Financial Accounting
Module 1
An Overview
1
Module 1
(6 Hours)
Financial Accounting
An overview, Accounting concepts, principles,
accounting standards. Ledger posting, Trial
Balance.
2
Definition And Meaning Of Accounting
The American Institute of Certified Public
Accountants (1941) defines ‘Accounting is the art of
recording, classifying and summarising in significant
manner and in terms of money, transactions and events
which are in part, at least of a financial character and
interpreting the results thereof.
Accounting As An Information Cycle
Input
Process
Output
3
Accountancy, Accounting And Book-keeping
4
IMPORTANCE OF ACCOUNTING
1. Facilitates to replace memory and comply with
legal requirements
2. Facilitates to ascertain net result of operations
and also to know the financial position
3. Facilitates the users to take effective decisions
4. It is helpful in a comparative study
5. It assists the management
6. It facilitates to have control over assets
7. It facilitates the settlement of tax liability
8. It facilitates raising of loans
9. It acts as a legal evidence
10. It facilitates ascertainment of value of business.
5
SCOPE OF ACCOUNTING
•
•
•
•
•
•
•
Identifying
Measuring
Recording
Classifying
Summarising
Analysing
Interpreting
• Communication
6
Accounting Principles
Accounting principles are a body of doctrines
commonly associated with the theory and procedures
and as a guide for selection of conventions or
procedures where alternatives exist.
These principles are classified into two categories:
1. Accounting Concepts
2. Accounting Conventions
7
TYPES OF ACCOUNTING
Accounting
Financial
Accounting
Cost
Accounting
Management
Accounting
Social
Responsibility
Accounting
8
ACCOUNTING CONCEPTS
Concept means a general notion, a theory or belief
held by person or group of persons. The term
‘concepts’ includes those basic assumptions or
conditions upon which the science of accounting is
based.
1.
2.
3.
4.
5.
6.
7.
Business entity concept
Money measurement concept
Cost concept
Going concern concept
Dual aspect concept
Realisation concept
Accrual concept
9
ACCOUNTING CONVENTIONS
A convention means a custom or an established usage
formed or adopted by an agreement. The term ‘conventions’
includes those customs or traditions which guide the
accountant while preparing the accounting statements.
1.
2.
3.
4.
Convention of consistency
Convention of full disclosure
Convention of conservatism
Convention of materiality
10
Accounting Standards
The Accounting standards bring uniformity in the preparation
and presentation of financial statements and aids in
comparison of different financial statements of companies in
the same or different industries.
Procedure for framing Accounting Standards
• The International Accounting Standards are issued by the
IASC
• These Standards are received by ICAI assigned to ASB
• The Accounting standards are issued under the authority of
the council of ICAI.
So far the ASB of ICAI has issued 28 Accounting standards
as shown below:
11
Accounting
Standard
AS-1
Title
Mandatory for
Accounting period
beginning on or after
Disclosure of Accounting Policies
1.4.1991
AS2(Revised)
Valuation of inventories
1.4.1999
AS3(Revised)
Cash Flow Statements
1.4.2001
AS4(Revised)
Contingencies and Events occurring
after Balance Sheet Date
1.4.1995
AS5(Revised)
Net Profit or Loss, prior period items
and changes in Accounting policies
1.4.1996
AS6(Revised)
Depreciation Accounting
1.4.1995
AS7(Revised)
Accounting for construction
contracts
1.4.2003
12
AS-8
Accounting for Research and
Development
1.4.1991
AS-9
Revenue Recognition
1.4.1991
AS-10
Accounting of Fixed Assets
1.4.1991
Accounting for the effect of changes in
foreign exchange rates
1.4.1995
AS-12
Accounting for Government Grants
1.4.1994
AS-13
Accounting for Investments
1.4.1995
AS-14
Accounting for Amalgamations
1.4.1994
AS-15
Accounting for retirement benefits in
the financial statements of employers
1.4.1995
AS-16
Borrowing costs
1.4.2000
AS-17
Segment reporting
1.4.2001
AS-11(Revised)
13
AS-18
Related Party Disclosures
1.4.2001
AS-19
Leases
1.4.2001
AS-20
Consolidated Financial Statements
1.4.2001
AS-21
Earnings per share
1.4.2001
AS-22
Accounting for taxes on income
1.4.2001
AS-23
Accounting for investments in consolidated finance
statements
1.4.2002
AS-24
Discounting operations
1.4.2004
AS-25
Interim financial reporting
1.4.2002
AS-26
Intangible assets
1.4.2003
14
AS-27
Financial reporting of interest in joint ventures
1.4.2002
AS-28
Impairment of Assets
1.4.2004
AS-29
Provisions, Contingent Liabilities and
Contingent Assets
1-4-2004
15
USERS OF FINANCIAL STATEMENTS
1.
2.
3.
4.
5.
6.
7.
8.
Creditors (short term & long term)
Investors (present & potential)
Management
Employees
Tax Authorities
Customers
Government and their agencies
Public
16
Double Entry System Of Book-keeping
The main principle involved in Double Entry system is the duality transactions
i.e., for every debit, there is an equal and opposite credit.
Total Debits = Total Credits
Principles Of Double Entry System
Classifications of accounts under double entry system
Traditional classification of Accounts
Personal Accounts
Names of individuals,
firms, companies and
other entities
Real Accounts
Assets And Liabilities
Nominal Accounts
Expenses, losses and
incomes and gains
17
Assets: Resources, things or rights or value owned by a business
Liability: Claims of others against a business / Assets owned by the business to the
outsiders
Expenses:An expenditure in return for which a benefit is received.
Loss:
An expenditure in return for which no benefit is received.
Income: Refers to the earnings of a business for the expenses incurred
Profit:
Refers to the earnings of a business for no expenses incurred or
proportionally meagre expenses incurred
Rules for debit and credit under traditional classification
Type of Account
Debit
Credit
Personal Account
The receiver
The giver
Real Account
What comes in
What goes out
Nominal Account
All expenses and losses
All incomes and gains
18
ACCOUNTING CYCLE
Step 1
Journalising
Step 6 –
Position
Statement
Step 2 –
Posting
Step 5 –
Income
Statement
Step 3 –
Balancing
Final Accounts
Step 4 –
Trial
Balance
19
Records Maintained By An Organisation
The books of accounts maintained by an organisation may be classified
into two as
a.
Books of Prime / Original Entry
b.
Books of Second entry / Final entry
Books of Prime / Original Entry
1. Journal
2. Cash Book
3. Subsidiary Books
20
JOURNAL / DAY BOOK
Journal is a daily record of each business transaction. It is also called a day book
and it is used for recording all day to day transactions in the order in which they
occur.
Format of a Journal
Date
Particulars
Ledger Debit Credit
Rs.
Rs.
Folio
…………….
Dr
To………….
(Being…………)
21
CASH
Debit:
BOOK
All Cash receipts and Bank receipts and Discount Allowed
Credit: All Cash payments and Bank payments and Discount
Received.
The cashbook is classified into 4 types viz.,
1. Single column cash book
2. Two columnar cash book
3. Three columnar cash book
4. Petty cash book
22
Tips to decide
whether a cash
transaction or not
23
In a purchase or a sale:
If there is no mention about the payment
made, No name of the party given, but the
amount is given, then It is a cash transaction
Ex:
If there is the name of the party and no
mention about the payment, then it is a credit
transaction
If name of the party given and payment in
cash or credit then it is a cash transaction.
24
LEDGER
Also called as General Ledger, this is a principal book that contains all
the accounts i.e., accounts of Assets liabilities, capital, revenue and expenses.
The entries from the books of original entry are transferred to this book. Hence
it is also called as a book of final entry. There are a number of accounts in a
general ledger. All similar transactions are grouped under one account.
Dr
Date
Cr
Particulars
To Balance b/d
(Opening balance)
Folio
Amount
Rs.
Date
Particulars
Folio
Amount
Rs.
--------
By Balance c/d
(Closing balance)
--------
The opening and closing balances will appear only in case of assets, liabilities and
capital accounts but not in case of incomes and expenditures.
25
Format of a single column cash book
Dr
Date
Cr
Particulars
To Balance b/d
(Opening
balance)
L.F.
Amount
Rs.
Date
Particulars
L.F.
Amount
Rs.
-------
By Balance c/d
(Closing
balance)
-------
26
Illustration:
I. Single column cash book
2007 June
1. Balance as on 31/5
2. Purchases made
3. Cash drawn from Bank
4. Cash paid towards salary
5. Purchased goods from Kishan & co. on credit
6. Rent payable
7. Cash deposited into Bank
42,000
12,000
5,000
8,000
8,000
5,000
20,000
27
Soln:
Single Column Cash Book
Date
Particulars
1/6/07 To balance b/d
3/6/07 To Bank
LF Amount Date
42,000
5,000
47,000
Particulars
2/6/07 By Purchases
4/6/07 By Salary
7/6/07 By Bank
By balance c/d
LF Amoun
t
12,000
8,000
20,000
7,000
47,000
28
PROBLEM
JAN 1 : Opening cash balance Rs 5,000
JAN 4 : Rent paid Rs 2,000
JAN 6 : Interest received Rs 3,000
JAN 15 : Cash purchases Rs 4,000
JAN 25 : Cash sales Rs 8,000
JAN 31 : Salaries paid Rs 2,000
29
Format of a single column cash book
Dr
Date
Cr
Particulars
JAN 1 To Balance b/d
JAN 2 To Interest
JAN 25 To Sales
L.F. Amount
Rs.
5,000
3,000
8,000
----------16,000
----------To Balance b/d
Date
JAN
JAN
JAN
JAN
4
15
31
31
Particulars
By
By
By
By
Rent
Purchase a/c
Salaries a/c
Balance c/d
L.
F.
Amount
Rs.
2,000
4,000
2,000
8,000
----------16,000
-----------
8,000
30
Format of a double column cash book
Dr
Date
Cr
Particulars
To Balance b/d
(Opening
balance)
L.
F
Discoun
t
Rs.
Cash
Rs.
Date
Particulars
L.
F
Discount
Rs.
Cash
Rs.
------
By Balance
c/d
(Closing
balance)
OR
------
31
Format of a double column cash book
Dr
Date
Cr
Particulars
To
Balance
b/d
(Opening
balance)
L.
F
Discount
Rs.
Bank
Rs.
Date
Particulars
L.
F
Discount
Rs.
Bank
Rs.
------
By Balance
c/d
(Closing
balance)
OR
------
32
Format of a double column cash book
Dr
Date
Cr
Particulars
To
Balance
b/d
(Opening
balance)
L.
F
Cash
Rs.
Bank
Rs.
Date
Particulars
L.
F
Cash
Rs.
Bank
Rs.
------
By Balance
c/d
(Closing
balance)
------
33
PROBLEM
Two Columnar Cash Book with discount and cash columns:
2006 October
Opening balance
Paid salary
Purchased goods
Purchases made from Shreya & co.
Cash sales
Sales made to Rajinikanth & co.
To Shreya returned 20% of goods due to damage, paid to 18,000/- in
full Settlement of the account.
Received from Rajinikanth 48,000/- in full settlement after he made
returns 10,000/Deposited into Bank
80,000
10,000
12,000
25,000
1,15,000
60,000
3,000
34
Solution:
Date Particulars
To balance b/d
To sales
To Rajinikanth
& co.
Working Note:
Shreya & co.
Puchases
(-)Returns 20%
Payable
(-)Paid
Discount received
L Discount
F allowed
Cash
2,000
80,000
1,15,000
48,000
2,000
2,43,000
25,000
5,000
20,000
18,000
2,000
Date Particulars
By Salary
By Purchases
By Shreya &
co.
By Bank
By balance c/d
Rajinikanth & co.
Sales
(-)Returns
Receivable
(-)Received
Discount allowed
L
F
Discount Cash
received
10,000
12,000
2,000
18,000
3,000
2,00,000
2,000
2,43,000
60,000
10,000
50,000
48,000
2,000
35
PROBLEM
JAN 1 : Cash Balance Rs 5,000
JAN 6 : Sold Goods to Mahesh Rs 4,000
JAN 8 : Purchased Goods from Mukesh Rs 3,000
JAN 15 : Cash Received from Mahesh Rs 3,900 in full settlement
JAN 20 : Paid to Mukesh Rs 2,850 in full settlement
JAN 25 : Sold Goods to Suresh Rs 3,000
JAN 31 : Received Cash from Suresh Rs 2,900
36
double column cash book
Dr
Date
Cr
Particulars
To Balance b/d
To Mahesh
To Suresh
L
.
F
Disco
unt
Rs.
Cash
Rs.
100
100
5,000
3,900
2,900
------200
-------
--------11,800
---------
Date
Particulars
By Mukesh
By Balance c/d
L.F
Disco
unt
Rs.
150
Cash
Rs.
2,850
8,950
--------11,800
---------
37
Format of a three columnar cash book
Dr
Date
Cr
Particulars
To
Balance
b/d
(Opening
balance)
L.
F
Disc
ount
Rs.
Cash
Bank
Rs.
Date
Particulars
L.
F
Disc
o-unt
Rs.
Cash
Rs.
Bank
Rs.
------
By Balance
c/d
(Closing
balance)
OR
------
38
CONTRA ENTRY
• It is an accounting transaction that involves both
CASH account and BANK account
• No posting will be done from the CASH BOOK to the
LEDGER in case of a contra entry
• A contra entry is indicated by the letter C which gives
a hint to the ledger keeper that no posting is
required
39
CONTRA ENTRY
Ex : Cash deposited to bank
 Credit side of cash book : Amount will be entered in
cash column against the words “ By Bank”
 Debit side of cash book: Amount will be entered in
bank column against the words “To Cash”
 Ledger folio column : C which represents a contra
entry is entered
40
CONTRA ENTRY
Ex : Cash withdrawn from bank
 Credit side of cash book : Amount will be entered in
bank column against the words “ By Cash”
 Debit side of cash book: Amount will be entered in
cash column against the words “To Bank”
 Ledger folio column : C which represents a contra
entry is entered
41
PROBLEM
JAN 1 : Paid into Bank Rs 6,000
JAN 2 : Withdrew for private expenses Rs 1,000
JAN 3 : Withdrew from bank Rs 3,000
JAN 4 : Withdrew from bank for private use Rs 1,500
42
Format of a three columnar cash book
Dr
D
at
e
1
3
Cr
Particulars
To Cash a/c
To Bank a/c
L.F
C
C
Disco
-unt
Rs.
Cash
3000
Bank
Rs.
Date
6000
1
2
3
4
Particulars
By
By
By
By
Bank a/c
Drawings
Cash a/c
Drawings
L.F
C
C
Disco
-unt
Rs.
Cash
Rs.
Bank
Rs.
6000
1000
3000
1500
43
III. Three Columnar Cash Book
On 1st Jan 2001 Raj Opened a Bank account by depositing 6,000/- in cash.
All remittances are to be paid to the Bank
Date
Jan 2
Jan 5
Jan 7
Jan 10
Jan 12
Jan 15
Jan 20
Jan 27
Particulars
Goods sold to Mohan for cash 9,250/Settled Harish’s account of 200/- at a discount of 5%
Received from Shyam a cheque of 725/- discount allowed 25/Purchased Typewriter for 200/- and spent 50/- on its repairs
Shyam’s cheque was returned as dishonoured
Received a money order for 25/- from Harish
Shyam settled his accounts by means of a cheque for 755/-, 5/for being Interest charge.
Purchased Machinery from Rajeev for 5,000/- and paid him by
means of a Bank draft purchased from a Bank for 5,005/44
Solution:
Date Particular
s
1/1
2/1
7/1
15/1
20/1
20/1
L
F
To Cash
c
To Sales
To Shyam
To Harish
To Shyam
To Intt
charge
Dis
allowed
Cash
Bank Date Particulars
9,250
6,000 1/1
5/1
725 10/1
25
25
750 10/1
12/1
5 27/1
31/1
25
9,275
7,480
L Dis
F received
By Bank
c
By Harish
By
Typewriter
By Repairs
By Shyam
By
Machinery
By balance
c/d
10
Cash Bank
6,000
190
200
50
725
5,005
2,835 1,750
10
9,275 7,480
45
Petty cash book
It is a cash book in which all the petty cash
expenses incurred daily by an organisation is
recorded. Such as postage, cartage, stationery,
cleaning charges, etc.
46
A petty cashier is appointed to make
payments of all such types, he works under
the supervision of chief cashier, who
advances money in the beginning of every
period to meet such expenses.
At the end of the period the petty cashier
submits a statement of accounts of the
expenses incurred by him during the period
and gets a fresh advance.
47
Petty Cash Book
It is a cash book in which all the petty cash expenses
incurred daily by an organisation is recorded.
Dr
Dt
Cr
Particulars
CBF
Total
Rs.
Dt
Particulars
Vr.
No
Postage
Conveyance
Wages
Business
Promotion
Total
Rs.
48
PETTY CASH BOOK
Record the following petty cash book maintained on the imprest
system
1-10-2007
2-10-2007
3-10-2007
4-10-2007
5-10-2007
6-10-2007
cash received from cashier
paid for coffee and tea for staff
travelling expense by the sales manager
subscription for the newspaper
purchase of paper and other stationery
expenses for taking employees for an outing
Rs 10000
Rs 125
Rs 1200
Rs 100
Rs 250
Rs 4200
49
PETTY CASH BOOK
Dt
10
/0
7
Particu
lars
1
To cash
from
head
cashier
C
B
F
Total
Rs.
D
t
10
/
07
Particular
s
Vr
.
N
o
Employ
ees
welfare
exp
10000
2
By coffee &
tea
1
125
3
By
travelling
exp of
manager
2
4
Travell
ing exp
Newspaper
s&
stationery
postag
e
Tota
l
Rs.
125
1200
1200
3
100
100
4
250
250
By
newspaper
5
6
7
By
stationery
By staff
outing
5
6
4200
4200
75
7550
Problem: Enter the following transactions in petty cash book for the
month of January, 1999.
Jan 1, cash received from the chief cashier Rs.200
Jan 3, typing papers Rs. 8
Jan 6, office cleaning Rs.4
Jan 8, postage Rs. 2
Jan 10, cartage Rs. 2
Jan 15, postage Rs. 6
Jan 18, ink Rs 3, typing paper Rs. 10
Jan 20, type writer ribbon Rs. 10
Jan 22, telephone charges Rs. 7
Jan 24, office cleaning Rs. 2
Jan 25, nail polish Rs. 27
Jan 27, telegrams Rs. 25
Jan 29, typing paper Rs. 30
51
Dr
Dt
Cr
Partic
ulars
Jan to cash
1
From
chief
cashier
CB
F
To D
tal t
Rs.
20
0
Particu
lars
Vr.
No
Stati Posta
oner ge
y
charg
es
Typing
Clean
Post n
off
clean
10 Cartage
15 Postage
18 Ink,
typing
paper
1,2
3
4,5
8
3
6
8
20 Typ
ribbon
Car
tag
e
4
4
2
2
6
7
Cleanin
g
2
6
misce total
llane
ous
12
4
4
2
6
8,9
13
13
10
10
10
52
Dt
Partic
ulars
C
B
F
Tota D
l
t
Rs.
Particu
lars
Vr.
No
Stati Posta
oner ge
y
charg
es
22 Telepho 11
ne
charges
24 Cleaning 12
25 Nail
13
polish
Car
tag
e
Cleanin
g
misce total
llane
ous
7
7
2
2
27
27
27
Telegra
ms
29 Typing
paper
Fe
1
Fe
1
To bal
b/d
Cash
from
chief
cashier
200
58
Lf bal
c/d
14
15
25
25
30
61
2
30
44
3
2
4
8
5
27
6
142
58
200
142
53
PURCHASES BOOK
This is a subsidiary book in which all the credit purchases made by the
organisation is recorded. The monthly total from the purchase book is
transferred to the General Ledger to the Purchases Account.
Date
Purchase
invoice
no.
Name of the supplier
L
F
Details
Rs. Ps.
Total Amount
Rs.
Ps.
54
PURCHASE RETURNS BOOK
A book in which all the purchase returns (returns outwards)
are recorded.
Date
Debit
Note
No.
Name of the supplier
L
F
Details
Rs. Ps.
Total Amount
Rs.
Ps.
55
SALES BOOK
The credit sales are recorded in this book. The
monthly totals are transferred to the sales account in the General
Ledger.
Date
Sales
invoice
no.
Name of the purchaser
L
F
Details
Rs. Ps.
Total Amount
Rs.
Ps.
56
SALES RETURNS BOOK
A book of account in which all the sales returns
(returns inwards) made by the organisation are recorded.
Date
Credit
Note
No.
Name of the Purchaser
L
F
Details
Rs. Ps.
Total Amount
Rs.
Ps.
57
Enter the following in subsidiary books.
Jan 1: Purchased goods from Sudarshan paid by cheque
Rs.15000
3: Sold goods to Bimal Rs.11000.
6: Purchased goods from Satish & co Rs. 12000.
Returned goods to him Rs. 700 .
8: Purchased stock worth Rs.42000 from Reliance
industries of which only 40% is on cash basis.
10: Sold goods worth Rs.38000 to Karimlal & co allows
him a trade discount of 1% .
11: Murugeshan & co supplies stock worth Rs. 64000
and allowed us a trade discount of 1.5% .
12: Returns out of the previous 2 transactions amount to
5% each.
58
Purchases Book
Date
Purchas
e Invoice
No.
Name of the supplier
LF
Amount
(Rs)
Total (Rs)
Amount
Jan 6
Satish & Co
21 12000
12000
Jan 8
Reliance & Co.
23 25200
25200
Jan 11
Murugesh & Co.
25 63040
63040
100240 100240
59
Purchases Returns Book
Date
Debit
Note No.
Name of the Party
LF
Amount
(Rs)
Total (Rs)
Amount
Jan 6
Satish & Co
21 700
700
Jan
12
Murugesh & Co.
25 3152
3152
3852
3852
60
Sales Book
Date
Invoice
No.
Name of the Party
LF
Amount
(Rs)
Total (Rs)
Amount
Jan 3
Bimal & Co.
32 11000
11000
Jan 10
Karimlal & Co. ( -1%)
35 37620
37620
48620
48620
61
Sales Returns Book
Date
Jan
12
Credit
Note No.
Name of the Party
LF
Amount
(Rs)
Total (Rs)
Amount
Karimlal & Co. ( -1%)
35 1881
1881
1881
1881
62
JOURNAL PROPER
Those journal entries that cannot be recorded in any
of the subsidiary books are recorded in the journal proper.
The following are recorded in the journal proper:
a.
Opening Entries
b.
Closing Entries
c.
Transfer Entries
d.
Adjustment Entries
e.
Rectification Entries
63
TRAIL BALANCE
A trail balance may be simply defined as a
statement prepared by putting all debits on
one side and all credits on the other side to
check the arithmetical accuracy of the ledger
balances.
 In otherwords,the trail balance is a connecting
link between the ledger accounts and final
accounts.

64
TRIAL BALANCE
It is a statement that shows the balance in all the accounts in a
ledger. It contains all the debit and credit balances. A trial balance is a list
of debit and credit balances of all the ledger accounts prepared on any
particular date to verify whether the entries in the books of accounts are
arithmetically correct or not.
Sl.
No.
Head of Account
LF
Debit Balance
Rs.
Ps.
Credit Balance
Rs.
Ps.
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characteristics
basically trial balance is a statement or list.
It contains all the debit and credit
balances.
The trail balance is the only base for the
preparation of final accounts.
Trail balance can be prepared at any time
and not necessarily at the end of a
calendar or accounting year.
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Importance
• Before preparing the final accounts, the
accountant should prove/satisfy the
arithmetical accuracy and correctness on
which the entire final accounts were
prepared. The net profit/balance sheet
does not resemble true and fair picture
which which was prepared from a trail
balance which lacks the quality of
arithmetical accuracy.
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Advantages
 To examine the implementation of a double
entry book keeping and its principles.
 To know the arithmetical accuracy.
 To find the profit of the firm.
 To find out the errors and mistakes in passing
journal entries and their posting.
 To facilitate the process of the preparation of
final accounts.
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Preparation of Trail balance
• Debit side
• Assets accounts: land, building,
machinery, furniture, debtors, stock, bills
receivables etc.
• Accounts relating to expenses and losses:
salaries, wages, rent, carriage, discount,
bad debts, depreciation, purchases, return
inward.
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• Credit side
• Liabilities accounts: creditors, loan,
mortgage, bills payable, bank overdraft,
reserves and funds.
• Incomes and gain account: interest
realised, rent collected, discount received,
sales account, returns outward.
• Capital Account
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Trail balance methods
• Trail balance can be prepared in two methods.
They are total balances method and net
balances method.
• Total balances method: in this method, debit as
well as credit sides of all accounts will be
summed up and with this totals the trail balance
will be prepared. This method is called “gross
trail balance method”. This method is now out of
use.
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• Net balances method: this is the most
commonly used trail balance. In this
method the net balance of the accounts
were ascertained on a particular date and
arranged in the proforma of trail balance. If
these totals of debit and credit agree, we
can say the trail balance has arithmetical
accuracy.
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Example:
Prepare a trial balance from the following balances of the year
2002. (Dec 05/ Jan 06- 10M)
Capital
28,000
Stock of goods
4000
Motor car
8000
Discount received
400
Bad-debts
400
Sales
40,000
Cash-at-bank
4000
Return inwards
2000
Cash in hand
600
Rent
3500
Discount allowed
300
Carriage
1500
Purchases 15,000
plant
15,000
furniture 5000
wages
8200
creditors 6500
salaries
2800
commission (cr) 600
return outwards 1000
debtors
5600
general expenses
300
interest received 200
advertisement 500
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SOLUTION: DEBIT(ASSETS & EXPENSES) CREDIT
(LIABILITIES & REVENUES)
dt
Name of the account
LF
Debit
1
Capital
2
Stock of goods
4000
3
Motor car
8000
4
Discount received
5
Bad-debts
6
Sales
7
Cash-at-bank
4000
8
Return inwards
2000
9
Cash in hand
600
10
Rent
3500
11
Discount allowed
300
credit
28,000
400
400
40,000
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dt
Name of the account
LF
Debit
credit
12
Carriage
1500
13
Purchases
15,000
14
plant
15,000
15
furniture
5000
16
wages
8200
17
creditors
18
salaries
19
commission (cr)
600
20
return outwards
1000
21
debtors
5600
22
general expenses
300
6500
2800
75
dt
Name of the account
LF Debit
23
Interest received
24
Advertisement
500
TOTAL
76,700
credit
200
76,700
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End of the Module
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