Bookkeeping and Accounting

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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.

 

 

 

 

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