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. K. Saini LE-VAL ACADEMY “A Centre for Quality Education & Learning” K - 3, Green Park (Main), N. D. - 16. # 2651 8500, 2696 8844. By R. K. Saini 1. ACCOUNTING – MEANING, OBJECTIVES AND TERMINOLOGY Meaning In 1941 The American Institute of Certified Public Accountants (AICPA) defined accounting as: The arts of recording, classifying and summarising in a significant manner and in terms of money transactions and events, which are in part, at least, of a financial character and interpreting the result thereof. Accounting Process 1. Identifying the business transactions 2. Classifying the business transactions 3. Recording the business transactions 4. Summarising the business transactions 5. Interpreting the business transactions Accounting Year Books of accounts are closed annually. From the balances of different ledger accounts we prepare income statement and position statement. Income statement shows gross and net income of the business. Position statements traditionally known as Balance Sheet is a mirror, which reflects the true value of assets and liabilities on a particular date. There is no legal restriction bout the accounting year of sole proprietorship and partnership firm. They may adopt the accounting year of their choice. It may be between January 1 st to December 31 st of the same year or July 1 st of the year to June 30 th of the next year or between two Dewalis or even financial year, i.e. April 1 st to March 31 st of the next year. The only restriction is that the accounting period must consist of 12 months. Companies must adopt financial year as its accounting year. Entry LE-VAL ACADEMY K - 3, Green Park (Main), N. D. - 16. # 2651 8500, 2696 8844. 1
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Page 1: Accounts Basic Notes

By R. K. Saini

LE-VAL ACADEMY“A Centre for Quality Education & Learning”

K - 3, Green Park (Main), N. D. - 16.# 2651 8500, 2696 8844.

By R. K. Saini1. ACCOUNTING – MEANING, OBJECTIVES AND TERMINOLOGY

Meaning

In 1941 The American Institute of Certified Public Accountants (AICPA) defined accounting as: The arts of recording, classifying and summarising in a significant manner and in terms of money transactions and events, which are in part, at least, of a financial character and interpreting the result thereof.

Accounting Process

1. Identifying the business transactions

2. Classifying the business transactions

3. Recording the business transactions

4. Summarising the business transactions

5. Interpreting the business transactionsAccounting Year

Books of accounts are closed annually. From the balances of different ledger accounts we prepare income statement and position statement. Income statement shows gross and net income of the business. Position statements traditionally known as Balance Sheet is a mirror, which reflects the true value of assets and liabilities on a particular date. There is no legal restriction bout the accounting year of sole proprietorship and partnership firm. They may adopt the accounting year of their choice. It may be between January 1st to December 31st of the same year or July 1st of the year to June 30th of the next year or between two Dewalis or even financial year, i.e. April 1st to March 31st of the next year. The only restriction is that the accounting period must consist of 12 months. Companies must adopt financial year as its accounting year.

EntryAn entry is the systematic record of business transactions in the books of accounts. While

passing entries, the principle 'every debit has got its corresponding credit' is adopted. Different accounts are debited and credited in the entry with the same amount.

Objectives Of Accounting

A. Maintaining proper record of business.B. Calculation of profit or loss.C. Depiction of the financial position.

D. Providing effective control over the business.E. Making information available to various

groups.

Advantages From AccountingA. Replacing memory.B. Assessing the performance of the business.C. Assessing the financial status of the

business.

D. Documentary evidence.E. Assisting in realization of Debts.F. Facilitating the sale of the business.G. Preventing and detecting frauds.

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H. Helpful to management.Limitations Of Accounting

A. Incomplete information.B. Inexactness.C. Showing valueless assets.

D. Manipulation.E. Ignorance about the present value of business.

Difference Between Book –Keeping And Accountancy

Point of difference Book-keeping Accountancy 1. Object The object of book of accounts. It is

restricted to journal, subsidiary books and ledger accounts only.

The object of accounting is to record. Analyze and interpret the business transactions.

2. Scope It has limited scope and is concerned with the recording of business transactions.

It has wider scope as comp-red to book-keeping.

3. Level of work It is restricted to low level of work. Clerical work is involved in it.

It is concerned with low level, medium level and even top level management. Low level clerks prepare the accounts, medium level report it and top level interpret it.

4. Mutual

dependence

Book keeping is only art of recording transactions, so it has to depend upon accounting which makes it more meaningful and purposeful.

Accounting is based upon book-keeping which is its initial and vital part. It depends upon book-keeping.

5. Result of the business

It does not show the net result of the financial position of business.

Accountancy shows the net result of the business. It tells us about the profit earned and also about the assets and liabilities of the business.

6. Principles of Accountancy

In book-keeping, accounting concepts and conventions are followed.

The methods of reporting and interpretation in accounting may vary from firm to firm.

Users of Accounting InformationUsers of Accounting Information

i) Internal Users ii) External Users(Management at all levels)

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a) Direct Interest(Investors and Creditors)

b) Indirect Interest(Tax authorities, Regulatory agencies, Customers,Govt.

agencies, Labor unions, Trade associations, Stock exchange, Public and others)

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By R. K. Saini

“A Centre For Quality Education & Learning ”K - 3, Green Park (Main), N. D. - 16.

# 2651 8500, 2696 8844. By R. K. Saini

2. THEORY BASE OF ACCOUNTING Operating Guide Lines

Professionals in accounting have developed the following guide lines, which are classified as under:

Operating Guide Lines

1. Basic Assumptions 2. Basic Principles 3. Modifying principlea. Accounting Equityb. Going Concernc. Money Measurementd. Verifiable Objectivese. Accounting period

a. Revenue Realisationb. Matchingc. Full Disclosured. Dual Aspecte. Historical

Cost Principle

a. Materialityb. Consistencyc. Conservatismd. Timelinesse. Industry

Practicef. Cost Benefit

1. Basic Assumptions

Accounting Entity Assumptions

In accounts, we distinguish between the business and its proprietors. Business is assumed to have distinct entity i.e. existence other than the existence of its proprietors and other business units. As an accountant we are concerned with the business not the business man. We have to record business transactions from firm's point of view and never from the view point of proprietors. We record transactions in the books of shop, establishment, factory firm, company and enterprise and never in the books of proprietor, partners and share-holders. The capital introduced by the proprietor in its own business is considered liability from business point of view. The logic behind treatment of capital as liability is that the firm has borrowed funds from its own proprietors instead of borrowing it from outside parties. It would have been a liability if the funds would have been borrowed from outside agency, then why not, if is being invested by the proprietor himself. We also allow interest on capital to the proprietors because capital is supposed to be a liability. Interest on capital is an expense of the business, therefore, it will reduce the profit of the firm.

Going Concern Assumption

While recording business transactions in the books of accounts, we assume that the business will be carried on indefinitely. This is why, the business purchases fixed assets like land and building, plant and machinery, vehicles and furniture etc. If the assumption of going concern may not have been there, we would have hired these assets and not parched. These assets have been acquired for use and not for sale, so we maintain individual assets account and charge necessary depreciation on it. According to international Accounting standard, "The enterprise is normally viewed as a going concern, that is as continuing in operation for the foreseeable future". It is viewed that the enterprise has an intention to be carried on for longer period.

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Money Measurement Assumption Concept

In accounting, we identify and record only those business transactions which are financial in nature. Accounting transactions must have their monetary value. There is never any accounting record in metres. Litres, kilogram and quintals. We evaluate the vale of the commodities in terms of money and accordingly record them in the books of accounts. Recording transactions in monetary terms makes the information more meaningful. For example, statement that the business was started with Rs. 50,000 cash and 20,000 metres of silk is meaningless and fails to tell us the capital of the business. If the value of 20,000 metres of silk is estimated to be Rs. 5,00,000 we can safely say that the business was started with Rs. 50,000 + 5, 50,000 which will be meaningful.

The qualitative aspects of the business howsoever important are not recorded in the books of accounts, because they cannot be evaluated in terms of money. The efficiency of the management, harmonious relationship between workers and management, change in economic, industrial and fiscal policies of the government, change in consumers' preferences and fashion etc. vitally affect the performance of the business but are not recorded in the books of account because these qualitative aspects cannot be measured in terms of money.

Verifiable Objectives

The assumption of verifiable objectives means that every business record must be based and supported by documentary evidence. We do not pass any entry or make any positing in the subsidiary books unless there is a voucher used as documents for recording business transactions.

Objectivity of the documents means that these vouchers contain facts presented in an unbiased way they neither show favour nor prejudice to either the party making payment or the party receiving the payment. Verifiability here means examination or the scrutiny to the documents before they are recorded in the books of accounts. After accounting of the transaction entries and positing in the books of accounts are checked with reference to the vouchers by auditors.

Assumption of Accounting period

Strictly speaking the result of the business can be had at the end of its life. If a firm was started with a capital of Rs. 50,000 and at the end of its life the capital was Rs. 5,00,000 we can say that the firm earned a profit of Rs. 4,50,000 i.e., 5,00,000 – 50,000 during its life. In this way, business as a going entity will continue indefinitely and we will have to wait for the results, so the life span of accounting should be split into shorter and convenient period. At present, accounting periods are regarded as twelve months.

Proprietorship and partnership can choose their own accounting period but the difference between the closing date of two final accounts should not exceed twelve months. This period may a calendar year i.e., 1st Jan. to 31st Dec. of the year, and assessment year i.e., 1st April to 31st March of the next year or even Diwali to Diwali but always restricted to one year i.e. 12 months. In this way, accounting period concept may also be known as known as accounting year concept. In case of companies, accounting year must be the financial year i.e., 1st April to 31st March of the next year.

The assumption of accounting period facilitates the business in assessing its worth after a year. In order to make accounting meaningful, useful and legal accounting year concept cannot be ignored by any business house.

2. Basic Principles In Accounting

Revenue Realisation

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In accounting terminology, 'revenue' is the amount received or receivable from the sale of goods. We can determine the revenue as realised on the following basis:

a. Sales basis = Sales is supposed to be complete when title to goods is passed to the buyer and payment or promise to make payment is received from him in exchange. The principle explains that mere transfer of possession is not sale, as in the case of consignment where transfer of goods to the consignee, the agent is not a sale. In the same way all the payment received or receivable are not the revenue. Revenue will result only if there is an exchange of title to goods or services and payment received or receivable. For revenue the sale must be complete in the eyes of Indian sales of goods act. revenue is supposed to have been realised even if the payment becomes legally due to the buyer of goods or beneficiary of services.

b. Cash basis = Revenue is supposed to have been realised when actual payment is received. The case basis is adopted when there is doubt regarding realisation of the payment. In case of sales on hire purchase and installment basis, payment is made mom certain installments, split over a period of certain years. Sales in these cases will be supposed to be complete for the part of goods whose payment has been received.

c. Production basis = Revenue is supposed to be realised for part of work completed. Sale of goods or realization of sales proceeds is not the criteria according to production basis. This basis of ascertaining revenue is adopted, when sales basis and cash basis fail to identify revenue. In construction works, revenue is determined on production basis. The contractor engaged in construction of a multi-storeyed building is not paid the full value of work completed by him during the accounting period, so he prefers to determine his revenue on the basis of the work completed by him during the year.

The Concept Of Expense

According to Finney and Miller, "Expense is the cost of use of things or services for the purpose of generating revenue".

Principle Of Matching Cost & Revenue

Reasonable profit is the object of every business enterprise. The whole business structure is based upon the desire to earn profit. It has been the duty of accountants all over the world to evolve principle of calculating exact and accurate profit. The result of these efforts was the introduction of the principle of matching cost and revenue. According to this principle income can be ascertained by matching revenue of the business with its costs. Sales of Rs. 20,00,000 are revenue of the business but not the profit. We cannot determine profit or loss if only one information i.e., sales is given. We require cost of goods sold to calculate profit. In the above information regarding sales, if it is mentioned that the cost of goods sold (expense) and the result will be gross income. In this case, Rs. 20,00,000, - 16,00,000 = 4,00,000 is the gross income. Net income will be calculated after deducting selling and distribution expenses from the gross income.

Gross income or Gross profitGross income = Revenue – Expense Or

= Net sales – Cost of goods sold.Net Sales = Sales – Sales returns

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Cost of goods sold = Opening stock + Purchases + Direct expenses – Closing stock.

Net income or net profitNet income = Gross income – Indirect expenses + Revenue receipts.Net income = Gross income – Indirect expensesIndirect expenses – Gross profit = Net loss.

Cost of goods sold = Opening stock + Net Purchases + Direct expenses – closing stock.Cost of goods sold = Sales – Gross profit.

Principle of Dual Aspect

Assets :- These are the valuable articles owned by the business. Expenditure incurred in acquiring valuable things for the firm is assets.

Capital :- Capital is that part of wealth which is used for further production. In the context of dual concept capital supplies necessary funds to the business to purchase certain assets. In the absence of capital, there will be no funds with the enterprise and thus the question of acquiring assets does not arise. Capital = Assts.

Liabilities :- Capital invested by the proprietor falls short so the business has to borrow funds and thus the loan on the one side is the liability of the firm and on the other side it will be in the form of cash or other assets. The amount represented by both loan and assets are equal.

Assets = Capital + Liabilities OrCapital = Assets – Liabilities OrLiabilities = Assets – Capital

Historical Cost Principal

Accounting to this principle all business transactions must be recorded in the books of accounts at their monetary cost of acquisition. The principle is called historical, because the balance of assets and liabilities is carried forward from year to year at its acquisition cost, irrespective of increase or decrease in the market value of assets. Historical approach of presenting assets and liabilities has clear advantage over other approaches of valuation, because it is reliable, verifiable and definite. The use of historical cost as the basis provides verifiable and objective accounting information.

3. Modifying Principles

Modifying Principle Of Materiality

Accounting should disclose all the material information. Materiality here means the information which would have changed the results of the business, if it would have been disclosed. It does not mean that accounting should be over-burdened with information. Certain unimportant information may be avoided and others may be merged with important information. Certain information may also be furnished in footnotes. Most common information given in footnotes are:

I. Information regarding contingent liabilities.II. Information regarding market price of investments.

The accountant should always keep in mind that materiality does not mean leaking business secrets. It stresses not to conceal vital information with malafide intention. The principle because the material information for one business unit may not be material for the other. Materiality will differ with the size, nature and traditions of the business.

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Modifying Principle Of Consistency

It is also known as convention of consistency. Business is a going concern. It has to continue indefinitely. Important conclusions are drawn by comparing accounting statements of the current year with statements of the previous year. Accurate comparisons can be made, if the methods and practice of recording and presentations of accounts does not change. If the business has been charging depreciating on its fixed assets according to straight line method, it should go on charging depreciation with the same method every year according to the principle of consistency.

The principle of consistency will be supposed to be applie in certain cases where there is apparently inconsistency. For example, stock and investment are valued at cost or market price whichever is lower. It may be just possible that stock would have been valued at cost price during the previous year but during the current year stock is valued at market price because market price is lower than the cost price. such valuation seems to be inconsistent but actually it is in accordance with the principle of consistency because the principle remains constant. The principles states that financial reports should be prepared on the basis consistent with the preceding person.

Modifying Principle Of Conservatism (Prudence)

The business according to this principle adopts a very safe policy. It accounts for all the prospective losses but leaves aside all the prospective profits. Prudence in financial statements demands that we should avoid uncertainties and make sufficient provisions for unforeseen losses. For example, we value stock at cost price or market price whichever is lower. We go on depreciating land and building, though there may be appreciation in its value. It shows that the business has been adopting the policy of playing safe. Application of the principle of conservatism is evident from the following fats:

(i) Valuation of stock at cost or market price whichever is lower.(ii) Valuations of investment at cost or market price whichever is lower.(iii) Creation of investment fluctuation fund.(iv) Maintaining provision for bad and doubtful Debts.(v) Showing depreciation on fixed assets and not appreciation.(vi) Ignoring discount on creditors.

According to this principle business transactions should be recorded in such way that profits should not be over stated.Accounting is criticized for adopting the policy of conservatism. It does not accord equal treatment to prospective losses and prospective profits. It ignores prospective and expected income but highlight even the distant possibilities of losses.

Modifying Principle of Timeliness

This is one of the latest conventions of accounting. The principle means 'appropriate recording of business transaction at appropriate or proper time'. We record business transactions in order and sequence of dates. The business transactions of the particular day should preferably be recorded the same day while recording these transactions into books of accounts we follow the policy of 'first come, first served' i.e., transactions taking place on 1 st January will be recorded before the recording of the transaction of 2nd January.

Assignments

1. Point out whether following statements are true or false:i. Assets will be equal to capital if there are no liabilities.

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ii. It is binding upon every business to adopt basic assumption in accounting, while maintaining their books of accounts.

iii. 'Timeliness' is the basic assumption of accounting.iv. 'Verifiable objectives' is the modifying principle of accounting.v. Income = Revenue – Expense.

vi. Amount received in cash is an income.vii. Every accounting record must be based on documentary evidence.

viii. Basic assumptions bring uniformity in accounting.ix. According to business entity concept the existence of business and proprietors is

one and the same.x. Valuation of stock at cost price or market price whichever is lower does not

observe the modifying principle of consistency.

2. Supply the missing word/words in the following statements:i. Recording business transaction on the basis of documents is to observe

accounting assumptions of ……….ii. Treatment of capital in the books of the firm as liability observes the accounting

assumption of …………iii. The qualitative aspect of the business is not recorded in the books of accounts

according to the basic assumption of ……….iv. According to companies act, every company must close its books of accounts on

……. of the year.v. Accounting period consists of ….

vi. In construction works, revenue is identified on the basis of…..vii. ……….. of accounting can never be ignored.

viii. Revenue is identified on the basis of cash realised in case of …. System.ix. Expenses are…….. incurred but losses are ….. burden.x. Disclosing important information in accounting observes the principle of …..

3. What do you mean by accounting concepts? Explain the following concepts:i. Business entity concept

ii. Money measurement conceptiii. Accounting period concept.

4. Explain principles:i. Modifying principle of full disclosure

ii. Revenue realisation conceptiii. Modifying principles of industrial practiceiv. Dual conceptv. Principle of matching revenue with cost

5. Name five direct expenses.

6. Differentiate between Gross Profit and Net Profit.

7. Mention the full form of GAAP.

8. Sales during the year is Rs. 2,00,000. Gross profit is 25% on cost. Find out gross profit. [Rs. 40,000]

9. Calculate sales, if cost of sales is Rs. 80,000 and the Gross Loss is Rs. 33,000. [Rs. 47,000]

10.Calculate capital, if total assets are Rs. 1,50,000 creditors for goods are Rs. 90,000 and creditors for expenses are Rs. 15,000. [Rs. 45,000]LE-VAL ACADEMY K - 3, Green Park (Main), N. D. - 16. # 2651 8500, 2696 8844.

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11.Calculate cost of goods sold in the following cases. Necessary information are as under:

a. Opening stockRs.

20,000

Purchases 50,000

Wages 10,000 Carriage 2,000 Rent 3,000 Closing stock 12,000b. Sales Rs. 1,00,000 and gross profit 25% on sales.

[Cash A/c Rs. 70,000 ; B.Rs. 75,000]

12.The following figures are available relating to a business for the year 1993Rs. Rs.

Opening stock 20,000 Closing stock 10,000Purchases 1,00,000 Indirect expenses 10,000Purchases return 10,000 Sales 1,25,00

0Direct expenses 15,000 Sales Return 5,000

i. Cost of goods sold.ii. Gross Profit

iii. Net profit. [Ans. (a) Rs. 1,15,000 (b) Rs. 5,000 (c) Rs. 5,000.]

LE-VAL ACADEMY“A Centre For Quality Education & Learning ”

K - 3, Green Park (Main), N. D. - 16.# 2651 8500, 2696 8844.

By R. K. Saini

LE-VAL ACADEMY K - 3, Green Park (Main), N. D. - 16. # 2651 8500, 2696 8844.

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3. ACCOUNTING EQUATION

Introduction Of Creditors' Liability In Accounting Equation

It has been accepted fact that business does not possess any thing of its own. The business receives funds from proprietors and creditors and retains all of them in the form of various assets. This shows that capital + liabilities are always equal to assets. The fact can be presented in terms of accounting equation as under:

Equations:- Capital + Liabilities = Assets Or C + L = A OrAssets = Liabilities + Capital Or A = L + C OrLiabilities = Assets – Capital Or L = A – C OrCapital = Assets – Liabilities Or C = A – L OrAssets – Liabilities – Capital = Zero Or A – L – C = Zero.

Accounting equation is a statement of equality between debits and credits.

Practice questions

1. From the following information draft on equation for Mr. Varun on 31/12/1997.a. Started business with a bank account of 1 lakh.b. Withdrew = Rs. 10,000 from bank for office use.c. Purchased goods worth Rs. 40,000 on credit.d. Paid wages Rs. 10,000e. Wages due but not paid = 5,000f. Sold goods costing Rs. 30,000 for 10% profit on cost.g. Goods worth Rs. 4,000 was stolen from the factory.h. Commission due but not received by the firm amounted to Rs. 5,000.i. Purchased machinery worth Rs. 25,000 from 'X' limited.j. Interest on capital to be paid to an extent of Rs. 500 .k. Purchased a bike for personal use Rs. 20,000l. Interest on drawings to be charged for the month amounted to Rs. 100.m. Depreciate machinery @ 10% per monthn. Insu. premium paid during the month amounted to Rs. 800 which expired On 31/03/98.o. Received Rs. 500 from Mr. Hari whose debt was considered bad debt during the year.

2. Following is the accounting equations of Mr. Lal on 1998Asset. Rs. 1,00,000; Liability Rs. 40,000; Capital Rs. 60,000. Given below are some

transactions that took place in that month, incorporate them in the A/cing equations.a. Purchased shares costing Rs. 6,000 at Rs. 10,000b. Refund of insurance premium by the Insurance Company Rs. 1000c. Sold goods costing Rs. 5,000 at Rs. 8000 to Varun. He paid Rs. 3,000 is cash accepted

a bill of exchange for the balance.d. Outstanding salary Rs. 2,000 e. Received security deposit from tenant Rs. 25,000f. Discharge the Liability of 10, 000 in full settlement by a Cheque of Rs. 8,500g. Paid salary for Jan & feb. Rs. 4,000h. Received Rs. 5000 from a debtor in full settlements of his debt. of Rs. 5500i. Received a bill receivable for Rs. 2000 & cash Rs. 1000 from 'B' for sale of furniturej. Wages due but not paid Rs. 2000k. Depreciate office furniture by Rs. 1000l. Cash embezzled (fraud) by the accountant Rs, 1500m. Purchased goods from Rakesh worth Rs. 25,000 paid him Rs. 5000 on account.n. Commission received in advance Rs. 1300 o. Interest on capital is to be paid @ 12% for the month.

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3. How will you deal with the following transactions in Accounting Equation:a. Interest on capital.b. Rent due but not received.c. Outstanding salaries.d. Amount withdrawn by the proprietor.

e. Sale of goods costing Rs. 3,000 for Rs. 4,000 on credit.

f. Interest on loan borrowed by the firm.g. Commission received in advance.

4. Calculate total equity if:a. Owner's equity is Rs. 60, 000.b. Creditors equity is Rs. 50000.

c. Revenue earned during the period Rs. 70,000.d. Expenses during the period Rs. 65, 000.

5. Supply missing figures on the basis of Accounting equation mentioned as under:Assets = Liabilities + Capital40,000 = 20,000 + ?? = 10,000 + 15,00050,000 = ? + 35,000

6. Prove that the Accounting Equation is satisfied in all the following transaction of suresh:a. Commenced business with cash Rs. 60,000.b. Paid rent in advance Rs. 500.c. Purchased goods for cash Rs. 30,000 and credit Rs. 20,000.d. Sold goods for cash Rs. 30,000 costing Rs. 20,000.e. Paid salary Rs. 500 and salary outstanding Rs. 100.f. Bought motor-cycle for personal use Rs. 5,000.

[Ans. Assets = Rs.. 84,500: Liabilities = Rs. 20,100; Capital = Rs. 64,400]

7. Use Accounting Equation to show the effect of following transactions on assets, liabilities and capital and also show the final Balance Sheet:

Rs.a. Started business with cashb. Purchased goods on creditc. Purchased machineryd. Payment made to creditors in full settlemente. Depreciation on machinery

70,00018,00020,00017,5002,000

[Ans. Assets = Rs. 68,500 and Capital = Rs. 68,500]

8. Prepare accounting equations on the basis of the following:a. Rahim started business with cash Rs. 20,000.b. Rahim purchased furniture for cash Rs.2,000.c. Rahim paid rent Rs. 200.d. Rahim purchased goods on credit Rs. 3,000.e. Rahim sold goods (cost price Rs. 2,000) for Rs. 5,000 on cash.

[Ans. Assets = Rs. 25,800; Liabilities = Rs. 3,000; Capital = Rs. 22,800]

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K - 3, Green Park (Main), N. D. - 16.# 2651 8500, 2696 8844.

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4. JOURNAL

Summary of rules of Debit and Credit (Modern Approach)

Debit CreditIncrease in assetsIncrease in expense or lossDecrease in liabilityDecrease in capitalDecrease in revenue and profit

Decrease in assetsDecrease in expense or lossIncrease in liabilityIncrease in capitalIncrease in revenue or profit

The above approach towards debit and credit is termed as American approach or modern scientific approach. The rules have been developed after scientific study and analysis. They have been tested and verified in the real situations of accounting and therefore prove to be true for accounting record of all business transactions. The earlier conventionalor traditional approach towards recording business transac- tions and its rules for debit and credit were different. The traditional approach is discussed as under:

Traditional Rules of Debit and Credit Classification Of Accounts

Personal A/c

Real A/c

Normal A/c

Q 1. Explain the rule of debit and credit in case of the following:a. Revenueb. Expensec. Real A/c

d. Capitale. NominalA/c

Q 2. Explain the term:a. Opening journal entry b. Compound journal entry

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Nominal Accounts

Debit all expenses or lossesCredit all incomes or gain

Debit the receiverCredit the giver

Tangible Real A/c

Debit what comes inCredit what goes out

Natural Personal A/c

Intangible Real Accounts

Real Accounts

Impersonal Accounts

Artificial Personal A/c

Personal Accounts

Representative Personal A/c

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c. Narration d. Ledger folio

Q 3. Point out to which type of account, the following accounts belong:a. Capital A/cb. Interest on capital A/cc. Drawingsd. Debtors A/ce. Creditors A/c

f. Machine A/cg. Wages A/ch. Purchases A/ci. Sales A/cj. Sales returns A/c

Q 4. In what respects Bad Debts and Bad Debts recovered Accounts are different from each other from Accounting points of view.

Q 5. According to the modern approach of debiting and crediting accounts are classified in five basic terms. Name these terms.

Q 6. We receive lesser amount in case of discount allowed and also bad Debts. In what respects these two situations different.

Q 7. Complete the following sentences:a. Assets are debited for increase but liabilities are debited for…..b. Expenses are debited for increase but revenue is debited for……c. Capital account is credited for increase but debited for…..d. Capital increases with revenue but decreases with….e. In case of nominal accounts expenses are debited but incomes are….f. Decreases in assets are credited but decrease in capital is …..g. Goods returned to supplier is purchases return but goods returned by purchaser is ….

Q 8. Point out whether following statements are true or false:a. Every debit has it corresponding credit.b. Expenses decrease proprietors equity.c. Assets have debit balance.d. Liabilities have credit balance.e. Purchasing furniture for cash involves assets only.f. Trade discount is shown in the journal entry.g. In case of making payment of wages for construction of building wages account will be

debited.

Q 9. Identify the following accounts as personal, real and nominal:Drawing accounta. Punjab National Bank accountb. Prepaid Insurance accountc. Appreciation accountd. Loan accounte. Bad Debts accountf. Bad debts recovered accountg. Purchases accounth. Stationery A/c

Q 10.Record the following transactions in the Journal of Shyam Sunder: -1994 Jan.1 Shyam Sunder started business with Cash Rs. 75,000; Goods Rs. 30,000 and Typewriter

Rs. 5,000. 2 Sold goods to Bhushan of the list price of Rs. 10,000 at trade discount of 10%.5 Bhushan returned goods worth Rs. 1,000.10 Received from Bhushan Rs. 8,000 in full settlement of his account.

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12 Purchased Furniture for Rs. 6,000. Purchased goods from Navin for Rs. 25,000 less trade discount 12%.15 Returned goods to Navin goods of the list price of Rs. 2,000.16 Cleared the account of Navin by paying Cash, under a discount of 5%.20 Sold goods to Ajay Rs. 10,000 and Vijay Rs. 16,000.20 Received Cash from Ajay Rs. 9,800 in full settlement of his account.

Paid insurance premium Rs. 750.22 Paid for Shyam Sunder’s Life Insurance premium Rs. 1,200.24 Purchased goods for 8,000 for Cash at a trade discount of 10% and Cash discount 2%.26 Received Cash from Vijay at a Cash discount of 5% in full settlement of his account.31 Paid Rent Rs. 800; Advertisement Rs. 1,000; and Salaries Rs. 4,000.31 Received Commission Rs.500. [Ans. Grand Total Rs. 2,45,450]

Q 11.Following balances appeared in the books of Radhika Traders as on 1st January, 1994; Assets – Cash Rs. 8,000; Cash at Bank Rs. 7,000; Stock Rs. 30,000;Debtors – Mohan Rs. 10,000; Sohan Rs. 12,000; Dinesh Rs. 14,000; Furniture Rs. 5,000;

Building Rs. 25,000.Liabilities – Creditors – X Rs. 5,000; Y Rs. 6,000.

January 1994, the following transactions took place: Rs.2 Bought goods of the list price of Rs. 6,000 from Khanna Brothers

Less 15% trade discount and 2% Cash discount and paid 40% price at the same time.2 Received a draft from Mohan in full settlement and deposited it into Bank 9,7503 Purchased goods from Suresh of the list price of Rs. 8,000 at 20%

Trade discounts and paid him by cheque.8 Sold goods for Cash and received a cheque. 25,00010 Deposited the above cheque into Bank.12 Sohan deposited in our Bank A/c 4,00016 Paid Income Tax 5,60020 Received a cheque from Sohan and sent to Bank 7,800 Discount allowed 20021 Withdrew from Bank -- for office 2,000

for private use 4,00023 Sent a cheque to X in full settlement of his A/c 4,90026 Cheque of Sohan returned by the bank as dishonoured. 28 Dinesh was declared insolvent and a payment of 60 paise. In a rupee received from his

estate31 Bank allowed Interest 350 Paid for Rent by cheque 1,500 Paid for traveling expenses by cheque 500Pass Journal for the above transactions.

[Ans. Capital Rs. 1,00,000; Grand Total Rs. 2,35,450]

Q 12.Journalise the following transactions, post them into Ledger, balance the accounts and prepare a Trial Balance: -

March, 1994 Rs. 1 Shyam Sunder commenced business with Cash 80,0002 Purchased goods for Cash 36,0003 Machinery purchased for Cash 4,0004 Purchased goods from Raghu 22,000

Dilip 30,0006 Returned goods to Raghu 4,000

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8 Paid to Raghu, in full settlement of his account 17,50010 Sold goods to Mahesh Chand & Co. for Rs. 32,000 at 5% trade discount13 Received Cash from Mahesh Chand & Co, 19,800

Discount allowed 20015 Paid Cash to Dilip 14,850

Discount received 15020 Sold goods for Cash 25,00024 Sold goods for Cash to Sudhir Ltd. 18,00025 Paid for Rent 1,50026 Received for commission 2,00028 Withdrew by proprietor for his personal use 5,00028 Purchased a fan for Proprietor’s house. 1,200

[Ans. Cash balance Rs. 64,750; total of trial balance Rs. 1,74,850]

Q 13.Pass Journal Entries for the following transactions:-1. Provided depreciation on furniture Rs 500 and on machinery Rs. 2,000.2. Received Cash Rs. 1,000 for bad debts written off last year.3. Ajay Singh was declared bankrupt. He owed Rs. 25,000 to us. This amount was written off

as bad.4. Rs. 20,000 for wages and Rs. 4,000 for salaries are outstanding.5. Purchased furniture for Rs. 6,000 for the proprietor and paid the amount by cheque.

Q 14.Journalise the following transactions of Raj Kumar, a timber merchant:-1. Purchased timber from Kuldeep Kumar for Cash Rs. 2,000 and credit Rs, 10,000.2. Paid to Kuldeep Kumar in full settlement of his account Rs. 9,950.3. Paid rent in advance Rs. 480.

Q 15.Following was the position of Harish as on 1st January 1994:-Cash in hand Rs. 10,000; Cash at Bank Rs. 16,800; Furniture Rs. 8000; Stock Rs. 50,000; Debtors - Ram Rs. 8,000; Shyam Rs. 12,000; Creditors-Anil Rs. 4,000; Sunil Rs. 5,000.Following transactions took place during January 1994:-Jan., 19942 Received a Cheque from Ram in full settlement of his account after deducting 5% Cash

discount.4 Deposited the above cheque into Bank.5 Goods purchased for 20,000 at 10% trade discount and 5% Cash discount.

Payment made by cheque.6 Received a cheque from Shyam for Rs. 3,860 and discount allowed to him Rs. 140. Cheque deposited into the bank on the same day.10 Cash paid to Anil after deducting 2% Cash discount.15 Old furniture sold for Rs. 800.16 Sold goods to Shiv Parsad of the list price of Rs. 10,000 at a trade discount of 15%.18 Shiv Parshad returned goods of the list price of Rs. 1,000.20 Paid for furniture repairs to Bahadur Singh Rs. 100.25 Received a cheque from Shiv Parshad after deducting 4% Cash discount.

Cheque was deposited into bank.28 Bank charged Rs. 50 for ‘Bank Charges’.31 Received Commission Rs. 200.

[Ans.Capital Rs. 95,800; Grand Total Rs. 1,64,550.]

Q 16.Following balances appeared in the books of Ram & Shyam on January 1, 1994:-

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Assets:- Cash in hand Rs. 30,000; Stock Rs. 36,000; Lal Chand Rs. 7,600; Mukesh Khanna Rs. 16,200; Furniture Rs. 8,000.

Liabilities:- Ghanshyam Rs. 6,000; Vinod Rs. 8,000 Following transactions took place during Jan 1994:-

2 Purchased Typewriter for Rs. 7,5004 Sold goods for Cash of the list price of Rs. 25,000 at 20% trade discount and 5%

Cash discount.6 Sold goods to Gopal Seth for Rs. 10,000.8 Gopal Seth returned goods for Rs 1500.12 Purchased goods from Arun Rs. 12,000 ; and from Varun Rs. 15,000.13 Settled Arun’s account in full after deducting 5% for Cash discount.14 Paid Cash to Ghanshyam in full settlement of his account.16 Received Rs 7,500 from Lal Chand in full settlement of his account.17 Purchased a Scooter for office use Rs. 18,00020 Sold goods for Cash Rs. 20,000.22 Received from Gopal Seth Rs. 4,850 and discount allowed Rs. 150.26 Paid for wages Rs. 7,000 and salaries Rs. 3000.28 Withdrew goods for Rs. 2,000 and Cash Rs. 1500 for private use. 29 Paid for Life Insurance Premium of the proprietor Rs. 1600.

Journalise the above transactions, post them into ledger, balance them and prepare a trial balance. [Ans.Cash balance Rs. 25,350; Trial balance Total Rs. 1,56,800.]

Q 17.Pass Journal entries for the following transactions:-1. Purchase Machinery for Rs. 20,000 and paid Rs. 200 for its carriage.2. Received a cheque of Rs. 4,850 from X in full settlement of his account of Rs. 5,000.3. Received a first and final payment of 60 paise in a rupee from Y who owed us Rs. 10,000.4. Sold goods to Z for Rs. 10,000 at a trade discount of 20%. Next day a cheque was received

from him after deducting 5% Cash discount. Cheque was immediately deposited into Bank.

5. Goods costing Rs. 20,000 sold to Manoj at a profit of 20% on cost less 10% trade discount.

Q 18.Journalise the following transactions:-1 Goods for Rs. 5000 were destroyed by fire.2 Goods worth Rs. 1,800 were distributed as free samples and Rs. 2,000 were given away as

charity in Cash.3 Goods worth Rs. 2,500 and Cash Rs. 4,000 were taken away by the proprietor for his

personal use.4 Cash worth Rs. 2,000 and Cash Rs. 500 were given away as charity.5 Cash Rs. 10,000 was stolen from the Iron Safe of the trader.

Q 19.Journalise the following transactions in the Journal of Sh Navin Gupta:-1. Paid Insurance premium in advance Rs. 1500.2. Credit purchases from Ram & Co. for Rs. 5,000. Cash discount will be received at 5%

on payment of bill within 10days.3. Cash paid to Ram & Co. and discount availed of.4. Paid income tax Rs 2,000.5. Goods costing Rs. 20,000 sold for Cash at a profit of 10%.6. Goods sold to Khanna & Co for Rs. 5,000 and charged 8% sales tax on it.7. Received an order for goods from Surya Parkash for Rs. 6,000.8. Supplied the above goods at 5% trade discount.

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Q 20.Journalise the following transactions:-1. Charge depreciation on machinery.2. Salary due to office clerks.3. Received Cash for bad debts written off last year.4. Purchased goods from Ashok & Co for Rs. 5,000 at 20% Trade Discount. Half the

payment was made in Cash.5. Issued cheque to Ashok & Co. in full settlement.6. Paid Life Insurance Premium.7. Proprietor used goods for household purposes.8. Goods given free to a hospital out of business.

Q 21.Journalise the following transactions:1. Purchased a Motor Car for Rs. 60,000 and paid Rs. 5,000 for its repair and renewal.2. Received rent Rs. 500.3. Goods worth Rs. 2,000 were distributed as free samples.4. Charge depreciation on Motor Car Rs. 6,500.5. Rent due to Landlord Rs. 1,000 and salary due to clerks Rs. 8,000.6. Charge depreciation on motorcar Rs. 6,500.7. Rent due to landlord Rs. 1,000 and salary due to clerk Rs. 8,000.8. Goods uninsured worth Rs. 5,000 were destroyed by fire.9. Paid Rs. 1,000 for expenses on goods sold to Ramesh. This amount is to be realised from

Ramesh.10. Cash Rs. 500 and goods worth Rs. 2,000 were stolen by an employee.

Q 22.Journalise the following transactions:-1990 March.1 Started business with Cash. 50,0002 Purchased Machinery for Cash. 20,000

Paid installation charges on machinery. 2,0005 Purchased goods from X of the list price of Rs. 25,000. Trade discounts 20% and Cash

discount 5%. Payment was made in Cash immediately. 10 Sold goods to Y costing Rs. 10,000 at 30% profit on cost less 10% trade discount.15 Paid Rent 1,00020 Goods stolen from business. 2,00022 Given as charity ; Cash 100

Goods 20031 Purchased Post Cards and Envelops 5031 Purchased a typewriter for business. 5,000

Q 23.From the following transactions to M/s Read and Write, write up the Journal in proper form:1990 Jan.1 Assets: Cash in hand Rs. 2,000 Cash at bank Rs. 68,000, Stock of goods Rs. 40,000,

Machinery Rs. 1,00,000, Furniture Rs. 10,000, M/s Surya Bros. Owe Rs. 15,000, M/s Balu Bros. Owe Rs. 25, 000.Liabilities: Loan Rs. 50,000, Sum owing to Jain ltd. Rs. 20,000. Rs.

2 Bought goods on credit from Samuel & Co. 10,0003 Sold goods for Cash to Dhiraj & Co. 4,0004 Sold goods to Surya Bros.on credit 10,0005 Received from Surya Bros. in full settlement of amount due on Jan.1 14,500

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6 Payment made to Jain Bros. Ltd. by cheque 9,750they allowed discount 250

9 Old furniture sold for Cash 1,00010 Bought goods for Cash 7,50011 Balu Bros. Pay be cheque; Cheque deposited in bank 25,000

Paid for repairs to machinery 1,00013 Bought goods of Jain Bros. Ltd. 10,000

Paid carriage on these goods 50016 Received cheque from Surya Bros., cheque deposited in bank 9,500

Discount allowed to them 50017 Paid cheque to Jain Bros. Ltd. 10,00018 Bank intimates that cheque of Surya Bros. has been returned unpaid19 Sold goods for Cash to Kay Bros. 6,00021 Cash deposited in bank 5,00024 Paid Municipal Taxes in Cash 1,00025 Borrowed from Maheshwari Investment Co. Ltd for constructing own Premises. Money deposited with bank for the time being 10,00026 Old newspapers sold 20028 Paid for advertisements 1,00031 Paid rent by cheque 1,500

Paid salaries for the month 3,000Drew out of bank for private use 2,500Surya bros. Becomes insolvent, a dividend of 50P. In the rupee is received An old amount, written off as bad debt in 1987 is recovered 1,500

Q 24.Journalise the following transactions, post them in the ledger and prepare a Trial Balance: Jan.1, 90Assets: Cash in hand Rs. 550, Cash at bank Rs. 7,450, Stock Rs. 4,000, Machinery Rs. 10,000, Furniture Rs. 5,000, amount due from Ramesh & Co. Rs. 1,000, & from Suresh Rs. 2, 000.Liabilities: amount due to Rama Rs. 4,500, amount due to Ranjeet Rs. 2,000, & to Shyam Rs.1,500. 1990 Jan. Rs.

1 Purchased goods from Ajay. 4,5003 Sold goods for Cash 1,5005 Paid to Himanshu by cheque 5,50010 Deposited in bank 2,80013 Sold good on credit to Mukesh 1,70015 Paid for postage 10016 Received Cash from Rakesh 2,20017 Paid telephone charges 25018 Cash sales 1,50020 Purchased govt. securities 50022 Purchased goods worth Rs. 1,600 less 20% trade discount and 5% Cash

discount from Mahesh & Co. for Cash and supplied them to Ramesh & Co. At list, price less 10% trade discount

25 Cash purchases Rs. 16,50027 Goods worth Rs. 500 were damaged in transit, a claim was made on the

railway authorities for the same.28 Suresh is declared insolvent and a dividend of 50 paise in the rupee is received

from him in full settlement28 Bought a horse for Rs. 2,600 and a carriage for Rs. 1,200 for delivering

goods to customers, paid by cheque

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30 The horse bought on Jan.29 dies, and its car-case was sold for Rs. 1,00031 Allowed interest on capital @ 10% p.a. for one month31 Paid for: salaries Rs. 150, rent Rs. 60

Q 25.The following entries have been passed by a student. You have to state whether these entries are correctly passed. If not so, pass the correct journal entries.

(i) Cash A/c Dr. 7,000To interest A/c 7,000

(Being interest paid)

(ii) Mohan Dr. 10,000To purchase A/c 10,000

(Being purchase of goods from Mohan)

(iii) Hari Dr. 5,000To sales A/c 5,000

(Being credit sales of goods to hari)

(iv) Mukesh Dr. 1,000To bank A/c 1,000

(Being salary paid to Mukesh)

(v) Freight A/c Dr. 1,000To Cash A/c 1,000

(Being freight paid)

(vi) Repairs A/c Dr. 1,000To Cash A/c 1,000

(Being charges paid for overhauling an old Machine purchased)

(vii) Cash A/c Dr. 200To rakesh 200

(Being an amount of debt which was written offas bad debt last year, is received during the year)

(viii) Purchases A/c Dr. 1,000To Hari 1,000

(Being goods sold to hari earlier, now returned by him)

Q 26.Prepare journal entries of the following postings:--

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(i) Purchases A/c To Cash A/c 2,000

(ii) Salaries A/cTo Cash A/c 1,500

(iii) Interest A/c By Cash A/c 800

(iv) Mohan A/c To Cash A/c 5,000

Q 27.Give journal entries of the following posting in the ledger accounts.

DividendsBy Cash 1,500

InsuranceTo A 2,000

Discount To Bank 20

RentTo Cash 1,200

PlantTo CashTo Manohar

20,00040,000

Sales By Cash By Naresh

54,00037,000

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LE-VAL ACADEMY“A Centre For Quality Education & Learning ”

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By R. K. Saini5. LEDGER ACCOUNTS

Distinction Between Journal & Ledger

Difference between Journal and Ledger

Points of Difference

Journal Ledger

1. Primary record Journal is the primary record of business transactions.

It is the principal book of business transactions, not primary record.

2. Information Information regarding different Account is shown at one place.

Information regarding particular Account is shown at one place.

3. Basis Ledger Accounts are prepared taking Journal entries and subsidiary books as basis.

Ledger accounts are used as a basis for preparing Trial balance.

1. Take into consideration the following accounts mentioned below and point out whether their balance will be transferred to (i) Trading A/c (ii) P/l A/c or the account will be closed as balance c/d.

a. Cash A/cb. Salaries A/cc. Wages A/cd. Capital A/c

e. Machine A/cf. Bank overdraft A/cg. Debtors A/c andh. Creditors A/c

2. Ledger is the principal book of business? Explain.

3. On which side of the Assets A/c, you will record its opening balance?

4. What will be the closing balance of Liabilities A/c, whether debit or credit?

5. While closing Assets A/c we use the term Balance c/d, tell us whether Balance c/d will be written at the debit side or credit side of the account.

6. Mention the balance of stock A/c, Purchases A/c and Wages A/c. How will you close these accounts?

7. What is the balance of Prepaid Rent A/c? whether it debit or credit.

8. Mention two examples of each Assets, Liabilities, expenses and income.

9. Point out whether the following statements are true or false:a. The balance of expenses A/c is transferred to P/L A/c.b. In order to calculate net Purchases, returns outward is deducted from Purchases.c. Posting is made at the debit side of an account credited in the Journal Entry.d. Posting is made at the debit side of the A/c, which has been debited in the Journal Entry.e. Cash A/c need not be prepared, if Cash Book is maintained.f. Personal A/cs may have both the debit and credit balance.g. Assets A/c may have either debit or credit balance.

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h. If drawings exceed the capital introduced in the business, capital A/cs may have dr. balance.i. While preparing Capital A/c of the current year, the balance of the previous year is shown

as 'By Balance b/d'.j. While preparing a particular account. We do not use the name of the same A/c whether at

the debit or credit side.10.Complete the following sentences:

a. Posting is made at the ….. side of the accounts appearing at the debit side of the Cash Book.

b. Posting is made at the …… side of accounts appearing at the credit side of Cash Book.

c. While preparing parties A/c on the basis of Purchases book posting is made at the …. side of parties A/c.

d. While preparing accounts appearing in the Sales Return book posting is made at their…..side.

e. The balance of Purchase Return book is always…..

11. On 1st Jan.,2000 the following were the ledger balances of Rajan and Co:Cash in band, ks. 900: Cash at bank, Rs. 21,000 : Soni (Cr.) Rs. 3,000; Zahir (Dr.) Rs. 2,400; Stock, Rs. 12,000; Prasad (Cr.) Rs. 6,000; Sharma (Dr.), Rs. 4,500, lall (Cr.) Rs. 2,700. Ascertain Capital.

Transactions during the month were:2000 Rs.Jan. 2 Bought goods from Prassad 2,700Jan. 3 Sold to Sharma 3,000Jan. 5 Sold to Lall goods for cash 3,600Jan. 7 Took goods for personal use 200Jan. 13 Received from Zakir in full settlement 2,350Jan. 17 Paid to Soni in full settlement 2,920Jan. 22 Paid cash for stationary 50Jan. 29 Paid to Prasad by cheque discount allowed 2,650Jan. 30 Provided interest on capital 100

Rent due to landlord 200Journalise the above transactions and post them to ledger.

[Ans. Opening balance of Capital Rs. 29,100; Closing balance of cash Rs. 3,880]12. Post of the following transactions in the simple Cash Book and post them into ledger:

2001 Rs.Nov. 1 Cash in hand 2,000Nov. 8 Paid for wages 200Nov. 12 Outstanding salaries 100Nov. 15 Cash Purchases 700Nov. 28 Cash sales 400Nov. 31 interest on capital 20

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By R. K. Saini6. CASH BOOK

Contra Entries

Three column Cash Book has three columns for amount. There are certain transactions, which concern cash and bank. As the Cash Book represents cash and bank both so the transactions have to be recorded in both the cash and bank columns of the Cash Book. Contra transactions increase cash and decrease cash at bank. These transactions are as under:1. Opening current account with the bank.2. Depositing money into bank.3. Depositing a cheque into the bank, received previously.4. Withdrawing money for office use.

The above first three transactions will increase cash at bank, because in all cases the amount is being deposited into bank. These transactions are decreasing cash in hand at the same time because the amount deposited was taken from cash available with the firm. The increase in cash at bank has to be shown at the bank column of the Cash Book at the debit side. It is shown as 'To Cash or Office' and the amount is written in the bank column. As transaction refer to cash in hand also, so it will be recorded in the cash column also. Cash in hand is decreasing so it will also be shown at the credit side of Cash Book as 'By Bank Account' and the amount will be written at the cash column. The same transaction is recorded at both the contra and means contrary or opposite. In this way, contra entries are those entries which are recorded on both the opposite sides of the Cash Book.The above fourth transaction i.e., withdrawal of money from bank increases cash in hand, so it will be recorded at the debit side of the Cash Book as 'To Bank Account'. As the transaction will reduce cash at bank so it at the debit side of the Cash Book as ' By Cash or Office. It will be denoted by 'C' on both sides.

1. State whether the following statement are true or false.a. Cash Book records all cash receipts.b. The debit side of Cash Book is always greater.c. Discount columns are not balanced in Cash Book.d. All receipts are entered in the credit side of Cash Book.e. Only cash receipts and payments are recorded in the Cash Book.f. Payments are recorded at the credit side of Cash Book.g. Assets and Liabilities are two sides of the Cash Book.h. Credit transactions are not recorded in the Cash Book.i. It is preferable to use before every entry. "To" on the debit side and "By" on the credit side

of Cash Book.j. Trade discount is shown in the Cash Book.

2. Complete the following sentences:a. Cash Book records…..b. …..is a contra entry.c. All credit transactions are recorded at ….. side of the Cash Book.

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d. …. May have contra entry.e. Cash Book does not record….f. Cash column of the Cash Book has always …. balance.g. Bank column of the Cash Book has …. balance.h. Petty Cash Book records…. i. Discount column of the Cash Book is….

3. Differentiate between:a. Cash discount and trade discount.b. Discount allowed and discount received.c. Withdrawal from bank for office use and private use.d. Simple Cash Book and double column Cash Book.

4. Write up Cash Book of Bhanu Partap with Cash and Bank Columns from the following transactions:-March, 1994 Rs.

1 Cash in hand 2,710Cash at Bank 27,500

3 Received from Subhash 3,5004 Sold goods for cash 10,0007 Paid Rent by Cheque 8008 Paid Sohan by Cheque 3,00010 Bought goods for cash 15,00012 Paid cash for stationery 200

Drew from Bank for office use 8,00015 Received cheque from Surendra and sent it to Bank 6,60016 Paid for advertisement 75018 Issued cheque in favour of Nath Brothers 4,30019 Cash Sales 13,000

Paid into Bank 16,00020 Received cheque from Vinod and sent it to Bank 2,40022 Bought Scooter and paid for the same by cheque 18,00025 Bank returned Surendra’s cheque dishonoured 28 Paid salary by cheque 7,200

Paid trade expenses 2,00029 Cash sales 9,50030 Paid into Bank 10,000

[Ans. Cash Balance Rs.2,760 and Bank Balance Rs. 14,600]

5. Enter the following particulars in the cash book with cash and bank columns:-April, 1985

1 Balance of cash in hand Rs. 2000 and in bank Rs. 12,000.Received cash from Madhav Rs. 1800.

5 Cash sales Rs. 1,0006 Purchases by cheque Rs. 745.9 Paid into Bank Rs. 1850.10 Paid cash for freight Rs. 54.12 Drew from Bank for office use Rs. 600.13 Issued a cheque in favour of M/s Arun and Sons for Rs. 985.16 Paid into Bank Rs. 715.17 Drew cash for his son’s birthday party Rs. 175.

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19 Received a cheque from Navin for Rs. 380 & deposited it into bank on the same day.20 Cash sales Rs. 200.25 Drew from bank office use Rs. 200.26 Purchased furniture for Rs. 1000 and payment made by cheque.27 Navin’s cheque dishonoured bank charges Rs. 5.29 Purchased business premises, payment made by cheque Rs. 12,000.30 Received cheque for Rs. 675 from Harish.

[Ans. Cash in hand Rs. 3,681; Bank Overdraft Rs. 970]

6. Enter the following transactions in the cash book with cash and bank columns:-June, 1988

1 Cash in hand 800Bank Overdraft 5,700

7 Received a cheque from Bharti 3,2508 Deposit the above cheque into Bank12 Cheque returned dishonoured. 2,42515 Bharati’s cheque returned dishonoured20 Withdrew from Bank for office use 25025 Cheque received from Panna Lal. 1,20028 Panna Lal’s cheque was endorsed in favour of Kamal.30 Income tax paid by cheque. 15030 Bank charges 25

[Ans: Cash in hand Rs. 1050; Bank overdraft Rs. 8,550]

7. Enter the following transactions in the cash book with cash and bank columns:- April, 19801 Balance of Cash in hand Rs. 400, overdraft at Bank Rs. 5,0004 Invested furthur capital Rs. 10,000 out of which Rs. 6,000 deposited into the bank.5 Sold goods for cash Rs. 3000.6 Collected from debtor of last year Rs. 8,000.10 Purchased goods for cash Rs. 5,500.11 Paid Ram Vilas, our creditor Rs. 2,500.13 Commission paid to our agent Rs. 530.12 Office furniture purchased from Keshav in cash Rs. 200.14 Rent paid Rs. 5014 Electricity charges paid Rs. 10.16 Drew cheque for personal use Rs. 850.17 Cash sales Rs. 2,50018 Collection from Atul Rs. 4,000 deposited in the bank on 19th april.19 Drew from the bank for office use Rs. 500.24 Dividend received by cheque Rs. 50, deposited in the bank on the same day.25 Commission received by cheque Rs. 230, deposited in the bank on 28th April.28 Drew from the bank for salary of the office staff Rs. 1,50029 Paid salary of the manager by cheque Rs. 500.29 Deposited cash in the bank Rs. 1,000.

[Ans. Cash balance (Dr.)Rs 8,610; Bank Balance (Dr.)Rs. 2,930]

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8. Prepare a two column Cash Book ; -Jan., 1993 Rs1 Cash in hand 5,000 Bank Overdraft 1,0002 Paid Wages 1,5003 Deposited into Bank 2,0004 Cash sales 7,5005 Sold goods forcheque which was deposited in bank on the same day 5,0006 Purchased goods from Hari on credit 4,0007 Drew from Bank for personal use 1,0008 Paid to Hari in full settlement 3,5009 Received from Ram, who owns Rs. 5,000, Rs. 2,000 only on account.

[Ans. Cash in hand Rs. 7,500; Bank Rs. 5,000]

9. Write the following transactions in Double Column Cash Book and balance the Cash book ;-Jan., 1989 Rs.1 Cash in hand 6,000 Bank Balance (Cr) 3,0003 Deposited into Bank 2,0005 Received from Mohan 4007 Received a cheque from Hari and sent it to bank 6009 Received a cheque from Prem Mohan 1,60012 Withdrew from bank for office use 30013 Bought goods for cash 60014 Sold goods for cash 1,20016 Paid to Ganesh by cheque 49418 Prem Mohan’s cheque deposited in the bank20 Sold goods to Gopal for Rs. 1,500 for which he gave cash Rs. 800 and

A cheque of Rs. 700.22 Deposited into bank (including Gopal’s cheque) 90024 Paid rent by cheque 15026 Withdrew from bank for personal use 20028 Bank notifies that Prem Mohan’s cheque was dishonoured 30 Received against payment of Rs. 900 from Anil after allowing 10% discount, one

third in cash and balance by cheque. The cheque was deposited into bank. 31 Bank charges as shown in Pass Book 5

Paid Salary 500[Ans.Cash Balance Rs. 5,670; Bank Balance (Cr.) Rs. 109]

10.Prepare Double Column Cash Book from the following transactions:- May, 19801 Cash at office Rs. 72

Bank overdraft Rs. 1,2504 Received from Prem Chand a cheque for Rs. 1,875. The cheque was banked on the

same day. 5 Bought goods and paid by cheque Rs. 500.

6 Narinder settled his account of Rs. 700 by a cheque. This was banked on the same day.

8 Paid to Manohar Lal by a cheque for Rs. 420.9 Cash sales to date Rs. 400 of which Rs. 300 were banked.

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17 Sold old typewriter for cash Rs. 320 20 Received a cheque for Rs. 400 from Naresh which was endorsed to Suresh on the

same day.25 Received a cheque from Hari Prakash for Rs. 15027 Cheque of Hari Prakash was endorsed to Raj Prakash28 Withdrew from Bank for office use Rs 100 and for personal use Rs. 10029 Withdrew (from office) for payment of private bills Rs 42530 Paid by cheque salaries Rs 160 and rent Rs 10031 Bank charges as per Pass Book Rs. 5

[Ans. Cash Balance Rs 167, Bank Balance(Dr) Rs. 240]

11.Enter the following transactions in two columnar cash book:-Dec., 19891 Started business with cash 50,0002 Pays into Bank 29,0003 Received cheque from Raja &Co. 8004 Withdrew cash from bank for private use 240

9 Received cheque from Kamla 395Discount allowed 15

15 Kamla’s cheque endorsed to Balance Paid B/P by cheque 1,000Deposited into bank, balance of cash in excess of 450

[Ans. Cash Balance (Dr) Rs. 450. Bank Balance (Dr.) Rs. 49,110. Excess Cash deposited into Bank on 30th December Rs. 21,350]

12.Enter the following transactions in the cash book with cash and bank columns:- June, 19941 Balance of cash in hand Rs. 12,000; overdraft at bank Rs 1500.2 Deposited into bank Rs. 10,000

Sold goods for cash Rs. 28,000 and paid half the proceeds into bank.3 Received a money order from Suresh Rs. 500.

8 Received Rs. 2,800 from Govind. Paid Rs. 1000 into BankReceived a cheque for Rs. 7000 from Subhash and Cash Rs 900 in full settlement of Rs 8000 due from him

12 Paid Rs. 6600 to Manoj & Co by cheque and cash Rs 900 in full settlement of Rs. 8,000 due from him.

13 Cheque received from Subhash deposited into Bank15 Paid for purchase of machinery by cheque Rs 20,00016 Paid wages for the erection of above machinery Rs. 1,00017 Cheque issued for Rs. 6,000 in favour of Sachdev &Co for purchase of furniture20 Purchased goods from Kalpna Garments for Rs 10,000 on credit received a Bank

Draft for Rs. 4,800 from Damodar &Co. in full settlement of Rs. 5,000 due from them. Sent the draft to Bank

24 Bank issued a draft for Rs. 10,000 in favour of Kalpna Garments on our request. Bank charged Rs. 25 for issuing the draft.

25 Drew from Bank for petty cash Rs. 10028 Paid salary by cheque Rs. 6,00030 Bank charges Rs. 50 and interest Rs. 1,620 charged by bank

Deposited into bank the entire balance after retaining Rs 4,000 at office[Ans. Cash Balance Rs. 4000; Bank Overdraft Rs. 895, Excess cash deposited into bank on 30th June

Rs. 10,900]

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13.Prepare a cash book with cash and bank columns from the following transactions:-March, 1983 1 Cash in hand Rs. 10,800 and at bank Rs. 14,9604 bought goods for cheque Rs. 70005 bought goods for cash Rs. 50010 Purchased typewriter and payment made by cheque of Rs. 5,00014 Paid Trade Expenses Rs. 10516 Paid into bank Rs. 1,00018 Ramesh who owed us Rs. 500 became bankrupt and paid us 50paise in a rupee20 Received Rs 400 from Manohar23 Withdrew from Bank Rs 40023 paid Rs 300 to Ghanshyam Dass & Co24 Received Rs 2000 from Hari Ram and deposited the same into Bank25 Withdrew from Bank for private expenses Rs. 30027 Sold goods for cash Rs 20028 Received repayment of a loan of Rs. 5,000 and deposited Rs. 3,000 out of it into Bank.30 Bank charges as per Pass Book Rs. 5

[Ans. Cash in hand Rs. 12,145; Bank Balance Rs. 8,255]14.From the following transactions, prepare cash book with cash and bank columns:-

May, 19941 Cash in hand 4,800

Bank overdraft 30,4002 Fresh capital introduced 20,0003 Deposited into Bank 15,0004 An amount of Rs. 4,200 due from Ashok written off as bad debts in the previous year,

now recovered.6 Withdrew from Bank for the payment of Life Insurance Premium 30006 Received a cheque from Mahesh for Rs. 6,000 and deposited the same into the bank.10 Sold goods to Varun on Credit. 30,00012 Received a cheque for Rs. 28,000 from Varun in full settlement.15 Cheque received from Varun sent to Bank18 Varun’s cheque returned by Bank dishonoured. Bank charged Rs. 25 on this cheque.20 Received a cheque of Rs. 6,800 from Vijay which was endorsed to AmritRaj on the same

day.24 Withdrew cash from Bank Rs. 5,000 for paying gift to his daughter on her birthday.25 Bought goods from Gupta General Store for Rs. 10,000 on credit and they allowed us

trade discount of 25%.28 Paid to Gupta General Stores in cash in full settlement. 7,00028 Sale of old machinery, payment received in cash Rs. 7,70030 Paid Salary by Cheque Rs. 1500. Paid Rent in cash Rs. 2200Paid into current account the entire balance after retaining Rs. 5,000 at office.

[Ans:-Cash Balance (Dr) Rs. 5,000. Bank Overdraft Rs. 11,425. Excess Cash deposited into bank on 31st May Rs. 7,500]

15.Record the following transactions in a petty cash book on 1st may, 2003 Rs. 250 were given to petty cash clerk who made the following payments:-

May, 20032 Stationary Rs. 10; Postage Rs. 15; Travelling Expenses Rs 157 Bus Fare Rs. 4; Coolie wages Rs. 5, Telegram Rs. 912 Thela hire Re 5; Repair Expenses Rs. 1020 Coolie wages Rs. 6

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25 Refreshment Expenses Rs 12; Printing Rs 15; Thela hire Rs. 6 27 Postage Rs. 20; Railway freight Rs. 1831 Entertainment Expenses Rs 16; Taxi Fare Rs 234; Chowkidar wages Rs. 25.

[Ans Petty Cash Balance Rs. 36]16.Enter the following transactions in the Double Columns Cash Book of M/s Mahinder General

Store:-Jan., 20031 Cash in hand 1002.50

Cash at Bank 5000.005 Deposited in the bank 1000.008 Rent Paid by cheque 250.0010 Withdrew money from Bank for business use 400.0012 Drawings 100.0030 Received a cheque from Pawan and deposited into Bank 700.0030 Pawan’s Cheque returned dishonoured by bank20 Deposited into Bank, balance of Cash in excess of Rs 250.

[Ans. Cash Balance Rs 250; Bank Balance Rs. 5402.50]17.Enter the following transactions in a two column cash book:-

(a) Commenced business with cash Rs. 50,000.(b) Deposited in bank Rs. 40,000(c) Received cash from Mohan Rs. 950 in full settlement of a debt of Rs. 1,000.(d) Bought goods for cash Rs. 10,000(e) Bought goods by cheque Rs. 15,000.(f) Sold goods for cheque for Rs. 20,000 and deposited in Bank on the same day(g) Paid to Arun by cheque Rs. 1900 in full settlement of his account of Rs. 2,000.(h) Drew from Bank for office use Rs. 1,000.

[Ans. Cash in hand Rs. 1,950 ; Bank Rs. 42,100.]18.Given are the Cash transactions in the business of Mahesh bros. In May 1999.

May 1 Balance of cash Rs. 15,000 and that of bank (overdraft) Rs. 7,400.May 2 Further capital introduced Rs. 30,000 of which Rs. 25,000 is deposited into

bank the next day.May 3 Purchased goods on credit from Madan at list price of Rs. 15,000 after a trade

discount of 15%May 4 Settled in full, the account of madan by paying cash Rs. 11,600 only.May 6 An amount of Rs. 2,500 due from lal written off as bad debts last year is now

recovered.May 9 Cashed a cheque for Rs. 7,500.May 10 Drew from bank for household expenses Rs. 3,800.May 14 Received from sale of old chairs Rs. 2,700.May 16 Received a cheque from Naresh for cash sales Rs. 4,210.May 18 Cheque received from Naresh sent to bank.May 20 Sagar who owed us Rs. 10,000 becomes insolvent and pays 40p in a Rs.May 22 Paid to Dayal Rs. 1,320 against a debt of Rs. 1,400.May 25 Discounted a B/E from the bank for 3 months @ 6% p.a. of Rs. 6,000.May 28 Received a repayment of loan Rs. 3,600 and deposited Rs. 2,000 in the bank on

the same day.May 29 Cheque received from Naresh is dishonoured. Bank debits Rs. 20 on account

of bank charges.May 30 Retained only Rs. 5,000 as cash at band and deposited the balance at bank.Prepare :- (a) Cash Book (b) Naresh A/c, in the books of Mahesh Bros.

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LE-VAL ACADEMY“A Centre For Quality Education & Learning ”

K - 3, Green Park (Main), N. D. - 16.# 2651 8500, 2696 8844.

By R. K. Saini7. SUBSIDIARY BOOKS

1. Where will you record the following transaction:i. Cash sales of goods

ii. Credit Purchases of goodsiii. Goods purchased for cash

iv. Credit sales of goodsv. Credit sales of assets

vi. Cash Purchases of assetsvii. Credit Purchases of assets

viii. Sale of furniture be Mohan & Sons, furnishers, Cannaught placeix. Return of goods previously sold on credit.x. Returns outward of goods.

2. Complete the following sentences:a. Purchases book recores…b. Sales Book records….c. Purchases Return book records……d. Sales Return book records…..e. Journal proper records…f. Cash A/c always shows …. balance.g. Purchases book always has … balance.h. Sales Book has … balance.i. Return outward book has …. Balance.j. Return inward book has ….. balance.

3. Prepare Purchases and Sales Book in the books of Sachin Book Depot from the following transactions: -

1994 March 2 Purchases from Shyam Lal, on Credit

100 Copies of 'Accountancy' by D. K. Goel @ Rs. 50 each50 Copies of 'Management' by B. P. Singh @ Rs. 20 eachTrade Discount 20%

6 Sold to Arora Book Center, on Credit 80 Copies of 'Economics' by B. L. Gupta @ Rs. 40 each60 Copies of 'Commerce' by C. B. Gupta @ Rs. 25 eachTrade Discount 15%.

15 Bought from Ravi Furniture Co. 20 Chairs at Rs. 150 each on Credit.20 Bought from Sarasvati House :-

200 Copies of 'Mathematics' by P. K. Garg @ Rs. 45 each160 Copies of 'Commerce' by Maheshwari @ Rs. 30 eachAdd : Packing Charges Rs. 40Trade Discount 15%.

22 Sold to Brij Mohan & Co. :-140 Copies of 'General English Book' by @ Rs. 30 each

25 Sold to Surjeet Book Depot, for Cash :-

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125 Copies of 'Commerce' by Mittal @ Rs. 42 each28 Sold to Sunrise Book Store, on Credit :-

5 Dozen 'Parker Pen' @ Rs. 25 per Pen20 Dozen 'Note Books' @ Rs. 6 per Note Book25 Dozen 'Pencils' @ Rs. 20 per Dozen

31 Received Cash from Arora Book Center Rs. 2,500.[Ans. Purchase Book Rs. 16,530 & Sales Book Rs. 11,635]

4. Write up Return Outward Book of Malthotra & Co., Bhiwani from the following transactions:-1994 August

4 Returned to Saraswati House 25 Chairs @ Rs. 180 per Chair, being not of specified quality.

12 Sent back one Dining Table to Navneet Enterprise, Karnal for not being polished @ Rs. 800 and 20 Chairs @ Rs. 190 each.

20 Returned to Yadav & Co., Rewari, being not according to sample :-20 Chairs @ Rs. 200 each.2 Dressing Tables @ 1,500 each.

28 Allowance claimed from Navneet Enterprise, Karnal on A/c of mistake in the invoice Rs.620. [Ans. Total of purchase return book Rs. 16,270]

5. Enter the following transactions in the returns inward book of Anand Cloth House, Ajmal Khan Road, New Delhi: -Oct. 3 Chakravarti & Co. Jaipur, returned to us being not according to sample: -

50 Metre Cotton Cloth @ Rs. 40 per Metre30 Metre Silk Cloth @ Rs. 100 per MetreTrade Discount 20%

12 Narain Rai & Co., Indore, returned being not up to the approved sample:-25 Metre Woolen Cloth @ Rs. 80 per Metre

20 Goods Sold to Janki Sita Ram now returned by them, being defective valued at Rs.1,560.

29 Allowance allowed to Kesri Lal & Sons, Sadar Bazaar, on account of a mistake in the invoice Rs. 440. [Ans. Sales Return Book Rs. 8,000]

6. Prepare Returns Inward and Returns Outward Books from the following :-1994 January

3 Returned to Bata Shoe Co.50 pairs of Chappals being not up to the approved sample @ Rs. 42 per pair Less: Trade Discount 20%

10 Guru Nanak & Co. Fatehpuri, returned to us :-10 pairs of Shoes, for being defective @ 120 per pairLess : Trade Discount 10%

15 Returned to Baluja Shoe Co.20 pairs of ladies Chappals @ Rs. 36 per pairLess : 15%

22 Partap Footwear Co. Gandhi Nagar, returned to us :- 50 pair of Shoes @ Rs. 150 per pair Less : 5%

27 Manoj Shoe Co. Model Town, returned to us :-20 pairs of Sandals @ Rs. 85 per pair

31 Returned to Liberty Shoe Co. Defective shoes worth Rs. 1,200. [Ans. Returns Out ward Book Rs. 3,492 & Returns Inward Book Rs. 9,905]

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7. Following transactions were recorded in the books of Sh. Darshan Kumar:-1994 March

1 Sold to Chandra Light House:-50 Tubelights @ Rs. 60 each Less : 20%20 Heaters @ Rs. 120 each Less : 25%

5 Purchased from Charat Ram Electric Co. :-25 Table Fans @ Rs. 600 each 20 Ceiling Fans @ Rs. 800 each Add: Packing Charges Rs. 60

10 Chaudhry & Sons Purchased from us :-80 Dozen Bulbs @ Rs. 90 per Dozen

12 Purchased from Ram Lal & Sons one Typewriter for Rs. 6,000 on Credit, for office use.16 Sri Ram & Sons Sold to us :-

10 Electric Irons @ Rs. 180 each Less : 10%20 Chandra Light House returned :-

5 Tubelights Sold on March 1.22 Sold goods to Jai Bhagwan & Co. For Cash Rs. 10,00025 Returned to Sri Ram & Sons 2 Electric Irons Purchased on March 16.

You are required to prepare (i) Purchase Book (ii) Sales Book (iii) Purchase Return Book, And (iv) Sales Return Book. [Ans. Total In Rs. (i) 32,620; (ii) 11,400; (iii) 324; (iv) 240]

8. Study the following transactions in the books of Shri Mohan Singh, for April 1999, who deals in fabric and linen.

a). April 1 Purchased from Ram 100m of silk @ Rs. 520 p.m. 75m of velvet @ Rs. 540 p.m.

Trade Discount 7%b). April 6 Sold Goods to Sita 60m of silk @ Rs. 725 p.m.

50m of velvet @ Rs. 540 p.m.Trade Discount 6%

c). April 8 Returned to Ram 10m of silk and 5m of velvet.d). April 10 Sold to Radha 20m of silk @ Rs. 750 p.m.

15m of velvet @ Rs. 500 p.m.Trade Discount 4%

e). April 16 Sita returned to us 10m of silk and 10m of velvetThese were sold to Vidhya at rates of Rs. 480 and Rs. 600 p.m. resp.

f). April 12 Bought of Hari, cash 50 pieces of printed bales @ Rs. 40 p.piece16 sets of cotton quilts @ Rs. 500 per set

Discount allowed 5%g). April 15 Purchased a suit length for his son for Rs. 4,500.h). April 19 Sri Bros. Sold to us 110 pieces of long cloth @ Rs. 80 per piece

100 sets of table spread @ Rs. 750 per set.Trade discount 5%

i). April 21 Bought furniture on credit from Sharma for Rs. 15,000j). April 22 Bought of Manmohan shirting cloth Rs. 10,000 & sofa covers Rs. 6,000k). April 24 Retuned to sir bros. Half the goods bought of them l). April 25 Sold to Brijmohan half the goods bought of Manmohan at the following

rates: shirting Rs. 7,500 and sofa covers Rs. 5,000.m). April 28 Retuned the remaining goods bought of manmohan to him.

You are required to prepare a). Sales journal b). Purchase return journal

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LE-VAL ACADEMY“A Centre For Quality Education & Learning ”

K - 3, Green Park (Main), N. D. - 16.# 2651 8500, 2696 8844.

By R. K. Saini8. BANK RECONCILIATION STATEMENT

1. Fill in the blanks:a. When money is withdrawn from the bank, the Bank………………. the account of the

customer.b. In case the passbook shows a favourable balance and it is taken as the starting point for

preparing a Bank Reconciliation Statement, cheques issued but not presented for payment should be ………………… to find out cash balance.

c. In case, the overdraft as per the passbook is taken as the starting point, it should be put in ………………. Column of the Bank Reconciliation Statement.

d. Cheques sent for collection, but not yet collected should be added when favourable balance as per ……………… is taken as the starting point.

e. Favourable balance as per Cash Book means ……………. in the Bank column of the Cash Book.

2. While preparing Bank Reconciliation statement, the following items will be added or deducted from the Cash Book overdraft balance.

a. Cheques deposited but dishonoured.b. The receipt side of cash book overcast.c. Interest on overdraft.d. Direct amount deposited by the customer into bank.

3. While preparing Bank Reconciliation Statement from the debit balance of the Pass Book indicate whether the following items will be added or deducted.

a. Insurance premium paid by the bank.b. Interest and divident collected by the bank.c. Payment of 'Bill Payable' by the bank on behalf of the customer.d. Interest allowed by the bank.e. Cheques deposited into the bank but not yet cleared.

4. While preparing Bank Reconciliation Statement from the balance of the Cash Book indicate whether the following items will be added or deducted.

a. Cheques issued but boit yet presented for payment.b. Cheques paid into the bank but not yet cleared.c. Dividend collected by the bank on customer's investments.d. Payment of club fee by the bank according to the standing instructions.e. Direct payment into the bank by a customer.f. Any wrong entry on the debit side of the passbook.g. Dishonored of the cheques deposited into the bank.

5. On 30th June-94 the Bank Column of M’s Cash Book showed Dr. Bal. of Rs. 12,000, on checking Cash Book with Bank statement found:

a)Cheques paid into Bankers. 8,000, but out of these only cheques of Rs. 6,500 were cleared and credited by the Bankers upto 30th June.

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b)Cheques of Rs. 9,200 were issued but out of these only cheques of Rs. 7,000 were presented for payment upto 30th June.

c)The Pass Book shows a credit of Rs. 330 as interest on investment collected by Bankers and debit of Rs. 60 for Bank charges.

d)The receipt column of the Cash Book has been undercast by Rs. 200.e)On 29th June a customer deposited Rs. 3,000 direct in the Bank account but it was entered

only in the Pass Book.Prepare a Bank Reconciliation Statement. [Ans. Cr. Balance as per Pass Book Rs. 16,170]

6. On 30th June 1994, the Bank balance as per Sanjay Yadav’s Cash Book was Rs. 1,500. On comparing with the Pass Book the following information was received: -a) Cheques amounting to Rs. 7,290 were issued on 28th June, of which one cheque of Rs. 1,300

was presented in the Bank for payment on 4th July.b) Cheques deposited into Bank for Rs. 10,000 but of these cheques for Rs. 4,000 were cleared

and credited in July.c) Interest and dividend on investment Rs. 580 collected by Bank and credited to his account

but he did not have any information for this.d) Life Insurance Premium Rs. 750 paid by Bank according to his standing orders.e) Bank charges Rs. 25 not recorded in the Cash Book. Prepare a Bank Reconciliation Statement.

[Ans. Overdraft (Dr Balance) as per passbook Rs. 1,395]

7. Prepare a Bank Reconciliation Statement from the following particulars: -Messes. Sunder Lal & Sons find that Bank balance shown by their Cash Book on 31 st December, 1983 is Rs 10,500 (cr.) but the Pass Book shows a difference due to the following reasons: -1. Cheque No. 51 for Rs. 540 favoring A, B & Co has not yet been presented.2. A postdated cheque for Rs. 300 has been debited in the Bank column of the Cash

Book could not have been presented in any case.3. Four cheques totaling Rs. 1200 sent to Bank have not yet been collected while a fifth

cheque for Rs. 400 deposited in the account has been dishonoured.4. Fire Insurance premium amounting to Rs 50 paid by the Bank under a standing

order has not been entered in the Cash Book.[Ans.Overdraft (Debit) as per passbook Rs. 11,910]

8. Prepare a Bank Reconciliation Statement from the following particulars as on 30th June, 1980: -1. Credit balance as per Bank column of Cash Book 3,6002. Cheque issued to the creditor but not yet presented for payment 7203. Cheque deposited into Bank for collection but not collected by the Bank upto this time15404. Bankcharges charged by the Bank 205. Interest on overdraft charged by the Bank 256. A customer deposited into our Bank account without informing us. 2407. Bankpaid House Tax on our behalf, but no information was received from Bank. 35

[Ans.Overdraft as per passbook Rs. 4,260]

9. On 30th June 1994 the Cash Book of a trader shows a Bank overdraft of Rs. 2,500. Following informations are available: -1. Cheques amounting to Rs. 14,600 had been paid to the Bank, but of these only Rs.

12,200 were credited in the passbook, upto 30th June 1994.2. He had also issued Cheques amounting to Rs. 10,000 out of which only Rs 3,600 had

been presented for payment.

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3. A cheque of Rs. 500, which he had debited to the Bank account, was bot sent to Bank for collection by mistake.

4. There is a debit in the passbook of Rs 10 for Bank charges and Rs. 50 for interest. 5. A customer directly paid into his Bankers. 1000, but it was not shown in the Cash

Book.6. Bank has paid insurance premium of Rs. 400 according to his instructions, but this is

not recorded in the cashbook. Prepare a Bank Reconciliation Statement.[Ans.Credit balance as per Pass Book Rs. 1540]

10.On 31st December 1988 the Cash Book of Basu showed an overdraft of Rs. 18,000 with the Bank of India. The balance did not agree with balance as shown by the Bank Pass Book and you find that Basu had paid into the Bank on 26th December four cheques for Rs. 10,000; Rs. 12,000; Rs 6,000 and Rs. 8,000. Of these the cheque for Rs. 6,000 was credited by the Bank in January 1989. Basu had issued on 24th December three cheques for Rs. 15,000, Rs. 12,000 and Rs. 7,000. The first two cheques were presented to the Bank for payment in December and the third in January, 1989.

You also find that on 31st December 1988 the Bank had debited Basu’s Account for Rs. 500 for interest and Rs. 20 for charges but Basu has not recorded these amounts in his books.

You are required to prepare a Bank Reconciliation Statement as on 31st December 1988 and ascertain the balance as per Bank Pass Book

[Ans. Overdraft as per passbook Rs. 17,520]

11.On 31st December 1993 my cashbook showed a credit balance of Rs. 8,800. I had paid into Bank three cheques amounting to Rs. 6,000 on 25th December of which I found Rs. 3,200 have been credited in the passbook under date 5th January 1994. I had issued cheques amounting to Rs. 8,000 before 31st December of which I found Rs. 2,500 have been debited in the passbook after 1 st

January 1994. I find a debit of Rs. 50 in respect of Bank Charges in the Pass Book which I have adjusted in the Cash Book on 31st Dec. There is a credit of Rs. 360 for interest on securities in the passbook, which remains to be adjusted. A cheque of Rs. 12,00 deposited into Bank has been dishonored. Prepare Bank Reconciliation statement as on 31st Dec. 1993.

[Ans. overdraft as per Pass Book Rs. 10,340]

12.My Bank Pass Book showed an overdraft of Rs. 6,500 on 31st march, 1983. This does not agree with the Cash Book balance. From the following particulars ascertain the Cash Book balance: -Cheques amounting to Rs. 15,000 were paid into Bank in March, out of which it appears only cheques amounting to Rs. 4,500 were credited by Bank. Cheques issued during March amounted in all to Rs. 11,000. Out of these cheques for Rs. 3,000 were unpaid on 31st March 1983. The Pass Book stands debited with Rs. 150 for interest and with Rs. 30 for Bank charges .The Bank had paid the annual subscription of Rs. 100 to my club according to my instructions. The entries for interest Bank charges and subscription have not yet been made in Cash Book.

[Ans. Balance as per Cash Book Rs. 1280]

13.Prepare the Bank Reconciliation Statement from the following particulars for the period ending 31st December 1993.

(a) Overdraft as per Pass Book on 31-12-93 Rs. 7,600.(b) Cheques deposited but not collected by the Bankers. 8,560.(c) Incidental charges not recorded in cashbook Rs. 80.(d) Cheques issued but not presented for payment Rs. 3,400.(e) Insurance premium paid by Bank not recorded in the Cash Book Rs. 4,200(f) On 31st December 1993 cash was deposited in Bankers. 385 but the cashier debited

the Bank column with Rs 485 by mistake.

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[Ans. Dr. Balance as per Cash Book Rs. 1,940]14.Prepare a Bank Reconciliation Statement from the following particulars: -

On 31st December 1988 I had an overdraft of Rs. 750 as shown by my passbook. I had issued cheques amounting to Rs, 250 of which Rs. 200 worth only seem to have been presented for payment. Cheques amounting to Rs. 100 had been paid in by me on 30 th December, but of these only Rs. 75 were credited in the passbook. I also find that a cheque for Rs. 10 which I had debited to Bank Account in my books has been omitted to be banked. There is a debit of Rs. 25 in my Pass Book for interest.An entry of Rs. 30 of a payment by a customer direct into the Bank appears in the Pass Book. My passbook also shows a credit of Rs. 60 to my account for interest on investments directly collected by my Bankers. [Ans Overdraft as per cashbook Rs. 830]

15.On 31st January 1989 the Pass Book of Shri S.N.Sharma shows a debit balance of 41,000. Prepare a Bank Reconciliation Statement from the following particulars: -

a) Cheques amounting to Rs. 15,600 were drawn on 27th January, 1989. Out of which cheques for Rs. 11,000 were encashed upto 31-1-1989.

b) A wrong debit of Rs. 800 has been given by the Bank in the passbook.c) A cheque for Rs. 200 was credited in the passbook but was not recorded in the Cash

Book.d) Cheques amounting to Rs. 21,000 were deposited for collection. But out of these,

cheques for Rs. 7,400 have been credited in the Pass Book on 5th February, 1989. e) A cheque for Rs. 1000 was returned dishonoured by the Bank and was debited in the

Pass Book only.f) Interest on overdraft and Bank charges amounting to Rs. 100 were not entered in the

Cash Book.g) A cheque of Rs. 500 debited in the Cash Book omitted to be banked.

[Ans overdraft as per cashbook Rs. 36,000]

16.Prepare a Bank Reconciliation Statement on 31st December, 1992 from the following particulars:-

a) A’s overdraft as per Pass Book Rs. 20,000 as at 31st December.b) On 30th December, cheques had been issued for Rs. 80,000 of which cheques worth

Rs. 15,000 only had been encashed upto 31st December.c) Cheques amounting to Rs. 6,500 had been paid into the Bank for collection but of

these only Rs. 2,500 had been credited in the passbook.d) The Bank has charged Rs. 700 as interest on overdraft and the intimation of which

has been received on 2nd January 1993.e) The Bank passbook shows credit for Rs. 2,000 representing Rs. 1400 paid by debtor

of A direct into the Bank and Rs. 600 collected direct by Bank in respect of interest on A’s investment. A had no knowledge of these items.

f) A cheque for Rs. 3,600 has been debited in Bank column of Cash Book by A but it was not sent to Bank at all. [Ans Overdraft as per Cash Book, Rs. 78,700]

17.From the following particulars, prepare a Bank Reconciliation Statement of Sh. Yadav on 31 st

December 1992:-Balance as per Pass Book on 31st December, 1992 is Rs. 11,000. Cheques for Rs. 6,200 were issued during the month of December but of these cheques for Rs. 900 were presented in the month of January, 1993 and one cheque for Rs. 500 was not presented for payment. Cheque and cash amounting to Rs. 5,700 were deposited in Bank during December but credit was given for Rs. 4,700 only. A customer had deposited Rs. 850 into the Bank directly. The Bank has credited

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the merchant for Rs. 150 as interest and has debited him for Rs. 30 as Bank charges, for which there are no corresponding entries in Cash Book.

[Ans Balance as per Cash Book Rs. 9,630]18. (Overdraft as per Pass Book). From the following particulars prepare a Bank Reconciliation

Statement of Alpha Engineering Co. as at 30th September, 1991:(a) Overdraft on 30th September, 1991 as per Bank Pass Book Rs. 13,095;(b) Cheque deposited in Bank not recorded in Cash Book Rs. 105;(c) Cheque received & recorded in the Bank column but not sent to Bank for

collection Rs. 1,015(d) (i) Several cheques were drawn in the end of September totaling Rs.15,075. Of

these cheques totaling Rs. 9,074 were cashed. (ii) Similarly, several cheques totaling Rs. 9,400 were sent for collection. Of these cheques of the value of Rs. 1,500 were credited on 5 th

Oct. 1991 and Rs. 2050 were credited on 7th October, 1991, the last being credited before 30th

Sept.1991.(e) On 11th September, 1991 the credit side of Bank column of the Cash Book was

cast Rs. 1,000 short and on 15th September, 1991 the credit balance of Rs. 2,600 was brought forward on 16th September, 1991 as debit balance of Rs. 2,600.

(f) Chamber of Commerce fee of Rs. 250 was paid by the Bank but was not recorded in the Cash Book.

(g) In the Cash Book, a Bank charge of Rs. 30 was recorded twice while another Bank charge of Rs. 45 was not recorded at all.

(h) Interest of Rs. 1,400 was charged by the Bank but was not recorded in the Cash Book.

[Ans. Overdraft as per Cash Book Rs. 6,771]

19.On December 31,1991 my Cash Book showed Bank overdraft of Rs. 49,350. On going through the Bank Pass Book for reconciling the balance, I find the following:

Out of cheques drawn on December 26, 1991, those for Rs. 3,700 were cashed by the Bankers on January 2, 1992 and a crossed cheque for Rs. 750 given to Judy was returned by her and a bearer one was issued to her in lieu on January 1, 1992.Cash and cheques amounting to Rs. 3,400 were deposited in Bank on December 29, 1991 , but cheques worth Rs. 1,300 were cleared by the Bank on January 1, 1991 and one cheque for Rs. 250 was returned by them as dishonoured on the latter date.According to my standing orders , the Bankers have, on December 31, 1991 , paid Rs. 320 as interest to my creditors, paid quarterly premium on my policy account Rs. 160, and have paid a second call for Rs. 600 on shares held by me and lodged with the Bankers for safe custody. They have also received Rs. 150 as dividend on my shares and recovered an insurance claim of Rs. 800, their charges and commission on the above being Rs. 15. on receipt of information of the above transactions, I have necessary entries in my Cash Book on January 1, 1992.My Bankers seem to have given me a wrong credit for Rs. 500 paid in by me in No. 2 account and a wrong debit in respect of a cheque for Rs. 300 drawn against my no. 2 account.

Prepare a reconciliation statement as on December 31, 1991.[Ans. Debit balance as per Pass Book is 46,395]

20.Mr. P is having two accounts (A and B) with State Bank of India. On 31st March, 1992 his ledger shows a balance of Rs. 5,000 in account ‘A’ and overdraft of Rs. 2,250 in account ‘B’. On verification of the ledger entries with the respective Bank statement, the following mistakes were noticed:

(a) Deposit of Rs. 1,500 made in account ‘A’ on 20 th March, 1992 had been entered in the ledger in account ‘B’.

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(b) Withdrawal of Rs. 500 from account ‘A’ on 2nd February 1992 has been entered in the ledger in account ‘B’.

(c) Two cheques of Rs. 500 and Rs. 750 deposited in ‘A’ account on 1st march 1992 (and entered in the books in ‘B’ account) have been dishonoured by the Bankers. The entries for dishonour of these cheques have been entered in the books in ‘B’ account.

(d) In the account ‘A’ and ‘B’ , Mr. P has issued on 29 th March, 1992 , cheques for Rs. 10,000 & for Rs. 1,000 respectively and these have not been encashed till 31st march 1992.

(e) Incidental charges of Rs. 10 and Rs. 25 charged in the accounts ‘A’ and ‘B’ respectively have not been entered in the books.

(f) The Bank has credited interest of Rs. 50 for account ‘A’ and has charged interest of Rs. 275 for account ‘B’ which have not been recorded in the books.

(g) Deposits of Rs. 5,000 and Rs. 3,500 made into the account ‘A’ and ‘B’ both on 30 th March 1992, have not been given credit to by the Bank till 31st March 1992.

Prepare Bank Reconciliation Statement for the above two accounts.

21.Fun-Fare Ltd. have a current account with National Bank Ltd. the following is an extract from the Bank’s books of account for the last week of March 1992.

ACCOUNTS OF FUN-FARE LTD.Favoring /Particulars Cheque No. Rs. Clearing etc. Rs.Gopal Bros.Nand Kumar Traders.Gopal Bros.“Ourselves”Incidental Charges.Interest On Loan.LalchandBalance c/d

212213215216------

217---

4,0007,2004,1002,400 10 900 1,00014,390

Balance b/d.Cheque of pros industries.Cheque of Ramgopal Sons.Dividend warrants.

21,000 5,000 7,800 200

34,000 34,000Balance b/d 14,390

It is understood that: (I) Cheq. No. 214 drawn in favour of Teewee Traders for Rs. 2,100 was not yet presented to the Bank. (II) Advices regarding incidental charges , interest on loan and dividend warrant, reached Fun-Fare Ltd. only in April, and (III) Cheque favouring Lalchand was towards rent for the month of March. From the above date you are required to prepare the Cash Book (Bank column only) of Fun- Fare Ltd. for the above period and a Bank Reconciliation Statement in their books at the end of the month.

22.Janardan and Co. have Bank accounts with two Banks, viz., Dena Bank and Bank of India. On 31st December, 1988, his Cash Book(Bank columns) shows balance of Rs. 5000 with Dena Bank and overdraft of Rs. 2,250 with Bank of India. On further verification, the following facts were discovered:

f. A deposit of Rs. 1,500 made in Dena Bank on 20th December, 1988 has been centered in the column for Bank of India.

g. A withdrawal of Rs. 500 from Bank of India on 2nd November, 1988 has been entered in the column for Dena Bank.

h. Two cheques of Rs. 500 and Rs. 750 deposited in Dena Bank on 1st December, 1988 (and entered in the Bank of India column) have been dishonoured by the Bankers. The entries for dishonour have been made in the Bank on India column.

i. Cheques were issued on 29th December, 1988 on Dena Bank and Bank on India on Rs. 10,000 and Rs. 1,000 respectively. These have not been cashed till 31st December, 1988.

j. Incidental charges of Rs. 10 and Rs. 25 charged by Dena Bank and Bank of India respectively have not been entered in the books.

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k. Dena Bank has credited an interest of Rs. 50 and Bank has charged interest of Rs. 275. these have not been recorded in the books.

l. The deposits of Rs. 5,000 and Rs. 3,000 make into Dena Bank and Bank of India respectively have not yet been credited to by them till 31st December, 1988.

Draw up the two Bank Reconciliation Statements.

23. The Cash Book of Mr. Gadbadwala shows Rs. 8,364 as the balance at Bank as on 31st December, 1990 but you find that this does not agree with the balance as per the Bank Pass Book. On scrutiny, you find the following discrepancies:

i. On 15th December, 1990 the payments side of the Cash Book was undercast by Rs. 100.ii. A cheque for Rs. 131 issued on 25th December, 1990 was taken in the cash column.

iii. A deposit of Rs. 150 was recorded in the Cash Book as if there is no Bank column therein.

iv. On 18th December, 1990, the debit balance of Rs. 1,526 as on the previous day, was brought forward as credit balance.

v. Of the total cheques amounting to Rs. 11,514 drawn in the last week of December, 1990, cheques aggregating Rs. 7,815 were encashed in December.

vi. Dividends of Rs. 250 collected by the Bank and subscription of Rs. 100 paid by it were not recorded in the Cash Book.

vii. One out-going cheque of Rs. 350 was recorded twice in the Cash Book.Prepare a Reconciliation Statement when:(a). The books are not to be closed on 31st December.(b). The books are to be closed on 31st December.

24.The following are the bash book and Bank Pass Book of Niranjan for the month of April, 1988: CASH BOOK (BANK COLUMN)

Date Particulars Rs. Date Particulars Rs.01.04.8804.04.8808.04.8813.04.8818.04.8821.04.8825.04.8830.04.88

To Balance b/dTo Sales A/cTo Parimal A/cTo Mahim A/cTo Kamal A/cTo Furniture A/cTo Sales A/cTo Firoz A/c

12,500 8,000 1,500 3,400 4,600 1,200 3,800 3,000

01.04.8806.04.8811.04.8815.04.8819.04.8823.04.8827.04.8830.04.8830.04.88

By Salaries A/c (Ch. No. 183)By Purchases A/c(Ch.No.184)By Machinery A/c(Ch.No.185)By Om Prakash A/c (Ch.No.186)By Drawing A/c (Ch.No.187)By Kishore A/c(Ch.No.188)By Suresh A/c(Ch.No.189)By Printing A/c(Ch.No.190)By Balance c/d

4,000 3,200 6,000 1,000 800 2,000 1,000 50019,500

38,000 38,000BANK PASS BOOK

Date Particulars Deposits Withdrawal Balance01.04.8802.04.8806.04.8806.04.8810.04.8816.04.8817.04.8820.04.8824.04.8828.04.8828.04.8830.04.88

Balance Cheque 183CashCheque 184Cheque ChequeCheque 187ChequeCheque Cheque 185Cheque 189Interest

8,000

1,500 3,400

4,600 3,800

100

4,000

3,200

800

6,000 1,000

12,500 8,50016,50013,30014,80018,00017,40022,00025,80019,80018,80018,900

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30.04.8830.04.88

Deposit (Firoz)Charges

3,000 10

21,90021,890

25.Form the following entries in the Bank column of the Cash Book of Mr. A. Kartak and the corresponding Bank Pass Book, prepare Reconciliation Statement as on 31st march, 1989:

CASH BOOK (BANK COLUMN ONLY)

Date Particulars Rs. Date Particulars Rs.01/03/8910/03/8913/03/8918/03/8928/03/8929/03/8931/03/89

To Balance B/CTo Madan & SonsTo Jerbai To Cawasji & Co.To Dinshwa & Co.To Dhanbura Co.To Antony

3,400 500 4,000 1,200 2,200 5,700 3,425

07/03/8908/03/8915/03/8928/03/8929/03/8930/03/8931/03/89

By Drawings By Salary By Ardesar & Co.By Merwan Bros.By Raj & SonsBy Macmillon RadiosBy Chandu, H.By Balance c/b

1,500 2,200 3,000 1,550 800 400 1,600 9,375

20,425 20,425BANK PASS BOOK

(Mr. Karlak in Current A/c with Central bank)Date Particulars Rs. Date Particulars Rs.

01/04/8902/04/8904/04/8908/04/8910/04/8910/04/89

To Balance (Overdraft)To Raj & SonsTo Macmillon RadiosTo Salary To Drawings To Antony (Cheque Dishonoured)

750 800 400 2,300 500 3,425

02/04/8902/04/8902/04/8903/04/8903/04/8905/04/89

By Dividends By Dinshaw & Co.By HosangBy Dhanbura & Co.By Antony By Romy

500 2,200 200 5,700 3,425 170

26.The Cash Book of a trader showed an overdraft balance of Rs. 32,750 on 31 st December, 1992. On scrutiny of the Cash Book and pass book it was discovered that

m. On 22nd December, sundry cheques totalling Rs. 6,500 were sent to Bank for collection out of which a cheque for Rs. 1,500 was wrongly recorded on the side of the Cash Book and cheques amounting to Rs. 3,300 could not be collected by the Bank till 6th January next.

n. A cheque for Rs. 4,000 was issued to a supplier on 28 th December. This cheque was not presented to Bank till 10th January.

o. Bank had debited Rs. 2,000 to ward interest on overdraft and Rs. 600 for Bank charges, but the Bank advice was sent on 15th January.

p. Credit side of the Bank column of the Cash Book was undercast by Rs. 100.q. Cheques for Rs. 2,000 drawn for office expenses were not encashed till 2nd January.r. A cheque for Rs. 1,000 was issued to a creditor on 27 th December and was omitted to be

entered in the Cash Book. It was, however, presented to Bank within 31st December.s. Dividends amounting to Rs. 500 had been paid direct to the Bank and not entered in the

Cash Book.You are required to make necessary corrections in the Cash Book and starting with the amended balance, prepare a Bank Reconciliation Statement as at 31st December 1992.

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27.Where both the books are given for the same period). From the following extracts from the Cash Book and the Pass Book for the month of March 1992, prepare the Bank Reconciliation Statement as on 31st march 1992.

CASH BOOKDate Particulars Amount Date Particulars Amount.

Mar. 9213101517202431

To Balance b/dTo CashTo B & Co.To A & Co.To Cash To Z & Bros.To P & Co.To S & Sons.

1,45,100 3,000 10,000 23,000 6,000 15,500 7,400 21,300

Mar. 922614151824283131

By X & Co.By WagesBy B & Co.(Cheque dishonoured)By V & co.By Y & sons.By CashBy B & Co.By B & Bros.By B & Bal. c/d.

12,300 30,00010,000

3,000 4,700 4,000 7,800 3.40056,100

1,31,300 1,31,300

PASS BOOKDate Particulars W/D Dept. Dr. /Cr. Bal.

Mar. 921361016172024313131

By BalanceBy CashTo Selves CashTo X & Co.By A & Co.By CashTo Y & Sons.To Cash.To Bank Charges.To LIC Premium as per instructionsBy Interest on Govt. Securities

30,00012,300

4,7004,000

1002500

3,000--

23,0006,000

3,000

Cr.Cr.Cr.Cr.Cr.Cr.Cr.Cr.Cr.Cr.Cr.

45,10048,10018,100 5,80028,80034,80030,10026,10026,10023,50026,500

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By R. K. SainiLE-VAL ACADEMY

“A Centre For Quality Education & Learning ”K - 3, Green Park (Main), N. D. - 16.

# 2651 8500, 2696 8844. By R. K. Saini

9. TRIAL BALANCE & RECTIFICATION OF ERRORS

Trial Balance is a statement, prepared with the debit and credit balance of ledger accounts to test the arithmetical accuracy of the books.

Objects Of Trial Balance A. Test of arithmetical accuracy.B. Summarized information of ledger accounts.C. Basis for preparing final accounts.

D. Useful for making adjustments.

Limitations Of Trial Balance (Errors Undetected By Trial Balance)

Trial Balance is taken as test of arithmetical accuracy. If both the debit and credit columns of Trial Balance are equal to each other, we assume that there is no mistake in the positing of journal and subsidiary books to ledger accounts, in carrying forward balance of ledger accounts to Trial Balance and even in the balancing of ledger accounts. This assumption is correct but should never be taken as conclusive proof of accuracy. It means that there are certain errors which remain undetected by Trial Balance. Both the debit and credit columns of the Trial Balance may be equal inspite of certain mistakes of omissions and principles. These errors may be mentioned as under:A. Errors of omission in the books of original recordB. Errors of principleC. Compensating errors

Types Of Errors

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Clerical errors Errors of principle (Errors in the treatment of capital and revenue expenditure and receipts (undetected by

Trial Balance)

Errors of omission of Compensating Errors (undetected by Trial Balance)

Errors of commission

Complete omission record in the original books (undetected by Trial Balance)

Partial omission of record in the subsidiary

books (detected by Trial Balance)

Page 43: Accounts Basic Notes

By R. K. Saini1. Classify the under-mentioned errors into: -

(a) Error of Omission, (b) Error of Commission, (c) Compensating Error & (d) Error of Principle: -a. Purchased goods from Bhardwaj on credit for Rs. 600, but were recorded in the purchase

book as Rs. 6,000.b. Amount paid for the proprietor's life insurance premium was debited to 'General Expenses

A/c'.c. Goods amounting to Rs. 2,000 have been returned to Chakravarti, but no entry has been

made in the books.d. An excess debit of Rs. 4,500 has been made in the account of X, whereas Y's account has

been credited by Rs. 5,000 instead of Rs. 500.e. Goods sold to Suresh for Rs. 650 were recorded as Rs. 560 in the Sales Book.f. Typewriter purchased for office use has been debited to Purchases A/c.g. Wages paid for the construction of building Rs. 15,000 were recorded in 'Wages A/c'.h. Goods for Rs. 500 have been taken by the proprietor for his personal use, for which no

entry has been passed in the books.

2. Prepare a Trial Balance from the following balances taken on 30th June 1994: -

Capital Drawings Debtors Creditors Land & Building Plant Stock on 01-07-93.Factory ExpensesOffice ExpensesPurchases ReturnStationery Freight

Rs.2,50,000

24,00057,00028,500

1,80,0001,20,000

22,80016,6007,7006,000

5002,500

Purchases Sales Miscellaneous ExpensesMiscellaneous ReceiptsBad Debts Bills ReceivableLoan from XInterest on X's LoanCash in handBank

Rs.2,15,3003,80,000

8,2003,6007,1005,000

20,0003,0008,400

10,000

[Ans. Total of Trial Balance Rs. 6,88,100]

3. The following is the Trial Balance prepared by an inexperienced accountant. Redraft it in a correct form and given necessary notes: -

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Wrong totaling of subsidiary books,

i.e. undercasting or overcastting

(detected by Trial Balance)

Recording wrong amount in the

subsidiary books (undetected by Trial Balance)

Posting wrong amount in ledger

accounts (detected by

Trial Balance)

Incorrect balancing of

ledger accounts (detected by

Trial Balance)

Posting at the wrong side of ledger account (detected by Trial Balance)

Page 44: Accounts Basic Notes

By R. K. Saini

Particulars Rs. Particulars Rs.Cash in Hand

Plant & MachineryTypewriter Stock (01-04-1993)Purchases Carriage Inwards Carriage OutwardsSundry Debtors Bills Payable Rent PaidWages Advertisement Discount Received

5,20075,0006,400

13,10084,1002,8001,600

18,30012,0009,600

16,5004,5003,200

Bank OverdraftCapital Goodwill Sundry Creditors Sales Return Inwards Drawings Investments

16,40050,0008,0008,200

1,60,0002,4002,1204,000

2,52,300 2,51,120[Ans. Dr. Rs.2,53,620 & Cr. Rs. 2,49,800]

4. The following trial balance has been prepared by an inexperienced accountant. Redraft it in a correct form: -

Name of Accounts Balance Dr. Balance Cr.

Land & Building Plant & MachineryWages Discount AllowedDiscount Received Purchases Sales Return InwardsReturn Outwards Opening StockDebtors Creditors Carriage on Sales Carriage on Purchase Insurance General expenses Cash in hand Bank OverdraftCapital Drawings

Rs.1,20,000

92,00018,200

7301,26,000

3,37015,00030,000

2,8001,5006,1002,400

12,100

Rs.

1,620

2,40,0006,500

20,0003,280

1,54,0004,800

Total 4,30,200 4,30,200[Ans. Total of Trial Balance Rs. 4,30,200]

5. Redraft the following Trial Balance of Rama Traders as on Dec 31,’98 checking for presentation and arithmetical & conceptual accuracy.

Trial BalanceS. No. Items Debit (Rs.) Credit(Rs.)

1.2.3.4.

Capital Drawings Buildings Stock

12,700 50,000 22,000

1,00,000

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5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.

Wages Bank OverdraftDebtorsCreditorsBad Debts SalesPurchasesSales ReturnCommission Received Bills payable Cash Interest on CapitalPrepaid InsuranceLoan to QInterest on Loan (to Q)

13,900 6,000

20,000

50,000

5,000 13,400

300

18,000

1,000 60,000

5,000 2,000

600 700 6,000

TOTAL 1,93,300 1,93,3006. A Trial Balance showed excess credit of Rs. 2,728, which were placed in a suspense A/c. later on

the following errors were located. Pass rectifying entries and prepare Suspense A/c.a. Rs. 825, the total of purchase return book has been posted to the debit of sales return A/c.b. Goods purchased from Suresh Rs. 1,800 recorded in Sales Book as Rs. 180.c. An item of Rs. 328 written off as a bad debt from Ajay Sharma has not been debited to bad

Debts A/c.d. Goods purchased from X Rs. 3,500 and from Y Rs. 4,000, but were recorded in the

spurchase book as X Rs. 4,000 and Y Rs. 3,500.e. Goods returned to Ramesh for Rs. 2,600 was correctly recorded in the return outward

book but was wrongly posted to his account as.f. A sum of Rs. 2,210 stolen by an ex-employee stand debited to Suspense A/c.g. A sum of Rs. 500 written off as depreciation on Machinery, were not posted to Machinery

account.[Ans. Suspense A/c tallies, Total of Suspense A/c Rs. 4,878]

7. A book-keeper finds the difference in the Trial Balance amounting to Rs. 210 and puts it in the Suspense A/c. later on he detects the following errors. Rectify these & prepare the Suspense A/c.a. Goods purchased from Ram Rs. 700 was passed through Sales Book.b. Returned goods to Shyam Rs. 1,500 was passed through returns inward book.c. An item of Rs. 450 relating to prepaid rent A/c was omitted to be brought forward. d. An item of Rs. 120 in respect of purchase returns, instead of being recorded in return

outward book has been wrongly entered in the Purchase Books and posted there from to the debit of personal A/c.

e. Amount payable to Subash for repairs done to radio Rs. 180 and radio supplied for Rs. 1,920, were entered in the Purchase Book as Rs. 2,000.

Give full narration for rectifying journal entries. Which of the above errors affected the agreement of Trial Balance?

[Ans. Opening debit balance of Suspense A/c Rs.210. total of Suspense A/c Rs. 450]

8. Rectify the following errors: -a. Rs. 500 paid for the purchases of Radio set for the proprietor debited to General Exps. A/c.b. Goods sold to Ram for Rs. 300 have been entered in the Purchase Book. However the

account of Ram stands correctly posted.c. An amount of Rs. 50 paid to Kelwal has been credited to the A/c of Kanwal.d. A sum of Rs. 450 paid as rent has been debited to Landlord's personal A/c.

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e. Wages paid for the month Rs. 300 was posted twice. f. Sales return book was undercast by Rs. 10.g. Goods for Rs. 100 have been returned by a customer. These have been taken into stock but

no entry in respect thereof has been made in the books.Repairs Rs. 500 debited to machinery account as Rs. 550

9. In taking out a Trial Balance, an accountant finds an excess debit of Rs. 1,098. Being desirous of closing his books, he places the difference to Suspense A/c. later on he detects the following errors:-a. Goods purchased from Surinder for Rs. 350 has been credited to his A/c as Rs. 530.b. Goods sold to Dinesh for Rs. 800 have been debited to his account as Rs. 880.c. A cheque of Rs. 1,250 received from a debtor had been correctly entered in the Cash Book

but posted to his personal A/c as Rs. 1,200.d. Rs. 780, paid for freight on machinery purchased was debited to freight account as Rs. 708.e. Goods to the value of Rs. 130 returned by a customer Navin Kumar had been posted to the

debit of his A/c.f. Rs. 1,440 paid for repairs to Motor Car were debited to motor Car A/c as Rs. 1,400.g. Rs. 500 being purchase return were posted to the debit of purchase A/c.Give necessary rectifying entries and prepare Suspense A/c.

[Ans. Total of Suspense A/c Rs. 1390.]

10. A book finds that the totals of his Trial Balance disagree by Rs. 2,800. He temporarily debits a Suspense A/c with this amount and closes the books. On an examination of the books the following errors are discovered: -a. The total of purchase return book Rs. 710 was posted twice.b. Goods costing Rs. 800 were distributed as free samples but no entry was passed in the

books.c. Purchase of Machinery for Rs. 5,600 on credit was recorded in Purchase Book as Rs. 6,500.d. Cash Sales to Ram Lal for Rs. 1,200 were recorded in Cash Book as well as in Sales Book

and were posted from both.e. Closing Stock has been overvalued by Rs. 1,500.f. Sales Return Book was untotalled, though personal accounts were posted Rs. 1,580.g. No entries have been made in the Cash Book for the Insurance Premium directly paid by

bank Rs. 700 and interest charged on overdraft Rs. 320.h. A sum of Rs. 200 for Drawings on the Credit side of Cash Book was not posted to the

Drawings A/c.Pass entries to rectify the above errors. Close the Suspense A/c already opened.

[Ans: all errors have not been discovered, as Suspense A/c still shows a Dr. balance of Rs. 310]

11. The following errors were detected in the A/cs of M/S Pyare Lal Girdhari Lal for the year ended 30/06/94: -1. Rs. 1,500 received from a customer in respect of a debt previously written off have been

credited to his personal A/c.2. Goods costing Rs. 5,000 were sent of sales or return for Rs. 7,000. This was recorded as

actual sales, though no information was received from the Customer.3. Rs. 850 paid as rent of the office were debited to landlord A/c and were included in the list of

the Debtors.4. A cheque of Rs. 3,600 received from a Customer was deposited by the proprietor in his

personal A/c.5. Insurance of Rs. 1,200 was paid for the year commencing 1st Jan., 1994.6. A sales of Rs. 2,200 has been passed through the purchase daybook.

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7. A cheque of Rs. 6,000 received from Vinod & Co. was dishonoured and was debited to discount A/c.Pass necessary adjustment entries in the Journal.

LE-VAL ACADEMY“A Centre For Quality Education & Learning ”

K - 3, Green Park (Main), N. D. - 16.# 2651 8500, 2696 8844.

By R. K. Saini10. FINANCIAL STATEMENTS

Difference Between Trial Balance and Balance Sheet

Difference Between Trial Balance And Balance SheetPoints of Difference Trial balance Balance Sheet

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Object Trial Balance is prepared to check the arithmetical accuracy in the books of accounts.

Balance Sheet is a mirror which reflects the true financial position of the firm.

Period Trial Balance is prepared after certain short period, generally every month.

Balance Sheet is prepared annually or half-yearly.

Sides Trial Balance has got debit and credit sides. Left hand side is debit and the right hand side is credit.

The sides of Balance Sheet are assets land liabilities. Left hand side is liability and the right hand side is assets.

Financial position of the business

Trial Balance does not show the financial position of business.

Balance Sheet shows the financial position of the business.

Evidence Trial Balance cannot be produced as documentary evidence in the court.

Balance Sheet can be produced. It is accepted by the court a documentary evidence. It is submitted before taxation authorities also.

Closing stock Trail balance does not furnish information regarding closing stock.

Balance provides information about the value of closing stock on a certain date.

Type of accounts Trial Balance is the list of personal, real and nominal accounts.

Balance Sheet is prepared with the balance of real and personal accounts only.

Compulsion The preparation of trail balance is not compulsory. It is prepared to check arithmetical accuracy.

The preparation of Balance Sheet is a must. It is an integral part of final accounts and is compulsory prepared.

Treatment of Capital and Revenue Expenditure

Capital Expenditure:-

These expenses are incurrd for acquiring fixed assets such as building, plant, machinery, furniture and vehicle etc. assets acquired are not meant for sales. They are Purchases to retain and use in the business. This expenditure increases profit-earning capacity of the business. It is casually incurred and does not have regularity in its payment.

The important feature of this expenditure from accounting point is that we debit assets account which have been acquired not expenses account.

Revenue Expenditure:-

This expenditure is incurred to meet day-to-day requirement of the business such as payment of wages, salaries, rent and insurance etc. It is also incurred for the maintenance of assets such as repairs, renewals and maintenance of building, plant, machinery, furniture and vehicles etc. Regularity in the payment of expenditure is its distinct feature. Expenses are usually incurred through out the year. These expenses do not add to profit earning capacity of the business. They are simply incurred as a part of routine business activity. These expense accounts are debited when they are paid. For example, it will be incorrect to debit the workers accounts in case of making payment of wages to them. In this way, salaries account will be debited for making payment of

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salaries. It will be incorrect to debit the account of the employee who has been receiving salaries. In the same way, while making payment of rent to landlord, rent account will be debited not the landlord's account. It should be noted that when expenses are paid, concerned expenses account will be debited and not account of person or parties whom payment is mode.

Summarised Statement Of Adjustments

Summarised Statement Of AdjustmentsAdjustments Journal Entries Adjustment in Trading

and P/L A/c

Adjustment in Balance Sheet

1. Closing Stock Closing Stock A/c Dr. To Trading A/c

Posted at the credit side of Trading A/c

Shown at the assets side.

2. Depreciation Depreciation A/c Dr. To Asset A/c

Posted at the debit side of P/L A/c

Shown as deducted from concerned asset

3. Appreciation Asset A/c Dr. To Appreciation A/c

Posted at the credit side of P/L A/c

Shown as added to concerned asset

4. Outstanding Expenses

Expenses A/c Dr. To Outstanding Exps.A/c

Added to the concerned expenses at the debit side of P/L or Trading A/c

Shown at the liabilities

5. Prepaid Expenses

Prepaid Expenses A/c Dr. To Expense A/c

Deducted from the concerned expenses at the debit side of P/L A/c

Shown at the assets side

6. Accrued Income

Accrued Income A/c Dr. To Income A/c

Added to the concerned income at the credit side of P/L A/c

Shown at the assets side

7. Unearned Income

Income A/c Dr. To Unearned Income A/c

Deducted from concerned income at the credit side of P/L A/c

Shown at the liabilities side

8. Interest On Capital

Interest On Capital A/c Dr. To Capital A/c

Posted at the debit side of P/L A/c

Added to capital at the liabilities

9. Interest On Drawing

Drawing A/c Dr. To Interest On Drawings A/c

Posted at the credit side of P/L A/c

Deducted from capital at the liabilities side

10. Interest On Investment

Investment A/c Dr.To Interest On InvestmentA/c

Posted at the credit side of P/L A/c

Added to investment at the assets side

11. Interest On

Loans (Borrowed)

Interest On Loan A/c Dr. To Loan A/c

Posted at the debit side of P/L A/c

Added to loan at the assets side

12. Interest On Loans (Advanced)

Loans A/c Dr. To Int. On Loans A/c

Posted at the credit side of P/L A/c.

Added to loan at the assets side

13. Bad Debts Bad Debts A/c Dr.To Provision For Bad Debts A/c

Posted at the debit side of P/L A/c

Deducted from Debtors at the assets side

14. Provision For Bad Debts

P/L A/c Dr.To Provision For BadDebts A/c

Posted at the debit side of P/L A/c

Deducted from Debtors at the assets side.

15. Provision For Discount On

P/L A/c Dr.To Provision For Discount On

Posted at the debit side of P/L A/c

Deducted from Debtors at the assets

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Debtors Debtors A/c side.

16. Provision For Discount On Creditors

Provision Of Discount On Creditors A/c Dr. To P/L A/c

Posted at the credit side of P/L A/c

Deducted from creditors at the liabilities side

17. Accidental Loss Of Stock

Loss Of Stock A/c Dr. To Trading A/c

Posted at the credit side of Trading A/c and also at the debit of P/L A/c

No effect

18. Accidental Loss Of Goods (If Insured) (Partial Admission Of Claim)

Insurance Co. A/c Dr.Loss Of Stock A/c Dr. To Trading A/c

Insurance Co. A/c will be shown with the amount of claim admitted by Co., loss of stock will be shown with the amount of the claim not admitted at the credit side of Trading A/c. Loss of stock wil also be shown at he debit side of P/L A/c

Insurance Co. A/c will be shown at the assets side.

19. Loss Of Assets By Fire (If Not Insured)

Loss By Fire A/c Dr. To Asset A/c

Loss by fire A/c will be shown at he debit side of P/L A/c

Loss will be deducted from the asset at the assets side

20. Accidental Loss Of Assets (If Insured) (Partial Admission)

Insurance Co. A/c Dr.Loss By Fire A/c Dr. To Assets A/c

Loss by fire A/c will be shown at the debit side of P/L A/c

Insurance Co. A/c will be shown at the asset side, loss by fire A/c will be deducted from the asset

21. Outstanding Manager's Commission

P/L A/c Dr.To Outstanding Manager's

Commission A/c

Posted at the debit side of P/L A/c

Shown at the liabilities side

22. Goods Sent On Sale On Return Basis Treated As Sales (Cost Of Goods 6000 Include -ed In Sales 8000)

Rs. 8000 Will Be Deducted From Sales And Rs. 6000 Will Be Added To Closing Stock At The Credit Side Of Trading A/c

Rs. 8000 deducted from debtors and Rs. 6000 added to stock at the assets side

23. Goods Taken By The Proprietor For Personal Use

Drawing A/c Dr. To Purchases A/c

Amount of goods taken by the proprietor will be deducted from pruchaes in trading A/c

Amt. of goods takenby the proprietor will be deducted from capital at the liabilities side

24. Goods Given As Charity

Charity A/c Dr. To Purchases A/c

Deducted from purchase at the debit side of Trading A/c

Deducted from capital at the liabilities side.

25. Goods Distributed As Free Samples

Free Sample A/c Dr. To Purchases A/c

Posted at the debit side of P/L A/c

Also deducted from Purchases A/c

No effect

26. Wages Paid For Building A/c Dr. The amount will be The amount will

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Construction Of Building Was Debited To Wages A/c

To Wages A/c deducted from wages at the debit side fo trading A/c

be added to building at ehe asssets side

27. Goods In Transit (Goods Were Not Received Although Titles To Goods Were Received)

Goods In Transit A/c Dr. To Supplier's

No effect Goods in transit A/c will be shown at the assets side. Supplier's A/c will be shown at liabilities side.

28. Remuneration Paid To Employee Was Debited To His Personal A/C

Salaries A/c Dr. To Employee's Personal A/c

Added to salaries at the debit side of P/L A/c

Deducted from Debtors at the assets side.

1. Discuss the accounting treatment for "Goods sent on approval", recorded as a regular sales, using an example of your own.

2. State whether each of the following statements is True or False:a. The 'Current Liabilities' is used to denote those liabilities which are payable after a year.b. The term 'Current Assets' and 'Liquid Assets' have synonymous meanings.c. All Intangible Assets are fictitious assets.d. Creating reserve for discount on creditors is not strictly according to the principle of

conservatism.e. Stock at the end, if appears in the Trial Balance, is taken only to the Balance Sheet.f. Goods taken out by the proprietor from the business for his personal use are credited to

sales A/c.g. 'Salary paid in advance' is not an expense because it neither reduces assets no increases

liabilities. h. The term "Accrued Income" and "Out standing Income" have synonymous meanings.i. Premium paid on the life policy of the proprietor is debited to the Profit & Loss A/c.

3. (a) On 1st January, 1988 the Provision for Doubtful Debts Account in the books of a firm which maintains it at 5% had a credit balance of Rs. 1,100. During the year the Bad Debts amounted to Rs. 800 and the Debtors at the end of the year were Rs. 20,000. Show Provision for Doubtful Debts Account and Bad Debts Account for the year 1988.(b) At the end of an accounting year, a trader finds that no entry has been passed in the books of accounts in respect of the following transactions:

i. Outstanding salary at the end of the year Rs. 200.ii. Goods given as charity during the year Rs. 300.

iii. Stock-in-hand at the end of the year Rs. 20,000. Journalise these transactions.

4. Following are the extracts from the Trial Balance of a firm as on 31st December, 1990Particulars Dr. Amount Rs. Cr.Amount Rs.

Salaries A/c 10,000

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Rent A/c 5,000Additional information:

i. Salary for the month of December Rs. 2,000 has not yet been paid.ii. Rent amounting to Rs. 1,000 is still outstanding.

You are required to pass the necessary adjusting entries and show how the above items will appear in the firm's Final Accounts.

5. Following are the extracts from the Trial Balance of a firm as on 31st December, 1990:Particulars Dr. Amount Rs. Cr. Amount Rs.

Insurance Rent

8,000 4,000

Additional information:a. Insurance premium has been paid in advance amounting to Rs. 1,000 for the next year. b. Rent Rs. 500 been paid for the next year.

You are required to pass the necessary adjusting entries and show how the items will appear in the firm's Final Accounts.

6. Gross Profit = Rs. 1,27,400 and Net Profit = Rs. 2,70,000. The Sales Manager is entitled to a commission of 7% of GP. The General Manager is entitled to a commission of 8% of NP, after such commission. Record the above adjustment in the Final A/cs (T-form). Show calculations.

7. Balance as on 31-12-'95 are: Capital Rs. 50,000; Drawing Rs. 4,500; Net Profit Rs. 16,500Interest is charged on capital and drawings @ 6% p.a. and 8% p.a. resp. Draw up the Final A/cs to record the same. Show calculations.

8. Balance on 01-01-91:- Debtors Rs. 1,00,000 And Provision for Bad Debts Rs. 10,000.Balance on 31-12-91:- Debtors Rs. 2,05,000; Bad Debts Rs. 3,000; Discount Rs. 1,000 B/D Recovered A/C Rs. 2,000; Cr. Sales(For '91) Rs. 2,02,000; Payment By Debtors = ?Addnal Inform: Further Bad Debts Rs. 5,000; Provision For B/D At 10% Of Debtors.Prepare: Debtors A/C; Bad Debts A/C; Provision for Bad Debts A/C; Final A/Cs. Show Calculations.

9. Following are the extracts from the Trial Balance of a firm.TRIAL BALANCE As on 31st December, 1990.

Particulars Dr. Amount Cr. AmountPlant Buildings

30,00050,000

Additional information:

i. Charge depreciation on plant @ 10% per annum.ii. Charge depreciation on buildings @ 5% per annum.

10. Following are the extracts from the Trial Balance of a firm as on 31st December, 1990. You are required to pass the necessary adjusting entries and show how the items will appear in the firm's Final Accounts.

TRIAL BALANCEAs on 31st December, 1990.

Particulars Dr. Amount Rs.

Cr. Amount Rs.

Rent received for 12 months ending 31st March, 1,200

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1991Interest on Loan

2,000

Additional information. Interest on Loan has been received in advance to the extent of Rs.500.

11. Following are the extracts from the Trial Balance of a firm.TRIAL BALANCE

As on 31st December, 1990.Particulars Dr. Amount

Rs.Cr. Amount Rs.

Furnitures and Fixtures Plant and Machinery

10,00040,000

Additional information:i. Furniture of Rs. 5,000 was purchased on 1st July, 1990. Charge depreciation @ 10%p.a.

ii. Plant of Rs. 10,000 was acquired on 1st july, 1990. Charge depreciation @ 20%. Pass the necessary journal entries and show how the items will appear in the firm's Final Accounts.

12. Following are the extracts from the Trial Balance of a firm.TRIAL BALANCE

Particulars Dr. Amount Rs.

Cr. Amount Rs.

Sundry Debtors Bad Debts

50,000 5,000

Additional information: Manesh, one of the debtors became insolvent and it was learnt on 31 st

December, that out of the total debt of Rs. 5,000 only Rs. 2,500, will be recovered from him. No adjustment has so far been made.

You are required to pass necessary adjusting entries and show how the items will appear in the Final Accounts of the business.

13. Following are the extracts from the Trial Balance of a firm.TRIAL BALANCE (As on 31st December, 1990)

Particulars Dr. Amount Rs.

Cr. Amount Rs.

Sundry Debtors Bad Debts

30,000 5,000

Additional information:i. After preparing the trial balance, it is learnt that a debtor Ramesh has become insolvent

and therefore, the entire amount of Rs. 3,000 due from him was irrecoverable.ii. Create 10% provision for bad and doubtful debts.

You are required to pass necessary adjusting entries and show how the items will appear in the firm's Balance Sheet.

14. Following are the extracts from the Trial Balance of a firm.

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TRIAL BALANCEParticulars Dr. Amount Rs. Cr. Amount Rs.

Capital Sundry DebtorsDrawings Machinery Sundry Creditors Wages

5,400 1,800 7,000

10,000

20,000

2,800

Additional information:i. Closing stock Rs. 1,200.

ii. Outstanding Rent and Taxes Rs. 100.iii. Charge depreciation on machinery at 10%.iv. Wages prepaid Rs. 400.

15. Following are the extracts from the Trial Balance of a firm.TRIAL BALANCE (As on 31st December, 1990)Particulars Dr. Amount

Rs.Cr. Amount

Rs.Capital A/cs Ramesh Suresh

30,00020,000

Additional information: (I). Interest on capital is to be allowed @ 10% p.a. (II). Suresh introduced additional capital amounting to Rs. 5,000 on 1st July, 1990.

You are required to pass the necessary journal entries and show how the different items will appear in the firm's final A/c.

16. Following are the extracts from the Trial Balance of a firm as on 31st December, 1990. You are required to pass the necessary adjusting entries and show how the items will appear in the firm's Final Accounts.

TRIAL BALANCE (As on 31st December, 1990)Particulars Dr. Amount Rs. Cr. Amount Rs.

6% loan Investments in 6% Debentures of 'B' Ltd.Interest on loan received upto 31st October, 1990Interest on Investments

20,00030,000

1,000 900

17. Following are the extracts from the Trial Balance of a firm.TRIAL BALANCE (As on 31st December, 1990)

Particulars Dr. Amount Cr. Amount Sundry DebtorsProvision for Doubtful DebtsBad Debts

50,000

3,000 5,000

(i) Additional Bad Debts Rs. 3,000. (ii) Keep the provision for Bad Debts @ 10% on debtors.You are required to pass the necessary journal entries and prepare Provision for Doubtful Debts account and show how the different items will appear in the firm's Final Accounts.

18. Following are the extracts from the Trial Balance of a firm.TRIAL BALANCE (As on 31st December 1990.)

Particulars Dr. Amount Cr. Amount Sundry Debtors Bad Debts

50,000 3,000

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Discount 2,000 Additional information:

i. Create a provision for doubtful debts @ 10% on debtors.ii. Create a provision for discount on debtors @ 5% debtors.

iii. Additional discount given to the debtors Rs. 1,000.You are required to pass the necessary journal entries and show how the different items will appear in the Final Accounts.

19. Following are the trial balance of Shri Goyal, prepare Trading and Profit & Loss A/c for the year ended 31st Dec., 1986, and Balance Sheet as on that date after making into consideration the adjustments given at the end of the trial balance:

TRIAL BALANCE (As on 31st December 1986)Particulars Dr. Am.Rs. Cr. Am.Rs.

Sales Purchases (adjusted)WagesCapital A/c National Insurance Carriage InwardsCarriage OutwardsLighting Rates and Insurance (including premium on Rs. 150 p.a. up to 30th june, 1987)Stock at 31.12.86Cash in Hand and at Bank Discount earned Plant and MachineryDiscount Allowed Debtors and CreditorsFurniture Dividends received

3,49,600 10,450

150 200 250 300

200 30,625 875

15,000 50 3,000 4,000

_________4,14,700

3,70,000

34,250

300

10,000

1504,14,700

Adjustments:a. National Insurance also includes employees contribution of Rs. 75. Wages are shown "Net"

after deducting national insurance contribution bome by the employees.b. Owing to the nature of employment, sum employees are housed in the building of the

business. The rental value of such portion is assessed at Rs. 250 p.a. the benefit to the employee treated as wages and the rental as income for Shri Goyal.

c. Depreciate Plant & Machinery at 15% p.a. and Furniture at 10% p.a.d. Goods worth Rs. 2,000 given by Shri Goyal to his son at cost.e. The Manager is entitled to a commission of 20% of the Net Profit after charging his

commission. (Calculations may be made nearest to the multiple of a rupee).[Ans. G.P. Rs. 11,350; N. P. Rs. 7,229; B/S Rs. 50,925]

20. The following Trial Balance was extracted from the books of Mr. A as on 30th September 1988:

Particulars Dr. Amount Rs. Cr. Amount Rs.Capital A/cPlant & Machinery Furniture Sales

78,000 2,000

1,00,000

1,27,000

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Purchases Returns Opening StockDiscount Sundry Debtors Sundry CreditorsSalaries Manufacturing Wages Carriage OutwardProvision for Bad Debts Rent, Rates and TaxesAdvertisement Cash

60,000 1,000 30,000 425 45,000

7,550 10,000 1,200

10,000 2,000 6,9002,54,075

750

800

25,000

525

_______2,54,075

Prepare Trading and Profit & Loss A/c for the year ended 30th September, 1988 and a Balance Sheet as on that date after taking into account the following adjustments:1. Closing stock was valued at Rs. 34,220. 2. Allow Interest on Capital at 10% p.a.3. Provision for Bad Debts is to be kept at Rs. 500.4. Furniture was sold and the same was disposed off for Rs. 760 in exchange of new furniture

costing Rs. 1,680. The net invoice of Rs. 920 was passed through Purchase Register. (No depreciation need be charged on old and new furniture).

5. Depreciate Plant and Machinery by 10% p.a.6. The proprietor Mr. A has taken goods worth Rs. 5,000 for personal use, and distributed

goods worth Rs. 1,000 as samples.[Ans. G.P. Rs. 67,890; N. P. Rs. 27,500; B/S Rs. 1,57,500]

21. From the following balance taken from the ledger of Shri Krishana on 31 st March, 1989 prepare the Trading and Profit & Loss A/c for the year ended 31st March, 1989 and a Balance Sheet as at 31/03/89 of Shri Krishana:-

Particulars Amount Particulars Amount Sundry CreditorsBuilding Income-TaxLoose ToolsCash at BankSundry ExpensesPurchase Wages Carriage Inwards Sales Motor VanCash in Hand

19,000 15,000 1,025 1,000 16,200 1,990 751,57,000 10,000 1,1201,85,000 12,500 335

Bad DebtsSundry DebtorsInvestmentsBad Debts ReserveRent and RatesFurniture Stock (01.04.88)CapitalDiscount allowedDividends received Drawings Bills payable

100 2,500 9,500 6,500 1,600 850 3,000 27,350 47,390 630 535 2,000 10,000

Adjustments to be taken into account:-a. Write off further Rs. 300 as bad out of Sundry Debtors and create a Reserve for Bad Debts

at 20% on Debtors.b. Dividends accrued and due on Investments is Rs. 135. rates paid in advance Rs. 100 and

wages owing Rs. 450.

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c. On 31.03.1989 stock was valued at Rs. 15,000 and Loose Tools were valued at Rs. 800.d. Write off 5% for depreciation on Buildings and 40% on Motor Van.e. Provide for interest at 12% per annum due on loan taken on 01.06.88.f. Income tax paid has to be treated as Drawings.

[Ans. G. P. Rs. 4,080; N. L. Rs. 5,385; B/S Rs. 71,180]22. The following is the Trial balance of Shri Om, as on 31st March, 1991. You are required to

prepare the Trading and Profit & Loss A/c for the year ended 31 st March, 1991 and Balance Sheet as on that date after making the necessary adjustments.

Particulars Dr. Amo. Rs. Cr. Amo. Rs.Sundry Debtors Sundry Creditors Outstanding Liability for ExpensesWages Carriage OutwardsCarriage Inwards General Expenses Cash DiscountsBad debtsMotor CarPrinting and StationeryFurniture and FittingsAdvertisement InsuranceSalesman's CommissionPostage and Telephone Salaries Rates and TaxesDrawings Capital A/c PurchasesSalesStock on 01.04.90Cash at BankCash in Bank

5,00,000

55,000 1,00,000 1,10,000 50,000 70,000 20,000 10,000 2,40,000 15,000 1,10,000 85,000 45,000 87,500 57,500 1,60,000 25,000 20,000

15,50,000

2,50,000 60,000 10,50036,30,500

2,00,000

14,43,000

19,87,500

_______ 36,30,500

The following adjustments are to be made:a. Stock on 31st March, 1991 was valued at rs 7,25,000.b. A Provision for Bad and Doubtful Debts is to be created to the extent of 5 per cent on

Sundry Debtors.c. Depreciate: Furniture and Fittings by 10%; Motor Car by 20%.d. Shri Om had withdrawn goods worth Rs. 25,000 during the year.e. Sales include goods worth Rs. 75,000 sent out to shanty & company on approval and

remaining unsold on 31st March, 1991. The cost of the goods was Rs. 50,000.f. The salesmen are entitled to a commission of 5% of total sales.g. Debtors include Rs. 25,000 had debts.h. Printing and stationery expenses of Rs. 55,000 relating to 1989-90 had not been provide in

that year but was paid in this year by debiting outstanding liabilities.i. Purchases include purchase of furniture worth Rs. 50,000.

[N.P. Rs. 10,375; B/S Rs. 15,16,500]

23. You are given the Trial Balance of M/S PQR Bros. LE-VAL ACADEMY K - 3, Green Park (Main), N. D. - 16. # 2651 8500, 2696 8844.

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TRIAL BALANCE AS ON 31-12-'90DEBIT Rs. CREDIT Rs.Opening Stock Return InwardsPurchasesFreight & CarriageRent & TaxesSalaries & WagesSundry DebtorsBank InterestPrinting & Advertising Cash at BankFurniture & FittingsDiscount AllowedGeneral Expenses Bills ReceivablesInsurancePostage & TelegramsCash in Hand Traveling ExpensesMachineryBad Debts

46,8008,600

3,21,70018,6005,7009,300

24,000900

14,6008,000

10,0001,8006,4505,0001,3002,330

427823

40,0001,670

Capital A/cSales Return Outward Bank Loan @ 6% P.A.CreditorsProv. for Dep:- Furniture MachineryProv. for B/D.Discount Earned

86,6903,89,600

5,80020,00010,000

5,0004,8004,5001,610

5,28,000 5,28,000

Prepare final A/cs for the year 1990 with comprehensive working notes agther the following adjustment:-(a) Closing stock is Rs. 82,000(b) Included in the Debtors is Rs. 3,000 due from & in the creditors is Rs. 1,000 due to him.(c) Bill include a B/R of Rs. 1,800 which is now dishonoured.(d) Half of amount that Bill is not recoverable.(e) Furniture is depreciated @ 10% p.a. as per SLM.(f) Machinery is depreciated @ 15% p.a. as per WDV.(g) Sales include goods taken by proprietors for their personal use Rs. 4,920. (Profit 1/3 of CP)(h) Insurance includes a sum of Rs. 1,200 for the annual premium of a Policy till 01-04-'91.(i) General Expenses include payments made for a typewriter Rs. 2,100.(j) A quarter of printing & advertising is for next year.(k) A 5% provision on Bad Debts is to be made.(l) Charge Manager's Commission at 10% of net profits after such commission.

Show adjustment Journal entries for each of the adjustments started above.

LE-VAL ACADEMY“A Centre For Quality Education & Learning ”

K - 3, Green Park (Main), N. D. - 16.# 2651 8500, 2696 8844.

By R. K. Saini11. DEPRECIATION, RESERVES & PROVISIONS

Depreciation (Meaning and Definition)W. Pickles views, "Depreciation may be defined as permanent and continuing diminution in the

quality, quantity or the value of an asset"..

Special Features of Depreciation

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i. Depreciation is loss in the value of assets.ii. Loss should be gradual and constant.

iii. Depreciation is the exhaustion of the effective life of business.iv. Depreciation is the normal feature.v. Maintenance of assets is not depreciation.

vi. It is continuing decrease in the value of assets.vii. It is the allocation of cost of assets to the period of its life.

Accountants have developed certain specific words to denote the loss in the value of particular assets, other than depreciation. These words are as under:Obsolescence

i. Depletion ii. Amortisation

iii. Fluctuatio

Factors Affecting The Amount of Depreciation

a. Total cost of the assets.b. Estimated useful life of assets.c. Estimated scrap value.d. Chances of obsolescence.e. Addition to assets.f. Legal provisions.

Importance or Need For Providing Depreciation

a. For determination of net profit or net Loss.b. For showing assets at fair and true value in the Balance Sheet.c. Provision of funds for replacement of assets.d. Ascertaining accurate cost of production.e. Distribution of dividend out of profit only.f. Avoiding over payment of income-tax.

Difference between Fixed Instalment Method and Diminishing Balance Method.

Fixed Instalment Method Diminishing Balance Method1. Depreciation is calculated on the original cost of a fixed asset.2. The amount of depreciation remains the same for all year.3. At the expiry of the working life of the asset, the balance in the asset A/c reduces to zero.4. The combined cost on A/c of depreciation and repairs is lower in the initial years and higher in the later years.5. The method is more suitable for assets

1. Depreciation is calculated on the diminishing balance or written down value of the fixed asset.2. The amount of depreciation goes on reducing year after year.3. The balance in the asset A/c will never reduce zero.4. The combined cost on A/c of depreciation and repair remains, more or less, equal throughout the period.5. This method is suitable for such assets

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which get depreciated on A/c of expiry of working life of the asset.

which require more and more repairs in the later years of their working life.

Difference between Revenue Reserve and Capital Reserve.

Revenue Reserve Capital Reserve1. It is created out of business profits. 2. It can be used for distribution of dividends without any pre-condition.

3. It is created for strengthening the financial position, and meeting the unforeseen contingencies or some specific purpose.

1. It is created out of capital profits.2. It can be used for distribution of dividends only if the company satisfies certain conditions prescribed by the Companies Act.3. If is created for meeting capital losses or to be used for purposes specified by Companies Act.

Accounting Standard 6 (AS : 6)

The following are the salient features of the Accounting Standards on Depreciation Accounting issued by the Institute of Chartered Accountants of India.A. The standard applies to all depreciable assets except the following items to which special

considerations apply:i. Forests, plantations and similar regenerative natural resources;

ii. Wasting assets including expenditure on the exploration for and extraction of minerals oils, natural gas and similar non-regenerative resources;

iii. Expenditure on research and development;iv. Goodwill v. Live stock;vi. Land unless it has a limited useful life for the enterprise.

B. The depreciable amount of a depreciable assets should be allocated on a systematicbasis to each accounting period during the useful life of the asset. The depreciation methods should be applied consistently from period to period. A change from one method of providing depreciation to another should be made only if the adoption of the new method is required by statute or for compliance with an accounting standard or if its is considered that the change would result in a more appropriate preparation or presentation of the financial statements of an enterprise. When a change in the method of depreciation is made the unamortized depreciate amount of the asset should be charged to revenue over the remaining useful life by applying the new method. Such a change should be treated as a change in accounting policy and its effect should be quantified and disclosed.

C. The useful life of a depreciable asset should be estimated after considering the following factors:i. Expected physical wear and fear;

ii. Obsolescence; iii. Legal or other limits on the use

of the asset.

E. The useful lives of major depreciable assets or classes of depreciable assets may be reviewed periodically. Where there is a revision of the estimated useful life of an asset, the unamortized depreciable amount should be charged over the revised remaining and the excess or short depreciation so determined can be adjusted. This should be disclosed as an extraordinary item in the accounting period of revision.

F. Any addition or extension which becomes as integral part of the existing asset should be depreciated over the remaining useful life of that asset. The depreciation on such addition or extension may also be provided at the rate applied to the existing asset. Where an addition or extension retains a separate identity and is capable of being used after the existing asset is

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disposed of, depreciation should be provided independently on the basis of an estimate of its own useful life.

G. Where the historical cost of a depreciable assets has undergone a change due to increase or decrease in long-term liability on account of exchange fluctuations, price adjustments, changes in duties or similar factors, the depreciation on the revised unamortized depreciable amount should be provided prospectively over the residual useful life of the asset.

H. Where the depreciable assets are revalued, the provision for depreciation should be based on the revalued amount and on the estimate of the remaining useful lives of such assets. In case the revaluation has a material effect on the amount of depreciation, the same should be disclosed separately in the year in which revaluation is carried out.

I. If any depreciable asset is disposed of, discarded, demolished or destroyed, the net surplus or deficiency, if material, should be disclosed separately.

J. The following information should be disclosed in the financial statements:i. The historical cost or other amount substituted for historical cost of each class of

depreciable assets;ii. Total depreciation for the period for each class of assets; and

iii. The related accumulated depreciation.

K. The following information should also be disclosed in the financial statements along with the disclosure of other accounting policies:

i. Depreciation methods used; and ii. Depreciation rates or the useful lives of the assets, if they are different from the principal

rates specified in the statute governing the enterprise.

4. State which of the statements correctly complete the various sentences:-1. Depreciation arises because of (i) wear and tear, (ii) inflation, (iii) fall in the value

of the asset.2. The loss on the sale of an asset is debited to (i) Reserves, (ii) Depreciation Fund,

(iii) Profit and Loss Account.3. The diminishing value method means a method by which (i) the rate of

depreciation falls year by year, (ii) the rate as well as the amount to which it is applied falls year by year.

5. State whether each of the following statements is True or False:i. The objective of charging Profit and Loss A/c with the amount of depreciation is to

spread the cost of an asset over its useful life for the purpose of income determination. ii. The amount of depreciation is credited to Depreciation Fund A/c in case of Annuity

Method.iii. The charge for use of the asset remains uniform each year in case of straight line method.iv. Depreciation is charged on the book value of the asset each year in case of Diminishing

Balance Method.v. Depletion Method is suitable for charging depreciation in case of live stock or loose tools.

vi. Net charge to the Profit and Loss A/c is the same under both Annuity Method and Depreciation Fund Method.

vii. The amount of depreciation is credited to the Depreciation Fund A/c in the Depreciation Fund Method.

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viii. The asset appears always at original cost in case depreciation is credited to Provision for Depreciation A/c.

ix. In case of Insurance Policy Method, the depreciation is credited to the Asset A/c.

6. A plant was purchased on 01-01-'94 Rs. 2,00,000. It is destroyed by fire on 01-07-'96 and an insurance claim of Rs. 1,10,000 was admitted. Prepare machinery account, if Depreciation is charged at 20% p.a. as per WDV.

7. A company provides depreciation under the straight line method at the rate of 10% p.a. the balance standing in the Plant and Machinery A/c on 31st Dec. 1985, after writing off depreciation for the year, was Rs. 1,95,150 (total cost price of the plant was Rs. 3,58,000). During January 1986 new plant was purchased at a cost of Rs. 29,500 and one machine which had cost Rs. 5,500 in 1974 was sold as scrap for Rs. 400.During January 1987, there were additions costing Rs. 18,000 and a machine which had cost Rs. 7,000 in 1982 was sold for Rs. 3,500. Write up Plant and Machinery A/c for 1986 and 1987.

[Ans. Balance as on 31.12.86 Rs. 1,85,900, and 31.12.87 Rs. ]

8. The following balance appears in the books of Mahajan Brothers: Rs.Jan. 1, 1990 Machinery A/c 40,000Jan. 1, 1990 Provision for Depreciation 18,000

On 1st January 1990 they decided to sell a machinery for Rs. 4,350. This machine was purchased for Rs. 8,000 in January 1986. You are required to prepare Machinery A/c and Provision for Depreciation A/c on 31st Dec. 1990, assuming the firm has been charging depreciation at 10% p.a. on straight line method.

9. A second hand car is bought for Rs. 70,000 on 01-01-'95 for office use. There is a down payment of Rs. 10,000 and the balance is to be paid in 4 installments of Rs. 17,000 each. An additional amount of Rs. 4,000 is paid for registration papers. Immediately Rs. 12,000 is spent on over-hauling the asset. Depreciation is charged at 10% of original cost on 30th June every year. It is resolved to change the method of depn. To 20% p.a. as per WDV with effect from 30-06-'97. Show: (a) Car A/c from 01-07-'94 to 30-06-'98.

(b) All journal entries relevant for the payments made over 5 years.

10. On 01-04-'92, a firm installed a machine at a cost of Rs. 2,00,000. Its scrap is estimated at 6% & life at 10 years. The firm decides to provide depn. @ 25% p.a. as per WDV. Books are closed on 30th September, every year. In 1995-'96, it is decided to change the method of depn. to SLM from the very beginning. Show: (a) Working Notes. (b) Machinery A/c from 1991-'92 to 1996- '97.

11. ABC Bros. Buy a second hand plant on 01-01-'94 costing Rs. 60,000. A sum of Rs. 40,000 is spent on it immediately as overhauling. On 01-04-'95 another plant costing Rs. 20,000 is bought. On 01-01-'96, the first plant is sold for Rs. 60,000. On 01-07-'96 a new machine is bought at a cost of Rs. 1,20,000. On 01-10-'96, yet another plant is bought costing Rs. 25,000. Depn. is provided on 31st Dec. every year. From 1994 to 1996, 10% p.a. SLM is followed. However, from 1997 to 1998, 15% p.a. WDV is adopted. Show: (a) Working Notes. (b) Plant A/c for 5 years.

12. XYZ Co. depreciates assets on the last date of the calendar year annually. A rate of 10% p.a. as per WDV is applicable. On 01-01-'86 a sum of Rs. 9,72,000 stands to the debit of the Machinery A/c. during the year 1986, on 01-07-'86 a part of the machinery bought on 01-01-'84 for Rs. 80,000 was sold for Rs. 45,000 and a new machine at the cost of Rs. 1,50,000 was bought and installed on the same date, charges for installation being Rs. 8,000. No depreciation

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is charged on assets sold, during the year of disposal. Except for the first machine bought on 01-01-'84 (part of which is sold on 01-07-'86); no other purchase of machinery is made in the years 1984 & 1985. Show: (a) Comprehensive Working Notes and Calculations.

(b) Machinery A/C from 01-01-'84 to 31-12-'86.

13. A firm purchased on 1st January 1989 certain machinery for Rs. 5,82,000 and spent Rs. 18,000 on its erection. On 1st July, 1989, additional machinery costing Rs. 2,00,000 was purchased. On 1st July, 1991, the machinery Purchased on 1st January, 1989 having become obsolete was auctioned for Rs. 2,86,000 and on the same date fresh machinery was purchased at a cost of Rs. 4,00,000. Depreciation was provided for annually on 31st December at the rate of 10 per cent on written down value method. In 1992, however, the firm changed this method of providing depreciation and adopted the method of providing 5% per annum depreciation on the original cost of the machinery.Give the Machinery A/c as it would stand at the end of each year from 1989. [Rs. 5,03,900]

14. From the following transactions of a concern, prepare Machinery A/c for the year ending 31 st

Dec. 1983:-January 1 : Purchased a second-hand machinery for Rs. 40,000.January 1 : Spent Rs. 10,000 on repair for making it serviceable.June 30 : Purchased additional new machinery Rs. 20,000.September 30 : Repairs and renewals of machinery Rs. 2,000.December 31 : Depreciate the machinery at 10%.

[Rs. 64,000]

15. A company purchased a second-hand machine on January 1, 1984 for Rs. 37,000 and immediately spent Rs. 2,000 on its repairs and Rs. 1,000 on its erection. On July 1, 1985 it purchased another machine for Rs. 10,000 and on July 1, 1986 it sold off the first machine for Rs. 28,000 bought another for Rs. 25,000. On July 1, 1987, the second machine was also sold off for Rs. 2,000.Depreciation was provided on machinery at 10% on the original cost annually on December 31. in 1985, however, the company changed the method of providing depreciation and adopted the written down value method, the rate of depreciation being 15% per annum. Given the Machinery A/c for four year commencing from the acquisition of machine. Amounts to be calculated to nearest ten rupees.[Ans. Balance in the Machinery A/c on 31.12.87 Rs. 19,650; Loss on sale of Machinery in 1985

Rs. 300, in 1987 Rs. 5,270]

16. On 1st July 1988, A Co. Ltd. Purchases second-hand machinery for Rs. 20,000 and spends Rs. 3,000 on reconditioning and installing it. On January 1989, the firm Purchases new machinery worth Rs. 12,000. On June 30, 1990, the machinery Purchased on January 1, 1989, was sold for Rs. 8,000 and on July 1, 1990 fresh plant was installed. Payment for this plant was to he made as follows: July 1, 1990Rs. 5,000 ; June 30, 1991 Rs. 6,000 ; June 30, 1992 Rs. 5,500.Payments on 1991 and 1992 include interest of Rs. 1,000 and Rs. 500 respectively.The company writes off 10% on the original cost. The accounts are closed every year on 31 st

march. Show the Machinery A/c for the year ending 31st march, 1991. [Rs. 30,550]

17. M/s A and B Purchased a machine for Rs. 8,00,000 on 1st January 1988. Depreciation is provided at 10% p.a. according to the straight line method. At the end of 1991, the firm decided to charge the method of depreciation from the straight line method to the written

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down value method w.e.f. 01/01/'88. Prepare the machinery A/c from 1988 to 1991, assuming that he accounts are closed on 31st December every year. [Rs. 5,24,880]

18. A second-hand machinery was Purchased on 1st January 1985 for Rs. 30,000, Rs. 6,000 and Rs. 4,000 were spent on its repairs and erection immediately. On 1st July 1986, another machinery was purchased for Rs. 26,000 and on 1st July 1987, the first machinery having become obsolete was auctioned for Rs. 30,000. on the same date another machine was purchased for Rs. 25,000. On July 1988 the second machinery was also sold off and it fetched Rs. 23,000.Depreciation was provided on machinery at the rate of 10% on the original cost annually on 31st December. In 1987, the method of providing depreciation was changed to the written down (diminishing value) method, the rate of depreciation being 15%.You are required to prepare machinery A/c for all the calendar years mentioned above.

[Ans. No Profit or Loss on machinery sold in 1987. Profit on sale of machinery in 1988 Rs. 3,580, Balance in the machinery A/c Rs. 19,656]

19. Messrs. Mill and Wright commended business on 1st January 1980 when they purchased plant and equipment for Rs. 7,00,000. They adopted a policy of (i) charging depreciation at 15% p.a. on diminishing balance basis and (ii) charging full year's depreciation on additions. Over the years, their Purchases of plant have been:

Date Amount (Rs.)01.08.81 1,50,00030.09.84 2,00,000

On 01.01.84 it was decided to change the method and rate of depreciation to 10% on straight line basis with retrospective effect from 01.01.1980, the adjustment being made in the accounts for the year ending 31st December 1984.Calculate the difference in depreciation to be adjusted in the Plant and Equipment A/c on 01.01.1984 and show the ledger A/c for the year 1984.

[Ans. Balance on Jan. 1, 1985 Rs. 6,20,000]

20. A firm purchased on 1st January 1984 certain machinery for Rs. 58,200 and spent Rs. 1,800 on its erection. On 1st July 1984 additional machinery costing Rs. 20,000 was purchased. On 1st

July 1986 the machinery purchased on 1st January 1984 having become obsolete was auctioned for Rs. 28,600 and on the same date fresh machinery was purchased at a cost of Rs. 40,000. Depreciation was provided for annually on 31st December at the rate of 10% on written down value. In 1987, however the firm changed this method of providing depreciation and abopted the method of providing 5% p.a. depreciation on the original cost of the machinery.Give the Machinery A/c as it would stand at the end of each year from 1984 to 1987.

[Ans. Balance on January 1, 1988 Rs. 53,500]

LE-VAL ACADEMY“A Centre For Quality Education & Learning ”

K - 3, Green Park (Main), N. D. - 16.# 2651 8500, 2696 8844.

By R. K. Saini12. BILL OF EXCHANGE

Meaning Of Bills Of Exchange

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According to Indian negotiable instrument Act, " A bill of exchange is an instrument in writing, an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or the order of a certain person or to the bearer of the instrument."

Bill Of Exchange Has Got The Following Important Features:i. An unconditional order.

ii. Written document.iii. Order to pay certain amount.

iv. Payment on specified date.v. Signed by the drawer.

vi. Payable to drawer or endorsee.

Difference Between Bills of Exchange and Promissory Notes:Points of

DifferenceBills of Exchange Promissory notes

1. Parties There are three parties in the bills, i.e. drawer, drawee and payee.

There are two parties in promissory notes, i.e., maker and payee.

2. Drawer It is drawn by the creditor. It is made by the debtor.3. Acceptance Acceptance is must. Acceptance is not required.4. Nature It is an order to the debtor to make

payment.It is a promise to make payment.

5. Copies In case of foreign bills, three sets are prepared. In case of inland bills only one copy is prepared.

Only one copy is prepared.

6. Stamps Stamps are not fixed on bills payable "on demand" stamps are affixed on term bills.

Stamps are fixed.

7. Noting In case of dishonour of the bills it is noted and protested.

Promissory notes cannot be noted.

8. Liabilities In case of bills accepted jointly by two or more persons, the liability of the drawees will be joint.

If promissory note is made jointly, the liability will be both joint and individual.

9. Receiver Drawee can be the payee of the bill. Maker cannot be the payee of promissory note.

1. Explain the meaning of a. Days of grace b. Retiring a bill under rebate

c. Noting charges d. Accommodation bill

2. What do you mean by dishonour of the bill? In what cases bill will be assumed to be dishonoured.

3. How will you treat noting charges in the books of drawer, if:a. The bill is retained by the drawer. b.The bill has been endorsed.

c. The bill has been sent to bank for collection.d.The bill has been discounted with the bank.

4. State whether the following statement are True or False:i. Payment of the bill before its due date is known as retiring a bill under rebate.

ii. Renewal of the bill assumes the dishonour of the original bill.iii. In case of part payment the bill is treated as dishonoured.iv. Full payment of the bill can be realized after the insolvency of drawee.v. While passing entry regarding dishonour of the bill in the books of Drawer, Drawee's

account is always debited.vi. Noting charges are gain for the drawer.

vii. Noting charges are expense for drawee.viii. Accommodation bills are accepted without consideration.

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ix. In case of renewal of the bill, if the interest has been received in cash, the amount of the fresh bill will include interest also.

5. Sandeep received from Shanker an acceptance for Rs. 3,000 on 1st September, 1993 at 3 months. Sandeep got the due acceptance and discounted at 9% per annum at his bank. On the due date, Shanker paid the required amount.

6. Azhar received from Gavaskar acceptance for Rs. 3,000 on 1st April, 1992 at 3 months. Azhar got the acceptance discounted at 9% per annum at his bank. On the due date, Gavaskar paid the required amount.

7. A bill for Rs. 5,000 is drawn by B on C, and accepted by C payable at his bank. Show what entries would be passed in the books of B in each of the following circumstances:

a. If he retained the bill till the due date and then realized it on maturity.b. If he discounted it with his bank for Rs. 4,800.c. If he endorsed if over to his creditor Mr. Harish Gupta in settlement of his debt.

8. A bill of exchange for Rs. 3,000 drawn on 1st June, 1985 and payable after 3 months was discounted with bank at 10% but was dishonoured on due date, and Rs. 8 were paid as noting charge. What was the amount claimed by the bank from the drawer?

9. On 1st June, 1987, A sold goods B for Rs. 1,250. B gave to A his acceptance payable on month after date. Before maturity B requests A to renew it, which A does adding Rs. 10 to the new bill for interest? Make necessary Journal Entries to record these transactions in the books of both A and B.

10.A bill of exchange drawn on 1st July, 1985 for Rs. 15,000 for three months was dishonoured on due date and a sum of Rs. 120 was incurred on noting charges. The bill was renewed for another three months with 12% interest per annum. Find out the amount of the renewed bill.

11.A bill of exchange drawn on 1st January, 1985 for Rs. 11,000 for two months was dishonoured on due date and a sum of Rs. 115 was incurred on noting charges. The bill was renewed for another three months with 12% interest per annum. Interest has been paid in cash. Find out the amount of the renewed bill.

12.A bill for Rs. 4,000 is drawn by X on Y and accepted by the later payable at the New Bank of India. Show what entries should be passed in the books of X under each of the circumstances:

i. If X retained the bill till the due date and then realised it on maturity.ii. If he discounted it with his banker for Rs. 3,950.

iii. If he endorsed it to his creditor Z in full settlement of his debt.iv. If he sent it to his bankers for collection.

Also give necessary entries in each of the cases, if the bill is disbonoured.

13.A sells goods for Rs. 800 to B on Jan. 1, 1987 and on the same date draws a bill for 3 months on the latter for the amount. B accepts it and returns it to A, who discounts it with his banker for Rs. 785. on the due date the bill is dishonoured. Noting charges of Rs. 15, were paid by the bank. B then pays Rs. 300 in cash and accepts a new bill at three months for the amount then due to A with Rs. 12 as interest. Before maturity, B became insolvent and a final dividend of 50 paise in the rupee was received.

14.On 1st January, 1987 Julie supplied goods to Vikarm of the value of Rs. 9,000 and settled account by means of three bills of Rs. 3,000 each, due after two, three and four months respectively. A week later Julie discounted the first bill at a discount of Rs. 60. The other two bills were held till maturity.The first two bills were duly met on maturity. On the maturity of the third bill, however Vikram arranged to retire the bill paying Rs. 1,000 in cash and giving Julie a fresh bill for four months

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to cover the balance together with 12% interest per annum. Julie discounted this bill for Rs. 2,000. the bill was met on maturity.

15.On 15th April, 1993 X agrees to draw on Y, who is his debtor for Rs. 24,000 three bills of exchange : No. 1 for Rs. 7,000 for one month, No. 2 for Rs. 8,000 for two months and No. 3 for Rs. 9,000 for three months. Y accepts and returns these bills to X. X endorses on 20th April the first bill to his creditor Z, in full settlement of an account of Rs. 7,100, discounts his second bill on 22nd April with his bankers for Rs. 7,920 and retains the third bill till maturity.The first bills met on maturity. The second bill is dishonoured on the due date, Rs. 40 being paid for noting charges. X charges Y Rs. 115 for interest and draws on him a fourth bill for Rs. 8,155 for three months. The third and fourth bills were duly honoured on the due dates.

16.On 1st July, 1993 A draws on B, who owed him Rs. 2,500, two bills, one for Rs. 1,500 for 3 months and another for Rs. 1,000 for two months, B accepts these bills. A endorses on 3rd July the first bill to his creditor C in full settlement of his account of Rs. 1,550 and discounts the second bill on 4th July with his banker @ 12%. The first bill is duly paid at maturity byt the second bill is dishonoured and Rs. 15 are paid as noting charges. On 5 th

September A draws and B accepts a third bill for 3 months for Rs. 1,045 in lieu of the dishonoured bill. This bill is duly paid at maturity. Give Journal Entries to record these transactions in the books of A&B.

17.Anzer sold goods to Faisal for Rs. 12,000 and drew on him a bill for 3 months. Faisal accepted this bill and returned it to Anzar. Anzar discounted it with his bank for a discount of Rs. 100. On the due date Faised failed to honour his acceptance. He requested Anzar to draw upon him a new bill for 3 months for the original amount plus interest @ 5% per annum. Anzar agreed to this request and drew the fresh bill, which Faisal accepted and duly paid on maturity. Give entries in Anzar's Journal.

18.B owed to A Rs. 6,000 on 1st January, 1993. On the same date A drew upon B a bill for the amount at 2 months and B returned the bill duly accepted. A got the bill discounted at his bank at 5%. Before the bill was due for payment, B told A that he was not able to pay the full amount and requested A to accept Rs. 2,000 immediately and drew upon him another bill for the remaining amount for two months together with interest at 6% per annum. A agreed. The second bill was duly met. Give Journal entires in the books of both A and B.

19.A sold goods to B on 30th October, 1993 for Rs. 14,000 and received bills for Rs. 2,000, Rs. 4,000 and Rs. 8,000 at 2, 3 and 4 months duration respectively. He kept the first bill till maturity; endorsed the 2nd bill in favour of his creditor C and discounted the third bill on 2nd December, 1993 @ 6% p.a. The first and 2nd bills were duly met on maturity but the third bill was dishonoured; the bank paying Rs. 40 as noting charges, on 10 th April, 1994 B paid Rs. 4,000 and the noting charges in cash and accepted a new bill at 2 months after date for the balance plus Rs. 80 as interest. The new bill was met on maturity. Give Journal entries in the books of A & B.

LE-VAL ACADEMY“A Centre For Quality Education & Learning ”

K - 3, Green Park (Main), N. D. - 16.# 2651 8500, 2696 8844.

By R. K. Saini13. ACCOUNTS OF NON-PROFIT ORGANISATIONS

Difference between Income and Expenditure A/c and profit and loss A/c.

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Basis of Difference Income and Expenditure A/c Profit and Loss A/c 1. Institutions It is prepared by non-trading institutions. It si prepared by trading

institutions.2. Object Its object is to find out surplus i.e. excess

of income over expend-iture or deficit i.e. excess of expend-iture over income.

Its object is to find out net profit or net loss.

3. Preparation It is prepared on the basis of receipts and payments accounts and additional information.

It is prepared on the basis of Trial Balance.

4. Opening item

It does not have any opening item of the previous period.

It starts with gross profit or gross loss as shown by trading account.

Difference between Receipts - Payments and Income – Expenditure Account.Basis of

DistinctionReceipts - Payments Account. Income – Expenditure Account.

1. Object

2. Nature

3. Form

4. Balance

5. Capital And Revenue Items6. Contents

7. Adjustments

8. Balance Sheet

9. Depreciation

Object of this A/c is to show the difference between two sides denoting the Cash/Bank at the close.

It is classified summary of cash transactions for a period (Real A/c).Debit side of this A/c records receipts and credit side of this A/c records payments.Balance in the beginning represents cash in hand in the beginning and balance at the end represents cash in hand at the end.It records receipts and payments of both capital and revenue items.It shows receipts and payments made during the year whether they relate to past, current or next year.It contains no adjustments. It is based on cash system of accountancy.No Balance Sheet is prepared.

Does not include depreciation.

Object of this A/c is to show the net result of all the activities during the year resulting in surplus or deficit.If is like a profit & loss A/c (Nominal A/c).Debit side of this A/c records expenses & losses & credits side of this A/c records incomes.There is no balance in the beginning. Balance at the end represents surplus or deficit.

It records income & expenditure of only revenue items.It shows incomes and expenditures of the current year only.It contains adjustments because it is based on mercantile system of accountancy.Balance Sheet must accompany this A/c.Includes depreciation.

Identifying Subscription As Income Of The Current YearIncome Side

Total subscription received during the yearAdd: Subscription outstanding of the current yearAdd: Subscription received in advance during previous yearLess: Subscription of Previous year, if included in current year's subscriptionLess: Subscription received in advance during current year

Calculation Of DepreciationThe rates of depreciation is specified. In the absence of specified rate it is ascertained as under:

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Opening balance of assetAdd: Additions during the yearLess: Book value of asset soldLess: Closing balance of asset

Depreciation or assets used or consumed.

1. Indicate the correct alternative in each of the following cases: -a. Non-profit organistions prepare:

i. Income and Expenditure A/c;ii. Trading and Profit & Loss A/c;

iii. Only trading A/c.b. Receipts and Payments A/c is a summary of:

i. Debit and credit balances of ledger A/c;ii. Cash receipts and payments;

iii. Income and expenses.c. Subscription received in advance by a club are shown:

i. On the credit side of the Income and Expenditure A/c;ii. On the assets side of the Balance Sheet;

iii. On the liabilities side of the Balance Sheet.2. State whether each of the following statements is True or False.

a. Receipts and Payments A/c is a nominal A/c.b. Income and Expenditure A/c is a real A/c.c. Receipts and Payments A/c starts with an opening balance.d. Income and Expenditure A/c records all incomes and expenses received or paid during

the year in cash.e. The Income and Expenditure A/c does not make difference between capital and revenue

receipts or payments.f. A heavy cash balance in the Receipts and Payments A/c at the end of the accounting

period does not necessarily mean that the institution has made a heavy income.

3. In 1992 the subscriptions received by the Madras Library Society were Rs. 42,000. These subscriptions include Rs. 1,400 received for 1991. On the 31st December 1992 subscriptions due, not received were Rs. 1,000. What amount should be credited to the Income and Expenditure A/c for the year ended 31st December 1992 as subscription? [Rs. 41,600]

4. Subscriptions received during the year ending 31-12-91 are as follows: -For 1990 Rs. 160For 1991 Rs. 8,440For 1992 Rs. 320

8,920 There are 450 members, each paying an annual subscription of Rs. 20; Rs. 180 were in arrears for 1990 at the beginning of 1991. Calculate the amount of subscriptions to he credited to Income and Expenditure A/c for the year ending 31-12-91. [Rs. 9,000]

5. In 1991, the subscription received by King Club of Delhi were Rs. 40,900 including Rs. 500 for 1990 and Rs. 1,000 for 1992. At the end of 1991, subscription outstanding for 1991 were Rs. 1,500. The subscriptions due but not received at the end of the previous year, i.e., 31-12-90 were Rs. 800 while subscription received in advance on the same date were Rs. 1,800.Calculate the amount of subscriptions to be credited to Income & Expenditure A/c for the year ending 31/12/91. [Rs. 42,700]

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6. How will you deal with the following items while preparing the income and expenditure account and balance sheet of a club for the year ended 31st December 1992:Subscriptions outstanding on 31/12/1991 200Subscriptions received in advance in 1991

For 1992 300For 1993 100

Total Subscriptions received during the year 1992 5,800Subscriptions outstanding on 31-12-92

For the year 1991 50For the year 1992 250

Subscriptions received in advance during the year 1992:For 1993 350For 1994 150

[Ans. Subscriptions to be shown in Inc & Exp. A/c Rs. 5,800; B/S Assets Rs. 300, Liabilities Rs. 500]

7. Calculate what amount what amount will be posted to Income and Expenditure A/c for the tear ending 31st December 1992: Rs.

Stock of stationery on 1st January 1992 300 Creditors for stationery on 1st January 1992 200Advances paid for stationery carried forward from 1991 20Amount paid for stationery on 31st December 1992 1,080Stock of stationery on 31st December 1992 50Creditors for stationery on 31st December 1992 130Advance paid for stationery on 31st December 1992 30

[Rs. 1,250]

8. How would you treat the following items in the case of a non-trading concern:Tournament Fund Rs. 50,000.Tournament Expenses Rs. 15,000.Receipts from Tournament Rs. 20,000. [Balance in Liabilities side Rs. 55,000]

9. In 1991, the actual salaries paid amounted to Rs. 20,400. Ascertain the amount chargeable to Income and Expenditure Account for the year ending on December 31, 1991 from the following additional information: Rs.

Prepaid salaries on 31-12-90 2,400Prepaid salaries on 31-12-91 1,200Outstanding salaries on 31-12-90 1,800Outstanding salaries on 31-12-91 1,500

[Current year's salaries Rs. 21, 300]

10. How will you deal the following items while preparing the Income and Expenditure A/c and Balance Sheet of a club for the year ended 31st December 1988.

Rs.

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Subscriptions outstanding on 31.12.1987Subscriptions received in 1987: For 1988 For 1989Total subscriptions received during the year 1988Subscriptions outstanding on 31.12.1988 For the year 1987 For the year 1988Subscriptions received in advance during the year 1988: For 1989 For 1990

200

300100

5,800

50250

350150

11. Calculate what amount will be posted to Income and Expenditure A/c for the year ending 31st

December, 1988:Stock of stationery on 1st January 1988Creditors for stationery on 1st January 1988Advances paid for stationery carried forward from 1987Total amount paid for stationery during the year 1988Stock of stationery on 31st December 1988Creditors for stationery on 31st December 1988Advance paid for stationery on 31st December 1988

30020020

1,08050

13030

12. Convert the following Receipts and Payments A/c of the Delhi Nursing Society for the year ended 30th June 1988, into an Income and Expenditure A/c: Receipts Rs. Payments Rs.Balance at Bank 1.7.1987Subscriptions Fees from non-membersMunicipal Grant Donations for building fund Interest

2,0101,115

2701,0001,560

38

Salaries of NursesBoard, Laundry and Domestic help Rents, Rates and TaxesCost of CarExpenses of CarDrugs and Incidental exp.Balance c/d

656380200840840670

1,2475,993 5,993

A donation of Rs. 100 received for Building Fund was wrongly included in Subscriptions A/c. a bill of medicines Purchased during the year amounting to Rs. 128 was outstanding.

[Ans. Excess of Expenditure over Income Rs. 551]

13. The following Receipts and Payments A/c has been prepared from the Cash Book of the Saraswati Club, Allahbad:

Receipts Rs. Payments Rs.Balance on 1.1.88 255 Rent and Rates 1,680

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Member Entrance FeesSubscriptions of Playing Members 1987 1988Subscriptions of HonoraryMember 1987 1988 1989Public Matches Interest on Fixed Deposit

231

63600

2604,725

1201,120

141

Printing and AdvertisingPostage and Stationery Wages and Umpire's FeesPlayers Traveling ExpensesRepairs to PavilionExtensions of Pavilion Wicket MattingBats, Balls etc.

Balance on 31.12.88

800278

1,200500209

1,956221455

2167,515 7,515

An examination of invoices, vehicles and other records disclosed the following information:Rent at Rs. 100 per month has been paid only upto 30th September 1988 and rates have been paid in advance to the extent of Rs. 120. There is Rs. 180 owing for wages and umpires fees and a bill etc. is still outstanding. Playing members subscriptions are Rs. 40 in arrear for the year and the amount still owing by honorary member is Rs. 425. Make out the Income and Expenditure A/c for the year ended 31st December 1988.

[Ans. Excess of Income over Expenditure Rs. 1,524]

14. Given below is the Receipts and Payments A/c of a club for the year ending 31st December 1986. Receipts and Payments A/c for 1986

Receipts Rs. Payments Rs.To Balance To Subscriptions 1985 1986 1987To DonationsTo Sale of Drama Tickets To Sale of Waste Paper

1,02540

2,05060

54095045

By Salaries By Expenses By Drama ExpensesBy Newspapers By Municipal TaxesBy Charity By InvestmentsBy Electric Charges By Balance

60075

45015040

3502,000

145900

4,710 4,710Prepare the Club's Income and Expenditure A/c for the year ended 31 st December and its Balance Sheet as on that date after taking the following information into account.

(i)There are 500 members each paying annual subscriptions of Rs. 5, Rs. 50 being in arrears for 1985.

(ii) Municipal taxes amounting Rs. 40 per annum have been paid upto 31 st March 1987 and Rs. 50 for salaries is outstanding.

(iii) Buildings stand in the books at Rs. 5,000.(iv) 6% interest has accrued on investments for five months.

[Ans. Excess of Income over Expenditure Rs. 2,235 and total of Balance Sheet Rs. 8,420]

15. The following is the Receipts and Payments A/c of Silver Streek Cricket Club for the year ended 31.12.1983. You are required to prepare the Income and Expenditure A/c for 1983 and Balance Sheet as at 31.12.1983 of the Club: -Receipts Rs. Payments Rs.

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Opening Balance: Cash Bank Subscriptions Donations Activities Collection Sales of Old Newspapers Souvenir Advertisement Endowment Income Sale Proceeds of Old Building at Book Value Income From Investments @ 10%

2903,710

12,00013,0006,900

3005,8003,000

60,0004,000

New Building Constructed Souvenir Salaries Postage Telephone Electricity Maintenance Expenses Newspapers Closing Balance: Cash Bank

75,0002,0006,000

500500600

12,000500300

11,600

1,09,000 1,09,000Subscriptions: Rs.

For 1982 (due as at 31.12.82 Rs. 1,500) Received 1,000For 1984 Advance 1,200Due for 1983 800

Expenses Outstanding :-Salary 1,200 Electricity 100Telephone 100 Postage 100

Provide Depreciation of Building @ 5%[Ans. Excess of Income over Expenditure Rs. 16,250; Opening Capital Fund Rs. 1,05,500; Total

Balance Sheet Rs. 1,24,450]

16. The following is the Receipts and Payments A/c of Delhi Football association for the first year ending 31st Dec. 1987: -

Dr. RECEIPTS AND PAYMENTS ACCOUNT Cr.

Receipts Rs. Payments Rs.To Donation

To Reserve Fund (Life Membership and Entrance Fees Recd.)To Receipts From Football Matches To Revenue Receipts: Subscriptions Locker Rents Interest on Securities Sundries

50,000

4,0008,000

5,20050

240350

By Pavilion Offices (Constructed)By Expenses in Connection With Matches By Furniture By Investments at Cost By Revenue Payments:

Salaries Wages Insurance Telephone

Electricity Sundry Expenses

By Balance in Hand

40,000

9002,100

16,000

1,800600350250110210

5,52067,840 67,840

(i) Subscriptions outstanding for 1987 are Rs. 250.(ii) Salaries unpaid for 1987 are Rs. 170.(iii) Wages unpaid for 1987 are Rs. 90.(iv) Outstanding bills for sundry Expenses are Rs. 40.(v) Donations received have to be capitalized.Prepare from the details given above, an Income and Expenditure A/c for the year ended 31.12.1987 and the Balance Sheet of the Association as on 31st December 1987.

[Ans. Excess of Income over Expenditure Rs. 2,470; Total of Balance Sheet Rs. 63,870]

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17. The following is a Receipts and Payments A/c drawn from the Cash Book of the Bharat Cricket Club for the year ended December 31st, 1984:

1984 Receipts Rs. 1984 Payments Rs.1/1

31/12

Cash in Hand Balance at Bank as per Bank Pass Books:Saving A/c Current A/c Bank Interest Entrance Fees Donations & Subscription Bar Room Receipts Contribution toClubNight Sales of Equipment Net Proceeds ofClubNight

1,000

20,3006,000

3002,000

26,0003,0001,000

8007,800

31/12 Remuneration to Cricket Coach Ground Man's PayPurchase of Equip. & Mowing Mach. Bar Room Expenses Ground Rent Club Night Expenses Printing & Stationery Repairs to Equip. & Machinery Honorariam to Secretary for 1983Bal. at Bank as per BankPass Books Saving A/c Current A/c Cash on Hand

4,5003,000

15,0002,5002,5004,0002,8005,0004,000

20,9001,5002,500

68,200 68,200You are given the following information:

01.01.84 31.12.84Subscriptions due from members Sums due for Printing & Stationery Unpresented cheques on Current A/c, being payments for repairsInterest on Savings Bank A/c not entered in Pass books Estimated value of Machinery & Equipments For the year ended December 31st, 1984, the honoraria to the Secretary to be increased by a total of Rs. 2,000 and the ground man to receive a bonus of Rs. 2,000

1,5001,0003,000------8,000

1,000800

2,500200

17,500

You are required to prepare: - An Income and Expenditure A/c for the year ended December 31st, 1984; and A Balance Sheets as on that date.

[Ans. Excess of Income over Expenditure Rs. 3,500; Balance Sheets total Rs. 42,100 and Opening Capital Fund as 28,800]

18. From the following Income and Expenditure A/c of the Calcutta City Club for the year ended 31st March, 1989 and the Balance Sheet as on the date, you are required to prepare Receipts and Payments A/c for the year ended 31st March, 1989: -Particulars Rs. Particulars Rs.To Salaries To Stationery To Rates To Telephone To Sundry Expenses To Depreciation on Building To Excess of Income over Expenditure

4,200680

1,240270

1,7101,0001,500

By Subscriptions By Surplus on Sports-MeetBy Dividends

5,5002,4002,700

10,600 10,600

Balance SheetLiabilities Rs. Assets Rs.Capital Fund 61,440 Building: 01.04.88 20,000

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Add: Income 1,500Subscriptions in Advance

Telephone Bill-Outstanding

62,94063070

Less: Depreciation 1,000Investments: 01.04.88 40,000Add: Adds During the year 2,500Stock of Stationery Rates Prepaid Subscriptions Outstanding Cash in Hand

19,000

42,500180300300

1,36063,640 63,640

A/I: (a) Subscription of Rs. 100 was in arrear on 1.4.88. (b). On 1.4.88 Stock of Stationery was worth Rs. 100. (c). On 1.4.88 Sundry Exps. outstanding were Rs. 190. (d). On 1.4.88 Rates prepaid were Rs. 300. [Ans. Receipts and Payments A/c opening balance Rs. 1,130]

19. The Income and Expenditure A/c of Jollymen's Club for the year 1988 is as follows:Income & Expenditure A/c For the year ended 31st Dec. 1988.

Particulars Rs. Particulars Rs.To Salaries and Wages To Miscellaneous Expenses (Including Insurance)To Audit Fees To Chief Executive's Honorarium To Printing and StationeryTo Annual Day Celebration Expenses 3,000Less: Donations Collected 2,000

To Interest on Bank Loan To Depreciation on Sports Equipment To Excess of Income over Expenditure

9,5001,000

5002,000

900

1,000300

600

1,200

By Subscriptions By Entrance Fees Received By Profit on Annual Sports Meet Receipts 3,000Less: 1,500

15,000500

1,500

17,000 17,000Prepare (i) Receipts and Payments A/c the year, 1988, and (ii) Balance Sheet as at the end of 1988, from the following information: -

(1) Subscriptions:Outstanding as on 31.12.87 12,000Received in advance as at 31.12.87 900Received in advance as at 31.12.88 540Outstanding as at 31.12.88 1,500

(2) Salaries: Outstanding as at 31.12.87 800Outstanding as at 31.12.88 900

(3) Audit Fees: The fees for 1988 were outstanding on 31.12.88. But during 1988, Audit Fees for 1987 amounting to Rs. 400 were paid. (4) Prepaid Insurance as at 31.12.88 was Rs. 120.

(5) The Club had owned grounds having a book value of Rs. 20,000. The Sports Equipment as on 31.12.87 and as on 31.12.88 after depreciation, amounted to Rs. 5,200 and Rs. 5,400 respectively. (6) In 1987 the Club and raised a Bank Loan of Rs. 4,000 which was outstanding throughout 1988. (7) On 31st December 1988, cash in hand amounted to Rs. 3,200.[Ans. Opening Cash Balance Rs. 14,340; Total of Balance Sheet Rs. 30,220; Opening Capital

fund Rs. 23,080]20. The following particulars related to Fast Sports Club.

Income and Expenditure A/c For the year ended 31-12-1989Expenditure Rs. Income Rs.

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To Salaries To Printing & Stationery To Advertising To Insurance Charges To Electricity Charges To Dep. on Sports Equipment To Excess of Income over Expenditure

6,0002,5001,000

900500

12,00021,900

By Admission Fees By Subscriptions By Rent Receivable

15,00025,0004,800

44,800 44,800Receipts and Payments A/c For the year ended 31-12-1989

Receipts Rs. Payments Rs.To Balance B/DTo Admission Fees: 1988 2,500 1989 13,500To Subscriptions: 1988 1,000 1990 23,000 1991 2,000To Rent

5,000

16,000

26,0003,600

By Salary (Incl. Advance)By Printing & StationeryBy Advertising By Insurance Charges (Partly for the next year)By Electricity By Purchases of Fixed AssetsBy Balance

7,5002,5001,000

1,200500

20,00017,900

50600 50,600On 1st January 1989 the club had the following assets: -Land and Buildings Rs. 60,000; Sports Equipment Rs. 30,000; Furniture Rs. 4,500Prepare opening and closing Balance Sheets.

[Ans. Opening Balance Sheet total Rs. 103,000; Closing Balance Sheet total Rs. 1,26,900]

21. The following are the items of receipts and payments of the All India Club as summarized from the Books of accounts maintained by the Secretary:Receipts Rs. Payments Rs.Opening Balance: 1.1.85Entrance (1984) (1985)Subscriptions (1984) (1985)Interest Received on Investments Subscriptions (1986)

4,2001,000

10,000600

15,0003,000

400

Manager's Salary Printing & Stationery Advertising Fire Insurance Investment Purchased Closing Balance 31.12.1985.

1,0002,6001,8001,200

20,0007,600

34,200 34,200It was ascertained from enquiry that the following represented a fair picture of the income and expenditure of the Club for the year 1985 for audit purposes:Expenditure Rs. Income Rs.Manager's Salary Printing & Stationery 2,000Add: Accrued 400Advertising (Accrued Nil)Audit Fees Fire Insurance DepreciationExcess of Income over Expenditure

1,500

2,4001,600

5001,0004,940

18,160

Entrance Fees Subscriptions Interest on Investments Receivable

10,50015,6004,000

30,100 30,100You are required to prepare the Balance Sheets of the Club as on 31.12.1984 and 31.12.1985 so as to give a fair picture of the assets, outstanding and liabilities. It being given that the book values of the fixed assets as on 31.12.84 were, Building Rs. 44,000, Cricket Equipment Rs. 25,000

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and furniture Rs. 4,000. The rates of depreciation are: Buildings 5%, Cricket Equipment 10%, and Furniture 6%. You are entitled to make assumptions as may be justified.

[Ans. Opening Capital Fund Rs. 78,000; Total of closing Balance Sheet Rs. 97,960]

22. Prepare Receipts & Payment & Income & Expenditure A/c for 1992 from the following figures:Receipts Rs. Payments Rs.Cash In Hand On 01-01-92Cash At Bank On 01-01-92Investments @ 4% Purchased on 01-07-91Subscriptions: Total For 1992Out of Which Subscriptions Not Yet Received Entrance FeesSales of FurnitureRealized by Auction of Old Balls Subscriptions Due to 1st January 1992(All Collected)

7502,300

10,00015,300

800500600300

400

Interest Accrued (on 31-12-92)Salaries Paid Salaries UnpaidExpenses (Total for 1992)Expenses (Still Payable for 1992)Prepaid Expenses on 31-12-92Expenses Outstanding on 31-12-91 Paid During 1992 Purchase of Sports EquipmentsDepreciation Cash in Hand

1004,400

4003,900

300150

4006,0002,500

800 [Ans. Cash at bank Rs. 4,700; surplus Rs. 5,700]

23. The Lok Kalyan Dispensary has the following :

Income and Expenditure A/c For 1992Expenditure Rs. Income Rs.

Salaries Surgery and DispensaryRent and TaxesInsuranceOffice ExpensesDepreciation:Building 3,750Furniture 120Instruments 100Surplus

23,500 3,000 500 200 800

3,970 6,330

SubscriptionsInterest DonationsMiscellaneous Receipts

25,000 9,000 4,000 300

38,300 38,300Other information:- 31-12-1991 (in Rs.) 31-12-1992 Cash in hand and at bank --- 18,700Government securities (Face value Rs. 2,00,000) 1,80,000 1,80,000Subscription outstanding 7,000 10,000Subscription received in advance 200 600Salaries unpaid 1,000 1,500Furniture 2,000 1,980Land and Buildings 2,00,000 1,96,250Instruments 3,500 3,900Surgery expenses due 200 300Stock of medicines 300 100 Prepare Receipts and Payments A/c for 1992.

[Cash in hand Rs. 10,800]

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14. ACCOUNTING FROM INCOMPLETE RECORD

Difference between Single Entry and Double Entry System.

Basis for difference Single Entry System Double Entry System1. Double aspect Double aspect of transactions

are recorded it. Double aspect of every transaction is recorded in the books of accounts.

2. Types of accounts

Only personal accounts are prepared. Real and nominal accounts are not prepared.

Personal, real and nominal accounts are prepared.

3. Trial Balance Trial Balance cannot be prepared, so arithmetical accuracy cannot be checked.

Trial Balance is prepared to check the arithmetical accuracy.

4. Net income It is only an estimate of profit. Actual net income is calculated.

5. Financial position

Balance Sheet cannot be prepared to ascertain financial position.

Balance Sheet is prepared to ascertain financial position.

6. Acceptability Accounts prepared under this system are not acceptable to tax authorities.

Tax authorities accept accounts prepared under double entry system.

7. Suitability This method is suitable for sole trader, who has got lesser number of transactions and that too mostly of cash nature.

This is suitable for all business enterprises whether sole trade or partnership or companies.

8. Evasion of tax There are more chances of avoiding and evading tax.

There are least chances of tax evasion.

Calculation of Missing Figures:

Calculation of credit sales or debtors in the beginning or at the end or amount received from Debtors. In order to calculate these figures we prepare Debtors account. Out of these four items, three items are given, so the amount of the fourth item is the balancing figure. All these items are required for are given, so the amount of the fourth item is the balancing figure. All these items are required for preparing final accounts according to conversion method i.e. double entry system. Credit sales is required for preparing Trading account, opening and closing balance of Debtors are required to prepare the opening and closing Balance Sheets. Opening sheet is prepared to ascertain the capital in the beginning of the year. Sometimes amount received from Debtors is required to be posted to Cash Book in order to ascertain closing balance of cash. Debtor's account contains the following items.

Debtors AccountTo Balance b/d (Opening balance of Debtors –

? By Cash A/c (Account received from Debtors –

?

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may be balancing figure)To Bills dishonouredTo Interest and expenses To (credit Sales – may be a

balancing figure.)?

may be balancing figure.)By Bill Receivable A/c *

(Bills drawn during the year or bills receivable received during the year)

By Returns Inward (goods returned by Debtors)

By discount Allowed By Bad DebtsBy Shortage/Leakage or wastageBy Transfer (if any)By balance c/d (closing balance of

Debtors – may be a balancing figure.)

?

The above Debtors account shows four question marks, which show that one of the four items may be a balancing figure. Bills drawn during the year shows star at the credit side of Debtors account, which shows that the amount may not be specifically given. In such a case we may be required to prepare Bills receivable account in order to dig out the amount of bills drawn. Bills receivable account is prepared to find the amount of bills drawn as under.

Bill Receivable a/c

To Balance b/d (Opening Balance of B/R)

To Bills drawn during the year or bills receivable during the year.

*

By Cash A/c (Amo. Rece.against bills receivable)By Bills DishonouredBy Bills Endorser's A/c (If the bills is endorsed)By Bank A/c (If the bill is discounted)By Balance c/d

(Closing Balance of bills receivable)

Bills receivable account, like Debtors account is an asset and thus shows a debit balance. This is why, opening balance has been shown at the debit side as 'To Balance d/b. If the amount of bills drawn or bills receivable received during the year is not given, Bills receivable account as prepared above will be prepared first find out the amount of bills drawn. This amount will be transferred to the credit side of Debtors account.

b. Calculation of credit Purchases or creditors in the beginning or at the end of the year. In order to calculate these items we prepare creditors account. We require credit Purchases to prepare Trading account. Opening and closing balance of creditors are required ot complete the opening and closing Balance Sheet respectively. Creditors are liability, so posted at the liabilities side of Balance Sheet. Creditors account contains the following items.

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Creditors A/cTo Cash A/c (Amount paid to creditors – may be a balancing figure)

To Bills accepted during the yearTo Discount receivedTo returns outwardTo Transfer (if any)To Balance c/d

(closing Balance – may be a balance figure)

?

*

?

By Balance b/d (Opening balance of

creditors – may be a balancing figure)By Bills Payable Dishonoured By Interest and expensesBy Credit purchases

-- may be a balancing figure.

?

?

Bills accepted marked "star" in the account may not be given. If it is not given we will have to prepare bills Payable Account. It is also a liability, so it will also be prepared as creditors accounts. The specimen of Bills payable account is given as under:

Bills Payable A/cTo cash A/c

(Amount paid against Bills payable)

To bills payable dishonouredTo balance b/d

?

?

By balance b/d (Opening balance of bills payable)By bills accepted –

transferred to creditors account

?

*

Calculation Of ProfitsAscertaining Profit

Capital at the end of the yearAdd: Drawings during the year

Less: Capital in the beginning of the yearLess: Additional capital invested during the yearProfit of the year

2. Special features of Single Entry System.a. Incomplete, unscientific and unsystematic system of accounting.b. Only personal accounts are prepared.c. Limited use.d. All the transactions are not recorded in the books of account.e. True financial position cannot be ascertained, as Balance Sheet is not prepared.

3. Advantages of Single Entry System.a. Simple method.b. Economical.

c. Economy of time.d. Useful for small firms.

4. Disadvantage of Single Entry system.a. Incomplete and unscientific methods.b. Trial Balance is not prepared.c. No knowledge of financial position.d. Comparison with previous years' performance is not possible.e. Control over assets to not possible.f. Unacceptable to tax authorities.g. Difficulty in obtaining loan.

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5. What do your mean by Single Entry System? What are its main features?

6. Distinguish between Single and Double Entry System. Which of them do you prefer? Give reason.

7. "Single Entry System of accounting is incomplete, unscientific and unsystematic" Discuss the statement.

8. Make a format of Debtors Account.

9. Calculate capital in the following cases:Rs.

a. Sundry assets 1,00,000Liabilities 40,000

b. Creditors 10,000Bills payable 5,000Cash in hand 2,000Bank overdraft 7,000Prepaid expenses 1,000Building 20,000Plant 8,000Bills receivable 3,000Furniture 2,000Outstanding expenses 500

[Ans. a. Rs. 60,000; b. Rs. 13,000]

10. Calculate drawing from the following information:Rs.

Total assets (except drawing) 9,00,000Creditors 1,00,000Capital 9,30,000

[Ans. 1,30,000]

11. Calculate the amount of drawing in the following cases:a. Drawing @ Rs. 3,000 per week.b. i). Goods worth Rs. 3,000 were taken for domestic use.

ii) Car expenses Rs. 9,600. The ratio of car used for domestic and business purposes is 1: 3.iii) Purchases of motorcycle for proprietor's daughter amounting to 18,000.

[Ans. a. Rs. 1,56,000 ; b. Rs. 23,400]

12. The information of an accounting year is given below:Opening capital Rs. 60,000; drawing Rs. 5000; Capital added during the year Rs. 10,000 and Closing capital Rs. 80,000. Calculate profit and loss for the year.

[Ans. Profit Rs. 15,000]

13. Capital of A at the beginning of the year was Rs. 60,000. During the year his business earned a profit of Rs. 30,000. He withdrew Rs. 10,000 for his personal use. He sold ornaments of his wife for Rs. 25,000 and invested that into the business. Find out his capital at the end of the year.

[Ans. Capital at the end of the year Rs. 1,05,000]

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14. Sujata, who keeps her books on Single Entry tells you that her capital on December, 31, 1992 was Rs. 20,000 and her capital on 1st January, 1993 was Rs. 20,200. She further informs you that during the year she withdrew for her household purpose Rs. 8,420. She once her investments of Rs. 2,000 at 2% premium and brought that money into the business.

[Ans. Profit Rs. 6,180]

15. From the following information of an accounting year, calculate credit sales during the year:Opening Debtors Rs. 50,000; Returns inwards Rs. 5,322; B/R received during the year Rs. 10,000; Cash received from Debtors Rs. 20,000; and Debtors at close Rs. 40,000.

[Ans. Credit sales = Rs. 25,322]

16. Calculate total sales from the following information:Rs.

Mohan started business with 75,000Cash sales during the year 12,000Closing balance of Debtors 88,000Bills drawn during the year 10,000Bad Debts 1,000

[Ans. Total sales Rs. 1,11,000]

17. Calculate total Purchases form the following informations:Rs.

Opening balance of creditors 3,000Closing balance of creditors 4,000Bills accepted 5,000Discount received 400Returns outward 600Cash Purchases 2,400

[Ans. Credit Purchases Rs. 7,000; Total Purchases Rs. 9,400]

18. Debtors at the beginning of year were Rs. 28,755; sales on credit during he year were Rs. 75,000. Cash received, from the year was Rs. 35,000, return inward (regarding credit sales) were Rs. 5,000 and bills receivable drawn during the year were Rs. 25,000. Find the balance of Debtors at the end of the year, assuming that there were bad Debts during the year Rs. 2,000.

[Ans. Balance of Debtors Rs. 36,755]

19. Creditors on 1st Jan., 1995 were Rs. 18,000, Purchases on credit were Rs. 30,000 cash paid t creditors during 1995 was Rs. 20,000, returns outwards (regarding credit Purchases) were Rs. 1,000 and bills payable accepted during the year were Rs. 10,000. Find the balance of creditors at the end of 1995. [Ans. Creditors at the end Rs. 17,000]

20. Cash sales of a business in a year were Rs. 85,000, the cost of goods sold (including direct expenses) was Rs. 97,000 and profit as shown by the Trading account for the year was Rs. 1,29,000. Calculate credit sales during the year.

[Ans. Credit sales Rs. 1,41,000]

21. Creditors on 1st Jan., 1995 were Rs. 45,000. Purchases on credit were Rs. 30,000, cash paid to creditors during 1995 was 20,000, returns (regarding credit Purchases) were Rs. 4,000 and bills payable accepted during the year were Rs. 40,000. Find the balance of creditors at the end of 1995. [Ans. Closing balance of creditors Rs. 11,000]

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22. Calculate opening balance of Debtors from the following information:Rs.

Credit sales 20,000Cash sales 12,000Bills dishonored 2,000Bills drawn during the year 16,000Goods returned by customers 1,000Irrecoverable amount 500Shortage of goods 100Closing balance of Debtors 13,000

[Ans. Opening balance of Debtors Rs. 8,600]

23. Majeed had not kept proper books of account, but from the following details you are required to ascertain the profit or loss for the year ended 31st Dec.,1993.

1-1-1992 (Rs.) 31-2-1993(Rs.)Stock in trade 16,700 18,713Sundry creditors 15,400 14,000Sundry Debtors 11,200 10,500Cash in hand 250 4,200Bank overdraft 20,200 19,400Bills receivable 15,050 14,200Fixtures and fittings 1,500 1,500Motor van 1,900 1,900

The drawings during the year amounted to Rs. 2,600. Depreciate fixture and fittings by 10% land write off Rs. 300 from Motor van. As regards Debtor, it is ascertained that Rs. 500 is irrecoverable and a further reserve of 5% could be made. Also create reserve Rs. 700 in respect of bills receivable.

[Ans. Total of closing statement of Affairs Rs. 48, 863; Net Profit Rs. 7,063]

24. You are required to determine the (a) Total; and (b) Total Purchases for 1993 from the following partiulars:

Rs. Rs.Total Debtors 1-1-93 55,252 Discount earned 1,455Total Creditors on 1-1-93 39,275 Bad debs 3,224Bills Receivable on 1-1-93 27,322 Returns Inward 2,397Bills Payable on 1-1- 93 9,345 Discount allowed 3,049Cash received from Debtors (not including a sum of Rs. 325 now recovered. It was written off as bad Debts last year) 23,288

Cash sales 3,398Payments made against B/P 14,000

Total Debtors (31-12-92) 62,500Total creditors (31-12-92) 33,000

Cash Purchases 4,245 Bills Payable (31-12-92) 14,345Cash paid to creditors (including sum of Rs. 1,800 being cost of typewriter purchased-payment made to its supplier) 23,532

Bills receivable (31-12-92) 32,322

Cash received against B/R 27,500Returns Outward 1,156

[B/R received from Debtors Rs. 32,500; B/P given to creditors Rs. 19,000; Credit Sales Rs. 71,706; Credit Purchases Rs. 37,068; Total Sales Rs. 75,104 and Total Purchases Rs. 41,313]

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