Definitions:

Book keeping is an art of recording business transactions in set of books in accordance with the principles of book keeping

Book keeping is also a science of recording business dealings in a regular and systematic manner so as to reveal the exact financial position on any given date

Accounting is an art of recording, classifying & summarising business transaction and interpreting the results there of

Book-keeping is an art/science of recording business transactions

Accounting uses the data emerging from Book-keeping activities

Book-keeping and Accounting

Objects of Bookkeeping To have a permanent record of business transactions To show the exact financial position on any given date To ascertain the profit or loss made by the business To find out the amount due by others to the business concern To know the amount due by the concern to others

Double Entry Bookkeeping

Best system to achieve the above objects

Fundamental principle :

For every debit there must be corresponding and equal credit

Advantages of Double Entry Book keeping

Complete information of all the transactionsPreparing trial balance to test the accuracy Ascertaining exact financial position Finding out the profit or loss of the businessFind out the amount due by others to the business unit and the amount due by the business unit to others

JournalBook of original entry Both aspects of all business transactions being recorded

Steps in JournalizingFind out the two accounts affectedDecide the types of these two accountsApply the rules of Debit and CreditPass the journal entry andWrite Narration

Types of Accounts1) Personal Accounts and 2) Impersonal Accounts.

Impersonal accounts :i) Real Accounts and ii) Normal Accounts

1) Personal Accounts : Accounts of the persons, firms or companies

Eg:- Mohans A/C, M/S Suneel Trading Co. A/C etc.

2) Real Accounts: Accounts of assets owned by the business concern

Eg:- Cash A/C, Goods A/C, Machinery A/C etc.

3) Nominal Accounts: Accounts of expenses incurred and income earned

Eg:- Salary A/C, Rent A/C, Interest A/C etc.

Rules of Journalising

1) Personal Accounts: Debit the receiver of the benefit Credit the giver of the benefit

2) Real Accounts: Debit what comes in Credit what goes out

3) Nominal Accounts: Debit all expenses or losses Credit all income or gains

Problem : Pass Journal entries for the following transactions:

2007 Jan 1 Commenced business with the following:Cash60,000Furniture50,000Buildings80,000Debtors10,000Creditors50,000Transactions for the month:1Deposited into bank50,0003Purchased goody from Ramesh80,000 4Sold goods to Prasad30,0006Sold goods to Hari for cash60,0008Sold goods 50,0009Withdrew from bank for office use30,00010Paid cash to Ramesh68,00012and discount allowed by him 2,00015Purchased furniture5,000

15Withdrew from bank for private use200019Received from Prasad19000and allowed him discount 100020Sold furniture for cash800022Received from Murty as loan3000023Purchased goods2500025Received Rs. 2,000 towards commission27Received goods returned by Prasad 10,00028Returned goods to Ramesh500031Paid fire insurance premium400031Paid Salary to Gopal, the Typist6000

Problem : State the debit and credit accounts, giving the reason, for the following transactions.

1) Commenced business with Rs. 10,00,000 Withdrew cash for personal use Rs. 5,000 Paid Rent of Building Rs. 15,000 Bought an equipment worth Rs. 70,000 for office use. Received a cheque from Shankar Stores Rs. 30,000 Received a loan from Bhaskar Rs. 40,000 Sold goods to Patil on credit Rs. 50,000 Sold goods to Vijay Rs. 55,000 Sold Furniture to X Trading Co. Rs. 5,00,000 Discount Allowed to Mohan Rs. 20,000Transport charges paid on Machinery bought Rs. 20,000Discount earned from Vijay Rs. 3,000 Introduced Further Capital Rs. 50,000 Purchased Machinery from X Rs. 50,000 Paid Rent to landlord Rs. 25,000

16) Received interest on Investment Rs. 30,000Dividend Received Rs. 40,000 Bought stamps Rs. 2,000 Charged Mahesh a commission for service rendered to him Rs. 15,000 Office Equipment stolen Rs. 30,000 Paid for Income Tax Rs. 20,000 Paid for life insurance premium Rs. 45,000 Till taking for the month Rs. 2,00,000 Repaid loan to Raju Rs. 3,00,000 with interest of Rs. 2,500 Deposited into Bank Rs. 60,000 Commission due to Naresh Rs. 5,500Withdrew from Bank for office use Rs. 1,00,000Bought Investments Rs. 30,000 Gave loan to Somesh Rs. 2,00,000 Paid electricity charges Rs. 10,000

Sl. No.Name of Accounts involved in TransactionType of AccountReasonDebitRs.CreditRs.1Cash A/cCapital A/cReal A/cPersonal A/cComes in Giver 10,00,000 --- ---10,00,0002Drawings A/cCash AccountPersonal A/cReal A/cReceiverGoes out 5,000 - --- 5,0003Rent A/cCash A/cNominal A/cReal A/cExpensesGoes out 15,000 --- --- 15,0004 Office Equipment A/c Cash AccountReal A/cReal A/cComes inGoes out70,000------70,0005Cash A/cShankar Stores A/cReal A/cPersonal A/cComes inGiver30,000------30,0006 Cash A/c Bhaskars Loan A/cReal A/cPersonal A/cComes inGiver40,000------4,00007Patils A/cSales A/cPersonal A/cReal A/cReceiverGoes out50,000------50,0008Vijays A/cSales AccountPersonal A/cReal A/cReceiverGoes out55,000------55,0009X Trading Co. A/cFurniture A/cPersonal A/cReal A/cReceiverGoes out5,00,000--- --- 5,00,00010 Discount Allowed A/c Mohans A/cNominal A/cPersonal A/cExpensesGiver20,000------20,000

11 Machinery A/c Cash A/cReal A/cReal A/cComes inGoes out20,000------20,00012 Vijays Account Discount Received A/cPersonal A/cNominal A/cReceiverIncome3,000------3,00013Cash A/cCapital A/cReal A/cPersonal A/cComes inGiver50,000------50,00014Machinery A/cXs AccountReal A/cPersonal A/cComes inGiver50,000------50,00015Rent A/cCash A/cNominal A/cReal A/cExpensesGoes out25,000------25,00016 Cash A/c Interest on Investment A/cReal A/cNominal A/cComes inIncome30,000-----30,00017Cash A/cDividend A/cReal A/cNominal A/cComes in Income40,000------40,00018 Postage A/c Cash A/cNominal A/cReal A/cExpensesGoes out2,000------2,00019 Maheshs A/cb) Commission A/cPersonal A/cNominal A/cReceiverIncome15,000------15,00020Loss by Stolen A/cOffice Equipment A/cNominal A/cReal A/cLossGoes out30,000------30,000

21Drawings A/cCash A/cPersonal A/cReal A/cReceiverGoes out20,000------20,00022 Drawings A/c Cash A/cPersonal A/cReal A/cReceiverGoes out45,000------45,00023Cash A/cSales A/cReal A/cReal A/cComes inGoes out20,000------20,00024 Rajus Loan A/c Interest on Loan A/c Cash A/cPersonal A/cNominal A/cReal A/cReceiverExpensesGoes out3000002500---------3,02,50025Bank A/cCash A/cPersonal A/cReal A/cReceiverGoes out60,000------60,00026Commission A/cNareshs A/cNominal A/cPersonal A/cExpensesGiver5,500------5,50027Cash A/cBank A/cReal A/cPersonal A/cComes inGiver1,00,000------1,00,00028Investments A/cCash A/cReal A/cReal A/cComes inGoes out30,000------30,00029Someshs Loan A/cCash A/cPersonal A/cReal A/cReceiverGoes Out2,00,000------2,00,00030Electricity Charges A/cCash A/cNominal a/cReal A/cExpensesGoes out10,000------10,000