Bookkeeping

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Bookkeeping 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

2,00,000

Jan. 3 Bought goods for cash

1,40,000

Jan. 5 P Paaid for stationary

2,000

Jan. 7 Sold goods for cash

80,000

Jan. 10 Pa 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 Pa 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

Ja Jan. n. 1 Capi Capita tall A/C A/C (Being  business started)

200,000

Jan.3 Purchases A/ A/C (Being goods bought for cash)

Jan. Jan.7 7 Sa Sate tess A/ A/C C (Being goods sold)

80,000

Jan.5 Stationery A/ A/C (Being stationary  purchased)

2,000

Jan.. 11 Sales Jan Sales A/ A/C C (Being goods sold)

20,000

Jan.10 Trade expenses (Being expenses paid)

2,000

Jan.. 14 Mr. Asif  Jan Asif  A/C (Being cash received)

10,000

Jan.15 Mr. Qadir A/C (Being cash paid)

20,000

Jan.. 25 Sales Jan Sales Af Aftt

90,000

Jan.18 Drawing A/C

6,000

(Being goods sold)

(Cash drawn for   personal use) Jan.22 Jan.2 2 Purcha Purchase se A/C (Being goods bought)

40,000

Jan.27 Jan.2 7 Elect Electricity ricity A/C (Being bill paid)

4,000

Jan.31 Jan .31 Sal Salary ary A/ A/C C (Being salary paid)

10,000

Jan.31 Jan .31 Ren Rentt A/ A/C C (Being rent paid)

3,000

Jan.31 Jan.3 1 Balan Balance ce c/d

4,00,00

Feb.. 1 Bal Feb Balanc ancee b/d

140,000

173,000 173,000

4,00,00

173,00 173,000 0

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  V.N. L.F.

Date Particulars 2012 Balance b/d

Amount ($)

V.N. L.F.

Amount ($ ($)

Particulars

80,000

Mar. Ma r. 1 Osm Osman an A/C (Being cheque received)

24,000

Mar. Ma r. 8 Ban Bank kA A/C /C (Being amount

20,000

withdrawn)

Date

2012 Mar. 1 Bank A/C (Being cheque deposited)

Mar. Purchases A/C 15 (Being goods bought for cash)

24,000

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

60,000

Mar. Salary A/C 30 (Being salary paid)

10,000

Mar. Balance c/d 31

84,000

for cash)

2,14,000

Apr.1 Balance b/d

 Note: Bank

2,14,000

84,000

balance and transactions 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

J/F

Amount $ 20,000

108,000

160,000

108,000

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 transactions, transactions, rath rather er an additi additional onal amoun amountt column iiss provided provided on each side side of 'Single Column Cash Book' for recording bank transactions. One more column amount provided the debit side and one on credit Single Column for Cash Book.isThese two on amount columns on debit side and side creditofside

 

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 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 time. For examp example, le, when we sell sell goods for  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  possiblee to have bo  possibl both th a debit en entry try and a ccredit redit 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. Thus a transaction in which Cash A/c and Bank A/c are involved, is recorded on  both the sides of Do Double uble Colu Column mn Cash Bo Book, ok, it is cal called led "contra entry", from 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 L//F

Cash $

Bank $

2012

Date P Pa articulars L L//F

Cash $

Bank $

2012

Mar. 1 Balance b/d

80,000

120,000

Mar. Bank A/c 4 (Being

C

24,000

cheque deposited) 3

Osman A/c (Being cheque received)

4

Cash A/c (Cheque deposited with bank)

24,000

C

8

24,000

Ca Cash A/c (Being cash withdrawn from bank)

15 Purchase A/c (Being goods  bought)

C

20,000

80,000

 

8

Bank A/c (Being cash drawn from  bank)

10

C

20,000

18 Cash A/c

Sales A/c (Being goods sold 'for cash)

30,000

20 R Raahim A/c (Cheque issued)

18

Sales A/c (Being goods sold for cash)

60,000

31 S Saalary A/c (Being salary paid)

30

Cash A/c (Being cash deposited)

C

16,000

C

April. Balance b/d 1

160,000

84,000

108,000

26,000

10,000

31 Rent A/c (Being rent  paid by cheque) 31 Balan ancces c/d

214,000

16,000

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 Rec Jan Receiv eived ed a che cheque que from from S. Ras Rashid hid

10,000 10, 000

Jan. 16 Rashid's cheque endorsed to Shakeel

--

Jan. 17 Paid Arshad Khan by a cheque

36,000

Jan. 18 Rashid's cheque returned dishonored

--

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

700

Jan. 31 Salary paid by cheque

14,000

Solution: Cash Book (double column) Date Particular L/F

Cash $

Bank $

2012 Jun. Balance b/d 1

Date P Pa articular L L//F

Cash $

Bank $

2012 100,000

60,000

Jan. M. Arshad 4 A/c

7

14,000

 

3

Sales A/c

5

40,000

8

Bank A/c

C

19,000

6

1

Babar A/c

9

8,000

8

Bank A/c

C

8,000

8

Cash A/c Ca

C

19,000

10 Cash A/c

C

15,000

8

2

Cash A/c

C

8,000

11 Dr Drawing A/c

11

24,000

10 B Baank A/c

C

15,000

12 P Pu urchase A/c

13

57,000

S.Rashid's 15 A/c

10,000

16 Shakeel A/c

16

10,000

15

3

19

4

Arshad Khan A/c

17

36,000

17 Arshad Khan A/c

17

36,000

21

5

19

1,400

27 Bank   charges A/c

20

700

31 Salary A/c

21

14,000

Interest A/c

24 S Saales A/c

5

33,000

31 Balance C/d

Feb. Balanced 1  b/d

206,000

124,400

112,000

20,700

112,000

20,7000

206,000

124,400

1. On 6.1. 6.1.2012, 2012, cheque received from Babar Babar is ttreated reated as cash cash because it is not deposited into the bank on the same date. 2. A contr contraa entry is pas passed sed when Bab Babar's ar's cheq cheque ue (which (which was treated treated as cash) is deposited into the bank on 8.1.2012. 3. On 15 15.1.2012 .1.2012,, cheque received ffrom rom S S.. Rashi Rashid d is treated as cash, so recorded in Cash Column. 4. Cheque is issued sued to Arshad Khan on 17.1.20 17.1.2012 12 is dishonored, dishonored, so the bank is debited again and Arshad Khan became a creditor again. 5. On 21.1 21.1.2012, .2012, the bank allowed u uss interes interestt which iiss revenue revenue for tthe he  businesss and our bank  busines bank balance is increased b by y $1,400 $1,400.. Note:

The transaction on 18.1.2012 is not entered in the Cash Book because it does not involve cash A/c or Bank A/c. Simply S. Rashid will 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) Cash A/C 3.1.2012 Cash A/C 3.1.2012

40,000 33,000

Baber A/C (Folio 9) Cash A/C

8,000

6.1.2012

S. Rashid A/C (Folio 15) Cash A/C

10,000

15.1.2012

Interest A/C (Folio 19) Bank A/C

1,400

2.1.2012

Arshad Khan A/C (Folio 17) Bank A/C

36,000

17.1.2012

Bank A/C 19.1.2012

M. Arshad Khan A/C (Folio 7) 14,000 4.1.2012

Drawings A/C (Folio 11) 24,000 11.1.2012

Purchase A/C (Folio 10) Cash A/C 12.1.2012

57,000

36,000

 

Shakeel A/C (Folio 16) Cash A/C

10,000

16.1.2012

Bank Charges A/C (Folio 20) Bank A/C

700

27.1.2012

Sales A/C (Folio 21) Bank A/C

14,000

31.1.2012

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 debit  balances. When When we bring these balances to the Trial 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 cr credit edit basis basis.. For each on onee of them, an Account is opened opened in the Ledger. As in the case of Debtors, a List of Creditors with the  balances due to to them is prepared. prepared. In the Trial Balan Balance, ce, instead of writing

 

the individual names of Creditors,, the total of the balances of the creditors 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.

1.

Sankars’ capital A/c

Credit Balance P.

Rs.

30,000

P.

 

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

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

19.

Miscellaneous

1,000

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 ou outt the diff difference erence between the the Selling p prices rices and Cost Cost  price. If the the selling p price rice exceeds the co cost st 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

Cr. Amount

Amount

Rs .

Rs.

P.

Particulars

P.

Amount Rs.

xxx

By Sales

xxx

Less: Returns Inwards

xxx

xxx

Amount P.

Rs .

P.

xxx xxx

To To Wages Freight

xxx xxx

To Carriage Inwards

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

By Closing Stock  By Gross Loss (to be transferred to P&L A/c)

xxx

xxx

xxx

xxx

xxx

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

Amount

 

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)

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 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 business 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

1,80,00 0

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 5,23,40 0

Stock as on 31.12.11 to Rs. 1, 00,000.

Solution:

5,23,400

 

Trading, Profit & Loss A/c of ABC For the year ending 31.12.11 Dr.

Cr.

Particulars To Stock (1.1.11) To Purchases 1,80,000 Less Returns 3,000

Amount 50,000

To Wages

70,000

To Carriage inwards

2,400

To Gross Profit C/d (transferred to P&L A/c)

52,200

To Salaries

To Rent

4,000

To Postage

1,000

To Interest

600 (Capital

Amount

2,51,600

By Closing Stock

1,00,000

1,77,000

3,51,600 24,000

To Net Profit A/c)

Particulars By Sales 2,54,800 Less Returns 3,200

By Gross Profit b/d (transferred from trading A/c)

By Discount received

3,51,600 52,200

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 --------------------------------

Less: Drawings

2,24,400 10,000

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 of all ledger accounts.

It shows the balances of personal aan nd rreeal 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

Its object is to reveal the financial position of the

accuracy.

 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. annually. It consists of 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 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 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 ,7 4 6

750 1,200 1,032 19,200 288

6,000 600

1,440

1,10,172

1,080 360 1,10,172

You are required to consider the following adjustments: 1. Stoc Stock k on Dec Decembe emberr 31, 20 2011 11 was v valued alued at Rs. 10,20 10,200. 0. 2. Provide ffor or doub doubtful tful debt debtss at 5% on Sundry Debtors and and for Discount Discount on Creditors at 2%. 3. Re Rent nt due due was was R Rs. s. 160 160.. 4. Taxes of R Rs. s. 320 320 wer weree paid paid in adva advance. nce. 5. Depr Depreciate eciate Furnitu Furniture re at 10% 10% p per er annum. annum. 6. Appr Apprenti entice ce Pr Premiu emium m of Rs. 1 120 20 was was to be  be carried forward. forward. 7. Calcu Calculate late in interes terestt on ca capita pitall at 5% per an annum. num.

 

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

880

880

By discount received By provision for  discount on creditors

720 160

To rates and taxes Less: Taxes paid in advance

1,200

To Provision for Bad Debts: Provision required Add: Bad Debts

960 1,032

320

80,376

By gross profit b/d By Apprentice Premium Less: Amount carried forward

2,640

Amount (Rs.)

9,690 750 120 630 360 120

1,992 Less: Existing Provision To depreciation on furniture To interest on capital To Net Profit (Transferred to Capital A/c)

600

1,392 570 1,350 3,088 10,800

10,800

 

Balance Sheet of ABC as on December 31,2011 Liabilities Current Liabilities: Rent Outstanding Apprentice Premium carried forward Bank Overdraft Bills Payable Sundry creditors Less: Provision for  Discount

Amount (Rs.)

Amount (Rs.)

160 120 1,200 1,080

Assets Current Assets: Cash in Hand Bills Receivable Sundry Debtors Less: Provision for  Doubtful Debts

Amount (Rs.)

288 1,440 19,200 960

6,000 120

18,240

5,880

10,200 320

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.)

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 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 like Govt. sup supported ported fo formats, rmats, multilingual multilingual 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 classificatio n 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 vou voucher cher for paym payment ent made by cash/cheq cash/cheque ue (F5) 2. Receipts Voucher ffor or all receipts in cash/cheque cash/cheque (F6 (F6)) 3. Journal Voucher for transaction transaction which does not involve cash/bank)(F7) cash/bank)(F7) 4. Sales Voucher for Credit Credit Sales (F8) (F8) 5. Purchase Vouchers Vouchers for Credit Purchases Purchases (F9) (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 collection 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 statements.. The following are the two basic financial statements –  (i)

The Income Statement

(ii)

The Balance Sheet.

(i) Inc Income ome St State atement ment (a (also lso kno known wn as Pro Profit fit and Lo Loss ss Acco Account unt)) 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 tthe he purpo purpose, se, it matches rrevenues evenues (in (incomes) comes) and cost (expenses) incurred in the process of earning revenues and shows the gross profit and the net profit earned or loss suffered during a particular   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 expenditure expenditu re or income, these accounts either increase or decrease the profit. 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)) Ba (ii Balan lance ce S She heet et

It is a financial statement that summarizes a company's assets, liabilities and shareholders' shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns 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 b business usiness ow owners. ners. (The o other ther major financial statements statements are the income statement, statement of cash flows, and statement of  stockholders' stockho lders' equity) The balance sheet is also referred to as the statement

 

of financial position. The balance sheet presents a company's financial  position  positio n at the end of a specifi specified ed 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 without lleaving eaving 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 tthe he left clos closing ing Debits and Credits balances on the 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 conclusion 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 required to prod produce uce a Profit & Loss Acco Account. unt.

 

3. Balance sheet: The Balance sheet at the Gateway of Tally screen  provides ready summar summary y figure still still the las lastt 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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