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Srinivas University, 1st SEMESTER-BBA, Name of the Program: Bachelor of Business Administration (BBA), Course Code: 21BBAHN/LS/PM/HA/PA/CMA/IB21, Name of the Course: BUSINESS ACCOUNTING-1, Course Credits, 4 Credits, , No. of Hours per Week, 4Hrs, , Total No. of Teaching Hours, 45Hrs, , Pedagogy: Class rooms lecture, tutorials, Group discussion, Seminar, Case studies & field, work etc.,, Course Objectives., , , , , To Prepare financial statements in accordance with appropriate standards., Interpreting the business implications of financial statement information, Preparing accounting information for planning and control and for the evaluation of, products, projects and divisions., , , , Analysing transaction data and tax authorities for purposes of tax planning., , , , Applying auditing concepts to evaluate the conformity of financial statements with, appropriate auditing standards., Course Outcomes: On successful completion of the course, the students will be able., CO: 1 To gain knowledge on accounting concepts, CO: 2 Equip themselves with necessary skills from learning these concepts theoretically and, practically., Syllabus:, Hours, Module No.1: Theoretical Framework, 08, Business Accounting: Nature-scope-limitation- Accounting: Concepts and convention,, Accounting standard-significance and importance- IFRS-Needs and procedures, Difference, between IAS and AS., Module No.2: Accounting Process, 08, Accounting process- Classification of Accounting Transactions and Accounts- Rules of Debit, and Credit as Per Double Entry System- Journal Entries- Ledger posting – Subsidiary BooksCash Book., 08, Module No.3: Depreciation, Deprecation Account- Meaning-Causes- Depreciation V/s Fluctuations, Methods of, Depreciation – Problems on Straight line method, written down value method and Annuity, method., Module No. 4: Bank Reconciliation Statement and Rectification of Error, 08, Bank Reconciliation - Meaning, causes of differences, need & importance, preparation &, presentation of BRS, Rectification of errors: Classification of errors- before preparing the trial balance after, preparing the trial balance and before preparing final account., Module No 5: Final Accounts of Sole Proprietorship, 08, Final Accounts of sole proprietorship- Preparation of Trading Account,, , Business Accounting-1, , 2

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Srinivas University, , 1st SEMESTER-BBA, , profit and Loss A/C and Balance Sheet (with Basic Adjustments)., Books for Reference:, 1., 2., 3., 4., 5., 6., 7., , Advanced Accountancy, Advanced Accountancy, Advanced Accountancy, Advanced Accountancy, Accounting – 1, Advanced Accountancy, Advanced Accounting, , Business Accounting-1, , - R.L. Gupta, - S.N. Maheshwari and S.L. Maheshwari, - M.C. Shukla, - B.S. Raman, - B.S. Raman, - Jain and Narang, - Dr B.M Agarwal and Dr. M.P Gupta, , 3

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Srinivas University, , 1st SEMESTER-BBA, Teaching Plan, , SESSION, , CONTENT, , TIME, 1, , Module No.1, , Theoretical Framework, , Session 1:, , Introduction to Business Accounting, , 1, , Session 2:, , Meaning, definition and features of Business Accounting, , 1, , Session 3:, , Nature, scope and limitation of Business accounting, , 1, , Session 4:, , Accounting: objectives, role or function and terms, , 1, , Session 5:, , Accounting principles, Accounting Concepts and convention, , 1, , Session 6:, , Accounting Standard: list, Significance and, importance of accounting standard, , 1, , Session 7:, , IFRS- meaning, need and procedures, , 1, , Session 8:, , Difference between, IAS and AS, , 1, , Module No.2:, , Accounting Process, , Session 9:, , Classification of Accounting transactions and Accounts, , 1, , Session 10:, , Double entry system: Meaning, objectives, and advantages, , 1, , Session 11:, , Classification of Accounts and rules of debit and credit as per, double Entry system, , 1, , Session 12:, , Journal Entries: Meaning and steps, , 1, , Session 13:, , Journal Entries: Meaning and steps, , 1, , Business Accounting-1, , 4

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Srinivas University, , 1st SEMESTER-BBA, , Session 14:, , Ledger: Meaning. Relationship between journal and Ledger,, advantages, procedure for posting and Problems on ledger, , 1, , Session 15:, , Problems on posting journal into ledger, , 1, , Session 16:, , Subsidiary books and cash book, , 1, , Module No.3:, , Depreciation, , Session 17:, , Meaning, definition and causes of Depreciation, , 1, , Session 18:, , Difference between Depreciation and Fluctuations, Methods of, Depreciation, , 1, , Session 19:, , Problems on Straight line method, , 1, , Session 20:, , Continuation of problems on Straight line method, , 1, , Session 21:, , Problems on written down value, method, , 1, , Session 22:, , Problems on written down value method, , 1, , Session 23:, , Problems on Depreciation fund Method, , 1, , Session 24:, , Continuation of problems on Depreciation fund Method, , 1, , Module No .4:, , Bank Reconciliation Statement and Rectification of Errors, , Session 25:, , Meaning, Definition, Need and importance of BRS, , Session 26:, , Causes of differences between cash book and pass book, , Session 27:, , Preparation and presentation of bank reconciliation statement, , 1, 1, 1, , Business Accounting-1, , 5

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Srinivas University, , 1st SEMESTER-BBA, , 1, Session 28 :, , Problems on BRS, , 1, Session 29:, , Rectification of errors: Classification of errors, , 1, Session 30:, , Problems on Rectification of errors, , Session 31:, , .Continuation of problems on Rectification of errors, , Session 32:, , Continuation of problems on Rectification of errors, , 1, 1, 1, Module No .5:, , Final Accounts of Sole Proprietorship, , Session 33:, , Meaning, definition and objectives, , 1, 1, Session 34:, , Preparation of profit and losses, , 1, Session 35:, , Preparation of balance sheet, , Session 36:, , Problems on profit and losses, , Session 37:, , Problems on profit, losses and balance sheet, , 1, 1, 1, Session 36:, , Continuation on problems on profit, losses and balance sheet, , Session 37:, , Continuation on problems on profit, losses and balance sheet, , Session 38:, , Problems with basic adjustment, , 1, 1, , Business Accounting-1, , 6

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Srinivas University, , 1st SEMESTER-BBA, CONTENTS, , SL No., , Chapters (Question Bank), THEORETICAL FRAMEWORK, , 1, ACCOUNTING PROCESS, , 2, , DEPRECIATION ACCOUNTING, , 3, , 4, , BANK RECONCIALIATION STATEMENT AND RECTIFICATION OF, ERRORS, FINAL ACCOUNTS OF A SOLE TRADER, , 5, , Business Accounting-1, , 7

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Srinivas University, , 1st SEMESTER-BBA, , UNIT I, THEORETICAL FRAMEWORK, , 1.1 ORIGIN AND DEVELOPMENT OF ACCOUNTING THOUGHT, Accounting is as old as money itself. Accounting had emerged not by chance, but in response to, the economic and social developments in developed countries of the world. This is clear from the, fact that, in developed countries like the U.K., Germany, France, Switzerland, U.S.A., etc.,, where there were remarkable economic and social developments, there was a major revolution in, accounting theory and practice during the past sixty years, while in developing and underdeveloped countries, where the economic and social developments were not significant, there, was not much development in accounting theory and practice., In India, Chanakya in his Arthashastra has emphasized the existence and need of proper, accounting and auditing., Accounting today, therefore, cannot be the same as it used to be about half century back. It has, also grown in importance and change in its structure with the evolution of complex and giant, industrial organizations. In the early stages accounting developed as a result of the needs of the, business firms to keep track of their relationship with outsiders, listing of their assets and, liabilities. In recent years changes in technology have also brought a remarkable change in the, field of accounting., , 1.2 DEFINITION AND MEANING OF ACCOUNTING:, The American Institute of Certified Public Accountants (AICPA) has defined 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 a financial character and, interpreting the results thereof”., According to the American Accounting Association (AAA), "Accounting is the process of, identifying, measuring and communicating economic information to permit informed, judgments‟ and decisions by users of the information"., From the above definitions, it is clear that accounting is (i) identifying and measuring business, transactions in terms of money, (ii) recording business transactions of financial character, soon, after their occurrence, in a book or books of original entry, (iii) classifying the entries found in, Business Accounting-1, , 8

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Srinivas University, , 1st SEMESTER-BBA, , the book or books of original entry into appropriate accounts in the ledger, the book of final, entry, periodically, (iv) summarising or presenting, at the end of the accounting period, the, information found in the ledger accounts through financial statements, (v) analysing and, interpreting the financial statements (i.e., drawing conclusions from the financial statements) and, (vi) communicating the results of the interpretation of the financial statements to the end-users, for making sound decisions., , 1.3 ESSENTIAL ASPECTS OF ACCOUNTING:, (i) Identifying, i.e., determining the business transactions to be recorded in the book or books of, original entry., (ii) Measuring, i.e., expressing the value of business transactions in terms of money., (iii) Recording, i.e., entering, in terms of money, business transactions, as and when they occur., iv)Classifying, i.e., grouping of entries of like nature into appropriate accounts in the ledger or, posting of the entries to the ledger accounts, balancing the ledger accounts and the preparation of, trial balance., v) Summarizing, i.e., presenting the effects of the business transactions classified in the ledger, accounts upon the profit and the financial position of the business at the end of the accounting, period., vi) Analyzing, i.e., rearranging the items in the financial statements in a suitable form and, establishing the relationship between the various items or groups of items in the financial, statements so as to provide the basis for interpretation., vii) Interpreting, i.e., explaining the significance of the relationship established by the analysis,, and drawing meaningful conclusions about the profit, the financial position and the future, prospects of the business., viii) Communicating, i.e., intimating, the results of interpretation of the financial statement to, the end- users of accounting information for decision-making., , Business Accounting-1, , 9

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Srinivas University, , 1st SEMESTER-BBA, , 1.4 BOOK-KEEPING, According to Northcot, "Book-Keeping" is the art of recording in the books of account the, monetary aspect of commercial and financial transactions"., In the words of "A. J. Favell, "Book-keeping is the recording of the financial transactions of, a business in a methodical manner so that information on any point in relation to them, may be quickly obtained"., From the above definitions, it is clear that book-keeping is the process of recording business, transactions in appropriate books of account in a systematic manner so as to ensure the, availability of financial information on any point of the business, particularly about the profit or, loss and the financial position of the business., , 1.4.1 Essential Aspects or Features of Book-Keeping:, i) Book-keeping is the recording of only business transactions., ii) It is the recording of only the monetary or financial aspects of business transactions, iii) It is the recording of business transactions in terms of money., iv) It is the recording of business transactions in a set of books known as books of account or, account books., v) Book-keeping covers certain processes, viz., identifying the business transactions to be, recorded, measuring those business transactions in terms of money, recording the identified and, measured business transactions in the book or books of original entry., , 1.5ACCOUNTANCY, Definition and Meaning of Accountancy:, In the words of Eric Kohler, "Accountancy is the theory and practice of accounting"., From these definitions, it is clear that accountancy is a discipline (i.e., a body of knowledge or a, subject of study) which explains the art and principles of recoding business transactions. In other, words, accountancy is the science of accounting, which explains why books of accounts should, be maintained, how to maintain the books of accounts, how to prepare the financial statements,, how to interpret the financial statements, and how to communicate the results of the, interpretation to the end-users., , Business Accounting-1, , 10

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Srinivas University, , 1st SEMESTER-BBA, , 1.5.1 OBJECTIVES OF ACCOUNTING, (i) Maintaining proper records of business transactions:, One of the important objectives of accounting is to maintain complete, proper and systematic, records of all the business transactions of the business so that the financial information required, on any matter can be had readily and easily., (ii) Ascertaining the profit or loss of the business:, Another important objective of accounting is to ascertain the profit or loss of the business for an, accounting period by preparing the profit and loss account., (iii) Knowing the sources of revenue and the items of expenses:, Another important objective of accounting is to know how the profit is earned or the loss is, incurred, i.e., to know the various sources of revenue and the various items of expenses which, have resulted in profit or loss., (iv) Ascertainment of the financial position of the business:, Ascertainment of the true financial position (i.e., the assets, liabilities and owner's capital) of the, business at the end of every accounting year by preparing the balance sheet or position statement, is another important objective of accounting., (v) Ascertaining the amounts due to the business, and the amounts due from the business:, Ascertaining the amounts due to the business from its debtors, and the amounts due from the, business to its creditors is another important objective of accounting., (vi) Ensuring effective control over the performance of the business:, Accounting reveals the actual performance of a business in terms of cost of production and sale,, profit or loss and book values assets and liabilities. Thus, accounting is intended to ensure, effective control over the performance of the business., (vii) Protection of the properties of the business:, , Business Accounting-1, , 11

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Srinivas University, , 1st SEMESTER-BBA, , Another important objective of accounting is to protect the properties of the business. By, keeping proper records of the various properties of the business and providing up-to-date, information about the various properties of the business to the management, accounting helps the, management to exercise proper control over the use of the properties of the business., (viii) Prevention of errors and frauds:, Another important objective of accounting is to prevent errors and frauds in the business by, facilitating their quick detection and correction and by introducing suitable measures for their, prevention in future., ix) Satisfying legal requirements:, Various laws like the Companies Act, the Income-tax Act, the Sales Tax Act, etc. require a, business concern to maintain necessary financial records and submit the required financial, statements to the Government. Accounting satisfies the requirements of these laws by, maintaining the necessary accounting records., x) Making financial information available to various groups of persons:, Accounting communicates (i.e., makes available) the financial results (i.e., profit or loss and the, financial position) and other valuable financial information to various groups., , 1.5.2 ROLE OR FUNCTIONS OF ACCOUNTING, 1. The basic function of accounting is to keep a systematic record of the financial transactions of, the business., 2. Just as a language is used as a means of communication, accounting is used to communicate, the financial information about the profit or loss and the financial position of the business to the, interested parties., 3. Accounting protects the properties and assets of the business. By maintaining proper records, of the various properties and assets of the business and providing up-to-date information about, the properties and assets of the business to the management., 4. Accounting meets the legal requirements by maintaining proper records., 5. Accounting provides a continuous record of business activities, and thereby, helps the business, enterprise to make a meaningful comparison of its current year's activities with the activities of, the previous years., , Business Accounting-1, , 12

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Srinivas University, , 1st SEMESTER-BBA, , 6. For the efficient planning of a business for the future, a complete knowledge of its past and, present activities is needed., , 1.5.3 Basic Accounting Terms, The understanding of the subject becomes easy when one has the knowledge of a few important, terms of accounting. Some of them are explained below., Transactions, Transactions are those activities of a business, which involve transfer of money or goods or, services between two persons or two accounts. For example, purchase of goods, sale of goods,, borrowing from bank, lending of money, salaries paid, rent paid, commission received and, dividend received. Transactions are of two types, namely, cash and credit transactions., Cash Transaction, Cash Transaction is one where cash receipt or payment is involved in the transaction. For, example, When Ram buys goods from Kannan paying the price of goods by cash immediately, it, is a cash transaction., Credit Transaction, Credit Transaction is one where cash is not involved immediately but will be paid or received, later. In the above example, if Ram, does not pay cash immediately but promises to pay later, it, is credit transaction., Proprietor, A person who owns a business is called its proprietor. He contributes capital to the business with, the intention of earning profit., Capital, It is the amount invested by the proprietor/s in the business. This amount is increased by the, amount of profits earned and the amount of additional capital introduced. It is decreased by the, amount of losses incurred and the amounts withdrawn. For example, if Mr.Anand starts business, with Rs.5,00,000, his capital would be Rs.5,00,000., Assets, Assets are the properties of every description belonging to the business. Cash in hand, plant and, machinery, furniture and fittings, bank balance, debtors, bills receivable, stock of goods,, investments, Goodwill are examples for assets. Assets can be classified into tangible and, intangible., Business Accounting-1, , 13

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Srinivas University, , 1st SEMESTER-BBA, , Tangible Assets: These assets are those having physical existence. It can be seen and touched., For example, plant & machinery, cash, etc., Intangible Assets: Intangible assets are those assets having no physical existence but their, possession gives rise to some rights and benefits to the owner. It cannot be seen and touched., Goodwill, patents, trademarks are some of the examples., Liabilities, Liabilities refer to the financial obligations of a business. These denote the amounts which a, business owes to others, e.g., loans from banks or other persons, creditors for goods supplied,, bills payable, outstanding expenses, bank overdraft etc., Drawings, It is the amount of cash or value of goods withdrawn from the business by the proprietor for his, personal use. It is deducted from the capital., Debtors, A person (individual or firm) who receives a benefit without giving money or money's worth, immediately, but liable to pay in future or in due course of time is a debtor. The debtors are, shown as an asset in the balance sheet. For example, Mr.Arul bought goods on credit from, Mr.Babu for Rs.10,000. Mr.Arul is a debtor to Mr.Babu till he pays the value of the goods., Creditors: A person who gives a benefit without receiving money or money's worth, immediately but to claim in future, is a creditor. The creditors are shown as a liability in the, balance sheet. In the above example Mr.Babu is a creditor to Mr.Arul till he receives the value of, the goods., Purchases, Purchases refer to the amount of goods bought by a business for resale or for use in the, production. Goods purchased for cash are called cash purchases. If it is purchased on credit, it is, called as credit purchases. Total purchases include both cash and credit purchases., Purchases Return or Returns Outward, When goods are returned to the suppliers due to defective quality or not as per the terms of, purchase, it is called as purchases return. To find net purchases, purchases return is deducted, from the total purchases., , Business Accounting-1, , 14

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Srinivas University, , 1st SEMESTER-BBA, , Sales, Sales refer to the amount of goods sold that are already bought or manufactured by the business., When goods are sold for cash, they are cash sales but if goods are sold and payment is not, received at the time of sale, it is credit sales. Total sales include both cash and credit sales., Sales Return or Returns Inward, When goods are returned from the customers due to defective quality or not as per the terms of, sale, it is called sales return or returns inward. To find out net sales, sales return is deducted from, total sales., Stock, Stock includes goods unsold on a particular date. Stock may be opening and closing stock. The, term opening stock means goods unsold in the beginning of the accounting period. Whereas the, term closing stock includes goods unsold at the end of the accounting period. For example, if, 4,000 units purchased @ Rs. 20 per unit remain unsold, the closing stock is Rs.80,000. This will, be opening stock of the subsequent year., Revenue, Revenue means the amount receivable or realised from sale of goods and earnings from interest,, dividend, commission, etc., Expense, It is the amount spent in order to produce and sell the goods and services. For example, purchase, of raw materials, payment of salaries, wages, etc., Income, Income is the difference between revenue and expense., Voucher, It is a written document in support of a transaction. It is a proof that a particular transaction has, taken place for the value stated in the voucher. It may be in the form of cash receipt, invoice,, cash memo, bank pay-in-slip etc. Voucher is necessary to audit the accounts., Invoice, Invoice is a business document which is prepared when one sell goods to another. The statement, is prepared by the seller of goods. It contains the information relating to name and address of the, seller and the buyer, the date of sale and the clear description of goods with quantity and price., , Business Accounting-1, , 15

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Srinivas University, , 1st SEMESTER-BBA, , Receipt, Receipt is an acknowledgement for cash received. It is issued to the party paying cash. Receipts, form the basis for entries in cash book., Account, Account is a summary of relevant business transactions at one place relating to a person, asset,, expense or revenue named in the heading. An account is a brief history of financial transactions, of a particular person or item. An account has two sides called debit side and credit side., , 1.6 ACCOUNTING PRINCIPLES, Definition and Meaning of Accounting Principles:, According to the American Institute of Certified Public Accountants (AICPA), U.S.A., "An, accounting principle is a general law or rule adopted or professed as a guide to action, a, settled ground or basis of conduct or practice"., From the above definitions, it is clear that accounting principles are generally decided rules,, derived from the basic accounting concepts, which are followed by accountants widely in writing, up the accounts and in preparing the financial statements of business concerns. In short,, accounting principles are rules of action or conduct which are adopted by accountants, universally, while recording accounting transactions and preparing financial statements., 1.6.1 GENERALLY ACCEPTED ACCOUNTING PRINCIPLE (GAAPS), Accounting principles, which are widely accepted by accountants, are known as generally, accepted accounting principles. In other words, generally accepted accounting principles are the, set of guidelines and rules which are widely accepted by accounting practioners (i.e., chartered, accountants) at a given time., 1.6.2 Classification of accounting principles, Traditionally, accounting principles have been classified as:, 1. Accounting concepts, 2. Accounting conventions, 1. Accounting concepts, The term 'concept' means an idea or thought. Basic accounting concepts are the fundamental, ideas or basic assumptions underlying the theory and practice of financial accounting. They are, , Business Accounting-1, , 16

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Srinivas University, , 1st SEMESTER-BBA, , evolved (and are still evolving) over a period in response to the changing business environment, and the specific needs of the users of accounting information., The concepts guide the identification of events and transactions to be accounted for, their, measurement and recording, and the method of summarising and reporting to interested parties., The concepts, thus, help in bringing about uniformity in the practice accounting., a. Business Entity Concept, Business entity means a unit of organised business activity. From the accounting point of view, every business enterprise is an entity separate and distinct from its proprietor(s)/owner(s). The, accounting system gives information only about the business and not its owner(s). In other words, we record those transactions in the books of account which relate only to the business. The, owner's personal affairs (his expenditure on housing, food, clothing, etc.) will not appear in the, books of account of his business. However, when personal expenditure of the owner is met from, business funds it shall also be recorded in the business books. It will be recorded as drawings by, the proprietor and not as business expenditure., Another implication of business entity concept is that the owner of business is to be treated as a, creditor who also has a claim over the assets of the business. As such, the amount invested by, him (capital) is regarded as a liability for the business., The business entity concept is applicable to all forms of business organisations. This distinction, can be easily maintained in the case of a limited company because the company has a legal entity, of its own. But such distinction becomes difficult in case of a sole proprietorship or partnership, because in the eyes of the law the partner or the sole proprietors are not considered separate, entities. They are personally liable for all business transactions. But, for accounting purposes, they are to be treated as separate entities. This enables them to ascertain the profit or loss of, business more conveniently and accurately., b. Money Measurement Concept, Usually, business deals in a variety of items having different physical units such as kilograms,, quintals, tons, metres, litres, etc. If the sales and purchases of different items are recorded in, terms of their physical units, adding them together will pose problems. But, if these are recorded, in a common denomination, their total becomes homogeneous and meaningful. Therefore, we, need a common unit of measurement. Money does this function. It is adopted as the common, measuring unit for the purpose of accounting. All recording, therefore, is done in terms of the, Business Accounting-1, , 17

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Srinivas University, , 1st SEMESTER-BBA, , standard currency of the country where business is set up. For example, in India it is done in, terms of Rupees, in USA it is done in terms of US Dollars, and so on., Another implication of money measurement concept is that only those transactions and events, are to be recorded in the books of account which can be expressed in terms of money such as, purchases, sales, payment of salaries, goods lost in accident, etc., other happenings, (nonmonetary) like death of an efficient manager or the appointment of an accountant,, howsoever important they may be, are not recorded in the books of account. This is because their, effect is not measurable of quantifiable in terms of money., This approach has its own drawbacks. The value of money changes over a period of time. The, value of rupee today is much less than what it was in 1961. Such a change is nowhere reflected, in accounts. This is the reason why the accounting data does not reflect the true and fair view of, the affairs of the business., Hence, now-a-days, it is considered desirable to provide additional data showing the effect of, changes in the price level on the reported income and the assets and liabilities of the business., c. Objective Evidence Concept, The term objectivity refers to being free from bias or free from subjectivity. Accounting, measurements are to be unbiased and verifiable independently. For this purpose, all accounting, transactions should be evidenced and supported by documents such as bills, invoices, receipts,, cash memos, etc. These supporting documents (vouchers) form the basis for making entries in, the books of account and for their verification by auditors afterwards. As for the items like, depreciation and the provision for doubtful debts where no documentary evidence is available, the policy statements made by management are treated as the necessary evidence., d. Historical Record Concept: According to the historical record concept, we record only those, transactions which have actually taken place and not those which may take place (future, transactions). It is because accounting record presupposes that the transactions are to be, identified and objectively evidenced. This is possible only in the case of past (actually happened), transactions. The future transactions can hardly be identified and measured accurately. You also, know that all transactions are to be recorded in chronological (datewise) order. This leads to the, preparation of a historical record of all transactions. It also implies that we simply record the, facts and nothing else., , Business Accounting-1, , 18

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Srinivas University, , 1st SEMESTER-BBA, , e. Cost Concept, Business activity, in essence, is an exchange of money. The price paid (or agreed to be paid in, case of a credit transaction) at the time of purchase is called cost. According to the cost concept,, all assets are recorded in books at their original purchase price. This cost also forms an, appropriate basis for all subsequent accounting for the assets. For example, if the business buys a, machine for Rs. 80,000 it would be recorded in books at Rs. 80,000. In case its market value, increases later on to Rs. 1,00,000 (or decreases to Rs. 50,000) it will continue to be shown at Rs., 80,000 and not at its market value., This does not mean, however, that the asset will always be shown at cost. Hence it may, systematically be reduced from year to year by charging depreciation and the asset be shown in, the balance sheet at the depreciated value. The depreciation is usually charged as a fixed, percentage of cost. It bears no relationship with changes in its market value. In other words, the, value at which the assets are shown in the balance sheet has no relevance to its market value., This, no doubt, makes it difficult to assess the true financial position of the business. It is,, therefore, regarded as an important limitation of the cost concept. But this approach is preferred, because, firstly it is difficult and time consuming to ascertain the market values, and secondly, there will be too much of subjectivity in assessing the current values. However, this limitation, has been overcome with the help of inflation accounting., 2. Accounting conventions: Customs, traditions, usages and practices followed in accounting, for a long time while preparing the accounting statements are known as accounting conventions., Following are the some of the important accounting conventions:, a. Convention of consistency: According to this, Accounting practices, rules and methods, should remain unchanged for a fairly long time. However changes may be made if it is, absolutely necessary. Such changes and their effects should be clearly stated in the financial, statements., b. Convention of conservatism: This convention gives the rule ‗anticipate no profit but provide, for all possible losses‗. It suggests the policy of playing safe. According to this convention, anticipated profit shall not be taken into account. Therefore, closing stock is valued at cost or, market price whichever is lower. However provisions shall be made for all possible anticipated, losses., , Business Accounting-1, , 19

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Srinivas University, , 1st SEMESTER-BBA, , c. Convention of full disclosure: According to this convention, accounts and financial, statements should disclose all important information fully and fairly., d. Convention of materiality: Material facts are to be reported. Insignificant details may be, ignored while preparing financial statements. This is necessary to reduce unnecessary minute, details. It is also reduces the cost of accounting. Materiality is a subjective term., 1.7Accounting Standards, Meaning of Accounting Standards:, Accounting standards are the policy documents or written statements issued, from time to time,, by an apex expert accounting body in relation to various aspects of measurement, treatment and, disclosure of accounting transactions or events for ensuring uniformity in accounting practices, and reporting. In other words, accounting standards are the guidelines laid down by an apex, expert accounting body as to how business transactions or events are to be recorded in books of, account, and the manner in which the business transactions are to be exhibited in the financial, statements., 1.7.1 LIST OF INDIAN ACCOUNTING STANDARDS, AS 1: Disclosure of accounting policies., AS 2: Valuation of inventories (revised)., AS 3: Cash flow statement (revised)., AS 4: Contingencies and events occurring after the balance sheet date (revised)., AS 5: Net profit or loss for the period, prior period and extraordinary items and changes in, accounting policies (revised)., AS 6: Depreciation accounting (revised)., AS 7: Accounting for construction contracts (revised)., AS 8: Accounting for Research and Development (withdrawn with effect from 1.4.2003)., AS 9: Revenue recognition., AS 10: Accounting for fixed assets., AS 11: Accounting for the effects of changes in foreign exchange rates (revised)., AS 12: Accounting for Government grants., AS 13: Accounting for investments., AS 14: Accounting for amalgamations., AS 15: Accounting for retirements benefits in the financial statements of employers., Business Accounting-1, , 20

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Srinivas University, , 1st SEMESTER-BBA, , AS 16: Borrowing costs., AS 17: Segment reporting., AS 18: Related Party disclosures., AS 19: Leases., AS 20: Earnings per share, AS 21: Consolidated financial statements., AS 22: Accounting for taxes on income., AS 23: Accounting for investments in associates in consolidated financial statement, AS 24: Discontinuing operations., AS 25: Interim financial reporting., AS 26: Intangible assets., AS 27: Financial reporting of interests in joint ventures., AS 28: Impairment of assets., AS 29: Provisions, contingent liabilities and contingent assets., AS 30: Financial Instruments: Recognition and Measurement., AS 31: Financial Instruments: Presentation., AS 32: Financial Instruments: Disclosure., , 1.7.2 Benefits and Limitations, Accounting standards seek to describe the accounting principles, the valuation techniques and the, methods of applying the accounting principles in the preparation and presentation of financial, statements so that they may give a true and fair view. By setting the accounting standards the, accountant has following benefits:, (i) Standardisation of alternative accounting treatments: Standards reduce to a reasonable extent, or eliminate altogether confusing variations in the accounting treatments used to prepare financial, statements., (ii) Requirements for additional disclosures: There are certain areas where important information, is not statutorily required to be disclosed. Standards may call for disclosure beyond that required by, law., (iii) Comparability of financial statements: The application of accounting standards would, to a, limited extent, facilitate comparison of financial statements of companies situated in different parts, of the world and also of different companies situated in the same country. However, it should be, , Business Accounting-1, , 21

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Srinivas University, , 1st SEMESTER-BBA, , noted in this respect that differences in the institutions, traditions and legal systems from one country, to another give rise to differences in accounting standards adopted in different countries., There are some limitations of setting of accounting standards:, (i) Difficulties in making choice between different treatments: Alternative solutions to certain, accounting problems may each have arguments to recommend them. Therefore, the choice between, different alternative accounting treatments may become difficult., (ii) Lack of flexibilities: There may be a trend towards rigidity and away from flexibility in applying, the accounting standards., (iii) Restricted scope: Accounting standards cannot override the statute. The standards are required, to be framed within the ambit of prevailing statutes., , 1.7.3 Importance of accounting standards, 1. Lays down uniform accounting policies & practices which are to be followed by all business, enterprises in respect of particular transactions or events., 2. If uniform accounting standards are followed by all business concerns in the preparation of, accounts & in the presentation of financial statements, the financial statements of various, business concerns become comparable., 3. Accounting standards would curb the unlimited flexibility in the adoption of accounting, policies & practices., 4. Financial statements, prepared in accordance with established accounting standards, would be, useful to investors in judging the yield & risk involved in alternative investments in different, companies & in different countries., 5. Financial statements, produced on the basis of established accounting standards, will be, reliable documents for the purpose of analysis & in interpretation by analysis, researchers &, consultants for economic forecasting & planning., 6. It improves the credibility & reliability of accounting information., 7. It raises the standards of auditing in its task of reporting on the financial statements & make, charted accountants ensure commitment & integrity in their profession., , Business Accounting-1, , 22

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Srinivas University, , 1st SEMESTER-BBA, , 8. Accounting reports produced in accordance with established accounting standards are, regarded by government officials, tax authorities etc...As quite reliable & acceptable., , 1.8 IFRSThe Institute of Chartered Accountants of India (ICAI) has announced that IFRS will be, mandatory in India for financial statements for the periods beginning on or after 1 April 2016 in, a phased manner. There is a roadmap issued by MCA for adoption of IFRS., 1.8.1 History of IFRS, IFRS originated in the European Union, with the intention of making business affairs and, accounts accessible across the continent. The idea quickly spread globally, as a common, language allowed greater communication worldwide. Although only a portion of the world uses, IFRS, participating countries are spread all over the world, rather than being confined to one, geographic region. The United States has not yet adopted IFRS, as many view the American, GAAP. as the "gold standard"; however, as IFRS become more of a global norm, this is subject, to change if the SEC decides that IFRS are fit for American investment practices., Currently, about 120 countries use IFRS in some way, and 90 of those require them and fully, conform to IFRS regulations. IFRS are maintained by the IFRS Foundation. The mission of the, IFRS Foundation is to "bring transparency, accountability and efficiency to financial markets, around the world." Not only does the IFRS Foundation supply and monitor these standards, but it, also provides suggestions and advice to those who deviate from the practice guidelines. The goal, with IFRS is to make international comparisons as easy as possible. This is difficult because, to a, large extent, each country has its own set of rules. For example, U.S. GAAP are different from, Canadian GAAP. Synchronizing accounting standards across the globe is an ongoing process in, the international accounting community., 1.8.2 Meaning:, International Financial Reporting Standards (IFRS) are a set of international accounting, standards stating how particular types of transactions and other events should be reported in, financial statements. IFRS are issued by the International Accounting Standards Board, and they, specify exactly how accountants must maintain and report their accounts. IFRS were established, Business Accounting-1, , 23

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Srinivas University, , 1st SEMESTER-BBA, , in order to have a common accounting language, so business and accounts can be understood, from company to company and country to country., 1.8.3 Standard IFRS Requirements, IFRS cover a wide range of accounting activities. There are certain aspects of business practice, for which IFRS set mandatory rules., Statement of Financial Position: This is also known as a balance sheet. IFRS influence the, ways in which the components of a balance sheet are reported., Statement of Comprehensive Income: This can take the form of one statement, or it can be, separated into a profit and loss statement and a statement of other income, including property and, equipment., Statement of Changes in Equity: Also known as a statement of retained earnings, this, documents the company's change in earnings or profit for the given financial period., Statement of Cash Flow: This report summarizes the company's financial transactions in the, given period, separating cash flow into Operations, Investing, and Financing., 1.8.3 IFRS vs. American Standards, Differences exist between IFRS and other countries' generally accepted accounting standards, (GAAP) that affect the way a financial ratio is calculated. For example, IFRS are not as strict on, defining revenue and allow companies to report revenue sooner, so consequently, a balance sheet, under this system might show a higher stream of revenue. IFRS also have different requirements, for expenses; for example, if a company is spending money on development or an investment for, the future, it doesn't necessarily have to be reported as an expense (it can be capitalized)., Another difference between IFRS and GAAP is the specification of the way inventory is, accounted for. There are two ways to keep track of this, first in first out (FIFO) and last in first, out (LIFO). FIFO means that the most recent inventory is left unsold until older inventory is, sold; LIFO means that the most recent inventory is the first to be sold. IFRS prohibit LIFO,, while American standards and others allow participants to freely use either., , Business Accounting-1, , 24

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Srinivas University, , 1st SEMESTER-BBA, , QUESTIONS:, 1 mark Questions:, , 1. Accounting is emerged by, a. Developed country, , b. Under developed country, , c. Developing country, , d. a & b, , 2. In India in his Arthashastra has emphasized the existence and need of proper accounting, and auditing., a. Chanakya, , b. Northcot, , c. Eric Kohler, , d. None of the above, , 3. "Accountancy is the theory and practice of accounting" is given by, a. Eric Kohler, , b.Chanakya, , c. Northcot, , d. None of the above, , 4. Amount invested by the owner of the business is, a. Asset, , b. Capital, , c. Liability, , d. Income, , 5. Amount receivable or realised from sale of goods, a. Revenue, , b. Income, , c. Income and Revenue, , d. None of the above, , 6. A person who receives a benefit without giving money but liable to pay in future, a. Debtor, , b. Creditor, , c. Bank, , d. Proprietor, , 7. A person who gives a benefit without receiving money or money„s worth immediately but, claim in future, a. Debtor, , b. Creditor, , c. Bank, , d. Proprietor, , 8. Amount of cash or value of goods withdrawn from the business by the proprietor for, personal use, a. Capital, , b. Drawings, , Business Accounting-1, , c. Profit, , d. Dividend, , 25

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Srinivas University, , 1st SEMESTER-BBA, , 9. AS 19 is, a. Leases, , b. Intangible asset, , c. Earnings per share, , d. Segment reporting, , 10. AS 26 is, a. Leases, , b. Intangible asset, , c. Earnings per share, , d. Segment reporting, , 11. AS 10 is, a. Accounting for fixed asset, amalgamations, , b. Accounting for investments, , c. Accounting for, , d. Segment reporting, , 12. AS 13 is, a. Accounting for fixed asset, amalgamations, , b. Accounting for investments, , c. Accounting for, , d. Segment reporting, , 13. IFRS originated in the, a. India, , b. European Country, , c. U.S.A, , d. China, , 14. Abriavation of IFRSa. International financial reporting standard, c. International financial reporting system, , b. Indian financial reporting standard, , d. None of the above, , 15. The IFRS was announced bya. ICAI b. ICA, , c. ICAC, , d. IACA, , 16. Which concept of accounting tells that business is separate from ownera. Business entity concept, , b. Cost concept, , c. Objective evidence concept, , d. Money measurement concept, 17. The art of recording in the books of account the monetary aspect of commercial and, financial transactions is, a. Accounting, , b. Accountancy, , Business Accounting-1, , c. Book-keeping, , d. All the above, , 26

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Srinivas University, , 1st SEMESTER-BBA, , 18. Assets those are having physical existence is, a. Tangible asset, , b. Intangible asset, , c. Liabilities, , d. All the above, , 19. When the goods are returned from the customers due to defective quality is, a. Sales return, , b. Purchase return, , c. Return outward, , d. Returns, , 20. An acknowledgement for cash received is, a. Receipt, , b. Invoice, , c. Voucher, , d. Revenue, , 21. Accounting provides information on, a. Cost and income for manager‗s, , b. Company‗s tax liability for a particular year, , c. Financial conditions of an institution, , d. All of the above, , 22. The principles or rules which provide a rationale for accounting practices, a. Accounting concepts, , b. Accounting conventions, , c. Accounting principles, , d. None of these, , 23. They are the customs, usages or practices followed by accountants a guide in the, preparation of financial statements is, a. Accounting concepts, , b. Accounting conventions, , c. Accounting principles, , d. None of these, , 24. Accounting concepts are, a. Convention of materiality, , b. Convention of conservatism, , c. Legal aspect concept, , d. None of the above., , 25. The fundamental ideas or basic assumptions underlying the theory and practice, accounting is, a. Accounting concepts, , b. Accounting conventions, , c. Accounting principles, , d. None of these, Business Accounting-1, , 27

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Srinivas University, , 1st SEMESTER-BBA, , 8 Marks Questions:, 1. Define Accounting and its objectives?, 2. Explain the difference between book-keeping and accounting?, 3. Explain the various users of accounting principles?, 4. Define accountancy? Explain the difference between the Accounting and Accountancy?, 5. Explain Accounting Concepts?, 6. Explain the accounting conventions?, 7. What do you mean by Accounting Standard? Explain, 8. Explain the Benefits and Limitations of Accounting Standards., 9. Write the importance of Accounting Standards, 10. What is accounting? Explain essential aspect of accounting?, 11. Define Accounting? Explain its functions?, 12. Explain the Accounting terms:, a. Invoice b. Stock c. Assets d. Capital, , Business Accounting-1, , 28

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Srinivas University, , 1st SEMESTER-BBA, , UNIT II, ACCOUNTING PROCESS, 2.1 SINGLE ENTRY SYSTEM, Eric Kohler defines accounts from incomplete records or single entry system as "a system of, book-keeping in which, as a rule, only records of cash and of personal accounts are maintained;, it is always incomplete double entry, varying with circumstances.", From the above definitions, it is clear that when the rules of double entry system of accounting, are not followed completely for recording business transactions, the accounting system is called, incomplete accounting system or single entry system. In fact, any accounting system which does, not contain a complete record (i.e., a record of both the debit and credit aspects) of each and, every transaction is called incomplete accounting system or single entry system., 2.1.1 Features of Single Entry System, 1. Under the single entry system, all the transactions of a business are not recorded in the books, of account., 2. The single entry system is, sometimes, referred to as the mixture of double entry, single entry, and no entry., 3. There is no uniformity under this system as regards the recording of business transactions by, different concerns, 4. Flexibility in recording is one of the important features of single entry system., 5. Source documents play a very important role in the case of single entry system, 6. Under this system, all accounts are not-maintained. Generally, only cash and bank accounts, (i.e., cash book) and personal accounts of trade debtors and trade creditors are maintained., 7. The cash book, maintained under this system, usually, mixes up the business transactions as, well as the private transactions of the proprietor., 8. As a complete record of each and every transaction is not maintained under this system, this, system gives only partial or incomplete information, and not full information about the business., 9. As only incomplete or partial information about the business is given by this system, this, system is an incomplete, unscientific, unsatisfactory and unreliable system of accounting., 10. It is a simple and economical system of accounting, as it needs less number of books of, account to be maintained., , Business Accounting-1, , 29

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Srinivas University, , 1st SEMESTER-BBA, , 11. It is, usually, adopted by small business concerns like sole traders and small partnership firms, whose volume of business transactions and financial resources do not warrant the elaborate and, costly double entry system., 2.2 DOUBLE ENTRY SYSTEM, There are numerous transactions in a business concern. Each transaction, when closely analysed,, reveals two aspects. One aspect will be "receiving aspect" or "incoming aspect" or, "expenses/loss aspect". This is termed as the "Debit aspect". The other aspect will be "giving, aspect" or "outgoing aspect" or "income/gain aspect". This is termed as the "Credit aspect"., These two aspects namely "Debit aspect" and "Credit aspect" forms the basis of Double Entry, System. The double entry system is so named since it records both the aspects of a transaction., 2.2.1 Objectives of Double-Entry System of Accounting:, The double-entry system of accounting has certain objectives. They are:, (i) To record both the aspects (i.e., the debit and the credit aspects) of each and every transaction, in the books of account., (ii) To keep a complete record of all the transactions of a business in a systematic manner so that, the information required on any matter relating to business can be obtained quickly and easily., (iii) To maintain all the three types of accounts, viz., the personal accounts, real accounts and, nominal accounts in the books of account., iv) To provide reliable information through the maintenance of required accounts supported by, source documents or business documents., (v) To check the arithmetical accuracy of the entries in the books of account through the, preparation of trial balance., (vi) To help in the detection of errors in the books of account in time and to reduce the chances, of errors and frauds., (vii) To ascertain the true profit or loss of the business through the preparation of the trading and, profit and loss account., (viii) To ascertain the true financial position of the business through the preparation of the, balance sheet., ix) To know the progress of the business from year to year by facilitating the comparison of the, current year‗s figures with the figures of previous years in respect of stocks, purchases, sales,, incomes and expenses., , Business Accounting-1, , 30

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Srinivas University, , 1st SEMESTER-BBA, , 2.2.2 Advantages of Double-Entry System of Accounting:, a) It provides a complete or full record of all the business transactions, as it records both the, aspects of each and every transaction., b) As the transactions are recorded in a scientific and systematic manner, it provides not only, complete, but also authentic (i.e., reliable) record of all the transactions of a concern., c) As both the aspects of every transaction are recorded, it is possible to prepare a trial balance, (i.e., a list of balances of ledger accounts) and Check the arithmetical accuracy of books of, accounts., d) As the arithmetical accuracy of books of accounts can be checked by preparing a trial balance,, the opportunities for misappropriation and fraud are reduced to the minimum., e) As nominal accounts are maintained under this system, it is possible to prepare a profit and, loss account and find out the true net profit or net loss for a particular year., f) As correct information about assets, liabilities and capital are available under this system, it is, possible to prepare a balance sheet (i.e., a statement of assets, liabilities and owner's capital) and, ascertain the true financial position of the business on any particular date., (g) When books of accounts are maintained on the double-entry system, it becomes easy for a, business concern to satisfy the income-tax and sales tax authorities about the accuracy of the, business transactions., 2.3 Accounting Equation:, The system of double entry system of book-keeping can very well be explained by the, ―accounting equation. The source document is the origin of a transaction and it initiates the, accounting process, whose starting point is the accounting equation., Accounting equation is based on dual aspect concept (Debit and Credit). It emphasizes on the, fact that every transaction has a two sided effect i.e., on the assets and claims on assets. Always, the total claims (those of outsiders and of the proprietors) will be equal to the total assets of the, business concern. The claims are also known as equities, are of two types:, 1. Owners‗ equity (Capital);, 2. ii.) Outsiders' equity (Liabilities)., Assets = Capital + Liabilities (A = C+L), Capital = Assets - Liabilities (C = A-L), Liabilities = Assets - Capital (L = A-C), Business Accounting-1, , 31

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Srinivas University, , 1st SEMESTER-BBA, , Effect of Transactions on Accounting Equation:, 2.3.1 Example:, 1. If the capital of a business is Rs.3,00,000 and other liabilities are Rs.2,00,000, calculate the, total assets of the business., Solution, Assets = Capital + Liabilities, Rs. 3,00,000 + Rs.2,00,000 = Rs.5,00,000, 2. If the total assets of a business are Rs.3,60,000 and capital is Rs.2,00,000, calculate liabilities., Solution:, Assets = Capital + Liabilities, Liabilities = Assets - Capital, Assets - Capital = Liabilities, Rs. 3,60,000 - Rs. 2,00,000 = Rs. 1,60,000, 2.4 CLASSIFICATION OF ACCOUNTS OR KINDS OF ACCOUNTS, 1. Personal accounts, Personal accounts are accounts of persons with whom a concern carries on business. Personal, accounts may be:, (a) Accounts of natural or physical persons., (b) Accounts of artificial or legal persons., (c) Representative personal accounts., 2. Real, Asset or Property Accounts:, Real accounts are accounts of properties, assets or things owned by a concern, and in and with, which the business is carried on Real or asset accounts may be:, a) Accounts of tangible assets., b) Accounts of intangible assets., , Business Accounting-1, , 32

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Srinivas University, , 1st SEMESTER-BBA, , 3. Nominal or Fictitious Accounts:, Nominal or fictitious accounts are accounts of the expenses and losses which a concern incurs,, and incomes and gains which a concern earns in the course of its business., RULES OR PRINCIPLES OF DOUBLE-ENTRY SYSTEM OR RULES OF DEBIT AND, CREDIT, Personal Accounts:, Debit the receiver, And, Credit the giver, Real, Property or Asset Accounts:, Debit what comes in, And, Credit what goes out, Nominal or Fictitious Accounts:, Debit expenses and losses, And, Credit incomes and gains, , Modern Rules of accounting (Classification of Accounts):, As per modern rules of accounting, transaction will be categorised into 6 heads or accounts and, any increase or decrease in such account will either be debited or credited in the manner shown, in the table given below:, Types of Account, , Account to be, , Assets account, , Increase, , Decrease, , Liabilities account, , Decrease, , Increase, , Capital account, , Decrease, , Increase, , Business Accounting-1, , debited, , Account to be, , credited, , 33

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Srinivas University, , 1st SEMESTER-BBA, , Revenue account, , Decrease, , Increase, , Expenditure account, , Increase, , Decrease, , Withdrawal account, , Increase, , Decrease, , DRAWINGS, , Classification of Accounts under Modern or American Approach, The modern approach has become a standard of classifying accounts in many advanced countries., The types of accounts under this approach are mostly self-explanatory., Under modern/American approach, the accounts are classified into the following five groups:, 1. Asset accounts:, Examples are land account, machinery account, accounts receivable account, prepaid rent, account, cash account etc., 2. Liability accounts:, Examples are loan account, accounts payable account, wages payable account, salaries, payable account, rent payable etc., 3. Revenue accounts:, Examples are sales account, service revenue account, rent revenue account, interest revenue, account etc., 4. Expense accounts:, Examples are wages expense account, commission expense account, salaries expense, account, rent expense account etc., 5. Capital/owner’s equity accounts:, Examples are John‘s capital account etc., , Example, Classify the following accounts using traditional and modern approach:, 1. Plant and machinery, 2. Purchases, 3. Sales, 4. Rent expense, 5. Land and building, 6. Cash, 7. Sam‘s capital, 8. Loan from City bank, Traditional classification:, 1. Plant and machinery > Real account, 2. Purchases > Nominal account, 3. Sales > Nominal account, 4. Rent expense > Nominal account, 5. Land and building > Real account, 6. Cash > Real account, 7. Sam‘s capital > Personal account, , Business Accounting-1, , 34

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Srinivas University, , 1st SEMESTER-BBA, , 8. Loan from City bank > Personal account, Modern classification:, 1. Plant and machinery > Asset account, 2. Purchases > Expense account, 3. Sales > Revenue account, 4. Rent expense > Expense account, 5. Land and building > Asset account, 6. Cash > Asset account, 7. Sam‘s capital > Capital/Owner‘s equity account, 8. Loan from City bank > Liability account, , 2.5 JOURNAL ENTRY, The term 'journal' is derived from the French word ‗jour‗, which means a day. Journal, therefore,, means a day book or a daily record. It is a book of original entry in which all transactions are, first recorded chronologically (i.e., in the order of occurrence or order of dates) from the source, documents., Journal is a date-wise record of all the transactions with details of the accounts debited and, credited and the amount of each transaction., 2.5.1 Format, Journal entry in the books of ………., Date, , Particulars, , L.F. Debit, Amount, Rs., , Credit, Amount, Rs., , 1. Date: In the first column, the date of the transaction is entered. The year and the month is, written only once, till they change. The sequence of the dates and months should be strictly, maintained., 2. Particulars: Each transaction affects two accounts, out of which one account is debited and the, other account is credited. The name of the account to be debited is written first, very near to the, line of particulars column and the word Dr. is also written at the end of the particulars column. In, the second line, the name of the account to be credited is written, starts with the word 'To', a few, space away from the margin in the particulars column to the make it distinct from the debit, account., , Business Accounting-1, , 35

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Srinivas University, , 1st SEMESTER-BBA, , 3. Narration: After each entry, a brief explanation of the transaction together with necessary, details is given in the particulars column with in brackets called narration. The word ‗Being‗ is, used before starting to write down narration. Now, it is not necessary to use the word 'For' or, 'Being'., 4. Ledger Folio (L.F): All entries from the journal are later posted into the ledger accounts. The, page number or folio number of the Ledger, where the posting has been made from the Journal is, recorded in the L.F column of the Journal. Till such time, this column remains blank., 5. Debit Amount: In this column, the amount of the account being debited is written., 6. Credit Amount: In this column, the amount of the account being credited is written., 2.5.2 Steps in Journalising, The process of analysing the business transactions under the heads of debit and credit and, recording them in the Journal is called Journalising. An entry made in the journal is called a, 'Journal Entry'., Step 1 — Determine the two accounts which are involved in the transaction., Step 2 — Classify the above two accounts under Personal, Real or Nominal., Step 3 — Find out the rules of debit and credit for the above two accounts., Step 4 — Identify which account is to be debited and which account is to be credited., Step 5 — Record the date of transaction in the date column. The year and month is written once,, till they change. The sequence of the dates and months should be strictly maintained., Step 6 — Enter the name of the account to be debited in the particulars column very close to the, left hand side of the particulars column followed by the abbreviation Dr. in the same line., Against this, the amount to be debited is written in the debit amount column in the same line., Step 7 — Write the name of the account to be credited in the second line starts with the word 'To', a few space away from the margin in the particulars column. Against this, the amount to be, credited is written in the credit amount column in the same line., Step 8 — Write the narration within brackets in the next line in the particulars column., Step 9 — Draw a line across the entire particulars column to seperate one journal entry from the, other., 2.5.3 Problems:, Example 1:, Business Accounting-1, , 36

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Srinivas University, , 1st SEMESTER-BBA, , January 1, 2004 - Saravanan started business with Rs. 1,00,000., Analysis of Transaction, Step 1, , Determine the two accounts Cash, involved in the transaction. Account, , Capital Account, , Step 2, , Classify the accounts under Real, Account, personal, real or nominal., , Personal Account, , Step 3, , Find out the rules of debit 2(a) Debit what 1(b), Credit the giver, and credit., comes in., , Step 4, , Identify which account is to Cash A/c is to be Capital A/c is to be, be debited and credited., debited, credited, , Solution : Journal, Date, , Particulars, , LF Debit, (Rs.), , Credit, (Rs.), , 1 Jan 2004, , Cash A/c, Dr., To Capital A/c, (The amount invested in the business), , 12, 45, , 1,00,000, , 1,00,000, , Example 2:, Jan. 3, 2004: Received cash from Balan Rs. 25,000, Analysis of Transaction, Step 1, , Determine the two accounts Cash, involved in the transaction. Account, , Balan Account, , Step 2, , Classify the accounts under Real, Account, personal, real or nominal., , Personal Account, , Step 3, , Find out the rules of debit 2(a) Debit, and credit., comes in., , Business Accounting-1, , what 1(b), Credit the giver, , 37

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Srinivas University, , 1st SEMESTER-BBA, , Step 4, , Identify which account is to Cash A/c is to be Balan A/c is to be, be debited and credited., debited, credited, , Solution: Journal, Date, , Particulars, , 3rd Jan 2004, , CashA/c, To Balan's A/c, (Cash received from Balan), , Dr., , LF Debit, (Rs.), , Credit, (Rs.), , 12, 81, , 25,000, , 25,000, , Example 3:, July 7, 2004 - Paid cash to Perumal Rs.37,000., Analysis of Transaction, Step 1, , Determine the two accounts involved Perumal Account, in the transaction., , Cash, Account, , Step 2, , Classify the accounts under personal, Personal Account, real or nominal., , Real, Account, , Step 3, , Find out the rules of debit and credit., , Step 4, , Identify which account is to be Perumal A/c is to Cash A/c is to be, debited and credited., be debited, credited, , 1(a), Debit the receiver, , 2(b), Credit what goes, out, , Solution:, Date, , Particulars, , Business Accounting-1, , LF Debit, Rs., , Credit, Rs., , 38

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Srinivas University, 2004 July 7, , 1st SEMESTER-BBA, Perumal A/c, To Cash A/c, (Cash paid to Perumal), , Dr., , 95, 12, , 37,000, 37,000, , Example 4:, Feb. 7, 2004 - Bought goods for cash Rs. 80,000., Analysis of Transaction, Cash, Account, , Step 1, , Determine the two accounts Purchases Account, involved in the transaction., , Step 2, , Classify the accounts, personal, real or nominal., , Step 3, , Find out the rules of debit and 2(a), Debit what comes in, credit., , Step 4, , Identify which account is to be Purchases A/c is to be Cash A/c is to be, debited and credited., debited, credited, , under Real, Account, , Real, Account, 2(b), Credit what goes out, , Solution: Journal, Date, , Particulars, , 2004 Feb 7, , Purchases A/c, To Cash A/c, (Cash purchase of goods), , Dr., , LF Debit, Rs., , Credit, Rs., , 48, 12, , 80,000, , 80,000, , Example 5:, March 10, 2004 - Cash sales Rs.90,000., Analysis of Transaction, , Business Accounting-1, , 39

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Srinivas University, , 1st SEMESTER-BBA, , Step 1, , Determine the two accounts Cash, Account, involved in the transaction., , Step 2, , Classify the accounts, personal, real or nominal., , Step 3, , Find out the rules of debit and 2(a), Debit what comes in, credit., , Step 4, , Identify which account is to be Cash A/c is to be Sales A/c is to be, debited and credited., debited, credited, , Sales Account, , under Real, Account, , Real, Account, 2(b), Credit what goes out, , Solution: Journal, Date, , Particulars, , 2004 Mar 10, , Cash A/c, To Sales A/c, (Cash Sales), , Dr., , LF Debit, Rs., , Credit, Rs., , 95, 12, , 90,000, , 90,000, , Example 6:, March 15, 2004 - Sold goods to Jaleel on credit Rs.1,00,000., Analysis of Transaction, Step 1, , Determine the two Jaleel Account, accounts involved in, the transaction., , Sales Account, , Step 2, , Classify the accounts Personal Account, under personal, real or, nominal., , Real, Account, , Step 3, , Find out the rules of 1(a), Debit the receiver, debit and credit., , 2(b), Credit what goes out, , Business Accounting-1, , 40

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Srinivas University, , 1st SEMESTER-BBA, , Step 4, , Identify, which Jaleel A/c is to be Sales A/c is to be, account is to be debited, credited, debited and credited., , Solution:, Date, , Particulars, , 2004 March 15, , Jaleel A/c, , Dr., , To Sales A/c, (Credit Sales), , LF Debit, Rs., , Credit, Rs., , 95, 12, , 1,00,000, , 1,00,000, , Example 7:, March 18, 2004 - Purchased goods from James on credit Rs.1,50,000., Analysis of Transaction, Step 1, , Determine the two Purchases Account, accounts involved in, the transaction., , James Account, , Step 2, , Classify the accounts Real Account, under personal, real or, nominal., , Personal Account, , Step 3, , Find out the rules of 2(a), Debit what comes in, debit and credit., , 1(b), Credit the giver, , Step 4, , Identify, which Purchases A/c is to be James A/c is to be, account is to be debited, credited, debited and credited., , Solution: Journal, Date, , Particulars, , Business Accounting-1, , LF Debit, Rs., , Credit, Rs., , 41

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Srinivas University, 2004 March 18, , 1st SEMESTER-BBA, Purchases A/c, To James A/c, (Credit purchases), , Dr., , 95, 12, , 1,50,000, 1,50,000, , 2.6 LEDGER, 2.6.1 Meaning of Ledger:, Ledger is a book which contains various accounts. In other words, Ledger is a set of accounts. It, contains all accounts of the business enterprise whether Real, Nominal or personal., The term ‗Ledger‘ is derived from the Dutch word ‗Legger‘, which means to ly. ‗Ledger‗,, therefore, means a book where the various accounts ly (i.e., are kept). It is the book where, transactions of the same nature (i.e., transactions pertaining to a particular person, thing or, service) are classified and grouped together in one place in the form of an account, through a, process called posting (i.e., the transferring of entries from the journal to the ledger) to know the, position) (i.e., balance) of that account. In the words of L.C. Cropper, ―The book in which a, trader‗s all transactions are recorded in a classified permanent form is called ledger‖. A ledger, contains accounts for all the persons with whom the business deals (i.e., all personal accounts),, accounts for all the assets or things held by the business (i.e., all real accounts) and accounts for, all the expenses incurred and all the incomes earned by the business (i.e., all the nominal, accounts)., 2.6.2 Relationship between Journal and Ledger., Both Journal and Ledger are the most important books used under Double Entry System of bookkeeping. Their relationship can be expressed as follows:, (i) The transactions are recorded first of all in the Journal and then they are posted to the Ledger., Thus, the Journal is the book of first or original entry, while the Ledger is the book of second, entry., (ii) Journal records transactions in a chronological order, while the ledger records transactions in, an analytical order., (iii)Journal is more reliable as compared to the Ledger since it is the book in which the entry is, passed first of all., (iv) The process of recording transactions is termed as ―Journalising‖ while the process of, recording transactions in the Ledger is called as ―Posting‖., 2.6.3 Advantages of a ledger, Business Accounting-1, , 42

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Srinivas University, , 1st SEMESTER-BBA, , The main advantages of a ledger are:, A ledger is a permanent record of all the transactions of a business., It provides complete information about all accounts in one place., A ledger account is a summarised and classified record of transactions of the same nature. As, such, a ledger, which contains all the ledger accounts, is helpful in knowing the cumulative effect, of all the transactions relating to each person, thing or service, i.e., final position or balance of, each account on any particular date., Ledger is helpful in preparing the trial balance, in the, Sense that the ledger account balances form the basis of the trial balance., It facilitates the preparation of final accounts, i.e., profit and loss account and balance sheet., It helps to ascertain the various items of revenues and the various items of expenses., It helps to ascertain the amounts of purchases and sales during a particular period., It helps to ascertain the assets of the business and their values., It helps to ascertain the liabilities of the business and their amounts., It helps to know the amount due from each debtor and the amount due to each creditor., 2.6.4 Procedure of posting, The procedure of posting is given as follows:, I. Procedure of posting for an Account which has been debited in the journal entry., Step 1 — Locate in the ledger, the account to be debited and enter the date of the transaction in, the date column on the debit side., Step 2 — Record the name of the account credited in the Journal in the particulars column on the, debit side as "To.....(name of the account credited)"., Step 3 — Record the page number of the Journal in the J.F column on the debit side and in the, Journal, write the page number of the ledger on which a particular account appears in the L.F., column., Step 4 — Enter the relevant amount in the amount column on the debit side., II. Procedure of posting for an Account which has been credited in the journal entry., , Business Accounting-1, , 43

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Srinivas University, , 1st SEMESTER-BBA, , Step 1 — Locate in the ledger the account to be credited and enter the date of the transaction in, the date column on the credit side., Step 2 — Record the name of the account debited in the Journal in the particulars column on the, credit side as "By......(name of the account debited)", Step 3 — Record the page number of the Journal in the J.F column on the credit side and in the, Journal, write the page number of the ledger on which a particular account appears in the L.F., column., Step 4 — Enter the relevant amount in the amount column on the credit side., 2.6.5 Example:, 1. Mr. Ram started business with cash Rs. 5,00,000 on 1st June 2003., The above transaction will appear in Journal and Ledger as under., Solution:, In the Books of Ram Journal, Date, , Particulars, , LF Debit, Rs., , 2003 June 1, , Cash A/c., Dr., To Ram's Capital A/c, (Ram started business with Rs.5,00,000), , 95, 12, , Credit, Rs., , 5,00,000 5,00,000, , Note: Here two accounts are involved, Cash Account and Ram's capital account, so we should, allot in the ledger a page for each account., Ledger, Dr., , Cash Account, , Date, , Particulars, , 2003, June, 1, , To Ram's, A/c, , J.F Amount Date, (Rs.), Capital, , Dr., Business Accounting-1, , Cr., Particulars, , J.F. Amount, (Rs.), , 5,00,000, , Ram‘s Capital Account, , Cr., 44

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Srinivas University, Date, , Particulars, , 1st SEMESTER-BBA, J.F Amount Date, (Rs.), 2003, June 1, , I., , Particulars, , J.F. Amount, (Rs.), , By Cash A/c, , 5,00,000, , Illustration Problems on Journal entries and Ledger accounts:, , Problem 1:, Journalise the following transactions in the books of Suresh:, 2017 November,, • 1 Suresh Commenced business with cash Rs 10,000 and Goods 5000, • 5 Purchased goods from Kishore Rs 4000, • 8 Sold goods to Raman for cash Rs 6000, • 10 Paid into Bank Rs 5000, • 15 Purchased machine from Hindusthan Tools limited Rs 3000, • 18 Advanced to Govind Rs 1000 as loan, • 22 Drew for office use Rs 500, • 25 Paid rent to landlord Rs 300, • 27 Received from Raman on account Rs 1500, • 30 Paid Kishore on account Rs 2000, Solution:, In the books of Suresh:, Date, Particulars, 2011, Nov.1., , 5, , 8, , 10, , 15, , Cash A/c., Stock A/c., , L., F., Dr., , To Capital A/c., (Being the business commenced with cash and goods), Purchases A/c., Dr., To Kishore‗s A/c., (Being the goods purchased from Kishore on credit), Cash A/c., Dr., To Sales A/c., (Being the goods sold for cash), Bank A/c, Dr., To Cash A/c., (Being the cash paid into bank), Machinery A/c., Dr., , Business Accounting-1, , Dr., , Cr., , 10,000, 5,000, 15,000, 4,000, 4,000, 6,000, 6,000, 5,000, 5,000, 1,10,000, 45

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Srinivas University, , 18, , 22, , 25, , 27, , 30, , To Hindusthan Tools Limited‗s A/c., (Being the machinery purchased from Hindusthan, Tools Ltd. on credit), Advance to Govind A/c., Dr., (or Govind‗s Loan A/c.), To Cash A/c., (Being the advance or loan given to Govind), Cash A/c., Dr., To Bank A/c., (Being the cash withdrawn from bank for office use), Rent A/c., Dr., To Cash A/c., (Being the rent paid in cash), CashA/c., Dr., To Raman‗s A/c., (Being the cash received from Raman on account), Kishore‗sA/c., Dr., To Cash A/c., (Being cash paid to Kishore on account), , 1st SEMESTER-BBA, 1,10,000, , 1,000, 1,000, , 500, 500, 300, 300, 1,500, 1,500, 2,000, 2,000, , Problem 2:, Journalise the following transactions in the Books of Sudhama;, a. Opened Account in a Bank with Rs 10,000., b. Withdrew from Bank for office use Rs 2000., c. Withdrew from Bank for personal use Rs 500, d. Paid Sunil on Account by cheque Rs 400, e. Deposited cash in the Bank Rs 600, f. Received a cheque from Radha on account Rs 500, g. Deposited Radha‗s cheque into Bank for collection Rs 500., h. Bought goods from Amar and paid by cheque Rs 1000., i. Paid Rent by cheque Rs 500., j. Bank paid Insurance premium on our behalf Rs 100., k. Cash sales deposited into Bank Rs 1000., l. Bank collected Interest on Securities as per our instructions Rs 50., m. Loan taken from Bank Rs 2000., n. Part of Loan repaid in Cash Rs 1000., Solution:, In the books of Sudhama, Business Accounting-1, , 46

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Srinivas University, Date, , Particulars, , A, , Bank A/c., , 1st SEMESTER-BBA, L., F., Dr., , Dr., , Cr., , 10,000, , To Cash A/c., , 10,000, , (Being the account opened in the bank), B, , Cash A/c., , Dr., , 2,000, , To Bank A/c., , 2,000, , (Being the cash withdrawn from bank for office use), C, , Drawings A/c., , Dr., , 500, , To Bank A/c., , 500, , (Being the cash withdrawn from bank for personal use), D, , Sunil‗s A/c., , Dr., , 400, , To Bank A/c., , 400, , (Being the payment made to Sunil on account by, cheque), E, , Bank A/c., , Dr., , 600, , To Cash A/c., , 600, , (Being the cash deposited in to bank), F, , Cash A/c., , Dr., , 500, , To Radha‗s A/c., , 500, , (Being the cheque received from Radha on account), G, , Bank A/c., , Dr., , 500, , To Cash A/c., , 500, , (Being Radha‗s cheque paid into bank for collection), H, , Purchase A/c., , Business Accounting-1, , Dr., , 1000, , 47

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Srinivas University, , 1st SEMESTER-BBA, , To Bank A/c., , 1000, , (Being the purchase by cheque), I, , Rent A/c., , Dr., , 500, , To Bank A/c., , 500, , (Being the rent paid by cheque), J, , Insurance Premium A/c., , Dr., , 400, , To Bank A/c., , 400, , (Being the insurance premium paid by bank), K, , Bank A/c., , Dr., , 1,000, , To Sales A/c., , 1,000, , (Being the cash sales deposited into bank), l, , Bank A/c, , Dr., , 50, , To Interest on Securities A/c., , 50, , (Being the interest on securities collected by the bank), M, , Bank A/c., , Dr., , 2,000, , To Bank Loan A/c., , 2,000, , (Being the loan taken from bank and retailed in bank), N, , Bank Loan A/c., , Dr., , 1,000, , To Cash A/c., , 1,000, , (Being part of the bank loan paid in cash), , Problem 3:, Journalize the following transactions in the books of Sharma:, 2018, April 1, , Commenced business with cash Rs. 50,000 and machinery Rs. 10,000, , Business Accounting-1, , 48

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Srinivas University, April 2, April 4, April 7, April 10, April 13, April 16, April 18, April 20, April 22, , 1st SEMESTER-BBA, , Deposited cash into bank Rs. 20000, Purchased goods worth Rs. 8000 less 10% trade discount and 2% cash discount., Purchased goods from Roy & Sons for Rs 5000 less 20% trade discount and 5%, cash discount, half the amount was paid in cash., Withdrew from bank for office use Rs. 2000., Sold goods to Ashok for Rs. 3000 less 5% trade discount., Appointed Mr. Manu as cashier at a salary of Rs. 10000 per month and received Rs., 20000 from him as security deposit., Received cash from Ashok Rs. 2840 in full settlement of his account., Withdrew from business for personal use Rs. 1000, Purchased goods for Rs. 2000 from Petal and invoiced the same to Sahil for Rs., 2400., , Solution:, In the Books of Sharma Journal Entries, Date, , Particulars, , L.F. Dr., , 2018 Apr Cash A/c., , Dr., , 50,000, , 1, , Dr., , 10,000, , Machinery A/c., To Capital A/c., , Cr., , 60,000, , (Being business commenced with cash and machinery, bank), Apr. 2, , Bank A/c., , Dr., , 20,000, , To Cash A/c., , 20,000, , (Being cash deposited into bank), Apr. 4, , Purchases A/c. (Net Price) (8,000-800), , Dr., , 7,200, , To Cash A/c. (Net price Rs. 7200 less cash discount of, 2%), , 7056, , (7200-144), To Discount Received A/c., , 144, , (Being the goods worth Rs. 8000 purchased at trade, discount of 10% and cash discount of 2%), Apr. 7, , Purchases A/c. (Price less trade discount), , Dr., , 4000, , (5000-1000), To Cash A/c. (3800 x ½), Business Accounting-1, , 1900, 49

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Srinivas University, , 1st SEMESTER-BBA, , To Roy& Sons A/c. (3800 x ½), , 1900, , To Discount Received A/c. (4000x5/100), , 200, , (Being goods purchased from Roy&Sons, at 20%, trade discount, and 5% cash discount, half the amount, paid in cash and half the amount due to Roy & Sons), Apr. 10, , Cash A/c., , Dr., , 2000, , To Bank A/c., , 2000, , (Being cash withdrawn from bank for office use), Apr. 13, , Ashok‗s A/c. (3000-150), , Dr., , 2850, , To Sales A/c., , 2850, , (Being goods sold to Ashok at a trade discount of 5%), Apr. 16, , Cash A/c., , Dr., , 20000, , To Security Deposit A/c., , 20000, , (Being security deposit received), Apr. 18, , Cash A/c., , Dr., , 2840, , Discount Allowed A/c, , Dr., , 10, , To Ashok‗s A/c., , 2850, , (Being cash received from Ashok in full settlement of, his account and discount allowed), Apr, , Drawings A/c., , 20, , To Cash A/c., , Dr., , 1000, 1000, , (Being cash withdrawn for personal use), Apr 22, , Purchases A/c., , Dr., , 2000, , Sahil‗s A/c., , Dr., , 2400, , To Petal‗s A/c., , 2000, , To Sales A/c., , 2400, , (Being goods purchased for Rs. 2000 from Patel and, the same sold to Sahil on credit for Rs.2400), 124300, , 124300, , Problem 4:, Business Accounting-1, , 50

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Srinivas University, , 1st SEMESTER-BBA, , Post them to the various ledger accounts., 2008, , Rs., , June 1, June 2, June 3, June 4, June 5, June 7, June 8, , Ram commenced business with, Bought goods for cash, Bought office furniture for cash, Paid for postage, Purchased goods from Rajkumar, Sold goods for cash, Bought goods from Rahim, , 5,000, 2500, 500, 100, 2000, 150, 400, , June 9, June 10, June 11, June 12, June 15, June 17, June 20, June 22, June 25, June 26, June 27, June 28, June 31, , Sold goods to Suresh, Sold goods to Natarajan, Purchased goods for cash, Received cash from Natarajan, Paid cash to Rahim, Returned goods to Rajkumar, Suresh returned goods, Paid salaries, Sold goods for cash, Ram withdrew for personal use, Paid by stationery, Paid rent, Received commission, , 300, 350, 250, 400, 400, 200, 50, 150, 500, 800, 100, 225, 50, , Solution:, Journal Entries, Date, , Particulars, , 2018, , Cash Account, , June 1, , To Capital Account, , L.F. Dr., Dr., , Cr., , 5000, 5000, , (Being the capital brought in by Ram), June 2, , Purchase Account, To Cash Account, , Dr., , 2500, 2500, , (Being the goods bought for cash), , Business Accounting-1, , 51

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Srinivas University, June 3, , Office Furniture Account, , 1st SEMESTER-BBA, Dr., , 500, , To Cash Account, , 500, , (Being the goods bought for cash), June 4, , Postage Account, , Dr, , 10, , To Cash Account, , 10, , (Being the cash paid for postage), June 5, , Purchases Account, , Dr., , 2000, , To Rajkumar‗s Account, , 2000, , (Being the goods bought from Rajkumar on credit), June 7, , Cash Account, , Dr., , 150, , To Sales Account, , 150, , (Being the goods sold for cash), June 8, , Purchases Account, , Dr., , 400, , To Rahim‗s Account, , 400, , (Being the goods bought from Rahim on credit), June 9, , Suresh‗s Account, , Dr., , 400, , To Sales Account, , 400, , (Being the goods sold to Suresh on credit), June 10, , Natarajan‗s Account, , Dr., , 300, , To Sales Account, , 300, , (Being the goods sold to Natarajan on credit), June 11, , Purchases Account, , Dr., , 350, , To Cash Account, , 350, , (Being the goods purchased for cash), June 12, , Cash Account, To Natarajan‗s Account, , Business Accounting-1, , Dr., , 250, 250, , 52

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Srinivas University, , 1st SEMESTER-BBA, , (Being the cash received from Natarajan on account), June 15, , Rahim‗s Account, , Dr., , 400, , To Cash Account, , 400, , (Being the cash paid to Rahim), June 17, , Rajkumar‗s Account, , Dr., , 200, , To Purchases Returns Account, , 200, , (Being the goods returned to Rajkumar), June 20, , Sales Returns Account, , Dr., , 50, , To Suresh‗s Account, , 50, , (Being the goods returned by Suresh), June 22, , Salaries Account, , Dr., , 150, , To Cash Account, , 150, , (Being the cash paid for salaries), June 25, , Cash Account, , Dr., , 500, , To Sales Account, , 500, , (Being the goods sold for cash), June 26, , Drawings Account, , Dr., , 800, , To Cash Account, , 800, , (Being the cash withdrawn by Ram for his personal, use), June 27, , Stationery Account, , Dr., , 100, , To Cash Account, , 100, , (Being the cash paid for stationery), June 28, , Rent Account, To Cash Account, , Dr., , 225, 225, , (Being the cash paid for rent), , Business Accounting-1, , 53

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Srinivas University, June 30, , 1st SEMESTER-BBA, , Cash Account, , Dr., , 50, , To Commission Account, , 50, , (Being the cash received for commission), 14425, , Dr., Date, , Cash A/C, Particulars, , J., F, , Date, , Particulars, , 5000, , To Natarajan‘s A/C, , 400, , June 4, , By, Purchase, Account, By Office Furniture, Account, By Postage Account, , 2500, , 150, , 2018, June 2, June 3, , To Sales A/C, , 500, , June 11, , 250, , To Commission A/C, , 50, , June 15, , By, Purchase, Account, By, Rahim‗s, Account, By Salaries Account, By, Drawings, Account, By, Stationery, Account, By Rent Account, By balance c/d, , June 22, June 26, June 27, June 28, June 30, July 1, , June, 30, , J., F, , To balance b/d, , 100, , 400, 150, 800, 100, 225, 1075, 6100, , Capital Account, Particulars, To Balance c/d., , J., F, , Cr., , Amount, , Date, , Particulars, , 5,000, , 2018, June 1, , By Cash A/c., , 5,000, , July 1, , By Balance b/d, , 5,000, 5,000, , 5,000, , Dr., , Business Accounting-1, , Amount, , 500, , 6100, 1075, , Dr., Date, , Cr., , Amount, , 2018, To Capital A/C, June 1, June 7 To Sales A/C, June, 25, June, 25, June, 31, , 14425, , Drawings Account, , J., F, , Amount, , Cr., , 54

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Srinivas University, Date, , Particulars, , 2018, June 2, July 1, , 1st SEMESTER-BBA, J., F, , Amount, , Date, , Particulars, , To Cash A/c., , 800, , June 30, , By Balance c/d., , To Balance b/d., , 800, 800, , Dr., Date, 2, 5, 8, 11, July 1, , 31, , 800, 800, , Particulars, , J., F, , To Cash A/c., To Rajkumar‗s A/c., To Rahim‗s A/c., To Cash A/c., , Amount, 2,500, 2,000, 400, 350, 5,250, 5,250, , To Balance b/d., , Date, June 30, , Cr., Particulars, , J., F, , By Balance c/d, , 5,250, , Sales Account, Particulars, , J., F, , To Balance c/d., , Amount, 1,350, , Dr., , Cr., , Date, , Particulars, , 7, 9, 10, 25, , By Cash A/c., By Suresh‗s A/c., By Natarajan‗s A/c., By Cash A/c., , 1, , By Balance b/d, , J., F, , Particulars, To Suresh‗s A/c., , 1, , To balance b/d., , J., F, , Amount, 50, 50, , Dr., , 3, , Amount, 150, 400, 300, 500, 1,350, 1,350, , Sales Returns Account, , 20, , Date, , Amount, 5,250, , 1,350, , Date, , Amount, , Purchases Account, , Dr., Date, , J., F, , Date, 31, , Cr., Particulars, , J., F, , By Balance c/d., , Amount, 50, 50, , Office Furniture Account, Particulars, To Cash A/c., , Business Accounting-1, , J., F, , Amount, 500, , Date, 31, , Particulars, By Balance c/d., , Cr., J., F, , Amount, 500, 55

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Srinivas University, , 1, , 1st SEMESTER-BBA, 500, 500, , To Balance b/d., , Rahim‟s Account Account, , Dr., Date, 15, , Particulars, , J., F, , To Cash A/c., , 15, , Amount, 400, 400, , Date, 8, , Particulars, , J., F, , Amount, , To Sales A/C., , 400, , To Balance b/d., , 400, 350, , Dr., Date, , Particulars, , J., F, , Amount, , To Sales A/c., , 300, , 1, , To Balance b/d., , 300, 50, , Dr., Particulars, To Cash, , 1, , To Balance b/d., , J., F, , Amount, 150, 150, 150, , Dr., , 27, , 400, 400, Cr., , Date, 8, , Particulars, , J., F, , By Sales Returns, A/c., By Balance c/d., , Amount, 50, 350, 400, , Date, 13, 31, , Cr., Particulars, , J., F, , By Cash A/c., By Balance c/d., , Amount, 250, 50, 300, , Salaries Account Account, , 22, , Date, , Amount, , Natarajan‟s Account, , 10, , Date, , J., F, , By Purchases A/c., , 31, 1, , Particulars, , Cr., , Suresh‟s Account, , Dr., Date, , 500, , Date, 31, , Particulars, , Cr., J., F, , By Balance c/d., , Amount, 150, 150, , Stationery Account, Particulars, To Cash A/c., , Business Accounting-1, , J., F, , Amount, 100, , Date, 31, , Cr., Particulars, , By Balance c/d., , J., F, , Amount, 100, 56

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Srinivas University, , 1, , 1st SEMESTER-BBA, 100, 100, , To Balance b/d., , Dr., , Rent Account, , Date, , Particulars, , 28, , To Cash A/c., , 1, , To Balance b/d., , J., F, , Amount, 225, 225, 225, , Dr., , Cr., , Date, 31, , Particulars, , J., F, , By Balance c/d., , Amount, 225, 225, , Commission Account, , Date, 31, , 100, , Particulars, , J., F, , To Balance c/d., , Amount, 50, 50, , Date, , Cr., Particulars, , 31, , By Cash A/c., , 1, , By Balance b/d, , J., F, , Amount, 50, 50, 50, , Problem 5:, Write out the account of B. Black from the following transactions:, 2012, Jan. 1, Jan. 5, Jan. 7, Jan. 8, Jan12, Jan15, Jan18, Jan20, Jan26, , Sold him goods worth Rs.900, Received from him Rs.350 on account Allowed him discount Rs.10, Purchased from him goods worth Rs.300, Returned to him goods worth Rs.25, Received from him further cash Rs.100, Sold him goods worth Rs.100, He returned goods worth Rs. 25, Sent him cash Rs.125, Purchased from him goods worth Rs.125, , Solution:, Dr., , Black‟s Account, , Date, , Particulars, , 2012, Jan.1, Jan. 8, , To Sales A/c., To, Purchases, , Business Accounting-1, , J., F, , Amount, , 900, 25, , Date, Jan. 5, Jan. 5, , Cr., Particulars, By Cash A/c., By, Discount, Allowed A/c, , J., F, , Amount, 350, 10, , 57

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Srinivas University, , Jan.15, Jan.20, , 1st SEMESTER-BBA, , Returns A/c., To Sales A/c., To Cash A/c., , 100, 125, , Jan.12, Jan18, Jan26, Jan31, Jan31, , 1, , By Purchases A/c., By Cash A/c., By Sales Returns, A/c., By Purchases A/c., By Balance c/d., , 300, 100, 25, 125, 240, 1,150, , 1,150, 240, , To Balance b/d., , Problem 6:, Post them into ledger, 2001, Nov 1 Commenced business with goods Rs 20,000 and cash Rs. 50,000, 2, Opened bank current account with Rs.10,000, 4, Received cash from Swathi Rs. 4,900, 6, Cash Purchases( paid by cheque) Rs. 37,600, 7, Cash sales to Avinash Rs.1,900, 9, Purchased goods from Reddy Rs.2000, 10, Purchased goods from Rama Rao for Rs. 20,000 and paid cash Rs. 10,000, 12, Sold goods to Lalitha Rs. 1,800, 15, Paid Reddy cash Rs 1,900 and was allowed a discount of Rs.100, 16, Goods returned by Rama Rao Rs.500, Solution:, , Dr., Date, , Cash Account, Particulars, , J., F, , Amount, , Date, 2, 10, 15, 30, , 2001,, Nov 1, 4, 7, , To Capital A/C, , 50000, , To Swathi‘s A/C, To Sales A/C, , 1 Dec, , To balance b/d, , 4900, 1900, 56800, 34900, , Dr., Date, , Cr., Particulars, , J., F, , By Bank A/C, By Purchases A/C, By Reddy‘s A/C, By Balance c/d, , 10000, 10000, 1900, 34900, 56800, , Purchases Account, Particulars, , Business Accounting-1, , J., F, , Amount, , Date, , Amount, , Cr., Particulars, , J., F, , Amount, , 58

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Srinivas University, 6, 9, 10, 10, 1 Dec, , 1st SEMESTER-BBA, , To Bank A/C, To Reddy‘s A/C, To Ram Rao‘s A/C, To cash A/C, , 37600, 2000, 10000, 10000, 59600, 59600, , To balance b/d, , Dr., Date, 30, , 30, , By balance c/d, , 59600, , 59600, , Sales Account, Particulars, , J., F, , To balance c/d, , Amount, , Date, , 3700, , 7, 12, , Cr., Particulars, , J., F, , By Cash A/C, By Lalitha‘s A/C, , 1900, 1800, 3700, 3700, , 3700, 1 Dec, Dr., Date, 16, , To Rama Rao‘s A/C, , 1 Dec, , To balance b/d, , J., F, , Dr., Date, , Particulars, To Capital A/C, , 1 Dec, , To balance b/d, , J., F, , Dr., , 1, , 1 Dec, , Amount, , Date, , 500, 500, 500, , 30, , Cr., Particulars, , J., F, , By balance c/d, , Amount, , Date, , 20000, 20000, 20000, , 30, , Cr., Particulars, , J., F, , By balance c/d, , To Stock A/C, To Cash A/C, To balance b/d, , Business Accounting-1, , J., F, , Amount, , Date, , 20000, 50000, 70000, 70000, , 30, , Amount, 20000, 20000, , Capital Account, Particulars, , Amount, 500, 500, , Stock Account, , 1, , Date, , By balance b/d, , Sales Returns Account, Particulars, , Amount, , Cr., Particulars, By Balance c/d, , J., F, , Amount, 70000, 70000, , 59

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Srinivas University, , 1st SEMESTER-BBA, , Dr., , Bank Account, , Date, 2, 30, , Particulars, , J., F, , To Cash A/c, To balance c/d, , Dr., , Cr., , Amount, , Date, , Particulars, , J., F, , 10000, 27600, 37600, , 6, , By Purchases, , 37600, , 1 Dec, , By balance b/d, , 37600, 27600, , Reddy‟s Account, , Date, , Particulars, , 15, , To Cash A/C, To, Discount, received A/C, , J., F, , Amount, , Date, , 1900, 100, , 9, , Amount, , Cr., Particulars, By Purchases, , 2000, , J., F, , Amount, 2000, , 2000, , 2.7 Subsidiary books, Subsidiary books or special journals are the various books of original entry maintained under the, modern system of accounting for recording first the various business transactions, as and when, they take place., 2.7.1 Need:, Transactions can be classified and grouped conveniently according to their nature, as some, transactions are usually of repetitive in nature. Generally, transactions are of two types: Cash and, Credit. Cash transactions can be grouped in one category whereas credit transactions can be, grouped in another category. Thus, in practice, the main journal is sub-divided in such a way that, a separate book is used for each category or group of transactions which are repetitive and, sufficiently large in number., Each one of the subsidiary books is a special journal and a book of original or prime entry., Though the usual type of journal entries are not passed in these sub-divided journals, the double, entry principles of accounting are strictly followed., 2.7.2 Purchases Book {Purchase journal}:, The purchase journal is meant for recording credit purchase of goods., Purchases book also known as Bought Day Book or Purchase Journal is used to record all credit, purchases of goods which are meant for resale in the business. Cash purchases of goods, cash, and credit purchases of assets are not entered in this book., Business Accounting-1, , 60

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Srinivas University, , 1st SEMESTER-BBA, , Before discussing the Purchase Day Book, in detail we are to explain the most significant terms,, Trade Discount and Cash Discount., Trade Discount, Trade discount is an allowance or concession granted by the seller to the buyer, if the customer, purchases goods above a certain quantity or above a certain amount. The amount of the purchase, made, is always arrived at after deducting the trade discount, i.e., only the net amount is, considered. For example, if the list price (price prescribed by the manufacturers or wholesalers), of a commodity is Rs.100, and trade discount granted by manufacturer to the wholesaler is 20%, then cost price of the commodity to the wholesaler is Rs.80. Trade discount is not recorded in the, books. They are used for determining the net price., Cash Discount, Sale of goods on credit is a common phenomenon in any business. When goods are sold on, credit the customers enjoy a facility of making payment on some date in the future. In order to, encourage them to make the payment before the expiry of the credit period a deduction is, offered. The deduction so made is known as cash discount. For example, If Ram purchases goods, worth Rs.5,000 on 30 days credit then, as per the terms of contract, he is authorised to make, payment 30 days after the date of purchase. If he is offered a cash discount of 2% on payment, within 10 days and if he does so, he is entitled to deduct Rs.100 from the invoice price and pay, Rs.4,900. In this case Rs.100 is cash discount. But if he does not choose to make payment within, 10 days then he will not get any cash discount. In this case he will pay Rs.5,000 after 30 days., Very often, a trader allows discount to his debtors, when they pay their dues promptly. i.e, it, time. Similarly, he receives discount from his creditors, when he pays their dues promptly. The, discount allowed to the debtors at the time of receipt of cash, and the discount received from the, creditors at the time of payment of cash is known as cash discount. Thus, cash discount is an, allowance or deduction made from the amount due. It is allowed by the creditors to the debtors., The object of cash discount is to induce the debtors to make payment promptly., Cash discount (allowed or received) arises only when cash is received or paid. Since cash, received and paid is recorded in the cash book, it will be convenient to record the cash discount, allowed and the cash discount received in the cash book itself., Differences between Trade Discount and Cash Discount:, The cash discount should not be confused with trade discount. Trade discount differs from cash, discount in many respects. The differences between trade discount and cash discount are:, Trade Discount, , Business Accounting-1, , Cash Discount, , 61

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Srinivas University, 1. Trade discount is a reduction in the, catalogue price or invoice price of the goods, sold., 2. Trade discount is allowed first or initially, (i.e., at the time of sale purchase), 3. As regards the sequence of calculation, trade, discount is considered first., 4. Trade discount is allowed irrespective of the, fact that the goods are sold or purchased for, cash or on credit., 5. Trade discount is allowed by the, manufacturers or the wholesalers to the, retailers., 6. The object of trade discount is to enable the, wholesalers or retailers to sell the goods at the, published or fixed prices and at the same time, to have a fair margin of profits for themselves, or to induce the wholesalers, , 1st SEMESTER-BBA, 1. Cash discount is a reduction in the amount, due from a debtor., 2. Cash discount is, generally, allowed later, (i.e., at the time of settlement of the account), 3. Cash discount is calculated after trade, discount is deducted., 4. Cash discount is, generally, allowed in, respect of the receipt of cash in connection, with goods sold or purchased on credit., 5. Cash discount is allowed by the creditors to, the debtors., 6. The object of cash discount is to induce the, debtors to pay their dues promptly., , Format of Purchases Book, Purchases Book, Date, , Particulars, , Inward, Invoice, No., , L.F., , Amount, , Details, Rs., , Total Rs., , 2.7.3 Sales Book, The sales book is used to record all credit sales of goods dealt with by the trader in his business., Cash sales, cash and credit sales of assets are not entered in this book. The entries in the sales, book are on the basis of the invoices issued to the customers with the net amount of sale., Format of Sales Book, Business Accounting-1, , 62

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Srinivas University, Date, , Particulars, , 1st SEMESTER-BBA, Outward, Invoice, No., , L.F., , Amount, , Details, Rs., , Total Rs., , 2.7.4 Returns Books, Returns Books are those books in which the goods returned to the suppliers and goods returned, by the customers are recorded. The reasons for the return of goods are, i. not according to the order placed., ii. not up to the samples which were already shown., iii. due to damage condition., iv. due to difference in the prices charged., v. undue delay in the delivery of the goods., Kinds of Returns Books, The following are the kinds of Returns Books;, i. Purchases Return or Returns outward book, ii. Sales Return or Returns inward book, 2.7.5 Purchases Return Book:, This book is used to record all returns of goods purchased on credit by the business to the, suppliers. The entries in the Purchases Returns Book are usually made on the basis of debit note, issued to the suppliers or credit note received from the suppliers. We call it a debit note because, the party's (supplier) account is debited with the amount written in this note. The same note is, termed as credit note from the receiving party's point of view because he will credit the account, of the party from whom he has received the note together with goods., , Format of Purchase Return Book, Business Accounting-1, , 63

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Srinivas University, Date, , Particulars, , 1st SEMESTER-BBA, Debit, Note No., , L.F., , Amount, , Details, Rs., , Total Rs., , 2.7.6 Sales Return Book, This book is used to record all returns of goods sold on credit to the business by the customers., The entries in the sales return book are usually on the basis of credit notes issued to the, customers or debit notes issued by the customers., Format of Sales Return Book, Date, , Particulars, , Credit, Note No., , L.F., , Amount, , Details, Rs., , Total Rs., , 2.7.7 Credit Note or Credit Memorandum:, When the goods are returned to the supplier, a debit note is sent to him indicating that his, account has been debited with the amount mentioned in the Debit Note. Debit Note is sent by the, Purchaser of goods to the seller of goods on return of goods by the Purchaser to the Seller., The customers who return the goods, gets credit value of the goods returned. A credit Note is, sent to him intimating that his account has been credited with the value of the goods returned., Credit Note is sent by the Seller of goods to the Purchaser of goods on return of goods to the, seller by the Purchaser., Whenever goods are taken back from a customer or an allowance is granted to a customer, a, statement known as ―Credit Note‖ is prepared by the trader. This statement is known as the, credit note, because it informs the customer that his account has been credited for the goods, returned or for the allowance granted. The credit note is prepared in duplicate. The original is, Business Accounting-1, , 64

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Srinivas University, , 1st SEMESTER-BBA, , sent to the customer from whom the goods are taken back or to whom the allowance is granted., The duplicate is retained, and on the basis of the duplicate, the necessary entry is made in the, sales returns too. Each credit note is serially numbered, and its serial number is noted down in, the sales returns book., The credit note is sent by the seller to the purchaser in the following cases:, (i) When goods are returned by the purchaser., (ii) When an allowance for damage or for defective or wrong goods is granted., (iii) When containers are returned by the customer., 2.7.8 Debit Note or Debit Memorandum:, Whenever goods are returned by a trader to a supplier, or an allowance is claimed from a, supplier, a statement known as ―Debit Note‖ is prepared by the trader. This statement is known, as the debit note, because it informs the supplier that his account has been debited for the goods, returned or for the allowance claimed. The debit note is prepared in duplicate. The original is, sent to the supplier to whom goods are returned or from whom allowance is claimed. The, duplicate is retained, and on the basis of the duplicate, the necessary entry is made in the, purchases returns book. Each debit note is serially numbered, and its number is noted in the, purchases returns book., The debit note is sent by the purchaser to the seller in the following cases:, 1. When he (i.e. the purchaser) returns goods to the seller., 2. When he claims allowance from the seller for damage to goods in transit or for overcharge in, the invoice., 3. When containers are returned to the seller., The debit note states the details of goods returned to allowance claimed by the buyer., Differences between a Debit Note and a Credit Note:, There are a number of differences between a debit note and a credit note. The main differences, between the two are:, (i) A debit note is prepared by the person who returns the goods (i.e., by the buyer of goods), and, is sent to the seller of goods. On the other hand, a credit note is prepared by the person who, receives the goods returned (i.e, by the seller of goods), and is sent to the buyer of goods., (ii) A debit note serves as intimation for the goods returned, whereas a credit note serve as, intimation for the receipt of the goods returned., Business Accounting-1, , 65

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Srinivas University, , 1st SEMESTER-BBA, , (iii) A debit note indicates that the account of the person to whom the goods are returned in, debited. But a credit note indicates that the account of the person by whom the goods and, returned is credited., (iv) Usually, a debit note is prepared first, whereas a credit note is prepared after the recipe of the, debit note., (v) Generally, a debit note is printed in black colour, whereas a credit note is printed in red, colour., (vi) Debit notes serves as the basis for the entries in the purchases returns books of the sender of, goods. But credit notes serve as the basis for the entries in the sales returns book of the receiver, of goods., I., , Illustration Problems on Subsidiary Book:, , Problem 1:, Entered the following transactions in the Purchases Book:, 2012, Jan1 Bought from B of Bangalore, 100 bags of rice at Rs.80 per bag., Jan8 Bought from Erode Sugar Mills Ltd. 20 bags of sugar at Rs.200 per bag, Jan10 Bought from Ram Flour Mill, Coimbatore, 10 bags of wheat flour at Rs.100 per bag., Jan15 Bought from Nilgiri Tea Co., Nilgiris, 10 cases of tea at Rs.100 per case., Jan25 Bought from Arasu Coffee Works Ltd., Salem, 100kgs. Of coffee at Rs.10 per kg., Solution:, Purchases Book, Date, , Particulars, , 2012, Jan 1, Jan 8, Jan 10, Jan 15, Jan 25, , B, Bangalore, Erode Sugar Mills Ltd., Erode, Ram Flour Mill, Coimbatore, Nilgiri Tea Co., Nilgiris, Arasu Coffee Works Ltd., Salem, , Inward, Invoice, No., , L.F. Amount, , 1, 2, 3, 4, 5, , Rs., 8000, 4000, 1000, 1000, 1000, 15000, , Problem 2:, Enter the following transactions in the Purchases Book., 2012, April 1 Bought from Canara Stores, Mangalore :, 100 bags of rice at Rs.100 per bag, 50 bags of sugar at Rs.400 per bag, Business Accounting-1, , 66

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Srinivas University, , 1st SEMESTER-BBA, , 200 bags of wheat at Rs.200 per bag, Less Trade Discount 10%, April 15 Bought from Coimbatore Stores, Coimbatore :, 100 bags of rice at Rs.90 per bag, 100 bags of sugar at Rs.300 per bag, April 30 Bought from Bhadravathi Stores, Shimoga :, 200 bags of rice of Rs.100 per bag, Less : Trade Discount 10%, Solution:, Purchases Book, Date, , 2012, April 1, , April, 15, April, 30, , Particulars, , Inward, Invoice, No., , Canara Stores, Mangalore, 100 bags of rice at Rs.100 per bag, 50 bags of sugar at Rs.400 per bag, 200 bags of wheat at Rs.200 per bag, Less : Trade Discount 10%, Coimbatore Stores, Coimbatore ;, 100 bags of rice at Rs.90 per bag, 100 bags of sugar at Rs. 300 per bag, Bhadravathi Stores, Shimoga :, 200 bags of rice at Rs.100 per bag, Less : Trade Discount at 10%, , L.F. Detains, , Amount, , Rs., , Rs., , 10000, 20000, 40000, 70000, 7000, , 63000, , 9000, 30000, , 39000, , 20000, 2000, , 18000, 120000, , Problem 3:, Enter the following transactions in the Sales Book of Sri Kannan, a provision merchant, 2012, Feb 1, Sold to Anand & Co. Ooaty 10 bags of rice at Rs.120 per bag., Feb 8, Sold to ganesh, Tiptur, 10 bags of sugar at Rs.250 per bag, less trade discount 2%, Feb 10 Sold to Navinchand, Nanjangud 10 bags of wheat at Rs.50 per bag., Feb 18 Sold to Avinash & Co. Coonoor, 10 bags groundnut at Rs.100 per bag, less trade, discount 5%, Feb 29 Sold to Bright Hotel Ltd., Bangalore, 10 bags of wheat flour at Rs.100 per bag., Solution:, Sales Book, Date, , Particulars, , Business Accounting-1, , Outward, Invoice, , L.F. Amount, 67

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Srinivas University, , 1st SEMESTER-BBA, No., , 2012, Feb 1, Feb 8, Feb 10, Feb 18, Feb 29, , Rs., 1200, 2450, , Anand & Co. Ooty (10x120), Ganesh, Tiptur, (Net sale price, 10x250=2500-50), Navinchand, Nanjangud (10 x 50), Avinash & Co. Coonoor, (Net sale price) (10x100=1000-50), Bright Hotel Ltd., Bangalore (10x100), , 500, 950, 1000, 6100, , Problem 4:, Enter the following transaction in the Purchases Returns Book, 2012, Feb 1 Returned goods worth Rs.100 to Dev and Co., Cochin, Feb 10 Returned goods worth Rs.50 to Binod, Chennai, Feb 29 Allowance claimed from Rajesh, Trichy for storage Rs. 30, Solution:, Purchase Returns Book, Date, , Particulars, , 2012, Feb 1, Feb 10, Feb 29, , Dev and Co. Cochin, Binod, Chennai, Rajesh, Trichy, , Debit, Note No., , L.F. Amount, , 1, 2, 3, , 100, 50, 30, 180, , Problem 5:, Enter the following transactions in the purchase returns book, 2012, Jan 2 Returned goods worth Rs.100 to Dev and Co., Mangalore, Jan 15 Returned goods worth Rs.50 to Sharma & Co. Mumbai, Jan 20 Allowance claimed from Rahul, Kalyanpur for shortage Rs.30, Jan 24 Returned goods worth Rs. 15 to Khan & Bros., Mangalore, Solution:, Purchase Returns Book, Date, , Particulars, , 2012, Jan 2, Jan 15, , Dev & Co., Mangalore (Returns), Sharma & Co., Mumbai (Returns), , Business Accounting-1, , Debit, Note No., , L.F. Amount, , 100, 50, 68

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Srinivas University, Jan 20, Jan 24, , 1st SEMESTER-BBA, , Rahul, Kalyanpur (Allowance claimed), Khan & Bros., Mangalore (Returns), , 30, 15, 195, , Problem 6:, Enter the following transactions in the Purchases Returns Book., 2012, Jan 1 Returned goods worth Rs. 250 to Ram & Co. Kolkata., Jan 15 Returned goods worth Rs. 100 to Varm & Co. Delhi, Jan 25 Allowance claimed from Krishna & Co. Mumbai for shortage Rs. 50, Jan 28 Returned goods worth Rs.35 to Dev. & Bros. Chennai, Solution:, Purchase Returns Book, Date, , Particulars, , 2006, Jan 1, Jan 15, Jan 25, Jan 28, , Ram & Co., Kolkata, Varma & Co. Delhi, Krishna & Co., Mumbai, Dev & Bros., Chennai, , Debit, Note No., , L.F. Amount, Rs., 250, 100, 50, 35, 435, , Problem 7:, Enter the following transactions in the Sales Returns Book:, 2012, June 1 Ramesh & Co. returned us goods worth Rs.100, June10 Allowance granted to Mohan for breakage Rs. 50, June 18 Allowance granted to Chandra for overcharge Rs.30, June 25 Suresh & Co. returned us goods worth Rs.20., Solution:, Sales Returns Book, Date, , Particulars, , 2012, June 1, June 10, June 18, June 25, , Ramesh & Co., Mohan, Chandra, Resh & Co., , Business Accounting-1, , Debit, Note No., , L.F. Amount, , 1, 2, 3, 4, , 100, 50, 30, 20, 200, , 69

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Srinivas University, , 1st SEMESTER-BBA, , 2.8 CASH BOOK, A cash book is a special journal which is used to record all cash receipts and cash payments. The, cash book is a book of original entry or prime entry since transactions are recorded for the first, time from the source documents. The cash book is a ledger in the sense that it is designed in the, form of a cash account and records cash receipts on the debit side and cash payments on the, credit side. Thus, the cash book is both a journal and a ledger. Cash Book will always show debit, balance, as cash payments can never exceed cash available. In short, cash book is a special, journal which is used for recording all cash receipts and cash payments., Different types of cash book are used by different concerns to suit their requirements. But the, most important types of cash book are;, 1. Simple Cash Book, Single – Column Cash Book or Cash with only Cash Column., 2. Two – Column Cash Book, Double – Colum Cash Book or Cash Book with Discount and, Cash Columns., 3. Three – Column Cash Book, Triple – Column Cash Book, or Cash Book with Discount, Cash, and Bank Columns., In the context of types of cash book, it may be noted that when we are just asked to prepare a, cash book, without any mention about the type of cash book, we should take that cash book as, cash book with discount, cash and bank columns., 2.8.1 Single Column Cash Book, Single column cash book (simple cash book) has one amount column in each side. All cash, receipts are recorded on the debit side and all cash payments on the credit side. In fact, this book, is nothing but a Cash Account. Hence, there is no need to open cash account in the ledger., 2.8.2 Double Column Cash Book, The most common double column cash books are, i. Cash book with discount and cash columns, ii. Cash book with cash and bank columns., Contra Entries:, The term ‗Contra‘ is a Latin word, and it means the other side or opposite or against. In, accounting, this term means the opposite sides or both the sides of any account or a statement. In, the context of three – column cash book, this term means opposite or both the sides, i.e, the debit, side and the credit side, of the cash book., , Business Accounting-1, , 70

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Srinivas University, , 1st SEMESTER-BBA, , When an entry affect both cash and bank accounts it is called a contra entry. Contra in Latin, means opposite. In contra entries both the debit and credit aspects of a transaction are recorded in, the cash book itself., Example 1: Cash paid into bank, Bank A/c Dr. x x x, To Cash A/c x x x, (Cash paid into bank), This is a contra entry. As the cash book with cash and bank columns is a combined cash and, bank account, both the aspects of the transaction will be entered in the same book. In the debit, side 'To Cash A/c' will be entered in the particulars column and the amount will be entered in the, bank column. In the credit side 'By Bank A/c' will be entered in the particulars column and the, amount will be entered in the cash column., Such contra entries are denoted by writing the letter 'C' in the T.F. column, on both sides of the, cash book. They indicate that no posting in respect thereof is necessary in the ledger., Example2: Cash withdrawn from bank for office use., Cash A/c Dr. x x x, To Bank A/c x x x, (Cash withdrawn for office use), This is also a contra entry. In the debit side 'To Bank A/c' will be entered in the particulars, column and the amount will be entered in the cash column. In the credit side 'By Cash A/c' will, be entered in the particulars column and the amount will be entered in the bank column., 2.8.3 Triple Column Cash Book/Three Column Cash Book., Large business concerns receive and make payments in cash and by cheques. Where cash, discount is a regular feature, a Triple Column Cash Book is more advantageous. This cash book, has three amount columns (cash, bank and discount) on each side. All cash receipts, deposits into, bank and discount allowed are recorded on debit side and all cash payments, withdrawals from, bank and discount received are recorded on credit side., 2.8.4 Petty Cash Book, In every business, of whatever size, there are many small cash payments such as conveyance,, carriage, postage, telegram, etc. These expenses are generally repetitive in nature. If all these, small payments are recorded in the cash book, it will be difficult for the cashier to maintain the, Business Accounting-1, , 71

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Srinivas University, , 1st SEMESTER-BBA, , records all by himself. In order to make the task of the cashier easy, these small and recurring, expenses are recorded in a separate cash book called "Petty Cash Book" and the person who, maintains the petty cash is called the "Petty Cashier"., Petty means 'small'. The petty cash book is a book where small recurring payments like carriage,, cartage, postage and telegram, printing and stationery etc., are recorded by the petty cashier, a, person other than the main cashier., Imprest means 'money advanced on loan'. Under this system the amount required to meet out, various petty expenses is estimated and given to the petty cashier at the beginning of the, specified period, usually a month. All the payments are supported by vouchers. At the end of the, given period or earlier, when the petty cashier has spent the petty cash amount, he closes the, petty cash book for the period and balances it. Then he submits the accounts to the cashier. He, verifies the petty cash book with the vouchers. After satisfying himself as to the correctness and, genuiness of the payments an amount equal to the cash spent is given to the petty cashier. This, amount together with the unspent amount will bring up the cash in hand to the amount with, which he originally started i.e., the imprest amount. Thus the system of reimbursing the amount, spent by the petty cashier at fixed period is known as the imprest system of petty cash., For example, On June 1, 2002, Rs.1,000 was given to the petty cashier. He had spent Rs.940, during the month. He will be paid Rs.940 on 30th June by the cashier so that he may again have, Rs.1,000 for the next month i.e., July., Analytical Petty Cash Book, As in the case of any other cash book, petty cash book also has the debit side and the credit side., The debit side is smaller and has very infrequent entries because cash receipt by the petty cashier, is mainly from the cashier at the beginning or close of a specified period. The credit side is, bigger and thus has many columns. For each important petty expenses there is a seperate column,, and therefore columnar cash book is another name for this petty cash book. These analytical, columns helps to know the actual amount spent on each and every type of petty expenses for the, specified period., , I., , Illustration Problems on cash book:, , 1. Two Column Cash Book, Prepare a Two Column Cash Book :−, 2013, Jan. 1., 2., 3., , Cash in hand, Bank Overdraft, Paid Wages, Deposited into Bank, , Business Accounting-1, , (₹), 5,000, 1,000, 1,500, 2,000, 72

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Srinivas University, 4., 5., , 1st SEMESTER-BBA, , Cash sales, 7,500, Sold goods for cheque which was deposited in bank on the same, day, 5,000, Purchased goods from Hari on credit, 4,000, Drew from Bank for personal use, 1,000, Paid to Hari in full settlement, 3,500, Received from Ram,who owes ₹5,000, ₹2,000 only on account., , 6., 7., 8., 9., , Solution:, Cash Book, Dr., Cr., Dat, e, 201, 3, Jan., 01, Jan., 03, Jan., 04, Jan., 05, Jan., 09, , Particulars, , L.F Cash, (Rs), , Balance b/d, Cash A/c, Sales A/c, Sales A/c, Ram, , Feb. Balance b/d, 01, , 5,000, C, , Bank, (Rs), , Date Particulars, 2013, , Jan., 01, 2,000 Jan., 02, 7,500, Jan., 03, 5,000 Jan., 07, 2,000, Jan., 08, Jan., 31, 14,500 7,000, 7,500 5,000, , L.F Cash, (Rs), , Balance b/d, , 1,000, , Wages A/c, Bank A/c, , Bank, (Rs), , 1,500, C, , 2,000, , Drawing A/c, , 1,000, , Hari, , 3,500, , Balance c/d, , 7,500, , 5,000, , 14,500 7,000, , Note: Transaction dated January 06, 2013, will not be recorded in Cash Book because credit, transactions will not affect the cash/bank balance., 2. Write up a two-column cash book of Mr. Joseph from the following particulars and balance, the same at the end of the month., 2018, May 1 Balance in shop cash Rs. 750 in Bank Rs. 1300, May 3 Bought goods for cash Rs. 330., May7, Received from Nair repayment of his loan in cash Rs. 290, May 12 Bought goods on credit from Menon Rs. 720., May 14 Gave cheque for Rs. 525 to Chandran for goods supplied in April, 2012., Business Accounting-1, , 73

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Srinivas University, , 1st SEMESTER-BBA, , May 16 Gave his wife Rs. 150 for household expenses., May 20 Cashed National Savings Certificate Rs. 500, kept Rs. 100 for self and paid the balance, into shop cash., May 25 Paid into Bank Rs. 600, May 26 Gave David a cheque for Rs. 450 in repayment of some liabilities., May 27 Cashed Rs. 120 from George and paid into Bank., May 28 Gave charity Rs. 100, May 29 Gave a cheque to Menon for goods bought during the month, deduction Rs. 10 for, discount., May 30 Received a bearer cheque from Suman Rs. 1000, May 31 Cashed the cheque received from Suman at the counter of the paying banker., May 31 Transferred to Savings Bank Account from Current Account Rs. 200., Solution:, Cash Book:, Dr., Cr., Date, , Particulars, , 2012, May, 1, , To Balance b/d., , May, 7, , To Nair‗s Loan, A/C, (Repayment of, loan received), , May2, 0, , To National, Savings, Certificate A/c., (Cash received, Savings, Certificate), , R., No., , To Cash A/c., (Cash received), May2, 5, May2, 7, , To George‗s A/c., (Cash received, from, George by bank), Business Accounting-1, , L., F., , Cash, , Bank, , Date, , Rs., 750, , Rs., 1300, , 2012, May, 3, , 290, May, 14, , 500, 500, , C, , May, 16, , 600, May, 60600 20, 0, May2, 120, 5, 120, , Particulars, , V. L., No F., , By Purchases A/c., (Paid cash for, purchases), , Cash, , Bank, , Rs., 330, , Rs., , ByChandran‗s A/c., (Paid Chandran by, cheque), , 525, , By Drawings A/c., (cash paid to wife, for, household, expenses)expenses, ), , 150, 150, , By Drawing A/c., (Cash kept for, self)), By Bank A/c., (Cash paid into, bank), , 100, , C, , 600, 600, , 74

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Srinivas University, , 1st SEMESTER-BBA, May, 26, , May, 30, , To Suman‗s A/c., (Cheque from, Suman, and cashed), , 1000, , May, 28, , May, 29, , May, 31, , May, 31, , June, 1, , To balance b/d, , 2540, 1260, , 2020, 135, , By David‗s A/c., (Paid David by, cheque), By Charity A/c. or, Sundry, Expenses A/c., (Cash paid for, charity), , 450, , 100, 100, , By Menon‗s A/c., (Paid Menon by, cheque), , 710, , By Savings Bank, A/c., (Transfer to S.B., A/c.), , 200., , By Balance c/d, 1260, 2540, , 28. From the following particulars, write an Analytical Petty Cash Book on the imprest system, and show how it will appear in the ledger., 2016, Jan 1, , Received Rs 500 for petty cash, , Jan 3, , Spent for postage Rs 45, , Jan 6, , Taxi hire for secretary Rs 50, , Jan 8, , Paid X & Co. Rs. 35., , Jan 10 Ink and Stationery Rs. 85, Jan 11 Sent a telegram Rs. 10, Jan 15 Entertainment expenses for visitors Rs 62, Jan 20 Paid for carriage Rs 85, , Business Accounting-1, , 75, , 135, 2020

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Srinivas University, , 1st SEMESTER-BBA, , Jan 26 Tips paid to peons on Republic Day Rs 55, Jan 30 Paid telephone bill Rs 40, Jan 31 Paid to Y & Co. Rs 20, Feb 1 Imprest amount received from the cashier, Solution:, Analytical Petty Cash Book:, Amou C Date, nt, B, receiv F, ed, , Rs., 500, , Particulars, , V, ., N Total, o paym, . ents, , 2006, Jan 1 To Cash, ― 3 By postage, ― 6 By Taxi hire for, secretary, ― 8 By X & Co., ― 10 By Ink &, Stationery, ― 11 By Telegrams, ― 15 By Entertainment, ― 20 expenses for, visitors, By Carriage, ― 26 By Tips to peons, ― 30 By Telephones bill, ― 31 By Y & Co., ―, 31, , By balance c/d, , 500, 13, 487, , 45, , Analysis of Payment, Posta, ge &, Tele, gram, s, , 62, 85, 55, 40, 20, 487, 13, , Printi, ng &, statio, neries, , Sund, ry, expe, nses, , carria, ge, , Ledge, r folio, , Ledger, Accou, nts., , 45, , 50, 35, 85, 10, , Tra, veli, ng, exp, ense, s, , 50, 35, 85, 10, , 62, 85, 55, 40, 95, , 50, , 85, , 117, , 85, , 20, 55, , 500, Feb 1 To Balance b/d, ― 1 To Cash, Multiple Choice Questions:, 1. The term 'Journal' is derived from the French word, a. Jour, , b. Juor, , Business Accounting-1, , c. Trans, , d. None of the above, 76

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Srinivas University, , 1st SEMESTER-BBA, , 2. If the capital of a business is Rs.3,00,000 and other liabilities are Rs.2,00,000, calculate, the total assets of the business., a. 5,00,000, , b. 1,00,000, , c. 7,00,000, , d. -1,00,000, , 3. If the total assets of a business are Rs.3,60,000 and capital is Rs.2,00,000, calculate, liabilities, a. 1,60,000, , b. 1,80,000, , c. 5,60,000, , d. -1,60,000, , 4. Accounts of artificial or legal persons are, a. Personal accounts, , b. Real accounts, , c. Nominal Accounts, , d. All the above, , c. Nominal Accounts, , d. All the above, , 5. Accounts of intangible assets are, a. Personal accounts, , b. Real accounts, , 6. Saravanan started business with Rs. 1,00,000, two accounts in the following questions are, a. Personal and nominal account, nominal account, , b. Real and personal account, , c. Real and, , d. None of the above, , 7. Opened bank current account with Rs.10,000, two accounts in the following questions are, a. Personal and nominal account, nominal account, , b. Real and personal account, , c. Real and, , d. None of the above, , 8. Deposited cash in the bank, two accounts in the following questions are, a. Personal and nominal account, account, , b. Real and personal account, , c. real and nominal, , d. None of the above, , 9. Debit what comes in; Credit what goes out is the rule of, a. Personal account, , b. Real account, , c. Nominal account, , d. Suspense account, , 10. Debit the receiver, credit the giver, Business Accounting-1, , 77

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Srinivas University, , 1st SEMESTER-BBA, , a. Personal account, , b. Real account, , c. Nominal account, , d. None of the above, , 11. Debit all expenses and losses, Credit all income and gains, a. Personal account, , b. Real account, , c. Nominal account, , d. None of the above, , 12. The various books of original entry maintained under the modern system of accounting is, a. Subsidiary books, , b. Journal proper, , c. Cash book, , d. Bank reconciliation book, , 13. A special journal used to record all cash receipts and cash payments is, a. Subsidiary books, , b. Journal proper, , c. Cash book, , d. Bank reconciliation book, , 14. The term journal is derived from the word, a. French, , b. Latin, , c. Greek, , d. All the above, , 15. The purchase journal is meant for recording purchase of goods of, a. Debit, , b. Credit, , c. Both debit and credit, , d. All the above, , 16. The Basic accounting equation is, a. Asset=Expense +Income, , b. Assets=Cash+Capital, , c. Assets=Capital+Liabilities, , d. Assets=Expenses+Capital, , 17. Find out the value of assets if: Liabilities=$5000 and Capital=$1000, a. $4000, , b.$6000, , c. $7000, , d. $3000, , 18. Calculate the amount of cash if: Total assets=$10,000 Total liabilities=$10,000 Total, Capital=$5000, a. $6000, , b. $10,000, , c. $5000, , d. $1000, , 19. If the capital of a business is Rs.3,00,000 and other liabilities are Rs.2,00,000, calculate, the total assets of the business., a. 5,00,000, , b. 3,00,000, , Business Accounting-1, , c. 1,00,000, , d. 6,00,000, 78

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Srinivas University, , 1st SEMESTER-BBA, , 20. Capital of a business decreases if there is an increase in, a. Drawings, , b. Income, , c. Gains, , d. Fresh capital, , 21. If the total liabilities of a business decrease by $5000 what will be the effect on total, asset? (Assuming the amount of capital remain same), a. Remain constant, , b. Decrease by $5000, , c. Increase by $5000, , d. Increase by, , $10,000, , 22. The term Contra is a ______ word, and it means the other side or opposite or against., a. Spanish, , b. Latin, , c. Greek, , d. French, , 23. Net income equal to Revenues minus, a. Gains, , b. Depreciation, , c. Expenses, , d. Capital expenditures, , 24. Whenever goods are returned by a trader to a supplier, or an allowance is claimed from a, supplier, a statement known as ______ is prepared by the trader., a. Credit note, , b. Debit note, , c. Cash memo, , d. None of the above, , 25. Imprest means ______., a. Money advanced on loan, , b. Money borrowed, , c. Money saved, , d. Money withdrawn, 8 Marks questions:, 1. What is Single Entry System? What are the features of Single Entry System?, 2. What is double entry system? What are the objectives of Double-Entry System of Accounting?, 3. What are the advantages of Double-Entry System of Accounting?, 4. Journalise the following transactions in the books of Suresh:, 2017 November,, • 1 Suresh Commenced business with cash Rs 10,000 and Goods 5000, • 5 Purchased goods from Kishore Rs 4000, • 8 Sold goods to Raman for cash Rs 6000, Business Accounting-1, , 79

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Srinivas University, , 1st SEMESTER-BBA, , • 10 Paid into Bank Rs 5000, • 15 Purchased machine from Hindusthan Tools limited Rs 3000, • 18 Advanced to Govind Rs 1000 as loan, • 22 Drew for office use Rs 500, • 25 Paid rent to landlord Rs 300, • 27 Received from Raman on account Rs 1500, • 30 Paid Kishore on account Rs 2000, 5. Journalise the following transactions in the Books of Sudhama;, a. Opened Account in a Bank with Rs 10,000., b. Withdrew from Bank for office use Rs 2000., c. Withdrew from Bank for personal use Rs 500, d. Paid Sunil on Account by cheque Rs 400, e. Deposited cash in the Bank Rs 600, f. Received a cheque from Radha on account Rs 500, g. Deposited Radha‗s cheque into Bank for collection Rs 500., h. Bought goods from Amar and paid by cheque Rs 1000., i. Paid Rent by cheque Rs 500., j. Bank paid Insurance premium on our behalf Rs 100., k. Cash sales deposited into Bank Rs 1000., l. Bank collected Interest on Securities as per our instructions Rs 50., m. Loan taken from Bank Rs 2000., n. Part of Loan repaid in Cash Rs 1000., 6. Journalize the following transactions in the books of Sharma:, 2018, April 1, April 2, April 4, April 7, April 10, April 13, April 16, April 18, April 20, April 22, , Commenced business with cash Rs. 50,000 and machinery Rs. 10,000, Deposited cash into bank Rs. 20000, Purchased goods worth Rs. 8000 less 10% trade discount and 2% cash discount., Purchased goods from Roy & Sons for Rs 5000 less 20% trade discount and 5%, cash discount, half the amount was paid in cash., Withdrew from bank for office use Rs. 2000., Sold goods to Ashok for Rs. 3000 less 5% trade discount., Appointed Mr. Manu as cashier at a salary of Rs. 10000 per month and received Rs., 20000 from him as security deposit., Received cash from Ashok Rs. 2840 in full settlement of his account., Withdrew from business for personal use Rs. 1000, Purchased goods for Rs. 2000 from Petal and invoiced the same to Sahil for Rs., 2400., , 7. Post them to the various ledger accounts., 2008, , Business Accounting-1, , Rs., , 80

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Srinivas University, , 1st SEMESTER-BBA, , June 1, , Ram commenced business with, , 5,000, , June 2, June 3, June 4, June 5, June 7, June 8, June 9, June 10, June 11, , Bought goods for cash, Bought office furniture for cash, Paid for postage, Purchased goods from Rajkumar, Sold goods for cash, Bought goods from Rahim, Sold goods to Suresh, Sold goods to Natarajan, Purchased goods for cash, , 2500, 500, 100, 2000, 150, 400, 300, 350, 250, , June 12, June 15, June 17, June 20, June 22, June 25, June 26, June 27, June 28, June 31, , Received cash from Natarajan, Paid cash to Rahim, Returned goods to Rajkumar, Suresh returned goods, Paid salaries, Sold goods for cash, Ram withdrew for personal use, Paid by stationery, Paid rent, Received commission, , 400, 400, 200, 50, 150, 500, 800, 100, 225, 50, , 8. Write out the account of B. Black from the following transactions:, 2012, Jan. 1, Jan. 5, Jan. 7, Jan. 8, Jan12, Jan15, Jan18, Jan20, Jan26, , Sold him goods worth Rs.900, Received from him Rs.350 on account Allowed him discount Rs.10, Purchased from him goods worth Rs.300, Returned to him goods worth Rs.25, Received from him further cash Rs.100, Sold him goods worth Rs.100, He returned goods worth Rs. 25, Sent him cash Rs.125, Purchased from him goods worth Rs.125, , 9. Post them into ledger, 2001, Nov 1 Commenced business with goods Rs 20,000 and cash Rs. 50,000,  2, Opened bank current account with Rs.10,000,  4, Received cash from Swathi Rs. 4,900,  6, Cash Purchases( paid by cheque) Rs. 37,600,  7, Cash sales to Avinash Rs.1,900, Business Accounting-1, , 81

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Srinivas University, , 1st SEMESTER-BBA, ,  9, Purchased goods from Reddy Rs.2000,  10, Purchased goods from Rama Rao for Rs. 20,000 and paid cash Rs. 10,000,  12, Sold goods to Lalitha Rs. 1,800,  15, Paid Reddy cash Rs 1,900 and was allowed a discount of Rs.100,  16, Goods returned by Rama Rao Rs.500, 10. Journalising the following transactions in the books of Raveesh, 2018,April, , , , , , , , , , , , , , , 1-Commenced business with cash Rs 20,000, 2- Purchased goods from Ravi Rs 5,000, 3-Bought office furniture for cash Rs 8,000, 5- Sold goods to Karthik Rs 7,500, 8- Returned to goods to Ashok Rs 500, 9-Paid salaries Rs 1,500, 12- Prashanth returned goods Rs 950, 13- Amar withdrew for personal use Rs 1,450, 16- Received commission Rs 150, 17- Cash withdrawn for personal use Rs 1,450, 21- Received from Ananth on account Rs 2,500, 23- Drew a cheque for personal use Rs 800, 24- Paid wages Rs 2,300, , 11. What are the differences between a Debit Note and a Credit Note?, 12. Entered the following transactions in the Purchases Book:, 2012, Jan1 Bought from B of Bangalore, 100 bags of rice at Rs.80 per bag., Jan8 Bought from Erode Sugar Mills Ltd. 20 bags of sugar at Rs.200 per bag, Jan10 Bought from Ram Flour Mill, Coimbatore, 10 bags of wheat flour at Rs.100 per bag., Jan15 Bought from Nilgiri Tea Co., Nilgiris, 10 cases of tea at Rs.100 per case., Jan25 Bought from Arasu Coffee Works Ltd., Salem, 100kgs. Of coffee at Rs.10 per kg., 13. Prepare a Two Column Cash Book: −, 2013, Jan. 1., 2., 3., 4., , Cash in hand, Bank Overdraft, Paid Wages, Deposited into Bank, Cash sales, , Business Accounting-1, , (₹), 5,000, 1,000, 1,500, 2,000, 7,500, , 82

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Srinivas University, 5., 6., 7., 8., 9., , 1st SEMESTER-BBA, , Sold goods for cheque which was deposited in bank on the same, day, 5,000, Purchased goods from Hari on credit, 4,000, Drew from Bank for personal use, 1,000, Paid to Hari in full settlement, 3,500, Received from Ram,who owes ₹5,000, ₹2,000 only on account., , 14. From the following particulars, write an Analytical Petty Cash Book on the imprest system, and show how it will appear in the ledger., 2016, Jan 1, , Received Rs 500 for petty cash, , Jan 3, , Spent for postage Rs 45, , Jan 6, , Taxi hire for secretary Rs 50, , Jan 8, , Paid X & Co. Rs. 35., , Jan 10 Ink and Stationery Rs. 85, Jan 11 Sent a telegram Rs. 10, Jan 15 Entertainment expenses for visitors Rs 62, Jan 20 Paid for carriage Rs 85, Jan 26 Tips paid to peons on Republic Day Rs 55, Jan 30 Paid telephone bill Rs 40, Jan 31 Paid to Y & Co. Rs 20, Feb 1 Imprest amount received from the cashier, , Business Accounting-1, , 83

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Srinivas University, , 1st SEMESTER-BBA, , UNIT III, DEPRECIATION ACCOUNTING, 3.1 Introduction:, Fixed assets, such as plant and machinery, furniture, vehicles, tools etc. are used in a business for, a long period. When they are used in a business for a long time, they get worn out and gradually, diminish in value. Some of fixed assets, such as lease, patent rights, copy rights, etc. diminishes, in value owing to sheer efflux (i.e. passage) of time, even if they are not used in the business., Some of the fixed assets like machinery, vehicles, etc. may diminish in value owing to, obsolescence. Thus, almost all fixed assets undergo diminution in value or depreciation for some, reason or the other., , 3.2 Definition and Meaning of Depreciation:, The term ―deprecation‖ is derived from the Latin word ―Depretium‖. ‗De‘ means ‗decline‘ and, ‗pretium‘ means ‗price‘. So, depreciation literally means decrease in the value of an asset., Actually, depreciation means the reduction in the book value of a fixed asset due to wear and tear, caused by constant use in the business, obsolescence, efflux of time (i.e., passage of time) or, permanent fall in market value., Pickles defines depreciation as ―the permanent and continuing diminution in the quality, quantity, or the value of an asset‖., R.G.Williamms defines depreciation as ―a gradual deterioration in the value of an asset due to, use‖., According to L.C. Cropper, ―Depreciation is the diminution in the financial value of an asset, owing to wear and tear, efflux of time, obsolescence or similar cause‖., In the words of R.N. Carter, ―Depreciation is the gradual and permanent decrease in the value of, an asset from any cause‖., , 3.3 Causes of Depreciation:, The causes of depreciation are as follows:, 1) Wear and tear: Assets get worn or torn out on account of constant use as is the case with, plant and machinery, furniture and fixtures used in a factory., , Business Accounting-1, , 84

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Srinivas University, , 1st SEMESTER-BBA, , 2) Exhaustion: An asset may get exhausted through working. This is the case with mineral, mines, oil wells etc. On account of continuous extraction on minerals or oil, a stage, comes when the mine or well gets completely exhausted and nothing left., 3) Obsolescence: Some assets are discarding before they are worn out because of changed, conditions., 4) Efflux of time: Certain assets get decreased in their value with the passage of time., 5) Accidents: An asset may meet an accident, and therefore, it may get depreciated in its, value., , 3.4 Methods of Charging Depreciation, There are several methods of charging depreciation. But, as per our syllabus, we are concerned, only with the following methods of charging depreciation:, 1. Fixed Instalment Method, Straight Line Method, Original Cost Method, Equal Instalment, Method or fixed percentage on Original Cost Method., 2. Diminishing Balance Method, Reducing Balance Method or Written down Value, Method., 3. Annuity Method., , FIXED INSTALMENT METHOD OR ORIGINAL COST METHOD, Under this method, a fixed percentage of the original cost of the asset is written off every year., For instance, if the original cost of the asset is Rs.10000 and if the depreciation is 10% per, annum, then, Rs 1000 will be written off the asset every year., It should be noted that, while charging depreciation on the asset, the period for which the asset is, used in a particular year should be taken into account. For example, if an asset is used only for, six months in a particular year, then, only six months depreciation should be charged on that, asset in that year. (i.e. life of the asset), Depriciationv , , Cost of asset - Scrap value of the asset, Number of years the asset is estimated to last, , In such a case, the rate of depreciation can be calculated as follows, Annual Depreciation, 100, Cost of the asset, , Business Accounting-1, , 85

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Srinivas University, , 1st SEMESTER-BBA, , Entries Regarding Depreciation, 1. For the purchases of asset:, Concerned asset A/C, , Dr., , To Bank A/C, 2. For charging depreciation:, Depreciation Account, , Dr., , To Asset Account, 3. For transferring the depreciation to Profit and Loss Account:, Profit and Loss Account, , Dr., , To Depreciation Account, 4. For the asset sold,, Bank A/C, , Dr., To concerned asset A/C, , 5. If there is any profit on the asset sold,, Concerned Asset A/C, , Dr., , To profit and loss A/C, 6. If there is any loss on the asset sold,, Profit and loss A/C, , Dr., , To concerned asset A/C, , Illustration Problems on Straight Line Method Depreciation:, 1. On 1st January, 2009, a firm bought furniture for Rs 5000. The firm writes off depreciation at, 10% on the original cost every year. Show the necessary accounts in the books of the firm for, three years., Solution:, Depreciation =Cost of the asset * Rate of depreciation, = 5000 *10%, = 500, Dr., Date, , Particulars, , Business Accounting-1, , Furniture A/c, Amount, Date, , Particulars, , Cr., Amount, , 86

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Srinivas University, 2009, Jan 1, , 1st SEMESTER-BBA, , To Bank A/c, (Cost of Furniture, Purchased), , 5,000, , Dec 31, Dec 31, , By Depreciation A/c, (5000 x 10/100), By Balance C/d, , 5,000, 2010, Jan 1, , To Balance B/d, , 4,500, , To Balance B/d, , 4,000, , 2010, Dec 31, , By Depreciation A/c, (5000 x 10/100), By Balance C/d, , 2011, Dec 31, , By Depreciation A/c, (5000 x 10/100), By Balance C/d, , 4,000, 2012, Jan 1, Dr., 2009, Dec31, , To Balance B/d, , 3,500, Depreciation A/c, 2009, 500, Dec31, 500, 2010, 500, Dec31, 500, 2011, 500, Dec31, 500, , To Furniture b/d, , 2010, Dec31, , To Furniture b/d, , 2011, Dec31, , To Furniture b/d, , 4,500, 5,000, , 4,500, 2011, Jan 1, , 500, , 500, 4,000, 4,500, 500, 3,500, 4,000, , Cr., By Profit & Loss A/c, , 500, 500, , By Profit & Loss A/c, , 500, 500, , By Profit & Loss A/c, , 500, 500, , 2. From the following particulars relating to a business, prepare machinery account for 4 years, from 2015 to 2018, closing the account every year on 31 December., 1.4.2015: Machinery bought for Rs. 45,000 and installed at a cost of Rs. 5,000, 30.06.2017: Second machinery bought for Rs. 30,000, 31.12.2017: The first machinery purchased on 1.4.2000 was sold for Rs. 35,000 1.1.2018: Third, machinery was purchased at a cost of Rs. 75,000, Depreciation is charged at the rate of 10% p.a. on original cost method., Solution:, 1/1/2015 – 31/12/2015 -, , 1st year, , 1/1/2016 – 31/12/2016 -, , 2nd year, , Business Accounting-1, , 87

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Srinivas University, 1/1/2017 – 31/12/2017 1/1/2018 – 31/12/2018 -, , 1st SEMESTER-BBA, 3rd year, 4th year, , Dr., , Machinery Account, , Date, Particulars, 2015, To Bank A/c, April 1 Installation, , 45,000, 5,000, , Amount, 50,000, , Date, 2015, Dec.31, , Cr., Particulars, By Depreciation A/c, (50000*10%*9/12), Balance C/d, , Amount, 3,750, , 2016, Dec. 31, , By Depreciation A/c, Balance c/d, , 5,000, 41,250, 46,250, , 2017, Dec. 31, , By Depreciation A/c:, I machine, 5,000, II machine, 1,500, By Bank (sale of, machine), By P & L A/c (loss on, sale), By Balance c/d, , 6,500, , 46,250, 50,000, , 50,000, 2016, Jan. 1, , To Balance b/d, , 46,250, 46,250, , 2017, Jan. 1, , To Balance b/d, , 41,250, , June, 30, , ToBank A/c, (purchase of new machine), , 30,000, , 35,000, 1,250, 28,500, 71,250, , 71,250, 2018, Jan. 1, , To Balance b/d, To Bank A/c, (purchase of new machine), , 28,500, 75,000, , 2018, Dec. 31, , By depreciation A/c:, II machine, 3,000, III machine, 7,500, Balance c/d, , 10,500, 93,000, 1,03,500, , 1,03,500, 2019, Jan. 1, , To Balance b/d, , 93,000, , Working Note: 1. Profit/Loss on sale of machinery:, Purchase price as on 1-4-2015, Add: installation cost, Less: Depreciation : 2000 (for 9 months @ 10%), 2016 & 2017 (for two years @ 10%), Book value as on the date of sale (31-12-2017), Less: Sales, Loss on sale of machinery, On the first machine – for one year (50,000 x 10%), , Business Accounting-1, , Rs., 45,000, 5,000, 3,750, 10,000, , Rs., 50,000, 13,750, 36,250, 35,000, 1,250, , 5,000, , 88

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Srinivas University, , 1st SEMESTER-BBA, , On the new machine – for 6 months 30,000x6½x10%), , 1,500, 6,500, , (from 30-06-2016 to 31-12-17) 2003:, On the second machine of one year (30,000x10%), , 3,000, , On the third machine Purchased on 1-1-2016, for one year 75,000 x 10%) 7,500, 10,500, 3., A firm purchased a machine on 1.1.2009 for Rs. 30,000. Depreciation is to be provided, on the machine annually on straight line method. The useful life of the machine is 10 years. The, scarp value of the machine at the end of life is Rs. 3,000., Find out:, (1) The amount of depreciation to be charged every year and, (2) The rate of depreciation per annum., Solution:, (1) The amount of depreciation to be charged every year., Depreciation = Cost of asset - Scrap value of the asset, Number of years the asset is estimated to last, Depreciation = 30000 - 3000, 10, = Rs. 2,700, (2) Rate of depreciation per annum, Rate of Depreciation = Annual Depreciation * 100, Cost of the asset, = 2700 * 100, 30000, = 9%, , Business Accounting-1, , 89

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Srinivas University, , 1st SEMESTER-BBA, , 4., On 1 January, 2004, plant and machinery was purchased for a sum of Rs 25,000., Additions to the extent of Rs 5,000 on 1 July, 2005 and to the extent of Rs 10,000 on 1 October, 2006 were made. Prepare the ledger accounts of the plant and machinery for 3 calendar years, providing depreciation at 10% on the original value of the asset., Solution:, Dr., Date, 2004, Jan. 1, , 2005, Jan. 1, July 1, , 2006, Jan.1, Oct.1, , 2007, Jan.1, , Plant and machinery Account, Particulars, To Bank A/c, , Amount, 25,000, , To Balance b/d, , 25,000, 22,500, , To Bank A/c, (purchase of new machine))), , To Balance b/d, To Bank A/c, (purchase of new machine), , To Balance b/d, , Date, 2004, Dec.31, , 2005, Dec.31, , 5,000, , 27,500, 24,750, 10,000, , 34,750, 31,500, , 2006, Dec 31, , Particulars, By Depreciation A/c, (25000*10%), By Balance c/d, (25000-2500), , Cr., Amount, 2,500, , 22,500, 25,000, , By Depreciation A/c:, Old machine, (25000*10%), 2,500 2,750, New machine, 250, (5,000x10%x6/12), By Balance c/d, 24,750, (27500-2750), 27,500, By Depreciation A/c:, Old machine, 2,500, I New machine, 500, (5,000x10%), II new machine, 250 3,250, (10,000x10%x3/12), By Balance c/d, 31,500, (34750-3250), 34,750, , Diminishing Balance Method, Under this method, depreciation is charged at a fixed percentage on the diminishing value,, reducing value or the written down value of the asset (i.e., cost less depreciation written off, instance, if the original cost of the asset is Rs 10000 and if the rate of depreciation is 10% per, annum, then, in the first year, depreciation will be charged on Rs 10000 in the second year on Rs, (10000 – 1000) 9000 and in the third year on Rs (9000 – 900) 8100. Son the amount of, depreciation charged will be reduced year after year. While calculating depreciation, the period, Business Accounting-1, , 90

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Srinivas University, , 1st SEMESTER-BBA, , for which the asset is used in a particular year should be taken into account. For example, if an, asset is used in a particular year should be taken into account. For example, if an asset is used for, 3 months in a year, then, depreciation should be charged only for 3 months in that year., , Illustration Problem on Diminishing Balance Method Depreciation:, 5., A company whose accounting year is the calendar year purchased on 1st April, 2008, machinery costing Rs 30000. In further purchased machinery on 1st October 2008 costing Rs, 20000 and on 1st July 2009, costing Rs 10000., On 1st January, 2010, one third of the machinery which was installed on 1 st April, 2008 became, obsolete and was sold for Rs. 3000, Show how the machinery account and depreciation would appear in the books of the company., The depreciation to be charged is at 10% p.a. on written down value method for 3 years., Solution:, Dr., , Machinery Account, , Date, Particulars, 2008, To Bank A/C, April 1 (Cost of machinery, Purchased), Oct. 1 To Bank A/C, (Cost of machinery, Purchased), 2009, Jan1, July1, , 2010, Jan1, , 2011, Jan1, , Amount, 30000, , 20000, , To Balance b/d., , 50000, 47250, , To Bank A/C, , 10000, , To Balance b/d., , 57250, 52025, , To balance b/d, , Business Accounting-1, , Date, 2008, Dec 31, , 52025, 39330, , 2009, Dec 31, , 2010, Jan1, Jan 1, 31 Dec, 31 Dec, , Cr., Particulars, By Depreciation A/c, 1 (30000*10%*9/12) =, 2250, 2 (20000*10%*3/12) =, 500, By balance c/d, , Amount, 2750, , 47250, 50000, , By depreciation a/c, Machine 1 & 2, (47250*10%), 4725, Machine 3, (10000*10%*6/12) 500 5225, By balance c/d, 52025, 57250, By bank A/C, 3000, By profit and loss A/c, By depreciation a/c, By balance c/d, , 5325, 4370, 39330, 52025, , 91

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Srinivas University, , 1st SEMESTER-BBA, , Working Note: 1. Profit/Loss on sale of machinery:, Cost of 1/3rd of the asset (1/4/2018), (30000*1/3), Less: Depreciation, On 31/12/2018 (10000*10%*9/12), On 31/12/2019 (10000-750) = 9250 (9250*10%), Book value as on the date of sale (1/1/2010), Less: Sales, Loss on sale of machinery, , Rs., , Working Note: 2. Calculation of depreciation for the year 2010:, Total written down value as on January 1, 2010, Less : Written down value of 1/3rd of plant sold:, (10000- 1675), , Rs., , Rs., 10000, , 750, 925, , 1675, 8325, 3000, (5325), Rs., 52025, 8325, 43700, , Depreciation = 43700 * 10%, = 4370, 6., A firm purchased machinery on 1 July 2007 for Rs 90,000 and incurred expenses Rs, 10,000 on its erection. On 30 June 2010, a part of the plant purchased on 1July 2007 for Rs, 50,000 was sold for Rs 32,000. A new plant was bought on the same day for Rs 60,000., Show the plant account for 2007 to 2010, charging 20% depreciation under reducing balance, method., Solution:, Dr., Date, 1/07/07, , 1/1/08, , 1/1/09, , Plant Account, Particulars, To Bank a/c, (90000+10000), , Amount, 100000, , To balance b/d, , 100000, 90000, , To balance b/d, , 90000, 72000, , Business Accounting-1, , Date, 31/12/07, , 31/12/08, , 31/12/09, , Cr., Particulars, By depreciation a/c, (100000 * 20%*6/12), By balance c/d, By depreciation a/c, Machine 1, (90000*20%), By balance c/d, By depreciation a/c, (72000*20%), By balance c/d, , Amount, 10000, 90000, 100000, 18000, , 72000, 90000, 14400, 57600, 92

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Srinivas University, , 1st SEMESTER-BBA, , 1/1/10, To balance b/d, 30/06/10 To P&L a/c, 30/06/10 To bank a/c, , 72000, 57600, 6080, 60000, , 1/1/11, , 123680, 79344, , To balance b/d, , 30/06/10, 30/06/10, 31/12/10, , By depreciation a/c, By Bank a/c, By depreciation a/c, 1-6336, 2-(60000*20%*6/12), 6000, By balance c/d, , Working Note: 1. Profit/Loss on sale of machinery:, Cost of part of the asset (1/07/2007), Less: Depreciation, On 31/12/2007 (50000*20%*6/12), On 31/12/2008 (50000-5000) = 45000 (45000*20%), On 31/12/2009 (45000-9000) = 36000 (36000*20%), On 30/06/2010 (36000-7200) = 28800 (28800*20%*6/12), Book value as on the date of sale (30/06/2010), Less: Sales, Profit on sale of machinery, , Rs., , Working Note: 2. Calculation of depreciation for the year 2010:, Total written down value as on January 1, 2010, Less : Written down value of part of machinery sold:, (50000-24080), , Rs., , 5000, 9000, 7200, 2880, , 72000, 2880, 32000, 12336, , 79344, 123680, , Rs., 50000, , 24080, 25920, 32000, 6080, Rs., 57600, 25920, 31680, , Depreciation = 31680 * 20%, = 6336, 7., On 1.1.2010, a company purchased a machine for Rs. 30,000. Depreciation at the rate of, 10% was written off for the first two years under fixed instalment method, for the next two years, at 15% was written off on the diminishing balance method. The machinery was then sold on, 31.12.2013 for Rs. 15,000. Write up Machinery A/c for four years and close the same., Dr., Date, Particulars, 1.1.2010 To Bank A/C, , Business Accounting-1, , Machinery Account, Amount, 30,000, , Date, Particulars, 31/12/2010 By Depreciation A/c, (30000*10%), By balance c/d, , Cr., Amount, 3000, 27000, 93

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Srinivas University, , 1st SEMESTER-BBA, , 1.1.2011 To Balance b/d., , 30000, 27000, , 1.1.2012 To Balance b/d., , 27000, 24000, , 1.1.2013 To balance b/d, , 24000, 20400, , 31/12/2011 By Depreciation A/c, (30000*10%), By balance c/d, 31.12.2012 By Depreciation A/c, (24000*15%), By balance c/d, 31.12.2013 By Depreciation A/c, (20400*15%), By Bank A/C, By profit and loss A/c, , 20400, , Working Note: 1. Profit/Loss on sale of machinery:, Cost of the asset (1/1/2010), Less: Depreciation, On 31/12/2010, On 31/12/2011, On 31/12/2012, On 31/12/2013, Book value as on the date of sale (31/12/2013), Less: Sales, Loss on sale of machinery, , Rs., , 3000, 3000, 3600, 3060, , 30000, 3000, 24000, 27000, 3600, 20400, 24000, 3060, 15000, 2340, 20400, Rs., 30000, , 12660, 17340, 15000, (2340), , 8. On 01.01.2003, a firm bought a machinery costing Rs. 90,000 and spent Rs. 10,000 for its, carriage and installation. On 01.01.2005, they bought additional machinery costing Rs. 50,000., On 01.07.2005, they sold the machinery which was brought on 01.01.2003 for Rs. 80,000. On, 01.01.2006, they bought another machinery for Rs. 50,000. Depreciation is to be charged at 10%, p.a. under diminishing balance method. Show machinery account for 4years., Dr., , Machinery Account, , Date, Particulars, 1.01.2003 To Bank a/c, (90000+10000), , 1.1.2004, , 1.1.2005, , To balance b/d, , To balance b/d, , Business Accounting-1, , Amount, 100000, , 100000, 90000, , 90000, 81000, , Date, 31.12.03, , 31.12.04, , 1.07.05, , Cr., Particulars, By depreciation a/c, (100000*10%), By balance c/d, By depreciation a/c, (90000*10%), By balance c/d, By depreciation a/c, , Amount, 10000, 90000, 100000, 9000, 81000, 90000, 4,050, 94

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Srinivas University, 1.1.2005 To Bank a/c, 1.07.2005 To P&L a/c, , 1st SEMESTER-BBA, 50000, 3050, , 1.07.05, 31.12.05, 31.12.05, , 1.01.06, 1.01.06, , 1.01.07, , To balance b/d, To Bank a/c, , 134050, 45000, 50000, , To balance b/d, , 95000, 85500, , 31.12.06, , (81000*10%*6/12), By Bank a/c, By depreciation a/c, (50000*10%), By balance c/d, By depreciation a/c, 2- (45000*10%) =, 4500, 3- (50000*10%) =, 5000, By balance c/d, , Working Note: 1. Profit/Loss on sale of machinery:, Cost of the asset (1/1/2003), Less: Depreciation, On 31/12/2003, On 31/12/2004, On 1/07/2005, Book value as on the date of sale (1/07/2005), Less: Sales, Profit on sale of machinery, , Rs., , 10000, 9000, 4,050, , 80000, 5000, 45000, 134050, 9500, , 85500, 95000, , Rs., 100000, , 23050, 76950, 80000, 3050, , Annuity Method, Annuity method is based upon the principle that when an asset is used in a business, the total loss, to the business during the life of the asset is not only the original cost of the asset, but also the, original cost of the asset, but also the interest on the money invested on the asset is written off as, deprecation over the life time of the asset., Entries regarding interest and depreciation:, •, , For charging interest every year:, Lease account, , Dr., , To Interest account, •, , For transferring the interest to profit and loss account:, Interest account, , Dr., , To P/L account, •, , For charging depreciation:, , Business Accounting-1, , 95

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Srinivas University, , 1st SEMESTER-BBA, , Depreciation account, , Dr., , To Asset account, •, , For transferring the depreciation to profit and loss account:, P/L account, , Dr., , To Depreciation account, , Illustration Problems on Annuity Method Depreciation:, 9., A firm acquires a lease costing Rs. 20000 on 1st January, 2015 for a term of 4 years. You, find from the Annuity Tables that in order to write off the lease on annuity method at 5% interest, per annum, the amount to be written off annually as depreciation amounts to Rs. 5640.24. Show, the Lease Account, Interest Account and Depreciation Account for 4 years., Solution:, Dr., Date, 2015, Jan.1, Dec 31, , Lease Account, Particulars, , Amount, , To Bank a/c, To interest a/c, (20000*5%), , 20000, 1000, , Date, 2015, Dec.31, Dec.31, , Cr., Particulars, , Amount, , By Depreciation A/c., By Balance c/d., , 5640.24, 15359.76, , 21000.00, 2016, Jan.1, Dec.31, , To Balance b/d., To Interest A/c., (15359.76x5/100), , 15359.76, 767.99, , 21000.00, 2016, Dec.31, Dec.31, , By Depreciation A/c., By Balance c/d., , 16127.75, 2017, Jan.1, Dec.31, , 2018, Jan.1, Dec.31, , To Balance b/d., To Interest A/c., (5371.65x5/10), To Balance b/d., To Interest A/c., (5371.65x5/100), , 10487.51, 524.38, 11011.89, 5371.65, 268.59, , 16127.75, 2017, Dec.31, Dec.31, , 2018, Dec.31, , By Depreciation A/c., By Balance c/d., , 5640.24, 5371.65, , By Depreciation A/c., , 11011.89, 5640.24, , 5640.24, Dr., Date, 2015, Dec.31, , 5640.24, , Interest Account, Particulars, , Amount, , To Profit and Loss A/c., , 1000.00, , Business Accounting-1, , 5640.24, 10487.51, , Date, 2015, Dec.31, , Cr., Particulars, , Amount, , By Lease A/c., , 1000.00, 96

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Srinivas University, , 1st SEMESTER-BBA, 1000.00, , 2016, Dec.31, , To Profit and Loss A/c., , 767.99, 767.99, , 2017, Dec.31, , To Profit and Loss A/c., , 524.38, 524.38, , 2018, Dec.31, , To Profit and Loss A/c., , Dr., Date, 2007, Dec.31, , 268.59, 268.59, , 2016, Dec.31, , By Lease A/c., , 767.99, 767.99, , 2017, Dec.31, , By Lease A/c., , 524.38, 524.38, , 2018, Dec.31, , By Lease A/c., , 268.59, 268.59, , Depreciation Account, Particulars, , Amount, , To Lease A/c., , 5640.24, 5640.24, , 2008, Dec.31, , To Lease A/c., , 5640.24, 5640.24, , 2009, Dec.31, , To Lease A/c., , 5640.24, 5640.24, , 2010, Dec.31, , 1000.00, , To Lease A/c., , 5640.24, , Date, 2007, Dec.31, , Cr., Particulars, , Amount, , By Profit and Loss A/c, , 5640.24, 5640.24, , 2008, Dec.31, , By Profit and Loss A/c, , 5640.24, 5640.24, , 2009, Dec.31, , By Profit and Loss A/c, , 5640.24, 5640.24, , 2010, Dec.31, , By Profit and Loss A/c, , 5640.24, , 10., A firm acquires lease for Rs.20000 for 5 years from 01.01.2009. Prepare Lease Account, for the first two years calculating interest at 5% per annum, under the Annuity Method., Depreciation required annually is Re.0.230975 to write off Re. 1 over a period of 5 years., Solution:, Note: The amount of depreciation to be charged can be calculated as follows:, As per the annuity tables, to write off Re.1, the amount required is Re.0.230975. To write off, Rs.20000, i.e., the cost of Rs.20000, the amount of depreciation required is:, Annual depreciation = Annuity value * Cost of the asset, 0.230975 x 20000 = Rs. 4619.50, Dr., Date, 2009, , Lease Account, Particulars, To Bank A/c., , Business Accounting-1, , Amount, 20000.00, , Date, 2009, , Cr., Particulars, , Amount, 97

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Srinivas University, Jan.1, Dec.31, , 1st SEMESTER-BBA, , (Cost of lease), To Interest A/c., (20000x5/100), , 1000.00, , Dec.31, Dec.31, , By Depreciation A/c., By Balance c/d., , 21000.00, 2010, Jan.1, Dec.31, , To Balance b/d., To Interest A/c., (16380.50x5/100), , 16380.50, 819.02, , 21000.00, 2010, Dec.31, Dec.31, , By Depreciation A/c., By Balance c/d., , 17199.52, 2011, Jan.1, , To Balance b/d., , 4619.50, 16380.50, , 4619.50, 12580.02, 17199.52, , 12580.02, , 11., Vijaya Co. Ltd. Acpuires a lease costing Rs 2,00,000 on 1.1.2006 for a term of 4 years., You find from annuity tables that in order to write off lease on the annuity method at 6% p.a., interest, the amount to be written off annually workout to be Rs 0.288591 for every rupee., Prepare lease account for four years., Depreciation = Annuity value * Cost of the asset, 0.288591 X 200000, = 57,718.2, Vijaya Co. Ltd., Dr., Date, 2006, Jan. 1, Dec.31, , Lease Account, Particulars, , Amount, , To Bank A/c, To Interest A/c, (2,00,000x6%), , 2,00,000, 12000, , Date, 2006, Dec.31, Dec.31, , Cr., Particulars, , Amount, , By Depreciation A/c, By Balance c/d, , 57,718.20, 1,54,281.80, , 2,12,000.00, 2007, Jan.1, Dec.31, , To Balance b/d, To Interest A/c, (1,54,281.80x6%), , 2,12,000.00, , 2007, 1,54,281.80 Dec.31, 9,256.91, Dec.31, , By Depreciation A/c, By Balance c/d, , 1,63,538.71, 2008, Jan.1, Dec.31, , To Balance b/d, To Interest A/c, (1,05,820.51x6%), , 1,63,538.71, , 2008, 1,05,820.51 Dec.31, 6,349.23, Dec.31, , By Depreciation A/c, By Balance c/d, , 1,12,169.74, 2009, Jan.1, , To Balance b/d, , Business Accounting-1, , 54,451.54, , 57,718.20, 1,05,820.51, , 57,718.20, 54,451.54, 1,12,169.74, , 2009, Dec.31, , By Depreciation A/c, , 57,718.20, 98

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Srinivas University, Dec.31, , To Interest A/c, (Balancing figure), , 1st SEMESTER-BBA, 3,266.66, 57,718.20, , 57,718.20, , 12., On January 1, 2000, a company purchased a lease for five years at a cost of Rs. 15,000. It, is proposed to depreciate the lease by annuity method charging 6% interest. Annuity table, indicates that Rs. 1 can be depreciated by charging annuity Rs. 0.237396. Show the lease account, for 5 years., Solution:, Depreciation = 0.237396 X 15000, = 3,560.94, Dr., Date, 2000, Jan. 1, Dec.31, , Lease Account, Particulars, To Bank A/c, To Interest A/c, (15,000 x 6%), , Amount, , Date, 2000, 15,000.00 Dec. 31, 900.00, Dec 31, , Cr., Particulars, , Amount, , By Depreciation A/c, (0.237396 x 15,000), By Balance c/d, , 3,560.94, , 15,900.00, 2001, Jan 1, Dec.31, , To Balance b/d, To Interest A/c, (12,339.06 x 6% ), , 15,900.00, , 2001, 12,339.06 Dec. 31, 740.34, Dec. 31, , By Depreciation A/c, By Balance c/d, , 13,079.40, 2002, Jan. 1, Dec.31, , To Balance b/d, To Interest A/c, (9,518.46 x 6%), , 9,518.46, 571.11, , To Balance b/d, To Interest A/c, (6,528.67 x 6%), , 6,528.67, 391.72, , 2002, Dec. 31, Dec. 31, , By Depreciation A/c, By Balance c/d, , To Balance b/d, To Interest A/c, (balancing Fig), , 3,359.41, 201.53, 3,560.94, , Business Accounting-1, , 3,560.94, 6,528.67, 10,089.57, , 2003, Dec. 31, Dec. 31, , By Depreciation A/c, By Balance c/d, , 6,920.35, 2004, Jan. 1, Dec.31, , 3,560.94, 9,518.46, 13,079.40, , 10,089.57, 2003, Jan. 1, Dec.31, , 12,339.06, , 3,560.94, 3,359.41, 6,920.35, , 2003, Dec. 31, , By Depreciation A/c, , 3,560.94, , 3,560.94, , 99

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Srinivas University, , 1st SEMESTER-BBA, , 13., A firm purchased a lease for Rs. 10,000 to be depreciated over a period of 4 years under, annuity system. The rate of interest is 5% per annum. The annuity table shows that the annual, amount required to write off rupee one in 4 years at 5% per annum is Rs. 0.282012., Prepare the interest A/c and lease account for 4 years ending on 31 March 2011., Solution :, Working Note: Calculation of Depreciation:, = Rs. 0.282012 x Rs. 10,000 = Rs. 2820.12, Dr., Date, 2007, Apr.1, 2008, Mar.31, , Lease Account, Particulars, To Bank A/c, To Interest A/c, (10,000 x 5%), , Amount, , Date, 2008, 10,000.00 Mar. 31, , Cr., Particulars, , Amount, , By Depreciation A/c, By Balance c/d, , 2,820.12, 7,679.88, , 500.00, 10,500.00, , 2008, Ap. 1, 2009, Mar.31, , To Balance b/d, , 7,679.88, , To Interest A/c, (7,679.88x 5%), , 384.00, , 10,500.00, 2009, Mar. 31, , By Depreciation A/c, By Balance c/d, , 8,063.88, 2009, Ap. 1, 2010, Mar.31, , To balance b/d, , 5,243.76, , To Interest A/C, (5,243.76 x 5%), , 262.19, , 8,063.88, 2010, Mar.31, , By Depreciation A/c, By Balance c/d, , 5505.95, 2010, Ap. 1, 2011, Mar.31, , To Balance b/d, , 2,685.83, , To Interest A/c, , 134.29, 2,820.12, , Dr., Date, 2008, Mar.31, , Amount, , To Profit & Loss A/c, , 500.00, 500.00, , 2009, Business Accounting-1, , 2,820.12, 2685.83, , 5505.95, 2011, Mar. 31, , By Depreciation A/c, , 2,820.12, , 2,820.12, , Interest Account, Particulars, , 2,820.12, 5,243.76, , Date, 2008, Mar. 31, , Cr., Particulars, , Amount, , By Lease A/c, , 500.00, 500.00, , 2009, 100

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Srinivas University, Mar.31, 2010, Mar.31, 2011, Mar.31, , To Profit & Loss A/c, , To Profit & Loss A/c, , To Profit & Loss A/c, , 1st SEMESTER-BBA, 384.00, 384.00, 262.19, 262.19, 134.29, 134.29, , Mar. 31, , By Lease A/c, , 384.00, 384.00, , 2010, Mar. 31, , By Lease A/c, , 262.19, 262.19, , 2011, Mar. 31, , By Lease A/c, , 134.29, 134.29, , OTHER PROBLEMS:, 15., X purchased machinery on 1.1.2012 for Rs. 30,000 and spent Rs. 3,000 for its erection, and Rs. 2,000 for its repairs. The scrap value of the machine at the end of 5 years of its life was, estimated to be 5,000. If depreciation is charged equally every year, what is the amount of, depreciation to be charged every year?, Solution:, Depreciation = Cost of asset - Scrap value of the asset, Number of years the asset is estimated to last, Cost of the asset = (30000+3000+2000), = 35000, Depreciation = 35000 - 5000, 5, = 6000, 16., A machine was purchased for Rs. 25,600 on 1/1/2017. It was estimated that the expected, life is 4 years. Its scrap value is Rs.8,100., Calculate the rate of depreciation to be charged under the diminishing balance method. Also, prepare the machinery account for 4 years., Solution:, Depreciation = Cost of asset - Scrap value of the asset, Number of years the asset is estimated to last, Depreciation = 25600 - 8100, 4, Business Accounting-1, , 101

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Srinivas University, , 1st SEMESTER-BBA, , = 4375, Rate of Depreciation = Annual Depreciation * 100, Cost of the asset, = 4375 * 100, 25600, = 17.09%, , Dr., , Machinery Account, , Date, Particulars, 1/1/2017 To Bank a/c, , Amount, 25,600, , 1/1/2018 To balance b/d, , 25600, 21225, , 1/1/2019 To balance b/d, , 21225, 17598, , 1/1/2020 To balance b/d, , 17598, 14591, , Cr., , Date, Particulars, 31/12/2017 By depreciation, (25600*17.09%), 31/12/2017 By balance c/d, 31/12/2018 By depreciation a/c, (21225*17.09%)c, By balance c/d, 31/12/2019 By depreciation a/c, (17598*17.09%), 31/12/2019 By balance c/d, 31/12/2020 By depreciation a/c, (14591*17.09%), 31/12/2020 By bank a/c, By P/L A/C, , 1/1/2021 To balance b/d, , 14591, 3997, , Working Note: 1. Profit/Loss on sale of machinery:, Cost of the asset (1/01/2017), Less: Depreciation, On 31/12/2017, On 31/12/2018, On 31/12/2019, On 31/12/2020, Book value as on the date of sale (31/12/2020), Less: Sales, Business Accounting-1, , Rs., , 4375, 3627, 3007, 2494, , Amount, 4375, 21225, 25600, 3627, 17598, 21225, 3007, 14591, 17598, 2494, 8100, 3997, 14591, , Rs., 25600, , 13503, 12097, 8100, 102

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Srinivas University, , 1st SEMESTER-BBA, , Loss on sale of machinery, , 3997, , 17., On 1.1.2010, a company purchased a machine for Rs. 30,000. Depreciation at the rate of, 10% was written off for the first two years under fixed instalment method, for the next two years, at 15% was written off on the diminishing balance method. The machinery was then sold on, 31.12.2013 for Rs. 15,000. Write up Machinery A/c for four years and close the same., Dr., , Machinery Account, , Date, Particulars, 1.1.2010 To Bank a/c, , Amount, 30,000, , 1/1/2011 To balance b/d, , 30000, 27000, , 1/1/2012 To balance b/d, , 27000, 24000, , 1/1/2013 To balance b/d, , 24000, 20400, , Cr., , Date, Particulars, 31/12/2010 By depreciation, (30000x10%), By balance c/d, , Amount, 3000, 27000, 30000, 3000, 24000, 27000, 3600, , 31/12/2011 By depreciation, By balance c/d, 31/12/2012 By depreciation, (24000x15%), By balance c/d, , 20400, 24000, 3060, , 31/12/2013 By depreciation, (20400x15%), 31/12/2013 By bank a/c, 31/12/2013 By P/L A/C, , 15000, 2340, 20400, , 20400, , 19., A firm acquires a lease for Rs. 20,000 for 5 years from 1.1.2009. Prepare lease a/c for the, first two years, calculating interest at 5% per annum, under the annuity method., Depreciation required annually is Re. 0.231975 to write off Re. 1 over a period of 5 years., Solution:, Note: The amount of depreciation to be charged can be calculated as follows:, As per the annuity tables, to write off Re.1, the amount required is Re.0.231975. To write off, Rs.20000, i.e., the cost of Rs.20000, the amount of depreciation required is:, 0.231975 x 20000 = Rs. 4639.50, Dr., Date, 2009, , Lease Account, Particulars, To Bank A/c., , Business Accounting-1, , Amount, 20000.00, , Date, 2009, , Cr., Particulars, , Amount, 103

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Srinivas University, Jan.1, Dec.31, , 1st SEMESTER-BBA, , (Cost of lease), To Interest A/c., (20000x5/100), , 1000.00, , Dec.31, Dec.31, , By Depreciation A/c., By Balance c/d., , 21000.00, 2010, Jan.1, Dec.31, , To Balance b/d., To Interest A/c., (16360.50x5/100), , 16360.50, 818.03, , 21000.00, 2010, Dec.31, Dec.31, , By Depreciation A/c., By Balance c/d., , 17178.53, 2011, Jan.1, , To Balance b/d., , 4639.50, 16360.50, , 4639.50, 12539.03, 17178.53, , 12539.03, , 21. On 1st January 2016, a firm purchased furniture at a cost of Rs 30,000. Its life was estimated, to be 3 years with a residual value of Rs 3,000. Assuming that the furniture was sold for Rs 3,000, at the end of 3 years. Show the furniture account for 3 years allowing depreciation as per fixed, installment method., Solution:, Depreciation = Cost of asset - Scrap value of the asset, Number of years the asset is estimated to last, = 30,000 – 3000, 3, = 9000, Dr., , Furniture Account, , Date, Particulars, 1/1/2016 To Bank A/C, , Amount, 30000, , 1/1/2017 To Balance b/d, , 30000, 21000, , 1/1/2018 To Balance b/d, , 21000, 12000, , Date, Particulars, 31/12/2016 By Depreciation A/C, 31/12/2016 By Balance c/d, 31/12/2017 By Depreciation a/c, 31/12/2017 By Balance c/d, 31/12/2018 By Depreciation a/c, 31/12/2018 By Bank a/c, , 12000, Working note: Calculation of profit or loss on sale of asset:, Cost of the asset (1/1/2016), , -, , Cr., Amount, 9000, 21000, 30000, 9000, 12000, 21000, 9000, 3000, 12000, , 30000, , Less: Depreciation, Business Accounting-1, , 104

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Srinivas University, 31/12/2016, , 1st SEMESTER-BBA, 9000, , 31/12/2017, , 9000, , 31/12/2018, 9000, 27000, Book value of furniture on (31/12/2018), 3000, Sale of furniture, 3000, Profit/ loss, 22. B) An asset is purchased for Rs 55,000 on 1/1/2019. Depreciation is to be charged annually, according to the straight line method. The useful life of the asset is 10 years and its scrap value is, Rs 5,000. Ascertain the balance of the asset at the end of three years., C) The cost of an asset is Rs 25,000. Depreciation is to be charged annually according to the, straight line method. The useful life of the asset is 10 years, and its residual value is Rs 5,000, Solution:, B) Depreciation = Cost of asset - Scrap value of the asset, Number of years the asset is estimated to last, = 55,000 - 5,000, 10, = 5000, Dr., , Asset Account, , Date, Particulars, 1/1/2019 To Bank A/C, , Amount, 55000, , 1/1/2020 To Balance b/d, , 50000, , 1/1/2021 To Balance b/d, , 50000, 45000, , 1/1/2022 To Balance b/d, , 45000, 40000, , Date, 31/12/2019, 31/12/2019, 31/12/2020, 31/12/2020, , Cr., Particulars, By Depreciation A/C, By Balance c/d, By Depreciation A/C, By Balance c/d, , 31/12/2021 By Depreciation A/C, 31/12/2021 By Balance c/d, , Amount, 5000, 50000, 5000, 45000, 50000, 5000, 40000, 45000, , C) Depreciation = Cost of asset - Scrap value of the asset, Number of years the asset is estimated to last, = 25,000 - 5,000, 10, = 2000, Business Accounting-1, , 105

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Srinivas University, , 1st SEMESTER-BBA, , 1 marks, 1. The term ―deprecation‖ is derived from the word (K), a. Greek, , b. Arabian, , 2. Depreciation means, a. Increase, , c. French, , d. Latin, , in the value of asset. (U), , b. Decrease, , c. Appreciation, , d. None of the above, , 3. Depreciation is ―the permanent and continuing diminution in the quality, quantity or the, value of an asset‖ is said by(K), a. Pickles, , b. R.G.Williamms, , c. L.C. Cropper, , d. R.N. Carter, , 4. Causes of Depreciation is (U), a. Wear and tear, , b. Exhaustion c. Obsolescence, , d. All the above, , 5. The main object of providing depreciation is(U), a. To calculate true profit, , b. To show true financial position, , c. To reduce tax, , d. To provide funds for replacement, , 6. Depreciation arises because of (K), a. Fall in the market value of an asset, , b. Physical wear and tear, , c. Fall in the value of money, , d. None of the above, , 7. Depreciation is a process of(U), a. Valuation, , b. Allocation, , c. Both allocation and valuation, , d. None of the above, , 8. Under the diminishing balance method of providing depreciation it (A), a. Increase every year, , b. Constant every year, , c. Decrease every year, , d. None of the above, , 9. Under the straight line method of providing depreciation it (A), a. Increase every year, , b. Constant every year, , c. Decrease every year, , d. None of the above, , 10. Under the fixed instalment method of providing depreciation it is calculated on(A), a. original cost b. on balance amount c. on scrap value d. none of the above, 11. Under the diminishing balance method of providing depreciation it is calculated on(A), a. original cost b. on balance amount c. on scrap value d. none of the above, 12. The amount of depreciation charged on machinery will be debited to(A), a. Machinery account b. Depreciation account c. cash account d. Repair account, Business Accounting-1, , 106

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Srinivas University, , 1st SEMESTER-BBA, , 13. Loss on sale of plant and machinery should be written off against(A), a. Share premium, , b. Depreciation fund account, , c. Sale account, , d. Profit and loss account, , 14. Loss on sale of machinery will be(K), a. Debited on machinery account, b. Credited on machinery account, c. Credit to profit and loss account, d. None of the above, 15. Assets which have a limited useful life are termed as(K), a. Limited assets, , b. Depreciable assets, , c. Unlimited assets, , d. None of these, , 16. Process of becoming out of date is termed as(S), a. Physical deterioration, , b. Depletion, , c. Obsolescence, , d. Amortization, , 17. Which of the term is used to write off in reference to tangible fixed assets?(S), a. Depreciation, , b. Depletion, , c. Amortization, , d. Both b and c, , 18. The economic factors causing depreciation(k), a. Time factor b. Obsolescence and inadequacy c. Wear and tear d. Money valuation, 19. Total depreciation cannot exceed its (S), a. Scrap value, , b. Cost value c. Market value, , d. Depreciable value, , 20. Depreciation value of asset is equal to (A), a. Cost +scrap value, , b. Cost +market value, , c. Cost –Scrap value, , d. None of these, , 21. Depreciation does not depend on fluctuations as(S), a. Market value of asset, , b. Cost price of asset, , c. Scarp value of asset, , d. None of these, , 22. Depreciation is (U), a. An income, , b. An asset, , c. A loss, , d. A liability, , 23. The book value of an asset is obtained by deducting depreciation from its (U), a. Market value, , b. Scrap value, , c. Market +cost price, , d. Cost - depreciation, , 24. Cost of the asset is Rs 48,000, scarp value is 8,000 and estimated life 8 years. Amount of, depreciation is(S), Business Accounting-1, , 107

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Srinivas University, a. Rs 5,000, , 1st SEMESTER-BBA, b. Rs 10,000 c. Rs 15,000, , d. Rs 5,500, , 25.Annual depreciation is 5,000, cost of the asset Rs 20,000. Depreciation rate is(A), a.25, , b.20, , c.15, , d.10, , 8 marks question:, 1. On 1st January, 2009, a firm bought furniture for Rs 5000. The firm writes off depreciation at, 10% on the original cost every year. Show the necessary accounts in the books of the firm for, three years. (Prepare furniture A/C & Depreciation.), 2. From the following particulars relating to a business, prepare machinery account for 4 years, from 2015 to 2018, closing the account every year on 31 December., 1.4.2015: Machinery bought for Rs. 45,000 and installed at a cost of Rs. 5,000, 30.06.2017: Second machinery bought for Rs. 30,000, 31.12.2017: The first machinery purchased on 1.4.2000 was sold for Rs. 35,000 1.1.2018: Third, machinery was purchased at a cost of Rs. 75,000, Depreciation is charged at the rate of 10% p.a. on original cost method., 4., On 1 January, 2004, plant and machinery was purchased for a sum of Rs 25,000., Additions to the extent of Rs 5,000 on 1 July, 2005 and to the extent of Rs 10,000 on 1 October, 2006 were made. Prepare the ledger accounts of the plant and machinery for 3 calendar years, providing depreciation at 10% on the original value of the asset., 5., A company whose accounting year is the calendar year purchased on 1st April, 2008, machinery costing Rs 30000. In further purchased machinery on 1st October 2008 costing Rs, 20000 and on 1st July 2009, costing Rs 10000., On 1st January, 2010, one third of the machinery which was installed on 1st April, 2008 became, obsolete and was sold for Rs. 3000, Show how the machinery account and depreciation would appear in the books of the company., The depreciation to be charged is at 10% p.a. on written down value method for 3 years., 6., A firm purchased machinery on 1 July 2007 for Rs 90,000 and incurred expenses Rs, 10,000 on its erection. On 30 June 2010, a part of the plant purchased on 1July 2007 for Rs, 50,000 was sold for Rs 32,000. A new plant was bought on the same day for Rs 60,000., Show the plant account for 2007 to 2010, charging 20% depreciation under reducing balance, method., , Business Accounting-1, , 108

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Srinivas University, , 1st SEMESTER-BBA, , 7., On 1.1.2010, a company purchased a machine for Rs. 30,000. Depreciation at the rate of, 10% was written off for the first two years under fixed instalment method, for the next two years, at 15% was written off on the diminishing balance method. The machinery was then sold on, 31.12.2013 for Rs. 15,000. Write up Machinery A/c for four years and close the same., 8. On 01.01.2003, a firm bought a machinery costing Rs. 90,000 and spent Rs. 10,000 for its, carriage and installation. On 01.01.2005, they bought additional machinery costing Rs. 50,000., On 01.07.2005, they sold the machinery which was brought on 01.01.2003 for Rs. 80,000. On, 01.01.2006, they bought another machinery for Rs. 50,000. Depreciation is to be charged at 10%, p.a. under diminishing balance method. Show machinery account for 4years., 9., A firm acquires a lease costing Rs. 20000 on 1st January, 2015 for a term of 4 years. You, find from the Annuity Tables that in order to write off the lease on annuity method at 5% interest, per annum, the amount to be written off annually as depreciation amounts to Rs. 5640.24. Show, the Lease Account, Interest Account and Depreciation Account for 4 years., 10., A firm acquires lease for Rs.20000 for 5 years from 01.01.2009. Prepare Lease Account, for the first two years calculating interest at 5% per annum, under the Annuity Method., Depreciation required annually is Re.0.230975 to write off Re. 1 over a period of 5 years., 11., Vijaya Co. Ltd. Acpuires a lease costing Rs 2,00,000 on 1.1.2006 for a term of 4 years., You find from annuity tables that in order to write off lease on the annuity method at 6% p.a., interest, the amount to be written off annually workout to be Rs 0.288591 for every rupee., Prepare lease account for four years., 12., On January 1, 2000, a company purchased a lease for five years at a cost of Rs. 15,000. It, is proposed to depreciate the lease by annuity method charging 6% interest. Annuity table, indicates that Rs. 1 can be depreciated by charging annuity Rs. 0.237396. Show the lease account, for 5 years., 13., A firm purchased a lease for Rs. 10,000 to be depreciated over a period of 4 years under, annuity system. The rate of interest is 5% per annum. The annuity table shows that the annual, amount required to write off rupee one in 4 years at 5% per annum is Rs. 0.282012., Prepare the interest A/c and lease account for 4 years ending on 31 March 2011., , Business Accounting-1, , 109

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Srinivas University, , 1st SEMESTER-BBA, , UNIT-IV, BANK RECONCIALIATION STATEMENT AND, RECTIFICATION OF ERRORS, 4.1 BANK RECONCILIATION STATEMENTS:, On the debit side of the cash book, the bank column represents:, 1. Cheques deposited into bank for collection., 2. Cash paid into bank and, 3. Some entries that are made only after receiving the information from the bank viz.,, i., Amounts collected by the bank on our behalf as per the standing instructions, for example,, Interest collected on investment., ii., Interest given by the banker for the balance kept by us in our bank account., iii. The amount paid by our customers directly into our bank account., On the other hand, on the credit side of the cash book, represents:, 1. Cheques issued for payment., 2. Cash withdrawn from bank for office use and personal use., 3. In addition, some entries are made after receiving information from the bank viz.,, i. Amounts paid by the bank on our behalf as per the standing, instructions, for example, payment of insurance premium., ii. Interest, charged, by, the, bank, for, the, amount, drawn, over, and above the actual balance kept in the bank account., iii. Bank, charges, payable, for, the, agency, and, utility, services, rendered by the bank., , Difference between cash book and pass book, S.No, 1., 2., 3., 4., , Basis of Distinction, Maintained by, Deposits of Cash, , Cash Book (Bank Column), Cashier, Entered on the debit side of the cash, book., Withdrawals of Cash, Entered on the credit side of the cash, book., Cheques deposited for collection Entered on the debit side of the cash, book on the date of depositing the, cheques into the bank., , Pass Book, Banker, Entered on the credit column of, the pass book., Entered on the debit column of the, pass book., Entered in the pass book only on, the date of the realisation, of the cheque., , Bank Reconciliation Statement:, The balance of the bank column in the double or triple column cash book represents the, customer‘s cash balance at bank. It should be the same as shown by his bank pass book on any, particular day. For every entry made in the cash book if there is a corresponding entry in the pass, book (maintained by the banker) or vice versa, the bank balance will be the same in both the, books., However, it must be noted that the cash book and the pass book are maintained by two different, parties and hence it is not certain that entry in one book will always have a corresponding entry in the, other. Normally entries in the cash book should tally (agree) with those in the pass book and the balances, , Business Accounting-1, , 110

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Srinivas University, , 1st SEMESTER-BBA, , shown by both the books should be the same. But in practice, the balances generally differ. In case of, disagreement in the balance of the cash book and the pass book, the need for preparing Bank, Reconciliation Statement arises., 4.1.1 Definition, 'Bank reconciliation statement is a list in which the various items that cause a difference between, , bank balance as per cash book and pass book on any given date are indicated'., 4.1.2 Need and Importance, , After tracing the various items of difference, a bank reconciliation statement is prepared. The, following are its advantages in which lies its importance., i., The errors that might have taken place in the cash book in, connection with bank transactions can be easily found., ii., Regular, preparation, of, bank, reconciliation, statement, prevents, frauds., iii. It indirectly imposes moral check on the accounting staff., iv. By, the, preparation, of, bank, reconciliation, statement,, uncredited, cheque, can, be, detected, and, steps, can, be, taken, for their collection., 4.1. 3 Causes of disagreement between the balance shown by the cash book and the balance, shown by the pass book, 1. Cheques paid into bank but not yet collected, , The cheques paid into bank for collection but not credited into the account of the customer, because, the cheque is, i., not collected and credited till that date., ii. Collected but the bank staff has forgotten to make entry., iii. Collected but credited to wrong account., iv. Dishonored., v. collected, for, No.I, account, but, credited, to, No.II, account, of, the same customer., As soon as the cheques are sent to the bank, entries are made in the debit side of the cash book (bank, column). But, usually bank credit the customer‘s account only when they have received payment from the, bank concerned, in other words, when the cheques have been collected. Hence, there will be a time gap, between the depositing of the cheques and the collection by the bank., For example, Bharat Company Limited deposited a cheque on March 28, 2003 for a sum of, Rs.3,000. The cheque was collected on April 4, 2003. In case the bank sends a statement of account upto, March 31, 2003, there will be a difference of Rs 3,000 between the balance shown by the cash book and, the pass book., 2. Cheques issued but not yet presented for payment, , The cheques issued but not debited customers account may be because the cheque is, i. Not cashed till date., ii. Not presented till date., iii. Presented but dishonoured for some reasons or other., iv. Lost by the party to whom the cheque was issued., , Business Accounting-1, , 111

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Srinivas University, , 1st SEMESTER-BBA, , v. cashed, out, of, No.I, account, but, wrongly, debited, to, No.II, account of the same customer., In all of the above cases, the entry in the cash book is made immediately on the issue of cheque but, naturally the entry will be made by bank only when the cheque is presented for payment. Thus there will, be a gap of some days between the entry for issue of cheque in the cash book and the entry for payment, made in the pass book., For example, Bharat Company Limited issued a cheque in favour of Mr.Krishna on March 28, 2003, for a sum of Rs.5,000. The cheque is presented for payment at the bank on April 4, 2003. In case, bank, sends a statement of account upto March 31, 2003, there will be a difference of Rs.5,000 between the, balance as shown by the cash book and the balance as shown by the pass book., 3 . Amount, credited, by, the, immediate knowledge of the customer, , banker, , in, , the, , pass, , book, , without, , the, , The following are some of the examples for the above statement, i. The, bank, might, have, collected, rent,, dividend,, bills, of, exchange,, interest, etc.,, due, for, the, customer, as, per, standing, instructions., ii. Some debtors might have directly paid into bank., ii. Bank, credits, interest, on, the, credit, balance, of, the, customer's, account., iv. The, banker, has, wrongly, credited, this, account, instead, of, some, other account., In all the above cases, the entry will be first entered in the pass book. The customer will know this, only after he verifies the entries in the pass book. So there may be a time gap of some days before the, customer includes entries made in the pass book., For example, the bank has credited Bharat Company Limited's account for interest amounting to, Rs.500 on March 31, 2003. The bank prepares and sends a statement of account on March 31, 2003., If the customer receives the statement of account on April 4, 2003, there will be a difference of Rs, 500 bewteen the balance shown by the cash book and the balance shown by the pass book., 4., Amounts, debited, by, the, immediate knowledge of the customer, , banker, , in, , the, , pass, , book, , without, , the, , The following are some of the examples for this., i. The banker has recorded bank charges, interest on overdraft etc., ii. The, banker, has, paid, insurance, premium,, subscription, for, periodicals,, etc., on, behalf, of, the, customer, as, per, the, standing, instructions., iii. The, banker, has, wrongly, debited, this, account, instead, of, some, other account., iv. The, banker, has, paid, the, bills, payable, of, the, customer, as, per, standing instructions., v. Dishonour, of, a, cheque, deposited, and, discounted, bills, receivable, In all the above cases, the entry will be first entered in the pass book of the customer. And the, customer will know only after he verifies the entries in the pass book or statement of account. So there, may be a time gap of some days before the customer includes the entries made in the pass book., , Business Accounting-1, , 112

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Srinivas University, , 1st SEMESTER-BBA, , 4.14 Illustration Problems on Bank Reconciliation Statement:, 1. From the following particulars of Mr. Rajesh, ascertain the balance as per pass Book as on 31st, December 2017:, , , , , , , , , Bank balance as per cash book Rs. 5000, A cheque deposited into bank, but not collected by the bank Rs. 500., Cheque issued, but not presented for payment Rs. 600, Bank charges debited in the pass book only Rs. 40, Dividends on shares collected by the bank and credited in the pass book R s. 800, Insurance premium paid directly by the bank as per standing advice Rs.100, Interest credited in the pass book only Rs. 50, , Solution:, Bank Reconciliation Statement as on 31st December 2017., Particulars, Bank balance as per cash book, Add:,  Cheque issued, but not presented for payment,  Dividends on shares collected by the bank and credited in the pass, book.,  Interest credited in the pass book only., , Rs., , Rs., 5000, , 600, 800, 50, , 1450, 6450, , Less:, 500,  A cheque deposited into bank, but not collected by the bank, 40,  Bank charges debited in the pass book only, 100,  Insurance premium paid directly by the bank as per standing, advice., Bank balance as per pass book., , 640, 5810, , 2. From the following particulars of Mr. Suresh, ascertain the balance as per pass Book as on 31st, June 2018:, , , , , , , , Bank balance as per cash book Rs. 90000, Bank charges debited in the pass book only Rs. 500., Out of cheques issued for Rs. 12000, cheques for Rs. 4000 cashed before June 30, 2018., There was a wrong credit in the pass book for Rs. 7000., Payment received from a customer directly by the bank Rs. 3000, Out of cheque amounting to Rs. 10000 deposited into bank, 5000 only collected before, June 30, 2018., , Business Accounting-1, , 113

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Srinivas University, , , 1st SEMESTER-BBA, , Bills discounted dishonoured Rs. 6000., , Solution:, Bank Reconciliation Statement as on 31st June 2018:., Particulars, Bank balance as per cash book, Add:,  Cheques issued, but not cashed fully before June 30 (12000-4000),  Wrong credit in the pass book,  Payment received from a customer directly by the bank, , Rs., , 8000, 7000, 3000, , Rs., 90000, , 18000, 108000, , Less:,  Bank charges debited in the pass book only.,  Cheque deposited into bank but not collected fully. (10000-5000),  Bills discounted dishonoured, Bank balance as per pass book., , 500, 5000, 6000, , 11500, 96500, , 3. From the following particulars, ascertain the balance that would appear in the pass Book of, Rajashekar as at 31st December 2011:,  The bank overdraft as per Cash Book as on 31st December 2011 was Rs 18500.,  Interest on overdraft Rs 1200 is debited only in the pass book.,  Bank charges debited in the Pass Book only amounted to Rs. 100,  Cheques issued but not cashed prior to 31st December 2011 amounted to Rs 1500,  Interest on investments collected by bankers and credited in the Pass Book only, amounted to Rs. 1000,  Cheques paid into the Bank, but not cleared before 31st December, 2011 were Rs 2000,  Rs. 1000 in respect of a dishonoured cheque appears only in the Pass Book., Solution:, Bank Reconciliation Statement as on 31st December 2011., Particulars, Bank overdraft as per cash book, Add:,  Interest on overdraft is debited only in the pass book.,  Bank charges debited in the Pass Book only.,  Cheques paid into the Bank, but not cleared.,  Dishonoured cheque appears only in the Pass Book., Business Accounting-1, , Rs., , 1200, 100, 2000, 1000, , Rs., 18500, , 4300, , 114

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Srinivas University, , 1st SEMESTER-BBA, 22800, , Less:, 1500,  Cheques issued but not cashed.,  Interest on investments collected by bankers and credited in the, 1000, Pass Book only., Bank overdraft as per pass book, , 2500, 20300, , 4. From the following particulars of Azgar, prepare Bank Reconciliation Statement as on 31st, December, 2019 and ascertain bank balance as it would appear in cash book:, , , , , , , , , Balance as per pass book Rs. 30000., Cheque issued, but not encashed prior to 31st December, amounted to Rs. 1500., Bank charges of Rs. 250 has been debited in the pass book, but not been entered in the, cash book., There was a wrong debit in the pass book for Rs. 1000., Payment by a cheque Rs. 1900 entered in cash book (bank column) as Rs. 2900., Cheque sent to bank for collection, but remained uncollected Rs. 2500., Dividend on shares collected by the bank and credited in the pass book Rs. 1800., , Solution:, Bank Reconciliation Statement as on 31st December 2019., Particulars, Balance as per pass book, Add:,  A bank charge has been debited in the pass book.,  Wrong debit in the pass book.,  Cheque sent to bank for collection, but remained uncollected, , Rs., , Rs., 30000, , 250, 1000, 2500, , Less:, 1500,  Cheque issued, but not encashed.,  Payment by a cheque Rs. 1900 entered in cash book (bank column), 1000, as Rs. 2900. (2900 – 1900),  Dividend on shares collected by the bank and credited in the pass, 1800, book, Balance as per cash book, , 3750, 33750, , 4300, 29450, , 5. Prepare bank reconciliation statement from the following particulars of Wilson as on 31, August, 2019:, Business Accounting-1, , 115

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Srinivas University, , , , , , , , , , 1st SEMESTER-BBA, , Overdraft as per pass book Rs. 25000, Subscription money paid by the bank Rs 300, Cheque issued but not presented for payment Rs. 7500., Insurance premium paid by the bank Rs. 300, Cheque deposited but not yet cleared Rs. 7000, Interest on overdraft debited in the pass book only Rs. 2500., The receipt side of the cash book (bank column) was under-cast by Rs. 200, Wrongly debited by the bank Rs. 500., , Solution:, Bank Reconciliation Statement as on 31 August, 2019:., Particulars, Bank overdraft as per pass book, Add:,  Cheque issued but not presented for payment.,  The receipt side of the cash book (bank column) was under-cast., , Rs., , 7500, 200, , Rs., 25000, , 7700, 32700, , Less:,  Subscription money paid by the bank,  Insurance premium paid by the bank.,  Cheque deposited but not yet cleared.,  Interest on overdraft debited in the pass book only.,  Wrongly debited by the bank., Bank overdraft as per cash book., , 300, 300, 7000, 2500, 500, , 10600, 22100, , 6. Prepare Bank Reconciliation Statement from the particulars of Subhashchandra as on March, 2020:, , , , , , , , , Balance as per pass book Rs. 10000., Interest on bank balance credited in the pass book only Rs. 200., Bank commission debited in the pass book only Rs. 100., The payment side of the cash book (bank column) was overcast by Rs. 1000., Cheque issued but not presented for payment Rs. 2000., Club bill paid by the bank as per standing order Rs. 900., Cheque of Rs. 4000 deposited into bank of which Rs. 3000 only collected in March., , Solution:, Bank Reconciliation Statement as on 31st December 2017., Business Accounting-1, , 116

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Srinivas University, Particulars, Balance as per pass book, Add:,  Bank commission debited in the pass book only,  Club bill paid by the bank as per standing order,  Cheque deposited into bank partially.(4000-3000), , 1st SEMESTER-BBA, Rs., , 100, 900, 1000, , Rs., 10000, , 2000, 12000, , Less:,  Interest on bank balance credited in the pass book only.,  The payment side of the cash book (bank column) was overcast.,  Cheque issued but not presented for payment, , 200, 1000, 2000, , 3200, 8800, , 4.2 Rectification of Errors:, The fundamental principle of the double-entry system is that every debit has a corresponding credit of equal, amount and vice-versa. Therefore, the total of all debit balances in different accounts must be equal to the total of all, credit balances in different accounts, i.e., the total of the two columns should tally (agree)., , The tallying of the two totals (debit balances and credit balances) of the trial balance ensures, only arithmetic accuracy but not accounting accuracy. If however, the two totals do not tally, it, implies that some errors have been committed while recording the transactions in the books of, accounts. The following are the various kinds of errors., , 4.2.1 Kinds of Errors, Errors of Principle, Transactions are recorded as per generally accepted accounting principles. If any of these, principles is violated or ignored, errors resulting from such violation are known as errors of, principle. For example, Purchase of assets recorded in the purchases book. It is an error of, principle, because the purchases book is meant for recording credit purchases of goods meant for, resale and not fixed assets. A trial balance will not disclose errors of principle., II., , Clerical Errors, , These errors arise because of mistakes committed in the ordinary course of accounting work., These can be further classified into three types as follows., a) Errors of Omission, This error arises when a transaction is completely or partially omitted to be recorded in the books, of accounts. Errors of omission may be classified as below., Business Accounting-1, , 117

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Srinivas University, i., , 1st SEMESTER-BBA, , Error of Complete Omission: This error arises when a transaction is totally omitted to be, , recorded in the books of accounts. For example, Goods purchased from Ram completely omitted, to be recorded. This error does not affect the trial balance., ii., , Error of Partial Omission: This error arises when only one aspect of the transaction either, , debit or credit is recorded. For example, a credit sale of goods to Siva recorded in sales book but, omitted to be posted in Siva's account. This error affects the trial balance., b) Errors of Commission, This error arises due to wrong recording, wrong posting, wrong casting, wrong balancing, wrong, carrying forward etc. Errors of commission may be classified as follows:, i., , Error of Recording: This error arises when a transaction is wrongly recorded in the books, , of original entry. For example, Goods of Rs.5,000, purchased on credit from Viji, is recorded in, the book for Rs.5,500. This error does not affect the trial balance., ii., , Error of Posting: This error arises when information recorded in the books of original, , entry are wrongly entered in the ledger. Error of posting may be, i., , Right amount in the right side of wrong account., , ii., , Right amount in the wrong side of correct account, , iii., , Wrong amount in the right side of correct account, , iv., , Wrong amount in the wrong side of correct account, , v., , Wrong amount in the wrong side of wrong account, , vi., , Wrong amount in the right side of wrong account, etc., , This error may or may not affect the trial balance., iii., , Error of Casting (Totalling): This error arises when a mistake is committed while, , totalling the subsidiary book. For example, instead of Rs.12,000 it may be wrongly totalled as, Rs.13,000. This is called overcasting. If it is wrongly totalled as Rs.11,000, it is called under, casting., iv. Error of Carrying Forward: This error arises when a mistake is committed in carrying forward, a total of one page to the next page., c) Compensating Errors, The errors arising from excess debits or under debits of accounts being neutralised by the excess, credits or under credits to the same extent of some other account is compensating error. Since the, errors in one direction are compensated by errors in another direction, arithmetical accuracy of, Business Accounting-1, , 118

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Srinivas University, , 1st SEMESTER-BBA, , the trial balance is not at all affected inspite of such errors. For example, If the purchases book, and sales book are both overcast (excess totalling) by Rs.10,000, the errors mutually compensate, each other. This error will not affect the agreement of trial balance., 4.2.2 Suspense Account, When it is difficult to locate the mistakes before preparing the final accounts, the difference in, the trial balance is transferred to newly opened imaginary and temporary account called, 'Suspense Account'. Suspense account is prepared to avoid the delay in the preparation of final, accounts. If the total debit balances of the trial balance exceed the total credit balances, the, difference is transferred to the credit side of the suspense account. On the other hand, if the total, credit balances of the trial balance exceeds the total debt balances the difference is transferred to, the debit side of the suspense account., When the errors affecting the suspense account are located, they are rectified with suspense, account. Suspense account is continued in the books until the errors are located and rectified., Such balance will be shown in the balance sheet. Debit balance will be shown on the asset side, and the credit balance will be shown on the liability side. When all the errors affecting the trial, balance are located and rectified, the suspense account automatically gets closed., 4.2.3 Illustration Problems on Rectification of Errors:, Problem 1:, Rectify the following error:, a. A credit purchase of Rs 925 from Shankar has been entered as Rs 295, b. Sales returns of Rs 200 from Jahangir has been entered in the sales book, c. A credit sales of Rs 1,000 to Shyam has been omitted to be entered in the sales book, d. Purchase of goods for Rs 100 for private use of the proprietor has been debited to, purchases account., e. Cash sales of Rs 150 to Abdul has been wrongly credited to his A/C.., f. Rs 25 paid for Commission has been wrongly treated as receipt of Commission., g. Rs 400 paid for purchases of goods was wrongly debited to furniture account, h. A credit sale of Rs 300 to Savitri was wrongly debited to Gayatri., Solution:, Date, , Particulars, , a., , Purchases Account (925-295), , Business Accounting-1, , L.F, Dr, , Dr (Rs), , Cr (Rs), , 630, 119

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Srinivas University, , 1st SEMESTER-BBA, , To Shankar‘s Account, , 630, , (Being the credit purchases of Rs 925 from, Shankar recorded in the purchases book as Rs 295, Rectified), b., , Sales Returns Account, , Dr, , 200, , Sales Account, , Dr, , 200, , To Jahangir‘s Account, , 400, , (Being the sales returns of Rs 200 from Jahangir, entered in the sales book rectified), c., , Shyam‘s Account, , Dr, , 1,000, , To Sales Account, , 1,000, , (Being the credit sale of Rs 1,000 to Shyam, omitted to recorded in the sales book rectified), d., , Drawings Account, , Dr, , 100, , To Purchases Account, , 100, , (Being the purchases of goods of rs 100 for the, private use of the proprietor debited to purchases, account rectified), e., , Abdul‘s Account, , Dr, , 150, , To Sales Account, , 150, , (Being the wrong credit given to Abdul‘s account, instead of to sales account rectified), f., , The error in this transaction is one-sid, i.e.., affects, only one account viz.., commission account. So,, no journal entry need be passed for the, rectification of this error. This error can be, rectified by debiting commission account with Rs, (25+25)50, , g., , Purchases Account, , Dr, , To Furniture Account, , 400, 400, , (Being the purchase of goods wrongly debited to, Business Accounting-1, , 120

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Srinivas University, , 1st SEMESTER-BBA, , furniture account rectified), Savitri‘s Account, , h., , Dr, , 300, , To Gayatri‘s Account, , 300, , (Being the wrong debit given to Gayatri‘s Account, instead of to Savitri‘s account rectified), Problem 2:, An accountant and could not tally his Trail Balance and placed the difference to a, Suspense Account. Late, the following errors were detected. Pass rectification entries., 1. Rs. 2,080 for the sale of old machinery has been posted to sales account., 2. Rs. 42 the price of goods purchased from Ram Ratan had been shown on the credit side, of his account as Rs. 420., 3. Rs. 18, discount allowed by Chopra has been shown in his account but not posted to, Discount account., 4. A sum of Rs. 480 owed by Naresh had not been included in the list of debtors., 5. Account of Sharma had been debited with Rs. 85 on account of goods returned by him., Solution:, Journal Entries, Date, , Particulars, , 1., , Sales A/c., , Dr., , To Machinery A/c., , Dr., , Cr., , Rs., , Rs., , 2,080, , (Being the sale of old machinery credited to sales account, , 2,080, , instead of machinery account rectified), 2., , Ram Ratan‘s A/c (420-42), , Dr., , 378, , To Suspense A/c., , 378, , (Being the excess credit given to Ram Ratan rectified), 3., , Suspense A/c., , Dr., , 18, , To Discount Received A/c, , 18, , (Being the discount received from Chopra not posted to, discount account rectified), 4., , Debtors (Nagesh) A/c., To Suspense A/c., , Business Accounting-1, , Dr., , 480, 480, 121

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Srinivas University, , 1st SEMESTER-BBA, , (Being the amount due from Nagesh not included in the list of, debtors rectified), 5., , Suspense A/c. (85 + 85), , Dr., , 170, , To Sharma‘s A/c., , 170, , (Being the goods returned by Sharma debited to his account, instead of being credited to his account rectified), Problem 3:, Rectify the following errors:, 1. An amount of Rs. 500 withdrawn by the proprietor for his personal use has been debited, to Rent A/c., 2. A purchase of Rs. 250 has been wrongly entered though sales book., 3. A credit sale of Rs. 200 to Shyram has been wrongly passed through purchases book., 4. Salary paid to Office Manager Rs. 2,500/- has been debited to has personal account., 5. Repairs to machinery Rs. 500 is debited to machinery A/c., Solution:, Journal Entries, Date, , Particulars, , L.F., , (a), Drawings A/c., , Dr., , Dr., , Cr., , Rs., , Rs., , 500, , To Rent A/c., , 500, , (Being the amount withdrawn by the proprietor for his, personal use debited to rent account rectified), (b), , Purchases A/c., , Dr., , 250, , Sales A/c., , Dr., , 250, , Dr., , 400, , 500, , To Concerned Party‘s A/c., (Being the purchase from the party wrongly entered, through the sales book rectified), (c), , Shyam A/c. (200 + 200), To Sales A/c., , 200, , ― Purchases A/c., , 200, , (Being the credit sale to Shyam wrongly passed through, Business Accounting-1, , 122

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Srinivas University, , 1st SEMESTER-BBA, , the Purchases book rectified), (d), , Salary A/c., , Dr., , 2500, , To Manager‘s Personal A/c., , 2500, , (Being the salary paid to Manager wrongly debited to, his personal account rectified), (e), , Repairs A/c., , Dr., , 500, , To Machinery A/c., , 500, , (Being the repairs to machinery debited to machinery, account instead of to machinery repairs account, rectified), , Problem No: 4, , Rectify the following errors observed before the closure of the Books of Account., i. An amount of Rs. 100 spent on repairs to machinery has been wrongly debited to, Machinery A/c., ii. Sales book has been undercast by Rs. 100., iii. Furniture purchased for Rs.500 has been wrongly debited to purchases account., iv. An amount of Rs. 1000 received on the sale of old Furniture has been credited to, sales account., v. A bill receivable of Rs. 500 received from Khan has been entered in the Bills Payable, Book., vi. A credit sale of Rs. 2000 to Jairam has been wrongly passed through the returns, outwards book., vii. Goods worth Rs. 1000 purchased on credit from Ramanath have been wrongly, entered in the sales book., viii., , A sale of goods worth Rs. 100 to Kumar has been credited to his account., , ix. Salary Rs. 300 paid to the Cashier, Gopal has been debited to his personal account., x. A sum of Rs. 100 received from Sharma has been credited to Varma., , Solution:, Business Accounting-1, , 123

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Srinivas University, , 1st SEMESTER-BBA, , Journal Entries, Date Particulars, , 1., , L.F., , Repairs to Machinery A/c. Dr., , Dr., , Cr., , Rs., , Rs., , 100, , To Machinery A/c., , 100, , (Being the repairs to machinery debited, to machinery account instead of repairs, account rectified), 2., , It is one sided errors. So, this error can be, rectified by crediting sales account with, Rs.100, the under-credit given to it., , 3., , Furniture A/c., , Dr., , 500, , To Purchases A/c., , 500, , (Being the sale of old furniture credited, to sales account instead of furniture, account rectified), 4., , Sales A/c., , Dr., , 1000, , To Furniture A/c., , 1000, , (Being the sale of old furniture credited, to sales account instead of furniture, account rectified), 5., , Bills Payable A/c., , Dr., , 500, , Bills Receivable A/c., , Dr., , 500, , To Khan‘s A/c., , 1000, , (Being the Bills Receivable received, from entered in the Bills payable Book, rectified), 6., , Returns Outwards A/c., , Dr., , To Sales A/c., , 2000, 2000, , (Being the credit sale to Jairam wrongly, passed through the returns outwards, Business Accounting-1, , 124

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Srinivas University, , 1st SEMESTER-BBA, , book rectified), 7., , Sales A/c., Purchases A/c., , Dr., Dr., , 1000, 1000, , To Ramanath‘s A/c., , 2000, , (Being the credit purchase from, Ramanath entered in the sales book, rectified), 8., , Here, the mistake is one – sided. So, this, error can be rectified by debiting, Kumar‘s account with Rs., (100+100)200., , 9., , Salaries A/c., , Dr., , 300, , To Gopal‘s A/c., , 300, , (Being the salaries paid debited to, Gopal‘s account instead of salaries, account rectified), 10., , Varna‘s A/c., , Dr., , 100, , To Sharma‘s A/c., , 100, , (Being the amount received from Sharma, credited to Varma‘s Account rectified), , Problem No: 5, , A book-keeper found that there was Rs. 325 difference in the trial balance, being excess credit., Unable to locate the errors in time, he decided to place the amount in a suspense account., Subsequently, the following errors were found out. Pass the journal entries for rectifying them, and prepare the suspense account., , i., , A credit sale of Rs. 100 to Latha has been credited to her account., , ii., , A sum of Rs. 50 received from Balu has been credited to his account as Rs. 15, , iii., , The total of the purchases returns book has been overcast by Rs. 50., , Business Accounting-1, , 125

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Srinivas University, , 1st SEMESTER-BBA, , iv., , The discount column on the credit side of the cash book has been overcast by Rs. 10., , v., , Rent of Rs. 80 paid to landlord has been debited to landlord‘s account., , vi., , A sum of Rs. 50 paid for commission has been credited to commission account., , Solution:, Journal Entries, Date, , i., , Particulars, Latha‘s Account(100+100), , L.F., , Dr., , Dr., , Cr., , Rs., , Rs., , 200, , To Suspense Account, , 200, , (Being the rectification of wrong credit, instead of, debit, given to Latha‘s account), ii., , Suspense Account, , Dr., , 35, , To Balu‘s Account (50-15), , 35, , (Being the rectification of under-credit given to, Balu‘s account), iii., , Purchase Returns Account, , Dr., , 50, , To Suspense Account, , 50, , (Being the rectification of over-credit given to, purchases returns account), iv., , Discount Account, , Dr., , 10, , To Suspense Account, , 10, , (Being the rectification of over-credit given to, discount account), v., , Rent Account, , Dr., , 80, , To Landlord‘s Account, , 80, , (Being the rectification of wrong debit given to, landlord‘s account), vi., , Commission Account, To Suspense Account(50+50), , Dr., , 100, 100, , (Being the rectification wrong credit, instead of, Business Accounting-1, , 126

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Srinivas University, , 1st SEMESTER-BBA, , debit, given to commission account), , Dr., , Suspense Account, , Cr., , Rs., To Difference in Trial Balance(b/f), Balu‘s Account, , Rs., , 325, , By Latha‘s Account, , 200, , 35, , By Purchases Account, , 50, , By Discount Account, , 10, , By Commission Account, , 100, , 360, , 360, , Problem 6, Rectify the following errors;, a. Rs 5,000 from a customer was credited to the capital account, b. A machine bought for Rs 3,000 was debited to furniture account, c. Salary of Rs 200 paid to the cashier Sri Gopal was debited to his personal account., d. A sum of Rs 500 paid to workers for erecting a new machine was debited to wages, account., Journal Entries, Date, , Particulars, , a., , Capital A/c., , Dr., , To customers A/c., , Dr., , Cr., , Rs., , Rs., , 5000, , (Being the amount received from customer wrongly credited, , 5000, , to capital a/c rectified), b., , Machinery A/c, , Dr., , 3000, , To furniture A/c., , 3000, , (Being the rectification of machinery bought wrongly debited, to furniture A/c)), c., , Salary A/c., To Gopal‘s A/c, , Dr., , 200, 200, , (Being the salary paid to the cashier Gopal wrongly debited, to gopal‘s a/c rectified), Business Accounting-1, , 127

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Srinivas University, 4., , 1st SEMESTER-BBA, , Debit sales A/c with Rs.100to rectify over casting of sales Dr., journal, , 5., , machinery A/c., To wages A/c., , Dr., , 500, 500, , (Being the rectification of wages paid to workers for erecting, a new machine wrongly debited to wages A/c)), , ONE MARK QUESTION:, 1. On the debit side of the cash book in Bank reconciliation Statements, the bank column, represents, a. Cheques issued for payment, b. Cash withdrawn from bank for office use and personal use, c. Cash paid into bank, d. None of these, 2. On the credit side of the cash book in Bank reconciliation Statements, the bank column, represents, a. Cheques issued for payment, b. Cheques deposited into bank for collection, c. Cash paid into bank, d. None of these, 3. A bank reconciliation statement is a, a. Part of cash book, b. Part of bank accounts, c. Part of financial statements, d. None of the above, 4. A favourable balance of cash book implies that, a. Credit balance of cash book, b. Debit balance of cash book, c. Bank overdraft, d. Adjusted balance of cash book, 5. A cash deposit made by the business appears on the bank statement as balance of, Business Accounting-1, , 128

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Srinivas University, , 1st SEMESTER-BBA, , a. Debit, b. Credit, c. Expenses, d. Liability, 6. Bank reconciliation statement is the comparison of a bank statement (sent by bank), with the, , (prepared by business), , a. Cash receipt journal, b. Cash payment journal, c. Cash book, d. Financial statements, 7. A check returned by bank marked ―NSF‖ means that, a. Bank can‘t verify your identity, b. There are not sufficient funds in your account, c. Check has been forged, d. Check can‘t be cashed being illegal, 8. In the Bank reconciliation statement ―Deposit in transit‖ is usually, a. Subtracted from bank balance, b. Added to bank balance, c. Added to cash book balance, d. Subtracted from cash book balance, 9. Which of the following error results in unadjusted cash book balance, a. Outstanding checks, b. Unpresented checks, c. Deposit in transit, d. Omission of bank charges, 10. Bank reconciliation statement is prepared by, a. Accountant of the business, b. Manager of the business, c. Controller of the bank, d. Accountant of the bank, , Business Accounting-1, , 129

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Srinivas University, , 1st SEMESTER-BBA, , 11. Bank charges amounting to Rs 5,000 was not entered in the cash book, identify the, correct adjustment in cash book, a. Bank charges will be debited in cash book, b. Bank charges will be added to cash book balance, c. Bank charges will be credited in cash book, d. Bank charges need no adjustment in, 12. Unpresented cheque also referred as, a. Uncollected checks, b. Uncredited checks, c. Outstanding checks, d. Bounced checks, 13.Uncollected checks also referred as, a. Unpresented checks, b. Uncredited checks, c. Outstanding checks, d. Bounded checks, 14.Rs 5,000 deposited in bank account was entered twice in the cash book, identify the, correct adjustment in cash book, a. Rs 5,000 will be debited, b. Rs5,000 will be credited, c. Rs 10,000 will be credited, d. Rs 10,000 will be debited, 15.Bank sent debit advice of Rs 500 to company being interest on overdraft. It wasn‘t, entered in cash book. Identify the correct adjustment in cash book, a. Rs 500 will be debited, b. Rs 500 will be credited, c. Non-adjustable, d. Rs 100 will be subtracted, 16. Errors may be, a. Errors of omission, b. Errors of commission, Business Accounting-1, , 130

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Srinivas University, , 1st SEMESTER-BBA, , c. Errors of principle, d. All the above, 17. The errors which are committed due to wrong posting of transactions, wrong totalling, are, a. Errors of omission, b. Errors of commission, c. Errors of principle, d. All the above, 18. The errors may be committed at the time of recording the transaction in the books of, original entry, a. Errors of omission, b. Errors of commission, c. Errors of principle, d. All the above, 19. Mistakes committed in the process of recording and presentations of accounting, information are, a. Mistakes, , b. Errors, , c. Mistakes and errors d. All the above, , 20. The errors affect only one aspect of the transaction is, a. Two sided errors b. One sided errors c. Debit error, , d. Credit error, , 21. Whether error of omission – complete will affect the agreement of the trial balance, a. Yes, , b. No, , c. Partially, , d. Completely, , 22. Whether error of commission – complete will affect the agreement of the trial balance, a. Yes, , b. No, , c. Partially, , d. Completely, , 23. Whether error of principle– complete will affect the agreement of the trial balance, a. Yes, , b. No, , c. Partially, , d. Completely, , 24. A sale of old machinery for Rs 1,600 was credited to sales account was errored as cash, a/c dr to sales a/c-rectification entry is, a. Cash a/c to machinery account, , b. Sales to machinery a/c, , c. Machinery a/c to cash, , d. None of these, , 25. A purchase of Rs 1,800 from Modi Brothers ltd was not entered in the purchases bookrectify the error, Business Accounting-1, , 131

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Srinivas University, , 1st SEMESTER-BBA, , a. Modi‘s a/c dr to purchase, , b. Purchase a/c dr to Modis a/c, , c. No entry, , d. It as to be entered in sales account, , 8 Marks:, 1. What are the causes of disagreement between the balance shown by the cash book and the, balance shown by the pass book? Explain., 2. From the following particulars of Mr. Rajesh, ascertain the balance as per pass Book as on 31st, December 2017:, , , , , , , , , Bank balance as per cash book Rs. 5000, A cheque deposited into bank, but not collected by the bank Rs. 500., Cheque issued, but not presented for payment Rs. 600, Bank charges debited in the pass book only Rs. 40, Dividends on shares collected by the bank and credited in the pass book R s. 800, Insurance premium paid directly by the bank as per standing advice Rs.100, Interest credited in the pass book only Rs. 50, , 3. From the following particulars of Mr. Suresh, ascertain the balance as per pass Book as on 31st, June 2018:, , , , , , , , Bank balance as per cash book Rs. 90000, Bank charges debited in the pass book only Rs. 500., Out of cheques issued for Rs. 12000, cheques for Rs. 4000 cashed before June 30, 2018., There was a wrong credit in the pass book for Rs. 7000., Payment received from a customer directly by the bank Rs. 3000, Out of cheque amounting to Rs. 10000 deposited into bank, 5000 only collected before, June 30, 2018.,  Bills discounted dishonoured Rs. 6000., 4. From the following particulars of Azgar, prepare Bank Reconciliation Statement as on 31 st, December, 2019 and ascertain bank balance as it would appear in cash book:,  Balance as per pass book Rs. 30000.,  Cheque issued, but not encashed prior to 31st December, amounted to Rs. 1500.,  Bank charges of Rs. 250 has been debited in the pass book, but not been entered in the, cash book.,  There was a wrong debit in the pass book for Rs. 1000.,  Payment by a cheque Rs. 1900 entered in cash book (bank column) as Rs. 2900.,  Cheque sent to bank for collection, but remained uncollected Rs. 2500.,  Dividend on shares collected by the bank and credited in the pass book Rs. 1800., , Business Accounting-1, , 132

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Srinivas University, , 1st SEMESTER-BBA, , 5. Prepare bank reconciliation statement from the following particulars of Wilson as on 31, August, 2019:,  Overdraft as per pass book Rs. 25000,  Subscription money paid by the bank Rs 300,  Cheque issued but not presented for payment Rs. 7500.,  Insurance premium paid by the bank Rs. 300,  Cheque deposited but not yet cleared Rs. 7000,  Interest on overdraft debited in the pass book only Rs. 2500.,  The receipt side of the cash book (bank column) was under-cast by Rs. 200,  Wrongly debited by the bank Rs. 500., 6. Prepare Bank Reconciliation Statement from the particulars of Subhashchandra as on March, 2020:,  Balance as per pass book Rs. 10000.,  Interest on bank balance credited in the pass book only Rs. 200.,  Bank commission debited in the pass book only Rs. 100.,  The payment side of the cash book (bank column) was overcast by Rs. 1000.,  Cheque issued but not presented for payment Rs. 2000.,  Club bill paid by the bank as per standing order Rs. 900.,  Cheque of Rs. 4000 deposited into bank of which Rs. 3000 only collected in March., 7. Rectify the following error:, , , A credit purchase of Rs 925 from Shankar has been entered as Rs 295, , , , Sales returns of Rs 200 from Jahangir has been entered in the sales book, , , , A credit sales of Rs 1,000 to Shyam has been omitted to be entered in the sales book, , , , Purchase of goods for Rs 100 for private use of the proprietor has been debited to, purchases account., , , , Cash sales of Rs 150 to Abdul has been wrongly treated as receipt of commission., , , , Rs 25 paid for Commission has been wrongly treated as receipt of Commission., , , , Rs 400 paid for purchases of goods was wrongly debited to furniture account, , , , A credit sale of Rs 300 to Savitri was wrongly debited to Gayatri., , 8. An accountant and could not tally his Trail Balance and placed the difference to a Suspense, Account. Late, the following errors were detected. Pass rectification entries., , , Rs. 2,080 for the sale of old machinery has been posted to sales account., , , , Rs. 42 the price of goods purchased from Ram Ratan had been shown on the credit side, of his account as Rs. 420., , Business Accounting-1, , 133

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Srinivas University, , , 1st SEMESTER-BBA, , Rs. 18, discount allowed by Chopra has been shown in his account but not posted to, Discount account., , , , A sum of Rs. 480 owed by Naresh had not been included in the list of debtors., , , , Account of Sharma had been debited with Rs. 85 on account of goods returned by him., , 9. Rectify the following errors:, 1. An amount of Rs. 500 withdrawn by the proprietor for his personal use has been debited, to Rent A/c., 2. A purchase of Rs. 250 has been wrongly entered though sales book., 3. A credit sale of Rs. 200 to Shyram has been wrongly passed through purchases book., 4. Salary paid to Office Manager Rs. 2,500/- has been debited to has personal account., 5. Repairs to machinery Rs. 500 is debited to machinery A/c., 10.Rectify the following errors observed before the closure of the Books of Account., i. An amount of Rs. 100 spent on repairs to machinery has been wrongly debited to, Machinery A/c., ii. Sales book has been undercast by Rs. 100., iii. Furniture purchased for Rs.500 has been wrongly debited to purchases account., iv. An amount of Rs. 1000 received on the sale of old Furniture has been credited to, sales account., v. A bill receivable of Rs. 500 received from Khan has been entered in the Bills Payable, Book., vi. A credit sale of Rs. 2000 to Jairam has been wrongly passed through the returns, outwards book., vii. Goods worth Rs. 1000 purchased on credit from Ramanath have been wrongly, entered in the sales book., viii., , A sale of goods worth Rs. 100 to Kumar has been credited to his account., , ix. Salary Rs. 300 paid to the Cashier, Gopal has been debited to his personal account., x. A sum of Rs. 100 received from Sharma has been credited to Varma., 11.A book-keeper found that there was Rs. 325 difference in the trial balance, being excess, credit. Unable to locate the errors in time, he decided to place the amount in a suspense account., Subsequently, the following errors were found out. Pass the journal entries for rectifying them, and prepare the suspense account., Business Accounting-1, , 134

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Srinivas University, , 1st SEMESTER-BBA, , i., , A credit sale of Rs. 100 to Latha has been credited to her account., , ii., , A sum of Rs. 50 received from Balu has been credited to his account as Rs. 15, , iii., , The total of the purchases returns book has been overcast by Rs. 50., , iv., , The discount column on the credit side of the cash book has been overcast by Rs. 10., , v., , Rent of Rs. 80 paid to landlord has been debited to landlord‘s account., , vi., , A sum of Rs. 50 paid for commission has been credited to commission account., , 12.Rectify the following errors;, a. Rs 5,000 from a customer was credited to the capital account, b. A machine bought for Rs 3,000 was debited to furniture account, c. Salary of Rs 200 paid to the cashier Sri Gopal was debited to his personal account., d. A sum of Rs 500 paid to workers for erecting a new machine was debited to wages, account., , Business Accounting-1, , 135

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Srinivas University, , 1st SEMESTER-BBA, , UNIT V: FINAL ACCOUNTS OF A SOLE TRADER, Trial balance proves the arithmetical accuracy of the business transactions, but it is not the end., The businessman is interested in knowing whether the business has resulted in profit or loss and, what the financial position of the business is at a given period. In short, he wants to know the, profitability and the financial soundness of the business. The trader can ascertain these by, preparing the final accounts. The final accounts are prepared at the end of the year from the trial, balance., The final accounts of business concern generally include two parts. The first part is Trading and, Profit and Loss Account. This is prepared to find out the net result of the business. The second, part is Balance Sheet which is prepared to know the financial position of the business. However, manufacturing concerns, will prepare a Manufacturing Account prior to the preparation of, trading account, to find out cost of production., , 5.1 Trading Account, Meaning of a Trading Account:, A Trading Account is an account which shows merely the result of trading i.e., buying and, selling of goods), called gross profit or gross loss., Preparation of Trading Account:, The Trading Account is prepared as follows:, , Dr., , Trading Account for the year ended . . . . . ., Rs. Rs., To Opening Stock, xxx By Sales, To Purchases, xxx, Less Sales Returns, Less : Purchases returns, xxx xxx By Closing Stock, To Direct Expenses, such as, Carriage, cortage, freight, import duty, clearing, charges, dock dues,, excise duty, .octroi, wages,, power and other, manufacturing expenses, To Profit and Loss Account, (Gross profit transfer to, Profit and Loss Account), , Cr., Rs., xxx, xxx, , By Profit and Loss Account, (Gross loss transferred to, Profit and Loss Account), , Rs., Xxx, Xxx, XXX, , xxx, xxx, , Rs., , xxx, , Rs., , Xxx, , 5.2 Profit and Loss Account, Meaning of Profit and Loss Account:, The Profit and Loss Account is an account which shows the net profit or net loss (i.e., the, ultimate profit or loss) of a business for a particular trading period., , Business Accounting-1, , 136

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Srinivas University, , 1st SEMESTER-BBA, , The net profit or net loss is the profit earned or loss suffered by a business after charging all, business expenses including depreciation and provisions. It is the final profit or loss of a, business., , 5.2.1 Preparation of Profit and Loss Account:, To prepare the Profit and Loss Account, the gross profit or gross loss, as shown by the Trading, Account, has to be, first, entered in the Profit and Loss Account. If there is gross, Profit and Loss Account for the year ended ……… Cr., Rs., To Trading Account, By Trading Account, (Gross loss transferred from, (Gross profit transferred from, Trading Account), xxx, Trading Account), To Office Expenses, such as office, By Non-Trading Incomes, such as rent, salaries, office rent, printing and, received, interest received,, stationery, postage and telegram,, commission received, discount, office insurance, office lighting and, received, bad debts recovered,, heating, audit fees, legal charges,, income from investments and, general expenses, etc., xxx interest on drawings., To Maintenance Expenses, such as, By Capital Account (Net loss, repairs and renewals and depreciation xxx transferred to Capital Account), of assets, To Selling and Distribution Expenses,, such as advertisement, travelling, expenses, commission paid, packing, charges, carriage outwards, rent and xxx, insurance of warehouse, bad debts etc, To Financial expenses, such as interest, paid on loans, interest on capital, cash, discount allowed, discount on bills xxx, discounted, etc., To Capital Account (Net profit xxx, transferred to Capital Account), Rs., xxx Rs., Dr., , Rs., , xxx, , xxx, , xxx, , Xxx, , 5.3 Balance Sheet, Meaning of a Balance Sheet, A Balance Sheet is a sheet containing the balances of all real and personal accounts, i.e, assets, and liabilities of a business. In other words, it is a statement or list of all the assets and liabilities, (including capital) of a business as on a given date, usually, on the last date of the trading period., It shows the financial position of a business on the last date of the trading period., Balance Sheet as at . . . . . . ., Liabilities, Rs. Assets, Rs., Capital :, Fixed Assets ;, Capital, xxx Good will, Long Term or Fixed Liabilities, Land and Buildings, xxx, Business Accounting-1, , 137

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Srinivas University, , 1st SEMESTER-BBA, , :, Long-term Loans, Current Liabilities :, Incomes received in advance, Outstanding Expenses, Sundry Creditors, Bills Payable, Bank Overdraft, , xxx, , Rs., , xxx, , xxx, xxx, xxx, xxx, xxx, , Plant and Machinery, Vehicles, Furniture and Fixtures, Loose Tools, Investments, Investments, Current Assets :, Outstanding incomes, Prepaid Expenses, Closing Stock, Sundry Debtors, Bills Receivable, Cash at Bank, Cash in hand, Rs., , xxx, , xxx, , xxx, , 8 marks question:, 1. The following trial balance extracted from the books of Murugan, prepare trading, profit and, loss a/c for the year ended 31st Dec. 2001 and balance sheet as on that date., Dr., Cr., Rs., , Drawings, , 20,000, , Capital, , 1,89,000, , Plant & machinery, , 80,000, , Sundry debtors, , 70,000, , Sundry creditors, Purchases, , 50,000, 1,03,000, , Sales, , 2,20,000, , Sales returns, , 10,000, , Wages, , 40,000, , Cash in hand, , 5,000, , Cash at bank, , 10,000, , Salaries, , 38,000, , Stock, , 45,000, , Rent, , 10,000, , Business Accounting-1, , Rs., , 138

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Srinivas University, , 1st SEMESTER-BBA, , Manufacturing expenses, , 7,000, , Bills receivable, , 12,000, , Bills payable, , 20,000, , Bad debts, , 5,000, , Carriage inwards, , 9,000, , Furniture, , 15,000, 4,79,000, , 4,79,000, , Solution:, Trading and Profit and Loss Account for the year ended 31st December, 2011, Particulars, Rs., To opening stock, To Purchases, To Wages, To, Manufacturing, expenses, To Carriage inwards, To Gross profit c/d., , Rs., 45,000, 1,03,000, 40,000, , To Salaries, To Rent, , 7,000, 9,000, 6000, 210000, 38,000, 10,000, , To Bad debts, , 5,000, , Particulars, By Sales, Less : Returns inwards, By Closing stock, , By Gross profit b/d., By net loss transferred to, capital, , 53000, Balance sheet, Liabilities, Capital, Less: net loss, Less: Drawings, Sundry creditors, Bills payable, , Rs., 1,89,000, 47000, 20,000, , 122000, 50,000, 20,000, 192000, , Rs., Rs., 2,20,000, 10,000, 210000, -, , 210000, 6000, 47000, , 53000, , Assets, Plant & machinery, Sundry debtors, Cash in hand, Cash at bank, Bills receivable, Furniture, , Rs., 80,000, 70,000, 5,000, 10,000, 12,000, 15,000, 192000, , 2. From the following Trial Balance of Rajkumar, prepare a Trading and Profit and Loss, Account for the year ended 31st December, 2011, Dr., Cr., Business Accounting-1, , 139

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Srinivas University, , 1st SEMESTER-BBA, Rs., , Rajkumar‘s Capital, Rajkumar‘s Drawings, Stock on 1st January 2011, Purchases and Sales, Returns, Discounts, Commission Received, Income Tax paid, Office Salaries, Office Rent, Advertising, Sundry Debtors and Creditors, Reserve for Doubtful Debts, Manufacturing Wages, Bills Receivable and payable, Carriage, Machinery, Motor Vans, Land and Building, Office expenses, Cash at bank, Cash in hand, , 7500, 12000, 86000, 2000, 500, 700, 17300, 2000, 1700, 85000, 8600, 5000, 600, 40000, 7000, 10000, 1500, 6000, 2300, 295700, , Rs., 85000, , 170000, 1000, 700, 1000, , 30000, 3000, 5000, , 295700, Adjustments:, 1) Stock on 31st December, 2011 was Rs 10000, 2) Debts worth Rs. 2000 should be written off as a bad., 3) Depreciate machinery by 5% and motor vans by 15%, 4) Reserve for bad and doubtful debts should be increased by Rs. 600, 5) Commission accrued and not received Rs. 500, 6) Goods worth Rs 500 were used by the proprietor for his personal use., 7) On 20th December 2011 a fire broke out in the shop and goods worth Rs. 2000 were, completely destroyed. The insurance company accepted the claim for Rs. 1500 only and paid the, amount on 1st January 2012, Solution:, Trading and Profit and Loss Account for the year ended 31st December, 2011, Particulars, To opening stock, To purchases, Less: returns (cr), Less: Drawings, To carriage, To manufacturing wages, To gross profit c/d, Business Accounting-1, , Rs., 86,000, 1,000, 500, , Rs., 12,000, , 84,500, 600, 8,600, 74,300, , Particulars, Rs., By Sales, 1,70,000, Less: returns, 2,000, By stock of goods, destroyed by fire, By closing stock, , Rs., 1,68,000, 2,000, 10,000, , 140

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Srinivas University, , To office salaries, To office expenses, To office rent, To Advertising, To bad debt in the, adjustment, Add: Additional Reserve, for Bad debts created, during the year, To Discount (dr), To Depreciation on, machinery, (40,000X5%), motor vans(7,000X15%), To loss on goods, destroyed by fire, Less: Claim admitted by, the insurance company, To net profit transferred, to capital account, , 1st SEMESTER-BBA, 1,80,000, 17,300, 1,500, 2,000, 1,700, , By gross profit b/d, By, commission, received 1,000, Add: accrued (o/s) 500, By discount (cr), , 1,80,000, 74,300, 1,500, , 700, , 2,000, , 600, , 2,600, 500, , 2,000, 1,050, 2,000, 1,500, , Balance sheet, Liabilities, Creditors, Bills payable, Capital, 85,000, Add: Net profit, 47,350, Less: Drawings, 7,500, Less: Goods taken for personal, use, 500, Less: Income tax, 700, , 500, 47,350, 76,500, , Rs., 30,000, 5,000, , 123650, , 1,58,650, , 76,500, , Assets, Cash in hand, Cash at bank, Bills receivable, Debtors, 85,000, Less: bad debt (adj), 2,000, Less: NRBD, (3,000+600), 3,600, Amount of fire claim due from, insurance company, Closing stock, Accrued (o/s) Commission to be, received, Motor vans, 7,000, Less: Dep, 1,050, Machinery, 40,000, Less: Dep, 2,000, Land and building, , Rs., 2,300, 6,000, 5,000, , 79,400, 1,500, 10,000, 500, 5,950, 38,000, 10,000, 1,58,650, , 3. From the following balances Extracted from the books of Mr.Prasad, prepare Trading and, profit and loss account as on 31st December, 2011., Business Accounting-1, , 141

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Srinivas University, , 1st SEMESTER-BBA, Dr(Rs), 10,000, , Capital and drawings, Bank overdraft, Furniture and fittings, Business premises, Debtors and Creditors, Stock on 1-1-2011, Rent, Purchases and sales, Returns, Discount, Taxes and insurance, General expenses, Salaries, Commission, Carriage on purchases, Reserve for doubtful debts, Bad debts, , 5,200, 40,000, 36,000, 44,000, 2,20,000, 4,000, 3,200, 4,000, 8,000, 18,000, 4,400, 3,600, , Cr(Rs), 60,000, 8,400, , 26,000, 2,000, 3,00,000, 4,000, , 1,000, 1,000, 4,01,400, , 4,01,400, , Adjustments:, a. Stock on hand on 31-12-2011Rs 40,120, b. Depreciate business premises by Rs 600 and furniture and fittings by 10%, c. Make a reserve for doubtful debts at 5% on debtors, d. Allow interest on capital at 5% and, e. Carry forward Rs 1,400 for unexpired insurance, Solution:, Trading and Profit and Loss Account for the year ended 31st December, 2011, Particulars, Rs., To opening stock, To purchases, To carriage on purchases, To gross profit c/d, To general expenses, To Salaries, To Commission, To Discount, To Depreciation on, business premises, To Depreciation on, Business Accounting-1, , Rs., 44,000, 2,20,000, 3,600, 68520, 3,36,120, 8,000, 18,000, 4,400, 3200, , Particulars, By sales, Less: Returns, By Closing stock, , By Gross profit C/d, By rent received, By discount, , Rs., Rs., 3,00,000, 4,000, 2,96,000, 40,120, 3,36,120, 68,520, 2,000, 4,000, , 600, 142

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Srinivas University, , 1st SEMESTER-BBA, , Furniture and Fittings, 5,200X10%, To taxes and insurance, Less:, unexpired, or, prepaid insurance, To Bad debts, Add: New Reserve for, doubtful debts, Less: Old reserve for, doubtful debts, To int on capital, To net profit transferred, to capital account, , 520, 4,000, 1,400, 1,000, , 2,600, , 1,800, 1,000, , 1,800, 3,000, 32,400, 74,520, , 74,520, , Balance Sheet as on 31st December 2011, Liabilities, Creditors, Bank overdraft, Capital, Add: interest, Add: Net profit, Less: Drawings, , Rs., 26,000, 8,400, 60,000, 3,000, 32,400, 10,000, , 85,400, , 1,19,800, , Assets, Debtors, Less: New RBD, Closing stock, Prepaid insurance, Furniture and fittings, Less: Dep, Premises, Less: Dep, , Rs., 36,000, 1,800, , 5,200, 520, 40,000, 600, , 34,200, 40,120, 1,400, 4680, 39400, 1,19,800, , 4. The following trial balances are taken from the books of Mr.Ambarish, Prepare trading, profit, and loss and balance sheet for the year ended 31st March, Dr(Rs), Cr(Rs), Capital account, 1,00,000, Plant and Machinery, 78,000, Furniture, 2,000, Sales, 1,27,000, Purchases, 60,000, Returns, 1,000, 750, Opening stock, 30,000, Discount, 425, 800, Sundry Debtors and Creditors, 45,000, 25,000, Salaries, 7,550, Wages, 10,000, Carriage outwards, 1,200, Business Accounting-1, , 143

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Srinivas University, , 1st SEMESTER-BBA, , Provision for bad debts, Rent and rates, Advertising, Cash, , 525, 10,000, 2,000, 6,900, 2,54,075, , 2,54,075, , Adjustments:, a. Closing stock was valued at Rs 34,220, b. Provision for bad debt is to be kept at Rs 500, c. Allow interest on capital at 10%, d. Depreciate plant and Machinery by 10% and furniture by 5%, e. Outstanding Salary Rs 550 and prepaid rent Rs 1,000, f. Goods worth Rs 1,000, distributed as samples., Solution:, Trading and Profit and Loss Account for the year ended 31st December, 2011, Particulars, To Opening stock, To Purchases, Less: Returns, Less:, distributed, samples, Wages, To gross profit c/d, , Rs., 60,000, 750, 59250, , Particulars, By Sales, Less: Returns, By Closing stock, , Rs., Rs., 1,27,000, 1,000, 126000, 34,220, , as, , To discount allowed, To Salaries, Add: Outstanding Salary, To Carriage outwards, To Rent and rates, Less: prepaid rent, To Advertising, Add:, distributed, as, samples, To interest on capital, (100000x10%), To Depreciation on plant, and Machinery, (78,000x10%), To, Depreciation, on, furniture, (2,000x5%), To net profit transferred, Business Accounting-1, , Rs., 30,000, , 1000, , 7,550, 550, 10,000, 1,000, 2,000, 1000, , 58250, 10,000, 61970, 160220, 425, 8100, 1,200, 9000, , By Gross profit b/d, By discount received, By old provision for bad, debts, 525, Less: New provision for, bad debts, 500, , 160220, 61970, 800, , 25, , 3000, 10000, , 7800, , 100, , 144

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Srinivas University, , 1st SEMESTER-BBA, , to capital account, , 23170, 62795, , 62795, , Balance Sheet as on 31st December 2011, Liabilities, Capital, 1,00,000, Add: net profit, 23170, Add: interest on capital, 10000, Outstanding Salary, Creditors, , Rs., , 133170, 550, 25,000, , Assets, Plant and Machinery, Less: Dep, Furniture, Less: Dep, Sundry Debtors, Less: New provision, Cash, Closing stock, prepaid rent, , Rs., 78,000, 7800, 2,000, 100, 45,000, 500, , 158720, , 70200, 1900, 44500, 6,900, 34,220, 1,000, 158720, , 5. Prepare Profit and Loss Account and balance sheet for the year ending 31.12.2017., Trial balance as on 31st December,2017, , Drawings, Plant and machinery, Freehold land, Loose tools, Bills receivable, Stock, Purchases, Wages, Carriage inwards, Carriage outwards, Coal and Coke, Salaries, Rent and Rates, Discount, Cash at bank, Cash in hand, Sundry debtors, Repairs, Works expansion, Bad Debts, Advertisement, Sales returns, Business Accounting-1, , Dr(Rs), 15,000, 40,000, 90,000, 3,000, 3,000, 40,000, 51,000, 20,000, 1,000, 500, 5,000, 5,000, 2,800, 1,500, 25,000, 400, 45,000, 1,800, 7,500, 1,200, 500, 2,000, , Capital, Bills payable, Sundry creditors, Purchases return, Sales, , Cr(Rs), 2,03,000, 3,800, 40,000, 2,650, 1,15,000, , 145

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Srinivas University, , 1st SEMESTER-BBA, , Gas and water, Oil and Grease, Furniture and fixtures, General expenses, Printing and stationary, , 200, 600, 1,200, 800, 450, , 3,64,450, 3,64,450, Write off Depreciation on plant and machinery at 5%, loose tools at 15% and furniture and, fixtures at 5%. Stock in hand on 31st December, 2011 amounted to Rs60,000. Provide on sundry, debtors at 5% for doubtful debts. Wages outstanding Rs1,500 and salaries outstanding Rs 450., Solution:, Trading and Profit and Loss Account for the year ended 31st December, 2017, Particulars, To opening stock, To purchases, Less: returns (cr), To carriage inwards, To wages, Add: Outstanding wages, To coal and coke, To gas and water, To Oil and grease, To gross profit c/d, To salaries, Add: o/s salaries, To rent and rates, To, printing, and, stationary, To general xpenses, To Repairs, To carriage outwards, To Discount (dr), To Advertisement, To bad debts, Add: NRBD, (45,000X5%), To Depreiation:, Plant and machinery, (40,000X5%), Loose, tools, (3,000X15%), Business Accounting-1, , Rs., 51,000, 2,650, 20,000, 1,500, , 5,000, 450, , Rs., 40,000, 48,350, 1,000, , Particulars, By Sales, Less: returns, By closing stock, , 21,500, 5,000, 200, 600, 56,350, 1,73,000, By gross profit b/d, , Rs., Rs., 1,15,000, 2,000, 1,13,000, 60,000, , 1,73,000, 56,350, , 5,450, 2,800, 450, 800, 1,800, 500, 1,500, 500, , 1,200, 2,250, , 3,450, , 2,000, , 450, 146

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Srinivas University, , 1st SEMESTER-BBA, , Furniture(1,200 X 5%), To net profit transferred, to capital account, , 60, 36,590, 56,350, , 56,350, , Balance Sheet as on 31st December 2011, Liabilities, Bills payable, Sundry creditors, Outstanding wages, Outstanding salaries, Capital, Add: Net profit, Less: Drawings, , Rs., 3,800, 40,000, 1,500, 450, 2,03,000, 36,590, 15,000, , 2,24,590, , Assets, Cash in hand, Cash at bank, Bills receivable, Sundry Debtors, 45,000, Less: NRBD, 2,250, Closing stock, Loose tools, 3,000, Less: depreciation, 450, Furniture and fixtures, 1,200, Less: depreciation, 60, Plant and machinery 40,000, Less: depreciation, 2,000, Works expansion, Freehold Land, , 2,70,340, , Rs., 400, 25,000, 3,000, 42,750, 60,000, 2,550, 1,140, 38,000, 7,500, 90,000, 2,70,340, , 6. From the following Trial Balance of M/s. Ram & Sons, prepare trading and profit and loss, account and balance sheet for the year ending on 31st March 2002 and the balance sheet as on, the date:, Particulars, Opening Stock (1.4.2001), Purchases, Discount allowed, Wages, Sales, Salaries, Travelling expenses, Commission, Carriage inward, Administration expenses, Trade expenses, Interest, Building, Business Accounting-1, , Dr(Rs), 5,000, 16,750, 1,300, 6,500, , Cr(Rs), , 30,000, 2,000, 400, 425, 275, 105, 600, 250, 5,000, 147

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Srinivas University, , 1st SEMESTER-BBA, , Furniture, Debtors, Creditors, Capital, Cash, , 200, 4,250, 2,100, 13,000, 2,045, 45,100, , 45,100, , Solution:, Trading and Profit and Loss Account for the year ended 31st December, 2001, Particulars, To Opening Stock, To Purchases, To Wages, To Carriage inward, To gross profit c/d, , Rs., , To Trade expenses, To Discount allowed, To Salaries, To Travelling expenses, To Commission, To, Administration, expenses, To Interest, , Rs., 5,000, 16,750, 6,500, 275, 1475, 30000, 600, 1,300, 2,000, 400, 425, , Particulars, By Sales, By closing stock, , Rs., , Rs., 30,000, -, , 30000, 1475, , By gross profit b/d, By net profit transferred, to capital account, , 3605, , 105, 250, 5080, , 5080, , Balance Sheet as on 31st December 2011, Liabilities, Creditors, Capital, Less: net loss, , Rs., 2,100, 13,000, 3605, , 9395, , Assets, Building, Furniture, Debtors, Cash, , Rs., 5,000, 200, 4,250, 2,045, 11495, , 11495, , 7. From the following balances taken from the books of Kripakar prepare a trading and profit, and loss account for the year ending 31st December 2017., (Rs), , Business Accounting-1, , (Rs), , 148

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Srinivas University, , 1st SEMESTER-BBA, , Sales, Returns inward, Carriage inward, Wages, Insurance, , 2,96,500, 6,500, 8,000, 46,000, 800, , Purchases, Returns outward, Carriage outward, Interest on investment, Rates and taxes, , 81,000, 1,000, 5,500, 2,500, 1,300, , Trade expenses, Stationary, Miscellaneous receipts, Stock on 1st January 2017, Manufacturing Expenses, Showroom expenses, Discount, Insurance, , 700, 400, 1,200, 22,000, 32,000, 5,000, 1,100, 750, , Sundry expenses, Sales commission, Repairs and renewals, Salaries, Maintenance expenses, Power and fuel, Office expenses, , 150, 850, 450, 19,500, 3,500, 12,000, 6,400, , Stock on 31st December 2017 was valued at Rs 12,500, Solution:, Trading and Profit and Loss Account for the year ended 31st December, 2017, Particulars, Rs., To opening Stock, To Purchases, 81,000, Less: Returns outward, 1,000, To Carriage inward, To Wages, To, Manufacturing, Expenses, To Power and fuel, To gross profit, , To Insurance, To Trade expenses, To Stationary, To Showroom expenses, To Discount, To Insurance, To Carriage outward, To Rates and taxes, To Sundry expenses, To Sales commission, To Repairs and renewals, Business Accounting-1, , Rs., 22,000, , Particulars, Sales, Less: Returns inward, , Rs., Rs., 2,96,500, 6,500 290000, , 80,000, 46,000, , By closing Stock, , 12,500, , By gross profit b/d, By Miscellaneous receipts, By Interest on investment, , 302500, 110500, 1,200, 2,500, , 32,000, 12,000, 110500, 302500, 800, 700, 400, 5,000, 1,100, 750, 5,500, 1,300, 150, 850, 450, , 149

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Srinivas University, To Salaries, To Maintenance expenses, To Office expenses, To net profit transferred, to capital account, , 1st SEMESTER-BBA, 19500, 3,500, 6,400, 68100, 114200, , 114200, , 8. Prepare Profit and Loss Account, from the following balances of Mr. Kandan for the year, ending 31.12.2003., Rs., 30,000, 2,000, 4,000, 36,000, 2,50,000, 80,000, 3,000, 6,000, 26,000, 4,000, , Office rent, Printing expenses, Tax, Insurance, Advertisement, Gross Profit, Salaries, Stationeries, Discount allowed, Travelling Expenses, Discount received, Solution:, Profit and Loss Account for the year ended 31st December, 2017, Particulars, Rs., To Office rent, To Printing expenses, To Tax, Insurance, To advertisement, To Salaries, To Stationeries, To Discount allowed, To Travelling Expenses, To net profit transferred, to capital account, , Rs., 30,000, 2,000, 4,000, 36000, 80,000, 3,000, 6,000, 26,000, 67000, 254000, , Particulars, By Gross Profit, By Discount received, , Rs., , Rs., 2,50,000, 4,000, , 254000, , 9. Prepare Trading and Profit Loss Account for the year ending 31st March 2002 from the books, of Mr. Siva Subramanian., Stock (31.3.2002), Business Accounting-1, , Rs., 15,000, 150

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Srinivas University, , 1st SEMESTER-BBA, , Purchases, Purchases return, Postage, Carriage outwards, Wages, Sales return, Salaries, Sales, , 1,65,000, 10,000, 3,000, 4,000, 30,000, 5,000, 20,000, 200000, , Solution:, Trading and Profit and Loss Account for the year ended 31st December, 2017, Particulars, To opening Stock, To Purchases, Less: Purchases return, To Wages, To gross profit, To Postage, To Carriage outwards, To Salaries, , Rs., , Rs., -, , 1,65,000, 10,000, , 155000, 30,000, 25000, 210000, 3,000, 4,000, 20,000, , Particulars, By Sales, Less: sales return, By closing stock, , Rs., 200000, 5000, , Rs., 195000, 15000, , 210000, 25000, , By gross profit b/d, By net loss transferred to, capital a/c, , 2000, , 27000, , 27000, , 10. From the following trial balance, prepare trading and profit and loss account for the year, 31.12.2009, Particulars, , Dr(Rs), , Particulars, , Cr(Rs), , Purchases, Salaries & wages, Office expenses, Trading expenses, Factory expenses, Carriage inwards, Returns inward, Discount allowed, Stock, Income tax, Cash in hand, , 5,40,000, 3,50,000, 4,000, 8,000, 11,000, 8,000, 12,000, 4,000, 60,000, 40,000, 2,00,000, , Sales, Returns outward, Discount received, Interest received, Capital, , 10,40,000, 12,000, 6,000, 3,000, 1,78,000, , Business Accounting-1, , 151

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Srinivas University, , 1st SEMESTER-BBA, 12,39,000, , 12,39,000, , Solution:, Trading and Profit and Loss Account for the year ended 31st December, 2017, Particulars, To opening Stock, To Purchases, Less: Returns outward, To Factory expenses, To Carriage inwards, To gross profit, To Salaries & wages, To Office expenses, To Trading expenses, To Discount allowed, To net profit transferred, to capital account, , Rs., 5,40,000, 12,000, , Rs., 60,000, 528000, 11,000, 8,000, 421000, 1028000, 3,50,000, 4,000, 8,000, 4,000, , Particulars, Sales, Less: Returns inward, , Rs., Rs., 10,40,000, 12,000, 1028000, , By gross profit, By Discount received, By Interest received, , 1028000, 421000, 6,000, 3,000, , 64000, 430000, , 430000, , 11. The following balances are taken from the books of M/s. RSP Ltd. Prepare profit and loss, account for the year ended 31st March, Gross profit, Rent, Interest on loan, Distribution charges, Bad debts, Commission received, Interest received, Taxes and insurance, Salaries & wages, Depreciation, Office expenses, Salesman salary, Stationery and printing, Discount received, Advertising, , Rs., 5,25,000, 10,000, 5,000, 2,500, 2,200, 3,000, 5,000, 2,000, 1,00,000, 5,000, 1,500, 8,000, 500, 2,000, 9,000, , Solution:, Business Accounting-1, , 152

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Srinivas University, , 1st SEMESTER-BBA, , Profit and Loss Account for the year ended 31st December, 2017, Particulars, Rs., To Rent, To Interest on loan, To Distribution charges, To Bad debts, To Taxes and insurance, To Salaries & wages, To Depreciation, To Office expenses, To Salesman salary, To, Stationery, and, printing, To Advertising, To net profit transferred, to capital account, , Rs., 10,000, 5,000, 2,500, 2,200, 2,000, 1,00,000, 5,000, 1,500, 8,000, 500, , Particulars, By gross profit, By Commission received, By Interest received, By Discount received, , Rs., , Rs., 5,25,000, 3,000, 5,000, 2,000, , 9,000, 389300, 535000, , 535000, , 12. The following information was extracted from the books of M/s.Sudha Ltd. Prepare final, accounts on 31.3.2002., Particulars, Opening stock, Depreciation, Carriage inwards, Furniture, Carriage outwards, Plant & machinery, Cash, Salaries, Debtors, Discount, Bills receivable, Wages, Sales returns, Purchase, , Dr(Rs), , 12,500, 7,000, 700, 8,000, 500, 2,00,000, 8,900, 7,500, 19,000, 1,500, 17,000, 16,000, 14,000, 86,000, 3,98,600, Closing stock on 31.12.2002 Rs.45,000., , Particulars, , Cr(Rs), , Sales, Commission, Capital, Creditors, Bills payable, Return outwards, , 1,89,000, 2,000, 1,71,300, 17,500, 5,000, 13,800, , 3,98,600, , Solution:, , Business Accounting-1, , 153

Page 154 :
Srinivas University, , 1st SEMESTER-BBA, , Trading and Profit and Loss Account for the year ended 31st December, 2017, Particulars, To Opening stock, To Purchase, Less: Return outwards, To Carriage inwards, To Wages, To gross profit c/d, , Rs., 86,000, 13,800, , To Depreciation, To Carriage outwards, To Salaries, To Discount, To net profit transferred, to capital account, , Rs., 12,500, 72200, 700, 16,000, 118600, 220000, 7,000, 500, 7,500, 1,500, , Particulars, By Sales, Less: Sales returns, By closing stock, , Rs., Rs., 1,89,000, 14,000, 175000, 45,000, , By gross profit b/d, By Commission, , 220000, 118600, 2,000, , 104100, 120600, , 120600, , Balance Sheet as on 31st December 2011, Liabilities, Creditors, Bills payable, Capital, Add: net profit, , Rs., 17,500, 5,000, 1,71,300, 104100, , 275400, , Assets, Furniture, Plant & machinery, Cash, Debtors, Bills receivable, Closing stock, , 297900, , Rs., 8,000, 2,00,000, 8,900, 19,000, 17,000, 45,000, 297900, , 1 Marks:, 1. Goodwill is, a. Current asset, b. An intangible fixed asset, c. Tangible fixed asset, d. An investment, 2. A trading account shows merely the result of trading called, a. Net profit, b. Net loss, c. Gross profit, d. None of the above, 3. The profit and loss account which shows, a. Net profit, Business Accounting-1, , 154

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Srinivas University, , 1st SEMESTER-BBA, , b. Gross profit, c. Net profit and gross profit, d. All the above, 4. The sheet containing the balances of assets and liabilities of a business, a. Trading account, b. Balance sheet, c. Profit and loss account, d. None of the above, 5. Return inwards falls under, a. Trading account, b. Balance sheet, c. Profit and loss account, d. None of the above, 6. Wages falls under, a. Trading account, b. Balance sheet, c. Profit and loss account, d. None of the above, 7. Sales return is deducted from, a. Sales, b. Purchases, c. Opening stock, d. Closing stock, 8. A decrease in the provision for doubtful debts would result in:, a. An increase in liabilities., b. A decrease in working capital, c. A decrease in net profit., d. An increase in net profit., 9. Account which prepared at the end and they show the final results of Accounting is, a. Profit and loss b. Balance sheet c. Trading d. Final account, 10. Manufacturing expenses falls under, a. Trading account, b. Balance sheet, c. Profit and loss account, d. None of the above, 11. Rent received (shown in adjustments) is an item of, a. Balance sheet, b. Profit and loss account, c. Trading account, d. Both balance sheet and profit and loss account, 12. Bad debt recovered comes under, a. Debit side of trading account, Business Accounting-1, , 155

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Srinivas University, , 1st SEMESTER-BBA, , b. Credit side of trading account, c. Debit side of profit and loss account, d. Credit side of profit and loss account, 13. Excess of asset over liabilities is, a. Capital b. Assets c. Liability d. All the above, 14. Excess of liability over assets is, a. Capital b. Assets c. Liability d. All the above, 15. General office expenses are charged to which of the following head, a. Administrative expenses b. Marketing Expenses, c. Selling expenses d. Financial Expenses, 16. The stock of goods remaining unsold at the end of the trading period is, a. Closing stock b. Opening stock c. Remained stock d. All the above, 17. Expenses paid during the current period but relate to the next period are, a. Prepaid expenses, b. Expenses paid in advance, c. Unexpired expenses d. All the above, 18. The incomes received during the current period but relate to the next period are, a. Incomes received in advance, b. Incomes received but not earned, c. Pre-paid incomes, d. All the above, 19. Debts which are definitely proved to be irrecoverable are called, a. Bad debt, b. Doubtful debt, c. Provision debt d. Loss, 20. In the course of manufacturing some waste material emerges is, a. Srap, b. Residue, c. Waste, d. All the above, 21. Consider the following data and identify the amount which will be deducted from Sundry, debtors in balance sheet, Particulars, Bad debts (from trial balance), Provision for doubtful debts(old), Current year‗s provision (new), , Rs, 1,600, 2,000, 800, , a. $400 b. $ 800 c. $2,000 d.$ 2,400, 22. Which of the following account is affected from the drawings of cash in sole-proprietorship, business, a. Capital account, b. Shareholder account, c. Liability account, d. Expense account, 23. Which of the following shows summary of a company‗s financial position at a specific date, a. Balance sheet, Business Accounting-1, , 156

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Srinivas University, , 1st SEMESTER-BBA, , b. Profit and loss account, c. Trading account, d. Both balance sheet and profit and loss account, 24. When the cost of goods sold exceeds the net sales the differences is, a. Net profit, b. Gross profit, c. Net profit and gross profit, d. All the above, 25.Sales=, a. Opening stock + purchases – closing stock, b. Purchases – closing stock + opening stock, c. Closing stock+ purchases- opening stock, d. Closing stock +purchases+ opening stock, 8 marks question:, 1. The following trial balance extracted from the books of Murugan, prepare trading, profit and, loss a/c for the year ended 31st Dec. 2001 and balance sheet as on that date., Dr., Cr., Rs., , Drawings, , 20,000, , Capital, , 1,89,000, , Plant & machinery, , 80,000, , Sundry debtors, , 70,000, , Sundry creditors, Purchases, , 50,000, 1,03,000, , Sales, , 2,20,000, , Sales returns, , 10,000, , Wages, , 40,000, , Cash in hand, , 5,000, , Cash at bank, , 10,000, , Salaries, , 38,000, , Stock, , 45,000, , Rent, , 10,000, , Manufacturing expenses, , 7,000, , Bills receivable, , 12,000, , Business Accounting-1, , Rs., , 157

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Srinivas University, , 1st SEMESTER-BBA, , Bills payable, , 20,000, , Bad debts, , 5,000, , Carriage inwards, , 9,000, , Furniture, , 15,000, 4,79,000, , 4,79,000, , 2. From the following Trial Balance of Rajkumar, prepare a Trading and Profit and Loss, Account for the year ended 31st December, 2011, Dr., Cr., Rs., Rs., Rajkumar‘s Capital, 85000, Rajkumar‘s Drawings, 7500, Stock on 1st January 2011, 12000, Purchases and Sales, 86000, 170000, Returns, 2000, 1000, Discounts, 500, 700, Commission Received, 1000, Income Tax paid, 700, Office Salaries, 17300, Office Rent, 2000, Advertising, 1700, Sundry Debtors and Creditors, 85000, 30000, Reserve for Doubtful Debts, 3000, Manufacturing Wages, 8600, Bills Receivable and payable, 5000, 5000, Carriage, 600, Machinery, 40000, Motor Vans, 7000, Land and Building, 10000, Office expenses, 1500, Cash at bank, 6000, Cash in hand, 2300, 295700, 295700, Adjustments:, 1) Stock on 31st December, 2011 was Rs 10000, 2) Debts worth Rs. 2000 should be written off as a bad., 3) Depreciate machinery by 5% and motor vans by 15%, 4) Reserve for bad and doubtful debts should be increased by Rs. 600, 5) Commission accrued and not received Rs. 500, 6) Goods worth Rs 500 were used by the proprietor for his personal use., 7) On 20th December 2011 a fire broke out in the shop and goods worth Rs. 2000 were, completely destroyed. The insurance company accepted the claim for Rs. 1500 only and paid the, amount on 1st January 2012, Business Accounting-1, , 158

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Srinivas University, , 1st SEMESTER-BBA, , 3. From the following balances Extracted from the books of Mr.Prasad, prepare Trading and, profit and loss account and balance Sheet as on 31st December, 2011., Dr(Rs), Cr(Rs), Capital and drawings, 10,000, 60,000, Bank overdraft, 8,400, Furniture and fittings, 5,200, Business premises, 40,000, Debtors and Creditors, 36,000, 26,000, Stock on 1-1-2011, 44,000, Rent, 2,000, Purchases and sales, 2,20,000, 3,00,000, Returns, 4,000, Discount, 3,200, 4,000, Taxes and insurance, 4,000, General expenses, 8,000, Salaries, 18,000, Commission, 4,400, Carriage on purchases, 3,600, Reserve for doubtful debts, 1,000, Bad debts, 1,000, 4,01,400, 4,01,400, Adjustments:, a. Stock on hand on 31-12-2011Rs 40,120, b. Depreciate business premises by Rs 600 and furniture and fittings by 10%, c. Make a reserve for doubtful debts at 5% on debtors, d. Allow interest on capital at 5% and, e. Carry forward Rs 1,400 for unexpired insurance, 4. The following trial balances are taken from the books of Mr.Ambarish, Prepare trading, profit, and loss and balance sheet for the year ended 31st March, Dr(Rs), Cr(Rs), Capital account, 1,00,000, Plant and Machinery, 78,000, Furniture, 2,000, Sales, 1,27,000, Purchases, 60,000, Returns, 1,000, 750, Opening stock, 30,000, Discount, 425, 800, Sundry Debtors and Creditors, 45,000, 25,000, Salaries, 7,550, Business Accounting-1, , 159

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Srinivas University, , 1st SEMESTER-BBA, , Wages, Carriage outwards, Provision for bad debts, Rent and rates, Advertising, Cash, , 10,000, 1,200, 525, 10,000, 2,000, 6,900, 2,54,075, , 2,54,075, , Adjustments:, a. Closing stock was valued at Rs 34,220, b. Provision for bad debt is to be kept at Rs 500, c. Allow interest on capital at 10%, d. Depreciate plant and Machinery by 10% and furniture by 5%, e. Outstanding Salary Rs 550 and prepaid rent Rs 1,000, f. Goods worth Rs 1,000, distributed as samples5. Prepare Profit and Loss Account and balance, sheet for the year ending 31.12.2017., Trial balance as on 31st December,2017, , Drawings, Plant and machinery, Freehold land, Loose tools, Bills receivable, Stock, Purchases, Wages, Carriage inwards, Carriage outwards, Coal and Coke, Salaries, Rent and Rates, Discount, Cash at bank, Cash in hand, Sundry debtors, Repairs, Works expansion, Bad Debts, Advertisement, Sales returns, Business Accounting-1, , Dr(Rs), 15,000, 40,000, 90,000, 3,000, 3,000, 40,000, 51,000, 20,000, 1,000, 500, 5,000, 5,000, 2,800, 1,500, 25,000, 400, 45,000, 1,800, 7,500, 1,200, 500, 2,000, , Capital, Bills payable, Sundry creditors, Purchases return, Sales, , Cr(Rs), 2,03,000, 3,800, 40,000, 2,650, 1,15,000, , 160

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Srinivas University, Gas and water, Oil and Grease, Furniture and fixtures, General expenses, Printing and stationary, , 1st SEMESTER-BBA, 200, 600, 1,200, 800, 450, , 3,64,450, 3,64,450, Write off Depreciation on plant and machinery at 5%, loose tools at 15% and furniture and, fixtures at 5%. Stock in hand on 31st December, 2011 amounted to Rs60,000. Provide on sundry, debtors at 5% for doubtful debts. Wages outstanding Rs1,500 and salaries outstanding Rs 450., 6. From the following Trial Balance of M/s. Ram & Sons, prepare trading and profit and loss, account and balance sheet for the year ending on 31st March 2002 and the balance sheet as on, the date:, Particulars, Opening Stock (1.4.2001), Purchases, Discount allowed, Wages, Sales, Salaries, Travelling expenses, Commission, Carriage inward, Administration expenses, Trade expenses, Interest, Building, Furniture, Debtors, Creditors, Capital, Cash, , Dr(Rs), 5,000, 16,750, 1,300, 6,500, , Cr(Rs), , 30,000, 2,000, 400, 425, 275, 105, 600, 250, 5,000, 200, 4,250, 2,100, 13,000, 2,045, 45,100, , 45,100, , 7. From the following balances taken from the books of Kripakar prepare a trading and profit, and loss account for the year ending 31st December 2017., (Rs), Business Accounting-1, , (Rs), 161

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Srinivas University, , 1st SEMESTER-BBA, , Sales, Returns inward, Carriage inward, Wages, Insurance, , 2,96,500, 6,500, 8,000, 46,000, 800, , Purchases, Returns outward, Carriage outward, Interest on investment, Rates and taxes, , 81,000, 1,000, 5,500, 2,500, 1,300, , Trade expenses, Stationary, Miscellaneous receipts, Stock on 1st January 2017, Manufacturing Expenses, Showroom expenses, Discount, Insurance, , 700, 400, 1,200, 22,000, 32,000, 5,000, 1,100, 750, , Sundry expenses, Sales commission, Repairs and renewals, Salaries, Maintenance expenses, Power and fuel, Office expenses, , 150, 850, 450, 19,500, 3,500, 12,000, 6,400, , Stock on 31st December 2017 was valued at Rs 12,500, 8. Prepare Profit and Loss Account, from the following balances of Mr. Kandan for the year, ending 31.12.2003., Office rent, Printing expenses, Tax, Insurance, Advertisement, Gross Profit, Salaries, Stationeries, Discount allowed, Travelling Expenses, Discount received, , Rs., 30,000, 2,000, 4,000, 36,000, 2,50,000, 80,000, 3,000, 6,000, 26,000, 4,000, , 9. Prepare Trading and Profit Loss Account for the year ending 31st March 2002 from the books, of Mr. Siva Subramanian., Stock (31.3.2001), Purchases, Purchases return, Postage, Carriage outwards, Wages, Business Accounting-1, , Rs., 15,000, 1,65,000, 10,000, 3,000, 4,000, 30,000, 162

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Srinivas University, , 1st SEMESTER-BBA, , Sales return, Salaries, Sales, , 5,000, 20,000, 200000, , 10. From the following trial balance, prepare trading and profit and loss account for the year, 31.12.2009, Particulars, , Dr(Rs), , Particulars, , Cr(Rs), , Purchases, Salaries & wages, Office expenses, Trading expenses, Factory expenses, Carriage inwards, Returns inward, Discount allowed, Stock, Income tax, Cash in hand, , 5,40,000, 3,50,000, 4,000, 8,000, 11,000, 8,000, 12,000, 4,000, 60,000, 40,000, 2,00,000, 12,39,000, , Sales, Returns outward, Discount received, Interest received, Capital, , 10,40,000, 12,000, 6,000, 3,000, 1,78,000, , 12,39,000, , 11. The following balances are taken from the books of M/s. RSP Ltd. Prepare profit and loss, account for the year ended 31st March, Gross profit, Rent, Interest on loan, Distribution charges, Bad debts, Commission received, Interest received, Taxes and insurance, Salaries & wages, Depreciation, Office expenses, Salesman salary, Stationery and printing, Discount received, Advertising, , Business Accounting-1, , Rs., 5,25,000, 10,000, 5,000, 2,500, 2,200, 3,000, 5,000, 2,000, 1,00,000, 5,000, 1,500, 8,000, 500, 2,000, 9,000, , 163

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Srinivas University, , 1st SEMESTER-BBA, , 12. The following information was extracted from the books of M/s.Sudha Ltd. Prepare final, accounts on 31.3.2002., Particulars, Opening stock, Depreciation, Carriage inwards, Furniture, Carriage outwards, Plant & machinery, Cash, Salaries, Debtors, Discount, Bills receivable, Wages, Sales returns, Purchase, , Dr(Rs), , 12,500, 7,000, 700, 8,000, 500, 2,00,000, 8,900, 7,500, 19,000, 1,500, 17,000, 16,000, 14,000, 86,000, 3,98,600, Closing stock on 31.12.2002 Rs.45,000., , Business Accounting-1, , Particulars, , Cr(Rs), , Sales, Commission, Capital, Creditors, Bills payable, Return outwards, , 1,89,000, 2,000, 1,71,300, 17,500, 5,000, 13,800, , 3,98,600, , 164

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Srinivas University, , 1st SEMESTER-BBA, BLUEPRINT, , Class: FIRST YEAR, Exam: I Semester Examination 2021, Subject: BUSINESS ACCOUNTING - 1, Subject Code: 21BBAHN/LS/PM/HA/PA/CM/IB21, Maximum Marks: 50, Maximum Time: 2 Hours, Objectives/, Knowledge, Understanding, Contents, O, SA, E O, SA E, 1(8) 1(1), Unit 1, 1(8), 1(1), Unit 2, Unit 3, 1(1), 1(1), 1(1), 1(1), 1(8), Unit 4, 1(1), 1(1), Unit 5, 4(1), 1(8) 4(1), 2(8), , Business Accounting-1, , Application/, Total number of Total, Questions & Marks marks, Skill, O, SA E, O, SA E, 1(1), 2(1), 1(8), 10, 1(1), 2(1), 1(8), 10, 1(8) 2(1), 1(8), 10, 2(1), 1(8), 10, 1(8) 2(1), 1(8), 10, 5(8), 2(1), 2(8) 10(1), 50, , 165