ACCOUNTING

Compiled by- Adv. (Dr)Bhupendra Jain, 9811255704

Ph.D., LLB, MBA, PGDBM, M. Com

1
2
3
4
ACCOUNTING: The process of identification, measurement, recording, interpreting and
communicating economic events of an entity to all concerned.

5
The American Institute of Certified Public Accountants defines accounting as “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 financial character, and interpreting the
results”.

ACCOUNTING PROCESS:
1. Identification of economic events
2. Measurement of economic events
3. Recording of economic events
4. Communicating economic events to various users
5. Interpreting financial results

DOUBLE ENTRY SYSTEM:

The double-entry system is based on dual aspects and is a complete system of accounting.
Accordingly, every business transaction has two effects (Debit & Credit). The system is more
reliable than the single-entry system as it keeps full records of business transactions.

Classification of Accounts

Personal Accounts Impersonal Accounts

Real Nominal
Accounts Accounts

1. Personal Accounts: The accounts which relate to an individual, firm, company are
called personal accounts.
Examples: Accounts of an individual like Ram’s A/c, Mohan A/c
DCM Ltd A/c, Delhi university A/c, Bank A/c Proprietor A/c, Debtors A/c, Creditors A/c
CLASSIFICATION OF PERSONAL ACCOUNTS

Natural Personal Artificial Personal Representative Personal

Accounts Accounts Accounts

6
1. Natural Personal Accounts: Natural person means human beings. Hence, in this type of
category, accounts of human beings are involved. For example, Mohan A/c, Debtors A/c,
Creditors A/c, Proprioter’s Capital A/c, Prop rioter’s Drawing Accounts
2. Artificial Personal Accounts: These accounts do not have physical existence as human
beings but they can work like human. In the eye of law, they are competent to enter into an
agreement like any human being. For example, a Company, firm, Bank, society, Government
body etc.
3. Representative Personal Accounts: When an account represents a particular person or
group of persons it is termed as a Representative Personal account. For example, salary
outstanding a/c, prepaid rent a/c etc.

2. Impersonal Accounts
(a) Real Accounts: The accounts of all these things whose value can be measured in terms
of money and which are property of the business are termed as real accounts.

CLASSIFICATION OF REAL ACCOUNTS

Tangible Real Accounts Intangible Real Accounts

1. Tangible Real Accounts: Tangible real accounts are the accounts of those things
which can be touched, seen, measured, purchased, sold etc. For example, Stock a/c,
Furniture a/c, land a/c, Building a/c, cash a/c etc.
2. Intangible Real Accounts: These accounts represent such things which can not be
touched, seen and measured but have monetary value such as Patent, Trademark,
Copyright etc.

(b) Nominal Accounts: Accounts which relate to the expenses, losses, income and gains
of the business concern are known as nominal accounts. For example, Rent A/s, salary
A/c, commission A/c etc.

Q. 1: Classifying the following accounts into Personal, Real and Nominal accounts.
1. Capital; 2. Building; 3. Cash; 4. Interest paid
5. Bank 6. Goodwill 7. Outstanding Salary 8. Sales
9 DTC 10. Trade Mark 11. WLC Collage 12. Debtors

RULES OF DEBIT and CREDIT

Personal Accounts Real Accounts Nominal Accounts

7
Debit the Receiver What comes in Debit All losses & exp. are Debit
& & &
Credit the giver What goes out Credit All income & gains are credit

PERSONAL ACCOUNTS: ‘Debit The Receiver & Credit

The Giver”
Where the accounts are related to persons, the rules is “ debit the person who receive the
benefit and credit the person who gives the benefit”
Example : A cheque of Rs. 5,000 was paid to Raj
Accounts Affected : Raj’s Accounts and Bank Accounts
Nature of Accounts : Both are personal accounts
Rule : ‘Debit The Receiver And Credit The Giver”
Apply the Rule : Here, Raj is the receiver and Bank is the giver
Debit : Raj’s Account
Credit : Bank Account

REAL ACCOUNTS: ‘Debit What Comes in & Credit

What Goes Out”
Example : Furniture costing Rs. 15,000 purchased in cash.
Accounts Affected : Furniture Accounts and Cash Accounts
Nature of Accounts : Both are real accounts
Rule : ‘Debit What Comes in & Credit What Goes Out”
Apply the Rule : Here, Furniture comes in and cash goes out.
Debit : Furniture Account
Credit : Cash Account

NOMINAL ACCOUNTS: ‘Debit All Losses and

Expenses & Credit
All Income and Gains”
Example : Salary paid Rs. 10,000 in cash.
Accounts Affected : Salary Accounts and Cash Accounts
Nature of Accounts : Salary A/c is nominal account and cash is a real accounts
Rule : Rule for Nominal account ‘Debit All Losses and Expenses
& Credit All Income and Gains”
Rules for Real account ‘Debit What Comes in & Credit
What Goes Out”
Apply the Rule : Here, Salary is an expenses and Cash goes out
Debit : Salary Account
Credit : Cash Account

Q.1: Journalize the following transaction.

1. Hari started a business with cash Rs. 2,00,000.
2. Purchased goods for cash for Rs. 35,000.

8
3. Purchased goods from Suraj for Rs. 18,000.
4. Purchased furniture for cash Rs. 10,000.
5. Purchased goods from Sachin Rs. 10,000 and Kapil Rs. 15,000.
6. Purchased machinery from Jai paid by cheque Rs. 35,000.
7. Cash sales of goods for Rs. 50,000.
8. Paid Rs. 550 for subscribing newspaper.
10. Paid income tax Rs. 5,500.

11. Spent Rs. 57,000 for Tables and Chairs.

12. Purchased plant for Rs. 70,000 and spent Rs. 2,000 for installation.

9
13. Amount withdrawn by Hari for his personal use Rs. 10,000

14. Sold goods to Ram for credit Rs. 10,000.

15, Rent paid Rs. 10,000; Trade exp. Rs. 1,000 and Traveling exp. Rs. 500.

16. Interest received by cash Rs. 200.

10
17. Withdrew from bank – For office Rs. 2,000
For private use Rs. 4,000

18. Paid Income Tax Rs. 2,000 and GST tax Rs. 6,000.

19. Commission charged by Bank Rs. 100

20. Miscellaneous exp. Rs. 1,000

11
Q.2: Journalize the following transaction.
1. Started business with cash Rs. 1,00,000
2. Cash purchased Rs. 48,000

3. Sold goods to Ram on credit Rs. 35,000

4. Defective goods returned by Ram Rs. 1,300

5. Paid to Ravi Rs. 10,000

6. Commission received Rs. 2,000

7. Advertisement exp. Rs. 4,500.
8. Cash deposited into Bank Rs. 10,000
9. Purchased goods from Gopal and paid by cheque Rs. 5,000
10. Amount withdrawn from bank for personal use Rs. 2,500
11. Cash received from Ram. Rs. 5,000
12. Stationery exp. Rs. 500.

12
13. Furniture purchased by cash Rs. 25,000.
14. Purchased Building by cash for Rs. 5,00,000 and paid Rs. 50,000 as registration charges.
15. Paid commission for purchase of building Rs. 10,000.

ENTRIES OF SOME SPECIFIC TRANSACTION

13
1. BAD DEBT: When debtors become bankrupt (Unable to pay). The unrealized amount is a loss to the
business; the same is called Bad Debts.
Cash/Bank A/c ……..Dr.
Bad Debts A/c ……..Dr.
To Debtor’s Personal A/c

2. BAD DEBTS RECOVERED:

Cash/ Bank A/c ……..Dr.
To Bad Debts Recovered A/c

Q.1 – Journalised the following transaction:

(i) Ram is declared insolvent. Received from official receiver a first and final dividend of 60 paise in the
rupee on a debt of Rs. 1,000.

(ii) Mohan who owed me Rs. 2,000 has failed. He pay me a composition of Rs. 50 paise in the rupee.
(iii) Received cash for a bad debt written off last year Rs. 700.

14
15
3. BANKING TRANSATION:
 When Cash deposited into Bank
Bank A/c ……..Dr.
To Cash
 Payment by cheque
Creditor Personal A/c ……..Dr
To Bank

16
  Cash withdraw from Bank
Cash A/c ……..Dr
To Bank A/c

 Amount withdrawn from Bank for personal use

Drawing A/c ………Dr
To Bank A/c

 Interest credited by Bank

Bank A/c ………Dr
To Interest A/c

 Commission charged by Bank

Commission A/c ………Dr
To Bank A/c

4. GOODS GIVEN AS CHARITY:

Charity A/c ………Dr
To Purchases Ac

17
5. DISCOUNTS:
1. Trade Discount
2. Cash Discount
(i) Trade Discount: Trade discount is an allowance made to a customer if he purchased
goods above a certain quantity or an amount.
(ii) Cash Discount: Cash discount is allowed to encourage prompt payment of amount due.
Cash discount received or allowed is recorded separately in the books.

Q. 3-.a. Purchase goods of the list price of Rs. 25,000 from Mohan less 20% trade discount
and 2% cash discount and paid by cheque only 40%.

18
 b. Sold goods to Rakesh of the list price of Rs. 50,000 less 20% trade discount and 2% cash
Discount and paid 50% by cash.

19
6. DISTRIBUTION OF GOODS AS FREE SAMPLE
Advertisement A/c …….…Dr
To Purchase A/c

7. Cash withdrawn or goods taken by proprietor for personal use.

Drawing A/c ……….Dr
To Cash A/c (If cash is withdrawn)
To Purchases A/c (If goods taken)

20
8. LOSS BY THEFT OR FIRE:
Loss by theft or fire a/c ……….Dr
To Purchase A/c

9. GST: At the time of sale, GST also collected from the customer. GST so collected must be deposited
in government account on the due date
At the time of sale
Cash/Bank/Debtors A/c ………Dr
To sales A/c
To GST A/c

21
22
23
At the time of deposit of sales tax in the government accounts.
GST A/c ………Dr
To Bank A/c
At the time of purchase. VAT paid on purchases by customer
Purchase A/c ………..Dr
GST Paid A/c ………..Dr
To Cash / Bank/ Creditor A/c

Q. 4- Journalised the following transaction:

(i) Goods worth Rs. 500 given as charity.
(ii) Received Rs. 975 from Hari in full settlement of his account for Rs. 1,000

24
 (iii) Received cash from Ram for a bad debt written off last year Rs. 1,500

(iv) Goods worth Rs. 500 were used by the proprietor for domestic purpose.

(v) Goods uninsured worth Rs. 3,000 were destroyed by fire.

(vi) Bricks, cement, etc. for Rs. 2,00,000 and timber for Rs. 50,000 for the construction of
building. The payment was made by cheque.

25
 (vii) Paid Rs. 5,000 in cash as wages on installation of machinery.

(viii) Sold goods to Krishna on list price Rs. 20,000, trade discount @10% and cash discount
@5%. He paid the amount on the same day and avail the cash discount.

(ix) Sold goods costing Rs. 40,000 to Mohan for cash at a profit of 25% on cost less 20%
trade discount and charge 12% GST and paid cartage Rs. 200 (not to charge from
customer)

26
 (x) Sold goods costing Rs. 40,000 to Ashok at a profit of 20% on sales less 20%
trade discount and charge 12% GST and paid cartage Rs. 200 (to charge from customer)

27
10. OUTSTANDING EXPENSES: Current year expenses due but have not been paid till the
year end.
(Exp. Outstanding Wages)
Wages A/c ………..Dr
To Outstanding Wages A/c

11. PREPAID EXPENSES: In the expenses paid in advance.

(Exp. Rent paid in advance)
Prepaid Rent A/c …………Dr
To Rent A/c
NOTE: Prepaid rent is an assets

12. DEPRECIATION: Due to continuous use of fixed assets, value of these assets keeps on
decreasing every year.
Depreciation A/c …………Dr
To Assets A/c
13. INTEREST ON CAPITAL AND DRAWING: Interest on capital is loss for business.
Interest A/c …………Dr
To Capital A/c

Q. 5- Journalised the following transaction:

1. Received Rs. 4,000 from Mahesh which were written off as bad debts in the previous
Year.
2. Salary due to clerks Rs. 7,000.
3. Out of the rent paid this year, Rs. 2,000 is related to next year.
4. provide 10% depreciation on furniture costing Rs. 50,000.
5. Provide 10% interest on capital amounting to Rs. 1,00,000.
6. Goods used in making furniture Rs. 1,500.

Comprehensive
Q. 6: Journalise the following transactions for the month of January, 2008
Jan. 1 Received an order from karan for Rs. 75,000 for supply of goods and

28
 received Rs. 40,000 as an advance together with the order
Jan. 2 Goods worth Rs. 75,000 supply to Karan against the order.
Jan. 5 Purchased goods from Nupur for Rs. 30,000
Jan. 8 Sold 2/5th of the above goods at a profit of 20% on cost.
Jan. 11 Paid VAT by chequefor Rs. 10,000
Jan. 18 Payment made to Nupur by cheque and received a discount of 5% of early
payment.
Jan. 20 Sold goods for cash to Manoj for Rs. 12,000 and collect 10% GST on it.
Jan. 24 Sold goods to Vishnu list price Rs. 25,000; trade discount 20% and cash
discount 2%. He paid 60% amount on the same day and avail cash
discount on it.
Jan. 27 Purchase goods Rs. 60,000 from A and supplied it to B for Rs. 70,000
Jan .31 B returned goods for Rs. 14 000 which was returned to A on the same day

Q. 7: Journalise the following transactions for the month of April, 2008

April 1 Kamal started business with cash Rs. 2,00,000
April 5 Bought goods from Pawan list price Rs. 15,000 less 20% trade discount
April 7 Goods withdrawn by Kamal for personal use Rs. 1,000
April 8 Brought a Cycle Rs. 3,000 delivery of goods to customers.
April 12 Purchase goods for Rs. 2,000 from Neelam and supplied these to Kailash
for Rs. 2,400. Kailash return goods worth Rs. 240, which inturn were
returned to Neelam.
April 18 Received cash from Santlal Rs. 1,000 on behalf of Mohan.
April 22 Goods stolen by an employee (sale price Rs. 1,000; cost Rs. 600)
April 30 Salary paid Rs. 1,000

Q 8: Following balances appeared in the books of Radhika Traders as on 1st January, 2007:-
Assets: - Cash Rs. 8,000; Cash at Bank Rs. 7,000; Stock Rs. 30,000; Furniture Rs. 5,000; Buildings
Rs. 25,000.
Debtors: - Mohan Rs. 10,000; Sohan Rs. 12,000; Dinesh Rs. 14,000.
Liabilities: - Creditors – X Rs. 5,000; Y Rs. 6,000.
2007
Jan. 2 Bought goods of the list price of Rs. 26,000 from Khanna Brothers less 15% trade
discount and 2% cash discount and paid 40% price at the same time.
Jan. 3 Sold goods to Bhushan of the list price of Rs. 10,000 at trade discount of 10%.
Jan. 4 Bhushan returned goods worth Rs. 1,000.
Jan. 4 Received from Bhushan Rs. 8,000 in full settlement of his account.
Jan. 5 returned goods to Khanna Brothers of the list price of Rs. 2,000.
Jan. 6 Cleared the account of Khanna Brothers by paying cash, under a discount of 5%.
Jan. 8 Paid for the proprietor’s Life Insurance Premium Rs. 1,200 which related to next year.
Jan. 8 Sold goods to Shiv Parshad of the list price of Rs. 10,000 at a trade discount of 15%.
Jan. 9 Shiv Parshad returned goods of the list price of Rs 1,000. and gave a cheque for the
balance after deducting 4% cash discount.
Jan. 10 The above cheque has been deposited in to the bank.
Jan. 11 Received a cheque from Sohan for Rs. 7,800 and allowed him a discount of Rs. 200
Jan. 12 Withdrew from bank – For office Rs. 2,000

29
 For private use Rs. 4,000
Jan. 13 Cheque of Sohan returned by the bank as dishonoured.
Jan. 15 Dinesh has declared insolvent and a payment of 60 paise in a rupee received from his
estate.
Jan. 15 paid Income Tax Rs. 2,000 and sales tax Rs. 6,000.
Jan. 16 Provide 9% interest on Capital.
Jan. 17 Charge interest on drawings Rs. 1,000.
Jan. 18 Purchased a machinery for Rs. 1,00,000 and spent Rs. 5,000 on its installation.
Payment for machinery was made by cheque and installation expenses were paid in
cash.
Jan. 19 Paid Rs. 500 for repairing some other machinery.
Jan. 20 Purchased land for Rs. 2,00,000 and paid 1% as brokerage and Rs. 15,000 as
registration charges on it.
Jan. 22 Wages due to labourers Rs. 2,000 and salary due to the clerk Rs. 3,000.
Jan. 23 Goods worth Rs. 5,000 were destroyed by fire.
Jan. 24 Received Rs. 100 from sale of old news paper and Rs. 50 from sale of old chairs.
Jan. 25 Received cash from a debtor written off as bad-bebts last year Rs. 2000.
Jan. 26 Paid rent of building Rs. 600. Half the building is used by the proprietor for residential
purposes.
Jan. 27 Goods destroyed by fire : Cost Price Rs. 4,000, Sale price Rs. 5,000.
Jan. 29 provide 20% depreciation on machinery purchased on 18th Jan.

30