
recorded in the books of accounts.

Note: However, the cost principle or historical cost principle does not mean that assets will
be continuously shown at their acquisition price for as long as the business entity owns them.
Their cost is systematically reduced from year to year by charging depreciation and the assets
are shown in the balance sheet at cost less depreciation.

8. Matching Principle:- This principle is very important for correct determination of net
profit. According to this principle, in determining the net profit from business operations,
all cots which are applicable to revenue of the period should be charged against that
revenue. Accordingly, for matching costs with revenue, first revenues should be recognized and
then costs incurred for generating that revenue should be recognized.

1. When an item of revenue is included in the profit and loss account, all expenses incurred
on it, whether paid or not, should be shown as expenses in the profit and loss account. On
the basis of this principle, outstanding expenses, though not paid in cash are shown in the
profit and loss account.
2. Cost of the goods remaining unsold at the end of the year together with the expenses
incurred on it must be carried forward o the next year.
3. Similarly, incomes receivable must be added in revenues and incomes received in
advance must be deducted from revenues.

9. Dual Aspect Concept :

According to this concept, every business transaction is recorded as having a dual
aspect. In order words, every transaction effects at least two accounts. If one account is
debited, any other account must be credited. The system of recording transactions based on
this concept is called as ‘Double Entry System’. It is because of this principle that the two sides of
the Balance Sheet are always equal. Whenever a transaction is to be recorded, it has to be recorded
in two or more accounts to balance the equation.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -1-
Anurag Sharma
Centre Director

Chapter-4 Process and Bases of Accounting

Process / Steps of Accounting Process

1. Identification of Transactions
Transaction which cannot be measured and expressed in terms of money cannot be
recorded in accounting. For recording business transactions, it is necessary that these
transactions are evidenced by an appropriate document such as cash memo, purchase invoice,
sales invoice, pay-in-slip. Cheque book, pass book etc. A document which provides evidence
of the transaction is called the Sources Document.

2. Preparation of Vouchers
On the basis of sources documents entries are, first of all, recorded on vouchers and
then on the basis of vouchers recording is made in the Journal or books of original entry.
Vouchers are printed separately by all the firms in their own names. A separate voucher is
prepared for each transaction and it specifies the accounts to be debited and credited.
Vouchers, which are usually arranged in chronological order and serially numbered, are kept
in separate file.

3. Recording in Books of Original Entry

The book in which transactions are recorded for the first time from a voucher or a
source document are called ‘Book of Original Entry’. Journal is one of the books of original
entry in which transaction are recorded in a chronological (day-to-day) order according to the
principles of double entry system. When the size of the business is a small one, it may be
possible to record all transaction in journal but when the size of the business grows and the
number of transaction is very large journal is sub-divided into a number of books called sub-
journals or special journals. Recording of transactions in special journals instead of journal
only, is called practical system of book keeping. These special journals are also called
subsidiary books as these facilitate the preparation of ledger.

4. Posting to Ledger
The next step in the accounting process is to transfer all entries recorded in journal or
subsidiary books to respective accounts in ledger. A ledger is the principal book of accounts
in which all the transactions ultimately find their place under their respective accounts in a
duly classified form. Thus, in ledger separate accounts are opened in the name of each
person, whether customer or supplier. Likewise, separate accounts are opened for assets,
liabilities, purchase, sales etc. Similarly, all incomes and expenses, which are already
recorded in journal are again classified under separate heads in ledger, such as Salary
Account, Rent Account, Discount Account etc.

5. Preparation of Trial Balance and Financial Statements

Last step in the accounting process is the balancing of ledger accounts and the
preparation of Trial Balance with the help of such balances. A Trial Balance is a statement,
prepared with the debit and credit balances of ledger accounts to check the arithmetical
accuracy of posting and balancing of ledger accounts. If a trial balance does not tally, it
indicates that some errors in posting or balancing of accounts have occurred and steps are

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -2-
Anurag Sharma
Centre Director

taken to locate and rectify such errors. As the trial balance contains the balances of all ledger
accounts, it provides a basis for preparation of financial statements namely Trading and
Profit & Loss Account and a Balance Sheet.

Bases of Accounting
One of the main objectives of accounting is to ascertain the profit or loss of a business enterprise at
the end of an accounting period. there are two bases of ascertaining profit or loss, namely
(1) Cash Basis, and
(2) Accrual Basis.

(1) Cash Basis of Accounting : Under this basis, incomes are not recorded unless they are
received in cash. Similarly, expenses are recorded only when they are paid in cash. In other words,
credit transactions are not recorded at all and are ignored till cash is actually received or paid for
them.

Advantages :
(i) It does not require the use of estimates and personal judgements.
(ii) It is suitable of those enterprises where most of the transactions are on cash basis.

Disadvantages :
(i) It does not give a true and fair view of profit or loss and financial position of the
enterprise because it ignores outstanding expenses, prepaid expenses, accrued
incomes and incomes received in advance.
(ii) It does not follow matching principle of accounting.

(2) Accrual Basis of Accounting : Under this basis, incomes are recorded when they are earned
or accrued, irrespective of the fact whether cash in received or not, e.g., sales made on credit will be
included in the total sales of the period. Similarly, expenses are recorded when they are incurred or
become due and not when the cash is paid for them, e.g., rent due to the landlord but not paid will
be treated as expense for the period when it is due and not in the period when it is paid. Hence, in
accrual basis, profit or loss of a particular period is the result of matching of the revenues earned and
expenses incurred during the period

Advantages :
(i) It discloses true profit or loss for a particular period and also depicts true financial
position of the business at the end of a particular period.
(ii) If follows the matching principle of accounting.

Disadvantages :
(i) It is not as simple as cash basis of accounting.
(ii) it requires the use of estimates and personal judgements.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -3-
Anurag Sharma
Centre Director

Distinction between Cash Basis of Accounting and Accrual Basis of Accounting

Basis of Distinction Cash Basis of Accounting Accrual Basis of Accounting

1. Recording or cash and This basis records only the cash This basis makes a complete
credit and credit transactions. record of all cash as well as
transactions credit transactions.
2. Recording of incomes As per this basis, only those As per this basis, all incomes
incomes are recorded which are recorded whether cash is
have been received in cash. received for them or not.
3. Recording of expenses As per this basis, only those As per this basis, all expenses
expenses are recorded which are recorded whether cash is
have been paid in cash. paid for them or not.
4. Distinction between This basis does not make a This basis makes a distinction
capital and revenue items distinction between capital and between capital and revenue
revenue items. items
5. Legal Position This basis is not recognised This basis is recognised under
under the Companies Act, the Companies act, 1956
1956.
6. Suitability This basis is suitable for This basis is adopted by
professional people like business enterprises with profit
doctors, lawyers etc. motive.

Hybrid or Mixed Basis of Accounting:

This basis of accounting is the mixture of cash basis and accrual basis. Under
hybrid basis of accounting, revenues and assets are recorded on cash basis whereas expenses
and liabilities are recorded on accrual basis. Usually professional people such as doctors,
lawyers etc. adopt this method and prepare Receipts and Expenditure Account to ascertain their
net income during a period. They ignore their outstanding income but take into consideration
outstanding expenses. Hybrid system of accounting is an acceptable and approved system as
per judgments of the courts.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -1-
Anurag Sharma
Centre Director

Chapter-5 Accounting Standards (AS) and International

Financial Reporting Standards (IFRS)

Need for Accounting Standards

Over a period of time a number of Generally Accepted Accounting Principles (GAAP) in the
form of concepts and conventions have been developed and accepted to bring comparability and
uniformity in the financial statements of various business entities. But the difficulty is that GAAP
also allow a large number of alternative treatments for the same item. Different enterprise may adopt
different accounting policies for the same transactions. As a result, the financial statements become
inconsistent and uncomparable. Hence there is an urgent need to harmonise and standardize these
diverse accounting policies.
The International Accounting Standards Committee (IASC) came into existence on 29 th
June, 1973 to develop accounting standards. The institute of chartered Accountants
Of India and the Institute of Cost and Works Accountants of India are associate members of the
IASC. The institute of Chartered Accountants of India is also drawing up its own accounting
standards which are basically patterned on the International Standards and are modified according to
the conditions and practices prevailing in India.

Nature of Accounting Standards

(i) Accounting standards lay down the norms of accounting policies and practices by way of
codes to direct as to how the transactions and events should be dealt with in accounts and
disclosed in the financial statements.
(ii) In this way, they remove the effect of diverse accounting practices and policies so that
financial statements of different business units become comparable.
(iii) They prescribe a preferred accounting treatment from the available set of methods for
solving one or more accounting problems.
(iv) They provide information to the users of financial statements as to the basis on which such
statements as to the basis on which such statements have been prepared.
(v) They are just like laws.

Utility or Advantages of Accounting Standards

(i) Accounting Standards improve the reliability and credibility of Financial Statements: It is
necessary that the financial statements present a true and fair view of the financial position
and operating results of an enterprise. Accounting standards generate confidence among the
users of the accounting information by providing a definite structure of uniform guidelines
which enhance the reliability and credibility of the accounting information.
(ii) Accounting Standards ensure the consistency and comparability of Financial Statements:
Accounting standards make the financial statements of different enterprises for different
accounting periods comparable. They bring the uniformity of assumptions, rules and
policies adopted in the preparation of financial statements and thus they ensure the
consistency and comparability of such statements.
(iii) Accounting Standards significantly reduce the chances of manipulations and frauds:
Adoption of accounting standards in the preparation of financial statements has reduced the
chances of manipulations, frauds, insufficient disclosure or the use of inappropriate
accounting policies.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -2-
Anurag Sharma
Centre Director

(iv) Helpful to Auditors: It is the duty of the auditors to ensure that the accounting standards
have been followed in the preparation of financial statements. In case of deviations, it is also
their duty to make adequate disclosure in their reports so that the users of such statements
may be aware of such deviations.

Concept of Accounting Standards

Accounting standards may be defined as written statement, issued from time to time by
institutions of accounting professionals, specifying uniform rules or practices for drawing the
financial statements.

Utility or Advantages of Accounting Standards

(i). Accounting Standards improve the reliability and credibility of Financial Statement :
(ii). Accounting Standards ensure the consistency and comparability of financial Statements :
(iii). Accounting Standards help in resolving conflict of financial interests among various
group :
(iv). Accounting Standards significantly reduce the chances of manipulations and frauds.

As on 1st April 2015 there are 32 accounting standards specified by the Institute,
compliance of all of which is mandatory (compulsory) for companies. The following is the
list of these standards:

1. Accounting Standard (AS) 1, Disclosure of Accounting Policies

2. Accounting Standard (AS) 2, valuation of Inventories
3. Accounting Standard (AS) 3, Cash Flow Statement
4. Accounting Standard (AS) 6, Depreciation Accounting
5. Accounting Standard (AS) 10, Accounting for Fixed Assets
6. Accounting Standard (AS) 13, Accounting of investments
7. Accounting Standard (AS) 14, Accounting for Amalgamations
8. Accounting Standard (AS) 29, Provision, Contingent liabilities and Contingent Assets

Harmonization of Generally Accepted Accounting Principles (GAAP):

GAAP and accounting standards differ from country to country since they are
affected by political, legal, economic and cultural systems in which they are developed. To
bring harmony in financial reporting worldwide, there arose the need for development and
acceptance of global accounting standards. For this purpose, International Accounting
Standards Committee ((IASC) was established in 1973. IASC was replaced by International
Accounting standards Board (IASB) in the year 2001 which now issue International
Financial Reporting Standards (IFRS). IASB initially adopted the international Accounting
issued by IASC to be gradually replaced by IFRS upon their issuance.. The number of
International Accounting Standards issued by IASB so far is 41 out of which 12 have been
withdraw or replaced.

International Financial Reporting Standards (IFRS)

GAAP is being replaced by the use of ‘International Financial Reporting Standards
(IFRS)’. IFRS is being used increasingly by companies throughout the word. In some part of
the world, such as parts of Africa and the Caribbean, IFRS has fully replaced GAAP.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -3-
Anurag Sharma
Centre Director

European Union (EU) regulation requires listed companies to prepare their financial
statement using IFRS rather than national GAAP for periods commencing on or after 1 st
January, 2005. The U.S.A. is engaged in a significant programme of converging US GAAP
into IFRS.
Currently, about 130 countries permit or require compliance of IFRS while preparing
financial statements.

IFRS Issued by the IASB

S.NO Title
1. IFRS 1 First – time Adoption of International Financial Reporting Standards
2. IFRS 2 Share-Based Payment
3. IFRS 3 Business Combinations
4. IFRS 4 Insurance Contracts

Assumptions in IFRS:

(i) Going Concern Assumption: It is assumed that the life of the business is infinite, i.e.,
the entity will continue to exist for an indefinite period in the future.

(ii) Accrual Assumption: As per this assumption transactions are recorded on accrual basis,
i.e. as and when they occur and the date of settlement is immaterial.

(iii) Measuring Unit Assumption: Measuring unit is the current purchasing power. It means
that the assets are not shown in the Balance Sheet at historical cost but they are shown at
current or fair value.
(iv) Constant Purchasing Power Assumption: This assumption requires that the value of
capital be adjusted to inflation at the end of the financial year.

Benefits of IFRS:
(i) Helpful to Enterprise Operating Globally: Entities having business operations in
different countries will face problems of consolidation of financial statements if they
prepare their financial statements according to the standards prevailing in different
countries. IFRS unify the accounting practices worldwide as a result of which the
problem of consolidation is avoided.

(ii) Helpful to Investors: Investors require high quality, relevant, reliable, transparent and
comparable information in financial statements IFRS would be helpful to investors in
comparison to financial Statements prepared under different accounting standards
adopted by different countries.

(iii) Helpful Industry: Obtaining funds from outside the country becomes easier if the
financial statements comply with Globally accepted accounting standards.

(iv) Helpful to Accounting Professionals: Accounting professionals will be able to provide

better services in countries adopting IFRS.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -4-
Anurag Sharma
Centre Director

Difference between IFRS and Indian GAAP or Accounting Standards

(i) IFRS are based on Principles whereas Indian GAAP or Accounting Standards are based on
Rules. For Example, under the Indian laws, Balance Sheet and Statement of Profit & Loss
are prepared according to Schedule III of the Companies Act 2013, whereas IFRS do not
Prescribe any format for these.

(ii) IFRS are based on ‘Fair Value’ concept whereas Indian GAAP or Accounting Standards
are based on ‘Historical Cost’ concept. As per Indian GAAP assets are shown in the
Balance Sheet at ‘Historical Cost’ and as such depreciation is also charged on such
historical cost but IFRS require that the assets and liabilities should be shown at current or
fair value as at the date of Balance sheet.

India and IFRS:

It decided to converge the existing Indian Accounting Standards according to IFRS. In
India, the converged accounting Standards are called Ind-AS. The Govt. of India has issued
notification regarding Ind-AS. Following Ind-AS have been issued and notified.

S.NO. Standard Particulars

1. Ind AS-1 Presentation of Financial Statements
2. Ind AS-2 Inventories
3. Ind AS-7 Statement of cash flows
4. Ind AS-23 Borrowing Costs
5. Ind AS-33 Earnings per share

Govt. of India has opted for a four stage implementation of IFRS i.e. Ind. AS.

 In the first stage, starting April 1, 2011 companies that are part of the NIFTY or SENSEX, or
those with shares listed overseas or with a net worth of over Rs 1,000 crore are expected to move
to IFRS.

 In the second stage, starting April 1, 2012, IFRS would be applied to insurance companies.

 In the third stage, starting April 1, 2013, Companies with a net worth of over Rs 500 crore,
banks and large non-banking finance companies are expected to adopt IFRS.

 In the fourth stage, starting April 1, 2014, listed companies with a net worth of less than Rs 500
crores, non-banking finance companies with a net worth of over Rs 500 crores and urban
cooperative banks with net worth of Rs 220 crores would be required to shift to IFRS.

The Govt. has also clarified that unlisted companies with a net worth of under Rs 500
crore and urban cooperative banks with a net worth of under Rs 200 crore won’t be
required to adopt IFRS. They will continue to apply existing Indian Accounting
Standards.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -1-
Anurag Sharma
Centre Director

Chapter-6 Accounting Equations

Meaning of Debit and Credit

All accounts are divided into two sides. The left side of an account is arbitrarily or traditionally
called Debit side and the right side of an account is called Credit side. In the abbreviated from,
Debit is written as Dr. and Credit is written as Cr.

Debit (Dr.) CASH ACCOUNT Credit (Cr.)

Rs Rs

The above account resembles English capital letter ‘T’. As such, it is often called ‘T’ shape account.
An Account is abbreviated as A/c.

Rules of Debit and Credit

In order to decide when to write on the debit side of an account and when to write on the credit side
of an account. There are two approaches:-

(I) American approach or Modern approach, and

(II) English approach or Traditional approach, ‘Double Entry System’
(English approach is also called ‘Double Entry System’ which has been discussed in the next
chapter).

American Approach:-
The rules of debit and credit depend on the nature of an account. For this purpose, all the accounts
are classified into the following five categories in the American approach:-

I. Assets Accounts
II. Liabilities Accounts
III. Capital Account or owner’s Equity Account
IV. Revenue or Income Accounts
V. Losses or Expenses Accounts

The rules may be summarized as below:-

1. Debit the increase in assets and Credit the decrease in assets.

2. Credit the increase in liabilities and Debit the decrease in liabilities.
3. Credit the increase in Capital and Debit the decrease in Capital.
4. Credit the increase in Incomes and Debit the decrease in Incomes.
5. Debit the increase in Expenses and Credit the decrease in Expenses.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -1-
Anurag Sharma
Centre Director

Chapter-7 Double Entry System

Characteristics of Double Entry System

Double entry system is the most progressive, scientific and complete system of
recording the financial transactions of a business. The rules of recording transactions under this
system are so definite and clearly stated that the system is being used extensively in all countries.
According to this system there are two accounts involved in every business transaction. One of them
is debited and the other is credited. Under this system the accuracy of the accounts can be checked
by preparing a trial balance with the help of balance of ledger accounts at any time and with the help
of the trial balance a profit and loss account can be prepared in order to ascertain the profit earned or
loss suffered during a particular period. Also, with the help of the trial balance a balance sheet can be
prepared to ascertain the financial position of the firm.
A book on the double entry system was, first of all, in written in 1494 by ‘Luca Pacioli’, a
resident of the city of Venice in Italy. In this book he discussed the method of recording both the
aspects of a transaction.

Meaning of Double Entry System

According to this system every business transaction affects at least two accounts in opposite
directions.
“Every business transaction has a two-fold effect and that if affects two accounts in opposite
directions and if a complete record were to be made of each such transaction, it would be
necessary to debit one account and credit another account. It is this recording of the fold effect of
every transaction that has given rise to the term Double Entry System.” J.R. Batliboi

(1) Every business transaction affects two account

(2) Recording of both personal and impersonal aspects
(3) Recording is made according to certain specified rules.

(1) Personal Accounts  The accounts which relate to an individual, firm, company or an
institution are called personal accounts. For Ex.: Account of Mohan, Bank Account, Capital
Account, and Drawings Account.

(A) Natural Personal Accounts  Accounts of 'Natural Persons' means the accounts of
human beings. For example, Mohan's Account.

(B) Artificial Personal Accounts  These accounts do not have physical existence as
human beings but they work as personal accounts. For example, any Firm's account,
any limited company's account.

(C) Representative Personal Accounts  When an account represents a particular person

or group of persons, it is termed as a representative personal account. For example, if the
salaries for the month of December are not paid to the employees, the amount payable to
these employees will be added and put under one common title "Salaries Outstanding
A/c". Prepaid Insurance A/c, Interest A/c and Unearned Commission A/c etc.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -2-
Anurag Sharma
Centre Director

(2) Real Accounts  The accounts of all those things whose value can be measured in terms of
money and which are the properties of the business are termed as Real Accounts. Such as, Cash
Account, Furniture Account.

(A) Tangible Real Accounts  Tangible real accounts are the accounts of those things
which can be touched, felt, measured, purchased, sold, etc. Example Cash account, Stock
account, Furniture account. It should be noted that Bank Account is not a real account but
it is an Artificial Personal Account, since it represents the account of the Banking Company-
an artificial person.

(B) Intangible Real Accounts  These accounts represent such things which cannot be
touched, but, of course, their value can be measured in terms of money. Examples are :
Goodwill account, Patents account, Trade Marks account, Copyrights account etc.

(3) Nominal Accounts  These accounts include the accounts of all expenses and incomes.
Salaries paid, Rent paid, Discount allowed, Bad Debts etc. Commission received, Interest
received, Discount received etc.

Advantage of Double Entry System or Causes of its Popularity

(1) Scientific System:- Under this system, the transactions are recorded according to certain
specified rules and as such, the system is more scientific s compared to any other systems of
Book-Keeping.

(2) Complete record of every transaction:- The complete record of every transaction is
maintained in this system, so that if the need arises full details of every transaction can be
easily made available at any time in future.

(3) Preparation of Trial Balance :- In double entry system, the amount recorded to the debit
sides of various accounts will always be equal to the amounts recorded on the credit sides of
various accounts. As such, a trial balance can be prepared to check the arithmetical accuracy
of the accounts.

(4) Preparation of Trading and Profit & Loss Account:- With the help of the trail
balance, a trader can prepare a trading Account to find out the amount of gross profit or gross
loss. Similarly, a profit and loss account can be prepared to find out the net profit earned or
loss suffered during a particular period.

(5) Knowledge of financial position of the business:- Separate accounts are opened for
each and every asset and liability of the firm and as such, a Balance Sheet can be prepared
which is a screen picture of the financial position of a business at a certain moment.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -3-
Anurag Sharma
Centre Director

(6) Lesser possibility of fraud:- This system of book-keeping records each transactions in
two accounts, as such there is hardly any scope of forgery and manipulation as compared to
other systems. If at all some manipulation takes place, it can be easily detected.

(7) Legal Approval:- The system meets legal requirement and books of accounts maintained
under this system are accepted as true and reliable by the Companies Act and various other
Acts. It has been made compulsory for joint stock Companies, banks and insurance
companies to maintain their accounts according to double entry system of accounts.

(8) Comparative Study:- The management can compare the expenditure of the current year
with those of the previous years and can know on what head of expenditure the money spent
is unreasonable and can take steps to check the unnecessary expenditure. Similarly, the profit
and loss account and Balance Sheet of one year may be compared with those of the previous
years

(9) Helps management in Decision Making:- Under the system, the management can obtain
all the requires information quickly and also the information provided by the system is most
reliable. Hence, the management can use the information for making decisions.

(10) Suitable for all Types of Businessmen:- The system is so flexible that it can be
conveniently introduced in small as well as big types of business.

Disadvantages of Double Entry System

1. Error of Omission  If a transaction remains unrecorded, it will be termed as ‘error of

omission’. It will not affect the arrangement of trial balance. Ex. No entry was made for
goods sold to Ram for Rs. 2,000.

2. Errors of Commission  If a wrong amount is entered in the entries, then it is called as

‘error of commission’. Ex.- Sale of goods to Ram for Rs. 420 entered as Rs. 240.

3. Compensating Errors  If the effect of one error is neutralized by the effect of some
other error, such errors are called ‘compensating error’. For Ex.- Anil account was debited
with Rs. 500 instead of Rs. 5000 and Sunil was debited with Rs 5000 instead of Rs. 500.

4. Error of Principle  When some fundamental principle of accountancy is violated while

recording transactions this error is called ‘error of principle’ For Ex. – Capital Expenditure is
treated as Revenue Expenditure.

5. Error of Posting in Wrong Account  If while posting from the book original entry,
posting is made to a wrong account but on the correct side. For Ex.- goods are sold to Ram
but Shyam is debited instead of Ram.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma
Centre Director

Chapter 10.-Cash Book

Meaning and Importance  This book is used to record all transactions relating to cash receipts
and cash payments. The number of cash transactions is quite large in every business and it is quite
impracticable and inconvenient to record all cash transactions in the journal. It is, therefore, necessary
to maintain a separate book for cash transactions. This book enables a businessman to know the
balance of cash in hand and at bank at any point of time.

Cash book-A Subsidiary Book and a Principal Book

Cash Book achieves a dual purpose. It is both a subsidiary book (book of original entry) and a
principal book. When a cash book is maintained, transactions of cash are not recorded in the journal.
As all the cash transactions are recorded for the first time in the cash book, it is therefore a book of
original entry. But when a cash book is prepared, cash account in the ledger is not prepared . In this
way, cash book represents the cash account and hence, becomes the principal book of accounts. As
such, the cash book is a subsidiary book as well as principal book.

Cash Book is a Journlaised Ledger

Sometimes a question arises whether Cash book is a journal or ledger? It is a journal since the
transactions are recorded in it for the first time from the source documents and from there these are
posted to the respective accounts in the ledger. The Cash book is also a ledger in the sense that it
serves the purpose a Cash account also. When a Cash book is prepared, no separate Cash account is
opened in the ledger. As such, the Cash book is a journal as well as a ledger and hence it may be called
‘journalised ledger’.

Difference between Cash A/c and Cash book  Infect, the Cash Book is a perfect substitute of
cash a/c. In both of these, cash transactions are recorded date wise in order of occurrence. Both of
these enable a businessman to know the cash balance on any desired date. However, there are some
differences between the two as follows

Cash A/c Cash Book

1. It is an account in the Ledger. 1. It is a separate book maintained for recording
cash transactions.
2. Cash account is opened in the ledger and posting is 2. It is a book of original entry because all cash
done in this account from journal. transactions are first of all recorded in cash
book and then posted from cash book to
various accounts in the ledger.
3.when transactions of cash are recorded in journal, it 3. when transaction of Cash are recorded in
is necessary to open a Cash a/c. in Ledger. cash book, there is no necessity to open a
cash a/c. in the ledger.

Similarties of Cash Book with Journal

1. Just Like a journal, transactions in the Cash book are recorded for the first time from source
documents.
2. Just like a journal, transactions in the Cash book are recorded datewise, i.e., in a chronological
order, as ans when they take place.
3. Just like a journal, transactions from Cash book are also posted to the relevant accounts (except
Cash account) in the ledger.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 Anurag Sharma
Centre Director

Similarities of Cash Book with Ledger

1. Cash book itself serves a Cash account also and as such when a Cash book is maintained, Cash
account is not opened in the Ledger. The Cash book, hence, is a part of ledger also.
2. Just like a ledger account, the words ‘To’ and ‘By’ are used a Cash book also.
3. It is balanced just like a ledger account.

Types of Cash book

Dr. Single Column Cash book (Simple Cash Book) Cr.

Date Particular V. L.F Amount Date Particular V. L.F. Amount
(Receipts) No. . Rs. (Payment) No. Rs.
To---------- By----------

Double Column Cash Book

Dr. Cr.
Date Particular V. L.F. Dis- Cash Date Particular V. L.F Dis- Cash
(Receipts) No. count (Receipts) No. . Count
To-------- By--------

Dr. Three Column Cash Book Cr.

Date Particular V. L.F. Dis- Cash B Date Particular V. L.F. Dis- Cash B
(Receipts) No. count a (Receipts) No. Count a
n n
k k
To-------- By--------

Contra Entries  When cash is deposited into bank or when cash is withdrawn from the bank for
use in the office, each such transaction affects both ‘cash column’ and the transaction is therefore,
recorded on both side of the cash book. Such entries, the double entry of which is completed in the
cash book itself, are called “Contra Entries”. Some examples (1) Opening current a/c. (2) Depositing
money into bank. = 1,000 (3) Withdrawn money from bank. = 2,000

Date Particulars VN L.F. Dis. Cash Bank Date Particulars Vn LF Dis. Cash Bank
To cash C - 1,000 By Bank C 1000 -
To Bank C 2,000 - By Cash C - 2,000

Important Notes  (1) Column of discount never shows balance. (2) Credit transaction have no
place in cash book. (3) Cash in hand Or Cash at bank (To balance b/d) (4) Bank over draft –By
balance b/d

Some important transaction:-

1. Amount withdrawn for personal use. 5. Amount Directly deposited by a customer
into our bank a/c. :-
2. Endorsement of a Cheque: 6. Interest allowed by bank.
3. Bank Charge. 7. Interest charged by bank.
4. Bank Charges on dishonored Cheque. 8. Discounting of Bill from bank.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

Note 1.  It should be remembered that whenever cash is recorded on the debit side of cash book,
discount will also be recorded on the debit side and on the contrary if cash is recorded on the credit
side of cash book, discount will also be recorded on the credit side.
Note No. 2  Totaling the Discount Column: - It must be noted that the discount columns in the
Cash Book are merely totaled and not balanced, that is, the difference between the two sides is not
calculated.
Petty Cash Book

Meaning  In every business, of whatever size, a large number of small payment such as for
postage, stationery, bus fare, taxi fare, cartage, etc. have to be made. These payments are generally
repetitive in nature. If all these payments are made by the cashier and are recorded in the main cash
book, the cashier will be overburdened with the work and the cash book will also become very bulky.
To avoid this, it is usual to appoint an employee as ‘Petty Cashier’. He is entrusted with the task of
making small payments, say, below Rs. 50and records them in a separate book, called Petty Cash
Book.

Imprest System of Petty Cash Book  Under the system, the petty cashier is given a definite
sum say Rs. 200, at the beginning of ascertain period. This amount is called ‘imprest amount’. The
petty cashier goes on paying all petty expenses out of this imprest amount and records them in the
petty cash book maintained by him. At the end of given period, say after a month, the petty cashier
submits the account to the main cashier who, after having examined the petty cash book, reimburses
the amount actually spent by the petty cashier. Thus, on the first day of the next month, the petty
cashier after including the balance already left with him, is found again with the same cash balance
which he held on the first day of the preceding month. For instance, Rs. 200 are advance to the petty
cashier on 1st April. If petty cashier spends Rs. 160 by the end of April , he will be again given Rs. 160
so that after including Rs. 40 which he has already got with him, he will again restart with the original
amount of Rs. 200 on the first day of May. This system of petty cash book is called the Imprest
System, because imprest means ‘advance made to a certain person’
Advantages of Petty Cash Book
1) Saving time of Labour: - 2) Easiness in posting:-
3) Easiness in preparing the cash book :- 4) Control on Petty Expenses:-
Disadvantages:-

1) Too costly to operate. 2) Existence of various errors.

3) Require much practical knowledge.
Types of Petty Cash Book
Performa:-
1) Simple Petty cash book-
Date Particulars Receipts (Rs.) LF Payments (Rs.)

2) Columnar Petty cash book-

Date Particulars LF Receipts VN Payments Different
Expenses

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 Anurag Sharma
Centre Director

Chapter 11- Subsidiary Books

The cash transaction are recorded in the cash book whereas non – cash transaction are recorded in
other subsidiary books, which are as follows : –
(1) Purchased Book. (5) Journal Proper.
(2) Sales Book. (6) Bills Receivable Books.
(3) Purchased Return Books. (7) Bills Payable Books.
(4) Sales Return Books.

S.No. Name Purpose Contents

1. Purchase Book Purchases book is used for the 1. Date of Transaction
purposes of recording the 2. Purchase Invoice Number
purchases of Goods on credit. It 3. Name of the Supplier
records neither the cash purchases 4. Page no. of the Ledger on which
of the Good nor the purchase of Supplier's Account appears.
any asset other than the Good. 5. Amount of invoice net of trade
discount (if Any)
2. Sales Book Sales Book is used for the 1. Date of Transaction
Day Book & Sale purposes of recording the sale of 2. Sales Invoice Number
Journal Goods on credit. It records neither 3. Name of the Customer
the cash sales of the Goods nor 4. Page number of the Ledger on
sale of any asset other than Goods. which the Customer's Account
appears, and
5. Amount of invoice net of trade
account (if any)
3. Purchase Purchase Returns Book is used for 1. Date of return
Returns Book the purposes of recording the 2. Debit Note Number
& returns of Goods purchased on 3. Name of Supplier
Return outward credit. It records neither the 4. Page number of the Ledger on
Book returns of goods purchased on cash which Supplier's A/c appear.
basis nor the returns of any asset 5. Amount of goods returns.
other than the Goods.
4. Sales Returns Sales Returns Book is used for the 1. Date of return
Book (Returns purposes of recording the returns 2. Credit Note Number
inward of Goods sold on credit. It records 3. Name of customer
Book/Journal) neither the return of Goods sold on 4. Page number of ledger on which
cash basis nor the return of any Customer's A/c appears.
asset other than the Goods. 5. Amount of goods returned by
customer.

5. Journal Proper Journal Proper is a subsidiary book 1. Opening Entry

in which those transactions are 2. Closing Entries
recorded which cannot be recorded 3. Transfer Entries
in any other subsidiary book such 4. Adjusting Entries
as 5. Rectifying Entries
6. Miscellaneous Entries.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

Journal Proper or General Journal

After the sub-division of journal into various subsidiary books, journal remains only a residuary
book in which only those transactions are recorded which cannot be recoded in any other subsidiary
book. In such a case journal is called journal proper. The following types of transactions are recorded
in journal proper :

(1) Opening Entry : This entry is passed to bring the closing balances of various assets,
liabilities and capital appearing in the Balance Sheet of previous accounting period, to the books of
current accounting period.

(2) Closing Entries : At the end of the accounting period, a Trading and Profit and Loss
Account has to be prepared to ascertain the net profit, For this purpose, the nominal accounts have to
closed by transferring their balances to this account. The entries passed for this purpose are called
closing entries.

(3) Transfer Entries : Transfer entries are passed for transferring an amount or the belence of
one account to another such as transferring the balance of Drawings A/c to Capital A/c.

(4) Adjustment Entries : At the time of preparation of final accounts, entries are needed to
record certain unrecorded items such as closing stock, outstanding expenses, prepaid expenses,
depreciation of fixed assets, interest on capital etc. Entries for theses are called adjustment entries.

(5) Rectifying Entries : These entries are passed to rectifv the errors while journalising,
posting, totaling, balancing etc.

(6) Miscellaneous Entries : In addition to the above, the following entries will also be passed
in the journal proper :

(i). Purchase of an asset on credit;

(ii). Sale of an asset on credit;
(iii). Writing off bad debts;

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 Anurag Sharma
Centre Director

Chapter 12 Ledgers

Meaning and Definition  Business transactions are first entered in Journal or subsidiary
books. The next step is to transfer the entries to respective account in the Ledger. In the other words,
all entry recorded in Journal or Subsidiary Books are classified and in order to ascertain the position
of a particular account, all transaction relating to that particular account are collected at one place in
the ledger. In short, a Ledger is a book which contains all accounts of the business enterprises
whether Personal, Real or Nominal.

Need and Importance  The basic objective of accounting is to ascertain as to (I) how much
amount is due from each customer or how much amount the firm has to pay to each supplier; (II) how
much is the amount f purchase and sale during and sale during a particular period ; (III) how much
amount has been spent on each head of expenditure and how much amount has been earned on
account of each head of income
(1) All the transactions pertaining to an account are collected at one place in the Ledger.
(2) Any type of information to the business can be easily obtained from the Ledger.
(3) A trial balance can be prepared with the help of ledger balances which helps in ascertaining the
arithmetical accuracy of the account.
(4) A trading and profit and loss account can be prepared with the help of ledger.

Journal or Book of Original Entry Ledger

1. Nature of As the name indicates, all the transaction All the transaction entered in journal and
Books are first of all recorded in these books, Subsidiary to the Ledger. As such, the
i.e., journal or subsidiary books such as Ledger is also called a book of final
purchases book, sales book etc. As the entry.
transaction are entered for the first time
in these books, they are also referred to
as book of primary entry.
2. Order in these books, transaction are entered in In these book, transaction are recorded
a chronological order, as and when they in analytical order, i.e., all the
take place. As such the position of an transaction pertaining to a particular
account at any point of time cannot be account are contained at one place in the
ascertained from these books. Ledger. Thus, position of an account can
be easily ascertained at any point of
time.
3. Details Full details of a transaction (narrations) Full details of a transaction are not
are recorded in these books. recorded in these books.
4. Final Final Accounts (trading, profit and loss Final Accounts can be prepared with the
Accounts account and balance sheet) cannot be help of ledger balance.
prepared with the help of books of
original

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 Anurag Sharma
Centre Director

Closing and Balance of Accounts

At the end of the accounting period or whenever needed, a businessman will
be interested in knowing the position of various accounts. For this purpose the accounts are
balanced. Balancing of an account means that the debit and credit side are totaled and the difference
between the two sides in inserted on the side which is shorter so as to make their totals equal. IF the
debit side exceeds the credit, the balance is called a debit balance and on the other hand, if the credit
side exceeds the debit, the balance is called a credit balance

1) Closing of Personal Accounts : - (To Balance c/d. OR By Balance c/d.)

2) Closing of Real Account : - (To Balance c/d. OR By Balance c/d.)

3) Closing of Nominal Accounts  Nominal accounts includes the accounts relating to the expenses
and incomes of the firm. All such account are transferred to the trading and profit and loss account
of the firm, as per the following rules: -

(I) Account of all such expenses, which have been incurred on the purchase and
manufacturing of goods are closed by writing the words ‘By Trading a/c.’ on the credit side. Such
account includes the account of Carriage, Wages, Freight, Power, and Factory Rent.

(II) All the other expenses or nominal accounts which show a debit balance are closed by
writing the words ‘By Profit & Loss a/c.’ on the credit side. Such accounts include the account of
Carriage Outward, Salaries, Office Rent, Selling expenses etc.

(III) Accounts of all incomes or nominal account which show a credit balance are closed by
writing the words ‘To Profit & Loss a/c.’ on the debit side.

Trial Balance
When posting of all the transaction into the Ledger in completed and the accounts are
balanced off, it becomes necessary to check the arithmetical accuracy of the accounting work. For
this purpose, the balance of each and every account in the Ledger is put on list. The list so prepared
is called a trial balance.

 Ledger account which shows a debit balance is put on the debit side of the trial balance and the
account which shows a credit balance is put on the credit side of the trial balance.

 Account which shows no balance i.e. Whose debit and credit totals are equal, is not entered in
the trial balance.

 If the total of the debit side of trial balance equal to that of its credit side, it is proved that books
are at least arithmetically correct and there are no errors in the posting and balance the ledger
accounts.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 Anurag Sharma -1-
Centre Director

Chapter-13. Trial Balance and Errors

Meaning of Trial Balance

All the businessmen after completion of postings from Journal or Subsidiary Books to the Ledger,
want to verify accuracy of the posting. For this purpose a statement is prepared wherein the balances of all
the accounts in the Ledger are incorporated. The statement so prepared is called ‘Trail Balance’. Accounts
showing debit balances are put on the debit side of the trial balance and the accounts showing credit
balances are put on its credit side. It the total of the debit side of the trial balance is equal to that of its credit
side, it is presumed that the posting to the ledger is accurate.

Definitions of Trial Balance

According to William Pickles, “ The statement prepared with the help of ledger balances, at the
end of financial year (or at any other date) to find out whether debit total agrees with credit total is called
Trial Balance.”

Features of a Trial Balance

1. It is a list of balance of all ledger accounts and the cash book.

2. It is just a statement, and not an account.

3. It is neither a part of double entry system, nor does it appear in the actual books of accounts. It
is just a working paper.

4. It can be prepared at any time during the accounting period, say, at the end of every month,
every quarter, every half year or every year. Usually it is prepared at the end of accounting year
before preparing the final accounts.

5. It is always prepared on a particular date and not for a particular period.

6. It is prepared to check the arithmetical accuracy of the ledger accounts.

7. If the books are arithmetically accurate, the total of all debit balances of a trial balance will be equal
to the total of all credit balances.

8. A tallied Trial Balance is not a conclusive proof of the accuracy of the books of accounts since
certain type of errors remain even when the Trial Balance tallies.

Objects or functions of Preparing Trial Balance :-

1. To ascertain the arithmetical accuracy of the ledger accounts.

2. To help in locating errors.

3. To help in the preparation of Final Accounts.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -2-
Centre Director

Preparation of a Trial Balance

1. As all assets have debit balance, their balances should be shown on the debit side of the Trial Balance.
Assets include cash, bank balance, bills receivable, furniture, machinery, building, patents, goodwill etc.

2. As all liabilities have credit balances, their balances should be shown on the credit side of the trial
balance. Liabilities include bank overdraft, bills payable, creditors etc.

3. Capital account shows a credit balance, as such it is written on the debit side of the trial balance.

4. Drawings account shows debit balance, as such it is written on the debit side of the trial balance.

5. I. Purchases accounts always shown a debit balance.

II. Sales account always shows a credit balance.

III. Purchase Return account always shows a credit balance.
IV. Sales Return account always shows a debit balance.

6. All expenses and losses show debit balances, as such they should be written on the credit side of the
Trial Balance.

7. All incomes and profits show credit balances, as such they should be written on the credit side of the
Trial Balance.

 List of some Debit Items  List of some Credit items :–

Purchase Depreciation Sale Discount (Cr.)
Sales Return Investment Purchase Return Loan Taken (Cr.)
Assets Audit fee Liabilities Provision for bad
Drawings Preliminary expenses Capital debts
All Expenses/ Losses Petty cash Bank overdraft Reserved and surplus
Carriages Work-in-progress B/P Outstanding
Opening stock Accrued income Mortgage expenses
Discount allowed (Dr.) Prepaid expenses Unearned income
Loans given (Dr.) Custom duty All incomes
Bad debts Dock charges

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -3-
Centre Director

Treatment of Closing Stock in Trial Balance

Generally, closing stock does not appear in the trial balance because, in most cases, it is brought into
at the time of preparing the trading accounts. However, in the following cases closing stock will appear in
the trial balance.

(i). If, before preparing the trial balance, closing stock is brought into accounts by adjusting it
against purchases by the entry
Closing Stock A/c Dr.
To Purchases A/c

(ii). In case a trial balance is prepared after preparing the trading accounts

(iii). In case a trial balance is prepared after passing adjustment entries.

Limitations/ Demerits of Trial Balance

(Errors not effecting trial balance) (Errors not disclosed by trial balance)

‘Trial Balance is not a conclusive proof of the accuracy of the books of account’ there are certain
errors which do not affect the agreement of the Trial Balance . these may be discussed as below:-(

1. Error of Omission  If a transaction remains unrecorded, it will be termed as ‘error of omission’.

It will not affect the arrangement of trial balance. Ex. No entry was made for goods sold to Ram for
Rs. 2,000.

2. Errors of Commission  If a wrong amount is entered in the entries, then it is called as ‘error of
commission’. Ex.- Sale of goods to Ram for Rs. 420 entered as Rs. 240.

3. Compensating Errors  If the effect of one error is neutralized by the effect of some other error,
such errors are called ‘compensating error’. For Ex.- Anil account was debited with Rs. 500 instead
of Rs. 5000 and Sunil was debited with Rs 5000 instead of Rs. 500.

4. Error of Principle  When some fundamental principle of accountancy is violated while

recording transactions this error is called ‘error of principle’ For Ex. – Capital Expenditure is treated
as Revenue Expenditure.

5. Error of Posting in Wrong Account  If while posting from the book original entry, posting is
made to a wrong account but on the correct side. For Ex.- goods are sold to Ram but Shyam is
debited instead of Ram.

Disposal of Suspense Account  Suspense Account is an imaginary account used as temporary measure
only for the purpose of reconciling a trial balance. Later, as and when the errors affecting the suspense
account are located, rectification entries are passed with the help of suspense account. Thus when all the
errors are located and rectified, the suspense account will automatically stand closes, i.e., it will not show
any balance. But if Suspense account still shows a balance, it will indicate that certain errors are still to be
discovered and rectified.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
Anurag Sharma
Centre Director

Chapter 14 Bank Reconciliation Statement

Meaning  The business firm maintains cash book and at the same time bank also maintain pass
book to record transactions. Sometimes it so happens, that balance of bank column of the cash book
does not show the same balance as that shown by pass book. Both these balances may be correct, yet
may show as difference. In order to tally the balance of the bank column of cash book with that of pass
book a statement is prepared. The statement that is prepared for reconciling the balances of cash book
and pass book is called Bank Reconciliation Statement.

Causes of Differences in the Cash Book and Pass Book Balance

1. Cheques issued (drawn) but not yet presented for payment in the bank
2. Cheques paid (deposited/lodged) into the bank for collection but not yet credited by the bank
3. Interest allowed by the bank
4. Interest charged by the bank on Overdraft
5. Bank charges and Commission charged by the bank
6. Direct deposit by customers into the bank
7. Interest and dividend collected by the bank
8. Direct payment made by the bank on behalf of customers

Amended Cash Book

Sometimes, in the examination, a student is required to complete the cash book first and then
prepare a bank reconciliation statement on the basis of the balance of amended cash book. This
is another method for preparing bank reconciliation statement, the procedure for which is as
follows:-

Step No. 1  First of all, a cash book will be prepared (with bank columns only). It will be started
by writing down the balance of cash book given in the question.

Step No. 2  It should be noted that the following items must not be recorded in the Amended Cash
Book:
(i) Cheques deposited into bank but not credited by bank.
(ii) Cheques issued but not presented for payment in the bank.
(iii) Any wrong entry in pass book.
These three items will be recorded in bank reconciliation statement.

When Both Cash Book and Pass Book are given in the question
(1) When both the books are given for the same period (uncommon items are selected)
(2) When both the books are given for different periods (Common items are selected)

S.No. Basis Bank Statement Bank Reconciliation Statement

1. Who prepares It is prepared by the bank. It is prepared by the bank
customer. i.e. account holder.
2. Object It is prepared to inform the It is prepared to reconcile the
customer about all transactions, bank balance as per cash book
which have taken place during the with the bank balance shown by
period covered by the Statement. the Bank Statement.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 Anurag Sharma -1-
Centre Director

Chapter-15.Depreciation

Meaning  In every business there are certain assets of a fixed nature that are needed for the conduct of
business operations. Fall in the value and utility of such assets due to their constant use and expiry of time, is
termed as depreciation. In other words the process of allocation of the cost of a fixed asset over its useful life
is know as depreciation.

Causes of Depreciation  1. By Constant Use 2. By Expiry of Time 3. By Obsolescence

4. By Accident 5. By Depletion

Features of Depreciation
1. Depreciation is decline in the value of fixed assets ( except land)
2. Such fall is of a permanent nature. Once the value of an asset is reduced due to depreciation,
it cannot be restored to its original cost.
3. Depreciation is a gradual and continuing process because the value of the assets will decline
either by their constant use or obsolescence due to expiry of time.
4. Depreciation is not the process of valuation of asset but process of allocation of the cost of an
asset to its effective span of life.
5. It decreases only the book value of the asset, not the market value.
6. The term depreciation is used only in respect of tangible fixed assets. The term is not used for
wasting assets such as mines, oil-wells etc.
7. It is a non-cash expense. It does not involve any cash outflow.

Need, Importance or Objects of Providing Deprecation

(1) For Ascertaining the true profit or loss
(2) For showing the ‘true and fair view’ of the financial position
(3) To ascertain the accurate cost of production
(4) For Avoiding over payment of income Tax

Factors determining the amount of Depreciation

(1) Total Cost of the Asset  The cost of a fixed asset is determined after adding all expenses incurred
for bringing the asset to usable condition, such as fright, transit insurance and installation costs etc.

(2) Estimated Useful Life of Asset  Useful life of an asset is estimated in terms of number of years,
it can be effectively used for business operations.

(3) Estimated Scrap Value  It is the estimated sale value of the asset at the end of its useful life. It is
also know as residual value or break-up value

Different Methods of Providing Depreciation

1) Fixed Installment Method. 5). Diminishing Balance Method.
2) Annuity Method. 6). Depreciation Fund Method.
3) Insurance Policy Method. 7). Revaluation Method.
4) Depletion Method. 8). Machine Hour Rate Method.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -2-
Centre Director

(1) Fixed Installment Method (Straight Line Method) (Equal Installment method)  This
method is also termed as ‘Original Cost Method’ because under this method deprecation is charged
at a fixed percentage on the original cost of the asset. The amount of depreciation remains equal from
year to year.
Depreciation = Cost - Scrap
Life
Merits
1. Simplicity
2. Equality if Depreciation Burden
3. Assets can be completely written off
Demerits
1. Difficulty in Computation – Different machines having different life-spans
2. Unequal charge against income – Repair charges go on increasing
3. Omission of Interest Factor
4. Unrealistic to Write off the Value of asset to Zero
5. Difficulty in the determination of scrap value

(2) Diminishing Balance Method  Under this method, as the value of asset goes on diminishing
year after year, the amount of depreciation charged every year also goes on declining. Depreciation is
calculated on the book value of the asset at the beginning of that year, rather than on the original cost. As the
value of the asset and also the depreciation charged on it goes on reducing year after year, the method is also
know as ‘Reducing Installment Method’ or ‘Written Down Value Method’
Merits 1 Easy calculation
2 Equal charge against income– Depreciation and repairs put together remains almost
equal year.
3 Balance of asset is never written off to zero
4 Approved method by Income Tax Authorities
Demerits
1. Asset cannot be completely written off .
2. Omission of interest factor .
3. Difficulty in determining the rate of depreciation.
Basis of Difference Fixed Installment or Diminishing Balance
Original Cost Method Method
(1) Amount of Equal Deprecation is Deprecation goes on
Deprecation. charged every year. decreasing year after year.
(2) Basis of Calculation Deprecation is charged on Deprecation is charged on
of deprecation. the original cost of the the reducing balance of the
asset. asset.
(3) Zero level. The book value of the asset The book value of the asset
can be reduced to zero. can never be reduced to zero.
(4) Rate of depreciation. Rate of depreciation is kept Rate of depreciation is kept
low in comparison to high in comparison to
diminishing balance original cost method.
method.
(5) Approval of Income This method is not This method is approved by
Tax authorities. approved by Income Tax Income Tax authorities.
authorities.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -3-
Centre Director

Method of Recording Depreciation

There are two methods of recording depreciation in the books
(i). First Method : By Charging to Asset Account
In this case ‘Provision for Depreciation Account is not maintained and the
depreciation is directly credited to the ‘Asset A/c’. Hence the Asset A/c appears in the Ledger at a
written down value.

(ii). Second Method : By Creating Provision for Depreciation Account

In such a case, the depreciation is credited to ‘Provision for Depreciation A/c’ instead
of ‘Assets A/c’ and hence the Asset A/c always appears in the ledger at its original cost. The balance
on the credit side of ‘Provision for Depreciation A/c’ shows the total amount of depreciation
accumulated to date. However, when the asset is sold or discarded, the total accumulated
depreciation for that asset is transferred to the credit side of the Asset A/c with the help of the
following entry

Provision for Depreciation A/c or Accumulated Depreciation A/c Dr.

To Asset A/c

Profit & Loss A/c Dr.

To Provision for Depreciation A/c

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
Anurag Sharma -4-
Centre Director

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
Anurag Sharma
Centre Director

Chapter 16 Provisions and Reserves

Provision 
The amount retained by way of providing for any known liability of which the amount cannot be
determined with substantial accuracy.

Note  It should be clearly understood that if the amount of a known liability can be determined with
reasonable accuracy, it must be classified as an outright liability and not a provision. Also if any
excess provision is made knowingly or intentionally, the amount in excess of the actual need will be
treated as ‘reserve’.

Examples of Provisions :-

1. Provision for Depreciation, Repairs and Renewals of assets.

2. Provision for Taxation.
3. Provision for Bad and Doubtful Debts.
4. Provision for Discount on Debtors.

Characteristics or Feature of Provision:-

1) Provision is made to meet a known liability.
2) The liability is known but the amount of such liability cannot be determined.
3) Provision is a charge against profit and as such reduce the profits of the year in which it is
created. The loss when actually occurs will be written off against such provision and thus the
profit of the year in which such loss occurs will not be affected.

Purpose or Importance of Provision :-

(1) To ascertain the true net profit of the business.
(2) To ascertain the true financial position of the business.
(3) To provide for known loss in the future.

Reserve
Reserves mean amount set side out of profit and other surpluses to meet future uncertainties. In other
words, a reserve is meant for meeting any unknown liability or loss in the future.
Examples of Reserves  General Reserve, Capital Reserve, Reserve for Equalizations of
Dividends, Contingency Reserves, Reserve for Expansion etc. It should be clearly understood that the
amount of reserve dose not represent any expense or loss and as such it is not debited Profit & Loss
Account. Creation of reserve dose not reduce the net profit but reduce the divisible profits. It is an
appropriation of profit and hence after ascertaining the net profit it is debited to profit & Loss
Appropriation Account.

Characteristic or Feature of ‘Reserves’

(1) It is created out of net profit or divisible profit. As such the reserve are also termed as
‘Retained Earnings’ or ‘Undistributed Profits’.
(2) Creation of reserve is not a legal necessity. It is created voluntarily for Strengthening the
financial position of the business and for meeting an unanticipated situation in the future.
(3) It is not created to meet any known liability or deprecation on the value of assets but for
meeting an unknown liability or loss in the future.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 Anurag Sharma
Centre Director

Purpose or Importance of Reserves :-

(1) Helpful in meeting the unforeseen liability or loss.

(2) Helpful in strengthening the financial position of the business.

(3) To provide fund for meeting a specific liability.

Basis of Difference Reserve Provision

1. Meaning It is Created to meet an unknown It is Created to meet a known liability.
liability.

2. Necessity Creation of reserves is not Creation of provision is legal

Necessary It can be created only if necessity. Provisions have to be
adequate profits have been earned. provided for even it there are no
profits.

3. Mode of Creation It is created not by debiting to P&L It is created by debiting to P&L a/c.
a/c. but through P&L Appropriation and Its creation reduce the net profit.
a/c. As such their creation doses not
reduce the net profit but the divisible
profit.

4. Investment Out side the Reserves may be invested outside Provisions are never invested outside
business. the business. the business.

5. Presentation in Balance It is shown on the liabilities side It is either shown on the assets side by
Sheet. under the head ‘Reserves and way of deduction from the asset for
Surplus’. which it is created or a distinct item on
the liabilities side.

Types of Reserves

Revenue Reserves  These reserve come into existence out of profit which have been earned in the
course of day-to-day business operations. Therefore, the revenue reserves represent undistributed
profit and as such as are available for the distribution of dividends.

1. General Reserve  Usually, the businessmen do not withdraw the entire profit from the
business but retain a part of it in the business to meet unforeseen future uncertainties. Profits so
retained in the business for ‘a rainy day’ are known as ‘General uncertainties. Profits so
retained in the business for ‘a rainy day’ are known as General Reserve’.

2. Specific Reserve  Such a reserve is created for a specific purpose and can be utilized only
for that purpose. Examples of Specific reserve are:-

(1) Dividend Equalisation Reserve. (2) Reserve for Replacement of Asset.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

Capital Reserve  In addition to the normal profits, capital profits are also earned in the business
from many sources. The reserves created out of such capital profit are known as Capital Reserves.
Such reserves generally, are not available for distribution as cash dividend among the shareholder of a
Company. Profits received from the following source are termed as capital profits: -

1. Profit on the sale of fixed assets.

2. Profit on the revaluation of fixed assets and liabilities.
3. Premiums received on issue of Share or Debenture.
4. Profit on the purchase of a running business.

Note  Capital reserves are used to write off Capital losses and for the issue of fully paid bonus
shares. Usually, the capital reserves are not available for distribution as dividends.

Revenue Reserve Capital Reserve

1) It is created out of business profits. 1) It is out of capital profits.

2) It can be use for distribution of dividends 2) It can be used for distribution of

without any pre-condition. dividends only if the company satisfies
certain conditions prescribed the
companies act.
3) It is created for strengthening the financial 3) It is created for meeting capital losses.
position, and meeting the unforeseen
contingencies or some specific purpose.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 Anurag Sharma -1-
Centre Director

Chapter-17. Bills of Exchange

The seller prepares a document in which he puts in writing all the terms and condition relating to
sales of goods such as amount required to paid; date of payment; place of payment; The Buyer puts his
signatures on the document and it is know as ‘Bill of Exchange’

Features of Bill of Exchange:-

1. A bill of exchange must be in writing.
2. It must contain an order (And not request) to make payment.
3. The order must be unconditional.
4. The amount of bill of exchange must be definite.
5. The date of payment must be a fixed one.
6. It must be signed by the maker (drawer) of the bill.
7. It must be singed by the acceptor (drawer).
8. The amount mentioned in the bill is payable either on demand or on the expiry of a fixed
period.

Parties to a Bill of Exchange  There are three parties to a bill of exchange:

(1) Drawer  He is the seller or creditor entitled to receive money from someone he writes
or draws the bill and is know as drawer. The bill of exchange is signed by the drawer of the
bill.

(2) Drawee or Acceptor  He is the purchaser or the debtor on whom the bill is drawn and
who is liable to pay the amount mentioned in the bill. He accepts to pay the amount by
writing the words “Accepted” on the bill and then signs it.

(3) Payee  The person to whom the payment is to be made is called payee. The drawer
himself or a third party may be the payee of the bill.

Advantages of Bill of Exchange

1) Helpful in the purchase and sale of goods on credit. 2) Legal Document.

3) Discounting Facility. 4) Endorsement Possible.
5) Convenient means of making foreign Payment. 6) Convenience for the purchase.

Promissory Note  Sometimes, the purchaser of the goods or debtor himself writes a note, signs it and
gives it to the seller of the goods. It is called a ‘Promissory Note’

Features 
(1) It must be in writing.
(2) There must be a promise to pay a certain sum of money in it.
(3) The promise to make payment must be unconditional.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -2-
Centre Director

(4) It must be signed by the maker or promissory.

(5) The name of the payee must be mentioned in it.
(6) The promissory note cannot be made payable to bearer.
(7) It must be stamped according to its value.

Parties to Promissory Note

1) Maker  He is the person who writes a promissory note and signs it.

2) Payee He is the person who is entitled to get the payment.

Note  There is no acceptor in case of a promissory note because the maker himself is liable to pay
the amount.
Basis Bill of Exchange Promissory Note
1) Drawer The creditor is the drawer. The debtor is the drawer.
2) Order and This contains an order to pay. The contains a promise to
promise pay.

3) Acceptance This needs acceptance by the drawee. This does not need
acceptance by the drawee.
4) Parties This has three parties-the drawer, the This has two parties- the
drawee and the payee. promisor and the payee.

5) Noting In case of dishonor, it would be better In this case noting is

to get it noted for non-payment. necessary.

6) Copies In case of foreign bills, three copies Only one copy is prepared
are made but otherwise only one whether it is foreign or
copy is prepared. local.
7) Stamp The bills payable on demand need This has to stamped in any
not be stamped but otherwise stamp case.
would be necessary.

Date of Maturity  The date on which the payment of the bill becomes due is called the ‘due date’ or
‘date of maturity’. In other words, the date on which the duration of the bill comes to an end is called the due
date.

Days of Grace  While calculating the due date of the bill, it is compulsory to add three days to the
period of the bill. These three days are called ‘Days of Grace’. For example, if a bill is drawn on 1st July
2016 and is payable 2 month after date, its maturity date will be 4 th September 2016.
Note  If the due date of bill falls on a holiday, the following points should be kept in mind:
(1) If the due date (including the days of grace) fall on Sunday or a public or gazetted holiday, the
due date will be supposed to be one day earlier. For example, if a bill falls due on 26 th January,
its due date will be 25th January

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -3-
Centre Director

(2) If a bill due on 5th July and it is declared as emergency holiday due to the death of a national
leader, the due date will be 6th July.

Bills at Sight
In a bill of exchange, the expressions, ‘at sight’ and ‘on presentation’ mean payable on demand. If no
time for payment is mentioned in the bill, it is payable on demand. Bills payable on demand become due as
soon as the bills is presented for payment. Such bills are not entitled to days of grace.

Bill after Date

Where a bill is payable at a fixed period ‘after date’, the period begins to run from the date of
drawing the bill. There days of grace are allowed on such bills. For instance, a bill of exchange dated 1 st
January, 2015 is payable 2 months ‘after date’ and it is accepted on 15 th January, 2015. The due date of the
bill will be 4th March, 2015.

Bill after Sight

The expression ‘after sight’ in a bill of exchange means after accepting. Thus, where a bill is
payable at a fixed period ‘after sight’, the period begins to run from the date of acceptance. Three days of
grace are allowed on such bills also. For instance, a bill of exchange dated 1 st January, 2015. The due date of
the bill will be 18th March, 2015.

Accounting Treatment:-
For the purpose of accounting, bills are divided into two categories:
1. Bills Receivable or B/R. 2. Bills Payable or B/P.

Imp. Note
The person who is entitled to receive money draws the bill and gets it accepted from the person who
is liable to pay. As such, the same bill is a Bill Receivable (B/R) from the point of view of the drawer and
Bill Payable (B/P) From the point of view of the acceptor. In other words, the same bill is an asset (B/R) for
drawer and a liability (B/P) for the acceptor.

(1) When the bill retained by the drawer in his own possession till the date of maturity.

(2) When the Bill is Discounted from the Bank  If the holder of a B/R needs money before the
date of maturity, he can discount the bill from the bank in order to obtain cash for it. Discount means
cashing the bill before the date of its maturity or borrowing from the bank on the security of the bill. Bank
deducts a certain amount of discount from the face value of the bill and pays the balance to the person
discounting the bill. The discount deducted by the bank is actually the amount of interest charged by the
bank for lending the money.

(3) Endorsement of a Bill  Endorsement means the transfer of a bill of exchange from one person
to another. The holder of a bill receivable can endorse the bill to another person by putting his signature at
the back of the bill. The person endorsing the bill is known as ‘endorser’ and the person to whom the bill is
endorsed is called ‘endorsee’. An endorsee may again endorse the bill over to some another person and the
process may continue to any extent. The person holding the bill at the date of its maturity will be entitled to
get its payment.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -4-
Centre Director

(4) When the Bill is Sent to the Bank for Collection.  Sometimes, instead of discounting the
bill, it is sent to the bank with the instruction to keep the bill till maturity and collect its amount from the
acceptor on that date. In such a case, bank will not credit the customer’ a/c. When the bills are sent for
collection, the sender of the bills opens a new account in its books named “Bill for Collection a/c.”

(5) Retiring a Bill under Rebate  When the drawee makes the payment of the bill before its
before its due date, it is called retiring the bill. In such a case, the holder of the bill usually allows him
discount technically Called ‘rebate’. Such rebate is calculated at specified rate per annum for the period the
payment is being made too early. The rebate is a gain to party making the payment and an expense to the
party receiving the payment.

(6) Dishonour of a Bill  When the acceptor of the bill refuses to pay the amount of the bill on the
date of maturity or becomes insolvent; it is called dishonour of the bill.

(7) Noting Charges  To establish the fact that the bill was properly presented and dishonoured, the
bill is usually handed over to a person called “Notary Public” appointed by the court. The Notary public
again present the dishonoured bill to the acceptor, if the acceptor still refuse to make the payment, the notary
public notes down the fact of dishonour on the bill itself. Such act of notary public is called ‘Noting’. The
notary public charges a small fee for the services rendered by him, which is called ‘Noting Charges’. Such
charges are paid to the Notary Public First by the holder of the bill, but are ultimately recovered from the
acceptor, because he is the person responsible for the dishonour.

(8) Renewal of Bill  Sometimes, the acceptor of a bill finds himself unable to meet the bill on the
due date. In such a case, he may request the holder of the bill to cancel the original bill and draw a new bill
in place of the old one. If the holder agrees, a new bill will be drawn either for the full amount of the old bill
or for the balance amount in case of partial payment by the acceptor. In such a case, the drawer normally
charges interest for the period of the new bill. The interest may be paid in cash or, may be added in the
amount of the new bill.

(1) Note  (In case the bill discounted from the bank is dishonored) In such a case, the noting charged
will be paid by the bank. The bank will recover the noting charges from the person whom discounted the bill
from the bank and ultimately the noting charges will be borne by the acceptor.

(2) Note (When the bill endorsed to a third party is dishonored) In such a case, the noting charges
must paid the endorsee. The endorsee will recover the noting charged from the endorser and ultimately these
will have to be borne by the acceptor.

Trade Bills Accommodation Bills

1) These bills are based on sale and These bills are drawn to help someone in
purchase of goods. need of funds.
2) There is a define consideration for The acceptor may not receive consideration
which the bills is accepted. for his acceptance.
3) If these bills are dishonored, the It may not be easy to maintain a suit for
amount may be recovered easily recovery of the amount.
through the court.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -1-
Centre Director

Chapter-18.Rectification of Errors

It is essential to locate and rectify errors, otherwise profit and loss account will not disclose the true
profit or loss of the business and the balance sheet will not present a true and fair view of the financial
position of the business.

 Errors should never be corrected by overwriting or erasing because it reduce the authenticity of
accounting record and gives the impression that something is being concealed.

Method of rectification depends on the stage at which the errors are rectified. If an errors is
located in the books of original entry before its posting to the Ledger, it may be corrected by
neatly crossing out the wrong figure by a single line and writing the correct figure above the
crossed figure. Similarly, if a wrong figure has been posted to the correct ledger account it may
also be corrected in the same manner

If, however, an error is located after some time, it should be corrected by passing a suitable
Journal entry, Called rectifying entry.

Rectification of such errors depends on the stage at which the errors are located

A. When the errors are located and rectified before the closing of accounts (i.e. before
preparing the Trial Balance and before opening of Suspense A/c
Rectification of errors at this stage does not require rectification entries. Only the amount is
written on the debit or credit side of the account which is affected by the error. For example, the total
of the purchase book for the month of October is under cast (totaled less) by Rs. 1,000. To rectify
this error, the amount of Rs. 1,000 will be put on the debit side of the purchase account by writing
the words ‘to under-casting of purchase book for the month of October’.

B. When the errors are located and rectified after the closing of accounts (i.e. after
preparing the Trial Balance and after opening of suspense a/c)
When one sided errors are located after the preparation of trial balance, rectifications are
carried out by passing journal entries. As only account is to be debited or credited for the
rectification of one sided error, suspense account is used to complete the double entry.

 From the rectification point of view, all errors can be classified into the following two categories :
(A) Two-side Errors (B) One-side Errors
(A) Two-side Errors :- Errors which affect two account simultaneously are called two-side errors
( Errors which do not affect the trial balance or two-sided errors.)
(B) One-side Errors: - These errors affect only one account. If, for example, a sum of Rs. 2,500
given to Ajay is correctly recorded in the cash book but omitted to be posted to the Debit of Ajay’s
a/c., the error will be termed as one side error because the errors exists in the account of Ajay only.
(Errors which affect the trial balance or one-sided errors)

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -2-
Centre Director

Disposal of Suspense Account  Suspense Account is an imaginary account used as temporary measure
only for the purpose of reconciling a trial balance. Later, as and when the errors affecting the suspense
account are located, rectification entries are passed with the help of suspense account. Thus when all the
errors are located and rectified, the suspense account will automatically stand closes, i.e., it will not show
any balance. But if Suspense account still shows a balance, it will indicate that certain errors are still to be
discovered and rectified.

Examples of Rectification:
Example: Furniture purchase from Ram Rs. 10,000
(i). Ram a/c is not credited.
Suspense a/c Dr. 10,000
To Ram a/c 10,000
(ii). Furniture a/c is debited by Rs. 8,000.
Furniture a/c Dr. 2,000
To Suspense a/c 2,000
(iii). Furniture a/c is debited by Rs. 14,000.
Suspense a/c Dr. 4,000
To Furniture a/c 4,000
(iv). Furniture a/c is credited by Rs. 6,000.
Furniture a/c Dr. 16,000
To Suspense a/c 16,000
(v). The Dr. side of Furniture a/c is overcastted by Rs. 2,000.
Suspense a/c Dr. 2,000
To Furniture a/c 2,000
(vi). Furniture a/c is under cast by Rs. 3,000.
Furniture a/c Dr. 3,000
To Suspense a/c 3,000
(vii). Purchase is debited, instead of furniture a/c.
Furniture a/c Dr. 10,000
To Purchase a/c 10,000
(viii). Closing stock undervalued by Rs. 3,000.
Closing Stock a/c Dr. 3,000
To Trading a/c 3,000
(ix). Closing stock overvalued by Rs. 3,000.
Trading a/c Dr. 3,000
To Closing stock a/c 3,000
(x). Credit sale of furniture to Mohan for Rs. 500 omitted to be posted.
No entry, because journal entry is passed.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
Anurag Sharma
Centre Director

Chapter 19 Financial Statements

After having checked the accuracy of the books of accounts through preparation of trial
balance, businessman wants to ascertain the profit earned or loss suffered during the year and also the
financial position of his business at the end of the year. For this purpose he prepares ‘Final Accounts’
which are also termed as ‘Financial Statement’. These include the following:-
1. Trading account 2. Profit and loss account 3. Balance sheet

Trading account
Trading account is prepared for calculating the gross profit or gross loss arising as a result of
the trading activities of a business. In other words, it is prepared to show the result of buying and
selling goods. “A trading account records the amount of purchases of goods and also the expenses
which are incurred in bringing that commodity to a saleable state.”

Need and importance of trading account

1. It provides information about gross profit and gross loss :
2. It provides information about the direct expenses
3. Comparison of closing stock with those of previous year.

Closing entries relating to trading account  The preparation of the trading accounts requires
that the balances of all such accounts which are due to appear in the trading account are transferred to
it. The entries required for such transfer are termed as closing entries. (Will be discussed in class).

Notes :-
1. In the heading of the trading account the words ‘for the year ended ……’ are used. Because it
disclose the position of the business for the full accounting year and not at a particular point of
time.
2. No separate column for date is prepared in the final accounts because the date will be already
mentioned in the heading itself.
3. No column for L.F. is prepared in final accounts because these are prepared from trial balance
and not from ledger accounts directly.

Profit & Loss Account

A business man is more interested in knowing the net profit earned or net loss incurred during
the year. All those expenses and losses which have not been debited to the trading account are now
debited to profit & loss account. These expenses include administrative expenses, selling expenses,
distribution expenses etc. these are called ‘Indirect Expenses’. Profit and loss account is a nominal
account and as such, all the expenses and losses are shown on its debit side and all the incomes and
gains are shown on its credit side.

Need and Importations of profit & loss a/c

1. To ascertain the net profit and net loss:-
2. Comparison with previous year’s profit :-
3. Control on Expenses
Closing entries relating to profit and loss account (Will be discussed in class)

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

Operating Profit and Net Profit

Profit may be of two types : (i) Operating Profit (ii) Net Profit

Operating Profit is the profit earned through normal operating activitises of the
business. Operating Profit is also called ‘Earning before Interest & Tax or EBIT’.

Operating Expenses -Expenses which are related to the main or normal activities of the
business are called operating expenses. They include office and administrative expenses
and selling and distribution expenses, discount ,bad-debts etc.

Non-Operating Expenses are expenses which are incidental or indirect to the man
operations of the business are called non-operating expenses. They include interest on loan,
charities and donations, loss on sale of fixed assets, extraordinary losses due to theft, loss
by fire and so on.

Non-Operating Incomes include receipt of Interest, Rent and Dividend, Gain on Sale of
Fixed Assets etc.

Balance Sheet
After ascertaining the net profit or loss of the business enterprise, the businessman would also
like to know the exact financial position of his business. For this purpose a statement is prepared
which contain all the Assets and Liabilities of the business enterprise. The statement so prepared is
called a Balance Sheet because it is a sheet of balance of ledger account.

Need and Important of Preparing a Balance Sheet

1) To ascertain the true financial position of the business at a particular point of time.
2) It gives information about the exact amount of capital at the end of the year and the
addition or deduction made into it in the current year.
3) It helps in finding out whether the firm is solvent or not.
4) It helps in preparing the Opening Entries at the beginning of the next year.

Grouping and Marshalling of Assets and Liabilities in Balance Sheet

The assets and liabilities shown in the balance Sheet are properly grouped and presented in
particular order.
‘Marshalling’ is the arrangement of various assets and liabilities in a proper order. Marshalling can be
made in one of the following two ways:-

(1) In the Order of Liquidity  According to this method, an asset which is most easily
convertible into Cash such as Cash in hand is written first and then will follow those assets which are
comparatively less easily convertible, so that the least liquid asset such as goodwill is shown last. In
the same way, those liabilities, which are to be paid at the earliest, will be written first. In order words,
current liabilities are written first of all, then fixed or long-term liabilities and lastly, the proprietor’s
capital

Note:- Generally, sole proprietors and partnership firm prepare their Balance Sheet in the order of
liquidity

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

(2) In the Order of permanence  This method is exactly the reverse of the first method
discussed above. Assets which are most difficult to be converted into cash such as Goodwill are
written first and the assets which are most liquid as Cash in hand are written last Similarly, those
liabilities which are to be paid last, will be written first.

Classification of Assets

(1) Fixed Assets  Fixed assets are those which are acquired for continued use and last for many
years as Land & Building Plant and Machinery, Motor Vehicles, Furniture etc. As the purpose of
keeping such assets is not to sell but use them, change in their market values are ignored and these are
always shown in the Balance Sheet at cost less depreciation.

(2) Current Assets  Current assets are those which are either in the form of cash or can be easily
converted into cash within one year of the date of Balance Sheet Current assets include Cash, Bill
Receivable, Short Term Investments, Debtors, Prepaid Expenses, Accrued Income, and Closing
Stock etc.
(3) Liquid Assets  Liquid Assets are those which are either in the form of cash or can be quickly
converted into cash. In other works, if prepaid Expenses and closing Stock are excluded from
Current Assets, the balance will be Liquid Assets.

(4) Fictitious or Nominal Assets  These are the assets which cannot be realised in cash or no
further benefit can be derived from these assets. Such assets include Debit balance of P & L a/c. and
the expenditure not yet written off such as Advertisement Expenses etc.

(5) Wasting Assets  These are the assets which are exhausted or consumed over a period time
such as mine and oil wells. Patents and the properties taken on lease.

(6) Tangible and Intangible Assets  Tangible assets are those which have a physical existence
or which can be seen and felt like Plant and Machinery, Building, Furniture, Stock, Cash etc.
Intangible Assets are those which do not have any physical existence or which cannot be seen or felt
such as the Goodwill, Trade Marks, and Patents etc.

Classification of Liabilities

(1) Fixed or Long-Term Liabilities:  Those Liabilities which are to be repaid after one year or
more are termed as long-term liabilities. These include Public Deposits, Long-Terms Loans, and
Debentures etc.

(2) Current or Short-Term Liabilities  Those liabilities which are expected to be paid within
one year are termed as current or short-term liabilities. These include Bank Overdraft, Creditors,
Bills Payable, Outstanding expenses etc.

(3) Contingent Liabilities  these are liabilities which will become payable only on the happening
of some specific event, other wise not. Such as :-

(I) Liabilities for Bill Discount :- Incase a bill discount from the bank is dishonored by the
acceptor on the acceptor on the due date, the firm will become liable to the bank.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

(II) Liabilities in Respect of a Suit Pending in a Court of Law: - This would become an
actual liabilities if the suit is decided against the firm.

(III) Liabilities in Respect of a Guarantee Given for Another Person :-

Note (1) Contingent liabilities are not shown in the Balance Sheet :- They are, however, shown as a
foot-note just below the balance sheet so that their existence may be revealed.

Note (2) It should be remembered that all items which appear in the Trial Balance should be shown
only once, whereas items which appear out-side the Trial Balance, Known as adjustment, have to be
shown at two places.

Note (3) If Closing Stock appears inside the Trial Balance, it will be shown only at one place, i.e. only
on the assets side of the Balance Sheet.

Basis Capital Expenditure Revenue Expenditure

1) Purpose It is incurred for acquisition of fixed It is incurred for conduct of business.
assets for use of business.
2) Capacity It increases the earning capacity of the It is incurred for earning profits.
business.
3) Period It’s benefit extend to more than one It’s benefit extends to only one year.
year,
4) Depiction It is shown in the balance sheet. It is part of Trading or P& L a/c.

Bases Trading Account Profit and Loss Account

1) Relation Trading a/c. is a part of profit and Profit and loss account is the
loss account. main account.
2) Nature The gross profit or gross loss is The profit and loss account is
ascertained from the trading prepared to ascertain the net
account. profit or net loss of the business.

3) Transfer of balance The balance of trading account is But the balance of the profit and
transferred to the profit and loss loss account is transferred to the
account. capital account of proprietor.

4) Items The items shown in the trading The items like indirect expenses
account are purchases, sales, related to sales, distribution,
stock, direct expenses, etc. administration, finance, etc. are
shown in the profit and loss
account.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

Basis of difference Balance Sheet Trial Balance

1) Purpose The purpose is to Show the The purpose is to establish the
financial position. arithmetical accuracy of the books
of account.
2) Headings The two sides are headed as The two columns are headed as
assets and liabilities. debit and credit.
3) Coverage Only personal and real accounts In the trial balance, all account s
appears in the balance sheet. must be written; no account can be
left out.
4) Closing stock This account appear in the Normally, a closing stock does not
balance sheet. figure in the trial balance.

5) Period Normally, it is prepared only at The trial balances are prepared

the end of the trading period. normally every month and whenever
desired.

S.No. Basis Tangible Assets Intangible Assets

1. These assets have physical These assets do not have physical
Physical identity
identity. identity.
2. Depreciation or Fixed tangible assets are Intangible assets are amortized.
Amortisation depreciated.
3. Acceptance in Lenders accept such assets as Lenders usually do not accept
security security for a loan given. such assets as security for a loan
given.
4. Risk of loss to The assets may be lost due to fire. These assets cannot be lost due
fire to fire.

S.No. Basis of Distinction Trading and P & L A/c Balance Sheet

1. Need for Preparation The Trading and Profit & Loss The Balance Sheet is prepared
A/c is prepared to ascertain the to know the financial position
results of business operations of an enterprise at a particular
during an accounting period. time.
2. Contents The balances of all the ledger The balances of only those
accounts of revenue nature are ledger accounts which have
shown in the Trading and Profit not been closed till the
& Loss A/c. preparation of Trading and
Profit & Loss A/c, are shown
in the Balance Sheet.
3. Format The Trading & Profit and Loss The Balance Sheet is only a
A/c is a ledger account. It has statement and not an account.
debit side and a credit side. It is It has no debit side and credit
closed by transferring its side. The headings of the two
balance to the Capital Account. sides are 'Liabilities' and
Assets’.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

S.No. Basis of Outstanding Expense Prepaid Expense

Distinction
1. Meaning It refers to an expense incurred It refers to an expense paid but
but not paid during the current not incurred during the current
accounting period. accounting period.
2. Payment It is yet to be paid It has already been paid.
3. Incurred It has already been incurred. It is yet to be incurred.
4. Treatment in It is shown on the liabilities side as It is shown on the assets side as a
Balance Sheet a current liability. current asset.

S.No. Basis of Distinction Accrued Income Un accrued Income

1. Meaning It refers to an income earned It refers to an income received
but not received during the but not earned during the
current accounting period. current accounting period.
2. Receipt It is yet to be received. It has already been received.
3. Earned It has already been earned. It is yet to be earned.
4. Treatment in Balance It is shown on the assets side as It is shown on the liabilities
Sheet a current asset. side as a current liability.

S.No. Basis of Distinction Fixed Assets Current Assets

1. Purpose of holding These are the assets which are
These are the assets which are
held for the purpose of held -
providing or producing goods or
(a) in the form of cash
services and those which are not
(b) for their conversion into
held for resale in the normalcash
course of business. (c) for their consumption in
the production of goods or
rendering of services in
the normal course of
business.
2. Valuation Fixed assets are valued at cost These assets are valued at cost
less depreciation. or market price whichever is
lower.
3. Nature of profit on Profit on sale of these assets is Profit on sale of these assets is
sale of capital nature. of revenue nature.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

Chapter 20 Financial Statements with Adjustments

 If any item is given in trial balance then it is shown in final accounts only one time.
 If any item is shown below the Trial balance (in Adjustments.), then it is shown in final
account more than one time.
 Some of the important adjustments are as follows:-

(1) Closing Stock :

Closing Stock A/c Dr.
Entry  To Trading A/c

Trading A/c
By Closing Stock
Balance Sheet
Assets
Closing Stock
Note : If closing stock is given in Trial balance then it is shown in Balance sheet (Assets) only
because closing stock has already been taken into A/c.

(2) Prepaid Expenses/Unexpired Expenses (paid in advance)

Entry  Prepaid Insurance A/c Dr.
To Insurance A/c
P&L A/c
To Insurance
(-) Prepaid Insurance

Balance Sheet
Assets
Prepaid Insurance

Note : If prepaid expenses are shown in Trial Balance, they will be shown on the assets side only
because it means that it has already been deducted out of the concerned expenses.

(3) Accrued Income / Income Receivable [Earned but not received]

Entry  Accrued Commission A/c Dr.
To commission A/c
P&L A/c
By commission
Add Accrued Commission
Balance Sheet
Assets
Accrued commission
Note 1:If accrued income mentioned inside Trial balance, it will be shown in assets side only.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

(4) Depreciation :

Entry  Depreciation A/c Dr.

To Assets A/c

P&L A/c
To Depreciation

Balance Sheet
Assets
Less Deprecation
Note : If depreciation is given in the Trial Balance, then it is shown only in P&L A/c.(Debit side)

(5) Outstanding Expenses (Due but not paid)

Entry  Expenses A/c Dr.
To outstanding Expenses A/c

Trading A/c
To Expenses
(+) Add outstanding Expenses

P&L A/c
To Expenses
(+) Add outstanding Expenses

Balance Sheet
Outstanding expenses

Note : If outstanding expenses are given in the Trial balance then it should be shown in liability
only because it means it has already been added to concerned expenses.

(6) Unearned income (received in advance)

Entry  Rent A/c Dr.
To Unearned Rent A/c

P&L A/c
By Rent
Less unearned rent

 Balance Sheet
Unearned rent
Note : If unearned income is given inside the Trial balance it will be shown in liabilities side
only.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

(7) Interest on Capital :

Entry  Interest on capital A/c Dr. Drawing A/c Dr.
To capital A/c To interest on drawings

P&L A/c
To Interest on capital By Interest on drawings

Balance Sheet
Capital
(+) Interest on capital
(-) interest on drawings
Note: If interest on capital & interest on drawing are given in Trial Balance then they will be shown
in P&L only.

(8) Bad Debts :

Entry  Bad Debts A/c Dr.
To Debtor A/c

P&L A/c
To Provision for Bad Debts By Provision for bad debts. (OP) (CONDITION)
Bad debts (B.D.) (-) Bad debts
+ Further Bad debts (F.B.D.) (-) Further Bad debts
+ New provision (NP)  (-) New Provision
(-) Old provision (OP)
To Discount
+ Further discount
+ New provision
(-) Old provision 

Balance Sheet
Debtor 
(-) Sales on Approval -

(-) Further Bad Debts -

(-) New Provision for BD -

(-) New prov. for disc. on debtor - 

(9) Provision For Bad debts :

Entry:- Profit and Loss A/c Dr.
To Provision for Bad Debts A/c
Note 1: The term "Provision" should be used instead of "Reserve" because the aim is not to strengthen
the financial position of the business but to cover an expected future loss.
Note 2: New Provision should be made on "good debtors".
Note 3: If old provision is more than the total, the balance will be shown on the credit side of P&L.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

(10) Provision For Discount on Debtor

Entry  P&L A/c Dr.
To Provision Discount on Debtor
Note : Provision for Discount on Debtor should be made after Provision for Bad Debts.

(11) Loss by Accident (Fire, Flood.)

(A) Loss of Goods:-

Loss by Fire a/c Dr.
To Purchase a/c
(For loss of Goods in Fire)

P & L a/c Dr.

To Loss by Fire a/c
(For loss by Fire transfer to P & L a/c)

Note : If goods are insured an insurance company admits full claim.

Insurance company A/c Dr.
To Loss by Fire/ A/c

Note : If insurance company admits partly claim.

Insurance company A/c Dr. 7000
P&L A/c Dr. 3000
To Loss by Fire A/c 10000

(12) Charity in form of goods :

Charity A/c Dr.
Loss by Free Samples A/c Dr.
To purchase

 Trading Account
To Purchase
- Less - Charity
- Less -Free Samples

 P & L Account
To Charity
To Free Samples
Note: If charity & Free samples are given in the Trial Balance then they will be shown only in P&L
(Dr.).

13. Use of Goods in Business  Sometimes, a part of the goods purchased for resale is consumed in
the business itself for making an Asset.  Assets a/c Dr.
To Purchase A/c

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma
Centre Director

14. Implied Interest  Sometimes, Trial Balance includes 'Loan Account' carrying a specified rate of
interest. In such a case, it is necessary to calculate the interest, even if nothing is mentioned in the
adjustments about the interest.

15. Contingent Liabilities  These are not the actual liabilities on the date of Balance Sheet, but
may become payable only on the happening of some specific event. Examples are:-
(I) Bills Discounted but not matured
(II) If a suit against the firm is pending in the court.
(III) If the firm has given a Guarantee for another person.

16. Manager’s Commission  Since the Commission is always calculated at the end of the
accounting period, it is treated as outstanding expenses.
Manager’s Commission A/c Dr.
To Outstanding Manager’s Commission A/c

(a) On profits before charging such Commission NP*RATE/100

(b) On profits after charging such Commission NP*RATE/100+RATE

17. Sometimes Capital Expenditure is wrongly treated as Revenue Expenditure. Ex. are :-

(1) Wages include Rs. 2,000 spent on the installation of New Machine
(2) Goods purchased for the Construction of Building were debited to Purchase
Account.

18. Goods sold and dispatched but omitted to be recorded.

Debtors A/c Dr.

To Sales A/c
19. Goods purchased and included into stock but omitted to be recorded.

Purchases A/c Dr.

To Creditors A/c

20. Sale of Goods on Approval Basis.

Sales A/c Dr. (at selling price)
To Debtors (Customer's) A/c

Closing Stock a/c Dr (at cost price)

To Trading a/c

21. Goods in Transit

Goods in Transit A/c Dr.
To Suppliers (Creditors) A/c

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
 -1–

Anurag Sharma
Centre Director

Chapter – 21 Accounts of Non Profit Organization

Meaning There are certain organizations, which are founded not to earn profits but to render services to its
member and to the public. Such organizations include clubs, hospitals, libraries, schools, religious
institutions, charitable institutions and literary societies etc. These non-profit organization exist with a
primary motive of providing service.
 The main source of income of such organizations is membership subscriptions, donations and grants
etc., they may also undertake trading activities in order to earn some profit. Such profit is also used for the
goals of the organizations.
 As the main aim of these organizations is not to earn profits, they not prepare Trading and Profit and
Loss a/c. But still they would like to know whether their current incomes are sufficient to meet their current
expenses. For this purpose they prepare an ‘Income and Expenditure Account’, which is similar to Profit and
Loss Account. A Balance Sheet is also prepared in order to show the financial position of the organizations
on the last date of the accounting year.
Final Accounts of Non- Profit Organizations :-
1. Receipts and Payments Account. 2. Income and Expenditure Account. 3. Balance Sheet
1- Receipts and Payment Account.
(1) It is a real account and hence the rule of the real account, i.e., ‘Debit what comes in and Credit what
goes out’ is followed while preparing it. Thus receipts are recorded on its debit side payment on the
credit side.
(2) All cash receipts are shown on the debit side of this account irrespective of the fact whether they are
of capital nature or of revenue nature or whether they relate to previous year, Current year or next
year.
(3) Likewise, all cash payment are shown on its credit side, irrespective of the fact whether they are of
capital nature or of revenue nature and whether they relate to current year, Previous year or next year.
(4) This account records only the actual receipts and payments of cash. Non-Cash items such as
depreciation, outstanding expenses and accrued incomes are ignored while preparing it.
2- Income and Expenditure Account: - It is similar to the Profit & Loss Account and is prepared to
ascertain whether the current income are in excess of current expenditure or vice-versa. In other words. It
reveals the surplus or deficit during a particular period. It is prepared in the same manner in which a Trading
and Profit and Loss Account is prepared. Hence, all expenses and losses of revenue nature are recorded on
its debit side while all incomes and gains of revenue nature, on its credit side. If credit side of this account
exceeds the debit, it is know as excess of income over expenditure (surplus) and on the contrary, if the debit
side exceed the credit, it is excess of expenditure over income (deficit).
Special Features of Income and Expenditure Account :-
(1) It is a nominal account and hence the rule of nominal account, i.e., ‘Debit all expense or losses
and credit all incomes and gains’, is followed.
(2) Only items of revenue nature are recorded in it. All items of capital nature are ignored while
preparing it. For example, amount received from the sale of furniture will not be recorded in it,
but the profit earned or loss suffered on the sale of furniture will be recorded in it.
(3) This account is prepared in the same manner in which a Profit and Loss Account is prepared. As
such, all adjustment relating to the current year such as depreciation, outstanding expenses,
prepaid expenses, accrued income etc. are taken into consideration while preparing the income
and expenditure account.
(4) It excludes all items of income and expenditure which not pertain to the current period. In other
words, all items relating to previous years and next year are excluded while preparing it.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31
 -2–

Anurag Sharma
Centre Director

1. Note  If there is a special receipt like donation for building, it will be shown on the liabilities side.
Similarly, special funds created for meeting expenses such as prize fund, tournament or sports funds will be
shown on the liabilities side.
2. Note  Any excess of Assets over Liabilities in case of a non-profit organization is called Capital Fund
Procedure First of all, opening capital fund is calculated by deducting the opening liabilities from opening
assets and then the current year’s surplus as shown by income and Expenditure Account will be added to it
or the deficit, if any, will be deducted from it, The net amount of capital Fund will be shown on the
liabilities side.
Some Important items relating to Non-Profit organization :-
(1) Subscription: - Debit side of Receipts and Payments Account. Credit side of Income and
Expenditure Account.
(2) Life Membership Fees: - Added to the Capital Fund or shown separately on the liabilities side.
(3) Endowment Fund: - It is a fund arising from gift, the income of which is devoted for a specific
purpose. Thus, it is a capital receipts because it provides a permanent income to the institution. It
should be shown on the liabilities side as a separate item.
(4) Entrance Fees: - In the absence of specific instruction in the examination, the student may treat it as
revenue income and as such may credit it to Income and Expenditure Account.
(5) Donation :-
(A) Specific Donation: - When donation is received for a specific purpose, i.e., donation for
building or donation for providing a swimming pool, it is capitalized and is shown on the
liability side on the Balance Sheet.
(B) General Donation (Credit side of income and expenditure account)
(6) Legacy: - It is the amount which a non-profit entity receives as per the will of a deceased person. It
appears on the debit side of the Receipts and Payments Account. This amount is not of a recurring
nature, and as such it is treated as capital receipt and shown on the liabilities side.
(7) Sales of old Assets: - It appears on the debit side of Receipts and Payments Account. It is capital
receipt and as such should be not being transferred to Income and Expenditure Account. However,
the profit or loss on the sale of an asset must be taken to the Income and Expenditure Account.
(8) Sales of Old Newspaper and Sport Material: - It appears on the debit side of Receipts and
Payments Account and transferred to the credit side of Income and Expenditure Account.
(9) Payment of Honorarium: - The amount paid to person who are not the employees of the institution
is called honorarium and is debited to the Income Expenditure Account.
(10) Capital Receipts :- It includes those receipts which will yield benefit to the entity in the current year
as well as in future years. They are of non-recurring nature or in other words, they are not received at
regular intervals. They include :
(i) Life Membership Fees. (ii) Endowment Fund Receipts
(iii) Donation for specific purpose such as construction of building, special contribution for Silver
Jubilee Celebration, Donation for club pavilion etc.
(iv) Legacies, i.e., the amount received under a will.
(v) All Reserve :- Any receipt related to a specific fund or reserve is treated as capital receipt such
as Charity Fund, Match Fund, Prize Fund, Sport Fund, Tournament Fund, Pension Fund etc. All
these reserve or funds should be shown on the liabilities side of the Balance Sheet after deducting the
expenses in respect of these funds. For example, tournament expenses are deducted from Tournament
Fund, Prizes paid are deducted from Prize Fund, Charity expenses are deducted from fund and so on
Such as:
 If some item of expenditure is useful only for the current year : It is known as revenue
expenditure and taken to the debit side of income and Expenditure Account. On the other hand, if the

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31
 -3–

Anurag Sharma
Centre Director

amount is useful for more than on year, it is known as capital expenditure such as the amount spent on the
purchase of crockery, curtains, library Books, Furnishing, electric installation etc. All such expenditure of
capital nature are shown on the assets side after providing the usual depreciation. Revenue expenditure are
taken to the debit side of Income and Expenditure Account after providing for the necessary adjustment in
respect of outstanding expenses and prepaid expenses.
 Calculation of the Cost of Consumable Goods : There are some items, of which the opening and
closing balances are given in the question and also the payment made for such items is given in the Receipts
and Payments Account. Such items are known as ‘Consumable Goods’. In other words, the items are used
during the year such as Foodstuffs, Medicines, Sports Equipments Postage, Stationary etc. The amount to be
shown in income and Expenditure Account in respect of such items will be calculated follows: -
Note  Non – Cash expenses, such as deprecation on fixed assets are not written in the Receipts and
Payment Account.
Basis Non-Profit Organization Profit earning (business firm)
organization
1) Motive Motive is to provide services. Motive is to earn profits.

2) Funds It is represented by general It is represented by capital comprising

fund comprising of of contribution by proprietors and
donations, subscriptions, accumulated reserves.
surplus etc.
3) Financial Financial statement include: Financial statement include:
Statement 1) Receipts and payment 1) Manufacturing a/c.
a/c. 2) Trading a/c.
2) Income and 3) Profit & loss a/c.
expenditure a/c. 4) Balance sheet.
3) Balance sheet
4) Surplus/Profit The balance of the income The balance of the profit and loss
and expenditure account is account is either net profit or net loss.
either surplus or deficit.

Basis of distinction Receipts and payments Cash book

account
1) Period Receipts and payments account Cash book is written daily.
is prepared at the end of
accounting year. This is
summary of cash book.
2) Date Transaction under this are not Transaction under this are written date
written date wise. wise.
3) Institutions This is prepared by the This is prepared by all the commercial
institutions based on no profit institutions.
and no loss.
4) Side Under this, there are receipts This book can be divided in debit and
and payment sides instead of credit sides.
debit and credit sides.
5) Ledger folio There is no column of ledger This has a separate column for ledger
folio. folio.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31
 -4–

Anurag Sharma
Centre Director

Basis of Distinction Income and Expenditure account Profit and loss account
1) Object The main object of income and The main object of profit and loss
expenditure account is to ascertain account is to ascertain net profit or
excess of income over expenditure or net loss.
excess of expenditure over income.

2) Institutions This account is prepared by non- This account is prepared by trading

profit organizations. institutions.
3) Method The account is prepared on the basis This account is prepared on the basis
of receipts and payments account and of trial balance and other
other information. information.

4) Balance The balance of this account is termed The balance of this account is called
as surplus or deficit. net profit and net loss.

Basis of distinction Receipts and payment account Income and expenditure account
1) Object Object of this account is to show the Object of this account is to show
difference between two sides the net result of all the activities
denoting the cash/bank at the close. during the year resulting in surplus
or deficits.

2) Nature It is classified summary of cash It is like a profit and loss account

transactions for a period (real (nominal account)
account).
3) Form Debit side of this account records Debit side of this account records
receipts and credit side of this expenses and losses and credit side
account records payments. of this account records incomes.

4) Balance Balance in the beginning represents There is no balance in the

cash in hand in the beginning and beginning. Balance at the end
balance at the end represents cash in represents surplus or deficit.
hand at the end.

5) Capital and It records receipts and payment of It records income and expenditure
revenue items both capital and revenue items. of only revenue items.

6) Depreciation Does not include depreciation. Includes depreciation.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31
Anurag Sharma
Centre Director

Chapter – 22 Incompelete Record

Step-1
Calculation of Opening Capital
If capital is not available then a statement of affairs is to be prepared for calculation of capital. All
liabilities are recorded in debit side of this statement & all assets are recorded in the credit side of this
statement. Difference of this statement is treated as capital.
Statement of Affairs as on 1 April ……..
Particular Amount Particular Amount
All Liabilities ––– All Assets –––
Capital (balancing figure) –––

Step-2
Calculation of Closing Capital

Statement of Affairs as on 31 March ……….

Particular Amount Particular Amount
All Liabilities ––– All Assets –––
Capital (balancing figure) –––

Step-3
Ascertained of Profit or Loss from incomplete records.
Under this method statement is to be prepared as under for calculation of profit or loss.

Capital at the end ––––

Add : Drawings during the year ––––
Less : Additional Capital Introduced during the year ––––
Adjusted Closing Capital
Less : Opening Capital ––––
Net Profit or Net Loss before adjustments 
Less : Outstanding Expenses 
Less: Depreciation 
Less: Bad Debts 
Less: Provision for Bad Debts 
Add: Prepaid Expenses 
Net profit after adjustments 

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88
Anurag Sharma -1-
Centre Director

Practice
Worksheets
for
Numerical

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -1-
Centre Director

Class-XI
Accounting Equations (Worksheet)

Q.1 Prepare Accounting Equation of the following transactions and also the Balance Sheet:

S.N Particulars `
1 Manu started business with cash. 1,00,000

2 Sumit started business with:

(i). Cash 20,000
(ii). Goods 12,000
(iii). Machine 8,000
3 Sumit started business with cash `10,000; goods `30,000 and machinery worth `50,000.
4 Opened a Bank Account and transferred ` 4,00,000 from his Savings Account
5 Opened a Bank Account with a deposit of 4,500
6 An amount of ` 50,000 was transferred from his Savings Account to the firm’s Bank
Account.
7 Purchased a building from Sohan for ` 12,00,000 paid by taking a loan from SBI. 10,00,000
8 Paid interest on loan `20,000 and installment of ` 1,00,000.
9 Purchased goods from Rohan on credit. 1,00,000
10 Goods returned to Rohan costing 20,000
11 Took goods from business for personal use. 10,000
12 Received interest form Bank 100
13 Interest due but not received 500
14 Rent received in advance 1,000
15 Insurance premium paid in advance 1,500
16 Salaries due but not paid 2,000
17 Rent paid ` 1,000 and rent outstanding ` 200
18 Purchase of machinery for cash 20,000
19 Depreciation on machinery 2,000
20 Paid salary `450 and salary outstanding being `100
21 Bought refrigerator for personal use 5,000
22 Purchased motorcycle for cash 20,000
23 Depreciation on machinery 10%
24 Interest on drawings (Drawing ` 5000) 5%
25 Goods sold to Gupta for ` 10,000 and received a Bill Receivable for the same amount
for 3 months.
26 Received `10,000 from Gupta against the Bills Receivable on its maturity
27 He sold his personal car for ` 50,000 and deposited the amount in the firm’s Bank
Account

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -2-
Centre Director

28 Received rent from tenants 1,000

29 Received security deposit from tenants 1,500
30 Deposit security money in RSEB 10,000
31 Invested in shares (personal) 50,000
32 Received interest in cash 200
33 Goods destroyed by fire 500
34 Car, personal asset of the proprietor, was sold for ` 1,00,000 against cheque which he
deposited in his Savings Account
35 A new car was purchased for ` 6,00,000 for office use. It was paid by taking loan from
Bank of ` 5,00,000 and balance by issue of cheque from firm’s Bank Account.
36 Life insurance premium paid in cash 1,00,000
37 Insurance Premium for building is paid 5,000
38 Paid three months advance fire insurances premium 3,000
39 Purchased a building from Shyam paid by raising a loan from SBI. 10,00,000
40 Commission received in advance 20,000
41 Charge interest on capital @10% for the year
42 Commence business with cash `1,00,000 of which he deposited `60,000 in bank.
43 Took goods of `5000 and cash `4,000 for personal use.
44 Paid interest on loan `4,000 and installment of bank loan `20,000 by cheque
45 Sold goods costing `20,000 for `25,000 to Ruchi and received `10,000 in cash.
46 Ruchi returned goods for being defective 5,000
47 Ruchi settled her account at a discount of `200
48 Purchased goods from Sohan 20,000
49 He sold goods purchased from Sohan to Ram. 25,000
50 He paid Sohan in full settlement of his account 19,500
51 Received cash from Ram in full settlement 24,200
52 Paid rent `3,000 but `800 still outstanding.
53 Received commission of `2,000 including `500 as advance.
54 Bought furniture `7,000 for office use and for `3,000 for domestic purpose
55 Paid insurance premium `1,000 of which `200 is prepaid.
56 Goods costing `2,000 was disturbed as free samples and goods worth `3,000 was
withdrawn by Ram for person use.
57 Bought goods for cash `20,000 and on credit `40,000
58 Goods bought for cash was sold for cash was sold to Amit 25,000
59 Amit returned goods worth 5,000
60 Amit settled his account by paying 19,500

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
Anurag Sharma -3-
Centre Director

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -1–

Anurag Sharma
Centre Director

Assignment : 1 Accounting Equation

Q-1. Show the accounting equation on the basis of the following transactions and prepare a balance sheet on
the basis of last equation.
(Rs)
1. Mohan started business with cash 40,000
2. Purchased goods on credit 15,000
3. Purchased furniture for cash 10,000
4. Paid rent Rs 300 and salary Rs 700 -
5. Sold goods costing Rs 12,000 on credit 15,000
6. Paid to creditors 8,500
7. Received Interest 1,500
8. Withdraw cash for private use 4,000
9. Bought goods from Ram for Rs 8,000 and paid Rs 5,000 immediately -
Ans : Cash = Rs. 13,000, Stock = Rs. 11,000, Furniture = Rs. 10,000, Debtors = Rs. 15,000,
Creditors = Rs. 9,500 and Capital = 39,500.

Q-2 Prepare accounting equation of Amit on the basis of the following transactions:
1. Commenced business with cash Rs 80,000.
2. Bought goods for cash Rs 20,000 and on credit Rs 25,000.
3. Paid wages Rs 3,000 and rent Rs 1,000.
4. Wages outstanding Rs 1,000.
5. Sold goods costing Rs 12,000 for Rs 16,000 for cash.
6. Goods bought was returned to creditors Rs 1,000.
7. Bought furniture for cash Rs 2,000 and on credit Rs 3,000.
8. Charge interest on capital @ 10% for the year.
9. Cash deposited into bank Rs 50,000.

Also prepare his balance sheet on the basis of accounting equation.

Ans : Cash = Rs. 80,000, Stock = Rs. 32,000, Furniture = Rs. 5,000, Bank = Rs.50,000,
Creditors = Rs. 28,000 and Capital = 79,000.
Q-3 Prepare accounting equation from the following transactios:
1. Sumit started business with cash Rs 10,000; goods Rs 30,000 and machinery worth Rs
50,000
2. Goods purchased from Ram on credit Rs 15,000
3. Sold goods costing Rs 20,000 for Rs 25,000 to Ruchi and received Rs 10,000 in cash.
4. Paid Rs 14,500 to Ram in full settlement of his account.
5. Ruchi returned goods for Rs 5,000 being defective.
6. Ruchi settled her account at a discount of Rs 200.
7. Withdrew cash Rs 2,000 and goods for Rs 3,000 for personal use by Sumit.
8. Charge depreciation on machinery @ 10% for the year.

Ans : Cash = Rs. 13,300, Stock = Rs. 26,000, Machinery = Rs. 45,000, Debtors = Rs. 0, Creditors = Rs. 0
and Capital = 84,300.
Q-4 Sonu had the following transactions:
39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -2–

Anurag Sharma
Centre Director

1. Commenced business with cash Rs 1,00,000 of which he deposited Rs 60,000 in bank.

2. Bought goods for cash Rs 30,000 and on credit Rs 40,000.
3. Purchased a machine for Rs 2,00,000 by raising loan from P.N. Bank, Hisar.
4. Sold goods costing Rs 20,000 @ a profit of 20% on cost to Mohan on credit.
5. Took goods of Rs 5,000 and cash Rs 4,000 for personal use.
6. Paid interest on loan Rs 4,000 and instalment of bank loan Rs 20,000 by cheque.
7. Commission received in advance Rs 8,000.
8. Paid Rs 20,000 to creditor by cheque.
9. Mohan settled his account at a discount of Rs 500.
10. Charge depreciation on machine @ 10% for the whole year.
Use accounting equation to show the effect of above transactions.
Ans : Cash = Rs. 37,500, Bank = 16,000, Stock = Rs. 45,000, Machine = Rs. 1,80,000,
Debtors = Rs. 0, Creditors = Rs. 20,000, Bank Loan = Rs. 1,80,000, Capital = 70,500 and Advance
Commission = Rs. 8,000.

Q-5 Show that accounting equation is satisfied in all the following transactions of Sumit.
1. Started business with cash Rs 40,000, goods Rs 50,000 and furniture Rs 10,000.
2. Purchased goods from Sohan Rs 20,000.
3. He sold goods purchased from sohan for Rs 25,000 to Ram.
4. He paid Sohan in full settlement of his account Rs 19,500.
5. Received cash from Ram in full settlement Rs 24,200.
6. Paid Rent Rs 3,000 but Rs 800 is still outstanding.
7. Charges depreciation on furniture Rs 1,000.
8. Received commission Rs 2,000 including Rs 500 as advance.
9. Charge interest on capital Rs 8,000.
Ans : Cash = Rs. 43,700, Stock = Rs. 50,000, Furniture = Rs. 9,000, Debtors = Rs. 0,
Creditors = Rs. 0, Rent o/s = Rs. 800 , Advance Commission = Rs. 500 and Capital = 1,01,400.

Q-6 Ramesh started business with a capital of Rs 1,00,000. Following transactions took place during the year.
Deposited Rs 60,000 in bank.
1.
2. Purchased goods from Amit Rs 30,000.
3. Sold goods costing Rs 20,000 for Rs 25,000 to Mohan out of which Rs 7,000 received in cash.
4. Paid salary Rs 5,000 but salary still unpaid Rs 1000.
5. Received commission Rs 2,000 including Rs 500 as advance.
6. Sold goods costing Rs 5,000 at a loss of Rs 500 in cash.
7. Received Rs 17,400 from Mohan in full settlement of his account by cheque.
8. Returned goods to Amit Rs 2,000.
9. Issued a cheque of Rs 27,200 to Amit in full settlement of his account.
Use accounting equation to give effect to above transaction.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -3–

Anurag Sharma
Centre Director

Ans : Cash = Rs. 48,500, Bank = Rs. 50,200, Stock = Rs. 3,000, Debtors = Rs. 0,
Creditors = Rs. 0, Salary o/s = Rs. 1,000, Adv. Comm. = Rs. 500 and Capital = 1,00,200.

Q-7 Show that accounting equation is satisfied in the following cases:

1. Ajay commenced business with cash Rs 40,000 and goods Rs 20,000
2. Sold half the goods at a profit of 25% to Ram.
3. Sold half the goods at a loss of 10% for cash.
4. Bought goods from Rakesh Rs 25,000 and paid Rs 9,000 in cash.
5. Bought furniture Rs 7,000 for office use and for Rs 3,000 for domestic purpose.
6. Paid insurance premium Rs 1,000 of which Rs 200 is prepaid.
Ans : Cash = Rs. 29,000, Stock = Rs. 25,000, Furniture = Rs. 7,000, Debtors = Rs. 12,500, Prepaid Income =
Rs. 200, Creditors = Rs. 16,000 and Capital = 57,700.

Q-8. Use accounting equation for the following transaction of Vijay :

1. Started business with cash Rs. 80,000.
2. Bought goods for cash Rs. 20,000 and on credit from Ram for Rs. 30,000.
3. Sold goods bought for cash to Mohan for Rs. 24,000.
4. Settled the account of Ram by paying Rs. 29,500.
5. Salary paid to Ajay Rs. 8,000.
6. Ajay requested for advance against salary of Rs. 1,000 and he got it.
7. Paid rent Rs. 7,000 but Rs. 1,000 rent is still due.
8. paid insurance premium of Rs. 2,000 of which 1/4th premium is for next year.
Ans : Cash = Rs. 12,500, Stock = Rs. 30,000, Debtors = Rs. 24,000, Prepaid Expense = Rs. 1,500
Creditors = Rs. 0, o/s Expenses = Rs. 1,000 and Capital = 67,000.

Q-9. Show the accounting equation is satisfied in the following cases :

1. Ram commenced business with cash Rs. 50,000 and goods Rs. 30,000.
2. Sold 40% goods at a profit of 25% to mohan.
3. paid salary Rs. 4,000 but Rs. 1,000 still remain unpaid.
4. Paid insurance premium Rs. 2,000 of which Rs. 500 relates to next year.
5. Salary of Rs. 1,000 is prepaid to an employee whose son is ill.
6. Goods costing Rs. 2,000 was distributed as free samples and goods worth Rs. 3,000 was withdrawn
by Ram for person use.
Ans : Cash = Rs. 43,000, Stock = Rs. 13,000, Debtors = Rs. 15,000, Prepaid Expenses = Rs. 1,500
Salary o/s = Rs. 1,000 and Capital = 71,500.

Q-10. Find the total assets of the firm if the capital is Rs. 60,000 and liabilities Rs. 39,000.
Ans : Rs. 99,000

Q-11. Find the capital (net worth) of the business if total assets are Rs. 1,70,000 and its liabilities are Rs. 70,000.
Ans. Rs. 1,00,000

Q-12. X commenced business on 1st April, 2009 with a capital of Rs. 50,000. On 31st march, 2010, his assets worth
Rs. 95,000 and liabilities of Rs. 30,000. Find his capital at the end of the year and profit earned during the year.
Ans. Closing Capital Rs. 65,000 and Profit Rs. 15,000.

Q-13. A started business on 1st April, 2009 with a capital of Rs. 1,10,000 and took loan from bank Rs. 40,000. At the
end of the year on 31st March, 2010, his assets were for Rs. 2,50,000, creditors for Rs. 70,000. Bank loan has not been
paid so far, however, interest on loan has been paid. Find the closing capital and profit earned during year.
39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -4–

Anurag Sharma
Centre Director

Ans. Closing Capital Rs. 1,40,000 and Profit Rs. 30,000

Q-14. Ram started a business on 1st Jan. 2009 with a capital of Rs. 1,00,000. During the year ending 31st December,
2009, he introduced further capital of Rs. 20,000 and withdrew goods and cash worth Rs. 15,000 for personal use. on
31st December, 2009, his assets includes cash Rs. 30,000, stock Rs. 80,000, Debtors Rs. 40,000, and furniture Rs.
30,000 and liabilities includes bank loan Rs. 30,000 and creditors Rs. 20,000.
Ascertain the capital at the end of 2009 and profit or loss incurred during the year.
Ans. Total Asset Rs. 1,80,000; Closing Capital Rs. 1,30,000 and Profit Rs. 25,000.

Q-15. Find the opening capital of the firm from the following information given at the end of the year :
Total assets Rs. 1,30,000; external liabilities Rs. 40,000. During the year proprietor introduced additional
capital of Rs. 20,000, withdrew Rs. 15,000 for personal use and earned a profit of Rs. 25,000.
Ans. Closing Capital Rs. 90,000 and opening Capital Rs. 60,000.
.
Q-16. Give an example of each type of transaction from the following information :
1. Increase in assets, increase in liability.
2. Increase in asset, increase in owner’s capital.
3. increase in liability, decrease in another liability.
4. Decrease in liability, increase in owner’s equity.
5. Increase in asset, decrease in another asset.
6. Decrease in asset, decrease in liability.
7. Decrease in asset, decrease in owner’s equity.
8. Capital Increases and Decreases simultaneously.
9. Decrease in Capital and Increase in Liability.

Q-17. On which side the increase in the following accounts be recorded ? Also specify the nature of which they
belong :
1. Ram (proprietor) 6. Interest received
2. Rent A/c 7. Debtor’s A/c
3. Purchase of goods 8. Creditor’s A/c
4. Cash A/c 9. Bank A/c
5. Sales A/c 10. Furniture A/c

Q-18. On which side the decrease in the following accounts be recorded ? Also specify the nature of accounts :
1. Capital A/c 4. Mohan : a supplier of goods
2. Machinery A/c 5. Salary outstanding
3. Ram : a customer

Q-19. Open a T-shape account of furniture and put the following transactions on the proper side of furniture
A/c and balance the account.
1. Furniture purchased Rs. 10,000
2. Furniture purchased further Rs. 6,000
3. Sold furniture costing Rs. 4,000
4. Depreciation on furniture Rs. 2,000
Ans. Balance Rs. 10,000

Q-20. Open a T-shape account of creditor, Ram from the following transactions and balance it :
Sr.No. Transaction Rs.
1. Bought goods from Ram 15,000
2. Paid cash to Ram 7,000
3. Again bought goods 8,000
4. Goods returned – being defective 1,000
5. Paid cheque to Ram 10,000
39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -5–

Anurag Sharma
Centre Director

Ans. Balance Rs. 5,000

Q-21. Open a T-shape account of Amit, the proprietor of the business from the following transaction and
balance it :
Rs. Rs.
1. Commenced business with :
Cash 10,000
Goods 20,000
Furniture 15,000 45.000
2. Further capital introduced 15,000
3. Drawing made :
in cash 4,000
in goods 6,000 10,000
4. Profit during year 18,000

Q-22. Write the following transaction in the cash A/c, debtor’s A/c and creditor’s A/c and balance them :
Rs..
1. Cash sales 15,000
2. Bought goods from Amit 20,000
3. Sold goods to Sumit 22,000
4. Bought goods in cash 13,000
5. Returned goods to Amit 3,000
6. Paid cash to Amit 14,000
7. Cash received from Sumit 15,000
8. Sumit returned goods 2,000

Ans. Balances :
Cash a/c Rs. 3,000
Amit’s a/c Rs. 3,000
Sumit’s a/c Rs. 5,000

Q.23 Calculate total equity from the following information;

Opening Owner’s equity Rs. 1,60,000.
Creditor’s equity Rs. 1,50,000.
Revenue earned during the year Rs. 70,000.
Expenses during the year Rs. 65,000.

Q.24 Calculate total equity from the following information;

Opening Owner’s equity Rs. 3,20,000.
Creditor’s equity Rs. 3,00,000.
Revenue earned during the year Rs. 1,40,000.
Expenses during the year Rs. 1,30,000.

Q.25 Special Transactions:

(i). Outstanding Expenses
(ii). Prepaid Expenses
(iii). Accrued Income
(iv). Unearned Income
(v). Interest on Capital
(vi). Interest on Drawings
(vii). Depreciation
39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -1–

Anurag Sharma
Centre Director

Assignment : 2 Journal (SC)

Q-1. Classify the following accounts into Personal, Real and Nominal accounts :
1. Capital 2. Rent 3. Sales 4. Debtors 5. Bank 6. Cash
7. Goodwill 8. Furniture 9. Commission paid 10. Prepaid Salary
11. Salary 12. Purchases 13. Depreciation 14. Discount allowed
15. Wages 16. Drawing 17. Salary outstanding 18. Creditors
19. Patent 20. Advertisement 21. Bad Debt 22. Accrued Interest
23. Stock 24. Plant

Q-2. Record the following transactions in the journal of Ram :

2010 Rs.
April 1 Ram started the business with cash 50,000
3 Bought goods for cash 15,000
6 Bought furniture for cash 5,000
9 Sold goods for cash 13,000
14 Sold goods to Mohan 9,000
18 Bought goods from Amit 11,000
21 Cash received from Mohan 7,000
23 Paid cash to Amit 9,000
25 Sold goods to Sumit for cash 6,500
27 Bought machinery from Sohan 15,000
29 Withdrew cash from office for personal use 5,000
30 Paid rent 400
30 Paid salary to Gopal 2,500
30 Received commission 500

Q-3. Record the following transactions in the journal of Sumit :

2010 Rs.
Jan 1 Started business with cash 1,00,000
3 Paid into bank 60,000
8 Bought goods from Anil 11,500
15 Sold goods to Ajay 15,000
18 Purchased furniture from Ram and issued cheque 10,000
22 Drew cash from bank for office use 12,000
30 Drew cash from bank for personal use 5,000
31 Ajay returned goods 2,000

Q-4. Record the following transactions in the journal of Sohan :

2010
June 4 Bought goods from Dinesh of the list price Rs. 50,000 less trade discount @ 10%
7 Goods returned to Dinesh of the list price Rs. 5,000
10 Paid cash to Dinesh under a cash discount of 2%

Q- 5. Pass the journal entries in the books of Hari :

2010
Dec 5 Sold goods to Kamal of the list price Rs. 70,000 less trade discount 20%
9 Kamal returned goods of the list price Rs. 5,000
14 Kamal paid us Rs. 51,000 in full settlement of account.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -2–

Anurag Sharma
Centre Director

20 Sold goods to Ram Rs. 40,000 at a trade discount of 10% and cash discount 2%, Ram paid 1/4 th
amount in cash.

Q-6. Record the following transactions in the journal of ramesh:

2010
Jan 1 Bought goods from pawan of the list price at trade discount of 20% Rs 20,000
Jan 5 Sold goods to mohan of the list price at trade discount of 10% Rs10,000
Jan 8 Returned goods to pawan of the list price Rs 1,000
Jan 12 Mohan returned goods of list price Rs 2,000
Jan 15 Paid cash to pawan and received discount Rs 14,800
Jan 17 Received Rs 7,000 from mohan in full settlement of his account.

Q-7. Journalise the following transactions

2010
April 1 Paid to Ravi Rs 19,000 in full settlement of his account Rs 20,000
April 5 Paid Salaries Rs 2,000
April 5 Paid Wages Rs 1,500
April 5 Paid Rent Rs 1,000
April 10 Bought goods from Naresh for Rs 10,000 out of which goods worth Rs 6,000 was on
credit.
April 14 Sold goods of the list price Rs 15,000 to Kamal at 10% trade discount and 2% cash
discount.
Kamal paid the amount promptly.
April 18 Withdraw cash Rs 5,000 for office use and Rs 2,000 for personal use from the bank.

Q-8. Pass journal entries for the following transactions in the books of Arun:
2010 Rs.
May 1 Commenced business with cash 1,00,000
3 Bought goods from Ram of list price Rs. 20,000 less trade discount 20%
7 Sold goods to Gopal 20,000
8 Returned defective goods by Gopal 3,000
11 Received cash from Gopal 16,500
and allowed him discount 500
15 Mohan bought goods from us 15,000
16 Paid cash to Ram 15,500
and he allowed us discount 500
18 Paid salary Rs. 2,000 and rent Rs. 1,000
20 Received interest Rs. 1,500 and commission Rs. 2,500
25 Bought goods from Naresh of list price Rs. 25,000 less trade discount 20% and cash
discount of 2%.

Q-9. Pass journal entry in the books of laxman from the following transactions:
2010
Jan 1 Started business with cash Rs 80,000 goods Rs 30,000 and furniture Rs 40,000.
Jan 3 Bought goods from arun of the list price Rs 25,000 at a trade discount of 20%.
Jan 5 Returned goods to arun of the list price Rs 2,000
Jan 7 Settled the account of arun by paying cash under a discount of 4%
Jan 10 Sold goods to raj of the price list Rs 30,000 under trade discount of 15%
Jan 13 Raj returned goods of the price list Rs 2,000
Jan 15 Raj paid Rs 23,100 in full settlement of his account
Jan 19 Purchased goods from amit Rs 8,000 and sumit Rs 12,000.
Jan 23 Paid amit Rs 7,800 andreceived discount Rs 200.
Jan 25 Settled the account of sumit by paying Rs 11,400

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -3–

Anurag Sharma
Centre Director

Jan 30 Paid salary Rs 2,000 rent Rs 600 and stationary Rs 400.

Q-10. Journalise the following transactions :

1. Kamal is declared insolvent. Received 70 paise in a rupee from his official receiver on a debt of Rs.
2,000.
2. Ram owed us Rs. 1,000 becomes bankrupt and paid 50 paisa in a rupee.
3. Received cash from Mohan Rs. 500 whose account was written off as bad debt last year.

Q-11. Pass the journal entries for the following transactions :

2010 Rs.
Jan 1 Paid into bank for opening a bank current account 30,000
3 Withdrew cash from bank for office use 5,000
and for personal use 1,000
5 Bought goods from Ram and paid the amount by cheque 4,000
9 Taken a bank loan 20,000
11 Bought goods and paid by cheque 8,000
15 Sold goods to Ram and received a cheque 12,000
17 Cheque of Ram deposited into bank
20 Paid salary Rs. 3,000 and rent Rs. 2,000 by cheque
25 Withdrew goods for personal use 4,000
28 Repaid bank loan and 5,000
Paid interest by cheque 500

Q-12. Record the following transaction in the journal :

i. Bought goods of list price Rs 20,000 from Ram less 20% trade discount and 2% cash discount and paid
50% by cheque.
ii. Sold goods to kamal of list price Rs 30,000 less 25% trade discount and 2% cash discount received a
cheque of 50% amount which was deposited in the bank on the same day.
iii. Received cash from Rakesh for bad debt written off last year Rs 200.
iv. Goods sold to Brown for Rs 10,000 allowings him trade discount 20% and cash discount 5%. He paid
1/4 th amount immediately.
v. A debtor Sohan is declared insolvent. Received a cheque of 25 paisa in a rupee on a debt of Rs 1,000
which was deposited in the bank.
Q-13. Journalise the following :
1. Goods worth Rs. 2,000 were distributed as free sample.
2. Goods worth Rs. 1,000 and cash Rs. 500 were given as charity.
3. Goods worth Rs. 2,000 were stolen by an employee.
4. Goods worth Rs. 8,000 were destroyed by fire and it was fully incurred.
5. Goods damaged by fire Rs. 2,000 and insurance company admitted a claim of Rs. 1,500.

Q-14. Following balances appeared in the books of Super garments as on 1 st January, 2010 :
Assets : Cash Rs. 5,000; Cash at Bank Rs. 12,500; Debtors Rs. 14,000; (Ashok Rs. 5,000, Kewal
Rs. 6,000, Mohan Rs. 3,000); Stock Rs. 24,500 and furniture Rs. 14,000.
Liabilities : Creditors Rs. 12,000 ( Ram Rs. 4,000, Amit Rs. 5,000 and Sunil Rs. 3,000); Bank Loan
Rs. 18,000.
Following transactions took place during January, 2010 :
Jan 3 Bought goods from Suresh for Rs. 25,000 at a trade discount of 20% and cash discount of 2%. Paid 40
% amount immediately.
5 Sold goods to Kewal Rs. 10,000
8 Received Rs. 15,500 from Kewal in full settlement of his account.
10 Received cheque from Ashok Rs. 4,900 allowing him discount Rs. 100
12 Cheque received from Ashok was deposited into Bank

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -4–

Anurag Sharma
Centre Director

15 Cheque received from Mohan Rs. 2,950 in full settlement of his account, was deposited into bank on the
same day.
18 Cheque of Ashok was dishonoured
20 Bought goods from Brown for Rs. 10,000
23 Goods bought from Brown was sold to James at a profit of 20%
25 Withdrew cash from bank Rs. 4,000 for office use and Rs. 1,000 for private use.
27 Goods distributed as free sample Rs. 3,000 and given as charity Rs. 1,000
29 Ashok became insolvent and paid 60% only
30 Goods sold to cash Rs. 11,000 of which Rs. 6,000 deposited into bank.
Pass journal entries for above transaction.

Q-15. Journalise the following entries :

1. Bought machinery from Rama Stores for Rs. 28,000 and paid freight Rs. 1,000, carriage Rs. 200 and
installment charges Rs. 800.
2. Bought goods from Ratnakar for Rs. 8,000 for cash and paid carriage charges Rs. 500.
3. Bought a second hand machine for Rs. 11,000 and spent Rs. 1,000 on carriage and Rs. 3,000 on its repair.
4. Paid repair charges of office furniture Rs. 500.
5. Bought cement Rs. 40,000; bricks Rs. 50,000; timber Rs. 30,000 and wages Rs. 25,000 for the construction
of building.

Q-16. Enter the following transactions in the books of Ratnakar:

2010
May 1 Commenced business with cash Rs 4,00,000 of which R 3,00,000 deposited into bank.
May 4 Bought goods of list price Rs 80,000 less trade discount 10% from Monu and Paid
cheque for 50% amount.
May 7 Sold goods to Amit of list price Rs 1,20,000 less trade discount 15%. He paid cheque
for Rs 50,000 which was banked.
May 10 Purchased building for Rs 2,50,000 by issuing cheque, however, brokerage charges
2% and registration charges Rs 10,000 paid in cash.
May 13 Received cheque from Amit for Rs 51,000 in full settlement of account and cheque
deposited in bank.
May 17 Paid insurance premium of building Rs 2,000 and life insurance premium Rs 5,000 by
cheque.
May 20 Withdraw goods for personal use Rs 4,000 and goods distributed as free samples Rs
2,000.
May 25 Bought goods pf list price Rs 50,000 less 10% trade discount and 2% cash discount
from Neha. Paid 30% amount by cash and 40% by cheque.
May 29 Bought machinery from Haryana Store Rs 30,000. Paid carriage Rs 1,000 and
installation charges Rs 2,000.
May 30 Repair charges paid Rs 800 and salary paid Rs 1,200

Q-17. Pass journal entries for the following transactions.

1. Wages due but not paid Rs 2,000
2. Insurance premium paid for the year Rs 1,000 includes Rs 300 as paid in advance.
3. Provide 10% depreciation on plant costing Rs 15,000
4. Provide 10% interest on capital amounting to Rs 80,000.
5. Charge interest on drawing Rs 500.
6. Received Rs 600 from Mohan, which were written off as bad debts 2 years ago.

Q-18. Pass journal entries for the following transactions:

1. Bought goods for Rs 1,00,000 from Ram.
2. Sold goods bought from Ram to Shyam at a profit of 20%.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -5–

Anurag Sharma
Centre Director

3. Shyam returned 1/4th goods supplied to him.

4. Goods returned by Shyam is returned to Ram.
5. Paid to Ram at a discount of 3%.
6. Shyam settled his account by cheque of Rs 88,000 which was banked on the same day.

Q-19. Journalise the following transactions:

1. Sold goods to Kamal costing Rs 10,000 at 30% above cost less trade discount 10% at cash discount 2%.
Kamal was not willing to avail cah discount.
2. Bought a second hand machinery from Gopal for Rs 25,000. Spent Rs 4,000 on its repair and Rs 1,000
towards installation.
3. Paid insurance premium Rs 2,500. It includes Rs 500 paid for the next year.
4. Sold goods to Raman of list price Rs 10,000 less 15% trade discount and 2% cash discount. He paid the
payment on the sopt.
5. Kamal died in an accident and nothing could be recovered from him.
6. Allowed interest on capital @ 8% which was Rs 50,000.
7. Charge depreciation on Machine @ 10% at the end of the year.

Q-20. (Sales Tax) Journalise the following in the books of Arya General Store :
1. Sold goods to Ram Rs. 20,000 and charged sales tax @ 5%.
2. Supplied goods costing Rs. 10,000 at a invoice price 30% above cost less 10% trade discount to Mohan
and charged sales tax @ 5%.
3. Sold goods to Rohan for Rs. 30,000 less trade discount 10% and charged 5% sales tax and paid carriage
Rs. 300 but it is not be charged to Rohan.
4. Sold goods costing Rs. 20,000 to Kamal at a profit of 25% less 10% trade discount and charged 5% sales
tax and paid carriage Rs. 200 to be charged to customer.

Q-21. (VAT) Journalise the following transactions in the books of Ravi :

1. Bought goods from Sonam Rs. 20,000 less trade discount 20% plus VAT @ 10%.
2. Sold goods costing Rs. 6,000 to Ram for Rs. 8,000 plus VAT @ 10%.
3. Sold the balance goods for Rs. 16,000 and charged VAT @ 10% to Mohan against payment by cheque
which was banked on the same day.
4. Deposited the VAT into government account by cheque.

Q-22. Journalise the following transactions in the books of Ravi :

2010
May 1 Paid cash into bank/banked/cash deposited into bank Rs. 40,000
5 Bought 10 shares of Wipro Ltd. for Rs. 40,000 and paid brokerage @ 1%. Payment is made by cheque.
8 Bought goods from Sonam for Rs. 60,000 on credit and paid carriage charges Rs. 1,000.
11 Paid to Sonam by cheque getting 5% cash discount for making her prompt payment.
15 Sold 1/3rd goods bought from Sonam at a profit of 20% on cost.
18 Bought machinery for Rs. 25,000 from Rahul. Paid carriage Rs. 500 wages and installation charges Rs.
1,500
20 Paid income tax Rs. 3,000 and sales tax Rs. 2,000
24 Goods destroyed by fire cost Rs. 5,500 but insurance company admitted the claim of Rs. 4,000 only.
27 Received Rs. 100 from sale of old newspaper and Rs. 1,000 from sale of old furniture.
29 Received VPP from Gopal for Rs. 2,000. Paid Rs. 25 to peon who paid conveyance charges to collect
it.

Q-23. Record the following transactions in the journal :

1. Bought a horse for delivering goods to customer Rs. 12,000
2. Sold goods to Gopal on credit Rs. 1,00,000.
3. Received cheque for Rs. 98,000 from Gopal in full settlement of account which was banked on same day.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -6–

Anurag Sharma
Centre Director

4. An old machine of book value Rs. 50,000 is exchanged for a new machine costing Rs. 1,20,000. The old
machine is valued for Rs. 40,000 by HMT Ltd.
5. Cheque received from Gopal was dishonoured due to his insolvency.
6. The official receiver of Gopal paid 60 paisa in a rupee by cheque which was honoured.
7. Depreciate machinery by Rs. 6,000.
8. Salary due to clerk RS. 2,000.

Q-24. Journalise the following transactions :

1. Good costing Rs. 1,000 sales price 1,250 was stolen.
2. Rent paid Rs. 2,000 and rent is still owning Rs. 1,000.
3. Goods distributed as free sample Rs. 2,000 and goods given as charity Rs. 500.
4. Received an advance of Rs. 10,000 from Ravi against an order of goods for Rs. 30,000.
5. Order of goods of Ravi executed.
6. Bought goods from Amit of list price Rs. 20,000 less trade discount @10%.
7. Sold ½ goods received from Amit to Mohan at a profit of 20% in cost.
8. Paid cash to Ram in behalf of Shyam Rs. 2,000.
9. Insurance premium Paid Rs. 1,000 includes Rs. 250 for next year..
10. Bank charged interest Rs. 500.

Q-25. Record the following journal entries in the books of Goyal Brothers :
2010
Jan 1 Started business with cash Rs. 40,000, goods Rs. 30,000 and furniture Rs. 20,000.
3 Paid into bank Rs. 30,000.
7 Bought goods from Ashok Rs. 20,000 and Nitin Rs. 15,000
9 Sold goods bought from Ashok at a profit of 25% to Gopi on credit and goods bought from Nitin at a profit
of 10% for cash.
13 Settled the account of Ashok by paying Rs. 19,500 by cheque and Nitin allowed discount Rs. 600 for
paying cheque promptly.
19 Gopi paid by cheque and deducted 2% cash discount. Cheque was banked.
25 Mohan sold us goods for Rs. 10,000.
28 Withdrew from bank for personal use Rs. 1,000.
30 Repair of furniture Rs. 500.
31 Goods costing Rs. 2,000 (sale price Rs 2,500) used in making furniture.
31 Allowed interest on capital Rs. 5,000.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 Anurag Sharma -1-
Centre Director

Worksheet – Journal (Selected for exam purpose) – 3

Journalise the following transactions:

1. Ram started business with cash Rs 20,000; bank Rs. 30,000 and goods Rs 50,000.
2. Bought furniture for cash Rs 10,000.
3. Paid For rent Rs 600; advertisement expenses Rs 400 and salaries Rs 1200.
4. Paid Salary to Ankush Rs. 7000.
5. Received commission Rs. 1000.
6. Paid Life insurance premium Rs. 1200 and insurance premium of office building Rs. 1000 by
cheque.
7. Received Rs 3500 from Kapil.
8. Paid cash to Rohan on behalf of Akbar Rs 2200.
9. Withdraw Rs 4200 from office and Rs. 5800 from bank for private use.
10. Haribabu was appointed as cashier on a salary of Rs 6000 p.m. He deposited Rs. 20,000 as security.
11. The following balances were appeared in books of Moon Ltd. on March 31, 2013:
Assets: Cash Rs10,000; Bank Rs 25,000; Stock Rs. 15,000; Debentures Rs. 40,000(Rose Rs. 18000;
Tulip Rs, 22000)
Liabilities: Creditors Rs. 20,000 (Lilly Rs. 8000; Jasmine Rs 12,000); Capital Rs. 50,000; Bank Loan
Rs. 25,000.
12. Purchased an iron safe for Rs. 5000, typewriter for Rs. 4,000 filing cabinet for Rs. 2000.
13. Bought goods for cash Rs. 7000.
14. Bought goods for Rs. 1,00,000 from Gagan.
15. Supplied the goods purchased from Gagan to Akash for Rs. 1,30,000.
16. Akash returned 30% of goods.
17. Goods returned by Akash was returned to Gagan.
18. Paid to Gagan at a discount of 25%.
19. Akash settled his account by giving a cheque of Rs. 90,000 which was deposited into bank.
20. Bought goods for cash Rs. 25000 from Sajal and paid Rs. 1000as carriage charges.
21. Sold goods to Akhil of the list price of Rs. 10,000at trade discount of 5%.
22. Akhil returned goods worth Rs. 2000.
23. Received from Akhil Rs. 7500 in full settlement of his account.
24. Purchased goods from Tara of list price Rs. 8000 at 10% trade discount and 5% cash discount.
25. Bought goods of the listprice Rs. 1,00,000 less 10% trade discount and 2% cash discount from
Rohan and paid 70% payment at the same time by cheque.
26. Bought goods of list price Rs. 40,000 less 10% trade discount and 2% cash discount from Mumal.
50% amount due is paid by cheque and 20% amount paid in cash.
27. Sold goods to Kajol list Price Rs. 2000., trade discount 10% and cash discount 5% but she declined
to avail the cash discount.
28. Kajol died of heart attack so nothing could be recovered from her.
29. Supplied goods costing Rs. 6000 to Anachal issued invoice at 10% above cost less 5% trade
discount.
30. Paid into bank Rs. 4000.
31. Opened a current account in bank with Rs 20,000.
32. Received a cheque Ram Pratham Rs. 3500.
33. Deposit the above cheque into bank.
34. Cashed Rs. 2000.
35. Borrowed from Dena Bank Rs. 30,000.
36. Paid interest on loan Rs. 500.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -2-
Centre Director

37. Banked Rs. 4000.

38. Transferred from current account to fixed deposit account in bank Rs. 5000.
39. Received a cheque from Bimal for Rs. 5600 in full settlement of his account of Rs. 5800. This
cheque was immediately deposited into the bank.
40. Cheque of Bimal dishonoured.
41. Rs. 1500 withdrawn from bank for office use.
42. Bank charged Rs. 400 as Interest and Rs. 100 towards bank charges.
43. Gave Rs. 500 in cash and goods worth Rs. 700 as charity.
44. Krishna who owed us Rs. 2500 is declared insolvent and only 40% amount is recovered from his
estate.
45. Received Rs. 6100 from Mohak which were written off as bad debts in the previous years.
46. Rs 1000 received as rent from sub-letting a part of building.
47. Purchased Postcards Rs. 15, Envelops Rs. 30 and stamps Rs 25.
48. Purchased a camel for Rs. 30,000 and a carriage for Rs. 1000 for delivering goods to customers.
49. The camel purchased was died, its carcass was sold for Rs. 4000.
50. Received advance Rs. 10,000 from Ahilya against an order of goods for Rs. 50,000.
51. Executed the order received from Ahilya and paid Rs. 1300 as carriage charges.
52. Received goods from Dhara by V.P.P. Rs 3000.
53. Provide 10% depreciation on Machinery costing Rs. 25,000.
54. Provide 10% interest on capital amounting to Rs. 80,000 for 8 months.
55. Charge interest on drawings Rs. 600.
56. Salary due to clerks Rs. 1000.
57. Out of the rent paid this year Rs. 750 relates to next year.
58. Paid Insurance premium Rs. 2000 of which 500 is related to next year.
59. Sold goods for Rs. 2500 and charged 10% as sales tax.
60. Old newspaper sold for Rs 30.
61. Received Rs. 400 from sale of old chairs and tables.
62. Bought Cement for Rs 80,000 and timber for Rs 70,000 for construction of office building Rs.
30,000 is also paid for wages in this connection.
63. Sold household furniture for Rs. 7000 in cash and paid the money into business.
64. Wood used for making office furniture Rs. 3000.
65. Goods damaged by fire Rs 5000 and insurance Co. accepted claim of Rs. 3500.
66. Stock at the end of the year Rs. 30,000.
67. Interest due but not received Rs. 2400.
68. Paid income tax Rs. 2000.
69. Paid Rs. 100 for refreshment for a customer.
70. Interest credited by bank Rs. 500.
71. Bought 200 shares in Reliance Ltd. @ Rs. 12 per share, brokerage paid Rs. 40.
72. A new Machine purchased (exchange) for Rs. 40,000 in exchange of old machinery (Book value Rs.
15,000) for Rs. 12,000 from Sita.
73. Pass Opening entry :
Assets : Cash Ra. 5,000 ; Cash at Bank Rs. 12,500; Debtors Rs. 14,000; (Ashok Rs. 5,000 Kewal Rs.
6,000, Mohan Rs. 3,000), Stock Rs. 24,500 and furniture Rs. 14,000.
Liabilities : Creditors Rs. 12,000 (Ram Rs. 4,000; Amit Rs. 5,000 and Sunil Rs. 3,000) Bank Loan
Rs. 18,000
74. A paid Rs. 500 to B on behalf of C (In the Books of A, B and C).
75. Accrued Interest Rs. 1,000.
76. Unearned Commission Rs. 5,000.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -3-
Centre Director

77. Placed order for goods with M/s. Abhi & Sons of Rs. 2,00,000; paid them Rs. 20,000 by cheque as
advance, balance to paid on delivery of goods.
78. Received order for goods from M/s. Ajay & Co. of Rs. 3,00,000 along with a cheque for Rs. 30,000
as advance, balance to be received against delivery of goods.
79. A new machine of Rs. 2,40,000 was purchased. An old machine valued at Rs. 50,000 was given in
exchange to Machine Tools Ltd. The old machine was the personal asset of Rahul.
80. He sold his personal assets for Rs. 75,000 in cash and deposited the amount in his savings account.
81. Goods costing Rs. 500 were damaged in transit; a claim was made on the railway authorities for the
same.
82. Collection of Dividend by bank on our behalf.
83. Transfer of funds from one bank (ICICI) to another (HDFC).
84. Purchased goods at list price of Rs. 40,000 for Rs. 35,000 for cash.
85. Rented a shop at a monthly rent of Rs. 20,000 and in term of the agreement paid security deposit of
amount equal to rent of two months and rent for the month.
86. The made following purchase against cheque:
(i). Mobile phones (50 Nos.) for Rs. 6,00,000.
(ii). Computers (10 Nos.) for Rs. 2,00,000; and
(iii). Monitors (10 Nos.) for Rs. 25,000.
87. He used one computer and one monitor for office.
88. Received from salesman `3390 for goods sold by him after deducting conveyance expense of `150.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -1–

Anurag Sharma
Centre Director

Class XI Cash Book Worksheet

Q.1. Enter the following transaction in cash book with cash and bank columns:-
June 2010 1 Cash in hand Rs 10,500; Bank (Credit) Rs 8,400
2 Bought goods from Amer for Rs 10,000 less 10% trade discount
5 Sold goods to Mohan for Rs 15,000 less 10% trade discount
7 Settled the account of Amer under 2% cash discount by issuing cheque
9 Mohan was offered 2% cash discount to pay by 10th June. He paid only 60% amount and availed
offer
11 Issued cheques to pay household expenses Rs 2,000 and income tax Rs 1,200
13 Deposited cash into bank Rs 8,000
15 Received a cheque from Mohan for the balance amount due
16 Bought goods from Sohan for Rs 6,000
18 Cheque received from Mohan was endorsed to Sohan
20 Received V.P.P by paying Rs 450 for goods
22 Received money order from Ram Rs 600 against goods supplied in May
24 Withdrew cash from bank for office use Rs 4,000
25 Received a cheque from Kumar Rs 3,850 in full settlement of his account Rs 4,000
27 Cheque of Kumar sent to bank for collection
28 Sold goods for cash Rs 5,000 and deposited Rs 3,000 in bank
29 Cheque of kumar was dishonoured and bank debited our account by Rs 20
30 Interest debited by bank Rs 300.
Deposit the cash balance in excess of Rs 8,000 in bank
(Cash = 8,000 Dr., Bank = 5,152 Cr. BOD)

Q.2. Enter the following transaction in cash book with cash and bank columns of Ratnakar:
May 2010
1 Opening Balance – Cash (Dr) Rs 8,000; Bank (Cr.) Rs 9,000
3 A customer, Gopal deposited direct in our bank account Rs 3,900. He was allowed discount Rs 100
5 Ram settled his account by cheque of Rs 4,850 in full settlement of Rs 5,000 cheque was
deposited on May 8
7 Bought goods of list price Rs 6,000 less 10% trade discount and 2% cash discount from Ram. He
was given payment by cheque
9 Bank was asked to issue draft in favour of Mohit & Co. for Rs 4,000. It charged commission Rs
100
13 Bank collected interest on securities Rs 1,100
15 Sold goods for Rs 7,000 to a customer who gave Rs 3,000 in cash and a cheque for the balance
which was banked
17 Paid salary Rs 2,000, Sales tax Rs 500 and life insurance premium of proprietor Rs 800
19 Received a cheque from gopal for Rs 2,900. He was allowed discount Rs 100
21 Settled the account of Amit by endorsing cheque of Gopal and by paying cheque Rs 3,100 in full
settlement of Rs 6,250
23 Bank charges Rs 350; Paid rent by cheque Rs 1,500
24 Received a cheque from Hari Rs 3,000
25 A customer, Arun deposited the cheque in our bank A/c Rs 2,500
27 Bought furniture from Rai & Co. for Rs 4,500 for cash and paid carriage Rs 100
29 Bought goods from Ramesh of list price Rs 5,000 less 10% trade discount. Paid Rs 160 as
carriage
30 Returned goods to Ramesh of list price Rs 500.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -2–

Anurag Sharma
Centre Director

31 Settled the account of Ramesh under 2% cash discount by endorsing cheque of Hari and by
paying cash the balance
31 It is decided to keep the balance of cash in hand Rs 1,500 by making necessary adjustment with
bank A/c.
(Cash = 1,500 Dr., Bank = 6,521 BOD)
Q.3. Prepare a Cash book with cash and bank column from the following transactions:
Oct 20101 Balance of cash in hand Rs 4,000; Bank overdraft Rs 8,000
3 Further capital introduced Rs 20,000 of which Rs 15,000 deposited in bank.
5 Ram deposited the cheque of Rs 3,500 in our bank A/c
7 Settled the account of Arun of Rs 4,000 by paying cash Rs 1300 and 2,600 by cheque.
9 Received cheque from Hari Rs 2,500
11 Cheque of Ram was returned dishonoured and Bank debited our account by Rs 20
13 Settled the account of Gopal by endorsing cheque of Hari and by giving cheque for Rs 2,300 in
full settlement of Rs 5,000
17 Discounted Mohan’s bill of exchange for Rs 2,000 at 2% from the bank.
19 Kabir who owed us Rs 800 became insolvent and paid only 50 paisa in a rupee.
22 Bank charges Rs 200 and bank charges interest Rs 400.
25 Honoured our acceptance of bill of exchange to X by issuing cheque for Rs 2,100.
26 Withdrew from bank Rs 3,000.
27 Bank is instructed to issue bank draft in favour of Rai & Co. for Rs 2500. Bank charged
commission Rs 100.
30 Deposited into bank after retaining Rs 1,100 in cash.
(Cash = 1,100 , Bank = 5,700)
Q.4. Prepare cash book with bank accounts in P.N.B. and O.B.C. from the following transactions:
Jan. 2010 1. Cash Rs 4,000 ; PNB Rs 7,000; OBC (overdraft) Rs 6,000
3. Goods sold for cash Rs 10,000
6. Deposited cash into O.B.C Rs 8,000
8. Sold goods to Hari for Rs 9,000. He gave cheque which was lodged in P.N.B.
10. Transfer Rs10,000 from P.N.B. to OBC.
15. Withdrew cash from P.N.B for office use Rs 2,000
19. Paid rent by cheque (P.N.B) Rs 1,000 and salary (OBC) Rs 1,500.
21. Withdrew from O.B.C. for personal use Rs 1,000.
(Cash = 8,000, PNB = 3,000, OBC = 9,5000
Q.5. Prepare an Analytical Petty Cash Book from the following particulars:
2010 Jan. 1. Received cash from cashier Rs 1,000.
2. Paid for telegram Rs 35; Newspapers Rs 52.
4. Purchased stationery Rs 32; soap Rs 15.
6. Paid coolie charges Rs 25 , Taxi fare Rs 65, postage Rs 25.
8. Paid Travelling expenses Rs 22, Telegram Rs 32, STD calls Rs 25.
12 Paid Chowkidar Rs 80, Courier Charges Rs 20, Refreshment Rs 70.
18 Paid carriage Rs 40, stationery Rs 22.
21 Postage charges Rs 25, Telegram Rs 20.
24 Paid Tonga fare Rs 24, printing expenses Rs 45.
26 Paid coolie charges Rs 30, Bus fare Rs 28.
28 Paid auto fare Rs 25, computer stationery Rs 55.
30 Paid photostate charges Rs 20, cartage Rs 25.
31 Paid Loading and unloading charges Rs 40, Refreshment Rs 85.
Use imprest system. (Balance c/d = 18)

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -3–

Anurag Sharma
Centre Director

Q.6 Prepare cash book with cash and bank accounts in SBI and PNB from the following transactions:

Jan. 2010
1 Balance- Cash Rs 4,000; SBI Rs 5,000 and PNB (overdraft ; o/d) Rs 3,000
3 Sold goods for cash Rs 15,000.
5 Deposited cash Rs 10,000 in PNB.
8 Sold goods to Ram for Rs 10,000 less 10% trade discount.
11 Received two cheques from Ram for Rs 4,000 and Rs 4,900 in full settlement of account.
13 First cheque of Ram was deposited in PNB while second cheque was endorsed to Sohan.
15 Bank allowed interest (SBI) Rs 400 but charged interest (PNB) Rs 150.
18 Cheque deposited in PNB returned dishonoured.
21 Withdraw cash from SBI for office use Rs 3,000.
23 Received a cheque from Mohan Rs 5,000 and deposited in SBI.
28 Paid salary from SBI Rs 1,000 and PNB Rs 800.
30 Transfer Rs 5,000 From SBI to PNB.

Q.7 Prepare cash book with cash and two bank columns from the following transactions:

Jan.2010
1 Balance Cash Rs 5,000, SBI Rs 8,000, OBC (overdraft) Rs 4,000.
3 Sold goods for cash Rs 20,000 of which Rs 8,000 deposited in SBI.
5 Transfer Rs 6,000 from SBI to OBC.
8 Bought goods of list price Rs 10,000 less 10% trade discount and issued cheques Rs 5,000 (SBI); Rs
4,000 (OBC).
11 Received cheque from Amar for Rs 8,000 and lodged with SBI.
13 Received two cheques from Ram Rs 4,000 and Rs 7,000.
15 First cheque is endorsed to Mohan and second in lodged with OBC.
18 Cheque of Amar stands dishonoured.
22 Bank allowed interest Rs 200 (SBI) but charged interest (OBC) Rs 150.
25 After retaining Rs 5,000 in cash. Deposit excess amount equally in both the banks.

Ans. 1 Cash Rs. 8,000 ; Bank o/d Rs. (5,152)

Ans. 2 Cash Rs. 1,500 ; Bank o/d Rs. (6,521)

Ans. 3 Cash Rs. 1,100 ; Bank o/d Rs. 5,740

Ans. 4 Cash Rs. 8,000 ; PNB Rs. 3,000 and OBC 9,500

Ans. 5 Total Payments Rs. 983 , Balance 18

Ans. 6 Cash Rs. 12,000 ; SBI Rs. 1,400 and PNB 11,050

Ans. 7 Cash Rs. 5,000 ; OBC 10,850

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -1–

Anurag Sharma
Centre Director

CLASS XI ACCOUNTS DEPRECIATION WORKSHEET

1. A company bought machinery on 1st May, 2007 costing Rs 45,000. It bought further machinery on
1st September 2007 costing Rs 30,000 and on 1st July 2008 costing Rs 20,000.
On 1st January 2009 one third of the machinery bought on 1st May 2007 was sold for Rs
9,000 as it became obsolete.
Shows how the machinery account would appear in the books for 3 years if the books are
closed on 31st December each year and depreciation is charged @ 10%p.a. by fixed installment
method. (Calendar Year)
2. A firm bought a plant on 1.1.2008 for Rs 1, 50,000. It also bought plant for Rs 30,000 on
1.9.2008 and for Rs 40,000 on 1.7.2009.
On 1.4.2010 plant costing Rs 50,000 on 1.1.2008 was sold for Rs 35,000 and plant
bought on 1.9.2008 was also sold for Rs 20,000 on 1.7.2010.
It has been decided to charge depreciation @ 10% p.a. on straight line method show
the plant A/c for 3 year. (Calendar Year)
3. Ashoka Ltd. bought a machine on 1st January 2008 for Rs 2,40,000 and spent Rs 4,000 on its
carriage and Rs 6,000 towards installation cost. On 1st April 2009 it purchased a second hand
machinery for Rs 75,000 and spent Rs 25,000 on its overhauling on 1 st October 2010 it
decided to sell the machinery bought on 1st January 2008 at a loss of Rs 20,000 it bought
another machine on the same date for Rs 40,000.
Company decided to charge depreciation @ 15% p.a. on reducing balance method.
Prepare machinery account for 3 years. (Calendar Year)

4. On 1st July 2008, Assam Transport Co. bought a truck for Rs 5,00,000. On 1st April, 2010,
this truck was met with an accident and was destroyed completely. Insurance Company
admitted the claim and paid Rs 3,00,000. On the same date, another truck was purchased by
the company at a cost of Rs 4,50,000. Company writes off depreciation at 20% p.a. on
written down value method. Prepare Truck account for 3 years assuming accounts are closed
on 31st December each year. (Calendar Year)

5. X Ltd. bought a machinery for Rs 2,50,000 including a boiler worth Rs 50,000. It was
decided to charge depreciation @ 10% p.a. on diminishing balance method. During the
middle of fourth year, boiler became useless due to damage in its vital part. It could be sold
only for Rs 5,000. Prepare Machinery A/c for 4 years. (Calendar Year)

6. Mohan Ltd. bought a machinery for Rs 1,00,000 on 1st April, 2008. Depreciation was
provided @ 10% p.a. on reducing balance method. On 30th September, 2010, one fifth of the
machinery was damaged due to accident and could fetch only Rs 5,000. It was decided to buy
a new machine to replace the damaged one at a cost of Rs 30,000 on 1st October. Prepare
Machinery Account from 2008 to 2010 assuming that accounts are closed on 31st December
each year. (Calendar Year)

7. Alpha Ltd. has following balances on 1st January, 2003.

Machinery A/c Rs. 2,00,000, Provision for Depreciation Rs. 90,000

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -2–

Anurag Sharma
Centre Director

Company charged depreciation @ 10% p.a. on straight line method. Accounts are closed on
31st December every year.
On 1st July, 2003 a part of machinery purchased for Rs. 40,000 on 1st April, 2000 was
sold for Rs. 18,400 and on the same date a new machine was purchased for Rs. 1,00,000.
Prepare Machinery A/c and Provision for Depreciation A/c for the year 2003. (Calendar
Year)

8. Following balances appeared in the books of Raj Ltd. as on 1-1-2001:

Plant A/c Rs. 4,00,000 Provision for Depreciation Rs. 1,59,000
On 1 April, 2001, it sold the plant purchased for Rs. 1,08,000 on 1st January, 1998 for Rs.
st

40,000.
Prepare Plant A/c and Provision for Depreciation A/c assuming depreciation has been
charged on written down value method @ 10%. (Calendar Year)

9. Bansal construction Ltd. Purchased a machine on October 01, 2006 for Rs. 6,55,000. On
march 01, 2007, it purchased another machine for Rs. 2,40,000. On July 01, 2008, it sold off
the first machine purchased in 2006, for Rs. 5,24,000. Accumulated depreciation account is
maintained charging depreciation at 10% p.a. on straight line method. Accounts are closed
each year on March 31. Prepare Machinery Account and Accumulated Depreciation Account
for the year ended on March 31, 2007, 2008 and 2009. Also prepare Machinery Disposal
Account.
10. You are given the following balances as on April 1, 2009:
Machinery A/c Rs. 5,00,000 Provision for depreciation A/c Rs. 1,16,000
Depreciation is charged on machinery at 20% p.a. by the diminishing balance method. A
piece of machinery purchased on April 1, 2007 for Rs. 1,00,000 was sold on October 1, 2009
for Rs. 60,000. Prepare the Machinery Account and Provision for Depreciation Account for
the year ended 31st March, 2010. Also prepare Machinery Disposal Account.

11. A machine was purchased on 1 st April, 2008. The balance of this machine on 31 st March, 2011 is
5,83,200. Depreciation is charged @ 10% p.a. written down value method. What was the cost price
of the machine on1st April, 2008? Ans. 8,00,000

12. X Ltd. purchased a plant for 7,80,000 and spent Rs. 60,000 on its installation. Its scrap value is Rs.
42,000 and useful life 10 years. What will be the rate of deprecation as per straight line method?
Ans. 9.50%
13. Ram purchased computer on 1.04.2010 for Rs. 6,00,000. They are charging deprecation on written
down value method. On 31.03.2011 they sold the computer for Rs. 1,65,000 and incurred a loss of
Rs. 75,000. What was the rate of deprecation p.a.? Ans. 60%
14. From the following transitions of a concern, prepare Machinery Account for the year ending 31 st
March, 2013
2012
April 1 : Purchased a second-hand machinery for Rs. 40,000
April 1 : Spent Rs. 10,000 on repairs for making it serviceable.
Sept. 30 : Purchased additional new machinery for Rs. 20,000
2013
Dec. 31 : Depreciate the Machinery at 10% p.a. Ans. 64,000

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -1–

Anurag Sharma
Centre Director

Class XI Rectification of Errors (SC) Worksheet

Q.1. Pass journal entries to rectify the following errors:

(1) Goods worth Rs 1,200 was withdrawn by the proprietor for his personal use has been debited to
Trade Expenses A/c.
(2) Old plant sold to Arun for Rs 3,000 was not recorded in the books.
(3) Goods costing Rs 2,500, sales price Rs 3,000 has been taken by the owner, has not been recorded.
(4) Gopi returned goods of the value Rs 2,000 has been included in the stock, but no entry has been
passed in the books of accounts.
(5) Salary due to Ram Rs 3,000 has not been recorded in the books.
(6) Material of Rs 1,800 and wages Rs 1,200 is related to making of furniture but no entry has been
passed for it.

Q.2. Rectify the following errors:

(1) Goods returned Rs 1,000 to Amar has been passed through Sales Return Book.
(2) A bill for Rs 850 received from Ram for repair to plant was entered in the purchase book as Rs
650.
(3) Bought table and chairs for office for Rs 4,000 has been passed through purchase book.
(4) A bill of Amit accepted for Rs 3,000 has been passed through bills received book.
(5) A bill for construction of cycle shed for staff for Rs 4,000 has been charged to Repair A/c.
(6) Received cash Rs 1,500 from Arun was credited to Varun.
(7) Bought goods from Kamal for Rs 1,500 has been recorded as Rs 15,000.

Q.3. The trial balance of Amit did not agree on 31st March, 2010. Later, he observed the following
errors:-
(1) Sales book was undercast by Rs 400.
(2) Purchase book was overcast by Rs 100.
(3) Credit Purchase from Kamal was debited to his account Rs 500.
(4) Discount allowed to a customer Rs 250 has been credited to him Rs 520.
(5) Cash paid to Mohan Rs 700 has been credited to his account Rs 300.
(6) Goods returned by Rakesh Rs 500 has been recorded in the Returns inward Book but omitted to
be posted to his account.
Rectify the above errors.

Q.4. Rectify the errors in the books of Gopal assuming that suspense account was opened :
(1) Goods returned to Mohan Rs 1,000 was duly recorded in the Purchase Return Book but omitted to
be posted to his account.
(2) Credit Purchase from Ram Rs 2,000 was posted to his account as Rs 200.
(3) Goods sold to Amit for Rs 1,200was credited to him as Rs 200.
(4) Bought goods for cash Rs 2,500 was debited to purchase account as Rs 5,200.
(5) Purchase Return Book was carried forward as Rs 1,100 instead of Rs 1,200.

Q.5. A book keeper failed to tally the Trial Balance. he put the difference to Suspense A/c.
following errors were subsequently discovered :-
(1) Goods sold to Arun Rs 1,200 were posted to Varun Rs 2,100.
(2) Goods sold for cash Rs 1,500 to Ram were credited to Ram Rs 500 instead of sales A/c.
(3) Goods returned by Ashok Rs 1,400 were recorded in sales book and posted to credit of Ashok.
(4) Goods returned by vijay Rs 1,000 were debited to Ajay Rs. 100.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -2–

Anurag Sharma
Centre Director

(5) Bought goods from Sohan Rs 3,000 was recorded in purchase book but posted there from to debit
of Mohan Rs 300. Rectify the errors. Open suspense A/c and ascertain the opening balance.

Q.6. Rectify the following errors and suspense A/c may be used wherever it is required:
(1) Goods bought from Ram Rs 2,500 were recorded in the sales book.
(2) Sold goods to Mohan Rs 3,000 were recorded in the purchase book, however, Mohan’s account
was corrected debited.
(3) Goods returned to Ashok Rs 1,000 were recorded in the sales return book, however, Ashok was
correctly debited.
(4) Bought goods from Amar Rs 2,000 were recorded in the Sales Book, however, account of Amar
was correctly credited.
(5) Sold goods to Gopal were recorded in the Purchases Book Rs 1,500.
(6) Goods returned by Kamal Rs 1,200 were recorded in the purchases return book.

Q.7. Rectify the following errors using Suspense A/c if required:

(1) A bas debt written off Rs 500 were not posted to bad debts account.
(2) Bought goods from Arun Rs 1,000 were posted to Varun’s A/c.
(3) Cash received from Ram Rs 500 and Amer Rs 700 were credited as Ram Rs 700 and Amer Rs
500.
(4) Depreciation on plant Rs 900 were not posted to Depreciation A/c.
(5) An amount of Rs 2,000 due to Sohan was written off last year. The amount was fully realized and
credited to him.
(6) Sales Return Book is undercast by Rs 1,000.
(7) Goods lost by Fire Rs 2,500 is debited to Suspense A/c.

Q.8. Rectify the following errors and prepare suspense accounts in the books of Goyal Stores:
(1) Bought plant for Rs 6,000 from kamal was passed through the Purchase Book.
(2) B/R book is overcast by Rs 1,000.
(3) Received Rs 2,500 from Ram against his order was credited to sales A/c.
(4) Goods Bought from Ratan Rs 1,100 is posted to his account as Rs 1,600.
(5) Wages paid Rs 1,000 for installation of Machine was debited to wages A/c.
(6) Repair charges Rs 2,000 to machinery were debited to machinery A/c.
(7) Goods returned to Gopal Rs 800 were entered in the sales book but debited to him Rs 80.

Q.9. Pass journal entries to rectify the following error and prepare suspense A/c:
(1) Material costing Rs 3,000 and wages Rs 2,000 were related to making furniture of office. No
adjustment were made so far.
(2) Cheque received from Mohan Rs 2,000 was dishonoured and it has been debited to Allowance
A/c.
(3) Total of sales return book Rs 400 has been posted to Purchase Return A/c.
(4) Bought goods from Amar Rs 480 has been debited to him as Rs 280.
(5) Sold goods to Sagar Rs 1,200 has been debited to him Rs 2,000.
(6) Plant Purchased from Kumar Rs 2,100 has been passed through purchase book as Rs 1,200.
(7) Discount received from supplier. Ram Rs 120 is debited to him Rs 210.
(8) The rest of the different in the trial balance is due to totaling mistake in the sales book.

Q.10. An accountant found that credit side of Trial Balance exceed by Rs 3,100 so he put into
suspense A/c. Latter, he observed the following errors. Rectify the errors and prepare suspense
A/c:
39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -3–

Anurag Sharma
Centre Director

(1) Bought goods from Hari Rs 500 recorded in sales book but Hari’s A/c is correctly credited.
(2) Sales of goods to Ram Rs 2,100 is credited to him Rs 1,200.
(3) Sale of old furniture for Rs 3,000 was entered in the sales book.
(4) Goods costing Rs 1,000 withdrawn by the proprietor for personal use were credited to Sales A/c
Rs 1,400.
(5) Paid rent Rs 2,000 to landlord, Gopal was debited to him Rs 1,600.
(6) Repair to plant Rs 1,200 is debited to Plant A/c on Rs 3,200.

Q.11. An accountant found debit balance of suspense A/c Rs 2,700 while drawing Trail Balance.
Following errors were subsequently found:
(1) Items of salary prepaid Rs 500 and Rent outstanding Rs 200 were omitted to be brought forward
from last year.
(2) A bill received for Plant purchased Rs 5,000 and repair done to another plant Rs 500 Ram were
entered in the purchase book as Rs 4,500.
(3) Bought furniture for Rs 6,000 was wrongly debited to purchase /c as Rs 600.
(4) Bought Machine from Gopi for Rs 10,000 was passed through purchases book as Rs 8,000.
(5) Old machinery sold for Rs 5,000 was credited to sales account as Rs 2,000.
(6) Goods worth Rs 1,000 were given as charity and goods of value Rs 2,000 were distributed as free
samples for which no entry is made.

Q.12. The Trial Balance of Kumar was out by excess credit Rs 2,290. The difference was put to
suspense A/c and following errors were subsequently discovered. Rectify them and prepare
suspense A/c.
(1) Goods costing Rs 500 had been returned by Rajesh. It is taken into stock but no entry has been
passed.
(2) Depreciation on plant Rs 2,000 has not been posted to depreciation A/c.
(3) Mohan was paid Rs 4,000 but Sohan was wrongly debited by Rs 3,000.
(4) An item of purchase of Rs 250 from Ram has been posted from Purchase book to his account as
Rs 550.
(5) Goods sold to Amar Rs 1,000 has been passed through purchase book, however, account of Amar
has been correctly debited.
(6) Sale of Rs 540 to Raja was credited to him Rs 450.
(7) Sale of Rs 1350 to Mohit was entered in the sales book as 1530.

Q.13. An account put the difference of Trail Balance in suspense A/c. Following errors were detected
there after:
(1) Sales of old furniture Rs 1,200 were credited to Sales A/c 2,000.
(2) Sale of Rs 840 to Amit was recorded in the purchase book and Amit was debited by Rs 480.
(3) Freight paid by Rs 1,000 on purchase of plant was debited to freight A/c.
(4) Goods returned to Anil Rs 2,000 recorded in Sales Return Book, however, account of Anil was
correctly debited.
(5) Total of Returns Inward Book Rs 2,400 is posted to Returns Outward A/c.
(6) Bought goods from Gopal Rs 5,000 was recorded in sales book as Rs 3,000 and posted to credit of
Gopal Rs 2,000.
(7) Installation cost of plant Rs 500 was debited to wages A/c Rs 50.
Rectify the errors and prepare suspense A/c to ascertain the difference in the trail balance.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 Anurag Sharma -1-
Centre Director

Bank Reconciliation Statement (Worksheet 2)

Q.1 Prepare Bank Reconciliation Statement. Balance as per Cash Book is `50,000.

1. Bank credited/given/ allowed us interest 1,000.

2. Bank debited/ took interest 2,000 from us charged.
3. A customer directly deposited 4,000 in our bank A/c
4. Bank Charges 100 omitted to be recorded in cash book.
5. Cheque issued/drawn but not presented for payment/ enchased 7,000.
6. Cheque deposited in bank but got dishonored & no intimation was received from bank 3,000.
7. Bank paid fire insurance premium 2,000 on our behalf.
8. Bank collected interest/ Dividend on securities 4,000.
9. Cheque deposited but collected /cleared/ credited by bank 3,000.
10. A B/ R earlier discounted from bank now got dishonored.
11. Any wrong credit given by bank.
12. Any wrong debit given by bank.
13. Cheque issued & presented for payment but not entered in cash book.
14. Cheque received, deposited & credited by bank but not entered in Cash Book.
15. Cheque issued but not recorded in Cash Book & also not presented for payment.
16. A cheque received, deposited & credited by bank but entered in cash/ discount column of cash.
17. A cheque issued & presented for payment but entered in cash/discount column of cash book.
18. A cheque debited in cash book but not sent to bank.
19. Payment of cheque of 500 recorded twice in Pass book.
20. Payment of cheque of 500 recorded twice in Cash Book.
21. Bank charges recorded twice in Pass Book.
22. Bank charges recorded twice in Cash book.
23. Cheque received, deposited &cleared by bank but entered twice in Cash Book.
24. 1000 were withdrawn from bank but not entered in cash book.
25. Cheque received entered in cash column of Cash Book & not sent bank.
26. A cheque of 300 deposited into bank but bank credited us with 500.
27. A cheque of 5,500 deposited in bank but entered in Cash Book as 5,400
28. `40 for bank charges were recorded two times in cash book and bank expenses of `35 were not at all
recorded in cash book.
29. Total of credit side of bank column of cash book was under cast by `1,000 by mistake.
30. A B/P of `10,000 was retired by the bank under a rebate of `100 but the full amount of the bill was
credited in the cash book.
31. A cheque for `2,000 issued to Mr. X was omitted to be recorded in cash book.
32. Transfer of funds from account No. II to account No. I recorded by the bank on December 31, 2016 but
entered in the cash book after that date for `8,000.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -2-
Centre Director

33. Cheque received and recorded in the cash book but not sent to bank for collection `1,000.

34. Bank charges debited by the bank but Debit Memo not received from the bank `50.

35. Out of total cheques amounting to `8,000 issued, cheques amounting to `5,800 have been presented for
payment upto 30th June, 2016.
36. Out of total cheques amounting to `6,000 sent to bank for collection, cheques of `4,100 were credited in
Pass Book upto 30th June, 2016.
37. Cash and Cheques amounting to `1,340 were sent to Bank on 27th January but Cheques worth `230 were
credited on 2nd February and one Cheque for `45 was returned by them as dishonoured on 4th February.

38. During the month of January, I issued cheques worth `1,670 to my creditors. Out of these, cheques
worth `1,370 were presented for payment on 5th February.
39. Cheques amounting to `8,000 drawn on 25th December, of which cheques of `3,000 were cashed within
31st December.
40. Cheques paid in for collection amounted to `50,000 but cheques of `22,800 were credited on 2nd
January, 2017.
41. Withdrawal column of the pass book under cast by `200.
42. A cheque of `200 has been debited in the bank column of the Cash Book but it was not sent to bank at
all.
43. A cheque of `300 debited to Bank account of the pass book has been omitted to be recorded in cash
book.
44. Out of total cheque amounting to `37,500 drawn by Sh. Kansal, cheques aggregating `5,000 were

encashed in June 2016, cheques aggregating `4,000 were enchased in July 2016 and and the rest have
not been presented at all.
45. Out of total cheques amounting to `12,000 deposited, cheques aggregating `7,500 were credited in June

2016, cheques aggregating `2,000 were credited in July, 2016 and the rest have not been collected at all.
46. Cheques amounting to `45,000 were drawn on 27th March, 2017 of which cheques of `33,000 were
encashed on 2nd April, 2017.
47. Cheques of `20,000 were sent to bank for collection; Out of these cheques of `4,000 and of `5,00 were
credited respectively on 5th April and 6th April respectively and the remaining cheques were credited
before 31st March.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -3-
Centre Director

48. Cheques amounting to `15,000 were drawn in March 2015, out of which cheques for `5,500 were
presented for payment on 3rd April.
49. A cheque for `5,457 was deposited into the bank but wrongly entered in the Cash Book as `5,745.
50. Cheques were deposited into bank on 25th March for `20,000. Out of these cheques for `8,000 were

cleared on 4th April, cheques for `6,000 on 6th April and one cheque for `1,400 was dishonored on 7th
April.
51. Receipt side of the Cash Book (bank column) was undercast by `100.

Q.2 Prepare Bank Reconciliation Statement

i. Credit balance as per Cash Book = 9,000 on 31 – 8 – 2009.

ii. Cash & cheque of 12,000 deposited in bank. Of them cheque of 3,000 were cleared in August &
rest in September.
iii. Ram, a debtor deposited 2,400 directly in our bank A/c in full settlement of him a/c of 2,500.
iv. Bank charges of 10 were debited by the cashier in Cash Book.
v. A bill of 7,000 retired by bank under a rebate of 40 but it full amount was credited in Cash
Book.
vi. A B/R earlier discounted got dishonored of 5,000 & bank paid noting charges20
vii. A B/R was of 3,000 was discounted from bank under a discount of 100. But its full amount was
credited in Cash Book.
viii. Receipt side of Cash Book cost short by 200.

Q.3 Prepare Bank Reconciliation Statement

i. Overdraft as per Cash Book = 7,000 on 31. 7. 04.

ii. Cheque of 8,000 deposited in July. Of them cheque of 2,000 didn’t get credited in July &
cheque of 1,000 get dishonoured.
iii. Bank paid fire insurance premium 300 on our behalf.
iv. Receipt side of cash book cast short by 80.
v. A cheque of 4,000 was issued to a creditor was not presented for payment & it was credited in
Cash Bok.
vi. A cash deposit of 3,000 in bank was credited by our cashier as 2,000.
vii. Cheque of 4,000 & 5,000 were presented for payment in August. However, they were issued to
Mohan & Sohan respectively in July.
viii. Items unnoticed in Pass Book are:
a) Bank Charges – 10
b) Interest on overdraft – 20
c) Dividend collected – 400

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
Anurag Sharma -4-
Centre Director

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -1–

Anurag Sharma
Centre Director

Class XI Bank Reconciliation Statement(BRS) Worksheet

Q.1. On 31st December 2010, the Cash Book of Raman & Sons showed a balance of Rs 2,500 at Bank.
They sent cheques amounting to Rs 13,500 for collection before 31 st December, but it seems from
the Pass Book that cheques for 8,500 had been credited by this date. Similarly, they issued cheques
for Rs 9,800 in the month of December, but cheques for Rs 1,350 were presented in January, 2011.
The pass book revealed that bank collected dividend on securities Rs 1,000 as per standing
instruction. Bank also charged Rs 210 as incidental charges. both of these entries were not passed in
the Cash book.
Prepare Bank Reconciliation Statement as on 31st December, 2010. (Pass Book O/D = 360)

Q.2. Prepare Bank Reconciliation Statement of Amit & Sons as on 31st March, 2010 from the following
information:
(i) Balance as per Pass Book Rs 6,000.
(ii) Bank retired a B/P for Rs 1,000 under a rebate of Rs 30 but the full amount of bill was credited in
the bank column of cash book.
(iii) A bill of Rs 2,500 was discounted with bank is recorded in the cash book without recording
discount charges Rs 200.
(iv) Cheques amounting to Rs 5,600 were paid into bank on March 20, but cheque for Rs 1,500 has
been credited by bank on April 3.
(v) Pass book shows credit for interest on investments collected Rs 500 and debit of Rs 100 towards
bank charges.
(vi) Bank paid insurance premium Rs 600 is recorded twice in the cash book. (C. B. = 6670)

Q.3. On 31st March 2010, cash book of Ram showed a bank overdraft of Rs 2,400. On comparing it with
the pass book, the following difference were noted:
(i) Cheques amounting to Rs 2,100 were sent to bank on 28 th March but cheques worth Rs 450 was
credited on 3rd April.
(ii) Cheques issued for Rs 3,200 to creditors of these cheques worth Rs 1,200 were presented for payment
on 3rd April.
(iii) Bank paid the following payments as per standing instruction:
(a) Insurance premium Rs 300
(b) Club fee Rs 500
(iv) Bankers collected Rs 700 as dividend on shares.
(v) Interest charged by the bank on overdraft Rs 250.
(vi) A bill receivable of Rs 1,000 discounted with bank in February has been dishonoured on 31 st March.
Ascertain the actual bank balance of cash book as on 31st March, 2010 and then prepare a
bank reconciliation statement. (ACB = 3,750, BRS P.B. = 3,000)

Q.4. Prepare Bank Reconciliation Statement from the following particulars as on 31 st March, 2010:
(a) Without adjusting the cash book
(b) After adjustment of cash book
(i) Balance as per cash book Rs 2,480
(ii) Cheques issued for Rs 8,000 but not encashed upto March 31, Rs 2,500.
(iii) Interest on Investment collected by bank but not recorded in cash book Rs 840.
(iv) Cheques deposited in bank Rs 10,000 but cheques for Rs 1,800 were not cleared so far.
(v) Bank charges debited in Pass book Rs 240.
(vi) A B/R for Rs 1,000 was discounted from bank at a discount of Rs 70 but full amount was

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -2–

Anurag Sharma
Centre Director

recorded in the cash book. (A) P.B. = 3,710, (B) ACB 3010, P.B. = 3710)

Q.5. On 31st March 2010, the bank column of the Cash Book of Amer disclosed an overdraft balance of
Rs 1,450. On examining the Cash Book and bank statement you find that:
(i) Cheques were deposited into bank for Rs 10,000, but, of these cheques for Rs 2,460 were cleared in
April.
(ii) Cheques were issued for Rs 6,500, of which cheques for Rs 4,200 had been presented for payment in
March.
(iii) No entry is passed in Cash Book for Cash deposited Rs 2,500 in our bank account by a customer,
Ram.
(iv) AB/P for Rs 4,000 is paid by our bank under a rebate of Rs150 but full amount is recorded in the
cash book.
(v) Payment side of bank column of Cash Book was undercast by Rs 100.
(vi) A cheque issued for Rs 1,500 was wrongly recorded in the cash column of Cash Book while
another cheque given to Mohan for Rs 450 was omitted to be recorded in Cash Book.
Make necessary adjustment in the cash book and then prepare Bank Reconciliation Statement of
Amer. (ACB = 850, P.B. O/D -= 1010)

Q.6. Prepare Bank Reconciliation Statement from the cash book and pass book for the month of June,
2010 of Rai & Co. :
Cash Book ( Bank Column )
Date (June Particulars Bank Date (June Particulars Bank
2010) 2010)
1 To Balance b/d 4500 6 By Amar 1000
3 To Cash 300 10 By Mohan 1500
9 To Raman 400 14 By Salaries 1000
15 To Kamal 1200 21 By Cash 800
21 To Ram 1400 23 By Lalit 300
27 To Amit 1000 29 By Sumit 1300
30 By Balance c/d 2900
8800 8800

Pass Book
Date (June Particulars Withdrawal Deposit Dr./Cr. Balance
2010)
By Balance b/d Cr. 4500
3 By Cash 300 Cr. 4800
6 By Amar 1000 Cr. 3800
12 By Mohan 1500 Cr. 2300
17 By Kamal 1200 Cr. 3500
21 To Cash 800 Cr. 2700
23 By Ram 1400 Cr. 4100
24 To Salaries 1000 Cr. 3100
25 To Bank Charges 200 Cr. 2900
26 To Club Fees 500 Cr. 2400
(P.B. = 2400)
Q.7. On 31ST March, 2015 the Pass book of Mr. Janaki Dass showed a credit balance of Rs 20,600.
Prepare a Bank Reconciliation Statement from the following information–

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -3–

Anurag Sharma
Centre Director

(a) Cheques amounting to Rs 15,000 were drawn in March, 2015, out of which cheques for Rs 5,500
were presented for payment on 3rd April.
(b) A cheque for Rs 5,475 was deposited into the bank, but wrongly entered in the cash book as Rs
5,745.
(c) A cheque of Rs 5,000 which was received from a customer was entered in the cash column of the
cash book in March 2015 but was omitted to be banked in the month of March.
(d) A B/P of Rs 10,000 was retired by the bank under a rebate of Rs 100 but the full amount of the bill
was credited in the cash book.
(e) Bank charges entered in the cash book twice Rs 200.
Q.8. Prepare a Bank Reconciliation Statement from the following particulars as on 31 st March, 2015.
(a) Cheques were deposited into bank on 25th March for Rs 20,000. Out of these cheques for Rs 8000
were cleared on 4th April, cheques for Rs 6,000 on 6th April and one cheque for Rs 1,400 was
dishonoured on 7th April.
(b) Cheques amounting to Rs 12,000 were issued in March, out of which cheques for Rs 2,000 were
encashed upto 31st March.
(c) A bill for Rs 5,000 (discounted with the bank in January) dishonoured on 30 th March 2015 and noting
charges paid by bank Rs 50. No information regarding the dishonour was received from the bank in
March 2015.
(d) Cheque issued to a creditor for Rs 2,000 was through mistake entered in the cash column of the cash
book. The same has not been presented for payment till today.
(e) Receipt side of the cash book (bank column) was undercsat by Rs 100.
(f) Bank has paid a bill payable amounting to Rs 2,500 but it has not been entered in the cash book.
(g) A cheque for Rs 2,000 issued to Mr. X was omitted to be recorded in cash book.
(h) Dr balance as per pass book was Rs 7,200.
Q.9. From the following entries in the bank column of the cash book of Mr. Balram Yadav and
corresponding bank pass book, prepare reconciliation statement as at 31 st March, 2011.
CASH BOOK (Bank column only)
DATE PARTICULARS LF AMOUNT DATE PARTICULARS LF AMOUNT
2011 2011
March 1 To Balance b/d 8,800 March 6 By Salary 2,400
March 4 To Ravi Chopra 1,500 March 8 By Rent 300
March 10 To Jeevan Dass 1,200 March 12 By Arjun Singh 2,800
By Chandrika
March 20 To Sat Narain 6,770 March 16 4,600
Prashad
March 25 To Nand Lal Yadav 4,400 March 20 By Ram Lal 7,800
March 28 To Kishori Lal 9,180 March 26 By Drawing 10,000
March 31 To Radha Madhav 8,250 March 30 By Laxman Dass 6,500
March 31 By Balance c/d 5,700
40,100 40,100

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -4–

Anurag Sharma
Centre Director

BANK PASS BOOK

DATE PARTICULARS WITHDRAWALS DEPOSITS DR. OR CR. BALANCE
2011
April 1
To Balance Dr. 4,200
April 2 By Dividends 500 Dr. 3,700
April 3 By Sat Narain 6770 Cr 3,070
April 3 To Salary 2800 Cr 270
April 4 By Kishori Lal 9180 Cr 9450
April 5 To Laxman Dass 6500 Cr 2950
By Radha
April 6 8250 Cr 11200
Madhav
April 6 By Subhash 10800 Cr 22000
April 7 To Drawings 8000 Cr 14000
April 8 To Ghanshyam 7500 Cr 6500
April 10 To Ram Lal 7800 Dr 1300
By Ashok
April 12 12000 Cr 10700
Sharma

Q.10 On 30th June 1994 Pass book showed a balance of Rs. 5,200. Prepare Bank Reconciliation Statement
from the following particulars :- I. Out of total Cheques amounting to Rs. 16,000 deposited, cheques
amounting to Rs. 9,000 were credited in June 1994, Cheques amounting to Rs. 3,000 were credited in July
1994, and the rest have not been collected so far. II. Out of total cheques amounting to Rs. 45,000 drawn,
cheques amounting to Rs. 7,500 were presented in June 1994, Cheques amounting to Rs. 18,000 were
presented in July 1994, and the rest have not been presented so far. III. Amount wrongly credited by bank
Rs. 3,400. IV. Payment side of the Cash Book has been undercast by Rs. 200. V. Cheques recorded in the
Cash Book in June 1994 but sent to bank in July 1994 Rs. 2,500. VI. A cheque of Rs. 20,000 deposited in
the bank has been dishonored but no imtimation was received till June 1994.

Q.11 On 30th June, 1994, the bank Column of Anil's Cash Book showed a debit balance of Rs. 8,250. On
examination of the Cash Book and Bank Statement you find that: 1. Out of total cheques amounting to Rs.
8,000 issued, cheques amounting to Rs. 5,800 have been presented for payment upto 30th June, 1994,
cheques for Rs. 800 were presented in July, 1994 and the rest have not been presented at all. 2. Out of total
cheques amounting to Rs. 6,000 sent to bank for collection, cheques of Rs. 4,100 were credited in Pass Book
upto 30th June, 1994, cheques amounting to Rs. 1,200 were credited in July, 1994 and the rest have not been
collected so far. 3. On 28th June a customer deposited Rs. 3,500 direct in the bank account but it was entered
only in the Pass Book. 4. Debit side of Anil's Cash Book (Bank Column) has been overcast by Rs. 100. 5.
No entry has been made in the Cash Book for the Rent of Rs. 800 paid by bankers according to Anil,s
standing instructions. 6. The Pass Book showed a credit of Rs. 320 for interest and a debit of Rs. 40 for
bank charges, but these have not been entered in the Cash Book. Prepare a Bank Reconciliation Statement as
on 30th June, 1994.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -1–

Anurag Sharma
Centre Director

Class XI Bills of Exchange Worksheet

Q.1. Amit bought goods from Sumit for Rs 20,000 on 1st April 2010. He paid Rs 8,000 in cash and gave a
promissory note for the balance amount to Sumit payable after 60 days. Sumit endorsed it to his
creditors, kamal in full settlement of his debt Rs 12,300. Later, it was dishonoured and Kamal Paid
Rs 100 towards nothing charges. Next day, Kamal informed Sumit about the dishonor of bill. Sumit
settled his debt to Kamal by issuing cheque for Rs 12,100. Amit paid Rs 5,000 and noting charges to
Sumit and gave another promissory note for two months for Rs 7,250 including interest for the
period. This bill was duly met on due date.
Pass journal entries in the books of all the three parties.

Q.2. A sold goods to B for Rs 7,000 and immediately A received from B Rs 2,000 in cash and for the
balance, h draw a bill on B for 2 months who duly accepted the same. A endorsed the bill to C.C
endorsed it to his creditor, D.D discounted to bill form his bank for Rs 4,900. On date of maturity,
the bill was dishonored and Bank paid nothing charges amounting Rs 50.
Pass the necessary journal entries in the books of all the parties.

Q.3. On 1st January, 2010, Y gave two promissory notes to X to settle his debt. The first promissory note
was for Rs 2,000 payable after a month and second was for Rs 3,000 payable after two months.
X endorsed first promissory note to his creditor, Z in full settlement of his account of Rs 2,080 and
discounted the second bill with his banker @ 20% p.a. on 1st January itself. The first bill was duly
met but the second bill was dishonoured and paid Rs 30 as nothing charges. On 5 th March, X draw
bill for Rs 3,100 for two months in lieu of dishonoured promissory note. However, this bill was duly
met. Pass journal entries in the books of both X and Y.

Q.4. On 1st January, 2010, Amit drew three bills of exchange on his debtor Sumit: First for Rs 7,000 for 1
month, second for Rs 8,000 for two months and third for Rs 10,000 for 4 months. Sumit accepted
these bills.
Amit endorsed the first bill of his creditor, Kamal in full settlement of his account Rs 7,050.
This bill was met on maturity.
On 1st February, Amit discounted the second bill from his bank for Rs 7,900. This bill was
dishonoured on due date and bank paid Rs 50 towards nothing charges. Amit drew another bill on
Sumit for the amount due along with Rs 150 towards interest for 2 months for which Sumit agreed.
The third bill was paid by Sumit under rebate of 12% p.a. one month prior to date of
maturity. The fourth bill was lodged with bank for collection and it was duly met.
Pass necessary journal entries in the books of Amit and Sumit.

Q.5. On 1st January, 2010, X sold goods to the value of Rs 5,000 to Y and drew a bill at three months. X
dishonored the bill at 8% p.a with his bank. On maturity, the bill was returned by the bank
dishonoured with Rs 40 as nothing charges. Y paid Rs 2,000 and the nothing charges and gave
another bill at two months for Rs 3,000 together with 10 % p.a. interest but before maturity he
became insolvent so ultimately he paid to his creditors 60 paise in the rupee.
Pass journal entries in the books of X and Y and prepare X’s account in the books of Y.
Q.6. X sold goods of value Rs 10,000 to Y on 1st April, 2010 and drew a 3 months bill. Y accepted the
bill. X discounted the bill on 4 May, 2010 @ 6% p.a. with his banker. On maturity, bill was returned
dishonoured with expenses Rs 50. Y paid Rs 4,000 and expenses by cheque and accepted another bill
for the balance @ 10 p.a. for 2 months. He was declared bankrupt before maturity of the bill and
only 40 paise in a rupee were paid to creditors. Pass entries in the books of both X and Y.

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -2–

Anurag Sharma
Centre Director

Q.7. On 1st January 2010, X sold goods Y for Rs 40,000 and drew two bills for Rs 10,000 and Rs 30,000
for three months each. Both the bills were duly accepted by Y. The first bill was discounted from
bank @ 10% p.a. and second bill was endorsed to Z. Both the bills were dishonoured on due date.
Nothing charges paid by bank were Rs 50 and paid by Z were Rs. 100. Y paid the payment of first
bill along with nothing charges and accepted a new bill for the balance due for two months along
with interest @ 12 p.a. X endorsed the bill to Kamal. On due date Y became insolvent and able to
pay only 50 paise in a rupee.
Give journal entries in the books of of both X and Y.

Q.8. Amar sold goods to Bharat for Rs. 20,000 on 1st April, 2014. He drew a bill on Bharat for the amount
due payable after 3 months. Bharat accepted the bill and returned it to Amar. Amar discounted the
bill on 1st May, 2014 with his bank @12% p.a. The bill was dishonoured on due date and bank paid
Rs. 100 as noting charges. Bharat requested Amar to draw a new bill for 3 months. Amar agreed
provided Bharat pays interest @ 10% p.a. along with noting charges in cash. A week before the
maturity of second bill, Bharat showed his inability to meet the bill and requested Amar to accept Rs.
10,000 in cash and drew a third bill for the balance along with Rs. 300 towards interest for 2 months.
Amar agreed. The third bill was met on due date.
Pass journal entries in the books of both the parties and show Bharat’s A/c in Amar’s books and
Amar’s A/c in the books of Bharat.

Q.9. On 4th August, 2014 A sold goods to B for Rs. 10,000 and drew on B a bill at two months for the
amount which is accepted. On August 7, 2014 ‘A’ discounted the same at 12% p.a. from bank. On
October 4, 2014, B requested A for renewal of the bill for another three months which A did
charging him interest @ 12% p.a. payable in cash. The new bill was dishonoured on the due date as
B became insolvent. A received 40 paise in a rupee from B’s estate. Show entries in the books of
both the parties. [Interest Rs. 300 Bad Debts Rs. 6,000]

Q.10. On 1st January, 2014, P sold goods to Q for Rs. 30,000 and drew two bills for Rs. 12,000 and Rs.
18,000 for 2 months. Both the bills were duly accepted. On 4 th January, 2014 P endorsed the first bill
to R and dishonoured on due date. R paid noting charges Rs. 40 and bank Rs. 100. P settled the
account to R by cheque. Q paid the amount of first bill along with noting charges and gave a 2
months promissory note for the amount due of second bill and interest @ 12% p.a.
On the due date of promissory note, Q became bankrupt and his estate could pay only 50 paise in a
rupee.
Pass entries in the books of P and Q. [Interest on promissory note Rs. 362,
Promissory note for Rs. 18,462; Bad debts Rs. 9,231]

Q.11. Find out the due date of bill in the following cases :
S. No. Bill value (Rs.) Date of Drawing Date of Acceptance Tenure
(a) 16,000 1.1.12 5.1.12 30 days after date
(b) 10,000 10.2.14 11.2.14 60 days after sight
(c) 11,000 25.2.14 25.2.14 1 month after date
(d) 10,000 20.1.14 23.1.14 2 months after sight
(e) 12,000 8.2.14 10.2.14 1 month after sight
(f) 8,000 11.2.14 15.2.14 30 days after sight
[Ans. (a) Feb. 3, (b) April 15, (c) Feb. 28, (d) Mar, 26 (e) Mar 13, (f) Mar 20]

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 –1–

Anurag Sharma
Centre Director

Final Accounts With Adjustment All Adjustments

Q.1 The following is the Trial Balance of Sh. Siya Ram for the year ending on 31st March, 2018
Prepare Trading and P&L a/c. and Balance Sheet from the same.

Dr. Balance Rs. Cr. Balance Rs.

Materials Purchased 1,15,725 Sales 2,00,000
Administration Expenses 16,725 Outstanding Wages 800
Wages 42,775 Creditors 38,235
Freight 5,100 Capital 81,800

Advertisement 1,800 Bank 12,000

Petty Cash 175 (12%) Loan on Mortgage 16,000
Bad Debt 1,400 Income from Investment 925
Debtors 35,000 Commission Received 10,000
Gift to wife 2,500 Provision for Bad Debts 220
Prize Distributed 200
Commission Paid 1,000
Commission Paid in Advance 400
Mortgage Interest 1,600
Loose Tools 5,000
Investment 8,500
Plant 60,000
Furniture 7,200
Leasehold Property 50,000
Patents 2,000
Depreciation on Furniture 800
Suspense Account 2,080
3,59,980 3,59,980

Adjustment : -

1. Closing Stock amounted to Cost price `20,000, Market Price `25,000.

2. Goods Costing Rs.5,000 were sent to a customer ‘Sale on Approval basis’ for `.6,000 on 28th
March, 2018 and had been recorded in the books as actual sales.

3. Make a provision for doubtful debts at 5% on debtors, further bad debts 1,000 and 1% provision
for discount on debtor.

4. 1/5th of Loose Tools are to be written off this year.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 –2–

Anurag Sharma
Centre Director

5. A commission of 2% on the gross profit is to provided to Works Manager.

6. General Manager is to be allowed a Commission of 5% on net profit after charging Works

Manager’s and before charging General Manager’s Commission.

7. Prepaid Wages 2,775

8. Accrued Interest on investment 75.

9. Depreciation on Plant @10% per annum.

10. Patent is valued at 1500.

11. Outstanding freight 400.

12. Unearned commission 2000.

13. Interest on capital @10% per annum.

14. Interest on drawing @5% per annum.

15. Loss by fire 5,725 but insurance claim is 4,000.

16. Charity of goods `2,000, free sample distributed `1,000.

17. Goods of `3,000 is consumed for leasehold property.

18. There is contingent liability of `20,000 in respect of a court case.

19. Installation of plant of `10,000 wrongly taken in wages.

20. Goods purchased for `5,000 included in stock but omitted to be recorded.

21. Goods in transit `2,000.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 –3–

Anurag Sharma
Centre Director

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 -1–

Anurag Sharma
Centre Director

Class XI Final Accounts without Adjustment Worksheet

Q.1. Calculate the amount of Gross Profit, operating profit and net profit from the following
information obtained from the books of Gopal Soni Sons:

Particular Rs. Particular Rs.

Opening Stock 30,000 Net Purchase 4,90,000
Net Sales 8,20,000 Wages 30,000
Administration Expenses 45,000 Selling and Distribution 48,000
Expenses
Closing Stock 36,000 Income from investment 5,000

Q.2. Calculate Cost of Goods Sold, Operating Profit and Net profit from the following data:

Particular Rs. Particular Rs.

Net Sales 5,00,000 Selling Expenses 30,000
Gross Profit 1,50,000 Income for Investments 2,000
Administration Expenses 40,000 Loss on Account of fire 5,000
Q.3. Find Out (a) Operating Profit, and (b) Net Profit from the following:

Particular Rs. Particular Rs.

Gross Profit 8,40,000 Interest on Loan 44,000
Carriage Outwards 9,600 Interest on Investment 5,600
Advertising 24,000 Printing & Stationary 7,200
Salaries 3,56,000 Loss on sales of furniture 70,000
Rent & Tax 1,24,000 General expenses 2,800
Insurance Charges 4,800 Rent Received 12,000
Bad debts 3,000 Loss by fire 40,000
Audit Fees 4,000 Gain on sale of 1,00,000
Machinery

Q.4. From the following information calculate (i) Gross Profit, (ii) Operating Profit, and (iii) Net
Profit for the year ended 31st March, 2009:
Particular Rs. Particular Rs.
Sales 6,50,000 Closing Stock (31.3.2009) 50,000
Sales Return 50,000 Salaries 25,000
Opening Stock (1.4.2008) 1,10,000 Gain on sale of old Furniture 5,000
Purchase 2,05,000 Interest on bank Loan 15,000
Cooling and Cartage 5,000 Income Tax 50,000
Wages 30,000

Q.5 From the following information, prepare the Trading Account for the year ending 31 st March, 2006.
Rs.
Cost of Goods Sold 15,00,500
Sales 24,00,500

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 -2–

Anurag Sharma
Centre Director

Closing Stock 80,000

Q.6 Opening Stock Rs 30,000, Purchases Rs 54,600, Expenses on Purchases Rs 6,000, Sales Rs 90,000,
Expenses on Sales Rs 3,000, Closing Stock Rs 36,600. Calculate cost of goods sold and gross profit.

Q.7 Opening Stock Rs 15,000, Sales Rs 48,000, Carriage Inwards Rs 3,000, Sales Return Rs 3,000,
Gross Profit Rs 18,000, Purchases Rs 30,000, Purchase Returns Rs 2,700. Calculate closing stock
and the cost of goods sold.

Q.8 Cash sales of a business in a year were Rs 29,000 and credit sales Rs 31,000. The cost of goods sold
(including direct expenses) works out at Rs 52,000. Find out the gross profit.

Q.9 Capital of X at the beginning of the year was Rs 70,000. During the year, his business earned a profit
of Rs 20,000, he withdraw Rs 7,000 for his personal use. He sold ornaments of his wife for Rs
20,000 and invested that amount into the business. Find out his capital at the end of the year.

Q.10 The following information was taken form an income statement.

Opening Stock Rs 5,000; Sales Rs 16,000; Carriage inward Rs 1,000; Sales Returns Rs 1,000.
Gross Profit Rs 6,000; Purchases Rs 10,000 and Purchase Return Rs 900.
Calculate the Closing Stock and cost of goods sold.

Q.11 The following information was taken form an income statement.

Opening capital Rs 60,000; Drawings Rs 5,000; Capital added during the year Rs 10,000 and Closing
capital Rs 90,000. Calculate Profit and Loss for the year.

Q.12 S. Kumar & Sons close their financial books on 31 st December. Stock taking takes about two weeks.
In 2005 the value of closing stock thus arrived at was Rs 25,000. During the two weeks in which
stock taking took place purchases made were Rs 1000 and sales totalled Rs 4,000. The firm makes a
Gross Profit of 30% on sales. Ascertain the value of closing stock on 31 st December, 2005.

Q.13 The annual sales of a business were as under:

Cash Sales Rs 35,000
Credit Sales Rs 40,000
The cost of the goods sold (including all direct expenses) works out at Rs 52,000. Expenses incurred
on sales amounted to Rs 6,700. Find out his Net Profit.

Ans. Q. 1 GP Rs. 3,06,000; Operating Profit Rs. 2,13,000; Net Profit Rs. 2,18,000.
Q. 2 Operating Profit = Rs. 80,000; Net Profit = Rs. 77,000.
Q. 3 Operating Profit = 2,72,600; Net Profit = Rs. 68,000.
Q.4 Gross Profit = 3,00,000; Operating Profit = 2,75,000; Net Profit = 2,65,000
Q.5 GP Rs. 9,00,000; Q.6 GP Rs. 36,000; COGS Rs. 54,000 Q.7 Closing Stock Rs. 18,300
Q.8 GP Rs. 8,000 Q.9 Closing Capital Rs. 1,03,000
Q.10 Closing Stock Rs. 61,100; COGS Rs. 9,000
Q.11 NP Rs. 25,000
Q.12 Closing Stock Rs. 26,800
Q.13 GP Rs. 23,000; NP Rs. 16,800

39, Ram Gali No.7, new Raja Park, Jaipur. Cell: 9829-22-44-88, Tel.:402-30-31.
 Anurag Sharma -1-
Centre Director

Class – XI Non – Profit Organisation

Q.1. Show the following information in the balance sheet of the Cosmos Club as on 31 st March, 2007:
Particular Debit Credit
Tournament Fund – 1,50,000
Tournament Fund Investment 1,50,000 –
Income from Tournament Fund Investment – 18,000
Tournament Expenses 12,000 –
Additional information : Interest Accrued on Tournament Fund Investment Rs. 6,000
[Tournament Fund Rs. 1,62,000]

Q.2. How will you deal with the following items while preparing Income and Expenditure Account for
the year ended 31st March, 2014 and Balance Sheet as on 31st March, 2014 of Diamond Sports Club?
Particular Rs.
Prize Fund Balance in the beginning of the year 60,000
Prize Fund Investment balance at the beginning of the year 60,000
Interest received on Prize Fund Investment during the year 6,000
Interest received on other investment during the year 2,000
Prizes awarded during year 5,000
[Prize Fund Rs. 61,000]

Q.3. (i) Show the following information in the Final Accounts of Golden Club, Delhi as on 31 st March,
2014:
Particular Rs.
Match Fund 60,000
Match Expenses 83,000
Donation for Match Fund 25,000
Sale of Match Tickets 10,000
(ii) What will be the impact if match expenses go up by Rs. 15,000 in case (i)?
[(i) Match Fund Rs. 12,000 (ii) Match Expenses 3,000]

Q.4. How would you deal with the following items while preparing Balance Sheet of Delhi Public School,
Chandigarh for the year ending 31st March, 2014?
Rs.
(i). Donation received for the constructions of Auditorium (Expected cost of
Auditorium Rs. 40,00,000) 25,00,000
Expenditure on construction of Auditorium 21,00,000
(ii). Receipts from Charity show 10,000
Charity show expenses 11,000
(iii). Prize Fund 25,000
6% Prize Fund Investment 25,000
Donation for Prize Fund 5,000
Prizes awarded 6,000
[Capital Fund Rs. 21,00,000; Auditorium Fund Rs. 4,00,000; Prize Fund Rs. 25,500]

Q.5. Bombay Sports Club, disclosed that it received Rs. 1,50,000 by way of subscription during the year
ended 31st March, 2014.
39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -2-
Centre Director

Additional Information:

Subscription outstanding 2012-13 (of which Rs. 4,000 received in 2013-2014) 6,000
Advance subscription received 31-3-13 4,500
Advance subscription received 31-3-14 5,100
Subscription outstanding on 31-3-14 for 2013-2014 3,800
Show how the subscription will appear in Income and Expenditure Account and Balance Sheet of
2013-2014?
[Subscription Rs. 1,49,200]

Q.6. A club has 1,000 members. Each member has to pay subscription @ Rs. 50. Total subscription
received during the year ending 2014 was Rs. 90,000 including Rs. 23,000 for the year 2013 and Rs.
24,000 for the year 2015. Twenty five members paid their subscription for 2014 in the year 2013.
Compute the amount of subscription to be credited to Income and Expenditure Account and
outstanding subscription to be shown in Balance Sheet.
[Subscription Rec. 50,000]

Q.7. In 2006-07, the actual salaries paid amounted to Rs. 10,200. Ascertain the amount chargeable to
Income and Expenditure Account for the year ending on March 31, 2007 from the following:
Particular Rs.
Prepaid salaries on 31-3-2006 1,200
Prepaid salaries on 31-3-2007 600
Outstanding salaries on 31-3-2006 900
Outstanding salaries on 31-3-2007 750
[Salary debited to Income and Expenditure Account Rs. 10,650]

Q.8. From the following Receipts and Payments Accounts of Sonic Club and from the additional
information, compute the amount of salaries for the year 2006 to be shown in Income and
Expenditure Account and in the Balance Sheet of 2005 and of 2006.
An Extract of Receipts and Payments Account
for the year ending 31-12-2006
Receipts Rs. Payments Rs.
By Salaries
2005 20,000
2006 2,80,000
2007 18,000 3,18,000
Additional Information
(i). Salaries outstanding on 31st December, 2005 25,000
st
(ii). Salaries outstanding on 31 December, 2006 45,000
(iii). Salaries paid in advance as on 31st December 2005 10,000
[Salary Rs. 3,30,000]

Q.9. Compute the cricket material consumed during the year from the following information:
Stock of cricket equipments (1-1-2014) 1,000
Stock of cricket equipments (31-12-2014) 1,500
Cricket equipment purchased during the year 4,150
[Cricket equipment used during year Rs. 3,650]

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -3-
Centre Director

Q.10. Calculate the amount of shorts material to be debited to Income and Expenditure Account of Capital
Sports Club for the year ended 31-3-2007 on the basis of the following information :

Particular 1-4-2006 31-3-2007

Stock of Sports material 7,500 6,400
Creditors for sports material 2,000 2,600
Amount paid for sports material during the year was Rs. 19,000.
[Purchase of Sports Material Rs. 19,600 ; Sports Goods consumed Rs. 20,700]
Q.11. Compute the amount of stationery consumed during 2007 to be debited to Income & Expenditure
A/c from the following information :
Particular Rs.
Opening stock of Stationery 25,000
Payment for purchase of Stationery during year 50,000
Advance paid to suppliers for Stationery (1-1-2007) 5,000
Due to suppliers (1-1-2007) 3,000
Advance paid to supplier (31-12-2007) 8,000
Due to suppliers (31-12-2007) 1,000
Closing Stock of Stationery 10,000
[Stationary Consumed during year Rs. 60,000]
Q.12. Receipts and Payments Account of Young Association dissolved that it has received Rs. 2,00,000 by
way of subscriptions during the year ended on March 31, 2006.
Additional Information:
Subscription Outstanding as on 1-4-2005
(out of which Rs. 3,500 were received in 2005-06) 5,000
Subscription received in advance on 31-3-2005 3,000
Subscription received in advance on 31-3-2006 4,100
Show how the subscription will appear in Income and Expenditure Account for the year ending
March 31, 2006 and the Balance Sheet as at that date in each of the following alternative cases:
Case (a) If subscription outstanding for 2005-06 is Rs. 6,400.
Case (b) If subscription outstanding as on 31-3-2006 is Rs. 6,400.
Q.13. Summary of Receipts and Payments of Bombay Medical Aid Society for the year 31-3-2001 are as
follows:
Opening Cash balance in hand Rs. 8,000, Subscription Rs. 50,000, Donation Rs. 15,000, interest on
investment @ 9% p.a. Rs. 9,000, Payment for medicines supply Rs. 30,000, Honorarium to Doctor
Rs. 10,000, Salaries Rs. 28,000, Sundry Expenses Rs. 1,000, Equipment purchased Rs. 15,000
Charity show expenses Rs. 1,500, Charity show collections Rs. 12,500.
Other Information :
Particular 1-4-2000 31-3-2001
Subscription Due 1,500 2,200
Subscription received in Advance 1,200 700
Stock of Medicines 10,000 15,000
Amount due to medicine suppliers 9,000 13,000
Value of Equipment 21,000 30,000
Value of Building 50,000 48,000
Required : Prepare Receipts and Payments Account and Income and Expenditure Account for the
year ended 31-3-2001 and Balance Sheet as on 31-3-2001.

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.
 Anurag Sharma -4-
Centre Director

(B) Do you think that society is promoting any value?

Q.14. Following is the information given in respect of certain items of a sports club. You are required to
show them in the Income and Expenditure Account and the Balance Sheet of the club as at 31st
March, 2016.
Sports fund as at 1st April, 2015 1,00,000
Sports fund investment 1,00,000
Interest on sports fund investment 10,000
Donation for sports fund 40,000
Sports prizes awarded 30,000
Expenses on Sports Events 10,000
General Fund 2,00,000
General Fund Investment 2,00,000
Interest of General fund investments 20,000

Q.15. Show how are the following items dealt with while preparing the final accounts for the year ended
31st March, 2016 of a Non-profit organization :

Case : 1 Expenditure on construction of Pavilion is 6,00,000. The construction work is in progress and has
not yet completed. Capital Fund as at 31st March, 2015 is Rs. 20,00,000.

Case : 2 Expenditure on construction on Pavilion is Rs. 6,00,000. The construction work is in progress and
has not yet completed. Pavilion Fund as at 31st March, 2015 is Rs. 10,00,000, and Capital Fund as at 31st
March, 2015 is Rs. 20,00,000.

Case : 3 Expenditure on construction of Pavilion is Rs. 6,00,000. The construction work is in progress and
has not yet completed. Pavilion Fund as at 31st March, 2015 is Rs. 10,00,000, and Capital Fund as at 31st
March, 2015 is Rs. 20,00,000. Donation Received for Pavilion on 1 st January, 2016 is Rs. 5,00,000.

Q.16. How are the following delta with while preparing final accounts of a sports club for the year ended
31st March, 2016?

Receipts and Payments Account

for the year ended 31st March, 2016

Receipts Rs. Payments Rs.

To Sale of Sports Material 26,000 By Creditors for Sports Material 61,000
(Book Value Rs. 20,000) By Cash purchase of Sports Material 10,000
Additional Information
As at 31st March, 2015 As at 31st March, 2016
Sports Material 20,000 25,000
Creditors for Sports Material 7,000 15,000

39, Ram Gali No.7, New Raja Park, Jaipur. Cell: 9829-22-44-88, 9-77-22-1-44-88.