Account-8 Final 2077

The journal contains five columns as shown above. The information to be written in each columns are as follows: S. No. Column Information 1. Date The date of financial transaction in order of their occurance is 2. Particulars mentioned in this column. 3. L.F. (Ledger The name of accounts to be debited and credited along with the Folio) narration is mentioned in this column. The page number of the ledger book where the transaction 4. Debit Rs. posted is shown in this column. The debit amount of debited account is written in this column. 5. Credit Rs. The credit amount of credited account is written in this column. Short Notes to Remember (SNR 10.2)  The account which receives the benefit is termed as debit and the account which gives the benefit is termed as credit.  The terms ‘debit’ and ‘credit’ are originated from the latin words ‘debito’ and ‘credito’ where ‘owed to’ is denoted by ‘debito’ and ‘owed by’ is denoted by ‘credito’. Importance of journal Following are the major importance of journal:  It maintains the record of all types of financial transaction in systematic manner.  It provides information about the accounts debited and credited along with their amounts.  It provides a legal evidence for settlement of disputes and misunderstanding.  It facilitates for preparing various ledger accounts.  It ensures the principle of double entry system of accounting. Steps of journalizing The following steps should be considered while preparing the journal entry. Step 1 Identify whether the transaction is of financial nature or not, if not avoid it. Step 2 Determine the accounts affected by the transaction. Step 3 Correlate the determined accounts into types of account or nature of transactions. Step 4 Apply the rules of debit and credit on the basis of types of account or nature of transactions. Step 5 Prepare the journal entries in the book in chronological order writing the neces- sary information. Journal 101

Rules of debit and credit All the financial transactions have double effect. Under double entry system, at least two ac- counts are affected i.e. one aspect is debited and another aspect is credited. While journalizing the financial transactions, certain rules should be followed. Such accounting rules are called rules of debit and credit. Here, to debit means to record in left hand side of an account and to credit means to record in right hand side of an account. There are two bases for applying the rules of debit and credit: 1. Traditional approach (Rules based on types of account) 2. Modern approach (Rules based on nature of transactions) Traditional approach (Rules based on types of account) In order to apply the rules of debit and credit under this basis, firstly, it is necessary to know about types of account. Under double entry system, all accounts and the rules of debit and credit are presented below: Figure: 10.1 Types of account with rules of debit and credit Accounts and rule of debit and credit Personal Real Nominal account account account Debit the receiver Debit what comes in Debit all losses and expenses Credit the giver Credit what goes out Credit all gains and incomes Personal account The accounts which are related to individuals or organizations are called personal account. Personal accounts are the accounts of persons and organizations with whom a business deals for its financial transactions. Here, the person may be natural person like Manju, Binay, Suni- ta, Ashok or artificial person (firm, organization or institution) like XYZ concern, Himalayan Bank Ltd., Sunflower Academy, and Asian Thai Foods (Pvt.) Ltd etc. The rules of debit and credit under personal account is as follows: - Debit the receiver - Credit the giver Real account The accounts which are related to the physical things like assets and properties are called real account. The asset and properties may be cash, furniture, goods, land and building, computer 102 Office Management and Accountancy

etc. and the accounts maintained for them are called real accounts. The rules of debit and credit under real account is as follows: - Debit what comes in - Credit what goes out Nominal account The accounts which are related to expenses, losses, gains and incomes of the business are called nominal accounts. These accounts do not have any physical existence but affect the position of the business. Salary, wage, discount, commission, rent, insurance premium, ad- vertisement etc. are some examples of nominal account. The rules of debit and credit under nominal account is as follows: - Debit all losses and expenses - Credit all gains and incomes Short Notes to Remember (SNR 10.3)  The accounts which are related to assets or properties of the business are called real accounts.  The accounts which are related to expenses, losses, incomes and gains are called nominal accounts.  Capital and drawing are the personal accounts maintained for the dealings with owner of the firm.  Real accounts and nominal accounts are also called impersonal accounts. Modern approach (Rules based on nature of transactions) In order to apply the rules of debit and credit under this basis, all the transactions are classi- fied into following accounts: a) Assets account b) Liabilities account c) Capital account d) Expense or loss account e) Revenue or gains account The rules of debit and credit on the basis of nature of transactions are as follows: S.N Nature of transaction Rules of debit and credit a) Assets account Increase in assets is debited Decrease in assets is credited b) Liabilities account Decrease in liabilities is debited Increase in liabilities is credited c) Capital account Decrease in capital is debited Increase in capital is credited Increase in expenses or losses is debited d) Expenses or losses account Decrease in expense or losses is credited Decrease in revenue or gain is debited e) Revenue or gains account Increase in revenue or gains is credited Journal 103

Short Notes to Remember (SNR 10.4)  The rule of debit and credit on the basis of nature of transactions is also called accounting equation based rule.  Accounting equation is the statement of assets and liabilities plus capital which states that the total of assets always will be equal to the sum total of liabilities and capital at any point of time. It can be expressed mathematically as: Assets (A) = Liabilities (L) + Capital (C)  Under equation based rules, journalizing is based on the following rule: Increase in assets, losses and expenses is debited and decrease in assets, losses and expenses is credited.Decrease in liabilities, capital, revenues and gains is Preparation of journal entries A business firm performs a number of financial transactions. In this grade, the journal entries are prepared for the following transactions: a) Commencement of business b) Deposit and withdrawal of cash c) Purchase and purchase return d) Sales and sales return e) Buying and selling of assets f) Expenses and income g) Partial receipt and partial payment h) Drawing Commencement of business Business may be started either with cash or bank balance or with the combination of cash, bank balance or other assets like stock of goods or furniture etc. While starting business, assets come in to the business and such things are provided by the owner. According to the rule of real account, the things coming into the business are debited and the giver of such things is credited. Ill-1 Journalize the following transactions: Baishakh 1 Binayak started business with cash Rs. 4,00,000. Shrawan 3 Sujan commenced business Rs. 2,75,000 with capital . Ashwin 2 Started business with cash Rs. 1,00,000 and furniture Rs. 50,000. Kartik 7 Raju started business with cash Rs. 55,000, stock of goods Rs.40,000 and computer and equipment Rs. 35,000. 104 Office Management and Accountancy

Solution: Journal Entries Date Particulars L.F. Debit Rs. Credit Rs. Baishakh 1 Cash a/c …………………………………………………..... Dr. 4,00,000 Shrawan 3 To Binayak’s capital a/c Ashwin 2 (Being business started with cash) 4,00,000 Cash a/c …………………………………………………..... Dr. 2,75,000 2,75,000 To Sujan’s capital a/c 1,50,000 (Being business started with capital) 1,00,000 50,000 Cash a/c …………………………………………..……..... Dr. Furniture a/c................................................................... Dr. To Capital a/c (Being business started with cash and furniture) Kartik 7 Cash a/c …………………………………………………..... Dr. 55,000 Stock of goods a/c........................................................... Dr. 40,000 Computer and equipment a/c.......................................... Dr. 35,000 To Raju’s capital a/c 1,30,000 (Being business started with cash, goods and computer and equipment) Short Notes to Remember (SNR 10.5)  While starting business, all the things coming into the business are debited and the owner is the giver of such things and thus always the capital account (personal account of owner) is credited. Deposit and withdrawal of cash A business firm may open an account into any bank and deposit cash into it. Similarly, it may withdraw cash from the bank by issuing a cheque for business purpose. While depositing cash into bank, cash and bank two accounts are affected. The cash account is real account and the bank account is personal account. According to the rule of the real account, the things coming in are debited and the things going out from business are credited. Similarly, according to the rule of the personal account, the receiver is debited and the giver is credited. Ill-2 Journalize the following transactions: Marga 1 Business started with bank balance Rs. 2,70,000. Marga 3 Cash deposited into a bank Rs. 50,000. Marga 9 Withdrawn from the bank Rs. 25,000. Marga 25 Withdrawn cash from the bank for office use Rs. 4,000. Journal 105

Solution: Journal Entries Date Marga 1 Particulars L.F. Debit Rs. Credit Rs. Marga 3 Bank a/c …………………………………………………..... Dr. 2,70,000 To Capital a/c Marga 9 (Being business started with bank balance) 2,70,000 Marga 25 Bank a/c …………………………………………………..... Dr. 50,000 To Cash a/c (Being cash deposited into bank) 50,000 Cash a/c ……………………………………………............ Dr. 25,000 To Bank a/c 25,000 (Being cash withdrawn from bank) Cash a/c …………………………………………………..... Dr. 4,000 To Bank a/c 4,000 (Being cash withdrawn from bank for office use) Purchase and purchase return A business firm may purchase goods either in cash or on credit. When goods are purchased in cash, goods come into the business and thus, the purchase account (being real accounts) is debited, similarly cash goes out and thus, cash account (being real account) is credited. If the goods are purchased on credit, the creditors’ account is credited instead of the cash account since the creditor is the giver of the goods. Sometimes the goods purchased from creditors are returned due to some reasons such as defective, low quality, late delivery etc. While returning the goods, the creditor receives the goods and it goes out from the business. The creditors’ account (being personal account) is debited and the purchase return account (real account) is credited. Ill-3 Prepare journal entries of the following transactions: Jestha 7 Purchased goods for cash Rs. 60,000. Jestha 10 Bought goods for Rs. 40,000. Jestha 27 Purchased goods from Binita on credit Rs. 30,000. Asadh 2 Bought goods from Yogesh Rs. 70,000. Asadh 3 Goods returned to Binita Rs. 1,000. Asadh 4 Returned goods Rs. 5,000 to Yogesh. Asadh 5 Purchased goods for Rs. 18,000 and paid by cheque. 106 Office Management and Accountancy

Solution : Journal Entries Date Particulars L.F. Debit Rs. Credit Rs. Jestha 7 Purchase a/c ………………………………………… Dr. 60,000 Jestha 10 To Cash a/c 40,000 Jestha 27 (Being goods purchased for cash) 30,000 60,000 Asadh 2 70,000 40,000 Asadh 3 Purchase a/c ………………………………………… Dr. 1,000 30,000 Asadh 4 To Cash a/c 5,000 70,000 (Being goods purchased on cash) 1,000 5,000 Purchase a/c ………………………………………… Dr. To Binita’s a/c (Being goods purchased from Binita) Purchase a/c…………………………………………… Dr. To Yogesh’s a/c (Being goods purchased fromYogesh) Binita’s a/c ……………………………………………… Dr. To Purchase return a/c (Being goods returned to Binita) Yogesh’s a/c.................................................................... Dr. To Purchase return / Return outward a/c (Being goods returned to Yogesh) Asadh 5 Purchase a/c................................................................... Dr. 18,000 To Bank a/c (Being goods purchased and payment made by cheque) 18,000 Short Notes to Remember (SNR 10.6)  While buying trading goods (goods bought for resale purpose) the purchase account is debited and while returning goods, the purchase return account is credited. However, both are related to goods account.  If the personal account or name is mentioned in the transaction without word ‘cash’ it is assumed as credit transaction.  If nothing (cash or personal account) is mentioned, it should be assumed as cash transaction.  If the amount of purchase is paid through a cheque, the bank account is credited instead of the cash account.  While buying goods on credit, if the name of person or organization is not mentioned, the creditor’s or supplier’s account is credited. Cash purchase does not mean to the purchase of cash instead, it also means to the purchase of goods in cash. Sales and sales return A business firm may sell goods either in cash or on credit. When goods are sold in cash, cash come into the business and thus, the cash account (being real account) is debited. Similarly, the goods go out and thus, the sales account (being real account) is credited. If the goods are sold on credit, the debtor’s account is debited instead of the cash account since the debtor or customer is the receiver of the goods. Journal 107

Sometimes, the customer may return goods due to some reasons. In case, the goods are returned by the customer, goods come into the business and the customer will be the giver. Thus, the sales return account (being real account) is debited and the customer’s account (being personal account) is credited. Ill-4 Prepare journal entries of the following transactions: Bhadra 2 Sold goods for cash Rs. 50,000. Bhadra 7 Sold goods for Rs. 10,000. Bhadra 13 Sold goods to Supriya on credit for Rs. 25,000. Bhadra 20 Sold goods to Sapana for Rs. 15,000. Bhadra 21 Goods returned from Supriya for Rs. 2,000. Bhadra 28 Returned goods worth Rs. 3,000 by Sapana being defective. Bhadra 29 Sold goods for Rs. 9,000 and a received cheque. Solution: Journal Entries Date Particulars L.F. Debit Rs. Credit Rs. Bhadra 2 Cash a/c ………………………………………………… Dr. 50,000 50,000 To Sales a/c (Being goods sold in cash) Bhadra 7 Cash a/c ……………………………………….………… Dr. 10,000 10,000 To Sales a/c (Being goods sold in cash) Bhadra 13 Supriya’s a/c …………………………………..………… Dr. 25,000 25,000 To Sales a/c (Being goods sold to Supriya on credit) Bhadra 20 Sapana’s a/c…………………………………………...…… Dr. 15,000 15,000 To Sales a/c (Being goods sold to Sapana) Bhadra 21 Return inward/Sales return a/c………………….....…… Dr. 2,000 2,000 To Supriya’s a/c (Being goods returned from Supriya) Bhadra 28 Sales return a/c............................................................ Dr. 3,000 3,000 To Sapana’s a/c (Being goods returned from Sapana) Bhadra 29 Bank a/c....................................................................... Dr. 9,000 9,000 To Sales a/c (Being goods sold and payment received by cheque) Short Notes to Remember (SNR 10.7)  While selling goods, the sales account is credited and for returning of goods by customers, the sales return account is debited. However, both are related to goods account.  While selling goods on credit, if the name of the person or organization is not mentioned, the debtor’s (customer) account is debited.  While receiving the cheque for sale of goods, the bank account can be debited.  Cash sales does not mean the sale of cash, it means the sale of goods in cash. 108 Office Management and Accountancy

Buying and selling of assets A business organization purchases various assets for its own use and sells those assets if they become old, useless and unnecessary. Such assets may be furniture, land, building, machinery and equipments etc. Like purchase and sale of trading goods, assets also may be bought and sold either in cash or on credit. While buying assets, they are debited and while selling such assets, assets accounts are credited. Ill-5 Journalize the following transactions: Kartik 9 Purchased furniture for cash Rs. 50,000. Kartik 13 Bought machine for Rs. 40,000. Kartik 20 Purchased computer for Rs. 35,000 paying by cheque. Kartik 21 Purchased equipment from Rajani for Rs 10,000. Kartik 22 Sold land for cash Rs 1,00,000. Kartik 29 Sold building for Rs. 5,00,000 a cheque for the same received. Kartik 30 Machinery and equipment sold to Anil for Rs.19,000. Solution: Journal Entries Date Kartik 9 Particulars L.F. Debit Rs. Credit Rs. Kartik 13 Furniture a/c ……………………………………..………. Dr. 50,000 Kartik 20 To Cash a/c Kartik 21 (Being furniture purchased in cash) 50,000 Kartik 22 Kartik 29 Machinery a/c ……………………………………………. Dr. 40,000 Kartik 30 To Cash a/c (Being machinery purchased in cash) 40,000 Computer a/c ……………………………………………. Dr. 35,000 To Bank a/c (Being computer purchased and payment made through cheque) 35,000 Equipment a/c……………………………………………. Dr. 10,000 10,000 To Rajani’s a/c 1,00,000 1,00,000 (Being purchased equipment from Rajani on credit) Cash a/c ………………………………………………….. Dr. To Land a/c (Being land sold in cash) Bank a/c........................................................................... Dr. 5,00,000 5,00,000 To Building a/c 19,000 19,000 (Being building sold and payment received by cheque) Anil’s a/c........................................................................... Dr. To Machinery and equipment a/c (Being machinery and equipment sold to Anil) Short Notes to Remember (SNR 10.8)  For purchase and sale of assets, respective assets account is debited or credited instead of the purchase account or sales account respectively. Expenses and income In a business firm, various expenses are paid and incomes are received. The business firm may pay in cash or issue a cheque for various expenses like salary, rent, wages, Journal 109

commission etc. Similarly, the business firm receives cash or cheques for various incomes like commission, interest, rent etc. While making payment for expenses, the concerned expense account is debited being nominal account and cash or bank account is credited being real or personal account. In case of income, an opposite entry is passed. Ill-6 Journalize the following transactions: January 9 Paid cash for wages Rs. 7,000. January 12 Paid rent Rs 10,000 through cheque. January 16 Paid salary Rs. 13,000. January 20 Received commission Rs. 9,000 in cash. January 24 Received interest on investment Rs.18,000 through cheque. January 28 Dividend received Rs. 6,500. Solution: Journal Entries Date Particulars L.F. Debit Rs. Credit Rs. January 9 Wages a/c …………………………………….…………... Dr. 7,000 January 12 To Cash a/c (Being wages paid) 7,000 January 16 Rent a/c ………………………………….………………... Dr. 10,000 January 20 To Bank a/c (Being rent paid through cheque) 10,000 Salary a/c ………………………………...……………….. Dr. 13,000 To Cash a/c (Being salary paid) 13,000 Cash a/c………………………………..…………………. Dr. 9,000 To Commission a/c (Being commission received) 9,000 January 24 Bank a/c ………………………………………………….. Dr. 18,000 To Interest on investment a/c (Being interest received on investment through cheque) 18,000 January 28 Cash a/c........................................................................ Dr. 6,500 To Dividend a/c (Being dividend received) 6,500 Partial receipt and partial payment While purchasing goods or assets, sometimes, the whole amount of purchase may not be paid at once. Some amount may be paid immediately and the rest on credit. This situation is called partial payment. Similarly, the firm may receive the cash partially while selling goods or other assets. This is called partial receipt. Ill-7 Journalize the following transactions. Poush 18 Purchased goods for Rs. 20,000 from Ranaji and made partial payment of Rs. 7,000 in cash. 110 Office Management and Accountancy

Poush 21 Sold goods of Rs. 30,000 to Ramila and received cash Rs. 10,000 partially. Poush 29 Sold goods to Rameshor for Rs. 13,000 and received a cheque of Rs. 5,000 as partial receipts. Magh 30 Bought machine of Rs. 50,000 from Roshan and issued a cheque of Rs. 20,000 as partial payment. Solution: Journal Entries Date Particulars L.F. Debit Rs. Credit Rs. Poush 18 Purchase a/c …………………………………………….. Dr. 20,000 To Cash a/c To Ranaji’s a/c 7,000 (Being goods purchased from Ranaji and made partial payment) 13,000 Poush 21 Cash a/c ……………………………..…………………... Dr. 10,000 Poush 29 Ramila’s a/c................................................................ Dr. 20,000 Magh 30 To Sales a/c (Being goods sold to Ramila and received cash partially) 30,000 Rameshor’s a/c ……………………....……………….... Dr. 8,000 Bank a/c....................................................................... Dr. 5,000 To Sales a/c (Being goods sold to Rameshor and payment received by 13,000 cheque partially) 50,000 Machinery a/c………………………………………….… Dr. To Bank a/c 20,000 To Roshan’s a/c 30,000 (Being machinery purchased and made partial payment) Drawing The cash, goods or assets of a business firm taken by the owner or proprietor for his/her personal or domestic use is called drawing. For withdrawal of such things, a separate account is opened, which is called drawing account. While withdrawing cash, goods or other assets, the drawing account is debited being personal account and the cash, goods or other assets going out from the business are credited to the respective goods or assets account being real account. If the owner has withdrawn cash from the bank, the bank account is credited being the giver. Ill-8 Prepare journal entries for the following transactions: Chaitra 1 Withdrawn cash Rs. 3,000 by proprietor for personal use. Chaitra 28 Withdrawn goods Rs. 5,000 by owner for domestic use. Baishakh 3 Withdrawn cash Rs. 10,000 from bank by owner for private use. Baishakh 23 Drawing for personal use Rs. 7,000. Journal 111

Solution: Journal Entries Date Particulars L.F. Debit Rs. Credit Rs. Chaitra 1 Drawing a/c …………………………………………....... Dr. 3,000 To Cash a/c (Being cash withdrawn by proprietor for personal use) 3,000 Chaitra 28 Drawing a/c …………………………………………....... Dr. 5,000 To Purchase a/c (Being goods withdrawn by owner for domestic use) 5,000 Baishakh 3 Drawing a/c ………………………………………........... Dr. 10,000 To Bank a/c 10,000 (Being cash withdrawn from bank by owner for personal use) Baishakh 23 Drawing a/c……………………………………………... Dr. 7,000 To Cash a/c 7,000 (Being withdraw for personal use) Short Notes to Remember (SNR 10.10)  The cash, goods or other assets withdrawn by the owner for personal or domestic use is always debited to the drawing account. It represents personal account.  The payment of life insurance premium or rent of the owners’ residential flat utilizing business money is also concerned with the drawing account.  While withdrawing goods, the purchase account can also be credited, instead of the goods account since it reduces the amount of purchase. REVIEW ILLUSTRATIONS Ill-9 Journalize the following transactions in the book of Ganesh Traders. Baishakh 1 Business started with cash Rs. 1,00,000. Baishakh 3 Purchased goods for cash Rs. 15,000. Baishakh 7 Wages paid for cash Rs. 6,000. Baishakh 13 Commission received for Rs. 3,000. Baishakh 16 Cash deposited into bank Rs. 50,000. Baishakh 20 Bought goods from Raman for Rs. 27,000. Baishakh 25 Sold goods to Prativa for Rs. 19,000. Baishakh 27 Goods returned to Raman Rs. 2,000. Baishakh 30 Purchased computer for Rs. 28,000 and payment made by cheque. 112 Office Management and Accountancy

Solution: In the book of Ganesh Traders Journal Entries Date Particulars L.F. Debit Rs. Credit Rs. Baishakh 1 Cash a/c …………………………………………….…… Dr. 1,00,000 To Capital a/c 1,00,000 (Being business started with cash) Baishakh 3 Purchase a/c ………………………………………..….. Dr. 15,000 To Cash a/c (Being goods purchased in cash) 15,000 Baishakh 7 Wages a/c …………………………………………......... Dr. 6,000 6,000 Baishakh 13 To Cash a/c Dr. 3,000 3,000 Baishakh 16 (Being wages paid) Dr. 50,000 50,000 Baishakh 20 Dr. 27,000 27,000 Baishakh 25 Cash a/c ………………………………………………… Dr. 19,000 19,000 Baishakh 27 To Commission a/c Dr. 2,000 2,000 (Being commission received) Bank a/c....................................................................... To Cash a/c (Being cash deposited into bank) Purchase a/c............................................................... To Raman’s a/c (Being goods purchased from Raman on credit) Prativa’s a/c................................................................ To Sales a/c (Being goods sold to Partiva on credit) Raman’s a/c................................................................ To Purchase return a/c / Return outward a/c (Being goods returned to Raman) Baishakh 30 Computer a/c............................................................... Dr. 28,000 To Bank a/c (Being computer purchased and payment made through cheque) 28,000 Ill-10 Journalize the following transaction in the book of Hilton Traders: April 1 Commencement of business with capital Rs. 2,60,000. April 3 Opened bank account in Bank of Kathmandu with Rs. 2,00,000. April 4 Goods purchased Rs. 25,000 and paid by cheque. April 7 Purchased computer for Rs. 22,000. April 9 Sold goods to Namrata for Rs. 30,000. April 20 Paid office expenses Rs. 5,000 by cheque. April 25 Goods returned from Namrata Rs. 2,000. April 27 Received commission Rs. 10,000 through cheque. April 29 Purchased furniture from Diwas Rs. 13,000. April 30 Cash withdrawn from bank Rs. 6,000. Journal 113

Solution: In the book of Hilton Traders Journal Entries Date April 1 Particulars L.F. Debit Rs. Credit Rs. April 3 April 4 Cash a/c ………………………………………….……… Dr. 2,60,000 2,60,000 April 7 To Capital a/c April 9 (Being business started) April 20 April 25 Bank a/c……………..................................................... Dr. 2,00,000 2,00,000 April 27 To Cash a/c April 29 (Being bank account opened by depositing cash) April 30 Purchase a/c ………………………………………..... Dr. 25,000 25,000 To Bank a/c (Being goods purchased and payment made by cheque) Computer a/c……………………………………..……... Dr. 22,000 22,000 To Cash a/c (Being computer purchased) Namrata’s a/c............................................................. Dr. 30,000 30,000 To Sales a/c (Being goods sold to Namrata) Office expenses a/c.................................................. Dr. 5,000 50,000 To Bank a/c (Being office expenses paid by cheque) 2,000 2,000 10,000 10,000 Sales return a/c.......................................................... Dr. 13,000 13,000 To Namrata’s a/c / Return outward a/c 6,000 6,000 (Being goods returned from Namrata) Bank a/c........................................................................ Dr. To Commission a/c (Being commission received through cheque) Furniture a/c................................................................... Dr. To Diwas’s a/c (Being furniture purchased from Diwas) Cash a/c........................................................................ Dr. To Bank a/c (Being cash withdrawn from bank) Ill-11 Journalize the following transactions in the book of Sujan: January 1 Business started with cash Rs. 1,80,000 and stock of goods Rs. 25,000. January 5 Purchased goods of Rs. 25,000 from Omkar and made a partial payment of Rs.7,000. January 10 Drew cash Rs. 1,000 by Sujan for personal use. January 13 Opened bank account by depositing cash Rs. 90,000. January 18 Sold goods of Rs. 30,000 to Sharmila and received cash Rs. 10,000 partially. January 20 Withdrawn goods of Rs. 3,000 by owner for domestic use. January 28 Paid rent Rs. 12,000 by cheque. 114 Office Management and Accountancy

Solution : In the book of Sujan Journal Entries Date Particulars L.F. Debit Rs. Credit Rs. January 1 Cash a/c ………………………………………… Dr. 1,80,000 Stock of goods a/c.......................................... Dr. 25,000 To Capital a/c 2,05,000 (Being business started with cash and stock of goods) January 5 Purchase a/c ………………………………………… Dr. 25,000 7,000 To Cash a/c 18,000 To Omkar a/c (Being goods purchased from Omkar and made a partial payment) January 10 Drawing a/c ……………………………………...… Dr. 1,000 1,000 To Cash a/c (Being cash withdrawn by proprietor for personal use) January 13 Bank a/c ………………………………….......……… Dr. 90,000 90,000 To Cash a/c (Being opened bank account) January 18 Cash a/c …………............……………………… Dr. 10,000 Sarmila’s a/c ………...........…..…………………. Dr. 20,000 To Sales a/c (Being goods sold to Sharmila and payment received 30,000 partially) January 20 Drawing a/c ………………………………………..….. Dr. 3,000 3,000 To Purchase a/c (Being goods withdrawn by owner for domestic use) January 28 Rent a/c ……………………………........……………. Dr. 12,000 12,000 To Bank a/c (Being rent paid by cheque) Key Terms Accounting equation – the mathematical relationship expressed in terms of Assets = Liabilities + capital. Credit – the right hand side of a ledger account. Debit – the left hand side of a ledger account. Journal – the book used to record the primary entry of business transactions. Journalising – act of recording the transactions into journal. Narration – a brief explanation of the transaction mentioned in the journal. Nominal account – an account of expenses, loss, income and gains. Personal account – an account of individuals and organizations. Posting – act of transferring the financial records from journal to ledger. Real account – an account of assets and properties. Transaction - financial activities resulted from giving and taking of something. Journal 115

1. Define the term journal and show its specimen. 2. Write down the objectives of preparing journal entry of business transactions. 3. What is journalizing? Mention the steps in journalizing. 4. What are the types of account? Explain them with five examples of each. 5. What are the rules of debit and credit under the types of account basis ? Illustrate them. 6. Write down the rules of debit and credit on the basis of the nature of transactions. 7. Classify the following items into personal, real and nominal accounts. Furniture Drawing Machine Cash Bank Insurance premium Goods Loan Commission Telephone charge Capital Rent Discount Debtor Bank balance Building Creditor Hari Narayan Wages Salaries Siddhartha Bank Ltd. PRACTICAL PROBLEMS(PP) PP-1 Prepare journal entries for the following transactions: January 1 Binayak started business with cash Rs. 2,70,000. February 3 Roshani commenced business with capital Rs. 1,70,000. March 5 Durga invested Rs. 2,50,000 cash in her business. October 1 Started business with cash Rs. 1,95,000 and furniture Rs. 35,000. December 2 Commenced business with cash Rs. 2,25,000 and stock of goods Rs. 75,000. PP-2 Journalize the following transactions: Jestha 5 Ganesh started busniess with cash Rs. 5,00,000. Ashadh 22 Mausami commenced business with capital Rs. 4,00,000. Bhadra 1 Rajan invested cash Rs. 1,00,000 in his business. Aswin 9 Started business with cash Rs.2,10,000 and machinery Rs. 1,10,000. Kartik 2 Commenced business with cash Rs. 1,60,000 and computer Rs. 30,000. 116 Office Management and Accountancy

PP-3 Prepare journal entries for the following transactions of Khanal Traders: April 2 Business started with cash Rs. 1,75,000. April 3 Opened bank account by depositing cash Rs. 1,50,000. April 15 Withdrawn cash Rs. 20,000 from bank. April 27 Cash deposited into the bank Rs. 15,000. April 29 Cash withdrawn from bank for office use Rs. 10,000. PP-4 Journalize the following transactions in the book of Mr. Basnet: Ashad 1 Business started with bank balance Rs. 1,75,000. Ashad 3 Withdrawn cash Rs. 45,000 from bank. Ashad 19 Cash deposited into bank Rs. 2,000. Ashad 23 Withdrawn cash Rs. 22,000 from bank for office use. PP-5 Prepare journal entries for the following transactions of Mixmax Trading. Concern: March 4 Purchased goods in cash Rs. 50,000. March 9 Bought goods for Rs. 3,000. March 12 Purchased goods for Rs. 12,000 and paid by cheque. March 20 Purchased goods from Ramesh on credit Rs. 25,000. March 25 Purchased goods from Dipika for Rs. 14,000. March 27 Goods returned to Ramesh Rs. 5,000. March 29 Returned goods valued Rs. 1,000 to Dipika. PP-6 Journalize the following transactions: Poush 3 Bought goods in cash Rs. 9,000. Poush 7 Purchased goods for Rs. 13,000. Poush 13 Purchased goods Rs. 15,000 from Rubina on credit. Poush 17 Bought goods of Rs. 25,000 from Dipesh. Poush 20 Returned goods Rs. 2,000 to Rubina. Poush 26 Goods returned to Dipesh Rs. 1,500. PP-7 Prepare journal entries for the following transactions: Magh 10 Sold goods in cash Rs. 15,000. Magh 13 Sold goods for Rs. 20,000. Magh 15 Sold goods for Rs. 45,000 and received a cheque. Magh 20 Sold goods to Sapana on credit Rs. 37,000. Magh 22 Sold goods to Nabin for Rs. 31,000. Magh 25 Goods returned from Sapana Rs. 2,000. Magh 30 Returned goods from Nabin Rs. 1,000. Journal 117

PP-8 Prepare journal entries for the following transactions: June 2 Sold goods in cash Rs. 25,000. June 9 Sold goods for Rs. 5,000. June 11 Sold goods for Rs. 50,000 and payment received by cheque. June 18 Sold goods to Rojina on credit Rs. 27,000. June 20 Sold goods to Deepa for Rs. 36,000. June 21 Returned goods worth Rs. 15,000 by Rojina. June 28 Goods returned from Deepa for Rs. 1,800. PP-9 Journalize the following transactions: January 5 Purchased machinery in cash Rs. 79,000. January 17 Purchased furniture for Rs. 25,000. January 28 Purchased land for Rs. 1,00,000 paying by cheque. January 31 Purchased computer from Atul Rs. 35,000. February 3 Sold building for cash Rs. 7,00,000. February 9 Sold office equipment for Rs. 15,000 and received a cheque. February 25 Sold machinery to Raju for Rs. 18,000. PP-10 Prepare journal entries for the following transactions: a. Bought computer for cash Rs. 40,000. b. Purchased machinery for Rs. 50,000. c. Purchased building for Rs. 6,00,000 and payment made by cheque. d. Purchased furniture Rs. 20,000 from Rojina. e. Sold equipment for cash Rs. 13,000. f. Sold machinery for Rs. 15,000. g. Sold computer to Agni Rs. 15,000. h. Land sold for Rs. 1,20,000 and received a cheque for the same. PP-11 Journalize the following transactions: a. Paid rent in cash Rs. 25,000. b. Paid salary Rs. 13,000 through cheque. c. Paid wages for Rs. 10,000. d. Received interest Rs. 5,000 in cash. e. Received commission Rs. 8,000 through cheque. f. Dividend received Rs. 13,500. 118 Office Management and Accountancy

PP-12 Journalize the following transactions: Magh 4 Paid cash for commission Rs. 9,000. Magh 9 Paid rent Rs. 10,000 through cheque. Magh 14 Paid wages for Rs.12,000. Magh 20 Received dividend Rs. 4,000 through cheque. Magh 23 Received rent Rs. 5,000 in cash. Magh 30 Interest received Rs. 7,000. PP-13 Journalize the following transactions: Chaitra 3 Purchased goods for Rs. 25,000 from Anoj and made partial payment at Rs.12,000 in cash. Chaitra 9 Sold goods of Rs. 20,000 to Rakesh and received cash Rs. 8,000 partially. Chaitra 20 Bought goods Rs. 50,000 from Nilima and issued a cheque of Rs. 20,000 as partial payment. Chaitra 25 Bought furniture of Rs. 20,000 from Krishna and issued a cheque of Rs 5,000 as partial payment. PP-14 Prepare journal entries for the following transactions: a. Bought goods for Rs. 50,000 from Rojit and paid cash Rs. 20,000 partially. b. Sold goods for Rs. 30,000 to Joshila and received a cheque of Rs. 20,000 as partial receipt . c. Sold goods of Rs. 10,000 to Ramila and received cash Rs. 4,000 partially. d. Purchased computer for Rs. 35,000 from Rajesh and paid cash Rs. 15,000 as partial payment. PP-15 Journalize the following transactions: Kartik 7 Withdrawn cash Rs. 7,000 by proprietor for personal use. Kartik 30 Drawing for personal use Rs 10,000. Marga 3 Withdrawn goods Rs. 4,000 by owner for domestic use. Marga 10 Withdrawn cash Rs. 6,000 from bank by proprietor for private use. PP-16 Journalize the following transactions: a. Drew cash Rs. 10,000 by owner for personal use. b. Withdrawn goods of Rs. 9,000 by owner for his domestic use. Journal 119

c. Cash Rs. 4,000 withdrawn by proprietor from bank for private use. d. Drawing for personal use Rs. 7,000. PP-17 Journalize the following transactions in the book of Kamal: Magh 1 Kamal started business with cash Rs. 1,75,000. Magh 3 Purchased goods for cash Rs. 60,000. Magh 5 Wages paid Rs. 10,000. Magh 9 Sold goods for cash Rs. 50,000. Magh 13 Commission received Rs. 5,000. Magh 16 Purchased furniture for cash Rs. 25,000. Magh 20 Drew cash Rs. 3,000 by Kamal for personal use. PP-18 Journalize the following transactions in the book of Manisha: Jestha 1 Manisha commenced business with capital Rs. 2,00,000. Jestha 2 Opened bank account with cash Rs. 1,60,000. Jestha 5 Purchased goods from Gopal for Rs. 45,000. Jestha 13 Paid salary Rs. 10,000 through cheque. Jestha 18 Sold goods to Manoj for Rs. 60,000. Jestha 20 Received commission Rs. 9,000 through cheque. Jestha 23 Purchased furniture from Rojina of Rs. 31,000. Jestha 29 Goods returned to Gopal Rs. 3,000. PP-19 Journalize the following transactions in the book of Supriya & Suyogya . Concern : May 1 Business started with cash Rs. 70,000 and furniture Rs. 1,30,000. May 4 Purchased goods worth Rs. 28,000 from Binita and made partial payment of Rs.15,000 in cash. May 9 Sold goods to Kebal for Rs. 10,000. May 14 Rent paid in cash Rs. 15,000. May 18 Furniture sold for cash Rs. 20,000. May 19 Sold goods of Rs. 12,000 to Resham and received cash Rs. 8,000 partially. May 26 Withdrawn goods of Rs. 1,000 by owner for personal use.  120 Office Management and Accountancy

11 LEDGER Chapter Learning Objectives After studying this chapter, the readers will be able to :  tell the meaning of ledger and ledger account,  show the specimen of ledger account and explain its columns,  state the importance of ledger,  differentiate between journal and ledger,  mention the rules of posting the transactions into ledger accounts,  post the transactions from journal into various ledger accounts,  balance and close the ledger accounts at the certain date,  express the meaning of debit and credit balance in ledger account. Introduction As discussed in the previous chapter, a journal is the primary book which records all the financial transactions of business in order of date. The journal does not provide information and position about separate heads like cash, bank balance, purchase, sales, debtors, creditors, income, expenditure etc. In order to get all those information, the journalized transactions are classified according to their nature and heads in a separate book which is called ledger. The ledger is the second step of accounting process. It is also called principal book which contains a number of accounts relating to person, things or expenses and income. Ledger 121

Concept and definition Ledger is a major book of accounts where all similar transactions are collected at a place. For example, all the transactions relating to cash are collected under cash account, all the transac- tions relating to purchase and sales are accumulated under purchase account and sales account respectively. A ledger is the summarized record of different heads like expenses, losses, in- comes, gains, assets, capital and liabilities. The following are the definitions of ledger: “The ledger is the chief book of accounts and it is in this book that all the business transactions would ultimately find their place under their accounts in a duly classified form.” J. R. Batliboi “A ledger is the most important book of accounts and is the final destination of the entries made in the subsidiary books.” W. Pickles “The ledger is the principal book of accounts where similar transactions relating to a particular person or thing are recorded. Mukharji and Hanif Ledger is a principal book of accounts in which the transactions are posted from the journal in the classified manner in order to get information on different heads. Short Notes to Remember (SNR 11.1)  A ledger is a thick book or register which contains a number of personal, real and nominal accounts.  Ledger accounts are the accounts of particular persons, things or expenses and income which are prepared for a certain period. Specimen of ledger account The ledger account can be prepared in English alphabet ‘T’ shape into two sides i.e. left hand side and right hand side (Dr. side and Cr. side). In each side, there are four columns and alto- gether eight columns as shown below: Dr. ……… Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 122 Office Management and Accountancy

In the above specimen, each column is used for the following details: Date The date columns of both sides are used for mentioning the dates of Particulars transaction shown in journal entry. J.F. (Journal Folio) The name of accounts for which the amount debited (if in debit side) Amount and credited (if in credit side) is mentioned in this column. The name of account is written with the words ‘To’ and ‘By’ in the debit and credit sides respectively. The page number (folio number) of the journal from where the trans- actions are posted into the ledger account are recorded in this column. The amount of the transactions i.e. debited or credited depending on the side and account is entered in this column. Importance of ledger Following are the importance of the ledger:  It helps to maintain the permanent record of all the financial transactions in classi- fied manner.  It gives information about the debtors and creditors of the firm during a certain period.  It helps to know the total purchase and sales of a certain period.  It helps to know the value of business properties at the particular date.  It provides information about income and expenses of a business firm during a period.  It facilitates the preparation of a trial balance for checking arithmetical accuracy of the books of accounts. Short Notes to Remember (SNR 11.2) – knowledge of debtors and creditors – information about value of business properties  A ledger is important because it provides: – basis for the preparation of trial balance – permanent record of financial transactions – knowledge of total purchase and sales – knowledge of income and expenses Differences between journal and ledger The following are the main differences between journal and ledger: Basis of difference Journal Ledger 1. Meaning It is the primary recording It is the secondary recording of 2. Purpose of financial transactions. financial transactions. Its main purpose is to Its main purpose is to facilitate facilitate the preparation of the preparation of trial balance. ledgers. Ledger 123

3. Columns It contains five col- It contains eight columns. umns. It maintains the records in head 4. Way of recording It maintains the records in wise basis. It is the analysis of registered chronological order. financial transactions. It is not compulsory to mention 5.   Nature of record- It is the registration of the narration in a ledger. ing financial transactions. 6. Need of narration It requires narration to make the transaction clear. 7. Balancing It does not require to make It requires balancing and closing balancing. to find out the net result at the 8. Use of terminol- particular date. ogy The process of recording the financial transaction The process of recording the into the journal is called transactions from the journal entry. into the ledger is called post- ing. Rules of posting the transactions into ledger accounts Posting refers to the act of transferring the transactions from a journal into a ledger account. The following are the general rules to be followed for posting the transactions into ledger accounts:  The name of the account should be mentioned on the middle top of the ledger account  The account debited in the journal should be posted in the debit side and the account credited in the journal should also be posted in the credit side of the ledger account.  The words ‘To’ and ‘By’ should be used in the debit and credit side of the ledger account respectively.  The name of reference account should be mentioned in each side i.e. credited account in debit side and debited account in the credit side.  All the transactions relating to the same head should be posted into the same account. It does not require to draw another specimen.  Posting should be done date wise one after another. However, required accounts can be drawn as per the requirement.  After completion of posting the transactions, each ledger account should be totaled, balanced and closed to know the debit or credit balance. 124 Office Management and Accountancy

Short Notes to Remember (SNR 11.3)  The posting of transactions from a journal to a ledger is done in date wise basis, however, only the required accounts can be opened for practical purpose in teaching-learning process. For better understanding of the above mentioned rules, the following example is given: 2074/01/01 Commenced business with cash Rs. 1,50,000 Journal Entry Date Particulars L.F. Debit Rs. Credit Rs. 2074/01/01 1,50,000 1,50,000 Cash a/c......................................Dr. To Capital a/c (Being business commenced with cash) Posting into ledger accounts remains as follows: Dr. Cash Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 2074/01/01 To Capital a/c 1,50,000 Dr. Capital Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 1,50,000 2074/01/01 By Cash a/c In the above example of journal entry, there are two accounts i.e. cash account and capital ac- count. Thus, two accounts have been prepared. Since the cash account is debited in journal, transaction is also posted on the debit side of cash account writing the name of the reference account i.e. capital account. Similarly, the capital account is credited in journal, Thus, the posting is made in the credit side of the capital account writing name of reference account i.e. cash account. The words ‘To’ and ‘By’ have been used in the debit and credit sides respectively. Ill-1 The following transactions are provided to you: March 1 Started business with cash Rs. 1,00,000. March 5 Opened bank account with Rs. 60,000. March 13 Purchased goods for cash Rs. 30,000. March 18 Paid wages Rs. 5,000. March 23 Sold goods for cash Rs. 25,000. Required: a) Journal entries b) Posting into ledger accounts Ledger 125

Solution: Journal Entries (a) Date Particulars L.F. Debit Rs. Credit Rs. March 1 Cash a/c ………………………………………………… Dr. 1,00,000 To Capital a/c 1,00,000 (Being business started with cash) March 5 Bank a/c ………………………………………………… Dr. 60,000 To Cash a/c (Being opened a bank account by depositing cash) 60,000 March 13 Purchase a/c …………………………………………… Dr. 30,000 To Cash a/c (Being goods purchased for cash) 30,000 March 18 Wages a/c ……………………………………………… Dr. 5,000 To Cash a/c (Being wages paid) 5,000 March 23 Cash a/c ………………………………………………. Dr. 25,000 To Sales a/c (Being goods sold for cash) 25,000 In the above journal entries, there are six ledger accounts. They are cash account, capital account, bank account, purchase account, wages account and sales account. Thus, the posting of transaction from a journal into different ledger accounts is as below: b) Posting into ledger accounts Cr. Dr. Cash Account Date Particulars J.F. Amount Date Particulars J.F. Amount March 1 To Capital a/c 1,00,000 March 5 By Bank a/c 60,000 March 23 To Sales a/c 25,000 March 13 By Purchase a/c 30,000 March18 By Wages a/c 5,000 Dr. Capital Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount March 1 By Cash a/c 1,00,000 Dr. Bank Account Cr. J.F. Amount Date Particulars J.F. Amount Date Particulars March 5 To Cash a/c 60,000 Dr. Purchase Account Cr. J.F. Amount Date Particulars J.F. Amount Date Particulars March 13 To Cash a/c 30,000 Cr. J.F. Amount Dr. Wages Account Date Particulars J.F. Amount Date Particulars March 18 To Cash a/c 5,000 126 Office Management and Accountancy

Dr. Sales Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 25,000 March 23 By Cash a/c Balancing and closing of ledger account After all the transactions are posted into the concerned ledger accounts, they need to be bal- anced and closed. Generally, the accounts are balanced and closed at the end of an accounting period. However, it can be done as per the requirement of the business firm. Generally, the following steps should be followed for balancing and closing of the ledger accounts.  All the ledger accounts required for the business firm should be prepared.  The posting of all the transactions into the ledger accounts should be completed.  The total of both sides of accounts should be determined roughly and balance should be obtained.  If the credit total is higher than the debit total, the balancing figure (difference amount) should be added on the debit side writing the word “To balance c/d”.  If the debit total is higher than the credit total, the balancing figure (difference amount) should be added on the credit side writing the word “By balance c/d”.  After adding the balancing figure on any side, both sides should be made equal by drawing the lines.  The balancing figure appearing on the debit side should be shown in the credit side writing the word “By balance b/d” and the balancing figure appearing on the credit side should be shown in the debit side writing the word “To Balance b/d”. Meaning of debit and credit balance After closing of ledger accounts, it shows debit or credit or no balance in the account. If bal- ance b/d appears on the debit side, it is called debit balance and if balance b/d appears on the credit side, it is called credit balance. Sometimes, there will be no balance in the account. The balance shown by any account has definite meaning. If the personal account has shown debit balance, it refers to the amount to be received from debtors and the credit balance refers to the amount to be paid to the creditors. The real account always shows the debit balance which means the value of assets at the particular date. The debit balance shown by nominal accounts signifies expenses or losses and credit balance signifies income or gains. The meaning of debit and credit balance under different accounts is summarized as below: Account Debit balance Credit balance Personal account Debtors Creditors Real account Value of assets - Nominial account Expenses or loss Income or gain Ledger 127

Ill-2 The following transactions are given to you: January 1 Ganapati started business with capital Rs. 1,60,000. January 4 Purchased goods for Rs. 50,000. January 10 Sold goods for Rs. 40,000. January 17 Goods purchased from Jamuna for Rs. 10,000. January 26 Paid rent Rs. 9,000. Required: a) Journal entries b) Necessary ledger accounts with balancing and closing Solution: Journal Entries a) Date Particulars L.F. Debit Rs. Credit Rs. January 1 1,60,000 1,60,000 Cash a/c …………………………………………………..... Dr. 50,000 50,000 January 4 To Ganapati’s capital a/c 40,000 40,000 (Being business started) 10,000 10,000 January 10 9,000 9,000 Purchase a/c ……………………………………………..... Dr. January 17 To Cash a/c (Being goods purchased for cash) January 26 Cash a/c ……………………………………………............ Dr. To Sales a/c (Being goods sold for cash) Purchase a/c …………………………………………........ Dr. To Jamuna’s a/c (Being goods purchased from Jamuna) Rent a/c ……………………………………...…………..... Dr. To Cash a/c (Being rent paid) b) Necessary ledger accounts Cash Account Cr. Dr. Date Particulars J.F. Amount Date Particulars J.F. Amount Jan. 1 To Ganapati’s capital a/c 1,60,000 Jan. 4 By Purchase a/c 50,000 Jan. 10 To Sales a/c 40,000 Jan. 26 By Rent a/c 9,000 Jan. 31 By Balance c/d 1,41,000 Feb. 1 To Balance b/d 2,00,000 2,00,000 1,41,000 Dr. Ganapati’s Capital Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount Jan. 31 To Balance c/d 1,60,000 1,60,000 Jan. 1 By Cash a/c 1,60,000 1,60,000 1,60,000 Feb.1 By Balance b/d 128 Office Management and Accountancy

Dr. Purchase Account Cr. J.F. Amount Date Particulars J.F. Amount Date Particulars Jan. 4 By Balance c/d 60,000 Jan. 17 To Cash a/c 50,000 Jan. 31 To Jamuna’s a/c 10,000 60,000 Feb. 1 To Balance b/d 60,000 Cr. J.F. Amount 60,000 40,000 Dr. Sales Account 40,000 Date Particulars J.F. Amount Date Particulars 40,000 Jan. 31 To Balance c/d 40,000 Jan. 10 By Cash a/c 40,000 By Balance b/d Feb. 1 Dr. Jamuna’s Account Cr. J.F. Amount Date Particulars J.F. Amount Date Particulars Jan. 31 To Balance c/d 10,000 10,000 Jan. 17 By Purchase a/c 10,000 10,000 By Balance b/d 10,000 Feb. 1 Cr. Dr. Rent Account J.F. Amount Date Particulars J.F. Amount Date Particulars 9,000 Jan. 26 To Cash a/c 9,000 Jan. 31 By Balance c/d 9,000 Feb. 1 To Balance b/d 9,000 9,000 Short Notes to Remember (SNR 11.4)  The process of determining the difference between the debit total and credit total of the account is called balancing of account.  The process of completing the job of posting, balancing and transferring it to the next period is called closing of account.  The word c/d and b/d stands for carried down and brought down respectively which means closing balance and opening balance.  If the debit total and credit total of an account are equal with no difference, it is called no balance in the account.  If debit total is higher than credit total, it is called debit balance and if the credit total is higher than debit total, it is called credit balance. Ledger 129

REVIEW ILLUSTRATIONS Ill-3 Journalize the following transactions in the book of Rahul and post them into various ledger accounts: December 1 Rahul started business with bank balance Rs. 5,00,000. December 3 Cash withdrawn from bank Rs. 1,00,000. December 5 Purchased goods for cash Rs. 60,000. December 13 Paid commission Rs. 9,000 by cheque. December 22 Sold goods to Ranjan for Rs. 20,000 December 28 Cash received from Ranjan Rs. 20,000. Solution: Journal Entries Date Particulars L.F. Debit Rs. Credit Rs. December 1 Bank a/c ………………………….......................... Dr. 5,00,000 To Rahul’s capital a/c (Being business started with bank balance) 5,00,000 December 3 Cash a/c ……………………………………….........Dr. 1,00,000 To Bank a/c (Being cash withdrawn from bank) 1,00,000 December 5 Purchase a/c ……………………………….…....... Dr. 60,000 To Cash a/c (Being goods purchased for cash) 60,000 December 13 Commission a/c ………………………..……….....Dr. 9,000 To Bank a/c (Being commission paid by cheque) 9,000 December 22 Ranjan’s a/c …………………………….………... Dr. 20,000 To Sales a/c (Being goods sold to Ranjan on credit) 20,000 December 28 Cash a/c...............................................................Dr. 20,000 To Ranjan’s a/c (Being cash received from Ranjan) 20,000 Posting into ledger accounts Dr. Bank Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount Dec. 1 1,00,000 To Rahul’s capital a/c 5,00,000 Dec. 3 By Cash a/c 9,000 Jan. 1 By Commission a/c 3,91,000 Dec. 13 By Balance c/d 5,00,000 Dec. 31 To Balance b/d 5,00,000 3,91,000 130 Office Management and Accountancy

Dr. Rahul’s Capital Account Cr. J.F. Amount Date Particulars J.F. Amount Date Particulars Dec. 31 To Balance c/d By Bank a/c 5,00,000 5,00,000 Dec. 1 5,00,000 By Balance b/d 5,00,000 5,00,000 Jan. 1 Cr. J.F. Amount Dr. Cash Account 60,000 Date Particulars J.F. Amount Date Particulars 60,000 Dec. 3 1,00,000 Dec. 5 By Purchase a/c 1,20,000 Dec. 28 To Bank a/c 20,000 Dec. 31 By Balance c/d To Ranjan’s a/c 1,20,000 Cr. 60,000 J.F. Amount Jan. 1 To Balance b/d 60,000 Dr. Purchase Account 60,000 Date Dec. 5 Particulars J.F. Amount Date Particulars Cr. To Cash a/c 60,000 Dec. 31 By Balance c/d J.F. Amount Jan. 1 60,000 To Balance b/d 60,000 9,000 9,000 Dr. Commission Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount Dec. 13 To Bank a/c 9,000 Dec. 31 By Balance c/d 9,000 20,000 Jan. 1 To Balance b/d 9,000 20,000 Dr. Ranjan’s Account Date Particulars J.F. Amount Date Particulars Dec. 22 To Sales a/c 20,000 Dec. 28 By Cash a/c 20,000 Dr. Sales Account Cr. J.F. Amount Date Particulars J.F. Amount Date Particulars Dec. 31 To Balance c/d By Ranjan a/c 20,000 20,000 Dec. 22 20,000 By Balance b/d 20,000 20,000 Jan. 1 Ledger 131 Ill-4 The following transactions are given to you: Chaitra 9 Purchased goods from Nabina for Rs. 40,000. Chaitra 15 Sold goods for Rs. 25,000. Chaitra 20 Machinery purchased for cash Rs. 9,000. Chaitra 25 Cash paid to Nabina Rs.10,000. Chaitra 26 Commission received Rs.3,000.

Required: b) a) Nabina’s account Machinery account c) Commission received account Solution a) Dr. Nabina’s Account Cr. J.F. Amount Date Particulars J.F. Amount Date Particulars By Purchase a/c 40,000 12/ 25 To Cash a/c 10,000 12/ 9 12/30 To Balance c/d 30,000 By Balance b/d 40,000 40,000 1/1 30,000 b) Machinery Account Cr. Dr. J.F. Amount Particulars J.F. Amount Date Particulars Date To Cash a/c 9,000 12/ 30 By Balance c/d 9,000 12/20 9,000 9,000 9,000 1/1 To Balance b/d Cr. c) Commission Received Account J.F. Amount Particulars Dr. To Balance c/d J.F. Amount Date Particulars 3,000 Date By Cash a/c 3,000 3,000 12/ 26 3,000 12/ 30 By Balance b/d 3,000 1/ 1 Ill-5 The following transactions are provided to you: a) Commenced business with capital Rs. 75,000. b) Purchased goods from Kamal for Rs. 25,000. c) Paid rent Rs. 10,000. d) Sold goods to Anish on credit for Rs. 20,000. e) Cash paid to Kamal Rs. 5,000. Required: a) Kamal’s account b) Cash account c) Rent account Solution: Cr. a) Dr. Kamal’s Account Date Particulars J.F. Amount Date Particulars J.F. Amount e. 5,000 b. By Purchase a/c 25,000 To Cash a/c 20,000 To Balance c/d 25,000 By Balance b/d 25,000 20,000 132 Office Management and Accountancy

b) Cash Account Cr. Dr. J.F. Amount Date Particulars J.F. Amount Date Particulars To Capital a/c 75,000 c. 10,000 a. e. By Rent a/c 5,000 To Balance b/d By Kamal’s a/c 60,000 c) 75,000 By Balance c/d 75,000 Dr. Particulars 60,000 Date To Cash a/c Cr. Rent Account J.F. Amount c. J.F. Amount Date Particulars 10,000 10,000 By Balance c/d 10,000 10,000 10,000 To Balance b/d Key – act of making both sides of ledger account equal by adding Terms insufficient amount in any side. the process of posting, balancing and transferring the balancing Balancing figure to the next period. excess of credit side over debit side of an account. Closing – excess of debit side over credit side of an account. the principal book of accounts containing a large number of Credit balance – personal, real and nominal accounts. Debit balance – statement of all the transactions relating to a particular person, Ledger – property or expenses and income during a period. balance of an account at the beginning of a period. Ledger account – act of transferring the financial records from journal to ledger. Opening balance – Posting – 1. What do you mean by ledger and ledger accounts? 2. Write down the importance of a ledger. 3. Show the specimen of a ledger account and mention its columns. 4. Write down any six differences between a journal and a ledger. 5. Mention the rules to be followed while posting the transactions into a ledger account. 6. How and why is a ledger account balanced and closed? Write its steps. 7. Write the meaning of debit and credit balance under different accounts. Ledger 133

PRACTICAL PROBLEMS(PP) PP-1 The following transactions are given to you: Shrawan 1 Business started with cash Rs.60,000. Shrawan 3 Purchased goods for cash Rs.10,000 . Shrawan 13 Wages paid for cash Rs. 5,000. Shrawan 20 Purchased goods from Anil Rs.15,000. Shrawan 27 Sold goods for cash Rs.12,000. Required: b) Capital account a) Journal entries d) Wages account c) Purchase account Ans: Balance: (b) Rs. 60,000 (c) Rs.25,000 (d) Rs.5,000 PP-2 The following transactions are provided to you: January 2 Business started with cash Rs. 90,000. January 5 Purchased goods for cash Rs. 20,000. January 20 Sold goods for cash Rs. 15,000. January 23 Purchased goods form Rahul Rs. 10,000. January 28 Rent paid for Rs. 7,000. Required: a) Journal entries b) Capital account c) Purchase account d) Rent account Ans: Balance: (b) Rs.90,000 (c) Rs.30,000 (d) Rs.7,000 PP-3 The following transactions are provided to you: Kartik 1 Started business with capital Rs. 6,00,000. Kartik 3 Purchased goods from Anish Rs.1,20,000. Kartik 9 Sold goods for Rs. 60,000. Kartik 17 Commission paid Rs. 15,000. Kartik 28 Sold goods to Amit Rs. 45,000. Required: a) Journal entries b) Anish’s account c) Sales account d) Commission account Ans: Balance: (b) Rs. 1,20,000 (c) Rs. 1,05,000 (d) Rs. 15,000 PP-4 The following transactions are given to you: Jestha 3 Krishna started business with cash Rs. 3,70,000. 134 Office Management and Accountancy

Jestha 8 Purchased goods from Sarika Rs. 1,50,000. Jestha 20 Sold goods for Rs. 67,000. Jestha 27 Sold goods to John on credit Rs. 23,000. Jestha 28 Paid salary Rs. 8,000. Required: b) Sarika’s account a) Journal entries d) Salary account c) Sales account Ans: Balance: (b) Rs. 1,50,000 (c) Rs. 90,000 (d) Rs. 8,000 PP-5 TThe following are the transactions of Sony Trade Concern: Jan. 1 Sony commenced a business with capital Rs. 5,50,000. Jan. 7 Purchased furniture for Rs. 35,000. Jan. 20 Purchased goods from Himal Trade Concern Rs. 75,000. Jan. 25 Sold goods for Rs.40,000. Jan. 30 Commission received Rs. 13,000. Required: a) Journal entries b) Himal Trade Concern account c) Cash account d) Commission received account Ans: Balance: (b) Rs. 75,000 (c) Rs. 5,68,000 (d) Rs. 13,000 PP-6 The following transactions are given to you: July 1 Commenced business with cash Rs. 2,60,000. July 4 Purchased goods for Rs. 55,000. July 9 Sold goods to kebal for Rs. 40,000. July 20 Rent received Rs. 5,000. July 23 Paid salary for cash Rs. 13,000. Required: a) Journal entries b) Kebal’s account c) Cash account d) Rent received account Ans: Balance: (b) Rs. 40,000 (c) Rs. 1,97,000 (d) Rs. 5,000 PP-7 The following transactions are given to you: Marga 3 Raju started business with Rs. 87,000. Marga 9 Purchased machinery for cash Rs. 18,000. Marga 20 Cash deposited into bank Rs. 50,000. Marga 23 Purchased from Anamika for Rs. 20,000. Marga 30 Paid advertisement Rs. 5,000 by cheque. Ledger 135

Required: a) Machinery account b) Bank account c) Anamika’s account d) Advertisement account Ans: Balance: (a) Rs.18,000 (b) Rs.45,000 (c) Rs.20,000 (d) Rs.5,000 PP-8 The following are the transactions of Binita Trade Center: a) Business started with capital Rs. 1,50,000. b) Purchased goods from Rahul for Rs. 60,000. c) Purchased furniture for cash Rs. 19,000. d) Cash deposited into bank Rs. 50,000. e) Paid rent Rs. 10,000 by cheque. Required: a) Furniture account b) Bank account c) Rahul’s account d) Rent account Ans: Balance: (a) Rs. 19,000 (b) Rs. 40,000 (c) Rs. 60,000 (d) Rs. 10,000 PP-9 The following transactions are given to you: Chaitra 1 Business started with bank balance Rs. 2,10,000. Chaitra 3 Cash withdrawn from bank for office use Rs. 60,000. Chaitra 9 Purchased goods for cash Rs. 40,000. Chaitra 15 Paid wages Rs. 10,000 by cheque. Chaitra 20 Sold goods for cash Rs. 35,000. Chaitra 25 Purchased goods from Nabin Rs. 30,000. Required: Necessary ledger accounts. Ans: Balance: Bank a/c Rs. 1,40,000, Capital a/c Rs.2,10,000, Cash a/c Rs. 55,000, Purchase a/c Rs.70,000, Wages a/c Rs.10,000, Sales a/c Rs.35,000, Nabin’s a/c Rs. 30,000. PP-10 The following transactions are given to you: December 1 Business started with bank balance Rs. 2,00,000. December 3 Withdrew cash Rs. 50,000 from bank for office use. December 7 Purchased goods from Rohini Rs. 65,000. December 20 Purchased machinery for cash Rs. 25,000. December 27 Sold goods for cash Rs. 50,000. December 30 Paid commission Rs. 7,000 by cheque. Required: Necessary ledger accounts. Ans: Balance: Bank a/c Rs.1,43,000, Capital a/c Rs. 2,00,000, Cash a/c Rs. 75,000, Purchase a/c Rs.65,000, Machinery a/c Rs. 25,000, Sales a/c Rs. 50,000, Commission a/c Rs. 7,000.  136 Office Management and Accountancy

12 TRIAL BALANCE Chapter Learning Objectives After studying this chapter, the readers will be able to :  tell the meaning of trial balance,  state the objectives of preparing trial balance,  draw the specimen of trial balance based on balance of ledger account,  prepare a trial balance on the basis of ledger balances,  mention the causes of disagreement in trial balance. Introduction When all the transactions are posted into different ledger accounts, it is necessary to know whether they are recorded and posted accurately or not. In order to ensure the correctness in recording and posting, a statement is prepared which is known as trial balance. While recording the transactions in primary books or posting them into various ledgers, there may be errors, mistakes or frauds committed knowingly or unknowingly. If such errors remain in the books of account, finally it affects the net result of business operation. Due to this reason too, the journal and ledgers should be checked to make correction in the arithmetical records by preparing a statement which is termed as trial balance. It is the third step of accounting process. Trial Balance 137

Concept and definition Trial balance is the list of debit and credit balances or even the total of the ledger accounts prepared at the particular date. If a trial balance is prepared on the basis of ledger balances, all debit balances should be transferred into the debit column and credit balances should be transferred into the credit column. The debit total and credit total should be equal to each other. If debit and credit total remains equal, it is called agreement of trial balance. But, if the debit total and credit total is found different, it is assumed that there may be arithmetical errors in preparing the journal and the ledgers. The following are the definitions of trial balance: “A trial balance is a statement prepared with the debit and credit balances of ledger accounts to test arithmetical accuracy of books.” J. R. Batliboi “A trial balance is the list of debit and credit balance taken out from ledger; it also includes, the balance of cash and bank taken from cash book.” R. N. Carter “A trial balance is a statement of the debit and credit balances of the various ledger accounts which is prepared to check their arithmetical accuracy.” A.N. Agrawal Trial balance is a statement of debit and credit balances or totals of various ledger accounts which is prepared at the particular date in order to prove the arithmetical accuracy of the books of accounts. Objectives of preparing a trial balance The following are the main objectives of preparing trial balance: a. To check the arithmetical accuracy Memory Tips The main objective of preparing a trial balance is  To check the arithmetical accuracy to check arithmetical accuracy of books of account.  To locate and rectify the errors and It gathers the debit and credit balances of all ledger accounts at a place and checks whether the debit frauds total equals to credit total or not. If the debit total  To provide summary of all the ledger is not equal to the credit total, it indicates that there may be some errors existed in the books of ac- accounts count.  To facilitate the preparation of final accounts  To help in evaluation and decision making b. To locate and rectify the errors and frauds The trial balance also helps to find out the errors and to correct them in time. The dis- agreement in trial balance i.e. difference in debit and credit total indicates the arithmetical errors in maintaining the books of accounts. Thus, it helps to identify them and correct in time. 138 Office Management and Accountancy

c. To provide summary of all the ledger accounts As all the ledger balances are listed in a separate sheet of paper under a trial balance, it provides the information about all ledger accounts. Thus, to provide summarized infor- mation about ledger accounts is also another objective of a trial balance. d. To facilitate the preparation of final accounts Final accounts are prepared at the end of an accounting period to know the true financial position. Such accounts are prepared on the basis of a trial balance. It provides summary of personal, real and nominal accounts. Thus, to assist for the preparation of final ac- counts is the next objective of a trial balance. e. To help in evaluation and decision making The trial balance provides the information about assets, liabilities, expenses, income etc for a certain period. The trial balance drawn in different time periods helps the manage- ment for evaluation and decision making process on different business matters. Advantages of a trial balance Following are the main advantages of a trial balance:  It helps to check the arithmetical accuracy of recording and posting of financial trans- actions.  It helps to locate and rectify the accounting errors and frauds.  It helps to provide a summary of all the ledger accounts of the firm.  It facilitates for preparation of final accounts.  It helps in making evaluation and decision on various business matters.  It supports for internal audit by providing complete, reliable and accurate accounting information. Specimen of a trial balance Following is a general specimen of a trial balance: Trial Balance of ….. As on …….. S.N. Particulars L.F. Debit Rs. Credit Rs. 1 2 34 5 Trial Balance 139

In the above specimen, the following information are to be mentioned: 1. S. No The serial number of accounts likes 1, 2, 3, 4... is men- tioned in this column. 2. Particulars The name of different ledger accounts like cash account, capital account etc is mentioned in this column. 3. Ledger Folio The page number of various ledger accounts from where (L.F.) they have been taken is mentioned in this column. 4. Debit Rs. The amount of the debit balance of the ledger account is written in this column. 5. Credit Rs. The amount of the credit balance of the ledger account is written in this column. Procedures for preparing a trial balance Following are the procedures to be followed in preparation of a trial balance:  The specimen of trial balance should be prepared.  Name of the organization and the date of preparing trial balance should be mentioned at the middle top.  The serial numbers like 1, 2, 3, 4 .......... etc should be mentioned in first column as per the number of ledger accounts.  The name of ledger accounts like cash, capital, interest etc should be mentioned in the second column.  The page number of each ledger account should be written in third column.  The amount of ledger accounts having debit balance should be posted in debit column and the amount of ledger accounts having credit balance should be posted in credit column.  If only the ledger balances are given, the following rules should be applied to post the amount either in debit or credit side of a trial balance: a. Dr. all assets, expenses and losses b. Cr. all liabilities, capital, income and gains  Finally, the debit and credit sides should be totalled to ensure the orrectness in reord- ing and posting which must be equal.  If the debit and credit sides are not found equal, the difference should be transferred to suspense account assuming some arithmetical errors. Later on, they should be located and rectified. Ill-1 The following transactions are given to you: July 1 Business started with cash Rs. 1,50,000. July 3 Opened bank account with Rs. 1,00,000. July 12 Purchased goods for cash Rs. 40,000. 140 Office Management and Accountancy

July 18 Paid wages Rs. 10,000 by cheque. July 26 Sold goods to Ramala for Rs. 50,000. Required: a) Journal entries b) Ledger accounts c) Trial balance as on 31st July Solution: Journal Entries a) Date Particulars L.F. Debit Rs. Credit Rs. July 1 Cash a/c ................................................................Dr. 1,50,000 To Capital a/c (Being business started with cash) 1,50,000 July 3 Bank a/c ................................................................Dr. 1,00,000 To Cash a/c (Being bank account opened) 1,00,000 July 12 Purchase a/c .........................................................Dr. 40,000 To Cash a/c (Being goods purchased in cash) 40,000 July 18 Wages a/c .............................................................Dr. 10,000 To Bank a/c (Being wages paid by cheque) 10,000 July 26 Ramala’s a/c .........................................................Dr. 50,000 To Sales a/c (Being goods sold to Ramala on credit) 50,000 b) Ledger accounts Cash Account Cr. Dr. J.F. Amount Dat e Particulars J.F. Amount Date Particulars 1,00,000 40,000 July 1 To Capital a/c 1,50,000 July 3 By Bank a/c 10,000 July 12 By Purchase a/c 1,50,000 July 31 By Balance c/d 1,50,000 Aug 1 To Balance b/d 10,000 Dr. Capital Account Cr. Date J.F. Amount July 31 Particulars J.F. Amount Date Particulars To Balance c/d 1,50,000 1,50,000 July 1 By Cash a/c 1,50,000 1,50,000 1,50,000 Aug 1 By Balance b/d Trial Balance 141

Dr. Bank Account Cr. Date July 3 Particulars J.F. Amount Date Particulars J.F. Amount Aug 1 To Cash a/c 1,00,000 July 18 By Wages a/c 10,000 Dr. July 31 By Balance c/d 90,000 Date July 12 1,00,000 1,00,000 Aug 1 To Balance b/d 90,000 Dr. Date Purchase Account Cr. July 18 Particulars J.F. Amount Date Particulars J.F. Amount Aug 1 Dr. To Cash a/c 40,000 July 31 By Balance c/d 40,000 Date July 26 40,000 40,000 Aug 1 To Balance b/d 40,000 Dr. Wages Account Date Cr. July 31 Particulars J.F. Amount Date Particulars J.F. Amount c) To Bank a/c 10,000 July 31 By Balance c/d 10,000 S.No. 10,000 10,000 1. 2. To Balance b/d 10,000 3. Ramala’s Account 4. Cr. 5. 6. Particulars J.F. Amount Date Particulars J.F. Amount 7. To Sales a/c 50,000 July 31 By Balance c/d 50,000 50,000 50,000 To Balance b/d 50,000 Sales Account Cr. Particulars J.F. Amount Date Particulars J.F. Amount To Balance c/d 50,000 July 26 By Ramala’a a/c 50,000 50,000 50,000 Aug 1 By Balance b/d 50,000 Trial Balance As on 31st July Particulars L.F. Debit Rs. Credit Rs. Cash a/c ......................................................... 10,000 Capital a/c ..................................................... 1,50,000 Bank a/c ......................................................... 90,000 Purchase a/c .................................................. 40,000 Wages a/c ...................................................... 10,000 Ramala's a/c .................................................. 50,000 Sales a/c ......................................................... 50,000 Total 2,00,000 2,00,000 142 Office Management and Accountancy

Preparation of trial balance from the given ledger balances A trial balance is prepared on the basis of ledger balances drawn from various ledger ac- counts. The following rules should be followed for debiting and crediting the items in trial balance:  All assets, expenses and losses are debited  All liabilities, capital, incomes and gains are credited The following is the list of possible items to be debited and credited in a trial balance. Trial Balance of ........... As on ……. S.No. Particulars L.F. Debit Credit Rs. Rs. 1. Cash balance .................................................. ××× 2. Bank balance .................................................. ××× 3. Sundry debtors .............................................. ××× 4. Investment ..................................................... ××× 5. Bills receivable ............................................... ××× 6. Accounts receivable ..................................... ××× 7. Land and building ........................................ ××× 8. Plant and machinery .................................... ××× 9. Furniture and fixture .................................... ××× 10. Vehicles .......................................................... ××× 11. Loose tools ..................................................... ××× 12. Goodwill ....................................................... ××× 13. Patent ............................................................ ××× 14. Trademark .................................................... ××× 15. Copy right ..................................................... ××× 16. Prepaid expenses .......................................... ××× 17. Accrued income ............................................ ××× 18. Loan given ..................................................... ××× 19. Business premises ........................................ ××× 20. Opening stock ............................................... ××× 21. Purchase ........................................................ ××× 22. Sales return .................................................. ××× 23. Carriage/freight inward .............................. ××× Trial Balance 143

24. Carriage/freight outward ........................... ××× 25. Purchase expenses ...................................... ××× 26. Import and export duty .............................. ××× 27. Wages and salaries ...................................... ××× 28. Factory expenses .......................................... ××× 29. Insurance premium ...................................... ××× 30. Rent, rates and tax ........................................ ××× 31. Office and administrative expenses ............ ××× 32. Interest paid .................................................. ××× 33. Commission paid .......................................... ××× 34. Advertisement .............................................. ××× 35. Heating and lighting charges....................... ××× 36. Communication charges............................... ××× 37. Printing and stationery expenses ................. ××× 38. Repairs and maintenance .............................. ××× 39. Depreciation................................................... ××× 40. Fuel, coal and coke ........................................ ××× 41. Legal expenses .............................................. ××× 42. Establishment expenses .............................. ××× 43. Charity and donation ................................... ××× 44. Bank charges .................................................. ××× 45. Discount allowed .......................................... ××× 46. Drawing ......................................................... ××× 47. Bad debts ........................................................ ××× 48. Loss on sale of assets .................................... ××× 49. Entertainment expenses .............................. ××× 50. General expenses .......................................... ××× 51. Delivery van expenses ................................. ××× 52. Sales tax ......................................................... ××× 53. Capital ............................................................ 54. Sundry creditors ........................................... ××× 55. Bank overdraft .............................................. ××× 56. General reserve ............................................ ××× 57. Capital reserves ............................................ ××× 58. Deposits from customers.............................. ××× ××× 144 Office Management and Accountancy

59. Reserve fund .................................................. ××× 60. Bills payable ................................................... ××× 61. Accounts payable .......................................... ××× 62. Loan received ................................................ ××× 63. Outstanding expenses ................................. ××× 64. Advance income ........................................... ××× 65. Commission received .................................. ××× 66. Discount received ........................................ ××× 67. Interest received ........................................... ××× 68. Rent received.................................................. ××× 69. Apprentice premium..................................... ××× 70. Interest on investment.................................. ××× 71. Gain on sale of assets.................................... ××× 72. Sale of scrap.................................................... ××× 73. Bad debts recovered...................................... ××× 74. Provision for bad debts................................. ××× 75. Miscellaneous income .......... ××× ××× ××× Total......................................... Ill-2 The following are the ledger balances taken from the books of Anupama on 31st Chaitra 2074: Opening stock ............................ Rs. 10,000 Sundry creditors..................... Rs. 40,000 Purchases.................................... 90,000 Wages....................................... 20,000 Sales............................................. 2,00,000 Commission received............ 5,000 Purchase return.......................... Bank balance........................... 9,000 Sales return................................. 5,000 Salary....................................... Sundry debtors........................... 7,000 Furniture ................................ 15,000 Capital......................................... 50,000 1,49,000 1,00,000 Required: Trial balance as on 31st Chaitra, 2074 Solution: Trial Balance As on 31st Chaitra, 2074 S. No. Particulars L.F. Debit Rs. Credit Rs. 1. Opening stock .......................................................................... 10,000 2. Purchases ................................................................................ 90,000 3. Sales ........................................................................................ 2,00,000 4. Purchase return ....................................................................... 5,000 5. Sales return ............................................................................. 7,000 Trial Balance 145

6. Sundry debtors ........................................................................ 50,000 40,000 7. Sundry creditors ...................................................................... 8. Wages ..................................................................................... 20,000 5,000 9. Salaries .................................................................................... 15,000 10. Commission received .............................................................. 1,00,000 11. Bank balance ........................................................................... 9,000 3,50,000 12. Furniture .................................................................................. 1,49,000 13. Capital ..................................................................................... 3,50,000 Total Suspense account Suspense account is an artificial account opened to make the trial balance agreed in case of difference in debit and credit column. It is an artificial process of adjusting and closing the trial balance. It remains until and unless the errors are located and rectified. After rectification of all types of errors affecting the trial balance, it will be automatically disposed off. The following are some of the errors due to which suspense account should be opened in the trial balance:  Posting of amount in wrong side of an account.  Posting of wrong amount in one side of an account.  Omission of posting in one side of an account.  Wrong totaling or balancing of ledger account.  Double posting in one account.  Posting in wrong side of trial balance.  Omission of transferring balance of any account in trial balance. Suspense account is an artificial account opened temporarily for the purpose of adjusting and closing the trial balance until the errors are located and rectified. Short Notes to Remember (SNR 12.1)  If the debit total of trial balance is more than its credit total, suspense account is opened in credit side by writing the difference amount.  If the credit total of trial balance is more than its debit total, suspense account is opened in debit side by writing the difference amount.  After all the errors are located and rectified, the suspense account automatically disappears from the books of account. Ill-3 From the following balance of ledger accounts, draw a trial balance as on 31st Chaitra and open suspense account, if needed: Purchase Rs. 90,000 Accounts payable Rs. 30,000 Machinery 1,00,000 Loan received 20,000 Sales 1,80,000 Rent paid 35,000 146 Office Management and Accountancy

Capital 1,00,000 Bank overdraft 10,000 Cash in hand 3,000 Commission received 5,000 Accounts receivables 49,000 Salary and wages 43,000 Solution: Trial Balance As on 31st Chaitra S. No. Particulars L.F. Debit Rs. Credit Rs. 90,000 1. Purchases ................................................................................. 1,00,000 2. Machinery .................................................................................. 1,80,000 1,00,000 3. Sales ....................................................................................... 3,000 4. Capital ....................................................................................... 49,000 5. Cash in hand ............................................................................. 30,000 20,000 6. Accounts receivable .................................................................. 35,000 10,000 7. Accounts payable ...................................................................... 5,000 43,000 8. Loan ........................................................................................ 25,000 3,45,000 3,45,000 9. Rent paid ................................................................................... 10. Bank overdraft ........................................................................... 11. Commission received ................................................................ 12. Salary and wages ...................................................................... 13. Suspense a/c .......................................................................... Total REVIEW ILLUSTRATIONS Ill-4 The following are the business transactions of Binayak Enterprises for the month of May 2017: May 2 Business started with cash Rs. 2,50,000 May 5 Opened bank account by depositing cash Rs. 1,60,000 May 10 Purchased goods for cash Rs. 50,000 May 16 Purchased computer for Rs. 40,000 paying by cheque May 22 Goods sold to John for Rs. 35,000 May 28 Commission received for Rs. 10,000 Required: a) Journal entries b) Ledger accounts c) Trial balance as on 31st May 2017 Trial Balance 147

Solution: Journal Entries a) Date Particulars L.F. Debit Rs. Credit Rs. May 2 Cash a/c .......................................................................... Dr. 2,50,000 2,50,000 May 5 1,60,000 1,60,000 May 10 To Capital a/c 50,000 50,000 May 16 40,000 40,000 May 22 (Being business started with cash) 35,000 35,000 May 28 Bank a/c .......................................................................... Dr. 10,000 10,000 To Cash a/c (Being opened bank account by depositing cash) Purchase a/c ................................................................... Dr. To Cash a/c (Being goods purchased for cash) Computer a/c ................................................................... Dr. To Bank a/c (Being computer purchased and payment made by cheque) John’s a/c ........................................................................ Dr. To Sales a/c (Being goods sold to John) Cash a/c .......................................................................... Dr. To Commission received a/c (Being commission received) b) Ledger accounts Cash Account Cr. Dr. J.F. Amount Date Particulars J.F. Amount Date Particulars May 2 To Capital a/c 2,50,000 May 5 By Bank a/c 1,60,000 May 28 To Commission a/c 50,000 10,000 May 10 By Purchase a/c 50,000 June 1 To Balance b/d Dr. May 31 By Balance c/d 2,60,000 2,60,000 Cr. 50,000 Capital Account Date Particulars J.F. Amount Date Particulars J.F. Amount May 31 To Balance c/d 2,50,000 2,50,000 May 2 By Cash a/c 2,50,000 Dr. 2,50,000 2,50,000 Cr. June 1 By Balance b/d Bank Account Date Particulars J.F. Amount Date Particulars J.F. Amount May 5 To Cash a/c 40,000 1,60,000 May 16 By Computer a/c 1,20,000 May 31 By Balance c/d 1,60,000 1,60,000 Cr. June 1 To Balance b/d 1,20,000 Dr. Purchase Account Date Particulars J.F. Amount Date Particulars J.F. Amount May 10 To Cash a/c 50,000 May 31 By Balance c/d 50,000 50,000 50,000 June 1 To Balance b/d 50,000 148 Office Management and Accountancy

Dr. Computer Account Cr. J.F. Amount Date Particulars J.F. Amount Date Particulars May 16 To Bank a/c 40,000 40,000 May 31 By Balance c/d 40,000 40,000 Cr. J.F. Amount June 1 To Balance b/d 40,000 Dr. 35,000 Particulars John’s Account 35,000 Date To Sales a/c May 22 J.F. Amount Date Particulars Cr. 35,000 May 31 By Balance c/d J.F. Amount 35,000 June 1 To Balance b/d 35,000 35,000 35,000 Dr. Sales Account 35,000 Date Particulars J.F. Amount Date Particulars May 31 To Balance c/d 35,000 May 22 By John’s a/c 35,000 By Balance b/d June 1 Dr. Commission Received Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount May 31 To Balance c/d 10,000 10,000 May 28 By Cash a/c 10,000 c) 10,000 10,000 June 1 By Balance b/d Trial Balance of Binayak Enterprises As on 31st May 2017 S. No. Particulars L.F. Debit Rs. Credit Rs. 1. Cash a/c ................................................................................................................. 50,000 2,50,000 2. Capital a/c .............................................................................................................. 3. Purchase a/c ......................................................................................................... 50,000 35,000 4. Computer a/c ........................................................................................................ 40,000 10,000 5. Bank a/c ................... .............................................................................................. 1,20,000 2,95,000 6. John’s a/c ............................................................................................................... 35,000 7. Sales a/c ................................................................................................................. 8. Commission received a/c ................................................................................. 2,95,000 Total Ill-5 The following ledger balances are extracted from the book of Siddhi Ganesh for the year ending 31st December 2017: Beginning Inventory Rs. 15,000 Sales Rs. 1,50,000 Purchases 80,000 Wages 25,000 Return inward 1,000 Purchase return 3,000 Debtors 25,000 Capital 95,000 Business premises 78,000 Cash at bank 6,000 Trial Balance 149

Creditors 20,000 Office expenses 14,000 Discount allowed 7,000 Discount received 2,000 Rent expenses 9,000 Carriage inward 10,000 Required: Trial balance as on 31st December 2017 Solution: Trial Balance of Siddhi Ganesh As on 31st December 2017 S. No. Particulars L.F. Debit Rs. Credit Rs. 1. Beginning inventory ............................................................ 15,000 2. Purchases .......................................................................... 80,000 3. Wages ................................................................................ 25,000 4. Purchase return .................................................................. 3,000 5. Carriage inward .................................................................. 10,000 6. Debtors ............................................................................... 25,000 7. Creditors ............................................................................. 20,000 8. Sales .................................................................................. 1,50,000 9. Return inward ..................................................................... 1,000 10. Capital ................................................................................ 95,000 11. Business premises ............................................................. 78,000 12. Cash at bank ...................................................................... 6,000 13. Office expenses .................................................................. 14,000 14. Rent expenses ........................................ .......................... 9,000 15. Discount allowed ................................................................ 7,000 16. Discount received ............................................................... 2,000 Total 2,70,000 2,70,000 Ill-6 From the following balance of ledger accounts, draw a trial balance as on 30th Chaitra 2074 and open suspense account, if needed: Capital Rs. 1,60,000 Bank loan Rs. 10,000 Bills receivable 60,000 Purchase 90,000 Bills payable 20,000 Reserve fund 8,000 Carriage inward 5,000 Telephone charge 12,000 Interest received 4,000 Return outward 2,000 Sundry expenses 9,000 Carriage outward 2,000 Bank overdraft 25,000 Sales 1,90,000 Machinery and equipment 2,15,000 Cash in hand 17,000 Solution: Trial Balance As on 30th Chaitra 2074 S. No. Particulars L.F. Debit Rs. Credit Rs. 1. Capital a/c ........................................................................... 1,60,000 2. Purchase a/c ....................................................................... 3. Carriage inward a/c.............................................................. 90,000 5,000 150 Office Management and Accountancy