Accounts+1st+Unit+(Sec+a)[1]

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DEFIMTION, DEVELOPMENT AND

)*U"Jo.h.o,,. l- OzuECTTVES OF'' ACCOUNTING

' Thg nccessity ofbook-keeping and accountancy arose due to the fact that memory ofpersonsis limited and one cannot remember various informations for ever and secondly the proprietorsor owners of business ara eager to lqrbw thc financial position of the business proprietors over

a particular period. Thirdly, book-kebpingrecords are also considered as evidencein the courts

to^prove claims or t6 defcnd in casq ofclaims made againstthe person concerned regar:ding debts,

ctc. Thansactions relatcd to business have become so importait that their proper recording

bccamc a pr:imc requirement of any business and this recording of business transactions isrcgardcd as book-kec4lr8 h the field of accounting.

DEVELOPMEAIIT OF AC COUIVTING

Lucas F. Pacioli, a rcsident of Venice (Italy), is regarded as the founder of book-ke'efing. Hisbook'I)e Computiset Scripturise' was published in 1494, which is regarded as tbe first book on

book-kceping- Really speaking, it was a book on Arithmetic and book-keeping was described in iLs

onc part only. The advent of industrial revolution resulted in largc-scale pr:oduction, competitionand broadening of markct- In recent years the change in technoiogy has brought about remarkablechanges in the field of accounting. It has thus lead to formulatiori of various professional bodies andInstitutc in order to monitor:, regulatc and control accounting profession at nafional and intcrna-tiondl lcvcl. The various'bodies have laid down various accounting policies, broad quidelines,principles and methods at global level for r:niformity in accounting practiccs.

MEANING OF BOOK-KEEPING

Booh-keeping is itn arL as well as science of recording business transoctions of an in-d,iuidtnl.firnL, company, corporation and other associcition of persons and instittttion.s in a certain set of boohs

reS;ularly according to prescrfbed ru.les and regulations on the basis of sotne dtfinite system f-or' .

fttl/iLment of certain objects.

It is irrrportant to n<-rte that only those transactions and events related to business arcrecordcd rvhich can of money. Book-keeping includes (i)transactions and eve count, i.c-, journal and various subsid(ii)classifyirrg and po ing and balancir-rgof accounts in ledgc .

beforc preparation of l,rial balance form the subject-rnatter of book-kecping. 'l:;li

DEFINITION OF ACCOTIAITIN{i

Whcrc booh'hecpirtg ertds a.ccottnting begins. Accounting refbrs to procr:ss ol prcparing and.prcsr:nting thc ilccounts in a scientific and systernatic manner. According to Anrerir:arr Jnstituteof Oerrtificd PLrblic Accountants (AICPA), Ar:<'ott.nting rs th.e ort ctf rcr:ctrclirtSl, clossifyin.g uttdsurtt.ttturi.sirtg i.tt a si.gtLificatt.t n1o.]7net- and in t.r:rnts ctf ntoncy, tran.sor:t.iorts ctrt.<i trt<:rtl.s tLthi.r;lt u.rc

of u lirtarrcictl c]Laractcr uttd irtLerprel:.ttg Llu: n:sults tlrcreof.

Accounting is thc Lungttage of busi.ness because it is througli ..rcrcounting iirat verrioustnonotary l:ratt,crs lel:rt,cci u'ith busincss :trrr contmunicatcd IIcncc, :rccorrnling is nriu,' corr-

sid<rrcd asa.:nirtfirnt.ct(.ictrt st,sl.t'rlr rvhich aicls lrtrsiness aud its u-^ers ilr t:tiiiirr;ctrlrr(.'nli(j decisions



SAHI TYA BHAWAN PUBLICATIONS

ACCOUNIING

Tlansactions & EventsRecording rneasured

transactions & events inproper books ofaccount

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Fig, 1. Accounting as an Infonnation System for Decision Making Process

Accountancy refers to the application of scientific and systbmatic knowledge of accounting.

It emphasizes on why and how to prepare books of accounts and summarize it in order toprovide

^""ot-ting information to it end ,,rse.". It also includes interpretation aspect of the recordedinformation.An analysis of the definftion of Accounting can be examined as :

L. Science aindArt: Accountarpyis Jcience becauseithas some definite objects tobefulfrlled.In order to fulfil the objectives their are certain accounting rules and principles which are to be

adhered. It is art because it prescribes the process through which the objects can be achieved.

2. Busintss transactions and euents of financial nature : Recording of all transactions is notAccounting, only business transactions and events and that too offinancial nature only formthe subject-matter of accountancy. Atransaction refers to exchange of goods or services betweerrtwo parLies in which one of the participant is the rcceiver and the other the giver. An event is a

happening of a certain event which is related to the business entity whether internal or external.

3. fn furms of money : Only those transactions which are expressed in terms of money arcrecorded. If there are transactions which cannot be expressed in terms of money, they will not

fall under Accounting.4. Recording: It refers to writing of business transactions and events ueasured in monetary

tcrms in an or.derly manner in journal or in subsidiary books of journal like Cash Book. Sales

Book, Purchases Book, etc.

5. Classifyin.g : It refers to the process of classilicafion of recorded transaction of similaruature and type at one particular place. This rvork of classification is done in the book termedas "Ledger" \Vbcre valious accounts are opened and tr:ansaction of sirnilar nature arcr groupedat onc place.

6. Su;nrrLurisi.n.g: It re{'crs to preparalion of trial balance, tradingaccount, p,-ofit and loss

:rccount and balanct: shclet.. Preparation of trading account, profif & loss account and balancesheet is collectir,<:l_"- irnou'n as 'Final Account.s or Financial Statcrnents'. Balance shct:t is theslirllrDary cl'wholo o1 thc accountanc.r' record,

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preLittioir refirrs to cler-iving ct>ncltrsiorts front accrrunting lccorrls, url rnilnner- uscful to thtr t:itd riser-'s in oi-der to milke rneaning5lhl jtrrJgerur:nt and rJr:cisions ab<iut

r'lrt-. f rnanci:.1 Positior rurd pltifltnbility of the btisiness actir.'ities carrr'ed out cluring t]-rc financial

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i} I T.' FTtr R]! C-- E IlE T1VEE N B O OK - KE E FING AN}} A{] C O UNTI N TJ

A,:crrLint,ing br:iins *'irr:r.c' book-keeping cnc.!s lSooli-keeping differs lrc,ir accc-,trniing on

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Aralysis &Interpretation &

Communication of

Financial Statement

Classifying &Surnmarising

tralsactions & events

(i.e.,I-cdger & FinalAccounts)

Decision Makers(Investor, Creditor,

Supplier)



Basis

Posting

Total and Balances

Objective

Tllding, P. and L. Ac-corrntlqd Balance Sheet

Records regarding Ad-justments & Errors &'their rectificationNature of Job

Stage

Special knowlcdgeability

Liability

Recording of transactions in thebooks of original entry.

'lb makc posting in ledger.

'fo make total of the amounts in

journal and accounts of ledger. Tofind out balances in all the accountsand ledgers.To record transaction in orderlyandsystematir manner.

Prcparation of1lading, Profit andLoss Account and Balance Sheet isnot book-keeping.These are not included in Book-keeping.

The job of book-keeping is ro-utine

and clerical in nature.

Book-keeping is primary stage.

It does not require specialknowledge and ability as in ad-vanced cduntr'ies this work is doneby machines.A book-keeper is not liable for ac-

I l';eparation of ltinal .{ccounts.

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To examine these transac-their ac-ions in order to find out

curacy.To examine this posting in order tofind out its accuracy.'lo prepare trial'balance with the

help of balances of ledger accounts.

To deterrrrine profit & loss andfinancial position of tl.e businessconcern.heparation of Tlading, Profit andLoss Account and Balance Shect isincluded in itTh6se are included in Accounting.

The job of accounting is anal;rtierlin nature.

Accounting is secondary stage. Itbegins where book-keeping ends-It requires specia-l knowledge andability.

DE TTINITION. D E\TELOPI\4INT .{ND OBIECTN'ES OF ACCOUNTING

Book-lzeeping Accounting:-

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rccounting.: to provideLe recorded

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An accountant is liable for the workwork.

-R.G.Williarns -slbeek-EeeP*-

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ACCOfIAITING CYCLEIn the broad sense accounting cycle refers to ;

1. Recording oftransactions injournal or in its subsidiary books.2. 'Io post them in ledger.

3- To prepare final accounts-

Thus, an accounting cycle begins'uvith recording oftransactions and ends with the prepa-ratiou

ofthe final accounts. The steps involved in accounting cycle or process ofaccounting are ;

Firsi; Process : Recording of l.ransactions in books of original entries is the first process ofAccounting.

Seconcl Proccss : Recorul oijoun-ral and other subsidiarl'books is irtpu.t for ledger. On tl,'e,

brrsis ofthis rccord. postings iirc'nradc in lcdgcr irr vltiious irc -

crlunts. Eaclr rrccount is

balani:ed at thc end of'a cer-trin

1rc'r'iocl arid thr:st: baIant:cs irrcorr.t1tir t o{ lt'clge,i-

T'h,in! Prcress - f'r'elriirltton ol'.1\'ral Balzrncc is thc thildl)rocc.ss of irccc;urrting- Bil!rlrrcr'sliorn lerdgcr iirc lrarl.sfcrrcrl t,r,

T\-ial I-llianr.-r,. hr:r'rcc 1]rc..;ir

[;rilanr'r's :\i'.' ittlri.ll firr tlrc 1.ri:li f i,;" 2";tcrr;uiltrng (-!ij (rz" !r'r'o<:es.s q>f ,4ccrrti:+tir:r zi

Recording of transactrons

irr .loLrlrral or- Subsidiav Book

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SAHITYA BIIAWAN PUBLICATIONS

balance. Total ofdebit balances in trial balance should be equal to total ofcredit balances in trialbalance.

Fourth Process: Preparation ofFinal Accounts is the fourth process ofAccounting. Record

of trial balance. is input for final accounts. Final Accounts refer to Tlading Account, Profit and

Loss Account and Balance Sheet. Some balances of Tbial Balance are transfe.rred to Thading

Account and some balances of Trial Balance are transferred to hofit and Loss Account whileremaining balances of Tlial Balance are transferred to Balance Sheet. The balance of TladingAccount in the form ofgross profit (loss) is transferred to Profit and Loss Account and the balanieof Profit and Loss Account in the form of net profit (loss) is transferrOd to Balance Sheet. Thus,

Balance Sheet is the summary of whole of the accountancy record which is the output of'thefourth process.

Fifth Process : Analysis and Interpretation is the fifth process ofaccounting. Final Accounts' are inputs for this process and on the basis of analysis of Final Account's, interpretations are

made. Tlaese interpretations are the output of the last process of accounting.

Afber one financial year or a accounting period for'which accounting record is made, againjournal, ledger and final accounts are prepared. Thus, tbis cycle goes on for the whole period ofbusiness in yearly cycles or the cycles ofthat period for which accounts are prepared. The above

can be figured as :

OBJECTfIIES OF ACCOIJNTINGI. Mqin objects are : (l)To know profit or loss ofthe business. (ii) To know the worth of assets

and liabilities of the business at a particular date. (iii) To know about the progress or downfall

of business. (iv) To know as to whht amo}nt is to be paid to a particular person or what emount

is to be received from a certain pelson oh a particular date. (v) In the case ofthe companies to

comply the provisions of the Companies Act, 1956 as under this Act it is necessary for thecompanies to maintain accounting record.

II. Other Objects: In addition to the main objects described above, following are other objects

: (i) To know about the position ofgoods stocks. (ii) To know the position of cash. (iii) To know about

the errors and ftauds of tJre employees. (iv) To have detailed information about capital employed

in the business. (v) To satisfy the taxation authorities. (vi) To know the financial and otherrequirements of business at a particular period of time.

In short object of book-keeping is medsurerLent of wealth and financial heqlth.

MERITS OE BOOK-IGEPING AND ACCOUI{TING

F'or the sake of convenience these merits are grouped as irnder :

(A) Merits to Businessman; (B) Merits to Employees; (C) Merits to the Persons Concerned;(D) Merits to Government; (E) Merits to Consumers; (F) Merits to Research Scholars; (G) Meritsto Nfanagement; (H) Merits to Investors; (I) Merits to Competing Concerns, (J) Merits to NewEntrepreneurs; (K) Merits to Political Parties

(A) Merits to Businessntatl: (1) It helps in ar:quiring financial infbrmations about thebusiness. (2) It help.s in buving and sellingprocess of business. (3) Comparison of the accounts

of vzrrious years assist.s in gettingvarious beneficial infornrations. (4) Properly kept accounts

act as a goori proof in a court of lau'- (5) Acrcounting records provides great help in assessment

,rf various djrect and Indiret:t taxcs. (6) It helps in acquiring loan. (7) It helps in deterrnining theamount of goodu.ili. (.3) Accorrnting is a necessitl, in large-scale productic.n (9) It helps in

contr<.,1ling the enployecs.(i0)

If the businessmall rvants to get hjniself dcclared as insolvent,accriuntingrecr>rci is r-rl'gr-e.rt lieJp in making his u'eak financial position clear in this re:gard

(B) Merits t.o Empl.ot't't,i; :Accour-rting rc;corcl helps t,he employees in all matters relatedtoihoir u'a.4es, salaries. bonris. r.rl-c

(C\ X,[erits to titc Pl,rsttns ()ortt'trrrcr] :All the persons, u'ho are clircrtl-y or indirectlycoircerrrecl u'it.h thr: busines-." rir-tr benefitted b-v it" a.s it rernoves dorrbts about thc anrotrrrts tobcr-cr:cived or pnid. Thc irer-soirs u'hc acivancc Ioair-* c,r suppl-t, r-ilrv nrrrtct-ials on c:r'llii to thcbr;sincsrs. gt:1 ruirxirriurir :r,i',':::'rt ltgc fi-otn ai:crtttntitrg rerc'ot'rl

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(D) Merits to Gouernitent : (l) Finalcial assistancb is prowided by the Government on thcbasis of aocounting record. (2) Country's industrial progress cal be judged on its basis. (3) Ithelps iir making assessment of total income for thc purpose of determining taxes. (4) It helps inproviding licenses. (5) Sometimes these records help in making amendments in prevailingbusiness laws.

(E) Merits to Consumcrs : Correct cost prices and sales prices are fixed on the basis ofaccurate accounting record, hence consumers can get goods and services at reasonable price.

(F) Merits to Research Scholars : Research scholars can give suitable suggestions, forimproving accounting system after studying accounting record of various units.

tG) Merits to Managernent : Management always remain keen in knowing the result of itsefforts which is indicated by accoulting record. It is on this basis that they frame new policies,alter existing methods and formulate new schemes and control busincss activities.

(El) Merits to Inuestors: If some one wants to purchase the shares ofthe company or is eagerto make investment by other means in the business unit, he becomes eagerto know the pastand present financial position, earning capacif, liquidity position of the unit concerncd. He alsomakes an interpretation about the future growth of the unit and all this he does on tlre basis ofaccounting record.

(I) Merits to Competing Concerns: Competing concerns always remain keen to know the

financialposition of all those units whom they regard as thcir competitors.(J) Merits to New Entreprenezrs : The entrepreneurs, who want to start business in a '

particular line wa).t tor\Fow the earning capacity and financial position of those units rvhichare carrying on busindss of that line. It helps them in deciding whether to start that type ofbusiness or not.

(K) Merits to Political Parties: These days in India political parties also want to know theearning capacity and financial position of various business units in order to assess their workingand their affect on the employees and outsiders. In many cases they represent various tradcunions and coin issues for their political platform on the basis of accounting record of bigindustrial units.

USERS OF ACCOUNTING INFORMATIONI"ollou'ing chart inclicates various types of users of accounting information :

{Jsers of Accounting Inforrnation

g Record?rofit and, Tltdingunt while

f Tbadingre balance>et. Thus,tut of the

Accountsrtions are

rde, agginr period oflhe above

h ofassetsr downfallat amountrpanies tory for the

lrer objectslow aboutemployedand other

Meritsto Neu'

bor,rt theaccouni,saccounts

s(:ssmentthe

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l;Ill,ru"'.tnr. i ()r,,ditors Go'r,cnrrnr:n{

rtRt searcL'Sclrol:. rs (-)tlrel PJrsons

!ntc:r;ral t].eer.s

'll-:t: orvners lrnd 1>et'srins rvor-liinli ilr tlre organisalion iri nr:rr-ragcri:rl lr,r.els ancl cnrplo_r,r:esirt r, ,,,rnsid('r-ei as irrternltl usnr-s o1'lrct:orrnting inforniel.iorr

t.7 ) I'roitrictrtrs/Otlrrrrs. -Acc:oturtinrg irrfbrnratirln hr:l1ls tlrt JrltiPr-ictor/ orvners to krrr;w tlre

{irl!ot,inlsl:t) llitrrrrrtg ()irPec:itl': (lr) l'.jnlrrtr:rrrl I'ositior-r' atrcl (t:) ["rr{ irr'<' l'rusyrct:ts o1 lhc r'rrtt,r 1,n*,'t'2) trtunogt:ntrttl ..\trc:ount,it.ll-inlirrriralion is o{'glirirl l.lcvlin(r(, 1(r tlrc rir.rna.qt'rrrcrrl irr 1h.

lirllou'irrg irsprr:ts :

(it I'lirirnrng. (ii)()rganisin.g, (iii)()o-orcliirating. (ir') Ilrrds'-rtirrg. (r') (-lontrollinS bLrsrncssil(irvitit's.tti)lleci.1,,r') rnlrl<ing l'hrrs. nlilnilllenlenl c:rrrinrl;i'olcthct{licit:nr:.v.irrcr-c,irscPr-orlu,-riic!' ;lrri iiri ii,:,se 1:l'r1i1ir[rilii.ir lrt usirrt rrr'<'ounting.irr{irl rli:ii'rir irr :rrr rrlr1rlo1-,;i6f s l]lutr)('1

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SAHITYA B IIAWAN PUBLICATIONS

(3) Employees : Employees always feel that proprietor makes huge profrt while theirremunerations are limited, this doubt is removed by accounting information. On the basis ofprofit and loss account ofthe current year, they can know current year's profit and can ccmpare

it with the profit of the previous year.In case the profitability is higher, th'ey can may make a

demand for bonus, increase in remuneration and retirement benefrt schemes etc.

Employees are also eager to know about the continuance of the organisation in future for

unlimited period because it will result in the continuance of their services, therefore, on thebasis ofbalance sheet they can ascertain theirjob security and stability.

External LjsersThe persons who are neither proprietor nor employees, but somehow have interest in the

business activities and their operational result are called externa-l users. They use accounting

information for various pufposes according to their requirements-

(L) Creditors: Persons who supply goods on credit or provide long-term finance are termed as

creditors- They need information to deterrnine whether the concern will be able to pay their principaland interest (if any) as dnd when due.

(2) Inuestors: It is only after knowing the profitability and sound financial position thatpotential investors take decision about making investment and present investors (shareholders)

io continue investment in an enterprise. Accounting information is of great use to them in this

connection specially in making judgement for their reiurns on investnents.(3) Consumers : Consumers are interested in the prices of the goods and services rendered

by q. enterprise. This p?ice decision is based on cost of productionplus estimated margrn ofprofit, hence consumers are intdrestpd in accounting information with which an idea of price

structure can be made.

(4) Gouernment : Accounting information is used by the government for the followingpurposes :

(i) Fixation oftax rates and introduction ofnew taxes.(ii) To assess whether the unit is going to become sick.(iii) To compute national income.(iv) To prepare national accounts.(v) To know industrial growth of Jhe country.

(5) Research Scholars : Researches are being made in various universities, industries and

in govei.nment departments. Accounting information of vatious entcrprises is of great use toresearch scholars.

(6) Foreigners : These days the entire n'orld has become one market due to rapid growth ofmeans of transport and communications. Soine foreign rnarket players a!-e eager to know theprofitability and financial position ofcertain enterprises engaged in certain industries. On thebasis of this information they may makc an opinion about import,, export and also about mergerand business takeovers,

(7) Other Pcrsons: Many olhel-persolrs i1l'e also inlerested in accor.rnting jnformation forutstance :

(i) Etr.trcprcilettr: An entreprenerur is ca61er to l<nrxr, lhe profitability and financialposition of tlrosc enterprises u'hich arer ailead-y in an inc{us!r-,'. It is only afterkni;ri,ing their posltion ire r.r.iii mirkc' up l-iis rlind u'hether to st:ii't similrrr enlelpris.'or not.

(it) TrLxa/.ittti ,4tt.ilnri tics. Taxriion arrthorities needs and accorrnt.irrg inlirlnratilrn tfideicrnrining i,:riiotrs tax lirrbilities, i c , incorue i,ax, sreles tax. etc:,

(,rii) CotnTtcti.tot-s . The yrr:i-sorrs *hr; rvant tt: cornpcte rvilli a partir:uiirr c.illoif ris,'. \\,:1rrt

to knorv it,s po-<itiorr on the basis oi- its 'ar:cortniing record'.tivJ 'I)'adr: Assocrolrs.'l'ircse iissociations r:iimpai'e the perfbrmarce of l.ircjr nienibcrs"

unit-q lrnrl 1l,err if ncc:cl bc- clerrnz.rnd concosslons or-r:xemptiorrs fioln tlrr: (loi r:r-rrrrrclrf

il tli'-;riit'.r lrtrri tttitei' :rlrlri'r'a i'



rhile their'rhe basis of:a;r comparenay make a

in future forrfore, on the

terest in ther accounting

re termed as

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oosition thathareholders)them in this

ces rendereded margin ofidea of price

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DEFINITION, DEVELOPMENT AND OBJECTMES OF ACCOU]\ITING

@) Stock Exchanges: Tlrey require accounting information in connection with listingofsecurities and other spheres connect6d with various dealings in stock exchanges.

(vt) Media : Media specially related with econornics and finance need sccountinginforrnation of various units for bringrng them to the notice of rnasses dnd government.

(vri) Political Parties: These days political parties use accounting information in placingtheir views in the Parliament, in the legislative assemblies and before the masses.

. FUNCTIONS OF ACCOUNTING' 1- To record business transartions : The main and primary function of accounting is to keep

systematic record of business tr:ansactions which can be expressed in terms of money.

2. Tb indicote earning capacity and financial position: Only recordingoftransaction is notthe function of accounting, preparation of final accounts which include trading, profit and loss

account and balance sheet is also a function of accounting. It is on this basis that the earningcapacity and financial position of the unit concerned can be found out, which-may be of great

use to the owner and various other parties.

3. To satisfy Gouernment Agencizs: One of the functions of accounting is to satisfy variousGovernment agencies. fn Income-tax, tax is charged on net profit and net loss is allowed to be

carried forward for writing it offout of the income of future years, hence it is through accounting;that reliable information regarding profrt or'loss may be obtained and this may provide

satisfa-ction to the taxation authorities.4. Tb cornply lega{requiremcnts: In case ofregistered companies and other specific business

where turnover ofbu$ness exceeds Rs. 40 lakh, auditing is compulsory. Auditingis not possiblewithout accounting, hence accounting has to be made of such a staldard as to comply with thelegal requirements. In addition to it various documents, returns and statements are also to be

frled at various places, and in this respect too accoulting is made use of.

5. To assist Management : Accownting provides valuable information which is of greatimportance for the management in performing various.management functions uiz., planning,organising, controlling, co-ordinating, decision-making etc. Decision-making of management is

mainJy based on the results disclosed by accounting.

6. To protect assets: Accountant always remain keen to see that unauthorised use of asseisshould not be made, hence such a system of accounting is devisecl which can check thisunauthorised use. If accounts are properly kept, assets will be used on-ly in the interest of the

bnterprise- Without receipt of adequate amount, the assets will not be disposed of. All this ispcissible through proper accounting.

7. To depict true financial positiott: Last function of accounting is to depicttrtre frnancialposition of the business as a rvhole.

LMTITATIONS OF AC COTINTINC

Accounting has the following linritations :

7 No rccorcl. of ncttt-rnonctary tnr.nsaction . Tlte trar.rsactions u'hich cannot bt: cxpressed int.erms of rnoney are not rccorded in accorrnting. IJence, accounl.irrg is liuiited only upto rnonctarytrirnsactions

2. Lt';1u1. restricLions: ln cirse olc:ompzrnit.s various provisions of'the Companies Act, 1956,

ar e to lrc complied u'ith and hence t:ertain limitations are impr.rscd b-y lau' on accounting s)/st(,m,

i: l{otct'ordof'cltorr.gitrglsric:t:/ctrr'1 :(lostconceptisadoplcdirr:rcr:orrrrting.Chzrngirrgprices

itrc riol r:oi-isirlelct-I. 1Yri.s is verrl'strong lirnitation of accounting.-1 lJo rccctrrl of irnnrcttt't iaL irtfot rn.atictrts : (lonr'<r;rtion ,rf- ruatcrialitv is vr,.r,v in'f iortzurt i;rar;corintir.rg Al accoru-rt has t,o nralie il distinction betrveen mal,erizJ and imnraterirrl itenis..Allnrat.r'r-i;,rl itcrns musi bc clisc,lo.-qcd in financial stat,ernents IIenc<:, rr.ratcrial itcn is tlrr,' lirnitation oirl<:cotrnlilr{ ,{ S 1'';lrril A Si 5 crnphrsizr: on this ir.sprrcl

.\..S ,\,'qr,1111jj11u St:::rtlalrl j,rr-:triti;:terl irr irtrlr I lrr, I(].{J

anduse to

gr-owth ofto larow the

On therncr[Jer-

for

linancialoillv aficrcnit:r-pliscr

1!!rrn (itr

ist., rvrinl-

oi i,r ittirctti



5. No record of p-rospectiue profits : In accounting provision is made for prospective losseslike provisigl {or bad and doubtful debts but no provision is made for prospective profits. Thisis another limitation of accounting which is based on the concept of conservation and it isrecognised inA.S. 1.

6. No application.of_objectiuity factor: Accounting policies are framed by the accountant

according to his .oyn jndlvidual judgement, hence it is-the subjective factoithat prevails inaccounting and objective factor is ignored.

SYSTEMS .OFFINANCIAL ACCOUNTING

I. Cash System: Cash system of Accounting is used in those concerns where only cashtransactions tbke place and the object of the

"on"Jtnis not to make profit.

2. Single Entry System: Under this system in case of some transactions only one aspect isrecorded while in case of some transactions both the aspects are recorded and some transactionsare not at all recorded.

. 3. Double Entry System: IJnder this system both debit and credit aspects of a transactionsare recorded according to certain prescribed rules.

4- Indian System of Accounts : Long Bahies are used under this system. Re-cords in theseBahies dre made in Indian Language like Hindi or Murhia. This system is also based on Double

Entry System-,

:

, ACCOUInING METHODSThere are two recognised methods of Accounting: --L. Mercantile Methad of Accounti4g : This mbthod is commonly adopted by business

concerns. When accounts are prepdred oir the basis of accrual concept, tlie metiod oflccountingis called mercantile accounting method. It is also called accrual system of accounting. Accrualrevenue and accrual expcnditure are the basis for accounting under this system.

2. Cash Method of Accounting : This method is adopted only in those concerns where on-lycash transactions take place.

F'INANCIAL STATEMENTSFinancial statements include tading Account, Profit and Loss Account and Balance Sheet

of an enterprise- Thading Account is a part of Profit and Loss Account- This account indicatesthe profit or loss of the enterprise, i.e., earning

capacity of the enterprise, while Balance Sheetindicates financial position of the enterprise.

SAHIIYA BIIAWAN PUBLICAT] ONS

Tlpes of Financial Staternents7 General purposc Financial staternents: These statements are

needs of proprietors, cleditors, investor.s. employees, etc.2 Spccial Purpose FincLn.ci'al Sto.tements: These statements are Prepared for the satisfa<:-

tiop of Taxation Authorities or other-government officers.According to Arnerican Institute of Certified Public Accountants, basic object ol financial

statenrents is "to proviclc quantitative financial infbrmation aborrl a blsiless enterltrise thtrt isr.rserftri 1rl s1 atemenl. trscrs Particrrlarlli o\vners and crcditors, in rnaking econornic clecisjons "

FI.YBRII} SYSTET/I oF AC COTINTIN{;'lhis is ir systent ttf a:cc:o',rlltirlg iti rvhich some itenrs of incorne are tal<cn on cash basis vvhilc:

otlrct-s alrr tal<eit ott rtr:t:t-ual irasis Sont,.r expensesare accoulrecl o6 c,sh bersis r,i,hile, mosi.rj-thee-\pensc'-qarr-e take-n oit acci'ttal l;asis. 'I'his s1'stem o{'accou'tirg is mostly folloi,ved by professional

Irersons. This is iilso ktrori'tr ils inix(-'(l s.1's1etl. beciruse botlt cash and aic'rral lrasis-,ti^i.c.*'1ingar c usecl in it.

BRA] -\TCF{E S OF' AC {] OUNTE N G OR'fYtr}' S OF AC C OUN:T'INGill ]i!rt.ctti.titt.l Ai:crtitnliti,t.' : r\lt Itt'cc.rttntingtvhich lelates uith thtr ar-ral.ysis anrl rt'c:urding rrf'

ir-rrnsactirltts 01'firl:rtrcjill tlrriitr't'. tlrciI classificittion. tl-ie prc'ptrlatitirr oi'lirrrrnc:ial st:itt:rlrgnl.s rtrrrlrlrt,ir ;*i:,ir.ii rrrtil rrrlr';1', 'i:li',li l= lr'r',ri,,ti ri:riiirrrrtr.i;rt ri,.,:,,rri,ii;:

aO1

rt

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re

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prepared to satisfy the



DEFINITION DEVELOPMENT AND OBJECTTVES OF ACCOUNTTING

..bctive lossesiprofrts. This

:lion and it is

accountantprevails in

only cash

istra:rsactions

transactions

in theseon Double

by businessof accounting

Acerual

only

Sheetindicates

Sheet

satisfl'the

the satisfac-

of financialthat. is

''

l-.esis rtlril<.rnost o1 thc

plofi:ssionaI

act:orttttittll

r r:t:rrrtlinra t,irrirri

(2) Manugement Accounting : The accounting which is prepared exclusively for the use ofmanagement is called Management Accounting. Managel''ent prepares plans and budgets on

the basis of this accounting. Management accounting has been defined as :

"Managernent Accounting is the application of th.e Professional Information in such a uay

as to assist the management in the forrnation of policies and in the planning and control ofoperdfions of the undertahing."

-lvstitute

of Cost and Manogemznt Accountants, London

(3) Cost Accounting: The accounting which helps in.ascertainment of total cost ald'costper unit of goods and services is called Cost Accounting. It helps in cost coritrol ald cost

reduction.(4) Tax Accounting : The accor:nting which is used for tax purposes is called Tax Accounting.

Incohe-tax, sales-tax and othei direct and indiiect taxes are calculated on the basis of this

accounting.(5) Gouernment Accounting :Tt,e accounts which are mainfained by Central Government,

State Governments and Local Governments dre called Governmer-.t accounts and the system

ofrecording is called Government Accounting.(6) IIuman Resource Accounting : Accoulting which is exclusively related with hrman

resource is called human resource accounting. Costs and values of human resorrrces are

recorded in this accounting system. It is ofimmense use for a business enterprise.

(7) Social Respflsibility Accounting : Social responsibility accounting deals with identify-ing, measuring and c.ommunicating social activities carried out by the entity for the benefrt ofvarious segm.ent of tft society.

(8) Enuironment Accounting : Accounting for environment and ecology preservation is a

part of environment accouhting. It deals with the accounting of natural resources, pollution-control and prevention etc.

THEORETICAL QUESTIONSl. Write histoiy, meaning and aims of Book-keeping and Accountancy,

2. Distingr-rish between Book-keeping and Aciountancy and desbribe their advaatages

3. Discuss the objcctives of Accoulting-4. Writ-e short notes on :

(i) Accounting;(ii) Objectives of Accounting



q/lfl I , / tOrnvemEcr,U I i..fincc_p\9

BASIC coNcr'prs,'*TNCI'LES,

posTuLATESAND coNvENTroNS oFACCdu*"t*" ) ,,

3- (Jse : The principlc should be such by whose use rtility of accounting-record is increased.

Suppose.a principle has objectivity and it is applicable also but there ib no use of this principle

in accountancy record then also the principle is useless.

'..' 4. Simplicity : The principle should have simplicity. If it is simple it will command

popularity.

GENERALI,Y AC CEPTED ACC OUNTING PRINCIPLES ( GAAP)

. Generally Accepted'Accounting Principles (GAAP) may be expressed as those rules.guidelines and principles which are derived from experience and practice and when they are

useful to accounting practice they, then become accepted as accounting principle.

If any principle possess all the above characteristics, and they are accepted by all then

thcy are known as accounting principles. Therefore, theSr are called Generally Accepted

Accounting Principles.Use of the word All' in the- above paragraph refers to the following :

(i) Professional Accountants,(ii) Courts,(iii) Government,(iv) tsusindss Executives,(v) Management Accountants, and(vi) Taxation Experts, etc.

These accounting principles have been developed by various agencies, out of which mostimportant are variousrbgdies related with accounting. Institute of Chartered Accountailts of

various countries of tlie-world have done commendable work in this respect as Institute of

Chartered Accountants of India, American Institute of Certified Public Accountalits-(AfCPA)and Institutb of Charterted Accountants of EngTariil-

ACCOUNTING COI.I\IEI{IIONS AND CONCEFTS

It has been pointed out earlier that accounting is the language of business. Just as

knov.'ing of grammar is essential for understanding and rnaking correct interpretation of

Ianguage, in the sarne way it is necessary to know certain accounting conventions and concepts

Lo understand the language of trusiness namely accountingAll accounting conventions and coircepts fall under accounting principles.

Accounting ConvcntionsMeanin,g : Accountanc), is based on usag'es and custom-s. Custom or usa6ie is a practice

rvhich is in use since long l.Iaturally accountants have to adopt that usage or custom. Ttrese

trrei termed as conventions in accounting. Conueniions are also known as doctrint:s [{a3orconventions are used in picparation offinal accounts also.

Tlpes of Accounting ConventionsI _I

lLli----l

rlr'ttl{lon.se}-vafisiEr i l}i.scloscn I iCon-si.stency I i Materiality

I

:----lrlr'tt

r,i,i tiit;*-iu.,, ait i i'o,itiriJar ici or I ' .qll ttt"t.',li,-.i Iili..l"'^""''"^'-"'ii

l,csisl's lrrrt iJrrtcliirl I.Ac,

r,vp11l1g ] Il"at:ts

)S,

}NS

;tory and itsted and only

rship with it,;ome definite

ave sufficientrting- This issumptions is

rrinciples arere of account-'the selection

s, accountingn. It is a basis

the custorns,ese principles^ problem hasrbiern ancl thc

'l'tC9"'.h.r" Ltst'

j bu rtiiIrct'rr ariopted

ieri :rs a goc'd

rrll tlicrr t hi'

l,osisl's lrttt 1!'llltcr'lftl ; .{c,rrup11l1g

l Il'a(ris

\rrl-ici1:atr. Ne r I'i oili I lnlirlnatiorr i lt'r'rt ticc,' R(: l.rl,.l.r' ] i Rr:crrr-rlcri i

I. (l,ru,.*.'rta{i.*nl F'r:irir',,,r,,,,.,,rt,,itr '1'1,,,1rg11 iir) r'slirt,,,t,'tnrrt !r,-rr'}arlc:rl)otit lirittt'r'(r\,(llltS:rilrlrit'i'ittnStl.l)C;msfrrtur't:lr'it'lrJltlrlectcel-t'airlt1.irll-rrrsit.csls.ilct.,ct,:iru)lc nt liililcrtrell i)r- Pl'o', rsiilit is irtado to nrct:t lut trr-t: rtncer{,ai tttics J]t,t-rt-., sno()t"iii;itsiittrs,sru'ri) ;tt:',lic>r iir! i,srl irrtlr-ic o'l lirtrrlt lr)siSc:r iur(l iltlrt sotne gtt'ovis:!on frrt'ii. i;: ril;trit



SAHITYA BIIAWAN PUBLICATIONS

Businessmen mostly ignore the items offuture profit. This tendency is term'ed as conservatismand it is very natural tendency and is in existence since long hence it is a convention. Savingof money by people and depositing it for using it to meet future conting,encies is conservatism;hence nearly all people apply this principle of conservatism. The valuation of stock or inventoryat a lower of co'st or net realisable value, making provisions for doubtful debts, discount ondebtors are the applications of this principle-

One should be careful in making provision for future losses, as more or less provision thannecessary will create adverse affect on the business and accounting record will alsb not indicatetrue and fair position. Hence, in nutshell, conserwatism states as "anticipate no profit, andprovide for all possible.losses".

2: Discloser ; \4{hile making accounting record, care should be taken to disclose allmaterial information and not conceal informations and facts. Here, emphasis is only on

material ii'form to benefit the proprietorand all those outsiders who are. directly or indirectly interested in assessing the final accounts

of the business unit. This is why forms of Balance Sheet and Profrt ariJ Loss Account areprescribed in Schedule VI of the Companies Act, 7956.If there is some material informationwhich cannot be included in proper Balance Sheet, it is shown by way of footnote, so thatcorrect opiniep may be made about the financial position of the business unit.

Full discloser of all relevant and reliable facts in accounts is the necessity in order to

mak'e accounting record useful for the users. It is not a new thing, but is based on convention.in thetr personal affairq hence wh.en accountingth and in fuII was incorporated in accounts too.

p in accurate assesEment of financial position

actice has been adopted in one accounting year,same should be continued in other iuture years also. Continuance of one practice in number ofyearsindicatesconsistgncy.Ifanassetisdepreciatedoe@fdepreciationbeadoptedinotheryearsalso.Thisisconsistency.Itdoes not in the least mean thrrt once a method has been adopted, it can never be changed. Ifbetter method is found out on the basis of research etc., it must be followed and by followinga better method, consistency convention is not an hindrance, but a note with proper reasoningfor making a change must be made in the accounts so that the person dealing with accountingrecord inay know about the change.

Adopting of same practice over and over again is an old convention. At the time of birthand death both, certain formalities arc adopted and these are adopted in ea-ch and every case,

hence there is consistency in religicus and social customs also and the same has been adoptedin accountancy. So consistency is a convention

The most important advantage of it is, that it help.rs in intra-firm, inter-firm and patterncornparison oi one year's accounts rvith other year easily. It gives reliable results and is oI'great help to the management in the matter of planning-

4, Materiality: Accounting lecord should be made of all nraterial facts and immaleriirliterns tntr.y eithel be mixed rvith rnaterial items and then recorcled or these may be igrored.T'his is a coru't:ntion. From verl, 6]61.'rr tirnes people ialk about such mattcrs and consider thern,rvhicir has atr effect on forming opinion. Thus, matcrjality is vet--y irnportant convention rvhich

occupics rrot only zr key positiolr irr accounting but {brms zr base ft>r accounting. Accountant,r; o{'all tltr count.ries of the s'orld trrc ncJopting tJris t:onvelrtion.

Accounting Con<:epts

Tlrcrc ilre sor)]c asstunptictri.s on ri'hich accrLunting is basecl,'l]rescr assurlptions are lrrost

rrattrral ancl at'e rrot f?>rced ortr:-. Tirc'sc are ge:nera.l motions ltirrtcc tl-rey nre called conccltts

f'hes,-, c<ilceJ;ts i:rc als0 l<rtOYir' as JtO.tl ttl.o.tt,.sbct:arist'Dirsittlat,es'roo rt|r'Ilecessal-v lrssrrni])ti,r|.

t2



BAS I C CONC EPTS, PRINC IPI,E S, PO STULATES AND CQNVENTIONS OF ACCOUNTING 13

pnservatismSaving

inventorydiscount on

thannot indicate

profit, and

disclose allis onlY on

proPrietoraccounts

Account are

informationso that

in order toconvention.accounting

accounts too.

position

year,

in number ofone

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by following

accounting

time of birthevery case,

bcen adopted

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SAIIITYA B HAWAN PUBLICATIONS

A concept is a self-evident proposition, 1.e., something taken for granted. Concepts are also

terrned as ground rules that g'overn accounting. fn accountancy following concepts are quitepopular:

1. Accounting Period Concept : Every businessman wants to know the result of hisinvestment and efforts aft,er a certain period. Usually one year period is regarded as an idealfor this purpose. It may be of 2years 6 months or 3 months also. This period is called arcountingperiod. It depends on the natute of business and object of the proprietor of business'.

Real income of business can be found out only when the business comes to an end, butthis period is usually too long and no businessman can wait for such a Iong period for knowingits profit or loss, therefore the accounting period is mostly one year.

Frorn taxation point of vie'w one ye€rr period is necessary as income-tax is payable everyyear. FYom April 1st of the current year to March 31st of the next year may be accountingyear.

Effects of this Concept :

(i) Financial position of one year may be compared with alother year.(ii) Earning capacity of one year may be bompared with another year.(iii) These cornparisons help the management in plarrning and increasing the efficiency of

business.(iv) Proprietor and outsiders can also derive varioud conclusions according to their

quernes.2. DuaI Aspect Concept : Accounting concdpt is thdt every transaction affects two

accounts. This is why double endry s;lstem of book-keeping came into existence. All businesstransactions are recorded on the ba3is of this concept. No tralsaction is complete withoutdouble aspect. This concept is the foundation on which the entire systern of booh-heeping andaccountancy is based.

Effects of this Concept .:

(i) Ifone aspect ofa transaction is recorded and other is ignored, the a.ccountancy recordwill not indicate true position, hencc this concept is of great help in indicating trueposition of the business-

(ii) During recent period when production has become very fast due to techni:logicaladvances and complicated affdir in large-scale industries, this concept is of utmostuse.

(iii) This'concept helps in detecting the errors of employee-s ancl in having strict controlover thern.

3- Money Measurement Concept : Only those transactions are recorded in books ofaccounts which can be expressed in money. Those transactions u'hich cannot be expressed i1money fall beyond the scope of accounting. One serious shortcoming of this concept. is that tht:noney value of'th:rt date is recorded on rvhich transaction has takon placc, rrnil later grr dueto inflation rvhen chang-es in noney value take place, these changes ar-e not considercrd

Effects of this Cortcept :

(i) In ihe :rbsencr-. of this concept, it rvould havcr not becn possiblg tr.r

posscssions. F'crr,:xarnpie a propricl,or'has 400 chairs, 10 praclrincs. 500and 200 tablc-s He cannot add tJiorn. but b-r,fipding o.t tlrt,ir r.rrlLr.s irranrount ol-ailthese possessir,ns can casill bc fbund orrt

tii) Ability' ol tlrr: l;oard of direcl.ors, clrralitv o1'thealt,icles ir-pclgr:1.tl 21clu'orkers t:itnnot lte l'ccor-dcd as tht,se;u-r,rroi, e.xltrt:ssecl in trrgper l-ltrrs.

has both nrerit,s ancl derrncrits.

aclcl var-ious

acrc of'lanrlrnone.y, totii.l

c:lllcieinr:','oft lris crrrrccPl

4" Realisation Corrcept: E'"'c:11. busir-rt:ss rrnit sltr:nds p)opc.), tp ltirrr.ir:rs<,g99rls <i;19rrralr.rl'ttcturt:.{otttls 1or s:rle. Proiits cannot l-le earlted trrril, lr.t'r1a1rr{irct,rrrc,. s3lc 61 goorls t,ither-f r;i t:aslt r). ol ( i'r..rlit is cssr,;riiitl to nralic: t-l-il'ninq \'Vj1.[1Lrt lgir'lislttisit 6i :,rr]e Jrr-s1'r,i,cls. tlt.r.

L4

can Iforrrof rez

ibusin,

5transaOn thr

contrittherefcThus, 1

(ii) bus

resultsEft(i)

(ii)

6.(they are

not appeannual dualue.is ,

burqql"dies, therno cost hr

Effec(i) r

prii T

alAI

7- Go

tlrc bttsinesofcourse itprice offixoutstandincontinue. Irlrltt, er,cn

smilli trans'fhi.s is thc

Effcc:ts

(r) \1t;

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I ii r \l'ir

:islltiiit Aec

\{'rl[i. Ac:co

of asscls. ht'

I,r0l)t)r,l()r ir



BASIC C ONCEPTS, PRINCIPI;E S, PO STTII.ATES AND C ONVENTIONS OF ACC OUNTING 15

rpts are alsoare quite

result of hisas an idealaccounting

an end, butfor knowing

accounting

can be no profit. Revenue may be realised either for increasing an asset or it may be in the

form of extinction of an existing liability. Thus, whole of accountancy is based on this concept

of realisation. All efforts in business are made to make utmost realisation.Effects of this Concept :

Without realisation, no €iarnings can be made by the business unit. The very existence of

busines s .beco'mes useless without realis ation.

5. Separrate Entity Cgncept : Business is treated separate from its owners- All the

transactions are iecorded in the books ofthe business and not in the books ofthe proprietor.

On tbe basis of this concepf the proprietor is treated as a creditor for the business. Whenhe

contributes capital, he is treated as a person who has invested his amount in the business and

therefore, capital appears in the liability side of balance sheet of the proprietor's business.

Thus, this concept thus requires to make a distinction between (i) personal transactions and(ii) business transactions of the entity in order to ascertain financial position and operating

results of business entit',.Effects of this Concept :

(i) Financial position of the business can be easily found out-(ii) Earning capacity of the business can be easily ascertained

6.C -r.gqorde{ 7t_the price atwhichthey are eet, however, these z:ssets do'

not appe systeimatically it is reduced by the amount ofannual depreciation anfl thus they appear at the amount which is cost /ess depreci ation. This

pt, all such events are -ignorg_d- w-hich affect .theuioit active, importarit and influencial directorftl e business wiil be affected, but,this event Liai

efficiency of

to their

affects two

businesswithout

and

recordtrue

of utmost

control

books ofin

that theon due

variousof ltrrrci

totzrl '

ic'rrcl, of

c,'trcclrr

goorls 0 ' Li,

eitJr or

ls. the'rt-.

no cost hence it will not be recorded in account books.

Effects of this Concept: ---'(i) Due to cost concept, market price is ignored and balance sheet

position on cost and expired cost basis-

indicates financial

(ii) This concept is mainly for frxed assbts, current assets are not affected by it. Theyappear i.r 6da.r"e sheet at coit oiinarket price, lvhichever is lower, though they two

are acquired at cost price.7. Going Concern Concept : This concept relates with th.e indefinite long economical l.ife of

the business. The assumption is that business will continue to exist for unlimited period unless

of course it is dissolved due to some reason or the other. This is why in bal ance sheet, marketprice of fixed assets is not considered- When final accounts are prepared, record is made foroutstanding expenses and prepaid expenses because of the assuuiptior.r that business willcontinue. If the condition of business is depreciated to such an extent that it is to be closed

down, even then accountant's concept is that business is to continue and bc records all big andsmali transactions, he never stops making record on the possibility of closing down of business,This is the best quality of accountant which is based on tlris concept of going concern,


(i) Working life of asset is taken into consideration for u'riting off de,preciation bec-arrse

of thi:s concept.(ii) Whatever bad position of thc business may be, it does not afI'ect, or.r the accounting

as1:erc't of the business(iri) Accountant alrvays remains hopclLl aboul, c<-rnt,inuity of business :rnd he dor:s not st.op

lvriting trarr.sactions even though the condjtion of business tleterioratingL Acc:ounting Equivalence Concept : The proprietor provine.s the funds for actluisitioirol asscts, hence the assets owned by the business inust be equal l,o the lirnds provi.Jcd L.y thr:

lrroJiriet<,.r- rvhicli is technicially called'EcTrtitt'- rI/hatever propertiers or tlri.r-igs arr: t)rvned l;i'the



SAHITV\ B HAWAN PUBLICATIONS

proprietor, they are-termed as assets of the proprietor. Hence, accounting equivalence concept

IS:Assets = Equities

These days in addition to own funds, money is borrowed which is known as liability.Hence, assets are acQuired through equity and liability. Therefore, accounting equation.is: A=E

AsSets = Owrer's Equity + Liabilities or Outsiders' equitiesEffects of this Concept :

Any busi4ess transaction can be recorded on the basis of this concept. Really speaking,

the principle of double entry system that every debit has a corresponding credit is based onthis co.ncept. It will be discussed in detail later on in this book.

All the business transactions are covered by the following six combinations ;

1. Increasb in owner's equity, 2. Decrease in bwner's equity, 3. Increase in liabilities,4. Decrease in liabilities, 5. fncrease in assets, and 6. Decrease in assets.

Each transaction is recorded in such a way that'thi accounting equation continues. Thus,

the two aspects of a trarisaction are recordecl in such a way that their effects balance each

other and equation is maintained. Had this accounting equivalence concept not been there,

double entry system of bobk-keeping would have never come into existence.

which is increasing by leaps and bounds due to large-scale production. When all purchases

and sales were made by the sole trader himself, verification of accounting record was not ofmuch importance, though in Great Britain this concept occupies key position since thebeginning.


(i) Accounting record is made on the basis of various vouchers and documents etc.(ii) These vouchers, etc. also help a lot in auditing accounting record.(iii) Accountant remains mentally free due to existence of vouchers, etc.

10. .Capital Concept : Ttris concept is that record for capital be made separately.

Proprietor may contribute capital either in cash or in goods or partly in cash a-nd partly ingoods. In sole trading and partnership concerns profit ofeach accounting pcriod is transferredto capital account but in case of limited companies, profit is not transferred to capital account.

Accountant must keep this concept in vier.r' rvhile recording capital and profit.Effects of this Concept :

(i) This concept helps to ascertain the errrning capacity of busines.s easily.(ii) It also helps in comparing the earning capacity of various pcriods and thus efficienc.y

ofbusiness can be ascertained.11" Matching of Cost and Revenue Concept : Everl' businessman is eager to makc

rrrzrximum prr-rfit at minimum cost. Ifence. in :ln accounting period namely onc year, he trieslo find out revenue and cost of'this year and compares it with t and thushdca nfott.

"*a,,lJ-rk"

l'evcnue

rrre terrned as cost aircl the positive results of thcse cfforts arc termccl as revenue,?lris concept is also knorn'n as collcctrtt. of cfforts ancl accotnplislt rttt,rtt. Exces;; ol

riccc,ruplishments ovcr efforts is proiit. The olrject of accounting is that accounting rccord be

urarle in such a nanner that cost rna-y be comparc'd r',,ith rcvenrte In case acc,lunting nrcthod

rlces not facilitatc this conipirrison tl.ren account.ing rncthod is rcgirrtled as'.rnsali.slirctor.y.'lhis

i: i. iir an accorrr'rr.z:r'r't i't:i'rir-ris all t,xplenst,s o{ il vca;' ri'hl:l lit'r- thr,'y' llr-r' llii<i in laslr o}' zir(l

16

o

b

prdu

ex

L

(:

Accor

1

\

A

truthsfor g:':

PL:OiLCep

tltose lstotent'

in all c

policics(ixanrpl

enterllr--l



(l* {l

"A*

Ceghalc

M

i] u.o ^,i.1

).'-Ji:i-.t_1

i-,i'-.l ta N,l-l .,--r

I

I

,l

fl '-r+--Lo rr cs-c-h-a-d --u:ltL'

D-*+-€;API..,

' t ' i.;-i.,.-

r,- .v_'-

:":

rig' t\S-rqlte-*: -tYs'L'--..-t-J

n-

I

-.. t_ " .i t:-ir i:r,"lil".i;:_ j,.\l i .'^ ,

_ ij

i:\

a,

/^ r-L--(-aa r)-ffx-\



L,-* L ruv,v, ILh4 co;do*f-4! fr*_ 6^^

*..^u .q_ _e.lfl

b*t,-- t'4 ale;, _.,j _rt^,-

J*in

ett;

.i.frifI



lytical columns. Impresl

r touring salesmanevening newspaperI by registered postles

table

12.

rnal :

Rsr Mohan 200Lyam 200rrish f00t 200'able from Kailash 200

o Bulaki 800iulaki 800

); Sales Retum Book 790;

the books of Sudhir and

Rs.6,000: Machirery Rs.

\

Rs. Rs

r,0001,0009,000

500300

2,O00400

1,5003,0005-000

250r00150

300

?1,590

r00t00

i 5,0009,200

2LF99

Rs.

Il3l5

6

3

13

5

o

ger

Box

M bA '- -T S e^n\ slirn-I \reLr \(:):4\ I vLL\t \v_r:,J \tl_,( \-{_.r.

,4,--$-n$*

lr,tn-^-nars- uNrr* r

TRIAL BAIITNCE.Trre third process ,' ^""o#H:::tffi"ffi:fchaptur 1 refers to preparation

of Thial Balance, Preparation of Tl-ial Balance is the first step of summarisation.(refer to

accounting definjtion in Chapter 1) in this direction. THal balance is a statement in which debit

and credit balalces of all the accounts of ledgbr includi',g cash and bank balances (taken fromcash book) are shown to test the arithmetical accuracy of the books of accounts. As'every debit

has a corres-po{rding credit, hence total of debitbalances oftrial balance is alwdj's equal to totalof its credit balanbes.

Bnhs of accounts are dosed at the end ofthe yea4 but they may be dosed at any tirie acconding

to the requirerirents oftle businessman. Whenever books are dosed balances arefound out in various

a@unts and then these balances are recorded in a statement which has four columns, narnely,parlicula::s, ledgrer fo[o, debit bdlances and credit balbnces, this statement is ca]led hial balance.Tbial Balance is a statement or list of Debit balalces and Credit balances of the acrcounts

of ledger or of Debit totals and Cretlit totals of the accounts of ledger or of both balarices andtotals of accounts of ledger. It is prepared at a certain interval of period which is mostly onefinancial year.

OBJECTS OF PREPARING A TRIAL BAI,ANCEFinancial Statements (Final account) namely trading account, profit and loss accountand balance sheet are prepared on the basis oftrial balance.To check the arithmetical accuracy of books of accounts.The balalce of any account of ledger cal be easily and conveniently known by it.If trial balance does not tally, it means that their are some errors in recordilg, postingor balancing of accounis. The steps are taken to locate and rectify errors to tally the

trial ba-lance before preparing finaacial statements.Miscellaneous : Through trial balance, books of accounts are tested and it is only afberthis test that final accounts are prepared. Just as-before grving a driving'licence. testis necessary, before life insurance, mcdical test is necessary, before selection forrepresenting in Olympic games, fitness and qualifying test is necessary, beforeprescribing medicines, blood test and other tests are necessary in some cases, id thesarne way test ofaccount books is necessary before preparation offinal accounts, whiclris done through trial balance.

IlIETHODS OF PREPARATION OF TRIAL BAI,ANCETheir are four methods for preparing a trial balancc which are as follows :

l. Total Method: Under this method debit total and crcdit total of each account of ledgerare recorded in tria-l balance.

2. Balance Method : Under this methoC, only balance of cach account ofledger is recorded

in trial balance Some accoturts may have debit balance and the other may ]ravc crcditbalance. All these debit and credit balances are rccorded in it,3 Total and. Bolance Method: Tiris is the combination of abovr: two nrethods, i.c., under

this method both debit aiid credit total of eaclr account and also balances of cach

account. alc recordcid

1.

2.

o.

4.

5.



86 SAMTYA BIIAWAN PUBLICATIONS

4. Elimination of Equal Totals Method.: Those accounts whose debit totals are equal tocredit totals i.e., the accounts which have no balances are eliminated. Such accountsare not recorded in trial balance.

f lhrstration 1

From the following transactions pass necessary journal entries in the books of Sudhir and Company,post them into ledger and prepare trial balance according to all the methods :

2003 : Jan. 1, Sudhir commenced business with cash Rs. 40,000; Feb. 5, Purchased goods Rs. 25,000;Feb. 20, Sold goods Rs. 30,000, May 10, Purchased goods from Sohan Rs. 18,000; May 2p, Sold goods to

Ramesh Rs. 20,000; June 15, Cash given to Sohan Rs- 18,000; J;ur;.e 28, Cash received from Ramesh Rs.

2O,OOO; Aug.2, Purchased goods for cash filom Dinesh Rs. 19,000; Aug.,29, Withdrew fo4 personal use Rs.

500; OcL 10, Purchased goods from Dinesh Rs. 17,000; Nov. 20, Paid cash to Dinesh Rs. 16,980; allowed

discount by him Rs. 20; Dec. 31, Paid salaries Rs. 500.

2003Feb. 5

May 10

Aug 2

Oct. 10

To Cas

To Soh

To Cas

ToDin

Solution I Journal Enf,ries in the Books of Sudhir and Company

Date Particulars L oI e31,,,

Cn

Amodnt2003

Jan. 1

Feb.

Feb.

May.

May 25

June 15

June 28

5

20

10

2,tg

A.rg 29

CashA/c . . . Dr.To Capital A./c

(Being cash brought in for capital)

PurchasesA./c . - - Dr.Tb Cash A,/c

fn"iog goJ" furcha"edfor cas'h)

CashA./c . . . Dr"To Sales A/c '

1

(Being sale ofgoods for cash)

PurchasesA./c .. . Dr.To Sohan

(Being purchase of goods from Sohan)

Ramesh ...Dr.To Sales A./c

(Being sale of goods to Ramesh)

SohanTo Cash A./c

(Beinp cash paid to Sohan)

Cash A/cTo Ramesh

(Being cash received from Ramesh)

Pulchases A./c

To Cash A./c(Being purchase of goods for cash

Llraq'inss A/c

fi-orn l)inesh)

Dr

Dr

Dr

2003Dec. 31 To TYar

(Bala

r Ralance of Sales

| 'lo Cash A./c

] tBerng caslr wilhdrau lr lirr Jr.rsorr3l( )t t i(; Purclrases A./c

] r', Di'esh] f B"-g goods pulchased lion-. I)inesh

500

17,000

I

To Cas

To Balz

-loo3--[-__-Nov 20 | 'l'c OaslNor' 20 I ']'o lrr".

)

r 7,000

17.000r,,r lii Dincslr

1To Cash A/c

I ro I)iscount :Vc

i (Berng cash paid to the e::tcnt ol Rs 1ij,fl8O and djsccunt o!'Its 2(l

i "llp\S4\Dtnesh) _ -

';,., .1I Srrlari,.s fu, 1)r.

Tu {-rrsl' i"/c

J 1B1ulg Salalr !r'4). -.- --.,-- -- =,: -r

-(iran'.-l 'lblrii

Dr

t6,9S020

-l!s 1,4.-2;r

Jan. IFeb- 20

Jrne 28

i Balance ofPurd



f_

TRIALBALANCE a7

ls are equal to

, . Such accouDh

rrdhir and Company,

ed goods Rs. 25,000;

ay 25, Sold goods to

--d from Ramesh Rs.

foq personal use Rs,

Rs. 16,980; allowed

Dr Ct:.

Atnount

40,000Rs.

40,000

25,O00

30,000

18,000

20.000

18,000

20"ooo

19,000

16,980'20

;rllUir0t)

?-2!,gqq.,

Dec.3l

2003

Jtrne 15

2003

May 25 | To Sales ,+/c

2003 l

o;;;,?"j t t;ast': a/c

Jan I i lc' Ilirlirncc b/ri

2003 i

Nov 2(t I 'f,r Oash A.icr

Nor, 20 j 'fo I)iscount A/cl

To TladingA/cr(Balance transferred)

Jart. 1

Feb.2O

June28

25,O00

30,000

18,000

20,ooo

18,000

0,ooo

9,000

T<rtal iRs.

Rs.

30,0002050,000

Rs.

20,000

I3yPulchases A,/c lR'i 18,000

Its

500

50t)

'lirt a I

CashAccount

To CaPitaI A./c

To Salgs A/cTo Ramesh

By Purdrases A,/c

By SohanBy Purchases A,/c

By Drawings A./c

By DineshBy Salaries A/cBy Balance c/d

Rs.

2i5,00018,000.19,000

50016,980

500

90

Capital Account

2003

Dec.31 To Balance ddRs

40-000

2003

Jan. I2004

Jan. I

By Cash A,/c

Bv Balance b/d

Rs.

4 0

Purchases Account

Feb. 5

May 10

Aug.2

Oct. 10

To Cash A./c

To SohanTo Cash A/cTo Dinesh

Total

I

J?

Rs.

Rs.25,00018,000

19,00017.000

2003

Dec. 31

Total

By TladingA./cr(Balance transferred)

Rs.

Rs.

79,000

79_000

r Balance of Purchases Account is always transferred to Trading Account which is prepared to hnd out gross profit

Sales Accounf

r Balance ofSales Account is always transferred to TYadingAccount

Feb.20 | ByCashA/cMay 25 | By Ramesh

Sohan

To Cash A/c

Ramesh

June 28 j uv t;,rsh ruc

f)raw'ings 1!.ccount



88 SAHITYA BTIAWAN PUBLICATIONS

DiscountAccount

2003

Dec. 3l To P. & L. Ncl(Balance Tlansferred)

Rs.

20

2003

Nov 20 By Dinesh

Rs.

20

r Balance of Discourit Account is transferred to P. & L. Nc.

FIRST METI{OD (i.e.,TOTN' METHOD)Trial Balanc,e (as at 37st December;20O3)

Ledger AccountsCn

tLnount

Capital A./c

Cash A./cPurchases A./c

Sales A,/c

Sohan

Ramesh

Drawings A,/c

Dinesh

Discount A/c

Salaries A/c

000

t The amount of Rs. ?9,980 is the real total of credit side of cash accormt-Nctte:In tlils method, the total of debit and credit side of trial balarce is same as of total of debit and credit side of

Journal on the basis ofrvhich the trial balance has been prepared.

SECOND METHOD (i.e., BALANCE METHOD)Tlia] Balance (as at SIst December,2003)

Ct

C;

Pr

Se

Sc

R:

Dr

Di

Di

SaRs.

40,000

7g,g8ol

50,000

18,000

20,000

17,000

20Ca

Ca

Pu

Sal

Dr:

Dir

Sal

Led.ger AccountsDr-

Amounl

Rs.

Cr.

Arnount

Rs.

40,000

Notp: A

D

[;i

IllustrT]

A:

LtFr

Its il,0(

Its l(),ltade r

in lullJtrn. 3 J

P't\-ial B

(Japital A/c

(,lasli A./c

l:'ur-chase.s A_/c

Sales A,/c

Drarvings A./c

l)iscount A/r:

Sirlirrtr:s A/c

lii-e no bai;rncc,: in tl;e-;rtcnr:rtts of Solra:'r ]i;rnresh rr.rrri l)irti:slrtrnl b:rl:nte

10,020

79,000

50c

500I

90.020

lrr:nce thev lravr: :rot becrr rt'toirleci iii\i,/,, .1* 1.h,,r.

tlrr. :t lr,,r'i.

Salaries Account2003

Dee 31 To Cash A./c

Rs.

500

2003

Dec. 31 ByP & L. Ncr(Balance transferred)

Rs.

500

r Balance of Salaries Account is transferred tn P. & L. Nc.

Rs.

90,00079,000

18,000

20,000

500

17,000

500

%_-



.'

Fl

TRIALBAT,ANCE ao

CnAmount

,00

r00

00

2,25,000

credit side of

Rs.

40,000

79,980I

50,00018,000

20,000

17,O00

20Capital A./c

Cash A./c

Purchases A./c

Sales A./c

Drawings A.ic

Discount A./c

Salaries A./c

THIRD METHOD (1.e., TOTALAND BALANCE METHOD)

Ledger Accounts

90,000

79,000

CrArnount

Rs.

40,000

79,980

50,000

20

Total 1,70,000

Arolc : A suspicion nray arise by seeing the above trial baiance that here also the thrcc accounts (Sohan, Ranesh andDinesh) have bcen rgnored, rvhich harr: bcen ignored in the sccond method, but rt nrust be noticed thal this tria.llrulirncc indicates totals and not bnlances of accourts

illustration 2

The foll,rrving balzincers appealcd in the books of Ashok as on 1st January.2004:A-sscls : Cash Rs 50.000; Stock Rs. 30,000; Debtors Rs 50,000; N{irchjnery Rs 60.000Liobiliti t,s : Creditors-Rrrjcsh lts. 30,000.Follou,i rrg ti-n nsactions t,ooli place in Januar y 2004 . ,J att 4, Sold goocl s lbl cash Rs, ? , tl00 :-r nd on cr t'riit

R-s :i.(X,0 tr; iirini; .lan 6, Runr r etulr)cd good-. for'lis, 1.000: J:ur 10, l)urcha.scd goods lirxr Rajcsh li..-t Plicelts 10,0()r) r'rtlrrcd at Rs t),00(,r; .-lan 15, Bought got-,ds of'thc list plict'cf lis I5.000 fronr Jiake.sh lcss l09i'l)'adc

d;:crtrrrl nnd 5'il, C;rsh rlis<rr.runt. irncl pnid 409/o price inrmedirrtcl.l.'1 "-lart 20,1'aid to lt:rje,sb R.s il6.{j0t)in ltrll scttlenrenl of his account: Jart 25, paicl Rs 500 lor Lhe Lilir In.stu.rrncr: I,\.cllium of tirr, pr.oPrir.tor-..Ian, lll,Il.ct:eivt'rl lor r:omnrission ]ls. 2,000

lt:tss.iortt'trtl rntrr'c's fiir the above transacl iorrs ltost into lt'rlger'. Rzrliinct. llre uccouni iurd prcp;rr-,r li'iiii'rj j-::rl;.,r,,

4 0,000

50,0(x)

2o

Thial Balance (as a! SLst December,2003)

I*Qger Acaunts L. F.Dn

TbtalCn

TbtalDr-

BalanceCr

Balnnce

Capital Nc

CashNc

PurchasesA,/c

Sales A./c

Sohan

Ramesh

Drawings Nc

Dinesh

Discount A-lc

Salaries A/c

Total Rs.

Rs.

90,000

79,OO0

18,000

20,000

500

17,000

500

Rs.

40,000

79,980

50,000

18,000

20,000

17,000

20

Rs.

L0,o20

79,000

Rs.

40,000

50,000

20

2,25,000 2,25,00O 90,o20 90,020

FOURTH METHOD (i.e., ELIMINATING ACCOIINTS OF EQUAI TOTALS) -,'

$TrialBalance (as at SLst December,2OOB)



90 SAHITYA B}IAWAN PT-IBLiCATIONS

ParticuJars

Cash A/c Dr.StochA/c Dr.Debtors A./c Dr.MachineryA./c Dr.

To RajeshTo Capital A./c

ing balances of asset! and liabilities recorded)

Rs.

50,000

30,000

50,000

60,000

CashA./c

-

Ram Dr.

Sales.Returns A./c D.

Purchases A./c ITo Cash A./c

To Discount A/ct, '

To Rakeshased and discount received)

To Cash A,/c

To Discount A./c(Being cash paid and discouat received)DrawingsA/"

-

(Being life insurance premiurn paid)

C'ashA,/c

-

I To Comrnission A./c(Being commission received)

Solution 2

Date

2004Jan. I

Jan.4

Jan.6

Jan. l0

Jan. 15

Jan.20

Jan.25

IN THE BOOK,S OFASHOKcfou.rzral Entries

LEDGEROFASHOK

CashAccount

Dale Partibulars

By Purchases A./c

By Rajesh

By Drawings A./c

By Ilalance c/d

ArnountCn

30,0001,60,000

1,000

9,000

5,130

270

8,100

Rs

'Io Ba-lance b/d

lb Sales,A./c

'lo (.lomnission A-lc

Rs.

50,000

7,000

2,000

59,000

2004

Jan. 15

Jan.2O

Jan.25

Jan. 31

Rs.

5.130

38,600

500

14,7 7 0

59,000

2.000

Amount2004

Jan. I0Jan. 15Jarr. 15

Jan. 15

T(

11

T(

T(

Tc

r ] Tt, Ralancc b/ri

StockAccount

2004

-b--__,_-_



EF,

E.

TRIAL BAI-ANCE 91

Jan. 4

By Balant:e dd

Rs.

1,000000

R.s.

22,500

2004Jan. 10

,Ian 15

Jan 15

Jar i lr

'fo RajeshTo Cash A./c'lo Discount A/c'I'cr Rakesb

Sales Account

Sales Returms Account.

Purchases Account2004

,Ian 31

3.1002

22.500

lls.s, r008. r00

Rs.

9,0005,130

270

II

t

5, I 3(J

tJ8,000

50(l

14,770

59,000

!-cb I l'o Ralancc b/d

- 2004:]--" - -

I

.llrn ;il r 'ilr lllrianctr c'ti

-10i,{ -l.Jrin ll I I 'i',, lillance r:/d

I

II

Il:rlrrnr:t: b/d

I).-I\S

;J().000

30_,00()

---T-I

I

I

-.

Rs.

270.100

(i7 0(J70

Account

Jan. I To Balance b/d

ToBalance b/d

'Rs.AO OOO

2004Jan. 3l By Balance dd

Rs.

60-oo0

60.000

Tb Cash A./c

To DiscountA./cBy Balance b/d

By Purchases A/c30,000

talAccount-2004

Jan. 31 To Balance cy'dRs.

1.60.oo02004Jan. I

Feb. I

By Balance Vd

BvBalance Vd

Rs.1

l-60-rno160

To Sales A./c ,",

To Balance b/d

Jan. 6Jan. 31

BySalesReh-rryrsA/cBy Balance c/d

2004

Jan.31 To Balance cy'dRs.

10,0002004Jan.4Jan.4

Feb. 1

By Cash A./c

By Ram

Bv Balance Vd

7,0003-OO0

10,000 10.0001

2004

Jan. 6

Feb. I

To Ram

lb Balance b/d

Rs.

1,0001 ono

2004.Ian.3l By Balance dd

Rs.

r.000

1.0

Rakesh

Discou-ut Ac<:o';rt



92 SAHITYA B I{AWAN PUBLICATIONS

Accoun

2004

Jan.25

Feb.'1

To Cash A/c

To Balance Ud

Rs.

500

2004

Jan 31 By Balance dd

Rs.

500

500 500

500

ComrnissionAccount

Trial Balance on Slst

ParticularsBalance

Cr

1,60,000

10,000

8,100670

Rs.

r,556

2,756

530

25()

--t

Solution 3.

-..-

Mohan's

MoI"an's

Leasbho

Sales

Due frorPtrchas,Purchas,

Loan fro

CreditorTlade an

Cash at.Bills Pay

Salaries

OPening

Rent & 1

Sales Re

IllustrationThe foll

form.

Sundry D

Sundry C

. Opening {

PurchaserPurchaser

Cash in hMachinerGoodwill

Sales

Sales Ret'

Loan frorrBills Rece

Capital

Life InstuCalriage

Advertise

t)iscount, .

I nvestntet

Ir:t,ert:st o

lntei-est cr

CashA/cStockA/cDebtors A/cMachineryA./cCapitalNcRam

Sdles A./cSales Returns A./c

Purchases A,/c

RakeshDiscountA./cDrawingsA./c

1t

000

Mohan is not vcry efficient in Book-Keeping. He has prepared the following trial balance and has

requested you that if it is conect accept it and if it is wrong colTect it and plepare it again :

BalancesParticulars Crr.

Mohan's Capital

Mohan's Drawings

Leasehold Premises

Sales

Due fron Customers

Purchases

Pru-chases Retulns

Loar-r from Bank

Creditors

Ttade and Office Expenses

ilash ar. Bank

Bills l'ayableSalarics & Wages

Opening Stock

iicnt and 'laxes. ertc.

Sale:s liclurns

Rs.

564

741

1,268

264

528

784

142

100598

')c I

9b

= J.!t!=

I

I

I

I

I

I

tis I

2004

Jan.31 To Balance ddRs.

2_000

. 2004

Jan.31

Feb. 1

By Cash A/c

Bv Balance by'd

Rs-

2.0002

L4,7703o;00050,00060,000

2,OOO

1,000'22,500

500

Illustration 3

E-*-.___ ,_



Ep

TRIALBAIANCE 93

Rs.

564

741

530

1,268

784

142

598

264

465

98

L"n Rs.

L,556

2756

Solution 3

Mohan's Capital

Mohan's DrawingsI,easehold Premises

Sales

Due from Customers

Purchases

Purchases ReturnsLoan from BankCreditors

Ilade and Office ExpensesCash at BankBills Payable

Salaries and WagesOpening Stock

.

Rent & Thxes, etc.Sales Returns

Corrected Tbial Balance

2;250

528

1;

1,60,000

10,000

8,100670

I,000

Illustration 4The following i, mdril.i3alance prepared by an Inexperienced Accountant. Redraft itin a correctform.

ina SLst March, 2OO4)

i,400

,000

,400

600

E00

000

Tot.rl

Tbial Balance



94 SAHITYA B}IAWAN PUB LICATIONS

Solution 4

Sundry Debtors

Sundry Creditors

Opening Stock

Purchases

Purchases Returns

Cash in hand

Machinery

Goodwill

Sales

Sales Retdrns

Loan from Ram

Interest on Ram's Loan

Bills ReceivableCapital

Life Insurance Prenium

Carriage

Advertisement

Discount Received

Investments

Interest on Investments

Suspense A-lc

Tlial Balance(as on SLst March, 2004)

ParticularsBalance

Cr

Rs.

18,400

4,200

L,72,400

40,000

1,14,000

Stock (1.4.i

PurchasesSaIes

Wages

SalariesRepair Cha

Returns In'Returns OtCariagelnCaniageOtCommissiorSundry DetSundry Cre

CapitalDrawingsl'urnitureMotor CarCash in hanBank OverdInvestmentsInterest on I

,t1(

Rs.

24,400

3L,200

1,07,000

22,000

80,400

20,o00

15,600

6,000

L2,800

10

t,200

5,000

r6,000

2,000

Illustratian 5Prepare a lYial Balance from

Particulars

Stock 1.4.2003

Purchasis

Sales

Wages

Salaries

R,epair Charges

Retr,rrns Inu,alii

Ilc Lurns Llutrvarcl

llirrliag€j Inu'ardi)arriage Ou'rrv:rrd

( lonlnri ss icn lil.r:ceiteri

Sunciry Debtors

liundrv Ci-edilor-t

Total

the following balances as on 31st March,2004 :

Particulars

Rs.

57,600

t,64,OOO

3,20,000

32,320

12,800

1,000

15,000

tl,200

Capital

l)rau'ings

Fr-rrnitur-c

Motor Car

Oa.sh in hand

Bark OverdrafL

Ln'estnents

Intercst on ln..'estmcnts

3,2606,400

1,60tl

48,400

r J 6i)o

3,000

3,53,600

Atnottttt

Rs.

r,80,000

B,800

24,000

1,60,000

9,400

50.800

40,000

4,800

If therecreditors are

list appearsin trial balar

Is trialquestion is tJ

because ther

trRR(

I'ollou'irknown as Lit

(L) Erroirccounting prlules iirid regmeri:hant puiiccount iraspnnciple.

itr

ditures c:rpitretgarded :rs a

(2) Errotsubsidiiirl, l;oas urr-oi-s cf c,traitsnciir;:r il;



TRIALBAI-ANCE

tlanceDr

Rs-

,4,400

37,200

2,O00

0,400

0,000

5,600

6,000

7,200

5,000

BalanceCn

Rs.

18,400

1,72,400

40,000

1,14,000

3,000

1,600

Solution 5 thial Balance

(as on SI.st March,2004)

LIST OF DEBTORS AND CREDITOR,S

If there are many accounts of debtors and creditors, then a list of debtors and a list ofcreditors are prcpdred. Total ofdebtors'list appears as debtors'balance and total ofcreditors'Iist appears as creditors'balance in trial balance. The lists ofdebtorS and creditors are annexedin trial balance, so that as per need they may be referred.

TRIAL BALANCE AND ACCURACY OF BOOKS OF'ACCOUNTS

Is trial balance a conclusive proof of the accuracy of books of accounts? Ansrver of thisquestion is that it may or may not be the conclusive proof of the accuracy of books of accounts,

because there are certain errors which are not disclosed by the trial balance even ifit tallies.EITRORS NOT DISCLOSED BY TRIAL BAI.ANCE EVEN ON ITS AGREEMENT

Following errors are not disclosed by a Tlial Balance even whcn it tallies. Thcse irrt: alsckroq'n as Lirnitations of Tlial Balance.

(l) Errors of Principle : Sometimes errors arc made due to insufficient knowle<lge ofaccounting principles. I{ence. when errors arc created due to violation of'accounting prirrciples,rules and rcgulations, then such errors are terrned as etror.s of I'rinciples. For c.g .if a clothrnerchant p'.rrchases machinery-, hcre rnachinerl' 3s6'.rnt is to be clebited, but if'ptrrt:hasr:saccouut, ha.s beeir debited even then trial balancc will tally, irut 1.herc remains a rnistakr, ol1u'Jncipic It int'ans that a clear distinction nust be rnade betu,eeir capital and revenur) cxl)crldituie's, ca1;itiii riird revcntrc receipts and capital irnd rcveirue Jtlssi s lf it is nr.rt riorrr,. it is

rcgar-dcd :1sr i'ln errol- ol prrnciptre,

(2') Erior s of {)trttsst.o;r : \Vhen I}o cntry is ;rrlde lbr a transirctir.,rt in joulrriil ol in itssui;sidiary books or posting in ledger, thcn also, trial balance rvill 1allv, Srrch ()r-rors arc linos,nr:is efl'oi-s o{ r'nrission. Such er}-ors are not discl{rsed by trial balance. Ilrxvcver, ilt}rer pos;1inq.aflirtt-is,:rctiri:=. rs i.rttJi.r.onitted it r.vili certain-11'tr{Teci thc Lr-ir;l i;alanr:t: fit,ln berin::- talli..,r!

3,53,600

AntounlRs.

r,80,000

8,800

24,000

1,60,000

9,400

ir0.800

J 0,000

'i.800

I

l

Particulors L.F BalanceDn

BolanceCr

Stock(1.4.2003)Purchases

Sales

Wages

SalariesRepair Charges

Reiurns Inward

Returns Outward

Carriage Inward

Carria4e Outward

Commidsion Received

Sundry Debtors '

Sundry Creditors

CaPitalDrawrngsFurnitureMotor CarCash in hand

Bank OverdraftInvestmentsInterest on Investments

I

,tlt

Rs.

57,6001,64,000

32,320

72,8001,000

15,000

Rs.

3,20,00o

TT,2OO

1,600

L4,6001,80,000

50,800

4,800

Total I 5.83.000



96 SAHITYA BT{AWAN PUBLICATIONS

(3) Compensatory Errors: If one account in ledger-is debited with Rs. B0O less and otheraccount in ledger is credited with Rs. 300 less, then alsoirial balance will tally. Such errors arecalled compensatory errors and they are not disclos d by trial balance.

(4) Errors of Commission : When business tramanner then sudr errors are refeired to as errors ofcof wrong amoult in the subsidiary books, posting an

of an aciount, wrong totalling etc. Errors of commisthe agreement of trial balance. For e.g-, wrong totaposting of wrong amoirnt, w:rong balancing.

. (5)_Errors of Dupliration : If an entry is made twice in Journal and its posting is also madetwice, the trial balance will tally, but such'error will not be disclosed.

ERRORS DISCLOSED BY TRIAL BAII\NCEwhen there are soine errors, then trial balance will not tally. Following errors are disclosed 6-

by the trial balance :

(1) Whilepostingfrom journaltoledger:, oTissionofpostingofsome.accorurtis made,e.g., 7. i

furnitu{e purchased for cash Rs. 500. In this case Rs. 500 are recorded in the deiii g. Iside offurniture accoult e credit side ofcash account. 9 I(2) while making posting in s recotdd in one account, e.g,, instead I

of posting Rs- 105 in the unt Rs. 150 have been posted

(6) some error is committed at the time of balancing a ledger account.(7) Correct balance has been recorded in the accounts of ledger, but while writing these

balances in trial balance, error has been comrnitted, either of the amount or of the side.(8) Error is made i! totdling the trial balance.(9) Error is made at the time of preparing lists

(10) E{ror is made in carrying forward the totalonrthe olher page.

(3) Ba-lalce of cash boo(is not recorded in trial balalce.(4) Slhile making total of subsidiary books, like Sales Boo\

are made, in such cases Sales and purchases accountwrong amounts and trial balance will not tally.

(5) Sometimeb total of one subidiary book like sales booksubsidiary book like pur-chases book-

10. s

Purchases Book, etc. mistakes 11. S

in ledger will be posted with r

is posted in the account ofother72. C

p

13. Eq(

74. IftrSU

If there.,'cn a{1er

is transferrundue de.la

the errr-irs tbalancc tal

t. \\ iir, is

ou I lt., t

2. \\rtrat is

J \\'lr:ti r.

a(cil rrnl

I \\'ir,:i is

5. ilral B

C" \\:r ite th

i ' .'\g11'6'-

(.rrrt,(111

of debtors and creditors.ofone page ofsubsidiary book or accounf

(11) Somebalances of ledger accounts have not been recorded in trial balance.(72) One amcunt has been posted trvice in the ledger account. hence, wrong balance is

transferred to trial balance.

11trET'I{ODS OF' TALLYII"{G TIIE TRIAL BAI,ANCE0r

LOCATION.ANE COF{RECTION OF ERRORS F'oR TALI-ITF{G TIIE T'RIAL BAi-ANCEtrf the trial balaoce does not tally, follorving methods should be adopted to 1aliy' it. :

I Recheck thc totals of debit and credit balances oftrial balahce again2. If'the total-" of riebit and credit are correct,, then u,rite the differencc o{'thesr: totals

separ atci..r,.

-q TFy to scc t.hat, sonc baiance of leclger rna.v be equal to this di{Jirrenee ancl ir. pighl

have uot been ;-;r;sted.l+ ft{ake half of the i'r}}r{rlir}t oi'ciiffereni:e':rnri see lhat this anrount is not rercoi<leci in thl\lrionB si.le oltriai iralance

5. Make L/9 at Lhe toieri as it may be possiLrle LhaL z.era is adciecl ol zoi'o is le{t out iir strn,,rbalancc by rui-silrkc If zero is added 1.he amount, i.r,il] becomr: tc:n tiures anri ilZCit; isieft out the z;*ror:ir*,,.i'iil become l/70.1n sur-.h cases ciiffere'ce r.vill riell.it.ely b<, ciivisibleb_i' !! I.'clio.,,.'i:-ri: i,,:lr;::t!c *,ill nake tirr:: i;oini r.lenr. :

-k,,+*_



oa

VF.Fllil

TRIAL BALANCE

,s and other i,ch errors ar'e i

,

i

;

ofan accbunt,

is also made '

are disclosed,

is made; e.g., I

in the debit'l

e.g,, instead ,

etc.mistakesposted with

theseofthe side,

or accornt

balance is

l-!rc'se {otalri

it rniglit

i:r tir+'

out itr sonrc

il z.r,r-o is

bc. clivisibll

Tlial Balance (as at. . . . - )

FirstAccount

SecondAccount

Third Account

-,\{rr:r'nrr:nt o.1'tot;rls o1 irotir ,,rrlr',. Lrl

Dr Cr

Rs. Its.

50 60

70 40

80 100200 200

If by mistake the debit balance of first account is recorded 5 instead of 50, then totalof debit balances will be (5 + 70 + 80) or Rs. 155 while total of credit balances is Rs.

2OO, tlr,.e difference'of these two i.e., 200 and 155 is Rs. 45 which is divisible by 9.

6. Count all ihe aciormts ofledger and see that balances of all of them have been recorded

in trial balalce-

7. Recheck the totals and balances ofall the accounts ofthc ledger.

8. See that balahce ofcash book has been recorded in trial balance.

g. See that totals ofsubsidiary books have been recorded in ledger and balance ofaccounts

related to them have been taken to trial balance-

10. See that corr'ect posting has been made from journal to ledger.

11. See thatbalanc.cSrof last year, which have been brought forward, have been correctly

recorded. - '12. Compare the heads of accounts of the current.year wrth the heads of accounts of the

prevrous year.

13. Examine thc writing of digits. Sometimes at the time of recording, digits are reverscdas for 85, the firgrrre recorded for is 58.

i4. If after making complete checking ofjournal and ledger, mistake is not found out, thentransfer the difference to suspense account and in future when error is found out tbcsuspense account is closed.

SUSPENSE ACCO{JNT

If'there is cb-fference in the total of debit column and credit column of trial balancc and

evcn after making efforts thesc totals do not tally, then the amount of difl'erence of these total

is transferred temporarily to an account knorvn as Stzspense Accou.nt, so that there may not bcundue dclay in thc pr:eparation of firral account. In fact one should make {irll cfforts to locatcthe erurrs to make the trial balancc tallv and final accounts should be prepared only vvhen trialbalancc tallies

'FE{E OR.ETI CAr- Q{tESTIONS

oul lri' lnal balanr e

2 \\'h;rt i:: ij tri:ll irrrlancr'') \\'ltr r,;

3. \L.hlrt r:., I trral b;rlarrrr'2 \\tlrrlcr oturi ing?

l- \l'ir.ri r:: l,i;tl i,:r];trtr r,' I)t,.sr-r rlrt-

5 li'rrl Illtla;trl rs rlol ;r (()I)clrrr:r', \-ou l)gr-('( ri t1]r tlrrs :.t;rl {'r)r'r I '

lrru,rl tlr.ri ,r, criLrlLs ;rii lrr r,llur':'r.l

\\Irtl t.lrr,,,rrors rr'l:rclr ar r r)r,t rii, r Itr::c'd

ri lrrelrar-t-il/ llxl-rlerrr tlrt t'rr or s rr lriclr irt' r)ot drsclosetl by tri;rl balanct

r:, r1 prr'p:rrecl'1 Is ngrr-c:ruer)1, a)f lriel li:rlatrct: corrt lusirr' Jrrrrof ol'actL:r;rrv r,1

tr i:rl br:lrrr,r r

1 r ltl ;rr r orrr,fs-'

i )rr



9B SAHITYA BHAWAN PUBLICATIONS

PRACTICAL QUESTIONSPreparation of Ibial Balance

l. Enter the following transactions in IWs Gaurav Stores journal and ledger and prepare trial Balance :

2004 Rs. 2004July 1 Mahesh commenced business with JuIy 6 Received Commission

cash 3,600 Jily 7 Paid Salaries

July 2 Purchased goods for Cash 3,000 July 8 Gave Cash to SureshJuly_3 Sold goods for Cash 2,784 July 9 SoId goods to Mbhan

July 4 Sold goods to Ramesh 500 Ju-ly 10 Gave cash to RamJuly 1l Paid Sundry expenses 300 July 12 Purchased goods for Cash

July 4 Purchabed goods from Shyam 6,000 July 14 Sold goods to Sushil for Cash

July 4 Gave to Diriesh 426 July 30 Gave Cash to PremJuly 5 Received Cash from Mohan 4,872Ans. Total of Journal Rs. 3L,979; Total of Ilial Balance according to balance method Rs- 18,806.

Amendrnent of TFial Balance2. Prepare correct trial balalce from the following trial balance in which there are mistakes :

DrRs.

Cost ofgoods sold 1,50,000

Closing Stock

DebtorsCreditors IFixedAssets t s 50,000

Opening Stock t60,000

Expenses

Sales

Capital 90,000

4' The tsame \

OPen

Suncl

Fixerl

Gross

Retur

CariImPo:

lVager

Bills lRent,

Bank

'Cash

Rates

Cr.

Rs.

40,000

60,00030,000

20,000

2.00,000

Rs.

350

400

8753,972

1,400

1,000

700

1,800

Rs. 3,50,000 3,50,000Ans. Total of Corrected Ttial Balance Rs 3,20,000.

[Hint. As cost ofgoods sold is given, hence, opening stock wiil not be r€corded and closing stock wil] be recordedin debit column I

3. Correct the following tr-ial balance :

Dr.Balance

Rs-

2,500

1,000

2,000

1.0 00

ti, (.) (.) (l

(i t)00

CrBalattce

Rs22.000

7 500

5.000

2.0 00

*"J"lHint. C

ItCr

FollowirCash inAshok F

FollowirJan 3, l4, Depos

Cash disto him ISVo CasIMohan r

0ommisPa ss theAns. Tot

Prepare

Oash

I\-avell

Loan

Itln|'rr-r l r a

S rr Lr:;

Saltrr.

(luodri'i(';lrr',lri

Irc ici rt

I'r-oi rsii

]r r1l,rcsl

Nam.e of Accounls L.F.

CapitalCash il haldDr-awingsBrils PayableSundry ExpenscsProfit from Invesin r er f.

Sales RetLrrns

SalesPu rchases

Rent Paid(.loirmission I'airlLoss on flevaluatrt,i,( lonnr rssion ReceiveriBrlls Receivable

Electr icitl' Exp,:lsr.:;l"u miturell:btorsil re d itorsStoc li

G.

ii,,



F

F5

TRIAL BAI,A\TCE

4. The under-nrentioned Tlial Balartce of Messrs. Rastogi Brothers.has been wrongly drawn. You are to redraft the

same correctlY :

'Thidl Balancefor the year ended on 3.lst Dec.,2OOs

99

al Balance :

Dr.

Rs.

rvill be recorded

Opening Stock

Sundry Debtors

Fixed Assets

Gross Purchases

Returns Inward

Carriage (on Purchases)

Import DutY

Wages 4nd SaIarY

Bil]s Receivable

Rent Received

Bank Overdralt

Cash in hard

Rates and Taxes

C)a s) r

Rs.

350

400

875

3,9?2

l,4oo'

1,000 i

700 i

1,800i

I

Cr.

Rs. I

40,000 .

60,000

30,000

20,000 .

2,00,000 '

5.

Rs.

r6,590

20,670

79,000

60,920

2,400

800

7,200

3L,400

15,000

3,800

11,000

380

7,L30

Rs.

1,O0,000

20,580

72,500

1,02,600

1,230

1,850

800

8,000

1,100

870

760

'2.500

1.000

3,50,000

| 000

Ans.

IHint nal entry and posting ofclosing stock has not recorded., Gross SaIe, Purchase Returns, Bills Payable, Received

enter in the credit side.l

Following was the position of Rahul as on 1st Jatuaty,2004 ..

Cash in hand Rs. f ,0O,000; Cash at Banli Rs. 1,68,000, Fumiture Rs. 80,000; Stock Rs. 50,000; Debtors-Ashok Rs. 10,000; .AVI Rs. 15.000; Creditors-A^'r Rs. 20,000; Anil Rs. 30,000; Iiank Loan Rs. 2,00,000Follou'ing transactions took place duri-ng January 200Jan. 3, Received a cheque from Ashok i1 full settlement of his accoturi after deductiag 5?o cash discount; Jan,4, Deposited the above cheque into bank; Ja1 6, Goods purchased for Rs. 10,000 at \\Vo Trad,e discount and 2Vo

Cash discoult payment made by cheque; Jan. 8, Received a cheque from AW for Rs. 14,500 and discor.rrt allowedtc him Rs- 500. Clreque dcposited into the bank o1 tJre same day; Jan. 10, Cash pai<i to Arun afler deductilg5% Cash disr:ount; Jan. 15, Sold goods to N.fohan bf the list price Rs. 20,000 at a Ttade discount 70Vc; Jat 20,Mohan returned goods of the list price Rs 5,000: Jan 25, Ban-k charged Rs 100 for Bank charges; Jan 31,Comrnission received from Ram.Rs 500.

Pass the necessary Jotrrnal Entries in the Joumal, post Urcm in liis Ledger and prepare Ttial BalanceA''s-'l'otal oJ-Jounral Rs. 5,09.600:

capital Rs. 1.71J.000:'Iyjal Balancc Rs. 4,21,6g0.PrePareal\-ialBalancefronrthefollou'ingbalancestakenon3Istl\Iarch,200.l U-seSuspenseAccountifneeded

2,50,290

Rs.

iio.000

.1..1 00

3.000

x 200

2,OOO

4 000

8.()00

G.0 00

.){)l)

Lt)0

ir00:()t)

) 000

la t)(.)( )

tl

Rs

13 000

5.0i)0

z0 000

Crr:ditols

Olfice }!x1r

lient

\\/a ges

Pur-chases iielu trts

S;rles lipi irrrr r

l,lnrl

{ l(1ilil il r:t:t,)rl

Stirtilqrcl \

'2\(

I l,;Jl )

1.gq(L_

i.1.500I

l i)r:l11 lr-s

Capital

Closing Sto&

Sundry Creditors

Gross Sales

Returns Onward

Carriage (on sales)

Export Duty

Bills Payable

Interest Paid

Commission Received

Discor:nt Allowed

Balatrce



loo SAIIIIYA B IIAWAN PUBLICATIO NS

9.?. Following are the totals of accounts of the ledger of D. Prepare trial balance according to balance method.l

\

Capi

BnI,

Inan

8.

Ans. Total of Tlial Balance by Balance Method Rs. 77,000.

The following Tlial Balance has been prepared by au irexperienced accouatant. Bedraft it in a correct forrn :

Itial Balance(es on 31st Morch,20O4)

Capital:AB

cPurchases

Sales

Returns

Discount

Commission

Vehicles

Machinery

Opening Stock

Purchases

Purchases ReturnsCash

Sales

Sales ReturnsCreditorsCariage InwardWages

SalaryDebtdts

Carr-iage Outll'ardTYavelling Expeieses

Rent Received

Loarr on Mor[gage

i{otor CalInvestrneuts

Sundry Expenscs

Land and BuildiugDrau,ings

O:rpitalB/R

Repairs

L]lt,

Ir rsurance'l\,peruriter

[):rtcrrt

Bird Debts

l'l ilr: t and Matrhincil'Strrt,ionerv

Nqme of Accounts

Rs.

30,000

10,000

r8,000

30,000

40,000

3,000

2,000

1,000

40,000

26,000

Cred

Wagr

Salat

Macl

Banl

Rent

PurcJ

Sales

Draw

Rs-

50,000

15,000

5,000

44,000

Cn

Balance

Rs.

30,000

2,000

97,000

Ans. 1l

1,000

4,000

2,OOO

2L,O00

4,D001,500

800

30,000

10,000

I,500

18.000

3.200

50,000

l E00

2.3 9.E00

2.ti00

8,000

1,200

4,7003.100

I ?,2 r)0

1.800

I:ls .?,19.'sqo-l:l

Rs.

30,000

20,090

25,000

30,000

2,000

1,000

2,000

60,000

30,000



Cc-o u-n

l\,1 $ A .- -I, g . anda lV\erhechuoat-i

0.t PRINCIPI-ES OF DOTIBI,E ENTRY SYSTEM

.iiie Double Entryil-or both may be

It does notare certain rules

are made on

therefore,out arithmetical

under the

and credit.aspect, one

but teasingsuch two

accountancyfamiliality

book called

also known as

in a ciassifiedknown as

Entry System-

to a

third stage

includeconcern,

of Double

of these

and financial

triaJ balance,

PurchasesBook

"^^?v Aecounting Structure at a Glance._ UNIT-J- Tbansactions

J

Sales Purchases Sales Bills BillsBook Returns Returns Receivable Payable

Cash JournalBook Proper

II. Classifipation (Ledger)

JIII. llia] Balance

J

J------],Manufacturing Tlading

Profit& Loss Balance SheetAccount

Account Account,/

\

V. Analysis 6nd Interpretation

IMPORTANT WORDS USED IN ACCOUIVIINGAssefs : The usin€ss entit5r in its.na'ne are

called assets. In entity has to receive, are alsotrcated as assets the business.

P":!*ss : Aly activity or service or work which is carried with the object of making profitis called business. ft must be understood that the object should be to make profit, the resrili maybe either profit or loss.

': Capital: Any account ofmoney or goods with which business is commenced is called capital.Itis treated as lihbility of the brr.inessl

Qledit9l:A person llom whom goods or services have been purchased on credit, is called

a creditor. The person to whom payment is to be made, is called a creditor.Drawings : Any amount of money or goods which is withdrawn from the business by the

proprietor/ounrer of busi'ess for personnel use is called drawings.Debtor: A person to whom goods or services have been sold on credit is called a debtor. The

person from whom amount is to be r:eceived, is a debtor.Liabilities : Whatever amount is payable by the business, is the liability of the business.

Any amount which business owes, is iti liabilltyLiucstoch : Horses, bullocks and other animals w,hich are used in business, are called

[,ir','stock of that business.

Tangible Assels : Such assets which have physical existence , i.e., they can be seen, touchedttnd felt are called tangible assets narnel.y, oru.hi.r".;i cash, vehicles, houses, furniture, etc,

.Intangiblc

As.sefs : Those asscts rvhjch have no ph;,sical existence, i.e. , they cannot be seenand touched are termed as intangible assets, .ra-elji irademarks, goodwill, copynghts, etc.

-Voucher : Documentar:y e,'.idence of'a transaction is called er voucher. When goods arep-urchased f(,l cash, a cash meno is given by thc seller to the buyer, this caih memo is a vouchcr.Ilvc|t'r''tt<'lier shorrld have, An ent.rrl ,rnrj errcry entrl,shou]d havo ,,..r,oucher.

I. Journal or its Subsidia:ry Books



SAHITYA BIIAVy'AN PUBLICATIONS

MEANING OFANACCOUT{T

Tlansaction of a similar natule when recorded at one place is known as accounts. In otherwords, a summaqy of relejvant business transactions and events recorded at one place relatingto a particllarhead is called an account and the entire group ofaccounts is called a lbdger.

TYPES OFACCOT]IYT

Tlhe accoirnts can be classified as under:

( 1 ) Tladition al Accoun-ts ;

(2) Accounts Based on Accounting Equation.

Tbaditional AccountsThe classification of accounts as per traditicnal approach is as below ;

Tbaditional Accounts

J

furnitbooks

.(incomrecor(

Ifinte

as intaccoul

f;@:

Edebite,

28

Assets-Such as Cash, Land,Building, Patent, Goodwill etc.

(I) Personal Accounts: The accounts which are related with real persons, artificial personsand representafive persons are calle{ personal accounts. -.

Eramples : (i) ReaI persons : (d) Sudhir's account, Sushil's account, IGmla's account,Prabha's account, Aruna's account, Ratna's account, Sharad'S account, etc. Bdth males andfemales are included in it.

(b) When a person starts a business, he is called proprietor. This proprietor is representedby capital accourutfor all that he invests in brrsiness and by drawings account for all that whichhe withdraws fiom business. .So, capital account and drawings account are also termed ospersonal accounts.

(11) Artificinl persons'accounts : Fir:ms' accor,rnt, Lirnited Companies'accounts, EdtrcationalInstitutions'account, Corporations'accounts, etc. aie known as artificial persons'accounts.

(iii)Rqresentatiue Account: If the wages for the month of March, which is the last monthof the year, are not paid to some workers, then total amount of wages to be paid to them is

regarded as outstanding rvages account. This amount represents all those workers to wbornwages are to be paid, hence it is personal account. Thus, all accounts representing outstand.ingerpetlses and accrued or prepaid incomes are personal accounts.

a- R"k f", d"blt , journalising pcrsonal account '. Debit. tlte receiuer

Itlt c gi uer.

Exantple : Head office is at Kanpur and it has one branch at Chennai and another aiMumbai. Gc.ods are transferred flom Chennai branch to Mumbai branch under insl.ructionsfrorn head office. In this case whilc rnaking entry in the head office books, Mumbai branch is<jol,,i'-r:.r.i 'oeca,-t',e ii js recejr.ing goods and Chennai branch is credited because this branch isgiving goods.

(2) Reo.l Accounts : F-ea! accounts are of two types, 1.e., tangible real accounts and intangiblcreal irccounts. Buiiding, Furniture, Cnsh, Machinery, etc are examples oI'to.ngible real ccc:out'tts,because these can be seen, touched and felt and they have a ph1'sical e>jstence There are somcintangrble real accoutrts, these cannot bc toucht:d because they have no physical shape such astradenrarl<s and goodrviii, etc.

PERSONAIACCOUNTSI

Indiviluals, Firms,Ban-ks, Corporations, Statutory

Authorities etc.

REALACCOIINTSI

NOMINALACCOLINTSI

Expenses & LossesIncoines & Gairx

and. Cr9

Mcnarrati,

1..commer

connect:

to capitr

2.tare acqralso wh,assets. lcorucerrle

3.4and u'he

relates tcan be a

liabi.lityconcernet

4. Arsen/1ces rit decreas

to tlrc conor gq.Ln a(

5A(r-cvenuc,

of expcnt Rult' for debtt. &. c:reclit r;r journ.olising rco.l accotnt|lgrtrs ou.t

Dabi.l., ulrut. (:onl.es in Crcdit. tultat'

l



PRINCIPLES OI.- DOUBLE ENTRY SYSTEM

d for cash. Here furniture is received (purchased), henceis going (paid) out, hence cash account is credited in the

(3) Nominal Accou.nts: Every businessman has to incur some e{penses and he makes some

income also. Some name is given to the'head under which these rixpenses'and incomes are

recorded, e.g., when wages are paid, cash goes out but the name for this head is wages account-

If interest is received, cash comes in, but the head, under which the cash is recorded, is nsrnsd

as interest account. Therefore, the nernes of heads of e>penses and income are called nominalaccounts. Exarnples are wages account, salaries account, commission account, re-nt account,.etc.

RuIe for debit & credit or journalising nontinal atcount : Debit all losses and expenses

and credit all gains and incotnes.

29

]unts. In otherbplace relatinged a ledger.

persons

accourtt,males and

is representedall that which

termed as

Educational

last monthto them is

to whorn

outstanding

and

irnother arinstructions

branch isbranch is

intangibleaccotuttsare son)c

suclr as

uthat

Exomple: Wag'es paid. Here

debited. Interest received in cash,arrrount of wages is an expenditure, hence wages account ishere interest is income, hence interest account is credited.

'

Rules

Personal Accouritt the receiuer\ a.ccount and

credit the payer's account)

t(Debit the aicount of erpenSes and

Iosses and credit the account ofincom.e and gains)

I

1l

RealAcco'nt

(Debit the account of what tomes inand credit the account of what goes out)

Narration: Briefdescription aftereachjournal entryis given. This briefdescription is callednarration.

CLASSTFICATTON OF ACCOU rTS BASED ONACCOUNTTNG EQUAIIONI. Accounts related with Capitol'-- Wh-at-e-vofl amouna E--invested by the proprietor lbr

commencement of business, is called capital of the business. Rule of debit and credit in thisconnection i s-pssTsqse in capital is d.ebited. to capital account and increasi in capitdt is creditedio capital account.

' 2. Accounts relcted utith Assets : Whenever business is started, some assets or propertiesa.c'ucqr-hred, properties are also acquired even during the period of business. Asseti aie soldalso whenever such sale is deemed necessary. The assets may be tangible or intangible real

assets. The rule for debit and credit in this connection is-Increase in asset is debited. to theconcerned asset accottnt and decrease in qsset is creditcd to the conccrned asset q.ccount.

3. Accounts related uith Liabilities : When money is bor-rowed, there is increase in liabilityand whcn this borroq'ed money is paid, there is decreasc in liability. Thus, accounts whichrelates to financial obligations of a business entity tou'ards outsiCers is termed as liabilities Itcirtr tre a slrort-ter-m liabilit-y or long-terrn liability. The rtrle in this respect is-Decrease inli.abilitl, is d.ehited. to tltc conc.crned liability account and increase in tiability is credited to tlrcconccrrLe d. Ii o;bility account.

4. Acccstutis rel.ated u;ith. Reuutuz.s.' Ttrese accourrts relate to amount charged for goods sold or-

stltvices rendered. Whenever incoure increases, concerned income account is credited and wheneverit deci-cases, concerned incorne accoturt is debited, hence the rule i.s--Der:rease i.n incom.e is dcbi.tcdto thc con.ccrtted incornc ()r gein uct(tunt and i.n.crcasc in. i.ncornc i,s t:rL-d.ited to the concer-ncd in.contct)r genl eccott.nt.

5. Accottrtf s reLated rui.th I')rpait.scs : Whenever any expeiiditure rs inctrrred for gencratingrevenuc. concerncd exper.rditur-e accorurt is debitcd and u,hcnever sornc portion of the arnour.rto{ cxpendit,urc (.r-hich has allcrad-y ller:n incur-red) is carrierri fonvarr'l to thc next- year, thr,'



30 SAHITYA BHAWAN PUBI,ICATIONS

concerned expenditure account is credited with the amount carried forward. Hence, the ruleis-fncrease in upnditure or loss is debited to the corcerned upend.iture or loss accor.mt and decrease

in expnd.iture or loss is credited to the concemed upnditure or loss account.

fhe frat rule is that when there is any increase in any account, the said account is debitedif it is a debit account in nature and credited if the same is a credit account in nature andsimilarily if there is any decrease in an account the said account is credited ifit is debit account

in nature and debited ifit is a credit account in nature.'ison of Under Tbaditional Approach & Accounting Equation

Tladitionol Accounting EquationPersonal Accounts :

(a) Those accoints traving a debit balance but not relating to owner.(b) Those accounts having a credit balance but not relating to owner.(c) Those accounts related to owner.

Nominal Accounts :

(a) Relating to revenue'(income & gains)(b) Relating,to expenses (expenses & losses)

RealAccounts

Assets Accounts -

Liabilities AccountsCapital Accounts.

RevenueAccountsErcpenses AccouatsAssels Accounts

PREPARATION OF PBRSONAL ACCOIJNTS FROM NOMINAL ACCOUT.ITS

Nominal Account Personal Account

Interest Accoult

Prepaid Rent A./c

Rent Recd. in Advairce A"rt

Outstanding Rent A/cPrepaid Salary A,/c

Salary Recd in Advance A/c

Outstanding Salary A/c

Prepaid Interest A,/c

Interest Recd. in Advance A/c

Interest Accrued A./c

Interest Eamed A,/c

Interest Outstanding A./c

Discor:nt Received in Advance A,/c

Unexpired Discount A/c

Rebate on Bills Discounted A/cOutstanding Prem ium A./c

Premium Received il Advance A,/c

Outstanding Claim A/c

Prepaid Commission A-lc

C)utstandjng Commission A./c

Commission Rt:cd i;r Advancr: A/c

Lln*xpired Co'nlnission .A/c

Subscription Recd il Adr amce ,Vc

Outstandut g Su bsr:ription A,/c

Rent Account

Salary Account

Discounb Account

Premium Account

0laims Account

(lommission Account

Su bscriptior-r Account

'1

ll

,l

t

t

i

Va.

busines(1)

Thiimmedir

it. Thisday butrecords :

Ttre

is the bo,

are recorplace, itsystemar

Ajotransactrand even

Date

The'Do.t.c

prcpilr(,d

Part'

recordedsanre linccreditcd iaccount 'next linewriting tljour-rral t'r

I..)

.t.

t.

(;.

TIIEORETI CAL QIJESTIONS\\'irat tio 1'ou urdet stmti lrr rlorrble r:nt11 st'stent? \\/rite its t.ules aurl ntcriLsExplairt rn detail tlio Dotrble l'}rtr-v S)'stem olBook-keeping a:rrl Act:rrrrntarrLy:trrri give its aclr.antagt::'Thcre should alt erltral tredit fbr evely dr:bit

and arr etlual deLiI lor cr.r:rv crcr]it " Jn t]re liglit of this sl;rLt'rrcntt,x1;lain thrr chief chalacttrisLics of f)or-rblc Etrtry S_r,stt1r crl l;,oli keepit.ig and alr;o girr: its advatrl_agcsDellnc Capital. Assets, l,ir:biLrties and Drau'urgs\\rhaL is Double lJnt-- S}sLt'rrt? I)iscuss tLu adr':rnt:iges lind rnrl;ortarrct t,f Doulrlt Ifrtr-r, S-vsterr'Everydebi!entryllasitsccrrcsllondingcredii,errtr-r'alr,lt'vervcreditc:ntryhasitseorrespor;dilgdobitcr,lrlProve this statement u'ilit r:xanr1>les

\Vrito the t1'pes and :ri:cottntitrg rrrlcs ol ilccoll)ts\\'hat art' Porsonal. l).i,al lrrrri Nortrtral .,\rtoLrr.rts')



BOOK OF ORIGINAL RECORD :

JOI'RNALyondns iJ.Fs or book6 dr. used hy bNn.ssD.n lor a@lniins

hu6irc$fouNinsbooLs are Eo6dyurctl:tl ) Meddredun Bmt, lvasle Bmk r R.uri BdL (r) Jdrnrl, (3)

I

This bodL ir srso .dlod wisle bodk o. rougb book. whea tla.saclion uke! plaic, it sim.diably reco.ded ia ,\h bdl cilho. br pd or pmcil s thdt btsm€$heD Eit rd forrairL 'IrrB boor tu hp. hy .hGe h&ru r sarl lenhdl! 'bo h.ve .un,b.r or (dnse.iotrs rdry Llr or v.ry mall lDort. Maintcnmcc dfthk book js Dot Deccssnry lt h.lp. in nlulins...,'dsDJourlrl thq^ + a no ru h. rir n,]dDi r.co-d jn n m.r^nds, Lool

ths {ord joE al h.s b.cn ddiv€d fiDn Frerc} qord ,our', wb,d nems dirr/. Joun'.jis rhc boo} oforisrnal snlry i! wlic]r lElibindr reord diboih arpdcG or d busile$ baDsi.tionaE reorded in ord€r h whid tl.y ms, i c.. in cl'ronologidl ordBi \rtrbcnov.. hanlacrior takcsdae, n F ,lorded diFcilr u .Jli! b6&

'rdb.{h tlF trsFcts ot rhc rrinsdion ah rc.orJctl

srsbhnijcalN jh ihe orde.r wh,ch fttrnFnchonr takeD,f,.c.4 ronrnnr is .allcd rs blols ol orisinDl acord q a boor o| prn,c qt{ b(qtrF. nll rlr

rden nrs. m thE Look. Tl[ tsodss oa tud,rdnL' kaGr..oni,d ovunc E d Dumal is adl6d Jouzoliri's ric aoDot qrrdrnil js qiv( ns b.l*

Tl,, kansrdk,r.redortldrtrjonn,rrhr x(t,r,!q rt hrro\ej,u ! rPl"trd,a/( In Lllo ddr onD!, fi^l rl'p !.ar ii, N nn,Rl ri,. $

r,.ri'qr oJ rl! n ndnrl,.nd{r.r chnrylo!tra/ddorItfr{,/l/r rn rhn dturr. rn

r.qnlo tid! ilx. kf turq ol ihc r li!\'l{r nllL,nn Md L' rll qrtrrn,.tr|L. rnp| i J rD s

'rqtrd('ll! rl,. f, rr Lifr. rh. xLl rd $hirh ," , l)

.nrltr.d N \rnru L.nr ! r.N rFa t.dn lcn L\ rnfiring lrd ln r n'rr! Dni,' rtn

'rhh errlrnrru' r tlrrlrs )ur "r"ilnn\jrh.n.-,{rrrn{ rsl,(lnr-r\(rr,n'nf(nrDlrtrolt'n",\Lr6,,idr.n,\q .i Llr



t, E (Izd4ct lbhd :'rnis 6lrun is no. u*d wh'lejou'nolEing Lhc hdlsocrion bD. is usedwlen the llroces or'?osrt!s' ih. !.rrsactton i! ledser x ddnc. n recor& rt'o prst n@bor orl.dFr L@L vlrdc th€ .cicvut oalub ,r. oFned,

i'ou'r D!6l Thtu cdhEn E@rds t]'e !'oDnt ld r4 dcb.ed .son lo nL s,t'ch I's

,1nouu r c.rdr : Trns slunD reords irrc oDo@r b hc aedrbd dshirrr rhe reuni vhich

cat'2.Ututd,.b (all ib6 hhsadionsorjdrml harllmrd, 6151 of dnouna olumn orjouhal is ood. d sdrwoni mried fo d'd arer€od.d ll.ad rhx rel aDou line*hcn lltis aEount ol toral * recorded md ,r. -ords 'B.olglrr FoR&d o. E.ousht Do{n' arc6.dcd berorc uns 6t l anMunl.

on lJle abdc L,a€n a rtus.bon wtrm Fo.dd !n Jouh,l will ,pFar Ds toDtr, r.or c eMac}ino Durddsed wo.tn Ra. 5,oo0 on 6i! J'b , 2003.

' lluN${cTroNs aNAYsrsM.ouagafB" tc Itahor'rcii Ev"-y b Ines d.J rins E h.( h caD r,. n.--u6d.nm.ncy

lnd wlich arYccG lapncbrk caliral or ascLs or liDbitftid! or oDc r Eore otrhM D lhrl,$iNs is cailcd busineF6 bansaeon ltErodcdoD mar eilhcr bc r d.o.l4! , lE.\.ccn Fr$ns$

^6'su.ss d.Lu j tt nnt tnDalu.tt1uqe afEeds o. x rces,.r r4tit and polwnt d

l1'En.]funEcorTon+l''l6crtfrULccxchq.oIknDstirolsood

(2rt<ilurr'.5: For n binsadionrhcrenrusrr*Notsdics on4 dcer ihs.hc beudir.ndfl!. dr,n padin( r t. brr (hc fdn ! le. djrc(tr or indr{nr

(3r]1rcnvnd! 1lle( r o !$rslEcL$jrrrch kMsrdioD

!tlj.1, letxh.\ 'h,ishdcxfnssh ,!.\l,r,ans.LdtoD It,,!,.*1, r n(Nn 4 Fur ir rr, D, nyi/ r Dd F{F,F'j r, .'

r nuc.l'!,r

r Hooro!1,'Rrrdi'Ll! r,^n!ri, r uur

, r: Prnr,rs.d (ar)- lroD hr' ' , Prlnn4r lirt $l,crD.,rPn llirr,r



scoF 46 rogards 4oF. hDsdd i@ E!" be dlsird'i

D,hmol or eftrcojtdctn.' lrchu an : Th. u!.s'rtjon s\ici t Lu s ej'l' lho dcprd'don of ho.hrlry

i6 d inbm.r ir.,rg.dn. Ary rr@crjm sbcf, is 6n.cme.I {ith lhe .cnvirr Qiutin n'o

cnk4.ise is o inb..l inns'diorE h dl rftnsttian Eai.mal tres.tior k one *Ilich is.Dbrcd inb Lclweh tlo

busm.. otc.pris€ and the duEid. prnt d r.[ac or nlcnincry ltu Mr x orMuhbsi

EahMEp naBrtioa .\q@ \atud @ d.r'ssed bclween rwo q Doro psd:8. it is rn.xcbdgb i:ssa.iron, ror i$bncc, sm& olRs. 500 ue cxdrinsed fd! ruhitur. orns. 600 witlt

'tretf.r Tc@non : If nL. @dnr i6 hn't E6d fmD one lcoi3 cdl.d o i.atufe. lrunsacl.ion

Eddcn *ssaio^ : I Eoods fo. Xs. 30o n pu.haE.d &oE B on crdiL D has o@ptld

ll. 790 m turl md ,in,i $iuenm. ofhE bdd6. Ilcre Moqr ofll€ lo is t s.r€d a3 dk@u.,*hjcrr $ hidile! bui mtry fo. is. ro will be !s .d Su.h hslaciion! eo cailed hddcn

AbwtutTlMnon ljsc dueb s.d4.lc4 nd& tud dftusnk, .L arc duDolrulirinsadions ln LIr saDe say lo$ dlc h tte,r md hbberv, .!c lr .lso ablmrd f'nridionsA hy hin *ndjor wllcb j. bdyond sFcbiidn in il)e lomal circuD s tdn ccs is .nll.d 3 i hno.ns]

Caapuln. Toa gtia| r"^.in'ne dd F!.ltr m lFqad by rI

ftM acdons n ldkdqrn!u.h,bMieit@ors rruttudio6 SoDcUhB bGirsmcn hay. b sirt .dne .lrnty or

donattotu. Tlre] llso sFnd sde tr'o..y on rcltsDlE ccrcDDnies, s.t p€rromans if'puia(edrsl,ip) on r e{ ycut dor elFn isJI PqjdD' ( o!8hip or ldolc or Ac.ou6) bk.+ Dia@

SDrcnno@c are 6p.Di on Euch occlsion'. $eds ir. also distibul.d ll such.En$riiory&'ctDoql os risellans0u 6an3dDns

,!ar '"roaid.ron. sdch h in6Ruiid5 lncn iDvolv,A erd,r'ud o, pods/sedieN ue lrN n as

bre trnsidons Eaner uuedioN bdude th. roUdn.gi') Ex.hoFcordhndd ics aorotModilies,(r) ExdMnso ot .oDn,odililF for scnic.6

lrii) Ex.haDs'o d scrviceF io!qr!modjtic€,I !i jtxchanse ol onnod rp5 ntr padlr olm'xliric atrl Fndlr srtu&irv) l:a.Iansp df scFi(c! r,rr,1l] sed'ir$ iDd Drnlr.omDonn,ri, and

Lr ) lrxsl,rngo.dlscrvicos lbr k^rcesl!o/,lra/rs's or. Ttor qx rdi F is lDdcrr" \\'h in rh. r!, isr.ds Ll r rmn,ldiiDl

1rr rU'rL are tIr s.(ouDF to $)ncl, thp{ trsp(rB rdar./lni' \11.t is rhr rFe ofrcounP \\1,nh rul, orDotrbh EDtt,. b l" rDplrd,i'.{(rr,'f rrrcs. n(oun'ri

'. fid\ o n,olc rdn n rc!,!d or r,4ks!fi(ounr?r\i \rlirl, trushdiors Lrycbe,x' di r'd lilo )r.o,tlrr!r \!lrrt hrniidDns j'ar. brcn ",onllv icunt.d'l

,Otr(h'loior hrloor rotlr r. sNsr htrth'( t's,r r(dddD rhaLooh,nrrunr! ls hrr!

'yr,tnsalDn \ljLdr h h llrpd ^lrn.il

i,r rhxl orlr ,tr rh rr!,ls rl

a1,. "in..r.,,tr'\. 'ar \.,11,. , I

a..,i,,t,.r,,.1t'rDri,i.hc r,Ns 1!r r,,, 'i.'



chplete and Fliahte netMths

The beil'od ofreo.ding tansortion rjournal on fio bais orrures ordouble eni.v svsbh

A b siDessnan cones in cdnh.r wiur Pdsons lte h3s to kcep soDe pblenv llc incEs3dne dpebses and mekcs sode in@Ee ?l1c.eforo, aD t)ro F@sdioG ora b$iDcss mEroured ud& ihe th.ss headilgs, l]delv : (1) T@sadiidft reratins to pssmd eoDls, (2)

tansacuoc relnnr o r ^s) acounB, md'c, rrmle { o - relar! e noE

'n3rartduBTh re

Mc sN,k ruhs ro rlFso(ruBdisds"d cein h chapbr 3 dn Lnr b3'G or wnrd @+drD sspccE orbans tion is ro@.&d injdural

R.cotdi'E .f baMtiot nldtod la pDrrubr : WIm n or.ierd or ilbusiGs ly;koducins epital, $e ac@ut ofthe proprietor is ndt dp*d bui itis rcPrsmisl bv

capibl ;uq . s., M;he dnnenea bEin6 *ith xs. 2,000 Fdllowing jomal eDirr is Dado

sohan obDrDed hGD"b l':tl' tu 2,000 6so bou Mth so d. Jr fts s,000 6oU^ rts

iodrnrlenid E nadc fdr tListudlmon

Iutdihdndtuutionanobas prcui.t'sasaundfaunniti.ntat solut

r&!r e$ rii sdis 6uidl D 6r o),r,uizg' raolzr . when Droreior orbusiiess b'l'cs Mtlrd.ne alt lioE butitDs cthfl

n.ashor eo&. ].hcs Fs.ctjons aE no!raudld throush @Fii.l'csr.i,

buidra{insstrc.duthoDened.!.,?Fnnebr-iibddEodsorRsB00anddsroaRst,000lionbusircss

EornrrntcnLD n nd. ror,!.

Ajourar d,!! o, bc orrN0 t{ri r;rn]snn),le,r,rtr ll|fry,irirc,hronrr Jlunx,l Dn.:v(r)s,ri'r(rif,d/r

ry\lrl,d dnj hro

Lh! d,trr Li$d ro: rrnlrud' !n+,!drD rl{rud! in,xffesed orn^nrrerl'ntr.iluadiu,$l1,rl r siq,l..FUn)rJ orn



l

,,1

ls,h.'.1""*ii-'.F..

'D4hr(ni, d. rNtri oir;!

'rh" 'nr!r.d Lhcsinc Jsieorn ihlLchir.d d (,.1' - \ !x!f .lur h,o. cnkr rr$ql lo) r..odnrF tho rurs!6! is 4lled!, rrDdnr,,ia .1r: r'ollo\i'rc dc.fr rtrur niirE r1 dcr

"rrl{1,,1 NrL,i\ed sDds ror rlsL' b, lts :/,0r,1J a, Jin J 2001

n0o0 hln s,h,r |!lh\nr(.in!u, q'f{ b



-{ii)OnJdrq 200{ ShlDi U.tdin &ld sbods ad..ash A.. 4,ooo and Eotd sodds ro surond.,

torn6 6,000 CoEpoud atre is Dsde s bdo' 6. il

(I

(iii) on Jm, 4, 2004 Jdoph pudas.d e.o& dJi.cR' 1,000, 3md tine fd Rs. 6,000

'hdLbird liD. fo.It .

mlound enbr i! Eads for ;

Jar , GmdsA/.

' i! Lh. h.qkl oaPmklsL Brc ;

rq000 ,.61

tud fifotu'e fEb sobtu fulr riEr for pddr,olrrd fi! rE h. R3. 500. FoItflrns

2001 JD r r' $L og'DcE.d turG 6rl od tu c,ooo aid c..d

cd 916 R! J,mo.Jm 3 s.rdsood!bMohuRrrmdJahg*D .cdliqibr6Eb& i.dooJan r1.caq.id6rj,;^-hn 50o.

!! t

I

I

r;-n



vil,

(BcbFAdsfuthedeiddudL{&6LdcdjeEd

or! laqoLj4 pDTerl d re 6{ 6r "rre,-4gt..... _ _ .



- R--

(lrPuthesLaa nt: \\+'4 Eaods are plrclssed, ii is bc.b. t dcb{lurdascs aEouljn ptaco ofg@d8 acoiini

'?rsolesn.Lrt !vn.n srods r.sdld.r Fh?rF. roq€di( sdles s,oudr,o plaeofE@;s

l3) PtrchEes rctumt u.au t : W}]en slods pua\ased *d rcilnsd, i t G b.rtcr id cradit

pdd$es returns acounr or rotu.ru outwa.d aNunt

(4)SdlesrctufnsdeauaL l,+,cn slods sold n htlned by cusLomes, n k heiLr !o debi!€01* reims 360uDt 0. rctus hwfd acoult

tS) Steh ceoLnl : Whaievcr gmds reDain usold at ihe dd or ihe y€a4 fiey oE

r'nsfazed b stuk (ctosins) ac@ul

G) Caoas e an.on ;ieNra ddd,,! : !!lre soods ft sent b o ag4Lfor sellDsit on

b.Ialrand ;3L oa the trcpneb4 then coo& are said b have boon

tni6 casc coo.ls enr on ondcMent a(oun! h qeJit€d ed Md

(1) DEouzr . Discouri is a cdocesio! axoped by ure selcr b $e huye. in iLc pice io be

prid by hiE. Ir is or .wo fi;ds : (i) rrade dis@unt, o,d (t) casL disobl.(i) ftade DsoLnr : This dis@uli is all@cn hJ tne solbr r! a buyer vho d$15 iD lhc sds

goods as tbar of ihe serler ftdd, dBiunt tB rct ncatdia in th2 baoer a7 accau,, becanse rt isshom as dodnciio. t! tha receipt dr invoi€ The mouni *hich raEains !fter deddcrion ofrade d is.ou ni is rccodcd i n b@ks o raccd tr. r-q A d auulddursr nanulac tuEs an 3fri clc for rs60 ILg IisLpricc is hs r00. Hc sold ii1o ine lholcsaler a{ 209, trade dtsounL,;.(., ai Rsi s0

ID ihkcase, n,Dufaciure.b,snade a rrofii dfrrr.20 r. , tc 30,Rs 60 The wnolAatd s.ldi.b reiail }ader at 10%i.ade di3au4!r,-o'tlsi Dr!qi... hcsld jta! Irs I00 Rs. r0rz.,nF.90 NN dF wh.brirq d,kes a ptufiidfns r! h,rs 90- Rs.30. fie rehit ridc. sord

{ ai Rr. r0o dn(l tl!\- be mod! a profit olRs I0(iDc4sh Di$uQr nns djscouniis a oNcd io those buyes wLdnn'trcprynrrrduringa

D esribcd pofid ,y,i.\ dis.oui i s aluots Intdd t boahs ot deold ltrus .'sh di*otrnl s'ran.cd bra srpplcr lor mrL.s pro,Dp( prlhoni oa Lhe tr)voE rrho r considenr.rr. 'llE

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(i Mthdtou.ll ol eood. L! tL. ptupri.tat tm th. bsiaes tot , ts pcr&tr,t bc j \trcn ilop@pned oI i}lc buses w'thdra,6.DrrinF adDt" G delj icd and

.Pu

{he s@ds ar purs}*e pncc

(ii) Go.ds si,,n 6 dneq : son.iiEcs, rL

dm chanty Acouilr is deribd {il}l ilie pu

(nn DisrnbuLol olEoods ds frce sdnptrsibe adveni6enent ol his coods dhtributes eods as sMplc lree oa@sr. In thjs 6su, ,AdvcdisF

beni anrl Plbliciiy a/c -itr bG debibd rv h rhe l]u.dlac plie ofrldr coods md purttr ascs ./c

lirlissafcaodsolthdt di.gso.ns de desroycd o.los! du dingloss. h ths dse, "lass on dd'Pu.hae. ARount qU b c,, dr.d br pL'chcr Fio or rhat eood

!.::t" .

'i Ror' D.bF : lr b's,nces,

after IrcarGed or.@uni of dcdii s'io, th@ ihe anoui lor Eat*od is iredbd ss Bi,t Dobrs. tor

ihG a" will ll. debirld ^nd pdsonal .couij ofrtrc ore.n6d Debi.swirl G no ho6; oi rercvetuc'n" 'DoDr

rroa lhs d"b-;; .n rhis

lr) Bdd Debk Ee.auead : Wl\6 any ldaD dr rdvanm iE k€arcd rd be ddecwcred a.d isdlb,l€d to .B3d Debr acmmr".nd lator on rlo Lrd debts 0oan or advaD.c) is.ocwcrcd, Dthi s si Lu tion 'casL accounc w bc debt rcd md 'B id Dcb Ls Reco"ered a(ounf sill be c.cni t€d,Lc.a$c Lhis is trcaLcd snbuslncssptufirILEtua6 asprotiibecau*,debtors3r.nnicanicr

(\;iion tNohrrLt ata r\htot:\\t\cn rdeLb!Gdedrredjnsotvunr,jii,Dosithnoihi4ni ! L..,.c:r! r ri,r !. j,..

ledis hrahdas urd Dcbts 3ndi

tn Etu., rttnrh! t,..ni or b'rr?r. on p*rpr of& order o, on Dt..ns s! ordc. or

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'he.menrrrtu TDis pme6 r5 dom by pdsins a purDl

!truy o rh.6ft! d'y oI6. Dw \06 Th! jolmet s!r, tu bm,d 6. Jtsaxs.rrD w1d"pu"ingr' ql,cning cnrry €rr aek

'Fuk 'redrbi.ed a.doirti'bJ:r.! 6rd c'pibraa"un'.

,0o0, Dobh jrs 6o,mq Madho? R. m,00irl,;,rritrd: €redibc. n i6h Rl io,m

'0oo',ah@diI|!i'oootr'tmIrqiry k, Aiddsqnrh i<ic, lfm LF ric.tu atu! ruJ-!R e.do,hNI!15&4h.Rd,orLhrj

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rn i.dats mbndciar wo.Jd a sound BanlliEs srsreF has its Mn spedfic inpotun€ ,IIcd @nncrcial od indushd prosiess oaaqv .ouDky der,ends

uDon th rdiv! coD#bution orihc Ba,*s. aantr provnd randE t'!€s dtscryi*s and foohhesbve;ous cat sones ofpoplc.'ftqctorc, yitl itre purrdse oflaking lho advelaF all lErsonsor'Qrous caicsoics and insLihriiobs op€n ac.dtrDG in Bank. I]eaNunt.nh to live i],. kno*lcdgc olb!,Hnst.ansaciiors

lii nank mainly Lhree irFs oraeounh ire orenod : (jl clFe.i Ac@uni, (ii) Savjiss Bmknrcdun rnd I'n ) Axcd Dclo$r A.eun t. corr.llr 5 LulDcssE@ q bDsjncs orsDladdn

opo'sr dFcn! acsunt in.hc nrne oltsiirms dnc 6 vlious bcDcfib orcurrcnrmcobi inL'trsnrc$ !vo.ld. curcDi rcolni rs knor a5 llmk ac.ou . ftssodtoff r.llbd h dcposii orNiil)driwrlor nouDt rroni curcntacouDI arc prssed rlrouEh .I]b(

Accoun I .

$1u.4!r 0dEachoNfc dcollwitll brnk, aorrocordinsthen rn Jor,o*nl"nlf prs0nrtrcs r. t.[. nnc otjournalrns ep€, (.!i]a, ,n!r fc(tir llo Flu on rhc bNs ot thrs rdl., I'r rc(HinF a&h n2r sr.ijon mjou.xl,

rhc DrLur?oriLob.Dk finsadn,n. nlfth!r rl,e na,ll(,s rl,!,Nqn11 d rr 3(ouni o' ii. srr? ridn L'rntt

'srh. nrdv.r dt

rh! r,rr1 rli.rllstrkA..!rir\rJrh.ddlnLdandLl{oitrcrisj4!iufrtru.frNadid's,[1,.drdn,Lncb rkisdr4r.rof.lF{n!i'ni.ihclrliok !!{rnl

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12) lxpoeu'E th. ch.qu irt! Eazli , Ir budne*, v.nou6 .r6to4os .o!!rdd p.'hcDr ibchequcbettorihanincash.Ia.rychquab.ecdvddfroDacu dEc. and ir ;6i ro. cottocrioqthc 6ms ir iho Lsk, ilh Btur.k 4/c eill b€ debibd lnd psni.Dlu cusroncrt Jc witt b€

"t"4rjd.lf a .heque nce,vcd coD a cus.oDc! ji nor senl for oltedion on tho sane day, b ii js

.oni o! lonrs other d3y tnr6 ryjD of tran.diim will uo recordsd rei.e k., (t ard, s,hcn rtcchque B E.ei"ed ii h t cabd .s osh drcn "Cash a/l ir debibd and 'CustoDcr,s Pq'dlj ar'cis sedncd (ii) scd'd, wieD ihjs .hquc iE dctseLei in t}le Lonl tuc oLh.r dar', $en ,Bank

i/c is debir.d md c,3h ,/c js crcdded a. i. is donc i' ll)e qupl! bclow ifrorarlc oD r.r J!D".200,, Mal""lr rGrv.d sclccL.h"urbBb Ra.600 frcE Moh{D

wh r h rrc d.p0sr d inlo his bonk ,r.dunr on Ln"u., 2004 Mlh.sh kitt pB dc rd,td6A

6t at Mtpr of ch.q@;:

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o, hr busDlB ruryf. rL.6u.i ,re U lE deb'Ed nod.Br.r a/1will oDar u6e froD baDk trED

8,tu \. witL.rs.!!.d t' ,)mrnr. ,nr. ,,.pydiD.d'Expense! i/r',Nill h. dcbraed rd Bnnka/c;willL:rcdtcdrouetr dp4tr.,

'h.D,?uclaes /dasser a/i $ tx d.Liled

i d B6rt t,/! sill Lc (rcdiLcd

ta)rao"latnLorhtLon\ba,DbaDlsa'kenDdi,tbrclironrA rudrrsjrR.Lovrrdrdti

o. rlrrougr, (isrj ddrl |o. crcir ryF oltos.lffer.rr mfrisEsddtjl')r,t h ot iro,I o.r.dnlt: wld l,trs'i65D.b $lrhdrNi ox.css rhdrEr rtDr hF

dullsrs. rhdr dns N rl,rl.d .s.Brnl o\ crdrrn rrc FmN6ro! ror Nithdra\ f,.\er! nronc,dn,nrrld'unt'snrk.DyL,rkonth.l,as!orpnrFl?tor'sgDod\ill I'r rhG usc n. sn( firl,uun rqn,ol i5 rquNlb licorun.d Tli. chL'1 *ill l,e s l;llurv.

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dcha tbe pc.soDal aEounl orihe ndibr (Rceivgr orc[equc) md cndrt tb€ pe6on'] kcountoarbs tsrsdn srdns tlc cheqDe.

@ 16) Ctuque depd.d inb bdnA bd du,l,,D@d : r tbe deqre &pasit d iDl,o krh;dislonoded, ,1., bak reiEA to pay .he honcy of rhc dtque, ilo d @ivils tls inlmaiioDrFrdj.s rlG]lonou of.heque, tle pl]rcml ouurt ot Gr person vbo savc the cheque wiU he

d! b,Fd md 'Bad< o/d qu b .rsd ihd

. (l)tsued ch.qu di.h.nouEd: Irissued.neque is dishonocd by tnc b k thentsel a/c

Fir)D. d.bLkdMdlh p"rsDnalacornrolrhJ' Fcrsnqilbcn.qi(dbkhom rhc!hlcr!i.

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a'*s-,hus"a 6 dsuibtubEnE e,dle6 whrch s loM s! Sanl .hrce On r(cJrr ol tlr"

info@hon fbn bpnk 'Ba.l< Cbarses tc h debtt€d abd ts'nh'/c'E

reailed, bemue ilrrusonor ollhc b3nft does nol By the onoDt in cash, hft in. bak itsclfdqdud! rh oou

'\9 |tupdotLu.db!A h Baolt \h"D rflidos intcr. onthed.posisrr bdk. lh€n

,hGioJoda'oo jsovobDcartornrholderbyrb.btnk Or iicrqcF' of rhlinfoms.io'sa.r dd i! dcbihJond 1;h6. dc iscftdi'ed i . ' :

4 l1a) Inbrti chitp.d b1 Bd* Bdnl lndn : Wh.n bak cn*Ehrered,/dis dcbircd Md Bmk a/c is @diied.

Lrb'rr 'allov'€

u ldrE r on" l rrjodiJdsu"droswi"ql-qr

tuds.d sdE or qlh Il" 5,000 J h 5, sold go.& b A'j!n tur00: ru. t0 r8idashrobutqruli @cnonejull.10o:Jatr20'sold&odsbMohhfu,2'000'JM'2r"Moh'nh0F!dg!d5Rs-

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Accounts+1st+Unit+(Sec+a)[1]

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