Bookkeeping and Accounting
Content
Bookkeeping Bookkeepin g and Accounting Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Many individuals mistakenly consider bookkeeping and accounting to be the same thing. This confusion is understandable because the accounting process includes the bookkeeping function, but is just one part of the accounting process. The accountant creates reports from the recorded financial transactions recorded by the bookkeeper and files forms with government agencies. There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system. Bookkeeping and accounting share two basic goals:
to keep track of your income and expenses, thereby improving your chances of making a profit
to collect the necessary financial information about your business to file your various tax returns and local tax registration papers
Single Column Cash Book in companies
It is a cash book in which only and only cash transactions are recorded. By single column we mean "one amount column" on each side of the Cash Book. One amount column on the debit side in which inflow of cash (cash received) is recorded and one amount column on the credit side in which outflow of cash (cash paid) is recorded. It is generally maintained by such business concerns which do not have bank accounts. (small business concerns).
Case study 1:
Enter the following transactions in the cash book of XYZ (a client of Account Age InfoTech Pvt Ltd) 2012
$
Jan. 1 Mr. Jamil started business with cash
2,00,00 2,00,000 0
Jan. 3 Bought goods for cash
1,40,000
Jan. 5 Paid for stationary
2,000
Jan. 7 Sold goods for cash
80,000
Jan. 10 Paid for trade expenses
2,000
Jan. 11 Sold goods for cash
20,000
Jan. 14 Received cash from Mr. Asif
10,000
Jan. 15 Paid cash to Mr. Qadir
20,000
Jan. 18 Withdrew cash for personal use
6,000
Jan. 22 Bought goods for cash
40,000
Jan. 25 Sold goods for cash
90,000
Jan. 27 Paid for electricity bill
4,000
Jan. 31 Paid salary
10,000
Jan. 31 Paid rent
3,000
Single Column Cash Book of XYZ Date Particulars V.N. L.F.
Amount ($)
2012
Date Particulars
V.N. L.F.
Amount ($)
2012
Jan. 1 Capital
200,000
Jan.3 Purchases A/C
140,000
(Being goods bought for cash)
A/C (Being business started) Jan.7 Sates A/C (Being goods sold)
80,000
Jan.5 Stationery A/C (Being stationary purchased)
2,000
Jan. 11
Sales A/C (Being goods sold)
20,000
Jan.10 Trade expenses (Being expenses paid)
2,000
Jan.
Mr. Asif
10,000
Jan.15 Mr. Qadir A/C
20,000
14
A/C (Being cash received)
Jan. 25
Sales Aft (Being goods sold)
(Being cash paid)
90,000
Jan.18 Drawing A/C (Cash drawn for personal use)
6,000
Jan.22 Purchase A/C (Being goods bought)
40,000
Jan.27 Electricity A/C (Being bill paid)
4,000
Jan.31 Salary A/C (Being salary paid)
10,000
Jan.31 Rent A/C (Being rent paid)
3,000
Jan.31 Balance c/d
4,00,00
Feb. 1 Balance b/d
173,000
173,000
4,00,00
A single column Cash Book may also be used even if an account is to be opened in a bank. In such a case, a separate Bank A/c will be opened in Ledger where all bank transactions are posted from Cash Book and other subsidiary books. An example is given below: Case study 2:
Enter the following transactions in a Single Column Cash Book and prepare Bank A/c in ledger. 2012
$
March 1
Cash in hand
80,000
March 1
Bank Balance
120,000
March 3
Received a cheque from Osman
24,000
March 4
Deposited Osman's cheque with bank
--
March 8
Withdrawn from bank for business use
20,000
March 10
Goods sold for cash
30,000
March 15
Goods bought for cash
80,000
March 18
Goods sold for cash
60,000
March 20
Paid Rahim by cheque
26,000
March 30
Deposited into bank
16,000
March 31
Paid salary in cash
10,000
March 31
Paid rent by cheque
6,000
Solution: Cash Book Date Particulars V.N. L.F.
2012 Balance b/d
Amount ($)
80,000
Date Particulars
2012
V.N. L.F.
Amount ($)
24,000
Mar. 1 Osman A/C (Being cheque received)
24,000
Mar. 1 Bank A/C (Being cheque deposited)
Mar. 8 Bank A/C A/C (Being amount
20,000
Mar. Purchases A/C 15 (Being goods bought for cash)
80,000
Mar. Sales A/C 10 (Being goods sold for cash)
30,000
Mar. Bank A/C 15 (Being cash deposited)
16,000
Mar. Sales A/C 18 (Being goods sold for cash)
60,000
Mar. Salary A/C 30 (Being salary paid)
10,000
Mar. Balance c/d 31
84,000
withdrawn)
2,14,000
Apr.1 Balance b/d
2,14,000
84,000
Note: Bank balance and transactions dated 20th March and 31st March are
not
recorded in Cash Book as they do not involve cash. Bank Account In Ledger Date 2012
Amount $ 120,000
Date 2012
Reference
Balance b/d
24,000
Mar. 8
Cash A/C
26,000
4
Cash A/C
16,000
20
Rahim A/C
6,000
5
Cash A/C
31
Rent A/C
31
Balance c/d
Mar. 1
Reference
J/F
160,000 April. 1
Balance b/d
108,000
J/F
Amount $ 20,000
108,000
160,000
Two/Double Column Cash Book:
Cash A/c and Bank A/c are two busiest accounts in ledger and they are removed from the ledger to reduce its volume and size. Cash A/c is removed from the ledger and instead of it the Single Column Cash Book is kept to record cash transactions. In the same way no Bank A/c is opened in ledger for recording bank transColumn transactions, actions, rrather atherBook' an add additional itional am amount ount colum column n is provided provided each side of 'Single Cash for recording bank transactions. Oneon more column for amount is provided on the debit side and one on credit side of Single Column Cash Book. These two amount columns on debit side and credit side will serve as Bank A/c and so it will not be necessary to open a Bank A/c in the ledger. The Cash Book having two Amount Columns on both sides is called 'Double Column Cash Book' . While writing Double Column Cash Book, keep in mind that there are two separate boxes - one for the cash and other for the bank: Dr Cash Box →
Cr
Dr
→
→
Bank Box
Cr →
When cash or Cheques (Cheques received but not deposited on the same date ) enters into cash box, Cash Column is debited and when cash or cheque goes out of the cash box. Cash Column is credited. On the other hand, when Cash or cheque enters into bank box, Bank Column is debited and when cash goes out of bank box, bank column is credited.
Contra Entry
In any account we can only have one half of a double entry. An account cannot be debited and and credited at the same tim time. e. For exam example, ple, when we ssell ell goods for cash, cash received will be recorded on the debit side of Cash Book and the goods sold will be posted on the credit side of Sales Account. But in Double Column Cash Book, we have two accounts, Cash A/c and the Bank A/c, so it is possible to to have bo both th a debit en entry try and a cr credit edit entry at the same time. time. For example, cash of $5,000 is deposited into the bank. In this transaction both Bank A/c and Cash A/c are involved and they will be recorded on both sides of Double Column Cash Book i.e. on the debit side in bank column and on the credit side in cash column column.. Thus a transaction in which Cash A/c and Bank A/c are involved, is recorded on both the sides sides of D Double ouble Column Column Cash Bo Book, ok, it is called "contra "contra entry", from
the Latin prefix contra meaning 'opposite to or against'.In recording such a transaction the letter "C", is written in 'L.F' column because both aspects of the transactions are recorded and there is no need to post them into the ledger.
Case Study 3:
Enter the following transactions in a double column cash book/two column cash book. 2012
$
March 1
Cash in hand
80,000
March 1
Bank Balance
120,000
March 3
Received a cheque from Osman
24,000
March 4
Deposited Osman's cheque with bank
--
March 8
Withdrawn from bank for business use
20,000
March 10
Goods sold for cash
30,000
March 15
Goods bought for cash
80,000
March 18
Goods sold for cash
60,000
March 20
Paid Rahim by cheque
26,000
March 30
Deposited into bank
16,000
March 31
Paid salary in cash
10,000
March 31
Paid rent by cheque
6,000
Solution: Double Column Cash Book Date Particulars L/F
2012
Cash $
Bank $
Date Particulars L/F
2012
Cash $
Bank $
Mar. Balance b/d 1
80,000
3
Osman A/c (Being cheque received)
4
Cash A/c (Cheque deposited with bank)
8
Bank A/c C (Being cash drawn from bank)
10
120,000
C
8
Cash A/c C (Being cash withdrawn from bank)
15
Purchase A/c (Being goods bought)
20,000
18
Cash A/c
Sales A/c (Being goods sold 'for cash)
30,000
20
Rahim A/c (Cheque issued)
18
Sales A/c (Being goods sold for cash)
60,000
31
Salary A/c (Being salary paid)
30
Cash A/c C (Being cash deposited)
31
Rent A/c (Being rent paid by cheque)
31
Balances c/d
April. Balance b/d 1
24,000
Mar. Bank A/c 4 (Being cheque deposited)
C
24,000
16,000
214,000
160,000
84,000
108,000
24,000
20,000
80,000
C
16,000
26,000
10,000
6,000
84,000
108,000
214,000
160,000
Posting from Cash Book to concerned accounts In Ledger:
Cash A/c and Bank A/c not have been opened in Ledger
For posting in Ledger, it will be very helpful to see the two columns on the debit side and credit side of the Cash Book first i.e. Particulars Column and L.F Column. On the debit side, in Particulars Column, the names of concerned accounts, (accounts which are credited when Cash A/C or Bank A/C are debited) are given and in L.F Column, the page numbers on which these accounts are opened in Ledger are given. The concerned accounts on the debit side in Particulars Column are Sales A/c, Babar A/c, S. Rashid A/c, Arshad Khan A/c and Interest A/c and on the credit side M. Arshad A/c, Drawing A/c, Purchase A/c, Shakeel A/c, Arshad Khan A/c, Bank Charges A/c and Salary A/c.
Case Study 4:
Enter the following transactions of ABC (a client of Account Age InfoTech Pvt. Ltd) 2012
$
Jan. 1
Cash in hand
100,000
Jan. 1
Cash at Bank
60,000
Jan. 3
Cash Sales
40,000
Jan. 4
Paid M. Arshad by a cheque
14,000
Jan. 6
Received a cheque from Babar
8,000
Jan. 8
Cash deposited into bank
19,000
Jan. 8
Babar's cheque deposited into bank
Jan. 10
Drew from bank for office use
15,000
Jan. 11
Drew from bank for personal use of owner
24,000
Jan. 12
Cash purchases
57,000
Jan. 15
Received a cheque from S. Rashid
10,000
Jan. 16
Rashid's cheque endorsed to Shakeel
Jan. 17
Paid Arshad Khan by a cheque
Jan. 18
Rashid's cheque returned dishonored
--
-36,000 --
Jan. 19
Our cheque to Arshad Khan was dishonored
--
Jan. 21
Received interest from bank
1,400
Jan. 24
Cash sales
33,00
Jan. 27
Incidental charges debited by bank
Jan. 31
Salary paid by cheque
700 14,000
Solution: Cash Book (double column) Date Particular L/F
Cash $
Bank $
2012
6
Cash $
Bank $
2012
Jun. Balance 1 b/d 3
Date Particular L/F
Sales A/c Babar A/c
100,000
60,000
Jan. M. Arshad 4 A/c
7
14,000
5
40,000
8
Bank A/c
C
19,000
9
8,000
8
Bank A/c
C
8,000
8
Cash A/c
C
19,000
10
Cash A/c
C
15,000
8
2
Cash A/c
C
8,000
11
Drawing A/c
11
24,000
10
Bank A/c
C
15,000
12
Purchase A/c
13
57,000
15
S.Rashid's 15 A/c
10,000
16
Shakeel A/c
16
10,000
19
4
Arshad Khan A/c
17
36,000
17
Arshad Khan A/c
17
36,000
21
Interest A/c
19
1,400
27
Bank charges A/c
20
700
24
Sales A/c
5
31
Salary A/c 21
31
Balance C/d
33,000
206,000
124,400
14,000 112,000
20,7000
206,000
124,400
Feb. Balanced 1 b/d
112,000
20,700
1. On 6.1.2012, cheque cheque received from Babar is treated as cash because it is not deposited into the bank on the same date. 2. A contra entry is passed when Babar's cheque (which was treated as cash) is deposited into the bank on 8.1.2012. 3. On 15.1.2012, cheque received from S. Rashid is treated as cash, so recorded in Cash Column. 4. Cheque issued to Arshad Khan on 17.1.2012 is dishonored, so the bank is debited again and Arshad Khan became a creditor again. 5. On 21.1.2012, the bank allowed us interest which is revenue for the business and our bank balan balance ce is increase increased d by $1 $1,400. ,400. Note:
The transaction 18.1.2012 notSimply enteredS.inRashid the Cash because it does not involve cashon A/c or Bank is A/c. willBook become debtor and Shakeel will become creditor again and entry will be passed in proper journal as: 18.1.12. S. Rashid A/C ............. Dr. 10,000 Shakeel A/C.............................. Cr. 10,000 Ledger Posting: Sales A/C (Folio 5) 3.1.2012 Cash A/C 3.1.2012 Cash A/C
40,000 33,000
Baber A/C (Folio 9) 6.1.2012 Cash A/C
8,000
S. Rashid A/C (Folio 15) 15.1.2012 Cash A/C
10,000
Interest A/C (Folio 19) 2.1.2012 Bank A/C
1,400
Arshad Khan A/C (Folio 17) 17.1.2012 Bank A/C
36,000
19.1.2012 Bank A/C
M. Arshad Khan A/C (Folio 7) 4.1.2012
14,000
Drawings A/C (Folio 11) 11.1.2012
24,000
Purchase A/C (Folio 10) 12.1.2012 Cash A/C
57,000
Shakeel A/C (Folio 16) 16.1.2012 Cash A/C
10,000
Bank Charges A/C (Folio 20) 27.1.2012 Bank A/C
700
Sales A/C (Folio 21) 31.1.2012 Bank A/C
14,000
36,000
Important Concepts of Accounting
1) Sundry Debtors: When a trader sells on credit basis, The Buyer‟s Account in the Ledger is debited. For each buyer, there is one Ledger a/c. Some of the buyer accounts may be automatically balanced. But it is quite natural that many of these Customer‟s Accounts have a deb it balances. When When we brin bring g these balan balances ces to the Tr Trial ial Balance, if we are going to write all individual names of customers, then the Trial balance will be too lengthy. Therefore, first a list of Debtors with their individual debit balances are prepared and totaled. Instead of writing the individual names of Debtors, the total is written under the heading “Sundry Debtors” which appears in the Trial Balance. 2) Sundry Creditors: There are a number of parties from whom the Trader buys goods goods on credit basi basis. s. For each o one ne of them them,, an Account is is opened in the Ledger. As in the case of Debtors, a List of Creditors with the balances due to them is prepared. In the Trial Balan Balance, ce, instead of writing writing the individual names of Creditors,, the total of the balances of the cr editors editors is written under the heading “Sundry Creditors”. 3) Trial Balance: Trial Balance can be defined as “a list of all balances standing in the Ledger Accounts and Cash Book of a concern at any given time. If a Statement is prepared with debit balances on one side and credit balances on the other side, the totals of the two sides will be equal. Such a Statement is called Trial Balance. Case Study 5: The balances extracted from the books of ABC (a client of Account Age InfoTech Pvt. Ltd) are given below. From the prepare Trial Balance on 31st March 2012. Rs.
Rs.
Sankar‟s Capital
30,000
Sundry Creditors
4,000
Sales
30,000
Cash in hand
1,800
Purchases
20,000
Cash in Bank
6,000
Interest (Dr)
400
Bills Receivables
11,000
Sales returns
1,000
Bills Payable
7,000
Purchases Returns
800
Discount earned
800
Sundry Debtors
15,000
Wages
7,000
Commission (Dr)
1,000
Rent
800
Plant and Machinery
8,000
Telephone charges
1,000
Misc. Income
400
Solution: Trial Balance of ABC as on 31st March 2012 S.No.
Name of Account
L.F.
Debit Balance Rs.
Credit Balance P.
Rs.
1.
Sankars‟ capital A/c
30,000
2.
Sales A/c
30,000
3.
Purchases A/c
20,000
4.
Interest A/c
400
5.
Sales Returns A/c
1,000
6.
Purchaes Returns
800
A/c 7.
Sundry Debtors
15,000
A/c 8.
Sundry Creditors
4000
9.
Cash in hand
1,800
10.
Cash at Bank
6,000
11.
Bills Receivable
11,000
A/c 12.
Bills Payable A/c
7,000
13.
Commission A/c Commission
14.
Discount Earned A/c
15.
Wages A/c
7,000
16.
Rent A/c
800
17.
Plant and
8,000
1,000 800
Machinery A/c 18.
Telephone charges A/c
1,000
P.
19.
Miscellaneous
400
income A/c Total
73,000
73,000
4) Trading Account: Trading refers buying and selling of goods. Trading A/c shows the result of buying and selling of goods. This account is prepared to find o out ut the diff difference erence between the the Selling prices and Cost Cost price. If the the selling p price rice exceeds tthe he cost price, it will bring bring Gross Profit. Profit. For example, if the cost price of Rs. 50,000 worth of goods are sold for Rs. 60,000 that will bring in Gross Profit of Rs. 10,000. If the cost price exceeds the selling price, the result will be Gross Loss. For example, if the cost price Rs. 60,000 worth of goods are sold for Rs. 50,000 that will result in Gross Loss of Rs.10, 000. Thus the Gross Profit or Gross Loss is indicated in Trading Account. Format of Trading A/c Trading Account for the year ending ___________ Dr. Particulars
To Opening Stock To Purchase Less: Returns Outwards To Wages To Freight To Carriage Inwards
Cr. Amount
Amount
Rs.
Rs.
P.
Amount Rs.
P.
xxx
By Sales
xxx xxx
xxx
Less: Returns Inwards
xxx xxx
Particulars
xxx xxx
By Closing Stock
Amount P.
Rs.
xxx
xxx
xxx
To Clearing Charges
xxx
To Packing charges
xxx
To Dock dues To Power
xxx xxx
To Gross Profit (to be transferred to P&L A/c)
xxx xxx
By Gross Loss (to be transferred to P&L A/c)
xxx
xxx
P.
5) Profit and Loss Account: Trading account reveals Gross Profit or Gross Loss. Gross Profit is transferred to credit side of Profit and Loss A/c. Gross Loss is transferred to debit side of the Profit Loss Account. Thus Profit and Loss A/c is commenced. This Profit & Loss A/c reveals Net Profit or Net loss at a given time of accounting year. Format of P&L A/c Profit & Loss Account For the year ending _________ Particulars
Amount
Particulars
To Trading A/c (Gross Loss)
By Trading A/c (Gross Profit)
To Salaries
By Commission earned
To Rent & Taxes
By Rent received
To Stationeries
By Interest received
To Postage expenses
By Discounts received
To Insurance
By Net Loss
To Repairs
(Capital A/c)
Amount
To Trading expenses To office expenses To Interest To Bank charges To Establishment expenses To Sunder expenses To Commission To Discount To Advertisement To Carriage outwards To Traveling expenses To Distribution expenses To Bad debt provision To Net Profit (transferred to Capital A/c)
6) Balance Sheet: The Word „Balance Sheet‟ is defined as “a Statement which sets out the Assets and Liabilities of a business firm and which serves to ascertain the financial position of the same on any particular
date.” On the left hand side of this statement, the liabilities and capital are shown. On the right hand side, all the assets are shown. Therefore the two sides of the Balance sheet must always be equal. Capital arrives Assets exceeds the liabilities. Format of Balance Sheet Balance Sheet of _________ As on _________ Liabilities
Amount
Assets
Amount
Sundry Creditors
xxx
Cash in hand
xxx
Bills Payable
xxx
Cash at bank
xxx
Bank overdraft
xxx
Bills receivable
xxx
Loans
xxx
Sundry Debtors
xxx
Mortgage
xxx
Closing Stock
xxx
Reserve Fund
xxx
Furniture & Fittings
xxx
Outstanding exp.
xxx
Investments
xxx
Capital
xxx
Plant & Machinery
xxx
xxx
Loose tools
xxx
Less : Net Loss
xxx
Land & Buildings
xxx
Less Drawings
xxx
Business premises
xxx
Less: Income tax
xxx
Horses & carts
xxx
Prepaid exp.
xxx
Patents & Trade marks
xxx
Good will
xxx
Add: Net Profit
(or)
xxx
xxx
7) Assets: Assets represent everything which a business owns and has money value. Assets are always shown as debit balance in the ledger. 8) Liabilities: All that the busines businesss owes to others are called Liabilities. It also includes Proprietor‟s Capital. They are known as credit balances in ledger.
Case Study 6: From the following trial balance extracted from the books of ABC (a client of Account Age InfoTech Pvt. Ltd) as on 31.12.11. Prepare (i) Trading and Profit & Loss A/c and (ii) Balance Sheet.
Trial Balance as on 31.12.11 Debit Balances Cash in hand
Rs. 2,000
Credit Balances Capital
Rs. 2,00,000
Machinery
60,000
Sales
2,54,800
Stock
50,000
Sundry Creditors
40,000
Bills receivable
1,600
Bank overdraft
22,000
Sundry debtors
50,000
Return outwards
3,000
Wages
70,000
Discount received
1,800
Land
40,000
Bills payable
1,800
Carriage inwards
2,400
Purchases
1,80,000
Salaries
24,000
Rent
4,000
Postage Return inwards
1,000 3,200
Drawings
10,000
Furniture
18,000
Interest
600
Cash at bank
6,600 5,23,400
Stock as on 31.12.11 to Rs. 1, 00,000.
5,23,400
Solution: Trading, Profit & Loss A/c of ABC For the year ending 31.12.11 Dr.
Cr.
Particulars To Stock (1.1.11)
Particulars By Sales 2,54,800
Amount
To
Amount 50,000
Purchases 1,80,000 Less Returns 3,000
1,77,000
Less Returns 3,200
2,51,600
To Wages
70,000
By Closing Stock
1,00,000
To Carriage inwards
2,400
To Gross Profit C/d (transferred to P&L A/c)
52,200
To Salaries
3,51,600 24,000
To Rent
4,000
To Postage
1,000
To Interest
600
To Net Profit A/c)
(Capital
By Gross Profit b/d (transferred from trading A/c)
By Discount received
1,800
24,400
54,000
54,000
Balance Sheet of ABC as at 31.12.11 Liabilities
Amount
Assets
Amount
Sundry Creditors
40,000
Cash in hand
2,000
Bank overdraft
22,000
Cash at bank
6,600
Bills payable
1,800
Machinery
60,000
Bills receivable Sundry debtors Land Furniture Closing Stock
1,600 50,000 40,000 18,000 1,00,000
Capital 2,00,000 Add: Net profit 24,400 -------------------------------2,24,400 Less: Drawings 10,000
3,51,600 52,200
2,14,400 2,78,200
2,78,200
DIFFERENCE BETWEEN A TRIAL BALANCE AND A BALANCE SHEET S.No.
Trial Balance
Balance Sheet
1.
It shows the balances of all ledger accounts.
It shows the balances of personal and real accounts only.
2.
It is prepared after the completion of the ledger accounts or arrival of the balances.
It is prepared after the completion of Trading and P&L A/c.
3.
Its object is to check the arithmetical accuracy.
Its object is to reveal the financial position of the business.
4.
Items shown in the Trial balance are not in order.
But in the B/S, the items shown must be in order.
5.
It shows the opening stock.
It shows the closing stock.
6.
It has the headings, debit and credit.
It has the heading of Assets and Liabilities.
9) Final Accounts: The final accounts are usually prepared annually. It consists of Trading Trading A/c, Profit and Loss A/c and a Balance Sheet. The Trading Account reveals Gross Profit or Gross Loss and the Profit and Loss Account shows Net Profit or. Net Loss. In the case of a trading concern the opening stock, purchases (net), and direct expenses are shown on the debit side of the Trading Account, and sales (net), and closing stock on its credit side.
The Gross Profit or Gross Loss is transferred to the Profit and Loss Account which is prepared to find out the Net Profit or Net Loss. The Gross Profit transferred from the Trading Account is shown on the credit side of the Profit and Loss Account and the indirect expenses and revenue losses on its debit side. In the Balance Sheet all assets are shown on the right hand side and all liabilities including including capital on the left hand side. The totals on two sides of the Balance Sheet must tally. At the time of preparing the final accounts we also have to make adjustments in respect of various items in order to arrive at the true profit or loss and the true financial position.
Case Study 7:
From the following following Trial Balance of ABC (a client of Account Age InfoTech Pvt. Ltd) prepare Trading and Profit and Loss Account for the year ended December 31, 2011 and Balance Sheet as on that date. Name of the Account
Capital Drawings Furniture Stock on January 1, 2012 Purchases and Sales Returns Salaries Rent Carriage Rates and Taxes Apprentice Premium Bank Overdraft Bad Debts Sundry Debtors Cash in Hand Sundry Creditors Provision for Bad Debts Bills Receivable Bills Payable Discount
Dr. Balances (Rs.)
Cr. Balances (Rs.)
27,000 4,260 5,700 8,760 62,172 1,260 2,640 720 1,500 1,200
71,436 1,746
750 1,200 1,032 19,200 288 6,000 600 1,440 1,080 360 1,10,172
1,10,172
You are required to consider the following adjustments: 1. Stock on December 31, 2011 was valued at Rs. 10,200. 2. Provide for doubtful debts at 5% on Sundry Debtors and for Discount on Creditors at 2%. 3. Rent due was Rs. 160. 4. Taxes of Rs. 320 were paid in advance. 5. Depreciate Furniture at 10% per annum. 6. Apprentice Premium of Rs. 120 was to be be carried forward. forward. 7. Calculate interest on capital at 5% per annum.
Solution: Trading and Profit and Loss Account of ABC for the year ended December 31,2011 Dr. Particulars
To opening stock To purchases Less: Returns outward
Cr. Amount (Rs.)
Amount (Rs.)
8,760 62,172 1,746 60,426 1,500 9,690
To carriage To gross profit c/d
Particulars
Amount (Rs.)
By sales Less: Returns inward
71,436 1,260 70,176 10,200
By closing stock
80,376
To salaries To rent Add: outstanding
2,640
To rates and taxes Less: Taxes paid in advance
1,200
To Provision for Bad Debts: Provision required Add: Bad Debts
960 1,032
Less: Existing Provision To depreciation on furniture To interest on(Transferred capital To Net Profit to Capital A/c)
320
1,992 600
80,376
880
By gross profit b/d By Apprentice Premium Less: Amount carried forward
880
By discount received By provision for discount on creditors
720 160
Amount (Rs.)
9,690 750 120 630 360 120
1,392 570 1,350 3,088 10,800
10,800
Balance Sheet of ABC as on December 31,2011 Liabilities
Amount (Rs.)
Amount (Rs.)
Amount (Rs.)
160 120 1,200 1,080
Cash in Hand Bills Receivable Sundry Debtors Less: Provision for Doubtful Debts
288 1,440 19,200 960
6,000 120
5,880
18,240 Closing stock Prepaid taxes
Long-term Liabilities:
Capital: Balance on 1-1-2011 Add: Interest on Capital Add: Net Profit for the year
Less: Drawings
Amount (Rs.)
Current Assets:
Current Liabilities:
Rent Outstanding Apprentice Premium carried forward Bank Overdraft Bills Payable Sundry creditors Less: Provision for Discount
Assets
10,200 320
Fixed Assets:
Furniture Less: Depreciation at 10%
27,000 1,350
5,700 570 5,130
3,088
31,438 4,260
27,178 35,618
35,618
Implementation of Accounting Software “Tally” “Tally”
Tally is a financial accounting software package designed by Tally Solutions date. It mainly for small businesses and shops. shops. Tally 9.0 is the latest version to date. is a complete business accounting and inventory management software that provides various ffacilities acilities lik likee Govt. ssupported upported formats, m multilingu ultilingual al operations, operations, online functions and processing for small and medium businesses. It offers a range of inventory options from simple inventory and stock management to advanced including invoicing, purchase orders, discount column in invoicing, flexible units of measure, stock query and multiple stock valuation methods. It includes Drill down display, complete bookkeeping options, flexible classification of accounts, general ledger, accounts receivable and payable, bank reconciliation and more operating with speed, flexibility and online help.
Journal Entry in Tally.erp 9 Most common and easiest transaction recording in tally.erp 9 is the Journal entry. Journal entry in tally.erp 9 also consist of debit and credit note. In Tally all Transactions are accounted by selecting a properly voucher 1. Payment voucher for payment made by cash/cheque (F5) 2. Receipts Voucher for all receipts in cash/cheque (F6) 3. Journal Voucher for transaction which does not involve cash/bank)(F7) 4. Sales Voucher for Credit Sales (F8) 5. Purchase Vouchers for Credit Purchases (F9) Process of Ledger Creation Go to Gateway of Tally > Accounts Info. > Ledgers
To Create Account Ledgers Individually select Create from Single Ledger under Accounts Info -> Ledgers -> Create The result will be as follow:
Introduction to Financial Statements
A financial statement is an organized collecti collection on of data according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment of time as in the case of a Balance Sheet or may reveal a series of activities over a given period of item, as in the case of a Income Statement. Generally, a business may have many financial statements. The following are the two basic financial statement statementss – (i) (ii)
The Income Statement The Balance Sheet.
(i) Income Statement (also known as Profit and Loss Account) It is considered to be most the useful of all financial statements. It explains what had happened to a business as a result of operations between two balance sheet dates. dates. For the purp purpose, ose, it m matches atches revenues (incomes) aand nd cost
(expenses) incurred in the process of earning revenues and shows the gross profit and the net pro profit fit earned or loss suffered d during uring a particular particular period. period. Income statement is a summary of accounts that affects the profit or loss of an enterprise. Many accounts shown shown in the trial balance relate to expendituree or income, these accounts either increase or decrease the profit. expenditur The accounts that increase the profit are shown in the credit side and the accounts that decrease the profit (losses and expenses) are shown in the debit side. The difference between the two sides is either profit or loss. Income statement has two parts, namely 1. Trading Account 2. Profit and Loss Account (ii) Balance Sheet
It is a financial statement that summarizes a company's assets, liabilities and equity at a specific time. threeowns balance sheetshareholders' segments give investors an ideapoint as to in what theThese company and owes, as well as the amount invested by the shareholders.
The accounting balance sheet is one of the major financial statements used by accountants accountants and bus business iness own owners. ers. (The o other ther major financial statements statements are the income statement, statement of cash flows, and statement of stockholders' stockhold ers' equity) The balance sheet is also referred to as the statement of financial position. The balance sheet presents a company's financial position at the end of a specifie specified d date.
FINAL ACCOUNTS AND TALLY
Final account depicts the summarized position of the activities, performance and state of affairs of the business. Naturally, these reports from the essence of the business. Anyone associated with the company must be quite curious to get these reports. One of the major advantages of Tally is its report generation. Using Tally‟s display option, you can get the desired reports easily. It provides excellent navigation facilities through buttons at Button bar to jump jump from o one ne report to another wit without hout leav leaving ing the screen. screen.
Appearance of various reports
1. Trial Balance: In Tally, the Trial Balance is displayed as a list of all primary Groups Groups on the left clos closing ing Debit Debitss and Credits Credits balances on the right. The Trial Balance is displayed in grouped form with main groups and their closing balances. In other words, the Trial Balance Report provides account balance listing for all the accounts for the company sorted according to groups. In Tally, the matching of the Trial Balance is a foregone foregone conclusion as all voucher entries are in the debit and credit format and must balance at the entry point.
2. Profit and loss account: The Profit and Loss Account is a statutory report that shows the operational results for a given period of time. It lists out the Incomes and Expenditures based on the Primary Groups of Tally. The Profit & Loss Account in Tally is updated instantly with every transaction voucher that is entered and saved. No special processing is requi required red to pr produce oduce a Pr Profit ofit & Los Losss Account.
3. Balance sheet: The Balance sheet at the Gateway of Tally screen provides ready ready summ summary ary figure still the last voucher entered. From From here, you can move on to any direction and any part of the system, even the lowest level and trace back.
