2.

UNIT - II
INTRODUCTION TO FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING
Every trader generally starts business for the purpose of earning profit. So, he
establishes business with capital, purchases machinery, raw materials, etc., buys and sells
goods and incurs some expenses. So, at the end of the period he wants to know whether his
business has made profit or loss. For this purpose, he prepares profit and loss account and
also to know what he owns (assets) and what he owes (liabilities), he prepares Balance Sheet.
Hence accounting is the Language of Business.
Book-keeping is an art of recording the business transactions in the books of original
entry and the ledgers. Accountancy begins where Book-keeping ends. Accountancy means
the compilation of accounts in such a way that one is in a position to know the state of affairs
of the business.
Definition:
R.N. Anthony: “Accounting system is a means of collecting summarizing, analyzing
and reporting in monetary terms, the information about the business.
American Institute of Certified Public Accountants (AICPA): “The art of
recording, classifying and summarizing in a significant manner and in terms of money
transactions and events, which are in part at least, of a financial character and interpreting the
results thereof.”

Objectives:
The main objectives of Accounting are:
1. To maintain the permanent records of the business transactions.
2. To ascertain the profit earned or loss suffered during accounting period.
3. To know various business Assets and liabilities apart from the above main objectives.
4. To know amount due from his customers and amount payable to Suppliers.
5. To know various taxes and duties payable to government.
6. To detect and prevent errors and frauds committed by employees and other person.
7. To provide valuable information for taking for taking various decisions.
8. To take decision on significant business matters.
9. To compare and measure the optional efficiency of his business with other firm,
companies in same type of Industry.
10. To review the progress of the business from year to year.
11. To maintain permanent record of all transactions of business for future reference.
12. To excise effective control on various expenses, incomes earned over business assets,
business liabilities.
13. Other firms, companies and within the firm compare current year with previous years.
Such comparison is known as infra-firm comparison.

ACCOUNTING PRINCIPLES
The rules and conventions of accounting are commonly referred to as principles. The
American institute of certified public accountants has defined the accounting principle as, “a
general law or rule adopted or professed as a guide to action; a settled ground or basis of
conduct or practice”. It may be noted that the definition describes the accounting principle as
a general law or rule that is to be used as a guide to action.
 2.2

Accounting principles are judged on their general acceptability to the makers and
users of financial statements and reports. They present a generally accepted and uniform view
of the accounting profession in relation to good accounting practice and procedures.
Therefore, it is named as “Generally Accepted Accounting Principles.”
Accounting principles, rules of conduct and action are described by various terms
such as concepts, conventions, doctrines, tenets, assumptions, axioms, postulates, etc. But for
our purpose we shall use all these terms synonymously except for a little difference between
the two terms – concepts and conventions. The term “concept” is used to connote accounting
postulates i.e. Necessary assumptions or conditions upon which accounting is based. The
term convention is used to signify customs or traditions as a guide to the preparation of
accounting statements.

The classification of accounting principles is as under:

Accounting Principles

Accounting Concepts Accounting Conventions

1) Business entity concept 1) Disclosure
2) Going Concern concept 2) Materiality
3) Money Measurement concept 3) Consistency
4) Cost Concept 4) Conservatism
5) Accounting period concept
6) Dual Aspect concept
7) Matching concept
8) Realization concept

ACCOUNTING CONCEPTS
Concepts mean a general idea which conveys certain meaning. Accounting concepts
may be considered as basis assumption or conditions on which the science of accounting is
based. Concepts are based on logical consideration. Accounts and Financial statements are
always interpreted in light of concepts which govern accounting method. Different
accounting concepts are discussed as follows:

1. Business Entity Concept: According to entity concept, business is treated as a unit

of entity form separate from its Owner, Creditors and Management, etc. Accounts are
kept for business entity as distinguished from a person associated with it. All business
transactions are recorded in the books of Accounts from the point of view of business
only. Every type of business organization is treated as separate accounting entity. The
failure to recognize the business as separate accounting entity would make it
extremely difficult to evaluate the performance of business alone.
2. Going Concern Concept: Business transactions are recorded on the assumption that
the business will continue for a long time. There is neither the intention nor the
necessity to liquate the particular business in near future. Therefore, it would be able
to meet its contractual obligation and use its resources according to the plans and
predetermined goals. Therefore, Fixed Assets are recorded at cost and depreciation is
calculated on cost/written down value. Similarly, prepaid expenses are treated as
Assets on the presumption that the business will continue and these expenses will be
utilized in future.
 2.3

3. Money Measurement Concept: A unit of exchange and measurement is necessary to

account for business transaction in a uniform manner. Money is common denominator
in terms of which the exchange ability of goods and services are measured. Only such
transactions and events as can be interpreted in terms of money are recorded. Non-
monetary events like public political contract, location of business; certain disputes,
etc. cannot be recorded in the books of Accounts even through these have great
effects. However, a unit of money measurement over period of time has its own
drawbacks.
4. Cost Concept: According to cost concept the various assets acquired by enterprise
should be recorded on the basis of actual cost incurred. The cost concept does not
mean that the basis for all subsequent accounting for the assets. As per cost concept
Fixed Assets are shown at cost less depreciation charged from year to year. It may be
noted that if nothing has been paid for acquiring something it would not be
shown/recorded in the books of accounts maintain. Financial statement based on
historical cost may not be much relevant for investors and other users because they
are more interested in knowing what the business actually worth today rather than the
original cost.
5. Accounting Period Concept: It is customary that the life of the business is divided
into appropriate parts or segments of analyzing the results shown by the business.
Each part divided is known as an accounting period. It is an internal of time at end of
which the income statement and balance sheet are prepared. Normally the accounting
period consists of twelve months.
6. Matching Concept: This concept is based on accounting period concept for
determining accurate profit/income has to compare the revenues of the business with
the cost that is incurred to earn that revenue. The term “Matching” means appropriate
association of related revenues and expenses. According to this concept adjustments
should be made for all outstanding expenses, income receivable, prepaid expenses,
Income received in advance, depreciation, etc. While preparing final accounts at the
end of accounting period.
7. Realization Concept: This accounting concept explains that sell is supposed to be
completed only when ownership of goods is passed on from the seller to the buyer.
Income is considered to be earned on the date when sales take place. No profit is
supposed to accrue on the acquisition of anything, however, income earned / realized
will be earn only when goods are sold at a profit. Therefore, closing stock is valued at
cost or market price whichever is less. It prevents business Firms from inflecting their
profits by recording income that is expected in future.
8. Dual Aspect Concept: This concept based on double entry book-keeping which
means that accounting system is set up in such a way that a record is made of the two
aspects of each transaction that affects the record. The recognition of the two aspects
of every transaction is known as duel aspects concept. Modern Financial Accounting
considers both aspects of every transaction. One entry consists of debit to one or more
accounts and another effect consist of credit to some other one or more accounts.
However, the total amount debited is always equal to the total amount credited.
Therefore, at any point of time total assets of a business are equal to its total
liabilities. Liabilities to outsider are known as liabilities, liabilities to the owner are
referred to as capital.
Assets = Liabilities + Capital
Therefore, Capital = Assets – Liabilities
 2.4

ACCOUNTING CONVENTIONS
The term „Convention‟ denotes customs or traditions or practice based on general
agreement between the accounting bodies which guide the accountant while preparing the
financial statements.
1. Full Disclosure: According to convention of full disclosure, accounting must disclose
all the material facts and information so that interested parties after reading such
accounting report can get a clear view of the state of affairs of the business. All
information which is of material interest to proprietors, creditors and investors should
be disclosed in accounting statement. The Companies Act makes various provisions
for disclosure of essential information that there is no chance of any material
information being left out.
2. Materiality: The term material means “relative importance”, Accounting to the
convention of materiality; account should report only what is material and ignore
insignificant details while the preparing the final accounts. Materiality will differ or
changed with nature, size and tradition of the business. What is material for one
enterprise may be immaterial for another enterprise. This is because otherwise
accounting will unnecessarily be overburdened with minute details. It is not possible
to lay down any fixed standard by which Materiality can be judged. The decision is to
be made by the accountant or the Auditor based on their professional experience.
3. Consistency: This accounting convention state that one‟s a particular accounting
practice, method or policy is adopted to prepare accounts, statements and Reports. It
should be continued for years together and should not charge unless it is forced to
change it. Accounting practices should remain the same from one year to another. The
results of different years will be comparable only when accounting rules are
continuously adhered to from years to years i.e. Valuation of stock in trade, method of
depreciation, treatment of approval sale etc. Since methods of accounting consistence,
the financial statements are reliable to the people who use it.
4. Conservatism: Financial Statements are usually drawn up on a conservative basis.
There are two principles which stem directly from conservatism.
 The accountant should not anticipate income and should provide all possible
losses, and
 Faced with the choice between two methods of valuing an asset the accountant
should choose a method which leads to the lesser value.
Accounting convention must be followed continuously. If not followed
continuously it would result into understatement of incomes, assets and overstatement
of liabilities and provisions and expenses.

DOUBLE ENTRY SYSTEM

It was in 1494 that Luca Pacioli the Italian mathematician, first published his
comprehensive treatise on the principles of Double Entry System. The use of principles of
double entry system made it possible to record not only cash but also all sorts of Mercantile
transactions. It had created a profound impact on auditing too, because it enhanced the duties
of an auditor to a considerable extent.
The Double entry system is based on scientific principle and is used universally by
most of business organisations. This system recognises the fact that every transaction has two
aspects and records both aspects of each and every transaction. Thus, every transaction has
two aspects i.e. receiving and giving. The receiving aspect is also known as the incoming
aspect (Debit) and going aspect is known as the outgoing aspect (credit). For every
 2.5

transaction there will be a debit and credit entry. These debits and credits will be equal and
opposite. If a debit increases assets, then a credit counter item has to increase liabilities or
owner‟s equity. Thus, increases and decreases in assets and liabilities (or owner„s equity)
must be recorded opposite to each other.

Basic accounting equation:

Assets = Liabilities + Equity + Profit (Income-Expenses)
Assets + Expenses = Liabilities + Equity+ Income

Features of Double Entry System:

1. Every transaction has two-fold aspects, i.e., one party giving the benefit and the other
receiving the benefit.
2. Every transaction is divided into two aspects, Debit and Credit. One account is to be
debited and the other account is to be credited.
3. Every debit must have its corresponding and equal credit.

Advantages of Double Entry System:

1. Since personal and impersonal accounts are maintained under the double entry
system, both the effects of the transactions are recorded.
2. It ensures arithmetical accuracy of the books of accounts, for every debit, there is a
corresponding and equal credit. This is ascertained by preparing a trial balance
periodically or at the end of the financial year.
3. It prevents and minimizes frauds. Moreover, frauds can be detected early.
4. Errors can be checked and rectified easily.
5. The balances of receivables and payables are determined easily, since the personal
accounts are maintained.
6. The businessman can compare the financial position of the current year with that of
the past year/s.
7. The businessman can justify the standing of his business in comparison with the
previous year‟s purchase, sales, and stocks, incomes and expenses with that of the
current year figures.
8. Helps in decision making.
9. The net operating results can be calculated by preparing the Trading and Profit and
Loss A/c for the year ended and the financial position can be ascertained by the
preparation of the Balance Sheet.
10. It becomes easy for the Government to decide the tax.
11. It helps the Government to decide sickness of business units and extend help
accordingly.
12. The other stakeholders like suppliers, banks, etc., take a proper decision regarding
grant of credit or loans.

Limitations of Double Entry System:

1. The system does not disclose all the errors committed in the books accounts.
2. The trial balance prepared under this system does not disclose certain types of errors.
3. It is costly as it involves maintenance of numbers of books of accounts.
 2.6

BASIS OF ACCOUNTING
Under double entry system books of accounts can be maintained by either cash basis
or accrual basis.
Cash System of Accounting
Under cash system of accounting entries are made only when cash is received or paid.
No entry is made when amount is due for receipts or payments. Income is received is
accounted irrespective of period for which relates. Similarly, expenses are restricted to the
actual payments made in cash, during the current period is immaterial whether the payments
have been made for previous year or subsequent year. The financial statement prepares under
this system do not present a true and fair view of Income, operating results of enterprise. In
cash system financial statements are prepared on the basis of Receipts and payments
accounts. However, it is suitable in following cases:
• For very small business organisation.
• For individual to record his own transactions.
• For professionals like Doctors, Lawyers, Chartered Accountant, etc.

Accrual System of Accounting

This is also known as mercantile system of accounts. Under this system business
transactions are recorded as and when it takes place irrespective of amount / cash received or
paid. Income earned as well as expenses incurred are recorded related to the particular
period. The following are the essential features of accrual basis.
• Revenue is recognized on it is earned irrespective of whether cash is received or not.
• Costs are matched against revenues on the basis of relevant time period to determined
periodic income.
• Costs which are not charged to income are carried forward.
• Any cost that lost its utility is written off as a loss.

ACCOUNTING PROCESS
 2.7

TYPES OF ACCOUNTS AND RULES

An account is defined as a summarized record of transactions related to a person or a

thing e.g. when the business deals with customers and suppliers, each of the customers and
supplier will be a separate account. The account is also related to things – both tangible and
intangible. e.g. land, building, equipment, brand value, trademarks etc. are some of the things.
When a business transaction happens, one has to identify the „account‟ that will be affected
by it and then apply the rules to decide the accounting treatment. An account is capable of
receiving and giving values. When an account receives a value / benefit. It is debited and
when it gives a value / benefit it is credited. In order to keep full record of all the transactions
the business has to keep:
 An account of each head of expenses or income earned by the business and
 An account of each property which belongs to the business and
 An account of each party with whom business deals.

The accounts are maintained for recording all business transactions. They are divided
in to 3 types:

1. Personal Accounts: Accounts which shows transactions related to persons are called
Personal Accounts. A separate account is kept on the name of each person for recording
the benefits received from or given to the person. The persons could also be artificial
persons like companies, bodies corporate or association of persons or partnerships etc.
Example: Gopal‟s A/C, SBI A/C, Nagarjuna Finanace Ltd. A/C, Capital A/C Ali and
Sons trading A/c, ABC Bank A/c, Infosys Technologies A/c, etc.

Rule: The account of the person receiving benefit (receiver) is to be debited and the
account of the person giving the benefit (given) is to be credited.
Debit----The Receiver
Credit---The Giver

2. Real Accounts: The accounts relating to properties or assets are known as Real
Accounts. Every business need asset such as machinery, furniture, etc. for running its
activities. A separate account is maintained for each asset owned by the business.
 Tangible real Accounts: These are accounts of such things which are tangible i.e.
which can be seen touched or felt physically. Ex: Land, Building, Furniture, Cash etc.
 Intangible real Accounts: These accounts represent such things which cannot be
touched, seen or felt physically. Ex: Goodwill, Trademarks, Patent right etc.
Example: Cash A/C, furniture A/C, building A/C, machinery A/C etc.
 2.8

Rule: When an asset is coming into the business is to be debited. When an asset is going
out of the business the account is to be credited.
Debit----What comes in
Credit---What goes out

3. Nominal Accounts: Accounts relating to expenses, losses, incomes and gains are known
as Nominal Account”. A separate account is maintained for each item of expenses,
losses, income or gain.
Example: Salaries A/C, stationery A/C, wages A/C, postage A/C, rent received A/C, etc.

Rule: When an expense is incurred or loss encountered, the account is to be debited.

When any income is earned or gain made, the account is to be credited.
Debit----All expenses and losses
Credit---All incomes and gains

JOURNAL
The first step in accounting is recording of all the transactions in the books of original
entry viz., Journal and then posting into ledgers. The word Journal is derived from the Latin
word „journ‟ which means “a day”. Journal is the first book in which transactions are
recorded in chronological order (date wise), the moment they take place in the business. It is
also called Day Book, Book of original entry, First entry and Prime Entry book. The process
of recording a transaction in the journal is called “Journalising”. The entries made in the book
are called “Journal Entries”.
The Performa of Journal:
Journal Entries in the Books of ……….
L.F. Debit Credit
Date Particulars
No (Rs.) (Rs.)

1. Date: To write the date of the transaction.

2. Particulars: To write the names of the accounts and its description. Every entry has
two aspects i.e. Debit and Credit.
 The name of the account to be debited is written on left side followed by “Dr.”
(indicates Debit).
 The name of the account to be credited is written in next line using “To” before
the account name.
 In next line the description of the transaction is written within brackets, starting
with the word “Being”.
3. Ledger Folio (L.F. No.): To write the page number of the account in ledger.
4. Debit (Rs.): To write the amount to be debited.
5. Credit (Rs.): To write the amount to be credited.

Example: Jan-10th Purchased furniture for cash Rs.5,000

 2.9

Journal Entries in the Books of ABC Co. Ltd.

L.F. Debit Credit
Date Particulars
No (Rs.) (Rs.)
Jan-10th Furniture A/c Dr. 5,000
To Cash A/c 5,000
(Being furniture purchased for cash)

Advantages of Journal
The following are the advantages of a journal:
1. Chronological record: Journal records transactions as and when it takes place in the
business. So, it is possible to get a detailed day-to-day information.
2. Narration: It refers to the explanation of the recorded transactions.
3. Minimising the possibility of errors: The nature of transaction and its effect on the
financial position of the business is determined by recording and analyzing into debit
and credit aspect.
4. Helps to finalise the accounts: Journal is the basis of ledger posting and the ultimate
trial balance. The trial balance helps to prepare the final accounts.

LEDGER
All the transactions in a journal are recorded in a chronological order. After a certain
period, if we want to know whether a particular account is showing a debit or credit balance it
becomes very difficult. So, the ledger is designed to accommodate the various accounts
maintained the trader. It contains the final or permanent record of all the transactions in duly
classified form.
“A ledger is a book which contains various accounts.” The process of transferring
entries from journal to ledger is called “Posting”. Posting into ledger is done periodically,
may be weekly or fortnightly as per the convenience of the business. The format of ledger
A/c is “T” shape. The left-hand side is debit side (Dr.) and right-hand side is credit side (Cr.).
The Performa of a ledger:

Dr. Name of the Account Cr.

JF. Amount JF. Amount
Date Particulars Date Particulars
No Rs. No Rs.

1. Date: Write here the date of the transaction as noted in Journal.

2. Particulars: Every entry on the debit side of this column must begin with the word
'To' and on credit side with the word 'By'.
a) On the debit side of the account after the word 'To' write "Name of the Credit Part
of the Journal entry.
b) On the credit side of the account, after the word' By' write 'Name of the Debit Part
of the Journal entry'.
3. Journal Folio: Write the page number of Journal from where the entry is posted.
4. Amount: Write here the amounts of the transaction. The amount in the debit column
of the Journal is entered on the debit side. The amount in the credit column of the
Journal is entered on the credit side.
 2.10

Balancing an Account:
Accounts are balanced with a view to prepare the final accounts. Take the totals of the
two sides of account and enter the higher balance on both the sides. Enter the difference
amount and write “To/By balance c/d” against the balance. The balance is brought forward at
the beginning of next period written as “To/By balance b/d”. If the debit and credit balance
are equal it implies nil balance.

SUBSIDARY BOOKS
As Business transactions are numerous and large in size, the Journal may be split up
into number of separate Journals to record particular type of transaction. These journals are
known as the subsidiary books. Some of the subsidiary books are:
1. Purchase Book
2. Purchase Return / Return Outward Book
3. Sales Book
4. Sales Return / Return Inward Book
5. Bills Receivable Book
6. Bills Payable Book
7. Journal Proper

1. Purchase Book: The purchase day book records the transactions related to credit
purchase of goods only. It follows that any cash purchase or purchase of things other
than goods is not recorded in the purchase day book. Periodically, the totals of
Purchase day book are posted to Purchase account in the ledger. The specimen
Purchase day book is given below:

Purchases Book
Inward L.F. Amount
Date Name of the Supplier
Invoice No. No (Rs.)

2. Purchase Return / Return Outward Book: This book contains the transactions
relating to goods that are returned by the business to creditors. For example, goods
broken in transit, not according to the sample etc. The specimen Purchase returns day
book is given below:

Purchase Returns Book

Debit Note L.F. Amount
Date Name of the Supplier
No. No (Rs.)

3. Sales Book: The sales day book records transaction of credit sale of goods to
customers. Sale of other things, even on credit, will not be entered in the sales day
book but will be entered in Journal Proper. If goods are sold for cash, it will be
entered in cash book. Total of sales day book is periodically posted to sales account in
the ledger. The specimen of a sales day book is given below:
 2.11

Sales Book
Outward L.F. Amount
Date Name of the Supplier
Invoice No. No (Rs.)

4. Sales Returns/Return Inward Book: The transactions relating to goods which are
returned by the customers for various reasons, such as not according to sample, or not
up to the mark etc. contain in this book. Generally, when a customer returns good to
suppliers, he issues a Debit Note for the value of the goods returned by him.
Similarly, the supplier who receives those goods issues a Credit Note. The specimen
of a sales returns book is given below:

Sales Returns Book

L.F. Amount
Date Name of the Supplier Credit Note No.
No (Rs.)

5. Bills Receivable Book: It is such a book where all bills received are recorded and
therefrom posted directly to the credit of the respective customer‟s account. The total
amounts of the bills so received during the period (either at the end of the week or
month) is to be posted in one sum to the debit of Bills Receivable A/c. The specimen
of a Bills receivable book is given below:

Bills Receivables Book

L.F. Amount
Date Received From Term Due Date
No. (Rs.)

6. Bills Payable Book: Here all the particulars relating to bills accepted are recorded
and therefrom posted directly to the debit of the respective creditor‟s account. The
total amounts of the bills so accepted during the period (either at the end of the week
or month) is to be posted in one sum to the credit of Bills Payable Account. The
specimen of a Bills payable book is given below:

Bills Payable Book

L.F. Amount
Date To Whom Given Term Due Date
No. (Rs.)

7. Journal Proper: Credit transactions that cannot be entered in any other subsidiary
book are entered in journal proper. It will cover purchase or sale of assets, expense
accruals, rectification entries, adjusting entries, opening entries and closing entries.
 2.12

Journal Proper
L.F. Debit Credit
Date Particulars
No (Rs.) (Rs.)

Advantages of Subsidiary Books

The following are the advantages of having a number of subsidiary books:
1. Classification of transactions becomes automatic: As there is a separate book for
each type of transactions, the transactions of same nature are automatically brought at
one place. For example, all credit purchases of goods are recorded in the Purchases
Book.
2. Reference becomes easy: If any reference is required, it can be traced easily by
referring to the appropriate subsidiary book. You do not have to go through all the
transactions recorded in the journal.
3. Facilitates division of work: The division of journal into various subsidiary books
facilitates division of work among many persons. This, in turn, facilitates prompt
recording of transactions and saves a lot of time.
4. More particulars: More details about the transactions can be given-in subsidiary
books than would be possible in one book.
5. Responsibility can be fixed: The work of maintaining a particular book can be
entrusted to a particular person. He will be responsible for keeping it up-to-date and in
order.
6. Facilitates checking: When the Trial Balance does not agree, the location of errors
will be relatively easy.

CASH BOOK
In any business there would be numerous cash transactions which involve either
receipts or payments of cash. Cash sales, receipt of cash from debtors, cash purchases,
payments to creditors, payment of various expenses such as salaries, wages, rent, taxes, etc.,
are some examples of transactions involving cash. These are recorded in cash book, receipts
on one side and payments on the other. Every business unit, small or big, maintains a cash
book. It enables the businessman to know and verify the amount of cash in hand from time to
time. As a matter of fact, cash book plays a dual role. It is a book of prime entry and also
serves the purpose of a Cash Account. It is designed in the form of a ledger account and
records cash receipts on the debit side and payments on credit side. It is also balanced in the
same way. Hence, when cash book is maintained, there is no need to have a Cash Account in
the ledger. There are different types of cash books maintained by the business. They are:
1. Simple or Single Column Cash Book
2. Two or Double Column Cash Book
3. Three or Triple Column Cash Book
4. Petty Cash Book

Simple or Single Column Cash Book: A Single Column Cash Book is nothing but a Cash
Account. It is used for recording all cash receipts and cash payments and serves the purpose
of Cash Account as well. There is no need to open separate cash account in the ledger. It is
called Single Column Cash Book just because it has only one amount column on each side.
 2.13

Dr. Cash Book Cr.

JF. Amount JF. Amount
Date Particulars Date Particulars
No Rs. No Rs.

Two/Double Column Cash Book: The Double Column Cash Book having two amounts.
Columns on each side as under:
(a) Cash and discount columns
(b) Cash and bank columns
(c) Bank and discount columns

Dr. Cash Book Cr.

JF. Amount Amount JF. Amount Amount
Date Particulars Date Particulars
No Rs. Rs. No Rs. Rs.

Triple Column Cash Book: Triple Column Cash Book has three amount columns, one for
cash, one for Bank and one for discount, on each side. All cash receipts, deposits into book
and discount allowed are recorded on debit side and all cash payments, withdrawals from
bank and discount received are recorded on the credit side. In fact, a triple-column cash book
serves the purpose of Cash Account and Bank Account both. Thus, there is no need to create
these two accounts in the ledger.

Dr. Cash Book Cr.

JF. JF.
Date Particulars Cash Bank Discount Date Particulars Cash Bank Discount
No No

Petty Cash Book: When the petty cash fund is operated as an imprest fund, the recording of
the petty expenses paid will be made in the petty cash book. This would also avoid recording
too many small value transactions in the main cash book. The petty cash book would contain
a number of analytical columns for grouping the various expenses under a few classifications
which would facilitate subsequent posting into the General Ledger.
A specimen petty cash book is given below:

Petty Cash Book

Total
Amount
Date Particulars Amount Expenses Postage Stationery Carriage Travelling
Received
Paid
 2.14

TRAIL BALANCE
The fundamental principle of double entry book keeping is that debit must be equal to
credit. In other words, debit aspect of any transaction is always equal to its credit aspect. All
ledger accounts are balances. A debit balance in a general ledger account indicates an excess
of debit side over credit side of the account. A credit balance in a ledger account indicates the
excess of credit side over debit side of the account.
A trial balance is a summary of all the ledger balances outstanding as on particular
date. List of debit balances and credit balances should be equal. It said that Trial balance is
tallied. When trial balance tallies are establishes the arithmetical accuracy of record. It is a
statement prepared before preparing the final accounts. It is a link between books of account
and final accounts i.e. the Trading & Profit & Loss A/c and Balance Sheet.
Trial balances are of two types:
1. Gross Trial Balance: Gross Trial Balance is prepared by taking all ledger account
debit total and credit total, instead of considering ledger balances, as on a particular
date.
2. Net Trial balance: Net trial balance is list of debit & credit balance, taken from
ledger accounts on particular date. Normally, net trial balance is prepare, since it is
transferred to final accounts and personal and real accounts balance are carried
forward from current year to subsequent year.

Trail balance of ………………… as on …………

Name of account Debit Credit
(Particulars) Amount (Rs.) Amount (Rs.)

Preparation of Trial Balance:

1. It may be prepared on a loose sheet of paper.
2. The ledger accounts are balanced at first. They will have either “debit-balance” or
“credit balance” or “nil-balance”.
3. The accounts having debit-balance is written on the debit column and those having
credit-balance are written on the credit column.
4. The sum total of both the balances must be equal, for “Every debit has its
corresponding and equal credit”.

Features of a Trial Balance:

1. It is a list of debit and credit balances which are extracted from various ledger
accounts.
2. It is a statement of debit and credit balances.
3. The purpose is to establish arithmetical accuracy of the transactions recorded in the
books of accounts.
4. It does not prove arithmetical accuracy which can be determined by audit.
5. It is not an account. It is only a statement of account.
6. It is not a part of the final statements.
7. It is usually prepared at the end of the accounting year but it can also be prepared
anytime as and when required like weekly, monthly, quarterly or half-yearly. It is a
link between books of accounts and the Profit and Loss Account and Balance sheet.
 2.15

Purpose of a Trial Balance:

1. To check the arithmetical accuracy of the recorded transactions.
2. To ascertain the balance of any ledger Account.
3. To serve as an evidence of fact that the double entry has been completed in respect of
every transaction.
4. To facilitate the preparation of final accounts promptly.

ILLUSTRATIONS

1. Journalize the following transactions in the books of ABC Ltd. Company.

May 1st Paid salaries Rs. 5000
May 4th Sold goods to Venkat Rs. 10000
May 10th Sold machinery Rs. 30000
May 13th Commission received Rs. 2000
May 18th Allowed discount Rs. 1000
May 22nd Brought goods from Raghava Rs. 4000
May 31st Sold goods to Abhi for cash Rs. 6000

Solution:
Journal Entries in the books of ABC Ltd. Company
L.F. Debit Credit
Date Particulars
No (Rs.) (Rs.)
May Salaries A/c Dr. 5000
1st To Cash A/c 5000
(Being Paid salaries)
May Venkat A/c Dr. 10000
4th To Sales A/c 10000
(Being Sold goods to Venkat)
May Cash A/c Dr. 30000
10th To Machinery A/c 30000
(Being machinery sold)
May Cash A/c Dr. 2000
13th To Commission A/c 2000
(Being Commission received)
May Discount A/c Dr. 1000
18th To Cash A/c 1000
(Being discount allowed)
May Purchase A/c Dr. 4000
22nd To Raghava A/c 4000
(Being brought goods from Raghava)
May Cash A/c Dr. 6000
31st To Sales A/c 6000
(Being Sold goods to Abhi for cash)
 2.16

2. Prepare Journals from the following transactions as on 31st December 2019.

Dec‟1st Mr. Srinivas started business with capital Rs. 5,00,000
Dec‟3 Purchased goods from Kumar Rs. 30,000
Dec‟12 Salaries paid to employees Rs. 50,000
Dec‟15 Sold goods to Sudhakar Rs. 50,000
Dec‟18 Paid wages Rs. 2,000
Dec‟20 Cash paid to Sirisha Rs. 3,000
Dec‟22 Cash received from Raju Rs. 20,000
Dec‟25 Amount deposited into Bank Rs. Rs. 25,000
Dec‟26 Cash withdrawn from Bank Rs. 10,000
Dec‟31 Paid stationery expenses Rs. 15,000

Solution:
Journal Entries in the books of Mr. Srinivas
L.F. Debit Credit
Date Particulars
No (Rs.) (Rs.)
Dec 1st Cash A/c Dr. 500000
To Capital A/c 500000
(Being Srinivas started business with
capital)
Dec 3rd Purchase A/c Dr. 30000
To Kumar A/c 30000
(Being Purchased goods from Kumar)
Dec 12th Salaries A/c Dr. 50000
To Cash A/c 50000
(Being Salaries paid to employees)
Dec 15th Sudhakar A/c Dr. 50000
To Sales A/c 50000
(Being Sold goods to Sudhakar)
Dec 18th Wages A/c Dr. 2000
To Cash A/c 2000
(Being Paid wages)
Dec 20th Sirisha A/c Dr. 3000
To Cash A/c 3000
(Being Cash paid to Sirisha)
Dec 22nd Cash A/c Dr. 20000
To Raju A/c 20000
(Being Cash received from Raju)
Dec 25th Bank A/c Dr. 25000
To Cash A/c 25000
(Being Amount deposited into Bank)
Dec 26th Cash A/c Dr. 10000
To Bank A/c 10000
(Being Cash withdrawn from Bank)
Dec 31st Stationery A/c Dr. 15000
To Cash a/c 15000
(Being Paid stationery expenses)
 2.17

3. Journalize the following in the books of Praveen Ltd.

April 1st Commenced business with cash of Rs. 5,00,000/-
April 5th Deposited cash with bank Rs. 10,000/-
th
April 6 Goods sold for cash Rs. 5,000/-
April 10th Goods purchased for cash Rs. 2,000/-
April 14th Purchased goods from Kiran Rs. 20,000/-
April 20th Returned goods to Kiran Rs. 600/-
April 22nd Paid Wages Rs. 1,000/-
April 24th Paid for advertisement Rs. 1,500/-
April 30th Paid cash to Kiran Rs. 19,000/-

Solution:
Journal Entries in the books of Praveen Ltd.
L.F. Debit Credit
Date Particulars
No Rs. Rs.
April Cash A/c Dr. 5,00,000
1st To Capital A/c 5,00,000
(Being commenced business with cash)
April Bank A/c Dr. 10,000
5th To Cash A/c 10,000
(Being deposited cash with bank)
April Cash A/c Dr. 5,000
6th To Sales A/c 5,000
(Being Goods sold for cash)
April Purchases A/c Dr. 2,000
10th To Cash A/c 2,000
(Being goods purchased)
April Purchases A/c Dr. 20,000
14th To Kiran A/c 20,000
(Being Purchased goods from Kiran)
April Kiran A/c Dr. 600
20th To Purchase Returns A/c 600
(Being Returned goods to Kiran)
April Wages A/c Dr. 1,000
22nd To Cash A/c 1,000
(Being Paid Wages)
April Advertisement A/c Dr. 1,500
24th To Cash A/c 1,500
(Being Paid for advertisement)
April Kiran A/c Dr. 19,000
30th To Cash A/c 19,000
(Being Paid cash to Kiran)

4. Journalize the following transactions in the books of Ram & Co. Ltd.
April 1st Ram invests Rs. 10,000 cash
April 4th Bought goods worth Rs. 2000 from shyam
April 8th Bought a machine for Rs. 5000 from Lakshman.
April 12th Paid to Lakshman Rs. 2000
 2.18

April 14th Sold goods for cash Rs.3000

April 20th Sold goods to A on account Rs. 4000
April 24th Paid to Shyam Rs. 1000
April 30th Received amount from „A‟ Rs. 2000

Solution:
Journal Entries in the books of Ram & Co. Ltd.
L.F. Debit Credit
Date Particulars
No (Rs.) (Rs.)
April 1st Cash A/c Dr. 10,000
To Capital A/c 10,000
(Being ram invests cash)
April 4th Purchase A/c Dr. 2,000
To Shyam A/c 2,000
(Being brought goods from shyam)
April 8th Machine A/c Dr. 5,000
To Lakshman A/c 5,000
(Being brought machine from
Lakshman)
April 12th Lakshman A/c Dr. 2,000
To Cash A/c 2,000
(Being paid to Lakshman)
April 14th Cash A/c Dr. 3,000
To Sales A/c 3,000
(Being sold goods for cash)
April 20th A A/c Dr. 4,000
To Sales A/c 4,000
(Being sold goods to A on account)
April 24th Shyam A/c Dr. 1,000
To Cash A/c 1,000
(Being paid to shayam)
April 30th Cash A/c Dr. 2,000
To A A/c 2,000
(Being received amount from A)

5. Journalize the following transactions in the books XYZ Ltd. for the month of April
1st Started business with cash Rs.2,00,000
nd
2 Purchased goods for cash Rs.10,000
3rd Sold goods for cash Rs.15,000
th
4 Deposited cash in bank Rs.8,000
5th Withdrawn cash from bank Rs.5,000
th
6 Withdrawn cash from business for personal use Rs.7,000
7th Purchased goods from Kiran Rs.10,000
8th Returned goods to Kiran Rs.500
th
10 Sold goods to Ajit Rs.15,000
12th Returned goods by Ajit Rs.800
14th Paid in full settlement to Kiran and received a discount of Rs.100
20th Received in full settlement from Ajit and allowed a discount of 10%
 2.19

25th Brought furniture and paid by cheque Rs.5,000

27th Purchased machinery from R & Co. for Rs.12,000 and paid cash of Rs.6,000
29th Received interest Rs.2,000
30th Paid Salaries Rs.30,000

Solution:
Journal Entries in the books of XYZ Ltd.
L.F.
Date Particulars Debit (Rs.) Credit (Rs.)
No
April Cash A/c Dr. 2,00,000
1st To Capital A/c 2,00,000
(Being started business with cash)
April Purchase A/c Dr. 10,000
2nd To Cash A/c 10,000
(Being purchased goods for cash)
April Cash A/c Dr. 15,000
3rd To Sales A/c 15,000
(Being sold goods for cash)
April Bank A/c Dr. 8,000
4th To Cash A/c 8,000
(Being deposited cash in bank)
April Cash A/c Dr. 5,000
5th To Bank A/c 5,000
(Being withdrawn cash from bank)
April Drawings A/c Dr. 7,000
6th To Cash A/c 7,000
(Being withdrawn cash from business
for personal use)
April Purchase A/c Dr. 10,000
7th To Kiran A/c 10,000
(Being purchased goods from Kiran)
April Kiran A/c Dr. 500
8th To Purchase returns A/c 500
(Being returned goods to Kiran)
April Ajit A/c Dr. 15,000
10th To Sales A/c 15,000
(Being sold goods to Ajit)
April Sales Returns A/c Dr. 800
12th To Ajit A/c 800
(Being returned goods by Ajit)
April Kiran A/c Dr. 9,500
14th To Discount A/c 100
To Cash A/c 9,400
(Being Paid in full settlement to Kiran
and received a discount)
April Discount A/c Dr. 1,420
20th Cash A/c Dr. 12,780
To Ajit A/c 14,200
(Being Received in full settlement
 2.20

from Ajit and allowed a discount)

April Furniture A/c Dr. 5,000
25th To Bank A/c 5,000
(Being brought furniture and paid by
cheque)
April Machinery A/c Dr. 12,000
27th To Cash A/c 6,000
To R & Co. A/c 6,000
(Being Purchased machinery from R &
Co. and paid cash)
April 29th Cash A/c Dr. 2,000
To Interest A/c 2,000
(Being interest received)
April Salaries A/c Dr. 30,000
30th To Cash A/c 30,000
(Being salaries paid)

6. Journalize the transactions in the books of ABC Co. and prepare ledger accounts for the
month of March 2020.
1st Started business with Rs. 30,000
2nd Purchased furniture for cash Rs. 10,000
th
5 Deposited cash in bank Rs.5,000
10th Withdrawn cash from bank Rs. 8,000
15th Sold goods for cash Rs.12,000

Solution:
Journal Entries in the books of ABC Co.
L.F. Debit Credit
Date Particulars
No (Rs.) (Rs.)
Mar Cash A/c Dr. 30000
1st To Capital A/c 30000
(Being started business)
2nd Furniture A/c Dr. 10000
To Cash A/c 10000
(Being purchased furniture for cash)
5th Bank A/c Dr. 5000
To Cash A/c 5000
(Being deposited cash in bank)
10th Cash A/c Dr. 8000
To Bank A/c 8000
(Being withdrawn cash from bank)
15th Cash A/c Dr. 12000
To Sales A/c 12000
(Being sold goods for cash)
 2.21

Dr. Cash A/c Cr.

JF Amount JF Amount
Date Particulars Date Particulars
No (Rs.) No (Rs.)
Mar 1st To Capital A/c 30,000 Mar 2nd By Furniture A/c 10,000
Mar 10th To Bank A/c 8,000 Mar 5th By Bank A/c 5,000
Mar 15th To Sales A/c 12,000
Mar 31st By Balance c/d 35,000

50,000 50,000

April 1st To Balance b/d 35,000

Dr. Capital A/c Cr.

JF Amount JF Amount
Date Particulars Date Particulars
No (Rs.) No (Rs.)
Mar 1st By Cash A/c 30,000
st
Mar 31 To Balance c/d 30,000

30,000 30,000

Apr 1st By Balance b/d 30,000

Dr. Furniture A/c Cr.

JF Amount JF Amount
Date Particulars Date Particulars
No (Rs.) No (Rs.)
Mar 2nd To Cash A/c 10,000
Mar 31st By Balance c/d 10,000

10,000 10,000

Apr 1st To Balance b/d 10,000

Dr. Bank A/c Cr.

JF Amount JF Amount
Date Particulars Date Particulars
No (Rs.) No (Rs.)
Mar 5th To Cash A/c 5,000 Mar 10th By Cash A/c 8,000

Mar 31st To Balance c/d 3,000

8,000 8,000

Apr 1st By Balance b/d 3,000

 2.22

Dr. Sales A/c Cr.

JF Amount JF Amount
Date Particulars Date Particulars
No (Rs.) No (Rs.)
Mar 15th By Cash A/c 12,000
Mar 31st To Balance c/d 12,000

12,000 12,000

Apr 1st By Balance b/d 12,000

7. From the following information prepare necessary subsidiary books:

May 1st Purchased goods from Kamal Rs.5000, with invoice no.670
nd
May 2 Brought goods from Samuel Rs.10000, invoice no 435
May 3rd Returned goods to Kamal Rs.500, note no.250
th
May 4 Sold goods to Srikar Rs.6000, invoice no. 751
May 5th Sold goods to Madhu Rs.10000, invoice no.754
th
May 7 Returned goods by Madhu Rs.500, note no. 351
May 10th Purchased goods from Raghu Rs.2000, invoice no.52
May 14th Sold goods to Deepti Rs.12000, invoice no. 497
th
May 15 Sold goods for cash Rs.5000
May 21st Drew a bill on Abdullah & Co. at 2 months for Rs.700.
nd
May 22 Acceptance received from Rahim & co. at 3 months for Rs. 1,000
May 23rd Ram & Co. gives his acceptance at 3 months for Rs. 800
th
May 24 Accepted a bill at 3 m for Rs.200 drawn by Raghu & Co.
May 25th Gave acceptance at 2 m for Rs. 500 to Kamal
th
May 26 Accepted at 1 m for Rs. 500 given to Feroz & Co.
May 28th Purchased furniture from R & Co. for Rs. 10000
May 30th Sold old machinery to Rajesh for Rs.2000
st
May 31 Purchased goods for cash Rs. 5,000

Solution:

Purchases Book
Inward L.F. Amount
Date Name of the Supplier
Invoice No. No (Rs.)
May 1st Kamal 670 5,000
May 2nd Samuel 435 10,000
May 10th Raghu 52 2,000

Total 17,000

Purchase Returns Book

Debit Note L.F. Amount
Date Name of the Supplier
No. No (Rs.)
May 3rd Kamal 250 500
Total 500
 2.23

Sales Book
Outward L.F. Amount
Date Name of the Supplier
Invoice No. No (Rs.)
May 4th Srikar 751 6,000
May 5th Madhu 754 10,000
May 14th Deepti 497 12,000

Total 28,000

Sales Returns Book

Credit Note L.F. Amount
Date Name of the Supplier
No. No (Rs.)
May 7th Madhu 351 500

Total 500

Bills Receivables Book

L.F. Amount
Date Received From Term Due Date
No. (Rs.)
May 21st Abdullah & Co. 2m July 21st 700
May 22nd Rahim & Co. 3m August 22nd 1,000
May 23rd Ram & Co. 3m August 23rd 800

Total 2,500

Bills Payable Book

L.F. Amount
Date To Whom Given Term Due Date
No. (Rs.)
May 24th Raghu & Co. 3m August 24th 200
May 25th Kamal 2m July 25th 500
May 26th Feroz & co. 1m June 26th 500

Total 1,200

Journal Proper
L.F. Debit Credit
Date Particulars
No (Rs.) (Rs.)
May Furniture A/c Dr. 10,000
28th To R & Co. 10,000
(Being purchased furniture
from R & Co.)

May Rajesh A/c Dr. 2,000

30th To Machinery A/c 2,000
(Being sold old machinery
to Rajesh)
 2.24

8. Enter the following transactions in a cashbook and balance it. March 2020
1 Balance on hand Rs. 4735
4 Received from Muralidhar Rs.6000
5 Goods purchased for cash Rs.2000
6 Goods sold for cash Rs.1500
13 Cash sales Rs.400
18 Paid to Singh Rs.1000
20 Paid to Sridhar Rs.200
24 Paid advertisement Rs.100
26 Remitted to Mohan Rs.400
28 Draw for personal use Rs. 300
30 Paid office rent Rs. 415
31 Received from Singh Rs.400
Solution:
Dr. Cash A/c Cr.
JF Amount JF Amount
Date Particulars Date Particulars
No (Rs.) No (Rs.)
Mar 1st To Opening 4,735 Mar 5th By Purchases A/c 2,000
Balance b/d
Mar 4th To Muralidhar A/c 6,000 Mar 18th By Singh A/c 1,000
Mar 6th To Sales A/c 1,500 Mar 20th By Sridhar A/c 200
Mar 13th To Sales A/c 400 Mar 24th By Advert A/c 100
Mar 31st To Singh A/c 400 Mar 26th By Mohan A/c 400
Mar 28th By Drawings A/c 300
Mar 30th By Office rent A/c 415
Mar 31st By Balance c/d 8,890
13,035 13,035
st
Apr 1 To Balance b/d 8,890

9. Prepare trial balance as on 31st March 2020.

Account Amount (Rs.)
Purchases 43,000
Sales 72,500
Insurance premium 510
Drawings 6,280
Plant and machinery 4,500
Commission paid 1,070
Opening stock 11,200
Repairs 880
Returns inwards (sales returns) 1,000
Discount allowed 1,150
Rent paid 3,000
Returns outwards (purchase returns) 400
Investments 2,500
Creditors 14,260
Debtors 1,430
Traveling expenses 2,850
Salaries 33,540
Cash at bank 1,090
Fire wood 1,770
 2.25

Capital 30,000
Carriage 240
Bad debts 690
Petty expenses 460

Solution:
Trial Balance as on 31st March 2020
Particulars Debit (Rs.) Credit (Rs.)
Purchases 43,000
Sales 72,500
Insurance premium 510
Drawings 6,280
Plant and machinery 4,500
Commission paid 1,070
Opening stock 11,200
Repairs 880
Returns inwards (sales returns) 1,000
Discount allowed 1,150
Rent paid 3,000
Returns outwards (purchase returns) 400
Investments 2,500
Creditors 14,260
Debtors 1,430
Traveling expenses 2,850
Salaries 33,540
Cash at bank 1,090
Fire wood 1,770
Capital 30,000
Carriage 240
Bad debts 690
Petty expenses 460
Total 117,160 117,160

10. From the following information, prepare trial balance as on 31st March 2020.
Particulars Amount (Rs.)
Capital 763,050
Furniture & Fixtures 40,000
Land & Building 403,000
Plant & Machinery 200,000
Drawings 60,000
Patents 20,000
Stock (opening) 400,000
Purchases 950,000
Wages 50,000
Salaries 72,000
 2.26

Sundry Debtors 350,000

Sales 1,320,000
Sales Returns 61,000
Purchases Returns 10,000
Loan from Ketan 400,000
Rent, Rates & Taxes 48,000
Bad Debts 4,000
Sundry Creditors 224,000
Discount received 9,000
Trade Expenses 700
Interest on Loan 4,500
Insurance 6,500
Traveling Expenses 3,000
Cash in Hand 2,100
Cash at Bank 51,250

Solution:
Trial Balance
Particulars Debit (Rs.) Credit (Rs.)
Capital 763,050
Furniture & Fixtures 40,000
Land & Building 403,000
Plant & Machinery 200,000
Drawings 60,000
Patents 20,000
Stock (opening) 400,000
Purchases 950,000
Wages 50,000
Salaries 72,000
Sundry Debtors 350,000
Sales 1,320,000
Sales Returns 61,000
Purchases Returns 10,000
Loan from Ketan 400,000
Rent, Rates & Taxes 48,000
Bad Debts 4,000
Sundry Creditors 224,000
Discount received 9,000
Trade Expenses 700
Interest on Loan 4,500
Insurance 6,500
Traveling Expenses 3,000
Cash in Hand 2,100
Cash at Bank 51,250
Total 2,726,050 2,726,050
 2.27

IMPORTANT QUESTIONS
1. Define Accounting. Explain the objective of accounting.
2. Discuss the concepts and conventions of accounting.
3. What is double entry bookkeeping system? Discuss its advantages and limitations?
4. Explain the basis of accounting system.
5. What is an Account? Explain the types of accounts and their rules.
6. What is a Journal? Explain the advantages of journal.
7. What is Ledger? Explain the process of transferring entries into ledger.
8. What are subsidiary books? Explain the different subsidiaries with performa.
9. What is Trial Balance? Why it is prepared? Explain its features.

10. Journalize the following transactions and post them into Ledgers
Jan 1. Commenced business with a capital of Rs. 10000
,, 2. Bought Furniture for cash Rs. 3000
,, 3. Bought goods for cash from „B‟ Rs. 500
,, 4. Sold goods for cash to A Rs. 1000
,, 5. Purchased goods from C on credit Rs.2000
,, 6. Goods sold to D on credit Rs. 1500
,, 8. Bought machinery for Rs. 3000 paying Cash
,, 12. Paid trade expenses Rs. 50
,, 18. Paid for Advertising to Apple Advertising Ltd. Rs. 1000
,, 19. Cash deposited into bank Rs. 500
,, 20. Received interest Rs. 500
,, 24. Paid insurance premium Rs. 200
,, 30. Paid rent Rs. 500
,, 30. Paid salary to P Rs.1000

11. Prepare journal entries and ledger accounts (Cash A/c, purchase A/c, Sales A/c and
Bank A/c) 2019 December.
1st Ajit started business with cash Rs. 40000
3rd Paid in to the bank Rs. 2000
th
5 Purchased goods for cash Rs. 15000
8th Sold goods for cash Rs. 10000
th
10 Purchased furniture and paid by cheque Rs. 6000
12th Sold goods to Arvind Rs. 4000
14th Purchased goods from Arun Rs. 10000
16th Paid salaries Rs. 1500
17th Paid depreciation Rs. 500
22nd Amount deposited in to the bank Rs. 4000
25th Withdrew cash from bank Rs. 3000
28th Cash paid to Raju in full settlement Rs. 4950
31st Paid expenses Rs. 700

6. During January 2020 Good Field Ltd. transacted the following business:
1. Commenced business with cash Rs. 20,000
2. Purchased goods on credit from Nadu Rs. 1,00,000
3. Purchased goods for cash Rs. 4,000
6. Purchased furniture, office use for cash Rs. 2,000
7. Paid Rent Rs. 1,000
 2.28

8. Goods returned to Nadu Rs. 2,000

10. Goods sold to Kishore Rs. 10,000
11. Paid for postage and telegrams Rs. 200
13. Goods returned by Kishore Rs. 2,000
14. Purchase furniture (amount cheque paid) Rs. 16,000
15. Paid for stationery Rs. 1,200
18. Paid into Bank Rs.5,000
20. Goods sold for cash Rs. 27,750
22. Bought goods for cash Rs. 3,000
25. Paid salaries by cheque Rs. 3,200
28. Paid rent Rs. 1,000
30. Drew cash for personal use Rs.4,000
31. Deposited cash into Bank Rs. 12,000

7. Journalize the following transactions in the books of Shiva & Co. for the month of April
1 Started business with cash Rs. 25,000/6
2 Purchased goods worth Rs. 10,000/4
4 Deposited cash Rs. 3,000 into the Bank.
6 Purchased goods of Rs. 6,000 from M/s. Raju Trading Company.
9 Sold goods to Mr. Ramesh for Rs. 3,000.
12 Paid to M/s. Raju Trading Company Rs. 3,000.
15 Received Rs. 1,000 from Mr. Ramesh.
20 Paid salaries Rs. 1,000/- and paid commission Rs. 1,600/- in cash.
25 Bought stationery for office use Rs. 300.
27 Withdrew Rs. 2,500 from business for personal use.
30 Withdrew Rs. 4,000 from bank for office use.

11. Prepare Journal in the books of Rao & Co., from the following transactions.
Date Particulars Amount (Rs.)
Apr 1 Started business with capital 1,00,000
Apr 5 Paid into bank 50,000
Apr 8 Purchased goods for cash 15,000
Apr 9 Paid to Shyam 5,000
Discount allowed by him 1,000
Apr10 Cash sales 5,000
Apr 11 Sold to Krishna for cash 15,00
Apr 12 Purchased goods from Shyam 2,500
Apr 13 Paid wages to workers 10,000
Apr 20 Received from Pankaj allowed him discount Rs.50 2,000
Apr 21 Withdrawn form bank 4,000
Apr 23 Paid Shyam by cheque 3,000
Apr 30 Withdrawn for personal use 1,000

12. Prepare a Trial Balance from the following data for the year ending March 2020.
Rs. Rs.
Freehold property 10800 Discount received 150
Capital 40000 Returns inwards 1590
Returns outwards 2520 Office expenses 5100
Sales 80410 Bad debts 1310
Purchases 67350 Carriage outwards 1590
 2.29

Depreciation on furniture 1200 Carriage inwards 1450

Insurance 3300 Salaries 4950
Opening stock 14360 Book debts 11070
Creditors for expenses 400 Cash at bank 2610
Creditors 4700

13. From the following list of balances prepare a Trial Balance as on 31-03-2020
Sno. Items Rs. Sno. Items Rs.
i Opening Stock 1800 xiii Plant 750
ii Wages 1000 xiv Machinery tools 180
iii Sales 12000 xv Lighting 230
iv Bank loan 440 xvi Creditors 800
v Coal coke 300 xvii Capital 4000
vi Purchases 7500 xviii Misc. receipts 60
vii Repairs 200 xix Office salaries 250
viii Carriage 150 xx Office furniture 60
ix Income tax 150 xxi Patents 100
x Debtors 2000 xxii Goodwill 1500
xi Leasehold premises 600 xxiii Cash at bank 510
xii Cash in hand 20

14. From the following information of BCE Ltd., prepare trial balance as on 31 st March
2020.
Particulars Amount (Rs.) Sales Returns 61,000
Capital 7,63,050 Purchases Returns 10,000
Furniture & Fixture 40,000 Loan from Ketan 4,00,000
Land & Building 4,03,000 Rent, Rates & Taxes 48,000
Plant & Machinery 2,00,000 Bad Debts 4,000
Drawings 60,000 Sundry Creditors 2,24,000
Patents 20,000 Discount received 9,000
Stock 4,00,000 Trade Expenses 700
Purchases 9,50,000 Interest on Loan 4,500
Wages 50,000 Insurance 6,500
Salaries 72,000 Traveling Expenses 3,000
Sundry Debtors 3,50,000 Cash in Hand 2,100
Sales 13,20,000 Cash at Bank 51,250