Module 02

ELEMENTS OF BOOK KEEPING
Elements of Book Keeping

Book- Keeping is an art and science of recording the business
transactions in a set of books.
Every business involves exchange of goods or services. A trader or a
businessman purchases and sells goods and services with a view to make
profit that means any businessman or a concern deal with other parties in
exchange of goods or services. Such dealings in business are called as
business transactions. The transactions may be made either on cash or credit
basis The business transactions include purchase of goods/services, sale of
goods or services, payments, receipts etc. In a business transactions are
numerous. All the details of these transactions may not be remembered by
businessman. Further the business transactions take place daily throughout
the accounting year Therefore it is very necessary to keep a detailed record of
such transactions. The record of such transactions should be systematic, so
that it may render valuable information to the owner of the business.
Bookkeeping is such a system by which the business transactions are
recorded systematically in a set of books
Objects of Book keeping.
The objects of Bookkeeping are as under: 1) To ascertain the amount of profit or loss sustained during the year.
2) To ascertain the amount of capital in the business.
3) The businessman will know the amount of his assets and liabilities in the
business on a particular date.
4) To know the amount due to his creditors at any time and amount due to him
from each of his customers at any time.
5) He will know the cash balance, bank balance, his stock of goods on hand
on any date.
6) To know the amount of profit or loss made on and to ascertain the amount
of liability by way of various taxes payable to the government.
In conclusion, the object of book-keeping is to have a permanent
record of all business transactions and to show the effect of each transaction
and the combined effect of all the transactions upon the financial position of
the business.
What is Accounting?
Accounting is a wider concept, which includes bookkeeping. Book
keeping is the recording aspect of Accounting. Accounting is the act of
recording, classifying and summarizing transactions of an enterprise and
interpreting the result thereof. Accounting involves not only maintaining
records but it also involves balancing of accounts, interpreting the balances,
ZONAL RAILWAY TRAINING INSTITUTE, BHUSAWAL
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preparation of summaries, drawing conclusions from the summaries,
ascertaining the results of financial transactions etc. Book keeping is an
essential part of accounting.
Accounting has been defined as, "the art of recording, classifying and
summarizing in a significant manner of all the business transactions and
events and interpreting the results thereof for a particular period."
Objects of Accounting
The primary object of Accounting is to enable a businessman or business
concern to know the following information accurately and with minimum time
and effort: 1) The amount of profit earned or the amount of loss suffered during the
accounting period.
2) The amount of his capital in the business.
3) The amount of his assets, liabilities in the business on any particular date
i.e. what he owns, what he has to receive from others and what he owes to
others.
4) To know the amounts due to others (his creditors) at any time.
5) To know the amount of profit or loss how he had made.
6) His cash balance and bank balance on a particular date.
7) Stock of goods he has in hand.
Systems of Accounting
There are various methods of maintaining accounts. Businessman
adopts any one of the following methods for their accounts suited for
business: 1. Indian System: - Since time immemorial, the Indian trades have been
keeping the accounts of their business. The businessmen write their
accounts in vernacular of Indian languages like Hindi, Marathi etc. The
accounts are written in the long account books called Bahis and the
system is known as Bahikhata. This system is mainly known as Mahajani
System. It is based on the principle of the Double Entry System as this
system also adopts principle of debit and credit.
2. English System: - The organizations, which undertake large-scale
economic activities, prefer to adopt the English system for maintaining the
accounts. The system is further classified as, (a) Single Entry System (b)
Double Entry System.
a) Single Entry System: - Really speaking this is not a system at all.
This is a system in which double entry system is adopted in an
incomplete way. Only cash accounts and personnel accounts are
maintained in this system and impersonal accounts are ignored.
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This is not a reliable system, since lack of double aspects of
transactions does not assure correctness of accounting.
b) Double Entry System: -The Double Entry System of Book-keeping
is the most satisfactory and a scientific system of maintaining the
accounts of the business. Really speaking it is a complete, accurate
and perfect system of accounting, which records both the aspects
of each transaction. Every transaction has two aspects just as there
are two parties to every contract or agreement.
3. Cash System: -This system is based on the principle that all transactions
are cash transactions and credit transactions have no place in this system.
The importance is given to cash receipts and cash payments and non-cash
transactions are not at all recorded in the books, even if credit transactions
have taken place. They will not be recorded unless they are converted into
cash transactions. This is not a complete system of bookkeeping and
therefore not adopted by the business concerns.
Double entry system of Book keeping
It involves writing up of accounts in a set of books. Accounts are record of
facts relating to business transactions. Double entry system of book keeping
denotes that every business transaction has two fold effects. There can not be
business transaction unless it has effect on two accounts or parties. When a
businessman gives some thing he gets something else in return of that. In
other words one account receives the benefit whereas the other account gives
benefit. In short, the following are the main features of double entry system of
book keeping: 1) Every business transaction has two fold effect and an account has two
sides for recording that effect
2) One account is the receiver of benefit and other one is giver of the benefit.
It must be noted that amount of benefit received by one account is
equal to the amount of benefit given by the other party. This enables us to
record two effect of any business transaction.
GLOSSARY OF ACCOUNTS TERMS:Purchases: - The goods bought for resale or manufacture and resale are called
purchases. These may be classified as ZONAL RAILWAY TRAINING INSTITUTE, BHUSAWAL
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I)
Cash purchases - When goods are purchased and payment is made on

the spot, the purchases are said to be 'Cash purchases'.
II)
Credit purchases - When goods are purchased and payment is postponed

to some future agreed date, the purchases are said to be 'Credit
purchases'.
Sales: - The goods sold by a business are called sales. The sales may be
classified as I)
Cash sales - When the goods are sold and payment is received
immediately, the sales are said to be 'Cash sales'.
II)
Credit sales - When the goods are sold and it is agreed to receive the
payment on some other future date, the sales are said to be 'Credit
sales'.
Transaction: - A transaction is an exchange of money or money's worth between

two parties. It involves transfer of goods and services for money or money's worth
between two or more persons or parties. E.g.) Purchase and sales of goods for
cash or on credit cash payments, purchase and sale of asset, payment of salary
and wages etc.
Drawings: - Drawing is the total amount withdrawn by a trader from his business
for meeting personal expenses. Trader becomes a debtor of business by the
amount withdrawn by him. The drawings may be in cash or in kind.
Capital: - Capital is the total amount invested in business. The capital of a
business is the claim of the owner to the business.
In accounting sense, capital is the excess of assets over liabilities. The
equation will be capital = Assets - liabilities.
Liabilities: - Debts owned by a person or businesses are called liabilities.
Liabilities represent the total amount payable to the creditors. Debts arise due to
purchase of goods for which payment is not made at the time of purchase. Taxes
payable to Government and expenses which are unpaid are also liabilities.
Entry: - means recording of two-fold effect of the transactions. The entry has to
be passed for recording the transactions for purchase or sales of goods, for
receipts and payment of cash and for each adjustment. It forms the very basis for
writing the books of accounts.
Account: -An account is the summarized record of transactions effecting one
person, one kind of property and possession, and one class of gains or losses
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Debtor: - A person, who owe us something.
Creditor: -A person, to whom we owe something.
Goods: -The form goods are used for the article or things in which a trader
trades. Example-Furniture is goods for a trader who does the business of
furniture but not for a general merchant.
Assets: -Property of every description owned by a business or a businessman is
called as assets.
The Rules for Debit and Credit
Under Double Entry System of accounting, both the aspects of the
transaction are recorded. The two aspects involve, receiving of values and giving
of values of each transaction. The two aspects are distinguished in terms of Debit
and Credit. Every account is capable of receiving and giving values. It is debited,
when it receives benefit and it is credited when it gives benefit. Hence, the rule is:
Debit the account that receives the benefit and Credit the account that
gives the benefit.
Every transaction affects at least two accounts. When one account
receives the benefit of certain value, another account gives the benefit of the
same value. Hence the rule is:
Every debit must have a corresponding credit and every credit must
have corresponding debit
The rules of Debit and Credit for different types of accounts are given
below:
1) Personal Accounts:Debit the receiver and Credit the giver.
For example: If cash is paid in Bank, debit the Bank Accounts
the Bank is
receiver of the benefit. If cash is received from
Bank, credit the Bank Accounts it is the giver of the benefit.
2) Real Accounts: Debit what comes in and Credit what goes out.
For example: When machinery is purchased, debit the
Machinery Account as it comes in the business. When goods
are sold out, credit the Goods Account as the goods are going
out.
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3) Nominal Accounts: Debit expenses and losses and Credit gains or incomes
For example: If rent is paid, debit the Rent Account, as it is an
expense. If a Bad Debt occurs, debit the Bad Debt Account, as it
is a loss. If commission is received, credit the Commission
Account, as it is a gain.
The JOURNAL or BOOKS OF ORIGINAL ENTRY
Introduction: -The Double Entry System of Bookkeeping provides a basic
framework for analysis of business transactions. If the accounting process is to
generate valuable information, the transactions, which have taken place during
the accounting period must be recorded in a systematic manner. Hence the
business transactions are recorded in financial books or books of accounts.
Accounting Cycle and Books of Accounts
The process of accounting cycle consists of the following steps: 1. Analysis of transactions from source of documents.
2. Journalizing of transactions.
3. Ledger Posting.
4. Balancing of each ledger account.
5. Preparation of a Trial Balance
6. Recording of adjustment entries.
7. Posting of adjustment entries.
8. Recording of closing entries.
9. Preparation of financial statements
Source Documents: - Every business transaction is recorded in the books of
accounts on the basis of some documentary evidence which is called as a source
document or supporting document or business paper or voucher. It is the first
record prepared for a business transaction. The source document shows the
date, the amount, the nature of business transaction and the persons involved in
its preparation. Following are some of the source documents: 1. Cash Memos: -The document results from a cash transaction. When goods
are sold for cash, the business unit receives cash and gives cash memos
which provide detailed information about the transaction. Cash transactions
are recorded in the books of accounts on the basis of cash memos.
2. Bill or Invoice: -This document is prepared when business transactions are
regarding purchase or sale of goods on credit. The invoice gives details of the
transaction. The original invoice is sent to the customers who record
purchases on this basis.
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3. Receipt: - The document is an acknowledgement of money. It is prepared in

duplicate or with counterfoil. The original copy is given to the person who pays
money. The duplicate copy or the counterfoil is the basis of record. It is
signed by a responsible person in the office of the businessman who receives
the cash.
4. Cheque:- It is an instrument in writing signed by the drawer directing the bank
to pay a certain sum of money to or to the order of a third person or to the bearer.
1. Pay-in-Slip: -This slip is used for deposing money in a bank.
Counterfoil of the slip gives the deposits made.
2. Debit Note and Credit Note: -Debit note indicates that a debit has
been given in our books of accounts to the personal account to
which it has been sent.
Credit note is a document, which indicates to the businessman, to
whom it is given that his account has been credited in our books of
accounts.
Meaning of Journal: - A Journal is a book of Original entry or
Primary entry. It is a book of daily record. First of all the business transactions
are recorded in the Journal and subsequently they are posted in the Ledger. A
Journal is divided into various books know as Subsidiary Books .To study
Book-keeping one must learn first how to journalise the transactions. To
journalise the transactions means to record the two-fold effects of a transaction in
terms of debit and credit. This has to be done by observing the rules of debit and
credit.
Features of a Journal: 1.
2.
3.
4.
It is a book of prime, original and first entry.

It records transactions in a systematic manner.
It analyses the transactions into their debits and credits.
It is a gateway to the Ledger.
Utility of a Journal: A Journal is needed for the following reasons: 1. It contains a record of various transactions that take place every day.
2. It provides a complete record of transactions as both the aspects of
transactions are recorded at one place.
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3. Since narration of a transaction is written in the Journal, there is no need
to give an explanation in the Ledger.
4. It facilitates cross checking of transactions.
5. Since transactions are recorded in the Journal, there is no need to post the
transactions to the Ledger immediately.
6. From the legal point of view also a Journal becomes necessary. Courts
recognize the journal as evidence in approving or disapproving claims.
7. It helps to locate and prevent errors
Form of a Journal
Date
Particulars
Voucher No.
L.F.
Debit
Rs.
Credit
Rs.
Explanation of the form of Journal: 1. Date Column: In this column, the date of the transaction is written. The
year is also written in the beginning of the page.
2. Particulars Column: -This column is the most important column. Before
the details are written in this column, the bookkeeper decides as to what
accounts are affected and which account is to be debited and which
account to be credited. The account to be debited is written on the first line
just near the date column. On the same line the word Dr is written
against the account to be debited. After that, on the second line the
account to be credited is written.The name of this account should be
preceded by the word To and while writing on the second line a little
space should be left from the date column.
On the third line, a brief description of the transaction is written which is
known as Narration. Such a narration should be written in between the date
line and the folio line. It should not cross these two lines on either side.
A thin line should be drawn between each transaction across the page
from the date column to the foil column immediately below the journal entry.
3. Voucher No.: - In this column, serial number of the source voucher or
document is written.
4. Ledger Folio: - While recording the transactions nothing has to be written
in this column. The journal entries are required, to be posted to the debit
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and credit of accounts in the Ledger. At that time, the page number of the
ledger on which the two accounts appear are entered in this column.
5. Debit Amount Column:-In this column, the amount of transaction is
written against the word Dr in particulars column on that line.
6. Credit Amount Column: - In this column, the amount of transactions
written against the name of the account credited On that line.
At the end of each page of a journal the debit and credit amount
columns are totaled up and the total of the debit and credit amount
columns must be equal, as the amount debited and credited are equal
for every transaction. These totals are carried forward to the next page.
THE LEDGER
A Ledger is the principal or final book of accounts. A Journal is meant
for passing the entries of business transactions. It facilitates posting of
transactions to respective ledger accounts. All the entries made in the journal
must be posted into the Ledger.
A group of accounts is knows as a Ledger. The Ledger is the main
book of accounts, it contains an account for each asset, liability,
proprietorship, revenue and expense account. The Ledger contains the same
information as the journal. However, in the journal each transaction is
completely recorded as a unit. The entire effect of a transaction completely
recorded at one place in the Ledger. The Ledger where it is accumulated
includes all the basic accounts needed for the preparation of the financial
statements.
A businessman cannot get information about the transactions from the
Journal. For example, the amount receivable from debtors, the amount
payable to creditors, total payments on any head of expenditure etc. In order
to get information about the above, a Ledger has to be maintain.
In conclusion, the Ledger helps to achieve the following results:1. All personal accounts would show how much money is payable to
creditors and receivable from debtors.
2. The real accounts would show the value of assets and properties.
3. The nominal accounts would show the sources of income and the amount
spent various heads of expenses.
Example: - Journalize the following transactions in the Books of Gupta
Brothers: ZONAL RAILWAY TRAINING INSTITUTE, BHUSAWAL
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1st July 1999 Started Business with cash Rs. 50,000.

2nd July 1999 opened an account with the Dena Bank Rs. 500.
3rd July 1999 Purchased goods for cash Rs. 10,000.
4th July 1999 Purchased furniture for cash Rs. 1000
5th July 1999 sold goods Rs. 280.
6th July 1999 sold goods on Credit to Mahesh Rs. 500
7th July 1999 purchased good on Credit from Rahim Rs. 3800
8th July 1999 paid wages Rs. 160
9th July 1999 received cash on account from Mahesh Rs. 300
10th July 1999 Paid cash on account to Rahim Rs. 2500
11th July 1999 Withdraw cash for personal use Rs. 350
12th July 1999 received commission Rs. 70
13th July 1999 purchased goods from Govind & Sons on Credit Rs. 1280
14th July 1999 Paid rent Rs. 700
15th July 1999 returned goods to Govind & Sons Rs. 480
Journal of Gupta Brothers
Date
Particulars
1st July 99
Cash A/c
L.F.
Dr.
Debit Rs.
50,000
To Capital A/c
(Being
cash)
2nd July 99
business
Credit Rs.
50,000
started
Bank A/c
with
Dr.
500
To Cash A/c
500
(Being opened an account with

Dena Bank)
3rd July 99
Goods A/c
Dr.
10,000
To Cash A/c
(Being
cash)
4th July 99
goods
10,000
purchased
Furniture A/c
for
Dr.
To Cash A/c
1000
1000
(Being furniture purchased for

cash)
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5th July 99
Cash A/c
Dr.
280
To Goods A/c
280
(Being goods sold for cash)

6th July 99
Maheshs A/c
Dr.
500
To Goods A/c
500
(Being goods sold on credit to

Mahesh)
7th July 99
Goods A/c
Dr.
3800
To Rahims A/c
3800
(Being goods purchased from

Rahim on credit)
8th July 99
Wages A/c
Dr.
160
To Cash A/c
160
(Being wages paid)

9th July 99
Cash A/c
Dr.
300
To Maheshs A/c
300
(Being cash received)

10th
99
July Rahims A/c
Dr.
2500
To Cash A/c
2500
(Being cash paid)

11th
99
July Drawings A/c
Dr.
350
To Cash A/c
350
(Being cash withdrawn)

12th
99
July Cash A/c
Dr.
70
To Commission A/c
70
(Being commission received)

13th
99
July Goods A/c
1280
To Govind & Sons A/c

(Being
credit)
14th
99
Dr.
goods
purchased
July Rent A/c
1280
on
Dr.
To Cash A/c
700
700
(Being rent paid)

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15th
99
July Govind & Sons A/c
Dr.
480
To Goods A/c
480
(Being goods returned)

Grand 71920
71920
Total
Example No. 2 Journalise the following transactions in the books of
Shri Anil Kumar.
1st Sept. 2000 Started business with cash Rs. 20,000, Goods Rs. 2000, Land
& Building Rs. 18000
2nd Sept. 2000 Purchased goods from Ibrahim on credit Rs. 5000
3rd Sept. 2000 Opened an Bank account with State Bank of India Rs. 500
4th Sept.2000 Sold goods for cash Rs. 640
5th Sept. 2000 Returned goods to Ibrahim Rs. 525
6th Sept.2000 Purchased goods for cash Rs. 3000
7th Sept.2000 Paid cash to Ibrahim on account Rs. 2000
8th Sept.2000 Sold goods on credit to Suresh Rs. 700
9th Sept.2000 Paid commission Rs. 80
10th Sept.2000 Returned goods by Suresh Rs. 100
11th Sept.2000 Burnt goods by fire Rs. 200
12th Sept.2000 Received cash from Suresh in full settlement of his account.
13th Sept.2000 Purchased stationary Rs. 50
14th Sept.2000 Given goods in charity Rs. 120
15th Sept.2000 Deposited into Bank Rs. 1500
Journal of Gupta Brothers
Date
Particulars
L.F.
1st Sept 99
Cash A/c
Dr.
20000
Goods A/c
Dr.
2000
Land & Buildings A/c
Dr.
18000
To Capital A/c
Debit Rs.
Credit Rs.
40,000
(Being business started

cash, goods, L & B)
with

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2ndSept 99
Goods A/c
Dr.
5000
To Ibrahims A/c
(Being
credit)
3rdSept 99
goods
5000
purchased
Bank A/c
on
Dr.
500
To Cash A/c
500
(Being an account opened with

SBI)
4thSept 99
Cash A/c
Dr.
640
To Goods A/c
640
(Being goods sold for cash)

5thSept 99
Ibrahims A/c
Dr.
525
To Goods A/c
(Being
goods
Ibrahim)
6thSept 99
525
returned
Goods A/c
to
Dr.
3000
To Cash A/c
3000
(Being goods purchased)

7thSept 99
Ibrahims A/c
Dr.
2000
To Cash A/c
2000
(Being cash paid to Ibrahim)

th
8 Sept 99
Sureshs A/c
Dr.
700
To Goods A/c
700
(Being goods sold on credit)

9thSept 99
Commission A/c
Dr.
80
To Cash A/c
80
(Being commission paid)

10thSept99 Goods A/c
Dr.
100
To Sureshs A/c
(Being goods
Suresh)
11thSept99
100
returned
Loss by fire A/c
by
Dr.

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200

To Goods A/c
200
(Being goods burnt by fire)

12thSept99 Sureshs A/c
Dr.
600
To Cash A/c
600
(Being cash paid in full

settlement of Sureshs account)
13thSept99 Stationary A/c
Dr.
50
To Cash A/c
50
(Being stationary purchased)

14thSept99 Charity A/c
Dr.
120
To Goods A/c
120
(Being goods given in charity)

15thSept99 Bank A/c
Dr.
1500
To Cash A/c
1500
(Being cash deposited)

Grand Total
56015
56015
Example ;- Journalise the following transactions in the Journal of --------i)
Purchased motor-car for cash Rs. 150000
ii)
Paid premium of life polity Rs. 460
iii)
Paid premium to General insurance company Rs. 740
iv)
Burnt goods by fire Rs. 300
v)
Ashok became insolvent and received cash Rs. 2000 on account

balance Rs. 5000
vi)
Purchased goods worth Rs. 5000 to 10% discount to Rahim
vii)
Sold goods worth Rs. 1000 on 10% discount
viii)
Received cash Rs. 4455 from Rahim and allowed discount to us.
ix)
Paid Rs. 6930 to Govind and received discount Rs. 70

Journal of ______________
Date
Particulars
i)
Motor - Car A/c
L.F.
Dr.

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Debit Rs.
150000
Credit Rs.

To Cash A/c
150000
(Being purchased motor car)

ii)
Drawing A/c
Dr.
460
To Cash A/c
460
(Being paid LIC premium)

iii)
Insurance Premium A/c
Dr.
740
To Cash A/c
740
(Being insurance premium paid)

iv)
Loss by fire A/c
Dr.
300
To Goods A/c
300
(Being goods burnt by fire)

v)
Cash A/c
Dr.
2000
Bad Debts A/c
Dr.
3000
5000
To Ashoks A/c
(Being received cash from Ashok
and he became insolvent)
vi)
Goods A/c
Dr.
4500
To Rahims A/c
4500
(Being goods purchased on 10%

discount)
vii)
Cash A/c
Dr.
900
To Goods A/c
900
(Being sold goods on 10% dis.)
viii)
Cash A/c
Dr.
4455
Discount A/c
Dr.
45
To Rahims A/c
(Being received
allowed discount)
ix)
cash
Govinds A/c
5000
and
Dr.
To Cash A/c
7000
6930

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To Discount A/c
70
(Being cash paid & received dis.)

Grand Total
23900
23900
Classification of Accounts.
The ledger accounts may be classified as under: 1) Personal Accounts
2) Impersonal Accounts
a) Real or Property Accounts.

b) Nominal or Fictitious Accounts.
1) Personal Accounts: -Personal accounts are the accounts of

individuals, firms, private and limited companies, local authorities,
associations with whom businessman deals. A separate account is
maintained for every person or a firm or a company. Examples Mr.
Anil's Account, Bank of India Account, Govt. of Maharashtra Account,
Grasim Industries Account, Rotary Club Account etc. These accounts
may be of creditors, debtors, banker etc.
2) Impersonal Accounts: These are the accounts, which relate to other
than persons. These are again further divided into two types, viz.:
A) Real Accounts: -Real accounts are the accounts of properties,
assets or the possession of the businessman such as Plant & Machinery A/c,
Motor Car A/c, Cash A/c, Furniture A/c etc. A separate account is maintained for
each class of asset or property. Real accounts may assume the following two
forms:
i) Tangible Real Accounts: -These accounts consists of assets and
properties which can be seen, touched, felt and measured such as
Cash, Buildings, Goods Furniture, Machinery etc.
Ii) Intangible Real Accounts: -These accounts consists of assets and
properties which cannot be seen, touched, felt but they are capable of
measurement in terms of money such as Goodwill, Patents, Trade
Marks etc.
c) Nominal Accounts: - These are the accounts of expenses or
losses and incomes or gains such as Interest A/c, Discount A/c,
Rent A/c, Charity A/c etc. These accounts are called fictitious
accounts, as they do not represent any tangible assets. A separate
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account is maintained for each head of expenses or losses and
incomes or gains.
Difference between Real Accounts and Nominal Accounts
Real Accounts
1. These are the accounts of assets
and properties
2. They
represent
something
tangible or real asset.
3. Real Accounts represent assets,
which continue year after year
until they are sold of.
4. At the end of the year, the balance
of a Real Account is shown in the
asset side of the Balance Sheet.
Nominal Accounts
1.These are the accounts of expenses,
losses or income and gains.
2.They do not represent anything
tangible or real.
3.They do not continue year after year.
They appear in the accounts of the
year in which they are incurred.
4.At the end of the year, the balance of
the Nominal Account is transferred to
Profit and Loss Account.
Notes:
1. Bank Account is not a real account. It is a personal account since it is the
account of some banking company.
2. Some of the accounts are impersonal in name but they are personal. For
example, Capital Account and Drawings Account are personal accounts of
proprietors of business.
3. Outstanding expenses or incomes, though nominal in nature, are really
personal accounts.
Special Transaction:
Discount
Discount may be of two kinds :1) Cash Discount
2) Trade Discount
1) Cash Discount
It is an allowance to the debtor to recover the debts earlier. It is allowed
in order to induce the debtor to make the payment immediately or within a
ACCOUNTS FACULTY
31

stipulated period. Obviously, a cash discount is allowed when payment is
received and a cash discount is received when the payment is made if a cash
discount is given to debtor, the amounts are recovered immediately. A
businessman prefers to give a cash discount to debtors instead of borrowing
money from a bank at a higher rate of interest. Again, there is no fear of bad
debt if the amount is recovered early. The debtors also make the payment
earlier to obtain the advantage of a cash discount. Discount allowed is a loss,
while when it is received is a gain to the business. Hence it appears in the
books of accounts.
2. Trade Discount
It is an allowance given by a wholesaler or manufacture to a retailer in
order to retailer to sell the articles at list or print price and earn a reasonable
margin of profit. The amount of Trade Discount is deducted from the invoice.
Therefore it has no connection as to the receipt of cash and payment of cash.
Hence the trade discount does not appear in the books of accounts.
Bad debts
When a customer is declared insolvent and the amount due is
irrecoverable, Bad debts accounts are debited and the customers account is
credited for unrealized amount.
Loss of Goods by fire

When goods are damaged by fire, the loss should be debited to loss
by fire account and credited to Goods account. If any part of the loss is
recoverable from the insurance company, the insurance companys account is
debited and loss by fire account is credited.
Expenses on the Purchases of Assets
All the expense in connection with purchase of assets increase the cost
of asset. Hence the asset account is debited and the cash account is credited.
Debt should not be given to the expenses account.
ACCOUNTS FACULTY
32
Premium of Life Policy

Insurance premium paid on a life policy of the proprietor should be
debited to the Drawings Account and Credited to Cash A/c.
Subsidiary Books
Sub Division of Journal :In earlier times, the volume of business was small and number of
transactions very few, Journal as a book of accounts was convenient. But with
the growth of business, the number of transactions increased manifold and
the need was felt to have a better method of recording business transactions.
Therefore, in order to meet the requirements of modern business, the original
journal is divided into the following :1. Purchases Books
2. Sales Book
3. Purchases return book / return outward book
4. Sales return book / return inward book
5. Cash book
6. Bills receivable book
7. Bills payable book
8. Journal proper
The documents which are used as the evidence or basis of writing the
various Journals.
Subsidiary Journal
Document used as the basis
1. Purchases book
Inward invoice
2. Sales Book
Outward invoice
3. Purchases return book
Debit Note
4. Sales return book
Credit Note
5. Cash book
Cash receipt,
vouchers
6. Bills receivable book
Bills received duly accepted by drawee
Cash
memo,
Cash
Bills sent to Drawer duly accepted by

ACCOUNTS FACULTY
33

7. Bill payable book
us
Depends on the type of transaction
8. Journal proper
Purchases Book
This book is maintained to record credit purchases of goods only.
Credit purchase means the purchase of goods, without making payment on
the spot.
Ruling of the book
Purchases Book
Date
Particulars
L.F.
Inward Invoice No.
Amount Rs.
Explanation of Columns :1. Date: - Date of purchases is written in this column.

2. Particulars: - In this column, the names of the suppliers are entered and
also given narration.
3. L.F.: - Page number of the Ledger , on which the account of the supplier
appears, is entered in this column.
4. Journal Invoice No.: - All inward invoices are filed properly and the
consecutive number of the invoice is shown in this column.
5. Amount: - The net amount of purchases is entered in this column.
Ledger posting of the purchases book :At the end of a certain period debit Purchases Account in the Ledger
with the total of the purchases book as To Sundries as per Purchases Book
And credit the personal accounts of the suppliers with the respective amount
of purchases as By Purchases A/c
Sales Book :A separate book is maintained to record all credit sales of goods. The
manner of recording sales in this book is the same as in the case of
purchases book.
Ruling of sales book: Sales book
ACCOUNTS FACULTY
34

Date Particulars
L.F.
Outward
No.
Invoice Amount Rs.
Explanation of the accounts: 1. Date: - The date on which the sales took place is entered in this column.
2. Particulars: - The name of the customer is written in this column and also
given narration of transaction.
3. L.F.: - The page number of the ledger on which the customers account
appears is shown.
4. Outward Invoice No. :- The serial number of the invoice is entered.
5. Amount: - The net amount of sales is recorded (amount arrived at, after
deducting the trade discount from the gross value of the sales.)
Ledger posting of the sales Book: The personal accounts of the customers are debited with the
respective amount of the sales and sales account is credited with the total of
the sales book as By Sundries as per sales book .
Purchases Return Book

This book is also called the Returns Outward Book . It records all
returns of goods purchased on credit. The goods purchased may be returned
for one or two of the following reasons, the goods supplied are: 1. Not as per the sample
2. In excess of the requirements
3. Of different design and colour
4. Of inferior quality
5. Damaged in transit
6. Delayed supply
A debit note is sent to the supplier when the goods purchased from him
are returned. A debit note is a statement sent by the buyer to the supplier
stating the full details of the goods returned.
Rulings of purchase return book: ZONAL RAILWAY TRAINING INSTITUTE, BHUSAWAL
ACCOUNTS FACULTY
35

Purchases return book
Date Particulars
L.F.
Debit Note No. Amount Rs.
Ledger posting of the purchases return book :Following two steps should be taken for posting after the transactions
are recorded in the book: 1. At the end of the day each entry is posted to the debit side of the
respective individual account to update the account.
2. At the end of the month, the grant total of the book is posted to purchases
return account as By sundries as per purchases return book .
Sales Return Book

This book is also called as the Returns Inward Book . The book is
meant for the purpose of recording the return of goods sold on credit. Goods
sold to customers may also be returned by them if the goods supplied to them
are not upto the sample or if inferior quality or damaged etc. A credit note is
sent to the customers when we receive goods returned from them. It gives full
details of the goods returned by the customers.
Ruling of sales return book
Sales Return Book
Date Particulars
L.F. Credit
No.
Note Amount Rs.
Ledger Posting of sales return book: After entries of all the transactions in the sales return book following
steps should be taken to complete the posting: 1. At the end of the day, each entry is posted to the credit side of the
respective individual account to update the accounts.
2. At the end of the month, the grant total of the book is posted to sales
return account as To sundries as per sales return book .
ACCOUNTS FACULTY
36
Journal Proper
This book is used for recording those transactions, which do not find
any place in any of the foregoing books of original entry. Such as opening
entries, transfer entries, rectification entries, adjustment entries etc.
Ruling of Journal Proper
Journal Proper
Date Particulars
Voucher No.
L.F.
Debit No.
Credit No.
Example: - Record the following transactions in the proper subsidiary

books and post ledger accounts.
1st Sept. 2000 Purchased goods from Anil Rs. 1000
2nd Sept. 2000 Sold goods to Rahim Rs. 5000
3rd Sept. 2000 Returned goods to Anil Rs. 100
4th Sept. 2000 Allowance granted to Rahim due to damage of goods Rs. 500
5th Sept. 2000 Sold goods to Ashok Rs. 2700
6th Sept. 2000 Purchased furniture from Mohan Rs. 700
7th Sept. 2000 Returned goods by Ashok Rs. 200
8th Sept. 2000 Burnt goods by fire Rs. 150
9th Sept. 2000 Allowance granted by Mahesh for short delivery Rs. 350
10th Sept. 2000 Purchased goods worth Rs. 2000 from Mohan on 10%
discount.
11th Sept. 2000 Sold goods worth Rs. 500 to Surendra on 5% discount.
12th Sept. 2000 Paid life insurance premium Rs. 300
13th Sept.2000 given goods worth Rs. 3000 on 5% discount from Govind.
14th Sept.2000 Purchased goods worth Rs.3000 on 5% discount from Govind.
15th Sept. 2000 Allowance granted to Surendra Rs. 95 for short delivery.
Purchases Book
Date
Particulars
L.F.
Invoice No.
1st Sept.2000
To Anil A/c
1000
10th Sept.2000
To Mohans A/c
1800

ACCOUNTS FACULTY
37
Amount Rs.

14th Sept.2000
To Govinds A/c
2850
Purchased A/c
Dr.
5650
Ledger Posting of Purchases Book

Purchases Account
Date
Particulars
30th
Sept
2000
To Sundries as
per purchases
book
J.F. Amt.
Rs.
Date Particulars
J.F.
Amt.
Rs.
Date
Particulars
J.F.
Amt.
Rs.
1st
Sept
By Purchases
A/c
5650
Anils Account
Date
Particulars
J.F. Amt.
Rs.
1000
2000
Purchases Book
Date
Particulars
2nd Sept.2000
By Rahims A/c
5000
5th Sept. 2000
By Ashoks A/c
2700
11th Sept. 2000
By Surendra A/c
475
Sales A/c
L.F.
Invoice No.
Cr.
Amount Rs.
8175

Sales Account
Date
Particulars
J.F. Amt. Date

Rs.
30th
Particulars
By Sundries as

ACCOUNTS FACULTY
38
J.F.
Amt.
Rs.
8175

Sept
per sales book
2000
Rahims Account
Date
Particulars
2nd
Sept.
2000
To Sales a/c
J.F. Amt.
Rs.
Date
Particulars
J.F.
Amt.
Rs.
5000
Purchases Return Book

Date
Particulars
3rd Sept. 2000
By Anils A/c
100
By Maheshs A/c
350
th
9 Sept. 2000
L.F.
Purchased A/c
Invoice No.
Cr.
Amount Rs.
450

Purchases Return Account
Date
Particulars
J.F. Amt. Date

Rs.
Particulars
30th
Sept
2000
J.F.
By sundries as
per
purchase
return book
Amt.
Rs.
450
Anils Account
Date
Particulars
3rd
Sept
2000
To
Purchases
Return A/c
J.F. Amt.
Rs.
Date
Particulars
J.F.
Amt.
Rs.
100
Sales Return Book

Date
Particulars
L.F.
Invoice No.
4th Sept.2000
To Rahims a/c
500
7th Sept. 2000
To Ashoks A/c
200

ACCOUNTS FACULTY
39
Amount Rs.

15th Sept. 2000
To Surendras A/c
95
Sales Return A/c
Dr.
795

Sales Return Account
Date
Particulars
30th
Sept
2000
To Sundries as
per Sales return
book
J.F. Amt.
Rs.
Date Particulars
J.F.
Amt.
Rs.
Date
Particulars
J.F.
Amt.
Rs.
4th
Sept
2000
By
Sales
Return A/c
500
Voucher Debit Rs.

No.
Credit No.
795
Rahims Account
Date
Particulars
J.F. Amt.
Rs.
Journal Proper
Date
Particulars
L.
F.
6th Sept. Furniture A/c

2000
To Mohans A/c
Dr.
700
700
(Being furniture purchased)

th
8 Sept. Loss by fire A/c

2000
To Goods A/c
th
13
Sept.
2000
Charity A/c
Dr.
150
150
Dr.
100
To Goods A/c
100

Total
950
950
Ledger Posting
Furniture Account
Date
Particulars
6th Sept. To Maheshs
J.F. Amt.
Rs.
Date
Particulars
700

ACCOUNTS FACULTY
40
J.F.
Amt.
Rs.

2000
A/c
Mohans Account
Date
Particulars
J.F. Amt.
Rs.
Date
Particulars
6th Sept. By Furniture

2000
A/c
J.F Amt.
.
Rs.
700
Cash Book
A cash book is one of the subsidiary books. All the cash transactions
are recorded in the cash book. It serves both purposes of being a book of
original entry as well as a ledger. Since the cash book enables the traders to
find out the daily cash and bank balance, it serves the purpose of a cash
account. Therefore, there is no need to open a separate cash account in the
ledger. Similarly, writing in the cash book saves a lot of time and labour by
enabling recording of cash and bank transactions without posting journal
entries. Hence the cash book is very useful and results in economy of time
and labour.
Types of Cash book
The following are the different types of cash books and a businessman
maintains a cash book as per his requirements
1. Single column cash book
2. Double column cash book
3. Three column cash book
1. Single Column Cash book :The debit side of the cash book is meant for recording all the receipts
and therefore, it is known as Receipt Side . The credit side of the cash book
is meant for recording all the transactions pertaining to payment and therefore
it is known as Payment Side . After recording all the transactions in the cash
book it is balanced daily and carrying forward the balance to the next day.
Single Column
Proforma of a cash book
Cash Book
ACCOUNTS FACULTY
41

Date
Particulars V.No.
L.F.
Amt.
Rs.
Date
Particulars V.No.
L.F.
Amt.
Rs.
In order to complete the double entry of each and every transaction

that has been recorded in the cash book, posting of such transactions is to be
made to the respective ledger accounts.
2. Double Column Cash Book

The double column cash book has two columns on both the sides of the
cash book as under
i)
Cash and discount columns
ii)
Cash and bank columns.
iii)
Bank and discount columns.
However, of the three types of double column cash book, the most
common cash book used is with cash and discount columns.
Date Particulars V.
No.
L.
F.
Dis.
Rs.
Cash Date Particulars V.

L.
Rs.
No. F.
Dis. Cash
Rs. Rs.
3. Petty Cash Book

A businessman who deposits all receipts into bank and makes all
payments by means of issuing cheques maintains a Petty Cash Book. This
book is maintained for recording all petty expenses as all payments cannot be
made by cheque.
Payment of coolie charges, cartage, taxi fare and such other expenses
cannot be made by issuing cheques. Therefore, Petty cash book is
maintained to record the payment of such expenses by cash.
When the amount is received from the chief cashier it is entered on the
receipt side of the petty cash book and when payments are made they are
first entered in the total column of the expenditure. At the end of certain period
the expenditure columns are totaled. The petty cashier prepares a statement
showing the summary of expenses paid and submit it to the chief cashier
passes an entry in the journal as sundry expense a/c debited and petty cash
a/c credited.
ACCOUNTS FACULTY
42

The totals of each head of expenditure are posted in the debit side of
respective accounts in the ledger so that double entry is complete.
Ruling of Petty Cash Book
Dr.
Cr.
Receipts
D
a
t
e
Particulars
V.
Total
No Amt.
Postage
Stationary
Conve- Advertiyance sement
Misc.
Exps
Example : From the following particulars, prepare the petty cash book having
analysis columns
1st Oct. 2000 Received from the chief cashier
Rs. 200
rd
Rs. 20
th
Rs. 18
th
6 Oct.2000 Purchased pencils
Rs. 15
7th Oct.2000 Paid for conveyance of the officer
Rs. 25
9th Oct.2000 Purchased revenue stamps
Rs.20
14th Oct.2000 Paid for advertisement
Rs. 25
15th Oct.2000 Purchased files
Rs. 15
3 Oct.2000 Paid for postal stamps

5 Oct.2000 Paid Telephone charges
Petty Cash Book

Rec
eipts
Date
Particulars
V.
Rs.
2000
Rs.
200
Oct 1st
To Cash
3rd
By
Postal
20
5th
By Tele.
18
6th
By
pencil
15
7th
By
Conve.
25
9th
By
Reve.
20
No.
Total
Amt.
Rs Rs.
.
Postage
Telephone
Stationary
Conveyance
Advertisement
Rs.
Rs.
Rs.
Rs.
Rs.
20
18
15
25
20

ACCOUNTS FACULTY
43

Stamps
14th
15
th
By advt.
25
Files
15
138
16th
By Bal.
25
15
40
18
30
25
62
Banking Transactions
Introduction
When a trader has at his disposal an amount in excess of his
immediate requirements, he lodges the same with a banker. He opens an
account with the banker with a certain sum and is at liberty to add thereto or
withdraw therefrom amounts from time to time, as the occasion may require.
The cash so deposited with the banker is said to be on Current Account.
A Bank Current Account may thus be defined as a running account
between a bank and a customer. On a current account being opened, there
arises an implied undertaking that the banker will honour cheques drawn
against him by his customer as long as there are sufficient funds to the
customers credit, and he will not pay away any part of the moneys against
the wishes of the customer.
The advantages of opening a Current Account with a Banker are:(a) The money remains with the Bank in safe custody.
(b) The banker collects for his customers the amounts of all cheques, bills of
exchange, etc. paid in.
(c) If desired, the banker takes charge of the customers securities, collects
periodical dividends and interest thereon, and credits the same in the
current account of the customer.
(d) The banker allows the certain rate of interest on the cash placed in his
keeping.
(e) The payments by the merchant to his creditors are greatly facilitated, as
these would be made by means of Cheques, i.e. orders on the banker;
and
(f) Under certain circumstances, the banker renders financial help to his
customer by allowing him to overdraw his current account.
CHEQUES:On a trader wishing to discharge a debt, he signs a written order on his
banker, authorizing him to pay a certain sum of money as mentioned therein
to his creditors. This order is termed a Cheque. A Cheque may be defined as
ACCOUNTS FACULTY
44
25

an order addressed by a customer to his banker to pay on demand a stated
sum of money to or to the order of a specified person or to bearer.
There are three parties to a cheque:(1) The Drawee, i.e. the Bank on whom the cheque is drawn.
(2) The Drawer, i.e. the person who signs the order to the Bank.
(3) The Payee, i.e. the person in whose favour the cheque is made payable.
Accounting Treatment of Banking Transactions in a Cash Book:(!) A Cheque is received but not deposited in the Bank: Every cheque
received, so long as it is not paid into the Bank, should be treated as cash and
should be recorded in the cash column.
(2) A Cheque is received and deposited in the bank on the same day: In this
case, the amount of such a cheque should be entered on the receipt side of
the Cash Book in the bank column as To XYZ.
(3) A Cheque received on the previous day deposited into a Bank: In this
respect, a contra entry should be passed on the day on which the cheque is
deposited in the bank. It will appear in the cashbook on the receipt side as To
Cash bank column, and on payment side as By Bank Cash column.
(4) Payment by issuing a Cheque: Whenever payments are made by cheque
they should appear in the CashBook on the payment side as Partys
Account, Expenditure Account- Bank column.
(5) Collection of interest on investment by the bank: When, the Bank collects
on investment or allows interest on deposits the credit entry of such a
collection is made in the pass book by the Bank. On receiving advice or
the passbook from the Bank, it will be entered on the receipt side of the
CashBook as To Interest on Investment.
(6) Bank charges and Bank commission: A Bank charges some amount for
the services rendered to the customers. The Bank makes a credit entry in
the passbook. On receiving the passbook or advice, it is entered on the
payment side of the CashBook as By Bank Charges or By Commission.
(7) Payments made by the Bank under standing instructions: As per standing
instructions, a Bank makes payment on behalf of customer, on account of
insurance premium, interest on loan taken, call money on shares, etc. On
making such payments, the Bank passes a debit entry in the passbook.
After receiving the advice or passbook, it is entered on the payment side of
the CashBook as By Insurance Premium or By Interest or By Calls on
Shares as the case may be.
4.Three Column Cash Book

ACCOUNTS FACULTY
45

Under this type of cash book the use of cash book is extended to record
the transactions involving discount, cash and bank alos. When the bank
transactions are numerous, instead of having a separate bank account in the
ledger to record the bank transactions bank a/c is maintained in the cash book
itself by providing bank column on each side of the cash book. As and when
discount is allowed on receipts of cash both the amounts are recorded on the
debit side whenever the discount is received on payment of cash both the
amounts are recorded on the credit side. Cash and bank account respectively
and therefore the balances are extracted at the time of closing the cash book.
But the discount column in the cash book is not treated as an account. And as
such it is not balanced. Separate discount account is opened in the ledger for
discount allowed and discount received.
Dat
e
Parti
V
Amount.
culars .
D Cas
N
is h
o
. Rs.
L
.
R
/ s.
F
Date Parti
culars
Ban
k
Rs.
V.
No
.
L
.
Amt.
Dis Cas
F. .
h
Rs. Rs.
Example: - Enter the following transactions in the three column cash book
of M/s. Rajkumar:
1st Sept. 2000 Started business with cash Rs. 50,000
2nd Sept.2000 Opened an account with Dena Bank Rs. 500
3rd Sept.2000 Purchased goods Rs. 6700
4th Sept.2000 Remitted cash into Bank Rs. 32800
5th Sept.2000 purchased goods Rs. 10,000 and issued a cheque on 1%
discount.
6th Sept.2000 Sold goods Rs. 800 to Narendra and received a cheque for Rs.
790 in full settlement and deposited into bank on the same day.
7th Sept.2000 Paid wages Rs. 100
8th Sept.2000 Purchased furniture worth Rs. 2000 on 10% discount from
Akbar and made payment on 2 discount by cheque.
9th Sept.2000 Purchased stationary Rs. 250
10th Sept.2000 Sold goods worth Rs. 5000 to Govind on 10% discount and
received a cheque on 2% discount and cheque remitted into bank.
11th Sept.2000 Charged bank charges by Bank Rs. 200
ACCOUNTS FACULTY
46
Ban
k
Rs.

12th Sept. 2000 Withdrawn Rs. 1000 for personal use.
13th Sept. 2000 Sold goods Rs. 1800 to Rahim and received cheque and
deposited into bank.
14th Sept.2000 Made payment to Mahesh by cheque Rs. 3000
15th Sept. 2000 Sold goods worth Rs. 700 on 5% discount to Mukesh for cash.
Solution :
Dt Particulars
.
V L
. .
N F
o .
.
Amt.
Dis. Cash
.Rs. Rs.
1st To Capital
A/c
2n
B
a
n
k
R
s.
50000
Dt. Particula V. L Amt.

rs
N . Dis. Cash
o. F Rs. Rs.
.
2nd
By Bank
To
A/c
Cash
5
0
0
3rd
By
purch.
4th To
A/c
Cash
3
2
8
0
0
4th
By Bank
6th To
A/c
Sales
10
7
9
0
5th
By
Purch.
1
0
To
A/c
Sales
90
4
4
1
0
7th
By
Wages
1
3
To
A/c
Sales
1
8
0
0
8th
By
Furni.
1
5
To
A/c
Sales
9th
By Stati.
665

ACCOUNTS FACULTY
47
B
k
R
s.
500
6700
32800
100
9
9
0
0
100
36
1
7
6
4
250
100
3
0
To Bal. B/d
50665
4
0
3
0
0
9315
2
5
4
3
6
11
By Bank
Charges
12
By
Drawing
14
By
Mahesh
30
By
Balance
2
0
0
1000
3
0
0
0
9315
136
50665 4
0
3
0
0
Final Book of Account Ledger: A ledger is the principle book of accounts. A Journal is meant for
passing the entries of business transactions. A businessman cannot get
information about the business transactions from the Journal. For example,
the amount received from debtors, the amount payable to creditors, total
payments on any head of expenditure etc. In order to get such information, a
ledger has to be maintained. While transferring the transactions from the
Journal to the ledger, the transactions are classified. For each person, head of
1income, head of expenditure, assets etc. separate accounts are opened in
the ledger.
The ledger contains the same information as the Journal. However, in
the Journal each transaction is completely recorded as a unit. The entire
effect of a transaction is completely recorded in one place in the Journal.
Periodically the same information is posted to the ledger where it is
accumulated according to individual items.
In conclusion, the ledger helps to achieve the following results :ZONAL RAILWAY TRAINING INSTITUTE, BHUSAWAL
ACCOUNTS FACULTY
48
2
5
4
3
6

a) All personal accounts would show how much money is payable to
creditors and received from debtors.
b) The real accounts would show the value of assets and properties.
c) The nominal accounts would show the sources of income and the amount
spent on various heads of expenses.
Nature of a Ledger :A Ledger is a bound book. It contains many pages, which are called
folios. These pages are consecutively numbered. For each account a
separate page is kept. Every ledger has an index.
Standard form of Ledger Account
Each ledger account is divided into two sides, having columns of
varying sizes. The left-hand side is known as Dr side and the right hand side
is known as Cr side of a ledger account. The column date, particulars, J.F.
and amount appear on both sides of ledger account.
Name of A/c_________________
Dr.
Date Particulars
J.F.
Amount
Rs.
Dat
e
Particular
s
J.F.
Amount
Rs.
Explanation: 1. Date column is used to show the date of the transaction.

2. Particular columns are used to write the names of the accounts debited or
credited.
3. Folio column is used to show the page number of the Journal on which the
transaction is recorded.
4. Dr. amount column shows the amount of the account debited.
5. Cr. Amount column shows the amount of the account credited.
Ledger Posting :ZONAL RAILWAY TRAINING INSTITUTE, BHUSAWAL

ACCOUNTS FACULTY
49

The process of transfer of entries from Journal to Ledger account is
called ledger posting. Posting may be made immediately after the entry has
been passed or at any convenient time.
Ledger posting process :1. Date column :- Write date of the transaction as recorded in the Journal.
2. Particulars Column :On Debit side Write name of the credited account in the Journal entry
after the word To
On Credit side Write name of the Debited account in the Journal entry
after the word By
3. J.F. Column Write page number of the Journal from where the entry is
posted.
4. Amount column Write the amount in the debit column of the Journal on
the debit side and the amount in the credit column of the Journal on the
credit side.
A special mark is marked in the Journal against entry which is posted in
the ledger
Example :- Journalise the following transaction in the Journal of Shri Mahesh
and post in the ledger Goods A/c and Cash A/c only
1st May 2000 Purchased goods Rs. 2000
2nd May 2000 Sold goods Rs. 300
3rd May 2000 Paid wages Rs. 70
4th May 2000 Received cash from suresh on accout Rs. 700
5th May 2000 Sold goods to Ramesh Rs. 900
6th May 2000 Given goods in charity Rs. 50
7th May 2000 Paid cash to Ganesh on account Rs. 300
Journal of Shri Mahesh
Date
Particulars
1st
May
2000
Goods A/c
L.F.
Dr.
Debit Rs.
Credit Rs.
2000
To Cash A/c
2000
(Being goods purchased)

ACCOUNTS FACULTY
50

2nd
May
2000
Cash A/c
3rd
May
2000
Wages A/c
4th
May
2000
Cash A/c
5th
May
2000
Rameshs A/c
6th
May
2000
Charity A/c
7th
May
2000
Ganeshs A/c
Dr.
300
To Goods A/c
300
(Being goods sold)

Dr.
70
To Cash A/c
70
(Being wages paid)

Dr.
700
To Sureshs A/c
700
(Being cash received on account)

900
To Goods A/c
900
(Being goods sold to Ramesh)

Dr.
50
To Goods A/c
50

Dr.
300
To Cash A/c
300
(Being cash paid)

Grand Total
4320
4320
Ledger of Shri. Mahesh

Goods A/c
Dr.
Cr.
Date Particulars JF
Amt.
Rs.
Date
May
1
2000
May
2000
To Cash
A/c
May
2000
May
2000
Particulars
JF
Amount
Rs.
2 By Cash A/c
300
By
5 A/c
900
Ramesh
50
By Charity A/c
6
Cash A/c
Dr.
Cr.
Date Particulars
J Amt. Date
Particulars
ACCOUNTS FACULTY
51
Amount Rs.

F Rs.
May
2
4
To Balance
------
To
A/c
Goods
300
To
A/c
Suresh
700
F
May 1 By Goods A/c
2000
By Wages A/c
May 3 By Ganeshs A/c
2000
2000
70
300
May 7
2000
Balancing of Accounts
At the end of a certain period, the accounts are balanced. The following
steps should be taken in balancing in an account :1. Make a total of both the sides of a ledger account. This may be done on a
rough sheet.
2. Complete the difference between the totals of both the sides.
3. Put the difference on the right side of the accounts, by writing against it in
Particulars column as By Balance C/d or To Balance C/d as the
case may be. If the debit side is heavier the difference will appear on the
credit side as By Balance C/d and if the credit side is heavier, the
difference will appear on the debit side of the account as To Balance
C/d.
4. Make the total of both sides. The total of the debit side will now agree with
the total of the credit side of the account.
5. Draw a single line before making the totals.
6. Draw a double line across the amount column after the totals are made.
7. Bring down the balance on the opposite side of the account. That means,
To Balance C/d is brought down on the credit side below the totals in the
particulars columns as By Balance b/d and By Balance C/d is
brought down on the debit side as To Balance B/d .
Trial Balance :
Trial balance is a statement showing the list of debit and credit
balances standing in the ledger of a trader at any date. It is prepared at the
end of the month or at the end of the accounting period or at the end of the
financial year after the ledger accounts are balanced.
The system of preparing trial balance based on the principles of double
entry system of book keeping. That means every debit should have a
corresponding credit and total debits must tally with total credit. When all the
ledger accounts are balanced the total of all the accounts showing debit
balance must agree with the total of all the accounts showing credit balances.
ACCOUNTS FACULTY
52

Purposes of Trial Balance :- It serves the following purposes :1. To ascertain arithmetical accuracy of the accounts opened in the ledger.
2. To know the balance of any ledger account.
3. To serve as an evidence of the fact that the double entry has been
completed in respect of every transactions.
4. To facilitate preparation of final accounts promptly.
5. To help the proprietor to draw conclusions by comparing trial balances of
past and present.
Ruling of Trial Balance

Trial Balance as on -------Sr.
No.
Name Of the Accounts
L.F.
Debit Totals or
Debit Balance
Rs.
Credit Totals or
Credit Balance
Rs.
---------
------------
Total
TOTALLING AND SUSPENSE ACCOUNT: Trial balance may be prepared on a loose sheet of paper. All the accounts
with their debit and credit balances are listed serially. The cash and bank
balances as shown by the cashbook are also included in a trial balance.
Closing stock of goods at the end of the year is not included in the trial
balance. After all the accounts are included in the trial balance, the totals of
the two sides are made, which should be equal.
In case the two sides of the trial balance is not found to be equal, the same is
re-checked and even though if the difference exists, the difference amount is
kept under a suspense head of account and thus the two sides of the trial
balance are made equal. Later on, the actual heads of accounts are traced
and the suspense account is cleared.
TRIAL BALANCE NOT TRACEABLE ERRORS: The trial balance is prepared to check the arithmetical accuracy of the books
of account. If the total of the trial balance agree, it can be reasonably
presumed that the books of accounts are correct. However, even if there is an
ACCOUNTS FACULTY
53

agreement of the totals, it is not a conclusive proof of the correctness of the
books of Accounts.
Following are the errors not disclosed by the trial balance
1) Errors of Principle: -These are the errors arising from not observing the
accounting principles correctly. For e.g.) Purchased furniture worth
Rs.5000/-, In this case, instead of debiting the furniture account, if the
purchase account is debited, the mistake will not be disclosed by the trial
balance.
2) Errors of Compensatory: - Whenever, one error exists and another error

takes place, as a result of which, the effect of the previous error is
counterbalanced, there is said to be a Compensatory error. For e.g.) If
sales account total is under cast by Rs.5000/- and also the purchase
account total is under cast by Rs.5000/-, the error so called is a
compensatory error, which will not be disclosed by the trial balance.
3) Error of Omission and Commission: - When a transaction is completely

not recorded in the books of accounts, such error is called error of
Omission, which will not be disclosed by the trial balance.
When the bill is prepared and in case the arithmetical error exists in the
bill, due to which less or excess amount of billing is done, the actual
accounting for of such bills will not be disclosed by the trial balance.
Such errors are called errors of Commission.
In view of above, it can be concluded that the agreement of total of debit and
credit of the trial balance do not all the time ensure that the books of accounts
are correct.
FINAL ACCOUNTS: ZONAL RAILWAY TRAINING INSTITUTE, BHUSAWAL

ACCOUNTS FACULTY
54

At the end of an accounting period, all the ledger accounts are balanced and
then a trial balance is prepared. A trial balance is not a part of the final
accounts. The trial balance helps in the preparation of the final accounts. The
final accounts are prepared to find out the net profit or net loss and to know
the financial positions of the business. These accounts consist of
1) Trading Account.
2) Profit and Loss Account.
3) Balance Sheet.
1)
Trading Account: -
A Trading account shows the trading results in the form of Gross profit or
Gross loss, as the case may be. The Gross profit or Gross loss is transferred
to the Profit and Loss account. The Gross profit is the difference between the
cost of Goods sold and the sales proceeds, without any deduction of indirect
expenses. Hence, in the trading account, it is necessary to include all items of
expenses directly affecting the cost of Goods sold.
2)
Profit and Loss Account: -
Profit and Loss account is summary account, which is prepared after

preparation of Trading Account. Trading account does not disclose the net
profit or net loss. There are other expenses to be incurred for operating the
business. Therefore, Profit and Loss account is prepared to consider other
business operating expenses in order to ascertain net profit or net loss. The
net profit or net loss is transferred to the balance sheet.
3) Balance Sheet: The balance sheet is a statement of the financial position of a business on a
given date. The entire situation of a business concern can be understood at a
glance. Hence, it is rightly said that the balance sheet is a mirror of the
business, which shows the liabilities and assets of the business on a
particular date.

ACCOUNTS FACULTY
55

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ELEMENTS OF BOOK KEEPING

Elements of Book Keeping

ELEMENTS OF BOOK KEEPING

ELEMENTS OF BOOK KEEPING

ELEMENTS OF BOOK KEEPING

Cash purchases - When goods are purchased and payment is made on

Credit purchases - When goods are purchased and payment is postponed

Transaction: - A transaction is an exchange of money or money's worth between

ELEMENTS OF BOOK KEEPING

ELEMENTS OF BOOK KEEPING

ELEMENTS OF BOOK KEEPING

3. Receipt: - The document is an acknowledgement of money. It is prepared in

It is a book of prime, original and first entry.

ELEMENTS OF BOOK KEEPING

ELEMENTS OF BOOK KEEPING

ELEMENTS OF BOOK KEEPING

1st July 1999 Started Business with cash Rs. 50,000.

(Being opened an account with

(Being furniture purchased for

ELEMENTS OF BOOK KEEPING

(Being goods sold for cash)

(Being goods sold on credit to

(Being goods purchased from

(Being wages paid)

(Being cash received)

July Rahims A/c

(Being cash paid)

July Drawings A/c

(Being cash withdrawn)

July Cash A/c

(Being commission received)

July Goods A/c

To Govind & Sons A/c

July Rent A/c

(Being rent paid)

ELEMENTS OF BOOK KEEPING

July Govind & Sons A/c

(Being goods returned)

Land & Buildings A/c

(Being business started

ZONAL RAILWAY TRAINING INSTITUTE, BHUSAWAL

ELEMENTS OF BOOK KEEPING

(Being an account opened with

(Being goods sold for cash)

(Being goods purchased)

(Being cash paid to Ibrahim)

(Being goods sold on credit)

(Being commission paid)

Loss by fire A/c

ZONAL RAILWAY TRAINING INSTITUTE, BHUSAWAL

ELEMENTS OF BOOK KEEPING

(Being goods burnt by fire)

(Being cash paid in full

(Being stationary purchased)

(Being goods given in charity)

(Being cash deposited)

Example ;- Journalise the following transactions in the Journal of --------i)

Purchased motor-car for cash Rs. 150000

Paid premium of life polity Rs. 460

Paid premium to General insurance company Rs. 740

Burnt goods by fire Rs. 300

Ashok became insolvent and received cash Rs. 2000 on account

Purchased goods worth Rs. 5000 to 10% discount to Rahim

Sold goods worth Rs. 1000 on 10% discount