ACCOUNTING

ACCOUNTING
B.Com.(First Year - Semester - I) : Fundamentals of Accounting
Authors : Dr.Gudipati Srinivasa Rao, H.S.N.V.S.Pavan Kumar
Editor : Prof. A.Narasimha Rao
First Edition: 2021; No. of Pages :319
 PROGRAMME: THREE-YEAR B.Com

(General and Computer Applications)

Course Code:
Domain Subject: Commerce
Semester-wise Syllabus under CBCS
(w. e. f. 2020-21 Admitted Batch)

I Year B Com (Gen & CA)–Semester – I

Course1A: Fundamentals of Accounting

Learning Outcomes:

At the end of the course, the student will able to

 Identify transactions and events that need to be recorded in the books of accounts.
 Equip with the knowledge of accounting process and preparation of final
accounts of sole trader.
 Develop the skill of recording financial transactions and preparation of
reports in accordance with GAAP.
 Analyze the difference between cash book and pass book in terms of balance
and make reconciliation.
 Critically examine the balance sheets of a sole trader for different accounting
periods.
 Design new accounting formulas & principles for business organizations.

Syllabus:

Unit-I – Introduction

Need for Accounting – Definition – Objectives, – Accounting Concepts and

Conventions – GAAP - Accounting Cycle - Classification of Accounts and its Rules
– Book Keeping and Accounting - Double Entry Book-Keeping - Journalizing -
Posting to Ledgers, Balancing of Ledger Accounts (including Problems).

Unit-II: Subsidiary Books:

Types of Subsidiary Books - Cash Book, Three-column Cash Book- Petty Cash
Book (including Problems).
Unit-III: Trial Balance and Rectification of Errors:
Preparation of Trial balance - Errors – Meaning – Types of Errors – Rectification of
Errors – Suspense Account (including Problems)

Unit-IV: Bank Reconciliation Statement:

Need for Bank Reconciliation - Reasons for Difference between Cash Book and Pass
Book Balances- Preparation of Bank Reconciliation Statement - Problems on both
Favorable and Unfavorable Balance (including Problems).

Unit -V: Final Accounts:

Preparation of Final Accounts: Trading account – Profit and Loss account – Balance
Sheet – Final Accounts with Adjustments (including Problems).

Suggested Co-Curricular Activities:

 Bridge Course for Non-commerce Students
 Practice of Terminology of Accounting
 Quiz, Word Scramble
 Co-operative learning
 Seminar
 Co-operative learning
 Problem Solving Exercises
 Matching, Mismatch
 Creation of Trial Balance
 Visit a firm (Individual and Group)
 Survey on sole proprietorship and prepare final accounts of concern
 Group Discussions on problems relating to topics covered in syllabus
 Examinations (Scheduled and surprise tests)
 Any similar activities with imaginative thinking beyond the prescribed
syllabus
 -----------------
CONTENTS
-----------------
SECTION - I 1-24
Chapter 1.1 Origin of Accounting
Chapter 1.2 Meaning of Accounting and Book-Keeping
Chapter 1.3 Book-Keeping vs. Accounting
Chapter 1.4 Need for Accounting
Chapter 1.5 Objectives of Accounting
Chapter 1.6 Process of Accounting
Chapter 1.7 Limitations of Accounting
Chapter 1.8 Stake holders of Accounting
Chapter 1.9 Branches of Accounting
Chapter 1.10 Principles of Accounting

SECTION - II 25-42
Chapter 2.1 Double Entry System
Chapter 2.2 Classification of Accounts
Chapter 2.3 Meaning of Journal
Chapter 2.4 Significance of Journal
Chapter 2.5 Golden rules of Accounting
Chapter 2.6 Journalizing Process
Chapter 2.7 Practical Illustrations

SECTION - III 43-67

Chapter 3.1 Introduction to Ledger
Chapter 3.2 Meaning and Definition of Ledger
Chapter 3.3 Significance of Ledger
Chapter 3.4 Advantages of Ledger
Chapter 3.5 Format of Ledger
Chapter 3.6 Ledger Posting and Balancing Process
Chapter 3.7 Differences between Journal and Ledger
Chapter 3.8 Practical Illustrations

SECTION - IV 68-104
Chapter 4.1 Introduction to Subsidiary Books
Chapter 4.2 Need for Subsidiary Books
Chapter 4.3 Objectives of Subsidiary Books
Chapter 4.4 Difference between Subsidiary Books and Ledger
Chapter 4.5 Types of Subsidiary Books
Chapter 4.6 Formats of subsidiary Books
Chapter 4.7 Practical Illustrations
SECTION - V 105-131
Chapter 5.1 Introduction
Chapter 5.2 What is a trial balance?
Chapter 5.3 Why we need to prepare trial balance?
Chapter 5.4 How to prepare trial balance?
Chapter 5.5 What if trial balance does not tally?
Chapter 5.6 Limitations of trial balance
Chapter 5.7 Practical Illustrations

SECTION - VI 132-179
Chapter 6.1 Introduction
Chapter 6.2 What are the accounting errors?
Chapter 6.3 Why Rectification of errors?
Chapter 6.4 How to Locate the errors?
Chapter 6.5 How to Rectify the errors?
Chapter 6.6 Practical Illustrations

SECTION - VII 180-234

Chapter 7.1 Introduction
Chapter 7.2 Passbook and Cash book
Chapter 7.3 Why the Balances of Passbook and Cashbook differ?
Chapter 7.4 What an Accountant has to do with the differences
Chapter 7.5 Why Reconciliation?
Chapter 7.6 How to reconcile the passbook and cashbook balances
Chapter 7.7 Practical Illustrations

SECTION - VIII 235-308

Chapter 8.1 Introduction
Chapter 8.2 What are Final Accounts and what do they constitute?
Chapter 8.3 Why do we prepare Final Accounts?
Chapter 8.4 How to prepare Final Accounts?
Chapter 8.5 How to prepare Final Accounts with adjustments?
Chapter 8.6 Practical Illustrations
 1.1 Origin of

Contents
Accounting
1.Understand the
Learning Outcomes

importance of 1.2 Meaning of

Accounting Accounting and
Book-Keeping
2.Understand the
difference between 1.3 Book-Keeping
Book - Keeping Vs. Accounting
from Accounting 1.4 Need for
3.Understand the Accounting
Accounting 1.5 Objectives of
Principles Accounting
4.Understand the 1.6 Process of
Accounting Process Accounting
1.7 Limitations of
Accounting
1.8 Stake holders of
Accounting
1.9 Branches of
Accounting
1.10 Principles of
Accounting

1
1.1 Origin of Accounting
The records of accounting or accountancy are frequently traced to historical civilizations. The early
improvement of accounting dates to historical Mesopotamia, and is intently related to trends in
writing, counting, and early auditing structures through the ordinary Egyptians and Babylonians.
By the time of the Roman Empire, the Government had to get entry to exact economic information.
In India, Chanakya wrote a manuscript nearly like an economic control book, in the course of the
quantity of the Mauryan Empire. His book "Arthashasthra" incorporates few exact factors of
preserving books of money owed for a Sovereign State. Luca Pacioli’s, book "Summa de
Arithmetica, Geometria, Proportion at Proportionalita" (Review of Arithmetic and Geometric
proportions) in Venice (1494) is considered as the first book on double-entry bookkeeping in his
book he used the present-day popular terms of accounting Debit (Dr.) and credit (Cr). Luca Pacioli,
who first published the double-entry system in 1494 at Venice identified as the Father of
Accounting.

The present-day career of the accountant originated in Scotland in the 19th century. Accountants
frequently belonged to an equal institution as solicitors, who frequently provided accounting
offerings to their clients. Early present-day accounting had similarities to contemporary forensic
accounting. Accounting started to transition into a professional career in the 19th century, with
neighborhood expert accounting bodies in England merging to make the Institute of Chartered
Accountants in England and Wales in 1880.

The Institute of Chartered Accountants of India (ICAI) is a statutory frame hooked up with the aid
of using an Act of Parliament, viz. The Chartered Accountants Act, 1949 for regulating the career
of Chartered Accountancy in India. The Institute, functions under the administrative control of the
Ministry of Corporate Affairs, Government of India. The affairs of the ICAI are controlled with the
help of employing a Council according to the provisions of the Chartered Accountants Act, 1949
and therefore the Chartered Accountants Regulations, 1988.

Since 1949, the career has grown leaps and boundaries in phrases of the contributors and scholar
base. The Institute of Chartered Accountants of India (ICAI) is a statutory frame is performing the
following activities to strengthen the accounting profession Regulate the career of Accountancy in
India.

 Education and Examination of Chartered Accountancy Course

 Continuing Professional Education of Members
 Conducting Post Qualification Courses
 Formulation of Accounting Standards
 Prescription of Standard Auditing Procedures

2
 1.అక ౌంటౌంగ్ పరిచయౌం
అక ౌంటౌంగ్ మూలౌం:

గణక శాస్త్రం అతి పురాతనమన

ై ది, ద్రవ్యముపుట్టుకతోనే గణక శాస్త్రం ఆవిర్భవించంద్ని విశ్వసిస్్ ార్ు. ఈజిప్టు ,

గ్రీకు, రోమన్ నాగరికతల కాలంలో లెకకలు వ్ారసేపద్ధ తి వ్ాడుకలో ఉననట్ట

ు చారితరక ఆధారాలు

లభ్యమయ్యయయి.భార్తదేశ్ంలో చంద్రగుప్ మౌర్ుయల స్ామయాజ్యంయంలో చాణ్కుయడు వ్ారసిన"అర్థ శాస్త్"ర పుస్త్కంలో

లెకకలు వ్ారసేట్ట్టవ్ంట్ి పద్ధ తిని పరస్్ ావించడం జ్యంరిగ్ింది, ఈ పద్ధ తి నేట్ి ఆధునిక గణక శాస్త్రం విధానానికి

భార్తదేశ్ంలో నాందిగ్ా పేరకకనడం జ్యంరిగ్ింది. డబుల్-ఎంట్రర బుక్ కీపింగ్ సిస్తుమపై పరచురించబడిన మొద్ట్ి ర్చన
"Summa de Arithmetica, Geometria, Proportion at Proportionalia" "గణితౌం, క్షేతర గణితౌం,

అనుపాతాల సారాౌంశౌం" ఇట్లీలో 1494 లో లుకా పాసియోలి ("ఫాద్ర్ ఆఫ్ అక ంట్ింగ్") దావరా

పరచురించబడింది. పరస్త్ ుత ఆధునిక అక ంట్ింగ్ లో పరధానముగ్ాఉపయోగ్ించే డెబిట్ మరియ్ు కరీడట్

ి అనే

అంశాలను మొట్ు మొద్ట్ిగ్ా లుకా పాసియోలి పుస్త్కంలో పరచురించబడింది.పంతొమ్మిద్వ్ శ్తాబద ంలో అక ంట్ింగ్

ఒక వ్యవ్సథథ కృత వ్ృతి్ గ్ా మయర్డం పారర్ంభ్మైంది.ఇంగ్ాుండలోని స్ాథనిక పర ర ఫషనల్ స్తంస్తథ లు 1880 లో ఇంగ్ాుండ

మరియ్ు వ్ేల్సలో ఇన్సిుట్యయట్ ఆఫ్ చార్ుర్్ అక ంట్ంట్సని ఏరాాట్ట చేశాయి.

భార్తదేశ్ంలో ఇనిసిుట్యయట్ ఆఫ్ చార్ుర్్ అక ంట్న్సస ఆఫ్ ఇండియ్య ను (ICAI)1949వ్ స్తంవ్తసర్ంలో

పార్ు మంట్లు పరతేయక చట్ు ం దావరా ఏరాాట్ట చేయ్డం జ్యంరిగ్ింది. భార్తదేశ్ంలో చార్ుర్్ అక ంట్న్సస కరరరర్ను

నియ్ంతిరంచడానికి మరియ్ుఅభివ్ృదిధ పర్చడానికి చార్ుర్్ అక ంట్ంట్స చట్ు ం అమలులోనికి తీస్తుకొని వ్చాార్ు.

ఈ స్తంస్తథ , భార్త పరభ్ుతవ కారకారేట్ వ్యవ్హారాల మంతిరతవ శాఖ పరిపాలన నియ్ంతరణలో పనిచేస్త్ ుంది.చార్ుర్్

అక ంట్న్సస ఆఫ్ ఇండియ్య యొకక వ్యవ్హారాలు చార్ుర్్ అక ంట్ంట్స చట్ు ం, 1949 మరియ్ు చార్ుర్్ అక ంట్ంట్స

రరగుయలేషన్స, 1988 నిబంధనల పరకార్ం క నిసల్స్తహాయ్ంతో నియ్ంతిరంచబడతాయి.1949 వ్ స్తంవ్తసర్ము

నుండి ఇన్సిుట్యయట్ ఆఫ్ చార్ుర్్ అక ంట్ంట్స ఆఫ్ ఇండియ్య (ICAI) అనేది అక ంట్ింగ్ వ్ృతి్ ని బలోపేతం

చేయ్డానికి భార్తదేశ్ంలో అక ంట్న్సస వ్ృతి్ ని నియ్ంతిరంచడానికి కింది కార్యకలయపాలను నిర్వహిస్్ ంది .

1. చార్ుర్్ అక ంట్న్సస కోర్ుస యొకక విద్య అందించడంమరియ్ు పరరక్షనిర్వహించడం2.స్తభ్ుయల వ్ృతి్ పర్మన

ై

విద్యను కొనస్ాగ్ించడం 3. అక ంట్ింగ్ పరమయణాల స్తూతీరకర్ణ 4.పారమయణ్క ఆడిట్ింగ్ విధానాలను నిరేదశంచడం

నైతిక పరమయణాలను నిరేదశంచడం 5.పథర్ రివ్యయ దావరా నాణయతను పర్యవ్ేక్ించడం 6.స్తభ్ుయల మొత్ ం పనితీర్ు
యొకక పరమయణాలను నిరాధరించడం 7.కీమశక్షణా అధికార్ పరిధిని నిరేదశంచడం 8. ఫైనానిి య్ల్ రిప్ రిుంగ్ కు
స్తంబంధించన రివ్యయ చేయ్డం 9.పాలసథ విషయ్యలలో పరభ్ుతావనికి తగ్ిన స్తలహాలు స్తూచనలు ఇవ్వడం.

3
  Laying down Ethical Standards
 Monitoring Quality thru Peer Review
 Ensuring Standards of overall performance of Members
 Exercise Disciplinary Jurisdiction
 Financial Reporting Review
 Input on Policy subjects to Government

1.2 Meaning of Accounting and Book-Keeping

1.2.1 Accounting

Accounting is the exercise of recording, classifying, and reporting on business transactions for
evaluating performance of a business concern.

The American Institute of Certified Public Accountants (AICPA) in 1941 had defined accounting
as

"the art of recording, classifying, and summarizing in a significant manner and in terms of money
transactions and events which are in part at least, of financial character, and interpreting the results
thereof".

From the above AICPA definition, the key accounting obligations are stated below.

*Recording

The recording of business transactions is the main function of accounting. All the business
transactions which are of financial nature are recorded in the books of account. Journal is a book
that is maintained to record business transactions which are further subdivided into several books
called subsidiary books. Journal is called a book of original entry.

*Classifying

The recorded transactions are required to classify with a view to group the entries of one nature in
one place. The book containing classified entries is called Ledger. This book is containing various
accounts, for every specialized nature transaction separate account is maintained. For example, for
all-cash transactions one account i.e cash account and for all payments relating to salary one
account i.e salary account is maintained.

*Summarizing

Summarizing is a process of preparation and presentation of classified data in a prescribed format.

Summarizing is helpful for all the stakeholders of the accounting for understanding the performance
of the organization. The financial position and the financial condition of the business organization
can be identified through systematized summarizing. The process of summarizing is helpful to
prepare final accounts of the business organization.

4
అక ౌంటౌంగ్ మరియు బుక్-కీపౌంగ్ యొక్క అర్థ ౌం

అక ౌంటౌంగ్ : అక ంట్ింగ్ అనేది వ్ాయపార్ స్తంస్తథ యొకక పనితీర్ును అంచనా వ్ేయ్డానికి వ్ాయపార్ స్తంస్తథ యొకక

లయవ్ాదేవీల రికారి్ంగ్, వ్రరీకర్ణ మరియ్ు రిప్ రిుంగ్ చేసే ఒక పరకిీయ్.1941 లో అమరికన్ ఇనిసిుట్యయట్ ఆఫ్

స్తరిుఫడ
ై పబిు క్ అక ంట్ంట్స (AICPA) అక ంట్ింగ్ని ఈ విధముగ్ానిర్వచంచంది

"ఆరిథక్ స్వభావౌం గల వయవహారాలును, స్ౌంఘటనలను, ద్ర వయ ర్ూపౌంలోవ్ారస, వరగీక్రిౌంచి, పర ముఖౌంగా

స్ౌంగరహపరిచి, వ్ాట పలితాలు వివరిౌంచే క్ళ"

AICPA నిర్వచనం నుండి అక ంట్ింగ్ బాధయతలను ఈ కింీ ది విధంగ్ా పేరకకనవ్చుాను

రికారిడౌంగ్:వ్ాయపార్ లయవ్ాదేవీల రికారి్ంగ్ అక ంట్ింగ్ యొకక పరధాన విధి. ఆరిథక స్తవభావ్ం కలిగ్ిన వ్ాయపార్

లయవ్ాదేవీలన్సన ఖయతా పుస్త్కాలలో నమోద్ు చేయ్బడతాయి. జ్యంర్నల్ అనేది వ్ాయపార్ లయవ్ాదేవీలను రికార్్
చేయ్డానికి నిర్వహించే పుస్త్కం. జ్యంర్నల్ స్తహాయ్క పుస్త్కాలు అని పిలువ్బడే అనేక పుస్త్కాలుగ్ా

విభ్జించబడుత ంది. జ్యంర్నల్ను ఒరిజినల్ ఎంట్రర పుస్త్కం అంట్ార్ు.

వరగీక్రిౌంచడౌం:రికార్్ చేసన
ి లయవ్ాదేవీలు ఒకే స్తవభావ్ం గలఎంట్రరలను ఒకే చోట్ స్తమూహపర్చాలనే ఉదేద శ్యంతో

వ్రరీకరించాలిసన అవ్స్తర్ం ఉంది. వ్రరీకృత ఎంట్రరలను కలిగ్ి ఉనన పుస్త్కానిన లెడజర్ అంట్ార్ు. ఈ పుస్త్కం వివిధ

ఖయతాలను కలిగ్ి ఉంట్టంది.పరతీ పరతయే క వ్ాయపార్లయవ్ాదేవీకి పరతయే క ఖయతా నిర్వహించబడుత ంది. ఉదాహర్ణకు

అనిన నగద్ు లయవ్ాదేవీలకు ఒక ఖయతా అంట్ే నగద్ు ఖయతా మరియ్ు జీతానికి స్తంబంధించన అనిన చెలిుంపులకు

ఒక ఖయతా అంట్ే జీతం ఖయతాను నిర్వహిస్్ ార్ు.

స్ౌంగరహౌంచడౌం:స్తంగీహించడం అనేది నిరేదశత ఫారాిట్లో వ్రరీకృత డేట్ాను తయ్యర్ు చేయ్డం మరియ్ు డేట్ాను
స్తమరిాంచే పరకయ్
ిీ . స్తంస్తథ పనితీర్ును అర్థ ం చేస్తుకోవ్డానికి అక ంట్ింగ్ యొకక వినియోగదార్ులంద్రికీ

స్తంగీహించడం స్తహాయ్పడుత ంది. వ్ాయపార్ స్తంస్తథ యొకక ఆరిధక సిథ తి మరియ్ు ఆరిథక పరిసిథతిని

కీమబదధధ కరించన స్తంగీహించడం దావరా గురి్ంచవ్చుా. వ్ాయపార్ స్తంస్తథ యొకక ముగ్ింపు లెకకలను సిద్ధం

చేయ్డానికి స్తహాయ్కారిణ్గ్ా స్తంగీహించే పరకయ్

ిీ తోడాడుత ంది.

విశ్లేషౌంచడౌం:విశలుషించడం అనేది అక ంట్ింగ్ యొకక ముఖయమైన పరకయ్

ిీ , విశలుషణ లయభ్నష్ాుల ఖయతా మరియ్ు

ఆసి్ అపుాల పట్ిు అంశాల మధయ గల స్తంబంధానిన నిరాధరిస్త్ ుంది.

5
*Analyzing

Analyzing is the process of presenting accounting information contained in the financial statements.
Analyzing establishes the relationship between the items of Profit and Loss account and Balance
Sheet.

*Interpreting

Interpreting is an activity that involves explaining the meaning and significance of the relations ship
established between the items of the Profit and Loss account and Balance Sheet.

*Reporting

Reporting is the final stage of the accounting part. It is concerned with the communication of end
results of financial statements, to all stakeholders of the accounting

1.2.2 Book keeping

Bookkeeping is a method of recording and organizing all the business transactions that have
occurred within the course of the business. Bookkeeping is the record-making phase of accounting.
Accounting is based on a book-keeping system.

1.3 Book-Keeping Vs Accounting

S.No Book – Keeping Accounting

1 Book - Keeping is the systematic Accounting is the process of analyzing and

recording of financial transactions of interpretation of the Book-keeping record
the business concern
2 The person concerned with book The person concerned with the accounting
keeping is known as a book-keeper is known as an accountant
3 Financial performance cannot be Financial performance can be ascertained
ascertained through the book-keeping through the accounting reports
4 Decisions cannot be taken based on Managerial decisions are taken on the basis
Book keeping of the accounting
5 Book keeping does not require any Accounting requires special skill and
special skill and knowledge knowledge

1.4 Need for Accounting

Accounting is commonly seen as the lifeblood of business as a result of it provides corporations

with the simplest data relating to the inner workings of their operations. Accounting is useful to all
kinds of stakeholders to understand the overall performance of the business concern. Accounting
guides the stakeholders in the following aspects perfectly.

To take appropriate Managerial Decisions

To understand the business concern’s overall financial position and financial condition

6
వివర్ణ:ఇంట్ర్పట్
ర ింగ్ అనేది లయభ్నష్ాుల ఖయతా మరియ్ు బాయలెన్స షథట్ అంశాల మధయ ఏర్ాడిన స్తంబంధాల

యొకక అర్థ ం మరియ్ు పారముఖయతను వివ్రించే ఒక కార్యకలయపం.

నివ్ేదౌంచడౌం:రిప్ రిుంగ్ అనేది అక ంట్ింగ్ భాగం యొకక చవ్రి ద్శ్. ఇది అక ంట్ింగ్ యొకక

వినియోగదార్ులంద్రికీ ఆరిథక నివ్ేదక

ి ల త ది ఫలితాలకు స్తంబంధించన స్తమయచార్ం తెలియ్జ్యంేయ్డంఅక ంట్ింగ్

యొకక ముఖయమైన బాధయత.

బుక్ కీపౌంగ్:బుక్ కీపింగ్ అనేది వ్ాయపార్ స్తమయ్ంలో జ్యంరిగ్ిన అనిన వ్ాయపార్ లయవ్ాదేవీలను రికార్్ చేయ్డానికి
మరియ్ు నిర్వహించే ఒక పద్ధ తి. బుక్ కీపింగ్ అనేది అక ంట్ింగ్ యొకక రికార్ు్ తయ్యరర ద్శ్. అక ంట్ింగ్ బుక్

కీపింగ్ సిస్తుమ మీద్ ఆధార్పడి ఉంట్టంది.

అక ౌంటౌంగ్ ఆవశయక్త:అక ంట్ింగ్ అనేది స్ాధార్ణంగ్ా వ్ాయపారానికి జీవ్నాడిగ్ా కనిపిస్త్ ుంది.దాని ఫలితంగ్ా

వ్ాయపార్ స్తంస్తథ లువ్ారి కార్యకలయపాల అంతర్ీ త పనితీర్ుకు స్తంబంధించన స్తర్ళమన

ై డేట్ాను అందిస్త్ ుంది.

వ్ాయపార్ స్తంస్తథ లుయొకక మొత్ ం పనితీర్ును అర్థ ం చేస్తుకోవ్డానికి అనిన ర్కాల వినియోగదార్ులంద్రికీ

అక ంట్ింగ్ ఉపయోగపడుత ంది. అక ంట్ింగ్ మొత్ ం వినియోగదార్ులకు కింది అంశాలలో స్తంపయర్ణ ంగ్ా

మయర్ీ నిరేదశ్ం చేస్త్ ుంది.

I.తగ్ిన నిరావహక నిర్ణ య్యలు తీస్తుకోవ్డానికి

II. వ్ాయపార్ స్తంస్తథ లు మొత్ ం ఆరిథక సిథ తి మరియ్ు ఆరిథక పరిసతి ిథ ని అర్థ ం చేస్తుకోవ్డానికి

అక ౌంటౌంగ్ యొక్క పర ధాన లక్షయయలు

 వ్ాయపార్ లయవ్ాదేవీల కీమబద్ధ మైన రికార్ు్లను నిర్వహించడం.

 వ్ాయపార్ స్తంస్తథ లుయొకక ఆరిథక సిథ తిని నిరాధరించడం.

 ఆస్తు
్ లు మరియ్ు అపుాల విలువ్లలో అనిన మయర్ుాలను ట్ారక్ చేయ్డం

 వ్ాయపార్ స్తంస్తథ యొకక వివిధ వినియోగదార్ులంద్రికీ స్తమయచార్ం అందించడం

7
1.5 Objectives of Accounting

The main objectives of accounting are:

To maintain the systematic records of the business transactions

To ascertain financial condition of the business concern
To ascertain financial Position of the business concern
To keep the track of all changes in the values of assets and liabilities
To provide information to various stakeholders of the business concern

1.6 Process of Accounting

Identification of Business Transaction

Recording in Journal

Posting in Ledger

Ledger Balancing

Preparation of Trial Balance

Preparation of Final accounts

8
అక ౌంటౌంగ్ పర కయ
ర :వ్ాయపార్ లయవ్ాదేవీల గురి్ంపు - చట్ాు పద్ుదలు రాయ్డం - ఆవ్రాజ ఖయతాలో నమోద్ు

చేయ్డం - ఆవ్రాజ ఖయతాల నిలవలు తేలాట్ం - అంకణా తయ్యర్ుచేయ్డం - ముగ్ింపు లెకకలను

తయ్యర్ుచేయ్డం.

అక ౌంటౌంగ్ స్మాచార్ౌం యొక్కవినియోగదార్ులు

i. అంతర్ీ త వినియోగదార్ులు: య్జ్యంమయనులు - నిరావహకులు - ఉదయ యగస్తు

్ లు

ii.బహిర్ీత వినియోగదార్ులు: పట్టుబడిదార్ులు - ర్ుణదాతలు - స్తర్ఫరాదార్ులు - ఆదాయ్పు పనున శాఖ

అధికార్ులు - నియ్ంతరణ ఏజ్యంరన్ససలు - ఆడిట్ర్ుు

అక ౌంటౌంగ్ శ్ాఖలు:

ఫైనానిి యల్ అక ౌంటౌంగ్: ఫైనానిి య్ల్ అక ంట్ింగ్ అనేది అక ంట్ింగ్ యొకక నిరిదషు శాఖ. ఫన
ై ానిి య్ల్ అక ంట్ింగ్

అనేది నిరిదషు వ్యవ్ధిలోవ్ాయపార్ కార్యకలయపాల నుండి వ్చేా వ్ాయపార్ లయవ్ాదేవీలను రికార్్ చేయ్డం,
స్తంగీహించడం మరియ్ు నివ్ేదించడం. ఫైనానిి య్ల్ అక ంట్ింగ్లో వ్ాయపార్ కార్యకలయపాల యొకక నికర్

ఫలితాలు రరండు ముఖయమన

ై సేుట్ మంట్లలో పరద్రిశంచబడతాయి.అవిలయభ్నష్ాుల ఖయతామరియ్ు ఆసి్ అపుాల

పట్ిు.

మేనేజమౌంట్ అక ౌంటౌంగ్: మేనజ

ే మంట్ అక ంట్ింగ్ అనేది నిర్ణ య్యధికార్ులకు, ఆరిథక స్తమయచార్ం మరియ్ు

వ్నర్ులను అందించే పరకయ్

ిీ . నిర్వహణ అక ంట్ింగ్ యొకక పరధాన లక్షయం వ్ాయపార్ కార్యకలయపాల నియ్ంతరణ

మరియ్ు అభివ్ృదిధ కోస్తం స్తరరన

ై నిర్ణయ్యలు తీస్తుకోవ్డం.

కాస్ట్ అక ౌంటౌంగ్:కాస్టు అక ంట్ింగ్ వ్స్తు

్ ఉతాతి్ లో ఉతాతి్ చేసే వ్స్తు
్ వ్ు యొకక ఖర్ుాల వ్రరీకర్ణ మరియ్ు

వ్యయ్యల విశలుషణ కోస్తం ఉపయోగ్ించే అక ంట్ింగ్.నిరిదషు ఉతాతి్ య్ూనిట్ యొకక మొత్ ం వ్యయ్యనిన
స్తహేత కమన
ై ఖచాతతవంతో నిరాధరించడానికి కాస్టు అక ంట్ింగ్ఉపయోగపడుత ంది మరియ్ు అదే స్తమయ్ంలో

అట్టవ్ంట్ి మొత్ ం వ్యయ్యనిన ఖచాతంగ్ా వ్లు డిస్త్ ుంది.

సామాజిక్ అక ౌంటౌంగ్:స్ామయజిక అక ంట్ింగ్ ను స్ామయజిక బాధయత అక ంట్ింగ్ అని, స్ామయజిక రిప్ రిుంగ్

మరియ్ు స్ామయజిక ఆడిట్ అని కూడాపిలుస్ా్ర్ు.స్తంస్తథ చేపట్ిున స్ామయజిక స్తంక్ేమ కార్యకలయపాలు మరియ్ు

స్తమయజ్యంంపై వ్ాట్ి పరభావ్ాల గురించ స్ాధార్ణ పరజ్యంలకు మరియ్ు ఇతర్అక ంట్ింగ్ వినియోగదార్ులకు

తెలియ్జ్యంేయ్డానికి ఏర్ాడినట్టవ్ంట్ి ఒక అక ంట్ింగ్ విధానం.

9
1.7 Limitations of Accounting

 Items which are in nonmonetary nature though they affect the financial results do not take
into consideration for recording.

 Financial Accounting doesn't provide the results for short intervals less than one year

 Possibilities of conflicting the accounting principles each other

 Financial accounting does not consider the operating efficiency of the concern

 Financial accounting is not useful for price fixation

 Financial accounting allows alternative treatment of certain issues like closing stock
valuation and depreciation etc. which results the position of incomparability

 Financial statements are historical cost base hence it does not give the current market value
of the business concern

1.8 Stake holders of Accounting Information

1.Owners
Internal users 2.Managers
3.Employees

Stake holders of Accounting 1.Investors

Information 2.Lenders
3.Suppliers
4.Customers
External Users 5.Tax
authorities
6.Regulatory
Agencies
7.Auditors

1.8.1 Internal Users of Accounting

Internal users are the first users of accounting. Following are the three forms of internal users and
their data needs

Owners: Owners have to be compelled to assess, however well their business is performing.
Financial statements offer data to owners concerning the profitableness of the business concerns.
Owners are curious about knowing, however risky their business is. Accounting data help owners in
assessing the extent of stability in business over the years and to what extent have changes in

10
ద్ర వ్యయలబణ అక ౌంటౌంగ్: ద్రవ్యయలబణ అక ంట్ింగ్ పరస్త్ ుత ధర్ల ఆలోచనపై వ్ాయపార్ స్తంస్తథ ల ఆరిథక పనితీర్ును

చతీరకరించే పరయ్తనంగ్ా వ్రిణంచబడింది. ద్రవ్యయలబణ అక ంట్ింగ్ పరస్త్ ుత ధర్ స్తూచకలకు అనుగుణంగ్ా వ్ాయపార్

స్తంస్తథ ల యొకక లయభ్నష్ాుల ఖయతా ను మరియ్ు ఆసి్ అపుాల పట్ిుకను స్తర్ుదబాట్ట చేసి పరస్త్ ుత వ్ాయపార్ స్తంస్తథ

యొకక ఆరిథక పరిసతిని

ిథ తెలియ్ చేసట్
ే ట్టవ్ంట్ిఒక అక ంట్ింగ్ విధానం

మానవ వనర్ుల అక ౌంటౌంగ్: మయనవ్ వ్నర్ుల అక ంట్ింగ్ అనేది ఒక స్తంస్తథ యొకక మయనవ్ వ్నర్ులలో చేసన
ి

పట్టుబడులను రికార్్ చేయ్డానికి మరియ్ు మయనవ్ వ్నర్ుల విలువ్లను ఆరిథక ర్ూపంలో స్తుమయర్ుగ్ా

గురి్ంచడం మరియ్ు లెకికంచడానికి ఉపయోగ్ించే ఒక పరతేయక అక ంట్ింగ్ విధానం.

అక ౌంటౌంగ్ స్ూతారలు: అక ంట్ింగ్ స్తూతారలను అక ంట్ింగ్ విధానం లో ఉపయోగ్ించే వివిధ నియ్మ

నిబంధనలుగ్ా పేరకకనవ్చుాను.అక ంట్ింగ్ స్తూతారలుఅనగ్ా వ్ాయపార్ స్తంస్తథ ల యొకక ఖయతా పుస్త్కాలను

తయ్యర్ు చేయ్ునపుాడుపాట్ించాలిసన నియ్మయలు మరియ్ు మయర్ీ ద్ర్శకాలు.అక ంట్ింగ్ స్తూతారలు

స్ాధార్ణంగ్ా ఆమోదించబడిన అక ంట్ింగ్ స్తూతారలుగ్ా(GAAP) మయర్డానికి మరియ్ు స్తర్వతార

ఆమోదించబడడానికి ముఖయంగ్ా ఈ కిీంది పరమయణాలను కలిగ్ి ఉండవ్లసిన ఆవ్శ్యకత ఉననది

1. అక ంట్ింగ్ స్తూతారలు ఉపయోగకర్ంగ్ా ఉండాలి

2. అక ంట్ింగ్ స్తూతారలు నిషాక్షపాతంగ్ా ఉండాలి

3. అక ంట్ింగ్ స్తూతారలు అమలుచేయ్డానికి స్ాధయతను కలిగ్ి ఉండాలి

అక ంట్ింగ్ స్తూతారలను ముఖయంగ్ా రరండు ర్కాలుగ్ా వ్రరీకరించడం జ్యంరిగ్ింది

1. అక ంట్ింగ్ స్ాంపరదాయ్యలు 2. అక ంట్ింగ్ భావ్నలు

1.అక ంట్ింగ్ాసంపరదాయ్యలు:

స్మాచారానిి వ్ెలేడిచేయడౌం:అక ంట్ింగ్ స్తమయచార్ం యొకక అనినర్కాల వినియోగదార్ులకు వ్ాయపార్ స్తంస్తథ కు

చెందిన ఆరిథక నివ్ేదికల యొకక అనిన ర్కాలెన

ై ట్టవ్ంట్ి పరధానమైన స్తమయచారానిన నిషాక్షపాతంగ్ా తెలియ్చేసే

స్ాంపరదాయ్యనిన వ్లు డి చేయ్డం అని అంట్ార్ు.

సథ ర్తవము:ఈ స్ాంపరదాయ్ం పరకార్ము వ్ాయపార్ స్తంస్తథ ల యొకక ఖయతా పుస్త్కాలను తయ్యర్ుచేసేట్పుాడు ఒకే

ర్కమన
ై ట్టవ్ంట్ి అక ంట్ింగ్ స్తూతారలను అనుస్తరించాలి మరియ్ు వివిధ కాలయల కోస్తం ఆరిథక నివ్ేదక
ి లను

సిద్ధంచేసేట్పుాడుఒకే ర్కమన
ై ట్టవ్ంట్ి అక ంట్ింగ్ స్తూతారలను అనుస్తరించాలి.ఉదాహర్ణకు తగుీత నన నిలవల

పద్ధ తిలో సిథ ర్ ఆస్తు

్ లపై తర్ుగుద్ల లెకికంపు చేయ్బడితే అది కొంత కాలయనికి అనుస్తరించాలి.

11
economic factors affected the rock bottom line of the business. Such data helps owners to determine
if they must invest any more within the business or if they must use their money resources
elsewhere in additional promising business ventures.

Managers: Managers would like to know the accounting data to set up, monitor, and create
business choices. Managers have to be compelled to assign the money, human resources, and
capital resources towards competitory wants of the business through the budgeting method.
Preparing and watching budgets effectively needs reliable information. Management needs
accounting data to watch the performance of the business by comparison against past performance;
Managers consider information to create their business choices like investment, finance, and rating
choices.

Employees: Employees have an interest in knowing, however well a corporation is performing

because it may have implications for his or her job security and financial gain. Many workers
review accounting data within the annual report simply to induce a stronger understanding of the
company’s business.

1.8.2 External Users of Accounting

External users are the secondary users of accounting.

Investors: Investors have to be compelled to acumen well their investment is performing or not.
Investors primarily consider the money statements revealed by firms to assess the profitableness,
valuation, and risk of their investment. Investors use accounting data to work out whether to
continue or not with the investment.

Lenders: Lenders use accounting data of borrowers to assess their credit goodness, i.e. their ability
to pay back any loan. Lenders provide loans and different credit facilities on terms that supported
the assessment of monetary health of borrowers.

Suppliers: Just like lenders, suppliers would like accounting data to assess the credit-worthiness of
their customers before providing merchandise and services on a credit

Customers: Most customers don’t care about the money data of their suppliers. Industrial
customers but would like accounting data concerning their suppliers so as to assess whether or not
they have the desired resources that are necessary for a gradual offer of products or services within
the future. Continuity in the offer of quality inputs is crucial for any business.

Tax Authorities: Tax authorities confirm whether or not a business declared the proper quantity of
tax on its tax returns.

Regulatory Agencies: Company Law Board, Registrar of companies, and other government
agencies also use accounting information as per their requirement.

Auditors: External auditors examine the financial statements and the underlying accounting record
of businesses in order to form an audit opinion.

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2. అక ౌంటౌంగ్ భావనలు:
వ్ాయపార్ అసి తవ భావన: వ్ాయపార్ అసి్ తవ భావ్న పరకార్ము వ్ాయపార్ స్తంస్తథ ద్ృషిులో వ్ాయపార్ స్తంస్తథ య్జ్యంమయనిని వ్ేర్ుగ్ా
చూస్ా్ర్ు. వ్ాయపార్ స్తంస్తథ కు పరతేయక అసి్ తవం ఉంద్ని భావించ య్జ్యంమయనివ్యకి్గత లయవ్ాదేవీలకు మరియ్ు వ్ాయపార్
లయవ్ాదేవీలకు మధయ వ్యతాయస్ానిన గురి్ంచ, వ్ాయపార్ లయవ్ాదేవీలను మయతరమే అక ంట్ింగ్ పుస్త్ కాలలో నమోద్ు చేస్్ ార్ు.

ద్వౌంద్వ ర్ూప భావన: ద్వంద్వ ర్ూప భావ్న అనేది డబుల్ ఎంట్రర అక ంట్ింగ్ సిస్తుమ యొకక పరధాన

అంశ్ం.ద్వంద్వ ర్ూప భావ్న ప్రకారం పరతీ వ్ాయపార్ లయవ్ాదేవీని రరండు అంశాలుగ్ాఅనగ్ా1.పరయోజ్యంనం పర ందిన

అంశ్ం 2. పరయోజ్యంనం ఇచాన అంశాలుగ్ా గురి్ంచ అక ంట్ింగ్ పుస్త్కాలలో డెబిట్ మరియ్ు కరడ
ీ ిట్ గ్ా నమోద్ు

చేస్తారు.

ద్ర వయ కొలమాన భావన:ఈ భావ్న పరకార్ం వ్ాయపార్ వ్యవ్హారాలను పుస్త్కాలలో నమోద్ు చేసేట్పుాడు ద్రవ్య

ర్ూపంలో కొలవ్గలిగ్ిన అంశాలను మయతరమే నమోద్ు చేస్్ ార్ు. ద్రవ్య ర్ూపంలో కొలవ్ లేని అంశాలను వ్ాయపార్

పుస్త్కాలలో నమోద్ు చేసే స్తంద్ర్భంలో విస్తిరిస్్ ార్ు.

వయయ భావన: ఈ భావ్న పరకార్ం వ్ాయపార్ వ్యవ్హారాలలో వ్ాస్త్వ్ంగ్ా చెలిుంచన వ్యయ్యలను మయతరమే నమోద్ు

చేయ్యలి.ఆసి్ విలువ్లు అక ంట్ింగ్ పుస్త్కాలలో చారితరక వ్యయ్ం ఆధార్ంగ్ా నమోద్ు చేయ్బడతాయి.

అక ౌంటౌంగ్ కాల భావన : ఈ భావ్న పరకార్ం ఆరిథక నివ్ేదికలను ఒక నిరరణత కాలయనికి తయ్యర్ుచేసి ఫలితాలను

లెకికంపు చేయ్ుట్ కొర్కు ఒక నిరరణత కాల వ్యవ్ధిని అనుస్తరిస్్ ార్ు. ఈ కాలవ్యవ్ధి అక ంట్ింగ్ కాల వ్యవ్ధిగ్ా

పరిగణ్ంచబడుత ంది, ఇది స్ాధార్ణంగ్ా ఒక స్తంవ్తసర్ కాలము ఉంట్టంది. అక ంట్ింగ్ భావ్న వివిధ కాలయల

ఆరిథక నివ్ేదికలను స్తరిప్ లాడానిన స్తులభ్తర్ం చేస్త్ ుంది.

రాబడి గురిిౌంపు భావన: ఈ భావ్న పరకార్ము ఆదాయ్యలు నగద్ు ర్ూపంలో వ్స్తూలు అయినపుాడు మయతరమే

ఆదాయ్ంగ్ా పరిగణ్ంచాలి. వ్స్తు

్ వ్ులు లేదా సేవ్లు డెలివ్రర చేయ్బడినపుాడు లేదా అందించన తరావత

మయతరమే ఆదాయ్యనిన గురి్ంచాలి అనే స్తూతరమే రాబడి గురి్ంపు భావ్న.

జతపరిచే భావన: ఒక నిరరణత కాలంలో లో వ్ాయపార్ స్తంస్తథ ఆరిజంచే య్దార్ధ లయభానిన లెకకి ంచడానికి ఆ కాలయనికి

స్తంబంధించన వ్యయ్యలను మరియ్ు అదే కాలయనికి స్తంబంధించన ఆదాయ్యలను మయతరమే జ్యంతచేసి వ్ాయపార్

ఫలితాలను లెకకి ంచాలి అనే నియ్మమే జ్యంతపరిచే భావ్న.

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1.9 Branches of Accounting

Financial Accounting
Branches of Accounting

Management Accounting

Cost Accounting

Social Accounting

Inflation Accounting

Human Resource Accounting

Financial Accounting: Financial accounting is a specific branch of accounting. Financial

Accounting is a process of recording, summarizing, and reporting the business transactions ensuing
from business operations over a period of time. In Financial Accounting, the net results of the
business operations are presented in two important statements, they are Profit and loss account and
the Balance Sheet.

Management Accounting: Management accounting is a process of providing financial information

and resources to the managers for decision-making. The main objective of management accounting
is to take proper decisions, for controlling and developing business activities.

Cost Accounting: Cost Accounting may be defined as “Accounting for cost classification and
analysis of expenditure as will enable the total cost of any particular unit of production to be
ascertained with a reasonable degree of accuracy and at the same time to disclose exactly how
much total cost is constituted”.

Social Accounting: Social Accounting, also known as Social Responsibility Accounting, Socio-
Economic Accounting, Social Reporting, and Social Audit, aims to measure and inform the general
public about the social welfare activities undertaken by the enterprise and their effects on society.

Inflation Accounting: Inflation accounting is described as an effort to portray the financial

performance of business enterprises on the idea of current prices. Inflation accounting requires
statements to be adjusted consistently with price indexes.

Human Resource Accounting: Human Resource Accounting is the procedure of figuring out and
measuring records approximately to record the Investments made in the Human Resources of an
organization.

14
 నిష్పక్షపాత సాక్షయ భావన: వ్ాయపార్ వ్యవ్హారాలను స్తంస్తథ యొకకఅక ంట్ింగ్ పుస్త్కాలలో నమోద్ు చేసట్
ే పుాడు

మరియ్ు నివ్ేదికలను తయ్యర్ు చేయ్ునపుాడు గణకశాస్త్ ర పరకిీయ్లను నిషాక్షపాతముగ్ా నిర్వరి్ంచవ్లసిన

అవ్స్తరానిన తెలియ్జ్యంేసే భావ్న నిషాక్షపాత స్ాక్షయ భావ్న.వ్ాయపార్ స్తంస్తథ అక ంట్ింగ్ పుస్త్కాలలో నమోద్ు

చేసిన పరతి వ్యవ్హారానికి ర్ుజువ్ులు ఉండాలి.

WHO IS THE FATHER OF ACCOUNTING?

Source: https://twitter.com/hashtag/historyofaccounting?src=has

15
1.10 Principles of Accounting: According to the American Institute of Certified Public
Accountants (AICPA), the principles which have substantial authoritative support become a part of
the Generally Accepted Accounting Principles (GAAP).The general acceptance of the accounting
principles or practices depends upon how best they satisfy the following criteria

(a) Relevance: The relevance principle is an accounting principle that describes in order for
financial information to be useful to internal and external users, it must be relevant.

(b) Objectivity: Accounting information is should not influence by personal bias or judgment.
Objectivity connects reliability and trust in accounting information.

(c) Feasibility: The accounting principle should be practicable. The principles should be easy to
use and must be feasible; it cannot be complex in nature.

Accounting Principles

A. Accounting Conventions B. Accounting Concepts

1.Convention of Disclosure 1.Going Concern Concept

2. Convention of Consistency 2.Accrual Concept

3. Convention of Conservatism 3.Business Entity Concept

4. Convention of Materiality 4.Dual aspect Concept

5.Money Measurement Concept

6.Cost Concept

7.Accounting Period Concept

8.Realisation Concept

9.Matching Concept

10.Objective Evidence Concept

1.10.1 Accounting Conventions: Accounting Conventions denote the traditions, usage, and
customs that are in practice. Accounting Conventions need not be a universal common application.
Conventions in accounting have been evolved and developed to bring about uniformity in the
maintenance of accounts. The most important conventions are as follows

16
A1. Convention of Disclosure: The purpose of this convention is to communicate all material and
relevant facts of financial statements to all stakeholders of the accounting information. The
financial information must be presented in such a manner that they disclose fully and fairly.

A2.Convention of Consistency: Consistency idea is very important attributable to the requirement

for equivalence, it permits investors and different users of financial statements to simply and
properly compares the financial statements of an organization. Convention of Consistency means
the same accounting principles should be followed and used for preparing financial statements for
different periods, for example, if depreciation is charged on fixed assets under the diminishing
balances method, it should be followed over a period of time.

A3. Convention of Conservatism: According to the Convention of Conservatism, the business

concerns have to record all anticipated or future losses, however ignore all the anticipated revenues
or future revenues till they're realized. The convention followed according to the great saying of
“prevention is better than cure”. For example, creating the provision for doubtful debts out of
current year profits.

A4. Convention of Materiality: According to the Convention of Materiality, only those events
should be recorded which have significant material details and ignore insignificant details.
Materiality is a concept relates to the importance of the amount of transaction item, or event.

1.10.2 B. Accounting Concepts: Accounting Concepts are the basic rules, assumptions, or
conditions upon which accounting are based. Accounting concepts are the generally accepted
accounting principles, which form the fundamental basis of preparation of universal acceptable
form of financial statements consistently.

B1. Going Concern Concept: According to this concept, the business concern is assumed to have
a fairly long life to continue the business, and business transactions are recorded in the accounting
books with this point of view. The underlying assumption of going concern is that the entity has
neither the intention nor the need, to liquidate or curtail materially the size of its operations.

B2. Accrual Concept: Under the Accrual concept of accounting, profits have to be recorded when
they are earned irrespective of received. Expenses, on the alternative hand, have to be recorded
when they may be incurred.

B3. Business Entity Concept: This concept implies that a business concern is having a separate
entity and it is distinct from the owner. According to this concept, the distinction is made between
personal transactions and business transactions of the owner. The real picture of the firm will be
available only when we make a distinction between personal transactions and business transactions.
The accounting equation that supports the business entity concept is

Liabilities + Capital = Assets

17
B4. Dual aspect Concept: The Dual aspect Concept is the core of the double-entry system of
accounting. It recognizes every business transaction having two-fold aspects, as yielding of the
benefit and giving that benefit.

B5. Money Measurement Concept: According to the Money Measurement Concept, business
transactions that are capable of being measured in terms of money be only to be recorded in the
books of account.

B6. Cost Concept: The values of an asset to be recorded in the accounting books on the basis of
historical cost, in other words acquisition cost. Assets are not valued based on market value because
these values keep changing from time to time.

B7. Accounting Period Concept: According to this concept, financial statements should be
prepared at regular intervals to ascertain the performance of the business concern. The regular
interval can be considered an accounting period, it should be normally one year. The periodicity
concept facilitates comparing financial statements of different periods.

B8. Realization Concept: The realization concept in accounting also called revenue recognition
principle refers to the appliance of accruals concept towards the recognition of revenue (income).
As per this principle, revenue is recognized by the vendor once it's attained no matter whether or
not money from the transaction has been received or not.

B9. Matching Concept: According to this concept, the expenses for an accounting period should
be matched against the related incomes. This concept is based on the accrual concept as it considers
the occurrence of expenses and income but doesn't take into account actual inflow or outflow of
cash.

B10.Objective Evidence Concept: According to the objectivity concept, business accounting

transactions should be free from accountant bias. All accounting records should be presented in
financial statements should have objective evidence in the background.

WHAT ARE THE BEST ACCOUNTING SOFTWARES IN INDIA?

1. Tally.ERP 9 2. QuickBooks 3. IndiaZoho 4. BooksMargERP 9+ 5. Vyapar

6. MyBooks 7. Busy Accounting 8. Logic 9. Giddh 10. ProfitBooks 11. Saral

18
 Test your Understanding

I. Fill in the Blanks

1. Accounting Process starts with ---------------------------

2. Father of Accounting -------------------------------------

3. ICAI Stands for -----------------------------------------------

4. AICPA Stands for --------------------------------------------

5. Investors are ----------------------------------------- users of accounting information

II. True or False

1. Kautilya, also identified as Vishnugupta and Chanakya

2. Book keeping is a preliminary process before accounting

3. Accounting is a part of Book keeping

4. Reporting is the final stage of accounting part

5. Social Accounting is a branch of accounting

III. Multiple Choice Questions (MCQ)

1. Which of the following is called Language of the business?

a) Accountancy b) Economics c) Statistics d) None of these

2. Which of the following is the base for accounting?

a) Transaction b) Book-keeping c) Journal d) Event

3. Identify the external user of accounting information

a) Owners b) Managers c) Employees d) Investors

4. Identify the internal user of accounting information

19
 a) Government b) Suppliers c) Customers d) Employees

5. Luca Pacioli’s, book Summa de Arithmetica, Geometria, Proportion at

Proportionality (Review of Arithmetic and Geometric proportions) was published
in the year
a) 1494 b) 1449 c) 1469 d) 1479

6. The Institute of Chartered Accountants of India (ICAI) is came into existence

in the year
a) 1929 b) 1939 c) 1949 d) 1959

7. Which of the following is not a branch of accounting?

a) Financial Accounting b) Management Accounting
c) Cost Accounting d) Stores Accounting

8. Ram started business with initial investment of Rs.1,00,000/-. it is shown in

Balance Sheet as a capital on liabilities side according to

a) Business Entity Concept b) Going Concern Concept

c) Accounting Period concept d) Matching Concept
9. Ravi appointed as a Manager for X&Co for Rs.50,000/- salary per
month he is Technically having high expertise, in the books of X&Co as a salary
50,000 only recorded due to which concept
a) Business Entity Concept b) Going Concern Concept
c) Accounting Period concept d) Money Measurement Concept
10. Closing stock is valued at original cost or market price is whichever is less
according to
a) Convention of Materiality b) Convention of Conservatism
c) Convention of Disclosure d) None

IV. Short Answer Questions (SAQ)

1. Explain briefly the history of accounting

2. Differences between Book-keeping and Accounting

3. What is the need for Accounting substantiating with your own words?

4. What are the objectives and limitations of Accounting?

5. Explain the process of Accounting.

20
 V. Long Answer Questions (LAQ)

1. Explain in detail various users of Accounting Information

2. Write a detailed note on various branches of accounting?

3. What are the Accounting Principles? write about application of accounting

Principles?

VI. Additional Resources for Advanced Learning

Study Material (Handouts):

https://nios.ac.in/media/documents/SrSec320NEW/320_Accountancy_Eng/320_Accountancy
_Eng_Lesson1.pdf
https://nios.ac.in/media/documents/SrSec320NEW/320_Accountancy_Eng/320_Accountancy
_Eng_Lesson2.pdf
https://nios.ac.in/media/documents/SrSec320NEW/320_Accountancy_Eng/320_Accountancy
_Eng_Lesson3.pdf
https://nios.ac.in/media/documents/SrSec320NEW/320_Accountancy_Eng/320_Accountancy
_Eng_Lesson4.pdf

Reference Text Books:

1. R L Gupta & V K Gupta, Principles and Practice of Accounting, Sultan Chand &Sons
2. S.P. Jain & K.L Narang, Accountancy-I, Kalyani Publishers
E - Text Books:

https://icmai.in/upload/Students/Syllabus2016/Foundation/Paper-2New-29012021.pdf
http://www.ddegjust.ac.in/studymaterial/mba/cp-104.pdf

YouTube Links:

https://www.youtube.com/embed/36r-JAmvB7Q
https://www.youtube.com/embed/DvfL3AdXB9M
https://www.youtube.com/embed/aU175xvYgB8
https://www.youtube.com/embed/GnE65vO6crQ
https://www.youtube.com/embed/Xnif5hCaq2M
https://www.youtube.com/embed/JjC0VH2_6SI

Power Point Presentations:

https://www.slideshare.net/YousefHani/introdution-to-accounting
https://www.slideshare.net/sukirat91/accounting-concepts-and-conventions

21
VII. Suggested Activity

1. Visit a firm (Individual or Group) and observe the maintenance of Book Keeping Process

2.Learn Computer based Accounting system through Tally

I. Fill in the Blanks

Q.No 1.Identification 2.Luca 3. Institute of 4. American 5.External Users

of the business Pacioli Chartered Institute of
transactions Accountants Certified Public
of India Accountants

II. True or False

Q.No 1.T 2.T 3.F 4.T 5.T

III. Multiple Choice Questions (MCQ)

Q.No 1.A 2.B 3.D 4.D 5.A 6.C 7.D 8.A 9.A 10.B

22
Accounting: Accounting is the exercise of recording, classifying, and reporting on enterprise
transactions for evaluating performance of an enterprise.

Book- Keeping: Maintaining records for every business transaction for processing the accounting.

Accounting principles: Also termed as Postulates of accounting which means certain rules and
regulations which we follow in process of accounting

Accounting Cycle: Complete procedure of the accounting in a sequential manner

Accounting Equation: Assets = Capital + Liabilities

Accounting Conventions: Accounting Conventions denote the traditions, usage and customs
which are in practice of maintaining accounting records.

Accounting Concepts: Accounting Concepts are the basic rules, assumptions or conditions of
accounting.

Convention of Disclosure: Communication of all material and relevant facts of financial

statements to the all stake holders of the accounting information.

Convention of Consistency: Convention of Consistency means the same accounting principles

should be followed and used for preparing financial statements for different periods.

Convention of Materiality: Business Transactions should be recorded in accounting books which

have significant material details and ignore insignificant details.

Convention of Conservatism: The business concerns have to record all anticipated or future
losses, however ignore all the anticipated revenues or future revenues till they're realized.

Business Entity Concept: The business is treated as separate entity and it is distinct from the
owner.

Going Concern Concept: The business concern is assumed to have fair long life to continue the
business.

Accrual Concept: Incomes have to be recorded when they earned, but expenses have to be
recorded when they are incurred.

Dual aspect Concept: Recognizing every business transactions having two fold aspects, as
receiver of the benefit and giving that benefit.

23
Money Measurement Concept: Business transactions that are measured in terms of money be
only to be recorded in the books of accounting.

Cost Concept: Recording the values of an asset in accounting books on the basis of historical cost
or acquired cost.

Accounting Period Concept: Financial statements should be prepared at regular intervals to

ascertain the performance of the business concern. The regular interval can be considered
accounting period it should be normally one year.

Realization Concept: Revenue is recognized by the vendor once it's attained no matter whether or
not money from the transaction has been received or not.

Matching Concept: According to this concept the expenses for an accounting period should be
matched against the related incomes.

Objective Concept: The accounting records should be presented on financial statements should
have objective evidence.

FATHER OF ACCOUNTANCY IN INDIA

Shri Kalyan Subramani Aiyar (1859-1940), known as K. S. Aiyar,

was a pioneer of commercial and accounting education in India.
He started and established educational courses and institutions
dedicated to commerce and accounting.

Source:https://jsaandco.wordpress.com/2016/09/20/father-of-accountancy-in-india/

24
 2.1 Double Entry

Contents
System
Learning Outcomes

2.2 Classification of
1.Understand the Accounts
Double Entry System
2.3 Meaning of
2.Understand the Journal
Classification of
Accounts 2.4 Significance of
Journal
3.Understand the
need for Journal and 2.5 Golden rules of
its sub divisions Accounting
4.Understand the 2.6 Process of
process of Journalizing
Journalizing 2.7 Practical
Illustrations

25
 2.1 Double Entry System
Double-entry book-keeping is a system of book-keeping where every entry to an account
requires a corresponding and opposite entry to a special account. The double-entry system
has two equal and corresponding sides referred to as debit and credit for every business
transaction. The left-hand side is debit and therefore the right-hand side is a credit of an
account.
Advantages of Double Entry System

 Double entry system maintains complete record of all business transactions

 Double entry system is helpful for measuring arithmetical accuracy of the account
books
 Double entry system maintains personal and impersonal accounts and both the effects
of the transactions are recorded.
 Double entry system is helpful for detection and prevention of errors and frauds
 Double entry system provides the complete picture of the business concern. Hence,
decisions can be made perfectly based on the accounting information.

2.2 Classification of Accounts

It is highly significant to know the classification of accounts and their treatment in a double-
entry system of accounts for recording the business transactions properly.

Accounts

A. Personal Accounts B. Impersonal Accounts

Natural Artificial Representative Real Nominal

Personal or Legal Personal Accounts Accounts
Accounts Personal Accounts
Accounts

Tangible Real Intangible Real

Accounts Accounts

26
 చిట్టా

జంట్ పద్దు విధానం

జంట పద్దు విధానం లో పరతి వ్యాపయర వ్ావ్హారంలో ఈ రండు అంశయలనద గుర్తంచి, ఒక అంశయనికి డెబిట్

గయనద, మరొక అంశయనిి కెడట్

ి గయనద భావించి, ఖాతా పుస్త కయలనద నిరవహిస్త యరు. పరతి వ్యాపయర

వ్ావ్హారంలో ఈ రండు అంశయలనద గుర్తంచడానికి పరయోజనం ప ందే అంశము మర్యు పరయోజనానిి

స్మకూరచే అంశముగయ విభజంచి డెబిట్ మర్యు కడ

ె ట్
ి లనద నిరణయిస్యతరు. జంట పద్దు విధానం లో

డెబిట్ మర్యు కెడట్

ి లనద నిరణయించడానికి ఖాతాలనద మూడు రకయలుగయ వ్రగీకర్ంచి పరతీ ఖాతా కు

డెబిట్ మర్యు కడ
ె ిట్ కు స్ంబంధించిన స్ూతారలనద అందించడం జర్గ్ంది.

జంట పద్దు విధానం లో వ్యాపయర లావ్యదేవీలు డెబిట్ లు మర్యు కెడట్

ి ల పరంగయ నమోద్ద

చేయబడతాయి. ఒక ఖాతాలో డెబిట్ మరొక కడ

ె ిట్నద భరగత చేస్త దంది కయబటటి, అనిి డెబిట్ల మొత్త ం అనిి

కెడిట్ల మొతాతనికి స్మానంగయ ఉండాలి. బుక్ కీపంగ్ యొకక డబుల్-ఎంటరర సస్ి మ్ అక ంటటంగ్ పరకిెయనద

పయరమాణీకర్స్త దంది మర్యు త్యారు చేసన ఆర్ిక నివ్ేదక

ి ల ఖచిేత్తావనిి మెరుగుపరుస్ద
త ంది ,

మర్యు లోపయలనద మెరుగుపరచడానికి అనదమతిస్ద

త ంది.

ఖాతాలు రకాలు

1. వ్యకతిగత ఖాతా: వ్యాపయర వ్ావ్హారయలలో వివిధ రకయల ైన వ్ాకుతలకు స్ంబంధించిన వ్ావ్హారయలనద

నమోద్ద చేయడానికి వ్ాకితగత్ ఖాతాలనద నిరవహిస్త యరు. ఈ ఖాతాలనద స్హజ వ్ాకితగత్ ఖాతాలు, కృతిరమ

వ్ాకితగత్ ఖాతాలు మర్యు పయరతినిధాపు వ్ాకితగత్ ఖాతాలుగయ నిరవహించడం జరుగుత్ ంది. స్యధారణ

వ్ాకుతలకు స్ంబంధించిన వ్ావ్హారయలు స్హజ వ్ాకితగత్ ఖాతాలుగయ, వివిధ రకయల స్ంస్ి లకు స్ంబంధించిన

వ్యాపయర వ్ావ్హారయలనద కృతిరమ వ్ాకితగత్ ఖాతాలుగయ, ఇత్ర వ్ాకుతలకు చెలిలంచవ్లసన లేదా ఇత్ర

వ్ాకుతల నదండి రయవ్లసన అంశయలకు స్ంబంధించిన వ్ావ్హారయలనద పయరతినిధాపు వ్ాకితగత్ ఖాతాలుగయ

నిరవహించడం జరుగుత్ ంది. వ్ాకితగత్ ఖాతాలలో వ్ావ్హారయలనద డెబిట్ మర్యు కెడట్

ి అంశయలుగయ

నమోద్ద చేయడానికి ఈ కిెంది స్ూత్రమునద ఉపయోగ్స్త యరు

డెబిట్: పరయోజనం ప ందిన వ్యకతిగత ఖాతా

ె ిట్: పర యోజనం ఇచిిన వ్యకతిగత ఖాతా
కరడ

27
A. Personal Accounts

Personal accounts in business operations are related to individuals, debtors and creditors,
firms, companies, etc. These accounts are related to natural persons, artificial persons, and
representative persons.

a) Natural Personal Accounts: These accounts are relating to transactions of human beings
like Sai, Santhosh, etc

b) Artificial Personal Accounts or Legal Personal Accounts: Artificial Persons or Legal

Persons having existence by the creation of law and thereby having a legal entity. In Business
point of view, business entities are having separate legal entity and they are recognized as
legal persons. For example, X&Co, Clubs, Societies, Institutions, etc.

c) Representative Personal Accounts: Representative Personal accounts are not in the name
of any persons or institutions but are represented as personal accounts. These are the accounts
that represent a certain person or group of persons. For example, accounts like Prepaid and
Outstanding salaries which represent the amount paid in advance and payable to the
employees respectively.

B. Impersonal Accounts

Impersonal accounts are relating to Assets, Expenses, Losses, Incomes, and Gains. Simply
we can say that other than personal accounts. Impersonal accounts consist of Real accounts
and Nominal Accounts.

a) Real Accounts: Accounts that are related to assets of the business concern these accounts
are again classified as Tangible Real Accounts and Intangible Real Accounts.

i) Tangible Real Accounts: These accounts are relating to tangible assets which are those
assets identified physically. For example, land and Buildings, Machinery, Furniture, etc.

ii) Intangible Real Accounts: These accounts are relating to intangible assets which are
those assets not identified physically. For example, Goodwill, Patents, Copy rights, Trade
marks.

2.3 Meaning of Journal

The word Journal is derived from the French word "Jour" which means diary. Journal is a
daily record of business transactions. Journal records the transactions in chronological order.
Journal is also known as the book of original entry or Primary Book. All the business
transactions are recorded first in this book under the double-entry system. The Process of
recording the business transactions into the journal is called journalizing.

28
2. వాస్ి విక ఖాతాలు:వ్యాపయర వ్ావ్హారయలలో వివిధ రకయల ైన ఆస్ద
త లకు స్ంబంధించిన వ్ావ్హారయలనద

ఖాతా పుస్త కయలలో నమోద్ద చేయడానికి వ్యస్త విక ఖాతాలు నిరవహిస్త యరు.వ్యస్త విక ఖాతాలలో

వ్ావ్హారయలనద డెబిట్ మర్యు కెడట్

ి అంశయలుగయ నమోద్ద చేయడానికి ఈ కిెంది స్ూత్రమునద

ఉపయోగ్స్త యరు

డెబిట్: స్ంస్థ లోనికత వ్చిిన ఆస్తి ఖాతా

కరడ
ె ిట్: స్ంస్థ నదండి బయట్కు వెళ్లిన ఆస్తి ఖాతా

3.నామమాతరపు ఖాతాలు:వ్యాపయర వ్ావ్హారయలలో వివిధ రకయల న

ై ఖరుేలు, నష్యిలు, ఆదాయాలు,
లాభాలకు చెందిన అంశయలనద నమోద్ద చేయడానికి నామమాత్రపు ఖాతాలు నిరవహిస్త యరు.నామమాత్రపు
ఖాతాలలో వ్ావ్హారయలనద డెబిట్ మర్యు కడ
ె ిట్ అంశయలుగయ నమోద్ద చేయడానికి ఈ కిెంది
స్ూత్రమునద ఉపయోగ్స్త యరు
డెబిట్: అనిి రకాల ైన ఖరచిలు మరియు నష్ాాలు
కరడ
ె ిట్: అనిి రకాల ైన ఆదాయాలు మరియు లాభటలు

చిట్టా (జరిల్):జరిల్అనే పద్ం ఫ్రంచ్ పద్ం "జోర్" నదండి వ్చిేంది, అంటే రోజు వ్యర్ డెర
ై గ అని అరధ ం.
జరిల్ అనేది వ్యాపయర లావ్యదేవీల యొకక రోజువ్యరగ ర్కయరుు. జరిల్,వ్యాపయర
లావ్యదేవీలనద,వ్ావ్హారయలు జర్గ్న కయలకెమంలో నమోద్ద చేస్త దంది. జరిల్ నద బుక్ ఆప్ ఒర్జనల్
ఎంటరర లేదా ప్ైమరగ బుక్ అని కూడా అంటారు. డబుల్ ఎంటరర సస్ి మ్ కింద్ ఈ పుస్త కంలో అనిి వ్యాపయర
లావ్యదేవీలు ముంద్దగయ నమోద్ద చేయబడతాయి. వ్యాపయర లావ్యదేవీలనద జరిల్లో ర్కయర్ు చేసే
పరకిెయనద జరిల ైజంగ్ అంటారు.

Identify the Debit or Credit to the following?

CATEGORY BALANCE INCREASE DECREASE

Assets
Liabilities
Capital
Income
Losses
Expenses

29
 Proforma of Journal:

Journal

Date Particulars L.F Debit Rs. Credit Rs.

2.4 Significance of Journal:

 Journal provides the business data in chronological order which will help us to
process the verification simply and easily
 Journal Provides Complete Record of Business Operations
 Journal helps to detect and prevent errors and frauds
 The journal is treated as first record in the process of recording business transactions.
It is helpful for posting business transactions to the ledger.

2.5 Golden rules of Accounting:

Golden Rules of Accounting

Personal Accounts Real Accounts Nominal Accounts

Debit: The Receiver Debit: What comes in Debit: All Expenses and
Credit: The Giver Credit: What goes out Losses
Credit: All Incomes and
Gains

30
2.6 Journalizing Process:

Journalizing Process

• Identify the two accounts of the transaction

1

• Classify the accounts into Personal,Real and

2 Nominal Accounts

• Note Down the nature of Accounts

3

• Ascertain the Debit or Credit according to the

4 Golden Rules of Accounting

2.7 Practical Illustrations

2.7.1. Journalize the following transactions in the books of Sony.

Date Transactions Amount

1-6-2021 Sony Started business with capital 1,00,000
2-6-2021 Purchased goods for cash. 20,000
5-6-2021 Sold goods for cash. 50,000
30-6-2021 Salaries Paid 10,000
30-6-2021 Office Expenses 5,000
30-6-2021 Goods Purchased from Rajesh on credit 25,000

31
Solution:

Approach
Transaction Step I Step II Step III Step IV

Find out two Classification Identify the Ascertain Debit and

accounts of Accounts Characteristics Credit according to
of the account Golden Rule of
Accounting

Sony Started Cash A/c Real A/c Cash comes in Debit - Cash A/c
business with Capital A/c Personal A/c Giver Credit - Capital A/c
capital
Purchased goods Purchase A/c Nominal A/c Expenses Debit - Purchase A/c
for cash. Cash A/c Real A/c Cash goes out Credit - Cash A/c
Sold goods for Cash A/c Real A/c Cash comes in Debit - Cash A/c
cash. Sales A/c Nominal A/c Income Credit - Sales A/c
Salaries Paid Salaries A/c Nominal A/c Expenses Debit - Salaries A/c
Cash A/c Cash A/c Cash goes out Credit - Cash A/c
Office Expenses Office Nominal A/c Expenses Debit - Office
expenses A/c Cash A/c Cash goes out Expenses A/c
Cash A/c Credit - Cash A/c
Goods Purchased Purchase A/c Nominal A/c Expenses Debit - Purchase A/c
from Rajesh on Rajesh A/c Personal A/c Giver Credit - Rajesh A/c
credit

Journal Entries in the Books of Sony

Date Particulars L. Debit Credit
F Amount(Rs) Amount(Rs)

1-6-2021 Cash A/c Dr 1,00,000

To Capital A/c 1,00,000
(Being business started with cash)

2-6-2021 Purchase A/c Dr 20,000

To Cash A/c 20,000
(Being goods purchased on cash)
5-6-2021 Cash A/c Dr 50,000
To Sales A/c 50,000
(Being goods sold for cash)
30-6-2021 Salaries A/c Dr 10,000
To Cash A/c 10,000
(Being salaries paid )
30-6-2021 Office Expenses A/c Dr 5,000
To Cash A/c 5,000
(Being office expenses paid)
30-6-2021 Purchases A/c Dr 25,000

32
 To Rajesh A/c 25,000
(Being goods purchased from
Rajesh on credit)

Journal Entries in the books of Shafi

Date Particulars L Debit Credit

. Amount(Rs)
F Amount(Rs)

1-7-2021 Cash A/c Dr 2,00,000

To Capital A/c 2,00,000
(Being business commenced with
cash)
2-7-2021 Purchases A/c Dr 1,00,000
To Cash A/c 1,00,000
(Being goods purchased on cash)
3-7-2021 Purchases A/c Dr 50,000
To Ramesh A/c 50,000
(Being goods purchased on credit)
5-7-2021 Cash A/c Dr 75,000
To Sales A/c 75,000
(Being goods sold for cash)
8-7-2021 Ravi A/c Dr 50,000
To Sales A/c 50,000
(Being goods sold on credit)
10-7-2021 Ramesh A/c Dr 50,000
To Cash A/c 50,000
(Being cash paid to Ramesh)
12-7-2021 Cash A/c Dr 50,000
To Ravi A/c 50,000
(Being cash received from Ravi)
14-7-2021 Furniture A/c Dr 25,000
To Cash A/c 25,000
(Being furniture purchased)
18-7-2021 Office expenses A/c Dr 5,000
To Cash A/c 5,000
(Being Office expenses paid)
21-7-2021 Machinery A/c Dr 2,00,000
To Cash A/c 2,00,000
(Being machinery purchased)
22-7-2021 Cash A/c Dr 20,000
To Furniture A/c 20,000
(Being furniture sold)
24-7-2021 Sales Returns A/c Dr 5,000
To Ravi A/c 5,000
(Being goods returned by customer
Ravi) 33
 25-7-2021 Ramesh A/c Dr 2,000
To Purchase Returns A/c 2,000
(Being goods returned to supplier
Ramesh)

28-7-2021 Commission A/c Dr 10,000

To Cash A/c 10,000
(Being commission paid)
30-7-2021 Rent A/c Dr 25,000
To CashA/c 25,000
(Being Rent paid)
31-7-2021 Salaries A/c Dr 50,000
To Cash A/c 50,000
(Being salaries paid)

2.7.2 Journalize the following transactions in the books of Shafi.

Date Transactions Amount

1-7-2021 Shafi started business with cash 2,00,000

2-7-2021 Goods purchased for cash 1,00,000
3-7-2021 Goods purchased on credit from Ramesh 50,000
5-7-2021 Goods sold for cash 75,000
8-7-2021 Goods sold to Ravi on credit 50,000
10-7-2021 Cash paid to Ramesh 50,000
12-7-2021 Cash received from Ravi 50,000
14-7-2021 Furniture purchased 25,000
18-7-2021 Office expenses 5,000
21-7-2021 Machinery purchased 2,00,000
22-7-2021 Furniture sold 20,000
24-7-2021 Goods returned from Ravi 5,000
25-7-2021 Goods returned to Ramesh 2,000
28-7-2021 Commission paid 10,000
30-7-2021 Rent Paid 25,000
31-7-2021 Salaries paid 50,000

Compound Journal Entry: A compound journal entry is passed when two or more
transactions taken place on the same day relating to a particular account or one particular
nature may be recorded by means of a single journal entry instead of a separate entry for each
transaction. A compound journal entry is an accounting entry in which there is more than one
debit, more than one credit, or more than one of both debits and credits in a passed journal
entry.

34
Illustration 3

Journalize the following transactions in the books of Sharma.

Date Transactions Amount

1-7-2021 Sharma started business with the following.
Cash 1,00,000
Bank Loan 50,000
Furniture 50,000
Machinery 1,00,000
Land and Building 10,00,000
2-7-2021 Purchased goods from Sruthi 1,00,000
3-7-2021 Goods sold to Shankar 50,000
4-7-2021 Goods purchased 25,000
6-7-2021 Goods sold 75,000
8-7-2021 Cash paid to Sruthi in full settlement 95,000
14-7-2021 Cash received from Shankar 49,000
Allowed discount 1,000
15-7-2021 Wages paid 10,000
16-7-2021 Office expenses 15,000
20-7-2021 Bank loan repayment 25,000
22-7-2021 Cash with drawn from bank for personal use 10,000
23-7-2021 Cash with drawn from bank for office use 15,000
25-7-2021 Furniture purchase 50,000
28-7-2021 Machinery purchased 25,000
30-7-2021 Rent paid 20,000
31-7-2021 Salaries paid 30,000

Solution:

Journal entries of in the books of Sharma

Date Particulars L Debit Credit

. Amount( Amount(Rs)
F Rs)

1-7-2021 Cash A/c Dr 1,00,000

Furniture A/c Dr 50,000
Machinery A/c Dr 1,00,000
Land and Buildings A/c Dr 10,00,000
To Bank Loan A/c 50,000
To Capital A/c 12,00,000
(Being business started with various assets
and liabilities)

35
 2-7-2021 Purchase A/c Dr 1,00,000
To Sruthi A/c 1,00,000
(Being goods purchased on credit)
3-7-2021 Shankar A/c Dr 50,000
To Sales A/c 50,000
(Being goods sold on credit)
4-7-2021 Purchase A/c Dr 25,000
To Cash A/c 25,000
(Being goods purchased for cash)
6-7-2021 Cash A/c Dr 75,000
To Sales A/c 75,000
(Being goods sold for cash)
8-7-2021 Sruthi A/c Dr 1,00,000
To Cash A/c 95,000
To Discount received A/c 5,000
(Being sruthi account settled )
14-7-2021 Cash A/c Dr 49,000
Discount allowed A/c Dr 1,000
To ShankarA/c 50,000
(Being Shankar account settled with 1,000 Rs
discount)
15-7-2021 Wages A/c Dr 10,000
To Cash A/c 10,000
(Being wages paid )
16-7-2021 Office expenses A/c Dr 15,000
To Cash A/c 15,000
(Being Office expenses paid )
20-7-2021 Bank A/c Dr 25,000
To Cash A/c 25,000
(Being bank loan partial amount paid)
22-7-2021 Drawings A/c Dr 10,000
To Bank A/c 10,000
( Being cash withdrawn for personal use)
23-7-2021 Cash A/c Dr
To Bank A/c 15,000
( Being cash withdrawn for office use) 15,000
25-7-2021 Furniture A/c Dr 50,000
To Cash A/c 50,000
(Being furniture purchased)
28-7-2021 Machinery A/c Dr 25,000
To Cash A/c 25,000
(Being machinery purchased)
30-7-2021 Rent A/c Dr 20,000
To Cash A/c 20,000
(Being Rent paid)
31-7-2021 Salaries A/c Dr 30,000
To Cash A/c 30,000
(Being salaries paid)

36
 Test your Understanding

I. Fill in the Blanks

1. The word Journal is derived from ---------------------------

2. Journal is also called ---------------------------------------

3. L.F Means - -----------------------------------------------

4. Artificial personal accounts are also called as ----------------------------------

5. Impersonal accounts are ---------------------------------------------------

II. True or False

1.Journal follows the chronological order

2. Journal is a secondary entry in accounting

3. Journal is Book of original entry

4. Journal is an account

5. Compound journal entries have more than one account one their debit side or

credit side or on both sides

III. Multiple Choice Questions (MCQ)

1. Which of the following is called Book of original entry?

a) Journal b) Ledger c) Book-keeping d) Account

2. Salary account is classified under

a) Personal A/c b) Real A/c c) Nominal A/c d) Valuation A/c

3. Machinery account is classified under

a) Personal A/c b) Real A/c c) Nominal A/c d) Valuation A/c

37
4. Purchases account is classified under

a) Personal A/c b) Real A/c c) Nominal A/c d) Valuation A/c

5. Sales account is classified under

a) Personal A/c b) Real A/c c) Nominal A/c d) Valuation A/c

6. Rent received account is classified under

a) Personal A/c b) Real A/c c) Nominal A/c d) Valuation A/c

7. Life Insurance Corporation of India account is classified under

a) Personal A/c b) Real A/c c) Nominal A/c d) Valuation A/c

8. Provision for depreciation account is classified under

a) Personal A/c b) Real A/c c) Nominal A/c d) Valuation A/c

9. Provision for doubtful debts account is classified under

a) Personal A/c b) Real A/c c) Nominal A/c d) Valuation A/c

10. Investments account is classified under

a) Personal A/c b) Real A/c c) Nominal A/c d) Valuation A/c

IV. Short Answer Questions (SAQ)

1. What is journal and explain the advantages of journal

2. What is Double Entry System? and explain the advantages of Double Entry

System.

3. Explain the Golden Rules of Accounting.

4. Show the classification of accounts

5. How do you justify Journal is helpful for detection and preventing the errors

and frauds

38
 V. Long Answer Questions (LAQ)

1. Journalize the following transaction in the books of Suresh.

Date Transactions Amount

1-5-2021 Started business with the following.
Cash 2,00,000
Bank Overdraft 1,50,000
Furniture and fittings 1,50,000
Computers 2,00,000
Land and Building 20,00,000
2-5-2021 Purchased goods from Ravi for cash (trade 1,00,000
discount 10%)
3-5-2021 Goods sold to Raju with trade discount 20% 75,000
4-5-2021 Goods purchased on credit from Roshan 55,000
6-5-2021 Goods sold to Shanthi on credit 65,000
8-5-2021 Cash paid to Roshan in full settlement 50,000
14-5-2021 Cash received from shanthiin full settlement 64,000
discount allowed 1,000
15-5-2021 Labour Charges 20,000
16-5-2021 Office expenses 25,000
20-5-2021 Advertisements expenses 15,000
22-7-2021 Cash with drawn from bank for personal use 20,000
23-5-2021 Cash with drawn from bank for office use 25,000
25-5-2021 Loan taken from Ratnam 50,000
28-5-2021 Cash paid to Ratnam 25,000
30-5-2021 Rent paid 10,000
31-5-2021 Salaries paid 40,000

2. Journalise the following transaction in the books of Dinesh .

Date Transactions Amount

1-3-2021 Dinesh started business with cash 15,00,000
1-3-2021 Purchased goods from Raju for cash and allowed 50,000
trade discount 10%, cash discount 10%
2-3-2021 Goods sold to Ramu with trade discount 20% 50,000
and Cash Discount 20%
4-3-2021 Goods purchased on credit from Ranjith 75,000
6-3-2021 Goods sold to Rakesh on credit 55,000
7-3-2021 Cash paid to Ranjith in full settlement 70,000
10-3-2021 Cash received from Rakesh infull settlement 50,000

39
 12-3-2021 Wages paid 10,000
14-3-2021 Printing and stationary expenses 5,000
17-3-2021 Commission paid 5,000
18-3-2021 Goods returned from customers 10,000
20-3-2021 Goods returned to suppliers 15,000
22-3-2021 Machinery purchased 50,000
22-3-2021 Installation expenses of Machinery 5,000
26-3-2021 Telephone charges 2,000
30-3-2021 Salaries paid 50,000

VI. Additional Resources for Advanced Learning

Study Material (Handouts):

https://nios.ac.in/media/documents/SrSec320NEW/320_Accountancy_Eng/320_Accountancy
_Eng_Lesson5.pdf

Reference Text Books:

1. R L Gupta & V K Gupta, Principles and Practice of Accounting, Sultan Chand & Sons

2.S.P. Jain & K.L Narang, Accountancy-I, KalyaniPublishers

3.Tulasian, Accountancy -I, Tata McGraw HillCo.

E - Text Books:
https://icmai.in/upload/Students/Syllabus2016/Foundation/Paper-2New-29012021.pdf
https://www.icsi.edu/media/webmodules/publications/FULL%20FAA%20PDF.pdf

YouTube Links:

https://www.youtube.com/embed/l-M2CFREcPM

Power Point Presentations:

https://www.slideshare.net/GirdharRatne/introduction-to-journal-entry-167112007

40
 VII. Suggested Activity

1. Visit a firm (Individual or Group) and observe the process of recording in Primary Book

2.Problem Solving Exercises

3.Learn Computer based Accounting system through tally

I. Fill in the Blanks

Q.No 1.French word 2.Primary 3.Ledger 4.Legal 5.Real

Jour Book or Day Folio Person Accounts
Book or and
Book of Nominal
Original Accounts
entry

II. True or False

Q.No 1.T 2.F 3.T 4.F 5.T

III. Multiple Choice Questions (MCQ)

Q.No 1.A 2.C 3.B 4.C 5.C 6.C 7.A 8.D 9.D 10.B

Double-Entry System: While recording the business transactions into journal the system
which recognise two fold aspects for every transaction and recording one aspect as debit and
another aspect as credit is called Double-Entry System

Personal Accounts: Personal accounts in business operations are related to individuals,

debtors and creditors, firms, companies, etc.

41
Natural Personal Accounts: These accounts are relating to transactions of human beings
like Sai, Santhosh, etc

Artificial Personal Accounts or Legal Personal Accounts: Artificial Persons or Legal

Persons having existence by the creation of law and thereby having legal entity

Representative Personal Accounts: Representative Personal accounts are not in the name of
any persons or institutions but are represented as personal accounts.

Impersonal Accounts: Impersonal accounts are relating to assets, Expenses, Losses,

Incomes and gains. Simply we can say other than personal accounts.

Real Accounts: Accounts which are related to assets of the business concern these accounts
are again classified as Tangible Real Accounts and Intangible Real Accounts.

Tangible Real Accounts: These accounts are relating to tangible assets which are those
assets identified physically. For example, land and Buildings, Machinery, Furniture etc

Intangible Real Accounts: These accounts are relating to intangible assets which are those
assets not identified physically. For example, Patents, Copy rights, Trade marks.

Valuation accounts: A valuation account is paired with an asset or liability account, and
offsets the value of the assets or liabilities in the paired account. For example, provision for
doubtful debts and provision for depreciation account etc.

Journal: Journal is a daily record of business transactions. Journal records the transactions in
a chronological order.

Journalizing: The process of recording the business transactions in journal.

Identify the Debit or Credit to the following?

CATEGORY BALANCE INCREASE DECREASE

Closing
Stock
Bank
Overdraft
Salaries
Commission
Received
Lossess

42
 3.1 Introduction to

Contents
Ledger
1.Understand the
Learnin Outcomes

Concept of Ledger 3.2 Meaning and

and Ledger Posting Definition of Ledger
2.Understand the 3.3 Significance of
Importance of Ledger Ledger
3.Understand the 3.4 Advantages of
advantages of Ledger Ledger
4.Understand the 3.5 Format of Ledger
relationship between 3.6 Ledger Posting and
Journal and Ledger Balancing Process
3.7 Differences
between Journal and
Ledger
3.8 Practicial
Illustrations

43
3.1 Introduction to Ledger

Ledger is a book, which is the principal book of accounts. The ledger contains all categories
of Personal, Real, Nominal accounts. Ledgers maintain similar business transactions relating
to the particular nature of accounts specifically at one separate place. The ledger can depict
the true position of the accounts on a specific date. Numerous transactions are taken place in
daily business operations. All those transactions are recorded in the Journal according to their
chronological order. Transactions relating to one particular aspect are recorded in different
places, and hence journal cannot provide the net results of a particular nature account at any
given specific date. To overcome this situation there is the dire need arises to maintain similar
business transactions relating to the particular nature of accounts specifically at one separate
place. The transactions recorded in the journal are transferred to another book called Ledger.
The process of transferring journal entries in the ledger is called ledger posting.

3.2 Meaning and Definition of Ledger

Ledger is a book of all accounts, it is in the form of 'T' shape, the left-hand side is considered
side Debit, and the right-hand side is considered as Credit. The dual aspect of the double-
entry system of accounting for each business transaction is recorded account-wise in the
ledger.

According to Merriam-Webster "A book containing accounts to which debits and credits
are posted from books of original entry"

According to J.R.Batliboi, "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
duly classified form"

3.3 Significance of Ledger

The ledger is most important because it helps the business concerns to monitor and control
financial operations. Ledger provides full information relating to various business
transactions in summary form. It also provides the tools for the analysis of accounts and
transactions. Ledger provides the complete record of business operations in a permanent
manner.

3.4Advantages of Ledger

 Ledger maintains data in a classified form of data which is highly useful to understand
the net results of a particular nature of transactions for a specific period
 Ledger provides perfect classification of income and expenses. Which is highly useful
for auditing?

44
 ఆవర్జా

ఆవర్జా:ఆవర్జా అనేది ఒక ప్రత్ేయ క ప్ుస్త కం, దీనిని ప్రధాన ఖాత్ాల ప్ుస్త కం అని కూడా అంటారు. చిటాాలో
వ్జరసిన చిటాా ప్ద్దులనద బదిలీ చయయడానికి కజవలసిన వేకితగత, వ్జస్త విక,నామమాతరప్ు ఖాత్ాలు అనిి
ఆవర్జా లో ఉంటాయి. చిటాాలో వ్జరసిన డెబిట్ మర్ియు కరెడిట్ అంశజలకు స్ంబంధించి వ్జటి యొకక
ఖాత్ాలనద ఆవర్జాలో బదిలీ చయయబడత్ాయి. ఈ విధంగజ బదిలీ చయసే ప్రకయ
ిె నద ఆవర్జాలో నమోద్ద అని
అంటారు. బదిలీ ప్రకయ
ిె ప్ూరత యిన తరువ్జత ఒక నిర్ణీత ఖాత్ా వివిధ వేవహార్జలు యొకక నికర
ఫలిత్ానిి త్ెలుస్దకోవడానికి ఆవర్జా ఖాత్ాలనద నిలవలు త్యలచడం జరుగుత ంది. చిటాా ప్ద్దులు చిటాాలో
వ్జేపజర వేవహార్జలు జర్ిగన
ి కజల కెమము ఆధారంగజ వ్జరయడం జరుగుత ంది అంద్దవలన ప్రత్యేక
స్వభావ్జనికి స్ంబంధించిన ఒకే రకమన
ై వ్జేపజర లావ్జదయవీ ల నికర ఫలిత్ానిి త్ెలియజేయలేద్ద, ఈ
ప్ర్ిసతి ిి ని అధిగమంచడానికి అక ంటంటల
ు ప్రత్ేయ క స్వభావ్జనికి స్ంబంధించిన ఒకే రకమైన వ్జేపజర
లావ్జదయవీలనద ప్రత్యేకంగజ ఒక ప్రత్యేక ప్రదయశంలో నిరవహిస్త జరు. వీటినే ఖాత్ాలు అని అంటారు. ఆవర్జా
అనేది అనిి రకజల ఖాత్ాలు కలిగినటలవంటి ప్ుస్త కం, ఇది 'T'ఆకజరంలో ఉంటలంది, ఎడమ వ్ైప్ు డెబిట్
మర్ియు కుడివ్ప్
ై ు కరడ
ె ిట్గజ ప్ర్ిగణంచబడుత ంది.డబుల్ ఎంటరర అక ంటింగ్ సిస్ామ్ ప్రకజరం ప్రతీ వ్జేపజర
లావ్జదయవీకి స్ంబంధించిన ర్రండు అంశజలు ఆవర్జా లో ఖాత్ాల వ్జర్ణగజ నమోద్ద చయయబడత్ాయి.

ఆవర్జా ఆవశ్యకత: ఆవర్జా డయటానద వర్ణీకృత డయటా రూప్ంలో నిరవహిస్త దంది, ఇది నిర్ిుష్ా వేవధిలో
లావ్జదయవీల యొకక నిర్ిుష్ా స్వభావం యొకక నికర ఫలిత్ాలనద అరి ం చయస్దకోవడానికి అతేంత
ఉప్యోగకరంగజ ఉంటలంది.ఆవర్జా, ఆదాయం మర్ియు ఖరుచల యొకక స్ర్రన
ై వర్ణీకరణనద అందిస్త దంది.
ఆడిటింగ్ కోస్ం ఆవర్జా బాగజ ఉప్యోగప్డుత ంది.ముగింప్ు లెకకలనద తయారుచయయడానికి ఆవర్జా
స్హాయప్డుత ంది.బడెా టల
ు ఖచిచతంగజ తయారుచయయడానికి ఆవర్జా ఉప్యోగప్డుత ంది.

చిట్టాకు మర్ియు ఆవర్జా కు గల వయత్యయసములు :చిటాా త్ొలిప్ద్దు ప్ుస్త కము, ఆవర్జా మలిప్ద్దు
ప్ుస్త కము.ముగింప్ు లెకకలు తయార్ణకి చిటాా ఉప్యోగప్డద్ద, ఆవర్జాముగింప్ు లెకకలు తయార్ణకి
ఉప్యోగప్డుత ంది. చిటాానద - కొనదగోలు ప్ుస్త కము, కొనదగోలు వ్జప్స్దలు ప్ుస్త కము, అమమకజల
ప్ుస్త కం, అమమకజల వ్జప్స్దలు ప్ుస్త కము, నగద్ద ప్ుస్త కం, వస్ూలు బిలు
ు లు ప్ుస్త కం, చెలిుంప్ు బిలు
ు లు
ప్ుస్త కం, అస్లు చిటాాగజ ఉప్ విభజన చయస్త జరు.ఆవర్జానద - స్జధారణ ఆవర్జా - రుణగెస్త దలు లేదా
అమమకజలు ఆవర్జా - రుణదాతలు లేదా కొనదగోలు ఆవర్జాగజ ఉప్ విభజన చయస్త జరు.

45
  Ledger is helpful for preparation of Final Accounts
 Ledger provides easy reference of particular nature of transactions for a specific
period
 Ledger is useful for preparation of budgets accurately

3.5 Format of Ledger and Ledger Posting Process

Dr ----------- Account Cr
Date Particulars J.F Amount Date Particulars J.F Amount

3.6 Ledger Posting Process and Ledger Balancing Process

Ledger Posting and Ledger Balancing Process

Step: I While posting in ledger debit side of the account, the word 'To' should be written
first and followed by credit part of the journal entry

Step: II While posting in ledger credit side of the account, the word 'By' should be
written first and followed by debit part of the journal entry

Step: III After posting the journal entries for every specific period, accounts need to be
balanced to know the net results of the accounts

Step: IV After completion of specific period, we need to checkthe amount columnsonboth

the sides of the account to find out which side of the account is having high
amount.

Step: V If the total of the debit side of the account is more than the credit side total, the
difference amount is written on the credit side of the account at the end of the
specific period as "By Balance c/d" and later after the totals column the amount
is written on the debit side as "To Balance b/d" representing debit balance.

Step: VI If the total of the credit side of the account is more than the debit side total, the
difference amount is written on the debit side of the account at the end of the
specific period as "To Balance c/d" and later after the totals column the amount
is written on the credit side as "By Balance b/d" representing credit balance.

46
3.7 Differences between Journal and Ledger

S.No Journal Ledger

1 Journal is book of original entry, it is also Ledger is Secondary Book , it is also

called Primary Book called summary of all accounts

2 Journal is subsidiary book of accounts Ledger is a permanent books of

accounts

3 Transactions are recorded in the journal in Transactions are posted in the ledger
chronological order in classified manner from the
journal.

4 Journal cannot provide a net result of similar Ledger provides net result of similar
nature of transactions for a specific period nature of transactions for a specific
period

5 Recording of the transaction in journal is Recording of transactions in the

called journalizing. ledger is called posting.

6 Vouchers are the source for journal entries Journal entries are the source for
Ledger postings

7 Journal is maintained in a statement format Ledger is maintained in an account

format

8 Journal is not doing any balancing activity of Ledger accounts are balanced to
the transactions know the net result of the specific
account

9 Journal is subdivided into Cash Book, Petty Ledger is sub-divided into General
Cash Book, Sales book, sales returns book, Ledger, Debtors/Sales Ledger, and
purchases book, purchase returns book, Bills Creditors/Purchases Ledger.
receivable Book, Bills payable Book.

47
3.8 Practical Illustrations

3.8.1Journalize the following transactions and show the Ledger in the books of Sony.

Date Transactions Amount

1-6-2021 Sony Started business with capital 1,00,000

2-6-2021 Purchased goods for cash. 20,000

5-6-2021 Sold goods for cash. 50,000

30-6-2021 Salaries Paid 10,000

30-6-2021 Office Expenses 5,000

30-6-2021 Goods Purchased from Rajesh on credit 25,000

Solution:

Step I. Journalize the transactions by using the following approach

Transaction Step I Step II Step III Step IV

Find out two Classification Identify the Ascertain Debit and
accounts of Accounts Characteristics Credit according to
of the account Golden Rule of
Accounting
Sony Started Cash a/c Real a/c Cash comes in Debit - Cash a/c
business with Capital a/c Personal a/c Giver Credit - Capital a/c
capital
Purchased goods Purchase a/c Nominal a/c Expenses Debit - Purchase a/c
for cash. Cash a/c Real a/c Cash goes out Credit - Cash a/c
Sold goods for Cash a/c Real a/c Cash comes in Debit - Cash a/c
cash. Sales a/c Nominal a/c Income Credit - Sales a/c

Salaries Paid Salaries a/c Nominal a/c Expenses Debit - Salaries a/c
Cash a/c Cash a/c Cash goes out Credit - Cash a/c
Office Expenses Office Nominal a/c Expenses Debit - Office
expenses a/c Cash a/c Cash goes out Expenses a/c
Cash a/c Credit - Cash a/c
Goods Purchased Purchase a/c Nominal a/c Expenses Debit - Purchase a/c
from Rajesh on Rajesh a/c Personal a/c Giver Credit - Rajesh a/c
credit

48
 Journal Entries in the Books of Sony

Date Particulars L. Debit Credit

F Amount(Rs) Amount(Rs)

1-6-2021 Cash a/c Dr 1,00,000

To Capital a/c 1,00,000
(Being business commenced
with cash)
2-6-2021 Purchase a/c Dr 20,000
To Cash a/c 20,000
(Being goods purchased on cash)
5-6-2021 Cash a/c Dr 50,000
To Sales a/c 50,000
(Being goods sold for cash)
30-6-2021 Salaries a/c Dr 10,000
To Cash a/c 10,000
(Being salaries paid )
30-6- 2021 Office Expenses a/c Dr 5,000
To Cash a/c 5,000
(Being office expenses paid)
30-6-2021 Purchases a/c Dr 25,000
To Rajesh a/c 25,000
(Being goods purchased from
Rajesh on credit)

Step II. Identify different types of Accounts from the above passed Journal Entries

From the above journal entries the following accounts were identified

1) Cash a/c 2) Capital a/c 3) Purchase a/c 4) Sales a/c 5) Salaries a/c

6) Office Expenses a/c 7) Rajesh a/c

Step III. Maintain the Identified Accounts

Step IV. Transferring Journal Entries from Journal to Ledger Accounts

Step V. Balancing the Ledger Accounts

49
Dr Cash Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

1-6-2021 To Capital a/c 1,00,000 2-6-2021 By Purchases a/c 20,000

5-6-2021 To Sales a/c 50,000 30-6-2021 By Salaries a/c 10,000
30-6-2021 By Office 5,000
expenses a/c
30-6-2021 By Balance c/d 1,15,000
1,50,000 1,50,000

1-7-2021 To Balance b/d 1,15,000

Dr Capital Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
30-6-2021 To Balance c/d 1,00,000 1-6-2021 By Cash a/c 1,00,000

1,00,000 1,00,000
1-7-2021 By Balance b/d 1,00,000

Dr Purchases Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

2-6-2021 To Cash a/c 20,000 30-06-2021 By Balance c/d 45,000

30-06-2021 To Rajesh a/c 25,000

45,000 45,000

1-7-2021 To Balance b/d 45,000

50
Dr Sales Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

30-6-2021 To Balance c/d 50,000 5-6-2021 By Cash a/c 50,000

50,000 50,000

1-7-2021 By Balance b/d 50,000

Dr Salaries Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

30-6-2021 To Cash a/c 10,000 30-6-2021 By Balance c/d 10,000

10,000 10,000
10,000
1-7-2021 To Balance b/d

Dr Office Expenses Account Cr

Date Particulars J Amount Date Particulars J Amount
. .
F F

30-6-2021 To Cash a/c 5,000 30-6-2021 By Balance c/d 5,000

5,000 5,000
1-7-2021 To Balance b/d 5,000

Dr Rajesh Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

30-6-2021 To Balance c/d 25,000 30-6-2021 By Purchases a/c 25,000

25,000 25,000
1-7-2021 By Balance b/d
25,000

51
 3.8.2Journalize the following transactions in the books of Shafi

Date Transactions Amount

1-7-2021 Shafi started business with cash 2,00,000

2-7-2021 Goods purchased for cash 1,00,000
3-7-2021 Goods purchased on credit from Ramesh 50,000
5-7-2021 Goods sold for cash 75,000
8-7-2021 Goods sold to Ravi on credit 50,000
10-7-2021 Cash paid to Ramesh 50,000
12-7-2021 Cash received from Ravi 50,000
14-7-2021 Furniture purchased 25,000
18-7-2021 Office expenses 5,000
21-7-2021 Machinery purchased 20,000
22-7-2021 Furniture sold 20,000
24-7-2021 Goods returned from Ravi 5,000
25-7-2021 Goods returned to Ramesh 2,000
28-7-2021 Commission paid 10,000
30-7-2021 Rent Paid 25,000
31-7-2021 Salaries paid 50,000

Solutions

Step I.Journalising the Transactions

Date Particulars L. Debit Credit

F Amount(Rs) Amount(Rs)
1-7-2021 Cash a/c Dr 2,00,000
To Capital a/c 2,00,000
(Being business commenced
with cash)
2-7-2021 Purchases a/c Dr 1,00,000
To Cash a/c 1,00,000
(Being goods purchased on cash)
3-7-2021 Purchase a/c Dr 50,000
To Ramesh a/c 50,000
(Being goods purchased on
credit)
5-7-2021 Cash a/c Dr 75,000
To Sales a/c 75,000
(Being goods sold for cash)
8-7-2021 Ravi a/c Dr 50,000
To Sales a/c 50,000
(Being goods sold for credit)

52
10-7-2021 Ramesh a/c Dr 50,000
To Cash a/c 50,000
(Being cash paid to Ramesh)
12-7-2021 Cash a/c Dr 50,000
To Ravi a/c 50,000
(Being cash received from Ravi)
14-7-2021 Furniture a/c Dr 25,000
To Cash a/c 25,000
(Being furniture purchased)
18-7-2021 Office expenses a/c Dr 5,000
To Cash a/c 5,000
(Being Office expenses paid)
21-7-2021 Machinery a/c Dr 20,000
To Cash a/c 20,000
(Being machinery purchased)
22-7-2021 Cash a/c Dr 20,000
To Furniture a/c 20,000
(Being furniture sold)
24-7-2021 Sales Returns a/c Dr 5,000
To Ravi a/c 5,000
(Being goods returned by
customer Ravi)
25-7-2021 Ramesh a/c Dr 2,000
To Purchase Returns a/c 2,000
(Being goods returned to
supplier Ramesh)
28-7-2021 Commission a/c Dr 10,000
To Cash a/c 10,000
(Being commission paid)
30-7-2021 Rent a/c Dr 25,000
To Cash a/c 25,000
(Being Rent paid)

31-7-2021 Salaries a/c Dr 50,000

To Cash a/c 50,000
(Being salaries paid)

Step II .Identify different types of Accounts from the above passed Journal Entries

From the above journal entries, the following accounts are identified

1) Cash a/c 2) Capital a/c 3) Purchase a/c 4) Ramesh a/c 5) Sales a/c 6) Ravi a/c

7) Furniture a/c 8) Office Expenses a/c 9) Machinery a/c 10) Sales returns a/c

11) Purchase returns a/c 12) Commission a/c 13) Rent a/c 14) Salaries a/c

Step III. Maintain the Identified Accounts

53
Step IV. Transferring Journal Entries from Journal to Ledger Accounts
Step V. Balancing the Ledger Accounts
Dr Cash Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

1-7-2021 To Capital a/c 2,00,000 2-7-2021 By Purchase a/c 1,00,000

5-7-2021 To Sales a/c 75,000 10-7-2021 By Ramesh a/c 50,000
12-7-2021 To Ravi a/c 50,000 14-7-2021 By Furniture a/c 25,000
22-7-2021 To Furniture a/c 20,000 18-7-2021 By Office 5,000
Expenses a/c
21-7-2021 By Machinery a/c 20,000
28-7-2021 By Commission 10,000
30-7-2021 By Rent a/c 25,000
31-7-2021 By Salaries a/c 50,000
31-7-2021 By Balance c/d 60,000
3,45,000 3,45,000

1-8-2021 To balance b/d 60,000

Dr Capital Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
31-7-2021 To Balance c/d 2,00,000 1-7-2021 By Cash a/c 2,00,000

2,00,000 2,00,000

1-8-2021 By Balance b/d 2,00,000

Dr Purchases Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

2-7-2021 To Cash a/c 1,00,000 31-7-2021 By Balance c/d 1,50,000

3-7-2021 To Ramesh a/c 50,000

1,50,000 1,50,000
1-8-2021 To Balance b/d 1,50,000

54
Dr Ramesh Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

10-7-2021 To Cash a/c 50,000 3-7-2021 By Purchase a/c 50,000

25-7-2021 To Purchase 2,000 31-7-2021 By Balance c/d 2,000
returns a/c
52,000 52,000

1-8-2021 To Balance b/d 2,000

Dr Sales Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
5-7-2021 By Cash a/c 75,000
8-7-2021 By Ravi a/c 50,000
31-7-2021 To Balance c/d 1,25,000

1,25,000 1,25,000

1-8-2021 By Balance b/d 1,25,000

Dr Ravi Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

8-7-2021 To Sales a/c 50,000 12-7-2021 By Cash a/c 50,000

31-7-2021 To Balance c/d 5,000 24-7-2021 By Sales returns a/c 5,000

55,000 55,000
By Balance b/d
1-8-2021 5,000

Dr Furniture Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

14-7-2021 To Cash a/c 25,000 22-7-2021 By Cash a/c 20,000

31-7-2021 By Balance c/d 5,000

25,000 25,000

1-8-2021 To Balance b/d 5,000

55
Dr Office Expenses Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
18-7-2021 To Cash a/c 5,000 31-7-2021 By Balance c/d 5,000

5,000 5,000

1-8-2021 To Balance b/d 5,000

Dr Machinery Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

21-7-2021 To Cash a/c 20,000 31-7-2021 By Balance c/d 20,000

20,000 20,000

1-8-2021 To Balance b/d 20,000

Dr Sales Returns Account Cr

Date Particulars J Amount Date Particulars J Amount
. .
F F
24-7-2021 To Ravi a/c 5,000 31-7-2021 By Balance c/d 5,000
5,000 5,000

1-8-2021 To Balance b/d 5,000

Dr Purchase Returns Account Cr

Date Particulars J Amount Date Particulars J Amount
. .
F F
31-7-2021 To Balance c/d 2,000 25-7-2021 By Ramesh a/c 2,000

2,000 2,000

1-8-2021 By Balance b/d

2,000

56
Dr Commission Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
28-7-2021 To Cash a/c 10,000 31-7-2021 By Balance c/d 10,000

10,000 10,000

1-8-2021 To Balance b/d 10,000

Dr Rent Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
30-7-2021 To Cash a/c 25,000 31-7-2021 By Balance c/d 25,000

25,000 25,000
1-8-2021 To Balance b/d 25,000

Dr Salaries Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
31-7-2021 To Cash a/c 50,000 31-7-2021 By Balance c/d 50,000

50,000 50,000

1-8-2021 To Balance b/d 50,000

Compound Journal Entry Ledger Posting

A compound journal entry is passed when two or more transactions taken place on the same
day relating to a particular account or one particular nature may be recorded by means of a
single journal entry instead of a separate entry for each transaction. The compound journal
entry is an accounting entry in which there is more than one debit, more than one credit, or
more than one of both debits and credits in a passed journal entry.

57
3.8.3 Journalize the following transactions in the books of Sharma.

Date Transactions Amount

1-7-2021 Sharma started business with the

following.
Cash 1,00,000
Bank Loan 50,000
Furniture 50,000
Machinery 1,00,000
Land and Building 10,00,000

Solution:

Step I. journalizing the transactions

Journal entries in the books of Sharma.

Date Particulars L. Debit Credit

F Amount(Rs) Amount(Rs)

1-7-2021 Cash a/c Dr 1,00,000

Furniture a/c Dr 50,000
Machinery a/c Dr 1,00,000
Land and Buildings a/c Dr 10,00,000
To Bank Loan a/c 50,000
To Capital a/c 12,00,000
(Being business started with
various assets and liabilities)

While Ledger posting of Compound Journal Entry you are required to assume the journal
entries for individual transaction wise passed. Instead of compound journal entry, the above
compound journal entry can be passed as individual journal entries as follows and then
posting into ledger easily.

Journal Entries

Date Particulars L. Debit Credit

F Amount(Rs) Amount(Rs)

1-7-2021 Cash a/c Dr 1,00,000

To Capital a/c 1,00,000
(Being cash brought in to
business)
1-7-2021 Furniture a/c Dr 50,000
To Capital a/c 50,000

58
 (Being Furniture brought in to
business)
1-7-2021 Machinery a/c Dr 1,00,000
To Capital a/c 1,00,000
(Being machinery brought in to
business)
1-7-2021 Land and Buildings Dr 10,00,000
To Capital a/c 10,00,000
(Being Land and Buildings
brought in to business)
1-7-2021 Capital a/c Dr 50,000
Bank loan a/c 50,000
(Bank loan amount brought in to
business)

Identify different types of Accounts from the above passed Journal Entries

1) Capital a/c 2) Cash a/c 3) Furniture a/c

4) Machinery a/c 5) Land and Buildings a/c 6) Bank Loan a/c

Dr Capital Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

1-7-2021 To Bank Loan a/c 50,000 1-7-2021 By Cash a/c 1,00,000

1-7-2021 By Furniture a/c 50,000
31-7-2021 To Balance c/d 12,00,000 1-7-2021 By Machinery a/c 1,00,000
1-7-2021 By Land and 10,00,000
Buildings a/c
12,50,000 12,50,000
1-8-2021 By Balance b/d 12,00,000

Dr Cash Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
1-7-2021 To Capital a/c 1,00,000 31-7-2021 By Balance c/d 1,00,000

1,00,000 1,00,000

To Balance b/d 1,00,000

1-8-2021

59
Dr Furniture Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

1-7-2021 To Capital a/c 50,000 31-7-2021 By Balance c/d 50,000

50,000 50,000

1-8-2021 To Balance b/d 50,000

Dr Machinery Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

1-7-2021 To Capital a/c 1,00,000 31-7-2021 By Balance c/d 1,00,000

1,00,000 1,00,000

1-8-2021 To Balance b/d 1,00,000

Dr Land and Buildings Account Cr

Date Particulars J Amount Date Particulars J Amount
. .
F F

1-7-2021 To Capital a/c 10,00,000 31-7-2021 By Balance c/d 10,00,000

10,00,000 10,00,000

1-8-2021 To Balance b/d 10,00,000

60
Dr Bank Loan Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

31-7-2021 To Balance c/d 50,000 1-7-2021 By Capital a/c 50,000

50,000 50,000

1-8-2021 By Balance b/d 50,000

Most Prestigious Accounting Firms

#1 PwC (PricewaterhouseCoopers) LLP
#2 Deloitte
#3Ernst & Young LLP (EY)
#4 KPMG LLP
#5 Grant Thornton LLP

Source: https://www.vault.com/best-companies-to-work-for/accounting/most-prestigious-
accounting-firms

Test your Understanding

I. Fill in the Blanks

1. Ledger is a --------------------------- Book

2. Journal entries are transferred to --------------------- Book

3. J.F Means - -----------------------------------------------

4. The process of finding net result of a specific account is called -------------------

5. Ledger contains ------------ types of accounts.

61
 II. True or False

1.Ledger follows the chronological order

2. Ledger is secondary Book

3. Ledger is used for analytical purpose

4. Ledger maintains permanent record of accounting information.

5. Ledger is sub divided in to General Ledger, Debtors Ledger, Creditors Ledger

Identify the accounting Terms

Source: https://wordmint.com/categories/accounting-auditing

62
 III. Multiple Choice Questions (MCQ)

1.Which of the following is the Chief book of accounts

a) Journal b) Ledger c) Bookkeeping d) Account

2.Which of the following is the basis for Ledger

a) Journal b) Ledger c) Bookkeeping d) Account

3. Real accounts do not have --------- Balance

a) Debit Balance b) Credit Balance c) Either debit balance or credit balance

d) Cannot say

4. Personal accounts can have

a) Debit Balance b) Credit Balance c) Either debit balance or credit balance

d) Cannot say

5) Which of the following is used as the base for preparing trial balance?

a) Subsidiary Books b) Journal c) Ledger b) None

6) Accounts that have debit balance are closed by using the statement.

a) By balance b/d b) By balance c/d c) To balance b/d d) To balance c/d

7. Which of the following item will be appearing on the credit side of the ledger
account?

a) Commission received b) Cash received c) commission paid d) Rent paid

8. Which of the following item will be appearing on the debit side of the ledger
account?

a) Commission received b) Machinery purchased c) Discount received

d) Rent received

9) Which of the following item will be appearing on the credit side of the ledger
account?

a) Furniture Sold b) Purchases c) commission paid d) Rent paid

10. Which of the following item will be appearing on the debit side of the ledger
account?

a) Commission received b) Discount received c) Sales Returns d) Purchase

Return

63
 IV. Short Answer Questions (SAQ)

1. What is Ledger and explain the importance of Ledger?

2. Explain the Ledger posting process

3. What are the differences between Journal and Ledger

4. What are the advantages of Ledger

5. How do you justify ledger is book of principal entry

V. Long Answer Questions (LAQ)

1. Prepare the Ledger accounts in the books of Suresh.

Date Transactions Amount

1-5-2021 Started business with the following.

Cash 2,00,000
Bank Overdraft 1,50,000
Furniture and fittings 1,50,000
Computers 2,00,000
Land and Building 20,00,000

2-5-2021 Purchased goods from Ravi for cash and 1,00,000

allowed trade discount 10%
3-5-2021 Goods sold to Raju with trade discount 75,000
20%
4-5-2021 Goods purchased on credit from Roshan 55,000
6-5-2021 Goods sold to Shanthi on credit 65,000
8-5-2021 Cash paid to Roshan for full settlement 50,000
14-5-2021 Cash received from shanthi full 64,000
settlement Allowed discount 1,000
15-5-2021 Labour Charges 20,000
16-5-2021 Office expenses 25,000
20-5-2021 Advertisements expenses 15,000

64
 22-7-2021 Cash with drawn from bank for personal 20,000
use
23-5-2021 Cash with drawn from bank for office 25,000
use
25-5-2021 Loan taken from Ratnam 50,000
28-5-2021 Cash paid to Ratnam 25,000
30-5-2021 Rent paid 10,000
31-5-2021 Salaries paid 40,000

2 .Prepare the Ledger Accounts in the books of Dinesh.

Date Transactions Amount

1-3-2021 Dinesh started business with cash 15,00,000

1-3-2021 Purchased goods from Raju for cash and 50,000

allowed trade discount 10%, cash
discount 10%
2-3-2021 Goods sold to Ramu with trade discount 50,000
20% and Cash Discount 20%
4-3-2021 Goods purchased on credit from Ranjith 75,000
6-3-2021 Goods sold to Rakesh on credit 55,000
7-3-2021 Cash paid to Ranjith in full settlement 70,000
10-3-2021 Cash received from Rakesh infull
settlement 50,000
12-3-2021 Wages paid 10,000
14-3-2021 Printing and stationary expenses 5,000
17-3-2021 Commission paid 5,000
18-3-2021 Goods returned from customers 10,000
20-3-2021 Goods returned to suppliers 15,000
22-3-2021 Machinery purchased 50,000
22-3-2021 Installation expenses of Machinery 5,000
26-3-2021 Telephone expenses 2,000
30-542021 Salaries paid 50,000

65
 VI. Additional Resources for Advanced Learning

Study Material (Handouts):

https://nios.ac.in/media/documents/SrSec320NEW/320_Accountancy_Eng/320_Accountancy
_Eng_Lesson6.pdf

Reference Text Books:

1. R L Gupta & V K Gupta, Principles and Practice of Accounting, Sultan Chand & Sons

2.S.P. Jain & K.L Narang, Accountancy-I, KalyaniPublishers

3.Tulasian, Accountancy -I, Tata McGraw HillCo.

E - Text Books:
https://icmai.in/upload/Students/Syllabus2016/Foundation/Paper-2New-29012021.pdf
https://www.icsi.edu/media/webmodules/publications/FULL%20FAA%20PDF.pdf

YouTube Links:

https://www.youtube.com/watch?v=FlndzsBGI6M

Power Point Presentations:

https://www.slideshare.net/YaminiKahaliya/ledger-in-financial-accounting-11th-commerce

VII. Suggested Activity

1.Visit a firm (Individual or Group) and observe the process of Ledger Posting

2.Problem Solving Exercises

3.Learn Computer based Accounting system through tally

66
 I. Fill in the Blanks

Q.No 1.Principal 2.Ledger 3.Journal Folio 4.Balancing 5.All Types

II. True or False

Q.No 1.F 2.T 3.T 4.T 5.T

III. Multiple Choice Questions (MCQ)

Q.No 1.B 2.A 3.B 4.C 5.C 6.C 7.A 8.B 9.A 10.C

Ledger: Ledgers is a book which maintains similar business transactions relating to a

particular nature of accounts specifically at one separate place.

Journal Folio (J.F): Folio means page number.J.F means Journal Page Number

Ledger Posting: The process of transferring the entries from journal to respective ledger
accounts is called ledger posting

Ledger Balancing: The process of finding net result of a specific account is called Ledger
Balancing

General Ledger: General ledger also called as Nominal ledger. General Ledger transactions
are relating to 1.Assets 2. Incomes 3. Expenses 4.Losses 5. Liabilities

Debtors Ledger: Debtors Ledger is also called Sales Ledger. The purpose of the Sales
Ledger is to provide information about credit sales

Creditors Ledger: Creditors Ledger is also called Purchase Ledger. The purpose of the
Purchase Ledger is to provide information on credit purchases from suppliers.

67
 4.1 Introduction to

Contents
1.Understand the Subsidiary Books
Learning Outcomes

importance of 4.2 Need for

Subsidiary Books Subsidiary Books
2.Understand the 4.3 Objectives of
different types of Subsidiary Books
Subsidiary Books
4.4 Difference
3.Understand how to between Subsidiary
maintain Subsidiary Books and Ledger
Books
4.5 Types of
Subsidiary Books
4.6 Formats of
subsidiary Books
4.7 Practical
Illustrations

68
4.1 Introduction to Subsidiary Books

The journal is sub-divided into various books are called Subsidiary Books; they are also known as
special journals. Subsidiary Books are the books that record business transactions of a similar
nature at one place in chronological order. The significance of the subdivision is arising due to the
increase in the volume of business transactions. In every business, certain core operations are
repeatedly taken place and also affect the entire business. Business concerns are required to
concentrate specifically on the core activities and taking into the hands of the control. The core
transactions of every business are cash transactions, credit purchases, and credit sales etc.
Subsidiary Books are maintained on those core transactions for an effective operation of the
business concern.

4.2 Need for Subsidiary Books

When the number of transactions is at large, it is very difficult to maintain one journal for all the
transactions. For maintaining the business operations effectively, the division of general journal
was subdivided into various books; those books are called subsidiary books. These books are
depicting a clear picture of the specific transactions of cash or credit transactions of the business
organizations on a specific date. Subsidiary books are simplifying the task of classification of
accounting transactions and also helps to save time and labour.

4.3 Objectives of Subsidiary Books

 To the support the classification of business transactions and to provide the clear
picture
 To help the identification of errors and detection of frauds
 To provide/facilitate the division of work for the enhancement of the efficiency.
 To facilitate the proper reference to any particular transactions of the business
concerns.

4.4 Difference between Subsidiary Books and Ledger

Subsidiary Books Ledger

1. Subsidiary Books are books of original entry 1. Ledger is a principal book of accounting
2. Transactions are recorded at first in 2. Recorded Transactions in Subsidiary Books
Subsidiary Books only transferred to Ledger
3. Subsidiary Books are the base for Ledger 3. Ledger accounts are the base for preparation
Accounts of Trail Balance
4. Subsidiary Books facilitates classification of 4.Ledger accounts facilitates analysis of
transactions transactions

69
 సహాయక పుసత కాలు

అక ౌంటౌంగ్ ప్రకరియలోభాగౌంగావ్ాా పారవ్ావ్హారాలన్నీ జరిగన

ి టువ్ౌంట తేదక్
ీ ిమౌంలో చిటాాలోమ ౌందుగా వ్ారసి,

చిటాాలోనిఅౌంశాలను ఆవ్రాాక్ు బదిలీచేయబడుత ౌంది.ఈక్ిమౌంలో చినీతరహావ్ాాపారసౌంసథ లు అయినటల యితే

వ్ాాపారకారాక్లాపాలు క్న్నసస్ాథయిలో ఉౌండి ప్రతిఅౌంశానిీ ఓకేచిటాాలోవ్ారసి ఆవ్రాాలో నమోదుచేయడౌం

తేలిక్వ్ుత ౌంది.

పెదదపెదదవ్ాాపారసౌంసథ లు తమయొక్క రోజువ్ారీకారాక్లాపాలువ్ేలసౌంఖ్ాలోనిరవహిసూ తఉౌంటాయి,ఈసౌందరభౌంలో

ప్నిభారానిీ తగిగౌంచడానికర ఒకేరక్మన

ై టువ్ౌంట వ్ావ్హారాలను ఒకకకక్క ప్రతాే క్చిటాాలో వ్ారయడౌం

జరుగ త ౌంది,ఈవిధమ గాగ ఒకేసవభావ్ౌంగల అతిమ ఖ్ామన

ై వ్ావ్హారాలక్ు చౌందిన అౌంశాలను

ఖ్ాతాప్ుసూ కాలలో ప్రతేాక్ౌంగా చతప్డానికర చిటాాను ఉప్విభజన చేసి చిటాానిరవహిస్ూ ారు.ఈవిధౌంగా

ఉప్విభజనచేసన
ి చిటాాను సహాయక్చిటాాలు లేదాసహాయక్ప్ుసూ కాలుఅనిఅౌంటారు.

సహాయక పుసత కాలు పర యోజనాలు

 వ్ాాపారవ్ావ్హారాలను అత్ాంత్వ్ేగవ్ంత్ంగా మరియుసమరథ వ్ంత్ంగా నమోదుచేయవ్చ్ుు

 శ్రమవిభజనవ్లన పనిలో నాణ్ాత్ పెరిగికాలము మరియు శ్రమ ఆదాఅవ్ుత్ ంది

 సహాయకపుసత కాల మొత్ాతలను ఒకేసారి ఆవ్రాాలోసులభంగా నమోదుచేయవ్చ్ుు

 సహాయకపుసత కాల నిరవహణ్లో ఎకుువ్ యధారధ త్ ఉంట ంది

 సహాయకపుసత కాల నిరవహణ్ విధాననిరణ యాలకు అవ్సరమైన సమాచారానిి ప ందడానికి

మరియు ఖాత్ాపుసత కాల త్నిఖీని వ్ేగవ్ంత్ం చేయడానికి ఎంత్ోఉపయోగపడుత్ ంది

సహాయక్ ప్ుసూ కాలు రకాలు

వ్ాాపారసంసథ లయొకు సాథయి మరియు వ్ాటియొకు అవ్సరాలదృష్టాయా సహాయకపుసత కాలను కింర దివిధంగా

వ్రగీకరించ్డంజరిగింది

1. కొనుగోలుపుసత కము – సరుకు అరువ్ు కొనుగోలుకు సంబంధించిన వ్ావ్హారాలు నమోదుచేయుటకు

2. కొనుగోలువ్ాపసుల పుసత కము - సరఫరాదారు క్ు పంపిన కొనుగోలువ్ాపసులు నమోదుచేయుటకు

70
 4.5 Types of Subsidiary Books:

Purchases Book: Maintained to record all the credit purchases of goods.

TYPES OF SUBSIDIARY BOOKS

Purchase Return Book: Maintained to record all goods returned to the

supplier.
Sales Book: Maintained to record all the credit sales of goods.
Sales Returns Book: Maintained to record all goods returned by the
customers.
Cash Book: Maintained to record all the cash receipts and payments.

Bills Receivable Book: Maintained to record all bills received from

debtors.
Bills Payable Book: Maintained to record all bills accepted to creditors.

Journal Proper: Used to record those transactions for which there is no

separate book.

4.6 Formats of subsidiary Books

4.6.1 Purchases Book Format

Date Particulars Invoice L.F Amount

No
No

4.6.2 Purchase Returns Book Format

Date Particulars Debit Note L.F Amount

No No

71
3. అమమకాల ప్ుసూ క్మ - సరుక్ు అరువ్ు అమమకాలక్ు సౌంబౌంధిౌంచిన వ్ావ్హారాలు నమోదు చేయ టక్ు

4. అమమకాల వ్ాప్సుల ప్ుసూ క్మ - వినియోగదారుల నుౌండి వ్చిిన అమమకాల వ్ాప్సులు నమోదు

చేయ టక్ు

5. నగదు ప్ుసూ క్ౌం - అనిీ రకాల న

ై నగదు వ్ాాపార వ్ావ్హారాలు నమోదు చేయ టక్ు

6. వ్సతలు బిలు
ల ల ప్ుసూ క్మ - రుణ గిసూ ులు నుౌండి వ్చిిన వ్సతలు బిలు
ల లు నమోదు చేయ టక్ు

7. చలిల ౌంప్ు బిలు

ల ల ప్ుసూ క్మ - రుణదాతల క్ు అౌంగీక్రిౌంచి ఇచిిన చలిల ౌంప్ు బిలు
ల లు నమోదు చేయ టక్ు

8. అసలు చిటాా- ఇతర సహాయక్ చిటాాలలో నమోదు చేయడానికర వీలు లేని వ్ావ్హారాలు అయిన పారరౌంభ

ప్దుదలు, సరుదబాటు ప్దుదలు, మ గిౌంప్ు ప్దుదలు మొదల న

ై వి ఈ చిటాాలో వ్ారయడానికర నిరవహిస్ూ ారు

సహాయక్ ప్ుసూ కాలక్ు ఆవ్రాాక్ు మధా గల వ్ాతాాస్ాలు:

1. సహాయక్ ప్ుసూ కాలు ఒరిజినల్ ఎౌంటరర ప్ుసూ కాలు, ఆవ్రాా అనేది అక ౌంటౌంగ్ యొక్క ప్రధాన ప్ుసూ క్ౌం

2. లావ్ాదేవీలు మొదట సహాయక్ ప్ుసూ కాలలో మాతరమే నమోదు చేయబడతాయి, సహాయక్ ప్ుసూ కాలలో

రికార్డ్ చేయబడిన లావ్ాదేవీలు ఆవ్రాాక్ు బదిలీ చేయబడతాయి

3.ఆవ్రాా ఖ్ాతాలక్ు సహాయక్ ప్ుసూ కాలు ఆధారౌం, అౌంక్ణా తయారీకర ఆవ్రాా ఖ్ాతాలు ఆధారౌం

4. సహాయక్ ప్ుసూ కాలు లావ్ాదేవీల వ్రీగక్రణను సులభతరౌం చేస్ూ ాయి, ఆవ్రాాఖ్ాతాలు లావ్ాదేవీల విశలలషణను

సులభతరౌం చేస్ూ ాయి

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72
4.6.3 Sales Book Format

Date Particulars Invoice L.F Amount

No No

4.6.4 Sales Returns Book Format

Date Particulars Credit Note L.F Amount

No No

4.6.5 Cash Book Format

Cashbook performs the functions of both Journal and Ledger Accounts. Cash Book is a subsidiary
book as well as the principal book. Cash Book is treated as a subsidiary book because transactions
are recorded in the cash book directly. The recording of transactions in the cash book is in the
form of accounts having debit and credit sides. There is no need to maintain a separate cash
account because the cash book serves the purpose. Cash Book is again subdivided into four types,
they are as follows

a) Single Column Cash Book or Simple Cash Book

b) Double Column Cash Book containing discount and cash columns
c) Three Column Cash Book containing discount, cash and bank columns
d) Petty Cash Book

a) Format of Single Column Cash Book

Dr Single Column Cash Book Cr

Date Particulars L.F Amount Date Particulars L.F Amount

73
b) Format of Double Column Cash Book

Dr Double Column Cash Book Cr

Date Particulars L Discount Amount Date Particulars L Discount Amount
Allowed Received
. .

F F

c) Format of Three Column Cash Book

Dr Three Column Cash Book Cr

Date Particulars L Discount Cash Bank Date Particulars L Discount Cash Bank
. Allowed . Received
F F

d) Format of Petty Cash Book:

Petty Cash Book

Petty cash book is maintained by the business concerns to record the petty cash expenses that
occurred during the daily business operations. The cashier who maintains the petty cash book is
called the petty cashier. In every business certain petty cash expenses frequently taken place for
the purpose of operating the business, such as Postage & Telegrams, Telephone, Printing &
stationery, Travelling& Transport, Wages, etc. In the petty cash book, each head of most
frequently occurred expenses are maintained in separate columns as an analysis of payments. The
total number of columns in the petty cash book depends on the nature and size of the business
operations. In the petty cash book, transactions are recorded as individual head and total head. The
main reason for not recording petty cash transactions in the main cash book is petty cash
transactions are a very small category of expenses, if we mixed with main cashbook transactions it
is very difficult to balancing and also it leads to a lot of confusion about the main receipts and
payments of the business operations. To avoid confusion and for providing information on core
business receipts and payments, petty cash book is separately maintained in an analytical form of

74
petty cash book, which means each head of most frequently occurred expenses are maintained in
separate columns as an analysis of Payments Systems of Petty Cash

According to the practices of advancing the amount to the petty cashier by the chief cashier, they
are two types of petty cash systems.

i) Fixed Advanced System: Under this method, a fixed amount of advance is given to petty cashier
for petty cash expenses, for a stipulated period.

ii) Imprest System: Under this method, the amount of advance depends on the amount spent by
the petty cashier for petty expenses. If petty cashier spentRs800/- out of given first advance of
Rs.1,000/-,the main cashier reimburses the expenses amount of Rs800/-. This system is called
imprest system.

There is no standard format for petty cash book. Most of the business concerns are adopting the
following format.

d) Petty Cash Book Format

Amount Date Particulars V Total Analysis of Payments

Received .
Payments
Printing Postage Transport Personal Other
N & Telegrams & Account Expenses
o Stationery Telephone Travelling

e) Bills Receivable Book Format

S.No Date of From Term Due date Amount Remarks

Receipt of the whom of the
Bill Received of the Bill
Bill

75
f) Bills Payable Book Format

S.No Date of To whom Term Due date Amount Remarks

Acceptance of Payable of the
the Bill of the Bill
Bill

g) Journal Proper Format

Journal proper is a book which is maintained to record the transactions in an extra-ordinary nature
which are not covered by any of the other subsidiary books. This book is generally used to record
the following categories of transactions.

i) Opening Entries ii) Closing Entries iii) Transfer Entries iv) Rectification Entries

v) Adjustment Entries

Journal Proper is maintained in the format of Journal only

Journal
Date Particulars L.F Debit Credit

76
4.7 Practical Illustrations

Important Points to be noted while preparing

Purchases Book and Sales Book

1 Credit Purchases only recorded in Purchases Book.

2 Credit Sales only recorded in Sales Book.

3 Credit or Cash Purchases of Assets are not recorded in Purchases Book.

4 Credit or Cash Sales of Assets are not recorded in Sales Book.

5 Cash Purchases or Sales not to be recorded in Purchases Book or Sales

Book.

4.7.1 From the following particulars, maintain necessary Subsidiary Books in the books

Rajesh Traders

Date Transaction Amount

1-1-2021 Goods Purchased from Anand 50,000
2-1-2021 Goods sold to Amith 40,000
3-1-2021 Goods Purchased from Barath (trade discount 10%) 50,000
4-1-2021 Goods Sold to Bhavani (trade discount 5%) 25,000
5-1-2021 Purchases 10,000
6-1-2021 Sales 20,000
7-1-2021 Chetan Purchased goods from us 15,000
8-1-2021 Chandini sold goods to us 25,000
9-1-2021 Goods returned to Anand 1,000
10-1-2021 Goods Returned from Amith 2,000
11-1-2021 Goods returned from Bhavani 2,000
12-1-2021 Goods Returned to Bharath 4,000
15-1-2021 Goods Purchased from Anand for cash 25,000
20-1-2021 Goods sold to Amith for cash 20,000

77
Solution:

Purchases Book
Date Particulars Invoice L.F Amount
No No
1-1-2021 Anand 50,000
3-1-2021 Barath (50,000 Less trade discount 10%) 45,000
8-1-2021 Chandini 25,000

31-1-2021 Sundry Creditors transferred to Purchases Account 1,20,000

Purchase Returns Book

Date Particulars Debit Note L.F Amount
No No

9-1-2021 Anand 1,000

12-1-2021 Bharat 4,000

31-1-2021 Transferred to Purchase returns A/c 5,000

Sales Book
Date Particulars Invoice L.F Amount
No No
2-1-2021 Amith 40,000
4-1-2021 Bhavani (25,000 - trade discount 5%) 23,750
7-1-2021 Chetan 15,000

31-1-2021 Sundry Debtors transferred to Sales Account 78,750

Sales Returns Book

Date Particulars Credit L. Amount
NoteNo F
No

10-1-2021 Amith 2,000

11-1-2021 Bhavani 2,000

31-1-2021 Transferred to Sales returns A/c 4,000

78
4.7.2 From the following particulars maintain necessary Subsidiary Books in the books
Ramesh Traders

Date Transaction Amount

1-2-2021 Goods Purchased from Appa rao 60,000
3-2-2021 Goods sold to Anjibabu 20,000
4-2-2021 Hari Purchased goods from us (trade discount 10%) 20,000
6-2-2021 Naidu Sold goods to us(trade discount 10%) 40,000
7-2-2021 Machinery purchased from Ravi 1,00,000
8-2-2021 Furniture sold to Bhushan 40,000
10-2-2021 Goods returned from Hari 5,000
12-2-2021 Goods returned to Naidu 5,000
15-2-2021 Goods Purchased from Raju for cash 10,000
16-2-2021 Goods Returned from Anjibabu 4,000
24-2-2021 Furniture purchased from Dinesh for cash 4,000
26-2-2021 Goods returns to Appa rao 5,000
28-2-2021 Goods Returned from Anjibabu 2,000

Solution:

Purchases Book
Date Particulars Invoice L.F Amount
No No
1-2-2021 Apparao 60,000
6-2-2021 Naidu (40, 000- Trade discount 10%) 36,000

28-2-2021 Sundry Creditors transferred to Purchases 96,000

Account

Purchase Returns Book

Date Particulars Debit Note L.F Amount
No No

12-2-2021 Naidu 5,000

26-2-2021 Apparao 5,000

28-2-2021 Transferred to Purchase returns A/c 10,000

79
 Sales Book
Date Particulars Invoice L.F Amount
No No
3-2-2021 Anjibabu 20,000
4-2-2021 Hari(20,000 - Trade discount 10%) 18,000

28-2-2021 Sundry Debtors transferred to Sales A/c 38,000

Sales Returns Book

Date Particulars Credit L. Amount
Note No F
No

10-2-2021 Hari 5,000

16-2-2021 Anjibabu 4,000
28-2-2021 Anjibabu 2,000

28-2-2021 Transferred to Sales returns A/c 11,000

4.7.3 From the following particulars maintain necessary Subsidiary Books and Ledger
accounts in the books of Swathi Ltd.

Date Transaction Amount

1-3-2021 Goods Purchased from Amar 80,000
2-3-2021 Goods sold to Ananda rao 40,000
3-3-2021 Ramu Purchased goods allowed trade discount 10% 50,000
5-3-2021 Rajesh Sold goods to us received trade discount 10% 50,000
8-3-2021 Land purchased from Ravi 5,00,000
10-3-2021 Machinery sold to Babu 50,000
14-3-2021 Goods returned from Ramu 3,000
15-3-2021 Goods returned to Rajesh 2,000
15-3-2021 Goods Purchased from Rajesh for cash 20,000
18-3-2021 Goods Returned from Anand rao 2,000
20-3-2021 Goods returned to Amar 4,000
22-3-2021 Furniture purchased from sastry for cash 5,000
28-3-2021 Goods returns to Amar 3,000
31-3-2021 Goods Returned from Anand Rao 1,000
31-3-2021 Goods sold 25,000

80
Solution:

Purchases Book
Date Particulars Invoice L.F Amount
No No
1-3-2021 Amar 80,000
5-3-2021 Rajesh (50,000-Trade discount10%) 45,000

31-3-2021 Sundry Creditors transferred to Purchases 1,25,000

A/c
Purchase Returns Book
Date Particulars Debit L.F Amount
Note No
No
15-3-2021 Rajesh 2,000
20-3-2021 Amar 4,000
28-3-2021 Amar 3,000
31-3-2021 Transferred to Purchase returns A/c 9,000

Sales Book
Date Particulars Invoice L.F Amount
No No
2-3-2021 Anand rao 40,000
3-3-2021 Ramu (50,000- Trade discount 10%) 45,000
85,000
31-3-2021 Sundry debtors transferred to Sales Account

Sales Returns Book

Date Particulars Credit L.F Amount
Note No No

14-3-2021 Ramu 3,000

18-3-2021 Anandarao 2,000
31-3-2021 Anandarao 1,000
31-3-2021 Transferred to Sales returns A/c 6,000

81
Ledger Accounts: From the above business transactions we need to maintain the following
ledger accounts

1) Purchases A/c 2) Amar A/c 3) Sales A/c 4) Ananda rao A/c 5) Ramu A/c
6) Rajesh A/c7) Land A/c 8) Ravi A/c 9) Machinery A/c 10) Babu A/c
11) Sales returns A/c 12) Purchases returns A/c 13) Furniture A/c14) Cash A/c

Dr Purchases A/c Cr
Date Particulars J Amount Date Particulars J. Amount
. F
F
15-3-2021 To Cash A/c 20,000 31-3-2021 By Balance c/d 1,45,000
31-3-2021 To Sundry 1,25,000
creditors
(Transferred from
Purchases Book)

1,45,000 1,45,000
1-4-2021 To Balance b/d 1,45,000

Dr Amar A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
20-3-2021 To Purchase 4,000 1-3-2021 By Purchases A/c 80,000
returns A/c
28-3-2021 To Purchase 3,000
returns A/c
31-3-2021 To Balance c/d 73,000
80,000 80,000
1-4-2021 By Balance b/d
73,000

82
Dr Sales A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
31-3-2021 By Sundry 85,000
31-3-2021 To Balance c/d 1,10,000 Debtors
account
(Transferred
from Sales
book)
31-3-2021 By CashA/c 25,000

1,10,000 1,10,000

1-4-2021 By Balance b/d 1,10,000

Dr Anand rao A/c Cr

Date Particulars J Amount Date Particulars J Amount
. .
F F
2-3-2021 To Sales A/c 40,000 18-3-2021 By Sales returns A/c 2,000
31-3-2021 By Sales returns A/c
31-3-2021 By balance c/d 1,000

37,000

40,000 40,000

1-4-2021 To balance b/d 37,000

Dr Ramu A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

3-3-2021 To Sales A/c 45,000 14-3-2021 By Sales returns A/c 3,000

31-3-2021 By Balance c/d 42,000

45,000 45,000
1-4-2021 To balance b/d 42,000

83
Dr Rajesh A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

15-3-2021 To Purchase 2,000 5-3-2021 By Purchases A/c 45,000

returns A/c
31-3-2021 To balance c/d 43,000
45,000 45,000

1-4-2021 By Balance b/d 43,000

Dr Land A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

8-3-2021 To RaviA/c 5,00,000 31-3-2021 By Balance c/d 5,00,000

5,00,000 5,00,000

1-4-2021 To Balance b/d 5,00,000

Dr Ravi A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

31-3-2021 To Balance c/d 5,00,000 8-3-2021 By Land A/c 5,00,000

5,00,000 5,00,000

1-4-2021 By Balance b/d 5,00,000

84
 Dr Machinery A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

31-3-2021 To Balance c/d 50,000 10-3-2021 By Babu A/c 50,000

50,000 50,000
1-4-2021 By Balance b/d 50,000

Dr Babu A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

10-3-2021 To Machinery A/c 50,000 31-3-2021 By Balance c/d 50,000

50,000 50,000
1-4-2021 To Balance b/d
50,000

Dr Sales Returns A/c Cr

Date Particulars J Amount Date Particulars J Amount
. .
F F

31-3-2021 To Transfer 6,000 31-3-2021 By Balance c/d 6,000

from sales
returns book
6,000 6,000
1-4-2021 To balance b/d 6,000

Dr Purchase Returns A/c Cr

Date Particulars J Amount Date Particulars J Amount
. .
F F

31-3-2021 To Balance c/d 9,000 31-3-2021 By Transfer 9,000

from Purchases
returns book
9,000 9,000
1-4-2021 By Balance b/d 9,000

85
Dr Furniture A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

22-3-2021 To Cash A/c 5,000 31-3-2021 By Balance c/d 5,000

5,000 5,000
1-4-2021 To Balance b/d 5,000

Dr Cash A/c Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

31-3-2021 To Sales 25,000 15-3-2021 By PurchasesA/c 20,000

22-3-2021 By Furniture A/c 5000
25,000 25,000

4.7.4 From the following particulars prepare Simple Cash Book Single Column Cash Book
in Suresh Merchants Books

Date Transactions Amount

1-1-2021 Opening balance 1,00,000

2-1-2021 Goods purchased from Rani for cash 25,000
5-1-2021 Furniture purchase 20,000
5-1-2021 Goods sold to Ramu for cash 50,000
8-1-2021 Machinery sold 25,000
10-1-2021 Rent paid 15,000
15-1-2021 Goods sold to Rajesh 10,000
16-1-2021 Cash received from Rajesh 10,000
18-1-2021 Commission received 25,000
20-1-2021 Advertisements 10,000
25-1-2021 Salaries paid 20,000

86
Solution:

Dr Simple Cash Book Cr

Date Particulars L Amount Date Particulars L Amount
. .
F F

1-1-2021 To Balance b/d 1,00,000 2-1-2021 By Purchases A/c 25,000

5-1-2021 To Sales A/c 50,000 5-1-2021 By Furniture A/c 20,000
8-1-2021 To Machinery A/c 25,000 10-1-2021 By Rent A/c 15,000
16-1-2021 To Rajesh A/c 10,000 20-1-2021 By Advertisements 10,000
18-1-2021 To commission A/c 25,000 25-1-2021 A/c 20,000
31-1-2021 By Salaries A/c 1,20,000
2,10,000 By balance c/d 2,10,000

1,20,000
1-2-2021 To balance b/d

*** 15-1-2021 Goods sold to Rajesh is a credit transaction hence it is not shown in cash.
Cash book records cash related transactions only****

4.7.5 From the following particulars prepare Double Column Cash Book in the books of
Samrat Merchants

Date Transactions Amount

1-2-2021 Balance of Cash 80,000
2-2-2021 Goods purchased from Ramu for cash 20,000
5-2-2021 Machinery purchased 10,000
8-2-2021 Goods sold to Ravi for cash 60,000
10-2-2021 Machinery sold 10,000
15-2-2021 Rent paid 10,000
18-2-2021 Goods sold to Robins 20,000
20-2-2021 Cash received from Robins (Discount allowed 2,000) 18,000
21-2-2021 Goods Purchased from Ranjith 25,000
22-2-2021 Cash paid to Ranjith for full settlement of his account 22,000
23-2-2021 Cash received from Tarun ( Discount allowed 1,000) 9,000
24-2-2021 Cash paid to Jagadish (Discount received 2,000) 18,000
25-2-2021 Advertisement expenses 5,000
28-2-2021 Salaries paid 25,000

87
 Solution: Samrat Merchants Books

Dr Double Column Book Cr

Date Particulars L Disc Amoun Date Particulars L Disc Amount
ount t ount
. .
Allo Rec
F wed F eive
d

1-2-2021 To Balance b/d 80,000 2-2-2021 By Purchases A/c 20,000

8-2-2021 To Sales A/c 60,000 5-2-2021 By Machinery A/c 10,000
10-2-2021 To Machinery A/c 10,000 15-2-2021 By Rent A/c 10,000
20-2-2021 To Robins A/c 2,000 18,000 22-2-2021 By Ranjith A/c 3,000 22,000
23-2-2021 To Tarun A/c 1,000 9,000 24-2-2021 By Jagadish A/c 2,000 18,000
25-2-2021 By Advt. Exp A/c 5,000
28-2-2021 By Salaries A/c 25,000
28-2-2021 By Balance c/d 67,000

3,000 1,77,000 5,000 1,77,000

1-3-2021 To Balance b/d
67,000

***18-2-2021 Goods sold to Robins is a credit transaction hence it is ignored***

***21-2-2021 Goods purchased from Ranjith is a credit transaction hence it is ignored***

4.7.6 From the following particulars prepare Three Column Cash Book in the books of Sunil
Traders Books

Date Transactions Amount

1-3-2021 Balance of Cash 50,000
1-3-2021 Bank balance 50,000
2-3-2021 Goods purchased and cheque given 10,000
4-3-2021 Goods sold to Ravi for cash 50,000
6-3-2021 Furniture sold for cash 15,000
6-3-2021 Rent paid through cheque 5,000
10-3-2021 Goods sold to Raman received cheque, cheques was 20,000
deposited into bank on the same day
15-3-2021 Sales 10,000
16-3-2021 Goods Purchased from Rana 25,000
18-3-2021 Cash paid to Rana for full settlement of his account 23,000
25,000
20-3-2021 Cash received from Teja ( Discount allowed 2,000) 18,000
22-3-2021 Cash paid to Jagadish (Discount received 2,000) 18,000
25-3-2021 Transport expenses 5,000
30-3-2021 Rent paid 8,000
31-3-2021 Salaries paid 20,000

88
 Important Points to be noted while preparing
Three Column Cash Book

1 Credit transactions should be ignored

2 Contra entries: Certain transactions required to be recorded in both Cash and Bank
columns in three column cash book. Such transactions are Contra entries. For
example, Cash withdrawn from bank for office use, in this case Cash balance
increases and bank balance decreases, hence it should be recorded in cash column
on the debit side and in bank column on the credit side. Another case Cash
deposited in to Bank, in this case, Cash balance decreases and bank balance
increases, hence it should be recorded in bank column on Debit side and in Cash
column on the credit side.
3 Cash withdrawn from bank for personal use should be treated as drawings. It should
be recorded in credit side of the bank column and specifying as drawing
4 Receipt of Cheques: When cheque received from customers not deposited into bank
on the same day of receipt, it should be recorded in debit side of the cash column
only. If received cheques deposited into bank on the same day of receipt, it should
be recorded in debit side of the Bank column only
5 Receipt of Cheques: When cheques received from customers not deposited into
bank on the same day of receipt, and deposited on another day, first it should be
recorded in debit side of the cash column only, later the cheques sent for collection
to the bank treated as cash deposited into bank.
6 Payment through Cheques: Directly enter in credit side of the Bank Column

7 Bank Charges: Directly enter in credit side of the Bank Column because bank
charges deducted by Bank directly from the customer account
8 Dishonour of cheques: Cheques sent to bank for collection dishonoured by Bank
It should be entered in credit side of the bank column and specifying the name of
customer who has given the cheque.
9 Amount directly deposited by the customer into our bank account is treated as a
direct deposit into bank, hence it should be recorded directly in debit side of the
Bank Column
10 Bank Overdraft: Bank overdraft is also called unfavourable balance or adverse
balance which means payments are more than the receipts. It is shown as the credit
side balance of the bank column in the triple column cash book

89
 Solution: Sunil Traders Books

Dr Three Column Cash Book Cr

Date Particulars L Disc Cash Bank Date Particulars L Disc Cash Bank
. .
F
ount ount
F
Allo Rec
wed eive
d

1-3-2021 To Balance b/d 50,000 50,000 2-3-2021 By Purchases A/c 10,000

4-3-2021 To Sales A/c 50,000 6-3-2021 By Rent A/c 5,000
6-3-2021 To Furniture A/c 15,000 18-3-2021 By Rana A/c 2,000 23,000
10-3-2021 To Sales A/c 20,000 22-3-2021 By Jagadish A/c 2,000 18,000
15-3-2021 To Sales A/c 10,000 25-3-2021 By Transport 5,000
20-3-2021 To Teja A/c 2,000 18,000 expenses A/c
30-3-2021 By Rent A/c 8,000
31-3-2021 By Salaries A/c 20,000
31-3-2021 By Balance c/d 69,000 55,000

2,000 1,43,000 70,000 4,000 1,43,000 70,000

69,000 55,000
1-4-2021 To Balance b/d

4.7.7 Prepare Three Column Cash Book from the following transactions

Date Transactions Amount

1-4-2021 Cash Balance 75,000
1-4-2021 Bank Balance 60,000
2-4-2021 Cash Sales 50,000
5-4-2021 Machinery purchased and issued cheque 10,000
8-4-2021 Rent Paid by cheque 15,000
10-4-2021 Cash deposited in the bank 20,000
12-4-2021 Commission Received 5,000
13-4-2021 Cash received from Raju 18,000
15-4-2021 Paid maintenance expenses 5,000
18-4-2021 Received from Vinod (discount allowed 500) 14,500
20-4-2021 Received cheque from Anand and deposited in 10,000
the bank
22-4-2021 Anand cheque was dishonoured 10,000
24-4-2021 Goods purchased from Ganesh for cash 15,000
25-4-2021 For office use cash withdrawn from bank 10,000
28-4-2021 Cheque issued to Ravi (discount received200) 9,800
30-4-2021 Cash withdrawn for personal use 50,000

90
 Solution:

Dr Three Column Cash Book Cr

Date Particulars L Disc Cash Bank Date Particulars L Dis Cash Bank
. ount . cou
F F nt
Allo
wed Rec
eive
d

1-4-2021 To Balance b/d 75,000 60,000 5-4-2021 By Machinery A/c 10,000

2-4-2021 To Sales A/c 50,000 8-4-2021 By Rent A/c 15,000
10-4-2021 To Cash A/c C 20,000 10-4-2021 By Bank A/c C 20,000
12-4-2021 To Commission 5,000 15-4-2021 By Maint. Exp A/c 5,000
13-4-2021 To Raju A/c 18,000 22-4-2021 By Anand A/c 10,000
18-4-2021 To VinodA/c 500 14,500 24-4-2021 By Purchases A/c 15,000
20-4-2021 To Anand A/c 10,000 25-4-2021 By Cash A/c C 10,000
25-4-2021 To Bank A/c C 10,000 28-4-2021 By Ravi A/c 200 9,800
30-4-2021 By Drawings A/c 50,000
30-4-2021 By Balance c/d 82,500 35200

500 1,72,500 90,000 200 1,72,500 90,000

1-5-2021 To Balance b/d 82,500 35,200

4.7.8 Record the transactions in Three Column Cash Book of Sri .Murthy

Date Transactions Amount

1-5-2021 Cash in Hand 90,000
1-5-2021 Cash at Bank 50,000
2-5-2021 Cash received from Lasya (discount allowed 50) 950
5-5-2021 Salaries paid 5,000
8-5-2021 Cash Sales 10,000
10-5-2021 Paid to Pavan by cheque 500
12-5-2021 Withdraw cash from bank for office use 5,000
15-5-2021 Paid rent by Cheque 6000
18-5-2021 Deposited money into bank 5,000
20-5-2021 Received cheque from Anitha and cheques was 5000
deposited on the same day in bank
22-5-2021 Received the dividend by a cheque and deposited 2,000
into bank
24-5-2021 Commission paid by cheque 2,500
25-5-2021 With draw cash from bank for personal use 2,000
28-5-2021 Paid money to Gopal through a cheque to settle 1,900
his account (discount received 100)
30-5-2021 Bank Charges shown in pass book 100

91
 Dr Three Column Cash Book Cr
Date Particulars L Disc Cash Bank Date Particulars L Disc Cash Bank
. .
F
ount ount
F
Allo Rec
wed eive
d

1-5-2021 To Balance b/d 90,000 50,000 5-5-2021 By Salaries A/c 5,000

2-5-2021 To Lasya A/c 50 950 10-5-2021 By Pavan A/c 500
8-5-2021 To Sales A/c 10,000 12-5-2021 By Cash A/c C 5,000
12-5-2021 To Bank A/c C 5,000 15-5-2021 By Rent A/c 6,000
18-5-2021 To CashA/c C 5,000 18-5-2021 By Bank A/c C 5,000
20-5-2021 To AnithaA/c 5,000 24-5-2021 By Commission 2,500
22-5-2021 To Dividend A/c 2,000 A/c
25-5-2021 By Drawings A/c 2,000
28-5-2021 By Gopal A/c 100 1,900
30-5-2021 By Bank Charges 100
A/c
31-5-2021 By Balance c/d 95,950 44,000

50 105,950 62,000 100 1,05,950 62,000

95,950 44,000
1-6-2021 To Balance b/d

4.7.9 Enter the following transactions in Three Column Cash Book

Date Transactions Amount

1-6-2021 Cash in hand 60,000
1-6-2021 Bank Over Draft 5,000
3-6-2021 Brought additional capital 25,000
4-6-2021 Deposited cash into bank 10,000
6-6-2021 Issued Cheque to Vikram (discount received 500) 4,500
9-6-2021 Cash Purchases 5,000
12-6-2021 Cash Paid to Manasa 10,000
16-6-2021 Cash Sales 20,000
21-6-2021 Amount collected from Ranga (discount allowed 500) 7,500
23-6-2021 Paid into bank 5,000
24-6-2021 Withdraw cash from bank for personal use 2,000
25-6-2021 Cheques received from Anand 6,000
27-6-2021 Anand cheque was deposited in to bank 6,000
29-6-2021 Anand cheque dishonoured 6,000
30-6-2021 Paid rent through cheque 9,000
30-6-2021 Paid salaries in cash 20,000

92
Dr Three Column Cash Book Cr
Date Particulars L Dis Cash Bank Date Particulars L Dis Cash Bank
. .
F
co co
F
unt unt
All Re
ow cei
ed ve
d

1-6-2021 To Balance b/d 60,000 1-6-2021 By Balance b/d 5,000

3-6-2021 To Capital A/c 25,000 4-6-2021 By Bank A/c C 10,000
4-6-2021 To Cash A/c C 10,000 6-6-2021 By Vikram A/c 500 4,500
16-6-2021 To Sales A/c 20,000 9-6-2021 By Purchases A/c 5,000
21-6-2021 To Ranga A/c 500 7,500 12-6-2021 By Manasa A/c 10,000
23-6-2021 To Cash A/c C 5,000 23-6-2021 By Bank A/c C 5,000
25-6-2021 To Anand A/c 6,000 24-6-2021 By Drawings A/c 2,000
27-6-2021 To Cash A/c C 6,000 27-6-2021 By Bank A/c C 6,000
30-6-2021 To Balance c/d 5,500 29-6-2021 By Anand A/c 6,000
30-6-2021 By Rent A/c 9,000
30-6-2021 By Salaries A/c 20,000
30-6-2021 By Balance c/d 62,500

500 1,18,500 26,500 500 1,18,500 26,500

1-7-2021 To balance b/d 62,500 1-7-2021 By Balance b/d 5,500

4.7.10 Record the transactions in Three Column Cash Book of Sri .Ratnam

Date Transactions Amount

1-7-2021 Cash in hand 50,000
1-7-2021 Bank over draft 5,000
3-7-2021 Deposited into bank 5,000
5-7-2021 Cheque received from Krishna for full settlement 2500
of his account 3,000 Rs
10-7-2021 Cheque from Krishna paid into bank 2500
10-7-2021 Draw from bank for office use 5000
14-7-2021 Wages paid 2,000
15-7-2021 Cheque issued to Sasi for his account full 900
settlement of 1,000 Rs.
17-7-2021 Stationary purchased 500
21-7-2021 Drew from bank for personal use 2,000
23-7-2021 Bank Charges 200
24-7-2021 Received from Murali with discount 250 Rs 1,750
26-7-2021 Cheques issued for paying salaries 10,000
30-7-2021 Cash in excess of 1,000was deposited into bank

93
Dr Three Column Cash Book Cr
Date Particulars L Disc Cash Bank Date Particulars L Disc Cash Bank
. .
F
ount ount
F
Allo Rec
wed eive
d

1-7-2021 To Balance b/d 50,000 1-7-2021 By Balance b/d 5,000

3-7-2021 To Cash A/c C 5,000 3-7-2021 By Bank A/c C 5,000
5-7-2021 To Krishna A/c 500 2,500 10-7-2021 By Bank A/c C 2,500
10-7-2021 To Cash A/c C 2,500 10-7-2021 By Cash A/c C 5,000
10-7-2021 To Bank A/c C 5,000 14-7-2021 By Wages A/c 2,000
24-7-2021 To Murali A/c 250 1,750 15-7-2021 By Sasi A/c 100 900
30-7-2021 To Cash A/c C 48250 17-7-2021 By Stationary A/c 500
21-7-2021 By Drawings A/c 2,000
23-5-2021 By Bank charges 200
26-7-2021 By Salaries A/c 10,000
30-7-2021 By Bank A/c C 48,250
31-7-2021 By Balance c/d 1,000 32,650

750 59,250 55,750 100 59,250 55,750

1-8-2021 To Balance b/d 1,000 32,650

4.7.11 Record the transactions in Analytical Petty Cash Book

Date Transactions Amount

1-1-2021 Cash received from main cashier 1,000
2-1-2021 Postage Charges 55
4-1-2021 Telephone Charges 45
5-1-2021 Stationary expenses 75
8-1-2021 Snacks 15
10-1-2021 Paid for carriage 10
11-1-2021 Wages 150
14-1-2021 Paid for Conveyance 40
16-1-2021 Printing Expenses 125
20-7-2021 Repairs 75
25-1-2021 Office Cleaning 150
28-1-2021 Paid Attender Raju on account 100
30-1-2021 Tea 25
31-1-2021 Cleaning 100

94
Dr Analytical Petty Cash Book Cr
Amou Date Particulars V Total Analysis of payments
nt .
Payme Printing Postage Transport Personal Other
receive & Telegrams & Account Expenses
d N nts Stationery Telephone Travelling
o

1,000 1-1-2021 To Cash

2-1-2021 By Postage 55 55
4-1-2021 By Telephone exp 45 45
5-1-2021 By Stationary exp 75 75
8-1-2021 By Snacks exp 15 15
10-1-2021 By Carriage exp 10 10
11-1-2021 By Wages 150 150
14-1-2021 By Conveyance 40 40
16-1-2021 By Printing 125 125
20-1-2021 By Repairs 75 75
25-1-2021 By Cleaning exp 150 150
28-1-2021 By Raju 100 100
30-1-2021 By Tea exp 25 25
31-1-2021 By Cleaning exp 100 100
31-1-2021 By Balance c/d 35

1,000 1,000 200 100 50 100 515

35 1-2-2021 To Balance b/d

965 1-2-2021 To Cash

4.7.12 Record the transactions in Petty Cash Book

Date Transactions Amount

1-2-2021 Cash received from main cashier 1,500
2-2-2021 Registration Charges for post 50
4-2-2021 Telephone Charges 25
6-2-2021 Printing expenses 125
11-2-2021 Tea expenses 50
12-2-2021 Cottage 150
14-2-2021 Wages 200
16-2-2021 Transport expenses 150
18-2-2021 Stationary expenses 75
19-2-2021 Repairs 100
22-2-2021 Office Cleaning 100
26-2-2021 Paid to clerk Apparao 150
27-2-2021 Auto charges 100
28-2-2021 Coolie charges 150

95
Dr Analytical Petty Cash Book Cr
Amou Date Particulars V Total Analysis of payments
nt .
Payme Printing Postage Transport Personal Other
receiv & Telegrams & Account Expenses
ed N nts Stationery Telephone Travelling
o

1,500 1-2-2021 To Cash

2-2-2021 By Postage 50 50
4-2-2021 By Telephone exp 25 25
6-2-2021 By Printing exp 125 125
11-2-2021 By Tea exp 50 50
12-2-2021 By Cottage exp 150 150
14-2-2021 By Wages 200 200
16-2-2021 By Transport exp 150 150
18-2-2021 By Stationary exp 75 75
19-2-2021 By Repairs 100 100
22-2-2021 By Cleaning exp 100 100
26-2-2021 By Apparao 150 150
27-2-2021 By Auto charges 100 100
28-2-2021 By Coolie charges 150 150
28-2-2021 By Balance c/d 75

1,500 1,500 200 75 400 150 600

75 1-3-2021 To Balance b/d

1425 1-3-2021 To Cash

Test your Understanding

I. Fill in the Blanks

1. Journal is sub-divided into various books called -----------------

2. Subsidiary Books support the --------------------of business transactions

3. The division work is facilitated by -------------------------------------

4. The Subsidiary books are the base for ------------------- accounts

5. Adjustment entries are recorded in -------------------------------

96
 II. True or False

1. Ledger is a principal book of accounting

2. Ledger accounts are the base for preparation of trail balance

3. Purchases Book is maintained to record all the credit and cash purchases of goods

4.Bills Receivable Book is maintained to record all bills received from creditors

5.Bills Payable Book is maintained to record all bills accepted to debtors

III. Multiple Choice Questions (MCQ)

1. Which of the following is recorded in Journal Proper

a) Cash Discount b) Trade Discount Allowed c) Trade Discount Received d) Opening Entries
2.Debit note is used in
a) Purchases Book b) Sales Book c) Purchase Returns Book d) Sales Returns Book
3) Bills receivable book is a part of the following
a) Journal b) Ledger c) Balance Sheet d) Profit and Loss Account
4) The source document used for recording entries in Sales Book is
a) Invoice Received b) Invoice sent out c) Debit Note d) Credit Note
5) The periodical total of the Sales Book amount is posted into
a) Credit side of the Sales Account b) Debit side of the Sales Account
c) Credit side of the Cash Account d) Debit side of the Sales Account
6) Cash Book act as -------- and a--------- at the same time
a) Journal, Ledger b) Ledger, Journal c) Journal, Statement d) None
7) Cash Book is an example of
a) Special Ledger b) Special Journal c) Special Journal and Ledger d) None
8) Contra entry not required for which of the following transaction
a) Cash withdrawn from Bank b) Cash Deposited into Bank
c) Cash withdraw from bank for personal use d) None
9) The system followed in petty cash book is
a) Accrual System b) Imprest system c) Cash System d) a&c
10 If the debit and credit aspects of a transaction are recorded in the cash book is called
a) Double Entry b) Single Entry c) Simple Entry d) Contra Entry

97
 IV. Short Answer Questions (SAQ)

1. What are the Subsidiary Books explain clearly?

2. What are the objectives and Need of Subsidiary Books?

3. Differences between Subsidiary Books and Ledger

4. What is a petty Cash Book and explain methods of operating Petty Cash Book?

5. Explain Debit Note and Credit Note

V. Long Answer Questions (LAQ)

1. From the following information prepare a) Purchases Book b) Sales Book

c) Purchase Returns Book d) Sales Returns Book

Date Transaction Amount

1-1-2021 Goods Purchased from Amar 60,000
2-1-2021 Goods sold to Avinash 20,000
3-1-2021 Goods Purchased from Vanitha (trade discount 10%) 40,000
4-1-2021 Goods Sold to Sastry trade discount 10% 50,000
5-1-2021 Purchases goods for cash 20,000
5-1-2021 Goods sold for cash 10,000
8-1-2021 Charan Purchased goods(trade discount 20%) 10,000
9-1-2021 Chinni sold goods 50,000
10-1-2021 Goods returned to Amar 2,000
16-1-2021 Goods Returned from Avinash 4,000
18-1-2021 Goods returned from Sastry 2,000
20-1-2021 Goods Returned to Vanitha 4,000
25-1-2021 Goods Purchased from Avanthi for cash 5,000
31-1-2021 Furniture sold to Raju 10,000

2. From the following information prepare a) Purchases Book b) Sales Book c) Purchase
Returns Book d) Sales Returns Bookand Ledger accounts.

Date Transaction Amount

1-2-2021 Goods Purchased from Ravikanth 80,000
4-2-2021 Goods sold to Viswanadh 50,000
5-2-2021 Ranganadh purchased goods (trade discount 10%) 40,000
7-2-2021 Vishnu sold goods with trade discount 5% 50,000

98
 9-2-2021 Machinery Purchase 80,000
12-2-2021 Furniture sold on for credit 15,000
14-2-2021 Krishna Purchases goods 25,000
15-2-2021 Ravikiran sold goods 15,000
17-2-2021 Goods returned to Ravikanth 2,000
20-2-2021 Goods Returned from Viswanadh 2,000
24-2-2021 Goods returned from Ranganadh 2,000
26-2-2021 Goods Returned to Vishnu 6,000
27-2-2021 Good purchased from Kasi 20,000Rs but cash paid 15,000
28-2-2021 Goods sold to Janaki Rs.50,000,cash received 30,000

3. From the following transactions prepare Single Column Cash Book

Date Transactions Amount

1-1-2021 Opening balance 50,000

5-1-2021 Goods sold to Rajini for cash 45,000
8-1-2021 Machinery purchase 20,000
9-1-2021 Goods Purchased from Ramu for cash 20,000
11-1-2021 Machinery sold 15,000
13-1-2021 Rent paid 5,000
15-1-2021 Goods sold to Satish 20,000
17-1-2021 Cash received from Satish 20,000
22-1-2021 Commission received 15,000
28-1-2021 Office expenses 1,000
31-1-2021 Salaries paid 10,000

4. From the following transactions prepare Double column cash book

Date Transactions Amount

1-1-2021 Balance of Cash 60,000
4-1-2021 Goods purchased from Rajesh for cash 10,000
5-1-2021 Furniture purchase 20,000
10-1-2021 Goods sold to Ravi for cash 50,000
15-1-2021 Furniture sold 15,000
16-1-2021 Advertisement expenses 10,000
17-1-2021 Goods sold to Ram 20,000
18-1-2021 Cash received from Ram (Discount allowed 1,000) 19,000
20-1-2021 Goods Purchased from Rao 5,000
22-1-2021 Cash paid to Rao for full settlement of his account 4,500
24-1-2021 Cash received from Satish ( Discount allowedRs.2,000) 8,000

99
 25-1-2021 Cash paid to Apparao (Discount received Rs.500) 19,500
26-1-2021 Office expenses 2000
31-1-2021 Rent Paid 5,000
31-1-2021 Salaries paid 20,000

5. From the following transactions prepare Three Column Cash Book

Date Transactions Amount

1-5-2021 Cash Balance 95,000
1-5-2021 Bank Balance 50,000
2-5-2021 Good purchased from Ravikanth 25,000
4-5-2021 Goods purchased and issued a cheque 10,000
6-5-2021 Commission paid by cheque 15,000
9-5-2021 Cash deposited in the bank 30,000
10-5-2021 Cheque Received from Ravikanth 25,000
12-5-2021 Paid office expenses expenses 5,000
16-5-2021 Received from Vani (discount allowed 500) 24,500
18-5-2021 Received cheque from Kiran and deposited in the bank 20,000
20-5-2021 Ravi Kanth cheque was dishonoured 25,000
22-5-2021 Goods Purchased 10,000
26-5-2021 For office use cash withdrawn from bank 10,000
29-5-2021 Cheque issued to Rajesh (discount received 500) 9,500
31-5-2021 Paid salaries by cash 10,000 and by cheque 15,000

6. Prepare analytical Petty Cash Book

Date Transactions Amount

1-3-2021 Cash received from main cashier 900
3-3-2021 Postal Stamps 15
5-3-2021 Telephone Charges 15
8-3-2021 White papers 25
10-3-2021 Cleaning charges 50
12-3-2021 Carriage expenses 75
15-3-2021 Wages 100
17-3-2021 Travelling expenses 35
18-3-2021 Stationary expenses 55
20-3-2021 Repairs 75
21-3-2021 Postal Registration charges 50
25-3-2021 Paid to clerk Ramu 100
29-3-2021 Bus charges 50
31-3-2021 Tea and snacks expenses 60

100
 VI. Additional Resources for Advanced Learning

Study Material (Handouts):

https://lunyax.files.wordpress.com/2014/04/group-4.pdf

Reference Text Books:

1. R L Gupta & V K Gupta, Principles and Practice of Accounting, Sultan Chand &Sons

2.S.P. Jain & K.L Narang, Accountancy-I, KalyaniPublishers

3.Tulasian, Accountancy -I, Tata McGraw HillCo.

E - Text Books:

https://icmai.in/upload/Students/Syllabus-2012/Study_Material_New/Foundation-Paper2-
Revised.pdf

https://icmai.in/upload/Students/Syllabus2016/Foundation/Paper-2New-29012021.pdf

https://d2cyt36b7wnvt9.cloudfront.net/exams/wp-content/uploads/2020/03/06164311/cs-
foundation-paper4.pdf

http://www.ddegjust.ac.in/studymaterial/bba/bba-104.pdf

YouTube Links:

https://www.youtube.com/embed/HG7uUnPlBuE

https://www.youtube.com/embed/JAKVim3ICsI

Power Point Presentations:

https://www.slideshare.net/takshilalearning/accounting-process-subsidiary-
books?next_slideshow=1

101
 VII. Suggested Activity

1. Visit a firm (Individual or Group) and observe the maintenance of subsidiary books

2.Problem Solving Exercises

3.Learn Computer based Accounting system through tally

II. True or False

Q.No 1.T 2.T 3.F 4.F 5.F

I. Fill in the Blanks

Q.No Subsidiary Classification Subsidiary Ledger Journal

Books Books Proper

III. Multiple Choice Questions (MCQ)

Q.No 1.D 2.C 3.A 4.B 5.A 6.A 7.B 8.C 9.B 10.D

102
Subsidiary Books: Journal is sub-divided into various books, those books are called Subsidiary
Books.

Purchases Book: Purchases Book is a Book maintained to record all the credit purchases of
goods.

Purchase Returns Book: Book Maintained to record all goods returned to the suppliers.

Sales Book: Sales Book is a Book maintained to record all the credit sales of goods.

Sales Returns Book: Book Maintained to record all goods returned by the customers.

Cash Book: Cash Book is Book maintained to record all the cash receipts and payments.

Bills Receivable Book: Book Maintained to record all bills received from debtors.

Bills Payable Book: Book Maintained to record all bills accepted to creditors.

Journal Proper: Used to record those transactions for which there is no separate book. Journal
proper is used to record adjustment entries, rectification entries, opening and closing entries.

Debit Note: Debit Note is a document/voucher which is prepared at the time of purchase returns
by stating that suppliers account is debited in the books of the sender business concerns

Credit Note: Credit Note is a document/voucher which is prepared at the time of sales returns
from the customers by stating that customer account is credited in accounting books of the
business concerns

Invoice: Invoice is complete details of goods sent or received with a statement of the amount
receivable or amount payable

Contra Entry: The debit and credit aspect of a transaction are recorded in the cash book is called
contra entry, it means both cash and bank columns are effected with a single transaction, for
example cash withdrawn from bank in this transaction cash balance increases and the bank
balance decreases.

Petty Cash Book: Petty cash book is maintained by the business concerns to record the petty cash
expenses occurred during the business operations.

Imprest System: Imprest system is a method of advancing by the main cashier to petty cashier
for meeting the petty cash expenses depends on the amount spent by the petty cashier for petty
expenses.

103
 Word Scramble?

1. _____________ will cause a Business Stockholders' Equity to increase.

EEERSUVN

List Of Top Accounting & Finance Courses

1.C.A (Chartered Accountant)

2. CMA (Certified Management Accountant)

3. CS (Company Secretary)

4. ACCA (Association of Chartered Certified Accountants)

5. CFA (Chartered Financial Analyst)

6. FRM (Financial Risk Management)

7. CPA (Certified Public Accountant

104
 Contents
Learning Outcomes

5.1 Introduction
1. Understand the
meaning and 5.2 What is a trial
characteristics of trial balance?
balance 5.3 Why do we need
2. Describe the need to prepare trial
for preparation of trial balance?
balance 5.4 How to prepare
3. Examine the trial balance?
methods of 5.5 What if trial
preparation of trial balance does not
balance tally?
4. Develop the skill of 5.6 Limitations of trial
preparation of trial balance
balance 5.7 Practical
Illustrations

105
5.1 Introduction:

Accounting process encompasses many stages. In the first stage transactions and
events are analysed and recorded in the form of journal entries in journal, or recorded in
appropriate subsidiary journals. The entries are then classified and posted into the relevant
accounts in the ledger in the next stage. The various accounts in ledger are then balanced to
find out the balances of accounts in the next stage. So far students have come across the
above-mentioned process in the initial stages of accounting also known as book keeping.

In the next stage the balances of various accounts should be summarized to set a stage
for analysis and interpretation by preparation of final accounts. Statement prepared to
summarize the ledger balances is called Trial balance. Preparation of trial balance is a key
stage in accounting process. Trial balance acts as a link between book keeping and
accounting. Trial balance is discussed in this chapter.

5.2 What is a trial balance?

We follow double entry system which is based on the ‘principle of dual aspect’. As
per dual aspect principle every transaction has two aspects one is giving aspect and another is
receiving aspect. We record the transaction into our books by considering both the aspects
and by assigning debits and credits to those aspects. So, every debit has a corresponding
credit. For each and every rupee debited there should be a rupee of credit. If an account is
credited with a sum amount there must be other account(s) debited with the same amount.

Since we have been following double entry system of accounting, on any day the total
of debit balances and total of credit balances shown by our ledger should be equal. This rule
of thumb will help us in checking the arithmetical accuracy of our books of accounts.

To ensure the arithmetical accuracy of our books of accounts, we prepare a

statementby summarizing the balances shown by various accounts in ledger. The statement is
known as trial balance. Summarization of the balances of ledger is done by preparation of
trial balance. Hence,Trial balance is a summarized ledger.

“Trial balance is a statement which shows the totals or balances of ledger accounts on
a particular date, prepared to check the arithmetical accuracy of books of accounts”.

5.2.1 Definitionsof Trial balance:

According to R.N. Carter

“A trial balance is a schedule or a list of balances both debit and credit extracted from
the accounts in the ledger and including the cash and bank balances from the cash book.”

106
 అంకణా

అంకణా-పరిచయం:

అక ౌంటౌంగ్ ప్రకయ
రి లో అౌంకణాతయారీ అనేది కీలకమైన దశ.ఇది ఆవరజా కు ముగౌంప్ు లెకకల
తయారీ కర మధ్య వౌంతెనలా ప్నిచేసత ్ౌంది.జౌంట ప్ద్ు విధానము దవౌందవ రూప్ భావన పై ఆధారప్డి
ఉౌంట ౌంది. దవౌందవ రూప్ భావన ప్రకజరౌం ప్రతీ వయవహారము యొకక డెబిట్ మరయు కరిడట్
ి అౌంశజలన్
ప్రగణిసత త వయవహారజలన్ ప్ుసత కజలలో నమోద్ చేస్త జరు. కజవున ఏ సమయౌం లో అయినా ఆవరజా
చతపౌంచ్ మొతత ౌం డెబిట్ నిలవలు మరయు మొతత ౌం కరిడిట్ నిలవలు సమానౌంగజ ఉౌండాలి. అలా
ఉననటల యితే ఖాతా ప్ుసత కములు అౌంకగణిత ఖచ్చితతవమున్ కలిగ ఉననటల గజ భావిౌంచవచ్ి.

ఖాతా ప్ుసత కజల యొకక అౌంకగణిత ఖచ్చితతవమున్ నిరజారౌంచడానికర, లెడ్ారలోని వివిధ్ ఖాతాల
యొకక డెబిట్ మరయు కరిడట్
ి వప్
ై ు మొతాతలన్లేదా ఆ ఖాతాలనిలవలన్ సౌంగిహౌంచ్చ ఒక నివేదికన్
తయారు చేస్త జరు. ఆ నివేదక
ి న్ అౌంకణా అని అౌంటారు.

అంకణా యొకక లక్షణాలు:

 అంకణా అన్నది ఒక నివేదిక మాతరమే ఇది ఖాతా కజద్.

 అౌంకణాన్ ఒక నిరుష్ట సమయములో ఉనన ఆవరజా నిలవలన్ చతప్ుత ౌంది.
 ఖాతా ప్ుసత కజల అౌంకగణిత ఖచ్చితతావనిన తనిఖీ చేయడానికర అంకణాన్ ఏ
తేదీనన
ై ా తయారు చేయవచ్ి, కజనీ ముగౌంప్ు లెకకల తయారీకర ముౌంద్
మాతరము దీనిని తప్పనిసరగజ తయారు చేయాలి.
 అౌంకణా లోని డెబిట్ , కరిడిట్ మొతత ములు సర తూగనటల యితే ఖాతా ప్ుసత కములు
అౌంకగణిత ఖచ్చితతవమున్ కలిగ ఉననటల గజ భావిౌంచవచ్ిన్.
 అౌంకణా లోని డెబిట్ , కరిడిట్ మొతత ములు సర తూగక పో తే ఖాతా ప్ుసత కముల లో
తప్ుపలు ఉననటల గజ భావిస్జతరు.

అంకణాతయారీ పద్ధ తులు: అౌంకణా న్ రరౌండ్ు ప్దా త లలో తయారు చేయవచ్ి

మొతత ముల పద్ధ తి:

ఈ ప్దా తి లో లెడ్ార లోని వివిధ్ ఖాతాల యొకక డెబిట్ మరయు కరడ

ి ిట్ వైప్ుల మొతాతలతో
అంకణాతయారు చేయబడ్ుత ౌంది.

107
According to J.R. Batliboi,

“A trial balance may be defined as a statement of debit and credit balances extracted
from the ledger with a view to testing the arithmetical accuracy of the books.”

The characteristics of trial balance are given below.

5.2.2 Characteristics of Trial balance:

 Trial balance is a statement not an account.

 It is prepared on a particular day but not for a period of time. So, it is a point
statement not a periodic statement.
 It is prepared by taking either the debit and credit totals or balances of ledger
accounts.
 The Debit and credit totals or debit and credit balances are shown in debit and
credit columns/sides of trial balance respectively.
 Trial balance can be prepared on any date to check the accuracy of books, but
it must be prepared before the preparation of final accounts.
 Agreement of both sides of trial balance indicates the reasonable accuracy of
books of accounts.
 Disagreement of both sides of trial balance indicates the presence of
unrectified errors in books of accounts.
 It is helpful in preparation of final accounts.

5.3 Why do we need to prepare trial balance?

Need for trial balance is explained below

i. The arithmetical accuracy of the books of accounts can be verified by

preparation of trial balance. The tally of debit side total with credit side totals
in trial balance indicates that the books of accounts are arithmetically accurate.

ii. By preparation of trial balance, one can notice that the errors have taken place
in books of accounts. Disagreement of trial balance indicates that the books of
accounts contain some errors. Errors can be located and rectified before the
preparation of final accounts.

iii. The trial balance is a summarized ledger, one can know the balance of any
ledger account by referring to trial balance. However, to get complete details
of an account one should go to ledger.

iv. Preparation of trial balance is the basis for preparation of final accounts. It
becomes very difficult to prepare final accounts from ledger without trial
balance. Trial balance serves as a connecting link between ledger and final
accounts.
108
నిలవల పద్ధ తి:
ఈ ప్దా తి లో లెడ్ార లోని వివిధ్ ఖాతాల యొకక డెబిట్ లేదా కరడ
ి ిట్ నిలవ లతో అౌంకణాన్
తయారు చేస్త జరు. ముగౌంప్ు లెకకల తయారీలో ఈ ప్దా తి ఎకుకవ ఉప్యోగకరౌంగజ ఉౌంట ౌంది.
అంకణాయొకక ఆవశ్యకత:
i. ఖాతా ప్ుసత కజల యొకక అౌంకగణిత ఖచ్చితతవమున్అంకణాతయారీ దావరజ
ధ్ృవీకరౌంచవచ్ి.
ii. అంకణాతయారు చేయడ్ౌం దావరజ ఖాతా ప్ుసత కములలో తప్ుపలు ఉనన విష్యము
తెలుస్కొనవచ్ి. అంకణాయొకక రరౌండ్ు వైప్ులా సరతూగక పో వడ్ౌం ఖాతా ప్ుసత కజలు
తప్ుపలన్ కలిగ ఉౌండ్ుటన్ సతచ్చస్
త ౌంది. తదావరజ ముగౌంప్ులెకకల తయారీకర
ముౌంద్గజనేతప్ుపలన్ గురత ౌంచ్చ సరదిదువచ్ి.
iii. అంకణాఅనేది లెడ్ార యొకక సౌంక్షిప్త రూప్ము.ఒక నిరీీత తేదన
ీ ఏదెైనా ఒక ఖాతా నిలవ
న్ అంకణాచతస తెలుస్కోవచ్ి. అయితే, ఒక ఖాతా యొకక ప్ూరత వివరజలన్
ప ౌందాలౌంటే లెడ్ార లోనే చతడాలి.
iv. ముగౌంప్ు లెకకల తయారీకర అంకణాఆధారము గజ ఉౌంట ౌంది. అంకణా, లెడ్ార మరయు

ముగౌంప్ులెకకల మధ్య అన్సౌంధానముగజ ప్నిచేసత ్ౌంది.

అంకణా పరిమితులు:
1. అంకణారరౌండ్ు వైప్ులా సరతూగడ్ము అక ౌంట్్ ప్ుసత కజల ఖచ్చితతవౌం మరయు ప్రప్ూరీ తకు

ఖచ్చితమైన రుజువు కజద్. ఇది మొతత ౌం డెబిట్లు మొతత ౌం కరడ

ి ిట్లకు సమానమని మాతరమే
నిరజారస్
త ౌంది, కజనీ ఖాతా ప్ుసత కజలు ప్ూరత గజ వజరయబడాాయని మరయు తప్ుపలు లేవనీ
ప్ూరత గజ ధ్్రవీకరౌంచద్. అనిన తప్ుపలనత అంకణావలల డి చెయయద్.
అౌంకణా తయారీ దావరజ బహరగ తౌం కజని కొనిన తప్ుపలు:
 ఒక లావజదేవీని ప్ుసత కజలలో నమోద్ చేయడ్ము ప్ూరత గజ మరచ్చపో వుట లెదా ఒకే
వయవహారమున్ చ్చటాటలో ప్లుమారుల రకజరుా చేయటము.
 ఒక చ్చటాటప్ద్ున్ లెడ్ార లో ఖాతాలకుపో స్టట చేయడ్ౌం మరచ్చపో వుట లేదా ఒకే
చ్చటాటప్ద్ున్ ప్లుమారుల లెడ్ార లో ఖాతాలకు పో స్టట చేయడ్ౌం
 చ్చటాట లో తప్ుప మొతాతనిన నమోద్ చేయడ్ౌం.
 చ్చటాట ప్ద్ు వజరసేటప్ుడ్ు ఒక ఖాతాన్ లెదా రరౌండ్ు ఖాతాలన్ ప రబాట గజ డెబిట్ లేదా
కరిడిట్ చేయుట.చ్చటాటప్ద్ున్ లెడ్ార లో తప్ుప ఖాతాలలో పో స్టట చేయడ్ౌం.
 రరవనతయ వయయానిన మూలధ్న వయయౌంగజ ప్రగణిౌంచ్చ ప్ద్ు వజరయుట.
 ఒక తప్ుపయొకక ప్రభావమున్ మరొక తప్ుప సరబెటట ట.

109
5.4 How to prepare Trial balance?

Trial balance can be prepared under two methods

1. Total method

2. Balance method

5.4.1 Total method:

Under this method Trial balance is prepared with the totals of debit and credit sides of
the ledger accounts. Totals of debit side and credit side of every ledger account are entered in
the respective columns/sides of trial balance. Ledger accounts need not be balanced to
prepare trial balance under this method. The sum total of debit column should be equal with
the sum total of credit column. This method is not popular as it is not much helpful in
preparation of final accounts.

Format of Trial balance under total method:

Trial balance as on…………

Name of the account L.F Debit Total Credit total

110
 2. అక ౌంటౌంగ్ యొకక డ్బుల్ ఎౌంటరర ససట మన్ ఉప్యోగౌంచే సౌంసథ లు మాతరమే అౌంకణాతయారు
చేస్త జయి. సౌంగల్ ఎౌంటరర ససట మన్ ఉప్యోగౌంచే చ్చనన సౌంసథ లు టరయల్ బాయలెన్్న్ తయారు
చేయలేవు.

అంకణా యొకక నమూనా : .............. తేదీ నాటి అంకణా

డెబిట్ నిలవ రూ. క్రడ

ె ిట్ నిలవ రూ.
ఖాతా పేరు

కొన్గోళ్ళు XXX
కొన్గోలు వజప్స్లు XXX
అమమకజలు XXX
అమమకజల వజప్స్లు XXX
మూలధ్నము XXX
స్ ౌంతవజడ్కజలు XXX
ఖరుిలు XXX
ఆదాయాలు XXX
నష్జటలు XXX
లాభాలు XXX
సథ ర ఆస్
త లు XXX
కౌంటకర కనిపౌంచని ఆస్
త లు XXX
కు
ు తిరమ ఆస్
త లు XXX
పటట బడ్ులు XXX
అప్ుపలు XXX
వివిధ్ రుణగిసత ్లు XXX
వివిధ్ రుణదాతలు XXX
వసతలు బిలు
ల లు XXX
చెలిలౌంప్ు బిలు
ల లు XXX
చేతిలో నగద్/బాయౌంకులో నగద్ XXX
బాయౌంక్ ఓవర డారఫ్టట XXX
సరుకు XXX
ఏరజపటల /రజరులు/నిధ్్లు XXX

మొతత ం XXXXX XXXXX

111
5.4.2 Balance method:

In this method the balances of ledger accounts are used to prepare Trial
balance. Debit and credit balances of ledger accounts are taken into respective debit and
credit columns/sides in trial balance. The total of debit balances should be equal to the total
of credit balances. Ledger accounts should have been balanced to prepare trial balance under
this method. This method is popular among business firms. This method isvery much helpful
in preparation of final accounts.

Format of Trial balance under balance method:

Trial balance as on…………

Name of the account L.F Debit balance Credit balance

Alternatively, Trial balance under balances method can be prepared in the following manner

Trial balance as on…………

Debit balances Amount Credit balances Amount

5.4.3 Total Method Vs Balance Method

S.No Total Method Balance Method

1 Totals of debit and credit sides of Balances of ledger accounts are used to
ledger accounts are used to prepare prepare trial balance under this method.
trial balance under this method.

2. Ledger accounts need not be Ledger accounts must be balanced to

balanced to prepare trial balance in prepare trial balance under this method.
this method

3 This method is not much helpful in This method is Very helpful in

preparation of final accounts preparation of final accounts

4. This method is not a popular This method is very Popular method

method

112
అంకణారరండు వైపులా సరితూగకపో తే?

అంకణా రరౌండ్ు వైప్ులా సరతూగకపో తే అక ౌంట్ ప్ుసత కజలలో లో కొనిన దో ష్ములు ఉనానయని
అరా ము. అంకణా రరౌండ్ువప్
ై ులా మొతత ము సరప్డ్కపో తే,వయతాయసమున్ సరచేయుట కొరకు ఖాతా
ప్ుసత కములలోని తప్ుపలన్ గురత ౌంచ్చ, సవరణ చేస్త జరు. అయినప్పటకీ అంకణా సరప్డ్కపో తే, అనామత
ఖాతా అనే ఒక ఊహాతమక ఖాతా తెరచ్చ వయతాయస మొతత మున్ఆ ఖాతాకు మళ్ళుస్జతరు. దీనివలన
ముగౌంప్ు లెకకల తయారీలో ఆలసయము జరుగకుౌండా ఉౌంట ౌంది.

5.4.4 Guide lines for preparation of Trial balance

Balance method of trial balance is widely used for preparation of trial balance. Guide
lines for Preparation of trial balance under balance method is explained under:

 Ensure that all transactions are recorded in books of accounts properly.

 Ensure that all journal entries or totals of subsidiary journals are properly
posted to various ledger accounts.
 Ensure that all the accounts are balanced properly.
 Get the updated balance of cashbook
 Rectify the errors found if any committed in journalising, ledger posting and
balancing.
 Calculate the total amount of debtors by making a list with balances of
different accounts of debtors, follow the same procedure to know the total
amount ofcreditors, bills receivables and bills payables. Take the total amounts
to trial balance.
 Record the balances of ledger in trial balance on respective column/side.
The Balances usually recorded on debit side/debit column of trial balance are:

1. Assets of all type

2. Expenses of all type
3. Losses of all type
4. Drawings
5. Purchases (cash and credit)
6. Sales returns
The Balances usually recorded on credit side/credit column of trial balance
are:

1. Liabilities of all type

2. Incomes of all type
3. Profits or gains of all type
4. Capital
5. Sales (cash and credit)
6. Purchase returns
7. Provisions, reserves, funds

113
5.4.5 Model of Trial Balance:General model of trial balance is given below

Trial balance of ………………as on …………

Name of the Account Debit Balance Rs. Credit Balance Rs.

Purchases XXX
Purchases Returns XXX
Sales XXX
Sales Returns XXX
Capital XXX
Drawings XXX
Expenses XXX
Incomes XXX
Losses XXX
Profits/Gains XXX
Fixed Assets XXX
Intangible assets XXX
Fictitious assets XXX
Investments XXX
Loans and borrowings XXX
Sundry debtors XXX
Sundry creditors XXX
Bills Receivable XXX
Bills Payables XXX
Cash in hand XXX
Cash at bank XXX
Bank Over Draft XXX
Stock XXX
Provisions XXX
Reserves /Funds XXX

Total XXXX XXXX

114
5.4.6 Preparation of Trial Balance:

Preparation of trial balance from ledger is explained below:

The Ledger of Shanti is as under:

Dr Cash Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F

1-7-2021 To Capital a/c 2,00,000 2-7-2021 By Purchase a/c 1,00,000

5-7-2021 To Sales a/c 75,000 10-7-2021 By Ramesh a/c 50,000
12-7-2021 To Ravi a/c 50,000 14-7-2021 By Furniture a/c 25,000
22-7-2021 To Furniture a/c 20,000 18-7-2021 By Office 5,000
Expenses a/c
21-7-2021 By Machinery a/c 20,000
28-7-2021 By Commission 10,000
30-7-2021 By Rent a/c 25,000
31-7-2021 By Salaries a/c 50,000
31-7-2021 By Balance c/d 60,000
3,45,000 3,45,000

1-8-2021 To balance b/d 60,000

Dr Capital Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F
31-7-2021 To Balance c/d 2,00,000 1-7-2021 By Cash a/c 2,00,000

2,00,000 2,00,000

1-8-2021 By Balance b/d 2,00,000

Dr Purchases Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F

2-7-2021 To Cash a/c 1,00,000 31-7-2021 By Balance c/d 1,50,000

3-7-2021 To Ramesh a/c 50,000

1,50,000 1,50,000
1-8-2021 To Balance b/d 1,50,000

115
Dr Ramesh Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F

10-7-2021 To Cash a/c 50,000 3-7-2021 By Purchase a/c 50,000

25-7-2021 To Purchase 2,000 31-7-2021 By Balance c/d 2,000
returns a/c
52,000 52,000

1-8-2021 To Balance b/d 2,000

Dr Sales Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F
5-7-2021 By Cash a/c 75,000
8-7-2021 By Ravi a/c 50,000
31-7-2021 To Balance c/d 1,25,000

1,25,000 1,25,000

1-8-2021 By Balance b/d 1,25,000

Dr Ravi Account Cr

Date Particulars J Amount Date Particulars J Amoun

. . t
F F

8-7-2021 To Sales a/c 50,000 12-7-2021 By Cash a/c 50,000

31-7-2021 To Balance c/d 5,000 24-7-2021 By Sales returns a/c 5,000

55,000 55,000
By Balance b/d
1-8-2021 5,000

116
Dr Furniture Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F

14-7-2021 To Cash a/c 25,000 22-7-2021 By Cash a/c 20,000

31-7-2021 By Balance c/d 5,000

25,000 25,000

1-8-2021 To Balance b/d 5,000

Dr Office Expenses Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F
18-7-2021 To Cash a/c 5,000 31-7-2021 By Balance c/d 5,000

5,000 5,000

1-8-2021 To Balance b/d 5,000

Dr Machinery Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F

21-7-2021 To Cash a/c 20,000 31-7-2021 By Balance c/d 20,000

20,000 20,000

1-8-2021 To Balance b/d 20,000

Dr Sales Returns Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F
24-7-2021 To Ravi a/c 5,000 31-7-2021 By Balance c/d 5,000
5,000 5,000

1-8-2021 To Balance b/d 5,000

117
Dr Purchase Returns Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
31-7-2021 To Balance c/d 2,000 25-7-2021 By Ramesh a/c 2,000

2,000 2,000

1-8-2021 By Balance b/d

2,000

Dr Commission Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
28-7-2021 To Cash a/c 10,000 31-7-2021 By Balance c/d 10,000

10,000 10,000

1-8-2021 To Balance b/d 10,000

Dr Rent Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
30-7-2021 To Cash a/c 25,000 31-7-2021 By Balance c/d 25,000

25,000 25,000
1-8-2021 To Balance b/d 25,000

Dr Salaries Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F
31-7-2021 To Cash a/c 50,000 31-7-2021 By Balance c/d 50,000

50,000 50,000

1-8-2021 To Balance b/d 50,000

118
In the ledger of Shanthi,

i. The personal account of Ramesh is showinga debit balance of Rs 2,000 so he

is assumed to be a debtor for Rs.2,000

ii. The personal account of Ravi is showing a credit balance of Rs 5,000 so he is

assumed to be a creditor for Rs.5,000

iii. The balances of assets accounts, expenses accounts, purchases, sales returns,
cash and debtors should be recorded on debit column of trial
balance.So,Balances of Cash Rs. 60,000, purchases Rs.1,50,000, sales returns
Rs.5000, Debtors Rs. 2,000, Furniture Rs. 5,000, Machinery Rs. 20,000,
Office expenses Rs.5000, Commission Rs.10,000, Rent Rs.25,000, salaries
Rs.50,000 should be recorded on debit column of the trial balance.

iv. The balances of liabilities accounts, incomes accounts, sales, purchase returns,
creditors should be recorded on credit column of trial balance.So,Balances of
Capital Rs.2,00,000, sales Rs.1,25,000, creditors Rs.5,000, purchase returns
Rs.2,000 should be recorded on credit column of trial balance.

Trial Balance of Shanti as on 31-07-2021

Name of Account Debit Balances CreditBalances

Cash 60,000
Capital 2,00,000
Purchases 1,50,000
Debtors 2,000
Sales 1,25,000
Creditors 5,000
Furniture 5,000
Office expenses 5,000
Machinery 20,000
Sales returns 5,000
purchase returns 2,000
Commission 10,000
Rent 25,000
Salaries 50,000
Total 3,32,000 3,32,000

119
5.5What if trial balance does not tally?

The total of debit balances and credit balances in trial balance should be equal at any
point of time. This implies that the trial balance is tallied or agreed. If trial balance does not
tally it implies that books of accounts contain some errors. If trial balance does agree, then
the amount of difference should be noted and all possible efforts should be made to locate all
the errors in books. The identified errors should be rectified until the trial balance tally. If
trial balance still does not agree due to unknown errors, an imaginary account is opened and
the difference amount can be placed in it. The account so created is called “Suspense
Account”. Suspense account is prepared to tally the trial balance and to avoid the delay in
preparation of final accounts.

5.5.1 Suspense Account:

Suspense account is an imaginary account created to make the trial balance agree. The
difference amount in trial balance would be placed in suspense account.

If the total of debit balances is more than the total credit balances in trial balance, the
difference amount is placed on credit side of the suspense account. If total of debit balances is
less than the total credit balances in trial balance, the difference amount is placed on debit
side of the suspense account. Trial balance would be tallied by writing the balance of
suspense account on shorter side of trial balance.
The balance in suspense indicates the net effect of unknown errors. The balance in
suspense account would be affectedby rectification of errors found. If all those errors found
and rectified then the suspense account would be balanced automatically.
If suspense account shows a debit balance on the date of preparation of final accounts
it is shown on assets side of the balance sheet. If suspense account shows a credit balance on
the date of preparation of final accounts it is shown on liabilities side of the balance sheet.

5.5.2 Illustration:From the Balances of Vishwamitra prepare trial balance as on 31-03-

2021

Balances
Amount Balances Amount
Land and Building 2,10,000 Creditors 32,000
Opening Stock 36,000 Cash in Hand 8,000
Sales 365000 Capital 350000
Carriages Inwards 4,000 Purchases 270000
Salaries 18,000 Wages 12,000
purchase returns 12,000 bills receivables 21,000
Investments 136000 Discount received 8,000
Furniture 53,000 Debtors 41,000
Borrowings 124000 Interest paid 4,000
Postage 5,000 Cash at Bank 45,000
Sales returns 8,000 Office expenses 8,000
Clearing charges 5,000 Commission received 11,000
Bad Debts 12,000

120
 Trial Balance as on 31-03-2021
Debit balances Amount Rs Credit balances Amount Rs
Purchases 2,70,000 Capital 3,50,000
Opening Stock 36,000 Borrowings 1,24,000
Wages 12,000 Commission received 11,000
Carriages Inwards 4,000 Discount received 8,000
Salaries 18,000 Sales 3,65,000
Postage 5,000 Purchase returns 12,000
Investments 1,36,000 Creditors 32,000
Furniture 53,000
Office expenses 8,000
Land and Buildings 2,10,000
Sales returns 8,000
Clearing charges 5,000
Bad Debts 12,000
bills receivables 21,000
Cash in Hand 8,000
Cash at Bank 45,000
Debtors 41,000
Interest paid 4,000

Suspense A/c 6,000

9,02,000 9,02,000

In the above case the total of debit balances is Rs. 8,96,000 and total of credit balances is Rs.
9,02,000. The total of credit balances is in excess of Rs. 6,000 over total of debit balances.
The difference Rs. 6,000 is placed in suspense account and trial balance is tallied by writing
suspense account of Rs. 6,000 on shorter side(Debit).

Dr Suspense Account Cr

Particulars Amount Particulars Amount

To Balance b/d 6,000
(Difference in trial balance)

121
5.6Limitations of trial balance:

Following are the limitations of trial balance

1. Agreement of trial balance is not a conclusive proof of accuracy and completeness of
books of accounts. It ensures that the total debits are equal to total credits, which not
necessarily mean that books of accounts are complete and contain no errors. There are
some errors which are not disclosed by Trial balance:
i. Error of recording the transactions twice and thrice
ii. Error of posting to ledger twice are thrice
iii. Error of omitting to enter a transaction in books
iv. Error of omitting to post an entry into accounts in ledger
v. Recording a wrong amount in journal
vi. Error of debiting or crediting a wrong account
vii. Error of posting to a wrong account
viii. Error of treating a revenue expenditure as capital expenditure and vice
versa
ix. Compensation of one error by another error

2. Trial balance is prepared only by firms using double entry system of accounting.
Small firms using single entry system of accounting cannot prepare trial balance.

3. The accuracy of financial results shown by profit and loss account and balance sheet
are dependent on accuracy of trial balance. Trial balance prepared erroneously may
lead to wrong financial results which are not true and fair.
5.7PRACTICAL ILLUSTRATIONS

(PREPARATION OF TRIAL BALANCE WHEN LEDGER BALANCES ARE GIVEN)

5.7.1. From the following balances of Chandu Enterprises prepare a trial balance on 31-03-
2021.

Ledger balances Amount Ledger balances Amount

Capital 13,50,000 Creditors 12000

Debtors 32,000 Building 8,41,260
Opening Stock 63,250 Salaries 87,000
Office expenses 13,060 Commission Paid 12,670

Sales 3,21,080 Purchase returns 11,300

Income from investments 3,000 Cash in Hand 12,210
Freight 6,080 Computer 24,500
Purchases 2,24,900 Bills receivables 19,500
Discount Allowed 3,500 Sales returns 16,350
Loan from Kumar 80,000 Cash at bank 1,29,300

122
Furniture 3,20,000 Bills Payable 27,000
Interest Received 1,200

Solution:

Trial balance of Chandu Enterprises as on 31-03-2021

Debit Balances Amount Credit balances Amount

Debtors 32,000 Capital 13,50,000

Opening Stock 63,250 Sales 3,21,080

Office expenses 13,060 Income from investments 3,000

Freight 6,080 Loan from Kumar 80,000

Purchases 2,24,900 Interest Received 1,200

Discount Allowed 3,500 Creditors 12000

Furniture 3,20,000 Purchase returns 11,300

Buildings 8,41,260 Bills Payable 27,000

Salaries 87,000

Commission Paid 12,670

Cash in Hand 12,210

Computer 24,500

Bills receivables 19,500

Sales returns 16,350

Cash at bank 1,29,300

Total 18,05,580 Total 18,05,580

123
5.7.2. Practical Illustration (Correction of Trial Balance): Trial Balance of Sri Krishna

Name of Account Debit Balance Credit Balance

Bank overdraft 265000

Purchases Returns 28,000
Wages 9,00,000
Establishment Expenses 1,50,000

Sales Returns 36,200

Capital 4,50,00,000
Land and Buildings 1,70,00,000
Plant 40,00,000
Carriage outward 22,000
Discount allowed 32,600

Reserve 2,21,000
Discount Received 22,000
Commission paid 26,200
Bills payables 3,89,000
Machinery 2,60,00,000
Stock 6,35,000
Debtors 4,69,000

Creditors 6,12,200
Furniture 20,00,000
Sales 40,17,800
Purchases 18,80,000
Manufacturing Expenses 6,25,000
Loans and borrowings 32,39,000

Carriage Inward 39,000

Interest on Investment 21,000

Total 5,38,15,000 5,38,15,000

Is the above trial balance prepared correctly? If not prepare the correct trial balance.

124
 CORRECTED TRIAL BALNCE OF SRI KRIHNA AS ON 31-03-2020

Name of the Account Debit Balance Credit Balance

Bank overdraft 265000

Purchases Returns 28,000
Wages 9,00,000
Establishment Expenses 1,50,000
Sales Returns 36,200
Capital 4,50,00,000

Land and Buildings 1,70,00,000

Plant 40,00,000
Carriage outward 22,000
Discount allowed 32,600
Reserve 2,21,000
Discount Received 22,000

Commission paid 26,200

Bills payables 3,89,000
Machinery 2,60,00,000
Stock 6,35,000
Debtors 4,69,000
Creditors 6,12,200

Furniture 20,00,000
Sales 40,17,800
Purchases 18,80,000
Manufacturing Expenses 6,25,000
Loans and borrowings 32,39,000
Carriage Inward 39,000

Interest on Investment 21,000

Total 5,38,15,000 5,38,15,000

125
 Test your Understanding

I. Fill in the Blanks

1. Trial balance is a summarized_________________

2. Trial balance is prepared to check ____________________ of books of accounts

3. Trial balance is prepared with the _______________of debit and credit sides of the
ledger accounts under Total Method.

4._______________ method of trial balance is more useful in preparation of final

accounts

5. Disagreement of trial balance indicates the presence of ______________ in books

of accounts.

II. True or False

1. Trial balance is an account, not a statement.

2. Trial balance can be prepared at any date.

3. Ledger accounts need not be balanced to prepare trial balance under total method.

4. Total method is more popular than balance method.

5. Trial balance serves as a connecting link between ledger and final accounts.

6. Omitting to record a transaction in journal would be disclosed by trial balance.

126
 III. Multiple Choice Questions (MCQ)

1.Trial balance can be prepared by

a) Balance Methodb) Total Methodc) Summary methodd)Either a or b

2) Which one is used as the base for preparing trial balance?

a) Subsidiary Books b) Journal c) Ledger b) None

3). Preparation of trial balance is needed

a) To check arithmetical accuracy b) Toprepare final accounts c) To summarize

ledger balancesd) All of the above

4). Which of the following account balance is to be recorded on debit side of trial
balance?

a) Interest receivedb) Capital c) Purchases d)Bills payables

5). Which of the following account balance is to be recorded on credit side of trial
balance?

a) Machinery b) Bank overdraftc) Drawings d) Discount allowed

6). Which of the following account balance is to be recorded on credit side of trial
balance?

a) Commission receivedb) Long term loans c) Creditors d) All of the above

7).Whichof the following account balance is to be recorded on debit side of trial

balance?

a)Salaries b)Goodwill c)Bills receivablesd) All of the above

8).Which of the following account balance is not to be recorded on debit side of

trialbalance?

a) Factory expenses b) Sales c)Buildingsd)Debtors

9). Which of the following account balance is not to be recorded on credit side of
trial balance?

a)Investmentsb)Purchase returns c)Mortgage debt d)Discount received

10).Which of the following errors are not disclosed by trial balance?

a) Omitting a transaction in journalising b)Recording a wrong amount in journal

c) Entering a transaction in journal multiple times d) All of the above

127
 IV. Short Answer Questions (SAQ)

1. Write the meaning and characteristics of trial balance

2. Explain the total method of trial balance preparation

3. Explain the balance method of trial balance preparation

4. Explain the need for the preparation of trial balance

5. Explain the limitations of trial balance

V. Long Answer Questions (LAQ)

1. Explain how to prepare a trial balance under balances method?

2. Prepare a trial balance as on 31-03-2021 from the following balances of Kartheek

Particulars Amount Rs. Particulars Amount Rs.

Capital 20,00,000 Purchases 2,48,000

Debtors 1,00,000 Bills Receivables 56,000

Sales 1,80,000 Creditors 1,50,000

Bills Payable 38,000 Plant & Machinery 3,50,000

Insurance 9,000 Drawings 56,000

Salaries 1,95,000 Rent 9,800

Bank Overdraft 20,000 Salaries Outstanding 15,400

Inventory 50,000 Carriage inwards 16,000

Sales returns 16,000 Discount received 4,500

Borrowings 2,10,000 Returns outwards 10,400

Investments 15,14,000 Postage 1,710

Commission Received 2,800 Bank Loan 56,000

Furniture 52,400 Distribution expenses 16,900

Interest Received 6,400 General expenses 2,690

128
Answer: 26,93,500

3. Ledger of GDT agencies showing the following balances on 31-12-2020. Prepare trial
balance.

Account name Amount Account name Amount

Capital 26,21,000 Bills receivable 78,440

Machinery 8,00,000 Purchases 10,55,220

Bills Payable 39,520 Carriage inwards 22,910

Cash in hand 19,880 General expenses 60,850

Provision for doubtful

13,400 Insurance 27,830
debts

Buildings 7,10,000 Reserve 35,000

Sales 12,39,600 Bad debts 14,130

Furniture 51,400 Legal expenses 18,000

Creditors 1,45,000 Investments 8,09,220

Debtors 1,16,000 Travelling expenses 3,250

Opening stock 1,50,400 Discount allowed 12,200

Interest received 8,400 Sales returns 12,850

Cash at bank 1,45,340 Other income 6,000

Answer: 41,07,920

129
 VI. Additional Resources for Advanced Learning

Study Material (Handouts):

https://nios.ac.in/media/documents/srsec320newE/320EL10.pdf

Reference Text Books:

1. R L Gupta & V K Gupta, Principles and Practice of Accounting, Sultan Chand & Sons

2.S.P. Jain & K.L Narang, Accountancy-I, KalyaniPublishers

3.Tulasian, Accountancy -I, Tata McGraw HillCo.

E - Text Books:
https://icmai.in/upload/Students/Syllabus2016/Foundation/Paper-2New-29012021.pdf
https://www.icsi.edu/media/webmodules/publications/FULL%20FAA%20PDF.pdf

YouTube Links:

https://www.youtube.com/watch?v=ZWLrCvLBjls

https://www.youtube.com/watch?v=w3hhhQxHiwo

Power Point Presentations:

https://www.slideshare.net/srinivasmethuku/topic-8-trial-balance

https://www.slideshare.net/iamkuldeep/trial-balance-46046133

VII. Suggested Activity

1. Visit a firm (Individual and Group) and observe the process of Preparation of trial balance

2.Problem Solving Exercises

3.Learning Computer based Accounting system through tally.

130
 I. Fill in the Blanks

Q.No 1. Ledger 2.Arithmetical 3.Totals 4.Balance 5.Errors

Accuracy

II. True or False

Q.No 1. False 2.True 3.True 4.False 5.True 6.False

III. Multiple Choice Questions (MCQ)

Q.No 1.D 2.C 3.D 4.C 5.B 6.D 7.D 8.B 9.A 10.D

Accuracy: Correctness.

Balance Method: Method of preparing trial balance by taking balances of ledger accounts.

Dual Aspect Principle: A principle of accounting which states that every debit should have a
corresponding credit.

Error: An unintentional mistake.

Ledger: Book containing all ledger accounts.

Suspense Account: An imaginary account created to tally trial balance.

Total Method: Method of preparing trial balance by taking debit and credit side totals of
ledger accounts.

Trial balance: A Statement showing the balances of ledger accounts on a particular date.

131
 Contents 6.1 Introduction
Learning Outcomes

1. Understand the 6.2 What are the

types of errors occur accounting errors?
in accounting 6.3 Why Rectification
2.Understand the of errors?
need for rectification 6.4 How to Locate the
of errors errors?
3. Learn how to locate 6.5 How to Rectify
the errors the errors?
4. Develop the skill of 6.6 Practical
rectification of errors Illustrations
in different stages of
accounting.

132
6.1 Introduction:

Accounting is a skill and knowledge-based activity. Accounting involves a lot of clerical

and conceptual work. In earlier days accounting was done manually. Right from the journalizing
to preparation of final accounts everything would be done completely by humans. Account books
were maintained manually by accountants. An error is human. Humans commit errors due to
fatigue, pressure, over work, confusion, ignorance, oversight, over confidence, lack of knowledge
and so on. Accounting is not an exception to errors since it requires a lot of human work. Despite
the best efforts from accountants, errors would occur in books of accounts. Introduction of
computer in the new century has changed the facet of accounting and commerce. Many business
firms resorting to Computer based accounting from the last two decades. The occurrence of errors
somehow decreased in computerized accounting. Usage of computerized accounting helped in
speeding up the accounting work and in getting accurate financial results. However, the human
element in accounting is not completely minimized by introduction of computers in accounting.
Even in the computerized accounting a lot of skills and efforts by humans are required. Moreover,
to process any function by computer, inputs must be given by humans.

Every business firm is interested to know its profit or loss and its financial position. For
that they maintain books of accounts, and prepare final accounts at the end of the financial year.
Final accounts prepared would not provide accurate results when books of accounts contain
errors. So, errors in books of accounts should be located and rectified properly in order to get
accurate financial results. Rectification of errors will be discussed in this chapter.

6.2 What are the accounting errors?

Meaning and types of accounting errors is presented below

6.2.1 Accounting Error:

An accounting error is an unintentional mistake committed during the process of

accounting. Errors in accounting would occur due to fatigue, pressure, boredom, carelessness, lack
of proper accounting skills and knowledge and loss of concentration.

6.2.2 Types of errors:

Errors can be classified on different bases.

1. General classification.
2. On the basis of agreement of trial balance/disclosure by trial balance.
3. On the basis of stage in which errors committed.
4. On the basis of number of accounts affected byan error.

133
తప్పుల సవరణ

ప్రిచయం:

అక ంటంగ్ అనునది నప్

ై పణయం మరియు ప్రిజ్ా ఞనం ఆధారిత కారయకలాప్ం. పొ రబాటల
ు చేయుట మానవ
సహజ్ం. అలసట, ఒత్తిడి,అజ్ఞగ్రతి,గ్ందరగోళం, సరైన ప్రిజ్ా ఞనంలేకపో వపట,త ందరపాటల మొదలగు కారణాల
వలు మానవపలు తప్పులు చేస్ి ారు. అక ంటంగ్ ప్ర కయ
ర లో కూడా లోపాలు,తప్పులు జ్రుగ్ుతూ
ఉంటాయి.అక ంటంగ్ ప్ర కయ
ర లో అనుకోకుండా జ్రిగన
ి తప్పును అక ంటంగ్ ఎరరర్అంటారు.కంప్యయటర్ ఆధారిత
అక ంటంగ్ లో తప్పులు జ్రిగే అవకాశం క ంతవరకుతగిినప్ుటకీ ప్యరిిగా తప్పులు జ్రిగే అవకాశము
త లగిపో లేదు.

ప్ర త్త వ్ాయపార సంసథ , దాని యొకక యదారధ లాభం లేదా నష్టం మరియు ఆరిథక ప్రిస్థథత్తని తెలుసుకోవడానికర
ఆసకరి చూప్పత ంది. అందు కోసం వ్ారు ఖాతా ప్పసి కాలను నిరవహిస్ి ారు మరియు ఆరిథక సంవతసరం చివరిలో
ముగింప్ప లెకకలను తయారు చేస్ి ారు. అక ంట్సస ప్పసి కాలలో తప్పులు ఉననప్పుడు ముగింప్ప లెకకలు
ఖచిితమైన ఫలితాలను అందించలేవప. కాబటట , ఖచిితమైన,వ్ాసి వమైనఆరిథక ఫలితాలను పొ ందడానికర ఖాతా
ప్పసి కాలలో ఉనన దో షాలను గ్ురిించి, సరిదద
ి ా ాలి.

తప్పులలో రకములు :

అక ంటంగ్్రకయ
ర లో జ్రిగే తప్పులను వివిధ పారత్తప్దికలపై వరగికరించవచుిను.

1. స్ాధారణ వరగికరణ:

తప్పులను ప్ర ధానముగానాలుగ్ు రకాలుగా వరగికరించవచుిను. అవి

i. స్థదధ ాంత ప్రమయిన దో ష్ములు:

వయవహారములనుఅక ంటంగ్ సూతారలకు విరుదా ముగా ప్పసి కాలోు నమోదుచేస్థనటు యితే అటలవంట
దో ష్ములను స్థదధ ాంత ప్రమయిన దో ష్ములు అంటారు. నామమాతరప్ప ఖాతాకు బదులుగా వయకరిగ్త ఖాతాను
డెబిట్స లేదా కడ
ర ిట్స చేయడం, వ్ాసి విక ఖాతాకు బదులుగా నామమాతరప్ప ఖాతాను డిబిట్స లేదా కడ
ర ిట్స చేయడం,
మూలధన వయయానిన రాబడి వయయంగా లేదారాబడి వయయానిన మూలధన వయయం గా ప్రిగ్ణంచడం, ఖాతా
ప్పసి కాలలో యజ్మాని వయకరిగ్త లావ్ాదేవీలను నమోదు చేయడం అనేవిస్థదధ ాంత ప్రమయిన దో ష్ములు. ఈ
దో ష్ములు టర యల్ బాయలనుస యొకక సమానతను ప్ర భావితం చేయవప.

ఉదాహరణకు,యంతారల క నుగోలు రూ. 5,00,000నుక నుగోలుప్పసి కములో నమోదుచేయడము.

134
6.2.2.1. General classification

Basically, errors are classified into four types. They are

I. Errors of principle
ii. Errors of Omission

iii. Errors of Commission

iv. Compensating errors

i. Errors of principle:

Errors committed due to lack of conceptual knowledge in accounting can be termed as errors of
principle. An Entry made in books against to the principles of accounting is a principle error.
Debiting or crediting a personal account instead of a nominal account, Debiting or crediting a
nominal account instead of a real account, treating a capital expenditure as revenue expenditure
and treating a revenue expenditure as capital expenditure, recording the personal transactions of
owner in books of accounts of business are the commonly made principles of error. Since the
debit and credit amounts are recorded equally, these type of error does not affect the agreement of
trial balance.

135
 ii.మరిిపో వపట వలన దో ష్ములు:ఇవి అక ౌంటౌంగ్ ప్రకయ
రి లో కొన్ని అౌంశాలను వదిలివేయుట వలన జరిగన
ి
దో షములు. వీటలో ప్ూరిిగా వదిలివేయుట మరియు పాక్షికముగా వదిలివేయుటఅను రౌండు రకాలు కలవు.

ఎ. ప్యరిిగా వదిలివ్ేయుట:ఇవి ఒక వయవహారమును అక ౌంట్స్ ప్ుస్ి కాలలో రికార్డ్ చేయడము ప్ూరిిగా

వదిలివేయుట వలన జరుగు దో షములు. వయవహారములను చిటటాలో రికార్డ్ చేయు దశలో ఈ తప్ుులు
తలెతి తతాయి. లావాదేవీ యొకక డెబిట్స మరియు కడ
ి ిట్స అౌంశాలు రౌండూ ప్ుస్ి కాలలో నమోదు
చేయబడనౌందున, ఈ తరహా దో షములుఅౌంకణా స్మానతను ప్రభటవితౌం
చేయవు.ఉదాహరణకు,దీపక
ి కు అమ్మిన స్రుకు రూ.14,000జరిల్ నౌందు నమోదు చేయకపో వుట.
బి. పాక్షికముగా వదిలివ్ేయుట:ఒక వయవహారమును ఒక ఖాతాలోపో స్టా చేసి మరొక ఖాతాలో పో స్టా చేయుట
వదిలి వేయుటను పాక్షికముగా వదిలివేయు దో షము అౌంటటరు. ఈ దో షాలుచిటటా నుౌంచి లెడజర్డకు పో స్టా
చేసే దశలో తలెతి తతాయి. ఈ దో షములు డెబిట్స లేదా కడ
ి ిట్స అౌంశములలో ఒక దాన్నన్న మాతరమే
ప్రభటవితౌం చేస్ి ాయి కావున, ఇవి అౌంకణా స్మానతను ప్రభటవితౌం చేస్ి ాయి.ఉదాహరణకు,దీపక
ి కు
అమ్మిన స్రుకు రూ.14,000జరిల్లో నమోదు చేసి దీపికా ఖాతాకు పో స్టా చేయుట మరిిపో వుట.
iii. అకారయకరణ దో ష్ములు:
ప్ుస్ి కాలలో ఈ తరహా దో షములు ఎకుకవగా జరుగుతూ ఉౌంటటయి. వయవహారమును తప్ుు
ప్ుస్ి కములోరికారు్ చేయుట , తప్ుు మొతి ము వారయుట , ఖాతాలో తప్ుు వైప్ున పో స్టా చేయుట,
ఖాతాలోన్న మొతాిలను తప్ుుగా కూడుట, ఖాతాలను తప్ుుగా న్నలవ తేలుిట మరియు మొతాిలు లేదా
న్నలవలను తప్ుుగా కాయరీ ఫారావర్డ్ చేయుట మొదలగునవి ఈ తరహాదో షముల కరిౌందకు వస్ాియి. ఈ తరహా
తప్ుులలో కొన్ని అౌంకణా ను ప్రభటవితౌం చేస్ి ాయి మరియు కొన్ని ప్రభటవితౌం చేయవు.ఉదాహరణకు, బటబు
నుౌండి కొనుగోళ్ల
ు రూ. 14,000సేల్్ జరిల్లో రికార్డ్ చేయుట.నాగేశవరరావు నుౌండి వచిిన సేల్్ రిటర్డి్
రూ .1,600యొకక జరిల్ ఎౌంటరన
ర ు నాగేశవరరావు అక ౌంట్స లో డెబిట్స సడ్
ై పో స్టా చేయుట. రిపేర్డ ఖరుిలు రూ
1,500 లను అక కౌంట్స ప్ుస్ి కాలలో రూ.150 గా నమోదు చేయుట.
iv.సరిబెటటట దో ష్ములు:ఒక తప్ుుయొకక ప్రభటవమును మరొక తప్ుు స్రిబడ
ె ితే వాటన్న స్రిబెటా ట దో షములు
అౌంటటరు. ఉదాహరణకు: వస్ూలయిన వడడ్ రూ. 500 లను వస్ూలయిన వడడ్ ఖాతాకు పో స్టా చేయకపో వుట
వలనజరిగిన తప్ుు ప్రభటవమును రిపేరు ఖరుిలు రూ.500 లను రిపర
ే ు ఖరుిల ఖాతాలో పో స్టా
చేయకపో వుట అను తప్ుు యొకక ప్రభటవము స్రిబట
ె ా టట.

2. తప్పు జ్రిగిన దశ ఆధారముగాతప్పులలో రకాలు:

అక ౌంటౌంగ్ యొకక ఏ దశలోనైనా తప్ుులు జరగవచ్ుి. అనగా జరిల్ లో రికారు్ చేయునప్ుడు, లెడజర్డ
పో సిా ౌంగ్ చేయునప్ుడు,స్హాయక చిటటాల మొతి ము కూడునప్ుడు, ఖాతాలు బటయలను్ చేయునప్ుడు,

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 These errors cannot be avoided in computerized accounting since these errors are
conceptual in nature and the inputs to the computer are given by humans.

For Example,

Purchase of machinery of Rs. 5,00,000 was recorded in purchases journal

Salaries paid to Mahesh Rs. 15,000 may be debited to personal account of Mahesh.

Repairs to furniture Rs. 5000 may be debited to Furniture account.

ii. Errors of omission:

Omission means forgetting. Errors of omission occur due to oversight, negligence etc.
Omission is of two types, complete omission and partial omission.

Complete omission:

Omitting to record a transaction in books of accounts totally is called complete omission.

These errors arise in the stage of recording. Since both debit and credit aspects of the transaction
are not being recorded in books, this type of errors do not affect the agreement of trial balance.

For example,

Sale of goods to Deepika Rs. 14,000 may not be recorded in sales journal.

Goods worth Rs 5,000 taken by proprietor for his personal use may be not recorded in
books.

These errors cannot be avoided in computerized accounting since inputs to the computer
are given by humans. If it is not recorded into computer, the computer cannot do anything.

Partial Omission:

Omitting to record a transaction in books of accounts partly is called partial omission. In

other words, considering only debit or credit aspect of a transaction by leaving another is called
partial omission. These errors generally arise in the stage of posting to ledger. Since these errors
affect only one aspect, trial balance would get affected by these errors. These errors can be
avoided in computerized accounting because once the transaction is entered into computer;
preparation of ledger can be done by computer itself.

For example,

Sale of goods to Deepika Rs. 14,000 may be entered in sales journal but may not be posted
to deepika’s account.

Goods Rs 5,000 taken by proprietor for his personal use may be recorded in journal but
may not be posted to purchases account.

137
 మొతాిలను ఒక పేజీ నుౌండి మరొక పేజీకు కాయరీఫారావరు్ చేయునప్ుడు, న్నలవలను టరయల్ బటయలను్ నకు
తీస్ుకువళ్లునప్ుడు తప్ుులుజరగవచ్ుిను.

౩. అంకణా సమానత పై తప్పుల ప్ర భావములేదా అంకణా దావరా వ్లు డి చేయబడే పారత్తప్దికన తప్పుల వరగికరణ :

i. అంకణా సమానతను ప్రభావితం చేస్ే తప్పులు లేదాఅంకణా వ్లు డి చేస్ే తప్పులు/ ఏకప్క్ష దో ష్ములు:

డెబిట్స మొతాిన్నకర స్మాన మయిన కిడిట్స మొతి ము ఉౌండాలనే దవౌందవ రూప్ భటవనను ఉలు ౌంఘౌంచ్డౌం వలన
తలెత్తిన దో షములను ఏకప్క్ష దో షములు అౌంటటరు. ఇవి డెబిట్స లేదా కిడట్స
ి ఏదో ఒక అౌంశమును మాతరమే
ప్రభటవితౌం చేయుట వలన వీటన్న ఏకప్క్ష దో షములు అౌంటటరు.ఈ తప్ుులు అౌంకాణాలో డెబిట్స లేదా కిడట్స
ి
మొతాిల అస్మానతకు దారితీయుట దావరా అౌంకణా స్మానతను ప్రభటవితౌం చేస్ి ాయి. అౌందువలు , ఇవి
టరయల్ బటయలను్ దావరా వలు డి చేయబడతాయి. చిటటాప్దుును ఒక ఖాతాలో తప్ుు వైప్ున పో స్టా చేయడౌం,ఒక
ఖాతాకు తప్ుుడు మొతాిన్ని పో స్టా చేయడౌం, పాక్షిక వదిలివేత దో షములు, తప్ుు మొతాిన్ని కాయరీఫారావర్డ్
ై ునకు కాయరీఫారావరి్ౌంగ్ చేయడౌం, బటయలెన్న్ౌంగ్ లో దో షాలు, టోటలిౌంగ్ లో దో షాలు ఏకప్క్ష
చేయడౌం, తప్ుువప్
దో షములకు ఉదాహరణలు.

ఉదాహరణ: కొనుగోలు ప్ుస్ి కాన్ని రూ .10,000ఎకుకవగా కూడడౌం వలన టరయల్ బటయలెన్్లో రూ.10,000
ఎకుకవ డెబిట్స లేదా తకుకవ కడ
ి ిట్స వస్ు
ి ౌంది.

ఆఫీస్ట ఖరుిలు రూ .2,100లకు వారసిన జరిల్ ఎౌంటరరన్నఆఫీస్ట ఖరుిలుఖాతాకు రూ. 1,200లుగా పో స్టా
చేయడౌం వలన టరయల్ బటయలెన్్లో రూ. 900 తకుకవ డెబిట్స లేదా ఎకుకవ కిడట్స
ి కు దారి తీస్ు
ి ౌంది.

ii. అంకణా సమానతను ప్ర భావితం చేయని తప్పులు లేదా అంకణా వ్లు డి చేయని తప్పులు/ ఉభయ ప్క్ష
దో ష్ములు:

ప్ుస్ి కాలలో జరిగన

ి కొన్ని దో షముల ప్రభటవము డెబిట్స మరియు కడ
ి ిట్స అౌంశములపై స్మానౌంగా ఉౌండటౌం
వలన అవి అౌంకణా స్మానతను ప్రభటవితౌం చేయవు. అౌందువలు , ఈ దో షములుఅౌంకణా దావరా వలు డి
చేయబడవు. ఈ దో షముల ప్రభటవౌం డెబిట్స మరియు కడ
ి ిట్స రౌండు వప్
ై ులా ఉనిౌందున, వీటన్న ఉభయ ప్క్ష
దో షములు అౌంటటరు.ప్ూరిి గా వదిలివేయు దో షములు, ఒకే వయవహారమును రౌండుస్ారుు చిటటాలో నమోదు
చేయుట, సిదధ ాౌంతప్రమయిన దో షములు, స్రిబెటా ట దో షములు, జరిల్లో తప్ుు చిటటాప్దుు వారయడము,
లావాదేవీన్న తప్ుు స్హాయక చిటటాలో నమోదు చేయడౌం, జరిల్లో తప్ుు మొతాిన్ని నమోదు చేయడౌం
ఉభయ ప్క్ష దో షములకు ఉదాహరణలు.

138
iii. Errors of commission:

Errors of Commission results from doing what is not supposed to do. These are the errors
consisting of wrong amounts, wrong sides, wrong accounts, wrong balances and wrong carry
forwards. Errors of commission are very common errors and in fact, majority of accounting errors
occurred are of this nature. Theseerrors happen due to lack of accounting knowledge, negligence,
oversight of book keepers. These errors can happen in any of the stages of journalising, ledger
posting, totalling, balancing and carry forwarding. Some of the errors of commission can be
avoided by the usage of computerized accounting and some of them cannot be avoided even in
computerized Accounting. Some of the errors of commission affect the agreement of trial balance
and some of them do not.

Following are some of the errors of commission:

1. Making accounting treatment for a transaction multiple times, for exampleRepairs of

Rs.1,500 may be recorded in journal twice.
2. Writing a wrong journal entry, For example, T.Lakshmi account may be credited in the
place of D,Lakshmi in the journal entry for a transaction of Cash received from
D.Lakshmi Rs. 5,000.
3. Entering a transaction to a wrong subsidiary journal, For example, Purchase of goods from
Minni babu Rs.14,000 may be entered in Sales returns journal.
4. Posting to a Wrong Account, For example, Journal entry for Goods sold to sujnani
Rs.18,600 may be Posted to sujani account.
5. Posting to a wrong side of an account, for example Journal entry for Sales returns from
Nageswara rao Rs.1,600 may be Posted to credit side of Sales returns account.
6. Entering a wrong amount, for example, Purchases from Rama Lakshmi Rs. 9,800 may be
recorded as 8,900 in purchases journal.
7. Recording in a wrong column of cash book, for example,Cash paid to Parvathi by NEFT
Rs.10,000 may be recorded in cash column of cash book.
8. Wrong totalling, for example Sales returns book may be under cast by Rs. 1,000 .
9. Wrong balancing, for example Repairs account may be short balanced by Rs 100.
10. Wrong carry forward, for example debit side of Bills payables journal is totalled as Rs
78,000 but it may be carry forwarded to next page as Rs. 87,000.

iv. Compensating Errors:

If the wrong effect of one error is compensated by wrong effect of one or more another
errors, they are called compensating errors.Errors that are compensating the wrong effect of one
anotherare called compensating errors. These errors do not affect the agreement of trial balance.

For example,

139
 ఉదాహరణ:

శివణ్ నుౌండి స్రుకు కొనుగోలురూ .5,000 జరిల్ లో రాయక పో వడము. జరిల్ ఎౌంటరర రాయలేదు
కావునకొనుగోలు ఖాతా రూ .5,000 తకుకవ డెబిట్స నిలవన్న చ్ూప్ుతతౌంది మరియు శివణ్ ఖాతా
రూ.5,000తకుకవ కిడట్స
ి బటయలెన్్న్న చ్ూప్ుతతౌంది. తప్ుు యొకక ప్రభటవౌం రౌండు వప్
ై ులా ఉౌంది అనగా రూ.
5,000తకుకవ డెబిట్స మరియు రూ .5000తకుకవ కిడిట్స. కావున, టరయల్ బాయలనుస రౌండు వప్
ై ులా
స్మానమవుతతౌంది.

4.దో ష్ము ఎనిన ఖాతాలపైప్రభావము చూప్పత ంది అనేపారత్తప్దికన:

i. ఒక ఖాతాను ప్రభావితం చేస్ే దో ష్ములు:

కొన్ని దో షముల విషయౌంలో, దో షము యొకక ప్రభటవౌం ఒక ఖాతా యొకక బటయలెన్్పై మాతరమే ఉౌంటటౌంది.
ఒక అక ౌంట్సకర తప్ుుడు మొతాిన్ని పో స్టా చేయడౌం, ఒక అక ౌంట్సలో తప్ుు వైప్ున పో స్టా చేయడౌం, ఒక
సహాయకచిట్ట
ా ను తప్ుుగా టోటల్ చేయడౌం, ఒక ఖాతాను తప్ుుగా న్నలవ తేలిడౌం, స్బి్డయిరీ జరిల్ లేదా
లెడజర్డలో తప్ుుడు మొతాిన్ని కాయరీ ఫారావర్డ్ చేయడము వౌంటవి ఈ రకమైన దో షాలకు ఉదాహరణలు. ఈ
దో షాలన్ని ఒక ఖాతా యొకక బటయలెన్్న్న మాతరమే ప్రభటవితౌం చేస్ి ాయి.

ఉదాహరణకు:

ఆఫీస్ు వయయాలు రూ .12,300 ఎౌంటరరన్న ఆఫీస్ు వయయాలు ఖాతా లోరూ.13,200గా పో స్టా చేయడము. ఈ
తప్ుు కేవలౌం ఆఫీస్ు వయయాలు ఖాతా యొకక డెబిట్స బటయలెన్్న్న మాతరమే రూ .900 పౌంచ్ుతతౌంది.

ii. రండు లేదా అంతకంటట ఎకుకవ ఖాతాలను ప్ర భావితం చేస్ే దో ష్ములు:

చాలా తప్ుుల విషయం లో, తప్ుు యొకక ప్రభటవౌం రౌండు లేదా అౌంతకౌంటట ఎకుకవ ఖాతాలపై ఉౌంటటౌంది.
ప్ూరిి గా వదిలిపటటా దో షము, తప్ుు చిటటా ప్దుు వారయడము,తప్ుు మొతి ముతో చిటటాప్దుు
వారయడము,వయవహారమును తప్ుు స్హాయక చిటటాలో రికార్డ్ చేయడౌంవౌంటవి ఈ రకమైన దో షములకు
ఉదాహరణలు. ఈ దో షములు రౌండు లేదా అౌంతకౌంటట ఎకుకవ ఖాతాల న్నలవలను ప్రభటవితౌం చేస్ి ాయి.

ఉదాహరణకు,

"జావేద్ కు అమికాలు రూ.7,500 లను జరిల్లో రికార్డ్ చేయక పో వడౌం వలన జావేద్ ఖాతా
మరియు అమికాల ఖాతారౌండూప్రభటవితౌం అవుతాయి.

140
 Commission received Rs. 1,500 was not posted to commission received account, repairs
paid Rs. 1,500 was not posted to repairs account. In this case the wrong effect of first error
(short credit) would be compensated by wrong effect of second error (short debit).

Under casting of purchases book by Rs. 2000 may be compensated by wrong carry
forward of Rs.3,000 as Rs.1,000 in sales account.

2. On the basis of stage in which the error is committed:

Errors can occurin any of the following stages of accounting.

i. Journalizing

ii. Ledger posting

iii. Totalling

iv. Balancing

v. Carry forward

vi. Preparing Trial balance

Errors in Journalizing:

Following are the probable errors that may happen while recording of transactions in
journal/subsidiary journal.

 Omitting to record a transaction.

 Recoding the same transaction twice or thrice.
 Debiting or crediting a wrong account in a journal entry.
 Recording a transaction in a wrong subsidiary journal.
 Recording a wrong amount in subsidiary journals.
 Writing a Reverse journal entry.
 Writing a wrong amount in both debit and credit in a journal entry.
 Writing a wrong amount in either debit or credit in a journal entry.
 Recording a transaction in a wrong column in cashbook on correct side.
 Recording a transaction in a wrong column in cashbook on wrong side.

Errors in Ledger posting:

Following are the probable errors that may happen while posting the entries from journal
to ledger.

 Posting a correct amount on a correct side of a wrong ledger account.

 Posting a correct amount on a wrong side of a wrong ledger account.
 Posting a wrong amount on a correct side of a wrong ledger account.
 Posting a wrong amount on a wrong side of a wrong ledger account.
 Posting a correct amount to a wrong side of correct ledger account.

141
తప్పుల సవరణ ఆవశయకత:
అక ౌంటౌంగ్ ప్రకరియ యొకక ఒక దశలో జరిగన
ి తప్ుు స్రిదిదుబడకపో తే, దాన్న ప్రభటవౌం అక ౌంటౌంగ్ చ్కిౌం
యొకక తరావత దశల దావరా ముగిౌంప్ులెకకల తయారీ దాకా కూడా వళ్లతతౌంది.
వాయపార స్ౌంస్థ లువాట ఆరిథక ఫలితాలను అనగా లాభము లేదా నషా ము మరియు ఆరిధక ప్రిసత్తన్న
ిథ
తెలుస్ుకోవడాన్నకర అక ౌంటౌంగ్ ప్ుస్ి కాలను న్నరవహస్ాియి. అక ౌంటౌంగ్ యొకక బటహయ మరియు అౌంతరగ త
విన్నయోగదారులు ముగిౌంప్ు లెకకలు చ్ూపే ఆరిథక ఫలితాలపై ఆస్కరిన్న కలిగి ఉౌంటటరు. ప్ుస్ి కాలలోన్న
తప్ుులను కనుగొన్న స్రిదిదుకపో తే,ముగిౌంప్ు ఆరిథక న్నవేదక
ి లు యదారధ మన
ై ఆరిథక ఫలితాలను
అౌందిౌంచ్లేవు.కావున, తప్ుులను స్రియిైన విధముగా గురిిౌంచి, స్రిదిదు ాలి.
తప్పులను కనిపటట డం:
అౌంకణాయొకకస్మానత ఖాతా ప్ుస్ి కాల అౌంకగణిత ఖచిితతవమును స్ూచిస్ు
ి ౌంది. అౌంకణా రౌండువప్
ై ులా
స్రితూగక పో తే అక ౌంట్స్ ప్ుస్ి కాలోు తప్ుులు ఉనిటట
ు గా చెప్ువచ్ుి. అయితే
అౌంకణారౌండువైప్ులాస్రితూగినప్ుటకీ ప్ుస్ి కాలలోకొన్ని దో షములు ఉౌండవచ్ుి.ఖాతా ప్ుస్ి కాలలో
తప్ుులను గురిిౌంచ్డాన్నకర ఖాతా ప్ుస్ి కాలను ప్ూరిిగా ప్రిశీలిౌంచ్వలసి ఉౌంటటౌంది. తప్ుులను గురిిౌంచ్డాన్నకర
తీస్ుకోవలసిన చ్రయలు కరిౌంద ఇవవబడా్యి:
 టరయల్ బటలెను్ యొకక డెబిట్స మరియు కిడట్స
ి మొతాిలు స్రిచ్ూడాలి.
 లెడజర్డ నుౌండి అన్ని బటయలెన్్లను టరయల్ బటయలెన్్కు స్రిగా తీస్ుకునిదీ లేన్నదీ తన్నఖీ చేయాలి.
 రుణగిస్ి ులు, వస్ూలు బిలు
ు లు, రుణదాతలు మరియు చెలిుౌంప్ు బిలు
ు ల మొతాిలను తన్నఖీ చేయాలి.
 నగదు ప్ుస్ి కౌం మరియు బటయౌంక్ ఖాతాల బటయలెన్్లు టరయల్ బటయలెన్్లోకర స్రిగగ ా తీస్ుకోబడా్యా
లేదా అన్న తన్నఖీ చేయాలి.
 అన్ని లెడజర్డ ఖాతాలు స్రిగా న్నలవ తేలిబడినవా లేదా అన్న తన్నఖీ చేయాలి
 జరిల్ నుౌండి లెడజర్డ లోన్న ఖాతాలకు పో స్టా చేయడౌం స్రిగా జరిగిౌందా లేదా అన్న తన్నఖీ చేయాలి
 స్హాయక ప్ుస్ి కాల మొతాిలను తన్నఖీ చేయాలి.
 లెడజర్డ మరియు స్హాయక ప్ుస్ి కాల లో కాయరీఫారావరి్ౌంగ్ లను తన్నఖీ చేయాలి.
 వోచ్ర్డలు,ఇనావయిస్ట లు మొదలగు అనుబౌంధ ప్తారల ప్రకారము అన్నివయవహారాలు జరిల్లో స్రిగగ ా
నమోదు చేయబడా్యో లేదో తన్నఖీ చేయాలి.
 అన్ని వాస్ి విక ఖాతా మరియు వయకరిగత ఖాతాల న్నలవలు ప్రస్ి ుత స్ౌంవత్రాన్నకర స్రిగా
తీస్ుకురాబడా్యా లేదా అన్న తన్నఖీ చేయాలి.
 అౌంకణా వయతాయస్ మొతి మునకు స్మానమయిన అౌంశములు ఏవైనా ఉనివేమో ప్రిశీలిౌంచ్ుట
దావరా వదిలివేసన
ి అౌంశములను లేదా రౌండు స్ారుు నమోదు చేయబడిన అౌంశములను
కన్నపటా వచ్ుిను.

142
 o Posting a wrong amount on a correct side of a correct ledger account.
o Posting a wrong amount on a wrong side of a correct ledger.

Errors in Totaling:
Following are the probable errors that may happen while totaling the ledger accounts or
subsidiary journals.

 Wrong totaling of a subsidiary journal i.e under casting and over casting.
 Wrong totaling on debit side of an account.
 Wrong totaling on credit side of an account.

Errors in Balancing:
Following are the probable errors that may happen while balancing the ledger
accounts.

 Writing a Correct balance on wrong side.

 Writing a Wrong balance on correct side.
 Writing a Wrong balance on wrong side.
 Writing a correct balance in wrong column of cashbook on either of the sides.
 Writing a wrong balance in wrong column of cash book on either of the sides.

Errors in Carrying forward:

Following are the probable errors that may happen while carrying forward the totalsof
subsidiary journals or balances of ledger accounts from one page to another page or from
old book to new book.

 Carrying forward a wrong amount in a subsidiary journal.

 Carrying forward a correct amount to a wrong side of a ledger account.
 Carrying forward a wrong amount to a correct side of a ledger account.
 Carrying forward a wrong amount to a wrong side of a ledger account.
 Carrying forward a correct amount to a wrong column of cashbook on either of
the sides.
 Carrying forward a wrong amount to a correct column of cashbook on either of
the sides.
 Carrying forward a wrong amount to a wrong column of cashbook on either of the
sides.

143
  అౌంకణా వయతాయస్ మొతి ములో స్గము మొతి ముతో స్మానమయిన అౌంశములు ఏవన
ై ా ఉనివేమో
ప్రిశీలిౌంచ్ుట దావరా తప్ుు వప్
ై ున నమోదు చేయబడిన అౌంశములను కన్నపటా వచ్ుిను
 వయతాయస్ మొతి ము 9 చే న్నశశేషముగా భటగిౌంప్బడితే అౌంకల తారుమారు వలన తప్ుు జరిగినటట
ు గా
భటవిౌంచ్వచ్ుి.
తప్పుల సవరణ:
తప్ుుల స్వరణ అనగా స్రియిైన స్వరణస్ాధనాన్ని ఉప్యోగిౌంచి ఒక దో షౌం యొకక తప్ుు ప్రభటవాలను
స్రిచయ
ే డౌం.
తప్పుల సవరణ స్ాధనాలు:
తప్ుులను రౌండు స్ాధనాల దావరా స్రిచేయవచ్ుి.
1. సవరణ ప్దుా వ్ారయుట దావరా:
ఈ ప్దు త్తలో తప్ుు యొకక ప్రభటవమునుపో గొటా స్రియిైన ప్రభటవము కలిగిౌంచే విధముగా స్వరణ
ప్దుు వారసితప్ుును స్రిదద
ి ు ుతారు. స్వరణ ప్దుులనుఅస్లు చిటటా లో నమోదు చేస్ి ారు.
ఉదాహరణకు,స్ుధాకర్డ కుస్రుకు అమికౌంరూ.10,000అనువయవహారమునకు వారసిన చిటటా ప్దుులో స్ుధాకర్డ
ఖాతాకు బదులుగా స్ుధాధర్డ ఖాతాను డెబిట్స చేసినటు యితే ఆ ప్దుును కరిౌంది స్వరణ ప్దుు రాయుట దావరా
స్వరిౌంచ్వచ్ుిను.
సుధాకర్ ఖాతా Dr 10,000
To సుధాధర్ ఖాతా 10,000
ఈ ఉదాహరణలో సుధాధర్ అక ంట్స ను తప్పుగా డెబిట్స చేస్థన ప్ర భావం సుధాధర్ ఖాతానుకడ
ర ిట్స చేయుట
దావరా సరిదిదాబడినది మరియు సుధాకర్ ఖాతాను డెబిట్స చేయుట దావరా సరి అయినప్ర భావము కలిగించ
బడినది.
2. దిదా ుబాటల వివరణ వ్ారయుట దావరా:
ఈ ప్దధ త్తలో లెడజర్ అక ంట్స లేదా సబిసడయిరగ జ్రనలోు దిదా ుబాటల ప్ర కటన లేదా వివరణాతమక నోట్స రాయడం

దావరా తప్పులు సరిచేయబడతాయి.సవరణ ప్దుా వ్ారయడం దావరా తప్పు సరిదిదాడం స్ాధయం కానప్పుడు ఈ

ప్దధ త్తని ఉప్యోగిస్ి ారు.

144
Errors in Preparation of Trial Balance:
Errors may occur even in bringing the balances of accounts from ledger to trial
balance. Errors of omission, commission, compensating errors may also be
occurredwhile preparing the trial balance.

Following are the probable errors that may happen during taking ledger balances to trial balance

 Taking a wrong balance amount to a correct side.

 Taking a correct balance amount to a wrong side.
 Taking a wrong balance amount to a wrong side.
 Omitting to take a balance.
 Taking a balance twice or thrice.
 Taking balance from a wrong column of cash book.

For example,

Balance of sales account Rs.1,00,000 may be taken to trial balance as Rs. 10,000.

Debit balance in Bank A/c Rs. 8,000 may be taken to credit side of trial balance.

Balance of Salaries Rs.2,50,000 account may be omitted to take to trial balance.

6.2.2.3 . On the basis of impact on agreement of trial balance:

Errors can be classified on the basis of their impact on trial balance.

i. Errors affecting the agreement of trial balance/Errors disclosed by trial balance/One sided
errors:

Some errors may arise due to making accounting treatment by violation of basic principle of dual
aspect. In other words, committing these errors would lead to excess/short debit than credit or
excess/short credit than debit. Sincethe impact of these errors would be on either of the two sides
i.edebit side or credit side, these are called one-sidederrors. These affect the agreement of trial
balance. Thus, occurrence of these errors would be disclosed by trial balance. Errors in posting to
wrong sides, posting a wrong amount to an account, errors of partial omission, carry forwarding a
wrong amount, carry forwarding to a wrong side, balancing errors, errors in casting are the
examples for one-sided errors.

For example,

Over casting of purchases book by Rs 10,000 would lead to an excess debit over credit by
Rs.10,000 or a short credit than debit by Rs.10,000 in trial balance.

Posting an entry of Rs.2,100 to Office expenses account as Rs. 1,200 would lead to an excess
credit over debit by Rs.900 or a short debit than credit by Rs.900 in trial balance.

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 తప్పుల సవరణ ప్ర కయ
ర :

ఒకదో షము యొకక స్వరణప్రకరియ ఆ దో షము గురిిౌంచ్బడిన దశ మరియు అౌంకణాపై ఆ దో షము యొకక
ప్రబటవమును బటా ఉౌంటటౌంది.

దో షములు మూడు దశలలో గురిిౌంచ్బడవచ్ుి.

1. అౌంకణా తయారీకర ముౌందు (మొదట దశ)

2అౌంకణా తయారయిన తరావత మరియు ఫన

ై ల్ అక ౌంట్స్ తయారీకర ముౌందు (రౌండవ దశ)

3.ఫన
ై ల్ అక ౌంట్స్ తయారయిన తరావత (మూడవ దశ)

అౌంకణా పై దో షముయొకకప్రభటవము ఆధారముగా దో షములు రౌండు రకములు:

1. ఏక ప్క్ష దో షములు 2.ఉభయ ప్క్షదో షములు

1.మొదట దశ (అంకణా తయారగకర ముందు) లో కనుగొననతప్పుల సవరణ:

I.ఏకప్క్ష తప్పులు:

మొదట దశలో కనుగొని ఏకప్క్ష తప్ుులను, ప్రభటవిత ఖాతాలో(తగిన వైప్ున) లేదా ప్రభటవిత
స్బి్డయిరీ జరిల్ లో వివరణాతిక నోట్స లేదా దిదు ుబటటట ప్రకటనను వారయడౌం దావరా స్వరిౌంచ్వచ్ుి.

II. ఉభయ ప్క్షతప్పులు:

మొదట దశలో కనుగొనబడిన ఉభయ ప్క్ష తప్ుులను స్రియిైన స్వరణ ప్దుు వారయుట దావరా
స్రిదద
ి ు వచ్ుి.

2.రండవ దశ లో (అంకణా తయారగ తరావత మరియు ముగింప్ప లెకకల తయారగకర ముందు) కనుగొననతప్పుల
సవరణ:

అనామత ఖాతా: తప్ుుల కారణముగా అౌంకణా స్రితూగనప్ుడు, అౌంకణాలోన్న వయతాయస్మును అనామతత

ఖాతాకు మళ్ళుస్ాిరు. స్సును్ ఖాతా అనేది కేవలౌం అౌంకణా ను స్మానము చేయడాన్నకర స్ృషిాౌంచ్బడిన
ఊహాతిక ఖాతా. టరయల్ బటయలెన్్లో వయతాయస్ౌం వచిినప్ుడుముగిౌంప్ు లెకకల తయారీలో జాపాయన్ని
న్నవారిౌంచ్డాన్నకర దీన్నన్న స్ృషిాస్ి ారు. ప్ుస్ి కాలలో తప్ుులన్ని కనుగొనబడి , స్రిదద
ి ు బడితేఅనామతత ఖాతా
న్నలవ దానౌంతట అదే ముగిసప
ి ో తతౌంది.

146
 .ii. Errors not affecting the agreement of trial balance/ Errors not disclosed by trial
balance/Two sided errors:

Some errors committed in books are not against to the dual aspect. In other words,
committing these errors do not lead to excess/short debit or credit as the impact of these errors
distributed to both debit and credit sides equally. Since the impact of these errors would be on
both debit and credit sides, these are called two sided errors. These errors do not affect the
agreement of trial balance. Thus, occurrence of these errors would not be disclosed by trial
balance. Errors of complete omission, errors of repetition, errors of principle, compensating
errors, errors of debiting or crediting a wrong account in journal, recording a transaction in a
wrong subsidiary journal, recording a wrong amount in journal are examples of two side errors.

For example, omitting to record “Purchases from Jagadeesh Rs.5000” in journal. Since the journal
entry is not passed, purchases account will show a lower debit balance by Rs.5,000 and Jagadeesh
account will show a lower credit balance by Rs.5,000. The impact of this error will be on both
sides i.e lower debit by Rs. 5,000, lower credit by Rs.5000. So, the impact will be neutralized and
trial balance will remain agreed.

Repairs to machinery Rs.2,500 is debited to machinery account. In this example, machinery

account is debited in the place of repairs account. So, the repairs account will show a higher debit
balance by Rs. 2,500 and machinery account will show a lower debit balance by Rs.2,500. The
impact of higher debit in repairs account by Rs 2,500 will be neutralized by lower debit of Rs.
2,500 in machinery account. So, trial balance will remain agreed.

6.2.2.4.On the basis of number of accounts affected by an error:

Errors can be classified on the basis of number of accounts affected by the errors

i. Errors affecting one account:

Some errors may affect only one account. Posting awrong amount to an account, posting
to a wrong side of one account, wrong totaling of a subsidiary journal, wrong balancing of a
ledger account, carrying forward a wrong amount in a subsidiary journal or ledger are some of the
errors of this type.

For example,

Under casting of bills receivables book by Rs 1,000 will reduce the balance of bills receivables
account only by Rs.1,000.

Posting of an entry of Rs.12,300 to Travelling expenses account as Rs. 13,200 will overstate the
debit balance of Travelling expenses account by Rs.900.

147
 I.ఏకప్క్ష తప్పులు:

మొదట దశలో కనుగొనబడన్న ఏకప్క్ష దో షాల యొకక న్నకర ప్రభటవౌం టరయల్ బటయలెన్్ లో
వయతాయస్ౌంగా ఉౌంటటౌంది మరియు వయతాయస్ మొతి ౌం స్సును్ ఖాతాకు బదిలీ చేయబడి ఉౌంటటౌంది. కావున,
రౌండవ దశలో అనగా అౌంకణా తయారీ తరావత కనుగొని ఏకప్క్ష తప్ుులనుస్సును్
ఖాతానుఉప్యోగిస్ి ూస్వరణ ప్దుులను వారయడౌం దావరా స్రిచేయాలి.

II. ఉభయ ప్క్షతప్పులు:

రౌండవ దశలో కనుగొని ఉభయ ప్క్ష తప్ుులను కూడా మొదట దశలో కనుగొనబడిన ఉభయ ప్క్ష
తప్ుుల లానే స్రియిైన స్వరణ ప్దుులు వారయుట దావరా స్రిదిదువచ్ుి.

3.మూడవ దశ లో (ముగింప్ప లెకకల తయారగ తరావత) కనుగొననతప్పుల సవరణ:

I. ఏకప్క్ష దో షాలు:

మూడవ దశలో కనుగొని ఏకప్క్ష దో షాలను అనామతత ఖాతాను ఉప్యోగిౌంచి స్వరణ ప్దుులు
వారయడౌం దావరా స్రిదద
ి ు వచ్ుి. ఒక దో షము వాస్ి విక లేదా వయకరిగత ఖాతాలపై ప్రభటవౌం చ్ూప్ుతతౌంటట ఆ
దో షమును రౌండవ దశ లో చ్రిిౌంచిన విధౌంగానే స్రిదద
ి ు ాలి. కాన్న దో షౌం నామమాతరప్ు ఖాతాను ప్రభటవితౌం
చేసినప్ుుడు, స్వరణ ప్దుులో నామమాతరప్ు ఖాతా స్ాథనౌంలో లాభనషాాల స్రుుబటటట ఖాతాను
ఉప్యోగిౌంచాలి.

II.ఉభయ ప్క్షతప్పులు:

మూడవ దశలో కనుగొనిఉభయ ప్క్ష దో షాలను స్వరణ ప్దుులు వారయడౌం దావరా స్రిదద
ి ు వచ్ుి. ఒక
దో షము వాస్ి విక లేదా వయకరిగత ఖాతాలపై ప్రభటవౌం చ్ూప్ుతతౌంటట ఆ దో షమును మొదట రౌండు
దశలలోచ్రిిౌంచిన విధౌంగానే స్రిదద
ి ు ాలి. కాన్న దో షౌం నామమాతరప్ు ఖాతాను ప్రభటవితౌం చేసన
ి ప్ుుడు, స్వరణ
ప్దుులో నామమాతరప్ు ఖాతా స్ాథనౌంలో లాభనషాాల స్రుుబటటట ఖాతాను ఉప్యోగిౌంచాలి.

148
ii. Errors affecting two or more accounts:

In most of the errors, the effect of an error is on two or more accounts. Errors of complete
omission, repetition, debiting or crediting a wrong account, recording in a wrong subsidiary
journal, posting to a wrong account are some of the errors of this type.

For example,

Cash received from A.Subhash Rs.5,000 wrongly posted to the debit of K.Subhash
account. Due to this error, the balances of both the personal accounts are affected.

Goods purchased from Valli Rs. 32,500 had been entered in sales journal. In this case,
debit balance of purchases account would be decreased by Rs.32,500, credit balance in sales
account would be increased by Rs. 32,500 and debit balance in valli account would be increased
by Rs.65,000.

Practical Illustration1:(Identification of type of error and its impact on trial balance) .

Let us see how to identify the type of error and its impact on Trial balance.

i. Repairs to buildings Rs. 7,000 have been debited to buildings account.

ii. A credit sale of goods to Sirisha Rs. 1800 posted to her account as Rs. 1,080.
iii. Goods taken over by proprietor for his personal use Rs. 2,100 was not recorded in
books.
iv. Discount allowed to Somesh Rs. 300 was not posted to his account.
v. Sale of old furniture on credit Rs. 2,500 has been entered in sales day book.
vi. The total of sales returns book has been totaled in short by Rs. 100.

Solution:

i. Since an expense is debited to an asset account, it is an error of principle.

This error would not affect the agreement of trial balance because equal amount of
debit and credit were recorded.

ii. Since a wrong amount was posted to an account, it is an error of commission.

This error would affect the agreement of trial balance because wrong amount was
posted to one account (debit side) only.

iii. The transaction was not recorded in books, so it is an error of omission.

This error would not affect the agreement of trial balance since both debit and
credit amounts were not recorded in books.

iv. Since the entry not posted to one account, it is an error of partial omission.
This error would affect the agreement of trial balance because amount was not
posted to one account (credit side) only.

149
 v. Since the sale of an asset was recorded as a sale of goods, it is an error of principle.

This error would not affect the agreement of trial balance because equal amount of
debit and credit were recorded.

vi. Since a wrong total was posted to sales returns account, it is an error of
commission.This error would affect the agreement of trial balance because wrong
amount was posted to one account (debit side) only.

6.3 Why rectification of errors?

There are many stages in accounting cycle. The stages follow a sequence in a way that
work to be done in a stage is dependent on work already been done in its previous stage. In other
words, work completed in a stage serves as the base for work to be done in next stage. If an error
occurred in a stage is not located and rectified, then its impact will pass through the next stages of
accounting cycle even into the preparation of final accounts. Final accounts consist of profit and
loss account and balance sheet. Profit and loss account is prepared to ascertain profit or loss of
business and balance sheet is prepared to know the financial position.

Business units adopt accounting system to know its accurate financial results. External and
internal users of accounting are interested in financial results shown by financial statements. If
errors are not detected and rectified, then the accuracy of financial results shown by final accounts
will become questionable,the true and fair financial picture of the business unit would not be
reflected by final accounts. The whole objective of accounting would not be served.

Thus, one should locate and rectify errors properly.

Effect of errors on financial results:

Asdiscussed earlier, errors affect the accuracy of financial results disclosed by final
accounts. Errors involvingreal and personal accounts would affect the assets and liabilities,
whereas errors involving nominal accounts would affect the profit as well asassets and liabilities.

Let us observe the impact of unrectified errors on profit with aPractical Illustration.

Practical Illustration 2: (Impact of errors on net profit)

1. Goods Purchases from Surya Rs. 5,000 was omitted to enter in journal.
2. Repairs to machinery Rs.10,000 debited to machinery account.
3. Sales returns book was overcast by Rs. 2,000.
4. Rent paid Rs. 6,000 debited to Rent account as Rs.600.
5. Goods sold to Ravi Rs. 10,000 was not posted to his account.

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 Solution:

1. Since the transaction was not entered in journal, purchases account would show a lower
balance by Rs 5,000. It would decrease thecost of goods sold by Rs 5,000, hence profit
would be increased by Rs.5,000.

2. Due to this error of principle, expenditure on repairs will be reducedand profit will be
increased by Rs. 10,000.

3. Due to this casting mistake, sales returns account would show a higher balance and it will
lead to lowering the sales revenue. Hence profit will be decreased by Rs. 2,000.

4. As the rent account is debited with Rs.600 instead of the actual payment of Rs.6,000, it
would increase the profit by Rs 5,400.

5. This error won’t affect the profit because, no nominal account was affected in this error.
6.4 How to locate the errors?
Agreement of trial balance indicates the relative accuracy and completeness of books of accounts.
If trial balance does not agree, there must be some errors in books of accounts. Even if trial
balance is agreed there may be some errors.
Identifying the errors is not always be an easy task. Especially, the two-sided errors cannot
be found easily because impact of existence of these errors in books would not be disclosed by
trial balance.
Detectingthe errors in books of accounts needs detailed scrutiny and cross checking of
books. It is a time-consuming process. However, some of the trial-and-error measures to locate the
errors in books also discussed in this section.
Steps to be taken to locate the errors are given below:
Detailed checking:
 Check the totals of debit and credit columns / sides of trial balance.
 Check whether all balances from ledger are properly taken to trial balance or not.
 Check the totals of debtors, bills receivables, creditors and bills payables.
 Check whether the balances of cash book and bank accounts are properly taken
into trial balance or not.
 Check whether all ledger accounts are totaled and balanced properly or not.
 Check whether postings from journal to ledger have been made properly or not.
 Check the totals of subsidiary books.
 Check whether carrying forward of totals and balances in ledger and subsidiary
books are correctly done or not.
 Check whether all transactions as per supporting documents viz. vouchers,
invoices, debit notes, credit notes, passbooks are properly recorded in journal or
not.
 Check whether the opening balances of real accounts and personal accounts are
properly brought down to the current year or not.

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Trial and error Checking:

 Search with the difference amount.

If there is a short credit in trial balance by Rs. 3,500, it is possible that posting of Rs. 3,500 on the
credit side has been omitted or posting of Rs. 3,500 on debit side has been done twice or a creditor
for Rs. 3,500 has been omitted to be included in list of creditors or a credit balance of Rs. 3,500
has not been taken to trial balance or a debit balance of Rs. 3,500 has been taken to trial balance
twice. One should check all the entries made with Rs.3,500 to locate such errors.

 Divide the difference amount with 2 then check with the result amount.
If there is a short debit in trial balance by Rs. 16,000, it is possible that a debit item of Rs. 8,000
has been posted to the credit side, or a debit balance of Rs. 8,000 has been taken to the credit side
of trial balance. One should check all the entries made with Rs.8,000 to locate such errors.

 Divide the difference amount with 9, if it is divisible by 9, it is possible that the

error of transposition has been occurred.
If an item of Rs. 4,157 has been posted as Rs. 4,517, then the difference would be Rs.360, which
is exactly divisible by 9. So, one should focus more on mistakes of these kind if the difference is
divisible by 9.

 Errors in entering zeros may be located by dividing the difference with 9, 99,
0.9, 0.99.

If there is a difference in trial balance by Rs. 4,500 which is exactly divisible by 9, it is possible
that an item of Rs. 5,000 has been posted as Rs. 500. So, one should check all the entries made
with quotient amount Rs.500 (4,500/9 = 500) to locate such errors.

If the difference in trial balance is Rs. 4,950 which is exactly divisible by 99 it is possible that an
item of Rs. 5,000 has been posted as Rs. 50. So, one should check all the entries made with
quotient amount Rs.50 (4,950/99 = 50) to locate such errors.

If the difference in trial balance is Rs. 16,200 which is exactly divisible by 0.9 it is possible that
an item of Rs. 1,800 has been posted as Rs. 18,000. So, one should check all the entries made with
quotient amount Rs.18,000 (16,200/0.9 = 18,000) to locate such errors.

If the difference in trial balance is Rs. 17,820 which is exactly divisible by 0.99 it is possible that
an item of Rs. 180 has been posted as Rs. 18,000. So, one should check all the entries made with
quotient amount Rs.18,000 (17,820/0.99 = 18,000) to locate such errors.

 If a one-side error found after the agreement of trial balance, check all entries
made with the same amount or half of the amount or double amount to locate
compensating errors.
If an error found leading to a short debit of Rs.520 in trial balance, it is possible that another error
has been committed with Rs. 520 or Rs. 260 or Rs.1040.
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6.4.1 Detecting Errors:

The following transactions were taken place in the business of Ganesh during June 2021

Date Transactions Amount

1-6-2021 Ganesh Started business with capital 1,00,000
4-6-2021 Purchased goods for cash. 20,000
13-6-2021 Sold goods for cash. 50,000
18-06-2021 Goods purchased from Reema 5,000

20-06-2021 Purchase of computer 25,000

30-6-2021 Salaries Paid 10,000
30-6-2021 Office Expenses 5,000
30-6-2021 Goods Purchased from rajesh on credit 25,000

Following is the journal of Ganesh:

Journal Entries in the Books of Ganesh

Date Particulars L.F Debit Credit

Amount(Rs) Amount(Rs)

1-6-2021 Cash a/c Dr 1,00,000

To Capital a/c 1,00,000
(Being business commencement
with cash)
4-6-2021 Purchase a/c Dr 20,000
To Cash a/c 20,000
(Being goods purchased on cash)
13-6-2021 Cash a/c Dr 50,000
To Sales a/c 50,000
(Being goods sold for cash)
20-06-2021 Purchases a/c Dr 25,000
To Cash a/c 25,000
(Being goods purchased on cash)
30-6-2021 Salaries a/c Dr 10,000
To Cash a/c 10,000
(Being salaries paid )
30-6-2021 Office Expenses a/c Dr 5,000
To Cash a/c 5,000
(Being office expenses paid)
30-6-2021 Purchases a/c Dr 25,000
To Rajesh a/c 25,000
(Being goods purchased from
Rajesh on credit)

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Following is the Ledger of Ganesh:

Dr Cash Account Cr
Date Particulars J Amount Date Particulars J Amount
F F

1-6-2021 To Capital a/c 1,00,000 2-6-2021 To Purchases a/c 20,000

5-6-2021 To Sales a/c 50,000 20-6-2021 By Purchases 25,000
30-6-2021 By Salaries a/c 10,000
30-6-2021 By Office 5,000
expenses a/c
30-6-2021 By Balance c/d 90,000
1,50,000 1,50,000
1-7-2021 To Balance b/d 90,000

Dr Capital Account Cr

Date Particulars J Amount Date Particulars J Amount

. .
F F
30-6-2021 To Balance c/d 1,00,000 1-6-2021 By Cash a/c 1,00,000

1,00,000 1,00,000

1-7-2021 By Balance c/d 1,00,000

Dr Purchases Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

2-6-2021 To Cash a/c 20,000 30-06-2021 By Balance c/d 70,000

20-6-2021 To cash 25,000
30-06-2021 To Rajesh a/c 25,000

70,000 70,000

1-7-2021 To Balance c/d 70,000

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Dr Sales Account Cr
Date Particulars J Amount Date Particulars J Amount
. .
F F

30-6-2021 To Balance c/d 50,000 5-6-2021 By Cash a/c 50,000

50,000 50,000

1-7-2021 By Balance b/d 50,000

Dr Salaries Account Cr
Date Particulars J Amount Date Particulars J Amount
F F

30-6-2021 To Cash a/c 10,000 30-6-2021 By Balance c/d 20,000

30-6-2021 To Cash a/c 10,000

1-7-2021 To Balance b/d 20,000

20,000 20,000
20,000

Dr Office Expenses Account Cr

Date Particulars J Amount Date Particulars J Amount
F F

30-6-2021 To Cash a/c 500 30-6-2021 By Balance c/d 500

500 500
1-7-2021 To Balance b/d 500

Dr Rajesh Account Cr

Date Particulars J Amount Date Particulars J Amoun

F F t

30-6-2021 To Balance c/d 20,500 30-6-2021 By Purchases a/c 20,500

20,500 20,500
1-7-2021 By Balance b/d 20,500

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Trial balance of Ganesh:

Debit balances Amount Credit balances Amount

Cash A/c 90,000 Capital 1,00,000
Purchases 70,000 Sales 55,000
Salaries 20,000 Rajesh 20,500
Office expenses 500

Total 1,80,500 Total 1,75,500

The trial balance showing a difference of Rs.5,000 due to errors committed in books.
Identify the errors.

6.5 How to rectify the errors?

Rectification of an error involves correcting the wrong effects of an error by using an appropriate
tool of rectification.

6.5.1 Tools of Rectification:

Errors in books of accountscannot be rectified by striking off wrong particulars or amount and
rewriting correct particulars or amount.

Errors can be rectified by the following ways.

1. Passing a rectification entry:

Errors can be rectified by passing a journal entry. Rectification entries are passed in
Journal proper. A rectification entry is passed in such a way that the wrong treatment
given should be nullified and correct treatment should be incorporated.

Passing rectification entries is explained by the following examples,

i. If an account is wrongly debited instead of another account in a journal entry,

rectification entry should be passed by debiting the correct account and crediting the
wrong account.If an account is wrongly credited instead of another account,
rectification entry should be passed by crediting the correct account and debiting the
wrong account.
For example,

If a journal entry was passed by debiting sudhadhar’s account instead of

Sudhakar’s account for the transaction ‘Goods sold to Sudhakar of Rs.10,000’.

The rectification entry is

Sudhakar’s A/c Dr 10,000

To Sudhadhar’s A/c 10,000

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 In this example, the effect of wrong debit of sudhadhar’s account is neutralized
by crediting sudhadhar’s account for Rs. 10,000 and the correct effect to be made
to sudhakar’s account is now made by debiting Sudhakar’s account.

ii. If a journal entry is passed with a higher (wrong) amount, reverse journal entry has to
be passed with the excess amount to rectify the error.
For example,

If Cash received from sindhu Rs.2,500 was recorded in journal with Rs 2,900.

The rectification entry is

Sindhu A/c Dr 400

To Cash A/c 400

In this example, the effect of excess(wrong) debit in cash account of Rs.400 and excess
(wrong) credit in sindhu account of Rs.400 is neutralized by debiting sindhu account with
Rs. 400 and crediting cash account with Rs. 400.

Alternative method for passing a Rectification entry is as follows:

1. Write wrong journal entry.

2. Reverse the wrong journal entry (To cancel its wrong effect) .
3. Write correct journal entry (To give correct effect) .
4. Cancel the particulars and amounts on opposite sides in journal entries 2 and 3 (To get
net effect).
5. Write the remaining particulars with remaining amounts in the form of a journal entry.
For example, Goods purchased from Krishna Rao Rs.5,000wrongly credited to Krishnamurthy
account can be rectified as follows

1. Wrong Journal entry

Purchases A/c Dr 5,000

To Krishna Murthy A/c 5,000

2. Reversed Wrong Journal entry

Krishna Murthy A/c Dr 5,000

To Purchases A/c 5,000

3. Correct Journal Entry

Purchases A/c Dr 5,000

To Krishna Rao A/c 5,000

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 4. Rectification Entry
Krishna Murthy A/c Dr 5,000

To Krishna Rao A/c 5,000

2.Writing a corrective Statement/ Explanatory note:

In this method errors are rectified by writing a corrective statement or explanatory noteon
appropriate side of ledger accounts or in subsidiary journals.This method is used when passing
a rectification entry is not possible to rectify an error. If an error affectsonly one account or it
is not possible to write a journal entry to rectify an error affecting two or more accounts, this
method is used to rectify the errors.

For example, sale of goods to GiriRs.5,600 has been wrongly posted as Rs.6,500 to sales account
can be rectified as follows

DrSales Account Cr

Date Particulars J Amount Date Particulars J Amount

F F

To Excess amount posted to 900

sales A/c
(Error rectified)

6.5.2 Rectification process:

Rectification of an error depends on the stage in which it is located and its impact on agreement of
trial balance.

Stages of identification of errors:

Stage 1:

Before the preparation of trial balance

Stage2:

After the preparation of trial balance and before the preparation of final accounts

Stage 3:

After the preparation of final accounts

Types of error on the basis of impact on agreement of trial balance:

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 1. One sided error
2. Two-sided error

6.5.2.1 Rectification of errors found in Stage 1: Before the preparation of trial balance:

I. One-sided errors:
One-sided errors found in stage one can be rectified by writing an explanatory note or corrective
statement on appropriate side of affected account or in affected subsidiary journal.

Let us learn how to rectify the one-sided errors found before the preparation of trial balance.

Practical Illustration 3:

The following errors were found in the books of Srinivasa Pvt Ltd before the
preparation of trial balance. You are required to rectify the errors.

A. Purchases from Jaya Rs. 6,800 was not posted to Jaya’s account.
B. Cash received Rs. 7,000 from Madhav was posted to his account on debit side.
C. Sales to Sateesh Rs. 10,200 debited to his account as Rs. 12,000.
D. Bills payables book was overcast by Rs 100.
E. The total of a page in purchase returns book Rs.2,100 was wrongly carry
forwarded as Rs 1,200 to next page.
Solution:

A. In this case the purchase amount of Rs. 6,800 should be posted to credit side of Jaya’s
account, but it was not posted. Hence, Jaya’s account would show a less credit by Rs.
6,800 because of the error. So, the error can be rectified by posting Rs. 6,800 on credit
side of Jaya’s account. The rectification of this error is shown below

Dr Jaya Account Cr

Date Particulars J Amount Da Particulars J Amount

F te F

A By Omission of posting for 6,800

purchases
(Error rectified)

B. In this case the cash received Rs. 7,000 from Madhav should be posted to credit side of
Madhav’s account, but instead it was posted to his account on debit side. Hence, Madhav’s
account would show a higher debit by Rs. 14,000(For not posting to credit side Rs.7,000 + For
wrong posting to debit side Rs.7000). So, the error can be rectified by posting Rs. 14,000( Rs
7,000 to neutralize the wrong effect+ Rs.7,000 to give the correct effect) on credit side of
Madhav’s account. The rectification of this error is shown below

159
 Dr Madhav Account Cr

Date Particulars J Amount Da Particulars J Amount

F te F

B By Wrong debit for cash 14,000

receipt
(Error rectified)

C. In this case the Sales amount of Rs. 10,200 should be posted to debit side of Sateesh’s account,
but it was posted as Rs 12,000. Hence, Sateesh’s account would show an excess debit by Rs.
1,800 (Rs. 12,000- 10,200) because of the error. The error can be rectified by posting Rs. 1,800
on credit side of Madhav’s account to neutralize the wrong(excess) debit. The rectification of this
error is shown below

Dr Sateesh Account Cr

Date Particulars J Amount Da Particulars J Amount

F te F

C By Excess debit on 1,800

account of sales
(Error rectified)

D. Since the bills payable account over cast by Rs 100, the total transferred to bills payables
account would be more by Rs. 100. Hence, bills payables account would show a high credit by Rs.
100 because of the error. So, the error can be rectified by posting Rs. 100 on debit side of bills
payables account to neutralize the wrong(excess)credit. The rectification of this error is shown
below

Dr Bills payable Account Cr

Date Particulars J Amount Da Particulars J Amount

F te F

D To Over casting error

rectified 100

160
 E. In this case amount to be carry forwarded to next page would be Rs. 2,100 but the amount
carry forwarded was Rs. 1,200 which is less than by Rs 900. The total transferred to purchase
returns account would be less by Rs. 900(2,100-1,200). Hence, purchase returns account would
show a low credit by Rs. 900 because of the error. So, the error can be rectified by posting Rs.
900 on credit side of purchase returns account. The rectification of this error is shown below

Dr Purchase Returns Account Cr

Date Particulars J Amount Da Particulars J Amount

F te F

E By Carry forwarding 900

error rectified

II. Two-sided errors:

Two sided errors found in first stage can be rectified by passing a rectification entry.

Let us learn how to rectify the two-sided errors found before the preparation of trial balance.

Practical Illustration 4: The following errors were found in the books of Yasaswi before the
preparation of trial balance you are asked to rectify the errors.

i. Goods purchased from Chiranjeevi omitted to be recorded in books.

ii. Cash paid to Seetha Rs. 5,000 was recorded as payment to Satha.
iii. Wages paid in cash Rs. 4,600 was wrongly entered in bank column of cash book.
iv. A credit sale of Rs. 10,000 to Kumari was recorded in the purchases book.
v. Repairs to Plant Rs. 2,000 was wrongly debited to Plant account.

Solution:

i. Since the transaction was not recorded in journal, we can rectify it just by passing a
journal entry for the transaction.

ii. In this case, cash account was credited correctly, but satha account was debited instead
of seetha account. Since seetha account was not debited, we should debit seetha’s
account and we should credit satha’s account to neutralize the effect of wrong debit in

161
 satha’s account. It should be noted that cash account should not be used in rectification
entry since no error was made in crediting cash account.
iii. Wages paid Rs. 4,600 was wrongly recorded in bank column instead of cash column.
So wrong credit given to bank account by Rs. 4,600is canceled by debiting bank
account and correct affect is made by crediting cash account with Rs. 4,600.

iv. Since it is a credit sale transaction, Kumari’s account should be debited and sales
account should be credited. But in this case purchase account was wrongly debited
with Rs.10,000, Kumari account credited with Rs. 10,000 instead of debiting by Rs.
10,000, sales account was not credited. Three accounts are affected in this case.
To rectify this error,

Kumari account should be debited with double amount i.e 20,000 (To cancel wrong
affect Rs. 10,000 + To give correct affect Rs. 10,000),

Purchases account should be credited with Rs. 10,000 to neutralize the wrong debit

Sales account should be credited with Rs. 10,000 as it was not credited earlier.

v. This error is an error of principle. Plant account was wrongly debited with Rs.2,000 in
the place of Repairs account. Repairs account should be debited with Rs. 2,000 to give
correct effect and plant account should be credited to cancel the wrong debit in plant
account.

Rectification Entries in Journal Proper of Yasaswi Ltd.

Date Particulars L.F Debit Credit

Amount (Rs) Amount (Rs)

Purchases A/c Dr 3,600

I
To Chiranjeevi A/c 3,600
(Being error of complete omission rectified)
Seetha A/c Dr 5,000
Ii
To Satha A/c 5,000
(Being error of commission rectified)
Bank A/c Dr 4,600
Iii
To Cash A/c 4,600
(Being error of commission rectified)
Kumari A/c Dr 20,000
Iv
To Purchases A/c 10,000

162
 To Sales A/c 10,000
(Being error of commission rectified)
Repairs A/c Dr 2,000
V
To Plant A/c 2,000
(Being error of principle rectified)

6.5.2.2. Rectification of errors found in Stage 2: After the preparation of trial balance and
before the preparation of final accounts

Suspense Account:

Students learnt about suspense account in the previous chapter. Let us recall the suspense account.

Suspense account is an imaginary account created to make the trial balance agree. It is created to
avoid the delay in preparation of final accounts because of difference in trial balance. The
difference in trial balance indicates the net effect of unknown one side errors occurred in books. If
all those errors detected and rectified then the suspense account would be balanced automatically.

I. One-sided errors:
One-sided errors found in second stage cannot be rectified by writing an explanatory note in
affected accounts. The difference in trial balance which represents the net effect of one-sided
errors remain in the books is placed in suspense account.So, one-sided errors found in this stage
are corrected by passing a rectification entry with the help of suspense account.

Let us learn how to rectify the one-sided errors found after the preparation of trial balance
and before the preparation of final accounts.

Practical Illustration 5: Following are the errors found in the books of Srirama after the
preparation of trial balance. Rectify the errors.

A. Purchases from Naveen Rs. 15,000 was not posted to Naveen’s account.
B. Cash Paid to Vara prasad Rs. 7000 was posted to his account on credit side.
C. Repairs paid Rs.1,200 debited to repairs account as Rs. 120.
D. Purchases book was undercast by Rs 1,300.
E. The credit balance of Hareesh a/c Rs.2,000 at the end of a month was wrongly
carry forwarded to debit side of his account for the next month.

163
Solution:

Given errors are one-sided errors found after the preparation of trial balance. It should be noted
that the difference on account of these errors was placed in suspense account. They should be
rectified by passing a rectification entry using suspense account.

A. Since Naveen’s account was not credited, we should credit Naveen’s account with
Rs.15,000. And we should debit suspense account with Rs. 15,000 to adjust the difference
in suspense account.

B. Cash paid to Vara prasad Rs. 7,000 should be posted to his account on debit side, instead
of that it was posted to credit side of his account. So, Vara prasad account should be
debited with Rs. 14,000 and suspense account should be credited with Rs. 14,000 to rectify
the error.

C. In this case Only Rs.120 was posted to the debit of Repairs account which is Rs. 1,080 less
than the actual amount of Rs. 1,200. So, the error can be rectified by debiting the repairs
account and crediting suspense account with the difference amount of Rs 1,080.

D. Since the purchases book under cast by Rs. 1,300, the amount posted to debit side of
purchases account from purchases book would be less by Rs.1,300. To rectify the error,
purchase account should be debited and suspense account should be credited.

E. Carry forwarding of Rs. 2,000 to debit side instead of credit side of Hareesh account
would increase the debit balance or decrease the credit balance by Rs. 4,000. Harish
account should be credited with and suspense account should be debited with Rs. 4,000 to
rectify the error.

Rectification Entries in Journal Proper of Srirama.

Date Particulars L. Debit Credit

F Amount (Rs) Amount (Rs)

Suspense A/c Dr 15,000

A
To Naveen A/c 15,000
(Being error of partial omission rectified)
Vara Prasad A/c Dr 14,000
B
To suspense A/c 14,000
(Being error of commission rectified)
Repairs A/c Dr 1,080
C
To Suspense A/c 1,080

164
 (Being error of commission rectified)

D Purchases A/c Dr 1,300

To Suspense A/c 1,300
(Being error of commission rectified)
E Suspense A/c Dr 4,000
To Hareesh A/c 4,000
(Being error of commission rectified)

II. Two-sided errors:

Two sided errors found in second stage can be rectified by passing a rectification
entry as same as in case of two-sided errors found in first stage.

3. Rectification of errors found in Stage 3: After the preparation of final accounts:

Final accounts comprise Profit and Loss account and balance sheet. Balances of all the nominal
accounts are transferred to Profit and loss account to ascertain profit or loss. So, no balance would
be left in the accounts of nominal accounts for the year after the preparation of final accounts. So,
adjusting the wrong effect or giving correct affect to a nominal account is not possible. Any error
which affected the nominal accounts found in third stage i.e after the preparation of final accounts
can only be rectified by adjusting the effect to profit/ loss of the period only. To adjust the
previous year’s profit /loss, Profit and loss adjustment account should be used. So, profit and loss
adjustment account should be used in the place of nominal account in rectification entries to
rectify the errors which affected the nominal accounts.

I. One-sided errors:
Rectification of one-sided errors found in stage 3 can be rectified by passing a rectification
entryusing suspense account. If an error effects real or personal accounts, it should be rectified in
the same manner discussed in stage 2. But whenever anerror effect a nominal account, Profit and
Loss adjustment account should be used in the place of nominal account in the rectification entry.

II. Two-sided errors:

Rectification of two-sided errors found in stage 3 can be rectified by passing a rectification entry.
If an error effects real or personal accounts, it should be rectified in the same manner as discussed
in stage 1 and 2. But whenever the error effects a nominal account, Profit and Loss adjustment
account should be used in the place of nominal account in the rectification entry.

165
The rectification of errorssummarized in the following table:

Stage \ Error One sided error Two-sided error

Stage 1: Before the By writing a corrective By Passing a rectification

preparation of trial balance statement/ Explanatory note entry

Stage 2: After the

By passing a rectification entry By passing a rectification
preparation of trial balance
using suspense account entry
and before the preparation
of final accounts
By passing a rectification
By passing a rectification entry
entry
using suspense account
Stage 3: After the
But P&L adjustment account
preparation of final accounts But P&L adjustment account is
is used in the place of nominal
used in the place of nominal
accounts.
accounts.

6.6 Practical Illustrations:

1. Following errors were found in the books of Vijay after the preparation of trial
balance. Rectify the following errors.
A. Purchase returns of Rs. 500 to Ramana was recorded in Sales returns book.
B. An amount of Rs. 1,000 due from Raju was omitted from the list of sundry debtors.
C. Goods purchased from Babu Rs. 1,200 was recorded in books twice.
D. Sales book was undercast by Rs. 200.
E. Discount received from Ajay Rs. 450 was wrongly entered in bank column of cash book.
F. Cash received from Lakshmi Rs. 5,400 was posted to debit side of her account as Rs.
4,500.
Rectification Entries in the books of Srirama.

Date Particulars L. Debit Credit

F Amount (Rs) Amount (Rs)

Ramana A/c Dr 1000

A
To Purchase returns A/c 500
To sales returns A/c 500
(Being error of commission rectified)

166
 Debtors A/c Dr 1,000
B
To Suspense A/c 1,000
(Being error in preparation of trial balance
rectified)
Babu A/c Dr 1,200
C
To Purchases A/c 1,200
(Being error of duplication rectified)
D Suspense A/c Dr 200
To sales A/c 200
(Being error of commission rectified)
E Bank A/c Dr 450
To Discount received A/c 450
(Being error of commission rectified)
F Suspense A/c Dr 9,900
To Lakshmi A/c 9,900
(Being multiple errors of commission
rectified)

2. Rectify the following mistakes if they are identified

A) Before the preparation of Trial Balance (Stage1).

B) After the preparation of Trial Balance (Stage2).

i. Cheque issued to Umesh Rs 2,000 has been debited to Suresh account.

ii. Goods returned by Santosh Rs 850 were taken into stock but not recorded in books.
iii. A credit sale of goods to Jayram Rs 4,200 has been entered twice in sales book.
iv. Repairs to motor van Rs 1,850 were entered in cash book but not posted in ledger.
v. Rent paid to Govind Rs 1,500 were posted to the credit of his personal account.
vi. The monthly total of sales returns book Rs 900 was not posted in ledger.

167
 Rectification of Errors

Stage 1: Stage 2:
Before the preparation of Trial Balance After the preparation of trial balance

Umesh A/c Dr 2,000 Umesh A/c Dr 2,000

i.
To Suresh A/c 2,000 To Suresh A/c 2,000
(Being error of commission rectified) (Being error of commission rectified)

Sales Returns A/c Dr 850 Sales Returns A/c Dr 850

ii.
To Santosh A/c 850 To Santosh A/c 850
(Being error of omission rectified) (Being error of omission rectified)
Sales A/c Dr 4,200 Sales A/c Dr 4,200
iii.
To Jaya ram A/c 4,200 To Jaya ram A/c 4,200
(Being error of repetition rectified) (Being error of repetition rectified)

This error can be rectified by writing an Repairs A/c Dr 1,850

iv. explanatory note on debit side of repairs account
To Suspense A/c 1,850
To Repairs to motor van not posted 1,850 (Being error of partial omission rectified)
(Error rectified)
This error can be rectified by writing explanatory
V note on
debit side of govind account as:
Govind A/c Dr 1,500
To Rent wrongly posted 1,500
Rent A/c Dr 1,500
(Error rectified)
To Suspense A/c 3,000
and debit side of rent account as:
(Being error of commission rectified)
To Rent not posted 1,500
(Error rectified)
This error can be rectified by writing explanatory Sales returns A/c Dr 900
vi. note on debit side of sales returns account
To Suspense A/c 900
To sales returns book total not posted 900 (Being error of partial omission rectified)
(Error rectified)

168
3. Raghu industries prepared a trial balance by putting the difference amount of Rs. 3,200
on debit side of suspense account. The following errors were found later.
Rectify the errors and show suspense account.

i. Amount paid for repairs to computers Rs. 400 was wrongly posted to computer
account twice.
ii. Sales book was over cast by Rs. 850.
iii. Bill received from Ranga Rs. 1,800 was not recorded in books.
iv. Cash received from Naresh Rs. 600 was wrongly posted to Nagesh account as Rs. 60.
v. The monthly total of discount column on debit side of the cash book Rs. 1,510 was not
Posted to ledger.
vi. Rent paid to Hari Rs. 1,300 debited to his personal account.
vii. Cheque issued to Giri Rs. 5,500 was wrongly entered in cash column of the cashbook.

Rectification Entries in Journal Proper of Raghu Industries

Date Particulars L.F Debit Credit
Amount (Rs) Amount (Rs)
Repairs A/c Dr 400
i
Suspense A/c Dr 400
To Computer A/c 800
(Being error of commission rectified)
Sales A/c Dr 850
ii
To Suspense A/c 850
(Being error of commission rectified)
Bills receivables A/c Dr 1,800
iii
To Ranga A/c 1,800
(Being error of omission rectified)
iv. Nagesh A/c Dr 60
Suspense A/c Dr 540
To Naresh A/c 600
(Being error of commission rectified)
v. Discount allowed A/c Dr 1,510
To Suspense A/c 1,510
(Being error of partial omission rectified)
vi. Rent paid A/c Dr 1,300
To Hari A/c 1,300

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 (Being error of principle rectified)
vii. Cash A/c Dr 5,500
To Bank A/c 5,500
(Being error of commission rectified)

Dr Suspense Account Cr

Date Particulars JF Amount Date Particulars J Amount

F

To Difference in Trial 3,200 Ii By Sales A/c 850

balance

i To Computers A/c 400 v By Discount allowed A/c 1,510

iv. To Naresh A/c 540

By Balance C/d 1,780

4,140 4,140

Note: Balance in suspense account has been reduced to Rs. 1,780 from Rs 3,200 after the
rectification of given errors. A balance of Rs. 1,780 is still there in suspense account which
indicates that there are some more un identified errors in books of accounts.

4. A book keeper while preparing the trial balance found that the debit total exceeds the
credit by Rs. 1,400. He placed the difference to suspense account. The following errors were
found after the preparation of trial balance. Pass journal entries to rectify the errors and
prepare suspense account.
A. Cash received from Madhu Rs.1,600 had been posted to the debit of his account as Rs.
600.
B. Cash paid to Raju Rs. 5,200 was posted to his account as Rs. 2,500.
C. Goods sold to Chandu Rs. 5,000 was not recorded in books.
D. A credit purchase from Nandu Rs.2,900 was not posted to his account.
E. Sales Returns journal was Under cast by Rs. 1,000.
F. Bill received from vinay Rs.3,000 was recorded in bills payable journal as Rs. 300.

170
 Rectification Entries

Date Particulars L.F Debit Credit

Amount (Rs) Amount (Rs)

Suspense A/c Dr 2,200

A
To Madhu A/c 2,200
(Being error of commission rectified)
Raju A/c Dr 2,700
B
To Suspense A/c 2,700
(Being error of commission rectified)
Chandu A/c Dr 5,000
C
To Sales A/c 5,000
(Being error of omission rectified)
D Suspense A/c Dr 2,900
To Nandu A/c 2,900
(Being error of partial omission rectified)
E Sales returns A/c Dr 1,000
To suspense A/c 1,000
(Being error of commission rectified)
F Bills receivable A/c Dr 3,000
Bills payable A/c Dr 300
To Vinay A/c 3,300
(Being error of commission rectified)

Dr Suspense Account Cr
Date Particulars JF Amount Date Particulars JF Amount

A To Madhu A/c 2,200 By Difference in trial 1,400

balance
D To Nandu A/c 2,900
B By Raju A/c 2,700

E By sales Returns A/c 1,000

5,100 5,100

171
 Test your Understanding

I. Fill in the Blanks

1. Debiting a nominal account in the place of a real account is an error of ________________.

2.Omitting to post an entry to one account is an error of ____________ omission.

3. Recording a wrong amount in books is an example of error of ______________.

4. Errors can be rectified by writing a _______________ or ________________.

5. __________ sided errors do not affect the agreement of trial balance.

II. True or False

1. Errors of principle affect the agreement of trial balance.

2. Entering a transaction in a wrong subsidiary book is an example of error of commission.

3. Omitting to record a transaction in journal affect the agreement of trial balance.

4. Under casting of sales book is an example of one-sided error.

5. Two-sided errors do not affect the agreement of trial balance.

172
 III. Multiple Choice Questions (MCQ)

1. Writing an entry multiple times in journal is an example of

A. Error of omission B. Error Commission

C. Error of principle D. None of the above

2. Omitting to Post an entry into one account is an error of

A. Error of complete omission B. Error of principle

C. Compensating error D. Error of partial omission

3. Which of the following error affect the agreement of trial balance

A. Error of complete omission B. Error of principle

C. Compensating error D. Error of partial omission

4. Recording personal expenses of proprietor in the books of business is an error of

A. Error of principle B. Error of commission

C. Compensating error D. Error of partial omission

5. Wrong carry forwarding of total in sales returns book is a

A. One-sided error B. Two-sided error

C. Both of the above D. None of the above

6. Which of the following is a two-sided error

A. Omitting to post an entry to one account

B. Posting a wrong amount to one account
C. Entering a wrong amount in subsidiary journal
D. Over casting of bills receivables book

7. Which of the following is an error disclosed by trial balance.

A. Omitting to record general expenses of Rs. 500 in journal

B. Posting a purchase of goods from Ravi Rs.500 to the debit side of Ravi A/c
C. Entering a sales return of Rs. 1,000 in purchase returns book
D. Debiting Machinery account for repairs to machinery Rs. 2,100

8. How many accounts would be affected by an error of recording a purchase in sales book
A. 2 B. 3 C. 4 D.1
9. What is the effect of under casting of purchases book by Rs. 200 on trial balance

A. Excess debit by Rs. 200

B. Short debit by Rs. 200
C. No effect on trial balance
D. Short debit by Rs. 400

173
 10. What is the effect of “posting cash received from suma Rs.300 to the debit of her
account” on trial balance

A. Excess credit by Rs.600

B. Short debit by Rs. 300
C. Short credit by Rs. 600
D. Short debit by Rs. 600

11. One sided Errors found before the preparation of trial balance can be rectified by

A. Writing an explanatory statement B. By passing a rectification entry

B. Either of the above D. None of the above

12. Two-sided errors found before the preparation of trial balance can be rectified by

A. Writing an explanatory statement B. By passing a rectification entry

B. Either of the above D. None of the above

13. One-sided errors found after the preparation of trial balance can be rectified by

A. Writing an explanatory statement

B. Passing a rectification entry
C. Passing a rectification entry using suspense account
D. None of the above

IV. Short Answer Questions (SAQ)

1. Explain Suspense Account

2. Explain the need for rectification of errors
3. Explain the tools of rectification of errors

V. Long Answer Questions (LAQ)

1. Explain different types of errors.

2. Explain the process of rectification of errors.

174
3. Classify the following errors into

A). Error of principle B) Error of commission C) Error of omission

and write their impact on agreement of trial balance.

1. Rent paid to the landlord Rs3400 was debited to his personal account.

2. Goods returned by A.Khan Rs700 was posted to the credit of K.Khan.

3. Goods taken by proprietor for his personal use Rs500 wasn’t recorded in books.

4. An item of Rs.950 in sales account was wrongly entered as Rs 590.

5. Amount spent for installing an Air Conditioner Rs3000 have been debited to
office expenses account.
6. The total of discount column of the debit side of cash book Rs 280 wasn’t
posted in ledger.
4. Determine the effect of the following errors on the agreement of trial balance
and net profits of a business firm.

1. Amount paid for repairs on purchase of a second-hand machine Rs 2500

were debited to repairs account.
2. Goods distributed by way of free samples Rs 800 was not recorded in the
books at all.
3. Amount due from Mehta Rs 3,000 is irrecoverable as he became insolvent

was also not recorded in the books.

4. Cash paid to Ali Rs 1,250 was wrongly posted to his account as Rs 1,520.

5. Commission received from Sachin Rs 525 were wrongly credited to his

account in ledger.
6. Discount received from Kumar Rs 400 were shown on the credit side of his
Account.

175
5. Make out rectification entries for the following errors found after the preparation of trial
balance.

1. The total of return outward journal was understated by Rs 300.

2. Discount allowed to Madhav Rs 150 wasn’t posted to his personal account.
3. Cash paid to Krishna Rs 1650 though correctly entered in cash book, posted in his account
as Rs 1,605.

4. Cheque received from shekar Rs 1,150 was posted to his account twice in error.

5. Goods purchased from Avinash Rs 1800 was passed through the sales day book.
6. Amount received from Bhaskar Rs 750 whose account was written off as bad debt earlier
has been credited to his personal account.

6. How would you rectify the following mistakes if they were found in the books

A) Before preparing the trial balance. B) After preparing the trial balance.

1. Sales book total was under casted by Rs2000.

2. Cheque received from Amar Rs 5000 was wrongly credited to the account of Samar.

3. Depreciation on furniture Rs1500 wasn’t posted to depreciation account.

4. Purchase of goods from abhiram Rs. 3,000 was not recorded in books.

5. A return of goods from prabhu Rs1800 was wrongly entered in purchases daybook.

6. Repairs to machinery Rs1200 wrongly debited to machinery account.

7. The trial balance of Mr.Karthik showed a difference of Rs 1720 (short credit). On

scrutiny of his books, the following errors were noticed.

1. Purchase book total was in excess by Rs 620.

2. Amount due from Kiran Rs 800 was not included in the list of trade debtors.
3. School bag purchased for Mr.Karthik’s son Rs 650 was debited to stationery expenses
account.
4. Return of goods from Raju Rs 1380 was correctly entered in returns inward journal but not
posted to his account.
5. Sale of old scooter Rs 5200 was credited to sales account.
6. Wages paid to workers Rs 1500 for the construction of parking shed for staff were debited
to wages account.

176
Pass rectification entries for the above mistakes and prepare the suspense account. (Ans: Balance
in suspense account Rs 520 Cr).

8. After preparing the trial balance, a trader found that it shows an excess credit of Rs1500
which he placed against a suspense account. On verification the following errors were
discovered. Pass rectification entries and show suspense account.

1. Credit purchase of goods from Venkat Rs.3200 has been entered in purchases book as
2,300.

2. Purchases book was under cast by Rs. 700.

3. Cash paid to Saikumar Rs.1,000 was posted to the wrong side of his account.

4. Sale of second-hand machine for Rs.9,000 to Mr. Gupta has been recorded in sales

daybook.
5. Amount payable to Mr. Pratap Rs.500 was not taken in the list of sundry creditors.
6. Cash paid for purchase of medicines to proprietor’s mother Rs.900 were debited to
miscellaneous expenses account.
7. Commissions received Rs. 900 was posted to commission received account as Rs. 200.

177
 VI. Additional Resources for Advanced Learning

Study Material (Handouts):

https://nios.ac.in/media/documents/srsec320newE/320EL11.pdf

Reference Text Books:

1. R L Gupta & V K Gupta, Principles and Practice of Accounting, Sultan Chand & Sons

2.S.P. Jain & K.L Narang, Accountancy-I, KalyaniPublishers

3.Tulasian, Accountancy -I, Tata McGraw HillCo.

E - Text Books:
https://icmai.in/upload/Students/Syllabus2016/Foundation/Paper-2New-29012021.pdf
https://www.icsi.edu/media/webmodules/publications/FULL%20FAA%20PDF.pdf

YouTube Links:

https://www.youtube.com//watch?v=zCZoqINp5P0

https://www.youtube.com//watch?v=3bYHy5NZ73k

Power Point Presentations:

https://www.slideshare.net/takshilalearning/rectification-of-errors-67813481

https://www.slideshare.net/srinivasmethuku/topic-8-rectification-of-errors-n

VII. Suggested Activity

1. Visit a firm (Individual and Group) and observe the process of rectification of errors

2.Problem Solving Exercises

3.Learning Computer based accounting system through tally

178
 I. Fill in the Blanks

Q.No 1. Error of 2.Error of 3.Error of 4.Corrective 5.Two

principle partial commission statement, sided
omission Rectification
entry

II. True or False

Q.No 1. False 2. True 3.False 4.True 5.True

III. Multiple Choice Questions (MCQ)

Q.No 1. B 2.D 3.D 4.A 5.A 6.C 7.B 8.B 9.B 10.C

11.A 12.B 13.C

Compensating errors: Errors that are compensating the wrong effect of one another.

Error: An unintentional mistake.

Errors of Commission: Errors made with wrong amounts, wrong totals, wrong sides, and
wrong accounts.

Error of Omission: Error committed by forgetting to record or post an entry.

Errors of principle: Errors committed by violating the principles of accounting.

One-sided Error: An error that affect the agreement of trial balance.

Rectification: Correcting the wrong effect of an error.

Suspense Account: An imaginary account created to make trial balance agree.

Two-sided error: An Error that does not affect the agreement of trial balance.

179
Learning Outcomes

1. Understand the
nature of cash book
and passbook Contents
2. Understand the 7.1 Introduction
reasons for difference 7.2 Passbook and Cash
between balance as book
per cash book and 7.3 Why the Balances
passbook of Passbook and
3. Identify the Cashbook differ?
differences between 7.4 What an
the cash book and Accountant has to do
Passbook balances with the differences?
4. Analyse the reason 7.5 Why
for difference to know Reconciliation?
its impact on cash
book and Passbook 7.6 How to reconcile
balances the passbook and
cashbook balances
5. Develop the skill of
preparation of Bank 7.7 Practicial
reconciliation Illustrations
statement

7.1 Introduction:
180
7.1 Introduction
Banking is one of the important auxiliaries to business. Banks help business entities in
smooth conduct of business by arranging for receipts and payments of cash. In the past the
activities of banks were confined to receipt of deposits and provision of loans. Moreover, only a
few types of deposits were available at banks and means of payment they offered to their
customers were also limited. The changing techno economic conditions have changed the face of
banking. Now a days banks are rendering a wide variety of services like insurance, asset
management, forex services and so on, in addition to their core functions. They are offering a
wide range of innovative deposits to meet the changing needs of customers. New branches of
banking viz. Internet banking, SMS banking, mobile banking have been evolved. Usage of
Information technology in banking gives rise to many speedy payment mechanisms viz. RTGS,
NEFT, IMPS, UPI. The speed and accuracy in banking services has increased the volume of bank
transactions. Receipt and payment of cash by hand has been decreased significantly among
businesses and common public. Majority of the receipts and payments of business today are being
made through banks.
In earlier chapters students have come across the preparation of Cashbook with bank column.
Business entities usually receive and pay money through their current accounts with banks. The
transactions made by them through banks are recorded in the bank column of the cash book or
entered into the relevant field in accounting software. On the other side, bankers also keep the
record of transactions made by their customers. Banks provide the record of transactions
periodically to their customers either in the form of Account statement or in the form of entries in
the passbook.

7.2. Cash Book and Passbook:

Let us examine the nature of cash book and passbook in detail to proceed further.

7.2.1 Cash Book and its characteristics:

In earlier chapters students have learnt about Cash book. The cash book is prepared by
cashiers either manually or through computerized accounting software. It is common among the
business entities to prepare Cash book with bank column because many of their receipts and
payments are made through bank accounts. Firms record the receipts and payments made through
bank in the bank column of the cash book.
Receipts through bank account are entered in the bank column on the Receipts side (Debit)
of the cash book. Payments made through bank account are entered in the bank column on the
payments (Credit) side of the cash book. Excess of Receipts (debits) over Payments (credits) lead
to a favourable balance and excess of Payments (credits) over Receipts (debits) lead to an
unfavourable balance in bank column of the cash book.

7.2.2 Passbook and its characteristics:

Passbook is issued to customers when they open their account with a bank. The purpose of
passbook is to make the customers aware of the transactions that have taken place in their bank
account. It is an evidence for transactions made by the customer through their bank account.
Customers get their transactions printed on passbook periodically.

181
 బ్యాంకు నిల్వల్ సమన్వయ పట్టీ

న్గదు పుసత కాం మరియు పాస్ పుసత కాం:

సాధారణంగా వ్ాాపార సంసథ లు వ్ాటి యొక్క నగదు లావ్ాదేవీలు బ్ాంక్ ఖాతాల దాారాచేసా ాయి. బ్ాంక్ుల
దాారా వ్ారు చేసిన వ్ావ్హారములు నగదు పుసా క్ం యొక్క బ్ాంక్ వ్రుసలో నమోదు చేసా ారు. బ్ాంక్ులు
తమ ఖాతాదారులు(వ్ాాపార సంసథ లు) బ్ాంక్ు దాారా చేసిన లావ్ాదేవీలను నమోదు చేసి వాటిని అక ంట్
సటే ట్మెంట్రూపంలో లేదా పాస్ బుక్ ఎంట్రల
ీ ను పిీంట్ చేయడం దాారా గానీ వ్ారి ఖాతాదారులకు అందిసా ాయి.

బ్ాంక్ ఖాతా దాారా వ్సూల న

ై మొతాాలను నగదు పుసా క్ం యొక్క వ్సూళ్ళ వ్ైపు (డెబిట్ వ్ప
ై ు) బ్ాంక్
వ్రుసలో నమోదు చేసా ారు. బ్ాంక్ ఖాతా దాారా చేసన
ి చెల్లంపులను నగదు పుసా క్ం యొక్క చెల్లంపులు
వ్ైపు (కరడ
ె ిట్ వ్ప
ై ు) బ్ాంక్ వ్రుసలో నమోదు చేసా ారు. నగదు పుసా క్ం యొక్క వ్సూళ్ళ వ్ైపు (డెబిట్ వ్ప
ై ు)
అంశముల మొతా ం చెల్లంపుల వ్ైపు (కరడ
ె ిట్ వ్ప
ై ు) అంశముల మొతా ం క్న్ాా ఎక్ుకవ్గా ఉంట్ే నగదు
పుసా క్ములో అనుక్ూల నిలా (డెబిట్ నిలా) వ్సు
ా ంది. అలా గాక్ చెల్లంపుల వ్ైపు (కరడ
ె ిట్ వ్ైపు) అంశముల
మొతా ం వ్సూళ్ళ వ్ైపు (డెబిట్ వ్ప
ై ు) అంశముల మొతా ం క్న్ాా ఎక్ుకవ్గా ఉంట్ే నగదు పుసా క్ములో
పీతిక్ూల నిలా (కరడ
ె ిట్ నిలా) వ్సు
ా ంది.

బ్ాంక్ులు, తమఖాతాదారులు వ్ారి బ్ాంక్ుఖాతా దాారా చేసిన వ్ావ్హారములను పాస్ బుక్లో

క్ెమానుగతంగా ముదిీసా ాయి.పాస్ బుక్ యొక్క ఉదేే శాం ఏమనగాఖాతాదారులక్ు వ్ారి బ్ాంక్ ఖాతా దాారా
జరిగన
ి లావ్ాదేవీల గురించి తెల్యజేయడం.ఇట్రవ్ల కాలం లో బ్ాంక్ులు తమ ఖాతాదారులక్ు వ్ారి
లావ్ాదేవీలవివ్రాలను అక ంట్ సటేట్మెంట్ రూపములో అందిసా ున్ాాయి. బ్ాంక్ అక ంట్ సటేట్మెంట్ మరియు
పాస్ బుక్ ఒకే లక్షణాలను క్ల్గి ఉంట్్యి.

క్సే మర్ బ్ాంక్ ఖాతాదాారా చేసుక్ునా వ్సూళ్ళను బ్ాంక్ర్ పాస్ బుక్ లో కరెడిట్్ (వ్సూళ్ళళ) గా నమోదు
చేసా ారు. క్సే మర్ బ్ాంక్ ఖాతా దాారా చేసన
ి చెల్లంపులను బ్ాంక్ర్ పాస్ బుక్లో డెబిట్్ (చెల్లంపులు) గా
నమోదు చేసా ారు. పాస్ బుక్ / సటేట్మంట్ లోని చెల్లంపుల (డెబిట్)మొతా ం క్న్ాా వ్సూళ్ళ (కరడ
ె ిట్)మొతా ం
ఎక్ుకవ్గా ఉంట్ే పాస్ పుసా క్ం లో అనుక్ూల నిలా వ్సు
ా ంది. అలా గాక్ వ్సూళ్ళ (కరెడట్
ి )మొతా ం క్న్ాా
చెల్లంపుల(డెబిట్)మొతా ం ఎక్ుకవ్గా ఉంట్ే పీతిక్ూల నిలా వ్సు
ా ంది.

నగదు పుసా క్ం యొక్క డెబిట్ వ్ైపు నమోదు చేయబడిన వ్ావ్హారము పాస్ బుక్ / సటే ట్మెంట్

యొక్క కరెడట్
ి వ్ప
ై ు నమోదు చేయబడుత ంది మరియు నగదు పుసా క్ం యొక్క కరెడట్
ి వ్ప
ై ు నమోదు

చేయబడిన లావ్ాదేవీ పాస్ బుక్ / సటేట్మెంట్ యొక్క డెబిట్ వ్ప

ై ు నమోదు చేయబడుత ంది.

182
Now a days the usage of passbook as a means of transactions information has been minimized.
The technological improvements in banking sector and wide usage of internet gives rise to other
means of information on transactions. Banks provide statement of transactions to their customers
periodically or at their request. Customers can get their account statement in no time through
internet banking and mobile banking. Now, the account statements generated by banker or
customer himself have replaced the passbook entries. It is not exaggerating to say that only very
few business firms rely on passbook for information now. However, in this chapter ‘Bank
Reconciliation Statement’ the word ‘passbook ‘is often used in lieu of ‘Bank Account statement’
and both the words used interchangeably.

Though the bank transaction statement and passbook belong to different periods, they
carry the same characteristics. Receipts by a customer through bank are recorded as credits
(Receipts) in passbook by banker. The payments made by customer through bank are recorded as
debits (Payments) in passbook by the banker. The excess Receipts (credits) over Payments
(debits) gives rise to favourable balance as per passbook/statement and the excess
Payments(debits) over Receipts (credits) gives rise to unfavourable balance in
passbook/statement.

7.2.3 Favourable balance:

Favourable balance otherwise known as the Debit balance as per cash book or credit
balance as per passbook refers to the balance of money left in the account. This is positive and
usual form of balance in bank accounts. The Favourable balance indicates the amount receivable
from bank. It is treated as a short-term asset and the banker is assumed to be a debtor.

7.2.4 Unfavourable (Overdraft) Balance:

Unfavourable balance otherwise known as overdraft balance or Credit balance as per

cash book or debit balance as per passbook refers to the money drawn from an account in excess
of what it actually contains. It indicates the negative balance and amount payable to bank.
Overdraft facility is a financial facility provided by bank to its customers that enables them to
withdraw money from their bank account even they do not have any account balance. Put it in
simple terms it is a short-term credit given to customers. It is treated as a short-term liability and
the banker is assumed as a creditor. Bankers levy interest on overdraft.

183
ఉదాహరణక్ు, బ్ాంక్ు ఖాతా దాారా చెల్లంచిన నగదు రూ .10,000 నగదు పుసా క్ముయొక్క కరెడట్
ి వ్ప
ై ు
బ్ాంక్ కాలమ్ నందునమోదు చేయబడుత ంది, అదే వ్ావ్హారమునుబ్ాంక్ర్ పాస్ బుక్ లో డెబిట్ వ్ప
ై ు
నమోదు చేసా ారు .
నగదు పుసా క్ములో డెబిట్ వ్ైపువ్సూళ్ళళ, కరెడిట్ వ్ప
ై ు చెల్లంపులు నమోదు చేయట్ం వ్లన నగదు
పుసా క్ములో అనుక్ూల నిలా డెబిట్ వ్ైపు ఉంట్ ంది, పీతిక్ూల నిలా కరడ
ె ిట్ వ్ప
ై ు ఉంట్ ంది. పాస్ పుసా క్ంలో
డెబిట్ వ్ైపు చెల్లంపులు కరడ
ె ిట్ వ్ైపు వ్సూళ్ళళ వ్ాీయట్ం వ్లన పాస్ పుసా క్ంలో అనుక్ూల నిలా కరడ
ె ిట్ వ్ప
ై ు
ఉంట్ ంది,పీతిక్ూల నిలా డెబిట్ వ్ైపు ఉంట్ ంది.
పాస్ బుక్ మరియు క్ాయష్ బుక్ బ్యల్ెన్స్ ల్ మధ్య వ్యత్యయసానిక్ి గల్ క్ారణయల్ు :
పాస్బుక్ మరియు కాాషబుక్ ఒకే వ్ావ్హారములను నమోదు చేసా ాయి కాబట్టే ఒక్ నిరిేష్ే తేదన
ీ పాస్బుక్
లేదా బ్ాంక్ సటేట్మంట్ పీకారం నగదు నిలా మరియు కాాషబుక్ యొక్క బ్ాంక్ వ్రుస పీకారం నగదు నిలా
సమానంగా ఉండాల్, కాని కొనిా కారణాల వ్లల ఆ నిలాలు భినాంగా ఉంట్్యి.
పాస్ బుక్ మరియు కాాష బుక్ నిలాల ల మధ్ా వ్ాతాాసానికి గల ముఖామైన కారణాలు:
1. పొ రబ్ట్ల
ు :
వ్ాాపార సంసథ యొక్క కాాషియరు లేదా అక ంట్టంగ్ సిబబంది నగదు పుసా క్ము తయారు చేయుట్లోచేసన
ి
లోపాలు, పొ రబ్ట్ల నగదు పుసా క్ం మరియు పాస్ పుసా క్ంనిలాల మధ్ా భేదానికి
దారితీయవ్చ్ుు.ఉదాహరణక్ు,బ్ాంక్ దాారా వ్సూల న
ై నగదు రూ.1,00,000 ను నగదు పుసా క్ంబ్ాంక్ు
వ్రుసలో రూ.10,000 గా నమోదు చెయాట్ం.
కొనిా సందరాాలలో అలసట్, పని ఒతిా డి, సాఫ్టే వ్ేర్ అవ్ాంతరాలు, న్ట్వ్ర్క సమసాలుమొదలగు కారణాల
వ్లల బ్ాంక్ సిబబంది క్సే మరల వ్ావ్హారాలను అమలు చేయడంలో క్ూడా లోపాలు, పొ రబ్ట్ల జరగవ్చ్ుు.
ఉదాహరణక్ు,ఒక్ క్సే మర్ చేసిన రూ .66,200 ల NEFT చెల్లంపు అభ్ారథనను న్ట్వ్ర్క లోపం కారణంగా
బ్ాంక్ుసాఫ్టే వ్ేర్ లో రరండుసారుల నమోదు చేయుట్.
2. చెకుుల్ పరో ససాంగ్ సమయాం:
వ్ాాపార సంసథ లు వ్ారి రుణగెసా ుల నుండి వ్సూలయిన చెక్ుకలను నగదు పుసా క్ంలో నమోదు చేసి వ్సూలు
కోసం బ్ాంక్ుక్ు పంపుతాయి. బ్ాంక్రుల,ఆ చెక్ుకల మొతాానిా వ్సూలు చేసిన తరాాత వ్ాాపార సంసథ
ఖాతాక్ు కరెడిట్ చేసా ారు. ఈ వ్సూలు పీకయ
ిె కి కొనిా రోజుల సమయం పడుత ంది. అదే విధ్ంగా వ్ాాపార
సంసథ లు తమ రుణదాతలక్ు జారీ చేసిన చెక్ుకలను జారీ చేసన
ి వ్ంట్న్ే కాాషబుక్ లో రికార్్ చేసా ాయి.

184
7.2.5 Favourable Balance Vs Unfavourable Balance:

Reason for difference Favourable balance Un favourable balance

1.Meaning Money left in the bank Account at a Amount of Money drawn over the
particular point of time favourable balance up to a particular
point of time.

2. Type of balance Positive Balance Negative balance

3. Occurrence It occurs when receipts are more than It occurs when payments are more than
payments. receipts.

4. Appearance in cash It appears on the Debit side of cash It appears on the Credit side of cashbook
book book
5.Appearancein passbook It appears on the Credit side of pass It appears on the Debit side of passbook
book

6. Asset or liability It is treated as a current asset It is treated as a current liability

7. Indicates It indicates amount owe by bank It indicates amount owe to bank

8. Possibility It is a usual form of balance and It is an unusual form of balance and

possible in all accounts possible only in accounts for which
overdraft facility allowed by the banker.

9.Interest on balance Payable by the banker to the customer Payable by the customer to the banker

7.2.6 Cash book and passbook A comparison:

We should recall the relationship between the banker and customer for the better
understanding of the differences in preparation of cash book and passbook. In general, ‘Bank
Account’ is treated as a personal account from customer’s perspective and the rules of personal
account are applied to transactions made through bank.

For any receipt through the bank the banker is assumed as the receiver from customer’s
point of view and customer is assumed as a giver from banker’s point of view.

185
కానీ బ్ాంక్రుల వ్ాాపారసంసథ బ్ాంక్ ఖాతా నుండి ఆ చెక్ుకలపై చెల్లంపుజరిగిన పుడు మాతీమే వ్ాాపార
సంసథ ఖాతాను డెబిట్ చేసా ారు. కావ్ున, పాస్ పుసా క్ం మరియు నగదు పుసా క్ంలో చెక్ుకల దాారా జరిగన
ి ఒక్
లావ్ాదేవీని రికారు్ చేయట్ం లో కొంత సమయ అంతరం ఉంట్ ంది. ఈ సమయ అంతరం లేదా చెక్ుకల
పాీససింగ్ సమయం కారణంగా ఒక్ నిరీీత తేదీన నగదు పుసా క్ం మరియు పాస్ బుక్ పీకారం బ్ాల ను్లు
ఒక్దానికొక్ట్ట భినాంగా ఉండవ్చ్ుు.
ఉదాహరణకి,మిసే ర్ రాజ్ జూన్ 25 ,2021 న రూ 1,20,000 చెక్ ను వ్ారి రుణదాతలక్ు జారీ చేసి ఉంట్ే ఆ
వ్ావ్హారమును నగదు పుసా క్ము నందు అదే తేదీన అనగా జూన్ 25 2021 న చెల్లంపు గా నమోదు
చేసా ారు కానీ అదేవ్ావ్హారమును బ్ంక్రు ఆ చెక్ుకపై చెల్లంపు చేసన
ి జూల ై 2 2021 న మాతీమే చెల్లంపుగా
పాసు పుసా క్ము లో నమోదు చేసా ారు.
కొనిాసారుల వ్సూల న
ై చెక్ుకలను పుసా క్ంలో రికార్్ చేసి బ్ాంక్ుక్ు పంపడం మరిుపో వ్డం వ్లన
మరియు చెక్ుకలను సిదధం చేసి పుసా కాలలో నమోదు చేసి జారీ చేయడం మరిుపో వ్డం వ్లన ఒక్ నిరిేష్ే
తేదీన కాాష బుక్ మరియు పాస్ బుక్ బ్ాల న్్ వ్ేరు వ్ేరుగా ఉండవ్చ్ుు.
3. సమాచయరాం అాందుట్ల్ో ఆల్సయాం:
సంసథ లక్ు వ్ారి బ్ాంక్ు ఖాతా దాారా జరిగినవ్ావ్హారాలను గురించిన సమాచారంఅందుట్లో ఆలసాం
కారణంగా ఒక్ నిరీీత తేదీన నగదు పుసా క్ము మరియు పాసు పుసా క్ము నిలాలలో బేధ్ము ఉండవ్చ్ుును.
ఉదాహరణకి, ఒక్ బ్ాంక్ర్ తమ క్సే మర్ యొక్క సాథయిీ ఉతా రుాల పీకారం జూన్ 2 2021 న రూ.3,000
చెల్లంపు చేసినపుడు వ్ంట్న్ే రూ .3,000 తమ క్సే మర్ ఖాతాక్ు డెబిట్ చేసా ారు కానీ, అదే
వ్ావ్హారముబ్ాంక్ సటేట్మెంట్/ పాసుబుక్ వ్చిున తరాాత మాతీమే నగదు పుసా క్ం లో క్సే మర్ యొక్క
కాాషియర్ నమోదు చేసా ారు. కావ్ున , ఆ మధ్ా సమయములో నగదు పుసా క్ము మరియు పాసు పుసా క్ము
పీకారం నిలాలలో బేధ్ము ఉంట్ ంది.
బ్యాంకు నిల్వల్ సమన్వయము యొకు అరధ ము ,నిరవచన్ము :
సమనాయము అనగా “భేదాలు లేదా తేడాల సరుేబ్ట్ ”. బ్ాంక్ నిలాల సమనాయం అనగా " పాస్ బుక్
మరియు కాాష బుక్ బ్ాల న్్ మధ్ా వ్ాతాాసానికి కారణాలను గురిాంచ్డం మరియు వ్ాట్టని సరుేబ్ట్
చేయడం దాారా కాాష బుక్ మరియు పాస్ బుక్ నిలాలను సమనాయము చేయడం".
బ్ాంక్ు నిలాల సమనాయ పట్టేక్ అనగా " నగదు పుసా క్ం మరియు పాస్ పుసా క్ం యొక్క నిలాల
మధ్ా గల బేధానికి గల కారణాలను సరుేబ్ట్ చేయుట్ దాారా నగదు పుసా క్ం మరియు పాస్
పుసా క్ముయొక్క నిలాలను సమనాయం చేయుట్క్ు మరియు బ్ాంక్ ఖాతాలోని ఖచిుతమన
ై నిలాను
తెలుసుకోవ్డానికి ఒక్ నిరిేష్ే తేదీన, సాధారణంగా న్ల చివ్రిలో తయారుచేయు ఒక్ నివ్ేదక్
ి ".

186
 For any payment made through bank, the banker is assumed to be the giver from
customer’s point of view and the customer is assumed as the receiver from banker’s point of view.
Hence, A transaction recorded on the debit side of the cash book will be recorded on the credit
side of the passbook/statement and a transaction recorded on the credit side of the cash book will
be recorded on the debit side of the passbook/statement.

For example,

If cash paid by Naveen, our customer, into our account Rs10,000 would be recorded on the
credit side of the passbook by the bankers, and the same transaction would be recorded on debit
side of the cash book bank column by the cashier.

If cash paid to Sateesh, our supplier, Rs18,000 through bank would be recorded on credit
side of the cash book bank column by the cashier, and the same transaction would be recorded on
the debit side of the passbook by the bankers.

So, the debits in cash book are credits in passbook and the credits in cash book are debits
in passbook

Favourable balance of cash book lies on debit side but the favourable balance in passbook
lies on credit side. Unfavourable balance of cash book lies on credit side but the unfavourable
balance in passbook lies on debit side

Since receipts are debited and payments are credited to cash book debit balance in cash
book refers to favourable balance and credit balance refers to unfavourable (Overdraft) balance.
Against to cash book, receipts are credited, and payments are debited to passbook, hence the
credit balance in passbook refers to favourable balance and debit balance in passbook refers to
unfavourable (Overdraft) balance.

Differences between Cash book and Passbook:

Reason for Difference Cash book Passbook/ Bank Statement

1.Prepared by Cashier of the firm (customer) Bankers

2. Prepared to keep record of transactions and to Inform customer about the

know the cash balance transactions and balance in their
account

3. What it contains Receipts and payments Deposits and withdrawals

4. How it records Receipts Receipts are debited Receipts (Deposits) are credited

5. How it records Payments Payments are credited payments(withdrawals)are debited

6. Favourable balance Reflects on Debit side Reflects on Credit side

7. Unfavourable balance Reflects on Credit side Reflects on Debit side

187
బ్యాంకు నిల్వల్ సమన్వయము యొకు ఆవ్శ్యకత :

 బ్ాంక్ు నిలాలసమనాయము దాారా నగదు పుసా కానిా తయారుచేయడంలో జరిగన

ి
లోపాలను,దో షాలను గమనించ్వ్చ్ుు. మరియు వ్ాట్టని సరుేబ్ట్ చేయుట్ దాారా నగదు
పుసా క్ బ్ాల న్్ ను సరిదద
ి ే వ్చ్ుును.బ్ాంక్రల దాారాజరిగన
ి దో షాలను క్ూడా గురిాంచి,
దిదే ుబ్ట్ల కోసం వ్ాట్టని వ్ారి దృషిేకి తీసుక్ుని వ్ళ్ళవ్చ్ుును.
 సమనాయము దాారా చెక్ుకల పో ీ ససింగ్ సమయం గురించి అవ్గాహన క్లుగుత ంది.
తదాారా భ్విష్ాత్ లో చెక్ుకల దాారా జరుగు చెల్లంపులు మరియు వ్సూళ్ళ సమయం
పై అంచ్న్ాను క్ల్గి ఉండవ్చ్ుు.
 సమనాయము దాారా వ్ాాపార సంసథ లు తమ బ్ాంక్ ఖాతాయొక్క ఖచిుతమన
ై బ్ాల న్్

తెలుసుకోగలవ్ు,తదాారా వ్ారు వ్ారి బ్ాంక్ు ఖాతానిలా పీకారం చెల్లంపులను పీణాళిక్

చేసుకోవ్చ్ుు.

 నగదు పుసా కానిా పాస్ పుసా క్ముతో పో లుడం దాారా, సమాచారంలేక్పో వ్డం వ్లల కాాషబుక్
లో ఇంతక్ు ముందు నమోదు చేయని అంశాలను గమనించి, వ్ాట్టని కాాషబుక్ లో నమోదు
చేయవ్చ్ుును.
 పాస్ బుక్తో నగదు పుసా కానిా పో ల్ు పరిశీల్ంచ్డం దాారా అక ంట్టంగ్ సిబబంది చేసన
ి
మోసం లేదా నగదు దురిానియోగాలను గురిాంచి అవ్సరమన
ై చ్రాలు తీసుకోవ్చ్ుు.
బ్ాంకింగ్ సిబబంది చేసిన మోసాలు మరియు నగదు దురిానియోగాలను క్ూడా
గురిాంచ్వ్చ్ుు.
బ్యాంకు నిల్వల్ సమన్వయ పో క్య
ి :

పాస్ బుక్ మరియు కాాష బుక్ నిలాల సమనాయ పీకిెయ లో రరండు దశలు ఉంట్్యి. నగదు పుసా క్ంలో
నమోదు చేసన
ి వ్ావ్హారములను మరియు పాస్ బుక్ / సటేట్మంట్లో నమోదు అయిన వ్ావ్హారములను
పో లుడం దాారా కాాష బుక్ మరియు పాస్ బుక్ నిలాల మధ్ా బేధానికి గల కారణాలను గురిాంచ్డం మొదట్ట
దశ. మొదట్ట దశలో గురిాంచిన వ్ాతాాసానికి గల కారణాలతో పాస్ బుక్ లేదా కాాష బుక్ నిలాల క్ు
అవ్సరమన
ై సరుేబ్ట్ల చేయడం దాారా రరండు బ్ాల న్్లను సమనాయం చేయుట్ రరండవ్ దశ.

క్ాయష్ బుకమరియుపాస్ బుక్ నిల్వల్ మధ్య వ్యత్యయసానిక్ి గల్ క్ారణయల్న్ు గురితాంచడాం:

నగదు పుసా క్ం మరియు పాస్ పుసా క్ం బ్ాల న్్ ల మధ్ా వ్ాతాాసానికిగల కారణాలను గురిాంచ్డం బ్ాంక్ు

నిలాల సమనాయమునక్ు ఆధారంగా ఉంట్ ంది.

188
 7.2.7 Practical Illustration 1: (Entries in Cashbook and Passbook)
Enter the following transactions in three column cash book and passbook of Rohit, and show the
balances as per cash book and passbook as on Feb28,2021.
Feb 1,2021: Opening balance of cash 1,00,000/-
Feb 1,2021: Rohit Opened a current account in SK bank with Rs.50,000/- (A/C
No.0214562787)
Feb 3,2021: Cash withdrawn from bank 20,000/-
Feb 4,2021: Cash deposited by Bhuvan into our account 35,000/-
Feb 7,2021: Insurance paid by banker as per our mandate 1,000/-
Feb10,2021: Paid Rs 5,000/- to Krishna by NEFT.
Feb15,2021: Cheque received from Surya for Rs.15,000/- deposited into bank,
the cheque was collected on Feb 19,2021.
Feb 21,2021: Dividend collected by our banker 1500/-
Feb 23,2021: Bank charges debited to Account 150/-
Feb 24,2021: Cheque issued to Deepak for Rs.10,000/-
the cheque was presented for payment on March 2,2021.
Feb 27,2021: Electricity bill paid through UPI 3,350.
Solution:

Dr. Three column cash book of Rohit Cr.

L
Disco L Disc
Date Particulars F Cash Bank Date Particulars Cash Bank
Unt F ount

Feb 1 2021 To Rohit capital A/c 100000 By Bank A/c 50000

Feb 1 2021 C
Feb 1 2021 To Cash A/c C 50000 Feb 3 2021 By Cash A/c C 20000
Feb 3 2021 To Bank A/c C 20000 Feb 7 2021 By Insurance A/c 1000
Feb 4 2021 To Bhuvan A/c 35000 by Krishna A/c 5000
Feb 10 2021
Feb15 2021 To Surya A/c 15000 Feb 23 2021 by Bank charges A/c 150
Feb21 2021 To Dividends A/c 1500 Feb 24 2021 by Deepak A/c 10000

Feb 27 2021 by Electricy charges A/c 3350

Feb 28 2021 By Balance c/d 70000 62000

- 120000 101500 - 120000 101500

70000 62000
Mar 1 2021 To Balance b/d

189
నగదు పుసా క్ంలో నమోదు చేసన
ి ఎంట్రల
ీ ను మరియుపాస్ బుక్ / సటేట్మంట్లోని ఎంట్రీలతో పో లుడం దాారా
కాాష బుక్మరియుపాస్ బుక్ నిలాల మధ్ా వ్ాతాాసానికి గల కారణాలను క్నుగొనవ్చ్ుు.
వ్ాతాాసానికి గల కారణాలను గురిాంచ్ు విధానం ఈ కింది విధ్ంగా ఉంట్ ంది:
 నగదు పుసా క్ం యొక్క డెబిట్ వ్ైపు ఉనా ఎంట్రీలను పాస్ బుక్ యొక్క కరెడిట్ వ్ైపు
ఎంట్రీలతో పో లువ్ల ను. నగదు పుసా క్ం యొక్క కరడ
ె ిట్ వ్ైపు ఎంట్రల
ీ ను పాస్ బుక్ యొక్క డెబిట్
వ్ైపు ఎంట్రీలతో పో లువ్ల ను. ఎంట్రల
ీ యొక్క వివ్రాలు మరియు మొతాాలను క్ూడా పో లువ్ల ను.
 రరండు పుసా కాలలో వ్ేరు వ్ేరు వ్ైపుల ఒకేవివ్రాలతో మరియు ఒకే మొతా ంతో నమోదు
చేయబడిన ఎంట్రీలను వ్దిల్వ్ేయాల్. ఈ సారూపా ఎంట్రల
ీ ు నగదు పుసా క్ం మరియు పాస్ పుసా క్ం
మధ్ా ఏ విధ్మన
ై వ్ాతాాసానిా క్ల్గించ్వ్ు కావ్ున వ్ాట్టని సమనాయం చేసటట్పుుడు ల క్కలోనికి
తీసుకోనవ్సరం లేదు.ఈ విధ్మైన ఎంట్రల
ీ క్ు ఒక్ గురుా పట్ే వ్ల ను.
 కొనిా ఎంట్రల
ీ ు కేవ్లం నగదు పుసా క్ంలో లేదా పాస్ పుసా క్ంలో మాతీమే క్నిపిసా ాయి. కొనిా
ఎంట్రీలు రరండు పుసా కాలలోనూ ఉన్ాా వ్ేరేారు మొతాాలతో ఉండవ్చ్ుు. కొనిా ఎంట్రల
ీ ు ఒకే
మొతా ంతో మరియు ఒకే వివ్రాలతో ఉన్ాా పొ రబ్ట్ గా రరండు పుసా కాలలో ఒకే వ్ప
ై ు నమోదయి
ఉండవ్చ్ుు. ఈ విధ్మైన ఎంట్రీలక్ు వ్ేరే రక్మైన గురుా పట్ే వ్ల ను. ఈ విధ్మైన ఎంట్రీలు నగదు
పుసా క్ం మరియు పాస్ పుసా క్ం బ్ాల న్్లలో వ్ాతాాసానిా క్ల్గిసా ాయి. బ్ాంక్ నిలాల సమనాయ
పట్టేక్ను తయారుచేసట్
ట పుుడు ఈ విధ్మన
ై ఎంట్రీలక్ు సరుేబ్ట్ చేయవ్లసి ఉంట్ ంది.
 వ్ాతాాసానిా క్ల్గించే అంశములను విశలలషించ్డం దాారా వ్ాతాాసానికి గల కారణానిా
తెలుసుకొని మరియు వ్ాట్టకి బ్ాంక్ సమనాయ పట్టేక్లో తగిన సరుేబ్ట్ చేయడానికి
వీలవ్ుత ంది.
క్ాయష్ బుకమరియుపాస్ బుక్ నిల్వల్ మధ్యవ్యత్యయసానిక్ి గల్ క్ారణయల్న్ు సరదుబ్ట్ల చేయడాం:
కాాష బుక్మరియుపాస్ బుక్ నిలాల మధ్ావ్ాతాాసానికి గల కారణాలను గురిాంచిన తరువ్ాత, వ్ాట్టకి
సరయిన సరుేబ్ట్ చేయాల్. కొనిా వ్ాతాాస కారణాల వ్లన పాస్ పుసా క్నిలా క్ంట్ే నగదు పుసా క్ నిలా
పరుగుత ంది మరియు కొనిా కారణాల వ్లన నగదు పుసా క్ నిలా క్ంట్ే పాస్ పుసా క్నిలా పరుగుత ంది.
సమనాయము ఏనిలాతో పాీరంభించామో ఆ నిలా పై వ్ాతాాస కారణము యొక్క పీభ్వ్మును బట్టే
సరుేబ్ట్ చేయవ్లసి ఉంట్ ంది.
ఉదాహరణక్ు , సమనాయమును నగదు పుసా క్ం అనుక్ూల నిలా తో పాీరంభిసటా నగదు పుసా క్ం అనుక్ూల

నిలాపై వ్ాతాాసానికి గల కారణాల పీభ్వ్ానిా విశలలషించి సరుేబ్ట్ల చేయాల్.

190
 STATEMENT OF ACCOUNT OF A/c : 0214562787 FOR THE PEROD OF 01-FEB-2019 TO 28-FEB-2019

Cheque id/ Withdrawal Balance

Date Transaction description reference s Deposits (Cr)
no (Dr) Dr/Cr Amount

1/2/2019 By Cash 50,000.00 Cr 50,000.00

3/2/2019 To Cash 20,000.00 Cr 30,000.00

4/2/2019 By Bhuvan (cash) 35,000.00 Cr 65,000.00

7/2/2019 To Insurance premium (cash) 1,000.00 Cr 64,000.00

10/2/2019 To Krishna (NEFT ) 5,000.00 Cr 59,000.00

19/2/2019 By Surya (Cheque) 1352 15,000.00 Cr 74,000.00

21/2/2019 By Dividends (cash) 1,500.00 Cr 75,500.00

23/2/2019 To Bank charges 150.00 Cr 75,350.00

27/2/2019 To Electricity Bill ( Cash) 3,350.00 Cr 72,000.00

29,500.00 101,500.00 Cr 72,000.00

In the above case balance as per cash book was Rs.62,000 and Balance as per passbook was Rs.
72,000.

7.3 Why the Balances of Passbook and Cashbook Differ?

Mr. Rama Krishna is an experienced accountant in Raj Traders. Mr. Jaswanth, son of proprietor,
is a student and he once visited the office of his father. He asked Mr. Rama Krishna about the
balance of cash in their current account with SG bank. After checking the bank column of their
cashbook Mr. Rama Krishna replied that they have Rs. 1,54,259 in their current account with SG
bank. Mr. Jaswant said ‘Ok’ and started doing his personal work on computer system. After some
time, he noticed that a bank statement was sent by SG bank through email. He opened the
statement and got surprised to see that the balance shown by the statement is Rs.1,89,147 which is
around 35,000 more than the balance as told by Mr. Rama Krishna. He then asked Mr. Rama
Krishna to check the cashbook carefully and tell him the balance. Mr. Rama Krishna rechecked
the cashbook and replied that the balance is Rs.1,54,259. Mr. Jaswanth felt very happy and told
Mr. Ramakrishna that we are luckily got an extra amount in our current account. Mr. Rama
Krishna smiled and replied that there is nothing like that would happen. Mr. Jaswanth shocked
this time and asked Mr. Rama Krishna curiously “how do you know that? and why the balance as
per bank statement is more than our cash book balance? “. Mr. Ramakrishna smiled again and
started explaining.Guess What Mr. Rama Krishna could say about the mismatch between cash
balance as per cash book and bank statement?

191
సమనాయమును పాస్ పుసా క్ం పీతిక్ూల నిలా తో పాీరంభిసటా , పాస్ పుసా క్ం పీతిక్ూల నిలాపై
వ్ాతాాసకారణాల పీభ్వ్ానిా విశలలషించి సరుేబ్ట్ల చేయాల్.
వ్ాతాాస కారణాలను ఈ కిెంది విధ్ంగా సరుేబ్ట్ చేయాల్:
1. వ్ాతాాసానికి గలఒక్ కారణం వ్లన పాస్ పుసా క్ అనుక్ూల నిలా క్ంట్ే నగదు పుసా క్ అనుక్ూల
నిలా పరిగిత,ే నగదు పుసా క్ం మరియు పాస్ పుసా క్బ్ాల న్్ లను సమనాయం చేయడానికి ఆ
వ్ాతాాస మొతాానిా నగదు పుసా క్ం అనుక్ూల బ్ాల న్్ నుండి తీసివ్య
ే ాల్ లేదా పాస్ పుసా క్
అనుక్ూల బ్ాల న్్ క్ు క్లపాల్. ఉదాహరణక్ు, మాధ్ురి నుండి వ్సూల ైన రూ. 4,56,000
చెక్ుకను వ్సూలు కొరక్ుబ్ాంక్ు క్ు పంపగాన్ే నగదు పుసా క్ం యొక్క డెబిట్ వ్ప
ై ు నమోదు చేసా ారు,
కానీ బ్ంక్రు ఆ చెక్ుకపై మొతా ము వ్సూల న
ై తరాాత మాతీమే క్సే మర్ యొక్క ఖాతాక్ు కరెడట్
ి
చేసా ారు. కావ్ున ఆ మధ్ా సమయములోపాస్ బుక్ బ్ాల న్్ తో పో ల్ునపుుడు కాాష బుక్ బ్ాల న్్
రూ.4,56,000 ఎక్ుకవ్గా లేదా నగదు పుసా క్ బ్ాల న్్ తో పో ల్ునపుుడు పాస్ బుక్ బ్ాల న్్ రూ
రూ.4,56,000 తక్ుకవ్గా ఉంట్ ంది.కావ్ున,చేయవ్లసిన సరుేబ్ట్ ఏమనగా,సమనాయమును
నగదు పుసా క్ బ్ాల న్్తో పాీరంభిసటా నగదు పుసా క్ నిలా నుండి రూ. 4,56,000 లనుతీసివ్ేయడం,
పాస్ పుసా క్ం నిలాతో పాీరంభిసటా ,పాస్ పుసా క్ నిలాక్ు రూ.4,65,000లను క్లపడం.
2. వ్ాతాాసానికి గల ఒక్ కారణం వ్లన కాాష బుక్ అనుక్ూల నిలా క్ంట్ే పాస్ బుక్ అనుక్ూల నిలా
ి ,ే నగదు పుసా క్ం మరియు పాస్ పుసా క్ం బ్ాల న్్లను సమనాయం చేయడానికి ఆ వ్ాతాాస
పరిగత
మొతాానిా పాసు పుసా క్ం అనుక్ూల బ్ాల న్్ నుండి తీసివ్ేయాల్ లేదా నగదు పుసా క్ అనుక్ూల
బ్ాల న్్ క్ు క్లపాల్ . ఉదాహరణక్ు, ఒక్ క్సే మర్ ఖాతాలో వ్ారి రుణగెహీత న్ేరుగా జమ చేసన
ి
నగదు రూ.41,000ను బ్ంక్రు క్సే మర్ ఖాతాక్ు వ్ంట్న్ే కరడ
ె ిట్ చేసా ారు. కానీ సంబంధిత ఎంట్రీ
నగదు పుసా క్ంలో పాస్ బుక్ లేదా సటేట్ మంట్రా సుక్ునా తరాాత మాతీమే నమోదవ్ుత ంది . ఆ మధ్ా
కాలంలో నగదు పుసా క్ంతో పో ల్ునపుుడు పాస్ బుక్ పీకారం బ్ాల న్్ రూ .41,000
ఎక్ుకవ్గా లేదా పాస్ బుక్ పీకారం నిలాతో పో ల్ునపుుడునగదు పుసా క్ం పీకారం బ్ాల న్్
రూ.41,000 తక్ుకవ్గా ఉంట్ ంది.కాబట్టే, చేయవ్లసిన సరుేబ్ట్ , నగదు పుసా క్ బ్ాల న్్తో
పాీరంభిసటా నగదు పుసా క్ నిలాక్ు రూ.41,000 క్లపడం లేదా పాస్ పుసా క్ం నిలాతో పాీరంభిసటా పాస్
బుక్ పీకారం బ్ాల న్్ నుండి రూ.41,000తీసివ్ేయడం.
3. వ్ాతాాసానికిగలఒక్కారణంవ్లనపాసుబక్్రతిక్ూలనిలాక్ంట్ే నగదు పుసా క్ం పీతిక్ూల నిలా పరిగత
ి ే
నగదు పుసా క్ం మరియు పాస్ బుక్ బ్ాల న్్లను సమనాయం చేయడానికి ఆవ్ాతాాస
మొతాానిానగదు పుసా క్ం పీతిక్ూల బ్ాల న్్ నుండి తీసివ్ేయాల్ లేదా పాస్ పుసా క్ పీతిక్ూల
బ్ాల న్్ క్ు క్లపాల్ .

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 The balances as per passbook or bank statement and bank column of cashbook on a
particular date should be equal fundamentally as both the books records the same transactions but
in practice the balances on a particular date differ due to some reasons.

7.3.1 Reasons for Difference Between Cash Book and Passbook:

The following are the reasons for difference between passbook and cashbook balances.

1. Errors:
Errors made by cashiers, accounting staff or bank staff while doing their work may lead to
disagreement between cash book and passbook balances.

Errors from Customer side:

Errors made by cashiers or accounting staff of a business house while recording the
transactions in bank column of the cashbook, totalling, balancing, and carrying forward the
balances of cashbook may lead to mismatch of cashbook and passbook balances on a particular
date. Forgetting to record the transaction or recording the transaction twice also causes the
difference. The scope of committing an error is comparatively low if a business adopts
computerized accounting. But still there is a chance of committing an error as the inputs to a
computer are given by humans. Error of Entering a wrong amount or forgetting to enter a
transaction or entering the same transaction twice or thrice can happen even in computerized
accounting.

For example,

If cash deposited into a bank Rs.1,00,000 entered in cash book as Rs.10,000 in this case
the balance as per cashbook would be Rs. 90,000 less than the balance as per passbook or
bank statement or the balance as per passbook would be Rs. 90,000 more than the
cashbook balance.

If Cash paid to our supplier through bank Rs. 45,496 /- was not recorded in cash book then
the balance shown by cashbook would be more than the balance shown by
passbook/account statement or the balance shown by passbook/statement would be less
than the balance as per cash book.

Errors from Banker side:

Errors made by the bank staff in executing the transactions of customers may cause
disagreement of passbook and cashbook balances on a particular date. Errors can happen due to
fatigue, work pressure, software glitches or network issues. Entering a wrong amount or debiting
the customer’s account for deposit or crediting for payment may lead to mismatch between
passbook and cash book balances.

193
ఉదాహరణక్ు, మే 25వ్ తేదీన గణేషక్ు చెల్లంచిన రూ 1,00,000పాస్ బుక్ డెబిట్ వ్ైపు రూ. 1,00,000 గాన్ే
నమోదు చేయబడినది. కానీ నగదు పుసా క్ం లో కరడ
ె ట్
ి వ్ైపు పొ రబ్ట్ న రూ .1,10,000 గా నమోదు
చేయబడింది. ఈ సందరాంలో,పాస్ బుక్ పీతిక్ూల బ్ాల న్్తో పో ల్ునపుుడు నగదు పుసా క్ం పీకారం
పీతిక్ూల బ్ాల న్్ రూ. 10,000 ఎక్ుకవ్గా లేదా నగదు పుసా క్ంపీతిక్ూల బ్ాల న్్తో పో ల్ునపుుడు, పాస్
బుక్ పీకారం పీతిక్ూల బ్ాల న్్ రూ. 10,000 తక్ుకవ్గా ఉంట్ ంది.కాబట్టే, చేయవ్లసిన సరుేబ్ట్ , నగదు
పుసా క్ పీతిక్ూల నిలాతో పాీరంభిసటా నగదు పుసా క్ పీతిక్ూల నిలా నుండిరూ.10,000 తీసివ్య
ే డం. పాస్
పుసా క్ం పీతిక్ూల నిలాతో పాీరంభిసటా పాస్ బుక్ పీకారం పీతిక్ూల బ్ాల న్్క్ు రూ.10,000 క్లపడం.

4. వ్ాతాాసానికి గల ఒక్ కారణం వ్లన కాాష బుక్ పీతిక్ూల నిలా క్ంట్ే పాస్ పుసా క్ం పీతిక్ూల నిలా
పరిగత
ి ే నగదు పుసా క్ం మరియు పాస్ బుక్ బ్ాల న్్లను సమనాయం చేయడానికి ఆ వ్ాతాాస
మొతాానిా పాసు పుసా క్ం పీతిక్ూల బ్ాల న్్ నుండి తీసివ్ేయాల్ లేదా నగదు పుసా క్ పీతిక్ూల
బ్ాల న్్ క్ు క్లపాల్ .
ఉదాహరణక్ు, బ్ాంక్ ఛారీీలు రూ.350 పాసు పుసా క్ములో సరిగాన్ే డెబిట్ చేయబడా్యి, కానీ
పొ రబ్ట్ న నగదు పుసా క్ములో క్ూడాడెబిట్ చేయబడా్యి. ఈ సందరాంలో పాస్ బుక్ పీతిక్ూల
బ్ాల న్్తో పో ల్ునపుుడు నగదు పుసా క్ం పీకారం పీతిక్ూల బ్ాల న్్ రూ. 700 తక్ుకవ్గా
లేదా నగదు పుసా క్ం పీతిక్ూల బ్ాల న్్తో పో ల్ునపుుడు పాస్ బుక్ పీకారం పీతిక్ూల బ్ాల న్్ రూ.
700 ఎక్ుకవ్గా ఉంట్ ంది.కావ్ున, చేయవ్లసిన సరుేబ్ట్ ఏమనగా

నగదు పుసా క్ పీతిక్ూలనిలాతో పాీరంభిసటా నగదు పుసా క్ పీతిక్ూల నిలాక్ు రూ. 700 క్లపడం
లేదా పాస్ పుసా క్ం పీతిక్ూల నిలాతో పాీరంభిసటా పాస్ బుక్ పీకారం బ్ాల న్్ నుండి
రూ.700తీసివ్ేయడం.

బ్యాంక్ నిల్వల్ సమన్వయ పట్టీ క తయారీ మరియు న్మూనయ:

నగదు పుసా క్ం మరియు పాస్ పుసా క్ం పీకారం బ్ాల న్్ ల మధ్ా వ్ాతాాసమునక్ు కారణములు

మరియు నగదు లేదా పాసు పుసా క్ బ్ాల న్్ పై వ్ాట్ట పీభ్మును బట్టే బ్ాంక్ నిలాల సమనాయ పట్టేక్లో

వ్ాట్టని సరుేబ్ట్ చేసి చ్ూపుతారు.

బ్ాంక్ నిలాల సమనాయ పట్టేక్ తయారీలో మొదట్గాసమనాయమును ఏ బ్ాల న్్ తో

పాీరంభించాలో నిరీ యించాలి. తదుపరి వ్ాతాాసానికి గల కారణాలను విశలలష్ణ చేస,ి పాీరంభ్ం లో తీసుక్ునా

నిలాపై ఆ కారణాల పీభ్వ్ానిా బట్టే సరుేబ్ట్ల చేయాల్.

194
 Omitting to enter a transaction or entering the transaction multiple times also impact the
balance as per bank statement/passbook.

For example,

If cash withdrawn by a customer Rs. 50,000 was credited to his account instead of debiting
to his account in this case the balance as per passbook/bank statement would be more than the
cash book balance. Or the balance as per cash book would be less than the passbook balance.

If a NEFT payment request made by a customer for Rs.66,200 was entered in the software
twice by a bank employee due to a network error, then the balance as per statement/ passbook
would be less than the balance as per cash book or balance as per cash book would be more than
the balance as per passbook.

2.Processing time of Cheques:

Usage of Cheques for payment is quite natural in business. Businessmen issue cheques to
their creditors for making payment and receive cheques from their customers. Cheques received
by us are recorded in our cash book/software and sent to bank for collection. Our Banker collects
the amount of cheques from our debtor’s bank and credit our account after collection. The process
of collection may take days to weeks’ time. In the same way cheques issued to our suppliers are
collected by their respective bankers from our bank account after some time. Our account is
debited by our banker after making the payment on cheques issued by us. But we record the
transaction in our cashbook/software on the date of issue of cheque. So, there exists a time gap
between entry of the same transaction in passbook and cash book and the gap is nothing but the
processing time of cheque. Because of this time gap or processing time of cheques the balances as
per cash book and passbook on a date differ from each other.

For example,

If a cheque issued to Mr. Raj, one of our creditors, for Rs 1,20,000 on June 27, 2021 was
recorded as payment in books on June 27, 2021, but the transaction would be recorded in our bank
account on July 2, 2021 only after the payment made by our banker. So, the balance as per cash
book would be lower compared to passbook/statement or the balance as per passbook would be
higher compared to cash book during the time June 27 to July 2, 2021.

If a cheque of Rs. 50,000 received by us from Mr. Shyam,our debtor, on March 27, 2021,
was recorded as receipt in books on March 27, 2021, but the transaction would be recorded by our
banker in our account on April 3, 2021 only after the cheque gets cleared and amount collected.
So, the balance as per passbook/statement would be lower compared to cash book or the balance
as per cash book would be higher compared to passbook/ statement during the time March 27,
2021 to April 3, 2021.

Sometimes cheques received from customers recorded in cash book / software but
forget to send to the bank and sometimes cheques prepared to issue to suppliers are recorded in
books/software but forget to send to them. In both the cases cash book and passbook/statement
balance disagrees with one another.
195
 వివ్రముల్ు మొతత ము మొతత ము

న్గదు పుసత కాం పోక్ారాం అన్ుకూల్ నిల్వ: (పాోరాంభ బాందువ్ు) *******

కూడుము:
పాసు పుసా క్ అనుక్ూల నిలా తో పో ల్సటా నగదు పుసా క్ అనుక్ూల నిలా ను తగిగంచే
******
అనిా వ్ాతాాస కారణములు. ******
******
వ్ాతాాస కారణము (మొదట్ట) ****** (+) *******
……………………………….
……………………………….
వ్ాతాాస కారణము (చివ్రి)

*******
తీయుము:
పాసు పుసా క్ అనుక్ూల నిలా తో పో ల్సటా నగదు పుసా క్అనుక్ూల నిలా ను పంచే
అనిా వ్ాతాాస కారణములు. ******
*******
వ్ాతాాస కారణము (మొదట్ట)
*******
……………………………… ******* (-) ******
………………………………
వ్ాతాాస కారణము (చివ్రి)

పాసు పుసత కము పోక్ారము నిల్వ *********

.............యొకు …………….నయట్ట బ్యాంకు నిల్వల్ సమన్వయ పట్టీ

పైనఇచిున నమూన్ా లో సమనాయ పట్రేనగదు పుసా క్ము పీకారం అనుక్ూల నిలాతో

పాీరంభించ్డమయినది. అదే విధ్ముగా నగదు పుసా క్ము పీకారము పీతిక్ూల నిలా , పాసు పుసా క్ము
పీకారము అనుక్ూల నిలా, పాసు పుసా క్ము పీకారము పీతిక్ూల నిలాలను క్ూడా పాీరంభ్ బిందువ్ుగా
తీసుకొని సమనాయ పట్టేక్ను తయారు చేయవ్చ్ుును. ఏ నిలాను పాీరంభ్ముగా తీసుక్ున్ాామో ఆ
నిలాపై వ్ాతాాస కారణ పీభ్వ్మును బట్టే సరు
ు బాటు (క్ూడుట్ లేక్ తీసివ్ేయుట్) చేయవ్ల ను.

196
For Example:

If a cheque received from Veerendra for Rs. 12,000 was entered in cashbook/ software but
omitted to send to bank for collection, in this case balance as per cashbook would be higher by Rs.
12,000 when compared to balance as per passbook since the receipt entry was made in cashbook
only.

A Cheque for Rs. 5,000 was prepared to issue to Madhu and entered in cash book / software but
omitted to send to Madhu. In this case cashbook would show a balance less than pass book by Rs.
5,000 since the payment was recorded in cash book only.

3.Time lag in Getting information from bank:

Cashiers record the transactions in cash book with all available information pertaining to
receipts and payments made through bank account. Earlier the information regarding payments
made by the banker on behalf of their customers, amounts directly paid into accounts of
customers, bills collected by banker, cheques dishonoured, bills dishonoured, interest and
dividends on investments credited to account and bank charges debited to account used to come to
the cashier only after the receipt of bank statement or getting the passbook printed. But bank
Statement or passbook entries were received weekly or fortnightly or monthly. Because of the lag
of information, there used to be a mismatch between cashbook and passbook balances unless and
until the bank statement received or passbook entries printed.

For Example:

If a banker paid Rs 30,000 towards loan repayment on June 2, 2021, as per the standing
instructions by their customer and debited the customer account with Rs.30,000 on the same day
but the same transaction would be recorded in cashbook by the cashiers of customer on June 9,
2021, when the bank statement was received. So, the balance as per passbook/statement would be
lower compared to cash book or during the time of June 2, 2021 to June 9, 2021.

If a banker Credited a customer’s account with Rs 1,750 as interest on September 30,

2020, but the same transaction was recorded in cashbook by cashier of customer on October 04,
2020, when the bank statement was received. So, the balance as per passbook/statement would be
higher compared to cash book during the time September 30, 2020, to October 04, 2020.

If a cheque for Rs 60,000 was deposited into bank for collection on July 8,2021 and
recorded in cash book immediately. The cheque gets dishonoured, and the information was passed
to the customer on July 15, 2021, through bank statement. No entry was made by the banker as the
cheque was not cleared. The entry for dishonour was made in the cash book only on July 15,
2021. So, the balance as per passbook/statement would be lower compared to cash book during
the time of July 8, 2021 to July 15, 2021.

The technology and innovation in banking sector changed the picture. Now a days there is not so
much delay in information because the business entities can get their account statement at any
time through internet banking or mobile banking or by requesting the banker to provide the
statement and can record the transactions in cashbook/software up to date.
197
Customers can come to know about the transactions in their accounts in real time by the messages
or mail alerts sent by their banks.

However, some of the small business firms which are still not migrated to internet or mobile
banking are relying on periodical bank statements and passbook entries to record the transactions
in their cashbook. So, the delay in information relating to the transactions in their current account
is still present in the case of those firms and it causes disagreement of passbook and cash book
balances.

7.4 What an Accountant has to do with the differences and why?

An accountant must carefully identify the reasons for disagreement of passbook and cash
book balances at a particular time by comparing the entries in account statement/passbook with
the entries in cash book. Then he must reconcile the passbook/statement and cash book with the
identified differences. For that he needs to prepare a statement called Bank Reconciliation
Statement.

7.4.1 Meaning of Bank Reconciliation and Bank Reconciliation Statement:

The Dictionary meanings of Reconciliation are “an action of making of one view or belief
compatible with another” and “Adjustment of disagreements or differences”.

In our context the word ‘Reconciliation’ is used for harmonization of cash book and
passbook.

“Bank Reconciliation means identifying the reasons for difference between balance as per
cashbook and balance as per passbook and adjusting them to make cash book and
passbook compatible with one another”.

198
 “Bank Reconciliation Statement is a statement prepared by accountants of business firms
periodically, usually on the end date of the month to reconcile the balances of cash book and
passbook with identified reasons of disagreement and to know the exact balance in bank account”.

7.4.2 Features of Bank Reconciliation statement:

1. It is a statement but not an account.

2. It is prepared by Customer only but not by banker.
3. It is prepared on a particular date usually at the end of the month.
4. The objective of the statement is to reconcile the balances as per cash book and pass
book.
5. It shows the balances as per cash book, pass book and adjustments of differences
between pass book and cash book balances.
7.5 Why Reconciliation?

Assume that you are studying B. Com First year by staying in a hostel in Vijayawada.
Your parents live in a village which is 35 K.M away from Vijayawada. Your father sends money
to you to meet your educational expenses. You record your expenses and the amount received
from your father in a book. Your father also keeps the record of the amount send by him. At the
end of every month, you and your father discuss on whatever expenses that are paid during the
month. As usual, on July 31, 2021, when both of you were discussing on, your father told you that
he had sent Rs 6,000 to you during the month of July. You said that ‘no dad you have sent only
Rs. 5,600 during the past month’. You have shown the book of account maintained by you to your
dad as an evidence. Then he also has shown the diary where he recorded all the amounts sent by
him. His diary shows that he has sent Rs 6,000. But your book shows amount received from your
father as Rs. 5,600.

What will you do next with the difference in two books?

Reconciliation helps in knowing the difference between passbook and cash book balances
and the reasons for difference. Knowing the reasons for difference helps in taking necessary
corrective actions whenever possible and/or taking preventive measures.

7.5.1 Need for Reconciliation

The need for Reconciliation is explained as under

i. By reconciliation the one can notice the errors that took place in preparation of
cash book and rectify the errors by making rectification entries to correct the cash
book balance. Errors made by bankers can also be identified and brought to their
notice for corrections.
For Example, a wrong debit can be corrected by crediting it, and vice versa.
Omitted transactions can be entered; errors in totalling and carry forwarding can be
rectified.

199
 Error of Debiting the same amount twice or Error of wrongly debiting the account
fora transaction instead of crediting made by the bankers can be identified and
brought to the notice of bankers for correction.

ii. By reconciliation, one can have a better understanding about the processing time of
cheques, so that he can prudently plan his future payments and receipts through
cheques accordingly. Moreover, he can identify unrealized cheques and make
follow up.
For example, if the average clearance time of cheque is 5 days, he may get the
cheques from his debtors and issue cheques to his creditors in advance by keeping
in mind the 5 days processing time. And he can plan his next one to two weeks
payments according to his estimated future funds position.

iii. By preparing the Bank Reconciliation Statement, business houses can know the
exact balance in their current account on a particular date. so that they can plan
their payments according to the bank balance. It reduces the chance of dishonour of
cheques and bills and in turn loss of credibility.

For example, if the balance as per cash book is Rs. 4,50,123 but the balance as per
the bank statement is Rs. 3,06,665, the businessman can issue cheques or make
payment up to Rs. 3,06,665 only but not Rs. 4,50,123. If he issues a cheque for Rs
4,00,000 by keeping in mind the balance as per cash book it will lead to serious
problems.

iv. By comparing the cash book with passbook, Business firms can update their
cashbook with the receipts and payments not recorded earlier due to lack of
information.

For example, Amount of Rs 10,000 directly deposited into our account by a

customer, bank charges of Rs 1,368 debited to our account by the baker could be
known and entered in cash book.

v. By Careful examination of Cash book with passbook any fraud or misappropriation

of cash done by the cashier or accounting staff can be identified and necessary
action can be taken. Frauds and mal practices by banking staff can also be
identified with Reconciliation.

For example, cash of the firm Rs. 5000 used by a cashier for his personal
use by recording in book as cash deposited into bank or Cash Rs 10,000 withdrawn
from bank for his personal use will come to limelight by Reconciliation.

Amount taken by banker’s staff by debiting our account or crediting

unauthorized money toour account can be avoided through periodical examination
of cash book with passbook/statement.

200
7.6 How to Reconcile the Passbook and Cashbook Balances?

Reconciliation of balance as per passbook/account statement and cash book balance is a

two steps process.

First step is identifying the reasons for disagreement by comparing the transactions entered in
cash book and passbook/statement. Second step is reconciliating the two balances by making
necessary adjustments with the reasons for difference found in first step.

201
7.6.1 Identifying the Reasons for Difference:

Identifying the reasons for difference between cash book and passbook balances is the
base for reconciliation. We can find the reasons for difference by comparing the transactions
entered in cash book and passbook/statement.

The procedure of identifying the reasons for differences is as under:

1.Get the cash book and passbook/ statement for the same period for which we have to do
reconciliation.
For example, if you are doing reconciliation for the month of May on May 31st, get the bank
statement / passbook containing the transactions from 1 May to 31 May and get the cash book for
the same period.

2. Compare the entries on the debit side of the cash book with the entries on the credit side of the
passbook. Then compare the entries on the credit side of the cash book with the entries on the
debit side of the passbook. Comparison should be made with particulars of transaction and
amounts of transaction. Sometimes, an entry may be found on a different date.
For example, an entry of Rs 1,80,000 on May 5 visible on Debit side of the Cash book should be
compared with entries visible on May 5 on credit side of passbook /statement.

An entry of Rs 41,228 on May 21 visible on credit side of the cash book should be compared with
theentries visible on debit side of the passbook/ statement on May21 or on a different date(if it is
not found on May 21)by searching with the particulars or amount.

3.Most of the entries may be found in both the books with same particulars and same amounts. Put
a mark on these identical entries found in both the books. Since these entries were recorded in
both the books on different sides with identical particulars and identical amount, they did not
cause difference of cash book and passbook. Leave these identical entries. We have nothing to do
with these entries further.
For example, an entry of Rs 80,000 visible on Credit side of Cash book on May 5 may be found as
same on debit side of passbook /statement on May 5.An entry of Rs 900 visible on debit side of
the cash book on May 21 may be found as same on credit side of the passbook/ statement on May
24.

4.Some entries may be found only in either of the books i.e., in cash book only or in passbook
only. Some entries with same particulars but different amounts may also be found. Some entries
may be found with same amount and same transaction description but also on the same side. Put a
different mark on these entries. These entries cause the difference in cash book and passbook
balances. These entries need adjustment while preparing Bank Reconciliation Statement.
For example, an entry of Rs. 4,56,000 found on Debit side of the cash book on May 18 maynot be
found in passbook. An entry of Rs. 41,000 found on credit side of the passbook on May 29 may
not be found in cash book. An entry of Rs. 350 may be found on debit side of the cash book and

202
debit side of the passbook on May 1. An entry with Rs.1,10,000 may be found on cash book credit
side but an entry with same particulars with Rs.1,00,000 (instead of Rs.1,10,000)may be found on
passbook debit side on May 25.

5.Analyse the differences. Analysing the difference will be helpful in knowing the reason for
difference and to make appropriate adjustment in Bank Reconciliation Statement.
For example, If an entry on May 18 of Rs. 4,56,000 found on Debit side of cash book but not
found in passbook.

By analysis, we can know that, on May 18, a Cheque was received from Madhuri for Rs. 4,56,000
recorded on Debit side of the cash book only but no corresponding entry was recorded in
passbook as the cheque was not paid yet. So, the identified reason for difference is processing
time of the cheque.

If an entry on May 29 of Rs. 41,000 found on credit side of the passbook only but not found on
cash book.
By analysis, we can know that Cash deposited by prasad on May 29 in our account Rs. 41,000
recorded on credit side of the passbook only but no corresponding entry was made in cash book as
our cashier had no information about that receipt. So, the identified reason for difference is time
lag in information.

If an entry on May 1 for Rs. 350 found on debit side of the cash book and debit side of the
passbook.
By analysis, we can know that bank charges amounted to Rs 350 debited to passbook correctly but
wrongly debited to cash book.So, the identified reason for difference is error in recording the
transaction in cash book.

An entry with Rs.1,10,000 on May 25 was found on cash book credit side but an entry with
Rs.1,00,000 instead of Rs.1,10,000 was found on passbook debit side.
By analysis, we can know that Payment of Rs 1,00,000 made to Ganesh on May 25 was recorded
in cash book credit side wrongly as Rs.1,10,000 and the same was recorded correctly in passbook
debit side as Rs. 1,00,000.So, the identified reason for difference is error in recording the
transaction in cash book.

The following table helps students in identifying the reasons for differences between passbook
and cash book balances on a particular date.

203
 Identifying the Differences between Cash book and Passbook balances:

Action
S.no Entry in Cashbook Entry in Passbook With Amount
needed
Transaction appears on Debit side Transaction appears on Credit side With same
1 Ignore
of the cashbook and of the passbook Amount
Transaction appears on credit side Transaction appears on Debit side of With same
2 Ignore
of the cashbook and the passbook amount
Transaction appears on Debit side Transaction appears on Credit side With different
3 Consider
of the cashbook and of the passbook amount

Transaction appears on credit side Transaction appears on Debit side of With different
4 Consider
of the cashbook and the passbook amount

Transaction appears on Debit side Transaction does not appear on

5 Consider
of the cashbook and credit side of passbook
Transaction appears on credit side Transaction does not appear on debit
6 Consider
of the cashbook and side of passbook

Transaction does not appear on Transaction appears on Credit side

7 Consider
debit side of the Cash book of the passbook

Transaction does not appear on Transaction appears on Debit side of

8 Consider
credit side of the Cash book the passbook

Transaction appears on Debit side Transaction appears on Debit side of With same
9 Consider
of the cashbook and the passbook amount
Transaction appears on credit side Transaction appears on Credit side With same
10 Consider
of the cashbook and of the passbook amount

Transaction appears on Debit side Transaction appears on Debit side of With different
11 Consider
of the cashbook and the passbook amount

Transaction appears on credit side Transaction appears on Credit side With different
12 Consider
of the cashbook and of the passbook amount

Practical Illustration 2: (Identification of reasons for difference between Cash Book and
Passbook balances).

Following are the extracts of Cash Book and Passbook of Amit. You are Required to Identify the
reasons for difference between Cash Book and Passbook balances.
204
Dr. Cash Book (Bank Column) Cr.
Bank Bank
Date Particulars Column Date Particulars column
Amount Amount
01/06/2020 To Balance B/d 2,21,000 02/06/2020 By Rajesh A/C (cheque) 1,20,000
04/06/2020 To Santhosh A/c (cheque) 1,50,000 08/06/2020 By Vinod A/C (NEFT) 50,000
08/06/2020 To Mohan A/c (UPI) 23,000 10/06/2020 By Insurance A/c (Transfer) 2,000
13/06/2020 To Mahesh A/c (Cheque) 75,000 12/06/2020 By Sameer A/c (cheque) 37,000
15/06/2020 To Interest A/c (Transfer) 3000 20/06/2020 By Sasikala A/c (NEFT) 5,000
21/06/2020 To Cash A/c (Deposit) 18,000 29/06/2020 By Advertisement (UPI) 3,000

30/06/2020 By Balance c/d 2,73,000

4,90,000 4,90,000
1/7/2020 To Balance b/d 2,73,000

PASSBOOK

Cheque Closing balance

Withdrawals Deposits
Date Transaction description no/ (Dr) (Cr)
refence id Dr/Cr amount
1/6/2020 By Balance B/d 221,000.00 Cr 221,000.00
8/6/2020 To Vinod (NEFT) 50,000.00 Cr 171,000.00
8/6/2020 By Mohan (UPI) 23,000.00 Cr 194,000.00
10/6/2020 To Insurance premium(Transfer) 2,000.00 Cr 192,000.00
15/6/2020 By Interest Receipt 3,000.00 Cr 195,000.00
20/6/2020 To Sasikala (NEFT) 5,000.00 Cr 190,000.00
21/6/2020 By Cash (Deposit) 8,000.00 Cr 198,000.00
23/6/2020 By Madhav (Cash deposit) 11,000.00 Cr 209,000.00
29/6/2020 To Advertisement (UPI) 3,000.00 Cr 206,000.00
30/6/2020 By Dividends Receipt 4,000.00 Cr 210,000.00
30/6/2020 To Bank charges 1,000.00 Cr 209,000.00

61,000.00 270,000.00 Cr 209,000.00

Solution:
Reasons for difference between Cash book and Passbook:
By Comparing the cash book and passbook it is found that the balance as per cash book is
Rs 2,73,000 and the balance as per passbook is Rs. 2,09,000 on June 30, 2020. There is a
difference of Rs 64,000 between the balances shown by cash book bank column and passbook.

205
 The reasons for difference found are given below:
1. On 02/06/2020 Rs 1,20,000 credited to cash book for cheque issued to Rajesh, but it was
not visible in passbook as the cheque might not have been presented for payment before
June 30,2020.So, the reason for difference is processing time of cheque and the difference
amount is Rs 1,20,000.
2. A cheque received from Santosh for Rs 1,50,000 On 04/06/2020 was deposited into Bank
and it was recorded on the receipts side of cash book bank column on the same day. But
corresponding entry was not found on debit side of the passbook as the cheque might not
have been cleared before June 30,2020. So, the reason for difference is processing time of
cheque and the difference amount is Rs 1,50,000.
3. A cheque received from Mahesh for Rs 75,000 On 13/06/2020 was deposited into Bank
and it was recorded on the receipts side of cash book bank column on the same day. But
corresponding entry was not found on debit side of the passbook as the cheque might not
have been cleared before June 30,2020. So, the reason for difference is processing time of
cheque and the difference amount is Rs 75,000.
4. On 12/06/2020 Rs 37,000 credited to cash book for cheque issued to Sameer, but it was
not visible in passbook as the cheque might not have been presented for payment before
June 30,2020.So, the reason for difference is processing time of cheque and the difference
amount is Rs 37,000.
5. On 21/06/2020 cash deposited into bank Rs. 8,000 was wrongly recorded in cashbook as
Rs.18,000.So, the reason for difference is error in cash book entry. The amount of
difference is Rs 10,000 (18,000-8,000).
6. On 23/06/2020 cash deposited by Madhav into the account Rs 11,000 was recorded by
banker on deposits side but the same was not recorded in cashback due to lack of
information.So, the reason for difference is lag in information and the amount of
difference is Rs. 11,000.

7. On 30/06/2020 amount of Rs 4,000 collected by banker as dividends was recorded on

credit side of the passbook but it was not recorded on debit side of the cash book due to
lack of Information. So, the reason for difference is lag in information and the amount of
difference is Rs.4,000.

206
 8. On 30/06/2020 an amount of Rs.1,000 was debited to passbook as bank charges and there
was no corresponding entry on credit side of the cashbook.So, the reason for difference is
lag in information and the amount of difference is Rs.1,000.
Summary of the reasons for difference:

1. Cheque issued to Rajesh but not yet presented for payment Rs.1,20,000.
2. Cheque received from Santosh deposited into bank but not yet collected Rs.1,50,000.
3. Cheque received from Mahesh deposited into bank but not yet collected Rs.75,000.
4. Cheque issued to Sameer but not yet presented for payment Rs.37,000.
5. Error of excess debit by Rs.10,000 in cash book.
6. Amount directly deposited into bank account by madhavRs.11,000.
7. Dividends collected and credited to account by bank Rs. 4,000.
8. Charges debited to account by bank. Rs. 1,000.

Total of cheques issued but not presented for payment: Rs. 1,57,000.

(Rajesh Rs.1,20,000 + Sameer Rs.37,000)

Total of cheques deposited but not collected: Rs.2,25,000.

(Santosh Rs. 1,50,000 + Mahesh Rs. 75,000)

7.6.2 Adjusting the Reasons for Difference:

After identification of the reasons for difference, the identified reasons should be adjusted
properly. The reason for difference should be analysed further to know its impact on the balance
of the books. Some of the reasons may increase the balance as per cash book than passbook and
some of them may increase the balance as per passbook than cash book. The reasons for
difference have to be adjusted by adding or deducting the difference amount to/from cash book or
passbook balance.

It should be noted that adjustmentscan be made to either balance as per cash book or balance as
per passbook.

For example,

 If we take ‘cash book favourable balance’ as the starting point, then adjustments
have to be made to cash book favourable balance by analysing the impact of
reasons for difference on cash book favourable balance.
 If we take ‘passbook unfavourable balance’ as the starting point, then adjustments
havebe made to passbook unfavourable balance by analysing the impact of reasons
for difference on passbook unfavourable balance.
Since the cash book and passbook are prepared with the same transactions, we can arrive
at the balance of the book other than we have started with. We can arrive at the balance of

207
passbook if we take cash book balance as starting point and once all the reasons are adjusted to it.
We can arrive at cash book balance If we take passbook balance as the starting point and once all
the reasons are adjusted to it.

The reasons for difference have to be adjusted as follows:

If a reason for difference increases the favourable cash book balance than the favourable
passbook balance, the amount of difference should be deducted from cash book favourable
balance, or it should be added to passbook favourable balance to harmonize cash book and
passbook balances.

For example, a Cheque was received from Madhuri for Rs. 4,56,000 was recorded on Debit side
of the cash book only but no corresponding entry was recorded in passbook as the cheque was not
Collected yet. In this case the balance of cash book would be higher by Rs. 4,56,000 when
compared to passbook or the balance of passbook would be lower by Rs. 4,56,000 when
compared to cash book.

So, the adjustment to be made is

Deduct the difference amount Rs. 4,56,000 from the Balance as per Cash book if Cash book
balance is taken as the starting point (Or) Add the difference amount Rs. 4,65,000 to Balance as
per passbook if Passbook balance is taken as the starting point.

If a reason of difference decreases the favourable cash book balance than the favourable
passbook balance, the amount of difference should be added to favourable cash book balance, or it
should be deducted from favourable passbook balance to harmonize cash book and passbook
balances.

For example, Cash deposited by prasad on May 29 in our account Rs. 41,000 was recorded on
credit side of the passbook only but no corresponding entry was made in cash book as our cashier
had no information about that receipt. In this case the balance as per cash book would be lower by
Rs. 41,000 when compared to passbook or the balance as per passbook would be higher by
Rs.41,000 when compared to cash book.

So, the adjustment to be made is

Add the difference amount Rs. 41,000 to the Balance as per Cash book if Cash book balance is
taken as the starting point (Or) Deduct the difference amount Rs. 41,000 to Balance as per
passbook if Passbook balance is taken as the starting point.

If a reason of difference increases the unfavourable cash book balance than the
unfavourable passbook balance, the amount of difference should be deducted from cash book
unfavourable balance, or it should be added to passbook unfavourable balance to harmonize cash
book and passbook balances.

208
For example, if a Payment of Rs 1,00,000 to Ganesh on May 25, is recorded in cash book credit
side wrongly as Rs.1,10,000 and the same is recorded correctly in passbook debit side as Rs.
1,00,000. In this case the unfavourable balance as per cash book will be higher by Rs. 10,000
when compared to passbook unfavourable balance Or Unfavourable balance as per passbook will
be lower by Rs. 10,000 when compared to Cash book unfavourable balance.

So, the adjustment to be made is

Deduct the difference amount of Rs. 10,000 from the Unfavourable Balance as per Cash book if
Cash book unfavourable balance is taken as the starting point (Or) Add the difference amount of
Rs.10,000 to the Balance as per passbook if Passbook unfavourable balance is taken as the starting
point.

If a reason of difference decreases the unfavourable cash book balance than the
unfavourable passbook balance, the amount of difference should be added to cash book
unfavourable balance, or it should be deducted from passbook unfavourable balance to harmonize
cash book and passbook balances.

For example, If Bank charges of Rs 350 are debited to passbook correctly but wrongly debited to
cash book. In this case the unfavourable balance as per cash book will be lowerthan the passbook
unfavourable balance by Rs. 700 Or Unfavourable balance as per passbook will be higher than
unfavourable balance in cash book by Rs. 700.

So, the adjustment to be made is

Add the difference amount Rs. 700 to the Unfavourable Balance as per Cash book if Cash book
unfavourable balance is taken as the starting point (Or) Deduct the difference amount Rs. 700
from un favourable balance as per passbook if Passbook un favourable balance is taken as the
starting point.

The adjustments made to the cash book or passbook balance are shown in Bank Reconciliation
statement.

7.6.2.1. Summary of adjustments:

209
 The adjustments are summarized as under:

Adjustment to be Adjustment to be
Adjustment to be Adjustment to be
made to cash made to
Impact of Reason\ made to cash made to passbook
book passbook
Adjustment book favourable unfavourable
unfavourable favourable
balance balance
balance balance
Cash book favourable
balance will be more than
passbook favourable
balance
(Or)
Passbook favourable Deduct Add
balance will be less than
cash book favourable
balance
Cash book favourable
balance will be less than
passbook favourable
balance
(Or)
Passbook favourable
balance will be more than
Add Deduct
cash book favourable
balance

Cash book unfavourable

balance will be more than
passbook unfavourable
balance
(Or)
Passbook unfavourable
Deduct Add
balance will be less than
Cash book unfavourable
balance
Cash book unfavourable
balance will be less than
Passbook unfavourable
balance
(Or)
Passbook unfavourable
balance will be more than
Cash book unfavourable Add Deduct
balance

210
7.6.3 Preparation of Bank Reconciliation Statement:

Bank Reconciliation statement is a statement prepared to reconcile Cash book and

Passbook balances by adjusting the reasons of difference. Preparation of Bank Reconciliation
statement is the core of Reconciliation. Bank Reconciliation statement presents the entire work of
reconciliation. The first step in preparation of Bank Reconciliation statement is to decide with
which balance we have to start or choosing the starting point. Then the reasons for difference
areadjusted to the balance taken as starting point by analysing their impact on balance taken as the
starting point. We should follow a format for reconciliation.

The Formats of Bank Reconciliation statement with various starting points are given below:

7.6.3.1: Favourable Balance as per cash book as Starting point

Amount Amount
Particulars
(Rs) (Rs.)

Favourable Balance as per cash book: (Starting point) *******

Add:
All reasons for difference that cause decrease in balance as per cash
book when compared to passbook.

Reason for difference (First) ******

………………………………. ******
………………………………. ******
Reason for difference (Last) ******
(+) *******
********

Deduct:
All reasons for difference that cause increase in balance as per cash
book when compared to passbook.

Reason for difference (First) *******

……………………………… *******
……………………………… *******
Reason for difference (Last) ******* (-) ******

Balance as per Passbook ********

211
7.6.3.2: Favourable Balance as per passbook as Starting point

Amount Amount
Particulars
(Rs) (Rs.)

Favourable Balance as per passbook: (Starting point) *******

Add:
All reasons for difference that cause decrease in balance as per
passbook when compared to cash book.

Reason for difference (First) ******

………………………………. ******
………………………………. ******
Reason for difference (Last) ****** (+) *******

********

Deduct:
All reasons for difference that cause increase in favourable
balance as per passbook when compared to cash book.

Reason for difference (First)

……………………………… *******
……………………………… *******
Reason for difference (Last) *******
******* (-) ******

Balance as per Cash book *********

7.6.3.3: Un favourable Balance as per cash book as Starting point

Amount Amount
Particulars
(Rs) (Rs.)

Un favourable Balance as per Cash book: (Starting point) *******

Add:
All reasons for difference that cause decrease in unfavourable
balance as per cash book when compared to passbook.

Reason for difference (First)

………………………………. ******
………………………………. ******
Reason for difference (Last) ******
****** (+) *******

212
 ********

Deduct:
All reasons for difference that cause increase in unfavourable
balance as per cash book when compared to passbook.
*******
Reason for difference (First) *******
……………………………… *******
……………………………… *******
Reason for difference (Last) (-) ******

Balance as per Cash book *********

7.6.3.4: Unfavourable Balance as per passbook as Starting point

Amount Amount
Particulars
(Rs) (Rs.)
Un favourable Balance as per passbook: (Starting point) *******

Add:
All reasons for difference that cause decrease in unfavourable
balance as per passbook when compared to cash book.

Reason for difference (First)

………………………………. ******
………………………………. ******
Reason for difference (Last) ******
****** (+) *******

********
Deduct:
All reasons for difference that cause increase in
unfavourable balance as per passbook when compared to cash
book.

Reason for difference (First)

……………………………… *******
……………………………… *******
Reason for difference (Last) *******
******* (-) ******
Balance as per Cash book *********

Practical Illustration 3: (Preparation of Bank Reconciliation statement by adjusting the

reasons for difference) .

213
Let us see how to prepare a bank reconciliation statement by analysing the reasons for difference
identified In Practical Illustration 2.

In this case favourable balance shown by cash book was Rs.2,73,000 and favourable balance
shown by passbook was Rs. 2,09,000. One should prepare Bank Reconciliation Statement by
taking either of the two balance as starting point. We will prepare the statement by taking balance
as per cash book as starting point.

Reasons for difference identified in Practical Illustration 2 are:

1. Cheque issued to Rajesh but not yet presented for payment Rs.1,20,000.
2. Cheque received from Santosh deposited into bank but not yet collected Rs.1,50,000.
3. Cheque received from Mahesh deposited into bank but not yet collected Rs.75,000.
4. Cheque issued to Sameer but not yet presented for payment Rs.37,000.
5. Error of excess debit by Rs.10,000 in cash book.
6. Amount directly deposited into bank account by madhav Rs.11,000.
7. Dividends collected and credited to account by bank Rs. 4,000.
8. Charges debited to account by bank. Rs. 1,000.

Total of cheques issued but not presented for payment: Rs. 1,57,000

(Rajesh Rs.1,20,000 + Sameer Rs.37,000)

Total of cheques deposited but not collected: Rs.2,25,000

(Santosh Rs. 1,50,000 + Mahesh Rs. 75,000)

Since we have taken balance as per cash book as starting point, we should adjust every reason for
difference by considering its impact on balance as per cashbook.

1. Cheques amounting to Rs. 1,57,000 were issued but not presented for payment would
decrease the balance as per cash book when compared to passbook. So, we have to add
Rs. 1,57,000 to balance as per cash book.
2. Cheques amounting to Rs. 2,25,000 were deposited into bank but not collected would
increase the balance as per cash book when compared to passbook. So, we should deduct
Rs. 2,25,000 from balance as per cashbook.
3. Error of excess debit by Rs. 10,000 in cashbook would increase the balance as per
cashbook when compared to balance as per passbook, So, we should deduct Rs. 10,000
from balance as per cash book.
4. Direct deposit Of Rs. 11,000 by madhav would decrease the balance as per cashbook
when compared to balance as per passbook, so we should add Rs. 11,000 to balance as per
cash book.
5. Dividends collected Rs. 4,000 credited to account by bank would decrease the balance as
per cash book when compared to balance as per passbook, so we should add Rs. 4,000 to
balance as per cash book.

214
 6. Charges Rs. 1,000 debited to account by bank would increase the balance as per cash
book when compared to balance as per passbook, so we should deduct Rs. 1,000 from
balance as per cash book

BANK RECONCILIATION STATEMENT AS ON 30-06-2020

Amount Amount
Particulars
(Rs) (Rs.)

Favourable Balance as per cash book: (Starting point) 2,73,000

Add:
All reasons for difference that cause decrease in balance as per cash
book when compared to passbook

1.Cheques issued but not presented for payment 1,57,000

2. Direct deposit by Madhav 11,000
3. Dividends credited to account 4,000 (+) 1,72,000

Deduct: 4,45,000
All reasons for difference that cause increase in balance as per cash
book when compared to passbook

1. Cheques Deposited but not collected

2. Excess debit in cash book 2,25,000
3. Charges debited by banker 10,000
1,000 (-) 2,36,000

2,09,000
Balance as per Passbook

7.7 Practical illustrations:

4. (When favourable cash book balance and reasons for differences are given)
On 31st march,2020 the cash book of Ravichandra showed a favourable balance of Rs
2,50,000.Prepare a bank reconciliation statement.
i) Cheque issued but not presented for payment Rs 25,000.
ii) An amount of Rs.10,000 deposited by one of the debtors directly into the account on
28th march,2020. Intimation in this respect was received from the bank on 03rd
April,2020.
iii) Acash deposit of Rs 1,000 into bank was omitted to enter on the debit side of the
cashbook.
iv) Bank charges of Rs 2,000 was debited by the banker but it was not recorded in
cashbook.
v) Cheques deposited into bank for collection were Rs 1,00,000. Out of which cheques
amounted to Rs. 70,000 were collected by the banker during March,2020.
215
 vi) A cheque for Rs 20,000 received from a debtor was recorded in the cash book but not
sent to bank for collection.

Bank reconciliation statement of Ravichandra as on 31st March 2020

Particulars Amount Amount

Favourable Balance as Per Cashbook 2,50,000

Add:- Entries that cause lower cashbook balance compared to

passbook balance:

(i). Cheque issued but not presented for payment 25,000

(ii) Amount directly deposited into bank account by a debtor
10,000
(+)36000
(iii) Deposit omitted to enter on the debit side of the cashbook 1,000
2,86,000

Deduct : Entries that cause higher cashbook Balance

compared to passbook balance:

(i) Bank charges debited by the bank but not recorded in cashbook 2,000

(ii) Cheques deposited into bank but not collected 30,000

(iii) Cheque recorded in cash book but not deposited into bank
20,000 (-) 52,000

Favourable Balance as per passbook 2,34,000

5.(When favourable balance as per passbook and reasons for differences are given)
Prepare a Bank Reconciliation Statement of Mr. Durga Prasad on June 30,2021 using the
following information.
i. Favourable Balance as per Passbook on June 30,2021 Rs. 1,25,000.
ii. A cheque received from Anand for Rs 51,000 was sent to bank for collection, but not
collected till the date of reconciliation.
iii. Debit side of the cash book bank column was overcast by Rs. 5,000.
iv. Dividends on investments Rs. 10,000 collected and insurance premium of Rs.3,500 paid
by the banker were not recorded in cash book.
v. During the month of June Durga prasad issued 2 Cheques, one cheque is to Mr. Veeresh
for Rs 41,000 and another is to Mr. Narasimha for Rs. 25,100, out of which Cheque issued
to Mr. Narasimha was only presented for payment during the month.

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 vi. Wrong credit in Passbook Rs. 3,000.
vii. Bank charges debited to Passbook only Rs 500.
viii. Amount directly deposited by Raju in bank account Rs. 3,500 was not recorded in
Cashbook.

Solution:

BANK RECONCILIATION STATEMENT OF MR. DURGA PRASAD AS ON 30 JUNE 2021

Amount
Particulars Amount
Favourable Balance as per Passbook 1,25,000

Add: Transactions having the effect of lower favourable balance as

per Passbook

i. Cheques deposited but not collected 51,000

ii. Overcasting in Dr.sideof cashbook bank column 5,000
iii. Insurance premium paid by bank 3,500
iv. Bank charges debited to Passbook only 500 (+) 60,000

1, 85,000

Deduct: Transactions having the effect of higher balance as per

Passbook

i. Dividends credited to Passbook only

ii. Cheques issued but not presented for payment 10,000
iii. Wrong credit in Passbook 41,000
iv. Amount deposited by Raju into bank account 3,000
3,500
(-) 57,500

Favourable Balance as per cash book 1,27,500

6. (When unfavourable balance as per cashbook and reasons for differences are given)
From the following particulars prepare a bank reconciliation statement of Mr. Shikhar on
Feb 28, 2021.
i. Unfavourable balance as per cashbook Rs.5,25,000 on Feb 28, 2021.
ii. Cash deposited into bank Rs.5,000 was recorded in cashbook twice.
iii. Cheques issued on 18thFeb,2021 were Rs.1,20,000. Out of these, cheques
amounting to Rs.35,000 were not presented for payment before 28 Feb,2021.
iv. Cheque deposited into bank on 24thFeb,2021 were Rs.1,00,000. Out of these,
cheques for Rs.60,000 were only collected before Feb 28,2021.
v. Interest on investmentscredited in passbook only Rs. 2,000.
vi. A cheque for Rs.10,000 deposited into bank on Feb 27,2021 was dishonoured but
information in respect thereof was not received from bank.
vii. Mr. Raghu, one of the debtors, deposited Rs 10,000 in the bank account of shikhar
but no entry was made in cash book.
viii. A receipt of Rs 4,500 was recorded on debit side of passbook by mistake.

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 ix. Bank paid Rs 15,000 towards loan instalment as per our mandate. But no entry was
made in cash book.
x. A cheque issued by Shikhar for Rs. 30,000 was returned by banker on technical
grounds on Feb 26, 2021, but it was not recorded in cashbook.

Solution:
Bank reconciliation statement of Mr.Shikhar as On Feb 28, 2021.

Particulars Amount Amount

Unfavourable Balance as Per Cashbook 5,25,000

Add: Items that decrease unfavourable balance

as Per Cashbook Compared to passbook.

(i) Cash deposit recorded in cashbook twice 5,000

(ii) Cheques deposited but not collected 40,000
(iii) Cheque dishonoured but not recorded in Cashbook 10,000
(iv) Receipt wrongly recorded on debit side of passbook 9,000
15,000 (+) 79,000
(v) Loan instalment paid by bank

6,04,000
Deduct: Items that increase unfavourable balance
as Per Cashbook Compared to passbook.

(i) Cheques issued but not presented for payment 35,000

(ii) Interest on investments credited in passbook only 2,000
(iii) Amount deposited into account by Mr.Raghu 10,000
(iv) Cheque returned on technical grounds. 30,000 (-) 77,000

Unfavourable balance as per passbook 5,27,000

7. (When unfavourable balance as per passbook and reasons for differences are given)
From the following particulars prepare a bank reconciliation statement of Eshwar & Co on
September 30,2020.
A. Unfavourable balance as per passbook Rs. 2,10,000.
B. A cheque for Rs 23,000 was entered in bank column of the cash book but we forgot to
issue to a supplier.
C. Interest on overdraft debited to passbook only Rs.3,800.
D. House tax paid by bank on our behalf Rs 2,500 was recorded on credit side of the
cashbook as Rs 5,200.
E. Cheques deposited into bank during the month of September were Rs. 2,00,000
Out of which:
Cheques collected before Sep 30: Rs.1,40,000

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Cheques not collected before Sep 30: Rs. 60,000
F. Cheques issued but not presented for payment Rs.50,000.
G. Bank charges debited to passbook Rs.200.
H. Dividends collected by banker Rs.5,600.

Solution:Bank reconciliation statement of Eshwar&Co. as on Sep 30, 2020.

Particulars Amount Amount

Unfavourable Balance as per passbook 2,10,000
Add:
(i) Cheque entered in cashbook but not issued 23,000
(ii) Excess amount credited to cashbook 2,700
(iii) Cheques issued but not presented for payment 50,000
(iv) Dividends collected by banker 5,600

(+) 81,300

2,91,300
Deduct:
(i) Interest on overdraft debited in passbook only 3,800
(ii) Cheque deposited but not collected 60,000
(iii) Bank charges debited in passbook only 200 (-) 64,000

Unfavourable balance as per cashbook 2,27,300

8.(Favourable cashbook balance, unfavourable passbook balance)

Cashbook of Hanuman brothers showed a debit balance of Rs 4,80,000 on July 31,2020.

This did not agree with the balance as per Passbook. From the following particulars prepare a
bank reconciliation statement and ascertain the balance as per Passbook.
(i) Amount collected by the banker as interest on govt. securities Rs 28,000 was
not entered in cashbook.
(ii) Cheques deposited for collection were Rs 4,00,000, out of which cheques with
Rs 1,00,000 were only collected.
(iii) A Bill for Rs 50,000 previously discounted with bank for Rs. 49,000 was
dishonoured on July 30 but it was recorded in cashbook on 2 august.
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 (iv) A payment transaction initiated for Rs. 5,000 was declined and amount
reversed but no entry was made for reversal of the transaction in cashbook.
(v) Cheque issued to Raj Rs 6,000 on 27th Julywas encashed by him on 31 st July.
(vi) A wrong debit was entered in passbook with Rs.50,000
(vii) A Cheque issued to Mr.Ramon July 28 for Rs.10,000 was presented for
payment on Aug 05, 2020.
(viii) While carrying forward, debit balance of Rs.2,35,000 of previous page brought
forwarded to next page as Rs.3,25,000 in cashbook bank column.
(ix) An outgoing cheques of Rs.3,000 wrongly debited by bank to the account of
hanuman and sons.
(x) Bank charges debited to passbook were Rs.3,000.
(xi) Hire purchase instalment of Rs.75,000 paid by banker was not recorded in
cashbook.

Solution:

Bank Reconciliation Statement of Hanuman Brothers as on Jul 31, 2020.

Particulars Amount Amount

Favourable balance as per cashbook 4,80,000
Add:
(i). Interest on govt securities 28,000
(ii). Entry for reversal of cash not made in cashbook 5,000
(iii). Cheque issued to Ram but not presented for payment 10,000
(iv). Payment not recorded in passbook 3,000 (+) 46,000

5,26,000

Deduct:
(i). Cheques deposited but not collected 3,00,000
(ii). Bill discounted at bank dishonoured 50,000
(iii). Wrong debit in passbook 50,000
(iv). Wrong carry forward of debit balance in cashbook 90,000
(v). Bank charges debited to passbook only 3,000
(vi) Hire purchase instalmentpaid by banker 75,000 (-)5,68,000

Unfavourable balance as per passbook* ( 42,000)*

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* Since the balance as per Passbook calculated is negative it is assumed as Unfavourable
balance.

7.7.6 Reconciliation with adjusted cash book balance

In the preparation of Bank reconciliation statement at the end every month the balance as
per cash book can be taken for reconciliation. But if we prepare Bank reconciliation statement at
the end of the accounting year, the balance as per cash book should be adjusted first, then the
adjusted/amended cash book balance should be considered for reconciliation. The balance as per
cash book would be adjusted by recording the entries which are recorded in Passbook only and
rectifying the wrong entries in cash book.
In this case, the preparation of Bank Reconciliation Statement would become easier a bit.
Only a few reasons for differences viz. Cheques deposited but not collected, Cheques issued but
not presented for payment, Cheques entered in cash book but not issued, cheques entered in cash
book but not deposited into bank and Errors in Passbook only need to be adjusted in Bank
Reconciliation Statement.
9.(Amended/adjusted cashbook)
From the following particulars of JAI Enterprises find out adjusted cashbook
balance on March 31,2021 and prepare a Bank reconciliation statement.
(i) Balance as per cashbook Rs.75,000.
(ii) Cheques received and recorded in bank column of the cashbook but omitted to
send to bank for collection Rs.10,000.
(iii) Interest allowed in passbook only Rs.1,500.
(iv) Bills receivables directly collected by the bank Rs.5,000.
(v) Cheques deposited (cleared) but not recorded in cashbook Rs,7,000.
(vi) Payment side of cashbook bank column was under cast by Rs 1,000.
(vii) Bank charges debited in passbook only Rs.500.
(viii) Advance tax paid by bankRs. 6,000 was not recorded in cashbook.
(ix) Cheques issued but not presented for payment Rs.15,000.
(x) A payment by SAI enterprises Rs.2,000 was debited by banker to our account.
(xi) Dishonour of a discounted bill not entered in cashbook bank column Rs. 5,000
Noting charges Rs.200.
(xii) Claim received from insurance company Rs 6,000 was recorded in passbook twice.
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 (xiii) Direct payment by Sudhakar into our bank account was recorded in passbook only
Rs. 10,000.
(xiv) Cheques deposited into bank but not collected Rs.50,000.
(xv) Cheque recorded in cash book but not issued Rs. 33,000.

Solution:

Dr Cashbook (Adjusted) Cr

Particulars Amount Particulars Amount

To Balance B/d 75,000 By Under casting in payment
To Interest Allowed 1,500 side of cashbook bank column 1,000
To Bills receivables 5,000 By Bank charges 500
To Cheque depositedbut not recorded 7,000 By Advance tax paid by bank 6,000
To Direct paymentby Sudhakar 10,000 By dishonour of discounted bill 5,200

By Balance C/d
85,800
98.500 98,500
To Balance B/d 85,800

Bank reconciliation statement of JAI Enterprises as on March 31, 2021

Particulars Amount Amount

Balance as per cashbook (Adjusted) 85,800

Add:-
(i) Cheque issued but not presented for payment 15,000
(ii) Insurance claim recorded in passbook twice 6,000
(iii) Cheque recorded in cashbook but not issued 33,000
(+) 54,000
1,39,800
Deduct:
(i) Cheque recorded in cashbookbut not sent to bank for collection 10,000
(ii) Wrong debit given in pass book 2,000
(iii) Cheques deposited but collected 50,000 (-) 62,000

Favourable Balance as per passbook 77,800

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 Test your Understanding

I. Fill in the Blanks

1. The excess debits over credits in Cash book leads to ______________ Balance.
2. A transaction recorded on debit side of the cash book is to be recorded on_________
side of the passbook.
3.Adeposit made by a debtor directly in a bank account ____________ the favourable
balance as per cash book when compared to favourable balance as per passbook.
4. If a reason for difference increases the favourable balance as per passbook when
compared to favourable balance as per cash book. Then the difference should be
added to______________ balance to reconcile the balances.
5. Omitting to record a receipt in cash book decrease the unfavourable balance as per
________ Book.

II. True or False

1. Bank Reconciliation statement is prepared by Bankers.

2. Bank Reconciliation means Harmonizing the balances as per cash book and balance
as per Passbook.

3.Lack of information from bank doesn’t cause disagreement of cash book and
Passbook balances.

4.By comparing the Passbook and cash book one can identify the reasons for difference
between cash book and passbook balances.
5. Adjustment for differences have to be made to the balance as per cash book when we
take Balance as per Passbook as the starting point.

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 III. Multiple Choice Questions (MCQ)

1. Payments made by the firm through banks are recorded in

A. Cash Column of the cash book on Debit side B. Bank Column of the cash book on Debit side
C. Cash Column of the cash book on Credit side D. Bank Column of the cash book on Credit side
2.An item recorded on Debit side of the passbook would be recorded on
A. Credit side of the cash book B. Debit side of the cash book
C. Both sides of the cash book D. Neither side of the cash book.
3. Which of the following is not a reason for difference between cash book and Passbook balances
A. Processing time of cheques B. Delay in information
C. Errors D. Volume of transactions
4. Omitting to record a transaction on credit side of the cash book will

A. Increase the debit balance as per cash bookB. Decrease the debit balance as per cash book
C. Both of the above D. None of the above

5. Bank Reconciliation statement is needed to

A. Notice the errors B. Identify the frauds and misappropriations
C. Know the processing time of cheques D. All of the above
6. Reconciliation involves
A. Identifying the reasons for difference B. Adjusting the reasons for difference
C. Both of the above D. A Only

7. If a reason for difference increases the balance as per cash book when compared to Passbook, it will
be adjusted
A. By adding to balance as per cash book B. By Deducting from balance as per cash book
C. By adding to balance as per Passbook D. B and C

8. If a reason for difference decreases the unfavourable balance as per Passbook when compared to cash
book, it will be adjusted
A. By adding to unfavourable balance as per cash book
B. By Deducting from Unfavourable balance as per Passbook
C. By Deducting from favourable balance as per cash book
D. None of the above

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9. If Cheques deposited for collection were Rs 1,00,000 out of which 75,000 cheques were collected up to
the date of reconciliation, then adjustment to be made to Cash book balance with Rupees.
A. 1,00,000 B. 75,000 C. 25,000 D. 1,25,000
10. If a receipt Of Rs. 5,000 was wrongly recorded on credit side of the cash book, it should be adjusted by
A. Deducting Rs 10,000 from Cash book debit balance B. Adding Rs 10,000 to cash book debit balance

C. Adding Rs 5,000 to cash book debit balance D. Deducting Rs 5,000 from cash book debit balance
11. If a transaction recorded on debit side of the cash book with Rs 10,000 and the same transaction was
recorded on credit side of the Passbook with Rs.6,000, it should be adjusted by
A. Adding Rs. 4,000 to Passbook credit balanceB. Adding Rs. 6,000 to Passbook credit balance
C. Deducting Rs 6,000 from Passbook credit balanceD. Deducting Rs 4,000 from Passbook credit balance
12. A wrong debit of Rs 20,000 in Passbook is adjusted by
A. Deducting Rs. 20,000 from unfavourable balance as per Passbook
B. Deducting Rs. 20,000 from unfavourable balance as per cash book
C. Adding Rs .40,000 to unfavourable balance as per Passbook
D. Adding Rs. 20,000 to unfavourable balance as per Passbook.
13. Cheques issued but not presented for payment Rs. 25,000 will be adjusted by

A. Adding Rs 25,000 to Passbook favourable balance

B. Adding Rs 25,000 to Cash book favourable balance
C. Deducting Rs. 25,000 from Passbook unfavourable balance
D. None of the above
14. The impact of Bank charges Rs 500 entered in Passbook only would be
A. Cash book balance will decrease by Rs.500B. Passbook balance will increase by Rs. 500

C. Cash book balance will increase by Rs 500D. None of the above

15. The impact of under casting of debit side of the cash book By Rs 1,000
A. Favourable balance as per cash book will increase by Rs 1,000
B. Unfavourable balance as per Passbook will increase by Rs 1,000
C. Favourable balance as per cash book will decrease by Rs 1,000
D. Unfavourable balance as per cash book will decrease by Rs. 1,000

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 IV. Short Answer Questions (SAQ)

1. Explain the characteristics of pass book or Bank Account statement.

2. Define Bank Reconciliation and Bank Reconciliation Statement.

3. Explain the need for Preparation of Bank Reconciliation Statement

4. Write the proforma of Bank Reconciliation statement by taking balance as per pass
book as the starting point.

V. Long Answer Questions (LAQ)

1. Explain the reasons for disagreement of balance as per cash book and Passbook.

2. Explain the process of Identifying the differences between Cash book and Passbook
balances.

3. Explain the process of Adjusting the reasons for difference between Cash book and
Passbook balances.

4. Enter the following transactions in bank column of the cash book and Passbook. And
show the balances as on 31 January 2019.

Date Transaction
1/1/2019 Opening Balance (Favourable Bankbalance) Rs. 25,400
4/1/2019 Cash deposited into bank Rs. 10,000
7/1/2019 Amount received from Nagesh through Bank Rs. 7,000
Amount Paid to Babu by Cheque of Rs. 12,600 (presented for payment on 19-
8/1/2019 01-19)
11/1/2019 Cash withdraw from bank for office use Rs. 8,000
Cheque received from Krishna Rs. 11,400. The cheque was sent to bank for
17/1/2019 collection on the same day, it was collected on 02-02-2019
23/1/2019 Commission paid to Eshwari by NEFT Rs. 4,600
25/1/2019 Interest on deposits collected by Bank Rs. 9,500
27/1/2019 Bank charges Rs. 750
30/1/2019 Life insurance premium paid by bank as per Mandate Rs. 1,000
Answer: Debit Balance as per cashbook: Rs. 36,350Credit Balance as per pass book: 24,950

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 5. From the following cash book and passbook, you are required to identify the reasons
for difference between Cash book and passbook balances.

Cash Book (Bank Column)

Dr Cr
Bank Bank
Date Particulars Column Date Particulars column
Amount Amount
01-08-2019 To Balance B/d 3,25,000 02-08-2019 By Sowmya A/C (cheque) 2,00,000
04-08-2019 To Ranga A/c (cheque) 3,00,000 08-08-2019 By Madhu A/C (NEFT) 65,000
08-08-2019 To Anjali A/c (UPI) 32,000 10-08-2019 By Commission A/c (Transfer) 9,000
13-08-2019 To Srinivas A/c (Cheque) 63,000 12-08-2019 By Amar A/c (cheque) 47,000
16-08-2019 To Interest A/c (Transfer) 7,000 20-08-2019 By Kiran A/c (NEFT) 15,000
21-08-2019 To Cash A/c (Deposit) 80,000 29-08-2019 By Repairs A/c (UPI) 5,000

31-08-2019 By Balance C/d 4,66,000

8,07,000 8,07,000
01-09-2019 To Balance B/b 4,66,000

PASSBOOK
Cheque
no/ Withdrawals Deposits Closing balance
Date Transaction description
refence (Dr) (Cr)
id Dr/Cr Amount
1/8/2019 By Balance B/d 3,25,000 Cr 3,25,000
8/8/2019 To Madhu (NEFT) 65,000 Cr 2,60,000
8/8/2019 By Anjali (UPI) 32,000 Cr 2,92,000
10/8/2019 To Commission (Transfer) 9,000 Cr 2,83,000
16/08/2019 By Interest Receipt 7,000 Cr 2,90,000
20/08/2019 To Kiran (NEFT) 15,000 Cr 2,75,000
21/08/2019 By Cash (Deposit) 80,000 Cr 3,55,000
23/08/2019 By Gopal (Cash deposit) 33,000 Cr 3,88,000
29/08/2019 To Repairs (UPI) 5,000 Cr 3,83,000
30/08/2019 By Interest Receipt 9,000 Cr 3,92,000
31/08/2019 To Bank charges 2,000 Cr 3,90,000
96,000 4,86,000 Cr 3,90,000

6. From the following information of Mrs. Aleena, prepare a bank reconciliation

statement as on 31st July 2020.
Amount in Rs.
i. Debit balance as per Cash book on 31st July 2020 2,00,000
ii. Cheques issued but not yet presented for payment 8,550
iii. Bank charges debited in passbook only 3,000
iv. Cheques deposited but not yet collected 1,50,000

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 v. Rent paid through bank omitted to enter in Cashbook bank column 10,000
vi. Income tax refund credited in passbook only 1,800
vii. Bills receivables directly collected by bank 26,000
viii. Electricity bill paid through phone pe was not yet recorded in cashbook3,800
ix. Interest on fixed deposits credited by bank but no advice was received 7,000
x. Loan instalment paid by bank as per our standing instructions 15,300
Answer: Credit Balance as per passbook:61,250

7. From the following particulars prepare a bank reconciliation statement of

Madhu&Co on 31st December 2020.

a. Favourable (Credit) Balance as per passbook was Rs.1,28,300 on 31st December

2020.
b. Amount deposited by Nagaraj in our account Rs. 15,000 was not entered in Cash
book.
c. Cheques deposited into bank in December 2020 were Rs. 2,00,000 but cheques for
Rs 1,35,000 were only credited by the bank in December 2020.
d. Dividends collected by bank Rs.5,000 was wrongly entered in cashbook as Rs.500.
e. The Following cheques issued by the firm in December 2020 were presented for
payment in January 2021.
Bhagavan Rs.5,000; Lakshmi Rs.9,500; Govind Rs.12,300.
f. Lic premium Rs.6,500 paid by bank has been entered in cash book cash column.
g. Payments made by the bank directly as per standing instructions not entered in the
cash book: Internet Charges Rs. 2,500; Trade Subscriptions Rs.1,000.
h. Interest creditedin pass book only Rs.1,600.
i. A cheque for Rs.9,000 Received from a customer was entered in the bank column
of cash book in December 2020 but was omitted to send to bank in December
2020.

Answer: FavourableBalance as per cash book: 1,64,400.

8. By comparing Anand’s cash book with the bank statement of current account for the
month of October 2018, the following were found:
(a) Overdraft balance showed by Cash book Rs.35,500.
(b) Receipts side of bank column of the cash book was overcast by Rs.1,000.
(c) Interest on Overdraft Rs.500 was wrongly entered on debit side of bank column of
cash book.

228
 (d) Cheques deposited into bank Rs.16,400 and entered in the cash book but not yet
collected.
(e) Cheque issued Rs.7,500 was not presented for payment during October 2018.
(f) Bank charges of Rs. 1,300 as per bank statement of account had not been taken into the
cashbook.
(g) Cheque for Rs. 4,500 was recorded in cash book but omitted to issue.
(h) Dividends on investments of Rs. 3,000 was collected by the bank but was not entered
in the cash book.
(i) Payment of Electricity bill through UPI Rs. 950 was not recorded in cash book.
(j) Payment on a bill payable of Rs.1,000 by bank was entered as Rs.1,100 in cash book.
You are asked to prepare the bank reconciliation statement on 31st October 2018.
Answer: Overdraft Balance as per passbook: 41,050

9. Aruna Ltd. Provides you the following information as on 30th April 2020.
Rs.
1. Direct payment by a customer into the bank not recorded in cash book 40,000
2. Cheques deposited but not yet collected by bank 18,500
3. Cheques issued but not yet presented for payment 23,100
4. Rent collected and credited in passbook only 7,200
5. Insurance premium paid directly by bank as per standing instructions 5,000
6. Bills receivables directly collected by bank 8,000
7. A wrong credit given by bank in passbook 2,000
8. A cash deposit in bank was recorded in cash book twice 5,000
9. Bank charges recorded in passbook only 2,000
Prepare a bank reconciliation statement on 30th April 2020 in the following cases
A. If the debit balance as per passbook was Rs.1,25,000
B. If the Credit balance as per cashbook was Rs. 2,00,000.
Answer: A).OD Balance as per cash book:1,74,800; B).O.D Balance as per passbook:1,50,200

10. The cash book of Anil showed an overdraft balance of Rs.12,000 on 30th November
2019. By comparing the cash book with the bank statement, he found the following:

a) Two cheques of Rs. 7,000 each received from Ravi were banked during the month. But
only one cheque was collectedby bank prior to 30th November.
b) Interest on Overdraft charged by bank Rs.1,800.

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 c) Cheques issued amounting to Rs. 25,000 were entered in the cashbook but has not
been presented for payment.
d) Bank charges of Rs. 750 shown in the bank statement but not entered in the cash book.
e) A Cheque amounting to Rs. 8,300 was entered in cash book but omitted to send to
bank for collection.
f) The payment side of the cash book was overcast by Rs. 3,000.
g) Dividends amounting to Rs. 2,000 were collected by the bank, but not entered in the
cash book.
h) A cheque for Rs. 5,000 issued to Vinay presented for payment but it was not recorded
in Cash book.
i) Direct payment of Rs.15,000 by Radha krishna into bank account was recorded in
passbook only.
j) A payment of Rs. 9,800 was wrongly entered as Rs 8,900 in bank column of cash book
k) A cheque for Rs.6,000 prepared and entered in cashbook but omitted to issue.
l) Subsidy from government received by bank Rs. 4,200 not adjusted in cashbook.

You are required to:

a) Ascertain amended cash book balance.
b) Prepare a Bank reconciliation statement by taking amended cash book balance as the
starting point.

Answer: Amended cash book balance: 3,750 (Debit)

Favourable Balance as per pass book: 19,450

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 VI. Additional Resources for Advanced Learning

Study Material (Handouts):

https://nios.ac.in/media/documents/SrSec320NEW/320_Accountancy_Eng/320_Accountancy_En
g_Lesson10.pdf

Reference Text Books:

1. R L Gupta & V K Gupta, Principles and Practice of Accounting, Sultan Chand & Sons

2.S.P. Jain & K.L Narang, Accountancy-I, KalyaniPublishers

3.Tulasian, Accountancy -I, Tata McGraw HillCo.

E - Text Books:
https://icmai.in/upload/Students/Syllabus2016/Foundation/Paper-2New-29012021.pdf
https://www.icsi.edu/media/webmodules/publications/FULL%20FAA%20PDF.pdf

YouTube Links:

https://www.youtube.com/watch?v=qeHc8w23Kl4
https://www.youtube.com/watch?v=_RfayQTf5zU

Power Point Presentations:

https://www.slideshare.net/itisha89/bank-reconciliation-statement-113088575
https://www.slideshare.net/AnkitSand1/bank-reconciliation-statement-76050134

VII. Suggested Activity

1. Visit a firm (Individual and Group) and observe the process of preparing Bank
reconciliation statement

2.Problem Solving Exercises

3.Learning Computer based Accounting system through tally

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 I. Fill in the Blanks

Q.No 1.Favourable 2. Credit 3. Decreases 4.Cash book 5. Passbook

II. True or False

Q.No 1.False 2.True 3.False 4.True 5.False

III. Multiple Choice Questions (MCQ)

Q.No 1.D 2.A 3.D 4.A 5.D 6.C 7.D 8.D 9.C 10.B

11. A 12.A 13.B 14.C 15.C

Account Statement: A statement showing the transactions made by a

customer through Bank Account during a specified period.
Bank Reconciliation: A process of harmonizing the balances as per cash book and Passbook.
Bank Reconciliation Statement: A statement prepared by businessmen periodically to reconcile
the balances as per cash book and passbook.
Cash Book: A subsidiary journal maintained by the firms to record cash receipts and payments
made by the firm itself or through bank.
232
Cheque: A negotiable instrument used to make payments.
Error: An unintentional mistake.
Favorable Balance: Positive balance in a bank account. Amount of cash available in a bank
account at a particular point of time.
Misappropriation: Using something in an unauthorized way.
Overdraft: A facility provided by bankers to a customer to draw an amount over and above the
favorable balance.
Passbook: A book in which entries of transactions made by a customer through bank account are
printed periodically by the Banker.
Unfavorable Balance: Sum of money drawn over the favorable balance up to a particular point of
time.

233
234
 Contents
Learning Outcomes

8.1 Introduction
1. Understand the 8.2 What are Final
concept of Capital and Accounts and what do
revenue they constitute?
2. Understand the 8.3 Why do we
contents of final prepare Final
accounts Accounts?
3. Understand the 8.4 How to prepare
need for preparation Final Accounts?
of final accounts
8.5 How to prepare
4. Develop the skill of Final Accounts with
Preparation of Final adjustments ?
accounts
8.6 Practical
Illustrations

235
8.1 Introduction:

Business refers to conducting activities with a motive to earn profit. Every

business firm irrespective of its size tries to achieve the objective of profit earning.
Sometimes due to various reasons a business may suffer from losses. The composition of
assets and liabilities on a particular date gives a precise picture of the financial position of a
business firm. The profit or loss earned, and their size determines the financial position of a
business unit and in turn the financial position determines its profits and growth. Every
business house irrespective of its nature of business, is interested to know it’s financial
results, i.e profits made by them and their financial position. Besides owners of the firm,
there are many accounting users like creditors, lenders, employees, government etc., are
interested in financial results of a business unit. To know financial results, one should prepare
final accounts. Preparation of final accounts is the last stage in accounting cycle. Non
business units also prepare final accounts. We focus on preparation final accounts of sole
proprietorship business in this chapter.

8.2 What are Final Accounts and what do they constitute?

Preparation of Profit and Loss Account and Balance sheet helps the business firms in
knowing their financial results. Profit and loss account is prepared to ascertain the profit or
loss and balance sheet is prepared to know financial position. Knowing the financial results
of a business unitat the end of life time of the business unit is not at all useful. Hence,
accounting period concept comes into light, according to which the life of the business is
divided into equal accounting periods (accounting years). Business firms prepare Profit and
Loss Account at the end of each accounting year to ascertain the profit or loss of the
accounting year and prepare Balance sheet at an end of accounting year to know their
financial position on that date. Profit and loss account is a periodic statement as it shows the
net result of incomes and expenses of an accounting period. Balance sheet is a point
statement as it shows the assets and liabilities on a particular date. Since, Profit and loss
account, and balance sheet are prepared usually at the end of the accounting year as a final
step in accounting process, these are called Final Accounts.

Final Accounts comprise Profit and Loss Account and Balance sheet. Preparation of Final
accounts varies with the nature of business. In case of a sole proprietor engaged only in
trading activity or primarily engaged in trading activity, Profit and Loss account is sub
divided into two parts 1. Trading Account and 2. Profit and Loss Account. So, final accounts
of a trader comprise Trading Account, Profit and Loss Account and Balance sheet. In case of
sole proprietor engaged in manufacturing cum trading activity, Profit and Loss account is sub
divided into three parts 1. Manufacturing Account,2. Trading Account and 3. Profit and Loss
Account. So, final accounts of a manufacturer cum trader comprise Manufacturing Account,
Trading Account, Profit and Loss Account and Balance sheet.

236
 ముగింపు లెక్కలు

పరచయిం:

ప్రతీ వ్యాపయర సంసథ తమ యొక్క లాభం లేదా నష్టం మరియు ఆరిిక్ స్థథ తిని తెలుసుకోవ్యలనే
ఆసకతి క్లిగి ఉంటుంది. సంసథ యజమానులతో పయటు, సంసథ యొక్క రుణదాతలు, ఉదయ ాగులు,
ప్రభుతవం మొదల న
ై అనేక్ అక ంటంగ్ వినియోగదారులు సంసథ ఆరిథక్ ఫలితాలపై ఆసకతి క్లిగి
ఉంటారు. వ్యాపయర సంసథ లు తమ యొక్క ఆరిిక్ ఫలితాలను తెలుసుకొనుటక్ు ముగింప్ు
ల క్కలను తయారు చేస్ి యయి. ముగింప్ు ల క్కల తయారీ అక ంటంగ్ చక్రం యొక్క చివరి దశ.

ముగింపు లెక్కలు:

వ్యాపయర సంసథ యొక్క లాభం లేదా నష్ట ం తెలుసుకొనుటక్ు ప్రతి అక ంటంగ్ సంవతసరం చివరిలో
లాభనష్యటల ఖాతా మరియు ఒక్ నిరిిష్ట తేదన
ీ సంసథ ఆరిథక్ ఫరిస్తిని
థథ తెలుసుకోవడానికత ఆస్థి
అప్ుుల ప్టటట తయారు చేస్ి యరు. లాభనష్యటల ఖాతాలో ఉతుతిి ఖాతా, వరి క్ప్ు ఖాతామరియు
లాభనష్యటల ఖాతా భాగముగయ ఉంటాయి.లాభ నష్ట ముల ఖాతామరియు ఆస్థి అప్ుుల ప్టటటలను
స్యధారణంగయ అక ంటంగ్ సంవతసరం చివరిలో తయారు చేస్ి యరు కయబటట , వీటని ముగింప్ు
ల క్కలు అంటారు.

వ్యాపయర సవభావమును బటట ముగింప్ు ల క్కల తయారీ ఉంటుంది. కొనిి సంసథ లు ఉతుతిి
మరియు వరి క్ కయరాక్లాపయలు చేస్ి యయి. అనగయ ముడిసరుక్ును కొనుగోలు చేస్,థ దానిని
తయారైన వసు
ి వుగయ మారిిన తరయవత అముుతాయి. కొనిి సంసథ లుకేవలం వరి క్ము
చేస్ి యయి.అనగయ సరుక్ు రూపయనిి మారిక్ుండా కేవలం సరుక్ుని కొనుగోలు చేస్థ అముక్ము
చేస్ి యయి. కొనిి సంసథ లు ప్రధానంగయ వరి క్ముచేసి ునిప్ుటకీఒక్ సరుక్ును విక్రయించడానికత
ముందు కొంచెం పయరస్స్థంగకకడా చేస్ి యయి.

కేవలము వరి క్ము లేదా ప్రధానముగయ వరి క్ము చేస్ే ఒక్ వ్యాపయరి యొక్క లాభనష్యటల ఖాతా
లో రండు భాగయలు ఉంటాయి1. వరి క్ప్ు ఖాతా, 2. లాభనష్యటల ఖాతా. కయబటట ,ఆవ్యాపయరి యొక్క
ముగింప్ు ల క్కలలో వరి క్ప్ు ఖాతా, లాభనష్యటల ఖాతా మరియు బాాల న్సస షీట్ ఉంటాయి.
ఉతుతిి మరియు వరి క్ముచెస్వ్
ే యాపయరి విష్యంలో, లాభనష్యటల ఖాతాలో మకడు
భాగయలుఉంటాయి అవి1. ఉతుతిి ఖాతా, 2. వరి క్ప్ు ఖాతా మరియు 3. లాభనష్యటల ఖాతా.
కయబటట , ఉతుతిి మరియు వరి క్ముచేస్ే వ్యాపయరి ముగింప్ుల క్కలలో ఉతుతిి ఖాతా, వరి క్ప్ు
ఖాతా, లాభనష్యటలఖాతా మరియు ఆస్థి అప్ుుల ప్టటట ఉంటాయి.

237
8.3 Why do we prepare Final Accounts?

Final accounts are prepared to ascertain the profit or loss of a business unit in the
current accounting year and to know the financial position as on a particular date at the end of
the accounting year. Apart from this some more benefits are there from Preparation of Final
accounts.

 Financial results of one accounting period can be compared with that of

another period to know the changes occurred between the two accounting
periods.

 The financial health of a business unit can be assessed by financial analysis.

Financial statements prepared would serve as the basis for financial analysis.

 Final Accounts communicate the financial results of a business unit to all its
stake holders' viz. Suppliers, Bankers, employees.

 Preparation of Final accounts is needed to fulfil the statutory requirements and

to calculate tax to be paid to Government.

238
ముగింపు లెక్కల ఆవశ్యక్త:
ఒక్ అక ంటంగ్ సంవతసరంలో వ్యాపయర యకనిట్ సంపయదించిన లాభం లేదా నష్యటనిి నిరయిరించడానికత
మరియు అక ంటంగ్ సంవతసరం చివరిలో ఒక్ నిరిిష్ట తేదీ నాట ఆరిథక్ స్థథ తిని తెలుసుకోవడానికత ముగింప్ు
ల క్కలు తయారు చేస్ి యరు. ఇవి కయక్ుండా ముగింప్ు ల క్కల తయారీ వలన మరికొనిి ప్రయోజనాలు
ఉనాియి.
 రండు అక ంటంగ్ సంవతసరయల మధ్ా జరిగిన మారుులను తెలుసుకోవడానికత మరియు
ఒక్ అక ంటంగ్ సంవతసరము యొక్క ఆరిథక్ ఫలితాలను మరొక్ సంవతసరఫలితాలతో
పో లుిటక్ు అవకయశము ఉంటుంది.
 ముగింప్ు ఆరిథక్ నివ్ేదక్
ి లు వ్యాపయరఆరిథక్ విశ్లేష్ణక్ు ఆధారంగయ ఉంటాయి.
 ముగింప్ు ల క్కలు వ్యాపయరము యొక్క ఆరిథక్ ఫలితాలను సరఫరయదారులు, బాాంక్రుే,
ఉదయ ాగులు మొదలగు అక ంటంగ్ వినియోగదారులక్ు తెలియజేస్ి యయి.
 చటట ప్రమన
ై అవసరయలను తీరిడానికత మరియు ప్రభుతావనికత చెలిేంచాలిసన ప్నుిను
ల కతకంచడానికత ముగింప్ు ల క్కల తయారీ అవసరంఅవుత ంది.
ముగింపు లెక్కల తయారీ
ముగింప్ు ల క్కలలో లాభనష్యటల ఖాతా మరియు ఆస్థి అప్ుుల ప్టట ఉంటాయి.లాభనష్యటల ఖాతా
- ఉతుతిి ఖాతా, వరి క్ప్ు ఖాతా మరియు లాభనష్యటల ఖాతాగయ విభజంచబడుత ంది.అక ంటంగ్
ప్రకతరయలో ముగింప్ు ల క్కల తయారీ చివరి మరియు అతి ముఖామైన దశ.
వ్యాపయర సంసథ యొక్క అంక్ణా వివిధ్ రకయల ఖాతా నిలవలను క్లిగి ఉంటుంది. వ్యటలో కొనిి
నిలవలు వాకతిగత ఖాతాలక్ు సంబంధించినవి, కొనిి వ్యసి విక్ ఖాతాలక్ు సంబంధించినవి
మరియు మిగిలినవి నామమాతరప్ు ఖాతాలక్ు సంబంధించినవిఉంటాయి.
ముగింప్ు ల క్కల తయారీ కోసం, అంక్ణాలోని అంశ్యలను విశ్లేషథంచి వ్యటని మకలధ్న, రయబడి
అంశములుగయ వరీీక్రించాలి.
పెట్ు టబడి వయయిం మరయు రెవన్
ె యయ వయయిం:
ఒక్ వాయం యొక్క ప్రయోజనము ఒక్ట క్ంటే ఎక్ుకవ అక ంటంగ్ సంవతసరయలలో లభామయితే ఆ
వాయమును మకలధ్న వాయం అని అంటారు. ఒక్ వాయము యొక్క ప్రయోజనము కేవలం ఒక్
అక ంటంగ్ సంవతసరయనికే ప్రిమితమయితే ఆ వాయమును రవ్ెనయా వాయం అంటారు. రయబడి
వాయములు ప్ునరయవుుతం అవుతూ ఉంటాయి.

239
8.4 How to Prepare Final Accounts?

As we discussed earlier, Final accounts comprise of Profit and Loss Account and Balance
sheet. Profit and Loss Account is again divided into Manufacturing Account, Trading
Account and Profit and Loss Account.

Students already came across the various steps in accounting cycle viz. Recording the
transactions in Journal, posting to Ledger, balancing of ledgers and preparation of trial
balance. Preparation of final accounts is the last and most important step in accounting cycle.

Trial balance of a business firm contains summary of various types of ledger balances. Some
of the balances relates to personal accounts, some of them belong to real accounts and
remaining are of nominal accounts. In general, balances of nominal accounts are taken to
Manufacturing or Trading or Profit and loss account and balances of real and personal
accounts are recorded in balance sheet.

To serve the purpose of knowing the financial results through preparation of final accounts,
all the ledger accounts in trial balance should be analyzed. Analysis of elements in trial
balance helps in categorizing them and to place them in appropriate statement or account.

Categorization of Income and Expenditure into Capital and Revenue is essential in

preparation of Final Accounts.

240
ఉదాహరణ: యంతారల కొనుగోలు నిమితి ంచేస్న
థ వాయం రూ .10,00,000మకలధ్న
వాయంఅవుత ంది, ఎందుక్ంటే ఆ వాయం నుండి ప ందే ప్రయోజనాలు అనేక్ అక ంటంగ్ సంవతసరయలక్ు
అందుబాటులో ఉంటాయి.జీతాల చెలిేంప్ుపై చేస్న
థ వాయం రూ. 50,000 రయబడి వాయంఅవుత ంది,
ఎందుక్ంటేఆ వాయం నుండి ప ందే ప్రయోజనం ఆ సంవతసరంలో మాతరమే లభిసు
ి ంది.

మకలధ్న వాయాలు ఆసు

ి లు గయ భావించబడతాయి, వ్యటని బాాల న్సస షీట్ లో చయపయలి. రయబడి
వాయాలను వ్యట నుండి లభించు ప్రయోజనాల సవభావము ఆధారముగయఉతుతిి ఖాతాలేదా వరి క్ప్ు
ఖాతాలేదాలాభనష్ట ముల ఖాతాయొక్క డెబిట్ వ్ెైప్ు చయపయలి.

ఉదాహరణ: ఉతుతిి లో వినియోగించే ఇంధ్నం మరియు శకతి వాయం ఉతుతిి ఖాతాలోడెబిట్ వ్ెైప్ు
నమోదు చేయాలి.టేరడింగ్ సంసథ ల విష్యంలో కొనుగోలు రవ్యణా వాయంవరి క్ప్ు ఖాతాలో నమోదు
చేయాలి.ఆఫీస్ ఖరుిలు లాభనష్యటల ఖాతాలో నమోదు చేయాలి.

పెట్ు టబడి వసయళ్ళు మరయు రాబడి వసయళ్ళు:

సరుక్ు అముక్ముదావరయ వసయళ్ళు, వసయలయిన డిస్్కంట్, వసయల ైన క్మీష్న్స మొదలగు

వ్యటనిరయబడి వసయళ్ళు అంటారు.మకలధ్నము,రుణములు, ఆసు
ి ల అముక్ము వంట వ్యట దావరయ
వసయళ్ును పటుటబడి వసయళ్ళు అంటారు. రయబడి వసయళ్ళు ప్ునరయవుుతముఅవుతూ ఉంటాయి.

రయబడి వసయళ్ును వరి క్ప్ు ఖాతా లేదా లాభనష్ట ముల ఖాతాలో కడ

ర ిట్ వ్ెైప్ున వ్యరస్యిరు. మకలధ్న
వసయళ్ు ప్రభావంఆస్థి అప్ుుల ప్టటటపై ఉంటుంది.

1. ఉతపత్తి ఖాతా తయారీ:

ఉతుతిి మరియు వరి క్ కయరాక్లాపయలు చేస్ే వ్యాపయర సంసథ లుఉతుతిి ఖాతాను తయారు చేస్ి యయి. ఈ
సంసథ లు ముడి ప్దారయథలను తయారైన వసు
ి వులుగయ మారుితాయి, ఆపైనతయారైన వసు
ి వులను
అముుతాయి. తయారు అయిన వసు
ి వుల వాయానిిక్నుగొనడానికత ఉతుతిి ఖాతాను తయారు
చేస్ి యయి. ముడిసరుక్ు కొనుగోలు,ముడిసరుక్ు మరియు తయారీలోఉనిసరుక్ును తయారైన
వసు
ి వుగయ మారిడానికత సంబంధించిన అనిి ఖరుిలు ఉతుతిి ఖాతా యొక్క డెబిట్ వ్ెప్
ై ు నమోదు
చేయబడతాయి. ఉతుతిి ఖాతా దావరయ క్నుగొనబడిన "ఉతుతిి అయిన వసు
ి వుల వాయం" వరి క్ప్ు
ఖాతాక్ు బదిలీ చేయబడుత ంది.

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8.4.1. Categorization of Income and Expenditure into Capital and Revenue:

Following is the summary of expenditure towards education of a student in intermediate

Expenditure in First Year:
Hostel fee30,000Bus fare 1,700Fee 11,000
Laptop40,000Examination Fee2,250Textbooks 5,600
Notebooks800Other Stationary1,000
Total: 92,350
Expenditure in Second Year:
Hostel fee36,000 Bus fare 1,900Fee 13,000
Examination Fee2,500 Notebooks 900Other Stationary 1,050
Total: 55,350Total Expenditure for two years: 1,47,700
1. Why was the expenditure in first year more when compared to second year?
2. Could the benefits from expenditure of Rs.1,47,700 have been exhausted?

8.4.1.1 Capital Expenditure and Revenue Expenditure:

Basically, we can divide expenditures into two broad categories with respect to the
length of benefits derived from expenditure. Benefits from an expenditure may last for more
than one Accounting Period(year) or they may expire in one accounting period (Year).
Former is known as Capital expenditure and latter is known as Revenue expenditure. In other
words, expenditure made to generate revenue for number of accounting years is known as
Capital Expenditure whereas, expenditure made to generate revenue in a particular
accounting year is known as Revenue expenditure. Capital Expenditures are usually non-
recurring in nature whereas revenue expenditures are recurring.

For example,

Expenditure incurred on Purchase of a machinery Rs.1,00,00,000 in May 2021 is a

capital expenditure as the benefits (services of Machinery) from that expenditure will be
available for several accounting years.

Expenditure incurred on payment of salaries Rs. 5,00,000 in May 2021 is a revenue

expenditure as the benefit (Services from employees) from that expenditure would be
available in that accounting year only.

Capital expenditures should be taken into the Balance sheet. Revenue expenditures
should be compared with incomes of the current year for ascertainment of profit for the
current year. In other words, they should be recorded in Manufacturing or trading or profit
and loss account.

242
2. వర్ి క్పు ఖాతా తయారీ:
వసు
ి వుల అముకయల దావరయ వచిిన రయబడినిఅమిున వసు
ి వులు వాయంతో పో లిడం దావరయ సయ
థ ల
లాభం/సయ
థ ల నష్యటనిి నిరయిరించడానికత టేడ
ర ింగ్ ఖాతాను తయారు చేస్ి యరు. అముకయల ఆదాయం
మరియు ముగింప్ు సరుక్ునిలవవరి క్ప్ు ఖాతాక్ు కరడట్
ి చేయబడతాయి. సరుక్ు కొనుగోలు చేయుటక్ు
మరియు సరుక్ును అముదగిన స్థథ తి లోనికత తేవడానికత చే స్ేఅనిి ఖరుిలు వరి క్ప్ు ఖాతాక్ు డెబిట్
చేయబడతాయి. వరి క్ప్ు ఖాతా లో డెబిట్ వ్ెైప్ు మొతి ము క్నాి కరడట్
ి మొతి ము ఎక్ుకవగయ ఉంటే ఆ
బేధ్ంసయ
థ ల లాభం అవుత ంది. కడ
ర ిట్ వ్ెప్
ై ు మొతి ము క్నాిడెబిట్వ్ెైప్ు మొతి ము ఎక్ుకవగయ ఉంటే ఆ
బేధ్ంసయ
థ ల నష్ట ం అవుత ంది.వరి క్ప్ు ఖాతా దావరయ క్నుగొనబడిన సయ
థ ల లాభం లేదా సయ
థ ల నష్ట ం
లాభనష్యటల ఖాతాక్ు బదిలీ చేయబడుత ంది.
3.లాభనష్యటల ఖాతాతయారీ:
వ్యాపయర సంసథ యొక్క నిక్ర లాభమును లేదా నిక్ర నష్ట మును క్నుగొనడానికత లాభనష్యటల ఖాతాను
తయారు చేస్ి యరు. వరి క్ప్ు ఖాతా నుండి బదిలీ కయబడిన సయ
థ ల లాభం లేదా సయ
థ ల నష్ట ం తోలాభనష్యటల
ఖాతా మొదలవుత ంది. వరి క్ప్ు ఖాతాక్ు కరడట్
ి కయబడని ఆదాయాలు అన్ని లాభనష్యటల ఖాతాక్ు కరడట్
ి
చేస్ి యరు. ఆఫీసు మరియు వ్యాపయర నిరవహణక్ు సంబంధించిన అనిి ఖరుిలను, వసు
ి వుల అముక్ము
మరియు ప్ంపథణీకత సంబంధించిన అనిి ఖరుిలనులాభనష్యటల ఖాతాక్ు డెబిట్ చేస్ి యరు. లాభనష్యటల
ఖాతా లో డెబిట్ వ్ెప్
ై ు మొతి ము క్నాి కరడట్
ి వ్ెైప్ు మొతి ము ఎక్ుకవగయ ఉంటే ఆ బేధ్ం నిక్ర లాభం
అవుత ంది. కరడట్
ి వ్ెైప్ు మొతి ము క్నాిడెబిట్ మొతి ము ఎక్ుకవగయ ఉంటే ఆ బేధ్ము నిక్రనష్ట ం
అవుత ంది.లాభనష్యటల ఖాతా దావరయ క్నుగొనబడిననిక్ర లాభం లేదా నిక్ర నష్ట ం యజమాని
మకలధ్న ఖాతాక్ు బదిలీ చేయబడుత ంది.
4. ఆస్తి అపుపల పట్టు తయారీ:
ఆస్థి అప్ుుల ప్టటట , ఒక్ నిరిిష్ట తేదన
ీ వ్యాపయర సంసథ యొక్క ఆసు
ి లు మరియు అప్ుులను చయప్ుత ంది.
ఇది ఒక్ నిరిిష్ట తేదీన సంసథ ఆరిథక్ ప్రిస్తిని
థథ చయప్ుత ంది క్నుక్ దీనిని ప జష్న్స స్ేటట్ మంట్ అని క్ూడా
అంటారు. అనిి వ్యసి విక్ మరియు వాకతిగత ఖాతాలనిలవలు ఆస్తి అప్ుుల ప్టటటకత తీసుక్ురయబడతాయి.
ఆసు
ి లు ఆస్థి అప్ుుల ప్టటటయొక్క క్ుడి వ్ెైప్ున చయప్బడతాయి.ఆస్థి అప్ుుల ప్టటటయొక్క ఎడమ వ్ెైప్ు
అప్ుులు మరియు మకలధ్నం చయప్బడతాయి.
అక ంటంగ్ సమీక్రణం అనగయ “ఆసు
ి లు = అప్ుులు + మకలధ్నం” ప్రకయరం ఆస్థి అప్ుుల
ప్టటట లోనిఆసు
ి ల వ్ెైప్ు మొతి ం మరియు అప్ుుల వ్ెప్
ై ు మొతి ం ఎలే ప్ుుడయ సమానంగయ ఉండాలి.

ఆస్థి అప్ుుల ప్టటటతయారు చేసి ునిప్ుుడు , ఆసు

ి లు మరియు అప్ుులను వ్యట సవభావం ఆధారంగయ
వివిధ్ గక
ర ప్ులుగయ వరీీక్రించి వివిధ్ శీరిిక్ల కతరంద చయప్ుతారు. దీనిని 'గక
ర పథంగ్'అంటారు.

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8.4.1.2 Capital Receipts and Revenue Receipts:

Receipts that take place in ordinary course of business are known as Revenue receipts. These
are recurring in nature and received mainly on account of goods sold or services rendered by
the business. Capital receipts are non - recurring in nature, and they do not be received in
ordinary course of business. These are received by way of sale of fixed assets, receipt of
capital and loans.

Example,

Revenue from sale of goods, commission received, interest received is revenue

receipts. Sale proceeds of Machinery, Capital contributed by the owners, bank loan taken are
capital receipts.

Revenue receipts should be compared with expenses in ascertainment of profit.

Capital receipts generally arise from decrease in fixed assets and increase in capital and
liabilities. They should be adjusted to respective asset or liabilities accounts.

Let us sum up,

A Trial balance consists of both capital and revenue items. All expenditure and
receipts are of revenue nature should be brought to Manufacturing or Trading or Profit and
Loss account to ascertain profit or loss for an accounting period. All expenditure and receipts
of capital nature should be brought to Balance sheet to show the financial position as on a
particular date usually at the end of the accounting period.

8.4.2. Closing entries:

As we discussed earlier, the balances of nominal accounts i.e expenses and incomes
are transferred to Manufacturing, Trading, and Profit and Loss Accounts based on their
nature. In accounting any transfer of balance should be done only by passing an appropriate
journal entry. So, we should pass journal entries to transfer the balances of expenses and
incomes to Manufacturing, Trading, and Profit and Loss Accounts. Closing entries are
recorded in Journal proper. Closing entries related to preparation of Manufacturing A/c ,
Trading A/c , and Profit and Loss A/c will be discussed in the sections Preparation
Manufacturing Account, Preparation of Trading Account, and preparation of Profit and Loss
Accounts respectively.

8.4.3. Preparation of Manufacturing Account

Manufacturing account is prepared by concerns which are engaged in manufacturing

cum trading activities. These firms convert raw material into finished good, then sell the
finished goods. Manufacturing account is prepared to ascertain the cost of goods
manufactured. All the expenditure associated with purchase of material, and conversion of
raw material and work in process into finished good is recorded on debit side of this account.
The outcome of manufacturing account is “Cost of goods Manufactured” and is transferred to
Trading account.
244
 ఉదాహరణక్ు,స్థథ రయసు
ి ల అను శీరిిక్లో భకమి, భవనాలు, యంతారలు వంట ఆసు
ి లను చయప్ుట.

ఆస్థి అప్ుులప్టటటలోఆసు
ి లు మరియు అప్ుులను దరవాతవత క్రమంలో గయన్న లేదా శ్యశవతతవ క్రమంలోగయన్న
చయప్ుతారు. ఈ విధ్ముగయ చయప్ుటను మారిలింగ్ అంటారు.

ఉదాహరణక్ు, ప్రసి ుత అప్ుులను మొదట, దీరఘకయలిక్ అప్ుులను ఆ తరయవత, మకలధ్నమును చివర

చయప్ుటదరవాతవత క్రమము.మకలధ్నమునుమొదట, దీరక
ఘ యలిక్ అప్ుులను ఆ తరయవత, ప్రసి ుత
అప్ుులనుచివర చయప్ుటశ్యశవతతవ క్రమము.

సర్దుబాట్ట
ు :

అంక్ణా, వ్యాపయర సంసథ యొక్క అనిి ఆవరయాఖాతాల నిలవలను క్లిగి ఉంటుంది. అంక్ణా సహాయంతో
ముగింప్ు ల క్కలను తయారు చేస్ి యరు. కయన్న,కొనిిఅంశములుఅంక్ణా లో క్నిపథంచవు.
ముగింప్ుల క్కలు తయారు చేస్ేటప్ుడు ఈ అంశ్యలను జాగరతిగయ విశ్లేషథంచి సరుిబాటు చేయాలి.

కొనిి సరుిబాటే ను ఈ కతరంది ప్టట క్ లో ఇవవడమయినది.

సర్దుబాట్ట వర్ి క్పు లాభన్ష్ుముల ఖాతా ఆస్తి అపుపల పట్టు

ముగింపు సర్దక్ు వరి క్ప్ుఖాతాక్ు కడ

ర ిట్ చేయాలి. ఆసుిల వ్ెైప్ున చయపయలి.

తర్దగుదల లాభనష్యటల ఖాతాక్ు డెబిట్ చేయాలి. ఆసుథల వ్ెైప్ు సంబంధిత స్థథ రయస్థి నుండి
తగిీంచాలి.

చెల్ుించవలస్తన్ ఖర్దులు వరి క్ప్ు/ లాభనష్యటల ఖాతా లోడెబిట్ అప్ుుల వ్ెప్

ై ు చయపయలి.
వ్ెైప్ునసంబంధిత ఖరుిక్ు క్లపయలి.

ముిందుగా చెల్ుించిన్ ఖర్దులు వరి క్ప్ు/ లాభనష్యటల ఖాతా లో డెబిట్ ఆసుిల వ్ెైప్ున చయపయలి.
వ్ెైప్ునసంబంధిత ఖరుినుంచి తీస్థవ్ేయాలి.

రావలస్తన్ ఆదాయాలు లాభనష్యటల ఖాతా లో కడ

ర ిట్ వ్ెైప్ునసంబంధిత ఆసుిల వ్ెైప్ున చయపయలి.
ఆదాయానికత క్లపయలి.

245
 8.4.3.1 Format of Manufacturing Account:
Dr. Manufacturing Account of ………..for the period ending on…. Cr.

Particulars Amount Amount Particulars Amount Amount

To Raw material Consumed: By Trading A/c XXXX
Opening stock of Raw material XXXX (Cos of goods manufactured)
Add: purchases XXXX
XXXX
Less: closing stock of raw material XXXX XXXX

To Direct/Manufacturing wages XXXX

To Direct expenses
Carriage inwards XXX
Taxes and Duties on purchases XXX
Insurance on purchases XXX
Royalty based on production XXX
Other direct expenses XXX XXXX

To Factory/Indirect expenses
Indirect wages XXX
Factory supervisor's salary XXX
Foreman / Works manager salary XXX
Factory rent, rates and taxes XXX
Factory lighting, steam XXX
Gas,coal and water XXX
Fuel and power XXX
Stores consumed XXX
Insurance on Factory building XXX
Insurance on plant and machinery XXX
Depreciation on Factory building XXX
Depreciation on plant and machinery XXX
Repairs to Factory building XXX
Repairs to plant and machinery XXX
Factory general expenses XXX
Other indirect Factory expenses XXX XXXX

To Work in process
Work in process Beginning XXXX
Less: closing work in process XXX
Less: Sale of scrap XXX XXXX XXXX

XXXXX XXXXX

246
ముిందుగా వచిున్ ఆదాయాలు లాభనష్యటల ఖాతా లో కడ
ర ిట్ వ్ెైప్ునసంబంధిత అప్ుుల వ్ెప్
ై ు చయపయలి.
ఆదాయము నుంచి తీస్థవ్ేయాలి.

మూలధన్ము పెై వడడీ లాభనష్యటల ఖాతా క్ు డెబిట్ చేయాలి. అప్ుులవ్ెైప్ు మకలధ్నమునక్ు క్లపయలి.

స ింతవాడకాలపెై వడడీ లాభనష్యటలఖాతాక్ు కడ

ర ిట్ చేయాలి. అప్ుులవ్ెైప్ు మకలధ్నము నుండి
తీస్థవ్ేయాలి.

రాని బాకీలు లాభనష్యటల ఖాతాక్ు డెబిట్ చేయాలి. ఆసుథల వ్ెైప్ు రుణగరసథ ుల నుండి తగిీంచాలి.

సింశ్యాతమక్ బాకీలక్ు ఏరాపట్ట లాభనష్యటల ఖాతాక్ు డెబిట్ చేయాలి. ఆసుథల వ్ెైప్ు రుణగరసథ ుల నుండి
తగిీంచాలిలేదా అప్ుులవ్ెైప్ు చయపయలి.

ర్దణగరసు ుల పెై డిస్కింట్ కొర్క్ు లాభనష్యటలఖాతాక్ు డెబిట్ చేయాలి. ఆసుథల వ్ెైప్ు రుణగరసథ ుల నుండి
ఏరాపట్ట తగిీంచాలిలేదా అప్ుులవ్ెైప్ు చయపయలి.

ర్దణదాతల పెై డిస్కింట్ కొర్క్ు లాభనష్యటలఖాతాక్ు కడ

ర ిట్ చేయాలి. అప్ుుల వ్ెప్
ై ు రుణదాతల నుండి తగిీంచాలి.
ఏరాపట్ట

సర్దక్ు న్ష్ుము ఏరుడిన సరుక్ు నష్ట మును వరి క్ప్ుఖాతాక్ు భీమా క్ంపన్న నుంచి రయవలిసన క్ే యిము
కడ
ర ిట్ చేయాలి. మొతి మును ఆసుథల వ్ెప్
ై ు చయపయలి.

భీమా క్ే యిము దావరయ భరీి చేయబడని నష్ట మును

లాభనష్యటల ఖాతా క్ు డెబిట్ చేయాలి.

మేనేజర్ద క్ు లాభముపెై లాభనష్యటల ఖాతా క్ు డెబిట్ చేయాలి. అప్ుుల వ్ెప్
ై ు చయపయలి.
క్మీష్న్ు

247
8.4.3.2 Closing Entries Related to preparation of Manufacturing Account:

The usual closing entries required in preparation of Manufacturing Account are given
below:

Journal Proper

Particulars Amount Amount

1. For Transfer of raw material consumed, opening work in process, ,

direct wages, direct expenses, factory expenses to the debit side of
Manufacturing Account:

Manufacturing A/c Dr XXXXX

To Raw material consumed* A/c XXXX

To Opening work in process A/c XXXX
To Direct wages A/c XXXX
To Direct expenses A/c XXXX
XXXX
To Factory expenses A/c

(Being the expenses transferred to Manufacturing Account)

2. For Transfer of closing stock of work in processand sale of scrap/ by
products into account

Closing work in process A/c Dr XXXX

Sale of scrap/ by product A/c Dr XXXX
To Manufacturing A/c XXXXX

(Being closing stock of work in process and sale of scrap/ by products

transferred to manufacturing account)

3. For transfer of Cost of goods manufactured to Trading account

Trading A/c Dr XXXX

To Manufacturing A/c XXXX

(Being Cost of goods manufactured transferred to Trading A/c)

* Raw material consumed

= Opening raw material + Purchases of raw material (net) – Closing raw material

Note: Expenses and losses should be transferred to Manufacturing account individually.

8.4.3.3 Explanation to Key items in Manufacturing Account:

248
1. Opening stock of raw material:
Inventories of a concern are in three forms. Raw material, work in process and
finished goods. Raw material refers to a basic or unprocessed material used to produce
goods. Opening stock of Raw material has to be debited to Manufacturing Account.
Opening stock of raw material refers to the raw material stock left at the end of the
previous accounting year and brought forward to the current year.

2. Purchases of raw material:

Raw material purchased during the current year has to be debited to
Manufacturing account. Both cash and credit Purchases are to be taken into account.
Purchase returns, goods taken by proprietor for his personal use, goods lost by fire, theft
etc, are adjusted to be Purchases.

3. Opening stock of work in process

Work in process refers to goods partly processed. They are semi-finished goods
that lie in between raw material and finished goods. Opening stock of Work in process
has to be debited to Manufacturing Account. Opening stock of work in process refers to
the stock of work in process left at the end of the previous accounting year and brought
forward to the current accounting year.

4. Closing stock of raw material:

Closing stock of Raw material has to be credited to Manufacturing Account or

adjusted to opening stock and purchases on debit side. Closing stock of raw material
refers to the raw material stock left at the end of the current accounting year. The
stock of goods is valued at cost price or market price whichever is lower.

5. Closing stock of Work in Process:

Closing stock of work in process has to be credited to Manufacturing Account or
adjusted to opening stock on debit side. Closing stock of work in process refers to the
stock of work in process left at the end of the current accounting year.

6. Direct wages/ Manufacturing wages:

Wages paid to the manufacturing labor directly involved in manufacture of a

product are direct wages. Direct wages refer to wages directly linked to the
units produced. These have to be debited to Manufacturing account.
7. Direct Expenses:

249
 Expenses directly related to the manufacturing of a product other than direct material and
direct wages are called direct expenses. These expenses have to be debited to
Manufacturing Account.

8. Factory/Indirect expenses:
Expenses not directly related to the manufacturing of a product are known as indirect
expenses. These include indirect material, indirect labor and indirect expenses. These are
otherwise known as factory/manufacturing over heads.

9. Cost of goods manufactured:

The total of cost incurred on finished goods produced is known as cost of goods
manufactured. This is the outcome of manufacturing account and it should be transferred
to trading account.

Practical Illustration 1: (Preparation of manufacturing account)

Mr. Anil Manufactures a Special Brand phenyl and he gives you the following information in
respect of his manufacturing activities for the half-year ending 31/03/2021. Prepare
Manufacturing A/c.

Working in Process Opening (01/10/2020) Rs.17,200

Working in Process Closing (31/03/2021) Rs. 22,900
Raw material Opening (01/10/2020) Rs, 9,900
Raw material Closing (31/03/2021) Rs. 15,100
Raw material purchases Rs. 84,600
Direct Wages Rs. 32,800
Factory Rent Rs. 7,500
Heat & Light Rs. 6,200
Foreman Salary Rs. 4,100
Motive Power Rs. 2,300
Repairs to Plant Rs. 1,500
Consumble Stores Rs.1,000
Sale of scrap Rs.600
Carriage on purchases Rs.1,800

250
Dr. Manufacturing A/c for the 6 Months Ending 31/03/2021 Cr.
Particulars Rs. Rs. Particulars Rs. Rs.

To Working in Process 17,200 By Sale of Scrap 600

(Opening)

ToRaw material consumed By Working in Process 22,900

Opening Raw material 9,900 (Closing)
(+) Purchases 84,600
94,500
(-) Closing Raw material 15,100 79,400 BY Cost of Production 1,30,300
(Transferred to Trading
To Direct Wages 32,800 Account)

To Direct Expenses
Carriage on Purchases 1,800

To Indirect Expenses
(Manufacturing overheads)
Factory Rent 7,500
Heat & Light 6,200
Foreman Salary 4,100
Motive Power 2,300
Repairs to Plant 1,500
Consumable stores 1,000 22,600
1,53,800 1,53,800

8.4.4. Preparation of Trading Account

According to J.R. Batliboi, “The Trading Account shows the results of buying and selling of
goods. In preparing this account, the general establishment charges are ignored and only the
transaction in goods are included.”

There are some firms engagedin manufacturing cum trading activity, these firms
purchase raw material and convert it into finished good then sell. Some firms only purchase
and sell goods without changing the form of goods. In between these two, there are some
semi manufacturing cum trading firms which primarily involve in trading but process goods a
bit before selling them. All these firms prepare trading account.Trading account is prepared
to ascertain the gross profit/gross loss by matching Revenue on account of sale of goods with
the cost of goods sold. Revenue from sale of goods, and balance of closing stock are credited
to trading account. Expenses related to purchases of goods and expenses incurred to bring the

251
 goods in to saleable form are debited to trading account. Excess of credits over debits
indicates Gross profit and excess of debits over credits indicates Gross loss. The outcome of
trading account i.e Gross profit or gross loss has to be transferred to Profit and Loss account.

8.4.4.1 Trading Account Model of Manufacturing cum Trading firms:

Dr.Trading Account of ……………..for the year ended………. Cr.

Particulars Rs. Rs. Particulars Rs. Rs.

To Opening stock of finished
XXX By Sales XXX
goods
To Purchase of finished goods XXX Less: Sales Returns XXX XXX
By closing stock of finished
Less: Purchases Returns XXX XXX XXX
goods
To Cost of goods manufactured XXX
(Transferred from
Manufacturing account)
XXX By Gross Loss c/d XXX
To Gross Profit c/d
(Transferred to Profit & (Transferred to Profit &
Loss A/c) Loss A/c)
XXXX XXXX

8.4.4.2 Trading Account Model of Trading / Semi Manufacturing cum Tradingfirms:

Dr.Trading Account of ……………..for the year ended………. Cr.

Particulars Rs. Rs. Particulars Rs. Rs.

To Opening stock XXX By Sales XXX
To Purchases XXX Less: Sales Returns XXX XXX
Less: Purchases Returns XXX XXX By closing stock XXX
Direct expenses:
To Carriage Inward XXX
To Cartage inward XXX
To Import/Customs duty XXX
To Freight on purchases XXX
To Taxes and Duties on purchases XXX
To Dock charges XXX
To Clearing charges XXX
To Insurance on purchases XXX
To Royalties on production XXX
To Wages XXX
To Foreman/works manager salary XXX
To Factory Rent, rates and taxes XXX

252
To Factory insurance XXX
To Factory expenses XXX
To.Production/manufacturing
expenses XXX
To Gas, coal and water XXX
To Power and fuel XXX
To Factory lighting
To Consumable stores XXX
To primary packaging charges XXX
To Other direct expenses XXX

To Gross Profit c/d XXX By Gross Loss c/d XXX

(Transferred to Profit & (Transferred to Profit &
Loss A/c) Loss A/c)
XXX XXX

8.4.4.3 Closing Entries Related to preparation of Trading Account:

Journal Proper

Particulars Amount Amount

1. For Transfer of Opening stock, purchases, direct expenses, to the

debit side of Trading Account:

Trading A/c Dr XXXXX

To Opening stock A/c XXXX

To Purchases(net) A/c XXXX
To Direct expenses A/c XXXX

(Being the expenses transferred to Trading Account)

2. For taking closing stock into account

Closing stock A/c Dr XXXX

To Trading A/c XXXXX

(Being value of closing inventory brought into account)

3. For transfer of Sales to Trading account

Sales(net) A/c Dr XXXX

To Trading A/c XXXX

(Being Sales transferred to Trading Account)

253
4. For transfer of Gross profit to Profit and Loss Account

Trading A/c Dr XXXX

To Profit and Loss A/c XXXX

(Being Gross profit transferred to Profit and Loss Account)

5.For transfer of Gross loss to Profit and Loss Account

Profit and Loss A/c Dr XXXX

To Trading A/c XXXX

(Being Gross loss transferred to Profit and Loss Account)

Note: Expenses and losses, Income should be transferred to Trading account individually.

8.4.4.4 Explanation to Key items in Trading Account:

1. Opening stock:
Opening stock of goods has to be debited to Trading Account. Opening stock of goods
refers to the stock of goods left at the end of the previous accounting year and brought
forwarded to the current accounting year.

2. Purchases:
Goods purchased during the current year have to be debited to Trading
account. It includes both cash and credit Purchases. Purchase returns, goods taken by
proprietor for his personal use, goods lost by fire, theft etc, are to be adjusted to
purchases.

Adjustment entries required are

i. Purchase returns a/c Dr

To purchases A/c

(For adjustment of purchase returns)

ii. Drawings A/c Dr

To purchases A/c

(For adjustment of goods taken by owner for personal use)

iii. Goods lost by ____ A/c Dr

To purchases A/c

(For adjustment of goods lost)

254
 It should be noted that purchases of goods only taken into consideration.
Purchases of assets are not concerned with trading account.

3. Direct Expenses:

Expenses related to purchase of goods and bringing goods into saleable

condition are known as direct expenses. Direct expenses have to be debited to
trading account.

Some of the direct expenses are given below

i. Wages: wages are the consideration paid to the labour involved in

manufacturing of goods or bringing the goods into saleable condition.

ii. Carriage, cartage, fright inwards: These are the expenses paid for the
transport of purchased goods to the place of business.
iii. Import/Customs duty: These are the taxes paid on import of goods.

iv. Dock charges: These are the Charges paid to port while unloading the
goods.

v. Royalties on production: Royalty represents the amount paid to the

patentee to use his patent in production. If royalty is paid on the basis of
production, it should be debited to trading account.

vi. Consumable stores: These are the items used to maintain the machines
in good condition like engine oil, grease, cotton, soap etc.

vii. Power and fuel: Gas, Electricity, coal, oil, water etc., are used in
processing.

4. Sales:
Goods sold during the year has to be credited to Trading account. It includes both cash
sales and credit sales. Sales returns have to be adjusted to Sales. Adjustment entry is:

Sales A/c Dr
To Sales returns A/c

It should be noted that sales of goods only taken into consideration. Sales of assets are not
concerned with trading account.

5. Closing stock:

255
 Closing stock of goods has to be credited to Trading Account or adjusted to purchases on
debit side. Closing stock of goods refers to the stock of goods left at the end of the current
accounting year. The stock of goods is valued at cost price or market price whichever is
lower.

6. Gross profit/ Gross Loss:

Incomes on account of goods sold are credited to Trading Account and cost of goods sold
is debited to Trading account. If credit side total of the trading account is more than debit
side total, the difference would be Gross profit. Else if debit side total of the trading
account is more than credit side total, the difference would be Gross Loss. Gross profit or
gross loss is transferred to profit and loss account.

Practical Illustration 2: (Preparation of Trading Account)

Prepare Trading Account and ascertain gross profit

Purchases 68,000
Sales 1,12,500
Freight & duty 6,400
Wages 9,000
Opening Stock 17,200
Closing Stock 32,600
Return inward 1,200
Return outward 2,300
Fuel & Power 5,200

Dr Trading Account Cr

Particulars Amount Amount Particulars Amount Amount

To Opening Stock 17,200 By Sales 1,12,500
To Purchases 68,000 (-) Returns 1,200 1,11,300
(-) Returns 2,300 65,700 By Closing Stock 32,600
To Direct Expenses
Freight & Duty 6,400
Wages 9,000
Fuel & Power 5,200 20,600
To Gross Profit 40,400
(Transferred P&L A/c)

1,43,900 1,43,900

256
8.4.5. Preparation of Profit and Loss Account:

According to Prof. Carter, “A Profit & Loss Account is an account into which all gains and
losses are collected, in order to ascertain the excess gains over the losses or vice-versa”.

Profit and loss account is prepared to ascertain net profit or net loss of the business for
a particular period. It is prepared as a continuation to Trading account. Profit and loss account
starts with the balance of trading account i.e Gross profit or Gross loss. Incomes received
other than from sale of goods are credited to profit and loss account and all indirect expenses
related to Office and administration, selling and distribution, and other expenses and losses
are debited to Profit and loss account. Excess of credits over debits in profit and loss account
indicates Net profit and excess of debits over credits indicates Net loss. The outcome of profit
and loss account i.e Net profit or Net loss is transferred to Owner’s Capital account.

257
8.4.5.1General format of Profit and Loss account is given below

Dr. Profit and Loss A/c of ……………………..for the year ended…………. Cr.

Particulars Rs. Particulars Rs.

To Gross Loss b/d By Gross Profit b/d XXX

Office and Administration Expenses

To Salaries XXX By Commission Received XXX
To Office Rent, Rates, Taxes XXX By Discount Received XXX
To Office Insurance XXX By Interest Received XXX
To Repairs and maintenance XXX By Dividends Received XXX
To Depreciation XXX By Rent Received XXX
To Postage and Telephone charges XXX By Profit on sale of Assets XXX
To Printing & Stationery XXX By Bad debts recovered XXX
To Office electricity charges XXX By Interest on Drawings XXX
To Trade expenses XXX ByProvision for Doubtful debts
To Legal expenses XXX (Decrease) XXX
To Audit Fees XXX By Other incomes/gains XXX
To General expenses XXX

Selling and Distribution Expenses

To Commission to salesmen XXX
To Traveling expenses XXX
To Advertisement and publicity. XXX
To sales promotion expenses XXX
To Bad debts XXX
To Free samples XXX
To Godown / Storage Expenses XXX
To Carriage out ward XXX
To Fright outward XXX
To Packing charges XXX
To Dock charges on sales XXX

Other Expenses and losses

To Discount allowed XXX
To Interest on capital XXX
To Interest on loans XXX
To Bank charges XXX
To Loss on sale of Assets XXX
To Provision for Bad & doubtful debts XXX
To miscellanies expenses or losses XXX
To Net Profit By Net Loss
(Transferred to Capital A/c) XXX (Transferred to Capital A/c)
XXXX XXXX

258
8.4.5.2 Closing Entries Related to preparation of Profit and Loss Account:

The usual closing entries related to preparation of Profit and Loss Account are given
below:

Journal Proper

Particulars Amount Amount

1. For the Transfer of Office and administration expenses, selling and
distribution expenses and other expenses and losses to Profit and loss
Account:

Profit and Loss A/c Dr XXXXX

To Office and administration expenses A/c XXXX

To Selling and Distribution expenses A/c XXXX
To Other expenses and losses A/c XXXX

(Being the expenses transferred to Profit and Loss Account)

2. For the transfer of Incomes to Profit and Loss account

Incomes A/c Dr XXXX

To Profit and Loss A/c XXXX

(Being incomes transferred to profit and loss account)

3. For the transfer of Net profit to Capital Account

Profit and Loss A/c Dr XXXX

To Capital A/c XXXX

(Being net profit transferred to Capital Account)

4.For the transfer of Net loss to Capital Account

Capital A/c Dr XXXX

To Profit and Loss A/c XXXX

(Being netloss transferred to Capital Account)

Note: Expenses and losses, Incomes and gains should be transferred to profit and loss
account individually.

259
8.4.5.3 Explanation to Key items in Profit and Loss Account:

Incomes and gains:

Incomes received other than from sale of goods are recorded on credit side of the profit and
loss account. Interest received, commission received, discount received are some of the
incomes to be recorded on credit side of the Profit and loss account. Gains from financing
and investment activities like profit on sale of assets and investments are also recorded on
credit side of the profit and loss account.

Office and administration expenses:

Expenses related to management of office and incurred in the day to day operations
are shown on debit side of the profit and loss account under the head Office and
administration expenses.

Selling and Distribution expenses:

Expenses incurred to generate and increase sales, and expenses associated with distribution of
goods to customers are recorded on debit side of the profit and loss account under the head
selling and distribution expenses.

Other expenses and losses:

All other expenses like interest paid, discount allowed are to be recorded on debit side of the
profit and loss account. Losses on account of sale of fixed assets are also recorded on debit
side of the profit and loss account.

Some of the expenses to be debited to profit and loss account are explained below:

Salaries: Salaries generally represent the consideration paid to office and sales staff for
rendering their services.

Legal charges: These are the expenses paid to maintain legality in business include fee paid
to legal advisers.

Audit fee: Fee paid to auditors for auditing books of accounts.

Trade expenses: These are various small expenses incurred in maintenance of office. These
are also called general expenses, sundry expenses, office expenses and miscellaneous
expenses.

Depreciation: Depreciation is a permanent and gradual decrease in value of fixed assets due
to wear and tear. It should be debited to profit and loss account.

Advertisement, promotion and publicity: These are the Expenses paid to generate and
increase the sales of business.

Commission paid:Commission means amount paid to sales persons on sales

260
Carriage outwards: These are the expenses paid for the transport of sold goods to the place
of buyer.

Net Profit or Net Loss:

Incomes received other than from goods sold are credited to Profit and Loss Account
and cost of administering the office, sales and other expenses and lossesare debited to profit
and loss account. If credit side total of the Profit and loss account is more than debit side
total, the difference would be Net profit. Else if debit side total of the profit and loss account
is more than credit side total, the difference would be Net Loss. Net profit or Net loss should
be transferred to capital account.

Practical illustration 3: (preparation of Profit and loss Account)

Prepare Profit and Loss A/c of M & Co for the year 2020

Discount Received 700 Insurance 1,800

Advertising 6,900 Gross Profit 76,400
Repairs 2,500 Bad Debts Recovered 400
Depreciation 2,900 Stationery & Printing 4,000
Carriage Outward 3,000 Postage, courier 1,600
Rent and rates 11,400 Salaries and PF 17,200

Solution:

Dr. Profit and Loss Account of M & Co for the year ending 31/12/2020 Cr.

Particulars Amount Particulars Amount

To Salaries & PF 17,200 By Gross Profit 76,400
To Rent & Rates 11,400 By Discount Received 700
To Insurance 1,800 By Bad debts Recovered 400
To Stationery & Printing 4,000
To Postage, Courier 1,600
To Repairs 2,500
To Depreciation 2,900
To Advertising 6,900
To Carriage outward 3,000
To Net Profit 26,200
(Transferred to Capital A/c)
77,500 77,500

261
 Differences between Trading Account and Profit and Loss Account

Reason for difference Trading Account Profit and Loss Account

Prepared to Ascertain Gross profit /Gross loss. Ascertain Net profit/Net loss.

Incomes recorded Income from sale of goods or Income other than from sale of
services. goods and services.

Expenses recorded Expenses relating to purchase and Expenses relating to office

production of goods. administration and sales.

End result transferred to Gross profit/ gross loss transferred to Net profit/net loss transferred to
profit and loss account. capital account.

Practical illustration 4: (Preparation of Trading and Profit and loss Account)

From the following Particulars, Prepare Trading & Profit and Loss A/c of Mr. Anand for the
Year ending 31/03/2021
Opening Stock (01/04/2020) 22,000 Clearing Charges 5,120
Closing Stock (31/03/2021) 39,850 Office Rent 11,400
Commission (Credit) 1,100 Staff Salaries 22,600
Carriage on sales 3,750 Publicity 16,500
Sales (net) 1,89,000 Telephone Charges 7,180
Purchases (net) 84,300
Solution:

Dr. Trading & Profit &Loss Account of Mr.Anand for the year ending 31/03/2021 Cr.

Particulars Amount Particulars Amount

To Opening Stock 22,000 By Sales (Net) 1,89,000
To Purchases (net) 84,300 By Closing Stock 39,850
To Direct Expenses
Clearing Charges 5,120
To Gross Profit 1,17,430
2,28,850 2,28,850
To Staff Salaries 22,600 By Gross Profit 1,17,430
To Office Rent 11,400 By Commission 1,100
To Telephone charges 7,180
To Publicity 16,500
To Carriage on sales 3,750
To Net Profit 57,100
1,18,530 1,18,530

262
Ascertainment of net profit using formulae:

Net profit or loss of a business unit can also be ascertained with the help of the following
formulae.

Net Profit/Loss =
Gross profit /Loss + Indirect incomes – (Office and administration expenses + Selling
and distribution expenses + Other expense and losses)
(Note:Positive value indicates net profit whereas negative value indicates net loss)

WhereGross profit/Loss =
Net sales – Cost of goods sold
(Note:Positive value indicates gross profit whereas negative value indicates gross loss)
Where Cost of goods sold is =
i.In case of trading concerns:
Cost of goods sold =
Opening stock of finished goods + Purchases of finished goods (less
returns) + Direct expenses if any – Closing stock of finished goods

ii. In case of manufacturing cum trading concerns:

Cost of goods sold =
Opening stock of finished goods + cost of goods manufactured +
purchases of finished goods (less returns) if any – closing stock of finished
goods

Where Cost of goods manufactured =

Raw material consumed + Direct wages + Direct Manufacturing
expenses + Factory/ Indirect expenses + Opening stock of Work in
process – Closing stock of work in process – sale of scrap or by
products.
Where Raw material consumed =
Opening stock of raw material + Purchases of raw material (less
returns) – closing stock of raw material.
From the above discussion, one can notice that net profit/loss is ascertained by
going through different phases. Gross profit/loss ascertained through Trading account is
transferred to Profit and Loss account and taken as the base in ascertainment of net
profit/loss. In case of manufacturing cum trading firms, Cost of goods manufactured
ascertained through Manufacturing account is transferred to Trading account and considered
in ascertainment of gross profit/loss.
Thus, Manufacturing account (which is prepared to ascertain cost of goods manufactured
incase of manufacturing cum trading business), Trading account (Which is prepared to

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ascertain gross profit/loss) and Profit and loss account (which is prepared to ascertain net
profit/loss) are the constituents of the periodic statement Profit and Loss account.

Ascertainment of Net profit using formulae (for the data given in Practical illustration
4) is explained below:

Opening Stock (01/04/2020) 22,000 Clearing Charges 5,120

Closing Stock (31/03/2021) 39,850 Office Rent 11,400
Commission (Credit) 1,100 Staff Salaries 22,600
Carriage on sales 3,750 Publicity 16,500
Sales (net) 1,89,000 Telephone Charges 7,180
Purchases (net) 84,300

Cost of goods sold:

Cost of goods sold: =

Opening stock of finished goods + Purchases of finished goods (less returns) +

Direct expenses if any – Closing stock of finished goods

= 22,000 + 84,300 + 5,120 – 39,850

= 71,570

Gross profit:

Gross profit = Net sales – Cost of goods sold

= 1,89,000 – 71,570

= 1,17,430

Net Profit: =

Net Profit =

Gross profit /Loss + Indirect incomes – (Office and administration

expenses + Selling and distribution expenses + Other expense and losses)

= 1,17,430 +1,100 – (22.600+11,400 +7,180 + 16,500 + 3,750)

= 1,18,530-61,430

= 57,100

8.4.6. Preparation of Balance sheet:

According to A. Palmer, “The Balance Sheet is a statement at a particular date showing on

one side the trader’s property and possessions and on the other hand the liabilities.”
264
According to J.R. Batliboi, “A Balance Sheet is a statement prepared with a view to measure
the exact financial position of a business on a certain fixed date.”

Balance sheet is prepared to show assets and liabilities of a business on a particular date.
Since it shows the financial position on a particular date it is also called as position statement.
Balances of all Real and personal accounts are brought into Balance sheet. Assets of the firm
are shown on right side of the statement, and liabilities and capital are shown on left side of
the statement. The total of right side should always be equal with total of left side as per
accounting equation i.e Assets = Liabilities + Capital.

While preparing the balance sheet, assets and liabilities are classified into different groups on
the basis of their nature and presented under different heads. This practice is
called‘Grouping’.

For example,Assets like Land, Buildings, Machinery are shown under Fixed assets head.

One should follow an order in presenting assets and liabilities in Balance sheet.

 The order of presentation may be based on liquidity, means showing the assets
which are realizable in cash in less time first and showing assets which can
take a long time to be converted into cash next. In the same way liabilities,
which require immediate payment are shown first, and liabilities which
doesn’t require payment immediately shown next.

For example,

Cash is shown first and Buildings are shown next.

Bank overdraft is shown first and Capital is shown next.
 The order may be based on permanence which is absolutely reverse to
Liquidity order. In this approach, assets remain with the firm for a long term
are shown first and assets that remain with the firm for a short period are
shown next. In the same way liabilities remain for a long term are shown first
and liabilities for a short term are shown next.

For example,

Buildings are shown first, Cash is shown next.

Capital is shown first, bank overdraft is shown next.
Showing assets and liabilities in balance sheet in an order is known as “Marshalling”.

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8.4.6.1 General format of Balance sheet (In the order of Permanence)

Balance Sheet of ………………. as on………………

Liabilities Rs. Rs. Assets Rs. Rs.

Fixed Assets:
Capital:
Tangible Fixed assets:
Opening Balance XXX Land & Buildings XXX
Add: Additional capital XXX Plant & Machinery XXX
Furniture,Fixtures and
Net profit XXX Fittings XXX
Interest on capital XXX
XXX Intangible Assets:
Patents, Trademarks,
Less: Drawings XXX Copyrights XXX
NetLoss XXX XXX XXX Goodwill XXX

Investments:
Long term liabilities
Long Team Investments XXX

Long Team Loans XXX Current Assets:

Mortgage loans XXX XXX Pre-paid expenses XXX

Current liabilities:
Closing Inventory XXX
Sundry Debtors&
Incomes received in advance XXX Bills Receivables XXX
Sundry Creditors &
Bills Payables XXX Accrued Income XXX
Outstanding expenses XXX Short term deposits XXX
Bank Over draft XXX Cash at Bank XXX
Cash in hand XXX

Fictitious assets:

Profit and loss A/c (Loss) XXX

XXX XXX

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 8.4.6.2 Format of Balance sheet (In the order of Liquidity)

Balance Sheet of ………………. as on………………

Liabilities Rs. Rs. Assets Rs. Rs.

Current liabilities: Current assets:

Bank Over draft XXX Cash in hand XXX

Outstanding expenses XXX Cash at Bank XXX
Creditors XXX Short term deposits XXX

Bills Payables XXX Accrued Income XXX

Incomes received in advance XXX Debtors XXX
Bills receivables XXX
Closing inventory XXX
Prepaid expenses XXX
Long term liabilities:
Investments:
Long Team Loans XXX
Mortgage loans XXX XXX Long Team Investments XXX

Fixed Assets:

Tangible Fixed assets:

Furniture,Fixtures,Fittings XXX
Capital: Plant & Machinery XXX

Opening Balance XXX Land & Buildings XXX

Add: Additional capital XXX Intangible Assets :

Patents,Trademarks,
Net profit XXX Copyrights XXX
Interest on capital XXX Goodwill XXX
XXX
Fictitious assets:
Less:Drawings XXX Profit and loss A/c (Loss) XXX
NetLoss XXX XXX XXX

XXX XXX

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8.4.6.3 Explanation to Key items in Balance sheet:

Capital:

Capital represents amount provided by the owner to establish and maintain business.
Amount of capital contributed by the owner is treated as a liability and it is shown on
liabilities side of the balance sheet.The opening balance of capital is taken first and any
further amount of capital provided by the proprietor during the year should be added to it. If
any interest on capital payable to the owner it should also be added. Risks and rewards,
profits and losses of business should belong to Owner. Hence, net profit / net loss earned
should be added to / deducted from owner’s capital.Any amount/goods drawn by owner from
business for his personal use represent drawings. Drawings should be deducted from capital.
If any interest on drawings receivable from the owner it should also be deducted from capital.

Long term Liabilities:

Loans and Borrowings with a maturity period of more than one year or in other words,
loans and borrowings repayable after one year like loans from banks, financial institutes and
persons, mortgage debt would come under this head. For example, Loan taken from a bank
repayable after 5 years.

Current liabilities

The dictionary meaning of Current is present or recent. Current liabilities represent

the liabilities repayable within a year. Bank over draft, debtors, bills payable, short term
loans, outstanding expenses, income received in advance would come under this head. All the
above liabilities need to be cleared within one year.

Fixed assets:

Assets acquired to use in business for revenue generation over a long period are known as
fixed assets. These assets are not meant for sale and generally remain with the business for
longer periods. Since they provide benefits for a series of years, they are capital expenditures.
These assets are illiquid in nature. Land, buildings, plant, machinery, furniture are some of
the fixed assets and should be shown on assets side of the balance sheet under the head fixed
assets.

Current assets:

Assets that are consumed in regular course of business or converted into cash within a
year are known as current assets. These are liquid in nature. However, some of the current
assets are highly liquid and some of them are moderately liquid and rest is less liquid. These
assets are otherwise known as variable assets since they do not remain in the business for
longer periods in one form. These are circulating assets, means one current asset is converted
into another asset continuously. Cash in hand, cash at bank, short term investments, debtors,
bills receivables, prepaid expenses, accrued incomes are example of current assets and these
should be placed in balance sheet under the head current assets.

Investments:

268
Investments made by the business unit for medium to long term i.e more than one year,
would come under this head. Investments in securities, long term deposits in banks are the
examples for investments.

Intangible assets:

Intangible assets are the assets which do not have a physical form. Intangible assets can’t be
seen or touched though they are present in business and have a value. Goodwill, copy rights,
patents, trademarks are the examples for intangible assets. These are shown under the head
Intangible assets in fixed assets on assets side.

Fictitious assets:

As the name itself indicates Fictitious assets are not real assets. These are the assets
for the name sake and do not add any real value to the business. Expenditures and losses to be
written off over a number of years are shown under the head fictitious assets. Accumulated
losses, discount on issue of debentures are the examples of fictitious assets.

Practical illustration 5: (Preparation of Balance sheet)

From the following particulars, Prepare Balance sheet of Sukumar as on 31/12/2020
Drawings 10,200 Creditors 18,500
Machinery 68,000 Cash in hand 15,900
Furniture 26,000 Bank Overdraft 13,100
Closing Stock 16,800 Debtors 10,200
Capital 1,21,000 Investments 25,000
Bills Receivables 3,100 Net profit 22,600
Solution :

Balance sheet of Mr. Sukumar as on 31/12/2020

Liabilities Rs. Rs. Assets Rs. Rs.

Capital 1,21,000 Machinery 68,000
(+) Net Profit 22,600 Furniture 26,000
1,43,600 Investments 25,000
(-) Drawings 10,200 1,33,400 Closing Stock 16,800
Creditors 18,500 Debtors 10,200
Bank Overdraft 13,100 Bills Receivables 3,100
Cash in hand 15,900
1,65,000 1,65,000

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 Differences between Profit and Loss account and Balance sheet

Reason for difference Trading, Profit and Loss account Balance sheet

It is prepared to know the financial It is prepared to know the financial

Purpose
performance of the firm during the account position on a particular date
period
Nature
It is an account It is a statement
Types of Account
Balances of Nominal accounts Balances of Real and personal accounts
balances shown
Contents
Incomes and expenses Assts, liabilities and capital
It is prepared for a period of time. It is a It is prepared at a point of time. It is a
Preparation
periodic statement point statement
Sides
Debit side and credit side Assets side and liabilities side

Nature of expenditure
Revenue expenditure and revenue receipts Capital expenditure and capital receipts
and receipts shown

Practical illustration 6: (Preparation of Trading,profit & loss account and Balance

sheet)
The Trial Balance of Shankar Lal as on 31/12/2019 is as under

Debit Balances Amount Rs. Credit Balances Amount Rs.

Cash in hand 1,730 Capital 60,000
Drawings 3,250 Creditors 8,420
Stock (01/01/2019) 7,820 Discount 300
Salaries 5,200 Purchases Returns 650
Interest Paid 1,240 Loan from X 20,000
Purchases 48,650 Sales 64,050
Debtors 11,600
Carriage In wards 1,850
Sales Returns 2,100
Insurance 800
Gas & water 1,200
Wages 6,320
Advertising 3,100
Octroi 1,140
Furniture 15,600
Machinery & Plant 32,000
Repairs & Maintenance 2,640
Rent & Taxes 7,180
1,53,420 1,53,420
Stock on 31/12/2019 - 15,200. Prepare final Accounts

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Dr.Trading & Profit and Loss A/cof Shankar lalfor the year ending 31/12/2019 Cr.

Particulars Amount Amount Particulars Amount Amount

To Opening Stock 7,820 By Sales 64,050
To Purchases 48,650 (-) Sales returns 2,100 61,950

(-) Purchase returns 650 48,000 By Closing Stock 15,200

To Direct Expenses

Carriage In Ward 1,850

Gas & Water 1,200
Wages 6,320
Octroi 1,140 10,510

To Gross Profit 10,820

77,150 77,150

To Salaries 5,200 By Gross Profit 10,820

To Interest Paid 1,240 By Discount 300
To Insurance 800
To Advertising 3,100
To Repairs & Maintenance 2,640 By Net loss 9,040
To Rent & Taxes 7,180
20,160 20,160

Balance sheet as on 31/12/2019

Liabilities Amount Amount Assets Amount Amount

Capital 60,000 Machinery & Plant 32,000

Net Loss -9,040 Furniture 15,600
Drawings -3,250 47,710 Closing Stock 15,200
Loan from X 20,000 Debtors 11,600
Creditors 8,420 Cash in Hand 1,730
76,130 76,130

Practical illustration 7: (Preparation of Manufacturing, Trading, Profit and loss

Account and Balance sheet)

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 The trial Balance of Mr Green on 31/03/2019 is given below. Prepare
Manufacturing, Trading, Profit and Loss account for the year ending 31/03/2019 and prepare
Balance sheet as on 31/03/2019.
Trial Balance

Particulars Debit Rs. Particulars Credit Rs.

Sundry Debtors 11,540 Sundry Creditors 6,800
Shares & Bonds 20,000 Sale of by-products 950
Drawings 7,000 Interest Received 1,120
Carriage on Purchases 1,260 Sale of finished goods 1,24,680
Productive wages 28,500 Bank overdraft 7,430
Rent of factory 4,720 Capital A/c 85,000
Rent of office 3,850
Telephone & Stationery 1,200
Plant & Machinery 42,300
Advertising 9,000
Consumable stores 960
Cash at bank 4,800
Interest on overdraft 850
Repairs to Plant 1,300
Heat Light & Power 5,500
Office Furniture 18,000
Purchases of Raw Material 40,200
Stock (01/04/2018)
Raw material 4,100
Work in process 5,980
Finished goods 14,920
2,25,980 2,25,980

Additional info:

Stock on 31/03/2019: Raw Material 2,150, Work in Process 3,840, finished goods 6,500.

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Dr Manufacturing A/c Cr

Particulars Rs. Rs. Particulars Rs. Rs.

To Work in process 5,980 By Sale of by-products 950
By Work in
To Raw Material consumed Process(Closing) 3,840
Opening Stock 4,100 By Cost of Production 85,580
(Transferred to Trading
(+) Purchases 40,200 A/c)
44,300
(-) Closing Stock 2,150 42,150
To Direct Wages 28,500
To Direct Expenses
Carriage on purchases 1,260
To Indirect Expenses
(Production overheads)
Factory Rent 4,720
Consumable Stores 960
Repairs to plant 1,300
Heat light & Power 5,500 12,480

90,370 90,370

Dr Trading A/c Cr

Particulars Rs. Particulars Rs.

To Finished goods (opening) 14,920 By Sales 1,24,680
To Cost of Production 85,580 By Finished goods (Closing) 6,500
To Gross Profit 30,680
(Transferred to P&L A/c)
1,31,180 1,31,180

Dr Profit & loss A/c Cr

Particulars Rs. Particulars Rs.

To Office Rent 3,850 By Gross Profit 30,680
To Telephone & Stationery 1,200 By Interest Received 1,120
To Interest on overdraft 850
To Advertising 9,000
To Net Profit 16,900
(Transferred to capital A/C)
31,800 31,800

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 Balance Sheet
Liabilities Rs. Rs. Assets Rs. RS.
Capital 85,000 Plant & Machinery 42,300
(+) Net Profit 16,900 Office furniture 18,000
1,01,900 Shares & Bonds 20,000
(-) Drawings 7,000 94,900 Closing Stock
Creditors 6,800 Raw material 2,150
Bank overdraft 7,430 Work in Process 3,840
Finished goods 6,500 12,490
Debtors 11,540
Cash at bank 4,800
1,09,130 1,09,130

8.5. How to prepare final accounts with adjustments:

It is the responsibility of an accountant to provide true and fair financial results to

the users of accounting. He should be very cautious in preparation of final accounts. Proper
care should be taken towards every item which impacts the results of final accounts.

Trial balance serves as a basis for preparation of final accounts. One should
prepare final accounts by taking the balances of trial balance. But in practice, there exist
some items whose effect is not reflected in trial balance. These items should be adjusted
carefully to arrive at accurate financial results.

8.5.1 Adjustment Entries:

Adjustment of items can be made by passing an appropriate adjustment entry.

Adjustment entry should be passed in such a way that the complete effect of an item should
be brought into account. Adjustment entries are passed in journal proper.

For example, salaries of final month of the current accounting year Rs. 50,000 not
paid till the date of preparation of final accounts.

As the salaries of Rs. 50,000 belong to current year though they are un paid, they should be
taken into account along with salaried paid while calculating total salaries of the current year.
Since, they are un paid they represent a liability to the business. So, the adjustment entry
would be

Salaries A/c Dr 50,000

To Outstanding salaries A/c 50,000

Salaries debited in the above entry should be added to the salaries paid on debit
side of profit and loss account, and outstanding salaries credited in the entry should be shown
on liabilities side of the balance sheet.

Adjustment of some of the items is discussed below

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8.5.2 Adjustments:

1. Closing Stock:
Closing stock refers to the stock of goods left at the end of the current accounting
yearyear. The stock of goods is valued at cost price or market price whichever is
lower. Closing stock can be adjusted as under.
Adjustment Entry:

Closing stock A/c Dr

To Trading A/c

Adjustment:

Closing stock can be adjusted by crediting to Trading Account and by

recording on Assets side of the balance sheet.

Example:

If the Closing stock of a firm valued at Rs. 4,50,000, then

Closing stock of Rs.4,50,000 should be credited to Trading Account.

and

Closing stock of Rs.4,50,000 should be shown on assets side of the balance sheet under the
head Current assets.

Note: if closing stock is given in trial balance, it should be shown on assets side of the
balance sheet only.

2. Expenses outstanding:
Expenses of the current year not actually paid in the current year are known as outstanding
expenses. We should consider the unpaid expenses of the current year along with expenses
paid in ascertainment of current year’s profit though they are not paid in the current year.
Since the expenses are payable in future, they are treated as a liability.

Adjustment Entry:

Expenses A/c Dr

To Outstanding expenses A/c

275
Adjustment:

Expenses payable should be added to the respective expense on the debit side of the Profit
and Loss Account, and it should be shown on liabilities side of the balance sheet under
Current liabilities head.

Example:

If salaries given in Trial balance is Rs 11,00,000 and salary payable given in adjustments is
Rs. 1,00,000 then

Salary outstanding of Rs.1,00,000 should be added to Salaries of Rs. 11,00,000 on debit side
of Trading, Profit and Loss A/c.

and

Salary outstanding of Rs.1,00,000 should be shown on liabilities side of the balance sheet
under the head Current liabilities.

Note: If outstanding expenses are given in trial balance, they should be shown on liabilities
side of the balance sheet only.

3. Prepaid Expenses:
Expenses paid for the next accounting period in current year are known as prepaid expenses.
We should not consider the expenses paid in advance as expenses of the current year though
the expenses are paid in the current year. Since the benefits of prepaid expenses are
receivable in future, prepaid expenses are treated as an asset.

Adjustment Entry:

Prepaid expenses A/c Dr

To Expenses A/c

Adjustment:

Prepaid expenses should be deducted from the respective expenses on the debit side
of the Trading, Profit and Loss Account, and they should be shown on assets side of the
balance sheet under the Current assets head.

Example:

If insurance premium paid given in Trial balance is Rs 65,000 and prepaid insurance
premium given in adjustments is Rs. 5000, then

Prepaid insurance of Rs.5,000 should be deducted from Insurance premium paid Rs. 65,000
on the debit side of Profit and Loss account.

and

276
 Prepaid insurance of Rs. 5,000 should be shown on assets side of the balance sheet under the
head Current assets.

Note: If prepaid expenses are given in trial balance, they should be shown on assets side of
the balance sheet only.

4.Accrued Incomes:
Incomes earned in the current year but not actually received in cash in the current year are
known as Accrued incomes. We should consider the unreceived income of the current year
along with income received in ascertainment of current year’s profitthough the income is not
received in the current year. Since the income is receivable in future, it is treated as an asset.
Adjustment Entry:
Accrued income A/c Dr
To Income A/c

Adjustment:
Income receivable should be added to the respective income on the credit side of the Trading,
Profit and Loss Account, and it should be shown on assets side of the balance sheet under the
Current assets head.

Example:
If Interest received given in Trial balance is Rs 1,00,000 and accrued interest given in
adjustments is Rs. 12,000 then,
Accrued interest of Rs.12,000 should be added to Interest received of Rs. 1,00,000 on credit
side of Profit and Loss A/c.

and
Interest receivable of Rs.12,000 should be shown on assets side of the balance sheet under the
head current assets.

Note: If accrued income is given in trial balance, it should be shown on assets side of the
balance sheet only.

5. Incomes received in advance:

Incomes of next accounting year received in the current year are known as Incomes
received in advance. We should not consider the income received in advance as the income of
the current year though the income is received in the current year. Since the benefit on income
is payable in future, it is treated as a liability.

Adjustment Entry:
Income A/c Dr
To Income received in advance A/c

277
 Adjustment:
Incomes received in advance should be deducted from the respective income on the credit
side of the Profit and Loss Account, and they should be shown on liabilities side of the balance
sheet under the head Current liabilities.

Example:
If Commission received given in Trial balance is Rs 39,000 and commission received in
advance given in adjustments is Rs. 3,000 then,
Commission received in advance Rs.3,000 should be deducted from Commission received of
Rs. 39,000 on credit side of the Profit and Loss A/c
and
Commission received in advance of Rs.3,000 should be shown on liabilities side of the balance
sheet under the head Current liabilities.
Note: If income received in advance is given in trial balance, it should be shown on liabilities
side of the balance sheet only.

6. Depreciation on Fixed assets:

Values of fixed assets decrease year by year due to various physical and economic
reasons. That decrease in the value of fixed assets is known as depreciation. One should
calculate and record the depreciation in the books of accounts to ascertain true profit to show
real value of fixed assets. Usually, depreciation is calculated at the end of the accounting year
on the opening balance of a fixed asset. Iftrial balance is prepared before the calculation of
depreciation, depreciation should be adjusted to fixed assets at the time of preparation of final
accounts.

Adjustment Entry:
Depreciation A/c Dr
To Fixed Asset A/c

Adjustment:
Depreciation should be debited to Manufacturing/Profit and loss account and it should be
deducted from respective fixed asset on assets side of the balance sheet. Depreciation
(Accumulated) can also be shown on liabilities side of the balance sheet.

Example:
If the value of machinery given in Trial balance is Rs 5,00,000 and the rate of
depreciation given in adjustments is 10% then,
Depreciation of Rs. 50,000 (5,00,000 X 10%) should be debited to manufacturing/Profit and
Loss A/c

and

278
 Depreciation of Rs. 50,000 should be deducted from Machinery of Rs. 5,00,000 on assets
side of the balance sheet. So, the net value of Machinery Rs. 4,50,000 (Rs 5,00,000 –
Rs.50,000) would be reflected in balance sheet. Alternatively, one can show Rs. 50,000 on
liabilities side under depreciation fund/accumulated depreciation.

Note: If depreciation is given in trial balance, it should be debited to profit and loss account
only.
7.Interest on capital:
Interest calculated on capital provided by the proprietor is treated as an expense to the
business. If, interest on capital is calculated after the preparation of trial balance and payable to
the proprietor, it needs an adjustment.
Adjustment Entry:
Interest on capital A/c Dr
To Capital A/c

Adjustment:
Interest on capital should be debited to Profit and loss account since it is an expense to the
business and it should be added to the capital on liabilities side of the balance sheet as the
amount due to proprietor would be increased by the amount of interest.

Example:
If Capital provided by the owner Rs. 10,00,000 is given in trial balance and rate of
interest on capital is 6% per annum then,
Interest on capital Rs. 60,000 (10,00,000 X 6%) should be debited to Profit and Loss A/c
and
Interest on capital Rs. 60,000 should be added to Capital of Rs. 10,00,000 on liabilities
side of the balance sheet.
Note: If interest of capital is given in trial balance, it should be debited to profit and loss
account only.
8.Interest on Drawings:
Interest calculated on Drawings made by the proprietor is treated as an income to the
business. If, interest on drawings is calculated after the preparation of trial balance and
receivable from the proprietor, it needs an adjustment.
Adjustment Entry:
Drawings A/c Dr
To Interest on Drawings A/c

Adjustment:
Interest on drawings should be credited to Profit and loss account since it is an income to
the business and it should be deducted from capital along with drawings on liabilities side of
the balance sheet.
279
 Example:If Drawings by the owner Rs. 1,00,000 is given in trial balance and the rate of
interest on drawings is 7% then,
Interest on drawings Rs.7,000 (1,00,000 X 7%) should be credited to Profit and Loss A/c
and
Interest on drawings Rs. 7,000 along with drawings of Rs. 1,00,000 should be deducted
from capital on liabilities side of the balance sheet.
Note: If interest of drawings is given in trial balance, it should be credited to profit and
loss account only.

9. Bad debts:
Selling goods to customers on credit is quite natural in business. In some cases, the
amount of credit allowed cannot be recovered from debtors. The amount lost on account of
non-recovery of a debt is known as Bad debt. Bad debts arose after the preparation of trial
balance needs an adjustment.

Adjustment Entry:
Bad debts A/c Dr
To Debtors A/c

Adjustment:
Bad debts account can be debited to Profit and loss account since it is a loss to the
business and it can be deducted from Debtors on assets side of the balance sheet as the amount
of debtors would be reduced because of bad debts.

Example:
If debtors of Rs. 2,00,000 are given in trial balance and bad debts given in adjustments
are Rs. 5,000 then,
Bad debts Rs. 5,000 can be debited to Profit and Loss A/c
and
Bad debts of Rs. 5,000 can be deducted from Debtors of Rs. 2,00,000 on assets side of the
balance sheet.
Note: If bad debts are given in trial balance, it should be debited to profit and loss account
only.

If bad debts are given in trial balance and in adjustments too, bad debts given in
adjustments should be added to the bad debts given in trial balance on debit side of profit and
loss account, and bad debts given in adjustments should only be deducted from debtors in
balance sheet.

280
 10. Provision for bad and doubtful debts:

Provision means an amount set aside by charging to profit and loss account to meet a
future expense or loss. Provision made to set off the loss from bad debts is called provision for
bad and doubtful debts.

i. When Provision for doubtful debts is given only in adjustments.

In this case we have to create a provision for bad and doubtful debts as asked in
adjustments by charging an amount to profit and loss account.

Adjustment Entry:
Profit and loss A/c Dr
To provision for doubtful debts A/c
Adjustment:
Provision for Bad debts account can be debited to Profit and loss account since it is
charged from profit and loss account and it can be deducted from Debtors on assets side of the
balance sheet or shown on liabilities side of the balance sheet.
Example:
If debtors Rs. 2,00,000 given in trial balance and provision for bad debts has to be made
at 5% is given in adjustments then,
Provision for bad debts of Rs. 10,000 can be debited to Profit and Loss A/c
and
provision for Bad debts of Rs. 10,000 can be deducted from Debtors of Rs. 2,00,000 on
assets side of the balance sheet or shown on liabilities side of the balance sheet.

It should be remembered that provision has to be created on doubtful debts only. If Bad
debts are given in adjustments, bad debts given in adjustments should be deducted from
debtors before calculating provision for bad and doubtful debts.

If bad debts of Rs 20,000 are given in adjustments in the above example, then the
provision for bad and doubtful debts should be calculated on 1,80,000 (2,00,000-20,000) only.

ii. When provision for doubtful debts is given in trial balance and in adjustments.

Provision for bad and doubtful debts given in trial balance refers to the balance of
provision for doubtful debts that we already have, whereas provision for doubtful debts given
in adjustments refers to the amount of provision required to be maintained. When provision
for doubtful debts is given in trial balance as well as in adjustments, first we should compare
them.

281
  If the provision for bad debts given in adjustments is more than the provision given in
trial balance, it indicates that excess provision is required, so we have to provide the difference
amount for bad and doubtful debts by debiting to profit and loss account.
Adjustment Entry:
Profit and loss A/c Dr
To Provision for bad and doubtful debts A/c
Adjustment:
Provision for doubtful debts can be debited to profit and loss account with the difference
amount and the amount of provision as per adjustment can be deducted from debtors on assets
side of the balance sheet or shown on liabilities side.
Example:
If debtors of Rs. 2,00,000 and provision for bad and doubtful debts of Rs.7,000 are given
in trial balance, and provision for bad debts has to be made at 5% is given in adjustments, then
Provision for bad debts required as per adjustment = 2,00,000 X 5% = 10,000
Provision for bad debts given in trial balance 7,000
Provision for bad debts in adjustments 10,000 > Provision for bad debts in trial balance 7,000
Excess provision required is 10,000-7000 = 3,000
Provision for bad and doubtful debts of Rs 3,000 can be debited to profit and loss account
and
Provision for doubtful debts of Rs 10,000 can be deducted from debtors of Rs 2,00,000
or shown on liabilities in balance sheet.

 If the provision for bad debts given in adjustments is less than the provision given in
trial balance, it indicates that we had an excess provision than required, so we have to reverse
the difference (excess) amount from provision for bad and doubtful debts to profit and loss
account by crediting profit and loss account.
Adjustment Entry:
Provision for bad and doubtful debts A/c Dr
To Profit and loss A/c
Adjustment:
Provision for doubtful debts can be credited to profit and loss account with the difference
(excess) amount and the amount of provision as per adjustment can be deducted from debtors
on assets side or shown on liabilities side of the balance sheet.
Example:

282
 If debtors Rs. 2,00,000 and provision for bad and doubtful debts Rs.12,000 given in trial
balance, and provision for bad debts has to be made at 5% is given in adjustments, then
Provision for doubtful debts required as per adjustment = 2,00,000 X 5% = 10,000
Provision for doubtful debts given in trial balance 12,000
Provision for bad debts in adjustments 10,000 < Provision for bad debts in trial balance12,000
Provision exceeded than required is 12,000-10000 = 2,000
Provision for bad and doubtful debts of Rs 2,000 can be credited to profit and loss
account.

and
Provision for doubtful debts of Rs 10,000 can be deducted from debtors of Rs 2,00,000
or shown on liabilities in balance sheet.
It should be noted that provision has to be created on doubtful debts only. If bad debts are
given in adjustments, bad debts given in adjustments should be deducted from debtors before
calculating provision for doubtful debts.

Example:
If bad debts of Rs 25,000 are given in adjustments in the above example, then the
provision for bad and doubtful debts required as per adjustments has to be calculated on
Rs.1,75,000 (2,00,000-25,000) only.
Note: If provision for doubtful debts is given in trial balance only, it has to be deducted from
debtors in balance sheet only.
11. Provision for discount on debtors:
Discount is allowed to customers to encourage prompt and early payment. Businessmen
maintain provision for discount on debtors to set off discount allowed.

Adjustment Entry:
Profit and loss A/c Dr
To provision for discount on debtors A/c
Adjustment:
Provision for discount on debtors account can be debited to Profit and loss account since
it is charged from profit and loss account and it can be deducted from Debtors on assets side of
the balance sheet.
Example:
If debtors of Rs. 3,00,000 is given in trial balance and provision for discount on debtors
has to be made at 2% is given in adjustments then,

Provision for discount on debtors Rs. 6,000 can be debited to Profit and Loss A/c.

283
 and
Provision for discount on debtors Rs. 6,000 can be deducted from Debtors of Rs. 3,00,000
on assets side of the balance sheet.

It should be noted that provision for discount on debtors has to be created on good debts
only. So, provision for discount on debtors has to be calculated on the balance of debtors after
deducting bad debts(in adjustments), and required provision for bad and doubtful
debts(adjustments).

Example:
If bad debts of Rs 20,000 and provision for bad and doubtful debts of Rs.10,000 are given
in adjustments in the above example, then the provision for discount on debtors has to be
calculated on Rs.2,70,000 (3,00,000-20,000-10,000) only.

Note: If provision for discount on debtors is given in trial balance only, it has to be deducted
from debtors in balance sheet only.
12. Provision for discount on creditors:

Provision for discount on creditors is absolutely reverse to provision for discount on

debtors.If we make payments to our suppliers promptly, we will be rewarded by them in the
form of discount received. Businessmen maintain provision for discount on creditors to setoff
discount received. This provision is against to prudence or conservatism as it is a provision
made for anticipated income.
Adjustment Entry:
Provision for discount on creditors A/c Dr
To Profit and loss A/c
Adjustment:
Provision for discount on creditors account can be credited to Profit and loss account and
it canbe deducted from Creditors on liabilities side of the balance sheet.
Example:
If Creditors of Rs. 2,50,000 are given in trial balance and provision for discount on
creditors has to be made at 3% is given in adjustments then,

Provision for discount on creditors Rs. 7,500 can be credited to Profit and Loss A/c.

and
Provision for discount on creditors Rs. 7,500 can be deducted from creditors of
Rs.2,50,000 on liabilities side of the balance sheet.

Note: If provision for discount on creditors is given in trial balance only, it should be
deducted from creditors in balance sheet only.
284
 13. Loss of goods due to accidents:
Risk is inherent in business. Sometimes goods may be lost due to fire or theft or other un-
expected events. That loss of goods should be recorded in books. If goods were insured, then
the value of goods lost could be recovered by insurance claim either fully or partly based on
the terms of insurance contract. The unrecovered part of the loss, if any, must be borne by the
businessmen. If the goods were not insured then the total amount of loss must be borne by the
businessmen only. If loss of goods is happened after the preparation of trial balance, it needs
an adjustment in preparation of final accounts.
Adjustment Entries:

i. Loss of goods by _____ A/c Dr (Total value of loss)

To Trading/purchases A/c (Total value of loss)

ii. Insurance company A/c Dr (Claim receivable)

Profit and Loss A/c Dr (Un-recoverable part of loss)

To Loss of goods by____ A/c (Total value of loss)

Adjustment:

The total value of goods lost can be credited to Trading account or it can be adjusted
against purchases. The value of unrecovered part of loss should be debited to profit and loss
account. The value of claim (recovered part) receivable from insurance company should be
recorded on assets side of the balance sheet.

Example:

If the value of good lost by fire is Rs 25,000 and insurance claim accepted by Insurance
company is Rs. 15,000. Then

Value of goods lost Rs. 25,000 should be credited to Trading A/c

Unrecovered part of loss Rs. 10,000 (25,000-15,000) should be debited to profit and
loss account.

and

Insurance claim receivable from Insurance company Rs. 15,000 should be recorded on
assets side of the balance sheet.

Note: If loss of goods is given in trial balance only, it should be debited to profit and loss
account only.
285
 14. Commission to Manager:

Remuneration payable to Managers is in two forms. First, fixed Salaries are paid
to managers monthly. Second, some managers are given a commission linked with profits
besides salaries. Their commission would be more if the profits are more and vice versa.

Since, the commission is linked with net profit, commission can only be
calculated at the time of preparation of profit and loss account. It means that the trial balance
has already been prepared. Hence, we need to do adjustment for managers commission on net
profits.

Adjustment Entry:

Commission to managers A/c Dr

To Commission outstanding A/c

Adjustment:

Commission to managers account should be debited to profit and loss account as it is an

expense to the business and it should be shown on liabilities side of the balance sheet since the
commission is payable to manager.

Example,

Case (i).

If net profit calculated before charging the manager’s commission is 4,00,000 and
commission payable is 10% of net profit before charging such commission, then
10
Commission to managers = Rs 4,00,000 X ----------- = Rs.40,000
100

Commission of Rs. 40,000 should be debited to profit and loss account.

and
Commission payable to manager Rs.40,000 should be shown on liabilities side of the
balance sheet.

In this case the,

Net profit before charging the commission 4,00,000
Commission to Manager (-) 40,000
Net profit after charging the commission 3,60,000

286
 Case ii.
If net profit calculated before charging the manager’s commission is 4,00,000 and
commission payable is 10% of net profit after charging such commission, then
10
Commission to managers = Rs 4,00,000 X ----------- = Rs.36,364
110
Commission of Rs. 36,364 should be debited to profit and loss account.

and
Commission payable to manager Rs.36,364 should be shown on liabilities side of the
balance sheet.

Net profit before charging the commission 4,00,000

Commission to Manager (-) 36,364
Net profit after charging the commission 3,63,636
15. Errors:
If any accounting error found at the time of preparation of final accounts, it
should be rectified by a proper adjustment so as to avoid the wrong effect of error on
financial results shown by final accounts.
Adjustments Summary Table

Adjustment Manufacturing,Trading, Profit &loss A/c Balance sheet

Assets side
Closing stock Credit side of the Trading account

Add to respective expense on Debit side of

Outstanding expenses Liabilities side
trading account/ profit and loss A/c

Deduct from respective expense on Debit side of

Prepaid expenses Assets side
trading account/ profit and loss A/c

Add to respective income on Credit side of

Accrued income Assets side
profit and loss A/c

Income received in Deduct from respective income on Credit side of

Liabilities side
advance profit and loss A/c

Deduct from respective fixed asset

Debit side of Manufacturing /Profit and loss
Depreciation on assets side
account

Interest on Capital Debit side of the profit and loss account Add to capital on liabilities side

287
 Deduct from capital on liabilities
Interest on Drawings Credit side of the profit and loss account
side

Deduct from Debtors on Assets side

Bad debts Debit side of the profit and loss account
of the balance sheet

Provision for bad and Deduct from Debtors on Assets side

Debit side of the profit and loss account
doubtful debts of the balance sheet

Provision for discount on Deduct from Debtors on Assets side

Debit side of the profit and loss account
debtors of the balance sheet

Provision for discount on Deduct from Creditors on Liabilities

Credit side of the profit and loss account
creditors side of the balance sheet

Credit side of Trading account (Total value of

goods lost)
Assets side (Claim amount
Loss of goods
receivable from insurance company)
Debit to Profit and Loss account
(Unrecovered part of loss)
Commission on profits
Debit side of profit and loss account Liabilities side
payable to manager

8.6 Practical Illustrations

7. The following balances have been extracted from the Trial Balance of Mr. Jeevan as on
31/12/2020. Prepare his final accounts

Stock in hand (01/01/2020) 33,000 Insurance 5,650

Buildings 60,000 Drawings 7,600
Fixtures 24,000 Repairs 2,950
Debtors 31,200 Investments 42,000
Salaries 9,600 Interest on investments 1,600
Purchases 88,750 Purchases Returns 1,300
Capital 85,000 Discount Received 750
Creditors 32,000 Bank Loan 50,000
Sales Returns 900 Go down Rent 19,400
Stationary 3,000 Freight In ward 3,200
Goodwill 10,000 Cash in hand 11,800
Sales 1,82,400

Adjustments:
1) Stock in hand (31/12/2020) 42,000
2) Godown Rent outstanding 1,200
3) Interest Accrued on investments 500
4) Depreciate Buildings by 5% and Fixtures by 10%

288
Solution:
Dr. Trading & Profit and Loss A/c for the year ending 31/12/2020 Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening Stock 33,000 By Sales 1,82,400
To Purchases 88,750 (-) Returns 900 1,81,500
(-) Returns 1,300 87,450 By Closing Stock 42,000
To Freight in ward 3,200

To Gross Profit
99,850

2,23,500 2,23,500
To Salaries 9,600 By Gross Profit 99,850
To Stationery 3,000 By Discount Received 750

To Insurance 5,650 By Interest on Received 1,600

To Godown Rent 19,400 (+) Accrued Interest 500 2,100
(+) outstanding Rent 1,200 20,600

To Repairs 2,950

To Depreciation
On Building
(60,000 X 5%) 3,000
On Fixtures
(24,000 X 10%) 2,400 5,400

To Net Profit 55,500

1,02,700 1,02,700
Balance sheet of Jeevan as on 31/12/2020
Liabilities Rs. Rs. Assets Rs. Rs.
Capital 85,000 Buildings 60,000
(+) Net Profit 55,500 (-) Depreciation 3,000 57,000
1,40,500 Fixtures 24,000
(-) Drawings 7,600 1,32,900 (-) Depreciation 2,400 21,600

Bank Loan 50,000 Goodwill 10,000

Creditors 32,000 Debtors 31,200

Godown Rent payable 1,200 Investments 42,000

(+) Accrued Interest 500 42,500
Cash in hand 11,800
Closing Stock 42,000
2,16,100 2,16,100

289
8. Following is the Trial Balance of Sri Vishnu Traders as on 31/12/2019

Particulars Dr. (Rs.) Cr. (Rs.)

Trade debtors & Creditors 19,200 11,100

Returns 900 1,400
Discounts 420 110
Drawings & capital 5,650 75,000
Stock in hand (01/01/2019) 10,380
Furniture 16,000
Plant & Machinery 45,000
Staff Salaries 8,200
Advertising & Publicity 4,250
Mortgage Loan 22,000
Cash & Bank 3,850
Postage and Telephone 4,800
Purchases and Sales 68,500 87,390
Interest Paid 1,100
Insurance 4,000
Bad-Debts 1,500
Freight in ward 3,250
1,97,000 1,97,000

Adjustments:
1) Stock in hand on 31/12/2019: 23,900
2) Further Bad-Debts to be written off : 700
3) Depreciation to be provided @ 5% on Plant & machinery and @ 10% on Furniture
4) Interest on loan outstanding: 400
5) During the last week of December, a fire occurred and goods costing Rs. 7,000 were
damaged. Insurance Company admitted the claim to the extent of Rs. 5,000.
Prepare Trading & Profit and loss Account for the year ending 31/12/2019, and a balance
sheet as on that date.

290
DrTrading & Profit and Loss A/c of Sri Vishnu Traders for the year ending 31/12/2019. Cr
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening Stock 10,380 By Sales 87,390
To Purchases 68,500 (-) Sales Returns 900 86,490
(-) Purchases Returns 1,400 67,100 By Closing Stock 23,900

To Direct Expenses By Goods lost by fire 7,000

Freight in ward 3,250
To Gross Profit 36,660

1,17,390 1,17,390

To Discount allowed 420 By Gross Profit 36,660

To Salaries 8,200 By Discount received 110
To Advertising & Publicity 4,250
To Postage & Telephone 4,800
To Interest Paid 1,100
(+) Outstanding interest 400 1,500
To Insurance 4,000
To Bad debts 1,500
(+) Further bad debts 700 2,200
To Depreciation
2,250
On Plant & Machinery
(45,000 X 5%)
On Furniture 1,600
(16,000X10%)
To Goods lost by fire 2,000
To Net Profit 5,550
36,770 36,770

Balance Sheet as on 31/12/2019

Liabilities Rs. Rs. Assets Rs. Rs.

Capital 75,000 Plant & Machinery 45,000
(+) Net Profit 5,550 (-) Depreciation 2,250 42,750
80,550 Furniture 16,000
(-) Drawings 5,650 74,900 (-) Depreciation 1,600 14,400

Mortgage Loans 22,000 Debtors 19,200

(+) Outstanding Interest 400 22,400 (-) Further Bad debts 700 18,500

Creditors 11,100 Closing Stock 23,900

Insurance Claim Due 5,000
Cash & Bank 3,850
1,08,400 1,08,400

291
9.From the under mentioned Trial Balance and other information Prepare final accounts of
Mr Anwar for the year 2020
Trial balance

Debit Balances Rs. Credit Balances Rs.

Office equipment 32,000 Sales 2,74,500
Opening Stock 11,000 Capital 1,20,000
Sundry Debtors 52,000 Sundry Creditors 44,000
Buildings 1,80,000 Provision for doubtful debts 4,000
Purchases 1,67,000 Interest Received 2,000
Wages 39,000 6% Loan 1,30,000
Carriage in ward 5,000
Carriage Out ward 7,500
Sales Commission 10,000
Gas & water 4,000
Motive Power 7,000
Drawings 9,500
Cash & Bank 16,000
Bank charges 1,500
Newspapers & Magazines 6,000
Rent & Rates 19,000
Telephone, Stationary 8,000
5,74,500 5,74,500

Additional Information:

1) Write off Rs 2000/- as Bad debts and keep 5% on Debtors against doubtful debts
2) 6% Loan Was Taken on 01st august 2020
3) Rent paid in Advance Rs.1,500
4) Provide depreciation @ 10% on Building and 15% on office Equipment.
5) Interest Received in advance Rs. 600
6) Unsold Stock on 31/12/2020 was Rs.19,000

292
Dr Trading & Profit and Loss A/c of Mr Anwar for the year ending 31/12/2020 Cr
Particulars Rs Rs. Particulars Rs Rs.
To Opening Stock 11,000 By Sales 2,74,500
To Purchases 1,67,000 By Closing Stock 19,000
To Direct Expenses
Wages 39,000
Carriage in wards 5,000
Gas & Water 4,000
Motive Power 7,000

To Gross Profit 60,500

2,93,500 2,93,500

To Carriage Out ward 7,500 By Gross Profit 60,500

To Sales commission 10,000 By Interest 2,000
To Bank Charges 1,500 (-) Received in advance 600 1,400
To News Papers&Magazines 6,000 By Provision for Baddebts 1,500

To Rent & Rates 19,000

(-) Pre- Paid 1,500 17,500

To Telephone, Stationery 8,000 By Net Loss 15,150

(Transferred to Capital
To Interest payable on loan 3,250 A/c)

To Bad debts 2,000

To Depreciation
On Buildings 18,000
On office Equipment 4,800
22,800

78,550 78,550

293
 Balance Sheet as on 31/12/2020
Liabilities Rs Rs Assets Rs Rs
Interest Received in
Advance 600 Cash & Bank 16,000
Sundry Creditors 44,000 Sundry Debtors 52,000
6% Loan 1,30,000 (-) Bad- Debts 2,000
(-) Provision for Bad
(+) Out Standing Interest 3,250 1,33,250 debts 2,500 47,500

Capital 1,20,000 Unsold Stock 19,000

(-) Net Loss 15,150 Pre-Paid Rent 1,500
(-) Drawings9,500 24,650 95,350 Office Equipment 32,000
(-) Depreciation 4,800 27,200

Building 1,80,000
(-) Depreciation 18,000 1,62,000

2,73,200 2,73,200

6 5
1. Interest payable on loan = 1,30,000 X -------- X ------- = 3,250
100 12
2.Provision for Bad debts:
Debtors = 52,000
Bad debts in adjustments = - 2,000
50,000

Provision for bad debts required = 50,000 X 5% = 2,500

Provision in trial balance = 4,000
Excess provision to be credited to P&L A/c = 1,500

3.Depreciaton:

On Buildings: 1,80,000 X 10 % = 18,000

On office equipment: 32,000 X 15% = 4,800

294
From the following information, Prepare final A/c’s of Mr X for the year 31/03/2021

Rent Received 1,350 Trade Expenses 850

Creditors 9,650 Purchases 67,240
Insurance 900 Bad-debts 390
Discount allowed 100 Debtors 16,200
Repairs 1,750 Telephone Postage Etc. 970
Opening inventory 8,250 Travelling Expenses 2,190
Mr. X’s Capital 52,000 Electricity 1,520
Salaries 5,100 Interest Paid 770
Furniture 17,400 Cash in hand 3,850
Mr.X’s Drawings 5,500 Discount Received 80
Computers 24,000 Sales 93,900

Adjustments:

1) Unexpired insurance was 120

2) Allow interest on Capital @ 6%
3) Charge interest on Drawings @ 10%
4) Depreciate furniture & Computers by 5% and 10% Respectively
5) A Provision of 5% is required on debtors to cover Bad debts
6) Purchases include Purchases of a cycle worth Rs. 2,500
7) Stock in hand on 31/03/2021 Rs.15,390.

295
 Dr. Trading, Profit and Loss A/c of Mr.X for the year ending 31-03-2021 Cr
Particulars Rs Rs. Particulars Rs Rs.
To Opening Inventory 8,250 By Sales 93,900
To Purchases 67,240 By Closing Inventory 15,390
(-) Cycle 2,500 64,740
To Gross Profit 36,300

1,09,290 1,09,290

To insurance 900 By Gross Profit 36,300

(-) Pre- Paid 120 780 By Rent Received 1,350
To Discount allowed 100 By Discount received 80
To Repairs 1,750 By Interest on Drawings 550
To Salaries 5,100 (5,500 X 10%)
To Trade Expenses 850
To Telephone, Postage etc., 970
To Travelling 2,190
To Electricity 1,520
To Interest Paid 770
To Bad-debts 390
To Provision for Bad debts 810
(16,200 X 5%)
To Interest on Capital 3,120
(52,000 X 6%)

To Deprecation on furniture
870
(17,400 X 5%)
To Deprecation on computer 2,400
(24,000 X 10%)
To Net profit 16,660
38,280 38,280

Balance Sheet of X as on 31/03/2021

Liabilities Rs. Rs Assets Rs. Rs
Capital 52,000 Furniture 17,400
(+) Net Profit 16,660 (-) Deprecation 870 16,530
(+) Interest on capital 3,120 Computers 24,000
71,780 (-) Deprecation 2,400 21,600
(-) Drawings 5,500 Closing Stock 15,390
(-) Interest on Drawings 550 65,730 Debtors 16,200
Creditors 9,650 (-) Provision for Baddebts 810 15,390
Pre-Paid insurance 120
Cycle 2,500
Cash in hand 3,850
75,380 75,380
296
11. The following is the Trial Balance of Mr.Karunakar on 31/12/2019

Debit Balances Rs. Credit Balances Rs.

Fixed Assets 2,60,000 Purchase returns 13,000
Stock (01/01/2019) 39,000 Sales 4,08,000
Salaries & Wages 52,000 Sundry Creditors 67,000
Rent & Taxes 33,000 Commission 5,000
Office Maintenance 16,500 Provision for bad debts 4,500
Advertising 27,500 Capital 2,50,000
Showroom Charges 7,000 Miscellaneous Income 1,500
Sundry Debtors 78,000
Cash at bank 23,000
General Expenses 13,000
Purchases 1,97,000
Sales Returns 3,000
7,49,000 7,49,000

Prepare final Accounts after making the following adjustments

Adjustments:
1. Stock on 31/12/2019 Rs.63,000
2. Depreciate fixed Assets by 5%
3. Goods taken by proprietor for his personal use not recorded in books Rs.5,000/-
4. Rent per month Rs.3,000/-
5. Provision is to be maintained at 10% on Debtors for doubtful debts
6. Manager is entitled to a commission of 6% on Net Profit before charging such
commission.

297
Dr Trading & Profit and Loss A/c for the year ending 31/12/2019 Cr

Particulars Rs. Rs. Particulars Rs. Rs.

To Opening Stock 39,000 By Sales 4,08,000

To Purchases 1,97,000 (-) Sales Returns 3,000 4,05,000
(-) Purchases Returns 13,000 By Closing Stock 63,000
(-) Drawings 5,000 18,000 1,79,000

To Gross Profit 2,50,000

4,68,000 4,68,000

To Salaries and Wages 52,000 By Gross Profit 2,50,000

To Rent & Taxes 36,000 By Commission 5,000
(33,000 + 3,000) By Misc. Income 1,500
To Office maintenance 16,500
To Advertising 27,500
To Showroom Charges 7,000
To General Expenses 13,000
To Depreciation 13,000
(2,60,000 X 5%)
To Provision for Bad debts 3,300
(7,800 - 4,500)
To Manager Commission 5,292
(88,200 X 6%)

To Net Profit 82,908

(88,200 - 5,292)

2,56,500 2,56,500

Balance Sheet as on 31/12/2019

Liabilities Rs Rs Assets Rs Rs
Capital 2,50,000 Fixed Assets 2,60,000
(+) Net Profit 82,908 (-) Deprecation 13,000 2,47,000
3,32,908 Closing Stock 63,000

(-) Drawings 5,000 3,27,908 Debtors 78,000

(-) Provision for
Creditors 67,000 bad debts 7,800 70,200
Rent payable 3,000 Cash at Bank 23,000
Manager Commission due 5,292
4,03,200 4,03,200

298
 Test your Understanding

I. Fill in the Blanks

1. Benefits of ___________ expenditure available for a number of years.

2. Receipt from Sale of a building is a ____________ receipt
3. Trading account is prepared to ascertain __________________
4. Showing liabilities of similar nature under one head is called ___________
5. Bad debts are entered on ____________ side of the profit and loss account
6. Incomes received in advance are shown on ___________ side of the balance sheet.
7. Bank overdraft is an example of _____________ liability
8. Land and building should be shown under the head of _____________ assets.
9. Interest on capital should be __________to profit and loss account.
10. Goods lost by fire should be______________ to trading account.

II. True or False

1. Revenue expenditures are non-recurring in nature

2. Receipt of interest is a revenue receipt
3. Profit and loss account is also called position statement
4. Closing entries are recorded in journal proper
5. Goodwill is a fictitious asset.
6. Depreciation should be credited to profit and loss account
7. Outstanding expenses should be shown on liabilities side of balance sheet
8. Interest on drawings is an expense to the business
9. Accrued Interest is shown as a current asset in balance sheet.
10. Provision for doubtful debts is made by debiting to profit and loss account

299
 III. Multiple Choice Questions (MCQ)

1. Which of the following is an example of capital expenditure?

A. Carriage inwards B. Additions to buildings
C. Discount allowed D. Office expenses

2. Final accounts of a trader consist of

A. Trading account B. Profit and Loss account
C. Balance sheet D. All of the above

3. Final accounts are prepared to

A. To ascertain profit or loss B. To know financial position
C. A and B D. A only

4. The outcome of Manufacturing account is

B. Cost of goods sold B. Cost of purchases
C. Cost of goods produced D. None of the above
5. Showing the assets in balance sheet by following an order is known as
A. Grouping B. Marshalling
C. Heading D. None of the above
6. Which of the following expense should not be debited to trading account?
A. Fright B. Carriage outwards
C. Clearing charges D. Carriage inwards
7. Which of the following expense should not be debited to profit and loss
account?
A. Postage B. Advertisement
C. Octroi D. Interest paid
8. Which of the following expense should be debited to profit and loss account?
A. Excise duty B. Salaries
C. Heat and light D. Foreman salary
9. Which of the following expense should be debited to trading account?
A. Trade expenses B. Stationary
C. Wages D. Travelling expenses
10. Prepaid Insurance should be adjusted by

300
 I. Deducting from Insurance paid
II. Adding to insurance paid
III. Showing on liabilities side
IV. Showing on assets side
A. I & IV B. II & III
C. I & III D. II & IV
11. Depreciation on Furniture should be adjusted by
I. Deducting from Furniture
II. Adding to Furniture
III. Debiting to profit and loss account
IV. Crediting to profit and loss account
A. I & IV B. II & III
C. I & III D. II & IV
12. If Provision for doubtful debts is given in adjustments only, it should be
adjusted by
I. Deducting from Debtors
II. Adding to Debtors
III. Debiting to profit and loss account
IV. Crediting to profit and loss account
A. I & III B. II & III
C. II & IV D. I & IV
13. If value of goods lost by fire is Rs. 8,000, insurance claim accepted by
insurance company is Rs. 5,000. it should be adjusted by

I. Crediting Rs 5,000 to trading account

II. Debiting Rs 3,000 to profit and loss account
III. Debiting Rs. 5,000 to profit and loss account
IV. Crediting Rs 8,000 to trading account
V. Showing Rs. 5,000 on assets side
VI. Showing Rs. 3,000 on assets side
A. I, III, V B. IV, I, VI

C. I, II, V D. IV, II, V

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 IV. Short Answer Questions (SAQ)

1. Capital expenditure Vs Revenue expenditure

2. Capital receipts Vs Revenue receipts
3. Need for preparation of final accounts
4. Trading Account
5. Profit and loss Account
6. Balance sheet
7. Closing entries

V. Long Answer Questions (LAQ)

1. Explain the preparation of Trading, Profit and loss Account

2. Explain the preparation of Balance sheet
3. Briefly explain the elements in Trading account
4. Briefly explain the elements in Profit and Loss account
5. Briefly explain the elements in Balance sheet
6. Briefly explain any 5 adjustments with adjustment entries
7. Using the following information, Prepare P&L A/c of Mr. Akash for the year ending
31/12/2020 and a Balance sheet as on that date
Cash 6,850
Rent & Rates 13,250 Bank charges 470
Discount allowed 880 Advertising 6,040
Gross Profit 71,200 Machinery 32,400
Carriage out wards 3,230 Discount Received 400
Stationery 6,210 Provision for bad debts 500
Drawings 6,100
Inventory (31-12-2020) 11,400
Telephone 4,850
Interest on overdraft 1,370
Sundry debtors 16,800
Bad debts 700
Bank Overdraft 14,500
Capital 72,000
Motor vehicles 32,000
Staff salaries 9,800
Repairs 1,600
Insurance 2,550
Furniture 18,000
Sundry creditors 15,900
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Adjustments:
1) Depreciate Fixed Assets by 10%
2) Provide 5% on debtors against Bad-debts
3) Un-expired Insurance was Rs. 160
4) Rent due and un-paid was Rs. 450
5) Allow interest on capital at 4%

(Answer: Net profit. Rs. 8,900, Balance sheet total. Rs.1,08,530)

8.Prepare Final Accounts of Varma for the year 2020 from the following information
The Trial Balance of Varma Trading Co as on 31/12/2020
Debit Balances Rs. Credit Balance Rs.
Office Rent 11,400 Outstanding Salaries 1,100
Purchases 79,600 Capital 1,50,000
Stock (01/01/2020) 17,500 Creditors 27,400
Buildings 1,30,000 Interest on investments 2,400
Salaries 17,600 Returns 4,500
Cash in hand 9,500 Bank overdraft 13,400
Investments 32,000 Bills Payable 2,900
Debtors 29,500 Sales 2,07,000
Bad-debts 1,800
Depreciation on Building 3,600
Postage & Telephone 4,100
Insurance 5,900
Returns 3,300
Advertising 6,900
Pre-Paid Insurance 600
Direct Expenses 13,400
Machinery 38,000
Bills Receivable 4,000
4,08,700 4,08,700

Additional Information:
Stock 31-12-2020 : Rs. 7,600
(Answers: Gross Profit: Rs.1,05,300, Net Profit :Rs.56,400, Balance sheet: Rs.2,51,200)

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9.
From the following information, prepare Trading & Profit and Loss A/c of Mr. Raja Sekhar,
for the year ending 31/03/2021 and show balance sheet on 31/03/2021.

Sales 14,12,000 Goodwill 80,000

(Including cash sales of 1,60,000) Interest on overdraft 3,000
Creditors 2,48,000 Return in ward 8,000
Interest Received 9,000 Furniture 86,000
Motor Vehicles 3,80,000 Capital 6,36,000
Stock (01/04/2020) 69,000 Freight & Carriage 25,000
Cash in hand 43,000 Salaries Paid 54,000
Bank overdraft 52,000 Printing & Stationary 18,000
Purchases 7,29,000 Repairs & Maintenance 42,000
(Including cash purchases of 90,000) Bad-debts 7,000
Rent Rates & Insurance 42,000 Courier charges & Postage 18,000
Wages 74,000 Drawings 32,000
Debtors 3,10,000 Plant & Machinery 1,80,000
Clearing charges 15,000 Return out ward 4,000
Investments 1,30,000 Provision for Bad-debts 5,000
Discount Received 1,000 Patents & Copy rights 22,000

Adjustment:
1. Stock (31/03/2021) Rs.1,01,000
2. Write off Rs.10,000 as Bad-debts and keep 5% on Debtors for doubtful debts.
3. Wages Outstanding Rs.4,000/- and salaries outstanding Rs.3,000
4. Depreciation to be charged on motor vehicles Rs. 12,000, furniture Rs. 4,000 and
plant Machinery Rs.9,000/-
(Answers: Gross Profit: Rs.5,93,00,Net Profit :Rs.3,71,000, Balance sheet: Rs.12,82,000)

10.The Trial Balance of Prabhu Das as on 31/12/2020 is given below

Debit Balances Rs. Credit Balances Rs.

Drawings 3,730 Capital 70,000
Cash & Bank 5,425 Sales 1,04,905
Stock (01/01/2020) 9,620 Creditors 6,450
Wages & Salaries 4,670 8% Loan (01/10/2020) 32,000
Carriage 1,530 Apprentice Premium 1,000
Furniture 17,400 Provision for Bad debts 550
Travelling Expenses 2,480
Discount 250
Purchases 74,600

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Machinery 62,500
Debtors 18,400
Customs & Duties 1,450
Publicity 3,900
Godown Rent 2,500
Insurance 1,200
Sundry office Expenses 5,250
2,14,905 2,14,905

Adjustments:

1) Write off Rs.400 as Bad debts and keep 5% on Debtors for doubtful Debts
2) Godown rent Payable 500
3) Insurance Pre-paid 250
4) Depreciation: 10% on Furniture & 5% on Machinery
5) Stock on 31/12/2020 was 27,120
Prepare final Accounts
(Answer: Gross Profit: Rs.40,155, Net Profit Rs19,070, Balance sheet Total:Rs. 1,24,930)

11.The following figures taken from the TB of Kasturi Agencies as on 31/03/2020. Prepare
their final A/c’s

Particulars Dr Balance Cr Balance

Drawings & Capital 12,500 2,00,000
Stock (01/04/2019) 36,000 -
Purchases and Sales 1,68,500 2,87,000
Machinery 64,000 -
Cash & Bank 25,000 -
Rent 18,000 -
Commission - 4,500
Salaries Paid 24,000 -
Insurance (Paid up to 30/06/2020) 7,200 -
Returns 3,800 2,500
Furniture & Fittings 30,000 -
Debtors & Creditors 42,000 31,000
Import duties and clearing charges 13,400 -
Carriage on Sales 8,000 -
Postage &telephone 15,600 -
Freight inward 9,000 -
6% Government Bonds (01/10/2019) 48,000 -
5,25,000 5,25,000

Adjustments:
1. Closing Stock Rs.63,700/-

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 𝟏
2. Depreciation 10% on furniture & 7 % on Machinery.
𝟐
3. Write off Rs.1,000/- as Bad-debts and provide 6% on Debtors for doubtful debts.
4. Manager is entitled to a commission of 10% on N/P after charging his commission.

ANSWERS:Gross Profit: Rs. 1,22,500, Net Profit Rs.41,982 ,Balance Sheet Total
Rs.2,64,680
𝟏𝟎
Hint: Manager Commission 46,180 X 𝟏𝟏𝟎 = 4,198/-

VI. Additional Resources for Advanced Learning

Study Material (Handouts):

https://nios.ac.in/media/documents/Seccour224New/ch_14.pdf

https://nios.ac.in/media/documents/Seccour224New/ch_15.pdf

Reference Text Books:

1. R L Gupta & V K Gupta, Principles and Practice of Accounting, Sultan Chand & Sons

2.S.P. Jain & K.L Narang, Accountancy-I, KalyaniPublishers

3.Tulasian, Accountancy -I, Tata McGraw HillCo.

E - Text Books:
https://icmai.in/upload/Students/Syllabus2016/Foundation/Paper-2New-29012021.pdf

https://www.icsi.edu/media/webmodules/publications/FULL%20FAA%20PDF.pdf

YouTube Links:

https://www.youtube.com//watch?v=4N0Dmzhi3Tw

final accounts introduction in telugu part 1 - YouTube

Power Point Presentations:

https://www.slideshare.net/PrachiSharma304/final-accounts-120924892

https://www.slideshare.net/TanishqSoni1/principles-of-accountingbasics-of-accounting

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 VII. Suggested Activity

1. Visit a firm (Individual and Group) and observe the process of preparation of final
accounts

2.Problem Solving Exercises

3.Learning Computer based accounting system through tally

I. Fill in the Blanks

Q.No 1. Capital 2. Capital 3. Gross profit or 4.Grouping 5. Debit

Gross loss

6.Liabilities 7.Current 8.Fixed 9. Debited 10.Credited

II. True or False

Q.No 1. False 2.True 3. False 4. True 5.False

6. False 7. True 8.False 9. True 10. True

III. Multiple Choice Questions (MCQ)

Q.No 1.B 2.D 3.C 4.C 5.B 6.B 7.C 8.B 9.C 10.A

11.C 12.A 13.D

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Accrued income: Income earned but not received.

Bad debt: Part of debtors which became unrecoverable.

Balance sheet: A part of final accounts prepared to show assets and liabilities.

Capital expenditure: An expenditure giving benefits for more than one year.

Capital Receipts: Receipts on account of capital by owners, taking loans and sale of assets.

Depreciation: A permanent and gradual decrease in value of a fixed asset.

Grouping: Showing elements of similar nature under one head in balance sheet.

Liquidity: Degree of Convertibility of an asset in to cash.

Manufacturing Account: Apart of final accounts prepared to ascertain Cost of goods

manufactured.

Marshalling: Following an order in presenting elements in balance sheet.

Outstanding expenses: Expenses incurred but not paid yet.

Profit and Loss Account: A Part of final accounts prepared to ascertain Net profit.

Provision: An amount set aside by charging to profit and loss account to meet known future
expense or loss.

Revenue expenditure: An expenditure giving benefits in current year only.

Revenue receipts: Receipts in regular course of business.

Trading Account: Apart of final accounts prepared to ascertain gross profit.

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ACCOUNTING